RNS Number : 0282V
OCZ Technology Group, Inc.
22 May 2008
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE IN THE UNITED STATES, CANADA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA, JAPAN
OR AUSTRALIA, OR THEIR RESPECTIVE TERRITORIES OR POSSESSIONS
22 May 2008
OCZ Technology Group, Inc.
Preliminary results for the 14-month period ended 29 February 2008
OCZ Technology Group, Inc. ("OCZ" or "the Group", AIM: OCZ), a worldwide leader in innovative, ultra-high performance and
high-reliability memory, power supplies and high performance computer components, announces its preliminary results for the 14-month period
ended 29 February 2008*.
Financial highlights
14 months to 29 February 2008
* Revenue up 100 per cent. to $134.7 million (12 months to December 2006: $67.8 million)
* * European, Middle Eastern and African ("EMEA") revenues up 165 per cent. to $63 million (2006: $23 million)
* Asian revenues up 108 per cent. to $3.5 million (2006: $1.7 million)
* Non-memory revenues up 280 per cent. per cent. to approximately $19 million (2006: $5.0 million) as a result of successful product
diversification
* Final two months of new 14 month period contribute $23.3 million in revenues
* Gross profit up 192 per cent. to $26.1 million (2006: $8.9 million)
* Underlying** pre-tax profit of $2.2 million (2006: loss $1.7 million)
* Underlying** earnings per share of 6.1 cents (2006: loss per share 4.2 cents)
12 months to 29 February 2008
* Revenue up 56 per cent. to $118m (prior 12 months to 28 February 2007: $76 million)
* Gross profit up 110 per cent. to $22.9 million (prior 12 months: $10.9 million)
* Underlying** pretax profit of $1.6 million (prior 12 months: loss $1.0 million)
* Underlying** earning per share of 5.1 cents (prior 12 months: loss per share 2.6 cents)
Operational highlights
* Rapid geographic sales expansion accomplished
* * Increased EMEA client base by 200 per cent.
* Established sales channels in Asia and Latin America
* Significant promotion and brand exposure drove market share up 50 per cent. in key market sub-segments
* Management team strengthened with experienced executives in manufacturing and sales
* Established and rapidly expanded manufacturing capacity in Taiwan, resulting in lower unit manufacturing costs and increased capacity
* Over 600 marketing media and review wins in industry leading online and print publications, many in strategic growth regions (Europe
and Asia)
* 300 new customer wins, including retailers CompUSA, Amazon and DSG International
* Completed two acquisitions allowing for accelerated diversification of products.
* Successfully launched the Neural Impulse Actuator and several new product initiatives with industry partners Intel, NVIDIA and AMD
Current Trading
* Record revenues achieved in April 2008
* Early signs that the strengthened management team, increased manufacturing capacity in Taiwan and expanded client base have
resulted in increased sales levels and further improvements in profitability
** Underlying figures exclude (i) non-cash expenses for stock based compensation and amortization of intangibles; and (ii) exceptional
expenses related to executive restructuring costs.
Ryan Petersen, Chief Executive of OCZ commented:
"Our continued rapid growth in both revenue and earnings is the result of successfully executing our strategy of driving market share
growth, expanding our sales channels and maintaining a technology leadership position. Overall, we are pleased with our trading performance
against the backdrop of challenging industry conditions in the second half of 2007.
"In April we recorded record revenues and have had strong growth year to date, both in the US and worldwide. We remain confident that
our strategy will continue to deliver substantial growth and increased profits".
Enquiries:
OCZ Technology Group, Inc +1 408 733 8400
Ryan Petersen, Chief Executive Officer
Arthur Knapp, Chief Financial Officer
John East and Partners Limited +44 (0) 20 7628 2200
John East/Bidhi Bhoma/Simon Clements
College Hill +44 (0) 20 7457 2020
Adrian Duffield/Rozi Morris
Note to editors
OCZ develops, produces, and distributes high-performance branded computer components and mobile computing devices, including flash
memory, Solid state storage, notebook computers, memory modules, thermal management solutions and computer power supplies, designed to make
computers run faster, more reliably and more efficiently.
With a reputation for innovation and excellence in a demanding and discerning market, OCZ extended its market leadership when it
acquired PC Power & Cooling in May 2007, to become a global force in high-performance power supply and cooling products. In October 2007, it
acquired high performance laptop and desktop computer systems maker Hypersonic PC to further diversify its product offerings.
