Good afternoon, my name is Luke and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Fiscal Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Lauren Sloane, Investor Relations for Sphere 3D, you may begin your conference.

Thank you, operator, and good afternoon everyone and thank you for joining Sphere 3D's earnings conference call for the fourth quarter and fiscal year of 2015. With me on the call today are Eric Kelly, Chairman and Chief Executive Officer; Kurt Kalbfleisch, our Chief Financial Officer; and Peter Tassiopoulos, our Vice Chairman and President. Prior to the call we distributed our Q4 and fiscal year 2015 earnings release over the wire posted services and I've posted it on our website at investors.sphere3d.com. The call is also being webcast and a replay will be available on the Investor Relations website of our website for 30 days. Before we begin, I would like to remind you that during today's call, we be making forward-looking statements regarding future events and expectations. We caution you that such statements reflect our judgment as of today, March 30, based on factors that are currently known to us and our actual future events and results could differ materially due to a number of factors, many of which are beyond our control. For a more detailed discussion of risks and uncertainties affecting our future results, we refer you to our filings with the SEC including the Annual Report on Form 40-S we filed earlier today which contains our Q4 and fiscal year 2015 financial results. Sphere 3D disclaims any obligation to update or revise these forward-looking statements to reflect future events or circumstances. During the call, we will also discuss non-GAAP financial measures unless we specifically say otherwise. The non-revenue financial measures we will discuss today are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the GAAP and non-GAAP results been provided in today's press release is posted on the investor relations section of our website. Before turning the call to management, I would like to remind listeners to visit the Sphere 3D Investor Relations website, to like to receive real-time email alerts on the company's financial news, including press releases, financial filings and corporate update. We also invite you to go to the in the news section of the Sphere 3D website to see the latest news coverage for media, analyst and our partners. With that, I'll turn the call to Eric. Please go ahead.

Thank you, Lauren, good afternoon and thank you for joining us today to discuss our fourth quarter and year end results. We are pleased with the progress we are making, transitioning the company to achieve our vision to create the complete cloud experience for everyone. And there are many positive developments that provide a deep confidence for a strong future for Sphere 3D. Though we have not yet seen many of these developments turn into a robust top line growth, we do expect to see them come to fruition based on some of the leading indicators in partnerships and customer engagements that we will be reviewing with you today. My confidence stems in part from the fact that we have received validation that our strategy is working. Sphere 3D has developed leading edge virtualization and containerization technology. And the company strategy to commercialize it was to acquire leading storage and hyper converge platform in IT. And then integrate the technology into product and solution set to drive the virtualization, application containerization and hybrid cloud storage revenue. Sphere 3D acquisition of V3 and Overland storage in 2014 have enabled us to see this vision come to reality which I will discuss in a moment. Our technological advantage is being cemented by increasing number of patents. We currently have 88 patents granted and 56 patents pending. We have recently been granted several key virtualization and replication patents and 60% of our patent pending are related to virtualization, containerization and storage replication technologies. We provide a unique hybrid cloud product portfolio that range from delivering application containerization solution that enable our customers the freedom to run their applications on any device to our desktop virtualization platform that dramatically improves the customer's ROI, increasing their user productivity and business continuity. Coupled with the industry's…

Thank you, Eric, and good afternoon everyone. Let me provide some details on our financial results for the fourth quarter and full year. Please note that the following financial highlights for 2015 reflect the addition of the Overland business and operations and the addition of RDX products acquired August 10 for the full quarter. Total revenue for the fourth quarter of 2015 was $18.9 million up from $18.8 million from the third quarter of 2015 and up from $9.5 million in the same quarter 2014. OEM revenue for this quarter was $3.3 million compared to $3 million in the preceding quarter with branded product revenue of $13.3 million compared to $13.1 million in the third quarter. Warranty and service revenue was $2.3 million in the fourth quarter compared to $2.7 million in third quarter of 2015 and $0.9 million in the same quarter of 2014. Regionally the branded product revenue was 16% in APAC, 26% in Americas and 58% in the EMEA. Total product revenue for the fourth quarter was $16.6 million up from $16.1 million in the preceding quarter and up from $8.6 million in the same quarter from the prior year. Details on product revenue: DISK system revenue was $11.2 million in the fourth quarter up from $10.1 million in the preceding quarter an increase of 10.9% over the third quarter and up from $4.9 million in the fourth quarter of 2014. Tape Automation, Tape drive and other related revenue was $5.4 million in the fourth quarter compared $6 million in the third quarter of 2015 and up from $3.7 million in the fourth quarter 2014. Our gross margin for the fourth quarter was 28.5% compared to 29.2% and 37.6% for the fourth quarter of 2014. Gross margin includes the amortization of intangible assets and cost of goods…

