COSTA MESA, Calif., Oct. 23, 2003 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the world's largest supplier of storage networking host bus adapters (HBAs), today announced results for its first fiscal quarter ended September 28, 2003.
First Quarter Highlights
-- Revenues up 3% sequentially and up 20% year over year to a
record $84.6 million, at the top end of company guidance
-- Fibre Channel revenues up 3% sequentially and up 22% year over
year to a record $84.1 million, or over 99% of revenue
-- Non-GAAP (formerly known as pro-forma) gross margin of 64%, and
GAAP gross margin of 67%
-- Non-GAAP and GAAP operating margin of 36%
-- Non-GAAP operating income of $30.4 million, a record for the
third quarter in a row, as well as record GAAP operating income
of $30.2 million
-- Non-GAAP diluted EPS of $0.24, above company guidance and up
26% from a year ago, and GAAP diluted EPS of $0.27
-- Sequential increase in cash, cash equivalents, restricted cash
and investments, net of the outstanding convertible subordinated
notes, of $33.8 million
Financial Results
First quarter revenues grew to a record $84.6 million, up 3% sequentially and up 20% year over year. Non-GAAP net income expanded 27% from the comparable year-ago results to a record $20.1 million, or $0.24 per diluted share. GAAP net income amounted to $22.6 million, or $0.27 per diluted share, compared to $32.0 million for the comparable period last year. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.
Fibre Channel revenues expanded 22% year over year and grew 3% sequentially from the fourth fiscal quarter to a record $84.1 million, amounting to over 99% of net revenues. Emulex booked its first revenue from LP10000 and LP10000DC HBAs during Q1 of fiscal 2004, as the Company initiated commercial shipments of next generation adapters based on its first native dual-channel ASIC, Thor. Dual-channel HBAs were a source of strength during the first quarter of fiscal 2004, delivering sequential revenue growth of 24% and year-over-year growth of 95%. "As we have discussed previously, Emulex is targeting the dual-channel HBA sector as an incremental growth opportunity, leveraging Thor's native dual-channel technology," said Paul Folino, Emulex Chairman and CEO. "We are also targeting the midrange as an incremental growth sector, and in the first quarter of fiscal 2004, revenues from our midrange adapters nearly doubled on a year-over-year basis."
With respect to its balance sheet, Emulex repurchased at a discount $93.9 million in face value of its convertible subordinated notes, recognizing a gain of $4.7 million during the first quarter of fiscal 2004. Emulex exited the first quarter of fiscal 2004 with cash, cash equivalents, restricted cash and investments balances of $560 million. Cash, cash equivalents, restricted cash and investments, net of the outstanding convertible subordinated notes, increased $33.8 million during the first quarter of fiscal 2004. Mike Rockenbach, Emulex Chief Financial Officer, said, "We believe our solid performance in cash flow is indicative of the strong underlying fundamentals of our business."
Business Outlook
Emulex is providing guidance for its second fiscal quarter ending December 2003 as follows. Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, for its core business, Emulex is budgeting for year-over-year revenue growth in the 14% to 16% range, or sequential revenue growth of 3-5%, with revenues for the quarter in a range of approximately $87 million to $89 million and non-GAAP earnings per diluted share of up to $0.24. If the acquisition of Vixel is completed in mid-November, Emulex expects that total revenue for the second quarter could increase to approximately $90-$93 million and non-GAAP diluted earnings per share could equal up to $0.22.
Emulex also disclosed that it had recently completed the acquisition of the technology assets of Trebia Networks for approximately $2.0 million in cash. The acquired technology includes multiprotocol storage network processor architectures and high-performance offload engines. Emulex expects that charges associated with this purchase will be excluded from non-GAAP results.
Because the purchase price allocations have not been finalized for the pending Vixel acquisition and the completed Trebia technology asset acquisition, Emulex is unable to provide earnings per share guidance under GAAP that reflects charges associated with these acquisitions at this time.
