Notes
"Overland Storage, Inc. (OVRL) is a provider of data protection solutions designed for backup and recovery to ensure business continuity. The Company sells its products on an indirect basis, primarily through three channels or types of customers, such as original equipment manufacturers, distributors and value-added resellers. End-users of its products include small and midsize businesses, as well as divisions and operating units of large multi-national corporations, governmental organizations, universities and other non-profit institutions. Overland's products are used in a range of industry sectors, including financial services, healthcare, retail, manufacturing, telecommunications, broadcasting, and research and development. Its products are sold world-wide in the Americas, EMEA (Europe, Middle East, Africa) and Asia Pacific. Approximately 56.5% of the Company's revenue is generated internationally, primarily in Europe.The fiscal year ends in middle of calendar year.
16May07
Long string of bad news: cancellation of orders by Dell and HP, failed product launches. Price is at down 60% for year, 77% in last 3 years. Cash flow: negative. Book value declining.Current valuations:
PS: 0.3
PB: 0.8
No debt, lots of cash (50% of market-cap.)
Current ratio: 2.0
Quick ratio: 0.8
No preferred or convertible shares or warrants.
Stockholder equity has steadily declined for the last 3 years! <---BAD
Some insider buying in November, by an officer of the company, in the mid-$4 range.
GROWTH estimates
Sales 2008: -3% ugh
Earnings: current qtr. 3%, next qtr. 63%, next yr. 60%
Strange that next year sales are expected to decline while earnings are estimated to jump significantly..
Defintely a distressed company. The business is probably recession-resistant. From recent report:
" We have incurred significant operating losses in recent periods and anticipate continued losses in the fourth quarter of fiscal 2007 and for a portion of fiscal 2008. At March 31, 2007 we had an accumulated deficit of $12.8 million. We need to generate additional revenue, improve our gross profit margins and reduce operating expenses to be profitable in future periods. Our recent history of net losses could cause current or potential customers to not place new orders with us or may cause suppliers to require terms that are unfavorable to us. Failure to achieve profitability, or maintain profitability if achieved, may require us to raise additional funding which (i) could have a material adverse effect on the market value of our common stock, (ii) we may not be able to obtain in the necessary time frame or on terms favorable to us, if at all, and (iii) may not be adequate.
We are in the process of terminating our relationship with our former outsourced manufacturing partner, Sanmina-SCI Corporation. Although all of our production operations have now been transferred back to our San Diego facility, we are still in the process of resolving responsibility for the inventory of component parts still held by Sanmina. The resolution of that inventory could expose us to liability for obsolete parts"
Thoughts: A strong balance sheet, low valuations, and recession-resistant product provide a cushion, but no propulsion. There is no enthusiasm for this company, due to poor management in the recent past and current losses. It will probably drift with the market until it proves it can turn a profit, which will probably happen in early 2008. The valuations will become irresistable if, with no fundamental changes in the business, the price sinks below $2.50 this year.
5SEP07
Techworld.com has run a number of feature articles on Overland recently:http://www.techworld.com/storage/features/index.cfm?featureid=3600
Excerpt: ""We've refreshed every product in the last seven months. There has been lots of R&D. The cash burn has now stopped. The new products are selling.""
From the annual report (for fiscal year ended July 1, 2007)
"Although we believe that our sales to HP will continue to decline through fiscal 2008, HP has recently relaunched the tape automation products supplied by us with support for the new LTO4 tape drives and this may slow the rate of replacement of our supplied products by the alternate supplier's product. ... HP has been our largest customer, accounting for approximately 45.8%, 49.7% and 54.3% of sales in fiscal 2007, 2006 and 2005, respectively. No other customer accounted for more than 10% of sales in any year during the three-year period ended June 30, 2007.
Slightly over half its revenue is foreign (mostly from Europe).
"Related in large part to the decline in HP revenue and the loss of the Dell agreement, for the fiscal year ended June 30, 2007, we reported net revenue of $160.4 million compared with $209.0 million for the prior fiscal year. The decline in net revenue and the increases in costs related to manufacturing and research and development resulted in a net loss for fiscal 2007 of $44.1 million, or $3.45 per share, compared with a net loss of $19.5 million, or $1.42 per share, a year earlier. These results also reflect lower than expected sales in our branded sales channel during fiscal 2007.
Positive trends: "In the fourth quarter of fiscal 2007, our cash balance grew by $1.6 million to $22.8 million from $21.2 million, which is the first time in eight quarters that we have reported positive cash flow.
"Through a combination of cost reduction efforts and the completion of research and development cycles, in the fourth quarter of fiscal 2007, our operating expenses reached their lowest level in over three and a half years.
"In June 2007, we launched three new products: ULTAMUS RAID 4800, REO 4500 and REO 9100. Due to their introduction late in the fourth quarter, these products did not materially contribute to revenue in fiscal 2007. However, we expect these new products, together with additional new products we expect to launch in the first half of fiscal 2008, to improve results in our branded sales channel during fiscal 2008.
