EX-99.1 2 brcd-8keprxfy15q2xex991.htm PRESS RELEASE BRCD-8K EPR - FY15Q2 - Ex 99.1


Exhibit 99.1
BROCADE CONTACTS
 
 
Media Relations
Kristy Campbell
Tel: 408-333-4221
kcampbel@brocade.com
Investor Relations
Michael Iburg
Tel: 408-333-0233
miburg@brocade.com
Brocade Reports Fiscal Q2 2015 Results
Board Approves Third Quarter Dividend Increase
SAN JOSE, Calif., May 21, 2015 — Brocade® (NASDAQ: BRCD) today reported financial results for its second fiscal quarter ended May 2, 2015. Brocade reported second quarter revenue of $547 million, up 2% year over year and down 5% sequentially. The Company reported GAAP diluted Earnings Per Share (EPS) of $0.18, up from a loss of $0.03 per share in Q2 2014 and down from $0.20 in Q1 2015. The Q2 2014 GAAP loss was due to a non-cash goodwill impairment charge associated with the strategic repositioning of the Brocade ADX® product family. Non-GAAP diluted EPS was $0.22 for Q2 2015, up from $0.19 in Q2 2014 and down from $0.27 in Q1 2015.

“We significantly grew our IP Networking revenue year over year and closed the acquisitions of Connectem and the SteelApp assets, expanding our strong portfolio of virtual IP networking services,” said Lloyd Carney, CEO of Brocade. “These next-gen software-based technologies, together with our hardware products, allow us to build more strategic solutions for our customers and underscore our vision for the New IP.”

Key Financial Metrics:
 
Q2 2015
 
Q1 2015
 
Q2 2014
 
Q2 2015 vs. Q1 2015
 
Q2 2015 vs. Q2 2014
Revenue
$
547
M
 
$
576
M
 
$
537
M
 
(5
%)
 
2
%
GAAP EPS—diluted
$
0.18

 
$
0.20

 
$
(0.03
)
 
(11
%)
 
NMF*

Non-GAAP EPS—diluted
$
0.22

 
$
0.27

 
$
0.19

 
(19
%)
 
14
%
GAAP gross margin
68.1
%
 
67.6
%
 
66.0
%
 
0.5 pts

 
2.1 pts

Non-GAAP gross margin
68.8
%
 
68.4
%
 
66.7
%
 
0.4 pts

 
2.1 pts

GAAP operating margin
20.9
%
 
24.2
%
 
3.8
%
 
(3.3) pts

 
17.1 pts

Non-GAAP operating margin
24.6
%
 
28.5
%
 
23.2
%
 
(3.9) pts

 
1.4 pts

*NMF = not meaningful
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:
SAN product revenue was $314 million, down 2% year over year. The decline was primarily the result of softer storage demand and operational issues at certain OEM partners. The sequential revenue decline of 11% was at the low end of the Company’s outlook for the quarter and consistent with the last two years, where the fiscal second quarters have seen sequential revenue declines of 10% to 12%.
IP Networking product revenue was $145 million, up 19% year over year. The growth was primarily due to higher sales of routers (up 40%) and Ethernet switches (up 8%), as well as higher software networking revenue, which now includes SteelApp revenue from the date of closing of the acquisition in early March. The increased sales year over year were primarily due to service provider and U.S. federal customers. Sequentially, IP Networking revenue increased 9% due to higher routing and switching sales, as well as higher software networking revenue.
Global Services revenue was $88 million, down 7% year over year primarily due to the additional week of support revenue recognized in Q2 2014, which was a 14-week fiscal quarter for Brocade. Global Services revenue was down 2% sequentially due to the timing of certain large support renewal orders.
During the quarter, Brocade completed the previously announced acquisitions of Connectem Inc., a pioneer in the LTE virtual evolved packet core market, and the SteelApp assets from Riverbed Technology, Inc.

