Sphere 3D: Fiscal 1Q16 Financial Results

Sphere 3D Corp., a containerization, virtualization, and data management solutions provider, reported financial results for its first quarter ended March 31, 2016.

“Sphere 3D is making steady progress toward delivering on its vision for a complete cloud experience for everyone by deepening our partnerships with large cloud and virtualization partners, expanding our certified solutions channel partner program and continuing to drive innovation across the product portfolio.” said Eric Kelly, chairman and CEO. “We have increased the opportunities available to the company, as reflected by the growth of our sales pipeline, and continue to generate increasing demand for highly differentiated virtualization, storage, and hybrid cloud solutions.”

First Quarter 2016 Financial Results:

• Net revenue was $19.6 million, compared to $20.1 million for the first quarter of 2015.
• Product revenue was $17.3 million, compared to $17.2 million for the first quarter of 2015.
• Disk systems revenue was $12.2 million, compared to $10.0 million for the first quarter of 2015. Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware derived products.
• Tape archive revenue was $5.1 million, compared to $7.2 million for the first quarter of 2015.
• Service revenue was $2.3 million, compared to $2.9 million in the first quarter of 2015.
• Gross margin was 30.4%, compared to 29.6% for the first quarter of 2015. Non-GAAP gross margin for the first quarter of 2016 was 33.3% compared to 32.7% for the first quarter of 2015.
• Operating expenses were $13.8 million, compared to $13.6 million for the first quarter of 2015.
• Share-based compensation expense was $2.6 million, compared to $0.7 million for the first quarter of 2015. Depreciation and amortization was $1.6 million in the first quarter of 2016, compared to $2.0 million in the first quarter of 2015.
• Adjusted EBITDA was a net loss of $3.1 million, or a net loss of $0.07 per share, based on 45.7 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $6.1 million, or net loss of $0.18 per share based on 35.0 million weighted average shares outstanding for the first quarter of 2015. Adjusted EBITDA is a non-GAAP measure presented as net loss before interest expense, income taxes, depreciation and amortization, share-based compensation and warrant liability revaluation.
• Net loss was $8.1 million, or a net loss of $0.18 per share, compared to a net loss of $9.5 million, or a net loss of $0.27 per share, in the first quarter of 2015.
• Cash and cash equivalents at March 31, 2016 were $5.7 million. At March 31, 2016, the company had $15.9 million outstanding under its credit facilities ($10.0 million of which was from a related party) and $19.5 million outstanding under its convertible note from a related party. In April 2016, the company entered into a Credit Agreement with Opus Bank for a term loan in the amount of $10.0 million and a credit facility in the amount of $10.0 million. A portion of the proceeds were used for pay off of the company’s two credit facilities in April 2016, which were recorded as current debt at March 31, 2016, and the remainder of the proceeds will be used for working capital and general business requirements. These prior credit facilities were terminated upon repayment of the outstanding balances. In April 2016, the company modified its convertible note with the related party, pursuant to which the holder made an additional advance of $5.0 million to the company, bringing the outstanding balance to $24.5 million.

The preceding financial results for the first quarter of 2016 include contribution from the purchase of RDX assets from Imation in August 2015.

The company also announced that Mario Biasini has resigned from the board of directors, effective May 11, 2016. He has been a director of Sphere 3D since its incorporation in 2009. The nominating and governance committee of the board is searching for candidates to replace him on the board.

Commenting on the resignation, Kelly said: “We appreciate Mario’s contributions over the many years, and wish him well in his future endeavors.”