STEC, Inc. (Nasdaq:STEC), The SSD Company™, announced today the
Company's financial results for the second quarter ended June 30,
2011.
Revenue for the second quarter of 2011 was $82.5 million, an
increase of 34.6% from $61.3 million for the second quarter of 2010
and a decrease of 13.1% from $94.9 million for the first quarter of
2011.
GAAP gross profit margin was 44.7% for the second quarter of
2011, compared to 42.6% for the second quarter of 2010 and 42.4%
for the first quarter of 2011. GAAP diluted earnings per share from
continuing operations was $0.18 for the second quarter of 2011,
compared to $0.06 for the second quarter of 2010 and $0.27 for the
first quarter of 2011.
Non-GAAP gross profit margin was 44.9% for the second quarter of
2011, compared to 42.7% for the second quarter of 2010 and 42.5%
for the first quarter of 2011. Non-GAAP diluted earnings per share
from continuing operations was $0.23 for the second quarter of
2011, compared to $0.09 for the second quarter of 2010 and $0.32
for the first quarter of 2011.
The favorable financial results comparisons between the second
quarter of 2011 and the second quarter of 2010 were impacted by the
inventory carryover from 2009 into 2010 by one of our largest
customers.
A reconciliation of GAAP to non-GAAP results is provided in the
tables included in this release.
Business Outlook – Near-term challenges; Roadmap to 2012
being led by three major product line initiatives
"Our operating results for the second quarter of 2011 were in
line with our guidance," said Manouch Moshayedi, STEC's Chairman
and CEO. "As a result of several market challenges, our third
quarter results are expected to decline significantly from the
second-quarter levels. We believe that these challenges are
the result of two factors. First, we believe lower-cost SSD
solutions have been qualified at some of our customers. These
alternative solutions usually involve coupling lower-cost, lower
performance SATA-based drives with a connectivity bridge to a SAS
or FC interface. We believe that some of our OEM customers are
selling their systems incorporating these alternative products to
end-users at prices lower than the OEMs are currently able to offer
the same systems that incorporate our ZeusIOPS® SSD solutions.
Despite the performance and latency advantages of ZeusIOPS, our OEM
customers may be using the alternative solutions to reduce the
overall cost of end-user SSD implementations in order to stimulate
overall demand. Second, we believe that competitive SAS SSDs
may have been qualified at some of our major customers, which has
led to fewer orders for our SAS SSD solutions for the third
quarter.
"Although we face these near-term challenges, we continue
to make significant progress with key product initiatives. We
believe that these initiatives will drive renewed momentum in
our business and that these challenges should subside once these
products are in production. First, we continue the transition
of our ZeusIOPS SSD to its next generation (Gen 4) using lower-cost
MLC Flash media and based on our ASIC design replacing more costly
FPGAs. With qualification efforts underway, we expect to have this
version of the product qualified at several of our major OEM
customers by the second quarter of 2012.
"In addition, we have set the stage for the launch of our PCIe
accelerator card and plan to deliver samples to customers in the
third quarter of this year. This product leverages the same ASIC
design as our ZeusIOPS SSD and will be delivered using MLC Flash
media enhanced by our CellCareTM technology. This product
initiative should enable us to penetrate the Enterprise-Server
market with a more cost-effective alternative to current PCIe
products. We expect to have this product in production in the
second quarter of 2012.
"Furthermore, we are in the process of qualifying MLC versions
of our MACH16 SATA drives. Based on our proprietary ASIC design and
enhanced by our CellCare technology, these drives are ideally
suited for the Enterprise-Server market and will allow us to
compete in this large and growing sector with a favorable
price-to-performance value proposition. We believe that our
MACH16 drives will be qualified at some of our customers by the end
of this year and be in production by the first quarter of 2012.
"Lastly, we have significantly advanced the development of our
data caching software. Our caching solution is being designed to
optimize hardware utilization by improving server IO performance
through dynamic placement of data within a system. As this enhances
the value of SSDs to end-users, we expect this software to
accelerate adoption of our SSDs into the Enterprise-Server
market."
Guidance
STEC's current expectation for the third quarter of 2011 is as
follows:
- Revenue to range from $70 million to $72 million.
- Diluted non-GAAP earnings per share to range from
$0.08 to $0.10.
