Exhibit 99.1
| | | | |
Media Contact: Patrick Wilkison Vice President, Marketing and Business Development (949) 476-1180 pwilkison@stec-inc.com | | | | Investors and Financial Media Contact: Mitch Gellman Vice President of Investor Relations (949) 260-8328 ir@stec-inc.com |
STEC Announces Second Quarter 2007 Results
SANTA ANA, Calif., August 13, 2007 – STEC, Inc. (Nasdaq:STEC), announced today its financial results for the second quarter ended June 30, 2007.
Revenue for the second quarter of 2007 was $43.7 million, a decrease of 7.6% from $47.3 million for the second quarter of 2006, and a decrease of 7.4% from $47.2 million for the first quarter of 2007. GAAP gross profit margin was 31.3% for the second quarter of 2007, compared to 32.9% for the second quarter of 2006, and 30.6% for the first quarter of 2007. GAAP diluted earnings per share from continuing operations was $0.04 for the second quarter of 2007, compared to $0.09 for the second quarter of 2006, and $0.04 for the first quarter of 2007.
GAAP results in the second quarter of 2007 included start-up costs related to the company’s Malaysia facility that is currently under construction, global tax structuring costs and first-year implementation costs related to Sarbanes-Oxley Act Section 404. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release. Non-GAAP gross profit margin was 31.8% for the second quarter of 2007, compared to 32.9% for the second quarter of 2006, and 32.2% for the first quarter of 2007. Non-GAAP diluted earnings per share was $0.05 for the second quarter of 2007, compared to $0.09 for the second quarter of 2006, and $0.05 for the first quarter of 2007.
Business Outlook
“During the second quarter of 2007, sampling activity and production revenue from our new line of Zeus IOPS Solid-State Drives (“SSD”) accelerated in the Enterprise storage and Video-on-Demand (“VoD”) sectors,” said Manouch Moshayedi, STEC’s chief executive officer. “Market receptivity for Zeus IOPS with Fibre Channel has been exceptional. We believe that at this time, our technology is clearly the leading technology for Enterprise-level applications. In a previous conference call, we projected a significant impact from our Zeus IOPS SSDs in 2008 and beyond, with modest, first-year revenue to range from $5 million to $10 million in 2007. As a result of the success of sampling programs, we are confident that we will reach our goal for 2007. More importantly, we believe that our long-term outlook for our SSD technology for the Enterprise-storage and Enterprise-server sectors, VoD and other target sectors is very bright.
Malaysia Facility
“We are on target toward achieving another of our long-term growth initiatives, the construction and build-out of our state-of-the-art, 210,000 square foot manufacturing/engineering/sales and marketing/logistics facility located in Penang, Malaysia. We expect construction of our permanent facility to be completed by the end of 2007, the facility to be operational in the first quarter of 2008 and ramp up to meaningful production levels by the third quarter of 2008. We expect our investment in this new facility to help reduce average production and engineering costs, improve access to growing markets in Asia, improve supply-chain efficiency and most importantly, lower our overall long-term effective corporate tax rate.
Guidance
“We currently expect third quarter of 2007 revenue to range from $43 million to $45 million with diluted non-GAAP earnings per share to range from $0.04 to $0.06. We remain enthusiastic about our future in the ever-expanding SSD markets, the future opening of our Malaysia facility and the implementation of our long-term global tax strategy, all of which we expect will enable significantly improved long-term results.”
Conference Call
STEC will hold an open conference call to discuss results for the second quarter of 2007. 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 1-800-781-3662 (United States and Canada) and 1-706-643-7710 (International).
Webcast
This call is being webcast. The webcast can be accessed by clicking on the “Investor Relations” link at www.stec-inc.com. The webcast will be archived and available for replay beginning approximately two hours after the live call concludes.
About STEC, Inc. (Nasdaq:STEC)
STEC, Inc. designs, develops, manufactures and markets custom memory solutions based on Flash memory and DRAM technologies. For information about STEC and to subscribe to the Company’s “Email Alert” service, please visit our web site at www.stec-inc.com, click “Investor Relations” and then “Email Alert.”
