Overland Loses on Profits

Tape systems vendor Overland Storage Inc. (Nasdaq: OVRL) posted strong fourth-quarter and full-year profits for 2003 today, citing a leap in sales of Overland-branded products (see Overland Posts 2003 Profits).

"We delivered across-the-board record results for the year and quarter," Overland president and CEO Christopher Calisi said on a conference call this morning. "Were very well positioned to move forward."

For its fourth fiscal quarter, ended June 30, 2003, the San Diego company posted a profit of $3.3 million, or 25 cents per share, compared to a year-ago loss of $600,000, or 6 cents per share. Overland also saw its revenues soar 62 percent to $56.5 million during the quarter, up from $35 million for the same quarter last year.

Both fourth-quarter earnings and revenues were near the middle of Overland’s stated expectations. The company had foreseen earnings of between 23 cents and 28 cents on revenues of between $54 million and $59 million.

Calisi said that a 32 percent ramp in sales of the company’s branded products -- as opposed to rebranded products, sold through its OEMs -- during the fourth quarter helped improve its results, and boosted the company’s gross margins to 27.6 percent from 26.0 percent a year earlier. "The margins were significantly above expectations," says Merriman Curhan Ford & Co. analyst Brion Tanous, noting that they were 50 to 100 basis points higher than most analysts were expecting.For the full year 2003, the tape company said, its profits jumped 49 percent to $6.7 million, or 54 cents a share, up from its 2002 profits of $4.5 million, or 40 cents a share. As impressive as that may sound, the company’s profits were a penny short of meeting analysts' expectations for the year. Its revenues for fiscal 2003 leapt 20 percent to $195.9 million, from $163.4 million in 2002.

Despite these advances, Overland saw its stock price plummet 24 percent in afternoon trading today, dropping $4.39 to $14.10 per share.

Relatively flat OEM sales for the quarter could be part of the problem, industry analysts say. "I think the Street was expecting more strength from Hewlett-Packard and IBM [OEM sales] in the quarter," Tanous says.

The company’s outlook could also be contributing to its stock price dive. While Overland’s forecast of 16 cents a share in earnings for the first fiscal quarter of 2004 is far better than its loss of 5 cents a share for the same quarter last year, it's well below the 21 cents per share profit Wall Street analysts are anticipating.

The company also said it expects its revenues for the first quarter to be flat, noting that its first fiscal quarter is usually seasonally slower than its fourth.Calisi says Overland is offering a conservative forecast because it is planning to add to marketing costs for its newly launched REO series of iSCSI backup devices, which it acquired trough its purchase of Okapi Software in June (see Overland Ships iSCSI Backup Device and Overland Captures Okapi).

Overland is also expecting to pump some additional cash into its anticipated launch of a new high-end NEO-series in December 2003, he said on today’s call. The company doesn’t expect to record much revenue from either product line until the second half of fiscal 2004, or perhaps even the beginning of the next fiscal year.

For the full year 2004, Overland said it expects to improve its revenues by 20 percent and its earnings per share by 40 percent. Analysts polled by Thomson First Call expect the company to post earnings of 95 cents a share for the year.

— Eugénie Larson, Senior Editor, Byte and Switch