Delaware | 000-25601 | 77-0409517 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
x | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Number | Description of Document |
99.1 | Press release, dated May 19, 2016, regarding financial results of Brocade Communications Systems, Inc. for the second fiscal quarter ended April 30, 2016. |
99.2 | Slides with accompanying prepared remarks of Brocade Communications Systems, Inc., dated May 19, 2016, regarding financial results for the second fiscal quarter ended April 30, 2016, and forward-looking statements, including statements relating to the Company’s financial outlook. |
99.3 | Brocade Communications Systems, Inc.’s condensed consolidated statements of income for the three and six months ended April 30, 2016, condensed consolidated statements of comprehensive income for the three and six months ended April 30, 2016, condensed consolidated balance sheet as of April 30, 2016, and condensed consolidated statement of cash flows for the six months ended April 30, 2016. |
BROCADE COMMUNICATIONS SYSTEMS, INC. | |||||||
Date: | May 19, 2016 | By: | /s/ Daniel W. Fairfax | ||||
Daniel W. Fairfax | |||||||
Senior Vice President and Chief Financial Officer |
BROCADE CONTACTS | ||
Media Relations Ed Graczyk Tel: 408-333-1836 egraczyk@brocade.com | Investor Relations Michael Iburg Tel: 408-333-0233 miburg@brocade.com | ![]() |
Q2 2016 | Q1 2016 | Q2 2015 | Q2 2016 vs. Q1 2016 | Q2 2016 vs. Q2 2015 | |||||||||||||
Revenue | $ | 523 | M | $ | 574 | M | $ | 547 | M | (9 | %) | (4 | %) | ||||
GAAP EPS—diluted | $ | 0.11 | $ | 0.23 | $ | 0.18 | (54 | %) | (41 | %) | |||||||
Non-GAAP EPS—diluted | $ | 0.22 | $ | 0.29 | $ | 0.22 | (25 | %) | — | ||||||||
GAAP gross margin | 66.9 | % | 67.7 | % | 68.1 | % | (0.8) pts | (1.2) pts | |||||||||
Non-GAAP gross margin | 68.2 | % | 68.8 | % | 68.8 | % | (0.6) pts | (0.6) pts | |||||||||
GAAP operating margin | 15.8 | % | 21.1 | % | 20.9 | % | (5.3) pts | (5.1) pts | |||||||||
Non-GAAP operating margin | 22.4 | % | 25.9 | % | 24.6 | % | (3.5) pts | (2.2) pts |
• | SAN product revenue of $297 million was down 5% year-over-year. The year-over-year decline was primarily the result of softer demand across the product portfolio, with Fibre Channel directors down 6%, fixed-configuration switches down 4%, and embedded server switches down 9%. Sequentially, SAN product revenue decreased 15%, with Fibre Channel directors declining 12%, fixed-configuration switches down 14%, and embedded server switches down 25%. While the Fibre Channel SAN business normally experiences seasonal softness in our fiscal Q2, the sequential revenue decline was larger than expected due primarily to unusually weak storage demand as reported by many of our partners and peers. |
• | During the quarter, Brocade announced and recorded revenue in connection with the launch of the first phase of the Gen 6 Fibre Channel switching platform, the Brocade G620 Switch. Advancing Brocade’s leadership in Fibre Channel technology, this next generation of switches delivers superior performance and scalability designed to support continued data growth and the demanding workloads from mission-critical applications that are increasingly deployed on flash-based storage. |
