Sphere 3D Corp. (NASDAQ:ANY), a containerization,
virtualization, and data management solutions provider, today
reported financial results for its fourth quarter and fiscal year
ended December 31, 2015.
“We are making meaningful progress in realizing our strategy of
becoming a significant and trusted provider of virtualization,
containerization and hybrid cloud solutions,” said Eric Kelly, CEO
of Sphere 3D. “The key partnerships we have forged over the
last year have provided us the framework to build and grow our
business as we continue to drive adoption and to increase our sales
pipeline. As we grow the roster of enterprise customers and
go-to-market partners, we expect to transition to top line growth,
as we simultaneously focus on operational improvements to drive
shareholder value.”
Fourth Quarter 2015 Financial Results:
The following financial results for the fourth quarter of 2015
include contribution from our 2014 acquisition of Overland Storage
for the full three months and reflect contribution for a partial
period from December 2, 2014 through December 31, 2014.
Contribution from our 2015 purchase of RDX assets from Imation is
included for the full three months of the fourth quarter of 2015,
and is not reflected in the comparative results for the fourth
quarter of 2014.
- Net revenue for the fourth quarter of 2015 was $18.9 million,
compared to $9.5 million for the fourth quarter of 2014.
- Product revenue for the fourth quarter of 2015 was $16.6
million, compared to $8.6 million for the fourth quarter of 2014.
- Disk systems revenue was $11.2 million, compared to $4.9
million for the fourth quarter of 2014. Disk systems is
defined as RDX, SnapServer family, V3 virtual desktop
infrastructure, and Glassware derived products.
- Tape archive revenue was $5.4 million, compared to $3.7 million
for the fourth quarter of 2014.
- Service revenue was $2.3 million, compared to $0.9 million in
the fourth quarter of 2014.
- Gross margin for the fourth quarter of 2015 was 28.5%, compared
to 37.6% for the fourth quarter of 2014. Non-GAAP gross
margin for the fourth quarter of 2015 was 31.9%. Our methodology
for determining non-GAAP gross margin, which excludes the effect of
intangible asset amortization from gross profit, is described in
the Use of GAAP and Non-GAAP Financial Measures section of this
announcement. See also, “Non-GAAP Reconciliations”
below.
- Operating expenses for the fourth quarter of 2015 were $25.0
million, which included $10.7 million of impairment of acquired
intangible assets related to the Overland Storage acquisition,
compared to $8.4 million for the fourth quarter of 2014.
- Share-based compensation expense for the fourth quarter of 2015
was $3.1 million, compared to $0.7 million for the fourth quarter
of 2014. Depreciation and amortization was $1.7 million in fourth
quarter of 2015, compared to $1.1 million in the fourth quarter of
2014.
- Net loss for the fourth quarter of 2015 was $18.6 million, or a
net loss of $0.44 per share, compared to a net loss of $5.4
million, or a net loss of $0.20 per share, in the fourth quarter of
2014.
Adjusted EBITDA for the fourth quarter of 2015 was a net loss of
$4.4 million, or a net loss of $0.10 per share, based on 42.2
million weighted average shares outstanding, compared to adjusted
EBITDA net loss of $2.1 million, or net loss of $0.07 per share
based on 27.8 million weighted average shares outstanding for the
fourth quarter of 2014. Adjusted EBITDA is a non-GAAP measure
presented as net loss before interest expense, income taxes,
acquisition costs, depreciation and amortization, share-based
compensation, warrant liability revaluation and impairment of
acquired intangible assets. For additional information
regarding the non-GAAP financial measures discussed in this
release, please see “Use of GAAP and Non-GAAP Financial Measures”
and "Non-GAAP Reconciliations" below.
Fiscal Year Financial Results: The following
financial results for the year ended December 31,
2015 reflect contribution from the Overland Storage
acquisition for the full year and the contribution from the Imation
RDX acquisition from August 10, 2015. The Overland Storage
acquisition is reflected for a partial period from December 2,
2014 through December 31, 2014 in the comparative results for
the prior year and the contribution from the Imation RDX
acquisition is not reflected in the comparative results for the
prior year.
- Net revenue for 2015 was $76.2 million, compared to net
revenue of $13.5 million for the full year of 2014.
- Product revenue for 2015 was $65.5 million, compared to
product revenue of $12.2 million for the full year of 2014.
- Disk systems revenue was $39.8 million, compared to $8.5
million for the full year of 2014. Disk systems is defined as RDX,
SnapServer family, V3 virtual desktop infrastructure, and Glassware
derived products.
