Tandberg Data

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Press Release

Tandberg Data announces first quarter 2007 results

May 3, 2007

Category: Tandberg Data - AMERICA

HIGHLIGHTS

  • Revenue for the first quarter was USD 50.3 million, a revenue growth of 64.5 per cent compared with first quarter 2006
  • Gross margin was within target of 28-30 per cent. The margin increased to 29.5 per cent, up from 25.5 per cent compared with first quarter 2006
  • Operating profit before depreciation (EBITDA) of USD 1.2 millionNet financial items are negatively affected by non cash items of USD 6.5 million
  • Integration process going in accordance with plan
  • Second tranche of bond issue of NOK 25 million successfully placed
  • Strong growth in LTO automation sales
  • RDX QuikStor sales revenues up by 100 per cent from previous quarter
  • Per Kristian Jacobsen appointed new CEO with effect from April 1, 2007 

OPERATIONAL REVIEW

Sales through distributors amounted to USD 34.1 million, or 67.8 per cent of total revenues in first quarter, which is an increase of USD 15.3 million compared with corresponding quarter in 2006.

Sales revenues from distributors in Europe, Middle East and Africa (EMEA) are stable and Asia Pacific (APAC) increased by 51.5 per cent, due to a major increase in sales of LTO drives and automation products as a consequence of changed product mix. Sales in the Americas increased by 363 per cent which is primarily explained by the acquisition of the former Exabyte business.

Sales to Original Equipment Manufacturers (OEM’s), or companies that acquire Tandberg Data products to embed or sell under own brand, amounted to USD 16.2 million in the quarter, or 32.2 per cent of total revenues in first quarter, which is an increase of USD 4.5 million compared with the corresponding quarter last year.

The OEM sales’ relative share of the total revenue has increased due to the high growth in the US. The OEM sales in Americas increased by USD 2.6 million, or 33 per cent compared with corresponding quarter in 2006 due to the acquisition of the former Exabyte business.

RDX® QuikStor was launched at the end of third quarter last year and the product has been very well received in the sales channel. Compared with previous quarter RDX sales is up 100 per cent. Removable disk solutions are expected 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 back up solutions so far.

Automation sales increased by 120.3 per cent compared with the corresponding quarter previous year primarily due to the acquisition of the former Exabyte business.

Sales from tape drives increased by 5.1 per cent in the quarter compared with the corresponding quarter in 2006. The increase is explained by the acquisition of Exabyte bringing the VXA drives into the product portfolio. This increase is offset by a decrease in SLR drives.

FINANCIAL REVIEW

Revenues and operating profit

Tandberg Data generated sales revenues of USD 50.3 million in the first quarter of 2007, an increase of 64.5 per cent compared with the USD 30.5 reported in the corresponding quarter in 2006. The increase in sales revenue is associated with the acquisition of Exabyte that was approved November 17, 2006.

The operating income before depreciation was USD 1.2 million in the first quarter 2007, compared with a profit of USD 0.7 million in the corresponding quarter 2006.

Gross margin

The growth in gross margin from the first quarter 2006 to first quarter 2007 of 4.0 percentage points to 29.5 is mainly explained by the Exabyte business contributing in first quarter 2007, but not in first quarter 2006. This is the highest gross margin achieved in Tandberg Data for several years.

Operating costs

Operating costs were USD 13.6 million in the first quarter 2007, compared with USD 7.0 million in the first quarter 2006 due to the acquisition of the Exabyte business. In 2007 Tandberg Data aims for a quarterly cost of approximately USD 13 million.

Depreciation

Ordinary depreciation and amortisation of acquired technology, fixed assets and product development costs is included with USD 2.3 million in the first quarter 2007, compared with USD 0.7 million in the first quarter 2006. Ordinary depreciation has increased this quarter due to the purchase of Exabyte assets.

Licenses, technology and development have been capitalised by USD 0.7 million during the quarter. Goodwill was capitalised in fourth quarter 2006 when acquiring the Exabyte business.

Net financial items

Financial items were negative by USD 7.6 million in the first quarter 2007. Interest expenses related to the company’s interest-bearing debt is included with USD 1.2 million. Loss from associate is included with USD 0.5 million.

Convertible bond loan and Senior secured debt include certain embedded derivatives. Embedded derivatives are separated from the host contract and accounted for as a derivative. Once recognised, embedded derivatives are measured at fair value through profit or loss.

The estimated effect of change in fair value of the derivatives has a negative effect of approximately USD 4.8 million on other financial items. In addition other financial items include a negative effect of USD 1.2 million due to currency fluctuations.

Tandberg Data had USD 61.6 million in interest bearing debt at March 31, 2007, and net cash balance of USD 5.2 million of which USD 1.8 million is restricted cash.

Result of operations

Loss before tax amounted to USD 8.7 million, compared with a loss of USD 0.5 million in the first quarter 2006. The result is by a large part affected by the negative net financial items. See previous comments.

Cash flow

The company’s total cash flow was negative by USD 2.2 million in first quarter 2007, compared with a negative cash flow of USD 4.4 million in the corresponding quarter in 2006.

The cash flow from operating activities was negative with USD 8.0 million as a result of an increased working capital requirement.

The cash flow from investing activities was positive with USD 0.8 million in the quarter, due to the sale of www.tandberg.com domain amounting to USD 1.5 million.

Net cash flow from financing activities was positive with USD 5.0 million. This relates to the new convertible loan less transaction cost equivalent to USD 3.9 million. The convertible loan of NOK 25 million was placed in February 2007. In addition the subsidiary of Japan has increased its interest bearing debt with USD 1.1 million for financing working capital. The cash balance at the end of the quarter was USD 5.2 million.

Other issues

During the quarter, Tandberg Data finalised the issue of the NOK 25 million second tranche of the new 5 year senior unsecured convertible bond loan with fixed coupon of 9% and a total borrowing limit of NOK 155 million.

Market update

The global market for tape drive and automation products has been challenging for a period. This has lead to poor earnings conditions and consolidation among the suppliers. We have seen a significant industry consolidation with seven mergers and acquisitions in the past years. The market leader Quantum acquired ADIC in May 2006 and the two companies have been operating as a single entity since August 2006. No major transactions have taken place so far in 2007 but a further industry consolidation is expected. We also expect the current industry players to focus on improved margins and robust earnings.

The sales development in 2006 and first quarter 2007 shows that there is a substantial growth potential in Tandberg Data’s products in the storage industry, that is the midrange, the low end and the entry level segments. Tandberg Data is confident that further growth within these segments is possible with our current key technology products. The new product roadmap of the company with several new automation products has increased the company’s competitiveness. Furthermore the RDX® QuikStor is expected to capture volumes from mature technology in the low end and entry level segments.

Events after reporting date

On April 20 Tandberg Data informed that the company has taken up a short term loan of USD 4 million from Cyrus Capital. The loan is due in two months from April 20, 2007.

Outlook

First quarter 2007 is the first full quarter after a successful combination of the companies and the integration process continues as planned. Tandberg Data is continiously working on improving efficiency. Average quarterly cost target is USD 13 million. The new management will in 2007 look closer into the supply chain to seek more efficient operations.

Through the new product mix, strengthened market access in the US and reductions in cost of goods, Tandberg Data aim to maintain the target of gross margin of 28 – 30% during 2007.

OEM sales increased with 14.9 per cent compared to previous quarter. Despite previous quarter included the Exabyte business for six weeks only, a further increase in OEM sales is expected.

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 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.

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