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Brocade Reports Fiscal Q3 2016 Results

SAN JOSE, CA — (Marketwired) — 08/25/16 — (NASDAQ: BRCD) today reported financial results for its third fiscal quarter ended July 30, 2016. These results include approximately two months of financial results from Ruckus Wireless, which was acquired on May 27, 2016. Brocade reported third quarter revenue of $591 million, up 7% year-over-year and up 13% quarter-over-quarter. The Company reported GAAP diluted earnings per share (EPS) of $0.02, down from $0.21 in Q3 2015 and from $0.11 in Q2 2016. The year-over-year and sequential declines in GAAP EPS were primarily the result of acquisition-related items, including the lower gross margin associated with acquired inventory and deferred revenue, acquisition and integration costs, and increases in the amortization of intangible assets and stock-based compensation. These items were partially offset by the favorable resolution of a tax audit. Non-GAAP diluted EPS was $0.21 for Q3 2016, down 21% year-over-year and down 2% quarter-over-quarter. The year-over-year decline in non-GAAP EPS was primarily due to the acquisition-related purchase accounting adjustments, unfavorable revenue mix, and higher operating expenses.

“Against the backdrop of a mixed macro environment, we posted solid results, with total revenue at the high end of our outlook range,” said Lloyd Carney, CEO of Brocade. “During Q3, we also continued the momentum of new product innovations across our portfolio, building a solid foundation for business growth and expansion of our addressable markets. Furthermore, with the successful completion of our acquisition of Ruckus Wireless in the quarter, we are pleased to welcome this talented and committed team to the Brocade family. Our combined strengths open up new opportunities and distinguish Brocade as a pure-play networking company for the digital transformation era.”

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.

On May 27, 2016, Brocade completed the acquisition of Ruckus Wireless, Inc., enhancing Brocade–s position as a pure-play networking company with solutions spanning from the heart of the data center to the wireless network edge.

SAN product revenue of $282 million was down 9% year-over-year. The year-over-year decline was primarily the result of lower Fibre Channel director sales, which decreased 23%, partially offset by fixed-configuration switch sales which increased 3%. Sequentially, SAN product revenue decreased 5%, with directors declining 20%, partially offset by fixed-configuration and embedded switch sales growing 7% and 8%, respectively. The year-over-year and sequential declines in our SAN director revenue were primarily the result of a longer time to closure for many large deals, while the improvement in our switch revenue was primarily due to pull-through demand from all-flash array deployments. Overall, the decline in our SAN product revenue is consistent with commentary from many of our OEM partners regarding the weaker storage demand environment.

During the quarter, Brocade launched the Brocade X6 Director, the industry–s first Gen 6 Fibre Channel director for mission-critical storage connectivity. This highly reliable, high-performance, low-latency solution is specifically designed for all-flash data centers. It extends the company–s leadership in offering the industry–s most innovative and widely deployed Fibre Channel storage networking solutions.

IP Networking product revenue of $209 million, including $73 million of product revenue from Ruckus Wireless, was up 36% year-over-year. The increase was due to the acquisition of Ruckus Wireless, partially offset by lower U.S. federal revenue, which was down 26% year-over-year, primarily due to the timing of large orders. Sequentially, IP Networking product revenue increased 59% due primarily to the inclusion of Ruckus revenue.

The Brocade Board of Directors has declared a regular third fiscal quarter cash dividend of $0.055 per share of the Company–s common stock. The dividend payment will be made on October 3, 2016, to stockholders of record at the close of market on September 9, 2016.

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

Other Q3 2016 product, customer, and partner announcements are available at .

Brocade ()
130 Holger Way, San Jose, CA 95134
T. 408.333.8000 F. 408.333.8101

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.

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, non-GAAP EPS and adjusted free cash flow. 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:

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.

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 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) impact to cost of revenues from purchase accounting adjustments to inventory; (ii) acquisition and integration costs; (iii) restructuring and other related benefits; and (iv) effects of certain intercompany transactions on the tax provision.

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 because of 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 in order to present a more meaningful measure of non-GAAP net income and non-GAAP EPS.

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.

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. These and other risks are set forth in more detail in Brocade–s Form 10-Q for the fiscal quarter ended April 30, 2016, and in Brocade–s Annual Report on Form 10-K for the fiscal year ended October 31, 2015. 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 (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 era of digital business. ()

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: .

© 2016 Brocade Communications Systems, Inc. All Rights Reserved.

Media Relations
Ed Graczyk
Tel: 408-333-1836

Investor Relations
Michael Iburg
Tel: 408-333-0233

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