SAN JOSE, Calif., Aug. 6, 2019 /PRNewswire/ -- Quantum Corporation (OTC: QMCO) today announced financial results for its first fiscal quarter ended June 30, 2019. In addition, the Company announced that it has completed the previously announced financial restatement process and provided results for each of the three fiscal years ended March 31, 2017, March 31, 2018 and March 31, 2019, which include the financial data and discussion for all interim periods for these fiscal years.

Quantum Logo (PRNewsfoto/Quantum Corp.)

"Today, Quantum is a leaner, more efficient company poised for growth based on a series of transformative steps we have taken," commented Jamie Lerner, Chairman and CEO, Quantum.  "With the leadership of our new shareholder-engaged Board of Directors and executive team, we've eliminated over $70 million in annualized expenses, completed the restatement process, and are ready to capitalize on a revitalized and healthy tape market as well as the expanding opportunity to store and manage video and image data across a wide range of industries."

First Fiscal Quarter of 2020 (Period ended June 30, 2019) vs. Prior-Year First Quarter

Revenue was $105.6 million for the first fiscal quarter in 2020, compared to $107.5 million in the year-ago quarter.

Inclusive of $8.3 million in non-recurring charges, net loss was $3.8 million in the first fiscal quarter of 2020, compared to a net loss of $7.5 million including $9.8 million in non-recurring charges in the year ago quarter.

Excluding $8.3 million in non-recurring charges, Adjusted Net Income was $4.4 million, or $0.11 per diluted share in the first fiscal quarter of 2020, compared to an Adjusted Net Income of $2.3 million, or $0.06 per diluted share, in the year-ago quarter after excluding $9.8 million in non-recurring charges.

Gross profit in the first fiscal quarter of 2020 was $45.8 million or 43% gross margin, compared to $46.3 million or 43% in the year-ago quarter. Gross margins remained flat year over year despite lower royalty revenue in the first fiscal quarter of 2020 that was negatively impacted by LTO media supply issues, which were resolved in early August as described below.

Total operating expenses in the quarter were $43.1 million or 41% of sales, compared to $50.7 million, or 47% in the year-ago quarter. SG&A expenses declined 11% to $34.4 million compared to $38.5 million in the year-ago quarter. R&D expenses were $8.4 million, up 1% compared to $8.3 million in the year-ago quarter.

The Company incurred $6.3 million in interest expense, compared to $3.9 million in the year-ago quarter.

Adjusted EBITDA increased 82% to $13.1 million in the first fiscal quarter of 2020, compared to $7.2 million in the year-ago quarter.

Balance Sheet and Liquidity as of June 30, 2019

  • Cash and cash equivalents of $10.8 million as of June 30, 2019, compared to $10.8 million as of March 31, 2019. These amounts exclude $5.0 million in restricted cash required under the Company's Credit Agreements.
  • Outstanding long-term debt as of June 30, 2019 was $146.1 million net of $16.4 million in unamortized debt issuance costs and $1.7 million in current portion of long-term debt. This compares to $145.6 million of outstanding debt as of March 31, 2019, net of $17.3 million in unamortized debt issuance costs and $1.7 million in current portion of long-term debt. Quantum also has a $45 million revolving credit facility which was undrawn at both June 30, 2019 and March 31, 2019.
  • Total interest expense for fiscal Q1 2020 was $6.3 million.

Financial and Operational Highlights

  • Gross margins improved by three percentage points from 39% in fiscal 2018 to 42% in fiscal 2019 primarily due to lower headcount in service and improved gross margins on products.
  • Recurring, high-margin Services revenue decreased slightly from $136.5 million in fiscal 2018 to $134.7 million in fiscal 2019, or 1%.  The related gross profit and gross margin increased from $77.7 million and 57% in fiscal 2018 to $79.5 million and 59% in fiscal 2019.
  • Adjusted EBITDA of $32.5 million for fiscal 2019 compared to Adjusted EBITDA of negative $4.5 million in fiscal 2018, a year-over-year improvement of approximately $37 million.

A reconciliation between GAAP and non-GAAP information is contained in the financial information below. Additional information about Adjusted EBITDA and Adjusted Net Income information appears at the end of this release.

