COSTA MESA, Calif., Aug. 7, 2003 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the world's largest supplier of storage networking host bus adapters (HBAs), today announced results for its fourth fiscal quarter ended June 29, 2003.
Fourth-Quarter Highlights
-- Revenues up 3% sequentially and up 16% year over year to a record
$81.8 million, at the top end of company guidance
-- Fibre Channel revenues up 4% sequentially and up 19% year over
year to a record $81.4 million, or over 99% of revenue
-- Non-GAAP (formerly known as pro-forma) gross margin of 64%, and
GAAP gross margin of 66%
-- Non-GAAP operating margin of 35% and GAAP operating margin of 34%
-- Non-GAAP operating income of $28.6 million, a record for the
second quarter in a row, as well as record GAAP operating income
of $28.0 million
-- Non-GAAP diluted EPS of $0.23, above company guidance and up 44%
from a year ago, and GAAP diluted EPS of $0.22
-- Annualized revenues per employee of $828,000
-- Sequential increase in cash, cash equivalents, restricted cash and
investments of $34.6 million
Business Outlook
Emulex is providing guidance for its first fiscal quarter ending September 2003 as follows. Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, for our first fiscal quarter, Emulex is budgeting for year-over-year revenue growth in the 17% to 20% range, or revenues in a range of about $82 million to $85 million, and non-GAAP earnings per diluted share of up to $0.23. GAAP earnings per share is uncertain, but Emulex is budgeting for GAAP earnings per diluted share of up to $0.21.
Financial Results
Fourth-quarter revenues grew to a record $81.8 million, up 3% sequentially and up 16% year over year. Non-GAAP net income amounted to a record $19.1 million, or $0.23 per diluted share, an expansion of more than 38% from comparable year ago results. GAAP net income amounted to $18.4 million, or $0.22 per diluted share, up from a loss of $11.4 million for the comparable year ago results. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data, as well as an explanation of why Emulex believes non-GAAP results are relevant to investors.
Fibre Channel revenues expanded 19% year over year and grew 4% sequentially from the third fiscal quarter to a record $81.4 million, amounting to over 99% of net revenues. Average HBA selling prices declined 5% sequentially, slightly higher than recent experience, reflecting a shift in product mix towards midrange solutions. The percentage of revenues from 2 Gbps solutions, including both chips and HBAs, rose 79% from a year ago to 94% of total Fibre Channel revenue, signaling a near-complete transition to 2 Gbps connectivity within Emulex's customer base. Reflecting Emulex's continuing strategic initiative to deliver cost-effective, midrange solutions to the market, unit shipments of midrange HBAs grew over 30% sequentially and over 270% from a year ago, expanding to nearly a quarter of total HBA units.
OEM and distribution revenue trends were consistent with recent quarters. Primarily reflecting a mid-calendar 2002 shift at a major OEM customer from a direct sales model to a distribution business model, fourth-quarter revenues from OEM customers grew 8% from a year ago, while revenues from distribution expanded faster, growing 33% from the year ago quarter. In the fourth fiscal quarter, annualized revenues per employee rose to $828,000 as compared to $807,000 in the same period of the prior year.
During the fourth fiscal quarter, newly published market share research from multiple leading firms, including IDC and Gartner Dataquest, confirmed that Emulex was the HBA market leader in revenue, ports and units in calendar 2002, and that Emulex grew its share across all measures. Emulex's share of the Fibre Channel HBA market was estimated at 47-48% in revenue, 48% in units, and 43% in ports according to IDC and Gartner. "Emulex has a long record of execution in the HBA market: we captured the revenue leadership position in 1999, the unit leadership position in 2000, and with newly available port data, Emulex was also confirmed as the port leader in 2002," said Paul Folino, chairman and CEO of Emulex. "With a leading 43% share of ports in 2002, we believe Emulex is in a newly strengthened position to expand our presence in upcoming quarters, now that we are launching volume shipments of our dual-channel LP10000DC host bus adapters based on our first native dual-channel ASIC, Thor. In internal testing, Thor has surpassed previously-published performance expectations by 30-50%, and is now capable of sustaining delivery of 75,000 I/Os per second in a single channel configuration, and over 135,000 I/Os per second in a dual channel configuration."
In addition, Emulex continued to progress in its joint development agreement with Intel, which is positioned to offer the industry a common multiprotocol serial storage architecture that spans the three major serial storage interfaces -- Fibre Channel, serial ATA and serial attached SCSI -- and is suitable for a broad spectrum of embedded applications, including storage arrays, storage appliances and blade servers. Folino noted, "This uniquely powerful Serial Storage Connect architecture is resonating well with OEMs, who are increasingly focused on leveraging their software development dollars to serve multiple product families."
