Entorian Technologies, Inc. : Entorian Technologies Reports Fourth Quarter and Full Year 2011 Financial Results

Entorian Technologies Inc. (OTC MARKETS: ENTN.PK), a leader in rugged, mission-critical mobile computing solutions for use in harsh, demanding environments, today announced financial results for the fourth quarter and full year ended December 31, 2011.

Fourth Quarter and Full Year 2011 Summary:

• Fourth quarter revenue of $15.1 million, compared to $14.9 million in the third quarter
• Annual revenue of $66.3 million, compared to $79.0 million in 2010
• Fourth quarter non-GAAP operating income of $1.5 million
• Fourth quarter GAAP operating income of $1.0 million
• Full year non-GAAP operating loss of $5.4 million (includes $6.2 million of non-recurring inventory and warranty charges taken in 2011), compared to a non-GAAP operating income in 2010 of $2.8 million
• Full year GAAP operating loss of $8.1 million, compared to an operating loss of $1.4 million in 2010
• Full year GAAP net loss of $7.9 million, or ($2.05) per share, compared to net loss of $1.5 million, or ($0.38) per share in 2010
• Reduced operating expenses by 25% to $9.7 million from $13.0 million in 2010

Management Commentary

Stephan Godevais, Entorian's president and CEO, stated, "2011 was a difficult year primarily due to a demand decline in our target markets as Federal, state and local governments experienced further budget cuts. This trend negatively impacted our revenue and gross margins as we were left with unsold inventory while transitioning our product to the next generation. On the positive side, end user feedback on this new platform remains very positive and is generating a lot of interest across various market segments. As a result, we have also observed an increased demand from corporate customers, which is a welcome trend."

Full Year 2011 Financial Results

For the full year 2011, total revenue was $66.3 million, including $64.0 million of product revenue associated with the company's rugged technology solutions and $2.3 million of license revenue from its memory solutions business. This compares to total revenue of $79.0 million in 2010, including $76.2 million of product revenue associated with the company's rugged technology solutions, and $2.8 million of license revenue from the memory solutions business.

Gross profit was $1.7 million, or 2.5 percent of revenue, compared to $11.6 million, or gross margin of 14.7 percent, in the prior year. Non-GAAP gross profit was $3.8 million, or 5.7 percent of revenue, compared to $15.0 million, or 18.9 percent of revenue, in 2010. In 2011, we took charges totaling $6.2 million primarily related to excess inventory as we transitioned to the next generation of rugged notebooks, and to an increase in estimated future warranty costs. The 2011 non-GAAP gross profit excludes charges related to the amortization of acquisition intangibles and stock-based compensation totaling approximately $2.1 million, compared to $3.4 million in 2010.

Operating loss was $8.1 million in 2011, compared to a loss of $1.4 million in 2010. On a non-GAAP basis, operating loss was $5.4 million, compared to a non-GAAP operating income of $2.8 million in 2010. The non-GAAP operating losses exclude charges related to the amortization of acquisition intangibles and stock-based compensation totaling approximately $2.7 million in 2011 and $4.2 million in 2010.

GAAP net loss was $7.9 million, or ($2.05) per share, compared to net loss of $1.5 million, or ($0.38) per share, in 2010. Excluding non-cash charges for stock-based compensation of $0.6 million and amortization of acquisition intangibles of $2.1 million, the non-GAAP net loss for 2011 was $5.2 million, or ($1.35) per diluted share. This compares to a non-GAAP net income of $2.7 million, or $0.68 per share, in 2010. As a reminder, in 2011, we took charges totaling $6.2 million primarily related to excess inventory as we transitioned to the next generation of rugged notebooks, and to an increase in estimated future warranty costs. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release.

Fourth Quarter 2011 Financial Results

Total revenue for the fourth quarter of 2011 was $15.1 million, including $14.6 million of product revenue associated with the company's rugged technology solutions and $0.5 million in memory license revenue. This compares to total revenue of $14.9 million in the third quarter of 2011, which included $14.4 million of rugged technology product revenue and $0.5 million in memory license revenue.

In accordance with GAAP, gross profit for the fourth quarter of 2011 was $2.9 million, or 19.1 percent of revenue, compared to a gross loss of $5.7 million, or negative 38.0 percent, in the previous quarter. The third quarter of 2011 included $6.6 million of charges primarily related to excess inventory as we transitioned to the next generation of rugged notebooks, and to an increase in estimated future warranty costs. We recovered approximately $0.4 million of the third quarter charges in the fourth quarter of 2011, primarily through the sale of previously impaired inventory. On a non-GAAP basis, gross margin was 21.4 percent in the fourth quarter of 2011, compared to negative 35.3 percent in the previous quarter.

