Staktek Holdings Reports Fourth Quarter and Full Year 2006 Financial Results.AUSTIN, Texas -- Staktek Holdings, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :STAK), a market-leading provider of intellectual property and services for next-generation, chip-stacking and module technologies for high-speed, high-capacity systems, today announced financial results for the fourth quarter and full year ended December 31, 2006. Fourth Quarter Results Total revenue for the quarter was $14.0 million, which was in line with previously stated guidance of $13.0 million to $14.5 million, and compares to $14.7 million in the third quarter of 2006 and $12.9 million in the fourth quarter of 2005. Services revenue was $11.1 million, compared to $11.3 million in the third quarter and $9.0 million in the same period a year ago. License revenue was $2.9 million, compared to $3.4 million in the previous quarter and $3.9 million in the fourth quarter of 2005. Under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ), net loss for the fourth quarter was $796,000, or a loss of $0.02 per diluted share, compared to net income of $600,000, or $0.01 per diluted share, in the third quarter and a $474,000 loss, or a loss of $0.01 per diluted share in the fourth quarter of 2005. The fourth quarter operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. was $1.3 million, which compares to an operating loss of $210,000 in the third quarter of 2006 and an operating loss of $1.9 million a year ago. Excluding non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. for stock-based compensation and amortization of acquisition intangibles, non-GAAP net income was $2.1 million, or $0.04 per diluted share, compared to non-GAAP net income of $2.7 million, or $0.06 per diluted shares, in the third quarter. Non-GAAP operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. in the fourth quarter of 2006 was $2.2 million. A reconciliation of GAAP results to non-GAAP results has been provided in the financial statement tables following the text of this press release. Cash, cash equivalents and short-term investments on December 31, 2006 were $79.7 million, compared to $77.3 million on September 30, 2006. During the quarter, the company repurchased approximately 588,000 shares of its common stock under its repurchase program at a cost of approximately $3.4 million. 2006 Results Total revenue for the year ended December 31, 2006 was $55.6 million, compared to $52.5 million for the year ended December 31, 2005. Total services revenue was $43.1 million, compared to $33.6 million for the full year 2005, and total license revenue was $12.5 million for 2006 versus $18.9 million for 2005. On a GAAP basis, total gross margin increased to 37 percent for year 2006 from 22 percent for year 2005. Under GAAP, the operating loss for the full year of 2006 was $3.6 million. The full year net loss was $454,000, or $0.01 per diluted share, compared to the net loss of $7.5 million, or $0.15 per diluted share for the full year of 2005. Excluding non-cash charges for stock-based compensation and amortization of acquisition intangibles, operating income for 2006 was $10.1 million and net income was $8.9 million, or $0.18 per diluted share. Business Summary Commenting on the quarter, Wayne Lieberman, Staktek's president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , stated, "We are pleased to announce a new license agreement with Southland south·land or South·land n. A region in the south of a country or an area. south  land·er n.Noun 1. Micro Systems, a premier high-performance computing High-speed computing, which typically refers to supercomputers used in scientific research. DIMM (Dual In-Line Memory Module) A printed circuit board that holds memory chips and plugs into a DIMM socket on the motherboard. See memory module. DIMM - Dual In-Line Memory Module manufacturer. This new license enables Southland to design and manufacture multiple RDIMM RDIMM Registered Dual In-Line Memory Module RDIMM Registered Dimm , SODIMM (Small Outline-DIMM) A DIMM module with a thinner profile due to the use of TSOP chip packages. SODIMMs are commonly used in laptop computers. See memory module and TSOP. and mini-DIMM solutions based on the ArctiCore product family. "Looking at 2006, we are proud of the accomplishments that we achieved from both a business and financial perspective. Through a focused effort on R&D, we introduced our FlashStak[TM] product family, ArctiCore[TM] memory modules, second generation High Performance Stakpak[R], and most recently, our MobileStak[TM] product. "With MobileStak, multiple, heterogeneous devices like processors, controllers, and memories are assembled onto a flex circuit See flexible circuit. with a ball grid array “BGA” redirects here. For other uses, see BGA (disambiguation). A ball grid array (BGA) is a type of surface-mount packaging used for integrated circuits. interface to connect to a system motherboard Also called the "system board," it is the main printed circuit board in an electronic device, which contains sockets that accept additional boards. In a desktop computer, the motherboard contains the CPU, chipset, PCI bus slots, AGP slot, memory sockets and controller circuits for the . MobileStak is an innovative form of 3D packaging and offers the ultimate flexibility in component selection to portable product designers. "Looking forward, from an overall business perspective and industry overview, during the quarter we believe we began to see transitions in the industry. These transitions included the increased use of dual-die and planar A technique developed by Fairchild Instruments that creates transistor sublayers by forcing chemicals under pressure into exposed areas. Planar superseded the mesa process and was a major step toward creating the chip. solutions; a continuing shift from DDR-1 to DDR-2 technologies; lower-than-expected sales of our 8GB FlashStak; OEMs and others increasingly using our competitors' solutions; reduced DRAM pricing due to a DRAM oversupply o·ver·sup·ply n. pl. o·ver·sup·plies A supply in excess of what is appropriate or required. tr.v. o·ver·sup·plied, o·ver·sup·ply·ing, o·ver·sup·plies in certain instances; as well as other transitions. Although only having a minimal impact on our business in the fourth quarter, these transitions may negatively impact the first quarter of 2007 as well as future quarters. At this time, we cannot predict when or if these trends may shift in a more positive direction, nor can we predict when our new product offerings will materially offset any negative impact from these transitions. As a result, we continue to monitor the industry and our customers' order activities very closely, and we are more cautious in our quarterly outlook," concluded Mr. Lieberman. Business Outlook Staktek expects first quarter 2007 total revenue to total approximately $8.0 million to $10.0 million, with services revenue ranging between $6.5 million and $8.5 million, which reflects historical seasonal trends and current conditions. Based on preliminary information, license revenue is expected to be approximately $1.5 million. Web Cast and Conference Call Staktek management