RNS Number:7902P
OCZ Technology Group, Inc.
11 March 2008
11 March 2008
OCZ Technology Group, Inc.
Interim results for the second six month period ended 31 December 2007
Group reports record revenues and strong growth, despite difficult industry
conditions
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 unaudited
interim results for the six month period ended 31 December 2007* with unaudited
consolidated figures for the 12 months to 31 December 2007.
Financial highlights
* Continued strong revenue growth - eighth consecutive six month period
of record revenues
o 2007 revenue up 64% to $111.4 million (2006: $67.8 million)
- H2 revenue up 47% to $61.4 million (2006: $41.9 million)
o 2007 non-memory sales up 222% to $16.2 million (2006: $5.0 million)
reflecting success of product diversification
o European sales up 102% to $48.3 million (2006: $23.9 million)
- H2 European sales up 66% to $27.8 million (2006: $16.7 million)
o Asia Pacific sales more than double to $2.7 million (2006: $1.3
million)
* 2007 gross profit up 141% to $21.6 million (2006: $8.9 million)
* 2007 underlying** pre-tax profit of $2.2 million (2006: loss $1.7 million)
* 2007 underlying** earnings per share 4.5 cents (2006: loss per share
4.3 cents)
* Current trading positive with record revenues in January and moderate ASP
increases
Operational highlights
* Memory module production costs per unit reduced by 50% year on year to
December 2007
* Virtually all manufacturing now in Taiwan with production capacity tripled by
end of 2007
* Market position strengthened by adding over 225 new clients in 2007
* Product diversification accelerated by two acquisitions
**underlying figures exclude (i) non-cash expenses for stock based compensation
and amortisation of intangibles; and (ii) exceptional expenses related to
executive restructuring costs.
Ryan Petersen, Chief Executive of OCZ commented:
"Our move into profitability for 2007 is a major step forward for the Group. By
executing our strategy of geographic expansion and product diversification, we
have achieved record revenue growth despite challenging market conditions during
the second half of the year.
"We are confident that the Group's strategy will result in continued growth and
increased profitability and maintain our position as an industry innovator with
the launch of numerous products across a wide range of categories."
Enquiries:
OCZ Technology Group, Inc
Ryan Petersen, Chief Executive Officer +1 408 733 8400
Arthur Knapp, Chief Financial Officer
John East and Partners Limited +44 (0) 20 7628 2200
Bidhi Bhoma/Simon Clements
College Hill +44 (0) 20 7457 2020
Adrian Duffield
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 diversifying 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 current financial year has now been extended to 14 months; running from 1
January 2007 to 29 February 2008. The preliminary results for the 14 months to
29 February 2008 are expected to be published in May 2008. Subsequent financial
years will run from 1 March to 28/29 February.
Chairman's statement
Overview
During 2007, the Group continued its rapid organic growth and completed two
acquisitions, significantly extending its product portfolio. Manufacturing has
been moved to Taiwan, manufacturing capacity has tripled and unit costs have
fallen. Despite adverse market conditions in the period, demand continued to
grow for OCZ's innovative products as demonstrated by the substantial growth of
the Group's client base and increased market share.
Revenues for the 12 months to 31 December 2007 were up 64% to $111.4 million and
the Group reports an unaudited underlying pretax profit of $2.2 million.
Underlying earnings per share were 4.5 cents, compared to a loss of 4.3 cents
for the previous 12 months.
Financial review
Group revenues for the 12 months to 31 December 2007 were up 64% to $111.4
million (2006: $67.8 million) driven by new customer acquisition, large-scale
geographic expansion and overall market growth. For the six months to 31
December 2007, Group revenue was $61.4 million (2006: $41.9 million). The two
acquisitions contributed approximately $4.5 million of revenue in the 12 months
to 31 December 2007.
Gross profit margins during the second six months of 2007 remained broadly
stable with significant increases over the previous year. However, as
previously announced, operating costs increased significantly in the six month
period ended 31 December 2007 as a result of a considerable increase in unit
volumes caused by the sharp declines in average selling prices ("ASPs"). Nearly
1.5 million units of memory were shipped in 2007 compared with approximately 0.6
million units in 2006, leading to a short term increase in unit operating costs
in the Group's then new Taiwan based manufacturing plant. This required a rapid
expansion of the plant to nearly double its original size. In the last four
months, the plant has increased the use of automation, reducing unit
manufacturing costs by approximately 30% between October 2007 and February 2008
and by 50% compared to the previous year.
The Group reported unaudited underlying pretax profit for the 12 months to 31
December 2007, before non-cash expenses for stock based compensation and
amortisation of intangibles, and exceptional expenses related to executive
restructuring, of $2.2 million (2006: loss $1.7 million) and for the second six
months, due to increased operating costs, an underlying pretax loss of $0.1
million (2006: loss $0.7 million). Pretax profit for the 12 months to 31
December 2007 was $1.3 million (2006: loss $2.0 million) and for the second six
months loss before tax was $0.6 million (2006: loss $0.8 million).
