Quantum Corporation Reports Fiscal First Quarter 2016 Results

Grows Scale-out Storage Revenue 54% Year-Over-Year Despite Impact of General Storage Market Weakness Across All Product Lines

Jul 30, 2015, 16:33 ET from Quantum Corp.

SAN JOSE, Calif., July 30, 2015 /PRNewswire/ -- Quantum Corp. (NYSE: QTM) today reported results for the fiscal first quarter 2016 ended June 30, 2015.

Fiscal First Quarter 2016 Results (All comparisons are relative to the fiscal first quarter 2015.)

  • Revenue was $110.9 million, a decrease of approximately $17 million, primarily driven by overall weakness in the general storage market.
  • Scale-out storage and related service revenue grew approximately $10 million to $27.8 million, a 54 percent increase, marking the fourth consecutive quarter of 50-plus percent growth and 16th consecutive quarter of year-over-year growth.
  • Royalty revenue increased $1 million to $10.2 million.
  • Disk backup systems and related service revenue was relatively flat at $17.3 million.
  • Branded tape automation and related service revenue decreased approximately $15 million to $35.1 million, while OEM tape automation and related service revenue was down approximately $6 million to $9.5 million.
  • Devices and media revenue was $10.9 million, a decline of approximately $7 million.
  • The GAAP net loss was $10.8 million, or $0.04 per diluted share, compared to a net loss of $4.3 million, or $0.02 per diluted share.
  • The non-GAAP net loss was $7.0 million, or $0.03 per diluted share, compared to net income of $2.4 million, or $0.01 per diluted share.

"Like other companies, we were impacted by overall weakness in the general storage market, which was most notable for Quantum in tape-based data protection but impacted all product lines, including scale-out storage," said Jon Gacek, president and CEO of Quantum. "Nevertheless, we continued to generate strong revenue growth in scale-out storage — 54 percent year-over-year — with higher sales across our StorNext® workflow storage solutions and Lattus™ extended online storage. Our scale-out storage results reflect our success in expanding our leadership in media and entertainment while growing our footprint in other vertical markets and use cases such as video surveillance.

"Moving forward, we plan to build on this scale-out storage strategy, capitalizing on our unique ability to deliver integrated solutions that provide both unmatched performance and low total cost of ownership through a tiered storage approach encompassing flash, spinning disk, object storage, tape and the cloud. In doing so, we will continue to use dedicated resources in select verticals as well as our broader sales force for greater market coverage.

"For our data protection products, we will continue leveraging our technology leadership, extensive customer base, and strong channel and technology partnerships to generate profit and cash. In addition, we will closely monitor how the general storage market evolves and take this into account in our spending and investment decisions."

Fiscal Second Quarter 2016 Outlook Given both the challenging environment in the prior quarter and the growth opportunities in scale-out storage going forward, Quantum said it is taking a balanced approach to operating the company in the fiscal second quarter, which is reflected in its guidance for the quarter:

  • Revenue of $120 million to $130 million.
  • GAAP and non-GAAP gross margin of approximately 42-43 percent.
  • GAAP and non-GAAP operating expenses of approximately $55 million to $57 million and $52 million to $54 million, respectively.
  • Interest expense of $1.9 million and taxes of $400,000.

Quantum also stated that it has the resources to pay off its convertible notes due November 2015 and that it expects to utilize a combination of cash on hand, cash generated from operations and its $75 million bank revolver to do so.

Fiscal 2016 Outlook For fiscal 2016, the company reiterated its year-over-year revenue growth target of 50 percent in scale-out storage and said that it will continue to make investments to capitalize on the market opportunities in this part of its business. In addition, considering both the challenging general storage environment and the potential for scale-out storage opportunities to exceed current expectations, the company stated that it is not providing annual guidance.

