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Quantum Reports Second Quarter Fiscal 2023 Results

Revenue of $99.1 Million at High-End of Guidance Amid Improving Supply Chain; Guides to Continued Revenue Growth

SAN JOSE, Calif. — November 2, 2022 — Quantum Corporation (NASDAQ: QMCO) announced today financial results for its fiscal second quarter ended September 30, 2022.

Second Quarter Fiscal 2023 Financial Summary

•Revenue increased 6% year-over-year and 2% sequentially to $99.1 million, which was at the high-end of guidance
•Backlog at quarter end was a record $96.1 million, primarily reflecting future orders by hyperscale customers
•Active subscription customers grew to over 550, an increase of more than 180% year-over-year and 22% sequentially
•GAAP net loss was $11.9 million, or ($0.13) per share; adjusted non-GAAP net loss was $0.5 million, or ($0.01) per share
•Adjusted EBITDA improved to $4.1 million.

“Our supply chain continued to improve in the quarter, underscored by greater availability of materials at more standard pricing and lead times,” said Jamie Lerner, Chairman and CEO of Quantum. “These business conditions contributed to revenue being at the high-end of guidance as well as sequential improvements in our overall operating performance for the quarter. Notably, our record backlog consists almost entirely of forward orders from our hyperscale customers and no new unfulfilled orders associated with supply chain constraints. We anticipate these overall favorable trends to extend into the next fiscal quarter, resulting in our expectation for revenue to exceed $100 million.”

“Further, our continued execution and cost containment measures lowered our non-GAAP operating expenses to slightly below $35 million, contributing to increased operating leverage as we continue to scale our business.”

Second Quarter Fiscal 2023 vs. Prior Quarter

Revenue for the second quarter fiscal 2023 was $99.1 million compared to $97.1 million in the prior quarter. Gross profit in the second quarter of fiscal 2023 was $27.8 million, or 28% of revenue, compared to $34.0 million, or 35% of revenue, in the first quarter of fiscal 2023. Second quarter GAAP gross profit included an extraordinary inventory reserve provision primarily caused by global supply chain disruptions since the start of the pandemic and the longer associated lead times that resulted in older generation products being displaced by next-generation solutions. Non-GAAP gross margin was 35% in the second quarter, which was comparable sequentially.

Total GAAP operating expenses in the second quarter of fiscal 2023 decreased to $39.0 million, or 39% of revenue, compared to $41.1 million, or 42% of revenue, in the prior quarter. Selling, general and administrative expenses were $27.5 million in the quarter, compared to $28.3 million in the prior quarter. Research and development expenses were $10.5 million in the second quarter of fiscal 2023, compared to $12.1 million in the prior quarter. Non-GAAP operating expenses in the second quarter of 2023 decreased to $34.8 million from $36.3 million in the prior quarter.

GAAP net loss in the second quarter of fiscal 2023 was $11.9 million, or ($0.13) per share, compared to a net loss of $10.6 million, or ($0.13) per share, in the first fiscal quarter 2023. Excluding stock compensation, restructuring charges and other non-recurring costs, non-GAAP adjusted loss in the second fiscal quarter of 2023 was $0.5 million, or ($0.01) per share, compared to adjusted net loss of $3.6 million, or ($0.04) per share, in the prior quarter.

Adjusted EBITDA in the second quarter of fiscal 2023 was $4.1 million, compared to $0.3 million in the prior quarter.




Balance Sheet and Liquidity

•Cash and cash equivalents including restricted cash was $25.9 million as of September 30, 2022, compared to $26.8 million as of June 30, 2022.
•Outstanding term loan debt was $77.2 million as of September 30, 2022, compared to $78.4 million as of June 30, 2022. Outstanding borrowings on the Company’s revolving credit facility were $21.5 million as of September 30, 2022, compared to $17.3 million as of June 30, 2022.
•Total interest expense in the second quarter 2023 was $2.7 million compared to $2.1 million in the prior quarter and $3.1 million during the same quarter a year ago.

Outlook

The Company expects the following guidance for the third fiscal quarter of 2023:

•Revenues of $103 million, plus or minus $3 million
•Non-GAAP adjusted net loss of ($1.5 million), plus or minus $1 million
•Non-GAAP adjusted net loss per share of ($0.01), plus or minus $0.01
•Adjusted EBITDA of approximately $3.5 million

Conference Call and Webcast

Management will host a live conference call today, November 2, 2022, at 5:00 p.m. ET (2:00 p.m. PT) to discuss these results. The conference call will be accessible by dialing 866-424-3436 (U.S. Toll-Free) or +1-201-689-8058 (International) and entering conference ID 13732851. This conference call will be broadcast live over the Internet with a slide presentation and can be accessed by all interested parties on the investor relations section of the Company's website at investors.quantum.com under the events and presentations tab.

