Emulex: Fiscal 1Q10 Financial Results

Emulex Corporation announced results for its first fiscal quarter ended September 27, 2009.

First Quarter Financial Highlights

• Total net revenues of $85.5 million exceeding the high end of guidance of $78 – $82 million
• 8Gb/s net revenues increased 66% sequentially, accounting for over 20% of Host Server Product (HSP) net revenues during the quarter
• Converged Network Adapter (CNA) net revenues exceeded expectations with growth of over 160% sequentially
• Embedded Storage Products (ESP) were $21.3 million, or 25% of total net revenues
• GAAP gross margin of 61% and non-GAAP gross margins of 67%, GAAP operating loss of $6.2 million, or 7% of total net revenues, and non-GAAP operating income of $8.8 million, or 10% of total net revenues
• GAAP diluted earnings per share of $0.05 compared to guidance of a loss of $0.06-$0.09 per share
• Non-GAAP diluted earnings per share of $0.08 exceeding the high end of guidance of $0.03 – $0.06
• Cash, cash equivalents and investments of $271.3 million
• Repurchased 2 million shares of common stock using $18.2 million of cash during the quarter
• Inventory turnover of 12.6 times

Business Highlights

• Announced IBM BladeCenter Virtual Fabric design win for flexible 10Gb/s Ethernet network connectivity
• Published Second Edition of Convergenomics – The Guide to Network Convergence
• Announced collaboration with Ixia on a reference guide for testing converged network adapters
• Gained three percent in Fibre Channel HBA market share during the second quarter of 2009 according to Dell’Oro Group
• Demonstrated host-based encryption security solution at RSA Europe Conference
• Announced sole source 8Gb/s Fibre Channel HBA design win with HP StorageWorks X3820 Network Storage System
• Released LPe12004 Quad-Channel 8Gb/s Fibre Channel HBA for high-bandwidth slot-limited servers
• Announced support for Serial Attached SCSI (SAS) hard disk drives and Solid State Drives (SSDs) with next generation InSpeed Bridging technology
• Announced selection of InSpeed switches and bridges for next generation LSI High Capacity Enclosure
• Announced patent cross-license agreement with IBM to accelerate integration of high performance networking solutions

Financial Results
First quarter total net revenues were $85.5 million, a sequential increase of 8% and a decrease of 23% from the comparable quarter of last year. First quarter GAAP net income was $3.8 million, or $0.05 per diluted share, compared to GAAP net income $7.5 million, or $0.09 per diluted share, reported in Q1 of fiscal 2009 and a net loss of $4.5 million, or $0.05 per share, in Q4 of fiscal 2009. Non-GAAP net income for the first quarter was $6.9 million, or $0.08 per diluted share. Non-GAAP net income per diluted share decreased 11% from $0.09 reported in Q4 of fiscal 2009 and decreased 64% from $0.22 reported in Q1 of fiscal 2009. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

President and CEO Jim McCluney commented: "Following our solid execution in the June quarter, I’m pleased to report our momentum accelerated in the first quarter of fiscal 2010 as the team delivered results that exceeded the high end of our August guidance for revenue and earnings per share.”  Mr. McCluney added: “In addition to exceeding our first quarter corporate financial goals for our core business, we delivered meaningful proof points supporting our commitment to be a market leader in converged networks. Our universal converged networking strategy using enhanced 10Gb/s Ethernet to merge LAN (Local Area Network) and SAN (Storage Area Network) data traffic is changing the way our customers and our competitors think about the future of connectivity in data centers.”

Business Outlook
Although actual results may vary depending on a variety of factors, many of which are outside the Company’s control, including the current economic downturn and uncertainty resulting from recent disruptions in global credit and equity markets, Emulex is providing guidance for its second fiscal quarter ending December 27, 2009. For the second quarter fiscal 2010, Emulex is forecasting total net revenues in the range of $88-$92 million. The Company expects non-GAAP earnings per diluted share could amount to $0.10-$0.12 in the second quarter. On a GAAP basis, Emulex expects a loss per diluted share of $0.03 – $0.05 in the second quarter. GAAP estimates for the second quarter reflect approximately $0.15 per diluted share in expected charges arising primarily from amortization of intangibles, stock-based compensation and costs, including related litigation, associated with Broadcom’s unsolicited takeover proposal.