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8-K - FORM 8-K - EMULEX CORP /DE/d477066d8k.htm

Exhibit 99.01

 

LOGO

 

Investor Contact:    Press Contact:
Frank Yoshino    Katherine Lane
Vice President, Finance    Director, Corporate Communications
+1 714 885-3697    +1 714 885-3828
frank.yoshino@emulex.com    katherine.lane@emulex.com

EMULEX ANNOUNCES SECOND QUARTER RESULTS

 

 

COSTA MESA, Calif., January 31, 2013 Emulex Corporation (NYSE:ELX) today announced results for its second quarter of fiscal 2013 which ended on December 30, 2012.

Second Quarter Financial Highlights

 

   

Total net revenues of $122.1 million, an increase of 2% sequentially and a decrease of 5% year-over-year

 

   

Network Connectivity Products (NCP) net revenues of $96.1 million, a decrease of 1% both sequentially and year-over-year, representing approximately 79% of total net revenues

 

   

Storage Connectivity Products (SCP) net revenues of $22.7 million, an increase of 21% sequentially and a decrease of 18% year-over-year, representing 18% of total net revenues

 

   

Advanced Technology and other Products (ATP) net revenues of $3.3 million, a decrease of 11% sequentially and 25% year-over-year, representing 3% of total net revenues

 

   

Non-GAAP gross margins of 63.7% and GAAP gross margins of 58.6%

 

   

Non-GAAP diluted earnings per share of $0.19 and GAAP diluted earnings per share of $0.06

 

   

Cash, cash equivalents and investments at the end of the quarter of $211.2 million


FY’13 Q2 Earnings Results

January 31, 2013

Page 2 of 17

 

Second Quarter Business Highlights

 

   

Announced intent to acquire Endace Limited, a network performance management company that provides network monitoring appliances, network analytics software and ultra-high speed network access switching with 100 percent accuracy

 

   

Gained more than seven points of overall Fibre Channel revenue market share over nearest competitor and accelerated leadership in emerging 16Gb Fibre Channel (16GFC) segment with more than 75% market share according to Dell’Oro Group’s Q3 2012 Fibre Channel Adapter Vendor report and Crehan Research’s Q3 2012 Server-class Adapter and LOM market share reports

 

   

Announced new LightPulse® 16Gb Fibre Channel (16GFC) blade adapters for Dell PowerEdge™ blade servers to support the new end-to-end 16GFC blade solution from Dell, extending Emulex 16GFC connectivity for Dell customers across blade, storage and servers

 

   

Delivered an integrated HP NC553i 10Gb FlexFabric adapter for new HP Integrity BL860c i4, BL870c i4 and BL890c i4 Server Blades, providing I/O flexibility, efficiency and simplicity for LAN and SAN connectivity

 

   

Announced OneCore™ Storage software development kit (SDK), a new comprehensive solution for independent hardware and software vendors (IHVs and ISVs) and system integrators developing storage, flash/solid state disk (SSD), application and networking appliance solutions requiring low latency and high performance I/O connectivity

 

   

First I/O vendor to support the new VMware vSphere® 5.1 Web Client with Emulex OneCommand® Manager plug-in for VMware vCenter™ Server, integrating real-time lifecycle management of adapters provided by Emulex into the VMware vCenter Server console, centralizing and simplifying virtualization management

 

   

Won Systems Management Product of the Year award for Emulex OneCommand Vision 3.0 at the Storage, Virtualization and Cloud Computing (SVC) Awards

 

   

Named to CRN’s 2013 Data Center 100 list, recognizing technology vendors for powering, supporting and protecting today’s data center services in an environmentally and economically friendly manner, while boosting efficiency and productivity


FY’13 Q2 Earnings Results

January 31, 2013

Page 3 of 17

 

   

Partnered with Gnodal to deliver a joint high frequency trading (HFT) solution using Emulex OneConnect® 10Gb Ethernet (10GbE) Network Xceleration™ OCe12000-D adapters, with FastStack™ DBL™ software, and a Gnodal GS4008 10GbE switch, eliminating network congestion and providing industry-leading low latency

 

   

Announced a joint live data management solution for analyzing big data with uCIRRUS using Emulex OneConnect 10GbE Network Xceleration OCe12000-D adapters, with FastStack Sniffer10G™ software, and uCIRRUS’s XPRESSmp™