Page 1 of 11



Board Declares Dividend:
Consistent with the Company’s philosophy of returning cash to shareholders, the Brocade Board of Directors has declared a quarterly cash dividend of $0.045 per share of the Company’s common stock, a 29% increase from the prior dividend of $0.035 per share. The dividend payment will be made on July 2, 2015, to stockholders of record at the close of market on June 10, 2015.

Brocade management will host a conference call to discuss the fiscal second quarter results and the fiscal third quarter outlook today at 2:30 p.m. PT (5:30 p.m. ET). To access the webcast, please go to www.brcd.com/events.cfm. A replay of the conference call, prepared comments and slides, as well as a written transcript, will be available at www.brcd.com.
Other Q2 2015 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

Page 2 of 11


Financial Highlights and Additional Financial Information
 
Q2 2015
 
Q1 2015
 
Q2 2014
Routes to market as a % of total net revenues:
 
 
 
 
 
OEM revenues
63
%
 
67
%
 
68
%
Channel/Direct revenues
37
%
 
33
%
 
32
%
10% or greater customer revenues
49
%
 
44
%
 
56
%
Geographic split as a % of total net revenues (1):
 
 
 
 
 
Domestic revenues
56
%
 
58
%
 
59
%
International revenues
44
%
 
42
%
 
41
%
Segment split as a % of total net revenues:
 
 
 
 
 
SAN product revenues
57
%
 
61
%
 
60
%
IP Networking product revenues
27
%
 
23
%
 
22
%
Global Services revenues
16
%
 
16
%
 
18
%
SAN business revenues (2)
67
%
 
71
%
 
71
%
IP Networking business revenues (2)
33
%
 
29
%
 
29
%
IP Networking product revenues by use category (3):
 
 
 
 
 
Data Center (4)
62
%
 
53
%
 
57
%
Enterprise Campus
30
%
 
34
%
 
37
%
Carrier Network (MAN/WAN)
8
%
 
13
%
 
6
%
Additional information:
Q2 2015
 
Q1 2015
 
Q2 2014
GAAP net income (loss)
$
77
M
 
$
87
M
 
$
(14
)M
Non-GAAP net income
$
95
M
 
$
118
M
 
$
87
M
GAAP operating income
$
114
M
 
$
139
M
 
$
20
M
Non-GAAP operating income
$
134
M
 
$
164
M
 
$
124
M
EBITDA
$
135
M
 
$
159
M
 
$
41
M
Effective GAAP tax provision rate
26.0
%
 
23.1
%
 
225.1
%
Effective Non-GAAP tax provision rate
25.7
%
 
23.1
%
 
24.6
%
Cash and cash equivalents
$
1,367
M
 
$
1,359
M
 
$
1,138
M
Restricted cash (5)
$

 
$
312
M
 
$

Deferred revenues
$
306
M
 
$
310
M
 
$
304
M
Capital expenditures
$
18
M
 
$
17
M
 
$
14
M
Total debt, net of discount (6)
$
788
M
 
$
1,084
M
 
$
598
M
Cash, net of senior debt, convertible debt and capitalized leases (7)
$
491
M
 
$
483
M
 
$
535
M
Cash provided by operations
$
202
M
 
$
10
M
 
$
168
M
Days sales outstanding
31 days
 
38 days
 
35 days
Employees at end of period
4,553
 
4,305
 
4,061
SAN port shipments
0.9
M
 
1.1
M
 
1.1
M
Share repurchases (8)
$
77.1
M
 
$
132.4
M
 
$
50.1
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.
(1)
Revenues are attributed to geographic areas based on 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.
(2)
SAN and IP Networking business revenues include hardware and software product, support, and services revenues.
(3)
Product revenue by use category is estimated based on analysis of the information the Company collects in its sales management system. The estimated percentage of revenue by use category may fluctuate quarter-to-quarter due to seasonality and the timing of large customer orders.
(4)
Data Center includes enterprise, service provider, and government data center revenues.
(5)
Q1 2015 restricted cash was used to redeem the $300 million principal of the 2020 senior secured notes and pay for the associated call premium and interest earned on February 13, 2015.

