QLogic Reports First Quarter Results For Fiscal Year 2013

QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its first quarter financial results for the period ended July 1, 2012.

First Quarter Highlights
  • Net revenue: $130.4 million
  • GAAP income from continuing operations: $18.4 million or $0.19 per diluted share
  • Non-GAAP income from continuing operations: $25.3 million or $0.26 per diluted share
  • Operating margin: 15.4% GAAP, 22.7% non-GAAP
  • Cash and marketable securities: $496.3 million as of July 1, 2012
  • Cash generated from operations: $27.0 million

Financial Results

Net revenue for the first quarter of fiscal 2013 was $130.4 million compared to $144.5 million in the same quarter last year. Revenue from Host Products was $101.0 million during the first quarter of fiscal 2013 compared to $108.9 million in the same quarter last year. Revenue from Network Products was $19.5 million during the first quarter of fiscal 2013 compared to $18.7 million in the same quarter last year. Revenue from Silicon Products was $9.8 million during the first quarter of fiscal 2013 compared to $16.8 million in the same quarter last year.

Income from continuing operations on a GAAP basis for the first quarter of fiscal 2013 was $18.4 million, or $0.19 per diluted share, compared to $34.2 million, or $0.32 per diluted share, for the first quarter of fiscal 2012. Income from continuing operations on a non-GAAP basis for the first quarter of fiscal 2013 was $25.3 million, or $0.26 per diluted share, compared to $41.2 million, or $0.39 per diluted share, for the first quarter of fiscal 2012.

“Despite the challenges and uncertainty within the global macroeconomic environment, we delivered revenues of $130.4 million,” said Simon Biddiscombe, president and chief executive officer, QLogic. “We remain committed to our strategy of Adaptive Convergence and will continue to focus on the execution of our goals of driving long-term growth in revenues and profitability.”

QLogic uses certain non-GAAP financial measures to supplement financial statements based on GAAP. A summary of these non-GAAP financial measures and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a description of the reasons that management believes that these non-GAAP financial measures provide useful information to investors and the additional purposes for which management uses these non-GAAP financial measures, is presented in the accompanying financial schedules.

QLogic’s fiscal 2013 first quarter conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Simon Biddiscombe, president and chief executive officer, and Jean Hu, senior vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at http://ir.qlogic.com and www.earnings.com. Phone access to participate in the conference call is available at (719) 785-1768, pass code: 6742842.

The financial information that the company intends to discuss during the conference call will be available on the company’s website at http://ir.qlogic.com for twelve months following the conference call. A replay of the conference call will be available via webcast at http://ir.qlogic.com for twelve months.

Follow QLogic @ twitter.com/qlogic

QLogic – the Ultimate in Performance

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance networking, including adapters, switches and ASICs. Leading OEMs and channel partners worldwide rely on QLogic products for their data, storage and server networking solutions. For more information, visit www.qlogic.com.

Disclaimer – Forward-Looking Statements

This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business and market trends, the success of our strategy of Adaptive Convergence and our ability to execute our goals of driving long-term growth in revenues and profitability) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The company advises readers that these potential risks and uncertainties include, but are not limited to: unfavorable economic conditions; potential fluctuations in operating results; gross margins that may vary over time; the stock price of the company may be volatile; the company's dependence on the networking markets served; the ability to maintain and gain market or industry acceptance of the company's products; the company's dependence on a small number of customers; the company's ability to compete effectively with other companies; the complexity of the company's products; declining average unit sales prices of comparable products; the company's dependence on sole source and limited source suppliers; the company's dependence on relationships with certain third-party subcontractors and contract manufacturers; the ability to attract and retain key personnel; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; a reduction in sales efforts by current distributors; changes in the company's tax provisions or adverse outcomes resulting from examination of its income tax returns; international economic, currency, regulatory, political and other risks; facilities of the company and its suppliers and customers are located in areas subject to natural disasters; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; uncertain benefits from strategic business combinations, acquisitions and divestitures; declines in the market value of the company's marketable securities; changes in and compliance with regulations; difficulties in transitioning to smaller geometry process technologies; the use of "open source" software in the company's products; security system risks, data protection breaches and cyber-attacks; and issues related to the upgrade of the company’s enterprise resource planning system.

