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What changed in EXTREME NETWORKS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EXTREME NETWORKS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+360 added−362 removedSource: 10-K (2023-08-24) vs 10-K (2022-08-29)

Top changes in EXTREME NETWORKS INC's 2023 10-K

360 paragraphs added · 362 removed · 283 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

81 edited+20 added−12 removed74 unchanged
Biggest changeDuring the third quarter of fiscal 2020, with the global disruptions and slow-down in the demand of our products caused by the global pandemic outbreak of, COVID-19, and the uncertainty around the timing of the recovery of the market, we initiated a reduction-in-force plan (the “2020 Plan”) to reduce our operating costs and enhance financial flexibility.
Biggest changeAlthough we believe that our solutions and strategy will improve our ability to meet the needs of our current and potential customers, we cannot guarantee future success. 12 Restructuring and Impairment Fiscal year 2021 During fiscal year 2021, the Company continued its effort associated with the reduction-in-force plan (the “2020 Plan”) which was initiated during the third quarter of fiscal 2020, due to the global disruptions and slow-down in the demand of our products caused by the global pandemic outbreak of COVID-19, and the uncertainty around the timing of the recovery of the market.
Extreme has recognized that the way we and our customers communicate has changed and has given rise to these distributed enterprise environments, or in other words, the Infinite Enterprise, which has three tenets: • Infinitely distributed connectivity is the enterprise-grade reliable connectivity that allows users to connect anywhere, from anywhere.
Extreme has recognized that the way we and our customers communicate has changed and given rise to these distributed enterprise environments, or in other words, the Infinite Enterprise, which has three tenets: • Infinitely distributed connectivity is the enterprise-grade reliable connectivity that allows users to connect anywhere, from anywhere.
We are at a technology inflection point with the pending migration from Wi-Fi 5 solutions to Wi-Fi 6 (802.11ax), focused on providing more efficient access to the broad array of connected devices.
We are at a technology inflection point with the pending migration from 5 Wi-Fi 5 solutions to Wi-Fi 6 (802.11ax), focused on providing more efficient access to the broad array of connected devices.
With the added Bluetooth and Bluetooth low energy intrusion prevention, network administrators can address growing threats against bluetooth and bluetooth low energy devices. o ExtremeLocation™ delivers proximity, presence and location-based services for advanced contact tracing in support of the location-intelligent enterprise. 4 o ExtremeGuest™ is a comprehensive guest engagement solution that enables IT administrators to use analytical insights to engage visitors with personalized engagements. o Extreme IoT™ delivers simple and secure onboarding, profiling, segmentation and filtering of IoT devices on a production network . • Offers universal platforms for enterprise class switching and wireless infrastructure.
With the added Bluetooth and Bluetooth low energy intrusion prevention, network administrators can address growing threats against Bluetooth and Bluetooth low energy devices. o ExtremeLocation™ delivers proximity, presence and location-based services for advanced contact tracing in support of the location-intelligent enterprise. o ExtremeGuest™ is a comprehensive guest engagement solution that enables IT administrators to use analytical insights to engage visitors with personalized engagements. o Extreme IoT™ delivers simple and secure onboarding, profiling, segmentation and filtering of IoT devices on a production network. • Offers universal platforms for enterprise class switching and wireless infrastructure.
We believe the principal competitive factors in this market are: • expertise and familiarity with network protocols, network switching/routing/wireless and network management; • robust, cloud-driven options that reduce the cost of acquisition, provisioning, and ongoing management of network management; • expertise and familiarity with application analytics software; • expertise with network operations and management software; • expertise in machine learning and artificial intelligence; • product performance, features, functionality and reliability; • price/performance characteristics; • timeliness of new product introductions; • adoption of emerging industry standards; • customer service and support; 11 • size and scope of distribution network; • brand name; • breadth of product offering; • access to customers; and • size of installed customer base.
We believe the principal competitive factors in this market are: • expertise and familiarity with network protocols, network switching/routing/wireless and network management; • robust, cloud-driven options that reduce the cost of acquisition, provisioning, and ongoing management of network management; • expertise and familiarity with application analytics software; • expertise with network operations and management software; • expertise in machine learning and artificial intelligence; • product performance, features, functionality and reliability; • price/performance characteristics; • timeliness of new product introductions; • adoption of emerging industry standards; • customer service and support; • size and scope of distribution network; • brand name; • breadth of product offering; • access to customers; and • size of installed customer base.
Our focus is on expanding our technology foothold in the critical cloud networking segment to accelerate not only cloud management adoption, but also subscription-based licensing (SaaS) consumption. • Leverage and expand multiple distribution channels. We distribute our products through select distributors, a large number of resellers and system-integrators worldwide, as well as several large strategic partners.
Our focus is on expanding our technology foothold in the critical cloud networking segment to accelerate not only cloud management adoption, but also subscription-based licensing consumption. • Leverage and expand multiple distribution channels. We distribute our products through select distributors, a large number of resellers and system-integrators worldwide, as well as several large strategic partners.
Research and development efforts are conducted in several of our locations, including Morrisville, North Carolina; San Jose, California; Salem, New Hampshire; Toronto, Canada; Shannon, Ireland; Massy, France; Hangzhou, China; and Bangalore and Chennai, India. Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.
Research and development efforts are conducted in several of our locations, including Morrisville, North Carolina; San Jose, California; Salem, New Hampshire; Toronto, Canada; Shannon, Ireland; Massy, France; Hangzhou, China; and Bangalore and Chennai, India. 11 Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.
The manufacturing process and material supply chains are flexible enough to be moved to steer away from geopolitical conflicts that impact cost. We use a collaborative sales and operations planning forecast of expected demand based upon historical trends and analyses from our sales and product management functions as adjusted for overall market conditions.
The manufacturing process and material supply chains are flexible enough to be moved to steer away from geopolitical conflicts that impact cost and delivery. We use a collaborative sales and operations planning forecast of expected demand based upon historical trends and analyses from our sales and product management functions as adjusted for overall market conditions.
Distributors are generally given the right to return a portion of inventory to us for the purpose of stock rotation, to claim rebates for competitive discounts and participate in various cooperative marketing programs to promote the sale of our products and services. • Resellers . We rely on many resellers worldwide that sell directly to the end-user customer.
Distributors are generally given the right to return a portion of inventory to us for the purpose of stock rotation, to claim rebates for competitive discounts and participate in various cooperative marketing programs to promote the sale of our products and services. 8 • Resellers . We rely on many resellers worldwide that sell directly to the end-user customer.
This includes device location support and change detection, rogue BLE Beacon detection and unsanctioned BLE device detection. • Wired for Edge, Campus, and Data Center: Our switching portfolio includes products designed to make every connection effortless by enabling the deployment of high-speed performance at scale for access, high-density, campus, core, and data center environments.
This includes device location support and change detection, rogue BLE Beacon detection and unsanctioned BLE device detection. 6 • Wired for Edge, Campus, and Data Center: Our switching portfolio includes products designed to make every connection effortless by enabling the deployment of high-speed performance at scale for access, high-density, campus, core, and data center environments.
Our U.S. benefits plan includes health benefits, life and disability insurance, various voluntary insurances, flexible time off and leave programs, an employee assistance plan, an educational assistance policy, and a 401(k) plan with a competitive employer match. Our international benefits plans are competitive locally and generally provide similar benefits. Diversity and Inclusion .
Our U.S. benefits plan includes health benefits, life and disability insurance, various voluntary insurances, flexible time off and leave programs, an employee assistance plan, an educational assistance policy, and a 401(k) plan with a competitive employer match. Our international benefits plans are competitive locally and generally provide similar benefits. 13 Diversity and Inclusion .
It provides full visibility into every aspect of the network, from a highly geographically dispersed environment with regions and zones to the services running on the system . • Customer Service and Support: Our customers seek high reliability and maximum uptime for their networks.
It provides full visibility into every aspect of the network, from a highly geographically dispersed environment with regions and zones to the services running on the system . 7 • Customer Service and Support: Our customers seek high reliability and maximum uptime for their networks.
ExtremeCloud IQ Essentials provides four key applications - WIPS, location services, IoT, and guest management - for ExtremeCloud IQ Pilot license customers at no added cost, enabling organizations to take advantage of an all-in-one platform for wired and wireless management, business insights, location tracking, wireless security, seamless IoT onboarding and guest access, and guest access through a single user interface. • Wireless LAN Access Points (“APs”): One of the industry’s broadest and most comprehensive, Extreme’s wireless AP portfolio includes both indoor and outdoor Wi-Fi 6 and prior generation APs.
ExtremeCloud IQ Essentials provides four key applications - WIPS, location services, IoT, and guest management - for ExtremeCloud IQ Pilot license customers at no added cost, enabling organizations to take advantage of an all-in-one platform for wired and wireless management, business insights, location tracking, wireless security, seamless IoT onboarding and guest access, and guest access through a single user interface. • Wireless LAN AP: One of the industry’s broadest and most comprehensive, Extreme’s wireless AP portfolio includes both indoor and outdoor Wi-Fi 6 and prior generation APs.
Extreme offers universal platforms which support multiple deployment use cases, providing flexibility and investment protection. o Universal switches (5720/5520/5420/5320) support fabric or traditional networking with a choice of cloud or on-premises (air-gapped or cloud connected) management. o Universal Wi-Fi 6/6E APs (300/400, 5000 series) support campus or distributed deployments with a choice of cloud or on-premises (air-gapped or cloud connected) management. o Universal licensing with one portable management license for any device and for any type of management.
Extreme offers universal platforms which support multiple deployment use cases, providing flexibility and investment protection. o Universal switches (7720/5720/5520/5420/5320) support fabric or traditional networking with a choice of cloud or on-premises (air-gapped or cloud connected) management. o Universal Wi-Fi 6/6E APs (300/400, 4000, and 5000 series) support campus or distributed deployments with a choice of cloud or on-premises (air-gapped or cloud connected) management. o Universal licensing with one portable management license for any device and for any type of management.
Current activities include the continuing development of our innovative switching technology aimed to give our customers flexibility in how they deploy, connect to the cloud, and configure instantly saving time and money.
Current activities include the continuing development of our innovative switching technology aimed to give our customers flexibility in how they deploy, connect to the cloud, monitor, and configure instantly saving time and money.
Customer Profiles: Furthermore, in fiscal 2022, we decided to continue focus on the following customer profiles where we believe we can add the most value: • Customer size: Those customers with annual revenues of $100 million to $2.5 billion. • Target deployment: Campus deployments with 250 to 5,000 employees or education campuses with 1,000 to 15,000 students. • Target data centers: Data centers with 1,000 or fewer, with an emphasis on service provider networks. • Vertical markets: Healthcare, education, government, manufacturing, retail, and hospitality, which includes sports and entertainment venues. • Customer characteristics: Our customers tend to operate in transient environments, such as college campuses, hospitals and sports venues, where BYOD and secure network access and identity control are critical.
Customer Profiles: Furthermore, in fiscal 2023, we decided to continue focus on the following customer profiles where we believe we can add the most value: • Customer size: Those customers with annual revenues of $100 million to $2.5 billion. • Target deployment: Campus deployments with 250 to 5,000 employees or education campuses with 1,000 to 15,000 students. • Target data centers: Data centers with 1,000 racks or fewer, with an emphasis on service provider networks. • Vertical markets: Healthcare, education, government, manufacturing, retail, and hospitality, which includes sports and entertainment venues. • Customer characteristics: Our customers tend to operate in transient environments, such as college campuses, hospitals and sports venues, where BYOD and secure network access and identity control are critical.
Our arrangements with these Tier 1 manufacturers generally provide for quality, cost, and delivery requirements, as well as manufacturing process terms, such as continuity of supply; inventory management; flexible capacity, quality, and cost management; oversight of manufacturing; and conditions for use of our intellectual property that allows us to adjust more quickly to changing end-customer demand.
Our arrangements with these Tier 1 manufacturers generally provide for quality, cost, and delivery requirements, as well as manufacturing process terms, such as continuity of supply; inventory management; flexible capacity, quality, and cost management; oversight of manufacturing; and conditions for use of our intellectual property that allow us to adjust more quickly to changing end-customer demand.
In certain foreign jurisdictions, where required by local law or custom, some of our employees are represented by local workers’ councils and/or industry collective bargaining agreements. We consider our relationship with our employees to be good, and we have not experienced any work stoppages due to labor disagreements. Talent Acquisition and Management.
In certain foreign jurisdictions, where required by local law or customs, some of our employees are represented by local workers’ councils and/or industry collective bargaining agreements. We consider our relationship with our employees to be good, and we have not experienced any work stoppages due to labor disagreements. Talent Acquisition and Management.
We believe we compete with our competitors with respect to many of the foregoing factors. However, the market for network switching solutions is dominated by a few large companies, particularly Cisco Systems, Inc., Hewlett-Packard Enterprise Co., Huawei Technologies Co. Ltd., Arista Networks Inc., Juniper Networks Inc., and Ubiquiti Inc.
We believe we compete with our competitors with respect to many of the foregoing factors. However, the market for network switching solutions is dominated by a few large companies, particularly Cisco Systems, Inc., Hewlett-Packard Enterprise Co., Huawei Technologies Co. Ltd., Arista Networks Inc., Juniper Networks Inc.
Our product development activities focus on solving the needs of customers in the enterprise campus edge and core by providing a unified wired, wireless, and SD-WAN cloud-driven network, enabling secure access from edge to public or private clouds in targeted verticals.
Our product research and development activities focus on solving the needs of customers in the enterprise campus edge and core by providing a unified wired, wireless, and SD-WAN cloud-driven network, enabling secure access from edge to public, hybrid, or private clouds in targeted verticals.
Our corporate governance guidelines, the charters of our audit committee, our compensation committee, our nominating, governance and social responsibility committee and our code of business conduct and ethics policy (including code of ethics provisions that apply to our principal executive officer, principal financial officer, controller and senior financial officers) are available on the Investors section of our website at investor.extremenetworks.com under “Corporate Governance.” These items are also available to any stockholder who requests them by calling (408) 579-2800. 13
Our corporate governance guidelines, the charters of our Audit Committee, our Compensation Committee, our Nominating, Governance, Environmental & Social Responsibility Committee and our Code of Business Conduct and Ethics policy (including code of ethics provisions that apply to our principal executive officer, principal financial officer, controller and senior financial officers) are available on the Investors section of our website at investor.extremenetworks.com under “Corporate Governance.” These items are also available to any stockholder who requests them by calling (408) 579-2800. 14
Additionally, we have launched new products features such as Secure Boot, which are being designed to provide additional integrity assurance of the firmware and software running on our hardware platform by establishing an encrypted key-based chain-of-trust relationship in the boot process. The manufacturing processes and procedures are generally certified to International Organization for Standardization (“ISO”) 9001 standards.
Additionally, we have launched new product features such as Secure Boot, which are being designed to provide additional integrity assurance of the 10 firmware and software running on our hardware platform by establishing an encrypted key-based chain-of-trust relationship in the boot process. The manufacturing processes and procedures are generally certified to International Organization for Standardization (“ISO”) 9001 standards.
Accordingly, we are undertaking development efforts with an emphasis on increasing the reliability, usability and security while innovating our user and buyer experience reducing the overall network operating costs of customers.
Accordingly, we are undertaking development efforts with an emphasis on increasing the scalability, reliability, usability, and security while innovating our user and buyer experience reducing complexity and the overall network operating costs of customers.
All resources and deliverables are designed to manage day-to-day technical needs, provide analysis and recommendations while building strong customer relationships, all focused at the network level. 7 o Professional services. We provide consultative services to improve customer productivity in all phases of the network lifecycle – planning, design, implementation, operations and optimization management.
All resources and deliverables are designed to manage day-to-day technical needs, provide analysis and recommendations while building strong customer relationships, all focused on the network level. o Professional services. We provide consultative services to improve customer productivity in all phases of the network lifecycle – planning, design, implementation, operations and optimization management.
To date, our compliance efforts with various United States and foreign regulations related to the environment has not had a material effect on our operating results. 12 Human Capital At Extreme, we manage our human capital guided by our core values of Candor, Transparency, Curiosity, Teamwork, Ownership, and Inclusion.
To date, our compliance efforts with various United States and foreign regulations related to the environment have not had a material effect on our operating results. Human Capital At Extreme, we manage our human capital guided by our core values of Candor, Transparency, Curiosity, Teamwork, Ownership, and Inclusion.
We utilize our field sales organization to support our channel partners and to sell directly to certain end-user customers, including some large enterprise and service provider global accounts. The details of our sales and distribution channels are as follows: • Alliance, Original Equipment Manufacturers ("OEM") and Strategic Relationships .
We utilize our field sales organization to support our channel partners and to sell directly to certain end-user customers, including some large enterprise and service provider global accounts. The details of our sales and distribution channels are as follows: • Original Equipment Manufacturers (“OEM”) and Strategic Relationships .
Cloud networking is estimated to be a $4 billion segment of the networking market comprised of cloud managed services and cloud-managed products, which are largely WLAN access points and ethernet switches, growing at a 12% over the next three years, according to data from 650 Group Market Research. Cloud management technology has evolved significantly over the past decade.
Cloud networking is estimated to be a $4.1 billion segment of the networking market comprised of cloud-managed services and cloud-managed products, which are largely WLAN access points and ethernet switches, growing at a 13% over the next three years, according to data from the 650 Group. Cloud management technology has evolved significantly over the past decade.
We believe we have the industry’s broadest Wi-Fi 6 wireless portfolio providing intelligence for the wired/wireless edge and enhanced by our cloud architecture with machine learning and AI-driven insights. • Offer a superior quality of experience.
We believe we have the industry’s broadest Wi-Fi 6 wireless portfolio providing intelligence for the wired/wireless edge and enhanced by our cloud architecture with ML and AI-driven insights. • Offer a superior quality of experience.
