Valuation-$8.52

Price May 7, 2014 : $3.95

We are back with EXTR. We sold EXTR in 2013 for a 63% gain. Then they decided to buy Enterasys and spend all their cash, but double the size of the company. So we sat on the sidelines. Now the price has fallen based on yesterday’s earnings report to less than 50% of our valuation and we are buying. We nibbled at EXTR just before earnings (our mistake) and were averaging down today. We will use all Non-GAAP numbers here, as all the accounting adjustments related to their merger, just don’t mean a thing to their business (pardon us SEC). Revenues came in at $143.7 million compared to the pre-merger $68.2 million last year. Earnings per share were $.02 compared to $.04 last year. Gross margins were 55% versus 56% last year. Net cash was negative $.16 per share. So in our view, a decent quarter. The company is still going through the merger integration and expects to achieve significant cost reductions ($30-$40 million a year).

For the upcoming quarter they expect to be at a $20 million saving run rate, versus $8 million in the March quarter. What apparently spooked the street and set the sellers off, was that they projected $145-$150 million in revenue for their Q4 (June 30, 2014) instead of the $159 million analysts were looking for. So the stock drops from $5.56 to $3.95 on over 9 million shares traded today. We think this is way overdone and that this is a good entry point. Trading at only 46% of our valuation we think this is a BUY.. There are about 100 million shares outstanding and it trades about 1.8 million shares a day.

About EXTR: Extreme Networks, Inc. (EXTR) is setting the new standard for superior customer experience by delivering network-powered innovation and market leading service and support. Extreme Networks delivers high-performance switching and routing products for data center and core-to-edge networks, wired/wireless LAN access, and unified network management and control. The Company’s award-winning solutions include software-defined networking (SDN), cloud and high-density Wi-Fi, BYOD and enterprise mobility, identity access management and security. Extreme Networks is headquartered in San Jose, CA and has more than 12,000 customers in over 80 countries.