Exhibit
Exhibit 99.1
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| | |
BROCADE CONTACTS | | |
Media Relations Ed Graczyk Tel: 408-333-1836 egraczyk@brocade.com | Investor Relations Michael Iburg Tel: 408-333-0233 miburg@brocade.com | |
Brocade Reports Fiscal Q3 2017 Results
SAN JOSE, Calif., August 24, 2017 — Brocade® (NASDAQ: BRCD) today reported financial results for its third fiscal quarter, ended July 29, 2017. Brocade reported third quarter revenue of $549 million, down 7% year-over-year and down 1% quarter-over-quarter. The Company reported a GAAP diluted loss per share of $0.05, down from GAAP diluted earnings per share (EPS) of $0.02 in Q3 2016 and down from a GAAP diluted loss per share of $0.03 in Q2 2017. The year-over-year and sequential decline in GAAP diluted EPS was due in part to lower revenue, estimated losses related to completed and pending divestitures of certain software product lines, higher acquisition and divestiture-related expenses, and restructuring expenses associated with a voluntary separation plan for certain eligible employees implemented in Q3 2017. Non-GAAP diluted EPS was $0.16 for Q3 2017, down from non-GAAP diluted EPS of $0.21 in Q3 2016 and up from non-GAAP diluted EPS of $0.10 in Q2 2017. The year-over-year decline in non-GAAP diluted EPS was primarily due to lower revenue, while the sequential improvement was primarily due to lower operating expenses resulting from lower headcount.
In light of the pending acquisition of Brocade by Broadcom Limited, Brocade will not provide fiscal Q4 2017 guidance and will not hold a conference call to discuss these financial results.
Key Financial Metrics:
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| | | | | | | | | | | | | | | | | |
| Q3 2017 | | Q2 2017 | | Q3 2016 | | Q3 2017 vs. Q2 2017 | | Q3 2017 vs. Q3 2016 |
Revenue | $ | 549 | M | | $ | 553 | M | | $ | 591 | M | | (1 | %) | | (7 | %) |
GAAP earnings (loss) per share—diluted | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | 0.02 |
| | 74 | % | | (296 | %) |
Non-GAAP EPS—diluted | $ | 0.16 |
| | $ | 0.10 |
| | $ | 0.21 |
| | 58 | % | | (23 | %) |
GAAP gross margin | 63.9 | % | | 62.0 | % | | 60.4 | % | | 1.9 | pts | | 3.5 | pts |
Non-GAAP gross margin | 66.8 | % | | 65.3 | % | | 66.5 | % | | 1.5 | pts | | 0.3 | pts |
GAAP operating margin | (3.6 | )% | | (1.1 | %) | | 3.5 | % | | (2.5 | ) pts | | (7.1 | ) pts |
Non-GAAP operating margin | 16.2 | % | | 11.1 | % | | 19.5 | % | | 5.1 | pts | | (3.3 | ) pts |
Please see important note of explanation about the use of non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
Highlights:
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• | SAN product revenue of $276 million was down 2% year-over-year. The decline was primarily the result of lower fixed-configuration and embedded switch sales, which declined 6% and 7%, respectively, partially offset by higher director sales, which increased 5% year-over-year. The year-over-year revenue performance was impacted by competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition of Brocade by Broadcom. Sequentially, SAN product revenue decreased 2%, consistent with historical seasonal revenue trends, with an 11% decline in director sales being partially offset by increased fixed-configuration and embedded switch sales of 3% and 14%, respectively. |
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• | IP Networking product revenue of $174 million, including $85 million of product revenue from Ruckus Wireless, was down 17% year-over-year. The decrease was primarily due to lower wired switch and router revenue partially offset by higher wireless revenue associated with the May 27, 2016 acquisition of Ruckus Wireless. The year-over-year increase in wireless revenue was primarily due to including only approximately two months of wireless revenue in the prior-year period. Sequentially, IP Networking product revenue was flat as higher wireless revenue was offset by lower wired switch and router revenue. The year-over-year and sequential declines in wired switch and router revenue were due, in part, to Broadcom’s planned divestiture of Brocade's IP Networking business. |
Board Declares Dividend:
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• | The Brocade Board of Directors has declared a regular fourth fiscal quarter cash dividend of $0.055 per share of the Company’s common stock. The dividend payment will be made on October 3, 2017, to stockholders of record at the close of market on September 11, 2017. |
Other Q3 2017 product, customer, and partner announcements are available at http://newsroom.brocade.com/.
