COSTA MESA, Calif., Jan. 27, 2004 (PRIMEZONE) -- Emulex Corporation (NYSE:ELX), the world's largest supplier and developer of Fibre Channel host bus adapters (HBAs) and a leading provider of embedded storage technologies, today announced results for its second fiscal quarter ended December 28, 2003.
Second Quarter Highlights
- Completion of the Vixel acquisition, which we believe delivers a
Total Addressable Market opportunity of $450 million in Emulex's
core storage networking market
- Revenues up 12% sequentially and up 23% year over year to a
record $94.4 million, above company guidance, and driven by
record demand for HBAs and new revenue contribution from
switching solutions. Virtually 100% of revenue was comprised of
Fibre Channel solutions.
- Gross margin of 63%, both on a non-GAAP and GAAP basis
- Non-GAAP operating margin of 34% and GAAP operating margin of 14%
- Non-GAAP operating income of $31.9 million, a record for the
fourth quarter in a row, as well as GAAP operating income of
$13.1 million
- Non-GAAP diluted EPS of $0.24, up 20% from a year ago, and
above company guidance, and GAAP diluted EPS of $0.04
Financial Results
Second quarter revenues grew to a record $94.4 million, up 12% sequentially and up 23% year over year. Fibre Channel revenues expanded 24% year over year and grew 12% sequentially from the first fiscal quarter to a record $94.3 million, amounting to essentially 100% of net revenues. Quarterly growth was driven by OEM demand, with two of Emulex's top three OEMs achieving record levels of Emulex Fibre Channel and HBA revenue. All geographies grew year over year, as the Pac Rim and European sectors expanded to record levels and collectively contributed 45% of total revenue. Total HBA revenue also set a new record, driven by double digit sequential growth in overall HBA units, once again led by gains in both dual-channel and midrange HBAs. Switching revenue arising from the recently completed acquisition of Vixel also contributed incremental top line revenue in the second half of the quarter, as InSpeed(TM) embedded switching solutions continued to gain traction in the storage market.
Non-GAAP net income expanded 24% from the comparable year-ago results to a record $20.9 million, or $0.24 per diluted share. GAAP net income, including charges associated with the Vixel acquisition, amounted to $3.6 million, or $0.04 per diluted share, compared to $15.5 million, or $0.19 per diluted share, for the comparable period last year. A reconciliation between GAAP and non-GAAP results is included in the accompanying financial data. Paul Folino, Emulex Chairman and CEO, stated, "Emulex is benefiting from growing demand for both I/O and switching products, execution of acquisition synergies' goals ahead of plan, and second quarter financing activities that are accretive to non-GAAP earnings." Folino continued, "We are extremely pleased with the Vixel acquisition and the ongoing momentum of the embedded storage switching market."
With respect to its balance sheet, Emulex issued $450 million in aggregate principal amount of convertible subordinated notes due 2023 during the second quarter, with a 0.25% coupon and priced at a 60% conversion premium convertible at $43.20 per share. Subsequent to quarter end, another $67.5 million of these convertible subordinated notes were issued. The company utilized $40.5 million of these proceeds to repurchase 1.5 million shares of common stock at an average price of $27.00 per share. The Company also utilized another $85.9 million of proceeds to repurchase $85.4 million of its previously outstanding 1.75% convertible notes due 2007, recognizing a loss of $1.8 million during the second quarter of fiscal 2004. Additionally, the Company paid off its short-term financing related to the Vixel acquisition. Emulex exited the second quarter of fiscal 2004 with cash, cash equivalents, restricted cash and investments balances of $566.4 million.
Business Outlook
Emulex is providing guidance for its third fiscal quarter ending March 2004 as follows. Although actual results may vary depending on a variety of factors, many of which are outside Emulex's control, Emulex is budgeting for year-over-year revenue growth in the 26-28% range, or sequential revenue growth of 6-8%, with revenues for the quarter in a range of approximately $100-102 million and non-GAAP earnings per diluted share of up to $0.25. On a GAAP basis, Emulex expects diluted EPS of approximately $0.17 per share, reflecting approximately $0.08 per share in expected GAAP charges arising primarily from amortization of intangibles and deferred stock-based compensation.