We also leverage and depend on the strong Corporate and Social Responsibility policies and standards of our Tier 1 manufacturers. The ODM manufacturing process uses automated testing equipment and burn-in procedures, as well as comprehensive inspection, testing, and statistical process controls, which are designed to help ensure the quality and reliability of our products.
We also leverage and depend on the strong Environmental, Social and Governance policies and standards of our Tier 1 manufacturers. The ODM manufacturing process uses automated testing equipment and burn-in procedures, as well as comprehensive inspection, testing, and statistical process controls, which are designed to help ensure the quality and reliability of our products.
We believe our sourcing and manufacturing strategy allowed us to adjust quickly to changes in market demand, working with our ODM suppliers and developing direct relationships with key component suppliers to support the backlog generated through the unprecedented demand.
We believe our sourcing and manufacturing strategy allowed us to adjust quickly to changes in market demand, working with our ODM suppliers and developing direct relationships with key component suppliers to support the backlog.
Machine Learning (“ML”) and Artificial Intelligence (“AI”) technologies have the potential to vastly improve the network experience in the post-pandemic world by collating large data sets to increase accuracy and derive resolutions to improve the operation of the network.
In addition, Machine Learning (“ML”) and Artificial Intelligence (“AI”) technologies have the potential to vastly improve the network experience in today's world by collating large data sets to increase accuracy and derive resolutions to improve the operation of the network.
We believe we deliver a combination of innovation, reliability, and security with the leading end-to-end cloud management platform powered by ML and AI that spans from the IoT edge to the enterprise data center.
We believe we deliver a combination of innovation, reliability, and security with the leading end-to-end cloud management platform powered by ML and AI that spans from the Internet of Things (“IoT”) edge to the enterprise data center.
Although we have patent applications pending, there can be no assurance that patents will be issued from pending applications or that claims allowed on any future patents will be sufficiently broad to protect our technology. As of June 30, 2022, we had 24 registered trademarks in the United States and 217 registered trademarks outside of the United States.
Although we have patent applications pending, there can be no assurance that patents will be issued from pending applications or that claims allowed on any future patents will be sufficiently broad to protect our technology. As of June 30, 2023, we had 36 registered trademarks in the United States and 326 registered trademarks outside of the United States.
As of June 30, 2022, our worldwide sales and marketing organization consisted of 1,072 employees, including vice presidents, directors, managers, sales representatives, and technical and administrative support personnel. We have domestic sales offices located in eight states within the United States and international sales offices located in 28 countries.
As of June 30, 2023, our worldwide sales and marketing organization consisted of 1,172 employees, including vice presidents, directors, managers, sales representatives, and technical and administrative support personnel. We have domestic sales offices located in four states within the United States and international sales offices located in 28 countries.
We rely upon third-party contract manufactures and original design manufacturers (“ODM”), such as Alpha Networks, Lite-On Technology Corporation, Foxconn, Quanta, Senao Networks, Sercomm Corporation and Wistron NeWeb Corporation to manufacture, support and ship our products, and therefore are exposed to risks associated with their businesses, financial condition, geographies and geopolitical conflict in which they operate.
We rely upon third-party contract manufacturers and original design manufacturers (“ODM”), such as Alpha Networks, Inc, Lite-On Technology Corporation, Hon Hai Precision Industry Co., Ltd (Foxconn), Quanta Computer Inc., Senao Networks, Inc., Sercomm Corporation and Wistron Neweb Corporation to manufacture, support and ship our products, and therefore are exposed to risks associated with their businesses, financial condition, geographies and geopolitical conflict in which they operate.
We have active alliance, OEM and strategic relationships with Broadcom, Barco NV, Ericsson Enterprise AB, Lenovo, Verizon, NFL, MLB, VMware and Nutanix as well as other global industry technology leaders in which our products are qualified to be included into an overall solution or reference architecture.
We have active alliance, OEM and strategic relationships with Barco NV, Ericsson Enterprise AB, Lenovo, Motorola Solutions, Schneider Electric, and Verizon as well as other global industry technology leaders in which our products are qualified to be included into an overall solution or reference architecture.
To foster an inclusive environment, we support several employee resource groups (“ERGs”), including Women in Networking (the new name for our Women’s Council), Black @ Extreme (Black/African American), LaRaza (Latinx/Hispanic), Maitri (employees in India), Pride Alliance (LGBTQ+), Global Veterans Council, API (Asian Pacific Islanders), and APPs (Aspiring Professionals Program).
To foster an inclusive environment, we support several employee resource groups (“ERGs”), including Women in Networking, Black @ Extreme (Black/African American), LaRaza (Hispanic), Maitri (employees in India), Pride Alliance (LGBTQ+), Global Veterans Council, API (Asian Pacific Islanders), APPs (Aspiring Professionals Program) and Abilities Alliance (employees with disabilities).
Key characteristics of our cloud architecture include: o A robust cloud management platform that delivers visibility, intelligence, and assurance from the IoT edge to the core. o Cloud Choice for customers: Our cloud networking solution is available on all major cloud providers (Amazon Web Services (“AWS”), Google Cloud Platform (“GCP”) and Microsoft Azure). o Unlimited Network Data plans for the length of the cloud subscription to improve an organization’s ability to make smarter, more effective business decisions. o Consumption Flexibility: Offer a range of financing and network purchase options.
Key characteristics of our cloud architecture include: o A robust cloud management platform that delivers visibility, intelligence, and assurance from the IoT edge to the network core. o Cloud Choice for customers: Our cloud networking solution is available on all major cloud providers (Amazon Web Services (“AWS”), Google Cloud Platform (“GCP”) and Microsoft Azure). o Consumption Flexibility: Offer a range of financing and network purchase options.
Industry Background Enterprises are adopting new Information Technology (“IT”) delivery models and applications that require fundamental network alterations and enhancements spanning from the access edge to the data center.
In order to accomplish this, they are adopting new Information Technology (“IT”) delivery models and applications that require fundamental network alterations and enhancements spanning from the access edge to the data center.
The primary markets for sales outside of the United States are countries in Europe and Asia, as well as Canada, Mexico, Central America and South America. We operate in one segment, the development and marketing of network infrastructure equipment and related software.
In addition, we have direct sales to end-user customers, including large global accounts. The primary markets for sales outside of the United States are countries in Europe and Asia, as well as Canada, Mexico, Central America and South America. We operate in one segment, the development and marketing of network infrastructure equipment and related software.
We derive all our revenues from the sale of our networking equipment, software subscriptions, and related maintenance contracts. Our global headquarters is located at 2121 RDU Center Drive, Suite 300, Morrisville, North Carolina 27560, and our telephone number is (408) 579-2800. We have several corporate offices in the United States and international locations. Our website is www.extremenetworks.com .
Our global headquarters is located at 2121 RDU Center Drive, Suite 300, Morrisville, North Carolina 27560, and our telephone number is (408) 579-2800. We have several corporate offices in the United States and international locations. Our website is www.extremenetworks.com .
Fiscal year 2021 Along with the reduction and realignment of the headcount under the 2020 Plan, we continued the process of relocating certain lab test equipment to third-party consulting companies during fiscal 2021 and fiscal 2022.
The plan was executed to reduce our operating costs and enhance financial flexibility. Along with the reduction and realignment of the headcount under the 2020 Plan, we continued the process of relocating certain lab test equipment to third-party consulting companies during fiscal 2021 and fiscal 2022.
Our value-based subscription tiers (including Connect, Navigator Pilot and CoPilot) provide customers with flexibility to grow as they go, as well as offer pool-able and portable licenses that can be transferred between products ( e . g . access points and switches) at one fixed price. o “No 9s” Reliability and Resiliency to ensure business continuity for our customers. o Zero-Trust Security (Information Security Management (“ISO”) 27001, 27017 and 27701 Certified). • Offer customers choice: public or private cloud, or on-premises.
Our value-based subscription tiers (including Connect, Navigator, Pilot and CoPilot) provide customers with flexibility to grow, as well as offer pool-able and portable licenses that can be transferred between products ( e . g . access points and switches) at one fixed price. o “No 9s” Reliability and Resiliency to ensure business continuity for our customers. 4 o Extreme Cloud IQ cloud platform conforms to ISO/ IEC 27017 and is certified by DQS to ISO/IEC 27001 and ISO/IEC 27701 by the International Standards Organization (“ISO”) and CSA STAR certified. • Offer customers choice: public or private cloud, or on-premises.
We apply these principles to talent acquisition and management, compensation and benefits, and diversity and inclusion. As of June 30, 2022, we employed 2,643 people. Of these, 40.6% work in sales and marketing, 26.8% in research and development, 4.5% in operations, 17.3% in customer support and services and 10.9% in finance and administration.
We apply these principles to talent acquisition and management, compensation and benefits, and diversity and inclusion. As of June 30, 2023, we employed 2,849 people. Of these, 41.1% work in sales and marketing, 27.7% in research and development, 4.2% in operations, 16.3% in customer support and services and 10.7% in finance and administration.
To support these objectives, our field sales force: ○ Assists end-user customers in finding solutions to complex network system and architecture problems; ○ Differentiates the features and capabilities of our products from competitive offerings; ○ Continually monitors and understands the evolving networking needs of enterprise and service provider customers; ○ Promotes our products and ensures direct contact with current and potential customers; and ○ Assists our resellers to drive business opportunities to closure. 8 Although we compete in many vertical markets, in fiscal year 2022, we have focused on the specific verticals of healthcare, education, retail, manufacturing, government, sports, and entertainment venues.
To support these objectives, our field sales force: o Assists end-user customers in finding solutions to complex network system and architecture problems; o Differentiates the features and capabilities of our products from competitive offerings; o Continually monitors and understands the evolving networking needs of enterprise and service provider customers; o Promotes our products and ensures direct contact with current and potential customers; and o Assists our resellers to drive business opportunities to closure.
Their networks must be highly available with the ability to continue operations in the event of a service interruption. Secure access is essential to ensuring the protection of mission-critical systems and confidential information. Often tasked to manage the network with a limited IT staff, our customers appreciate the excellent service and support we strive to provide.
Their networks must be highly available with the ability to continue operations in the event of a service interruption. Secure access is essential to ensuring the protection of mission-critical systems and confidential information.
As of June 30, 2022, we had 744 issued patents in the United States and 472 patents outside of the United States. The expiration dates of our issued patents in the United States range from 2022 to 2040.
As of June 30, 2023, we had 721 issued patents in the United States and 465 patents outside of the United States. The expiration dates of our issued patents in the United States range from calendar years 2023 to 2041.
In fiscal 2022, sales to customers outside of the United States accounted for 55% of our consolidated net revenues, compared to 52% in fiscal 2021, and 52% in fiscal 2020. These sales are conducted primarily through foreign-based distributors and resellers managed by our worldwide sales organization. In addition, we have direct sales to end-user customers, including large global accounts.
International sales International sales are an important portion of our business. In fiscal 2023, sales to customers outside of the United States accounted for 56% of our consolidated net revenues, compared to 55% in fiscal 2022, and 52% in fiscal 2021. These sales are conducted primarily through foreign-based distributors and resellers managed by our worldwide sales organization.
With the impact of the global COVID-19 pandemic, we believe IT teams in every industry will need more control and better insights than ever before to ensure secure, distributed connectivity and comprehensive centralized visibility.
As networks become more complex and more distributed in nature, we believe IT teams in every industry will need more control and better insights than ever before to ensure secure, distributed connectivity and comprehensive centralized visibility.
Our campus switch portfolio also includes next-generation, low-profile, high-density Ethernet switches that empower the creation of versatile always-on campus solutions that are fabric-enabled and 25 to 100 gigabit-ready.
Our campus switch portfolio also includes next-generation, low-profile, high-density Ethernet switches that empower the creation of versatile always-on campus solutions that are fabric-enabled and 25 to 100 gigabit-ready. The technologies supported by these innovative platforms can also leverage automated network attachment to proactively reduce operational burden and time-to-service.
We estimate the total addressable market for our Enterprise Networking solutions consisting of cloud networking, wireless local area networks (“WLAN”), data center networking, ethernet switching, campus local area networks (“LAN”), and software-defined wide area network (“SD-WAN”) solutions to be approximately $33 billion and growing at approximately 12% annually over the next three years.
We estimate the total addressable market for our Enterprise Networking solutions consisting of cloud networking, wireless local area networks (“WLAN”), data center networking, ethernet switching, campus local area networks (“LAN”), SD-WAN solutions and management, automation, and elements of the Secure Access Services Edge (“SASE”) market to be over $40 billion, and growing at approximately 12% annually over the next five years.
Our ongoing research activities cover a broad range of areas, including cloud native technologies and solutions, wired and wireless networking, switching, and routing, network security, identity management, open standards interfaces, software defined networks, and data center fabrics. In addition, we continue to invest in ML/AI technology solutions targeting Cloud Wi-Fi, IoT anomaly detection, autonomous networking, and user recommendations .
Our ongoing research activities cover a broad range of areas, including cloud native technologies and solutions, generative AI, network security, identity management, wired and wireless networking, switching, and routing, open standards interfaces, software defined networks, campus, and data center fabrics.
We believe Extreme is uniquely positioned to address its overarching vision of the future, the Infinite Enterprise, with its bet on industry-leading cloud solutions, automation and AI. Although we believe that our solutions and strategy will improve our ability to meet the needs of our current and potential customers, we cannot guarantee future success.
We believe Extreme is uniquely positioned to address its overarching vision of the future, the Infinite Enterprise, with its bet on industry-leading cloud solutions, automation and AI.
These employees were located worldwide, with 48.5% located in the United States, 7.1% in other locations in the Americas, 24.8% in the APAC region, which includes Asia Pacific, China, South Asia and Japan, and 19.6% in the EMEA region, which includes Europe, Russia, Middle East and Africa. None of our U.S. employees are subject to a collective bargaining agreement.
These employees were located worldwide, with 47.3% located in the United States, 7.9% in other locations in the Americas, 26.0% in the Asia Pacific region (“APAC”), which includes India and 18.8% in the regions of Europe, Middle East and Africa (“EMEA”). None of our U.S. employees are subject to a collective bargaining agreement.
We believe that continued success in the marketplace will depend on our ability to develop new and enhanced products employing leading-edge technology that provide business solutions affordably, securely and effortlessly.
Research and Development The success of our products to date is due in large part to our focus on research and development. We believe that continued success in the marketplace relies on our ability to regularly bring to the market new and enhanced products employing leading-edge technology that provide business solutions affordably, securely, and effortlessly.
The ExtremeCloud IQ application already manages millions of devices in a public, private, and on-premises global cloud deployment. The platform is run from multiple regional data centers, which adds to the resiliency of the platform. • Automation, Analytics, and Security Applications: Our application portfolio delivers additional analytics, security, access control, and management insights both on-premises and in the cloud.
The platform is run from multiple regional data centers, giving customers greater control over the location of their data and adding to the resiliency of the platform. • Automation, Analytics, and Security Applications: Our application portfolio delivers additional analytics, security, access control, and management insights both on-premises and in the cloud.
Extreme’s cloud-driven technologies provide flexibility and scalability in deployment, management, and licensing of networks globally. Our global footprint provides service to over 50,000 customers and over 10 million daily end users across the world including some of the world’s leading names in business, hospitality, retail, transportation and logistics, education, government, healthcare, manufacturing and service providers.
Our global footprint provides service to over 50,000 customers and over 10 million daily end users across the world including some of the world’s leading names in business, hospitality, retail, transportation and logistics, education, government, healthcare, manufacturing, and service providers. We derive all our revenues from the sale of our networking equipment, software subscriptions, and related maintenance contracts.
This enables customers to migrate to new cloud managed switching and Wi-Fi, agnostic of the existing networking or wireless equipment they already have installed. In the end, we expect these customers to see lower operating and capital expenditures, lower subscription costs, lower overall cost of ownership and more flexibility along with a more resilient network.
In the end, we expect these customers to see lower operating and capital expenditures, lower subscription costs, lower overall cost of ownership and more flexibility along with a more resilient network.
We have established strategic relationships with a number of industry-leading vendors to both, provide increased and enhanced routes to market, and collaboratively develop unique solutions. 5 Products Our products and services categories include: • Cloud Networking Platform: Core to our product portfolio and providing the end-to-end visibility from the access edge to the data center is our industry-leading cloud platform and cloud management application, ExtremeCloud IQ.
Products Our products and services categories include: • Cloud Networking Platform: Core to our product portfolio and providing the end-to-end visibility from the access edge to the data center is our industry-leading cloud platform and cloud management application, ExtremeCloud IQ.
In either case, the network infrastructure must adapt to this new dynamic environment. Intelligence and automation are key if enterprises are to derive maximum benefit from their cloud deployments. Service providers are investing in network enhancements with platforms and applications that deliver data insights, provide flexibility, and can quickly respond to new user demands and 5G use cases.
In either case, the network infrastructure must adapt to this new dynamic environment. Intelligence and automation are key if enterprises are to derive maximum benefit from their cloud deployments.
The technologies supported by these innovative platforms can also leverage automated network attachment to proactively reduce operational burden and time-to-service. 6 Extreme’s data center switches and routers provide high levels of reliability and throughput - specifically designed to address the exacting demands of high-performance enterprise and cloud data centers.
Extreme’s data center switches and routers provide high levels of reliability and throughput - specifically designed to address the exacting demands of high-performance enterprise and cloud data centers.
Customers with 10% of net revenues or greater See Note 3, Revenues , in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding our customers with 10% of net revenues or greater. International sales International sales are an important portion of our business.
Often tasked to manage the network with a limited IT staff, our customers appreciate the excellent service and support we strive to provide. 9 Customers with 10% of net revenues or greater See Note 3, Revenues , in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding our customers with 10% of net revenues or greater.
Fiscal year 2022 During fiscal year 2022, the Company completed the reduction and realignment of the headcount and relocation of lab test equipment under the 2020 Plan.