Brocade (www.brocade.com)
130 Holger Way, San Jose, CA 95134
T. 408.333.8000 F. 408.333.8101
Financial Highlights and Additional Financial Information
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| | | | | | | | |
| Q3 2017 | | Q2 2017 | | Q3 2016 |
Routes to market as a % of total net revenues: | | | | | |
OEM revenues | 55 | % | | 55 | % | | 54 | % |
Channel/Direct revenues | 45 | % | | 45 | % | | 46 | % |
| | | | | |
10% or greater customer revenues | 37 | % | | 27 | % | | 23 | % |
Geographic split as a % of total net revenues (1): | | | | | |
Domestic revenues | 52 | % | | 50 | % | | 52 | % |
International revenues | 48 | % | | 50 | % | | 48 | % |
Segment split as a % of total net revenues: | | | | | |
SAN product revenues | 50 | % | | 51 | % | | 48 | % |
IP Networking product revenues | 32 | % | | 31 | % | | 35 | % |
Global Services revenues | 18 | % | | 18 | % | | 17 | % |
| | | | | |
SAN business revenues (2) | 60 | % | | 60 | % | | 57 | % |
IP Networking business revenues (2) | 40 | % | | 40 | % | | 43 | % |
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| | | | | | | | | | | |
Additional information: | Q3 2017 | | Q2 2017 | | Q3 2016 |
GAAP net income (loss) attributable to Brocade | $ | (20 | )M | | $ | (11 | )M | | $ | 10 | M |
Non-GAAP net income attributable to Brocade | $ | 69 | M | | $ | 43 | M | | $ | 92 | M |
GAAP operating income (loss) | $ | (20 | )M | | $ | (6 | )M | | $ | 21 | M |
Non-GAAP operating income | $ | 89 | M | | $ | 61 | M | | $ | 115 | M |
GAAP effective tax rate | 41.1 | % | | 44.2 | % | | (20.8 | %) |
Non-GAAP effective tax rate | 14.1 | % | | 16.1 | % | | 14.2 | % |
Cash and cash equivalents | $ | 1,179 | M | | $ | 1,300 | M | | $ | 1,153 | M |
Capital expenditures | $ | 9 | M | | $ | 8 | M | | $ | 17 | M |
Cash provided by (used in) operations | $ | (61 | )M | | $ | 108 | M | | $ | 28 | M |
Days sales outstanding | 48 days | | 43 days | | 43 days |
Employees at end of period | 4,979 | | 5,524 | | 5,948 |
SAN port shipments | 0.8 | M | | 0.8 | M | | 0.9 | M |
Share repurchases | $ | — |
| | $ | — |
| | $ | 661 | M |
Loss on sale and held for sale software product lines (3) | $ | 24 | M | | $ | — |
| | $ | — |
|
Please see important note of explanation about the use of non-GAAP financial measures below, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.
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(1) | Revenues are attributed to geographic areas based on known product delivery location. Since some OEM partners take delivery of Brocade products domestically and then ship internationally to their end users, the percentage of international revenues based on end-user location would likely be higher. |
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(2) | SAN and IP Networking business revenues include hardware and software product, support, and services revenues. |
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(3) | During the third quarter of fiscal year 2017, the Company committed to divest certain portions of its IP Networking business. The Company completed the divestiture of its virtual router product line, and signed purchase agreements to divest its virtual application delivery controller (“vADC”) and virtual evolved packet core (“vEPC”) product lines, which, in aggregate, resulted in an estimated loss of $24.3 million. The vADC and vEPC divestitures were not completed in the third quarter of fiscal year 2017, so the assets and liabilities associated with those divestitures were classified as held for sale on the Condensed Consolidated Balance Sheet as of July 29, 2017, at fair value less costs to sell through the date of sale, as summarized in the following table (in thousands): |
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| | | |
| July 29,
2017 |
Total current assets held for sale | $ | 26,279 |
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Total current liabilities held for sale | $ | 8,421 |
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Non-GAAP Financial Measures
To supplement financial information presented on a GAAP basis, Brocade provides information presented on a non-GAAP basis. These non-GAAP financial measures include non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP tax rate, non-GAAP net income, and non-GAAP EPS. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, financial information presented on a GAAP basis. 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. The most directly comparable GAAP information and a reconciliation between the GAAP and non-GAAP amounts is provided in the tables at the end of this press release.
