Investor Contact: Frank Yoshino, Vice President, Finance, +1 714-885-3697
Press Contact: Katherine Lane, Director, Corporate Communications, +1 714-885-3828
EMULEX ANNOUNCES FIRST QUARTER FISCAL 2012 RESULTS
Net Revenues Grow 15% and Non-GAAP Net Income Increases 20% Year-Over-Year
COSTA MESA, Calif., October 27, 2011 - Emulex Corporation (NYSE:ELX) today announced results for its first quarter of fiscal 2012, which ended on October 2, 2011.
First Quarter Financial Highlights
- Total net revenues of $118.4 million, an increase of 15% year-over-year
- Announced new product lines that are better aligned with our addressable markets See accompanying financial data for 5 quarters of historical results
- Network Connectivity Products (NCP) net revenues of $86.6 million, or 73% of total net revenues, an increase of 14% year-over-year
10Gb/s Ethernet (10GbE) products totaled approximately 16% of net revenues
- Storage Connectivity Products (SCP) net revenues of $23.9 million, or 20% of net revenues, an increase of 11% year-over-year
- Advanced Technology and Other Products, (ATP) net revenues of $7.9 million or 7% of net revenues, an increase of 50% year-over-year
- GAAP gross margins of 55% and non-GAAP gross margins of 63%
- GAAP operating loss of $5.9 million, or 5% of total net revenues, and non-GAAP operating income of $12.5 million, or 11% of total net revenues
- GAAP net loss of $7.2 million and non-GAAP net income of $11.8 million
- GAAP loss per share of $0.08 and non-GAAP diluted earnings per share of $0.13
- Cash, cash equivalents and investments at the end of the quarter of $171.2 million
- 2.9 million shares were repurchased during the quarter using approximately $20 million of cash
First Quarter Business Highlights
- Emulex achieved the largest year-over-year 10Gb Ethernet (10GbE) revenue share gain, closing the gap on the #1 supplier in the overall 10GbE market, according to the Dell'Oro Group and Crehan Research and was ranked:
- #1 in 10GbE LOM revenue and ports, according to Crehan Research
- #1 in FCoE revenue and ports with 30% market share and 80% of the port shipments, according to Crehan Research
- Together with Dell, Emulex announced the addition of iSCSI over Data Center Bridging (DCB) technology to its OneConnect® 10GbE Universal Converged Network Adapters (UCNAs) which provide 10GbE iSCSI network convergence with reduced latency and enterprise-class performance and reliability
- Emulex introduced its new Universal Multi-Channel technology for open systems solutions, which allows data centers to optimally allocate 10GbE bandwidth for virtualized servers, providing greater cost savings through reduced capital expenditures
- Emulex's OneConnect UCNAs received the 2011 XChange XCellence Award in the category of 'Breakthrough Technology Vendor'
- Emulex announced its LightPulse® 16Gb Fibre Channel (16GFC) Host Bus Adapter (HBA), based on the XE201 I/O Controller (IOC), which is the only 16GFC adapter that delivers over one million I/O per second (IOPS) on a single port
- Emulex's XE201 IOC received the 3rd Annual Golden Bridge Award in the category of 'Innovation in Information Technology: Convergence'
- As part of Emulex's ongoing efforts to optimize operations and focus on centers of excellence, we opened an expanded design center in Austin, Texas, responsible for Ethernet ASIC development
In the first quarter, total net revenues increased 15% from the comparable quarter of last year, reaching $118.4 million. The first quarter net loss on a GAAP basis was $7.2 million, or $0.08 per share, compared to a GAAP net loss of $15.7 million, or $0.18 per share reported in Q4 of fiscal 2011, and a GAAP net loss of $8.6 million, or $0.10 per share, in Q1 of fiscal 2011. Non-GAAP net income for the first quarter was $11.8 million, or $0.13 per diluted share, representing a 20% increase from the $9.9 million reported in the comparable quarter of the last fiscal year, and a decrease of 18% from the $14.4 million reported in the immediately preceding quarter. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.