Use of Non-GAAP Financial Information
To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), we use non-GAAP financial measures (non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP income from continuing operations before provision for income taxes, non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations) that exclude start-up costs related to the Company’s Malaysian facility that is currently under construction, global tax structuring costs and first-year implementation costs related to Sarbanes-Oxley Act Section 404. Management excludes these items because it believes that the non-GAAP 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 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 customer audit approvals for the Malaysia facility which impacts the ramp up of production, registration costs for new entities related to our global tax structure and the amount of Sarbanes-Oxley preparation required. These items could be materially significant in our 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.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements concerning: our belief that our Zeus IOPS technology is the leading technology for Enterprise-level applications; our confidence that we will reach our Zeus IOPS SSD revenue goal for 2007; projected significant impact from our Zeus IOPS SSDs in 2008 and beyond; belief that our long-term outlook based on our SSD technology for the Enterprise-storage and Enterprise-server sectors, VoD and other target sectors is
very bright, expected timeframe for our new Malaysia facility to become operational and ramp up to meaningful production levels; expected benefits from our investment in the Malaysia facility; revenue and diluted earnings per share guidance for the third quarter of 2007; enthusiasm about our future in the SSD markets; the future opening of our Malaysia facility and the implementation of our long-term tax strategy; and expectation that such initiatives will enable significantly improved long-term results. 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. Important factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under “Risk Factors” in filings with the Securities and Exchange Commission made from time to time by the Company, including its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. Other factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements include the following risks: we may not realize the expected benefits of the recent divestiture of our Consumer Division; disruptions from the divestiture of our Consumer Division transaction could make it more difficult to maintain relationships with customers and employees; changes in demand from certain customer segments; the cost of raw materials may fluctuate widely in the future; our backlog may not result in future revenue; excess inventory held by our customers may reduce future demand for our products; we may not realized the expected benefits from our operations in Malaysia or from our global tax structuring; unexpected delays in or increased cost associated with the construction of our Malaysia facility; unexpected delays in the qualification process of our products with customers; our growth initiatives may not be successfully implemented; slower than expected expansion of our international business; we may not realize the anticipated benefits from any acquisitions of businesses, technologies, or assets we have and may undertake in the future; excess availability of DRAM or Flash memory could reduce component pricing resulting in lower average selling prices and gross profit; DRAM or Flash memory supply may tighten requiring suppliers to place their customers, including us, on limited component allocation; interruptions or delays at the semiconductor manufacturing facilities that supply components to us; higher than expected operating expenses; new and changing technologies limiting the applications of our products; our inability to become more competitive in new and existing markets, our inability to maintain and increase market share, difficulty competing in sectors characterized by aggressive pricing and low margins; new customer and supplier relationships may not be implemented successfully; higher than anticipated capital equipment expenditures; adverse global economic and geo-political conditions, including acts of terror, business interruption due to earthquakes, hurricanes, pandemics, power outages or other natural disasters; and potential impact of high energy prices and other global events outside of our control which could adversely impact customer confidence and hence reduce demand for our products. 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.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| | | | | | |
| | | June 30,
2007 | | December 31,
2006 |
ASSETS: | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 102,695 | | $ | 40,907 |
Accounts receivable, net of allowances of $1,083 at June 30, 2007 and $1,620 at December 31, 2006 | | | 29,822 | | | 34,823 |