Management believes that the non-GAAP financial measures used in this press release allow management to gain a better understanding of Brocade’s comparative operating performance, both from period to period and relative to its competitors. These non-GAAP financial measures also help with the determination of Brocade’s baseline performance before gains, losses or charges that are considered by management to be outside of ongoing operating results. Accordingly, management uses these non-GAAP financial measures for planning and forecasting of future periods and in making decisions regarding operations 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:
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• | the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results; |
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• | the ability to make more meaningful comparisons of Brocade’s operating performance relative to its competitors; |
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• | the ability to better identify trends in Brocade’s underlying business and to perform related trend analyses; and |
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• | a better understanding of how management plans and measures Brocade’s underlying business. |
In determining non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP tax rate, non-GAAP net income and non-GAAP EPS, management excludes certain gains or losses and benefits or costs that are the result of events that arise outside the ordinary course of Brocade’s 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, but are not limited to: (i) impact to cost of revenues from purchase accounting adjustments to inventory; (ii) acquisition, divestiture, and integration costs; (iii) the losses recognized or expected to be recognized in connection with certain software product line divestitures that were completed or became subject to binding divestiture agreements during the third fiscal quarter of 2017; (iv) restructuring charges; (v) certain costs associated with settlement of a Delaware Chancery Court appraisal proceeding commenced by a dissenting former stockholder of Ruckus Wireless, Inc.; and (vi) asset impairment charges associated with certain equity investments in non-publicly traded companies.
Management also excludes the following non-cash charges in determining these non-GAAP financial measures: (i) stock-based compensation expense; (ii) amortization of purchased intangible assets; and (iii) non-cash interest expense related to the convertible debt.
Management believes that the exclusion of stock-based compensation allows for more accurate comparisons of Brocade’s operating results to Brocade’s peer companies. This is due to the varying use of valuation methodologies and subjective assumptions and the variety of award types. In addition, the exclusion of the expense associated with the amortization of acquisition-related intangible assets is appropriate because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and the exclusion of amortization expense allows comparisons of operating results that are consistent over time for Brocade’s newly acquired and long-held businesses. In connection with the convertible debt, under the relevant accounting guidance, a non-cash interest expense is recognized for the convertible debt as an imputed interest expense for the conversion feature. Management believes excluding the non-cash interest expense related to the convertible debt from its non-GAAP financial measures is useful for investors because the expense does not represent a cash outflow in the respective reporting periods and is not indicative of ongoing operating performance.
Finally, management believes that it is appropriate to exclude the tax effects of the items noted above and (i) tax charges and benefits related to unusual or infrequent intercompany transactions; (ii) tax charges or benefits that are a result of the implementation of restructuring plans; and (iii) tax charges resulting from the integration of intellectual property assets from acquisitions. Management believes that the exclusion of these items from its non-GAAP tax provision provides a more meaningful measure of Brocade’s operational performance of non-GAAP net income and non-GAAP EPS.
Limitations: These non-GAAP financial measures have limitations because they do not include all items of income and expense that impact the company. In addition, these non-GAAP financial measures may not be comparable to similar measurements reported by other companies. Management compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. Management also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure, and management encourages investors to review carefully those reconciliations.