• | IP Networking product revenue of $132 million was down 9% year-over-year. The decline was primarily due to lower router sales, down 33%, partially offset by stronger Ethernet switch sales, up 9% from Q2 of 2015. The year-over-year decline was primarily the result of lower service provider and U.S. federal sales. Sequentially, IP Networking product revenue decreased 2% primarily due to lower Ethernet switch sales, which were down 3% from Q1 of 2016. The sequential revenue decline was primarily due to lower sales to enterprise customers as both service provider and U.S. federal revenue grew sequentially. |
• | On April 4, 2016, Brocade announced its intention to acquire Ruckus Wireless, Inc., enhancing Brocade’s position as a pure-play networking company with solutions spanning from the heart of the data center to the wireless network edge. The combined company is expected to be #1 in storage area networking, #1 in service provider Wi-Fi, #2 in data center networking, #3 in enterprise wireless LAN, and #3 in enterprise edge networking (in the U.S. and EMEA). The acquisition is expected to close in Brocade’s fiscal third quarter. |
• | The Brocade Board of Directors has declared a regular third fiscal quarter cash dividend of $0.055 per share of the Company’s common stock, a 22% increase from the dividend of $0.045 per share declared and paid in each of the previous four fiscal quarters. The dividend payment will be made on July 5, 2016 to stockholders of record at the close of market on June 10, 2016. |
Q2 2016 | Q1 2016 | Q2 2015 | ||||||
Routes to market as a % of total net revenues: | ||||||||
OEM revenues | 63 | % | 67 | % | 63 | % | ||
Channel/Direct revenues | 37 | % | 33 | % | 37 | % | ||
10% or greater customer revenues | 30 | % | 34 | % | 49 | % | ||
Geographic split as a % of total net revenues (1): | ||||||||
Domestic revenues | 53 | % | 55 | % | 56 | % | ||
International revenues | 47 | % | 45 | % | 44 | % | ||
Segment split as a % of total net revenues: | ||||||||
SAN product revenues | 57 | % | 61 | % | 57 | % | ||
IP Networking product revenues | 25 | % | 23 | % | 27 | % | ||
Global Services revenues | 18 | % | 16 | % | 16 | % | ||
SAN business revenues (2) | 67 | % | 70 | % | 67 | % | ||
IP Networking business revenues (2) | 33 | % | 30 | % | 33 | % | ||
IP Networking product revenues by use category (3) (4): | ||||||||
Data Center | 54 | % | 53 | % | 62 | % | ||
Enterprise Campus | 38 | % | 38 | % | 30 | % | ||
Carrier Network (MAN/WAN) | 8 | % | 9 | % | 8 | % |
Additional information: | Q2 2016 | Q1 2016 | Q2 2015 | ||||||||
GAAP net income | $ | 43 | M | $ | 94 | M | $ | 77 | M | ||
Non-GAAP net income | $ | 89 | M | $ | 119 | M | $ | 95 | M | ||
GAAP operating income | $ | 83 | M | $ | 121 | M | $ | 114 | M | ||
Non-GAAP operating income | $ | 117 | M | $ | 149 | M | $ | 134 | M | ||
GAAP effective tax rate | 41.6 | % | 16.2 | % | 26.0 | % | |||||
Non-GAAP effective tax rate | 20.8 | % | 16.7 | % | 25.7 | % | |||||
Cash and cash equivalents | $ | 1,428 | M | $ | 1,392 | M | $ | 1,367 | M | ||
Deferred revenues | $ | 305 | M | $ | 303 | M | $ | 306 | M | ||
Capital expenditures | $ | 19 | M | $ | 24 | M | $ | 18 | M | ||
Total debt, net of discount and issuance costs (5) | $ | 803 | M | $ | 798 | M | $ | 786 | M | ||
Cash, net of senior debt, convertible debt and capitalized leases | $ | 553 | M | $ | 517 | M | $ | 491 | M | ||
Cash provided by operations | $ | 112 | M | $ | 112 | M | $ | 202 | M | ||
Days sales outstanding | 36 days | 28 days | 31 days | ||||||||
Employees at end of period | 4,724 | 4,712 | 4,553 | ||||||||
SAN port shipments | 0.8 | M | 1.0 | M | 0.9 | M | |||||
Share repurchases (6) | $ | 36.4 | M | $ | 144.5 | M | $ | 77.1 | M |
