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Press Release

Tandberg Data Presents Q3 2008 Results

October 24, 2008

Highlights

P&L

  • Positive EBITDA for the quarterTotal revenues of $41.0MTotal gross margin of 26.2%
  • Operating expenses down by $3.8M compared to Q1 2008,
  • Annualized cost reduction in operating expenses $16M has been achieved

Balance sheet and Cash Flow

  • Equity ratio of 19.0%

  • Cash balance of $11.8M

Outlook for 2008

  • Revenues guidance for 2008, $180M-$190M

  • Improvement of gross marginContinued reduction of operating expenses

  • Positive EBITDA total for the full year 2008’

  • Continued growth in RDXVoluntary offering of Tandberg Storage ASA

Financial Review

Revenues

Tandberg Data generated revenues of USD 41.0 million in the YTD 2008, a decrease of USD 8.0 million compared to Q3 2007.

Gross margin

Gross margin in the YTD 2008 was 26.2 percent compared to 25.0 percent in the YTD 2007. The increase in gross margin percentage was largely due to a favourable product mix. A significant portion of the decrease in revenues occurred in lower margin product categories.

Operating expenses

Operating expenses were USD 10.7 million in the YTD 2008, compared to USD 14.6 million in the YTD 2007. The reduction is a direct result of the restructuring plan implemented in the beginning of 2008, which we started seeing significant impact of in Q2 of 2008 and further impact in Q3. Reductions are according to plan with an annual effect of USD 16 million. Additionally, the company incurred approximately USD 0.2 million of restructuring expenses in the third quarter 2008, which are included in the operating expense numbers.

Depreciation

Ordinary depreciation and amortization of fixed assets and product development totalled USD 1.4 million in Q3 of 2008 compared to USD 2.0 million in Q3 of 2007. The decrease is directly related to the decrease in Technology and Development on the balance sheet (see Balance Sheet in “Condensed Consolidated Financial Statements” section for more detail).

Net financial items

Net financial items were negative USD 0.4 million in the YTD 2008 compared to USD 5.0 million in the first half of 2007. Most of the improvement is a result of exchange rate changes and reduction in financial expenses due to lower interest bearing debt.

Profit before tax

Loss before taxes in the YTD 2008 amounted to USD 1.7 million compared to a loss of USD 9.5 million in the YTD 2007. The decrease in loss compared to 2007 is due to lower operating expenses, lower depreciation and lower net financial items.

Balance Sheet

Total assets decreased by USD 34.9 million, from USD 109.6 million at the end of the YTD 2007 to USD 74.7 million at the end of the YTD 2008.

The Cash balance at the end of Q3 2008 was USD 11.8 million compared to USD 7.1 million at the end of Q3 2007. See section on ‘cash flow’ below and the cash flow statement for more details.

Inventory at the end of Q3 2008 was USD 15.1 million, a decrease of USD 6.9 million compared to Q3 2007. The decrease was partly due to better inventory management and partly due to write-downs of inventory.

Trade accounts receivables at the end of Q3 2008 were USD 28.2 million, a decrease of USD 4.7 million compared to Q3 2007.

Non-current assets at the end of Q3 2008 were USD 16.9 million, a decrease of USD 27.6 million compared to Q3 2007. The decrease was mostly due to write-downs of goodwill and R&D done in both Q4 2007 and in Q2 2008.

Current liabilities amounted to USD 40.1 million at the end of Q3 2008 compared to USD 56.3 million in Q3 2007. The decrease is mostly due to lower interest bearing debt and other current liabilities (see note 5 to the financial statements for more details on interest bearing debt).

Non-current liabilities amounted to USD 20.5 million at the end of Q3 2008 compared to USD 36.3 million in Q3 2007. The decrease compared to Q3 2007 is due to the conversion of debt and partially repayment of the Cyrus Capital loan as a result of the stock issue in April 2008.

Equity amounted to USD 14.2 million at the end of Q3 2008 compared to USD 17.0 million in Q3 2007. Several factors affected the change in Equity. The equity at 2007 year end was negative USD 3.4 million mostly due to the write-down of Goodwill and net losses. Since then, further net losses have been offset by the conversion of bond loan into equity and share issue. See financial statements for more details.

Cash flow

The company’s net change of cash was positive with USD 5.7 million as of September 30 2008, compared to negative USD 3.7 million during the same period in 2007.

The cash flow from operating activities was negative USD 5.6 million YTD 2008 compared to negative USD 2.9 million YTD 2007. The cash flow from investing activities was negative USD 0.6 million YTD 2008 compared to negative USD 0.7 million in the same period in 2007. Net cash flow from financing activities was positive USD 11.9 million YTD 2008 compared to negative USD 0.1 million YTD 2007.

The cash balance at the end of Q3 2008 was USD 11.8 million, compared to USD 6.1 million at the beginning of 2008.

Market and Products

Regions and customers

Sales to Original Equipment Manufacturers (OEM’s), or companies that purchase Tandberg Data products to embed or sell under own brand, amounted to USD 18.8 million in the third quarter, which is a decrease of USD 4.0 million from the same quarter last year.

The OEM sales’ relative share of total revenue of 45.8 percent in Q3 2008 was 0.7 percentage points higher than the 46.5 percent share in Q3 2007.

Sales through distributors amounted to USD 22.2 million in Q3 2008, which is a decrease of USD 4.0 million compared to Q3 2007.

The relative share of distributor sales of the total revenue was 54.2 percent this quarter, up 0.7 percentage points from 53.5 percent in Q3 2007.

Sales in the Americas decreased USD 7.5 million from Q3 2007, evenly spread between distributor sales and OEM sales.

