conference date: November 3, 2010 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2010 (third quarter 2010)
Overview: Non-GAAP positive earnings (barely), a quarter earlier than promised.
Basic data (GAAP) :
Revenues were $61.6 million, down 6% sequentially from $65.5 million, and down 3% from $63.6 million year-earlier.
Net income was negative $1.3 million, up sequentially from negative $5.8 million, but down from negative $1.1 million year-earlier.
EPS was negative $0.02, improved sequentially from negative $0.11, and flat from negative $0.02 year-earlier.
"We expect [Q4] revenues to be between $58 and $62 million and non-GAAP earnings per share to be between positive $0.01 and negative $0.03 per share. The potential of a sequential decline in revenue is due entirely to the transfer of manufacturing rights to NetApp beginning on December 1, 2010."
Announced Lenovo is to become an OEM, reselling the 3000 series under its own name. Lenovo revenues should begin early in 2011. Many new OEM and design wins in quarter.
Restructuring is complete. Quarter results show viability of business strategy. But continued with strategic investment in software development and channels.
Finalized transfer of manufacturing rights for products previously made for NetApp to NetApp effective December 1, 2010. Hopes to replace NetApp revenue with revenue from other OEMs.
Elimination of the low-margin OEM, and replacement with multiple higher margin OEMs, should improve margins. Software sales acceleration should also help margins.
Non-GAAP net income was $0.2 million, or 0.00 per share. EBITDA was $0.7 million.
First revenue orders from Xiotech came in quarter.
Revenue declined sequentially due to a single large sale in Q2. Q3 also saw typical summer seasonality and some weakness towards end of quarter.
50% pipeline growth sequentially. Great end user feedback for AssuredSAN products.
59% of revenue was from HP. 27% from NetApp. 14% from others.
18.3% GAAP gross margin, up due to increased software sales and lower operating costs.
Cost of goods sold was $50.3 million. Gross profit $11.3 million. Operating expenses of $12.6 million comprised: $7.4 million R&D, $2.6 million sales and marketing, $2.4 million general and administrative, and $0.1 million restructuring. Operating loss $1.3 million. Other and taxes near zero.
$41.8 million cash and equivalents balance v. $42.6 million end of Q2. Debt ended at $3.3 million.
Lenovo deal? Issued 8K. Order of magnitude would not be as large as NetApp, but relatively large. Ramp timing is dependent on product customization, then it is up to Lenovo. Hopes to start shipments in Q1. Gross margins will be better than with HP.
Operating expenses next year? Will modulate spend based on revenues. Mostly should look at expenses as flat to slightly up. But depends on investments needed for revenue ramps.
Software rollout? We were at about $700,000 software revenues in Q3. Will provide some color on software on analyst day November 9.
Channel appliance will roll out in Q1 2011. Margins should be above 50%. As we execute on initiatives in 2011 we expect strong margin improvements.
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