(1) | Revenues are attributed to geographic areas based on known 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) | Each use category includes enterprise, service provider, and government revenues. |
(5) | Q2 2016, Q1 2016, and Q2 2015 total debt, net of discount and issuance costs, 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 $62 million as of April 30, 2016, $66 million as of January 30, 2016, and $77 million as of May 2, 2015. |
• | 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. |
Three Months Ended | Six Months Ended | ||||||||||||||
April 30, 2016 | May 2, 2015 | April 30, 2016 | May 2, 2015 | ||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Net revenues: | |||||||||||||||
Product | $ | 428,193 | $ | 458,243 | $ | 909,360 | $ | 944,481 | |||||||
Service | 95,113 | 88,332 | 188,230 | 178,333 | |||||||||||
Total net revenues | 523,306 | 546,575 | 1,097,590 | 1,122,814 | |||||||||||
Cost of revenues: | |||||||||||||||
Product | 132,208 | 137,612 | 276,305 | 287,538 | |||||||||||
Service | 40,787 | 36,754 | 82,159 | 73,384 | |||||||||||
Total cost of revenues | 172,995 | 174,366 | 358,464 | 360,922 | |||||||||||
Gross margin | 350,311 | 372,209 | 739,126 | 761,892 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 89,263 | 91,870 | 182,520 | 177,101 | |||||||||||
Sales and marketing | 148,933 | 143,078 | 300,760 | 283,316 | |||||||||||
General and administrative | 22,791 | 20,722 | 45,220 | 45,393 | |||||||||||
Amortization of intangible assets | 902 | 627 | 1,804 | 765 | |||||||||||
Acquisition and integration costs | 5,757 | 2,344 | 5,757 | 2,344 | |||||||||||
Restructuring and other related benefits | — | (637 | ) | (566 | ) | (637 | ) | ||||||||
Total operating expenses | 267,646 | 258,004 | 535,495 | 508,282 | |||||||||||
Income from operations | 82,665 | 114,205 | 203,631 | 253,610 | |||||||||||
Interest expense | (9,955 | ) | (10,552 | ) | (19,820 | ) | (35,976 | ) | |||||||
Interest and other income (loss), net | 1,091 | 466 | 1,760 | (93 | ) | ||||||||||
Income before income tax | 73,801 | 104,119 | 185,571 | 217,541 | |||||||||||
Income tax expense | 30,716 | 27,079 | 48,840 | 53,234 | |||||||||||
Net income | $ | 43,085 | $ | 77,040 | $ | 136,731 | $ | 164,307 | |||||||
Net income per share—basic | $ | 0.11 | $ | 0.18 | $ | 0.34 | $ | 0.39 | |||||||
Net income per share—diluted | $ | 0.11 | $ | 0.18 | $ | 0.33 | $ | 0.38 | |||||||
Shares used in per share calculation—basic | 400,554 | 420,718 | 404,228 | 424,627 | |||||||||||
Shares used in per share calculation—diluted | 408,748 | 433,234 | 411,917 | 436,195 | |||||||||||
Cash dividends declared per share | $ | 0.045 | $ | 0.035 | $ | 0.09 | $ | 0.07 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 30, 2016 | May 2, 2015 | April 30, 2016 | May 2, 2015 | ||||||||||||
(In thousands) | |||||||||||||||
Net income | $ | 43,085 | $ | 77,040 | $ | 136,731 | $ | 164,307 | |||||||
Other comprehensive income and loss, net of tax: | |||||||||||||||
Unrealized gains (losses) on cash flow hedges: | |||||||||||||||
Change in unrealized gains and losses | 1,964 | (143 | ) | (336 | ) | (1,918 | ) | ||||||||
Net gains and losses reclassified into earnings | 724 | 1,109 | 1,350 | 1,713 | |||||||||||
Net unrealized gains (losses) on cash flow hedges | 2,688 | 966 | 1,014 | (205 | ) | ||||||||||
Foreign currency translation adjustments | 2,070 | (1,068 | ) | (133 | ) | (5,289 | ) | ||||||||
Total other comprehensive income (loss) | 4,758 | (102 | ) | 881 | (5,494 | ) | |||||||||
Total comprehensive income | $ | 47,843 | $ | 76,938 | $ | 137,612 | $ | 158,813 |
