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QLogic Reports First Quarter Results for Fiscal Year 2016

ALISO VIEJO, Calif.--(BUSINESS WIRE)--Jul. 30, 2015-- QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its first quarter financial results for the period ended June 28, 2015.

Net revenue for the first quarter of fiscal 2016 was $113.4 million compared to $119.4 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $102.6 million during the first quarter of fiscal 2016 compared to $104.7 million in the same quarter last year.

Net income on a GAAP basis for the first quarter of fiscal 2016 was $2.6 million, or $0.03 per diluted share, compared to $6.0 million, or $0.07 per diluted share, for the first quarter of fiscal 2015. Net income on a non-GAAP basis for the first quarter of fiscal 2016 was $16.5 million, or $0.19 per diluted share, compared to $18.5 million, or $0.21 per diluted share, for the first quarter of fiscal 2015.

“We are disappointed with our first quarter financial performance. Our first quarter results were adversely impacted by lower than expected demand due to weakness in our traditional enterprise server and storage markets, and operational issues including an inventory build-up primarily at a major OEM customer that was not identified on a timely basis,” said Prasad Rampalli, president and chief executive officer, QLogic. “We have taken actions to address these execution areas where we fell short and also plan to take actions over the next few months to reduce our operating costs by streamlining our business and prioritizing our investments. We remain committed to our strategy and will continue to focus on our core and expansion markets to deliver long-term growth and enhance shareholder value.”

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 first quarter fiscal 2016 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 877-876-9177, passcode: 7530923.

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 also 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) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include without limitation, the company’s belief that the actions taken or planned will adequately address its operational issues and result in reduced operating costs and its belief that continued focus on its core and expansion markets will deliver long-term growth and enhance shareholder value. 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 company's ability to compete effectively with other companies; the company's dependence on a small number of customers; the ability to maintain and gain market or industry acceptance of the company's 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; 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; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales and purchasing patterns with our customers and suppliers; 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
June 28,

2015

                June 29,

2014

 
Net revenues $ 113,405 $ 119,449
Cost of revenues   47,067   48,754  
Gross profit   66,338   70,695  
 
Operating expenses:
Engineering and development 35,606 37,821
Sales and marketing 15,486 16,034
General and administrative 7,076 8,900
Special charges   1,079   2,544  
Total operating expenses   59,247   65,299  
 
Operating income 7,091 5,396
 
Interest and other income, net   359   142  
 
Income before income taxes 7,450 5,538
 
Income tax expense (benefit)   4,894   (462 )
 
Net income $ 2,556 $ 6,000  
 
Net income per share:
Basic $ 0.03 $ 0.07
Diluted $ 0.03 $ 0.07
 
Number of shares used in per share calculations:
Basic 87,334 87,395
Diluted 88,914 88,253
 
 
     

QLOGIC CORPORATION

RECONCILIATION OF GAAP NET INCOME TO

NON-GAAP NET INCOME

(unaudited — in thousands, except per share amounts)

 
Three Months Ended
June 28,

2015

                June 29,

2014

 
GAAP net income $ 2,556 $ 6,000
Items excluded from GAAP net income:
Stock-based compensation 5,987 5,540
Amortization of acquisition-related intangible assets 3,636 4,448
Amortization of license fee 617 699
Acquisition-related charges 771
Special charges 1,079 2,544
Income tax adjustments   2,642   (1,516 )
Total non-GAAP adjustments   13,961   12,486  
Non-GAAP net income $ 16,517 $ 18,486  
 
Net income per diluted share:
GAAP net income $ 0.03 $ 0.07
Adjustments   0.16   0.14  
Non-GAAP net income $ 0.19 $ 0.21  
 
 

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
June 28,

2015

                June 29,

2014

Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 250 $ 355
Amortization of acquisition-related intangible assets 3,467 4,448
Amortization of license fee 617 699
Acquisition-related charges     771  
Total cost of revenue adjustments   4,334   6,273  
 
