Attached files
Exhibit 99.1
| BROCADE CONTACTS
|
| |||
| Public Relations John Noh Tel: 408-333-5108 jnoh@brocade.com |
Investor Relations Peter Ausnit Tel: 408-333-4000 pausnit@brocade.com |
|||
Brocade Delivers Record Fiscal Q1 Results
Strong Storage Networking Performance Drives 25% Year-over-Year Revenue Growth
SAN JOSE, Calif., Feb. 22, 2010 — Brocade® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 30, 2010. Brocade’s quarterly revenues increased 25 percent year-over-year to $539.5 million.
“Brocade’s Q1 performance exceeded consensus non-GAAP EPS expectations for the 18th consecutive quarter thanks to the balance and diversity of our business model, our highly variable cost structure and our ability to execute,” said Michael Klayko, CEO of Brocade.
Klayko continued: “At the same time, Q1 highlights the work ahead in building our Ethernet business to the levels we expect. Going forward, Brocade plans to reenergize our Ethernet business strategy, which targets opening hundreds of new direct enterprise Ethernet accounts each quarter. As one of two end-to-end networking companies worldwide, we believe Brocade is well-positioned and are optimistic about our ability to take advantage of the expected worldwide growth of networking spending in 2010 and beyond.”
In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q1 results and outlook at www.BRCD.com. Brocade will host a live webcast conference call to answer questions from investors and analysts at 2:30 p.m. Pacific time. Questions may also be submitted in advance to ir@brocade.com.
Other Q1 product, customer and partner announcements are available at http://newsroom.brocade.com/.
Financial Highlights and Additional Financial Information
| • | Q1 revenue was $539.5 million, increasing 3.4% sequentially and 25% year-over-year. |
| • | Q1 GAAP EPS (diluted) was $0.11, increasing 57% sequentially and from a loss in Q1 2009. |
| • | Q1 non-GAAP EPS (diluted) was $0.19, increasing 27% sequentially and year-over-year. |
| • | Q1 non-GAAP operating margin was 26.0% versus 22.7% in Q4 and 26.1% in Q1 2009. |
| • | Q1 effective GAAP tax rate was 2.4%; non-GAAP effective tax-rate was 22.0%. |
| • | Q1 Adj. EBITDA was $154.7 million, up from $130.0 million in Q4 and $136.7 million in Q1 2009. |
| • | Q1 total Storage Area Networking (SAN) port shipments were approximately 1.2 million. |
| Q1 2010 | Q4 2009 | Q1 2009 | ||||||||||
| Revenue |
$ | 539.5 M | $ | 521.8 M | $ | 431.6 M | ||||||
| GAAP net income (loss) (1) |
$ | 51.1 M | $ | 32.1 M | $ | (23.9) M | ||||||
| Non-GAAP net income |
$ | 94.0 M | $ | 73.4 M | $ | 63.6 M | ||||||
| GAAP EPS – diluted (1) |
$ | 0.11 | $ | 0.07 | $ | (0.06 | ) | |||||
| Non-GAAP EPS – diluted |
$ | 0.19 | $ | 0.15 | $ | 0.15 | ||||||
| Non-GAAP gross margin |
59.3 | % | 59.5 | % | 59.7 | % | ||||||
| Non-GAAP operating margin |
26.0 | % | 22.7 | % | 26.1 | % | ||||||
| Adjusted EBITDA (2) |
$ | 154.7 M | $ | 130.0 M | $ | 136.7 M | ||||||
| Cash provided by operations |
$ | 69.1 M | $ | 155.3 M | $ | (163.8) M | ||||||
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.
