Sphere 3D Reports 2016 Third Fiscal Quarter Financial Results
November 14 2016 - 4:05PM
Sphere 3D Corp. (NASDAQ:ANY), a containerization,
virtualization, and data management solutions provider, today
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
significantly scale our business,” said Eric Kelly, chairman and
chief executive officer of Sphere3D. “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 virtual desktop
infrastructure, 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. 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 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. Adjusted EBITDA
is a non-GAAP measure presented as net loss before interest
expense, income taxes, depreciation and amortization, share-based
compensation, acquisition costs and impairment of goodwill and
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.
- 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 our purchase of RDX assets from Imation
in August 2015.
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, depreciation and amortization, share-based compensation,
acquisition costs and impairment of goodwill and 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 2:00
p.m. PST (5:00 p.m. EST) to discuss the Company’s 2016 third
quarter financial results. To access the call, dial (844)
268-1747 (Toll Free) or (918) 559-5655 (International) and give the
participant pass code 9436993. 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 9436993. 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 data management, and desktop and application
virtualization solutions via hybrid Cloud, Cloud and on-premise
implementations through its global reseller network. Sphere
3D, along with its wholly-owned subsidiaries Overland Storage and
Tandberg Data, has a strong portfolio of brands including Glassware
2.0™, NEO®, RDX®, SnapCLOUD™, SnapScale®, SnapServer®, SnapSync™
and V3®. For more information, visit www.sphere3d.com. Follow
us on Twitter @Sphere3D, @overlandstorage, and @tandbergdata
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, our inability to complete the transactions
contemplated by the term sheets described in this press release or
comparable transactions; our inability to comply with the covenants
in our credit facilities or to obtain additional debt or equity
financing; any increase in our future cash needs; the Company’s
ability to regain compliance with the minimum bid price requirement
of the NASDAQ Global Market; the Company’s ability to transfer the
listing of its common stock to the NASDAQ Capital Market if it is
not able to regain compliance with the NASDAQ Global Market listing
standards and its ability to maintain listing with such market;
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; 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 |
|
Nine Months
Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
Net
revenue |
|
$ |
18,459 |
|
|
$ |
18,796 |
|
|
$ |
57,670 |
|
|
$ |
57,296 |
|
Cost of
revenue |
|
|
13,289 |
|
|
|
13,299 |
|
|
|
40,746 |
|
|
|
40,053 |
|
Gross
profit |
|
|
5,170 |
|
|
|
5,497 |
|
|
|
16,924 |
|
|
|
17,243 |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
Sales and
marketing |
|
|
5,259 |
|
|
|
6,145 |
|
|
|
17,582 |
|
|
|
17,255 |
|
|
Research and
development |
|
|
2,222 |
|
|
|
2,423 |
|
|
|
6,930 |
|
|
|
7,337 |
|
|
General and
administrative |
|
|
5,874 |
|
|
|
5,926 |
|
|
|
16,474 |
|
|
|
17,852 |
|
|
Impairment of goodwill
and acquired intangible assets |
|
|
34,398 |
|
|
|
- |
|
|
|
34,398 |
|
|
|
- |
|
|
|
|
|
47,753 |
|
|
|
14,494 |
|
|
|
75,384 |
|
|
|
42,444 |
|
Loss from
operations |
|
|
(42,583 |
) |
|
|
(8,997 |
) |
|
|
(58,460 |
) |
|
|
(25,201 |
) |
|
Interest expense -
related party |
|
|
(572 |
) |
|
|
(798 |
) |
|
|
(2,425 |
) |
|
|
(2,116 |
) |
|
Interest expense |
|
|
(322 |
) |
|
|
(89 |
) |
|
|
(770 |
) |
|
|
(250 |
) |
|
Other (expense) income,
net |
|
|
(104 |
) |
|
|
(348 |
) |
|
|
626 |
|
|
|
(882 |
) |
Loss before
income taxes |
|
|
(43,581 |
) |
|
|
(10,232 |
) |
|
|
(61,029 |
) |
|
|
(28,449 |
) |
(Benefit
