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STEC Announces Third Quarter 2012 Results



STEC Announces Third Quarter 2012 Results

SANTA ANA, Calif., Nov. 6, 2012 (GLOBE NEWSWIRE) -- STEC, Inc. (Nasdaq:STEC)
announced today the Company's financial results for the third quarter ended
September 30, 2012.

Revenue for the third quarter of 2012 was $42.1 million, a decrease of 41.9%
from $72.5 million for the third quarter of 2011 and an increase of 3.4% from
$40.7 million for the second quarter of 2012.

GAAP gross profit margin was 37.0% for the third quarter of 2012, compared to
45.8% for the third quarter of 2011 and 36.6% for the second quarter of 2012.
GAAP diluted loss per share was $0.42 for the third quarter of 2012, compared
to diluted earnings per share of $0.09 for the third quarter of 2011 and a
diluted loss per share of $1.07 for the second quarter of 2012.

Non-GAAP gross profit margin was 37.5% for the third quarter of 2012, compared
to 46.0% for the third quarter of 2011 and 37.2% for the second quarter of
2012. Non-GAAP diluted loss per share was $0.24 for the third quarter of 2012,
compared to diluted earnings per share of $0.14 for the third quarter of 2011
and a diluted loss per share of $0.27 for the second quarter of 2012.

A reconciliation of GAAP to non-GAAP results is provided in the tables
included in this release.

Business Outlook

"During the third quarter of 2012, we worked towards broadening our customer
base to a mixed model of OEM, Channel and Enterprise end-user customers," said
Mark Moshayedi, STEC's Chief Executive Officer and President. "Our initiatives
to tap the sizable potential of the enterprise markets – comprised of direct
or end-user customers -- are advancing as we have experienced growth in sales
emerging from these customers in the third quarter of 2012. This early
progress helps to validate the continued investment that we are making in the
expansion of our enterprise end-user sales & marketing and channel-support
infrastructure. We expect the full benefits of this transition to take place
over several quarters.

"Diversifying our market presence has the potential of expanding our total
addressable market, increasing our customer base, and reducing our overall
sales cycle, given that enterprise customer qualification timelines tend to be
shorter. This transformation will not happen overnight, but we are committed
to delivering storage solutions to a broader customer base by leveraging our
IP and solid state technology."

Guidance

STEC's current expectation for the fourth quarter of 2012 is as follows:

  * Revenue to range from $36 million to $40 million.
  * Non-GAAP diluted loss per share to range from $0.31 to $0.35.

STEC's projected non-GAAP loss per share results exclude employee stock
compensation expense and other items that the Company does not consider
indicative of its underlying business performance.

Class Action Settlement

On October 5, 2012, the Company entered into a Stipulation and Agreement of
Settlement (the "Settlement Agreement") to settle the previously disclosed
federal class action filed against the Company and several of its senior
officers and directors in the United States District Court for the Central
District of California. The Settlement Agreement provides for the resolution
of all the pending claims in the federal class action litigation, without any
admission or concession of wrongdoing by the Company or the other defendants.
The Company and the other defendants have entered into the Settlement
Agreement to eliminate the uncertainty, distraction, burden and expense of
further litigation. The Settlement Agreement provides for a fund of $35.8
million in exchange for a full and complete release of all claims that were or
could have been asserted in the federal class action. As previously disclosed,
the Company had recorded as of June 30, 2012 an estimated settlement accrual
of $35 million and an insurance claim receivable of $20 million, resulting in
a net charge of $15 million. On October 18, 2012, the Company's insurance
carriers agreed to contribute $562,500 of the additional settlement cost of
$750,000. As a result, the Company has recorded an additional settlement
accrual of $750,000 and an additional insurance claim receivable of $562,500,
resulting in a net charge of $187,500 for the quarterly period ended September
30, 2012. The Settlement Agreement remains subject to court approval and
certain other conditions, including notice to class members and an opportunity
for class members to object to or opt out of the settlement. At this time,
there can be no assurance that the conditions to effect the settlement will be
met, that the Settlement Agreement will receive the required court and other
approvals or that the settlement will become final. The Company expects the
settlement of the federal class action will also result in a full release of
the class claims asserted in the previously disclosed class action in the
Superior Court of Orange County, California. The settlement does not resolve
the related federal and state shareholder derivative litigation.

Conference Call

STEC will hold an open conference call to discuss results for the third
quarter of 2012. 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 (877) 645-6380
(United States and Canada) and (914) 495-8562 (International).

