Xyratex Ltd Announces Results for the First Quarter Fiscal Year 2011

Mar 31, 2011, 16:05 ET from Xyratex Ltd

HAVANT, England, March 31, 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 first fiscal quarter ended February 28, 2011. Revenues for the first quarter were $360.5 million, an increase of 13% compared to revenues of $319 million for the same period last year.

For the first quarter, GAAP net income was $4.7 million, or $0.15 per diluted share, compared to GAAP net income of $26.3 million, or $0.85 per share, in the same period last year. Non-GAAP net income was $7.5 million, or $0.24 per diluted share, compared to non-GAAP net income of $29.4 million, or $0.96 per share, in the same quarter a year ago (1).

Gross profit margin in the first quarter decreased to 13.7%, 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 $334.2 million as compared to $271 million in the same quarter a year ago, an increase of 23.3%. Gross profit margin in the NSS business was 14.2% as compared to 15.2% a year ago. Revenues from sales of our Storage Infrastructure (SI) products were $26.3 million as compared to $48 million in the same quarter a year ago, a decrease of 45.2%. Gross profit margin in the SI business was 9.7% as compared to 34.7% a year ago.

"Our first quarter results were somewhat mixed between our two businesses. Demand in our NSS business was within our expectations despite component supply challenges experienced by our largest customer. In our Storage Infrastructure business we experienced soft demand. I believe this resulted from changes in the market for 2.5 inch disk drives and also the recently announced industry consolidation among two of our customers. These factors have reduced our expectations of demand and revenues in the current fiscal year, however, in the medium to long term, I believe the consolidation will be good for the industry and our business," said Steve Barber, CEO of Xyratex. "Given the current environment in both industries that we participate in and the consolidations that are taking place, we are very focused on creating new opportunities with both existing and new customers and restricting our costs to reflect the current environment. The dynamics in both industries are still very good and with good execution and the right technologies, I feel confident that our business opportunities remain strong. We will continue to work with our customers to make them more competitive in their respective markets and remain flexible in meeting their technology and product demands."

Share Repurchase Plan

The Board of Directors has authorized a recommencement of the share repurchase plan it initially approved during the first quarter of 2008, and to increase the maximum value of shares that may be repurchased. According to the revised terms of the plan, the Company may repurchase up to an additional $50 million of its outstanding shares following April 30, 2011. As of February 28, 2011, Xyratex had 30.9 million shares outstanding.

Share repurchase transactions authorized under the plan will occur from time to time in the open market, through block trades or otherwise. Management and the Board of Directors will exercise discretion with respect to the timing and amount of any shares repurchased, based on their evaluation of a variety of factors, including current market conditions. Repurchases may be commenced or suspended at any time without prior notice. Additionally, Xyratex may initiate repurchases under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company would otherwise be precluded from doing so under insider-trading laws. The repurchase program will be funded using the Company's available cash resources, and it is intended that the repurchase program will be Rule 10b-18 compliant.

Business Outlook

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

  • Revenue in the second quarter of 2011 is projected to be in the range $320 to $365 million.
  • Fully diluted earnings per share is anticipated to be a loss of between $0.20 and $0.02 on a GAAP basis in the second quarter. On a non-GAAP basis fully diluted earnings per share is anticipated to be between a loss of $0.12 and earnings of $0.06. 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, March 31, 2011 at 1:30 p.m. Pacific Time/4:30 p.m. Eastern Time. You can also access the conference call by dialing +1 (866) 761-0749 in the United States and +1 (617) 614-2707 outside of the United States, passcode 83850357. The press release will be posted to the company web site www.xyratex.com.

A replay will be available through April 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 11656259.

(1) Non-GAAP net income and diluted earnings per share excludes (a) amortization of intangible assets, (b) equity compensation expense, and (c) the related tax effects. Reconciliation of non-GAAP net income and diluted earnings per share to GAAP net income and GAAP diluted earnings 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 second 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,




February 28,


February 28,




2011


2010




(US dollars in thousands, except per share amounts)







Revenues:





Networked Storage Solutions

$ 334,186


$ 270,983


Storage Infrastructure

26,313


47,983

Total revenues

360,499


318,966







Cost of revenues

311,045


261,368

Gross profit:





Networked Storage Solutions

47,347


41,313


Storage Infrastructure

2,551


16,636


Equity compensation

(444)


(351)

Total gross profit

49,454


57,598

Operating expenses:





