Xyratex Ltd Announces Results for the First Quarter Fiscal Year 2007

Xyratex Ltd (Nasdaq:XRTX), a leading provider of enterprise class data storage subsystems and storage process technology, today announced results for the first fiscal quarter ended February 28, 2007. Revenues for the first quarter were $236.4 million, an increase of 24.1% compared to revenues of $190.5 million for the same period last year. For the first quarter, GAAP net income was $10.1 million, or $0.34 per diluted share, compared to GAAP net income of $6.4 million, or $0.22 per diluted share, in the same period last year. Non-GAAP net income increased 45.8% to $11.9 million, or a diluted earnings per share of $0.40, compared to non-GAAP net income of $8.3 million, or $0.28 per diluted share, in the same quarter a year ago (1). Gross profit margin in the first quarter was 19.0%, compared to 19.7% in the same period last year, primarily due to product mix within the Networked Storage Solutions business. Revenues from sales of our Networked Storage Solutions (formerly Storage and Network Systems) products were $163.6 million as compared to $128.8 million in the same quarter a year ago, an increase of 27%. Gross profit margin in the Networked Storage Solutions business was 13.6% as compared to 15.1% a year ago. Revenues from sales of our Storage Infrastructure products were $72.8 million as compared to $61.7 million in the same quarter a year ago, an increase of 18%. Gross profit margin in the Storage Infrastructure business was 31.6% as compared to 29.4% a year ago. "Our first quarter results were ahead of our expectation. With strong demand for our products, particularly in our Networked Storage Solutions business, I am encouraged with regard to our continued progress in executing our strategic plan and expansion of our customer base,” said Steve Barber, CEO of Xyratex. "The fundamentals of the markets we serve continue to be very good and I believe we continue to improve on our competitive and technology position. 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. I believe we are well positioned to capitalize on the positive industry dynamics that are creating significant demand for our storage products.” Business Highlights We announced full compliance with the administrative requirements of the Restriction of Hazardous Substances (RoHS) of China’s Ministry of Information Industry (MII). All Xyratex’s Networked Storage Solutions products shipped on the market are now fully compliant with the legislation. The achievement of RoHS compliance in China demonstrates Xyratex’s ongoing environmental compliance strategy through diligence and monitoring of emerging legislation worldwide. We secured new design wins with Data Domain, Leitch Technology, Overland Storage, Quantel, CorData, and Impediment, as well as with a number of other Tier 2 and Tier 3 customers. Business Outlook The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any future acquisitions or divestitures. Revenue in the second quarter of 2007 is projected to be in the range $203 to $218 million. Fully diluted earnings per share is anticipated to be between $0.01 and $0.11 on a GAAP basis in the second quarter. On a non-GAAP basis, fully diluted earnings per share is anticipated to be between $0.09 and $0.19. Non-GAAP earnings per share excludes non-cash equity compensation, amortization of intangible assets, certain non-recurring items and related taxation expense. Conference Call/Webcast Information Xyratex quarterly results conference call will be broadcast live via the internet at www.xyratex.com/investors on Tuesday, March 27, 2007 at 2:00 p.m. Pacific Time/5:00 p.m. Eastern Time. You can also access the conference call by dialing +1 (866) 543-6405 in the United States and +1 (617) 213-8897 outside of the United States, passcode 97621584. The press release will be posted to the company web site www.xyratex.com. A replay will be available through April 3, 2007 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 23791630. (1) Non-GAAP net income and diluted earnings per share excludes (a) amortization of intangible assets, (b) equity compensation expense, (c) specified non-recurring items, such as income from sale of a product line, and (d) 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 flow below. The intention in providing these non-GAAP measures is to provide supplemental information regarding the Company’s operational performance whilst 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 and in addition has not been measured consistently as a result of the implementation of FAS 123R; (c) the income from the sale of the product line is non-recurring and does not form part of the Company’s core operations; (d) the exclusion of the related tax effects of excluding items (a) to (c) 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 storage process technology. The company designs and manufactures enabling technology that provides OEM and disk drive manufacturer customers with data storage products to support high-performance storage and data communication networks. Xyratex has over 20 years of experience in research and development relating to disk drives, storage systems and high-speed communication protocols. 