Inventory, net | | | 35,770 | | | 51,453 |
Deferred income taxes | | | 762 | | | 1,521 |
Current assets of discontinued operation | | | — | | | 57,880 |
Other current assets | | | 2,475 | | | 1,691 |
| | | | | | |
Total current assets | | | 171,524 | | | 188,275 |
| | | | | | |
Furniture, fixtures and equipment, net | | | 23,542 | | | 11,696 |
Intangible assets | | | 1,249 | | | 1,439 |
Goodwill | | | 1,682 | | | 1,682 |
Other long-term assets | | | 593 | | | 423 |
Deferred income taxes | | | 3,427 | | | 2,973 |
Long-term assets of discontinued operations | | | — | | | 168 |
| | | | | | |
Total assets | | $ | 202,017 | | $ | 206,656 |
| | | | | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | |
Current Liabilities: | | | | | | |
Accounts payable | | $ | 12,348 | | $ | 21,104 |
Accrued and other liabilities | | | 6,134 | | | 7,111 |
Liabilities of discontinued operation | | | — | | | 12,427 |
| | | | | | |
Total current liabilities | | | 18,482 | | | 40,642 |
| | | | | | |
Long-term income taxes payable | | | 1,437 | | | — |
Shareholders’ Equity: | | | | | | |
Common stock | | | 50 | | | 49 |
Additional paid-in capital | | | 136,437 | | | 128,353 |
Retained earnings | | | 45,611 | | | 37,612 |
| | | | | | |
Total shareholders’ equity | | | 182,098 | | | 166,014 |
| | | | | | |
Total liabilities and shareholders’ equity | | $ | 202,017 | | $ | 206,656 |
| | | | | | |
STEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | | Six Months Ended
June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Net revenues | | $ | 43,736 | | | $ | 47,281 | | | $ | 90,940 | | | $ | 87,714 | |
Cost of revenues | | | 30,028 | | | | 31,738 | | | | 62,807 | | | | 63,002 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 13,708 | | | | 15,543 | | | | 28,133 | | | | 24,712 | |
| | | | | | | | | | | | | | | | |
Sales and marketing | | | 4,273 | | | | 4,019 | | | | 8,706 | | | | 7,027 | |
General and administrative | | | 4,082 | | | | 3,040 | | | | 7,915 | | | | 5,953 | |
Research and development | | | 3,493 | | | | 2,181 | | | | 7,192 | | | | 4,201 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 11,848 | | | | 9,240 | | | | 23,813 | | | | 17,181 | |
Operating income | | | 1,860 | | | | 6,303 | | | | 4,320 | | | | 7,531 | |
Interest income | | | 977 | | | | 506 | | | | 1,738 | | | | 981 | |
| | | | | | | | | | | | | | | | |
Income from continuing operations before provision for income taxes | | | 2,837 | | | | 6,809 | | | | 6,058 | | | | 8,512 | |
Provision for income taxes | | | 1,120 | | | | 2,550 | | | | 2,288 | | | | 3,132 | |
| | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 1,717 | | | $ | 4,259 | | | $ | 3,770 | | | $ | 5,380 | |
| | | | | | | | | | | | | | | | |
| | | | |
Discontinued operations: | | | | | | | | | | | | | | | | |
(Loss) income from operations of Consumer Division (including gain on disposal of $8,005) | | $ | (14 | ) | | $ | 435 | | | $ | 7,267 | | | $ | 302 | |
Provision for income taxes | | | (337 | ) | | | (175 | ) | | | (2,961 | ) | | | (122 | ) |
| | | | | | | | | | | | | | | | |
(Loss) income from discontinued operations | | | (351 | ) | | | 260 | | | | 4,306 | | | | 180 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 1,366 | | | $ | 4,519 | | | $ | 8,076 | | | $ | 5,560 | |
| | | | | | | | | | | | | | | | |
| | | | |
Net income (loss) per share: | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.04 | | | $ | 0.09 | | | $ | 0.07 | | | $ | 0.12 | |
Discontinued operations | | $ | (0.01 | ) | | $ | 0.01 | | | $ | 0.09 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 0.03 | | | $ | 0.10 | | | $ | 0.16 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.04 | | | $ | 0.09 | | | $ | 0.07 | | | $ | 0.12 | |
Discontinued operations | | $ | (0.01 | ) | | $ | 0.01 | | | $ | 0.09 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 0.03 | | | $ | 0.10 | | | $ | 0.16 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | |
| | | | |
Shares used in net income per share computation: | | | | | | | | | | | | | | | | |
Basic | | | 48,682 | | | | 45,699 | | | | 49,430 | | | | 45,426 | |
| | | | | | | | | | | | | | | | |
Diluted | | | 50,445 | | | | 46,379 | | | | 51,698 | | | | 46,291 | |
| | | | | | | | | | | | | | | | |
The non-GAAP financial measures included in the following tables are non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP income from continuing operations before provision for income taxes, non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations, which adjust for the following items: start-up costs related to the Company’s Malaysia facility that is currently under construction, global tax structuring costs and implementation costs related to Sarbanes-Oxley Act Section 404. 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 operational activities and to be more comparable with the results of the Company over various periods. Management uses non-GAAP financial measure internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company’s core, recurring 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.
