UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 20, 2015
Brocade Communications Systems, Inc.
(Exact name of registrant as specified in its charter)
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| | | | |
Delaware | | 000-25601 | | 77-0409517 |
(State or other jurisdiction of incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification Number) |
130 Holger Way
San Jose, CA 95134-1376
(Address, including zip code, of principal executive offices)
(408) 333-8000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On August 20, 2015, Brocade Communications Systems, Inc. (the “Company”) issued a press release regarding financial results for the third quarter ended August 1, 2015. The Company also posted on its website (www.brcd.com) slides with accompanying prepared remarks regarding such financial results and forward-looking statements, including statements relating to the Company’s estimated financial results of the fourth quarter of fiscal year 2015. Copies of the press release and slides with accompanying prepared remarks by the Company are attached as Exhibits 99.1 and 99.2, respectively, and the information in Exhibits 99.1 and 99.2 is incorporated herein by reference.
The information in Item 2.02 and Item 9.01 in this Current Report on Form 8-K and the exhibits attached hereto shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
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Number | Description of Document |
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99.1 | Press release, dated August 20, 2015, regarding financial results of Brocade Communications Systems, Inc. for the third quarter ended August 1, 2015. |
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99.2 | Slides with accompanying prepared remarks of Brocade Communications Systems, Inc., dated August 20, 2015, regarding financial results of the third quarter ended August 1, 2015 and forward-looking statements, including statements relating to the Company’s estimated financial results of the fourth quarter of fiscal year 2015. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | | | BROCADE COMMUNICATIONS SYSTEMS, INC. |
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Date: | August 20, 2015 | | | | By: | | /s/ Daniel W. Fairfax |
| | | | | | | Daniel W. Fairfax |
| | | | | | | Senior Vice President and Chief Financial Officer |
Exhibit 99.1
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| | |
BROCADE CONTACTS | | |
Media Relations Kristy Campbell Tel: 408-333-4221 kcampbel@brocade.com | Investor Relations Michael Iburg Tel: 408-333-0233 miburg@brocade.com | |
Brocade Reports Fiscal Q3 2015 Results
SAN JOSE, Calif., August 20, 2015 — Brocade® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended August 1, 2015. Brocade reported third quarter revenue of $552 million, up 1% year over year and up 1% sequentially. The Company reported GAAP diluted earnings per share (EPS) of $0.21, up from $0.20 in Q3 2014 and up from $0.18 in Q2 2015. Non-GAAP diluted EPS was $0.27 for Q3 2015, up from $0.23 in Q3 2014 and up from $0.22 in Q2 2015. Tax benefits recognized in Q3 2015 increased both GAAP and non-GAAP diluted EPS by approximately $0.02 in the quarter.
“I am pleased with our Q3 2015 financial results as we delivered improved profitability and higher revenue year over year,” said Lloyd Carney, CEO of Brocade. “Our IP Networking revenue growth of 16% continues to outpace the market with strong performance from both service provider and U.S. federal customers. As the storage market evolves, our SAN business continues to demonstrate the vital role of Fibre Channel as customers connect both traditional disk storage and next-generation flash arrays. Brocade is well positioned with our customers, partners, and products heading into the final quarter of our fiscal year.”
Key Financial Metrics:
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| | | | | | | | | | | | | | | | | |
| Q3 2015 | | Q2 2015 | | Q3 2014 | | Q3 2015 vs. Q2 2015 | | Q3 2015 vs. Q3 2014 |
Revenue | $ | 552 | M | | $ | 547 | M | | $ | 545 | M | | 1 | % | | 1 | % |
GAAP EPS—diluted | $ | 0.21 |
| | $ | 0.18 |
| | $ | 0.20 |
| | 20 | % | | 8 | % |
Non-GAAP EPS—diluted | $ | 0.27 |
| | $ | 0.22 |
| | $ | 0.23 |
| | 22 | % | | 16 | % |
GAAP gross margin | 67.4 | % | | 68.1 | % | | 66.3 | % | | (0.7) pts |
| | 1.1 pts |
|
Non-GAAP gross margin | 68.6 | % | | 68.8 | % | | 67.2 | % | | (0.2) pts |
| | 1.4 pts |
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GAAP operating margin | 21.7 | % | | 20.9 | % | | 21.6 | % | | 0.8 pts |
| | 0.1 pts |
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Non-GAAP operating margin | 26.9 | % | | 24.6 | % | | 25.7 | % | | 2.3 pts |
| | 1.2 pts |
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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.
Highlights:
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• | SAN product revenue was $309 million, down 5% year over year. The decline was primarily the result of softer demand for embedded and fixed-configuration Fibre Channel switches, partially offset by growth in director revenue. The sequential revenue decline of 1% was consistent with normal fiscal Q3 seasonality. |
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• | IP Networking product revenue was $154 million, up 16% year over year. The growth was across each product category with router sales up 35%, switch sales up 6%, and higher software networking revenue. The increased revenue year over year was primarily from service providers, up 43%, and U.S. federal, up 32%, partially offset by a decline in enterprise revenue of 3%. Sequentially, IP Networking revenue increased 6% due to higher switch revenue, which was up 26%, as well as higher software networking revenue, partially offset by lower routing revenue, which was down 23% primarily due to the timing of large service provider orders. Q3 2015 included a full quarter of revenue from the virtual application delivery software acquired in Q2 2015. |
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• | On June 17, 2015, Brocade hosted the fourth annual Federal Forum in Washington, D.C. The multi-vendor sponsored event has become the showcase for New IP technologies that can help transform government networks to significantly lower cost, improve service agility, and increase security. The event has continued to grow in size and influence, with approximately 1,000 attendees this year across a wide variety of federal agencies, and has become an important component in building brand preference to support Brocade’s revenue growth strategy. |
Board Declares Dividend:
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• | The Brocade Board of Directors has declared a quarterly cash dividend of $0.045 per share of the Company’s common stock. The dividend payment will be made on October 2, 2015 to stockholders of record at the close of market on September 10, 2015. |
Brocade management will host a conference call to discuss the fiscal third quarter results and the fiscal fourth 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, prepared comments and slides, as well as a written transcript, will be available at www.brcd.com.
