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QLogic Exceeds Revenue and EPS Guidance for Q2 FY2015

Announces Approval of a $100 million Stock Repurchase Program

ALISO VIEJO, Calif. — (BUSINESS WIRE) — October 16, 2014 — 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 28, 2014.

Second Quarter Highlights

Net revenue for the second quarter of fiscal 2015 was $127.5 million and increased 13% from $112.6 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $114.9 million during the second quarter of fiscal 2015 and increased 22% from $94.0 million in the same quarter last year.

The growth of our net revenue in the second quarter was driven by a sequential increase in revenue from Fibre Channel adapters of more than 5% and a sequential increase in revenue from Ethernet products of approximately $5 million.

Net income on a GAAP basis was $11.0 million or $0.12 per diluted share for the second quarter of fiscal 2015 compared to $11.0 million or $0.13 per diluted share for the second quarter of fiscal 2014. Net income on a non-GAAP basis for the second quarter of fiscal 2015 increased 10% to $22.0 million, or $0.25 per diluted share, from $20.0 million, or $0.23 per diluted share, for the second quarter of fiscal 2014.

QLogic also announced today that its board of directors has authorized a program to repurchase up to $100 million of the company’s outstanding common stock over a period of up to 18 months.

“I am very pleased with our financial performance in the second quarter. We delivered both revenue and non-GAAP earnings per diluted share that exceeded the high end of our guidance range. Based on our current execution, compelling product portfolio, and design win and qualification activity, we are well positioned to continue solid revenue and earnings per share performance during the second half of fiscal 2015,” said Prasad Rampalli, president and chief executive officer, QLogic. “The stock repurchase program that we announced today underscores the Board’s ongoing commitment to enhancing shareholder value, as well as our confidence in our long-term business growth prospects and financial outlook.”

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 2015 conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Prasad Rampalli, 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 will include certain prepared materials. Phone access to participate in the conference call is available at (888) 539-3612, pass code: 5088706.

The financial information and the prepared materials 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 webcast will be available 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 confidence in our long-term business growth prospects and financial outlook and belief that we are well positioned to continue solid revenue and earnings per share performance during the second half of fiscal 2015) 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; unfavorable economic conditions; 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; uncertain benefits from strategic business combinations, acquisitions and divestitures; 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; 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; a reduction in sales efforts by current distributors; 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 28,       September 29, September 28,       September 29,
2014 2013 2014 2013
 
Net revenues $ 127,503 $ 112,622 $ 246,952 $ 225,738
Cost of revenues   52,093   36,313   100,847   72,932
Gross profit   75,410   76,309   146,105   152,806
 
Operating expenses:
Engineering and development 35,480 34,790 73,301 75,177
Sales and marketing 15,453 16,431 31,487 35,844
General and administrative 8,697 7,553 17,597 15,292
Special charges   2,259   4,349   4,803   16,382
Total operating expenses   61,889   63,123   127,188   142,695
 
Operating income 13,521 13,186 18,917 10,111
 
Interest and other income, net   296   25   438   798
 
Income before income taxes 13,817 13,211 19,355 10,909
 
Income taxes   2,807   2,234   2,345   2,982
 
Net income $ 11,010 $ 10,977 $ 17,010 $ 7,927
 
Net income per share:
Basic $ 0.13 $ 0.13 $ 0.19 $ 0.09
Diluted $ 0.12 $ 0.13 $ 0.19 $ 0.09
 
Number of shares used in per share calculations:
Basic 87,914 87,430 87,654 88,288
Diluted 88,102 87,669 88,177 88,720
 
QLOGIC CORPORATION

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME

(unaudited — in thousands, except per share amounts)
 
      Three Months Ended       Six Months Ended
September 28,       September 29, September 28,       September 29,
2014 2013 2014 2013
 
GAAP net income $ 11,010 $ 10,977 $ 17,010 $ 7,927
Items excluded from GAAP net income:
Stock-based compensation 4,735 4,818 10,275 12,989
Amortization of acquisition-related intangible assets 4,119 244 8,567 487
Amortization of license fee 695 — 1,394 —
Acquisition-related charges 263 — 1,034 —
Special charges 2,259 4,349 4,803 16,382

Income tax effects

  (1,066 )   (346 )   (2,582 )   (1,327 )
Total non-GAAP adjustments   11,005     9,065     23,491     28,531  
Non-GAAP net income $ 22,015   $ 20,042   $ 40,501   $ 36,458  
 
Net income per diluted share:
GAAP net income $ 0.12 $ 0.13 $ 0.19 $ 0.09
Adjustments   0.13     0.10     0.27     0.32  

