Tandberg Data

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Press Release

Tandberg Data Presents Q2 2008 Results

August 7, 2008

Highlights

P&L

  • Positive EBITDA of $1.4M
  • Total revenues of $50.1M (operational revenues of $44.6M and other revenues of $5.5M)
  • Total gross margin improved to 27.1% (normalized GM of 26%)
  • Operating expenses down by 2.3M compared to Q1 2008

Balance sheet and Cash Flow

  • Equity ratio of 20.6% vs negative 16.4% in Q1 and negative 3.6% in Q4
  • Cash balance of $14.7M
  • Improved working capital by $1.9M compared to Dec 31, 2007
  • Write-downs of $7.0M (combination of impairment of R&D, not-completed projects and inventory write-downs, all related to the acquisition of Exabyte)

Outlook for 2008

  • Revenues guidance for 2008, $190M-$200M
  • Improvement of gross margin
  • Continued reduction of operating expenses
  • Positive EBITDA total for the full year 2008

Financial Review

Revenues

Tandberg Data generated revenues of USD 100.8 million in the first half of 2008, an increase of 5.6 percent compared to 2007. Sales revenues are flat vs 1H 2007 but in line with our guidance for 2008, while the increase is due to other revenues.

Compared to Q2 2007, sales revenues in Q2 2008 are relatively flat and in line with our revenue forecast for 2008.

Gross margin

Gross margin in the first half of 2008 was 25.7 percent compared to 29.4 percent in the first half of 2007. The decrease in gross margin was largely due to an unfavourable product mix and the mix between revenues to OEMs and distributors as a result of a new OEM customer with high volume purchases of tape drives at a lower gross margin which started after Q2 in 2007. The decrease was partly offset by the extraordinary items of other revenues of USD 5.5 million and other cogs of USD 3.5 million in Q2 2008.

Compared to Q1 2008, the gross margin increased by 2.7 pp in Q2 2008. This increase was largely due to other revenues in Q2 of USD 5.5 million, partly offset by inventory write-downs affecting cost of goods sold by USD 3.5 million in Q2. 

Operating expenses

Operating expenses were USD 26.7 million in the first half of 2008, compared to USD 27.3 million in the first half of 2007. The reduction is the result of the announced restructuring plan, which we started seeing significant impact of in Q2 of 2008. Additionally, in the first half of 2008 the company has incurred approximately USD 1.1 million of restructuring expenses.

Compared to Q2 2007, operating expenses in Q2 2008 are down by USD 1.5 million, a 12.5% decrease, from USD 13.7 million to USD 12.2 million in Q2 2008. This is largely the result of the restructuring plan that was implemented in Q1 2008.

Compared to Q1 2008, the operating expenses in Q2 2008 decreased USD 2.3 million, all of which is a direct result of the restructuring plan implemented in Q1 2008.

Depreciation

Ordinary depreciation and amortization of fixed assets and product development was mostly unchanged and totalled USD 4.3 million in the first half of 2008 compared to USD 4.1 million in the first half of 2007. In addition, there were extraordinary write-downs of USD 3.5 million made in Q2 related to not finished R&D projects that were re-evaluated and there were some impairment of product inventory.

Compared to Q2 2007, ordinary depreciation and amortization in Q2 2008 increased slightly from USD 1.9 million to USD 2.1 million. In addition there were extraordinary write-downs of USD 3.5 million made in Q2 2008 that are mentioned above.

Compared to Q1 2008, excluding the above-mentioned extraordinary write-downs, ordinary depreciation and amortization of fixed assets and product development in Q2 2008 were mostly unchanged.

Net financial items

Net financial items were negative USD 6.7 million in the first half of 2008 compared to USD 2.3 million in the first half of 2007. Most of the increase is a result of exchange rate changes and changes in valuation of derivatives as a result of loan agreement amendments.

Compared to Q2 2007, Net financial items for Q2 2008 decreased from positive USD 1.7 million to negative USD 1.2 million.

Profit before tax

Loss before taxes in the first half of 2008 amounted to USD 15.3 million compared to a loss of USD 6.3 million in the first half of 2007. The increase in loss compared to 2007 is mostly due to write-downs in Q2 2008 and higher gross margin in the first half of 2007.