Other Q3 2015 product, customer, and partner announcements are available at http://newsroom.brocade.com/.
Brocade (www.brocade.com)
130 Holger Way, San Jose, CA 95134
T. 408.333.8000 F. 408.333.8101
Financial Highlights and Additional Financial Information
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| | | | | | | | |
| Q3 2015 | | Q2 2015 | | Q3 2014 |
Routes to market as a % of total net revenues: | | | | | |
OEM revenues | 62 | % | | 63 | % | | 67 | % |
Channel/Direct revenues | 38 | % | | 37 | % | | 33 | % |
10% or greater customer revenues | 43 | % | | 49 | % | | 48 | % |
Geographic split as a % of total net revenues (1): | | | | | |
Domestic revenues | 57 | % | | 56 | % | | 56 | % |
International revenues | 43 | % | | 44 | % | | 44 | % |
Segment split as a % of total net revenues: | | | | | |
SAN product revenues | 56 | % | | 57 | % | | 60 | % |
IP Networking product revenues | 28 | % | | 27 | % | | 24 | % |
Global Services revenues | 16 | % | | 16 | % | | 16 | % |
SAN business revenues (2) | 66 | % | | 67 | % | | 70 | % |
IP Networking business revenues (2) | 34 | % | | 33 | % | | 30 | % |
IP Networking product revenues by use category (3) (4): | | | | | |
Data Center | 52 | % | | 62 | % | | 55 | % |
Enterprise Campus | 40 | % | | 30 | % | | 39 | % |
Carrier Network (MAN/WAN) | 8 | % | | 8 | % | | 6 | % |
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Additional information: | Q3 2015 | | Q2 2015 | | Q3 2014 |
GAAP net income | $ | 92 | M | | $ | 77 | M | | $ | 87 | M |
Non-GAAP net income | $ | 115 | M | | $ | 95 | M | | $ | 102 | M |
GAAP operating income | $ | 120 | M | | $ | 114 | M | | $ | 118 | M |
Non-GAAP operating income | $ | 149 | M | | $ | 134 | M | | $ | 140 | M |
EBITDA | $ | 142 | M | | $ | 135 | M | | $ | 138 | M |
Effective GAAP tax provision rate (5) | 17.4 | % | | 26.0 | % | | 23.4 | % |
Effective Non-GAAP tax provision rate (5) | 20.1 | % | | 25.7 | % | | 21.9 | % |
Cash and cash equivalents | $ | 1,320 | M | | $ | 1,367 | M | | $ | 1,149 | M |
Deferred revenues | $ | 301 | M | | $ | 306 | M | | $ | 299 | M |
Capital expenditures | $ | 19 | M | | $ | 18 | M | | $ | 14 | M |
Total debt, net of discount (6) | $ | 792 | M | | $ | 788 | M | | $ | 597 | M |
Cash, net of senior debt, convertible debt and capitalized leases | $ | 444 | M | | $ | 491 | M | | $ | 547 | M |
Cash provided by operations | $ | 55 | M | | $ | 202 | M | | $ | 106 | M |
Days sales outstanding | 33 days | | 31 days | | 32 days |
Employees at end of period | 4,626 | | 4,553 | | 4,103 |
SAN port shipments | 0.9 | M | | 0.9 | M | | 1.1 | M |
Share repurchases (7) | $ | 103.1 | M | | $ | 77.1 | M | | $ | 112.1 | M |
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.
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(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. |
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(2) | SAN and IP Networking business revenues include hardware and software product, support, and services revenues. |
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(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. |
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(4) | Each use category includes enterprise, service provider, and government revenues. |
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(5) | The lower effective tax rates in Q3 2015 were, in part, due to various tax benefits recognized in the quarter including a domestic manufacturing deduction and releases of previously reserved tax provisions. |
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(6) | Q3 2015 and Q2 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 $73 million as of August 1, 2015, and $77 million as of May 2, 2015. |
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(7) | $1.3 million of the $77.1 million in shares repurchased in Q2 2015 were pending cash settlement as of May 2, 2015. |
Non-GAAP Financial Measures
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. These non-GAAP financial measures also 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:
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• | the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results; |
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• | the ability to make more meaningful comparisons of Brocade’s operating performance relative to its competitors; |
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• | the ability to better identify trends in Brocade’s underlying business and to perform related trend analyses; and |
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• | 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) acquisition and integration costs; (ii) restructuring, goodwill impairment and other related costs (benefits); and (iii) gain on sale of non-marketable equity investments.
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. In addition, 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.
Limitations: 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.
Forward-Looking Statements
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 May 2, 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.
About Brocade
Brocade (NASDAQ: BRCD) networking solutions help the world’s leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)
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.
