Entorian Technologies Posts 1Q 2009 Financial Results

Entorian Technologies Inc., a provider of differentiated technologies and vertical solutions to original equipment manufacturers (OEMs), announced financial results for the first quarter ended March 31.

In a release on May 12, the Company reported that total revenue for the quarter was $13.0 million, which exceeded the company's previously stated guidance range of $7.0 to $10.0 million. This compares to revenue of $19.9 million in the fourth quarter of 2008, and $8.6 million in the first quarter of 2008. Product revenue in the first quarter of 2009 was $12.9 million, compared to $19.9 million in the previous quarter and $7.2 million in the first quarter a year ago. Product revenue included $9.5 million associated with the company's rugged technology solutions business and $3.4 million from the company's memory solutions business. License revenue for the quarter was $96,000, compared to $28,000 in the previous quarter and $1.4 million in the first quarter of 2008.

"The first half of 2009 represents a transitional period as we continue to build on our foundation for growth as a rugged computing solutions provider," said Stephan Godevais, Entorian's president and chief executive officer. "Our revenue in the first quarter was the result of stronger-than-anticipated sales of our fully rugged notebook. During the quarter, our leading OEM customer launched its next-generation, fully rugged notebook. It is based on our new, differentiated rugged computing technologies, which enhance protection from drops, rain, dust, dirt, spills and temperature extremes. The initial end customer response to the product has been strong," said Godevais.

He further said, "Also included in the first quarter revenue was $3.5 million from our memory solutions business, reflecting the final quarter in which we manufactured our stacked memory products. Beginning with the second quarter, we transferred manufacturing to our licensees, which will generate future royalties for us. As a result of these actions, we significantly reduced operating expenses and improved gross margins, contributing to improvements to our bottom line."

Gross profit for the first quarter 2009 was $2.8 million, or 22 percent of revenue, compared to 5 percent in the previous quarter. On a non-GAAP basis, gross margin was 27 percent in the first quarter of 2009, compared to 13 percent in the previous quarter.

In accordance with generally accepted accounting principles (GAAP), total operating expenses in the first quarter of 2009 were $7.7 million, compared to $14.0 million in the previous quarter. First quarter GAAP operating expenses included a restructuring charge of $2.3 million primarily associated with closing the company's manufacturing operations in Reynosa, Mexico and the associated headcount reductions. The fourth quarter of 2008 operating expenses included a restructuring charge of $2.7 million and a $4.1 million charge related to goodwill impairment. SG&A represented approximately 25 percent of net revenue, including stock-based compensation expense of $0.2 million, compared to 21 percent in the previous quarter. R&D was approximately 17 percent of revenue, compared to 15 percent in the previous quarter. On a non-GAAP basis, total operating expenses for the quarter were $7.4 million, compared to $9.1 million in the previous quarter.

Cash, cash equivalents and investments on March 31, were $19.1 million, compared to $24.6 million on December 31, 2008. During the first quarter, the company repurchased approximately 40,000 shares of its common stock under its repurchase program at a cost of approximately $8,000. As of December 31, the company had approximately $6.8 million remaining under its stock repurchase plan.

Inventory as of March 31, was $1.9 million, compared to $5.0 million in the previous quarter. Accounts receivable was $10.7 million, compared to $5.3 million in the previous quarter. The increase in accounts receivable is primarily due to the timing of product deliveries and invoicing that occurred late in the quarter. Capital expenditures were $742,000 and depreciation expense was $940,000.

Business Outlook

"I am pleased with the progress we made during the quarter as part of our efforts to transition the company. I believe the launch of our OEM customer's next-generation product during the first quarter demonstrates the value of our differentiated technologies. When coupled with our reduction in operating expenses and improvements to gross margin during the period, we have better positioned the company to drive revenue growth as the overall macroeconomic environment begins to improve. Looking forward, our near-term visibility remains limited due to continued uncertainty in the economic environment and the timing of a recovery in our target markets. In addition, it is difficult to predict the rate of adoption of our OEM customer's newly launched fully rugged notebook. As a result, we remain focused on stringently managing our expenses," concluded Godevais.

Entorian expects second quarter 2009 revenue to range between $5 million and $8 million. The company expects capital spending and depreciation expense to be approximately $500,000 and $600,000, respectively.

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