Forward-Looking Statements
This press release contains forward-looking statements including, but not limited to, statements regarding Brocade’s financial results, goals, plans, strategy, business outlook and prospects. These statements are based on current expectations as of the date of this press release and involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly. The risks, uncertainties and assumptions include, but are not limited to: the effect on Brocade of increasing market competition and changes in the industry; the impact on Brocade of conditions in the market for Storage Area Networking products; Brocade’s ability to execute on its sales strategy and plans for future operations; the impact on Brocade of macroeconomic trends and events and changes in IT spending levels; Brocade’s ability to introduce and achieve market acceptance of new products and support offerings on a timely basis; risks associated with Brocade’s international operations; and integration and other risks associated with acquisitions, divestitures and strategic investments. The risks, uncertainties and assumptions also include, but are not limited to: the risk that the proposed acquisition by Broadcom may not be completed in a timely manner or at all, which may adversely affect Brocade’s business and the price of the common stock of Brocade; the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the receipt of certain governmental and regulatory approvals; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the effect of the announcement or pendency of the proposed transaction on Brocade’s business relationships, operating results and business generally; risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction; risks related to diverting management’s attention from Brocade’s ongoing business operations; the outcome of legal proceedings that have been and may in the future be instituted against Brocade related to the merger agreement or the proposed transaction; and unexpected costs, charges or expenses resulting from the proposed transaction. Certain of these and other risks are set forth in more detail in Brocade’s Form 10-Q for the fiscal quarter ended April 29, 2017, and in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 29, 2016. 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) networking solutions help the world’s leading organizations turn their networks into platforms for business innovation. With solutions spanning public and private data centers to the network edge, Brocade is leading the industry in its transition to the New IP network infrastructures required for today’s world of digital business. (www.brocade.com)
Brocade and the B-wing symbol are registered trademarks of Brocade Communications Systems, Inc., in the United States and many other countries. Other brands, products, or service names mentioned herein may be trademarks of Brocade or others. Additional information about Brocade’s trademarks is available at: http://www.brocade.com/en/legal/brocade-Legal-intellectual-property/brocade-legal-trademarks.html.
© 2017 Brocade Communications Systems, Inc. All Rights Reserved.
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 29,
2017 | | July 30,
2016 | | July 29,
2017 | | July 30,
2016 |
| (In thousands, except per share amounts) |
Net revenues: | | | | | | | |
Product | $ | 449,549 |
| | $ | 490,995 |
| | $ | 1,385,273 |
| | $ | 1,400,355 |
|
Service | 99,717 |
| | 99,726 |
| | 298,209 |
| | 287,956 |
|
Total net revenues | 549,266 |
| | 590,721 |
| | 1,683,482 |
| | 1,688,311 |
|
Cost of revenues: | | | | | | | |
Product | 154,760 |
| | 188,492 |
| | 486,153 |
| | 464,797 |
|
Service | 43,361 |
| | 45,330 |
| | 136,301 |
| | 127,489 |
|
Total cost of revenues | 198,121 |
| | 233,822 |
| | 622,454 |
| | 592,286 |
|
Gross margin | 351,145 |