Webcast

This call will be webcast. The webcast can be accessed by clicking on the blue
"Investors" tab at the top of the home page at www.stec-inc.com. Then click on
the "Audio Presentations" button.

Replay

The webcast will also be archived and available for replay beginning
approximately two hours after the live call concludes.

About STEC, Inc.

STEC, Inc. is a leading global provider of enterprise-class solid-state drive
(SSD) technologies and solutions tailored to meet the high-performance,
high-reliability and high-endurance needs of today's data-intensive server and
storage platforms. With headquarters in Santa Ana, California, and locations
worldwide, STEC leverages almost two decades of solid-state knowledge and
experience to design, manufacture and deliver the most comprehensive line of
PCIe, SAS, SATA, and embedded SSDs on the market today. In addition, STEC's
EnhanceIO^TM SSD Cache Software enables IT managers to cost-effectively scale
server application performance. For more information, please visit
www.stec-inc.com.

For information about STEC and to subscribe to the Company's "Email Alerts"
service, please visit STEC's web site at www.stec-inc.com, click on the red
"Investors" tab at the top of the home page and then click "Email Alerts."

The STEC, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=1079

STEC, the STEC logo, and EnhanceIO are either registered trademarks or
trademarks of STEC, Inc. in the United States and certain other countries. All
other trademarks or brand names referred to herein are the property of their
respective owners.

Use of Non-GAAP Financial Information. To supplement the consolidated
financial results prepared in accordance with U.S. Generally Accepted
Accounting Principles ("GAAP"), STEC uses non-GAAP financial measures
(non-GAAP gross profit, non-GAAP gross profit percentage, non-GAAP operating
expenses, non-GAAP operating (loss) income, non-GAAP operating margin
percentage, non-GAAP other income (expense), non-GAAP (loss) income and
non-GAAP diluted (loss) earnings per share) that exclude employee stock
compensation expense, employee severance, securities litigation related costs,
SEC investigation and litigation costs, intellectual property litigation
costs, litigation loss contingency and deferred tax asset valuation allowance.
Management excludes these items because it believes that the non-GAAP measures
enhance an investor's overall understanding of STEC's financial performance
and future prospects by being more reflective of the Company's core, recurring
operational activities and to be more comparable with the results of the
Company over various periods. Management uses non-GAAP financial measures
internally for strategic decision making, forecasting future results and
evaluating current performance. Guidance is provided only on a non-GAAP basis
due to the inherent difficulty of forecasting the timing or amount of such
items. Difficulties in forecasting the non-GAAP items include the timing of
issuing employee stock compensation, which could impact the valuation and
related expense, and the timing of employee severance payments. These items
could be materially significant to the Company's GAAP results in any period.
By disclosing non-GAAP financial measures, management intends to provide
investors with a more meaningful, consistent comparison of the Company's core
operating results and trends for the periods presented. Non-GAAP financial
measures are not prepared in accordance with GAAP; therefore, the information
is not necessarily comparable to other companies' financial information and
should be considered as a supplement to, not a substitute for, or superior to,
the corresponding measures calculated in accordance with GAAP. A complete
reconciliation between GAAP and non-GAAP information referred to in this
release is provided in tables included in this release. Certain amounts
reported in prior releases may have been reclassified to conform to the
current quarter's non-GAAP presentation.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995. This release contains forward-looking statements that involve risks and
uncertainties, including, but not limited to, statements concerning growing
acceptance, adoption and qualification of SSDs within the enterprise storage
and server markets; the qualification of STEC's products and other developing
technologies; the qualification of STEC's products and solutions into emerging
SSD system vendors, enterprises and non-traditional end-user customers;
leveraging STEC's sales and marketing and channel-support infrastructure to
cater to enterprises directly and develop a new vertical market strategy;
STEC's key product line initiatives and development; the transition from one
product generation to the next; the length of qualification cycles; the
capabilities, performance, cost advantages, and benefits of STEC's products
and solutions; the rapidly evolving enterprise storage and server markets;
expected fourth quarter of 2012 revenue and loss per share; and the
anticipated settlement of the previously disclosed federal and state class
actions filed against the Company and several of its senior officers and
directors. Such forward-looking statements are based on current expectations
and involve inherent risks and uncertainties, including factors that could
delay, divert or change any of them, and could cause actual outcomes and
results to differ materially from current expectations. Although STEC believes
that the forward-looking statements contained in this release are reasonable,
it can give no assurance that its expectations will be fulfilled. Additional
important factors which could cause actual results to differ materially from
those expressed or implied in the forward-looking statements are detailed in
filings with the Securities and Exchange Commission made from time to time by
STEC, including its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q, and its Current Reports on Form 8-K. Special attention is directed to
the portions of those documents entitled "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
information contained in this press release is a statement of STEC's present
intention, belief or expectation. STEC may change its intention, belief, or
expectation, at any time and without notice, based upon any changes in such
factors, in STEC's assumptions or otherwise. Except as required by law, STEC
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.