Financial Results

In the second quarter, total net revenues of $122.1 million represented an increase of 2% over the first quarter results. On a GAAP basis, Emulex recorded net income of $5.6 million, or $0.06 per diluted share, compared to first quarter GAAP income of $0.7 million, or $0.01 per share. Non-GAAP net income for the second quarter was $17.2 million, or $0.19 per diluted share, essentially flat with the $0.19 of diluted earnings per share reported in the first quarter. Cash, cash equivalents and investments at the end of the quarter totaled $211.2 million compared to $186.4 million at the end of the first quarter. Reconciliations between GAAP and non-GAAP results are included in the accompanying financial data.

CEO Jim McCluney commented, “I’m pleased with the solid execution we were able to deliver for the second quarter, once again meeting both our top line revenue and our earnings goals. In addition to achieving our quarterly revenue and earnings objectives, we also strengthened our balance sheet, exiting the quarter with over $211 million in available cash and investments,” continued McCluney.

“Looking forward, we are well positioned in 16Gb Fibre Channel to continue the share gain momentum we have delivered over the past three quarters, and with expected completion of our Endace acquisition this quarter, we will further increase our relevance as a thought leader in connectivity and management of high performance, converged Ethernet networks,” McCluney concluded.


FY’13 Q2 Earnings Results

January 31, 2013

Page 4 of 17

 

Business Outlook

Although actual results may vary depending on a variety of factors, many of which are outside the Company’s control, including uncertainty related to the macro IT spending environment, the timing of new server launches by our customers, the timing of completion of the proposed acquisition of Endace Limited and the results and related costs of ongoing patent litigation, Emulex is providing guidance for its third fiscal quarter ending March 31, 2013. For the third quarter of fiscal 2013, Emulex is forecasting total net revenues in the range of $110-$114 million. The Company expects non-GAAP earnings per diluted share of $0.12—$0.14 in the third quarter. Incremental to this guidance, we expect approximately $0.06 per diluted share related to the retroactive portion of the federal R&D tax credit. GAAP estimates for the third quarter reflect approximately $0.30 per diluted share in expected charges arising primarily from amortization of intangibles, stock-based compensation, costs associated with the proposed acquisition of Endace and the royalties, mitigation expenses and license fees associated with the Broadcom patent litigation, as well as the associated tax impact and U.S. valuation allowance.

About Emulex

Emulex, the leader in converged networking solutions, provides enterprise-class connectivity for servers, networks and storage devices within the data center. The company’s product portfolio of Fibre Channel Host Bus Adapters, 10Gb Ethernet Network Interface Cards, Ethernet-based Converged Network Adapters, controllers, embedded bridges and switches, and connectivity management software are proven, tested and trusted by the world’s largest and most demanding IT environments. Emulex solutions are used and offered by the industry’s leading server and storage OEMs including, Cisco, Dell, EMC, Fujitsu, Hitachi, Hitachi Data Systems, HP, Huawei, IBM, NEC, NetApp and Oracle. Emulex is headquartered in Costa Mesa, Calif. and has offices and research facilities in North America, Asia and Europe. More information about Emulex (NYSE:ELX) is available at www.Emulex.com.

Note Regarding Non-GAAP Financial Information

To supplement the condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we have included the following non-GAAP financial measures in this press release or in the webcast to discuss our financial results for the second fiscal quarter which may be accessed via our website at www.emulex.com: (i) non-GAAP gross margin, (ii) non-GAAP operating expenses, (iii) non-GAAP operating income, (iv) non-GAAP net income, and (v) non-GAAP diluted earnings per share. These non-GAAP financial measures exclude certain expenses and reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our results of operations and the factors and trends affecting our business. However, these non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. We use our non-GAAP financial measures internally to better understand and evaluate our business, prepare annual budgets, and in measuring performance for some forms of compensation.


FY’13 Q2 Earnings Results

January 31, 2013

Page 5 of 17

 

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Stock-based compensation. Although stock-based compensation represents an important part of incentive compensation offered to our key employees, we believe that exclusion of the impact of stock-based compensation assists management and investors in evaluating the period over period performance of our business operations and in comparing our performance with those of our competitors. Stock-based compensation expense will recur in future periods.

