COSTA MESA, Calif., Aug. 5, 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 preliminary results for its fourth fiscal quarter ended June 27, 2004.
Fourth Quarter Highlights
-- Revenues increased 6% from a year ago to $86.4 million,
compared to updated guidance delivered at the end of June
of $85-$86 million
-- Revenue and non-GAAP results are final but GAAP results
are preliminary, pending completion of FAS 142 and 144
analyses to determine the amount of impairment to our
goodwill and intangible assets
-- Gross margin of 63% on both a non-GAAP and preliminary
GAAP basis
-- Non-GAAP operating margin of 28% and preliminary GAAP
operating margin of 19%
-- Non-GAAP operating income of $24.4 million, as well as
preliminary GAAP operating income of $16.3 million
-- Non-GAAP diluted EPS of $0.19, and preliminary GAAP diluted
EPS of $0.13, compared to updated guidance of $0.18 and
$0.10, respectively
-- Increase of $24.8 million in cash and investments, net
of debt, over third quarter levels, to $130.6 million
Preliminary Financial Results
Fourth quarter revenues, essentially all of which were comprised of Fibre Channel products, grew 6% from a year ago to $86.4 million, but declined 13% sequentially from the record high revenues achieved in the third fiscal quarter. Storage switching solutions contributed more than 10% of fourth quarter net revenue. Fourth quarter non-GAAP net income declined by 17% from the comparable year-ago results to $15.9 million, or $0.19 per diluted share. Preliminary fourth quarter GAAP net income, including charges associated with the Vixel acquisition, amounted to $10.6 million, or $0.13 per diluted share, a decline of 42% from a year ago. GAAP results are preliminary, pending completion of the FAS 142 and 144 analyses for impairment of goodwill and intangible assets, which is currently ongoing. A reconciliation between preliminary GAAP and non-GAAP results is included in the accompanying financial data.
For the fiscal year ended June 2004, revenues rose 18% to a record $364 million, compared to $308 million reported a year ago. For fiscal 2004, non-GAAP net income rose 10% to a record $77.5 million, or $0.92 per diluted share, compared to net income of $70.4 million, or $0.84 per diluted share a year ago. Preliminary GAAP net income amounted to $51.2 million, or $0.61 per diluted share, compared to $65.7 million, or $0.79 per share, reported a year ago.
Paul Folino, Emulex Chairman and CEO, stated, "The sequential decline in our Fibre Channel revenues was largely due to cross currents in our OEM customer base. As we announced at the end of June, challenges at the end of our fourth quarter at two OEMs resulted in lower revenue than we had originally expected. Also previously announced, due to an upcoming change in the OEM fulfillment model at one of our major customers, at the end of the fourth quarter we curtailed shipments of certain OEM products to decrease channel inventories in preparation for this transition to an inventory hub program." Although the Company indicated this OEM change will not affect actual end-user demand for Emulex products, the Company is continuing to restrict channel shipments in the first quarter as well. Consequently, the interim financial impact of this transition is expected to be a reduction in first quarter fiscal 2005 revenue below market demand levels as current channel stocking inventory of Emulex HBAs is reduced.
"We have taken action to contain operating expenses and realign our efforts to match our strongest growth opportunities, which remain compelling," noted Folino. "Today, Emulex is succeeding in the next generation of design wins in IOCs, HBAs and storage switching. We are just beginning to benefit from the ramp of commercial OEM shipments of products based on our cost-reduced, native dual channel ASIC, Thor, which positions us well for our traditional enterprise HBAs as well as our newly introduced family of SMB HBAs. In recent weeks, we have achieved qualification and certification of Thor-based HBAs from essentially all of our key OEMs. In addition, Emulex has moved aggressively to extend its Linux presence, recently announcing that end users and developers are now able to tap Emulex open source Linux drivers natively embedded in Red Hat and Novell SUSE LINUX operating systems. Furthermore, our InSpeedtm storage switching solutions are continuing to gain momentum in the market. By the end of the calendar year, we expect several currently unannounced OEMs to launch commercial shipments of next generation solutions based on Emulex InSpeedtm storage switching technology. Lastly, our next generation of ASIC solutions poised for launch in the fall will deliver higher performance, lower cost and increased integration in both I/O and switching. Emulex has already succeeded in capturing our first design win for our next generation 4 gigabit HBA solutions during the fourth quarter at one of our key OEMs, and we expect more to come."
Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, Emulex is providing guidance for its first fiscal quarter ending September 2004 in line with previously announced expectations delivered at the end of June. Emulex is budgeting for first quarter revenue in a range of $73 to $76 million and non-GAAP earnings per share of $0.09-$0.10. On a GAAP basis, Emulex expects diluted first quarter EPS of $0.08-$0.09 per share, reflecting approximately $0.01 per share in expected GAAP charges arising primarily from amortization of intangibles and deferred stock-based compensation, offset partially by additional insurance recovery related to class action lawsuits of approximately $4 to $5 million greater than previously estimated, expected in the first quarter.
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 fourth 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 623571.
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, impairment charges, 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. 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; the effect of acquisitions; impairment charges; and changes in tax rates or changes in accounting standards, including changes in the accounting treatment of employee stock options and contingent convertible debt. 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
Preliminary Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
-------------------- --------------------
June 27, June 29, June 27, June 29,
2004 2003 2004 2003
-------------------- --------------------
Net revenues $ 86,438 $ 81,762 $364,422 $308,208
Cost of sales 32,296 27,729 131,803 112,040
-------- -------- -------- --------
Gross profit 54,142 54,033 232,619 196,168
-------- -------- -------- --------
Operating expenses:
Engineering and
development 19,510 15,839 73,211 61,257
Selling and
marketing 8,217 5,075 28,035 18,994
General and
administrative 3,556 3,650 18,815 40,291
Amortization of
intangibles 6,547 1,450 19,093 5,807
In-process
research and
development -- -- 11,400 --
-------- -------- -------- --------
Total operating
expenses 37,830 26,014 150,554 126,349
-------- -------- -------- --------
Operating income 16,312 28,019 82,065 69,819
-------- -------- -------- --------
Nonoperating income:
Gain on repurchase
of convertible
subordinated
notes -- -- 2,670 28,729
Interest income 2,449 2,910 9,149 12,991
Interest expense (1,469) (1,243) (4,754) (5,510)
Other income
(expense), net (32) 54 109 (78)
-------- -------- -------- --------
Total
nonoperating
income 948 1,721 7,174 36,132
-------- -------- -------- --------
Income before
income taxes 17,260 29,740 89,239 105,951
Income tax
provision 6,614 11,301 38,062 40,262
-------- -------- -------- --------
Net income $ 10,646 $ 18,439 $ 51,177 $ 65,689
======== ======== ======== ========
Net income per
share:
Basic Basic $0.13 $0.22 $0.62 $0.80
======== ======== ======== ========
Diluted $0.13 $0.22 $0.61 $0.79
======== ======== ======== ========
Number of shares
used in per
share
computations:
Basic 82,199 82,325 82,293 82,051
======== ======== ======== ========
Diluted 83,997 87,890 85,674 87,914
======== ======== ======== ========
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 $62 and $1,010 for the
three and twelve months ended June 27, 2004, respectively, and
$771 and $3,416 for the three and twelve months ended June 29,
2003.
A reconciliation of the non-GAAP net income with the Company's
net income determined under GAAP is presented in the following
table.
Three Months Ended Twelve Months Ended
-------------------- ---------------------
June 27, June 29, June 27, June 29,
2004 2003 2004 2003
-------------------- ---------------------
GAAP net income,
as presented
above $ 10,646 $ 18,439 $ 51,177 $ 65,689
Items excluded
from GAAP net
income to
calculate
non-GAAP net
income:
Subsequent benefit
related to the
excess and
obsolete
inventory charge
excluded from
cost of sales(a) (17) (1,676) (1,958) (3,312)
Retention bonuses
and amortization
of deferred
stock-based
compensation
associated with
the acquisition
of Vixel and
Giganet,
as follows:
Excluded from
engineering
and development 679 413 2,358 2,463
Excluded from
selling and
marketing 322 313 2,299 1,337
Excluded from
general and
administrative 510 32 1,920 299
Excluded from
cost of sales 46 (1) 905 105
Impairment of
goodwill and/or
other intangible
assets NA(b) -- NA(b) --
In-process
research and
development
expense
associated
with the
acquisition of
Vixel Corporation -- -- 11,400 --
Amortization of
intangibles,
excluded from
operating
expenses 6,547 1,450 19,093 5,807
Net charge
associated with
settlements of
securities
class action
and derivative
lawsuits -- -- -- 27,007
Net gain on
repurchase of
convertible
subordinated
notes,
excluded from
nonoperating
income(c) -- -- (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 (2,868) 86 (7,740) (270)
-------- -------- -------- --------
Impact on net
income 5,219 617 26,305 4,707
-------- -------- -------- --------
Non-GAAP net
income $ 15,865 $ 19,056 $ 77,482 $ 70,396
======== ======== ======== ========
(a) 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.
(b) Not available. Amounts to be determined.
(c) Net gain on repurchase of 1.75% convertible subordinated notes.
