QLogic Reports Second Quarter Results for Fiscal Year 2014
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QLogic Reports Second Quarter Results for Fiscal Year 2014

ALISO VIEJO, Calif. — (BUSINESS WIRE) — October 24, 2013 — QLogic Corp. (Nasdaq: QLGC), a leading supplier of high performance network infrastructure solutions, today announced its second quarter financial results for the period ended September 29, 2013.

Second Quarter Highlights

Financial Results

Net revenue for the second quarter of fiscal 2014 was $112.6 million compared to $117.9 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $94.0 million during the second quarter of fiscal 2014 compared to $97.4 million in the same quarter last year. Revenue from Legacy Connectivity Products was $18.6 million during the second quarter of fiscal 2014 compared to $20.5 million in the same quarter last year.

Income from continuing operations on a GAAP basis for the second quarter of fiscal 2014 was $11.0 million, or $0.13 per diluted share, compared to $11.8 million, or $0.13 per diluted share, for the second quarter of fiscal 2013. Income from continuing operations on a GAAP basis for the second quarter of fiscal 2014 includes $4.3 million of special charges recorded in connection with the restructuring plan that commenced in June 2013. Income from continuing operations on a non-GAAP basis for the second quarter of fiscal 2014 increased to $20.0 million, or $0.23 per diluted share, from $16.8 million, or $0.18 per diluted share, for the second quarter of fiscal 2013.

“Last quarter we announced a restructuring plan aimed at improving our focus, execution and financial performance. I am very pleased with our progress and sharper focus on the server and storage connectivity markets. In addition, our execution has improved and we are delivering more consistently on new programs and products, as demonstrated by achieving general availability for more than a dozen new OEM programs since early September,” said Jean Hu, interim chief executive officer, senior vice president and chief financial officer, QLogic. “I am also very pleased with our financial performance during the second quarter. We are ahead of plan on our expense reduction activities and are already seeing the benefits in our financial results and operating margin.”

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 second quarter fiscal 2014 conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Jean Hu, interim chief executive officer, 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 www.earnings.com. Phone access to participate in the conference call is available at (800) 768-6544, pass code: 8336286.

The financial information 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 conference call will be available via webcast 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, as well as our belief that we have a sharper focus on the server and storage connectivity markets, our execution has improved and we are delivering more consistently on new programs and products, and that we are ahead of plan on our expense reduction initiatives) 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: uncertainties whether our restructuring plan will achieve its stated goals; uncertainty whether our enhanced product focus will achieve its stated goals; unfavorable economic conditions; potential fluctuations in operating results; gross margins that may vary over time; the stock price of the company may be volatile; the company's dependence on the networking markets served; the ability to maintain and gain market or industry acceptance of the company's products; the company's dependence on a small number of customers; the company's ability to compete effectively with other companies; the ability to attract and retain key personnel; the complexity of the company's products; declining average unit sales prices of comparable 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; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; a reduction in sales efforts by current distributors; 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; uncertain benefits from strategic business combinations, acquisitions and divestitures; 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 Six Months Ended
September 29,

2013

  September 30,

2012

September 29,

2013

  September 30,

2012

 
Net revenues $ 112,622 $ 117,867 $ 225,738 $ 248,238
Cost of revenues   36,313   38,980   72,932   82,293
Gross profit   76,309   78,887   152,806   165,945
 
Operating expenses:
Engineering and development 34,790 38,024 75,177 77,482
Sales and marketing 16,431 19,739 35,844 38,625
General and administrative 7,553 8,139 15,292 16,812
Special charges   4,349   —   16,382   —
Total operating expenses   63,123   65,902   142,695   132,919
 
Operating income 13,186 12,985 10,111 33,026
 
Interest and other income, net   25   954   798   2,032
 
Income from continuing operations before income taxes 13,211 13,939 10,909 35,058
 
Income taxes   2,234   2,159   2,982   4,837
 
Income from continuing operations 10,977 11,780 7,927 30,221
 
Income from discontinued operations, net of income taxes   —   94   —   39
 
Net income $ 10,977 $ 11,874 $ 7,927 $ 30,260
 
Income from continuing operations per share:
Basic $ 0.13 $ 0.13 $ 0.09 $ 0.32
Diluted $ 0.13 $ 0.13 $ 0.09 $ 0.31
 
Income from discontinued operations per share:
Basic $ — $ — $ — $ —
Diluted $ — $ — $ — $ —
 
Net income per share:
Basic $ 0.13 $ 0.13 $ 0.09 $ 0.32
Diluted $ 0.13 $ 0.13 $ 0.09 $ 0.31
 
Number of shares used in per share calculations:
Basic 87,430 93,762 88,288 95,584
Diluted 87,669 93,949 88,720 96,159
 
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
September 29,

2013

  September 30,

2012

September 29,

2013

  September 30,

2012

 
GAAP income from continuing operations $ 10,977 $ 11,780 $ 7,927 $ 30,221
Items excluded from GAAP income from continuing operations:
Stock-based compensation 4,818 7,045 12,989 16,322
Amortization of acquisition-related intangible assets 244 243 487 487
Special charges 4,349 — 16,382 —
Income tax effect   (346 )   (2,251 )   (1,327 )   (4,868 )
Total non-GAAP adjustments   9,065     5,037     28,531     11,941  
Non-GAAP income from continuing operations $ 20,042   $ 16,817   $ 36,458   $ 42,162  
 
Income from continuing operations per diluted share:
GAAP income from continuing operations $ 0.13 $ 0.13 $ 0.09 $ 0.31
Adjustments   0.10     0.05     0.32     0.13  
Non-GAAP income from continuing operations $ 0.23   $ 0.18   $ 0.41   $ 0.44  
 

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 income from continuing operations and non-GAAP income from continuing operations per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core income from continuing operations and core income from continuing operations 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 profitability with historical periods and comparisons of the company’s core profitability with the corresponding results for competitors. Management believes that non-GAAP income from continuing operations and non-GAAP income from continuing operations 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 profitability and related profitability on a per diluted share basis.

