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QLogic Reports First Quarter Results for Fiscal Year 2012

ALISO VIEJO, Calif., Jul 28, 2011 (BUSINESS WIRE) -- QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its first quarter financial results for the period ended July 3, 2011.

First Quarter Highlights

  • Net revenue: $151.6 million
  • GAAP net income: $32.4 million or $0.31 per diluted share
  • Non-GAAP net income: $40.3 million or $0.38 per diluted share
  • Operating margin: 21.5% GAAP, 28.7% non-GAAP
  • Cash generated from operations: $40.3 million

Financial Results

Net revenue for the first quarter of fiscal 2012 was $151.6 million and increased 6% from $142.6 million in the same quarter last year. Revenue from Host Products was $109.8 million during the first quarter of fiscal 2012 and increased 7% from $102.5 million in the same quarter last year. Revenue from Network Products was $21.9 million during the first quarter of fiscal 2012 compared to $25.6 million in the same quarter last year. Revenue from Silicon Products was $16.8 million during the first quarter of fiscal 2012 and increased 42% from $11.9 million in the same quarter last year.

Net income on a GAAP basis for the first quarter of fiscal 2012 increased to $32.4 million, or $0.31 per diluted share, from $25.4 million, or $0.22 per diluted share, for the first quarter of fiscal 2011. Net income on a non-GAAP basis for the first quarter of fiscal 2012 increased to $40.3 million, or $0.38 per diluted share, from $34.7 million, or $0.30 per diluted share, for the first quarter of fiscal 2011.

"We are very pleased with the performance of our business in the first quarter. Our revenue of $151.6 million in the first quarter was up 6% over the prior year and was at the high end of our guidance range, driven by strength in both Host and Silicon Products," said Simon Biddiscombe, president and chief executive officer, QLogic. "We continue to see tangible benefits from our focus and investments in expansion markets. Our results in the first quarter were highlighted by strong growth in revenue from converged and 10Gb Ethernet products, which grew more than 20% sequentially for the second consecutive quarter."

QLogic uses certain non-GAAP financial measures to supplement financial statements based on GAAP. A summary of these non-GAAP financial measures and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a description of the reasons that management believes that these non-GAAP financial measures provide useful information to investors and the additional purposes for which management uses these non-GAAP financial measures, is presented in the accompanying financial schedules.

QLogic's fiscal 2012 first quarter conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Simon Biddiscombe, president and chief executive officer, and Jean Hu, senior vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at http://www.qlogic.com and http://www.earnings.com. Phone access to participate in the conference call is available at (719) 457-2632, pass code: 8634537.

The financial information that the company intends to discuss during the conference call will be available on the company's website at http://www.qlogic.com for twelve months following the conference call. A replay of the conference call will be available via webcast at http://www.qlogic.com for twelve months.

Follow QLogic @ twitter.com/qlogic

About QLogic

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance networking, including adapters, switches and ASICs. Leading OEMs and channel partners worldwide rely on QLogic products for their data, storage and server networking solutions. For more information, visit http://www.qlogic.com.

Disclaimer - Forward-Looking Statements

This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business and market trends, including which markets will expand) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The company advises readers that these potential risks and uncertainties include, but are not limited to: unfavorable economic conditions; potential fluctuations in operating results; gross margins that may vary over time; the stock price of the company may be volatile; the company's dependence on the networking markets served; the ability to maintain and gain market or industry acceptance of the company's products; the company's dependence on a small number of customers; the company's ability to compete effectively with other companies; the complexity of the company's products; declining average unit sales prices of comparable products; the company's dependence on sole source and limited source suppliers; the company's dependence on relationships with certain third-party subcontractors and contract manufacturers; the ability to attract and retain key personnel; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; a reduction in sales efforts by current distributors; changes in the company's tax provisions or adverse outcomes resulting from examination of its income tax returns; international economic, regulatory, political and other risks; facilities of the company and its suppliers and customers are located in areas subject to natural disasters; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; uncertain benefits from strategic business combinations; declines in the market value of the company's investment securities; environmental compliance costs; changes in regulations or standards regarding energy use of the company's products; difficulties in transitioning to smaller geometry process technologies; the use of "open source" software in the company's products; and computer viruses and other tampering with the company's computer systems.

