Sphere 3D Corp. (ANY) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon, my name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Sphere 3D First Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the call over to 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 first quarter 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 Q1 earnings release over the wire services and we've posted it on our web site at investors.sphere3d.com. This call is also being web cast and a replay will be available on the Investor Relations section of our website for 30 days. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements regarding future events and expectations. We caution you that such statements reflect our judgment as of today, May 12th, 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 Form 6-K we filed earlier today which contains our Q1 fiscal year 2016 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 state otherwise, the non-revenue financial measures we will discuss today are not prepared in accordance with the Generally Accepted Accounting Principles. A reconciliation of the GAAP and non-GAAP results is provided in today's press release and is posted on the Investor Relations section of our web site. With that, I'll turn the call over to Eric. Please go ahead.

Thank you, Lauren. Good afternoon and thank you for joining us today to discuss our first quarter 2016 results. Although only six weeks have passed since our last quarterly update, we have continued to progress on our strategy to delivering virtualization in storage operating, by allowing organizations to deploy a combination of public, private and hybrid cloud solutions, and we continue to work towards our company vision, to deliver a complete cloud experience for everyone, by delivering solutions that enable our customers track their enterprise applications and their business critical data, anywhere, anyplace, anytime. Today, we would like to provide you with an update on partnerships, customer engagements and other corporate developments, that are driving our progress and execution to our strategic plan. However, before we provide the update, I'd like to quickly summarize the financial results for this quarter. First quarter revenue increased to $19.6 million, up from $18.9 million last quarter. This system's revenue for the first quarter increased to $12.2 million from $11.2 million in the fourth quarter of 2015, which represents an 8% increase quarter-over-quarter. The disk systems' revenue category is defined to include RDX, SnapServer Family, V3 Virtualization Desktop Infrastructure and Glassware 2.0 derivative products. I am also encouraged that our first quarter non-GAAP gross margin increased 140 basis points to 33.3% from 31.9% in the fourth quarter of 2015. In comparison to Q1 2015, adjusted EBITDA losses have shrank from $6.1 million to $3.1 million, a reduction of almost 50%. Despite this progress, I can assure that the company is committed to continue to make operational improvements to keep us on path to reach our profitability goals. All in all, we delivered a quarter that progressed well. Profitability [ph] in our storage business and is showing the first signs of comparable quarter-over-quarter growth in the overall business, all of which is in line with our financial expectations. Now, I'd like to address a number of business updates that I hope will help you understand the progress we have made in what we are working towards. When we discussed the expansion of our partnership with VMware on our previous earnings call, we noted that we believe they chose us due to our unique approach in implementing virtual desktop infrastructures, also called, VDI. What we believe, differentiated our virtualization storage solutions from competitors, is that we provide a workload optimized and distributed approach to VDI, that is also simple to deploy and implement. In comparison, traditional VDI vendors have taken more complex and one-size-fit-all approach. To further showcase our unique value proposition, in this case, we are hosting an executive briefing of it next week, on our virtualization and storage architecture and solutions. In attendance will be key industry leaders with experience in implementing and managing large scale VDI deployments based on both Citrix and VMware. We will also be joined that day by our VDI technology partners. We also continue to expand our partnership with Microsoft, which allows us to provide hybrid cloud solutions