The decline in our third quarter expected revenues and earnings
per share compared to our second quarter results are due to the
factors described in the Business Outlook above.
STEC's projected non-GAAP earnings per share results exclude
employee stock compensation expense and other items that the
Company does not consider indicative of its underlying business
performance.
Conference Call
STEC will hold an open conference call to discuss results for
the second quarter of 2011. The call will take place today at 1:30
p.m., Pacific/ 4:30 p.m., Eastern. The call-in numbers for the
conference are (877) 645-6380 (United States and Canada) and (914)
495-8562 (International).
Webcast
This call will be webcast. The webcast can be accessed by
clicking on the red "Investors" tab at the top of the home page at
www.stec-inc.com. Then click on the "Audio Presentations"
button.
Replay
The webcast will also be archived and available for replay
beginning approximately two hours after the live call
concludes.
About STEC, Inc. (Nasdaq:STEC)
STEC, Inc., The SSD Company™, is a leading global provider of
solid-state drive (SSD) technologies and solutions tailored to meet
the high-performance, high-reliability needs of original equipment
manufacturers (OEMs). With headquarters in Santa Ana, California
and locations worldwide, STEC leverages almost two decades of
solid-state knowledge and experience to deliver the most
comprehensive line of SSDs to the storage industry.
For information about STEC and to subscribe to the Company's
"Email Alerts" service, please visit STEC's web site at
www.stec-inc.com, click on the red "Investors" tab at the top of
the home page and then click "Email Alerts."
The STEC, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=1079
STEC, the STEC logo, The SSD Company, ZeusIOPS and CellCare are
either registered trademarks or trademarks of STEC, Inc. in the
United States and certain other countries. All other
trademarks or brand names referred to herein are the property of
their respective owners.
Use of Non-GAAP Financial Information To
supplement the consolidated financial results prepared in
accordance with Generally Accepted Accounting Principles ("GAAP"),
STEC uses non-GAAP financial measures (non-GAAP gross profit,
non-GAAP gross profit percentage, non-GAAP operating expenses,
non-GAAP operating income, non-GAAP income from continuing
operations and non-GAAP diluted earnings per share from continuing
operations) that exclude employee stock compensation, special
charges for restructuring and Malaysia government incentive grant
income. Management excludes these items because it believes that
the non-GAAP measures enhance an investor's overall understanding
of STEC's financial performance and future prospects by being more
reflective of the Company's core, recurring operational activities
and to be more comparable with the results of the Company over
various periods. Management uses non-GAAP financial measures
internally for strategic decision making, forecasting future
results and evaluating current performance. Guidance is provided
only on a non-GAAP basis due to the inherent difficulty of
forecasting the timing or amount of such items. Difficulties in
forecasting the non-GAAP items include the timing of issuing
employee stock compensation, which could impact the valuation and
related expense, and the timing of receiving incentive grant income
from the Malaysian government. These items could be materially
significant in the Company's GAAP results in any period. By
disclosing non-GAAP financial measures, management intends to
provide investors with a more meaningful, consistent comparison of
the Company's core operating results and trends for the periods
presented. Non-GAAP financial measures are not prepared in
accordance with GAAP; therefore, the information is not necessarily
comparable to other companies' financial information and should be
considered as a supplement to, not a substitute for, or superior
to, the corresponding measures calculated in accordance with GAAP.
A complete reconciliation between GAAP and non-GAAP information
referred to in this release is provided in tables included in this
release. Certain amounts reported in prior releases may have been
reclassified to conform to the current quarter's non-GAAP
presentation.
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995. This release contains
forward-looking statements that involve risks and uncertainties,
including, but not limited to, statements concerning growing
acceptance, adoption and qualification of SSDs within the
Enterprise storage and server markets; expected cost advantages of
STEC's product lines; the qualification of STEC's next generation
ZeusIOPS product; the launch and delivery of samples of STEC's PCIe
accelerator card to customers; the qualification of the MLC
versions of STEC's MACH16 SATA drives; the benefits from STEC's
next generation ZeusIOPS product, PCIe accelerator card, MLC
versions of STEC's MACH16 SATA drives, data caching software and
other developing technologies; STEC's 2012 major product line
initiatives and roadmap; the transition from one product generation
to the next; the capabilities and performance of STEC's products
and solutions; the rapidly evolving storage and server markets; and
expected third quarter 2011 revenue and earnings per share. Such
forward-looking statements are based on current expectations and
involve inherent risks and uncertainties, including factors that
could delay, divert or change any of them, and could cause actual
outcomes and results to differ materially from current
expectations. Although STEC believes that the forward-looking
statements contained in this release are reasonable, it can give no
assurance that its expectations will be fulfilled. Important
factors which could cause actual results to differ materially from
those expressed or implied in the forward-looking statements are
detailed in filings with the Securities and Exchange Commission
made from time to time by STEC, including its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q, and its Current Reports
on Form 8-K. Special attention is directed to the portions of those
documents entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations." The information contained in this press release
is a statement of STEC's present intention, belief or expectation.
