RNS Number : 7672H
OCZ Technology Group, Inc.
10 November 2008
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE IN THE UNITED STATES, CANADA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA,
ISRAEL, JAPAN OR AUSTRALIA, OR THEIR RESPECTIVE TERRITORIES OR POSSESSIONS
10 November 2008
OCZ Technology Group, Inc.
Interim Results for the six month period ended 31 August 2008
OCZ Technology Group, Inc. ("OCZ" or "the Group", AIM: OCZ), a worldwide leader in innovative, ultra-high performance and memory and
computer components, announces its unaudited interim results for the six-month period ended 31 August 2008.
Financial Highlights
* Revenue up 55 per cent. to $79.6 million (2007: $51.3 million)
* Non-memory sales up 194 per cent. to $30 million (2007: $10.2 million)
* Memory sales now comprise 62 per cent. of total sales (2007: 80 per cent.)
* Flash based product sales up 500 per cent. backed by strong SSD sales to $13.8 million (2007: $2.3 million)
* European sales up for the sixth consecutive half year period; growth of 74 per cent. to $40.1 million (2007: $23.1 million)
* Asia Pacific sales up 67 per cent. to $2.5 million (2007: $1.5 million)
* Operating expenses reduced to 17.8 per cent. of revenue (2007: 19.2 per cent.)
* Underlying* EBITDA of $150,000 (2007: $1.6 million)
* Increased banking facilities from $10 million to $12 million; trade credit terms increased to c.$40 million
Operational highlights
* Moved to larger, lower cost Taiwan facility
* * Added in-house manufacturing for memory modules, potential to reduce cost of goods by up to $1.50 per unit sold
* Reduced ongoing fixed operating costs
* Memory module units shipped up by 82 per cent. to 915,000 (2007: 500,000)
* More than doubled memory module market share in key North American clients
* Preparation underway to secure dual listing of shares in US
*excludes stock based compensation and restructuring costs
Ryan Petersen, Chief Executive of OCZ commented:
"Despite the turbulent economic conditions, we significantly increased our revenues, contained cost
growth, released several key new products and executed a major manufacturing move. Through our improved market position and brand
profile, we are positioning OCZ to exploit the current challenging economic environment and to increase our market share.
"In order to widen the opportunity for specialist North American investors, both institutional and retail, we plan to seek a listing of
OCZ shares in the US."
Enquiries:
OCZ Technology Group, Inc
Ryan Petersen, Chief Executive Officer +1 408 733 8400
Arthur Knapp, Chief Financial Officer
John East & Partners Limited +44 (0) 20 7628 2200
John East/Bidhi Bhoma
College Hill +44 (0) 20 7457 2020
Adrian Duffield/Carl Franklin
Note to editors
OCZ develops, produces, and distributes high-performance computer components including flash memory storage, 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.
Recently the Group released new products such as the Neural Impulse Actuator ("NIA"), Solid State Drives ("SSDs"), DIY Notebook
solutions, and Fatal1ty memory solutions. These products were shown at Games Convention 2008 in Leipzig Germany and at NVISION in San Jose,
CA.
OCZ was recently ranked number 21 on Deloitte's 'Technology Fast 50' programme for Silicon Valley Software and Information Technology
(IT) Companies, with an increase in revenue of 1,241 per cent. from fiscal year 2003 to 2007.
Based in the heart of Silicon Valley, OCZ employs approximately 290 staff across offices in the USA (Sunnyvale and San Diego), Canada,
Holland and its manufacturing and logistics centre in Taiwan.
www.ocztechnology.com
Overview
The Group achieved revenue growth of 55 per cent. by following through on its strategy to diversify OCZ's product range and target
markets. Non-memory product revenues grew by 194 per cent. and now comprise 38 per cent. of revenues compared to 20 per cent. only a year
ago.
The Group also achieved a number of major milestones despite the global economic conditions, including making substantial changes to its
manufacturing facilities in order to increase product margins and, as stated in September's trading update, reducing credit exposure to some
of its larger customers as it tightened its payment terms.
During the period, the Group successfully introduced several potentially transformational products such as Solid State Disk drives
("SSDs"), 'whitebooks' and the NIA (Neural Impulse Actuator). These and others will enable us to continue to build profitable, diversified
revenue streams.
Operational review
Manufacturing operations
In June, the Group moved its Taiwanese manufacturing facility to larger, yet less expensive premises, which allowed OCZ to achieve a
more efficient throughput of goods and contain costs as turnover grows. This relocation and expansion, implemented during the traditionally
slower summer season, resulted in the temporary suspension of manufacturing operations and had a negative impact on trading in June and a
portion of July. However, it is encouraging to note that the benefits of this relocation are already beginning to be seen.
