SAN JOSE, Calif. (pts027/13.08.2008/17:10) - Sets New Company Record in Quarterly Revenue and Returns to Double-Digit Year-Over-Year Growth
Brocade(R) (Nasdaq: BRCD), the leader in data center networking solutions that help enterprises connect and manage their information, today reported financial results for its third fiscal quarter, which ended July 26, 2008.
Commenting on the Company's third quarter financial results, Michael Klayko, Brocade CEO, said, "We delivered record results this quarter as we returned to double-digit revenue growth through continued, outstanding operational execution. These results validate that our product roadmap and solutions address customer demand for high-performance, ultra-reliable networking in the next-generation data center. We believe that they also indicate that the fundamental market trends and customer demand drivers remain intact."
Third Fiscal Quarter 2008 Business Highlights
* Brocade announced its intent to acquire Foundry Networks, a performance and total solutions leader for network switching and routing. The acquisition will position Brocade as a leading provider of enterprise and service provider networking solutions, with innovative technology and product leadership from the Internet to the heart of data centers. The acquisition is subject to approval from Foundry stockholders, regulatory approvals and certain other closing conditions.
* Brocade's industry-leading DCX Backbone, in only its second full quarter of shipments, continues to exceed initial sales expectations. Industry analyst data from the Dell'Oro Group also showed Brocade's market share in the director segment climbed 5.5 percent over the previous quarter.
* Brocade's switch business set new revenue records, driven by a combination of strong worldwide demand for the 4-Gbit/Sec products and a robust initial ramp for the new 8-Gbit/Sec family. Brocade's top OEMs made these switches available during the quarter, which is expected to help expand market adoption of Brocade's switch products in Q4 and into 2009.
* Increase in professional services helped drive record revenue for Brocade's services business, as customers turn to Brocade as the trusted expert in the evolution of their data centers.
* Brocade announced the general availability of a new family of its 4- and 8-Gbit/Sec server host bus adapters (HBAs) that offers unique breakthroughs in terms of performance and end-to-end data center networking capabilities. Initial customer feedback has been very positive with early customer trials highlighting Brocade's performance and integrated feature-set advantages.
* Brocade and NetApp announced a collaborative development effort that will enable data center customers to encrypt corporate data more quickly and easily for increased security and compliance.
Third Fiscal Quarter 2008 Financial Highlights and Additional Financial Information
* Brocade achieved record revenue and double-digit annual growth in a typically slower period.
* In Q3, the Company achieved record revenue in its switch business, embedded blade switch product line and its Services Business Unit.
* The Company's total installed base of SAN ports was approximately 18.3 million.
* In Q3, Average Selling Price (ASP) declines were in the low single digits compared to Q2 08.
* Net stock-based compensation expense was $11.9 million and has been excluded from the Company's non-GAAP results.
* In Q3, Brocade repurchased approximately 4.7 million shares of the Company's common stock for approximately $38.1 million. As of the end of Q3 08, the Company had $414.1 million remaining under its $800 million total stock buyback program authorization. Since Q3 07 the company reduced the total number of shares outstanding by over 20M net, or by over 5%.
* Brocade's non-GAAP effective tax-rate was 32.3% in Q3, and its GAAP tax rate was 61.1%.
Q3 2008 Q2 2008 Q3 2007
Revenue $365.7 M $354.9 M $327.5 M
GAAP net income $20.3 M $91.4 M $10.7 M
GAAP EPS - diluted $0.05 $0.23 $0.03
Non-GAAP net income $61.2 M $59.7 M $49.5 M
Non-GAAP EPS - diluted $0.16 $0.15 $0.12
Non-GAAP gross margin 61.9% 61.1% 55.0%
Non-GAAP operating margin 22.6% 22.9% 19.2%
Cash flow from operations $71.7 M $119.1 M $36.3 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 Q3 2008 Q2 2008 Q3 2007
OEM revenues 86% 86% 84%
Channel/Direct revenues 14% 14% 16%
10% or greater customer
revenues (3) 62% 65% 64%
Domestic revenues 65% 62% 58%
International revenues(1) 35% 38% 42%
Service revenues 17% 17% 14%
Q3 2008 Q2 2008 Q3 2007
Cash and cash equivalents
and investments, net of
convertible debt $595.1 M $627.9 M $639.2 M
Deferred revenues $148.5 M $140.9 M $128.8 M
Capital expenditures(2) $94.2 M $14.1 M $14.0 M
(in dollars) $38.1 M $50.2 M $60.2 M
(in shares) 4.7 M 6.9 M 6.9 M
Days sales outstanding 43 days 43 days 45 days
Employees at end of period 2,842 2,759 2,376
(1) Ratio on a demand-basis was 40% for domestic and 60% for international
(2) In Q3, capital expenditures included approximately $80.2 million related to the construction of the company's new campus
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 allow 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'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 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 ongoing 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, net, (ii) acquisition and integration costs (in connection with the McDATA acquisition), (iii) legal fees associated with certain pre-acquisition litigation (in connection with the McDATA acquisition), (iv) gain/loss on sale of investments, (v) provision for class action lawsuit, and (vi) gain on termination of interest rate swap.
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) costs/benefits associated with facilities lease losses. 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 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 as well as the release of the valuation allowance in order to present a more meaningful measure of 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 net 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 2008 Conference Call and Webcast Information
Brocade management will host a conference call to discuss third quarter 2008 results on Wednesday, August 13, 2008 at 5:00 a.m. Pacific Time. To access the live webcast, please visit Brocade's website at http://www.brcd.com 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 8:00 a.m. Pacific Time on August 20, 2008. A replay of the conference call will be available via the webcast at http://www.brcd.com for approximately twelve months.
This press release contains statements that are forward-looking in nature, including statements regarding market dynamics, customer demand for the Company's product and service offerings and the proposed acquisition of Foundry Networks, Inc. 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 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 and to accurately forecast end-user demand; dependence on strategic partners; our ability to realize anticipated benefits from the proposed acquisition of Foundry Networks; 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 26, 2008. Brocade does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.
Brocade is the leading provider of data center networking solutions that help enterprises connect 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 Website at http://www.brocade.com or contact the company at firstname.lastname@example.org .
Brocade, the B-wing symbol, DCX, Fabric OS, File Lifecycle Manager, MyView, and StorageX are registered trademarks, and DCFM and SAN Health are trademarks 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.
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