EXHIBIT - 99.1
(BROCADE LOGO)
FOR IMMEDIATE RELEASE
BROCADE CONTACTS
INVESTOR RELATIONS MEDIA RELATIONS
Shirley Stacy Leslie Davis
Tel: 408-333-5752 Tel: 408-333-5260
sstacy@brocade.com lmdavis@brocade.com
BROCADE REPORTS FIRST QUARTER OF FISCAL 2004 RESULTS
REVENUES INCREASE 5% SEQUENTIALLY AND 18% YEAR OVER YEAR
SAN JOSE, CALIF. -- FEBRUARY 11, 2004 -- Brocade Communications Systems, Inc.
(Brocade(R)) (Nasdaq: BRCD) reported today financial results for its first
quarter of fiscal year 2004 (Q1 04) which ended January 24, 2004. Net revenues
for Q1 04 were $145.0 million, an increase of five percent from $137.8 million
reported in the fourth quarter of fiscal year 2003 (Q4 03) and an increase of 18
percent from $123.1 million reported in the first quarter of fiscal 2003 (Q1
03).
"Our first quarter was a good one and fiscal 2004 is off to an excellent start
for Brocade. During the first quarter, we saw revenue growth across our entire
business," said Greg Reyes, Brocade Chairman and CEO. "This represents our 4th
quarter in a row of improved revenue, gross margin and operating margin. With
our upcoming product cycle and improving trends in the storage sector, we
continue to be confident in our market position and future prospects."
Non-GAAP net income for Q1 04 was $8.0 million, or $0.03 per share, as compared
to non-GAAP net income of $4.6 million, or $0.02 per share, reported in Q4 03
and non-GAAP net income of $0.0 million, or $0.00 per share, reported in Q1 03.
Non-GAAP net income for Q1 04 excludes gains related to repurchases of
convertible subordinated debt, deferred stock compensation expense related to
the acquisition of Rhapsody Networks, Inc. (Rhapsody), and lease termination,
facilities consolidation and other related costs. Non-GAAP net income for Q4 03
excludes gains related to repurchases of convertible subordinated debt, a gain
on the disposition of private strategic investments, a reduction of previously
recorded restructuring costs, and deferred stock compensation expense related to
the acquisition of Rhapsody. Non-GAAP net income for Q1 03 excludes net gains on
the disposition of private strategic investments and restructuring costs
associated with a company-wide workforce reduction in Q1 03. A reconciliation
between GAAP and non-GAAP information is contained in the tables below.
BROCADE COMMUNICATIONS SYSTEMS, INC.
1745 Technology Dr. San Jose, CA 95110
T 408.487.8000 F 408.487.8101
www.brocade.com
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 2
Reporting on a GAAP basis, net loss for Q1 04 was $36.8 million, or $(0.14) per
share. This compares to GAAP net income for Q4 03 of $14.8 million, or $0.06 per
share, and GAAP net loss for Q1 03 of $6.9 million, or $(0.03) per share.
Q1 04 Financial Highlights
- - Q1 04 net revenues of $145.0 million, an increase of 5% from Q4 03 and 18%
from Q1 03
- - Q1 04 gross margin increased to 54.9%, an improvement from 54.6% in Q4 03
and 53.7% in Q1 03
- - Q1 04 non-GAAP operating income (loss) as a percentage of revenues
increased to 6.5%, an improvement from 4.0% in Q4 03 and (1.3%) in Q1 03.
Q1 04 GAAP operating loss as a percentage of revenues was 45.5%
- - Non-GAAP earnings per share (EPS) increased to $0.03, an improvement from
$0.02 in Q4 03 and $0.00 in Q1 03
- - Excluding the $75.2 million charge for lease termination, facilities lease
losses and other related costs, cash flow from operations increased to
$19.6 million in Q1 04, compared to $17.0 million in Q4 03. Q1 04 GAAP
cash flow used in operations was $55.6 million.
- - Cash and investments as of the end of Q1 04 totaled $731.2 million.