A telephone replay of the conference call will be available approximately two hours after the conference call and will be available through November 9, 2022. To access the replay dial 1-877-660-6853 and enter the conference ID 13732851 at the prompt. International callers should dial +1-201-612-7415 and enter the same conference ID. Following the conclusion of the live call, a replay of the webcast will be available on the Company's website for at least 90 days.

About Quantum

Quantum technology, software, and services provide the solutions that today's organizations need to make video and other unstructured data smarter – so their data works for them and not the other way around. With over 40 years of innovation, Quantum's end-to-end platform is uniquely equipped to orchestrate, protect, and enrich data across its lifecycle, providing enhanced intelligence and actionable insights. Leading organizations in cloud services, entertainment, government, research, education, transportation, and enterprise IT trust Quantum to bring their data to life, because data makes life better, safer, and smarter. Quantum is listed on Nasdaq (QMCO). For more information visit www.quantum.com.

Quantum and the Quantum logo are registered 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.

Forward-Looking Information

The information provided in this press release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting our business. Such forward-looking statements include, in particular, statements related to future projections of our financial results; our expectations to continue our operational execution; our anticipation that overall favorable trends in our business, including in our supply chain, extend into our next fiscal quarter; statements about our backlog and the implication that this backlog will translate into future revenue; the trend in our underlying business remaining robust; and the Company’s position for long-term sustainable growth and profitability.

These forward-looking statements may be identified by the use of terms and phrases such as “anticipates”, “believes”, “can”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “plans”, “projects”, “targets”, “will”, and similar expressions or variations of these terms and similar phrases. Additionally, statements concerning future matters and other statements regarding matters that are not historical are forward-looking statements. Investors are cautioned that these forward-looking statements relate to future events or our future performance


and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, including without limitation, the following: risks related to the need to address the many challenges facing our business; the potential impact of the COVID-19 pandemic and macroeconomic and inflationary conditions on our business, including potential disruptions to our supply chain, employees, operations, sales and overall market conditions; the competitive pressures we face; risks associated with executing our strategy; the distribution of our products and the delivery of our services effectively; our ability to integrate the business, products, employees and other aspects of our recent acquisitions; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; estimates and assumptions related to the cost (including any possible disruption of our business) and the anticipated benefits of the transformation and restructuring plans; the outcome of any claims and disputes; and other risks that are described herein, including but not limited to the items discussed in “Risk Factors” in our filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Committee on June 8, 2022. The Company does not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law or regulation.

Investor Relations Contacts:
Shelton Group
Leanne K. Sievers | Brett L. Perry
P: 949-224-3874 | 214-272-0070
E: sheltonir@sheltongroup.com



QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
September 30, 2022March 31, 2022
Assets
Current assets:
Cash and cash equivalents$25,698 $5,210 
Restricted cash223 283 
Accounts receivable, net of allowance for doubtful accounts of $195 and $42261,309 69,354 
Manufacturing inventories23,671 33,546 
Service parts inventories25,458 24,254 
Prepaid expenses9,241 7,853 
Other current assets4,839 4,697 
Total current assets150,439 145,197 
Property and equipment, net 15,973 12,853 
Intangible assets, net 7,245 9,584 
Goodwill 12,969 12,969 
Right-of-use assets, net10,579 11,107 
Other long-term assets12,477 9,925 
Total assets$209,682 $201,635 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable$34,263 $34,220 
Deferred revenue70,184 86,517 
Long-term debt, current portion5,000 4,375 
Accrued compensation13,192 16,141 
Other accrued liabilities14,502 16,562 
Total current liabilities137,141 157,815 
Deferred revenue40,165 41,580 
Revolving credit facility21,500 17,735 
Long-term debt, net of current portion68,250 89,448 
Operating lease liabilities10,315 9,891 
Other long-term liabilities11,653 11,849 
Total liabilities289,024 328,318 
Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued and outstanding— — 
Common stock, $0.01 par value; 225,000 shares authorized; 92,158 and 60,433 shares issued and outstanding922 605 
Additional paid-in capital716,800 645,038 
Accumulated deficit(793,067)(770,903)
Accumulated other comprehensive loss(3,997)(1,423)
Total stockholders’ deficit(79,342)(126,683)
Total liabilities and stockholders’ deficit$209,682 $201,635 




QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)


Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Revenue:
   Product$62,967 $54,655 $123,178 $106,786 
   Service and subscription32,692 34,359 66,116 67,189 
   Royalty3,478 4,166 6,918 8,303 
      Total revenue99,137 93,180 196,212 182,278 
Cost of revenue:
   Product56,561 41,124 104,482 79,864 
   Service and subscription14,745 13,669 29,850 26,748 
      Total cost of revenue71,306 54,793 134,332 106,612 
Gross profit27,831 38,387 61,880 75,666 
Operating expenses:
   Research and development10,546 12,389 22,671 23,680 
   Sales and marketing15,593 15,462 31,555 29,414 
   General and administrative11,940 11,466 24,254 23,293 
   Restructuring charges921 8 1,646 274 
      Total operating expenses39,000 39,325 80,126 76,661 
Loss from operations(11,169)(938)(18,246)(995)
Other income (expense), net2,431 126 3,182 (71)
Interest expense(2,745)(3,070)(4,836)(6,956)
Loss on debt extinguishment— (4,960)(1,392)(4,960)
Net loss before income taxes(11,483)(8,842)(21,292)(12,982)
Income tax provision461 411 872 424 
Net loss$(11,944)$(9,253)$(22,164)$(13,406)
Deemed dividend on warrants— — (389)— 
Net loss attributable to common stockholders$(11,944)$(9,253)$(22,553)$(13,406)
Net loss per share attributable to common stockholders$(0.13)$(0.16)$(0.26)$(0.23)
Weighted average shares - basic and diluted91,550 58,567 87,617 57,852 
Net loss$(11,944)$(9,253)$(22,164)$(13,406)
Foreign currency translation adjustments, net(1,298)(506)(2,574)(239)
Total comprehensive loss$(13,242)$(9,759)$(24,738)$(13,645)







QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six Months Ended September 30,
20222021
Operating activities
Net loss$(22,164)$(13,406)
  Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization5,133 3,967 
Amortization of debt issuance costs768 1,629 
Loss on debt extinguishment992 — 
Provision for product and service inventories9,946 2,418 
Stock-based compensation5,357 6,273 
Paycheck Protection Program loan forgiveness— (10,000)
Non-cash loss on debt extinguishment— 8,471 
Other(152)41 
Unrealized foreign exchange loss(2,766)(61)
Changes in assets and liabilities:
Accounts receivable, net8,264 10,024 
Manufacturing inventories416 (5,199)
Service parts inventories(1,971)(1,818)
Prepaid expenses(1,208)(3,224)
Accounts payable 293 1,559 
Accrued restructuring charges115 (560)
Accrued compensation(2,949)(3,779)
Deferred revenue(17,747)(9,032)
Other current assets(486)(962)
Other non-current assets(349)(1,266)
Other current liabilities769 (353)
Other non-current liabilities(196)16 
Net cash used in operating activities(17,935)(15,262)
Investing activities
Purchases of property and equipment(7,795)(2,396)
Business acquisition payments(2,000)(5,000)
Net cash used in investing activities(9,795)(7,396)
Financing activities
Repayments of long-term debt and payment of amendment fees(22,096)(93,051)
Borrowings of credit facility229,605 126,084 
Repayments of credit facility and payment of amendment fees(226,240)(116,084)
Proceeds from issuance of common stock, net66,723 806 
Net cash provided by financing activities47,992 12,716 
Effect of exchange rate changes on cash, cash equivalents and restricted cash166 12 
Net change in cash, cash equivalents and restricted cash 20,428 (9,930)
Cash, cash equivalents, and restricted cash at beginning of period5,493 33,137 
Cash, cash equivalents, and restricted cash at end of period $25,921 $23,207 
Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents$25,698 $22,757 
Restricted cash, current223 450 
Cash and cash equivalents at the end of period$25,921 $23,207 
Supplemental disclosure of cash flow information
      Cash paid for interest$4,114 $5,198 
      Cash paid for income taxes, net$465 $480 
   Non-cash transactions
      Purchases of property and equipment included in accounts payable $548 $309 
     Transfer of manufacturing inventory to services inventory $1,905 $— 
     Transfer of manufacturing inventory to property and equipment$279 $76 
     Paid-in-kind interest$319 $— 
     Deemed dividend on warrants$389 $— 


NON-U.S. GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, we have presented Adjusted EBITDA and Adjusted Net Income (Loss), non-U.S. GAAP financial measures defined below.

Adjusted EBITDA is a non-U.S. GAAP financial measure defined by us as net loss before interest expense, net, provision for income taxes, depreciation and amortization expense, stock-based compensation expense, restructuring charges, and other non-recurring expenses.