More detailed information on these and additional factors which could affect the company's operating and financial results are described in the company's Forms 10-K, 10-Q and other reports filed, or to be filed, with the Securities and Exchange Commission. The company urges all interested parties to read these reports to gain a better understanding of the business and other risks that the company faces. The forward-looking statements contained in this press release are made only as of the date hereof, and the company does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

QLogic and the QLogic logo are registered trademarks of QLogic Corporation. Other trademarks and registered trademarks are the property of the companies with which they are associated.

QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited -- in thousands, except per share amounts)

Three Months Ended
July 3,

2011

June 27,

2010

Net revenues $ 151,622 $ 142,609
Cost of revenues 50,859 49,701
Gross profit 100,763 92,908
Operating expenses:
Engineering and development 37,692 34,709
Sales and marketing 21,263 20,430
General and administrative 9,163 8,468
Special charges -- 931
Total operating expenses 68,118 64,538
Operating income 32,645 28,370
Interest and other income, net 1,048 1,676
Income before income taxes 33,693 30,046
Income taxes 1,267 4,597
Net income $ 32,426 $ 25,449
Net income per share:
Basic $ 0.31 $ 0.23
Diluted $ 0.31 $ 0.22
Number of shares used in per share calculations:
Basic 104,679 111,425
Diluted 105,789 113,730
QLOGIC CORPORATION
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP NET INCOME

(unaudited -- in thousands, except per share amounts)

Three Months Ended
July 3,

2011

June 27,

2010

GAAP net income $ 32,426 $ 25,449
Items excluded from GAAP net income:
Stock-based compensation 9,667 10,323
Amortization of acquisition-related intangible assets 1,156 1,156
Special charges -- 931
Gains recognized on previously impaired investment securities

--

(312

)

Income tax effect (2,911 ) (2,865 )
Total non-GAAP adjustments 7,912 9,233
Non-GAAP net income $ 40,338 $ 34,682
Net income per diluted share:
GAAP net income $ 0.31 $ 0.22
Adjustments 0.07 0.08
Non-GAAP net income $ 0.38 $ 0.30

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company's on-going core operating performance.

The company has presented non-GAAP net income and non-GAAP net income per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company's core net income and core net income per diluted share on an on-going basis. These non-GAAP financial measures may also assist investors in making comparisons of the company's core net profitability with historical periods and comparisons of the company's core net profitability with the corresponding results for competitors. Management believes that non-GAAP net income and non-GAAP net income per diluted share are important measures in the evaluation of the company's profitability. These non-GAAP financial measures exclude the adjustments described in the above table, and thus provide an overall measure of the company's on-going net profitability and related profitability on a per diluted share basis.

Management uses non-GAAP net income and non-GAAP net income per diluted share in its evaluation of the company's core after-tax results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. In addition, the company prepares and maintains its budgets and forecasts for future periods on a basis consistent with these non-GAAP financial measures. Management believes that providing these non-GAAP financial measures allows investors to view the company's financial results in the way that management views the financial results.

The non-GAAP financial measures presented herein have certain limitations in that they do not reflect all of the costs associated with the operations of the company's business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

For additional information on the items excluded from the non-GAAP financial measures and why the company believes that these non-GAAP financial measures provide useful supplemental information to investors, the company refers you to the Form 8-K regarding this release filed today with the Securities and Exchange Commission.

A summary of the non-GAAP adjustments presented in the table above by the financial statement line impacted is as follows:

(unaudited - in thousands) Three Months Ended
July 3,

2011

June 27,

2010

Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 808 $ 734
Amortization of acquisition-related intangible assets 1,156 1,156
Total cost of revenue adjustments 1,964 1,890
Operating expenses:
Engineering and development:
Stock-based compensation 4,631 5,007
Sales and marketing:
Stock-based compensation 1,857 2,113
General and administrative:
Stock-based compensation 2,371 2,469
Special charges -- 931
Total operating expense adjustments 8,859 10,520
Interest and other income:
Gains recognized on previously impaired investment securities

--

(312

)

Total non-GAAP adjustments before income taxes 10,823 12,098
Income tax effect (2,911 ) (2,865 )
Total non-GAAP adjustments $ 7,912 $ 9,233
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited -- in thousands)

