Summary
- Dataram has embarked on an aggressive restructuring program aimed at returning the company to growth and profitability.
- New CEO David Moylan has purchased 100,000 shares of stock in the open market in two separate transactions this year to show his confidence in the company's future.
- Activist hedge fund manager Jon Isaac has invested $5 million in Dataram and has expressed that he will support the company's financial needs even further if required in the future.
- The company has announced significant cost reductions with simultaneous contract wins consistent with management's stated goals of growth and profitability.
Dataram Corporation (DRAM), is one of the oldest independent manufacturer of memory products aimed at increasing the performance and extending the useful life of servers, workstation, desktops and laptops sold by leading global manufacturers (Dell, Cisco, Fujitsu, HP, IBM, Lenovo and Oracle). The company also manufactures and markets a line of Intel-Approved memory products for sale to manufacturers and assemblers of embedded and original equipment. The company claims that its memory products are used by 70 Fortune 100 companies.
Dataram's RAMDisk software is used in many consumer and commercial applications including datacenters, gaming, virtualization, business intelligence, scientific data processing, mail servers, Internet Explorer cache, audio and video editing, CAD and CFD programs, and many others. The company makes and markets AMD Radeon Ramdiskmemory products used in gaming and other data-intensive applications. In a nutshell, RAMDisk is a program that takes a portion of your system memory and uses it as a disk drive. The company maintains that the performance of a RAMDisk is orders of magnitude faster than other forms of storage media, such as an SSD and hard drive.
Dataram is an interesting opportunity at this point. The company began an aggressive transformation starting in late 2014 and it hasn't stopped since. The new executive team has stated categorically: 1) that they intend to improve the company's market position, 2) will work hard to strengthen its relationship with customers, 3) will expand its current client base and also expand into new geographies, and 4) will return the company to sustainable profitability.
And how they intend to do this? The company added new sales talent, realigned the global sales team, deployed a new CRM solution, and developed and communicated a new value proposition to business partners and customers. The company also engaged partners to extend its sales operations into geographies and segments where Dataram does not have an active presence, and assist the company further penetrate principal territories and segments where it has a presence.
On March 10 , 2015 the company announced that it was committing the time and resources to actively communicate its story to the investment community. According to the announcement, the campaign began in early March with a road show targeting both institutional and retail investors. Through this campaign Dataram intends to: 1) articulate its strategy, growth plans and progress against objectives, 2) expand investor engagement efforts to other communications venues, 3) plan more events for the coming months to educate, inform and answer investor questions.
This was never done before - at least, as far as I can remember. The new company CEO, David Moylan, begun injecting new life in all fronts, ranging from operating philosophy to a more shareholder-friendly attitude. These moves were backed up by a BOD where Director andactivist hedge fund manager Jon Issac most likely stirred things up.
And insiders are backing up their excitement about the future of Dataram with substantial purchases of common stock in the open market. On February 9, 2015 the company announced that Chairman and then Interim CEO Moylan acquired $100,000 worth of company stock in the open market. Mr. Moylan stated:
"I am a strong believer in the company and its future. My investment demonstrates my faith in and commitment to Dataram as a company. Dataram is dedicated to providing its customers with superior products and service, and we are focused on demonstrating our value to customers, shareholders, employees, partners, and suppliers alike. Our best days are yet to come and my stock purchase is symbolic of my personal dedication to Dataram's profitability and future success."
More recently, Mr. Moylan purchased 50,000 additional common shares as seen in this June 8, 2015 filing. It was also on June 8 when Mr. Moylan was officially named CEO of the company according to this June 18, 2015 press release. In the announcement, Chairman and CEO Moylan was quoted as saying:
"Dataram has, with the support of the board and our shareholders, implemented an aggressive financial and operational transformation of the company in order to establish a strong foundation for profitable inorganic and organic growth. We have demonstrated strong success in cost reductions, and are recognizing advances in sales activity. With the business re-aligned, we are turning our focus to profitably and growing the business-both organically and inorganically-to drive the next stage of Dataram's evolution."
"I am pleased to continue leading the senior leadership team at Dataram in a permanent role and working with the company's talented people around the world to accelerate its progress, leverage growth opportunities and create added value for our customers and shareholders. The need for technical solutions that improve business performance, including memory, has never been stronger, and we must continue to act aggressively to capture a growing share of this market."
