SOURCE: Adaptec

October 20, 2005 15:21 ET

Adaptec Provides Preliminary Operating Results for Second Quarter FY 2006

Strength in Core Business Improves Revenue and Gross Margin

MILPITAS, CA -- (MARKET WIRE) -- October 20, 2005 -- Adaptec, Inc. (NASDAQ: ADPT), a global leader in storage solutions, today provided preliminary operating results for the second quarter of fiscal 2006. This improved financial guidance is a result of strength in Adaptec's Components business which is reflected in many of our key financial metrics.

Revenue for the Company's combined operations for the quarter ended September 30, 2005 is expected to be approximately $115 million, compared with the net revenue projection in the Q1 earnings call on July 28, 2005 of approximately $106 million. Non-GAAP gross margin for the Company's combined operations for the quarter ended September 30, 2005 is expected to be in the range of 32% to 34%, compared with projected gross margin of approximately 27% to 28%. Non-GAAP operating expenses for the Company's combined operations for the quarter ended September 30, 2005 are expected to be in the range of $39 to $41 million compared with projected non-GAAP operating expenses in the range of $43 to $44 million. Non-GAAP loss per share for the Company's combined operations for the quarter ended September 30, 2005 is expected to be in the range of ($0.01) to ($0.03), compared with projected non-GAAP loss per share of between ($0.12) and ($0.13).

During the quarter, the Company divested its IBM iSeries and pSeries RAID business and recently announced its intention to divest its Systems business. These two businesses are now considered "discontinued operations" and will be referenced as such in this announcement and in all future earnings announcements. Similarly, the Company's Components and Desktop businesses are considered "continuing operations." The operating results reflected in the prior paragraph are based on the combination of continuing and discontinued operations. Individual detail on continuing and discontinued operations is provided below.

The Company indicated that all of the increased revenue performance is attributed to its Components business (continuing operations), particularly sales to OEMs. The improvement in operating margins occurred in all of the Company's business segments and reflects improvements in supply chain management, reduced spending and favorable product mix.

Revenue for continuing and discontinued operations for the quarter ended September 30, 2005 is expected to be approximately $83 million and $32 million, respectively. Gross margins for continuing and discontinued operations for the quarter ended September 30, 2005 are expected to be in the range of 34% to 35% and 28% to 29%, respectively. Non-GAAP operating expenses for continuing and discontinued operations for the quarter ended September 30, 2005 are expected to be in the range of $31 to $32 million and $8 to $9 million, respectively. A reconciliation of Non-GAAP information to GAAP is attached and will be posted to Adaptec's web site at www.adaptec.com/investor.

The Company will also be recording a total impairment of its goodwill of $90.6 million and a loss on the sale of the IBM iSeries and pSeries RAID business in the amount of $7 million in the quarter ended September 30, 2005. As a result, we anticipate a GAAP loss per share of ($0.92) to ($0.97).

Adaptec noted that although its second fiscal quarter ended on September 30, 2005, the preliminary financial information included in this release is based on management's current estimates and remains subject to completion of the financial statements for the fiscal quarter. The Company will provide the actual results for the second fiscal quarter during its earnings conference call on November 3, 2005, at 1:45 p.m. PST. This call will be webcast and can be accessed via Adaptec's IR web site at www.adaptec.com/investor. A replay will be available following the conclusion of the call.

Safe Harbor Statement

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements include statements regarding future events or the future performance of Adaptec including, but not limited to, the Company's expected operating results for Q2 of its Fiscal Year 2006. These forward-looking statements are based on current expectations, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include: identifying potential buyers for the systems business; market demand for RAID products; difficulty in forecasting the volume and timing of customer orders; reduced demand in the server, network storage and desktop computer markets; our target markets' failure to accept, or delay in accepting, network storage and other advanced storage solutions, including our SAS, SATA and iSCSI lines of products; decline in consumer acceptance of our current products; the timing and volume of orders by OEM customers for storage products; our ability to control and manage costs associated with the delivery of new products; and the adverse effects of the intense competition we face in our business. For a more complete discussion of risks related to our business, reference is made to the section titled "Risk Factors" included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, on file with the Securities and Exchange Commission. Adaptec assumes no obligation to update any forward looking information that is included in this release.

About Adaptec

Adaptec, Inc. (NASDAQ: ADPT) provides trusted storage solutions that reliably move, manage, and protect critical data and digital content. Adaptec's software and hardware-based solutions are delivered through leading Original Equipment Manufacturers (OEMs) and channel partners to provide storage connectivity, data protection, and networked storage to enterprises, government organizations, medium and small businesses, and consumers worldwide. Adaptec is an S&P Small Cap 600 Index member. More information is available at www.adaptec.com.

                          Adaptec, Inc.
                   Q2'06 Preliminary Results
            ($ in millions, except per share amounts)


                                         Quarter Ended
                                       September 30, 2005
                             GAAP          Adjustments       Non-GAAP
                        ---------------  ---------------  ---------------
Revenue - Continuing
 Operations                       $83.0                             $83.0
Revenue - Discontinued
 Operations                        $0.0            $32.0*           $32.0
                        ---------------  ---------------  ---------------
Total Revenue                     $83.0                            $115.0*

Gross Margin -
 Continuing Operations         34% - 35%                         34% - 35%
Gross Margin -
 Discontinued Operations              0%        28% - 29%*       28% - 29%
                        ---------------  ---------------  ---------------
Total Gross Margin             34% - 35%                         32% - 34%*

Operating Expenses -
 Continuing Operations  $124.0 - $125.0           ($93.0)** $31.0 - $32.0
Operating Expenses -
 Discontinued Operations           $0.0      $8.0 - $9.0*     $8.0 - $9.0
                        ---------------  ---------------  ---------------
Total Operating
 Expenses               $124.0 - $125.0                     $39.0 - $41.0*

Loss Per Share            $0.92 - $0.97   ($0.91 - $0.94)** $0.01 - $0.03
Adjustments

* Total revenue, total gross margin and total operating expenses are being provided as a bridge between our preliminary results and our previous forecast. At the time of our previous forecast, all of our operations were continuing operations.

** Amortization of acquisition-related intangible assets of approximately $1.6 million, management incentive program associated with Snap Appliance acquisition of approximately $0.2 million, deferred compensation expense related to assumed stock options associated with the Snap Appliance acquisition of approximately $0.1 million, restructuring charges of $0.5 million, goodwill impairment of $90.6 million.

These non-GAAP measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that we believe are not indicative of our core operating results. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. The non-GAAP information is presented using consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.

Contact Information

  • Editorial Contact:
    Mary Camarata
    Adaptec, Inc.
    408-957-1630
    Email Contact

    Investor Contact:
    Marshall Mohr
    Adaptec, Inc.
    408-957-6773
    Email Contact