(Source: Business Wire)
Emulex Corporation (NYSE:ELX) today announced results for its first
fiscal quarter ended September 27, 2009.
First Quarter Financial Highlights
Total net revenues of $85.5 million exceeding the high end of guidance
of $78 - $82 million
Host Server Products (HSP) were $64.1 million, or 75% of net revenues
8Gb/s net revenues increased 66% sequentially, accounting for over 20%
of Host Server Product (HSP) net revenues during the quarter
Converged Network Adapter (CNA) net revenues exceeded expectations
with growth of over 160% sequentially
Embedded Storage Products (ESP) were $21.3 million, or 25% of total
net revenues
GAAP gross margin of 61% and non-GAAP gross margins of 67%, GAAP
operating loss of $6.2 million, or 7% of total net revenues, and
non-GAAP operating income of $8.8 million, or 10% of total net revenues
GAAP diluted earnings per share of $0.05 compared to guidance of a
loss of $0.06-$0.09 per share
Non-GAAP diluted earnings per share of $0.08 exceeding the high end of
guidance of $0.03 - $0.06
Cash, cash equivalents and investments of $271.3 million
Repurchased 2 million shares of common stock using $18.2 million of
cash during the quarter
Inventory turnover of 12.6 times
Business Highlights
Announced IBM BladeCenter Virtual Fabric design win for flexible
10Gb/s Ethernet network connectivity
Published Second Edition of Convergenomics -- The Guide to Network
Convergence
Announced collaboration with Ixia on a reference guide for testing
converged network adapters
Gained three percent in Fibre Channel HBA market share during the
second quarter of 2009 according to Dell'Oro Group
Demonstrated host-based encryption security solution at RSA Europe
Conference
Announced sole source 8Gb/s Fibre Channel HBA design win with HP
StorageWorks X3820 Network Storage System
Released LPe12004 Quad-Channel 8Gb/s Fibre Channel HBA for
high-bandwidth slot-limited servers
Announced support for Serial Attached SCSI (SAS) hard disk drives and
Solid State Drives (SSDs) with next generation InSpeed Bridging
technology
Announced selection of InSpeed switches and bridges for next
generation LSI High Capacity Enclosure
Announced patent cross-license agreement with IBM to accelerate
integration of high performance networking solutions
Financial Results
First quarter total net revenues were $85.5 million, a sequential
increase of 8% and a decrease of 23% from the comparable quarter of last
year. First quarter GAAP net income was $3.8 million, or $0.05 per
diluted share, compared to GAAP net income $7.5 million, or $0.09 per
diluted share, reported in Q1 of fiscal 2009 and a net loss of $4.5
million, or $0.05 per share, in Q4 of fiscal 2009. Non-GAAP net income
for the first quarter was $6.9 million, or $0.08 per diluted share.
Non-GAAP net income per diluted share decreased 11% from $0.09 reported
in Q4 of fiscal 2009 and decreased 64% from $0.22 reported in Q1 of
fiscal 2009. Reconciliations between GAAP and non-GAAP results are
included in the accompanying financial data.
President and CEO Jim McCluney commented, "Following our solid execution
in the June quarter, I'm pleased to report our momentum accelerated in
the first quarter of fiscal 2010 as the team delivered results that
exceeded the high end of our August guidance for revenue and earnings
per share." Mr. McCluney added, "In addition to exceeding our first
quarter corporate financial goals for our core business, we delivered
meaningful proof points supporting our commitment to be a market leader
in converged networks. Our universal converged networking strategy using
enhanced 10Gb/s Ethernet to merge LAN (Local Area Network) and SAN
(Storage Area Network) data traffic is changing the way our customers
and our competitors think about the future of connectivity in data
centers."
Business Outlook
Although actual results may vary depending on a variety of factors, many
of which are outside the Company's control, including the current
economic downturn and uncertainty resulting from recent disruptions in
global credit and equity markets, Emulex is providing guidance for its
second fiscal quarter ending December 27, 2009. For the second quarter
fiscal 2010, Emulex is forecasting total net revenues in the range of
$88-$92 million. The Company expects non-GAAP earnings per diluted share
could amount to $0.10-$0.12 in the second quarter. On a GAAP basis,
Emulex expects a loss per diluted share of $0.03 -- $0.05 in the second
quarter. GAAP estimates for the second quarter reflect approximately
$0.15 per diluted share in expected charges arising primarily from
amortization of intangibles, stock-based compensation and costs,
including related litigation, associated with Broadcom's unsolicited
takeover proposal.
