STEC, Inc. (Nasdaq:STEC) announced today the Company's financial
results for the third quarter ended September 30, 2012.
Revenue for the third quarter of 2012 was $42.1 million, a
decrease of 41.9% from $72.5 million for the third quarter of 2011
and an increase of 3.4% from $40.7 million for the second quarter
of 2012.
GAAP gross profit margin was 37.0% for the third quarter of
2012, compared to 45.8% for the third quarter of 2011 and 36.6% for
the second quarter of 2012. GAAP diluted loss per share was $0.42
for the third quarter of 2012, compared to diluted earnings per
share of $0.09 for the third quarter of 2011 and a diluted loss per
share of $1.07 for the second quarter of 2012.
Non-GAAP gross profit margin was 37.5% for the third quarter of
2012, compared to 46.0% for the third quarter of 2011 and 37.2% for
the second quarter of 2012. Non-GAAP diluted loss per share was
$0.24 for the third quarter of 2012, compared to diluted earnings
per share of $0.14 for the third quarter of 2011 and a diluted loss
per share of $0.27 for the second quarter of 2012.
A reconciliation of GAAP to non-GAAP results is provided in the
tables included in this release.
Business Outlook
"During the third quarter of 2012, we worked towards broadening
our customer base to a mixed model of OEM, Channel and Enterprise
end-user customers," said Mark Moshayedi, STEC's Chief Executive
Officer and President. "Our initiatives to tap the sizable
potential of the enterprise markets – comprised of direct or
end-user customers -- are advancing as we have experienced growth
in sales emerging from these customers in the third quarter of
2012. This early progress helps to validate the continued
investment that we are making in the expansion of our enterprise
end-user sales & marketing and channel-support infrastructure.
We expect the full benefits of this transition to take place over
several quarters.
"Diversifying our market presence has the potential of expanding
our total addressable market, increasing our customer base, and
reducing our overall sales cycle, given that enterprise customer
qualification timelines tend to be shorter. This transformation
will not happen overnight, but we are committed to delivering
storage solutions to a broader customer base by leveraging our IP
and solid state technology."
Guidance
STEC's current expectation for the fourth quarter of 2012 is as
follows:
- Revenue to range from $36 million to $40 million.
- Non-GAAP diluted loss per share to range from $0.31 to
$0.35.
STEC's projected non-GAAP loss per share results exclude
employee stock compensation expense and other items that the
Company does not consider indicative of its underlying business
performance.
Class Action Settlement
On October 5, 2012, the Company entered into a Stipulation and
Agreement of Settlement (the "Settlement Agreement") to settle the
previously disclosed federal class action filed against the Company
and several of its senior officers and directors in the United
States District Court for the Central District of California. The
Settlement Agreement provides for the resolution of all the pending
claims in the federal class action litigation, without any
admission or concession of wrongdoing by the Company or the other
defendants. The Company and the other defendants have entered into
the Settlement Agreement to eliminate the uncertainty, distraction,
burden and expense of further litigation. The Settlement Agreement
provides for a fund of $35.8 million in exchange for a full and
complete release of all claims that were or could have been
asserted in the federal class action. As previously disclosed, the
Company had recorded as of June 30, 2012 an estimated settlement
accrual of $35 million and an insurance claim receivable of $20
million, resulting in a net charge of $15 million. On October 18,
2012, the Company's insurance carriers agreed to contribute
$562,500 of the additional settlement cost of $750,000. As a
result, the Company has recorded an additional settlement accrual
of $750,000 and an additional insurance claim receivable of
$562,500, resulting in a net charge of $187,500 for the quarterly
period ended September 30, 2012. The Settlement Agreement remains
subject to court approval and certain other conditions, including
notice to class members and an opportunity for class members to
object to or opt out of the settlement. At this time, there can be
no assurance that the conditions to effect the settlement will be
met, that the Settlement Agreement will receive the required court
and other approvals or that the settlement will become final. The
Company expects the settlement of the federal class action will
also result in a full release of the class claims asserted in the
previously disclosed class action in the Superior Court of Orange
County, California. The settlement does not resolve the related
federal and state shareholder derivative litigation.
Conference Call
STEC will hold an open conference call to discuss results for
the third quarter of 2012. 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 blue "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.
STEC, Inc. is a leading global provider of enterprise-class
solid-state drive (SSD) technologies and solutions tailored to meet
the high-performance, high-reliability and high-endurance needs of
today's data-intensive server and storage platforms. With
headquarters in Santa Ana, California, and locations worldwide,
STEC leverages almost two decades of solid-state knowledge and
experience to design, manufacture and deliver the most
comprehensive line of PCIe, SAS, SATA, and embedded SSDs on the
market today. In addition, STEC's EnhanceIOTM SSD Cache Software
enables IT managers to cost-effectively scale server application
performance. For more information, please visit
www.stec-inc.com.