On a GAAP basis, total operating expenses in the fourth quarter of 2011 were $1.9 million, compared to $2.2 million in the previous quarter. On a non-GAAP basis, total operating expenses for the fourth quarter of 2011 were $1.7 million, compared to $2.1 million in the previous quarter.

Operating income for the fourth quarter 2011 was $1.0 million, compared to an operating loss of $7.9 million in the previous quarter. On a non-GAAP basis, fourth quarter operating income was $1.5 million as compared to an operating loss of $7.3 million in the third quarter.

Fourth quarter 2011 GAAP net income was $1.0 million, or $0.25 per share, compared to a net loss in the third quarter of $7.9 million, or ($2.03) per share. Excluding the charges to gross profit during the third quarter, the GAAP net loss would have been $1.3 million or ($0.33) per share.

Excluding non-cash charges for stock-based compensation of $0.1 million and amortization of acquisition intangibles totaling $0.3 million, non-GAAP net income for the fourth quarter was $1.5 million, or $0.36 per share, compared to the non-GAAP net loss of $7.3 million, or ($1.89) per share, in the previous quarter. Excluding the charges to gross profit, the non-GAAP net loss for the third quarter would have been $0.7 million or ($0.19) per share. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release.

As of December 31, 2011, cash, cash equivalents were $16.6 million, compared to $16.0 million on September 30, 2011. Inventory as of December 31, 2011 was $8.3 million, compared to $9.2 million in the previous quarter.

Business Outlook

"Looking forward into 2012, we remain confident in our technology and expertise in designing and engineering ruggedized, mission critical devices. In February 2012 we allowed our exclusivity agreement to lapse in order to address market opportunities beyond those available to us through our historical OEM customer. We remain cautious regarding 2012 rugged spending levels, and are exploring growth opportunities within and beyond the rugged market," concluded Mr. Godevais.

Cautionary Language

This press release contains forward-looking statements. These statements are generally accompanied by words such as "expect," "believe," and similar expressions. These statements include opportunities for growth in the future. We do not have sufficient backlog to rely upon when forecasting results, so our future performance is very difficult to predict. Our forward-looking statements are based on our current expectations, estimates and assumptions and are subject to many risks, uncertainties and unknown future events that could cause actual results to differ materially. Risks and uncertainties that may cause future results to differ include, but are not limited to, the risk of a change in our relationship with our OEM customer; a change in the efforts by our OEM customer to sell our rugged computing products; the timing and volume of sales of our products by our OEM customer; a shortage of critical parts, which could negatively impact our ability to fulfill orders; fluctuating demand for, and life cycles of, our products; inconsistency in forecasts provided to us by our largest customer, resulting in increased inventory exposure as we build to our customer's current forecast; operational risks from our reliance on suppliers, subcontractors and third-party manufacturers for the production of ruggedized products; risks related to product liability and warranty claims in the event our products do function according to specification or include defective parts; the risk that broker-dealers may not make a market in our securities; a failure by us to develop new products that are successfully qualified and utilized by customers; our ability to manufacture and ship products within a particular reporting period; the risk that foreign or domestic manufacturers develop products that compete successfully with our own on cost or other functionality; our ability to enforce our intellectual property rights or to defend claims that we infringe the intellectual property rights of others, and the significant costs to us of related litigation; the risk that our average selling prices decline during the period more than we expect because of competitive pressures, substituted products or overall reduced demand for our products; risks associated with budget constraints of federal, state and local governments that could negatively impact sales of our ruggedized products; risks associated with the failure of our ruggedized products to meet military specifications MIL-STD-810; the risks of seasonality, to which we are subject; and the risks associated with our dependence on a few key personnel to manage our business effectively.

For a discussion of these and other factors that could impact our financial results and cause actual results to differ materially from those in the forward-looking statements, please refer to our recent filings with the OTC Markets Group Inc. The foregoing information concerning our business outlook represents our outlook as of the date of this news release, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

Non-GAAP Financial Measurements

In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present net income, operating loss, operating expense, gross profit, gross margin and earnings per diluted share on a basis excluding non-cash charges for stock-based compensation and amortization of acquisition intangibles. Details of these excluded items are presented in one of the tables below, which reconcile the GAAP results to non-GAAP financial measurements described in this press release. Entorian has chosen to provide non-GAAP financial measurements to investors because it believes that excluding certain charges represents a better basis for the comparison of its current results to the results of its peer companies. In addition, the company believes that it provides a means to highlight the results of core ongoing operations to investors. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

About Entorian Technologies

Entorian Technologies Inc. (OTC MARKETS: ENTN.PK) is aleader in rugged, mission-critical mobile and server computing solutions for use in harsh, demanding environments through its subsidiary, Augmentix Corporation. Its Augmentix-produced servers and mobile products combine best-in-class technologies and standardized components from industry leader Dell, with proven ruggedization methods from Augmentix. These rugged systems are environmentally robust and technologically advanced. For more information, go to www.entorian.com and www.augmentix.com.

