Brocade Reports Third Quarter Fiscal Year 2007 Results |
Margin Expansion Drives Improved Profitability
SAN JOSE, Calif., Aug. 23 /PRNewswire-FirstCall/ -- Brocade(R) (Nasdaq:
BRCD), the leader in networked storage solutions that help enterprises
connect and manage their information, today reported financial results for
its third quarter of fiscal year 2007 (Q3 07), which ended July 28, 2007.
Revenues for Q3 07 were $327.5 million, slightly above the Company's
preliminary results reported on August 8, 2007. Revenues for the quarter
decreased 5% from $345.3 million reported in the second quarter of fiscal
year 2007 (Q2 07) and increased 73% from $188.9 million reported in the
third quarter of fiscal year 2006 (Q3 06). Results for Q3 07 and Q2 07
reflect the acquisition of McDATA, which closed on January 29, 2007. The
Company's third fiscal quarter is typically one of two seasonally weaker
periods.
Commenting on the Company's third quarter results, CEO Michael Klayko
said, "Overall, we are very pleased with both our results and execution in
our third fiscal quarter. In just two quarters, we have met or exceeded the
vast majority of our target business metrics related to the acquisition of
McDATA, and have strengthened our combined profitability and business
fundamentals. We believe we are well positioned competitively and our
leadership position is unchanged."
Reporting on a GAAP basis, net income for Q3 07 was $10.7 million, or
$0.03 per share basic and diluted. This reflects an increase from GAAP net
income of $0.8 million, or $0.00 per share basic and diluted in Q2 07, and
a decrease of 56% from GAAP net income of $24.5 million, or $0.09 per share
basic and diluted in Q3 06, which was prior to the McDATA acquisition. The
increase from Q2 07 to Q3 07 primarily reflects higher gross margin, lower
operating expenses and a lower provision for income taxes on a GAAP basis.
Non-GAAP net income for Q3 07 was $49.5 million, or $0.13 per share
basic and $0.12 per share diluted. This reflects an increase of 6% from
non-GAAP net income of $46.6 million, or $0.12 per share basic and $0.11
per share diluted in Q2 07, and an increase of 60% from non-GAAP net income
of $31.0 million, or $0.11 per share basic and diluted in Q3 06. 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.
Q3 07 Financial Highlights and Additional Financial Information
Note: Q3 07 and Q2 07 figures include McDATA results. Other periods
shown do not include McDATA results.
-- In Q3 07, as a percent of total, OEM revenues were 84% and
Channel/Direct were 16%. This compares to 85% and 15%, respectively in
Q2 07 and 92% and 8%, respectively in Q3 06. Three OEM customers, EMC,
HP, and IBM, each accounted for 10% or more of total revenues and
together represented approximately 64% of total revenues in Q3 07. The
same three customers each accounted for 10% or more of total revenues
and together represented approximately 67% of total revenues in Q2 07
and 74% in Q3 06.
-- In Q3 07, as a percent of total, domestic revenue was 58% and
international was 42%. This compares to 65% and 35%, respectively in
Q2 07 and 65% and 35%, respectively, in Q3 06.
-- Service revenue accounted for 14% of total revenue in Q3 07, compared
with 13% of total revenue in Q2 07 and 8% of total revenue in Q3 06.
-- Q3 07 non-GAAP gross margin was 55.0%, compared to non-GAAP gross
margin of 53.4% in Q2 07 and 60.2% in Q3 06.
-- The Company's total installed base of SAN ports is approximately 14.1
million.
-- Sequential Average Selling Price (ASP) declines were in the low single
digits in Q3 07.
-- In Q3 07 net stock-based compensation expense was $9.7 million and has
been excluded from the Company's non-GAAP results.
-- Q3 07 non-GAAP operating margin was 19.2%, compared to non-GAAP
operating margin of 16.8% in Q2 07 and non-GAAP operating margin of
17.4% in Q3 06.
