Exhibit 99.1
BROCADE REPORTS FOURTH QUARTER AND FISCAL YEAR 2006 RESULTS
Q4 06 RECORD REVENUE OF $208.8 MILLION INCREASES 11% SEQUENTIALLY AND
44% YEAR-OVER-YEAR
SAN JOSE, Calif., Nov. 21 /PRNewswire-FirstCall/ -- Brocade Communications
Systems, Inc. (Brocade(R)) (Nasdaq: BRCD) today reported financial results for
its fourth quarter of fiscal year 2006 (Q4 06), which ended October 28, 2006.
Revenues for Q4 06 were a record $208.8 million. Revenues for Q4 06 increased
11% from $188.9 million reported in the third quarter of fiscal year 2006 (Q3
06) and increased 44% from $145.5 million reported in the fourth quarter of
fiscal year 2005 (Q4 05). Revenues for fiscal year 2006 (FY 06) were $750.6
million, an increase of 31% from $574.1 million reported in fiscal year 2005
(FY 05).
Commenting on the Company's fourth quarter and fiscal year 2006 results,
Michael Klayko, Brocade CEO, said, "Our fourth quarter was outstanding and a
very strong finish to fiscal 2006. Throughout the year we have continued to
execute well and I am proud of our team. Overall, we gained share across our
product family and solidified our leadership position. The success in our
Storage Area Network (SAN) business has helped us to drive returns this year
while at the same time allowing us to invest for future growth."
Reporting on a GAAP basis, net income for Q4 06 was $20.0 million, or $0.07
per share basic and diluted. This compares to GAAP net income for Q3 06 of $24.5
million, or $0.09 per share basic and diluted, and GAAP net income for Q4 05 of
$1.1 million, or $0.00 per share basic and diluted. Net income for FY 06 was
$67.6 million, or $0.25 per share basic and diluted as compared to net income
for FY 05 of $43.1 million, or $0.16 per share basic and diluted.
Non-GAAP net income for Q4 06 was $39.4 million or $0.15 per share basic and
$0.14 per share diluted, as compared to non-GAAP net income for Q3 06 of $31.0
million, or $0.11 per share basic and diluted, and non-GAAP net income for Q4 05
of $19.0 million, or $0.07 per share basic and diluted. Non-GAAP net income for
FY 06 was $122.8 million, or $0.46 per share basic and $0.45 per share diluted
as compared to non-GAAP net income for FY 05 of $69.3 million, or $0.26 per
share basic and diluted. 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 detailed
reconciliation between GAAP and non-GAAP information is contained in the tables
included herein.
Certain reclassifications have been made to prior year balances in order to
conform to the current year presentation.
Q4 06 Financial Highlights
-- Q4 06 non-GAAP gross margin was 62.1%, compared to non-GAAP gross margin
of 60.2% in Q3 06 and 55.3% in Q4 05.
-- Q4 06 non-GAAP operating margin was 21.5%, compared to non-GAAP operating
margin of 17.4% in Q3 06 and non-GAAP operating margin of 9.2% in Q4 05.
-- Q4 06 cash flow from operations was $52.8 million, compared to $26.3
million in Q3 06 and $39.4 million in Q4 05. Historically, the Company's
cash flows are seasonally stronger in the second and fourth fiscal
quarters and seasonally weaker in the first and third fiscal quarters due
to the timing of employee compensation programs.
-- Cash and investments at the end of Q4 06 were $582.6 million. This
compares to the cash and cash equivalents and investments balance,
including restricted short-term investments, net of the Company's
convertible debt at the end of each period, of $518.6 million and $485.5
million as of the end of Q3 06 and Q4 05, respectively. In Q4 06, the
Company redeemed its outstanding 2% convertible notes using restricted
short-term investments and no longer has outstanding debt.
-- Day sales outstanding in accounts receivable for Q4'06 were 43 days,
compared to 38 days in Q3 06 and 44 days in Q4 05.
-- For Q4 06, three customers, EMC, HP, and IBM, each accounted for 10% or
more of total revenues and together represented approximately 74% of
total revenues. The same three customers each accounted for 10% or more
of total revenues and together represented approximately 74% in Q3 06 and
71% in Q4 05 of total revenues.
-- As of October 28, 2006, the Company had 1,440 employees, compared with
1,399 employees as of July 29, 2006 and 1,160 employees as of October 29,
2005.