The Group further reduced costs in August, when it moved its memory module manufacturing in-house. Previously, the Group had outsourced
the board level assembly portion of its manufacturing to outside contractors. However, as unit volumes increase, OCZ now expects to benefit
substantially from the cost savings provided by in-house manufacturing. The cost savings on an ongoing basis from in-house manufacturing are
expected to be up to $1.50 per unit sold.
Total memory module unit volume for the six months to 31 August 2008 was 915,000 units, up from 500,000 in the same period last year.
New products and marketing
In July, the Group launched its low cost SSDs. Initial consumer demand for SSDs exceeded management expectations, achieving sales of
approximately $4 million in July and August. Significant volumes of the product are now being delivered as demand remains high. SSDs and
flash memory revenue jumped by 500 per cent. to $13.8 million (2007: $2.3 million). IDC predicts that the annual global market for SSDs
will grow to $11.1 billion by 2011.
OCZ signed an agreement with Jonathan "Fatal1ty" Wendel to be the exclusive brand for "Fatal1ty" memory and power supplies. The
"Fatal1ty" memory modules have been well received and have helped increase OCZ's overall market share in mainstream gaming. The co-branded
power supplies will be introduced during the key pre-Christmas holiday period.
OCZ successfully launched and sold over 5,000 units of the innovative NIA peripheral. New revisions of the product now make it possible
to utilise the product with the latest 64-bit operating systems and games. The NIA was met with strong praise from the leading online trade
press and continues to be highlighted by both print and television media.
The Group has recently introduced its line of 'whitebook' and enthusiast 'Do It Yourself' notebooks. Although these notebooks are
available through the Group's existing channels, under the Group's Hypersonic brand, volume sales are expected to be achieved through sales
to OEMs.
Hypersonic PC continues to expand its product offering and grew customized desktop sales over the period. In September, Hypersonic beat
the competition in all the major performance benchmarks and a leading trade publication stated "It's official: The Sonic Boom ATS sets the
bar for luxury PCs."
The Group has further developed its partnerships with leading platform partners including Intel, AMD and NVIDIA. A highly successful
collaboration with Intel resulted in the release of Intel/OCZ co-branded "XMP" memory modules which are optimized for the latest Intel based
premium systems. These modules were promoted by both companies in a successful bundle which was funded by Intel and targeted the leading
e-tailers. This increased sales and fostered quick adoption of the new technology.
Customers and markets
OCZ achieved substantial increases in the size of its client base and more than doubled its market share in key clients, as evidenced by
the sell through of OCZ products.
In response to global credit markets, the Group tightened its payment terms which reduced exposure to some of its historically larger
customers. Since OCZ produces branded products, some of these sales moved into other retail and e-tail outlets and the Group was still able
to achieve record revenues despite this shift in policy.
Financial review
OCZ achieved revenues of $79.6 million in the six month period ended 31 August 2008, an increase of 55 per cent. (2007: $51.3 million).
Our successful strategy of diversification resulted in growth of 194 per cent. in non-memory products representing 38 per cent. of revenues
(2007: 20 per cent.)
Underlying gross margins were 17 per cent. (2007: 21 per cent.). The reduction was mainly due to operational disruptions during the
relocation of the Group's Taiwan manufacturing facility in June and July, and a shift in product mix to lower margin products. However,
with anticipated increased volumes, the lower operating costs which are associated with these lower margin products are expected to result
in improved operating profit.
Total operating expenses increased to $14.2 million (2007: $9.9 million), representing 17.8 per cent. of revenue (2007: 19.2 per cent.).
Within expenses, the Group bore increased outbound freight costs, due to a steep rise in fuel costs, of $1.9 million (2007: $0.8 million).
The Group expects its freight costs now to drop, due to improved internal logistics and reductions in the cost of fuel.
Underlying EBIDTA was broadly in line with our expectations at $150,000. This excludes stock based compensation and restructuring costs
related to a credit note provision for a customer, with which the Group is not currently trading, and Taiwan lease termination charges (see
pro-forma computation in financial statements). Typically the Group sees lower profitability during the summer and the temporarily
suspended operations during the factory relocation, held back revenues and margins. Underlying loss before tax was $0.6 million and the
Group reported a loss before tax of $1.8 million (2007: profit $0.9 million).
Underlying loss per share was 0.9 cents compared to the Group's reported loss per share of 2.7 cents (2007: profit 1.3 cents).
