EX-99.1 2 bc8035ex991.txt EXHIBIT 99.1 Exhibit 99.1 BROCADE REPORTS FOURTH QUARTER AND FISCAL YEAR 2006 RESULTS Q4 06 RECORD REVENUE OF $208.8 MILLION INCREASES 11% SEQUENTIALLY AND 44% YEAR-OVER-YEAR SAN JOSE, Calif., Nov. 21 /PRNewswire-FirstCall/ -- Brocade Communications Systems, Inc. (Brocade(R)) (Nasdaq: BRCD) today reported financial results for its fourth quarter of fiscal year 2006 (Q4 06), which ended October 28, 2006. Revenues for Q4 06 were a record $208.8 million. Revenues for Q4 06 increased 11% from $188.9 million reported in the third quarter of fiscal year 2006 (Q3 06) and increased 44% from $145.5 million reported in the fourth quarter of fiscal year 2005 (Q4 05). Revenues for fiscal year 2006 (FY 06) were $750.6 million, an increase of 31% from $574.1 million reported in fiscal year 2005 (FY 05). Commenting on the Company's fourth quarter and fiscal year 2006 results, Michael Klayko, Brocade CEO, said, "Our fourth quarter was outstanding and a very strong finish to fiscal 2006. Throughout the year we have continued to execute well and I am proud of our team. Overall, we gained share across our product family and solidified our leadership position. The success in our Storage Area Network (SAN) business has helped us to drive returns this year while at the same time allowing us to invest for future growth." Reporting on a GAAP basis, net income for Q4 06 was $20.0 million, or $0.07 per share basic and diluted. This compares to GAAP net income for Q3 06 of $24.5 million, or $0.09 per share basic and diluted, and GAAP net income for Q4 05 of $1.1 million, or $0.00 per share basic and diluted. Net income for FY 06 was $67.6 million, or $0.25 per share basic and diluted as compared to net income for FY 05 of $43.1 million, or $0.16 per share basic and diluted. Non-GAAP net income for Q4 06 was $39.4 million or $0.15 per share basic and $0.14 per share diluted, as compared to non-GAAP net income for Q3 06 of $31.0 million, or $0.11 per share basic and diluted, and non-GAAP net income for Q4 05 of $19.0 million, or $0.07 per share basic and diluted. Non-GAAP net income for FY 06 was $122.8 million, or $0.46 per share basic and $0.45 per share diluted as compared to non-GAAP net income for FY 05 of $69.3 million, or $0.26 per share basic and diluted. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. A detailed reconciliation between GAAP and non-GAAP information is contained in the tables included herein. Certain reclassifications have been made to prior year balances in order to conform to the current year presentation. Q4 06 Financial Highlights -- Q4 06 non-GAAP gross margin was 62.1%, compared to non-GAAP gross margin of 60.2% in Q3 06 and 55.3% in Q4 05. -- Q4 06 non-GAAP operating margin was 21.5%, compared to non-GAAP operating margin of 17.4% in Q3 06 and non-GAAP operating margin of 9.2% in Q4 05. -- Q4 06 cash flow from operations was $52.8 million, compared to $26.3 million in Q3 06 and $39.4 million in Q4 05. Historically, the Company's cash flows are seasonally stronger in the second and fourth fiscal quarters and seasonally weaker in the first and third fiscal quarters due to the timing of employee compensation programs. -- Cash and investments at the end of Q4 06 were $582.6 million. This compares to the cash and cash equivalents and investments balance, including restricted short-term investments, net of the Company's convertible debt at the end of each period, of $518.6 million and $485.5 million as of the end of Q3 06 and Q4 05, respectively. In Q4 06, the Company redeemed its outstanding 2% convertible notes using restricted short-term investments and no longer has outstanding debt. -- Day sales outstanding in accounts receivable for Q4'06 were 43 days, compared to 38 days in Q3 06 and 44 days in Q4 05. -- For Q4 06, three customers, EMC, HP, and IBM, each accounted for 10% or more of total revenues and together represented approximately 74% of total revenues. The same three customers each accounted for 10% or more of total revenues and together represented approximately 74% in Q3 06 and 71% in Q4 05 of total revenues. -- As of October 28, 2006, the Company had 1,440 employees, compared with 1,399 employees as of July 29, 2006 and 1,160 employees as of October 29, 2005. Q4 06 Business Highlights During the quarter, news announcements highlighted the Company's continued progress of its strategy for growth and diversification through product and technology leadership. -- Brocade announced that it had entered into a definitive agreement to acquire McDATA Corporation. The acquisition is subject to obtaining approval from both Brocade and McDATA stockholders, regulatory approvals and certain other closing