| | 356,899 |
| | 1,061,028 |
| | 1,096,025 |
|
Operating expenses: | | | | | | | |
Research and development | 117,116 |
| | 114,996 |
| | 360,164 |
| | 297,516 |
|
Sales and marketing | 153,712 |
| | 167,983 |
| | 506,228 |
| | 468,743 |
|
General and administrative | 27,614 |
| | 32,960 |
| | 92,127 |
| | 78,180 |
|
Settlement with dissenting stockholder of Ruckus Wireless, Inc. | 8,528 |
| | — |
| | 8,528 |
| | — |
|
Amortization of intangible assets | 5,822 |
| | 5,498 |
| | 20,998 |
| | 7,302 |
|
Acquisition, divestiture, and integration costs | 13,246 |
| | 14,868 |
| | 49,519 |
| | 20,625 |
|
Restructuring charges (benefits) | 17,801 |
| | — |
| | 17,801 |
| | (566 | ) |
Impairment of equity investments | 2,870 |
| | — |
| | 2,870 |
| | — |
|
Loss on sale and held for sale software product lines | 24,315 |
| | — |
| | 24,315 |
| | — |
|
Total operating expenses | 371,024 |
| | 336,305 |
| | 1,082,550 |
| | 871,800 |
|
Income (loss) from operations | (19,879 | ) | | 20,594 |
| | (21,522 | ) | | 224,225 |
|
Interest expense | (15,875 | ) | | (13,462 | ) | | (47,317 | ) | | (33,282 | ) |
Interest and other income, net | 2,580 |
| | 1,557 |
| | 5,136 |
| | 3,317 |
|
Income (loss) before income tax | (33,174 | ) | | 8,689 |
| | (63,703 | ) | | 194,260 |
|
Income tax expense (benefit) | (13,622 | ) | | (1,806 | ) | | (27,275 | ) | | 47,034 |
|
Net income (loss) | $ | (19,552 | ) | | $ | 10,495 |
| | $ | (36,428 | ) | | $ | 147,226 |
|
Less: Net loss attributable to noncontrolling interest | $ | (46 | ) | | $ | — |
| | $ | (274 | ) | | $ | — |
|
Net income (loss) attributable to Brocade Communications Systems, Inc. | $ | (19,506 | ) | | $ | 10,495 |
| | $ | (36,154 | ) | | $ | 147,226 |
|
Net income (loss) per share—basic attributable to Brocade Communications Systems, Inc. stockholders | $ | (0.05 | ) | | $ | 0.02 |
| | $ | (0.09 | ) | | $ | 0.36 |
|
Net income (loss) per share—diluted attributable to Brocade Communications Systems, Inc. stockholders | $ | (0.05 | ) | | $ | 0.02 |
| | $ | (0.09 | ) | | $ | 0.35 |
|
Shares used in per share calculation—basic | 411,898 |
| | 426,671 |
| | 408,494 |
| | 411,709 |
|
Shares used in per share calculation—diluted | 411,898 |
| | 434,416 |
| | 408,494 |
| | 419,416 |
|
| | | | | | | |
Cash dividends declared per share | $ | 0.055 |
| | $ | 0.055 |
| | $ | 0.165 |
| | $ | 0.145 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 29,
2017 | | July 30,
2016 | | July 29,
2017 | | July 30,
2016 |
| (In thousands) |
Net income (loss) | $ | (19,552 | ) | | $ | 10,495 |
| | $ | (36,428 | ) | | $ | 147,226 |
|
Other comprehensive income and loss, net of tax: | | | | | | | |
Unrealized gains (losses) on cash flow hedges: | | | | | | | |
Change in unrealized gains and losses | 209 |
| | (700 | ) | | 376 |
| | (1,035 | ) |
Net gains and losses reclassified into earnings | 363 |
| | 482 |
| | 799 |
| | 1,831 |
|
Net unrealized gains (losses) on cash flow hedges | 572 |
| | (218 | ) | | 1,175 |
| | 796 |
|
Foreign currency translation adjustments | 1,972 |
| | (1,628 | ) | | 2,635 |
| | (1,760 | ) |
Total other comprehensive income (loss) | 2,544 |
| | (1,846 | ) | | 3,810 |
| | (964 | ) |
Total comprehensive income (loss) | $ | (17,008 | ) | | $ | 8,649 |
| | $ | (32,618 | ) | | $ | 146,262 |
|
Less: Net loss attributable to noncontrolling interest | (46 | ) | | — |
| | (274 | ) | | — |
|
Less: Total other comprehensive income (loss) attributable to noncontrolling interest | 40 |
| | — |
| | (32 | ) | | — |
|
Total comprehensive income (loss) attributable to Brocade Communications Systems, Inc. | $ | (17,002 | ) | | $ | 8,649 |
| | $ | (32,312 | ) | | $ | 146,262 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | |
| July 29,
2017 | | October 29,
2016 |
| (In thousands, except par value) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,179,369 |
