Overland Storage Management Discusses Q4 2013 Results - Earnings Call Transcript

Sep. 4.13 | About: Overland Storage, (OVRL)

Overland Storage (NASDAQ:OVRL)

Q4 2013 Earnings Call

September 04, 2013 5:00 pm ET

Executives

Jim Byers - Senior Vice President

Eric L. Kelly - Chief Executive Officer, President, Independent Director and Member of Special Committee

Kurt L. Kalbfleisch - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Secretary

Analysts

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

Barry M. Kitt - Pinnacle Advisers, L.P

Barry L. Raeburn - Sandpiper Capital Management, LLC

James G. Kennedy - Marathon Capital Management, LLC

Rainerio Reyes

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Overland Storage Fiscal 2013 Fourth Quarter and Full Year Financial Result Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, September 4, 2013.

I would now like to turn the conference over to Jim Byers with MKR Group. Please go ahead, sir.

Jim Byers

Thank you, operator, and thank you for joining us this afternoon to discuss Overland Storage's Fiscal 2013 Fourth Quarter and Full Year Financial Results Conference Call for the period ended June 30, 2013.

Before we begin the call, I would like to note that management, during the course of our discussion today, including the Q&A section of this call, will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may discuss future plans and prospects for revenue, product introductions, market conditions, competitive conditions, gross profit margins, spending levels and other financial metrics.

We caution you that forward-looking statements relating to these and other subjects we may discuss involve risks, uncertainties and assumptions that are difficult to predict. They're not guarantees of performance, and the company's actual results could differ materially from those contained in such statements. There are many factors that could cause or contribute to such differences. We refer you to the risk factors and cautionary language contained in today's formal press release announcing Overland's results, as well as 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 periodic reports currently on file with the SEC.

We remind you that our forward-looking statements are based on current expectations and speak only as of this date. 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 and conference call.

Now with that said, at this time, I will turn the call over to Overland's CEO, Eric Kelly.

Eric L. Kelly

Good afternoon. Thank you for joining us today for our fiscal 2013 year-end conference call. We're excited with the positive sales traction and healthy growth we are seeing with our new branded products and the substantial progress we have made with our strategic product and technology roadmap, which will continue to allow us to enter into significantly larger addressable market, increases -- increase our average deal size and improve our margins. For example, we saw strong growth in our sale of our SnapServer DX series with revenue for the fiscal year up more than 60% year-over-year, from $3.8 million in fiscal 2012 to $6.2 million in fiscal 2013.

Our SnapServer DX product line grew more than 4x the rate of the overall NAS market. We expect growth of our SnapServer product line to continue to outpace the NAS market in 2014 and see it as one of the key growth drivers for us in the new year.

To date, SnapServer DX Series orders for the current quarter exceed the prior quarter's total SnapServer DX product sales. Our gross margin for the fourth quarter was up 300 basis points from the previous quarter and gross margin for the full fiscal year was 35%, the highest margins for a fiscal year in the company's history.

At the end of June, we restructured the company and reduced our annual operating expenses by more than $3.5 million. In March of this year, we highlighted our vision of delivering information and application securely to any device anywhere, whether it's on-premise, in the cloud or as a hybrid solution. This strategy should allow us to address the enterprise requirement to access information, deliver full functioning applications and securely store and manage data, and that allows us to address 3 of the fastest-growing markets in the technology sector: Cloud computing, application virtualization and enterprise mobility.

We have made significant progress on delivering on our vision, and we plan to introduce a series of products and solutions in 2014. I will provide more detail regarding the new technology and products and our growth strategy later in the call.

But first, I'll hand the call over to Kurt Kalbfleisch, our Chief Financial Officer, to review the financials in more detail.

Kurt L. Kalbfleisch

Thank you, Eric. Let me provide some detail on our fiscal fourth quarter and full year results. Total revenue for the fourth quarter of fiscal 2013 was $12.1 million compared to $15.3 million in the same quarter of fiscal 2012 and was up from $11.6 million in the immediately preceding quarter.

