OCZ Technology Group Reports Fiscal 2011 First Quarter Results
SSD Revenue Exceeds Expectations at $13.3 Million; Gross Margins Increase
Company’s Conference Call Tuesday, June 29, at 5:00 PM EDT (2:00 PM PDT)
San Jose, CA—June 29, 2010—OCZ Technology Group, Inc. (NASDAQ: OCZ), a leading provider of high-performance solid-state drives (SSDs) and memory modules for computing devices and systems, reports its first quarter 2011 results, which ended on May 31, 2010.
Net revenue for Q1'11 totaled $34.3 million, up 6% sequentially over Q4’10 revenue of $32.4 million and, with the strategy shift away from legacy DRAM memory modules, was down 4% from the $35.8 million reported in last year’s first quarter. SSD revenue reached a record $13.3 million in Q1’11, representing a 27% increase over Q1’10 while memory module revenue decreased 13% to $15.0 million versus $17.4 million last year.
During the quarter, the Company raised $13.9 million (net of costs) of private placement of equity with several institutional shareholders. The resulting increase in working capital allowed the company to take on more business, which had a positive effect on SSD revenues by late May.
Reporting on a GAAP basis, net income for Q1'11 was a loss of $4.8 million, or $0.19 per diluted share. This compares to a GAAP net loss of $4.3 million, or $0.20 per share, in Q1'10.
Non-GAAP net loss for Q1'11 was $2.7 million, or $0.11 per diluted share, as compared to a non-GAAP net loss for Q1'10 of $4.1 million, or $0.19 per share. Reconciliation between GAAP and non-GAAP information is contained in the tables below.
Financial Highlights
| | · | SSD revenue increased to $13.3 million in Q1’11, representing 39% of revenue compared to $10.4 million or 29% of revenue in Q1’10. |
| | · | Non-GAAP revenue in Q1’11 was $34.6 million, which slightly exceeded expectations |
| | · | Non-GAAP gross margin increased by 46% to 15.0% in Q1’11 from 10.3% in Q1’10 |
| | · | Non-GAAP net loss decreased by 32% to $2.7million in Q1’11 from 4.1 million in Q1’10 |
| | · | Operating expenses decreased to $7.6 million in Q1’11 from $7.9 million last year, while R&D continued to grow as the Company shifts its focus to SSDs |
| | · | Additional working capital from the private placement allowed the company to accelerate its business strategy shift from lower margin legacy DRAM module business to SSDs |
Recent Business Highlights:
| | · | Over 20 new design wins with OEM clients for enterprise SSD products in Q1’11 |
| | · | Expanded Bell Micro relationship to include the German and UK markets; focused on increasing market penetration of Enterprise SSDs into Europe |
| | · | Qualified SSDs with Adaptec MaxIQ Caching Solutions for enterprise applications |
| | · | Expanded line of Deneva Enterprise SSDs, in FC, SAS, iSCSI and SATA interfaces with formats from 1.8” to 3.5”, which produce up to 50K small file IOPS |
| | · | Won over 25 product quality and performance awards for our Vertex 2 and 2E SSDs |
| | · | Demonstrated proprietary high speed data link (HSDL) with interface speeds more than 3 times that of SAS and FC interfaces in its first generation |
| | · | Announced full support of 34nm eMLC NAND FLASH for tier one enterprise storage applications at costs less than half of current SLC NAND based SSD solutions with similar durability |
| | · | Entered mass production with 480GB small format (2.5 inch) Vertex and Deneva series products. |
Business Overview:
“We are pleased with the record SSD results we generated in the first quarter,” said Ryan Petersen, Chief Executive Officer of OCZ Technology. “The $13.9 million net capital raise will help drive improved execution for the balance of the year. We were able to increase our working capital, improve gross margins and implement our strategy of expanding our enterprise SSD client base.
Mr. Petersen concluded, “Industry analysts continue to regard the SSD market as a ‘once in a generation’ disruptive technology with strong growth potential for the years ahead as both business and consumers make the switch from traditional spinning mechanical hard drives. The market for SSD products is predicted by IDC to increase from just $1.1 billion in 2009 to over $5 billion in 2013, and we feel confident in our ability to compete on a long-term basis in this market.”
