OCZ Technology Group, Inc. Reports Results for Its Second Quarter of Fiscal 2014

SAN JOSE, CA–(Marketwired – October 15, 2013) – OCZ Technology Group, Inc. (OCZ), a leading provider of high-performance solid-state drives (SSDs) for computing devices and systems, reports its second quarter (Q2’14) results which ended on August 31, 2013.

“Revenue and gross margins declined in the second quarter as revenue for our client SSD products continued to be impacted by our challenges in procuring flash. Revenue from our enterprise solutions accounted for roughly half of our SSD revenue, compared to about 60% in the first quarter, as a major data center customer completed its installation during the quarter,” said Ralph Schmitt, CEO of OCZ Technology. “This has been a difficult quarter as demand for our products continues to be greater than our ability to supply, given our capital constraints.”

“Over the course of the quarter we continued to add strategic channel partners that help extend the reach of both our high-end client products and enterprise solutions worldwide. During the second fiscal quarter we also announced the general availability of our PCIe-based ZD-XL SQL accelerator which is a new way for OCZ to go to market with a total solution consisting of both our enterprise solid state storage and virtualization software. This innovative product is primarily targeted at our channel partners and offers an optimized plug-and-play storage system solution for enterprise customers,” added Schmitt.

Revenue for the second quarter of 2014 was $33.5 million compared to revenue of $55.3 million for the first quarter of 2014 and revenue of $88.6 million for the second quarter of 2013.

Gross margin for the second quarter of 2014 was 4.2% compared to a gross margin of 14.7% for the first quarter of 2014 and a gross margin loss of (4.6%) for the second quarter of 2013. Gross margins declined on a sequential basis primarily due to increased costs and decreasing sales prices in our mainstream client business. Enterprise margins remained consistent in the quarter.

Operating expenses for the second quarter of 2014 were $20.5 million, compared to operating expenses of $19.7 million for the first quarter of 2014 and operating expenses of $26.6 million for the second quarter of 2013. Operating expenses for the second quarter of 2014 include restatement related expenses of $3.4 million compared to $1.7 million in the first quarter of 2014.

Cash and cash equivalents at the end of second quarter of 2014 were $10.6 million compared to $5.0 million at the end of the first quarter of 2014. The increase in cash primarily reflects the issuance of $13.1 million of convertible debentures partially offset by cash used to finance our on-going operations.

2Q14 Highlights:

• Announced the general availability of the award winning ZD-XL SQL Accelerator, a tightly integrated hardware/software storage solution that accelerates and optimizes Microsoft SQL Server database applications in enterprise environments
• Expanded the partnership with SED International, an established multinational distributor of leading computer technology products. SED is now authorized to distribute OCZ’s complete portfolio of SSDs and power supply products throughout the U.S. region
• OCZ Technology raised $13.1 million in a private placement
• OCZ Technology announced new partnership with TechData and its complete portfolio of enterprise and high-end client solid state storage solutions are now distributed by Tech Data in North America and Latin America
• OCZ Technology signed Joint Harvest to distribute its complete portfolio of solid state drives and power supplies in China
• Announced an agreement in principle to settle the shareholder derivative litigation

Subsequent Highlights:

• Announced an agreement in principle to settle the consolidated shareholder class action litigation
• Unveiled the upcoming Aeon Series 3.5″ SSD, a Non-Volatile Memory (NVM) SAS drive specifically targeted to meet the stringent requirements of latency sensitive applications currently being mired by legacy hard-disk drive (HDD) infrastructures
• Unveiled the upcoming smaller form factor Z-Drive R4 PCIe 4500 SSD Series which supports the Open Compute Project
• Introduced new enterprise SATA III SSDs based on 19nm NAND flash process geometry to the popular Deneva 2 Series. These new Deneva 2 models deliver improved features and superior total cost of ownership (TCO) for enterprise customers

Business Outlook and Commentary:

“Due to uncertainties in being able to procure forecasted flash amounts and credit constraints, we will not be providing guidance for the fiscal third quarter of 2014, ending November 30, 2013. It is our belief that at this point we cannot accurately predict the outcome of our efforts to resolve these issues,” stated Schmitt. “We continue to engage with interested parties in the various strategic options available to the Company, including additional financing initiatives and strategic alternatives and plan on providing an update to discuss progress regarding flash availability, credit, and our strategic activities when appropriate.”

Conference Call:

OCZ will host its fiscal 2014 second quarter conference call for the period ended August 31, 2013 at 5:00pm ET (2:00pm PT), on October 15, 2013. A live audio webcast of the conference call will be available by visiting the Investor Relations events conference call section of OCZ’s website at http://ir.ocz.com/conference-calls which will be archived for replay until November 15, 2013. All interested parties can join the call by dialing (720) 545-0009 or (877) 430-3736. Please call-in 15 minutes prior to the call to secure a line. The conference call will be archived for phone replay until October 22, 2013. To access the archived conference call, please dial (404) 537-3406 or (855) 859-2056 and enter replay passcode 86704652.

Additional Financial Information

To help investors better understand OCZ’s historical revenue trends, including geographic revenue by delivery location and revenue by product groups, additional revenue information is shown in the charts below.

Quarterly net revenue by product groups and major geographic area by delivery location ($000)’s (Unaudited)

Product Groups		Q2 2014		Q1 2014		Q4 2013		Q3 2013		Q2 2013
		$	29,789	$	49,767	$	63,683	$	92,322	$	83,436
Power supplies & Other			3,711		5,555		5,989		6,880		5,162
	Total	$	33,500	$	55,322	$	69,672	$	99,202	$	88,598
Major Geographic Areas			Q2 2014		Q1 2014		Q4 2013		Q3 2013		Q2 2013
United States		$	18,534	$	35,215	$	27,243	$	37,243	$	33,034
EMEA			11,694		12,290	$	27,935		45,553		38,834
ROW			3,272		7,817	$	14,494		16,406		16,730
	Total	$	33,500	$	55,322	$	69,672	$	99,202	$	88,598

The chart below is a summary comparison of GAAP to Non-GAAP measures. Please refer to the sections below regarding the calculation and explanation of Non-GAAP financial measures (unaudited).

(In thousands, except per share amount)
GAAP Financial Comparison
	Q2 2014			Q1 2014			Q2 2013
Net revenue	$	33,500		$	55,322		$	88,598
Gross margin		4.2	%		14.7	%		-4.6	%
Net loss	$	(26,053	)	$	(13,232	)	$	(33,179	)
Loss per share	$	(0.38	)	$	(0.19	)	$	(0.49	)
Non-GAAP Financial Comparison
		Q2 2014			Q1 2014			Q2 2013
Net revenue	$	33,500		$	55,322		$	88,598
Gross margin		5.6	%		15.5	%		-4.3	%
Net loss	$	(17,562	)	$	(9,723	)	$	(27,891	)
Loss per share	$	(0.26	)	$	(0.14	)	$	(0.41	)

About OCZ Technology Group, Inc.

Founded in 2002, San Jose, CA-based OCZ Technology Group, Inc. (OCZ) is a global leader in the design, manufacturing, and distribution of high-performance solid-state storage solutions and premium computer components. Offering a complete spectrum of solid-state drives (SSDs), OCZ provides SSDs in a variety of form factors and interfaces (i.e. PCIe, SAS and SATA) to address a wide range of client and enterprise applications. Having developed firmware and controller platforms, to virtualization and endurance extending technologies, the company delivers vertically integrated solutions enabling transformational approaches to how digital data is captured, stored, accessed, analyzed and leveraged by customers. More information is available at www.ocz.com.