Total branded product revenue for the fourth quarter, including service and warranty, was $11.6 million compared to $14.3 million in the same quarter of fiscal 2012 and up slightly from $11.5 million in the immediately preceding quarter. Warranty and service revenue in the fourth quarter totaled $4.5 million or 37% of total Q4 revenue compared to $5.9 million or 39% of revenue in the same quarter last year and $4.8 million or 41% of revenue in the immediately preceding quarter. The decrease in revenue from the same quarter in the prior year was primarily due to the reduction in repair revenue from our historical OEM.

We continue to remain cautious about the uncertain market environment in Europe, as during the quarter, we continued to see evidence of difficult macroeconomic conditions, which contributed to a decrease of 24% or approximately $1 million in EMEA revenue compared to the same quarter last year and a 2% decrease compared to the immediately preceding quarter.

Now let me walk through in more detail the product categories that made up our branded product revenue. Tape revenue during the fourth quarter increased 15% worldwide or approximately $500,000 compared to the immediately preceding quarter and decreased 14% or approximately $650,000 compared to the fourth quarter of fiscal 2012. The majority of the decrease in the same quarter year-over-year is due to reduction in tape revenue in both EMEA and Americas.

EMEA tape revenue decreased 17% when compared to the same quarter last year and increased 13% from the immediately preceding quarter. The Americas tape revenue was down 19% or approximately $400,000 as compared to the same quarter last year while it increased 11% from the immediately preceding quarter. And APAC tape revenue grew when compared to the same quarter last year and from the immediately preceding quarter.

Total disk revenue worldwide in the fourth quarter was essentially flat compared to the immediately preceding quarter and down 23%, or approximately $750,000, compared to the fourth quarter of fiscal 2012. The majority of the decrease from the fourth quarter of fiscal 2012 was due to a reduction in our real Virtual Tape Library products, as well as remaining revenue from certain end-of-life sales of legacy SnapServer products.

Revenue from our SnapServer family of products made up 92% of our total disk revenue in the fourth quarter. Geographically, SnapServer revenue in the Americas was up 22% or $250,000 from the immediately preceding quarter and down 7% compared to the same quarter last year. In EMEA, SnapServer revenue was down 27% or approximately $300,000 from the immediately preceding quarter and 36% or approximately $450,000 compared to the same quarter last year.

In APAC, SnapServer revenue was down 7% from the immediately preceding quarter and then down 21% compared to the same quarter last year.

Turning to results for the full year. Total revenues for fiscal 2013 was $48 million compared to $59.6 million in fiscal 2012. Total branded product revenue for fiscal 2013, including service and warranty, was $46.6 million compared to $57.2 million in fiscal 2012. Warranty and service revenue totaled $19.2 million or 40% of total revenue compared to $24.3 million or 41% of total revenue in fiscal 2012. The majority of the decrease in warranty and service revenue from last year is related to the reduction of out-of-warranty repair of product shipped to historical OEM.

Tape revenue for the full fiscal year was $15.4 million compared to $18.7 million from fiscal year 2012. The majority of the reduction tape revenue for the full year was driven by a reduced tape sales in Europe. While tape library unit volume was down only 2% compared to last year because of a shift to lower cost tape drives, if you add on drive, the decrease in tape revenues was much greater on a percentage basis than the decrease in unit volume.

On a regional basis for the full fiscal year, tape revenue was down 24% or approximately $2.3 million in EMEA, 10% or approximately $800,000 in the Americas and 19% or approximately $200,000 in APAC.

Our total disk-based revenue for the full year was $9.6 million compared to $11 million from fiscal year 2012. Revenue from SnapServer Series of products for the full year was $9 million or 94% of total disk-based revenue compared to $9.9 million or 90% last year. SnapServer sales last year included a benefit of approximately $2.5 million of revenue from sales of certain end-of-life SnapServer NAS products that were discontinued but continued to be sold primarily during the first half of the last fiscal year. However, we saw strong growth in sales of our new NAS product, our SnapServer DX series.

