BROCADE CONTACTS | ||
Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com | Investor Relations Robert Eggers Tel: 408-333-8797 reggers@brocade.com | ![]() |
• | Storage Area Networking (SAN) business revenue, including products and services, was a record $416.9 million, up 3% year-over-year and up 6% sequentially. SAN product revenue increased 3% year-over-year and increased 7% sequentially, led by higher switch and director product sales, in a seasonally strong quarter for the company. Brocade's industry-leading Gen 5 (16 Gbps) Fibre Channel products represented approximately 42% of director and switch revenue in the quarter. |
• | IP Networking business revenue, including products and services, was $171.8 million, up 11% year-over-year and down 7% quarter-over-quarter. The year-over-year growth was driven by solid performances across all three IP Networking product groups and led by Ethernet switch revenue, which was up 18% year-over-year. Routing revenue was up 5% year-over-year and other IP Networking revenue was up 25% year-over-year driven by higher sales of the Brocade ADX® Series of application delivery products. The sequential decline in IP Networking revenue was principally due to lower Ethernet switch sales into the U.S. federal government, which is typical in the company's first fiscal quarter. |
• | GAAP gross margin was 63.5% and non-GAAP gross margin was 66.0% in Q1 2013, compared to 61.5% and 64.8% in Q1 2012, respectively. The year-over-year improvement in gross margin was due in part to higher overall revenue and a more favorable Ethernet product mix. The sequential improvement in gross margin was due in part to higher overall revenue, with a more favorable revenue mix to SAN products, and lower manufacturing overhead spending. |
• | GAAP operating margin was 15.8% and non-GAAP operating margin was 23.5% in Q1 2013, compared to 12.4% and 21.5% in Q1 2012, respectively. The year-over-year improvement in operating margin was due to higher revenue, expanded gross margin, and lower operating expenses as a percentage of revenue in Q1 2013. Operating margin improved quarter-over-quarter due to higher revenue and improved gross margin. |
• | Operating cash flow was $59.5 million in Q1 2013. During the quarter, the company completed its acquisition of Vyatta, Inc. and refinanced $300.0 million of senior secured notes, extending the maturity date of the notes from 2018 to 2023 and reducing the annual cash interest rate from 6.625% to 4.625%. |
• | GAAP loss per share was $(0.05) in Q1 2013, and non-GAAP diluted EPS of $0.21 was up 7% year-over-year. The GAAP loss per share included a non-cash tax charge of $78.2 million, or $(0.17) per share, due to the passage of Proposition 39 by the voters of California and the related reduction in the company's deferred tax assets, which was previously disclosed in November 2012. The company also took a one-time charge of $15.3 million, or $(0.02) per share after tax impact, related to the unamortized original issuance costs and call premium on the 2018 notes that were refinanced during the quarter. |
• | Average diluted shares outstanding for Q1 2013 were 466.3 million shares, down slightly year-over-year. The company repurchased 8.7 million shares ($47.5 million) during Q1 2013. |
Q1 2013 | Q4 2012 | Q1 2012 | |||||||||
Revenue | $ | 589 | M | $ | 578 | M | $ | 561 | M | ||
GAAP net income (loss) | ($21M) | $ | 54 | M | $ | 59 | M | ||||
Non-GAAP net income | $ | 99 | M | $ | 78 | M | $ | 93 | M | ||
GAAP EPS — diluted | $ | (0.05 | ) | $ | 0.11 | $ | 0.12 | ||||
Non-GAAP EPS — diluted | $ | 0.21 | $ | 0.17 | $ | 0.20 | |||||
GAAP gross margin | 63.5 | % | 62.4 | % | 61.5 | % | |||||
Non-GAAP gross margin | 66.0 | % | 64.8 | % | 64.8 | % | |||||
GAAP operating income | $ | 93 | M | $ | 86 | M | $ | 69 | M | ||
Non-GAAP operating income | $ | 138 | M | $ | 130 | M | $ | 120 | M | ||
GAAP operating margin | 15.8 | % | 14.9 | % | 12.4 | % | |||||
Non-GAAP operating margin | 23.5 | % | 22.5 | % | 21.5 | % | |||||
Adjusted EBITDA (1) | $ | 162 | M | $ | 153 | M | $ | 140 | M | ||
Cash provided by operations | $ | 59 | M | $ | 210 | M | $ | 127 | M |
1) | Adjusted EBITDA is as defined in the Term Debt Credit Agreement. |
Q1 2013 | Q4 2012 | Q1 2012 | ||||||
As a % of total revenues | ||||||||
OEM revenues | 67 | % | 65 | % | 69 | % | ||
Channel/Direct revenues | 33 | % | 35 | % | 31 | % | ||
10% or greater customer revenues | 46 | % | 46 | % | 48 | % | ||
