SANTA ANA, Calif., Aug. 5, 2004 (PRIMEZONE) -- SimpleTech, Inc. (Nasdaq:STEC), a designer, manufacturer and marketer of custom and open-standard memory solutions based on Flash memory and DRAM technologies, today announced its financial results for the second quarter and the six months ended June 30, 2004.
During the second quarter of 2004, SimpleTech executed on various strategies to better position itself in coming quarters, including the following:
-- Discontinued the operation of its Xiran Division, which is
expected to reduce operating expenses by approximately
$2 million per quarter;
-- Reduced non-Xiran Division general and administrative
expenses, which is expected to decrease operating expenses by
approximately $400,000 per quarter;
-- Increased cash, cash equivalents and marketable securities by
approximately $10 million from March 31, 2004 to June 30, 2004;
-- Reduced inventory by approximately $15 million from March 31,
2004 to June 30, 2004;
-- Gained access to competitively-priced Flash memory which is
expected to increase the Company's competitive position; and
-- Announced Board approval of a stock repurchase plan of up to
$15 million.
Revenues for the second quarter of 2004 were $56.5 million, a decrease of 15% from $66.3 million for the first quarter of 2004, and an increase of 26% from $44.7 million for the second quarter of 2003. Revenues for the second quarter of 2004 were slightly higher than the company's June 16, 2004 updated revenue guidance of $53 million to $56 million. Gross profit margin decreased from 17.4% in the first quarter of 2004 to 14.6% in the second quarter of 2004 due primarily to the impact of Flash and DRAM price declines in the second quarter of 2004. The company reduced its inventory level by 39% from $39.0 million at March 31, 2004 to $23.7 million at June 30, 2004, thereby reducing associated inventory risk. The reduction included a $1.5 million write-off of Xiran Division inventory.
In June 2004, the company discontinued its Xiran Division and recorded a charge of $4.7 million, which consisted of operating expenses of approximately $1.7 million and an incremental charge of approximately $3.0 million, primarily related to the write-off of Xiran Division assets. The company expects this will reduce future operating expenses by approximately $2.0 million per quarter. Income per diluted share from continuing operations for the second quarter of 2004 was $0.02, compared to $0.03 for the first quarter of 2004 and $0.01 for the second quarter of 2003. Net income (loss) per diluted share was ($0.04) for the second quarter of 2004, compared to $0.01 for the first quarter of 2004 and ($0.02) for the second quarter of 2003. Cash, cash equivalents and short-term marketable securities increased by $10.4 million from $67.4 million at March 31, 2004 to $77.8 million at June 30, 2004. Order backlog increased 62% during the quarter from $6.8 million at March 31, 2004 to $11.0 million at June 30, 2004.
Business Segments
Consumer and OEM Divisions
Revenues from Consumer Division customers comprised 58% of total revenues in both the first and second quarters of 2004. Revenues from OEM Division customers comprised 42% of total revenues in both the first and second quarters of 2004.
Business Outlook
"We believe that SimpleTech's outlook for the remainder of 2004 is bright, based on our execution of key initiatives during the second quarter of this year," said Manouch Moshayedi, chief executive officer of SimpleTech, Inc. "The steps that we have taken in the second quarter of 2004 have focused on increasing profitability and shareholder value. Ultimately, we believe these steps resulted in: a significant reduction in operating expenses; the resolution of our Xiran Division; a strengthening of our balance sheet by increased cash and reduced inventory levels; and the Board's authorization of a stock repurchase program.
"Cost consciousness and return on investment are among our top priorities. During the second quarter of 2004, we eliminated approximately $2.4 million from quarterly operating expenses, including approximately $2.0 million related to our Xiran Division. As a result, we believe incremental revenue will provide favorable operating leverage.
"During the second quarter of 2004, we assessed several options as well as a timetable to profitability for our development stage Xiran Division. While the Division was successful in developing solutions for the iSCSI storage market, it was unclear when that market would mature. As a result, we decided to discontinue the operation, and our chief technical officer and top engineers are now focused on developing advanced memory and related solutions for SimpleTech's current and prospective OEM customers.
"We have historically taken a conservative approach to managing inventory. In the second quarter of 2004, we took steps to limit our exposure in this unusually dynamic pricing environment by reducing our inventory by $15 million. The decision we made to shift our customer mix in the first and second quarters of 2004 minimized the inventory risks that some of our public and private peers encountered.
"We believe that the significant increase of NAND Flash memory available in the marketplace bodes well for us. With chip makers working to find viable channels to place their increased output, the supply of competitively-priced Flash chips has dramatically improved. With access to competitively-priced supply, we believe that we will be able to compete for business in new sectors.
"In June 2004, our Board approved a stock repurchase program authorizing the purchase of up to $15 million of our common stock. With more than $75 million in cash, cash equivalents and marketable securities and our stock trading at close to book value, our Board deemed a stock repurchase program appropriate at this time.
"While volatility is always a characteristic of both the Flash and DRAM markets, we expect our revenues for the third quarter of 2004 to increase to a range from $60 million to $62 million. We expect diluted earnings per share for the quarter to range from $0.02 to $0.03."
Conference Call
SimpleTech, Inc. will hold an open conference call to discuss results for the second quarter of 2004. The call will take place today at 1:30 p.m., Pacific/4:30 p.m., Eastern. The call-in numbers for the conference are 1-800-781-3662 (United States and Canada) and 1-706-643-7710 (International).
Webcast
This call is being webcast by CCBN and can be accessed at www.simpletech.com, then click on "Investor Relations."