More detailed information on these and additional factors which could affect the company's operating and financial results are described in the company's Forms 10-K, 10-Q and other reports filed, or to be filed, with the Securities and Exchange Commission. The company urges all interested parties to read these reports to gain a better understanding of the business and other risks that the company faces. The forward-looking statements contained in this press release are made only as of the date hereof, and the company does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

QLogic and the QLogic logo are registered trademarks of QLogic Corporation. Other trademarks and registered trademarks are the property of the companies with which they are associated.

QLOGIC CORPORATION
 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 

(unaudited — in thousands, except per share amounts)
 
  Three Months Ended
July 1,   July 3,
  2012     2011  
 
Net revenues $ 130,371 $ 144,481
Cost of revenues   43,313     44,868  
Gross profit   87,058     99,613  
 
Operating expenses:
Engineering and development 39,458 34,852
Sales and marketing 18,886 19,721
General and administrative   8,673     9,163  
Total operating expenses   67,017     63,736  
 
Operating income 20,041 35,877
 
Interest and other income, net   1,078     1,048  
 
Income from continuing operations before income taxes 21,119 36,925
 
Income taxes   2,678     2,729  
 
Income from continuing operations 18,441 34,196
 
Loss from discontinued operations, net of income taxes   (55 )   (1,770 )
 
Net income $ 18,386   $ 32,426  
 
Income from continuing operations per share:
Basic $ 0.19 $ 0.33
Diluted $ 0.19 $ 0.32
 
Loss from discontinued operations per share:
Basic $ $ (0.02 )
Diluted $ $ (0.01 )
 
Net income per share:
Basic $ 0.19 $ 0.31
Diluted $ 0.19 $ 0.31
 
Number of shares used in per share calculations:
Basic 97,405 104,679
Diluted 98,369 105,789
 

QLOGIC CORPORATION
 
RECONCILIATION OF GAAP INCOME FROM CONTINUING OPERATIONS TO
NON-GAAP INCOME FROM CONTINUING OPERATIONS
 

(unaudited — in thousands, except per share amounts)
 
  Three Months Ended
July 1,   July 3,
  2012     2011  
 
GAAP income from continuing operations $ 18,441 $ 34,196
Items excluded from GAAP income from continuing operations:
Stock-based compensation 9,277 9,190
Amortization of acquisition-related intangible assets 244 244
Income tax effect   (2,617 )   (2,475 )
Total non-GAAP adjustments   6,904     6,959  
Non-GAAP income from continuing operations $ 25,345   $ 41,155  
 
Income from continuing operations per diluted share:
GAAP income from continuing operations $ 0.19 $ 0.32
Adjustments   0.07     0.07  
Non-GAAP income from continuing operations $ 0.26   $ 0.39  

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company’s on-going core operating performance.

The company has presented non-GAAP income from continuing operations and non-GAAP income from continuing operations per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core income from continuing operations and core income from continuing operations per diluted share on an on-going basis. These non-GAAP financial measures may also assist investors in making comparisons of the company’s core profitability with historical periods and comparisons of the company’s core profitability with the corresponding results for competitors. Management believes that non-GAAP income from continuing operations and non-GAAP income from continuing operations per diluted share are important measures in the evaluation of the company’s profitability. These non-GAAP financial measures exclude the adjustments described in the above table, and thus provide an overall measure of the company’s on-going profitability and related profitability on a per diluted share basis.

Management uses non-GAAP income from continuing operations and non-GAAP income from continuing operations per diluted share in its evaluation of the company’s core after-tax results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. In addition, the company prepares and maintains its budgets and forecasts for future periods on a basis consistent with these non-GAAP financial measures. Management believes that providing these non-GAAP financial measures allows investors to view the company’s financial results in the way that management views the financial results.

The non-GAAP financial measures presented herein have certain limitations in that they do not reflect all of the costs associated with the operations of the company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

For additional information on the items excluded from the non-GAAP financial measures and why the company believes that these non-GAAP financial measures provide useful supplemental information to investors, the company refers you to the Form 8-K regarding this release filed today with the Securities and Exchange Commission.