“GAAP net loss” as referred to in this press release represents “Net loss attributable to common stockholders”. Adjusted Net Income (Loss) is a non-U.S. GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, and other non-recurring (income) expenses. The Company calculates Adjusted Net Income (Loss) per Basic and Diluted share using the Company’s above-referenced definition of Adjusted Net Income (Loss).

We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to Net Income (Loss), the most directly comparable U.S. GAAP financial measure. We have presented Adjusted EBITDA because it is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business performance. For example, in the quarter ended September 30, 2022, we have excluded a large inventory reserve provision caused by global supply chain disruptions since the start of the pandemic and the longer associated lead times that resulted in older generation products being displaced by next-generation solutions. We do not believe an inventory adjustment of this magnitude is reasonably likely to reoccur in the foreseeable future and do not believe it is indicative of our ongoing operations; accordingly, we have excluded its impact from our non-GAAP results. We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Basic and Diluted Share serve as appropriate measures to be used in evaluating the performance of our business and help our investors better compare our operating performance over multiple periods. Accordingly, we believe that Adjusted EBITDA and Adjusted Net Income (Loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Our use of Adjusted EBITDA and Adjusted Net Income (Loss) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:

•Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect: (1) interest and tax payments that may represent a reduction in cash available to us; (2) capital expenditures, future requirements for capital expenditures or contractual commitments; (3) changes in, or cash requirements for, working capital needs; (4) the potentially dilutive impact of stock-based compensation expense; (5) potential future costs related to our long-term debt; (6) potential future restructuring expenses; (7) potential future costs related to business acquisitions; (8) gain (loss) on debt extinguishment, (9) and acquisition-related amortization of intangibles assets from business combinations, (10) deemed dividend related to warrants, or (11) manufacturing inventory provisions.
•Adjusted Net Income (Loss) does not reflect: (1) potential future restructuring activities; (2) the potentially dilutive impact of stock-based compensation expense; (3) potential future costs related to our long-term debt; (4) potential future costs related to business acquisitions; (5) gain (loss) on debt extinguishment, (6) acquisition-related amortization of intangibles assets from business combinations, (7) deemed dividend related to warrants, or (8) manufacturing inventory provisions.

Other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income (Loss) or similarly titled measures differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) along with other U.S. GAAP-based financial performance measures, including various cash flow metrics and our U.S. GAAP financial results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Net Income (Loss) (dollars in thousands):



Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net loss attributable to common stockholders$(11,944)$(9,253)$(22,553)$(13,406)
Interest expense, net2,745 3,070 4,836 6,956 
Provision for income taxes461 411 871 424 
Depreciation expense1,372 1,688 2,794 3,031 
Stock-based compensation expense2,288 3,072 5,357 6,273 
Restructuring charges921 8 1,646 274 
Loss on extinguishment of Senior Secured Term Loan— 14,960 1,392 14,960 
Gain on PPP loan forgiveness— (10,000)— (10,000)
Amortization of acquisition related intangible assets1,175 471 2,339 936 
Acquisition-related costs65 811 192 950 
Long-term debt related costs108 45 274 252 
Deemed dividend related to warrants— — 389 — 
Manufacturing inventory provision6,926 — 6,926 — 
Adjusted EBITDA$4,117 $5,283 $4,463 $10,650 
 
The following is a reconciliation of Adjusted Net Income to the most comparable U.S. GAAP financial measure, Net Income (Loss) (in thousands):
Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Net loss attributable to common stockholders$(11,944)$(9,253)$(22,553)$(13,406)
Stock-based compensation2,288 3,072 5,357 6,273 
Restructuring charges921 8 1,646 274 
Loss on extinguishment of Senior Secured Term Loan— 14,960 1,392 14,960 
Gain on PPP loan forgiveness— (10,000)— (10,000)
Amortization of acquisition related intangible assets1,175 471 2,339 936 
Acquisition-related costs65 811 192 950 
Long-term debt related costs108 45 274 252 
Deemed dividend related to warrants— — 389 — 
Manufacturing inventory provision6,926 — 6,926 — 
   Adjusted net income (loss)$(461)$114 $(4,038)$239 
   Adjusted Net Income (Loss) per share:
      Basic $(0.01)$0.00 $(0.05)$0.00 
      Diluted$(0.01)$0.00 $(0.05)$0.00 
   Weighted average shares outstanding:
      Basic91,550 50,129 87,617 57,852 
      Diluted91,550 68,565 87,617 68,167