- - Day sales outstanding in accounts receivable were 49 days, an improvement
from 50 days in Q4 03 and 53 days in Q1 03
During Q1 04, Brocade purchased a building located at its San Jose, California,
headquarters for $106.8 million in cash, plus transaction costs. The 194,000
square foot facility, which houses a portion of the Company's engineering
organization and development, test and interoperability laboratories, was
previously leased. As a result of the building purchase, in the first quarter of
fiscal year 2004, Brocade recorded a non-recurring charge of $75.2 million
primarily related to lease termination, facilities lease losses and other
associated costs.
Also during Q1 04, Brocade purchased on the open market $9.2 million face value
of its two percent convertible subordinated notes. Brocade paid an average of
$0.93 cents on each dollar of face value for an aggregate cash purchase price of
$8.6 million, which resulted in a pre-tax gain of $0.5 million. As of January
24, 2004, the remaining convertible debt outstanding was $433.7 million.
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 3
The non-GAAP, formerly pro forma, information provided in this press release is
a supplement to, and not a substitute for, our financial results presented in
accordance with GAAP. The non-GAAP results exclude certain expenses and income
to provide what we believe is a more complete understanding of our underlying
operational results and trends. Specifically, we believe the non-GAAP results
provide useful information to both management and investors by excluding the
gain related to repurchases of our convertible subordinated debt, net gains on
the disposition of private strategic investments, certain expenses relating to
our acquisition of Rhapsody, the restructuring of business operations and lease
termination, facilities consolidation and other related costs that we believe
are not indicative of our core operating results. Further, these non-GAAP
results are one of the primary indicators management uses for planning and
forecasting of future periods. Brocade management refers to these non-GAAP
financial measures in making decisions regarding operational performance and to
facilitate internal comparisons to historical operating results and to
competitors' operating results. Non-GAAP financial measures should be considered
in addition to results prepared in accordance with GAAP, but should not be
considered a substitute for or superior to GAAP results.
CONFERENCE CALL
Brocade will host a conference call on Wednesday, February 11, 2004, at 2:00
p.m. Pacific Time, 5:00 p.m. Eastern Time to discuss its first quarter of fiscal
year 2004 results. The conference call will be webcast live via the Internet at
www.brocade.com/investors. A replay of the conference call will be available via
webcast for twelve months at www.brocade.com/investors.
ABOUT BROCADE COMMUNICATIONS SYSTEMS, INC.
Brocade (Nasdaq: BRCD) offers the industry's leading intelligent platform for
networking storage. The world's leading systems, applications, and storage
vendors have selected Brocade to provide a networking foundation for their SAN
solutions. The Brocade SilkWorm(R) family of fabric switches and software is
designed to optimize data availability and storage and server resources in the
enterprise. Using Brocade solutions, companies can simplify the implementation
of storage area networks, reduce the total cost of ownership of data storage
environments, and improve network and application efficiency. For more
information, visit the Brocade website at www.brocade.com or contact the company
at info@brocade.com.
CAUTIONARY STATEMENT
This press release contains forward-looking statements, as defined under Federal
Securities Laws. These forward-looking statements include statements regarding
the company's future revenue, earnings, profitability, market position, and
business prospects. These statements are just predictions and involve risks and
uncertainties, such that actual results may differ significantly. These risks
include, but are not limited to, quarterly and annual fluctuations in our
revenues and operating results; the effect of changes in
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 4
IT spending levels; the effect of competition, including pricing pressure; our
dependence on OEM partners; declines in the prices of our products and gross
margins; our ability to attain profitability; our ability to manage the
transition between new and older products; our ability to achieve market
acceptance of the Silkworm Fabric Application Platform product family; our
ability to develop new and enhanced products that achieve widespread market
acceptance; our failure to manage distribution channels, inventory levels and
relationships; risks associated with international political instability; our
failure to adequately anticipate future OEM and end-user product needs or to
accurately forecast end-user demand; risks associated with increased
international sales activity; the loss of our third-party contract
manufacturers; our dependence on sole source and limited source suppliers for
certain key components including ASICs, microprocessors, logic chips and
programmable logic devices; our failure to manage our business effectively in a
rapidly evolving market; the existence of undetected errors in our products; our
ability to retain and recruit qualified personnel; our ability to protect our
intellectual property and defend against infringement claims; and risks related
to our acquisition of Rhapsody. These and other risks are set forth in more
detail in the Company's reports on Form 10-K for the fiscal year ended October
25, 2003. Brocade expressly assumes no obligation to update any such
forward-looking statements.