Research and development

28,255


18,115


Selling, general and administrative

17,448


11,569


Amortization of intangible assets

754


981



Total operating expenses

46,457


30,665

Operating income

2,997


26,933

Interest income (expense), net  

37


(24)

Income before income taxes

3,034


26,909

Provision (benefit) for income taxes

(1,652)


632

Net income

$ 4,686


$ 26,277







Net earnings per share:





Basic

$ 0.15


$ 0.88


Diluted

$ 0.15


$ 0.85







Weighted average common shares (in thousands), used in





computing net earnings per share:





Basic

30,496


29,719


Diluted

31,761


30,762



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



















February 28,


November 30,





2011


2010





(US dollars and amounts in thousands)








ASSETS





Current assets:






Cash and cash equivalents


$ 98,124


$ 90,842


Accounts receivable, net


191,835


209,044


Inventories


176,885


195,936


Prepaid expenses


5,196


3,154


Deferred income taxes


6,368


8,204


Other current assets


9,414


3,876



Total current assets


487,822


511,056


Property, plant and equipment, net


47,567


45,687


Intangible assets, net


15,477


9,326


Deferred income taxes


18,968


14,913



Total assets


$ 569,834


$ 580,982








LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:






Accounts payable


$ 137,627


$ 155,792


Employee compensation and benefits payable


18,364


22,638


Deferred revenue


17,384


17,958


Income taxes payable


827


730


Other accrued liabilities


18,814


16,533



Total current liabilities


193,016


213,651


Long-term debt


-


-



Total liabilities


193,016


213,651








Shareholders' equity






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







70,000 authorized, 30,936 and 30,276 issued and outstanding


311


303


Additional paid-in capital


385,334


382,684


Accumulated other comprehensive income


2,639


496


Accumulated deficit


(11,466)


(16,152)



Total shareholders' equity


376,818


367,331



Total liabilities and shareholders' equity


$ 569,834


$ 580,982



XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



















Three Months Ended





February 28,


February 28,





2011


2010





(US dollars in thousands)

Cash flows from operating activities:





Net income


$ 4,686


$ 26,277

Adjustments to reconcile net income to net cash






provided by operating activities:





Depreciation


5,319


4,460

Amortization of intangible assets


754


981

Non-cash equity compensation


2,650


2,157

Loss on sale of assets


4


61

Deferred income taxes


(2,219)


-

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






Accounts receivable


17,660


(76,837)


Inventories


19,141


(50,146)


Prepaid expenses and other current assets


(5,437)


(896)


Accounts payable


(15,907)


84,384


Employee compensation and benefits payable


(4,274)


4,459


Deferred revenue


(574)


13,562


Income taxes payable


97


601


Other accrued liabilities


1,539


(4,091)



Net cash provided by operating activities


23,439


4,972








Cash flows from investing activities:






Investments in property, plant and equipment


(7,203)


(3,653)


Acquisition of intangible assets


(1,200)


-


Acquisition of businesses


(5,380)


-



Net cash used in investing activities


(13,783)


(3,653)








Cash flows from financing activities:






Proceeds from issuance of shares


-


466


Decrease in book overdraft


(2,374)


-



Net cash provided by (used in) financing activities


(2,374)


466

Change in cash and cash equivalents


7,282


1,785

Cash and cash equivalents at beginning of period


90,842


51,935

Cash and cash equivalents at end of period


$ 98,124


$ 53,720



XYRATEX LTD

SUPPLEMENTAL INFORMATION
















Three Months Ended




February 28,


February 28,

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


2011


2010




(US dollars in thousands, except per share amounts)







GAAP net income


$4,686


$26,277








Amortization of intangible assets


754


981


Equity compensation


2,650


2,157


Tax effect on non-GAAP adjustments


(587)


-







Non-GAAP net income


$7,503


$29,415













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







Diluted GAAP earnings per share


$ 0.15


$ 0.85








Amortization of intangible assets


0.02


$ 0.03


Equity compensation


0.08


$ 0.08


Tax effect on non-GAAP adjustments


(0.02)


-







Diluted non-GAAP earnings per share


$0.24


$0.96













Summary Of Equity Compensation












Cost of revenues


444


351


Research and development


883


718


Selling, general and administrative


1,323


1,088








Total equity compensation


2,650


2,157



SOURCE Xyratex Ltd



RELATED LINKS

http://www.xyratex.com