Amortization of intangibles. Amortization of intangibles generally represents costs incurred by an acquired company or other third party to build value prior to our acquisition of the intangible assets. As such, it is effectively part of the transaction costs of the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Amortization of intangibles will recur in future periods.

Site closure related expenses. We have recognized expenses related to closure and consolidation of certain facilities. We believe that exclusion of these expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are infrequent in nature.

Patent litigation damages, license fees and royalties. We have incurred expenses in the form of damages, sunset period royalties and settlement costs as a result of a judgment in a patent litigation proceeding with Broadcom and the related partial settlement and worldwide license agreement executed on July 3, 2012 (the Release Agreement). We believe that exclusion of charges related to the Broadcom patent damages, sunset period royalties and Release Agreement are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors, as this amount relates to a judgment in litigation and does not reflect a continuing cost of operating our core business. In this regard, we note that expenses of this type are generally unrelated to our core business and/or infrequent in nature.

Mitigation expenses related to the Broadcom patents. We have recognized mitigation expenses related to the Broadcom patents. We believe that exclusion of these redesign, requalification and appeal expenses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors. In this regard, we note that expenses of this type are infrequent in nature.


FY’13 Q2 Earnings Results

January 31, 2013

Page 6 of 17

 

Expenses related to the intent to acquire Endace Limited (LSE:EDA). We have incurred expenses during the due diligence process for this potential acquisition. We believe that exclusion of these charges are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis and relative to our competitors, as these expenditures do not reflect a continuing cost of operating our current core business. In this regard, we note that expenses of this type are infrequent in nature.

Valuation allowance for U.S. federal and state deferred tax assets. The Company has concluded that it is more likely than not that we will be unable to fully utilize the majority of our U.S. federal and state deferred tax assets As a result, the Company has previously recorded a valuation allowance against those assets to the extent that they cannot be realized through net operating loss carrybacks to prior tax years. We believe that eliminating the impact of a discrete adjustment of this nature and its continuing impact on our effective tax rate is useful to management and investors in evaluating the performance of the Company’s ongoing operations on a period-to-period basis and relative to the Company’s competitors. In this regard, we note that adjustments of this type are generally infrequent in nature.

 

 

“Safe Harbor’’ Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the statements set forth above and below, including without limitation, those relating to the proposed acquisition of Endace above, those contained in the discussion of “Business Outlook” above, and the reconciliation of forward-looking diluted earnings per share below, contain forward-looking statements that involve risk and uncertainties. We expressly disclaim any obligation or undertaking to release publicly any updates or changes to these forward-looking statements that may be made to reflect any future events or circumstances. We wish to caution readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include the possibility that the proposed acquisition of Endace Limited (Endace) is not completed on a timely basis or at all, the effects of the proposed acquisition of Endace, including our ability to realize the anticipated benefits from the pending acquisition of Endace on a timely basis or at all, and our ability to integrate the technology, operations and personnel of Endace into our existing operations in a timely and efficient manner. In addition, intellectual property claims, with or without merit could result in costly litigation, cause product shipment delays, require us to indemnify customers, or require us to enter into royalty or licensing agreements, which may or may not be available. Furthermore, we have in the past obtained, and may be required in the future to obtain, licenses of technology owned by other parties. We cannot be certain that the necessary licenses will be available or that they will be obtainable on commercially reasonable terms. If we were to fail to obtain such royalty or licensing agreements in a timely manner and on reasonable terms, our business, results of operations and financial condition could be materially adversely affected. Ongoing lawsuits, such as the action brought by Broadcom Corporation (Broadcom), present inherent risks, any of which could have a material adverse effect on our business, financial condition, or results of operations.