STEC, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
                                                              
                                                              
                                          September 30, 2012 December 31, 2011
ASSETS:                                                       
Current Assets:                                               
Cash and cash equivalents                  $ 186,201          $ 180,853
Accounts receivable, net of allowances of
$3,265 at September 30, 2012 and $3,010    13,169             30,475
at December 31, 2011
Inventory                                  44,538             58,629
Insurance claim receivable                 20,563             1,583
Other current assets                       6,792              7,384
Total current assets                       271,263            278,924
                                                              
Leasehold interest in land                 2,515              2,549
Property, plant and equipment, net         32,001             34,287
Goodwill                                   1,682              1,682
Long-term intangible assets, net           5,061              6,185
Deferred income taxes, net                 --                 12,137
Other long-term assets                     818                818
Total assets                               $ 313,340          $ 336,582
                                                              
LIABILITIES AND SHAREHOLDERS' EQUITY:                         
Current Liabilities:                                          
Accounts payable                           $ 11,246           $ 6,837
Accrued and other liabilities              53,330             14,309
Total current liabilities                  64,576             21,146
Other long-term payables                   4,241              5,083
Commitments and contingencies              --                 -- 
Shareholders' Equity:                                         
Preferred stock, $0.001 par value, 20,000
shares authorized, no shares issued and    --                 -- 
outstanding
Common stock, $0.001 par value, 100,000
shares authorized, 46,724 shares issued
and outstanding as of September 30, 2012   47                 46
and 46,110 shares issued and outstanding
as of December 31, 2011
Additional paid-in capital                 146,449            132,211
Retained earnings                          98,027             178,096
Total shareholders' equity                 244,523            310,353
Total liabilities and shareholders'        $ 313,340          $ 336,582
equity

 
STEC, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)
                                                    
                       Quarter Ended September 30, Nine Months Ended September
                                                   30,
                       2012           2011         2012           2011
Net revenues            $ 42,053       $ 72,529     $ 133,173      $ 249,924
Cost of revenues        26,499         39,317       84,638         139,592
Gross profit            15,554         33,212       48,535         110,332
                                                                   
Sales and marketing     7,306          5,835        20,842         17,554
General and             12,751         7,332        35,280         22,646
administrative
Research and            16,911         14,521       50,485         39,508
development
Total operating         36,968         27,688       106,607        79,708
expenses
                                                                   
Operating (loss)        (21,414)       5,524        (58,072)       30,624
income
Other income (expense)  985            6            (13,126)       49
(Loss) income from
operations before       (20,429)       5,530        (71,198)       30,673
income taxes
(Benefit) Provision     (646)          686          8,871          1,987
for income taxes
Net (loss) income       (19,783)       4,844        (80,069)       28,686
Comprehensive (loss)    $ (19,783)     $ 4,844      $ (80,069)     $ 28,686
income
                                                                   
Net (loss) income per                                              
share:
Basic                   $ (0.42)       $ 0.10       $ (1.73)       $ 0.56
Diluted                 $ (0.42)       $ 0.09       $ (1.73)       $ 0.55
                                                                   
Shares used in per                                                 
share computation:
Basic                   46,639         50,610       46,374         51,108
Diluted                 46,639         51,206       46,374         52,181