-- Q3 07 cash flow from operations was $36.3 million, compared to $46.2
million in Q2 07 and $26.3 million in Q3 06.
-- Cash and cash equivalents and investments at the end of Q3 07, net of
the Company's convertible debt, were $639.2 million, compared to $674.5
million at the end of Q2 07 and $518.6 million at the end of Q3 06.
-- In Q3 07, the Company repurchased $81.0 million of its common stock,
representing 9.4 million shares, compared with $59.9 million spent in
Q2 07 to repurchase 6.3 million shares. The Company has $132.7 million
remaining under its $300 million stock buyback authorizations.
-- Day sales outstanding in accounts receivable for Q3 07 were 45 days,
compared to 40 days in Q2 07 and 38 days in Q3 06.
-- Q3 07 capital expenditures were $14.0 million. This compares to $14.2
million in Q2 07 and $7.5 million in Q3 06.
-- As of July 28, 2007, the Company had 2,376 employees, compared with
2,440 employees as of April 28, 2007 and 1,399 employees as of July 29,
2006. The higher number of employees at the end of Q2 07 and Q3 07
compared to the end of Q3 06 reflects the acquisition of McDATA
Corporation, which closed during Q2 07.
Q3 07 Business Highlights:
-- During the quarter, news announcements from Brocade, its business
partners, and customers highlighted continued progress in global
markets, professional services, and technology leadership.
-- Brocade's global momentum continued to expand with the news that it has
opened a world-class research and development facility in Bangalore,
India. This opening will expand the Company's presence in India and
accelerate development of enhancements to its data center networking
and management solutions for global markets.
-- The Company announced that it has bolstered its Storage Area Network
(SAN) management solutions with greater analytic and reporting
capabilities in the Brocade SAN Health(TM) family of proactive
diagnostic utilities, including full support for mainframe FICON(R) and
McDATA SAN environments.
-- Further extending Brocade's position as an industry-leading SAN
technology provider, the Brocade 5000 Switch was added to the HP
B-Series portfolio of networked storage solutions.
-- During the quarter, Brocade Access Gateway became generally available
for IBM BladeCenter solutions. The new feature enables interoperability
between Brocade blade SAN switches and products from other SAN switch
and director manufacturers, while also simplifying SAN management and
reducing costs.
-- Brocade was recognized among the top finalists for the 2007 Microsoft
Partner of the Year Award in the Advanced Infrastructure Solutions,
Storage Solutions categories. The 2007 Microsoft Partner Program
Awards recognizes top Microsoft Partners delivering market-leading,
Microsoft-based solutions.
-- Brocade unveiled new capabilities that dramatically improve the backup
and recovery of critical data in IBM and Sun Microsystems mainframe
environments. These industry-first capabilities improve disaster
recovery and business continuity operations by enabling faster backup
of data to remote locations.
-- Brocade StorageX(R) was named as a finalist in eWeek's 7th Annual
Excellence Awards. Brocade StorageX is a Microsoft Windows-based FAN
solution, which was recognized for its ability to improve
enterprise-wide file data management
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.
Management believes that non-GAAP net income and other non-GAAP
measures 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 these non-GAAP measures help 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 these non-GAAP 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 earnings
measures, when read in conjunction with the Company's GAAP financials,
provide 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 arise 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)
legal fees associated with indemnification obligations to former employees
and other related costs, (ii) SEC investigation and other related costs,
(iii) acquisition and integration costs, (iv) gain on sale of investments
and (v) gain on termination of an interest rate swap agreement.
Management also excludes the following non-cash charges in determining
non-GAAP net income: (i) stock-based compensation 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. 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.
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.
Limitations. 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.
Third Quarter Fiscal 2007 Conference Call and Web Cast Information
Brocade management will host a conference call to discuss third quarter
fiscal 2007 results on Thursday, August 23, 2007 at 1:30 p.m. Pacific Time.
