Science & Technology
Science and TechnologyScience and Technology 
Fri, February 18, 2011
Thu, February 17, 2011
SAN JOSE, CA--(Marketwire - February 17, 2011) - Brocade® (
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.
As a % of total revenues Q1 2011 Q4 2010 Q1 2010 --------- --------- --------- 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.
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. 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® (
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.
BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended -------------------- Jan 29, Jan 30, 2011 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. BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) Jan 29, Oct 30, 2011 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 =========== =========== 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, Jan 30, 2011 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 ========= ========= BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended ------------------ Jan 29, Jan 30, 2011 2010 -------- -------- Net income on a GAAP basis $ 27,179 $ 51,095 Adjustments: 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.