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8-K - FORM 8-K - BROCADE COMMUNICATIONS SYSTEMS INC | d303958d8k.htm |
EX-99.2 - SLIDES WITH ACCOMPANYING PREPARED REMARKS OF BROCADE COMMUNICATIONS SYSTEMS, INC - BROCADE COMMUNICATIONS SYSTEMS INC | d303958dex992.htm |
Exhibit 99.1
BROCADE CONTACTS | ||||
Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com |
Investor Relations Robert Eggers Tel: 408-333-8797 reggers@brocade.com |
Brocade Reports Fiscal Q1 2012 Results
Storage Product Revenue Growth of 17% led to Record Company Revenue
SAN JOSE, Calif., Feb 21, 2012 Brocade® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 28, 2012. Brocade reported first quarter revenue of $561 million, representing an increase of 2% quarter-over-quarter and 3% year-over-year, and resulting in diluted earnings per share of $0.12 on a GAAP basis and diluted earnings per share of $0.20 on a non-GAAP basis.
Summary of Q1 2012 results:
| Storage business revenue, including products and services, was a record $406.4 million, up 12% sequentially and 4% year-over-year. Storage product revenue grew 17% sequentially driven by strong demand across all product segments including the continued ramp of our industry leading 16 gigabit-per-second Fibre Channel products. |
| Ethernet business revenue, including products and services, was $154.3 million, down 18% quarter-over-quarter and up 1% year-over-year. Revenue from Service Provider customers was a record $64.5 million in the quarter and was offset by lower Enterprise revenue and expected softness in Federal revenue. |
| GAAP gross margin was 61.5% and non-GAAP gross margin was 64.8% in Q1 2012, compared to 58.8% and 62.0% in Q1 2011, respectively. The improvement in gross margin was driven by a favorable mix to higher margin Storage products, margin expansion in Global Services and an increase in overall revenue for the company. |
| GAAP operating margin was 12.4% and non-GAAP operating margin was 21.5% in Q1 2012, compared to 7.8% and 17.1% in Q1 2011, respectively. The improvement in operating margin was primarily driven by higher gross margin and the increase in revenue. |
| Non-GAAP EPS of $0.20 in Q1 2012 was up 22% sequentially and 61% year-over-year. |
| The non-GAAP EPS included a tax benefit of approximately $0.03 from the closure of various tax audits in the United States during Q1 2012. |
| Brocade generated operating cash flow of $127 million and reduced its term loan by $70 million. The term loan balance was $120 million exiting Q1 2012. |
Q1 was a great quarter for Brocadeachieving record revenue, expanding gross margins, and increasing profits as we continued to see strong momentum across many areas of our business, said Michael Klayko, CEO of Brocade. It is clear that we are executing well on our Playbook strategy of using innovation as a differentiator which fueled strength in both our Storage and Service Provider. We look forward to delivering on our next wave of innovation focused on the Campus LAN market and to transition these customers to our new portfolio of solutions.
In addition to this press release, Brocade management will host a conference call to discuss fiscal first quarter results and fiscal second quarter outlook today at 2:30 p.m. PT (5:30 p.m. ET). To access the webcast please go to www.brcd.com/events.cfm. A replay of the conference call, as well as corresponding slides and written transcript, will be available at www.brcd.com.
Other Q1 2012 product, customer and partner announcements are available at http://newsroom.brocade.com/.
Page 1 of 8
Financial Highlights and Additional Financial Information
Q1 2012 | Q4 2011 | Q1 2011 | ||||||||||
Revenue |
$ | 561M | $ | 550M | $ | 546M | ||||||
GAAP net income (loss) |
$ | 59M | $ | (4 | )M | $ | 27M | |||||
Non-GAAP net income |
$ | 93M | $ | 79M | $ | 60M | ||||||
GAAP EPS - diluted |
$ | 0.12 | $ | (0.01 | ) | $ | 0.05 | |||||
Non-GAAP EPS - diluted |
$ | 0.20 | $ | 0.16 | $ | 0.12 | ||||||
GAAP gross margin |
61.5 | % | 59.5 | % | 58.8 | % | ||||||
Non-GAAP gross margin |
64.8 | % | 62.9 | % | 62.0 | % | ||||||
GAAP operating income |
$ | 69M | $ | 55M | $ | 42M | ||||||
Non-GAAP operating income |
$ | 120M | $ | 116M | $ | 93M | ||||||
GAAP operating margin |
12.4 | % | 9.9 | % | 7.8 | % | ||||||
Non-GAAP operating margin |
21.5 | % | 21.0 | % | 17.1 | % | ||||||
Adjusted EBITDA (1) |
$ | 140M | $ | 138M | $ | 114M | ||||||
Cash provided by operations |
$ | 127M | $ | 206M | $ | 118M |
| Q1 2012 effective GAAP tax rate was (5.8)% and non-GAAP effective tax rate was 12.6%. |
| Q1 2012 total Storage Area Networking (SAN) port shipments were approximately 1.2 million. |
Please see important note of explanation on Non-GAAP measures below, including a detailed reconciliation between GAAP and Non-GAAP information in the tables included herein.
