COSTA MESA, Calif., Jan. 20, 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 second fiscal quarter ended December 26, 2004.
Second Quarter Highlights
-- Revenues of $91.7 million, up from original guidance of $81-85
million, and updated recent guidance of $90-$91 million. This was
a 3% decrease from a year ago, but a 25% sequential increase from
the first quarter.
-- Non-GAAP diluted EPS of $0.21, and GAAP diluted EPS of $0.16,
compared to original non-GAAP guidance of $0.13-$0.15 and GAAP
guidance of $0.08-$0.10, and recently updated non-GAAP guidance
of $0.19-$0.20 and GAAP guidance of $0.14-$0.15.
-- Gross margin of 63%, both on a non-GAAP and a GAAP basis.
-- Non-GAAP operating margin of 31% and GAAP operating margin
of 23%.
-- An 8% sequential reduction in net inventory levels to $23.0
million with a sequential improvement in turns from 4.7 to 5.8.
-- Cash and investments, net of debt, of $222 million, up $40
million sequentially from first quarter levels, and up $125
million from a year ago.
Financial Results
Second quarter revenues, essentially all of which were comprised of Fibre Channel products, rose 25% sequentially from the first fiscal quarter to $91.7 million. Second quarter non-GAAP net income declined by 9% from the comparable year-ago results, but nearly doubled sequentially to $18.9 million, or $0.21 per diluted share, reflecting margin improvement achieved on sequentially flat operating expenses coupled with higher than originally expected sequential revenue growth. Second quarter GAAP net income, including charges associated with previous acquisitions, was sequentially flat but nearly tripled from a year ago to $14.2 million, or $0.16 per diluted share. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data.
Paul Folino, Emulex Chairman and CEO, stated, "The 25% sequential growth in customer demand for Emulex solutions was twice the original guidance level, as orders surged across our customer base and both InSpeed and Lightpulse product families. Our mix of switching product revenue to HBAs remained relatively unchanged from the first quarter, reflecting solid sequential gains across both HBA and switching product lines. As we exited the December quarter, channel inventories dropped sequentially, indicating that once again actual point-of-sale channel demand for Emulex HBAs had outpaced recorded revenue." Emulex's InSpeed storage switching solutions continued to gain momentum in the market as the company expanded its installed base to 4 million ports, complementing its installed base of 1.8 million Emulex HBAs.
Folino continued, "As part of our ongoing growth and diversification strategy, we plan to expand our engineering, sales and marketing investment in upcoming quarters as we introduce new Emulex Fibre Channel connectivity solutions for the blade server and volume server markets, enter new multi-protocol storage markets, and launch support for newly acquired OEM customers." Recently, Emulex introduced its first HBA designed for the IBM eServer BladeCenter, the market's leading blade server system, which will commence commercial shipment in the current quarter. Folino concluded, "To fuel growth, Emulex is launching more new products this fiscal year than ever before, including a complete line of 4 gigabit per second Fibre Channel I/O and switching products which are rapidly gaining a first-to-market leadership position among our OEMs. Soon, these will be complemented by jointly developed multi-protocol ASICs arising from our strategic relationship with Intel that will offer OEMs an unprecedented, universal serial storage solution spanning Fibre Channel, Serial Attached SCSI and Serial ATA protocols. With interest in 4 gigabit and multi-protocol technologies accelerating, Emulex is committed to maximizing the new market opportunities ahead of us."
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 third fiscal quarter ending March 2005. Emulex is budgeting for third quarter revenue in a range of $91-93 million, gross margins at 63%, and non-GAAP earnings per share of $0.18-$0.20. On a GAAP basis, Emulex expects diluted third quarter EPS of $0.13-$0.15 per share, reflecting approximately $0.05 per share in expected GAAP charges arising primarily from amortization of intangibles and deferred stock-based compensation.
Webcast Information
Emulex will host a webcast today at 2:00 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the home page of the Emulex website at www.emulex.com. During the call, Emulex will discuss details of the second 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 243868.
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 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(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, 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 the amortization of deferred 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, 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; 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."
