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Exclusive Interview From Eric Kelly, Chairman and CEO of Sphere 3D

”Roadmap: product line that goes from archive to primary storage, to virtual desktop, to containerization”
By Jean Jacques Maleval on 2016.05.04

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kellyEric Kelly, 57, served as chairman of Sphere 3D since July 2013 and CEO since the company's merger with Overland Storage in December 2014. He was Overland Storage's CEO since January 2009, its president and CEO since January 2010 and board member since November 2007. Prior to joining Overland, he was president of Silicon Valley Management Partners, a management consulting and M&A advisory firm which he co-founded in 2007. His earlier positions have included VP and GM of storage systems solutions at Adaptec, president and CEO of Snap Appliance which was acquired by Adaptec, president of the systems division at Maxtor as well as various executive-level roles with Dell, Diamond Multimedia, Conner Peripherals and IBM. He  currently serves on the U.S. Department of Commerce's Manufacturing Council.
He earned an MBA from San Francisco State University and a B.S. in Business from San Jose State University.
Hobbies: "I love golf and I like watching basketball. I used to play when I was younger and I'm a avid fan of our Golden State Warriors and I do hope they win the championship this year."
Annual compensation: "I don't actually know. My base salary is $400,000. The rest depends on how I perform."


When we asked Kelly for an interview, he was reluctant. "No, I can’t as I’m CEO of a public company.” "But we already interviewed many CEOs of public company," we said. He wait and finally decided: "OK, go ahead." Could you resume the extremely complicated deal between Sphere 3D, Overland Storage, Tandberg Data, and Cyrus Capital Partners?
Eric Kelly: Cyrus Capital was the primary owner of Tandberg Data, so we decided to merge Overland and Tandberg together and twelve months later Sphere 3D acquired this new, bigger Overland.

And who are the main shareholders of the company now?
We're a public company so we have many shareholders. Cyrus is one of the major shareholders.

And you?
As chairman, I am also a shareholder but like almost any employees.

Today the revenue of Sphere 3D is lower than the added initial revenue of Sphere 3D, Overland, and Tandberg together.
There is a transition. For example if you think about Overland, they had a significant part of their revenue tied to one specific OEM, so that revenue declined but we actually back-build it with other revenue. The revenue shift is really what you see happening as the company shift from one market to another, from one OEM to another sets of OEM.

After seven years of losses, when will the company finally be profitable?
I can't answer that. I do have a visibility in terms of profitability but we don't give guidance.

Company's share went down to $1.25 after trading at up to $10. How do you explain that?
I look at building a healthy company, I don't look at the share price day-in and day-out. If you look at Sphere 3D and their stock price versus the global company now, you can't tie those together. Sphere 3D was a technology company with new products coming out, no revenue and it had a $8 or $10 stock price. So what I've learned being in the business for 30+ years, is that if you build a healthy company, the rest of the market will take care of itself.

Why did you buy last year RDX Storage Business from Imation for $6 million, a technology with no future?
We believe the RDX technology has pretty bright future, and I thinks that's been validated by the market and by the OEM customers. I don't think all of them are wrong.

What is the relation between the products of Overland, Tandberg, and those of Sphere 3D?
You can look at it from different angles. From a technology point of view, storage is becoming a hyper-converged infrastructure which includes storage, compute, and virtualization. That's where the market is going. The hyper-converged infrastructure is about $84 billion today, it's probably one of the only area that's growing in the market. To be relevant and to make sure you're not only part of the market but a leader in the market, you need to have those technologies in development.
The second thing is, as you introduce new technologies, you need to have a very strong go-to-market presence. If you look at Tandberg and Overland, they're represented in over ninety different countries, have over a million units installed around the world, exabytes of storage... So you need to have that foundation, a strong, global organization. That's how you deliver new technology.

