QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its third quarter financial results for the period ended January 1, 2012.

Third Quarter Highlights

  • Net revenue: $152.7 million
  • GAAP net income: $30.0 million or $0.30 per diluted share
  • Non-GAAP net income: $36.3 million or $0.36 per diluted share
  • Operating margin: 21.9% GAAP, 27.9% non-GAAP
  • Cash generated from operations: $52.3 million

Financial Results

Net revenue for the third quarter of fiscal 2012 was $152.7 million compared to $155.8 million in the same quarter last year. Revenue from Host Products was $112.7 million during the third quarter of fiscal 2012 compared to $113.5 million in the same quarter last year. Revenue from Network Products was $24.4 million during the third quarter of fiscal 2012 compared to $28.9 million in the same quarter last year. Revenue from Silicon Products increased to $12.4 million during the third quarter of fiscal 2012 from $10.6 million in the same quarter last year.

Net income on a GAAP basis for the third quarter of fiscal 2012 was $30.0 million, or $0.30 per diluted share, compared to $50.3 million, or $0.47 per diluted share, for the third quarter of fiscal 2011. Net income on a non-GAAP basis for the third quarter of fiscal 2012 was $36.3 million, or $0.36 per diluted share, compared to $57.2 million, or $0.53 per diluted share, for the third quarter of fiscal 2011. The GAAP and non-GAAP net income per diluted share amounts for the third quarter of fiscal 2011 include the benefits associated with the retroactive reinstatement of the federal research tax credit and other third-quarter specific income tax items, which contributed $0.13 to net income per diluted share.

"We are very pleased with our strong financial performance and execution during the third quarter. Our revenue of $152.7 million was at the upper end of our guidance range and I am particularly pleased with our revenue from Host Products, which grew 7 percent sequentially due to strength in Fibre Channel and converged adapters," said Simon Biddiscombe, president and chief executive officer, QLogic. "As announced earlier this week, we entered into a definitive agreement to sell substantially all of the assets associated with our InfiniBand business. We believe this transaction will allow us to sharpen our focus on our core business and the growth opportunities in the data center with converged networking, enterprise Ethernet and storage area networking 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 2012 third quarter conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Simon Biddiscombe, president and chief executive officer, and Jean Hu, 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 719-325-4827, pass code: 6745069.

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.

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About QLogic

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance networking, including adapters, switches and ASICs. Leading OEMs and channel partners worldwide rely on QLogic products for their data, storage and server 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, our expectation that the sale of substantially all of the assets associated with our InfiniBand business will be consummated and our belief that there are growth opportunities in the data center with converged networking, enterprise Ethernet and storage area networking products) 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: 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 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; the ability to attract and retain key personnel; 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; declines in the market value of the company's marketable securities; environmental compliance costs; changes in regulations or standards regarding energy use of the company's products; difficulties in transitioning to smaller geometry process technologies; the use of "open source" software in the company's products; and computer viruses and other tampering with the company's computer systems.

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
January 1,   December 26, January 1,   December 26,
2012 2010 2012 2010
 
Net revenues $ 152,661 $ 155,771 $ 454,463 $ 444,909
Cost of revenues   52,055   53,000     154,010   153,112
Gross profit   100,606   102,771     300,453   291,797
 
Operating expenses:
Engineering and development 36,883 33,148 112,446 100,649
Sales and marketing 21,514 20,103 63,219 60,953
General and administrative 8,803 9,061 26,820 25,560
Special charges   --   --     --   931
Total operating expenses   67,200   62,312     202,485   188,093
 
Operating income 33,406 40,459 97,968 103,704
 
Interest and other income, net   798   773     2,926   4,258
 
Income before income taxes 34,204 41,232 100,894 107,962
 
Income taxes   4,179   (9,107 )   9,789   2,188
 
Net income $ 30,025 $ 50,339   $ 91,105 $ 105,774
 
Net income per share:
Basic $ 0.30 $ 0.48 $ 0.89 $ 0.97
Diluted $ 0.30 $ 0.47 $ 0.88 $ 0.96
 
Number of shares used in per share calculations:
Basic 100,135 105,830 102,696 108,492
Diluted 100,668 107,327 103,340 110,032
 
 
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
January 1,   December 26, January 1,   December 26,
2012 2010 2012 2010
 
GAAP net income $ 30,025 $ 50,339 $ 91,105 $ 105,774
Items excluded from GAAP net income:
Stock-based compensation 8,100 8,519 25,787 27,111
Amortization of acquisition-related intangible assets

1,155

1,156

3,467

3,467

Special charges -- -- -- 931
Gains recognized on previously impaired investment securities

--

--

--

(312

)

Income tax effect   (3,010 )   (2,772 )   (8,676 )   (8,437 )
Total non-GAAP adjustments   6,245     6,903     20,578     22,760  
Non-GAAP net income $ 36,270   $ 57,242   $ 111,683   $ 128,534  
 
