EX-99.1 2 brcd-8keprxfy14q3xex991.htm PRESS RELEASE BRCD-8K EPR - FY14Q3 - Ex 99.1

Exhibit 99.1
BROCADE CONTACTS
 
 
Public Relations
John Noh
Tel: 408-333-5108
jnoh@brocade.com
Investor Relations
Steve Coli
Tel: 408-333-6208
scoli@brocade.com
Brocade Reports Fiscal Q3 2014 Results
Strength in SAN and Ethernet Switching Drives Improved Profit Margins
SAN JOSE, Calif., August 21, 2014 — Brocade® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended August 2, 2014. Brocade reported third quarter revenue of $545 million, up 2% year-over-year and up 2% quarter-over-quarter. The Company reported GAAP diluted earnings per share (EPS) of $0.20, down from $0.26 in Q3 2013, and up from a loss per share of $(0.03) in Q2 2014. During Q3 2013, the Company recognized a gain of $77 million related to the litigation settlement with A10 Networks, which increased GAAP EPS by $0.13 in that quarter. During Q2 2014, the Company incurred a $83 million non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX® product family, which decreased GAAP EPS by $0.19 in that quarter. Non-GAAP diluted EPS was $0.23 for Q3 2014, up from $0.19 in both Q3 2013 and Q2 2014, primarily due to higher revenue, improved gross margin, and lower operating expenses.

“With another solid quarter behind us, we are seeing the tangible benefits of our data center focused strategy,” said Lloyd Carney, CEO of Brocade. “The resilience and durability of our SAN business, along with strong Brocade VDX® sales, validate our strategic direction. We continue to leverage our core competencies in hardware and software networking to position the company for growth, and we remain focused on delivering a world-class customer experience, even in the most demanding environments.”

Key Financial Metrics:
 
Q3 2014
 
Q2 2014
 
Q3 2013
 
Q3 2014 vs. Q2 2014
 
Q3 2014 vs. Q3 2013
Revenue
$
545
M
 
$
537
M
 
$
537
M
 
2
%
 
2
%
GAAP EPS—diluted
$
0.20

 
$
(0.03
)
 
$
0.26

 
N/A

 
(23
%)
Non-GAAP EPS—diluted
$
0.23

 
$
0.19

 
$
0.19

 
20
%
 
23
%
GAAP gross margin
66.3
%
 
66.0
%
 
63.0
%
 
0.3 pts

 
3.3 pts

Non-GAAP gross margin
67.2
%
 
66.7
%
 
65.6
%
 
0.5 pts

 
1.6 pts

GAAP operating margin
21.6
%
 
3.8
%
 
13.9
%
 
17.8 pts

 
7.7 pts

Non-GAAP operating margin
25.7
%
 
23.2
%
 
21.6
%
 
2.5 pts

 
4.1 pts

Cash provided by operations
$
106
M
 
$
168
M
 
$
102
M
 
(37
%)
 
4
%
Share repurchases
$
112
M
 
$
50
M
 
$
101
M
 
124
%
 
11
%
Please see important note of explanation on non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
Highlights:
•
SAN business revenue, including products and services, was $380 million, up 3% year-over-year and flat sequentially. The year-over-year improvement was the result of 4% growth in SAN product revenue due to higher switch and director sales, partially offset by lower embedded product sales and the revenue impact from the divestiture of the HBA business during Q1 2014. The revenue performance was better than expected in a typically soft demand quarter.
•
IP Networking business revenue, including products and services, was $166 million, down 1% year-over-year and up 5% sequentially. The sequential increase was primarily due to higher sales of Ethernet switching products to the U.S. Federal government and strong Brocade VDX sales to data center customers, partially offset by lower routing sales to service provider customers and lower support revenue. Q3 2014 IP Networking product revenue was $133 million, down 1% year-over-year and up 9% sequentially. Ethernet switch revenue increased 17% year-over-year and 27% sequentially. Routing product revenue decreased 19% year-over-year and 20% sequentially, primarily due to a pause in some customer orders in anticipation of new products scheduled for release in fiscal Q4 2014.

Page 1 of 11

•
During the quarter, the Company initiated a quarterly cash dividend of $0.035 per share of the Company’s common stock and repurchased 12.8 million shares for $112 million.

Board Declares Dividend:
•
The Brocade Board of Directors has declared a quarterly cash dividend of $0.035 per share of the Company’s common stock. The dividend payment will be made on October 2, 2014 to stockholders of record at the close of market on September 10, 2014.