For fiscal 2013, SnapServer DX revenue was up more than 60% year-over-year from $3.8 million to $6.2 million.

Our gross margin percentage for the fourth quarter increased to 36.5%, up from 31.6% in the same quarter last year and up more than 300 basis points from 33.1% in the immediately preceding quarter. Our gross margin for fiscal 2013 was 35%, the highest yearly margin the company has seen, and is up nearly 300 basis points from 32.1% in fiscal 2012.

Total operating expense including share-based compensation for the fourth quarter was $9.4 million compared to $8.5 million in the same quarter last year and $9 million in the immediately preceding quarter. The increase in operating expenses compared to the prior quarter was primarily due to the recording of one-time expenses of approximately $400,000 in Q4 associated with higher legal fees and a write-off of certain other assets. Total operating expenses for the year decreased to $35.7 million compared to $36.2 million last year.

For the first quarter of fiscal 2014, we expect to achieve a sequential reduction in operating expenses, excluding share-based compensation expense of between 10% and 15% compared to the fourth quarter of fiscal 2013. Total share-based compensation expense included in the operating expense for the fourth quarter fiscal 2013 was approximately $1.1 million compared to $1.1 million in both the immediately preceding quarter and fourth quarter of fiscal 2012. For the year, total share-based compensation expense was $4.8 million compared to $5 million in fiscal 2012. We expect stock compensation to remain in the range of $1.1 million to $1.3 million per quarter throughout the fiscal year.

Depreciation and amortization was approximately $300,000 in the fourth quarter and immediately preceding quarter and approximately $500,000 in the fourth quarter of fiscal 2012. For the year, depreciation and amortization totaled $1.2 million compared to $1.6 million in fiscal 2012.

The net loss for the fourth quarter of fiscal 2013 was $5.4 million or a loss of $0.18 per share compared to a net loss in the same quarter of fiscal 2012 of $2.7 million or $0.10 per share and a net loss in preceding quarter of $5.1 million or $0.17 per share. The net loss for fiscal 2013 was $19.6 million or $0.68 per share compared to a net loss of $16.2 million or $0.66 per share in fiscal 2012.

On the balance sheet. Total cash and cash equivalent at fiscal year end was $8.8 million compared to $10.5 million at the end of fiscal 2012. At the end of the fourth quarter, we had $3.5 million outstanding under our credit facility, which remains unchanged from the preceding quarter, and $13.25 million outstanding under our convertible notes.

Net accounts receivable was $6.6 million at the end of the fiscal year compared to $9.2 million at last fiscal year end and $6.3 million at the end of the preceding quarter. Operating cash used in the fourth quarter of fiscal 2013 was $4.8 million compared to $2.9 million in the preceding quarter. For the fiscal 2013 year, we used $14 million in cash to fund operating activities compared to $8.7 million in fiscal 2012.

With that, I would turn the call back to Eric.

Eric L. Kelly

Thanks, Kurt. As part of our vision and strategic direction, we've been focused on getting in front of the next wave of growth and delivering a comprehensive suite of products and solutions that will address the complexities with the intersection between the mobile enterprise, data security and cloud computing. One leg of that strategy was the introduction of our clustered SnapScale solution, providing high-availability scalable storage for the cloud or on-premise.

Through the recently announced partnership with Sphere 3D, who are jointly developing integrated storage and BYOD mobility solutions. Let me briefly walk you through the new product capabilities and the opportunities created by our partnership with Sphere 3D.

First, we're developing solutions designed to enable Overland to deliver the full functionality of true native application to any mobile device anywhere as a workforce productivity solution. The same applications found on your laptop, Mac or PC whether Microsoft Word, PowerPoint, Excel, Corel, WordPerfect, salesforce.com, Adobe Acrobat or even specialized software for computer-aided design or MRIs, all accessible from your iPhone, iPad, Droid or any other mobile device. For example, on my iPad today, I am running a full native version of Microsoft Excel, Word, AutoCAD, Corel Office and Adobe PDF, just to name a few, with all the same functionality I experienced when using it on my desktop. The application is being hosted from the cloud infrastructure utilizing Overland SnapServer appliances.

