Delaware | 000-25601 | 77-0409517 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
¨ | 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 25, 2017, regarding financial results of Brocade Communications Systems, Inc. for the second fiscal quarter ended April 29, 2017. |
BROCADE COMMUNICATIONS SYSTEMS, INC. | |||||||
Date: | May 25, 2017 | 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 2017 | Q1 2017 | Q2 2016 | Q2 2017 vs. Q1 2017 | Q2 2017 vs. Q2 2016 | |||||||||||||
Revenue | $ | 553 | M | $ | 581 | M | $ | 523 | M | (5 | %) | 6 | % | ||||
GAAP earnings (loss) per share—diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.11 | 93 | % | (126 | %) | |||||
Non-GAAP EPS—diluted | $ | 0.10 | $ | 0.16 | $ | 0.22 | (37 | %) | (52 | %) | |||||||
GAAP gross margin | 62.0 | % | 63.1 | % | 66.9 | % | (1.1) pts | (4.9) pts | |||||||||
Non-GAAP gross margin | 65.3 | % | 66.6 | % | 68.2 | % | (1.3) pts | (2.9) pts | |||||||||
GAAP operating margin | (1.1 | )% | 0.7 | % | 15.8 | % | (1.8) pts | (16.9) pts | |||||||||
Non-GAAP operating margin | 11.1 | % | 15.5 | % | 22.4 | % | (4.4) pts | (11.3) pts |
• | SAN product revenue of $282 million was down 5% year-over-year. The decline was primarily the result of lower director and embedded switch sales, which declined 6% and 12% year-over-year, respectively. The year-over-year revenue performance was impacted by competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition of Brocade by Broadcom. Sequentially, SAN product revenue decreased 8%, consistent with historical seasonal revenue trends, with fixed-configuration and embedded switch revenues down 15% and 18%, respectively, partially offset by a 4% increase in director revenue. |
• | IP Networking product revenue of $173 million, including $71 million of product revenue from Ruckus Wireless, was up 32% year-over-year. The increase was primarily due to added wireless revenue following the acquisition of Ruckus Wireless in the third quarter of fiscal year 2016, partially offset by lower wired switch and router revenue, due in part to Broadcom’s planned divestiture of Brocade’s IP Networking business. Sequentially, IP Networking product revenue was flat. |
• | 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. The dividend payment will be made on July 5, 2017, to stockholders of record at the close of market on June 12, 2017. |
Q2 2017 | Q1 2017 | Q2 2016 | ||||||
Routes to market as a % of total net revenues: | ||||||||
OEM revenues | 55 | % | 57 | % | 63 | % | ||
Channel/Direct revenues | 45 | % | 43 | % | 37 | % | ||
10% or greater customer revenues | 27 | % | 19 | % | 30 | % | ||
Geographic split as a % of total net revenues (1): | ||||||||
Domestic revenues | 50 | % | 47 | % | 53 | % | ||
International revenues | 50 | % | 53 | % | 47 | % | ||
Segment split as a % of total net revenues: | ||||||||
SAN product revenues | 51 | % | 53 | % | 57 | % | ||
IP Networking product revenues | 31 | % | 30 | % | 25 | % | ||
Global Services revenues | 18 | % | 17 | % | 18 | % | ||
SAN business revenues (2) | 60 | % | 62 | % | 67 | % | ||
IP Networking business revenues (2) | 40 | % | 38 | % | 33 | % |
Additional information: | Q2 2017 | Q1 2017 | Q2 2016 | ||||||||
GAAP net income (loss) attributable to Brocade | $ | (11 | )M | $ | (6 | )M | $ | 43 | M | ||
Non-GAAP net income attributable to Brocade | $ | 43 | M | $ | 68 | M | $ | 89 | M | ||
GAAP operating income (loss) | $ | (6 | )M | $ | 4 | M | $ | 83 | M | ||
Non-GAAP operating income | $ | 61 | M | $ | 90 | M | $ | 117 | M | ||
GAAP effective tax rate | 44.2 | % | 45.6 | % | 41.6 | % | |||||