April 30, 2016 | October 31, 2015 | ||||||
(In thousands, except par value) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,427,643 | $ | 1,440,882 | |||
Accounts receivable, net of allowances for doubtful accounts of $1,739 and $1,838 as of April 30, 2016, and October 31, 2015, respectively | 204,915 | 235,883 | |||||
Inventories | 39,521 | 40,524 | |||||
Deferred tax assets | — | 78,675 | |||||
Prepaid expenses and other current assets | 67,598 | 56,235 | |||||
Total current assets | 1,739,677 | 1,852,199 | |||||
Property and equipment, net | 441,717 | 439,224 | |||||
Goodwill | 1,621,691 | 1,617,161 | |||||
Intangible assets, net | 69,611 | 75,623 | |||||
Non-current deferred tax assets | 69,309 | 813 | |||||
Other assets | 50,968 | 51,133 | |||||
Total assets | $ | 3,992,973 | $ | 4,036,153 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 97,498 | $ | 98,143 | |||
Accrued employee compensation | 133,511 | 142,075 | |||||
Deferred revenue | 230,540 | 244,622 | |||||
Other accrued liabilities | 68,757 | 77,524 | |||||
Total current liabilities | 530,306 | 562,364 | |||||
Long-term debt, net of current portion | 802,482 | 793,779 | |||||
Non-current deferred revenue | 74,434 | 72,065 | |||||
Non-current income tax liability | 62,110 | 47,010 | |||||
Non-current deferred tax liabilities | — | 24,024 | |||||
Other non-current liabilities | 2,499 | 3,376 | |||||
Total liabilities | 1,471,831 | 1,502,618 | |||||
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: 399,383 and 413,923 shares as of April 30, 2016, and October 31, 2015, respectively | 399 | 414 | |||||
Additional paid-in capital | 1,519,439 | 1,632,984 | |||||
Accumulated other comprehensive loss | (24,121 | ) | (25,002 | ) | |||
Retained earnings | 1,025,425 | 925,139 | |||||
Total stockholders’ equity | 2,521,142 | 2,533,535 | |||||
Total liabilities and stockholders’ equity | $ | 3,992,973 | $ | 4,036,153 |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||
Six Months Ended | |||||||
April 30, 2016 | May 2, 2015 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income | $ | 136,731 | $ | 164,307 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Excess tax benefits from stock-based compensation | (10,987 | ) | (29,570 | ) | |||
Depreciation and amortization | 45,839 | 40,247 | |||||
Loss on disposal of property and equipment | 437 | 1,241 | |||||
Amortization of debt issuance costs and debt discount | 8,704 | 5,224 | |||||
Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing | — | 4,808 | |||||
Provision (recovery) for doubtful accounts receivable and sales allowances | (1,083 | ) | 4,694 | ||||
Non-cash stock-based compensation expense | 48,833 | 40,157 | |||||
Changes in assets and liabilities, net of acquisitions: | |||||||
Accounts receivable | 32,051 | 35,237 | |||||
Inventories | (424 | ) | 3,008 | ||||
Prepaid expenses and other assets | (1,882 | ) | (25,702 | ) | |||
Deferred tax assets | (74 | ) | 503 | ||||
Accounts payable | (5,127 | ) | (6,160 | ) | |||
Accrued employee compensation | (21,136 | ) | (39,997 | ) | |||
Deferred revenue | (11,715 | ) | (9,149 | ) | |||
Other accrued liabilities | 5,500 | 25,285 | |||||
Restructuring liabilities | (1,035 | ) | (1,866 | ) | |||
Net cash provided by operating activities | 224,632 | 212,267 | |||||
Cash flows from investing activities: | |||||||
Purchases of non-marketable equity and debt investments | (2,000 | ) | (150 | ) | |||
Purchases of property and equipment | (42,425 | ) | (34,091 | ) | |||
