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OCZ Technology Group, Inc. (OCZ)

F2Q13 Earnings Call

October 10, 2012 5:00 PM ET

Executives

Bonnie Mott – Senior Manager, IR

Ralph Schmitt – CEO

Analysts

Aaron Rakers – Stifel, Nicolaus

Andrew Nowinski – Piper Jaffray

Rich Kugele – Needham & Company

Kulbinder Garcha – Credit Suisse

Presentation

Operator

Good day, ladies and gentlemen and welcome to the OCZ Technology Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session with instructions following at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

Now, I’ll turn it over your host, Bonnie Mott, Senior Managing of Investor Relations of OCZ Technology. Please begin.

Bonnie Mott

Good morning and welcome, everyone. On the call are Ralph Schmitt, CEO; Arthur Knapp, CFO; and Alex Mei, our Chief Marketing Officer. They will discuss certain preliminary financial results regarding our second fiscal quarter. Following their formal remarks, we will open the floor to a few questions.

Please note that they will be discussing preliminary results and remain subject to management’s review and the review by the company’s independent accounting firm. Before I turn the call over to them, I need to remind our listeners that the information is presented as of October 10, 2012. Please keep in mind that while being made available for listening after today, the information is current only as of today.

Remarks made during this call may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements on the call are made pursuant to the Safe Harbor provisions for the federal securities laws.

Information contained in the forward-looking statements based on current expectations and are subject to change and actual results may differ materially from forward-looking statements. Some of these factors that could cause actual results to differ are discussed in the reports filed with the SEC. These documents are available on OCZ’s website www.ocztechnology.com.

With that, I will turn the call over to Ralph Schmitt.

Ralph Schmitt

Thank you, Bonnie. Good morning. I want to first of all thank the board for their confidence and trust in my ability to take OCZ through the next phase of the company’s development. For me, this is amazing opportunity to lead a company that has quickly become a leader in one of the fastest growing markets in the technology sector.

The tenets of our business moving forward will be simple. Our actions will be based on innovation, quality and profitability. The DNA of OCZ is in a steadfast focus on time to market and performance. That’ll remain unchanged as we continue to use that focus to drive our efforts into the marketplace. We will innovate to continue to differentiate our products. Our focus will be to further penetrate the OEMs and especially the enterprise market.

OCZ has a polarizing image. There are relentless fans and equally relentless detractors. It is my goal to continue to do the things that make people so passionate about this company. We will build the highest performing and reliable products in our target markets. We’ll fix the things that have been the source of our very vocal detractors.

Credibility and consistency will be paramount, and we’ll talk less and execute better. My approach is to empower our employees to take the appropriate risks, make decisions and be accountable for their actions. When they succeed as individuals, we will succeed as a company.

I want to thank Alex Mei for stepping in as the Interim CEO. He is an amazing leader and rallied the team to start this transition. He has made great progress in beginning a significant impact change even in the past few weeks, and I look forward to partnering with him and the rest of the talented OCZ team to make a meaningful shift in our business.

So, besides my quick introduction, the purpose of this call is to give investors some insight as to the press release this morning in which we filed for an extension to deliver our Form 10-Q. My first day’s a challenging one, as I’m trying to ensure an appropriate start by being transparent, but have some inexact news to share with investors. As I stated, credibility is the key to building a relationship between the company and its investors. We felt it necessary to pass along information that was material as soon as we believe it could be quantified.

The September 5 updated revenue guidance cannot be relied upon. There will be material changes due to customer incentives that were in excess of what was normal and customary in the past. While the good news is our control procedures found the issue before reporting, it however was not sufficient enough to prevent this from happening.

There was such an emphasis in Q2 for management to grow market share at all cost, hence extraordinary incentives were undertaken. We need additional time to ensure that all the proper accounting treatment has been applied to this event. These incentives will also have a significant impact on our gross margins and will make our loss much larger than is expected. Of course you should assume that our cash position has also declined and we’ve accessed our credit facility. We will clearly discuss specific numbers once the earnings call is rescheduled. It is our goal to file our Q and have the call as expeditiously as possible.

So with that, I’ll open the call up for questions.

Question-and-Answer Session

Operator

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