Overland Storage Reports Fiscal 2005 Third Quarter Results SAN
DIEGO, May 2 /PRNewswire-FirstCall/ -- Overland Storage, Inc.
(NASDAQ:OVRL) today reported revenue and net income for its fiscal
2005 third quarter and nine-month period ended March 31, 2005,
consistent with preliminary results announced on April 21, 2005.
Revenue for the fiscal 2005 third quarter was $58.3 million
compared with $58.8 million for the same period last year. Net
income for the fiscal 2005 third quarter was $1.4 million, or $0.09
per diluted share, compared with $2.9 million, or $0.20 per diluted
share, for the fiscal 2004 third quarter. Pro forma net income for
the third quarter of fiscal 2005, which excludes the impact of
outsourcing charges, was $2.0 million, or $0.14 per diluted share.
Pro forma 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
2005 fiscal fourth quarter, when the outsourcing transition will be
complete. See "Non-GAAP Financial Measures" below. For the nine
months of fiscal 2005, the company reported revenue of $180.3
million compared with $183.1 million for the same period last year.
Net income for the 2005 nine-month period was $5.9 million, or
$0.41 per diluted share, compared with $8.6 million, or $0.59 per
diluted share, for the 2004 nine-month period. Pro forma net income
for the nine months of fiscal 2005, excluding the impact of
outsourcing charges, was $6.9 million, or $0.48 per diluted share.
The company indicated revenue for the third quarter was lower than
expected due to softness in both its branded and OEM sales
channels. It noted that in comparison to the prior year, there was
a significant shift in business with branded sales increasing 21
percent and OEM sales declining 11 percent. The gross margin for
the quarter was 25.5 percent compared to 27.5 percent in the prior
year. Excluding third quarter outsourcing costs of $1.1 million,
which are all charged to cost of goods sold, the pro forma gross
margin was 27.4 percent. Operating expenses for the 2005 third
quarter grew 16 percent over the prior year quarter, reflecting a
40 percent increase in R&D spending. Though the company's third
quarter typically exhibits seasonal softness, there was a
noticeable industry-wide slowdown in I.T. spending, beyond
anticipated seasonality. "Results this quarter appear to reflect a
soft patch in the economy, as well as some indecision on the part
of I.T. managers regarding the deployment of disk in their backup
paradigm," said Christopher Calisi, president and chief executive
officer of Overland Storage. "One of the highlights of the quarter
was the exceptional year-over-year performance by our branded
channel. The Americas recovered from a disappointing second
quarter, and despite third quarter seasonality, grew revenue eight
percent sequentially. Following a record performance in the second
quarter, EMEA was down sequentially, in part reflecting an
especially difficult German economy, but sales increased 25 percent
over the third quarter last year. "We are pleased that our REO
product line has taken a leadership position as the disk-to-disk
backup product of choice for many I.T. managers worldwide. In
January we announced the Multi-SitePAC(TM), a software module that
adds remote backup mirroring capabilities to REO, and is designed
to protect and consolidate remote site backups. We began shipping
the new software PAC in March. While REO sales for the third
quarter were up sequentially over the second quarter, they did not
meet our expectations for the quarter due to the general I.T.
market conditions and the later than planned release of Multi-
SitePAC," Calisi added. Fourth Quarter 2005 The company anticipates
that the slowdown in I.T. spending will continue through the
remainder of calendar 2005 and will likely restrain sequential
growth in revenue for the fourth quarter of fiscal 2005. Gross
margins for the fourth quarter are difficult to predict due to
uncertainty as to product mix, channel mix and the timing of
anticipated large REO orders and releases of REO software. The
company recently commenced development of its next generation tape
automation product family, expected to be completed in late fiscal
2006, and is accelerating the development of REO software. As a
consequence of these initiatives, operating expenses are expected
to grow approximately 10 percent on a sequential basis in the
fourth quarter of fiscal 2005. The company believes that these
investments will significantly strengthen its product portfolio
across multiple markets and contribute to improved long-term
financial performance. Non-GAAP Financial Measures To supplement
the Consolidated Statement of Operations presented in accordance
with GAAP, the company has included a Pro Forma Consolidated
Statement of Operations that excludes the transition charges
related to outsourcing all of the company's manufacturing to
Sanmina-SCI, a contract manufacturer. Overland entered into a
manufacturing service agreement with Sanmina-SCI on November 23,
2004 and plans to complete the transfer of all products to
Sanmina-SCI by June 30, 2005. Over the second, third and fourth
quarters of fiscal year 2005 Overland expects to incur a total of
between $2.5 million and $3.0 million of pretax charges related to
the transition. These charges will be comprised of termination
benefits for approximately 135 employees, write downs for excess
facilities and other out-of-pocket expenses incurred in connection
with the transition. Total pretax transition charges of $538,000
($350,000 net of tax) and $1,093,000 ($652,000 net of tax), were
recorded during the second and third fiscal quarters, respectively,
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 pro forma 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 such charges. Reconciliations of GAAP net income to
pro forma net income and GAAP to pro forma per share results are
provided in a table immediately following the Pro Forma
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
pro forma 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
delivers world-class data protection solutions designed to ensure
business continuity. Focused on backup and recovery, Overland's
data protection solutions include the REO SERIES(TM) of disk-based
backup and recovery appliances and the award-winning NEO SERIES(TM)
of tape libraries. Overland sells its products worldwide 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,"
"expects," "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
delays, unbudgeted expenses, inefficiencies and production problems
that may result from the transition of manufacturing to
Sanmina-SCI; difficulty of predicting sales to the company's major
OEM customer; worldwide information technology spending levels;
unexpected shortages of critical components; rescheduling or
cancellation of customer orders; loss of a major customer; the
market acceptance of the company's REO product line; delays in new
product introductions by the company, including the company's new
software PACs and REO operating system; the timing and market
acceptance of new product introductions by competitors; 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 for the most recently completed fiscal
year. 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 of
Overland Storage, Inc. Webcast: A live audio Webcast of Overland's
management conference call discussing third fiscal quarter 2005
results be held beginning at 10:30 a.m. EDT, May 2, 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 website.