Management Commentary

The transformation of Quantum includes the following:

  • New Team
    • Reconstituted Board of Directors to include significant shareholders; our comprehensive transformation stems from a series of shareholder campaigns directed at corporate accountability and operational improvement
    • Since January 2018, replaced almost three-fourths of prior management
    • Recruited executives including CEO, CFO, CRO, CAO, CIO, VP Supply Chain, General Counsel, Corporate Controller and Director of Internal Audit
    • Adopted new business priorities, standards and governance practices focused on innovation and profitable sales
  • New corporate strategy focused on leading the video storage market, informed by:
    • The projection that 80% of the world's data by 2025 will be video or video-like data
    • Quantum's customers find us to be a leader in both the high-speed processing of video and long-term archiving of video and unstructured data
  • New gross margin focus
    • Reset sales commission plan that pays on gross margin achievement
    • Curtailed reselling low margin third party products aimed at boosting revenue at the expense of gross margins
    • Reduced annualized spending by $10 million in cost of sales expenses representing primarily headcount reductions  
  • New and Enhanced Products
    • Significant physical and software enhancements to tape library products aimed at the hyperscaler and cloud market
    • Quantum F-Series, a new line of NVMe flash storage arrays
    • Quantum VS-Series, a hyperconverged platform for video surveillance and management of buildings systems
    • Quantum R-Series, ruggedized, removable storage systems for in-vehicle data capture, mobile surveillance and military applications
    • Quantum Cloud-Based Analytics, enables monitoring and configuration through the cloud, connecting all our products to the Quantum Distributed Cloud
  • New Cost Structure
    • Eliminated $60 million in annualized operating expenses that included a reduction of approximately 30% of the workforce
    • Vacated nine facilities and offices world wide

"With the restatement behind us, we are focused on growing our business profitably and creating sustainable value for our shareholders," Mr. Lerner said. "Our key next step will be to re-list our shares on a national exchange, a goal we expect to complete by the end of 2019. With the accelerating growth of video and hi-resolution image data across all industries, a healthy tape industry that is expected to return to growth, and a right-sized expense structure, we are well-positioned to deliver positive future results for our shareholders, customers, suppliers and employees."

Outlook

For the second fiscal quarter, management expects revenues in the range of $99 million to $105 million. Excluding approximately $3 million in non-recurring charges, the Company expects resulting Adjusted Net Income to be in the range of $2 million to $4 million. Adjusted EBITDA is expected to be in the range of $10 million to $12 million.

"We believe we have a sustainable platform from which to grow, with exciting new products targeting the future of video storage," added Mr. Lerner. "Historically, our fiscal second quarter tends to have some seasonal impact from holiday schedules and generally slower business during the summer months. Our fiscal third quarter, which ends in December, traditionally is our strongest of the year."

For the remaining three quarters of fiscal 2020, Quantum expects total revenues to increase by $15 million to $30 million or 6% to 10% compared to same period in the prior year, with revenues from new products increasing as the year progresses. Due to the Company's tight cost controls and focus on improving gross margins, Quantum expects Adjusted EBITDA to increase to a range of $50 million to $55 million or by 55% to 70% for the full fiscal year compared to the prior fiscal year.

Financial Restatement Summary

In September 2018 the Company announced the substantial completion of an internal investigation conducted by a Special Committee of the Board of Directors.  This investigation concluded that the previous management, who have all been terminated or are no longer part of the Company, had engaged in certain business and sales practices that may have undermined its historical accounting treatment for certain sales transactions with several distributors and at least one end customer. These practices led to the Company prematurely recognizing revenue. The Company's finance department, overseen by the Board's Audit Committee, completed its review of revenue for fiscal years 2015 through 2018 and identified approximately $180 million of revenue that was prematurely recorded.  The revenue restatement re-casted the timing of revenue, not the quality or accuracy of the revenue itself.   Excluding the first and last quarters of the restatement period, the average quarterly net revenue adjustment ranged from a decrease of approximately $7 million to an increase of approximately $5 million. These restatement adjustments did not affect historical or current cash balances, and there were no significant accounts receivable write-offs over the restatement periods. All of the inventory that is remaining in distributors' inventory and yet to be sold through to an end customer has been paid for by the distributor. Quantum expects to recognize the revenue from this remaining distributor inventory in the future when the products are sold to an end-customer. The total cost expected to be incurred for professional fees related to the internal investigation, financial restatement and related activities is approximately $33 million.