Revenue Information:
To help investors better understand OCZ’s historical revenue trends and rapid transition from its historical high performance memory business to its SSD product line, please see the revenue chart below:
| Segmented Net Revenue ($000)’s (GAAP-Unaudited) |
| | Q2 '09 | Q3 '09 | Q4 '09 | Q1 '10 | Q2 '10 | Q3 '10 | Q4 '10 | Q1 '11 |
| SSD | 4,550 | 2,161 | 5,114 | 10,485 | 11,146 | 9,756 | 12,123 | 13,349 |
| Memory | 26,276 | 22,043 | 24,222 | 17,363 | 17,342 | 21,281 | 15,529 | 15,032 |
| PSU / Other | 11,033 | 11,025 | 11,782 | 7,923 | 9,308 | 6,987 | 4,716 | 5,906 |
| Total Net revenues | 41,859 | 35,229 | 41,118 | 35,771 | 37,796 | 38,024 | 32,368 | 34,287 |
Guidance:
For fiscal 2011, OCZ’s prior revenue guidance was in the range of $200 million to $215 million, with growth primarily in the SSD product lines. OCZ now guides toward the upper end of that range and also anticipates achieving positive non-GAAP EBITDA in 2H’11.
Conference Call:
OCZ will host its fiscal 2011 first quarter conference call for the period ended May 31, 2010 on Tuesday, June 29 at 5:00 PM EDT (2:00 PM PDT). Ryan Petersen, CEO, Kerry Smith, CFO, and Arthur Knapp, VP of Finance, will review the company's results on the call.
All interested parties can join the call by dialing 877-372-0867 or 253-237-1170. Please call-in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until midnight Tuesday, July 6, 2010. To access the archived conference call, please dial 800-642-1687 or 706-645-9291 and enter replay passcode 83335488.
A live audio webcast of the conference call will be available by visiting the investor relations section of the OCZ website at www.ocztechnology.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for connection.
About OCZ Technology Group, Inc.
Founded in 2002, San Jose, CA-based OCZ Technology Group, Inc. (“OCZ”) is a leader in the design, manufacturing, and distribution of high performance and reliable Solid State Drives (SSDs) and premium computer components. OCZ has built on its expertise in high-speed memory to become a leader in the SSD market, a technology that competes with traditional rotating magnetic hard disk drives (HDDs). SSDs are faster, more reliable, generate less heat and use significantly less power than the HDDs used in the majority of computers today. In addition to SSD technology, OCZ also offers high performance components for computing devices and systems, including enterprise-class power management products as well leading-edge computer gaming solutions. For more information, please visit: www.ocztechnology.com.
Forward-Looking Statements
Certain statements in this release relate to future events and expectations and as such constitute forward-looking statements involving known and unknown factors that may cause actual results of OCZ Technology Group, Inc. to be different from those expressed or implied in the forward-looking statements. In this context, words such as “will,” “would,” “expect,” “anticipate,” “should” or other similar words and phrases often identify forward-looking statements made on behalf of OCZ. It is important to note that actual results of OCZ may differ materially from those described or implied in such forward-looking statements based on a number of factors and uncertainties, including, but not limited to, market acceptance of OCZ’s products and OCZ’s ability to continually develop enhanced products; adverse changes both in the general macro-economic environment as well as in the industries OCZ serves, including computer manufacturing, traditional and online retailers, information storage, internet search and content providers and computer system integrators; OCZ’s ability to efficiently manage material and inventory, including integrated circuit chip costs and freight costs; and OCZ’s ability to generate cash from operations, secure external funding for its operations and manage its liquidity needs. Other general economic, business and financing conditions and factors are described in more detail in “Item 1A – Risk Factors” in Part I in OCZ’s Annual Report on Form 10-K filed with the SEC on May 20, 2010. The filing is available both at www.sec.gov as well as via OCZ’s website at www.ocztechnology.com. OCZ does not undertake to update its forward-looking statements.