Fiscal First Quarter 2016 Business Highlights

  • Scale-out storage product revenue from the media and entertainment market grew 32 percent year-over-year. In addition to extending its leadership in broadcast and postproduction, Quantum expanded its customer base in corporate and sports video, where the company's long-standing expertise in enabling highly demanding video workflows is a key differentiator.
  • Outside of media and entertainment, scale-out storage product revenue increased more than 250 percent year-over-year. Quantum saw increasing market traction in video surveillance, where the combination of its expertise in managing video, its industry-leading streaming performance, and its workflow-optimized tiered storage approach are a key differentiator. The company also had several large deals in genomics and geospatial applications, as customers purchased Lattus systems to provide a massively scalable active archive.
  • Quantum announced three new archive solutions that empower customers to address the challenge of unstructured data growth with cost-effective tiered storage strategies: 1) the Artico™ intelligent NAS archive appliance, which offers customers using scale-out NAS systems a flexible, low-cost entry point for establishing archives outside of StorNext environments and can scale to hold petabytes of data across object storage, tape and cloud storage tiers; 2) a certified solution combining Quantum DXi® appliances and Rocket Arkivio Autostor software that provides not only backup but also archive; and 3) a Lattus extended online storage offering with object storage nodes that integrate new 6TB disk drives for increased density and lower cost per terabyte.
  • The company and Dot Hill announced a new, global go-to-market partnership in which Quantum is integrating Dot Hill's full line of enterprise-class disk storage systems into its tiered storage offerings. The new partnership expands Quantum's range of solutions for managing and protecting data across primary storage, backup and archive.
  • In conjunction with the 2015 NAB Show, Quantum earned four prestigious awards for its workflow storage and management solutions. Broadcast Beat recognized the company's Q-Cloud™ Archive storage service for creativity, and TV Technology magazine named the public cloud service as a Best of Show Award recipient. In addition, Quantum's StorNext Pro™ Solutions won a StudioDaily Prime Award, and IABM honored the company itself with a Game Changer Award.

Conference Call and Audio Webcast Notification Quantum will hold a conference call today, July 30, 2015, at 2:00 p.m. PDT to discuss its fiscal first quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: 719-325-2420 (U.S. and International); access code: 7608393 Replay number: 719-457-0820 (U.S. and International); access code: 7608393 Replay expiration: Tuesday, Aug. 4, 2015, at 5:00 p.m. PDT Webcast site: www.quantum.com/investors

About Quantum Quantum is a leading expert in scale-out storage, archive and data protection, providing solutions for capturing, sharing and preserving digital assets over the entire data lifecycle. From small businesses to major enterprises, more than 100,000 customers have trusted Quantum to address their most demanding data workflow challenges. With Quantum, customers can Be Certain™ they have the end-to-end storage foundation to maximize the value of their data by making it accessible whenever and wherever needed, retaining it indefinitely and reducing total cost and complexity. See how at www.quantum.com/customerstories.

Quantum, the Quantum logo, Be Certain, StorNext, Lattus, Artico, DXi, Q-Cloud and StorNext Pro are either registered trademarks or trademarks of Quantum Corporation and its affiliates in the United States and/or other countries. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement: This press release contains "forward-looking" statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Specifically, but without limitation, statements relating to: i) our plans to build on our scale-out storage strategy; ii) capitalizing on our unique ability to deliver integrated solutions; iii) using dedicated resources in select verticals as well as our broader sales force for greater market coverage; iv) leveraging our technology leadership, extensive customer base and strong channel and technology partnerships to generate profit and cash from our data protection offerings; v) monitoring the general storage market and taking this into account in our spending and investment decisions; and vi) our outlook, including all statements under the sections titled "Fiscal Second Quarter 2016 Outlook" and "Fiscal 2016 Outlook," are forward-looking statements within the meaning of the Safe Harbor. All forward-looking statements in this press release are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantum's actual results to differ materially from those implied by the forward-looking statements. More detailed information about these risk factors are set forth in Quantum's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Risk Factors," in Quantum's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 12, 2015. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Use of Non-GAAP Financial Measures

Quantum believes that the non-GAAP financial measures disclosed above provide useful and supplemental information to investors regarding its quarterly financial performance. Quantum management and Board of Directors use these non-GAAP financial measures internally to understand, manage and evaluate the company's business results and make operating decisions. For instance, Quantum management often makes decisions regarding staffing, future management priorities and how the company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, compensation of our employees is based in part on the performance of our business based on non-GAAP operating income.

The non-GAAP financial measures used in this press release exclude the impact of the items below for the following reasons:

Amortization of Intangible Assets This includes acquired intangibles such as purchased technology and customer relationships in connection with prior acquisitions. These expenses are not factored into management's evaluation of potential acquisitions or Quantum's performance after completion of the acquisitions because they are not related to Quantum's core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Quantum against the performance of other companies without the variability caused by purchase accounting.

Share-Based Compensation Expense Share-based compensation expense relates primarily to equity awards such as stock options and restricted stock units. Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Quantum's control. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Quantum's core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Restructuring Charges Restructuring charges primarily relate to expenses associated with changes to Quantum's operating structure. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Quantum has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges from Quantum's non-GAAP financial measures, as it enhances the ability of investors to compare Quantum's period-over-period operating results from continuing operations.