We're also planning to deliver an IT system and network management offering via an appliance or a cloud solution that will enable IT managers access to thousands of applications that will allow them to monitor their environment from any device anywhere. Today, over 80% of IT management software cannot be delivered natively on mobile devices. We'll be delivering the full functionality of this native application into a secure environment based on the security parameters already established by the IT department through the active directory settings. With these product offerings, mobile business users will finally be able to access the applications they want along with the corporate data they need without any data leaving the security of the enterprise. These solutions are designed to eliminate the application limitation and reduce the data management and security problems for enterprises created by the ever-growing BYOD phenomena.

We will also address concerns about putting applications and data in the cloud. Many IT organizations are comfortable putting applications in the cloud but not the data. Our design will enable them to implement a hybrid solution where they have the native applications in the cloud and actually store the data in the data center, allowing the separation of data and application.

Furthermore, we plan to deliver these capabilities for applications on legacy systems. There are thousands of applications that are not cloud-ready, whether it's on an IBM mainframe built on Cobol or Fortran or on a digital PDP minicomputer. We plan to deliver those legacy applications from the cloud or from an appliance, enabling access from any mobile device, creating a large new data management market opportunity for Overland. We plan to roll out a comprehensive product line over the next 12 months. Our market focus will be on key verticals where storage is obviously growing and mobility is important, such as healthcare, government, financial services and education. We expect to begin shipping within fiscal 2014.

As part of our partnership with Sphere 3D, we have also entered into an exclusive supplier agreement with them whereby they will procure their cloud infrastructure solution from us. They are focused on the consumer market and have already engaged more than 10,000 beta customers using this solution. Obviously, we see tremendous potential for growth while they build out their infrastructure to support their customers. In addition, we have a technology agreement under which we have the right to sell, distribute and license their technology and product offering to commercial market worldwide.

Furthermore, we also received an equity position in Sphere 3D, and I have been appointed Chairman of the Board to ensure that the strategic direction and technology focus of the 2 companies are synchronized.

Finally, as we execute on our strategic vision to expand our product and markets, we have also focused on expanding our capabilities to support that vision. As we announced in our earnings release earlier today, we're very excited to have Lisa Loe join Overland as our new VP of Worldwide Sales. Lisa joins us from Good Technology, one of the leaders in mobile enterprise solutions, where she was the Vice President of Americas Channel and Partner Sales. And she is one of the limited number of executives within the BYOD space that has successfully built a mobility enterprise channel. Before that, she was the Vice President of OEM and Global Strategic Partners at Isilon, prior to the acquisition of EMC. We are very excited to have her as a member of the leadership team as we begin executing our 2014 plan.

In summary, we are pleased to see our vision and strategic direction come together to be able to deliver enterprise storage product, cloud offering and secure enterprise mobile mobility solution, addressing the critical business enterprise requirements of managing, storing, protecting and accessing information and applications from any device anywhere around the world.

I would now like to open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Krishna Shankar with Roth Capital.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Eric, during the June quarter, can you give us some sense for how the SnapServer DX product line did? What was that as a percent of revenues and what end markets and customers are you seeing good traction of the SnapServer DX family?

Eric L. Kelly

Let me address the customers, and I'll have Kurt address kind of the percentage. First of all, from a customer base, it's pretty broad, both from our traditional customers across all vertical markets and it's a pretty even balance between the U.S. and Europe, which is great. Typically, we have a very broad distribution so we have some government business that actually picked up for us. We have some of their traditional financial markets as well. So it's very -- pretty even split across our different verticals and a pretty even split across the -- between Europe and the U.S. as well. Now I'll let Kurt answer the second half of the question in terms of revenue split.

Kurt L. Kalbfleisch

Krishna, the revenue split for the DX product only was about a little over 13% of our total product within the quarter.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

It's about 13% of the total product revenues?

Kurt L. Kalbfleisch

Yes, within Q4.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Okay. And what was that, the comparable number last quarter?

