Last updated on April 20, 2014 at 8:28 EDT

Xyratex Ltd Announces Results for the Third Quarter Fiscal Year 2012

October 2, 2012

HAVANT, England, Oct. 2, 2012 /PRNewswire/ — Xyratex Ltd (Nasdaq: XRTX), a leading provider of data storage technology, today announced results for the third fiscal quarter ended August 31, 2012. Revenues for the third quarter were $275.7 million, a decrease of 24% compared to revenues of $361.8 million for the same period last year.

For the third quarter, GAAP net income was $7.7 million, or $0.28 per diluted share, compared to GAAP net income of $9.7 million, or $0.32 per share, in the same period last year. Non-GAAP net income was $10.3 million, or $0.37 per diluted share, compared to non-GAAP net income of $12.7 million, or $0.42 per share, in the same quarter a year ago((1)).

Gross profit margin in the third quarter was 18.5%, compared to 16.7% in the same period last year and 16.5% in the prior quarter. The increase from last year primarily reflects improved gross margins for HDD Capital Equipment products.

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 October 30, 2012 to shareholders of record as of the close of business on October 16, 2012. This dividend represents a quarterly payout of approximately $2.0 million in aggregate, or $8.0 million on an annualized basis.

During the quarter the Company repurchased 892,922 of its common shares at a total cost of $10.0 million under its previously announced share repurchase plan, bringing the total repurchases in the first nine months of the 2012 fiscal year to 1,199,275 common shares at a total cost of $13.6 million. The Company’s cash balance amounted to $103.2 million at the end of the third quarter, a decrease of $28.6 million from the prior quarter due primarily to increased inventories resulting from reduced sales.

“Our third quarter proved to be a very challenging quarter due to a number of factors as we stated in our press release last month. Over the last few weeks, we have been able to resolve most of the technical and performance issues with our latest Capital Equipment and High Performance Computing products that prevented us from recognizing the associated product revenue prior to the end of the third quarter and we are working very closely with our customers to resolve the remaining issues. I am confident that we will be able to successfully meet all the required technical requirements for the respective products. With regard to the weaker than expected enterprise storage demand that impacted our quarterly results, I do believe that the industry dynamics are weaker than what was expected a few months ago and as a result we have taken a more cautious outlook going forward,” said Steve Barber, CEO of Xyratex. “Over the next 18 to 24 months we have a number of new opportunities, particularly in the area of Big Data/High Performance Computing that I believe will be positive for the company. We will continue to focus on new growth opportunities while also managing our costs and investments. With a strong balance sheet, I believe we are well positioned to capitalize on these opportunities.”

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 fiscal quarter of 2012 is projected to be in the range of $235 million to $285 million.
  • We anticipate recording a loss per share of between $0.15 and $0.43 on a non-GAAP basis in the fourth quarter. Non-GAAP earnings per share excludes amortization of intangible assets, equity compensation expense, specified non-recurring items and related taxation expense.

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 Tuesday, October 2, 2012.

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

    United States                (800) 561-2731
    Outside the United States    (617) 614-3528
    Passcode                                       86990813

A replay will be available via the company’s website www.xyratex.com/investors, or can be accessed by telephone through October 9, 2012 as follows:

    United States                (888) 286-8010
    Outside the United States    (617) 801-6888
    Passcode                                       33193526

(1) Non-GAAP net income and diluted earnings per share exclude (a) amortization of intangible assets, (b) equity compensation expense, (c) the tax effects related to (a) and (b), (d) the recognition of a Malaysia deferred tax asset in the first quarter of fiscal 2012 and (e) 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 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 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 the company 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 and (d) the recognition of the Malaysia deferred tax asset relates to the potential for the non-renewal of certain tax incentive arrangements in 2012; (d) is non-recurring and will reverse if the incentive arrangements are renewed and (e) 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 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 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. 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,” “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 hard disk drive (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
                                                                          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       Three Months Ended,                     Nine Months Ended,
                                                       -------------------                     ------------------
                                                           August 31,                              August 31,                              August 31,                              August 31,
                                                                           2012                                    2011                                    2012                                    2011
                                                                           ----                                    ----                                    ----                                    ----

                                                 (US dollars in thousands, except per share amounts)

    Revenues                                                           $275,670                                $361,836                                $893,452                              $1,060,883
    Cost of revenues                                                    224,653                                 301,465                                 736,121                                 907,411
    Gross profit                                                         51,017                                  60,371                                 157,331                                 153,472
                                                                         ------                                  ------                                 -------                                 -------

