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Xyratex Ltd Announces Results for the Third Quarter Fiscal Year 2011

Sep 29, 2011 (04:09 PM EDT)
URL: http://www.techweb.com/show-press-release/X867499/xyratex-ltd-announces-results-for-the-third-quarter-fiscal-year-2011.html

HAVANT, England, Sept. 29, 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 third fiscal quarter ended August 31, 2011. Revenues for the third quarter were $361.8 million, a decrease of 16% compared to revenues of $430.2 million for the same period last year.

For the third quarter, GAAP net income was $9.7 million, or $0.32 per diluted share, compared to GAAP net income of $37.2 million, or $1.19 per diluted share, in the same period last year. Non-GAAP net income was $12.7 million, or $0.42 per diluted share, compared to non-GAAP net income of $37.6 million, or $1.20 per diluted share, in the same quarter a year ago (1).

Gross profit margin in the third quarter decreased to 16.7%, compared to 17.6% in the same period last year, reflecting significantly lower revenues and gross margins in the Storage Infrastructure (SI) business partially offset by increased gross margins in the Networked Storage Solutions (NSS) business.

Revenues from sales of our NSS products were $336.6 million as compared to $317.2 million in the same quarter a year ago, an increase of 6%. Gross profit margin in the NSS business was 17.2% as compared to 12.0% a year ago. The increase in gross margin was primarily due to a favorable customer and product mix. Revenues from sales of our SI products were $25.2 million as compared to $113 million in the same quarter a year ago, a decrease of 78%. Gross profit margin in the SI business was 9.6% as compared to 33.8% a year ago. The decrease in gross margin was primarily the result of the impact of fixed operating costs on lower revenues. Additionally, as a result of the bankruptcy filing by Solyndra, Xyratex has recorded a bad debt provision of approximately $1 million.

During the quarter the Company repurchased 2,064,480 of its common shares at a total cost of $18.6 million. During the first nine months of the fiscal year a total of 2,615,196 shares have been repurchased, representing 8.5% of issued shares outstanding as of February 28, 2011, at a total cost of $23.9 million. The shares were repurchased under the previously announced share repurchase plan. Also, as previously announced, the Company paid its first dividend in the quarter. The cash dividend was set at $0.05 a share and totaled approximately $1.5 million. The Company's cash balance amounted to $136.2 million at the end of the quarter, an increase of $9.3 million in the quarter and of $45.4 million in the first nine months of the fiscal year.

"Overall, I was pleased with our performance," said Steve Barber, CEO of Xyratex. "I was very pleased with the performance of our NSS business in the third quarter. The Enterprise External Storage market remains strong, and we are executing well overall to meet the needs of our customers. In addition, we continue to invest in other growth sectors that will broaden our market opportunities.  Our SI business performed within our expectations but, as we have mentioned throughout the year it is being negatively affected by a number of factors, including the delay in regulatory approval of the two pending disk drive industry acquisitions by Seagate and Western Digital. As a result, the disk drive capital equipment sector remains very challenged with the industry delaying incremental capital investment. Given this current market environment, we are now implementing significant reductions in fixed costs in the SI business while protecting our investments in key next generation products needed to improve our competitive position. We have a strong cash position which will allow us to invest in strategic areas as well as continue to buy back shares."

Business Outlook

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

  • Revenue in the fourth quarter of 2011 is projected to be in the range of $343 million to $383 million.
  • Diluted earnings per share is anticipated to be between $0.19 and $0.37 on a GAAP basis in the fourth quarter of 2011. On a non-GAAP basis diluted earnings per share is anticipated to be between $0.27 and $0.45. 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, September 29, 2011 at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time. You can also access the conference call by dialing +1 (800) 299-7089 in the United States and +1 (617) 801-9714 outside of the United States, passcode 94462032. The press release will be posted to the company web site www.xyratex.com.

A replay will be available through October 6, 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 47147315.

(1) Non-GAAP net income (loss) and diluted earnings (loss) per share excludes (a) amortization of intangible assets, (b) equity compensation expense, (c) the related tax effects, and (d) the tax expense resulting from a reduction in the deferred tax asset caused by a fall in U.K. tax rates. 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, and not considered to be a substitute for, or superior to, the corresponding GAAP measure. The financial results calculated in accordance with GAAP and reconciliations of these non-GAAP measures to the comparable GAAP measures should be carefully evaluated. The non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

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 and 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; (d) the impact of the reduction in tax rates is non-cash and not comparable across periods or with other companies due to the existence of a significant U.K. related deferred tax asset which is expected to reduce over time.

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 fourth 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,


Nine Months Ended,




August 31,


August 31,


August 31,


August 31,




2011


2010


2011


2010




(US dollars in thousands, except per share amounts)











Revenues:









Networked Storage Solutions

$ 336,621


$ 317,249


$ 971,969


$ 932,132


Storage Infrastructure

25,215


112,987


88,914


272,969

Total revenues

361,836


430,236


1,060,883


1,205,101











Cost of revenues

301,465


354,310


907,411


989,083

Gross profit:









Networked Storage Solutions

58,063


38,061


150,187


123,444


Storage Infrastructure

2,420


38,232


3,947


93,638


Equity compensation

(112)


(367)


(662)


(1,064)

Total gross profit

60,371


75,926


153,472


216,018

Operating expenses:









Research and development

30,047


23,950


88,272


63,955


Selling, general and administrative

16,698


15,899


52,114


42,776


Amortization of intangible assets

1,230


1,018


3,279


2,975



Total operating expenses

47,975


40,867


143,665


109,706

Operating income

12,396


35,059


9,807


106,312

Interest income, net  

209


29


288


10

Income before income taxes

12,605


35,088


10,095


106,322

Provision (benefit) for income taxes

2,948


(2,146)


314


(851)

Net income

$ 9,657


$ 37,234


$ 9,781


$ 107,173











Net earnings per share:









Basic

$ 0.33


$ 1.23


$ 0.32


$ 3.57


Diluted

$ 0.32


$ 1.19


$ 0.31


$ 3.45











Weighted average common shares (in thousands), used in









computing net earnings per share:









Basic

29,499


30,259


30,280


30,059


Diluted

30,299


31,271


31,232


31,028











Cash dividends declared per share

$ 0.05


$ -


$ 0.05


$ -



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



















August 31,


November 30,





2011


2010





(US dollars and amounts in thousands)








ASSETS





Current assets:






Cash and cash equivalents


$ 136,238


$ 90,842


Accounts receivable, net


175,193


209,044


Inventories


157,287


195,936


Prepaid expenses


3,347


3,154


Deferred income taxes


3,115


8,204


Other current assets


8,904


3,876



Total current assets


484,084


511,056


Property, plant and equipment, net


46,221


45,687


Intangible assets, net


20,656


9,326


Deferred income taxes


21,601


14,913



Total assets


$ 572,562


$ 580,982








LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:






Accounts payable


$ 157,327


$ 155,792


Employee compensation and benefits payable


18,520


22,638


Deferred revenue


11,507


17,958


Income taxes payable


1,095


730


Other accrued liabilities


24,917


16,533



Total current liabilities


213,366


213,651


Long-term debt


-


-



Total liabilities


213,366


213,651








Shareholders' equity






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







70,000 authorized, 28,321 and 30,276 issued and outstanding


283


303


Additional paid-in capital


365,097


382,684


Accumulated other comprehensive income


1,646


496


Accumulated deficit


(7,830)


(16,152)



Total shareholders' equity


359,196


367,331



Total liabilities and shareholders' equity


$ 572,562


$ 580,982



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



















Nine Months Ended





August 31,


August 31,





2011


2010





(US dollars in thousands)

Cash flows from operating activities:





Net income


$ 9,781


$ 107,173

Adjustments to reconcile net income to net cash






provided by operating activities:





Depreciation


15,031


13,523

Amortization of intangible assets


3,279


2,975

Non-cash equity compensation


6,268


6,732

Loss (gain) on sale of assets


(44)


171

Deferred income taxes


(2,016)


(2,953)

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






Accounts receivable


34,302


(102,469)


Inventories


38,739


(120,462)


Prepaid expenses and other current assets


(3,654)


(4,476)


Accounts payable


3,793


116,801


Employee compensation and benefits payable


(4,118)


10,141


Deferred revenue


(6,451)


22,168


Income taxes payable


365


655


Other accrued liabilities


4,141


90



Net cash provided by operating activities


99,416


50,069








Cash flows from investing activities:






Investments in property, plant and equipment


(15,521)


(14,121)


Acquisition of intangible assets


(4,700)


-


Acquisition of businesses


(6,084)


(4,908)



Net cash used in investing activities


(26,305)


(19,029)








Cash flows from financing activities:






Proceeds from issuance of shares


2


1,933


Repurchase of shares


(23,884)


-


Dividends to shareholders


(1,459)


-


Decrease in book overdraft


(2,374)


-



Net cash provided by (used in) financing activities


(27,715)


1,933

Change in cash and cash equivalents


45,396


32,973

Cash and cash equivalents at beginning of period


90,842


51,935

Cash and cash equivalents at end of period


$ 136,238


$ 84,908



XYRATEX LTD

SUPPLEMENTAL INFORMATION
























Three Months Ended


Nine Months Ended




August 31,


August 31,


August 31,


August 31,

Summary Reconciliation Of GAAP Net Income To Non-GAAP Net Income


2011


2010


2011


2010




(US dollars in thousands, except per share amounts)


(US dollars in thousands, except per share amounts)











GAAP net income


$9,657


$37,234


$9,781


$107,173












Amortization of intangible assets


1,230


1,018


3,279


2,975


Equity compensation


1,855


2,455


6,268


6,732


Tax effect of above non-GAAP adjustments


(1,127)


-


(2,140)


-


Effect of change in tax rates


1,044


-


1,044


-


Deferred tax on equity compensation


-


(3,148)


-


(3,148)











Non-GAAP net income


$12,659


$37,559


$18,232


$113,732





















Summary Reconciliation Of Diluted GAAP Earnings Per Share To Diluted Non-GAAP Earnings Per Share











Diluted GAAP earnings per share


$ 0.32


$ 1.19


$ 0.31


$ 3.45












Amortization of intangible assets


0.04


0.03


0.11


0.10


Equity compensation


0.06


0.08


0.21


0.22


Tax effect of above non-GAAP adjustments


(0.04)


-


(0.07)


-


Effect of change in tax rates


0.03


-


0.03


-


Deferred tax on equity compensation


-


(0.10)


-


(0.10)











Diluted non-GAAP earnings per share


$0.42


$1.20


$0.59


$3.66





















Summary Of Equity Compensation




















Cost of revenues


112


367


662


1,064


Research and development


697


721


2,244


2,145


Selling, general and administrative


1,046


1,367


3,362


3,523












Total equity compensation


1,855


2,455


6,268


6,732



SOURCE Xyratex Ltd