To access the live Web Cast, please visit Brocade's Website at
http://www.brocade.com/investors at least 20 minutes prior to the call to
download any necessary audio or plug-in software. A telephone replay will
be available approximately two hours after the conference ends and will be
available until 12:00 p.m. Pacific Time on August 30, 2007. A replay of the
conference call will be available via the Web Cast at
http://www.brocade.com/investors for approximately twelve months. To access
the replay, please dial 888-286-8010 for domestic access and +617-801-6888
for international callers; the access code for the telephone replay is
#44627068.
Cautionary Statement
This press release contains statements that are forward-looking in
nature, including statements regarding the Company's competitive position
and product and service offerings. 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 degree of market adoption of the Company's new product and service
offerings; 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; dependence on strategic
partners; expected synergies of the Company's acquisitions and anticipated
cost savings; and the Company'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 April 28, 2007. 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 is the leading provider of networked storage solutions that
help organizations connect, share, and manage their information.
Organizations that use Brocade products and services are better able to
optimize their IT infrastructures and ensure compliant data management. For
more information, visit the Brocade Web site at http://www.brocade.com or
contact the company at info@brocade.com.
Brocade, Brocade B weave logo, Fabric OS, File Lifecycle Manager,
McDATA, MyView, Secure Fabric OS, SilkWorm, and StorageX are registered
trademarks and the Brocade B-wing logo and Tapestry are 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.
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
July 28, July 29, July 28, July 29,
2007 2006 2007 2006
Net revenues
Product $282,855 $174,209 $790,509 $500,177
Services 44,600 14,738 106,370 41,594
Total net revenues 327,455 188,947 896,879 541,771
Cost of revenues
Product $131,862 $67,220 $345,153 $198,208
Services 29,805 9,813 73,724 25,804
Total cost of revenues 161,667 77,033 418,877 224,012
Gross margin 165,788 111,914 478,002 317,759
Operating expenses:
Research and development 54,085 42,534 154,780 121,416
Sales and marketing 57,200 35,501 155,150 100,682
General and administrative 12,536 8,426 33,511 23,523
Legal fees associated with
indemnification obligations
and other related costs 17,984 - 38,446 -
Acquisition and integration
costs 4,055 - 19,051 585
SEC investigation and
other related costs - 2,990 - 10,179
Provision for SEC settlement - - - 7,000
Amortization of intangible
assets 7,924 888 16,810 1,406
Facilities lease losses - - - 3,775
Total operating expenses 153,784 90,339 417,748 268,566
Income from operations 12,004 21,575 60,254 49,193
Interest and other income, net 10,913 8,133 29,157 22,391
Interest expense (2,683) (1,863) (4,741) (5,478)
Gain on investments 1,240 2,685 1,240 2,663
Income before provision for
income taxes 21,474 30,530 85,910 68,769
Income tax provision 10,784 6,032 41,058 21,098
Net income $10,690 $24,498 $44,852 $47,671
Net income per share - Basic $0.03 $0.09 $0.13 $0.18
Net income per share - Diluted $0.03 $0.09 $0.12 $0.17
Shares used in per share
calculation - Basic 392,450 269,417 353,627 269,794
Shares used in per share
calculation - Diluted 407,113 273,959 368,080 273,484
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
July 28, October 28,
2007 2006
Assets
Current assets:
Cash and cash equivalents $374,408 $274,368
Short-term investments 313,902 267,694
