Netlist (NLST) Q2 2012 Earnings Call August 14, 2012 5:00 p.m. ET Executives Mike Smargiassi – IR, Brainerd Communicators Chuck Hong – Chairman and CEO Gail Sasaki – CFO Chris Lopes – VP, Sales Analysts Rich Kugele – Needham & Co. Mark Kelleher – Dougherty & Co. George Santana - Ascendiant Richard Shannon – Craig-Hallum Capital Group Presentation Operator
I would now like to turn the call over to Chuck.Chuck Hong Thanks, Mike. During the second quarter, we saw an initial and steady stream of ordering of our two new flagship products, 16 GB HyperCloud, and 16 GB VLP and our OEM customers IBM and HP. With the qualification of 16 GB HyperCloud at HP on the day of our last call, HyperCloud became available to ship with the three highest-volume enterprise servers in the world, just a few months ago. We have the only 16 GB density load-reduced memory currently offered by IBM and HP on these highest-volume servers. Recent third party benchmarking from industry thought leaders like Deopli, and key vertical markets, provides insight as to why the OEMs have selected HyperCloud over LRDIMM, as HyperCloud delivers a huge gain of 54% in memory bandwidth improvement. HP benchmarking has also shown a significant benefit to using HyperCloud when running 3DPC 1333, which basically [plates] to a two speed grade advantage over LRDIMM in comparison to equivalent products. I’d like to note that this benchmarking result is available on the HP website on their white paper. In a moment, I will provide an update on how we’re expanding our footprint for our 16 GB HyperCloud along with our progress in launching 32 GB HyperCloud, 32 GB VLP, 32 GB Planar-X, as well as our next-generation of NVvault systems. But first, before turning the call over to Gail, I would like to comment on our financial results. As we noted on our last call, our business is undergoing a major transition, which is marked by a reduction in the shipment of our products associated with previous server generations, primarily [PERC] and [NV2] and a ramp up in our new product line, including HyperCloud, NV3, and VLP. We remain confident in the market potential of these three products and believe our operations are well-positioned to grow over the long term.
During this transition phase, we have focused on maintaining a disciplined approach to managing our expenses with the goal of maintaining adequate liquidity and positioning our business for sustainable profitability as our revenues begin to expand with the ramp up of our new products. To that end, we are aggressively streamlining our business through various strategies including SKU optimization and increasingly shifting a larger portion of our operations to China.We plan to reduce operating expenses by 30% before the end of the year. These initiatives will have no impact on our new product rollout strategy, and in fact we have continued to prudently invest in our resources and successfully bring our flagship products to market. The reduction in our second quarter revenue reflects this transition and the early-stage nature of the HyperCloud and [NV] launch. We are optimistic as we begin to gradually gain traction with HyperCloud and the launch of our other new products. We currently have seven new high-density [unintelligible] products in some stage of evaluation or qualification at the three major OEMs. Now, let me turn the call over to Gail for the financial review. Gail Sasaki Thanks, Chuck. As Chuck mentioned, our second quarter results reflect a transitional period for our organization as we move forward in launching our new products while the contribution from our more mature products attached to prior generation servers continues to decrease. Our revenue for the second quarter ended June 30, 2012 was $10.6 million, down 34% compared to $16 million for the second quarter of 2011, and down sequentially due to the product line transition just mentioned. Gross profit for the second quarter ended June 30, 2012 was $2.7 million, or 26% of revenues, compared to a gross profit of $4.9 million, or 31% of revenues, for the second quarter of 2011, due to lower revenues and a transition in the product mix. Read the rest of this transcript for free on seekingalpha.com