                                  STEC, INC.
                           Non-GAAP Reconciliations

The non-GAAP financial measures included in the following tables are non-GAAP
gross profit, non-GAAP gross profit percentage, non-GAAP operating expenses,
non-GAAP operating (loss) income, non-GAAP other (expense) income, non-GAAP
operating margin percentage, non-GAAP (loss) income and non-GAAP diluted
(loss) earnings per share, which adjust for the following items: (a) employee
stock compensation expense, (b) employee severance, (c) securities litigation
related costs, (d) SEC investigation and litigation costs, (e) intellectual
property litigation costs, (f) litigation loss contingency and (g) deferred
tax asset valuation allowance. Management believes these non-GAAP financial
measures enhance an investor's overall understanding of the Company's
financial performance and future prospects by being more reflective of the
Company's core, recurring operational activities and are more comparable with
the results of the Company over various periods. Management uses non-GAAP
financial measures internally for strategic decision making, forecasting
future results and evaluating current performance. Non-GAAP financial measures
are not prepared in accordance with GAAP; therefore, the information is not
necessarily comparable to other companies' financial information and should be
considered as a supplement to, not a substitute for, or superior to, the
corresponding measures calculated in accordance with GAAP.

Details of the items excluded from GAAP financial results in calculating
non-GAAP financial measures and explanatory footnotes are as follows:

  a)      Employee stock compensation costs incurred in connection with
  Accounting Standards Codification ("ASC") 718, "Compensation -- Stock
  Compensation," are comprised on non-cash expenses related to equity
  compensation provided to employees, officers and directors. Management
  believes non-cash stock compensation costs should be excluded when
  evaluating core operations and current performance.

  b)      Employee severance relates to one-time costs incurred in conjunction
  with the termination of certain employees. As an accommodation, the Company
  provides compensation in the form of severance to certain employees subject
  to termination without cause. Management believes that severance costs
  should be excluded when evaluating core operations and current performance.

  c)      In the fourth quarter of 2009 and first quarter of 2010, certain
  securities class action and shareholder derivative lawsuits were filed
  against the Company and certain officers and directors of the Company. These
  costs represent the legal fees related to these class action securities and
  shareholder derivative actions that have not been covered by the Company's
  Directors and Officers insurance policies and include indemnifiable legal
  costs advanced on behalf of these officers and directors. Management
  believes these legal fees should be excluded when evaluating core operations
  and current performance.

  d)     The SEC initiated in the fourth quarter of 2009 an investigation of
  the Company and certain officers in connection with trading in the Company's
  securities, which on July 19, 2012 resulted in the SEC filing a civil action
  against the Company's Founder, Manouch Moshayedi. The SEC also notified the
  Company that it would not bring an enforcement action against the Company or
  any of its other officers. These costs represent the legal fees related to
  this investigation and related civil action that have not been covered by
  the Company's Directors and Officers insurance policies and include
  indemnifiable legal costs advanced on behalf of these officers. Management
  believes these legal fees should be excluded when evaluating core operations
  and current performance.

  e)      On September 7, 2011, Solid State Storage Solutions, Inc. filed a
  patent infringement suit against the Company and several other
  defendants. According to the complaint, the patents relate to solid-state
  drives employing a controller chip and a plurality of NAND flash
  devices. The Company believes the lawsuit is without merit and intends to
  vigorously defend itself. Management believes that legal fees and expenses
  incurred in conjunction with this lawsuit should be excluded when evaluating
  core operations and current performance.

  f)       In connection with the legal matters described in c) above, the
  Company has accrued an estimated loss contingency. Management believes that
  the litigation loss contingency should be excluded when evaluating core
  operations and current performance.

  g)      In accordance with ASC Topic 740, Income Taxes, the Company
  determined based upon an evaluation of all available objectively verifiable
  evidence, including but not limited to the Company's U.S. operations falling
  into a cumulative three year loss, that a non-cash valuation allowance
  should be established against its U.S. deferred tax assets which are
  comprised primarily of accumulated and unused U.S. tax credits and 2012 net
  operating losses. The establishment of a full non-cash valuation allowance
  on the Company's U.S. deferred tax assets does not have any impact on its
  cash, nor does such an allowance preclude the Company from utilizing its tax
  losses, tax credits or other deferred tax assets in future
  periods. Management believes that the non-cash valuation allowance against
  U.S. deferred tax assets benefitted in prior periods should be excluded when
  evaluating core operations and current performance.

  h)      The amount represents the estimated income tax effect of the
  non-GAAP adjustments. Starting in the third quarter of 2011, the Company
  calculated the tax effect of non-GAAP adjustments by applying an applicable
  estimated jurisdictional tax rate to each specific non-GAAP item. Prior to
  the third quarter of 2011, the Company utilized the consolidated effective
  tax rate to estimate the tax effect of non-GAAP adjustments.

