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Brocade Reports Fiscal Q3 2017 Results

SAN JOSE, CA — (Marketwired) — 08/24/17 — (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.

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.

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.

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.

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 .

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, 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:

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 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.

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. 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.

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. ()

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: .

© 2017 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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