Exhibit 99.1
[BROCADE LOGO]
BROCADE CONTACTS
MEDIA RELATIONS INVESTOR RELATIONS
Leslie Davis Shirley Stacy
Tel: 408.333.5260 Tel: 408.333.5752
lmdavis@brocade.com sstacy@brocade.com
BROCADE REPORTS SECOND QUARTER OF FISCAL 2004 RESULTS
REVENUES AND GROSS MARGINS INCREASE FOR FIFTH CONSECUTIVE QUARTER
SAN JOSE, CALIF. -- MAY 19, 2004 -- Brocade Communications Systems, Inc.
(Brocade(R)) (Nasdaq: BRCD) reported today financial results for its second
quarter of fiscal year 2004 (Q2 04) which ended May 1, 2004. Net revenues for Q2
04 were $145.6 million, a slight increase from $145.0 million reported in the
first quarter of fiscal year 2004 (Q1 04) and an increase of 11 percent from
$130.9 million reported in the second quarter of fiscal 2003 (Q2 03).
"In addition to delivering our fifth consecutive quarter of improvement in
revenue and gross margin, during the quarter we continued to execute on our long
term strategy by extending our product portfolio with four major product
introductions," said Greg Reyes, Brocade Chairman and CEO. "We also strengthened
the company's position across the entire spectrum of the SAN market and have set
the stage to accelerate the achievement of our previously stated financial model
targets by a full year."
Non-GAAP net income for Q2 04 was $8.1 million, or $0.03 per share, as compared
to non-GAAP net income of $8.0 million, or $0.03 per share, reported in Q1 04
and non-GAAP net loss of $1.1 million, or $(0.00) per share, reported in Q2 03.
Non-GAAP net income for Q2 04 excludes restructuring charges, settlement cost of
a claim associated with the acquisition of Rhapsody Networks, Inc. (Rhapsody),
deferred stock compensation expense related to Rhapsody, and gains on the
disposition of private strategic investments. Non-GAAP net income for Q1 04
excludes lease termination, facilities consolidation and other related costs,
deferred stock compensation expense related to the acquisition of Rhapsody, and
gains related to repurchases of convertible subordinated debt. Non-GAAP net loss
for Q2 03 excludes restructuring charges, in-process research and development,
and deferred stock compensation expense related to the acquisition of Rhapsody.
A reconciliation between GAAP and non-GAAP net income (loss) is contained in the
tables below.
BROCADE COMMUNICATIONS SYSTEMS, INC.
1745 Technology Dr. San Jose, CA 95110
T 408.333.8000 F 408.333.8101
www.brocade.com
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Reporting on a GAAP basis, net loss for Q2 04 was $2.0 million, or $(0.01) per
share. This compares to GAAP net loss for Q1 04 of $36.8 million, or $(0.14) per
share, and GAAP net loss for Q2 03 of $146.0 million, or $(0.57) per share.
NEXT PHASE OF BUSINESS MODEL OPTIMIZATION
Building on its continued positive financial performance, improved operational
efficiencies, and successful execution of product development programs, Brocade
today announced the next phase of its plan to optimize the company's business
model to drive improved profitability while sustaining revenue growth. This
phase of the plan encompasses organizational changes that include a reduction in
force of 110 employees, focusing of resources to better support OEM partners,
and continued investments in intelligent SAN switching technology. As a result,
Brocade will incur a $10.5 million restructuring charge for severance, asset
impairments, and contract terminations. [See today's press release: "Brocade
Announces Next Stage in Strategic Growth and Market Segmentation Plan"]
In addition, Brocade announced that it has recently settled a claim with former
Rhapsody shareholders regarding the Earn-Out Payment associated with the
Rhapsody merger agreement. As disclosed in Brocade's Form 10-K for the fiscal
year ended October 25, 2003 and Q1 04 Form 10-Q, Brocade did not issue the 2.9
million Earn Out shares because Brocade believed that the milestones for making
the Earn Out Payment were not met. "We continue to believe that the terms of the
contract were not met," said Reyes. "However, in the best interest of all
concerned, we determined it was better to settle than litigate in a costly and
protracted legal dispute." As a result of the settlement Brocade has recorded a
$6.9 million charge and will issue 1.3 million shares of common stock to the
former Rhapsody shareholders.
