COSTA MESA, Calif., Aug. 11, 2005 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the industry's preeminent source for a broad range of advanced storage networking infrastructure solutions, today announced results for its fourth fiscal quarter ended July 3, 2005.
Fourth Quarter Highlights -- Record revenues of $108.2 million, at the top end of April guidance of $103-$108 million, a 5% sequential increase, and a 25% increase from a year ago. -- Record unit and port shipments of host bus adapters, or HBAs, coupled with record embedded switch and I/O ASIC, or IOC, revenue. Quarterly switch port shipments rose more than 50% sequentially to over 1.5 million, setting a new record. -- Total Fibre Channel shipments of nearly 2 million switching and I/O ports for the quarter, of which over 15% were next-generation 4 gigabit per second (Gb/s) technology. -- Gross margin of 64%. -- Record non-GAAP diluted EPS of $0.30, and GAAP diluted EPS of $0.28, compared to non-GAAP guidance of $0.24-$0.25 and GAAP guidance of $0.19-$0.20. Fourth quarter earnings benefited by approximately $0.02 per share due to favorable resolutions of outstanding tax matters. -- Non-GAAP operating margin of 34% and GAAP operating margin of 28%. -- Cash and investments, net of debt, of $289 million, up $34 million sequentially from third quarter levels, and up $158 million from a year ago.
Financial Results
Fourth quarter revenues, essentially all of which were comprised of Fibre Channel products, rose 5% sequentially from the third fiscal quarter and 25% from a year ago to a record $108.2 million. Fourth quarter non-GAAP net income rose by 17% sequentially and by 67% from the comparable year-ago results, to a record $26.6 million, or $0.30 per diluted share. Fourth quarter GAAP net income increased by 42% sequentially to $25.3 million, or $0.28 per diluted share. This compares to a loss of $572.9 million, or $6.97 per share, in the comparable year-ago results. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.
For the second consecutive quarter, Fibre Channel revenue achieved record levels. Paul Folino, Emulex Chairman and CEO, stated, "Broad strength was evident in our fourth quarter results as revenues grew sequentially and year over year across all major product categories, geographies and channels. Fibre Channel switches, IOCs, and HBAs all set new records for unit and port shipments. In the fourth quarter, InSpeed switch port shipments rose more than 50% sequentially to more than 1.5 million ports, demonstrating the success of the Vixel acquisition and our diversification strategy." Emulex's InSpeed storage switching solutions continued to gain momentum in the market as the company's installed base now exceeds 6 million ports, up from 5 million ports at the end of the third quarter, complementing its installed base of over 2 million Emulex HBAs.
Folino continued, "As part of our ongoing growth and diversification strategy, we are continuing to drive engineering, sales and marketing investments as we leverage our broad lead in 4 Gb/s Fibre Channel technologies, capture new OEM accounts, and tap high growth market opportunities in Linux and blade server environments." The company has launched a full array of 4 Gb/s Fibre Channel solutions spanning its HBA, switching and IOC product lines. To date, Emulex has captured 38 design wins for 4 Gb/s HBAs, 20 design wins for 4 Gb/s switches, and 3 design wins for 4 Gb/s IOCs. In the fourth quarter, Emulex recorded its first shipments into the blade server market, successfully launching its LP1005DC HBA designed for the IBM eServer BladeCenter, the market's leading blade server system. In July, Emulex announced its first-ever OEM agreement with Sun Microsystems for Emulex HBAs, opening up the HBA market for Sun servers that are SAN attached to Sun storage. Folino concluded, "With our customer and product diversification strategy now taking hold, we believe we are well positioned for continued growth and expansion in fiscal 2006."
For the fiscal year ended July 3, 2005, revenues grew 3% from the prior year to a record $375.7 million, representing Emulex's seventh consecutive year of revenue growth. Fiscal 2005 non-GAAP net income was $77.7 million, or $0.86 per diluted share, compared to fiscal 2004 non-GAAP net income of $77.5 million, or $0.87 per diluted share. On a GAAP basis, fiscal 2005 net income was $71.6 million, or $0.80 per diluted share, compared to a net loss of $532.3 million, or $6.47 per share, in fiscal 2004.
