Good day, and welcome to the Sphere 3D Second Quarter 2015 Financial Results Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Jim Byers, MKR Group. Please go ahead, sir. .

Thank you, operator. Good afternoon, everyone, and welcome to this afternoon's conference call to discuss Sphere 3D's second quarter 2015 financial results for the period ended June 30, 2015.

I would also like to note that management, during the course of our discussion today, including the Q&A section of this call, will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Management may discuss future plans and prospects for revenue, product introductions, market conditions, competitive conditions, gross profit margins, spending levels, other financial metrics and relationships with third parties. .

We caution you that forward-looking statements relating to these and other subjects we may discuss involve risks, uncertainties and assumptions that are difficult to predict. They are not guarantees of performance, and the company's actual results could differ materially from those contained in such statements.

There are many factors that could cause or contribute to such differences.

We refer you to the risk factors and cautionary language contained in today's press release announcing Sphere 3D's results as well as the company's financial filings with the Securities and Exchange Commission, including the risk factors, management's discussion and analysis and other sections of the company's periodic reports currently on file with the SEC.

We remind you that the company's forward-looking statements are based on current expectations and speak only as of this date. Sphere 3D undertakes no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this release and conference call. .

On the call today from Sphere 3D are Eric Kelly, Chairman and CEO; Peter Tassiopoulos, Vice Chairman and President; and Kurt Kalbfleisch, Chief Financial Officer. Eric and Peter will begin by providing an update on Sphere 3D's business and product strategy, and then Kurt will review Sphere's second quarter results.

After Kurt concludes, Eric will have some closing remarks, and we will open the call for questions. .

With that said, I will now turn the call over to Sphere 3D's CEO, Eric Kelly. .

Thank you, Jim. Good afternoon, everyone. Welcome to the Second Quarter 2015 Earnings Call. I'm pleased to report we accomplished the key strategic initiatives we outlined during our first quarter 2015 earnings call. We have expanded our relationships with key technology and channel partners.

We have begun implementing our solutions in target vertical markets, such as healthcare and education. We have expanded our channel networks and added 2 new major OEMs, secured the IP to allow us to execute on providing on our converged infrastructure architecture.

That includes a scalable architecture solution that does not require a customer to increase the footprint of their data center. In addition, we completed the acquisition of the RDX assets from Imation. Which is accretive from Day 1. We will provide additional details of these key areas throughout the call. .

Regarding our financial performance. With the exception of Europe, every region around the world exceeded the previous quarter revenue. Europe was affected by the reported macroeconomic climate, which has been highlighted by many storage companies this quarter and well-documented in the media.

We saw a slow down by 2 of our OEM partners due to their own internal restructuring. We believe they will complete their transitions and we will see pickup this year.

We continued improvements in our operational efficiencies and a shift to higher gross margin solutions and products, resulting in an increase in gross margins from 29.6% to 31.5% quarter-over-quarter. Kurt will provide additional color in a few moments. .

Our Board of Directors has established a special committee to evaluate and recommend to the Board opportunities to maximize shareholder value. .

With that, I will turn the call over to Kurt. .

Thank you, Eric. Good afternoon, everyone. Let me provide some detail of our financial results. Please note the following financial highlights of our second quarter of 2015 reflect the addition of the Overland business and operations for the full 3 months. .

Total revenue for the second quarter of 2015 was $18.4 million compared to $1.6 million in the same quarter 2014. OEM revenue for the quarter was $2.7 million or 14.7% of total revenue with branded product revenue of $12.9 million or 70.3%. And working service revenue of $2.8 million or 15% of total revenue for the quarter.

Regionally, the branded product revenue was 14% in APAC, 33% in Americas and 53% in the EMEA. .

During the quarter, there was a reduction in OEM shipments due primarily to company transition taking place with our largest OEM customer. We did not expect -- we do not expect this transition to impact shipment volumes beyond this current quarter.

Total product revenue for the second quarter was $15.6 million, while warranty and service revenue second quarter totaled $2.8 million. Total product revenue for the same period last year was $1.5 million and there was $0.1 million of warranty and service revenue. Product revenue details are as follows:.

Disk systems revenue was $8.6 million for the second quarter of fiscal 2015 compared to $1.5 million for the second quarter of 2014. Tape automation and other tape related revenue was $7 million as this category products contributed from our acquisition in December 2014 there is no comparable amount for Q2 of 2014.

Our gross margin for the second quarter was 31.5% compared to 43.8% for the second quarter of 2014. The gross margin includes the amortization of intangible assets and cost of goods sold in the amount of $0.6 million for the second quarter. When excluding the amortization related to the intangible assets, the gross margin was 34.9%.

As we continue to achieve a shift in the product mix and integration of technologies, we expect to see gross margin continue on an upward trend even if not on a quarterly basis. .

Total operating expenses, including share-based compensation for the second quarter was $14.35 million compared to $3.6 million in the same quarter last year.

The $14.35 million is broken down as $5.5 million for sales and marketing, $2.7 million for research and development and $6.1 million for G&A, which includes approximately $1 million of amortization related to intangible assets.

Also included in the operating expense for the second quarter is approximately $1.8 million of nonrecurring legal fees, costs related to the closing of our Norway facility and bad debt expense.

Total share-based compensation expense included in the operating expense for the second quarter of 2015 was $0.6 million compared to approximately $1.1 million in the same quarter last year. .

During the ongoing integration process this quarter, we've identified additional synergies which are currently being implemented. As we've mentioned on previous calls, we are committed to taking actions to adjust our operating expenses and business model to maintain as efficient an organization as possible.

We can report to you today that over the last few weeks, we've initiated actions to eliminate approximately $4 million of operating expenses on an annualized basis.

We're achieving this reduction primarily through the workforce rebalancing that include savings from headcount, reduced headcount and from consolidating or eliminating various service providers and redundancies.

We expect approximately 75% of these adjustments will be finalized by the fourth quarter of this year with the full impact to be in place for 2016.

When coupled with one-time expenses incurred in the second quarter, we expect to see operating expenses, excluding stock compensation, amortization and depreciation to decline between 8% to 12%, while maintaining our commitment to growing our business..

Depreciation and amortization expense in the second quarter was approximately $1.9 million compared to $1.2 million in the same quarter last year. The net loss for the second quarter of 2015 was $8.9 million or a loss of $0.25 per share compared to a net loss in the same quarter of 2014 of $3.1 million or $0.13 per share.

Adjusted EBITDA, which excludes stock compensation expense in addition to interest, tax, depreciation and amortization, was negative $5.3 million or a loss of $0.15 per share for the second quarter. On the balance sheet, total cash and cash equivalents at June 30 was $3.7 million compared to $4.3 million at the end of 2014.

At June 30, we had $10 million outstanding under our credit facilities and $19.5 million outstanding under our convertible notes. As previously disclosed, we increased our revolving credit facility with FBC Holdings by $5 million, which has not been drawn against. .

Also today, we announced the closing of $2 million pipe transaction, and we are currently filing a shelf registration statement on Form F-3 for up to $40 million of equity financing. As a newly listed NASDAQ company, we were required to wait until our 1 year anniversary to file a shelf registration statement on Form F-3.

