reported financial results for its first fiscal quarter ended January
25, 2014. Brocade reported first quarter revenue of $565 million, down
4% year-over-year and up 1% quarter-over-quarter. The company reported
GAAP diluted earnings per share (EPS) of $0.18, up from a loss of $0.05
per share in Q1 2013. Non-GAAP diluted EPS was $0.24, up from $0.21 in
Street expected earnings of 20 cents per share and revenue of $550.45
"Brocade achieved solid results in Q1, exceeding our outlook for revenue
and profitability," said Lloyd Carney, CEO of Brocade. "Our performance
was driven by the strength of our Storage Area Networking (SAN) business
as customers continue to adopt Gen 5 Fibre Channel networks for their
highly virtualized data centers and high-performance storage
environments, including Solid State Disks (SSDs). While the overall IP
Networking business declined year-over-year, we achieved our outlook for
the quarter. This is a transformational year for Brocade and we remain
committed to our mission to be the network provider of choice to the
world's data centers."
Summary of Q1 2014 results:
business revenue, including products and services, was $412 million,
down 1% year-over-year and up 8% sequentially. SAN business revenue
grew sequentially across all product segments and performed better
than the company's outlook for Q1 2014. Gen 5 Fibre Channel products
represented approximately 71% of director and switch revenue in the
quarter, higher than the 42% reported in Q1 2013 and 69% in Q4 2013.
business revenue, including products and services, was $153 million,
down 11% year-over-year and 15% quarter-over-quarter. The
year-over-year and sequential decline was principally due to lower
sales into the U.S. Federal government as well as lower non-Federal
sales in the Americas region. During Q1 2014, an estimated 59% of
our IP Networking product revenue came from data center customers, a
favorable shift in the mix of our IP business from an estimated 48%
in Q1 2013 and 53% in Q4 2013.
GAAP gross margin was 66.0%,
compared with 63.5% in Q1 2013 and 64.9% in Q4 2013. Non-GAAP
gross margin was 67.7%, compared with 66.0% in Q1 2013 and 67.2% in
Q4 2013. The year-over-year improvement in gross margin was due to a
favorable revenue mix shift to more SAN products, a favorable
product and customer mix within the IP Networking business, and
lower manufacturing and overhead costs. The sequential improvement
in gross margin was due to a more favorable overall product mix
shift to SAN product revenue.
GAAP operating margin
was 21.5%, compared with 15.8% in Q1 2013 and 15.0% in Q4 2013. Non-GAAP operating
margin was 27.9%, compared with 23.5% in Q1 2013 and 26.6% in
Q4 2013. The year-over-year and sequential improvement in operating
margin was due to higher gross margin and lower operating expenses.
Non-GAAP operating expenses of $225 million were down 10%
year-over-year and 1% quarter-over-quarter.
Operating cash flow was $109
million, up 85% year-over-year and down 36% quarter-over-quarter.
The year-over-year increase in operating cash flow was primarily due
to increased operating profits and the timing of payments for
employee incentives. The quarter-over-quarter decrease in operating
cash flow was due to the payment in Q1 2014 of employee incentive
compensation earned during fiscal 2013, as well as an increase in
the amount of the excess tax benefit from stock-based compensation.
GAAP diluted EPS was
$0.18, up from a loss of $0.05 in Q1 2013 and up 29% from Q4 2013.
The year-over-year increase in GAAP diluted EPS was primarily due to
a $0.17 per share charge in Q1 2013 from the change in California
tax law and the related reduction in the company's deferred tax
assets as well as higher operating income. The quarter-over-quarter
increase in GAAP EPS was primarily due to higher net income
resulting from lower restructuring costs.
Non-GAAP diluted EPS of $0.24
was up 13% from Q1 2013 and unchanged from Q4 2013.
The year-over-year increase was primarily due to decreased spending
and reduced diluted shares outstanding.
diluted shares outstanding for Q1 2014 were 454 million shares, down
3% year-over-year and down 1% quarter-over-quarter. The company
repurchased 16.7 million shares for $140 million at an average price
of $8.42 during Q1 2014. Subsequent to the end of Q1 2014, the
company has repurchased an additional 3.3 million shares for $31
million and has approximately $829 million remaining in the
Board-authorized share repurchase program as of February 13, 2014.