A summary of the non-GAAP adjustments presented in the table above by the financial statement line impacted is as follows:
(unaudited – in thousands)   Three Months Ended
July 1,   July 3,
  2012     2011  
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 770 $ 741
Amortization of acquisition-related intangible assets   244     244  
Total cost of revenue adjustments   1,014     985  
 
Operating expenses:
Engineering and development:
Stock-based compensation 4,318 4,396
Sales and marketing:
Stock-based compensation 1,965 1,682
General and administrative:
Stock-based compensation   2,224     2,371  
Total operating expense adjustments   8,507     8,449  
 
Total non-GAAP adjustments before income taxes 9,521 9,434
Income tax effect   (2,617 )   (2,475 )
Total non-GAAP adjustments $ 6,904   $ 6,959  
 

QLOGIC CORPORATION
 

CONDENSED CONSOLIDATED BALANCE SHEETS
 

(unaudited — in thousands)
 
  July 1,   April 1,
  2012     2012  
ASSETS
 
Current assets:
Cash and cash equivalents $ 117,052 $ 164,516
Marketable securities 379,290 373,439
Accounts receivable, net 78,784 76,588
Inventories 22,153 19,724
Deferred tax assets 16,510 16,780
Other current assets   35,523     35,842  
Total current assets 649,312 686,889
 
Property and equipment, net 81,787 78,010
Goodwill 110,976 110,976
Purchased intangible assets, net 4,971 5,277
Deferred tax assets 32,190 30,558
Other assets   1,556     1,708  
 
$ 880,792   $ 913,418  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 35,441 $ 34,198
Accrued compensation 20,431 28,326
Accrued taxes 2,362 2,799
Deferred revenue 6,235 6,504
Other current liabilities   15,506     9,390  
Total current liabilities 79,975 81,217
 
Accrued taxes 65,710 64,853
Other liabilities   7,656     7,505  
Total liabilities   153,341     153,575  
 
Stockholders’ equity:
Common stock 211 211
Additional paid-in capital 907,762 901,734
Retained earnings 1,635,587 1,617,201
Accumulated other comprehensive income 957 1,033
Treasury stock   (1,817,066 )   (1,760,336 )
Total stockholders’ equity   727,451     759,843  
 
$ 880,792   $ 913,418  
 

QLOGIC CORPORATION
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 

(unaudited — in thousands)
 
  Three Months Ended
July 1,   July 3,
  2012     2011  
 
Cash flows from operating activities:
Net income $ 18,386 $ 32,426
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,572 8,131
Stock-based compensation 9,277 9,667
Deferred income taxes (2,254 ) 3,124
Other non-cash items 809 821
Changes in operating assets and liabilities:
Accounts receivable (2,224 ) (9,101 )
Inventories (2,429 ) 916
Other assets (2,240 ) (1,854 )
Accounts payable 661 539
Accrued compensation (7,895 ) (4,674 )
Accrued taxes 3,108 (1,340 )
Deferred revenue (266 ) (596 )
Other liabilities   5,511     2,254  
Net cash provided by operating activities   27,016     40,313  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (72,440 ) (133,619 )
Proceeds from sales and maturities of available-for-sale securities 65,799 60,171
Purchases of property and equipment   (9,486 )   (8,982 )
Net cash used in investing activities   (16,127 )   (82,430 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards 2,847 7,553
Excess tax benefits from stock-based awards 126 538
Minimum tax withholding paid on behalf of employees for restricted stock units

(5,349

)

(5,259

)
Purchases of treasury stock   (55,977 )   (18,693 )
Net cash used in financing activities   (58,353 )   (15,861 )
 
Net decrease in cash and cash equivalents (47,464 ) (57,978 )
 
Cash and cash equivalents at beginning of period   164,516     147,780  
 
Cash and cash equivalents at end of period $ 117,052   $ 89,802  
 

QLOGIC CORPORATION
 

SUPPLEMENTAL FINANCIAL INFORMATION
 

(unaudited — in thousands)
 

Net Revenues
 

A summary of the company’s revenue components is as follows:
 
  Three Months Ended
July 1,   July 3,
2012 2011
 
Host Products $ 101,046 $ 108,925
Network Products 19,536 18,727
Silicon Products   9,789   16,829
$ 130,371 $ 144,481

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