QLogic Corporation (QLGC)
F3Q12 Earnings Call
January 26, 2012 5:00 p.m. ET
Jean Hu - Senior Vice President and Chief Financial Officer
Simon Biddiscombe - President and Chief Executive Officer
Amit Daryanani - RBC Capital Markets
Aaron Rakers - Stifel Nicolaus
Mark Moskowitz - JPMorgan
Katy Huberty - Morgan Stanley
Jung Pak - BMO Capital Markets
Previous Statements by QLGC
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Thank you, Brandon. Good afternoon and welcome to QLogic's third quarter fiscal year 2012 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 third quarter financial results. Simon will follow with a discussion of the current state of our business and our recent announcement relating to the definitive agreement to sell substantially of the asset associated with our InfiniBand 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 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 you to the documents QLogic files with SEC, specifically our most recent Forms 10-K and 10-Q. 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'll make today.
In our third quarter earnings press release issued earlier today, we reported both GAAP and non-GAAP results. These results include our InfiniBand business for all periods. 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 third fiscal quarter ended January 1, 2012, our revenue in the third quarter was $152.7 million, a decrease of 2% from the same quarter last year. This revenue was at the upper end of our guidance range of $145 million to $155 million provided during our second quarter earnings call, driven by better than expected performance from our fibre channel adapters.
Our third quarter revenue from host products which are comprised primarily of fibre channel, converged and 10-gig Ethernet adapters, was $112.7 million, compared to $113.5 recorded in the third quarter for last year. Third quarter revenue from network products which are comprised primarily of fibre channel and InfiniBand switches, was $24.4 million compared with $28.9 million recorded in the third quarter of last year. Our third quarter revenue from silicon products comprised of fibre channel, converged, 10-gig Ethernet and iSCSI chips, was $12.4 million, an increase of 17% from $10.6 million recorded in the third quarter of last year.
Revenue from silicon product was consistent with our expectation. Our service and other revenue was $3.1 million. Our third quarter gross margin of 67.1% was consistent with gross margin recorded in the third quarter of last year. Our gross margin slightly exceeded the high end of our guidance range of 66% to 67%, provided during our second quarter earnings call. Next I would like to cover our third quarter operating expenses.
Total operating expenses were $59.7 million, up 10% from $54.4 million reported in the third quarter of last year. Operating expenses were consistent with our expectations. Engineering expenses in the third quarter of $33.3 million increased 13% from a year ago, an increase as a percentage of revenue from 18.9% to 21.8%. The increase was related to our planned incremental investment to expand our server market opportunities and drive future revenue growth. Sales and marketing expenses in the third quarter were $19.6 million, an increase as a percentage of revenue from 11.7% to 12.8%. G&A expenses in the third quarter of $6.8 million were 4.5% of revenue.
Operating profit in the third quarter of $42.7 million was 28% of revenue. Interest and other income was $800,000 in the third quarter. Our income tax rate for the third quarter was 16.5%. Our third quarter net income of $36.3 million represented net profit margin of 24%. This represents the 66th consecutive quarter of profitability for QLogic. Our third quarter net income per diluted share of $0.36 was at the upper end of our guidance range of $0.30 to $0.37 provided during our second quarter earnings call.
Turning now to our balance sheet. The company’s cash and marketable securities were $396 million at the end of the third quarter. We continue to maintain a strong cash position and have no debt. During the third quarter we generated $52.3 million of cash from operations. We remain committed to our stock buyback. During the quarter we purchased $42 million of company’s common stock. In November our Board of Directors authorized the purchase of another additional $200 million of our common stock, pursuant to our stock repurchase program.
Receivables were $82.2 million at the end of the third quarter, decreased from $86.5 million at the end of the second quarter. DSO at the end of the third quarter improved to 49 days from 52 days at the end of the second quarter. Inventory was $27 million at the end of the third quarter. Annualized inventory turns for the third quarter was 7.5 compared to 8.4 turns achieved in the second quarter.