Third Quarter Highlights
-- Net revenue was a record $158.0 million.
-- Net income: $31.9 million GAAP, $41.0 million non-GAAP.
-- Net income per diluted share: $0.23 GAAP, $0.30 non-GAAP.
-- Cash generated from operations was $59.8 million.
-- $378.4 million in cash and short-term marketable securities as of December 30.
-- Repurchased $63.5 million of outstanding common stock.
Financial Results
Net revenue for the third quarter of fiscal 2008 was a record $158.0 million. Revenue from Host Products, which are comprised primarily of Fibre Channel and iSCSI Host Bus Adapters (HBAs) and InfiniBand Host Channel Adapters (HCAs), was $118.9 million during the third quarter of fiscal 2008 and increased 4% from $114.6 million in the comparable quarter last year. Revenue from Network Products, which are comprised primarily of Fibre Channel and InfiniBand switches, was $27.8 million during the third quarter of fiscal 2008 and increased 17% from $23.8 million in the comparable quarter last year. Revenue from Silicon Products, which are comprised primarily of protocol chips and management controllers, was $9.3 million during the third quarter of fiscal 2008 and decreased 46% from $17.0 million for the comparable quarter last year.
Net income on a GAAP basis for the third quarter of fiscal 2008 was $31.9 million, or $0.23 per diluted share, and included stock-based compensation expense, acquisition-related charges, and the related income tax effects. Net income on a GAAP basis for the third quarter of fiscal 2007 was $35.5 million, or $0.22 per diluted share, and included stock-based compensation expense, acquisition-related charges, and the related income tax effects. Net income on a non-GAAP basis for the third quarter of fiscal 2008 was $41.0 million, or $0.30 per diluted share.
"We are very pleased with our overall financial performance during the third quarter. We achieved record revenue of $158 million, which increased 13% sequentially from the September quarter," said H. K. Desai, QLogic's chief executive officer. "Our strong revenue performance during the quarter was driven by a 13% sequential increase in revenue from Fibre Channel HBAs and a greater than 20% sequential increase for both Fibre Channel and InfiniBand switch products."
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 2008 third quarter conference call is scheduled for today at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time). H. K. Desai, chief executive officer, and Tony Massetti, senior vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at www.qlogic.com and www.earnings.com. Phone access to participate in the conference call is available at (913) 312-6685, pass code: 8417136.
The financial information that the company intends to discuss during the conference call will be available on the company's website at www.qlogic.com for twelve months following the conference call. A replay of the conference call will be available via webcast at www.qlogic.com for twelve months.
About QLogic
QLogic is a leading supplier of high performance storage networking solutions, which include the controller chips, host adapters and fabric switches that are the backbone of storage networks for most Global 2000 corporations. The company delivers a broad and diverse portfolio of products that includes Fibre Channel HBAs, blade server embedded Fibre Channel switches, Fibre Channel stackable switches, iSCSI HBAs and iSCSI routers. The company is also a leading supplier of InfiniBand switches and InfiniBand host channel adapters for the emerging high performance computing market. QLogic products are delivered to small-to-medium businesses and large enterprises around the world via its channel partner community. QLogic products are also powering solutions from leading companies like Cisco, Dell, EMC, Hitachi Data Systems, HP, IBM, Network Appliance and Sun Microsystems. QLogic is a member of the S&P 500 Index.
Note: All QLogic-issued press releases appear on the company's website (www.qlogic.com). Any announcement that does not appear on the QLogic website has not been issued by QLogic.
Disclaimer - Forward Looking Statements
This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business trends) 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; revenues may be affected by changes in IT spending levels; the stock price of the company may be volatile; the company's dependence on the storage area network market; potential adverse effects of server virtualization technology on the company's business; potential adverse effects of increased market acceptance of blade servers; the ability to maintain and gain market or industry acceptance of the company's products; the company's dependence on a limited number of customers; seasonal fluctuations and uneven sales patterns in orders from customers; the company's ability to compete effectively with other companies; declining average unit sales prices of comparable products; a reduction in sales efforts by current distributors; dependence on sole source and limited source suppliers; the company's dependence on relationships with certain silicon chip suppliers; the complexity of the company's products; sales fluctuations arising from customer transitions to new products; environmental compliance costs; international economic, regulatory, political and other risks; uncertain benefits from strategic business combinations; the ability to attract and retain key personnel; difficulties in transitioning to smaller geometry process technologies; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; reliance on third party technology; the use of "open source" software in our products; changes in our tax provisions or adverse outcomes resulting from examination of our income tax returns; computer viruses and other tampering with the company's computer systems; and facilities of the company and its suppliers and customers are located in areas subject to natural disasters.