In addition, the Company is cooperating with an on-going investigation by the SEC related to the restatement. Quantum has produced a substantial volume of documents to the SEC and continues to respond to information requests from the SEC staff. 

Conference call

Management will host a conference call to discuss these results today, August 6th, at 5:00 p.m. ET (2:00 p.m. PT). To access the call, please dial 844-369-8770 (toll free) or 862-298-0840 (international). The conference call will be simultaneously webcasted on the investor relations section of the Company's website at http://investors.quantum.com under the events and presentations tab. All participants should call or access the website approximately 5 minutes before the conference begins.

The webcast will be available for replay for at least 90 days. A telephonic replay of this conference call will also be available by dialing 919-882-2331 and using the replay ID 52893 until 11:59 p.m. ET on Tuesday, August 13, 2019.

About Quantum

Quantum technology and services help customers capture, create and share digital content – and preserve and protect it for decades.  With solutions built for every stage of the data lifecycle, Quantum's platforms provide the fastest performance for high-resolution video, images, and industrial IoT.  That's why the world's leading entertainment companies, sports franchises, researchers, government agencies, enterprises, and cloud providers are making the world happier, safer, and smarter on Quantum.  See how at www.quantum.com.

Quantum and the Quantum logo 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. Quantum advises caution in reliance on forward-looking statements. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Quantum Corporation and its consolidated subsidiaries ("Quantum") may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, Adjusted EBITDA, Adjusted Net Income, cash flows, or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges and any resulting cost savings, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; the resolution of pending investigations; the expected timing of relisting our securities on a national exchange; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing Quantum's businesses; the competitive pressures faced by Quantum's businesses; risks associated with executing Quantum's strategy; the distribution of Quantum's products and the delivery of Quantum's services effectively; 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 Quantum's 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 Quantum's filings with the Securities and Exchange Commission, including its Form 10-K and Form 10-Q filed with the Securities and Exchange Committee on August 6, 2019. 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.

Public Relations Contact:
Bob Wientzen
Quantum Corporation
720-201-8125
bob.wientzen@quantum.com

Investor Contact:
Rob Fink
FNK IR
646-809-4048
rob@fnkir.com

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)





June 30, 2019

March 31, 2019

Assets



Current assets



Cash and cash equivalents

$         10,806

$            10,790

Accounts receivable, net of allowance for doubtful accounts of $291 and $2,598 as of June 30, 2019 and March 31, 2019, respectively

67,329

86,828

Manufacturing inventories

24,436

18,440

Service part inventories

19,163

19,070

Other current assets

18,305

18,095

Restricted cash

1,042

1,065




Total current assets

141,081

154,288







Property and equipment, net

8,003

8,437

Operating lease right-of-use assets

11,928

Restricted cash, long-term

5,000

5,000

Other long-term assets

6,092

5,112




Total assets

$       172,104

$          172,871




Liabilities and stockholders' equity (deficit)



Liabilities



Current liabilities



Accounts payable

$         39,986

$            37,395

Deferred revenue, current

81,206

94,692

Accrued restructuring charges, current

2,405

2,876

Long-term debt current portion

1,650

1,650

Accrued compensation

13,279

17,117

Other accrued liabilities

29,495

29,025




Total current liabilities

168,200

182,755







Deferred revenue, long-term

38,771

36,733

Long-term debt, net of current portion

146,122

145,621

Operating lease liabilities

9,928

Other long-term liabilities

11,599

11,827




Total Liabilities

374,620

376,936




Stockholders' equity (deficit)



Preferred stock, 20,000 shares authorized; no shares issued or outstanding at June 30, 2019 and March 31, 2019

Common stock, $0.01 par value; 1,000,000,000 shares authorized; 36,046 and 36,040 shares issued and outstanding at June 30, 2019 and March 31, 2019, respectively

360

360

Additional paid in capital

500,211

499,224

Accumulated deficit

(701,761)

(702,236)

Accumulated other comprehensive income

(1,329)

(1,413)




Total stockholders' deficit

(202,516)

(204,065)