CEO Jim McCluney commented, "Exceeding the high-end of revenues and earnings guidance was a terrific start to our new fiscal year. With year-over-year increases on the top line of 15%, and non-GAAP net income of 20%, we met our goal of delivering better than industry revenue growth, with even greater earnings growth," continued McCluney.
"Looking forward into the second quarter, we are diligently focused on managing through any temporary supply issues resulting from the recent Thailand flooding, while once again working to deliver strong year-over-year revenue and earnings performance," McCluney concluded.
Although actual results may vary depending on a variety of factors, many of which are outside the Company's control, including uncertainty related to the macro IT spending environment, the timing of new server launches by our customers, and the ultimate impact of the flooding in Thailand on product availability, and the results and related costs of ongoing patent litigation, Emulex is providing guidance for its second fiscal quarter ending January 1, 2012. For the second quarter of fiscal 2012, Emulex is forecasting total net revenues in the range of $121-$127 million. The Company expects non-GAAP earnings per diluted share could amount to $0.17-$0.20 in the second quarter. On a GAAP basis, Emulex expects earnings per diluted share of $0.08-$0.11 in the second quarter. GAAP estimates for the second quarter reflect approximately $0.09 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation.
Emulex, the leader in converged networking solutions, provides enterprise-class connectivity for servers, networks and storage devices within the data center. The Company's product portfolio of Fibre Channel host bus adapters, network interface cards, converged network adapters, controllers, embedded bridges and switches, and connectivity management software are proven, tested and trusted by the world's largest and most demanding IT environments. Emulex solutions are used and offered by the industry's leading server and storage OEMs including, Cisco, Dell, EMC, Fujitsu, Hitachi, Hitachi Data Systems, HP, Huawei, IBM, NEC, NetApp and Oracle. Emulex is headquartered in Costa Mesa, Calif., and has offices and research facilities in North America, Asia and Europe. Emulex is listed on the New York Stock Exchange (NYSE:ELX). News releases and other information about Emulex is available at www.Emulex.com.
Note Regarding Non-GAAP Financial Information
To supplement the condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we have included the following non-GAAP financial measures in this press release or in the webcast to discuss our financial results for the first fiscal quarter which may be accessed via our website at www.emulex.com: (i) non-GAAP gross margin, (ii) non-GAAP operating expenses, (iii) non-GAAP operating income, (iv) non-GAAP net income, and (v) non-GAAP diluted earnings per share. These non-GAAP financial measures exclude certain expenses and reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our results of operations and the factors and trends affecting our business. However, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. We use our non-GAAP financial measures internally to better understand and evaluate our business, prepare annual budgets, and in measuring performance for some forms of compensation.
Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:
Stock-based compensation. Although stock-based compensation represents an important part of incentive compensation offered to our key employees, we believe that exclusion of the impact of stock-based compensation assists management and investors in evaluating the period over period performance of our business operations and in comparing our performance with those of our competitors. Stock-based compensation expense will recur in future periods.
Amortization of intangibles. Amortization of intangibles generally represents costs incurred by an acquired company or other third party to build value prior to our acquisition of the intangible assets. As such, it is effectively part of the transaction costs of the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Amortization of intangibles will recur in future periods.
Site closure related expenses. We have recognized expenses related to closure and consolidation of certain facilities. We believe that exclusion of these expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are infrequent in nature.
Patent damages finding. We believe that exclusion of charges related to the patent damages finding is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors, as this amount relates to a judgment in litigation and does not reflect a continuing cost of operating our core business. In this regard, we note that expenses of this type are infrequent in nature.