conditions. -- Brocade announced two new executive appointments - Regan McGrath, as Vice President of North America Sales and Senya Rahmil as Vice President of Worldwide Customer Support. The new VP appointments underscore the Company's continued and growing commitment to customer satisfaction. -- Brocade introduced more than 20 new and enhanced products and services that allow customers to more efficiently access corporate information, consolidate resources, and manage their data center infrastructure. These new and enhanced products cross over Brocade's SAN solutions, Brocade's file management software solutions that address the emerging File Area Network (FAN) market segment, and Brocade's growing professional services business. -- Brocade announced successful completion of the latest FICON qualification for the Brocade SilkWorm(R) 48000 and Brocade SilkWorm(R) 4100. -- Brocade was recognized for outstanding innovation in SAN product design, delivering on its commitment to offer the most high-performance and innovative storage networking products in the industry. The Brocade SilkWorm(R) 4900 Switch claimed the Big Bytes award for the best storage networking product in the SAN category. -- Brocade announced the expansion of the Brocade SAN Health family. The expanded SAN Health family provides SAN administrators with highly effective tools and services for fast, easy, and comprehensive data analysis and reporting to help optimize their Brocade and McDATA SAN environments. Conference Call Brocade will host a conference call on November 21, 2006 at 2:00 p.m. PT (5:00 p.m. ET) to discuss its fourth quarter results. The call will be audio webcast live via the Internet at www.brocade.com/investors. A telephone replay of the conference call will be available as soon as practicable after the call. To access the telephone replay, dial (800) 642-1687 or (706) 645-9291, passcode: 1658228. A replay of the conference call will also be available via webcast at www.brocade.com/investors for approximately twelve months. Non-GAAP Financial Measures This press release and the related conference call contain non-GAAP financial measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP. Non-GAAP Earnings Measure. Management believes that the non-GAAP net income measure used in this press release allows management to gain a better understanding of the Company's comparative operating performance from period-to-period and to its competitors' operating results. Management also believes this non-GAAP measure helps indicate the Company baseline performance before gains, losses or charges that are considered by management to be outside on-going operating results. Accordingly, management uses this non-GAAP measure for planning and forecasting of future periods and in making decisions regarding operations performance and the allocation of resources. Management believes this non-GAAP earnings measure, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering: -- the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; -- the ability to better identify trends in the Company's underlying business and perform related trend analysis; -- a better understanding of how management plans and measures the Company's underlying business; and -- an easier way to compare the Company'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 arose outside the ordinary course of our continuing operations. Management believes that it is appropriate to evaluate the Company's operating performance by excluding those items that are not indicative of ongoing operating results or limit comparability. Such items include: (i) gains or losses on disposition of marketable or equity investments, (ii) acquisition and integration related expenses, (iii) costs associated with facilities lease losses, severance or restructurings, (iv) gains or losses as well as call premium on debt redemption, (v) legal fees associated with indemnification obligations, and costs of the related SEC investigation and internal review, (vi) SEC settlement provision, (vii) one-time warranty benefit, and (viii) fees and taxes related to the repatriation of foreign earnings under the American Jobs Creation Act of 2004. Management also excludes the following non-cash charges in determining non-GAAP net income: (i) stock-based compensation, (ii) amortization of purchased intangible assets and (iii) in-process research and development. 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. Further, management believes that excluding stock-based compensation expense allows for a more accurate comparison of our financial results to previous periods during which our equity-based awards were not required to be reflected on our income statement. 