EX-99.1 2 brcd-8keprxfy13q1xex991.htm PRESS RELEASE BRCD-8K EPR - FY13Q1 - Ex 99.1

Exhibit 99.1
BROCADE CONTACTS
  
  
Public Relations
John Noh
Tel: 408-333-5108
jnoh@brocade.com
Investor Relations
Robert Eggers
Tel: 408-333-8797
reggers@brocade.com
Brocade Reports Fiscal Q1 2013 Results
Achieves Record Revenue and Expanding Margins in First Quarter
SAN JOSE, Calif., February 14, 2013 — Brocade® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 26, 2013. Brocade reported record first quarter revenue of $588.7 million, representing an increase of 5% year-over-year and 2% quarter-over-quarter. The company reported a GAAP loss per share of $(0.05), down from a profit of $0.12 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. On a comparative basis, non-GAAP diluted EPS was $0.21, up from $0.20 in Q1 2012.
“Brocade achieved record revenue in Q1 based on strong performances in both our storage and IP networking businesses,” said Lloyd Carney, CEO of 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. I am excited and honored to navigate the company forward, delivering on these customer requirements in a way that drives top-line revenue through both innovation and operational efficiency.”
Summary of Q1 2013 results:
Storage Area Networking (SAN) business revenue, including products and services, was a record $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 industry-leading 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 driven by solid performances across all three IP Networking product groups and 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, which is typical in the company's first fiscal quarter.
GAAP gross margin was 63.5% and non-GAAP gross margin was 66.0% 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. The sequential improvement in gross margin was due in part to higher overall revenue, with a more favorable revenue mix to SAN products, and lower manufacturing overhead spending.
GAAP operating margin was 15.8% and non-GAAP operating margin was 23.5% 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 margin improved quarter-over-quarter due to higher revenue and improved gross margin.

Page 1 of 9


Operating cash flow was $59.5 million in Q1 2013. During the quarter, the company completed its acquisition of Vyatta, Inc. 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%.
GAAP loss per share was $(0.05) in Q1 2013, and non-GAAP diluted EPS of $0.21 was up 7% year-over-year. The GAAP loss per share included a non-cash tax charge of $78.2 million, or $(0.17) 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 $(0.02) 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.
Brocade management will host a conference call to discuss fiscal first quarter results and fiscal second quarter outlook today at 2:00 p.m. PT (5:00 p.m. ET). To access the Webcast please go to www.brcd.com/events.cfm. A replay of the conference call, prepared comments and slides, as well as a written transcript, will be available at www.brcd.com.
Other Q1 2013 product, customer and partner announcements are available at http://newsroom.brocade.com/.
Brocade (www.brocade.com)
130 Holger Way, San Jose, CA. 95134
T. 408.333.8000 F. 408.333.8101
Financial Highlights and Additional Financial Information
 
Q1 2013

 
Q4 2012

 
Q1 2012

Revenue
$
589
M
 
$
578
M
 
$
561
M
GAAP net income (loss)

($21M)

 
$
54
M
 
$
59
M
Non-GAAP net income
$
99
M
 
$
78
M
 
$
93
M
GAAP EPS — diluted
$
(0.05
)
 
$
0.11

 
$
0.12

Non-GAAP EPS — diluted
$
0.21

 
$
0.17

 
$
0.20

GAAP gross margin
63.5
%
 
62.4
%
 
61.5
%
Non-GAAP gross margin
66.0
%
 
64.8
%
 
64.8
%
GAAP operating income
$
93
M
 
$
86
M
 
$
69
M
Non-GAAP operating income
$
138
M
 
$
130
M
 
$
120
M
GAAP operating margin
15.8
%
 
14.9
%
 
12.4
%
Non-GAAP operating margin
23.5
%
 
22.5
%
 
21.5
%
Adjusted EBITDA (1)
$
162
M
 
$
153
M
 
$
140
M
Cash provided by operations
$
59
M
 
$
210
M
 
$
127
M
Q1 2013 effective GAAP tax rate was 131.7% and effective non-GAAP effective tax rate was 22.3%.
Q1 2013 total Storage Area Networking (SAN) port shipments were approximately 1.2 million.
Please see important note of explanation on non-GAAP measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
1)
Adjusted EBITDA is as defined in the Term Debt Credit Agreement.

