As previously announced, the Company has entered into an agreement to sell its hard disk drive controller and tape drive controller business to Marvell Technology Group, Ltd. for $225 million. This transaction is expected to close by the middle of the third fiscal quarter. As a result of this transaction, the financial information for the hard disk drive controller and tape drive controller business has been presented as discontinued operations for all periods.
Net revenue from continuing operations for the second quarter of fiscal 2006 was a record $119.0 million and increased 16% from $102.3 million in the comparable quarter last year. During the second quarter of fiscal 2006, revenue from SAN Infrastructure Products, which are comprised of HBAs, switches and silicon, was $110.5 million, an increase of 21% from the comparable quarter last year and 3% sequentially.
Income from continuing operations on a GAAP basis for the second quarter of fiscal 2006 was $30.5 million, or $0.34 per share on a diluted basis, an increase of 20% from the second quarter of last year and 8% sequentially.
Net revenue from continuing operations for the first six months of fiscal 2006 was $234.4 million, up 17% from the same period of fiscal year 2005. Income from continuing operations on a GAAP basis for the first six months of fiscal 2006 was $58.8 million, or $0.64 per share on a diluted basis, an increase of 22% from the same period last year.
Net income on a GAAP basis, including the results from discontinued operations, for the second quarter of fiscal 2006 was $43.0 million, or $0.48 per share on a diluted basis. Net income on a GAAP basis for the first six months of fiscal 2006 was $84.8 million, or $0.93 per share on a diluted basis.
During the second quarter, the Company repurchased $247 million of its common stock on the open market. In October, the Company repurchased an additional $103 million of common stock, thereby completing the current $350 million stock repurchase plan announced in August 2005. Since fiscal year 2003, the Company has repurchased a total of $550 million of the Company's common stock under programs authorized by the Company's Board of Directors.
The Company generated $68 million in cash from continuing operations during the first six months of fiscal 2006. The Company's balance sheet at the end of the second quarter of fiscal 2006 was highlighted by $634 million of cash and short-term investments.
"We are pleased with our record revenue performance from continuing operations, which was driven by a 21% growth in our SAN Infrastructure Products from the prior year quarter," said H.K. Desai, the Company's chief executive officer and president. "The second quarter was also highlighted by our execution against our $350 million stock repurchase program, which was completed in October."
The Company uses certain non-GAAP measures to supplement financial statements based on GAAP. A summary of these non-GAAP financial measures and a complete reconciliation of each non-GAAP measure to the most directly comparable GAAP 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. There is no difference between GAAP and non-GAAP results for any period of fiscal 2006.
Non-GAAP income from continuing operations for the second quarter of fiscal 2006 was $30.5 million, or $0.34 per share on a diluted basis, an increase of 12% from the second quarter of last year. During the first six months of fiscal 2006, the Company's non-GAAP income from continuing operations was $58.8 million, or $0.64 per share on a diluted basis, and increased 13% from the same period last year.
QLogic's fiscal 2006 second 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 president, 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. Phone access to participate in the conference call is available at 719-457-2681, passcode: 9154830.
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 12 months following the conference call. A replay of the conference call will be available via webcast for 12 months on the Company's website at www.qlogic.com. An audio replay of the conference call will also be available through November 2, 2005 by calling 719-457-0820, passcode: 9154830.
QLogic is the leading supplier of Fibre Channel host bus adapters (HBAs), blade server embedded Fibre Channel switches and Fibre Channel stackable switches. The Company is also a leading supplier of iSCSI HBAs. QLogic products are delivered to small, medium and large enterprises around the world, powering solutions from leading companies like Cisco, Dell, EMC, HP, IBM, NEC, Network Appliance and Sun Microsystems. QLogic is a member of the S&P 500 Index and Nasdaq 100 Index. For more information visit www.qlogic.com.
