- - Announces New Business Model - - SAN DIEGO, Feb. 5
/PRNewswire-FirstCall/ -- Overland Storage, Inc. (NASDAQ:OVRL)
today reported results for its fiscal 2009 second quarter and
six-month period ended December 31, 2008. Net revenue for the
fiscal 2009 second quarter was $28.9 million, compared with $34.1
million for the same quarter a year ago. The company reported a net
loss of $5.2 million, or $0.40 per share, for the fiscal 2009
second quarter compared with a net loss of $6.5 million, or $0.51
per share, for the same quarter in the prior fiscal year. For the
first six months of fiscal 2009, the company reported net revenue
of $61.3 million compared with $67.0 million for the same period in
the prior fiscal year. The net loss for the first half of fiscal
2009 was $12.1 million, or $0.94 per share, compared with a net
loss of $11.0 million, or $0.86 per share, in the first half of
fiscal 2008. The company noted that net revenue for the fiscal 2009
second quarter decreased 15.2 percent from the fiscal 2008 second
quarter primarily due to lower sales to the company's largest OEM
customer. Total OEM revenue was down 37.1 percent compared to the
fiscal 2008 second quarter. This trend continues to reflect the
previously announced transition by the customer to a new product
from an alternate supplier. Total branded revenue declined only 1.7
percent compared to branded revenue in the second quarter of fiscal
2008. Sales in the Americas region was relatively flat compared to
the prior year quarter, while a 15.1 percent decline in EMEA and a
40.2 percent decline in APAC were offset by a 24.4 percent increase
in revenue of service and spares. Gross profit in the fiscal 2009
second quarter of $7.7 million nearly equaled the $7.8 million in
gross profit reported in the prior year quarter, despite the 15.2
percent net revenue decline noted above. The gross profit margin of
26.7 percent for the fiscal 2009 second quarter improved over the
fiscal 2008 second quarter margin of 22.8 percent. Operating
expenses of $12.6 million in the fiscal 2009 second quarter
declined 9.4 percent from $13.9 million in the fiscal 2008 second
quarter reflecting the company's August 29, 2008 restructuring.
Sales and marketing expenses declined 6.5 percent and R&D
expenses declined 15.6 percent compared to the fiscal 2008 second
quarter. On a sequential basis, the operating expense decline was
more pronounced. Total operating expenses declined 19.2 percent
compared to $15.6 million in the fiscal 2009 first quarter. The
high level of operating expenses in the first fiscal quarter
reflects the acquisition of the Snap Appliance business at the end
of June 2008, and severance costs relating to the August
restructuring. The total cash balance at the end of the quarter was
$3.0 million, a decline of $2.3 million from the end of the fiscal
2009 first quarter. Inventory levels were reduced by $1.3 million
in the fiscal 2009 second quarter from the first quarter. "The
challenges we faced in the December quarter were significant,"
stated Vern LoForti, president of Overland Storage, Inc. "We were
impacted by a combination of the difficult worldwide economic
conditions and concerns in the first two months of the quarter
about our ability to obtain financing, both of which hampered
sales. In late November, we secured a $9 million accounts
receivable financing line that alleviated some concerns. But, in
order to ensure a return to profitability, we acknowledged the need
to modify our business model. "During this process, our board of
directors was extremely supportive. Eric Kelly, who joined the
board in November 2007 bringing 30 years experience in the data
storage sector, began working with management on a full-time basis
to formulate a new plan. Together we presented a new financial plan
to the board. As announced last week, the board determined that the
best way to execute the plan was to have us split the CEO and
president roles. Eric now serves as CEO while I continue as
president. We are both dedicated to seeing Overland succeed, and
believe that our skills are complementary. Having spent 13 years at
Overland, I am highly vested in our company. Eric, having
previously run Snap as an independent company and generated
significant value there, is determined to see Snap become a
successful and integral component of Overland's product portfolio
and strategy. We intend to leverage Overland's complete portfolio
of end-to-end data protection products and our valuable sales
channel," stated LoForti. "We developed our new financial model to
significantly reduce the breakeven point, and that has become our
near-term goal," commented Eric Kelly, CEO of Overland Storage,
Inc. "We aimed to hit breakeven at a net revenue level below $30
million per quarter. In order to achieve this goal, we attacked
product costs and operating expenses, a process that entailed
highly focused discussions with our suppliers and employees. Some
difficult decisions were required, and on January 9, 2009, we
announced a restructuring that included a 17 percent reduction in
our worldwide workforce and a 10 percent pay-cut for all employees.
