sTec Announces Second Quarter 2013 Results

sTec Announces Second Quarter 2013 Results

SANTA ANA, Calif., Aug. 7, 2013 (GLOBE NEWSWIRE) -- sTec, Inc. (Nasdaq:STEC)
announced today the Company's financial results for the second quarter ended
June 30, 2013.

Revenue for the second quarter of 2013 was $23.5 million, a decrease of 42.3%
from $40.7 million for the second quarter of 2012 and an increase of 6.8% from
$22.0 million for the first quarter of 2013.

GAAP gross profit margin was 28.0% for the second quarter of 2013, compared to
36.6% for the second quarter of 2012 and 26.8% for the first quarter of 2013.
GAAP diluted loss per share was $0.65 for the second quarter of 2013, compared
to $1.07 for the second quarter of 2012 and $0.54 for the first quarter of
2013.

Non-GAAP gross profit margin was 29.0% for the second quarter of 2013,
compared to 37.2% for the second quarter of 2012 and 27.7% for the first
quarter of 2013. Non-GAAP diluted loss per share was $0.43 for the second
quarter of 2013, compared to $0.27 for the second quarter of 2012 and $0.41
for the first quarter of 2013.

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

Conference Call

As a result of the pending acquisition by Western Digital Corporation (the
"Merger"), sTec will not be holding a conference call to discuss results for
the second quarter of 2013.

About sTec, Inc.

sTec, Inc. is a leading global provider of enterprise-class solid-state
storage solutions designed for the ever-growing performance, reliability and
endurance requirements of today's advanced data centers. The industry's first
company to deploy solid-state drives (SSDs) into large-scale enterprise
environments, sTec offers the industry's widest range of solid-state storage
solutions, which protect critical information for major business and
government organizations worldwide. Headquartered in Santa Ana, California,
sTec also serves the embedded and military/aerospace markets with SSDs for
industrial and rugged environments. For more information, visit
www.stec-inc.com.

For information about sTec and to subscribe to the Company's "Email Alerts"
service, please click on "Company" near the top, right-hand side of the
Company's home page at www.stec-inc.com. Then click on "Investor Relations,"
followed by "Email Alerts."

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

sTec and the sTec logo 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, non-GAAP operating margin percentage,
non-GAAP loss and non-GAAP diluted loss per share) that exclude employee stock
compensation expense, employee severance, securities litigation related costs,
SEC investigation and litigation costs, intellectual property litigation
costs, merger related costs, litigation loss contingency reserves and a
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 within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties, including, but not limited to, statements concerning the
Merger. 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 the Company 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
the Company, 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
the Company's present intention, belief or expectation. The Company may change
its intention, belief, or expectation, at any time and without notice, based
upon any changes in such factors, in the Company's assumptions or otherwise.
Except as required by law, the Company 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)

                                              
                                              June 30, 2013 December31, 2012
ASSETS:                                                     
Current Assets:                                             
Cash and cash equivalents                      $116,280    $158,232
Accounts receivable, net of allowances of                   
$6,117 at June 30, 2013
and $6,248 at December31, 2012                8,239        13,515
Inventory                                      41,492       41,760
Insurance claim receivable                     --          20,563
Other current assets                           7,375        10,212
Total current assets                           173,386      244,282
                                                           
Leasehold interest in land                     2,480        2,503
Property, plant and equipment, net             26,866       30,343
Goodwill                                       1,682        1,682
Long-term intangible assets, net               4,340        5,144
Other long-term assets                         5,818        5,817
Total assets                                   $214,572    $289,771
                                                           
LIABILITIES AND SHAREHOLDERS' EQUITY:                       
Current Liabilities:                                        
Accounts payable                               $13,422     $6,818
Accrued and other liabilities                  20,217       51,586
Total current liabilities                      33,639       58,404
Other long-term liabilities                    4,818        6,185
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, 46,981
shares issued and outstanding as of June 30,                
2013 and 46,805 shares
issued and outstanding as of December31, 2012 47           47
Additional paid-in capital                     157,058      150,263
Retained earnings                              19,010       74,872
Total shareholders' equity                     176,115      225,182
Total liabilities and shareholders' equity     $214,572    $289,771


sTec, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts)
                                                              