In the three months ended March 28, 2004, 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(d)
(in thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
-------------------- --------------------
June 27, June 29, June 27, June 29,
2004 2003 2004 2003
-------------------- --------------------
Net revenues $ 86,438 $ 81,762 $364,422 $308,208
Cost of sales 32,267 29,406 132,856 115,247
-------- -------- -------- --------
Gross profit 54,171 52,356 231,566 192,961
-------- -------- -------- --------
Operating expenses:
Engineering and
development 18,831 15,426 70,853 58,794
Selling and
marketing 7,895 4,762 25,736 17,657
General and
administrative 3,046 3,618 16,197 12,985
-------- -------- -------- --------
Total operating
expenses 29,772 23,806 112,786 89,436
-------- -------- -------- --------
Operating income 24,399 28,550 118,780 103,525
-------- -------- -------- --------
Nonoperating income:
Interest income 2,449 2,910 9,149 12,991
Interest expense (1,469) (1,243) (4,754) (5,510)
Other income
(expense), net (32) 54 109 (78)
-------- -------- -------- --------
Total
nonoperating
income 948 1,721 4,504 7,403
-------- -------- -------- --------
Income before
income taxes 25,347 30,271 123,284 110,928
Income tax
provision 9,482 11,215 45,802 40,532
-------- -------- -------- --------
Net income $ 15,865 $ 19,056 $ 77,482 $ 70,396
======== ======== ======== ========
Net income
per share:
Basic $ 0.19 $ 0.23 $ 0.94 $ 0.86
======== ======== ======== ========
Diluted $ 0.19 $ 0.23 $ 0.92 $ 0.84
======== ======== ======== ========
Number of
shares used
in per share
computations:
Basic 82,199 82,325 82,293 82,051
======== ======== ======== ========
Diluted 83,997 87,890 85,674 87,914
======== ======== ======== ========
-- 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 $63 and $1,107 for the
three and twelve months ended June 27, 2004, respectively, and
$783 and $3,496 for the three and twelve months ended June 29,
2003, respectively.
(d) 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
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 27, June 29,
2004 2003
-------------------------
Assets
------
Current assets:
Cash and cash equivalents $ 192,137 $ 136,971
Restricted cash 23 9,342
Investments 220,114 239,302
Accounts and other receivables, net 61,720 46,678
Litigation settlements receivable 5,101 13,095
Inventories, net 31,835 10,998
Prepaid expenses 3,572 5,516
Deferred income taxes 26,824 36,330
-------------------------
Total current assets 541,326 498,232
Property and equipment, net 64,570 26,585
Investments 243,125 234,847
Goodwill 583,499 397,256
Other intangibles, net 122,667 27,067
Other assets 1,293 5,782
-------------------------
$1,556,480 $1,189,769
=========================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 21,747 $ 11,298
Accrued liabilities 22,839 18,806
Accrued litigation settlements -- 39,500
Income taxes payable 9,910 5,457
-------------------------
Total current liabilities 54,496 75,061
Convertible subordinated notes 524,845 208,518
Deferred income taxes and other 486 4,260
-------------------------
Total liabilities 579,827 287,839
Total stockholders' equity 976,653 901,930
-------------------------
$1,556,480 $1,189,769
=========================
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by
Channel and Territory:
----------------------
Q4 FY Q4 FY
2004 % Total 2003 % Total % Change
Revenues Revenues Revenues Revenues Year/Year
-------------------------------------------------
($000s)
Revenue from
OEM customers $ 56,920 66% $ 50,903 62% +12%
Revenue from
distribution 29,542 34% 30,812 38% -4%
Other (24) nm(e) 47 nm(e) nm(e)
-------------------------------------------------
Total Net
Revenues $ 86,438 100% $ 81,762 100% +6%
=================================================
United States $ 49,822 58% $ 49,301 60% +1%
Europe 28,138 32% 27,864 34% +1%
Pacific Rim
countries 8,478 10% 4,597 6% +84%
-------------------------------------------------
Total Net
Revenues $ 86,438 100% $ 81,762 100% +6%
=================================================
Forward-Looking Diluted Earnings
per Share Reconciliation:
--------------------------------
Guidance for
Three Months Ending
September 26, 2004
---------------------
Non-GAAP diluted earnings per share guidance $ 0.09 - $ 0.10
Items excluded, net of tax, from non-GAAP
diluted earnings per share to calculate
GAAP diluted earnings per share guidance:
Additional insurance recovery related to
securities class action and derivative
lawsuits 0.05
Amortization of intangibles $ (0.05)
Amortization of deferred stock-based
compensation $ (0.01)
---------------------
GAAP diluted earnings per share guidance $ 0.08 - $ 0.09
======================
------------------
(e) Not meaningful