COSTA MESA, Calif., April 22, 2004 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the market leader in Fibre Channel host bus adapters (HBAs) and a leading supplier of intelligent building blocks for next-generation storage networking systems, today announced results for its third fiscal quarter ended March 28, 2004.
Third Quarter Highlights
-- Revenues up 5% sequentially and up 24% year over year
to a record $99.0 million, driven by strong sequential
growth in embedded switching solutions
-- Completion of the Vixel acquisition integration effort and
delivery of accretive results to non-GAAP earnings ahead
of plan
-- Annualized revenue per employee of $777,000, up from
$726,000 in the second fiscal quarter
-- Gross margin of 64% on a non-GAAP basis and 63% on a
GAAP basis
-- Non-GAAP operating margin of 32% and GAAP operating
margin of 23%
-- Non-GAAP operating income of $32.1 million, a record
for the fifth quarter in a row, as well as GAAP
operating income of $22.4 million
-- Non-GAAP diluted EPS of $0.25, up 14% from a year ago,
and GAAP diluted EPS of $0.17
Financial Results
Third quarter revenues grew to a record $99.0 million, up 5% sequentially and up 24% year over year. Fibre Channel revenues expanded 27% year over year and grew 5% sequentially from the second fiscal quarter, amounting to essentially 100% of third quarter net revenues. Quarterly growth was driven by demand for InSpeed(TM) embedded switching solutions, which contributed over 10% of third quarter net revenue. HBA revenues grew from a year ago and declined modestly sequentially in the seasonally soft third quarter. Emulex continued to expand its international business in the third quarter, as sales to Europe and the Pac Rim reached record levels and collectively contributed nearly half of total revenue.
Non-GAAP net income expanded 12% from the comparable year-ago results to $20.9 million, or $0.25 per diluted share. GAAP net income, including charges associated with the Vixel acquisition, amounted to $14.6 million, or $0.17 per diluted share, compared to a net loss of $248,000, or $0.00 per diluted share, for the comparable period last year. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.
Paul Folino, Emulex Chairman and CEO, stated, "This quarter showcased the success of the Vixel acquisition and validated our strategy to expand our addressable market through diversification into new growth storage markets, notably embedded storage switching. Revenue from switch products that we acquired with the purchase of Vixel outpaced expectations and drove the third quarter's sequential and year-to-year growth." Folino continued, "We are extremely pleased with the successful integration of the Vixel acquisition, which delivered accretive results to non-GAAP earnings in our first full quarter of combined operations."
With respect to its balance sheet, during the third quarter, the over-allotment option for Emulex's December convertible note offering was exercised, resulting in the issuance of another $67.5 million in aggregate principal amount of convertible subordinated notes due 2023 with a 0.25% coupon and priced at a 60% conversion premium convertible at $43.20 per share. Additionally, during the third quarter, the Company repurchased $12.3 million in face value of its 1.75% convertible subordinated notes. Emulex exited the third quarter of fiscal 2004 with cash, cash equivalents, restricted cash and investments balances of $630 million.
Business Outlook
Emulex is providing guidance for its fourth fiscal quarter ending June 2004 as follows. Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, Emulex is budgeting for year-over-year revenue growth in the 22% to 26% range, and sequential revenue growth of 1% to 4%, with revenue for the quarter in a range of $100 million to $103 million and non-GAAP earnings per share of up to 25 cents. On a GAAP basis, Emulex expects diluted EPS of approximately $0.18 per share, reflecting approximately $0.07 per share in expected GAAP charges arising primarily from amortization of intangibles and deferred stock-based compensation.
Webcast Information
Emulex will host a webcast today at 2:00 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the home page of the Emulex website at www.emulex.com. During the call, Emulex will discuss details of the third fiscal quarter financial results. A replay of the webcast will be available in the audio archive section of the investor relations page of the Emulex website. In addition, a replay of the quarterly conference call will be available for 48 hours by calling (888) 203-1112 -- and using the passcode 294173.
About Emulex
Emulex Corporation is the world leader in Fibre Channel HBAs and delivers a broad range of intelligent building blocks for next- generation storage networking systems. Emulex was named one of Forbes Magazine's 25 Fastest Growing Technology Companies, and ranked number 15 in Deloitte & Touche's 2003 Technology Fast 50.