Webcast Information
Emulex will host a webcast today at 1:30 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 first 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 522950.
About Emulex
Emulex Corporation is the world's largest supplier and developer of storage networking host bus adapters. It was recently named one of Forbes Magazine's 25 Fastest Growing Technology Companies in 2002, and ranked number 15 in Deloitte & Toche's 2003 Technology Fast 50.
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. The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes a benefit related to an inventory charge and a gain on the repurchase of convertible notes as well as charges relating to the amortization of stock-based compensation and acquisition intangibles. The projected non-GAAP financial information also excludes any acquisition-related charges associated with the pending Vixel acquisition and the completed acquisition of 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 proposed acquisition of Vixel and 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 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 the Company's stock price on stock compensation charges; 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."
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended
--------------------------
September 28, September 29,
2003 2002
-------- --------
Net revenues $ 84,577 $ 70,425
Cost of sales 28,327 27,882
-------- --------
Gross profit 56,250 42,543
-------- --------
Operating expenses:
Engineering and development 16,344 13,673
Selling and marketing 4,602 4,664
General and administrative 3,657 2,746
Amortization of intangibles 1,450 1,453
-------- --------
Total operating expenses 26,053 22,536
-------- --------
Operating income 30,197 20,007
-------- --------
Nonoperating income:
Interest income 2,498 3,702
Interest expense (1,033) (1,804)
Gain on repurchase of
convertible subordinated notes 4,665 28,729
Other income (expense), net 106 (30)
-------- --------
Total nonoperating income 6,236 30,597
-------- --------
Income before income taxes 36,433 50,604
Income tax provision 13,845 18,623
-------- --------
Net income $ 22,588 $ 31,981
======== ========
Net income per share:
Basic $ 0.27 $ 0.39
======== ========
Diluted $ 0.27 $ 0.37
======== ========
Number of shares used in
per share computations:
Basic 82,541 81,844
======== ========
Diluted 87,472 89,166
======== ========
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 $640 and $1,141 for the
three months ended September 28, 2003, and September 29, 2002,
respectively.
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
---------------------------
September 28, September 29,
2003 2002
-------- --------
GAAP net income, as presented above $ 22,588 $ 31,981
-------- --------
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 one gigabit per
second products, due to sale of
impaired inventory, excluded from
cost of goods sold(1) (1,808) (164)
Amortization of deferred stock-based
compensation associated with the
acquisition of Giganet and a tax law
change in the United Kingdom, as follows:
Excluded from engineering and development 410 485
Excluded from selling and marketing 145 300
Excluded from general and administrative 37 56
Excluded from cost of sales 4 4
Amortization of intangibles, excluded
from operating expenses 1,450 1,453
Gain on repurchase of convertible
subordinated notes, excluded from
nonoperating income(2) (4,665) (28,729)
Income tax effect of above items,
excluded from the income tax provision 1,909 10,459
-------- --------
Impact on net income (2,518) (16,136)
-------- --------
Non-GAAP net income $ 20,070 $ 15,845
======== ========
--------
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 on repurchase of convertible subordinated notes. 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, formerly pro-forma, information provided in this
press release is a supplement to, and not a substitute for, our
financial results presented in accordance with GAAP. The non-GAAP
results exclude certain expenses and income to provide what we
believe is a more complete understanding of our underlying
operational results and trends. Specifically, we believe the
non-GAAP results provide useful information by excluding certain
expenses that we believe are not indicative of our core operating
results. Further, these non-GAAP results are one of the primary
indicators management uses for planning and forecasting of future
periods. Emulex management refers to these non-GAAP financial
measures in making decisions regarding the Company's operational
performance and to facilitate internal comparisons to the
Company's historical operating results and to competitors'
operating results. Non-GAAP financial measures should be
considered in addition to results prepared in accordance with
GAAP, but should not be considered a substitute for or superior
to GAAP results and may be different from the non-GAAP
presentation used by other companies.
