Stec: Fiscal 3Q09 Financial Results

STEC, Inc. announced its financial results for the third quarter ended September 30, 2009.

Revenue for the third quarter of 2009 was $98.3 million, an increase of 54.3% from $63.7 million for the third quarter of 2008, and an increase of 13.8% from $86.4 million for the second quarter of 2009. GAAP gross profit margin was 49.7% for the third quarter of 2009, compared to 32.1% for the third quarter of 2008 and 50.0% for the second quarter of 2009. GAAP diluted earnings per share from continuing operations was $0.47 for the third quarter of 2009, compared to $0.02 for the third quarter of 2008, and $0.38 for the second quarter of 2009.

Non-GAAP gross profit margin was 49.8% for the third quarter of 2009, compared to 34.1% for the third quarter of 2008 and 50.1% for second quarter of 2009. Non-GAAP diluted earnings per share from continuing operations was $0.50 for the third quarter of 2009, compared to $0.10 for the third quarter of 2008, and $0.42 for the second quarter of 2009. GAAP results for the third quarter of 2009 included employee stock compensation and special charges related to the implementation of our restructuring plan. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release.

Additional highlights for the third quarter of 2009 include:

• Delivered the Enterprise-Storage industry’s first Flash SSD with next-generation 6Gb SAS interface;
• First-to-market with Enterprise-ready MLC NAND Flash-based SSD;
• Significantly improved the performance of our high-end ZeusIOPS product line increasing Read IOPS to 80,000 (from 52,000) and Write IOPS to 40,000 (from 17,000);
• Announced adoption of ZeusIOPS SSDs into the latest major Enterprise-Storage OEM customer, LSI;
• Integrated MACH8IOPS SSDs into IBM’s system servers representing a key push into major Enterprise-Server OEM applications;
• Collaborated with IBM to set a new Storage Performance Council (SPC-1) record of 300,993.85 IOPS for high-end Enterprise- Storage utilizing ZeusIOPS SSDs in IBM’s Power 595 system; and
• Increased cash, cash equivalents and short-term investments at the end of the third quarter of 2009 to approximately $133 million, a 42% sequential increase.

Business Outlook
"I am very pleased to share with you, our exceptional results for the third quarter of 2009," said Manouch Moshayedi, STEC’s Chairman and Chief Executive Officer. "Our solid operating results, the strengthening of our balance sheet and the further integration of our SSDs into our customers’ platforms leave us in a great position to address the growth opportunities and challenges that lie ahead. Despite a sluggish economy, we believe our growth through the end of the year will continue."

"One of our customers entered into a $120 million supply agreement with us for shipments covering the second half of 2009. We recently received preliminary indications that our customer might carry inventory of our ZeusIOPS at the end of 2009 which they will use in 2010. In light of this development, we have jointly initiated a strategic sales and marketing incentive program designed to promote the integration of STEC’s SSDs into their systems. As of September 30, 2009, we have accrued $1.5 million of estimated costs for this marketing incentive program. Both companies believe that we will be successful in increasing the pace of the replacement of HDDs with SSDs. If our marketing program is not successful in increasing the demand flow of SSDs, our first quarter of 2010 orders from this customer will be negatively affected; however, the actual impact cannot be quantified at this time.

"We are also working on implementing sales and marketing incentive programs at our other major customers to further proliferate the use of our SSDs in their systems. We believe that it is just a matter of time before these customers become more significant to our overall sales of SSDs. In addition, we continue to qualify our ZeusIOPS into new platforms at our customers and are working closely with them to promote integration of SSDs into their systems by participating in sales conferences and end-user training programs both in the U.S. and in Europe. We believe these activities will help accelerate the adoption of our SSDs over the course of 2010.

"Longer-term, we believe that SSDs in the Enterprise market are here to stay and will grow to become a very significant market within the next five years. Further, we believe that as this market grows, there will be room for a few additional players and that STEC will remain the dominant player in Enterprise-class SSDs."

Guidance
"We currently expect fourth quarter of 2009 revenue to range from $101 million to $103 million (net of $2.4 million of estimated reserves related to sales and marketing incentive programs) with diluted non-GAAP earnings per share to range from $0.51 to $0.53."