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| August 1,
2015 | | August 2,
2014 | | August 1,
2015 | | August 2,
2014 |
| (In thousands, except per share amounts) |
Net revenues: | | | | | | | |
Product | $ | 463,200 |
| | $ | 457,797 |
| | $ | 1,407,681 |
| | $ | 1,375,282 |
|
Service | 88,619 |
| | 87,667 |
| | 266,952 |
| | 271,627 |
|
Total net revenues | 551,819 |
| | 545,464 |
| | 1,674,633 |
| | 1,646,909 |
|
Cost of revenues: | | | | | | | |
Product | 144,243 |
| | 145,518 |
| | 431,781 |
| | 441,416 |
|
Service | 35,672 |
| | 38,233 |
| | 109,056 |
| | 116,818 |
|
Total cost of revenues | 179,915 |
| | 183,751 |
| | 540,837 |
| | 558,234 |
|
Gross margin | 371,904 |
| | 361,713 |
| | 1,133,796 |
| | 1,088,675 |
|
Operating expenses: | | | | | | | |
Research and development | 85,072 |
| | 84,152 |
| | 262,173 |
| | 261,862 |
|
Sales and marketing | 144,883 |
| | 137,262 |
| | 428,199 |
| | 409,524 |
|
General and administrative | 20,422 |
| | 22,140 |
| | 65,815 |
| | 63,395 |
|
Amortization of intangible assets | 889 |
| | 131 |
| | 1,654 |
| | 10,145 |
|
Acquisition and integration costs | 789 |
| | — |
| | 3,133 |
| | — |
|
Restructuring, goodwill impairment, and other related costs (benefits) | — |
| | 131 |
| | (637 | ) | | 89,051 |
|
Gain on sale of network adapter business | — |
| | — |
| | — |
| | (4,884 | ) |
Total operating expenses | 252,055 |
| | 243,816 |
| | 760,337 |
| | 829,093 |
|
Income from operations | 119,849 |
| | 117,897 |
| | 373,459 |
| | 259,582 |
|
Interest expense | (9,778 | ) | | (9,176 | ) | | (45,754 | ) | | (27,606 | ) |
Interest and other income, net | 947 |
| | 5,299 |
| | 854 |
| | 3,943 |
|
Income before income tax | 111,018 |
| | 114,020 |
| | 328,559 |
| | 235,919 |
|
Income tax expense | 19,351 |
| | 26,668 |
| | 72,585 |
| | 81,367 |
|
Net income | $ | 91,667 |
| | $ | 87,352 |
| | $ | 255,974 |
| | $ | 154,552 |
|
Net income per share—basic | $ | 0.22 |
| | $ | 0.20 |
| | $ | 0.61 |
| | $ | 0.35 |
|
Net income per share—diluted | $ | 0.21 |
| | $ | 0.20 |
| | $ | 0.59 |
| | $ | 0.34 |
|
Shares used in per share calculation—basic | 417,299 |
| | 432,448 |
| | 422,184 |
| | 436,396 |
|
Shares used in per share calculation—diluted | 427,518 |
| | 441,789 |
| | 433,303 |
| | 448,596 |
|
| | | | | | | |
Cash dividends declared per share | $ | 0.045 |
| | $ | 0.035 |
| | $ | 0.115 |
| | $ | 0.035 |
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BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| August 1,
2015 | | August 2,
2014 | | August 1,
2015 | | August 2,
2014 |
| (In thousands) |
Net income | $ | 91,667 |
| | $ | 87,352 |
| | $ | 255,974 |
| | $ | 154,552 |
|
Other comprehensive income and loss, net of tax: | | | | | | | |
Unrealized gains (losses) on cash flow hedges: | | | | | | | |
Change in unrealized gains and losses | (414 | ) | | (155 | ) | | (2,332 | ) | | 14 |
|
Net gains and losses reclassified into earnings | 831 |
| | (218 | ) | | 2,544 |
| | (217 | ) |
Net unrealized gains (losses) on cash flow hedges | 417 |
| | (373 | ) | | 212 |
| | (203 | ) |
Foreign currency translation adjustments | (492 | ) | | (191 | ) | | (5,781 | ) | | 284 |
|
Total other comprehensive income (loss) | (75 | ) | | (564 | ) | | (5,569 | ) | | 81 |
|
Total comprehensive income | $ | 91,592 |
| | $ | 86,788 |
| | $ | 250,405 |
| | $ | 154,633 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | |
| August 1,
2015 | | November 1,
2014 |
| (In thousands, except par value) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,319,671 |
| | $ | 1,255,017 |
|
Accounts receivable, net of allowances for doubtful accounts of $1,843 and $80 as of August 1, 2015, and November 1, 2014, respectively | 199,919 |
| | 224,913 |
|
Inventories | 40,496 |
| | 38,718 |
|
Deferred tax assets | 91,181 |
| | 92,692 |
|
Prepaid expenses and other current assets | 63,020 |
| | 46,665 |
|
Total current assets | 1,714,287 |
| | 1,658,005 |
|
Property and equipment, net | 440,343 |
| | 445,433 |
|
Goodwill | 1,617,136 |
| | 1,567,723 |
|
Intangible assets, net | 79,401 |
| | 26,658 |
|
Other assets | 52,898 |
| | 35,856 |
|
Total assets | $ | 3,904,065 |
| | $ | 3,733,675 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 95,804 |
| | $ | 93,705 |
|
Accrued employee compensation | 103,417 |
| | 169,018 |
|
Deferred revenue | 229,557 |
| | 239,993 |
|
Other accrued liabilities | 63,345 |
| | 84,592 |
|
Total current liabilities | 492,123 |
| | 587,308 |
|
Long-term debt, net of current portion | 791,630 |
| | 595,450 |
|
Non-current deferred revenue | 71,565 |
| | 71,746 |
|
Non-current income tax liability | 46,504 |
| | 39,647 |
|
Non-current deferred tax liabilities | 25,461 |
| | 27,153 |
|
Other non-current liabilities | 3,767 |
| | 4,310 |
|
Total liabilities | 1,431,050 |
| | 1,325,614 |
|
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding | — |
| | — |
|
Common stock, $0.001 par value, 800,000 shares authorized: | | | |
Issued and outstanding: 416,382 and 431,470 shares as of August 1, 2015, and November 1, 2014, respectively | 416 |
