Overland Reports Q2

SAN DIEGO -- Overland Storage, Inc. (Nasdaq: OVRL - News) today reported results for its fiscal 2008 second quarter and six-month period ended December 30, 2007.

For the first six months of fiscal 2008, the company reported net revenue of $67.0 million compared with $88.6 million for the same period in the prior fiscal year. Net loss for the first half of fiscal 2008 was $11.0 million, or $0.86 per share, compared with a net loss of $28.9 million, or $2.25 per share, in the first half of fiscal 2007. The 2007 six-month period net loss included an $8.4 million, or $0.65 per share, charge related to the impairment of acquired technology.

The company noted that revenue for the fiscal 2008 second quarter decreased 27.2 percent from the fiscal 2007 second quarter primarily due to lower sales to OEM customers. Specifically, sales to the company's largest OEM customer were down 41.2 percent compared with the fiscal 2007 second quarter, reflecting the previously announced transition by the customer to a new product from an alternate supplier. Despite several quarters of declining sales to this OEM, the company noted that sales in the fiscal 2008 second quarter increased 8.1 percent sequentially from the first fiscal quarter of fiscal 2008. Improved sales to this OEM customer contributed to the 3.5 percent sequential increase in the company's total revenue for the fiscal 2008 second quarter compared to the first quarter of fiscal 2008.

The company's branded revenue, excluding service revenue, declined 18.0 percent in the second quarter of fiscal 2008 compared to the prior year quarter, primarily due to lower sales in the EMEA and APAC channels. Despite the year-to-year decline, on a sequential basis, total branded revenue, excluding service revenue, increased 5.0 percent over the fiscal 2008 first quarter with gains in each of the geographic channels.Gross profit in the fiscal 2008 second quarter of $7.8 million nearly equaled the $7.9 million in gross profit reported in the prior year quarter, despite the 27.2 percent revenue decline noted above. On a sequential basis, gross profit increased 20.2 percent from $6.5 million in the fiscal 2008 first quarter despite only a 3.5 percent increase in revenue. The resulting gross profit margin of 22.8 percent for the fiscal 2008 second quarter improved over both the fiscal 2007 second quarter of 16.8 percent and the fiscal 2008 first quarter of 19.7 percent. The company noted that the margin improvement from the prior year quarter primarily reflected the elimination of charges and redundant costs associated with its terminated outsourced manufacturing arrangement. In comparison to the fiscal 2008 first quarter, the company benefited from a more favorable product mix, as well as from a non-recurring credit received as a refund of previously expensed European value-added tax.

Operating expenses of $13.9 million in the fiscal 2008 second quarter declined 18.6 percent from $17.1 million in the fiscal 2007 second quarter. This decline resulted primarily from the completion of a number of product development projects and the company's efforts to reduce spending levels. Sequentially, operating expenses increased 24.9 percent from the fiscal 2008 first quarter due in part to the $1.25 million purchase of software code the company expects to incorporate into a new product currently under development. Additionally, sales and marketing expenses increased as the company launched new products and continued to rebuild its sales force.

"During this quarter, we continued to face the many challenges of managing a turnaround," commented Vern LoForti, president and chief executive officer of Overland Storage. "Although we made progress on many fronts, we are still working our way through the process of leveraging the assets we have recently rebuilt. We are gratified that for the first time in four quarters we were able to report sequential quarter growth in total revenue, and for the second quarter in a row, growth in our branded channel sales.

Overland Storage Inc.