Sphere 3D: Fiscal 4Q16 Financial Results

Sphere 3D Corp. reported financial results for its fourth quarter and fiscal year ended December 31, 2016.

“In the fall of 2016 we articulated a plan to provide for a solid foundation for growth,” said Eric Kelly, chairman and CEO. “Since then we have steadily executed to achieve strategic milestone, including the cost rationalization we highlighted in our recent corporate update (see news March 13, 2017), as well as the strengthening of the balance sheet.In addition, the acquisitions of HVE and UCX earlier this year are driving a number of new customer wins, as have recently been announced. These factors give us confidence that we have positioned the company for revenue growth and profitability.”

Fourth Quarter 2016 Financial Results:
    •    Net revenue was $18.7 million, compared to $18.9 million for the fourth quarter f 2015.
    •    Product revenue was $16.8 million, compared to $16.6 million for the fourth quarter of 2015.
    – Disk systems revenue was $11.6 million, compared to $11.2 million for the fourth quarter of 2015. Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware derived products.
   – Tape archive product revenue was $5.2 million compared to $5.4 million for the fourth quarter of 2015.
   – Service revenue was $1.9 million, compared to $2.3 million in the fourth quarter of 2015.
    •    Gross margin was 28.9%, compared to 28.5% for the fourth quarter of 2015. Non-GAAP gross margin for the fourth quarter of 2016 and 2015 was 31.9%.
    •    Operating expenses were $10.8 million, compared to $25.0 million for the fourth quarter of 2015. Included in the operating expenses for the fourth quarter of 2015 was $10.7 million in impairment of acquired intangible assets.
    •    Share-based compensation expense was $1.7 million, compared to $3.1 million for the fourth quarter of 2015. Depreciation and amortization was $1.5 million in fourth quarter of 2016, compared to $1.7 million in the fourth quarter of 2015.
    •    Adjusted EBITDA was a net loss of $2.4 million, or a net loss of $0.05 per share, based on 52.4 million weighted average shares outstanding, compared to adjusted EBITDA net loss of $4.4 million, or net loss of $0.10 per share based on 42.2 million weighted average shares outstanding for the fourth quarter of 2015. Adjusted EBITDA is a non-GAAP measure presented as net loss before interest expense, income taxes, impairment of goodwill and acquired intangible assets, acquisition costs, depreciation and amortization, share-based compensation, and warrant revaluation gain.
    •    Net loss was $7.5 million, or a net loss of $0.14 per share, compared to a net loss of $18.6 million, or a net loss of $0.44 per share, in the fourth quarter of 2015.

Fiscal Year Financial Results:
    •    Net revenue for 2016 was $76.4 million, compared to net revenue of $76.2 million for the full year of 2015.
    •    Product revenue for 2016 was $68.1 million, compared to product revenue of $65.5 million for the full year of 2015.
    – Disk Systems revenue was $46.8 million, compared to $39.8 million for the full year of 2015. Disk systems is defined as RDX, SnapServer family, V3 VDI, and Glassware derived products.
   – Tape archive revenue was $21.3 million, compared to $25.7 million for the full year of 2015.
    – Service revenue was $8.3 million, compared to $10.7 million for the full year of 2015.
    •    Gross margin for 2016 was 29.2% compared to 29.7% for 2015.
    •    Operating expenses were $86.2 million, which included $34.4 million in impairment of goodwill and acquired intangible assets. Operating expenses for 2015 were $67.5 million, which included $10.7 million in impairment of acquired intangible assets.
    •    Share-based compensation expense was $9.1 million, compared to $7.2 million for 2015. Depreciation and amortization was $6.2 million in 2016, compared to $7.5 million in 2015.
    •    On a non-GAAP basis, adjusted EBITDA was a loss of $14.1 million, or a net loss of $0.28 per share, based on 49.7 million shares outstanding, compared to an adjusted EBITDA of a loss of $20.5 million in 2015, or a net loss of $0.54 per share, based on 38.0 million shares outstanding.
    •    Net loss for 2016 was $68.5 million which included $34.4 million in impairment of goodwill and acquired intangible assets, or a loss of $1.38 per share, compared to a net loss of $47.2 million which included $10.7 million in impairment of acquired intangible assets, or a loss of $1.24 per share for 2015.
    •    Cash and cash equivalents at December 31, 2016 were $5.1 million, compared to cash and cash equivalents of $8.7 million at December 31, 2015.

The company intends to return to its normal financial results and conference call schedule with the first quarter of 2017.

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