With respect to its balance sheet, Emulex continued to generate cash during the fourth quarter, expanding its cash, cash equivalents, restricted cash and investments, both short and long-term, to $620 million, a sequential increase of $34.6 million. Inventory turns improved significantly to better than 10, compared to 6 in the third quarter. Fourth fiscal quarter accounts receivables increased by 2% compared to the third-quarter level, and days sales outstanding, or DSOs, improved from 41 to 37 days.
For the fiscal year ended June 2003, revenues rose 21% to a record $308 million, compared to $255 million reported a year ago. For fiscal 2003, non-GAAP net income rose 54% to a record $70.4 million, or $0.84 per diluted share, compared to net income of $45.7 million, or $0.54 per diluted share a year ago. GAAP net income amounted to a record $65.7 million, or $0.79 per diluted share, compared to a loss of $96.2 million, or $1.18 per share, a year ago.
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 303404.
About Emulex
Emulex Corporation, which was named one of Forbes Magazine's 25 Fastest Growing Technology Companies in 2002, is the world's largest supplier and developer of storage networking host bus adapters. The American Electronics Association also recently named Emulex "Outstanding Public Company" for 2002.
The Emulex product families are based on internally developed ASIC, firmware and software technologies spanning both Fibre Channel and IP networking protocols, 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 Siemens, Groupe Bull, HP, Hitachi Data Systems, IBM, NEC, Network Appliance, StorageTek and Unisys. In addition, Emulex includes industry leaders Brocade, Computer Associates, Intel, McDATA, Microsoft and VERITAS among its strategic partners. Via a joint development agreement, Emulex and Intel are pioneering the industry's first storage processors for Serial ATA, Serial Attached SCSI and Fibre Channel interfaces within a single architecture.
Emulex markets to OEMs and end users through its own worldwide selling organization, as well as its two-tier distribution partners, including ACAL, Avnet, Bell Microproducts, Info-X, Netmarks, Tech Data, TidalWire and Tokyo Electron. Corporate headquarters are located in Costa Mesa, California. News releases and other information about Emulex Corporation are available at www.emulex.com.
EMULEX -- We network storage
Note Regarding Non-GAAP Financial Information: Certain portions of this press release include non-GAAP financial information. Such non-GAAP information is presented in order to enable meaningful period-to-period comparisons and to facilitate better focus on Emulex's core operating results. You should not rely exclusively on the non-GAAP financial information contained in this press release in evaluating Emulex's financial condition and performance. Instead, such non-GAAP information should be considered along with our GAAP (generally accepted accounting principles) financial information contained in this release and in our public filings in order for you to have a complete picture of our financial results for the periods in question.
``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 the fact that the economy generally, and the technology and storage segments specifically, have recently 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. Recently, 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 prolonged 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 payment; 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 the Company's stock price on stock compensation charges; and the effect of acquisitions, changes in tax rate 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 also 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.
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 Twelve Months Ended
------------------- -------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
---------- -------- -------- --------
Net revenues $ 81,762 $ 70,195 $308,208 $254,741
Cost of sales 27,729 28,085 112,040 122,871
--------- --------- --------- ---------
Gross profit 54,033 42,110 196,168 131,870
--------- --------- --------- ---------
Operating expenses:
Engineering and
development 15,839 12,861 61,257 47,560
Selling and
marketing 5,075 4,646 18,994 19,462
General and
administrative 3,650 3,891 40,291 12,983
Amortization of
goodwill and
other intangibles 1,450 39,055 5,807 156,209
--------- --------- --------- ---------
Total operating
expenses 26,014 60,453 126,349 236,214
--------- --------- --------- ---------
Operating income
(loss) 28,019 (18,343) 69,819 (104,344)
--------- --------- --------- ---------
Nonoperating income:
Gain on repurchase
of convertible
subordinated
notes -- -- 28,729 --
Interest income 2,910 3,828 12,991 11,239
Interest expense (1,243) (2,046) (5,510) (3,396)
Other income
(expense), net 54 188 (78) (26)
--------- --------- --------- ---------
Total nonoperating
income 1,721 1,970 36,132 7,817
--------- --------- --------- ---------
Income (loss)
before income
taxes 29,740 (16,373) 105,951 (96,527)
Income tax
provision
(benefit) 11,301 (4,926) 40,262 (293)
--------- --------- --------- ---------
Net income (loss) $ 18,439 $(11,447) $ 65,689 $(96,234)
======== ======== ======== ========
Net income (loss)
per share:
Basic $ 0.22 $ (0.14) $ 0.80 $ (1.18)
======== ======== ======= ========
Diluted $ 0.22 $ (0.14) $ 0.79 $ (1.18)
======== ======== ======= ========
Number of shares used
in per share computations:
Basic 82,325 81,706 82,051 81,487
========= ========= ========= =========
Diluted 87,890 81,706 87,914 81,487
========= ========= ========= =========
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 $771 and $3,416 for the three and twelve months ended June 29, 2003, respectively.