OVERLAND STORAGE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In
thousands, except per share data) Three Months Ended Nine Months
Ended March 31, March 31, 2005 2004 2005 2004 (Unaudited)
(Unaudited) Net revenues $58,282 $58,789 $180,333 $183,108 Cost of
revenues 43,396 42,622 131,612 133,692 Gross profit 14,886 16,167
48,721 49,416 Operating expenses: Sales and marketing 8,548 7,597
25,261 22,989 Research and development 2,324 1,659 7,718 5,442
General and administrative 3,062 2,808 8,582 8,359 Total expenses
13,934 12,064 41,561 36,790 Operating income 952 4,103 7,160 12,626
Interest income, net 417 159 1,050 368 Other income, net 20 63 107
64 Income before income taxes 1,389 4,325 8,317 13,058 Income taxes
32 1,449 2,457 4,505 Net income $1,357 $2,876 $5,860 $8,553
Earnings per share: Basic $0.10 $0.21 $0.42 $0.64 Diluted $0.09
$0.20 $0.41 $0.59 Shares used in computing earnings per share:
Basic 13,990 13,587 13,850 13,288 Diluted 14,609 14,551 14,444
14,400 OVERLAND STORAGE, INC. PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS (In thousands, except per share data) Three Months Ended
Nine Months Ended March 31, March 31, 2005 2004 2005 2004
(Unaudited) (Unaudited) Net revenues $58,282 $58,789 $180,333
$183,108 Cost of revenues 42,303 42,622 129,981 133,692 Gross
profit 15,979 16,167 50,352 49,416 Operating expenses: Sales and
marketing 8,548 7,597 25,261 22,989 Research and development 2,324
1,659 7,718 5,442 General and administrative 3,062 2,808 8,582
8,359 Total expenses 13,934 12,064 41,561 36,790 Operating income
2,045 4,103 8,791 12,626 Interest income, net 417 159 1,050 368
Other income, net 20 63 107 64 Income before income taxes 2,482
4,325 9,948 13,058 Income taxes 473 1,449 3,086 4,505 Net income
$2,009 $2,876 $6,862 $8,553 Earnings per share: Basic $0.14 $0.21
$0.50 $0.64 Diluted $0.14 $0.20 $0.48 $0.59 Shares used in
computing earnings per share: Basic 13,990 13,587 13,850 13,288
Diluted 14,609 14,551 14,444 14,400 A reconciliation between net
income on a GAAP basis and pro forma net income is as follows: GAAP
net income $1,357 $2,876 $5,860 $8,553 Outsource manufacturing
transition costs 1,093 -- 1,631 -- Income tax effect (441) -- (629)
-- Pro forma net income $2,009 $2,876 $6,862 $8,553 A
reconciliation between diluted earnings per share on a GAAP basis
and pro forma diluted earnings per share is as follows: GAAP net
income $0.09 $0.20 $0.41 $0.59 Outsource manufacturing transition
costs 0.08 -- 0.11 -- Income tax effect (0.03) -- (0.04) -- Pro
forma net income $0.14 $0.20 $0.48 $0.59 OVERLAND STORAGE, INC.
SELECTED BALANCE SHEET INFORMATION (In thousands) March 31, June
30, 2005 2004 (unaudited) ASSETS Cash and equivalents $6,032
$12,397 Short term investments 71,583 57,260 Accounts receivable,
net 38,587 33,794 Inventories 23,483 15,126 Other current assets
11,450 11,195 Total current assets 151,135 129,772 Property, plant
and equipment, net 8,702 7,945 Other assets 6,984 7,514 Total
assets $166,821 $145,231 LIABILITIES & EQUITY Current
liabilities $39,084 $26,451 Other long-term liabilities 4,902 5,266
Shareholders' equity 122,835 113,514 Total liabilities and equity
$166,821 $145,231 DATASOURCE: Overland Storage, Inc. CONTACT:
Vernon A. LoForti, CFO, , or Cynthia A. Bond, Director of Corporate
Communications, , both of Overland Storage, Inc., +1-858-571-5555
Web site: http://www.overlandstorage.com/
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