SAN DIEGO, Aug. 15 /PRNewswire-FirstCall/ -- Overland Storage, Inc.
(NASDAQ:OVRL) today reported fourth quarter and full-year results
for the fiscal year ended June 30, 2005. Revenue for the fiscal
2005 fourth quarter was $55.4 million compared with $55.0 million
for the same period last year. The company reported a net loss of
$1.3 million, or $0.09 per share, for the fiscal 2005 fourth
quarter compared with net income of $2.1 million, or $0.14 per
diluted share, for the same period last year. The non-GAAP net loss
for the fourth quarter of fiscal 2005, excluding the impact of
outsourcing charges, was $924,000, or $0.07 per share. Non-GAAP
results are presented to provide a more complete view of the
company's financial results in light of the costs associated with
the outsourcing of all manufacturing, as announced in September
2004. These charges are expected to continue through the first
quarter of fiscal 2006, at which time the outsourcing transition
will be complete. See "Non-GAAP Financial Measures" below. For the
12 months ended June 30, 2005, the company reported revenue of
$235.7 million compared with $238.1 million for the prior fiscal
year. Net income for fiscal 2005 was $4.6 million, or $0.32 per
diluted share, compared with $10.6 million, or $0.74 per diluted
share, a year earlier. Non-GAAP net income for fiscal 2005,
excluding the impact of outsourcing charges, was $5.9 million, or
$0.41 per diluted share. The company noted that revenue in the
fourth quarter was negatively affected by a shortage of LTO3 tape
drives from its supplier caused by unexpectedly high demand for the
new drive in the last few weeks of the quarter. Additionally,
during the same period of time, the company experienced production
difficulties at its outsourced manufacturer which were corrected in
mid-July. The company estimates that approximately $1.9 million of
its backlog at the end of the quarter was caused by these issues.
The company's gross margin was significantly lower than expected
due to a higher proportion of OEM business, a higher mix of lower
margin products and higher manufacturing costs. The gross margin
for the fourth fiscal quarter was 22.0 percent compared with 27.7
percent in the prior year. Excluding fourth quarter outsourcing
costs of $428,000, which are all charged to cost of goods sold, the
non-GAAP gross margin was 22.8 percent. Fourth quarter operating
expenses of $15.8 million were up 29.1 percent over the prior year,
including increased R&D spending for the company's previously
announced development of a new tape automation platform, expanded
sales and marketing programs, higher costs for Sarbanes-Oxley 404
readiness, and legal fees related to the company's M&A
activities. "As we enter a new fiscal year, we do so with strong
conviction that we have the right strategy for Overland's future.
We will have more products under development in fiscal 2006 than
Overland has had in any other year of the company's history. We
expect the return on these investments to drive our earnings into
2007 and beyond," said Christopher P. Calisi, president and chief
executive officer of Overland Storage. Guidance The company's long
range forecast includes a dramatic shift in the composition of its
revenue and gross profit base. The company intends to focus its
efforts to grow its branded reseller channel, where sales typically
generate gross margins of between 40 percent and 50 percent. This
is expected to partially replace declining sales to OEM customers
where margins are in the low 20 percent range. As a result, the
company expects to raise margins from approximately 27 percent in
fiscal 2006 to above 30 percent in fiscal 2007 and above 35 percent
in fiscal 2008. In fiscal year 2005, sales through Overland's
branded channel comprised approximately 40 percent of its total
revenue. The company expects revenue from branded products will
grow to comprise approximately 53 percent of revenue in fiscal
2006, 77 percent in 2007 and over 90 percent in 2008. This will be
accomplished through sales of the company's new protected primary
storage and tape automation products to be launched in fiscal 2006,
together with increasing sales of its REO disk-based backup and
recovery products. Fiscal year 2006 will be a year of significant
investment by the company in new product development, and sales and
marketing support. Development of the company's new tape library
platform, which began in the fourth quarter of fiscal 2005, is
expected to be substantially complete by the end of the third
quarter of fiscal 2006. The acquisition of Zetta Systems, announced
Aug. 8, 2005, brings to the company a new software development team
focused on delivery of protected primary storage products. This new
team is expected to add between $3 million and $4 million to the
company's annual R&D expenditures. The acquisition is expected
to have a positive impact on the company's earnings by the first
quarter of fiscal year 2007. And, finally, development continues to