will host a conference call and web cast with investors today, February 21, 2007, at 3:30 p.m. Central time (4:30 p.m. Eastern time) to discuss the fourth quarter and full year financial results and the business outlook going forward for the first quarter of 2007. Investors and other interested parties may access the call by dialing 800-289-0529 in the U.S. (913-981-5523 outside of the U.S.), with the confirmation code 8134596, at least 10 minutes prior to the start of the call. In addition, an audio web cast will be available through the Staktek web site at http://www.staktek.com. A replay will be available for 48 hours following the call at 888-203-1112 in the U.S. (719-457-0820 outside of the U.S.), confirmation code 8134596. Cautionary Language This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These statements are generally accompanied by words such as "expect," "anticipate," "believe," "estimate," and similar expressions. These statements include our estimates of first quarter 2007 revenue. We do not have long-term agreements with our customers or 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, transitions in the technologies utilized by OEMs and others (including but not limited to increased use of dual-die and planar solutions and a continuing shift from DDR-1 to DDR-2) and the resulting impact on our business; reduced DRAM pricing and less demand for our products, due to a DRAM oversupply in certain instances; having significant customer concentration and the impact on our operating results of a material decline in orders from any customer or of a consolidation of our customers; the risk that a competitor or significant customer develops or adopts an alternative solution or competing product; the risk that demand for our solutions is lower than expected; the risk that our average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. decline during the period more than we expect because of competitive pressures, substituted products or overall reduced demand for systems that incorporate our technologies; the risks associated with expanding into new markets without past experience in those markets and to releasing new products generally; the risk that our new technologies, such as our High Performance II, NAND (Not AND) A Boolean logic operation that is true if any single input is false. Two-input NAND gates are often used as the sole logic element on gate array chips, because all Boolean operations can be created from NAND gates. See flash memory. Flash-memory stacking technologies, FlashStak X-2, ArctiCore[TM] and MobileStak[TM] solutions, are not completed, tested or accepted in a timely fashion; the risk that we are unable to protect our intellectual property rights; the risk that we are unable to productize or monetize the intellectual property that we develop; the risk that we will be unable to enter into additional license agreements to license our technologies; the risks associated with intellectual property litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. or other litigation; the risk that our customers or we are unable to obtain adequate memory or other materials; the risk that we incur problems in our manufacturing processes or facilities or that we are unable to maintain or improve our manufacturing capacity and turnaround times (1) In batch processing, the time it takes to receive finished reports after submission of documents or files for processing. In an online environment, turnaround time is the same as response time. ; risks related to qualifying our current or future products in our customers' future products; risks related to increasing our royalty-based revenue; risks associated with competing with larger companies and companies with market share where we are targeting expansion; risks related to product liability claims in the event our services and technologies are used in defective products or include defective parts; risks associated with failing to achieve standardization standardization In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting of certain of our products (such as ArctiCore) from JEDEC The division of the Electronic Industries Alliance (EIA) that deals with semiconductor standards (officially, the JEDEC Solid State Technology Association of EIA). JEDEC was formed in 1958 when the Joint Electron Tube Engineering Council (JETEC) split into two Joint Electron Device ; risks associated with acquiring other businesses or technologies in the future; 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 Securities and Exchange Commission, and in particular, our Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. filed on March 8, 2006. 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. About Staktek Holdings: Staktek is a market-leading provider of intellectual property and services for next-generation, chip-stacking and module technologies for high-speed, high-capacity systems. Staktek's TSOP (Thin Small Outline Package) A very thin, plastic, rectangular surface mount chip package with gull-wing pins on its two short sides. TSOPs are about a third as thick as SOJ chips. See gull-wing lead, SOP, SOJ and chip package. and BGA (Ball Grid Array) A popular surface mount chip package that uses a grid of solder balls as its connectors. Available in plastic and ceramic varieties, BGA is noted for its compact size, high lead count and low inductance, which allows lower voltages to be used. memory stacking solutions increase operational performance by doubling, tripling or quadrupling quad·ru·ple adj. 1. Consisting of four parts or members. 2. Four times as much in size, strength, number, or amount. 3. Music Having four beats to the measure. n. the amount of memory in the same physical footprint as required by standard packaging technologies. Staktek's ArctiCore is a new module technology using a double-sided, multi-layer flexible circuit folded around an aluminum core and is designed for superior thermal, mechanical and electrical performance. With an IP portfolio of over 200 patents and patent applications pending, the company offers flexibility for customers, including outsourced manufacturing, technology licensing and custom engineering. Headquartered in Austin, Texas, Staktek operates an ISO-certified manufacturing facility in Reynosa, Mexico. For more information, go to http://www.staktek.com. Staktek is a trademark of Staktek Group LP. Non-GAAP Financial Measurements In addition to the GAAP results provided by this document, the company has provided non-GAAP financial measurements that present operating income, net income and earnings per diluted share on a basis excluding non-cash charges for stock-based compensation and amortization of acquisition intangibles and the associated income tax effect. 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. Also, this press release, the associated tables and the reconciliation from GAAP results to additional non-GAAP financial measurements that may be discussed in the Q4 2006 earnings conference call can be found on the company's web site at http://www.staktek.com. Staktek 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. 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