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 October 2, 2005. While the summer quarter is typically seasonally soft, Emulex believes that with revenue contribution from new customers and 4 Gb/s programs, it will have the opportunity to grow revenue up to 2% sequentially. As a result, Emulex is budgeting for first quarter revenue in a range of $106-$110 million. Emulex expects that gross margins will likely remain near fourth quarter levels of 64%, and as its tax rate rises from the fourth quarter level of 33% to the long-term expected rate of 37%, non-GAAP earnings per share could amount to $0.26-$0.28. On a GAAP basis, Emulex expects diluted first quarter EPS of $0.16-$0.18 per share, reflecting approximately $0.10 per share in expected GAAP charges arising primarily from amortization of intangibles and stock-based compensation, including the initiation of FAS 123(R) option expensing.
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 3448154.
About Emulex
Emulex Corporation is the industry's preeminent source for a broad range of advanced storage networking infrastructure solutions spanning host bus adapters, embedded storage switches, I/O controllers and SAN Storage Switches. Emulex ranked number 16 in the Deloitte 2004 Technology Fast 50 and most recently received recognition as one of Forbes 200 Best Small Companies.
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(R) 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, 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
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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 subsequent 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 stock-based compensation, in-process research and development charges, and amortization of intangibles. 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 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. In the past, 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 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, 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 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, lowest cost product platforms; possible transitions from board level to application specific computer chip solutions for selected applications; a shift in unit product mix from higher-end to lower-end 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; changes in tax rates or legislation; and 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."
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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 Year Ended July 3, June 27, July 3, June 27, 2005 2004 2005 2004 -------- --------- -------- --------- Net revenues $108,177 $ 86,438 $375,653 $ 364,422 Cost of sales 39,444 32,296 139,682 131,803 -------- --------- -------- --------- Gross profit 68,733 54,142 235,971 232,619 -------- --------- -------- --------- Operating expenses: Engineering and development 18,986 19,510 79,971 73,211 Selling and marketing 9,426 8,217 32,441 28,035 General and administrative 4,255 3,556 11,636 18,815 In-process research and development -- -- -- 11,400 Impairment of goodwill (697) 583,499 1,096 583,499 Amortization of other intangibles 6,520 6,547 26,162 19,093 -------- --------- -------- --------- Total operating expenses 38,490 621,329 151,306 734,053 -------- --------- -------- --------- Operating income (loss) 30,243 (567,187) 84,665 (501,434) -------- --------- -------- --------- Nonoperating income: Interest income 3,864 2,449 13,106 9,149 Interest expense (783) (1,469) (4,202) (4,754) Gain on repurchase of convertible subordinated notes 7,703 -- 20,514 2,670 Other income (loss), net (2,321) (32) (2,273) 109 -------- --------- -------- --------- Total nonoperating income 8,463 948 27,145 7,174 -------- --------- -------- --------- Income (loss) before income taxes 38,706 (566,239) 111,810 (494,260) Income tax provision 13,405 6,614 40,221 38,062 -------- --------- -------- --------- Net income (loss) $ 25,301 $(572,853) $ 71,589 $(532,322) ======== ========= ======== ========= Net income (loss) per share: Basic $ 0.30 $ (6.97) $ 0.86 $ (6.47) ======== ========= ======== ========= Diluted $ 0.28 $ (6.97) $ 0.80 $ (6.47) ======== ========= ======== ========= Number of shares used in per share computations: Basic 83,123 82,199 82,819 82,293 ======== ========= ======== ========= Diluted 91,625 82,199 92,970 82,293 ======== ========= ======== ========= 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 $511 and $2,685 for the three months and year ended July 3, 2005, respectively. As the effect would have been anti-dilutive, no interest expense adjustment related to its convertible subordinated notes is included in the calculation of diluted loss per share for the three months and year ended June 27, 2004, respectively. Diluted earnings per share for prior periods have been recalculated in accordance with EITF 04-08. The reconciliation of the non-GAAP net income with the Company's net income (loss) 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 Year Ended July 3, June 27, July 3, June 27, 2005 2004 2005 2004 ------- --------- -------- --------- GAAP net income (loss), as presented above $25,301 $(572,853) $ 71,589 $(532,322) ------- --------- -------- --------- Items excluded from GAAP net income (loss) to calculate non-GAAP net income: Subsequent benefit related to the excess and obsolete inventory charge, excluded from cost of sales(a) -- (17) -- (1,958) Amortization of stock-based compensation associated with the acquisitions of Vixel and Giganet, as follows: Excluded from engineering and development 206 679 1,402 2,358 Excluded from selling and marketing 191 322 859 2,299 Excluded from general and administrative 254 510 1,583 1,920 Excluded from cost of sales 29 46 140 905 In-process research and development, excluded from operating expenses -- -- -- 11,400 Amortization of intangibles, excluded from operating expenses 6,520 6,547 26,162 19,093 Impairment of goodwill, excluded from operating expenses(b) (697) 583,499 1,096 583,499 Impairment of strategic investment and associated note, excluded from operating expenses 2,265 -- 2,265 -- Insurance settlement (recovery) and $315 of related interest associated with settlement of securities class action and derivative lawsuits, excluded from general and administrative expenses and interest income -- -- (4,964) 698 Net gain on repurchase of convertible subordinated notes excluded from non- operating income(c) (7,703) -- (20,514) (2,670) Income tax effect of above items excluded from the income tax provision 199 (2,868) (1,937) (7,740) ------- --------- -------- --------- Impact on net income (loss) 1,264 588,718 6,092 609,804 ------- --------- -------- --------- Non-GAAP net income $26,565 $ 15,865 $ 77,681 $ 77,482 ======= ========= ======== ========= (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 (Gb/s) products as these customers were expected to migrate to two Gb/s products for future purchases. In order to provide meaningful comparisons of operating results, any subsequent consumption of these previously impaired products is excluded. (b) Impairment of goodwill. During the first and fourth quarters of fiscal 2005, the Company changed estimates and discovered errors related to the deferred tax assets and liabilities of Vixel Corporation (acquired in November 2004) and Giganet, Inc. (acquired in March 2001). As a result, the Company recorded a $1.8 million impairment of goodwill in the first quarter of fiscal 2005 and a $0.7 million reduction of goodwill impairment in the fourth quarter of fiscal 2005. Had these items been recorded in fiscal 2004, the Company's net loss would have been $1.1 million higher, or $533.4 million, instead of $532.3 million. The Company does not believe that this $1.1 million impairment of goodwill is material to fiscal 2004 or 2005 operations. (c) Net gain on repurchase of convertible subordinated notes. In the three months ended July 3, 2005, Emulex repurchased $128.5 million in face value of its convertible subordinated notes, resulting in a pre-tax gain of $7.7 million. In the year ended July 3, 2005, Emulex repurchased $298.5 million in face value of its convertible subordinated notes, resulting in a pre-tax gain of $20.5 million. In the year ended June 27, 2004, Emulex repurchased a total of $191.6 million in face value of its convertible subordinated notes at a discount, resulting in a net pre-tax gain of $2.7 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 Year Ended July 3, June 27, July 3, June 27, 2005 2004 2005 2004 -------- -------- -------- -------- Net revenues $108,177 $ 86,438 $375,653 $364,422 Cost of sales 39,415 32,267 139,542 132,856 -------- -------- -------- -------- Gross profit 68,762 54,171 236,111 231,566 -------- -------- -------- -------- Operating expenses: Engineering and development 18,780 18,831 78,569 70,853 Selling and marketing 9,235 7,895 31,582 25,736 General and administrative 4,001 3,046 14,702 16,197 -------- -------- -------- -------- Total operating expenses 32,016 29,772 124,853 112,786 -------- -------- -------- -------- Operating income 36,746 24,399 111,258 118,780 -------- -------- -------- -------- Nonoperating income: Interest income 3,864 2,449 12,791 9,149 Interest expense (783) (1,469) (4,202) (4,754) Other income (loss), net (56) (32) (8) 109 -------- -------- -------- -------- Total nonoperating income 3,025 948 8,581 4,504 -------- -------- -------- -------- Income before income taxes 39,771 25,347 119,839 123,284 Income tax provision 13,206 9,482 42,158 45,802 -------- -------- -------- -------- Net income $ 26,565 $ 15,865 $ 77,681 $ 77,482 ======== ======== ======== ======== Net income per share: Basic $ 0.32 $ 0.19 $ 0.94 $ 0.94 ======== ======== ======== ======== Diluted $ 0.30 $ 0.18 $ 0.86 $ 0.87 ======== ======== ======== ======== Number of shares used in per share computations: Basic 83,123 82,199 82,819 82,293 ======== ======== ======== ======== Diluted 91,625 95,976 92,970 92,124 ======== ======== ======== ======== 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 $511 and $1,176 for the three months ended July 3, 2005, and June 27, 2004, respectively. 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 $2,685 and $2,964 for the years ended July 3, 2005, and June 27, 2004, respectively. Diluted earnings per share for prior periods have been recalculated in accordance with EITF 04-08. ------------------------------ (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 Condensed Consolidated Balance Sheets (in thousands) (unaudited) July 3, June 27, 2005 2004 -------- -------- Assets ------ Current assets: Cash and cash equivalents $120,317 $192,137 Restricted cash -- 23 Investments 346,675 220,114 Accounts and other receivables, net 47,730 61,720 Litigation settlements receivable -- 5,101 Inventories, net 36,266 31,835 Prepaid expenses 4,508 3,572 Deferred income taxes 28,961 26,824 -------- -------- Total current assets 584,457 541,326 Property and equipment, net 65,976 64,570 Investments 54,936 243,125 Other intangibles, net 95,806 122,667 Other assets 606 1,293 -------- -------- $801,781 $972,981 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 29,778 $ 21,747 Accrued liabilities 21,505 22,839 Income taxes payable 25,361 9,910 -------- -------- Total current liabilities 76,644 54,496 Convertible subordinated notes 233,382 524,845 Deferred income taxes and other 14,164 486 -------- -------- Total liabilities 324,190 579,827 -------- -------- Total stockholders' equity 477,591 393,154 -------- -------- $801,781 $972,981 ======== ======== EMULEX CORPORATION AND SUBSIDIARIES Supplemental Information Historical Revenue by Channel and Territory: -------------------------------------------- Q4 FY Q4 FY 2005 % Total 2004 % Total % Change ($000s) Revenue Revenue Revenue Revenue Year/Year -------- -------- -------- -------- --------- Revenue from OEM customers $ 70,650 65% $ 56,920 66% +24% Revenue from distribution 37,440 35% 29,542 34% +27% Other 87 nm (24) nm nm -------- -------- -------- -------- --------- Total net revenues $108,177 100% $ 86,438 100% +25% ======== ======== ======== ======== ========= United States $ 59,415 55% $ 49,822 58% +19% Europe and rest of world 31,673 29% 28,138 32% +13% Pacific Rim countries 17,089 16% 8,478 10% +102% -------- -------- -------- -------- --------- Total net revenues $108,177 100% $ 86,438 100% +25% ======== ======== ======== ======== ========= Forward-Looking Diluted Earnings per Share Reconciliation: ---------------------------------------------------------- Guidance for Three Months Ending October 2, 2005 ------------------- Non-GAAP diluted earnings per share guidance $ 0.26-0.28 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) Stock-based compensation (0.05) ------------------- GAAP diluted earnings per share guidance $ 0.16-0.18 ===================