The world's leading server and storage providers rely on Emulex HBAs, embedded storage switching and I/O controller products to build reliable, scalable and high performance storage solutions. The Emulex award-winning product families, including its LightPulse(TM) HBAs and InSpeed(TM) embedded storage switching products, are based on internally developed ASIC, firmware and software technologies, and offer customers high performance, scalability, flexibility and reduced total cost of ownership. The company's products have been selected by the world's leading server and storage providers, including Dell, EMC, Fujitsu Ltd., Fujitsu Siemens, Groupe Bull, HP, Hitachi Data Systems, IBM, NEC, Network Appliance, Quantum Corp., StorageTek, Sun Microsystems, Unisys and Xyratex. In addition, Emulex includes industry leaders Brocade, Computer Associates, Intel, McDATA, Microsoft and VERITAS among its strategic partners. Corporate headquarters are located in Costa Mesa, California. News releases and other information about Emulex Corporation are available at http://www.emulex.com.
EMULEX -- We network storage
Note Regarding Non-GAAP Financial Information. The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes benefits related to an inventory charge, gains or losses on the repurchase of convertible subordinated notes and litigation settlements, as well as charges relating to the amortization of stock-based compensation and in-process research and development charges. The projected non-GAAP financial information also excludes any acquisition-related charges associated with the acquisitions of Giganet, Vixel and the technology assets of Trebia Networks. Management believes that the presentation of non-GAAP information may provide useful information to investors because Emulex has historically provided this information and understands that some investors consider it useful in evaluating Emulex's core business. Management also uses this non-GAAP information, along with the GAAP information, in evaluating Emulex's business for these purposes. The non-GAAP results should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP or other pro forma measures used by other companies.
"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, contain forward-looking statements that involve risk and uncertainties. We expressly disclaim 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. These factors include risks related to the recent acquisition of Vixel and the fact that the economy generally, and the technology and storage segments specifically, have been in a state of uncertainty making it difficult to determine if past experience is a good guide to the future and making it impossible to determine if markets will grow or shrink in the short term. The Company's results have been significantly impacted by a widespread slowdown in technology investment that has also pressured the storage networking market that is the mainstay of the Company's business. A continued downturn in information technology spending could adversely affect the Company's revenues and results of 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 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 booking patterns of the Company's customers; the effects of terrorist activities 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 Company's ability and the ability of the Company's OEM customers to keep pace with the rapid technological changes in the Company's industry and gain market acceptance for new products and technologies; the effect of rapid migration of customers towards newer product platforms; possible transitions from board level to application specific computer chip solutions for selected applications; a shift in unit product mix from high-end to midrange 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 dependence on foreign sales; and the effect of acquisitions, changes in tax rates or changes in accounting standards. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are discussed in the company's filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 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 SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
------------------- -------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
------------------- -------------------
Net revenues $ 99,038 $ 79,573 $277,984 $226,446
Cost of sales 36,374 29,088 99,507 84,311
-------- -------- -------- --------
Gross profit 62,664 50,485 178,477 142,135
-------- -------- -------- --------
Operating expenses:
Engineering and
development 19,046 15,823 53,701 45,418
Selling and marketing 8,366 4,896 19,818 13,919
General and
administrative 6,014 30,573 15,259 36,641
Amortization of
intangibles 6,795 1,452 12,546 4,357
In-process research and
development -- -- 11,400 --
-------- -------- -------- --------
Total operating expenses 40,221 52,744 112,724 100,335
-------- -------- -------- --------
Operating income (loss) 22,443 (2,259) 65,753 41,800
-------- -------- -------- --------
Nonoperating income:
Gain (loss) on
repurchase of
convertible subordinated
notes (231) -- 2,670 28,729
Interest income 2,224 3,142 6,700 10,081
Interest expense (1,110) (1,236) (2,870) (4,267)
Other income
(expense), net (23) (46) 141 (132)
-------- -------- -------- --------
Total nonoperating income 860 1,860 6,641 34,411
-------- -------- -------- --------
Income (loss) before
income taxes 23,303 (399) 72,394 76,211
Income tax provision
(benefit) 8,752 (151) 31,640 28,961
-------- -------- -------- --------
Net income (loss) $ 14,551 $ (248) $ 40,754 $ 47,250
======== ======== ======== ========
Net income (loss)
per share:
Basic $ 0.18 $ (0.00) $ 0.49 $ 0.58
======== ======== ======== ========
Diluted $ 0.17 $ (0.00) $ 0.48 $ 0.57
======== ======== ======== ========
Number of shares used in
per share computations:
Basic 81,872 82,055 82,928 81,959
======== ======== ======== ========
Diluted 84,592 82,055 86,874 83,511
======== ======== ======== ========
The interest expense adjustment, net of tax, to the Company's GAAP diluted per share calculation due to the dilutive effect of its convertible subordinated notes was $75 and $888 for the three and nine months ended March 28, 2004, respectively, and $0 for the three and nine months ended March 30, 2003.
