EMLX weighs in...
Thursday January 18, 4:31 pm Eastern Time
Press Release
Emulex Reports Record Second Quarter Results
Fibre Channel Business Continues to Accelerate, Expanding 37% Sequentially
COSTA MESA, Calif.--(BUSINESS WIRE)--Jan. 18, 2001--Emulex Corp. (Nasdaq:EMLX - news), the world's largest supplier of Fibre Channel adapters and a leader in storage networking, Thursday announced results for its second fiscal quarter ended Dec. 31, 2000.
Revenues expanded to a record $71.1 million, up 112% from the $33.6 million reported for the same quarter a year ago. Net income for the second quarter of fiscal 2001 rose to a record $19.4 million, or $0.25 per diluted share, compared with net income of $8.8 million, or $0.11 per diluted share, for the same quarter a year ago.
Net income for the second quarter of fiscal 2001 includes a one-time gain of $1.9 million, or $0.01 per diluted share net of tax, arising from a gain on a strategic investment. Net income for the second quarter of the prior fiscal year benefited from a lower effective tax rate of 10%, while the recorded effective tax rate for the second quarter of fiscal 2001 amounted to 38%.
Excluding the one-time investment gain and assuming a 38% tax rate for both fiscal years, net income for the second quarter of fiscal 2001 amounted to $18.2 million or $0.23 per diluted share, an expansion of more than 200% from net income of $6 million, or $0.08 per diluted share, for the same quarter a year ago.
Per share figures include the effect of the company's most recent two-for-one stock split, which became effective on Dec. 15, 2000.
Fibre Channel momentum accelerated during the second fiscal quarter, as Fibre Channel host bus adapter (HBA) revenues grew 37% sequentially, compared with the 30% sequential expansion achieved in the first fiscal quarter.
Paul F. Folino, president and chief executive officer, stated: ``We experienced rising demand from substantially all of our key customers during the second quarter, illustrating widespread growth in networked storage solutions enabled by Fibre Channel, which grew to 97% of total revenue.
``In addition to the across-the-board sequential expansion in demand that we saw from our largest OEM customers, distribution revenue expanded by over 60% sequentially, as our newly launched ETIP and EARN reseller initiatives created new awareness and demand pull for the Emulex storage networking product family.
``As a result of growing demand, total Fibre Channel backlog also expanded by 36% sequentially to approximately $80 million at the end of the second fiscal quarter.'' In addition, Emulex continued to capture new Fibre Channel OEM business during the period, most recently announcing an agreement to provide LightPulse® ASIC target solutions to EMC for use in its flagship Symmetrix storage system.
On Dec. 7, 2000, Emulex announced the pending acquisition of Giganet Inc., a development-stage company specializing in IP storage networking solutions. ``The response to this strategic move has been exceptionally positive, with OEMs, industry analysts and strategic partners recognizing the value of our planned support for both Fibre Channel and IP-based networked storage solutions,'' noted Folino.
``While we anticipate that Fibre Channel will continue as the mainstay of storage networking for the foreseeable future, emerging applications expected to be served by IP storage promise to offer significant incremental market opportunities for Emulex in coming years.''
Operating margin expanded during the second quarter to 37%, well above planned levels of 30%, bolstered by incremental Fibre Channel revenues and an expansion in gross margin to 53%, versus the 50% achieved in the first quarter. As a result, operating income for the second fiscal quarter grew to a record $26.1 million, up 47% sequentially and up 238% from a year ago.
For the six-month period ended Dec. 31, 2000, revenues expanded to a record $126.5 million, up 102% from the $62.5 million reported for the same period a year ago. Net income for the first half of fiscal 2001 rose to a record $32.2 million, or $0.41 per diluted share, compared with net income of $15.6 million, or $0.20 per diluted share, for the same period a year ago.
Net income for the first six months of fiscal 2001 included a one-time gain of $1.9 million, or $0.01 per diluted share net of tax, arising from a gain on a strategic investment. Net income for the first half of the prior fiscal year benefited from a lower effective tax rate of 10%, while the recorded effective tax rate for the first half of fiscal 2001 amounted to 38%.
Excluding the one-time investment gain and assuming a 38% tax rate for both fiscal years, net income for the first half of fiscal 2001 amounted to $31 million or $0.40 per diluted share, an expansion of 189% from net income of $10.7 million, or $0.14 per diluted share, for the same period a year ago.
Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially based on a variety of factors, including those set forth in the discussion below as well as in the ``safe harbor'' statement at the end of this news release.
