QLogic Corporation (QLGC)
F1Q 2012 Earnings Call
July 28, 2011 5:00 PM ET
Jean Hu – SVP and CFO
Simon Biddiscombe – President and CEO
Ahmet – RBC Capital Markets
Aaron Rakers – Stifel Nicolaus
Katy Huberty – Morgan Stanley
Scott Craig – Bank of America
Jason Nolan – Robert Baird
Keith Bachman – Bank of Montreal
Mark Moskowitz – JP Morgan
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Thank you, operator. Good afternoon, and welcome to QLogic first quarter 2012 earnings conference call. Joining me on the call 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 the forward-looking statements regarding future events and our projections of the financial performance of the company, based on our 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 to you the documents QLogic files with SEC. Specifically, our most recent Form 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 we issued earlier today we posted both GAAP and non-GAAP results. Our references we make relate to non-GAAP results and unless otherwise stated.
A reconciliation of the non-GAAP to GAAP financial measures is available on our website under Investor Relations.
Turning now to our financial results. For the first fiscal quarter ended July 3, 2011. Our revenue in the first quarter was $151.6 million, an increase of 6% from the same quarter last year. This revenue was at the high end of our guidance range of 145 to $153 million, provided during our fourth quarter earnings call.
Our first quarter revenue from Host Products, which are comprised primarily Fiber Channel, converged and Ethernet adapters, $101.8 million, increase of 7% from $102.5 million recorded in the first quarter of last year. First quarter revenue from Network Products, which are comprised primarily of Fiber Channel and InfiniBand switches, 29 – a decrease of 15% from 25.6 million recorded in the fourth quarter of last year, as a result of lower InfiniBand suite revenue.
Our first quarter revenue from Silicon Products comprised of Fiber Channel, converged, 10-gig Ethernet and (inaudible) chips was $16.8 million, and the increase to 42% from $11.9 million, recorded in the first quarter of last year. Our surveys and other revenue was $3.1 million. Our first quarter gross margin of 67.8%, improved from 66.5% recorded in the first quarter of last year. Primarily due to favorable product mix.
Our gross margin exceeded the high ends of our guidance range, 66 to 67% provided during our first quarter earnings call, primarily due to favorable product mix. Next, I’d like to cover our first quarter operating expenses. Total operating expenses $59.3 million, up 10% from $54 million reported in the first quarter of last year. Operating expenses were consistent with our expectation.
Engineering expenses in the first quarter, $33.1 million, increased 11% from a year ago. And that increased as a percentage of revenue from 20.8 to 21.8%. Sales in the marketing expenses in the first quarter of $19.4 million increased to 6% from a year ago and remained consistent as percentage of revenue at 12.8%. G&A expenses in the first quarter of $6.8 million were 4.5% of revenue. Operating profit in the first quarter of $43.5 million increased to 7% from a year ago and was 28.7% of revenue.
Interest and other income was $1 million in the first quarter. Our income tax rate for the first quarter was 9.4% and favorably impacted by several discrete items. We expect our annual tax rate for the full year to be approximately 14%. Our first quarter net income of $40.3 million increased to 16% from a year ago, and they represent a net profit margin of 26.6%.
This represents the 64th consecutive quarter of profitability for QLogic. Our first quarter net income per diluted share of 38 cents was significantly better than the 30 cents we achieved last year. And exceeded the high end of our guidance range of $0.30to $0.35, provided during our fourth quarter earnings call. The better than planned tax rate contributed two cents per share during the quarter.
Turning now to our balance sheet, the company’s cash and marketable securities, $400 million at end of fourth quarter. We continue to maintain a strong cash position and have no debt.
During the first quarter we generated a $40 million of cash from operations, which is an increase of 32% from the first quarter of last year. We remain commit to the stock buyback during the quarter purchased $19.4 million of the company’s common stock. Accounts receivables were $79.1 million at end of the first quarter. DSO at the end of the first quarter was 47 days compared to 45 days at end of the fourth quarter.