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Overland Storage Inc. Reports Operating Results (10-Q)

February 11, 2009 | About:

Overland Storage Inc. (OVRL) filed Quarterly Report for the period ended 2008-12-28.

Overland Storage Inc. is a global supplier of innovative hardware and software storage solutions for mid-range computer networks. The Company's reputation for delivering high availability products sets the standard for intelligent automated and scalable storage solutions. Overland sells itsproducts worldwide through leading OEMs commercial distributors storage integrators and value-added resellers. Overland Storage Inc. has a market cap of $5.11 million; its shares were traded at around $0.35 with and P/S ratio of 0.04.

Highlight of Business Operations:

Related in large part to the overall decline in HP revenue, we reported net revenue of $61.3 million for the first half of fiscal 2009, compared with $67.0 million for the first half of fiscal 2008. The decline in net revenue resulted in a net loss of $12.1 million, or $0.94 per share, for the first half of fiscal 2009 compared to a net loss of $11.0 million, or $0.86 per share, for the first half of fiscal 2008.

Liquidity and capital resources. Historically, our primary source of liquidity has been cash generated from operations. However, we incurred a net loss of $12.1 million during the first half of fiscal 2009 and used $6.7 million in cash to fund our operating activities, which includes the addition of Snap Server operations. Our cash balance has decreased by $17.6 million compared to our cash, cash equivalents and short-term investments balance at December 31, 2007, and by $6.7 million compared to our cash, cash equivalents and short-term investments balance at June 30, 2008. At December 31, 2008, we had a cash balance of $3.0 million, compared to $9.7 million of cash, cash equivalents and short-term investments at June 30, 2008. Cash management and preservation will continue to be a top priority. However, to achieve positive operating cash flows during the remainder of fiscal 2009, we must focus on generating additional revenue, improving our gross profit margins and continuing to improve operational efficiencies.

As of December 31, 2008, our other assets included $1.5 million of auction rate securities, which have a par value of $5.0 million. The auctions for these securities have failed since July 2007, which limits our ability to liquidate these securities and recover their carrying value in the near term. We may nonetheless attempt to liquidate these securities to meet cash needs. We cannot predict whether we will be able to liquidate these securities, and we expect that any liquidation in the near term will bring less than the value of these securities as of December 31, 2008. During the quarter ended December 31, 2008, indicative bids (one measure of estimated liquidation value) on our ARS ranged from a high of $1.4 million on October 1, 2008 to a low of $40,000 on December 3, 2008. In early December 2008, Deutsche Bank ceased providing such indicative bids on our ARS. We do not believe that the estimated liquidation value, based upon indicative bids, represents the estimated fair value of the instruments. Indicative bids are not based on active markets or orderly transactions between market participants. It is possible that we may be required to record additional impairments to these investments in future periods.

As of December 31, 2008, our other assets included $1.5 million of auction rate securities, which have a par value of $5.0 million. The auctions for these securities have failed since July 2007, which limits our ability to liquidate these securities and recover their carrying value in the near term. Our estimate of the fair value of the auction rate securities is based on probability weighted expected future cash flows associated with the investments, as indicated above. We may attempt to liquidate these securities to meet cash needs. We cannot predict whether we will be able to liquidate these securities, and we expect that any liquidation in the near term will bring less than the value of these securities as of December 31, 2008. During the quarter ended December 31, 2008, indicative bids (one measure of estimated liquidation value) on our ARS ranged from a high of $1.4 million on October 1, 2008 to a low of $40,000 on December 3, 2008. In early December 2008, Deutsche Bank ceased providing such indicative bids on our ARS. Indicative bids are not based on active markets or orderly transactions between market participants. As such, we do not believe that the estimated liquidation value, based upon indicative bids, represents the estimated fair value of the instruments. For the first half of fiscal 2009, we recorded impairment charges of $1.6 million related to the write down of our ARS.

Net Revenue. Net revenue decreased to $28.9 million during the second quarter of fiscal 2009 from $34.1 million during the second quarter of fiscal 2008. The decrease of $5.2 million, or 15.2%, was primarily the result of anticipated lower OEM revenue from HP. The decrease related to OEM revenues was partially offset by $2.2 million in revenue from Snap Server products, which we began recognizing in the first quarter of fiscal 2009. Branded revenue in all geographic regions, Americas, Asia Pacific (APAC) and Europe, Middle East and Africa (EMEA), showed a reduction in net revenue in the second quarter of fiscal 2009 compared to the first quarter of fiscal 2009. Compared to the second quarter of fiscal 2008, net revenue in APAC and EMEA regions also declined in the second quarter of fiscal 2009. International net revenue during the second quarter of fiscal 2009 represented 44.9% of total net revenue compared to 53.4% of total net revenue for the second quarter of fiscal 2008.

Net product revenue from Overland branded products, excluding service revenue, decreased to $14.9 million during the second quarter of fiscal 2009 from $16.4 million during the second quarter of fiscal 2008, a decrease of $1.5 million, or 9.1%. The decrease reflects an overall decrease in sales volume for certain branded products partially offset by $2.2 million for revenue from Snap Server products, which we began recognizing in the first quarter of fiscal 2009.

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