OCZ: Fiscal 1Q11 Financial Results

OCZ Technology Group, Inc. reports its first quarter 2011 results, which ended on May 31, 2010.

Net revenue for Q1’11 totaled $34.3 million, up 6% sequentially over Q4’10 revenue of $32.4 million and, with the strategy shift away from legacy DRAM memory modules, was down 4% from the $35.8 million reported in last year’s first quarter. SSD revenue reached a record $13.3 million in Q1’11, representing a 27% increase over Q1’10 while memory module revenue decreased 13% to $15.0 million versus $17.4 million last year.

During the quarter, the Company raised $13.9 million (net of costs) of private placement of equity with several institutional shareholders. The resulting increase in working capital allowed the company to take on more business, which had a positive effect on SSD revenues by late May.

Reporting on a GAAP basis, net income for Q1’11 was a loss of $4.8 million, or $0.19 per diluted share. This compares to a GAAP net loss of $4.3 million, or $0.20 per share, in Q1’10.

Non-GAAP net loss for Q1’11 was $2.7 million, or $0.11 per diluted share, as compared to a non-GAAP net loss for Q1’10 of $4.1 million, or $0.19 per share. Reconciliation between GAAP and non-GAAP information is contained in the tables below.

Financial Highlights

• SSD revenue increased to $13.3 million in Q1’11, representing 39% of revenue compared to $10.4 million or 29% of revenue in Q1’10.
• Non-GAAP revenue in Q1’11 was $34.6 million, which slightly exceeded expectations
• Non-GAAP gross margin increased by 46% to 15.0% in Q1’11 from 10.3% in Q1’10
• Non-GAAP net loss decreased by 32% to $2.7million in Q1’11 from 4.1 million in Q1’10
• Operating expenses decreased to $7.6 million in Q1’11 from $7.9 million last year, while R&D continued to grow as the Company shifts its focus to SSDs
• Additional working capital from the private placement allowed the company to accelerate its business strategy shift from lower margin legacy DRAM module business to SSDs

Recent Business Highlights

• Over 20 new design wins with OEM clients for enterprise SSD products in Q1’11
• Expanded Bell Micro relationship to include the German and UK markets; focused on increasing market penetration of Enterprise SSDs into Europe
• Qualified SSDs with Adaptec MaxIQ Caching Solutions for enterprise applications
• Expanded line of Deneva Enterprise SSDs, in FC, SAS, iSCSI and SATA interfaces with formats from 1.8" to 3.5", which produce up to 50K small file IOPS
• Won over 25 product quality and performance awards for our Vertex 2 and 2E SSDs
• Demonstrated proprietary high speed data link (HSDL) with interface speeds more than 3 times that of SAS and FC interfaces in its first generation
• Announced full support of 34nm eMLC NAND FLASH for tier one enterprise storage applications at costs less than half of current SLC NAND based SSD solutions with similar durability
• Entered mass production with 480GB small format (2.5 inch) Vertex and Deneva series products.

Business Overview
"We are pleased with the record SSD results we generated in the first quarter," said Ryan Petersen, Chief Executive Officer of OCZ Technology. "The $13.9 million net capital raise will help drive improved execution for the balance of the year. We were able to increase our working capital, improve gross margins and implement our strategy of expanding our enterprise SSD client base."

Mr. Petersen concluded: "Industry analysts continue to regard the SSD market as a ‘once in a generation’ disruptive technology with strong growth potential for the years ahead as both business and consumers make the switch from traditional spinning mechanical hard drives. The market for SSD products is predicted by IDC to increase from just $1.1 billion in 2009 to over $5 billion in 2013, and we feel confident in our ability to compete on a long-term basis in this market."

Guidance
For fiscal 2011, OCZ’s prior revenue guidance was in the range of $200 million to $215 million, with growth primarily in the SSD product lines. OCZ now guides toward the upper end of that range and also anticipates achieving positive non-GAAP EBITDA in 2H’11.