Tandberg Data

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Press Release

Tandberg Data announces Results of First Quarter 2008

April 25, 2008

Category: Tandberg Data - AMERICA

HIGHLIGHTS

  • Revenue for first quarter 2008 was USD 50.6 million, a revenue growth of 3.9 percent compared to fourth quarter 2007 and a 0,8 percent growth over Q1 2007.
  • Gross margin was 24.4 percent compared to 20.5 percent in Q4 2007 and 29.5 percent in the same quarter in 2007.
  • The announced restructuring plan is on schedule and going according to plan both operationally and financially.
  • The cost reductions are going according to plan and we are starting to see the impact on the cost side although the majority of the impact will be seen in the next two quarters.
  • The previously announced stock issue of NOK 150 million went as planned and the closing date was in the beginning of April.
  • Refinancing of other debt was completed and successful as part of the financial restructuring.
  • Continued growth in RDX QuikStor (Removable Hard Disk Drives) sales in the channel continues and is up 20.0 percent from previous quarter. IDC predict this market to be worth USD 500 million by 2012.

FINANCIAL REVIEW

Revenues and operating profit

Tandberg Data generated revenues of USD 50.6 million in the first quarter of 2008, an increase of 3.9 percent compared to the USD 48.7 reported in Q4 2007. Compared to Q1 2007, revenues are up by 0.8 percent.

The operating loss before depreciation was USD 2.2 million in the quarter, compared to a loss of USD 4.7 million in Q4 2007 and a profit of USD 1.2 million in Q1 2007.

Gross margin

Gross margin in Q1 2008 was 24.4 percent compared to 20.5 percent in Q4 2007 and 29.5 percent in Q1 2007. The increase in gross margin from Q4 2007 was mainly due to adjustments for obsolescence of inventory in Q4 2007 and some build-up of inventory in that same quarter. The decrease in gross margin from Q1 2007 was mainly due to a new OEM customer with high volume purchases of tape drives at very low margins which commenced in Q3 2007. 

Operating expenses

Operating expenses were USD 14.5 million in the first quarter 2008, compared to USD 14.7 million in Q4 2007, and USD 13.6 million in Q1 2007. Included in the Q1 2008 operating expense number is USD 0.8 million of restructuring related expenses. We started to see the impact of the restructuring plan towards the end of the quarter; however although the restructuring plan for reducing operating expenses is on schedule, the impact will be more significant and noticeable in the coming two quarters.

Depreciation

Ordinary depreciation and amortization of fixed assets and product development was mostly unchanged and totalled USD 2.2 million in Q1 2008 compared to USD 2.2 in Q4 2007 and USD 2.3 million in Q1 2007. As announced in the Q4 2007 report, there were extraordinary write-downs done in that quarter of R&D and Goodwill totalling USD 19.2 million.

Net financial items

Net financial items were negative USD 5.5 million in Q1 2008. Interest expenses related to the company’s interest bearing debt was included with USD 1.4 million. Also included were the effects of exchange rate changes and changes in valuation of derivatives as a result of loan agreement amendments.

Tandberg Data had USD 54.7 million in interest bearing debt at the end of Q1 2008 and net cash balance of USD 5.1 million.

Profit before tax

Loss before taxes amounted to USD 9.8 million compared to a loss of USD 28.7 million in Q4 2007 and a loss of USD 5.5 million in Q1 2007. The increase in loss compared to Q1 2007 is mostly due to higher gross margin in that quarter. The decrease in loss compared to Q4 2007 is mostly due to the impairment of assets in Q4 2007 and higher gross margin in Q1 2008.

Cash flow

The company s total cash flow was negative USD 1.0 million in the first quarter 2008, compared to negative USD 1.0 million in Q4 2007 and a negative cash flow of USD 2.2 million in Q1 2007.

The cash flow from operating activities was negative USD 3.2 million and the cash flow from investing activities was negative USD 0.7 million in the quarter. Net cash flow from financing activities was USD 2.9 due to the remainder of the loan from Nerland Investment AS, and 4 repayment of loans in Mitsui-Somitomo Bank. The cash balance at the end of the quarterwas USD 5.1 million, compared to USD 6.1 million at the end of Q4 2007.

Balance Sheet

Total assets decreased by USD 38.6 million, from USD 120.5 million in Q1 2007 to USD 81.9 in Q1 2008.

Inventory at the end of Q1 2008 was USD 19.7 million, a decrease of USD 3.4 million compared to Q4 2007 and an increase of USD 1.8 million compared to Q1 2007. Trade accounts receivable at the end of Q1 2008 was USD 30.0 million, a decrease of USD 3.1 million compared to Q4 2007, and a decrease of USD 11.7 million compared to Q1 2007.

Non-current assets at the end of Q1 2008 were USD 24.2 million, a decrease of USD 1.3 million compared to Q4 2007 and a decrease of USD 28.2 million compared to Q1 2007. The decrease from Q1 2007 was mostly due to write-downs of goodwill and R&D done in Q4 2007 and the sale of shares in Tandberg Storage in 2007.

Current liabilities amounted to USD 64.1 million at the end of Q1 2008 compared to USD 67.3 million in Q4 2007 and USD 50.6 million in Q1 2007. The increase is due to adjustments of interest bearing debt in Q1 2008 as a result of renegotiated debt following the stock issue when the maturity dates of previously long term debt were changed to the end of 2008, hence making it short term interest bearing debt.

Non-current liabilities amounted to USD 31.2 million at the end of Q1 2008 compared to USD 29.9 million in Q4 2007 and USD 42.8 million in Q1 2007. The decrease compared to Q1 2007 is mostly due to the change in maturity dates of previously long term debt to be due by the end of 2008, hence making it short term debt.