Brocade management will host a conference call to discuss the fiscal third quarter results and the fiscal fourth quarter outlook today at 2:30 p.m. PT (5:30 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 Q3 2014 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

Page 2 of 11

Financial Highlights and Additional Financial Information
 
Q3 2014
 
Q2 2014
 
Q3 2013
Routes to market as a % of total net revenues:
 
 
 
 
 
OEM revenues
67
%
 
68
%
 
66
%
Channel/Direct revenues
33
%
 
32
%
 
34
%
10% or greater customer revenues
48
%
 
56
%
 
47
%
Geographic split as a % of total net revenues (1):
 
 
 
 
 
Domestic revenues
56
%
 
59
%
 
61
%
International revenues
44
%
 
41
%
 
39
%
Segment split as a % of total net revenues:
 
 
 
 
 
SAN product revenues
60
%
 
60
%
 
59
%
IP Networking product revenues
24
%
 
22
%
 
25
%
Global Services revenues
16
%
 
18
%
 
16
%
SAN business revenues (2)
70
%
 
71
%
 
69
%
IP Networking business revenues (2)
30
%
 
29
%
 
31
%
IP Networking business revenues by use category (3):
 
 
 
 
 
Data Center (4)
55
%
 
57
%
 
48
%
Enterprise Campus
39
%
 
37
%
 
40
%
Carrier Network (MAN/WAN)
6
%
 
6
%
 
12
%
Additional information:
Q3 2014
 
Q2 2014
 
Q3 2013
GAAP net income (loss)
$
87
M
 
$
(14
)M
 
$
119
M
Non-GAAP net income
$
102
M
 
$
87
M
 
$
87
M
GAAP operating income
$
118
M
 
$
20
M
 
$
74
M
Non-GAAP operating income
$
140
M
 
$
124
M
 
$
116
M
Adjusted EBITDA (5)
$
165
M
 
$
146
M
 
$
213
M
Effective GAAP tax provision rate
23.4
%
 
225.1
%
 
16.3
%
Effective Non-GAAP tax provision rate
21.9
%
 
24.6
%
 
18.2
%
Cash and cash equivalents
$
1,149
M
 
$
1,138
M
 
$
790
M
Deferred revenues
$
299
M
 
$
304
M
 
$
300
M
Capital expenditures
$
14
M
 
$
14
M
 
$
10
M
Total debt, net of discount
$
597
M
 
$
598
M
 
$
599
M
Cash, net of senior debt and capitalized leases
$
547
M
 
$
535
M
 
$
186
M
Days sales outstanding
32 days
 
35 days
 
37 days
Employees at end of period
4,103
 
4,061
 
4,565
SAN port shipments
1.1
M
 
1.1
M
 
1.0
M
Please see important note of explanation on non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
(1)
Revenues are attributed to geographic areas based on product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher.
(2)
SAN and IP Networking business revenues include product, support, and services revenues.
(3)
Business revenue by use category is estimated based on analysis of the information the Company collects in its sales management system. The estimated percentage of revenue by use category may fluctuate quarter-to-quarter due to seasonality and the timing of large customer orders.
(4)
Data Center includes enterprise, service provider, and government data center revenues.
(5)
Adjusted EBITDA is as defined in the Company’s credit agreement.


Page 3 of 11

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 relative to its competitors’ operating results. Management also believes these non-GAAP financial measures help with the determination of 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 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 its 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 events that 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, but are not limited to: (i) legal provision or recovery associated with certain pre-acquisition litigation, (ii) call premium cost and write-off of original issue discount and debt issuance costs related to lenders that did not participate in refinancing, (iii) settlement gain associated with certain pre-acquisition-related litigation, (iv) restructuring, goodwill impairment, and other related costs, (v) gain on sale of network adapter business, (vi) gain on sale of non-marketable equity investment, and (vii) 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 use of 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 also believes that the exclusion of expense associated with the amortization of acquisition-related intangible assets is appropriate because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and the exclusion of 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.

Page 4 of 11

Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s strategy, operational performance and prospects for revenue growth. 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, Brocade’s ability to execute on its sale strategy, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2014, and Brocade’s Annual Report on Form 10-K for the fiscal year ended October 26, 2013. 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, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, HyperEdge, ICX, MLX, MyBrocade, OpenScript, VCS, VDX, and Vyatta are registered trademarks, and 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 others.

© 2014 Brocade Communications Systems, Inc. All Rights Reserved.