Fiscal year 2022 During fiscal year 2022, the Company completed the reduction and realignment of the headcount and relocation of lab test equipment initiated under the 2020 Plan. Fiscal year 2023 During fiscal 2023, the Company initiated a restructuring plan to transform our business infrastructure and reduce our facilities footprint and the facilities related charges (the “2023 Plan”).
When ML and AI are applied with cloud-driven networking and automation, administrators can quickly scale to provide productivity, availability, accessibility, manageability, security, and speed, regardless of how distributed the network is. We believe that the network has never been more vital than it is today.
When ML and AI are applied with cloud-driven networking and automation, administrators can quickly scale to provide productivity, availability, accessibility, manageability, security, and speed, regardless of the distribution of the network. As the edge of the network continues to expand, our customers are managing more endpoints. With that comes a host of challenges.
We continue to focus on optimizing product availability through sourcing, rationalizing our supply chain, outsourcing or virtualizing certain activities, and consolidating distribution sites and service logistics partners.
We continue to focus on optimizing product availability through sourcing, rationalizing our supply chain, outsourcing or virtualizing certain activities, and consolidating distribution sites and service logistics partners. These efforts also include process optimization initiatives, such as vendor managed inventory, and other operational models and strategies designed to drive improved efficiencies in our sourcing, production, logistics and fulfillment.
We are stepping up to this challenge of fostering an inclusive environment through efforts to improve recruiting of diverse candidates, identify and support high potential employees, and retain diverse employees. Since we started our first ERG, Women in Networking, we have increased the number of women employees and our female leadership.
We are stepping up to this challenge of fostering an inclusive environment through efforts to improve recruiting of diverse candidates, identify and support high potential employees, and retain diverse employees. Organization We were incorporated in California in May 1996 and reincorporated in Delaware in March 1999.
We are also subject to regulatory developments, including recent SEC disclosure regulations relating to so-called "conflict minerals," relating to ethically responsible sourcing of the components and materials used in our products.
We are also subject to regulatory developments, including SEC disclosure regulations relating to so-called "conflict minerals," relating to ethically responsible sourcing of the components and materials used in our products. To date, compliance with federal, state, local, and foreign laws enacted for the protection of the environment has had no material effect on our capital expenditures, earnings, or competitive position.
Although we believe the orders included in the backlog are firm, all orders are subject to possible rescheduling by customers, and cancellations by customers, which we may elect to allow on an exception basis. Therefore, we do not believe our backlog, as of any particular date is necessarily indicative of actual revenues for any future period.
Actual shipments of products depend on the then-current capacity of our contract manufacturers and the availability of materials and components from our vendors. Although, we believe the orders included in the backlog are firm, all orders are subject to possible rescheduling by customers, and cancellations by customers, which we may elect to allow on an exception basis.
Our product backlog at June 30, 2022, net of anticipated back-end rebates for distributor sales, was $513.0 million, compared to $105.0 million at June 30, 2021.
Therefore, we do not believe our backlog, as of any particular date is necessarily indicative of actual revenues for any future period. Our product backlog at June 30, 2023, net of anticipated back-end rebates for distributor sales, was $267.3 million, compared to $513.0 million at June 30, 2022.
To date, compliance with federal, state, local, and foreign laws enacted for the protection of the environment has had no material effect on our capital expenditures, earnings, or competitive position. We are committed to energy efficiency in our product lines. Accordingly, we believe this is an area that affords us a competitive advantage for our products in the marketplace.
We are committed to improving energy efficiency in our product lines. Accordingly, we believe this is an area that affords us a competitive advantage for our products in the marketplace.
From time to time, we may experience price volatility or supply constraints for certain components that are not available from multiple qualified sources or where our suppliers are geographically concentrated. We, like the rest of our industry, are currently experiencing such a shortage in semiconductors and other key components used for our hardware.
From time to time, we may experience price volatility or supply constraints for certain components that are not available from multiple qualified sources or where our suppliers are geographically concentrated. The onset of the coronavirus (“COVID-19”) pandemic presented numerous challenges to global supply chains, causing disruptions and bottlenecks that led to a constrained environment.
We continue to enhance the functionality of our network operating systems which have been designed to provide high reliability and availability. This allows us to leverage a common operating system across different hardware and network chipsets. As of June 30, 2022, our research and development organization consisted of 708 employees.
In addition, we continue to invest in ML/AI technology solutions targeting self-healing autonomous networking, Cloud Wi-Fi, IoT anomaly detection, and user recommendations. We continue to enhance the functionality of our network operating systems which have been designed to provide high reliability, scale, and availability. This allows us to leverage a common operating system across different hardware and network chipsets.
ExtremeCloud IQ is an ML/AI powered, wired and wireless cloud network management solution that offers advanced visibility and control over users, devices, and applications.
ExtremeCloud IQ is an ML/AI powered, wired and wireless cloud network management solution that offers advanced visibility and control over users, devices, and applications. ExtremeCloud IQ is designed to allow customers to keep operational costs low, adjusts to customer demand, and delivers robust functionality for provisioning, management, troubleshooting and guaranteed data durability to assure access with 100% uptime.
We believe Extreme stands to benefit from the use of its technology to manage distributed campus network architecture centrally from the cloud. Extreme has blended a dynamic fabric attach architecture that delivers simplicity for moves and changes at the edge of the network together with corporate-wide role-based policy.
Extreme has blended a dynamic fabric attach architecture that delivers simplicity for moves and changes at the edge of the network, together with corporate-wide role-based policy. This enables customers to migrate to new cloud managed switching, Wi-Fi, and SD-WAN, agnostic of the existing switching or wireless equipment they already have installed.
Years of experience and a track record of success in the verticals we serve enables us to address industry-specific problems.
Although we compete in many vertical markets, in fiscal year 2023, we have focused on the specific verticals of healthcare, education, retail, manufacturing, government, sports, and entertainment venues. Years of experience and a track record of success in the verticals we serve enable us to address industry-specific problems.
This pattern should not be relied upon or be considered indicative of our future performance, as it has varied in the past. Manufacturing We utilize a global sourcing strategy that emphasizes procurement of materials and product manufacturing in competitive geographies.
Manufacturing We utilize a global sourcing strategy that emphasizes procurement of materials and product manufacturing in competitive geographies.
Organizations and workforces extend anywhere and everywhere. IT leaders are now tasked with ensuring the global, hybrid workforce is functional and successful no matter where they are and ensure people can work wherever they want.
We make the network a strategic asset. The combination of our solutions provides the connectivity, bandwidth, performance and insights that organizations of all sizes need to move their organizations forward. IT leaders are now tasked with ensuring the global, hybrid workforce is functional and successful no matter where they are, and ensuring people can work wherever they want.
The increase in backlog is primarily attributable to supply chain constraints causing order fulfillment delays. 9 Seasonality Like many of our competitors, we historically have experienced seasonal fluctuations in customer spending patterns, which generally adversely affect our first and third fiscal quarters.
Seasonality Like many of our competitors, we historically have experienced seasonal fluctuations in customer spending patterns, which generally adversely affect our first and third fiscal quarters. This pattern should not be relied upon or be considered indicative of our future performance, as it has varied in the past.
We may also acquire component inventory in anticipation of supply constraints and enter into longer-term pricing commitments with vendors to improve the priority, price and availability of supply. Our product development efforts also depend upon continued collaboration with our key suppliers, including our merchant silicon vendors such as Broadcom.
Our product development efforts also depend upon continued collaboration with our key suppliers, including our merchant silicon vendors such as Broadcom.
Our solutions enable companies to embrace the value of new cloud technology without having to rip and replace existing infrastructures. Extreme has been pushing the boundaries of networking technology for a quarter of a century, driven by a higher purpose of helping our customers connect beyond the network.
Extreme has been pushing the boundaries of networking technology since 1996, driven by a higher purpose of helping our customers connect beyond the network. Extreme’s cloud networking technologies provide flexibility and scalability in deployment, management, and licensing of networks globally.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may experience challenges or delays in forecasting, generating or recognizing revenue for a number of reasons and our revenues and operating results have varied significantly in the past and may vary significantly in the future due to a number of factors, including, but not limited to, the following: • our dependence on obtaining orders during a quarter and shipping those orders in the same quarter to achieve our revenue objectives; in particular, with current supply chain constraints, our backlog has continued to grow as we are unable to ship all orders obtained during a quarter; • orders in our backlog could be cancelled by customers, impacting the accuracy of our revenue forecasting; • decreases in the prices of the products we sell; • the mix of products sold and the mix of distribution channels through which products are sold; • acceptance provisions in customer contracts; • our ability to deliver installation or inspection services by the end of the quarter; • seasonal fluctuations in demand for our products and services; • a disproportionate percentage of our sales occurring in the last month of a quarter; • reduced visibility into the implementation cycles for our products and our customers’ spending plans; • our ability to forecast demand for our products, which in the case of lower-than-expected sales, may result in excess or obsolete inventory in addition to non-cancelable purchase commitments for component parts; • our sales to the telecommunications service provider market, which represents a significant source of large product orders, being especially volatile and difficult to forecast; • product returns or the cancellation or rescheduling of orders; • announcements and new product introductions by our competitors; • our ability to develop and support relationships with enterprise customers, service providers and other potential large customers; • our ability to obtain sufficient supplies of sole- or limited-source components for our products on a timely basis; and 20 • changes in funding for customer technology purchases in our markets.
Biggest changeWe may experience challenges or delays in forecasting, generating or recognizing revenue for a number of reasons and our revenues and operating results have varied significantly in the past and may vary significantly in the future due to a number of factors, including, but not limited to, the following: • our dependence on obtaining orders during a quarter and shipping those orders in the same quarter to achieve our revenue objectives; • orders in our backlog could be cancelled by customers, impacting the accuracy of our revenue forecasting; • decreases in the prices of the products we sell; • the mix of products sold and the mix of distribution channels through which products are sold; • acceptance provisions in customer contracts; • our ability to deliver installation or customer acceptance by the end of the quarter; • seasonal fluctuations in demand for our products and services; • a disproportionate percentage of our sales occurring in the last month of a quarter; • reduced visibility into the implementation cycles for our products and our customers’ spending plans; • our ability to forecast demand for our products, which in the case of lower-than-expected sales, may result in excess or obsolete inventory in addition to non-cancelable purchase commitments for component parts; • our sales to the telecommunications service provider market, which represents a significant source of large product orders, being especially volatile and difficult to forecast; • product returns or the cancellation or rescheduling of orders; • announcements and new product introductions by our competitors; • our ability to develop and support relationships with enterprise customers, service providers and other potential large customers; • our ability to obtain sufficient supplies of sole- or limited-source components for our products on a timely basis; and • changes in funding for customer technology purchases in our markets. 21 In addition to risks related to revenue, we are subject to risks related to costs, which may be influenced by a number of factors, including, but not limited to, the following: • our ability to achieve and maintain targeted cost reductions; • fluctuations in warranty or other service expenses actually incurred; • increases in the price of the components we purchase; • increases in costs associated with sourcing and shipping components and finished products; • general inflationary pressures, increasing the cost of all inputs; and • rising interest rates, increasing the cost of borrowing.
Any such breach could compromise our products, networks, or cloud-based services by creating system disruptions, slowdowns or even shutdowns, and exploiting security vulnerabilities of our products, and the information stored as part of our operations could be accessed, publicly disclosed, lost or stolen.
Any such breach could compromise our networks, products, or cloud-based services by creating system disruptions, slowdowns or even shutdowns, and exploiting security vulnerabilities of our products, and the information stored as part of our operations could be accessed, publicly disclosed, lost or stolen.
Because of the potential for courts awarding substantial damages, or internationally prohibiting us from exporting, in the case of China, or importing our products, in the case of Germany, the lack of predictability of such awards and the high legal costs associated with the defense of such patent infringement matters that would be expended to prove lack of infringement, it is not uncommon for companies in our industry to settle even potentially unmeritorious claims for very substantial amounts.
Because of the potential for courts awarding substantial damages, or internationally prohibiting us from exporting our products, in the case of China, or importing our products, in the case of Germany, the lack of predictability of such awards and the high legal costs associated with the defense of such patent infringement matters that would be expended to prove lack of infringement, it is not uncommon for companies in our industry to settle even potentially unmeritorious claims for very substantial amounts.
Although the length, impact, and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increases in cyberattacks and espionage.
Although the length, impact, and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain 20 interruptions, political and social instability, changes in consumer or purchaser preferences as well as increases in cyberattacks and espionage.
There can be no assurance that these changes and any contemplated changes if finalized and adopted by associated countries, will not have a materially adverse impact on our provision for income taxes. Recently, substantially all member countries of the OECD agreed to certain tax principles, including a global minimum tax of 15%.
There can be no assurance that these changes and any contemplated changes if finalized and adopted by associated countries, will not have a materially adverse impact on our provision for income taxes. Substantially all member countries of the OECD agreed to certain tax principles, including a global minimum tax of 15%.
Usage of “legacy” products that have been determined to have reached an end of life engineering status but will continue to operate for a limited amount of time may subject us or our customers to new vulnerabilities. Further, employee error, malfeasance, or other disruptions can result in a security or data breach.
Usage of “legacy” products that have been determined to have reached an end-of-life engineering status but will continue to operate for a limited amount of time may subject us or our customers to vulnerabilities. Further, employee error, malfeasance, or other disruptions can result in a security or data breach.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive-forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions.
While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may 28 nevertheless seek to bring a claim in a venue other than those designated in the exclusive-forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions.
The secure provision of services and maintenance of this information is critical to our operations and business strategy. Increasingly, companies, including us, are subject to a variety of attacks on their networks and/or cloud-based services on an ongoing basis.
The secure provision of services and maintenance of this information is critical to our operations and business strategy. 19 Increasingly, companies, including us, are subject to a variety of attacks on their networks and/or cloud-based services on an ongoing basis.
Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals.
Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax 27 liability will not be materially different than what is reflected in our income tax provisions and accruals.
We may not fully realize the anticipated positive impacts to future financial results from our restructuring efforts. We have undertaken restructuring efforts in the past to streamline operations and reduce operating expenses.
We may not fully realize the anticipated positive impacts to future financial results from our restructuring efforts. 22 We have undertaken restructuring efforts in the past to streamline operations and reduce operating expenses.
E-Rate is a program of the Federal Communications Commission (the “FCC”) that subsidizes the purchase of approved telecommunications, Internet access, and internal connection costs for eligible public 24 educational institutions.
E-Rate is a program of the Federal Communications Commission (the “FCC”) that subsidizes the purchase of approved telecommunications, Internet access, and internal connection costs for eligible public educational institutions.
The market demand for cloud networking solutions has increased in recent years as end customers have deployed larger networks and have increased the use of 17 virtualization and cloud computing.
The market demand for cloud networking solutions has increased in recent years as end customers have deployed larger networks and have increased the use of virtualization and cloud computing.
Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of our relationship, financial reporting problems, fines, and/or penalties for us, or prohibition on the importation or exportation of our products and could have a material adverse effect on our business, financial condition, and results of operations.
Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of our relationship, financial reporting problems, fines, and/or civil or criminal penalties for us, or prohibition on the importation or exportation of our products and could have a material adverse effect on our business, financial condition, and results of operations.
Our 2019 Credit Agreement may not be sufficient for our future working capital, investments and cash requirements, in which case we would need to seek additional debt or equity financing or scale back our operations. In addition, we may need to seek additional financing to achieve and maintain compliance with specified financial ratios under our 2019 Credit Agreement, as amended.
Our 2023 Credit Agreement may not be sufficient for our future working capital, investments and cash requirements, in which case we would need to seek additional debt or equity financing or scale back our operations. In addition, we may need to seek additional financing to achieve and maintain compliance with specified financial ratios under our 2023 Credit Agreement, as amended.
Our credit facilities impose financial and operating restrictions on us and if we fail to meet our payment or other obligations under our 2019 Credit Agreement (as defined in Item 7, “Liquidity and Capital Resources”), the lenders under such 2019 Credit Agreement, as amended, could foreclose on, and acquire control of, substantially all of our assets.
Our credit facilities impose financial and operating restrictions on us and if we fail to meet our payment or other obligations under our 2023 Credit Agreement (as defined in Item 7, “Liquidity and Capital Resources”), the lenders under such 2023 Credit Agreement, as amended, could foreclose on, and acquire control of, substantially all of our assets.
Many countries are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business, including the introduction of taxes targeted at digital services.
Many countries are also actively considering changes to existing tax laws and rates or have proposed or enacted new laws that could increase our tax obligations in countries where we do business, including the introduction of taxes targeted at digital services.
We rely on third-party cloud service providers such as Salesforce and Oracle to support internal operations. Disruptions to such service or data breaches of those services could impact our ability to maintain efficient operations and to provide services to our customers.
We rely on third-party cloud service providers such as Salesforce and Oracle to support internal operations. Disruptions to such services or data breaches related to those services could impact our ability to maintain efficient operations and to provide services to our customers.
Substantially all of our international sales are United States dollar-denominated. The continued strength and future increases in the value of the U.S. Dollar relative to foreign currencies could make our products less competitive in international markets.
Substantially all of our international sales are U.S. Dollar-denominated. The continued strength and future increases in the value of the U.S. Dollar relative to foreign currencies could make our products less competitive in international markets.
We may not be able to access additional capital resources due to a variety of reasons, including the restrictive covenants in our 2019 Credit Agreement and the lack of available capital due to global economic conditions.
We may not be able to access additional capital resources due to a variety of reasons, including the restrictive covenants in our 2023 Credit Agreement and the lack of available capital due to global economic conditions.
General Natural or man-made disasters, acts of war or terrorism, pandemics, technological disruptions or other events beyond our control could disrupt our operations and harm our business, financial condition and results of operations.
General Natural or man-made disasters, climate change, acts of war or terrorism, pandemics, technological disruptions or other events beyond our control could disrupt our operations and harm our business, financial condition and results of operations.
