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Total revenue for the quarter was $7.7 million, which was at the high end of the company's previously stated guidance range of $5.0 million to $8.0 million. Revenue in the second quarter of 2009 consisted of $6.9 million of product revenue associated with the company's rugged technology solutions and $0.8 million of memory license revenue. This compares to total revenue of $13.0 million in the first quarter of 2009, which included product revenue of $9.5 million associated with the company's rugged technology solutions and $3.4 million from the company's memory solutions business, as well as $96,000 of license revenue. As discussed by the company previously, Entorian completed the transition of its memory solutions business in the first quarter of 2009 by transferring all manufacturing of its stacked memory products to third parties.
"The second quarter represented the final stage in transitioning our business to a rugged computing solutions provider," commented Stephan Godevais, Entorian's president and chief executive officer. "We also continued to make progress towards improving our fundamentals by lowering our cost structure. Our second quarter revenue was impacted in part by the constrained spending levels at state and local municipalities as a result of the current economic situation," stated Mr. Godevais.
Godevais further commented, "Also, our leading OEM customer successfully launched its next-generation fully rugged notebook, which has been well received by the media and customers. This new Augmentix-produced rugged product line is being positioned as one of this customer's top strategic initiatives in the coming quarters. Our strong relationship continues to evolve, creating new market opportunities for both of us."
In accordance with GAAP, gross profit for the second quarter 2009 was $1.1 million, or 14 percent of revenue, compared to 22 percent in the previous quarter. On a non-GAAP basis, gross margin was 22 percent in the second quarter of 2009, compared to 27 percent in the previous quarter.
On a GAAP basis, total operating expenses in the second quarter of 2009 were $4.9 million, compared to $7.7 million in the previous quarter. The first quarter of 2009 operating expenses included a restructuring charge of $2.3 million. SG&A represented approximately 37 percent of net revenue, including stock-based compensation expense of $272,000, compared to 25 percent in the previous quarter. R&D was approximately 27 percent of revenue, compared to 17 percent in the previous quarter. On a non-GAAP basis, total operating expenses for the quarter were $4.7 million, compared to $7.4 million in the previous quarter.
Second quarter GAAP net loss was $3.7 million, or ($0.08) per diluted share, compared to a net loss in the previous quarter of $5.0 million, or ($0.11) per diluted share.
Excluding non-cash charges for stock-based compensation, amortization and impairment of acquisition intangibles and goodwill, the non-GAAP net loss for the second quarter was $2.9 million, or ($0.06) per diluted share, compared to the non-GAAP net loss of $4.1 million, or ($0.09) per diluted share, in the previous quarter. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release.
Cash, cash equivalents and investments on June 30, 2009 were $18.0 million, compared to $19.1 million on March 31, 2009. During the second quarter, the company repurchased approximately 80,000 shares of its common stock under its repurchase program at a cost of approximately $26,000. As of June 30, 2009, the company had approximately $6.7 million remaining under its stock repurchase plan.
Inventory as of June 30, 2009 was $4.8 million, compared to $1.9 million in the previous quarter. Accounts receivable was $11.5 million, compared to $10.7 million in the previous quarter. Capital expenditures were $336,000 and depreciation expense was $433,000.
Business Outlook
"While we expect sequential demand growth in the third quarter, due to our traditional markets' seasonality, our second generation rugged laptop is still early in its market launch and production ramp. We also remain cautious as a result of the overall economy and the uncertainty of federal, local and state government spending levels and timing. In the longer run, we have confidence in the ability of our OEM partner to gain market share," concluded Mr. Godevais.
Cautionary Language
This press release contains forward-looking statements. These statements are generally accompanied by words such as "expect," "believe," and similar expressions. These statements include our expectation regarding sequential demand growth in the third quarter and our confidence in the ability of our OEM partner to gain market share. We do not have sufficient backlog to rely upon when forecasting results, so our future performance is very difficult to predict. Our forward-looking statements are based on our current expectations, estimates and assumptions and are subject to many risks, uncertainties and unknown future events that could cause actual results to differ materially. Risks and uncertainties that may cause future results to differ include, but are not limited to, the risk of a change in our relationship with our OEM customer with which we have an exclusive sales and marketing agreement regarding certain ruggedized computer notebook products; a change in the efforts by our OEM customer to sell our rugged computing products; the timing and volume of sales of our products by our OEM customer; a shortage of critical parts, which could negatively impact our ability to fulfill orders; fluctuating demand for, and life cycles of, our products; inconsistency in forecasts provided to us by our largest customer, resulting in increased inventory exposure as we build to our customer's current forecast; operational risks from our reliance on suppliers, subcontractors and third-party manufacturers for the production of ruggedized products; a failure by us to develop new products that are successfully qualified and utilized by customers; our ability to manufacture and ship products within a particular reporting period; the risk that foreign or domestic manufacturers develop products that compete successfully with our own on cost or other functionality; our ability to enforce our intellectual property rights or to defend claims that we infringe the intellectual property rights of others, and the significant costs to us of related litigation; the risk that our average selling prices decline during the period more than we expect because of competitive pressures, substituted products or overall reduced demand for our products; risks associated with budget constraints of federal, state and local governments that could negatively impact sales of our ruggedized products; risks associated with the failure of our ruggedized products to meet the military specification MIL-STD-810F; risks related to product liability and warranty claims in the event our products do function according to specification or include defective parts; the risks of seasonality, to which we are subject; and the risks associated with our dependence on a few key personnel to manage our business effectively.
