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QLogic Reports Second Quarter Results for Fiscal Year 2014

  QLogic Reports Second Quarter Results for Fiscal Year 2014

Business Wire

ALISO VIEJO, Calif. -- 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

  *Net revenue: $112.6 million
  *GAAP income from continuing operations: $11.0 million or $0.13 per diluted
    share
  *Non-GAAP income from continuing operations: $20.0 million or $0.23 per
    diluted share
  *Operating margin: 11.7% GAAP, 20.1% non-GAAP
  *Cash and marketable securities: $433.0 million as of September 29, 2013
  *Cash generated from operations: $24.1 million

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,   September 30,   September     September
                                                    29,          30,
                     2013            2012
                                                     2013          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          34,790          38,024         75,177        77,482
development
Sales and marketing      16,431          19,739         35,844        38,625
General and              7,553           8,139          15,292        16,812
administrative
Special charges         4,349          —             16,382       —
Total operating         63,123         65,902        142,695      132,919
expenses
                                                                   
Operating income         13,186          12,985         10,111        33,026
                                                                   
Interest and other      25             954           798          2,032
income, net
                                                                   
Income from
continuing               13,211          13,939         10,909        35,058
operations before
income taxes
                                                                   
Income taxes            2,234          2,159         2,982        4,837
                                                                   
Income from
continuing               10,977          11,780         7,927         30,221
operations
                                                                   
Income from
discontinued            —              94            —            39
operations, net of
income taxes
                                                                   
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,   September 30,   September      September
                                                    29,           30,
                     2013            2012
                                                     2013           2012
                                                                    
GAAP income from
continuing           $  10,977       $  11,780       $  7,927       $ 30,221
operations
Items excluded from
GAAP income from
continuing
operations:
Stock-based             4,818           7,045           12,989        16,322
compensation
Amortization of
acquisition-related     244             243             487           487
intangible assets
Special charges         4,349           —               16,382        —
Income tax effect      (346    )      (2,251  )      (1,327  )    (4,868 )
Total non-GAAP         9,065         5,037         28,531      11,941 
adjustments
Non-GAAP income from
continuing           $  20,042      $  16,817      $  36,458     $ 42,162 
operations
                                                                    
Income from
continuing
operations per
diluted share:
GAAP income from
continuing           $  0.13         $  0.13         $  0.09        $ 0.31
operations
Adjustments            0.10          0.05          0.32        0.13   
Non-GAAP income from
continuing           $  0.23        $  0.18        $  0.41       $ 0.44   
operations
                                                                             

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      Three Months Ended             Six Months Ended
thousands)
                     September      September 30,   September 29,   September
                     29,                                          30,
                                    2012            2013            2012
                     2013
Non-GAAP
Adjustments:
Cost of revenues:
Stock-based          $  239         $  540          $  823          $ 1,310
compensation
Amortization of
acquisition-related    244          243           487          487    
intangible assets
Total cost of          483          783           1,310        1,797  
revenue adjustments
                                                                    
Operating expenses:
Engineering and
development:
Stock-based             2,257          3,096           6,608          7,414
compensation
Sales and marketing:
Stock-based             1,230          1,633           3,023          3,598
compensation
General and
administrative:
Stock-based             1,092          1,776           2,535          4,000
compensation
Special charges        4,349        —             16,382       —      
Total operating        8,928        6,505         28,548       15,012 
expense adjustments
                                                                    
Total non-GAAP
adjustments before      9,411          7,288           29,858         16,809
income taxes
Income tax effect      (346   )      (2,251  )      (1,327  )     (4,868 )
Total non-GAAP       $  9,065      $  5,037       $  28,531      $ 11,941 
adjustments
                                                                    

QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited — in thousands)
                                                      
                                       September 29,    March 31,

                                       2013             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,   September 30,
                                                              
                                                 2013            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               172,629         129,587
available-for-sale securities
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        4,565           4,894
stock-based awards
Excess tax benefits from stock-based awards         10              128
Minimum tax withholding paid on behalf of           (4,514   )      (5,505   )
employees for restricted stock units
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,   September     September     September
                                      30,           29,          30,
                       2013
                                       2012          2013          2012
Advanced
Connectivity           $   94,011      $  97,417     $  187,201    $  205,459
Platforms
Legacy Connectivity       18,611        20,450       38,537       42,779
Products
                       $   112,622     $  117,867    $  225,738    $  248,238

Contact:

QLogic Corporation
Media Contact:
Steve Sturgeon, 858.472.5669
steve.sturgeon@qlogic.com
or
Investor Contact:
Jean Hu, 949.389.7579
jean.hu@qlogic.com
 
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