Overland: Fiscal 4Q11 Financial Results

Overland Storage, Inc. reported financial results for its fourth quarter and fiscal year ended June 30, 2011.

Net revenue for the fourth quarter of fiscal 2011 was $17.6 million with gross margin of 32.5%, and for the full year ended June 30, 2011, net revenue was $70.2 million with gross margin of 30.2%.

"We have made substantial progress this year with our strategic transformation into a branded products and service company," said Eric Kelly, President and CEO of Overland Storage. "We now have over 1,500 channel partners worldwide. In addition, we introduced three new products in fiscal 2011 which have allowed us to enter new vertical segments, substantially expanding our potential addressable markets. Our SnapServer and SnapSAN disk-based product revenue grew 32.7% year-over-year. We have also delivered three consecutive quarters of over 30% gross margins. This year included the first quarter in Overland’s history in which our gross margins exceeded 30%, and we expect to improve on our gross margins in fiscal 2012 with the release of our new products and continued operational improvements. Furthermore, in fiscal 2012, we expect to release a clustered NAS solution and a private cloud offering designed to enable our entry into additional fast growing markets.

"At the same time, during the quarter we completed our exit from our legacy OEM tape library business with HP. During the quarter, we selected our strategic manufacturing partner for our new disk products, which we expect to enable further improvement in our gross margins. In addition, we strengthened our balance sheet with two successful equity financings during fiscal 2011 and established a bank line of credit with more favorable interest rates than our prior credit facility.

"With these important accomplishments achieved during the year, we have continued to establish the foundation to become a leader in data management and data protection. Our strategic acquisitions of Snap Appliance in June of 2008 and MaxiScale assets in fiscal 2011 enable us to deliver an end-to-end product suite with performance, enterprise features and service offerings designed to address the rapidly growing storage market. With the selection of our strategic manufacturing and materials partners, and the next generation design and architecture of our new product offerings, we plan to deliver a new level of functionality, performance and pricing to address the requirements of the distributed enterprise and the small and medium enterprise customers," Mr. Kelly concluded.

Fiscal 2011 Business Highlights

Operational Efficiencies:

• Improved manufacturing, materials and logistics resulting in an improvement in gross margins.
• Selected strategic manufacturing partner for new Snap platform, a new partnership that we expect to drive further gross margin improvement in fiscal 2012.
• Reduced the Company’s lease obligations by 67,000 square feet at its San Diego headquarters.
• Launched a global call center to expand customer service and technical support capabilities.

Product Developments:

• Expanded SAN product portfolio with the introduction of SnapSAN S1000, which delivers highly available storage services for business critical applications requiring performance.
• Acquired assets from MaxiScale, enabling us to bridge the gap between traditional disk storage and cloud storage solutions, which would enable data storage infrastructures to scale without sacrificing reliability and performance.
• We expect the MaxiScale technology, combined with our Snap Guardian operating system, to enable us to enter additional fast growing markets with planned introduction of a clustered scalable NAS and a private cloud offering in fiscal 2012.

Marketing and Sales Highlights:
Snap product line revenue grew 32.7% in fiscal 2011

• SnapServer N2000 voted Best Network-Attached Storage (NAS) Product of the Year at the 2011 Storage Awards. Built on our GuardianOS platform, the SnapServer N2000 provides enterprise class storage capabilities in one of the simplest NAS solutions for small to medium enterprises to deploy and manage.
• Expanded product deployment footprint in the higher education market with more than two thousand college, university, and vocational school deployments across the globe. Our SnapServer line of network-attached storage and NEO Series tape solutions are enabling educational institutions to successfully simplify data management operations and address growing storage needs.
• Completed exit from legacy OEM tape library business.

Patent Litigation:
Filed patent infringement lawsuit against BDT, IBM and Dell claiming infringement of two of our patents. An International Trade Commission (ITC) trial was completed on September 7, 2011, with a ruling from the ITC expected by November 23, 2011. We are represented by DLA Piper LLP, the largest law firm in the world. We were pleased with the development of the evidence at the trial and we remain optimistic about the case.

Fiscal 2011 Financial Highlights:

• Net revenue was $70.2 million for fiscal 2011, compared to $77.7 million for fiscal 2010. Fiscal 2011 net revenue includes the effect of a $7.6 million decline from our OEM legacy products.
• Revenue from branded SnapServer and SnapSAN series of disk-based products increased 32.7% year-over-year.
• Gross margins were 30.2% for 2011, compared to 27.5% for fiscal year 2010.
• Strengthened the balance sheet through two equity financings for a total of $17.8 million.
• Eliminated $5 million in outstanding debt from the international and domestic factoring lines.
• Established a more traditional bank line of credit with Silicon Valley Bank for $8 million and substantially improved interest rates.

Fourth Quarter Financial Highlights:

• Net revenue for the fourth quarter of fiscal 2011 was $17.6 million, compared to $19.3 million for the fourth quarter of fiscal 2010.
• Gross margin for the fourth quarter of fiscal 2011 was 32.5%, compared 29.3% for the fourth quarter of fiscal 2010.
• Operating expenses were $9.2 million, compared to $9.7 million for the fourth quarter of fiscal 2010.
• Net loss for the fourth quarter was $3.7 million, or a loss of $0.16 per share, compared to a net loss of $4.2 million, or a loss of $0.44 per share, in the fourth quarter of fiscal 2010.
• The net loss for fiscal year 2011 was $14.5 million, compared with a net loss of $13.0 million in the prior fiscal year.
• Total cash and cash equivalents at June 30, 2011 increased to $10.2 million, compared to $8.9 million at June 30, 2010.