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STEC Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 8, 2011 05:26PM

STEC Inc. (STEC) filed Quarterly Report for the period ended 2011-09-30. Stec Inc. has a market cap of $603.9 million; its shares were traded at around $11.7 with a P/E ratio of 11.4 and P/S ratio of 2.2. Stec Inc. had an annual average earning growth of 33.5% over the past 5 years.



Highlight of Business Operations:

Provision for Income Taxes. We recorded a provision for income taxes of $686,000 and $1.7 million in the third quarter of 2011 and 2010, respectively. Our effective tax rate increased from 11.1% in the third quarter of 2010 to 12.4% in the third quarter of 2011 due primarily to a change in the revenue composition, which resulted in increased earnings in the U.S. that were taxed at rates higher than foreign statutory rates, partially offset by federal research and development tax credits of $357,000 from which we received income tax benefits in the third quarter of 2011 but did not receive income tax benefits in the third quarter of 2010. As of September 30, 2010, the federal government had not yet extended the tax credits to be effective for the 2010 tax year. In December 2010, the federal government retroactively applied the research and development tax credits for the full year 2010 and extended them through December 31, 2011. We operate under an income tax holiday in Malaysia, which is effective through September 30, 2027 subject to meeting certain conditions. The impact of the Malaysia income tax holiday decreased our provision for income taxes by $1.0 million and $1.2 million in the third quarter of 2011 and 2010, respectively. The benefit of the income tax holiday on earnings per share was $0.02 in each of the third quarters of 2011 and 2010.

Net Revenues. Our revenues increased 34% from $186.2 million in the first nine months of 2010 to $249.9 million in the first nine months of 2011 due primarily to a 59% increase in Flash-based product sales from $150.4 million in the first nine months of 2010 to $239.8 million in the first nine months of 2011, partially offset by a 76% decrease in sales of DRAM products from $35.6 million in the first nine months of 2010 to $8.7 million in the first nine months of 2011. Within Flash-based product sales, shipments of our ZeusIOPS® SSDs into the enterprise market increased 82% from $104.2 million in the first nine months of 2010 to $189.9 million in the first nine months of 2011. The increase in Flash-based product revenues was due primarily to a $79.8 million increase in Flash-based product sales to three customers. The decrease in sales of DRAM products was due primarily to a decrease in DRAM product sales to a single customer.

Sales and Marketing. Sales and marketing expenses are primarily comprised of payroll and payroll-related expenses for our domestic and international sales and marketing employees and expenses for trade shows. Sales and marketing expenses increased 28% from $13.7 million in the first nine months of 2010 to $17.6 million in the first nine months of 2011. Sales and marketing expenses as a percentage of revenue decreased from 7.4% in the first nine months of 2010 to 7.0% in the first nine months of 2011. The increase in sales and marketing expenses in absolute dollars was due primarily to a $2.5 million increase in commissions as the result of higher revenues and an increase in commission rates for the first nine months of 2011, as compared to the same period in 2010, and a $1.2 million increase in payroll and payroll-related costs due to an increase in employee headcount and stock-based compensation. The decrease in sales and marketing expenses as a percentage of revenues was due primarily to the fixed nature of certain sales costs such as payroll and payroll-related expenses, excluding sales commissions, and the increase in revenues in the first nine months of 2011, compared to the first nine months of 2010.

Provision for Income Taxes. We recorded a provision for income taxes of $2.0 million and $1.2 million in the first nine months of 2011 and 2010, respectively. Our effective tax rate decreased from 9.6% in the first nine months of 2010 to 6.5% in the first nine months of 2011 due primarily to a change in the revenue composition, which resulted in increased international sales and earnings in jurisdictions outside of the U.S. that were taxed at rates lower than the U.S. federal statutory rates. The decrease was also due to federal research and development tax credits of $742,000 from which the Company received income tax benefits in the first nine months of 2011 but did not receive income tax benefits in the first nine months of 2010. As of September 30, 2010, the federal government had not extended the federal research and development tax credits for the 2010 tax year. In December 2010, the federal government retroactively applied the research and development tax credits to the full year 2010 and extended them through December 31, 2011. We operate under an income tax holiday in Malaysia, which is effective through September 30, 2027 subject to meeting certain conditions. The impact of the Malaysia income tax holiday decreased our provision for income taxes by $5.2 million and $2.7 million in the first nine months of 2011 and 2010, respectively. The benefit of the income tax holiday on earnings per share was $0.10 and $0.05 for the first nine months of 2011 and 2010, respectively.

Provision for Income Taxes. We recorded a provision for income taxes of $686,000 and $298,000 in the third quarter of 2011 and the second quarter of 2011, respectively. Our effective tax rate increased from 3.0% in the second quarter of 2011 to 12.4% in the third quarter of 2011 due primarily to a change in the revenue composition, which resulted in increased earnings in the U.S. that were taxed at rates higher than foreign statutory rates. We operate under an income tax holiday in Malaysia, which is effective through September 30, 2027 subject to meeting certain conditions. The impact of the Malaysia income tax holiday decreased our provision for income taxes by $1.0 million and $1.9 million in the third quarter of 2011 and second quarter of 2011, respectively. The benefit of the income tax holiday on earnings per share was $0.02 and $0.04 in the third quarter of 2011 and second quarter of 2011, respectively.

Read the The complete Report



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