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 Nine Months Ended
------------------ -----------------
December December December December
30, 31, 30, 31,
2007 2006 2007 2006
--------- -------- -------- --------
Net revenues $158,040 $157,611 $438,143 $439,601
Cost of revenues 52,237 50,698 152,113 139,774
--------- -------- -------- --------
Gross profit 105,803 106,913 286,030 299,827
--------- -------- -------- --------
Operating expenses:
Engineering and development 33,174 34,003 100,916 99,542
Sales and marketing 20,292 21,586 62,104 64,095
General and administrative 8,260 7,238 25,250 23,274
Special charges -- -- 3,772 --
Purchased in-process research
and development -- -- -- 1,910
--------- -------- -------- --------
Total operating expenses 61,726 62,827 192,042 188,821
--------- -------- -------- --------
Operating income 44,077 44,086 93,988 111,006
Interest and other income, net 4,866 5,646 16,885 18,332
--------- -------- -------- --------
Income before income taxes 48,943 49,732 110,873 129,338
Income taxes 17,073 14,278 37,428 42,361
--------- -------- -------- --------
Net income $ 31,870 $ 35,454 $ 73,445 $ 86,977
========= ======== ======== ========
Net income per share:
Basic $ 0.23 $ 0.22 $ 0.51 $ 0.55
Diluted $ 0.23 $ 0.22 $ 0.50 $ 0.54
Number of shares used in per share
calculations:
Basic 136,836 158,532 144,932 159,516
Diluted 137,421 160,760 145,614 161,161
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 December December December
30, 31, 30, 31,
2007 2006 2007 2006
--------- -------- --------- ---------
GAAP net income $31,870 $35,454 $ 73,445 $ 86,977
Items excluded from GAAP net
income:
Stock-based compensation 8,062 7,511 24,249 22,546
Amortization of purchased
intangible assets 3,618 2,370 13,107 7,851
Acquisition-related stock-
based compensation 606 2,337 568 7,809
Special charges -- -- 3,772 --
Purchased in-process research
and development -- -- -- 1,910
Income tax effect (3,170) (2,777) (11,504) (10,205)
--------- -------- --------- ---------
Total non-GAAP adjustments 9,116 9,441 30,192 29,911
--------- -------- --------- ---------
Non-GAAP net income $40,986 $44,895 $103,637 $116,888
========= ======== ========= =========
Net income per diluted share:
GAAP net income $ 0.23 $ 0.22 $ 0.50 $ 0.54
Adjustments 0.07 0.06 0.21 0.19
--------- -------- --------- ---------
Non-GAAP net income $ 0.30 $ 0.28 $ 0.71 $ 0.73
========= ======== ========= =========
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 diluted per share basis.
Management uses non-GAAP net income in its evaluation of the company's core after-tax results of operations and trends between fiscal periods and believes that this measure is an important component 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 this non-GAAP financial measure. 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 December December December
30, 31, 30, 31,
2007 2006 2007 2006
--------- -------- --------- ---------
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 564 $ 495 $ 1,629 $ 1,431
Amortization of purchased
intangible assets 2,778 2,245 10,088 7,476
Acquisition-related stock-
based compensation -- 13 (24) 39
--------- -------- --------- ---------
Total cost of revenue
adjustments 3,342 2,753 11,693 8,946
--------- -------- --------- ---------
Operating expenses:
Engineering and development:
Stock-based compensation 3,851 3,023 11,131 8,266
Amortization of purchased
intangible assets 32 67 283 200
Acquisition-related stock-
based compensation 587 1,811 554 5,985
Sales and marketing:
Stock-based compensation 1,479 1,767 4,753 5,883
Amortization of purchased
intangible assets 808 58 2,736 175
Acquisition-related stock-
based compensation 19 491 38 1,714
General and administrative:
Stock-based compensation 2,168 2,226 6,736 6,966
Acquisition-related stock-
based compensation -- 22 -- 71
Special charges -- -- 3,772 --
Purchased in-process research
and development -- -- -- 1,910
--------- -------- --------- ---------
Total operating expense
adjustments 8,944 9,465 30,003 31,170
--------- -------- --------- ---------
Total non-GAAP adjustments
before income taxes 12,286 12,218 41,696 40,116
Income tax effect (3,170) (2,777) (11,504) (10,205)
--------- -------- --------- ---------
Total non-GAAP adjustments $ 9,116 $ 9,441 $ 30,192 $ 29,911
========= ======== ========= =========
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited -- in thousands)
December 30, April 1,
2007 2007
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 140,780 $ 76,804
Short-term marketable securities 237,661 467,118
