Brocade Reports Fiscal Q4 2011 Results
Brocade Sets Company Revenue Records in Ethernet Business for Q4 and for FY 2011; Repurchases $200 Million in Stock in Q4
During the fourth quarter, Brocade generated strong operating cash flow of
Revenue for Brocade's Storage business, including products and services, was
Revenue for Brocade's Ethernet business, including products and services, was a record
"Brocade achieved outstanding results in Q4 that were led by record revenues for our Ethernet business, fast adoption of our 16 Gbps Fibre Channel products, improvements in profitability, and a record cash flow quarter from operations," said
In addition to this press release, Brocade management will host a conference call to discuss fiscal fourth quarter results and fiscal first quarter 2012 outlook today at
Other Q4 product, customer and partner announcements are available at http://newsroom.brocade.com/.
Financial Highlights and Additional Financial Information
Q4 2011 Q3 2011 Q4 2010 (1)
----------- ----------- -----------
Revenue $550M $503M $549M
GAAP net income (loss) $(4M) $2M $22M
Non-GAAP net income $79M $46M $65M
GAAP EPS - diluted $(0.01) $0.00 $0.05
Non-GAAP EPS - diluted $0.16 $0.09 $0.13
Non-GAAP gross margin 62.9% 61.8% 62.2%
Non-GAAP operating margin 21.0% 14.0% 20.2%
Adjusted EBITDA (2) $138M $91M $126M
Cash provided by operations $206M $11M $106M
- Q4 effective GAAP tax rate was 110.5% and non-GAAP effective tax rate was 22.9%.
- Q4 total Storage Area Networking (SAN) port shipments were approximately 1.1 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 Q4 2011 Q3 2011 Q4 2010 (1)
----------- ----------- -----------
OEM revenues 62% 61% 61%
Channel/Direct revenues 38% 39% 39%
10% or greater customer revenues 41% 43% 44%
Domestic revenues 62% 61% 65%
International revenues 38% 39% 35%
Data Storage Revenues 55% 55% 57%
Ethernet Products Revenues 29% 28% 26%
Global Services Revenue 16% 17% 17%
Ethernet Business Revenues (3) 34% 34% 31%
As a % of Ethernet Business Revenues
(3):
Enterprise, excluding Federal 57% 53% 52%
Federal 18% 15% 23%
Service Provider 25% 32% 25%
Q4 2011 Q3 2011 Q4 2010 (1)
----------- ----------- -----------
Cash, cash equivalents and short-term
investments $415M $473M $336M
Deferred revenues $270M $264M $251M
Capital expenditures $20M $26M $46M
Total debt, net of discount $789M $839M $930M
Days sales outstanding 41 days 54 days 53 days
Employees at end of period (4) 4,546 4,772 4,651
1) The Company's prior period financial results, including Q4 2010, have
been revised to reflect an immaterial correction identified in Q3 2011.
As a result of the revision, net income was decreased by $1.2 million
for the three months ended October 30, 2010 , $2.3 million for the year
ended October 30, 2010 , and $1.8 million for the six months ended April
30, 2011 .
2) Adjusted EBITDA is as defined in the Term Debt Credit Agreement.
3) Ethernet Business revenues include product and global services revenues.
4) The reduction of headcount from Q3 2011 includes the sale of Strategic
Business Systems, Inc., its wholly-owned subsidiary during Q4 2011.
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) provision or benefit from certain pre-acquisition litigation (ii) legal fees associated with certain pre-acquisition litigation, (iii) legal fees associated with indemnification obligations and other related costs, net, (iv) acquisition and integration costs, (v) loss on sale of property, (vi) interest expense related to the adoption of new standards relating to convertible debt instruments, (vii) original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing, and (viii) loss on sale of a subsidiary.
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 the networking industry, Brocade's strategy, Brocade's Ethernet and Storage solutions, and its routes to markets. 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, changes in IT spending levels in one or more of our target markets including the government sector, Brocade's ability to capitalize on new Brocade sales and marketing initiatives, including expanded go-to-market activities in our Ethernet business, customer acceptance of Brocade's Ethernet fabric solutions, 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
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, DCX, Fabric OS, and
© 2011 Brocade Communications Systems, Inc. All Rights Reserved.