Page 2 of 9


Financial Highlights and Additional Financial Information (Continued)
 
Q1 2013

 
Q4 2012

 
Q1 2012

As a % of total revenues
 
 
 
 
 
OEM revenues
67
%
 
65
%
 
69
%
Channel/Direct revenues
33
%
 
35
%
 
31
%
10% or greater customer revenues
46
%
 
46
%
 
48
%
Domestic revenues
62
%
 
63
%
 
61
%
International revenues
38
%
 
37
%
 
39
%
SAN product revenues
61
%
 
59
%
 
63
%
IP Networking product revenues
24
%
 
26
%
 
22
%
Global Services revenue
15
%
 
15
%
 
15
%
SAN business revenues (2)
71
%
 
68
%
 
72
%
IP Networking business revenues (2)
29
%
 
32
%
 
28
%
Estimates as a % of IP Networking Business Revenues:
 
 
 
 
 
Enterprise, excluding Federal
47
%
 
45
%
 
45
%
Federal
15
%
 
24
%
 
13
%
Service Provider
38
%
 
31
%
 
42
%
 
Q1 2013

 
Q4 2012

 
Q1 2012

Cash, cash equivalents and short-term investments
$
684
M
 
$
713
M
 
$
485
M
Restricted cash (3)
$
312
M
 
$

 
$

Deferred revenues
$
296
M
 
$
293
M
 
$
278
M
Capital expenditures
$
18
M
 
$
17
M
 
$
18
M
Total debt, net of discount (3)
$
900
M
 
$
601
M
 
$
720
M
Days sales outstanding
34 days
 
37 days
 
36 days
Employees at end of period
4,604

 
4,536

 
4,542

2) SAN and IP Networking business revenues include product and global services revenues.
3) Q1 2013 restricted cash will be used to redeem $300M of 2018 notes on February 21, 2013.

Page 3 of 9



Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. In evaluating Brocade's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.
Management believes that non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade's comparative operating performance both from period to period, and to its competitors' operating results. Management also believes these non-GAAP financial measures help indicate Brocade's baseline performance before gains, losses or charges that are considered by management to be outside ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes these non-GAAP financial measures, when read in conjunction with Brocade's GAAP financials, provide useful information to investors by offering:
the ability to make more meaningful period-to-period comparisons of Brocade's ongoing operating results;
the ability to make more meaningful comparisons of Brocade's operating performance against industry and competitor companies;
the ability to better identify trends in Brocade's underlying business and to perform related trend analysis;
a better understanding of how management plans and measures Brocade's underlying business; and
an easier way to compare Brocade's most recent results of operations against investor and analyst financial models.
Management excludes certain gains or losses and benefits or costs in determining non-GAAP net income that are the result of infrequent events or arise outside the ordinary course of Brocade's continuing operations. Management believes that 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: (i) provision or benefit from certain pre-acquisition litigation (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations and other related costs, net, (iv) acquisition and integration costs, (v) loss on sale of property, (vi) interest expense related to the adoption of new standards relating to convertible debt instruments, (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing as well as debt call premium cost, (viii) loss on sale of a subsidiary, and (ix) specific non-cash and non-recurring tax benefits or detriments.
Management also excludes the following non-cash charges in determining non-GAAP net income (i) stock-based compensation expense and (ii) amortization of purchased intangible assets. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, management believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for Brocade's newly acquired and long-held businesses.
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.
Limitations These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that impact the Company. Management compensates for these limitations by also considering Brocade's GAAP results. The non-GAAP financial measures that Brocade uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP, such as operating income, net income and net income per share, and should not be considered measurements of Brocade's liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies.

