QLGC Qlogic Corp. (MM)

QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its first quarter financial results for the period ended June 29, 2014.

Net revenue for the first quarter of fiscal 2015 was $119.4 million and increased 6% from $113.1 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $104.7 million during the first quarter of fiscal 2015 and increased 12% from $93.2 million in the same quarter last year. Revenue from Legacy Connectivity Products was $14.7 million during the first quarter of fiscal 2015 compared to $19.9 million in the same quarter last year.

“Fiscal year 2015 is off to a solid start as we delivered both revenue and non-GAAP earnings per diluted share that exceeded the midpoint of our guidance ranges. Our strong revenue performance was driven by a 12% year-over-year increase in revenue from Advanced Connectivity Platforms,” said Prasad Rampalli, president and chief executive officer, QLogic. “Our team executed very well to further establish QLogic as a leader in data and storage networking connectivity products. We are making significant progress in the enterprise Ethernet market and our revenue from these products is an important contributor to our overall growth. We continue to believe that we are well positioned to experience revenue growth through expanded market opportunities.”

Net income on a GAAP basis for the first quarter of fiscal 2015 increased to $6.0 million, or $0.07 per diluted share, from a net loss of $3.1 million, or $0.03 per diluted share, for the first quarter of fiscal 2014. Net income on a non-GAAP basis for the first quarter of fiscal 2015 increased 13% to $18.5 million, or $0.21 per diluted share, from $16.4 million, or $0.18 per diluted share, for the first quarter of fiscal 2014.

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 first quarter fiscal 2015 conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Prasad Rampalli, 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. Phone access to participate in the conference call is available at (888) 278-8446, pass code: 7597692.

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.

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QLogic – the Ultimate in Performance

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance server and storage networking connectivity products. Leading OEMs and channel partners worldwide rely on QLogic for their server and storage 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, as well as our belief that we are making significant progress in the enterprise Ethernet market and that we are well positioned to experience revenue growth through expanded market opportunities) 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: potential fluctuations in operating results; gross margins that may vary over time; unfavorable economic conditions; 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; uncertain benefits from strategic business combinations, acquisitions and divestitures; the ability to attract and retain key personnel; 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; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; 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; a reduction in sales efforts by current distributors; 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; system security risks, data protection breaches and cyber-attacks; and the company’s ability to borrow under its credit agreement is subject to certain covenants.

More detailed information on these and additional factors that 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 OPERATIONS

(unaudited — in thousands, except per share amounts)

  Three Months Ended

June 29,

2014

               

June 30,

2013

  Net revenues $ 119,449 $ 113,116 Cost of revenues   48,754     36,619   Gross profit   70,695     76,497     Operating expenses: Engineering and development 37,821 40,387 Sales and marketing 16,034 19,413 General and administrative 8,900 7,739 Special charges   2,544     12,033   Total operating expenses   65,299     79,572     Operating income (loss) 5,396 (3,075 )   Interest and other income, net   142     773     Income (loss) before income taxes 5,538 (2,302 )   Income tax expense (benefit)   (462 )   748     Net income (loss) $ 6,000   $ (3,050 )   Net income (loss) per share: Basic $ 0.07 $ (0.03 ) Diluted $ 0.07 $ (0.03 )   Number of shares used in per share calculations: Basic 87,395 89,146 Diluted 88,253 89,146          

QLOGIC CORPORATION

RECONCILIATION OF GAAP NET INCOME (LOSS) TO

NON-GAAP NET INCOME

(unaudited — in thousands, except per share amounts)

  Three Months Ended

June 29,

2014

               

June 30,

2013

  GAAP net income (loss) $ 6,000 $ (3,050 ) Items excluded from GAAP net income (loss): Stock-based compensation 5,540 8,171 Amortization of acquisition-related intangible assets 4,448 243 Acquisition-related charges 771 — Amortization of license fee 699 — Special charges 2,544 12,033 Income tax effect   (1,516 )   (981 ) Total non-GAAP adjustments   12,486     19,466   Non-GAAP net income $ 18,486   $ 16,416     Net income (loss) per diluted share: GAAP net income (loss) $ 0.07 $ (0.03 ) Adjustments   0.14     0.21   Non-GAAP net income $ 0.21   $ 0.18     Number of shares used in non-GAAP per diluted share calculations

88,253

89,770

   

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 net income and non-GAAP net income per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core net income and core net income 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 net profitability with historical periods and comparisons of the company’s core net profitability with the corresponding results for competitors. Management believes that non-GAAP net income and non-GAAP net income 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 net profitability and related profitability on a per diluted share basis.

