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Xyratex Ltd Announces Results for the Second Quarter Fiscal Year 2011
Jun 30, 2011 (04:06 PM EDT)


HAVANT, United Kingdom, June 30, 2011 /PRNewswire/ -- Xyratex Ltd (Nasdaq: XRTX), a leading provider of enterprise class data storage subsystems and hard disk drive capital equipment, today announced results for the second fiscal quarter ended May 31, 2011. Revenues for the second quarter were $338.5 million, a decrease of 26% compared to revenues of $455.9 million for the same period last year.

For the second quarter, GAAP net loss was $4.6 million, or $0.15 per share, compared to GAAP net income of $43.7 million, or $1.39 per diluted share, in the same period last year. Non-GAAP net loss was $1.9 million, or $0.06 per diluted share, compared to non-GAAP net income of $46.8 million, or $1.49 per share, in the same quarter a year ago (1).

Gross profit margin in the second quarter decreased to 12.9%, compared to 18.1% in the same period last year, primarily due to significantly lower revenues and gross margins in the Storage Infrastructure business.

Revenues from sales of our Networked Storage Solutions (NSS) products were $301.2 million as compared to $343.9 million in the same quarter a year ago, a decrease of 12.4%. Gross profit margin in the NSS business was 14.9% as compared to 12.8% a year ago. Revenues from sales of our Storage Infrastructure (SI) products were $37.4 million as compared to $112 million in the same quarter a year ago, a decrease of 66.6%. Gross profit margin in the SI business was a negative 2.7% as compared to 34.6% a year ago. This negative margin was a result of the impact of fixed operating costs on lower revenues and additional provisions related to reduced customer demand in 2011.

"I was pleased with the performance of our NSS business in the second quarter. The Enterprise External Storage market remains strong, our OEM partners are gaining share and we are executing well overall to their needs.  In addition, our recently announced ClusterStor™ 3000 product launch is receiving very positive customer reaction and enables us, through our OEM partners, to expand our accessible market into the High Performance Computing growth sector.  In contrast, the disk drive capital equipment sector remains very challenged with the industry delaying incremental capital investment pending the outcome of the regulatory reviews of the proposed industry consolidations announced earlier this year. This is having a significant negative impact on our SI business in the near term," said Steve Barber, CEO of Xyratex. "Given this current environment in the disk drive industry, we are planning further reductions in fixed costs while protecting our investments in key next generation products needed to improve our competitive position. I remain confident in the overall opportunities that exist in both the market sectors we serve and we have a strong cash position and financial foundation as we work through some of the near-term challenges we are facing."

Share Repurchase Plan

During the quarter the Company repurchased 550,716 shares at a total cost of $5.3 million.

Business Outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

  • Revenue in the third quarter of 2011 is projected to be in the range $336 to $376 million.
  • Fully diluted earnings per share is anticipated to be between $0.01 and $0.19 on a GAAP basis in the third quarter. On a non-GAAP basis fully diluted earnings per share is anticipated to be between $0.10 and $0.28. Non-GAAP earnings per share excludes amortization of intangible assets, equity compensation expense, specified non-recurring items and related taxation expense.

Conference Call/Webcast Information

Xyratex quarterly results conference call will be broadcast live via the internet at http://www.xyratex.com/investors on Thursday, June 30, 2011 at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time. You can also access the conference call by dialing +1 (888) 396-2386 in the United States and +1 (617) 847-8712 outside of the United States, passcode 97408167. The press release will be posted to the company web site www.xyratex.com.

A replay will be available through July 7, 2011 following the live call by dialing +1 (888) 286-8010 in the United States and +1 (617) 801-6888 outside the United States, replay code 34761354.

(1) Non-GAAP net income (loss) and diluted earnings (loss) per share excludes (a) amortization of intangible assets, (b) equity compensation expense, and (c) the related tax effects. Reconciliation of non-GAAP net income (loss) and diluted earnings (loss) per share to GAAP net income (loss) and GAAP diluted earnings (loss) per share is included in a table immediately following the condensed consolidated statements of cash flows below.

The intention in providing these non-GAAP measures is to provide supplemental information regarding the Company's operational performance while recognizing that they have material limitations and that they should only be referred to with reference to the corresponding GAAP measure.

