QLogic Reports Third Quarter Results for Fiscal Year 2012

ALISO VIEJO, Calif.--([ BUSINESS WIRE ])--QLogic Corp. (Nasdaq:QLGC), a leading supplier of high performance network infrastructure solutions, today announced its third quarter financial results for the period ended January 1, 2012.

Third Quarter Highlights

Net revenue: $152.7 million
GAAP net income: $30.0 million or $0.30 per diluted share
Non-GAAP net income: $36.3 million or $0.36 per diluted share
Operating margin: 21.9% GAAP, 27.9% non-GAAP
Cash generated from operations: $52.3 million

Financial Results

Net revenue for the third quarter of fiscal 2012 was $152.7 million compared to $155.8 million in the same quarter last year. Revenue from Host Products was $112.7 million during the third quarter of fiscal 2012 compared to $113.5 million in the same quarter last year. Revenue from Network Products was $24.4 million during the third quarter of fiscal 2012 compared to $28.9 million in the same quarter last year. Revenue from Silicon Products increased to $12.4 million during the third quarter of fiscal 2012 from $10.6 million in the same quarter last year.

Net income on a GAAP basis for the third quarter of fiscal 2012 was $30.0 million, or $0.30 per diluted share, compared to $50.3 million, or $0.47 per diluted share, for the third quarter of fiscal 2011. Net income on a non-GAAP basis for the third quarter of fiscal 2012 was $36.3 million, or $0.36 per diluted share, compared to $57.2 million, or $0.53 per diluted share, for the third quarter of fiscal 2011. The GAAP and non-GAAP net income per diluted share amounts for the third quarter of fiscal 2011 include the benefits associated with the retroactive reinstatement of the federal research tax credit and other third-quarter specific income tax items, which contributed $0.13 to net income per diluted share.

aWe are very pleased with our strong financial performance and execution during the third quarter. Our revenue of $152.7 million was at the upper end of our guidance range and I am particularly pleased with our revenue from Host Products, which grew 7 percent sequentially due to strength in Fibre Channel and converged adapters,a said Simon Biddiscombe, president and chief executive officer, QLogic. aAs announced earlier this week, we entered into a definitive agreement to sell substantially all of the assets associated with our InfiniBand business. We believe this transaction will allow us to sharpen our focus on our core business and the growth opportunities in the data center with converged networking, enterprise Ethernet and storage area networking products.a

QLogic uses certain non-GAAP financial measures to supplement financial statements based on GAAP. A summary of these non-GAAP financial measures and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a description of the reasons that management believes that these non-GAAP financial measures provide useful information to investors and the additional purposes for which management uses these non-GAAP financial measures, is presented in the accompanying financial schedules.

QLogicas fiscal 2012 third quarter conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Simon Biddiscombe, president and chief executive officer, and Jean Hu, senior vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at [ http://ir.qlogic.com ] and [ www.earnings.com ]. Phone access to participate in the conference call is available at 719-325-4827, pass code: 6745069.

The financial information that the company intends to discuss during the conference call will be available on the companyas website at [ http://ir.qlogic.com ] for twelve months following the conference call. A replay of the conference call will be available via webcast at [ http://ir.qlogic.com ] for twelve months.

Follow QLogic @ twitter.com/qlogic

About QLogic

QLogic (Nasdaq:QLGC) is a global leader and technology innovator in high performance networking, including adapters, switches and ASICs. Leading OEMs and channel partners worldwide rely on QLogic products for their data, storage and server networking solutions. For more information, visit [ www.qlogic.com ].

Disclaimer a" Forward-Looking Statements

This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business and market trends, our expectation that the sale of substantially all of the assets associated with our InfiniBand business will be consummated and our belief that there are growth opportunities in the data center with converged networking, enterprise Ethernet and storage area networking products) that are aforward-looking statementsa as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The company advises readers that these potential risks and uncertainties include, but are not limited to: unfavorable economic conditions; potential fluctuations in operating results; gross margins that may vary over time; the stock price of the company may be volatile; the companyas dependence on the networking markets served; the ability to maintain and gain market or industry acceptance of the companyas products; the companyas dependence on a small number of customers; the companyas ability to compete effectively with other companies; the complexity of the companyas products; declining average unit sales prices of comparable products; the companyas dependence on sole source and limited source suppliers; the companyas dependence on relationships with certain third-party subcontractors and contract manufacturers; the ability to attract and retain key personnel; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; a reduction in sales efforts by current distributors; changes in the companyas tax provisions or adverse outcomes resulting from examination of its income tax returns; international economic, currency, regulatory, political and other risks; facilities of the company and its suppliers and customers are located in areas subject to natural disasters; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; uncertain benefits from strategic business combinations; declines in the market value of the companyas marketable securities; environmental compliance costs; changes in regulations or standards regarding energy use of the companyas products; difficulties in transitioning to smaller geometry process technologies; the use of aopen sourcea software in the companyas products; and computer viruses and other tampering with the companyas computer systems.

