Overland Storage (NASDAQ:OVRL)
Q2 2014 Earnings Call
February 13, 2014 5:00 pm ET
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
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Overland Storage Fiscal 2014, Second Quarter Financial Results Conference Call. [Operator Instructions] This conference is also being recorded today, February 13, 2014. I would now like to turn the conference over to Jim Byers of MKR Group. Please go ahead, sir.
Thank you, operator, and thank you for joining us this afternoon to discuss Overland Storage's Second Quarter Fiscal 2014 Financial Results Conference Call for the period ended December 31, 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, other financial metrics, relationships with third parties, and its expectations regarding its recently completed acquisition.
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
Thank you, Jim. Good afternoon. Thank you for joining us today for our Second Quarter Fiscal 2014 conference call. I'll begin by providing updates on our business and product strategy, and then hand the call over to our CFO, Kurt Kalbfleisch, so he can review our quarterly results. After Kurt concludes, I will add some closing remarks and then we will open the call for questions.
We're excited about our recent acquisition of Tandberg Data, which we completed on January 21, and about the opportunity we see for growth in the combined business. We have begun moving forward with the integration of 2 companies, which we expect will take between 6 to 9 months to complete. The combination has broadened our product portfolio, enabling us to enter new markets as well as increasing our global presence through an expanded sales and marketing organization and new channels and OEM partners.
From a product standpoint, the combination creates one of the industry's broadest product lines in enterprise storage market, ranging from Tandberg's RDX removable disk storage solution to Overland's SnapServer DX NAS, SnapScale clustered NAS and the combination of both companies' tape automation product lines. With this combination, our product set has shifted towards a higher-growth, disk-based segment of our business.
If we look back at calendar year 2013 for both Overland and Tandberg, the combination company revenue mix would look like this: disk-based solutions comprising approximately 34% of total revenue; service and royalty representing 23%; tape automation, 22% of total revenue; and tape accessories, drives and media making up the remaining 21%. Approximately 79% of the companies' combined revenue came from our channel partners and the remaining 21% from OEM partners.
The combination will also create significant cost synergies that we believe will provide a path to profitability following the integration.
As you can see, the combined company gives us a significant higher percentage of disk-based revenue than we had prior to the acquisition. With more of our product lines addressing higher growth segments of the storage market, an expanded channel network and OEM partners, coupled with access to new geographies, we see opportunities for growth in both our enterprise and small and medium business markets.
Now let's talk about our vision for innovation and growth moving forward. In addition to our current product and service portfolio, we will deliver a new value proposition with a suite of products that include both private and public cloud storage solutions with virtualization options ranging from storage virtualization and virtual desktop appliance, and delivering native applications on your mobile device.
In fact, with our partnership with Sphere 3D and V3 Systems, we began building the V3 Systems virtual desktop appliance in December. We currently have beta customers using this enterprise mobility product on both the appliance and on the cloud. We plan to introduce a suite of workforce mobility products into the market over the course of this calendar year beginning with a phased rollout of our appliance product within the first half of this calendar year. As we noted before, we will offer this innovative products in 2 different delivery models: one, as an appliance to be installed at the customer location; and the other, as a cloud solution.
We're very excited about the capabilities of our new enterprise mobility and cloud storage solution, which will significantly expand our addressable market. We also are excited about the announcement yesterday that we expanded our relationship with Sphere 3D as a result of their recent agreement to acquire the product portfolio of V3 Systems. Overland and Sphere 3D are integrating their technologies to introduce a virtualized storage platform or software-defined storage. With our integrated platform, users will have the ability to virtualize storage as well as virtualize native applications and virtualize desktops.
As part of our existing supplier agreement with Sphere 3D, V3 Systems offerings will be included and delivered through Overland channel partners. We expect the combination of the joint technologies of Sphere 3D, V3 Systems along with Overland's NAS platform to create a unique value proposition that satisfies paying [ph] point in today's growing market.
Before I turn the call over to Kurt, I want to also underscore that our overarching goal is that upon completion of the integration, we expect to achieve an operational efficiency model and cost structure that allows us to operate profitably, while at the same time, leveraging our combined resources to create meaningful opportunities for growing the top line.
I will have final remarks at the end of the call, but now I would like to turn the call over to Kurt, our Chief Financial Officer, to review the quarter.
