Xyratex: Fiscal 2Q12 Financial Results

(in US$ million)	2Q11	2Q12	6 mo. 11	6 mo. 12
Revenues	338.5	322.1	699.0	617.8
*Growth*		-5%		*-16%*
Net income (loss)	(4.6)	7.0	0.1	17.91

Xyratex Ltd announced results for the second fiscal quarter ended May 31, 2012.

Revenues for the second quarter were $322.1 million, a decrease of 4.9% compared to revenues of $338.5 million for the same period last year.

For the second quarter, GAAP net income was $7.0 million, or $0.24 per diluted share, compared to GAAP net loss of $4.6 million, or $0.15 per share, in the same period last year. Non-GAAP net income was $9.3 million, or $0.32 per diluted share, compared to non-GAAP net loss of $1.9 million, or $0.06 per share, in the same quarter a year ago.

Gross profit margin in the second quarter was 16.5%, compared to 12.9% in the same period last year and 17.9% in the prior quarter. The increase from last year primarily reflects improved gross margins for HDD Capital Equipment products, which had been impacted by significantly reduced revenue and specific inventory provisions in the prior year.

The company also announced that its Board of Directors has approved a quarterly cash dividend of $0.075 per share, unchanged from the prior quarter. The dividend will be payable on August 1, 2012 to shareholders of record as of the close of business on July 19, 2012. This dividend represents a quarterly payout of approximately $2.0 million in aggregate, or $8.0 million on an annualized basis.

During the quarter the company recommenced repurchases of shares under the previously announced share repurchase plan. The company repurchased 306,353 of its common shares during the quarter at a total cost of $3.6 million. The company’s cash balance amounted to $131.8 million at the end of the second quarter, a decrease of $24.1 million from the prior quarter due primarily to a short term increase in working capital.

"I was pleased with our second quarter results, with revenues and net income in line with our expectations. We did a very good job of meeting the demand requirements of our customers, and I am encouraged by the progress within our technology roadmap, as evidenced by our recent ClusterStor 6000 High Performance Computing announcement," said Steve Barber, CEO of Xyratex. "Over the next 18 months we have a number of new opportunities that I believe will be positive for the company. We will continue to focus on new growth opportunities while also managing our costs and investments. With a strong balance sheet, I believe we are well positioned to capitalize on these opportunities through the end of the year and beyond."

Business Outlook
The following statements are based on current expectations

Revenue in the third fiscal quarter of 2012 is projected to be in the range of $313 million to $373 million.
Fully diluted earnings per share is anticipated to be between $0.31 and $0.69 on a GAAP basis in the third quarter. On a non-GAAP basis, fully diluted earnings per share is anticipated to be between $0.39 and $0.77. 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:
"Sales of our Enterprise Data Storage Solutions products was $278.5 million or 86.4% of total revenue. This is a decrease of 7.5% compared to the second quarter of last year and an increase of 2.3% compared to our prior fiscal quarter. Sales of our capital equipment products were $43.7 million or 13.6% of total revenue, up 16.8% compared to the second quarter of last year and up 85% compared to our prior fiscal quarter.
"So NetApp was approximately of the enterprise data storage solutions business, 48%, Dell 22%, IBM at 15%. And in fact EMC, which I think has been - we've identified as really expecting the majority of that business to have gone by now, but that was still at 5% in the second quarter.
"We will, obviously, be looking to Toshiba as a potential customer for our 2.5-inch platform, which they don't have any of our 2.5-inch platform today.
"Cash and cash equivalents at the end of the quarter was $131.8 million compared with $155.8 million at the end of Q1. This reduction, as forecast, was primarily related to the increase in working capital required for the HDD Capital Equipment business and the increase in disk drive inventories where certain hubbing arrangements have been restricted in the near term.
"Headcount at the end of the May quarter was 2,003 permanent employees, an increase of 53 or 2.7% over the past quarter, primarily in our Asia-based operations and field service organizations in support of the increased HDD Capital Equipment production and installation, as well as our new Software Center of Excellence in Waterloo, Canada."

Steve Barber, CEO:
"The supply of enterprise class disk drives now effectively unconstrained as we entered the third quarter, we've been able to concentrate on the broader aspects of our business. In the near term, we've seen some softening in storage solutions demand across our customer base, although remains unclear whether this is due to overall market softening in demand, market share shifts or combination of both.
"In the Capital Equipment business, we've actively supported the Western Digital through this quarter in their efforts to repair and replace process equipments damaged in the floods, and this work is now almost complete. As we move into the second half of the year, we're seeing strong demand from WD, Toshiba and HGST for process equipment, primarily related to 3.5 inch disk drives and demand from Seagate for component-related equipment.
"In storage solutions, we have focused on developing partnerships with emerging technology companies such as Pure Storage and HPC OEMs such as Cray.
"In 2013, we plan to announce solutions that are designed to meet the scalability, manageability and reliability needs of the public cloud."