    Operating expenses:
                    Research and
                     development                                         25,308                                  30,047                                  77,231                                  88,272
                     general and
                     administrative                                      17,192                                  16,698                                  50,925                                  52,114
                     of intangible
                     assets                                                 617                                   1,230                                   2,537                                   3,279
                   Total operating expenses                              43,117                                  47,975                                 130,693                                 143,665
                                                                         ------                                  ------                                 -------                                 -------
    Operating income                                                      7,900                                  12,396                                  26,638                                   9,807
    Interest income, net                                                    283                                     209                                     623                                     288
                                                                            ---                                     ---                                     ---                                     ---
    Income before income taxes                                            8,183                                  12,605                                  27,261                                  10,095
    Provision for income taxes                                              437                                   2,948                                   1,658                                     314
                                                                            ---                                   -----                                   -----                                     ---
    Net income                                                           $7,746                                  $9,657                                 $25,603                                  $9,781
                                                                         ======                                  ======                                 =======                                  ======

    Net earnings per share:
                   Basic                                                  $0.29                                   $0.33                                   $0.93                                   $0.32
                   Diluted                                                $0.28                                   $0.32                                   $0.90                                   $0.31

    Weighted average common shares (in
     thousands), used in
                    computing net
                    earnings per
                   Basic                                                 27,171                                  29,499                                  27,674                                  30,280
                   Diluted                                               27,764                                  30,299                                  28,423                                  31,232

    Cash dividends declared per share                                     $0.08                                   $0.05                                   $0.22                                   $0.05
                                                                          =====                                   =====                                   =====                                   =====
                                                             XYRATEX LTD
                                           UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                     August 31,                           November 30,
                                                                                  2012                                     2011
                                                                                  ----                                     ----
                                                               (US dollars and amounts
                                                                    in thousands)

    Current assets:
                      Cash and cash
                      equivalents                                             $103,177                                 $132,630
                      receivable, net                                          143,205                                  200,742
                     Inventories                                               209,108                                  164,180
                     Prepaid expenses                                            4,389                                    3,296
                      Deferred income
                      taxes                                                      1,411                                    9,020
                      Other current
                      assets                                                     3,528                                    7,016
                     Total current assets                                      464,818                                  516,884
                      Property, plant
                      and equipment,
                      net                                                       43,072                                   45,215
                      Intangible assets,
                      net                                                       15,591                                   18,128
                      Deferred income
                      taxes                                                     20,468                                   13,476
                     Total assets                                             $543,949                                 $593,703
                                                                              ========                                 ========

    Current liabilities:
                     Accounts payable                                         $104,873                                 $168,696
                      compensation and
                      benefits payable                                          16,391                                   21,786
                     Deferred revenue                                           24,350                                    7,692
                      Income taxes
                      payable                                                      221                                       43
                      Other accrued
                      liabilities                                               15,874                                   26,312
                     Total current liabilities                                 161,709                                  224,529
                     Long-term debt                                                  -                                        -
                     Total liabilities                                         161,709                                  224,529
                                                                               =======                                  =======

    Shareholders' equity
                      Common shares (in
                      thousands), par
                      value $0.01 per
                      70,000 authorized, 27,024 and 27,568
                      issued and outstanding                                       270                                      276
                      Additional paid-
                      in capital                                               353,185                                  361,070
                      Accumulated other
                      deficit                                                        -                                   (1,337)
                     Accumulated income                                         28,785                                    9,165

                     Total shareholders' equity                                382,240                                  369,174
                                                                               -------                                  -------
                      Total liabilities and shareholders'
                      equity                                                  $543,949                                 $593,703
                                                                              ========                                 ========
                                                    XYRATEX LTD

                                                     Nine Months Ended,
                                                         August 31,                         August 31,
                                                                      2012                               2011
                                                                      ----                               ----
                                                        (US dollars in
    Cash flows from operating activities:
    Net income                                                     $25,603                             $9,781
    Adjustments to reconcile net income to net
     cash provided by operating activities:
    Depreciation                                                    12,528                             15,031
    Amortization of intangible assets                                2,537                              3,279
    Non-cash equity compensation                                     5,048                              6,268
    Loss (gain) on sale of assets                                    1,183                                (44)
    Deferred income taxes                                              171                             (2,016)
    Changes in assets and liabilities, net of
     impact of acquisitions and divestitures
                      receivable                                    57,537                             34,302
                     Inventories                                   (44,928)                            38,739
                      expenses and
                      assets                                         2,395                             (3,654)
                      payable                                      (63,823)                             3,793
                      and benefits
                      payable                                       (5,395)                            (4,118)
                      revenue                                       16,658                             (6,451)
                      Income taxes
                      payable                                          178                                365
                      Other accrued
                      liabilities                                   (3,634)                             4,141
                      Net cash provided by
                      operating activities                           6,058                             99,416
                                                                     -----                             ------