Non-GAAP Financial Measure
OCZ provides Adjusted EBITDA as a supplemental non-GAAP financial measure to its investors as a complement to net income/loss. An explanation and reconciliation of EBITDA to net income/loss is set forth below. OCZ believes that providing Adjusted EBITDA, a non-GAAP measure to its investors, in addition to corresponding income statement measures, provides investors the benefit of viewing OCZ's performance using a financial metric that the management team uses in making many key decisions and understanding how OCZ's "core operating performance" and its results of operations may look in the future. OCZ believes that providing this information allows OCZ's investors greater transparency and a better understanding of OCZ's core financial performance. EBITDA is not in accordance with, or an alternative for, generally accepted accounting principles in the United States of America. Non-GAAP measures should not be considered in isolation from or as a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies.
Calculation of Adjusted EBITDA
Adjusted EBITDA is calculated as net income/loss excluding the impact of taxes, net interest income/expense, depreciation and amortization, as well as inventory adjustments for discontinued products, severance cost, lease termination costs, goodwill and intangible impairment, non-cash charges related to stock options and warrants, and certain other one-time charges and credits specifically identified in the non-GAAP reconciliation schedules set forth below. OCZ uses Adjusted EBITDA in evaluating OCZ's historical and prospective cash usage, as well as its cash usage relative to its competitors. Specifically, management uses this non-GAAP measure to further understand and analyze the cash used in/generated from OCZ's core operations. OCZ believes that by excluding these non-cash and non-recurring charges, more accurate expectations of its future cash needs can be assessed in addition to providing a better understanding of the actual cash used in or generated from core operations for the periods presented. OCZ further believes that providing this information allows OCZ's investors greater transparency and a better understanding of OCZ's core financial results.
Financial Results for the quarter ended May 31, 2010:
OCZ Technology Group, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
| | | Three Months Ended | |
| | | May 31, | |
| | | 2010 | | | 2009 | |
| | | unaudited | | | unaudited | |
| | | | | | | |
| Net revenues | | $ | 34,283 | | | $ | 35,771 | |
| Cost of revenues | | | 30,119 | | | | 32,076 | |
| Gross profit | | | 4,164 | | | | 3,695 | |
| | | | | | | | | |
| Sales and marketing | | | 2,735 | | | | 2,656 | |
| Research and development | | | 1,564 | | | | 1,490 | |
| General, administrative and operations | | | 3,269 | | | | 3,749 | |
| Total operating expenses | | | 7,568 | | | | 7,895 | |
| Operating income (loss) | | | (3,404 | ) | | | (4,200 | ) |
| Other income (expense) - net | | | (3 | ) | | | 134 | |
| Interest and financing costs | | | (542 | ) | | | (253 | ) |
| Adjustment to the fair value of common stock warrants | | | (899 | ) | | | - | |
| Income (loss) before imcome taxes | | | (4,848 | ) | | | (4,319 | ) |
| | | | | | | | | |
| Income tax expense (benefit) | | | - | | | | (1 | ) |
| Net income (loss) | | $ | (4,848 | ) | | $ | (4,318 | ) |
| | | | | | | | | |
| Net income (loss) per share: | | | | | | | | |
| Basic | | $ | (0.19 | ) | | $ | (0.20 | ) |
| Diluted | | $ | (0.19 | ) | | $ | (0.20 | ) |
| | | | | | | | | |
| Shares used in per share computation: | | | | | | | | |
