EX-99.1 2 dex991.htm PRESS RELEASE Press release

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

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Brocade Reports Q2 FY2011 Results

Revenues grow nearly 10% year-over-year driven by Storage and Enterprise/

Service Provider Ethernet businesses

SAN JOSE, Calif., May 19, 2011 — Brocade® (NASDAQ: BRCD) today reported financial results for its second fiscal quarter ended April 30, 2011. Brocade recorded quarterly revenues of $550 million, representing an increase of 9.8% year-over-year and resulting in diluted earnings per share (EPS) of $0.06 on a GAAP basis and $0.13 on a non-GAAP basis.

In the quarter, Brocade saw product revenue growth of 17% year-over-year in its storage networking business driven by strong revenues across the product portfolio that included over 20% growth for both backbone/director and Server product revenues. Brocade also saw its Enterprise and Service Provider Ethernet businesses revenue grow 24% year-over-year led by its EMEA, Americas and Asia Pacific geographies. Overall Ethernet business revenue was up 1% year-over-year as lower Federal Ethernet revenue offset the growth in Enterprise and Service Provider businesses. Brocade exceeded its expectations for non-GAAP EPS and non-GAAP operating margin in the quarter.

“Brocade executed well in Q2 delivering nearly 10 percent growth year-over-year in revenue driven by strong performances in our Ethernet business among enterprises and service providers and stronger-than-expected performance in our SAN business,” said Michael Klayko, CEO of Brocade. “We are excited about our opportunities going forward as there is no doubt that the networking industry is in the beginning stages of a new innovation cycle driven by the IT imperatives of virtualization and cloud computing. We believe that Brocade has established a clear leadership position by out-innovating the rest of the industry and delivering purpose-built solutions to customers well-ahead of the competition.”

In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q2 results and Fiscal Q3 outlook at www.brcd.com. Brocade will host a live webcast conference call to answer questions from investors and analysts today at 2:30 p.m. Pacific time. Questions may also be submitted in advance to ir@brocade.com.

Other Q2 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information

 

     Q2 2011     Q1 2011     Q2 2010  

Revenue

    $ 550M      $ 546M      $ 501M   

GAAP net income

    $ 28M      $ 27M      $ 22M   

Non-GAAP net income

    $ 63M      $ 61M      $ 63M   

GAAP EPS – diluted

    $ 0.06      $ 0.06      $ 0.05   

Non-GAAP EPS – diluted

    $ 0.13      $ 0.12      $ 0.13   

Non-GAAP gross margin (1)

      63.5 %      62.0 %      62.7 % 

Non-GAAP operating margin

      18.2 %      17.1 %      20.5 % 

Adjusted EBITDA (2)

    $ 123M      $ 114M      $ 116M   

Cash provided by operations

    $ 114M      $ 118M      $ 68M   

 

  •  

Q2 effective GAAP tax rate was (2.3)% and non-GAAP effective tax rate was 20.7%.

 

  •  

Q2 total Storage Area Networking (SAN) port shipments were approximately 1.2 million.

Brocade

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000 F. 408.333.8101

www.brocade.com

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.

     Q2 2011     Q1 2011     Q2 2010  

As a % of total revenues

       

OEM revenues

      64 %      66 %      63 % 

Channel/Direct revenues

      36 %      34 %      37 % 

10% or greater customer revenues

      53 %      47 %      44 % 

Domestic revenues

      62 %      59 %      65 % 

International revenues

      38 %      41 %      35 % 

Data Storage Revenues

      60 %      61 %      56 % 

Ethernet Products Revenues

      23 %      23 %      26 % 

Global Services Revenue

      17 %      16 %      18 % 

Ethernet Business Revenues (3)

      29 %      28 %      31 % 

As a % of Ethernet Business Revenues (3):

       

Enterprise, excluding Federal

      61 %      61 %      47 % 

Federal

      12 %      13 %      28 % 

Service Provider

      27 %      26 %      25 % 
     Q2 2011     Q1 2011     Q2 2010  

Cash, cash equivalents and investments

    $ 466M      $ 416M      $ 290M   

Deferred revenues

    $ 272M      $ 265M      $ 247M   

Capital expenditures

    $ 27M      $ 23M      $ 62M   

Total debt, net of discount

    $ 836M      $ 892M      $ 981M   

Days sales outstanding

      50 days        46 days        54 days   

Employees at end of period

      4,762        4,721        4,245   

 

1) Q2 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses.
2) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.
3) Ethernet Business revenues include product and support revenues.

 

Page 2 of 10

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) legal fees associated with certain pre-acquisition litigation, (ii) legal fees associated with indemnification obligations and other related costs, net, (iii) acquisition and integration costs, (iv) loss on sale of property, and (v) interest expense related to adoption of new standard relating to convertible debt instruments.

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.