More detailed information on these and additional factors which could affect the companyas operating and financial results are described in the companyas Forms 10-K, 10-Q and other reports filed, or to be filed, with the Securities and Exchange Commission. The company urges all interested parties to read these reports to gain a better understanding of the business and other risks that the company faces. The forward-looking statements contained in this press release are made only as of the date hereof, and the company does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

QLogic and the QLogic logo are registered trademarks of QLogic Corporation. Other trademarks and registered trademarks are the property of the companies with which they are associated.


QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited a" in thousands, except per share amounts)

	Three Months Ended					Nine Months Ended
	January 1,		December 26,			January 1,		December 26,
	2012		2010			2012		2010

Net revenues	$	152,661	$	155,771		$	454,463	$	444,909
Cost of revenues		52,055		53,000			154,010		153,112
Gross profit		100,606		102,771			300,453		291,797

Operating expenses:
Engineering and development		36,883		33,148			112,446		100,649
Sales and marketing		21,514		20,103			63,219		60,953
General and administrative		8,803		9,061			26,820		25,560
Special charges		a"		a"			a"		931
Total operating expenses		67,200		62,312			202,485		188,093

Operating income		33,406		40,459			97,968		103,704

Interest and other income, net		798		773			2,926		4,258

Income before income taxes		34,204		41,232			100,894		107,962

Income taxes		4,179		(9,107	)		9,789		2,188

Net income	$	30,025	$	50,339		$	91,105	$	105,774

Net income per share:
Basic	$	0.30	$	0.48		$	0.89	$	0.97
Diluted	$	0.30	$	0.47		$	0.88	$	0.96

Number of shares used in per share calculations:
Basic		100,135		105,830			102,696		108,492
Diluted		100,668		107,327			103,340		110,032


QLOGIC CORPORATION
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
(unaudited a" in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	January 1,			December 26,			January 1,			December 26,
	2012			2010			2012			2010

GAAP net income	$	30,025		$	50,339		$	91,105		$	105,774
Items excluded from GAAP net income:
Stock-based compensation		8,100			8,519			25,787			27,111
Amortization of acquisition-related intangible assets		1,155			1,156			3,467			3,467
Special charges		a"			a"			a"			931
Gains recognized on previously impaired investment securities		a"			a"			a"			(312	)
Income tax effect		(3,010	)		(2,772	)		(8,676	)		(8,437	)
Total non-GAAP adjustments		6,245			6,903			20,578			22,760
Non-GAAP net income	$	36,270		$	57,242		$	111,683		$	128,534

Net income per diluted share:
GAAP net income	$	0.30		$	0.47		$	0.88		$	0.96
Adjustments		0.06			0.06			0.20			0.21
Non-GAAP net income	$	0.36		$	0.53		$	1.08		$	1.17

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the companyas on-going core operating performance.

The company has presented non-GAAP net income and non-GAAP net income per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the companyas core net income and core net income per diluted share on an on-going basis. These non-GAAP financial measures may also assist investors in making comparisons of the companyas core net profitability with historical periods and comparisons of the companyas core net profitability with the corresponding results for competitors. Management believes that non-GAAP net income and non-GAAP net income per diluted share are important measures in the evaluation of the companyas profitability. These non-GAAP financial measures exclude the adjustments described in the above table, and thus provide an overall measure of the companyas on-going net profitability and related profitability on a per diluted share basis.

Management uses non-GAAP net income and non-GAAP net income per diluted share in its evaluation of the companyas core after-tax results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. In addition, the company prepares and maintains its budgets and forecasts for future periods on a basis consistent with these non-GAAP financial measures. Management believes that providing these non-GAAP financial measures allows investors to view the companyas financial results in the way that management views the financial results.

The non-GAAP financial measures presented herein have certain limitations in that they do not reflect all of the costs associated with the operations of the companyas business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

For additional information on the items excluded from the non-GAAP financial measures and why the company believes that these non-GAAP financial measures provide useful supplemental information to investors, the company refers you to the Form 8-K regarding this release filed today with the Securities and Exchange Commission.

