QLogic Exceeds Revenue and EPS Guidance for Q2 FY2015

Announces Approval of a $100 million Stock Repurchase Program

ALISO VIEJO, Calif.-- QLogic Corp. (QLGC), a leading supplier of high performance network infrastructure solutions, today announced its second quarter financial results for the period ended September 28, 2014.

Second Quarter Highlights

Net revenue: $127.5 million, up 7% sequentially
GAAP net income: $11.0 million or $0.12 per diluted share

Non-GAAP net income: $22.0 million, or $0.25 per diluted share, up 19% sequentially
Operating margin: 10.6% GAAP, 20.1% non-GAAP
Cash and marketable securities: $276.8 million as of September 28, 2014
Cash generated from operations: $28.4 million

Net revenue for the second quarter of fiscal 2015 was $127.5 million and increased 13% from $112.6 million in the same quarter last year. Revenue from Advanced Connectivity Platforms was $114.9 million during the second quarter of fiscal 2015 and increased 22% from $94.0 million in the same quarter last year.

The growth of our net revenue in the second quarter was driven by a sequential increase in revenue from Fibre Channel adapters of more than 5% and a sequential increase in revenue from Ethernet products of approximately $5 million.

Net income on a GAAP basis was $11.0 million or $0.12 per diluted share for the second quarter of fiscal 2015 compared to $11.0 million or $0.13 per diluted share for the second quarter of fiscal 2014. Net income on a non-GAAP basis for the second quarter of fiscal 2015 increased 10% to $22.0 million, or $0.25 per diluted share, from $20.0 million, or $0.23 per diluted share, for the second quarter of fiscal 2014.

QLogic also announced today that its board of directors has authorized a program to repurchase up to $100 million of the company’s outstanding common stock over a period of up to 18 months.

“I am very pleased with our financial performance in the second quarter. We delivered both revenue and non-GAAP earnings per diluted share that exceeded the high end of our guidance range. Based on our current execution, compelling product portfolio, and design win and qualification activity, we are well positioned to continue solid revenue and earnings per share performance during the second half of fiscal 2015,” said Prasad Rampalli, president and chief executive officer, QLogic. “The stock repurchase program that we announced today underscores the Board’s ongoing commitment to enhancing shareholder value, as well as our confidence in our long-term business growth prospects and financial outlook.”

QLogic uses certain non-GAAP financial measures to supplement financial statements based on GAAP. A summary of these non-GAAP financial measures and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, as well as a description of the reasons that management believes that these non-GAAP financial measures provide useful information to investors and the additional purposes for which management uses these non-GAAP financial measures, is presented in the accompanying financial schedules.

QLogic’s second quarter fiscal 2015 conference call is scheduled for today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Prasad Rampalli, president and chief executive officer, and Jean Hu, senior vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at http://ir.qlogic.com and will include certain prepared materials. Phone access to participate in the conference call is available at (888) 539-3612, pass code: 5088706.

The financial information and the prepared materials that the company intends to discuss during the conference call will be available on the company’s website at http://ir.qlogic.com for twelve months following the conference call. A replay of the webcast will be available at http://ir.qlogic.com for twelve months.

Follow QLogic @ twitter.com/qlogic

QLogic – the Ultimate in Performance

QLogic (QLGC) is a global leader and technology innovator in high performance server and storage networking connectivity products. Leading OEMs and channel partners worldwide rely on QLogic for their server and storage networking solutions. For more information, visit www.qlogic.com.

Disclaimer – Forward-Looking Statements

This press release contains statements relating to future results of the company (including certain beliefs and projections regarding business and market trends, as well as our confidence in our long-term business growth prospects and financial outlook and belief that we are well positioned to continue solid revenue and earnings per share performance during the second half of fiscal 2015) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The company advises readers that these potential risks and uncertainties include, but are not limited to: potential fluctuations in operating results; gross margins that may vary over time; unfavorable economic conditions; the stock price of the company may be volatile; the company's dependence on the networking markets served; the ability to maintain and gain market or industry acceptance of the company's products; the company's dependence on a small number of customers; the company's ability to compete effectively with other companies; uncertain benefits from strategic business combinations, acquisitions and divestitures; the ability to attract and retain key personnel; the complexity of the company's products; declining average unit sales prices of comparable products; the company's dependence on sole source and limited source suppliers; the company's dependence on relationships with certain third-party subcontractors and contract manufacturers; sales fluctuations arising from customer transitions to new products; seasonal fluctuations and uneven sales patterns in orders from customers; changes in the company's tax provisions or adverse outcomes resulting from examination of its income tax returns; international economic, currency, regulatory, political and other risks; facilities of the company and its suppliers and customers are located in areas subject to natural disasters; the ability to protect proprietary rights; the ability to satisfactorily resolve any infringement claims; a reduction in sales efforts by current distributors; declines in the market value of the company's marketable securities; changes in and compliance with regulations; difficulties in transitioning to smaller geometry process technologies; the use of "open source" software in the company's products; system security risks, data protection breaches and cyber-attacks; and the company’s ability to borrow under its credit agreement is subject to certain covenants.