| | $ | 1,257,075 |
|
Accounts receivable, net of allowances for doubtful accounts of $1,818, and $1,736 as of July 29, 2017, and October 29, 2016, respectively | 291,989 |
| | 284,344 |
|
Inventories | 70,511 |
| | 69,355 |
|
Prepaid expenses and other current assets | 87,128 |
| | 62,236 |
|
Current assets held for sale | 26,279 |
| | — |
|
Total current assets | 1,655,276 |
| | 1,673,010 |
|
Property and equipment, net | 416,181 |
| | 455,326 |
|
Goodwill | 2,255,326 |
| | 2,295,184 |
|
Core/developed technology intangible assets, net | 193,959 |
| | 248,938 |
|
Other intangible assets, net | 159,041 |
| | 200,840 |
|
Non-current deferred tax assets | 40,057 |
| | 12,736 |
|
Other assets | 41,591 |
| | 53,777 |
|
Total assets | $ | 4,761,431 |
| | $ | 4,939,811 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 97,074 |
| | $ | 128,685 |
|
Accrued employee compensation | 144,622 |
| | 154,165 |
|
Deferred revenue | 198,704 |
| | 221,940 |
|
Current portion of long-term debt | 76,725 |
| | 76,692 |
|
Other accrued liabilities | 69,517 |
| | 113,170 |
|
Current liabilities held for sale | 8,421 |
| | — |
|
Total current liabilities | 595,063 |
| | 694,652 |
|
Long-term debt, net of current portion | 1,457,602 |
| | 1,502,063 |
|
Non-current deferred revenue | 85,055 |
| | 90,051 |
|
Non-current income tax liability | 92,582 |
| | 102,100 |
|
Other non-current liabilities | 4,330 |
| | 5,370 |
|
Total liabilities | 2,234,632 |
| | 2,394,236 |
|
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Brocade stockholders’ equity: | | | |
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding | — |
| | — |
|
Common stock, $0.001 par value, 800,000 shares authorized: | | | |
Issued and outstanding: 413,745 and 401,748 shares as of July 29, 2017, and October 29, 2016, respectively | 414 |
| | 402 |
|
Additional paid-in capital | 1,596,008 |
| | 1,514,730 |
|
Accumulated other comprehensive loss | (23,603 | ) | | (27,413 | ) |
Retained earnings | 951,592 |
| | 1,055,194 |
|
Total Brocade stockholders’ equity | 2,524,411 |
| | 2,542,913 |
|
Noncontrolling interest | 2,388 |
| | 2,662 |
|
Total stockholders’ equity | $ | 2,526,799 |
| | $ | 2,545,575 |
|
Total liabilities and stockholders’ equity | $ | 4,761,431 |
| | $ | 4,939,811 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | |
| Nine Months Ended |
| July 29,
2017 | | July 30,
2016 |
| (In thousands) |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (36,428 | ) | | $ | 147,226 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Excess tax benefits from stock-based compensation | — |
| | (1,778 | ) |
Depreciation and amortization | 118,365 |
| | 80,979 |
|
Loss on disposal of property and equipment | 3,506 |
| | 458 |
|
Loss on sale and held for sale software product lines | 24,315 |
| | — |
|
Net gain on sale of investments | — |
| | (122 | ) |
Amortization of debt issuance costs and debt discount | 15,571 |
| | 13,493 |
|
Provision (recovery) for doubtful accounts receivable and sales allowances | 8,914 |
| | (1,946 | ) |
Non-cash purchase accounting adjustments to inventory | 5,853 |
| | 20,775 |
|
Non-cash stock-based compensation expense | 94,471 |
| | 88,805 |
|
Impairment of equity investments | 2,870 |
| | — |
|
Changes in assets and liabilities, net of acquisitions and divestitures: | | | |
Accounts receivable | (16,558 | ) | | 988 |
|
Inventories | (6,044 | ) | | 5,601 |
|
Prepaid expenses and other assets | (16,029 | ) | | (9,725 | ) |
Deferred tax assets | 63 |
| | (109 | ) |
Accounts payable | (27,370 | ) | | 5,519 |
|
Accrued employee compensation | (56,803 | ) | | (57,520 | ) |
Deferred revenue | (20,900 | ) | | 5,359 |
|
Other accrued liabilities | (48,799 | ) | | (43,874 | ) |
Restructuring liabilities | (365 | ) | | (1,223 | ) |