Page 5 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
August 2,
2014
 
July 27,
2013
 
August 2,
2014
 
July 27,
2013
 
(In thousands, except per share amounts)
Net revenues:
 
 
 
 
 
 
 
Product
$
457,797

 
$
447,993

 
$
1,375,282

 
$
1,401,986

Service
87,667

 
88,558

 
271,627

 
262,078

Total net revenues
545,464

 
536,551

 
1,646,909

 
1,664,064

Cost of revenues:
 
 
 
 
 
 
 
Product
145,518

 
160,441

 
441,416

 
499,415

Service
38,233

 
37,908

 
116,818

 
118,410

Total cost of revenues
183,751

 
198,349

 
558,234

 
617,825

Gross margin
361,713

 
338,202

 
1,088,675

 
1,046,239

Operating expenses:
 
 
 
 
 
 
 
Research and development
84,152

 
92,969

 
261,862

 
289,088

Sales and marketing
137,262

 
139,220

 
409,524

 
433,547

General and administrative
22,140

 
18,526

 
63,395

 
57,640

Amortization of intangible assets
131

 
13,124

 
10,145

 
41,131

Restructuring, goodwill impairment, and other related costs
131

 
—

 
89,051

 
—

Gain on sale of network adapter business
—

 
—

 
(4,884
)
 
—

Total operating expenses
243,816

 
263,839

 
829,093

 
821,406

Income from operations
117,897

 
74,363

 
259,582

 
224,833

Interest expense
(9,176
)
 
(9,247
)
 
(27,606
)
 
(46,047
)
Interest and other income, net
5,299

 
76,684

 
3,943

 
76,781

Income before income tax
114,020

 
141,800

 
235,919

 
255,567

Income tax expense
26,668

 
23,104

 
81,367

 
111,177

Net income
$
87,352

 
$
118,696

 
$
154,552

 
$
144,390

Net income per share—basic
$
0.20

 
$
0.26

 
$
0.35

 
$
0.32

Net income per share—diluted
$
0.20

 
$
0.26

 
$
0.34

 
$
0.31

Shares used in per share calculation—basic
432,448

 
449,446

 
436,396

 
452,474

Shares used in per share calculation—diluted
441,789

 
461,344

 
448,596

 
464,861

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.035

 
$
—

 
$
0.035

 
$
—


Page 6 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
August 2,
2014
 
July 27,
2013
 
August 2,
2014
 
July 27,
2013
 
(In thousands)
Net income
$
87,352

 
$
118,696

 
$
154,552

 
$
144,390

Other comprehensive income and loss, net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gains and losses
(155
)
 
(1,000
)
 
14

 
(2,998
)
Net gains and losses reclassified into earnings
(218
)
 
(10
)
 
(217
)
 
(214
)
Net unrealized gains (losses) on cash flow hedges
(373
)
 
(1,010
)
 
(203
)
 
(3,212
)
Foreign currency translation adjustments
(191
)
 
(1,470
)
 
284

 
(3,612
)
Total other comprehensive income (loss)
(564
)
 
(2,480
)
 
81

 
(6,824
)
Total comprehensive income
$
86,788

 
$
116,216

 
$
154,633

 
$
137,566


Page 7 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
August 2,
2014
 
October 26,
2013
 
(In thousands, except par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,149,387

 
$
986,997

Accounts receivable, net of allowances for doubtful accounts of $531 and $575 at August 2, 2014, and October 26, 2013, respectively
191,816

 
249,598

Inventories
40,586

 
45,344

Deferred tax assets
113,133

 
98,018

Prepaid expenses and other current assets
47,238

 
42,846

Total current assets
1,542,160

 
1,422,803

Property and equipment, net
448,195

 
472,940

Goodwill
1,556,361

 
1,645,437

Intangible assets, net
22,703

 
40,258

Non-current deferred tax assets
792

 
1,585

Other assets
31,679

 
38,368

Total assets
$
3,601,890

 
$
3,621,391

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
84,242

 
$
88,218

Accrued employee compensation
132,107

 
145,996

Deferred revenue
225,353

 
226,696

Current restructuring liabilities
2,670

 
16,418

Current portion of long-term debt
1,817

 
2,996

Other accrued liabilities
58,245

 
80,339

Total current liabilities
504,434

 
560,663

Long-term debt, net of current portion
595,420

 
596,208

Non-current restructuring liabilities
3,218

 
1,008

Non-current deferred revenue
73,714

 
76,426

Non-current income tax liability
45,271

 
38,680

Non-current deferred tax liabilities
41,679

 
—

Other non-current liabilities
1,553

 
1,593

Total liabilities
1,265,289

 
1,274,578

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: 432,664 and 445,285 shares at August 2, 2014, and October 26, 2013, respectively
433