About Emulex
Emulex is the leader in converged networking solutions for the data
center. Our Connectivity Continuum architecture provides intelligent
networking services that transition today's infrastructure into
tomorrow's unified network ecosystem. Emulex provides a single framework
that intelligently connects every server, network and storage device
within the data center. Through strategic collaboration and integrated
partner solutions, Emulex provides its customers with industry-leading
business value, operational flexibility and strategic advantage. Emulex
is listed on the New York Stock Exchange (NYSE:ELX) and has corporate
headquarters in Costa Mesa, California. News releases and other
information about Emulex Corporation are available at http://www.emulex.com.
Note Regarding Non-GAAP Financial Information. To supplement the
condensed consolidated financial statements presented in accordance with
U.S. generally accepted accounting principles (GAAP), the Company has
included the following non-GAAP financial measures in this press release
or in the webcast to discuss the Company's financial results for the
first fiscal quarter which may be accessed via the Company's website at www.emulex.com:
(i) non-GAAP gross margin, (ii) non-GAAP operating expenses, (iii)
non-GAAP operating income, (iv) non-GAAP net income, and (v) non-GAAP
diluted earnings per share. Each of these non-GAAP financial measures is
adjusted from results based on GAAP to exclude certain expenses. As a
general matter, the Company uses such non-GAAP financial measures in
addition to and in conjunction with corresponding GAAP measures to help
analyze the performance of its core business, in connection with the
preparation of annual budgets, and in measuring performance for some
forms of compensation. In addition, the Company believes that non-GAAP
financial information is used by analysts and others in the investment
community to analyze the Company's historical results and in providing
estimates of future performance and that failure to report these
non-GAAP measures, could result in confusion among analysts and others
and a misplaced perception that the Company's results have
underperformed or exceeded expectations.
These non-GAAP financial measures reflect an additional way of viewing
aspects of the Company's operations that, when viewed with the GAAP
results and the reconciliations to corresponding GAAP financial
measures, provide a more complete understanding of the Company's results
of operations and the factors and trends affecting the Company's
business. However, these non-GAAP measures should be considered as a
supplement to, and not as a substitute for, or superior to, the
corresponding measures calculated in accordance with GAAP.
The non-GAAP disclosures and the non-GAAP adjustments, including the
basis for excluding such adjustments and the impact on the Company's
operations, are outlined below:
Non-GAAP gross margin.
Non-GAAP gross margin excludes the effects of (i) amortization of
intangibles, (ii) stock-based compensation, and (iii) severance and
associated costs. At the time of acquisition, the intangible assets are
recorded at fair value and subsequently amortized over their estimated
useful lives. The Company believes that the amortization of intangibles
does not constitute part of its core business because it generally
represents costs incurred by an acquired company or other third party to
build value prior to acquisition of the intangible assets and as such it
is effectively part of the transaction costs rather than ongoing costs
of operating the Company's core business. In this regard, the Company
notes that (1) once the intangibles are fully amortized, they will not
be replaced with cash costs and therefore, the exclusion of these costs
provides management and investors with better visibility into the actual
costs required to generate revenues over time, and (2) although the
Company sets the amortization expense based on useful life of the
various assets at the time of the transaction, the Company cannot
influence the timing and amount of the future amortization expense
recognition without changing the useful lives. As a result, the Company
believes that exclusion of these costs in presenting non-GAAP gross
margin and other non-GAAP financial measures provides management and
investors a more effective means of evaluating its historical
performance and projected costs and the potential for realizing cost
efficiencies within its core business. Similarly, the Company believes
that presentation of gross margin and other non-GAAP measures that
exclude the impact to gross margin of stock-based compensation assists
management and investors in evaluating the period over period
performance of the Company's ongoing core business operations because
the expenses are non-cash in nature and, although the size of the grants
is within the Company's control, the amount of expense varies depending
on factors such as short-term fluctuations in stock price and volatility
which can be unrelated to the operational performance of the Company
during the period in question and generally is outside the control of
management during the period in which the expense is recognized.