Thank you, Kurt. First of I sound a little repetitive to some of you that have been on our calls before. I apologize in advance. But I did want to quickly address couple of updates and clarification around the technology products and what got us here. I am going to start with Glassware. We pioneered the development of the first container for Windows based End User computing applications. We call it Glassware 2.0 and it's an alternative to traditional virtual technologies for server based computing. Its high performance, high density and highly scalable server based platform and it was designed to achieve significance performance advantages over alternative approaches. It's also designed for greater success in migrating physical hosted applications. Just like those that will be on you PC today, it's a virtual environment. I don't plan on getting into a deep technical dive but encourage you to check into some of our blogs and watch for new ones. I did however, wanted to clarify that Glassware is a technology and not a product name. When we started out a few years ago, naturally we have referred to everything in Glassware development cycle so we will take some ownership here for that full part for sure. The way to look at Glassware is that there is a number of unique components that can be bundled to create products or whose architectural unique capabilities can add value to other products. Because at a later point many of the Glassware components an architecture are finding their way into other parts of our portfolio. There are a number of Glassware components including stuff that has been talked here like containers and micro-visors etcetera. And I am not going to go into that list today. However, I do want you to understand that we do…

Thank you, Peter. With the improved capital structure that Kurt described including the elimination of 100% of our short term debt and the improved go to market with some of our very significant partners creating greater awareness of Sphere 3D, what can we expect from the company? First, we expect that our completely revamped and competitive V3 solutions coupled with our expanded partnerships to drive sales of our hybrid cloud solutions. And in fact since the announcement of partnership with VMware our converged infrastructure pipeline has increased tenfold. We also have commitment for a dozen proof of concepts we feel we see the range and value for average approximately 50,000 each. Second, we expect the new staff offering with effective pricing that ranges between $599 and $999 per user per month for a complete solution including SnapServer on premise and SnapCloud on Azure or both to add additional recurrent revenue streams to our business. Third, we are seeing some very exciting things happen at the direct customer level. Just in the fourth quarter we had sales to more than 30 Fortune 500 companies and more than 60 large household known brands. And we have used those opportunities to evangelize Sphere 3D and the benefits we can bring with the hybrid cloud offering. Also, our partnerships with industry heavy weights have given us access to large multi-million dollar opportunities with large corporations. These opportunities were we were not considered before. We continue to amass a roster very strong go to market partners. We are being told that the opportunities to work with them is because of our technology and our integrated product portfolio which compliments their product and service offerings. As is always the case, these large entities take time to mobilize but much of the work has been done. With that said frankly we expect to save the value in our technology and investment in these partnerships to improve our income statement. Given that we are at the end of our calendar first quarter, we expect the first quarter top-line similar to the fourth quarter 2015. However, we expect to see significant customer adoption of our new technology compared to the previous quarter. At this time I would like to turn the call over to the operator to open the lines for questions.

[Operator Instructions] Your first question comes from the Daniel Amir of Ladenburg, your line is open.

Yes, thanks a lot. Thank you for taking my call. So, a couple of questions here. First of all in terms of the ramp here given that you are expecting Q1 to be similar to Q4, should we expect a bigger hockey stick later on in the year, is this as you expected a couple of quarters ago? Because it seems like that previously you might have communicated you would start seeing a bigger revenue ramp by this point so it will be great to get a little clarification on that? Thanks.

Daniel, thanks for the question. What we expected was that to have a hockey stick a little sooner. But what we are seeing with the number of PLCs that we have deployed, the large deals that we are seeing and we do see that when 2016 ends we think we will be hitting the numbers that we expect. But the good news is we have with our partnerships felt with Microsoft and VMware, the partnerships that we are developing through a broader ecosystem, we see a pretty healthy pipeline as I mentioned our pipeline has gone up 10x since we announced the partnership a few months ago.

So, in terms of the overall customers I guess, which we should expect coming here over from VMware and Microsoft relationship, can you give a little more quantifying how you achieved the ramp in the next few quarters from the newer ramps?

Yes Daniel, we haven't given guidance in terms of what quarter-by-quarter but what I can share with you is typically with the, when you bring on PLCs you bring on with the large customers and large multi-million dollar deals, you see that evolving over time. So you start with the PLC, they adopt the technology and then you start seeing the ramp but we haven't given out any specific numbers. I don't know if you want to add to that Peter?

Daniel, this is Kurt, I would like to just kind of reflect this increase in pipeline gives us good confidence with the growth coming and we expect there to be growth in Q2 but we expect majority to be in the second half of the year.

Okay great and then last question is just on the competitive environment. Have you seen any changes here in the past quarter or since you launched with respect to the competitive environment? Thanks.

Yes, Daniel. I will take that. The competitive environment is pretty much what we expected and I think what we are seeing with our new technology, our portfolio, we actually are very well positioned with the competitors but yes, no surprises from that standpoint, thank goodness right?