| | 431 |
|
Additional paid-in capital | 1,637,580 |
| | 1,774,197 |
|
Accumulated other comprehensive loss | (24,383 | ) | | (18,814 | ) |
Retained earnings | 859,402 |
| | 652,247 |
|
Total stockholders’ equity | 2,473,015 |
| | 2,408,061 |
|
Total liabilities and stockholders’ equity | $ | 3,904,065 |
| | $ | 3,733,675 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| August 1,
2015 | | August 2,
2014 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net income | $ | 91,667 |
| | $ | 87,352 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Excess tax benefits from stock-based compensation | (12,411 | ) | | (10,283 | ) |
Depreciation and amortization | 22,322 |
| | 20,443 |
|
Loss on disposal of property and equipment | 379 |
| | 152 |
|
Net gain on sale of non-marketable equity investment | — |
| | (5,242 | ) |
Amortization of debt issuance costs and debt discount | 4,219 |
| | 290 |
|
Provision for doubtful accounts receivable and sales allowances | 2,495 |
| | 1,992 |
|
Non-cash stock-based compensation expense | 24,437 |
| | 21,574 |
|
Changes in assets and liabilities, net of acquisitions: | | | |
Accounts receivable | (17,278 | ) | | (5 | ) |
Inventories | (4,786 | ) | | 187 |
|
Prepaid expenses and other assets | 984 |
| | 3,575 |
|
Deferred tax assets | 28 |
| | (10 | ) |
Accounts payable | 8,426 |
| | 2,717 |
|
Accrued employee compensation | (54,855 | ) | | (26,398 | ) |
Deferred revenue | (5,071 | ) | | (4,593 | ) |
Other accrued liabilities | (4,943 | ) | | 14,854 |
|
Restructuring liabilities | (648 | ) | | (574 | ) |
Net cash provided by operating activities | 54,965 |
| | 106,031 |
|
Cash flows from investing activities: | | | |
Purchases of non-marketable equity investment | (2,000 | ) | | — |
|
Proceeds from sale of non-marketable equity investment | 1,489 |
| | 10,748 |
|
Purchases of property and equipment | (19,051 | ) | | (13,780 | ) |
Net cash paid in connection with acquisitions | (174 | ) | | — |
|
Net cash used in investing activities | (19,736 | ) | | (3,032 | ) |
Cash flows from financing activities: | | | |
Payment of debt issuance costs | (57 | ) | | — |
|
Payment of principal related to capital leases | (410 | ) | | (633 | ) |
Common stock repurchases | (104,357 | ) | | (112,128 | ) |
Proceeds from issuance of common stock | 29,370 |
| | 26,763 |
|
Payment of cash dividends to stockholders | (18,965 | ) | | (15,270 | ) |
Excess tax benefits from stock-based compensation | 12,411 |
| | 10,283 |
|
Net cash used in financing activities | (82,008 | ) | | (90,985 | ) |
Effect of exchange rate fluctuations on cash and cash equivalents | (362 | ) | | (240 | ) |
Net increase (decrease) in cash and cash equivalents | (47,141 | ) | | 11,774 |
|
Cash and cash equivalents, beginning of period | 1,366,812 |
| | 1,137,613 |
|
Cash and cash equivalents, end of period | $ | 1,319,671 |
| | $ | 1,149,387 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| Nine Months Ended |
| August 1,
2015 | | August 2,
2014 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net income | $ | 255,974 |
| | $ | 154,552 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Excess tax benefits from stock-based compensation | (41,981 | ) | | (37,698 | ) |
Depreciation and amortization | 62,569 |
| | 80,370 |
|
Loss on disposal of property and equipment | 1,620 |
| | 3,330 |
|
Gain on sale of network adapter business | — |
| | (4,884 | ) |
Net gain on sale of non-marketable equity investment | — |
| | (5,242 | ) |
Amortization of debt issuance costs and debt discount | 9,443 |
| | 856 |
|
Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing | 4,808 |
| | — |
|
Provision for doubtful accounts receivable and sales allowances | 7,189 |
| | 5,520 |
|
Non-cash stock-based compensation expense | 64,594 |
| | 61,214 |
|
Goodwill impairment charge | — |
| | 83,382 |
|
Changes in assets and liabilities, net of acquisitions: | | | |
Accounts receivable | 17,959 |
| | 52,261 |
|
Inventories | (1,778 | ) | | 4,757 |
|
Prepaid expenses and other assets | (20,854 | ) | | (4,796 | ) |
Deferred tax assets | 531 |
| | 47 |
|
Accounts payable | 2,266 |
| | (4,409 | ) |
Accrued employee compensation | (94,852 | ) | | (38,136 | ) |
Deferred revenue | (14,220 | ) | | (4,020 | ) |
Other accrued liabilities | 16,478 |
| | 48,178 |
|
Restructuring liabilities | (2,514 | ) | | (11,538 | ) |
Net cash provided by operating activities | 267,232 |
| | 383,744 |
|
Cash flows from investing activities: | | | |
Purchases of non-marketable equity and debt investments | (2,150 | ) | | (223 | ) |
Proceeds from sale of non-marketable equity investment | 1,489 |
| | 10,748 |
|
Purchases of property and equipment | (53,142 | ) | | (41,175 | ) |
Purchase of intangible assets | (7,750 | ) | | — |
|
Net cash paid in connection with acquisitions | (95,452 | ) | | — |
|
Proceeds from collection of note receivable | 250 |
| | 250 |
|
Proceeds from sale of network adapter business | — |
| | 9,995 |
|
Net cash used in investing activities | (156,755 | ) | | (20,405 | ) |
Cash flows from financing activities: | | | |
