QLogic Corporation (QLGC)
F1Q13 Earnings Call
July 26, 2012 5:00 pm ET
Jean Hu - Senior Vice President and Chief Financial Officer
Simon Biddiscombe - President and Chief Executive Officer
Aaron Rakers - Stifel Nicolaus
Amit Daryanani - RBC Capital Markets
Mark Moskowitz - JPMorgan
Keith Bachman - Bank of Montreal
Paul Mansky - Cantor Fitzgerald
Rajesh Ghai - ThinkEquity
Bill Shope - Goldman Sachs
Scott Schmitz - Morgan Stanley
Good day, and welcome to the QLogic Corporation first quarter fiscal year 2013 earnings announcement conference call. Today's conference is being recorded.
At this time, I would like to turn the call over to Jean Hu, Chief Financial Officer. Please go ahead.
Thank you, operator. Good afternoon and welcome to QLogic's first quarter fiscal year 2013 earnings conference call. Joining me on the call today is Simon Biddiscombe, our Chief Executive Officer. I'll begin the call with a review of the first quarter financial results. Simon will follow with a discussion of the current state of our business. We'll then open the call for questions.
Certain of our comments today will include forward-looking statements regarding future events and our projections of our financial performance based on current expectations. These comments are subject to significant risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements.
We refer you to the documents that QLogic files with SEC, specifically our most recent Forms 10-K. These documents identify important risk factors that could cause our actual results to differ materially from expectations. We do not intend to update the forward-looking statements that we make today.
In our first quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. All of the reference we will make on our call today relate to non-GAAP results unless otherwise stated. A reconciliation of the non-GAAP to the GAAP financial measures is available on our website under Investor Relations.
Turning now to our financial result. For the first fiscal quarter ended July 4, 2012. Our revenue in the first quarter was $130.4 million, compared to $144.5 million we recorded in the same quarter last year. This revenue was within our guidance range of $130 million to $135 million provided during our fourth quarter earnings call.
Our first quarter revenue from Host Products, which are comprised primarily of Fibre Channel, converged and 10-Gig Ethernet adapters, was $101 million compared to $108.9 million we recorded in the first quarter of last year. The state of declines is consistent of the way the trends that have been reported by majority of our customers.
First quarter revenues from Network Products which are comprised primarily of Fibre Channel switches was $19.5 million compared to $18.7 million recorded in the first quarter of last year.
Our first quarter revenue from Silicon Products, comprised of our Fibre Channel, converged, 10-Gig Ethernet and iSCSI chips, was $9.8 million and consistent with our expectations.
Our first quarter gross margin of 67.6% declined from 69.6% recorded in the first quarter of last year, primarily due to unfavorable product mix. Our gross margin was consistent with our guidance of approximately 58% provided during our fourth quarter earnings call.
Next, I would like to cover our first quarter operating expenses. As a reminder, we continue to invest in engineering in order to address increased opportunities and expand our share of the market while aggressively managing sales, marketing and engineering cost. Total operating expenses were $58.5 million, up from $55.3 million reported in the first quarter of last year. Operating expenses were consistent with our expectation. Engineering expenses in the first quarter of $35.1 million increased from $30.5 million last year.
Sales and marketing expenses in the first quarter was $16.9 million and decreased from $18 million last year. G&A expenses in the first quarter of $6.4 million decreased from $6.8 million last year. Operating income in the first quarter of $29.6 million was 22.7% of revenue. Interest and other income was $1.1 million in the first quarter.
Our income tax rate for the first quarter was 17.3%. Our first quarter income from continuing operations of $25.3 million represent a net profit margin of 19.4%. This represents the 68th consecutive quarter of profitability for QLogic.
Our first quarter income from continuing operations per diluted share of $0.26 was within our guidance range of $0.26 to $0.28 provided during our fourth quarter earnings call.
Turning now to our balance sheet. Our cash and the marketable securities were $496 million or approximately $5 per share at the end of the fourth quarter. $125 million was held in the United States. We continue to maintain our very strong cash position and have no debt. During the first quarter, we generated $27 million of cash from operations.
We remain committed to our stock buyback and during the quarter we purchased $57 million of the company’s common stock.
Receivables were $78.8 million at the end of the first quarter. DSO at the end of the first quarter was 55 days compared to 52 days at the end of the fourth quarter.
Inventory was $22.2 million at the end of the fourth quarter. Annualized inventory turns for the first quarter was 7.6 compared to 8.7 turns achieved in fourth quarter.
Turning now to our near term outlook. It’s clear that as we look forward to the remainder of fiscal 2013, and macroeconomic environment is increasingly insurgent. Fewer unit sales are falling short of analyst’s projections and our largest customers are clearly being more negatively impacted than the total market.
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