| Basic | | | 25,180 | | | | 21,300 | |
| Diluted | | | 25,180 | | | | 21,300 | |
Reconciliation of Selected GAAP Measures to Non-GAAP Measures--Unaudited
($ in thousands, except per share data)
| | | Three Months Ended May 31, | |
| | | 2010 | | | 2009 | |
| | | GAAP | | | Adj | | | | non-GAAP | | | GAAP | | | Adj | | | | non-GAAP | |
| | | | | | | | | | | | | | | | | | | | | |
| Net revenues | | $ | 34,283 | | | $ | 329 | | (a) | | $ | 34,612 | | | $ | 35,771 | | | $ | - | | | | $ | 35,771 | |
| Cost of revenues | | | 30,119 | | | | (693 | ) | (a) | | | 29,426 | | | | 32,076 | | | | - | | | | | 32,076 | |
| Gross profit | | | 4,164 | | | | | | | | | 5,186 | | | | 3,695 | | | | | | | | | 3,695 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross margin % | | | 12.1 | % | | | | | | | | 15.0 | % | | | 10.3 | % | | | | | | | | 10.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 7,568 | | | | (184 | ) | (b) | | | 7,384 | | | | 7,895 | | | | (255 | ) | (b) | | | 7,640 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | (3,404 | ) | | | | | | | | (2,198 | ) | | | (4,200 | ) | | | | | | | | (3,945 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income (expense) - net | | | (3 | ) | | | | | | | | (3 | ) | | | 134 | | | | | | | | | 134 | |
| Interest and financing costs | | | (542 | ) | | | | | | | | (542 | ) | | | (253 | ) | | | | | | | | (253 | ) |
| Adjustment to the fair value of common stock warrants | | | (899 | ) | | | 899 | | (c) | | | - | | | | - | | | | - | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (4,848 | ) | | | | | | | | (2,743 | ) | | | (4,319 | ) | | | | | | | | (4,064 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income tax expense (benefit) | | | - | | | | | | | | | - | | | | (1 | ) | | | | | | | | (1 | ) |
| Net income (loss) | | $ | (4,848 | ) | | | | | | | $ | (2,743 | ) | | $ | (4,318 | ) | | | | | | | $ | (4,063 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.19 | ) | | | | | | | $ | (0.11 | ) | | $ | (0.20 | ) | | | | | | | $ | (0.19 | ) |
| Diluted | | $ | (0.19 | ) | | | | | | | $ | (0.11 | ) | | $ | (0.20 | ) | | | | | | | $ | (0.19 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares used in per share computation: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 25,180 | | | | | | | | | 25,180 | | | | 21,300 | | | | | | | | | 21,300 | |
| Diluted | | | 25,180 | | | | | | | | | 25,180 | | | | 21,300 | | | | | | | | | 21,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Calculation of GAAP and non-GAAP EBITDA: | | Three Months Ended May 31, 2010 | | | Three Months Ended May 31, 2009 | |
| | | GAAP | | | | | | | | non-GAAP | | | GAAP | | | | | | | | non-GAAP | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (4,848 | ) | | | | | | | $ | (2,743 | ) | | $ | (4,318 | ) | | | | | | | $ | (4,063 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | | - | | | | | | | | | - | | | | (1 | ) | | | | | | | | (1 | ) |
| Interest and financing costs | | | 542 | | | | | | | | | 542 | | | | 253 | | | | | | | | | 253 | |
| Depreciation and amortization | | | 260 | | | | | | | | | 260 | | | | 233 | | | | | | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EBITDA | | $ | (4,046 | ) | | | | | | | $ | (1,941 | ) | | $ | (3,833 | ) | | | | | | | $ | (3,578 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Primarily represents abnormal rebates and lost margin on liquidation sales of discontinued products. |
| (b) | Stock based compensation |
| (c) | Non-cash charge for revaluation of warrants issued in connection with equity financing |
OCZ Technology Group, Inc.