Non-GAAP effective tax rate | 16.1 | % | 13.6 | % | 20.8 | % | |||||
Cash and cash equivalents | $ | 1,300 | M | $ | 1,230 | M | $ | 1,428 | M | ||
Capital expenditures | $ | 8 | M | $ | 12 | M | $ | 19 | M | ||
Cash provided by (used in) operations | $ | 108 | M | $ | (3 | )M | $ | 112 | M | ||
Days sales outstanding | 43 days | 41 days | 36 days | ||||||||
Employees at end of period | 5,524 | 5,823 | 4,724 | ||||||||
SAN port shipments | 0.8 | M | 0.9 | M | 0.8 | M | |||||
Share repurchases | $ | — | $ | — | $ | 36.4 | 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. |
• | 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 29, 2017 | April 30, 2016 | April 29, 2017 | April 30, 2016 | ||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Net revenues: | |||||||||||||||
Product | $ | 455,107 | $ | 428,193 | $ | 935,724 | $ | 909,360 | |||||||
Service | 97,646 | 95,113 | 198,492 | 188,230 | |||||||||||
Total net revenues | 552,753 | 523,306 | 1,134,216 | 1,097,590 | |||||||||||
Cost of revenues: | |||||||||||||||
Product | 164,738 | 132,208 | 331,393 | 276,305 | |||||||||||
Service | 45,255 | 40,787 | 92,940 | 82,159 | |||||||||||
Total cost of revenues | 209,993 | 172,995 | 424,333 | 358,464 | |||||||||||
Gross margin | 342,760 | 350,311 | 709,883 | 739,126 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 119,545 | 89,263 | 243,048 | 182,520 | |||||||||||
Sales and marketing | 172,315 | 148,933 | 352,516 | 300,760 | |||||||||||
General and administrative | 31,016 | 22,791 | 64,513 | 45,220 | |||||||||||
Amortization of intangible assets | 7,582 | 902 | 15,176 | 1,804 | |||||||||||
Acquisition, divestiture, and integration costs | 18,236 | 5,757 | 36,273 | 5,757 | |||||||||||
Restructuring and other related benefits | — | — | — | (566 | ) | ||||||||||
Total operating expenses | 348,694 | 267,646 | 711,526 | 535,495 | |||||||||||
Income (loss) from operations | (5,934 | ) | 82,665 | (1,643 | ) | 203,631 | |||||||||
Interest expense | (15,949 | ) | (9,955 | ) | (31,442 | ) | (19,820 | ) | |||||||
Interest and other income, net | 2,098 | 1,091 | 2,556 | 1,760 | |||||||||||
Income (loss) before income tax | (19,785 | ) | 73,801 | (30,529 | ) | 185,571 | |||||||||
Income tax expense (benefit) | (8,753 | ) | 30,716 | (13,653 | ) | 48,840 | |||||||||
Net income (loss) | $ | (11,032 | ) | $ | 43,085 | $ | (16,876 | ) | $ | 136,731 | |||||
Less: Net loss attributable to noncontrolling interest | $ | (65 | ) | $ | — | $ | (228 | ) | $ | — | |||||
Net income (loss) attributable to Brocade Communications Systems, Inc. | $ | (10,967 | ) | $ | 43,085 | $ | (16,648 | ) | $ | 136,731 | |||||
Net income (loss) per share—basic attributable to Brocade Communications Systems, Inc. stockholders | $ | (0.03 | ) | $ | 0.11 | $ | (0.04 | ) | $ | 0.34 | |||||
Net income (loss) per share—diluted attributable to Brocade Communications Systems, Inc. stockholders | $ | (0.03 | ) | $ | 0.11 | $ | (0.04 | ) | $ | 0.33 | |||||
Shares used in per share calculation—basic | 408,589 | 400,554 | 406,792 | 404,228 | |||||||||||
Shares used in per share calculation—diluted | 408,589 | 408,748 | 406,792 | 411,917 | |||||||||||
Cash dividends declared per share | $ | 0.055 | $ | 0.045 | $ | 0.110 | $ | 0.090 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 29, 2017 | April 30, 2016 | April 29, 2017 | April 30, 2016 | ||||||||||||
(In thousands) | |||||||||||||||
Net income (loss) | $ | (11,032 | ) | $ | 43,085 | $ | (16,876 | ) | $ | 136,731 | |||||
Other comprehensive income and loss, net of tax: | |||||||||||||||
Unrealized gains (losses) on cash flow hedges: | |||||||||||||||
Change in unrealized gains and losses | 576 | 1,964 | 167 | (336 | ) | ||||||||||