We are filing the shelf registration statement to enhance our financial flexibility and allow us to expand future options beyond what would otherwise have been limited to traditional pipe financings.

The shelf, once effective, will allow us to consider, depending on market conditions and future capital needs, potentially accessing the capital opportunistically. .

Finally, while we'll be taking questions regarding the financial performance, we will not be providing any forward-looking revenue guidance. The company has been notified that the disclosure of goals or guidance to the public may constitute forward-looking information under applicable Canadian Securities laws.

Under such rules, the company would be required to describe in detail the material factors and assumptions supporting such forward-looking information. The company believes that, in this case, such additional details would include commercially sensitive information about the company's products and services.

This competitively sensitive information relating to the company and potentially to the company's partners, could cause material harm to the company if made available. In addition, this type of disclosure could be in violation of existing nondisclosure agreements with partners and/or customers.

As such, and as per the requirements of SN51-721, the company withdraws the forward-looking information disclosed in its press release from February 17, 2015. .

With that, I turn the call over to Peter. .

Thanks, Kurt. First off, I'd like to welcome you all to our second quarter call, and thank you for attending today. I'm going to actually highlight some of our recent developments, but also provide a little bit of additional color on some of our results. .

So first off, as you know, we're a technology company, and as such, we're committed to continue to innovate. I wanted to point out that we have invested approximately $5 million in R&D in the first 6 months of this year.

Although we anticipate a reduction in R&D spend for the balance of this fiscal year, this is primarily attributable to the consolidation of R&D resources and centralizing certain product development teams.

As such, we believe that we'll be able to continue our innovation trajectory and deliver new and exciting products to the market in a timely fashion. .

On the revenue side, there's been an industry-wide slowdown in legacy store spending. However, we have made great strides to update and position the majority of our portfolio as converged and hyper converged infrastructure where double-digit growth is forecast for the next few years.

Our technology has also evolved to a point where products like SnapCLOUD and Glassware 2.0 can be deployed as cloud solutions. In addition, both SnapCLOUD and Glassware can be deployed as part of a hybrid solution. Unlike the storage industry, the global hybrid cloud segment is seeing significant growth.

Markets and markets research expect the hybrid cloud market will reach about $84.6 billion by 2019 at a roughly 29.8% compounded annual growth rate.

Despite the drop in legacy store system revenue within our industry, our archive business, comprising primarily of tape automation products, has been relatively flat over the first 6 months of fiscal 2015.

We can attribute this lack of attrition in comparison to our industry peers on reorders from our large installed base and the strength of the Overland and Tandberg brands. .

As reported on previous earnings calls, we're managing revenue categories to gradually eliminate low-margin and non-core business. As such and as planned, we have seen declines in certain areas of the media business this quarter and anticipate exiting those areas completely over the next couple of quarters.

This and other initiatives help us see an increase of 190 basis points in gross margin on a GAAP basis and 220 basis points in gross margin on a non-GAAP basis over the previous quarter. We are committed to drive this revenue rebalancing and product integration to help achieve further gross margin expansion. .

We continue to focus on our core strengths of delivering virtual data center solutions through purpose-built appliances, both physical and virtual. We believe this is where performance can be best achieved and we can take full advantage of current customer trends.

Today's customers require immediate and obvious benefits to make their IT investment decisions. Hyper converged infrastructure and virtual or software-defined data center appliance simplify operations, reduce redundancies and lower total cost of ownership for organizations.

Hence, the industry as a whole, is seeing double-digit compounded annual growth rates. .

On the service front. We've seen a reduction of service as our legacy tape business has flattened out as anticipated. We anticipate that the introduction of our new platforms will benefit, not just the product categories, but the service category as well.

The deployment of contemporary IT solutions, such as converged infrastructure, allows us to sell additional services to our partners such as presales engineering, site surveys, application migration, configuration services and technical support.

As our customers deploy our solutions, these additional services, whether provided to our partners or us, form part of our overall strategy to grow revenue in our service offerings. We're expanding these capabilities in anticipation of growth in this area. .

We continue to work on key strategic initiatives that can drive high-margin business and provide solutions to IT problems where others traditionally fail.

Although to date these has not been transactions that represent a significant financial windfall for the company, they have provided a point of differentiation that allows us to engage our customers and introduce additional products and services.

We are seeing a high correlation of cross-selling opportunities growing within our pipeline that we believe will allow us to pull through both additional products and service revenue.

We're steadily transforming customer engagement models from product focused approach that is driven on price to a solution model that is driven on features, performance and capabilities. In addition, our engagement philosophy is one that keys in on delivering solutions that are built for specific workloads.

This approach allows us to migrate our customers from low-margin technology decisions to high-margin outcome decisions that involve longer-term engagements and potentially higher rates of repeat business. This is part of our longer-term sales strategy that we believe will further differentiate Sphere 3D from the competition.

We are working on expanding our technical capabilities for support and services. We believe that we could attain quicker revenue growth by increasing our organizational capacity to architect meaningful solutions for our partners and customers.

We continue to build out these capabilities, but do so without interfering with our operational cost reduction mentioned earlier on today's call. .

Now speaking of technical skill set, I'd like to take a moment to report that we have established the office of the CTO, and we have recently welcomed Mr. Simon Bramfitt to lead the office of the CTO.

Simon is a true pioneer in the virtualization space with over 20 years of experience in designing, implementing and supporting end user computing systems. He was a Principal Research Analyst for Gartner, focused on end user computing and desktop virtualization as well as having spent some time with IBM and over a decade at Kaiser.

He's been a guest speaker at Citrix Synergy, VMware, VSX and others.

And some of you may know that Simon has written a few nice words about us over the last couple of years and a couple not so nice too, I might add, but after following us for the last 18 months, we're excited that he's accepted a role with the company and expect him to be a key contributor going forward. .

Now I'd like to provide a few highlights from the product portfolio and the customer engagement we've already discussed. We've commenced working towards rolling out one of the largest distributed deployments of VDI infrastructure in healthcare through our agreement with Novarad.

We're pleased to report that we have commenced our activities and the first site to be implemented this quarter as planned and as previously expected. We wanted to actually clarify a little bit about the agreement with this customer and let you know that it entails 2 separate opportunities.

The first instance is where Novarad is our customer and they're to refresh sites that are under contract with them. And the second is for net new business where they are our partner and the end-user facility is the customer.

We would also like to report that we've entered into a similar agreement with a second partner based in Texas to deploy an additional 200 sites over the next 3 years.

Details about this shall be released at a later date, but this is the second significant distributed deployment opportunity we have seen in the last 90 days, which is very encouraging for us.

In education, we recently announced the availability of the new series of hyper converged appliances that utilize Glassware as the virtualization platform for the delivery of applications. The first of these appliances is now commercially available and aimed at the education market.

We have incorporated special licensing models designed to economically deliver virtualization to student end points such as Chrome Books. The appliance is initially available through select partners, including our previously announced partners in Texas and we anticipate expanding the partner ecosystem over the coming weeks. .

In addition to the appliance model, we have made great progress on bringing Glassware capabilities to the public cloud. We work diligently and are nearing availability of Glassware on Microsoft Azure.