    Cash flows from investing activities:
                      in property,
                      plant and
                      equipment                                    (11,568)                           (15,521)
                      Payment for
                      assets                                        (3,500)                            (4,700)
                      of business                                        -                             (6,084)
                      Net cash used in investing
                      activities                                   (15,068)                           (26,305)
                                                                   -------                            -------

    Cash flows from financing activities:
                      Proceeds from
                      issuance of
                      shares                                           661                                  2
                      Repurchase of
                      shares                                       (13,600)                           (23,884)
                      Dividends to
                      shareholders                                  (7,504)                            (1,459)
                      Decrease in
                      overdraft                                          -                             (2,374)

                      Net cash used in financing
                      activities                                   (20,443)                           (27,715)
                                                                   -------                            -------
    Change in cash and cash equivalents                            (29,453)                            45,396
    Cash and cash equivalents at beginning of
     period                                                        132,630                             90,842
                                                                   -------                             ------
    Cash and cash equivalents at end of period                    $103,177                           $136,238
                                                                  ========                           ========

            XYRATEX LTD

                                                                   Three Months Ended              Nine Months Ended
    Summary Reconciliation Of
     GAAP Net Income To Non-
     GAAP Net Income
                                           August 31,                        August 31,           August 31,              August 31,
                                                             2012                  2011                 2012                    2011
                                                             ----                  ----                 ----                    ----
                                                                     (US dollars in               (US dollars in thousands,
                                                                  thousands, except per            except per share amounts)
                                                                     share amounts)

    GAAP net income                                                  $7,746               $9,657                 $25,603                 $9,781

                               Amortization of intangible assets        617                1,230                   2,537                  3,279
                               Equity compensation                    1,203                1,855                   5,048                  6,268
                                Tax effect of above non-GAAP
                                adjustments                            (482)              (1,127)                 (1,924)                (2,140)
                               Effect of changes in tax rates         1,239                1,044                   1,239                  1,044
                                Malaysia deferred tax asset
                                recognized                                -                    -                  (1,489)                     -

    Non-GAAP net income                                             $10,323              $12,659                 $31,014                $18,232
                                                                    =======              =======                 =======                =======

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

    Diluted GAAP earnings per
     share                                                            $0.28                $0.32                   $0.90                  $0.31

                               Amortization of intangible assets      $0.02                 0.04                    0.09                  $0.11
                               Equity compensation                    $0.04                 0.06                    0.18                  $0.21
                                Tax effect of above non-GAAP
                                adjustments                          $(0.02)               (0.04)                  (0.07)                $(0.07)
                               Effect of changes in tax rates         $0.05                 0.03                    0.04                  $0.03
                                Malaysia deferred tax asset
                                recognized                              $ -                    -                   (0.05)                   $ -

    Diluted non-GAAP earnings
     per share                                                        $0.37                $0.42                   $1.09                  $0.59
                                                                      =====                =====                   =====                  =====

    Segmental Information

                               Enterprise Data Storage Solutions   $223,380             $336,621                $773,908               $971,969
                               HDD Capital Equipment                 52,290               25,215                 119,544                 88,914
                               Total                               $275,670             $361,836                $893,452             $1,060,883

    Gross profit:
                               Enterprise Data Storage Solutions    $34,370              $58,063                $126,839               $150,187
                               HDD Capital Equipment                 16,872                2,420                  31,177                  3,947
                               Equity compensation                     (225)                (112)                   (685)                  (662)
                               Total                                $51,017              $60,371                $157,331               $153,472

    Summary Of Equity

                               Cost of revenues                        $225                 $112                    $685                   $662
                               Research and development                 403                  697                   1,778                  2,244
                                Selling, general and
                                administrative                          575                1,046                   2,585                  3,362

                               Total equity compensation             $1,203               $1,855                  $5,048                 $6,268

SOURCE Xyratex Ltd

Source: PR Newswire