More detailed information on these and additional factors that could affect the company's operating and financial results are described in the company's Forms 10-K, 10-Q and other reports filed, or to be filed, with the Securities and Exchange Commission. The company urges all interested parties to read these reports to gain a better understanding of the business and other risks that the company faces. The forward-looking statements contained in this press release are made only as of the date hereof, and the company does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

QLogic and the QLogic logo are registered trademarks of QLogic Corporation. Other trademarks and registered trademarks are the property of the companies with which they are associated.


QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited — in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	September 28,		September 29,		September 28,		September 29,
	2014		2013		2014		2013

Net revenues	$	127,503	$	112,622	$	246,952	$	225,738
Cost of revenues		52,093		36,313		100,847		72,932
Gross profit		75,410		76,309		146,105		152,806

Operating expenses:
Engineering and development		35,480		34,790		73,301		75,177
Sales and marketing		15,453		16,431		31,487		35,844
General and administrative		8,697		7,553		17,597		15,292
Special charges		2,259		4,349		4,803		16,382
Total operating expenses		61,889		63,123		127,188		142,695

Operating income		13,521		13,186		18,917		10,111

Interest and other income, net		296		25		438		798

Income before income taxes		13,817		13,211		19,355		10,909

Income taxes		2,807		2,234		2,345		2,982

Net income	$	11,010	$	10,977	$	17,010	$	7,927

Net income per share:
Basic	$	0.13	$	0.13	$	0.19	$	0.09
Diluted	$	0.12	$	0.13	$	0.19	$	0.09

Number of shares used in per share calculations:
Basic		87,914		87,430		87,654		88,288
Diluted		88,102		87,669		88,177		88,720


QLOGIC CORPORATION
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
(unaudited — in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	September 28,			September 29,			September 28,			September 29,
	2014			2013			2014			2013

GAAP net income	$	11,010		$	10,977		$	17,010		$	7,927
Items excluded from GAAP net income:
Stock-based compensation		4,735			4,818			10,275			12,989
Amortization of acquisition-related intangible assets		4,119			244			8,567			487
Amortization of license fee		695			—			1,394			—
Acquisition-related charges		263			—			1,034			—
Special charges		2,259			4,349			4,803			16,382
Income tax effects		(1,066	)		(346	)		(2,582	)		(1,327	)
Total non-GAAP adjustments		11,005			9,065			23,491			28,531
Non-GAAP net income	$	22,015		$	20,042		$	40,501		$	36,458

Net income per diluted share:
GAAP net income	$	0.12		$	0.13		$	0.19		$	0.09
Adjustments		0.13			0.10			0.27			0.32
Non-GAAP net income	$	0.25		$	0.23		$	0.46		$	0.41

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company’s on-going core operating performance.

The company has presented non-GAAP net income and non-GAAP net income per diluted share, on a basis consistent with its historical presentation, to assist investors in understanding the company’s core net income and core net income per diluted share on an on-going basis. These non-GAAP financial measures may also assist investors in making comparisons of the company’s core net profitability with historical periods and comparisons of the company’s core net profitability with the corresponding results for competitors. Management believes that non-GAAP net income and non-GAAP net income per diluted share are important measures in the evaluation of the company’s profitability. These non-GAAP financial measures exclude the adjustments described in the above table, and thus provide an overall measure of the company’s on-going net profitability and related profitability on a per diluted share basis.

Management uses non-GAAP net income and non-GAAP net income per diluted share in its evaluation of the company’s core after-tax results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. In addition, the company prepares and maintains its budgets and forecasts for future periods on a basis consistent with these non-GAAP financial measures. Management believes that providing these non-GAAP financial measures allows investors to view the company’s financial results in the way that management views the financial results.

The non-GAAP financial measures presented herein have certain limitations in that they do not reflect all of the costs associated with the operations of the company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

For additional information on the items excluded from the non-GAAP financial measures and why the company believes that these non-GAAP financial measures provide useful supplemental information to investors, the company refers you to the Form 8-K regarding this release filed today with the Securities and Exchange Commission.