A reconciliation of the non-GAAP net income with the Company's net
income determined under GAAP is presented in the following table.
EMULEX CORPORATION AND SUBSIDIARIES
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands - unaudited)
Three Months Ended Nine Months Ended
------------------ ------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
------------------ ------------------
GAAP net income (loss),
as presented above $14,551 $ (248) $40,754 $47,250
------- ------- ------- -------
Items excluded from GAAP net
income to calculate non-GAAP
net income:
Subsequent benefit related to
the excess and obsolete
inventory charge associated
with slowing demand for older
generation on gigabit per
second products, due to sale
of impaired inventory,
excluded from cost of
goods sold (1) (45) (332) (1,941) (1,636)
Retention bonuses and
amortization of deferred
stock-based compensation
associated with the
acquisition of Vixel and
Giganet, as follows:
Excluded from engineering
and development 702 925 1,679 2,050
Excluded from selling
and marketing 558 378 1,977 1,024
Excluded from general
and administrative 999 126 1,410 267
Excluded from cost of sales 626 72 859 106
In-process research and
development expense associated
with the acquisition of Vixel
Corporation -- -- 11,400 --
Amortization of intangibles,
excluded from operating
expenses 6,795 1,452 12,546 4,357
Net charge associated with
settlements of securities
class action and derivative
lawsuits -- 27,007 -- 27,007
Loss (gain) on repurchase of
convertible subordinated
notes, excluded from
nonoperating income (2) 231 -- (2,670) (28,729)
Net charge associated with the
tentative settlement of
shareholder litigation
associated with the
acquisition of Vixel
Corporation -- -- 698 --
Income tax effect of above
items, excluded from the
income tax provision (3,533) (10,689) (4,872) (356)
------- ------- ------- -------
Impact on net income 6,333 18,939 21,086 4,090
------- ------- ------- -------
Non-GAAP net income $20,884 $18,691 $61,840 $51,340
======= ======= ======= =======
(1) Excess and obsolete inventory charge. Starting in late September 2001, some of Emulex's major customers made announcements that general economic conditions, exacerbated by the increase in economic uncertainty in the aftermath of the terrorist events of September 11, 2001, were having a negative impact on their financial results. The announcements made, and forecasts received, indicated deteriorating demand for the Company's one gigabit per second (Gbps) products as these customers were expected to migrate to two Gbps products for future purchases. In order to provide meaningful comparisons of operating results, any subsequent consumption of previously impaired products is excluded.
(2) Gain/loss on repurchase of convertible subordinated notes. In the three months ended March 28, 2003, Emulex repurchased $12.3 million in face value of its convertible subordinated notes, resulting in a pre-tax loss of $0.2 million. In the three months ended December 28, 2003, Emulex repurchased $85.4 million in face value of its 1.75% convertible subordinated notes, resulting in a pre-tax loss of $1.8 million. In the three months ended September 28, 2003, Emulex repurchased $93.9 million in face value of its convertible subordinated notes at a 7% discount, resulting in a pre-tax gain of $4.7 million. In the three months ended September 29, 2002, Emulex repurchased $136 million in face value of its convertible subordinated notes at a 24% discount, resulting in a pre-tax gain of $28.7 million.
The non-GAAP financial information presented below is based on the Company's condensed consolidated financial statements and excludes certain adjustments detailed above. The Company uses this non-GAAP information to evaluate its operating performance. This presentation is not in accordance with, or an alternative for, GAAP and may be different from the non-GAAP presentation used by other companies.