- Tape archive revenue was $25.7 million, compared to $3.7
million for the full year of 2014.
- Service revenue was $10.7 million, compared to $1.3
million for the full year of 2014.
- Gross margin for 2015 was 29.7% compared to 39.6% for
2014.
- Operating expenses for 2015 were $67.5 million, which included
$10.7 million of impairment of acquired intangible assets related
to the Overland Storage acquisition, compared to $17.4 million
for 2014.
- Net loss for 2015 was $47.2 million, or a loss
of $1.24 per share, compared to a net loss of $12.7
million, or a loss of $0.53 per share for 2014.
- Adjusted EBITDA (a non-GAAP measure presented in the same
manner described above) for 2015 was a loss of $20.5 million,
or a net loss of $0.54 per share, compared to an adjusted EBITDA of
a loss of $3.4 million, or a net loss of $0.14 per
share in 2014.
- Cash and cash equivalents at December 31,
2015 were $8.7 million. At December 31, 2015, the Company
had $17.4 million outstanding under its credit facilities ($10.0
million of which is from a related party) and $19.5 million
outstanding under its note from a related party.
Corporate Financing Update:
We have entered into a non-binding proposal with a commercial
bank which sets forth proposed terms upon which such bank would
provide us up to $20.0 million in debt financing. We are in the
process of negotiating definitive documentation relating to the new
proposed financing with the bank, which consummation will be
subject to a number of customary closing conditions for a
transaction of this nature. Assuming the closing of the financing,
we expect to use portions of the proceeds to repay our existing
credit facility with Silicon Valley Bank and to repay $5.0 million
of our related party credit facility. We would also expect the
remaining $5.0 million under our related party credit facility to
be refinanced into the outstanding convertible note. As of the date
of this report, uncertainty exists as to the ultimate completion of
these proposed transactions, and there are no assurances that our
negotiation efforts will result in any definitive agreements.
The Company has entered into a warrant exchange agreement (the
"Warrant Exchange Agreement") with an existing holder pursuant to
which the Company agreed to issue a warrant (the "New Warrant") for
the purchase of up to 7,199,216 common shares (the “Warrant
Shares”), no par value (the "Common Shares"), in a privately
negotiated exchange under Section 3(a)(9) of the Securities Act of
1933, as amended, in exchange for the surrender and cancellation of
previously outstanding warrants for the purchase of up to, in
aggregate, 3,031,249 Common Shares (the "Previously Outstanding
Warrants"). The Previously Outstanding Warrants were issued
pursuant to certain purchase and subscription agreements entered
into in May, August and September 2015.
- The terms of the New Warrant are substantially similar to the
Previously Outstanding Warrants except (i) in the case of 1,855,469
New Warrants, the exercise price has changed from $4.00 per Common
Share (under 781,250 Previously Outstanding Warrants) to $1.22 per
Common Share, (ii) in the case of 5,343,747 New Warrants, the
exercise price has changed from $2.33 per Common Share (under
2,249,999 Previously Outstanding Warrants) to $1.22 per Common
Share, and (iii) the expiry date has changed from various dates
between May 18, 2020 and September 22, 2020 to April 14, 2016.
However, if the Holder exercises the New Warrant for the purchase
of at least 3,031,249 common shares before April 14, 2016, then the
expiry date for the balance of any unexercised portion of the New
Warrant shall become March 25, 2021. On March 25, 2016, the
Holder exercised 3,031,249 of the Warrant Shares for 3,031,249
common shares pursuant to which the Company received $3.7 million
in proceeds. The expiration date for the remaining balance of the
New Warrant is March 25, 2021.
- The Holder beneficially owns Common Shares representing
approximately 6% of the issued and outstanding Common Shares and,
immediately prior to the transaction contemplated by the Warrant
Exchange Agreement (the "Warrant Exchange"), beneficially owned
Common Shares and Common Shares issuable upon exercise of the
Previously Outstanding Warrants representing approximately 12% of
the issued and outstanding Common Shares on a partially diluted
basis. Following completion of the Warrant Exchange, the Holder
beneficially will own Common Shares and Common Shares issuable upon
exercise of the New Warrants representing approximately 18% of the
issued and outstanding Common Shares on a partially diluted
basis.
- The Warrant Exchange Agreement constitutes a "related party
transaction" within the meaning of Multilateral Instrument 61-101 –
Protection of Minority Security Holders in Special Transactions
("MI 61-101"). The Company intends to file a material change report
in connection therewith with the applicable Canadian securities
regulatory authorities. However, such material change report will
not be filed at least 21 days before the completion of the Warrant
Exchange in order to allow the Company to secure the financing
opportunities relating to the Warrant Exchange.
