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QLogic Exceeds Revenue and EPS Guidance for Q3 FY2015

ALISO VIEJO, Calif.--(BUSINESS WIRE)--Jan. 29, 2015-- QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its third quarter financial results for the period ended December 28, 2014.

Third Quarter Highlights

  • Net revenue: $140.2 million, up 10% sequentially
  • GAAP net income: $22.4 million or $0.25 per diluted share
  • Non-GAAP net income: $31.6 million, or $0.36 per diluted share
  • GAAP operating income: $23.7 million, up 75% sequentially
  • Non-GAAP operating income: $33.9 million, up 33% sequentially
  • Operating margin: 16.9% GAAP, 24.2% non-GAAP
  • Cash and marketable securities: $287.9 million as of December 28, 2014
  • Cash generated from operations: $25.6 million

Net revenue for the third quarter of fiscal 2015 was $140.2 million and increased 17% from $119.4 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $124.7 million during the third quarter of fiscal 2015 and increased 27% from $98.5 million in the same quarter last year.

Net income on a GAAP basis for the third quarter of fiscal 2015 increased to $22.4 million or $0.25 per diluted share from $20.6 million or $0.24 per diluted share for the third quarter of fiscal 2014. Net income on a non-GAAP basis for the third quarter of fiscal 2015 increased 24% to $31.6 million, or $0.36 per diluted share, from $25.6 million, or $0.29 per diluted share, for the third quarter of fiscal 2014. The GAAP and non-GAAP net income per diluted share amounts for the third quarter of fiscal 2015 include the benefits associated with the retroactive reinstatement of the federal research tax credit, which contributed $0.04 to net income per diluted share.

“I am very pleased with our strong financial performance and execution during the third quarter. For the second consecutive quarter, we delivered both revenue and non-GAAP earnings per diluted share above the high end of our guidance range,” said Prasad Rampalli, president and chief executive officer, QLogic. “Our strong revenue performance, combined with our intense focus on operating expense management resulted in a significant expansion of our operating profit during the third quarter. Based on our compelling product portfolio, our focus on consistent execution and the current momentum with the enterprise upgrade cycle, we believe we are well positioned to continue delivering solid revenue and earnings per share performance.”

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 third quarter fiscal 2015 conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Prasad Rampalli, 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://ir.qlogic.com and will include certain prepared materials. Phone access to participate in the conference call is available at (800) 475-6881, pass code: 9835550.

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

Follow QLogic @ twitter.com/qlogic

QLogic – the Ultimate in Performance

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance server and storage networking connectivity products. Leading OEMs and channel partners worldwide rely on QLogic for their server and storage networking solutions. For more information, visit 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, as well as our belief that our product portfolio is compelling and we are well positioned to continue delivering solid revenue and earnings per share performance) 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: potential fluctuations in operating results; gross margins that may vary over time; unfavorable economic conditions; 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; uncertain benefits from strategic business combinations, acquisitions and divestitures; the ability to attract and retain key personnel; 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; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; changes in the company's tax provisions or adverse outcomes resulting from examination of its income tax returns; international economic, currency, 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; a reduction in sales efforts by current distributors; declines in the market value of the company's marketable securities; changes in and compliance with regulations; difficulties in transitioning to smaller geometry process technologies; the use of "open source" software in the company's products; system security risks, data protection breaches and cyber-attacks; and the company’s ability to borrow under its credit agreement is subject to certain covenants.

More detailed information on these and additional factors that 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 Nine Months Ended
December 28,

2014

  December 29,

2013

December 28,

2014

  December 29,

2013

 
Net revenues $ 140,203 $ 119,449 $ 387,155 $ 345,187
Cost of revenues   57,802     38,446   158,649   111,378
Gross profit   82,401     81,003   228,506   233,809
 
Operating expenses:
Engineering and development 34,802 35,235 108,103 110,412
Sales and marketing 16,153 16,113 47,640 51,957
General and administrative 7,677 7,406 25,274 22,698
Special charges   69     1,947   4,872   18,329
Total operating expenses   58,701     60,701   185,889   203,396
 
Operating income 23,700 20,302 42,617 30,413
 
Interest and other income (expense), net   (269 )   970   169   1,768
 
Income before income taxes 23,431 21,272 42,786 32,181
 
Income taxes   996     686   3,341   3,668
 
Net income $ 22,435   $ 20,586 $ 39,445 $ 28,513
 
Net income per share:
Basic $ 0.26 $ 0.24 $ 0.45 $ 0.32
Diluted $ 0.25 $ 0.24 $ 0.45 $ 0.32
 
Number of shares used in per share calculations:
Basic 87,728 86,855 87,679 87,810
Diluted 88,527 87,186 88,294 88,209
 
 
QLOGIC CORPORATION
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP NET INCOME

(unaudited — in thousands, except per share amounts)

 
Three Months Ended Nine Months Ended
December 28,

2014

  December 29,

2013

December 28,

2014

  December 29,

2013

 
GAAP net income $ 22,435 $ 20,586 $ 39,445 $ 28,513
Items excluded from GAAP net income:
Stock-based compensation 4,903 5,058 15,178 18,047
Amortization of acquisition-related intangible assets 4,350 243 12,917 730
Amortization of license fee 716 2,110
Acquisition-related charges 192 1,226
Special charges 69 1,947 4,872 18,329
Income tax effects   (1,030 )   (2,237 )   (3,612 )   (3,564 )
Total non-GAAP adjustments   9,200     5,011     32,691     33,542  
Non-GAAP net income $ 31,635   $ 25,597   $ 72,136   $ 62,055  
 