through their Azure cloud infrastructure. As a reminder, both the SnapCLOUD virtual NAS storage solutions and the G-Series Cloud powered by Glassware 2.0, are available in Microsoft Marketplace. Just last month, we received confirmation from Microsoft that our SnapCLOUD storage products is the first virtual NAS storage solution that have been successfully tested and validated in the Microsoft Azure cloud government infrastructure. The Microsoft Azure Government is a separate and network isolated instance of Azure cloud, that is dedicated to meet the U.S. Government security, privacy and redundancy demand. For example, Microsoft Azure Government is one of the few cloud service vendors that are compliant to strict U.S. Security guidelines, like the FBI's Criminal Justice Information System security policy, also commonly called CJIS. What makes this milestone significant for Sphere 3D, is we could now provide our government channel partners and secure hybrid cloud solutions that includes our SnapCLOUD and Azure, or SnapServer on-premise, and our SnapSync enterprise file sync and share, offering for bid on growing government opportunities. A great example is, in the U.S. Law Enforcement Video and Surveillance Deployment opportunities, that requires compliance to strict security and privacy standards, like the FBI's CJIS. We are also able to vertically integrate other products from our portfolio, like RDX, which is a well-suited for mobile archive, used cases like video and data back-up in police cars. A representation of this breadth of this opportunity is a published survey from the International Association of Chiefs of Police, which found that over 50% of U.S. state and local law enforcement officials surveys were considering, adopting, or planning to use the cloud to reduce their costs of IT infrastructure and software support. Overall, our strategic partnership with VMware and Microsoft are helping us develop a healthy pipeline, and we believe we will still be on track to see some key deals closing by the end of this year. The number of customers we are now engaging with, have increased, and we continue to receive indications at both our pipeline and our deal sizes are increasing. This leads us to believe, as we previously mentioned in our last quarterly call, that we will see some sequential growth in the second half of this year. Another recent focus I want to highlight is our efforts to communicate the brand loyalty we have built from our superior enterprise service and support operators [ph]. A SnapServer customer service survey that we recently announced, found that the top reason customers continue to buy our SnapServer NAS storage products, are because of the -- they are reliable and have superior technical support, when compared to our competitors in the same product class. One of our video surveillance system channel partner stated in a survey that, he consistently chooses to deploy SnapServer storage, because they are highly reliable. He simply stated, your SnapServers just work. With more than 30 years of innovation and a superior customer service experience as a foundation, we are able to rollout our new virtualization technologies with tier-1 customer service and support. As we continue to deploy our technology and products and implement our service models, it is important for me to note, that we also remain focused on operational and balance sheet efficiencies to drive our business forward. In Q1, we were specifically focused on improving our capital structure by eliminating our 2006 short term debt, which allows us to focus more time on the business. As you may recall, we announced that we raised an additional $3.6 million in equity financing, and that we entered into an agreement with Opus Bank, that provides us up to $20 million in debt financing, consisting of a $10 million revolving credit facility, along with a $10 million term loan facility. We believe that Opus Bank is the right bank partner, as they are recognized as one of the fastest growing banks on the West Coast, with a strong reputation for working with technology companies. We believe these transactions provide us with greater operating flexibility, to allow us to remain focused on our business goals for 2016. I'd now like to pass it over to Peter, who will give you some additional details on our progress in our VMware and Microsoft collaborations, as well as some exciting advances in our expansion and integration plans for our product portfolio. Peter?