Payment of principal related to senior secured notes | (300,000 | ) | | — |
|
Payment of debt issuance costs | (1,718 | ) | | — |
|
Payment of principal related to capital leases | (1,677 | ) | | (2,382 | ) |
Common stock repurchases | (312,601 | ) | | (302,560 | ) |
Proceeds from issuance of common stock | 51,345 |
| | 81,293 |
|
Payment of cash dividends to stockholders | (48,819 | ) | | (15,270 | ) |
Proceeds from convertible notes | 565,656 |
| | — |
|
Purchase of convertible hedge | (86,135 | ) | | — |
|
Proceeds from issuance of warrants | 51,175 |
| | — |
|
Excess tax benefits from stock-based compensation | 41,981 |
| | 37,698 |
|
Net cash used in financing activities | (40,793 | ) | | (201,221 | ) |
Effect of exchange rate fluctuations on cash and cash equivalents | (5,030 | ) | | 272 |
|
Net increase in cash and cash equivalents | 64,654 |
| | 162,390 |
|
Cash and cash equivalents, beginning of period | 1,255,017 |
| | 986,997 |
|
Cash and cash equivalents, end of period | $ | 1,319,671 |
| | $ | 1,149,387 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
|
| | | | | | | | | | | |
| Three Months Ended |
| August 1,
2015 | | May 2,
2015 | | August 2,
2014 |
| (In thousands, except per share amounts) |
Non-GAAP adjustments | | | | | |
Stock-based compensation expense included in cost of revenues | $ | 3,955 |
| | $ | 1,986 |
| | $ | 4,121 |
|
Amortization of intangible assets expense included in cost of revenues | 2,549 |
| | 1,857 |
| | 552 |
|
Total gross margin impact from non-GAAP adjustments | 6,504 |
| | 3,843 |
| | 4,673 |
|
| | | | | |
Stock-based compensation expense included in research and development | 5,226 |
| | 3,080 |
| | 4,350 |
|
Stock-based compensation expense included in sales and marketing | 10,601 |
| | 7,207 |
| | 7,592 |
|
Stock-based compensation expense included in general and administrative | 4,655 |
| | 3,802 |
| | 5,511 |
|
Amortization of intangible assets expense included in operating expenses | 889 |
| | 627 |
| | 131 |
|
Acquisition and integration costs | 789 |
| | 2,344 |
| | — |
|
Restructuring, goodwill impairment, and other related costs (benefits) | — |
| | (637 | ) | | 131 |
|
Total operating income impact from non-GAAP adjustments | 28,664 |
| | 20,266 |
| | 22,388 |
|
| | | | | |
Convertible debt interest | 3,684 |
| | 3,639 |
| | — |
|
Gain on sale of non-marketable equity investment | — |
| | — |
| | (5,242 | ) |
Income tax effect of non-tax adjustments | (9,494 | ) | | (5,823 | ) | | (2,005 | ) |
Total net income impact from non-GAAP adjustments | $ | 22,854 |
| | $ | 18,082 |
| | $ | 15,141 |
|
| | | | | |
Gross margin reconciliation | | | | | |
GAAP gross margin | $ | 371,904 |
| | $ | 372,209 |
| | $ | 361,713 |
|
Total gross margin impact from non-GAAP adjustments | 6,504 |
| | 3,843 |
| | 4,673 |
|
Non-GAAP gross margin | $ | 378,408 |
| | $ | 376,052 |
|
| $ | 366,386 |
|
GAAP gross margin, as a percentage of total net revenues | 67.4 | % | | 68.1 | % | | 66.3 | % |
Non-GAAP gross margin, as a percentage of total net revenues | 68.6 | % | | 68.8 | % | | 67.2 | % |
| | | | | |
Operating income reconciliation | | | | | |
GAAP operating income | $ | 119,849 |
| | $ | 114,205 |
| | $ | 117,897 |
|
Total operating income impact from non-GAAP adjustments | 28,664 |
| | 20,266 |
| | 22,388 |
|
Non-GAAP operating income | $ | 148,513 |
| | $ | 134,471 |
| | $ | 140,285 |
|
GAAP operating income, as a percentage of total net revenues | 21.7 | % | | 20.9 | % | | 21.6 | % |
Non-GAAP operating income, as a percentage of total net revenues | 26.9 | % | | 24.6 | % | | 25.7 | % |
| | | | | |
Net income and net income per share reconciliation | | | | | |
Net income on a GAAP basis | $ | 91,667 |
| | $ | 77,040 |
| | $ | 87,352 |
|
Total net income impact from non-GAAP adjustments | 22,854 |
| | 18,082 |
| | 15,141 |
|
Non-GAAP net income | $ | 114,521 |
| | $ | 95,122 |
| | $ | 102,493 |
|
Non-GAAP net income per share—basic | $ | 0.27 |
| | $ | 0.23 |
| | $ | 0.24 |
|
Non-GAAP net income per share—diluted | $ | 0.27 |
| | $ | 0.22 |
| | $ | 0.23 |
|
Shares used in non-GAAP per share calculation—basic | 417,299 |
| | 420,718 |
| | 432,448 |
|
Shares used in non-GAAP per share calculation—diluted | 427,518 |
| | 433,234 |
| | 441,789 |
|
Q3 FY 2015 Earnings
Prepared Comments and Slides
August 20, 2015
Michael Iburg
Investor Relations
Phone: 408-333-0233
miburg@Brocade.com
Kristy Campbell
Media Relations
Phone: 408-333-4221
kcampbel@Brocade.com
NASDAQ: BRCD
Brocade Q3 FY 2015 Earnings 8/20/2015
Prepared comments provided by Michael Iburg, Investor Relations
Thank you for your interest in Brocade’s Q3 Fiscal 2015 earnings presentation, which includes prepared remarks, cautionary statements and disclosures, slides, and a press release detailing fiscal third quarter 2015 results. The press release, along with these prepared comments and slides, has been furnished to the SEC on Form 8-K and has been made available on the Brocade Investor Relations website at www.brcd.com. The press release will be issued subsequently via Marketwired.