This has been a major undertaking for our development team and I, for one, would like to thank them for their hard work as they have successfully created a significant level of flexibility for us to leverage multiple go-to-market strategies going forward. Soon, Glassware 2.0 will join SnapCLOUD in the Microsoft Azure Cloud.

Additional details will be made available, including pricing and capabilities once we officially launch Glassware in the cloud. As for SnapCLOUD, we're thrilled that we have the first iteration of Snap up in Azure and expect the hybrid capabilities of SnapCLOUD to be available in the near term.

For those who wish to test drive SnapCLOUD, feel free to go to Azure and take it for a spin. We have received many inbound inquiries on this offering and think we have a great opportunity with this new product in our stack.

I for one would like to commend the team for having been able to migrate the Snap operating system to the cloud in such a short period of time. .

I will be available for some questions after the call, but for now, I'd like to turn the call back to Eric to give you some more detail on today's exciting news about RDX.

Eric?.

Thank you, Peter. I'm excited to take a few moments and discuss today's news regarding RDX and the strategic importance going forward for both the company and our customers. We announced today our acquisition of Imation RDX assets.

This deal unifies the technology and allows us to provide our customers, our partners and our OEMs the leading removal disk backup appliance in the marketplace today. It allows us to provide a comprehensive consolidated product roadmap focused on addressing the 3-plus billion purpose-built backup appliance market.

Also, with the integration of our virtualization platforms, we can now offer a unique converged infrastructure architecture to meet the rapidly growing storage archive requirement without the need for our customers to expand their data center footprint. .

The Imation product line has generated approximately $14.5 million of revenue for Imation in the trailing 12 months as of June 30, 2015. However, with the termination of the license agreement with Imation, on a historical basis, net revenues would be approximately $13.5 million in trailing 12 months from June 30, 2015.

This transaction has allowed us to increase our global channel partner network as well as add 2 strategic OEMs and expand the installed base so that we can up and cross-sell to those customers. .

Lastly, I would like to comment that we believe this transaction will see our customers and partners benefit from the centralized introduction of new features and technology innovation such as our new RDX+ architecture, which is designed to increase storage capacities by 50% and more and provide consolidated messaging for the use cases for the benefit of RDX.

We have been building out our technology stack and operational capabilities for the last few quarters. We have gone through transformational transactions and have navigated a number of challenging -- challenges along the way.

I will remind many of you, especially our loyal and long-standing shareholders, that what we're achieving should not be measured in minutes, days or weeks, but as a multi-quarter initiative that we undertook last year.

I have started to see positive results from the strategies we embarked on many months ago and continue to execute on those strategies. We're moving in the right direction and the market is beginning to take notice of our converged and hyper converged architectures for the capabilities and the technology.

Both our legacy partners and new partners are seeing the benefit of our unique product portfolio. And lastly, we are committed to balance the needs for operational efficiencies with our goal to achieve growth in our key product and service areas and have taken firm steps to deliver on those commitments. .

With that, I would like to turn the call over to the operator to open the lines for questions. .

[Operator Instructions] And at this time,, we'll take your questions from Krishna Shankar with Roth Capital. .

Yes, Eric and Peter, can you talk about the timing of potential revenue recognition from the Microsoft Azure partnership for things such as SnapCLOUD, Glassware, and can you give us some indication for how revenues might ramp there? And also the one large OEM you said had some internal restructuring, do you expect revenue growth there to resume in the June quarter -- in the September quarter?.

Krishna, can you repeat the second half of that question for me? Sorry. .

The large OEM you said where you had some revenue softness due to their internal restructuring, would you expect revenue growth there to resume in the September quarter?.

Okay, so I'll take the last part and let Peter take the first part. .

Certainly. So I guess on the SnapCLOUD side, absolutely, we expect SnapCLOUD revenue to begin this quarter. As Kurt mentioned earlier, we're being careful.

We don't want to start to segment at this stage and give out individual guidance for each product, but we can comfortably say that SnapCLOUD is GA and, therefore, will be available to generate revenue this quarter. Glassware, we've announced the appliance, the appliance is for sale, and will generate revenue this quarter.

And Glassware within Azure is literally imminent, and I know that's hard to quantify, but we've been through the technical hurdles, and really, it's a matter of us just putting together our launch plans and some of our marketing material. But you can be assured that Glassware on Azure is on its way shortly.

And with that, I don't know if you have a follow-up for me before Eric talks about the OEMs?.

No, that's good color. Go ahead Eric. .

And Krishna, the OEMs is just one of these temporary transitions that we're going through internally. And so we believe that by the end of the year, they would have gone through their transitions and then we will be back to business as normal. .

Okay. And Kurt, can you talk to the balance sheet and the cash burn for the upcoming September quarter? You've talked about some OpEx reductions and so on. Can you talk about some of the puts and takes in terms of cash burn and the reduction in OpEx and what your sort of liquidity and cash requirements are likely to be near term. .

Sure. In regards to the cash burn upcoming quarter, obviously, the things that we're looking at is related to a couple of points. Number one, we do expect to maintain or see some additional increase in gross margin, which should help.

We also expect to see reductions in the operating expenses start to take place based on the one-time events that I outlined in the call. But as far as specific, quantifiable numbers, I won't go specific into that, but we do expect during this quarter and then much more solidly into Q4, expect to see the cash burn come down. .

Okay.

Directionally -- I know that you're not giving guidance, but directionally, do you think that June was kind of the low point for revenues directionally? Will we start to see some sequential increase in revenues? Or can you give us some color on revenue growth over the rest of the year?.

Yes, we can't give much color at this point, Krishna, and we talked about some of the things that impacted this quarter that we think are unique and not repeatable, but -- or at least for the long term, but as far as specifics to any type of revenue growth at this point, part of the disclosure in my prepared remarks would lead to that. .

And then Krishna, just to add, I think that we are excited about the acquisition that we just completed. And so we shared with you some of the historical numbers in terms of what they look back in terms they generated about $14.5 million, net our licensing it was about $13.5 million. So obviously, we've made some strategic moves with that.

We also see with that, as we mentioned, we're able to consolidate some of the work in our roadmaps and we think we're going to be able to provide the customer set a much broader portfolio and also introduce some of our new technologies.

So we know they're excited about that and we know that just based on the transaction we just completed, will obviously provide some -- based on the historical numbers, you can kind of draw the conclusion on that one. .

Okay, great.

And then, Peter, on the healthcare and education verticals, can you give us some sense for design win momentum there and the revenue ramp in those 2 verticals?.

Well, as we've mentioned in the past, we were looking at starting our deployment in this quarter, which we've done. We were looking to -- in both verticals.

In addition, it was imperative to get these from highly consensus sales into more GA credit to our professional services guys who have put together pretty solid playbooks to make this repeatable business. That wasn't an easy task. You understand with new and disruptive technology, everything you do is the first time. So that took a bit of time.

We actually expected it, and that's why if you look at our previous disclosure, we said it would be Q3, and it is. So we're pleased that we made it on that target.

So this is where we expect finally to be able to start to show some form of meaningful growth around the new tech that everybody's been waiting for, and also the ability for people to access it. You don't need to call me for a WebEx.