Domestic revenues | 62 | % | 63 | % | 61 | % | ||
International revenues | 38 | % | 37 | % | 39 | % | ||
SAN product revenues | 61 | % | 59 | % | 63 | % | ||
IP Networking product revenues | 24 | % | 26 | % | 22 | % | ||
Global Services revenue | 15 | % | 15 | % | 15 | % | ||
SAN business revenues (2) | 71 | % | 68 | % | 72 | % | ||
IP Networking business revenues (2) | 29 | % | 32 | % | 28 | % | ||
Estimates as a % of IP Networking Business Revenues: | ||||||||
Enterprise, excluding Federal | 47 | % | 45 | % | 45 | % | ||
Federal | 15 | % | 24 | % | 13 | % | ||
Service Provider | 38 | % | 31 | % | 42 | % |
Q1 2013 | Q4 2012 | Q1 2012 | |||||||||
Cash, cash equivalents and short-term investments | $ | 684 | M | $ | 713 | M | $ | 485 | M | ||
Restricted cash (3) | $ | 312 | M | $ | — | $ | — | ||||
Deferred revenues | $ | 296 | M | $ | 293 | M | $ | 278 | M | ||
Capital expenditures | $ | 18 | M | $ | 17 | M | $ | 18 | M | ||
Total debt, net of discount (3) | $ | 900 | M | $ | 601 | M | $ | 720 | M | ||
Days sales outstanding | 34 days | 37 days | 36 days | ||||||||
Employees at end of period | 4,604 | 4,536 | 4,542 |
• | 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. |
Three Months Ended | |||||||
January 26, 2013 | January 28, 2012 | ||||||
(In thousands, except per share amounts) | |||||||
Net revenues | |||||||
Product | $ | 502,247 | $ | 476,302 | |||
Service | 86,482 | 84,340 | |||||
Total net revenues | 588,729 | 560,642 | |||||
Cost of revenues | |||||||
Product | 174,375 | 175,407 | |||||
Service | 40,429 | 40,466 | |||||
Total cost of revenues | 214,804 | 215,873 | |||||
Gross margin | 373,925 | 344,769 | |||||
Operating expenses: | |||||||
Research and development | 97,690 | 89,319 | |||||
Sales and marketing | 149,011 | 152,688 | |||||
General and administrative | 19,077 | 18,350 | |||||
Amortization of intangible assets | 14,856 | 14,993 | |||||
Total operating expenses | 280,634 | 275,350 | |||||
Income from operations | 93,291 | 69,419 | |||||
Interest expense | (26,368 | ) | (13,046 | ) | |||
Interest and other income (loss), net | 66 | (996 | ) | ||||
Income before income tax | 66,989 | 55,377 | |||||
Income tax expense (benefit) | 88,244 | (3,207 | ) | ||||
Net income (loss) | $ | (21,255 | ) | $ | 58,584 | ||
Net income (loss) per share — basic | $ | (0.05 | ) | $ | 0.13 | ||
Net income (loss) per share — diluted | $ | (0.05 | ) | $ | 0.12 | ||
Shares used in per share calculation — basic | 454,843 | 452,494 | |||||
Shares used in per share calculation — diluted | 454,843 | 468,738 |
January 26, 2013 | October 27, 2012 | ||||||
(In thousands, except par value) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 683,616 | $ | 713,226 | |||
Restricted cash | 311,926 | — | |||||
Accounts receivable, net of allowances for doubtful accounts of $798 and $827 at January 26, 2013 and October 27, 2012, respectively | 216,706 | 233,139 | |||||
Inventories | 59,891 | 68,179 | |||||
Deferred tax assets | 64,981 | 91,539 | |||||
Prepaid expenses and other current assets | 53,839 | 49,496 | |||||
Total current assets | 1,390,959 | 1,155,579 | |||||
Property and equipment, net | 510,282 | 518,940 | |||||
Goodwill | 1,648,722 | 1,624,089 | |||||
Intangible assets, net | 108,948 | 109,265 | |||||
Non-current deferred tax assets | 80,420 | 136,175 | |||||
Other assets | 32,851 | 37,213 | |||||
Total assets | $ | 3,772,182 | $ | 3,581,261 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 101,808 | $ | 117,350 | |||
Accrued employee compensation | 114,593 | 182,597 | |||||
Deferred revenue | 218,303 | 216,283 | |||||
Current liabilities associated with facilities lease losses | 936 | 976 | |||||
Current portion of long-term debt | 302,198 | 1,977 | |||||
Other accrued liabilities | 90,328 | 91,285 | |||||
Total current liabilities | 828,166 | 610,468 | |||||
Long-term debt, net of current portion | 597,440 | 599,203 | |||||
Non-current liabilities associated with facilities lease losses | 1,455 | 1,606 | |||||
Non-current deferred revenue | 77,739 | 76,907 | |||||
Non-current income tax liability | 57,171 | 55,387 | |||||
Other non-current liabilities | 1,928 | 1,870 | |||||
Total liabilities | 1,563,899 | 1,345,441 | |||||
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: 455,874 and 456,913 shares at January 26, 2013 and October 27, 2012, respectively | 456 | 457 | |||||
Additional paid-in capital | 2,003,544 | 2,009,190 | |||||
Accumulated other comprehensive loss | (10,499 | ) | (9,864 | ) | |||
