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Qualstar: Fiscal 4Q09 Financial Results

Tape library segment down 37% from 4Q08

(in US$ millions) 4Q08 4Q09  FY08   FY09
 Revenues 4.9 3.8 21.5  17.9
 Growth   -23%   -17%
 Net income (loss)  (0.2) (1.2) (0.8) (2.6)


Qualstar Corporation
reported financial results for the fourth quarter of fiscal 2009 ended June 30, 2009.

Revenues for the fourth quarter of fiscal 2009 were $3.8 million, compared to $4.9 million for the same quarter of fiscal 2008, a decrease of $1.1 million or 23.3 percent. Loss from operations was $1.4 million compared to $468,000 in fiscal 2008. Net loss was $1.2 million or $(0.10) per basic and diluted share, compared to a net loss of $166,000, or $(0.01) per basic and diluted share for the fourth quarter of fiscal 2008.

Tape library segment revenues were $2.3 million for the quarter, compared to $3.7 million for the same quarter of the prior year, a decrease of $1.4 million, or 37.1 percent.
Power supply segment revenues of $1.4 million for the quarter increased by $237,000, or 19.9 percent, compared to $1.2 million in the same quarter of the prior year.

Gross profit decreased to $941,000, or 25.0 percent of net revenues, for the three months ended June 30, 2009, from $2.0 million, or 40.0 percent of net revenues, for the three months ended June 30, 2008. The decrease in gross profit is due to a decrease in revenues, an increase in scrap and inventory adjustments, and lower absorption of labor and overhead.

Research and development expenses for the fourth quarter of fiscal 2009 were $939,000, or 24.9 percent of revenues, compared to $830,000 or 16.9 percent of revenues, for the fourth quarter of fiscal 2008. The increase is due primarily to an increase in compensation related expenses, consulting fees and prototype material. Sales and marketing expenses were $640,000, or 17.0 percent of revenues, compared to $775,000 or 15.8 percent of revenues, in the corresponding period last year. The decrease in sales and marketing expense was due to a decrease in commissions, travel and entertainment and compensation related expenses, partially offset by an increase in advertising and promotion expenses. General and administrative expenses in the fourth quarter of fiscal 2009 were $745,000 or 19.8 percent of revenues, compared to $829,000, or 16.9 percent of revenues, for the same period last year. The decrease in general and administrative expense was primarily due to a decrease in bad debts and accounting and audit related expenses.

Fiscal 2009 Full Year Financial Results
Qualstar reported revenues of $17.9 million in fiscal 2009, compared with $21.5 million in fiscal 2008. The Company’s net loss in fiscal 2009 was $2.6 million or $(0.21) per basic and diluted share, compared with a net loss of $0.8 million, or $(0.06) per basic and diluted share, in fiscal 2008.

Cash, cash equivalents and marketable securities were $27.7 million at June 30, 2009, down from $32.5 million at June 30, 2008. Inventory at June 30, 2008 was $5.8 million, compared to $6.1 million at June 30, 2008.

Commenting on the fourth quarter and full-year results, Bill Gervais, president and chief executive officer of Qualstar, said: "Consolidated revenues in the quarter of $3.8 million were within our guidance range and were driven by our N2Power business and sales of our XLS enterprise class product line. For the full year, N2Power’s revenues were $5.6 million – a 38 percent improvement compared to fiscal 2008 – largely due to an increase in distribution sales for use in gaming applications and the expansion of our power supply product line. N2Power is becoming an important segment of Qualstar’s overall business and we believe its power supplies will continue to generate demand due to global energy requirements for smaller and more energy efficient power supplies."

Mr. Gervais continued: "For much of this past year, our sales were impacted by the recessionary economic climate that resulted in customers delaying purchase decisions. Despite the difficult economy in fiscal 2009, full year XLS product line sales of $1.5 million held steady compared to the prior year. We feel that the XLS is generating more interest in the overall marketplace from customers, both on the domestic and international fronts, and that this will benefit us in the coming quarters."

Comments

Abstracts of the earnings call transcript:


Bill Gervais, president and CEO:

"For the full fiscal year, our overall sales declined by 16.6% to $17.9 million from $21.5 million in the prior year. This is remarkably consistent with the results reported by two of our library competitors - Quantum down 17.1% and Overlund Storage, down 17.3% in their latest reporting fiscal years.

"The XLS was designed to compete with the market leaders StoragTek, IBM, and Quantum. The development was an expensive undertaking for a company of our size and took three years to first customer shipments. The revenue contribution from XLS series products in fiscal 2009 was $1.5 million, essentially unchanged from the prior year.

"XLS revenues of $528,000 in the June quarter equaled the second best quarter we’ve ever turned in on XLS, 11 units were shipped. U.S. shipments of XLS libraries were made to a diverse group of end users, reflecting the broad utility of the product. Units were shipped to a television station in Seattle, a healthcare facility in the Midwest, two major universities, a Chicago based exhibition center operator, a Hollywood studio, and an advertising firm. Outside the U.S., units were shipped to a post production media company in Germany and a telephone service provider in Italy.

"Currently our smallest unit holds 300 tapes. We are developing an even smaller XLS in the 240 tape range. This new model is being developed in anticipation of the LTO format doubling in capacity from 800 gigabytes to 1.6 terabytes during 2010.

"Moving on to our more mature tape library lines, the TLS and RLS, revenues for fiscal 2009 declined to $5.2 million from $8.5 million in fiscal 2008.

"Tape media revenues declined to $2.1 million in fiscal 2009, down from $3.5 million last year. The decline is mostly the result of the decreasing influence of Sony in the library marketplace."

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