The items excluded from GAAP financial results in calculating non-GAAP financial results, are set forth below:
| | (a) | The Malaysia facility start-up costs primarily relate to costs associated with our 25,000 square foot interim facility, depreciation on equipment, and operational, sales and marketing, general and administrative and research and development personnel costs. The Company uses its interim facility to train production employees, obtain facility certifications such as ISO certification, initiate the accounting and information systems and conduct customer audits to better prepare for the opening of the Company’s 210,000 square foot facility. The Company expects to attain meaningful production volume from its full-scale production facility in the third quarter of 2008. As the interim and full-scale production facilities are not expected to contribute meaningfully to operations until the third quarter of 2008, management believes excluding such items from the Company’s operations provides investors with a means of evaluating the Company’s current operations. |
| | (b) | The global tax structuring costs relate primarily to tax consulting, legal fees and filing fees associated with establishing various corporate entities throughout the world, and establishing cost-sharing and transfer pricing agreements among the worldwide entities. Management believes these cost should be excluded when evaluating core operations since management expects such costs to be immaterial after 2007. |
| | (c) | First-year Sarbanes-Oxley cost relate to accounting and consulting fees related to the Company’s preparation to comply with Section 404 of the Sarbanes-Oxley Act in 2008 and the incremental amount of the first-year audit costs upon the Company first becoming subject to Sarbanes-Oxley Act Section 404 in 2008 over the expected Sarbanes-Oxley audits cost in subsequent years. Management believes these cost should be excluded when evaluating core operations since management believes these costs will be immaterial after the first quarter of 2008. |
STEC, INC.
Schedule Reconciling Non-GAAP Income to GAAP Income
(in thousands)
(unaudited)
| | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
Net income from continuing operations | | $ | 1,717 | | $ | 4,259 | | $ | 3,770 | | $ | 5,380 |
| | | | | | | | | | | | |
The non-GAAP amounts have been adjusted to exclude the following items: | | | | | | | | | | | | |
Excluded from cost of sales: | | | | | | | | | | | | |
Malaysia facility start-up costs(a) | | $ | 207 | | $ | — | | $ | 284 | | $ | — |
Excluded from operating expenses | | | | | | | | | | | | |
Malaysia facility start-up costs(a) | | $ | 694 | | $ | — | | $ | 1,126 | | $ | — |
Global tax structuring costs(b) | | | 192 | | | 7 | | | 271 | | | 56 |
First-year Sarbanes-Oxley implementation costs(c ) | | | 94 | | | — | | | 274 | | | — |
| | | | | | | | | | | | |
| | | 1,187 | | | 7 | | | 1,955 | | | 56 |
Income tax effect on non-GAAP adjustments | | | 469 | | | 3 | | | 739 | | | 21 |
| | | | | | | | | | | | |
Net effect of adjustments to GAAP net income | | | 718 | | | 4 | | | 1,216 | | | 35 |
Non-GAAP net income | | $ | 2,435 | | $ | 4,263 | | $ | 4,986 | | $ | 5,415 |
| | | | | | | | | | | | |
(a)—(c) See corresponding footnotes above.
STEC, INC.
Schedule Reconciling Reported Financial Ratios
(unaudited)
| | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | | Six Months Ended
June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
GAAP gross margin | | 31.3 | % | | 32.9 | % | | 30.9 | % | | 28.2 | % |
Effect of reconciling item on gross margin | | 0.5 | % | | 0.0 | % | | 0.3 | % | | 0.0 | % |
| | | | | | | | | | | | |
Non-GAAP gross margin | | 31.8 | % | | 32.9 | % | | 31.2 | % | | 28.2 | % |
| | | | | | | | | | | | |
STEC, INC.