Moreover, the Company believes that the exclusion of stock-based
compensation in presenting non-GAAP gross margin and other non-GAAP
financial measures is useful to investors and allows them to understand
the impact of expensing stock-based compensation to the Company's gross
margin and other financial measures in comparison to both prior periods
as well as to its competitors. The Company has incurred severance and
certain related costs in connection with the change in employment status
of certain employees, including terminations resulting from elimination
of certain positions. As the Company believes these types of severance
expenses are infrequent in nature, the Company believes they do not
accurately reflect the ongoing costs of operation of the Company's core
business. As a result, the Company believes that the exclusion of such
severance and related costs from the calculation of non-GAAP gross
margin gives management and investors a more effective means of
evaluating its historical performance and projected costs.
The Company believes disclosure of non-GAAP gross margin has economic
substance because the excluded expenses do not represent continuing cash
expenditures or, as described above, the Company has limited control
over the timing and amount of the expenditures being discussed. A
material limitation associated with the use of this measure as compared
to the GAAP measure of gross margin is that it may not be comparable
with the calculation of gross margin for other companies in the
Company's industry. The Company compensates for these limitations by
providing full disclosure of the effects of this non-GAAP measure, by
presenting the corresponding GAAP financial measure in this release and
in the Company's financial statements and by providing a reconciliation
to the corresponding GAAP measure to enable investors to perform their
own analysis.
Non-GAAP operating expenses.
Non-GAAP operating expenses exclude the effects of (i) amortization of
other intangibles, (ii) stock-based compensation, (iii) severance and
associated costs and (iv) net charge associated with Broadcom's
unsolicited takeover proposal and related litigation costs. The Company
believes that presentation of a measure of operating expenses that
excludes the amortization of intangibles, stock-based compensation, and
severance and associated costs is useful to investors and the Company
for the same reasons as described above with respect to non-GAAP gross
margin. Furthermore, with respect to the exclusion of the net charge
associated with Broadcom's unsolicited takeover proposal and related
litigation costs, the Company believes that presentation of a measure of
non-GAAP operating expenses that excludes such charges is useful to
management and investors in evaluating the performance of the Company's
ongoing operations on a period-to-period basis and relative to the
Company's competitors. In this regard, the Company notes that the net
charge associated with Broadcom's unsolicited takeover proposal and
related litigation costs is infrequent in nature and is unrelated to the
Company's core business.
The Company believes disclosure of non-GAAP operating expenses has
economic substance because the excluded expenses are either infrequent
in nature or do not represent current cash expenditures. A material
limitation associated with the use of this measure as compared to the
GAAP measure of operating expenses is that it may not be comparable with
the calculation of operating expenses for other companies in the
Company's industry. The Company compensates for these limitations by
providing full disclosure of the effects of this non-GAAP measure, by
presenting the corresponding GAAP financial measure in this release and
in the Company's financial statements and by providing a reconciliation
to the corresponding GAAP measure to enable investors to perform their
own analysis.
Non-GAAP operating income.
Non-GAAP operating income excludes the effects of (i) amortization of
intangibles, (ii) stock-based compensation, (iii) severance and
associated costs, and (iv) net charge associated with Broadcom's
unsolicited takeover proposal and related litigation costs. The Company
believes that presentation of a measure of operating income that
excludes amortization of intangibles, stock-based compensation,
severance and associated costs, and the net charge associated with
Broadcom's unsolicited takeover proposal and related litigation costs is
useful to management and investors for the same reasons as described
above with respect to non-GAAP gross margin and non-GAAP operating
expenses.
The Company believes disclosure of non-GAAP operating income has
economic substance because the excluded expenses are either infrequent
in nature or do not represent current cash expenditures. A material
limitation associated with the use of this measure as compared to the
GAAP measure of operating income is that it may not be comparable with
the calculation of operating income for other companies in the Company's
industry. The Company compensates for these limitations by providing
full disclosure of the effects of this non-GAAP measure, by presenting
the corresponding GAAP financial measure in this release and in the
Company's financial statements and by providing a reconciliation to the
corresponding GAAP measure to enable investors to perform their own
analysis.
