Financial

posted on 08 August 2008 14:28

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Tape automation and disk data protection vendor Overland Storage reported quarterly and full year figures still dogged by the loss of a large OEM customer. The Snap Server acquisition should significantly increase revenues in fiscal 2009.

In Q4 fy08 Overland revenues were $28.9 million, a 15.2 percent decline on Q4 fy07's $34.1 million and due to falling sales to Dell, down 39.1 percent, which chose an alternate supplier last year. Net loss for Q4 fy08 was $8.6 million (-$0.67/share), $2.6 million worse than Q4 fy07 which saw a $6.0 million (-$0.47/share) net loss.

Full year fy08 results saw revenues of $127.7 million, $32.3 million less than fy07's $160.4 million. Fy08 net loss is $24.6 milion (-$1.93/share) which is a near $20 million improvement on fy07's $44.1 million (-$3.45/share) net loss.

Gross profit in Q4 fy08 of $6.1 million was essentially unchanged from Q4 fy07, despite declining revenue. The Q4 fy08 gross profit margin of 21.1 percent improved over Q4 fy07's 18.1 percent principally as a result of the elimination of charges associated with the company’s terminated outsourced manufacturing arrangement.

On a sequential basis, Q4 fy08 gross profit of $6.1 million decreased 20.7 percent from $7.7 million in Q3 fy08 due to lower revenue and increased manufacturing costs. The Q4 fy08 gross profit margin of 21.1 percent declined on a sequential basis from the Q3 fy08's 24.2 percent due to a relatively lower mix of OEM spare revenue and increased manufacturing costs.

Operating expense of $13.7 million in Q4 fy08 increased 14.1 percent from Q4 fy07's $12.0 million and 10.6 percent sequentially from Q3 fy08's $12.4 million. This reflects the company’s expanded sales and support organization, as well as enhanced marketing and channel programs.

Cash, cash equivalents and short-term investments at June 30, 2008 amounted to $9.7 million. The decline from the prior quarter was driven primarily by three elements: cash used in operations of $2.6 million, cash used in the acquisition of the Snap Server business of $2.5 million, and the reclassification of $4.2 million of auction-rate securities from short-term investments to long-term other assets.

Vern LoForti, President and CEO of Overland Storage, said: “Although disappointed with the overall financial results for the quarter, we are encouraged on a number of fronts. We have worked hard over the past two quarters to improve both our disk-based appliance products and the ability of our sales force to sell these solutions. As the industry shifts to complement tape-based data protection with disk-based solutions, we believe our capability in the disk sector will prove critical to our company’s success. Our efforts paid off in the fourth quarter as sales of REO and Ultamus products grew 63 percent on a sequential basis compared to the fiscal 2008 third quarter."

Talking of the Snap Server acquisition he said: "Though only five weeks into the acquisition, our progress to date is highly encouraging. Our announcement of Snap was well received by the industry analyst community and channel partners, including existing Overland and Snap partners, many of which overlapped. We are already receiving significant interest from Overland partners that previously did not sell Snap products, but now want to add these products to their line cards. We believe the initial response from our partners and the analyst community supports our contention that the Snap solution is an excellent addition to Overland in terms of its strategic fit, its complement to our existing product portfolio and its target SMB and distributed enterprise market.... The addition of the Snap business is expected to immediately more than double Overland’s disk-based revenue, and we aim to grow the business rapidly throughout fiscal 2009 and beyond."

“Our immediate challenge is to integrate the Overland and Snap businesses. Although I believe that the $3.6 million purchase price of Snap at approximately 20 percent of its annual revenue run-rate was attractive, it nonetheless impacted our cash balance and will consume more cash in coming quarters as we build accounts receivable to support the business. Through the acquisition we gained a capable development team, as well as sales, marketing and technical support organizations. It is imperative to our overall corporate recovery that we quickly rationalize the combined organization, identify initiatives and products, and develop a roadmap to which we can apply our limited resources and deliver compelling products. We expect to complete this process within the next 30 days.”

If all goes well then Overland's fiscal 2009 will show a steadily rising quarterly revenue growth and it is even possible that the first profitable quarter since ex-CEO Chris Calisi left in 2007 might be experienced before the fiscal year is over. However Overland has not offered an outlook and such an expectation is very speculative.
^{[Chris Mellor.]}