July 3, 2011 April 3, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 89,802 $ 147,780
Marketable securities 309,926 236,296
Accounts receivable, net 79,110 70,134
Inventories 26,015 26,931
Deferred tax assets 17,315 17,754
Other current assets 21,270 20,753
Total current assets 543,438 519,648
Property and equipment, net 81,506 77,134
Goodwill 119,748 119,748
Purchased intangible assets, net 12,148 12,694
Deferred tax assets 22,420 25,333
Other assets 2,419 2,650
$ 781,679 $ 757,207
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,353 $ 34,816
Accrued compensation 21,184 25,858
Accrued taxes 5,924 6,012
Deferred revenue 10,172 10,431
Other current liabilities 7,916 5,221
Total current liabilities 83,549 82,338
Accrued taxes 60,038 62,565
Deferred revenue 4,832 5,169
Other liabilities 6,280 5,971
Total liabilities 154,699 156,043
Stockholders' equity:
Common stock 209 208
Additional paid-in capital 856,911 844,546
Retained earnings 1,420,191 1,387,765
Accumulated other comprehensive income 1,081 614
Treasury stock (1,651,412 ) (1,631,969 )
Total stockholders' equity 626,980 601,164
$ 781,679 $ 757,207
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited -- in thousands)

Three Months Ended

July 3,

2011

June 27,

2010

Cash flows from operating activities:
Net income $ 32,426 $ 25,449
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,975 8,066

Stock-based compensation 9,667 10,323
Amortization of acquisition-related intangible assets 1,156 1,156
Deferred income taxes 3,124 6,584
Net gains on investment securities (390 ) (711 )
Other non-cash items 1,211 (5 )
Changes in operating assets and liabilities:
Accounts receivable (9,101 ) (1,247 )
Inventories 916 (5,003 )
Other assets (1,854 ) 76
Accounts payable 539 (687 )
Accrued compensation (4,674 ) (5,546 )
Accrued taxes (1,340 ) (6,155 )
Deferred revenue (596 ) (144 )
Other liabilities 2,254 (1,511 )
Net cash provided by operating activities 40,313 30,645
Cash flows from investing activities:
Purchases of available-for-sale securities (133,619 ) (34,604 )
Proceeds from sales and maturities of available-for-sale securities 60,171 45,657
Proceeds from disposition of trading securities -- 9,350
Distributions from other investment securities -- 293
Purchases of property and equipment (8,982 ) (5,297 )
Net cash provided by (used in) investing activities (82,430 ) 15,399
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards

7,553

4,555

Excess tax benefits from stock-based awards 538 1,029
Minimum tax withholding paid on behalf of employees for restricted stock units

(5,259

)

(5,861

)

Purchases of treasury stock (18,693 ) (53,122 )
Net cash used in financing activities (15,861 ) (53,399 )
Net decrease in cash and cash equivalents (57,978 ) (7,355 )
Cash and cash equivalents at beginning of period 147,780 190,308
Cash and cash equivalents at end of period $ 89,802 $ 182,953

QLOGIC CORPORATION

SUPPLEMENTAL FINANCIAL INFORMATION

(unaudited -- in thousands)

Net Revenues

A summary of the company's revenue components is as follows:

Three Months Ended
July 3,

2011

June 27,

2010

Host Products $ 109,777 $ 102,472
Network Products 21,878 25,638
Silicon Products 16,829 11,868
Service and other 3,138 2,631
$ 151,622 $ 142,609

Geographic Revenues

Revenues by geographic area are presented based upon the ship-to location of the customer, which is not necessarily indicative of the location of the ultimate end-user of the company's products. Net revenues by geographic area are as follows:

Three Months Ended
July 3,

2011

June 27,

2010

United States $ 69,671 $ 63,947
Asia-Pacific and Japan 45,462 39,034
Europe, Middle East and Africa 28,756 32,108
Rest of world 7,733 7,520
$ 151,622 $ 142,609

SOURCE: QLogic Corp.

QLogic Corporation
Media Contact:
Sonal Dave, 949.533.1655
sonal.dave@qlogic.com
or
Investor Contact:
Jean Hu, 949.389.7579
jean.hu@qlogic.com