STEC may change its intention, belief, or expectation, at any time
and without notice, based upon any changes in such factors, in
STEC's assumptions or otherwise. STEC undertakes no obligation to
release publicly any revisions to any forward-looking statements to
reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
STEC,
INC. |
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS |
(in thousands, except
per share amounts) |
|
|
|
|
|
|
|
June 30, 2011 |
December 31,
2010 |
ASSETS |
|
|
Current Assets: |
|
|
Cash and cash equivalents |
$ 213,292 |
$ 170,457 |
Accounts receivable, net of
allowances of $4,117 at June 30, 2011 |
|
|
and $3,853 at December 31,
2010 |
45,583 |
47,831 |
Inventory |
80,177 |
88,968 |
Other current assets |
3,401 |
4,606 |
Total current
assets |
342,453 |
311,862 |
|
|
|
Leasehold interest in land |
2,573 |
2,596 |
Property, plant and equipment, net |
35,066 |
35,037 |
Goodwill |
1,682 |
1,682 |
Other long-term assets |
5,029 |
5,173 |
Deferred income taxes |
14,961 |
9,304 |
Total
assets |
$ 401,764 |
$ 365,654 |
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
Current Liabilities: |
|
|
Accounts payable |
$ 26,380 |
$ 25,762 |
Accrued and other
liabilities |
13,946 |
13,470 |
Total current
liabilities |
40,326 |
39,232 |
|
|
|
Long-term income taxes payable |
5,651 |
4,248 |
|
|
|
Commitments and contingencies |
-- |
-- |
Shareholders' Equity: |
|
|
Preferred stock, $0.001 par
value, 20,000 shares authorized, no shares |
|
|
issued and outstanding |
-- |
-- |
Common stock, $0.001 par value,
100,000 shares authorized, 51,595 |
|
|
shares issued and outstanding
as of June 30, 2011 and 51,046 shares |
|
|
issued and outstanding as of
December 31, 2010 |
52 |
51 |
Additional paid-in capital |
178,897 |
169,127 |
Retained earnings |
176,838 |
152,996 |
Total shareholders'
equity |
355,787 |
322,174 |
Total liabilities and
shareholders' equity |
$ 401,764 |
$ 365,654 |
|
|
|
|
|
|
|
|
|
STEC,
INC. |
UNAUDITED CONDENSED
CONSOLIDATED INCOME STATEMENTS |
(in thousands, except
per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
Six Months Ended
June 30, |
|
2011 |
2010 |
2011 |
2010 |
Net revenues |
$ 82,451 |
$ 61,348 |
$ 177,395 |
$ 100,157 |
Cost of revenues |
45,604 |
35,226 |
100,275 |
60,849 |
Gross profit |
36,847 |
26,122 |
77,120 |
39,308 |
|
|
|
|
|
Sales and marketing |
6,053 |
4,807 |
11,719 |
8,603 |
General and administrative |
7,905 |
7,099 |
15,314 |
14,038 |
Research and development |
12,987 |
10,366 |
24,987 |
20,020 |
Special charges |
-- |
18 |
-- |
(48) |
Total operating expenses |
26,945 |
22,290 |
52,020 |
42,613 |
|
|
|
|
|
Operating income (loss) |
9,902 |
3,832 |
25,100 |
(3,305) |
Other income |
90 |
523 |
43 |
389 |
Income (loss) from continuing
operations |
9,992 |
4,355 |
25,143 |
(2,916) |
before income taxes |
|
|
|
|
|
|
|
|
|
(Provision) benefit for income taxes |
(298) |
(1,418) |
(1,301) |
500 |
Income (loss) from continuing operations |
9,694 |
2,937 |
23,842 |
(2,416) |
|
|
|
|
|
Discontinued operations: |
|
|
|
|
Loss from operations of Consumer
Division |
-- |
(258) |
-- |
(258) |
Benefit for income taxes |
-- |
108 |
-- |
108 |
Loss from discontinued operations |
-- |
(150) |
-- |
(150) |
Net income (loss) |
9,694 |
2,787 |
23,842 |
(2,566) |
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
Basic: |
|
|
|
|
Continuing operations |
$ 0.19 |
$ 0.06 |
$ 0.46 |
$ (0.05) |
Discontinued operations |
-- |
-- |
-- |
-- |
Total |
$ 0.19 |
$ 0.06 |
$ 0.46 |
$ (0.05) |
Diluted: |
|
|
|
|
Continuing operations |
$ 0.18 |
$ 0.06 |
$ 0.45 |
$ (0.05) |
Discontinued operations |
-- |
-- |
-- |
-- |
Total |
$ 0.18 |
$ 0.06 |
$ 0.45 |
$ (0.05) |
|
|
|
|
|
Shares used in per share computation: |
|
|
|
|
Basic |
51,495 |