Non-GAAP net income and non-GAAP
diluted earnings per share. Non-GAAP net income and non-GAAP
diluted earnings per share exclude the effects of (i) amortization of
intangibles, (ii) stock-based compensation, (iii) severance and
associated costs, (iv) net charge associated with Broadcom's unsolicited
takeover proposal and related litigation costs, (v) the U.S. tax impact
associated with the options exchange, and (vi) the timing difference due
to using an actual interim effective tax rate versus an annualized
effective tax rate. In addition, non-GAAP net income and non-GAAP
diluted earnings per share reflect an adjustment of income tax expense
associated with exclusion of the foregoing expense items. The adjustment
of income taxes is required in order to provide management and investors
a more accurate assessment of the taxes that would have been payable on
net income, as adjusted by exclusion of the effects of the above listed
items. The Company believes that presentation of measures of net income
and diluted earnings per share that exclude these items is useful to
management and investors for the reasons described above with respect to
non-GAAP gross margin and non-GAAP operating income. The Company
believes that presentation of a measure of net income and diluted
earnings per share that excludes the tax impact associated with the
Company's recent options exchange, as well as the timing difference due
to using an actual interim effective tax rate versus an annualized
effective tax rate, is useful to management and investors in evaluating
the performance of the Company's ongoing operations on a
period-to-period basis and relative to the Company's competitors. In
this regard, the Company notes that income and charges of this type are
infrequent in nature and are unrelated to ongoing operation of the
Company's core business.
The Company believes disclosure of non-GAAP net income and non-GAAP
diluted earnings per share has economic substance because the excluded
expenses are infrequent in nature, are unlikely to be recurring and are
variable in nature, or do not represent current cash expenditures. A
material limitation associated with the use of this measure as compared
to the GAAP measures of net income and diluted earnings per share is
that they may not be comparable with the calculation of net income and
diluted earnings per share for other companies in the Company's
industry. The Company compensates for these limitations by providing
full disclosure of the effects of this non-GAAP measure, by presenting
the corresponding GAAP financial measure in this release and in the
Company's financial statements and by providing a reconciliation to the
corresponding GAAP measure to enable investors to perform their own
analysis.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: With the exception of historical information, the
statements set forth above, including, without limitation, those
contained in the discussion of "Business Outlook" above, and the
reconciliation of forward-looking diluted earnings per share below,
contain forward-looking statements that involve risk and uncertainties.
The Company expressly disclaims any obligation or undertaking to release
publicly any updates or changes to these forward-looking statements that
may be made to reflect any future events or circumstances. The Company
wishes to caution readers that a number of important factors could cause
actual results to differ materially from those in the forward-looking
statements. The fact that the economy generally, and the technology and
storage segments specifically, have been in a state of uncertainty makes
it difficult to determine if past experience is a good guide to the
future and makes it impossible to determine if markets will grow or
shrink in the short term. Recent disruptions in world credit and equity
markets and the resulting economic uncertainty for the Company's
customers and the storage networking market as a whole has resulted in a
downturn in information technology spending that has and could continue
to adversely affect the Company's revenues and results of operations.
Furthermore, the effect of any actual or potential unsolicited offers to
acquire the Company may have an adverse effect on the Company's
operations. As a result of this uncertainty, the Company is unable to
predict with any accuracy what future results might be. Other factors
affecting these forward-looking statements include, but are not limited
to, the following: slower than expected growth of the storage networking
market or the failure of the Company's Original Equipment Manufacturer
(OEM) customers to successfully incorporate the Company's products into
their systems; the Company's dependence on a limited number of customers
and the effects of the loss of, or decrease or delays in orders by any
such customers, or the failure of such customers to make payments; the
emergence of new or stronger competitors as a result of consolidation
movements in the market; the timing and market acceptance of the
Company's or the Company's OEM customers' new or enhanced products; the
variability in the level of the Company's backlog and the variable and
seasonal procurement patterns of the Company's customers; impairment
charges, including but not limited to goodwill and intangible assets;
changes in tax rates or legislation; the effects of terrorist
activities, natural disasters and resulting political or economic
instability; the highly competitive nature of the markets for the
Company's products as well as pricing pressures that may result from
such competitive conditions; the effect of rapid migration of customers
towards newer, lower cost product platforms; possible transitions from
board or box level to application specific computer chip solutions for
selected applications; a shift in unit product mix from higher-end to
lower-end mezzanine card products; a decrease in the average unit
selling prices or an increase in the manufactured cost of the Company's
products; delays in product development; the Company's reliance on
third-party suppliers and subcontractors for components and assembly;
any inadequacy of the Company's intellectual property protection or the
potential for third-party claims of infringement; the Company's ability
to attract and retain key technical personnel; the Company's ability to
benefit from research and development activities; the Company's
dependence on international sales and internationally produced products;
the effect of acquisitions; changes in accounting standards; and the
potential effects of global warming and any resulting regulatory changes
on the Company's business. These and other factors could cause actual
results to differ materially from those in the forward-looking
statements and are discussed in the Company's filings with the
Securities and Exchange Commission, including its recent filings on
Forms 10-K and 10-Q, under the caption "Risk Factors."
