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STEC Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 8, 2012 04:36PM

STEC Inc. (STEC) filed Quarterly Report for the period ended 2012-03-31. Stec Inc has a market cap of $391.5 million; its shares were traded at around $7.7 with a P/E ratio of 18.1 and P/S ratio of 1.3. Stec Inc had an annual average earning growth of 19.1% over the past 5 years.



Highlight of Business Operations:

General and Administrative. General and administrative expenses are comprised primarily of personnel costs for our executive and administrative employees, professional fees and facilities overhead. General and administrative expenses increased 24% from $7.4 million in the first quarter of 2011 to $9.2 million in the first quarter of 2012. General and administrative expenses as a percentage of revenues increased from 7.8% in the first quarter of 2011 to 18.3% in the first quarter of 2012. The increase in general and administrative expenses in absolute dollars was due primarily to a $757,000 increase in payroll and payroll-related costs due to an increase in employee headcount and stock-based compensation, a $675,000 increase in legal fees, and a $253,000 increase in employee bonuses. The increase in general and administrative expenses as a percentage of revenues was due primarily to the fixed nature of certain general and administrative costs and the decrease in revenues in the first quarter of 2012 compared to the first quarter of 2011.

(Benefit) Provision for Income Taxes. We recorded a benefit for income taxes of $3.0 million in the first quarter of 2012 and a provision for income taxes of $1.0 million in the first quarter of 2011. Our effective tax rate was a 21.7% benefit in the first quarter of 2012 and a 6.6% provision in the first quarter of 2011. Our effective tax rate each quarter will differ from previous quarters due to various factors, such as tax legislation, the results of tax audits, the effectiveness of our tax-planning strategies, discrete items, and the ratio of domestic and foreign earnings. The change in our effective tax rate for the three months ended March 31, 2012 from the same period in 2011 was due primarily to a shift in the quarterly revenue composition by jurisdiction whereby earnings outside of the U.S. are taxed at rates lower than the U.S. federal statutory rate. Our effective tax rate for the three months ended March 31, 2012 does not include federal research and development tax credits for which we benefited in 2011, since the research and development tax credit provisions expired December 31, 2011 and the federal government has not extended these tax credits to be effective for 2012. 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 increased our benefit for income taxes by $960,000 for the first quarter of 2012 and decreased our provision for income taxes by $2.3 million in the first quarter of 2011. The benefit of the income tax holiday on earnings per share was $0.02 and $0.04 in the first quarter of 2012 and 2011, respectively.

Research and Development. Research and development expenses are comprised primarily of personnel costs for our engineering staff, product design consulting fees and material costs related to new product designs. Research and development expenses increased 6% from $15.1 million in the fourth quarter of 2011 to $16.1 million in the first quarter of 2012. Research and development expenses as a percentage of revenues increased from 26.1% in the fourth quarter of 2011 to 31.9% in the first quarter of 2012. The increase in research and development expenses in absolute dollars was due primarily to a $1.6 million increase in payroll and payroll-related costs as a result of an increase in research and development employee headcount from 384 as of December 31, 2011 to 395 as of March 31, 2012, as the result of our expanding global research and development efforts, partially offset by a $623,000 decrease in new product development expenses that were predominantly related to our Flash-based product line. The increase in research and development expenses as a percentage of revenues was due primarily to the fixed nature of certain research and development costs such as payroll and payroll-related expenses and the decrease in revenues in the first quarter of 2012 compared to the fourth quarter of 2011.

Benefit for Income Taxes. Benefit for income taxes was $3.0 million for the first quarter of 2012 and $1.8 million for the fourth quarter of 2011. Our effective tax rate was a 21.7% benefit in the first quarter of 2012 and a 33.2% benefit in the fourth quarter of 2011. Our effective tax rate each quarter will differ from previous quarters due to various factors, such as tax legislation, the results of tax audits, the effectiveness of our tax-planning strategies, discrete items and the ratio of domestic and foreign earnings. The change in our effective tax rate for the three months ended March 31, 2012 from the three months ended December 31, 2011 was due primarily to a shift in the quarterly revenue composition by jurisdiction whereby earnings outside of the U.S. are taxed at rates lower than the U.S. federal statutory rate. The change was also due to federal research and development tax credits from which the Company received benefits in the fourth quarter of 2011 but did not receive benefits in the first quarter of 2012, since the research and development tax credit provisions expired December 31, 2011 and the federal government had not extended the tax credits to be effective for 2012 as of March 31, 2012. 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 increased our benefit for income taxes by $960,000 and $389,000 for the first quarter of 2012 and fourth quarter of 2011, respectively. The benefit of the income tax holiday on earnings per share was $0.02 and $.01 in the first quarter of 2012 and fourth quarter of 2011, respectively.

Net cash provided by operating activities was $26.2 million in the first three months of 2012 and resulted primarily from a $21.2 million decrease in inventory, a $9.0 million decrease in account receivables, non-cash depreciation and amortization of $3.9 million, and $3.7 million of stock-based compensation expense, partially offset by net loss of $10.7 million. Inventory decreased due primarily to lower inventory purchases in 2012, compared to 2011. In 2010, we had increased purchases of raw materials under non-cancelable inventory purchase commitments in order to guarantee the availability of components for anticipated sales demand in 2010, 2011, and 2012. Accounts receivable, net of reserves, decreased due primarily to a decrease in revenues in the first quarter of 2012, compared to the fourth quarter of 2011. During the first three months of 2012, we recorded approximately $3.4 million of legal fees in excess of our insurance deductible under our director and officer insurance coverage, and our insurance carriers paid $1.5 million of claims for legal fees incurred by us. We have recognized a liability, with a corresponding receivable that offsets legal expense, until the remainder of our claims are paid by our insurance carriers, subject to their reservation of rights.

Read the The complete Report



Stocks Discussed: STEC,
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