© 2015 Brocade Communications Systems, Inc. Page 2 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
© 2015 Brocade Communications Systems, Inc. Page 3 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Today’s prepared comments include remarks by Lloyd Carney, Brocade CEO, regarding the company’s quarterly results, its strategy, and a review of operations, as well as industry trends and market/technology drivers related to its business; and by Dan Fairfax, Brocade CFO, who will provide a financial review.
A management discussion and live question and answer conference call will be webcast at
2:30 p.m. Pacific Time on August 20 at www.brcd.com and will be archived on the Brocade Investor Relations website.
© 2015 Brocade Communications Systems, Inc. Page 4 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Prepared comments provided by Lloyd Carney, CEO
© 2015 Brocade Communications Systems, Inc. Page 5 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Q3 was a solid quarter in which we delivered on our top-line outlook and exceeded our gross margin and operating margin expectations. Cash flow was above the high end of our outlook range in what is typically a seasonally lower cash flow quarter due to the timing of variable compensation and bond interest payments.
In terms of our business performance, we had taken a prudent view of the storage networking market when we provided our Q3 outlook in May, incorporating the partner-specific storage dynamics we saw at the time. We were pleased that revenue came in slightly above our expectations, demonstrating the vital role of Fibre Channel as customers connect both traditional disk storage and next-generation flash arrays. In addition, our IP Networking revenue growth rate continues to outpace the market, underscoring our success in leveraging New IP technologies to drive sales across our portfolio.
Our industry continues to be at the forefront of a massive transition to third platform computing technologies driving the need for open and scalable network architectures that make up the New IP. Third platform architecture enables new ways to store and share significant amounts of data, as well as new ways to connect via the cloud and mobile devices. Brocade is well positioned to take advantage of this emerging market transition, and we plan to leverage the strategic investments we have made across our business to drive growth.
© 2015 Brocade Communications Systems, Inc. Page 6 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Given some partner reports of generally softer storage sales at the high-end of the market, we entered the quarter with more moderate expectations for Q3 relative to our results in Q2 15. Revenue came in better than our Q3 outlook, in large part driven by the high Fibre Channel attach rate to emerging storage technologies, such as all-flash arrays, that continue to grow rapidly, as well as some improvement with certain OEM partners that had experienced operational issues earlier this year.
As the leader in storage networking, we continue to closely monitor the demand environment for our products across all storage platforms and expect to maintain a prudent near-term outlook. However, we believe that the Fibre Channel market remains durable. A recent Gartner report finds that continued adoption of faster Fibre Channel speeds are indicators that the storage market continues to value Fibre Channel resiliency and fault tolerance features.
As we look to growth opportunities in storage and SAN, we continue to expand our partner base by building closer ties with next-generation flash storage array and server vendors. We believe these new relationships, along with our traditional OEM partner relationships, will help provide a long and stable revenue stream from our Fibre Channel switching business.
In addition, while still relatively nascent, one of the most exciting trends we see in storage networking is the rising interest in IP storage. Historically, IP storage was typically confined to low-priority workloads such as file sharing and home directories. But today, it is being used as an incremental storage environment to support new business-critical workloads, including server virtualization and big data analytics.
Brocade, as the storage networking expert, is once again helping to define storage best-practices by enabling customers to deploy IP storage networks that deliver predictable performance, ease of management, enhanced visibility, and security. In fact, we now offer the industry’s first purpose-built storage connectivity portfolio for data center and disaster recovery applications, and we are successfully leveraging our longstanding partnerships to drive market penetration.
© 2015 Brocade Communications Systems, Inc. Page 7 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
We achieved another strong quarter of double-digit revenue growth year-over-year in IP Networking with continued strength across service provider and federal markets. Our federal revenue grew 32% Yr./Yr. and has grown year-over-year by double digits for each of the last five quarters. From a product standpoint, router and Ethernet switch sales were up 35% and 6%, respectively, year-over-year.