Purchase of intangible assets | — | (7,750 | ) | ||||
Net cash paid in connection with acquisitions | (8,061 | ) | (95,278 | ) | |||
Proceeds from collection of note receivable | 250 | 250 | |||||
Net cash used in investing activities | (52,236 | ) | (137,019 | ) |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued (Unaudited) | |||||||
Six Months Ended | |||||||
April 30, 2016 | May 2, 2015 | ||||||
(In thousands) | |||||||
Cash flows from financing activities: | |||||||
Payment of principal related to senior secured notes | — | (300,000 | ) | ||||
Payment of debt issuance costs | — | (1,661 | ) | ||||
Payment of principal related to capital leases | (197 | ) | (1,267 | ) | |||
Common stock repurchases | (180,848 | ) | (208,244 | ) | |||
Proceeds from issuance of common stock | 20,512 | 21,975 | |||||
Payment of cash dividends to stockholders | (36,445 | ) | (29,854 | ) | |||
Proceeds from convertible notes | — | 565,656 | |||||
Purchase of convertible note hedge | — | (86,135 | ) | ||||
Proceeds from issuance of warrants | — | 51,175 | |||||
Excess tax benefits from stock-based compensation | 10,987 | 29,570 | |||||
Net cash provided by (used in) financing activities | (185,991 | ) | 41,215 | ||||
Effect of exchange rate fluctuations on cash and cash equivalents | 356 | (4,668 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (13,239 | ) | 111,795 | ||||
Cash and cash equivalents, beginning of period | 1,440,882 | 1,255,017 | |||||
Cash and cash equivalents, end of period | $ | 1,427,643 | $ | 1,366,812 |
Three Months Ended | |||||||||||
April 30, 2016 | January 30, 2016 | May 2, 2015 | |||||||||
(In thousands, except per share amounts) | |||||||||||
Non-GAAP adjustments | |||||||||||
Stock-based compensation expense included in cost of revenues | $ | 3,531 | $ | 2,905 | $ | 1,986 | |||||
Amortization of intangible assets expense included in cost of revenues | 3,193 | 3,154 | 1,857 | ||||||||
Total gross margin impact from non-GAAP adjustments | 6,724 | 6,059 | 3,843 | ||||||||
Stock-based compensation expense included in research and development | 5,123 | 5,476 | 3,080 | ||||||||
Stock-based compensation expense included in sales and marketing | 11,052 | 11,078 | 7,207 | ||||||||
Stock-based compensation expense included in general and administrative | 5,083 | 4,585 | 3,802 | ||||||||
Amortization of intangible assets expense included in operating expenses | 902 | 902 | 627 | ||||||||
Acquisition and integration costs | 5,757 | — | 2,344 | ||||||||
Restructuring and other related benefits | — | (566 | ) | (637 | ) | ||||||
Total operating income impact from non-GAAP adjustments | 34,641 | 27,534 | 20,266 | ||||||||
Convertible debt interest | 3,824 | 3,776 | 3,639 | ||||||||
Effects of certain intercompany transactions on the tax provision | 22,637 | — | — | ||||||||
Income tax effect of non-tax adjustments | (15,296 | ) | (5,770 | ) | (5,823 | ) | |||||
Total net income impact from non-GAAP adjustments | $ | 45,806 | $ | 25,540 | $ | 18,082 | |||||
Gross margin reconciliation | |||||||||||
GAAP gross margin | $ | 350,311 | $ | 388,815 | $ | 372,209 | |||||
Total gross margin impact from non-GAAP adjustments | 6,724 | 6,059 | 3,843 | ||||||||
Non-GAAP gross margin | $ | 357,035 | $ | 394,874 | $ | 376,052 | |||||
GAAP gross margin, as a percentage of total net revenues | 66.9 | % | 67.7 | % | 68.1 | % | |||||
Non-GAAP gross margin, as a percentage of total net revenues | 68.2 | % | 68.8 | % | 68.8 | % | |||||
Operating income reconciliation | |||||||||||