For a discussion of these and other factors that could impact our financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to our recent filings with the Securities and Exchange Commission, and in particular, our Form 10-K filed on March 12, 2009. The foregoing information concerning our business outlook represents our outlook as of the date of this news release, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.
Non-GAAP Financial Measurements
In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present operating income, net income and earnings per diluted share on a basis excluding non-cash charges for stock-based compensation and amortization and impairment of acquisition intangibles and the associated income tax effect. Details of these excluded items are presented in one of the tables below, which reconcile the GAAP results to non-GAAP financial measurements described in this press release. Entorian has chosen to provide non-GAAP financial measurements to investors because it believes that excluding certain charges represents a better basis for the comparison of its current results to the results of its peer companies. In addition, the company believes that it provides a means to highlight the results of core ongoing operations to investors. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
About Entorian Technologies
Entorian Technologies Inc. (NASDAQ: ENTN | Quote | Chart | News | PowerRating) is a leader in rugged, mission-critical mobile and server computing solutions for use in harsh, demanding environments through its subsidiary, Augmentix Corporation. Its Augmentix-produced servers and mobile products combine best-in-class technologies and standardized components from industry leader Dell, with proven ruggedization methods from Augmentix. These rugged systems are environmentally robust and technologically advanced. For more information, go to www.entorian.com and www.augmentix.com.
Entorian is a trademark of Staktek Group LP and Augmentix is a trademark of Augmentix Corporation.
ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three Months Ended
June 30, March 31, June 30,
2009 2009 2008
Revenue:
Product $ 6,928 $ 12,943 $ 7,677
License 822 96 1,236
Total revenue 7,750 13,039 8,913
Cost of revenue:
Product (1) 6,026 9,564 8,382
Amortization of acquisition intangibles 626 626 603
Impairment of acquisition intangibles - - 160
Total cost of revenue 6,652 10,190 9,145
Gross profit (loss) 1,098 2,849 (232 )
Operating expenses:
Selling, general and administrative (1) 2,829 3,198 2,727
Research and development (1) 2,107 2,186 1,093
Restructuring 120 2,317 214
Amortization of acquisition intangibles 35 35 167
Goodwill impairment (159 ) - -
Total operating expenses 4,932 7,736 4,201
Loss from operations (3,834 ) (4,887 ) (4,433 )
Other income (expense):
Interest income 42 78 352
Interest expense (194 ) (123 ) (3 )
Other, net 269 (73 ) 29
Total other income (expense), net 117 (118 ) 378
Loss before income taxes (3,717 ) (5,005 ) (4,055 )
Provision (benefit) for income taxes 22 14 (52 )
Net loss $ (3,739 ) $ (5,019 ) $ (4,003 )
Loss per share:
Basic $ (0.08 ) $ (0.11 ) $ (0.09 )
Diluted $ (0.08 ) $ (0.11 ) $ (0.09 )
Shares used in computing loss per share:
Basic 46,842 46,894 46,763
Diluted 46,842 46,894 46,763
(1) Includes stock-based compensation expense as follows:
Cost of revenue $ 3 $ 8 $ 84
Selling, general and administrative expense 272 196 494
Research and development expense 57 88 111
$ 332 $ 292 $ 689
ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Six Months Ended
June 30, June 30,
2009 2008
Revenue:
Product $ 19,871 $ 14,889
License 918 2,636
Total revenue 20,789 17,525
Cost of revenue:
Product (1) 15,590 17,295
Amortization of acquisition intangibles 1,252 1,191
Impairment of acquisition intangibles - 160
Total cost of revenue 16,842 18,646
Gross profit (loss) 3,947 (1,121 )
Operating expenses:
Selling, general and administrative (1) 6,027 6,956
Research and development (1) 4,293 2,397
Restructuring 2,437 214
Amortization of acquisition intangibles 70 353
Goodwill impairment (159 ) -
Total operating expenses 12,668 9,920
Loss from operations (8,721 ) (11,041 )
Other income (expense):
Interest income 120 858
Interest expense (317 ) (6 )
Other, net 196 57
Total other income (expense), net (1 ) 909
Loss before income taxes (8,722 ) (10,132 )
Provision (benefit) for income taxes 36 (267 )
Net loss $ (8,758 ) $ (9,865 )
Loss per share:
Basic $ (0.19 ) $ (0.21 )
Diluted $ (0.19 ) $ (0.21 )
Shares used in computing loss per share:
Basic 46,868 46,750
Diluted 46,868 46,750
(1) Includes stock-based compensation expense as follows:
Cost of revenue $ 11 $ 167
Selling, general and administrative expense 468 968
Research and development expense 145 231
$ 624 $ 1,366
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
Three Months Ended
June 30, March 31, June 30,
2009 2009 2008
GAAP loss from operations $ (3,834 ) $ (4,887 ) $ (4,433 )
Non-GAAP adjustments:
Amortization of acquisition intangibles 661 661 770
Impairment of acquisition intangibles - - 160
Goodwill impairment (159 ) - -
Stock-based compensation expense 332 292 689
Total non-GAAP adjustments 834 953 1,619
Non-GAAP loss from operations $ (3,000 ) $ (3,934 ) $ (2,814 )
GAAP net loss $ (3,739 ) $ (5,019 ) $ (4,003 )
Total non-GAAP adjustments affecting income from operations 834 953 1,619
Tax adjustment* - - (10 )
Non-GAAP net loss $ (2,905 ) $ (4,066 ) $ (2,394 )
Shares used in calculating non-GAAP diluted loss per share 46,842 46,894 46,763
Non-GAAP diluted loss per share $ (0.06 ) $ (0.09 ) $ (0.05 )
* The non-GAAP tax adjustment represents the tax effect of the
non-GAAP adjustments.