Net gains and losses reclassified into earnings | 251 | 724 | 436 | 1,350 | |||||||||||
Net unrealized gains on cash flow hedges | 827 | 2,688 | 603 | 1,014 | |||||||||||
Foreign currency translation adjustments | 2,023 | 2,070 | 663 | (133 | ) | ||||||||||
Total other comprehensive income | 2,850 | 4,758 | 1,266 | 881 | |||||||||||
Total comprehensive income (loss) | $ | (8,182 | ) | $ | 47,843 | $ | (15,610 | ) | $ | 137,612 | |||||
Less: Net loss attributable to noncontrolling interest | (65 | ) | — | (228 | ) | — | |||||||||
Less: Total other comprehensive loss attributable to noncontrolling interest | (4 | ) | — | (72 | ) | — | |||||||||
Total comprehensive income (loss) attributable to Brocade Communications Systems, Inc. | $ | (8,113 | ) | $ | 47,843 | $ | (15,310 | ) | $ | 137,612 |
April 29, 2017 | October 29, 2016 | ||||||
(In thousands, except par value) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,299,660 | $ | 1,257,075 | |||
Accounts receivable, net of allowances for doubtful accounts of $1,965, and $1,736 as of April 29, 2017, and October 29, 2016, respectively | 260,343 | 284,344 | |||||
Inventories | 78,467 | 69,355 | |||||
Prepaid expenses and other current assets | 69,100 | 62,236 | |||||
Total current assets | 1,707,570 | 1,673,010 | |||||
Property and equipment, net | 434,795 | 455,326 | |||||
Goodwill | 2,291,246 | 2,295,184 | |||||
Core/developed technology intangible assets, net | 227,199 | 248,938 | |||||
Other intangible assets, net | 182,152 | 200,840 | |||||
Non-current deferred tax assets | 27,995 | 12,736 | |||||
Other assets | 46,273 | 53,777 | |||||
Total assets | $ | 4,917,230 | $ | 4,939,811 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 111,980 | $ | 128,685 | |||
Accrued employee compensation | 163,949 | 154,165 | |||||
Deferred revenue | 214,103 | 221,940 | |||||
Current portion of long-term debt | 76,765 | 76,692 | |||||
Other accrued liabilities | 121,805 | 113,170 | |||||
Total current liabilities | 688,602 | 694,652 | |||||
Long-term debt, net of current portion | 1,472,501 | 1,502,063 | |||||
Non-current deferred revenue | 87,352 | 90,051 | |||||
Non-current income tax liability | 91,964 | 102,100 | |||||
Other non-current liabilities | 4,538 | 5,370 | |||||
Total liabilities | 2,344,957 | 2,394,236 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Brocade 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: 409,865 and 401,748 shares as of April 29, 2017, and October 29, 2016, respectively | 410 | 402 | |||||
Additional paid-in capital | 1,601,809 | 1,514,730 | |||||
Accumulated other comprehensive loss | (26,147 | ) | (27,413 | ) | |||
Retained earnings | 993,767 | 1,055,194 | |||||
Total Brocade stockholders’ equity | 2,569,839 | 2,542,913 | |||||
Noncontrolling interest | 2,434 | 2,662 | |||||
Total stockholders’ equity | $ | 2,572,273 | $ | 2,545,575 | |||
Total liabilities and stockholders’ equity | $ | 4,917,230 | $ | 4,939,811 |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||
Six Months Ended | |||||||
April 29, 2017 | April 30, 2016 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (16,876 | ) | $ | 136,731 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Excess tax benefits from stock-based compensation | (2,220 | ) | (10,987 | ) | |||
Depreciation and amortization | 82,643 | 45,839 | |||||
Loss on disposal of property and equipment | 464 | 437 | |||||
Amortization of debt issuance costs and debt discount | 10,511 | 8,704 | |||||
Provision (recovery) for doubtful accounts receivable and sales allowances | 2,320 | (1,083 | ) | ||||