                            
                            Quarter Ended June 30,  Six Months Ended June 30,
                            2013        2012        2013         2012
Net revenues                 $23,454   $40,705   $45,479    $91,120
Cost of revenues             16,891     25,816     33,023      58,139
Gross profit                6,563      14,889     12,456      32,981
                                                              
Sales and marketing         7,422      6,880      13,976      13,536
General and administrative  16,096     13,315     28,198      22,529
Research and development    13,535     17,471     26,188      33,574
Total operating expenses    37,053     37,666     68,362      69,639
                                                              
Operating loss              (30,490)   (22,777)   (55,906)    (36,658)
Other (expense) income, net (26)       (14,342)   15          (14,111)
Loss from operations before  (30,516)   (37,119)   (55,891)    (50,769)
income taxes
(Benefit) Provision for      (121)      12,478     (29)        9,517
income taxes
Net loss                    (30,395)   (49,597)   (55,862)    (60,286)
Comprehensive loss          $(30,395) $(49,597) $(55,862)  $(60,286)
                                                              
                                                              
Net loss per share:                                            
Basic                       $(0.65)   $(1.07)   $(1.19)    $(1.30)
Diluted                     $(0.65)   $(1.07)   $(1.19)    $(1.30)
                                                              
Shares used in per share                                       
computation:
Basic                        46,898     46,340     46,853      46,240
Diluted                      46,898     46,340     46,853      46,240

                                  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, non-GAAP operating margin percentage, non-GAAP loss
and non-GAAP diluted loss 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 and (e)
intellectual property litigation costs, (f) merger related costs, (g)
litigation loss contingency, (h) deferred tax valuation allowance and (i)
income tax effect on non-GAAP adjustments. 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 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 July19, 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.On
  December 19, 2012, the Company resolved this matter pursuant to a
  confidential agreement that releases the Company from past claims and
  precludes the plaintiff from again claiming that the Company's products
  infringe their patents.On January2, 2013, the U.S. District Court for the
  Eastern District of Texas approved the parties' joint motion to dismiss the
  matter with prejudice. 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 the fourth quarter of 2012, the Company and its Board of Directors
  started a process to evaluate strategic alternatives.As a result of this
  process, on June 23, 2013, the Company entered into an Agreement and Plan of
  Merger with Western Digital Corporation ("WDC"), a Delaware corporation, and
  Lodi Ventures, Inc., a California corporation and wholly-owned subsidiary of
  WDC.As part of this process, the Company incurred legal and other advisory
  fees that management believes should be excluded when evaluating core
  operations and current performance. 

  g)In connection with certain securities class action legal matters
  described in c) above, the Company accrued an estimated loss contingency at
  the end of the second quarter of 2012.Management believes that the
  litigation loss contingency is not part of its core operating activities and
  should be excluded when evaluating current performance.

  h)In accordance with ASC Topic 740, Income Taxes, the Company determined
  based upon an evaluation of all available objectively verifiable evidence,
  that a non-cash valuation allowance should be established as of June 30,
  2012 against its U.S. deferred tax assets, which were 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 with respect to evaluating the current
  performance of the Company.

  i)The amount represents the estimated income tax effect of the non-GAAP
  adjustments.The Company calculates the tax effect of non-GAAP adjustments
  by applying an applicable estimated jurisdictional tax rate to each specific
  non-GAAP item.

sTec, INC.
SCHEDULE RECONCILING GAAP NET LOSS TO NON-GAAP NET LOSS
($ in thousands, except per share amounts)
(unaudited)
                                                                
                                          
                                          For the Quarters Ended
                                          June 30,    June 30,    March 31,
                                          2013        2012        2013
GAAP net loss                              $(30,395) $(49,597) $(25,467)
                                                                