Q2 04 FINANCIAL HIGHLIGHTS
- Q2 04 net revenues of $145.6 million, relatively unchanged from Q1
04 and an increase of 11% from Q2 03
- Q2 04 gross margin increased to 55.3%, an improvement from 54.9% in
Q1 04 and 54.0% in Q2 03
- Non-GAAP earnings per share (EPS) was $0.03 for both Q2 04 and Q1
04, an improvement from $(0.00) in Q2 03
- Cash flow from operations increased to $35.4 million, compared to
negative $55.6 million in Q1 04. In Q1 04, excluding the $75.6
million charge for lease termination, facilities lease losses and
other related costs, cash flow from operations was $20.0 million.
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- Cash and investments as of the end of Q2 04 totaled $760.1 million.
- Day sales outstanding in accounts receivable were 53 days, compared
with 49 days Q1 04 and 46 days in Q2 03
Q2 04 BUSINESS HIGHLIGHTS
During Q2 04, Brocade introduced new product platforms for the entry-, mid-range
and enterprise portions of the SAN market. In addition, on May 11, Brocade
announced its first SAN module for the emerging bladed server opportunity in
conjunction with IBM. Highlights from these product announcements include:
- The SilkWorm 3250/3850 SAN switches for entry-level and mid-range
market segments. Offered with unique ease-of-use features and
multiple configuration options to achieve competitive price points,
these new products are generally available by EMC, HP, IBM,
StorageTek and Sun Microsystems.
- The SilkWorm 24000 Director, announced in conjunction with an
industry first Director Investment Protection Program that offers
an upgrade path to future technologies, multiple protocols, and
faster FC speeds, including 4 Gbit/sec and 10 Gbit/sec, without a
forklift upgrade.
- The May 2004 introduction of a 16-port "bladed" SAN switch module
for the IBM eSeries BladeCenter family.
- Brocade has now consolidated its product line to a single software
code base across all key products, reducing the complexity of
qualification and ongoing support for both Brocade and its OEM
partners. The new platforms also incorporate Brocade's fourth
generation ASIC design, contributing to low cost of goods and
reduced development costs to bring these products to market. These
successful product introductions significantly extend the Brocade
product line into existing and new areas of the SAN infrastructure
market, while making a significant contribution to new operational
efficiency via their common and leveraged designs.
CONFERENCE CALL
Brocade will host a conference call on Wednesday, May 19, 2004, at 2:00 p.m.
Pacific Time, 5:00 p.m. Eastern Time to discuss its second quarter of fiscal
year 2004 results and business consolidation. The
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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.
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 certain
gains, including the gain related to repurchases of our convertible subordinated
debt, net gains on the disposition of private strategic investments, and certain
costs, including settlement cost of an acquisition-related claim, certain
expenses relating to our acquisition of Rhapsody, the restructuring of business
operations, lease termination, and facilities consolidation, 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.
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 plans to accelerate the achievement of previously stated financial
model targets, and the extent to which new products actually
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build strong positions across the entire spectrum of the SAN market. 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 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; and our ability to protect
our intellectual property and defend against infringement claims. 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 and Form 10-Q for the fiscal quarter
ended January 24, 2004. Brocade expressly assumes no obligation to update any
such forward-looking statements.
###
Brocade, the Brocade B weave logo, Secure Fabric OS, and SilkWorm are registered
trademarks of Brocade Communications Systems, Inc., in the United States and/or
in other countries. FICON is a registered trademark of IBM Corporation in the
U.S. and 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.