Russia’s military actions in Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic.
Russia’s military actions in Ukraine have led to an unprecedented expansion of sanction programs and export control restrictions imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic.
If we are unable to repay outstanding borrowings when due or comply with other obligations and covenants under our 2019 Credit Agreement, the lenders under our 2019 Credit Agreement will have the right to proceed against these pledged capital stock and take control of substantially all of our assets.
If we are unable to repay outstanding borrowings when due or comply 23 with other obligations and covenants under our 2023 Credit Agreement, the lenders under our 2023 Credit Agreement will have the right to proceed against these pledged capital stock and take control of substantially all of our assets.
Regulatory, Tax and Legal Risks Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business. We are exposed to the risk of employee fraud or other misconduct.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business. We are exposed to the risk of employee fraud or other misconduct.
In addition to the risks related to the intellectual property lawsuits described above, we are currently parties to other litigation as described in Note 10, Commitments and Contingencies , in the Notes to Consolidated Financial Statements included elsewhere in this Report. Regardless of the result, litigation can be expensive, lengthy and disruptive to normal business operations.
In addition to the risks related to the intellectual property lawsuits described above, we are currently parties to other litigation as described in Note 10, Commitments and Contingencies , in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Regardless of the result, litigation can be expensive, lengthy and disruptive to normal business operations.
System security risks, data breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations, impact services to customers, and harm public perception of our products, which could adversely affect our business, financial condition and results of operations.
System security risks, data breaches, and cyberattacks could compromise our proprietary information, disrupt our internal operations, impact services to customers, and harm public perception of our products, which could adversely affect our business, financial condition and results of operations.
Item 1A. Risk Factors We face a number of risks and uncertainties which may have a material and adverse effect on our business, operations, industry, financial condition, results of operations or future financial performance.
Item 1A. Ri sk Factors We face a number of risks and uncertainties which may have a material and adverse effect on our business, operations, industry, financial condition, results of operations or future financial performance.
Our 2019 Credit Agreement imposes, and the terms of any future debt may impose, operating and other restrictions on us.
Our 2023 Credit Agreement imposes, and the terms of any future debt may impose, operating and other restrictions on us.
Accordingly, the product evaluation process frequently results in a lengthy sales cycle, typically ranging from three months to longer than a year, and as a result, our ability to sell products is subject to a number of significant risks, including risks that: • budgetary constraints and internal acceptance reviews by customers will result in the loss of potential sales; • there may be substantial variation in the length of the sales cycle from customer to customer, making decisions on the expenditure of resources difficult to assess; • we may incur substantial sales and marketing expenses and expend significant management time in an attempt to initiate or increase the sale of products to customers, but not succeed; • when a sales forecast from a specific customer for a particular quarter is not achieved in that quarter, we may be unable to compensate for the shortfall, which could harm our operating results; and • downward pricing pressures could occur during the lengthy sales cycle for our products. 18 We rely on third-party providers for services needed to deliver our cloud solutions and other third-party providers for our internal operations.
Accordingly, the product evaluation process frequently results in a lengthy sales cycle, typically ranging from three months to longer than a year, and as a result, our ability to sell products is subject to a number of significant risks, including risks that: • budgetary constraints and internal acceptance reviews by customers will result in the loss of potential sales; • there may be substantial variation in the length of the sales cycle from customer to customer, making decisions on the expenditure of resources difficult to assess; • we may incur substantial sales and marketing expenses and expend significant management time in an attempt to initiate or increase the sale of products to customers, but not succeed; • when a sales forecast from a specific customer for a particular quarter is not achieved in that quarter, we may be unable to compensate for the shortfall, which could harm our operating results; and • downward pricing pressures could occur during the lengthy sales cycle for our products.
Despite our security measures, we may not be able to effectively detect, prevent, or protect against or otherwise mitigate losses from all cyber-attacks or prevent all security or data breaches.
Despite our security measures, we may not be able to effectively detect, prevent, or protect against or otherwise mitigate losses from all cyberattacks or prevent all security or data breaches.
Because the techniques used by computer programmers and hackers, many of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques.
Because the techniques used by bad actors, many of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques.
Our 2019 Credit Agreement also requires us to achieve and maintain compliance with specified financial ratios and certain liquidity and revenue metrics. A breach of any of these restrictive covenants or the inability to comply with the required financial ratios or metrics could result in a default under our 2019 Credit Agreement.
Our 2023 Credit Agreement also requires us to achieve and maintain compliance with specified financial ratios. A breach of any of these restrictive covenants or the inability to comply with the required financial ratios or metrics could result in a default under our 2023 Credit Agreement.
In addition, our effective tax rate will materially increase as we made an accounting policy election to treat Global Intangible Low Tax Income (“GILTI”) as a period cost ( i . e ., recorded when incurred) in 2018 when the GILTI rules were introduced.
In addition, our effective tax rate will materially increase as we made an accounting policy election to treat GILTI as a period cost (i.e., recorded when incurred) in 2018 when the GILTI rules were introduced.
Our ability to realize the anticipated benefits of any current and future acquisitions, divestitures and investment activities also entail numerous risks, including, but not limited to: • difficulties in the assimilation and successful integration of acquired operations, sales functions, technologies, and/or products; • unanticipated costs, litigation or other contingent liabilities associated with the acquisition or investment transaction; • incurrence of acquisition- and integration-related costs, goodwill or in-process research and development impairment charges, or amortization costs for acquired intangible assets, that could negatively impact our business, financial condition, and results of operations; • the diversion of management's attention from other business concerns; • adverse effects on existing business relationships with suppliers and customers; • risks associated with entering markets in which we have no or limited prior experience; • the potential loss of key employees of acquired organizations and inability to attract or retain other key employees; and • substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items. 21 In addition, we may not be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire in the future, and our failure to do so could have a material adverse effect on our business, financial condition, and operating results.
Our ability to realize the anticipated benefits of any current and future acquisitions, divestitures and investment activities also entail numerous risks, including, but not limited to: • difficulties in the assimilation and successful integration of acquired operations, sales functions, technologies, and/or products; • unanticipated costs, litigation or other contingent liabilities associated with the acquisition or investment transaction; • incurrence of acquisition- and integration-related costs, goodwill or in-process research and development impairment charges, or amortization costs for acquired intangible assets, that could negatively impact our business, financial condition, and results of operations; • the diversion of management's attention from other business concerns; • adverse effects on existing business relationships with suppliers and customers; • risks associated with entering markets in which we have no or limited prior experience; • the potential loss of key employees of acquired organizations and inability to attract or retain other key employees; and • substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items.
International sales constitute a significant portion of our net revenues. Our ability to grow will depend in part on the expansion of international sales. Our international sales primarily depend on the success of our resellers and distributors. The failure of these resellers and distributors to sell our products internationally would limit our ability to sustain and grow our revenues.
Our ability to grow will depend in part on the expansion of international sales. Our international sales primarily depend on the success of our resellers and distributors. The failure of these resellers and distributors to sell our products internationally would limit our ability to sustain and grow our revenues.
Such disruptions to the availability or integrity of utilities, transportation infrastructure, or the internet could have significant macroeconomic impacts, decreasing demand for our products and impacting our ability to get them to market. As a result, our financial situation and operating results would be negatively affected.
Such disruptions to the availability or integrity of utilities, transportation infrastructure, or the internet could have significant macroeconomic impacts, decreasing demand for our products and impacting our ability to get them to market. As a result, our financial situation and operating results would be negatively affected. 29 Item 1B. Unresolve d Staff Comments None.
We currently purchase several key components used in the manufacturing of our products from single or limited sources and are dependent upon supply from these sources to meet our needs. At present, semiconductor chips and other components are currently in high demand with limited supply.
We currently purchase several key components used in the manufacturing of our products from single or limited sources and are dependent upon supply from these sources to meet our needs. At present, semiconductor chips and other components are currently in high demand but supply has increased over the past year.
Although we have implemented policies, procedures and training designed to ensure compliance with these U.S. and foreign laws and policies, there can be no complete assurance that any individual employee, contractor, channel partner, or agent will not violate our policies and procedures.
Although we have implemented policies, procedures and training designed to ensure compliance with these U.S. and foreign laws and policies, there can be no complete assurance that any individual employee, contractor, channel partner, or agent will not violate our policies, procedures or applicable law, for which we may be ultimately held responsible.
Given the significant concentration of our supply chain, particularly with certain sole or limited source providers, any significant interruption by any of the key suppliers or a termination of a relationship could temporarily disrupt our operations.
Our top ten suppliers accounted for a significant portion of our purchases during the year. Given the significant concentration of our supply chain, particularly with certain sole or limited source providers, any significant interruption by any of the key suppliers or a termination of a relationship could temporarily disrupt our operations.
When this happens, if we are unable to reduce our component costs or improve operating efficiencies, our revenues and gross margins will be adversely affected. One of our key differentiators is the quality of our support and services.
From time to time, we may lower the prices of our products and services in response to competitive pressure. When this happens, if we are unable to reduce our component costs or improve operating efficiencies, our revenues and gross margins will be adversely affected. One of our key differentiators is the quality of our support and services.
Borrowings under our 2019 Credit Agreement are secured by liens on substantially all of our assets, including the capital stock of certain of our subsidiaries, and the assets of our subsidiaries that are loan party guarantors.
Further, our 2023 Credit Agreement is jointly and severally guaranteed by us and certain of our subsidiaries. Borrowings under our 2023 Credit Agreement are secured by liens on substantially all of our assets, including the capital stock of certain of our subsidiaries, and the assets of our subsidiaries that are loan party guarantors.
Our use of open source software subjects us to certain additional risks for the following reasons: • open source license terms may be ambiguous and may result in unanticipated obligations regarding the licensing of our products and intellectual property; • open source software cannot be protected under trade secret law; • suppliers of open-source software do not provide the warranty, support and liability protections typically provided by vendors who offer proprietary software; and • it may be difficult for us to accurately determine the developers of the open source code and whether the acquired software infringes third-party intellectual property rights.
Our use of open source software subjects us to certain additional risks for the following reasons: • open source license terms may be ambiguous and may result in unanticipated obligations regarding the licensing of our products and intellectual property; • open source software cannot be protected under trade secret law; • suppliers of open-source software do not provide the warranty, support and liability protections typically provided by vendors who offer proprietary software; and • it may be difficult for us to accurately determine the developers of the open source code and whether the acquired software infringes third-party intellectual property rights. 26 We believe even if we do not infringe the rights of others, we will incur significant expenses in the future due to defense of legal claims, disputes or licensing negotiations, though the amounts cannot be determined.
We intend to invest in engineering, sales, services, marketing and manufacturing on a long-term basis, and delays or inability to attain the expected benefits may result in unfavorable operating results. 22 While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to our engineering, sales, services, marketing and manufacturing functions as we focus on our foundational priorities, such as leadership in our core products and solutions and architectures for business transformation.
While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to our engineering, sales, services, marketing and manufacturing functions as we focus on our foundational priorities, such as leadership in our core products and solutions and architectures for business transformation.
Climate change may exacerbate the frequency or severity of such natural disasters. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries.
In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism or other geopolitical unrest, may cause further disruptions to the economies of the United States and other countries.
Accordingly, these potential customers may not consider or evaluate our products. When such potential customers have considered or evaluated our products, we have in the past lost, and expect in the future to lose, sales to some of these customers as large competitors have offered significant price discounts to secure these sales.
When such potential customers have considered or evaluated our products, we have in the past lost, and expect in the future to lose, sales to some of these customers as large competitors have offered significant price discounts to secure these sales. The pricing policies of our competitors impact the overall demand for our products and services.
In addition, the economic costs to us to eliminate, mitigate, or recover from, or remediate cyber or 19 other security problems, such as bugs, viruses, worms, ransomware or other malware, and security vulnerabilities could be significant and may be difficult to anticipate or measure.
This could impede our sales, manufacturing, distribution, or other critical functions, which could adversely affect our business. In addition, the economic costs to us to eliminate, mitigate, or recover from, or remediate cyber or other security problems, such as bugs, viruses, worms, ransomware or other malware, and security vulnerabilities could be significant and may be difficult to anticipate or measure.
We are exposed to the credit risk of our channel partners and some of our end customers, which could result in material losses. Most of our sales are on an open credit basis, with standard payment terms of 30 days in the United States and, because of local customs or conditions, longer in some markets outside the U.S.
Most of our sales are on an open credit basis, with standard payment terms of 30 days in the United States and, because of local customs or conditions, longer in some markets outside the U.S.
We have major offices in Morrisville, North Carolina, San Jose, California, and Salem, New Hampshire in the United States, as well as in Bangalore, India, in Thornhill, Canada, in Shannon, Ireland and in Reading, United Kingdom.
We have major offices in Morrisville, North Carolina, San Jose, California, and Salem, New Hampshire in the United States, as well as in Bangalore, India, in Thornhill, Canada, in Shannon, Ireland and in Reading, United Kingdom. We have, or plan to have, contract manufacturers located in China, Taiwan, Mexico, Vietnam, the Philippines, and Thailand.
Even in years when we reported profits, we may not have been profitable in each quarter during those years. We anticipate continuing to incur significant sales and marketing, product development and general and administrative expenses. Any delay in generating or recognizing revenue could result in a loss for a quarter or full year.
We anticipate continuing to incur significant sales and marketing, product development and general and administrative expenses. Any delay in generating or recognizing revenue could result in a loss for a quarter or full year.
In addition, during the development of our products, we have experienced delays in the prototyping of our chipsets, which in turn has led to delays in product introductions. Similar delays may occur in the future.
In addition, during the development of our products, we have experienced delays in the prototyping of our chipsets, which in turn has led to delays in product introductions. Similar delays may occur in the future. Furthermore, the performance of the components from our suppliers as incorporated in our products may not meet the quality requirements of our customers.
The Organization for Economic Co-operation and Development (“OECD”), an international association comprised of 38 countries including the United States and Ireland, has made changes and is contemplating additional changes to numerous long-standing tax principles.
We have assessed preliminary guidance and do not expect these provisions will adversely impact our effective tax rate. The Organization for Economic Co-operation and Development (“OECD”), an international association comprised of 38 countries including the United States and Ireland, has made changes and is contemplating additional changes to numerous long-standing tax principles.
Some of our products are designed to include software or other intellectual property, including open source software, licensed from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.
It may be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.
If our financing requirements are not met and we are unable to access additional financing on favorable terms, or at all, our business, financial condition and results of operations could be materially adversely affected. Uncertainty about the future of the London Interbank Offered Rate (“LIBOR”) could impact the cost of our borrowing and ability to mitigate interest rate risk.
If our financing requirements are not met and we are unable to access additional financing on favorable terms, or at all, our business, financial condition and results of operations could be materially adversely affected. Our indebtedness could expose us to interest rate risk to the extent of our variable rate debt.
Our principal sole-source components include: • ASICs - merchant silicon, Ethernet switching, custom and physical interface; • microprocessors; • programmable integrated circuits; • selected other integrated circuits; • custom power supplies; and • custom-tooled sheet metal.
Our principal sole-source components include: • ASICs - merchant silicon, Ethernet switching, custom and physical interface; • microprocessors; • programmable integrated circuits; • selected other integrated circuits; • custom power supplies; and • custom-tooled sheet metal. 15 Our principal limited-source components include: • flash memory; • DRAMs and SRAMs; • printed circuit boards; • CAMs; • connectors; and • timing circuits (crystals & clocks).
Changes in tax laws and regulations and the interpretation of such laws and regulations, including taxation of earnings internationally, the introduction of base erosion and anti-abuse tax and the disallowance of tax deductions for certain expenses, as well as changes that may be enacted in the future could materially impact our tax provision, cash tax liability and effective tax rate.
The application and interpretation of such policies and underlying regulations, including taxation of earnings internationally, transfer pricing adjustments related to certain acquisitions, including the license of acquired intangibles under our cost sharing arrangement, Base Erosion and Anti-abuse Tax laws, Global Intangible Low-Tax Income (“GILTI”) laws, and the disallowance of tax deductions for certain expenses, as well as changes that may be enacted in the future could materially impact our tax provision, cash tax liability and effective tax rate.
Further, many of our competitors have made substantial investments in hardware networking capabilities and offerings. These competitors may be able to gain market share by leveraging their investments in hardware networking capabilities to attract customers at lower prices or with greater synergies.
These competitors may be able to gain market share by leveraging their investments in hardware networking capabilities to attract customers at lower prices or with greater synergies. Some of our customers may question whether we have the financial resources to complete their projects and future service commitments.
We are subject to changes in general and specific macro-economic conditions in the networking industry, which could affect both revenue and costs. Due to the foregoing and other factors, many of which are described herein, period-to-period comparisons of our operating results should not be relied upon as an indicator of our future performance.
Due to the foregoing and other factors, many of which are described herein, period-to-period comparisons of our operating results should not be relied upon as an indicator of our future performance.
These entities are actively engaged in programs to generate substantial revenues from their patent portfolios and are seeking or may seek significant payments or royalties from us and others in our industry. 25 Litigation resulting from claims that we are infringing the proprietary rights of others has resulted and could in the future result in substantial costs and a diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.
Litigation resulting from claims that we are infringing the proprietary rights of others has resulted and could in the future result in substantial costs and a diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.
As a result, our success depends on: • the timely adoption and market acceptance of industry standards, and timely resolution of conflicting U.S. and international industry standards; and • our ability to influence the development of emerging industry standards and to introduce new and enhanced products that are compatible with such standards. 26 In the past, we have introduced new products that were not compatible with certain technological standards, and in the future, we may not be able to effectively address the compatibility and interoperability issues that arise as a result of technological changes and evolving industry standards.
As a result, our success depends on: • the timely adoption and market acceptance of industry standards, and timely resolution of conflicting U.S. and international industry standards; and • our ability to influence the development of emerging industry standards and to introduce new and enhanced products that are compatible with such standards.