Kurt L. Kalbfleisch

Last quarter is a little bit higher. It was about 15%.

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Okay, great. And then, Eric, congratulations on the Sphere 3D partnership. Can you talk a little bit about the product and go-to-market strategy there, whether it'll be software appliance and how you will sort of divide up the end markets between consumer, enterprise, how your go-to-market strategy will evolve?

Eric L. Kelly

Sure. Let me just kind of take a couple of questions first. The Sphere 3D relationship, we have the ability and the rights to sell the technology to all the commercial markets worldwide. And the go-to-market strategy or the product strategy is a couple-fold. One, there will be a cloud solution where customers can access the applications on their mobile devices from the cloud. We'll also have a hybrid solution that allows you to either have data on-premise and have the application in the cloud, and then we'll have an appliance solution as well because a lot of folks want to have an appliance behind their firewall, but be able to leverage the storage and our devices as well as serve up native applications to their mobile users. So you'll have the ability to select multiple different variations of the product. Did that answer your question?

Krishna Shankar - Roth Capital Partners, LLC, Research Division

Yes, that did.

Operator

Our next question comes from the line of Glenn Hanus with Needham & Company.

Glenn Hanus - Needham & Company, LLC, Research Division

So can you address at all Tandberg and what's the status there of the negotiation? I mean, is the offer terminated or what's going on with Tandberg, can you give us any kind of update there?

Eric L. Kelly

Yes, Glenn. This is Eric. Unfortunately, right now we can't discuss any of the activities that are going on with Tandberg so...

Glenn Hanus - Needham & Company, LLC, Research Division

Should we assume that I guess, the offer was terminated but should -- is it fair to assume there have been ongoing discussions?

Eric L. Kelly

Yes, I mean, Glenn, love to answer that question. But at this point in time, unfortunately, I can't really address that. But when I can, I definitely will give you an update.

Glenn Hanus - Needham & Company, LLC, Research Division

So I hadn't missed anything, right? Your last -- there was the 13D on May 15, and from a public disclosure standpoint, that's basically the last disclosure. Is that correct?

Eric L. Kelly

That's correct, Glenn.

Glenn Hanus - Needham & Company, LLC, Research Division

How about can you comment at all about indications of interest from other parties or is -- are there some other activities going on that you may not be able to comment on directly but are there some other activities going on from a strategic alternatives perspective?

Eric L. Kelly

No, no, I think the most recent strategic alternative or option that we have and we actually disclosed and discussed is the Sphere 3D partnership. That was one that we had been working on and developing solutions with them for quite some time. And in fact, I think we first kind of talked about our vision and our strategy around delivering native applications to mobile devices and delivering secure storage, I think, back in March, at the Roth Conference, I believe.

Glenn Hanus - Needham & Company, LLC, Research Division

Okay. Can I ask a few more or should I circle back?

Eric L. Kelly

Let's -- we have several people queued up. Let's -- if we could -- if you could circle back, that would be great, okay.

Operator

Our next question comes from the line of Barry Kitt with Pinnacle Funds.

Barry M. Kitt - Pinnacle Advisers, L.P

Couple of things. We're finally approaching that time when San Diego can go away, can you explain what's going to happen there, what the impact is and the overhead?

Eric L. Kelly

Yes, so I think we talked about earlier, Barry, our lease expires in February of next year. So we're pretty excited about that. We had indicated that we'll pull about $1.2 million out of the OpEx and we're still on target to do that. So that will definitely help us from an expense standpoint and also improve gross margins because a lot of the overhang that we have, I mean even though we're making good progress on the gross margins, there are still some upside just through the facility. So the team is working extremely hard right as we speak in terms of transitioning plans and where do we move, et cetera.

Barry L. Raeburn - Sandpiper Capital Management, LLC

And also you talked about reduction overhead in the fourth quarter. Was that effective starting the new year or how did that -- how does that lay out?

