Netlist Reports Third Quarter 2012 Results

Netlist Reports Third Quarter 2012 Results 
IRVINE, CA -- (Marketwire) -- 11/13/12 --  Netlist, Inc. (NASDAQ:
NLST), a designer and manufacturer of high-performance memory
subsystems, today reported financial results for the third quarter
and nine months ended September 29, 2012.  
Revenues for the three months ended September 29, 2012, were $6.4
million, down 61 percent from revenues of $16.3 million for the third
quarter ended October 1, 2011. Gross profit for the three months
ended September 29, 2012, was $0.4 million, or 6 percent of revenues,
compared to a gross profit of $5.5 million, or 34 percent of revenues
for the three months ended October 1, 2011, a decrease of 93 percent. 
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) after adding back net interest expense, provision for
income taxes, depreciation, amortization, stock-based compensation
and net non-operating expense (income) was a loss of $3.7 million for
the three month period ended September 29, 2012, compared to positive
adjusted EBITDA of $32,000 for the prior year period.  
Net loss for the three months ended September 29, 2012, was $4.8
million, or $0.17 loss per share, compared to a net loss in the prior
year period of $1.0 million, or $0.04 loss per share. These results
include stock-based compensation expense of $515,000 for the third
quarter of 2012, compared to $464,000 for the third quarter of 2011.  
"Our third quarter financial results reflect the current transitional
period of our business marked by the faster than anticipated decline
in sales of PERC, the largest portion of our business for the past
two years, and the delay in the ramp up of new products including
HyperCloud(R) and NVvault(TM)," said C.K. Hong, Chief Executive
Officer of Netlist. "We continue to execute our strategy to
aggressively market these new products to the world's top OEMs
including IBM which introduced our 32GB HCDIMMs on IBM System x3650
M4 servers in late September."  
"Our 32GB HyperCloud(R) solution adds to our promising line-up of new
products, including the new DDR3 NVvault line of cache data
protection products and 32GB 4R Planar-X RDIMM, which also launched
during the third quarter. We remain confident in the market potential
of these technologies and believe our operations are well-positioned
to grow over the long term."  
Revenues for the nine months ended September 29, 2012, were $30.9
million, down 30 percent from revenues of $44.3 million for the nine
months ended October 1, 2011. Gross profit for the nine months ended
September 29, 2012, was $8.6 million, or 28 percent of revenues,
compared to a gross profit of $14.3 million, or 32 percent of
revenues, for the nine months ended October 1, 2011, a decrease of 4
percent in margin percentage and a decrease of 40 percent for the
period in gross profit dollars.  
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) after adding back net interest expense, provision for
income taxes, depreciation, amortization, stock-based compensation
and net non-operating expense (income) was a loss of $6.6 million for
the nine month period ended September 29, 2012, compared to an
adjusted EBITDA loss of $2.2 million for the prior year period.  
Net loss for the nine months ended September 29, 2012, was $9.9
million, or $0.36 loss per share, compared to a net loss in the prior
year period of $5.4 million, or $0.22 loss per share. These results
include stock-based compensation expense of $1.5 million and $1.2
million for the nine month periods ended September 29, 2012 and
October 1, 2011, respectively.  
As of September 29, 2012, cash, cash equivalents, and investments in
marketable securities were $10.9 million, total assets were $28.8
million, working capital was $14.8 million, total debt was $3.6
million, and stockholders' equity was $15.8 million.  
Conference Call Information
 As previously announced, Netlist is
conducting a conference call today to be broadcast live over the
Internet at 5:00 pm Eastern Time to discuss and review the financial
results for the third quarter and nine months ended September 29,
2012. The dial-in number for the call is 1-412-858-4600. The live
webcast and archived replay of the call can be accessed in the
Investors section of Netlist's website at www.netlist.com. 
Note Regarding Use of Non-GAAP Financial Measures
 Certain of the
information set forth herein, including EBITDA and adjusted EBITDA,
may be considered non-GAAP financial measures. Netlist believes this
information is useful to investors because it provides a basis for
measuring Netlist's available capital resources, the operating
performance of Netlist's business and Netlist's cash flow, excluding
net interest expense, provisions for income taxes, depreciation,
amortization, share-based compensation and non-operating net income
and expense that would normally be included in the most directly
comparable measures calculated and presented in accordance with
Generally Accepted Accounting Principles. Netlist's management uses
these non-GAAP financial measures along with the most directly
comparable GAAP financial measures in evaluating Netlist's operating
performance, capital resources and cash flow. Non-GAAP financial
measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with
GAAP, and non-financial measures as reported by Netlist may not be
comparable to similarly titled amounts reported by other companies. 
About Netlist:
 Netlist, Inc. designs and manufactures
high-performance, logic-based memory subsystems for server and
storage applications for cloud computing. Netlist's flagship products
include HyperCloud(R), a patented memory technology that breaks
traditional memory barriers, NVvault(TM) family of products that
enables data retention during power interruption, EXPRESSvault(TM), a
PCI Express backup/recovery solution for cache data protection and a
broad portfolio of industrial Flash and specialty memory subsystems
including VLP (very low profile) DIMMs and Planar-X RDIMMs.  
Netlist develops technology solutions for customer applications in
which high-speed, high-capacity, small form factor and heat
dissipation are key requirements for system memory. These customers
include OEMs that design and build tower, rack-mounted, and blade
servers, high-performance computing clusters, engineering
workstations and telecommunications equipment. Founded in 2000,
Netlist is headquartered in Irvine, CA with manufacturing facilities
in Suzhou, People's Republic of China and an engineering design
center in Silicon Valley, CA. Learn more at www.netlist.com which now
includes a blog site with the latest news about Netlist products. 
Safe Harbor Statement:
 This news release contains forward-looking
statements regarding future events and the future performance of
Netlist. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expected or projected. These risks and uncertainties
include, but are not limited to, risks associated with the launch and
commercial success of our products, programs and technologies; the
success of product partnerships; continuing development,
qualification and volume production of EXPRESSvault(TM), NVvault(TM),
HyperCloud(R) and VLP Planar-X RDIMM; the timing and magnitude of the
anticipated decrease in sales to our key customer; our ability to
leverage our NVvault(TM) technology in a more diverse customer base;
the rapidly-changing nature of technology; risks associated with
intellectual property, including patent infringement litigation
against us as well as the costs and unpredictability of litigation
over infringement of our intellectual property and the possibility of
our patents being reexamined by the United States Patent and
Trademark office; volatility in the pricing of DRAM ICs and NAND;
changes in and uncertainty of customer acceptance of, and demand for,
our existing products and products under development, including
uncertainty of and/or delays in product orders and product
qualifications; delays in the Company's and its customers' product
releases and development; introductions of new products by
competitors; changes in end-user demand for technology solutions; the
Company's ability to attract and retain skilled personnel; the
Company's reliance on suppliers of critical components and vendors in
the supply chain; fluctuations in the market price of critical
components; evolving industry standards; and the political and
regulatory environment in the People's Republic of China. Other risks
and uncertainties are described in the Company's annual report on
Form 10-K filed on February 28, 2012, and subsequent filings with the
U.S. Securities and Exchange Commission made by the Company from time
to time. Except as required by law, Netlist undertakes no obligation
to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. 