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, and EnhanceIO 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 U.S. 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 (loss) income, non-GAAP operating
margin percentage, non-GAAP other income (expense), non-GAAP (loss)
income and non-GAAP diluted (loss) earnings per share) that exclude
employee stock compensation expense, employee severance, securities
litigation related costs, SEC investigation and litigation costs,
intellectual property litigation costs, litigation loss contingency
and deferred tax asset valuation allowance. 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 employee
severance payments. These items could be materially significant to
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; the qualification of STEC's
products and other developing technologies; the qualification of
STEC's products and solutions into emerging SSD system vendors,
enterprises and non-traditional end-user customers; leveraging
STEC's sales and marketing and channel-support infrastructure to
cater to enterprises directly and develop a new vertical market
strategy; STEC's key product line initiatives and development; the
transition from one product generation to the next; the length of
qualification cycles; the capabilities, performance, cost
advantages, and benefits of STEC's products and solutions; the
rapidly evolving enterprise storage and server markets; expected
fourth quarter of 2012 revenue and loss per share; and the
anticipated settlement of the previously disclosed federal and
state class actions filed against the Company and several of its
senior officers and directors. 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. Additional 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. Except as
required by law, 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) |
|
|
|
|
|
|
|
September 30,
2012 |
December 31,
2011 |
ASSETS: |
|
|
Current Assets: |
|
|
Cash and cash equivalents |
$ 186,201 |
$ 180,853 |
Accounts receivable, net of
allowances of $3,265 at September 30, 2012 and $3,010 at
December 31, 2011 |
13,169 |
30,475 |
Inventory |
44,538 |
58,629 |
Insurance claim receivable |
20,563 |
1,583 |
Other current assets |
6,792 |
7,384 |
Total current
assets |
271,263 |
278,924 |
|
|
|
Leasehold interest in land |
2,515 |
2,549 |
Property, plant and equipment, net |
32,001 |
34,287 |
Goodwill |
1,682 |
1,682 |
Long-term intangible assets, net |
5,061 |
6,185 |
Deferred income taxes, net |
-- |
12,137 |
Other long-term assets |
818 |
818 |
Total
assets |
$ 313,340 |
$ 336,582 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY: |
|
|
Current Liabilities: |
|
|
Accounts payable |
$ 11,246 |
$ 6,837 |
Accrued and other
liabilities |
53,330 |
14,309 |
Total current
liabilities |
64,576 |
21,146 |
Other long-term payables |
4,241 |
5,083 |
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, 46,724 shares issued and outstanding as
of September 30, 2012 and 46,110 shares issued and outstanding as
of December 31, 2011 |
47 |
46 |
Additional paid-in capital |
146,449 |
132,211 |
Retained earnings |
98,027 |
178,096 |
Total shareholders'
equity |
244,523 |
310,353 |
Total liabilities and
shareholders' equity |
$ 313,340 |
$ 336,582 |
|
STEC,
INC. |
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
INCOME |
(in thousands, except
per share amounts) |
|
|
|
|
Quarter Ended
September 30, |
Nine Months Ended
September 30, |
|
2012 |
2011 |
2012 |
2011 |
Net revenues |
$ 42,053 |
$ 72,529 |
$ 133,173 |
$ 249,924 |
Cost of revenues |
26,499 |
39,317 |
84,638 |
139,592 |
Gross profit |
15,554 |
33,212 |
48,535 |
110,332 |
|
|
|
|
|
Sales and marketing |
7,306 |
5,835 |
20,842 |
17,554 |
General and administrative |
12,751 |
7,332 |
35,280 |
22,646 |
Research and development |
16,911 |
14,521 |
50,485 |
39,508 |
Total operating expenses |
36,968 |
27,688 |
106,607 |
79,708 |
|
|
|
|
|
Operating (loss) income |
(21,414) |
5,524 |
(58,072) |
30,624 |
Other income (expense) |
985 |
6 |
(13,126) |
49 |
(Loss) income from operations
before income taxes |
(20,429) |
5,530 |
(71,198) |
30,673 |
(Benefit) Provision for income taxes |
(646) |
686 |
8,871 |
1,987 |
Net (loss) income |
(19,783) |
4,844 |
(80,069) |
28,686 |
Comprehensive (loss)
income |
$ (19,783) |
$ 4,844 |
$ (80,069) |
$ 28,686 |
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
Basic |
$ (0.42) |
$ 0.10 |
$ (1.73) |
$ 0.56 |
Diluted |
$ (0.42) |
$ 0.09 |
$ (1.73) |
$ 0.55 |
|
|
|
|
|
Shares used in per share computation: |
|
|
|
|
Basic |
46,639 |
50,610 |
46,374 |
51,108 |
Diluted |
46,639 |
51,206 |
46,374 |
52,181 |
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 (loss) income,
non-GAAP other (expense) income, non-GAAP operating margin
percentage, non-GAAP (loss) income and non-GAAP diluted (loss)
earnings per share, which adjust for the following items: (a)
employee stock compensation expense, (b) employee severance, (c)
securities litigation related costs, (d) SEC investigation and
litigation costs, (e) intellectual property litigation costs, (f)
litigation loss contingency and (g) deferred tax asset valuation
allowance. 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 and explanatory footnotes
are as follows:
a) Employee stock compensation
costs incurred in connection with Accounting Standards Codification
("ASC") 718, "Compensation -- Stock Compensation," are comprised on
non-cash expenses related to equity compensation provided to
employees, officers and directors. Management believes
non-cash stock compensation costs should be excluded when
evaluating core operations and current performance.
