TMCnet News
Brocade Delivers Record Fiscal Q4 and 2009 Results With 33% Year-Over-Year Annual Revenue GrowthSAN JOSE, Calif. --(Business Wire)-- Brocade (News - Alert)® (NASDAQ:BRCD) today reported financial results for its fourth fiscal quarter and full fiscal year ended October 31, 2009. Brocade's quarterly revenues increased 31 percent year-over-year to $521.8 million and annual revenues increased 33 percent year-over-year to over $1.95 billion. "Fiscal 2009 was a transformational year as Brocade became one of only two end-to-end networking solutions providers in the industry," said Michael Klayko, CEO of Brocade. "Brocade also delivered exceptionally strong year-over-year revenue growth and increased its account penetration in the Ethernet networking market while growing share in the storage networking market." Klayko continued, "In addition, Q4 saw tremendous momentum as we exceeded the Street's consensus non-GAAP EPS estimates for the seventeenth consecutive quarter, delivered the fastest sequential revenue growth of any large networking vendor, and generated strong cash flows. Looking at 2010, we expect to continue our momentum as we execute our strategy of delivering the highest levels of performance, quality, innovation and choice to the IT market." Brocade management has posted prepared comments and slides on its Fiscal Q4 and 2009 results and Fiscal 2010 outlook at www.BRCD.com in addition to this press release. Brocade will host a live webcast conference call to answer questions from investors and analysts at 5:00 a.m. Pacific time on November 24. Questions may be also submitted in advance to [email protected]. Other Q4 product, customer, and partner announcements are available at http://newsroom.brocade.com/. Financial Highlights and Additional Financial Information Fiscal year 2009 revenue was $1,952.9 million, increasing 33% over fiscal year 2008. Q4 revenue was $521.8 million, increasing 31% year-over-year and 6% sequentially. Q4 total Storage Area Networking (SAN) port shipments were approximately 1.0 million. Q4 SAN Average Selling Price (ASP) declines were in the low single digits. Q4 effective GAAP tax rate was (24.9)%; non-GAAP effective tax-rate was 25.3%. Q4 Adjusted EBITDA was $130.6 million, increasing from $119.3 million in Q3. Q4 non-GAAP operating margin was 22.7%, increasing from 20.3% in Q3. Q4 2009 Q3 2009 Q4 2008 Revenue $521.8 M $493.3 M $398.5 M GAAP net income (loss) $33.6 M $(21.0) M $35.6 M Non-GAAP net income $73.4 M $55.4 M $75.8 M GAAP EPS - diluted $0.07 ($0.05) $0.09 Non-GAAP EPS - diluted $0.15 $0.12 $0.20 Non-GAAP gross margin 59.5% 58.2% 64.1% Non-GAAP operating margin 22.7% 20.3% 26.2% Adjusted EBITDA (4) $130.6 M $119.3 M $142.1 M Cash provided by operations $155.3 M $16.6 M $168.6 M 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. As a % of total revenues Q4 2009 (3) Q3 2009 Q4 2008 OEM revenues 65% 63% 88% Channel/Direct revenues 35% 37% 12% 10% or greater customer revenues 46% 46% 65% Domestic revenues (1) 63% 64% 64% International revenues (1) 37% 36% 36% Data Storage Revenue 58% 58% 84% Ethernet Products Revenue 25% 24% 0% Stackable % of Ethernet Revenues (2) 30% 26% 28% Chassis % of Ethernet Revenues (2) 70% 74% 72% Enterprise % of Ethernet Revenues (2) 86% 83% 73% Service Providers % of Ethernet Revenues (2) 14% 17% 27% Global Services Revenue 17% 18% 16% Q4 2009 Q3 2009 Q4 2008 Cash, cash equivalents and investments $338.9 M $249.9 M $820.1 M Deferred revenues $235.4 M $230.1 M $141.2 M Capital expenditures - non-campus related $ 16.7 M $ 20.0 M $ 13.9 M Capital expenditures - campus related $ 27.8 M $ 24.8 M $ 4.7 M Total debt, net of discount $1,085 M $1,139 M $1,225 M Days sales outstanding 52 days 56 days 36 days Employees at end of period 4,070 3,866 2,834 1) Based on Brocade estimates of adjustment for partners taking delivery of internationally bound shipments in the United States, end-user demand was 53% domestic and 47% international. 2) On an "As If" combined Brocade basis with respect to Q4 2008. 3) Q4 2009 is the third full quarter of combined operations post acquisition of Foundry. 4) EBITDA adjusted for non cash expenses and legal fees and recoveries related to indemnification obligations. 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 net income and other non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade's comparative operating performance 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 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. 