Net income per diluted share:
GAAP net income $ 0.25 $ 0.24 $ 0.45 $ 0.32
Adjustments   0.11     0.05     0.37     0.38  
Non-GAAP net income $ 0.36   $ 0.29   $ 0.82   $ 0.70  
 

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 Nine Months Ended
December 28,

2014

  December 29,

2013

December 28,

2014

  December 29,

2013

Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 258 $ 259 $ 871 $ 1,082
Amortization of acquisition-related intangible assets 3,816 243 12,383 730
Amortization of license fee 716 2,110
Acquisition-related charges   192         1,226      
Total cost of revenue adjustments   4,982     502     16,590     1,812  
 
Operating expenses:
Engineering and development:
Stock-based compensation 2,243 2,462 7,523 9,070
Sales and marketing:
Stock-based compensation 1,182 1,251 3,265 4,274
Amortization of acquisition-related intangible assets 534 534
General and administrative:
Stock-based compensation 1,220 1,086 3,519 3,621
Special charges   69     1,947     4,872     18,329  
Total operating expense adjustments   5,248     6,746     19,713     35,294  
 
Total non-GAAP adjustments before income taxes 10,230 7,248 36,303 37,106
 
Income tax effects   (1,030 )   (2,237 )   (3,612 )   (3,564 )
 
Total non-GAAP adjustments $ 9,200   $ 5,011   $ 32,691   $ 33,542  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited — in thousands)

 
December 28,

2014

March 30,

2014

ASSETS
Current assets:
Cash and cash equivalents $ 95,508 $ 91,258
Marketable securities   192,424     186,783  
Total cash and marketable securities 287,932 278,041
Accounts receivable, net 94,705 65,213
Inventories 30,939 18,036
Deferred tax assets 15,481 15,080
Other current assets   24,400     16,590  
Total current assets 453,457 392,960
 
Property and equipment, net 74,841 84,912
Goodwill 167,232 194,107
Purchased intangible assets, net 82,091 69,903
Deferred tax assets 32,723 32,827
Other assets   21,157     23,554  
 
$ 831,501   $ 798,263  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 38,804 $ 30,657
Accrued compensation 19,455 26,956
Accrued taxes 3,511 981
Deferred revenue 3,469 3,954
Other current liabilities   5,999     16,123  
Total current liabilities 71,238 78,671
 
Accrued taxes 15,166 17,095
Other liabilities   8,282     9,071  
Total liabilities   94,686     104,837  
 
Stockholders’ equity:
Common stock 215 214
Additional paid-in capital 974,740 958,008
Retained earnings 1,711,516 1,672,071
Accumulated other comprehensive income (loss) (520 ) 435
Treasury stock   (1,949,136 )   (1,937,302 )
Total stockholders’ equity   736,815     693,426  
 
$ 831,501   $ 798,263  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited — in thousands)

 
Nine Months Ended

 

December 28,

2014

  December 29,

2013

 
Cash flows from operating activities:
Net income $ 39,445 $ 28,513
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 35,511 23,620
Stock-based compensation 15,178 18,047
Deferred income taxes (316 ) (5,355 )
Asset impairments 1,455 3,129
Other non-cash items 1,257 2,577
Changes in operating assets and liabilities:
Accounts receivable (29,892 ) (5,088 )
Inventories (12,903 ) 6,116
Other assets 1,236 537
Accounts payable 4,121 (1,919 )
Accrued compensation (7,501 ) (2,719 )
Accrued taxes, net 1,147 7,734
Other liabilities   (11,398 )   2,841  
Net cash provided by operating activities   37,340     78,033  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (123,431 ) (259,008 )
Proceeds from sales and maturities of available-for-sale securities 116,260 261,253
Purchases of property and equipment   (15,420 )   (21,043 )
Net cash used in investing activities   (22,591 )   (18,798 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards 5,144 6,756
Minimum tax withholding paid on behalf of employees for restricted stock units (3,589 ) (4,584 )
Purchases of treasury stock (11,834 ) (47,785 )
Other financing activities   (220 )   (156 )
Net cash used in financing activities   (10,499 )   (45,769 )
 
Net increase in cash and cash equivalents 4,250 13,466
 
Cash and cash equivalents at beginning of period   91,258     95,532  
 
Cash and cash equivalents at end of period $ 95,508   $ 108,998  
 
 
QLOGIC CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION

(unaudited — in thousands)

 

Net Revenues

 

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

 
Three Months Ended Nine Months Ended
December 28,

2014

  December 29,

2013

December 28,

2014

  December 29,

2013

Advanced Connectivity Platforms $ 124,704 $ 98,452 $ 344,282 $ 285,653
Legacy Connectivity Products   15,499   20,997   42,873   59,534
$ 140,203 $ 119,449 $ 387,155 $ 345,187

Source: QLogic Corp.

QLogic Corporation
Media Contact:
Steve Sturgeon, 858.472.5669
steve.sturgeon@qlogic.com
or
Investor Contact:
Doug Naylor, 949.542.1330
doug.naylor@qlogic.com