Compared to Q2 2007, profit before tax in Q2 2008 decreased as a result of lower margin, higher negative net financial items and write-downs in Q2 2008.

Balance Sheet

Total assets decreased by USD 38.6 million, from USD 120.3 million at the end of the first half of 2007 to USD 81.8 million at the end of the first half of 2008.

The Cash balance at the end of Q2 2008 was USD 14.7 million compared to USD 10.9 million at the end of Q2 2007. See section on ‘cash flow’ below and the cash flow statement for more details.

Inventory at the end of Q2 2008 was USD 16.3 million, a decrease of USD 6.6 million compared to Q2 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 Q2 2008 were USD 29.9 million, a decrease of USD 8.8 million compared to Q2 2007.

Non-current assets at the end of Q2 2008 were USD 18.7 million, a decrease of USD 26.4 million compared to Q2 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 42.6 million at the end of Q2 2008 compared to USD 48.8 million in Q2 2007. The decrease is due to lower accounts payable and other current liabilities partly offset by 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. 

Tandberg Data had USD 30.7 million in interest bearing debt at the end of Q2 2008 and net cash balance of USD 14.7 million.

Non-current liabilities amounted to USD 22.3 million at the end of Q2 2008 compared to USD 45.1 million in Q2 2007. The decrease compared to Q2 2007 is mostly due to the conversion of debt as a result of the stock issue in April 2008 and 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 USD 16.8 million at the end of Q2 2008 compared to USD 26.5 million in Q2 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 total cash flow was USD 8.6 million in the first half of 2008, compared to USD 3.5 million in the same period in 2007.

The cash flow from operating activities was negative USD 1.4 million in the first half of 2008 compared to negative USD 12.6 million in the first half of 2007. The cash flow from investing activities was negative USD 1.1 million in the first half of 2008 compared to positive USD 0.2 million in the same period in 2007. Net cash flow from financing activities was USD 11.1 million for the first half of 2008 compared to 15.9 million in the first half of 2007. Several factors affected the change in the cash balance. The cash balance was reduced to USD 5.1 million at the end of Q1 2008 mostly due to net losses. In April 2008 the company did a stock issue which is the main reason for the increase in the cash balance from Q1 2008 to Q2 2008.

The cash balance at the end of Q2 2008 was USD 14.7 million, compared to USD 10.9 million at the end of Q2 2007.

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 18.2 million in the second quarter, which is an increase of USD 1.3 million from the same quarter last year. For the first half of 2008, OEM sales increased USD 7.9 million from last year.

The OEM sales’ relative share of total revenue of 40.8 percent in Q2 2008 was 3.4 percentage points higher than the 37.4 percent share in Q2 2007.

Sales through distributors amounted to USD 26.4 million in Q2 2008, which is a decrease of USD 1.9 million compared to Q2 2007. For the first half, distributor sales decreased USD 8.2 million compared to the first half 2007.

The relative share of distributor sales of the total revenue was 59.2 percent this quarter, down 3.4 percentage points from 62.6 percent in Q2 2007.

Sales in the Americas decreased USD 0.8 million from Q2 2007. Compared to the first half of 2007 sales in the Americas were up USD 2.7 million.

In Europe, Middle East and Africa (EMEA), revenues in Q2 2008 were flat compared to Q2 2007.  Compared to the first half of 2007 revenues were down USD 2.4 million.

For the Asia Pacific (APAC) region, revenues were down USD 0.3 million from Q2 2007. Compared to the first half 2007, revenues are up USD 0.1 million.

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 Q2 2008 are up about 93% percent since Q2 last year and on a year-to-date basis up more than 100 percent.

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 46.4 percent of the revenue in the first half of 2008 compared to 41.8 percent in the first half of 2007. The revenues from automation products made up 15.4 percent in the first half of 2008 compared to 23.4 percent in 2007. Revenues from media made up 20.3 percent in the first half of 2008 compared to 25.5 percent in 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 16.7 percent of total revenues in the first half of 2008 compared to 8.0 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 300GB 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.

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 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. 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 new management will see an annualized cost reduction of USD 16.0 million.  Most all of the reduction initiatives were completed in Q1 and Q2 2008 and we started seeing the impact on cost in Q2.  Further benefits of the cost reduction program will be seen gradually throughout the financial year 2008.

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, 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.

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.

Download the complete results for the second quarter of 2008

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