SAN JOSE, CA — (Marketwired) — 05/21/15 — (NASDAQ: BRCD) today reported financial results for its second fiscal quarter ended May 2, 2015. Brocade reported second quarter revenue of $547 million, up 2% year over year and down 5% sequentially. The Company reported GAAP diluted Earnings Per Share (EPS) of $0.18, up from a loss of $0.03 per share in Q2 2014 and down from $0.20 in Q1 2015. The Q2 2014 GAAP loss was due to a non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX product family. Non-GAAP diluted EPS was $0.22 for Q2 2015, up from $0.19 in Q2 2014 and down from $0.27 in Q1 2015.
“We significantly grew our IP Networking revenue year over year and closed the acquisitions of Connectem and the SteelApp assets, expanding our strong portfolio of virtual IP networking services,” said Lloyd Carney, CEO of Brocade. “These next-gen software-based technologies, together with our hardware products, allow us to build more strategic solutions for our customers and underscore our vision for the New IP.”
*NMF = not meaningful
Please see important note of explanation about the use of non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
SAN product revenue was $314 million, down 2% year over year. The decline was primarily the result of softer storage demand and operational issues at certain OEM partners. The sequential revenue decline of 11% was at the low end of the Company–s outlook for the quarter and consistent with the last two years, where the fiscal second quarters have seen sequential revenue declines of 10% to 12%.
IP Networking product revenue was $145 million, up 19% year over year. The growth was primarily due to higher sales of routers (up 40%) and Ethernet switches (up 8%), as well as higher software networking revenue, which now includes SteelApp revenue from the date of closing of the acquisition in early March. The increased sales year over year were primarily due to service provider and U.S. federal customers. Sequentially, IP Networking revenue increased 9% due to higher routing and switching sales, as well as higher software networking revenue.
Global Services revenue was $88 million, down 7% year over year primarily due to the additional week of support revenue recognized in Q2 2014, which was a 14-week fiscal quarter for Brocade. Global Services revenue was down 2% sequentially due to the timing of certain large support renewal orders.
During the quarter, Brocade completed the previously announced acquisitions of Connectem Inc., a pioneer in the LTE virtual evolved packet core market, and the SteelApp assets from Riverbed Technology, Inc.
Consistent with the Company–s philosophy of returning cash to shareholders, the Brocade Board of Directors has declared a quarterly cash dividend of $0.045 per share of the Company–s common stock, a 29% increase from the prior dividend of $0.035 per share. The dividend payment will be made on July 2, 2015, to stockholders of record at the close of market on June 10, 2015.
Brocade management will host a conference call to discuss the fiscal second quarter results and the fiscal third quarter outlook today at 2:30 p.m. PT (5:30 p.m. ET). To access the webcast, please go to . A replay of the conference call, prepared comments and slides, as well as a written transcript, will be available at .
Other Q2 2015 product, customer, and partner announcements are available at .
Brocade ()
130 Holger Way, San Jose, CA 95134
T. 408.333.8000 F. 408.333.8101
Please see important note of explanation about the use of non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
(1) Revenues are attributed to geographic areas based on product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher.
(2) SAN and IP Networking business revenues include hardware and software product, support, and services revenues.
(3) Product revenue by use category is estimated based on analysis of the information the Company collects in its sales management system. The estimated percentage of revenue by use category may fluctuate quarter-to-quarter due to seasonality and the timing of large customer orders.
(4) Data Center includes enterprise, service provider, and government data center revenues.
(5) Q1 2015 restricted cash was used to redeem the $300 million principal of the 2020 senior secured notes and pay for the associated call premium and interest earned on February 13, 2015.
(6) Q2 2015 and Q1 2015 total debt, net of discount, includes the debt discount recorded for the conversion feature that is required to be separately accounted for as equity for the $575 million convertible debt, thereby reducing the carrying value of the debt. The unamortized debt discount for the conversion feature was $77 million as of May 2, 2015, and $80 million as of January 31, 2015.
(7) Q1 2015 cash, net of senior debt, convertible debt and capitalized leases excludes restricted cash of $312 million and the 2020 senior secured notes of $300 million that were redeemed on February 13, 2015.
(8) $1.3 million of the $77.1 million in shares repurchased in Q2 2015 were pending cash settlement as of May 2, 2015.
To supplement financial information presented on a GAAP basis, Brocade provides information presented on a non-GAAP basis. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, financial information presented on a GAAP basis. 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. The most directly comparable GAAP information and a reconciliation between the GAAP and non-GAAP amounts is provided in the tables at the end of this press release.
Management believes that the 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 relative to its competitors. Management also believes these non-GAAP financial measures help with the determination of Brocade–s baseline performance before gains, losses or charges that are considered by management to be outside of ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations 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 relative to its competitors;
the ability to better identify trends in Brocade–s underlying business and to perform related trend analyses; and
a better understanding of how management plans and measures Brocade–s underlying business.
Management excludes certain gains or losses and benefits or costs in determining non-GAAP financial measures that are the result of infrequent events or events that 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) call premium cost and write-off of debt discount and debt issuance costs related to lenders that did not participate in our Q1 2015 debt refinancing; (ii) acquisition and integration costs; (iii) restructuring, goodwill impairment and other related costs (benefits); and (iv) specific non-cash and non-recurring tax benefits or detriments.
Management also excludes the following non-cash charges in determining non-GAAP financial measures (i) stock-based compensation expense, (ii) amortization of purchased intangible assets, and (iii) non-cash interest expense related to the convertible debt.
Management believes that the exclusion of stock-based compensation allows for more accurate comparisons of Brocade–s operating results to Brocade–s peer companies because of the varying use of valuation methodologies and subjective assumptions and the variety of award types. Management also believes that the exclusion of the expense associated with the amortization of acquisition-related intangible assets is appropriate because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and the exclusion of amortization expense allows comparisons of operating results that are consistent over time for Brocade–s newly acquired and long-held businesses. In connection with the convertible debt, under the relevant accounting guidance, a non-cash interest expense is recognized for the convertible debt as an imputed interest expense for the conversion feature. Management believes excluding the non-cash interest expense related to the convertible debt from its non-GAAP financial measures is useful for investors because the expense does not represent a cash outflow and is not indicative of ongoing operating performance.
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 because they do not include all items of income and expense that impact the company. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies. Management compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. Management also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure, and management encourages investors to review carefully those reconciliations.
This press release contains forward-looking statements including, but not limited to, statements regarding Brocade–s financial results, goals, plans, strategy, business outlook and prospects. These statements are based on current expectations as of the date of this presentation and involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly. The risks, uncertainties and assumptions include, but are not limited to: the effect on Brocade of increasing market competition and changes in the industry; Brocade–s ability to execute on its sales strategy and plans for future operations; the impact on Brocade of macroeconomic trends and events and changes in IT spending levels; Brocade–s ability to introduce and achieve market acceptance of new products and support offerings on a timely basis; risks associated with Brocade–s international operations; and integration and other risks associated with acquisitions, divestitures and strategic investments. These and other risks are set forth in more detail in Brocade–s Form 10-Q for the fiscal quarter ended January 31, 2015, and in Brocade–s Annual Report on Form 10-K for the fiscal year ended November 1, 2014. Brocade expressly assumes no obligation to update 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, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, HyperEdge, ICX, MLX, MyBrocade, OpenScript, The Effortless Network, VCS, VDX, Vplane, and Vyatta are registered trademarks, and Fabric Vision and vADX 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 others.
© 2015 Brocade Communications Systems, Inc. All Rights Reserved.
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Kristy Campbell
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Investor Relations
Michael Iburg
Tel: 408-333-0233
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