Brocade
1745 Technology Dr., San Jose, CA 95110
T. 408.333.8000 F. 408.333.8101
www.brocade.com
| Q1 2010 (5) | Q4 2009 | Q1 2009 | |||||||
| As a % of total revenues |
|||||||||
| OEM revenues |
71 | % | 65 | % | 76 | % | |||
| Channel/Direct revenues |
29 | % | 35 | % | 24 | % | |||
| 10% or greater customer revenues |
54 | % | 46 | % | 56 | % | |||
| Domestic revenues (3) |
63 | % | 63 | % | 64 | % | |||
| International revenues (3) |
37 | % | 37 | % | 36 | % | |||
| Data Storage Revenue |
65 | % | 58 | % | 72 | % | |||
| Ethernet Products Revenue |
18 | % | 25 | % | 12 | % | |||
| Stackable % of Ethernet Revenues (4) |
39 | % | 30 | % | 27 | % | |||
| Chassis % of Ethernet Revenues (4) |
61 | % | 70 | % | 73 | % | |||
| Enterprise % of Ethernet Revenues (4) |
84 | % | 86 | % | 74 | % | |||
| Service Providers % of Ethernet Revenues (4) |
16 | % | 14 | % | 26 | % | |||
| Global Services Revenue |
17 | % | 17 | % | 16 | % |
| Q1 2010 | Q4 2009 | Q1 2009 | |||||||
| Cash, cash equivalents and investments |
$ | 501.1M | $ | 338.9 M | $ | 215.9M | |||
| Deferred revenues |
$ | 236.4M | $ | 235.4 M | $ | 226.7M | |||
| Capital expenditures – non-campus related |
$ | 16.7M | $ | 16.7 M | $ | 12.6M | |||
| Capital expenditures – campus related |
$ | 30.6M | $ | 27.8 M | $ | 23.2M | |||
| Total debt, net of discount (1) |
$ | 1,176M | $ | 1,082 M | $ | 1,232M | |||
| Days sales outstanding |
47 days | 52 days | 52 days | ||||||
| Employees at end of period |
4,114 | 4,070 | 3,950 | ||||||
| 1) | Retrospectively adjusted as a result of applying new standard that changed the accounting for convertible debt instruments with cash settlement features. |
| 2) | Adjusted EBITDA is as defined in the Term Debt Credit Agreement. |
| 3) | Based on Brocade estimates of adjustment for partners taking delivery of internationally bound shipments in the United States, end-user demand was 48% domestic and 52% international. |
| 4) | On an “As If” combined Brocade basis with respect to Q1 2009. |
| 5) | Q1 2010 is the fourth full quarter of combined operations post acquisition of Foundry. |
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 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. |
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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 to former directors and officers and other related costs, net, (iii) acquisition and integration costs (in connection with the Foundry acquisition), (iv) in-process research and development charges (in connection with the Foundry acquisition), (v) loss on sale of real estate, (vi) acquisition-related financing charges, and (vii) 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 (loss) and net income (loss) 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.
Cautionary Statement
This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s market positioning and opportunities, including continued growth in storage networking and success of our Ethernet products. 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, the effect of changes in IT spending levels, market competition and changes in the industry, Brocade’s ability to successfully introduce new products and services on a timely basis and capitalize on current or past investments in technologies and go-to-market opportunities, and Brocade’s ability to manage its business effectively in a rapidly evolving market. 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 31, 2009. 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, the B-wing symbol, BigIron, DCX, Fabric OS, FastIron, IronPoint, IronShield, IronView, IronWare, JetCore, NetIron, SecureIron, ServerIron, StorageX and TurboIron are registered trademarks, and DCFM, Extraordinary Networks and SAN Health are trademarks 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.
© 2010 Brocade Communications Systems, Inc. All Rights Reserved.
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BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||||||
| January 30, 2010 |
January 24, 2009 (1) |
|||||||
| Net revenues |
||||||||
| Product |
$ | 449,086 | $ | 362,600 | ||||
| Service |
90,406 | 68,991 | ||||||
| Total net revenues |
539,492 | 431,591 | ||||||
| Cost of revenues |
||||||||
| Product |
192,572 | 151,191 | ||||||
| Service |
49,477 | 37,985 | ||||||
| Total cost of revenues |
242,049 | 189,176 | ||||||
| Gross margin |
297,443 | 242,415 | ||||||
| Operating expenses: |
||||||||
| Research and development |
90,081 | 68,451 | ||||||
| Sales and marketing |
90,366 | 73,166 | ||||||
| General and administrative |
16,239 | 18,388 | ||||||