The Group has recently increased its existing loan facilities with Silicon Valley Bank from $10 million to $12 million. The Group has
also increased trade terms with major suppliers such that it is now in a position to purchase inventory up to approximately $40 million. At
the period end, the Group had drawn down $9.4 million of its existing loan facility and $19 million of its available trade terms.
The final $500,000 loan note ("Note") payable from the 2007 acquisition of PC Power & Cooling was recently partially redeemed by the
issue of 848,000 shares (in respect of $200,000 principal due under the Note) and a cash payment of $100,000. The payment date of the
remaining $200,000 Note was then deferred three months to August 2009. This restructuring not only reduced short term liabilities but also
freed up additional capital.
US dual listing
The Group intends to file a registration statement with the US Securities and Exchange Commission in order to seek a US listing of its
shares. The Board is confident that there is considerable interest in specialist technology companies such as OCZ amongst both retail and
institutional investors in the US, particularly as the Group has a high profile consumer brand. A dual listing in the US would result in the
Group reporting quarterly financial statements.
Current trading and prospects
Based on OCZ's market position, strong brand profile, expanded worldwide distribution channel, increased manufacturing and distribution
capability, and a larger financing facility, the Board expects the Group's revenues to continue to grow in the second half of the financial
year. However, with uncertainty surrounding consumer spending in the forthcoming Christmas period, which is the most important trading
period of the year, the Board remains cautious and continues to monitor the Group's cost base very closely in order to actively manage its
margins and working capital.
Overall, the Board remains confident about the prospects for the Group's growth, continued market share gains, and margin improvement
from its new manufacturing facilities.
George Kynoch
Chairman
Consolidated Income Statement
6 months 6 months 14 months ended
ended 31 August ended 31 August 29 February
2008 2007 2008
(Unaudited) (Unaudited) (Audited)
US$'000 US$'000 US$'000
Revenue
Sales - net 79,633 51,326 134,687
Cost of sales 66,930 40,449 108,572
Gross profit 12,703 10,877 26,115
Expenses
Sales and marketing 5,360 4,184 10,261
General, administrative and 7,732 4,827 12,916
operations
Research and development 1,086 862 1,772
Total operating expenses 14,178 9,873 24,949
Operating (loss)/profit (1,475) 1,004 1,166
Other income/(expense)
Other (expense)/income - net (71) 9 251
Interest and financing costs (292) (111) (340)
(363) (102) (89)
(Loss)/Profit before tax (1,838) 902 1,077
Tax benefit/(expense) 440 (300) 740
Retained (loss)/profit (1,398) 602 1,817
(Loss)/Earnings per share -
basic
(Loss)/Earnings per share - (2.7) 1.3 3.7
cents
Weighted average number of 52,200 48,000 48,600
shares ('000)
(Loss)/Earnings per share -
diluted
(Loss)/Earnings per share - (2.7) 1.2 3.6
cents
Weighted average number of 52,200 49,400 50,000
shares ('000)
Proforma computation -
Underlying EBITDA:
GAAP Operating (loss)/profit (1,475) 1,004 1,166
Plus:
Stock based compensation 360 318 848
Depreciation and amortization 400 270 584
Restructuring charges 865 - -
Underlying EBITDA 150 1,592 2,598
Consolidated Balance Sheet
As at As at As at
31 August 31 August 29 February
2008 2007 2008
(Unaudited) (Unaudited) (Audited)
US$'000 US$'000 US$'000
Assets
Current assets
Cash and cash equivalents 732 1,608 1,544
Accounts receivable, net 26,050 15,604 20,480
Inventory 17,758 9,970 14,827
Deferred tax asset, net 1,326 141 836
Prepaid expenses and other 2,508 1,443 3,086
assets
Total current assets 48,374 28,766 40,773
Property and equipment, net 2,096 1,278 1,940
Other assets
Goodwill and acquisition 10,344 8,979 10,169
intangible assets
Deposits and other assets 57 52 65
10,401 9,031 10,234
Total assets 60,871 39,075 52,947
Liabilities and stockholders'
equity
Current liabilities
Notes payable 575 1,000 75
Bank loan payable 8,478 - 6,899
Accounts payable 19,315 6,494 13,033
Accrued taxes - 357 1
Accrued wages and payroll 108 200 38
taxes
Accrued expense 3,763 1,728 2,414
Accrued warranties 107 78 97
Deferred revenue 112 89 92
Total current liabilities 32,458 9,946 22,649
Other Long Term Liabilities - 1,000 500
Stockholders' equity
Common stock 52 52 52
Additional paid in capital 30,195 29,535 29,796
Cumulative translation (231) (38) (205)
adjustment
Retained deficit (1,603) (1,420) 155