"We targeted specific areas where we believe we can generate
significant savings," continued Kelly. "We identified approximately
$2.5 million of product-related cost reductions that we expect will
improve our gross profit margin. We are consolidating our
facilities and reducing other spending with the goal of cutting an
additional $3.4 million of cost and expenses. We anticipate the
annual savings from the reduction-in-force will amount to
approximately $5.5 million. We expect the pay-cut and related
changes to generate $2.9 million in annual savings. Aggregated, we
anticipate these actions should amount to annual savings of $14.3
million. Though these cuts substantially change our business model,
they are intended to assure the viability of Overland and fuel the
growth of our business. "Despite the global economic conditions,
IDC estimates storage growth at 60 percent annually," Kelly added.
"We believe that global demand will continue for end-to-end data
protection solutions that offer storage tiering, thin provisioning,
data deduplication and enterprise file-based storage delivered at
an optimal value proposition. Overland excels at this formula,
providing the required solution at the best price. We are committed
to offering both tape- and disk-based solutions that address
storage needs for both structured and unstructured data in the SMB
and distributed enterprise markets. To operate efficiently and
maximize storage utilization, IT managers must take advantage of
new technologies, including data deduplication that Overland's
REO(R) 9500D provides, and thin provisioning capabilities as
offered by the Dynamic Virtual Tape(TM) (DVT) feature embedded in
Overland's other REO VTL solutions. "As Vern already pointed out,
network attached storage (NAS) solutions are critical to solving
customers' unstructured data requirements. As Snap represents the
largest worldwide NAS-installed base, we plan to leverage this
position to continue providing storage solutions to the distributed
enterprise and the SMB space. Our goal is to integrate and magnify
Snap's performance within Overland, thereby creating greater and
significant value for Overland shareholders. Though much work lies
ahead, we have already identified a number of ways to add value to
the existing Snap platform and to elevate it as a market force. Our
recent push into the video surveillance market is one example. The
Snap platform is ideally suited for this rapidly growing market
already in the midst of a technology shift, moving from analog to
high-resolution digital capture and storage. We are currently at
work expanding the Snap operating system to include unique features
and capabilities designed to enhance its ability to function as a
network video recorder and storage management system. The
development process is never static, and we are working on
capability expansions of the Snap software and hardware. As
evidence, we introduced version 5.0 of the Guardian OS operating
system last September with enhanced data replication software and
the Snap Server 620 model with dual-core AMD Opteron processors
that deliver 63 percent faster performance. "Lastly, I would like
to comment on tape," added Kelly. "Overland's NEO(R) Series of tape
automation products has a rock-solid reputation in the industry.