expand the portfolio of REO products and enhance their
capabilities. The company believes that the heavy investments in
fiscal 2006 will result in a loss of approximately $0.10 per share
for the year. The returns on those investments, however, are
expected to begin to manifest themselves in fiscal 2007 as revenue
from new products accelerates and R&D expenditures decline. The
company currently expects to return to profitability of
approximately $0.20 per share in fiscal 2007. Fiscal 2008 will
improve further as branded sales comprise most of the company's
revenue and drive up gross margins. Earnings per share in 2008 are
expected to rise above $0.50 per share. Non-GAAP Financial Measures
To supplement the Consolidated Statement of Operations presented in
accordance with GAAP, the company has included a Non-GAAP
Consolidated Statement of Operations that excludes the transition
charges related to outsourcing all of the company's manufacturing
to Sanmina-SCI, a contract manufacturer. The company entered into a
manufacturing service agreement with Sanmina-SCI on Nov. 23, 2004
and now plans to complete the transfer of all products to
Sanmina-SCI by Sept. 30, 2005. Over the second, third and fourth
quarters of fiscal year 2005 the company recorded pretax transition
charges totaling $2.1 million ($1.4 million net of tax) and expects
to incur approximately $900,000 of additional pretax charges in the
first quarter of fiscal year 2006. These charges are recorded as
additions to cost of goods sold. Because these are one-time charges
that will not be repeated in subsequent fiscal years, the company
believes the non-GAAP results provide useful information to
investors concerning the company's operating results, and permit a
more meaningful comparison to historical financial results, which
did not include such charges. Reconciliations of GAAP net income to
non-GAAP net income and GAAP to non-GAAP per share results are
provided in a table immediately following the Non-GAAP Consolidated
Statements of Operations. Although management believes the above
non-GAAP financial measures enhance investors' understanding of the
company's business and performance, these non- GAAP financial
measures are inherently limited in that they exclude certain costs
which are required to be included in a GAAP presentation, and do
not therefore present the full measure of the company's recorded
costs against its revenues. Accordingly, these non-GAAP results
should be considered together with GAAP results, rather than as an
alternative to GAAP basis financial measures. About Overland
Storage Now in its 25th year, Overland Storage is a market leader
and innovative provider of simply protected storage solutions --
smart data protection appliances and software modules designed to
work together, affordably, to ensure that information is
automatically safe, readily available and always there. Overland's
award-winning data protection solutions include the REO SERIES(TM)
of disk-based backup and recovery appliances and the NEO SERIES(TM)
of tape libraries. Overland sells its products through leading
OEMs, commercial distributors, storage integrators and value-added
resellers. For more information, visit Overland's web site at
http://www.overlandstorage.com/. Except for the factual statements
made herein, the information contained in this news release
consists of forward-looking statements that involve risks,
uncertainties and assumptions that are difficult to predict. Words
and expressions reflecting optimism and satisfaction with current
prospects, as well as words such as "believe," "intends,"
"estimates," expects," "projects," plans," "anticipates" and
variations thereof, identify forward-looking statements, but their
absence does not mean that a statement is not forward looking. Such
forward-looking statements are not guarantees of performance and
the company's actual results could differ materially from those
contained in such statements. Factors that could cause or
contribute to such differences include risks and uncertainties
associated with the company's acquisition of Zetta Systems, Inc.,
including possible integration difficulties and successful
execution of the business plan such that the acquisition has a
positive effect on the company's operating results by the first
quarter of fiscal year 2007; possible delays in new product
introductions by the company including the new primary storage
appliance to be based on the Zetta software, the company's next
generation tape library platform and enhancements to its REO line;
market acceptance of the company's new product offerings; the
timing and market acceptance of new product introductions by
competitors; the speed at which HP transitions from the products it
currently buys from the company to its next-generation products to
be purchased from another vendor; delays, unbudgeted expenses,
inefficiencies and production problems that may result from the
transition of manufacturing to Sanmina-SCI; worldwide information