In Europe, Middle East and Africa (EMEA), revenues in Q3 2008 were down USD 1.0 million compared to Q3 2007, comprised of USD 0.8 million in distributor sales and USD 0.2 in OEM sales.

For the Asia Pacific (APAC) region, revenues were up USD 0.9 million from Q3 2007.

Products

RDX® QuikStor (Removable Hard Disk Drives) was launched at the end of third quarter 2006 and the product has been well received in the sales channel and among OEM customers. Total revenues from RDX in Q3 2008 are up 90% percent since Q3 last year. The RDX® QuikStor makes up the vast majority of the Disk Based product group in the table above.

In recent years Tandberg Data has continued to focus on providing data protection solutions with the product categories of individual tape drive devices, automation products media and disk based solutions. The main product group is tape drives, which made up 40.6 percent of the revenue in the YTD 2008 compared to 53.7 percent in the YTD 2007. The revenues from automation products made up 15.1 percent in the YTD 2008 compared to 16.3 percent in Q3 2007. Revenues from media made up 16.4 percent in the YTD 2008 compared to 19.0 percent in Q3 2007. The fastest growing product group is the Disk Based group where the RDX Quikstor® licensed technology that was launched at the end of Q3 2006 is proving to be a continuing success. The disk based group made up 21.3 percent of total revenues in the YTD 2008 compared to 9.4 percent in the same period in 2007.

Tandberg Data Group introduced the StorageLibrary T40+, a scalable, high capacity and high performance tape library allowing users to stack up to five T40+ libraries together to create one big tape library enabling IT departments to perform unattended backups flexibly and reliably. Furthermore, Tandberg Data was one of the first vendors to supply the 300 GB RDX® QuikStor™ cartridge. RDX® Quickstor is a disk based removable storage solution with portable cartridges. Offer rugged, reliable and convenient backup. Tandberg Data also introduced the availability of two new products for Mac OS X, the VXA-320 Firewire/USB Tape Drive, and the StorageLoader VXA-320.

Market update

The data storage market sector continues to be a dynamic growth sector. Critical data and regulations around retention of data fuel solid growth in this market worldwide. However, the recent global economic issues have slowed sales somewhat and the ongoing impact of those issues is hard to predict.

As previously communicated, tape remains a core technology in the data protection strategies of many enterprises. Although the total tape drive market is not predicted to grow in market size, the sections of the market where Tandberg Data has its focus are expected to grow and Tandberg Data’s products are positioned to take advantage of this growth. The markets currently addressed by Tandberg Data are the tape drive, tape automation, tape media and removable hard disk drive markets.

Business enterprises are under increased pressure to reduce backup windows while accelerating access time to data. This development has paved the way for the trend towards increasing sales of disk based solutions as these solutions provide faster backups.

The trend towards increasing sales of disk based solutions was maintained during the first quarter. Data growth coupled with shrinking back-up window continued to be the main driver. Tandberg Data’s removable disk solutions – the RDX QuikStor® – continued to take volumes from mature technology in the low end, entry level segments, and segments which currently do not take back up due to high costs in backup solutions.

Outlook

Tandberg Data designs and markets products that are widely accepted by large OEM and channel customers worldwide. Tandberg Data intends to enhance the current tape and disk offerings by adding service and software products. Customers in some circumstances want to have ‘solution’ offerings and by adding the right service and software we will achieve that. By focusing on service, we will be developing an opportunity to increase our value to our customers and open up the opportunity for renewable revenue streams into the future.

The first half of 2008 was an important period for Tandberg Data. The board of directors and management team set high goals for 2008, many of whom were dependent on delivering on a few key initiatives in Q1 and Q2 2008. The management have been working to a plan and the company now has from an operational expense and financial restructuring perspective, put itself in a strong position for future growth.

We anticipate significant growth on RDX from 2009 through 2012. From 2012 it is hard to predict the market. The channel growth on RDX continues at a significant pace, growing more than 100 percent compared to the first half of 2007.

The cost reduction program introduced by the management, which targeted an annualized cost reduction of USD 16.0 million, has been implemented and Q3 operating expenses shows that the company is on plan. Most of the reduction initiatives were completed in Q1 and Q2 2008 and we will see the full impact by the end of Q1 2009.

Tandberg Data products are very good and widely accepted, the costs are being reduced, margins will gradually grow with a combination of selling the right ‘mix’ of products as well as the introduction of new offerings such as service and software during 2008 and finally our sales channels and customers are more comprehensive now than in the past.

Beyond 2008, both revenues and gross margin are expected to improve as the company has completed the restructuring phase and can re-focus more on top- and bottom-line growth. As a result of the restructuring the company is now in position to reach all its objectives for 2008 and beyond. However, the recent global economic issues have slowed sales somewhat and the ongoing impact of those issues is hard to predict.

Tandberg Data’s existing secured senior bond loan will need to be refinanced prior to its maturity date on 31 December 2008. The Company is in discussions regarding the refinancing of the said secured senior bond loan with principal amount of USD 8,.45 million (Cyrus Capital Partners Europe L.P., UK), however, no commitment has been given regarding the refinancing. The Company is confident that a new loan facility will be in place before end of December 2008, and hence avoid a tight liquidity situation at year end

The Board of Directors in both Tandberg Storage ASA and Tandberg Data ASA have agreed to recommend a voluntary offer to shareholders in Tandberg Storage to change 15.5 shares in Tandberg Storage to one share in Tandberg Data.

This report contains forward looking statements. These statements are based on various assumptions, many of which are based, in turn, upon further assumptions, including Tandberg Data management’s examinations of historical operating trends. Although Tandberg Data believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, Tandberg Data cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.

Oslo, October 23, 2008

Board of Directors

Download the complete results for the third quarter of 2008

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