Case Study: Overland Storage: Back on its way
New CEO and positive cashflow
Overland's fat lady might be thinking about taking singing rehearsals again, despite its full year 2007 financial numbers making grim reading.
But only at first glance though: its fourth quarter (Q4) revenue down compared to a year ago with a net loss of $6 million for the quarter and $44.1 million for the full year. Full year revenue at $160.4 million was down almost $50 million on the 2006 fiscal year (fy 06) revenue. The Q4 revenue number was down 18 percent because of a 22 percent decline in sales through its largest OEM, HP.
Grim numbers, true, but there are lots of indications of an upturn. The Q4 06 loss was marginally higher at $6.8 million. Some $12.8 million of costs have been taken out of Overland with reduced operating expenses, research and development, sales and marketing and general administrative expenses. Some staff have been let go. All this has meant that the gross margin has been climbing back up; from 13.3 percent in Q3 fy07 to 18.1 in Q4 07. It still has a way to go to get to the 22.3 percent of Q4 06 though.
But the entire product range has been refreshed in seven months under the reign of interim CEO Scott McClendon, also chairman of the board. A new product roadmap has been confirmed and a new worldwide sales VP, Bob Farkaly, a storage industry veteran, joined Overland in April. In a surprise move the CFO, Vern LoForti, has been rewarded for 12 years of loyalty and hard work by becoming the new CEO and president with McClendon reverting back to chairman.
Interestingly, these results have been announced just nine months after Overland parted company with its then CEO, Christopher Calisi, in dire straights.
The Calisi years had their good points: such as fighting off the ADIC takeover bid, but they also led to terrible problems. An attempt to outsource manufacturing led to product supply and quality problems. Dell cancelled an OEM contract partly due to this and a new Overland library development (ARCvault) did not do well on the OEM front.
The manufacturing had to be brought back in-house, causing a tremendous burden on Overland's management.
Calisi had Overland buy Zetta and use its IP to develop a protected disk array, the Ultamus line, to round off its NEO tape automation line and REO virtual tape library (VTL) appliance products. Ultamus sales did not meet expectations and the Zetta investment was written off. The company was in dreadful shape.
When this chicken came crashing home to roost Calisi had to go. McClendon, Overland's largest individual investor, took over as interim CEO and presided over a company that had lost its way severely. Its ability to deliver high quality product on time had gone down the pan. Its reputation for branded products was poor, its manufacturing was unstable and its product roadmap in disarray. Consolidation was ongoing in the tape automation market (Sun buying StorageTek, Quantum buying ADIC, Tandberg buying Exabyte) and Overland's future prospects could be construed very bleakly indeed.
The objectives were four: first stabilise the company; secondly put it back into a profitable state, then on a growth path, and so restore the shattered shareholder value.