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8-K - CURRENT REPORT ON FORM 8-K - BROCADE COMMUNICATIONS SYSTEMS INCd8k.htm
EX-99.2 - SLIDES WITH ACCOMPANYING PREPARED REMARKS - BROCADE COMMUNICATIONS SYSTEMS INCdex992.htm

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

   LOGO

Brocade Reports Q1 FY2011 Results

Strong performance in Storage Area Networking and International Ethernet Business

SAN JOSE, Calif., Feb. 17, 2011 — Brocade® (NASDAQ: BRCD) today reported financial results for its first fiscal quarter ended January 29, 2011. Brocade recorded quarterly revenues of $546 million, representing an increase of 1.2% year-over-year and resulting in diluted earnings per share (EPS) of $0.06 on a GAAP basis and $0.12 on a non-GAAP basis.

In the quarter, Brocade saw product revenue growth of nearly 5% sequentially in its storage networking business driven by strong Director product revenues and record Server product revenues. Brocade also saw its international Ethernet product revenue grow 30% sequentially led by its EMEA and Asia Pacific geographies, which helped offset the expected softness in Federal spending. Brocade exceeded its expectations for EPS and operating margin in the quarter.

“We are pleased with the results of Q1 and our ability to execute to our FY2011 Playbook,” said Michael Klayko, CEO of Brocade. “The industry’s first Ethernet fabric solutions that we began delivering in Q1 have been very well received by customers and the industry. These solutions will help enable our customers to rapidly migrate to virtualized data centers and serve as the building blocks for their cloud-based foundational architecture.”

In addition to this press release, Brocade management has posted prepared comments and slides on its Fiscal Q1 results and Fiscal Q2 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 Q1 product, customer and partner announcements are available at http://newsroom.brocade.com/.

Financial Highlights and Additional Financial Information

 

     Q1 2011     Q4 2010     Q1 2010  

Revenue

   $ 546M      $ 550M      $ 539M   

GAAP net income

   $ 27M      $ 23M      $ 51M   

Non-GAAP net income

   $ 61M      $ 66M      $ 94M   

GAAP EPS – diluted

   $ 0.06      $ 0.05      $ 0.11   

Non-GAAP EPS – diluted

   $ 0.12      $ 0.14      $ 0.19   

Non-GAAP gross margin (1)

     62.0     62.3     64.9

Non-GAAP operating margin

     17.1     20.4     26.0

Adjusted EBITDA (2)

   $ 114M      $ 128M      $ 155M   

Cash provided by operations

   $ 118M      $ 106M      $ 69M   

 

   

Q1 effective GAAP tax rate was (26.6)%; non-GAAP effective tax rate was 15.9%.

 

   

Q1 total Storage Area Networking (SAN) port shipments were approximately 1.2 million.

Please see important note of explanation on Non-GAAP measures below, including a detailed reconciliation between GAAP and Non-GAAP information in the tables included herein.

Brocade

130 Holger Way, San Jose, CA. 95134

T. 408.333.8000 F. 408.333.8101

www.brocade.com


     Q1 2011     Q4 2010     Q1 2010  

As a % of total revenues

      

OEM revenues

     66     61     71

Channel/Direct revenues

     34     39     29

10% or greater customer revenues

     47     44     54

Domestic revenues

     59     65     63

International revenues

     41     35     37

Data Storage Revenues

     61     57     65

Ethernet Products Revenues

     23     26     18

Global Services Revenue

     16     17     17

Ethernet Business Revenues (3)

     28     31     23

As a % of Ethernet Business Revenues (3):

      

Enterprise, including Federal

     74     75     80

Federal only

     13     23     13

Service Provider

     26     25     20
     Q1 2011     Q4 2010     Q1 2010  

Cash, cash equivalents and investments

   $ 416M      $ 336M      $ 501M   

Deferred revenues

   $ 265M      $ 251M      $ 236M   

Capital expenditures

   $ 23M      $ 46M      $ 47M   

Total debt, net of discount

   $ 892M      $ 930M      $ 1,176M   

Days sales outstanding

     46 days        54 days        47 days   

Employees at end of period

     4,721        4,651        4,114   

 

1) Q1 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.