Management uses non-GAAP net income and non-GAAP net income 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 June 29,

2014

                June 30,

2013

Non-GAAP Adjustments: Cost of revenues: Stock-based compensation $ 355 $ 584 Amortization of acquisition-related intangible assets 4,448 243 Acquisition-related charges 771 — Amortization of license fee   699     —   Total cost of revenue adjustments   6,273     827     Operating expenses: Engineering and development: Stock-based compensation 2,971 4,351 Sales and marketing: Stock-based compensation 1,010 1,793 General and administrative: Stock-based compensation 1,204 1,443 Special charges   2,544     12,033   Total operating expense adjustments   7,729     19,620     Total non-GAAP adjustments before income taxes 14,002 20,447   Income tax effect   (1,516 )   (981 )   Total non-GAAP adjustments $ 12,486   $ 19,466                            

QLOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited — in thousands)

  June 29,

2014

March 30,

2014

ASSETS Current assets: Cash and cash equivalents $ 60,882 $ 91,258 Marketable securities   189,532     186,783   Total cash and marketable securities 250,414 278,041 Accounts receivable, net 84,103 65,213 Inventories 25,715 18,036 Deferred tax assets 14,681 15,080 Other current assets   19,870     16,590   Total current assets 394,783 392,960   Property and equipment, net 86,304 84,912 Goodwill 193,294 194,107 Purchased intangible assets, net 65,400 69,903 Deferred tax assets 29,091 32,827 Other assets   22,796     23,554     $ 791,668   $ 798,263     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 31,261 $ 30,657 Accrued compensation 19,721 26,956 Accrued taxes 1,530 981 Deferred revenue 4,040 3,954 Other current liabilities   8,502     16,123   Total current liabilities 65,054 78,671   Accrued taxes 13,871 17,095 Other liabilities   9,315     9,071   Total liabilities   88,240     104,837     Stockholders’ equity: Common stock 214 214 Additional paid-in capital 961,690 958,008 Retained earnings 1,678,071 1,672,071 Accumulated other comprehensive income 755 435 Treasury stock   (1,937,302 )   (1,937,302 ) Total stockholders’ equity   703,428     693,426     $ 791,668   $ 798,263            

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited — in thousands)

  Three Months Ended

 

June 29,

2014

                June 30,

2013

Cash flows from operating activities: Net income (loss) $ 6,000 $ (3,050 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 12,180 7,806 Stock-based compensation 5,540 8,171 Deferred income taxes 4,076 5,403 Asset impairments 1,011 2,429 Other non-cash items 581 345 Changes in operating assets and liabilities: Accounts receivable (18,880 ) (3,169 ) Inventories (7,679 ) 3,052 Other assets 77 (210 ) Accounts payable 416 (289 ) Accrued compensation (7,235 ) (5,374 ) Accrued taxes, net (5,418 ) (5,366 ) Other liabilities   (7,291 )   6,843   Net cash provided by (used in) operating activities   (16,622 )   16,591     Cash flows from investing activities: Purchases of available-for-sale securities (51,759 ) (89,318 ) Proceeds from sales and maturities of available-for-sale securities 48,932 108,609 Purchases of property and equipment   (8,989 )   (10,111 ) Net cash provided by (used in) investing activities   (11,816 )   9,180     Cash flows from financing activities: Proceeds from issuance of common stock under stock-based awards 1,440 1,963 Minimum tax withholding paid on behalf of employees for restricted stock units (3,298 ) (4,280 ) Purchases of treasury stock — (24,428 ) Other financing activities   (80 )   (6 ) Net cash used in financing activities   (1,938 )   (26,751 )   Net decrease in cash and cash equivalents (30,376 ) (980 )   Cash and cash equivalents at beginning of period   91,258     95,532     Cash and cash equivalents at end of period $ 60,882   $ 94,552            

QLOGIC CORPORATION

SUPPLEMENTAL FINANCIAL INFORMATION

(unaudited — in thousands)

 

Net Revenues

 

A summary of the company’s revenue components is as follows:

  Three Months Ended June 29,

2014

                June 30,

2013

Advanced Connectivity Platforms $ 104,701 $ 93,190 Legacy Connectivity Products   14,748   19,926 $ 119,449 $ 113,116  

QLogic CorporationMedia Contact:Steve Sturgeon, 858-472-5669steve.sturgeon@qlogic.comorInvestor Contact:Doug Naylor, 949-542-1330doug.naylor@qlogic.com