Our IP sales performance through Q3 and our Q4 outlook demonstrate that we are growing the business above our two-year revenue target model of 8% to 12% growth provided at our 2014 Investor Day. Across all of our customer segments, our portfolio of solutions is optimized for the ongoing transition to the New IP with technologies for cloud, social, mobile, and big data requirements. We also continue to expand our software-centric New IP capabilities through technology innovation.
For example, during Q3 we announced the Brocade Flow Optimizer, a new software-defined networking (SDN) application that can be effectively paired with Brocade MLXe routers to provide proactive insight into network traffic, mitigate network attacks, and eliminate network congestion. This announcement demonstrates our strategy to leverage standards-based protocols and open APIs to provide new use cases for existing product families.
Also in the third quarter, Brocade hosted the fourth annual Federal Forum conference in Washington, D.C., where technologies for the New IP were central to the discussion of enabling improved cost efficiency and the deployment of new services. The event has continued to grow in size and influence over the years, with approximately 1,000 attendees this year across a wide variety of federal agencies. Brocade showcased 11 innovative technology solutions and had executive engagement with hundreds of both current and potential customers. Data center networks and network modernization continue to be major themes as federal agencies actively explore the tremendous benefits of leveraging open, multi-vendor network solutions.
© 2015 Brocade Communications Systems, Inc. Page 8 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
We continued to gain traction and validation of our software technology leadership through both customer adoption and industry recognition in Q3.
As evidence of our recognized leadership, we were pleased to announce a partnership with CERN Openlab, a public-private partnership between CERN and leading ICT companies, to assist in their development of a long-term SDN strategy for the New IP. This open SDN solution will be based on OpenFlow and will utilize the Brocade SDN Controller and Brocade Flow Optimizer, as well as OpenFlow-enabled Brocade MLXe routers and ICX switches.
In addition, Masergy, a global leader in secure networking and cloud services, announced a new set of NFV-based services featuring the Brocade vRouter. Masergy’s new managed service offerings target U.S. enterprises, enabling full-featured network services through a simple software download.
In the area of virtual application delivery controllers (“vADC”), we are effectively leveraging the assets from our Q2 purchase of Riverbed’s SteelAppTM product line to expand our presence and customer base. The ADC market is going through an aggressive disruption where proprietary hardware is being replaced with virtual software running on industry-standard servers. Approximately 15% of the $1.8 billion market has already converted to virtual software, and this dynamic is growing by 33% annually. We are excited about our market position and are executing quickly to take advantage of this opportunity.
Highlighting our success in delivering some of the industry’s most innovative solutions, Brocade was named a winner in the Light Reading 2015 Leading Lights awards program in two distinct categories. Our unique Brocade SDN Controller won the award for Most Innovative SDN Product Strategy and the Brocade Virtual Evolved Packet Core (vEPC) solution won for Best New Product for Mobile. In addition, we were pleased that our customer, Telekom Austria Group, was awarded Most Innovative NFV Deployment Strategy for Network/Data Center Operators for its Brocade-powered solution.
© 2015 Brocade Communications Systems, Inc. Page 9 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
In closing, we are committed to continued market and technology leadership in storage networking and are successfully expanding our capabilities as the market evolves. With 20 years of industry best-practice expertise, we are enabling new technologies and adding new partners to meet the evolving requirements of next-generation storage networks. While we are maintaining an appropriately cautious view of the market near term, we are encouraged with signs that market conditions are stabilizing, and we believe that our storage networking business will continue to provide healthy revenue and profits over the long term.
In IP Networking, our focused innovation and strong capital structure have allowed us to invest in strategic technologies, both through internal R&D and targeted M&A, providing a solid foundation for our continued leadership in the era of the New IP. We are progressing with the integration of our recent software acquisitions and are excited to be building one of the most relevant and advanced software portfolios in the industry. This success is underscored by both customer adoption of our solutions and continued industry recognition.
At our Investor Day event on September 30 in San Jose, we will provide further details about our overall corporate strategy, take you through our market opportunities, and provide an updated financial model. I encourage you to attend in person or participate virtually, and look forward to speaking with you soon.
© 2015 Brocade Communications Systems, Inc. Page 10 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Prepared comments provided by Dan Fairfax, CFO
© 2015 Brocade Communications Systems, Inc. Page 11 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Q3 15 revenue of $552M was up 1% Yr./Yr., driven by increased IP Networking product revenue, while SAN product revenue was down 5% Yr./Yr. as both switch and server sales declined Yr./Yr. IP Networking was up 16% Yr./Yr. primarily due to stronger router and Ethernet switch revenue and higher sales to both service provider and U.S. federal customers.
Fiscal Q3 15 followed normal quarterly seasonal patterns, with a modest sequential decline in SAN revenue offset by an increase in IP Networking revenue. Fiscal Q3 is typically our weakest SAN quarter during the year as it is a seasonally soft storage quarter for many of our OEM partners. IP Networking is typically up modestly in fiscal Q3 driven by improved public sector sales.
Non-GAAP gross margin was 68.6% in Q3 15, up 140 basis points Yr./Yr. due primarily to lower manufacturing overhead costs, and favorable product mix within SAN and IP Networking, partially offset by the overall revenue shift towards IP Networking. Non-GAAP operating margin was 26.9% in Q3 15, up 120 basis points from Q3 14 primarily due to higher gross margin.