GAAP operating income | $ | 82,665 | $ | 120,966 | $ | 114,205 | |||||
Total operating income impact from non-GAAP adjustments | 34,641 | 27,534 | 20,266 | ||||||||
Non-GAAP operating income | $ | 117,306 | $ | 148,500 | $ | 134,471 | |||||
GAAP operating income, as a percentage of total net revenues | 15.8 | % | 21.1 | % | 20.9 | % | |||||
Non-GAAP operating income, as a percentage of total net revenues | 22.4 | % | 25.9 | % | 24.6 | % | |||||
Net income and net income per share reconciliation | |||||||||||
Net income on a GAAP basis | $ | 43,085 | $ | 93,646 | $ | 77,040 | |||||
Total net income impact from non-GAAP adjustments | 45,806 | 25,540 | 18,082 | ||||||||
Non-GAAP net income | $ | 88,891 | $ | 119,186 | $ | 95,122 | |||||
Non-GAAP net income per share—basic | $ | 0.22 | $ | 0.29 | $ | 0.23 | |||||
Non-GAAP net income per share—diluted | $ | 0.22 | $ | 0.29 | $ | 0.22 | |||||
Shares used in non-GAAP per share calculation—basic | 400,554 | 407,902 | 420,718 | ||||||||
Shares used in non-GAAP per share calculation—diluted | 408,748 | 415,085 | 433,234 |
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• | For Q3 16, we expect SAN product revenue to be down 3.5% to 7% Qtr./Qtr. as we expect the overall storage environment to remain weak at least through our third quarter. |
• | We expect Q3 16 IP Networking product revenue to be up 7% to 14% Qtr./Qtr. as we anticipate stronger Americas and U.S. federal revenue. |
• | We expect our Global Services revenue to be down 1% to 2% Qtr./Qtr. |
• | We expect Q3 16 non-GAAP gross margin to be between 66.5% to 67.0%, and non-GAAP operating margin to be between 20.5% to 22.0%, primarily due to lower overall revenue and the expected mix of SAN and IP revenues. |
• | Operating cash flow is expected to be in the range of $45M - $55M in fiscal Q3 16. We expect DSOs to remain in the mid-30’s. |
• | At the end of Q2 16, OEM SAN inventory was approximately 1.5 weeks of supply based on SAN business revenue. We expect inventory to be between one to two weeks in Q3 16. |
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Q2 15 | Q1 16 | Q2 16 | ||||
GAAP product gross margin | 70.0 | % | 70.1 | % | 69.1 | % |
Non-GAAP product gross margin | 70.6 | % | 70.9 | % | 70.2 | % |
GAAP services gross margin | 58.4 | % | 55.6 | % | 57.1 | % |
Non-GAAP services gross margin | 59.6 | % | 57.6 | % | 59.3 | % |
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Three Months Ended | Six Months Ended | ||||||||||||||
April 30, 2016 | May 2, 2015 | April 30, 2016 | May 2, 2015 | ||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Net revenues: | |||||||||||||||
Product | $ | 428,193 | $ | 458,243 | $ | 909,360 | $ | 944,481 | |||||||
Service | 95,113 | 88,332 | 188,230 | 178,333 | |||||||||||
Total net revenues | 523,306 | 546,575 | 1,097,590 | 1,122,814 | |||||||||||
Cost of revenues: | |||||||||||||||
Product | 132,208 | 137,612 | 276,305 | 287,538 | |||||||||||
Service | 40,787 | 36,754 | 82,159 | 73,384 | |||||||||||
Total cost of revenues | 172,995 | 174,366 | 358,464 | 360,922 | |||||||||||
Gross margin | 350,311 | 372,209 | 739,126 | 761,892 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 89,263 | 91,870 | 182,520 | 177,101 | |||||||||||
Sales and marketing | 148,933 | 143,078 | 300,760 | 283,316 | |||||||||||
General and administrative | 22,791 | 20,722 | 45,220 | 45,393 | |||||||||||
Amortization of intangible assets | 902 | 627 | 1,804 | 765 | |||||||||||
Acquisition and integration costs | 5,757 | 2,344 | 5,757 | 2,344 | |||||||||||