| Legal fees associated with indemnification obligations and other related costs, net |
301 | 19,299 | ||||||
| Amortization of intangible assets |
17,052 | 13,229 | ||||||
| Acquisition and integration costs |
204 | 953 | ||||||
| In-process research and development |
— | 26,900 | ||||||
| Total operating expenses |
214,243 | 220,386 | ||||||
| Income from operations |
83,200 | 22,029 | ||||||
| Interest income and other loss, net |
72 | (3,811 | ) | |||||
| Interest expense |
(22,073 | ) | (23,279 | ) | ||||
| Loss on sale of investments and property, net |
(8,828 | ) | (864 | ) | ||||
| Income (loss) before provision for income taxes |
52,371 | (5,925 | ) | |||||
| Income tax provision |
1,276 | 17,973 | ||||||
| Net income (loss) |
$ | 51,095 | $ | (23,898 | ) | |||
| Net income (loss) per share – basic |
$ | 0.12 | $ | (0.06 | ) | |||
| Net income (loss) per share – diluted |
$ | 0.11 | $ | (0.06 | ) | |||
| Shares used in per share calculation – basic |
439,080 | 376,202 | ||||||
| Shares used in per share calculation – diluted |
484,262 | 376,202 | ||||||
| (1) | As adjusted due to changes to the accounting for convertible debt instruments. |
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BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| January 30, 2010 |
October 31, 2009 (1) |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 496,583 | $ | 334,193 | ||||
| Short-term investments |
4,533 | 4,678 | ||||||
| Restricted cash |
12,500 | 12,502 | ||||||
| Total cash, cash equivalents and short-term investments |
513,616 | 351,373 | ||||||
| Accounts receivable, net |
276,671 | 297,819 | ||||||
| Inventories |
72,753 | 72,152 | ||||||
| Deferred tax assets |
75,691 | 84,629 | ||||||
| Prepaid expenses and other current assets |
61,874 | 79,302 | ||||||
| Total current assets |
1,000,605 | 885,275 | ||||||
| Property and equipment, net |
439,642 | 442,408 | ||||||
| Goodwill |
1,658,060 | 1,659,934 | ||||||
| Intangible assets, net |
435,970 | 470,872 | ||||||
| Non-current deferred tax assets |
196,230 | 184,713 | ||||||
| Other assets |
46,283 | 28,218 | ||||||
| Total assets |
$ | 3,776,790 | $ | 3,671,420 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 139,186 | $ | 181,249 | ||||
| Accrued employee compensation |
101,838 | 160,832 | ||||||
| Deferred revenue |
175,851 | 174,870 | ||||||
| Current liabilities associated with facilities lease losses |
9,474 | 10,769 | ||||||
| Revolving credit facility |
14,050 | 14,050 | ||||||
| Current portion of long-term debt |
18,539 | 38,822 | ||||||
| Convertible subordinated debt |
172,015 | 169,332 | ||||||
| Other accrued liabilities |
114,958 | 105,263 | ||||||
| Total current liabilities |
745,911 | 855,187 | ||||||
| Long-term debt, net of current portion |
376,184 | 860,114 | ||||||
| Senior Secured Notes |
595,070 | — | ||||||
| Non-current liabilities associated with facilities lease losses |
8,983 | 10,150 | ||||||
| Non-current deferred revenue |
60,528 | 60,575 | ||||||
| Non-current income tax liability |
89,729 | 92,276 | ||||||
| Other non-current liabilities |
15,528 | 15,114 | ||||||
| Total liabilities |
1,891,933 | 1,893,416 | ||||||
| Stockholders’ equity |
||||||||
| Common stock |
443 | 434 | ||||||
| Additional paid-in capital |
1,962,279 | 1,901,238 | ||||||
| Accumulated other comprehensive loss |
(11,215 | ) | (5,920 | ) | ||||
| Accumulated deficit |
(66,650 | ) | (117,748 | ) | ||||
| Total stockholders’ equity |
1,884,857 | 1,778,004 | ||||||
| Total liabilities and stockholders’ equity |
$ | 3,776,790 | $ | 3,671,420 | ||||
| (1) | As adjusted due to changes to the accounting for convertible debt instruments. |
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BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended January 30, 2010 and January 24, 2009
(in thousands)
(unaudited)
| Three Months Ended | ||||||||
| January 30, 2010 |
January 24, 2009 (1) |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 51,095 | $ | (23,898 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Excess tax benefit from employee stock plans |
— | 336 | ||||||
| Depreciation and amortization |
51,012 | 39,754 | ||||||
| Loss on disposal of property and equipment |
8,813 | 558 | ||||||
| Amortization of debt issuance costs and debt discount |
6,663 | 3,545 | ||||||
| Net losses on investments and marketable equity securities |
168 | 860 | ||||||
| Provision for doubtful accounts receivable and sales allowances |
3,043 | 2,271 | ||||||
| Non-cash compensation expense |
21,523 | 18,080 | ||||||
| Capitalization of interest cost |
(3,315 | ) | (2,043 | ) | ||||
| In-process research and development |
— | 26,900 | ||||||