Total cash, cash equivalents, and 688,310 542,062
short-term investments
Accounts receivable, net 162,524 98,394
Inventories 21,770 8,968
Prepaid expenses and other current assets 43,511 43,365
Total current assets 916,115 692,789
Long-term investments 117,865 40,492
Property and equipment, net 200,978 104,299
Goodwill 434,489 41,013
Intangible assets, net 292,724 15,465
Other assets 26,146 6,660
Total assets $1,988,317 $900,718
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $131,250 $56,741
Accrued employee compensation 76,456 62,842
Deferred revenue 86,442 52,051
Current liabilities associated with lease losses 15,629 4,931
Purchase commitments 43,240 6,104
Income tax payable 56,594 39,076
Other accrued liabilities 59,485 42,811
Total current liabilities 469,096 264,556
Convertible subordinated debt 166,957 -
Non-current liabilities associated with
lease losses 21,802 11,105
Non-current deferred revenue 42,374 8,827
Other non-current liabilities 1,533 -
Stockholders' equity
Common stock 1,500,323 889,250
Accumulated other comprehensive loss 13,583 (817)
Accumulated deficit (227,351) (272,203)
Total stockholders' equity 1,286,555 616,230
Total liabilities and stockholders' equity $1,988,317 $900,718
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
For the Three Months Ended JULY 28, 2007 and JULY 29, 2006
(in thousands)
(unaudited)
Three Months Ended
July 28, July 29,
2007 2006
Cash flows from operating activities:
Net income $10,690 $24,498
Adjustments to reconcile net income to
net cash provided by operating activities:
Excess tax benefit from employee stock plans (8,959) (2,223)
Depreciation and amortization 28,758 8,522
Loss on disposal of property and equipment 609 108
Amortization of debt issuance costs - 446
Net (gains) losses on investments and - (2,685)
marketable equity securities
Non-cash compensation expense 9,714 8,468
Provision for doubtful accounts 1,453 814
receivable and sales returns
Changes in operating assets and liabilities:
Accounts receivable (12,381) (3,865)
Inventories 4,636 (936)
Prepaid expenses and other assets 6,920 (10,371)
Accounts payable 53,453 1,661
Accrued employee compensation (15,429) (2,617)
Deferred revenue 2,828 1,635
Other accrued liabilities (43,137) 4,047
Liabilities associated with lease losses (2,866) (1,178)
Net cash provided by operating activities 36,289 26,324
Cash flows from investing activities:
Purchases of property and equipment (13,939) (7,477)
Purchases of short-term investments (106,973) (121,079)
Proceeds from sales of property and equipment 1,336 -
Proceeds from sale of marketable equity
securities and equity investments - 10,185
Purchases of restricted short-term investments - (50)
Proceeds from maturities and sale of
short-term investments 210,326 109,971
Purchases of long-term investments (60,801) (684)
Proceeds from maturities and sale of
long-term investments 5,015 -
Proceeds from the maturities of
restricted short-term investments - 1,093
Purchases of non-marketable minority
equity investments (5,000) -
Decrease in restricted cash 6,583 -
Net cash provided (used)
in investing activities 36,547 (8,041)
Cash flows from financing activities:
Payments on capital lease obligations (5) -
Termination of interest rate swap (4,989) -
Common stock repurchases (81,009) (25,276)
Excess tax benefit from employees stock plans 8,959 2,223
Proceeds from issuance of common stock, net 14,970 8,166
Net cash provided (used) by financing
activities (62,074) (14,887)
Effect of exchange rate fluctuations on
cash and cash equivalents (192) 79
Net increase (decrease) in cash and cash equivalents 10,570 3,475
Cash and cash equivalents, beginning of period 363,838 181,009
Cash and cash equivalents, end of period $374,408 $184,484
BROCADE COMMUNICATIONS SYSTEMS, INC.