Page 3 of 11


(6)
Q2 2015 and Q1 2015 total debt, net of discount, includes the debt discount recorded for the conversion feature that is required to be separately accounted for as equity for the $575 million convertible debt, thereby reducing the carrying value of the debt. The unamortized debt discount for the conversion feature was $77 million as of May 2, 2015, and $80 million as of January 31, 2015.
(7)
Q1 2015 cash, net of senior debt, convertible debt and capitalized leases excludes restricted cash of $312 million and the 2020 senior secured notes of $300 million that were redeemed on February 13, 2015.
(8)
$1.3 million of the $77.1 million in shares repurchased in Q2 2015 were pending cash settlement as of May 2, 2015.
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 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. Management also believes these non-GAAP financial measures 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:
the ability to make more meaningful period-to-period comparisons of Brocade’s ongoing operating results;

the ability to make more meaningful comparisons of Brocade’s operating performance relative to its competitors;

the ability to better identify trends in Brocade’s underlying business and to perform related trend analyses; and

a better understanding of how management plans and measures Brocade’s underlying business.

Management excludes certain gains or losses and benefits or costs in determining non-GAAP financial measures that are the result of infrequent events or 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) call premium cost and write-off of debt discount and debt issuance costs related to lenders that did not participate in our Q1 2015 debt refinancing; (ii) acquisition and integration costs; (iii) restructuring, goodwill impairment and other related costs (benefits); and (iv) specific non-cash and non-recurring tax benefits or detriments.

Management also excludes the following non-cash charges in determining 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 because of the varying use of valuation methodologies and subjective assumptions and the variety of award types. Management also believes that 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 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 in order to present a more meaningful measure of non-GAAP net income.

Page 4 of 11


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 presentation 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; 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. These and other risks are set forth in more detail in Brocade’s Form 10-Q for the fiscal quarter ended January 31, 2015, and in Brocade’s Annual Report on Form 10-K for the fiscal year ended November 1, 2014. Brocade expressly assumes no obligation to update 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 transition smoothly to a world where applications and information reside anywhere. (www.brocade.com)

ADX, Brocade, Brocade Assurance, the B-wing symbol, DCX, Fabric OS, HyperEdge, ICX, MLX, MyBrocade, OpenScript, The Effortless Network, VCS, VDX, Vplane, and Vyatta are registered trademarks, and Fabric Vision and vADX are trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. Other brands, products, or service names mentioned may be trademarks of others.

© 2015 Brocade Communications Systems, Inc. All Rights Reserved.

Page 5 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
May 2,
2015
 
May 3,
2014
 
May 2,
2015
 
May 3,
2014
 
(In thousands, except per share amounts)
Net revenues:
 
 
 
 
 
 
 
Product
$
458,243

 
$
442,280

 
$
944,481

 
$
917,485

Service
88,332

 
94,630

 
178,333

 
183,960

Total net revenues
546,575

 
536,910

 
1,122,814

 
1,101,445

Cost of revenues:
 
 
 
 
 
 
 
Product
137,612

 
142,271

 
287,538

 
295,898

Service
36,754

 
40,347

 
73,384

 
78,585

Total cost of revenues
174,366

 
182,618

 
360,922

 
374,483

Gross margin
372,209

 
354,292

 
761,892

 
726,962

Operating expenses:
 
 
 
 
 
 
 
Research and development
91,870

 
90,554

 
177,101

 
177,710

Sales and marketing
143,078

 
139,597

 
283,316

 
272,262

General and administrative
20,722

 
21,112

 
45,393

 
41,255

Amortization of intangible assets
627

 
131

 
765

 
10,014

Acquisition and integration costs
2,344

 

 
2,344

 

Restructuring, goodwill impairment, and other related costs (benefits)
(637
)
 
82,703

 
(637
)
 
88,920

Gain on sale of network adapter business

 

 

 
(4,884
)
Total operating expenses
258,004

 
334,097

 
508,282

 
585,277

Income from operations
114,205

 
20,195

 
253,610

 
141,685

Interest expense
(10,552
)
 