Thank you, Eric. I'd like to reiterate Eric's sentiments that opened the call. We are well on our way to deliver on our vision of creating a complete cloud experience for everyone. For me, these are not just a bunch of buzzwords, these are commitments we have made as a company, that's what we set out to do. Our weapons of choice are the public cloud, currently to Microsoft and soon to VMware Horizon Air Hybrid, an on-premise hyper-converged drop-in appliances. To fulfill our vision, we are providing customers the means for moving their applications, desktops and data to any cloud-type deployment, as simply and cost effectively possible. We are highly differentiated. We do things like [indiscernible], on-premise to public cloud and vice-versa. We can match an organization's dispersed, mobile and diverse workforce, or stakeholders, with the right virtual workspace to do their jobs, wherever they need to. We call this workload optimized and distributed architecture. We have delivered solutions for railroad scenarios, like putting a box for 10 employees in Boise, Idaho, giving those employees local access to apps and data, and we administer everything from central headquarters, whether it'd be San Francisco, London, Singapore. We have created the technology that will allow for the performance benefits of local, with a centralized efficiency of the data center, and we do it, without the expense or complexity of a traditional data-center deployment. For those I think, that everything will end-up in the central data centre, I will remind you, that data center real estate is the most expensive known to man, and pricier per square foot than even Fifth Avenue, Manhattan. We believe that organizations need the flexibility to build up or build out and anything in between, and we deliver on that. I'd like to take a minute and expand on our technical and business development partnership with VMware and the progress we have made since our last earnings call, just a few weeks ago. To support the anticipated growth from both virtualization product portfolio and storage, and the expanded VMware partnership, we have designed a new certification program for partners that possess the prerequisite skills to not just sell, but implement and deploy hybrid cloud solutions. It's an important step in the evolution of our channels to build greater focus, with a smaller subset of highly skilled partners. By educating our channel partners on the differentiators in our products, we are able to provide a quicker path to growth for the company. An example of the new certified partner approach, will be last month's announcement of our master services reseller agreement with value-added reseller and systems integrator, Entisys. Based in the United States, Entisys is a top tier consultancy and systems integrator, with virtualization solutions and more than 80 technical consultants and engineering staff. We expect that partnering with value added resellers like Entisys will further drive customer adoption of our virtualization offerings, by enabling users to quickly deploy and easily manage the infrastructure. We have not only been adding new certified partners, but we have also made some significant changes internally, with the addition of a number of new hires in the last six months. We have added significant experience in architect and selling and supporting virtualization in cloud technologies. And again, a theme that you have heard a few times already today, I'd like to point out that our additions have been mostly through a shift in skill-set within organization, so that we maintain our commitment to operational efficiency improvements. Over the last few days, we have added content to the web site that helps people better understand our unique capabilities for delivering V3 Solutions. I encourage you to spend some time reading about our proprietary approach to deploying VDI, that is only made possible through our own management software, the Desktop Cloud Orchestrator or DCO. DCO is installed in every V3 purpose built appliance that we shift [ph]. We believe DCO is a real game changer for VDI and fills in many gaps, as well as add significant benefits a do-it-yourself or converged VDI deployment, that otherwise would leverage VMware or Citrix technology alone. We are training our partners and conducting executive briefings, as Eric mentioned, with customers to show simple it is to remove the traditional bottlenecks associated with VDI. I can tell you, some of the leading architects have made some comments like, I need to completely rethink my VDI strategy now as a result. The tighter integration with our other technologies like Glassware and Snap, will only further strengthen our position in this market. I'd also like to add to the comments that Eric made about the recent milestone for SnapCLOUD and Microsoft Azure Government; I think this was a very important milestone for us and a great validation of our uniqueness. I will add that we are planning to submit Glassware 2.0 G-Series Cloud solution for testing in Microsoft Azure Government environment and validate for similar use cases of SnapCLOUD. In my last comment about our work with Microsoft, I am also very pleased to say that we have been invited back to attend the Microsoft Worldwide Partner Conference, as Microsoft Enterprise Cloud Partner. This one, I believe is a little special to us, since its being held this summer in Toronto, and that's where Sphere 3D has its roots. Now, I'd also like to follow-up from our last conference call and further expand on how Glassware is currently positioned and how the transitions that we have made will help drive that part of our business. As previously mentioned, Glassware itself is a technology. [indiscernible] tech is working its way into many parts of our product portfolio, there are a couple of products that are predominantly derived from this technology, one that delivers applications from appliances, and the others are basically virtual appliance delivered from the cloud. With the introduction of a cloud product, an appliance form factor and a tight integration to VDI used cases, we have been able to fit this offering now with an existing VDI and RDSH budgets, as well as their workflow and have focused this part of our portfolio for a much easier path to monetization. We carefully design the products and the solution and architect them, so that our customers can still maintain the disruptive upside of the technology, once they have purchased the product. This allows them to architect the next phase of their virtualization deployment, with the addition of containers or provide new tools to their dev ops teams, without having to call out a separate budgeting event. Today, we have the first Glassware driven products that are included in the context of virtualization, and I mean, included literally. You can deliver these application sessions from within a new or existing VMware environment, or from a Microsoft Cloud. We successfully position it as a means to reduce the cost of VDI by increasing the density of users and our virtual applications for server. Fewer servers translates to lower costs, lower complexity, less maintenance and fewer points of failure. We found a way to increase the real total addressable market for VDI and go after the uncontested customers, that user can't pay the existing desktop per user price or can't deliver the workloads they need with existing technologies. To support this, we are cross-certifying our elite partners on Glassware, Snap, and V3 portfolio contemporaneously. And providing them the tools to create valuable alternatives from migrating workloads to on-premise public or hybrid clouds. Now, before I turn it over to Kurt, I actually just would like to take a moment and acknowledge Mario Biasini. Mario was one of the original founders of Sphere 3D, and I personally would like to thank for having asked me many years ago to join and help build the Sphere 3D of today. I'd also like to thank him for his dedication over the last year especially, and his commitment to assisting the team to complete the transition we have made over the course of the last year, and provide a more stable foundation for the company moving forward. I know he has dialed in, I am sure he is listening, and I wanted to remind him of my advice. Just because you are in great shape, Mario, doesn't mean you can back to your steady diet of [indiscernible]. So Mario, on behalf of myself and the entire company, thank you, and we wish you well. With that, I am going to pass it back to Kurt, who will give you an overall update on our financial results. Kurt?