Equity amounted to negative USD 13.4 million at the end of Q1 2008 compared to negative USD 3.4 million in Q4 2007 and positive USD 27.2 million in Q1 2007. The change in equity from Q1 2007 was mainly due to losses in Q2-Q4 2007 and impairment of goodwill and R&D.

In addition equity share of compound financial instruments and currency exchange rate differences on translating foreign operations partly offset the negative effect on equity.

The change in equity from Q4 2007 was mainly due to losses in Q1 2008.

Basis for going concern

Tandberg Data had as of the end of Q1 2008 negative equity. The assumption for further going concern is based on the assumption of implementation of a cost reduction program with an annualized effect of USD 16.0 million, a new stock issue in the amount of NOK 150 million that was completed in early April, 2008, refinanced bond loans, which also was completed in April as well as refinanced loan from other creditors, see note 3 to the financial statements.

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 23.1 million in the quarter, which is a decrease of USD 0.7 million from the previous quarter, and an increase of USD 6.7 million compared to the corresponding quarter last year.

The OEM sales relative share of total revenue of 45.7 percent this quarter was 3.2 percentage points lower than the 48.9 percent share in Q4 2007, and up 13.5 percentage points from the 32.2 percent share in Q1 2007.

Sales through distributors amounted to USD 27.5 million in Q1 2008, which is an increase of USD 2.6 million compared to Q4 2007. Compared to Q1 2007 sales are down USD 6.6 million from USD 34.1 million.

The relative share of distributor sales of the total revenue was 54.3 percent this quarter, up 2.8 percentage points from 51.5 percent in Q4 2007 and down 13.5 percentage points from 67.8 percent Q1 2007.

Sales in the Americas increased USD 4.0 million from Q4 2007. Compared to Q1 2007 sales in the Americas were up USD 3.6 million.

In Europe, Middle East and Africa (EMEA), revenues decreased by USD 2.8 million compared to Q4 2007 and decreased USD 2.7 million compared to Q1 2007. The reason for the decrease was lower sales to an OEM customer and the decision to stop sales of DLT tape drive products previously supplied by Quantum Corporation.

For the Asia Pacific (APAC) region, revenues are up USD 0.8 million from Q4 2007, and down by USD 0.5 million compared to the first quarter in 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 are up about 20 percent since last quarter and more than 100 percent since Q1 2007.

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 48.2 percent of the revenue in Q1 2008 compared to 49.5 percent in Q4 2007 and 41.2 percent in Q1 2007.

The revenue from automation products made up 14.4 percent in Q1 2008 compared to 14.6 percent in Q4 2007 and 23.7 percent in Q1 2007. Revenues from media made up 21.5 percent in Q1 2008 compared to 22.8 percent in Q4 2007 and 27.4 percent in Q1 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 15.2 percent of total revenues in Q1 2008 compared to 13.1 percent in Q4 2007 and 7.0 percent in Q1 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 QuikStor 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.

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 gradually throughout 2008, continuing through 2009, 2010 and beyond. 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.

Q1 2008 was an important quarter for Tandberg Data. The new 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 2008. The management delivered to plan, and the company now has, after the completion of the restructuring plan, both from an operational expense and financial restructuring perspective, put itself in a position for future sustainability and growth.

We anticipate significant growth on RDX from 2008 through 2012. From 2012 it is hard to predict the market. New OEM wins are expected on this technology in 2008. The channel growth on RDX continues at a significant pace, growing 20 percent over Q4 2007 and more than 100 percent over Q1 2007.

Now that we have the inventory at our customers in North America under control we expect to see a steady growth in our automation sales. Although automation as a whole shows slight growth, Automation sales with LTO technology inside are growing very well. This trend should continue as a result of declining sales of the DLT technology.

Volumes on LTO tape drives continue to disappoint the management and Board of Directors of Tandberg Data. As a result Tandberg Data is working with Tandberg Storage and other suppliers to get improved cost levels.

The cost reduction program introduced by the new management will see an annualized cost reduction of USD 16.0 million. A large part of the reductions was completed in Q1 2008 although the impact in Q1 was limited. Further benefits of the cost reduction program will be seen gradually throughout the financial year 2008.

We saw a reduction of inventory of USD 3.4 million from Q4 2007 to Q1 2008 as part of an overall focus to utilize our assets well and improving the company s efficiency. We expect the inventory level to continue to reduce gradually through 2008 whilst still focusing on revenue development. We will achieve this through re focusing on process throughout the company going forward.

With the cost reduction program on schedule, Tandberg Data is now set up very well to take advantage of the growth in stored data worldwide. The management team is largely new and all have excellent track records in the data storage market. The products are very good and widely accepted, the costs are being reduced significantly to produce a positive EBITDA relatively quickly, margins will gradually grow with a combination of selling the right mix of products and 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.

A new 2008 budget was approved by the board in January and the key items were:

Revenues and gross margin will stay relatively flat compared to 2007, a key goal the company believes is achievable even while going through the above mentioned changes.

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.

Another key goal of 2008 is to produce a turn-around in EBITDA to a point where the company will show positive EBITDA and then growing into 2009 and 2010. The last key objective for 2008 was to improve the company s financing by refinancing the current debt and a stock issue and produce a more efficient and effective capital structure. This objective has already been achieved as of April 2008. The company is now in position to reach all its objectives for 2008 and beyond.

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’s management 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.

Download the complete results for 1st Quarter of 2008

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