Emulex Reports First Quarter Results; 34% Year-Over-Year Revenue Growth Delivers Pro Forma Earnings Gain of 112%

Business Wire, Oct 24, 2002

Business Editors & High-Tech Writers

COSTA MESA, Calif.--(BUSINESS WIRE)--Oct. 24, 2002

Emulex Corp. (NYSE:ELX), the world's largest supplier of storage networking host bus adapters (HBAs), today announced results for its first fiscal quarter ended Sept. 29, 2002.

Revenues grew to $70.4 million, up 34% from the $52.7 million reported for the same quarter a year ago. Pro forma net income amounted to $15.8 million, or $0.19 per diluted share, for the first quarter of fiscal 2003, up 112% from the pro forma net income of $7.5 million, or $0.09 per diluted share, reported for the same quarter a year ago. Rising HBA unit volumes coupled with gross margin of 60% drove sequential growth of 15% in pro forma net income although revenues were relatively level on a sequential basis.

Pro forma net income excludes amortization expense for deferred compensation, goodwill and other intangibles, expenses related to excess and obsolete inventory reserves associated with older generation 1 gigabit per second (Gbps) products recorded in the first quarter of fiscal 2002, and also excludes benefits recorded in the first quarter of fiscal 2003 related to a reduction of the aforementioned inventory reserves and a significant gain on the repurchase of convertible notes, as well as the tax effect of these items.

For the first fiscal quarter, on a GAAP basis, which gives effect to the charges and benefits described above, Emulex reported net income of $32 million, or $0.37 per diluted share, compared with a net loss of $40 million, or $0.49 per share for the prior year's period. In the year-ago period, amortization of deferred compensation, goodwill and other intangibles, amounted to $40 million, primarily associated with the acquisition of Giganet Inc., an early-stage company specializing in Internet protocol (IP) storage networking solutions.

In the first quarter of fiscal 2003, Emulex adopted Statement of Financial Accounting Standards No. 142. As a result, goodwill associated with the Giganet acquisition is no longer routinely amortized. However, charges associated with amortization of deferred compensation and other merger-related intangibles with estimable lives will continue to be recorded in GAAP results, and such charges amounted to $2.3 million during the first quarter.

In the year-ago period, Emulex incurred an excess and obsolete inventory charge amounting to approximately $13.6 million associated with older generation 1 Gbps products. As a result of generally improving demand for these older generation 1 Gbps products, which exceeded prior estimates, Emulex recorded a benefit associated with a reduction in the related inventory reserve of $164,000 during the first quarter of fiscal 2003. During the first quarter, Emulex also recorded a $28.7 million gain in GAAP results arising from the repurchase of convertible notes at a discount to their face value.

First quarter Fibre Channel revenue grew 33% from a year ago. On a sequential basis, Fibre Channel revenue rose 1%, as unit shipments of Fibre Channel HBAs grew 6% sequentially. Areas of strength included 2 gigabit per second and midrange HBAs. Unit shipments of Emulex's market-leading 2 Gbps Fibre Channel HBAs grew more than 20% sequentially and nearly 300% from a year ago, comprising more than 70% of Fibre Channel revenue in the first fiscal quarter of 2003. Unit shipments of midrange HBAs, led by Emulex's LightPulse LP850, LP952 and LP982 host bus adapters, grew more than 50% sequentially and more than 1,100% from a year ago.

"Adapters based on new generation ASICs are supplying improved performance and lower cost to our customer base, while also delivering improved profitability to shareholders," stated Paul Folino, chairman and CEO of Emulex. "At the same time that Emulex is breaking new ground in ASIC architectures, we are delivering critical new management and multipathing functionality through our HBAnyware centralized HBA management suite and MultiPulse software solutions announced earlier this week."

Emulex's HBAnyware and MultiPulse solutions, designed as foundation products which support OEM and third party software providers, operate over both iSCSI and Fibre Channel HBAs, offering multi-protocol remote control and high availability capabilities.

Emulex's pro forma gross margin continued to expand, rising to 60% in the first quarter of fiscal 2003. This was Emulex's sixth consecutive quarter of sequential improvement in pro forma gross margin as Emulex continued its product migration strategy. In the first quarter, Emulex recorded pro forma operating margin of 31% and annualized revenues per employee of better than $790,000.

Emulex updated its guidance for the second fiscal quarter ending December 2002, budgeting for sequential revenue growth of 3-6% for the second fiscal quarter ending December, or revenues in a range of about $72-$75 million, and second quarter earnings per diluted share of up to 19 cents on a pro forma basis.

Emulex will host a webcast today at 1:30 p.m. Pacific time to discuss the financial results in detail. The webcast may be accessed live via the Emulex Web site at www.emulex.com. During the call, Emulex will discuss details of the fourth quarter financial results and provide forward-looking guidance. A replay of the webcast will be available on the Emulex Web site through Nov. 1, 2002. In addition, a replay of the quarterly conference call will be available for 48 hours by calling 888/203-1112 -- and using the passcode 741244.