Accounts receivable, net 75,634 73,538
Inventories 31,215 38,935
Deferred tax assets 36,341 27,866
Other current assets 11,558 12,892
------------ -----------
Total current assets 533,189 697,153
Property and equipment, net 95,544 90,913
Goodwill 103,734 102,910
Purchased intangible assets, net 40,816 55,093
Deferred tax assets 20,236 49
Other assets 25,133 25,241
------------ -----------
$ 818,652 $ 971,359
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,519 $ 29,280
Accrued compensation 25,311 34,483
Accrued taxes 22,451 15,729
Deferred revenue 10,108 7,368
Other current liabilities 6,744 7,674
------------ -----------
Total current liabilities 98,133 94,534
Accrued taxes 45,209 --
Deferred tax liabilities -- 2,294
Other liabilities 5,289 --
------------ -----------
Total liabilities 148,631 96,828
------------ -----------
Stockholders' equity:
Common stock 199 198
Additional paid-in capital 647,021 608,515
Retained earnings 1,062,173 988,728
Accumulated other comprehensive income
(loss) (1,017) 169
Treasury stock (1,038,355) (723,079)
------------ -----------
Total stockholders' equity 670,021 874,531
------------ -----------
$ 818,652 $ 971,359
============ ===========
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited -- in thousands)
Nine Months Ended
-------------------------
December 30, December 31,
2007 2006
------------ ------------
Cash flows from operating activities:
Net income $ 73,445 $ 86,977
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,842 19,053
Stock-based compensation 24,249 22,546
Acquisition-related:
Amortization of purchased
intangible assets 13,107 7,851
Stock-based compensation 568 7,809
Purchased in-process research
and development -- 1,910
Deferred income taxes (12,472) (14,643)
Provision for losses on accounts
receivable 190 (55)
Loss on disposal of property and
equipment 1,121 163
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (2,286) (14,197)
Inventories 7,720 (2,915)
Other assets 2,053 1,109
Accounts payable 3,813 (2,777)
Accrued compensation (7,108) (1,443)
Accrued taxes 33,329 5,686
Deferred revenue 2,740 2,983
Other liabilities (756) 629
------------ ------------
Net cash provided by
operating activities 162,555 120,686
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (120,923) (240,441)
Sales and maturities of marketable
securities 348,387 313,644
Additions to property and equipment (22,460) (23,666)
Acquisition of businesses, net of cash
acquired 67 (142,383)
Restricted cash placed in escrow -- (24,000)
Restricted cash received from escrow -- 12,508
------------ ------------
Net cash provided by (used in) investing
activities 205,071 (104,338)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of stock under
stock plans 11,262 31,063
Tax benefit from issuance of stock under
stock plans 364 6,288
Payoff of line of credit assumed in
acquisition -- (1,632)
Purchase of treasury stock (315,276) (85,616)
------------ ------------
Net cash used in financing activities (303,650) (49,897)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 63,976 (33,549)
Cash and cash equivalents at beginning of
period 76,804 125,192
------------ ------------
Cash and cash equivalents at end of period $ 140,780 $ 91,643
============ ============
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 30, December 31, December 30, December 31,
2007 2006 2007 2006
------------- ------------ ------------ ------------
Host Products $ 118,915 $ 114,583 $ 327,559 $ 305,473
Network Products 27,833 23,801 74,239 62,372
Silicon Products 9,275 17,029 30,383 62,681
Other 2,017 2,198 5,962 9,075
------------- ------------ ------------ ------------
$ 158,040 $ 157,611 $ 438,143 $ 439,601
============= ============ ============ ============
Geographic Revenues
Revenues by geographic area are presented based upon the country of
destination. Net revenues by geographic area are as follows:
Three Months Ended Nine Months Ended
-------------------------- -------------------------
December 30, December 31, December 30, December 31,
2007 2006 2007 2006
------------ ------------- ------------ ------------
United States $ 78,647 $ 78,779 $ 224,935 $ 236,224
Europe, Middle
East and Africa 40,243 38,677 105,425 96,724
Asia-Pacific and
Japan 29,143 29,769 81,000 86,797
Rest of world 10,007 10,386 26,783 19,856
------------ ------------- ------------ ------------
$ 158,040 $ 157,611 $ 438,143 $ 439,601
============ ============= ============ ============
Contact:
Investor’s Contact:
QLogic
Corporation
Jeanie Herbert, 949-389-6343
Email Contact