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; 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; reliance on third party licenses; 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; the uncertainty associated with SOX 404 compliance; environmental compliance costs; terrorist activities and resulting military actions; international, economic, regulatory, political and other risks; uncertain benefits from strategic business combinations; the ability to maintain or expand upon strategic alliances; the strain on resources caused by growth and expansion; the ability to attract and retain key personnel; the decreased effectiveness of equity compensation; difficulties in transitioning to smaller geometry process technologies; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; changes in tax laws or adverse tax audit results; computer viruses and other tampering with the Company's computer system; charter documents and stockholder rights plan that may discourage a business combination; and facilities located in areas subject to earthquakes and other 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 many 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 undertakes no obligation 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 Six Months Ended Oct. 2, July 3, Sept. 26, Oct. 2, Sept. 26, 2005 2005 2004 2005 2004 Net revenues $119,012 $115,430 $102,281 $234,442 $200,951 Cost of revenues 34,995 33,993 29,270 68,988 57,425 Gross profit 84,017 81,437 73,011 165,454 143,526 Operating expenses: Engineering and development 21,417 20,359 21,013 41,776 40,966 Sales and marketing 15,617 15,233 12,982 30,850 26,090 General and administrative 4,190 3,892 4,219 8,082 8,424 Total operating expenses 41,224 39,484 38,214 80,708 75,480 Operating income 42,793 41,953 34,797 84,746 68,046 Interest and other income 6,111 6,119 4,233 12,230 7,866 Income from continuing operations before income taxes 48,904 48,072 39,030 96,976 75,912 Income taxes 18,414 19,786 13,630 38,200 27,657 Income from continuing operations 30,490 28,286 25,400 58,776 48,255 Income from discontinued operations, net of income taxes 12,534 13,491 10,482 26,025 19,830 Net income $43,024 $41,777 $35,882 $84,801 $68,085 Income from continuing operations per share: Basic $0.34 $0.31 $0.27 $0.65 $0.52 Diluted $0.34 $0.31 $0.27 $0.64 $0.52 Income from discontinued operations per share Basic $0.14 $0.15 $0.11 $0.29 $0.21 Diluted $0.14 $0.15 $0.11 $0.28 $0.21 Net income per share: Basic $0.48 $0.46 $0.39 $0.94 $0.73 Diluted $0.48 $0.45 $0.38 $0.93 $0.73 Number of shares used in per share computations: Basic 89,447 91,533 92,485 90,490 92,915 Diluted 90,526 92,672 93,222 91,599 93,664 QLOGIC CORPORATION RECONCILIATION OF GAAP INCOME FROM CONTINUING OPERATIONS TO NON-GAAP INCOME FROM CONTINUING OPERATIONS (unaudited -- in thousands, except per share amounts) Three Months Ended Six Months Ended Oct. 2, July 3, Sept. 26, Oct. 2, Sept. 26, 2005 2005 2004 2005 2004 GAAP income from continuing operations $30,490 $28,286 $25,400 $58,776 $48,255 Items excluded from GAAP income from continuing operations: Merger related stock compensation charges included in engineering and development expenses - - 1,779 - 3,602 Non-GAAP income from continuing operations $30,490 $28,286 $27,179 $58,776 $51,857 Diluted income from continuing operations per share: GAAP income from continuing operations $0.34 $0.31 $0.27 $0.64 $0.52 Adjustments - - 0.02 - 0.03 Non-GAAP income from continuing operations $0.34 $0.31 $0.29 $0.64 $0.55 Non-GAAP Financial Measurements The non-GAAP financial measurements contained herein are a supplement to the corresponding financial measurements prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial information presented excludes non-cash merger related stock compensation charges, which relate to the Company's acquisition of Little Mountain Group, Inc. in January 2001. Such non-cash charges ended during the fourth quarter of fiscal 2005. Management believes this item is not indicative of the Company's on-going core operating performance. The Company has presented non-GAAP income from continuing operations and non-GAAP diluted income from continuing operations per share, on a basis consistent with its historical presentation, to assist investors in understanding the Company's core income from continuing operations