50,673 |
51,361 |
50,495 |
Diluted |
52,652 |
51,463 |
52,672 |
50,495 |
|
|
|
|
|
STEC, INC.
Non-GAAP Reconciliations
The non-GAAP financial measures included in the following tables
are non-GAAP gross profit, non-GAAP gross profit percentage,
non-GAAP operating expenses, non-GAAP operating income, non-GAAP
operating margin percentage, non-GAAP income from continuing
operations and non-GAAP diluted earnings per share from continuing
operations, which adjust for the following items: (a) employee
stock compensation expense, (b) special charges related to
restructuring costs and (c) Malaysia government grant incentive
income. Management believes these non-GAAP financial measures
enhance an investor's overall understanding of the Company's
financial performance and future prospects by being more reflective
of the Company's core, recurring operational activities and are
more comparable with the results of the Company over various
periods. Management uses non-GAAP financial measures internally for
strategic decision making, forecasting future results and
evaluating current performance. Non-GAAP financial measures are not
prepared in accordance with GAAP; therefore, the information is not
necessarily comparable to other companies' financial information
and should be considered as a supplement to, not a substitute for,
or superior to, the corresponding measures calculated in accordance
with GAAP.
Details of the items excluded from GAAP financial results in
calculating non-GAAP financial measures are as follows:
a) Employee stock compensation
costs incurred in connection with Accounting Standards Codification
718, "Compensation -- Stock Compensation," have been excluded as
management omits these expenses when evaluating its core operating
activities, for strategic decision making, forecasting future
results and evaluating current performance.
b) Special charges relate to a
restructuring plan that the Company implemented during the first
quarter of 2009. The Company completed the first phase of the
restructuring plan at the end of the first quarter of 2010 and
started the second phase of the restructuring plan in the second
quarter of 2010. These charges include expenses related to a
reduction in the Company's workforce and asset impairment charges.
The special charges primarily impacted U.S.-based operations and
employees as part of the overall transition of certain operations
to the Company's facility in Penang, Malaysia. Management believes
that costs incurred in connection with the restructuring plan,
which were primarily related to workforce reduction severance costs
and consolidation of facilities expenses are non-recurring in
nature and should be excluded when evaluating core operations.
c) Malaysia government grant
incentive income relates to proceeds received from the Ministry of
International Trade and Industry ("MITI") in Malaysia. The
grants are provided by MITI as incentive for the Company incurring
research and development expenses and employee training costs for
its operations in Malaysia. Since the grants represent
reimbursement of expenses which were previously included by the
Company as a non-GAAP item under Malaysia start-up costs, the
Company has reversed the related grant reimbursement income from
its second quarter of 2009 and 2010 non-GAAP results.
d) The amount represents the
estimated income tax effect of the non-GAAP
adjustments. Starting in the second quarter of 2011, the
Company calculated the tax effect of non-GAAP adjustments by
applying an applicable estimated jurisdictional tax rate to each
specific non-GAAP item. Prior to the second quarter of 2011,
the Company utilized the consolidated effective tax rate to
estimate the tax effect of non-GAAP adjustments.