 
STEC, INC.
Schedule Reconciling GAAP (Loss) Income to Non-GAAP (Loss) Income
($ in thousands, except per share amounts)
(unaudited)
                                  
                                 For the Quarters Ended
                                 September 30, September 30, June 30,
                                 2012          2011          2012
GAAP net (loss) income            $ (19,783)    $ 4,844       $ (49,597)
                                                              
The GAAP amounts have been
adjusted to exclude the                                       
following items (non-GAAP
adjustments):
                                                              
Excluded from cost of sales:                                  
Employee stock compensation (a)   $ 236         $ 154         $ 244
Total excluded from cost of       236           154           244
sales
                                                              
Excluded from operating                                       
expenses:
Employee stock compensation (a)   3,892         3,518         3,930
Employee severance (b)            49            --            128
Securities litigation related     2,839         --            3,492
costs (c)
SEC investigation and litigation  639           --            860
costs (d)
IP litigation costs (e)           616           --            400
Total excluded from operating     8,035         3,518         8,810
expenses
                                                              
Excluded from other (expense)                                 
income:
Litigation loss contingency (f)   188           --            15,000
                                  188           --            15,000
                                                              
 Total excluded from cost of
sales, operating expenses and     8,459         3,672         24,054
other (expense) income before
income taxes
                                                              
 Income tax effect on non-GAAP    (70)          (1,158)       (82)
adjustments (h)
Total excluded from cost of
sales and operating expenses      8,389         2,514         23,972
after taxes
                                                              
Excluded from provision for                                   
income taxes:
 Deferred tax asset valuation     --            --            13,233
allowance (g)
Total non-GAAP adjustments after  8,389         2,514         37,205
income taxes
                                                              
Non-GAAP (loss) income            $ (11,394)    $ 7,358       $ (12,392)
                                                              
GAAP diluted (loss) earnings per  $ (0.42)      $ 0.09        $ (1.07)
share
Impact of non-GAAP adjustments
on diluted (loss) earnings per    0.18          0.05          0.80
share
Non-GAAP diluted (loss) earnings  $ (0.24)      $ 0.14        $ (0.27)
per share
                                                              
(a) - (h) See corresponding footnotes above.                                  

 
STEC, INC.
Selected Non-GAAP Financial Information
($ in thousands)
(unaudited)
                                  
                                 For the Quarters Ended
                                 September 30, September 30, June 30,
                                 2012          2011          2012
                                                              
GAAP gross profit                 $ 15,554      $ 33,212      $ 14,889
Employee stock compensation (a)   236           154           244
Non-GAAP gross profit             $ 15,790      $ 33,366      $ 15,133
                                                              
GAAP gross profit %              37.0%         45.8%         36.6%
Effect of reconciling item on    0.5%          0.2%          0.6%
gross profit %
Non-GAAP gross profit %          37.5%         46.0%         37.2%
                                                              
GAAP operating expenses           $ 36,968      $ 27,688      $ 37,666
Employee stock compensation (a)   (3,892)       (3,518)       (3,930)
Employee severance (b)            (49)          --            (128)
Securities litigation related     (2,839)       --            (3,492)
costs (c)
SEC investigation and litigation  (639)         --            (860)
costs (d)
IP litigation costs (e)           (616)         --            (400)
Non-GAAP operating expenses       $ 28,933      $ 24,170      $ 28,856
                                                              
GAAP operating (loss) income      $ (21,414)    $ 5,524       $ (22,777)
Employee stock compensation (a)   4,128         3,672         4,174
Employee severance (b)            49            --            128
Securities litigation related     2,839         --            3,492
costs (c)
SEC investigation and litigation  639           --            860
costs (d)
IP litigation costs (e)           616           --            400
Non-GAAP operating (loss) income  $ (13,143)    $ 9,196       $ (13,723)
                                                              
GAAP operating margin %          -50.9%        7.6%          -56.0%
Effect of reconciling items on   19.6%         5.1%          22.3%
operating margin %
Non-GAAP operating margin %      -31.3%        12.7%         -33.7%
                                                              
GAAP other income (expense)       $ 985         $ 6           $ (14,342)
 Litigation loss contingency (f)  188           --            15,000
Non-GAAP other income             $ 1,173       $ 6           $ 658
                                                              
(a) - (f) Refer to the corresponding footnotes above.                         

CONTACT:  STEC, Inc.
          Mitch Gellman, Vice President of Investor Relations
          (949) 260-8328
          ir@stec-inc.com

STEC, Inc.
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