conference date: May 8, 2008 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2008 (1st quarter 2008)
Overview: A mediocre quarter, but guidance to much higher Q2 revenues based on orders from HP.
Basic data (GAAP) :
Revenues were $52.8 million, up 2% sequentially from $51.8 million, but down 1% from $53.4 million year-earlier.
Net loss was $6.1 million, improved sequentially from a loss of $46.4 million, and larger than that net loss of $6.0 million year earlier.
EPS (earnings per share) were negative $0.13, better sequentially than negative $1.01 , and flat against year earlier negative $0.13.
Q2 revenues estimated between $66 and $70 million. Non-GAAP EPS negative $0.07 to $0.10. Expect to return to non-GAAP profitability later this year.
Initial shipments to Hewlett-Packard (HP) have been made. Nearly 40 customers for R/Evolution products now. We will continue an "intense focus" on reducing expenses.
Excluding the $2.3 million reduction in revenue due to HP warrants, revenue was $55.1 million non-GAAP. Non-GAAP net loss was $7.0 million or $0.15 per share. Also excluded from non-GAAP numbers were $0.3 million currency gain, $0.7 million share-based compensation, $0.3 million severance costs.
Cash and equivalents ended at $77.4 million, down sequentially from $82.7 million due to operating losses and need for inventory for hub. Inventory will continue to grow and cash decrease in Q2.
Revenue by segment:
49% % SAN Net 2
25% Series 2000 and 5000
24% G to NetApp
Revenue from Sun was 44% of total revenue. NetApp revenue 24%.
Gross margin was 7.9% (12% non-GAAP), down sequentially from 12.2% due to revenue associated with warrant issued to HP and product mix changes.
Cost of goods sold was $48.7 million. Gross profit $4.2 million. Sales and marketing expense $4.3 million. R&D expense $7.4 million. General and administrative $3.0 million. A legal settlement resulted in a gain of $3.8 million, making total operating expenses $10.9 million. Operating loss was $6.7 million. Interest income was $0.7 million and other income $0.7 million. Income tax expense was $0.2 million.
Higher revenue guidance for Q2 is due to anticipated sales to "one of our larger OEM customers."
HP product is MSA 2000. Launch was the quickest we have ever done. We are shipping to them at their required demand levels. It is too early to tell how this will progress.
5000 series for midrange market is starting to get traction and is being evaluated by more customers.
Expectations for HP going forward? Our relationship depends on successfully MSA 2000 competes in the market.
Gross margins for HP, and when will it improve? Lower than average margins now because we bid to win the deal. Margins will approve as we drive down component costs on volume. Attaching data management services and additional products will also help. HP margins will improve during the year and will be better than what we get from NetApp.
Operating expense to increase with HP ramp? We don't expect it to go up, or to need to hire anyone for the ramp.
Other companies? Motorola, Raytheon, Lockheed and smaller companies are taking the new products.
Margin improvements later in year? We don't expect a significant change this year.
Sun rate of decline? Revenue has been greater than projected last few quarters. They have not announced an end to the life to the products we are shipping to them. There are 150,000 units in the field and they are coming off of warranty, so we will have service revenues to replace some ramp down of new sales.
Can HP replace Sun? We are selling driveless to HP, drives-in to Sun, so a revenue comparison may not work, and we just don't know how far the HP ramp will go.
NetApp? We believe revenues will continue to grow, but hard to predict since we have not been shipping to them very long.
Inventory ramp? Driven by both HP and NetApp.
A part of the increased revenue in guidance is due to HP ramp, and HP should be a 10% or more customer in Q2.
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