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 our 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 and recoveries associated with indemnification obligations to former directors and officers and other related costs, net, (ii) provision for class action lawsuit, (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 investments, and (vi) loss on impairment of portfolio investments. Management also excludes the following non-cash charges in determining non-GAAP net income: (i) stock-based compensation expense, (ii) amortization of purchased intangible assets, (iii) costs/benefits associated with restructuring costs and facilities lease losses, and (iv) goodwill and acquisition-related intangible assets impairment. 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. Management also believes that the expense associated with the goodwill and acquisition-related intangible assets impairment is appropriate to be excluded because we do not believe that this charge is indicative of future operating results and we believe that investors benefit from an understanding of our operating results without giving effect to it. 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 potential benefits of new or expanded partner relationships, and the integration of the Foundry acquisition. 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 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 Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 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: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 (News - Alert), 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. © 2009 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 Twelve Months Ended October 31, October 25, October 31, October 25, 2009 2008 2009 2008 Net revenues Product $ 432,394 $ 335,403 $ 1,615,511 $ 1,230,737 Services 89,361 63,095 337,415 236,200 Total net revenues 521,755 398,498 1,952,926 1,466,937 Cost of revenues Product 203,442 114,374 739,354 459,850 Services 47,466 38,987 180,072 146,715 Total cost of revenues 250,908 153,361 919,426 606,565 Gross margin 270,847 245,137 1,033,500 860,372 Operating expenses: Research and development 95,346 70,867 354,809 255,571 Sales and marketing 103,451 71,112 385,155 274,311 General and administrative 22,209 14,912 84,962 58,172 Legal fees and recoveries associated with indemnification obligations and other related costs, net (14,612 ) 26,274 23,941 48,673 Provision for class action lawsuit 160,000 Amortization of intangible assets 17,052 7,820 68,718 31,484 Acquisition and integration costs 333 682 5,127 682 Restructuring costs and facilities lease loss, net 3,208 2,329 2,731 In-process research and development 26,900 Goodwill and acquisition-related intangible assets impairment 53,306 Total operating expenses 223,779 194,875 1,005,247 831,624 Income from operations 47,068 50,262 28,253 28,748 Interest and other income/(expense), net 530 (796 ) (2,382 ) 26,867 Interest expense (20,681 ) (5,684 ) (91,281 ) (10,068 ) (Gain)/loss on sale of investments, net (27 ) 111 (602 ) (6,874 ) Loss on impairment of portfolio investments (8,751 ) (8,751 ) Income/(loss) before provision/(benefit) for income taxes 26,890 35,142 (66,012 ) 29,922 Income tax provision/(benefit) (6,707 ) (439 ) 10,573 (137,148 ) Net income/(loss) $ 33,597 $ 35,581 $ (76,585 ) $ 167,070 Net income/(loss) per share - Basic $ 0.08 $ 0.10 $ (0.19 ) $ 0.45 Net income/(loss) per share - Diluted $ 0.07 $ 0.09 $ (0.19 ) $ 0.43 Shares used in per share calculation - Basic 425,530 371,845 398,948 375,303 Shares used in per share calculation - Diluted 492,174 389,477 398,948 394,703 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) October 31, October 25, 2009 2008 Assets Current assets: Cash and cash equivalents $ 334,193 $ 453,884 Short-term investments 4,678 152,741 Restricted cash 12,502 Total cash, cash equivalents, short-term investments and restricted cash 351,373 606,625 Accounts receivable, net 297,819 158,935 Inventories 72,152 21,362 Deferred tax assets 84,629 104,705 Prepaid expenses and other current assets 79,302 49,931 Total current assets 885,275 941,558 Long-term marketable equity securities 177,380 Long-term investments 36,120 Restricted cash 1,075,079 Property and equipment, net 442,408 313,379 Goodwill 1,648,217 268,977 Intangible assets, net 470,872 220,567 Non-current deferred tax assets 185,713 227,795 Other assets 28,218 37,793 Total assets $ 3,660,703 $ 3,298,648 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 181,249 $ 167,660 Accrued employee compensation 160,832 107,994 Deferred revenue 174,870 103,372 Current liabilities associated with facilities lease losses 10,769 13,422 Liability associated with class action lawsuit 160,000 Revolving credit facility 14,050 Current portion of long-term debt 38,822 43,606 Convertible subordinated debt 171,822 Purchase commitments 17,011 17,332 Other accrued liabilities 88,252 88,472 Total current liabilities 857,677 701,858 Long-term debt, net of current portion 860,114 1,011,399 Non-current