Net cash provided by operating activities | 44,632 |
| | 252,906 |
|
Cash flows from investing activities: | | | |
Purchases of non-marketable equity and debt investments | — |
| | (2,000 | ) |
Proceeds from maturities and sale of short-term investments | — |
| | 150,323 |
|
Purchases of property and equipment | (28,618 | ) | | (59,810 | ) |
Net cash paid in connection with acquisitions | — |
| | (564,888 | ) |
Proceeds from collection of note receivable | 250 |
| | 250 |
|
Net proceeds from sale of software product line | 31,769 |
| | — |
|
Net cash provided by (used in) investing activities | 3,401 |
| | (476,125 | ) |
BROCADE COMMUNICATIONS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued (Unaudited) |
| | | | | | | |
| Nine Months Ended |
| July 29,
2017 | | July 30,
2016 |
| (In thousands) |
Cash flows from financing activities: | | | |
Payment of principal related to the term loan | (60,000 | ) | | — |
|
Payment of debt issuance costs | — |
| | (891 | ) |
Payment of principal related to capital leases | — |
| | (282 | ) |
Payment of accrued merger consideration to dissenting stockholder of Ruckus Wireless, Inc. | (41,280 | ) | | — |
|
Common stock repurchases | — |
| | (841,562 | ) |
Proceeds from issuance of common stock | 41,283 |
| | 49,195 |
|
Payment of cash dividends to stockholders | (67,448 | ) | | (61,706 | ) |
Proceeds from term loan | — |
| | 787,255 |
|
Proceeds from noncontrolling interest | — |
| | 2,550 |
|
Excess tax benefits from stock-based compensation | — |
| | 1,778 |
|
Net cash used in financing activities | (127,445 | ) | | (63,663 | ) |
Effect of exchange rate fluctuations on cash and cash equivalents | 1,706 |
| | (926 | ) |
Net decrease in cash and cash equivalents | (77,706 | ) | | (287,808 | ) |
Cash and cash equivalents, beginning of period | 1,257,075 |
| | 1,440,882 |
|
Cash and cash equivalents, end of period | $ | 1,179,369 |
| | $ | 1,153,074 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (Unaudited) |
| | | | | | | | | | | |
| Three Months Ended |
| July 29,
2017 | | April 29,
2017 | | July 30,
2016 |
| (In thousands, except per share amounts) |
Non-GAAP adjustments | | | | | |
Stock-based compensation expense included in cost of revenues | $ | 3,233 |
| | $ | 3,234 |
| | $ | 5,965 |
|
Amortization of intangible assets expense included in cost of revenues | 10,612 |
| | 12,679 |
| | 8,922 |
|
Purchase accounting adjustments to inventory | 1,932 |
| | 2,384 |
| | 20,775 |
|
Total gross margin impact from non-GAAP adjustments | 15,777 |
| | 18,297 |
| | 35,662 |
|
| | | | | |
Stock-based compensation expense included in research and development | 6,340 |
| | 6,631 |
| | 9,206 |
|
Stock-based compensation expense included in sales and marketing | 8,503 |
| | 9,779 |
| | 17,756 |
|
Stock-based compensation expense included in general and administrative | 5,709 |
| | 6,645 |
| | 11,716 |
|
Settlement with dissenting stockholder of Ruckus Wireless, Inc. | 8,528 |
| | — |
| | — |
|
Amortization of intangible assets expense included in operating expenses | 5,822 |
| | 7,582 |
| | 5,498 |
|
Acquisition, divestiture, and integration costs | 13,246 |
| | 18,236 |
| | 14,868 |
|
Restructuring charges | 17,801 |
| | — |
| | — |
|
Impairment of equity investments | 2,870 |
| | — |
| | — |
|
Loss on sale and held for sale software product lines | 24,315 |
| | — |
| | — |
|
Total operating income impact from non-GAAP adjustments | 108,911 |
| | 67,170 |
| | 94,706 |
|
| | | | | |
Convertible debt interest | 4,068 |
| | 4,018 |
| | 3,871 |
|
Effects of certain intercompany transactions on the tax provision | — |
| | — |
| | 7,436 |
|
Income tax effect of non-GAAP adjustments | (24,875 | ) | | (17,029 | ) | | (24,506 | ) |
Total net income impact from non-GAAP adjustments | $ | 88,104 |
| | $ | 54,159 |
| | $ | 81,507 |
|
| | | | | |
