Brocade: Fiscal 1Q15 Financial Results

Brocade Communications Systems, Inc. reported financial results for its first fiscal quarter ended January 31, 2015.

It reported first quarter revenue of $576 million, up 2% both year-over-year and quarter-over-quarter.

The company reported GAAP diluted earnings per share (EPS) of $0.20, up from $0.18 in Q1 2014, and up from $0.19 in Q4 2014. Non-GAAP diluted EPS was $0.27 for Q1 2015, up from $0.24 in both Q1 2014 and Q4 2014, primarily due to higher revenue and improved gross margins.

“We delivered double-digit revenue growth in IP networking year-over-year and one of the strongest SAN quarters in company history, resulting in increased profitability,” said Lloyd Carney, CEO, Brocade. “With a strong focus on the data center, we continue to invest strategically in disruptive technologies to build a portfolio of solutions that capitalize on the opportunities afforded to first-movers in the New IP era.”

Highlights:

SAN product revenue was $353 million, approximately flat year-over-year and up 9% sequentially. Year-over-year SAN revenue performance was led by switch revenue, which grew 8% due to strong sales across most Gen 5 FC switching platforms. Director and server revenues were lower year-over-year by 2% and 24%, respectively, as customer buying patterns favored fixed configuration platforms in the quarter. The strong sequential revenue performance in the quarter was consistent with past fiscal first quarters, which aligns with many of the company’s OEM partners’ fiscal year-ends and is typically their strongest storage quarter. All SAN product segments saw strong sequential growth with directors up 7%, switches up 10%, and server products up 9%.

IP networking product revenue was $133 million, up 11% year-over-year and down 13% sequentially. The year-over-year growth was due to higher revenue from Brocade VDX data center switches and MLX routing products. Ethernet switch revenue increased 17% year-over-year while routing product revenue increased 14% year-over-year. Partially offsetting the gains in switches and routers was a decline in other IP product revenue related to the previously announced discontinuation of the wireless and network adapter products, and the repositioning of the Brocade ADX product line. Total IP networking revenue was down sequentially due primarily to lower U.S. Federal revenue, which is typically lower in the fiscal first quarter.

In the quarter, Brocade completed a $575 million convertible debt offering, with the majority of the proceeds being used to redeem its $300 million senior secured notes. The new convertible debt is unsecured and has a lower interest rate of 1.375% compared to 6.875% on the note that has been redeemed. In conjunction with the convertible offering, the company entered into a call option hedge transaction designed to reduce the dilutive effect of the convertible notes. On the day of pricing, the company repurchased 4.1 million shares of its common stock.

Sussequent to the end of the fiscal first quarter, Brocade announced its intent to acquire the SteelApp business from Riverbed Technology in an all-cash asset purchase. The transaction is expected to close in Brocade’s fiscal second quarter of 2015. The SteelApp product line is a virtual Application Delivery Controller and will extend Brocade’s new IP software portfolio to enable advanced solutions for the company’s data center and service provider customers.
 
The Brocade board of directors has declared a quarterly cash dividend of $0.035 per share of the company’s common stock. The dividend payment will be made on April 2, 2015, to stockholders of record at the close of market on March 10, 2015.