Eric L. Kelly

Yes, that was effective the end of June. And so you'll see, I think we reduced OpEx around $3.5 million, so you'll start seeing that flow through the P&L. And I think Kurt may have mentioned it on in his remarks as well, so that did take place.

Operator

Our next question comes from the line of Jim Kennedy with Marathon Capital Management.

James G. Kennedy - Marathon Capital Management, LLC

A couple of questions. Number one, I just wanted to see what your thoughts are about getting to breakeven. There were some discussion, I guess, on the last call that we were either shooting for year end or pushing it into the first quarter of calendar 2014. And then I wanted to ask a question about Sphere 3D.

Kurt L. Kalbfleisch

Jim, this is Kurt. I'll address the first one. I think last time when the question came up, we didn't make any commitment as far as where we had moved that to. What we said is that we do have it in our plan. As you know, we'll plan out about 18 months. The other question in regards to that on the breakeven number, based on our current planning, we think that breakeven number is somewhere between $15 million and $16 million to get to that. But I'd -- at the time, we didn't and I don't believe we're prepared to now give a specific quarter of when we believe that will take place.

James G. Kennedy - Marathon Capital Management, LLC

Okay. Eric, on Sphere 3D, I have not seen any company able to do what Sphere 3D says they can do, number one. Number two, would you be competing with folks like 8x8 and ShoreTel out there that are in kind of the unified communications space or would they be likely customers of yours also?

Eric L. Kelly

Yes, Jim, so you're right. I mean, the technology is pretty unique and so you won't see that out in the marketplace today. The folks like ShoreTel, they would be partners of ours or customers. I mean, they deliver -- they can turn your iPad into a telephone. But actually delivering your native applications, it's something that everyone's been trying to solve for several years now. And it's one of the key bottlenecks in terms of actually having companies like ours participate in the explosion of mobile devices and cloud infrastructure from an application standpoint. So many, many partners out there, especially on the commercial side of the world where they have global workforces, they want to have access to basic native applications whether it's Microsoft or salesforce.com. But just as important is the custom applications that companies have around the world, which are not cloud-ready at this point but they still need to be able to put them in a cloud infrastructure and be able to serve them into their workforce. So, I mean, to your point, they're not competitors, but they definitely will and hopefully be partners of ours.

James G. Kennedy - Marathon Capital Management, LLC

Okay. And if I'm reading the 8-K properly, you all are on track to become a greater than 10% shareholders of Sphere 3D?

Eric L. Kelly

It's a possibility depending on how things move forward. But yes, definitely, it's a possibility for us to become larger than 10%.

Operator

Our next question comes from the line of Ray [ph] Reyes with Bridge Street Asset Management.

Rainerio Reyes

Your -- have the sales of the previous generation of products, as well as tape drive dropped off more than you anticipated in the United States?

Kurt L. Kalbfleisch

Ray, this is Kurt. As far as more than we anticipated, there was a reduction in add-on tape drives, and I think the shift from LTO-5 into LTO-6 on the capacities has done some of that as far as the quantity of add-on drive. As I stated in my remarks that the tape library sales, even with what took place in Europe for us last year, remained relatively steady and it was the shift to lower capacity tape libraries as far as -- and number of drives in those tape libraries. And so that did go down, but it was a bit more than what we had anticipated originally. But I think we've reset now and we're good going forward. We don't expect to see that drop-off continue moving forward. And I'm sorry, what was your second question?

Rainerio Reyes

Yes, the legacy products, the previous generation SnapServer. And you had said that those were down in the U.S. as well, so SnapServer down in the U.S. as well in the fourth quarter?

Kurt L. Kalbfleisch

Yes. The SnapServer, the legacy SnapServer product cleared out -- most of that cleared out last year. And that's why when we compare year to year, it was important to show how much of that was shipped out of that first half of last year as we were beginning to ship our SnapServer DX. But most of that has since cleared out, and we're running at a very high percentage of SnapServer sales being the DX.

Rainerio Reyes

Okay. And then second on IBM and Dell, have you collected any royalty or licensing revenue yet?