Operating expenses:
Engineering and development:
Stock-based compensation 3,274 2,971
Sales and marketing:
Stock-based compensation 1,201 1,010
Amortization of acquisition-related intangible assets 169
General and administrative:
Stock-based compensation 1,262 1,204
Special charges   1,079   2,544  
Total operating expense adjustments   6,985   7,729  
 
Total non-GAAP adjustments before income taxes 11,319 14,002
 
Income tax adjustments   2,642   (1,516 )
 
Total non-GAAP adjustments $ 13,961 $ 12,486  
 
 
                     

QLOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited — in thousands)

 
June 28,

2015

March 29,

2015

ASSETS
Current assets:
Cash and cash equivalents $ 92,199 $ 115,241
Marketable securities   216,676     201,174  
Total cash and marketable securities 308,875 316,415
Accounts receivable, net 84,951 87,436
Inventories 38,649 29,978
Deferred tax assets 12,146 12,545
Other current assets   23,020     21,802  
Total current assets 467,641 468,176
 
Property and equipment, net 79,013 78,501
Goodwill 167,232 167,232
Purchased intangible assets, net 73,974 77,659
Deferred tax assets 33,412 36,335
Other assets   20,757     20,752  
 
$ 842,029   $ 848,655  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 39,263 $ 40,497
Accrued compensation 17,563 22,476
Accrued taxes 1,753 2,711
Other current liabilities   11,629     11,718  
Total current liabilities 70,208 77,402
 
Accrued taxes 14,753 14,516
Other liabilities   7,792     9,721  
Total liabilities   92,753     101,639  
 
Stockholders’ equity:
Common stock 217 215
Additional paid-in capital 1,000,999 983,579
Retained earnings 1,725,220 1,722,664
Accumulated other comprehensive loss (412 ) (99 )
Treasury stock   (1,976,748 )   (1,959,343 )
Total stockholders’ equity   749,276     747,016  
 
$ 842,029   $ 848,655  
 
 
     

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited — in thousands)

 
Three Months Ended

 

June 28,

2015

                June 29,

2014

 
Cash flows from operating activities:
Net income $ 2,556 $ 6,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 10,616 12,180
Stock-based compensation 5,987 5,540
Deferred income taxes 3,400 4,076
Asset impairments 1,011
Other non-cash items 539 581
Changes in operating assets and liabilities:
Accounts receivable 2,517 (18,880 )
Inventories (8,671 ) (7,679 )
Other assets (134 ) 77
Accounts payable 2,218 416
Accrued compensation (4,913 ) (7,235 )
Accrued taxes, net (3,081 ) (5,418 )
Other liabilities   (1,567 )   (7,291 )
Net cash provided by (used in) operating activities   9,467     (16,622 )
 
Cash flows from investing activities:
Purchases of available-for-sale securities (50,639 ) (51,759 )
Proceeds from sales and maturities of available-for-sale securities 34,209 48,932
Purchases of property and equipment   (10,782 )   (8,989 )
Net cash used in investing activities   (27,212 )   (11,816 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards 16,497 1,440
Minimum tax withholding paid on behalf of employees for restricted stock units (5,062 ) (3,298 )
Purchases of treasury stock (17,856 )
Other financing activities   1,124     (80 )
Net cash used in financing activities   (5,297 )   (1,938 )
 
Net decrease in cash and cash equivalents (23,042 ) (30,376 )
 
Cash and cash equivalents at beginning of period   115,241     91,258  
 
Cash and cash equivalents at end of period $ 92,199   $ 60,882  
 
 
     

QLOGIC CORPORATION

SUPPLEMENTAL FINANCIAL INFORMATION

(unaudited — in thousands)

 

Net Revenues

 

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

 
Three Months Ended
June 28,

2015

                June 29,

2014

Advanced Connectivity Platforms $ 102,556 $ 104,701
Legacy Connectivity Products   10,849   14,748
$ 113,405 $ 119,449
 

Source: QLogic Corporation

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