Reports Record Branded Revenue SAN DIEGO, Oct. 27
/PRNewswire-FirstCall/ -- Overland Storage, Inc. (NASDAQ:OVRL)
today announced results for its fiscal 2006 first quarter ended
Sept. 30, 2005. The company reported that revenue generated during
the quarter by its branded sales channel reached record levels and
also noted that it achieved all of the performance metrics it laid
out in its last earnings conference call, indicating successful
execution to date of its announced strategy. Revenue for the fiscal
2006 first quarter was $58.5 million compared with $59.5 million
for the same period last year. The company reported a net loss of
$2.9 million, or $0.21 per share, for the quarter compared with net
income of $1.9 million, or $0.13 per diluted share, a year earlier.
The non-GAAP net loss for the first quarter of fiscal 2006,
excluding a gain relating to the company's outsourcing of
manufacturing and the write-off of in-process research and
development, and amortization of acquired technology resulting from
the August 2005 acquisition of Zetta Systems, Inc., was $1.7
million, or $0.12 per share. Non-GAAP results are presented to
provide a more complete view of the company's financial results in
light of the nonrecurring nature of the outsourcing activities,
costs associated with the acquisition of Zetta, and the company's
plan to introduce and enhance sales growth during fiscal 2006 of
the products derived from the acquisition. See "Non-GAAP Financial
Measures" below. Overland noted that the company's branded sales
channel reported record quarterly revenue, increasing 16 percent
compared with the same period of the prior year and 23 percent on a
sequential quarter basis. The REO line of disk-based backup and
recovery appliances turned in a strong performance with sales
jumping 150 percent over the prior year quarter and 30 percent on a
sequential quarter basis. As the company expected, OEM sales
declined in the first quarter of fiscal 2006 compared to the prior
year. This was due in part to the impact of shipments during the
current quarter to the company's major OEM customer of a
lower-priced version of its flagship tape automation product.
Despite this decline, sales to that customer exceeded the company's
internal forecast. Operating expenses for the fiscal 2006 first
quarter included expenses and charges relating to the Zetta
acquisition. Based on the valuation of Zetta's assets,
approximately $1.1 million of the purchase price was allocated to
in-process R&D and charged to operations during the quarter.
After adjustment for deferred taxes, a total of $12.4 million was
allocated to the acquired technology and will be amortized to cost
of goods sold over its estimated life. Amortization before taxes
during the fiscal 2006 first quarter amounted to $0.5 million.
R&D expenses for the quarter included the addition of the Zetta
team, and higher sales and marketing expenses reflect increased
spending to launch the new primary storage product derived from the
Zetta software. The company noted that operating expenses included
higher than normal legal fees as well as the first quarter of
stock-based compensation as required by SFAS123R. The rate of
income tax benefit recorded for the quarter was higher than
expected and is a function of the operating loss and certain other
tax benefits and credits. "Our branded business continues to
perform well, which is paramount to our strategy. We entered this
new fiscal year with a strong commitment to achieve certain goals,
both in terms of rebalancing our customer mix and new product
launches. As we enter the second quarter, we are executing well and
have even greater confidence that our strategic plan will result in
a much stronger company by the end of fiscal 2006," said
Christopher Calisi, president and chief executive officer. Calisi
highlighted two major product milestones the company recently
achieved. He noted the early October, ahead-of-schedule
introduction of a second generation, scalable platform for
Overland's disk-based backup product, REO. The REO 9000(TM)
Expansion Array addresses demand for greater capacity, enabling
customers to grow their REO systems to 38 terabytes. Second, Calisi
underscored the launch earlier this week of ULTAMUS, Overland's
first protected primary storage offering based on the technology
received as part of the Zetta Systems acquisition in August.
