Brocade: Fiscal 1Q08 Financial Results

Brocade reported financial
results for its first fiscal quarter, which ended January 26, 2008.

Commenting on the Company’s first quarter financial results, Michael
Klayko, Brocade CEO, said, "We are pleased with Brocade’s continued
operational execution and performance. In the quarter, we recorded top line
growth, improvements in our margins, and continued our strong cash flow
generation. We extended our market leadership position and launched our new
DCX Backbone ahead of schedule in January, which we believe will afford us a
strong advantage in the marketplace."

The Company had a record revenue quarter with its 

enterprise director family, led by strong demand for the 

Brocade 48000. In addition, Brocade achieved a record 

quarter in sales of its bladed switch products, which enable 

SAN connectivity for bladed servers in enterprises.

Revenues for Q1 08 were $347.8 million, up 55% from the same period a year
ago. Reporting on a GAAP basis, net income for Q1 08 was $19.8 million, $0.05
per share diluted. This represents a 38% decrease from GAAP net income of
$32.0 million, or $0.08 per share diluted from the prior quarter, which
included a one time gain of $11 million.

Non-GAAP net income for Q1 08 was $64.2 million or $0.16 per share
diluted. This represents a 3% decrease from non-GAAP net income of $66.5
million, $0.16 per share diluted in Q4 07, reflecting a sequential increase in
the Company’s effective non-GAAP tax rate and a 30% increase from non-GAAP net
income of $49.4 million, $0.17 per share diluted in Q1 07. 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.

First Fiscal Quarter 2008 Financial Highlights and Additional Financial
Information

• • Q1 08 non-GAAP gross margin was 60.5%, compared to non-GAAP gross margin of 58.5% in Q4 07 and 63.7% in Q1 07.
  • Q1 08 non-GAAP operating margin was 23.8%, compared to non-GAAP operating margin of 23.3% in Q4 07 and 26.1% in Q1 07.
  • In Q1 08, as a percent of total, OEM revenues were 88% and Channel/Direct were 12%. This compares to 85% and 15%, respectively in
  • Q4 07 and 92% and 8%, respectively in Q1 07. Three OEM customers, EMC, HP, and IBM, each accounted for 10% or more of total revenues and together represented approximately 66% of total revenues in Q1 08. The same three customers each accounted for 10% or more of total revenues and together represented approximately 67% of total revenues in Q4 07 and 72% in Q1 07.
  • In Q1 08, as a percent of total, domestic revenue was 62% and international was 38%. This compares to 60% and 40%, respectively in Q4 07 and 59% and 41%, respectively, in Q1 07.
  • Service revenue accounted for 14% of total revenue in Q1 08, compared with 16% of total revenue in Q4 07 and 8% of total revenue in Q1 07.
  • The Company’s total installed base of SAN ports is approximately 16.2 million.
  • Sequential Average Selling Price (ASP) declines were in the low single digits in Q1 08.
  • In Q1 08 net stock-based compensation expense was $8.5 million and has been excluded from the Company’s non-GAAP results.
  • Q1 08 cash flow from operations was $79.2 million, compared to $54.5 million in Q4 07 and $33.3 million in Q1 07.
  • Cash and cash equivalents and investments at the end of Q1 08, net of the Company’s convertible debt, were $614.9 million, compared to $625.8 million at the end of Q4 07 and $631.7 million at the end of Q1 07.
  • In Q1 08, the Company repurchased $80.0 million of its common stock, representing 11.1 million shares, compared with $50.0 million spent in Q4 07 to repurchase 6.6 million shares. As of the end of Q1 08, the Company had $502 million remaining under its $800 million in total stock buyback authorization.
  • Effective GAAP tax rate in Q1 08 was 62.6%.
  • Day sales outstanding in accounts receivable for Q1 08 were 40 days, compared to 47 days in Q4 07 and 38 days in Q1 07.
  • Q1 08 deferred revenue was $136.6 million, compared to $130.9 million in Q4 07 and $69.2 million in Q1 07.
  • Q1 08 capital expenditures were $17.2 million. This compares to $15.0 million in Q4 07 and $13.4 million in Q1 07.
  • As of January 26, 2008, the Company had 2,457 employees, compared with 2,368 employees as of October 27, 2007 and 1,532 employees as of January 27, 2007.

Brocade