SAN JOSE, CA — (Marketwired) — 11/18/13 — (NASDAQ: BRCD) today reported financial results for its fourth quarter and full fiscal year 2013 ended October 26, 2013. Brocade reported fourth quarter revenue of $559 million, representing a decrease of 3% year-over-year and an increase of 4% quarter-over-quarter. Revenue for fiscal year 2013 was $2,223 million, down 1% year-over-year. The resulting GAAP diluted earnings-per-share (EPS) was $0.14 for Q4 and $0.45 for fiscal 2013, up 27% and 10% year-over-year, respectively. Non-GAAP diluted EPS was $0.24 for Q4 and $0.80 for fiscal 2013, up 41% and 21% year-over-year, respectively.
“Q4 was a quarter in which we executed successfully across many facets of our business strategy,” said Lloyd Carney, CEO of Brocade. “We exceeded expectations for non-GAAP operating margin, non-GAAP EPS, and cash flow despite the U.S. Federal budget issues and continued softness in the overall storage market. This resulted in record non-GAAP net income and non-GAAP EPS for both Q4 and fiscal 2013. Our solid performance in our fourth quarter was a great end to a transformative year for Brocade. I am pleased with the focus and execution of our team and excited about building upon our success in fiscal year 2014 and beyond.”
Q4 2013 Storage Area Networking (SAN) business revenue, including products and services, was $380 million, down 4% year-over-year and up 3% quarter-over-quarter. The lower year-over-year SAN business revenue was impacted by continued soft demand in the overall storage market. Brocade Gen 5 (16 Gbps) Fibre Channel products represented 69% of director and switch revenue in the quarter, up from 34% in Q4 2012. Fiscal 2013 SAN business revenue was $1,540 million, down 2% year-over-year.
Q4 2013 IP Networking business revenue, including products and services, was $179 million, down 3% year-over-year and up 7% quarter-over-quarter. From a product standpoint, Ethernet switch revenue was down 8% year-over-year and up 4% quarter-over-quarter, while routing revenue was up 1% year-over-year and up 28% quarter-over-quarter. From a customer standpoint, both Service Provider and Enterprise revenues were up sequentially and year-over-year. Federal revenue was up sequentially, but down year-over-year in a challenging Federal spending environment. Fiscal 2013 IP Networking business revenue was $682 million, up 3% year-over-year.
Q4 2013 GAAP gross margin was 64.9%, compared to 62.4% in Q4 2012 and 63.0% in Q3 2013. Non-GAAP gross margin was 67.2%, compared to 64.8% in Q4 2012 and 65.6% in Q3 2013. Fiscal 2013 GAAP and non-GAAP gross margin improved to 63.4% and 66.0%, respectively, compared to 61.8% and 64.5%, respectively, in fiscal 2012. The year-over-year and sequential improvements in gross margin were due to a favorable product mix within the IP Networking business and lower manufacturing and overhead costs.
Q4 2013 GAAP operating margin was 15.0%, compared to 14.9% in Q4 2012 and 13.9% in Q3 2013, and includes $25 million in restructuring and related costs. Non-GAAP operating margin was 26.6% in Q4 2013, compared to 22.5% in Q4 2012 and 21.6% in Q3 2013. Fiscal 2013 GAAP and non-GAAP operating margin improved to 13.9% and 22.7%, respectively, compared to 12.4% and 20.5%, respectively, in fiscal 2012. The year-over-year and sequential improvements in operating margin were a result of expanded gross margin and lower operating expenses. Based on the Q4 2013 results, the Company has achieved its spending reduction goal of $100 million in annualized savings, as compared to Q1 2013.
Q4 2013 GAAP net income was $64 million, compared to $54 million in Q4 2012 and $119 million in Q3 2013. Non-GAAP net income was $109 million, compared to $78 million in Q4 2012 and $87 million in Q3 2013. Fiscal 2013 GAAP and non-GAAP net income increased to $209 million and $373 million, respectively, compared to $195 million and $311 million, respectively, in fiscal 2012.