technology spending levels; unexpected shortages of critical
components; rescheduling or cancellation of customer orders; loss
of a major customer; the timing and amount of licensing royalties;
general competition and price pressures in the marketplace; the
company's ability to control costs and expenses; and general
economic conditions. Reference is also made to other factors set
forth in the company's filings with the Securities and Exchange
Commission, including the "Risk Factors," "Management's Discussion
and Analysis" and other sections of the company's Form 10-K
currently on file with the SEC. These forward-looking statements
speak only as of the date of this release and the company
undertakes no obligation to publicly update any forward-looking
statements to reflect new information, events or circumstances
after the date of this release. Overland, Overland Storage, REO
SERIES and NEO SERIES are trademarks or registered trademarks of
Overland Storage, Inc. Webcast: A live audio Webcast of Overland's
management conference call discussing fourth fiscal quarter 2005
results and the outlook for coming years will be held beginning at
10:30 a.m. EDT, Aug. 15, 2005, and will be posted at
http://www.overlandstorage.com/. Please provide adequate time to
log on. Following the broadcast, the conference call will be
archived for future access on Overland's Web site. OVERLAND
STORAGE, INC. GAAP CONSOLIDATED STATEMENT OF OPERATIONS (in
thousands, except per share data) Three Months Ended Twelve Months
Ended June 30, June 30, 2005 2004 2005 2004 (Unaudited) (Unaudited)
Net revenues $ 55,354 $ 55,031 $ 235,687 $ 238,139 Cost of revenues
43,158 39,793 174,770 173,485 Gross profit 12,196 15,238 60,917
64,654 Operating expenses: Sales and marketing 9,121 7,858 34,382
30,848 Research and development 2,969 1,817 10,687 7,259 General
and administrative 3,742 2,590 12,324 10,949 Total expenses 15,832
12,265 57,393 49,056 Operating (loss) income (3,636) 2,973 3,524
15,598 Interest income, net 487 165 1,537 533 Other (loss) income,
net (100) 4 7 68 (Loss) income before income taxes (3,249) 3,142
5,068 16,199 Income tax (benefit) provision (1,967) 1,069 490 5,574
Net (loss) income $ (1,282) $ 2,073 $ 4,578 $ 10,625 Earnings per
share: Basic $ (0.09) $ 0.15 $ 0.33 $ 0.79 Diluted $ (0.09) $ 0.14
$ 0.32 $ 0.74 Shares used in computing earnings per share: Basic
14,049 13,673 13,899 13,384 Diluted 14,049 14,427 14,429 14,404
OVERLAND STORAGE, INC. NON-GAAP CONSOLIDATED STATEMENT OF
OPERATIONS (in thousands, except per share data) Three Months Ended
Twelve Months Ended June 30, June 30, 2005 2004 2005 2004
(Unaudited) (Unaudited) Net revenues $ 55,354 $ 55,031 $ 235,687 $
238,139 Cost of revenues 42,730 39,793 172,711 173,485 Gross profit
12,624 15,238 62,976 64,654 Operating expenses: Sales and marketing
9,121 7,858 34,382 30,848 Research and development 2,969 1,817
10,687 7,259 General and administrative 3,742 2,590 12,324 10,949
Total expenses 15,832 12,265 57,393 49,056 Operating (loss) income
(3,208) 2,973 5,583 15,598 Interest income, net 487 165 1,537 533
Other (loss) income, net (100) 4 7 68 (Loss) income before income
taxes (2,821) 3,142 7,127 16,199 Income tax (benefit) provision
(1,897) 1,069 1,189 5,574 Net (loss) income $ (924) $ 2,073 $ 5,938
$ 10,625 Earnings per share: Basic $ (0.07) $ 0.15 $ 0.43 $ 0.79
Diluted $ (0.07) $ 0.14 $ 0.41 $ 0.74 Shares used in computing
(loss) earnings per share: Basic 14,049 13,673 13,899 13,384
Diluted 14,049 14,427 14,429 14,404 A reconciliation between net
income on a GAAP basis and non-GAAP net income is as follows: GAAP
net income $ (1,282) $ 2,073 $ 4,578 $ 10,625 Outsource
manufacturing transition costs 428 -- 2,059 -- Income tax effect
(70) -- (699) -- Non-GAAP net (loss) income $ (924) $ 2,073 $ 5,938
$ 10,625 A reconciliation between diluted earnings per share on a
GAAP basis and non-GAAP pro forma diluted earnings per share is as
follows: GAAP net income $ (0.09) $ 0.14 $ 0.32 $ 0.74 Outsource
manufacturing transition costs 0.03 -- 0.14 -- Income tax effect
(0.01) -- (0.05) -- Non-GAAP net (loss) income $ (0.07) $ 0.14 $
0.41 $ 0.74 OVERLAND STORAGE, INC. SELECTED BALANCE SHEET
INFORMATION (in thousands) June 30, June 30, 2005 2004 (unaudited)
ASSETS Cash and equivalents $ 5,264 $ 12,397 Short term investments
71,623 57,260 Accounts receivable, net 37,703 33,794 Inventories
19,108 15,126 Other current assets 16,355 11,195 Total current
assets 150,053 129,772 Property, plant and equipment, net 8,758
7,945 Other assets 6,901 7,514 Total assets $ 165,712 $ 145,231
LIABILITIES & EQUITY Current liabilities $ 39,690 $ 26,451
Other long-term liabilities 4,528 5,266 Shareholders' equity
121,494 113,514 Total liabilities and equity $ 165,712 $ 145,231
DATASOURCE: Overland Storage, Inc. CONTACT: Vernon A. LoForti, CFO,
, or Cynthia A. Bond, Director of Corporate Communications, , both
of Overland Storage, +1-858-571-5555 Web site:
http://www.overlandstorage.com/
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