Retained earnings | 214,782 | 236,037 | |||||
Total stockholders’ equity | 2,208,283 | 2,235,820 | |||||
Total liabilities and stockholders’ equity | $ | 3,772,182 | $ | 3,581,261 |
Three Months Ended | |||||||
January 26, 2013 | January 28, 2012 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (21,255 | ) | $ | 58,584 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Excess tax benefits from stock-based compensation | (2,192 | ) | (1,147 | ) | |||
Non-cash tax charges | 78,206 | — | |||||
Depreciation and amortization | 49,394 | 50,105 | |||||
Loss on disposal of property and equipment | 1,989 | 256 | |||||
Amortization of debt issuance costs and original issue discount | 397 | 1,234 | |||||
Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing | 15,299 | — | |||||
Net gains on investments | — | (12 | ) | ||||
Provision for doubtful accounts receivable and sales allowances | 2,354 | 2,700 | |||||
Non-cash compensation expense | 19,150 | 21,819 | |||||
Changes in assets and liabilities: | |||||||
Restricted cash | (11,926 | ) | — | ||||
Accounts receivable | 14,250 | 27,078 | |||||
Inventories | 9,625 | (6,826 | ) | ||||
Prepaid expenses and other assets | (1,702 | ) | 1,611 | ||||
Deferred tax assets | 165 | 22 | |||||
Accounts payable | (14,960 | ) | (9,556 | ) | |||
Accrued employee compensation | (72,570 | ) | (13,013 | ) | |||
Deferred revenue | 1,519 | 8,010 | |||||
Other accrued liabilities | (8,062 | ) | (13,059 | ) | |||
Liabilities associated with facilities lease losses | (191 | ) | (755 | ) | |||
Net cash provided by operating activities | 59,490 | 127,051 | |||||
Cash flows from investing activities: | |||||||
Proceeds from sale of subsidiary | — | (215 | ) | ||||
Purchases of property and equipment | (18,486 | ) | (17,556 | ) | |||
Net cash paid in connection with acquisitions | (44,629 | ) | — | ||||
Net cash used in investing activities | (63,115 | ) | (17,771 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from senior unsecured notes | 296,250 | — | |||||
Payment of principal related to the term loan | — | (70,000 | ) | ||||
Payment of principal related to capital leases | (484 | ) | (456 | ) | |||
Common stock repurchases | (47,530 | ) | — | ||||
Proceeds from issuance of common stock | 23,812 | 31,941 | |||||
Excess tax benefits from stock-based compensation | 2,192 | 1,147 | |||||
Increase in restricted cash | (300,000 | ) | — | ||||
Net cash used in financing activities | (25,760 | ) | (37,368 | ) | |||
Effect of exchange rate fluctuations on cash and cash equivalents | (225 | ) | (1,875 | ) | |||
Net increase (decrease) in cash and cash equivalents | (29,610 | ) | 70,037 | ||||
Cash and cash equivalents, beginning of period | 713,226 | 414,202 | |||||
Cash and cash equivalents, end of period | $ | 683,616 | $ | 484,239 |
Three Months Ended | ||||||||
January 26, 2013 | January 28, 2012 | |||||||
(In thousands, except per share amounts) | ||||||||
Net income (loss) on a GAAP basis | $ | (21,255 | ) | $ | 58,584 | |||
Adjustments: | ||||||||
Stock-based compensation expense included in cost of revenues | 3,946 | 4,375 | ||||||
Amortization of intangible assets expense included in cost of revenues | 10,780 | 14,090 | ||||||
Legal fees recovery associated with certain pre-acquisition litigation | — | (51 | ) | |||||
Total gross margin adjustments | 14,726 | 18,414 | ||||||
Stock-based compensation expense included in research and development | 4,685 | 5,028 | ||||||
Stock-based compensation expense included in sales and marketing | 8,145 | 9,776 | ||||||
Stock-based compensation expense included in general and administrative | 2,374 | 2,640 | ||||||
Amortization of intangible assets expense included in operating expenses | 14,856 | 14,993 | ||||||
Total operating expense adjustments | 30,060 | 32,437 | ||||||
Total operating income adjustments | 44,786 | 50,851 | ||||||
Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing | 15,299 | — | ||||||
Tax provision impact from passage of California Proposition 39 - Single Sales Factor apportionment | 78,206 | — | ||||||
Income tax effect of non-tax adjustments | (18,287 | ) | (16,623 | ) | ||||
Non-GAAP net income | $ | 98,749 | $ | 92,812 | ||||
Non-GAAP net income per share — basic | $ | 0.22 | $ | 0.21 | ||||
Non-GAAP net income per share — diluted | $ | 0.21 | $ | 0.20 | ||||
Shares used in non-GAAP per share calculation — basic | 454,843 | 452,494 | ||||||
Shares used in non-GAAP per share calculation — diluted | 466,321 | 468,738 |