Total liabilities and stockholders' deficit

$      172,104

$          172,871




QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)





Three Months ended June 30, 

Revenue

2019

2018

Product Revenue

$     65,796

$      66,869

Service Revenue

33,381

33,564

Royalty revenue

6,454

7,079




Total Revenue

$    105,631

$    107,512

Product cost of revenue

47,200

45,438

Service cost of revenue

12,593

15,735




Total cost of revenue

$      59,793

$      61,173




Gross profit

$      45,838

$      46,339




Operating expenses:



Research and development

8,383

8,261

Sales and marketing

15,856

19,125

General and administrative

18,588

19,391

Restructuring charges

263

3,907




Total operating expenses

$      43,090

$      50,684




Income (loss) from operations

2,748

(4,345)

Other expenses and losses, net:



Interest expense, net

6,306

3,935

Other (income) expense, net

(89)

(220)




Net loss before income taxes

$       (3,469)

$       (8,060)

Income tax expense (benefit)

338

(575)




Net loss

$      (3,807)

$      (7,485)







Basic and diluted loss per share

$            (.11)

$            (.21)

Weighted-average shares outstanding—basic and diluted

36,045

35,444

Net loss

$       (3,807)

$       (7,485)




Other comprehensive income (loss), net of tax:



Change in foreign currency translation adjustments

84

880




Total comprehensive loss

$       (3,723)

$       (6,605)




QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)





Three Months
Ended
June 30, 2019

Three Months
Ended
June 30, 2018

Cash flows from operating activities:



Net loss

$          (3,807)

$          (7,485)

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



Depreciation and amortization

1,021

1,131

Amortization of debt issuance costs

1,004

171

Provision for product and service inventories

1,572

3,871

Stock-based compensation expense

987

427

Non-cash interest expense

5

632

Bad debt expense

214

(895)

Deferred income taxes, net

(49)

(376)

Unrealized foreign exchange (gain) loss

130

(238)

Change in fair value of liability classified warrants

(108)

Changes in assets and liabilities:



Accounts receivable

19,360

15,017

Manufacturing inventories

(7,141)

3,170

Service parts inventories

(639)

(860)

Accounts payable

2,593

(11,048)

Accrued restructuring charges

(471)

(706)

Accrued compensation

(3,838)

(4,278)

Deferred revenue

(7,648)

(4,433)

Other assets and liabilities

(2,390)

8,562




Net cash provided by operating activities

903

2,554




Cash flows from investing activities:



Purchases of property and equipment

(444)

(695)

Cash distributions from investments

322




Net cash used in investing activities

(444)

(373)




Cash flows from financing activities:



Borrowings of long-term debt and subordinated convertible debt, net of debt issuance costs

0

77,806

Repayments on long-term debt

(413)

(80,674)

Payment of tax withholding due upon vesting of restricted stock

(6)




Net cash used in financing activities

(413)

(2,874)




Effect of exchange rate changes on cash, cash equivalents and restricted cash

(53)

(67)




Net decrease in cash, cash equivalents and restricted cash

(7)

(760)




Cash, cash equivalents and restricted cash at the beginning of period

16,855

17,207




Cash, cash equivalents and restricted cash at the end of period

$           16,848

$           16,447







Supplemental disclosure of cash flow information:



Purchases of property and equipment included in accounts payable

$                155

$                     2

Transfer of inventory to property and equipment

118

72




Cash Paid For:



Interest

$             5,129

$             4,399

Income taxes, net of refunds

126

(58)


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:




Cash and cash equivalents

$           10,806

$           10,227

Restricted cash

1,042

1,220

Restricted cash, long-term

5,000

5,000




Total cash, cash equivalents and restricted cash at the end of period

$           16,848

$           16,447




QUANTUM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)





March 31,


2019

2018

ASSETS



Current Assets



Cash and cash equivalents

$      10,790

$      10,865

Accounts receivable, net of allowance for doubtful accounts of $2,548 and $9,209 as of March 31, 2019 and 2018, respectively