- The Company is relying on the exemptions from the "formal
valuation" and "minority approval" requirements under MI 61-101,
respectively, based on the fact that the subject matter of, or
consideration for, the Warrant Exchange insofar as it involves
interested parties, as determined in accordance with MI 61-101,
does not exceed 25% of the market capitalization of the Company, as
determined in accordance with MI 61-101.
Use of GAAP and Non-GAAP Financial
Measures:
To supplement Sphere 3D’s consolidated financial statements
presented in accordance with GAAP, the Company uses Adjusted
EBITDA, a non-GAAP financial measure that excludes from the
statement of operations the effects of interest expense, income
taxes, acquisition costs, depreciation and amortization,
share-based compensation, warrant liability revaluation and
impairment of acquired intangible assets. The Company also uses
Non-GAAP gross profit and Non-GAAP gross-margin, non-GAAP financial
measures that exclude the effect of intangible asset amortization.
Sphere 3D uses the above non-GAAP financial measures internally to
understand, manage and evaluate its business. Management believes
it is useful for itself and investors to review, as applicable,
both GAAP information and these non-GAAP measures in order to
assess the performance of continuing operations and for planning
and forecasting in future periods. The presentation of these
non-GAAP measures is intended to provide investors with an
understanding of the Company’s operational results and trends that
enables them to analyze the base financial and operating
performance and facilitate period-to-period comparisons and
analysis of operational trends. Sphere 3D believes the presentation
of these non-GAAP financial measures is useful to investors in
allowing for greater transparency with respect to supplemental
information used by management in its financial and operational
decision-making. Non-GAAP financial measures should be
considered in addition to results prepared in accordance with GAAP,
but should not be considered substitutes for, or superior to, GAAP
results. In addition, our non-GAAP financial measures may not be
comparable to similarly titled measures utilized by other companies
since such other companies may not calculate such measures in the
same manner as we do.
Investors are encouraged to review the reconciliation of these
non-GAAP financial measures to the most comparable GAAP measures,
which are provided in the attached table after the text of this
release.
Investor Conference Call:
Sphere 3D will host an investor conference call today at 5:00
p.m. EST (2:00 p.m. PST) to discuss the Company’s 2015 fourth
quarter and fiscal year financial results. To access the
call, dial (844) 268-1747 (Toll Free) or (918) 559-5655
(International) and give the participant pass code 74336246.
Participants are asked to call the assigned number approximately 10
minutes before the conference call begins. In addition, a live and
archived webcast of the conference call will be available at
www.sphere3d.com in the Investor Relations section. A replay
of the conference call will also be available via telephone by
dialing (855) 859-2056 (Toll Free U.S. and Canada) or +1 (404)
537-3406 (International) and entering replay access code 74336246.
The replay will be available beginning approximately two hours
after the call and will remain available for one week.
About Sphere 3DSphere 3D Corp. (NASDAQ:ANY)
delivers containerization and virtualization technologies along
with data management products that enable workload-optimized
solutions. We achieve this through a combination of containerized
applications, virtual desktops, virtual storage and physical
hyper-converged platforms. Sphere 3D’s value proposition is simple
and direct—we allow organizations to deploy a combination of
public, private or hybrid cloud strategies while backing them up
with state of the art storage solutions. Sphere 3D, along
with its wholly-owned subsidiaries Overland Storage and Tandberg
Data, has a strong portfolio of brands including Glassware 2.0™,
SnapCLOUD™, SnapScale®, SnapServer®, V3®, RDX®, and NEO®. For
more information, visit www.sphere3d.com.
Safe Harbor Statement This
press release contains forward-looking statements that involve
risks, uncertainties, and assumptions that are difficult to
predict. Actual results and the timing of events could differ
materially from those anticipated in such forward-looking
statements as a result of risks and uncertainties including,
without limitation, unforeseen changes in the course of Sphere 3D’s
business or the business of its wholly-owned subsidiaries,
including, without limitation, Overland Storage and Tandberg Data;
our inability to obtain additional debt or equity financing; any
increase in our future cash needs; market adoption and performance
of our products; the level of success of our collaborations and
business partnerships; possible actions by customers, partners,
suppliers, competitors or regulatory authorities; and other risks
detailed from time to time in Sphere 3D’s periodic reports
contained in our Annual Information Form and other filings with
Canadian securities regulators (www.sedar.com) and in prior
periodic reports filed with the United States Securities and
Exchange Commission (www.sec.gov). Sphere 3D undertakes no
obligation to update any forward-looking statement, whether written
or oral, that may be made from time to time, whether as a result of
new information, future developments or otherwise, except as
required by law.