The non-GAAP financial information presented below is based on the Company's condensed consolidated financial statements and excludes certain adjustments detailed below. The Company uses this non-GAAP information to evaluate its operating performance and believes this presentation provides investors with additional insight into its underlying operating results. This presentation is not in accordance with, or an alternative for, generally accepted accounting principles and may be different from the non-GAAP presentation used by other companies. A reconciliation of the non-GAAP net income with the Company's net income (loss) determined under generally accepted accounting principles is presented in the following table.
EMULEX CORPORATION AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to
Non-GAAP Net Income
(in thousands - unaudited)
Three Months Ended Twelve Months Ended
-------------------- ---------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
-------- -------- -------- --------
GAAP net income
(loss), as
presented above $ 18,439 $ (11,447) $ 65,689 $ (96,234)
--------- --------- --------- ---------
Items excluded from
GAAP net income
(loss) to calculate
non-GAAP net income:
Excess and obsolete
inventory charge
associated with
slowing demand
for older
generation 1
gigabit products
and subsequent
benefit due to
sale of impaired
inventory excluded
from cost of goods
sold(1) (1,676) (1,374) (3,312) 10,059
Amortization of
deferred stock-based
compensation
associated with the
acquisition of Giganet,
Employee Stock
Purchase Program (ESPP),
and a tax law change
in the United
Kingdom(2) 757 932 4,204 3,742
Amortization of
goodwill and other
intangibles excluded
from operating
expenses(3) 1,450 39,055 5,807 156,209
Net charge associated
with tentative
settlements of
securities class
action and derivative
lawsuits excluded from
general and
administrative
expenses(4) -- -- 27,007 --
Gain on repurchase
of convertible
subordinated notes
excluded from
nonoperating income(5) -- -- (28,729) --
Loss on strategic
investment excluded
from nonoperating
income(6) -- -- -- 248
Release of valuation
allowance related to
deferred tax assets
excluded from income
tax provision(7) -- (12,929) -- (20,509)
Income tax effect of
above items excluded
from the income tax
provision(8) 86 (448) (270) (7,802)
--------- --------- --------- ---------
Impact on net
income (loss) 617 25,236 4,707 141,947
--------- --------- --------- ---------
Non-GAAP net income $ 19,056 $ 13,789 $ 70,396 $ 45,713
========= ========= ========= =========
Emulex believes that its presentation of non-GAAP financials is useful to investors for the following reasons:
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.
Emulex believes that the resulting inventory charge taken in
September 2001 was an infrequent event that is not representative
of the ongoing operating results of its business. In order to
provide meaningful comparisons of operating results, any
subsequent consumption of previously impaired products is also
excluded.
2. Amortization of deferred stock-based compensation. Emulex
believes that as these are non-cash charges pertaining to events
such as the acquisition of Giganet, a tax law change in the United
Kingdom and timing of approval of additional shares for the ESPP,
it is helpful to isolate these charges to allow for analysis of
the underlying business. The following amounts were excluded for
the three months ended June 29, 2003, and June 30, 2002: $413 and
$503, respectively, from engineering and development; $313 and
$365, respectively, from selling and marketing; $32 and $56,
respectively, from general and administrative; and $(1) and $8,
respectively, from cost of sales. The following amounts were
excluded for the twelve months ended June 29, 2003, and June 30,
2002: $2,463 and $2,091, respectively, from engineering and
development; $1,337 and $1,367, respectively, from selling and
marketing; $299 and $236, respectively, from general and
administrative; and $105 and $48, respectively, from cost of
sales.
3. Amortization of goodwill and other intangibles. In accordance
with SFAS 142, Emulex no longer amortizes goodwill as it did prior
to July 1, 2002. Consequently, Emulex believes that excluding
non-cash amortization charges provides investors with consistent
comparisons to historical results. In addition, because
amortization of goodwill and other intangibles is a non-cash
charge that pertains solely to acquisition activity, Emulex
believes that excluding this charge provides investors with a
better view of the underlying cash-based operating trends of its
business.
4. Tentative settlements of securities class action and derivative
lawsuits. Emulex believes this is an atypical event not
representative of the ongoing operating results of its business.
5. Gain on repurchase of convertible subordinated notes. This gain
occurred in September 2002 when 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. Emulex
believes that such financial activities are events that are not
representative of the ongoing operating results of its business.
6. Loss on strategic investment. Emulex believes gains or losses on
its strategic investments are events not representative of its
ongoing operating results.
7. Release of valuation allowance related to deferred tax assets.
Emulex believes the release of valuation allowance, a benefit
Which was recorded in the third and fourth quarters of fiscal
2002, was an uncommon financial event and is not representative of
its ongoing operating results.