Thank you, Peter. Good afternoon everyone. Let me provide some detail on our financial results for the first quarter. Please note the following financial highlights reflect the addition of the RDX products acquired in August 2015. Total revenue for the first quarter of 2016 was $19.6 million, up from $18.9 million in the fourth quarter of 2015, and down slightly from $20.1 million in the same quarter last year. OEM revenue for the first quarter of 2016 was $3.9 million, up from $3.3 million in the preceding quarter, and flat to the first quarter of 2015. Branded product revenue was $13.4 million, and working service revenue was $2.3 million in the first quarter of 2016, compared to branded product revenue of $13.3 million and warranty and service revenue of $2.3 million in the fourth quarter of 2015, and branded product revenue of $13.3 million and work and service revenue of $2.9 million in the same quarter last year. Regionally, the branded product revenue for the first quarter of 2016 was 14% in APAC, 31% in the Americas and 55% in EMEA. Total product revenue for the first quarter was $17.3 million up from $16.6 million in the preceding quarter and up from $17.2 million in the same quarter last year. Disk systems revenue was $12.2 million in the first quarter of 2016, up 9% from $11.2 million in the fourth quarter of 2015 and up 22% from $10 million in the first quarter of 2015. Tape automation, tape drives and other related revenue was $5.1 million in the first quarter of 2016 compared to $5.4 million in the fourth quarter of 2015 and $7.2 million in the first quarter of 2015. Our gross margin for the first quarter of 2016 was 30.4%, up from 28.5% for the fourth quarter of 2015, and up from 29.6% in the first quarter of 2015. The gross margin includes the amortization of intangible assets and cost of goods sold in the amount of approximately $600,000 for each of the comparable quarters. When excluding the amortization relating to the intangible assets, the gross margin was 33.3% in the first quarter of 2016, up from 31.9% in the fourth quarter of 2015 and up from 32.7% in the first quarter of 2015. Total operating expenses for the first quarter of 2016 were flat to the fourth quarter of 2015, when excluding share based compensation and impairment. When compared to the first quarter of 2015, operating expenses were down $1.6 million or 14.2% when excluding share based compensation of $2.5 million and $725,000 respectively. Depreciation and amortization expense in the first quarter of 2016 was $1.6 million compared to $1.7 million in the fourth quarter of 2015 and $2 million in the same quarter last year. The net loss for the first quarter of 2016 was $8.1 million or a loss of $0.18 per share, compared to a loss of $18.6 million or $0.44 per share for the fourth quarter of 2015, and a net loss in the first quarter of 2015 of $9.5 million or $0.27 per share. Adjusted EBITDA, which excludes share-based compensation expense and warrant liability revaluation, in addition to interest, taxes, depreciation and amortization, was negative $3.1 million for the first quarter, which improved from an adjusted EBITDA of a negative $4.4 million in the fourth quarter of 2015 and a negative $6.1 million in the first quarter of 2015. On the balance sheet, total cash and cash equivalents at March 31, were $5.7 million compared to $8.7 million at the end of 2015. At March 31, we had $15.9 million outstanding under our credit facilities, and $19.5 million under our convertible note. In April 2016, the company had entered into a credit agreement with Opus Bank for a term loan in the amount of $10 million and a credit facility, in the amount of up to $10 million. A portion of the proceeds were used to pay off the company's two current credit facilities, which were recorded as current liabilities in the March 31, 2016 balance sheet, and the remainder of the proceeds will be used for working capital and general business requirements. At that time, the company also modified its convertible note, bringing the outstanding balance to $24.5 million. With that, I will turn the call back over to Eric.

