Xyratex Ltd Announces Results for the Second Quarter Fiscal Year 2013

HAVANT, United Kingdom, July 1, 2013 /PRNewswire/ -- Xyratex Ltd (Nasdaq: XRTX), a leading provider of data storage technology, today announced results for the second fiscal quarter ended May 31, 2013. Revenues for the second quarter were $216.2 million, a decrease of 33% compared to revenues of $322.1 million for the same period in the prior year.

For the second quarter, GAAP net income was $2.9 million, or $0.11 per diluted share, compared to GAAP net income of $7.0 million, or $0.24 per diluted share, in the same period last year. Non-GAAP net income was $2.7 million, or $0.10 per share, compared to non-GAAP net income of $9.3 million, or $0.32 per diluted share, in the same quarter a year ago(1).

Gross profit margin in the second quarter was 22.0%, compared to 16.5% in the same period last year and 18.9% in the prior quarter. The increases from last year and the prior quarter primarily reflect a favorable variation in product mix in both our Enterprise Data Storage Solutions and Hard Disk Drive (HDD) Capital Equipment product segments.

Today, the Company also announced that its Board of Directors has approved a quarterly cash dividend of $0.075 per share, unchanged from the prior quarter. The dividend will be payable on July 30, 2013 to shareholders of record as of the close of business on July 15, 2013. This dividend represents a quarterly payout of approximately $2.1 million in aggregate, or $8.4 million on an annualized basis.

"After three months in the CEO position, my perspectives on the important role Xyratex plays in the data storage market and the significant opportunities for the Company in terms of future growth have been confirmed for me. The capability and expertise that Xyratex possesses to deliver storage technology that enables its customers to be successful in their markets is proven, repeatable and verifiable. I have conducted a detailed analysis of the business with the Board, including our most recently appointed Board members, Vadim Perelman and Ken Traub, who represent our largest investor, Baker Street Capital. Our core businesses of Capital Equipment and Storage Solutions are both profitable and cash generative. I am encouraged by the longer term opportunities for growth in these businesses. The gradual revenue decline from our previously largest customer NetApp will cease after 2014 and this revenue is being replaced with new OEM business wins. With our new ClusterStor product line, which addresses the HPC/Big Data marketplace, we have achieved incremental design wins, added a number of new customers in just the last 3 months and are on course to meet our revenue target of $60m in fiscal 2013. I am very encouraged that ClusterStor is approaching the inflection point where, as revenue ramps year over year, the product line can generate a positive contribution to the overall business," said Ernie Sampias, CEO. "I can also confirm that the Board is unanimously supportive of our long-term growth strategy."

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 fiscal quarter of 2013 is projected to be in the range of $195 million to $225 million.
  • Fully diluted earnings (loss) per share is anticipated to be between a loss of $0.16 and earnings of $0.08 on a GAAP basis in the third quarter. On a non-GAAP basis, fully diluted earnings (loss) per share is anticipated to be between a loss of $0.04 and earnings of $0.20. Anticipated non-GAAP earnings (loss) per share in our third quarter excludes amortization of intangible assets, equity compensation expense, specified non-recurring items, the related taxation expense and  an additional tax expense of approximately $2 million resulting from a reduction in the deferred tax asset caused by a fall in U.K. tax rates.

Conference Call Information

The company will host a conference call to discuss its results at 1:30 p.m. PT/4:30 p.m. ET on Monday July 1, 2013.

The conference call can be accessed online via the company's website www.xyratex.com/investors, or by telephone as follows:

United States

(866) 270-6057



Outside the United States 

(617) 213-8891



Passcode 

16554089







A replay will be available via the company's website www.xyratex.com/investors, or can be accessed by telephone through July 8, 2013 as follows:

United States 

(888) 286-8010



Outside the United States 

(617) 801-6888



Passcode 

510829919



(1) Non-GAAP net income (loss) and diluted earnings (loss) per share exclude (a) amortization of intangible assets, (b) equity compensation expense, (c) the tax effects related to (a) and (b) and (d) the recognition of a Malaysia deferred tax asset in the first quarter of fiscal 2012. 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 flow.

