Sphere 3D Corp (TSX.V:ANY) Peter Tassiopoulos Podcast

|

Sphere 3D Corp (TSX.V:ANY )Peter Tassiopoulos discusses his company’s takeover of Overland Storage (NASDAQ:OVRL), and how it will transform Sphere 3D into a major player in the Information Technology as a Service (ITaaS) sector, one the fastest growing business segments in the United States.

Here is the full transcript:

James West:           Peter let’s talk about Sphere 3D’s acquisition of Overland Storage and how transformational it is for your company. Can you give me an idea of the synergies between the two companies that will translate into near term shareholder value?

Peter Tassiopoulos:        Absolutely. The transaction quickly transitions Sphere into a global enterprise. We will actually have operations in the U.S., Norway, Germany, Singapore, and Asia. In addition, we’ll have direct access to 17,000 resellers in 60 countries, and infrastructure that’s been built over thirty years to support them. As for the synergies, there’s quite a few.. it’s actually too numerous to go through all of them. But just a couple of highlights; you know Overland has providing storage for over thirty years as I mentioned, and because of this they’ve got a really large installed base. Actually over a million units have been deployed. Many of these are customers that run complex enterprise apps, and that’s specifically what Glassware is designed for. Now one of the largest purchasers of IT as well is the U.S. government, and Overland has a number of GSA’s [Government Service Agencies –ed] in place with them so that’s direct access into the government which we otherwise wouldn’t have.

Over 40% of Overland’s revenue is what I call predictable, and what I mean by that it’s royalties, service, or long term support contracts. With the combination of the two companies, for the first time, we’ll actually be in a position where we can give our investors and shareholders guidance as to what it will look like quarter to quarter.

And lastly, one of the really important things here for us is that the Overland and Sphere 3D engineering teams are very, very much alike. You’re going to see product innovation actually accelerate, and a lot of that is already taking place despite the fact that we haven’t even closed yet. To that end, we actually filed a joint patent together about a week and a half ago on the first project that we’re working together, so I’m pretty excited about how quickly those two groups have gotten on.

James West:           Sure. Okay so I’m assuming that Overland’s client base is going to drive demand for Glassware and thus launch it into the awareness of the broader technology community? Who would seek Glassware and how would they use it?

Peter Tassiopoulos:        Well a little bit about Glassware first. What it is actually is it has the ability to virtualize some of the most demanding application in the market. Basically what we do is we extend the life of software applications indefinitely. In addition, we can simplify the process of moving an app from a physical PC or workstation to a virtual environment, and we allow this be done either on premise or from the cloud.

So with this level of flexibility, we’re able to address a number of customer needs. Where we’re seeing the greatest interest from customers today is to deal with converting those last 20 or 30 percent of applications that just don’t perform well once they’re forced to run on traditional virtualized environments. Now, our partners refer to this as software that’s in the red zone. And some of the largest enterprises are forced to maintain a physical and a virtual environment, specifically to address this red zone software. Now needless to say it’s not exactly efficient or economical to be required to run both environments.

James West:           Wow okay, so Overland’s share price has been under quite a bit of selling pressure since mid-2011 when it was trading over $14 a share…Is it your opinion that the sell-off then has resulted in an oversold condition for the company relative to its value? And if so, is that why you bought the company?

Peter Tassiopoulos:        Well, of course it’s our responsibility to get good value for our shareholders. In my opinion, Overland is in better shape today than it has been at any point since 2011. We actually believe though the transaction represents a tremendous opportunity for both groups, bearing in mind that it is an all-share-based transaction. So their shareholders are still going to be shareholders of the combined company going forward. So I believe it’s a win-win.

James West:           Okay. So you guys have a Chairman in common – Eric Kelly – who is the chairman of both Sphere 3D and CEO of Overland – and there’s been some criticism out there in the blogosphere in regard to that suggesting that’s the only reason the transaction happened. How do you repsond to that?

Peter Tassiopoulos:        Well, I think the blogs that need to be negative need to be negative. In this particular instance, they’re definitely picking on the wrong thing. Eric actually recused himself from the process. We appointed the chair of our audit committee as the lead director during the negotiations. Both organizations retained an advisor to prepare a fairness opinion –we used Cormark to do ours, and Overland used Roth Capital for theirs. Quite frankly, whether Eric was involved with the company or not, I believe the transaction would have taken place. Having said that, without Eric involved with Overland, I don’t believe Overland would be in a position where we’d be interested in it.

James West:           Okay. That’s interesting. So then who are the major shareholders of Sphere 3D and Overland?

Peter Tassiopoulos:        Management and founders are significant shareholders of Sphere, and will remain to be after the combination. We’ll probably be somewhere around 20% once the transaction is complete. Cyrus Capital will also be around 20% of the combined company, Pinetree Capital and its affiliates will be around 10, and there’s a few other institutions including Marathon who is a large shareholder of Overland, with collectively with others will be around 15% on completion. So we’ve got about 65% held between founders and institutions when this is all said and done.

James West:           What exists in the way of lock-up provisions, escrow agreements, stock options, warrants etcetera, that might represent imminent dilution as a result of this combination?

Peter Tassiopoulos:        As far as that goes, the only real warrants or options that are being assumed as part of the transaction are priced between $17 and $27 per share. There’s less than a million I believe in total. But in any event I don’t see that as being any overhang considering our current trading price. In addition, I’d actually point out that both of us are already public. So I don’t see any significant changes to our share structure that’ll account for any change in the trading patterns for either company. There’s always been the opportunity for people to buy and sell stock as it is, unlike where if you were buying a private company where it might have a much bigger impact.