Q4 06 Business Highlights
During the quarter, news announcements highlighted the Company's continued
progress of its strategy for growth and diversification through product and
technology leadership.
-- Brocade announced that it had entered into a definitive agreement to
acquire McDATA Corporation. The acquisition is subject to obtaining
approval from both Brocade and McDATA stockholders, regulatory approvals
and certain other closing conditions.
-- Brocade announced two new executive appointments - Regan McGrath, as Vice
President of North America Sales and Senya Rahmil as Vice President of
Worldwide Customer Support. The new VP appointments underscore the
Company's continued and growing commitment to customer satisfaction.
-- Brocade introduced more than 20 new and enhanced products and services
that allow customers to more efficiently access corporate information,
consolidate resources, and manage their data center infrastructure. These
new and enhanced products cross over Brocade's SAN solutions, Brocade's
file management software solutions that address the emerging File Area
Network (FAN) market segment, and Brocade's growing professional services
business.
-- Brocade announced successful completion of the latest FICON qualification
for the Brocade SilkWorm(R) 48000 and Brocade SilkWorm(R) 4100.
-- Brocade was recognized for outstanding innovation in SAN product design,
delivering on its commitment to offer the most high-performance and
innovative storage networking products in the industry. The Brocade
SilkWorm(R) 4900 Switch claimed the Big Bytes award for the best storage
networking product in the SAN category.
-- Brocade announced the expansion of the Brocade SAN Health family. The
expanded SAN Health family provides SAN administrators with highly
effective tools and services for fast, easy, and comprehensive data
analysis and reporting to help optimize their Brocade and McDATA SAN
environments.
Conference Call
Brocade will host a conference call on November 21, 2006 at 2:00 p.m. PT
(5:00 p.m. ET) to discuss its fourth quarter results. The call will be audio
webcast live via the Internet at www.brocade.com/investors. A telephone replay
of the conference call will be available as soon as practicable after the call.
To access the telephone replay, dial (800) 642-1687 or (706) 645-9291, passcode:
1658228. A replay of the conference call will also be available via webcast at
www.brocade.com/investors for approximately twelve months.
Non-GAAP Financial Measures
This press release and the related conference call contain non-GAAP
financial measures. In evaluating the Company's performance, management uses
certain non-GAAP financial measures to supplement consolidated financial
statements prepared under GAAP.
Non-GAAP Earnings Measure. Management believes that the non-GAAP net income
measure used in this press release allows management to gain a better
understanding of the Company's comparative operating performance from
period-to-period and to its competitors' operating results. Management also
believes this non-GAAP measure helps indicate the Company baseline performance
before gains, losses or charges that are considered by management to be outside
on-going operating results. Accordingly, management uses this non-GAAP measure
for planning and forecasting of future periods and in making decisions regarding
operations performance and the allocation of resources. Management believes this
non-GAAP earnings measure, when read in conjunction with the Company's GAAP
financials, provides useful information to investors by offering:
-- the ability to make more meaningful period-to-period comparisons of the
Company's on-going operating results;
-- the ability to better identify trends in the Company's underlying
business and perform related trend analysis;
-- a better understanding of how management plans and measures the Company's
underlying business; and
-- an easier way to compare the Company'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
arose outside the ordinary course of our continuing operations. Management
believes that it is appropriate to evaluate the Company's operating performance
by excluding those items that are not indicative of ongoing operating results or
limit comparability. Such items include: (i) gains or losses on disposition of
marketable or equity investments, (ii) acquisition and integration related
expenses, (iii) costs associated with facilities lease losses, severance or
restructurings, (iv) gains or losses as well as call premium on debt redemption,
(v) legal fees associated with indemnification obligations, and costs of the
related SEC investigation and internal review, (vi) SEC settlement provision,
(vii) one-time warranty benefit, and (viii) fees and taxes related to the
repatriation of foreign earnings under the American Jobs Creation Act of 2004.
Management also excludes the following non-cash charges in determining
non-GAAP net income: (i) stock-based compensation, (ii) amortization of
purchased intangible assets and (iii) in-process research and development.