| Changes in assets and liabilities: |
||||||||
| Restricted cash |
2 | — | ||||||
| Accounts receivable |
18,104 | (12,044 | ) | |||||
| Inventories |
(601 | ) | 14,397 | |||||
| Prepaid expenses and other assets |
4,982 | (2,228 | ) | |||||
| Accounts payable |
(39,735 | ) | (64,080 | ) | ||||
| Accrued employee compensation |
(67,155 | ) | (47,057 | ) | ||||
| Deferred revenue |
935 | 17,681 | ||||||
| Other accrued liabilities |
16,036 | 26,521 | ||||||
| Liabilities associated with facilities lease losses |
(2,463 | ) | (3,321 | ) | ||||
| Liability associated with class action lawsuit |
— | (160,000 | ) | |||||
| Net cash provided by (used in) operating activities |
69,107 | (163,768 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(47,317 | ) | (35,818 | ) | ||||
| Purchases of short-term investments |
(24 | ) | — | |||||
| Proceeds from maturities and sale of short-term investments |
1 | 136,297 | ||||||
| Proceeds from sale of property |
30,185 | — | ||||||
| Proceeds from maturities and sale of long-term investments |
— | 30,058 | ||||||
| Decrease in restricted cash |
— | 1,075,079 | ||||||
| Net cash paid in connection with acquisitions |
— | (1,297,482 | ) | |||||
| Net cash used in investing activities |
(17,155 | ) | (91,866 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payment of senior underwriting fees related to the term loan |
— | (30,525 | ) | |||||
| Payment of principal related to the term loan |
(506,545 | ) | — | |||||
| Proceed from senior secured notes |
587,968 | — | ||||||
| Excess tax benefit from employee stock plans |
— | (336 | ) | |||||
| Proceeds from issuance of common stock, net |
30,031 | 8,548 | ||||||
| Proceeds from revolving credit facility |
— | 14,050 | ||||||
| Net cash provided by (used in) financing activities |
111,454 | (8,263 | ) | |||||
| Effect of exchange rate fluctuations on cash and cash equivalents |
(1,016 | ) | 51 | |||||
| Net increase (decrease) in cash and cash equivalents |
162,390 | (263,846 | ) | |||||
| Cash and cash equivalents, beginning of period |
334,193 | 453,884 | ||||||
| Cash and cash equivalents, end of period |
$ | 496,583 | $ | 190,038 | ||||
| Supplemental Schedule of non-cash investing activities: |
||||||||
| Fair value of stock options and unvested awards assumed in exchange for acquired Foundry assets |
$ | — | $ | 254,312 | ||||
| (1) | As adjusted due to changes to the accounting for convertible debt instruments. |
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BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||||||
| January 30, 2010 |
January 24, 2009 (1) |
|||||||
| Net income (loss) on a GAAP basis |
$ | 51,095 | $ | (23,898 | ) | |||
| Adjustments: |
||||||||
| Stock-based compensation expense included in cost of revenues |
4,517 | 3,308 | ||||||
| Amortization of intangible assets expense included in cost of revenues |
17,850 | 11,968 | ||||||
| Legal fees associated with certain pre-acquisition litigation |
299 | — | ||||||
| Total gross margin adjustments |
22,666 | 15,276 | ||||||
| Legal fees associated with indemnification obligations and other related costs |
301 | 19,299 | ||||||
| Stock-based compensation expense included in research and development |
6,183 | 5,341 | ||||||
| Stock-based compensation expense included in sales and marketing |
8,096 | 6,190 | ||||||
| Stock-based compensation expense included in general and administrative |
2,727 | 3,242 | ||||||
| Amortization of intangible assets expense included in operating expenses |
17,052 | 13,229 | ||||||
| Acquisition and integration costs |
204 | 953 | ||||||
| In-process research and development |
— | 26,900 | ||||||
| Total operating expense adjustments |
34,563 | 75,154 | ||||||
| Total operating income adjustments |
57,229 | 90,430 | ||||||
| Loss on sale of property |
8,783 | — | ||||||
| Acquisition-related financing charges |
— | 4,366 | ||||||
| Interest expense related to adoption of new standards relating to convertible debt instruments |
2,142 | 1,922 | ||||||
| Income tax effect of adjustments |
(25,239 | ) | (9,265 | ) | ||||
| Non-GAAP net income |
$ | 94,010 | $ | 63,555 | ||||
| Non-GAAP net income per share – basic |
$ | 0.21 | $ | 0.17 | ||||
| Non-GAAP net income per share – diluted |
$ | 0.19 | $ | 0.15 | ||||
| Shares used in non-GAAP per share calculation – basic |
439,080 | 376,202 | ||||||
| Shares used in non-GAAP per share calculation – diluted |
496,346 | 415,781 | ||||||
| (1) | As adjusted due to changes to the accounting for convertible debt instruments. |
See explanation of non-GAAP information included herein.
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