Q1 2012 | Q4 2011 | Q1 2011 | ||||||||||
As a % of total revenues |
||||||||||||
OEM revenues |
69 | % | 62 | % | 66 | % | ||||||
Channel/Direct revenues |
31 | % | 38 | % | 34 | % | ||||||
10% or greater customer revenues |
48 | % | 41 | % | 47 | % | ||||||
Domestic revenues |
61 | % | 62 | % | 59 | % | ||||||
International revenues |
39 | % | 38 | % | 41 | % | ||||||
Data Storage Products Revenues |
63 | % | 55 | % | 61 | % | ||||||
Ethernet Products Revenues |
22 | % | 29 | % | 23 | % | ||||||
Global Services Revenue |
15 | % | 16 | % | 16 | % | ||||||
Ethernet Business Revenues (2) |
28 | % | 34 | % | 28 | % | ||||||
As a % of Ethernet Business Revenues: |
||||||||||||
Enterprise, excluding Federal |
45 | % | 57 | % | 61 | % | ||||||
Federal |
13 | % | 18 | % | 13 | % | ||||||
Service Provider |
42 | % | 25 | % | 26 | % | ||||||
Q1 2012 | Q4 2011 | Q1 2011 | ||||||||||
Cash, cash equivalents and short-term investments |
$ | 485M | $ | 415M | $ | 416M | ||||||
Deferred revenues |
$ | 278M | $ | 270M | $ | 265M | ||||||
Capital expenditures |
$ | 18M | $ | 20M | $ | 23M | ||||||
Total debt, net of discount |
$ | 720M | $ | 789M | $ | 892M | ||||||
Days sales outstanding |
36 days | 41 days | 44 days | |||||||||
Employees at end of period |
4,542 | 4,546 | 4,721 |
1) | Adjusted EBITDA is as defined in the Term Debt Credit Agreement. |
2) | Ethernet Business revenues include product and global services revenues. |
Page 2 of 8
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. In evaluating Brocades 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 Brocades comparative operating performance both from period to period, and to its competitors operating results. Management also believes these non-GAAP financial measures help indicate Brocades 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 Brocades GAAP financials, provide useful information to investors by offering:
| the ability to make more meaningful period-to-period comparisons of Brocades ongoing operating results; |
| the ability to make more meaningful comparisons of Brocades operating performance against industry and competitor companies; |
| the ability to better identify trends in Brocades underlying business and to perform related trend analysis; |
| a better understanding of how management plans and measures Brocades underlying business; and |
| an easier way to compare Brocades 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 Brocades continuing operations. Management believes that it is appropriate to evaluate Brocades operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include: (i) provision or benefit from certain pre-acquisition litigation (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations and other related costs, net, (iv) acquisition and integration costs, (v) loss on sale of property, (vi) interest expense related to the adoption of new standards relating to convertible debt instruments, (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing, and (viii) loss on sale of a subsidiary.
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 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 Brocades 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.
Limitations 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 Brocades 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 Brocades 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.
Page 3 of 8
Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding the networking industry, Brocades strategy, and its routes to market. 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 government sector, Brocades ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, customer acceptance of Brocades Ethernet fabric solutions, Brocades 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 Brocades Annual Report on Form 10-K for the fiscal year ended October 29, 2011. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.
About Brocade
Brocade (NASDAQ: BRCD) networking solutions help the worlds leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)
Brocade, the B-wing symbol, DCX, Fabric OS, and SAN Health are registered trademarks, and Brocade Assurance, Brocade NET Health, Brocade One, CloudPlex, MLX, VCS, VDX, and When the Mission Is Critical, the Network Is Brocade are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned are or may be trademarks or service marks of their respective owners.
©2012 Brocade Communications Systems, Inc. All Rights Reserved.