Based in the heart of Silicon Valley, OCZ employs approximately 250 staff across offices in the USA (Sunnyvale and San Diego), Canada,
Holland and its manufacturing and logistics centre in Taiwan.
*The Group changed its financial year end on 24 October 2007 to provide a more accurate management of budgets and a more consistent,
transparent report of the peak selling season as well as to smooth out variances in the sales cycle over the Christmas and New Year period.
The previous 31 December financial year end for the Group split the holiday season into two different fiscal years, possibly distorting the
impact of OCZ's busiest period to the market.
The previous financial year was extended to a 14 month period; running from 1 January 2007 to 29 February 2008. The new financial year
runs from 1 March to 28/29 February.
Chairman's Statement
Overview
In the past 14 months, the Group has achieved rapid organic growth and completed two acquisitions. As reported in March 2008, demand for
OCZ's innovative products continues to increase, as evidenced by the substantial growth of the Group's client base and the subsequent
revenue growth. The Group has increased its manufacturing operations in Taiwan, reduced manufacturing costs and established a local sales
presence in Asia.
The Group has moved into profitability for the 14-month period ended 29 February 2008. Revenues increased by 100 per cent. to $134.7
million (12 months ended December 2006: $67.8 million) which resulted in an underlying profit before taxation for the period of $2.2 million
(2006: loss $1.7 million) despite the backdrop of difficult industry conditions during the latter part of 2007. In response to these
conditions the Group has strengthened its management team, expanded its manufacturing capacity and introduced cost saving measures.
Financial review
As reported in March 2008, OCZ achieved record revenues of $111.4 million for the 12 months ended 31 December 2007 and now reports
14-month revenues of $134.7 million. Acquisitions contributed approximately $6 million of revenue in the 14-month period. Unaudited revenue
extracted from the management accounts for the two months ended 29 February 2008 was $23.3 million, up 45 per cent. (January and February
2007 (unaudited): $16 million)
Gross profit increased by 192 per cent. as margins increased to 19.4 per cent (2006: 12.5 per cent.) driven by the increase in
purchasing power provided by the fundraising in 2007, the establishment of a purchasing organisation in Taiwan and economies of scale.
The Group's unaudited underlying pretax profit for the 12 months ended 31 December 2007, before non-cash expenses for stock based
compensation, amortisation of intangibles and exceptional expenses related to executive restructuring, was $2.1 million (2006: loss $1.7
million). This has now increased to $2.2 million for the 14 months ended 29 February 2008.
Pretax profit for the 14 months ended 29 February 2008 was $1.1 million (2006: loss $2.0 million).
Underlying earnings per share for the 14 months ended February 2008 were 6.1 cents (2006: loss per share 4.2 cents). Earnings per share
for the 14 months ended February 2008 were 3.7 cents (2006: loss per share 4.8 cents).
During the second half of 2007, the Group concluded a new $10 million line of credit with Silicon Valley Bank, replacing a $4.5 million
facility. As at 29 February 2008, approximately $6.9 million of the line was drawn down of which approximately $5.1 million was used for
working capital needs and $1.8 million for acquisition related financing. In the current financial year, the Group has introduced additional
credit control procedures designed to reduce debtor collection periods and shorten the working capital cycle. The Board is encouraged by the
early results from this initiative and will be introducing additional measures to shorten the cycle further.
In order to provide a comparative figure for the current year's trading, an unaudited proforma income statement has been included in the
notes below which shows the Group's financial performance for the 12 months ended 29 February 2008 compared with the results for the 12
months ended 28 February 2007. Revenues for the 12 months were $118.4 million (2006: $76 million), gross profit was $22.9 million (2006:
$10.9 million), underlying pretax profit was $1.6 million (2006: loss $1 million) and underlying earnings per share were 5.1 cents (2006:
loss per share 2.6 cents).
Operational review
Memory products
OCZ's channel expansion strategy resulted in the continued growth of its customer base worldwide, which now includes Dell, Circuit City,
Play, Dabs, Amazon, DSG International, CompUSA, Ecost and RDC. This resulted in an increase in revenues for the 14-month period ended 29
February 2008 in its core memory products division of 85 per cent to $116 million (2006: $63 million). Unit sales increased 200 per cent. to
1.8 million units (2006: 0.6 million units).
In line with its strategy, the Group continued to release premium products targeted at user groups, which have specific requirements,
and which pay a premium for enhanced feature sets, capacity and data transfer speeds. Significant premium product launches included 2Ghz low
latency DDR 3, the world's first 1.15Ghz 4GB memory module kits and 32GB high speed USB drives.
