Brocade: Fiscal 2Q08 Financial Results

Brocade reported financial results for its second fiscal quarter, which ended April 26, 2008.

Commenting on the Company’s second quarter financial results, Michael Klayko, Brocade CEO, said, "It was another very good quarter for Brocade as we continued our excellent operational execution and performance. Our financial results were better than the Company expected, we added to the momentum of our aggressive product cycle, and we acquired Strategic Business Systems, Inc. (SBS), a privately held provider of data center-focused professional services, which significantly broadens our services offerings and expertise in the evolving data center market."

Second Fiscal Quarter 2008 Business Highlights

• Sales of the Company’s new DCX Backbone exceeded revenue expectations and contributed to a record revenue quarter of the Company’s Director-class products.
• Brocade augmented its growing services business with the acquisition of SBS.  SBS has deep skill sets and experience in several data center disciplines, including networking, security, storage, and virtualization.
• The Company started shipping the Brocade File Management Engine, or FME, in late Q2. This breakthrough product offers a number of industry firsts, most notably the ability to migrate files while they are in use, which helps customers avoid costly downtime.
• During the quarter, the Company finalized the development of a family of new 8Gbit/sec fabric switches that complement the DCX Backbone. These new switches, announced on May 13th, 2008, double the performance of previous models while consuming 40% less energy. The Company expects the majority of its major OEM partners to be in the market with these new switches in Brocade’s Q3, beginning with IBM and Sun.
• On May 13th, 2008 the Company also announced the availability of its new server HBA products that, when combined with Brocade’s new 8Gb/sec switches, directors and DCX Backbone, deliver a new level of end-to-end data center networking performance. The new Brocade HBAs are expected to be generally available in June.

Second Fiscal Quarter 2008 Financial Highlights and Additional Financial Information

• Brocade’s non-GAAP effective tax-rate was 30.7% in Q2 08, and its GAAP tax rate was -272%.  The GAAP rate includes a P&L benefit of $167M due to the release of the valuation allowance previously recorded against the Company’s deferred tax assets.  The Company has determined that it is more likely than not that it will realize the benefits of the deferred tax assets and the valuation allowance was released accordingly.
• In Q2, the Company achieved record revenue in its director product line, its embedded blade switch product line, and its services business. In addition, Brocade generated more cash from operations in Q2 08 than any previous quarter in the company’s history.
• The Company’s total installed base of SAN ports was approximately 17.3 million.
• In Q2 Average Selling Price (ASP) declines were in the low single digits compared to Q1 08.
• Net stock-based compensation expense was $11.2 million and has been excluded from the Company’s non-GAAP results.
• In Q2, the Company repurchased approximately 6.9 million shares of the Company’s common stock for approximately $50.2 million. As of the end of Q2 08, the Company had $452.3 million remaining under its $800 million total stock buyback program.

To read the earnings call transcript