Sphere 3D: Fiscal 2Q16 Financial Results

Sphere 3D Corp. reported financial results for its second quarter ended June 30, 2016.

“Through our focus and consistent efforts to drive adoption of our storage and virtualization technologies, Sphere3 D remains poised for growth in the second half of the year,” said Eric Kelly, chairman and CEO. “The expanding pipeline combined with our initial customer engagements provide confidence that our market strategy is enabling the company to win marquee customers who realize the advantages of our vertically integrated portfolio of hybrid cloud, cloud and on-premise solutions.”

Second Quarter 2016 Financial Results:

Net revenue of $19.6 million, compared to $18.4 million for the second quarter of 2015.

Product revenue was $17.5 million, compared to $15.6 million for the second quarter of 2015.

• Disk systems revenue was $11.8 million, compared to $8.6 million for the second quarter of 2015. Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware-derived products.
• Tape archive revenue was $5.7 million, compared to $7.0 million for the second quarter of 2015.
• Service revenue was $2.1 million, compared to $2.8 million for the second quarter of 2015.
  Gross margin was 29.6%, compared to 31.5% for the second quarter of 2015. Non-GAAP gross margin was 32.6% compared to 34.9% for the second quarter of 2015.
• Operating expenses were $13.8 million, compared to $14.4 million for the second quarter of 2015.
  Share-based compensation expense was $2.1 million, compared to $0.6 million for the second quarter of 2015.
• Depreciation and amortization was $1.6 million, compared to $1.9 million in the second quarter of 2015.
• Adjusted EBITDA was a net loss of $4.6 million, or an adjusted EBITDA net loss of $0.09 per share, based on 49.4 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $5.3 million, or adjusted EBITDA net loss of $0.15 per share, based on 35.9 million weighted average shares outstanding for the second quarter of 2015.
• Net loss was $9.6 million, or a net loss of $0.19 per share, compared to a net loss of $8.9 million, or a net loss of $0.25 per share, in the second quarter of 2015.
• Cash and cash equivalents at June 30, 2016 were $4.3 million.

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 a 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. At June 30, 2016, the company had $8.2 million outstanding under its credit facility, $10.0 million outstanding under its term loan, and $24.5 million outstanding under its convertible note from a related party.

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