Gross margin reconciliation | | | | | |
GAAP gross margin | $ | 351,145 |
| | $ | 342,760 |
| | $ | 356,899 |
|
Total gross margin impact from non-GAAP adjustments | 15,777 |
| | 18,297 |
| | 35,662 |
|
Non-GAAP gross margin | $ | 366,922 |
| | $ | 361,057 |
|
| $ | 392,561 |
|
GAAP gross margin, as a percentage of total net revenues | 63.9 | % | | 62.0 | % | | 60.4 | % |
Non-GAAP gross margin, as a percentage of total net revenues | 66.8 | % | | 65.3 | % | | 66.5 | % |
| | | | | |
Operating income reconciliation | | | | | |
GAAP operating income (loss) | $ | (19,879 | ) | | $ | (5,934 | ) | | $ | 20,594 |
|
Total operating income impact from non-GAAP adjustments | 108,911 |
| | 67,170 |
| | 94,706 |
|
Non-GAAP operating income | $ | 89,032 |
| | $ | 61,236 |
| | $ | 115,300 |
|
GAAP operating income (loss), as a percentage of total net revenues | (3.6 | )% | | (1.1 | )% | | 3.5 | % |
Non-GAAP operating income, as a percentage of total net revenues | 16.2 | % | | 11.1 | % | | 19.5 | % |
| | | | | |
Net income (loss) and net income (loss) per share attributable to Brocade reconciliation | | | | | |
Net income (loss) attributable to Brocade on a GAAP basis | $ | (19,506 | ) | | $ | (10,967 | ) | | $ | 10,495 |
|
BROCADE COMMUNICATIONS SYSTEMS, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES—Continued (Unaudited) |
| | | | | | | | | | | |
| Three Months Ended |
| July 29,
2017 | | April 29,
2017 | | July 30,
2016 |
| (In thousands, except per share amounts) |
Total net income impact from non-GAAP adjustments | 88,104 |
| | 54,159 |
| | 81,507 |
|
Non-GAAP net income attributable to Brocade | $ | 68,598 |
| | $ | 43,192 |
| | $ | 92,002 |
|
| | | | | |
GAAP net income (loss) per share—basic attributable to Brocade | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | 0.02 |
|
Total impact on net income (loss) per share—basic from non-GAAP adjustments | 0.22 |
| | 0.14 |
| | 0.20 |
|
Non-GAAP net income per share—basic attributable to Brocade | $ | 0.17 |
| | $ | 0.11 |
| | $ | 0.22 |
|
| | | | | |
GAAP net income (loss) per share—diluted attributable to Brocade | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | 0.02 |
|
Total impact on net income (loss) per share—diluted from non-GAAP adjustments | 0.21 |
| | 0.13 |
| | 0.19 |
|
Non-GAAP net income per share—diluted attributable to Brocade | $ | 0.16 |
| | $ | 0.10 |
| | $ | 0.21 |
|
| | | | | |
Shares used in GAAP and non-GAAP per share calculation—basic | 411,898 |
| | 408,589 |
| | 426,671 |
|
Shares used in GAAP per share calculation—diluted | 411,898 |
| | 408,589 |
| | 434,416 |
|
Shares used in non-GAAP per share calculation—diluted | 421,381 |
| | 419,614 |
| | 434,416 |
|
| | | | | |
Effective tax rate reconciliation | | | | | |
GAAP income (loss) before income tax | (33,174 | ) | | (19,785 | ) | | 8,689 |
|
Total operating income impact from non-GAAP adjustments | 108,911 |
| | 67,170 |
| | 94,706 |
|
Convertible debt interest | 4,068 |
| | 4,018 |
| | 3,871 |
|
Non-GAAP income before income tax | 79,805 |
| | 51,403 |
| | 107,266 |
|
| | | | | |
GAAP income tax benefit | (13,622 | ) | | (8,753 | ) | | (1,806 | ) |
Effects of certain intercompany transactions on the tax provision | — |
| | — |
| | (7,436 | ) |
Income tax effect of non-GAAP adjustments | 24,875 |
| | 17,029 |
| | 24,506 |
|
Non-GAAP income tax expense | 11,253 |
| | 8,276 |
| | 15,264 |
|
| | | | | |
GAAP income (loss) before income tax | (33,174 | ) | | (19,785 | ) | | 8,689 |
|
GAAP income tax benefit | (13,622 | ) | | (8,753 | ) | | (1,806 | ) |
GAAP effective tax rate | 41.1 | % | | 44.2 | % | | (20.8 | )% |
| | | | | |
Non-GAAP income before income tax | 79,805 |
| | 51,403 |
| | 107,266 |
|
Non-GAAP income tax expense | 11,253 |
| | 8,276 |
| | 15,264 |
|
Non-GAAP effective tax rate | 14.1 | % | | 16.1 | % | | 14.2 | % |
