Emulex: Fiscal 1Q12 Financial Results

Emulex Corporation announced results for its first quarter of fiscal 2012, which ended on October 2, 2011.

First Quarter Financial Highlights

• Total net revenues of $118.4 million, an increase of 15% year-over-year
• Announced new product lines that are better aligned with addressable markets
• Network Connectivity Products (NCP) net revenues of $86.6 million, or 73% of total net revenues, an increase of 14% year-over-year
• 10Gb/s Ethernet (10GbE) products totaled approximately 16% of net revenues
• Storage Connectivity Products (SCP) net revenues of $23.9 million, or 20% of net revenues, an increase of 11% year-over-year
• Advanced Technology and Other Products, (ATP) net revenues of $7.9 million or 7% of net revenues, an increase of 50% year-over-year
• GAAP gross margins of 55% and non-GAAP gross margins of 63%
• GAAP operating loss of $5.9 million, or 5% of total net revenues, and non-GAAP operating income of $12.5 million, or 11% of total net revenues
• GAAP net loss of $7.2 million and non-GAAP net income of $11.8 million
• GAAP loss per share of $0.08 and non-GAAP diluted earnings per share of $0.13
• Cash, cash equivalents and investments at the end of the quarter of $171.2 million
• 2.9 million shares were repurchased during the quarter using approximately $20 million of cash

First Quarter Business Highlights

• Emulex achieved the largest year-over-year 10Gb Ethernet (10GbE) revenue share gain, closing the gap on the #1 supplier in the overall 10GbE market, according to the Dell’Oro Group and Crehan Research and was ranked#1 in 10GbE LOM revenue and ports, according to Crehan Research, #1 in FCoE revenue and ports with 30% market share and 80% of the port shipments, according to Crehan Research
• Together with Dell, Emulex announced the addition of iSCSI over Data Center Bridging (DCB) technology to its OneConnect 10GbE Universal Converged Network Adapters (UCNAs) which provide 10GbE iSCSI network convergence with reduced latency and enterprise-class performance and reliability
• Emulex introduced its new Universal Multi-Channel technology for open systems solutions, which allows data centers to allocate 10GbE bandwidth for virtualized servers, providing cost savings through reduced capital expenditures
• Emulex’s OneConnect UCNAs received the 2011 XChange XCellence Award in the category of ‘Breakthrough Technology Vendor‘
• Emulex announced its LightPulse 16Gb Fibre Channel (16GFC) Host Bus Adapter (HBA), based on the XE201 I/O Controller (IOC), which is the only 16GFC adapter that delivers over one million I/O per second (IOPS) on a single port
• Emulex’s XE201 IOC received the 3rd Annual Golden Bridge Award in the category of ‘Innovation in Information Technology: Convergence’
• As part of Emulex’s ongoing efforts to optimize operations and focus on centers of excellence, the company opened an expanded design center in Austin, Texas, responsible for Ethernet ASIC development

Financial Results
In the first quarter, total net revenues increased 15% from the comparable quarter of last year, reaching $118.4 million. The first quarter net loss on a GAAP basis was $7.2 million, or $0.08 per share, compared to a GAAP net loss of $15.7 million, or $0.18 per share reported in Q4 of fiscal 2011, and a GAAP net loss of $8.6 million, or $0.10 per share, in Q1 of fiscal 2011. Non-GAAP net income for the first quarter was $11.8 million, or $0.13 per diluted share, representing a 20% increase from the $9.9 million reported in the comparable quarter of the last fiscal year, and a decrease of 18% from the $14.4 million reported in the immediately preceding quarter. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

Historical Net Revenue by Product Lines:
Network Connectivity Products (NCP) primarily consist of Fibre Channel LightPluse and Ethernet OneConnect standup HBAs, mezzanine cards, I/O ASICs, ULOMs, and UCNAs to provide server Input/Output (I/O) and target storage array connectivity to enable servers to reliably and efficiently connect to Local Area Networks, Storage Area Networks and Network Attached Storage by offloading data communication processing tasks from the servers as information is delivered and sent to the network.

Storage Connectivity Products (SCP) include our InSpeed, FibreSpy, switch-on-a-chip (SOC), bridge and router products. SCP are deployed inside storage arrays, tape libraries, and other storage appliances to connect storage controllers to storage capacity, delivering improved performance, reliability, and connectivity.

Advanced Technology and Other Products (ATP) primarily consists of our Integrated Baseboard Management Controllers (iBMC), our One Command Vision products, as well as some legacy and other products and services.

CEO Jim McCluney commented: "Exceeding the high-end of revenues and earnings guidance was a terrific start to our new fiscal year. With year-over-year increases on the top line of 15%, and non-GAAP net income of 20%, we met our goal of delivering better than industry revenue growth, with even greater earnings growth," continued McCluney.

"Looking forward into the second quarter, we are diligently focused on managing through any temporary supply issues resulting from the recent Thailand flooding, while once again working to deliver strong year–over-year revenue and earnings performance," McCluney concluded.

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the company’s control, including uncertainty related to the macro IT spending environment, the timing of new server launches by our customers, and the ultimate impact of the flooding in Thailand on product availability, and the results and related costs of ongoing patent litigation, Emulex is providing guidance for its second fiscal quarter ending January 1, 2012. For the second quarter of fiscal 2012, Emulex is forecasting total net revenues in the range of $121-$127 million. The company expects non-GAAP earnings per diluted share could amount to $0.17-$0.20 in the second quarter. On a GAAP basis, Emulex expects earnings per diluted share of $0.08-$0.11 in the second quarter. GAAP estimates for the second quarter reflect approximately $0.09 per diluted share in expected charges arising primarily from amortization of intangibles and stock-based compensation.