End-users find significant value in the reliability, scalability
and expanded feature set of NEO, factors that the standard
value-line automation products on the market fail to adequately
address. We will soon be announcing an enhanced version of NEO that
we believe will further its value and translate into increased
demand. "Though conscious of the challenging worldwide economy, we
believe that our new business plan substantially modifies the
prospects for Overland's longevity and prosperity," concluded
Kelly. "We now turn to the job of execution. Knowing the experience
and dedication of the Overland team, we believe that we are up to
the task, and are highly confident of our success." About Overland
Storage Overland Storage provides affordable end-to-end data
protection solutions that are engineered to store smarter, protect
faster and extend anywhere - across networked storage, media types
and multi-site environments. Overland Storage products include
award-winning NEO SERIES(R) and ARCvault(R) tape libraries, REO
SERIES(R) disk-based backup and recovery appliances with VTL
capabilities, Snap Server(R) NAS appliances, and ULTAMUS(R) RAID
high-performance, high-density storage. 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, satisfaction or disappointment
with current prospects, as well as words such as "believes,"
"hopes," "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: the
performance of Mr. Kelly as CEO; our ability to obtain sufficient
funding to execute our business strategy; customers' perceptions of
our continued viability; possible delays in new product
introductions and shipments; failure to achieve desired benefits
from cost-cutting measures, including the January 2009
restructurings; market acceptance of the company's new product
offerings; the ability to maintain strong relationships with
branded channel partners; the timing and market acceptance of new
product introductions by competitors; worldwide information
technology spending levels; unexpected shortages of critical
components; our inability to penetrate the video surveillance
market successfully; rescheduling or cancellation of customer
orders; loss of a major customer; 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 detailed from time to time in the
company's periodic reports filed with the Securities and Exchange
Commission. 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, REO, NEO Series,
NEO, ARCvault Series, ARCvault ULTAMUS and Snap Server are
trademarks of Overland Storage, Inc. Webcast: A live audio Webcast
of Overland's management conference call discussing fiscal 2009
second quarter results will be held beginning at 5:00 p.m. EST,
February 5, 2009, 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 website. - Financial
Tables Follow - OVERLAND STORAGE, INC. CONSOLIDATED STATEMENT OF
OPERATIONS (In thousands, except per share data) Three Months Ended
Six Months Ended December 31, December 31, ------------
------------ 2008 2007 2008 2007 ---- ---- ---- ---- (Unaudited)
(Unaudited) (Unaudited) (Unaudited) Net revenue $28,949 $34,060
$61,253 $66,961 Cost of revenue 21,225 26,278 44,807 52,707 ------
------ ------ ------ Gross profit 7,724 7,782 16,446 14,254 -----
----- ------ ------ Operating expenses: Sales and marketing 7,387
7,898 16,812 14,561 Research and development 2,798 3,317 5,975
5,257 General and administrative 2,428 2,658 5,455 5,181 -----
----- ----- ----- Total expenses 12,613 13,873 28,242 24,999 ------
------ ------ ------ Operating loss (4,889) (6,091) (11,796)
(10,745) Interest income, net 37 242 101 531 Other expense, net
(276) (500) (463) (601) ---- ---- ---- ---- Loss before income
taxes (5,128) (6,349) (12,158) (10,815) Income taxes 24 155 (100)
210 -- --- ---- --- Net loss $(5,152) $(6,504) $(12,058) $(11,025)
======= ======= ======== ======== Net loss per share: Basic and
Diluted $(0.40) $(0.51) $(0.94) $(0.86) ====== ====== ====== ======
Shares used in computing net loss per share: Basic and Diluted
12,771 12,756 12,769 12,755 OVERLAND STORAGE, INC. SELECTED BALANCE
SHEET INFORMATION (In thousands) Dec 31, June 30, 2008 2008 ----
---- (unaudited) ASSETS ------ Cash and equivalents $3,033 $8,437
Short-term investments - 1,214 Accounts receivable, net 17,016
15,814 Inventories 16,035 17,126 Other current assets 7,327 8,566
----- ----- Total current assets 43,411 51,157 Property, plant and
equipment, net 1,404 1,139 Other assets 8,450 10,294 ----- ------
Total assets $53,265 $62,590 ======= ======= LIABILITIES &
EQUITY -------------------- Current liabilities $38,958 $37,140
Debt 2,228 1,432 Other long-term liabilities 6,742 5,835
Shareholders' equity 5,337 18,183 ----- ------ Total liabilities
and equity $53,265 $62,590 ======= ======= DATASOURCE: Overland
Storage, Inc. CONTACT: Kurt L. Kalbfleisch, VP Finance and CFO of
Overland Storage, +1-858-571-5555, ; or Sue Hetzel of HetzelMeade
Communications, +1-760-434-9927, , for Overland Storage Web Site:
http://www.overlandstorage.com/
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