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 (loss) of the change in tax expense that would have been recorded if these items had not been incurred and (d) the recognition of the Malaysia deferred tax asset relates to the non-renewal of certain tax incentive arrangements in 2012, is non-recurring and will reverse if the incentive arrangements are renewed.

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 (loss) 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 retain major customers and meet the required technical and performance specifications of our products in a timely manner or at all, the cyclical nature of the markets in which we operate, changes in our customers' volume requirements, our inability to compete successfully in the competitive and rapidly changing marketplace in which we operate, deterioration in global economic conditions, diminished growth in the volume of digital information, patent infringement claims and our inability to protect our intellectual property and the impact of natural disasters. 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. 001-35766). In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "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 data storage technology, including modular solutions for the enterprise data storage industry, and HDD capital equipment for the HDD industry. Xyratex enterprise data storage platforms provide a range of advanced, scalable data storage solutions for the Original Equipment Manufacturer and High Performance Computing communities. As the largest capital equipment supplier to the HDD industry, Xyratex 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 North America, Asia and Europe.

Website: www.xyratex.com

 

XYRATEX LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS














Three Months Ended,


Six Months Ended,




May 31,


May 31, 


May 31,


May 31,




2013


2012


2013


2012




(US dollars in thousands, except per share amounts)











Revenues

$ 216,185


$ 322,116


$ 411,782


$ 617,782

Cost of revenues 

168,652


268,841


327,315


511,468

Gross profit

47,533


53,275


84,467


106,314











Operating expenses: 









 Research and development 

25,786


27,255


50,195


51,923


 Selling, general and administrative 

16,917


16,955


34,715


33,733


 Restructuring costs 

1,742


-


1,742


-


 Amortization of intangible assets 

556


950


1,048


1,920



Total operating expenses 

45,001


45,160


87,700


87,576

Operating income (loss)

2,532


8,115


(3,233)


18,738

Interest income, net  

47


154


127


340

Income (loss) before income taxes 

2,579


8,269


(3,106)


19,078

Provision (benefit) for income taxes

(366)


1,273


(916)


1,221

Net income (loss)

$ 2,945


$ 6,996


$ (2,190)


$ 17,857











Net earnings (loss) per share:









Basic

$ 0.11


$ 0.25


$ (0.08)


$ 0.64


Diluted

$ 0.11


$ 0.24


$ (0.08)


$ 0.62











Weighted average common shares (in thousands), used in









computing net earnings (loss) per share:









Basic

27,558


28,099


27,380


27,927


Diluted

27,744


28,786


27,380


28,764











Cash dividends declared per share

$ 0.08


$ 0.08


$ 2.15


$ 0.15











Comprehensive income (loss):








Net income (loss)

$ 2,945


$ 6,996


$ (2,190)


$ 17,857

Unrealized gain (loss) on forward foreign currency contract

182


(1,338)


(2,049)


(258)

Reclassification of loss into net income (loss)

437


(86)


202


336











Total comprehensive income (loss)

$ 3,564


$ 5,572


$ (4,037)


$ 17,935

XYRATEX LTD

CONDENSED CONSOLIDATED BALANCE SHEETS
















May 31,


November 30,




2013


2012




(US dollars and amounts in thousands)







ASSETS




Current assets:





Cash and cash equivalents

$ 84,864


$ 117,174


Accounts receivable, net

120,245


132,917


Inventories

156,515


171,605


Prepaid expenses

3,677


3,134


Deferred income taxes

205


228


Other current assets

6,078


7,121



Total current assets

371,584


432,179


Property, plant and equipment, net

40,392


40,194


Intangible assets, net

15,282


14,975


Deferred income taxes

25,969


23,929



Total assets

$ 453,227


$ 511,277







LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:





Accounts payable

$ 92,535


$ 82,125


Employee compensation and benefits payable

16,118


17,961


Deferred revenue

11,040


18,521


Income taxes payable

33


369


Other accrued liabilities

20,437


17,767



Total current liabilities

140,163


136,743


Long-term debt

-


-



Total liabilities

$ 140,163


$ 136,743







Shareholders' equity





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






70,000 authorized, 27,558 and 27,024 issued and outstanding

$ 276


$ 270


Additional paid-in capital

312,661


354,593


Accumulated other comprehensive income (deficit)