 
445

Additional paid-in capital
1,765,589

 
1,915,152

Accumulated other comprehensive loss
(13,363
)
 
(13,444
)
Retained earnings
583,942

 
444,660

Total stockholders’ equity
2,336,601

 
2,346,813

Total liabilities and stockholders’ equity
$
3,601,890

 
$
3,621,391


Page 8 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
August 2,
2014
 
July 27,
2013
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
87,352

 
$
118,696

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(10,283
)
 
(1,469
)
Depreciation and amortization
20,443

 
45,647

Loss on disposal of property and equipment
152

 
984

Amortization of debt issuance costs and original issue discount
290

 
272

Net gain on sale of investment
(5,242
)
 
—

Provision for doubtful accounts receivable and sales allowances
1,992

 
2,337

Non-cash compensation expense
21,574

 
18,769

Changes in assets and liabilities:
 
 
 
Accounts receivable
(5
)
 
18,511

Inventories
187

 
2,310

Prepaid expenses and other assets
3,575

 
(67,303
)
Deferred tax assets
(10
)
 
22

Accounts payable
2,717

 
(7,052
)
Accrued employee compensation
(26,398
)
 
(28,294
)
Deferred revenue
(4,593
)
 
(1,974
)
Other accrued liabilities
14,854

 
887

Restructuring liabilities
(574
)
 
(188
)
Net cash provided by operating activities
106,031

 
102,155

Cash flows from investing activities:
 
 
 
Proceeds from sale of non-marketable equity investment
10,748

 
—

Purchases of property and equipment
(13,780
)
 
(10,381
)
Net cash used in investing activities
(3,032
)
 
(10,381
)
Cash flows from financing activities:
 
 
 
Payment of debt issuance costs related to senior unsecured notes
—

 
(443
)
Payment of principal related to capital leases
(633
)
 
(561
)
Common stock repurchases
(112,128
)
 
(101,181
)
Proceeds from issuance of common stock
26,763

 
35,959

Payment of cash dividends to stockholders
(15,270
)
 
—

Excess tax benefits from stock-based compensation
10,283

 
1,469

Net cash used in financing activities
(90,985
)
 
(64,757
)
Effect of exchange rate fluctuations on cash and cash equivalents
(240
)
 
(1,222
)
Net increase in cash and cash equivalents
11,774

 
25,795

Cash and cash equivalents, beginning of period
1,137,613

 
764,298

Cash and cash equivalents, end of period
$
1,149,387

 
$
790,093



Page 9 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
August 2,
2014
 
July 27,
2013
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
154,552

 
$
144,390

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(37,698
)
 
(6,909
)
Non-cash tax charges
—

 
78,206

Depreciation and amortization
80,370

 
139,005

Loss on disposal of property and equipment
3,330

 
4,030

Gain on sale of network adapter business
(4,884
)
 
—

Amortization of debt issuance costs and original issue discount
856

 
937

Call premium cost and write-off of original issue discount and debt issuance costs related to lenders that did not participate in refinancing
—

 
5,360

Net gain on sale of investment
(5,242
)
 
—

Provision for doubtful accounts receivable and sales allowances
5,520

 
6,897

Non-cash compensation expense
61,214

 
57,091

Goodwill impairment charge
83,382

 
—

Changes in assets and liabilities:
 
 
 
Accounts receivable
52,261

 
7,950

Inventories
4,757

 
18,915

Prepaid expenses and other assets
(4,796
)
 
(69,017
)
Deferred tax assets
47

 
344

Accounts payable
(4,409
)
 
(21,744
)
Accrued employee compensation
(38,136
)
 
(82,457
)
Deferred revenue
(4,020
)
 
5,950

Other accrued liabilities
48,178

 
(7,082
)
Restructuring liabilities
(11,538
)
 
(606
)
Net cash provided by operating activities
383,744

 
281,260

Cash flows from investing activities:
 
 
 
Purchases of non-marketable equity investments
(223
)
 
—

Proceeds from sale of non-marketable equity investment
10,748

 
—

Purchases of property and equipment
(41,175
)
 
