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Sphere 3D: Fiscal 1Q17 Financial Results

Loss decreasing and revenue up 11% Y/Y at $21.7 million

(in $ million) 1Q16 1Q17 Growth
Revenue
19.6 21.7 11%
Net income (loss) ( 8.1) (7.8)  

Sphere 3D Corp. reported financial results for its first quarter ended March 31, 2017.

This quarter we continued to see the results from the strategic initiatives we implemented in the second half of 2016,” said Eric Kelly, chairman and CEO. “Through the restructuring and execution on the virtualization strategy, specifically through our acquisition of HVE and UCX, we are able to deliver new large deals for our converged and virtualization product offerings. Meanwhile, our storage products continued to perform well in the market in the first quarter. We continue to make progress towards positioning the company for revenue growth and financial stability

Net revenue for the first quarter of 2017 was $21.7 million, compared to $19.6 million for the first quarter of 2016.

Product revenue for the first quarter of 2017 was $19.4 million, compared to $17.3 million for the first quarter of 2016.

Disk systems revenue was $15.0 million, compared to $12.2 million for the first quarter of 2016. Disk systems is defined as RDX, SnapServer family, VDI, and Glassware derived products.

Tape archive product revenue was $4.4 million compared to $5.1 million for the first quarter of 2016.

Service revenue was $2.3 million in the first quarter of 2017 and the first quarter of 2016.

Gross margin for the first quarter of 2017 was 31.4%, compared to 30.4% for the first quarter of 2016. Non-GAAP gross margin for the first quarter of 2017 was 34.0%, compared to 33.3% for the first quarter of 2016. Our methodology for determining non-GAAP gross margin, which excludes the effect of intangible asset amortization from gross profit, is described in the Use of GAAP and

Operating expenses for the first quarter of 2017 were $11.6 million, compared to $13.8 million for the first quarter of 2016.

Share-based compensation expense for the first quarter of 2017 was $2.2 million, compared to $2.6 million for the first quarter of 2016. Depreciation and amortization was $1.5 million in the first quarter of 2017, compared to $1.6 million in the first quarter of 2016.

Adjusted EBITDA for the first quarter of 2017 was a net loss of $966,000, or a net loss of $0.01 per share, based on 77.9 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $3.1 million, or net loss of $0.07 per share based on 45.7 million weighted average shares outstanding for the first quarter of 2016.

Net loss for the first quarter of 2017 was $7.8 million, or a net loss of $0.10 per share, compared to a net loss of $8.1 million, or a net loss of $0.18 per share, in the first quarter of 2016.

The preceding financial results for the first quarter of 2017 include contribution from our acquisition in January 2017.

Board appointment:

The company simultaneously announced the appointment of Duncan McEwan to its board of directors, effective as of May 10, 2017. He currently serves as president of Diligent Inc., a consulting company he founded in 1991 specializing in M&A and strategic advice for technology-based clients.

We’d like to welcome Duncan to our board of directors. Duncan’s experience working with technology companies, specifically cloud-based software, will augment the strength of our board and his insight will be instrumental as the company works to drive growth,” said Kelly.

Previously, McEwan was EVP and chief strategy officer of Call-Net Enterprises Inc., a provider of long-distance telephone services until it merged into Rogers Communication Inc. (2004-2005); president and COO of Sprint Canada Inc., an integrated, national telecommunications provider (2001-2004); CEO of Northpoint Canada Communications, a provider of high-speed data and Internet (DSL) lines (2000-2001); president and CEO of Canadian Satellite Communications (Cancom) (1996-2000). He has been COB of Geminare, Inc. since 2010, an emerging global leader in BC and cloud-based software systems, and has previously served on a number of other public and private company boards.

He is a graduate of the University of Toronto.

Comments

Abstracts of the earnings call transcript:

Eric Kelly, COB and CEO:
"OEM revenue for the first quarter of 2017 was $3.4 million, up from $3.3 million in the preceding quarter, and compared to $3.9 million in the first quarter of 2016. Branded product revenue was $16 million for the first quarter of 2017, up from $13.4 million in the fourth quarter of 2016, and up from $13.4 million in the first quarter of 2016. Regionally, the branded product revenue for the first quarter of 2017 was 14% in APAC, 36% in the Americas, and 50% in EMEA. Warranty and service revenue was $2.3 million in first quarter of 2017, compared to $1.9 million in the fourth quarter of 2016, and $2.3 million in the first quarter of 2016.
"Total product revenue for the first quarter was $19.4 million, up from $16.8 million in the preceding quarter and up from $17.3 million in the same quarter last year. Disk systems revenue was $15 million for the first quarter of 2017, up 29% from $11.6 million in the preceding quarter, and up 23% from $12.2 million in the same quarter last year.
"Tape automation, tape drives and other related revenue was $4.4 million in the first quarter of 2017, down from $5.2 million in the fourth quarter of 2016 and $5.1 million in the first quarter of 2016.
"On the balance sheet, total cash and cash equivalents at March 31, 2017, was $6.9 million compared to $5.1 million in December 31, 2016."

Peter Tassiopoulos, vice chairman and president:
"Our revenue for Q1 2017 was $21.7 million, which represents a 60% sequential quarter-over-quarter increase.
"The adoption of our proprietary virtualization and container technologies, V3 and Glassware, has been slower than originally anticipated when the Overland merger was completed."

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