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 both the Company's newly acquired and long-held businesses. In addition, management believes it is appropriate to exclude the in-process research and development expenses which are related to acquisitions as opposed to the Company's ongoing operations. 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 on Non-GAAP net income. General. These non-GAAP 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 the Company's GAAP results. The non-GAAP financial measures the Company 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 income per share, and should not be considered measures of the Company'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 measures reported by other companies. Cautionary Statement This press release contains forward-looking statements, including statements regarding customer demand for the Company's products, new product and service offerings, and the Company's overall market strategy. 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, demand for the Company's product and service offerings may decrease or not continue to grow at the same pace; market acceptance of the Company's new product and service offerings; increased market competition; the effect of changes in IT spending levels; the Company's ability to anticipate future OEM and end-user product needs or to accurately forecast end-user demand; the ongoing SEC and DOJ investigation; dependence on a limited number of OEM partners; and the Company's ability to manage its business effectively in a rapidly evolving market. These and other risks are set forth in more detail in the section entitled "Risk Factors" under Item 1A of Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended July 29, 2006. Brocade assumes no obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise. About Brocade Communications Systems, Inc. Brocade delivers industry-leading platforms, solutions, and services for intelligently connecting, managing, and optimizing IT resources in shared storage environments. The world's premier systems, server, and storage providers offer the Brocade SilkWorm family of Storage Area Network (SAN) connectivity platforms as the foundation for shared storage in organizations of all sizes. In addition, the Brocade Tapestry(TM) family of IT infrastructure solutions extends the ability to proactively manage and optimize application and information resources across the enterprise. Using Brocade solutions, organizations are better positioned to reduce cost, manage complexity, and satisfy business compliance requirements through optimized use and management of their IT resources. For more information, visit the Brocade Web site at www.brocade.com or contact the company at info@brocade.com. NOTE: Brocade, the Brocade B weave logo, Fabric OS, File Lifecycle Manager, MyView, Secure Fabric OS, SilkWorm, and StorageX are registered trademarks and Tapestry is a trademark of Brocade Communications Systems, Inc., in the United States and/or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners. BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Ended Year ended -------------------------- -------------------------- October 28, October 29, October 28, October 29, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net revenues $ 208,821 $ 145,516 $ 750,592 $ 574,120 Cost of revenues 81,172 64,949 305,184 251,161 ----------- ----------- ----------- ----------- Gross margin 127,649 80,567 445,408 322,959 Operating expenses: Research and development 43,427 35,068 164,843 132,448 Sales and marketing 38,752 26,285 139,434 101,202 General and administrative 7,566 6,866 31,089 25,189 Legal fees associated with indemnification obligations, SEC investigation and other related costs 3,475 5,201 13,654 14,027 Provision for SEC settlement -- -- 7,000 -- Acquisition and integration costs 9,061 -- 9,646 -- Amortization of intangible assets 888 -- 2,294 -- Restructuring and facilities lease losses -- (533) 3,775 (670) In-process research and development -- -- -- 7,784 ----------- ----------- ----------- ----------- Total operating expenses 103,169 72,887 371,735 279,980 ----------- ----------- ----------- ----------- Income from operations 24,480 7,680 73,673 42,979 Interest and other income, net 6,705 6,054 29,098 22,656 Gain on repurchases of convertible subordinated debt -- -- -- 2,318 Interest expense (1,604) (1,997) (7,082) (7,693) Gain (loss) on investments, net -- (5,178) 2,663 (5,062) ----------- ----------- ----------- ----------- Income before provision for income taxes 29,581 6,559 98,352 55,198 Income tax provision 9,624 5,503 30,723 12,077 ----------- ----------- ----------- ----------- Net income $ 19,957 $ 1,056 $ 67,629 $ 43,121 =========== =========== =========== =========== Net income per share - Basic $ 0.07 $ 0.00 $ 0.25 $ 0.16 =========== =========== =========== =========== Net income per share - Diluted $ 0.07 $ 0.00 $ 0.25 $ 0.16 =========== =========== =========== =========== Shares used in per share calculation - Basic 269,027 269,679 269,602 268,176 =========== =========== =========== =========== Shares used in per share calculation - Diluted 276,113 270,311 274,142 270,260 =========== =========== =========== ===========
BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) October 28, October 29, 2006 2005 ----------- ----------- Assets Current assets: Cash and cash equivalents $ 274,368 $ 182,001 Short-term investments 267,694 209,865 ----------- ----------- Total cash, cash equivalents, and short-term investments 542,062 391,866 Restricted short-term investments -- 277,230 Accounts receivable, net 98,394 70,104 Inventories 8,968 11,030 Prepaid expenses and other current assets 43,365 19,908 ----------- ----------- Total current assets 692,789 770,138 Long-term investments 40,492 95,306 Property and equipment, net 104,299 108,118 Goodwill 41,013 -- Intangible assets, net 15,628 -- Other assets 6,497 8,168 ----------- ----------- Total assets $ 900,718 $ 981,730 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 56,741 $ 23,778 Accrued employee compensation 62,842 37,762 Deferred revenue 60,878 45,488 Current liabilities associated with lease losses 4,931 4,659 Other accrued liabilities 87,991 69,832 Convertible subordinated debt -- 278,883 ----------- ----------- Total current liabilities 273,383 460,402 Non-current liabilities associated with lease losses 11,105 12,481 Stockholders' equity Common stock 889,250 855,833 Deferred stock compensation -- (3,180) Accumulated other comprehensive loss (817) (3,974) Accumulated deficit (272,203) (339,832) ----------- ----------- Total stockholders' equity 616,230 508,847 ----------- ----------- Total liabilities and stockholders' equity $ 900,718 $ 981,730 =========== =========== BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (in thousands) (unaudited) Year ended -------------------------- October 28, October 29, 2006 2005 ----------- ----------- Cash flows from operating activities: Net income $ 67,629 $ 43,121 Adjustments to reconcile net income to net cash provided by operating activities: Excess tax benefit (provision) from employee stock plans (15,792) 2,571 Depreciation and amortization 34,731 46,203 Loss on disposal of property and equipment 438 1,879 Amortization of debt issuance costs 1,430 1,366 Gain on repurchase of convertible subordinated debt -- (2,318) In-process research and development -- 7,784 Net (gains) losses on investments and marketable equity securities (2,685) 5,178 Non-cash compensation expense (benefit) 31,407 377 Provision for doubtful accounts receivable and sales returns 2,419 2,955 Provision for SEC settlement 7,000 -- Non-cash facilities lease loss expense and restructuring 3,775 (670) Changes in operating assets and liabilities: Accounts receivable (30,137) 21,312 Inventories 2,062 (5,433) Prepaid expenses and other assets (19,839) (245) Accounts payable 32,963 (17,117) Accrued employee compensation 25,080 4,432 Deferred revenue 15,390 10,602 Other accrued liabilities and long-term debt 15,858 9,113 Liabilities associated with lease losses (4,869) (5,245) ----------- ----------- Net cash provided by operating activities 166,860 125,865 ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (30,430) (27,267) Purchases of short-term investments (325,884) (254,642) Proceeds from sale of marketable equity securities and equity investments 10,185 -- Proceeds from maturities and sale of short-term investments 363,873 618,063 Purchases of long-term investments (40,267) (202,764) Proceeds from maturities and sale of long-term investments -- 178,428 Proceeds from the maturities of restricted short-term investments 281,414 (275,995) Purchases of non-marketable minority equity investments (4,575) (3,498) Cash paid in connection with acquisitions, net of cash acquired (27,856) (7,185) Cash placed in escrow in connection with acquisition of NuView (32,031) -- ----------- ----------- Net cash used in investing activities 194,429 25,140 ----------- ----------- Cash flows from financing activities: Purchases of convertible subordinated debt -- (70,485) Proceeds from issuance of common stock, net 34,255 29,720 Common stock repurchase program (40,206) (7,050) Redemption of outstanding convertible debt (278,883) -- Excess tax benefit from employee stock plans 15,792 -- ----------- ----------- Net cash used in financing activities (269,042) (47,815) ----------- ----------- Effect of exchange rate fluctuations on cash and cash equivalents 120 (564) ----------- ----------- Net increase (decrease) in cash and cash equivalents 92,367 102,626 Cash and cash equivalents, beginning of period 182,001 79,375 ----------- ----------- Cash and cash equivalents, end of period $ 274,368 $ 182,001 =========== =========== BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (in thousands, except per share data) (unaudited)
