ACADEMIA

Xyratex (XRTX) Q3 2012 Earnings Call October 2, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Xyratex Earnings Conference Call. My name is Caris, and I will be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to hand the call over to your host for today, Mr. Brad Driver, VP of Investor Relations. Please proceed, sir.

Brad Driver - Vice President of Investor Relations

Thank you, Caris, and good afternoon, everyone. Thank you for taking the time to join us this afternoon. I'd like to welcome investors, research analysts and others listening today to Xyratex's Fiscal Third Quarter 2012 Results Conference Call.

On our call today are Steve Barber, Chief Executive Officer; and Richard Pearce, Chief Financial Officer. Today's call is being recorded and will be available for replay on Xyratex's Investor Relations home page at www.xyratex.com.

I'd like to remind everyone that today's comments, including the question-and-answer session, will include forward-looking statements, including but not limited to, a forecast of future revenue and earnings and other financial and business activities. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in Xyratex's filings with the Securities and Exchange Commission, including the company's 20-F dated February 24, 2012.

Also, please note that in addition to reporting financial results in accordance with Generally Accepted Accounting Principles, or GAAP, Xyratex routinely reports certain non-GAAP financial results. These non-GAAP measures, together with the corresponding GAAP numbers in reconciliation to GAAP, are contained in our earnings press release. We encourage listeners to review these items.

I would now like to turn the call over to Richard to review the financial details of the quarter.

Richard Charles Pearce - Chief Financial Officer and Director

Thank you, Brad, and good afternoon, everybody. I'd like to thank you for joining us today. Our press release is available both on PR Newswire and our website.

I'd now like to provide you with some commentary about our results for the third quarter. Please note that all numbers are in accordance with GAAP, unless stated otherwise.

Total revenue was $275.7 million, down 23.8% as compared to the third quarter of last year and down 14.4% from our prior fiscal quarter. The decline in revenue reflects a softening in enterprise storage demand; delays in customer product acceptance which delayed revenue recognition; and the constraint on the supply of a specific component for our Capital Equipment order.

Sales of our Enterprise Data Storage Solutions products were $223.4 million or 81% of total revenue. This is a decrease of 33.6% compared to the third quarter of last year and a decrease of 19.8% compared to our prior fiscal quarter.

Sales of our Capital Equipment products were $52.3 million or 19% of total revenue, up 107.4% compared to the third quarter of last year and up 19.8% compared to our prior fiscal quarter.

Gross margin was 18.5% for the quarter compared to 16.7% in the same period a year ago and 16.5% in our prior fiscal quarter. The gross margin for our Enterprise Data Storage Solutions products was 15.4% compared to 17.2% last year and 16.3% last quarter. The decrease reflects changes in customer mix and lower overall revenues relative to operations costs.

The gross margin for our Capital Equipment products was 32.3% compared to 9.6% last year and 19% last quarter. The less-than-expected gross margin primarily reflects the deferral of customer acceptance on the initial shipments of our new Optimus 3500 system, representing approximately $21 million, which provides circa 0 gross margin in the initial product provision stage. It is anticipated that the effect of this revenue at circa 0 gross margin will now be experienced in the fourth quarter.