Page 4 of 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended | ||||||||
January 28, 2012 |
January 29, 2011 |
|||||||
(In thousands, except per share amounts) | ||||||||
Net revenues |
||||||||
Product |
$ | 476,302 | $ | 457,029 | ||||
Service |
84,340 | 88,727 | ||||||
|
|
|
|
|||||
Total net revenues |
560,642 | 545,756 | ||||||
Cost of revenues |
||||||||
Product |
175,407 | 177,616 | ||||||
Service |
40,466 | 47,257 | ||||||
|
|
|
|
|||||
Total cost of revenues |
215,873 | 224,873 | ||||||
|
|
|
|
|||||
Gross margin |
344,769 | 320,883 | ||||||
Operating expenses: |
||||||||
Research and development |
89,319 | 91,408 | ||||||
Sales and marketing |
152,688 | 152,667 | ||||||
General and administrative |
18,350 | 18,090 | ||||||
Legal fees associated with indemnification obligations and other related costs, net |
| 124 | ||||||
Amortization of intangible assets |
14,993 | 16,190 | ||||||
|
|
|
|
|||||
Total operating expenses |
275,350 | 278,479 | ||||||
|
|
|
|
|||||
Income from operations |
69,419 | 42,404 | ||||||
Interest expense |
(13,046 | ) | (21,546 | ) | ||||
Interest and other income (loss), net |
(996 | ) | 343 | |||||
|
|
|
|
|||||
Income before income tax benefit |
55,377 | 21,201 | ||||||
Income tax benefit |
(3,207 | ) | (5,717 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 58,584 | $ | 26,918 | ||||
|
|
|
|
|||||
Net income per share basic |
$ | 0.13 | $ | 0.06 | ||||
|
|
|
|
|||||
Net income per share diluted |
$ | 0.12 | $ | 0.05 | ||||
|
|
|
|
|||||
Shares used in per share calculation basic |
452,494 | 465,108 | ||||||
|
|
|
|
|||||
Shares used in per share calculation diluted |
468,738 | 491,166 | ||||||
|
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|
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Page 5 of 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 28, 2012 |
October 29, 2011 |
|||||||
(In thousands) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 484,239 | $ | 414,202 | ||||
Short-term investments |
785 | 774 | ||||||
|
|
|
|
|||||
Total cash, cash equivalents and short-term investments |
485,024 | 414,976 | ||||||
Accounts receivable, net of allowances for doubtful accounts of $1,449 and $1,388 at January 28, 2012 and October 29, 2011, respectively |
219,363 | 249,141 | ||||||
Inventories |
80,999 | 74,172 | ||||||
Deferred tax assets |
59,762 | 53,604 | ||||||
Prepaid expenses and other current assets |
49,920 | 52,308 | ||||||
|
|
|
|
|||||
Total current assets |
895,068 | 844,201 | ||||||
Property and equipment, net |
528,102 | 532,384 | ||||||
Goodwill |
1,628,544 | 1,630,967 | ||||||
Intangible assets, net |
185,614 | 214,697 | ||||||
Non-current deferred tax assets |
197,901 | 210,028 | ||||||
Other assets |
43,511 | 42,031 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,478,740 | $ | 3,474,308 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 99,184 | $ | 109,471 | ||||
Accrued employee compensation |
107,141 | 118,298 | ||||||
Deferred revenue |
207,091 | 201,421 | ||||||
Current liabilities associated with facilities lease losses |
885 | 1,456 | ||||||
Current portion of long-term debt |
27,341 | 40,539 | ||||||
Other accrued liabilities |
90,865 | 94,802 | ||||||
|
|
|
|
|||||
Total current liabilities |
532,507 | 565,987 | ||||||
Long-term debt, net of current portion |
692,191 | 748,904 | ||||||
Non-current liabilities associated with facilities lease losses |
2,312 | 2,496 | ||||||
Non-current deferred revenue |
71,364 | 69,024 | ||||||
Non-current income tax liability |
49,094 | 63,593 | ||||||
Other non-current liabilities |
9,904 | 10,166 | ||||||
|
|
|
|
|||||
Total liabilities |
1,357,372 | 1,460,170 | ||||||
|
|
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|
|||||
Stockholders equity: |
||||||||
Common stock |
457 | 448 | ||||||
Additional paid-in capital |
2,037,872 | 1,984,830 | ||||||
Accumulated other comprehensive loss |
(16,401 | ) | (11,996 | ) | ||||
Retained earnings |
99,440 | 40,856 | ||||||
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|
|
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Total stockholders equity |
2,121,368 | 2,014,138 | ||||||
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|
|
|||||
Total liabilities and stockholders equity |
$ | 3,478,740 | $ | 3,474,308 | ||||
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Page 6 of 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
January 28, 2012 |
January 29, 2011 |
|||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 58,584 | $ | 26,918 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Excess tax benefits from stock-based compensation |
