Cycle of New Product Development Nears Completion SAN DIEGO, Aug.
10 /PRNewswire-FirstCall/ -- Overland Storage, Inc. (NASDAQ:OVRL)
today reported fourth quarter and full-year results for its fiscal
year ended June 30, 2006, reflecting a year of investment focused
on new product development in each of the company's three
tiered-storage product offerings. Net revenue for the fiscal 2006
fourth quarter was $41.7 million compared with $55.4 million a year
ago. For the same period, the company reported a net loss of $5.7
million, or $0.43 per share, compared with a net loss of $1.3
million, or $0.09 per share a year earlier. The non-GAAP net loss
for the fiscal 2006 fourth quarter, excluding amortization of the
acquired technology resulting from the August 2005 acquisition of
Zetta Systems, Inc. and a credit relating to reclaimed excess
facilities, was $5.1 million, or $0.39 per share. The non-GAAP net
loss for the fiscal 2005 fourth quarter, excluding costs relating
to outsourcing, 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 outsourcing
its manufacturing, the write-off of in-process research and
development and amortization of acquired technology resulting from
the August 2005 acquisition of Zetta Systems, Inc. and the
company's plan to introduce and enhance sales growth of the
products derived from the acquisition. See "Non-GAAP Financial
Measures" below. For the 12 months ended June 30, 2006, the company
reported net revenue of $209.0 million compared with $235.7 for the
prior fiscal year. The net loss for the year was $18.3 million, or
$1.33 per share, compared with net income of $4.6 million, or $0.32
per diluted share, a year earlier. The non-GAAP net loss for fiscal
2006 was $14.6 million, or $1.07 per share, compared to net income
of $5.9 million, or $0.41 per diluted share, a year earlier. The
company reported that revenue in the fourth quarter was impacted by
inventory shortages at the company's outsourced manufacturing
facility, which principally affected sales to its largest OEM
customer and APAC customers. These shortages resulted in a $5.0
million backlog at the end of the fourth quarter, which the company
expects to fill in the fiscal 2007 first quarter. The company also
noted that its operating expenses for the 2006 fourth quarter of
$17.6 million rose slightly from $17.1 million in the prior quarter
as R&D spending reached its anticipated peak. R&D expenses
are expected to decline slightly in the fiscal 2007 first quarter
and then ramp significantly downward to a sustainable level by the
fiscal 2007 fourth quarter. "Fiscal 2006 was challenging,
characterized by significant investments in multiple new products
in each of the company's three tiers of storage solutions -- all
designed to secure new customers and position the company for
long-term growth and a return to profitability during fiscal 2007,"
said Christopher Calisi, president and chief executive officer of
Overland Storage, Inc. He noted that the company has recently
launched a number of newly developed products. On July 10, 2006,
Overland launched the first two products of the ARCvault(TM)
product suite of tape automation solutions. ARCvault has been an
18-month development project that is expected to culminate in
fiscal year 2007 with the introduction of two additional products.
On July 24, 2006, Overland launched version 3.0 of its REO
SERIES(R) Protection OS(TM) software, which significantly improves
the performance of its REO disk-based backup and recovery
appliances. Most recently, on August 8, 2006, Overland launched
ULTAMUS(TM) PRO 500 with version 3.8 of its ULTAMUS Protection OS
software, which significantly improves the snapshotting and
replication performance of its ULTAMUS protected primary storage
appliances. Calisi added that the company expects a new tier-one
OEM customer to launch a new product based on Overland's ARCvault
tape automation solution in the near future. Overland is in the
final stages of readying its manufacturing operations to produce
this product at its San Diego facility and believes it is on track
to meet the customer's schedule. Calisi noted that Overland is in
the process of restoring all manufacturing operations to the
company's San Diego facility by the end of calendar 2006 to better
serve its customers and control costs. "As we enter fiscal 2007, we
believe that the majority of our R&D investment is behind us,
and we are poised to return to profitability," said Calisi. "We
remain committed to our tiered storage strategy and are excited
about each of our new products, which we believe represent
compelling value propositions the market will readily accept."
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
the company's manufacturing, as well as non-cash amortization and
other charges related to the August 2005 acquisition of Zetta
Systems. In the second quarter of fiscal year 2005, the company
began the process of transferring all its manufacturing to an
outsourced manufacturer. That transition was completed in the first
quarter of fiscal 2006. During fiscal 2005, the company recorded
pretax outsourcing transition charges as additions to cost of
revenues totaling $2.1 million. In the first quarter of fiscal
2006, the company recorded a pretax gain of $250,000 on the sale of
certain manufacturing equipment to its outsourced manufacturer,
which was credited to cost of revenues. In the second quarter of
fiscal 2006, the company recorded a pretax charge of $617,000
related to facilities that became excess as a consequence of the
outsourcing. In the fourth quarter of fiscal 2006, the company
decided to terminate the relationship with its contract
manufacturer and return manufacturing to its San Diego facility. As
a result, the company recorded a pretax credit of $536,000 during
the fourth quarter relating to the recapture of the excess
facilities that would again be used in its manufacturing process.