Pretty soon you just go to Azure and pull down an instance and run your own version of XP and Azure, and you can decide for yourself what you think, right. So that's something that we're definitely looking forward to. .

At this time, we'll take question from Scott Schafer [ph], private investor. .

Can you go into the details on the Nova deal? You're saying that the customer is Novarad and Novarad is also a partner?.

Yes, sure. Absolutely. So I'll walk carefully here in fairness to Novarad, but I think it's pretty well-known that Novarad's model includes delivering their software to end-users on a subscription basis.

And in that case, the easiest example I could give you would be somebody provides you a terminal for a monthly fee and you're responsible for the terminal. And how you deploy that terminal is up to you. And so you can pick a Dell terminal, an HP terminal, et cetera.

You can also pick a virtual terminal as long as it meets the minimum requirements for your contract. So that is the relationship for many of these sites for us.

And then the other thing is when they actually walk into new sites where they don't have an agreement and they go in and they want to sell them the full VDI implementation that would also include their software, right. In which case, they would just be selling it outright versus putting it in on a monthly basis.

Does that answer the question?.

Yes, I mean does the whole package include the desktop apps and storage?.

So obviously, we will do our best to cross-sell everything that we have, right. And that's a big part of what we do. And naturally, we've done our best integrate from end-to-end, everything from the endpoint through to server compute network back to centralized storage.

So wherever the opportunity exists to upsell the storage, our guys are more than capable of making sure that they do so. And there's lots of benefits for Novarad to do it as well. .

Okay.

On this 400-site, how many potential endpoints could there be, ballpark?.

Wow, so that's a 2-prong sort of answer. There's the endpoints, and I don't want to disclose Novarad's proprietary business, but if you look at a traditional deployment, your average healthcare facility could be hundreds of thousands of endpoints per location, right.

So if you go outside of, I guess, part of it is -- I'll put it to you this way, Scott, if you consider the departmental deployment as the actual up and running proof concept of the benefits of being virtual, the rest of the actual facility can see and experience what those benefits are and suddenly makes you de facto the go to to deploy the balance of that facility, right.

And so we think there's a much bigger opportunity than strictly the endpoints associated with Novarad, it's a great opportunity for us to show our wares to the entire facility, and ultimately, try to deploy that facility in its entirety. .

Okay.

Now the 200-site deal in Texas, is that part of Novarad? Or is that completely new?.

That has nothing to do with anything we've announced in the past. That's net new business for us. There is a relationship. I can't get into details to what that is between the 2, but that is not something we've disclosed in the past. That's net new business for us. .

When does revenue start from that deal?.

It's too early to say, but as fast as possible. So our team is mobilizing to move as quickly as possible, try to get that up and going in short order. .

Okay.

So your 600 sites you have right now, does the RDX deal today provide a product for these facilities with big files?.

Well, that's an interesting question especially when you consider some of the add-on capabilities that the Imation version of RDX had for the medical industry, including some security and encryption technology. So I think it's a great opportunity when you're dealing with transporting secure data that need to be encrypted.

So absolutely, RDX has always been a potential addition to what we do in this vertical, but I actually think today's transaction adds some new capabilities that creates an even better sort of overall solution for the healthcare industry. .

And Scott, this is Eric. Just to add to that what I think was overlooked on the RDX, it has probably one of the largest footprints out there. It has exabytes of storage around the world.

So think about all that storage that now has to be either backed up to the cloud, has to be moved around to a different storage platform, and so you have that capability as well. It also gives us a unique architecture that no one else has in the converged infrastructure.

So you look at the full stack from our virtualization with Glassware, V3, all the way down to our NAS, and now you have an archive solution that... .

Contemporary archive solution. .

Contemporary archive solution that will allow you to scale without expanding your footprint in a data center. And our customers today, one of their biggest issues is footprint. Data is growing faster than the physical building that they have. And so now they don't -- no longer have to worry about expanding their footprint.

And so when you do an ROI from that standpoint, the numbers are pretty amazing. .

Do you -- I mean, do you -- should we look for RDX to be embedded in future products of Sphere 3D's?.

Absolutely. So today, today RDX is actually embedded in third-party OEM products, and I mean physically integrated as a bay. No different than a CD drive would look like in a server. You'd actually seen an RDX drive. One thing that you guys, I think it's really important, this is sometimes overlooked.

Do not look at RDX as just a removable disk and think hard drive. This could be deployed as a flash array. It doesn't have to be an actual hard drive, right. It can actually be an all flash array in the cloud, in a data center. It's a very versatile product that there is no competition for the capabilities we have. .

So this could be eventually put in the G-Series?.

Absolutely. This could be a bay sitting in a G-Series so that you can have it as a target for sensitive information that you don't want to put over the network to back up and then store elsewhere into a rack. .

And as of today, we own and control all the IP for the only removable disk backup solution in the industry. .

Okay.

By owning the IP, do you now -- do you turn around and license this to other companies?.

No. .

No, that's what got them into the mess to begin with. No, absolutely not. So this is not going to get licensed as well, but never say never because price talks. But it's not our intent to license the tech. Our intent is to continue to deliver it both through OEMs and through our partners globally.

But it's imperative to keep in mind that when you have multiple people competing, so when 2 storage vendors or 2 hotdog vendors or 2 any vendors are on the same corner, they inevitably end up in a price war, right.

Well, this is something that just been eliminated within this particular class, and it allows us to put the marketing money that is otherwise used on competitive pressure into growth measures that benefit both the customers and us. .

It also benefits -- I mean, just to be clear, we've had a very successful relationship with Imation and we look at that to continue with the transaction here. So we have a really broad partnership with several OEMs and including working with Imation. So I think by us consolidating the IP, having a comprehensive roadmap, will benefit all of us. .

So just -- I think we're going to take a couple more, and then we'll come back to you, Scott, if you still have more. Just maybe one more question and then we can move. But by all means, I'll definitely come back and you can ask away some more. .

I'll have some for you in a bit. .

And we'll move to Hubert Mak with Cormark Securities. .

I just want to get an idea in terms of this sort of legacy issue here, with all the macroenvironment. I think I heard you say that issue should term I guess, in Q3 or this end or at least the challenge.

Are we looking Q2 as sort of, how do I say, where the OEM is sort of the lower base whereas where we're going forward? And then as well, can you talk about whether like these new products you're talking about, would that fill that gap maybe looking in Q3 and Q4?.

So I think it was a multi--- so let me -- Hubert, it's Peter and Eric. I think you asked 2 questions. So let me try them.

If I understood the question, so do we believe Q2 was a trough within this and anticipated and do we think it's sort of the -- we overcome what was going to happen from the OEM perspective, is that the question you're asking?.

Yes. I guess I heard that obviously OEMs had some restructuring. I'm just wanting to understand whether there's any further decline and whether that's -- is that a lower base? Or is that still going to recover. .

No. Okay, great question. So yes, so without getting into details as to what the restructuring is, it has to do with their own management of levels. And so when those things happen, they ultimately go back. At some point, because we're the only ones who supply this product, at some point, you catch up. You go back. You have to fill it.