|
SPHERE 3D
CORP. |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months
Ended |
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
Net
revenue |
|
$ |
18,869 |
|
|
$ |
9,467 |
|
|
$ |
76,165 |
|
|
$ |
13,469 |
|
Cost
of revenue |
|
|
13,493 |
|
|
|
5,906 |
|
|
|
53,546 |
|
|
|
8,133 |
|
Gross
profit |
|
|
5,376 |
|
|
|
3,561 |
|
|
|
22,619 |
|
|
|
5,336 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
6,314 |
|
|
|
2,851 |
|
|
|
23,569 |
|
|
|
5,153 |
|
|
Research and development |
|
|
2,579 |
|
|
|
655 |
|
|
|
9,916 |
|
|
|
655 |
|
|
General and
administrative |
|
|
5,419 |
|
|
|
4,937 |
|
|
|
23,271 |
|
|
|
11,567 |
|
|
Impairment of acquired
intangible assets |
|
|
10,702 |
|
|
|
- |
|
|
|
10,702 |
|
|
|
- |
|
|
|
|
|
25,014 |
|
|
|
8,443 |
|
|
|
67,458 |
|
|
|
17,375 |
|
Loss
from operations |
|
|
(19,638 |
) |
|
|
(4,882 |
) |
|
|
(44,839 |
) |
|
|
(12,039 |
) |
|
Interest expense - related
party |
|
|
(594 |
) |
|
|
(207 |
) |
|
|
(2,710 |
) |
|
|
(207 |
) |
|
Interest expense |
|
|
(105 |
) |
|
|
(26 |
) |
|
|
(355 |
) |
|
|
(240 |
) |
|
Other income (expense),
net |
|
|
193 |
|
|
|
(281 |
) |
|
|
(689 |
) |
|
|
(194 |
) |
Loss
before income taxes |
|
|
(20,144 |
) |
|
|
(5,396 |
) |
|
|
(48,593 |
) |
|
|
(12,680 |
) |
(Benefit from) provision for income taxes |
|
|
(1,545 |
) |
|
|
42 |
|
|
|
(1,366 |
) |
|
|
42 |
|
Net
loss |
|
$ |
(18,599 |
) |
|
$ |
(5,438 |
) |
|
$ |
(47,227 |
) |
|
$ |
(12,722 |
) |
|
|
|
|
|
|
|
|
|
|
Net
loss per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.44 |
) |
|
$ |
(0.20 |
) |
|
$ |
(1.24 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing |
|
|
|
|
|
|
|
|
net
loss per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
42,163 |
|
|
|
27,843 |
|
|
|
37,957 |
|
|
|
24,131 |
|
|
|
|
|
|
|
|
|
|
|
SPHERE 3D
CORP. |
SELECTED BALANCE SHEETS
INFORMATION |
(In
thousands) |
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
ASSETS |
|
|
|
|
Cash
and cash equivalents |
|
$ |
8,661 |
|
|
$ |
4,258 |
|
Accounts receivable |
|
|
13,401 |
|
|
|
15,488 |
|
Inventories |
|
|
11,326 |
|
|
|
9,936 |
|
Other
current assets |
|
|
3,155 |
|
|
|
2,457 |
|
|
Total current assets |
|
|
36,543 |
|
|
|
32,139 |
|
Property and equipment, net |
|
|
3,972 |
|
|
|
4,427 |
|
Intangible assets, net |
|
|
54,019 |
|
|
|
73,271 |
|
Goodwill |
|
|
44,132 |
|
|
|
38,821 |
|
Other
assets |
|
|
445 |
|
|
|
605 |
|
|
Total assets |
|
$ |
139,111 |
|
|
$ |
149,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current liabilities |
|
$ |
46,397 |
|
|
$ |
37,051 |
|
Long-term debt — related party |
|
|
19,500 |
|
|
|
19,500 |
|
Long-term deferred tax liabilities |
|
|
2,755 |
|
|
|
4,387 |
|
Other
long-term liabilities |
|
|
2,319 |
|
|
|
3,185 |
|
Shareholders' equity |
|
|
68,140 |
|
|
|
85,140 |
|
|
Total liabilities and
equity |
|
$ |
139,111 |
|
|
$ |
149,263 |
|
|
|
|
|
|
|
SPHERE 3D
CORP. |
NON-GAAP
RECONCILIATIONS |
(In thousands except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months
Ended |
|
|
December 31, |
|
December 31, |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
18,869 |
|
|
$ |
9,467 |
|
|
$ |
76,165 |
|
|
$ |
13,469 |
|
|
|
|
|
|
|
|
|
|
Gross Profit -
GAAP |
|
$ |
5,376 |
|
|
$ |
3,561 |
|
|
$ |
22,619 |
|
|
$ |
5,336 |
|
Intangible asset
amortization |
|
|
647 |
|
|
|
- |
|
|
|
2,608 |
|
|
|
- |
|
Gross Profit -
Non -GAAP |
|
$ |
6,023 |
|
|
$ |
3,561 |
|
|
$ |
25,227 |
|
|
$ |
5,336 |
|
|
|
|
|
|
|
|
|
|
