MTI Technology Corporation Reports Fiscal 2007 Second Quarter and Six Months Financial Results
17 November 2006
MTI Technology Corporation (Nasdaq: MTIC), a leading multi-national provider of consulting services and comprehensive information infrastructure solutions for mid to large-size organizations, today reported financial results for its fiscal 2007 second quarter ended September 30, 2006.
Total revenue for the quarter grew 27% to $40.3 million compared to $31.7 million in the prior year period. Product revenue grew to $25.4 million compared to $22.1 million in the prior year quarter, despite continued slowness in telecom orders brought on by industry consolidation. Telecom segment sales represented greater than 10% of MTI product revenue in the last fiscal year. Service revenues for the second quarter of fiscal 2007 were $14.9 million compared to $9.6 million in the prior year period, an increase of 55%. Second quarter 2007 service revenues include revenues associated with the recent acquisition of Collective Technologies.
The Company reported a net loss of $3.3 million or $0.13 per share in the second quarter of fiscal 2007 compared to $3.5 million or $0.12 per share in the prior year period, on a generally accepted accounting principles (GAAP) basis. Included in fiscal 2007 second quarter net loss are charges for stock option and restricted stock expense, amortization of intangible assets and restructuring totaling $1.7 million. Excluding these items, non-GAAP net loss improved by 52% year-over-year to $1.6 million or $0.04 per share from a net loss of $3.3 million or $0.09 per share in the prior year period.
Total gross margin for the second quarter of fiscal 2007 was 21.1% compared to 20.2% in the prior year period. Product gross margin for the second quarter was 18.3% compared to 20.0% in the prior year period, and service gross margins for the second quarter were 26.0% compared to 20.6% in the prior year period. Service gross margins began to benefit from the recent acquisition of Collective Technologies.
Second quarter fiscal 2007 selling, general and administrative (SG&A) expense was $10.6 million on a GAAP basis, which includes charges of $644,000 for equity compensation expense. Excluding these charges, non-GAAP SG&A expense was $10.0 million compared to $9.7 million in the prior year period. The increase in SG&A expense was primarily attributable to the addition of Collective Technologies. The combined Company continues to focus on improving operational efficiency and cost containment throughout the organization.
For the six months ended September 30, 2006, MTI reported total revenue of $83.0 million compared to $71.1 million in the prior year period. Product revenue for the first six months of fiscal 2007 increased to $58.6 million from $51.3 million in the prior year, while service revenue increased to $24.4 million from $19.8 million. The Company reported a net loss for the first six months of fiscal 2007 of $4.2 million or $0.19 per share compared to $6.5 million or $0.22 per share in the prior year period, on a GAAP basis. Included in the first six months of fiscal 2007 net loss are charges for stock option and restricted stock expense, amortization of intangible assets and restructuring charges totaling $2.3 million. Excluding these items, non-GAAP net loss improved by 65% to $1.9 million or $0.05 per share from a net loss of $5.4 million or $0.15 per share in the prior year period.
As of September 30, 2006, the Company had $10.3 million in cash and cash equivalents, compared to $21.6 million at the end of the prior quarter. Second quarter cash use was driven by the Collective Technologies acquisition and a reduction in accounts payable.
"We continue to focus on top and bottom-line improvements in the business," said Tom Raimondi, President and CEO of MTI Technology. "We are now beginning to see the benefits of the Collective Technologies acquisition and we believe the business to be well positioned for growth. We plan to continue to focus on improving operational efficiencies and execution."
Non-GAAP Measures
MTI provides non-GAAP measures as a supplement to financial results based on GAAP. A detailed reconciliation of the non-GAAP results to the most directly comparable GAAP measures is included in the accompanying financial data. Investors are encouraged to review this reconciliation. The Company believes the presentation of non-GAAP measures provides investors with additional insight into underlying operating results and prospects for the future by excluding stock-based compensation and other non-cash items associated with business acquisitions and our convertible preferred stock. The Company uses non-GAAP measures internally to evaluate operating performance and for internal budgets and forecasts. The Company believes these non-GAAP measures can be useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. The Company began recording equity compensation expense in accordance with Financial Accounting Standards Board (FASB) Statement No. 123R in the first quarter of fiscal 2007. The Company believes that excluding equity compensation expense from non-GAAP measures facilitates a comparison of results with prior periods and can enhance the understanding of performance.
Investor Conference Call
Management will discuss results followed by a question and answer session today, November 14, 2006 at 6:00 a.m. Pacific Time (9:00 a.m. Eastern Time). The call-in number is 866-510-0712, access code 91148311; international callers should dial 617-597-5380, access code 91148311. If you are unable to participate, a replay will be available for 48 hours, beginning at 8:00 a.m. Pacific Time today, November 14, 2006. The replay call-in number is 888-286-8010, access code 64526887. The replay for international callers is 617-801-6888, access code 64526887. A live and archived webcast of the conference call will be available on the MTI website at http://www.mti.com.