8. Income tax effect of above items. Because Emulex believes that the
elimination of the above charges and benefits is useful to
investors, Emulex has also eliminated associated tax benefits and
charges that are associated with them to provide investors with a
consistent presentation.
EMULEX CORPORATION AND SUBSIDIARIES
Non-GAAP Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
------------------ -------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
------- ------- ------- -------
Net revenues $ 81,762 $ 70,195 $308,208 $254,741
Cost of sales 29,406 29,451 115,247 112,764
--------- --------- -------- ---------
Gross profit 52,356 40,744 192,961 141,977
--------- --------- -------- ---------
Operating expenses:
Engineering
and development 15,426 12,358 58,794 45,469
Selling and
marketing 4,762 4,281 17,657 18,095
General and
administrative 3,618 3,835 12,985 12,747
--------- --------- --------- ---------
Total operating
expenses 23,806 20,474 89,436 76,311
--------- --------- --------- ---------
Operating income 28,550 20,270 103,525 65,666
--------- --------- --------- ---------
Nonoperating income:
Interest income 2,910 3,828 12,991 11,239
Interest expense (1,243) (2,046) (5,510) (3,396)
Other income
(expense), net 54 188 (78) 222
--------- --------- --------- ---------
Total nonoperating
income 1,721 1,970 7,403 8,065
--------- --------- --------- ---------
Income before
income taxes 30,271 22,240 110,928 73,731
Income tax
provision 11,215 8,451 40,532 28,018
--------- --------- --------- ---------
Net income $ 19,056 $ 13,789 $ 70,396 $ 45,713
========= ========= ========= =========
Net income
per share:
Basic $ 0.23 $ 0.17 $ 0.86 $ 0.56
========= ========= ========= =========
Diluted $ 0.23 $ 0.16 $ 0.84 $ 0.54
========= ========= ========= =========
Number of shares
used in per share
computations:
Basic 82,325 81,706 82,051 81,487
========= ========= ========= =========
Diluted 87,890 84,588 87,914 84,665
========= ========= ========= =========
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 $783 and $3,496 for the three and twelve months ended June 29, 2003, respectively.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 29, June 30,
2003 2002
Assets
Current assets:
Cash and cash equivalents $ 136,971 $ 282,561
Restricted cash 9,342 2,024
Investments 239,302 227,905
Accounts and other receivables, net 46,678 36,259
Litigation settlements receivable 13,095 --
Inventories, net 10,998 14,833
Prepaid expenses 5,516 3,779
Deferred income taxes 36,330 30,205
---------- ----------
Total current assets 498,232 597,566
Property and equipment, net 26,585 18,574
Investments 234,847 119,302
Goodwill, net 397,256 397,256
Other intangibles, net 27,067 32,874
Deferred income taxes -- 29,385
Other assets 5,782 12,407
---------- ----------
$1,189,769 $1,207,364
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,298 $ 12,663
Accrued liabilities 18,806 19,677
Accrued litigation settlements 39,500 --
Income taxes payable 5,457 7,020
---------- ----------
Total current liabilities 75,061 39,360
Convertible subordinated notes 208,518 345,000
Deferred income taxes 4,260 --
---------- ----------
287,839 384,360
Total stockholders' equity 901,930 823,004
---------- ----------
$1,189,769 $1,207,364
========== ==========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
Q4 FY 2003 % Total Q4 FY 2002 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
-----------------------------------------------------
Revenue from
OEM customers $50,903 62% $46,996 67% +8%
Revenue from
distribution 30,812 38% 23,149 33% +33%
Other 47 nm 50 nm nm
------- ------- ------- ------- ----
Total Net
Revenues $81,762 100% $70,195 100% +16%
======= ======= ======= ======= ====
United States $49,301 60% $44,478 63% +11%
Europe 27,864 34% 22,151 32% +26%
Pacific Rim
countries 4,597 6% 3,566 5% +29%
------- ------- ------- ------- ----
Total Net
Revenues $81,762 100% $70,195 100% +16%
======= ======= ======= ======= ====
Forward-Looking Diluted Earnings per Share Reconciliation:
Guidance for
Three Months Ending
September 28, 2003
Non-GAAP diluted earnings per share guidance $0.23
Items excluded, net of tax, from non-GAAP
diluted earnings per share to calculate GAAP
diluted earnings per share guidance:
Amortization of goodwill and other intangibles ($0.01)
Amortization of deferred stock-based compensation ($0.01)
Benefit due to the sale of previously impaired
excess and obsolete inventory associated with
older generation 1 gigabit products excluded
from cost of sales $0.00
-----
GAAP diluted earnings per share guidance $0.21
=====