QLogic Reports Fourth Quarter and Fiscal Year 2008 Results

QLogic Corp. (NASDAQ:QLGC), a leader in networking for storage and high performance computing (HPC), today announced its financial results for the fourth quarter and fiscal year ended March 30, 2008. Fourth Quarter Highlights Net revenue increased 9% from last year to a record $159.7 million. Net income: $22.8 million GAAP, $37.7 million non-GAAP. Net income per diluted share: $0.17 GAAP, $0.28 non-GAAP. Cash generated from operations was $49.0 million. $376.4 million in cash and marketable securities as of March 30, 2008. Repurchased $36.2 million of outstanding common stock. Fiscal Year Highlights Net revenue was a record $597.9 million. Net income: $96.2 million GAAP, $141.3 million non-GAAP. Net income per diluted share: $0.67 GAAP, $0.99 non-GAAP. Cash generated from operations was $211.6 million. Repurchased $351.5 million of outstanding common stock. Financial Results Net revenue for the fourth quarter of fiscal 2008 was $159.7 million. Revenue from Host Products, which are comprised primarily of Fibre Channel and iSCSI Host Bus Adapters (HBAs) and InfiniBand Host Channel Adapters (HCAs), was $110.3 million during the fourth quarter of fiscal 2008 and increased 5% from $105.1 million in the comparable quarter last year. Revenue from Network Products, which are comprised primarily of Fibre Channel and InfiniBand switches, was $27.5 million during the fourth quarter of fiscal 2008 and increased 6% from $25.9 million in the comparable quarter last year. Revenue from Silicon Products, which are comprised primarily of protocol chips and management controllers, was $13.9 million during the fourth quarter of fiscal 2008 and was consistent with the comparable quarter last year. Other revenue, which is comprised primarily of royalties and service fees, was $7.9 million during the fourth quarter of fiscal 2008 and increased from $2.1 million in the comparable quarter last year. Net income on a GAAP basis for the fourth quarter of fiscal 2008 was $22.8 million, or $0.17 per diluted share, and increased from $18.4 million, or $0.12 per diluted share for the fourth quarter of fiscal 2007. Net income on a GAAP basis includes stock-based compensation expense, acquisition-related charges, impairment charges related to intangible assets and marketable securities, special charges, and the related income tax effects. Net income on a non-GAAP basis for the fourth quarter of fiscal 2008 was $37.7 million, or $0.28 per diluted share, and increased from $35.2 million, or $0.22 per diluted share for the fourth quarter of fiscal 2007. Net revenue for fiscal 2008 was $597.9 million compared to $586.7 million in fiscal 2007. Net income on a GAAP basis for fiscal 2008 was $96.2 million, or $0.67 per diluted share, and included stock-based compensation expense, acquisition-related charges, impairment charges related to intangible assets and marketable securities, special charges, and the related income tax effects. Net income on a GAAP basis for fiscal 2007 was $105.4 million or $0.66 per diluted share. Non-GAAP net income for fiscal 2008 was $141.3 million, or $0.99 per diluted share. "QLogic reported record revenue for both the fourth quarter and fiscal year 2008. Our record revenue for fiscal 2008 was driven by a 7% increase in revenue from Host Products and a 15% increase in revenue from Network Products from last year,” said H. K. Desai, QLogic’s chief executive officer. "As we exit fiscal 2008 with favorable second half performance, we believe we have positive momentum heading into fiscal 2009.” 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 2008 fourth quarter conference call is scheduled for today at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time). H.K. Desai, chief executive officer, and Simon Biddiscombe, 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 (913) 312-1524, pass code: 7954247. 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. About QLogic QLogic is a leading supplier of high performance storage networking solutions, which include the controller chips, host adapters and fabric switches that are the backbone of storage networks for most Global 2000 corporations. The company delivers a broad and diverse portfolio of products that includes Fibre Channel HBAs, blade server embedded Fibre Channel switches, Fibre Channel stackable switches, iSCSI HBAs and iSCSI routers. The company is also a leading supplier of InfiniBand switches and InfiniBand host channel adapters for the emerging high performance computing market. QLogic products are delivered to small-to-medium businesses and large enterprises around the world via its channel partner community. QLogic products are also powering solutions from leading companies like Cisco, Dell, EMC, Hitachi Data Systems, HP, IBM, Network Appliance and Sun Microsystems. QLogic is a member of the S&P 500 Index. Disclaimer - Forward Looking Statements This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business trends) 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; revenues may be affected by changes in