Webcast Information
Emulex will host a webcast today at 2:00 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the home page of the Emulex website at www.emulex.com. During the call, Emulex will discuss details of the second fiscal quarter financial results. A replay of the webcast will be available in the audio archive section of the investor relations page of the Emulex website. In addition, a replay of the quarterly conference call will be available for 48 hours by calling (888) 203-1112 -- and using the passcode 535078.
About Emulex
Emulex Corporation is the world leader in Fibre Channel HBAs and delivers a broad range of intelligent building blocks for next generation storage networking systems. Emulex was named one of Forbes Magazine's 25 Fastest Growing Technology Companies, and ranked number 15 in Deloitte & Touche's 2003 Technology Fast 50.
The world's leading server and storage providers rely on Emulex HBAs, embedded storage switching and I/O controller products to build reliable, scalable and high performance storage solutions. The Emulex award-winning product families, including its LightPulse(TM) HBAs and InSpeed(tm) embedded storage switching products, are based on internally developed ASIC, firmware and software technologies, and offer customers high performance, scalability, flexibility and reduced total cost of ownership. The company's products have been selected by the world's leading server and storage providers, including Dell, EMC, Fujitsu Ltd., Fujitsu Siemens, Groupe Bull, HP, Hitachi Data Systems, IBM, NEC, Network Appliance, Quantum, StorageTek, Sun Microsystems, Unisys and Xyratex. In addition, Emulex includes industry leaders Brocade, Computer Associates, Intel, McDATA, Microsoft and VERITAS among its strategic partners. Corporate headquarters are located in Costa Mesa, California. News releases and other information about Emulex Corporation are available at http://www.emulex.com.
EMULEX / We network storage
Note Regarding Non-GAAP Financial Information. The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes a benefit related to an inventory charge and gains or losses on the repurchase of convertible subordinated notes as well as charges relating to the amortization of stock-based compensation. The projected non-GAAP financial information also excludes any acquisition-related charges associated with the acquisitions of Giganet, Vixel and the technology assets of Trebia Networks. Management believes that the presentation of Non-GAAP information may provide useful information to investors because Emulex has historically provided this information and understands that some investors consider it useful in evaluating Emulex's core business. Management also uses this non-GAAP information, along with the GAAP information, in evaluating Emulex's business for these purposes. The non-GAAP results should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from non-GAAP or other pro forma measures used by other companies.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above, including, without limitation, those contained in the discussion of "Business Outlook" above, contain forward-looking statements that involve risk and uncertainties. We expressly disclaim any obligation or undertaking to release publicly any updates or changes to these forward-looking statements that may be made to reflect any future events or circumstances. The company wishes to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include risks related to the recent acquisition of Vixel and the fact that the economy generally, and the technology and storage segments specifically, have recently been in a state of uncertainty making it difficult to determine if past experience is a good guide to the future and making it impossible to determine if markets will grow or shrink in the short term. Recently, the Company's results have been significantly impacted by a widespread slowdown in technology investment that has also pressured the storage networking market that is the mainstay of the Company's business. A continued downturn in information technology spending could adversely affect the Company's revenues and results of operations. As a result of this uncertainty, the Company is unable to predict with any accuracy what future results might be. Other factors affecting these forward-looking statements include, but are not limited to, the following: slower than expected growth of the storage networking market or the failure of the Company's OEM customers to successfully incorporate the Company's products into their systems; the Company's dependence on a limited number of customers and the effects of the loss of, or decrease or delays in orders by, any such customers, or the failure of such customers to make payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of the Company's or the Company's OEM customers' new or enhanced products; the variability in the level of the Company's backlog and the variable booking patterns of the Company's customers; the effects of terrorist activities and resulting political or economic instability; the highly competitive nature of the markets for the Company's products as well as pricing pressures that may result from such competitive conditions; the Company's ability and the ability of the Company's OEM customers to keep pace with the rapid technological changes in the Company's industry and gain market acceptance for new products and technologies; the effect of rapid migration of customers towards newer product platforms; possible transitions from board level to application specific computer chip solutions for selected applications; a shift in unit product mix from high-end to midrange products; a decrease in the average unit selling prices or an increase in the manufactured cost of the Company's products; delays in product development; the Company's reliance on third-party suppliers and subcontractors for components and assembly; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; the Company's ability to attract and retain key technical personnel; the Company's dependence on foreign sales; and the effect of acquisitions, changes in tax rates or changes in accounting standards. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are discussed in the company's filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 10-K and 10-Q, under the caption "Risk Factors."
