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Quantum Corporation Reports Fiscal Second Quarter 2017 Results
Key Year-Over-Year Highlights:
- Total revenue of $134.7 million, up 15%
- Scale-out storage revenue of $46.7 million, up 56%
- GAAP net income of $3.8 million, a $15.1 million improvement
- Non-GAAP net income of $6.0 million, a $13.4 million improvement

SAN JOSE, Calif., Oct. 26, 2016 /PRNewswire/ -- Quantum Corp. (NYSE: QTM) today reported results for the fiscal second quarter 2017 ended Sept. 30, 2016 (all comparisons are relative to the fiscal second quarter 2016 unless otherwise stated)1:

  • Total revenue was $134.7 million, an increase of $17.7 million.
  • Scale-out storage revenue grew to a record $46.7 million, up from $29.9 million and the 21st consecutive quarter of year-over-year growth.
  • Total data protection revenue was flat at $78.5 million, consisting of $18.7 million in disk backup systems revenue (up 3 percent), $45.2 million in tape automation revenue (down 7 percent) and $14.6 million in devices and media revenue (up 26 percent).
  • Royalty revenue was $9.5 million, an increase of 9 percent.
  • GAAP gross margin was 41.2 percent, and non-GAAP2 gross margin was 41.4 percent, up from 39.6 percent and 39.9 percent, respectively.
  • GAAP operating income was $5.3 million, and non-GAAP operating income was $7.5 million, an improvement of $15.0 million and $13.3 million, respectively.
  • GAAP net income was $3.8 million, or $0.01 per diluted share, and non-GAAP net income was $6.0 million, or $0.02 per diluted share. This represented an improvement of $0.05 per diluted share on both a GAAP and non-GAAP basis.

"We began this fiscal year with a clear focus on delivering solid growth and profitability, and our results in the first two quarters demonstrate our strong execution and increasing momentum," said Jon Gacek, president and CEO of Quantum. "For the first half of the fiscal year, we've increased total revenue by $23 million over the same period last year, growing scale-out storage by 34 percent and data protection — where the market remains challenging — by 3 percent. On this $23 million of additional revenue, we've improved net income by more than $20 million, reflecting the significant leverage our financial model provides as we grow.

"As we start the second half of fiscal 2017, we're focused on continuing to drive scale-out storage growth by further extending our media and entertainment leadership and expanding our footprint in video surveillance and in technical workflows with large unstructured data archive needs. For data protection, we're continuing to leverage our technology leadership, extensive customer base, and channel and technology partnerships to generate profit and cash."

Fiscal Third Quarter 2017 Outlook
Quantum provided the following guidance for the fiscal third quarter:

  • Total revenue of $125 million to $130 million.
  • GAAP and non-GAAP gross margin of 41-43 percent.
  • GAAP and non-GAAP operating expenses of $49 million to $51 million and $47 million to $49 million, respectively.
  • Interest expense of $2.4 million and taxes of $400,000.
  • GAAP loss per share of $0.01 to GAAP earnings per share of $0.01 and non-GAAP earnings per share of $0.00 to $0.02.

Fiscal Second Quarter 2017 Business Highlights
Quantum announced a new media reference architecture for animation and visual effects workflows that is built on the company's award-winning Xcellis™ high-performance storage. This architecture overcomes the time- and resource-consuming challenge of transferring content between animation and editorial departments over a network by optimizing storage capabilities for both operations in a single shared environment, thereby streamlining workflows and boosting overall efficiency and productivity.