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Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s strategy, business prospects, and its routes to market. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, changes in IT spending levels in one or more of our target markets including the government sector, Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, customer acceptance of Brocade’s Ethernet fabric solutions, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 27, 2012. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.
About Brocade
Brocade (NASDAQ: BRCD) networking solutions help the world’s leading organizations transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)
ADX, AnyIO, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and HyperEdge, The Effortless Network, and The On-Demand Data Center are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of their respective owners.

© 2013 Brocade Communications Systems, Inc. All Rights Reserved.


Page 5 of 9


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
January 26,
2013
 
January 28,
2012
 
(In thousands, except per share amounts)
Net revenues
 
 
 
Product
$
502,247

 
$
476,302

Service
86,482

 
84,340

Total net revenues
588,729

 
560,642

Cost of revenues
 
 
 
Product
174,375

 
175,407

Service
40,429

 
40,466

Total cost of revenues
214,804

 
215,873

Gross margin
373,925

 
344,769

Operating expenses:
 
 
 
Research and development
97,690

 
89,319

Sales and marketing
149,011

 
152,688

General and administrative
19,077

 
18,350

Amortization of intangible assets
14,856

 
14,993

Total operating expenses
280,634

 
275,350

Income from operations
93,291

 
69,419

Interest expense
(26,368
)
 
(13,046
)
Interest and other income (loss), net
66

 
(996
)
Income before income tax
66,989

 
55,377

Income tax expense (benefit)
88,244

 
(3,207
)
Net income (loss)
$
(21,255
)
 
$
58,584

Net income (loss) per share — basic
$
(0.05
)
 
$
0.13

Net income (loss) per share — diluted
$
(0.05
)
 
$
0.12

Shares used in per share calculation — basic
454,843

 
452,494

Shares used in per share calculation — diluted
454,843

 
468,738


Page 6 of 9


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
January 26,
2013
 
October 27,
2012
 
(In thousands, except par value)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
683,616

 
$
713,226

Restricted cash
311,926

 

Accounts receivable, net of allowances for doubtful accounts of $798 and $827 at January 26, 2013 and October 27, 2012, respectively
216,706

 
233,139

Inventories
59,891

 
68,179

Deferred tax assets
64,981

 
91,539

Prepaid expenses and other current assets
53,839

 
49,496

Total current assets
1,390,959

 
1,155,579

Property and equipment, net
510,282

 
518,940

Goodwill
1,648,722

 
1,624,089

Intangible assets, net
108,948

 
109,265

Non-current deferred tax assets
80,420

 
136,175

Other assets
32,851

 
37,213

Total assets
$
3,772,182

 
$
3,581,261

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
101,808

 
$
117,350

Accrued employee compensation
114,593

 
182,597

Deferred revenue
218,303

 
216,283

Current liabilities associated with facilities lease losses
936

 
976

Current portion of long-term debt
302,198

 
1,977

Other accrued liabilities
90,328

 
91,285

Total current liabilities
828,166

 
610,468

Long-term debt, net of current portion
597,440

 
599,203

Non-current liabilities associated with facilities lease losses
1,455

 
1,606

Non-current deferred revenue
77,739

 
76,907

Non-current income tax liability
57,171

 
55,387

Other non-current liabilities
1,928

 
1,870

Total liabilities
1,563,899

 
1,345,441

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding

 

Common stock, $0.001 par value, 800,000 shares authorized:
 
 
 
Issued and outstanding: 455,874 and 456,913 shares at January 26, 2013 and October 27, 2012, respectively
456

 
457

Additional paid-in capital
2,003,544

 
2,009,190

Accumulated other comprehensive loss
(10,499
)
 
(9,864
)
Retained earnings
214,782

 
236,037

Total stockholders’ equity
2,208,283

 
2,235,820

Total liabilities and stockholders’ equity
$
3,772,182

 
$
3,581,261


Page 7 of 9


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
January 26,
2013
 
January 28,
2012
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(21,255
)
 