So it has to come from somewhere, right. So we're quite confident that this is just a onetime event for that part of our business, right. And again, the balance of the business is able to even out some of that in North America and make up for it for our different product categories.

And then the second part of your question was about the European macroeconomics. So obviously it means we're like everybody else living and breathing. We made our adjustments relatively quickly. One thing that you'll notice is even though the European market did what it did.

If you look at our gross margins, we obviously made adjustments for it on the fly or we would've been significantly impacted by the revenue line from the change in the exchange rate which took effect in that second quarter.

So just by looking at the numbers, you can see that we actually made adjustments in real time to try to level off the impact to the overall business. As such, there's been now sort of, as you guys are probably more aware on the currency side, there's been a leveling off, relatively speaking. So we're pretty confident that Europe is back on track. .

Yes. And, Hubert, just to add to that, you can see what we've done in all the other regions. All the other regions outside of Europe grew quarter-over-quarter. So some of the macroeconomics, we make sure we watch them from currency to just the economic instability, but it's going to come back. Europe will come back, and we'll be there. .

Okay. I just wanted to be clear.

So this sort of drop in revenue here this quarter, so that shortfall, you expect to actually get picked up in future quarters? Because after restructuring or at least the internal issues that they resolved, that pent-up demand will actually come back?.

Yes, Hubert, this is Kurt. Again, to try and reiterate some of the points is one of the things you can look at, the historical revenues for the business that we've announced the acquisition of today. We expect obviously that to roll in going forward.

As far as the exact timing for the recovery of our large OEM partners, we feel that will be, as Eric stated before the end of the year, but we're not tying that to a specific month. We feel very confident that, that's just an anomaly. We just don't know if that anomaly is 2, 3 months or if it might be a bit longer.

But we do expect that full recovery in that area. .

Okay. And then just -- I know you talked about a lot of these sort of integrated products and partnerships.

So there are certainly a lot of them, but are you able to kind of maybe make it -- try to nail down to what maybe 2 or 3 that you think is actually going to be more -- the more meaningful ones over the sort of next, I don't know, say, 6 to 12 months that would be more meaningful from a revenue perspective? Sort of just help us kind of look for those milestones from these [indiscernible] partnerships that you think are.

.

Sure. So, I mean, we've done -- we put our shoulder down, Hubert, to move to a production capability, the newer contemporary stuff that we have. It's actually permeate itself through most of the product.

I mean, some of the things that are kind of difficult for us, I mean, we've taken our methodology and basically cross-pollinated the product portfolio. So you will find things like Glassware running inside the V3 boxes. You will find SnapCLOUD running inside of Glassware boxes and on and so forth and so on.

But ultimately, as a whole, the ability to deliver an end-to-end solution to the market is what we've kind of put together.

And the partner that we think are going to have the greatest success that we've talked about to date are partners like our OEMs, the recently announced, things like Tech Data, the Novarad, Microsoft and things attributable to our relationship with Microsoft, is where we'll see the drivers.

As far as looking for additional points, as you start to build out some of these larger opportunities, obviously, they're meaningful, and we're going to do our best to white paper and talk about them and promote those successes. So I think the market will recognize the acceleration as it begins to kick in. .

At this time, we'll take a question from Sam Wilkin [ph], private investor. .

Thank you very much, gentlemen, for your efforts on storage side, of course, as well as on the Glassware integration on Azure, which seems to be imminent, which is great.

And then going more on the side of Glassware, because I think most of the private investors are also invested in Sphere 3D because of the Glassware side and while the storage side is a very good component as well.

So asking about the Glassware side, sort of from the Microsoft conference, how would you see demand developing? And then also in terms of marketing, would you see Microsoft also existing in the marketing of Glassware? Or would it be -- have to be primarily the teams of Sphere 3D? And lastly, in terms of integration, there, could a significant revenue ramp-up also be delivered via the existing Sphere 3D team? And how is it going to work in terms of infrastructure?.

All right. So thank you very much, first of all. Thank you for calling in. Pleasure to hear from you. So I'll try to address these as 3 separate questions. So first off, and I appreciate the Glassware speak, but I think it's imperative that the listeners understand.

What we've done here is really quite unique for a company our size, but we must not lose fact of the fact that we've migrated much of what you guys would consider legacy storage to things that are not considered legacy storage. I don't think anybody on this call would call VSAN a legacy storage product. It's a virtual SAN.

Well, SnapCLOUD is nowhere near a legacy product, and SnapScale is nowhere near a legacy product. These are new, contemporarily designed products. They're proprietary operating systems that can live and breathe both physically and virtually.

They are part of a virtual fabric, and they are in line with what Glassware was incorporated to do, which was deliver virtualization. We happen to be doing it now both through VMs and without. And again -- and I'll point out the significance of this.

Just to give you a little bit technically and not to sound like a propeller head, guys, but the way Glassware lives inside of Azure is it's mounted inside of a virtual machine. In this particular case, Hyper-V, because it's got to live inside of Microsoft's significant fabric.

That means that I can deploy now Glassware on an existing third-party virtual machine, whether it's made by HP or IBM or Nutanix or SimpliVity or anybody else who makes these hyper-converged boxes, you can now throw a Glassware instance in it.

And so this is where we've taken the technology so that when we come to market, and hopefully with the additional guidance of some of the new people like Simon who knows this industry inside and out, we can be quite disruptive and try to expedite our ability to generate revenue.

So I hope that helps in terms of just you understand we don't view some of the legacy. We break out tape [ph] because we do tape [ph] as legacy, right? And we will always break it out.

And we are reducing things like media because it's not our future and we're not really interested in it, right? It is something that we do as a service, practically, for our customers to have the ability to get access to that product. But that whole portfolio is being thrust forward as new contemporary and extremely differentiated product.

And I hope I'm able to articulate that properly. Second question. When you partner and go to the channel model, there is a hit that you take in overall margin. You do that versus selling direct in return for their marketing dollars and their force, and that's the entire intent.

So we would never actually even consider a channel model if there was no marketing, co-marketing, branding opportunities available to us. There would be no reason to give up the margin. And so we absolutely expect, not just Microsoft, but all our partners, to invest in promoting our brand and our solutions.

That's why they get a discount to MSRP, and we don't sell the product direct, right? So without a doubt, we're expecting them to do so. And the third segment, the third part of your question, and this is something we're -- this is the realities of the business that we have.

No, we don't have enough Professional Services in-house today, and that's why I'm mentioning it on the call, to address the requirements. We have teams that run from opportunity to opportunity to make sure they can engineer this right.

We are working on that as fast as humanly possible to make sure we can support the requirements that we're getting from the field and from the partners and also just to be prepared for what we hope to be some more growth at a later date. But it is a weakness for the company that's being addressed.

It's not something that we're not aware of it, but it's not something we've completed addressing just yet.

Did I answer your 3 questions?.

Yes. And the last one -- and thank you very much, by the way. The last one also, of course, hinted at the requirements -- or growth and the requirements is, of course, only important as the adoption sort of increases as we see it.

And, of course, it's, for us, a little bit of a hit that -- if I may put in that many words, that the compliance office seems to have woken up after 6 months.

But -- so to maybe word it differently so that he doesn't mind, would you see the adoption rates of Glassware becoming meaningful or significant going into the second half of the year?.