The pricing policies of our competitors impact the overall demand for our products and services. Some of our competitors are capable of operating at significant losses for extended periods of time, increasing pricing pressure on our products and services.
Some of our competitors are capable of operating at significant losses for extended periods of time, increasing pricing pressure on our products and services. If we do not maintain competitive pricing, the demand for our products and services, as well as our market share, may decline.
Changes in our effective tax rates or amounts assessed upon examination of our tax returns may have a material, adverse impact on our business, financial condition, and results of operations.
Changes in our effective tax rates or amounts assessed upon examination of our tax returns may have a material, adverse impact on our business, financial condition, and results of operations. Provisions in our charter documents and Delaware law may delay or prevent an acquisition of Extreme, which could decrease the value of our common stock.
If orders exceed forecasts, we may have inadequate supplies of certain materials and components, which could have a material adverse effect on our ability to meet customer delivery requirements and to recognize revenue. Our top ten suppliers accounted for a significant portion of our purchases during the year.
If forecasts exceed orders, we may have excess and/or obsolete inventory, which could have a material adverse effect on our business, operating results and financial condition. If orders exceed forecasts, we may have inadequate supplies of certain materials and components, which could have a material adverse effect on our ability to meet customer delivery requirements and to recognize revenue.
A change in our future effective tax rate, including from the release of the valuation allowances recorded against our net U.S. and Irish deferred tax assets may create volatility in our calculated tax expense. Our future effective tax rate in particular could be adversely affected by a change in ownership pursuant to Section 382 of the U.S. Internal Revenue Code.
Additionally, a change in our future effective tax rate, including from the release of the valuation allowances recorded against our net U.S. and Irish deferred tax assets may create volatility in our calculated tax expense. Finally, we are subject to the examination of our income tax returns by the Internal Revenue Service, Irish Revenue, and other tax authorities globally.
Misconduct by employees could include intentional failures to: • comply with securities laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with export controls and sanctions laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with anti-corruption laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with internal controls that we have established; • report financial information or data accurately; or • disclose unauthorized activities to us.
Misconduct by employees could include intentional failures to: • comply with securities laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with export controls and sanctions laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with anti-corruption laws and regulations or similar regulations of comparable foreign regulatory authorities; • comply with internal controls that we have established; • report financial information or data accurately; or • disclose unauthorized activities to us. 25 The precautions we take to detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company will have been detected.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company will have been detected. 24 If we or our independent registered public accounting firm identifies material weaknesses in our internal controls, the disclosure of that fact, even if quickly remedied, may cause investors to lose confidence in our financial statements and its stock price may decline.
We do not own or control the operation of the third-party facilities or equipment used to provide the cloud services. Our computing infrastructure service providers have no obligation to renew their agreements with us on commercially reasonable terms or at all.
Our computing infrastructure service providers have no obligation to renew their agreements with us on commercially reasonable terms or at all.
As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition, they have larger distribution channels, stronger brand names, access to more customers, a larger installed customer base and a greater ability to make attractive offers to channel partners and customers than we do.
In addition, they have larger distribution channels, stronger brand names, access to more customers, a larger installed customer base and a greater ability to make attractive offers to channel partners and customers than we do. Further, many of our competitors have made substantial investments in hardware networking capabilities and offerings.
If we fail to comply with these laws and regulations, we could incur penalties and sanctions from governments, and could be restricted from exporting products. Local laws and customs in many countries differ significantly from, or conflict with, those in the United States or in other countries in which we operate.
If we fail to comply with these laws and regulations, we could incur penalties and sanctions from governments, and could be restricted from exporting products.
See also the risk factor below, “ The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business. ” Our dependence on a few manufacturers and third parties for our manufacturing, warehousing, and delivery requirements could harm our business, financial condition, and operating results.
Our dependence on a few manufacturers and third parties for our manufacturing, warehousing, and delivery requirements could harm our business, financial condition, and operating results.
Our failure to continue to provide high-quality support and services could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our failure to continue to provide high-quality support and services could have a material adverse effect on our business, financial condition, results of operations and prospects. We purchase several key components for products from single or limited sources and could lose sales if these suppliers fail to meet our needs.
We have experienced and may in the future experience significant turnover in our executive personnel. Changes in our management and key employees could affect our financial results, and our prior reductions in force may impede our ability to attract and retain highly skilled personnel.
Changes in our management and key employees could affect our financial results, and our prior reductions in force may impede our ability to attract and retain highly skilled personnel. We believe our future success will also depend in large part upon our ability to attract and retain highly skilled managerial, engineering, sales and marketing, service, finance, and operations personnel.
Historically, each location 28 has been vulnerable to natural disasters and other risks, such as earthquakes, fires, floods and tropical storms, which at times have disrupted the local economy and posed physical risks to our property.
Historically, each location has been vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, and severe storms, which could disrupt the local or even global economy, create power and communication disruptions, and pose physical risks to property belonging to us or our contract manufacturers.
In particular, AWS, Microsoft Azure, and the Google Cloud Platform may provide enterprise customers with a cloud-based platform of data center computing and networking services. For example, we have encountered, and expect to continue to encounter in the future, many potential customers who are confident in and committed to the product offerings of our principal competitors.
For example, we have encountered, and expect to continue to encounter in the future, many potential customers who are confident in and committed to the product offerings of our principal competitors. Accordingly, these potential customers may not consider or evaluate our products.
A number of our employees are foreign nationals who rely on visas and entry permits in order to legally work in the United States and other countries. In recent years, the United States has increased the level of scrutiny in granting H-1B, L-1 and other business visas.
The market for such personnel is competitive in certain regions for certain types of technical skills. A number of our employees are foreign nationals who rely on visas and entry permits in order to legally work in the United States and other countries.
Congress is considering legislation that would defer the capitalization and amortization requirement to later years, we have no assurance the provision will be repealed or modified. If the requirement is not repealed or modified, our existing U.S. net operating losses will be utilized on an accelerated basis, and we could potentially be subject to U.S. cash tax sooner than anticipated.
Congress is considering legislation that would defer the capitalization and amortization requirement to later years, however, we have no assurance the provision will be repealed or modified.
Lead times for materials and components we order vary significantly, and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. If forecasts exceed orders, we may have excess and/or obsolete inventory, which could have a material adverse effect on our business, operating results and financial condition.
We use our forecast of expected demand to determine our material requirements. Lead times for materials and components we order vary significantly, and depend on factors such as the specific supplier, contract terms and demand for a component at a given time.
Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability. Our cloud solutions are hosted from and use computing infrastructure provided by third parties, including Amazon Web Services, Google Cloud Platform, and Microsoft Azure.
Our cloud solutions are hosted from and use computing infrastructure provided by third parties, including Amazon Web Services, Google Cloud Platform, and Microsoft Azure. We do not own or control the operation of the third-party facilities or equipment used to provide the cloud services.
We primarily rely on our manufacturing partners Alpha Networks, Senao Networks, Foxconn, Delta Networks, Wistron NeWeb Corporation, Sercomm Corporation, Quanta, and select other partners to manufacture our products. We have experienced delays in product shipments from some of our partners in the past, which in turn delayed product shipments to our customers.
We have experienced delays in product shipments from some of our partners in the past, which in turn delayed product shipments to our customers.
The relocation of contract manufacturing facilities to locations outside of China or Taiwan may increase our costs and could impact the global competitiveness of our products. The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business.
The relocation of contract manufacturing facilities to locations outside of China or Taiwan may increase our costs and could impact the global competitiveness of our products. 16 We depend upon international sales for a significant portion of our revenues, which imposes a number of risks on our business. International sales constitute a significant portion of our net revenues.
To successfully manage our business or achieve our goals, we must attract, retain, train, motivate, develop and promote key employees, and a failure to do so can harm us. Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, service and operations personnel, many of whom would be difficult to replace.
Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, service and operations personnel, many of whom would be difficult to replace. We have experienced and may in the future experience significant turnover in our executive personnel.
Any of the abovementioned factors could affect our business, financial condition and results of operations. Any such disruptions may also magnify the impact of other risks described in this "Risk Factors" section. Risks Related to Financial Matters We cannot assure future profitability, and our financial results may fluctuate significantly from period to period. We have not been consistently profitable.
Any of the abovementioned factors could affect our business, financial condition and results of operations. Any such disruptions may also magnify the impact of other risks described in this "Risk Factors" section. The adoption, use, and development of AI products may result in reputational harm or liability.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of June 30, 2022, we have leased approximately 0.9 million square feet of space with various expiration dates between fiscal year 2023 and fiscal 2032. We believe that our current facilities are sustainable and adequate to meet our current needs and the productive capacity of such facilities is substantially being utilized or we have plans to utilize such capacity.
Biggest changeAs of June 30, 2023, we have leased an aggregate of approximately 0.6 million square feet of space with various expiration dates between fiscal year 2023 and fiscal 2033. We are continuously evaluating the usage of and employee attendance at all of our locations.
Outside the United States, we also lease office space in various other international geographic locations for research and development, sales and service personnel and administration in other Americas, EMEA and APAC, including Bangalore, India, Chennai, India, Markham, Canada, Reading, United Kingdom, and Shannon, Ireland.
Outside the United States, we also lease office space in various other international geographic locations for research and development, sales and service personnel and administration, including other cities in the Americas, EMEA and APAC, such as Bangalore, India, Chennai, India, Markham, Canada, Reading, United Kingdom, and Shannon, Ireland.
Item 2. Properties Our corporate headquarters is located in Morrisville, North Carolina where we currently lease approximately 54,530 square feet of space under a lease agreement that expires in fiscal year 2028.
Item 2. P roperties Our corporate headquarters is located in Morrisville, North Carolina where we currently lease approximately 54,530 square feet of space under a lease agreement that expires in fiscal year 2028.
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As leases expire, we analyze key metrics such as attendance and usage when determining whether to extend the lease, reduce the size of the facility or allow the lease to expire. Item 3.
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Legal Proceedings The information set forth under the heading “Legal Proceedings” in Note 10, Commitments and Contingencies , in Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not Applicable. 30 PA RT II

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings The information set forth under the heading “Legal Proceedings” in Note 10, Commitments and Contingencies , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, is incorporated herein by reference. Item 4. Mine Safety Disclosures Not Applicable 29 PART II
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Item 3.03 Material Modification to Rights of Security Holders. On August 23, 2023, the Board of Directors of Extreme Networks, Inc.
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(the “Company”), effective as of August 24, 2023, approved an amendment (the “First Amendment”) to the Amended and Restated Tax Benefit Preservation Plan, dated as of May 17, 2021, between the Company and Computershare Inc., as Rights Agent (as may be amended from time to time, the “Restated Tax Plan”).
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The First Amendment amended the Restated Tax Plan by accelerating the expiration of the Company’s preferred share purchase rights (the “Rights”) by amending the definition of “Final Expiration Date” to mean the close of business on August 24, 2023.
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Accordingly, the Rights which were previously dividended to holders of record of the common stock, par value $0.001 per share, of the Company shall expire on the close of business on August 24, 2023 and no person shall have any rights pursuant to the Restated Tax Plan or the Rights.
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The foregoing description of the First Amendment is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the (i) First Amendment, which is filed as Exhibit 4.1(b) to this Annual Report is incorporated herein by reference, and (ii) the Restated Tax Plan, which was filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 18, 2021 and is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table provides stock repurchase activity during the three months ended June 30, 2022 (in thousands, except per share amounts): Approximate Dollar Value Total Total Number of Shares of Shares Number of Average Purchased as Part of That May Yet Be Purchased Shares Price Paid Publicly Announced Under the Plans or Programs Purchased per Share Plans or Programs (1) (2) April 1, 2022 - April 30, 2022 200 $ 9.78 200 $ 28,070 May 1, 2022 - May 31, 2022 1,852 9.74 1,852 10,032 June 1, 2022 - June 30, 2022 — — — 10,032 Total 2,052 $ 9.74 2,052 Authorization effective July 1, 2022 (2) $ 200,000 (1) On November 2, 2018, the Company announced that it had authorized management to repurchase up to $60.0 million of its common stock for two years from the date of authorization.
Biggest changeIssuer Purchases of Equity Securities The following table provides stock repurchase activity during the three months ended June 30, 2023 (in thousands, except per share amounts): Approximate Dollar Value Total Average Total Number of Shares of Shares Number of Price Paid Purchased as Part of That May Yet Be Purchased Shares per Share Publicly Announced Under the Plans or Programs Purchased (2) Plans or Programs (1) Beginning amount available to repurchase $ 125,193 April 1, 2023 - April 30, 2023 — $ — — 125,193 May 1, 2023 - May 31, 2023 1,447 17.32 1,447 100,130 June 1, 2023 - June 30, 2023 — — — 100,130 Total 1,447 $ 17.32 1,447 Remaining amount available to repurchase $ 100,130 (1) On May 18, 2022, the Company announced that its Board of Directors had authorized a share repurchase program with authorization to repurchase up to $200.0 million of our common stock over a three-year period commencing on July 1, 2022.
Set forth below is a stock price performance graph comparing the annual percentage change in the cumulative total return on our common stock with the cumulative total returns of companies comprising the NASDAQ US Benchmark TR index and the NASDAQ US Benchmark Computer Hardware TR Index commencing July 1, 2017 and ending on June 30, 2022.
Set forth below is a stock price performance graph comparing the annual percentage change in the cumulative total return on our common stock with the cumulative total returns of companies comprising the NASDAQ US Benchmark TR index and the NASDAQ US Benchmark Computer Hardware TR Index commencing July 1, 2018 and ending on June 30, 2023.
Certain information regarding our equity compensation plan(s) as required by Part II is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our year ended June 30, 2022 Annual Meeting of Stockholders no later than 120 days after the end of the fiscal year covered by this report.
Certain information regarding our equity compensation plan(s) as required by Part II is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our year ended June 30, 2023 Annual Meeting of Stockholders no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Market and Dividends Our common stock trades on the Nasdaq Global Market and commenced trading on Nasdaq on April 9, 1999 under the symbol “EXTR”. As of August 18, 2022, there were 168 stockholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Common Stock Market and Dividends Our common stock trades on the Nasdaq Global Select Market and commenced trading on Nasdaq on April 9, 1999 under the symbol “EXTR”. As of August 17, 2023, there were 165 stockholders of record of our common stock.
Refer to Note 11, “ Shareholders’ Equity ”, in Notes to the Consolidated Financial Statements included elsewhere in this Report for further information regarding the Company’s share repurchase program. 30 STOCK PRICE PERFORMANCE GRAPH The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, each as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
STOCK PRICE PERFORMANCE GRAPH The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock. Comparison of Five-Year Cumulative Total Returns Performance Graph for Extreme Networks, Inc. Data and graph are calculated from CRSP Total Return Index for the Nasdaq Stock Market (U.S.
The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock. 31 Comparison of Five-Year Cumulative Total Returns Performance Graph for Extreme Networks, Inc. Index data Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [RESE RVED] 32
Removed
Purchases may be made from time to time in the open market or in privately negotiated transactions, including accelerated share repurchases. In February 2020, the Board increased the authorization to repurchase by $40.0 million to $100.0 million which expires three years from the authorization on February 5, 2020.
Added
Refer to Note 11, Stockholders’ Equity , in Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information regarding the Company’s share repurchase program. (2) The aggregate price and the average price per share does not include the effect of the excise tax under the provision of the Inflation Reduction Act.
Removed
A maximum of $30.0 million of the Company’s common stock may be repurchased in any calendar year. (2) On May 18, 2022, the Company announced that its Board of Directors had authorized an increase to our share repurchase authorization to $200.0 million over a three-year period commencing on July 1, 2022.
Removed
This authorization replaces the previous authorization effective July 1, 2022.
Removed
The NASDAQ US Benchmark TR index replaces the NASDAQ Stock Market (US Companies) Index and the NASDAQ US Benchmark Computer Hardware TR index replaces the NASDAQ Computer Manufacturers Index in this analysis and going forward, as the Center for Research in Security Prices (CRSP) Index data is no longer accessible. The CRSP indexes have been included with data through 2020.
Removed
Companies) and Nasdaq Computer Manufacturers Securities, CRSP, Booth School of Business, and The University of Chicago. Index data Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Item 6. [RESERVED] 31

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+20 added−31 removed28 unchanged
Biggest changeOperating Expenses The following table presents operating expenses and operating income for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands): Year Ended Year Ended June 30, 2022 June 30, 2021 $ Change % Change June 30, 2021 June 30, 2020 $ Change % Change Research and development $ 190,591 $ 196,995 $ (6,404 ) (3.3 )% $ 196,995 $ 209,606 $ (12,611 ) (6.0 )% Sales and marketing 294,470 276,841 17,629 6.4 % 276,841 283,632 (6,791 ) (2.4 )% General and administrative 68,697 66,201 2,496 3.8 % 66,201 60,991 5,210 8.5 % Acquisition and integration costs 7,009 1,975 5,034 254.9 % 1,975 32,073 (30,098 ) (93.8 )% Restructuring and related charges 1,748 2,625 (877 ) (33.4 )% 2,625 22,011 (19,386 ) (88.1 )% Amortization of intangibles 3,235 6,110 (2,875 ) (47.1 )% 6,110 8,425 (2,315 ) (27.5 )% Total operating expenses $ 565,750 $ 550,747 $ 15,003 2.7 % $ 550,747 $ 616,738 $ (65,991 ) (10.7 )% The following table highlights our operating expenses and operating income (loss) as a percentage of net revenues for the fiscal years ended June 30, 2022, 2021 and 2020: Year Ended June 30, 2022 June 30, 2021 June 30, 2020 Research and development 17.1 % 19.5 % 22.1 % Sales and marketing 26.5 % 27.4 % 29.9 % General and administrative 6.2 % 6.6 % 6.4 % Acquisition and integration costs 0.6 % 0.2 % 3.4 % Restructuring and related charges 0.2 % 0.3 % 2.3 % Amortization of intangibles 0.3 % 0.6 % 0.9 % Total operating expenses 50.9 % 54.6 % 65.1 % Operating income (loss) 5.8 % 3.4 % (10.4 )% Research and Development Expenses Research and development expenses consist primarily of personnel costs (which consists of compensation, benefits and stock-based compensation), consultant fees and prototype expenses related to the design, development, and testing of our products.