PAGE 6
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ---------------------------------
MAY 1, APRIL 26, MAY 1, APRIL 26,
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Net revenues $ 145,579 $ 130,946 $ 290,619 $ 254,062
Cost of revenues 65,120 60,262 130,555 117,285
--------------- --------------- --------------- ---------------
Gross margin 80,459 70,684 160,064 136,777
Operating expenses:
Research and development 37,555 36,548 75,708 68,418
Sales and marketing 27,214 31,962 53,550 62,723
General and administrative 6,055 5,304 11,796 10,266
Settlement of an acquisition-related claim 6,943 -- 6,943 --
Amortization of deferred stock
compensation 127 212 311 281
In-process research and development -- 134,898 -- 134,898
Restructuring costs 10,461 10,888 10,093 21,006
Lease termination charge and other, net -- -- 75,591 --
--------------- --------------- --------------- --------------
Total operating expenses 88,355 219,812 233,992 297,592
--------------- --------------- --------------- ---------------
Loss from operations (7,896) (149,128) (73,928) (160,815)
Interest and other income, net 4,643 4,942 9,168 9,901
Interest expense (2,896) (3,362) (5,566) (6,712)
Gain on repurchases of convertible subordinated
debt -- -- 521 --
Gain on investments, net 396 155 396 529
--------------- --------------- --------------- ---------------
Loss before benefit from income taxes (5,753) (147,393) (69,409) (157,097)
Income tax benefit (3,775) (1,376) (30,672) (4,190)
--------------- --------------- --------------- ---------------
Net loss $ (1,978) $ (146,017) $ (38,737) $ (152,907)
=============== =============== =============== ===============
Net loss per share - Basic and Diluted $ (0.01) $ (0.57) $ (0.15) $ (0.62)
=============== =============== =============== ===============
Shares used in per share calculation - Basic and
Diluted 259,265 254,687 258,531 244,792
=============== =============== =============== ===============
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BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Q2 04 Q1 04 Q2 03
--------------- --------------- --------------
Net loss on a GAAP basis $ (1,978) $ (36,759) $ (146,017)
Adjustments:
Settlement of an acquisition-related claim 6,943 -- --
Amortization of deferred stock
compensation 127 184 212
In-process research and development -- -- 134,898
Restructuring costs 10,461 (368) 10,888
Lease termination charge and other, net -- 75,591 --
--------------- --------------- --------------
Total operating income adjustments 17,531 75,407 145,998
Gain on repurchases of convertible
subordinated debt -- (521) --
Gain on investments, net (396) -- (155)
Income tax effect (7,076) (30,154) (926)
--------------- --------------- ---------------
Non-GAAP net income (loss) $ 8,081 $ 7,973 $ (1,100)
=============== =============== ===============
GAAP net loss per share - basic and diluted $ (0.01) $ (0.14) $ (0.57)
=============== =============== ===============
Non-GAAP net income (loss) per share - diluted $ 0.03 $ 0.03 $ (0.00)
=============== =============== ===============
Shares used in non-GAAP per share calculation - diluted 263,607 261,688 254,687
=============== =============== ===============
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 certain
gains, including the gain related to repurchases of our convertible subordinated
debt, net gains on the disposition of private strategic investments, and certain
costs, including settlement cost of an acquisition-related claim, certain
expenses relating to our acquisition of Rhapsody, the restructuring of business
operations, lease termination, and facilities consolidation, 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.
PAGE 8
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MAY 1, OCTOBER 25,
2004 2003
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 227,643 $ 360,012
Short-term investments 350,072 57,971
--------------- ---------------
Total cash, cash equivalents, and short-term investments 577,715 417,983
Accounts receivable, net 79,456 74,935
Inventories, net 4,054 3,961
Deferred tax assets, net 27,238 29,569
Prepaid expenses and other current assets 13,457 14,593
--------------- ---------------
Total current assets 701,920 541,041
Long-term investments 182,431 417,582
Property and equipment, net 138,644 124,274
Deferred tax assets, net 265,690 231,203
Convertible subordinated debt issuance costs 5,145 6,288
Other assets 2,603 3,558
--------------- ---------------
Total assets $ 1,296,433 $ 1,323,946
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,442 $ 42,942
Accrued employee compensation 30,525 30,546
Deferred revenue 28,442 19,892
Current liabilities associated with lease losses 6,028 7,759
Other accrued liabilities 78,262 64,963
--------------- ---------------
Total current liabilities 174,699 166,102
Non-current liabilities associated with lease losses 19,342 16,518
Convertible subordinated debt 433,726 442,950
Stockholders' equity:
Common stock 738,518 725,511
Deferred stock compensation (1,647) (872)
Accumulated other comprehensive income 2,592 5,797
Accumulated deficit (70,797) (32,060)
--------------- ---------------
Total stockholders' equity 668,666 698,376
--------------- ---------------
Total liabilities and stockholders' equity $ 1,296,433 $ 1,323,946
=============== ===============