EMULEX CORPORATION AND SUBSIDIARIES
Non-GAAP Condensed Consolidated Statements of Income(3)
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
------------------- --------------------
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
------------------- --------------------
Net revenues $ 99,038 $ 79,573 $ 277,984 $ 226,446
Cost of sales 35,793 29,348 100,589 85,841
-------- -------- --------- ---------
Gross profit 63,245 50,225 177,395 140,605
-------- -------- --------- ---------
Operating expenses:
Engineering and
development 18,344 14,898 52,022 43,368
Selling and marketing 7,808 4,518 17,841 12,895
General and administrative 5,015 3,440 13,151 9,367
-------- -------- --------- ---------
Total operating expenses 31,167 22,856 83,014 65,630
-------- -------- --------- ---------
Operating income 32,078 27,369 94,381 74,975
-------- -------- --------- ---------
Nonoperating income:
Interest income 2,224 3,142 6,700 10,081
Interest expense (1,110) (1,236) (2,870) (4,267)
Other income (expense),
net (23) (46) 141 (132)
-------- -------- --------- ---------
Total nonoperating income 1,091 1,860 3,971 5,682
-------- -------- --------- ---------
Income before income taxes 33,169 29,229 98,352 80,657
Income tax provision 12,285 10,538 36,512 29,317
-------- -------- --------- ---------
Net income $ 20,884 $ 18,691 $ 61,840 $ 51,340
======== ======== ========= =========
Net income per share:
Basic $ 0.26 $ 0.23 $ 0.75 $ 0.63
======== ======== ========= =========
Diluted $ 0.25 $ 0.22 $ 0.72 $ 0.61
======== ======== ========= =========
Number of shares used
in per share
computations:
Basic 81,872 82,055 82,928 81,959
======== ======== ========= =========
Diluted 84,592 87,505 86,874 87,932
======== ======== ========= =========
The interest expense adjustment, net of tax, to the Company's non-GAAP diluted per share calculation due to the dilutive effect of its convertible subordinated notes was $75 and $1,046 for the three and nine months ended March 28, 2004, respectively, and $792 and $2,718 for the three and nine months ended March 30, 2003, respectively.
(3) See the preceding Note Regarding Non-GAAP Financial Information as well as the Reconciliation of GAAP Net Income to Non-GAAP Net Income.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
March 28, June 29,
2004 2003
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 182,864 $ 136,971
Restricted cash 246 9,342
Investments 225,193 239,302
Accounts and other
receivables, net 64,752 46,678
Litigation settlements receivable 5,101 13,095
Inventories, net 30,684 10,998
Prepaid expenses 5,704 5,516
Deferred income taxes 25,514 36,330
--------- ---------
Total current assets 540,058 498,232
Property and equipment, net 62,100 26,585
Investments 221,302 234,847
Goodwill 583,490 397,256
Other intangibles, net 129,216 27,067
Deferred income taxes 8,610 --
Other assets 1,492 5,782
--------- ---------
$ 1,546,268 $ 1,189,769
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 26,584 $ 11,298
Accrued liabilities 22,408 18,806
Accrued litigation settlements -- 39,500
Income taxes payable 16,777 5,457
--------- ---------
Total current liabilities 65,769 75,061
Convertible subordinated notes 523,484 208,518
Contracts payable 9 --
Deferred income taxes -- 4,260
--------- ---------
Total liabilities 589,262 287,839
Total stockholders' equity 957,006 901,930
--------- ---------
$ 1,546,268 $ 1,189,769
========= =========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
--------------------------------------------
Q3 FY 2004 & Total Q3 FY 2003 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
Revenue from
OEM customers $61,502 62% $54,820 69% +12%
Revenue from
distribution 37,499 38% 24,736 31% +52%
Other 37 nm(4) 17 nm(4) nm(4)
------- ------ ------- ----- -----
Total Net
Revenues $99,038 100% $79,573 100% +24%
======= ===== ======= ===== =====
United States $51,006 51% $44,835 56% +14%
Europe 38,406 39% 28,398 36% +35%
Pacific Rim
countries 9,626 10% 6,340 8% +52%
------- ------ ------- ----- -----
Total Net
Revenues $99,038 100% $79,573 100% +24%
======= ===== ======= ===== =====
Forward-Looking Diluted Earnings per Share Reconciliation:
----------------------------------------------------------
Guidance for
Three Months Ending
June 27, 2004
-------------
Non-GAAP diluted earnings per
share guidance $ 0.25
Items excluded, net of tax, from
non-GAAP diluted earnings per share
to calculate GAAP diluted earnings
per share guidance:
Amortization of intangibles $ (0.05)
Amortization of deferred stock-based
compensation $ (0.01)
Loss on repurchase of 1.75%
convertible subordinated notes $ (0.01)
-----
GAAP diluted earnings per share guidance $ 0.18
=====
(4) Not meaningful