Stec: Fiscal 2Q09 Financial Results

STEC, Inc. announced its financial results for the second quarter ended June 30, 2009. Revenue for the second quarter of 2009 was $86.4 million, an increase of 53.7% from $56.2 million for the second quarter of 2008, and an increase of 35.9% from $63.5 million for the first quarter of 2009. Shipments of our ZeusIOPS Solid-State drives (SSD) into the Enterprise-Storage market grew to $57.7 million for the second quarter of 2009, an increase of approximately 375% from $12.1 million for the second quarter of 2008, and an increase of approximately 125% from $25.7 million for the first quarter of 2009.

GAAP gross profit margin was 50.0% for the second quarter of 2009, compared to 32.3% for the second quarter of 2008 and 36.3% for the first quarter of 2009. GAAP diluted earnings per share from continuing operations was $0.38 for the second quarter of 2009, compared to $0.03 for the second quarter of 2008, and $0.07 for the first quarter of 2009.

Non-GAAP gross profit margin increased to 50.1% for the second quarter of 2009, compared to 35.3% for the second quarter of 2008 and 39.8% for first quarter of 2009. Non-GAAP diluted earnings per share from continuing operations was $0.42 for the second quarter of 2009, compared to $0.09 for the second quarter of 2008, and $0.17 for the first quarter of 2009. GAAP results for the second quarter of 2009 included employee stock compensation, special charges related to the implementation of our restructuring plan and grant incentive income received from the Malaysian government. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release.

Additional highlights for the second quarter of 2009 include:

• signed a recently-announced $120 million contract to supply ZeusIOPS SSDs to a major Enterprise-Storage customer for the second half of 2009;
• signed a $28 million, 12-month contract to supply the ruggedized MACH8 SSD to a leading defense systems contractor, extending reach of one our key product lines beyond the traditional storage market;
• accelerated adoption of the ZeusIOPS SSDs into major Enterprise-Storage and Enterprise-Server OEM customers, including IBM, Fujitsu, Compellent and HP;
• increased cash and cash equivalents, and short-term investments at the end of the second quarter of 2009 to approximately $94 million, a 49% increase from the end of the prior quarter;
• decreased inventory to approximately $38 million at the end of the second quarter of 2009, a 16% decrease from the end of the prior quarter; and
• successfully transitioned 100% of the Company’s manufacturing from California to Malaysia.

Business Outlook
"It is exciting to share such outstanding results today and to deliver significant revenue, gross profit margin and EPS growth for the second quarter of 2009," said Manouch Moshayedi, STEC’s Chairman and Chief Executive Officer. "We have shown a significant improvement in our already strong balance sheet – particularly in the generation of cash and effective management of inventory – added four more major Enterprise-Storage OEMs to our blue chip customer list, and surpassed our stated year-end 2009 non-GAAP gross profit margin goal of 40%, expanding it to 50% in the second quarter of 2009."

"In our prior quarter’s earnings announcement we had estimated that ZeusIOPS revenue for the first half of 2009 would surpass $53 million. I am pleased to report that we have actually achieved $83 million in ZeusIOPS revenue for this period. Although we are still early in the process of the adoption of SSDs into the Enterprise-Storage market, I believe that the $120 million supply agreement that we signed for the second half of 2009 is a further indication of future SSD growth and customers’ acceptance of SSDs into this growing market. I am very excited about our product road map – specific to the Enterprise-Storage, Enterprise-Server and related markets."

Guidance
"We currently expect third quarter of 2009 revenue to range from $95 million to $97 million with diluted non-GAAP earnings per share to range from $0.45 to $0.47."