Extreme Networks Inc. (Nasdaq: EXTR), an Ethernet switch provider, broke even on a pro forma basis in its first quarter of fiscal 2002 results (see Gordon Stitt Undeterred by Terror). But the company's conference call left enough questions that investors are not likely to come flocking to its shares in the morning.

The company reported revenue for the first quarter of fiscal 2002 of $108.3 million, compared to $119.3 million for the same period last year. On a pro forma basis Extreme Networks broke even for the quarter, compared with pro forma net income of $9.0 million, or $0.08 per share for the first quarter of fiscal 2001.

But the details may leave some scratching their heads. Even though most analysts had already revised estimates after the September 11 terrorist attacks, some expressed annoyance as the company fell short of a target of $120 million issued in June and made no move to pre-announce the shortfall.

"Shipments in the Americas were down due to what happened on Sept. 11, but book to bills were up over one, which indicates that demand there has stabilized,” said Gordon Stitt, the company’s president and CEO on the call with analysts.

Harold L. Covert, the new CFO who replaced former CFO Vito Palermo, has shifted around some of the accounting for inventories and deferred revenue, making it somewhat confusing for analysts to figure out what actually happened during the quarter.

Some analysts, speaking on the condition of being unnamed, said they were unnerved by the fact that a first conference call by the new CFO left so many question marks.

The company wouldn’t provide guidance for the future. Going forward, analysts say they are much more concerned about effects from the macro economy than about individual issues with Extreme. As the U.S. and the world await developments on the war against terrorism, analysts, adamant in their priorities, are focusing their gimlet eyes on cash flows. Right now, Extreme is cash-flow positive, which is a good sign, says Steve Kamman, an analyst with CIBC World Markets.

”They are cash-flow positive, which is good,” he says. “But the question is: How much so? And in this kind of environment, where things are so uncertain, you have wonder what happens if things don’t improve.

The company also reported that they had seen a dramatic drop in sales in the United States after September 11. As a result, the company reported a higher percentage of overseas sales than it had originally anticipated, 30 percent in the United States versus 47 percent in Asia. Most of the jump in Asian sales came from a big contract win in Japan.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com