Sphere 3D: Fiscal 3Q16 Financial Results

Sphere 3D Corp. reported financial results for its third quarter ended September 30, 2016.

“With the anticipated additional financing, we are confident we can continue to focus on deepening our existing strategic partnerships while pursuing large scale opportunities which will scale our business,” said Eric Kelly, chairman and CEO. “We also continue to manage our business by delivering on our operational efficiency objectives while exploring options to increase shareholder value.“

Corporate Update:
    •    The company has signed a term sheet with a large credit fund for a $25 million financing. The term sheet contains a number of customary conditions to closing, including the entry into definitive documentation by the parties. Additional details on this transaction will be provided as appropriate.
    •    The company has signed a term sheet that is expected to expand its virtualization business by more than $6 million annually starting in early 2017. This term sheet also contains a number of customary conditions to closing, including the entry into definitive documentation by the parties.
 
Third Quarter 2016 Financial Results:
    •    Net revenue for the third quarter of 2016 was $18.5 million, compared to $18.8 million for the third quarter of 2015.
    •    Product revenue for the third quarter of 2016 was $16.5 million, compared to $16.1 million for the third quarter of 2015.
    •    Disk systems revenue was $11.1 million, compared to $10.1 million for the third quarter of 2015.  Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware-derived products.
    •    Tape archive revenue was $5.4 million, compared to $6.0 million for the third quarter of 2015.
    •    Service revenue was $2.0 million, compared to $2.7 million for the third quarter of 2015.
    •    Disk systems revenue was $11.1 million, compared to $10.1 million for the third quarter of 2015.  Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware-derived products.
    •    Tape archive revenue was $5.4 million, compared to $6.0 million for the third quarter of 2015.
    •    Service revenue was $2.0 million, compared to $2.7 million for the third quarter of 2015.
    •    Disk systems revenue for the nine months ended Sept 30, 2016 was $35.1 million, compared to $28.7 million for the nine month period ended Sept 30, 2015, which represents a 22.3% increase.
    •    Gross margin for the third quarter of 2016 was 28.0%, compared to 29.2% for the third quarter of 2015.
    •    Non-GAAP gross margin for the third quarter of 2016 was 31.1% compared to 33.0% for the third quarter of 2015.
    •    Operating expenses for the third quarter of 2016 were $47.8 million, compared to $14.5 million for the third quarter of 2015. Included in the operating expenses for the third quarter of 2016 were $34.4 million in impairment of goodwill and acquired intangible assets.
    •    Share-based compensation expense for both the third quarter of 2016 and 2015 was $2.7 million. Depreciation and amortization was $1.5 million in the third quarter of 2016, compared to $1.8 million in the third quarter of 2015.
    •    Adjusted EBITDA for the third quarter of 2016 was a net loss of $4.0 million, or an adjusted EBITDA net loss of $0.08 per share, based on 51.3 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $4.6 million, or adjusted EBITDA net loss of $0.12 per share, based on 38.7 million weighted average shares outstanding for the third quarter of 2015.
    •    Net loss for the third quarter of 2016 was $43.3 million, or a net loss of $0.84 per share, compared to a net loss of $10.2 million, or a net loss of $0.26 per share, in the third quarter of 2015.
    •    Cash and cash equivalents at September 30, 2016 were $5.0 million. In September 2016, the company entered into a term loan agreement with a related party in the amount of $2.5 million. At September 30, 2016, the company had $8.2 million outstanding under its credit facility, $10.0 million outstanding under its term loan, $24.5 million outstanding under its convertible note from a related party, and $2.5 million outstanding under its term loan from the same related party.

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