"ULTAMUS is particularly important," Calisi noted, "because it
enables Overland to deliver solutions for all three tiers of data
storage: intelligent primary storage, efficient disk-based backup
and recovery appliances, and cost-effective tape-based data
archiving products. We are now working to extend our Protection
OS(TM) software across all three platforms to enable customers to
seamlessly store data on the optimal device." Calisi highlighted
the signing of a license agreement for the REO Protection OS
software with a major OEM earlier this month. "This is an important
endorsement of REO, and we are excited that this OEM has selected
Overland's software to provide data protection and virtual tape
library functionality for its upcoming mid-range disk-based system
offering. We anticipate that the royalty revenue and gross profit
contribution to Overland from this relationship could range from $2
million to $4 million annually once the product has been fully
ramped. We expect shipments to commence in our fiscal 2006 third
quarter," Calisi said. He further noted that the company is on
schedule to introduce a new line of tape automation products in the
first calendar quarter of 2006. "We expect this new family of tape
products to boast one of the highest storage densities, and be one
of the most compelling value propositions of any automated tape
device on the market. We are currently in late-stage discussions
with a potential new OEM customer regarding this new family of
products," Calisi stated. "I feel strongly that our extensive
R&D investments this year, supported by enhanced sales and
marketing activities, will generate meaningful returns later in the
year, and continue into the foreseeable future. Our strategy will
solidly position Overland in new growth markets, providing the
company with a fresh portfolio of product and solution offerings
and a broader customer base. Ultimately, we believe that this
strategy will result in significantly increased shareholder value,"
Calisi concluded. 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 charges and gains related to outsourcing
all of the company's manufacturing to Sanmina-SCI, a contract
manufacturer, as well as non-cash amortization and other charges
related to the August 2005 acquisition of Zetta Systems. The
company has completed the transition of all its manufacturing to
Sanmina-SCI, which began in the second quarter of fiscal 2005, and
expects that it may incur a final pretax charge of approximately
$750,000 in the upcoming fiscal 2006 second quarter relating to
excess facilities. During fiscal year 2005, the company recorded
pretax outsourcing transition charges as additions to cost of goods
sold totaling $2.1 million ($1.4 million net of tax). In the first
quarter of fiscal 2006, the company recorded a pretax gain of
$250,000 on the sale of certain manufacturing equipment to
Sanmina-SCI which was credited to cost of goods sold. Because these
are one-time charges and credits 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.
The acquisition of Zetta Systems resulted in an immediate one-time
charge of $1.1 million related to acquired in-process R&D.
Additionally, the company recorded a $12.4 million intangible asset
(including the gross-up effect related to deferred taxes) related
to acquired technology which it will amortize to cost of goods sold
over four years, the estimated life of the technology. The company
expects to begin shipping products based on this technology in the
fiscal 2006 second quarter. Because GAAP requires that the
intangible asset be amortized commencing immediately upon
acquisition, the amortization during fiscal year 2006 will result
in negative or weak gross profit for the product line and a
depression of the company's overall gross margin. During the
product introduction ramp-up expected to occur throughout fiscal
year 2006, management will evaluate the performance of this new
product line excluding the amortization charge, and allocate
resources based on such evaluation. The company therefore believes
that the non-GAAP results provide useful information to investors
concerning Overland's operating results, and permit a more
meaningful comparison to historical financial results, which did
not include these amortization charges or write-offs of in-process
R&D. The company considered the capital costs of the
acquisition when it modeled the expected benefits, and management
expects that the results of its product implementation strategy
will be appropriately reflected in GAAP results by the end of
fiscal year 2006. Accordingly, the company intends to discontinue
reporting non-GAAP results relating to this acquisition beginning
in fiscal 2007. Reconciliations of GAAP net loss to non-GAAP net
loss 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 ULTAMUS
SERIES(TM) of protected primary storage appliances; the REO
SERIES(TM) of disk-based backup and recovery appliances; and the
NEO SERIES(R) 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 related to the acquisition; possible
delays in new product introductions and shipments by the company
including the new ULTAMUS line; possible delays in enhancements to
the company's 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 update publicly
any forward-looking statements to reflect new information, events
or circumstances after the date of this release. Overland, Overland
Storage, ULTAMUS SERIES, REO SERIES, NEO SERIES and PROTECTION OS
are trademarks or registered trademarks of Overland Storage, Inc.