Net income per diluted share:
GAAP net income $ 0.30 $ 0.47 $ 0.88 $ 0.96
Adjustments   0.06     0.06     0.20     0.21  
Non-GAAP net income $ 0.36   $ 0.53   $ 1.08   $ 1.17  
 

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
January 1,   December 26, January 1,   December 26,
2012 2010 2012 2010
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 632 $ 599 $ 2,075 $ 1,962
Amortization of acquisition-related intangible assets  

1,155

    

1,156

    

3,467

    

3,467

  
Total cost of revenue adjustments   1,787     1,755     5,542     5,429  
 
Operating expenses:
Engineering and development:
Stock-based compensation 3,553 3,714 11,776 12,692
Sales and marketing:
Stock-based compensation 1,924 1,824 5,625 5,866
General and administrative:
Stock-based compensation 1,991 2,382 6,311 6,591
Special charges   --     --     --     931  
Total operating expense adjustments   7,468     7,920     23,712     26,080  
 
Interest and other income:
Gains recognized on previously impaired investment securities

?

  

?

  

?

    

(312

)

 
Total non-GAAP adjustments before income taxes

9,255

9,675

29,254

31,197

Income tax effect   (3,010 )   (2,772 )   (8,676 )   (8,437 )
Total non-GAAP adjustments $ 6,245   $ 6,903   $ 20,578   $ 22,760  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited -- in thousands)

 
  January 1, 2012   April 3, 2011
ASSETS
 
Current assets:
Cash and cash equivalents $ 74,198 $ 147,780
Marketable securities 321,627 236,296
Accounts receivable, net 82,221 70,134
Inventories 26,967 26,931
Deferred tax assets 19,954 17,754
Other current assets   13,390     20,753  
Total current assets 538,357 519,648
 
Property and equipment, net 78,715 77,134
Goodwill 119,748 119,748
Purchased intangible assets, net 10,179 12,694
Deferred tax assets 27,284 25,333
Other assets   2,082     2,650  
 
$ 776,365   $ 757,207  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 35,099 $ 34,816
Accrued compensation 28,240 25,858
Accrued taxes 3,029 6,012
Deferred revenue 10,348 10,431
Other current liabilities   6,356     5,221  
Total current liabilities 83,072 82,338
 
Accrued taxes 62,409 62,565
Deferred revenue 3,840 5,169
Other liabilities   5,922     5,971  
Total liabilities   155,243     156,043  
 
Stockholders' equity:
Common stock 209 208
Additional paid-in capital 877,763 844,546
Retained earnings 1,478,870 1,387,765
Accumulated other comprehensive income 299 614
Treasury stock   (1,736,019 )   (1,631,969 )
Total stockholders' equity   621,122     601,164  
 
$ 776,365   $ 757,207  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited -- in thousands)

 
  Nine Months Ended
January 1,   December 26,
2012 2010
 
Cash flows from operating activities:
Net income $ 91,105 $ 105,774
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 21,047 22,612
Stock-based compensation 25,787 27,111
Amortization of acquisition-related intangible assets 3,467 3,467
Deferred income taxes (4,334 ) 6,810
Net gains on investment securities (729 ) (2,021 )
Other non-cash items 5,811 1,435
Changes in operating assets and liabilities:
Accounts receivable (12,244 ) (10,769 )
Inventories (36 ) (6,454 )
Other assets 119 841
Accounts payable (2,333 ) (6,232 )
Accrued compensation 2,382 405
Accrued taxes 4,531 (21,068 )
Deferred revenue (1,412 ) (685 )
Other liabilities   936     (3,968 )
Net cash provided by operating activities   134,097     117,258  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (336,005 ) (221,884 )
Proceeds from sales and maturities of available-for-sale securities 247,928 146,840
Proceeds from disposition of trading securities -- 23,800
Distributions from other investment securities -- 329
Purchases of property and equipment   (23,480 )   (17,881 )
Net cash used in investing activities   (111,557 )   (68,796 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards

12,674

29,637

Excess tax benefits from stock-based awards 529 1,610
Minimum tax withholding paid on behalf of employees for restricted stock units

(5,425

)

(6,739

)

Purchases of treasury stock   (103,900 )   (156,986 )
Net cash used in financing activities   (96,122 )   (132,478 )
 
Net decrease in cash and cash equivalents (73,582 ) (84,016 )
 
Cash and cash equivalents at beginning of period   147,780     190,308  
 
Cash and cash equivalents at end of period $ 74,198   $ 106,292  
 
 
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
January 1,   December 26, January 1,   December 26,
2012 2010 2012 2010
 
Host Products $ 112,687 $ 113,492 $ 328,078 $ 320,141
Network Products 24,390 28,923 74,048 81,787
Silicon Products 12,443 10,628 43,129 34,927
Service and other   3,141   2,728   9,208   8,054
$ 152,661 $ 155,771 $ 454,463 $ 444,909
 

QLogic Corporation
Media Contact:
Tim Lustig, 949-389-6196
tim.lustig@qlogic.com
Investor Contact:
Jean Hu, 949-389-7579
jean.hu@qlogic.com