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, 2007  2006  (US dollars in thousands, except per share amounts)   Revenues: Networked Storage Solutions $ 163,616  $ 128,830  Storage Infrastructure 72,791  61,687  Total revenues 236,407  190,517    Cost of revenues 191,372  152,948  Gross profit: Networked Storage Solutions 22,286  19,511  Storage Infrastructure 22,994  18,166  Equity compensation (245) (108) Total gross profit 45,035  37,569  Operating expenses: Research and development 18,794  16,462  Selling, general and administrative 14,800  12,868  Amortization of intangible assets 1,651  1,185  Total operating expenses 35,245  30,515  Operating income 9,790  7,054  Other income 890  -  Interest income, net 655  205  Income before income taxes 11,335  7,259  Provision for income taxes 1,221  822  Net income $ 10,114  $ 6,437    Net earnings per share: Basic $ 0.35  $ 0.23  Diluted $ 0.34  $ 0.22    Weighted average common shares (in thousands), used in computing net earnings per share:   Basic 28,847  28,509  Diluted 29,699  29,172  XYRATEX LTD UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS     February 28, November 30, 2007  2006  (US dollars and amounts in thousands)   ASSETS Current assets: Cash and cash equivalents $ 54,595  $ 56,921  Accounts receivable, net 112,320  105,324  Inventories 86,668  93,111  Prepaid expenses 3,367  2,390  Deferred income taxes 5,000  2,513  Other current assets 8,078  7,247  Total current assets 270,028  267,506  Property, plant and equipment, net 35,076  34,471  Intangible assets, net 61,365  58,109  Deferred income taxes 13,275  15,594  Total assets $ 379,744  $ 375,680    LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 88,347  $ 84,896  Short-term borrowings 4,000  4,000  Employee compensation and benefits payable 11,339  16,645  Deferred revenue 12,845  16,303  Income taxes payable 2,199  1,641  Other accrued liabilities 13,075  14,701  Total current liabilities 131,805  138,186  Long-term debt 2,000  3,000  Total liabilities 133,805  141,186    Shareholders' equity Common shares of Xyratex Ltd (in thousands), par value $0.01 per share 70,000 authorized, 28,928 and 28,793 issued and outstanding 289  288  Additional paid-in capital 346,847  344,686  Accumulated other comprehensive income 1,943  2,774  Accumulated deficit (103,140) (113,254) Total shareholders' equity 245,939  234,494  Total liabilities and shareholders' equity $ 379,744  $ 375,680  XYRATEX LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     Three Months Ended, February 28, February 28, 2007  2006  (US dollars in thousands) Cash flows from operating activities: Net income from continuing operations $ 10,114  $ 6,437  Adjustments to reconcile net income to net cash used in operating activities:   Depreciation 3,037  1,998  Amortization of intangible assets 1,651  1,185  Non-cash equity compensation 1,660  1,369  Changes in assets and liabilities, net of impact of acquisitions and divestitures Accounts receivable (6,996) (5,356) Inventories 6,443  (25,774) Prepaid expenses and other current assets (2,995) (887) Accounts payable 3,451  24,961  Employee compensation and benefits payable (5,306) (4,349) Deferred revenue (3,458) 6,106  Income taxes payable 558  (97) Deferred income taxes 608  790  Other accrued liabilities (502) 407  Net cash provided by operating activities 8,265  6,790    Cash flows from investing activities: Investments in property, plant and equipment (3,642) (5,390) Acquisition of intangible assets (4,790) -  Acquisition of business, net of cash received (1,661) (2,013) Net cash used in investing activities (10,093) (7,403)   Cash flows from financing activities: Payments of long-term borrowings (1,000) (1,000) Proceeds from issuance of shares 502  1,799  Net cash used in financing activities (498) 799  Change in cash and cash equivalents (2,326) 186  Cash and cash equivalents at beginning of period 56,921  41,240  Cash and cash equivalents at end of period $ 54,595  $ 41,426  XYRATEX LTD SUPPLEMENTAL INFORMATION     Three Months Ended February 28, February 28, Summary Reconciliation Of GAAP Net Income To Non-GAAP Net Income 2007  2006  (US dollars in thousands, except per share amounts)   GAAP net income $10,114  $6,437    Amortization of intangible assets 1,651  1,185  Equity compensation 1,660  1,369  Other income (890) -    Tax effect of non-GAAP adjustments (674) (698)     Non-GAAP net income $11,861  $8,293      Summary Reconciliation Of Diluted GAAP Earnings Per Share To Diluted Non-GAAP Earnings Per Share   Diluted GAAP earnings per share $0.34  $0.22    Amortization of intangible assets 0.06  0.04  Equity compensation 0.05  0.04  Other income (0.03) -    Tax effect of non-GAAP adjustments (0.02) (0.02)     Diluted non-GAAP earnings per share $0.40  $0.28      Summary Of Equity Compensation   Cost of revenues 245  108  Research and development 491  285  Selling, general and administrative 924  976      Total equity compensation 1,660  1,369