Quantum Corporation Reports Fiscal Second Quarter 2016 Results

SAN JOSE, Calif., Oct. 29, 2015 /PRNewswire/ -- Quantum Corp. (NYSE: QTM) today reported results for the fiscal second quarter 2016 ended Sept. 30, 2015. Total revenue was $117.0 million, in line with the preliminary results the company announced earlier this month. Quantum ended the quarter with $7.8 million of backlog sales orders, significantly higher than its typical quarterly backlog of approximately $1 million. The large backlog was due to an unusually high number of customers placing orders on the last day of the quarter, the magnitude of many of the orders and a shortage of parts available from Quantum's disk suppliers.

The company continued to see strong demand for its scale-out storage solutions, generating $29.9 million in product and related service revenue from these solutions.¹ This represented a 17 percent increase over the fiscal second quarter 2015 and the 17^th consecutive quarter of year-over-year growth. Including scale-out storage backlog orders of $4.1 million, revenue grew 33 percent year-over-year.

Reflecting the softness in the enterprise storage market generally, Quantum also reported the following results:

• Disk backup systems and related service revenue was $18.2 million, with backlog orders totaling an additional $1.6 million.
• Total tape automation and related service revenue was $48.7 million, consisting of $38.0 million in branded revenue and $10.7 million in OEM revenue, with backlog orders totaling an additional $1.5 million ($1.2 million branded and $300,000 OEM).
• Devices and media revenue was $11.5 million.
• Royalty revenue was $8.7 million.
• GAAP net loss for the quarter was $11.2 million, or $0.04 per diluted share, and non-GAAP net loss was $7.4 million, or $0.03 per diluted share.
• Quantum generated $11.2 million in cash from operations and ended the quarter with $65.3 million in cash and cash equivalents.

"As other companies have reported, the overall market environment in the quarter was challenging, which was most apparent in the data protection line of our business," said Jon Gacek, president and CEO of Quantum. "However, our data protection revenue increased sequentially, with higher sales of both disk and tape products.

"In our scale-out storage solutions line, with backlog orders included, we grew revenue 33 percent over the comparable quarter a year ago. In addition, our scale-out storage run-rate revenue from deals below $1 million — including backlog orders — grew 90 percent in the first half of fiscal 2016 compared to the same period a year ago, demonstrating the strength of our solutions and market opportunity. In the second half of the year, we are focused on further growing scale-out run-rate revenue and closing an increasing rate of large deals to achieve our overall scale-out storage growth target of 50 percent for the full year. While large deals have been impacted by current market conditions and longer sales cycles, we believe we can close more of these deals moving forward, as we did last year.

"Another key focus for Quantum is driving non-GAAP profitability, and we will manage our spending and investments accordingly to achieve the right balance across our financial objectives."

Fiscal Third Quarter 2016 Outlook
Based on current market conditions, including tape media pricing dynamics and the challenge in forecasting large deals given their complexity and long sales cycles, Quantum provided the following guidance for the fiscal third quarter:

• Revenue of $130 million to $140 million.
• GAAP and non-GAAP gross margin of approximately 42-43 percent.
• GAAP and non-GAAP operating expenses of approximately $51 million to $53 million and $48 million to $50 million, respectively.
• Interest expense of $1.4 million and taxes of $400,000.
• GAAP and non-GAAP earnings per share of $0.01 to $0.02 and $0.02 to $0.03, respectively.

Fiscal Second Quarter 2016 Business Highlights

• Quantum continued to gain traction in scale-out storage markets and use cases beyond media and entertainment. In video surveillance, sales grew more than 200 percent year-over-year; the company completed certification with another of the top five VMS providers; and it finalized a global distribution agreement with one of the world's largest security-focused distributors. Scale-out storage revenue from technical applications (e.g., genomics, oil and gas, geospatial use cases and intelligence) increased 140 percent year-over-year and 200 percent with backlog included. Key wins included a $700,000 intelligence deal, a $480,000 seismic analysis-related sale to one of the world's top oil companies and a $170,000 deal at a leading provider of data management solutions for oil and gas customers that is building its new private cloud storage offering on Quantum's StorNext® platform, including Lattus® object storage and StorNext AEL tape archive.
• The company continued to see scale-out storage momentum in corporate video. Product revenue increased 14 percent year-over-year, with backlog orders included, and one of the top sales wins was a follow-on deal of nearly $1 million at a global consumer electronics company.
• Building on its leadership in tape automation, Quantum announced significant new enhancements to its Scalar i6000 tape library, doubling drive density to provide the most compact LTO storage footprint in the enterprise market, adding unique RESTful web services management capabilities and offering 80 PLUS® certified power supplies for the most efficient power usage available.
• The company established a new partnership with Veeam to maximize data availability for virtual environments. Leveraging Veeam Backup & Replication software and DXi®, customers can restore files in just seconds and virtual machines in minutes, while reducing both on-premise and disaster recovery site storage costs compared to traditional backup applications. This combination also shortens backup windows and dramatically simplifies VM backups.
• Revenue generated from sales of Quantum's DXi4700 deduplication appliance grew 39 percent year-over-year and 144 percent sequentially. In addition, the DXi6900 was named "Disk Based Product of the Year: Enterprise" at The Storage Awards 2015.
  

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Oct. 29, 2015, at 2:00 p.m. PDT to discuss its fiscal second quarter results. Press and industry analysts are invited to attend in listen-only mode.
Dial-in number: 719-457-2689 (U.S. and International); access code: 532638
Replay number: 719-457-0820 (U.S. and International); access code: 532638
Replay expiration: Tuesday, Nov. 3, 2015, at 5:00 p.m. PST
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, Scalar and DXi 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: 1) our focuses for the second half of this fiscal year; ii) our overall scale-out storage growth target of 50 percent for the full year; and iii) all of our statements under the heading "Fiscal Third Quarter 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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2015 and 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.

Acquisition Expenses
The acquisition expenses were those expenses incurred to acquire Symform, Inc. ("Symform") and are not part of Quantum's future core operations.

Symform Expenses, Net
Quantum acquired a cloud storage services platform from Symform in July 2014. Symform revenue comprises revenue generated from the Symform cloud storage services platform. Symform expenses consist of costs related to running, maintaining and further developing the Symform cloud storage services platform as well as the costs of integrating Symform into Quantum's business. Management believed that it was appropriate to exclude these amounts in fiscal 2015 in order to provide investors with a view of Quantum's results consistent with how management viewed and ran the business. Beginning fiscal 2016, Symform has been fully integrated into our core operations and therefore, Symform revenue and expenses are no longer excluded from our results.

Loss on Debt Extinguishment
The loss on debt extinguishment relates to a specific debt repurchase action undertaken in October 2015. The loss is excluded from non-GAAP financial measures because it is not considered a core operating activity and management believes that it is appropriate to exclude the loss in order to provide investors the ability to compare Quantum's period-over-period 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.

¹ All references to scale-out storage revenue in this press release include both product and related service revenue.

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Contact:
Brad Cohen
Public Relations
Quantum Corp.
(408) 944-4044
[email protected]

Brinlea Johnson or Allise Furlani
Investor Relations
The Blueshirt Group
(212) 331-8424 or (212) 331-8433
[email protected] or [email protected]

SOURCE Quantum Corporation