Kurt L. Kalbfleisch
Thank you, Eric. Good afternoon, everybody. Let me provide some detail on our fiscal second quarter results. Total revenue for the second quarter of fiscal 2014 was $10.6 million, compared to $12.6 million in the same quarter of fiscal 2013 and $10.6 million in the immediately preceding quarter. Total product revenue for the second quarter of fiscal 2014 was $6.6 million, compared to $7.8 million in the same quarter of fiscal 2013, and up from $6.1 million in the immediately preceding quarter.
Warranty and service revenue in the second quarter of fiscal 2014 totaled $4 million or 38% of total Q2 revenue, compared to $4.8 million or 38% of revenue in the same quarter last year, and $4.5 million or 42% of revenue in the immediately preceding quarter.
The decrease in warranty and service revenue from the immediately preceding quarter was primarily related to lower repair volume associated with our historical OEM.
Now let me walk you through in more detail the product categories that make up the product revenue. Tape revenue in the second quarter increased 10% sequentially or approximately $280,000, compared to immediately preceding quarter, but decreased 28%, or approximately $1.2 million year-over-year, compared to the second quarter fiscal 2013. The majority of the year-over-year decrease was due to a reduction in add-on drives and decreased volume in our lower-end tape library product in both EMEA and the Americas channel.
EMEA tape revenue increased 29% or $357,000 sequentially, but decreased 33% or $774,000 from the same quarter in the prior year. Americas tape revenue was down only $41,000 sequentially, but 25% of $415,000 from the second quarter of fiscal 2013. And APAC tape revenue decreased 10% sequentially, but was up 18% year-over-year, although off a small base. Disk revenue worldwide in the second quarter decreased approximately 5% sequentially from the immediately preceding quarter and was up 3% or approximately $71,000 over the same quarter in the prior year.
Revenue in the second quarter of fiscal 2014 for the SnapServer DX Series was $1.6 million. Although this was a decrease from the immediately preceding quarter revenue of $1.9 million, the difference was related to a single large order which shipped at the end of the second quarter fiscal 2013. For the first 2 quarters of fiscal 2014, SnapServer DX Series revenue was up 14% when compared to the same period in the prior year.
Our gross margin percentage for the second quarter was 34.5%, compared to 36.5% in the same quarter last year, and up from 33.7% in the immediately preceding quarter. Total operating expenses including stock-based compensation for the second quarter were $8.2 million, compared to $8.7 million in the same quarter last year and $7.7 million in the immediately preceding quarter. The sequential increase in operating expenses for the second quarter was primarily related to fees and other costs associated with the acquisition of Tandberg Data.
Total share-based compensation expense included in the operating expenses for the second quarter of fiscal 2014 was approximately $0.8 million, compared to $0.9 million in the immediately preceding quarter, and $1.2 million in the second quarter of fiscal 2013.
Depreciation and amortization was approximately $300,000 in each of the second quarters of fiscal 2014 and 2013, and in the first quarter of fiscal 2014. The net loss for the second quarter fiscal 2014 was $4.3 million, or a loss of $0.12 per share, compared to a net loss in the same quarter of fiscal 2013 of $4.3 million or $0.15 per share, and a net loss in the immediately preceding quarter of $4.6 million or $0.15 per share.
On the balance sheet, total cash and short-term investment at December 31, 2013, was $9.6 million, compared to $8.8 million at June 30, 2013. At the end of the second quarter, we had $3.5 million outstanding under our credit facility, which remains unchanged from the preceding quarter, and $7.5 million outstanding under our convertible notes.
In January 2013, additional convertible notes in the amount of $2 million were issued. Net accounts receivable was $6.3 million at the end of the second quarter, compared to $7.7 million at the end of the second quarter last year, and $6.4 million at the end of the immediately preceding quarter. Operating cash used in the second quarter of fiscal 2014 was $3.8 million, compared to $4.3 million in the immediately preceding quarter.
With that, I will turn the call back to Eric.
Eric L. Kelly
In closing, we are excited about the Overland-Tandberg combination. Our
[Operator Instructions] And I'm showing no questions at this time.
Eric L. Kelly
Well, great. I would like to thank everyone for joining our call today. We look forward to updating you on our progress. And thanks again for joining, and this concludes the call.
Ladies and gentlemen, this concludes the Overland Storage fiscal 2014 second quarter financial results call. This conference will be available for replay after 4:00 p.m. Pacific time today to February 20, 2014 at midnight, Pacific time. You may access the replay system any time by dialing (303) 590-3030 or 1 (800) 406-7325, and entering the access code of 4668666 followed by the # sign. Thank you for your participation. You may now disconnect.
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