FY’13 Q2 Earnings Results

January 31, 2013

Page 7 of 17

 

Such potential risks include continuing expenses of litigation, risk of loss of patent rights and/or monetary damages, risk of injunction against the sale of products incorporating the technology in question, counterclaims, attorneys’ fees, incremental costs associated with product or component redesigns, and diversion of management’s attention from other business matters. With respect to the continuing Broadcom litigation, such potential risks also include the adequacy of any sunset period to make design changes, the ability to implement any design changes, the availability of customer resources to complete any re-qualification or re-testing that may be needed, the ability to maintain favorable working relationships with Emulex suppliers of serializer/deserializer (SerDes) modules, and the ability to obtain a settlement which does not put us at a competitive disadvantage. In addition, the fact that the economy generally, and the technology and storage market segments specifically, have been in a state of uncertainty makes it difficult to determine if past experience is a good guide to the future and makes it impossible to determine if markets will grow or shrink in the short term. Continual weakness in domestic and worldwide macroeconomic conditions and disruptions in world credit and equity markets and the resulting economic uncertainty for our customers, as well as the storage and converged networking market as a whole, has and could continue to adversely affect our revenues and results of operations. As a result of these uncertainties, we are unable to predict our future results with any accuracy. Other factors affecting these forward-looking statements include but are not limited to the following: faster than anticipated declines in the storage networking market, slower than expected growth of the converged networking market or the failure of our Original Equipment Manufacturer (OEM) customers to successfully incorporate our products into their systems; our dependence on a limited number of customers and the effects of the loss of, decrease in or delays of orders by any such customers, or the failure of such customers to make timely payments; the emergence of new or stronger competitors as a result of consolidation movements in the market; the timing and market acceptance of our products or our OEM customers’ new or enhanced products; costs associated with entry into new areas of the server and storage technology markets; the variability in the level of our backlog and the variable and seasonal procurement patterns of our customers; any inadequacy of our intellectual property protection and the costs of actual or potential third-party claims of infringement and any related indemnity obligations or adverse judgments; the effect of any actual or potential unsolicited offers to acquire us; proxy fights or the actions of activist shareholders; impairment charges, including but not limited to goodwill and intangible assets; changes in tax rates or legislation; the effects of acquisitions; the effects of terrorist activities; natural disasters, and any resulting disruption in our supply chain or customer purchasing patterns or any other resulting economic or political instability; the highly competitive nature of the markets for our products as well as pricing pressures that may result from such competitive conditions; the effects of changes in our business model to separately charge for software; the effect of rapid migration of customers towards newer, lower cost product platforms; possible transitions from board or box level to application specific integrated circuit (ASIC) solutions for selected applications; a shift in unit product mix from higher-end to lower-end or mezzanine card products; a faster than anticipated decrease in the average unit selling prices or an increase in the manufactured cost of our products; delays in product development; our reliance on third-party suppliers and subcontractors for components and assembly; our ability to attract and retain key technical personnel; our ability to benefit from our research and development activities; our dependence on international sales and internationally produced products; changes in accounting standards; and any resulting regulatory changes on our business. These and other factors could cause actual results to differ materially from those in the forward-looking statements and are discussed in our filings with the Securities and Exchange Commission, including our recent filings on Forms 10-K and 10-Q, under the caption “Risk Factors.”

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 8 of 17

 

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.


FY’13 Q2 Earnings Results

January 31, 2013

Page 9 of 17

 

EMULEX CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share data)

 

     Three Months Ended     Six Months Ended  
     December 30,     January 1,     December 30,     January 1,  
     2012     2012     2012     2012  

Net revenues

   $ 122,145      $ 128,671      $ 241,412      $ 247,068   

Cost of sales:

        

Cost of goods sold

     44,472        48,099        88,623        92,351   

Amortization of core and developed technology intangible assets

     5,149        5,149        10,297        13,723   

Patent litigation settlement and royalties

     958        —          1,950        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

     50,579        53,248        100,870        106,074   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     71,566        75,423        140,542        140,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Engineering and development

     40,113        37,671        78,583        80,946   

Selling and marketing

     14,769        15,260        28,506        29,877   

General and administrative

     10,987        9,123        19,495        20,988   

Amortization of other intangible assets

     1,365        1,602        2,888        3,364   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     67,234        63,656        129,472        135,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     4,332        11,767        11,070        5,819   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (loss):

        

Interest income

     8        32        8        55   

Interest expense

     2        (2     (4     (4

Other income (expense), net

     (27     141        (363     542   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income (loss)

     (17     171        (359     593   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,315        11,938        10,711        6,412   

Income tax (benefit) provision

     (1,268     (3,056     4,471        (1,423
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,583      $ 14,994      $ 6,240      $ 7,835   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.06      $ 0.17      $ 0.07      $ 0.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.06      $ 0.17      $ 0.07      $ 0.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of shares used in per share computations:

        