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 $11.9
million intangible asset (including the gross-up effect related to
deferred taxes) related to acquired technology, which it is
amortizing to cost of revenues over four years, the estimated life
of the technology. The company now expects that products based on
this technology will not begin to contribute materially to revenues
until fiscal year 2007. Because GAAP requires that the intangible
asset be amortized commencing immediately upon acquisition, the
amortization during fiscal year 2006 will result in negative 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 through fiscal year 2007, 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
2007. Accordingly, the company intends to discontinue reporting
non-GAAP results relating to this acquisition beginning in fiscal
2008. 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
therefore do not 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(R) of disk-based backup and recovery appliances; and the NEO
SERIES(R) and ARCvault(TM) tape automation solutions. 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.;
possible delays in new product introductions and shipments by the
company including the new ULTAMUS line and the new ARCvault tape
automation platform currently under development, including versions
subject to the company's new OEM contracts; 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 company's outsourced manufacturer, the
termination of that relationship and the return of production to
the company's San Diego facility; the company's ability to modify
its products to comply with the new RoHS directive in the European
Union; 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, ULTAMUS SERIES, REO SERIES, NEO SERIES and ARCvault are
trademarks of Overland Storage, Inc. Webcast: A live audio Webcast
of Overland's management conference call discussing fourth fiscal
quarter 2006 results will be held beginning at 9:30 a.m. EDT,
August 10, 2006, 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 Twelve Months Ended June 30, June
30, 2006 2005 2006 2005 (Unaudited) (Unaudited) Net revenues
$41,745 $55,354 $209,038 $235,687 Cost of revenues 32,011 43,158
162,162 174,770 Gross profit 9,734 12,196 46,876 60,917 Operating
expenses: Sales and marketing 9,250 9,121 37,713 34,382 Research
and development 5,127 2,969 18,503 10,687 General and
administrative 3,250 3,742 14,294 12,324 In-process research and
development -- -- 1,121 -- Total expenses 17,627 15,832 71,631
57,393 Operating (loss) income (7,893) (3,636) (24,755) 3,524
Interest income, net 760 487 2,759 1,537 Other income, net (61)
(100) (139) 7 (Loss) income before income taxes (7,194) (3,249)
(22,135) 5,068 Income taxes (1,535) (1,967) (3,825) 490 Net (loss)
income $(5,659) $(1,282) $(18,310) $4,578 (Loss) earnings per
share: Basic $(0.43) $(0.09) $(1.33) $0.33 Diluted $(0.43) $(0.09)
$(1.33) $0.32 Shares used in computing (loss) earnings per share:
Basic 13,271 14,049 13,716 13,899 Diluted 13,271 14,049 13,716
14,429 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 2006 2005 2006 2005 (Unaudited)
(Unaudited) Net revenues $41,745 $55,354 $209,038 $235,687 Cost of
revenues 31,885 42,730 159,611 172,711 Gross profit 9,860 12,624
49,427 62,976 Operating expenses: Sales and marketing 9,250 9,121
37,713 34,382 Research and development 5,127 2,969 18,503 10,687
General and administrative 3,250 3,742 14,294 12,324 In-process
research and development -- -- -- -- Total expenses 17,627 15,832
70,510 57,393 Operating (loss) income (7,767) (3,208) (21,083)
5,583 Interest income, net 760 487 2,759 1,537 Other income, net
(61) (100) (139) 7 (Loss) income before income taxes (7,068)
(2,821) (18,463) 7,127 Income taxes (1,944) (1,897) (3,825) 1,189
Net (loss) income $(5,124) $(924) $(14,638) $5,938 (Loss) earnings
per share: Basic $(0.39) $(0.07) $(1.07) $0.43 Diluted $(0.39)
$(0.07) $(1.07) $0.41 Shares used in computing (loss) earnings per
share: Basic 13,271 14,049 13,716 13,899 Diluted 13,271 14,049
13,716 14,429 A reconciliation between net (loss) income on a GAAP
basis and non-GAAP net (loss) income is as follows: GAAP net (loss)
income $(5,659) $(1,282) $(18,310) $4,578 Outsource manufacturing
transition costs (536) 428 (169) 2,059 In-process research and
development -- -- 1,121 -- Amortization of Zetta purchased
intangible assets 662 -- 2,720 -- Income tax effect 409 (70) --
(699) Non-GAAP net (loss) income $(5,124) $(924) $(14,638) $5,938 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 $(0.43) $(0.09) $(1.33) $0.32 Outsource
manufacturing transition costs (0.04) 0.03 (0.01) 0.14 In-process
research and development -- -- 0.08 -- Amortization of Zetta
purchased intangible assets 0.05 -- 0.20 -- Income tax effect 0.03
(0.01) -- (0.05) Non-GAAP net (loss) income $(0.39) $(0.07) $(1.07)
$0.41 OVERLAND STORAGE, INC. SELECTED BALANCE SHEET INFORMATION (In
thousands) June 30, June 30, 2006 2005 (unaudited) ASSETS Cash and
equivalents $20,315 $5,498 Short term investments 42,197 71,389
Accounts receivable, net 30,321 37,703 Inventories 14,358 19,108
Other current assets 9,172 15,197 Total current assets 116,363
148,895 Property, plant and equipment, net 10,317 8,758 Other
assets 14,647 6,901 Total assets $141,327 $164,554 LIABILITIES
& EQUITY Current liabilities $40,220 $38,532 Long-term debt --
-- Other long-term liabilities 4,493 4,528 Shareholders' equity
96,614 121,494 Total liabilities and equity $141,327 $164,554
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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