QLogic's CEO Discusses F4Q 2012 Results - Earnings Call Transcript

QLogic Corporation (QLGC)

F4Q12 Earnings Call

May 3, 2012 5:00 p.m. ET

Executives

Jean Hu - SVP and CFO

Simon Biddiscombe - President and CEO

Analysts

Bill Shope - Goldman Sachs & Co

Harsh Kumar - Stephens Inc.

Katy Huberty - Morgan Stanley

Presentation

Operator

Good day and welcome to the fourth quarter fiscal year 2012 QLogic earnings announcement. As a reminder today's conference is being recorded. At this time, I would like to turn the conference over to Jean Hu, Chief Financial Officer. You may begin when ready.

Jean Hu

Thank you, operator. Good afternoon and welcome to QLogic's fourth quarter and fiscal year 2012 earnings conference call. Joining me on the call today is Simon Biddiscombe, our Chief Executive Officer. I'll begin the call with a review of the fourth quarter and full year 2012 financial results. Simon will follow with a recap of the fiscal 2012 highlights and his customary quarterly business update. We'll then open the call for questions.

Certain of our comments today will include forward-looking statements regarding future events and our projections of our financial performance based on current expectations. These comments are subject to significant risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements. We refer you to the documents QLogic files with SEC, specifically our most recent Forms 10-K and 10-Q. These documents identify important risk factors that could cause our actual results to differ materially from expectations. We do not intend to update the forward-looking statements that we make today.

In our fourth quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. Of the reference we will make on our call today relate to non-GAAP results unless otherwise stated. A reconciliation of the non-GAAP to the GAAP financial measures is available on our website under investor relations.

At the end of February, we completed the sale of a substantially (indiscernible) asset associated with our InfiniBand business to Intel for $125 million. As a result of this transaction, we have presented the financial results of this business as discontinued operations in the financial statements for all periods included in our earnings press release. Our discussion today will focus on the financial results from our continuing operations unless otherwise noted.

Turning now to our financial result. For the fourth fiscal quarter ended April 1, 2012, our revenue in the fourth quarter was $135.1 million compared to $146.1 million recorded in the same quarter last year. This revenue was within our guidance range of $134 million to $140 million provided during our third quarter earnings call. As a reminder, the fourth quarter of fiscal 2011 included an extra week. Excluding the approximate $4 million impact of this extra week, our revenue in the fourth quarter of fiscal 2012 declined by 5% from the same quarter last year. This decline was due to a decrease in revenue from network and silicon products.

Our fourth quarter revenue from host products, which are comprised primarily of fibre channel, converged and the 10-gig Ethernet adapters, was $105.6 million compared $109 million recorded in the fourth quarter of last year. Excluding the impact of the extra week in fiscal 2011, our fourth quarter revenue from host products was flat with the same quarter last year.

Fourth quarter revenue from network products which are comprised primarily of fibre channel switches, was $16.3 million compared to $21 million recorded in the fourth quarter of last year. Our fourth quarter revenue from silicon products comprised of fibre channel, converged, 10-gig Ethernet and iSCSI chip was $13.1 million compared to $16.1 million recorded in the fourth quarter of last year.

Our fourth quarter gross margin of 68.2% declined from 69% recorded in the fourth quarter of last year, primarily due to lower volume to absorb manufacturing costs. Our gross margin exceeded our guidance of approximately 68% provided during our third quarter earnings call.

Next, I would like to cover our fourth quarter operating expenses. Total operating expenses were $55.6 million, up 3% from $54.1 million recorded in the fourth quarter of last year. Operating expenses were consistent with our expectation.

Engineering expenses in the fourth quarter of $31.4 million increased 2% from a year ago, an increase as a percentage of revenue from 21% to 23.2%. Sales and marketing expenses in the fourth quarter were $17.8 million, an increase as a percentage of revenue from 11.5% to 13.2%. G&A expenses in the fourth quarter of $6.5 million were 4.8% of revenue.

Operating income in the fourth quarter of $36.2 million was 27.1% of revenue. Interest and other income was $1 million in the fourth quarter. Our income tax rate for the fourth quarter was 7.7%, resulting in an annual rate for the full year of 14.3%. Our fourth quarter income from continuing operations of $34.7 million represented a net profit margin of 25.7%. This represents the 67 th consecutive quarter of profitability for QLogic. Our fourth quarter income from continuing operations per diluted share of $0.34 exceeded the high end of our guidance range of $0.30 to $0.33 provided during our third quarter earnings call.

Turning now to our balance sheet. Our cash and marketable securities were $538 million at the end of the fourth quarter of which $187 million was held in the United States. We continue to maintain a very strong cash position and have no debt. During the fourth quarter, we generated $32 million of cash from operations. We remain committed to our stock buyback and during the quarter we purchased $24 million of company’s common stock.

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