Underlying earnings per share for the 12 months to 31 December 2007 were 4.5
cents (2006: loss per share 4.3 cents) and for the second six months the loss
per share was 0.2 cents (2006: loss 1.6 cents). Earnings per share for the 12
months to 31 December 2007 were 2.6 cents (2006: loss per share 4.8 cents) and
nil for the second six months (2006: loss 2.5 cents).
The Board is not proposing to declare a dividend for the period ended 29
February 2008.
With the strong growth in the Group's revenues, working capital was utilised to
finance growth in inventories and accounts receivables. Accordingly, $5.6
million of cash for the six months to 31 December 2007 (2006: $8.8 million) and
$10.2 million for the 12 months to 31 December 2007 (2006: $11.4 million) was
used in operating activities. To finance this working capital requirement, sales
of common stock and bank loan draw downs provided cash of $18.6 million for the
12 months to 31 December 2007 (2006: $13.6 million). Investing activities such
as acquisitions and fixed asset additions used $8.7 million of cash for the 12
months to 31 December 2007 (2006: $0.8 million).
During the second half of 2007, the Group concluded a $10 million line of credit
agreement with Silicon Valley Bank, replacing its previous $4.5 million
facility. At 31 December 2007, approximately $6.8 million of the line of credit
was drawn down for working capital needs. In addition, approximately $0.9
million was paid for the acquisition of Hypersonic PC and another $0.85 million
was paid to retire (at a discount) the first of the two $1 million nominal
unsecured promissory notes payable in respect of the PC Power and Cooling, Inc.
acquisition.
During February 2008, half of the second $1 million note, which is due for
repayment in May 2009, was converted into equity at a share price of 43.5 pence
per share, reducing the outstanding acquisition debt from $2 million to
$500,000.
Operational review
Memory and flash products
The Group experienced revenue growth in its core business in the six month
period ended 31 December 2007 of approximately 40% to $53 million (2006: $38
million).
Unit shipments of memory increased by more than three times in 2007 compared to
the previous year, requiring the Group to increase its manufacturing capacity
rapidly, which, in turn, increased the unit cost of manufacturing memory in the
short term.
The Group increased the physical size of its plant, increased the level of
automation of manufacturing operations and outsourced "overflow" manufacturing.
This has reduced the unit manufacturing costs by 50% compared to the previous
year.
The Group intends to exploit its substantially enlarged manufacturing capacity
and current technology advances to market and secure business from large
industrial and OEM clients, who previously would have been beyond OCZ's reach.
These types of customer with their considerably larger orders also bring better
order book visibility.
The Group has experienced a steady increase in ASPs since October 2007, driven
by the increasing demand of both high density 2GB and 4GB memory units and new "
DDR3" technology. DDR3 technology will become more important as it has been
chosen as the primary memory technology supported by platform providers Intel
and Nvidia.
The Group continued its strategy of significant product releases in the second
six months to 31 December 2007, including 2Ghz low latency DDR 3, the world's
first 1Ghz 4GB memory module kits and 32GB High speed USB drives. These products
offer improved functionality in terms of size and data transfer speeds,
improving performance. OCZ's core customer groups pay increased prices for
products of this nature and these products currently carry higher than average
ASP's and margins.
OCZ won approximately 500 media and retailer awards for product excellence in
the second six months to 31 December 2007, as well as awards for sales and
customer support. These awards included Hardware Info's "DDR 3 of the year 2007
", CPU 3D's "Enthusiast Choice Award" and PC World's "Top Products Award" for
the 3 in 1 Trifecta Flash card.
PSU and thermal products
Sales of OCZ's non-memory (power supply and thermal) products increased by 222%
to $16.2 million in the 12 months to 31 December 2007 (2006: $5.0 million). This
excellent performance is a direct result of OCZ's strategy to diversify its
product range and geographical presence which will allow the Group to mitigate
the risk associated with potential short term downturns in specific market
sub-sectors or geographical regions.
Power supply and thermal products continue to be a focus for the Group and the
Directors expect continued PSU growth for both the "PC Power" and "OCZ" brands
as well as further expansion of its OEM and industrial products.
OCZ added a research and development arm to its Taiwan facility, which is
focused solely on the development of retail and OEM thermal management product.
It has rapidly expanded its thermal product line up.
The Group co-launched with Nvidia a 1200 Watt power supply based on Nvidia's "
enthusiast system architecture" which allows PC components to communicate
operational information in real-time and was first to market with this
technology.