(1,147 | ) | | |||||
Depreciation and amortization |
50,105 | 52,522 | ||||||
Loss on disposal of property and equipment |
256 | 176 | ||||||
Amortization of debt issuance costs and original issue discount |
1,234 | 4,729 | ||||||
Net gains on investments |
(12 | ) | (16 | ) | ||||
Provision for doubtful accounts receivable and sales allowances |
2,700 | 2,428 | ||||||
Non-cash compensation expense |
21,819 | 19,906 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
27,078 | 50,073 | ||||||
Inventories |
(6,826 | ) | (10,319 | ) | ||||
Prepaid expenses and other assets |
1,611 | (3,018 | ) | |||||
Deferred tax assets |
22 | (6 | ) | |||||
Accounts payable |
(9,556 | ) | (18,582 | ) | ||||
Accrued employee compensation |
(13,013 | ) | (9,416 | ) | ||||
Deferred revenue |
8,010 | 14,617 | ||||||
Other accrued liabilities |
(13,059 | ) | (10,076 | ) | ||||
Liabilities associated with facilities lease losses |
(755 | ) | (1,700 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
127,051 | 118,236 | ||||||
|
|
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|
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Cash flows from investing activities: |
||||||||
Purchases of short-term investments |
| (25 | ) | |||||
Proceeds from maturities and sale of short-term investments |
| 19 | ||||||
Proceeds from sale of subsidiary |
(215 | ) | | |||||
|
|
|
|
|||||
Purchases of property and equipment |
(17,556 | ) | (23,395 | ) | ||||
|
|
|
|
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Net cash used in investing activities |
(17,771 | ) | (23,401 | ) | ||||
|
|
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|
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Cash flows from financing activities: |
||||||||
Payment of principal related to the term loan |
(70,000 | ) | (39,748 | ) | ||||
Payment of principal related to capital leases |
(456 | ) | (431 | ) | ||||
Proceeds from issuance of common stock, net |
31,941 | 25,477 | ||||||
Excess tax benefits from stock-based compensation |
1,147 | | ||||||
|
|
|
|
|||||
Net cash used in financing activities |
(37,368 | ) | (14,702 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate fluctuations on cash and cash equivalents |
(1,875 | ) | 66 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
70,037 | 80,199 | ||||||
Cash and cash equivalents, beginning of period |
414,202 | 333,984 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 484,239 | $ | 414,183 | ||||
|
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Page 7 of 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(Unaudited)
Three Months Ended | ||||||||
January 28, 2012 |
January 29, 2011 |
|||||||
(In thousands, except per share amounts) |
||||||||
Net income on a GAAP basis |
$ | 58,584 | $ | 26,918 | ||||
Adjustments: |
||||||||
Stock-based compensation expense included in cost of revenues |
4,375 | 2,860 | ||||||
Amortization of intangible assets expense included in cost of revenues |
14,090 | 14,467 | ||||||
Legal fees associated with certain pre-acquisition litigation |
(51 | ) | 77 | |||||
|
|
|
|
|||||
Total gross margin adjustments |
18,414 | 17,404 | ||||||
|
|
|
|
|||||
Legal fees associated with indemnification obligations and other related costs, net |
| 124 | ||||||
Stock-based compensation expense included in research and development |
5,028 | 4,283 | ||||||
Stock-based compensation expense included in sales and marketing |
9,776 | 8,792 | ||||||
Stock-based compensation expense included in general and administrative |
2,640 | 3,971 | ||||||
Amortization of intangible assets expense included in operating expenses |
14,993 | 16,190 | ||||||
|
|
|
|
|||||
Total operating expense adjustments |
32,437 | 33,360 | ||||||
|
|
|
|
|||||
Total operating income adjustments |
50,851 | 50,764 | ||||||
Income tax effect of adjustments |
(16,623 | ) | (17,203 | ) | ||||
|
|
|
|
|||||
Non-GAAP net income |
$ | 92,812 | $ | 60,479 | ||||
|
|
|
|
|||||
Non-GAAP net income per share basic |
$ | 0.21 | $ | 0.13 | ||||
|
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|
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Non-GAAP net income per share diluted |
$ | 0.20 | $ | 0.12 | ||||
|
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|
|
|||||
Shares used in non-GAAP per share calculation basic |
452,494 | 465,108 | ||||||
|
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|
|
|||||
Shares used in non-GAAP per share calculation diluted |
468,738 | 491,166 | ||||||
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Page 8 of 8