About MTI Technology
MTI is a leading multi-national provider of consulting services and comprehensive information infrastructure solutions for mid to large-size organizations. With more than 20 years of expertise as a technology innovator, MTI is uniquely qualified to assess, design, implement and support a broad range of information management and infrastructure initiatives. As a strategic partner of EMC (NYSE: EMC), MTI offers the best data storage, protection and management solutions available today. By employing a strategic, consultative approach, MTI provides customers with a single point of contact that eliminates complexities while delivering operational efficiencies and competitive advantages. MTI currently serves more than 3,500 customers throughout North America and Europe. Visit http://www.mti.com for more information.
MTI is a registered trademark of MTI Technology Corporation (the "Company").
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information regarding our expectations, goals or intentions regarding the future, including but not limited to statements regarding our business being well positioned for future growth and our plans to continue to focus on improving operational efficiencies and execution, and our disclosure of non-GAAP financial measures. The actual results may differ materially from those described in any forward-looking statement. Important factors that may cause actual results to differ include competition, timing of customer orders, unanticipated expenses, achievement of volume-based rebates, currency movements, evolving technology, and the economy and other world events. Other important factors are set forth in our periodic filings with the U.S. Securities and Exchange Commission, including our Form 10-K, as amended, for the year ended April 1, 2006 and our Form 10-Q for the period ended July 1, 2006. All forward-looking statements speak as of the date made and we undertake no obligation to update any such statements.
Contact:
Joyce Shinn
MTI Technology Corporation
949-885-7337
jshinn@mti.com
Financial Tables to Follow
MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
September 30, October 1, September 30, October 1,
2006 2005 2006 2005
Net product revenue $25,409 $22,056 $58,579 $51,260
Service revenue 14,882 9,629 24,404 19,802
Total revenue 40,291 31,685 82,983 71,062
Product cost of
revenue 20,772 17,640 47,808 41,121
Service cost of
revenue 11,009 7,644 18,715 15,462
Total cost of
revenue 31,781 25,284 66,523 56,583
Gross profit 8,510 6,401 16,460 14,479
Operating expenses:
Selling, general and
administrative 10,629 9,732 19,773 19,006
Amortization of
intangible assets 448 -- 448 --
Restructuring charges 555 132 555 1,026
Total operating
expenses 11,632 9,864 20,776 20,032
Operating loss (3,122) (3,463) (4,316) (5,553)
Interest and other
expense, net (148) (82) (100) (145)
Gain (loss) on foreign
currency transactions (7) 32 306 (808)
Loss before income tax
expense (3,277) (3,513) (4,110) (6,506)
Income tax expense 13 -- 49 10
Net loss (3,290) (3,513) (4,159) (6,516)
Amortization of
preferred stock
discount (791) (335) (1,552) (655)
Dividend on preferred
stock (751) (300) (1,475) (600)
Net loss applicable
to common
shareholders $(4,832) $(4,148) $(7,186) $(7,771)
Net loss per share
applicable to
common shareholders:
Basic and diluted $(0.13) $(0.12) $(0.19) $(0.22)
Weighted average shares
used in per share
computations:
Basic and diluted 38,435 35,497 37,241 35,353
MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
September 30, April 1,
2006 2006
ASSETS
Current assets:
Cash and cash equivalents $10,311 $21,660
Accounts receivable, less allowance for
doubtful accounts and sales returns of
$405 and $514 at September 30, 2006 and
April 1, 2006, respectively 36,776 37,803
Inventories, net 4,727 10,466
Prepaid expenses and other receivables 7,890 8,712
Total current assets 59,704 78,641
Property, plant and equipment, net 794 555
Intangible assets net, 3,053 --
Goodwill 13,361 5,184
Other assets 190 242
Total assets $77,102 $84,622
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit $5,167 $5,167
Current portion of note payable 798 --
Accounts payable 27,670 36,952
Accrued liabilities 7,686 7,423
Accrued restructuring charges 993 847
Deferred revenue, current 10,176 11,820
Total current liabilities 52,490 62,209
Note payable 1,202 --
Accrued preferred stock dividends 4,367 2,892