###
Brocade, the B weave logo and SilkWorm are registered trademarks of Brocade
Communications Systems, Inc. or its subsidiaries in the United States 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. All products, plans, and dates are subject to change
without notice.
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 5
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 24, 2004
------------------------------------------
GAAP ADJUSTMENTS NON-GAAP
--------- ----------- ---------
Net revenues $ 145,040 $ -- $ 145,040
Cost of revenues 65,435 -- 65,435
--------- --------- ---------
Gross margin 79,605 -- 79,605
Operating expenses:
Research and development 38,153 -- 38,153
Sales and marketing 26,336 -- 26,336
General and administrative 5,741 -- 5,741
Amortization of deferred stock compensation 184 (184)(a) --
Lease termination, facilities
lease losses and other 75,223 (75,223)(c) --
--------- --------- ---------
Total operating expenses 145,637 (75,407) 70,230
--------- --------- ---------
Income (loss) from operations (66,032) 75,407 9,375
Interest and other income, net 4,525 -- 4,525
Interest expense (2,670) -- (2,670)
Gain on repurchases of convertible
subordinated debt 521 (521)(d) --
--------- --------- ---------
Income (loss) before provision for
(benefit from) income taxes (63,656) 74,886 11,230
Income tax provision (benefit) (26,897) 30,154(f) 3,257
--------- --------- ---------
Net income (loss) $ (36,759) $ 44,732 $ 7,973
========= ========= =========
Net income (loss) per share - basic $ (0.14) $ 0.03
========= =========
Net income (loss) per share - diluted $ (0.14) $ 0.03
========= =========
Shares used in per share calculation - basic 257,796 257,796
========= =========
Shares used in per share calculation - diluted 257,796 261,688
========= =========
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 6
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 25, 2003
------------------------------------------
GAAP ADJUSTMENTS NON-GAAP
--------- ----------- ---------
Net revenues $ 123,116 $ -- $ 123,116
Cost of revenues 57,023 -- 57,023
--------- --------- ---------
Gross margin 66,093 -- 66,093
Operating expenses:
Research and development 31,870 -- 31,870
Sales and marketing 30,761 -- 30,761
General and administrative 4,962 -- 4,962
Amortization of deferred stock compensation 69 -- 69
Restructuring costs 10,118 (10,118)(b) --
--------- --------- ---------
Total operating expenses 77,780 (10,118) 67,662
--------- --------- ----------
Loss from operations (11,687) 10,118 (1,569)
Interest and other income, net 4,959 -- 4,959
Interest expense (3,350) -- (3,350)
Gain on investments, net 374 (374)(d) --
--------- --------- ---------
Income (loss) before provision for
(benefit from) income taxes (9,704) 9,744 40
Income tax provision (benefit) (2,814) 2,826(f) 12
--------- --------- ----------
Net income (loss) $ (6,890) $ 6,918 $ 28
========= ========= =========
Net income (loss) per share - basic $ (0.03) $ 0.00
========= =========
Net income (loss) per share - diluted $ (0.03) $ 0.00
========= =========
Shares used in per share calculation - basic 234,898 234,898
========= =========
Shares used in per share calculation - diluted 234,898 237,766
========= =========
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 7
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JANUARY 24, OCTOBER 25,
2004 2003
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 235,994 $ 360,012
Short-term investments 212,489 57,971
----------- -----------
Total cash, cash equivalents, and short-term 448,483 417,983
investments
Accounts receivable, net 77,961 74,935
Inventories, net 4,034 3,961
Deferred tax assets, net 27,238 29,569
Prepaid expenses and other current assets 14,339 14,593
----------- -----------
Total current assets 572,055 541,041
Long-term investments 282,747 417,582
Property and equipment, net 151,411 124,274
Deferred tax assets, net 263,617 231,203
Convertible subordinated debt issuance costs 5,668 6,288
Other assets 3,256 3,558
----------- -----------
Total assets $ 1,278,754 $ 1,323,946
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,089 $ 42,942