So without giving guidance, the easiest way to answer that question, the core technology represents the future of the company, right? We can't to talk about what the definition of meaningful is.

But when we look at what we're trying to achieve, it's based on the contemporary product line, right? If we didn't believe that Glassware was differentiated, we wouldn't have the R&D budget we have.

If we didn't believe that we could succeed and turn it into a profitable entity within the company, we wouldn't be putting the amount of effort behind it that we do. .

And the other thing, just to understand, Glassware is a platform. Glassware is being used across, not just the Glassware platform, as everyone talks about, but it's also enhancing our virtual desktop solution. It's enhancing our storage solutions.

So when you look at the platform, you're going to see Glassware in all of the products going forward and leveraging that to improve our entire portfolio. .

Whether it's one line of code or a million lines of code, it will find its way in different parts of the portfolio. .

Which is their maintenance -- go ahead. Sorry. .

Sorry, which is nice and leads me again to sort of, like, let's say, at the Microsoft exhibition and so on, did you see sort of people, also in terms of concrete demand, picking up and inquiring about the adaptation of Glassware?.

Oh, absolutely. I mean, did we see interest? Of course. 100%. And I think some people on this call have probably been to a couple of these shows. We had 80 people in New York, pre-NASDAQ, a lot closer to 100, at the show. We've had a fair bit of interest. And as I mentioned earlier on the call, we have inbound traffic on SnapCLOUD and Glassware.

So, look, when you have the ability to alleviate these pain points for IT, interest in the product won't -- we don't believe is something that you need to shake many trees to have leaves drop, right? This is not something that is -- we're not creating a product and looking for a market, right? The market exists.

The packageable software market -- I've read articles that put it out, and I'm talking about end user computing and otherwise, in the hundreds of billions of dollars, right? I mean, there's no secret that this is something that's turning into as-a-service. There's not a lot of solutions for that.

So we're quite confident that, that part of our business is sound in terms of the size of market and whether they're interested in this product. With that said, of course, we have to cut you short and take a couple of more questions. .

At this time, we will move to John Sharp [ph], private investor. .

My question would be -- my first question is the near 1 million shares that was purchased or I remember being purchased through Mr.

Eric Kelly, was that paid for like through cash?.

This is Eric. Yes, they were purchased. .

Where they paid for through cash?.

Oh, yes. So the answer is yes. Yes, they were. Yes. .

But outside of the filing, you're not -- we're not technically in a position to disclose any beyond what's in the filing. .

Okay, I understand.

My next question is, how long -- how far out in this time frame or estimate is the -- is Azure launch on the Glassware?.

I'm sorry.

What was the question again?.

What's the time line for Azure and Glassware. .

And how much longer is this going to be?.

Well, I would say it's imminent. .

So we are scheduling it out near term. And then again, near term, without trying to be vague, I mean, we're looking at it being available, subject to completing certain marketing and so on. So technically, we're pretty much done. So technically, we are done. .

So, yes, let me answer the question in a different way. From a technical implementation, we're complete. So now, it's really just getting it teed up, get our marketing, get our pricing, the go-to-market strategy. So I would say the heavy lifting, I think your question, is done. So we're pretty excited about that, and so now it's where the fun begins. .

But, I mean, technical preview will be available real soon to make sure that people have a chance to go through the features before GA. .

Okay.

And just from previous calls, is the $40 million revenue that was projected for the fourth quarter, is that something that we still have a go for or we haven't discussed that? Are we still on track for that?.

John, this is Kurt. And we can't discuss that. And that was part of my -- the last portion of my prepared remarks. We have to be pretty clear about that. .

Okay. I got you. Oh, I do have one. I heard something about a shelf registration on the front part of the call.

Could you elaborate on that? Is that something where -- could you explain that more?.

Certainly. So I'll actually tackle that one, this is Peter, from a Canadian perspective. For those in Canada, from where we were listed in Canada, doing private placement is relatively routine and accepted methodology, what we call pipes here in the U.S.

But within the United States, pipes are usually -- they usually come with additional terms that would otherwise not be in a registered offering.

Unfortunately, we had to wait for 1 year, where our 1 year anniversary to be able to put a shelf up, right, and have been pretty much relegated to either debt, finance or pipe as a form of financing mechanism.

So what we've done, at the very first opportunity that we could, was file a shelf so that we don't have to get into what the traditional micro-cap and small-cap financings that involve discounts to market, warrant coverage and you know all the other stuff.

So we just considered it's really good housekeeping that will allow us to be opportunistic and be able to price and do financing within the context of the market without always the Sphere, that there's a pipe coming that's going to have a detrimental impact because of a discount. And so that's the primary purpose. It takes a bit of time.

I think it's 30 days before it can be released, it can be effective. So it's not going to be effective until sometime in September, but that was the intent. And it's good for, I think, 2 years, don't quote me on that. The 2 years, Kurt, I believe, 2 years? So it gives us plenty of flexibility going forward. .

Okay.

Are you all allowed to discuss how much that will be?.

Well, it's a blanket. So it's a total of $40 million, but you can do $1, right? So whatever increments you want to do it in. .

And when you say detrimental or a detrimental impact, so you're referring to the share price, say, the market. .

I'm talking about when you do pipes, how they sometimes have a negative impact on the capital markets during the process, whereas registered offerings usually don't have a significant an impact. .

Is that something that will impact the share price?.

We don't -- I mean, I can't comment on that, but traditionally, when someone puts up a shelf, it doesn't really have an impact that I've seen or noticed one way or the other. .

Okay. I was new to it. I just didn't understand the... .

And at this time, we'll take a question from Jim Kennedy, Marathon Capital Management. .

I just wondered if you could clarify or give us some color around the part of the release about the committee that's been formed to look at opportunities to maximize shareholder value.

What prompted the formation of the committee? And what do you mean by maximize shareholder value and why now?.

No, Jim, we -- yes, we decided in our last board meeting to -- just to form a special committee to assist us as we're looking at opportunities that we think can maximize shareholder value. A good example is what we did with Imation, where we think that should definitely maximize shareholder value.

I mean, net revenue of $13.5 million, accretive right out the door, picking up several OEM partners, expanding our channel reach. So the committee is there to look at how we make sure we maximize shareholder value as we continue as an executive team to drive the operational side of the business. So... .

I'm just -- in that particular instance, I'm just wondering, you don't need a special committee made up of independent board members to assess an accretive situation like that. It's yet to determine if that adds shareholder value since we're not giving any forward-looking numbers whatsoever. We have no idea if it does.

So again, I'm just wondering, why do you need an independent committee to do something like that?.

Well, Jim, I mean, I'm sure everyone has seen the press release from a week or so back, and we're not the only company. As you know, by default, as a company, we're committed to shareholder value.

And at certain times, you will bring in a special committee to assist management to continue to explore those and others while management is heads down working on the actual business, right? And so this is something that you traditionally do with the independent part of the board because the nonindependent part of the board is usually consisting of management who's doing it anyway as a default as part of their responsibilities to the shareholders regardless.