A summary of the non-GAAP adjustments presented in the table above by the financial statement line impacted is as follows:


(unaudited a" in thousands)	Three Months Ended						Nine Months Ended
	January 1,			December 26,			January 1,			December 26,
	2012			2010			2012			2010
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation	$	632		$	599		$	2,075		$	1,962
Amortization of acquisition-related intangible assets		1,155			1,156			3,467			3,467
Total cost of revenue adjustments		1,787			1,755			5,542			5,429

Operating expenses:
Engineering and development:
Stock-based compensation		3,553			3,714			11,776			12,692
Sales and marketing:
Stock-based compensation		1,924			1,824			5,625			5,866
General and administrative:
Stock-based compensation		1,991			2,382			6,311			6,591
Special charges		a"			a"			a"			931
Total operating expense adjustments		7,468			7,920			23,712			26,080

Interest and other income:
Gains recognized on previously impaired investment securities	a			a			a				(312	)

Total non-GAAP adjustments before income taxes		9,255			9,675			29,254			31,197
Income tax effect		(3,010	)		(2,772	)		(8,676	)		(8,437	)
Total non-GAAP adjustments	$	6,245		$	6,903		$	20,578		$	22,760


QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited a" in thousands)

	January 1, 2012			April 3, 2011
ASSETS

Current assets:
Cash and cash equivalents	$	74,198		$	147,780
Marketable securities		321,627			236,296
Accounts receivable, net		82,221			70,134
Inventories		26,967			26,931
Deferred tax assets		19,954			17,754
Other current assets		13,390			20,753
Total current assets		538,357			519,648

Property and equipment, net		78,715			77,134
Goodwill		119,748			119,748
Purchased intangible assets, net		10,179			12,694
Deferred tax assets		27,284			25,333
Other assets		2,082			2,650

	$	776,365		$	757,207

LIABILITIES AND STOCKHOLDERSa EQUITY

Current liabilities:
Accounts payable	$	35,099		$	34,816
Accrued compensation		28,240			25,858
Accrued taxes		3,029			6,012
Deferred revenue		10,348			10,431
Other current liabilities		6,356			5,221
Total current liabilities		83,072			82,338

Accrued taxes		62,409			62,565
Deferred revenue		3,840			5,169
Other liabilities		5,922			5,971
Total liabilities		155,243			156,043

Stockholdersa equity:
Common stock		209			208
Additional paid-in capital		877,763			844,546
Retained earnings		1,478,870			1,387,765
Accumulated other comprehensive income		299			614
Treasury stock		(1,736,019	)		(1,631,969	)
Total stockholdersa equity		621,122			601,164

	$	776,365		$	757,207


QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited a" in thousands)

	Nine Months Ended
	January 1,			December 26,
	2012			2010

Cash flows from operating activities:
Net income	$	91,105		$	105,774
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,047			22,612
Stock-based compensation		25,787			27,111
Amortization of acquisition-related intangible assets		3,467			3,467
Deferred income taxes		(4,334	)		6,810
Net gains on investment securities		(729	)		(2,021	)
Other non-cash items		5,811			1,435
Changes in operating assets and liabilities:
Accounts receivable		(12,244	)		(10,769	)
Inventories		(36	)		(6,454	)
Other assets		119			841
Accounts payable		(2,333	)		(6,232	)
Accrued compensation		2,382			405
Accrued taxes		4,531			(21,068	)
Deferred revenue		(1,412	)		(685	)
Other liabilities		936			(3,968	)
Net cash provided by operating activities		134,097			117,258

Cash flows from investing activities:
Purchases of available-for-sale securities		(336,005	)		(221,884	)
Proceeds from sales and maturities of available-for-sale securities		247,928			146,840
Proceeds from disposition of trading securities		a"			23,800
Distributions from other investment securities		a"			329
Purchases of property and equipment		(23,480	)		(17,881	)
Net cash used in investing activities		(111,557	)		(68,796	)

Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards		12,674			29,637
Excess tax benefits from stock-based awards		529			1,610
Minimum tax withholding paid on behalf of employees for restricted stock units		(5,425	)		(6,739	)
Purchases of treasury stock		(103,900	)		(156,986	)
Net cash used in financing activities		(96,122	)		(132,478	)

Net decrease in cash and cash equivalents		(73,582	)		(84,016	)

Cash and cash equivalents at beginning of period		147,780			190,308

Cash and cash equivalents at end of period	$	74,198		$	106,292


QLOGIC CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited a" in thousands)

Net Revenues
A summary of the companyas revenue components is as follows:

	Three Months Ended				Nine Months Ended
	January 1,		December 26,		January 1,		December 26,
	2012		2010		2012		2010

Host Products	$	112,687	$	113,492	$	328,078	$	320,141
Network Products		24,390		28,923		74,048		81,787
Silicon Products		12,443		10,628		43,129		34,927
Service and other		3,141		2,728		9,208		8,054
	$	152,661	$	155,771	$	454,463	$	444,909

N@N

QLogic Reports Third Quarter Results for Fiscal Year 2012