$
58,584

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(2,192
)
 
(1,147
)
Non-cash tax charges
78,206

 

Depreciation and amortization
49,394

 
50,105

Loss on disposal of property and equipment
1,989

 
256

Amortization of debt issuance costs and original issue discount
397

 
1,234

Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing
15,299

 

Net gains on investments

 
(12
)
Provision for doubtful accounts receivable and sales allowances
2,354

 
2,700

Non-cash compensation expense
19,150

 
21,819

Changes in assets and liabilities:
 
 
 
Restricted cash
(11,926
)
 

Accounts receivable
14,250

 
27,078

Inventories
9,625

 
(6,826
)
Prepaid expenses and other assets
(1,702
)
 
1,611

Deferred tax assets
165

 
22

Accounts payable
(14,960
)
 
(9,556
)
Accrued employee compensation
(72,570
)
 
(13,013
)
Deferred revenue
1,519

 
8,010

Other accrued liabilities
(8,062
)
 
(13,059
)
Liabilities associated with facilities lease losses
(191
)
 
(755
)
Net cash provided by operating activities
59,490

 
127,051

Cash flows from investing activities:
 
 
 
Proceeds from sale of subsidiary

 
(215
)
Purchases of property and equipment
(18,486
)
 
(17,556
)
Net cash paid in connection with acquisitions
(44,629
)
 

Net cash used in investing activities
(63,115
)
 
(17,771
)
Cash flows from financing activities:
 
 
 
Proceeds from senior unsecured notes
296,250

 

Payment of principal related to the term loan

 
(70,000
)
Payment of principal related to capital leases
(484
)
 
(456
)
Common stock repurchases
(47,530
)
 

Proceeds from issuance of common stock
23,812

 
31,941

Excess tax benefits from stock-based compensation
2,192

 
1,147

Increase in restricted cash
(300,000
)
 

Net cash used in financing activities
(25,760
)
 
(37,368
)
Effect of exchange rate fluctuations on cash and cash equivalents
(225
)
 
(1,875
)
Net increase (decrease) in cash and cash equivalents
(29,610
)
 
70,037

Cash and cash equivalents, beginning of period
713,226

 
414,202

Cash and cash equivalents, end of period
$
683,616

 
$
484,239


Page 8 of 9


BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(Unaudited)
 
Three Months Ended
 
 
January 26,
2013
 
January 28,
2012
 
 
(In thousands, except per share amounts)
 
Net income (loss) on a GAAP basis
$
(21,255
)
 
$
58,584

 
Adjustments:
 
 
 
 
Stock-based compensation expense included in cost of revenues
3,946

 
4,375

 
Amortization of intangible assets expense included in cost of revenues
10,780

 
14,090

 
Legal fees recovery associated with certain pre-acquisition litigation

 
(51
)
 
Total gross margin adjustments
14,726

 
18,414

 
Stock-based compensation expense included in research and development
4,685

 
5,028

 
Stock-based compensation expense included in sales and marketing
8,145

 
9,776

 
Stock-based compensation expense included in general and administrative
2,374

 
2,640

 
Amortization of intangible assets expense included in operating expenses
14,856

 
14,993

 
Total operating expense adjustments
30,060

 
32,437

 
Total operating income adjustments
44,786

 
50,851

 
Call premium cost and original issue discount and debt issuance costs related to lenders that did not participate in refinancing
15,299

 

 
Tax provision impact from passage of California Proposition 39 - Single Sales Factor apportionment
78,206

 

 
Income tax effect of non-tax adjustments
(18,287
)
 
(16,623
)
 
Non-GAAP net income
$
98,749

 
$
92,812

 
Non-GAAP net income per share — basic
$
0.22

 
$
0.21

 
Non-GAAP net income per share — diluted
$
0.21

 
$
0.20

 
Shares used in non-GAAP per share calculation — basic
454,843

 
452,494

 
Shares used in non-GAAP per share calculation — diluted
466,321

 
468,738

 

Page 9 of 9