Gross Margin
Percentages |
|
|
|
|
|
|
|
|
GAAP |
|
|
28.5 |
% |
|
|
37.6 |
% |
|
|
29.7 |
% |
|
|
39.6 |
% |
Non-GAAP |
|
|
31.9 |
% |
|
|
37.6 |
% |
|
|
33.1 |
% |
|
|
39.6 |
% |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,599 |
) |
|
$ |
(5,438 |
) |
|
$ |
(47,227 |
) |
|
$ |
(12,722 |
) |
Less: |
|
|
|
|
|
|
|
|
Interest |
|
|
699 |
|
|
|
233 |
|
|
|
3,065 |
|
|
|
447 |
|
Tax |
|
|
(1,545 |
) |
|
|
42 |
|
|
|
(1,366 |
) |
|
|
42 |
|
Impairment of
acquired intangible assets |
|
|
10,702 |
|
|
|
- |
|
|
|
10,702 |
|
|
|
- |
|
Depreciation and
amortization |
|
|
1,713 |
|
|
|
1,127 |
|
|
|
7,450 |
|
|
|
3,453 |
|
Share-based
compensation |
|
|
3,137 |
|
|
|
658 |
|
|
|
7,154 |
|
|
|
3,253 |
|
Acquisition
costs |
|
|
- |
|
|
|
1,308 |
|
|
|
218 |
|
|
|
2,166 |
|
Warrant
revaluation gain |
|
|
(478 |
) |
|
|
- |
|
|
|
(478 |
) |
|
|
- |
|
Adjusted
EBITDA |
|
$ |
(4,371 |
) |
|
$ |
(2,070 |
) |
|
$ |
(20,482 |
) |
|
$ |
(3,361 |
) |
|
|
|
|
|
|
|
|
|
Net loss per
share: |
|
|
|
|
|
|
|
|
Basic and
diluted |
|
$ |
(0.44 |
) |
|
$ |
(0.20 |
) |
|
$ |
(1.24 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
|
|
|
Adjusted Net loss
per share: |
|
|
|
|
|
|
|
|
Basic and
diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.54 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
|
|
Shares used in
computing |
|
|
|
|
|
|
|
|
net loss and
adjusted net loss per share: |
|
|
|
|
|
|
|
|
Basic
and diluted |
|
42,163 |
|
|
|
27,843 |
|
|
|
37,957 |
|
|
|
24,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures:To supplement
Sphere 3D’s consolidated financial statements presented in
accordance with GAAP, the Company uses non-GAAP financial measures
that exclude from the statement of operations the effects of
interest expense, income taxes, impairment of acquired technology,
depreciation and amortization, share-based compensation,
acquisition costs, and warrant liability revaluation. These
non-GAAP financial measures are non-GAAP gross margin and adjusted
EBITDA. Sphere 3D uses the above non-GAAP financial measures
internally to understand, manage and evaluate its business.
Management believes it is useful for itself and investors to
review, as applicable, both GAAP information and these non-GAAP
measures in order to assess the performance of continuing
operations and for planning and forecasting in future periods. The
presentation of these non-GAAP measures is intended to provide
investors with an understanding of the Company’s operational
results and trends that enables them to analyze the base financial
and operating performance and facilitate period-to-period
comparisons and analysis of operational trends. Sphere 3D believes
the presentation of these non-GAAP financial measures is useful to
investors in allowing for greater transparency with respect to
supplemental information used by management in its financial and
operational decision-making. Non-GAAP financial measures should be
considered in addition to results prepared in accordance with GAAP,
but should not be considered substitutes for or superior to GAAP
results. In addition, our non-GAAP financial measures may not be
comparable to similarly titled measures utilized by other companies
since such other companies may not calculate such measures in the
same manner as we do.
Investor Contact:
The Blueshirt Group
Mike Bishop
Tel: +1 415-217-4968
mike@blueshirtgroup.com
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