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. Further, management believes that excluding
stock-based compensation expense allows for a more accurate comparison of our
financial results to previous periods during which our equity-based awards were
not required to be reflected on our income statement. 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 both the Company's newly
acquired and long-held businesses. In addition, management believes it is
appropriate to exclude the in-process research and development expenses which
are related to acquisitions as opposed to the Company's ongoing operations.
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
on Non-GAAP net income.
General. These non-GAAP 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 the Company's GAAP
results. The non-GAAP financial measures the Company 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 income per share, and
should not be considered measures of the Company'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 measures reported
by other companies.
Cautionary Statement
This press release contains forward-looking statements, including statements
regarding customer demand for the Company's products, new product and service
offerings, and the Company's overall market strategy. 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,
demand for the Company's product and service offerings may decrease or not
continue to grow at the same pace; market acceptance of the Company's new
product and service offerings; increased market competition; the effect of
changes in IT spending levels; the Company's ability to anticipate future OEM
and end-user product needs or to accurately forecast end-user demand; the
ongoing SEC and DOJ investigation; dependence on a limited number of OEM
partners; and the Company's ability to manage its business effectively in a
rapidly evolving market. These and other risks are set forth in more detail in
the section entitled "Risk Factors" under Item 1A of Part II of the Company's
Quarterly Report on Form 10-Q for the quarter ended July 29, 2006. Brocade
assumes no obligation to update or revise any such forward-looking statements,
whether as the result of new developments or otherwise.
About Brocade Communications Systems, Inc.
Brocade delivers industry-leading platforms, solutions, and services for
intelligently connecting, managing, and optimizing IT resources in shared
storage environments. The world's premier systems, server, and storage providers
offer the Brocade SilkWorm family of Storage Area Network (SAN) connectivity
platforms as the foundation for shared storage in organizations of all sizes. In
addition, the Brocade Tapestry(TM) family of IT infrastructure solutions extends
the ability to proactively manage and optimize application and information
resources across the enterprise. Using Brocade solutions, organizations are
better positioned to reduce cost, manage complexity, and satisfy business
compliance requirements through optimized use and management of their IT
resources. For more information, visit the Brocade Web site at www.brocade.com
or contact the company at info@brocade.com.
NOTE: Brocade, the Brocade B weave logo, Fabric OS, File Lifecycle Manager,
MyView, Secure Fabric OS, SilkWorm, and StorageX are registered trademarks and
Tapestry is a trademark 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.
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Year ended
-------------------------- --------------------------
October 28, October 29, October 28, October 29,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net revenues $ 208,821 $ 145,516 $ 750,592 $ 574,120
Cost of revenues 81,172 64,949 305,184 251,161
----------- ----------- ----------- -----------
Gross margin 127,649 80,567 445,408 322,959
Operating expenses:
Research and development 43,427 35,068 164,843 132,448
Sales and marketing 38,752 26,285 139,434 101,202
General and administrative 7,566 6,866 31,089 25,189
Legal fees associated
with indemnification
obligations, SEC
investigation and
other related costs 3,475 5,201 13,654 14,027
Provision for SEC
settlement -- -- 7,000 --
Acquisition and
integration costs 9,061 -- 9,646 --
Amortization of
intangible assets 888 -- 2,294 --
Restructuring and
facilities lease losses -- (533) 3,775 (670)
In-process research
and development -- -- -- 7,784
----------- ----------- ----------- -----------
Total operating expenses 103,169 72,887 371,735 279,980
----------- ----------- ----------- -----------
Income from operations 24,480 7,680 73,673 42,979
Interest and other
income, net 6,705 6,054 29,098 22,656
Gain on repurchases
of convertible
subordinated debt -- -- -- 2,318
Interest expense (1,604) (1,997) (7,082) (7,693)
Gain (loss) on