As the largest supplier of Fibre Channel host bus adapters in the industry, Emulex believes that its long-term growth rate for Fibre Channel revenue will approximate the growth of the market. IDC currently estimates that the market for Fibre Channel host bus adapters will grow at an average of 60% per year through 2003, or approximately 10-12% sequentially per quarter.
Other factors that can positively affect Emulex's quarterly revenue growth include launches of new Fibre Channel-enabled products by Emulex OEMs, Emulex entry into previously unaddressed Fibre Channel market or product sectors, displacement of legacy SCSI solutions or internally designed Fibre Channel solutions at OEMs by Emulex Fibre Channel products, and faster-than-expected market growth.
Conversely, factors that can negatively impact Emulex's quarterly revenue growth include delays in OEM launches of products enabled by Emulex Fibre Channel solutions, economic conditions, competitive pressures, pricing pressures, component availability and manufacturing capacity or other factors that might impede Emulex's ability to meet demand, technological challenges and slower-than-expected market growth.
With respect to revenues, for the third fiscal quarter ending March 2001, Emulex believes that the current level of demand, if it continues, could support sequential revenue growth in its Fibre Channel business of approximately 15-17%.
Based on current market conditions, Emulex continues to believe that a market growth forecast of about 11% in sequential quarterly revenue growth is the most appropriate guideline for subsequent quarters. The company's traditional networking business, which amounted to $2.2 million in the second fiscal quarter, is expected to contribute negligible revenues in succeeding quarters.
The company expects to complete its pending acquisition of Giganet by the close of the third fiscal quarter, but revenues associated with the development-stage Giganet operation are expected to be immaterial in fiscal 2001.
Although the company believes that revenues from Giganet's operations could reach $10 million in fiscal 2002, this forecast is subject to significant change, as Giganet's flagship products have not yet entered the market.
As a result, Emulex believes that total revenues could expand to as much as $80 million in the third quarter ending March 2001, and up to approximately $295 million for the fiscal year ending June 2001.
For the fiscal year ending June 2002, with the continuation of current market conditions and subject to the various market factors described above, Emulex believes revenues could grow to approximately $475 million.
The company had previously targeted a 30% operating margin on a pro-forma basis, excluding acquisition-related charges relating to the Giganet acquisition.
The Giganet acquisition-related charges, which will include amortization of goodwill and other intangibles, merger and acquisition expenses, and non-cash compensation charges, are expected to approximate or exceed Emulex's pretax earnings in the near term.
Given the incremental revenues and improved gross margin from its Fibre Channel business, the company now believes that on a pro-forma basis, operating margin could amount to 34% in the third fiscal quarter and 32% in the fourth fiscal quarter of 2001, before returning to approximately 31% in fiscal 2002.
``Our financial goal is to work towards operating expenses of approximately 20% of revenue on a pro-forma basis, a model which we believe is most compatible with a sustainable growth business in our industry sector,'' noted Mike Rockenbach, chief financial officer.
``The pending acquisition of Giganet will expand our employee base by approximately 50%, and should enable us to achieve our target levels of investment in engineering and sales and marketing subsequent to its anticipated closing in the March 2001 quarter.''
At present, other income of approximately $3.2 million per quarter and the company's tax rate of 38% is expected to remain unchanged through the fiscal year ending June 2002.
After adjusting for the recent 2-for-1 stock split and assuming the pending acquisition of Giganet closes by March 2001, Emulex now believes that it can achieve pro-forma earnings per diluted share of about $0.23 in the third fiscal quarter, ending March 2001, up from its prior forecast of $0.19.
Emulex now believes it can achieve up to $0.85 in pro-forma earnings per diluted share in fiscal 2001, up from its December 2000 forecast of $0.74. For fiscal 2002, Emulex believes it can achieve up to $1.10 in pro-forma earnings per share, up from its December 2000 forecast of $1.
About Emulex
Emulex is a leading designer, developer and supplier of a broad line of Fibre Channel host bus adapters, hubs, ASICs and software products that provide connectivity solutions for Fibre Channel storage area networks (SAN), network attached storage (NAS) and RAID.
The company's products are based on internally developed ASIC technology, and are deployable across a variety of SAN configurations, system buses and operating systems, enhancing data flow between computers and peripherals.
Emulex's products offer customers the unique combination of critical reliability, scalability, and high performance, and can be customized for mission-critical server and storage system applications.