Mark-up to fair value of inventory acquired in the ServerEngines acquisition and subsequently sold. At the time of an acquisition, the inventory of the acquired company is recorded at fair value and subsequently expensed as sold. We believe that the mark-up on acquired inventory does not constitute part of our core business because it generally represents costs incurred by the acquired company prior to acquisition and as such they are effectively part of transaction costs rather than ongoing costs of operating our core business. In this regard, we note that once the acquired inventory is consumed the mark-up will not be replaced with cash costs and therefore, the exclusion of these costs provides management and investors with better visibility into the actual costs required to generate revenues over time.
Broadcom's unsolicited takeover proposal and related litigation costs. We believe that exclusion of charges related to Broadcom's unsolicited takeover proposal and related litigation costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. We believe such costs are generally unrelated to our core business and/or infrequent in nature.
Fair value adjustments on assets. We have recognized a fair value adjustment in connection with a loan made to ServerEngines prior to the acquisition. We believe that exclusion of this adjustment is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that adjustments of this type are infrequent in nature.
"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, and the reconciliation of forward-looking diluted earnings per share below, 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. We wish 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 the effects of ongoing lawsuits, such as the action brought by Broadcom, which present inherent risks, any of which could have a material adverse effect on our business, financial condition, or results of operations. Such potential risks include continuing expenses of litigation, risk of loss of patent rights and/or monetary damages, risk of injunction against the sale of products incorporating the technology in question, counterclaims, attorneys' fees, and diversion of management's attention from other business matters. Such potential risks also include, with respect to the Broadcom litigation, the ability to make design change implementations, the availability of customer resources to complete any re-qualification or re-testing that may be needed, and the ability to maintain favorable working relationships with Emulex suppliers of SerDes modules. In addition, the fact that the economy generally, and the technology and storage segments specifically, have been in a state of uncertainty makes it difficult to determine if past experience is a good guide to the future and makes it impossible to determine if markets will grow or shrink in the short term. The current economic downturn and the resulting disruptions in world credit and equity markets that are creating economic uncertainty for our customers and the storage networking market as a whole has and could continue to adversely affect our revenues and results of operations. Furthermore, the effect of any actual or potential unsolicited offers to acquire us may have an adverse effect on our operations. As a result of this uncertainty, we are 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: faster than anticipated decline in the storage networking market; slower than expected growth of the storage networking market or the failure of our Original Equipment Manufacturer (OEM) customers to successfully incorporate our products into their systems; our 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 timely payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of our or our OEM customers' new or enhanced products; costs associated with entry into new areas of the storage technology market; the variability in the level of our backlog and the variable and seasonal procurement patterns of our customers; any inadequacy of our intellectual property protection and the costs of actual or potential third-party claims of infringement and any related indemnity obligations or adverse judgments; impairment charges, including but not limited to goodwill and intangible assets; changes in tax rates or legislation; the effect of acquisitions; the effects of terrorist activities; natural disasters, such as the earthquake and resulting tsunami off the coast of Japan in March 2011 and the significant flooding in various parts of Thailand in October 2011, and any resulting disruption in our supply chain or customer purchasing patterns or any other resulting economic or political instability; the highly competitive nature of the markets for our products as well as pricing pressures that may result from such competitive conditions; the effects of changes in our business model to separately charge for software; the effect of rapid migration of customers towards newer, lower cost product platforms; possible transitions from board or box level to application specific integrated circuit (ASIC) solutions for selected applications; a shift in unit product mix from higher-end to lower-end or mezzanine card products; a faster than anticipated decrease in the average unit selling prices or an increase in the manufactured cost of our products; delays in product development; our reliance on third-party suppliers and subcontractors for components and assembly; our ability to attract and retain key technical personnel; our ability to benefit from research and development activities; our dependence on international sales and internationally produced products; changes in accounting standards; and the potential effects of global warming and any resulting regulatory changes on our business. These and other factors could cause actual results to differ materially from those in the forward-looking statements and are discussed in our filings with the Securities and Exchange Commission, including our recent filings on Forms 10-K and 10-Q, under the caption "Risk Factors."
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