and non-GAAP diluted income from continuing operations per share on an on-going basis. The non-GAAP presentation also enhances 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 on-going income from continuing operations and diluted income from continuing operations per share are important measures in the evaluation of the Company's profitability. These non-GAAP financial measures exclude the adjustment described above, 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 income from continuing operations 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 measurement. The non-GAAP financial measurements 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 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 information presented by the Company may be different from the non-GAAP measures used by other companies. QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited -- in thousands) Oct. 2, 2005 April 3, 2005 ASSETS Current assets: Cash and cash equivalents $51,003 $165,644 Short-term investments 583,112 646,694 Accounts receivable, net 64,383 54,245 Inventories 25,222 22,661 Current assets of discontinued operations 22,558 21,570 Other current assets 24,279 28,705 Total current assets 770,557 939,519 Property and equipment, net 75,556 71,322 Long-term assets of discontinued operations 6,935 6,454 Other assets 8,522 9,120 $861,570 $1,026,415 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $23,674 $19,975 Accrued compensation 15,318 19,629 Income taxes payable 20,855 14,125 Accrued purchases of treasury stock 33,946 - Current liabilities of discontinued operations 8,631 7,648 Other liabilities 8,108 7,444 Total current liabilities 110,532 68,821 Deferred tax liabilities 630 - Long-term liabilities of discontinued operations 1,648 1,411 Stockholders' equity: Common stock 97 96 Additional paid-in capital 514,222 504,760 Retained earnings 684,523 599,722 Accumulated other comprehensive loss (2,882) (3,394) Treasury stock (447,200) (145,001) Total stockholders' equity 748,760 956,183 $861,570 $1,026,415 QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited -- in thousands) Six Months Ended Oct. 2, Sept. 26, 2005 2004 Cash flows from operating activities: Income from continuing operations $58,776 $48,255 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 8,547 7,173 Deferred income taxes 1,975 (3,115) Tax benefit from issuance of stock under stock plans 1,288 487 Stock-based compensation 175 329 Provision for losses on accounts receivable 72 424 Loss on disposal of property and equipment 103 7 Changes in operating assets and liabilities: Accounts receivable (10,210) 2,303 Inventories (2,561) 1,615 Other assets 3,162 (41) Accounts payable 3,699 (1) Accrued compensation (4,311) (4,213) Income taxes payable 6,730 3,283 Other liabilities 664 616 Net cash provided by operating activities 68,109 57,122 Cash flows from investing activities: Purchases of marketable securities (370,635) (347,240) Sales and maturities of marketable securities 434,713 337,672 Additions to property and equipment (12,351) (6,941) Net cash provided by (used in) investing activities 51,727 (16,509) Cash flows from financing activities: Proceeds from issuance of stock under stock plans 8,000 3,596 Purchase of treasury stock (268,253) (50,008) Net cash used in financing activities (260,253) (46,412) Net cash provided by discontinued operations 25,776 11,858 Net increase (decrease) in cash and cash equivalents (114,641) 6,059 Cash and cash equivalents at beginning of period 165,644 62,911 Cash and cash equivalents at end of period $51,003 $68,970 QLOGIC CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION (unaudited -- in thousands) Net Revenues A summary of the Company's revenue components is as follows: Three Months Ended Six Months Ended Oct. 2, July 3, Sept. 26, Oct. 2, Sept. 26, 2005 2005 2004 2005 2004 SAN Infrastructure Products $110,480 $107,323 $91,073 $217,803 $180,352 Management Controllers 7,048 6,908 10,469 13,956 19,758 Other 1,484 1,199 739 2,683 841 $119,012 $115,430 $102,281 $234,442 $200,951 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 Six Months Ended Oct. 2, July 3, Sept. 26, Oct. 2, Sept. 26, 2005 2005 2004 2005 2004 United States $65,466 $65,202 $54,155 $130,668 $106,267 International 53,546 50,228 48,126 103,774 94,684 $119,012 $115,430 $102,281 $234,442 $200,951