Accrued employee compensation 26,456 30,546
Deferred revenue 22,062 19,892
Current liabilities associated with lease losses 6,087 7,759
Other accrued liabilities 65,358 64,963
----------- -----------
Total current liabilities 156,052 166,102
Non-current liabilities associated with lease
losses 20,584 16,518
Convertible subordinated debt 433,726 442,950
Stockholders' equity:
Common stock 732,021 725,511
Deferred stock compensation (688) (872)
Accumulated other comprehensive income 5,878 5,797
Accumulated deficit (68,819) (32,060)
----------- -----------
Total stockholders' equity 668,392 698,376
----------- -----------
Total liabilities and stockholders' equity $ 1,278,754 $ 1,323,946
=========== ===========
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RECONCILIATION OF GAAP TO NON-GAAP OPERATING RESULTS (*)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 25, 2003
------------------------------------------
GAAP ADJUSTMENTS NON-GAAP
--------- ----------- ---------
Net revenues $ 137,757 $ -- $ 137,757
Cost of revenues 62,594 -- 62,594
--------- --------- ---------
Gross margin 75,163 -- 75,163
Operating expenses:
Research and development 39,506 -- 39,506
Sales and marketing 24,630 -- 24,630
General and administrative 5,507 -- 5,507
Amortization of deferred stock
compensation 155 (155)(a) --
Restructuring costs (163) 163 (b) --
--------- --------- ---------
Total operating expenses 69,635 8 69,643
--------- --------- ---------
Income from operations 5,528 (8) 5,520
Interest and other income, net 4,221 -- 4,221
Interest expense (3,210) -- (3,210)
Gain on repurchases of convertible
subordinated debt 11,118 (11,118)(d) --
Gain on investments, net 3,121 (3,121)(e) --
--------- --------- ---------
Income before provision for income taxes 20,778 (14,247) 6,531
Income tax provision 6,022 (4,128)(f) 1,894
--------- --------- ---------
Net income $ 14,756 $ (10,119) $ 4,637
========= ========= =========
Net income per share - basic $ 0.06 $ 0.02
========= =========
Net income per share - diluted $ 0.06 $ 0.02
========= =========
Shares used in per share calculation - basic 256,983 256,983
========= =========
Shares used in per share calculation - diluted 260,369 260,369
========= =========
BROCADE REPORTS FIRST QUARTER FISCAL 2004 FINANCIAL RESULTS PAGE 9
(*) The non-GAAP, formerly pro-forma, information provided in this press
release is a supplement to, and not a substitute for, our financial
results presented in accordance with GAAP. The non-GAAP results exclude
certain expenses and income to provide what we believe is a more complete
understanding of our underlying operational results and trends.
Specifically, we believe the non-GAAP results provide useful information
to both management and investors by excluding the gain related to
repurchases of our convertible subordinated debt, net gains on the
disposition of private strategic investments, certain expenses relating to
our acquisition of Rhapsody, the restructuring of business operations and
lease termination, facilities consolidation and other related costs that
we believe are not indicative of our core operating results. Further,
these non-GAAP results are one of the primary indicators management uses
for planning and forecasting of future periods. Brocade management refers
to these non-GAAP financial measures in making decisions regarding
operational performance and to facilitate internal comparisons to
historical operating results and to competitors' operating results.
Non-GAAP financial measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a
substitute for or superior to GAAP results.
(a) Deferred stock compensation related to the acquisition of Rhapsody.
(b) Severance and related benefits, asset impairment charges, and contract
termination charges related to the restructuring of business operations.
(c) Lease termination, facilities lease losses and other related costs related
to a building purchase and facilities consolidation.
(d) Gain on repurchases of convertible subordinated debt.
(e) Net gains on the disposition of private strategic investments.
(f) Income tax effects associated with non-GAAP adjustments.