So this just brings in additional resources that are separate from management, that can actually explore any and all opportunities that may increase value for shareholders, that we can actually relate with them as the management team and compare and work as a group to try to get the maximum value for shareholders.

Does that help?.

We'll take a question from Patrick Lauder [ph], P&L Consultants. .

Maybe you remember me from the last [indiscernible] in Montréal work. I'm consulting with a large cable company. And I talked about it with you online in the last conference call. I was told that I'd be getting -- gotten in touch with a whole bunch of people. Not to move yet, guys. Not to move yet. But I just want to also say this.

The one big reason why most people were here today at the conference call was to hear if you were on track for the run rate promised last February, not promised, but dying to be given. Now I can understand you saying, "Okay, in the future, we won't be doing that anymore. We're going to let stand what we've already committed to." It's like a handshake.

It's like a handshake, and all of a sudden, boom, pulled out from under our feet and was the reason why most of us got in the stock. You guys were saying, "Hey, we're just committed to try to get this here." And it looks realistic to us. And now all these legal mumbo-jumbo, and you're saying no more.

I mean, do you know what we've been suffering with the stock price going down for the last how many weeks? Do you know we're going to get clobbered tomorrow?.

Patrick, this is Kurt. I'd love to be able to give you some different color on it, but at this point, I think we're pretty clear in regards to the reasons and the rationale and the requirements as to why we were going to be unable to address that in any form in relation on this call. .

And just so we're clear, we are not telling whether we're reaffirming or not reaffirming or commenting on the guidance. We're clearly saying that we can't comment on the guidance, not that we backed off of it in terms of we don't -- whether we think the numbers are achievable or not. That's not the comments we're making. .

So what's the problem? We just can't discuss it in a conference call? Can't you just issue a PR to say you're still standing behind the guidance then?.

So maybe we can try to explain it one more time. .

Patrick, and this -- we've been notified that the way the disclosure was given, we would need to modify some things and provide significant material information that we feel would be sensitive to the company and damaging to the competitive balance that we're trying to put forward as well as expose some of our partners to things that we just do not feel is appropriate at this time.

And therefore, we are unable to... .

Yes, I understand. I heard -- I understand. It's just that the shorts are going to use this as ammunition. We're going to get clobbered on the market. We -- Microsoft is like in quiet mode. I mean, you go through the presentations by Microsoft, and they're singing praises about Glassware and they fill gaps that we weren't able to do.

And then, boom, they go quiet. It's like there's no money coming in from them, yet we're giving the product away to them. And there's no PR. So there's just nothing to go on. And then you pull this last thing from under us. So, I mean, I would have saved it up for a big PR so that we could at least buoy the price up a bit. .

Patrick, this is Peter. Look, everyone in this room is very cognizant of share prices and fluctuations. We understand what's transpired in the market over the last 2 weeks. We understand what transpired in the weeks prior to that when it went the other way. And this has been a company whose shares have done that quite frequently.

We are not reacting to the day-to-day fluctuations in the share price. We are reacting to the requirements to build a solid foundation for a business so that this volatility goes away. .

Yes. I understand that, but at the same time, when you hear $160 million run rate, that motivates us to buy the shares.

And then when it's taken out, there should be some sort of openness or transparency to buffer us until we get through these -- a question, is SnapCLOUD ever been purchased yet? Has it been purchased off of Azure? By anyone?.

So the answer to that -- I'm not sure. Look, Patrick, we can't get into segments for each product. It is available in the marketplace today for purchase. And so... .

And you cannot share with us if there were sales on that book?.

I can -- can I tell you whether someone's bought an instance of SnapCLOUD?.

Yes. .

Yes, I can. Someone has bought an instance of SnapCLOUD. Can I tell you how many people are using SnapCLOUD? If I do so, I'll have to tell you on every conference call going forward and segment it, and we're not prepared to do that.

As you know, there's a very large cloud company who spent 9 years before they disclosed their cloud portion of their business. And the very first time they ever disclosed it, it was in excess of $5 billion. We are working as a company who's based on doing something on the long term for the benefit of the shareholders. And I know this is difficult.

We're all shareholders of the company, and we don't like to see these fluctuations either. But there is an appropriate way and time line to do it. And with that, Patrick, I'm going to have to move on to the other callers, but you've got our numbers. You're more than welcome to call us. .

Well, I was expecting you to call me about my contacts up here in Canada and Montréal. .

So, Patrick, we'll make sure we contact you. I think we have your number. .

At this time, we'll take a question from Hubert Mak with Cormark Securities. .

I just want a quick follow-up here on the RDX or the acquisition announced today. You guys talk about that is going to be accretive on a revenue and gross margin basis.

Can you guys kind of provide sort of color on whether this was a powerful business? And then at the same time, I guess, really, I guess, are there any cost synergies coming from this?.

Hubert, this is Eric. We can't speak to what the business structure was inside of Imation, but we know that because of our -- because we licensed the technology then, we already have the infrastructure in place. We already have the channels. We're picking up the assets. We're picking up some of the IT. We're picking up the partners as well.

So, for us, it's definitely additive. .

So yes, and to maybe clarify that, you're adding this product line to an existing supply chain management that's already in place for this product line. So it's not something where you're building operational dedicated resources to a new line of business. And so therefore, there should be margin growth pretty quickly from doing the transaction. .

Yes. And just to add to that, obviously, when you add the same product line, you're going to have synergies just based on scale, right? And so we're expecting that to just -- to happen. .

At this time, we'll move to Scott Shafer [ph], private investor. .

Okay, guys. The G-Series box or appliance, can you give us an idea of the pricing? I understand the first one was the education entry-level, but a pricing margin, if you have the capacity -- or how much capacity you have to manufacture, sales cycle and recurring revenue. .

Wow, that's a lot of questions rolled into one. .

So from -- So, Scott, this is Eric. From a capacity standpoint, we have the capacity to scale with the business. We have a full manufacturing facility in China that was already geared up and ready to do high volume business as we do today. On the pricing side, yes, I'll let Peter talk about the pricing. .

Sure. So, Scott, yes, just to add up to what Eric said, keep in mind that the actual first appliance, and it is a series, so we said this before, but we'll make it clear, this is the first one with certain capacity. There are other appliances within the series that will be released.

So this is based on an existing platform that's currently already manufactured, and it is part of the integration I'm talking about. You take Glassware. You put it on a existing Snap platform, and suddenly, that's a hyper-converged product. It's no longer just a device that's delivering storage. It's actually an application virtualization.

So we have the capacity and the means and the supply chain to do so. So we're not too concerned about being able to deliver the capacity.

I can't get into the margins because, obviously, it's a new product and it's not necessarily something that, as much as it'd be to the investors' delight, that you want to actually go out there in the market and disclose right upfront.

But we are actually -- we have an introductory pricing on this thing in the education market that starts as low as $10,000 to get people up and running, right, and scales dramatically from there because these things, as you know, they cluster. And there's also a recurring component. And from a licensing perspective, that goes with it.

But we built it in such a way that you can get started very quickly at a decent price point and then grow into additional capabilities, which ultimately will include bursting into Azure as part of this product. .

Okay.

Where's the big opportunity, with specific verticals, with a company, with ISV? Where is the big market?.

All of the above. .