Thank you, Kurt. I would like to close by reiterating our confidence in the progress we are making. Our positive progress and our partnerships with industry leaders, our growth of our certified virtualization solution partner programs and ecosystem, which will allow us to scale, both regionally and in target vertical markets. Our continued innovation across our entire portfolio of virtualization, containerization and data management products. Our focus on increasing the market and industry awareness of our reliability and superior customer service, that we believe, distinguishes us from our industry peers. And the improved capital structure we now have in place; which includes, the elimination of our short-term debt. With all of these indicators, along with our robust pipeline, I believe we are well positioned for growth. I would like to thank you again for joining the call today. And at this time, I would like to turn it over to the operator, to open the line for questions.

[Operator Instructions]. Your first question is from Krishna Shankar from Roth Capital.

Yes. Eric and Peter, can you give us some sense for the design win pipeline, both for the VMware partnership and the Microsoft Azure partnership, and how those revenues will ramp in the second half of this year, if you could give us a sense for which one will ramp faster in the magnitude of revenues from both those partnerships?

Hi Kris, this is Eric, how are you doing?

Good. How are you?

I am doing great. So I think when we look at the pipeline, both of them are growing significantly, which we are excited about. However, if you look at -- from a revenue recognition standpoint, they are different, because the V3 or the virtualization product line, is really kind of hardware product base, whereas the Microsoft Azure is a consumption model. So it’s a consumption or ongoing revenue base. We haven't really given any guidance on kind of the dollar values of the pipeline or when they will close. But we are excited about what we are seeing from a pipeline perspective, and the number of PLCs that we are continuing to deploy. I don't know Peter, if you want to add anything to that?

No I think that sums it up, absolutely.

And are you seeing the most traction in hybrid deployment or can you give us some sense for whether, people are most interested in the on-premise appliance or the hybrid cloud model or just moving things to the cloud with Azure, where do you see the most traction for your products?

It's really interesting. We see a combination of both. I think what we are finding out is, even if they are starting off on an on-premise, they are really looking for an architecture that over time, that they have the flexibility to either have a hybrid solution or a full cloud solution. And so, it really -- we have a couple of different conversations; what the requirements are today, and some of them are saying, I am already going into the cloud 100%, and some of them are saying I am staying on-premise, because of -- whether of security or regulatory practices, and some are doing a little bit of both. But I think what we are seeing that's resonating, is the fact that they have the flexibility with us to be able to go in either direction, either today or over time. And so I think that's really what we are excited about. Peter, I think you are getting ready to say something to that as well?

No, I agree. I mean, most of them have a roadmap for hybrid, regardless of which way they start, and we are not locking them in, and that plays to our advantage.

Okay. And then final question for Kurt, following this Opus capital refinancing; pro forma, what would be the cash on the balance sheet and your expected sort of cash burn here for the June quarter, can you give us some sense to what the pro forma balance sheet looks like, in terms of cash and your burn rate going forward?

We haven't talked about the pro forma in cash, in regards to our releases. However, we do disclose that we have about $18.2 million that we pulled down on the line and the term note, between the two, as we paid off our existing revolvers, both the -- the one through the related party, as well as the one at Silicon Valley bank, and those are both done in April. As far as cash burn, I will be consistent with what I said last quarter; we do expect to see that continue to improve over the course of the year. We have improved from Q4 to Q1 and we expect to continue that improvement throughout the course of the year.

Okay. Thank you.

Your next question is from Hubert Mak from Cormark Securities.

Hey guys. Just a follow-up on the pipeline, I think last quarter, you talked about obviously joint marketing for Microsoft, and I think you guys are sort of 40% of the initial target. Do you guys have an update on that, has that accelerated or are you able to give sort of an update, or has that really changed?

Sure. Peter, you want to take that one?

Yeah, absolutely. So it has only been about six weeks, Hubert, and we are hoping to be able to provide an update. But I don't really have the official numbers. Reporting doesn't come in as frequently as you would expect, because it's actually -- the front end is them, right, not us. So the customer acquisitions done by Microsoft is their system, so we can't update it today. We know there is activity, but I don't have it, what the numbers look like yet, unfortunately.

Okay, that's fair enough. And then, the other question I have is the seasonality; I know there has always been seasonality within the business. Is that seasonality still going to be very similar? Like, can you talk about that, in light of sort of these -- I guess, appeals being ramped up?