Biggest changeOperating Expenses The following table presents operating expenses for the fiscal years ended June 30, 2023, 2022 and 2021 (in thousands, except percentages): Year Ended Year Ended June 30, 2023 June 30, 2022 $ Change % Change June 30, 2022 June 30, 2021 $ Change % Change Research and development $ 214,270 $ 190,591 $ 23,679 12.4 % $ 190,591 $ 196,995 $ (6,404 ) (3.3 )% Sales and marketing 336,906 294,470 42,436 14.4 % 294,470 276,841 17,629 6.4 % General and administrative 89,934 68,697 21,237 30.9 % 68,697 66,201 2,496 3.8 % Acquisition and integration costs 390 7,009 (6,619 ) (94.4 )% 7,009 1,975 5,034 254.9 % Restructuring and related charges 2,860 1,748 1,112 63.6 % 1,748 2,625 (877 ) (33.4 )% Amortization of intangible assets 2,047 3,235 (1,188 ) (36.7 )% 3,235 6,110 (2,875 ) (47.1 )% Total operating expenses $ 646,407 $ 565,750 $ 80,657 14.3 % $ 565,750 $ 550,747 $ 15,003 2.7 % The following table highlights our operating expenses and operating income as a percentage of net revenues for the fiscal years ended June 30, 2023, 2022 and 2021: Year Ended June 30, 2023 June 30, 2022 June 30, 2021 Research and development 16.3 % 17.1 % 19.5 % Sales and marketing 25.7 % 26.5 % 27.4 % General and administrative 6.9 % 6.2 % 6.6 % Acquisition and integration costs 0.0 % 0.6 % 0.2 % Restructuring and related charges 0.2 % 0.2 % 0.3 % Amortization of intangible assets 0.2 % 0.3 % 0.6 % Total operating expenses 49.3 % 50.9 % 54.6 % Operating income 8.3 % 5.8 % 3.4 % Research and Development Expenses Research and development expenses consist primarily of personnel costs (which consists of compensation, benefits and stock-based compensation), consultant fees and prototype expenses related to the design, development, and testing of our products.
The first tier consists of a limited number of independent distributors that stock our products and sell primarily to resellers. The second tier of the distribution channel consists of a non-stocking distributors and value-added resellers that sell directly to end-users. Products and services may be sold separately or in bundled packages.
The first tier consists of a limited number of independent distributors that stock our products and sell primarily to resellers. The second tier of the distribution channel consists of non-stocking distributors and value-added resellers that sell directly to end-users. Products and services may be sold separately or in bundled packages.
We may provide sales incentives and other programs to these customers which are considered to be a form of variable consideration and we maintain estimated accruals and allowances using the historical actuals. Our stocking distributors are allowed to certain price adjustments in the form of rebates and limited stock rotation rights.
We may provide sales incentives and other programs to these customers which are considered to be a form of variable consideration and we maintain estimated accruals and allowances using the historical actuals. Our stocking distributors are allowed certain price adjustments in the form of rebates and limited stock rotation rights.
The manner, timing and amount of any future purchases will be determined by our management based on their evaluation of market conditions, stock price, and Extreme’s ongoing determination that it is the best use of available cash and other factors.
The manner, timing and amount of any future purchases will be determined by our management based on their evaluation of market conditions, stock price, Extreme’s ongoing determination that it is the best use of available cash and other factors.
Cash used in investing activities during fiscal year ended June 30, 2021 was $17.2 million for the purchases of property and equipment.
Cash used in investing activities during the fiscal year ended June 30, 2021 was $17.2 million for the purchases of property and equipment.
In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled. We generally do not grant return privileges and pricing credits to our value-added resellers, non-stocking distributors and end-user customers, except for defective products during the warranty period.
In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled. 38 We generally do not grant return privileges and pricing credits to our value-added resellers, non-stocking distributors and end-user customers, except for defective products during the warranty period.
On November 3, 2020, we and our lenders entered into the Third Amendment to increase the sublimit for letters of credit to $20.0 million. On December 8, 2020, we and our lenders entered into the Fourth Amendment to waive and amend certain terms and financial covenants within the 2019 Credit Agreement through March 31, 2021.
On November 3, 2020, we and our lenders entered into a Third Amendment to increase the sublimit for letters of credit to $20.0 million. On December 8, 2020, we and our lenders entered into a Fourth Amendment to waive and amend certain terms and financial covenants within the 2019 Credit Agreement through March 31, 2021.
Fiscal year ended 2021 During fiscal 2021, we continued our cost reduction initiative that began in the third quarter of fiscal 2020 and recorded related severance, benefits, and equipment relocation charges of $1.5 million, related to the 2020 Plan. In addition, we had facility-related charges of $1.1 million, related to our previously impaired facilities.
Fiscal year 2021 During fiscal 2021, we continued our cost reduction initiative that began in the third quarter of fiscal 2020 and recorded related severance, benefits, and equipment relocation charges of $1.5 million, related to the 2020 Plan. In addition, we had facility-related charges of $1.1 million, related to our previously impaired facilities.
In addition, we may request incremental term loans and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $100 million plus an unlimited amount that is subject to pro forma compliance with certain financial tests.
In addition, we may request incremental term loans and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $100.0 million plus an unlimited amount that is subject to pro forma compliance with certain financial tests.
Cash used in financing activities during fiscal year ended June 30, 2021 was $74.8 million due primarily to debt repayments of $74.0 million, payments of contingent consideration of $1.3 million and $4.0 million of deferred payments on acquisitions .
Cash used in financing activities during the fiscal year ended June 30, 2021 was $74.8 million due primarily to debt repayments of $74.0 million, payments of contingent consideration of $1.3 million and $4.0 million of deferred payments on acquisitions.
Critical Accounting Policies and Estimates Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies , in Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies , in Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Product gross profit increased to $401.2 million for the year ended June 30, 2022, from $389.4 million in fiscal 2021, primarily due to increased revenues along with lower amortization of intangibles of $9.5 million due to certain intangibles being fully amortized, and low er excess and obsolete inventory charges of $3.0 million, partially offset by higher direct product costs and higher distribution cost of $18.5 million .
Product gross profit increased to $401.2 million for the year ended June 30, 2022, from $389.4 million in fiscal 2021, primarily due to increased revenues along with lower amortization of intangibles of $9.5 million due to certain intangibles being fully amortized, and lower excess and obsolete inventory charges of $3.0 million, partially offset by higher direct product costs and higher distribution cost of $18.5 million.
For fiscal 2022, 2021 and 2020, our tax provision primarily related to taxes on our foreign operations, including foreign withholding taxes remitted to foreign tax authorities by customers on our behalf, tax expense related to the establishment of a U.S. deferred tax liability for amortizable goodwill resulting from the acquisition of Enterasys Networks, Inc., the WLAN Business, the Campus Fabric Business and the Data Center Business and state taxes in states where we have exhausted available Net Operating Losses (“NOLs”) or are subject to certain franchise taxes qualifying as income tax under the relevant tax accounting guidance.
For fiscal 2023, 2022 and 2021, our tax provision primarily related to taxes on our foreign operations, including foreign withholding taxes remitted to foreign tax authorities by customers on our behalf, tax expense related to the establishment of a U.S. deferred tax liability for amortizable goodwill resulting from the acquisition of Enterasys Networks, Inc., the WLAN Business, the Campus Fabric Business and the Data Center Business and state taxes in states where we have exhausted available Net Operating Losses or are subject to certain franchise taxes qualifying as income tax under the relevant tax accounting guidance.
Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the impact of (i) foreign income taxes of our international subsidiaries, (ii) foreign withholding taxes, (iii) state taxes, and (iv) the full valuation of our deferred tax assets in the U.S. and certain foreign jurisdictions.
Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the impact of (i) GILTI, (ii) the full valuation of our deferred tax assets in the U.S. and certain foreign jurisdictions, (iii) foreign income taxes of our international subsidiaries, and (iv) U.S. state taxes.
Returning to compliance with the covenants per the original terms of the 2019 Credit Agreement dated August 9, 2019 resulted in our Eurodollar loan spread decreasing from 4.5% during the Suspension Period to 2.75%, the unused facility commitment fee decreasing from 0.4% to 0.35%, and the limitation on revolver borrowings being removed effective May 1, 2021 after filing of the certificate with the administrative agent.
Returning to compliance with the covenants per the original terms of the 2019 Credit Agreement resulted in our Eurodollar loan spread decreasing from 4.5% during the Suspension Period to 2.75%, the unused facility commitment fee decreasing from 0.4% to 0.35%, and the limitation on revolver borrowings being removed effective May 1, 2021 after filing of the certificate with the administrative agent.
The acquisition was accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Ipanematech were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.
The acquisition was accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Ipanema were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets.
Stock rotation adjustments are an additional form of variable consideration and are estimated based on an analysis of historical return rates. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Stock rotations are an additional form of variable consideration and are estimated based on an analysis of historical return rates. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
The applicable margin for base rate loans ranges from 0.25% to 2.50% per annum and the applicable margin for Eurodollar loans ranges from 1.25% to 3.50%, in each case based on Extreme’s Consolidated Leverage Ratio. All Eurodollar loans are subject to a Base Rate floor of 0.00%. The 2019 Credit Agreement is secured by substantially all of our assets.
The applicable margin for base rate loans ranged from 0.25% to 2.50% per annum and the applicable margin for Eurodollar loans ranged from 1.25% to 3.50%, in each case based on Extreme’s Consolidated Leverage Ratio. All Eurodollar loans are subject to a Base Rate floor of 0.00%. The 2019 Credit Agreement was secured by substantially all of our assets.
The 2019 Credit Agreement requires us to maintain certain minimum financial ratios at the end of each fiscal quarter. The 2019 Credit Agreement also includes covenants and restrictions that limit, among other things, our ability to incur additional indebtedness, create liens upon any of our property, merge, consolidate or sell all or substantially all of our assets.
The 2019 Credit Agreement required us to maintain certain minimum financial ratios at the end of each fiscal quarter. The 2019 Credit Agreement also included covenants and restrictions that limit, among other things, our ability to incur additional indebtedness, create liens upon any of our property, merge, consolidate or sell all or substantially all of our assets.
The Second Amendment provided for us to end the covenant Suspension Period early and revert to the covenants and interest rates per the original terms of the 2019 Credit Agreement dated August 9, 2019 by filing a Suspension Period Early Termination Notice and Covenant Certificate demonstrating compliance.
The Second Amendment provided for us to end the covenant Suspension Period early and revert to the covenants and interest rates per the original terms of the 2019 Credit Agreement by filing a Suspension Period Early Termination Notice and Covenant Certificate demonstrating compliance.
We do not have any material commitments for capital expenditures as of June 30, 2022. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of June 30, 2022. 42
We do not have any material commitments for capital expenditures as of June 30, 2023. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of June 30, 2023. 42
We believe that our existing cash, cash flows from operations, and the availability of borrowings from the 2019 Revolving Facility will be sufficient to fund our planned operations for at least the next 12 months.
We believe that our existing cash and cash equivalents, cash flows from operations, and the availability of borrowings from the 2023 Revolving Facility will be sufficient to fund our planned operations for at least the next 12 months.
Net cash (Used in) Provided by Financing Activities Cash used in financing activities during fiscal year ended June 30, 2022 was $94.7 million due primarily to share repurchases of $45.0 million, debt repayments of $38.1 million, payments of contingent consideration of $1.0 million and $4.0 million of deferred payments on acquisitions and a $6.5 million payment for taxes on vested and released stock awards net of proceeds from the issuance of shares of our common stock under our Employee Stock Purchase Plan (“ESPP”) and exercise of stock options .
Cash used in financing activities during the fiscal year ended June 30, 2022 was $94.7 million due primarily to share repurchases of $45.0 million, debt repayments of $38.1 million, payments of contingent consideration of $1.0 million and $4.0 million of deferred payments on acquisitions and a $6.5 million payment for taxes on vested and released stock awards net of proceeds from the issuance of shares of our common stock under our ESPP and exercise of stock options.
On August 9, 2019, we used the proceeds to partially fund the acquisition of Aerohive and for working capital and general corporate purposes . At our election, the initial term loan (the “Initial Term Loan”) under the 2019 Credit Agreement may be made as either base rate loans or Eurodollar loans.
On August 9, 2019, we used the proceeds to partially fund the acquisition of Aerohive and for working capital and general corporate purposes. At our election, the initial term loan (the “Initial Term Loan”) under the 2019 Credit Agreement was either base rate loans or Eurodollar loans.
Revenues through our distributor channel were 80% of total product revenues in fiscal 2022, 77% of total product revenues in fiscal 2021 and 73% of total product revenue in fiscal 2020. The level of sales to any one customer, including a distributor, may vary from period to period.
Revenues through our distributor channel were 83% of total product revenues in fiscal 2023, 80% of total product revenues in fiscal 2022 and 77% of total product revenue in fiscal 2021. The level of sales to any one customer, including a distributor, may vary from period to period.
We anticipate our principal uses of cash for fiscal 2023 will be purchases of finished goods inventory from our contract manufacturers, payroll, payments under debt obligations and related interest, payments under lease obligations, purchases of property and equipment and other operating expenses related to the development and marketing of our products.
We anticipate our principal uses of cash and cash equivalents for fiscal 2024 will be purchases of finished goods inventory from our contract manufacturers, payroll, share repurchases, payments under debt obligations and related interest, payments under lease obligations, purchases of property and equipment and other operating expenses related to the development and marketing of our products.
The repurchase program does not obligate us to acquire any shares of our common stock, may be suspended or terminated at any time without prior notice and will be subject to regulatory considerations.
The repurchase program does not obligate Extreme to acquire any shares of its common stock, may be suspended or terminated at any time without prior notice and will be subject to regulatory considerations.
The 2019 Credit Agreement also includes customary events of default which may result in acceleration of the outstanding balance. On April 8, 2020, we entered into the first amendment to our 2019 Credit Agreement (the “First Amendment”) to waive certain terms and financial covenants of the 2019 Credit Agreement through July 31, 2020.
The 2019 Credit Agreement also included customary events of default which may result in acceleration of the outstanding balance. On April 8, 2020, we entered into the First Amendment to waive certain terms and financial covenants of the 2019 Credit Agreement through July 31, 2020.
Service and subscription gross profit increased to $228.8 million for the year ended June 30, 2022, from $195.7 million in fiscal 2021, primarily due to higher service and subscription revenues partially offset by higher professional fees and increased cloud service costs.
Service and subscription gross profit increased to $248.6 million for the year ended June 30, 2023, from $228.8 million in fiscal 2022, primarily due to higher service and subscription revenues partially offset by higher professional services fees and increased cloud service costs. 35 Service and subscription gross profit increased to $228.8 million for the year ended June 30, 2022, from $195.7 million in fiscal 2021, primarily due to higher service and subscription revenues partially offset by higher professional fees and increased cloud service costs.
Net Cash Used in Investing Activities Cash used in investing activities during fiscal year ended June 30, 2022 was $85.0 million, primarily due to the payment of $69.5 million (net of cash acquired) for the acquisition of Ipanema and $15.4 million for purchases of property and equipment.
Net Cash Used in Investing Activities Cash used in investing activities during the fiscal year ended June 30, 2023 was $13.8 million, primarily due to the payment of $13.8 million for the purchases of property and equipment. 41 Cash used in investing activities during the fiscal year ended June 30, 2022 was $85.0 million, primarily due to the payment of $69.5 million (net of cash acquired) for the Acquisition and $15.4 million for purchases of property and equipment.
Our unconditional purchase obligations represent the purchase of long lead-time component inventory that our contract manufacturers procure in accordance with our forecast. We expect to honor the inventory purchase commitments within the next 12 months. As of June 30, 2022, we have non-cancelable commitments to purchase $60.3 million of inventory.
Our unconditional purchase obligations represent the purchase of long lead-time component inventory that our contract manufacturers procure in accordance with our forecast. We expect to honor the inventory purchase commitments within the next 12 months. As of June 30, 2023, we have non-cancelable commitments to purchase $69.6 million of inventory.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Business Overview The following discussion should be read with the Consolidated Financial Statements and the related notes in Part II, Item 8 of this Report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Business Overview The following discussion should be read with the Consolidated Financial Statements and the related notes in Part II, Item 8 of this Annual Report on Form 10-K.
The following discussion is based upon our Consolidated Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
The following discussion is based upon our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
Other Income (Expense), net We had other income of $0.4 million and $0.7 million in fiscal years ended June 30, 2022 and 2020, respectively, and other expense of $1.7 million in fiscal 2021.
Other Income (Expense), net We had other income of less than $0.1 million and $0.4 million in fiscal years ended June 30, 2023 and 2022, respectively, and other expense of $1.7 million in fiscal 2021.
Other sources of cash for the period included increases in accounts payable and deferred revenue. These amounts were partially offset by increases in accounts receivable, inventories and prepaid expenses and other assets and decreases in accrued compensation, current and long-term liabilities and operating lease liabilities. Cash provided by operating activities during fiscal year ended June 30, 2021 was $144.5 million.
These amounts were partially offset by increases in accounts receivable, inventories and prepaid expenses and other assets and decreases in accrued compensation, current and long-term liabilities and operating lease liabilities. Cash provided by operating activities during the fiscal year ended June 30, 2021 was $144.5 million.
Factors contributing to cash provided by operating activities for the year ended June 30, 2021 were net income of $1.9 million, non-cash expenses of $121.7 million for items such as amortization of intangibles, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and imputed interest.
