Smart Modular Technologies: Fiscal 1Q10 Financial Results

in US$ millions)	1Q09	1Q10
Revenues	140.8	123.1
*Growth*		-13%
Net income (loss)	(6.9)	4.6

SMART Modular Technologies, Inc. reported financial results for the first quarter of fiscal year 2010 ended November 27, 2009.

First Quarter Fiscal 2010 Highlights:

Net sales of $123.1 million
Gross profit of $28.8 million
GAAP diluted EPS of $0.07
Non-GAAP diluted EPS of $0.08
Adjusted EBITDA of $15.0 million

Net sales for the first quarter of fiscal 2010 were $123.1 million, compared to $99.8 million for the fourth quarter of fiscal 2009, and $140.8 million for the first quarter of fiscal 2009.

Gross profit for the first quarter of fiscal 2010 was $28.8 million, compared to $21.3 million for the fourth quarter of fiscal 2009, and $25.8 million for the first quarter of fiscal 2009.

On a GAAP basis, net income for the first quarter of fiscal 2010 was $4.6 million, or $0.07 per diluted share, compared to a net loss of $0.3 million, or $0.00 per diluted share in the fourth quarter of fiscal 2009, and a net loss of $6.9 million, or $0.11 per share in the first quarter of fiscal 2009.

On a non-GAAP basis, net income was $5.4 million or $0.08 per diluted share for the first quarter of fiscal 2010, compared to $3.1 million, or $0.05 per diluted share in the fourth quarter of fiscal 2009, and $3.0 million, or $0.05 per diluted share in the first quarter of fiscal 2009.

Adjusted EBITDA for the first quarter of fiscal 2010 was $15.0 million, compared to $9.9 million for the fourth quarter of fiscal 2009, and $10.3 million for the first quarter of fiscal 2009.

"Our business improved during the first fiscal quarter, driven primarily by growth in PC and enterprise market end user demand, in combination with a better pricing environment for DRAM products. As a result, our financial performance was substantially better than our original guidance and came in at the upper end of our revised guidance," commented Iain MacKenzie, President and CEO of SMART. "In addition, our solid state storage growth strategy is proceeding as planned, and we continue to make progress with increased interest from key enterprise customers."

Business Outlook
For the second quarter of fiscal 2010, SMART estimates net sales will be in the range of $125 million to $135 million, gross profit in the range of $30 million to $32 million, and net income per diluted share in the range of $0.06 to $0.08 on a GAAP basis. On a non-GAAP basis, SMART estimates net income per diluted share will be in the range of $0.09 to $0.11. The guidance for the second quarter of fiscal 2010 includes an income tax provision estimated in the range of $6.3 million to $6.8 million.

Comments

Abstracts of the earnings call transcript:

Iain McKenzie, CEO:

"With regard to the first element of this strategy, we continue to more forward with the creation of our own SSD controller to be used initially in products at the high end of defense and industrial markets with a 2.6 interface. This proprietary solution will be incorporated into a next generation defense grade SSD’s which we expect to release in our third fiscal quarter and to ramp in the second half of calendar 2010.

"At a later stage, we plan to use a version of this controller to address the high end enterprise SAS market and expect to have customer samples available at the start of calendar 2011.

"Definitely, several defense customers are currently evaluating both our Xcel-10 2.6 industrial and 256 gigabyte Xceed Secure drives for deployment in a number of mission critical applications.

"The third element of our growth strategy for solid state storage is integration which we are planning to target the embedded storage and hard drive replacement markets."

Barry Zwarenstein, CFO:

"HP continues to be our largest customer at 23% of net sales this quarter, up from 21% in the fourth quarter. On an absolute dollar basis, net sales to HP grew by 33% sequentially and was driven by a general increase in U.S. enterprise IT demand.

"Cisco remained our second largest customer during the quarter representing 18% of net sales compared with 16% in the prior quarter. On an absolute dollar basis, net sales to Cisco also grew by 33% sequentially, driven by strength in the networking and telecomm sector including DRAM for core Cisco products such as routers and switches as well as Flash for integrated service routers used in other IP communications in offices, branches and small businesses.

"Dell was our third largest customer and the only other 10% plus customer during the quarter, representing 12% of our sales, the same percentage as last quarter. Most of this business was in Brazil with the balance being in logistics."