GAAP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
For the Nine Months Ended JULY 28, 2007 and JULY 29, 2006
(in thousands)
(unaudited)
Nine Months Ended
July 28, July 29,
2007 2006
Cash flows from operating activities:
Net income $44,852 $47,671
Adjustments to reconcile net income to net cash
provided by operating activities:
Excess tax benefit from employee stock plans (9,120) (8,810)
Depreciation and amortization 69,560 27,073
Loss on disposal of property and equipment 812 308
Amortization of debt issuance costs - 1,297
Net (gains) losses on investments and - (2,663)
marketable equity securities
Non-cash compensation expense 24,443 23,366
Provision for doubtful accounts 3,115 1,558
receivable and sales returns
Provision for SEC settlement - 7,000
Non-cash facilities lease loss expense - 3,775
Changes in operating assets and liabilities:
Accounts receivable 41,354 (10,045)
Inventories 51 1,871
Prepaid expenses and other assets (2,077) (13,308)
Accounts payable 32,515 12,124
Accrued employee compensation (37,701) 8,396
Deferred revenue 15,101 11,798
Other accrued liabilities (61,522) 6,193
Liabilities associated with lease losses (5,519) (3,586)
Net cash provided by operating activities 115,864 114,018
Cash flows from investing activities:
Purchases of property and equipment (41,526) (22,950)
Purchases of short-term investments (397,863) (259,263)
Proceeds of sales of property and equipment 1,336 -
Proceeds from sale of marketable equity
securities and equity investments - 10,185
Purchases of restricted short-term investments - (2,216)
Proceeds from maturities and sale of 588,159 245,455
short-term investments
Purchases of long-term investments (152,602) (13,252)
Proceeds from maturities and sale of 10,862 -
long-term investments
Proceeds from the maturities of - 2,859
restricted short-term investments
Purchases of non-marketable minority (5,000) (4,575)
equity investments
Cash paid in connection with
acquisitions, net of cash acquired (7,704) (59,887)
Decrease in restricted cash 12,422 -
Cash acquired on merger with McDATA 147,407 -
Net cash provided (used) in investing
activities 155,491 (103,644)
Cash flows from financing activities:
Payments on capital lease obligations (712) -
Common stock repurchases (140,883) (40,206)
Termination of interest swap (4,989) -
Redemption of outstanding convertible debt (124,185) -
Excess tax benefit from employees stock plans 9,120 8,810
Proceeds from issuance of common stock, net 90,670 23,328
Net cash provided (used) by
financing activities (170,979) (8,068)
Effect of exchange rate fluctuations on
cash and cash equivalents (336) 177
Net increase (decrease) in cash and cash equivalents 100,040 2,483
Cash and cash equivalents, beginning of period 274,368 182,001
Cash and cash equivalents, end of period $374,408 $184,484
BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
(in thousands, except per share data)
(unaudited)
Q3 07 Q2 07 Q3 06
Net income on a GAAP basis $10,690 $843 $24,498
Adjustments:
Stock-based compensation expense
included in cost of revenues 3,128 2,236 1,738
Amortization of intangible assets
expense included in cost of revenues 11,328 11,328 -
Total gross margin adjustments 14,456 13,564 1,738
Legal fees associated with
indemnification obligations and
other related costs 17,984 15,234 -
SEC investigation and other
related costs - - 2,990
Stock-based compensation expense
included in research and development 2,992 2,056 3,052
Stock-based compensation expense
included in sales and marketing 2,453 1,682 1,771
Stock-based compensation expense
included in general and
administrative 1,139 944 876
Amortization of intangible assets
expense included in operating expenses 7,924 7,977 888
Acquisition and integration costs 4,055 7,564 -
Total operating expense adjustments 36,547 35,457 9,577
Total operating income adjustments 51,003 49,021 11,315
Gain on termination of swap (367) - -
Gain on investments (895) - (2,685)
Income tax effect of adjustments (10,937) (3,250) (2,152)
Non-GAAP net income $49,494 $46,614 $30,976
Non-GAAP net income per share - Basic $0.13 $0.12 $0.11
Non-GAAP net income per share - Diluted $0.12 $0.11 $0.11
Shares used in non-GAAP per share
calculation - Basic 392,450 395,574 269,417
Shares used in non-GAAP per share
calculation - Diluted 407,113 411,989 273,959
See explanation of non-GAAP information included herein.
SOURCE Brocade
back to topRelated links:
CONTACT:
Media Relations, Leslie Davis,
+1-408-333-5260, lmdavis@brocade.com, or Investor Relations, Yin
Cantor, +1-408-333-5184, ycantor@brocade.com, both of Brocade; or
Ian Yellin of Ogilvy PR, +1-415-677-2714,
ian.yellin@ogilvypr.com, for Brocade