Q3 15 non-GAAP diluted EPS was $0.27, up from $0.23 in Q3 14, due to higher operating margin, lower number of shares outstanding, and various tax benefits, including a domestic manufacturing deduction and releases of previously reserved tax provisions recognized in Q3 15. The various tax benefits increased both GAAP and non-GAAP EPS approximately $0.02 in the quarter.
Both operating cash flow of $55M and adjusted free cash flow of $48M were above our Q3 outlook range of $25M to $45M and $20M to $40M, respectively, due to improved profitability.
Inventory turns were flat year-over-year, but increased slightly sequentially.
The Q3 15 effective non-GAAP tax rate was 20.1%, down 180 basis points Yr./Yr. and lower than our Q3 outlook range of 25.0% to 27.0%. The lower rate was due to the tax benefits previously mentioned.
© 2015 Brocade Communications Systems, Inc. Page 12 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Revenue from our SAN business, including hardware products and SAN-based support and services, in Q3 15 was $362M, down 5% from Q3 14. The year-over-year decline was primarily due to softer demand for server blade and fixed-configuration Fibre Channel switches and related support.
Our SAN product revenue was $309M in the quarter, down 5% Yr./Yr. as server blade and switch sales were down 20% and 9% Yr./Yr., respectively, partially offset by higher director sales, which were up 5% Yr./Yr.
SAN-based Global Services revenue was $52.1M, down 5% Yr./Yr., consistent with the hardware revenue decline.
From a total revenue perspective, including SAN and IP Networking, our channels to market have shifted over time due to the growth of the IP Networking revenue and also reflect the seasonal change in segment mix. Total OEM revenue in Q3 15 was 62% of total revenue, down from 67% in Q3 14, while Channel/Direct sales have increased to 38% from 33% of total revenue.
© 2015 Brocade Communications Systems, Inc. Page 13 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Revenue from our total IP Networking business, including hardware and IP-based support and services, was $190M, up 15% Yr./Yr. The year-over-year revenue improvement was across all geographies with the Americas (excluding federal) up 9%, U.S. federal up 32%, EMEA up 17%, APAC up 26%, and Japan up 6%.
From a product perspective, Q3 15 IP Networking product revenue was $154M, up 16% Yr./Yr. We experienced strong year-over-year growth in both routers (up 35%) and Ethernet switches (up 6%).
IP-based Global Services revenue was $36.5M, up 10% Yr./Yr. primarily due to increased maintenance revenue associated with higher IP Networking product sales and recently acquired virtual application delivery controller software.
Although it is difficult to identify all end users and their specific network deployments due to our two-tier distribution channel, we are providing estimates of the split of our IP Networking business. Our data center deployments represented approximately 52% of IP Networking revenue in Q3 15, compared to 55% in Q3 14 and 62% in Q2 15.* The year-over-year decline was primarily due to a higher mix of carrier and enterprise campus deployments. Data center IP Networking revenue grew 11% Yr./Yr.
* The estimated percentage of revenue coming from data center IP Networking customers may fluctuate quarter to quarter due to the timing of large data center customer transactions and minor changes to classification from improved visibility of actual customer deployments, as well as the seasonality of the public sector, including federal. Other use cases, such as enterprise campus and carrier networks (MAN/WAN) represent the balance of the business.
© 2015 Brocade Communications Systems, Inc. Page 14 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Looking forward to Q4 15, we considered a number of factors, including the following, in setting our outlook:
| |
• | For Q4 15, we expect SAN revenue to be up 1% to 5% Qtr./Qtr. We typically see stronger buying patterns from our OEM partners in our fiscal Q4. |
| |
• | We expect our Q4 15 IP Networking revenue to be up 6.5% to 11% Qtr./Qtr., principally driven by our IP growth initiatives. |
| |
• | We expect our Global Services revenue to be flat to up 1% Qtr./Qtr. |
| |
• | We expect Q4 15 non-GAAP gross margin to be between 67.5% to 68.5%, and non-GAAP operating margin to be between 24.0% to 26.0%, primarily reflecting the expected mix of SAN and IP revenues. |
| |
• | At the end of Q3 15, OEM inventory increased slightly Qtr./Qtr. on a dollar basis but was essentially flat at a little more than one and one-half weeks of supply based on SAN business revenue. We expect inventory to be between one to two weeks in Q4 15. |
© 2015 Brocade Communications Systems, Inc. Page 15 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Prepared comments provided by Michael Iburg, Investor Relations
That concludes Brocade’s prepared comments. At 2:30 p.m. Pacific Time on August 20, Brocade will host a webcast conference call at www.brcd.com.
Thank you for your interest in Brocade.
© 2015 Brocade Communications Systems, Inc. Page 16 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
© 2015 Brocade Communications Systems, Inc. Page 17 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
© 2015 Brocade Communications Systems, Inc. Page 18 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
Additional Financial Information:
|
| | | | | | |
| Q3 14 |
| Q2 15 |
| Q3 15 |
|
GAAP product gross margin | 68.2 | % | 70.0 | % | 68.9 | % |
Non-GAAP product gross margin | 68.8 | % | 70.6 | % | 69.8 | % |
| | | |
GAAP services gross margin | 56.4 | % | 58.4 | % | 59.7 | % |
Non-GAAP services gross margin | 58.8 | % | 59.6 | % | 62.3 | % |
© 2015 Brocade Communications Systems, Inc. Page 19 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
© 2015 Brocade Communications Systems, Inc. Page 20 of 21
Brocade Q3 FY 2015 Earnings 8/20/2015
© 2015 Brocade Communications Systems, Inc. Page 21 of 21
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