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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 Income
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2004 2003 2004 2003
-------- -------- -------- --------
Net revenues $ 91,671 $ 94,369 $164,896 $178,946
Cost of sales 33,546 34,806 62,792 63,133
-------- -------- -------- --------
Gross profit 58,125 59,563 102,104 115,813
-------- -------- -------- --------
Operating expenses:
Engineering and
development 19,746 18,311 39,943 34,655
Selling and marketing 7,587 6,850 15,011 11,452
General and
administrative 3,579 5,588 3,158 9,245
In-process research and
development -- 11,400 -- 11,400
Impairment of goodwill -- -- 1,793 --
Amortization of other
intangibles 6,548 4,301 13,095 5,751
-------- -------- -------- --------
Total operating expenses 37,460 46,450 73,000 72,503
-------- -------- -------- --------
Operating income 20,665 13,113 29,104 43,310
-------- -------- -------- --------
Nonoperating income:
Interest income 2,867 1,978 5,901 4,476
Interest expense (1,056) (727) (2,403) (1,760)
Gain (loss) on repurchase
of convertible
subordinated notes -- (1,764) 13,090 2,901
Other income, net 82 58 72 164
-------- -------- -------- --------
Total nonoperating
income (loss) 1,893 (455) 16,660 5,781
-------- -------- -------- --------
Income before income taxes 22,558 12,658 45,764 49,091
Income tax provision 8,357 9,043 17,264 22,888
-------- -------- -------- --------
Net income $ 14,201 $ 3,615 $ 28,500 $ 26,203
======== ======== ======== ========
Net income per share:
Basic $ 0.17 $ 0.04 $ 0.34 $ 0.32
======== ======== ======== ========
Diluted $ 0.16 $ 0.04 $ 0.32 $ 0.31
======== ======== ======== ========
Number of shares used in
per share computations:
Basic 82,732 82,558 82,646 82,550
======== ======== ======== ========
Diluted 92,632 88,447 93,659 87,909
======== ======== ======== ========
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 $661 and $163 for the three months
ended December 26, 2004, and December 28, 2003, respectively. 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 $1,492 and $856 for the six months
ended December 26, 2004, and December 28, 2003, 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 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 Six
Months Ended Months Ended
---------------- -----------------
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2004 2003 2004 2003
------- ------- -------- -------
GAAP net income,
as presented above $14,201 $ 3,615 $ 28,500 $26,203
------- ------- -------- -------
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(1) -- (88) -- (1,896)
Amortization of deferred
stock-based compensation
associated with the
acquisitions of Vixel and
Giganet, as follows:
Excluded from engineering
and development 363 567 886 977
Excluded from selling and
marketing 219 1,274 458 1,419
Excluded from general and
administrative 476 374 961 411
Excluded from cost of
sales 37 229 75 233
In-process research and
development excluded from
operating expenses -- 11,400 -- 11,400
Amortization of intangibles,
excluded from operating
expenses 6,548 4,301 13,095 5,751
Impairment of goodwill,
excluded from operating
expenses(2) -- -- 1,793 --
Insurance settlement
(recovery) and $315 of
related interest associated
with settlement of
securities class action and
derivative lawsuits,
excluded from general and
administrative and interest
income expenses (250) 698 (4,964) 698
Net loss (gain) on repurchase
of convertible subordinated
notes excluded from non-
operating income(3) -- 1,764 (13,090) (2,901)
Income tax effect of above
items excluded from the
income tax provision (2,678) (3,248) 691 (1,339)
------- ------- -------- -------
Impact on net income 4,715 17,271 (95) 14,753
------- ------- -------- -------
Non-GAAP net income $18,916 $20,886 $ 28,405 $40,956
======= ======= ======== =======
---------------------------
(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 these previously
impaired products is excluded.
(2) Impairment of goodwill. During the first quarter of fiscal
2005, the Company changed estimates and discovered errors related
to the deferred tax assets of Vixel Corporation (acquired in
November 2004). As a result, the Company recorded a $1.8 million
impairment of goodwill in the first quarter of fiscal 2005. Had
these items been recorded in fiscal 2004, the Company's net loss
would have been $1.8 million higher, or $534.1 million, instead
of $532.3 million. The Company does not believe that this $1.8
million impairment of goodwill is material to fiscal 2004 or 2005
operations.