Outsourcing Transition Costs Outsourcing transition costs are expenses attributable to transitioning our manufacturing to an outsourced model. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities and management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum's period-over-period operating results from continuing operations.

Proxy Contest and Related Costs Proxy contest and related costs are expenses incurred to respond to activities and inquiries of Starboard Value LP, including their proxy solicitation. The Company has not incurred significant expenses in connection with such matters in historical periods and these costs are not considered core operating activities. Management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum's period-over-period operating results from continuing operations.

Crossroads Patent Litigation Costs Crossroads patent litigation costs are expenses incurred to defend ourselves and perform other activities related to a patent infringement lawsuit filed by Crossroads Systems, Inc. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities, and management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum's period-over-period operating results from continuing operations.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material impact on the company's reported financial results and, therefore, should not be relied upon as the sole financial measures to evaluate the company. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

Contact: Brad Cohen Public Relations Quantum Corp. (408) 944-4044 brad.cohen@quantum.com

Brinlea Johnson or Allise Furlani Investor Relations The Blueshirt Group (212) 331-8424 or (212) 331-8433 brinlea@blueshirtgroup.com or allise@blueshirtgroup.com

 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

June 30, 2015

March 31,  2015*

Assets

Current assets:

      Cash and cash equivalents 

$            53,685

$                   67,948

      Restricted cash 

2,713

2,621

      Accounts receivable 

97,329

124,159

      Manufacturing inventories 

49,149

50,274

      Service parts inventories 

24,713

24,640

      Other current assets 

12,178

11,942

    Total current assets

239,767

281,584

Long-term assets:

 Property and equipment 

14,401

14,653

 Intangible assets 

594

731

 Goodwill 

55,613

55,613

 Other long-term assets 

4,246

4,577

Total long-term assets

74,854

75,574

$          314,621

$                 357,158

Liabilities and Stockholders' Deficit

Current liabilities:

 Accounts payable 

$            35,855

$                   54,367

 Accrued warranty 

3,600

4,219

 Deferred revenue, current 

89,390

95,899

 Accrued restructuring charges, current 

2,674

3,855

 Convertible subordinated debt, current 

83,501

83,345

 Accrued compensation 

34,450

35,414

 Other accrued liabilities 

15,734

20,740

Total current liabilities

265,204

297,839

Long-term liabilities:

   Deferred revenue, long-term 

37,359

39,532

   Accrued restructuring charges, long-term 

881

991

   Convertible subordinated debt, long-term 

68,908

68,793

   Other long-term liabilities 

10,262

10,441

  Total long-term liabilities

117,410

119,757

Stockholders' deficit

(67,993)

(60,438)

$          314,621

$                 357,158

*

Derived from the March 31, 2015 audited Consolidated Financial Statements.

 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 Three Months Ended  

June 30, 2015

June 30, 2014

Revenue:

Product 

$         62,719

$         80,194

Service 

37,939

38,500

Royalty 

10,198

9,434

Total revenue

110,856

128,128

Cost of revenue:

Product 

46,964

54,908

Service 

16,927

17,694

Total cost of revenue

63,891

72,602

  Gross margin

46,965

55,526

Operating expenses:

Research and development

13,323

14,554

Sales and marketing

27,605

27,705

General and administrative

13,986

14,371

Restructuring charges

258

865

Total operating expenses

55,172

57,495

Gain on sale of assets

-

462

Loss from operations

(8,207)

(1,507)

Other income and expense

(286)

(125)

Interest expense

(1,923)

(2,444)

Loss before income taxes

(10,416)

(4,076)

Income tax provision

339

248

Net loss

$       (10,755)

$         (4,324)

Basic and diluted net loss per share

$           (0.04)

$           (0.02)

Weighted average basic and diluted shares:

258,448

250,666

Included in the above Statements of Operations:

Amortization of intangibles:

Cost of revenue

$              137

$              378

Sales and marketing

-

1,856

137

2,234

Share-based compensation:

Cost of revenue

362

414

Research and development

549

780

Sales and marketing

870

910

General and administrative

872

964

2,653

3,068

Outsourcing transition costs:

Cost of revenue

-

126

-

126

Proxy contest and related costs:

General and administrative

-

188

-

188

Crossroads patent litigation costs:

General and administrative

721

222

721

222

 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended

June 30, 2015

June 30, 2014

Cash flows from operating activities:

Net loss

$    (10,755)

$      (4,324)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:   

  Depreciation 

1,718

2,198

  Amortization of intangible assets

137

2,234

  Amortization of debt issuance costs

324

411

  Service parts lower of cost or market adjustment

1,146

1,154

  Deferred income taxes 

38

(77)

