Overland: Fiscal 2Q12 Financial Results

Overland Storage Inc. reported financial results for its fiscal 2012 second quarter ended December 31, 2011.

"We are pleased to announce second quarter results that include a 15% sequential increase in product sales over the first fiscal quarter, an over 200 basis point improvement in gross margins compared to the same quarter of last year, and an 8% sequential reduction in our operating expenses from the first fiscal quarter," said Eric Kelly, President and CEO of Overland Storage. "We continue to see strong customer acceptance of our new SnapServer DX storage solution, which offers enterprise-class features and eliminates the need to provision storage capacity. The DX dynamically allocates storage to whomever needs it most, seamlessly and without interruption, giving it a significant advantage over the competition. The DX platform is also designed to support our Scale-Out NAS software that we plan to introduce in 2012. We believe our continued product leadership and innovation position us well to gain further traction in the growing global storage market. While the devastating floods in Thailand and resulting supply shortages caused an industry-wide increase in the price of disk drives, through the support of our strategic partners, we were able to procure adequate quantities during the quarter to meet our demand."

Key Second Quarter Financial Results:

• Net revenue for the second quarter of fiscal 2012 was $15.1 million, compared to $17.9 million for the second quarter of fiscal 2011 and $14.1 million in the first quarter of fiscal 2012. Product sales decreased from $12.3 million in the second quarter of fiscal 2011 to $9.0 million, and increased 15% sequentially from $7.9 million in the first quarter of fiscal 2012. This sequential increase is due to stronger sales of the company’s NEO tape products.
• Gross margin for the second quarter of fiscal 2012 was 33.2%, compared to 31.1% for the second quarter of fiscal 2011 and 32.6% for the first quarter of fiscal 2012. The period to period improvement is a result of higher margins on service revenues, which represented a higher percentage of total revenues.
• Operating expenses for the second quarter of fiscal 2012 were $9.3 million, compared to $9.2 million for the second quarter of fiscal 2011, but decreased from $10.0 million for the first quarter of fiscal 2012 as result of cost reduction efforts taken during the quarter. Stock compensation expense was approximately $1.4 million in both the first and second quarter of fiscal 2012 compared to $1.0 million for the second quarter of fiscal 2011. Depreciation and amortization was approximately $0.4 million for each quarter of fiscal 2012 and 2011.
• Net loss for the second quarter of fiscal 2012 was $4.3 million, or $0.18 per share, compared to a net loss of $0.9 million, or $0.07 per share, in the second quarter of fiscal 2011 and a loss of $5.4 million, or $0.23 per share, in the first quarter of fiscal 2012. The second quarter of fiscal 2011 included $3.0 million of other income from the sale of a minority interest in the company’s patent infringement lawsuit.
• Total cash and cash equivalents at December 31, 2011 was $7.7 million, compared to $10.2 million at June 30, 2011. At December 31, 2011, the company had $3.5 million outstanding under its credit facility.

Second Quarter Business Highlights:

Operational Efficiencies:
The company achieved an 8% sequential improvement in operating expense compared to the first fiscal quarter as a result of cost reduction efforts. The company anticipates continued reductions in operating expenses during the third fiscal quarter and expects to reduce its operating expenses by an additional 5% to 10% as compared to the second quarter of fiscal 2012.

Product Developments:
Overland began shipping its newest products, the SnapServer DX1 and SnapServer DX2.

Patent Litigation:
In November 2011, the company entered into a multi-year settlement and cross-license agreement with IBM pursuant to which Overland released all claims it had against IBM and Dell in connection with the patent infringement lawsuits it filed in the United States District Court for the Southern District of California and with the United States International Trade Commission, or the ITC, against BDT AG and certain of its affiliates, Dell and IBM. However, Overland’s infringement case against BDT and its affiliates continues and the chief administrative law judge of the ITC stated that the initial determination date will be no later than May 24, 2012.