This news release refers to various products and companies by their trade names. In most, if not all, cases these designations are claimed as trademarks or registered trademarks by their respective companies.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---------------------- ----------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2003 2002 2003 2002
--------- --------- --------- ---------
Net revenues $ 94,369 $ 76,448 $ 178,946 $ 146,873
Cost of sales 34,806 27,341 63,133 55,223
--------- --------- --------- ---------
Gross profit 59,563 49,107 115,813 91,650
--------- --------- --------- ---------
Operating expenses:
Engineering and
development 18,311 15,922 34,655 29,595
Selling and
marketing 6,850 4,359 11,452 9,023
General and
administrative 5,588 3,322 9,245 6,068
In-process
research and
development 11,400 -- 11,400 --
Amortization of
intangibles 4,301 1,452 5,751 2,905
--------- --------- --------- ---------
Total operating
expenses 46,450 25,055 72,503 47,591
--------- --------- --------- ---------
Operating income 13,113 24,052 43,310 44,059
--------- --------- --------- ---------
Nonoperating income:
Gain (loss) on
repurchase of
convertible
subordinated notes (1,764) -- 2,901 28,729
Interest income 1,978 3,237 4,476 6,939
Interest expense (727) (1,227) (1,760) (3,031)
Other income
(expense), net 58 (56) 164 (86)
--------- --------- --------- ---------
Total non-
operating
income (455) 1,954 5,781 32,551
--------- --------- --------- ---------
Income before income
taxes 12,658 26,006 49,091 76,610
Income tax provision 9,043 10,489 22,888 29,112
--------- --------- --------- ---------
Net income $ 3,615 $ 15,517 $ 26,203 $ 47,498
========= ========= ========= =========
Net income per share:
Basic $ 0.04 $ 0.19 $ 0.32 $ 0.58
========= ========= ========= =========
Diluted $ 0.04 $ 0.19 $ 0.31 $ 0.56
========= ========= ========= =========
Number of shares used
in per share
computations:
Basic 82,558 81,979 82,550 81,912
========= ========= ========= =========
Diluted 85,015 87,486 84,577 88,329
========= ========= ========= =========
The interest expense adjustment, net of tax, to the Company's
GAAP diluted per share calculation due to the dilutive effect of
its convertible subordinated notes was $731 and $1,878 for the
three and six months ended December 29, 2002, respectively.
A reconciliation of the non-GAAP net income with the Company's
net income determined under GAAP is presented in the following
table.