  • The company introduced the DXi6900-S, the first deduplication appliance to incorporate 8TB self-encrypting drives, delivering the highest density backup available and enabling customers to reduce power consumption by 50 percent, compared to competing deduplication appliances. It also integrates the latest SSD technology to provide metadata storage and access. As a result, the DXi6900-S dramatically speeds ingest, read, replication and space reclamation performance, allowing users to complete all these tasks several times faster than with previous DXi® systems and numerous competitive products.
  • Continuing to expand its ecosystem partnerships in video surveillance, Quantum announced joint development initiatives with four industry-leading Video Management System (VMS) providers — Aimetis Corp., On-Net Surveillance Systems Inc. (OnSSI), Qognify and Verint Systems Inc. Under the initiatives, these partners have certified interoperability with Quantum multi-tier storage offerings, including StorNext 5 data management and QXS™ hybrid storage, ensuring that users have access to thoroughly tested and integrated storage solutions suited to their unique environment.
  • Key scale-out storage customer wins included million dollar-plus deals with a major media company for a multi-faceted project and a global consumer electronics company for corporate video, as well as large deals with a leading car company using video surveillance in its manufacturing facility and a solar company that uses surveillance for product line quality control. Other notable scale-out storage wins included large deals involving technical workflows and management of unstructured data archives at a U.S. military agency, an electric power administrator and a global laboratory testing services provider.
  • In data protection, major customer wins included million dollar-plus deals at a European banking IT support operation, a large supermarket chain and a U.S. government department, with the first two involving Quantum's new DXi6900-S deduplication appliance.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Oct. 26, 2016, 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: +1 (503) 343-6063 
Participant passcode: 94619494 
Replay number: +1 (404) 537-3406 
Replay passcode: 94619494 
Replay expiration: Wednesday, Nov. 2, 2016 
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. Quantum's end-to-end, tiered storage foundation enables customers 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, DXi, QXS, StorNext and Xcellis 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 current focuses and priorities; and ii) all of our statements under the heading titled "Fiscal Third Quarter 2017 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 3, 2016 and in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 5, 2016. 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 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.

Proxy Contest and Related Costs
Proxy contest and related costs are expenses incurred to respond to activities and inquiries of VIEX Capital Advisors, LLC, including their proxy solicitation. 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.

1 Revenue figures for scale-out storage, data protection, disk backup systems and tape automation include related service revenue. 
2 A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying tables. Historical data on non-GAAP items is available in the company's supplemental financial information posted on its website.

Contact: 
Brad Cohen 
Public Relations 
Quantum Corp. 
+1 (408) 944-4044 
brad.cohen@quantum.com

Brinlea Johnson or Allise Furlani 
Investor Relations 
The Blueshirt Group 
+1 (212) 331-8424 or +1 (212) 331-8433 
brinlea@blueshirtgroup.com or allise@blueshirtgroup.com

 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



September 30, 2016


March 31, 2016*

Assets




Current assets:




Cash and cash equivalents

$

29,528



$

33,870


Restricted cash

2,801



2,788


Accounts receivable

107,910



105,959


Manufacturing inventories

36,242



40,614


Service parts inventories

20,422



21,407


Other current assets

6,967



6,953


Total current assets

203,870



211,591


Long-term assets:




Property and equipment

12,353



12,939


Intangible assets

355



451


Other long-term assets

4,320



4,565


Total long-term assets

17,028



17,955



$

220,898



$

229,546


Liabilities and Stockholders' Deficit




Current liabilities:




Accounts payable

$

50,859



$

46,136


Accrued warranty

3,371



3,430


Deferred revenue, current

82,421



88,919


Accrued restructuring charges, current

1,784



1,621


Long-term debt, current



3,000


Accrued compensation

23,806



22,744


Other accrued liabilities

11,510



13,806


Total current liabilities

173,751



179,656


Long-term liabilities:




Deferred revenue, long-term

32,763



35,427


Accrued restructuring charges, long-term

734



1,116


Long-term debt

60,250



62,709


Convertible subordinated debt, long-term

69,483



69,253


Other long-term liabilities

7,340



8,324


Total long-term liabilities

170,570



176,829


Stockholders' deficit

(123,423)



(126,939)



$

220,898



$

229,546



*  Derived from the March 31, 2016 audited Consolidated Financial Statements.