What is your current number of employee?
A little over 400

What is your roadmap?
Our roadmap is a product line that goes from archive to primary storage, to virtual desktop, to containerization. Integration of all those points is really what builds our product portfolio. We have to make sure that our customers have access to their information, their data and their application from any endpoint device, whether it's your Android, your iPhone, your tablet or your laptop and to be able to securely deliver that. To be able to do that you need to have very strong security features on the endpoint, very strong virtualization, and enterprise-class storage architecture. All of that has to be delivered either on premise, or in the cloud, or anywhere in between.

Do you have an acquisition strategy?
We did. In 2014 four companies came together. What we did was to make sure we had the pieces from a technology and product standpoint to execute on our vision. Now that we have that technology, the channels, the infrastructure, it's all bout execution.

Main OEMs?
Dell, IBM, Lenovo, HP, Fujitsu, NEC, Hitachi at 99% for RDX.

And how many customers?
We have probably one of the largest install base in the industry. When you've been around for 30+ years you have a lot of customers.

Main customers?
We don't have a main customer, so we don't have a concentration issue. We have customers in all verticals, in all sizes, small and medium businesses all the way to large enterprises. We need look at the lifetime of a customer because if you bought a product from us today you may not come to buy additional storage for another year. The good news is, when I look at our service platform, I see customers that have been with us for 10, 20+ years. That's what I look at in terms of customers.

Which companies do you consider your main competitors?
I think it depends on the product line. Our customers can be in a lot of different areas. If I look at out virtual desktop, at our Glassware and our container technology I don't see a competitor out there today. We have a leading position with our app virtualization and our containerization platform.
From a storage point of view, the usual guy we've been talking about for the last 15 years. But EMC for example has a virtualization product and we're also partner with them. In this industry you learn how to work with everyone. Whether it's our OEM partners, our strategic partners, we just make sure we more coexist and cooperate with each other versus compete with each other.

You currently serve at the U.S department of Commerce Manufacturing Council where you offer advice and counsel to the Obama administration of strategies and policy recommendation on ways to promote and advance U.S manufacturing. Give me some example of the advice and counsel you gave?
The administration is really trying to understand how the private sector does business relative to manufacturing. Global manufacturing is a way to drive the global economy as well as the US economy. We think about what are some of the things that can happen, do we have the right skill-set to have people working in manufacturing, and other global policies that would assist the world in delivering products, imports, exports... One of the thing we spend a lot of time on for example is security. Generally it's pretty broad-base policies, from investment in manufacturing to policy in terms of what are the things that are evolving that we may need to address. It is what I call a public-private partnership: making sure that the private sector understands some things that the government is doing to support our initiatives, and vice versa. It's been very exciting and a privilege to actually be involved because there is very few technology company that gets to participate.

Our Comments

Kelly will have a hard job to straighten Sphere 3D currently really in bad shape with $18.9 million in revenue and a net loss of $18.9 million for the last known financial quarter ended December 31, 2015, as well as a share as low as $1.17. But this guy is a specialist to meet such a challenge as he did it before with other companies. Nevertheless, shareholders will have to wait several quarters and maybe years for their company to be profitable.

The company first needs money and has entered just recently into a $20 million debt financing, consisting of a $10 million revolving credit facility and a $10 million term loan facility with Opus Bank.

The firm’s vision is bright: "Create a complete cloud experience for everyone." There are tons of storage companies with about the same idea.

We don’t see the products originated from Sphere 3D and some from Overland (virtualization and containerization solutions V3 with SSDs and GW2000 with HDDs hyper-converged appliances, Glassware 2.0, SnapScale, SnapServers and SnapSAN) really complementary with Tandberg Data RDX removable disk storage systems and Overland NEO tape libraries.

Now about all revenue come from Overland and Tandberg products. For the December quarter, tape archive sales  and disk systems represented 29% and 59% - including V3 VDI, and Glassware - of global revenue, respectively. 12% is attributed to services. OEM revenue for the quarter was 18% and branded product revenue 70%.