Xyratex: Fiscal 2Q10 Financial Results

(in US$ millions)	2Q09	2Q10	*Growth*	6 mo. 09	6 mo. 10	*Growth*
Networked storage solutions	184.3	343.9	87%	350.0	614.9	76%
Storage infrastructure	10.5	112.0	967%	28.6	160.0	459%
Total Revenues	194.7	455.9	134%	378.6	774.9	105%
Net income (loss)	(9.6)	43.7		(25.8)	69.9

Xyratex Ltd announced results for the second fiscal quarter ended May 31, 2010. Revenues for the second quarter were $455.9 million, an increase of 134.1% compared to revenues of $194.7 million for the same period last year.

For the second quarter, GAAP net income was $43.7 million, or $1.39 per diluted share, compared to GAAP net loss of $9.6 million, or $0.33 per share, in the same period last year. Non-GAAP net income was $46.8 million, or $1.49 per diluted share, compared to non-GAAP net loss of $6.6 million, or $0.22 per share, in the same quarter a year ago (1).

Gross profit margin in the second quarter increased to 18.1%, compared to 12.9% in the same period last year, primarily due to significantly increased volumes of Storage Infrastructure products.

Revenues from our Networked Storage Solutions products were $343.9 million as compared to $184.3 million in the same quarter a year ago, an increase of 86.6%. Gross profit margin in the Networked Storage Solutions business was 12.8% as compared to 12.7% a year ago. Revenues from our Storage Infrastructure products were $112.0 million as compared to $10.5 million in the same quarter a year ago. Gross profit margin in the Storage Infrastructure business was 34.6% as compared to 18.0% a year ago.

"Xyratex had an outstanding quarter with record revenue and earnings. We executed very well and were able to meet the strong demand from our customers, while continuing to invest in technologies and resources that will position us for growth going forward," said Steve Barber, CEO of Xyratex. "Our priorities for the remainder of 2010 include strategic investment in new growth opportunities and securing new customers. We feel we are well positioned to capitalize on the positive industry dynamics that are creating significant demand for our storage products."

Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

Revenue in the third quarter of 2010 is projected to be in the range $385 to $435 million.
Fully diluted earnings per share is anticipated to be between $0.77 and $1.06 on a GAAP basis in the third quarter. On a non-GAAP basis fully diluted earnings per share is anticipated to be between $0.87 and $1.16. Non-GAAP earnings per share excludes amortization of intangible assets, equity compensation expense, specified non-recurring items and related taxation expense.

Comments

Abstracts of the earnings call transcript:

Richard Pearce, CFO:

"Headcount at the end of May was 1,905 permanent employees, an increase of 12% or 204 employees.

"In addition, we increased our global operations contractor headcount by over 350, or 30% in the quarter to support increased production activities.

"For our third quarter 2010, we are projecting total revenue to be in the range of $385 to $435 million, up 56% to 77% as compared to last year, and down 5% to 16% compared to 1Q. This is represented by revenue from network storage solutions of $305 to $335 million, and from storage infrastructure of $80 to $100 million.

"Our cash position at the end of Q3 is expected to be approximately $80 million."

Steve Barber, CEO:

"We shipped 822.42 petabytes of external storage in our fiscal second quarter, representing a 31.4% growth over the prior quarter and 120.3% of growth over a year ago.

"Our second quarter shipped capacity was made up of the following in disk drive interfaces: fiber channel, 72.06 petabytes; Serial ATA, 619.28 petabytes; SAS, 130.98 petabytes; and SSDs, 83 terabytes.

"We recently completed the acquisition of the assets of Optical Systems Corporation, a respected provider in the disk drive industry of automated production technology. We are delighted to have the OSC team join the business, enabling us to expand our automation IP and portfolio into disk drive (tech) fabrication and assembling. We anticipate the total cost of this acquisition not to exceed $5 million, including potential earnout of the next three years."