(9,234
)
 
(35,976
)
 
(18,430
)
Interest and other income (loss), net
466

 
(20
)
 
(93
)
 
(1,356
)
Income before income tax
104,119

 
10,941

 
217,541

 
121,899

Income tax expense
27,079

 
24,625

 
53,234

 
54,699

Net income (loss)
$
77,040

 
$
(13,684
)
 
$
164,307

 
$
67,200

Net income (loss) per share—basic
$
0.18

 
$
(0.03
)
 
$
0.39

 
$
0.15

Net income (loss) per share—diluted
$
0.18

 
$
(0.03
)
 
$
0.38

 
$
0.15

Shares used in per share calculation—basic
420,718

 
436,167

 
424,627

 
438,370

Shares used in per share calculation—diluted
433,234

 
436,167

 
436,195

 
451,999

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.035

 
$

 
$
0.07

 
$


Page 6 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
May 2,
2015
 
May 3,
2014
 
May 2,
2015
 
May 3,
2014
 
(In thousands)
Net income (loss)
$
77,040

 
$
(13,684
)
 
$
164,307

 
$
67,200

Other comprehensive income and loss, net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gains and losses
(143
)
 
1,094

 
(1,918
)
 
170

Net gains and losses reclassified into earnings
1,109

 
32

 
1,713

 
1

Net unrealized gains (losses) on cash flow hedges
966

 
1,126

 
(205
)
 
171

Foreign currency translation adjustments
(1,068
)
 
1,298

 
(5,289
)
 
475

Total other comprehensive income (loss)
(102
)
 
2,424

 
(5,494
)
 
646

Total comprehensive income (loss)
$
76,938

 
$
(11,260
)
 
$
158,813

 
$
67,846


Page 7 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
May 2,
2015
 
November 1,
2014
 
(In thousands, except par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,366,812

 
$
1,255,017

Accounts receivable, net of allowances for doubtful accounts of $1,676 and $80 at May 2, 2015, and November 1, 2014, respectively
185,136

 
224,913

Inventories
41,379

 
38,718

Deferred tax assets
103,501

 
92,692

Prepaid expenses and other current assets
54,501

 
46,665

Total current assets
1,751,329

 
1,658,005

Property and equipment, net
439,789

 
445,433

Goodwill
1,617,171

 
1,567,723

Intangible assets, net
83,118

 
26,658

Other assets
49,217

 
35,856

Total assets
$
3,940,624

 
$
3,733,675

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
91,900

 
$
93,705

Accrued employee compensation
135,906

 
169,018

Deferred revenue
234,110

 
239,993

Other accrued liabilities
82,198

 
84,592

Total current liabilities
544,114

 
587,308

Long-term debt, net of current portion
787,554

 
595,450

Non-current deferred revenue
72,084

 
71,746

Non-current income tax liability
48,156

 
39,647

Non-current deferred tax liabilities
24,047

 
27,153

Other non-current liabilities
3,748

 
4,310

Total liabilities
1,479,703

 
1,325,614

Commitments and contingencies
 
 
 
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: 417,886 and 431,470 shares at May 2, 2015, and November 1, 2014, respectively
418

 
431

Additional paid-in capital
1,698,111

 
1,774,197

Accumulated other comprehensive loss
(24,308
)
 
(18,814
)
Retained earnings
786,700

 
652,247

Total stockholders’ equity
2,460,921

 
2,408,061

Total liabilities and stockholders’ equity
$
3,940,624

 
$
3,733,675


Page 8 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
May 2,
2015
 
May 3,
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
77,040

 
$
(13,684
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(13,468
)
 
(13,080
)
Depreciation and amortization
20,672

 
21,173

Loss on disposal of property and equipment
797

 
830

Amortization of debt issuance costs and debt discount
4,168

 
285

Call premium cost related to lenders that did not participate in refinancing
(10,314
)
 