Deferred revenue, noncurrent 3,928 4,305
Total liabilities 61,987 69,406
Series A redeemable convertible preferred
stock, 567 shares issued and outstanding
at September 30, 2006 and April 1, 2006
net of discount of $5,801 and $6,584 at
September 30, 2006 and April 1, 2006,
respectively 9,199 8,416
Series B redeemable convertible preferred
stock, 1,582 shares issued and outstanding
September 30, 2006 and April 1, 2006, net
of discount of $8,801 and $9,570 at
September 30, 2006 and April 1, 2006,
respectively 11,199 10,430
Stockholders' deficit:
Preferred stock, $.001 par value;
5,000 shares authorized; issued and
outstanding 2,149 shares at September 30,
2006 and April 1, 2006, included in
redeemable convertible preferred stock -- --
Common stock, $.001 par value;
80,000 shares authorized; issued and
outstanding 38,456 and 36,024 shares at
September 30, 2006 and April 1, 2006,
respectively 38 36
Additional paid-in capital 160,580 155,039
Accumulated deficit (162,965) (155,779)
Accumulated other comprehensive loss (2,936) (2,926)
Total stockholders' deficit (5,283) (3,630)
$77,102 $84,622
MTI TECHNOLOGY CORPORATION
SELECTED NON-GAAP DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Three Months Ended September 30, 2006
Loss per
Share,
Service Selling Basic
Cost of General and Operating Net and
Revenue Administrative Loss Loss Diluted
GAAP $11,009 $10,629 $(3,122) $(3,290) $(0.13)
Adjustments to
reconcile to
Non-GAAP:
Stock Option
Expense (1) (40) (490) 530 530 0.01
Restricted Stock
Expense (1) (4) (154) 158 158 0.01
Amortization of
Intangible
Assets (2) -- -- 448 448 0.01
Restructuring
Charges -- -- 555 555 0.01
Amortization of
Preferred Stock
Discount (3) -- -- -- -- 0.02
Dividend on
Preferred
Stock (3) -- -- -- -- 0.02
Non-GAAP $10,965 $9,985 $(1,431) $(1,599) $(0.04)#
Three Months Ended October 1, 2005
Loss per
Share,
Service Selling Basic
Cost of General and Operating Net and
Revenue Administrative Loss Loss Diluted
GAAP $7,644 $9,732 $(3,463) $(3,513) $(0.12)
Adjustments to
reconcile to
Non-GAAP:
Stock Option
Expense (1) -- -- -- -- --
Restricted Stock
Expense (1) -- (69) 69 69 --
Restructuring
Charges -- -- 132 132 0.01
Amortization of
Preferred Stock
Discount (3) -- -- -- -- 0.01
Dividend on
Preferred
Stock (3) -- -- -- -- 0.01
Non-GAAP -- $9,663 $(3,262) $(3,312) $(0.09)
(1) Represents equity compensation recognized pursuant to Financial
Accounting Board Standard No. 123R, "Share-Based Payment."
(2) Represents amortization associated with intangible assets acquired in
connection with business combinations.
(3) Represents a non-cash charge to equity associated with the Series A
and Series B Convertible Preferred Stock.
# Amount may not add due to rounding.
MTI TECHNOLOGY CORPORATION
SELECTED NON-GAAP DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Six Months Ended September 30, 2006
Loss per
Share,
Service Selling Basic
Cost of General and Operating Net and
Revenue Administrative Loss Loss Diluted
GAAP $18,715 $19,773 $(4,316) $(4,159) $(0.19)
Adjustments to
reconcile to
Non-GAAP:
Stock Option
Expense (1) (89) (997) 1,086 1,086 0.03
Restricted Stock
Expense (1) (4) (211) 215 215 0.01
Amortization of
Intangible
Assets (2) -- -- 448 448 0.01
Restructuring
Charges -- -- 555 555 0.01
Amortization of
Preferred Stock
Discount (3) -- -- -- -- 0.04
Dividend on
Preferred
Stock (3) -- -- -- -- 0.04
Non-GAAP $18,622 $18,565 $(2,012) $(1,855) $(0.05)
Six Months Ended October 1, 2005
Loss per
Share,
Service Selling Basic
Cost of General and Operating Net and
Revenue Administrative Loss Loss Diluted
GAAP $15,462 $19,006 $(5,553) $(6,516) $(0.22)
Adjustments to
reconcile to
Non-GAAP:
Stock Option
Expense (1) -- -- -- -- --
Restricted Stock
Expense (1) -- (131) 131 131 0.00
Restructuring
Charges -- -- 1,026 1,026 0.03
Amortization of
Preferred Stock
Discount (3) -- -- -- -- 0.02
Dividend on
Preferred
Stock (3) -- -- -- -- 0.02
Non-GAAP $15,462 $18,875 $(4,396) $(5,359) $(0.15)#
(1) Represents equity compensation recognized pursuant to Financial
Accounting Board Standard No. 123R, "Share-Based Payment."
(2) Represents amortization associated with intangible assets acquired in
connection with business combinations.
(3) Represents a non-cash charge to equity associated with the Series A
and Series B Convertible Preferred Stock.
# Amount may not add due to rounding.
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