This news release refers to various products and companies by their
trade names. In most, if not all, cases these designations are claimed
as trademarks or registered trademarks by their respective companies.
EMULEX CORPORATION AND SUBSIDIARIESCondensed Consolidated Statements of Operations(unaudited, in thousands, except per share data)
Three Months Ended
September 27, September 28,
2009 2008
Net revenues $ 85,527 $ 111,696
Cost of sales 33,421 41,744
Gross profit 52,106 69,952
Operating expenses:
Engineering and development 31,399 34,783
Selling and marketing 12,912 14,516
General and administrative 12,279 9,416
Amortization of other intangible assets 1,698 2,087
Total operating expenses 58,288 60,802
Operating income (loss) (6,182 ) 9,150
Nonoperating income:
Interest income 119 1,849
Interest expense (2 ) (2 )
Other income, net 230 324
Total nonoperating income 347 2,171
Income (loss) before income taxes (5,835 ) 11,321
Income tax provision (benefit) (9,673 ) 3,820
Net income $ 3,838 $ 7,501
Net income per share:
Basic $ 0.05 $ 0.09
Diluted $ 0.05 $ 0.09
Number of shares used in per share computations:
Basic 81,446 83,408
Diluted 82,234 83,982
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EMULEX CORPORATION AND SUBSIDIARIESCondensed Consolidated Balance Sheets(unaudited, in thousands)
September 27, June 28,
2009 2009
Assets
Current assets:
Cash and cash equivalents $ 271,152 $ 294,136
Investments 153 8,289
Accounts and other receivables, net 51,611 51,566
Inventories 10,617 10,665
Prepaid income taxes 17,220 17,083
Prepaid expenses and other current assets 11,940 8,021
Note receivable 14,947 -
Deferred income taxes 17,601 16,793
Total current assets 395,241 406,553
Property and equipment, net 69,297 74,794
Intangible assets, net 144,406 130,830
Deferred income taxes 19,665 16,002
Note receivable - 15,210
Other assets 20,143 15,529
$ 648,752 $ 658,918
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 24,978 $ 28,786
Accrued liabilities 29,376 23,454
Total current liabilities 54,354 52,240
Other liabilities 5,612 5,826
Accrued taxes 31,964 31,408
Total liabilities 91,930 89,474
Total stockholders' equity 556,822 569,444
$ 648,752 $ 658,918
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EMULEX CORPORATION AND SUBSIDIARIESSupplemental Information
Historical Net Revenues by Channel and Territory:
($000s) Q1 FY2010Revenues % TotalRevenues Q1 FY2009Revenues % TotalRevenues % Change
Revenues from OEM customers $ 72,287 85 % $ 87,511 78 % (17 %)
Revenues from distribution 13,211 15 % 24,118 22 % (45 %)
Other 29 nm 67 nm (57 %)
Total net revenues $ 85,527 100 % $ 111,696 100 % (23 %)
United States $ 26,766 31 % $ 39,799 36 % (33 %)
Europe, Middle East and Africa 28,115 33 % 37,578 34 % (25 %)
Asia-Pacific 29,166 34 % 32,474 29 % (10 %)
Rest of world 1,480 2 % 1,845 1 % (20 %)
Total net revenues $ 85,527 100 % $ 111,696 100 % (23 %)
nm -- not meaningful
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Summary of Stock-based Compensation:
Three Months Ended
September 27, September 28,
($000s) 2009 2008
Cost of sales $ 353 $ 345
Engineering and development 2,477 3,146
Selling and marketing 496 1,015
General and administrative 1,611 2,264
Total stock-based compensation $ 4,937 $ 6,770
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Reconciliation of GAAP gross margin to non-GAAP gross margin:
Three Months Ended
September 27, September 28,
2009 2008
GAAP gross margin 60.9% 62.6%
Items excluded from GAAP gross margin to calculate non-GAAP gross margin:
Stock-based compensation 0.4% 0.3%
Amortization of intangibles 5.6% 4.3%
Severance and associated costs - 0.2%
Non-GAAP gross margin 66.9% 67.4%
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Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