James West:           Right. So I’ve spent some time with your technical guys doing a demonstration of Glassware 2.0 Peter, and I immediately sort of perceived that a similarity between your relationship with Overland and EMC Corp (NYSE:EMC)  ’s relationship with VMWare Inc. (NYSE:VMW)

Could you perhaps outline for me the similarities and differences in the relationship and the opportunity inherent in the Overland and Sphere 3D combination in that context?

Peter Tassiopoulos:        Yeah absolutely. I’ve quoted this before, but for the benefit of your listeners, IDC put out a report recently, and basically what they said was, in 2010, about 30% of external storage was attached to virtual environments. And then in 2014, they expected that to cross over 50%. And in 2016, it will be closer to 71%. The reason I bring this up – a lot of the storage capacity is driven by virtual machines. And EMC of course sells storage, and VMWare, virtual desktop infrastructure.

Interestingly enough, just a week and half ago, Wells Fargo and Co. (NYSE:WFC) came out with a research report that called for the re-unification of EMC and VMWare. And specifically citing, there’s been secular shifts over the last couple of years to converge systems, and pressure on stand-alone point products. So quite frankly, the similarities – you’re right on. They’re very similar because we’re serving the market in the same way for convergent solutions.

James West:           Hm. Okay so then, I mean in terms of a market ranking, EMC and VMWare are obviously at the top. Where would Sphere 3D and Overland fit into that?

Peter Tassiopoulos:        Well, I’m not sure I’d look at it from a market ranking perspective. What I would say is, the market itself that we’re out to service is over $100 billion per year. And the interesting thing for us is, the market that we’re specifically targeting our solution for is very much under-served. It’s not necessarily looking and asking you to switch from a hypervisor, but as I mentioned earlier, to move into the solutions that can’t virtualize as well. Remember, we’re actually partners with many of these hypervisor-based solution providers like VMWare. And offer solutions that actually make VMWare run on our own appliances, side-by-side, with our own solution Glassware.

James West:           Great. So tell me about the revenue model for Sphere 3D and Glassware going forward.

Peter Tassiopoulos:        Well the Glassware side is quite simply very similar to what you see today with a server-based solution So you’d be acquiring a server-based license, and as well you’d purchase either monthly concurrent user licenses with some form of variable billing choice which is usually monthly or yearly. Overall, as a business, we’ve actually intended to break down the combined company into 3 buckets. So you’ll see our business, enterprise and infrastructure solutions – that’ll include server, storage, related media and peripherals. You’ll see our software solutions, and this will include virtualization software, system security, information software, but only when we sell it on a perpetual basis. And under our services and support side, you’re going to see a broad range of IT and business services that will include things like Desktop as a Service, Software as a Service, our cloud application, or business processes and royalties.

Now with Overland having a trailing revenue of over $100 million, it may take a full quarter before we can complete the transition. But we hope to see it within a quarter after we’re closed.

James West:           Hmm! Fantastic! Okay now let’s talk about Glassware 2.0 approach. How does that better than what’s out there?

Peter Tassiopoulos:        Well, again. It’s important to understand that we designed Glassware, from scratch, and without the use of the traditional approach of creating a hypervisor. We actually bypassed many layers of the traditional virtualization programming stack. In our design, we recognized the need to access hardware that the applications run on, so we wrote code to access that hardware directly. We also built a series of different emulators that any device can access, on pretty much any hardware that it requires directly. And we can then Glassware-enable more than just your Windows environment. We work with mainframes, we work with Linux, we work with Windows, we work with pretty much any operating system that you’d probably run across. Now this process is fundamentally different from any other software that attempts to do this, and because of it, we’re able to get into those dirty areas as they say, and the tough stuff. And that’s really where we look at Glassware as being positioned today. And again, I look at it as being adjunctive to the existing hypervisor market today.

James West:           Okay. Interesting. So then now, if we’re comparing Sphere 3D and Overland to VMWare and EMC, are you suggesting that you think you could achieve a $45 billion market cap in the next five years and if you think so, how will you do that specifically?

Peter Tassiopoulos:        Well, that’s an interesting question – to give guidance like that. What I can tell you is this: EMC and VMWare were able to achieve what they’ve achieved because of the fact that they entered into that transaction I guess it was back in 2004. Where they unified the two entities and were able to offer converged solutions. We’ve seen in history, a number of times, where the right software and the right hardware will actually create a profound effect on adoption rates. A great example of that would be, there’s plenty of digital music players, but when Apple decided one with the right piece of software being iTunes, the adoption rate went through the roof. So for us, the first step on the path to becoming a much larger entity was get the ability to offer converged solutions which is what we’ve done through the acquisition of Overland. After that, time will tell, and the market will decide as to what the valuation will look like.

James West:           Okay so I guess the next step would be a listing on NASDAQ. When do you see that happening, and what kind of U.S. exposure to you expect that to open for you guys?

Peter Tassiopoulos:        Well we actually – quite some time ago – we’ve updated our shareholders recently – we anticipate the NASDAQ listing sometime in the next 7 to 10 days actually. We’re at the final stages of it, and so we should be up and trading here in relatively short order. The NASDAQ market of course is the pre-eminent market in the world for technology companies. We would anticipate that that should increase our exposure dramatically from its current listing on the OTCQX, which in itself has served us well since we were there just about seven short months ago. As far as going forward, really it’s a matter of doing what we do, and continuing to penetrate the market, and that’s where I believe most of the exposure will come from.

James West:           Okay great! Well let’s leave it there for our first interview Peter. We’ll come back and check on you in a quarter and see you how you’re progressing. Thanks for joining us today.

Peter Tassiopoulos:        Thanks James.

 

 

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Free Newsletter,
Priceless Content.

Get more of Midas Letter delivered right to your inbox.

Special Offer

Sign-up today and receive free and immediate access to three recently published special reports!