Factors contributing to cash provided by operating activities were net income of $1.9 million, non-cash expenses of $121.7 million for items such as amortization of intangible assets, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and imputed interest.
For fiscal 2022, we incurred $7.0 million of acquisition and integration costs which consisted primarily of professional fees for product integration, system integration, financial, legal and advisory services related to the Ipanema acquisition.
For fiscal 2023, we incurred $0.4 million of acquisition and integration costs which consisted primarily of professional fees and certain compensation charges related to the Acquisition. For fiscal 2022, we incurred $7.0 million of acquisition and integration costs which consisted primarily of professional fees for product integration, system integration, financial, legal and advisory services related to the Acquisition.
Acquisition and Integration Costs As a result of our acquisitions of Ipanema in fiscal 2022, and Aerohive in fiscal 2020, we incurred $7.0 million, $2.0 million and $32.1 million of acquisition and integration costs in fiscal years ended June 30, 2022, 2021 and 2020, respectively.
Acquisition and Integration Costs As a result of our acquisitions of Ipanema in fiscal 2022, and Aerohive Networks, Inc. (“Aerohive”) in fiscal 2020, we incurred $0.4 million, $7.0 million and $2.0 million of acquisition and integration costs in fiscal years ended June 30, 2023, 2022 and 2021, respectively.
Extreme’s enhanced Cloud solution is the only offering in the market that seamlessly integrates the cloud with on-premises infrastructures and enables visibility from the edge to everywhere. See Part 1, Item 1. Business , for additional discussion of our business.
Extreme’s enhanced Cloud solution is the only offering in the market that seamlessly integrates the cloud with on-premises infrastructures and enables visibility from the edge to everywhere. See Part 1, Item 1. Business , for additional discussion of our business. Fiscal Year The Company uses a fiscal calendar year ending on June 30.
For the fiscal years ended June 30, 2022, 2021 and 2020, we recorded income tax provisions of $7.9 million, $8.2 million, and $6.4 million respectively.
For the fiscal years ended June 30, 2023, 2022 and 2021, we recorded income tax provisions of $16.0 million, $7.9 million, and $8.2 million respectively.
The facility restructuring charges included some impairment charges and additional facilities expenses related to previously impaired facilities. During fiscal 2022, the Company completed the reduction-in-force action initiated in the third quarter of fiscal 2020.
Fiscal year 2022 During fiscal 2022, the Company recorded $1.7 million of restructuring charges which primarily comprised of facility related charges. The facility restructuring charges included some impairment charges and additional facilities expenses related to previously impaired facilities. During fiscal 2022, the Company completed the reduction-in-force action initiated in the third quarter of fiscal 2020.
Cost of Revenues and Gross Profit The following table presents the gross profit on product and service revenues and the gross profit percentage of net revenues for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands): Year Ended Year Ended June 30, 2022 June 30, 2021 $ Change % Change June 30, 2021 June 30, 2020 $ Change % Change Gross profit: Product $ 401,159 $ 389,438 $ 11,721 3.0 % $ 389,438 $ 327,318 $ 62,120 19.0 % Percentage of product revenues 52.7 % 55.7 % 55.7 % 50.1 % Service and subscription 228,779 195,685 33,094 16.9 % 195,685 190,521 5,164 2.7 % Percentage of service and subscription revenues 65.3 % 63.1 % 63.1 % 64.7 % Total gross profit $ 629,938 $ 585,123 $ 44,815 7.7 % $ 585,123 $ 517,839 $ 67,284 13.0 % Percentage of net revenues 56.6 % 58.0 % 58.0 % 54.6 % Cost of product revenues includes costs of materials, amounts paid to third-party contract manufacturers, costs related to warranty obligations, charges for excess and obsolete inventory, scrap, distribution, product certification, amortization of developed technology intangibles, royalties under technology license agreements, and internal costs associated with manufacturing overhead, including management, manufacturing engineering, quality assurance, development of test plans, and document control.
Cost of Revenues and Gross Profit The following table presents the gross profit on product and service and subscription revenues and the gross profit percentage of net revenues for the fiscal years ended June 30, 2023, 2022 and 2021 (in thousands, except percentages): Year Ended Year Ended June 30, 2023 June 30, 2022 $ Change % Change June 30, 2022 June 30, 2021 $ Change % Change Gross profit: Product $ 506,159 $ 401,159 $ 105,000 26.2 % $ 401,159 $ 389,438 $ 11,721 3.0 % Percentage of product revenues 54.3 % 52.7 % 52.7 % 55.7 % Service and subscription 248,561 228,779 19,782 8.6 % 228,779 195,685 33,094 16.9 % Percentage of service and subscription revenues 65.4 % 65.3 % 65.3 % 63.1 % Total gross profit $ 754,720 $ 629,938 $ 124,782 19.8 % $ 629,938 $ 585,123 $ 44,815 7.7 % Percentage of net revenues 57.5 % 56.6 % 56.6 % 58.0 % Cost of product revenues includes costs of materials, amounts paid to third-party contract manufacturers, costs related to warranty obligations, charges for excess and obsolete inventory, scrap, distribution, product certification, amortization of developed technology intangibles, royalties under technology license agreements, and internal costs associated with manufacturing overhead, including management, manufacturing engineering, quality assurance, development of test plans, and document control.
The other income for fiscal 2022 and 2020 was primarily due to foreign exchange gains from the revaluation of certain assets and liabilities denominated in foreign currencies into U.S. Dollars. The other expense for fiscal 2021 was primarily due to foreign exchange losses from the revaluation of certain assets and liabilities denominated in foreign currencies into U.S. Dollars.
The other income for fiscal years ended June 30, 2023 and 2022 was primarily due to foreign exchange gains from the revaluation of certain assets and liabilities denominated in foreign currencies into U.S. Dollars.
Amortization of Intangibles During fiscal years ended June 30, 2022, 2021 and 2020, we recorded $3.2 million, $6.1 million and $8.4 million, respectively, of amortization expense in operating expenses primarily for certain intangibles related to the acquisitions of the Ipanema, Aerohive, Campus Fabric, Data Center and WLAN Businesses.
Amortization of Intangible Assets During the fiscal years ended June 30, 2023, 2022 and 2021, we recorded $2.0 million, $3.2 million and $6.1 million, respectively, of amortization expense in operating expenses primarily for certain intangibles related to the acquisitions of the Ipanema, and Aerohive businesses.
Additionally, the first half of fiscal 2021 product revenue was impacted by the material slow-down in global demand due to the global outbreak of COVID-19. Product revenues increased $45.7 million or 7.0% for the year ended June 30, 2021, compared to fiscal 2020.
Additionally, the first half of fiscal 2021 product revenue was impacted by the material slow-down in global demand due to the global outbreak of COVID-19. Service and subscription revenues increased $29.4 million or 8.4% for the year ended June 30, 2023, compared to fiscal 2022.
Factors contributing to cash provided by operating activities for the year ended June 30, 2022 were net income of $44.3 million, non-cash expenses of $104.0 million for items such as amortization of intangibles, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and interest.
Factors contributing to cash provided by operating activities were net income of $44.3 million, non-cash expenses of $104.0 million for items such as amortization of intangible assets, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and interest. Other sources of cash for the period included increases in accounts payable and deferred revenue.
The 2019 Credit Agreement provides for a 5-year first lien term loan facility in an aggregate principal amount of $380 .0 million and a 5-year revolving loan facility in an aggregate principal amount of $75 .0 million (“2019 Revolving Facility”) .
On August 9, 2019, we entered into an Amended and Restated Credit Agreement (the “2019 Credit Agreement”). The 2019 Credit Agreement provides for a five-year first lien term loan facility in an aggregate principal amount of $380.0 million and a five-year revolving loan facility in an aggregate principal amount of $75.0 million (“2019 Revolving Facility”).
Key Components of Cash Flows and Liquidity A summary of the sources and uses of cash and cash equivalents is as follows (in thousands) for the fiscal years ended June 30, 2022, 2021, and 2020: Year Ended June 30, 2022 June 30, 2021 June 30, 2020 Net cash provided by operating activities $ 128,177 $ 144,535 $ 35,884 Net cash used in investing activities (84,950 ) (17,176 ) (189,477 ) Net cash (used in) provided by financing activities (94,663 ) (74,782 ) 178,492 Foreign currency effect on cash (936 ) 445 (634 ) Net (decrease) increase in cash $ (52,372 ) $ 53,022 $ 24,265 Cash was $194.5 million at June 30, 2022, representing a decrease of $52.4 million from $246.9 million at June 30, 2021.
Key Components of Cash Flows and Liquidity A summary of the sources and uses of cash and cash equivalents is as follows for the fiscal years ended June 30, 2023, 2022, and 2021 (in thousands): Year Ended June 30, 2023 June 30, 2022 June 30, 2021 Net cash provided by operating activities $ 249,212 $ 128,177 $ 144,535 Net cash used in investing activities (13,800 ) (84,950 ) (17,176 ) Net cash used in financing activities (194,783 ) (94,663 ) (74,782 ) Foreign currency effect on cash and cash equivalents (325 ) (936 ) 445 Net increase (decrease) in cash and cash equivalents $ 40,304 $ (52,372 ) $ 53,022 Cash and cash equivalent was $234.8 million at June 30, 2023, representing an increase of $40.3 million from $194.5 million at June 30, 2022.
The increase in general and administrative expenses during fiscal 2022 was primarily due to a $1.4 million increase in third party software and equipment related costs, a $1.9 increase in facilities and related costs, partially offset by a $0.2 million decrease in personnel costs and a $0.6 decrease in travel and professional fees.
General and administrative expenses increased by $2.5 million or 3.8% for the year ended June 30, 2022, as compared to fiscal 2021, primarily due to a $1.4 million increase in third party software and equipment related costs, a $1.9 million increase in facilities and related costs, partially offset by a $0.2 million decrease in personnel costs and a $0.6 million decrease in travel and professional fees.
We were incorporated in California in May 1996 and reincorporated in Delaware in March 1999. We recently changed our corporate headquarters from San Jose, California to Morrisville, North Carolina. We derive substantially all of our revenues from the sale of our networking software, hardware and services, and related maintenance contracts.
We were incorporated in California in May 1996 and reincorporated in Delaware in March 1999. Our corporate headquarters are located in Morrisville, North Carolina. We derive a majority of our revenues from the sale of our networking equipment, software subscriptions and services, and related maintenance contracts.
Cash was $194.5 million as of June 30, 2022, a decrease of $52.4 million, compared to $246.9 million at the end of fiscal 2021.
Cash was $194.5 million at June 30, 2022, representing a decrease of $52.4 million from $246.9 million at June 30, 2021.
The primary reason for the Acquisition was to acquire the talent and the technology to allow us to expand our portfolio with new cloud-managed SD-WAN and security offerings to support our enterprise customers.
Under the terms of the Acquisition, the net consideration paid by Extreme to Ipanema stockholders was $70.9 million. The primary reason for the Acquisition was to acquire the talent and the technology to allow us to expand our portfolio with new cloud-managed SD-WAN and security offerings to support our enterprise customers.
The decrease in research and development expenses was due to a $0.7 million decrease in personnel costs, a $3.8 million decrease in facility and information technology costs, a $1.2 million decrease in third-party software licenses and engineering project costs and a $1.0 million decrease in other expenses, partially offset by a $0.3 million increase in travel expenses.
Research and development expenses decreased by $6.4 million or 3.25% for the year ended June 30, 2022 as compared to fiscal 2021, primarily due to a $0.7 million decrease in personnel costs, a $3.8 million decrease in facility and information technology costs, a $1.2 million decrease in third-party software licenses and engineering project costs and a $1.0 million decrease in other expenses, partially offset by a $0.3 million increase in travel expenses.
For further information about our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” section included in this “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” and as “we”, “us” and “our”) is a leading provider of networking software, hardware and services and offers related maintenance contracts for extended warranty and maintenance to our enterprise, data center and service provider customers.
For further information about our critical accounting policies and estimates, see “ Critical Accounting Policies and Estimates ” included in this “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” and as “we,” “us” and “our”) is a leading provider of cloud networking solutions and industry leading services and support.
See Note 10, Commitments and Contingencies, in the Notes to Consolidated Financial Statements for additional information regarding our purchase obligations. We lease facilities under operating lease arrangements at various locations that expire at various dates through our fiscal year 2032. As of June 30, 2022, the value of our obligations under operating leases was $53.3 million.
See Note 10, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our purchase obligations. We lease facilities under operating lease arrangements at various locations that expire at various dates through our fiscal year 2032.
Hybrid cloud is a cloud computing environment which uses a mix of on-premises, private cloud, and third-party, public cloud services with orchestration between multiple platforms.
A direction affecting the Enterprise Network Equipment market is the continued adoption of the cloud-managed enterprise WLAN in the enterprise market. Hybrid cloud is a cloud computing environment which uses a mix of on-premises, private cloud, and third-party, public cloud services with orchestration between multiple platforms.
Liquidity and Capital Resources The following summarizes information regarding our cash (in thousands): June 30, 2022 June 30, 2021 Cash $ 194,522 $ 246,894 As of June 30, 2022, our principal sources of liquidity consisted of cash of $194.5 million, accounts receivable, net of $184.1 million and available borrowings under our five-year 2019 Revolving Facility (as defined below) of $60.2 million.
Liquidity and Capital Resources The following summarizes information regarding our cash and cash equivalent (in thousands): June 30, 2023 June 30, 2022 Cash and cash equivalents $ 234,826 $ 194,522 As of June 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $234.8 million, accounts receivable, net of $182.0 million and available borrowings under our five-year 2023 Revolving Facility (as defined below) of $125.0 39 million.
In determining the transaction price, we consider these rebate adjustments to be variable consideration which are estimated based on an analysis of actual claims, at the distributor level over a period of time considered adequate to account for current pricing and business trends. Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory.
In determining the transaction price, we consider these rebates to be variable consideration which are estimated based on an analysis of historical claims at the distributor level. Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory.
Net Revenues The following table presents net product and service revenues for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands): Year Ended Year Ended June 30, 2022 June 30, 2021 $ Change % Change June 30, 2021 June 30, 2020 $ Change % Change Net revenues: Product $ 761,721 $ 699,396 $ 62,325 8.9 % $ 699,396 $ 653,651 $ 45,745 7.0 % Percentage of net revenues 68.5 % 69.3 % 69.3 % 68.9 % Service and subscription 350,600 310,022 40,578 13.1 % 310,022 294,368 15,654 5.3 % Percentage of net revenues 31.5 % 30.7 % 30.7 % 31.1 % Total net revenues $ 1,112,321 $ 1,009,418 $ 102,903 10.2 % $ 1,009,418 $ 948,019 $ 61,399 6.5 % Product revenues increased $62.3 million or 8.9% for the year ended June 30, 2022, compared to fiscal 2021.
Net Revenues The following table presents net product and service and subscription revenues for the fiscal years ended June 30, 2023, 2022 and 2021 (in thousands, except percentages): Year Ended Year Ended June 30, 2023 June 30, 2022 $ Change % Change June 30, 2022 June 30, 2021 $ Change % Change Net revenues: Product $ 932,454 $ 761,721 $ 170,733 22.4 % $ 761,721 $ 699,396 $ 62,325 8.9 % Percentage of net revenues 71.0 % 68.5 % 68.5 % 69.3 % Service and subscription 380,000 350,600 29,400 8.4 % 350,600 310,022 40,578 13.1 % Percentage of net revenues 29.0 % 31.5 % 31.5 % 30.7 % Total net revenues $ 1,312,454 $ 1,112,321 $ 200,133 18.0 % $ 1,112,321 $ 1,009,418 $ 102,903 10.2 % Product revenues increased $170.7 million or 22.4% for the year ended June 30, 2023, compared to fiscal 2022.
On May 8, 2020, we entered into the second amendment to the 2019 Credit Agreement (the “Second Amendment”) which superseded the First Amendment and provided certain revised terms and financial covenants effective through March 31, 2021. Subsequent to March 31, 2021, the original terms and financial covenants under the 2019 Credit Agreement resumed effect.
On May 8, 2020, we entered into a Second Amendment which superseded the First Amendment and provided certain revised terms and financial covenants through March 31, 2021.
The decrease in interest expense in fiscal year ended June 30, 2022 was primarily driven by lower average loan balances and lower average rates under our 2019 Credit Agreement . The decrease in interest expense in fiscal year ended June 30, 2021 was primarily driven by lower average loan balances and lower average rates under our 2019 Credit Agreement.
The decrease in interest expense in fiscal year ended June 30, 2022 as compared to fiscal 2021 was primarily driven by lower average loan balances and lower average rates under our 2019 Credit Agreement. For a discussion of our credit agreements, see the section titled " Liquidity and Capital Resources " below.
The following table presents the total net revenues geographically for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands): Year Ended Year Ended Net Revenues June 30, 2022 June 30, 2021 $ Change % Change June 30, 2021 June 30, 2020 $ Change % Change Americas: United States $ 503,635 $ 485,471 $ 18,164 3.7 % $ 485,471 $ 459,769 $ 25,702 5.6 % Other 44,608 48,049 (3,441 ) (7.2 )% 48,049 39,633 8,416 21.2 % Total Americas 548,243 533,520 14,723 2.8 % 533,520 499,402 34,118 6.8 % Percentage of net revenues 49.3 % 52.9 % 52.9 % 52.7 % EMEA 477,081 387,545 89,536 23.1 % 387,545 357,201 30,344 8.5 % Percentage of net revenues 42.9 % 38.4 % 38.4 % 37.7 % APAC 86,997 88,353 (1,356 ) (1.5 )% 88,353 91,416 (3,063 ) (3.4 )% Percentage of net revenues 7.8 % 8.8 % 8.8 % 9.6 % Total net revenues $ 1,112,321 $ 1,009,418 $ 102,903 10.2 % $ 1,009,418 $ 948,019 $ 61,399 6.5 % We rely upon multiple channels of distribution, including distributors, direct resellers, OEMs and direct sales.
