Xyratex, Ltd. (XRTX)
F1Q10 Earnings Call
March 31, 2010 5:00 pm ET
Brad Driver – Vice President Investor Relations
Steve Barber – Chief Executive Officer & Director
Richard Pearce – Chief Financial Officer & Director
Keith Bachman – BMO Capital Markets
Ananda Baruah – Brean, Murray, Carret & Co.
[Nicolas Suchi] – Real Securities
Richard Kugele – Needham & Co.
[John Flack – Citigroup]
Nehal Chokshi – Technology Insights Research
Previous Statements by XRTX
» Xyratex Ltd. Q4 2009 Earnings Call Transcript
» Xyratex Ltd. F3Q09 (Qtr End 08/31/09) Earnings Call Transcript
» Xyratex Ltd. Q2 2009 Earnings Call Transcript
I’d like to welcome investors, research analysts and others listening today to Xyratex’s fiscal first quarter 2010 results conference call. On our call today are Steve Barber, Chief Executive Officer and Richard Pearce, Chief Financial Officer. Today’s call is being recorded and will be available for replay on Xyratex’s investor relations homepage at www.Xyratex.com.
I’d like to remind everyone that today’s comments including the question and answer session will include forward-looking statements including but not limited to a forecast of future revenue and earnings and other financial and business activities. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in Xyratex’s filings with the Securities & Exchange Commission including the company’s 20F dated February 23, 2010.
Also, please note that in addition to reporting financial results in accordance with general accepted accounting principles or GAAP, Xyratex will report certain non-GAAP financial results. These non-GAAP measures together with corresponding GAAP numbers and reconciliations to GAAP are contained in our earnings press release. We encourage listeners to review these items.
I’d now like to turn the call over to Richard to review the financial details of the quarter.
Our press release is available on both PR Newswire and our website. I’d now like to provide you with some commentary about our results for the first quarter. Please note that all numbers are in accordance with GAAP unless stated otherwise. Total revenue was $319 million, up 73.5% as compared to the first quarter of last year and up 31.3% from our prior fiscal quarter. Sales of our network storage solutions products were $271 million or 85% of total revenue. This is an increase of $105.3 million or 63.5% compared to the first quarter of last year and up 33.2% compared with $203.4 million in our prior fiscal quarter.
The increase in revenue primarily reflects strong demand across our customer base and also shipments and backlog from Q4 of approximately $30 million. We worked very closely with our suppliers and customers to enable us to secure additional components to meet both backlog and new incremental demand. Sales of our storage infrastructure products were $48 million or 15% of total revenue, up $29.8 million or 164% compared to the first quarter of last year and up 21.4% over our prior fiscal quarter.
While in line with our expectations, we experienced a material increase in demand during the quarter that will be shipped and recognized as revenue in Q2 and Q3. I’ll provide more details in the outlook portion of my remarks. Gross margin was 18.1% for the quarter compared to 11.4% in the same period a year ago and 15.6% in our prior fiscal quarter. This increase is primarily due to the significant increase in revenues relative to the fix overhead costs.
Gross margin also benefitted from a higher proportion of storage infrastructure revenues as well as favorable product mix within the network storage solutions business. The gross margin for our network storage solutions products was above our expectations at 15.2%. This compares with 11.1% last year and 13.2% last quarter. The better than expected NSS gross margin reflects a number of changes to product mix including slower transition to a next generation product by one of our major customers.
The legacy product has higher margins. However, we do expect that the transition to the new product will accelerate over the next couple of quarters. The gross margin for the storage infrastructure products was 34.7% compared to 15.2% last year and 28.7% last quarter, primarily a result of the increase in revenue in the quarter relative to the fixed overhead costs as well as product mix.
Turning to non-GAAP expenses, our operating expenses totaled $27.9 million compared to $29.6 million last quarter and lower than our original forecasts. This reduction is primarily due to a currency benefit of approximately $3 million partially offset by increased stock costs including a bonus provision for the current year. We continue to expect to increase our operating expenses by approximately 25% over the next quarter in support of the current and future business opportunities. On a non-GAAP basis, net income was $29.4 million or $0.96 per diluted share compared to a net loss of $10.5 million a year ago and net income of $7.9 million in the prior quarter.
Turning our attention to the balance sheet, cash and cash equivalents at the end of the quarter was $53.7 million compared with $51.9 million at the end of Q4. Cash flow from operations was $5 million in the quarter. Inventory increased by $50.1 million in the quarter to $158.9 million. Inventory turns was 6.5 compared to 7.5 for the previous quarter. This reflects our increase in working capital required to support increased revenue in the next quarter.