Non-GAAP net income

$ 0.25   $ 0.23   $ 0.46   $ 0.41  
 

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 Six Months Ended
September 28,       September 29, September 28,       September 29,
2014 2013 2014 2013
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation $ 258 $ 239 $ 613 $ 823
Amortization of acquisition-related intangible assets 4,119 244 8,567 487
Amortization of license fee 695 — 1,394 —
Acquisition-related charges   263     —     1,034     —  
Total cost of revenue adjustments   5,335     483     11,608     1,310  
 
Operating expenses:
Engineering and development:
Stock-based compensation 2,309 2,257 5,280 6,608
Sales and marketing:
Stock-based compensation 1,073 1,230 2,083 3,023
General and administrative:
Stock-based compensation 1,095 1,092 2,299 2,535
Special charges   2,259     4,349     4,803     16,382  
Total operating expense adjustments   6,736     8,928     14,465     28,548  
 
Total non-GAAP adjustments before income taxes 12,071 9,411 26,073 29,858
 

Income tax effects

  (1,066 )   (346 )   (2,582 )   (1,327 )
 
Total non-GAAP adjustments $ 11,005   $ 9,065   $ 23,491   $ 28,531  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited — in thousands)
 
      September 28,       March 30,
2014 2014
ASSETS
Current assets:
Cash and cash equivalents $ 86,930 $ 91,258
Marketable securities   189,839     186,783  
Total cash and marketable securities 276,769 278,041
Accounts receivable, net 85,469 65,213
Inventories 30,142 18,036
Deferred tax assets 13,997 15,080
Other current assets   18,841     16,590  
Total current assets 425,218 392,960
 
Property and equipment, net 82,972 84,912
Goodwill 192,492 194,107
Purchased intangible assets, net 61,231 69,903
Deferred tax assets 29,818 32,827
Other assets   21,847     23,554  
 
$ 813,578   $ 798,263  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 37,178 $ 30,657
Accrued compensation 19,700 26,956
Accrued taxes 2,312 981
Deferred revenue 3,695 3,954
Other current liabilities   8,824     16,123  

Total current liabilities

71,709 78,671
 
Accrued taxes 12,605 17,095
Other liabilities   8,699     9,071  
Total liabilities   93,013     104,837  
 
Stockholders’ equity:
Common stock 215 214
Additional paid-in capital 968,368 958,008
Retained earnings 1,689,081 1,672,071
Accumulated other comprehensive income 203 435
Treasury stock   (1,937,302 )   (1,937,302 )
Total stockholders’ equity   720,565     693,426  
 
$ 813,578   $ 798,263  
 
 
QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited — in thousands)
 
      Six Months Ended
September 28,       September 29,
2014 2013
 
Cash flows from operating activities:
Net income $ 17,010 $ 7,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 23,855 15,730
Stock-based compensation 10,275 12,989
Deferred income taxes 4,077 3,632
Asset impairments 1,011 2,429
Other non-cash items 810 1,698
Changes in operating assets and liabilities:
Accounts receivable (20,287 ) (1,818 )
Inventories (12,106 ) 2,797
Other assets (840 ) 180
Accounts payable 6,162 (102 )
Accrued compensation (7,256 ) (7,141 )
Accrued taxes, net (3,012 ) (905 )
Other liabilities   (7,930 )   3,249  
Net cash provided by operating activities   11,769     40,665  
 
Cash flows from investing activities:
Purchases of available-for-sale securities (84,318 ) (162,673 )
Proceeds from sales and maturities of available-for-sale securities 80,376 172,629
Purchases of property and equipment   (12,068 )   (15,389 )
Net cash used in investing activities   (16,010 )   (5,433 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards 3,536 4,565
Minimum tax withholding paid on behalf of employees for restricted stock units (3,450 ) (4,514 )
Purchases of treasury stock — (44,212 )
Other financing activities   (173 )   (96 )
Net cash used in financing activities   (87 )   (44,257 )
 
Net decrease in cash and cash equivalents (4,328 ) (9,025 )
 
Cash and cash equivalents at beginning of period   91,258     95,532  
 
Cash and cash equivalents at end of period $ 86,930   $ 86,507  
 
 
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 28,       September 29, September 28,       September 29,
2014 2013 2014 2013
Advanced Connectivity Platforms $ 114,877 $ 94,011 $ 219,578 $ 187,201
Legacy Connectivity Products   12,626   18,611   27,374   38,537
$ 127,503 $ 112,622 $ 246,952 $ 225,738


Contact:

Media Contact:
QLogic Corporation
Steve Sturgeon, 858-472-5669
Email Contact
or
Investor Contact:
QLogic Corporation
Doug Naylor, 949-542-1330
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