IT spending levels; the stock price of the company may be volatile; the company’s dependence on the storage area network market; potential adverse effects of server virtualization technology on the company’s business; potential adverse effects of increased market acceptance of blade servers; the ability to maintain and gain market or industry acceptance of the company's products; the company’s dependence on a limited number of customers; seasonal fluctuations and uneven sales patterns in orders from customers; the company’s ability to compete effectively with other companies; declining average unit sales prices of comparable products; a reduction in sales efforts by current distributors; dependence on sole source and limited source suppliers; the company’s dependence on relationships with certain silicon chip suppliers; the complexity of the company's products; sales fluctuations arising from customer transitions to new products; environmental compliance costs; international economic, regulatory, political and other risks; uncertain benefits from strategic business combinations; the ability to attract and retain key personnel; difficulties in transitioning to smaller geometry process technologies; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; reliance on third party technology; the use of "open source” software in our products; changes in our tax provisions or adverse outcomes resulting from examination of our income tax returns; computer viruses and other tampering with the company’s computer systems; and facilities of the company and its suppliers and customers are located in areas subject to natural disasters. 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 Year Ended March 30, 2008   April 1, 2007 March 30, 2008   April 1, 2007   Net revenues $ 159,723 $ 147,096 $ 597,866 $ 586,697 Cost of revenues   53,846     52,208     205,959   191,982 Gross profit   105,877     94,888     391,907   394,715   Operating expenses: Engineering and development 33,752 35,773 134,668 135,315 Sales and marketing 22,062 22,636 84,166 86,731 General and administrative 8,799 7,770 34,049 31,044 Special charges 1,556 — 5,328 — Purchased in-process research and development   —     1,800     —   3,710 Total operating expenses   66,169     67,979     258,211   256,800   Operating income 39,708 26,909 133,696 137,915   Interest and other income (expense), net   (2,861 )   (1,460 )   14,024   16,872   Income before income taxes 36,847 25,449 147,720 154,787   Income taxes   14,082     7,008     51,510   49,369   Net income $ 22,765   $ 18,441   $ 96,210 $ 105,418   Net income per share: Basic $ 0.17 $ 0.12 $ 0.68 $ 0.66 Diluted $ 0.17 $ 0.12 $ 0.67 $ 0.66   Number of shares used in per share calculations: Basic 133,873 157,775 142,167 159,081 Diluted 134,762 159,235 142,901 160,680   QLOGIC CORPORATION   RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME   (unaudited -- in thousands, except per share amounts)     Three Months Ended Year Ended March 30, 2008   April 1, 2007 March 30, 2008   April 1, 2007   GAAP net income $ 22,765 $ 18,441 $ 96,210 $ 105,418 Items excluded from GAAP net income: Stock-based compensation 7,515 7,733 31,764 30,279 Amortization of purchased intangible assets 3,618 5,089 16,725 12,940 Impairment of intangible assets 2,338 — 2,338 — Acquisition-related stock-based compensation 641 1,283 1,209 9,092 Special charges 1,556 — 5,328 — Purchased in-process research and development — 1,800 — 3,710 Impairment of marketable securities 6,867 8,094 6,867 8,094 Income tax effect   (7,589 )   (7,208 )   (19,093 )   (17,413 ) Total non-GAAP adjustments   14,946     16,791     45,138     46,702   Non-GAAP net income $ 37,711   $ 35,232   $ 141,348   $ 152,120     Net income per diluted share: GAAP net income $ 0.17 $ 0.12 $ 0.67 $ 0.66 Adjustments   0.11     0.10     0.32     0.29   Non-GAAP net income $ 0.28   $ 0.22   $ 0.99   $ 0.95   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 diluted per share basis. Management uses non-GAAP net income in its evaluation of the company’s core after-tax results of operations and trends between fiscal periods and believes that this measure is an important component 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 this non-GAAP financial measure. 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   Year Ended March 30, 2008   April 1, 2007 March 30, 2008   April 1, 2007 Non-GAAP Adjustments: Cost of revenues: Stock-based compensation $ 499 $ 466 $ 2,128 $ 1,897 Amortization of purchased intangible assets 2,779 3,617 12,867 11,093 Impairment of intangible assets 2,338 — 2,338 — Acquisition-related stock-based compensation   —     13     (24 )   52   Total cost of revenue adjustments   5,616     4,096     17,309     13,042     Operating expenses: Engineering and development: Stock-based compensation 3,400 2,924 14,531 11,190 Amortization of purchased intangible assets 31 67 314 267 Acquisition-related stock-based compensation 644 1,616 1,198 7,601 Sales and marketing: Stock-based compensation 1,502 2,272 6,255 8,155 Amortization of purchased intangible assets 808 1,405 3,544 