Brocade posts 2Q profit on stronger gov’t sales; revenue falls short, shares tumble

Brocade posts 2Q profit but revenue dips

SAN FRANCISCO — Brocade Communications Systems Inc. posted a profit in its fiscal second quarter after losing money in the same period a year ago. Its results were lifted by stronger sales of its computer-networking equipment to the federal government, and significantly lower legal expenses.

The profit was better than Wall Street expected, but revenue wasn’t, and its shares fell in after-hours trading.

Brocade shares dropped 7.7 percent, or 45 cents, to $5.40 in extended trading, after the results were announced. During the regular trading session, they had fallen 19 cents, or 3.1 percent, to close at $5.87.

Brocade earned $22.4 million, or 5 cents per share, in the second fiscal quarter, which ended May 1. The company lost $66.1 million, or 17 cents per share, in the same period a year ago.

Excluding special items, such as expenses for employee stock compensation, the company would have earned 13 cents per share. That was a penny per share better than the average estimate of analysts polled by Thomson Reuters.

Revenue declined 1 percent to $501 million. That was less than analysts’ projections for $503 million.

Brocade’s main business is selling switches that connect companies’ servers to their data storage systems. It is key technology that puts Brocade in competition with the world’s No. 1 maker of computer-networking gear, Cisco Systems Inc.

Michael Klayko, Brocade’s CEO, cited strong sequential growth in the company’s federal business in the latest quarter and “robust” demand for Brocade’s storage networking products, which allow computers to access data stored on multiple other computers more easily.

One thing that’s been weighing on the company has been its big legal bills for defending its former CEO Gregory Reyes and former human resources manager Stephanie Jensen against criminal charges of manipulating stock option awards around the time of the dot-com mania. Both were convicted.

One key difference in the latest quarter versus last year was that Brocade’s legal bills in the category that includes its defense of its former executives were just $277,000 in the latest quarter. In the same period last year, they amounted to $19.8 million.

One reason apparently was a year ago lawyers for the former executives were in the thick of appeals that won Reyes a new trial and Jensen a reduction in her sentence. In March of this year Reyes was convicted again after his retrial. Brocade has said it expects those expenses to be lower this year than they have in the past.