 

Page 3 of 10

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding the networking industry, Brocade’s Ethernet fabric solutions and competitor offerings, and business in the Federal sector. 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, Brocade’s ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, customer adoption of Brocade’s Ethernet fabric solutions, changes in IT spending levels in one or more of our target markets including the government sector, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended January 29, 2011. 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 GS: BRCD) develops extraordinary networking solutions that enable today’s complex, data-intensive businesses to optimize information connectivity and maximize the business value of their data. For more information, visit www.brocade.com.

# # #

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) Brocade, the B-wing symbol, BigIron, DCFM, DCX, Fabric OS, FastIron, IronView, NetIron, SAN Health, ServerIron, TurboIron, and Wingspan are registered trademarks, and Brocade Assurance, Brocade NET Health, Brocade One, Extraordinary Networks, MyBrocade, VCS, and VDX are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned are or may be trademarks or service marks of their respective owners.

© 2011 Brocade Communications Systems, Inc. All Rights Reserved.

 

Page 4 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended     Six Months Ended  
     Apr 30,
2011		     May 1,
2010		     Apr 30,
2011		     May 1,
2010		  

Net revenues

         

Product

    $ 459,028      $ 409,885      $ 916,318      $ 858,970   

Service

      90,869        91,098        179,596        181,505   
                                

Total net revenues

      549,897        500,983        1,095,914        1,040,475   

Cost of revenues (1)

         

Product (1)

      171,075        161,042        348,691        326,819   

Service (1)

      48,680        44,451        95,937        89,028   
                                

Total cost of revenues

      219,755        205,493        444,628        415,847   
                                

Gross margin

      330,142        295,490        651,286        624,628   

Operating expenses:

         

Research and development

      91,941        89,351        183,349        179,433   

Sales and marketing (1)

      156,979        132,019        309,646        254,079   

General and administrative

      18,469        15,941        36,559        32,180   

Legal fees associated with indemnification obligations and other related costs, net

      —          277        124        578   

Amortization of intangible assets

      15,023        16,190        31,213        33,242   

Acquisition and integration costs

      —          —          —          204   
                                

Total operating expenses

      282,412        253,778        560,891        499,716   
                                

Income from operations

      47,730        41,712        90,395        124,912   

Interest and other income (loss), net

      27        (903 )      376        (831 ) 

Interest expense

      (20,745 )      (19,522 )      (42,291 )      (41,595 ) 

Gain (loss) on sale of investments and property, net

      (11 )      253        (17 )      (8,575 ) 
                                

Income before income tax provision (benefit)

      27,001        21,540        48,463        73,911   

Income tax provision (benefit)

      (612 )      (840 )      (6,329 )      436   
                                

Net income

    $ 27,613      $ 22,380      $ 54,792      $ 73,475   
                                

Net income per share – basic

    $ 0.06      $ 0.05      $ 0.12      $ 0.17   
                                

Net income per share – diluted

    $ 0.06      $ 0.05      $ 0.11      $ 0.15   
                                

Shares used in per share calculation – basic

      473,209        442,816        469,158        440,948   
                                

Shares used in per share calculation – diluted

      501,511        479,166        496,338        481,714   
                                

 

(1) The three and six months ended May 1, 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses.

 

Page 5 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

     Apr 30,
2011		     Oct 30,
2010		  

Assets

   

Current assets:

   

Cash and cash equivalents

    $ 463,562      $ 333,984   

Short-term investments

      2,027        1,998   
                

Total cash, cash equivalents and short-term investments

      465,589        335,982   

Accounts receivable, net

      302,784        329,564   

Inventories

      93,163        76,808   

Deferred tax assets

      67,145        67,080   

Prepaid expenses and other current assets

      68,390        65,017   
                

Total current assets

      997,071        874,451   

Property and equipment, net

      539,300        539,117   

Goodwill

      1,638,931        1,644,950   

Intangible assets, net

      283,854        344,000   

Non-current deferred tax assets

      222,994        203,454   

Other assets

      47,787        48,203   
                

Total assets

    $ 3,729,937      $ 3,654,175   
                

Liabilities and Stockholders’ Equity

   

Current liabilities:

   

Accounts payable

    $ 138,530      $ 147,130   

Accrued employee compensation

      117,480        91,688   

Deferred revenue

      205,187        185,623   

Current liabilities associated with facilities lease losses

      4,566        5,992   

Current portion of capital lease obligations

      1,813        1,761   

Current portion of term loan

      34,542        28,779   

Other accrued liabilities

      101,357        108,310   
                

Total current liabilities

      603,475        569,283   

Non-current capital lease obligations, net of current portion

      5,862        6,782   

Term loan, net of current portion

      197,767        297,118   

Senior Secured Notes

      595,584        595,373   

Non-current liabilities associated with facilities lease losses

      2,557        3,984   

Non-current deferred revenue

      66,848        65,242   

Non-current income tax liability

      64,377        61,421   

Other non-current liabilities

      9,165        8,671   
                

Total liabilities

      1,545,635        1,607,874   
                

Stockholders’ equity:

   

Common stock

      477        461   

Additional paid-in capital

      2,130,417        2,047,563   

Accumulated other comprehensive loss

      (2,488 )      (2,827 ) 

Retained earnings

      55,896        1,104   
                

Total stockholders’ equity

      2,184,302        2,046,301   
                

Total liabilities and stockholders’ equity

    $ 3,729,937      $ 3,654,175   
                

 

Page 6 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended Apr 30, 2011 and May 1, 2010

(in thousands)

(unaudited)

 

     Three Months Ended  
     Apr 30,
2011		     May 1,
2010		  

Cash flows from operating activities:

     

Net income

    $ 27,613      $ 22,380   

Adjustments to reconcile net income to net cash provided by operating activities:

     

Excess tax benefits or detriments from stock-based compensation

      877        (63 ) 

Depreciation and amortization

      51,712        46,600   

Loss on disposal of property and equipment

      1,734        645   

Amortization of debt issuance costs and original issue discount

      4,466        5,121   

Net (gains) losses on investments

      6        (385 ) 

Provision for doubtful accounts receivable and sales allowances

      2,643        2,823   

Non-cash compensation expense

      22,530        30,146   

Capitalization of interest cost

      —          (3,720 ) 

Changes in assets and liabilities:

     

Restricted Cash

      —          12,500   

Accounts receivable

      (27,576 )      (23,691 ) 

Inventories

      (7,345 )      (4,067 ) 

Prepaid expenses and other assets

      (3,889 )      5,576   

Deferred tax assets

      (24 )      —     

Accounts payable

      8,329        (28,909 ) 

Accrued employee compensation

      29,130        18,675   

Deferred revenue

      6,552        10,339   

Other accrued liabilities

      (1,899 )      (23,235 ) 

Liabilities associated with facilities lease losses

      (1,154 )      (3,013 ) 
                

Net cash provided by operating activities

      113,705        67,722   
                

Cash flows from investing activities:

     

Purchases of short-term investments

      (13 )      —     

Proceeds from maturities and sale of short-term investments

      1        1,787   

Purchases of property and equipment

      (27,180 )      (62,070 ) 
                

Net cash used in investing activities

      (27,192 )      (60,283 ) 
                

Cash flows from financing activities:

     

Payment of debt issuance fees related to the Senior Secured Notes

      —          (3,002 ) 

Payment of principal related to the revolving credit facility

      —          (14,050 ) 

Payment of principal related to convertible subordinate debt

      —          (172,500 ) 

Payment of principal related to the term loan

      (58,892 )      (15,699 ) 

Common stock repurchases

      —          (20,003 ) 

Payment of principal related to capital leases

      (437 )      —     

Proceeds from issuance of common stock, net

      21,911        9,788   

Excess tax benefits or detriments from stock-based compensation

      (877 )      63   
                

Net cash used in financing activities

      (38,295 )      (215,403 ) 
                

Effect of exchange rate fluctuations on cash and cash equivalents

      1,161        (1,386 ) 
                

Net increase (decrease) in cash and cash equivalents

      49,379        (209,350 ) 

Cash and cash equivalents, beginning of period

      414,183        496,583   
                

Cash and cash equivalents, end of period

    $ 463,562      $ 287,233   
                

 

Page 7 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended Apr 30, 2011 and May 1, 2010

(in thousands)

(unaudited)

 

     Six Months Ended  
     Apr 30,
2011		     May 1,
2010		  

Cash flows from operating activities:

     

Net income

    $ 54,792      $ 73,475   

Adjustments to reconcile net income to net cash provided by operating activities:

     

Excess tax benefits or detriments from stock-based compensation

      877        (63 ) 

Depreciation and amortization

      104,234        97,613   

Loss on disposal of property and equipment

      1,910        9,459   

Amortization of debt issuance costs and original issue discount

      9,195        11,784   

Net gains on investments

      (10 )      (217 ) 

Provision for doubtful accounts receivable and sales allowances

      5,071        5,867   

Non-cash compensation expense

      42,436        51,668   

Capitalization of interest cost

      —          (7,035 ) 

Changes in assets and liabilities:

     

Restricted Cash

      —          12,502   

Accounts receivable

      22,236        (5,588 ) 

Inventories

      (17,664 )      (4,668 ) 

Prepaid expenses and other assets

      (6,907 )      10,557   

Deferred tax assets

      (30 )      —     

Accounts payable

      (10,253 )      (68,644 ) 

Accrued employee compensation

      19,714        (48,480 ) 

Deferred revenue

      21,169        11,274   

Other accrued liabilities

      (11,975 )      (7,199 ) 