Q4 06 Q3 06 Q4 05 ----------- ----------- ----------- Net income (loss) on a GAAP basis $ 19,957 $ 24,498 $ 1,056 Adjustments: Stock-based compensation expense included in cost of revenues 2,117 1,738 (83) ----------- ----------- ----------- Total gross margin adjustments 2,117 1,738 (83) Legal fees associated with indemnification obligations and SEC investigation 3,475 2,990 5,201 Stock-based compensation expense included in research and development 2,519 3,052 682 Stock-based compensation expense included in sales and marketing 1,682 1,771 42 Stock-based compensation expense included in general and administrative 688 876 18 Professional fees related to repatriation of foreign earnings included in general and administrative -- -- 384 Amortization of intangible assets 888 888 -- Integration costs 9,061 -- -- Restructuring costs -- -- (533) ----------- ----------- ----------- Total operating expense adjustments 18,313 9,577 5,794 ----------- ----------- ----------- Total operating income adjustments 20,430 11,315 5,711 Call premium on redeemed debt 1,115 -- -- (Gain) Loss on investments -- (2,685) 5,178 Income tax related to repatriation of foreign earnings -- -- 4,334 Income tax effect of adjustments (2,076) (2,152) 2,673 ----------- ----------- ----------- Non-GAAP net income $ 39,426 $ 30,976 $ 18,952 =========== =========== =========== Non-GAAP net income per share - Basic $ 0.15 $ 0.11 $ 0.07 =========== =========== =========== Non-GAAP net income per share - Diluted $ 0.14 $ 0.11 $ 0.07 =========== =========== =========== Shares used in non-GAAP per share calculation - Basic 269,027 269,417 269,679 =========== =========== =========== Shares used in non-GAAP per share calculation - Diluted 276,113 273,959 270,311 =========== =========== ===========
See explanation of non-GAAP information included herein. BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (in thousands, except per share data) (unaudited) October 28, October 29, 2006 2005 ----------- ----------- Net income (loss) on a GAAP basis $ 67,629 $ 43,121 Adjustments: Stock-based compensation expense included in cost of revenues 7,616 (530) Warranty adjustment included in cost of revenue -- (1,853) ----------- ----------- Total gross margin adjustments 7,616 (2,383) Legal fees associated with indemnification obligations, internal review costs and SEC investigation 13,654 14,027 SEC settlement provision 7,000 -- Stock-based compensation expense included in research and development 10,709 292 Stock-based compensation expense included in sales and marketing 6,313 (126) Stock-based compensation expense included in general and administrative 2,911 (186) Professional fees related to repatriation of foreign earnings included in general and administrative -- 384 Severance included in general and administrative -- 117 Amortization of intangible assets 2,294 -- Acquisition and integration costs 9,646 -- Facilities lease loss adjustments and restructuring 3,775 (670) In-process research and development -- 7,784 ----------- ----------- Total operating expense adjustments 56,302 21,622 ----------- ----------- Total operating income adjustments 63,918 19,239 ----------- ----------- Call premium on redeemed debt 1,115 -- Gain on repurchases of convertible subordinated debt -- (2,318) (Gain) Loss on investments (2,685) 5,062 Income tax related to repatriation of foreign earnings -- 4,334 Income tax effect of adjustments (7,220) (177) ----------- ----------- Non-GAAP net income $ 122,757 $ 69,261 =========== =========== Non-GAAP net income per share - Basic $ 0.46 $ 0.26 =========== =========== Non-GAAP net income per share - Diluted $ 0.45 $ 0.26 =========== =========== Shares used in non-GAAP per share calculation - Basic 269,602 268,176 =========== =========== Shares used in non-GAAP per share calculation - Diluted 274,142 270,260 =========== =========== See explanation of non-GAAP information included herein. SOURCE Brocade Communications Systems, Inc. -0- 11/21/2006 /CONTACT: Investor Relations, Shirley Stacy, +1-408-333-5752, or sstacy@brocade.com, or Media Relations, Leslie Davis, +1-408-333-5260, or lmdavis@brocade.com, both of Brocade Communications Systems, Inc./ /Web site: http://www.brocade.com / (BRCD BRCD2)