Three Months Ended
September 27, September 28,
($000s) 2009 2008
GAAP operating expenses, as presented above $58,288 $60,802
Items excluded from GAAP operating expenses to calculate non-GAAP operating expenses:
Stock-based compensation (4,584) (6,425)
Amortization of other intangibles (1,698) (2,087)
Severance and associated costs (964) (2,394)
Net charge associated with Broadcom's unsolicited takeover proposal and related litigation costs (2,610) -
Impact on operating expenses (9,856) (10,906)
Non-GAAP operating expenses $48,432 $49,896
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Reconciliation of GAAP operating income (loss) to non-GAAP operating income:
Three Months Ended
September 27, September 28,
($000s) 2009 2008
GAAP operating income (loss) as presented above ($6,182 ) $ 9,150
Items excluded from GAAP operating income (loss) to calculate non-GAAP operating income:
Stock-based compensation 4,937 6,770
Amortization of intangibles 6,424 6,818
Severance and associated costs 964 2,599
Net charge associated with Broadcom's unsolicited takeover proposal and related litigation costs 2,610 -
Impact on operating income 14,935 16,187
Non-GAAP operating income $ 8,753 $ 25,337
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Reconciliation of GAAP net income to non-GAAP net income:
Three Months Ended
September 27, September 28,
($000s) 2009 2008
GAAP net income as presented above $ 3,838 $ 7,501
Items excluded from GAAP net income to calculate non-GAAP net income:
Stock-based compensation 4,937 6,770
Amortization of intangibles 6,424 6,818
Severance and associated costs 964 2,599
Net charge associated with Broadcom's unsolicited takeover proposal and related litigation costs 2,610 -
Income tax effect of above items (5,406 ) (5,329 )
Tax impact associated with the option exchange (3,982 ) -
Timing difference due to using an actual interim effective tax rate versus an annualized effective tax rate (2,468 ) -
Impact on net income 3,079 10,858
Non-GAAP net income $ 6,917 $ 18,359
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Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share:
Three Months Ended
September 27, September 28,
(shares in 000s) 2009 2008
GAAP diluted earnings per share as presented above $ 0.05 $ 0.09
Items excluded from diluted GAAP earnings per share to calculate diluted non-GAAP earnings per share, net of tax effect:
Stock-based compensation 0.04 0.06
Amortization of intangibles 0.05 0.05
Severance and associated costs 0.00 0.02
Net charge associated with Broadcom's unsolicited takeover proposal and related litigation costs 0.02 -
Tax impact associated with the option exchange (0.05 ) -
Timing difference due to using an actual interim effective tax rate versus an annualized effective tax rate (0.03 ) -
Impact on diluted earnings per share 0.03 0.13
Non-GAAP diluted earnings per share $ 0.08 $ 0.22
Diluted shares used in non-GAAP per share computations 82,234 83,982
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Forward-Looking Diluted Earnings per Share Reconciliation:
Guidance forThree MonthsEndingDecember 27, 2009
Non-GAAP diluted earnings per share guidance $ 0.10 - $0.12
Items excluded, net of tax, from non-GAAP diluted earnings per share to calculate GAAP diluted loss per share guidance:
Amortization of intangibles 0.06
Stock-based compensation 0.05
Other charges associated with Broadcom's unsolicited takeover proposal and related litigation costs 0.02
Timing difference due to using an actual interim effective tax rate versus an annualized effective tax rate 0.02
GAAP diluted loss per share guidance $ 0.03 -- $0.05
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