Restructuring and other related benefits | — | (637 | ) | (566 | ) | (637 | ) | ||||||||
Total operating expenses | 267,646 | 258,004 | 535,495 | 508,282 | |||||||||||
Income from operations | 82,665 | 114,205 | 203,631 | 253,610 | |||||||||||
Interest expense | (9,955 | ) | (10,552 | ) | (19,820 | ) | (35,976 | ) | |||||||
Interest and other income (loss), net | 1,091 | 466 | 1,760 | (93 | ) | ||||||||||
Income before income tax | 73,801 | 104,119 | 185,571 | 217,541 | |||||||||||
Income tax expense | 30,716 | 27,079 | 48,840 | 53,234 | |||||||||||
Net income | $ | 43,085 | $ | 77,040 | $ | 136,731 | $ | 164,307 | |||||||
Net income per share—basic | $ | 0.11 | $ | 0.18 | $ | 0.34 | $ | 0.39 | |||||||
Net income per share—diluted | $ | 0.11 | $ | 0.18 | $ | 0.33 | $ | 0.38 | |||||||
Shares used in per share calculation—basic | 400,554 | 420,718 | 404,228 | 424,627 | |||||||||||
Shares used in per share calculation—diluted | 408,748 | 433,234 | 411,917 | 436,195 | |||||||||||
Cash dividends declared per share | $ | 0.045 | $ | 0.035 | $ | 0.09 | $ | 0.07 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 30, 2016 | May 2, 2015 | April 30, 2016 | May 2, 2015 | ||||||||||||
(In thousands) | |||||||||||||||
Net income | $ | 43,085 | $ | 77,040 | $ | 136,731 | $ | 164,307 | |||||||
Other comprehensive income and loss, net of tax: | |||||||||||||||
Unrealized gains (losses) on cash flow hedges: | |||||||||||||||
Change in unrealized gains and losses | 1,964 | (143 | ) | (336 | ) | (1,918 | ) | ||||||||
Net gains and losses reclassified into earnings | 724 | 1,109 | 1,350 | 1,713 | |||||||||||
Net unrealized gains (losses) on cash flow hedges | 2,688 | 966 | 1,014 | (205 | ) | ||||||||||
Foreign currency translation adjustments | 2,070 | (1,068 | ) | (133 | ) | (5,289 | ) | ||||||||
Total other comprehensive income (loss) | 4,758 | (102 | ) | 881 | (5,494 | ) | |||||||||
Total comprehensive income | $ | 47,843 | $ | 76,938 | $ | 137,612 | $ | 158,813 |
April 30, 2016 | October 31, 2015 | ||||||
(In thousands, except par value) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,427,643 | $ | 1,440,882 | |||
Accounts receivable, net of allowances for doubtful accounts of $1,739 and $1,838 as of April 30, 2016, and October 31, 2015, respectively | 204,915 | 235,883 | |||||
Inventories | 39,521 | 40,524 | |||||
Deferred tax assets | — | 78,675 | |||||
Prepaid expenses and other current assets | 67,598 | 56,235 | |||||
Total current assets | 1,739,677 | 1,852,199 | |||||
Property and equipment, net | 441,717 | 439,224 | |||||
Goodwill | 1,621,691 | 1,617,161 | |||||
Intangible assets, net | 69,611 | 75,623 | |||||
Non-current deferred tax assets | 69,309 | 813 | |||||
Other assets | 50,968 | 51,133 | |||||
Total assets | $ | 3,992,973 | $ | 4,036,153 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 97,498 | $ | 98,143 | |||
Accrued employee compensation | 133,511 | 142,075 | |||||
Deferred revenue | 230,540 | 244,622 | |||||
Other accrued liabilities | 68,757 | 77,524 | |||||
Total current liabilities | 530,306 | 562,364 | |||||
Long-term debt, net of current portion | 802,482 | 793,779 | |||||
Non-current deferred revenue | 74,434 | 72,065 | |||||
Non-current income tax liability | 62,110 | 47,010 | |||||
Non-current deferred tax liabilities | — | 24,024 | |||||
Other non-current liabilities | 2,499 | 3,376 | |||||
Total liabilities | 1,471,831 | 1,502,618 | |||||
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: 399,383 and 413,923 shares as of April 30, 2016, and October 31, 2015, respectively | 399 | 414 | |||||
