Stec: Fiscal 3Q12 Financial Results

(in US$ million)	3Q11	3Q12	9 mo. 11	9 mo. 12
Revenues	72.5	42.1	249.9	133.2
Growth		-42%		-47%
Net income (loss)	4.8	(19.8)	28.7	(80.1)

STEC, Inc. announced it 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.

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 CEO 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."

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.

Class Action Settlement
On October 5, 2012, the company entered into a Stipulation and Agreement of Settlement 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.