The GAAP amounts have been adjusted to                           
exclude the following
items (non-GAAP adjustments):                                   
                                                                
Excluded from cost of revenues:                                  
Employee stock compensation (a)            $237      $244      $203
Total excluded from cost of sales          237        244        203
                                                                
Excluded from operating expenses:                                
Employee stock compensation (a)            3,394      3,930      3,112
Employee severance (b)                     48         128        343
Securities litigation related costs (c)    34         3,492      243
SEC investigation and litigation costs (d) 5,507      860        2,585
IP litigation costs (e)                    --         400        23
M&A related costs (f)                      1,185      --         --
Total excluded from operating expenses     10,168     8,810      6,306
                                                                
Excluded from other (expense) income, net:                       
Litigation loss contingency (g)            --         15,000     --
                                          --         15,000     --
                                                                
Total excluded from cost of revenues,                            
operating expenses
and other (expense) income before income   10,405     24,054     6,509
taxes
                                                                
Income tax effect on non-GAAP adjustments 19         (82)       (68)
(i)
Total excluded from cost of revenues and                         
operating
expenses after taxes                      10,424     23,972     6,441
Excluded from provision for income taxes:                        
Deferred tax asset valuation allowance    --         13,233     --
(h)
Total non-GAAP adjustments after income    10,424     37,205     6,441
taxes
                                                                
Non-GAAP net loss                          $(19,971) $(12,392) $(19,026)
                                                                
GAAP diluted loss per share                $(0.65)   $(1.07)   $(0.54)
Impact of non-GAAP adjustments on diluted                        
loss
per share                                 0.22       0.80       0.13
Non-GAAP diluted loss per share            $(0.43)   $(0.27)   $(0.41)
                                                                
(a) - (i)See corresponding footnotes                            
above.


sTec, INC.
SELECTED NON-GAAP FINANCIAL INFORMATION
($ in thousands)
(unaudited)
                                                                
                                          
                                          For the Quarters Ended
                                          June 30,    June 30,    March 31
                                          2013        2012        2013
                                                                
GAAP gross profit                          $6,563    $14,889   $5,893
Employee stock compensation (a)            237        244        203
Non-GAAP gross profit                      $6,800    $15,133   $6,096
                                                                
GAAP gross profit %                        28.0%       36.6%       26.8%
Effect of reconciling item on gross profit 1.0%        0.6%        0.9%
%
Non-GAAP gross profit %                    29.0%       37.2%       27.7%
                                                                
GAAP operating expenses                    $37,053   $37,666   $31,309
Employee stock compensation (a)            (3,394)    (3,930)    (3,112)
Employee severance (b)                     (48)       (128)      (343)
Securities litigation related costs (c)    (34)       (3,492)    (243)
SEC investigation and litigation costs (d) (5,507)    (860)      (2,585)
IP litigation costs (e)                    --         (400)      (23)
M&A related costs (f)                      (1,185)    --         --
Non-GAAP operating expenses                $26,885   $28,856   $25,003
                                                                
GAAP operating loss                        $(30,490) $(22,777) $(25,416)
Employee stock compensation (a)            3,631      4,174      3,315
Employee severance (b)                     48         128        343
Securities litigation related costs (c)    34         3,492      243
SEC investigation and litigation costs (d) 5,507      860        2,585
IP litigation costs (e)                    --         400        23
M&A related costs (f)                      1,185      --         --
Non-GAAP operating loss                    $(20,085) $(13,723) $(18,907)
                                                                
GAAP operating margin %                    -130.0%     -56.0%      -115.4%
Effect of reconciling items on operating   44.4%       22.3%       29.6%
margin %
Non-GAAP operating margin %                -85.6%      -33.7%      -85.8%
                                                                
GAAP other income (expense), net           $(26)     $(14,342) $41
Litigation loss contingency (g)           --         15,000     --
Non-GAAP other income                      $(26)     $658      $41
                                                                
(a) - (g)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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