from) provision for taxes |
|
|
(289 |
) |
|
|
(2 |
) |
|
|
(53 |
) |
|
|
179 |
|
Net
loss |
|
$ |
(43,292 |
) |
|
$ |
(10,230 |
) |
|
$ |
(60,976 |
) |
|
$ |
(28,628 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.84 |
) |
|
$ |
(0.26 |
) |
|
$ |
(1.25 |
) |
|
$ |
(0.78 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used
in computing |
|
|
|
|
|
|
|
|
net
loss per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
51,300 |
|
|
|
38,683 |
|
|
|
48,840 |
|
|
|
36,540 |
|
|
|
|
|
|
|
|
|
|
|
SPHERE 3D
CORP. |
SELECTED BALANCE SHEETS
INFORMATION |
(In
thousands) |
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
ASSETS |
|
|
|
|
Cash and
cash equivalents |
|
$ |
5,009 |
|
|
$ |
8,661 |
|
Accounts
receivable |
|
|
10,371 |
|
|
|
13,401 |
|
Inventories |
|
|
10,676 |
|
|
|
11,326 |
|
Other
current assets |
|
|
2,063 |
|
|
|
3,155 |
|
|
Total current
assets |
|
|
28,119 |
|
|
|
36,543 |
|
Property
and equipment, net |
|
|
3,390 |
|
|
|
3,972 |
|
Intangible
assets, net |
|
|
49,157 |
|
|
|
54,019 |
|
Goodwill |
|
|
11,068 |
|
|
|
44,132 |
|
Other
assets |
|
|
386 |
|
|
|
445 |
|
|
Total assets |
|
$ |
92,120 |
|
|
$ |
139,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
Current
liabilities |
|
$ |
25,389 |
|
|
$ |
46,397 |
|
Long-term
debt — related party, net |
|
|
24,906 |
|
|
|
19,500 |
|
Long-term
debt, net |
|
|
16,353 |
|
|
|
- |
|
Long-term
deferred tax liabilities |
|
|
2,431 |
|
|
|
2,755 |
|
Other
long-term liabilities |
|
|
1,611 |
|
|
|
2,319 |
|
Shareholders' equity |
|
|
21,430 |
|
|
|
68,140 |
|
|
Total liabilities and
equity |
|
$ |
92,120 |
|
|
$ |
139,111 |
|
|
|
|
|
|
|
SPHERE 3D
CORP. |
|
NON-GAAP
RECONCILIATIONS |
|
(In thousands except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
18,459 |
|
|
$ |
18,796 |
|
|
$ |
57,670 |
|
|
$ |
57,296 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit -
GAAP |
|
$ |
5,170 |
|
|
$ |
5,497 |
|
|
$ |
16,924 |
|
|
$ |
17,243 |
|
|
Intangible asset
amortization |
|
|
577 |
|
|
|
704 |
|
|
|
1,753 |
|
|
|
1,961 |
|
|
Gross Profit - Non
-GAAP |
|
$ |
5,747 |
|
|
$ |
6,201 |
|
|
$ |
18,677 |
|
|
$ |
19,204 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
Percentages |
|
|
|
|
|
|
|
|
|
GAAP |
|
|
28.0 |
% |
|
|
29.2 |
% |
|
|
29.3 |
% |
|
|
30.1 |
% |
|
Non-GAAP |
|
|
31.1 |
% |
|
|
33.0 |
% |
|
|
32.4 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(43,292 |
) |
|
$ |
(10,230 |
) |
|
$ |
(60,976 |
) |
|
$ |
(28,628 |
) |
|
Less: |
|
|
|
|
|
|
|
|
|
Interest |
|
|
894 |
|
|
|
887 |
|
|
|
3,195 |
|
|
|
2,366 |
|
|
Provision
for taxes |
|
|
(289 |
) |
|
|
(2 |
) |
|
|
(53 |
) |
|
|
179 |
|
|
Impairment of goodwill and acquired intangible assets |
|
|
34,398 |
|
|
|
- |
|
|
|
34,398 |
|
|
|
- |
|
|
Acquisition costs |
|
|
- |
|
|
|
218 |
|
|
|
- |
|
|
|
218 |
|
|
Depreciation and amortization |
|
|
1,540 |
|
|
|
1,809 |
|
|
|
4,694 |
|
|
|
5,737 |
|
|
Share-based compensation |
|
|
2,733 |
|
|
|
2,695 |
|
|
|
7,436 |
|
|
|
4,017 |
|
|
Warrant
revaluation gain |
|
|
- |
|
|
|
- |
|
|
|
(348 |
) |
|
|
- |
|
|
Adjusted EBITDA |
|
$ |
(4,016 |
) |
|
$ |
(4,623 |
) |
|
$ |
(11,654 |
) |
|
$ |
(16,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.84 |
) |
|
$ |
(0.26 |
) |
|
$ |
(1.25 |
) |
|
$ |
(0.78 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss per
share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.08 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing |
|
|
|
|
|
|
|
|
|
net loss
and adjusted EBITDA per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
51,300 |
|
|
|
38,683 |
|
|
|
48,840 |
|
|
|
36,540 |
|
|
|
|
|
|
|
|
|
|
|
|
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 goodwill and acquired
intangible assets, acquisition costs, depreciation and
amortization, share-based compensation, and warrant revaluation
gain. 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 the
business. Management believes it is useful for itself and investors
to review, as applicable, both GAAP information and the 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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