(984)


863


Accumulated income

1,111


18,808



Total shareholders' equity

313,064


374,534



Total liabilities and shareholders' equity

$ 453,227


$ 511,277

XYRATEX LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
















Six Months Ended,




May 31,


May 31, 




2013


2012




 (US dollars in thousands) 

Cash flows from operating activities: 




Net income (loss)

$ (2,190)


$ 17,857

Adjustments to reconcile net income (loss) to net cash





provided by operating activities:




Depreciation

8,023


8,290

Amortization of intangible assets

1,048


1,920

Non-cash equity compensation

672


3,845

Loss on sale of assets

-


1,157

Deferred income taxes

(1,426)


(297)

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





Accounts receivable 

12,672


37,147


Inventories

15,090


(16,160)


Prepaid expenses and other current assets

(651)


(2,382)


Accounts payable 

10,410


(33,425)


Employee compensation and benefits payable

(1,843)


(7,256)


Deferred revenue

(7,481)


7,601


Income taxes payable 

(336)


964


Other accrued liabilities 

1,383


(1,231)



Net cash provided by operating activities 

35,371


18,030







Cash flows from investing activities: 





Investments in property, plant and equipment 

(8,221)


(6,964)


Payment for acquisition of intangible assets

(1,355)


(3,500)



Net cash used in investing activities 

(9,576)


(10,464)







Cash flows from financing activities: 





Proceeds from issuance of shares

-


601


Repurchase of shares

-


(3,574)


Dividends to shareholders

(58,105)


(5,471)



Net cash used in financing activities 

(58,105)


(8,444)

Change in cash and cash equivalents 

(32,310)


(878)

Cash and cash equivalents at beginning of period

117,174


132,630

Cash and cash equivalents at end of period

$ 84,864


$ 131,752







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)

2013


2012


2013


2012



(US dollars in thousands, except per share amounts)


(US dollars in thousands, except per share amounts)










GAAP net income (loss)

$ 2,945


$ 6,996


$ (2,190)


$ 17,857











Amortization of intangible assets

556


950


1,048


1,920


Equity compensation

(860)


2,132


672


3,845


Tax effect of above non-GAAP adjustments

70


(771)


(396)


(1,442)


Malaysia deferred tax asset recognized 

-


-


-


(1,489)










Non-GAAP net income (loss)

$ 2,711


$ 9,307


$ (866)


$ 20,691



















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












Diluted GAAP earnings (loss) per share

$ 0.11


$ 0.24


$ (0.08)


$ 0.62











Amortization of intangible assets

0.02


0.03


0.04


0.07


Equity compensation

(0.03)


0.07


0.02


0.13


Tax effect of above non-GAAP adjustments

0.00


(0.03)


(0.01)


(0.05)


Malaysia deferred tax asset recognized 

-


-


-


(0.05)










Diluted non-GAAP earnings (loss) per share

$ 0.10


$ 0.32


$ (0.03)


$ 0.72



















Segmental Information

















Revenues:









Enterprise Data Storage Solutions

$ 169,342


$ 278,459


$ 345,888


$ 550,528


HDD Capital Equipment

46,843


43,657


65,894


67,254


Total

$ 216,185


$ 322,116


$ 411,782


$ 617,782










Gross profit:









Enterprise Data Storage Solutions

$31,463


$45,356


$62,994


$92,469


HDD Capital Equipment

16,025


8,278


21,533


14,305


Equity compensation

45


(359)


(60)


(460)


Total

$47,533


$53,275


$84,467


$106,314



















Summary Of Equity Compensation


















Cost of revenues

$ (45)


$359


$60


$460


Research and development

(381)


713


79


1,375


Selling, general and administrative

(434)


1,060


533


2,010











Total equity compensation

$ (860)


$2,132


$672


$3,845

 

SOURCE Xyratex Ltd



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