investments, net -- (5,178) 2,663 (5,062)
----------- ----------- ----------- -----------
Income before provision
for income taxes 29,581 6,559 98,352 55,198
Income tax provision 9,624 5,503 30,723 12,077
----------- ----------- ----------- -----------
Net income $ 19,957 $ 1,056 $ 67,629 $ 43,121
=========== =========== =========== ===========
Net income per
share - Basic $ 0.07 $ 0.00 $ 0.25 $ 0.16
=========== =========== =========== ===========
Net income per
share - Diluted $ 0.07 $ 0.00 $ 0.25 $ 0.16
=========== =========== =========== ===========
Shares used in per share
calculation - Basic 269,027 269,679 269,602 268,176
=========== =========== =========== ===========
Shares used in per share
calculation - Diluted 276,113 270,311 274,142 270,260
=========== =========== =========== ===========
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
October 28, October 29,
2006 2005
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 274,368 $ 182,001
Short-term investments 267,694 209,865
----------- -----------
Total cash, cash equivalents, and
short-term investments 542,062 391,866
Restricted short-term investments -- 277,230
Accounts receivable, net 98,394 70,104
Inventories 8,968 11,030
Prepaid expenses and other current assets 43,365 19,908
----------- -----------
Total current assets 692,789 770,138
Long-term investments 40,492 95,306
Property and equipment, net 104,299 108,118
Goodwill 41,013 --
Intangible assets, net 15,628 --
Other assets 6,497 8,168
----------- -----------
Total assets $ 900,718 $ 981,730
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 56,741 $ 23,778
Accrued employee compensation 62,842 37,762
Deferred revenue 60,878 45,488
Current liabilities associated with lease losses 4,931 4,659
Other accrued liabilities 87,991 69,832
Convertible subordinated debt -- 278,883
----------- -----------
Total current liabilities 273,383 460,402
Non-current liabilities associated with
lease losses 11,105 12,481
Stockholders' equity
Common stock 889,250 855,833
Deferred stock compensation -- (3,180)
Accumulated other comprehensive loss (817) (3,974)
Accumulated deficit (272,203) (339,832)
----------- -----------
Total stockholders' equity 616,230 508,847
----------- -----------
Total liabilities and stockholders' equity $ 900,718 $ 981,730
=========== ===========
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(in thousands)
(unaudited)
Year ended
--------------------------
October 28, October 29,
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $ 67,629 $ 43,121
Adjustments to reconcile net income to net
cash provided by operating activities:
Excess tax benefit (provision) from
employee stock plans (15,792) 2,571
Depreciation and amortization 34,731 46,203
Loss on disposal of property and equipment 438 1,879
Amortization of debt issuance costs 1,430 1,366
Gain on repurchase of convertible
subordinated debt -- (2,318)
In-process research and development -- 7,784
Net (gains) losses on investments and
marketable equity securities (2,685) 5,178
Non-cash compensation expense (benefit) 31,407 377
Provision for doubtful accounts receivable
and sales returns 2,419 2,955
Provision for SEC settlement 7,000 --
Non-cash facilities lease loss expense
and restructuring 3,775 (670)
Changes in operating assets and liabilities:
Accounts receivable (30,137) 21,312
Inventories 2,062 (5,433)
Prepaid expenses and other assets (19,839) (245)
Accounts payable 32,963 (17,117)
Accrued employee compensation 25,080 4,432
Deferred revenue 15,390 10,602
Other accrued liabilities and long-term debt 15,858 9,113
Liabilities associated with lease losses (4,869) (5,245)
----------- -----------
Net cash provided by operating activities 166,860 125,865
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (30,430) (27,267)
Purchases of short-term investments (325,884) (254,642)
Proceeds from sale of marketable equity
securities and equity investments 10,185 --
Proceeds from maturities and sale of
short-term investments 363,873 618,063
Purchases of long-term investments (40,267) (202,764)
Proceeds from maturities and sale of
long-term investments -- 178,428
Proceeds from the maturities of
restricted short-term investments 281,414 (275,995)
Purchases of non-marketable minority
equity investments (4,575) (3,498)
Cash paid in connection with acquisitions,
net of cash acquired (27,856) (7,185)
Cash placed in escrow in connection with
acquisition of NuView (32,031) --
----------- -----------
Net cash used in investing activities 194,429 25,140
----------- -----------
Cash flows from financing activities:
Purchases of convertible subordinated debt -- (70,485)
Proceeds from issuance of common stock, net 34,255 29,720
Common stock repurchase program (40,206) (7,050)
