Brocade: FY07 Revenues Up 65% and Net Income Increasing 14%

Brocade, in data center networking solutions that help enterprises connect and manage their information, reported financial results for its fourth fiscal quarter and full fiscal year 2007, which ended October 27, 2007. Revenues for Q4 07 were $340.0 million, up 63% from the same period a year ago. Revenues for fiscal year 2007 were $1,236.9 million, up 65% from the Company’s fiscal 2006 revenue of $750.6 million.

Commenting on the Company’s fourth quarter and fiscal year 2007 results, Michael Klayko, Brocade CEO, said, "We are very pleased with our Q4 results. Brocade continues to execute exceptionally well and we have further strengthened both our profitability and business fundamentals. During fiscal year 2007, we continued to drive the key growth initiatives that will keep us at the forefront of the evolving data center market."

Reporting on a GAAP basis, net income for Q4 07 was $32.0 million, or $0.08 per share basic and diluted. This represents a 200% increase from GAAP net income of $10.7 million, or $0.03 per share basic and diluted in Q3 07, and a 60% increase from GAAP net income of $20.0 million, or $0.07 per share basic and diluted in Q4 06.

Non-GAAP net income for Q4 07 was $66.5 million, or $0.17 per share basic and $0.16 per share diluted. This represents a 34% increase from non-GAAP net income of $49.5 million, or $0.13 per share basic and $0.12 per share diluted in Q3 07, and a 69% increase from non-GAAP net income of $39.4 million, or $0.15 per share basic and $0.14 per share diluted in Q4 06. 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.

Note: Periods prior to Q2 07 referenced in this press release do not include McData results.

Fourth Fiscal Quarter 2007 Financial Highlights and Additional Financial Information
* Q4 07 non-GAAP gross margin was 58.5%, compared to non-GAAP gross margin of 55.0% in Q3 07 and 62.1% in Q4 06.
* Q4 07 non-GAAP operating margin was 23.3%, compared to non-GAAP operating margin of 19.2% in Q3 07 and 21.5% in Q4 06.
* In Q4 07, as a percent of total, OEM revenues were 85% and Channel/Direct were 15%. This compares to 84% and 16%, respectively in Q3 07 and 91% and 9%, respectively in Q4 06. Three OEM customers, EMC, HP, and IBM, each accounted for 10% or more of total revenues and together represented approximately 67% of total revenues in Q4 07. The same three customers each accounted for 10% or more of total revenues and together represented approximately 64% of total revenues in Q3 07 and 74% in Q4 06.
* In Q4 07, as a percent of total, domestic revenue was 60% and international was 40%. This compares to 58% and 42%, respectively in Q3 07 and 63% and 37%, respectively, in Q4 06.
* Service revenue accounted for 16% of total revenue in Q4 07, compared with 14% of total revenue in Q3 07 and 8% of total revenue in Q4 06.
* The Company’s total installed base of SAN ports is approximately 15.1 million.
* Sequential Average Selling Price (ASP) declines were in the low single digits in Q4 07.
* In Q4 07 net stock-based compensation expense was $12.4 million and has been excluded from the Company’s non-GAAP results.
* Q4 07 cash flow from operations was $54.5 million, compared to $36.3 million in Q3 07 and $52.8 million in Q4 06.
* Cash and cash equivalents and investments at the end of Q4 07, net of the Company’s convertible debt, were $625.8 million, compared to $639.2 million at the end of Q3 07 and $582.6 million at the end of Q4 06.
* In Q4 07, the Company repurchased $50.0 million of its common stock, representing 6.6 million shares, compared with $81 million spent in Q3 07 to repurchase 9.4 million shares. The Company’s Board of Directors authorized an additional $500 million for the repurchase of the Company’s common stock. This brings the total authorization by the Board of Directors to $800 million. As of the end of Q4 07, the Company had $583 million remaining under its $800 million in total stock buyback authorization.
* Day sales outstanding in accounts receivable for Q4 07 were 47 days, compared to 45 days in Q3 07 and 43 days in Q4 06.
* Q4 07 capital expenditures were $15.0 million. This compares to $14.0 million in Q3 07 and $7.5 million in Q4 06.
* As of October 27, 2007, the Company had 2,368 employees, compared with 2,376 employees as of July 28, 2007 and 1,440 employees as of October 27, 2006.

Fourth Fiscal Quarter 2007 Business Highlights
* The Company had a record quarter from its director product family, driven by strong demand for the Brocade 48K director and better than expected results on M Class directors.
* Brocade announced an industry first during the fourth fiscal quarter, with the addition of 8 Gbit/sec Fibre Channel performance levels and expanded interoperability for its flagship 48K director.
* The Company announced that both IBM and HDS will adopt and resell Brocade’s StorageX File Virtualization products, further validating the potential in the emerging File Area Network (FAN) market.
* In its services business, Brocade announced strong growth in the number of on-site, resident consultants and direct support agreements with end-user customers, further validating the value of the Company’s expertise and experience in the evolving data center.
* In Q4 07, Brocade announced the Brocade Data Center Fabric (DCF) architecture, an innovative Data Center networking architecture, which responds to the urgent needs of businesses to make their data centers more efficient, reliable, and adaptable.
* The Company also announced that it recently reorganized its management structure to provide more dedicated focus on the Company’s growth opportunities, as well as allow the Company to more easily accommodate and assimilate future acquisitions and new business initiatives. The new structure is organized around four distinct Business Units, each with its own general manager.

Brocade Communication Systems, Inc.