 

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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.

Cautionary Statement

This press release contains statements that are forward-looking in nature, including statements regarding Brocade’s FY2011 Playbook and customer adoption of Brocade’s Ethernet fabric products and technologies.

 

Page 3 of 8


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, changes in IT spending levels in one or more of our target markets and geographical regions, Brocade’s ability to continue to successfully innovate new products and services on a timely basis and achieve widespread market acceptance, and the effect of increasing market competition and changes in the industry. Certain of these and other risks are set forth in more detail in “Item 1A. Risk Factors” in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 30, 2010. 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)

# # #

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.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended  
     Jan 29,
2011
    Jan 30,
2010
 

Net revenues

    

Product

   $ 457,290      $ 449,086   

Service

     88,727        90,406   
                

Total net revenues

     546,017        539,492   

Cost of revenues (1)

    

Product (1)

     177,616        165,776   

Service (1)

     47,257        44,578   
                

Total cost of revenues

     224,873        210,354   
                

Gross margin

     321,144        329,138   

Operating expenses:

    

Research and development

     91,408        90,081   

Sales and marketing (1)

     152,667        122,061   

General and administrative

     18,090        16,239   

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

     124        301   

Amortization of intangible assets

     16,190        17,052   

Acquisition and integration costs

     —          204   
                

Total operating expenses

     278,479        245,938   
                

Income from operations

     42,665        83,200   

Interest and other income (loss), net

     349        72   

Interest expense

     (21,546     (22,073

Loss on sale of investments and property, net

     (6     (8,828
                

Income before income tax provision (benefit)

     21,462        52,371   

Income tax provision (benefit)

     (5,717     1,276   
                

Net income

   $ 27,179      $ 51,095   
                

Net income per share – basic

   $ 0.06      $ 0.12   
                

Net income per share – diluted

   $ 0.06      $ 0.11   
                

Shares used in per share calculation – basic

     465,108        439,080   
                

Shares used in per share calculation – diluted

     491,166        484,262   
                

 

(1) Q1 2010 is as adjusted due to the reclassification of system engineer costs from cost of revenues to sales and marketing expenses.

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

     Jan 29,
2011
    Oct 30,
2010
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 414,183      $ 333,984   

Short-term investments

     2,020        1,998   
                

Total cash, cash equivalents and short-term investments

     416,203        335,982   

Accounts receivable, net

     277,478        329,564   

Inventories

     85,818        76,808   

Deferred tax assets

     67,137        67,080   

Prepaid expenses and other current assets

     64,829        65,017   
                

Total current assets

     911,465        874,451   

Property and equipment, net

     540,438        539,117   

Goodwill

     1,642,768        1,644,950   

Intangible assets, net

     313,343        344,000   

Non-current deferred tax assets

     216,299        203,454   

Other assets

     47,759        48,203   
                

Total assets

   $ 3,672,072      $ 3,654,175   
                

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 134,615      $ 147,130   

Accrued employee compensation

     86,570        91,688   

Deferred revenue

     199,310        185,623   

Current liabilities associated with facilities lease losses

     5,218        5,992   

Current portion of capital lease obligations

     1,761        1,761   

Current portion of term loan

     34,323        28,779   

Other accrued liabilities

     101,166        108,310   
                

Total current liabilities

     562,963        569,283   

Non-current capital lease obligations, net of current portion

     6,351        6,782   

Term loan, net of current portion

     254,417        297,118   

Senior Secured Notes

     595,478        595,373   

Non-current liabilities associated with facilities lease losses

     3,059        3,984   

Non-current deferred revenue

     66,173        65,242   

Non-current income tax liability

     63,132        61,421   

Other non-current liabilities

     8,912        8,671   
                

Total liabilities

     1,560,485        1,607,874   
                

Stockholders’ equity:

    

Common stock

     469        461   

Additional paid-in capital

     2,088,640        2,047,563   

Accumulated other comprehensive loss

     (5,805     (2,827

Retained earnings

     28,283        1,104   
                

Total stockholders’ equity

     2,111,587        2,046,301   
                

Total liabilities and stockholders’ equity

   $ 3,672,072      $ 3,654,175   
                

 

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BROCADE COMMUNICATIONS SYSTEMS, INC.

GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended Jan 29, 2011 and Jan 30, 2010

(in thousands)

(unaudited)

 

     Three Months Ended  
     Jan 29,
2011
    Jan 30,
2010
 

Cash flows from operating activities:

    

Net income

   $ 27,179      $ 51,095   

Adjustments to reconcile net income to net cash provided by

operating activities:

    

Depreciation and amortization

     52,522        51,012   

Loss on disposal of property and equipment

     176        8,813   

Amortization of debt issuance costs and original issue discount

     4,729        6,663   

Net (gains) losses on investments

     (16     168   

Provision for doubtful accounts receivable and sales allowances

     2,428        3,043   

Non-cash compensation expense

     19,906        21,523   

Capitalization of interest cost

     —          (3,315

Changes in assets and liabilities:

    

Restricted Cash

     —          2   

Accounts receivable

     49,812        18,104   

Inventories

     (10,319     (601

Prepaid expenses and other assets

     (3,018     4,982   

Deferred tax assets

     (6     —     

Accounts payable

     (18,582     (39,735

Accrued employee compensation

     (9,416     (67,155

Deferred revenue

     14,617        935   

Other accrued liabilities

     (10,076     16,036   

Liabilities associated with facilities lease losses

     (1,700     (2,463
                

Net cash provided by operating activities

     118,236        69,107   
                

Cash flows from investing activities:

    

Purchases of short-term investments

     (25     (24

Proceeds from maturities and sale of short-term investments

     19        1   

Proceeds from sale of property

     —          30,185   

Purchases of property and equipment

     (23,395     (47,317
                

Net cash used in investing activities

     (23,401     (17,155
                

Cash flows from financing activities:

    

Payment of principal related to the term loan

     (39,748     (506,545

Payment of principal related to capital leases

     (431     —     

Proceeds from Senior Secured Notes

     —          587,968   

Proceeds from issuance of common stock, net

     25,477        30,031   
                

Net cash provided by (used in) financing activities

     (14,702     111,454   
                

Effect of exchange rate fluctuations on cash and cash equivalents

     66        (1,016
                

Net increase in cash and cash equivalents

     80,199        162,390   

Cash and cash equivalents, beginning of period

     333,984        334,193   
                

Cash and cash equivalents, end of period

   $ 414,183      $ 496,583   
                

 

Page 7 of 8


BROCADE COMMUNICATIONS SYSTEMS, INC.

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME

(in thousands, except per share amounts)

(unaudited)

 

     Three Months Ended  
     Jan 29,
2011
    Jan 30,
2010
 

Net income on a GAAP basis

    

Adjustments:

   $ 27,179      $ 51,095   

Stock-based compensation expense included in cost of revenues

     2,860        2,913   

Amortization of intangible assets expense included in cost of revenues

     14,466        17,850   

Legal fees associated with certain pre-acquisition litigation

     77        299   
                

Total gross margin adjustments

     17,403        21,062   
                

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

     124        301   

Stock-based compensation expense included in research and development

     4,283        6,183   

Stock-based compensation expense included in sales and marketing

     8,792        9,700   

Stock-based compensation expense included in general and administrative

     3,971        2,727   

Amortization of intangible assets expense included in operating expenses

     16,190        17,052   

Acquisition and integration costs

     —          204   
                

Total operating expense adjustments

     33,360        36,167   
                

Total operating income adjustments

     50,763        57,229   

Loss on sale of property

     —          8,783   

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

     —          2,142   

Income tax effect of adjustments

     (17,208     (25,239
                

Non-GAAP net income

   $ 60,734      $ 94,010   
                

Non-GAAP net income per share – basic

   $ 0.13      $ 0.21   
                

Non-GAAP net income per share – diluted

   $ 0.12      $ 0.19   
                

Shares used in non-GAAP per share calculation – basic

     456,108        439,080   
                

Shares used in non-GAAP per share calculation – diluted

     491,166        496,346   
                

See explanation of non-GAAP information included herein.

 

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