Redemption of outstanding convertible debt (278,883) --
Excess tax benefit from employee stock plans 15,792 --
----------- -----------
Net cash used in financing activities (269,042) (47,815)
----------- -----------
Effect of exchange rate fluctuations on cash and
cash equivalents 120 (564)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 92,367 102,626
Cash and cash equivalents, beginning of period 182,001 79,375
----------- -----------
Cash and cash equivalents, end of period $ 274,368 $ 182,001
=========== ===========
BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(in thousands, except per share data)
(unaudited)
Q4 06 Q3 06 Q4 05
----------- ----------- -----------
Net income (loss) on a GAAP basis $ 19,957 $ 24,498 $ 1,056
Adjustments:
Stock-based compensation expense
included in cost of revenues 2,117 1,738 (83)
----------- ----------- -----------
Total gross margin adjustments 2,117 1,738 (83)
Legal fees associated with
indemnification obligations and
SEC investigation 3,475 2,990 5,201
Stock-based compensation expense
included in research and development 2,519 3,052 682
Stock-based compensation expense
included in sales and marketing 1,682 1,771 42
Stock-based compensation expense
included in general and administrative 688 876 18
Professional fees related to
repatriation of foreign earnings
included in general and administrative -- -- 384
Amortization of intangible assets 888 888 --
Integration costs 9,061 -- --
Restructuring costs -- -- (533)
----------- ----------- -----------
Total operating expense adjustments 18,313 9,577 5,794
----------- ----------- -----------
Total operating income
adjustments 20,430 11,315 5,711
Call premium on redeemed debt 1,115 -- --
(Gain) Loss on investments -- (2,685) 5,178
Income tax related to repatriation of
foreign earnings -- -- 4,334
Income tax effect of adjustments (2,076) (2,152) 2,673
----------- ----------- -----------
Non-GAAP net income $ 39,426 $ 30,976 $ 18,952
=========== =========== ===========
Non-GAAP net income per share - Basic $ 0.15 $ 0.11 $ 0.07
=========== =========== ===========
Non-GAAP net income per share - Diluted $ 0.14 $ 0.11 $ 0.07
=========== =========== ===========
Shares used in non-GAAP per share
calculation - Basic 269,027 269,417 269,679
=========== =========== ===========
Shares used in non-GAAP per share
calculation - Diluted 276,113 273,959 270,311
=========== =========== ===========
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 data)
(unaudited)
October 28, October 29,
2006 2005
----------- -----------
Net income (loss) on a GAAP basis $ 67,629 $ 43,121
Adjustments:
Stock-based compensation expense included in
cost of revenues 7,616 (530)
Warranty adjustment included in cost of revenue -- (1,853)
----------- -----------
Total gross margin adjustments 7,616 (2,383)
Legal fees associated with indemnification
obligations, internal review costs and
SEC investigation 13,654 14,027
SEC settlement provision 7,000 --
Stock-based compensation expense included
in research and development 10,709 292
Stock-based compensation expense included
in sales and marketing 6,313 (126)
Stock-based compensation expense included
in general and administrative 2,911 (186)
Professional fees related to repatriation
of foreign earnings included in general
and administrative -- 384
Severance included in general and administrative -- 117
Amortization of intangible assets 2,294 --
Acquisition and integration costs 9,646 --
Facilities lease loss adjustments and
restructuring 3,775 (670)
In-process research and development -- 7,784
----------- -----------
Total operating expense adjustments 56,302 21,622
----------- -----------
Total operating income adjustments 63,918 19,239
----------- -----------
Call premium on redeemed debt 1,115 --
Gain on repurchases of convertible
subordinated debt -- (2,318)
(Gain) Loss on investments (2,685) 5,062
Income tax related to repatriation of
foreign earnings -- 4,334
Income tax effect of adjustments (7,220) (177)
----------- -----------
Non-GAAP net income $ 122,757 $ 69,261
=========== ===========
Non-GAAP net income per share - Basic $ 0.46 $ 0.26
=========== ===========
Non-GAAP net income per share - Diluted $ 0.45 $ 0.26
=========== ===========
Shares used in non-GAAP per share
calculation - Basic 269,602 268,176
=========== ===========
Shares used in non-GAAP per share
calculation - Diluted 274,142 270,260
=========== ===========
See explanation of non-GAAP information included herein.
SOURCE Brocade Communications Systems, Inc.
-0- 11/21/2006
/CONTACT: Investor Relations, Shirley Stacy, +1-408-333-5752, or
sstacy@brocade.com, or Media Relations, Leslie Davis, +1-408-333-5260, or
lmdavis@brocade.com, both of Brocade Communications Systems, Inc./
/Web site: http://www.brocade.com /
(BRCD BRCD2)