Basic

     90,063        85,906        89,705        86,384   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     91,816        87,816        91,637        88,323   
  

 

 

   

 

 

   

 

 

   

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 10 of 17

 

EMULEX CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited, in thousands)

 

     December 30,      July 1,  
     2012      2012  

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 208,952       $ 201,048   

Investments

     2,241         28,879   

Accounts receivable, net

     85,174         84,106   

Inventories

     23,135         20,319   

Prepaid income taxes

     2,929         10,784   

Prepaid expenses and other current assets

     10,363         7,380   

Deferred income taxes

     8,517         10,722   
  

 

 

    

 

 

 

Total current assets

     341,311         363,238   

Property and equipment, net

     57,968         60,118   

Goodwill and Intangible assets, net

     269,107         282,292   

Other assets

     23,064         7,311   
  

 

 

    

 

 

 
   $ 691,450       $ 712,959   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Current liabilities:

     

Accounts payable

   $ 30,635       $ 26,889   

Accrued and other current liabilities

     36,124         75,700   
  

 

 

    

 

 

 

Total current liabilities

     66,759         102,589   

Other liabilities

     4,006         3,878   

Deferred income taxes

     1,219         3,876   

Accrued taxes

     30,057         27,513   
  

 

 

    

 

 

 

Total liabilities

     102,041         137,856   
  

 

 

    

 

 

 

Total stockholders’ equity

     589,409         575,103   
  

 

 

    

 

 

 
   $ 691,450       $ 712,959   
  

 

 

    

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 11 of 17

 

EMULEX CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement of Cash Flows

(unaudited, in thousands)

 

     Six Months Ended  
     December 30,     January 1,  
     2012     2012  

Cash flows from operations:

    

Net income

   $ 6,240      $ 7,835   

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     21,956        26,264   

Stock based compensation

     10,929        12,579   

Deferred income taxes

     (452     1,681   

Other reconciling items

     (202     (954

Changes in assets and liabilities

     (49,954     (9,274
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (11,483     38,131   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Investment in property and equipment, net

     (6,960     (6,048

Maturities of/(proceeds from) investments, net

     26,701        (7,377
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     19,741        (13,425
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Repurchase of common stock

     —          (20,058

Other

     (515     (2,914
  

 

 

   

 

 

 

Net cash used in financing activities

     (515     (22,972
  

 

 

   

 

 

 

Effect of exchange rates on cash and cash equivalents

     161        (554
  

 

 

   

 

 

 

Net increase in cash & cash equivalents

     7,904        1,180   

Opening cash balance

     201,048        131,160   
  

 

 

   

 

 

 

Ending cash balance

   $ 208,952      $ 132,340   
  

 

 

   

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 12 of 17

 

EMULEX CORPORATION AND SUBSIDIARIES

Supplemental Information

Historical Net Revenue by Product Lines:

Network Connectivity Products (NCP) primarily consist of Fibre Channel LightPluse® and Ethernet OneConnect® standup HBAs, mezzanine cards, I/O ASICs, ULOMs, and UCNAs to provide server Input/Output (I/O) and target storage array connectivity to enable servers to reliably and efficiently connect to Local Area Networks, Storage Area Networks and Network Attached Storage by offloading data communication processing tasks from the servers as information is delivered and sent to the network.

Storage Connectivity Products (SCP) include our InSpeed®, FibreSpy®, switch-on-a-chip (SOC), bridge and router products. SCP are deployed inside storage arrays, tape libraries, and other storage appliances to connect storage controllers to storage capacity, delivering improved performance, reliability, and connectivity.

Advanced Technology and Other Products (ATP) primarily consists of our Integrated Baseboard Management Controllers (iBMC), our One Command® Vision products, as well as some legacy and other products and services.