Management uses non-GAAP income from continuing operations and non-GAAP income from continuing operations 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 Six Months Ended

September 29,

2013

 

September 30,

2012

September 29,

2013

 

September 30,
2012

Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 239 $ 540 $ 823 $ 1,310
Amortization of acquisition-related intangible assets   244     243     487     487  
Total cost of revenue adjustments   483     783     1,310     1,797  
 
Operating expenses:
Engineering and development:
Stock-based compensation 2,257 3,096 6,608 7,414
Sales and marketing:
Stock-based compensation 1,230 1,633 3,023 3,598
General and administrative:
Stock-based compensation 1,092 1,776 2,535 4,000
Special charges   4,349     —     16,382     —  
Total operating expense adjustments   8,928     6,505     28,548     15,012  
 
Total non-GAAP adjustments before income taxes 9,411 7,288 29,858 16,809
Income tax effect   (346 )   (2,251 )   (1,327 )   (4,868 )
Total non-GAAP adjustments $ 9,065   $ 5,037   $ 28,531   $ 11,941  
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited — in thousands)

 
September 29,

2013

March 31,

2013

ASSETS
Current assets:
Cash and cash equivalents $ 86,507 $ 95,532
Marketable securities   346,501     359,974  
Total cash and marketable securities 433,008 455,506
Accounts receivable, net 67,934 66,135
Inventories 17,363 20,160
Deferred tax assets 13,341 13,036
Other current assets   27,546     24,381  
Total current assets 559,192 579,218
 
Property and equipment, net 90,942 96,336
Goodwill 110,976 110,976
Purchased intangible assets, net 3,692 4,054
Deferred tax assets 27,272 31,992
Other assets   2,421     2,587  
 
$ 794,495   $ 825,163  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 26,449 $ 29,668
Accrued compensation 20,312 27,453
Accrued taxes 990 4,559
Deferred revenue 4,450 4,676
Other current liabilities   9,378     7,651  
Total current liabilities 61,579 74,007
 
Accrued taxes 16,681 10,772
Other liabilities   7,104     6,107  
Total liabilities   85,364     90,886  
 
Stockholders’ equity:
Common stock 213 212
Additional paid-in capital 944,564 932,557
Retained earnings 1,698,264 1,690,337
Accumulated other comprehensive income 267 1,887
Treasury stock   (1,934,177 )   (1,890,716 )
Total stockholders’ equity   709,131     734,277  
 
$ 794,495   $ 825,163  
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited — in thousands)

 
Six Months Ended

 

September 29,

2013

  September 30,

2012

 
Cash flows from operating activities:
Net income $ 7,927 $ 30,260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,730 13,524
Stock-based compensation 12,989 16,322
Deferred income taxes 3,632 (3,493 )
Impairment of property and equipment 2,429 —
Other non-cash items 1,698 2,094
Changes in operating assets and liabilities:
Accounts receivable (1,818 ) 3,749
Inventories 2,797 (2,064 )
Other assets 180 (2,223 )
Accounts payable (102 ) 2,222
Accrued compensation (7,141 ) (7,270 )
Accrued taxes, net (905 ) 12,908
Other liabilities   3,249     2,779  
Net cash provided by operating activities   40,665     68,808  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (162,673 ) (137,446 )
Proceeds from sales and maturities of available-for-sale securities 172,629 129,587
Purchases of property and equipment   (15,389 )   (22,029 )
Net cash used in investing activities   (5,433 )   (29,888 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards 4,565 4,894
Excess tax benefits from stock-based awards 10 128
Minimum tax withholding paid on behalf of employees for restricted stock units (4,514 ) (5,505 )
Purchases of treasury stock (44,212 ) (99,488 )
Payments for credit facility commitment fee   (106 )   —  
Net cash used in financing activities   (44,257 )   (99,971 )
 
Net decrease in cash and cash equivalents (9,025 ) (61,051 )
 
Cash and cash equivalents at beginning of period   95,532     164,516  
 
Cash and cash equivalents at end of period $ 86,507   $ 103,465  
 
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
September 29,

2013

  September 30,

2012

September 29,

2013

  September 30,

2012

Advanced Connectivity Platforms $ 94,011 $ 97,417 $ 187,201 $ 205,459
Legacy Connectivity Products   18,611   20,450   38,537   42,779
$ 112,622 $ 117,867 $ 225,738 $ 248,238


Contact:

QLogic Corporation
Media Contact:
Steve Sturgeon, 858.472.5669
Email Contact
or
Investor Contact:
Jean Hu, 949.389.7579
Email Contact