Yeah. We still have seasonality, if you look at our company. We are a global company. The majority of our revenue is outside of the United States. Where we typically see the seasonality is in Europe this time -- actually I guess when the summer period comes around. The good news is, the POCs that we have been deploying are primarily in North America. So I mean, I don't see any seasonality with the POCs that we are working on, because those are in process. But we typically have seasonality, whether its throughout Europe in the summertime. There is obviously seasonality in government businesses. But those trends have not changed from the last 20 years plus, so things that we make sure that we watch and manage through them. I don't know Kurt, if you want to provide any more clarity on that, but it's no surprises from a seasonality standpoint, in terms of what we are -- what our model looks like.

No, I would just concur, Eric, that obviously with the amount of revenue that we have outside of the U.S., there is obviously the low seasonality in Europe during the summer months, and our intention is to try to mute some of that seasonality through the growth of new products.

Okay. And then just a final question; on the cost structure. Obviously, you guys have done some recent restructuring. Are we at a sort of normalized rates, and if so, how do we think about the growth, in terms of the cost base, in light of these revenue being ramped up? Like, is your cost structure able to support a much higher revenue run rate?

I think the guidance I gave the last time, is that, we had achieved a pretty good move in our OpEx year-over-year, and I talked about that today, I think down 14.2% from same quarter last year. At this point, we don't expect to see significant gains going forward, we are always looking to modify, where we are spending money, to make sure we are spending it smartly. But we don't expect to see significant reductions moving forward. But on the flipside, we also feel that our existing cost structure can support growth, without adding a lot to it.

And Hubert, just to add to that; one of the things that we have from our go-to-market strategy, is a global reseller network. And so, you are able to get a huge leverage from your channel. So you can grow revenue by having the right partners around the globe and the right systems integrators, supporting you as you grow. So that's one of the beauties of having a channel model, versus, let's say a direct sales model.

Right. I understand. And then just one more here then, in the context then -- obviously you have a pretty big channel, where do you think you are in terms of educating that channel, and do you think that -- are you like sort of 15% penetrated that your resellers can build a market; I guess I will start at the Microsoft and the VMware and others, so can you kind of talk to that?

Yeah so Hubert, this is Peter. I wouldn't go from percentages, I think we have -- the last couple of calls today and the last one I have mentioned, we have created more of a focus and so, higher skill-set, usually larger partners, existing practices that we are interested in, so you are fitting into the budgets of their customers already. So it's not really about the deploying 17,000 partners and are we at 10%, 15%. To move the needle in this industry, you can do it with a subset. And so the education is definitely taking place, the training that gets done is four days. So there is a lot of material, the education is definitely out there. So I think we are making great progress. There will be more, obviously, as we go -- more information, more updates to our digital content. But I think we are in pretty good shape in terms of where we are able to channel, but we are doing it in phases, and we are making sure that they hit the ground with 100% monetization strategy as to what they were trained on. And that's something that we have been doing out for a while, and we are trying to see, again, the difference in the pipe and all the [indiscernible] is all tied to an overall strategy that includes not just the new partnerships and their marketing campaign, but our own ability to get our partners ready to win. And so, we are taking a little bit slower than we would have liked, versus a shotgun approach, but it's actually paying greater dividends for us. So, we will continue to go down that path. I am not sure, if we will start to report what percentage of them all, but I think you will start to see them, just based on the activity, right? Just start to see them. They do their own trade shows, they do their own stuff. So you can see plenty of activity from the partners.

Okay, great. Thanks. I will pass by.

Thanks Hubert.

[Operator Instructions]. And the next question is from a private investor.

Hey, I remember, EK's bold prediction about the end of 2014, being $160 million run rate. Now all of a sudden, we have these tepid clients going out. What the hell is really happening?

This is Eric. So I think what we have tried to share with everyone, is, the progression that we are making. I think when you look at our pipeline, and you look at the size of the deals that we are working on; we are excited about the second half of the year. But we are not giving guidance for that, hopefully that --

But why do you back away from your prior guidance?

I am sorry? Hello?

[Operator Instructions]. The next question is from Ryan Thomas, private investor. Ryan Thomas, your line is open. We have no additional questions at this time. I will now turn the call back over to management, for closing comments.

Again, I would like to thank everybody for joining the call. We look forward to talking to you in the future, and we appreciate your time. And with that operator, we'd like to close the call.

This concludes today's conference call. You may now disconnect.