Brocade: Fiscal 4Q15 Financial Results

Brocade Communication Systems, Inc. reported financial results for its fourth quarter and full fiscal year 2015 ended October 31, 2015.

Brocade reported fourth quarter revenue of $589 million, an increase of 4% year-over-year and 7% quarter-over-quarter.

Revenue for fiscal year 2015 was $2,263 million, up 2% year-over-year.

The resulting GAAP diluted earnings per share (EPS) was $0.20 for the fourth quarter and $0.79 for fiscal year 2015, up 6% and up 48% year-over-year, respectively. The fiscal year 2014 GAAP EPS included a non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX  product family. Non-GAAP diluted EPS was $0.26 for the fourth quarter and $1.01 for fiscal year 2015, up 8% and up 12% year-over-year, respectively.

“Fiscal 2015 was a productive year in which we achieved many significant milestones,” said Lloyd Carney, CEO. “We delivered annual revenue growth in fiscal 2015, with a year-over-year revenue increase in each fiscal quarter. We grew our non-GAAP EPS by 12% for the fiscal year, delivering more than a dollar per share for the first time. We continued to expand our portfolio of software and hardware products through both technology innovation and strategic acquisitions. Looking forward, these investments create new opportunities for us to continue to grow revenue and EPS in 2016 and beyond.”

Highlights:

• Q4 2015 SAN product revenue was $325 million, flat year-over-year and up 5% quarter-over-quarter. The Q4 year-over-year product revenue performance reflects a 14% increase in director sales and a 1% increase in embedded switch sales, offset by a 12% decrease in switch sales. For fiscal year 2015, SAN product revenue was $1,301 million, down 2% year-over-year, primarily due to lower switch and embedded switch sales, partially offset by higher director sales.
• Q4 2015 IP networking product revenue was $170 million, up 12% year-over-year and 10% quarter-over-quarter. The Q4 year-over-year increase was primarily driven by a 28% increase in Ethernet switch sales and improved software sales, partially offset by a 20% decline in router revenue. For fiscal year 2015, IP Networking product revenue was $601 million, up 14% year-over-year due to stronger switch, router, and software sales.
• During Q4, Brocade launched the Brocade Analytics Monitoring Platform, a new, innovative, SAN solution designed for both new and existing FC storage networking customers. This solution allows customers to better monitor, analyze and control their SAN environments, while also improving the operational performance, stability, and security of data flowing between servers and storage devices.
• In fiscal year 2015, Brocade’s full-year GAAP gross margin and operating margin were 67.5% and 21.8%, respectively. Full-year non-GAAP gross margin and operating margin increased to 68.4% and 26.3%, a full-year improvement of 110 basis points and 30 basis points, respectively. The full-year non-GAAP gross margin improvement was primarily due to lower excess and obsolete inventory charges and lower manufacturing overhead spending, while the operating margin improvement was due to higher gross margins, partially offset by higher sales and marketing and R&D expenses.
• Full-year fiscal 2015 operating cash flow was $447 million, a 17% decrease from fiscal year 2014. The decrease in operating cash flow was primarily due to higher payments with respect to employee incentive compensation earned in fiscal year 2014 and paid in fiscal year 2015, changes in accounts receivable collections, and higher fiscal year 2015 tax payments related to fiscal year 2014 earnings. During fiscal year 2015, the company repurchased $344 million of stock, or approximately 30 million shares, and paid $67 million in dividends. This return of capital to shareholders represents 96% of adjusted free cash flow for the year.

The Brocade board of directors has declared a quarterly cash dividend of $0.045 per share of the company’s common stock. The dividend payment will be made on January 4, 2016, to shareholders of record at the close of market on December 10, 2015.