 

($000s)    Q2 FY
2013

Revenues
    Q1 FY
2013
Revenues
    Q4 FY
2012

Revenues
    Q3 FY
2012
Revenues
    Q2 FY
2012
Revenues
    % Change
Q2 vs Q2
 

Network Connectivity Products

   $ 96,132      $ 96,733      $ 87,979      $ 91,127      $ 96,620        (1 )% 

Storage Connectivity Products

     22,670        18,769        32,797        27,855        27,583        (18 )% 

Advanced Technology and Other Products

     3,343        3,765        8,179        6,764        4,468        (25 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

   $ 122,145      $ 119,267      $ 128,955      $ 125,746      $ 128,671        (5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     % Total
Revenues
    % Total
Revenues
    % Total
Revenues
    % Total
Revenues
    % Total
Revenues
       

Network Connectivity Products

     79     81     68     73     75  

Storage Connectivity Products

     18     16     26     22     21  

Advanced Technology and Other Products

     3     3     6     5     4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total net revenues

     100     100     100     100     100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   


FY’13 Q2 Earnings Results

January 31, 2013

Page 13 of 17

 

Historical Net Revenues by Channel and Territory:

 

($000s)    Q2 FY
2013

Revenues
     % Total
Revenues
    Q2 FY
2012

Revenues
     % Total
Revenues
    % Change  

Revenues from OEM customers

   $ 110,174         90   $ 117,925         92     (7 )% 

Revenues from distribution

     11,896         10     10,733         8     11

Other

     75         nm        13         nm        nm   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total net revenues

   $ 122,145         100   $ 128,671         100     (5 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Asia-Pacific

   $ 73,610         60   $ 80,391         63     (8 )% 

United States

     31,151         26     31,394         24     (1 )% 

Europe, Middle East and Africa

     15,941         13     16,473         13     (3 )% 

Rest of world

     1,443         1     413         nm        nm   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total net revenues

   $ 122,145         100   $ 128,671         100     (5 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

nm – not meaningful

Summary of Stock-Based Compensation:

 

     Three Months Ended      Six Months Ended  
     December 30,      January 1,      December 30,      January 1,  
($000s)    2012      2012      2012      2012  

Cost of sales

   $ 181       $ 315       $ 496       $ 767   

Engineering and development

     2,214         2,449         4,912         5,284   

Selling and marketing

     941         850         1,686         1,936   

General and administrative

     2,039         2,525         3,835         4,592   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 5,375       $ 6,139       $ 10,929       $ 12,579   
  

 

 

    

 

 

    

 

 

    

 

 

 

Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin:

 

     Three Months Ended     Six Months Ended  
     December 30,     January 1,     December 30,     January 1,  
     2012     2012     2012     2012  

GAAP gross margin

     58.6     58.6     58.2     57.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Items excluded from GAAP gross margin to calculate non-GAAP gross margin:

        

Stock-based compensation

     0.1     0.2     0.2     0.3

Amortization of intangibles

     4.2     4.0     4.3     5.5

Site closure related expenses

     —          (0.0 )%      —          0.0

Patent litigation damages, license fees and royalties

     0.8     —          0.8     0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross margin

     63.7     62.8     63.5     63.1
  

 

 

   

 

 

   

 

 

   

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 14 of 17

 

Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses:

 

     Three Months Ended     Six Months Ended  
     December 30,     January 1,     December 30,     January 1,  
($000s)    2012     2012     2012     2012  

GAAP operating expenses, as presented above

   $ 67,234      $ 63,656      $ 129,472      $ 135,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Items excluded from GAAP operating expenses to calculate non-GAAP operating expenses:

        

Stock-based compensation

     (5,194     (5,824     (10,433     (11,812

Amortization of other intangibles

     (1,365     (1,602     (2,888     (3,364

Site closure related expenses

     —          119        —          (1,039

Mitigation expenses related to the Broadcom patents

     (982     —          (1,464     —     

Expenses related to the intent to acquire Endace

     (2,060     —          (2,060     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Impact on operating expenses

     (9,601     (7,307     (16,845     (16,215
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating expenses

   $ 57,633      $ 56,349      $ 112,627      $ 118,960   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of GAAP Operating Income to Non-GAAP Operating Income:

 

     Three Months Ended     Six Months Ended  
     December 30,      January 1,     December 30,      January 1,  
($000s)    2012      2012     2012      2012  

GAAP operating income as presented above

   $ 4,332       $ 11,767      $ 11,070       $ 5,819   
  

 

 

    

 

 

   

 

 

    

 

 

 

Items excluded from GAAP operating income to calculate non-GAAP operating income:

          