EMULEX CORPORATION AND SUBSIDIARIES
Non-GAAP Condensed Consolidated Statements of Income(1)
(in thousands, except per share data) (unaudited)
Three Months Ended
---------------------------------
September 28, September 29,
2003 2002
-------- --------
Net revenues $ 84,577 $ 70,425
Cost of sales 30,131 28,042
-------- --------
Gross profit 54,446 42,383
-------- --------
Operating expenses:
Engineering and development 15,934 13,188
Selling and marketing 4,457 4,364
General and administrative 3,620 2,690
-------- --------
Total operating expenses 24,011 20,242
-------- --------
Operating income 30,435 22,141
-------- --------
Nonoperating income:
Interest income 2,498 3,702
Interest expense (1,033) (1,804)
Other income (expense), net 106 (30)
-------- --------
Total nonoperating income 1,571 1,868
-------- --------
Income before income taxes 32,006 24,009
Income tax provision 11,936 8,164
-------- --------
Net income $ 20,070 $ 15,845
======== ========
Net income per share:
Basic $ 0.24 $ 0.19
======== ========
Diluted $ 0.24 $ 0.19
======== ========
Number of shares used in
per share computations:
Basic 82,541 81,844
======== ========
Diluted 87,472 83,650
======== ========
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 $647 and $0 for the
three months ended September 28, 2003, and September 29, 2002,
respectively.
--------
1 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)
September 28, June 29,
2003 2003
---------- ----------
Assets
Current assets:
Cash and cash equivalents $ 72,181 $ 136,971
Restricted cash 43,156 9,342
Investments 228,399 239,302
Accounts and other receivables, net 52,747 46,678
Litigation settlements receivable 13,095 13,095
Inventories, net 12,479 10,998
Prepaid expenses 5,279 5,516
Deferred income taxes 28,384 36,330
---------- ----------
Total current assets 455,720 498,232
Property and equipment, net 34,251 26,585
Investments 216,625 234,847
Goodwill 397,256 397,256
Other intangibles, net 25,617 27,067
Other assets 3,262 5,782
---------- ----------
$1,132,731 $1,189,769
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 20,645 $ 11,298
Accrued liabilities 15,973 18,806
Accrued litigation settlements 39,500 39,500
Income taxes payable 11,368 5,457
---------- ----------
Total current liabilities 87,486 75,061
Convertible subordinated notes 114,648 208,518
Deferred income taxes 3,486 4,260
---------- ----------
Total liabilities 205,620 287,839
Total stockholders' equity 927,111 901,930
---------- ----------
$1,132,731 $1,189,769
========== ==========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
Q1 FY 2004 % Total Q1 FY 2003 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
------- ------- ------- ------- ---------
Revenue from OEM
customers $48,010 57% $48,632 69% -1%
Revenue from
distribution 36,527 43% 21,702 31% +68%
Other 40 nm(1) 91 nm(1) nm(1)
------- ------- ------- ------- -------
Total Net
Revenues $84,577 100% $70,425 100% +20%
======= ======= ======= ======= =======
United States $52,975 63% $48,287 69% +10%
Europe 23,026 27% 17,004 24% +35%
Pacific Rim
countries 8,576 10% 5,134 7% +67%
------- ------- ------- ------- -------
Total Net
Revenues $84,577 100% $70,425 100% +20%
======= ======= ======= ======= =======
Forward-Looking Diluted Earnings per Share Reconciliation(2):
Guidance for
Three Months Ending
December 28, 2003
-------------------
Non-GAAP diluted earnings per share guidance $ 0.24
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)
---------
GAAP diluted earnings per share guidance(2) $ 0.22
========
--------
(1) Not meaningful
(2) Excludes effects arising from the acquisition of the technology
assets of Trebia Networks and the proposed acquisition of Vixel.
Because the acquisition of Vixel is not yet complete and the
related charges and purchase price allocation have not been
finalized, Emulex is unable to provide earnings per share
guidance under GAAP at this time.