Provision for doubtful accounts receivable and sales allowances
2,291

 
1,961

Non-cash stock-based compensation expense
16,075

 
21,052

Goodwill impairment charge

 
83,382

Changes in assets and liabilities, net of acquisitions:
 
 
 
Restricted cash
11,918

 

Accounts receivable
52,493

 
22,495

Inventories
1,853

 
2,473

Prepaid expenses and other assets
(19,956
)
 
(11,857
)
Deferred tax assets
9

 
(38
)
Accounts payable
2,616

 
951

Accrued employee compensation
37,036

 
27,470

Deferred revenue
(6,959
)
 
5,987

Other accrued liabilities
26,708

 
22,869

Restructuring liabilities
(1,105
)
 
(4,025
)
Net cash provided by operating activities
201,874

 
168,244

Cash flows from investing activities:
 
 
 
Purchases of non-marketable equity and debt investments
(150
)
 
(223
)
Purchases of property and equipment
(17,577
)
 
(14,429
)
Net cash paid in connection with acquisitions
(95,278
)
 

Net cash used in investing activities
(113,005
)
 
(14,652
)
Cash flows from financing activities:
 
 
 
Decrease in restricted cash
300,000

 

Payment of principal related to senior secured notes
(300,000
)
 

Payment of debt issuance costs
(1,252
)
 

Payment of principal related to capital leases
(113
)
 
(1,141
)
Common stock repurchases
(79,278
)
 
(50,052
)
Proceeds from issuance of common stock
939

 
22,120

Payment of cash dividends to stockholders
(14,748
)
 

Excess tax benefits from stock-based compensation
13,468

 
13,080

Net cash used in financing activities
(80,984
)
 
(15,993
)
Effect of exchange rate fluctuations on cash and cash equivalents
(438
)
 
1,327

Net increase in cash and cash equivalents
7,447

 
138,926

Cash and cash equivalents, beginning of period
1,359,365

 
998,687

Cash and cash equivalents, end of period
$
1,366,812

 
$
1,137,613



Page 9 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 
May 2,
2015
 
May 3,
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
164,307

 
$
67,200

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Excess tax benefits from stock-based compensation
(29,570
)
 
(27,415
)
Depreciation and amortization
40,247

 
59,927

Loss on disposal of property and equipment
1,241

 
3,178

Gain on sale of network adapter business

 
(4,884
)
Amortization of debt issuance costs and debt discount
5,224

 
566

Write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing
4,808

 

Provision for doubtful accounts receivable and sales allowances
4,694

 
3,528

Non-cash stock-based compensation expense
40,157

 
39,640

Goodwill impairment charge

 
83,382

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
35,237

 
52,266

Inventories
3,008

 
4,570

Prepaid expenses and other assets
(25,702
)
 
(8,371
)
Deferred tax assets
503

 
57

Accounts payable
(6,160
)
 
(7,126
)
Accrued employee compensation
(39,997
)
 
(11,738
)
Deferred revenue
(9,149
)
 
573

Other accrued liabilities
25,285

 
33,324

Restructuring liabilities
(1,866
)
 
(10,964
)
Net cash provided by operating activities
212,267

 
277,713

Cash flows from investing activities:
 
 
 
Purchases of non-marketable equity and debt investments
(150
)
 
(223
)
Purchases of property and equipment
(34,091
)
 
(27,395
)
Purchase of intangible assets
(7,750
)
 

Net cash paid in connection with acquisitions
(95,278
)
 

Proceeds from collection of note receivable
250

 
250

Proceeds from sale of network adapter business

 
9,995

Net cash used in investing activities
(137,019
)
 
(17,373
)
Cash flows from financing activities:
 
 
 
Payment of principal related to senior secured notes
(300,000
)
 

Payment of debt issuance costs
(1,661
)
 

Payment of principal related to capital leases
(1,267
)
 
(1,749
)
Common stock repurchases
(208,244
)
 
(190,432
)
Proceeds from issuance of common stock
21,975

 
54,530

Payment of cash dividends to stockholders
(29,854
)
 

Proceeds from convertible notes
565,656

 