The following table presents the total net revenues geographically for the fiscal years ended June 30, 2023, 2022 and 2021 (in thousands, except percentages): Year Ended Year Ended Net Revenues June 30, 2023 June 30, 2022 $ Change % Change June 30, 2022 June 30, 2021 $ Change % Change Americas: United States $ 572,927 $ 503,635 $ 69,292 13.8 % $ 503,635 $ 485,471 $ 18,164 3.7 % Other 84,108 44,608 39,500 88.5 % 44,608 48,049 (3,441 ) (7.2 )% Total Americas 657,035 548,243 108,792 19.8 % 548,243 533,520 14,723 2.8 % Percentage of net revenues 50.1 % 49.3 % 49.3 % 52.9 % EMEA 559,669 477,081 82,588 17.3 % 477,081 387,545 89,536 23.1 % Percentage of net revenues 42.6 % 42.9 % 42.9 % 38.4 % APAC 95,750 86,997 8,753 10.1 % 86,997 88,353 (1,356 ) (1.5 )% Percentage of net revenues 7.3 % 7.8 % 7.8 % 8.8 % Total net revenues $ 1,312,454 $ 1,112,321 $ 200,133 18.0 % $ 1,112,321 $ 1,009,418 $ 102,903 10.2 % We rely upon multiple channels of distribution, including distributors, direct resellers, OEMs and direct sales.
For fiscal 2021, we incurred $2.0 million of integration costs which consisted primarily of additional professional fees for system integration and financial services related to the Aerohive acquisition .
For fiscal 2021, we incurred $2.0 million of integration costs which consisted primarily of additional professional fees for system integration and financial services related to the Aerohive acquisition. Restructuring and Related Charges During the fiscal years ended June 30, 2023, 2022 and 2021, we recorded restructuring and related charges of $2.9 million, $1.7 million and $2.6 million, respectively.
Cash provided by operating activities during fiscal year ended June 30, 2020 was $35.9 million. Factors contributing to cash provided by operating activities for the year ended June 30, 2020 were non-cash expenses such as amortization of intangibles, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, restructuring charges, deferred income taxes and imputed interest.
Factors contributing to cash provided by operating activities were net income of $78.1 million, non-cash expenses of $104.6 million for items such as amortization of intangible assets, stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and interest.
The increase in service and subscription revenues was primarily due to the growth in subscription revenues and partially due to the acquisition of Ipanema . Service and subscription revenues increased $15.7 million or 5.3% for the year ended June 30, 2021, compared to fiscal 2020.
The increase in service and subscription revenues was primarily due to the growth in our subscription business. Service and subscription revenues increased $40.6 million or 13.1% for the year ended June 30, 2022, compared to fiscal 2021.
The increase in service and subscription revenues was primarily due to the growth in subscription revenues. 33 We operate in three regions: Americas, which includes the United States, Canada, Mexico, Central America and South America; EMEA, which includes Europe, Russia, Middle East, and Africa; and APAC which includes Asia Pacific, South Asia, Japan and Australia.
The increase in service and subscription revenues was primarily due to the growth in subscription revenues and partially due to the acquisition of Ipanema. 34 We operate in three regions: Americas, EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific).
The decrease in amortization expense in fiscal 2021 from fiscal 2020 was primarily due to certain acquired intangibles from previous acquisitions becoming fully amortized, partially offset by an increase from full period amortization of acquired intangibles from the Aerohive acquisition.
The decrease in amortization expense in fiscal 2023 from fiscal 2022 was primarily due to certain acquired intangibles from previous acquisitions becoming fully amortized.
See Note 3, Revenues , in notes to Consolidated Financial Statements for additional information. 38 Business Combinations We apply the acquisition method of accounting for business combinations. Under this method of accounting, all tangible and intangible assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
Under this method of accounting, all tangible and intangible assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
Other sources of cash for the period included a decrease in accounts receivables, inventory, and prepaid expenses and other current assets and increases in deferred revenue. These amounts were partially offset by our net loss of $126.8 million, decreases in accounts payable, accrued compensation, other current and long-term liabilities, and operating lease liabilities.
Other sources of cash for the period included decrease in account receivable and increases in accounts payable, accrued compensation and deferred revenue. These amounts were partially offset by increases in inventories and prepaid expenses and other assets and decreases in operating lease liabilities. Cash provided by operating activities during the fiscal year ended June 30, 2022 was $128.2 million.
General and Administrative Expenses General and administrative expense consists primarily of personnel costs (which consists of compensation, benefits and share-based compensation), legal and professional service costs, travel and facilities and information technology costs. General and administrative expenses increased by $2.5 million or 3.8% for the year ended June 30, 2022, as compared to fiscal 2021.
Sales and marketing expenses increased by $17.6 million or 6.4% for the year ended June 30, 2022, as compared to fiscal 2021, primarily due to a $6.6 million increase in personnel costs primarily due to higher headcount, a $7.0 million increase in marketing sales and promotional costs, a $5.5 million increase in travel expenses due to loosening of COVID-19 restrictions, partially offset by a $1.5 million decrease in professional fees and equipment related costs. 36 General and Administrative Expenses General and administrative expenses consist of primarily of personnel costs (which consists of compensation, benefits and share-based compensation), legal and professional service costs, travel and facilities and information technology costs.
On May 18, 2022, our Board of Directors authorized an increase to our share repurchase authorization to $200.0 million over a three-year period beginning in our fiscal year commencing July 1, 2022. Purchases may be made from time to time in the open market or in privately negotiated transactions.
On May 18, 2022, our Board of Directors authorized a share repurchase program with authorization to repurchase up to $200.0 million of our common stock over a three-year period beginning in our fiscal year commencing July 1, 2022. A maximum of $25.0 million may be repurchased in any quarter.
Interest Income Interest income was $0.4 million, $0.4 million and $1.4 million in fiscal years ended June 30, 2022, 2021 and 2020, respectively. Interest income remained flat in fiscal 2022 as compared to fiscal 2021 and decreased $1.0 million in fiscal 2021 from fiscal 2020.
Interest Income Interest income was $3.2 million, $0.4 million and $0.4 million in fiscal years ended June 30, 2023, 2022 and 2021, respectively. Interest income increased in fiscal 2023 as compared to fiscal 2022 primarily due to higher interest earned cash deposits.
Technology advances have a profound effect across the entire enterprise network placing unprecedented demands on network administrators to enhance management capabilities, scalability, programmability, agility, and analytics of the enterprise networks they manage. A direction affecting the Enterprise Network Equipment market is the continued adoption of the cloud-managed enterprise WLAN in the enterprise market.
Accelerators such as IoT, AI, BYOD, ML, cognitive computing, and robotics add complexity to challenge the capabilities of traditional networks. Technology advances have a profound effect across the entire enterprise network placing unprecedented demands on network administrators to enhance management capabilities, scalability, programmability, agility, and analytics of the enterprise networks they manage.
The decrease in fiscal 2021 from 2020 was due to lower interest rates and lower invested fund balances. Interest Expense We incurred $12.8 million, $22.9 million, and $23.8 million of interest expense for fiscal years ended June 30, 2022, 2021 and 2020, respectively.
Interest income remained flat in fiscal 2022 from fiscal 2021. 37 Interest Expense We incurred $17.4 million, $12.8 million, and $22.9 million of interest expense for fiscal years ended June 30, 2023, 2022 and 2021, respectively.
Given the full U.S. valuation allowance against our U.S. deferred tax assets, this transaction did not impact net tax expense or the overall tax rate. 37 For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and for further explanation of our provisions for income taxes, see Note 16, Income Taxes , in notes to Consolidated Financial Statements for additional information.
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and for further explanation of our provisions for income taxes, see Note 16, Income Taxes , in Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Results of Operations The following is a summary of our results of operations during fiscal year ended June 30, 2022: • Net revenues of $1,112.3 million, increased 10.2% from fiscal 2021 net revenues of $1,009.4 million. • Product revenues of $761.7 million, increased 8.9% from fiscal 2021 product revenues of $699.4 million. • Service revenues of $350.6 million, increased 13.1% from fiscal 2021 service revenues of $310.0 million. • Total gross margin of 56.6% of net revenues in fiscal 2022, compared to 58.0% in fiscal 2021. • Operating income of $64.2 million, compared to operating income of $34.4 million in fiscal 2021. • Net income was $44.3 million in fiscal 2022, compared to net income of $1.9 million in fiscal 2021. • Cash flow provided by operating activities of $128.2 million, compared to cash flow provided by operating activities of $144.5 million in fiscal 2021, a decrease of $16.3 million.
During the fiscal years ended June 30, 2023 and 2022, we recognized transaction costs related to this acquisition of $0.4 million and $7.0 million, respectively, which are included in “Acquisition and integration costs” in the accompanying consolidated statements of operations. 33 Results of Operations The following is a summary of our results of operations during the fiscal year ended June 30, 2023: • Net revenues of $1,312.5 million, increased 18.0% from fiscal 2022 net revenues of $1,112.3 million. • Product revenues of $932.5 million, increased 22.4% from fiscal 2022 product revenues of $761.7 million. • Service and subscription revenues of $380.0 million, increased 8.4% from fiscal 2022 service and subscription revenues of $350.6 million. • Total gross margin of 57.5% of net revenues in fiscal 2023, compared to 56.6% in fiscal 2022. • Operating income of $108.3 million, compared to operating income of $64.2 million in fiscal 2022. • Net income was $78.1 million in fiscal 2023, compared to net income of $44.3 million in fiscal 2022. • Cash flow provided by operating activities of $249.2 million, compared to cash flow provided by operating activities of $128.2 million in fiscal 2022, an increase of $121.0 million.
Acquisitions Ipanematech SAS On September 14, 2021 (the “Acquisition Date”), we completed our acquisition (the “Acquisition”) of Ipanematech SAS (“Ipanema”), the cloud-native enterprise Software-Defined Wide Area Network (“SD-WAN”) business unit of InfoVista pursuant to a Sale and Purchase Agreement. Under the terms of the Acquisition, the net consideration paid by Extreme to Ipanema stockholders was $70.9 million.
All references herein to “fiscal 2023” or “2023"; “fiscal 2022” or “2022”; “fiscal 2021” or “2021” represent the fiscal years ending, respectively. Acquisitions Ipanematech SAS On September 14, 2021 (the “Acquisition Date”), we completed our acquisition (the “Acquisition”) of Ipanematech SAS (“Ipanema”), the cloud-native enterprise Software-Defined Wide Area Network business unit of InfoVista pursuant to a Sale and Purchase Agreement.
See Note 8, Debt , in the Notes to Consolidated Financial Statements for additional information regarding our lease obligations. We have contractual commitments to our suppliers which represent commitments for future services. As of June 30, 2022, we have contractual commitments of $54.8 million that are due through our fiscal year 2027.
As of June 30, 2023, the value of our obligations under operating leases was $48.2 million. See Note 9, Leases , in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our lease obligations. We have contractual commitments with our suppliers which represent commitments for future services.
As of June 30, 2022, we have $308.6 million of debt outstanding which are payable on quarterly installments through our fiscal year 2025. We are subject to interest rate on our debt obligations and unused commitment fee. See Note 8, Debt, in the Notes to Consolidated Financial Statements for additional information regarding our debt obligations.
We are subject to interest on our debt obligations and unused commitment fee. See Note 8, Debt, in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our debt obligations.
This increase was primarily due to cash provided by operations of $144.5 million partially offset by cash used in financing activities of $74.8 million mainly as a result of payments on the Term Loan and the Revolving Facility and cash used in investing activities of $17.2 million, mainly for capital expenditures. 40 Net Cash Provided by Operating Activities Cash provided by operating activities during fiscal year ended June 30, 2022 was $128.2 million.
This increase was primarily due to cash provided by operating activities of $249.2 million, which is offset by cash used in financing activities of $194.8 million mainly as a result of payments on the 2019 Initial Term Loan and share repurchases and cash used in investing activities of $13.8 million primarily for the purchase of property and equipment.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeForeign currency transaction gains and losses from operations had a gain of $1.7 million in fiscal year ended June 30, 2022, a loss of $2.2 million in fiscal year ended June 30, 2021, and a gain of $0.6 million in the fiscal year 2020. 43
Biggest changeThere were no foreign exchange forward currency contracts that were designated as hedging instruments at June 30, 2023 and 2022. Foreign currency transaction gains and losses from operations were gains of $0.8 million and $1.7 million in fiscal years ended June 30, 2023 and 2022, respectively, and a loss of $2.2 million in fiscal year ended June 30, 2021. 43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Sensitivity Our exposure to market risk for changes in interest rates relates primarily to our financial debt and foreign currencies. As of June 30, 2022, we did not have any financial investments that were exposed to interest rate risk.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk Interest Rate Sensitivity Our exposure to market risk for changes in interest rates relates primarily to our financial debt and foreign currencies. As of June 30, 2023, we did not have any financial investments that were exposed to interest rate risk.
Changes in the fair value of these foreign exchange forward contracts are offset largely by re-measurement of the underlying foreign currency denominated assets and liabilities. As of June 30, 2022 and June 30, 2021, foreign exchange forward currency contracts not designated as hedging instruments, had the total notional amount of $9.6 million and $23.0 million, respectively.
Changes in the fair value of these foreign exchange forward contracts are offset largely by re-measurement of the underlying foreign currency denominated assets and liabilities. As of June 30, 2023 and June 30, 2022, foreign exchange forward currency contracts not designated as hedging instruments had the total notional amount of $3.4 million and $9.6 million, respectively.
At June 30, 2022, we had $308.6 million of debt outstanding, all of which was from the 2019 Credit Agreement. Through the end of our fiscal year, the average daily outstanding amount was $328.8 million with a high of $346.8 million and a low of $308.6 million.
At June 30, 2023, we had $225.0 million of debt outstanding, all of which was from the 2023 Credit Agreement. Through the end of our fiscal year 2023, the average daily outstanding amount was $268.8 million with a high of $308.6 million and a low of $225.0 million.
Exchange Rate Sensitivity A majority of our sales and our expenses are denominated in United States Dollars.
Exchange Rate Sensitivity A majority of our sales and our expenses are denominated in U.S. Dollars.
Debt At certain points in time we are exposed to the impact of interest rate fluctuations, primarily in the form of variable rate borrowings from the 2019 Credit Agreement, which is fully described in Note 8, Debt , in the Notes to the Consolidated Financial Statements.
Debt At certain points in time we are exposed to the impact of interest rate fluctuations, primarily in the form of variable rate borrowings from the 2023 Credit Agreement, which is described in Note 8, Debt , in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
These contracts have maturities of less than 40 days. Changes in the fair value of derivatives are recognized in earnings as other income (expense), net. For the year ended June 30, 2022 the net loss recorded in the consolidated statements from these contracts was $1.4 million.
These contracts have maturities of less than 60 days. Changes in the fair value of derivatives are recognized in "other income, net." For the years ended June 30, 2023 and, 2022, the net loss recorded in the consolidated statement of operations from these contracts were $0.4 million and $1.4 million, respectively.
The following table presents hypothetical changes in interest expense for the year ended June 30, 2022, on the outstanding borrowings under the 2019 Credit Agreement and interest rate swap contracts as of June 30, 2022, that are sensitive to changes in interest rates (in thousands): Change in interest expense given a decrease in interest rate of X bps* Average outstanding Change in interest expense given an increase in interest rate of X bps* Description (100 bps) (50 bps) as of June 30, 2022 100 bps 50 bps Debt $ (3,157 ) $ (1,578 ) $ 315,672 $ 3,157 $ 1,578 Interest Rate Swaps 750 375 (75,000 ) (750 ) (375 ) Net $ (2,407 ) $ (1,203 ) $ 2,407 $ 1,203 * Underlying interest rate was 2.9% as of June 30, 2022.
The following table presents hypothetical changes in interest expense for the year ended June 30, 2023, on the outstanding borrowings under the 2023 Credit Agreement as of June 30, 2023, that are sensitive to changes in interest rates (in thousands): Change in interest expense given a decrease in interest rate of X bps* Average outstanding Change in interest expense given an increase in interest rate of X bps* Description (100 bps) (50 bps) as of June 30, 2023 100 bps 50 bps Debt $ (2,333 ) $ (1,167 ) $ 233,341 $ 2,333 $ 1,167 * Underlying interest rate was 7.18% as of June 30, 2023.
Removed
Cash Flow Hedges of Interest Rate Risk In conjunction with our term loan under the 2019 Credit Agreement, we entered into interest rate swap contracts with large financial institutions. This involves the receipt of variable rate amounts from these institutions in exchange for us making fixed-rate payments without exchange of the underlying notional amount of $200.0 million of our debt.
Added
As of June 30, 2023 we have not entered into any derivative instruments to hedge the impact of the changes in variable interest rates under our 2023 Credit Agreement.
Removed
The derivative instruments hedge the impact of the changes in variable interest rates. We record the changes in the fair value of these cash flow hedges of interest rate risk in accumulated other comprehensive income (loss) until termination of the derivative agreements. As of June 30, 2022 the underlying notional amount of these interest rate swaps were $75.0 million.
Removed
For the year ended June 30, 2021, the net gains recorded in the consolidated statement of operations from these contracts $0.5 million. As of June 30, 2021 foreign exchange forward currency contracts designated as hedging instruments had a notional amount of $21.8 million. These contracts have maturities of less than twelve months.
Removed
Gains and losses arising from these contracts designated as hedging instruments are recorded as a component of accumulated other comprehensive income (loss). As of June 30, 2021, these contracts had unrealized losses of $0.2 million which are recorded in accumulated other comprehensive income (loss) with the associated liabilities in the accompanying consolidated balance sheets.
Removed
There were no foreign exchange forward currency contracts that were designated as hedging instruments at June 30, 2022 and June 30, 2020.

Other EXTR 10-K year-over-year comparisons