QLogic Exceeds Revenue and EPS Guidance for Q3 FY2015

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

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