Kurt L. Kalbfleisch

As far as the IBM and Dell settlement, we're still under the same position we have been historically where we cannot comment on it. As you know, the litigation is still moving forward in District Court and so we're still not in a position where we can comment on anything that is taking place with IBM and Dell.

Glenn Hanus - Needham & Company, LLC, Research Division

Right. But if you had collected anything, it would have showed up right? So...

Kurt L. Kalbfleisch

Yes, all I can say is that in regards to that settlement, we still can't comment on it. If there's some benefit rolling through the P&L, we've made that statement previously because of the relationship we have. But as far as distributing out any more detail than that, we can't.

Operator

[Operator Instructions] Our next question is a follow-up question from the line of Glenn Hanus with Needham & Company.

Glenn Hanus - Needham & Company, LLC, Research Division

Eric, can you give us an update on the SnapScale pipeline? And when you were giving the DX numbers, the SnapScale is separate from that, so -- I assume, so could you give us the SnapScale numbers?

Eric L. Kelly

Yes, sure, Glenn. The SnapScale pipeline is pretty consistent to where it was the last time we talked. And as we look at the SnapScale just like the DX -- Snap DX Series, it has a fairly long sales cycle. And so we've seen how the DX SnapServer has started to improve, and you'd see us growing, as we mentioned, over 60% year-over-year. We're having -- this quarter, we've actually booked as of today more than -- we exceeded what we actually had sold the previous quarter. So we see the same trajectory going with the SnapScale as the pipeline continues to be very solid and we see that hopefully trickling out over the next couple of quarters.

Glenn Hanus - Needham & Company, LLC, Research Division

Is it meeting your internal expectations or has it been somewhat slower?

Eric L. Kelly

No, it actually is meeting our expectations. It has -- the pipeline is extremely solid. We have a lot of customers that are evaluating the product. So we're pretty pleased with where we are with it today. Obviously, we're probably more anxious than you or anyone else in terms of how do you shorten the sales cycle. But it's pretty consistent with complementary products out in the market in terms of what the sales cycle is like, what it takes to close the business. But I think a good indication is we've had questions around the DX SnapServer series and you can kind of look at the trajectory that we've had with that product line and that's starting to pick up. And we see the same thing that's going to happen with the scale out product over time. So I like the pipeline. I like the customers we're seeing. I like the size of the deals, which I think they will continue to increase our average ASPs. So right now, I like what I'm seeing.

Glenn Hanus - Needham & Company, LLC, Research Division

Can you comment on the competitive aspect there that you've -- has that been what you're expecting or any surprises?

Eric L. Kelly

No, I mean, we still remain extremely competitive from a feature set and pricing standpoint. We'll be continuing to upgrade the product over the next 30 days. You'll see continuous features and improvement to the product, adding much more capacity in the platform. And so you'll see us continue to improve on both capacity as well as the feature sets over the next 30 to 60 days.

Glenn Hanus - Needham & Company, LLC, Research Division

Can you comment on the OpEx reduction, give some color around what have you reduced and what are you prioritizing and how should we think about that?

Eric L. Kelly

Yes, we continue to improve the model and efficiency in terms of how we run the business. So I think when we did the restructuring, it was one that we have been working on for some -- for a while. It didn't impact the engineering side, very limited impact on the sales side. But really continue to restructure the business. The next one, as I think Barry brought up, you'll see additional improvements from the facility side, which will give us an improvement of about $1.2 million as well. So as we continue to develop new products, we continue to improve our logistics and processes. You'll continue to see us improve on the OpEx side relative to what we've done in the past. So just in the normal course of making the transition.

Operator

And I'm showing no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Eric L. Kelly

Well, before I close, I would like to mention that I will be in New York next week on Monday, September 9, presenting at the Rodman & Renshaw Conference and meeting with investors. So hopefully, we'll see some of you there. I'd like to thank everyone for joining the call today and look forward to updating you on our progress later. So with that, I'd like to close the conference for today.

Operator

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today's call, please dial (303) 590-3030 or 1 (800) 406-7325 with access code 4637486. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!