Okay great. Thanks a lot. I will get back in the queue.

Okay great. Good talking to you.

Your next question comes from the lines of Krishna Shankar from ROTH Capital, your line is open.

Hi, Krishna.

Krishna Shankar, your line is open.

Looks like we may have lost him.

Your next question comes from the line of Mark Wheeler [ph], private investor. Your line is open.

Hi Peter, I've got two questions for you. The first is, we haven't heard anything on this call about Novarad and your partnership with them, and what's happening there? Could you give us some color with that, with some details there?

Sure Mark, I would pass it over to -- first of all, good talking to you. I'll pass that over to Peter.

Yes, absolutely. I assume you may be aware we are at hands with Novarad presenting some of the new capabilities that we talked about today. People did get a chance to see ability to deliver VDI and glassware of a single portal and be able to actually get a 100% of their applications across with whatever is most efficient for it. From a financial perspective, I think it falls into the guidance side, it's kind of difficult for us to give any guidance on where Novarad is. We did go back, we did -- even call it a full reset but we did definitely changed the product portfolio to include the full VDI as well as the glassware piece within their offering in order to make sure that we can address a 100% of what they were looking for which is in keeping with what their expectations were as they went out to the field and realized that they could actually deliver a much larger offering and a much deeper offering into the IT departments that they were selling into. So we'll obviously keep you guys updated on the Novarad side, and I believe that you guys will see some blogs as well as some video from the show pretty shortly.

Okay, thank you very much. And the next question is just on financing. It looks like you've cleaned up the balance sheet with this and do you anticipate that this will be enough money to get you to breakeven or profitability, have you anticipated any future financings?

I'll give that one to Kurt.

Yes, this is Kurt. The completion of the proposed bank financing will go long ways to cleaning up the balance sheet as you noted and at this point we don't have anything post cleaning that up that would reflect any necessary financing.

Okay, fair enough. All right, that's all for me. Thanks so much.

Your next question comes from the line of Hubert Mak from Cormark Securities. Your line is open.

Hi, guys.

Hey, Hubert, how are you doing?

Good. My first question is just regarding the write-down here on the intangibles. I think I heard that part of it is related to sort of partner channel. Is there any way you can secure a little more color to cause of this write-down because one of the things I thought that the acquisition was also the channel which has helped you push that sort of integrated conversion products. So I'm just trying to understand what's causing this sort of write-down on intangibles.

Great question, Hubert. Kurt, you want to start with that?

Yes, Hubert, this is Kurt. The issue around it is primarily timing. And at the time of the acquisition of Overland, there is obviously a significant amount of acquired intangible assets that were put on the balance sheet. And so as we went through our year end reviews, we felt it was appropriate to review it and through the third-party review, there was some impact and again, it's not because that the channel has lost value, a lot of it is related to timing and changing in some of our focus in how we leverage that channel.

So is it technology or is it just a go-to-market strategy? I'm just still…

The way that it was broken down was into three buckets, it was -- there was a very -- the smallest amount was related to developed technology and all this is acquired technology through the Overland acquisition. The remainder was split relatively evenly between partner relationships and trade names. And so those were the three pockets of the intangible asset write-down.

Okay. If I can give you a little color as well, just to understand Hubert. We made a lot of shifts to the portfolio we talked about rationalizing some of the portfolio, we've talked about, we've exited to certain degree most of the media side of our business. In addition to that, the new products that we announced with B3 includes SmartNotes. SmartNotes support B7 which kind of makes it redundant to have all these trademarks around our own product, right. And so a lot of it has to do with some of the rationalization around the portfolio as well and on the channel side, we made it pretty clear that we are focusing on a smaller subset of our channel partners so that they have greater degree of success, naturally that means the channel value from a shared numbers perspective would drop. Now I hope that adds a little bit of color?

That's helpful. I guess the other question is on the revenue side, I know we all try to understand how the growth trajectory is going to happen. Would you sort of -- the quantity of the quality of some of the larger deals, when they are going to -- I guess, give you a meaningful lift and how that pipeline is building and where it's going to be coming from in terms of the partnership, is it primarily going to be Microsoft, same way you can just kind of give us some color on that?

This is Eric. As I mentioned, our pipeline is growing significantly. I mean I mentioned that the next move in our pipeline is pretty dramatic. The deal sizes are increasing as well but at this point we can't really project or predict it's going to close this month or two months from now. So We can't really give you that much guidance but what I can share you just from the indications that we're getting, with our pipeline increasing, the deal size increasing, the number of customers that we're now engaged with, with our strategic partners, Microsoft and VMware, that previous to those partnerships; we weren't involved in. So I mean all of the signals are giving me a lot of confidence in terms of what we're doing and the strategy that we're deploying but melting it down to a specific date and time, I don't think I want to do that at this point.

Okay. And I just want to clarify, the 10X here, is that year-over-year or when is the time in terms of how -- just that part.