About SimpleTech, Inc. (Nasdaq:STEC)
SimpleTech, Inc. designs, manufactures and markets custom and open-standard memory solutions based on Flash and DRAM memory technologies. Headquartered in Santa Ana, California, the company offers a comprehensive line of over 2,500 products and specializes in developing high-density memory modules, memory cards and storage drives. For information about SimpleTech, Inc., and to subscribe to the company's "Email Alert" service, please visit our Web site at www.simpletech.com, click "Investor Relations" and then Email Alert.
Safe Harbor
This release may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, increased profitability in future periods as a result of actions taken in the second quarter of 2004, anticipated reduction of operating expenses by approximately $2.4 million per quarter as a result of the closure of the Xiran Division and other reductions in general and administrative expenses, our increased competitive position as a result of the availability of competitively-priced Flash memory, our enthusiasm about our business outlook for the remainder of 2004, incremental revenue providing favorable operating leverage, our ability to become more competitive in new and existing markets, and revenue and earnings per share guidance for the third quarter of 2004. Actual results may differ materially from the results predicted. Important factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under "Risk Factors" in filings with the Securities and Exchange Commission made from time to time by SimpleTech, including its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. Other factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements include the following risks: we do not realize the anticipated reduction in operating expenses in future quarters from the closure of the Xiran Division and other reductions in general and administrative expenses, the cost of raw materials may fluctuate widely in the future, excess availability of Flash memory could reduce Flash component pricing resulting in lower average selling prices and gross profit, DRAM supply may tighten requiring suppliers to place their customers, including SimpleTech, on limited component allocation, Flash and DRAM demand or component pricing may decrease or become unstable, new and changing technologies may limit the applications of SimpleTech's products, new customer and supplier relationships may not be implemented successfully and SimpleTech may not repurchase any shares under the stock repurchase plan. SimpleTech undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
The SimpleTech company logo can be found at: http://www.primezone.com/newsroom/prs/?pkgid=1079
Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, December 31,
2004 2003
-------- --------
ASSETS:
Current Assets:
Cash, cash equivalents and
marketable securities $ 77,844 $ 76,394
Accounts receivable, net of allowances
of $1,014 at June 30, 2004 and $1,129 at
December 31, 2003 24,194 33,036
Inventory, net 23,703 26,704
Deferred income taxes 2,610 1,087
Other current assets 2,068 2,236
-------- --------
Total current assets 130,419 139,457
Furniture, fixtures and equipment, net 7,174 9,263
Intangible assets -- 372
Deferred income taxes 4,703 4,577
-------- --------
Total assets $142,296 $153,669
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 11,060 $ 20,388
Accrued and other liabilities 3,981 4,957
-------- --------
Total liabilities 15,041 25,345
Shareholders' Equity:
Common stock 48 48
Additional paid-in capital 123,283 122,777
Retained earnings 3,924 5,499
-------- --------
Total shareholders' equity 127,255 128,324
-------- --------
Total liabilities and
shareholders' equity $142,296 $153,669
======== ========
SimpleTech, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Revised- Revised-
Note 1 Note 1
--------- ---------
Net revenues $ 56,509 $ 44,745 $ 122,799 $ 85,663
Cost of revenues 48,248 37,021 103,014 70,867
--------- --------- --------- ---------
Gross profit 8,261 7,724 19,785 14,796
--------- --------- --------- ---------
Sales and marketing 4,142 4,424 9,195 9,458
General and
administrative 2,149 2,126 5,077 4,550
Research and
development 970 600 1,814 1,199
--------- --------- --------- ---------
Total operating
expenses 7,261 7,150 16,086 15,207
--------- --------- --------- ---------
Operating income 1,000 574 3,699 (411)
Interest and other,
net 202 125 401 276
--------- --------- --------- ---------
Income (loss)
from continuing
operations
before provision
(benefit) for
income taxes 1,202 699 4,100 (135)
Provision (benefit)
for income taxes 347 182 1,574 (224)
--------- --------- --------- ---------
Income from
continuing
operations $ 855 $ 517 $ 2,526 $ 89
Loss from discontinued
operations before
benefit for
income taxes (4,668) (2,016) (7,115) (3,932)
Benefit for
income taxes (1,940) (759) (3,013) (1,543)
--------- --------- --------- ---------
Loss from discontinued
operations $ (2,728) $ (1,257) $ (4,102) $ (2,389)
--------- --------- --------- ---------
Net Loss $ (1,873) $ (740) $ (1,576) $ (2,300)
========= ========= ========= =========
Net income (loss) per share:
Basic:
Continuing
operations $ 0.02 $ 0.01 $ 0.05 $ 0.00
Discontinued
operations $ (0.06) $ (0.03) $ (0.09) $ (0.06)
--------- --------- --------- ---------
Total $ (0.04) $ (0.02) $ (0.03) $ (0.06)
========= ========= ========= =========
Diluted:
Continuing
operations $ 0.02 $ 0.01 $ 0.05 $ 0.00
Discontinued
operations $ (0.05) $ (0.03) $ (0.08) $ (0.06)
--------- --------- --------- ---------
Total $ (0.04) $ (0.02) $ (0.03) $ (0.06)
========= ========= ========= =========
Shares used in
computation of net
income (loss) per
share:
Basic 47,908 38,905 47,869 38,874
========= ========= ========= =========
Diluted 49,632 40,229 49,957 39,967
========= ========= ========= =========
Note 1 - We revised our previously issued consolidated
financial statements for the quarter and six months
ended June 30, 2003. In the quarter ended June 30, 2003,
the revision had no impact on revenues or gross profit,
decreased operating expenses by $208,000 and reduced net
loss by $124,000. In the six months ended June 30, 2003,
the revision had no impact on revenues, increased gross
profit by $141,000, decreased operating expenses by
$238,000 and reduced net loss by $225,000. For details
regarding the revision, see Note 2 to our Consolidated
Financial Statements in our 2003 Form 10-K, which was
filed with the SEC on March 31, 2004.