The Group intends to continue pursuing growth in this core business segment to accelerate its channel expansion strategy and continue
the rapid release of significant products, which meet the needs of discerning end users.
PSU and thermal products
Sales of OCZ's non-memory (power supply and thermal) products increased by 280 per cent. to $18 million for the 14 months ended 29
February 2008 (2006: $5 million). This excellent performance is a direct result of OCZ's longer term strategy to diversify its product range
and take advantage of its strong branding and consistently expanding sales channels
The Group has launched several notable power supply products including units launched jointly with nVIDIA as well as environmentally
friendly high-efficiency PSUs.
OCZ also won numerous awards in the second half for new power supply products including the Anandtech's "Editor's Choice" for both 'PC
Power and Cooling' and 'OCZ' branded offerings.
Mobile computers and platforms
The Group seeks to take advantage of the significant industry growth in mobile computers to promote newly developed OCZ technology. The
Group's strategy includes using the Hypersonic brand as a showcase for new technology to drive adoption of OCZ products, such as its new
solid state drives, among boutique system integrators.
The Group has launched a number of high-speed mobile computing platforms since the acquisition of Hypersonic and intends to expand
Hypersonic's presence worldwide. OCZ has secured long-term sourcing relationships with key suppliers such as Intel, allowing Hypersonic to
become price competitive post acquisition.
The Group has developed "Build your own" notebook computer kits which are aimed at technology-aware end user groups who wish to purchase
laptop components for assembly in their own home and who wish to upgrade their notebook computers. These products offer reduced costs to end
users and longer computer lifecycles.
The Group has also received positive industry comment on its line of ultra mobile 12 inch mobile computers, which were recently
launched.
Input devices
The Group has expanded its product lines to encompass innovative new product areas such as 'Brain to Computer' interface technology with
the OCZ 'Neural Impulse Actuator' which controls the computer cursor via ocular and head movement. At its launch at CeBit in March 2008, the
Group experienced considerable interest in the product and received orders for an initial production run of 3,000 units, which exceeded the
management team's expectations.
Acquisitions
The Group completed two acquisitions during the 14-month period under review, both of which have been fully integrated into the business
and are making a contribution to the growth of the Group as a whole.
Strengthening of the management team
As the Group has continued its rapid development, the sales and manufacturing management teams have been strengthened, although the
Group has sustained some one-off management restructuring costs. The Group hired a new Vice-President of Sales in January 2008 and a new
Manufacturing Operations Manager for its Taiwan facility in March 2008. These new hires have already made a very positive impact upon their
respective teams, which has resulted in an increase in productivity in the sales and manufacturing functions.
Although restructuring costs relating to these changes were incurred, the Group is now beginning to see the benefit of these changes in
increased sales levels, lower unit manufacturing costs and improvements in product gross margins. These improvements are expected to
continue for the remainder of the year.
Current trading and prospects
The first two months of the 2008/2009 financial year have begun well with the Group achieving record revenues in April 2008. Retail and
online sales from the Group's key clients have increased significantly during a traditionally slow season, which leads the Board to believe
that OCZ has continued to increase its market share.
The Group has continued to focus on supply chain efficiencies and expects its increasing scale to lower the cost of materials in
relation to commodity "market price" in the medium term. This will also enable the Group to use trade terms as opposed to traditional bank
lines to fund inventory growth in the long term.
The benefits of an efficient offshore manufacturing operation continue to deliver reduced operating costs as a percentage of revenue.
OCZ expects to continue to make the necessary investments in both human resources and operational infrastructure to support both lower
overall operating costs as well as maintain the current growth.
The Directors are confident that execution of the Group's growth strategy will provide long-term performance above that of its
peer-group and long-term earnings growth.