Webcast: A live audio Webcast of Overland's management conference
call discussing fiscal 2006 first quarter results will be held
beginning at 9 a.m. EDT on Oct. 27, 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. - Financial
Tables Follow - OVERLAND STORAGE, INC. CONSOLIDATED STATEMENT OF
OPERATIONS (In thousands, except per share data) Three Months Ended
September 30, 2005 2004 (Unaudited) Net revenues $58,502 $59,526
Cost of revenues 45,083 43,509 Gross profit 13,419 16,017 Operating
expenses: Sales and marketing 9,364 7,812 Research and development
4,424 2,929 General and administrative 4,008 2,612 In-process
research and development 1,121 -- Total expenses 18,917 13,353
Operating (loss) income (5,498) 2,664 Interest income, net 558 274
Other (expense) income, net (44) 69 (Loss) income before income
taxes (4,984) 3,007 Income tax (benefit) expense (2,084) 1,107 Net
(loss) income $(2,900) $1,900 (Loss) earnings per share: Basic
$(0.21) $0.14 Diluted $(0.21) $0.13 Shares used in computing (loss)
earnings per share: Basic 14,046 13,739 Diluted 14,046 14,254
OVERLAND STORAGE, INC. NON-GAAP CONSOLIDATED STATEMENT OF
OPERATIONS (In thousands, except per share data) Three Months Ended
September 30, 2005 2004 (Unaudited) Net revenues $58,502 $59,526
Cost of revenues 44,819 43,509 Gross profit 13,683 16,017 Operating
expenses: Sales and marketing 9,364 7,812 Research and development
4,424 2,929 General and administrative 4,008 2,612 In-process
research and development -- -- Total expenses 17,796 13,353
Operating (loss) income (4,113) 2,664 Interest income, net 558 274
Other (expense) income, net (44) 69 (Loss) income before income
taxes (3,599) 3,007 Income tax (benefit) expense (1,891) 1,107 Net
(loss) income $(1,708) $1,900 (Loss) earnings per share: Basic
$(0.12) $0.14 Diluted $(0.12) $0.13 Shares used in computing (loss)
earnings per share: Basic 14,046 13,739 Diluted 14,046 14,254 A
reconciliation between net (loss) income on a GAAP basis and
non-GAAP net (loss) income is as follows: GAAP net (loss) income
$(2,900) $1,900 Outsource manufacturing transition costs (gain)
(250)- -- In-process research and development 1,121 - --
Amortization of Zetta purchased intangible assets 514 -- Income tax
effect (193)- -- Non-GAAP net (loss) income $(1,708) $1,900 A
reconciliation between diluted (loss) earnings per share on a GAAP
basis and non-GAAP diluted (loss) earnings per share is as follows:
GAAP net (loss) income $(0.21) $0.13 Outsource manufacturing
transition costs (gain) (0.02)- -- In-process research and
development 0.08 - -- Amortization of Zetta purchased intangible
assets 0.04 Income tax effect (0.01)- Non-GAAP net (loss) income
$(0.12) $0.13 OVERLAND STORAGE, INC. SELECTED BALANCE SHEET
INFORMATION (In thousands) Sept. 30, June 30, 2005 2005 (unaudited)
ASSETS Cash and equivalents $8,878 $5,498 Short term investments
63,428 71,389 Accounts receivable, net 39,226 37,703 Inventories
15,601 19,108 Other current assets 13,613 15,197 Total current
assets 140,746 148,895 Property, plant and equipment, net 8,805
8,758 Other assets 18,611 6,901 Total assets $168,162 $164,554
LIABILITIES & EQUITY Current liabilities $39,853 $38,532
Long-term liabilities 8,733 4,528 Shareholders' equity 119,576
121,494 Total liabilities and equity $168,162 $164,554 DATASOURCE:
Overland Storage, Inc. CONTACT: Vernon A. LoForti, CFO,
+1-858-571-5555, , or Cynthia A. Bond, Director of Corporate
Communications, +1-858-571-5555, , both of Overland Storage, Inc.
Web site: http://www.overlandstorage.com/
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