OCZ also won numerous awards in the second half for new power supply products
including the Anandtech's "Editors Choice" for both a 'PC Power and Cooling' and
'OCZ' branded offerings.
Solid State Disks
The Group leveraged its expertise in memory design to enter the solid state disk
("SSD") drive market, producing fast Flash memory based SSD's targeted at both
its current markets as well as at the mobile computing market. SSD's are
replacements for hard drives that reduce the amount of time that a computer
takes to boot, while simultaneously reducing battery consumption in mobile
devices. Currently SSD's are used in products such as Apple's new MacBook Air.
The SSD market is predicted to grow from $353 million in 2006 to $5.4 billion in
2011 by independent research company IDC and this market has benefited by the
large ASP drops in the NAND flash market.
Brain to computer interfaces
OCZ has recently announced the commercial launch of the 'Neural Interface
Actuator', its first brain to computer interface, which allows the user to
control the computer with a combination of facial movements and glances. The
first version of the product was received extremely positively at Cebit 2008.
The Group intends to continue to develop more advanced brain to computer
interfacing technology and explore other novel computer interfacing technology.
Manufacturing facilities and production
In addition to the expansion of the Taiwan facility and recent unit cost
reductions, the Group has moved a significant portion of the manufacturing for '
PC Power and Cooling' power supplies to its Taiwan facility. However, it
intends to keep short run "custom" manufacturing of high performance power
supply units in the US to serve better small US-based industrial equipment and
OEM manufacturers.
The Group also secured additional outsourcing arrangements for non-critical
products to various contract manufacturers in Taiwan to allow for long-term
manufacturing flexibility.
Hypersonic acquisition
Hypersonic PC Systems, since being acquired in October 2007, has now been fully
integrated into the Group. OCZ hopes to take advantage of the significant growth
in mobile computers and use the Hypersonic brand as a showcase for new
technology to drive adoption of OCZ developed technology, such as its new SSD
drives, among boutique system integrators.
The Group has launched a number of high speed mobile computing platforms since
the acquisition and intends to expand Hypersonic's presence worldwide. The Group
has secured viable long term sourcing relationships with key suppliers such as
Intel, allowing it to become price competitive post acquisition.
Current trading and prospects
The first two months of 2008 have begun well with record revenues in January and
moderate ASP increases driven by continuing adoption of new technology by
end-users. The benefits of an efficient offshore manufacturing and procurement
operation continue to deliver improved profits, and unit operating costs have
continued to reduce. The Group expects to report revenue of $133-$135 million
for the 14 month period ended 29 February 2008.
As previously announced, the Group welcomed industry experienced Justin A. Shong
as Vice President of Worldwide Sales in early January in order to speed up the
expansion of OCZ's client base. He replaced Richard Singh, who left the Group.
The Group has received encouraging reaction to new product launches at CEBIT
2008, especially in respect to solid state drive and the Neural Interface
Actuator. It launched its new Hypersonic gaming laptops and ultra-portable
computers into the European market and secured numerous new clients.
The Board looks forward to a further year of growth in revenue and profits.
George Kynoch
Chairman
Consolidated Income Statement
Six months Six months 12 months 12 months
ended 31 ended 31 ended 31 ended 31
December December December December
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000 US$'000
Revenue
Sales - net 61,425 41,901 111,434 67,772
Cost of sales 50,613 36,100 89,850 58,826
Gross profit 10,812 5,801 21,584 8,946
Expenses
Sales and marketing 4,788 2,768 8,853 4,735
General, administrative and operations 6,049 3,318 10,309 5,006
Research and development 627 308 1,002 452
Total operating expenses 11,464 6,394 20,164 10,193
Operating profits/(loss) (652) (593) 1,420 (1,247)
Other income/(expense)
Other income - net 44 (46) 80 (30)
Interest and financing costs (22) (189) (243) (682)
22 (235) (163) (712)
Profit/(Loss) before tax (630) (828) 1,257 (1,959)
Tax (expense) benefit 640 (240) - 120
Retained profit/(loss) 10 (1,068) 1,257 (1,839)
Earnings per share - basic
Earning/(loss) per share - cents 0.0 (2.5) 2.7 (4.8)
Weighted average number of shares ('000) 51,600 42,600 48,100 38,575
Consolidated Balance Sheet
As at 31 December As at 30 As at 31
2007 June December
(unaudited) 2007 2006
US$'000 (unaudited) (audited)
US$'000 US$'000
Assets
Current assets
Cash and cash equivalents 1,468 3,838 1,423