 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended


Six Months Ended


September 30, 2016


September 30, 2015


September 30, 2016


September 30, 2015

Revenue:








Product

$

88,575



$

71,057



$

160,401



$

133,776


Service

36,620



37,247



72,438



75,186


Royalty

9,547



8,721



18,187



18,919


Total revenue

134,742



117,025



251,026



227,881


Cost of revenue:








Product

64,352



53,073



114,484



100,037


Service

14,910



17,635



30,691



34,562


Total cost of revenue

79,262



70,708



145,175



134,599


  Gross margin

55,480



46,317



105,851



93,282


Operating expenses:








Research and development

11,401



13,370



22,459



26,693


Sales and marketing

26,146



28,043



52,513



55,648


General and administrative

12,572



14,136



25,532



28,122


Restructuring charges

15



387



2,067



645


Total operating expenses

50,134



55,936



102,571



111,108


  Income (loss) from operations

5,346



(9,619)



3,280



(17,826)


Other income

10



714



166



428


Interest expense

(1,485)



(1,975)



(2,993)



(3,898)


Income (loss) before income taxes

3,871



(10,880)



453



(21,296)


Income tax provision

45



347



422



686


Net income (loss)

$

3,826



$

(11,227)



$

31



$

(21,982)










Basic and diluted net income (loss) per share

$

0.01



$

(0.04)



$

0.00



$

(0.08)










Weighted average shares:








Basic

270,432



263,058



268,396



260,766


Diluted

272,382



263,058



269,593



260,766














Included in the above Statements of Operations:








Amortization of intangibles:








Cost of revenue

$

48



$

48



$

96



$

185



48



48



96



185


Share-based compensation:








Cost of revenue

234



331



514



693


Research and development

333



492



736



1,041


Sales and marketing

606



839



1,218



1,709


General and administrative

477



785



1,180



1,657



1,650



2,447



3,648



5,100


Proxy contest and related costs:








General and administrative

304





349





304





349




Crossroads patent litigation costs:








General and administrative

128



919



140



1,640



$

128



$

919



$

140



$

1,640










 

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Six Months Ended


September 30,
2016


September 30,
2015

Cash flows from operating activities:




Net income (loss)

$

31



$

(21,982)


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




Depreciation

2,710



3,361


Amortization of intangible assets

96



185


Amortization of debt issuance costs

336



648


Service parts lower of cost or market adjustment

2,659



3,050


Deferred income taxes

17



35


Share-based compensation

3,648



5,100


Changes in assets and liabilities:




Accounts receivable

(1,951)



31,896


Manufacturing inventories

2,429



10,050


Service parts inventories

(766)



(526)


Accounts payable

4,875



1,624


Accrued warranty

(59)



(746)


Deferred revenue

(9,162)



(16,429)


Accrued restructuring charges

(219)



(2,017)


Accrued compensation

1,049



(10,871)


Other assets and liabilities

(3,112)



(5,723)


Net cash provided by (used in) operating activities

2,581



(2,345)


Cash flows from investing activities:




Purchases of property and equipment

(1,249)



(1,611)


Change in restricted cash

(5)



(110)


Net cash used in investing activities

(1,254)



(1,721)


Cash flows from financing activities:




Borrowings of long-term debt, net

6,300




Repayments of long-term debt

(11,959)




Restricted cash used to repay convertible subordinated debt



(16,280)


Payment of taxes due upon vesting of restricted stock

(673)



(3,101)


Proceeds from issuance of common stock

658



1,740


Net cash used in financing activities

(5,674)



(17,641)


Effect of exchange rate changes on cash and cash equivalents

5



(12)


Net decrease in cash and cash equivalents

(4,342)



(21,719)


Cash and cash equivalents at beginning of period

33,870



67,948


Cash and cash equivalents at end of period

$

29,528



$

46,229


 

QUANTUM CORPORATION

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended September 30, 2016


Gross
Margin


Gross
Margin
Rate


Income 
From
Operations


Operating
Margin


Net Income


Per Share
Net Income,
Basic


Per Share
Net Income,
Diluted

GAAP

$

55,480



41.2

%


$

5,346



4.0

%


$

3,826



$

0.01



$

0.01


Non-GAAP Reconciling Items:














Amortization of intangibles

48





48





48






Share-based compensation

234





1,650





1,650






Restructuring charges





15





15






Proxy contest and related costs





304





304






Crossroads patent litigation costs





128





128






Non-GAAP

$

55,762



41.4

%


$

7,491



5.6

%


$

5,971



$

0.02



$

0.02
















 Computation of basic and diluted net income per share:






 GAAP


 Non-GAAP

 Net income











$

3,826



$

5,971


Interest of dilutive convertible notes










902


Income for purposes of computing income per diluted share






$

3,826



$

6,873
















 Weighted average shares:














 Basic











270,432



270,432


 Dilutive shares from stock plans








1,950



1,950


 Dilutive shares from convertible notes










42,502


 Diluted











272,382



314,884




Six Months Ended September 30, 2016


Gross
Margin


Gross
Margin
Rate


Income
From
Operations


Operating
Margin


Net Income


Per Share
Net Income,
Basic


Per Share
Net Income,
Diluted

GAAP

$

105,851



42.2

%


$

3,280



1.3

%


$

31



$

0.00



$

0.00


Non-GAAP Reconciling Items:














Amortization of intangibles

96





96





96






Share-based compensation

514





3,648





3,648






Restructuring charges





2,067





2,067






Proxy contest and related costs





349





349






Crossroads patent litigation costs





140





140






Non-GAAP

$

106,461



42.4

%


$

9,580



3.8

%


$

6,331



$

0.02



$

0.02
















 Computation of basic and diluted net income per share:






 GAAP


 Non-GAAP

 Net income











$

31



$

6,331
















 Weighted average shares:














 Basic











268,396



268,396


 Dilutive shares from stock plans








1,197



1,197


 Diluted











269,593



269,593



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

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)



Three Months Ended September 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

$

46,317



39.6

%


$

(9,619)



(8.2)%



$

(11,227)



$

(0.04)



$

(0.04)


Non-GAAP Reconciling Items:














Amortization of intangibles

48





48





48






Share-based compensation

331





2,447





2,447






Restructuring charges





387





387






Crossroads patent litigation costs





919





919






Non-GAAP

$

46,696



39.9

%


$

(5,818)



(5.0)%



$

(7,426)



$

(0.03)



$

(0.03)
















 Computation of basic and diluted net loss per share:








 GAAP


 Non-GAAP

 Net loss











$

(11,227)



$

(7,426)
















 Weighted average shares:














   Basic and diluted











263,058



263,058




Six Months Ended September 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

$

93,282



40.9

%


$

(17,826)



(7.8)%



$

(21,982)



$

(0.08)



$

(0.08)


Non-GAAP Reconciling Items:














Amortization of intangibles

185





185





185






Share-based compensation

693





5,100





5,100






Restructuring charges





645





645






Crossroads patent litigation costs





1,640





1,640






Non-GAAP

$

94,160



41.3

%


$

(10,256)



(4.5)%



$

(14,412)



$

(0.06)



$

(0.06)
















 Computation of basic and diluted net loss per share:








 GAAP


 Non-GAAP

Net loss











$

(21,982)



$

(14,412)
















 Weighted average shares:














 Basic and diluted











260,766



260,766



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 THIRD QUARTER FISCAL 2017

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)



Percentage Range

Forecast gross margin rate on a GAAP basis

40.8

%

42.8

%

Forecast share-based compensation

0.2

%



Forecast gross margin rate on a non-GAAP basis

41.0

%

43.0

%






Dollar Range

Forecast operating expense on a GAAP basis

$

48.6


$

50.6


Forecast share-based compensation



(1.4)




Forecast Crossroads patent litigation costs


(0.2)




Forecast operating expense on a non-GAAP basis

$

47.0


$

49.0







Dollars per Share

Forecast diluted earnings per share on a GAAP basis

$

(0.01)


$

0.01


Forecast share-based compensation



0.01




Forecast Crossroads patent litigation costs



0.00




Forecast diluted earnings per share on a non-GAAP basis

$

0.00


$

0.02






Estimates based on current (October 26, 2016) 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 filed with the SEC on June 3, 2016, as amended by Amendment No. 1 to Form 10-K, filed with the SEC on July 27, 2016 (together, the "Form 10-K"). 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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