No, that's right. We're saying that 10X improvement in our pipeline has derived since we launched the partnership with VMware.

So we're talking quarter-over-quarter?

Yes, yes.

Okay. And lastly, this PLC, like how -- typically, how does it convert in terms of having -- like, it takes six month period, one year period based on experience?

I can handle that one Eric. PLC is rolled into pilots, right, and pilots rolled into full on deployments. And don't consider the pilots to be necessarily small sized transactions either. So there is a timeline. Now one of the reasons in part of our strategy and what we've done hopefully is visible with some of the new product integrations we've done, is we're able to insert ourselves -- I mean some of our pipeline has come from deals that started three months ago, four months ago, six months ago, that suddenly we got invited to come in and produce competitive versions of what they're looking for. And so we kind of circumvent the sales cycle by having this ability and that's why the reason of pipeline is coming in. So you will see PLC turning to pilots, you'll see pilots that were based on third-party technologies get augmented with our technology and suddenly we end up in the second phase as part of it. So if you look at the traditional sales cycle for VDI, small scale, three months; large scale, nine months; we're able to insert ourselves beyond the initial contact into middle of it and that's one of the reasons why we've got this high level of confidence as what's going to happen next.

Okay, great. I'll go back in queue. Thank you.

Your next question comes from the line of Krishna Shankar from ROTH Capital. Your line is open.

Hey Krishna? We keep losing him.

Krishna Shanker, your line is open.

Can you hear me, Eric?

I can Krishna, how you're doing?

Good. So for 2016, can you quantify or give us some sense of the growth driven by VMware versus Microsoft as your development contributions of the two partnerships? And what type of customers are deploying VMware versus what you're seeing with Microsoft is your deployment?

Great question. Krishna, I don't have the breakout for you but I can tell you it's the different type of -- it could be one of the customer's go-to-market strategy to deliver it but with Microsoft it's really around the platform. They are both, that want to be in the cloud leveraging the marketplace and looking for kind of a consumption model. The VMware solution is really around delivering it on premise and there are some hybrid solutions as well using VSN but primarily it's on premise. So little bit different focused and the customers that are looking for cloud, some of them looking for on premise and this is the reason why the two partnerships are so important because they allow them to deliver a full hybrid cloud offering where they can actually, for example, have storage on premise of have storage in the cloud where we have glassware, our G-Series in the cloud and we have glass, we're going to create it into the VMware portal and their platform. But we haven't really segmented that as of yet Krishna.

Okay. And then third, at a high level given that you would expect growth to resume in Q2 and accelerate in the second half, would you expect significant revenue growth for 2016 versus 2015? And can you also comment on what gross margins are likely to be qualitatively in Q1 versus the recently ended quarter?

Yes, Krishna, let me -- I will try to get to that, it's going to be difficult for me to reference how large the growth will be based on what you're looking forward. We do expect to see some growth in Q2 and then more significant growth in the latter half of the year based on the pipeline and how we're seeing these deals hopefully start to line up. In regards to margins, I think that will fall as well in regards to the product mix and I think that we'll see -- I think it will be relatively stable in Q1 along with the top line being in that range, and then I think that they will start to continue to improve again in the latter half of the year.

Okay. And what is the share count we should assume for Q1? And then in Q2 assuming -- I mean you've had this recent warrant deal, and then can you give us a sense of how we should model share counts going forward?

Yes, in Q1 I think it would be about $40 million to $45 million for Q1 on an average basis. After that I think you'll get the effect of what we did and that should move it up about $3 million.

Okay. All right, thanks. And then any significant changes in OpEx trends going into Q1 and Q2?

I don't think you'll see anything significant. We talked previously about the reductions we've made, second half of 2015 versus first half was about 13% reduction. And I think we'll have probably another 5% over the course of the first half of 2016 but I think that's where it will stabilize based on the plan we have now.

And you mean a 5% reduction. Correct, Kurt?

Correct, a 5% reduction in the first half of 2016 compared to the latter half of 2015.

Okay. Good, thank you. That does it for me.

Thank you, Krishna.

There are no further questions at this time. I turn the call back over to presenters.

Thank you, operator. I would just like to say in closing, our partnership with Microsoft and VMware continue to expand and get stronger every quarter. I'll encourage you to take a moment and go to our website, in the news section of our website, and view the VMware horizon air announcement highlighting Sphere 3D. The converge infrastructure pipeline as we discussed has increased ten-fold in the last few months. And I anticipate the improved capital structure in place that will eliminate 100% of our short-term debt. This gives me even more confidence that our strategy in transforming the company to a leader and enterprise cloud infrastructure is working and we return value to our shareholders. Again, I would like to thank you for joining the call today. And operator, this will conclude our earnings call. Thank you.

Thank you for your time. You may now disconnect.