Emulex products have been selected by the world's leading server and storage providers, including Compaq, EMC, Fujitsu-Siemens, Groupe Bull, Hewlett-Packard, Hitachi Data Systems, IBM, NEC, and Unisys. In addition, Emulex includes industry leaders Brocade, INRANGE, Intel, McDATA, Microsoft, Legato, and Veritas among its strategic partners.
Emulex markets to OEMs and end users through its own worldwide selling organization, as well as two-tier distribution partners. Corporate headquarters are located in Costa Mesa. News releases and other information about Emulex are available via the Internet at emulex.com.
EMULEX -- We network storage
``Safe Harbor'' Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above include forward-looking statements that involve risk and uncertainties. The company wishes to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the following: Emulex's and Giganet's markets are characterized by rapidly changing technology, evolving industry standards and frequent introductions of new products and enhancements, and the combined companies may not be able to respond to such changes on a timely basis; the fibre channel and IP market are at early stages of development; changes in economic conditions or changes in end-user demand for technology solutions, including the possibility of slower than expected growth in demand for Fibre Channel solutions; possible delays in OEM launches of products enabled to the company's solutions; Giganet's VI/IP products remain in the development stage and are subject to significant technical, competitive and market acceptance risks; the acquisition of Giganet is subject to a number of customary closing conditions which could prevent or delay the closing of the pending acquisition; the ability of Emulex to effectively integrate Giganet's operations into its own upon completion of the pending acquisition; the highly competitive nature of the markets for Emulex's and Giganet's products as well as pricing pressures that may result from such competitive conditions; the combined companies' ability to attract and retain skilled personnel; the companies' reliance on third-party suppliers for components used in the companies' products and on manufacturing subcontractors that assemble and distribute the company's products; the companies' reliance on certain OEMs, distributors and key customers; potential losses on strategic business investments; and potential fluctuations in Emulex's future effective tax rate. These and other factors which could cause actual results to differ materially from those in the forward-looking statements are also discussed in the company's filings with the Securities and Exchange Commission, including its recent filings on Forms 8-K, 10-K and 10-Q.
Note to Editors: This news release refers to various products and companies by their trade names. In most, if not all, cases these designations are claimed as trademarks or registered trademarks by their respective companies.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended
December 31, December 26,
2000 1999
Net revenues $71,075 $33,603
Cost of sales 33,449 17,910
Gross profit 37,626 15,693
Operating expenses:
Engineering and development 5,160 3,799
Selling, general and
administrative 6,342 4,170
Total operating expenses 11,502 7,969
Operating income 26,124 7,724
Non-operating income(a) 5,097 2,017
Income before income taxes 31,221 9,741
Income tax provision 11,864 974
Net income $19,357 $ 8,767
Net income per share:
Basic $ 0.26 $ 0.12
Diluted $ 0.25 $ 0.11
Number of shares used in per
share computations:
Basic 73,488 70,557
Diluted 78,293 76,357
(a)Includes a one-time benefit of $1,884 arising from a gain on a
strategic investment which is excluded from the company's
pro-forma earnings.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
Six Months Ended
December 31, December 26,
2000 1999
Net revenues $126,531 $62,499
Cost of sales 61,251 33,909
Gross profit 65,280 28,590
Operating expenses:
Engineering and development 9,975 7,149
Selling, general and
administrative 11,390 8,015
Total operating expenses 21,365 15,164
Operating income 43,915 13,426
Nonoperating income(a) 8,035 3,871
Income before income taxes 51,950 17,297
Income tax provision 19,741 1,730
Net income $32,209 $15,567
Net income per share:
Basic $ 0.44 $ 0.22
Diluted $ 0.41 $ 0.20
Number of shares used in per
share computations:
Basic 73,115 69,693
Diluted 77,771 76,036
(a)Includes a one-time benefit of $1,884 arising from a gain on a
strategic investment which is excluded from the company's pro-forma
earnings.
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
December 31, July 2,
2000 2000
Assets
Current assets:
Cash and cash equivalents $ 14,896 $ 23,471
Investments 170,140 128,234
Accounts and other
receivables, net 42,274 24,332
Inventories, net 25,276 12,635
Prepaid expenses 1,071 1,021
Deferred income taxes 453 453
Total current assets 254,110 190,146
Property & equipment, net 10,791 6,927
Investments 36,812 29,293
Deferred income taxes and other
assets 3,502 3,629
$305,215 $229,995
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $35,393 $ 17,869
Accrued liabilities 7,960 6,355
Income taxes payable and other
current liabilities 317 320
Total current liabilities 43,670 24,544
Total stockholders' equity 261,545 205,451
$305,215 $229,995
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