Accounts receivable, net 20,134 16,535 13,012
Inventory 14,296 7,839 3,232
Deferred tax asset, net 96 96 120
Prepaid expenses and other assets 1,986 950 459
Total current assets 37,980 29,258 18,246
Property and equipment, net 1,770 1,212 867
Other assets
Goodwill and acquisition intangible assets 10,160 8,923 165
Deposits and other assets 59 52 80
10,219 8,975 245
Total assets 49,969 39,445 19,358
Liabilities and stockholders' equity
Current liabilities
Notes payable 75 1,000 -
Bank loan payable 6,827 - 3,830
Accounts payable 10,348 6,921 5,213
Accrued taxes 2 3 214
Accrued wages and payroll taxes 327 232 136
Accrued expense 2,723 1,392 804
Accrued warranties 93 74 46
Deferred revenue 72 214 89
Total current liabilities 20,467 9,836 10,332
Other Long Term Liabilities 1,000 1,000 -
Stockholders' equity
Common stock 52 52 44
Additional paid in capital 29,176 29,348 11,026
Cumulative translation adjustment 39 (15) (22)
Retained earnings/(deficit) (765) (776) (2,022)
Total stockholders' equity 28,502 28,609 9,026
Total liabilities and stockholders' equity 49,969 39,445 19,358
Consolidated Statement of Cash Flow
Six months Six months ended 12 months ended 12 months
ended 31 ended 31 31 December ended 31
December December December
2007 2006 2007 2006
(Unaudited) (Unaudited) (Unaudited) (Audited)
US$'000 US$'000 US$'000 US$'000
Cash flows from operating activities
Net income/(loss) 10 (1,068) 1,257 (1,839)
Adjustments to reconcile net income/(loss) to net
cash provided/(used) by operating activities:
Depreciation 227 103 404 172
Amortisation of intangibles 30 - 35 -
Stock based compensation 498 156 728 228
Changes in current assets and current liabilities
Accounts receivable (3,599) (8,757) (7,122) (11,574)
Inventory (6,457) (127) (11,064) (1,932)
Prepaid expenses and other assets (1,036) 145 (1,528) (267)
Accounts payable 3,427 78 5,135 2,896
Accrued taxes (1) 214 (212) 214
Accrued wages and payroll taxes 95 3 191 55
Accrued expenses 1,331 579 1,918 674
Accrued warranties 20 19 47 28
Deferred tax asset, net - (120) 24 (120)
Deferred revenue (142) 1 (17) 28
Net cash used by operating activities (5,597) (8,774) (10,204) (11,437)
Cash flows from investing activities
Purchases of fixed assets (785) (574) (1,306) (780)
Increase in deposits (7) (27) 20 (26)
Cash payment for acquisition (1,389) - (7,387) -
Net cash used in investing activities (2,181) (601) (8,673) (806)
Cash flows from financing activities
Sale of common stock (1) 1,868 15,431 10,103
Bank loan payment 6,827 3,830 2,997 3,830
Notes payable (850) - 150 (365)
Net cash provided in financing activities 5,976 5,698 18,578 13,568
Non-cash tax effect of stock based compensation (632) - 273 -
Foreign currency effect on cash 64 (22) 71 (22)
Movement in cash and cash equivalents (2,370) (3,699) 45 1,303
Cash and cash equivalents at beginning of period 3,838 5,122 1,423 120
Cash and cash equivalents at end of period 1,468 1,423 1,468 1,423
Consolidated Statement of Stockholders' Equity
Shares Amount Additional Cumulative Retained
paid in translation earnings
No '000 $'000 capital adjustment Total
$'000
$'000 $'000 $'000
As at 31 December 2005 33,084 34 705 - (183) 556
Issuance of common stock - net 8,889
of costs 8,840 9 8,880 -
Conversion of CULS upon 1,210 1 1,042 - 1,043
admission to AIM
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
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
Exercise of stock options and
warrants 853 1 241 242
Increase in Cumulative
translation adjustment 61 61
Stock based compensation 728 728
Tax effect of stock based
compensation (45) (45)
Net income 1,257 1,257
As at 31 December 2007 51,585 52 29,176 39 (765) 28,502
Notes to the Interim Statement
For the six months ended 31 December 2007
1. Basis of preparation
The financial information for the six month periods ended 30 June 2007 and 31
December 2007 are unaudited and do 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 year ended 31 December 2006 has been extracted
from the audited report on which the Group received an unqualified auditor's
report.
2. Significant Transactions
On 25 October 2007, the Group acquired the assets of Hypersonic PC for a total
potential consideration of approximately $1 million.
3. Taxation
The taxes amounting to $0.64 million which were accrued in 1H 2007 were reversed
in 2H 2007 due to the operating loss incurred in that period as opposed to the
expected profits used in estimating the annual effective tax rate.
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 six months ended 31 December 2007 was $0.5
million and $0.73 million for the calendar year. In the comparable periods for
2006 stock compensation expense was $0.16 million and $0.23 million,
respectively.
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.
6. Dividends
No dividend has been declared for the six months ended 31 December 2007.
7. 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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