investor day -...
TRANSCRIPT
Agenda
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
9:00AM Investor Day Presentations
Lloyd Carney, CEO
Jack Rondoni, VP, Storage Networking
Jason Nolet, SVP, Switching, Routing, and Analytics Products Group
Kelly Herrell, SVP & GM, Software Networking Business Unit
Dan Fairfax, CFO
11:30AM Q&A All Speakers
12:00PM Lunch Speaker-Hosted Tables
1:30PM Event Conclusion
This presentation, with prepared remarks, contains forward-looking statements including, but not limited to, statements regarding Brocade’s financial results, goals, plans, assumptions, strategy, business outlook, revenue, margins, expenses, taxrate, earnings, cash flows, capital expenditures, stock buybacks and prospects. These statements may contain forecasts and projections of Brocade’s future financial performance that are based upon a variety of estimates made by Brocade’s management that are subject to periodic revision based on actual experience and developments occurring since the date the forecasts and projections were prepared. These statements, forecasts and projections are based on current expectations as of the date of this presentation and involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly. The risks, uncertainties and assumptions include, but are not limited to: the e ffect on Brocade of increasing market competition and changes in the industry; Brocade’s ability to execute on its sales strategy and plans for future operations; the impact on Brocade of macroeconomic trends and events and changes in IT spending levels; Brocade’s ability to introduce and achieve market acceptance of new products and support offerings on a timely basis; risks associated with Brocade’s international operations; and integration and other risks associated with acquisitions , divestitures and strategic investments. These and other risks are set forth in more detail in Brocade’s Form 10-Q for the fiscal quarter ended August 1, 2015 and in Brocade's Annual Report on Form 10-K for the fiscal year ended November 1, 2014. Should any of our expectations or assumptions change or prove to have been incorrect, it could materially affect the ultimate accuracy of these forward-looking statements, forecasts and projections. Brocade expressly assumes no obligation to update any such forward-looking statements, forecasts and projections whether as the result of new developments or otherwise.
In addition, this presentation includes various third-party estimates regarding market share and other measures, which do not necessarily reflect the views of Brocade. Further, Brocade does not guarantee the accuracy or reliability of any such third-party estimates.
Cautionary Statements and DisclosuresPlease See Risk Factors on Form 10-Q and Form 10-K Filed with the SEC
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC. COMPANY PROPRIETARY INFORMATION 3
To supplement financial information presented on a GAAP basis, Brocade provides information presented on a non -GAAP basis. Thesenon-GAAP financial measures are not computed in accordance with financial information presented on a GAAP basis. The presentatio n of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. The most directly comparable GAAP information and a reconciliation between the GAAP and non-GAAP amounts is provided in the appendix to this presentation unless such information is not available without unreasonable effort.
Management believes these non-GAAP financial measures, when read in conjunction with Brocade’s GAAP financials, provide useful information to investors by, among other things, offering the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results.
Management excludes certain gains or losses and benefits or costs in determining non-GAAP financial measures that are the result of infrequent events or events that arise outside the ordinary course of Brocade’s continuing operations. Management believes th at it is appropriate to evaluate Brocade’s operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include, but are not limited to: (i) acquisition and integration costs; (ii) restructuring , goodwill impairment and other related costs (benefits); and (iii) gain on sale of non-marketable equity investments. Management also excludes the following non-cash charges in determining non-GAAP financial measures: (a) stock-based compensation expense; (b) amortization of purchased intangible assets; and (c) non-cash interest expense related to the convertible debt. Finally, management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non -GAAP net income.
These non-GAAP financial measures have limitations because they do not include all items of income and expense that impact the company. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies. Management compensates for these limitations by relying primarily on its GAAP results and using non -GAAP financial measures only supplementally. Management also provides robust and detailed reconciliations of each non-GAAP financial measure toits most directly comparable GAAP measure (unless such information is not available without unreasonable effort), and managem entencourages investors to review carefully those reconciliations.