Liabilities associated with facilities lease losses

      (2,854 )      (5,476 ) 
                

Net cash provided by operating activities

      231,941        136,829   
                

Cash flows from investing activities:

     

Purchases of short-term investments

      (38 )      (24 ) 

Proceeds from maturities and sale of short-term investments

      20        1,788   

Proceeds from sale of property

      —          30,185   

Purchases of property and equipment

      (50,575 )      (109,387 ) 
                

Net cash used in investing activities

      (50,593 )      (77,438 ) 
                

Cash flows from financing activities:

     

Payment of debt issuance fees related to the Senior Secured Notes

      —          (3,002 ) 

Payment of principal related to the revolving credit facility

      —          (14,050 ) 

Payment of principal related to convertible subordinate debt

      —          (172,500 ) 

Payment of principal related to the term loan

      (98,640 )      (522,244 ) 

Common stock repurchases

      —          (20,003 ) 

Payment of principal related to capital leases

      (868 )      —     

Proceeds from Senior Secured Notes

      —          587,968   

Proceeds from issuance of common stock, net

      47,388        39,819   

Excess tax benefits or detriments from stock-based compensation

      (877 )      63   
                

Net cash used in financing activities

      (52,997 )      (103,949 ) 
                

Effect of exchange rate fluctuations on cash and cash equivalents

      1,227        (2,402 ) 
                

Net increase (decrease) in cash and cash equivalents

      129,578        (46,960 ) 

Cash and cash equivalents, beginning of period

      333,984        334,193   
                

Cash and cash equivalents, end of period

    $ 463,562      $ 287,233   
                

 

Page 8 of 10

BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended  
    

Apr 30,

2011

    

May 1,

2010

  

Net income on a GAAP basis

    $ 27,613      $ 22,380   

Adjustments:

     

Stock-based compensation expense included in cost of revenues

      4,167        4,136   

Amortization of intangible assets expense included in cost of revenues

      14,466        14,467   

Legal fees associated with certain pre-acquisition litigation

      216        17   
                

Total gross margin adjustments

      18,849        18,620   
                

Legal fees associated with indemnification obligations and other related costs, net

      —          277   

Stock-based compensation expense included in research and development

      5,111        8,933   

Stock-based compensation expense included in sales and marketing

      9,619        13,144   

Stock-based compensation expense included in general and administrative

      3,633        3,933   

Amortization of intangible assets expense included in operating expenses

      15,023        16,190   
                

Total operating expense adjustments

      33,386        42,477   
                

Total operating income adjustments

      52,235        61,097   

Loss on sale of property

      —          (47 ) 

Interest expense related to adoption of new standards relating to convertible debt instruments

      —          348   

Income tax effect of adjustments

      (17,037 )      (21,044 ) 
                

Non-GAAP net income

    $ 62,811      $ 62,734   
                

Non-GAAP net income per share – basic

    $ 0.13      $ 0.14   
                

Non-GAAP net income per share – diluted

    $ 0.13      $ 0.13   
                

Shares used in non-GAAP per share calculation – basic

      473,209        442,816   
                

Shares used in non-GAAP per share calculation – diluted

      501,511        481,290   
                

See explanation of non-GAAP information included herein.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Six Months Ended  
    

Apr 30,

2011

    

May 1,

2010

  

Net income on a GAAP basis

    $ 54,792      $ 73,475   

Adjustments:

     

Stock-based compensation expense included in cost of revenues

      7,027        7,049   

Amortization of intangible assets expense included in cost of revenues

      28,932        32,316   

Legal fees associated with certain pre-acquisition litigation

      293        317   
                

Total gross margin adjustments

      36,252        39,682   
                

Legal fees associated with indemnification obligations and other related costs, net

      124        578   

Stock-based compensation expense included in research and development

      9,394        15,116   

Stock-based compensation expense included in sales and marketing

      18,411        22,843   

Stock-based compensation expense included in general and administrative

      7,604        6,660   

Amortization of intangible assets expense included in operating expenses

      31,213        33,243   

Acquisition and integration costs

      —          204   
                

Total operating expense adjustments

      66,746        78,644   
                

Total operating income adjustments

      102,998        118,326   

Loss on sale of property

      —          8,737   

Interest expense related to adoption of new standards relating to convertible debt instruments

      —          2,490   

Income tax effect of adjustments

      (34,245 )      (46,284 ) 
                

Non-GAAP net income

    $ 123,545      $ 156,744   
                

Non-GAAP net income per share – basic

    $ 0.26      $ 0.36   
                

Non-GAAP net income per share – diluted

    $ 0.25      $ 0.32   
                

Shares used in non-GAAP per share calculation – basic

      469,158        440,948   
                

Shares used in non-GAAP per share calculation – diluted

      496,338        488,818   
                

See explanation of non-GAAP information included herein.

 

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