A summary of the non-GAAP adjustments presented in the table above by the financial statement line impacted is as follows:


(unaudited – in thousands)	Three Months Ended						Six Months Ended
	September 28,			September 29,			September 28,			September 29,
	2014			2013			2014			2013
Non-GAAP Adjustments:
Cost of revenues:
Stock-based compensation	$	258		$	239		$	613		$	823
Amortization of acquisition-related intangible assets		4,119			244			8,567			487
Amortization of license fee		695			—			1,394			—
Acquisition-related charges		263			—			1,034			—
Total cost of revenue adjustments		5,335			483			11,608			1,310

Operating expenses:
Engineering and development:
Stock-based compensation		2,309			2,257			5,280			6,608
Sales and marketing:
Stock-based compensation		1,073			1,230			2,083			3,023
General and administrative:
Stock-based compensation		1,095			1,092			2,299			2,535
Special charges		2,259			4,349			4,803			16,382
Total operating expense adjustments		6,736			8,928			14,465			28,548

Total non-GAAP adjustments before income taxes		12,071			9,411			26,073			29,858

Income tax effects		(1,066	)		(346	)		(2,582	)		(1,327	)

Total non-GAAP adjustments	$	11,005		$	9,065		$	23,491		$	28,531


QLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited — in thousands)

	September 28,			March 30,
	2014			2014
ASSETS
Current assets:
Cash and cash equivalents	$	86,930		$	91,258
Marketable securities		189,839			186,783
Total cash and marketable securities		276,769			278,041
Accounts receivable, net		85,469			65,213
Inventories		30,142			18,036
Deferred tax assets		13,997			15,080
Other current assets		18,841			16,590
Total current assets		425,218			392,960

Property and equipment, net		82,972			84,912
Goodwill		192,492			194,107
Purchased intangible assets, net		61,231			69,903
Deferred tax assets		29,818			32,827
Other assets		21,847			23,554

	$	813,578		$	798,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,178		$	30,657
Accrued compensation		19,700			26,956
Accrued taxes		2,312			981
Deferred revenue		3,695			3,954
Other current liabilities		8,824			16,123
Total current liabilities		71,709			78,671

Accrued taxes		12,605			17,095
Other liabilities		8,699			9,071
Total liabilities		93,013			104,837

Stockholders’ equity:
Common stock		215			214
Additional paid-in capital		968,368			958,008
Retained earnings		1,689,081			1,672,071
Accumulated other comprehensive income		203			435
Treasury stock		(1,937,302	)		(1,937,302	)
Total stockholders’ equity		720,565			693,426

	$	813,578		$	798,263


QLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited — in thousands)

	Six Months Ended
	September 28,			September 29,
	2014			2013

Cash flows from operating activities:
Net income	$	17,010		$	7,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,855			15,730
Stock-based compensation		10,275			12,989
Deferred income taxes		4,077			3,632
Asset impairments		1,011			2,429
Other non-cash items		810			1,698
Changes in operating assets and liabilities:
Accounts receivable		(20,287	)		(1,818	)
Inventories		(12,106	)		2,797
Other assets		(840	)		180
Accounts payable		6,162			(102	)
Accrued compensation		(7,256	)		(7,141	)
Accrued taxes, net		(3,012	)		(905	)
Other liabilities		(7,930	)		3,249
Net cash provided by operating activities		11,769			40,665

Cash flows from investing activities:
Purchases of available-for-sale securities		(84,318	)		(162,673	)
Proceeds from sales and maturities of available-for-sale securities		80,376			172,629
Purchases of property and equipment		(12,068	)		(15,389	)
Net cash used in investing activities		(16,010	)		(5,433	)

Cash flows from financing activities:
Proceeds from issuance of common stock under stock-based awards		3,536			4,565
Minimum tax withholding paid on behalf of employees for restricted stock units		(3,450	)		(4,514	)
Purchases of treasury stock		—			(44,212	)
Other financing activities		(173	)		(96	)
Net cash used in financing activities		(87	)		(44,257	)

Net decrease in cash and cash equivalents		(4,328	)		(9,025	)

Cash and cash equivalents at beginning of period		91,258			95,532

Cash and cash equivalents at end of period	$	86,930		$	86,507


QLOGIC CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited — in thousands)

Net Revenues

A summary of the company’s revenue components is as follows:

	Three Months Ended				Six Months Ended
	September 28,		September 29,		September 28,		September 29,
	2014		2013		2014		2013
Advanced Connectivity Platforms	$	114,877	$	94,011	$	219,578	$	187,201
Legacy Connectivity Products		12,626		18,611		27,374		38,537
	$	127,503	$	112,622	$	246,952	$	225,738

Contact:

Media Contact:
QLogic Corporation
Steve Sturgeon, 858-472-5669
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or
Investor Contact:
QLogic Corporation
Doug Naylor, 949-542-1330
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QLogic Corp ( QLGC )

QLogic Exceeds Revenue and EPS Guidance for Q2 FY2015