George Kynoch
Chairman
Consolidated Income Statement
14 months ended 29 February 12 months ended 31 December 2006
2008 (Audited)
(Unaudited) US$'000
US$'000
Revenue
Sales - net 134,687 67,772
Cost of sales 108,572 58,826
Gross profit 26,115 8,946
Expenses
Sales and marketing 10,261 4,735
General, administrative and 12,916 5,006
operations
Research and development 1,772 452
Total operating expenses 24,949 10,193
Operating profit/(loss) 1,166 (1,247)
Other income/(expense)
Other income/(expense) - net 251 (30)
Interest and financing costs (340) (682)
(89) (712)
Profit/(Loss) before tax 1,077 (1,959)
Tax benefit from income taxes 740 120
Retained profit/(loss) 1,817 (1,839)
Earnings per share - basic
Earning/(loss) per share - 3.7 (4.8)
cents
Weighted average number of 48,600 38,575
shares ('000)
Earnings per share - diluted
Earning/(loss) per share - 3.6 (4.8)
cents
Weighted average number of 50,000 38,575
shares ('000)
Consolidated Balance Sheet
As at As at
29 February 31 December
2008
(Unaudited) 2006
US$'000 (Audited)
US$'000
Assets
Current assets
Cash and cash equivalents 1,544 1,423
Accounts receivable, net 20,480 13,012
Inventory 14,827 3,232
Deferred tax asset, net 836 120
Prepaid expenses and other assets 3,086 459
Total current assets 40,773 18,246
Property and equipment, net 1,750 867
Other assets
Goodwill and acquisition intangible assets 10,359 165
Deposits and other assets 65 80
10,424 245
Total assets 52,947 19,358
Liabilities and stockholders' equity
Current liabilities
Notes payable 75 -
Bank loan payable 6,899 3,830
Accounts payable 13,033 5,213
Accrued taxes 1 214
Accrued wages and payroll taxes 38 136
Accrued expense 2,414 804
Accrued warranties 97 46
Deferred revenue 92 89
Total current liabilities 22,649 10,332
Other Long Term Liabilities 500 -
Stockholders' equity
Common stock 52 44
Additional paid in capital 29,796 11,026
Cumulative translation adjustment 155 (22)
Retained deficit (205) (2,022)
Total stockholders' equity 29,798 9,026
Total liabilities and stockholders' equity 52,947 19,358
Consolidated Statement of Cash Flow
14 months ended 12 months ended
29 February 31 December 2006
2008 (Audited)
(Unaudited) US$'000
US$'000
Cash flows from operating activities
Net income/(loss) 1,817 (1,839)
Adjustments to reconcile net income/(loss)
to net cash provided/(used) by operating
activities:
Depreciation 521 172
Amortisation of intangibles 53 -
Stock based compensation 848 227
Changes in current assets and current
liabilities
Accounts receivable (7,468) (11,574)
Inventory (11,595) (1,932)
Prepaid expenses and other assets (2,627) (267)
Accounts payable 7,820 2,896
Accrued taxes (213) 214
Accrued wages and payroll taxes (98) 55
Accrued expenses 1,610 674
Accrued warranties 51 28
Deferred tax asset, net (284) (120)
Deferred revenue 3 28
Net cash used by operating activities
(9,562) (11,438)
Cash flows from investing activities
Purchases of fixed assets (1,404) (780)
Increase in deposits 15 (26)
Cash payment for acquisition (7,969) -
Net cash used in investing activities (9,358) (806)
Cash flows from financing activities
Sale of common stock 15,499 10,104
Bank loan 3,069 3,830
Notes payable 500 (365)
Net cash provided in financing activities 19,068 13,569
Foreign currency effect on cash (27) (22)
Movement in cash and cash equivalents 121 1,303
Cash and cash equivalents at beginning of 1,423 120
period
Cash and cash equivalents at end of period 1,544 1,423
Consolidated Statement of Stockholders' Equity
Shares Amount Additional paid in Cumulative Retained earnings
No $'000 capital translation $'000
'000 $'000 adjustment Total
$'000 $'000
As at 31 December 2005 33,084 34 705 - (183) 556
(Audited)
Issuance of common stock - net
of costs 8,840 9 8,880 - - 8,889
Conversion of CULS upon
admission to AIM 1,210 1 1,042 - - 1,043
Exercise of stock options and
warrants 355 - 171 - - 171
Increase in Cumulative
translation adjustment - - - (22) - (22)
Stock based compensation - - 228 - - 228
Net loss - - - - (1,839) (1,839)
As at 31 December 2006 43.489 44 11,026 (22) (2,022) 9,026
(Audited)
Issuance of common stock for
acquisition, net of costs 623 1 1,975 - - 1,976
Issuance of common stock - net
of costs 6,620 6 15,251 - - 15,257
Capitalisation of promissory 579 - 500 - - 500
note
Exercise of stock options and
warrants 853 1 241 - - 242
Increase in Cumulative
translation adjustment - - - 177 - 177
Stock based compensation - - 848 - - 848
Tax effect of stock based
compensation - - (45) - - (45)
Net income - - - - 1,817 1,817
As at 29 February 2008 52,164 52 29,796 155 (205) 29,798
(Unaudited)
Notes to the Final Results
For the 14 month period ended 29 February 2008
1. Basis of Preparation
The accounts for the 14 month period ended 29 February 2008 will be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the shareholders in accordance with the requirements of the AIM Rules.