 
                                                                            
                       Netlist, Inc. and Subsidiaries                       
                   Condensed Consolidated Balance Sheets                    
                      (in thousands, except par value)                      
                                                                            
                                                (unaudited)     (audited)   
                                               September 29,   December 31, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                                            
ASSETS                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $      10,441  $      10,535 
  Accounts receivable, net                             3,635         11,399 
  Inventories                                          9,975          6,057 
  Prepaid expenses and other current assets            1,151            806 
                                               -------------  ------------- 
    Total current assets                              25,202         28,797 
                                                                            
  Property and equipment, net                          3,073          2,771 
  Long-term investments in marketable                                       
   securities                                            443            444 
  Other assets                                           129            161 
                                               -------------  ------------- 
    Total assets                               $      28,847  $      32,173 
                                               =============  ============= 
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable                             $       4,073  $       6,155 
  Revolving line of credit                             2,800              - 
  Accrued payroll and related liabilities              1,071          1,813 
  Accrued expenses and other current                                        
   liabilities                                           919            460 
  Accrued engineering charges                            450            450 
  Current portion of long-term debt                    1,115          2,144 
                                               -------------  ------------- 
    Total current liabilities                         10,428         11,022 
Long-term debt, net of current portion                 2,517          1,118 
Other liabilities                                         93             94 
                                               -------------  ------------- 
    Total liabilities                                 13,038         12,234 
                                               -------------  ------------- 
                                                                            
Commitments and contingencies                                               
                                                                            
Stockholders' equity:                                                       
  Common stock, $0.001 par value - 90,000                                   
   shares authorized; 28,414 (2012) and 26,390                              
   (2011) shares issued and outstanding                   28             26 
                                                                            