Total stockholders' equity 28,413 28,129 29,798
Total liabilities and 60,871 39,075 52,947
stockholders' equity
Consolidated Statement of Cash Flow
6 months ended 6 months ended 14 months ended
31 August 31 August 2007 29 February
(Unaudited) 2008
2008(Unaudited)US$' US$'000 (Audited)
000 US$'000
Cash flows from operating
activities
Net (loss)/income (1,398) 602 1,817
Adjustments to reconcile net
income/(loss) to net cash
provided/(used) by operating
activities:
Depreciation 343 241 518
Amortisation of intangibles 57 29 66
Stock based compensation 360 318 848
Changes in current assets and
current liabilities
Accounts receivable (5,550) (2,552) (7,468)
Inventory (2,932) (5,692) (11,595)
Prepaid expenses and other 578 (499) (2,627)
assets
Accounts payable 6,282 1,097 7,820
Accrued taxes - (53) (213)
Accrued wages and payroll 70 (9) (98)
taxes
Accrued expenses 1,329 292 1,610
Accrued warranties 10 28 51
Deferred tax asset, net (490) (21) (284)
Deferred revenue 20 69 3
Net cash used by operating (1,321) (6,150) (9,552)
activities
Cash flows from investing
activities
Purchases of fixed assets (500) (657) (1,604)
Increase in deposits 8 57 15
Cash payment for acquisition (230) (6,100) (7,779)
Net cash used in investing (722) (6,700) (9,368)
activities
Cash flows from financing
activities
Sale of common stock 38 14,999 15,499
Bank loan 1,579 (3,029) 3,069
Notes payable - 2,000 500
Net cash provided in financing 1,617 13,970 19,068
activities
Foreign currency effect on (386) 98 (27)
cash
Movement in cash and cash (812) 1,218 121
equivalents
Cash and cash equivalents at 1,544 390 1,423
beginning of period
Cash and cash equivalents at 732 1,608 1,544
end of period
Consolidated Statement of Stockholders' Equity
Shares Amount Additional paid in Cumulative Retained earnings Total
No '000 $'000 capital translation $'000 $'000
$'000 adjustment
$'000
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 6,620 6 15,251 - - 15,257
of costs
Capitalisation of promissory 579 - 500 - - 500
note
Exercise of stock options and 853 1 241 - - 242
warrants
Increase in Cumulative - - - 177 - 177
translation adjustment
Stock based compensation - - 848 - - 848
Tax effect of stock based - - (45) - - (45)
compensation
Net income - - - - 1,817 1,817
As at 29 February 2008 52,164 52 29,796 155 (205) 29,798
(Audited)
Exercise of stock options 184 35 - - 35
Decrease in Cumulative
translation adjustment - - - (386) - (386)
Stock based compensation - - 360 - - 360
Tax effect of stock based - - 4 - - 4
compensation
Net loss - - - - (1,398) (1,398)
As at 31 August 2008
(Unaudited)
52,348 52 30,195 (231) (1,603) 28,413
Notes to the Interim Statement
For the six months ended 31 August 2008
1. Basis of preparation
The financial information for the six months ended 31 August 2008 is unaudited and does not constitute statutory accounts. These
statements have been prepared in accordance with US GAAP and on a basis which is consistent with the accounting policies adopted by the
Group.
The financial information for the six months ended 31 August 2007 is unaudited but has been extracted from the report for the 14 months
ended 29 February 2008 on which the Group received an unqualified auditor's report.
2. Taxation
The tax credit for the half year is based on the estimated effective tax rate for the Group for the full year ended 28 February 2009 as
applied to the half year's pre-tax loss.
3. Stock-based compensation expense
Effective 1 January 2006, the group adopted the provisions of SFAS No. 123R 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 six months ended 31 August 2008 was $360,000 which increased net loss by $274,000 after the related
income tax effect. In the comparable period for 2007 stock compensation expense was $318,000 or approximately $210,000 after the related
income tax effect.
4. Earnings/(loss) per share
The basic earnings or loss per share is calculated using the weighted average number of common shares outstanding for the period and in
accordance with US GAAP. The diluted earnings per share for the 2007 period reflects the potential incremental effect of options and
warrants using the treasury stock method. These instruments are excluded for the 2008 calculation since their effect would be anti-dilutive
due to the net loss.
5. Dividends
No dividend is declared for the six months ended 31 August 2008.
6. Copies of report
The interim statement is available on request from the offices of John East & Partners Limited at 10 Finsbury Square, London EC2A 1AD
and from the Group's website www.ocztechnology.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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