Brocade Communications Systems (BRCD)

Q2 2011 Earnings Call

May 19, 2011 5:30 pm ET

Executives

John McHugh - Chief Marketing Officer and Vice President

Dave Stevens -

Ian Whiting - Senior Vice President of Worldwide Sales and Marketing

Richard Deranleau - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Michael Klayko - Chief Executive Officer, Director and Chairman of Corporate Development Committee

Robert Eggers -

Jason Nolet -

Analysts

Nikos Theodosopoulos - UBS Investment Bank

Brian Marshall - Gleacher & Company, Inc.

Mark Sue - RBC Capital Markets, LLC

John Slack - Citigroup Inc

Keith Bachman - BMO Capital Markets U.S.

Shelby Seyrafi - Caris

Jess Lubert - Wells Fargo Securities, LLC

Aaron Rakers - Stifel, Nicolaus & Co., Inc.

Kent Schofield - Citi

Jayson Noland - Robert W. Baird & Co. Incorporated

Glenn Hanus - Needham & Company, LLC

Paul Mansky - Canaccord Genuity

Brent Bracelin - Pacific Crest Securities, Inc.

Mark Moskowitz - JP Morgan Chase & Co

Douglas Ireland - JMP Securities LLC

Vijay Bhagavath - Deutsche Bank AG

Katy Huberty - Morgan Stanley

Ittai Kidron - Oppenheimer & Co. Inc.

Presentation

Operator

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Good day, everyone, and welcome to the Brocade Communications Systems Inc. Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Rob Eggers, Vice President of Investor Relations. Please go ahead, sir.

Robert Eggers

Thanks, Rebecca. Good afternoon, and welcome to Brocade's Q2 Earnings Question-and-Answer Conference Call. By now, you should have seen our press release and prepared comments, which are available on our website at brcd.com. The press release is also distributed by Marketwire and furnished to the SEC.

Before we take your questions, investors should note our comments today may include forward-looking statements regarding Brocade's financial results, cash and debt positions, plans, market opportunities and business outlook, which are only predictions and involve risks and uncertainties such that actual results may vary significantly. These and other risks are set forth in more detail in our Form 10-Q for the fiscal quarter ended January 9, 2011 and our Form 10-K for the fiscal year ended October 30, 2010. These forward-looking statements reflect beliefs, assumptions, outlook, estimates and predictions as of today, and Brocade expressly assumes no obligation to update any such forward-looking statements. In addition, this presentation may include various third-party estimates regarding the total available market for SAN and Ethernet as well as other measures which do not necessarily reflect the view of Brocade. Further, Brocade does not guarantee the accuracy or reliability of any such information or forecast. This presentation includes non-GAAP financial measures. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures are provided in our Q2 2011 press release, which has been furnished to the SEC on Form 8-K, and in our slide presentation and prepared comments on our website, brcd.com.

Here, to take you questions are Mike Klayko, Brocade's CEO; Richard Deranleau, CFO; John McHugh, CMO; Dave Stevens, CTO; Jason Nolet, VP Data Center and Enterprise and Networking; and Ian Whiting, Senior Vice President of Worldwide Sales. I will now turn the call over to CEO, Michael Klayko. Mike?

Michael Klayko

Thanks, Rob. And as Rob mentioned, please refer to the comments and slides for full details of our Q2 financial results. Now I'd like to take a few minutes to briefly summarize several key developments this quarter.

Brocade executed well in Q2, delivering solid results with stronger-than-expected performance in our SAN business and strength from the Enterprise and Service Provider segments of our Ethernet business. Improvements in Ethernet and SAN product non-GAAP gross margins helped us achieve overall gross margin and operating margins above our guidance, and we delivered non-GAAP earnings per share of $0.13, beating our EPS guidance of $0.10.

Looking forward, I'm excited about the opportunities that we are seeing in our marketplace today as we discussed in our recently held technology day summit, we believe that the networking industry is entering a new innovation cycle driven by the IT imperatives of virtualization and cloud computing. In fact, we're seeing opportunities emerge in this industry that we haven't seen in the previous decade.

Brocade has established a clear leadership position and first-to-market advantage by out-innovating the rest of the industry and delivering purposeful solutions to customers.

An example of this is our announcement of our full "16 gigabit per second" Fibre Channel portfolio that we expect to deliver through our partners later this year. By offering both Ethernet fabric solutions which we began shipping in our fiscal Q1 quarter as well as the latest Fibre Channel fabric solutions, Brocade is helping to ensure that customers have the options in determining the networking technologies that best suit their data center and IT requirements. In summary, we continue to execute well to our FY '11 playbook. I have confidence that Brocade has the right strategy, technologies and offerings to capitalize on this new and exciting era of innovation.

With that, I'd like to open up the conference call for your questions. Rebecca?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question will come from Paul Mansky with Canaccord Adams.

Paul Mansky - Canaccord Genuity

Actually, couple of questions, then a housekeeping item. On the latter, I didn't see headcount mentioned anywhere in any of the supporting materials. It may be in there; I just missed it. I wonder if you can provide that and maybe tell us what your thoughts are relative to where we are exiting the fiscal year.

Michael Klayko

Yes, Paul. It's Mike. It's actually, I believe, if you take a look in the press release, we have it highlighted in there. I think we exited 4,762, which is up from -- looks like it's up about 41 people quarter-on-quarter.

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