On June 11, 2015, the company issued a press release updating the investment community on the progress achieved to date. The following are highlights of that announcement:
1) Dataram acquired a new strategic customer purported to be a world leader in 3G, 4G and next-generation wireless technologies. With an anticipated $1.5 million the customer will spend, Dataram's value-added solutions will save this client between $300-$500K.
2) The company won a contract with a leading oil and gas producer in the US. The customer, who did not consider third-party memory suppliers before, recognized significant savings using Dataram's solutions.
3) Dataram successfully expanded its relationships with enterprise and business partners in both Europe and the Middle East.
Phil Marino, Dataram's VP Global Sales commented:
"The ability of Dataram's sales team to provide value and savings to enterprise and OEM customers through unique memory solutions and personalized attention has produced results that we continue to build upon. We recently added a new strategic channel partner in the US and re-engaged with one of Europe's largest value-added distributors. Our pipeline continues to grow and is the strongest it's been in years. We are in active discussions with several additional partners in the US and EMEA. Our renewed focus on the memory business is paying off and our best times are ahead."
The news caused the stock price to jump to $3.2 from $2.1 to close at $2.19 on 2.4 shares traded. The normal trading volume for this low-floater ranges from 10 - 30K shares a day. I believe that once the company starts showing tangible progress, trading volumes and share price will increase and be sustainable.
A week before, on June 4, 2015, the company announced that as a result of its aggressive transformation, it was able to reduce costs by about $3.5 million/year. This equates to an average $900K per quarter in reduced operating costs. With increased revenues and reduced costs, the inevitable result will be profitability.
For these reasons, I believe that 4Q 2015 to be reported in late July will be the third quarter of sequential top and bottom line improvement. In the last two quarters DRAM reported:
2Q 2015: Revenues of $6.88 million and a loss of $1.5 million
3Q 2015: Revenues of $8.05 million and a loss of $688K
4Q 2015 (estimated): Revenues of over $9 million and near breakeven
While I was doing my research do write this paper I've learned that AMD launched a new powerful PC for gamers in mind only in China - the Radeon Ruby PC. The translated Chinese news states the following on note 7 at the bottom of the release:
"Dataram Corporation for the AMD Radeon graphics brand to provide manufacturing, sales, support and warranty. AMD Radeon is Dataram RAMDisk Software Corporation products."
Curiously, the launch of this product was not publicly announced by neither AMD nor Dataram in the US. The Ruby PC is being sold at JD.com and a few dozen outlets throughout China.
Since the launch of the Radeon Ruby PC was made in late December, it really did not affect Asia revenues in 3Q 2015 ended January 31, 2015. But it is likely to have a positive effect in 4Q to be reported in a couple of weeks. In 3Q 2015 the company reported Asia-region revenues of only $116,000. I will be watching this with great curiosity in the upcoming 10-Q.
Dataram's balance sheet has some issues as its shareholder's equity is near the minimum $2.5 million required by NASDAQ for continuous listing. But I expect strong support from largest shareholder John Isaac (head of Activist Isaac Capital Group hedge fund) in case of need. Mr. Isaac has already shown his support for Dataram's future by investing $5 million in November 2014. Mr. Isaac, who is CEO of LiveDeal. Inc. (LIVE) stated:
"We believe that Dataram is undervalued and we are dedicated to working with management on a variety of strategies to increase shareholder value, including the possibility of continued capital investment."
Mr. Isaac has demostrated his passion to see his investments succeed as a CEO of LIVE, as seen in this recent announcement. One thing that is also obvious is his dislike for dilution.
Conclusions
Dataram is currently trading at a price to sales ratio of 0.2 compared to and industry average of $1.68. The recent buys from CEO Moylan, and the strong financial support from activist fund Isaac Capital Group, confirm that the company's management believe the stock is undervalued. DRAM has traded as high as $30 a few years ago on far less potential. I believe that when the company begins demonstrating sustainable improvement, the stock price will increase accordingly.
One thing is clear, the new management has communicated far better and more frequently than in any time in recent history. I believe the right team and the right philosophy is in place to turn DRAM into a growing and profitable company.
Investors considering DRAM stock should carefully review all the risks and uncertainties detailed in the company's most recent 10-K filings. Besides the risks specified in the filings, the following are potential risks that could cause significant losses: 1) the company is unable to execute its growth and profitability plans, 2) price erosion caused by low-cost competitors from Asia, 3) loss of talent to the competition, 4) Larger and better financed competitors might want to crush DRAM's profitability hopes, 5) the low 2M share float can cause significant pps swings 6) the low trading volume might cause difficulty exiting a position.