  Share-based compensation

2,653

3,068

  Gain on sale of assets

-

(462)

  Changes in assets and liabilities:

Accounts receivable

26,830

11,140

Manufacturing inventories

(63)

597

Service parts inventories

(472)

(63)

Accounts payable 

(18,702)

(3,010)

Accrued warranty 

(619)

(218)

Deferred revenue

(8,682)

(6,446)

Accrued restructuring charges

(1,291)

(927)

Accrued compensation

(1,062)

1,549

Other assets and liabilities 

(4,759)

(550)

Net cash provided by (used in) operating activities 

(13,559)

6,274

Cash flows from investing activities:

Purchases of property and equipment

(840)

(1,371)

Proceeds from sale of assets

-

462

Change in restricted cash    

(59)

(20)

Net cash used in investing activities 

(899)

(929)

Cash flows from financing activities:

Payment of taxes due upon vesting of restricted stock

(74)

(119)

Proceeds from issuance of common stock

266

114

Net cash provided by (used in) financing activities

192

(5)

Effect of exchange rate changes on cash and cash equivalents

3

(1)

Net increase (decrease) in cash and cash equivalents      

(14,263)

5,339

Cash and cash equivalents at beginning of period 

67,948

99,125

Cash and cash equivalents at end of period 

$         53,685

$       104,464

 

QUANTUM CORPORATION

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30, 2015

Gross Margin

Gross Margin Rate

Loss From Operations

Operating Margin

Net Loss

Per Share Net Loss, Basic

Per Share Net Loss, Diluted

GAAP 

$ 46,965

42.4%

$               (8,207)

(7.4)%

$  (10,755)

$             (0.04)

$               (0.04)

Non-GAAP Reconciling Items:

Amortization of intangibles

137

137

137

Share-based compensation

362

2,653

2,653

Restructuring charges

-

258

258

Crossroads patent litigation costs

-

721

721

Non-GAAP

$   47,464

42.8%

$                 (4,438)

(4.0)%

$      (6,986)

$              (0.03)

$                (0.03)

 Computation of basic and diluted net loss per share: 

 GAAP 

 Non-GAAP 

 Net loss 

$          (10,755)

$              (6,986)

 Weighted average shares: 

 Basic and diluted 

258,448

258,448

Three Months Ended June 30, 2014

Gross Margin

Gross Margin Rate

Income (Loss) From Operations

Operating Margin

Net Income (Loss)

Per Share Net Income (Loss), Basic

Per Share Net Income (Loss), Diluted

 GAAP  

$ 55,526

43.3%

$               (1,507)

(1.2)%

$    (4,324)

$             (0.02)

$               (0.02)

 Non-GAAP Reconciling Items: 

 Amortization of intangibles 

378

2,234

2,234

 Share-based compensation 

414

3,068

3,068

 Restructuring charges 

-

865

865

 Outsourcing transition costs 

126

126

126

 Proxy contest and related costs 

-

188

188

Crossroads patent litigation costs

-

222

222

 Non-GAAP 

$   56,444

44.1%

$                   5,196

4.1%

$        2,379

$                0.01

$                  0.01

 Computation of basic and diluted net income (loss) per share: 

 GAAP 

 Non-GAAP 

 Net income (loss) 

$            (4,324)

$                2,379

 Weighted average shares: 

 Basic 

250,666

250,666

 Dilutive shares from stock plans 

-

2,681

 Diluted 

250,666

253,347

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.

 

QUANTUM CORPORATION

FORECAST SECOND QUARTER FISCAL 2016

GAAP TO NON-GAAP RECONCILIATION

(Dollars in millions, except per share amounts)

Percentage Range

Forecast gross margin rate on a GAAP basis

41.7%

-

42.7%

Forecast share-based compensation

0.3%

Forecast gross margin rate on a non-GAAP basis

42.0%

-

43.0%

Dollar Range

Forecast operating expense on a GAAP basis

$            54.8

-

$   56.8

Forecast share-based compensation

(2.5)

Forecast Crossroads patent litigation costs

(0.3)

Forecast operating expense on a non-GAAP basis

$            52.0

-

$   54.0

Estimates based on current (July 30, 2015) projections.  

The projected GAAP and non-GAAP financial information set forth in this table represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For risk factors that could impact these projections, see our Annual Report on Form 10-K as filed with the SEC on June 12, 2015.  We disclaim any obligation to update information in any forward-looking statement.

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.

 

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SOURCE Quantum Corp.



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