Sphere 3D Corp (NASDAQ:ANY) Is A Recovery Pick

Sphere 3D Corp. (NASDAQ:ANY) lost more than 80% of its market capitalization throughout 2016, and as we move in to 2017, sentiment is decidedly negative. Concerns over the company's ability to control costs have shed a degree of doubt on its future as a going concern, and this doubt is compounding the already weak sentiment. Is this decline really deserved, however? If not, there may be an opportunity to get in at a discount ahead of 2017 recovery.Sphere is one of those technology companies that – for the uninitiated – can seem a bit complex. It describes itself as delivering data management, and desktop and application virtualization solutions via hybrid Cloud, Cloud and on-premise implementations through its global re-seller network. It's got a suite of products, each of which has a tech sounding but generically nondescript name – Glassware, SnapCLOUD, that sort of thing – sells to commercial entities across a range of industry types.Look under the hood, however, and it's actually not that complicated – at least in concept. The company has built a range of technologies that combine to create a type of data management system. Basically, a company installs one of Sphere's systems, and it acts as a sort of localized cloud, through which employees can store, modify and create files. It's highly secure, and can be scaled to work with an entire commercial organization, or as part of a standalone system for a particular department within said organization.So that's the product, and it's selling pretty well. Second-quarter revenue came in at $19.6 million, which is an increase of over 6% from same period a year earlier, and equal to the first quarter of the year. For a company that's currently valued at just $15 million, that's pretty good.The problem, however, is the above mentioned costs. Total operating expenses for the second quarter of 2016, when excluding share-based compensation, were $11.8 million – up on the $11.3 million recorded during the previous quarter. Revenues stayed the same, so there's a cost increase that's not mitigated by a top line increase. Additionally, cash isn’t great. In its latest conference call, the company recorded cash at just $4.3 million. When questioned, management wouldn’t say for certain whether that would see them through the end of the year. That's one of the main points of contention. And it's the core of a letter sent to the company recently from the COO of Cyrus Capital Partners, which holds a 28.3% stake in sphere.The letter outlined Cyrus' belief that Sphere needs to restructure, and offered some areas that would need addressing as part of said restructuring. That Cyrus felt it necessary to notify Sphere of its concerns is – in itself – a bit concerning for shareholders, but for us, it's not all bad. Twelve month and longer holders have seen their exposures deplete in value to the tune of 80%, and something needs to change at Sphere if these same shareholders are going to see any recovery. Near term, therefore, and shakeup may bring a bit of volatility to Sphere, but longer term, we think that it's a path that the company needs to head down. Additionally, and supportive of our thesis that this could be a turnaround point for Sphere, Cyrus has offered to lend the company some cash to cover the costs of the restructure, and to help bridge the gap between now and any recovery.That is, it will lend Sphere cash if it meets the terms of the outlined restructuring plan, but for a company that desperately needs an injection of capital, expectations are that it will. Begrudgingly, perhaps, but conformation is really the only option here.The takeaway here is that this company has taken a beating of late, but it's got a solid product that sells well, and is generating more in quarterly revenues that its current market cap. If it can get through the coming few quarters, and shuffle things around to cut operational costs, it could be a nice recovery pick.We will be updating our subscribers as soon as we know more. For the latest updates on ANY, sign up below!Disclosure: We have no position in ANY and have not been compensated for this article.