  Additional paid-in capital                          98,461         92,709 
  Accumulated deficit                                (82,623)       (72,740)
  Accumulated other comprehensive loss                   (57)           (56)
                                               -------------  ------------- 
    Total stockholders' equity                        15,809         19,939 
                                               -------------  ------------- 
    Total liabilities and stockholders' equity $      28,847  $      32,173 
                                               =============  ============= 
                                                                            
                                                                            
                       Netlist, Inc. and Subsidiaries                       
         Unaudited Condensed Consolidated Statements of Operations          
                  (in thousands, except per share amounts)                  
                                                                            
                         Three Months Ended           Nine Months Ended     
                     --------------------------  -------------------------- 
                     September 29,   October 1,  September 29,   October 1, 
                          2012          2011          2012          2011    
                     -------------  -----------  -------------  ----------- 
                                                                            
Net sales            $       6,391  $    16,347  $      30,910  $    44,348 
Cost of sales(1)             6,003       10,819         22,348       30,079 
                     -------------  -----------  -------------  ----------- 
Gross profit                   388        5,528          8,562       14,269 
                     -------------  -----------  -------------  ----------- 
Operating expenses:                                            
             
  Research and                                                              
   development(1)            2,615        3,983         10,227       11,422 
  Selling, general                                                          
   and                                                                      
   administrative(1)         2,497        2,511          7,977        8,011 
                     -------------  -----------  -------------  ----------- 
    Total operating                                                         
     expenses                5,112        6,494         18,204       19,433 
                     -------------  -----------  -------------  ----------- 
Operating loss              (4,724)        (966)        (9,642)      (5,164)
                     -------------  -----------  -------------  ----------- 
Other income                                                                
 (expense):                                                                 
  Interest expense,                                                         
   net                         (98)         (72)          (248)        (147)
  Other income                                                              
   (expense), net                4            1             12          (58)
                     -------------  -----------  -------------  ----------- 
    Total other                                                             
     expense, net              (94)         (71)          (236)        (205)
                     -------------  -----------  -------------  ----------- 
Loss before                                                                 
 provision for                                                              
 income taxes               (4,818)      (1,037)        (9,878)      (5,369)
Provision for income                                                        
 taxes                           4            2              5            3 
                     -------------  -----------  -------------  ----------- 
Net loss             $      (4,822) $    (1,039) $      (9,883) $    (5,372)
                     =============  ===========  =============  =========== 
Net loss per common                                                         
 share:                                                                     
  Basic and diluted  $       (0.17) $     (0.04) $       (0.36) $     (0.22)
                                                                            
Weighted-average                                                            
 common shares                                                              
 outstanding:                                                               
  Basic and diluted         28,199       25,029         27,680       24,966 
                                                                            
(1) Amounts include                                                         
 stock-based                                                                
 compensation                                                               
 expense as follows:                                                        
                                                                            
  Cost of sales      $          28  $        21  $         105  $        51 
  Research and                                                              
   development                 193          178            538          466 
  Selling, general                                                          
   and                                                                      
   administrative              294          265            877          706 
                                                                            
                                                                            
                       Netlist, Inc. and Subsidiaries                       
    Unaudited Schedule Reconciling GAAP Net Loss to Non-GAAP EBITDA and     
                               Adjusted EBITDA                              
                               (in thousands)                               
                                                                            
                         Three Months Ended           Nine Months Ended     
                     --------------------------  -------------------------- 
                     September 29,   October 1,  September 29,   October 1, 
                          2012          2011          2012          2011    
                     -------------  -----------  -------------  ----------- 
                                                                            
GAAP net loss        $      (4,822) $    (1,039) $      (9,883) $    (5,372)
                                                                            
Interest expense,                                                           
 net                            98           72            248          147 
Provision for income                                                        
 taxes                           4            2              5            3 
Depreciation and                                                            
 amortization                  471          534          1,541        1,717 
                                                                            
                     -------------  -----------  -------------  ----------- 
EBITDA                      (4,249)        (431)        (8,089)      (3,505)
                                                                            
Stock-based                                                                 
 compensation                  515          464          1,520        1,223 
Other expense                                                               
 (income), net                  (4)          (1)           (12)          58 
                                                                            
                     -------------  -----------  -------------  ----------- 
Adjusted EBITDA      $      (3,738) $        32  $      (6,581) $    (2,224)
                     =============  ===========  =============  =========== 

  
For more information, please contact: 
Brainerd Communicators, Inc.
Corey Kinger/Mike Smargiassi (investors)
Sharon Oh (media)
NLST@braincomm.com
(212) 986-6667 
Gail M. Sasaki
Chief Financial Officer
Netlist, Inc.
(949) 435-0025