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Fiscal Year Ended
---------------------- ----------------------
Oct 29, Oct 30, Oct 29, Oct 30,
2011 2010 2011 2010
---------- ---------- ---------- ----------
Net revenues
Product $ 460,993 $ 456,606 $1,789,814 $1,728,814
Service 89,479 92,023 357,628 362,339
---------- ---------- ---------- ----------
Total net revenues 550,472 548,629 2,147,442 2,091,153
Cost of revenues
Product 179,184 181,276 677,196 683,486
Service 43,773 44,079 186,712 176,547
---------- ---------- ---------- ----------
Total cost of revenues 222,957 225,355 863,908 860,033
---------- ---------- ---------- ----------
Gross margin 327,515 323,274 1,283,534 1,231,120
Operating expenses:
Research and development 83,733 88,943 354,401 354,260
Sales and marketing 145,523 145,586 608,513 534,458
General and administrative 16,330 18,129 69,506 67,848
Legal fees associated with
indemnification
obligations and other
related costs, net -- (666) 125 (163)
Amortization of intangible
assets 14,476 16,190 60,713 65,623
Acquisition and
integration costs -- -- -- 204
Restructuring costs and
facilities lease loss -- 1,059 -- 1,059
Loss on sale of subsidiary
(1) 12,756 -- 12,756 --
---------- ---------- ---------- ----------
Total operating expenses 272,818 269,241 1,106,014 1,023,289
---------- ---------- ---------- ----------
Income from operations 54,697 54,033 177,520 207,831
Interest and other income
(loss), net (81) (4,222) (378) (6,452)
Interest expense (13,481) (22,202) (97,838) (85,858)
Gain (loss) on sale of
investments and property,
net (13) 49 124 (8,551)
---------- ---------- ---------- ----------
Income before income tax
provision (benefit) 41,122 27,658 79,428 106,970
Income tax provision
(benefit) 45,446 5,431 28,818 (9,553)
---------- ---------- ---------- ----------
Net income (loss) $ (4,324) $ 22,227 $ 50,610 $ 116,523
========== ========== ========== ==========
Net income (loss) per share
- basic $ (0.01) $ 0.05 $ 0.11 $ 0.26
========== ========== ========== ==========
Net income (loss) per share
- diluted $ (0.01) $ 0.05 $ 0.10 $ 0.24
========== ========== ========== ==========
Shares used in per share
calculation - basic 474,975 456,597 474,259 446,996
========== ========== ========== ==========
Shares used in per share
calculation - diluted 474,975 485,672 497,030 482,741
========== ========== ========== ==========
1) The Company completed the sale ofStrategic Business Systems, Inc. , its wholly-owned subsidiary during Q4 2011. BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) Oct 29, Oct 30, 2011 2010 ----------- ----------- Assets Current assets: Cash and cash equivalents $ 414,202 $ 333,984 Short-term investments 774 1,998 ----------- ----------- Total cash, cash equivalents and short-term investments 414,976 335,982 Accounts receivable, net of allowances of$6,399 and$6,721 atOctober 29, 2011 and October 30, 2010, respectively 249,141 317,363 Inventories 74,172 76,808 Deferred tax assets 53,604 71,118 Prepaid expenses and other current assets 52,308 65,017 ----------- ----------- Total current assets 844,201 866,288 Long-term investments 1,218 -- Property and equipment, net 532,384 539,117 Goodwill 1,630,967 1,644,950 Intangible assets, net 214,697 344,000 Non-current deferred tax assets 210,028 203,454 Other assets 40,813 48,203 ----------- ----------- Total assets $ 3,474,308 $ 3,646,012 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 109,471 $ 147,130 Accrued employee compensation 118,298 91,688 Deferred revenue 201,421 185,623 Current liabilities associated with facilities lease losses 1,456 5,992 Current portion of capital lease obligations 1,866 1,761 Current portion of term loan 38,673 28,779 Other accrued liabilities 94,802 111,133 ----------- ----------- Total current liabilities 565,987 572,106 Non-current capital lease obligations, net of current portion 4,916 6,782 Term loan, net of current portion 148,185 297,118 Senior Secured Notes 595,803 595,373 Non-current liabilities associated with facilities lease losses 2,496 3,984 Non-current deferred revenue 69,024 65,242 Non-current income tax liability 63,593 61,421 Other non-current liabilities 10,166 8,581 ----------- ----------- Total liabilities 1,460,170 1,610,607 ----------- ----------- Stockholders' equity: Common stock 448 461 Additional paid-in capital 1,984,830 2,047,525 Accumulated other comprehensive loss (11,996) (2,827) Retained earnings (Accumulated deficit) 40,856 (9,754) ----------- ----------- Total stockholders' equity 2,014,138 2,035,405 ----------- ----------- Total liabilities and stockholders' equity $ 3,474,308 $ 3,646,012 =========== =========== BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months EndedOct 29, 2011 andOct 30, 2010 (in thousands) (unaudited) Three Months Ended ------------------------ Oct 29, Oct 