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
Six Months Ended
June 30, June 30,
2009 2008
GAAP loss from operations $ (8,721 ) $ (11,041 )
Non-GAAP adjustments:
Amortization of acquisition intangibles 1,322 1,544
Impairment of acquisition intangibles - 160
Goodwill impairment (159 ) -
Stock-based compensation expense 624 1,366
Total non-GAAP adjustments 1,787 3,070
Non-GAAP loss from operations $ (6,934 ) $ (7,971 )
GAAP net loss $ (8,758 ) $ (9,865 )
Total non-GAAP adjustments affecting income from operations 1,787 3,070
Tax adjustment* - 8
Non-GAAP net loss $ (6,971 ) $ (6,787 )
Shares used in calculating non-GAAP diluted loss per share 46,868 46,750
Non-GAAP diluted loss per share $ (0.15 ) $ (0.15 )
* The non-GAAP tax adjustment represents the tax effect of the
non-GAAP adjustments.
ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, Dec. 31,
2009 2008
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,109 $ 15,651
Investments 8,859 1,639
Accounts receivable, net of allowances of $79 in 2009 and $597 in 11,511 5,256
2008
Inventories 4,789 5,018
Prepaid expenses 406 510
Income tax recoverable 1,645 1,571
Deferred tax asset 274 271
Other current assets 1,804 1,592
Total current assets 38,397 31,508
Property, plant and equipment, net 3,554 4,439
Long-term investments - 7,337
Other intangible assets, net 9,345 10,611
Other assets 79 81
Total assets $ 51,375 $ 53,976
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,091 $ 4,995
Accrued compensation 499 1,951
Accrued liabilities 1,579 1,490
Deferred revenue 522 45
Total current liabilities 14,691 8,481
Other accrued liabilities 143 180
Deferred tax liabilities 170 170
Convertible notes payable 3,633 3,847
Related party convertible notes payable 6,428 6,805
Stockholders' equity:
Capital stock 150,051 149,428
Treasury stock (25,883 ) (25,850 )
Accumulated other comprehensive income 11 26
Accumulated deficit (97,869 ) (89,111 )
Total stockholders' equity 26,310 34,493
Total liabilities and stockholders' equity $ 51,375 $ 53,976
ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF ADDITIONAL GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands; unaudited)
Quarter Ended
June 30, March 31, June 30,
2009 2009 2008
Gross profit (loss) $ 1,098 $ 2,849 $ (232 )
Non-GAAP adjustments:
Amortization of acquisition intangibles 626 626 603
Impairment of acquisition intangibles - - 160
Stock-based compensation 3 8 84
Non-GAAP gross profit $ 1,727 $ 3,483 $ 615
Total revenue $ 7,750 $ 13,039 $ 8,913
Non-GAAP gross margin percentage 22 % 27 % 7 %
Operating expenses $ 4,932 $ 7,736 $ 4,201
Non-GAAP adjustments:
Amortization of acquisition intangibles 35 35 167
Goodwill impairment (159 ) - -
Stock-based compensation 329 284 605
Non-GAAP operating expenses $ 4,727 $ 7,417 $ 3,429
Selling, general and administrative expense $ 2,829 $ 3,198 $ 2,727
Non-GAAP adjustments:
Stock-based compensation 272 196 494
Non-GAAP selling, general and administrative expense $ 2,557 $ 3,002 $ 2,233
Non-GAAP SG&A as a percentage of total revenue 33 % 23 % 25 %
Research and development expense $ 2,107 $ 2,186 $ 1,093
Non-GAAP adjustments:
Stock-based compensation 57 88 111
Non-GAAP research and development expense $ 2,050 $ 2,098 $ 982
Non-GAAP R&D as a percentage of total revenue 26 % 16 % 11 %
SOURCE: Entorian Technologies Inc.
Entorian Technologies Inc. Kirk Patterson, 512-334-0111 Senior Vice President and CFO investors@entorian.com or Investor Contact: Shelton Investor Relations For Entorian Technologies Inc. Beverly Twing, 972-239-5119 x 126 btwing@sheltongroup.com
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