Non-cash purchase accounting adjustments to inventory | 3,921 | — | |||||
Non-cash stock-based compensation expense | 70,745 | 48,833 | |||||
Changes in assets and liabilities, net of acquisitions: | |||||||
Accounts receivable | 21,681 | 32,051 | |||||
Inventories | (2,177 | ) | (424 | ) | |||
Prepaid expenses and other assets | 602 | (1,882 | ) | ||||
Deferred tax assets | 48 | (74 | ) | ||||
Accounts payable | (24,986 | ) | (5,127 | ) | |||
Accrued employee compensation | (9,858 | ) | (21,136 | ) | |||
Deferred revenue | (11,536 | ) | (11,715 | ) | |||
Other accrued liabilities | (19,708 | ) | 5,500 | ||||
Restructuring liabilities | (330 | ) | (1,035 | ) | |||
Net cash provided by operating activities | 105,244 | 224,632 | |||||
Cash flows from investing activities: | |||||||
Purchases of non-marketable equity and debt investments | — | (2,000 | ) | ||||
Purchases of property and equipment | (19,851 | ) | (42,425 | ) | |||
Net cash paid in connection with acquisitions | — | (8,061 | ) | ||||
Proceeds from collection of note receivable | 250 | 250 | |||||
Net cash used in investing activities | (19,601 | ) | (52,236 | ) | |||
Cash flows from financing activities: | |||||||
Payment of principal related to the term loan | (40,000 | ) | — | ||||
Payment of principal related to capital leases | — | (197 | ) | ||||
Common stock repurchases | — | (180,848 | ) | ||||
Proceeds from issuance of common stock | 39,693 | 20,512 | |||||
Payment of cash dividends to stockholders | (44,780 | ) | (36,445 | ) | |||
Excess tax benefits from stock-based compensation | 2,220 | 10,987 | |||||
Net cash used in financing activities | (42,867 | ) | (185,991 | ) | |||
Effect of exchange rate fluctuations on cash and cash equivalents | (191 | ) | 356 | ||||
Net increase (decrease) in cash and cash equivalents | 42,585 | (13,239 | ) | ||||
Cash and cash equivalents, beginning of period | 1,257,075 | 1,440,882 | |||||
Cash and cash equivalents, end of period | $ | 1,299,660 | $ | 1,427,643 |
BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (Unaudited) | |||||||||||
Three Months Ended | |||||||||||
April 29, 2017 | January 28, 2017 | April 30, 2016 | |||||||||
(In thousands, except per share amounts) | |||||||||||
Non-GAAP adjustments | |||||||||||
Stock-based compensation expense included in cost of revenues | $ | 3,234 | $ | 5,650 | $ | 3,531 | |||||
Amortization of intangible assets expense included in cost of revenues | 12,679 | 13,060 | 3,193 | ||||||||
Purchase accounting adjustments to inventory | 2,384 | 1,537 | — | ||||||||
Total gross margin impact from non-GAAP adjustments | 18,297 | 20,247 | 6,724 | ||||||||
Stock-based compensation expense included in research and development | 6,631 | 12,074 | 5,123 | ||||||||
Stock-based compensation expense included in sales and marketing | 9,779 | 16,815 | 11,052 | ||||||||
Stock-based compensation expense included in general and administrative | 6,645 | 10,975 | 5,083 | ||||||||
Amortization of intangible assets expense included in operating expenses | 7,582 | 7,594 | 902 | ||||||||
Acquisition, divestiture, and integration costs | 18,236 | 18,037 | 5,757 | ||||||||
Total operating income impact from non-GAAP adjustments | 67,170 | 85,742 | 34,641 | ||||||||
Convertible debt interest | 4,018 | 3,968 | 3,824 | ||||||||
Effects of certain intercompany transactions on the tax provision | — | — | 13,670 | ||||||||
Income tax effect of non-GAAP adjustments | (17,029 | ) | (15,639 | ) | (6,329 | ) | |||||
Total net income impact from non-GAAP adjustments | $ | 54,159 | $ | 74,071 | $ | 45,806 | |||||
Gross margin reconciliation | |||||||||||