30, 2011 2010 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (4,324) $ 22,227 Adjustments to reconcile net income to net cash provided by operating activities: Excess tax benefits or detriments from stock- based compensation (393) 3,157 Depreciation and amortization 50,899 51,531 Loss on disposal of property and equipment 278 574 Loss on sale of subsidiary 12,756 -- Amortization of debt issuance costs and original issue discount 1,259 4,681 Net losses (gains) on investments 8 (299) Provision for doubtful accounts receivable and sales allowances 1,286 3,105 Non-cash compensation expense 19,671 25,274 Non-cash facilities lease loss expense -- 513 Changes in assets and liabilities: Accounts receivable 39,759 (33,294) Inventories 4,258 10,716 Prepaid expenses and other assets 2,381 (2,973) Deferred tax assets (2,182) (835) Accounts payable (7,043) 3,701 Accrued employee compensation 22,400 (2,856) Deferred revenue 6,281 2,917 Other accrued liabilities 59,755 20,682 Liabilities associated with facilities lease losses (817) (2,399) ----------- ----------- Net cash provided by operating activities 206,232 106,422 ----------- ----------- Cash flows from investing activities: Purchases of short-term investments -- (12) Purchases of non-marketable minority equity investments -- (200) Proceeds from maturities and sale of short-term investments -- 1,467 Purchases of property and equipment (20,136) (45,651) Proceeds from sale of subsidiary, net 3,905 -- ----------- ----------- Net cash used in investing activities (16,231) (44,396) ----------- ----------- Cash flows from financing activities: Payment of fees related to the term loan (77) -- Payment of principal related to the term loan (50,000) (30,221) Common stock repurchases (200,654) -- Payment of principal related to capital leases (450) (679) Proceeds from issuance of common stock, net 3,819 11,710 Excess tax benefits or detriments from stock- based compensation 393 (3,157) ----------- ----------- Net cash used in financing activities (246,969) (22,347) ----------- ----------- Effect of exchange rate fluctuations on cash and cash equivalents (1,389) 1,768 ----------- ----------- Net increase (decrease) in cash and cash equivalents (58,357) 41,447 Cash and cash equivalents, beginning of period 472,559 292,537 ----------- ----------- Cash and cash equivalents, end of period $ 414,202 $ 333,984 =========== =========== BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For Fiscal Year Ended Oct 29, 2011 and Oct 30, 2010 (in thousands) (unaudited) Fiscal Year Ended ------------------------ Oct 29, Oct 30, 2011 2010 ----------- ----------- Cash flows from operating activities: Net income $ 50,610 $ 116,523 Adjustments to reconcile net income to net cash provided by operating activities: Excess tax benefits or detriments from stock- based compensation (312) (2,161) Depreciation and amortization 206,352 199,637 Loss on disposal of property and equipment 2,325 10,412 Loss on sale of subsidiary 12,756 -- Write off of debt issuance costs and original issue discount 25,465 -- Amortization of debt issuance costs and original issue discount 13,183 21,100 Net gains on investments (340) (523) Provision for doubtful accounts receivable and sales allowances 9,343 11,811 Non-cash compensation expense 83,076 101,625 Non-cash facilities lease loss expense -- 513 Capitalization of interest cost -- (7,755) Changes in assets and liabilities: Restricted Cash -- 12,502 Accounts receivable 53,561 (39,248) Inventories 1,327 (4,657) Prepaid expenses and other assets (1,688) 13,657 Deferred tax assets (2,158) (1,134) Accounts payable (38,917) (26,421) Accrued employee compensation 216 (100,826) Deferred revenue 19,579 15,420 Other accrued liabilities 20,878 (10,731) Liabilities associated with facilities lease losses (6,024) (11,231) ----------- ----------- Net cash provided by operating activities 449,232 298,513 ----------- ----------- Cash flows from investing activities: Purchases of short-term investments (38) (53) Purchases of non-marketable minority equity investments -- (200) Proceeds from maturities and sale of short-term investments 1,604 3,255 Proceeds from sale of property -- 30,185 Purchases of property and equipment (96,797) (201,621) Proceeds from sale of subsidiary, net 3,905 -- ----------- ----------- Net cash used in investing activities (91,326) (168,434) ----------- ----------- Cash flows from financing activities: Payment of principal related to the revolving credit facility -- (14,050) Payment of principal related to convertible subordinate debt -- (172,500) Proceeds from issuance of Senior Secured Notes -- 587,968 Payment of debt issuance costs related to the Senior Secured Notes -- (3,666) Payment of fees related to the term loan (1,167) -- Payment of principal related to the term loan (359,898) (583,029) Common