Stock-based compensation

     5,375         6,139        10,929         12,579   

Amortization of intangibles

     6,514         6,751        13,185         17,087   

Site closure related expenses

     —           (142     —           1,142   

Patent litigation damages, license fees and royalties

     958         —          1,950         388   

Mitigation expenses related to Broadcom patents

     982         —          1,464         —     

Expenses related to the intent to acquire Endace

     2,060         —          2,060         —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Impact on operating income

     15,889         12,748        29,588         31,196   
  

 

 

    

 

 

   

 

 

    

 

 

 

Non-GAAP operating income

   $ 20,221       $ 24,515      $ 40,658       $ 37,015   
  

 

 

    

 

 

   

 

 

    

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 15 of 17

 

Reconciliation of GAAP Net Income to Non-GAAP Net Income:

 

     Three Months Ended     Six Months Ended  
     December 30,     January 1,     December 30,     January 1,  
($000s)    2012     2012     2012     2012  

GAAP net income as presented above

   $ 5,583      $ 14,994      $ 6,240      $ 7,835   
  

 

 

   

 

 

   

 

 

   

 

 

 

Items excluded from GAAP net income to calculate non-GAAP net income:

        

Stock-based compensation

     5,375        6,139        10,929        12,579   

Amortization of intangibles

     6,514        6,751        13,185        17,087   

Site closure related expenses

     —          (142     —          1,142   

Patent litigation damages, license fees and royalties

     958        —          1,950        388   

Mitigation related to the Broadcom patents

     982        —          1,464        —     

Expenses related to the intent to acquire Endace

     2,060        —          2,060        —     

Income tax effect of above items

     (2,775     (5,094     (5,437     (4,560

Valuation allowance for U.S. federal and/or state deferred tax assets

     (1,463     —          4,355        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Impact on net income

     11,651        7,654        28,506        26,636   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 17,234      $ 22,648      $ 34,746      $ 34,471   
  

 

 

   

 

 

   

 

 

   

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 16 of 17

 

Reconciliation of GAAP Diluted Earnings Per Share to Non-GAAP Diluted Earnings Per Share:

 

     Three Months Ended     Six Months Ended  
     December 30,     January 1,     December 30,     January 1,  
(shares in 000s)    2012     2012     2012     2012  

GAAP diluted earnings per share as presented above

   $ 0.06      $ 0.17      $ 0.07      $ 0.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Items excluded from GAAP loss per share to calculate diluted non-GAAP earnings per share, net of tax effect:

        

Stock-based compensation

     0.06        0.07        0.12        0.15   

Amortization of intangibles

     0.07        0.08        0.14        0.19   

Site closure related expenses

     —          (0.00     —          0.01   

Patent litigation damages, license fee and royalties

     0.01        —          0.02        0.00   

Mitigation related to the Broadcom patents

     0.01        —          0.02        —     

Expenses related to the intent to acquire Endace

     0.02        —          0.02        —     

Tax impact of above items and U.S. GAAP valuation allowance

     (0.04     (0.06     (0.01     (0.05
  

 

 

   

 

 

   

 

 

   

 

 

 

Impact on GAAP earnings per share

     0.13        0.09        0.31        0.30   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP diluted earnings per share

   $ 0.19      $ 0.26      $ 0.38      $ 0.39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted shares used in non-GAAP per share computations

     91,816        87,816        91,637        88,323   
  

 

 

   

 

 

   

 

 

   

 

 

 

 


FY’13 Q2 Earnings Results

January 31, 2013

Page 17 of 17

 

Forward-Looking Diluted Earnings per Share Reconciliation:

 

     Guidance for
Three Months  Ending
March 31, 2013
 

Normalized non-GAAP diluted earnings per share guidance

   $ 0.12-$0.14   

Incremental benefit related to the retroactive portion of the federal R&D tax credit

     0.06   
  

 

 

 

Total non-GAAP diluted earnings per share guidance

   $ 0.18-$0.20   

Items excluded, net of tax, from non-GAAP diluted earnings per share to calculate GAAP diluted earnings per share guidance:

  

Stock-based compensation

     (0.06)   

Amortization of intangibles

     (0.07)   

Patent litigation damages, license fees, royalties and mitigation expenses

     (0.09)   

Expenses related to the intent to acquire Endace

     (0.01)   

Tax impact of above items and U.S. GAAP valuation allowance

     (0.07)   
  

 

 

 

GAAP loss per share guidance

   $ (0.12)-($0.10)