STEC,
INC. |
Schedule Reconciling
GAAP Income From Continuing Operations to Non-GAAP Income From
Continuing Operations |
($ in thousands, except
per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
For the Quarters
Ended |
|
|
|
June 30, |
June 30, |
March 31, |
|
2011 |
2010 |
2011 |
GAAP income from continuing operations |
$ 9,694 |
$ 2,937 |
$ 14,148 |
|
|
|
|
The non-GAAP amounts have been
adjusted to exclude the following items: |
|
|
|
|
|
|
|
|
|
|
|
Excluded from cost of sales: |
|
|
|
Employee stock compensation
(a) |
138 |
$ 101 |
$ 99 |
|
138 |
101 |
99 |
Excluded from operating expenses: |
|
|
|
Employee stock compensation
(a) |
3,100 |
2,078 |
2,672 |
Special charges - restructuring
costs (b) |
-- |
18 |
-- |
|
3,100 |
2,096 |
2,672 |
Excluded from other income: |
|
|
|
Malaysia government incentive grant
income (c) |
-- |
(328) |
-- |
|
-- |
(328) |
-- |
|
|
|
|
Total non-GAAP adjustments before income
tax |
3,238 |
1,869 |
2,771 |
Income tax effect on non-GAAP adjustments
(d) |
(1,001) |
(384) |
(129) |
|
|
|
|
Net effect of adjustments to GAAP net
income |
2,237 |
1,485 |
2,642 |
Non-GAAP income from continuing
operations |
$ 11,931 |
$ 4,422 |
$ 16,790 |
|
|
|
|
GAAP diluted earnings per share from
continuing operations |
$ 0.18 |
$ 0.06 |
$ 0.27 |
Impact of non-GAAP adjustments on diluted
earnings per share |
0.05 |
0.03 |
0.05 |
Non-GAAP diluted earnings per share from
continuing operations |
$ 0.23 |
$ 0.09 |
$ 0.32 |
|
|
|
|
(a) - (d) See corresponding footnotes
above. |
|
|
|
|
|
|
|
STEC,
INC. |
Selected Non-GAAP
Financial Information |
($ in
thousands) |
(unaudited) |
|
|
|
|
|
|
|
|
|
For the Quarters
Ended |
|
|
|
June 30, |
June 30, |
March 31, |
|
2011 |
2010 |
2011 |
|
|
|
|
GAAP gross profit |
$ 36,847 |
$ 26,122 |
$ 40,273 |
Employee stock compensation
(a) |
138 |
101 |
99 |
Non-GAAP gross profit |
$ 36,985 |
$ 26,223 |
$ 40,372 |
|
|
|
|
GAAP gross profit % |
44.7% |
42.6% |
42.4% |
Effect of reconciling item on
gross profit % |
0.2% |
0.1% |
0.1% |
Non-GAAP gross profit % |
44.9% |
42.7% |
42.5% |
|
|
|
|
|
|
|
|
GAAP operating expenses |
$ 26,945 |
$ 22,290 |
$ 25,075 |
Employee stock compensation
(a) |
(3,100) |
(2,078) |
(2,672) |
Special charges - restructuring
costs (b) |
-- |
(18) |
-- |
Non-GAAP operating expenses |
$ 23,845 |
$ 20,194 |
$ 22,403 |
|
|
|
|
|
|
|
|
GAAP operating income |
$ 9,902 |
$ 3,832 |
$ 15,198 |
Employee stock compensation
(a) |
3,238 |
2,179 |
2,771 |
Special charges - restructuring
costs (b) |
-- |
18 |
-- |
Non-GAAP operating income |
$ 13,140 |
$ 6,029 |
$ 17,969 |
|
|
|
|
GAAP operating margin % |
12.0% |
6.2% |
16.0% |
Effect of reconciling items on
operating margin % |
3.9% |
3.6% |
2.9% |
Non-GAAP operating margin % |
15.9% |
9.8% |
18.9% |
|
|
|
|
|
|
|
|
(a) - (b) Refer to the corresponding
footnotes above. |
|
|
|
CONTACT: STEC, Inc.
Mitch Gellman, Vice President of Investor Relations
(949) 260-8328
ir@stec-inc.com
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