stock repurchases (210,698) (25,004) Payment of principal related to capital leases (1,761) (1,173) Proceeds from issuance of common stock, net 97,152 81,593 Proceeds from term loan 198,950 -- Excess tax benefits or detriments from stock- based compensation 312 2,161 ----------- ----------- Net cash used in financing activities (277,110) (127,700) ----------- ----------- Effect of exchange rate fluctuations on cash and cash equivalents (578) (2,588) ----------- ----------- Net increase (decrease) in cash and cash equivalents 80,218 (209) Cash and cash equivalents, beginning of year 333,984 334,193 ----------- ----------- Cash and cash equivalents, end of year $ 414,202 $ 333,984 =========== =========== BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended ------------------------ Oct 29, Oct 30, 2011 2010 ----------- ----------- Net income (loss) on a GAAP basis $ (4,324) $ 22,227 Adjustments: Stock-based compensation expense included in cost of revenues 4,345 3,179 Amortization of intangible assets expense included in cost of revenues 14,090 14,466 Legal fees associated with certain pre- acquisition litigation 59 243 ----------- ----------- Total gross margin adjustments 18,494 17,888 ----------- ----------- Legal fees associated with indemnification obligations and other related costs, net -- (666) Stock-based compensation expense included in research and development 3,984 6,287 Stock-based compensation expense included in sales and marketing 8,987 11,420 Stock-based compensation expense included in general and administrative 2,355 4,389 Amortization of intangible assets expense included in operating expenses 14,476 16,190 Loss on sale of subsidiary 12,756 -- Restructuring costs and facilities lease losses, net -- 1,059 ----------- ----------- Total operating expense adjustments 42,558 38,679 ----------- ----------- Total operating income adjustments 61,052 56,567 Income tax effect of adjustments 22,018 (14,049) ----------- ----------- Non-GAAP net income $ 78,746 $ 64,745 =========== =========== Non-GAAP net income per share - basic $ 0.17 $ 0.14 =========== =========== Non-GAAP net income per share - diluted $ 0.16 $ 0.13 =========== =========== Shares used in non-GAAP per share calculation - basic 474,975 456,597 =========== =========== Shares used in non-GAAP per share calculation - diluted 485,895 485,672 =========== =========== 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 amounts) (unaudited) Fiscal Year Ended ------------------------ Oct 29, Oct 30, 2011 2010 ----------- ----------- Net income on a GAAP basis $ 50,610 $ 116,523 Adjustments: Stock-based compensation expense included in cost of revenues 15,606 13,552 Amortization of intangible assets expense included in cost of revenues 57,489 61,249 Provision for (benefit from) certain pre- acquisition litigation (14,335) 1,604 Legal fees associated with certain pre- acquisition litigation 443 573 ----------- ----------- Total gross margin adjustments 59,203 76,978 ----------- ----------- Legal fees associated with indemnification obligations and other related costs, net 125 (163) Stock-based compensation expense included in research and development 18,959 27,795 Stock-based compensation expense included in sales and marketing 36,068 45,233 Stock-based compensation expense included in general and administrative 12,442 15,046 Amortization of intangible assets expense included in operating expenses 60,713 65,623 Acquisition and integration costs -- 204 Loss on sale of subsidiary 12,756 -- Restructuring costs and facilities lease losses -- 1,059 ----------- ----------- Total operating expense adjustments 141,063 154,797 ----------- ----------- Total operating income adjustments 200,266 231,775 Loss on sale of property -- 8,737 Original issue discount and debt issuance costs of debt related to lenders that did not participate in refinancing 25,465 -- Interest expense related to adoption of new standards relating to convertible debt instruments -- 2,490 Income tax effect of adjustments (29,886) (75,418) ----------- ----------- Non-GAAP net income $ 246,455 $ 284,107 =========== =========== =========== =========== Non-GAAP net income per share - basic $ 0.52 $ 0.64 =========== =========== Non-GAAP net income per share - diluted $ 0.50 $ 0.58 =========== =========== Shares used in non-GAAP per share calculation - basic 474,259 446,996 =========== =========== Shares used in non-GAAP per share calculation - diluted 497,030 486,293 =========== =========== See explanation of non-GAAP information included herein.
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BROCADE CONTACTS Public RelationsJohn Noh Tel: 408-333-5108 jnoh@brocade.com Investor RelationsRobert Eggers Tel: 408-333-8797 reggers@brocade.com
Source: Brocade
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