EMULEX CORPORATION AND SUBSIDIARIES
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands -- unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2003 2002 2003 2002
------- ------- ------- --------
GAAP net income, as presented
above $ 3,615 $15,517 $26,203 $ 47,498
------- ------- ------- --------
Items excluded from GAAP net
income to calculate non-GAAP
net income:
Subsequent benefit related to
the excess and obsolete
inventory charge associated
with slowing demand for older
generation one gigabit per
second products, due to sale of
impaired inventory, excluded
from cost of goods sold(1) (88) (1,140) (1,896) (1,304)
Amortization of deferred stock-
based compensation associated
with the acquisition of Vixel,
Giganet and a tax law change in
the United Kingdom, as follows:
Excluded from engineering and
development 567 640 977 1,125
Excluded from selling and
marketing 1,274 346 1,419 646
Excluded from general and
administrative 374 85 411 141
Excluded from cost of sales 229 30 233 34
In-process research and
development expense associated
with the acquisition of
Vixel Corporation 11,400 -- 11,400 --
Amortization of intangibles,
excluded from operating
expenses 4,301 1,452 5,751 2,905
Loss (gain) on repurchase of
convertible subordinated
notes, excluded from
nonoperating income(2) 1,764 -- (2,901) (28,729)
Net charge associated with the
tentative settlement of
shareholder litigation
associated with the acquisition
of Vixel Corporation 698 -- 698 --
Income tax effect of above
items, excluded from the
income tax provision (3,248) (126) (1,339) 10,333
------- ------- ------- --------
Impact on net income 17,271 1,287 14,753 (14,849)
------- ------- ------- --------
Non-GAAP net income $20,886 $16,804 $40,956 $ 32,649
======= ======= ======= ========
The non-GAAP financial information presented below is based on
the Company's condensed consolidated financial statements and
excludes certain adjustments detailed above. The Company uses
this non-GAAP information to evaluate its operating performance.
This presentation is not in accordance with, or an alternative
for, GAAP and may be different from the non-GAAP presentation
used by other companies.
EMULEX CORPORATION AND SUBSIDIARIES
Non-GAAP Condensed Consolidated Statements of Income(3)
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
------------------ -------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2003 2002 2003 2002
------- ------- -------- --------
Net revenues $94,369 $76,448 $178,946 $146,873
Cost of sales 34,665 28,451 64,796 56,493
------- ------- -------- --------
Gross profit 59,704 47,997 114,150 90,380
------- ------- -------- --------
Operating expenses:
Engineering and development 17,744 15,282 33,678 28,470
Selling and marketing 5,576 4,013 10,033 8,377
General and administrative 4,516 3,237 8,136 5,927
------- ------- -------- --------
Total operating expenses 27,836 22,532 51,847 47,744
------- ------- -------- --------
Operating income 31,868 25,465 62,303 47,606
------- ------- -------- --------
Nonoperating income:
Interest income 1,978 3,237 4,476 6,939
Interest expense (727) (1,227) (1,760) (3,031)
Other income (expense), net 58 (56) 164 (86)
------- ------- -------- --------
Total nonoperating income 1,309 1,954 2,880 3,822
------- ------- -------- --------
Income before income taxes 33,177 27,419 65,183 51,428
Income tax provision 12,291 10,615 24,227 18,779
------- ------- -------- --------
Net income $20,886 $16,804 $ 40,956 $ 32,649
======= ======= ======== ========
Net income per share:
Basic $ 0.25 $ 0.20 $ 0.50 $ 0.40
======= ======= ======== ========
Diluted $ 0.24 $ 0.20 $ 0.48 $ 0.39
======= ======= ======== ========
Number of shares used in per
share computations:
Basic 82,558 81,979 82,550 81,912
======= ======= ======== ========
Diluted 86,844 87,486 87,107 88,329
======= ======= ======== ========
The interest expense adjustment, net of tax, to the Company's
non-GAAP diluted per share calculation due to the dilutive effect
of its convertible subordinated notes was $322 and $969 for the
three and six months ended December 28, 2003, respectively, and
$751 and $1,924 for the three and six months ended December 29,