b) Employee severance relates to
one-time costs incurred in conjunction with the termination of
certain employees. As an accommodation, the Company provides
compensation in the form of severance to certain employees subject
to termination without cause. Management believes that
severance costs should be excluded when evaluating core operations
and current performance.
c) In the fourth quarter of 2009
and first quarter of 2010, certain securities class action and
shareholder derivative lawsuits were filed against the Company and
certain officers and directors of the Company. These costs
represent the legal fees related to these class action securities
and shareholder derivative actions that have not been covered by
the Company's Directors and Officers insurance policies and include
indemnifiable legal costs advanced on behalf of these officers and
directors. Management believes these legal fees should be excluded
when evaluating core operations and current performance.
d) The SEC initiated in the fourth
quarter of 2009 an investigation of the Company and certain
officers in connection with trading in the Company's securities,
which on July 19, 2012 resulted in the SEC filing a civil
action against the Company's Founder, Manouch Moshayedi. The
SEC also notified the Company that it would not bring an
enforcement action against the Company or any of its other
officers. These costs represent the legal fees related to this
investigation and related civil action that have not been covered
by the Company's Directors and Officers insurance policies and
include indemnifiable legal costs advanced on behalf of these
officers. Management believes these legal fees should be
excluded when evaluating core operations and current
performance.
e) On September 7, 2011, Solid
State Storage Solutions, Inc. filed a patent infringement suit
against the Company and several other defendants. According to
the complaint, the patents relate to solid-state drives employing a
controller chip and a plurality of NAND flash devices. The
Company believes the lawsuit is without merit and intends to
vigorously defend itself. Management believes that legal fees
and expenses incurred in conjunction with this lawsuit should be
excluded when evaluating core operations and current
performance.
f) In connection with the
legal matters described in c) above, the Company has accrued an
estimated loss contingency. Management believes that the
litigation loss contingency should be excluded when evaluating core
operations and current performance.
g) In accordance with ASC Topic
740, Income Taxes, the Company determined based upon an evaluation
of all available objectively verifiable evidence, including but not
limited to the Company's U.S. operations falling into a cumulative
three year loss, that a non-cash valuation allowance should be
established against its U.S. deferred tax assets which are
comprised primarily of accumulated and unused U.S. tax credits and
2012 net operating losses. The establishment of a full non-cash
valuation allowance on the Company's U.S. deferred tax assets does
not have any impact on its cash, nor does such an allowance
preclude the Company from utilizing its tax losses, tax credits or
other deferred tax assets in future periods. Management
believes that the non-cash valuation allowance against U.S.
deferred tax assets benefitted in prior periods should be excluded
when evaluating core operations and current performance.