1,580 Acquisition-related stock-based compensation (3 ) (327 ) 35 1,387 General and administrative: Stock-based compensation 2,114 2,071 8,850 9,037 Acquisition-related stock-based compensation — (19 ) — 52 Special charges 1,556 — 5,328 — Purchased in-process research and development   —     1,800     —     3,710   Total operating expense adjustments   10,052     11,809     40,055     42,979     Interest and other income (expense): Impairment of marketable securities   6,867     8,094     6,867     8,094   Total non-GAAP adjustments before income taxes   22,535   23,999   64,231   64,115 Income tax effect   (7,589 )   (7,208 )   (19,093 )   (17,413 ) Total non-GAAP adjustments $ 14,946   $ 16,791   $ 45,138   $ 46,702     QLOGIC CORPORATION   CONDENSED CONSOLIDATED BALANCE SHEETS   (unaudited -- in thousands)     March 30, 2008 April 1, 2007 ASSETS Current assets: Cash and cash equivalents $ 160,009 $ 76,804 Short-term marketable securities 160,497 467,118 Accounts receivable, net 81,642 73,538 Inventories 27,520 38,935 Deferred tax assets 32,227 27,866 Other current assets   8,925     12,892   Total current assets 470,820 697,153   Long-term marketable securities 55,903 — Property and equipment, net 93,726 90,913 Goodwill 127,409 102,910 Purchased intangible assets, net 34,652 55,093 Deferred tax assets 25,870 49 Other assets   2,586     25,241     $ 810,966   $ 971,359     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 35,643 $ 29,280 Accrued compensation 31,120 34,483 Accrued taxes 5,262 15,729 Deferred revenue 8,693 4,669 Other current liabilities   5,952     7,674   Total current liabilities 86,670 91,835   Accrued taxes 48,163 — Other liabilities   10,217     4,993   Total liabilities   145,050     96,828     Stockholders’ equity: Common stock 200 198 Additional paid-in capital 657,893 608,515 Retained earnings 1,084,938 988,728 Accumulated other comprehensive income (loss) (2,530 ) 169 Treasury stock   (1,074,585 )   (723,079 ) Total stockholders’ equity   665,916     874,531     $ 810,966   $ 971,359     QLOGIC CORPORATION   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited -- in thousands)   Year Ended   March 30, 2008   April 1, 2007   Cash flows from operating activities: Net income $ 96,210 $ 105,418 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 30,857 27,554 Stock-based compensation 31,764 30,279 Acquisition-related: Amortization of purchased intangible assets 16,725 12,940 Stock-based compensation 1,209 9,092 Purchased in-process research and development — 3,710 Deferred income taxes (5,865 ) (4,154 ) Impairment of marketable securities 6,867 8,094 Provision for losses on accounts receivable 399 30 Loss on disposal of property and equipment 1,328 214 Impairment of intangible assets 2,338 — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (8,503 ) (2,275 ) Inventories 11,415 2,771 Other assets 3,593 (1,906 ) Accounts payable 7,282 (7,401 ) Accrued compensation (1,940 ) 2,264 Accrued taxes 11,951 2,809 Deferred revenue 6,412 3,706 Other liabilities   (453 )   (2,076 ) Net cash provided by operating activities   211,589     191,069     Cash flows from investing activities: Purchases of marketable securities (185,707 ) (298,220 ) Sales and maturities of marketable securities 425,033 366,677 Additions to property and equipment (30,001 ) (31,708 ) Acquisition of businesses, net of cash acquired 67 (142,521 ) Restricted cash placed in escrow — (24,000 ) Restricted cash received from escrow   —     12,508   Net cash provided by (used in) investing activities   209,392     (117,264 )   Cash flows from financing activities: Proceeds from issuance of stock under stock plans 14,696 33,703 Tax benefit from issuance of stock under stock plans 288 5,816 Payoff of line of credit assumed in acquisition — (1,632 ) Purchase of treasury stock   (352,760 )   (160,080 ) Net cash used in financing activities   (337,776 )   (122,193 )   Net increase (decrease) in cash and cash equivalents 83,205 (48,388 )   Cash and cash equivalents at beginning of year   76,804     125,192     Cash and cash equivalents at end of year $ 160,009   $ 76,804     QLOGIC CORPORATION   SUPPLEMENTAL FINANCIAL INFORMATION   (unaudited -- in thousands)     Net Revenues   A summary of the company's revenue components is as follows:     Three Months Ended Year Ended March 30, 2008   April 1, 2007 March 30, 2008   April 1, 2007   Host Products $ 110,323 $ 105,134 $ 437,882 $ 410,607 Network Products 27,519 25,935 101,758 88,307 Silicon Products 13,940 13,971 44,323 76,652 Other   7,941   2,056   13,903   11,131 $ 159,723 $ 147,096 $ 597,866 $ 586,697   Geographic Revenues   Revenues by geographic area are presented based upon the country ofdestination. Net revenues by geographic area are as follows:     Three Months Ended Year Ended March 30, 2008   April 1, 2007 March 30, 2008   April 1, 2007   United States $ 80,211 $ 78,076 $ 305,146 $ 314,300 Europe, Middle East and Africa 39,206 35,230 144,631 131,954 Asia-Pacific and Japan 32,063 24,333 113,063 111,130 Rest of world   8,243   9,457   35,026   29,313 $ 159,723 $ 147,096 $ 597,866 $ 586,697