convertible subordinated debt 169,660 Non-current liabilities associated with facilities lease losses 10,150 15,007 Non-current deferred revenue 60,575 37,869 Non-current income tax liability 92,276 67,497 Other non-current liabilities 15,114 13,118 Stockholders' equity Common stock 1,872,482 1,393,299 Accumulated other comprehensive loss (5,920 ) (85,877 ) Accumulated deficit (101,765 ) (25,182 ) Total stockholders' equity 1,764,797 1,282,240 Total liabilities and stockholders' equity $ 3,660,703 $ 3,298,648 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended October 31, 2009 and October 25, 2008 (in thousands) (unaudited) Three Months Ended October 31, October 25, 2009 2008 Cash flows from operating activities: Net income $ 33,597 $ 35,581 Adjustments to reconcile net income to net cash provided by operating activities: Excess tax benefit from employee stock plans (192 ) (13,641 ) Depreciation and amortization 51,486 30,533 Loss on disposal of property and equipment 110 1,853 Amortization of debt issuance costs 4,182 319 Net losses on investments and marketable equity securities 27 8,839 Provision for doubtful accounts receivable and sales allowances 3,148 1,700 Non-cash compensation expense 35,714 7,515 Capitalization of interest cost (2,737 ) (970 ) Non-cash facilities lease loss benefit (105 ) Changes in assets and liabilities: Restricted cash (12,502 ) Accounts receivable 821 13,386 Inventories (18,560 ) (6,993 ) Prepaid expenses and other assets (2,716 ) 44,232 Deferred tax assets 2,440 (48,296 ) Accounts payable 30,815 39,353 Accrued employee compensation 27,425 33,768 Deferred revenue 5,376 (7,486 ) Other accrued liabilities (118 ) 31,308 Liabilities associated with facilities lease losses (3,004 ) (2,325 ) Net cash provided by operating activities 155,312 168,571 Cash flows from investing activities: Purchases of property and equipment (44,491 ) (18,603 ) Purchases of short-term investments (22 ) (2,053 ) Purchases of marketable equity securities (248,431 ) Proceeds from maturities and sale of short-term investments 1,056 107,547 Purchases of non-marketable minority equity investments (1,436 ) (Increase) decrease in restricted cash (1,075,079 ) Cash paid in connection with pending acquisition of Foundry Networks (News - Alert), Inc. (1,000 ) Net cash used in investing activities (43,457 ) (1,239,055 ) Cash flows from financing activities: Payment of principal related to the term loan (57,881 ) Common stock repurchases Excess tax benefit from employee stock plans 192 13,641 Proceeds from issuance of common stock, net 35,375 615 Proceeds from term loan 1,054,425 Net cash provided by (used in) financing activities (22,314 ) 1,068,681 Effect of exchange rate fluctuations on cash and cash equivalents 473 (3,712 ) Net increase (decrease) in cash and cash equivalents 90,014 (5,515 ) Cash and cash equivalents, beginning of period 244,179 459,399 Cash and cash equivalents, end of period $ 334,193 $ 453,884 BROCADE COMMUNICATIONS SYSTEMS, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Twelve Months Ended October 31, 2009 and October 25, 2008 (in thousands) (unaudited) Twelve Months Ended October 31, October 25, 2009 2008 Cash flows from operating activities: Net income (loss) $ (76,585 ) $ 167,070 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Release of valuation allowance (185,176 ) Excess tax benefit from employee stock plans 794 (16,146 ) Depreciation and amortization 196,573 120,178 Loss on disposal of property and equipment 1,478 3,181 Amortization of debt issuance costs 16,038 319 Net losses on investments and marketable equity securities 597 15,327 Provision for doubtful accounts receivable and sales allowances 12,681 6,614 Non-cash compensation expense 137,219 39,036 Capitalization of interest cost (9,093 ) (970 ) In-process research and development 26,900 Non-cash facilities lease loss benefit (339 ) (582 ) Asset impairment charge 53,306 Changes in assets and liabilities: Restricted cash (12,502 ) Accounts receivable (74,965 ) 17,143 Inventories 25,338 (3,345 ) Prepaid expenses and other assets 4,213 25,200 Deferred tax assets 3,091 (58,104 ) Accounts payable (11,052 ) 40,550 Accrued employee compensation (28,685 ) 30,242 Deferred revenue 26,454 10,185 Other accrued liabilities (5,543 ) 77,311 Liabilities associated with facilities lease losses (10,394 ) (9,538 ) Liability associated with class action lawsuit (160,000 ) 160,000 Net cash provided by operating activities 115,524 438,495 Cash flows from investing activities: Purchases of property and equipment (162,770 ) (144,071 ) Purchases of short-term investments (138 ) (169,016 ) Purchases of marketable equity securities (248,431 ) Proceeds from sale of marketable equity securities and equity investments 9,926 Proceeds from