h) The amount represents the
estimated income tax effect of the non-GAAP
adjustments. Starting in the third 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 third 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 (Loss) Income to Non-GAAP (Loss) Income |
($ in thousands, except
per share amounts) |
(unaudited) |
|
|
|
For the Quarters
Ended |
|
September 30, |
September 30, |
June 30, |
|
2012 |
2011 |
2012 |
GAAP net (loss) income |
$ (19,783) |
$ 4,844 |
$ (49,597) |
|
|
|
|
The GAAP amounts have been adjusted
to exclude the following items (non-GAAP
adjustments): |
|
|
|
|
|
|
|
Excluded from cost of sales: |
|
|
|
Employee stock compensation
(a) |
$ 236 |
$ 154 |
$ 244 |
Total excluded from cost of
sales |
236 |
154 |
244 |
|
|
|
|
Excluded from operating expenses: |
|
|
|
Employee stock compensation
(a) |
3,892 |
3,518 |
3,930 |
Employee severance (b) |
49 |
-- |
128 |
Securities litigation related
costs (c) |
2,839 |
-- |
3,492 |
SEC investigation and
litigation costs (d) |
639 |
-- |
860 |
IP litigation costs (e) |
616 |
-- |
400 |
Total excluded from operating
expenses |
8,035 |
3,518 |
8,810 |
|
|
|
|
Excluded from other (expense) income: |
|
|
|
Litigation loss contingency
(f) |
188 |
-- |
15,000 |
|
188 |
-- |
15,000 |
|
|
|
|
Total excluded from cost of sales,
operating expenses and other (expense) income before income
taxes |
8,459 |
3,672 |
24,054 |
|
|
|
|
Income tax effect on
non-GAAP adjustments (h) |
(70) |
(1,158) |
(82) |
Total excluded from cost of sales and
operating expenses after taxes |
8,389 |
2,514 |
23,972 |
|
|
|
|
Excluded from provision for income
taxes: |
|
|
|
Deferred tax asset
valuation allowance (g) |
-- |
-- |
13,233 |
Total non-GAAP adjustments after income
taxes |
8,389 |
2,514 |
37,205 |
|
|
|
|
Non-GAAP (loss) income |
$ (11,394) |
$ 7,358 |
$ (12,392) |
|
|
|
|
GAAP diluted (loss) earnings per share |
$ (0.42) |
$ 0.09 |
$ (1.07) |
Impact of non-GAAP adjustments on diluted
(loss) earnings per share |
0.18 |
0.05 |
0.80 |
Non-GAAP diluted (loss) earnings per
share |
$ (0.24) |
$ 0.14 |
$ (0.27) |
|
|
|
|
(a) - (h) See corresponding
footnotes above. |
|
|
|
|
STEC,
INC. |
Selected Non-GAAP
Financial Information |
($ in
thousands) |
(unaudited) |
|
|
|
For the Quarters
Ended |
|
September 30, |
September 30, |
June 30, |
|
2012 |
2011 |
2012 |
|
|
|
|
GAAP gross profit |
$ 15,554 |
$ 33,212 |
$ 14,889 |
Employee stock compensation
(a) |
236 |
154 |
244 |
Non-GAAP gross profit |
$ 15,790 |
$ 33,366 |
$ 15,133 |
|
|
|
|
GAAP gross profit % |
37.0% |
45.8% |
36.6% |
Effect of reconciling item on
gross profit % |
0.5% |
0.2% |
0.6% |
Non-GAAP gross profit % |
37.5% |
46.0% |
37.2% |
|
|
|
|
GAAP operating expenses |
$ 36,968 |
$ 27,688 |
$ 37,666 |
Employee stock compensation
(a) |
(3,892) |
(3,518) |
(3,930) |
Employee severance (b) |
(49) |
-- |
(128) |
Securities litigation related
costs (c) |
(2,839) |
-- |
(3,492) |
SEC investigation and
litigation costs (d) |
(639) |
-- |
(860) |
IP litigation costs (e) |
(616) |
-- |
(400) |
Non-GAAP operating expenses |
$ 28,933 |
$ 24,170 |
$ 28,856 |
|
|
|
|
GAAP operating (loss) income |
$ (21,414) |
$ 5,524 |
$ (22,777) |
Employee stock compensation
(a) |
4,128 |
3,672 |
4,174 |
Employee severance (b) |
49 |
-- |
128 |
Securities litigation related
costs (c) |
2,839 |
-- |
3,492 |
SEC investigation and
litigation costs (d) |
639 |
-- |
860 |
IP litigation costs (e) |
616 |
-- |
400 |
Non-GAAP operating (loss) income |
$ (13,143) |
$ 9,196 |
$ (13,723) |
|
|
|
|
GAAP operating margin % |
-50.9% |
7.6% |
-56.0% |
Effect of reconciling items on
operating margin % |
19.6% |
5.1% |
22.3% |
Non-GAAP operating margin % |
-31.3% |
12.7% |
-33.7% |
|
|
|
|
GAAP other income (expense) |
$ 985 |
$ 6 |
$ (14,342) |
Litigation loss contingency (f) |
188 |
-- |
15,000 |
Non-GAAP other income |
$ 1,173 |
$ 6 |
$ 658 |
|
|
|
|
(a) - (f) 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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