Thus, the financial information set out in the announcement does not constitute the Group's accounts for the 14 month period ended 29
February 2008.
The financial information for the year ended 31 December 2006 is extracted from the accounts for that year. The auditors reported on
those and their report was unqualified.
2. Significant Transactions
During May 2007 the Group completed a secondary placing of 6,620,000 shares which raised $15.3 million after costs.
On 25 May 2007, the Group acquired the assets of PC Power & Cooling for an initial consideration of $10 million consisting of $6 million
cash, $2 million of 6 per cent. notes payable due in one and two years, plus $2 million of new common shares. There is a maximum of $3
million of contingent consideration payable based on product sales. Subsequent to the acquisition, the first note was retired at a $150,000
discount, $500,000 of the second note was converted into equity, and the contingent maximum was reduced to $2 million.
On 25 October 2007, the Group acquired the assets of Hypersonic PC for a total potential consideration of approximately $1 million.
3. Taxation
The tax benefit shown for the 14-month period reflects the value of deferred tax assets for timing differences between book and tax
reporting which is not offset by valuation allowances for estimates of future realisability. The major components of deferred tax assets
relate to stock based compensation, net operating loss carryforwards, and amortization of intangibles.
4. Stock-based Compensation Expense
The Group adopted the provisions of SFAS No. 123R as of 1 January 2006, under which compensation cost is determined as of the date of
grant. This cost is then recognised over the periods in which the related services are rendered (generally the vesting period).
Stock compensation expense for the 14 month period ended 29 February 2008 was $0.85 million and $0.73 million for the calendar year. In
the 12 month period ended 28 February 2007 stock compensation expense was $0.29 million (12 month period ended 28 February 2006: $0.29
million.
5. Earnings/(loss) per share
The earnings or loss per share is calculated using the weighted average number of common shares outstanding for the period. The fully
diluted weighted shares outstanding includes the effect of dilutive share options and warrants.
6. Dividends
No dividend is proposed for the 14-month period ended 29 February 2008.
7. Unaudited pro forma Consolidated Income Statement
In order to provide a comparative figure for the current financial year's trading, an unaudited proforma income statement has been
included in the note below which, shows the Group's financial performance for the 12 months ended 29 February 2008 compared with the results
for the 12 months ended 28 February 2007.
12 months ended 12 months ended 28 February
29 February 2007
2008 US$'000
US$'000
Revenue
Sales - net 118,352 75,797
Cost of sales 95,419 64,863
Gross profit 22,933 10,934
Expenses
Sales and marketing 9,125 5,378
General, administrative and 11,704 5,686
operations
Research and development 1,570 513
Total operating expenses 22,399 11,577
Operating profit/(loss) 534 (643)
Other income/(expense)
Other income - net 256 (38)
Interest and financing costs (289) (563)
(33) (602)
Profit/(Loss) before tax 501 (1,245)
Tax (expense)/benefit from 936 (120)
income taxes
Retained profit/(loss) 1,437 (1,364)
Earnings per share - basic
Earning/(loss) per share - 2.9 (3.3)
cents
Weighted average number of 49,400 40,825
shares ('000)
Earnings per share - diluted
Earning/(loss) per share - 2.8 (3.3)
cents
Weighted average number of 51,000 40,825
shares ('000)
Pro forma Underlying Pre-tax
profits/(loss):
US GAAP Operating 534 (643)
profit/(loss)
Add back: Stock based 772 292
compensation
Add back: Amortization of 53 -
intangibles
Add back: Executive 253 -
restructuring costs
Normalised Operating 1,612 (351)
Profit/(loss)
US GAAP Other expense (33) (602)
Underlying pre-tax 1,579 (953)
profit/(loss)
8. Copies of the Report and Accounts
Copies of the Report and Accounts, once finalised, will be posted to all shareholders in due course and will be available on request
from the offices of John East & Partners Limited at 10 Finsbury Square, London EC2A 1AD.
This information is provided by RNS
The company news service from the London Stock Exchange
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