All of the above. I mean, whether you're going to dedicate it for an ISV or whether you're going to go into verticals or go horizontally, I mean, they're really a function of the amount of marketing dollars you have, right? So you don't want to necessarily go horizontally just because it takes a fair bit of money to launch that way.

So we're verticalizing the product where we've got specific use cases and it's repeatable business. .

And, Scott, let me just add to that. I mean, if you look at, there's vertical markets like education. And if you look at just the U.S. alone, there's 50 million students just K-12. And so you can just look at how many opportunities we have... .

100,000 schools or something. .

Yes, 125,000, 130,000 schools. That's one side of the equation.

The other one, Scott, is when you look at the Fortune x companies, whether the Fortune 1s, Fortune 50, they're looking at that as an enterprise solution so they can scale across their campus and across their organization, so that no matter where they are, they have an enterprise solution that allows them to have mobility and have it in a secure environment.

So they don't have to worry about their data leaving outside their data center. And one of the big issues that they're having that we saw is you travel like you're traveling and I travel and you have a laptop and you lose it, well, your data is sitting on that hard drive.

So a lot of the markets, like government, like healthcare, are extremely interested in having an architecture like this where the data sits behind their firewall and they're able to move no matter where they are around the world. So you've got both sides of that, which is pretty exciting.

I mean, I've got to tell you, the -- as Peter said earlier, the amount of folks that have locked into the use cases that we came up with are pretty amazing. And now it's just really looking at how do we build the service and support to actually do the professional service to roll those things out as quick as possible. .

Okay.

So there could be a government box?.

There could be a government box. There could be an education box. There could be a healthcare box, a general purpose box. And we start looking at the verticals that we talk about, whether it's education, healthcare and government. Each of them have certain attributes that they like about the solutions. And so... .

And some of them, Scott, are just licensing models, right?.

Yes. .

I mean, the big difference with this education model is the fact that we put in the ability to deliver online testing at a reduced per user cost in order to create a better value proposition for the end user. So -- and -- so -- but that same box could end up in healthcare tomorrow with a different licensing model. .

Okay. 125,000 schools.

An average school would buy how many boxes?.

So as we said, you can go for students who you guys can do your own math, but this particular box is rated for 400, 100 concurrent users of 4 apps each or 300 concurrent users with a single app. So 50 million kids. So I don't know. It's a big number. .

And, Scott, the interesting thing, the business model fluctuates because some schools, where they don't have the infrastructure, want to use the cloud solution. And then other schools, they have larger infrastructure, want to have the appliance.

So that's why, strategically, it's important to have both and then so that when you come with the hybrid, right? And so that's where the excitement is, because they have now the flexibility to go either way. .

[indiscernible] will you offer like a total package? Or will that be marketed as like a hybrid solution private-public?.

So let me be perfectly clear. When we talk about a hybrid architecture, point of differentiation, which I think may be unique for us. The product that you have in the box is the identical product that you have in the cloud. It is not 2 products that work together.

We forklift the OS, encapsulate it and put it into the cloud so that it is an app operating environment, it is seamless versus creating patches and translation and middleware that create other layers of latency and complexity to manage.

So this is something that we've successfully been able to achieve for the hybrid solutions that we have is being able to actually maintain the same user interface, same management consoles, same functionality, same creditability from the product. .

Is there some way where you're going to market this as a combined solution? Like on the appliance would have like an icon where people can go to Azure to use the app.

Is there going to be like a joint thing? Or is this 2 different markets that you're going after?.

Scott, that's a great question. So the answer is yes. And you know what, we've got a couple of openings in marketing, if you'd like to come on board. But yes. So the answer is yes. We intend to actually make sure that we can continue to try to drive up-selling within the portfolio right from the UI. .

And once Glassware is on Azure, you've kind of completed the picture. It's just finally complete.

That's what we're waiting -- really waiting for, right?.

Well, I think right now, we have a product that's in the market that's for sale as is, but I believe that the value proposition becomes substantially more compelling when it is hybrid.

I mean, and that's all the studies tell you, right? Every study will tell you that the hybrid solution is generating 50 -- I think it was 55% of the interest in deploying cloud is as hybrid. So for sure, that's where you want to be as soon as humanly possible. It's great if you can actually start there, which is pretty much what we've done.

And with that, I'm going to ask just one more question, Scott. If you've gotten them, I'm going to take one more call, I think, we've got on this list and wrap up. .

Okay. One last question.

If you -- can you increase the price of RDX now that you've consolidated the IP?.

I'm not going to answer the question. I think you probably know the answer to that question. .

The last question today will be from Wesley Root [ph], private investor. .

Yes, a question I got, Eric Kelly pointed it out, just a tremendous market and offering security features. And we've seen Blue Cross, Blue Shield expose all their members to information throughout various industries that's happening. I'm not quite sure how our security feature works, number one.

But, two, how many people are really interested in it? Because I've got to assume, it's a monster market, especially after the numerous people in the government, all their files got... .

Yes. Wesley, I can speak to that pretty easily. I mean, you're right.

Both healthcare and government, I mean, with the cybersecurity issues that are going on, protecting personal data as well as just confidential and highly confidential data, they are looking for a solution and what we have to be able to, again, go mobile and use legacy applications and go mobile but still protect the data.

I mean, we see it on the news all the time, right? If somebody loses a laptop and then everybody's social security numbers are out there, you have someone's system hacked in from a healthcare provider and the data is gone. So that's a huge part of what we offer to the customers.

And so our system actually adopts the security functionality that they already have in-house. So it makes sure that it protects their data as much as -- as well as they're protecting it inside of their data center.

But the key is, if you look at those industries -- and there's a couple of other industries as well, but healthcare and government, clearly, big on federal level to state level, local level. They're all having the same issues. And Wesley, some of the big issues is all of those applications have been written 15, 20 years ago in COBOL, Fortran.

They weren't designed to be on mobile devices. They definitely weren't designed to be on -- whether it's an iPad or a Chromebook or put in the cloud.

Well, they use our technology to be able to leverage not only the Glassware architecture, virtualization, but they're able to leverage our storage platform as well, which is why these are so integrally connected. So, yes, you're absolutely right in terms of the opportunity is just vast.

And now our objective and strategy has to be, obviously, we're talking to them, but they're making sure we have the Professional Services behind us to make sure we can actually deploy these quickly.

Because when we get a large deal, the way you drive revenue, you'd implement it in 8 weeks versus implementing it in 8 months, and that's all about your Professional Services and your deployment strategy and making sure you're fluent there.

Did -- Wesley, did that answer your question?.

The containerization or what feature is it?.

So it's a combination. And the different parts of the stack have different security features. So if you run a container, it's isolated. If you run the container with a VM, it's further isolated. If you use an endpoint that runs proprietary, nontraditional ability to access the server side, there's another layer of security that goes there.

And then the data itself can -- never actually sits on the endpoint. We don't cache locally. So there's nothing in the cache that could potentially be left behind. But there's a lot of segments to it. But we definitely stand behind the security of it. .

There are no further questions in the queue at this time. At this time, ladies and gentlemen, this does conclude today's conference call. Thank you, all, for your participation. .

Thank you, everybody..