Brocade Communications Systems (BRCD) 8-K Brocade Delivers Record Fiscal Q1 Results

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 atwww.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 toir@brocade.com.

Other Q1 product, customer and partner announcements are available athttp://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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