OCZ Technology Group, Inc. (OCZ)

F4Q12 Earnings Call

May 1, 2012 5:00 PM ET

Executives

Bonnie Mott – Senior Manager, IR

Ryan Petersen – President and CEO

Arthur Knapp – CFO

Analysts

Aaron Rakers – Stifel Nicolaus

Rich Kugele – Needham & Company

Andrew Nowinski – Piper Jaffray

Alex Kurtz – Sterne Agee

Christian Schwab – Craig-Hallum Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the OCZ Technology fiscal 2012 fourth quarter and fiscal year financial results conference call. At this time, all participants are in a listen-only mode. (Operator instructions) As a reminder, this conference maybe recorded. I would like to turn it over to your host today, Ms. Bonnie Mott, Senior Manager of Investor Relations. Ma’am you may begin.

Bonnie Mott

Good afternoon and welcome everyone. On the call today are Ryan Peterson, CEO; and Arthur Knapp, CFO. Ryan will provide a business overview and then Art will review the firm’s financial results. Following their formal remarks, we will open the floor to a few questions.

Before I turn the call over to them, I need to remind our listeners that the information is presented as of May 1, 2012. Please keep in mind that while being made available for listening after today, the information is current only as of today. Remarks made during this call may contain forward-looking statements that involve risks and uncertainties.

Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the federal securities laws. Information contained in the forward-looking statement is based on current expectations and is subject to change and actual results may differ materially from forward-looking statements. Some of the factors that could cause actual results to differ are discussed in the reports filed with the SEC. These documents are available on OCZ’s website, www.ocztechnology.com.

With that, it is now my pleasure to turn the call over to Ryan Petersen.

Ryan Petersen

Thank you Bonnie, and welcome to everybody joining in the conference call. 2012 has been an incredible year for OCZ. Against the backdrop of a rapidly growing, constantly evolving market, we executed on our internal goals which were simple, to achieve rapid revenue growth with increasing gross margins and to solidify our position with our OEM clients and in the enterprise.

We are proud to report that recent data from industry analysts indicate that we’re now the world’s largest independent manufacturer of SSDs. As we look forward to fiscal ‘13, it’s interesting to know that IDC expects the amount of storage capacity shipped will more than double by 2015 from about 760 exabytes in 2012. While hard drive based storage continues to be the dominant technology, we expect that the recent NAND flash cost reductions coupled with new technology introductions will significantly drive continued adoption of SSD technology as a percent of shipments, in the short-term as well as over the longer horizon.

Given our recent financing, our progress in operations, supply chain management, and technology, we feel that we’re better positioned than ever to take advantage of the growing SSD opportunity. In short, we’ve earned ourselves the position of the starting line. And in the coming year, we expect SSDs, the NAND flash based storage technologies to become increasingly important. We’re prepared to aggressively address the opportunity before us, as I am sure you’ve all have heard before the old saying, fortune favors the bold.

Now moving on, let me briefly discuss our results. Our fiscal ‘12 revenues increased 92% to $365.8 million compared to fiscal ‘11 net revenue of $190.1 million. Revenue in the fourth quarter was a record of $110.4 million, an increase of 71% compared with net revenue of $64.6 million reported in Q4 ‘11. Our SSD revenue was $338.9 million for the year, up 154% year-over-year compared with a $133.2 million.

I think it’s interesting to note that our Q4 SSD revenues were approximately 80% of the entire fiscal ‘11 revenues, and that during the year, our second half represented about 60% of our annual revenue. Our gross margins increased in the fourth quarter to 25%, up both sequential and year-over-year, as we continued to see the benefits of our scale and improved product mix. We’ve begun to see the results of our key initiatives to purchase the majority of our NAND flash from the past directly as opposed to through brokers and we expect that our gross margins will continue to expand as we move forward.

We’ve recorded a non-GAAP loss in Q4 of roughly $6 million as we continued to invest heavily in building out the business. It’s important to note that we announced an increase in our R&D and sales and marketing spending in the fourth quarter in relation to our acceleration of the product roadmap. This spending approximated $6 million and will let Art go into more detail and resulted in the early launch of our Vertex 4 and Everest 2 products.

It is our expectation that these products will have a major positive impact on revenue and gross margins during fiscal ‘13. In addition, this quarter we began breaking out our PCIe products or SAN replacement product revenues. So that investors can clearly see the progress we’re making with our Z-Drive Series and PCIe SSDs, which were launched in August. As previously stated, we expect sales of these products to gain traction in the second half of our fiscal ‘13 due primarily to the long design cycles prevalent with enterprise storage products.

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