GAAP gross margin | $ | 342,760 | $ | 367,123 | $ | 350,311 | |||||
Total gross margin impact from non-GAAP adjustments | 18,297 | 20,247 | 6,724 | ||||||||
Non-GAAP gross margin | $ | 361,057 | $ | 387,370 | $ | 357,035 | |||||
GAAP gross margin, as a percentage of total net revenues | 62.0 | % | 63.1 | % | 66.9 | % | |||||
Non-GAAP gross margin, as a percentage of total net revenues | 65.3 | % | 66.6 | % | 68.2 | % | |||||
Operating income reconciliation | |||||||||||
GAAP operating income (loss) | $ | (5,934 | ) | $ | 4,291 | $ | 82,665 | ||||
Total operating income impact from non-GAAP adjustments | 67,170 | 85,742 | 34,641 | ||||||||
Non-GAAP operating income | $ | 61,236 | $ | 90,033 | $ | 117,306 | |||||
GAAP operating income (loss), as a percentage of total net revenues | (1.1 | )% | 0.7 | % | 15.8 | % | |||||
Non-GAAP operating income, as a percentage of total net revenues | 11.1 | % | 15.5 | % | 22.4 | % | |||||
Net income (loss) and net income (loss) per share attributable to Brocade reconciliation | |||||||||||
Net income (loss) attributable to Brocade on a GAAP basis | $ | (10,967 | ) | $ | (5,681 | ) | $ | 43,085 | |||
Total net income impact from non-GAAP adjustments | 54,159 | 74,071 | 45,806 | ||||||||
Non-GAAP net income attributable to Brocade | $ | 43,192 | $ | 68,390 | $ | 88,891 | |||||
GAAP net income (loss) per share—basic attributable to Brocade | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.11 | |||
Total impact on net income (loss) per share—basic from non-GAAP adjustments | 0.14 | 0.18 | 0.11 | ||||||||
Non-GAAP net income per share—basic attributable to Brocade | $ | 0.11 | $ | 0.17 | $ | 0.22 | |||||
BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES—Continued (Unaudited) | |||||||||||
Three Months Ended | |||||||||||
April 29, 2017 | January 28, 2017 | April 30, 2016 | |||||||||
(In thousands, except per share amounts) | |||||||||||
GAAP net income (loss) per share—diluted attributable to Brocade | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.11 | |||
Total impact on net income (loss) per share—diluted from non-GAAP adjustments | 0.13 | 0.17 | 0.11 | ||||||||
Non-GAAP net income per share—diluted attributable to Brocade | $ | 0.10 | $ | 0.16 | $ | 0.22 | |||||
Shares used in GAAP and non-GAAP per share calculation—basic | 408,589 | 404,995 | 400,554 | ||||||||
Shares used in GAAP per share calculation—diluted | 408,589 | 404,995 | 408,748 | ||||||||
Shares used in non-GAAP per share calculation—diluted | 419,614 | 415,861 | 408,748 | ||||||||
Effective tax rate reconciliation | |||||||||||
GAAP income (loss) before income tax | (19,785 | ) | (10,744 | ) | 73,801 | ||||||
Total operating income impact from non-GAAP adjustments | 67,170 | 85,742 | 34,641 | ||||||||
Convertible debt interest | 4,018 | 3,968 | 3,824 | ||||||||
Non-GAAP income before income tax | 51,403 | 78,966 | 112,266 | ||||||||
GAAP income tax expense (benefit) | (8,753 | ) | (4,900 | ) | 30,716 | ||||||
Effects of certain intercompany transactions on the tax provision | — | — | (13,670 | ) | |||||||
Income tax effect of non-GAAP adjustments | 17,029 | 15,639 | 6,329 | ||||||||
Non-GAAP income tax expense | 8,276 | 10,739 | 23,375 | ||||||||
GAAP income (loss) before income tax | (19,785 | ) | (10,744 | ) | 73,801 | ||||||
GAAP income tax expense (benefit) | (8,753 | ) | (4,900 | ) | 30,716 | ||||||
GAAP effective tax rate | 44.2 | % | 45.6 | % | 41.6 | % | |||||
Non-GAAP income before income tax | 51,403 | 78,966 | 112,266 | ||||||||
Non-GAAP income tax expense | 8,276 | 10,739 | 23,375 | ||||||||
Non-GAAP effective tax rate | 16.1 | % | 13.6 | % | 20.8 | % |
.O\ B&_\5ZW=:EJE[=:CJ-]*TUQ