(41,949
)
Net cash paid in connection with acquisition
—

 
(44,629
)
Proceeds from collection of note receivable
250

 
—

Proceeds from sale of network adapter business
9,995

 
—

Net cash used in investing activities
(20,405
)
 
(86,578
)
Cash flows from financing activities:
 
 
 
Proceeds from senior unsecured notes
—

 
296,250

Payment of principal related to senior secured notes
—

 
(300,000
)
Payment of debt issuance costs related to senior unsecured notes
—

 
(992
)
Payment of principal related to capital leases
(2,382
)
 
(1,536
)
Common stock repurchases
(302,560
)
 
(187,360
)
Proceeds from issuance of common stock
81,293

 
71,858

Payment of cash dividends to stockholders
(15,270
)
 
—

Excess tax benefits from stock-based compensation
37,698

 
6,909

Net cash used in financing activities
(201,221
)
 
(114,871
)
Effect of exchange rate fluctuations on cash and cash equivalents
272

 
(2,944
)
Net increase in cash and cash equivalents
162,390

 
76,867

Cash and cash equivalents, beginning of period
986,997

 
713,226

Cash and cash equivalents, end of period
$
1,149,387

 
$
790,093


Page 10 of 11

BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
 
Three Months Ended
 
August 2,
2014
 
May 3,
2014
 
July 27,
2013
 
(In thousands, except per share amounts)
Non-GAAP adjustments
 
 
 
 
 
Stock-based compensation expense included in cost of revenues
$
4,121

 
$
3,474

 
$
3,858

Amortization of intangible assets expense included in cost of revenues
552

 
396

 
9,650

Total gross margin impact from non-GAAP adjustments
4,673

 
3,870

 
13,508

 
 
 
 
 
 
Stock-based compensation expense included in research and development
4,350

 
4,422

 
4,020

Stock-based compensation expense included in sales and marketing
7,592

 
8,462

 
7,164

Stock-based compensation expense included in general and administrative
5,511

 
4,694

 
3,727

Amortization of intangible assets expense included in operating expenses
131

 
131

 
13,124

Restructuring, goodwill impairment, and other related costs
131

 
82,703

 
—

Total operating income impact from non-GAAP adjustments
22,388

 
104,282

 
41,543

 
 
 
 
 
 
Gain on A10 litigation settlement, net
—

 
—

 
(76,816
)
Gain on sale of non-marketable equity investment
(5,242
)
 
—

 
—

Income tax effect of non-tax adjustments
(2,005
)
 
(3,685
)
 
3,716

Total net income impact from non-GAAP adjustments
$
15,141

 
$
100,597

 
$
(31,557
)
 
 
 
 
 
 
Gross margin reconciliation
 
 
 
 
 
GAAP gross margin
$
361,713

 
$
354,292

 
$
338,202

Total gross margin impact from non-GAAP adjustments
4,673

 
3,870

 
13,508

Non-GAAP gross margin
$
366,386

 
$
358,162


$
351,710

GAAP gross margin, as a percent of total net revenues
66.3
%
 
66.0
%
 
63.0
%
Non-GAAP gross margin, as a percent of total net revenues
67.2
%
 
66.7
%
 
65.6
%
 
 
 
 
 
 
Operating income reconciliation
 
 
 
 
 
GAAP operating income
$
117,897

 
$
20,195

 
$
74,363

Total operating income impact from non-GAAP adjustments
22,388

 
104,282

 
41,543

Non-GAAP operating income
$
140,285

 
$
124,477

 
$
115,906

GAAP operating income, as a percent of total net revenues
21.6
%
 
3.8
%
 
13.9
%
Non-GAAP operating income, as a percent of total net revenues
25.7
%
 
23.2
%
 
21.6
%
 
 
 
 
 
 
Net income (loss) and net income (loss) per share reconciliation
 
 
 
 
 
Net income (loss) on a GAAP basis
$
87,352

 
$
(13,684
)
 
$
118,696

Total net income impact from non-GAAP adjustments
15,141

 
100,597

 
(31,557
)
Non-GAAP net income
$
102,493

 
$
86,913

 
$
87,139

Non-GAAP net income per share—basic
$
0.24

 
$
0.20

 
$
0.19

Non-GAAP net income per share—diluted
$
0.23

 
$
0.19

 
$
0.19

Shares used in non-GAAP per share calculation—basic
432,448

 
436,167

 
449,446

Shares used in non-GAAP per share calculation—diluted
441,789

 
450,449

 
461,344


Page 11 of 11