Brocade reported financial results for its first fiscal quarter ended January 26, 2013. The company reported first quarter revenues of $588.7 million, representing an increase of 5% year-over-year and 2% quarter-over-quarter.
Brocade reported a loss per share of 5 cents, down from a profit of 12 cents per diluted share in Q1 2012. The Q1 2013 net loss was principally due to a non-cash tax charge, which reduced the company’s deferred tax assets as a result of a recent change in the California tax code, says the company.
Lloyd Carney (CEO, Brocade): As the new CEO, it is my top priority to ensure that the company continues to execute well in our core businesses to drive growth and shareholder value. Looking forward, I see new opportunities emerging in the networking industry due to disruptive IT market trends that are challenging the capabilities of today’s networks. It is clear that customers are looking for new technologies and approaches in networking to meet these challenges.
Summary of Brocade Q1 2013 results
Storage Area Networking (SAN) business revenue, including products and services, was $416.9 million, up 3% year-over-year and up 6% sequentially. SAN product revenue increased 3% year-over-year and increased 7% sequentially, led by higher switch and director product sales, in a seasonally strong quarter for the company. Brocade’s Gen 5 (16 Gbps) Fibre Channel products represented approximately 42% of director and switch revenue in the quarter.
IP Networking business revenue, including products and services, was $171.8 million, up 11% year-over-year and down 7% quarter-over-quarter. The year-over-year growth was led by Ethernet switch revenue, which was up 18% year-over-year. Routing revenue was up 5% year-over-year and other IP Networking revenue was up 25% year-over-year driven by higher sales of the Brocade ADX Series of application delivery products. The sequential decline in IP Networking revenue was principally due to lower Ethernet switch sales into the U.S. federal government.
Gross margin was 63.5% in Q1 2013, compared to 61.5% and 64.8% in Q1 2012, respectively. The year-over-year improvement in gross margin was due in part to higher overall revenue and a more favorable Ethernet product mix.
Operating margin was 15.8% in Q1 2013, compared to 12.4% and 21.5% in Q1 2012, respectively. The year-over-year improvement in operating margin was due to higher revenue, expanded gross margin, and lower operating expenses as a percentage of revenue in Q1 2013.
Operating cash flow was $59.5 million in Q1 2013. During the quarter, the company completed its acquisition of Vyatta and refinanced $300.0 million of senior secured notes, extending the maturity date of the notes from 2018 to 2023 and reducing the annual cash interest rate from 6.625% to 4.625%.
Loss per share was 5 cents in Q1 2013. The loss per share included a non-cash tax charge of $78.2 million, or 17 cents per share, due to the passage of Proposition 39 by the voters of California and the related reduction in the company’s deferred tax assets, which was previously disclosed in November 2012. The company also took a one-time charge of $15.3 million, or 2 cents per share after tax impact, related to the unamortized original issuance costs and call premium on the 2018 notes that were refinanced during the quarter.
Average diluted shares outstanding for Q1 2013 were 466.3 million shares, down slightly year-over-year. The company repurchased 8.7 million shares ($47.5 million) during Q1 2013.