"Having completed the transfer of manufacturing back to our headquarters in San Diego in February 2007, we believe our customer lead times have been reduced to target levels and that we have regained our reputation for timely delivery of quality products. We also believe we have eliminated the backlog issues that occurred during the outsourced period.
No significant preferred shares, or warrants. No dilution.
*
Market Cap (intraday): 24.24M
Enterprise Value (31-Aug-07): 2.05M <--Lots of cash
Price/Sales (ttm): 0.16
Price/Book (mrq): 0.51
Total Debt (mrq): 0
Current Ratio (mrq): 2.18
Growth Estimate (only 1 analyst)
Earnings: Current Qtr. 49%; Next Qtr. 53%; Next Year 100.0%
Thoughts
Pro: Earnings estimates (only 1 analyst) are excellent in the immediate future. Valuations are good, there is a ton of cash. The story seems like it could be turning a corner: backlog declining, delivery issues settled, new products launched. The product is a business staple that should weather a recession well.
Con: It needs to make up lost business to HP and Dell. It needs to repair its reputation. Business to HP, nearly 50% of revenue, will steadily decline.
Summary. It would be nice to see some insider buying, since it is a distressed company with skimpy analyst following (none since late 2006, at $4/share). If the estimates are correct, then this is a company with great growth, great balance sheet, and cheap valuations.
10NOV07 - $1.88
OVRLOverland, Overland Storage, REO Series, REO, NEO Series, NEO, ARCvault Series, ARCvault and ULTAMUS are trademarks of Overland Storage, Inc.
+ small positive cash flow, for the second quarter in a row.
From the quarterly report for Q1 2008 (results ending SEP 07)
"Through continued strict expense control efforts for the second consecutive quarter, our operating expenses in the first quarter of fiscal 2008 reached their lowest level in over three and a half years.....We do not expect operating expenses to remain at these historic lows as we move to re-grow our business.
"In late September 2007, we launched the REO 4500c. Due to its introduction late in the quarter, the REO 4500c did not materially contribute to our revenue during the quarter. We have additional REO products scheduled for launch in fiscal 2008.
"Although we have been able to increase our overall cash balances during the last two fiscal quarters, we expect to continue to incur losses during the remainder of fiscal 2008 as we introduce and market our new products. In the remainder of fiscal 2008, cash management and preservation will be a top priority; however, we expect to incur negative operating cash flows during this time.
"Industry trends. Historically, magnetic tape has been used for all forms of data backup and recovery, because magnetic tape was, and still is, the only cost-effective, Òremovable,Ó high capacity storage media that can be taken off-site to ensure that data is safeguarded in case of disaster. For a number of years now, we have held a market-leading position in mid-range tape automation with our flagship NEO products, and sales of tape automation appliances have represented more than 75% of our revenue for each of the last three fiscal years....Although we expect that tape solutions will continue to be the anchor of the data protection strategy at most companies, tape backup is time consuming and often unreliable and inefficient. The process of recovering data from tape is also time consuming and inefficient. Ultimately, we expect that tape will be relegated to an archival role for less-frequently accessed data, and that companies will focus more on disk-based solutions moving forward.
"The effect of exchange rate fluctuations on our results during the first quarter of fiscal 2008 was not material.
-
Tape-based products constitute 65% of revenue. Disk-based products are 10% (a slight increase from the previous year).
--
News: Overland will provide a deduplication package, using software from Diligent. Deduplication is the major, hot trend in data backup, what will make it possible for disk to replace tape.
http://www.inc.com/news/articles/200711/diligent.html
http://biz.yahoo.com/prnews/071105/lam045.html?.v=101
Market Cap: 23.98M
Enterprise Value: -376.10K (free money!)
Price/Sales (ttm): 0.15
Price/Book (mrq): 0.52
EBITDA was negative.
Quarterly revenue declined 21% from the same period last year, due to declining sales to HP. Sequentially (from the previous quarter) it declined 3%. Earnings improved from a loss of of $1.54 in the first quarter 2007 to a loss of $0.35 in the quarter for 2008.
GROWTH
Revenue: This year. -9%.
Earnings: Current Qtr. 47.1%; Next Qtr. 52.8%; This Year 50.5%; Next Year 100.0%
Despite the nice growth, the one analyst predicts losses through fiscal 2008 (June 2008).
Thoughts: this company is all about the story. It does seem poised to turn a corner: the entry into deduplication is a good sign. Data backup is a staple. And the balance sheet and valuations are great. But how will it increase revenue? The first proof of an improving story is increasing revenue.
20MAR08 - $1.03
From the quarterly report:+ "Revenue from HP in the second quarter of fiscal 2008 grew in 8.1% higher compared to the first quarter of fiscal 2008."