(3) Net loss (gain) on repurchase of convertible subordinated
notes. In the three months ended September 26, 2004, Emulex
repurchased $153.0 million in face value of its 0.25% convertible
subordinated notes at a discount, resulting in a pre-tax gain of
$13.1 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. Additionally, in the three months ended September
28, 2003, Emulex repurchased $93.9 million in face value of its
1.75% convertible subordinated notes at a discount, resulting in
a pre-tax gain of $4.7 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(4)
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
Dec. 26, Dec. 28, Dec. 26, Dec. 28,
2004 2003 2004 2003
-------- -------- -------- --------
Net revenues $ 91,671 $ 94,369 $164,896 $178,946
Cost of sales 33,509 34,665 62,717 64,796
-------- -------- -------- --------
Gross profit 58,162 59,704 102,179 114,150
-------- -------- -------- --------
Operating expenses:
Engineering and
development 19,383 17,744 39,057 33,678
Selling and marketing 7,368 5,576 14,553 10,033
General and
administrative 3,353 4,516 6,846 8,136
-------- -------- -------- --------
Total operating expenses 30,104 27,836 60,456 51,847
-------- -------- -------- --------
Operating income 28,058 31,868 41,723 62,303
-------- -------- -------- --------
Nonoperating income:
Interest income 2,867 1,978 5,586 4,476
Interest expense (1,056) (727) (2,403) (1,760)
Other income, net 82 58 72 164
-------- -------- -------- --------
Total nonoperating
income 1,893 1,309 3,255 2,880
-------- -------- -------- --------
Income before income taxes 29,951 33,177 44,978 65,183
Income tax provision 11,035 12,291 16,573 24,227
-------- -------- -------- --------
Net income $ 18,916 $ 20,886 $ 28,405 $ 40,956
======== ======== ======== ========
Net income per share:
Basic $ 0.23 $ 0.25 $ 0.34 $ 0.50
======== ======== ======== ========
Diluted $ 0.21 $ 0.24 $ 0.32 $ 0.48
======== ======== ======== ========
Number of shares used in
per share computations:
Basic 82,732 82,558 82,646 82,550
======== ======== ======== ========
Diluted 92,632 88,447 93,659 87,909
======== ======== ======== ========
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 $664 and $360 for the three
months ended December 26, 2004, and December 28, 2003, 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 $1,514 and $1,008 for the six
months ended December 26, 2004, and December 28, 2003, respectively.
Diluted earnings per share for prior periods have been recalculated
in accordance with EITF 04-08.
(4) 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)
Dec. 26, June 27,
2004 2004
-------- --------
Assets
Current assets:
Cash and cash equivalents $125,290 $192,137
Restricted cash -- 23
Investments 315,074 220,114
Accounts and other receivables, net 50,209 61,720
Litigation settlements receivable -- 5,101
Inventories, net 22,989 31,835
Prepaid expenses 3,649 3,572
Deferred income taxes 24,272 26,824
-------- --------
Total current assets 541,483 541,326
Property and equipment, net 64,451 64,570
Investments 157,697 243,125
Other intangibles, net 109,572 122,667
Other assets 1,130 1,293
-------- --------
$874,333 $972,981
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 23,091 $ 21,747
Accrued liabilities 22,175 22,839
Income taxes payable 16,985 9,910
-------- --------
Total current liabilities 62,251 54,496
Convertible subordinated notes 376,056 524,845
Deferred income taxes and other 8,407 486
-------- --------
Total liabilities 446,714 579,827
-------- --------
Total stockholders' equity 427,619 393,154
-------- --------
$874,333 $972,981
======== ========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
Q2 FY Q2 FY
2005 % Total 2004 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
------- ------- ------- ------- ---------
Revenue from
OEM customers $60,146 66% $66,307 70% -9%
Revenue from
distribution 31,199 34% 28,005 30% +11%
Other 326 nm 57 nm nm
------- ------- ------- ------- ---------
Total net revenues $91,671 100% $94,369 100% -3%
======= ======= ======= ======= =========
United States $50,695 55% $51,587 55% -2%
Europe and rest
of world 28,592 31% 33,203 35% -14%
Pacific Rim
countries 12,384 14% 9,579 10% +29%
------- ------- ------- ------- ---------
Total net
revenues $91,671 100% $94,369 100% -3%
======= ======= ======= ======= =========
Forward-Looking Diluted Earnings per Share Reconciliation:
Guidance for
Three Months Ending
March 27, 2005
--------------
Non-GAAP diluted earnings per share guidance $ 0.18-0.19
Items excluded, net of tax, from non-GAAP
diluted earning per share to calculate GAAP
diluted earnings per share guidance:
Amortization of intangibles (0.04)
Amortization of deferred stock-based compensation (0.01)
--------------
GAAP diluted earnings per share guidance $ 0.13-0.14
==============