Cautionary Statements and DisclosuresUse of Non-GAAP Financial Measures
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC. COMPANY PROPRIETARY INFORMATION 4
Key Accomplishments
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.*YTD INCLUDES Q1 FY15 THROUGH Q3 FY15
MAINTAINED SAN LEADERSHIP
EXCEEDED IPNETWORKING
TARGETS
DELIVERED SOFTWARE TRACTION
GREW IN ALL KEY GEOs/U.S. FED YTD*
COMPLETED TWOACQUISITIONS
INCREASEDPROFITABILITY
ENHANCED SHAREHOLDER
VALUE
SOLIDIFIED LEADERSHIP TEAM
6
Progress to Date vs. Fiscal 2015-2016 ModelResults include Q1-Q3 FY15
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
1 NON-GAAP, PLEASE GAAP TO NON-GAAP RECONCILIATION IN APPENDIX TO “FINANCE MODEL UPDATE” SLIDES.2 ADJUSTED FREE CASH FLOW EXCLUDES THE RECLASSIFICATION OF THE EXCESS TAX BENEFITS FROM STOCK-BASED COMPENSATION
Target Progress YTD
SAN Revenue 0–2% Growth Down 2.5%
IP Networking Revenue 8–12% Growth 16% Growth
Software RevenueMeaningful Revenue
in FY15Key Account
Traction
Gross Margin (Non-GAAP)1 66–67% 68.6%
Operating Margin (Non-GAAP)1 25–27% 26.7%
ShareholderReturn
60% Adjusted Free Cash Flow2
~140% Adjusted Free Cash Flow2
7
Enterprise Storage Capacity Continues Unabated
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC. 8SOURCE: IDC MAY’15 WW ENTERPRISE STORAGE FORECAST, IDC# 256302
-
10,000
20,000
30,000
40,000
50,000
60,000
CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 CY2019
Cap
aci
ty in
Pe
tab
yte
s
FC SAN
NAS
iSCSI
DAS
FCoE SAN
Mainframe SAN
InfiniBand
0
IDC’s Storage Capacity Forecast: 32% CAGR (2015/2019)
FC SAN: 30% CAGR (2015/2019)
BASED ON WEIGHTED AVERAGE
SAN Market ChallengesFY 2015
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Vendor Landscape Changes
Embedded Server andLow-End Switch Weakness
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Our Execution = Our SuccessFY 2016 to FY 2017
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Partner Diversification
Incremental SAN Revenue Opportunities
Emerging IP Storage
10
Building on IP Networking SuccessContinue to outpace market growth
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.*YTD INCLUDES Q1 FY15 THROUGH Q3 FY15
Portfolio Success
Up 24% YTD*Data Center
Switching (VDX)
Up 29% YTD*Routing
Up 5% YTD*Enterprise Campus
Growth in Every Major GEO YTD*
Up 44% YTD* Growth in Campus, SP, Data Center YTD*Federal
SalesExecution
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Building on IP Networking SuccessContinue to outpace market growth
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
SalesExecution
Fabrics Software-Programmable Infrastructure
Analytics
No Change to Sales Strategy
Focus onLarger Accounts
Strong Partner Alignment
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Portfolio Success
Strategic Investments in Software
2013 2014 2015
Brocade Software BU
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Brocade vRouter
Brocade SDN
Controller
BrocadevADC
vEPC
BrocadevEPC
BrocadeApplications
13
Partner Ecosystem 2013
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Open Initiatives
Channel/GSIs
Technology Alliances
OEMs
14
Partner Ecosystem Today
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC. 15
Open Initiatives
Channel/GSIs
Technology Alliances
OEMs Cloud Providers
Partner: Traditional OEM
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Partnership SuccessConverged infrastructure platform that leverages Brocade Fibre Channel and IP networking solutions
• Hitachi Unified Compute Platform
• Hitachi Virtual Storage Platform
• Hitachi Unified Storage
• EVO:Rail
Joint Solutions
• 15-year partnership
• Enables Hitachi Data Systems Social Innovation initiatives
• Levered to Hitachi Data Systems’ most successful converged infrastructure solutions
• Growth opportunity in new midrange storage offerings, including VSP G-Series arrays that leverage Brocade Gen 5 technology
Market Traction
16
Partner: Technology Alliance
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Partnership Success: Full VMware Portfolio IntegrationDeep alignment with the complete VMware SDDC architecture and the only vendor to provide both Fibre Channel and IP networking integration
• SAN and IP networks optimized for VMware
• Brocade VDX is the best underlay for NSX virtual networks
• Brocade vADC enhances application performance from vCloud
• Brocade is a trusted partner with a shared ecosystem
Brocade
vCenter and vRealize
NSX
vCloud and vCloud Air
EVO:RAIL and EVO:RACK
VMware
17
Partner: Global Services Integrator
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC.
Partnership Success: Amazon Web Services Direct ConnectJoint development with CSC in the AWS offering, launched September 1, 2015
CSC Managed Hybrid Cloud Service
• Brocade vRouter and Brocade vADC
• AT&T Netbond
• Intel Xeon E5 processor
• CSC providing managed security and big data analytic services
Solution
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FY 2016 and FY 2017 Business Goals
CONTINUE SAN LEADERSHIP
EXPANDED PARTNERSHIPS,
PORTFOLIO INNOVATIONS
GROW IPNETWORKING
CONTINUE TO OUTPACE THE MARKET
DELIVER SOFTWARERUN RATE
vADC SUCCESS, MARKETPENETRATION
MAINTAIN NON-GAAP MARGINS
OPERATING MODEL EXECUTION
INVEST STRATEGICALLYSHAREHOLDER VALUE,
M&A
EXPAND PARTNERECOSYSTEM
NEW IP ENABLEMENT
© 2015 BROCADE COMMUNICATIONS SYSTEMS, INC. 19