- "... we expect to incur negative operating cash flows during the remainder of fiscal 2008 as we introduce and market our new products."
-
- " Net revenue from Overland branded products, excluding service revenue, decreased to $32.0 million in the first half of fiscal 2008 from $35.8 million during the first half of fiscal 2007. The decrease of $3.8 million, or 10.6%, was due primarily to a decrease in revenue from NEO products ... The sales of our ULTAMUS products have not yet achieved expected sales volumes. In addition, many of our new sales personnel joined us in the middle of the quarter and our sales team therefore was not at full capacity for the period. The lack of personnel in our sales force during the early part of the quarter affected negatively our sales in the Americas region, in particular.
- " As of December 31, 2007, the Company held auction rate securities, purchased as highly rated (AAA) investment grade securities, with a par value of $5.0 million which are collateralized by corporate debt obligations. These securities, although not mortgage-backed, have experienced failed auctions primarily as a result of the impact sub prime mortgages have had on liquidity in the investment markets. As a result, the Company recognized an other-than-temporary impairment loss of $492,000, pre-tax, on these investments during the three month period ended December 31, 2007. The impairment is recorded in other expense, net, in the consolidated condensed statement of operations."
"Management expects that this reduction in inventory levels, our current balance of cash, cash equivalents and short-term investments, and anticipated funds from operations will be sufficient to fund our operations for the next twelve months. We need to generate additional revenue, continue to improve our gross profit margins and reduce operating expenses to be profitable in future periods.
Market Cap (intraday): 13.14M
Enterprise Value (20-Mar-08): -7.45M (free money--until they spend it)
Price/Sales (ttm): 0.09
Price/Book (mrq): 0.34
The current ratio is around 2, so liquidity is OK.
Revenue declined 25% from a year ago, which is roughly expected because of the loss of Hewlett-Packard as an OEM customer. The decline in revenue of branded products is a much bigger, redder red flag.
Thoughts: I want to see revenue growth in branded products. That will show some health behind the bad numbers due to the loss of HP. Undoubtedly, the company is now very cheap. Alas, there is doubt about whether it can get cheaper.
25OCT08 - $0.20
From the recent annual report:
"Our current cash and cash equivalents will fund our operations at current levels into November 2008. We need additional funding or we will be forced to liquidate assets and/or curtail or cease operations. Any additional funding may dilute your shares. If we are unable to raise additional funds for operations, we may not be able to continue as a going concern .
"We need immediate and substantial cash to continue our operations at current levels. We currently have no funding commitments. Management has projected that cash on hand will be sufficient to allow us to continue our operations at current levels into November 2008. We will need additional funding, either through debt or equity financings, or we will be forced to extend payment terms with vendors where possible, to liquidate certain assets where possible, and/or to suspend or curtail certain of our planned operations. Any of these actions could harm our business, results of operations and future prospects. We anticipate we will need to raise approximately $10.0 million of cash and cash equivalents in the next twelve months to fund our operations through fiscal 2009 at current levels.
"As a result of our need for additional financing and other factors, the report from our independent registered public accounting firm regarding our consolidated financial statements for the year ended June 30, 2008 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
"Possible funding alternatives for raising working capital are bank or asset based financing options, equity-based financing, including convertible debt and factoring arrangements. We are in discussions with funding sources for each of these options, but we currently have no funding commitments. If we raise additional funds by selling additional shares of our capital stock, the ownership interest of our shareholders will be diluted. The amount of dilution could be increased by the issuance of warrants or securities with other dilutive characteristics, such as anti-dilution clauses or price resets.
"As of June 30, 2008, our other assets included $3.1 million of auction rate securities, which securities have a par value of $5.0 million. The auctions for these securities have failed since July 2007, which limits our ability to liquidate these securities and recover their carrying value in the near term. We may nonetheless attempt to liquidate these securities to meet cash needs. We cannot predict whether we will be able to liquidate these securities, and we expect that any liquidation in the near term will bring less than the value of these securities as of June 30, 2008, based upon indicative bids. For example, indicative bids (i.e., one measure of the estimated liquidation value) from Deutsche Bank subsequent to year-end for our ARS instruments have ranged from a high of approximately $2.8 million at July 16, 2008, to a low of approximately $1.4 million at October 1, 2008, the most recent bid as of the date of this report. You should review the additional information about our liquidity and capital resources in the ManagementÕs Discussion and Analysis of Financial Condition and Results of Operations section of this report.
"If we cease to continue as a going concern, due to lack of available capital or otherwise, you may lose your entire investment in our company.
Thoughts: Let's see. In March they said "our current balance of cash, cash equivalents and short-term investments, and anticipated funds from operations will be sufficient to fund our operations for the next twelve months". In October they tell us they need to raise $10 million now or face bankruptcy. The ARS issue isn't an excuse, because they knew about that in March. Flaky management.
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