Selected Non-GAAP Financial Information
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | | Six Months Ended
June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
GAAP gross margin | | $ | 13,708 | | | $ | 15,543 | | | $ | 28,133 | | | $ | 24,712 | |
Malaysia facility start-up costs(a) | | | 207 | | | | — | | | | 284 | | | | — | |
| | | | | | | | | | | | | | | | |
Non-GAAP gross margin | | $ | 13,915 | | | $ | 15,543 | | | $ | 28,417 | | | $ | 24,712 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP operating expenses | | $ | 11,848 | | | $ | 9,240 | | | $ | 23,813 | | | $ | 17,181 | |
Malaysia facility start-up costs(a) | | | (694 | ) | | | — | | | | (1,126 | ) | | | — | |
Global tax structuring costs(b) | | | (192 | ) | | | (7 | ) | | | (271 | ) | | | (56 | ) |
First-year Sarbanes-Oxley costs(c) | | | (94 | ) | | | — | | | | (274 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Non-GAAP operating expenses | | $ | 10,868 | | | $ | 9,233 | | | $ | 22,142 | | | $ | 17,125 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP operating income | | $ | 1,860 | | | $ | 6,303 | | | $ | 4,320 | | | $ | 7,531 | |
Malaysia facility start-up costs(a) | | | 901 | | | | — | | | | 1,410 | | | | — | |
Global tax structuring costs(b) | | | 192 | | | | (7 | ) | | | 271 | | | | (56 | ) |
First-year Sarbanes-Oxley implementation costs(c ) | | | 94 | | | | — | | | | 274 | | | | — | |
| | | | | | | | | | | | | | | | |
Non-GAAP operating income | | $ | 3,047 | | | $ | 6,296 | | | $ | 6,275 | | | $ | 7,475 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP income from continuing operations before provision for income taxes | | $ | 2,837 | | | $ | 6,809 | | | $ | 6,058 | | | $ | 8,512 | |
Malaysia facility start-up costs(a) | | | 901 | | | | — | | | | 1,410 | | | | — | |
Global tax structuring costs(b) | | | 192 | | | | (7 | ) | | | 271 | | | | (56 | ) |
First-year Sarbanes-Oxley implementation costs(c ) | | | 94 | | | | — | | | | 274 | | | | — | |
| | | | | | | | | | | | | | | | |
Non-GAAP income from continuing operations before provision for income taxes | | $ | 4,024 | | | $ | 6,802 | | | $ | 8,013 | | | $ | 8,456 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP income from continuing operations | | $ | 1,717 | | | $ | 4,259 | | | $ | 3,770 | | | $ | 5,380 | |
Malaysia facility start-up costs(a) | | | 901 | | | | — | | | | 1,410 | | | | — | |
Global tax structuring costs(b) | | | 192 | | | | 7 | | | | 271 | | | | 56 | |
First-year Sarbanes-Oxley implementation costs(c ) | | | 94 | | | | — | | | | 274 | | | | — | |
Income tax effect on non-GAAP adjustments | | | (469 | ) | | | (3 | ) | | | (739 | ) | | | (21 | ) |
| | | | | | | | | | | | | | | | |
Non-GAAP income from continuing operations | | $ | 2,435 | | | $ | 4,263 | | | $ | 4,986 | | | $ | 5,415 | |
| | | | | | | | | | | | | | | | |
| | | | |
GAAP diluted earnings per share from continuing operations | | $ | 0.04 | | | $ | 0.09 | | | $ | 0.07 | | | $ | 0.12 | |
Impact of non-GAAP adjustments on diluted earnings per share | | $ | 0.01 | | | $ | — | | | $ | 0.03 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Non-GAAP diluted earnings per share from continuing operations | | $ | 0.05 | | | $ | 0.09 | | | $ | 0.10 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | |
(a)—(c) Refer to the corresponding footnotes above.