2002, respectively.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
Dec. 28, June 29,
2003 2003
---------- ----------
Assets
------
Current assets:
Cash and cash equivalents $ 191,640 $ 136,971
Restricted cash 1,380 9,342
Investments 190,700 239,302
Accounts and other receivables, net 59,033 46,678
Litigation settlements receivable 13,095 13,095
Inventories, net 22,522 10,998
Prepaid expenses 5,122 5,516
Deferred income taxes 25,695 36,330
---------- ----------
Total current assets 509,187 498,232
Property and equipment, net 44,919 26,585
Investments 182,677 234,847
Goodwill 584,150 397,256
Other intangibles, net 136,010 27,067
Deferred income taxes 6,280 --
Other assets 1,853 5,782
---------- ----------
$1,465,076 $1,189,769
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 33,431 $ 11,298
Accrued liabilities 19,982 18,806
Accrued litigation settlements -- 39,500
Income taxes payable 8,118 5,457
---------- ----------
Total current liabilities 61,531 75,061
Convertible subordinated notes 469,148 208,518
Contracts payable 11 --
Deferred income taxes -- 4,260
---------- ----------
Total liabilities 530,690 287,839
Total stockholders' equity 934,386 901,930
---------- ----------
$1,465,076 $1,189,769
========== ==========
EMULEX CORPORATION AND SUBSIDIARIES
Supplemental Information
Historical Revenue by Channel and Territory:
-------------------------------------------
Q2 FY 2004 % Total Q2 FY 2003 % Total % Change
($000s) Revenue Revenue Revenue Revenue Year/Year
---------- ------- -------- ------- ---------
Revenue from OEM
customers $66,307 70% $49,962 65% +33%
Revenue from
distribution 28,005 30% 26,469 35% +6%
Other 57 nm(4) 17 nm(4) nm(4)
------- ------ ------- ------- -------
Total Net
Revenues $94,369 100% $76,448 100% +23%
======= ====== ======= ======= =======
United States $51,587 55% $42,772 56% +21%
Europe 33,203 35% 28,210 37% +18%
Pacific Rim
countries 9,579 10% 5,466 7% +75%
------- ------ ------- ------- -------
Total Net
Revenues $94,369 100% $76,448 100% +23%
======= ====== ======= ======= =======
Forward-Looking Diluted Earnings per Share Reconciliation:
---------------------------------------------------------
Guidance for
Three Months Ending
March 28, 2004
-------------------
Non-GAAP diluted earnings per share guidance $ 0.25
Items excluded, net of tax, from non-GAAP
diluted earnings per share to calculate
GAAP diluted earnings per share guidance:
Amortization of intangibles $(0.05)
Amortization of deferred stock-based
compensation $(0.02)
Loss on repurchase of 1.75% convertible
subordinated notes $(0.01)
------
GAAP diluted earnings per share guidance $ 0.17
======
-------------------
(1) Excess and obsolete inventory charge. Starting in late September
2001, some of Emulex's major customers made announcements that
general economic conditions, exacerbated by the increase in
economic uncertainty in the aftermath of the terrorist events of
September 11, 2001, were having a negative impact on their
financial results. The announcements made, and forecasts
received, indicated deteriorating demand for the Company's one
gigabit per second (Gbps) products as these customers were
expected to migrate to two Gbps products for future purchases. In
order to provide meaningful comparisons of operating results, any
subsequent consumption of previously impaired products is
excluded.
(2) Gain/loss on repurchase of convertible subordinated notes. In the
three months ended December 28, 2003, Emulex repurchased $85.4
million in face value of its 1.75% convertible subordinated
notes, resulting in a pre-tax loss of $1.8 million. In the three
months ended September 28, 2003, Emulex repurchased $93.9 million
in face value of its convertible subordinated notes at a 7%
discount, resulting in a pre-tax gain of $4.7 million. In the
three months ended September 29, 2002, Emulex repurchased $136
million in face value of its convertible subordinated notes at a
24% discount, resulting in a pre-tax gain of $28.7 million.
(3) See the preceding Note Regarding Non-GAAP Financial Information
as well as the Reconciliation of GAAP Net Income to Non-GAAP Net
Income.
(4) Not meaningful