Average diluted shares outstanding for Q4 2013 were 14.0 million lower compared to Q4 2012 and down slightly from Q3 2013. The Company repurchased 41.2 million shares ($240 million) during fiscal 2013, including 7.8 million shares ($53 million) in Q4 2013. Share repurchases in Q1 2014 to date total 8.1 million ($65 million).
Operating cash flow was $170 million in Q4 2013, down 19% year-over-year and up 66% quarter-over-quarter. Fiscal 2013 operating cash flow was $451 million, down 24% year-over-year. The changes in cash flow for Q4 2013 and fiscal 2013 are due to an increase in accounts receivable and timing of variable compensation payments. During the quarter, the Company received a $71 million payment relating to the A10 Networks litigation settlement and ended the year with a cash balance of $987 million or $382 million, net of senior debt and capitalized leases.
Brocade management will host a conference call today at 2:30 p.m. PT (5:30 p.m. ET) to discuss Q4 and fiscal 2013 results, as well as a Q1 2014 outlook. To access the webcast please go to . A replay of the conference call and the prepared comments and slides will be available at .
Other Q4 2013 product, customer, and partner announcements are available at .
Please see important note of explanation on non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
1) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.
2) SAN and IP Networking business revenues include product, support and services revenues.
3) Q4 2013 ending headcount excludes 224 employees that were notified of their termination during the quarter, but were still on Brocade payroll as of the end of the quarter.
This press release contains non-GAAP financial measures. In evaluating Brocade-s performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.
Management believes that non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade-s comparative operating performance both from period to period, and to its competitors- operating results. Management also believes these non-GAAP financial measures help indicate Brocade-s baseline performance before gains, losses or charges that are considered by management to be outside ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes these non-GAAP financial measures, when read in conjunction with Brocade-s GAAP financials, provide useful information to investors by offering:
the ability to make more meaningful period-to-period comparisons of Brocade-s ongoing operating results;
the ability to make more meaningful comparisons of Brocade-s operating performance against industry and competitor companies;
the ability to better identify trends in Brocade-s underlying business and to perform related trend analysis;
a better understanding of how management plans and measures Brocade-s underlying business; and
an easier way to compare Brocade-s most recent results of operations against investor and analyst financial models.
Management excludes certain gains or losses and benefits or costs in determining non-GAAP net income that are the result of infrequent events or arise outside the ordinary course of Brocade-s continuing operations. Management believes that it is appropriate to evaluate Brocade-s operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include, but are not limited to: (i) legal provision or recovery associated with certain pre-acquisition litigation, (ii) legal fees associated with indemnification obligations and other related costs, net, (iii) call premium cost and original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing, (iv) settlement gain associated with certain pre-acquisition related litigation, (v) restructuring and related costs, net and (vi) specific non-cash and non-recurring tax benefits or detriments.
Management also excludes the following non-cash charges in determining non-GAAP net income (i) stock-based compensation expense and (ii) amortization of purchased intangible assets. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, management believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Management also believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for Brocade-s newly acquired and long-held businesses.
Finally, management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.
These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that impact the Company. Management compensates for these limitations by also considering Brocade-s GAAP results. The non-GAAP financial measures that Brocade uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP, such as operating income, net income and net income per-share, and should not be considered measurements of Brocade-s liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies.
This press release contains statements that are forward-looking in nature, including statements regarding Brocade-s strategy, business prospects, organizational and business alignment, profitability, expense management, cash flow, and market conditions. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, changes in IT spending levels in one or more of our target markets including the data center, Federal government and service provider sectors, customer acceptance of Brocade-s Ethernet fabric solutions, Brocade-s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade-s Quarterly Report on Form 10-Q for the fiscal quarter ended July 27, 2013 and in Brocade-s Annual Report on Form 10-K for the fiscal year ended October 27, 2012. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.
Brocade (NASDAQ: BRCD) networking solutions help the world-s leading organizations transition smoothly to a world where applications and information reside anywhere. ()
ADX, AnyIO, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and HyperEdge, The Effortless Network, and The On-Demand Data Center are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of their respective owners.
© 2013 Brocade Communications Systems, Inc. All Rights Reserved.
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