Additional paid-in capital | 1,519,439 | 1,632,984 | |||||
Accumulated other comprehensive loss | (24,121 | ) | (25,002 | ) | |||
Retained earnings | 1,025,425 | 925,139 | |||||
Total stockholders’ equity | 2,521,142 | 2,533,535 | |||||
Total liabilities and stockholders’ equity | $ | 3,992,973 | $ | 4,036,153 |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||
Six Months Ended | |||||||
April 30, 2016 | May 2, 2015 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income | $ | 136,731 | $ | 164,307 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Excess tax benefits from stock-based compensation | (10,987 | ) | (29,570 | ) | |||
Depreciation and amortization | 45,839 | 40,247 | |||||
Loss on disposal of property and equipment | 437 | 1,241 | |||||
Amortization of debt issuance costs and debt discount | 8,704 | 5,224 | |||||
Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing | — | 4,808 | |||||
Provision (recovery) for doubtful accounts receivable and sales allowances | (1,083 | ) | 4,694 | ||||
Non-cash stock-based compensation expense | 48,833 | 40,157 | |||||
Changes in assets and liabilities, net of acquisitions: | |||||||
Accounts receivable | 32,051 | 35,237 | |||||
Inventories | (424 | ) | 3,008 | ||||
Prepaid expenses and other assets | (1,882 | ) | (25,702 | ) | |||
Deferred tax assets | (74 | ) | 503 | ||||
Accounts payable | (5,127 | ) | (6,160 | ) | |||
Accrued employee compensation | (21,136 | ) | (39,997 | ) | |||
Deferred revenue | (11,715 | ) | (9,149 | ) | |||
Other accrued liabilities | 5,500 | 25,285 | |||||
Restructuring liabilities | (1,035 | ) | (1,866 | ) | |||
Net cash provided by operating activities | 224,632 | 212,267 | |||||
Cash flows from investing activities: | |||||||
Purchases of non-marketable equity and debt investments | (2,000 | ) | (150 | ) | |||
Purchases of property and equipment | (42,425 | ) | (34,091 | ) | |||
Purchase of intangible assets | — | (7,750 | ) | ||||
Net cash paid in connection with acquisitions | (8,061 | ) | (95,278 | ) | |||
Proceeds from collection of note receivable | 250 | 250 | |||||
Net cash used in investing activities | (52,236 | ) | (137,019 | ) |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued (Unaudited) | |||||||
Six Months Ended | |||||||
April 30, 2016 | May 2, 2015 | ||||||
(In thousands) | |||||||
Cash flows from financing activities: | |||||||
Payment of principal related to senior secured notes | — | (300,000 | ) | ||||
Payment of debt issuance costs | — | (1,661 | ) | ||||
Payment of principal related to capital leases | (197 | ) | (1,267 | ) | |||
Common stock repurchases | (180,848 | ) | (208,244 | ) | |||
Proceeds from issuance of common stock | 20,512 | 21,975 | |||||
Payment of cash dividends to stockholders | (36,445 | ) | (29,854 | ) | |||
Proceeds from convertible notes | — | 565,656 | |||||
Purchase of convertible note hedge | — | (86,135 | ) | ||||
Proceeds from issuance of warrants | — | 51,175 | |||||
Excess tax benefits from stock-based compensation | 10,987 | 29,570 | |||||
Net cash provided by (used in) financing activities | (185,991 | ) | 41,215 | ||||
Effect of exchange rate fluctuations on cash and cash equivalents | 356 | (4,668 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (13,239 | ) | 111,795 | ||||
Cash and cash equivalents, beginning of period | 1,440,882 | 1,255,017 | |||||
Cash and cash equivalents, end of period | $ | 1,427,643 | $ | 1,366,812 |
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