Purchase of convertible hedge
(86,135
)
 

Proceeds from issuance of warrants
51,175

 

Excess tax benefits from stock-based compensation
29,570

 
27,415

Net cash provided by (used in) financing activities
41,215

 
(110,236
)
Effect of exchange rate fluctuations on cash and cash equivalents
(4,668
)
 
512

Net increase in cash and cash equivalents
111,795

 
150,616

Cash and cash equivalents, beginning of period
1,255,017

 
986,997

Cash and cash equivalents, end of period
$
1,366,812

 
$
1,137,613


Page 10 of 11


BROCADE COMMUNICATIONS SYSTEMS, INC.
RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
 
Three Months Ended
 
May 2,
2015
 
January 31,
2015
 
May 3,
2014
 
(In thousands, except per share amounts)
Non-GAAP adjustments
 
 
 
 
 
Stock-based compensation expense included in cost of revenues
$
1,986

 
$
3,816

 
$
3,474

Amortization of intangible assets expense included in cost of revenues
1,857

 
637

 
396

Total gross margin impact from non-GAAP adjustments
3,843

 
4,453

 
3,870

 
 
 
 
 
 
Stock-based compensation expense included in research and development
3,080

 
4,933

 
4,422

Stock-based compensation expense included in sales and marketing
7,207

 
9,843

 
8,462

Stock-based compensation expense included in general and administrative
3,802

 
5,490

 
4,694

Amortization of intangible assets expense included in operating expenses
627

 
138

 
131

Acquisition and integration costs
2,344

 

 

Restructuring, goodwill impairment, and other related costs (benefits)
(637
)
 

 
82,703

Total operating income impact from non-GAAP adjustments
20,266

 
24,857

 
104,282

 
 
 
 
 
 
Call premium cost and write-off of debt discount and debt issuance costs related to lenders that did not participate in refinancing

 
15,122

 

Convertible debt interest
3,639

 
678

 

Income tax effect of non-tax adjustments
(5,823
)
 
(9,499
)
 
(3,685
)
Total net income impact from non-GAAP adjustments
$
18,082

 
$
31,158

 
$
100,597

 
 
 
 
 
 
Gross margin reconciliation
 
 
 
 
 
GAAP gross margin
$
372,209

 
$
389,683

 
$
354,292

Total gross margin impact from non-GAAP adjustments
3,843

 
4,453

 
3,870

Non-GAAP gross margin
$
376,052

 
$
394,136


$
358,162

GAAP gross margin, as a percentage of total net revenues
68.1
%
 
67.6
%
 
66.0
%
Non-GAAP gross margin, as a percentage of total net revenues
68.8
%
 
68.4
%
 
66.7
%
 
 
 
 
 
 
Operating income reconciliation
 
 
 
 
 
GAAP operating income
$
114,205

 
$
139,405

 
$
20,195

Total operating income impact from non-GAAP adjustments
20,266

 
24,857

 
104,282

Non-GAAP operating income
$
134,471

 
$
164,262

 
$
124,477

GAAP operating income, as a percentage of total net revenues
20.9
%
 
24.2
%
 
3.8
%
Non-GAAP operating income, as a percentage of total net revenues
24.6
%
 
28.5
%
 
23.2
%
 
 
 
 
 
 
Net income (loss) and net income (loss) per share reconciliation
 
 
 
 
 
Net income (loss) on a GAAP basis
$
77,040

 
$
87,267

 
$
(13,684
)
Total net income impact from non-GAAP adjustments
18,082

 
31,158

 
100,597

Non-GAAP net income
$
95,122

 
$
118,425

 
$
86,913

Non-GAAP net income per share—basic
$
0.23

 
$
0.28

 
$
0.20

Non-GAAP net income per share—diluted
$
0.22

 
$
0.27

 
$
0.19

Shares used in non-GAAP per share calculation—basic
420,718

 
428,536

 
436,167

Shares used in non-GAAP per share calculation—diluted
433,234

 
439,156

 
450,449


Page 11 of 11