Consolidated Balance Sheets
($ in thousands)
| | | May 31, 2010 | | | February 28, 2010 | |
| | | unaudited | | | | |
| | | | | | | |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 4,311 | | | $ | 1,224 | |
| Accounts receivable, net of allowances of $2,842 and $2,853 | | | 21,363 | | | | 20,380 | |
| Inventory, net | | | 13,573 | | | | 9,846 | |
| Note receivable | | | 375 | | | | 375 | |
| Deferred tax asset, net | | | 836 | | | | 836 | |
| Prepaid expenses and other current assets | | | 2,764 | | | | 1,811 | |
| Total current assets | | | 43,222 | | | | 34,472 | |
| Property and equipment, net | | | 2,560 | | | | 2,629 | |
| Intangible asset | | | 70 | | | | 88 | |
| Goodwill | | | 10,097 | | | | 9,954 | |
| Investment | | | 668 | | | | 668 | |
| Other assets | | | 48 | | | | 38 | |
| Total assets | | $ | 56,665 | | | $ | 47,849 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Loans payable | | $ | 10,416 | | | $ | 10,354 | |
| Note payable | | | 250 | | | | 500 | |
| Accounts payable | | | 25,825 | | | | 26,318 | |
| Accrued and other liabilities | | | 3,678 | | | | 4,389 | |
| Total current liabilities | | | 40,169 | | | | 41,561 | |
| Common stock warrant liability | | | 2,980 | | | | | |
| Total Liabilities | | | 43,149 | | | | 41,561 | |
| | | | | | | | | |
| Commitments and contingencies | | | - | | | | - | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock, $0.0025 par value; 20,000,000 shares authorized; 0 and 60,990 shares issued and outstanding as of May 31, 2010 and February 28, 2010 respectively | | | - | | | | - | |
| Common stock, $0.0025 par value; 120,000,000 shares authorized; 26,522,748 and 21,278,643 shares issued and outstanding as of May 31, 2010 and February 28, 2010 respectively | | | 66 | | | | 53 | |
| Additional paid-in capital | | | 43,925 | | | | 31,862 | |
| Accumulated translation adjustment | | | (164 | ) | | | (164 | ) |
| Accumulated deficit | | | (30,311 | ) | | | (25,463 | ) |
| Total stockholders' equity | | | 13,516 | | | | 6,288 | |
| Total liabilities and stockholders' equity | | $ | 56,665 | | | $ | 47,849 | |
OCZ Technology Group, Inc.
Consolidated Statements of Cash Flow
| | | Three Months Ended | |
| | | May 31, | |
| | | 2010 | | | 2009 | |
| | | unaudited | | | unaudited | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | (4,848 | ) | | $ | (4,318 | ) |
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | | | | | | | | |
| Depreciation of property and equipment | | | 260 | | | | 233 | |
| Amortization of intangibles | | | 18 | | | | 28 | |
| Bad debt expense | | | 289 | | | | 73 | |
| Stock-based compensation | | | 184 | | | | 255 | |
| Fair value adjustment of stock warrants | | | 899 | | | | - | |
| Non-cash write-off of leasehold improvements | | | - | | | | 102 | |
| Changes in operating assets and current liabilities: | | | | | | | | |
| Accounts receivable | | | (1,272 | ) | | | 3,086 | |
| Inventory | | | (3,727 | ) | | | 935 | |
| Prepaid expenses and other assets | | | (953 | ) | | | 346 | |
| Accounts payable | | | (493 | ) | | | (40 | ) |
| Accrued and other liabilities | | | (711 | ) | | | 641 | |
| Net cash provided by (used in) operating activities | | | (10,354 | ) | | | 1,341 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchases of property and equipment | | | (191 | ) | | | (275 | ) |
| Decrease (increase) in deposits | | | (10 | ) | | | 39 | |
| Business acquisition earn out payments | | | (143 | ) | | | (116 | ) |
| Net cash used in investing activities | | | (344 | ) | | | (352 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Issurance of common stock | | | 13,973 | | | | 8 | |
| Proceeds from bank loan, net | | | 62 | | | | (874 | ) |
| Repayment of shareholder loan | | | (250 | ) | | | - | |
| Net cash provided by financing activities | | | 13,785 | | | | (866 | ) |
| | | | | | | | | |
| Effect of foreign exchange rate changes on cash and cash equivalents | | | - | | | | (50 | ) |
| Net increase (decrease) in cash and cash equivalents | | | 3,087 | | | | 73 | |
| Cash and cash equivalents at beginning of period | | | 1,224 | | | | 420 | |
| Cash and cash equivalents at end of period | | $ | 4,311 | | | $ | 493 | |
| | | | | | | | | |
| Supplemental disclosures: | | | | | | | | |
| Interest paid | | $ | 267 | | | $ | 161 | |
| Income taxes paid | | $ | - | | | $ | - | |
Contact:
OCZ Technology Group, Inc.
Ryan Petersen, CEO, 408-733-8400
or
The Investor Relations Group
Investor Relations:
Adam Holdsworth, 212-825-3210
Public Relations:
Mike Graff, 212-825-3210