The Company believes that the provision of these non-GAAP financial measures is useful to investors and investment analysts because it enables comparison to the Company's historical operating results, those of competitors and other industry participants and also provides transparency to the measures used by management in operational and financial decision making. In relation to the specific items excluded: (a) intangible assets represent costs incurred by the acquired business prior to acquisition, are not cash costs and will not be replaced when the assets are fully amortized and therefore the exclusion of these costs provides management and investors with better visibility of the costs required to generate revenue over time; (b) equity compensation expense is non-cash in nature, is outside the control of management during the period in which the expense is incurred;  (c) the exclusion of the related tax effects of excluding items (a) and (b) is necessary to show the effect on net income of the change in tax expense that would have been recorded if these items had not been incurred.

Safe Harbor Statement

This press release contains forward–looking statements. These statements relate to future events or our future financial performance, including our projected revenue and fully diluted earnings per share data (on a GAAP and non-GAAP basis) for the third quarter. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward looking statements. Factors that might cause such a difference include our inability to compete successfully in the competitive and rapidly changing marketplace in which we operate, failure to retain key employees, cancellation or delay of projects and adverse general economic conditions in the United States and internationally. These risks and other factors include those listed under "Risk Factors" and elsewhere in our Annual Report on Form 20-F as filed with the Securities and Exchange Commission (File No. 000-50799). In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

About Xyratex

Xyratex is a leading provider of enterprise class data storage subsystems and hard disk drive capital equipment. The Networked Storage Solutions division designs and manufactures a range of advanced, scalable data storage solutions for the Original Equipment Manufacturer (OEM) community. As the largest capital equipment supplier to the industry, the Storage Infrastructure division enables disk drive manufacturers and their component suppliers to meet today's technology and productivity requirements. Xyratex has over 25 years of experience in research and development relating to disk drives, storage systems and manufacturing process technology.

Founded in 1994 in an MBO from IBM, and with headquarters in the UK, Xyratex has an established global base with R&D and operational facilities in Europe, the United States and South East Asia.

For more information, visit www.xyratex.com.

XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS




















Three Months Ended,


Six Months Ended,







May 31,


May 31,


May 31,


May 31,







2011


2010


2011


2010







(US dollars in thousands, except per share amounts)














Revenues:












Networked Storage Solutions



$ 301,162


$ 343,900


$ 635,348


$ 614,883


Storage Infrastructure



37,386


111,999


63,699


159,982

Total revenues




338,548


455,899


699,047


774,865














Cost of revenues




294,901


373,405


605,946


634,773

Gross profit:












Networked Storage Solutions



44,777


44,070


92,124


85,383


Storage Infrastructure



(1,024)


38,770


1,527


55,406


Equity compensation



(106)


(346)


(550)


(697)

Total gross profit




43,647


82,494


93,101


140,092

Operating expenses:











Research and development



29,970


21,890


58,225


40,005


Selling, general and administrative


17,968


15,305


35,416


26,877


Amortization of intangible assets


1,295


979


2,049


1,957



Total operating expenses



49,233


38,174


95,690


68,839

Operating income (loss)



(5,586)


44,320


(2,589)


71,253

Interest income (expense), net  



42


5


79


(19)

Income (loss) before income taxes



(5,544)


44,325


(2,510)


71,234

Provision (benefit) for income taxes



(982)


663


(2,634)


1,295

Net income (loss)




$ (4,562)


$ 43,662


$ 124


$ 69,939














Net earnings(loss) per share:











Basic




$ (0.15)


$ 1.45


$ 0.00


$ 2.33


Diluted




$ (0.15)


$ 1.39


$ 0.00


$ 2.25














Weighted average common shares (in thousands), used in









computing net earnings(loss) per share:










Basic




30,844


30,202


30,670


29,960


Diluted




30,844


31,391


31,691


31,022



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


















May 31,


November 30,








2011


2010








(US dollars and amounts in thousands)











ASSETS








Current assets:









Cash and cash equivalents




$ 126,919


$ 90,842


Accounts receivable, net




177,196


209,044


Inventories





153,083


195,936


Prepaid expenses





3,569


3,154


Deferred income taxes




6,724


8,204


Other current assets




9,235


3,876



Total current assets




476,726


511,056


Property, plant and equipment, net



46,715


45,687


Intangible assets, net




21,886


9,326


Deferred income taxes




19,477


14,913



Total assets





$ 564,804


$ 580,982











LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:









Accounts payable




$ 142,760


$ 155,792


Employee compensation and benefits payable



15,935


22,638


Deferred revenue





10,969


17,958


Income taxes payable




-


730


Other accrued liabilities




26,440


16,533



Total current liabilities




196,104


213,651


Long-term debt





-


-



Total liabilities




196,104


213,651











Shareholders' equity








Common shares (in thousands), par value $0.01 per share







70,000 authorized, 30,386 and 30,276 issued and outstanding


305


303


Additional paid-in capital




381,801


382,684


Accumulated other comprehensive income



2,622


496


Accumulated deficit




(16,028)


(16,152)



Total shareholders' equity



368,700


367,331



Total liabilities and shareholders' equity



$ 564,804


$ 580,982



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





































Six Months Ended











May 31,


May 31,











2011


2010











(US dollars in thousands)

Cash flows from operating activities:









Net income








$ 124


$ 69,939

Adjustments to reconcile net income to net cash










provided by operating activities:










Depreciation








10,212


8,943

Amortization of intangible assets







2,049


1,957

Non-cash equity compensation







4,413


4,277

(Gain) loss on sale of assets







(15)


69

Deferred income taxes







(3,844)


(1)

Changes in assets and liabilities, net of impact of acquisitions and divestitures








Accounts receivable







32,299


(120,545)


Inventories








42,943


(80,334)


Prepaid expenses and other current assets






(2,888)


(374)


Accounts payable







(10,774)


104,674


Employee compensation and benefits payable






(6,703)


5,849


Deferred revenue








(6,989)


20,748


Income taxes payable







(730)


(10)


Other accrued liabilities







5,664


(2,154)



Net cash provided by operating activities






65,761


13,038














Cash flows from investing activities:










Investments in property, plant and equipment






(11,225)


(8,599)


Acquisition of intangible assets







(4,700)


-


Acquisition of businesses







(6,084)


-



Net cash used in investing activities






(22,009)


(8,599)














Cash flows from financing activities:










Proceeds from issuance of shares






2


1,933


Repurchase of shares







(5,303)


-


Decrease in book overdraft







(2,374)


-



Net cash provided by (used in) financing activities





(7,675)


1,933

Change in cash and cash equivalents






36,077


6,372

Cash and cash equivalents at beginning of period






90,842


51,935

Cash and cash equivalents at end of period






$ 126,919


$ 58,307



XYRATEX LTD

SUPPLEMENTAL INFORMATION




Three Months Ended


Six Months Ended


May 31,


May 31,


May 31,


May 31,

Summary Reconciliation Of GAAP Net Income (Loss) To Non-GAAP Net Income (Loss)

2011


2010


2011


2010



(US dollars in thousands,

except per share amounts)


(US dollars in thousands,

except per share amounts)










GAAP net income (loss)

($4,562)


$43,662


$124


$69,939











Amortization of intangible assets

1,295


979


2,049


1,957


Equity compensation

1,763


2,120


4,413


4,277


Tax effect on non-GAAP adjustments

(426)


-


(1,013)


-










Non-GAAP net income (loss)

($1,930)


$46,761


$5,573


$76,173



















Summary Reconciliation Of Diluted GAAP Earnings (Loss) Per Share To








   Diluted Non-GAAP Earnings (Loss) Per Share

















Diluted GAAP earnings (loss) per share

$ (0.15)


$ 1.39


$ 0.00


$ 2.25











Amortization of intangible assets

0.04


$ 0.03


0.07


$ 0.06


Equity compensation

0.06


$ 0.08


0.14


$ 0.15


Tax effect on non-GAAP adjustments

(0.01)


-


(0.03)


-










Diluted non-GAAP earnings (loss) per share

($0.06)


$1.49


$0.18


$2.46



















Summary Of Equity Compensation


















Cost of revenues

106


346


550


697


Research and development

664


706


1,547


1,424


Selling, general and administrative

993


1,068


2,316


2,156











Total equity compensation

1,763


2,120


4,413


4,277



SOURCE Xyratex Ltd