Entorian is a trademark of Entorian Technologies Inc. and Augmentix is a trademark of Augmentix Corporation.

ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
		Three Months Ended
		Dec. 31,					Sept. 30,					Dec. 31,
		2011					2011					2010
Revenue:
Product		$	14,537				$	14,353				$	17,271
License			529					503					679
Total revenue			15,066					14,856					17,950
Cost of revenue:
Product (1)			11,848					20,116					14,781
Amortization of acquisition intangibles			340					391					838
Total cost of revenue			12,188					20,507					15,619
Gross profit (loss)			2,878					(5,651	)				2,331
Operating expenses:
Selling, general and administrative (1)			1,034					1,147					1,566
Research and development (1)			819					1,078					1,783
Total operating expenses			1,853					2,225					3,349
Income (loss) from operations			1,025					(7,876	)				(1,018	)
Other income (expense):
Interest income			4					3					6
Interest expense			(33	)				(5	)				(1	)
Other, net			7					(1	)				13
Total other income (expense), net			(22	)				(3	)				18
Income (loss) before income taxes			1,003					(7,879	)				(1,000	)
Provision (benefit) for income taxes			9					(5	)				8
Net income (loss)		$	994				$	(7,874	)			$	(1,008	)
Income (loss) per share:
Basic		$	0.26				$	(2.03	)			$	(0.26	)
Diluted		$	0.25				$	(2.03	)			$	(0.26	)
Shares used in computing income (loss) per share:
Basic			3,880					3,880					3,876
Diluted			4,038					3,880					3,876
(1) Includes stock-based compensation expense as follows:
Cost of revenue		$	12				$	9				$	6
Selling, general and administrative expense			106					116					167
Research and development expense			17					17					46
		$	135				$	142				$	219

ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
		Twelve Months Ended
		Dec. 31,					Dec. 31,
		2011					2010
Revenue:
Product		$	64,024				$	76,233
License			2,318					2,759
Total revenue			66,342					78,992
Cost of revenue:
Product (1)			62,600					64,053
Amortization of acquisition intangibles			2,071					3,351
Total cost of revenue			64,671					67,404
Gross profit			1,671					11,588
Operating expenses:
Selling, general and administrative (1)			4,510					6,296
Research and development (1)			5,224					6,590
Restructuring			-					105
Total operating expenses			9,734					12,991
Loss from operations			(8,063	)				(1,403	)
Other income (expense):
Interest income			65					131
Interest expense			(47	)				(5	)
Other, net			13					106
Total other income, net			31					232
Loss before income taxes			(8,032	)				(1,171	)
Provision (benefit) for income taxes			(85	)				285
Net loss		$	(7,947	)			$	(1,456	)
Loss per share:
Basic		$	(2.05	)			$	(0.38	)
Diluted		$	(2.05	)			$	(0.38	)
Shares used in computing loss per share:
Basic			3,878					3,876
Diluted			3,878					3,876
(1) Includes stock-based compensation expense as follows:
Cost of revenue		$	41				$	19
Selling, general and administrative expense			490					638
Research and development expense			107					183
		$	638				$	840

ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
		Three Months Ended
		Dec. 31,				Sept. 30,					Dec. 31,
		2011				2011					2010
GAAP income (loss) from operations		$	1,025			$	(7,876	)			$	(1,018	)
Non-GAAP adjustments:
Amortization of acquisition intangibles			340				391					838
Stock-based compensation expense			135				142					219
Total non-GAAP adjustments			475				533					1,057
Non-GAAP income (loss) from operations		$	1,500			$	(7,343	)			$	39
GAAP net income (loss)		$	994			$	(7,874	)			$	(1,008	)
Total non-GAAP adjustments affecting income (loss) from operations			475				533					1,057
Non-GAAP net income (loss)		$	1,469			$	(7,341	)			$	49
Shares used in calculating non-GAAP diluted income (loss) per share			4,038				3,880					4,094
Non-GAAP diluted income (loss) per share		$	0.36			$	(1.89	)			$	0.01

ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data; unaudited)
		Year Ended
		Dec. 31,					Dec. 31,
		2011					2010
GAAP loss from operations		$	(8,063	)			$	(1,403	)
Non-GAAP adjustments:
Amortization of acquisition intangibles			2,071					3,351
Stock-based compensation expense			638					840
Total non-GAAP adjustments			2,709					4,191
Non-GAAP income (loss) from operations		$	(5,354	)			$	2,788
GAAP net loss		$	(7,947	)			$	(1,456	)
Total non-GAAP adjustments affecting income (loss) from operations			2,709					4,191
Non-GAAP net income (loss)		$	(5,238	)			$	2,735
Shares used in calculating non-GAAP diluted income (loss) per share			3,878					4,004
Non-GAAP diluted income (loss) per share		$	(1.35	)			$	0.68

ENTORIAN TECHNOLOGIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
		Dec. 31,					Dec. 31,
		2011					2010
ASSETS
Current assets:
Cash and cash equivalents		$	16,595				$	19,028
Accounts receivable, net of allowances of $4 in 2011 and $10 in 2010			6,946					11,987
Inventories			8,295					8,960
Income tax receivable			812					927
Deferred tax asset			76					77
Prepaid expenses and other current assets			1,305					1,392
Total current assets			34,029					42,371
Property, plant and equipment, net			1,168					1,987
Other intangibles, net			2,346					4,530
Other assets			173					193
Total assets		$	37,716				$	49,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	6,652				$	10,399
Accrued compensation			60					1,461
Accrued liabilities			1,967					1,688
Total current liabilities			8,679					13,548
Other accrued liabilities			886					69
Deferred tax liabilities			76					77
Stockholders' equity:
Capital stock			152,134					151,499
Treasury stock			(26,049	)				(26,049	)
Accumulated deficit			(98,010	)				(90,063	)
Total stockholders' equity			28,075					35,387
Total liabilities and stockholders' equity		$	37,716				$	49,081

ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF ADDITIONAL GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands; unaudited)
		Twelve Months Ended
		Dec. 31,					Dec. 31,
		2011					2010
Gross profit		$	1,671				$	11,588
Non-GAAP adjustments:
Amortization of acquisition intangibles			2,071					3,351
Stock-based compensation			41					19
Non-GAAP gross profit		$	3,783				$	14,958
Total revenue		$	66,342				$	78,992
Non-GAAP gross margin percentage			5.7	%				18.9	%
Operating expenses		$	9,734				$	12,991
Non-GAAP adjustments:
Stock-based compensation			597					821
Non-GAAP operating expenses		$	9,137				$	12,170
Selling, general and administrative expense		$	4,510				$	6,296
Non-GAAP adjustments:
Stock-based compensation			490					638
Non-GAAP selling, general and administrative expense		$	4,020				$	5,658
Non-GAAP SG&A as a percentage of total revenue			6.1	%				7.2	%
Research and development expense		$	5,224				$	6,590
Non-GAAP adjustments:
Stock-based compensation			107					183
Non-GAAP research and development expense		$	5,117				$	6,407
Non-GAAP R&D as a percentage of total revenue			7.7	%				8.1	%

ENTORIAN TECHNOLOGIES INC.
RECONCILIATION OF ADDITIONAL GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands; unaudited)
		Quarter Ended
		Dec. 31,					Sept. 30,					Dec. 31,
		2011					2011					2010
Gross profit (loss)		$	2,878				$	(5,651	)			$	2,331
Non-GAAP adjustments:
Amortization of acquisition intangibles			340					391					838
Stock-based compensation			12					9					6
Non-GAAP gross profit (loss)		$	3,230				$	(5,251	)			$	3,175
Total revenue		$	15,066				$	14,856				$	17,950
Non-GAAP gross margin percentage			21.4	%				(35.3	)%				17.7	%
Operating expenses		$	1,853				$	2,225				$	3,349
Non-GAAP adjustments:
Stock-based compensation			123					133					213
Non-GAAP operating expenses		$	1,730				$	2,092				$	3,136
Selling, general and administrative expense		$	1,034				$	1,147				$	1,566
Non-GAAP adjustments:
Stock-based compensation			106					116					167
Non-GAAP selling, general and administrative expense		$	928				$	1,031				$	1,399
Non-GAAP SG&A as a percentage of total revenue			6.2	%				6.9	%				7.8	%
Research and development expense		$	819				$	1,078				$	1,783
Non-GAAP adjustments:
Stock-based compensation			17					17					46
Non-GAAP research and development expense		$	802				$	1,061				$	1,737
Non-GAAP R&D as a percentage of total revenue			5.3	%				7.1	%				9.7	%

Company Contact:
Entorian Technologies Inc.
Kirk Patterson, 512-334-0111
Senior Vice President and CFO
[e-mail]
or
Investor Contact:
For Entorian Technologies Inc.
Beverly Twing, 972-239-5119 x 126
Shelton Investor Relations
[e-mail]