maturities and sale of short-term investments 155,986 448,385 Purchases of non-marketable minority equity investments (1,436 ) Purchases of long-term investments (37,731 ) Proceeds from maturities and sale of long-term investments 30,173 22,483 (Increase) decrease in restricted cash 1,075,079 (1,075,079 ) Cash paid in connection with pending acquisition of Foundry Networks, Inc. (1,000 ) Net cash paid in connection with acquisitions (1,297,482 ) (43,554 ) Net cash used in investing activities (199,152 ) (1,239,524 ) 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 (166,022 ) Common stock repurchases (168,293 ) Excess tax benefit from employee stock plans (794 ) 16,146 Proceeds from issuance of common stock, net 145,655 42,418 Proceeds from term loan 1,054,425 Proceeds from revolving credit facility 14,050 Net cash provided by (used in) financing activities (37,636 ) 944,696 Effect of exchange rate fluctuations on cash and cash equivalents 1,573 (5,538 ) Net increase (decrease) in cash and cash equivalents (119,691 ) 138,129 Cash and cash equivalents, beginning of period 453,884 315,755 Cash and cash equivalents, end of period $ 334,193 $ 453,884 BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET (News - Alert) INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended October 31, October 25, 2009 2008 Net income on a GAAP basis $ 33,597 $ 35,581 Adjustments: Stock-based compensation expense included in cost of revenues 7,062 1,616 Amortization of intangible assets expense included in cost of revenues 17,898 8,780 Provision for certain pre-acquisition litigation 14,335 Legal fees associated with certain pre-acquisition litigation 546 20 Total gross margin adjustments 39,841 10,416 Legal fees and recoveries associated with indemnification obligations and other related costs, net (14,612 ) 26,274 Stock-based compensation expense included in research and development 10,251 2,385 Stock-based compensation expense included in sales and marketing 12,934 2,325 Stock-based compensation expense included in general and administrative 5,468 1,189 Amortization of intangible assets expense included in operating expenses 17,052 7,820 Acquisition and integration costs 333 682 Restructuring costs and facilities lease loss benefit, net 3,208 Total operating expense adjustments 31,426 43,883 Total operating income adjustments 71,267 54,299 Loss on impairment of portfolio investments 8,751 Acquisition-related financing charges 4,736 Income tax effect of adjustments (31,502 ) (27,602 ) Non-GAAP net income $ 73,362 $ 75,765 Non-GAAP net income per share - basic $ 0.17 $ 0.20 Non-GAAP net income per share - diluted $ 0.15 $ 0.20 Shares used in non-GAAP per share calculation - basic 425,530 371,845 Shares used in non-GAAP per share calculation - diluted 492,174 389,477 See explanation of non-GAAP information included herein. BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS) (in thousands, except per share amounts) (unaudited) Twelve Months Ended October 31, October 25, 2009 2008 Net income (loss) on a GAAP basis $ (76,585 ) $ 167,070 Adjustments: Stock-based compensation expense included in cost of revenues 25,654 9,117 Amortization of intangible assets expense included in cost of revenues 65,803 37,400 Provision for certain pre-acquisition litigation 14,335 Legal fees associated with certain pre-acquisition litigation 546 2,339 Total gross margin adjustments 106,338 48,856 Legal fees and recoveries associated with indemnification obligations and other related costs, net 23,941 48,673 Provision for class action lawsuit 160,000 Stock-based compensation expense included in research and development 40,365 10,324 Stock-based compensation expense included in sales and marketing 48,820 10,652 Stock-based compensation expense included in general and administrative 22,380 8,944 Amortization of intangible assets expense included in operating expenses 68,718 31,484 Acquisition and integration costs 5,127 682 Restructuring costs and facilities lease losses (benefits), net 2,329 2,731 In-process research and development 26,900 Goodwill and acquisition-related intangible assets impairment 53,306 Total operating expense adjustments 291,886 273,490 Total operating income adjustments 398,224 322,346 Loss on sale of investments, net 6,004 Loss on impairment of portfolio investments 8,751 Acquisition-related financing charges 4,366 4,736 Income tax effect of adjustments (86,586 ) (248,001 ) Non-GAAP net income $ 239,419 $ 260,906 Non-GAAP net income per share - basic $ 0.60 $ 0.70 Non-GAAP net income per share - diluted $ 0.53 $ 0.67 Shares used in non-GAAP per share calculation - basic 398,948 375,303 Shares used in non-GAAP per share calculation - diluted 454,293 394,703 See explanation of non-GAAP information included herein. |
