OCZ: Fiscal 1Q14 Financial Results

OCZ Technology Group, Inc. reports its Q1’14 results which ended on May 31, 2013.

“Revenue generated from our enterprise solutions for the first quarter more than doubled compared to the last quarter, and drove the sequential gross margin increase. Overall revenue declined about 20% sequentially, primarily due to the lack of NAND flash supply for our client SSD products,” said Ralph Schmitt, CEO, OCZ.

“Over the past year we have restructured the company, which included the appointment of new leadership, reduced operating expenses, streamlined our product offerings, realigned our engineering talent, and introduced new controller silicon and firmware, new higher-end SSDs for the client market and new storage solutions for the enterprise market,” added Schmitt. “Fiscal Q1 is the first quarter in which the company operated with all these particular restructuring and restatement adjustments behind us.”

Revenue for the first quarter of 2014 was $55.3 million compared to revenue of $69.7 million for the fourth quarter of 2013 and revenue of $76.5 million for the first quarter of 2013. Record revenue of more than $25 million were generated from enterprise solutions for the first quarter. Revenue from client SSDs were impacted due to the tight supply of NAND flash.

GAAP gross margin for the first quarter of 2014 was 14.7% compared to a GAAP gross margin of 1.7% for the fourth quarter of 2013 and a GAAP gross margin loss of (11.0%) for the first quarter of 2013.

Non-GAAP gross margin for the first quarter of 2014 was 15.5% compared to a non-GAAP gross margin of 2.4% for the fourth quarter of 2013 and a non-GAAP gross margin loss of (10.7%) for the first quarter of 2013. On a sequential basis, gross margins increased due primarily to product mix shift towards our enterprise solutions and inventory write-downs in the fourth quarter. The company expects gross margin to decline in future periods as availability of NAND flash has impacted unit shipments, and a less favorable mix of higher margin enterprise products to total unit shipments.

GAAP operating expenses for the first quarter of 2014 were $19.7 million, compared to operating expenses of $21.4 million for the fourth quarter of 2013 and operating expenses of $23.0 million for the first quarter of 2013.

Non-GAAP operating expenses for the first quarter of 2014 were $17.7 million, compared to non-GAAP operating expenses of $19.3 million for the fourth quarter of 2013 and non-GAAP operating expenses of $21.1 million for the first quarter of 2013. Operating expenses for the first quarter of 2014 included additional legal expenses in the amount of $1.7 million compared to $2.9 million in the fourth quarter of 2013, a reduction of $1.2 million sequentially. The company continues to reduce non-critical spending.

GAAP net loss for the first quarter of 2014 was $(13.2) million, or a loss of $(0.19) per share on 68.2 million weighted average shares outstanding. This compares with a net loss of $(21.1) million, or a loss of $(0.31) per share on 68.0 million weighted average shares outstanding for the fourth quarter of 2013 and a net loss of $(24.5) million, or a loss of $(0.36) per share on 67.5 million weighted average shares outstanding for the first quarter of 2013.

Non-GAAP net loss for the first quarter of 2014 was $(9.7) million, or a loss of $(0.14) per share on 68.2 million weighted average shares outstanding compared to a non-GAAP loss of $(18.5) million, or $(0.27) per share on 68.0 million weighted average shares outstanding in the fourth quarter of 2013 and to a non-GAAP net loss of $(29.4) million, or a loss of $(0.44) per share on 67.5 million weighted average shares outstanding for the first quarter of 2013.

Cash and cash equivalents at the end of first quarter of 2014 were $5.0 million compared to $12.2 million at the end of the fourth quarter of 2013.

1Q14 Highlights:

• Appointment of Rafael Torres as CFO
• Entered into loan and security agreement with Hercules Technology Growth Capital
• Launched new VXL 1.3 Cache and Virtualization Software. VXL 1.3 adds additional features including evolved synchronous data mirroring capabilities and automatic server failover mechanisms to enable ‘SAN-less,’ available, fault tolerant environments based on virtualized host flash
• AB S.A., an established multinational distributor of IT and computer technology products, became an authorized distributor of line of SSDs and PSUs in the Central-Eastern Europe region
• The ZD-XL SQL Accelerator earned the Best of Interop award in the Data Center & Storage category. It is an integrated, plug-and-play flash acceleration solution optimized for SQL Server applications
• Enterprise SATA-Based Deneva 2 SSDs were qualified on NETGEAR’s ReadyDATA 516 NAS Device
• Launched the next generation Vertex 450 Series SSDs which utilizes the proprietary Barefoot 3 M10 Series controller and 20nm flash to deliver a superior client computing experience. It has received over 80 positive reviews from industry trade press including Editor’s Choice Awards from media reviewers including The SSD Review, PC Perspective and Storage Review
• Collaborated with Mellanox Technologies to optimize SQL Server for Microsoft Always-On Environments. The combined solutions deliver Ethernet connectivity, intelligent and efficient cache and flash volume distribution of PCIe flash resources as well as enabling HA services of SQL Server installations

2Q14, ended August 31, 2013 Guidance
The firm intend to file our second quarter results for fiscal 2014 by the required date of October 15, 2013.

“In the first half of our fiscal year, we faced significant challenges securing flash. We believe that flash availability and pricing was impacted by our credit situation due to our restatement efforts. This especially came to light in the second quarter,” explained Schmitt.

“Preliminary revenue for the second quarter of fiscal 2014 will decrease to between $30 and $35 million with a significant reduction to gross margins as compared to the first quarter. Our NAND supply constraints and costs more impacted our client revenue and margins,” continued Schmitt. “Also in the second quarter, one of our major customers completed their data center installation and other large scale data center designs to offset this revenue are still in process. Our channel-based enterprise business grew but could not offset this shortfall. We continue to see robust overall demand for our products but are challenged with our credit situation to realize these revenues.”