86,828

96,350

Manufacturing inventories

18,440

34,428

Service part inventories

19,070

21,889

Other current assets

18,095

13,565

Restricted cash

1,065

1,342

Total current assets

154,288

178,439




Property and equipment, net

8,471

9,836

Restricted cash, long-term

5,000

5,000

Other long-term assets

5,112

9,364

Total Assets

$    172,871

$    202,639




LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



Liabilities



Current liabilities



Accounts payable

$      37,395

$       62,646

Deferred revenue, current

90,407

96,866

Accrued restructuring charges, current

2,876

3,166

Long-term debt, current portion

1,650

7,500

Accrued compensation

17,117

19,460

Other accrued liabilities

29,025

17,638

Total current liabilities

178,470

207,276




Deferred revenue, long-term

36,733

38,587

Accrued restructuring charges, long-term

2,653

Long-term debt, net of current portion

145,621

115,986

Other long-term liabilities

11,827

11,604

Total liabilities

372,651

376,106




Commitment and contingencies (Note 11)



Stockholders' Deficit



Preferred stock 20,000 shares authorized; no shares issued or outstanding as of March 31, 2019 and 2018

Common stock, $0.01 par value per share; 1,000,000 shares authorized; 36,040 and 35,443 shares issued and outstanding at March 31, 2019 and March 31, 2018, respectively

360

354

Additional paid in Capital

499,224

481,610

Accumulated deficit

(697,954)

(655,157)

Accumulated other comprehensive loss

(1,410)

(274)




Total stockholders' deficit

(199,780)

(173,467)




Total Liabilities and Stockholders' Deficit

$     172,871

$    202,639




QUANTUM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)






Years Ended
March 31,


2019

2018

2017
(As Restated)

Revenue




Product revenue

$    244,654

$    268,582

$        308,318

Service revenue

134,696

136,523

145,938

Royalty revenue

23,330

32,579

38,798





Total revenue

402,680

437,684

493,054





Costs and expenses




Product cost of revenue

179,846

206,111

226,660

Service cost of revenue

55,220

58,789

61,122

Total cost of revenue

235,066

264,900

287,782





Gross profit

167,614

172,784

205,272





Operating expense




Research and development

32,113

38,562

44,379

Sales and marketing

69,400

102,242

100,527

General and administrative

65,277

52,128

51,590

Restructuring charges

5,570

8,474

2,095





Total operating expenses

172,360

201,406

198,591





Income (loss) from operations

(4,746)

(28,622)

6,681

Other (income) expense, net:




Interest expense, net

21,095

11,670

7,993

Loss on debt extinguishment

17,458

6,934

41

Other (income) expense, net

(2,878)

(767)

(601)





Net loss before income taxes

(40,421)

(46,459)

(752)

Income tax expense (benefit)

2,376

(3,113)

1,656





Net loss

$   (42,797)

$   (43,346)

$         (2,408)





Loss per share - basic and diluted

$       (1.20)

$       (1.25)

$           (0.07)





Weighted-average common shares outstanding - basic and diluted

35,551

34,687

33,742









Net loss

$   (42,797)

$   (43,346)

$         (2,408)

Change in foreign currency translation adjustments

(1,136)

1,402

(770)





Total comprehensive loss

$   (43,933)

$   (41,944)

$          (3,178)





QUANTUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)






Years Ended March 31,


2019

2018

2017




(as restated)

Cash flows from operating activities:




Net loss

$     (42,797)

$     (43,346)

$       (2,408)

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




Depreciation and amortization

4,266

4,970

5,635

Amortization of debt issuance costs

2,825

1,537

1,373

Product and service parts lower of cost or market adjustment

8,851

8,146

7,609

Tax benefit from settlement and Tax Reform Act

(3,952)

Share-based compensation expense

3,409

5,394

6,698

Non-cash interest expense

1,670

49

Non-cash loss on debt extinguishment

17,851

6,962

Non-cash restructuring charges

598

Bad debt expense

315

295

24

Deferred income taxes, net

2,356

69

497

Loss on disposal of property and equipment

268

129

11

Unrealized foreign exchange (gain) loss

(224)

1,437

(650)

Change in fair value of liability classified warrants

(143)

(210)

(Gain) loss on investment

(2,729)

118

Changes in assets and liabilities:




Accounts receivable

8,054

6,510

(370)

Manufacturing inventories

13,054

(2,613)

3,827

Service parts inventories

(3,506)

(6,760)

(3,404)

Accounts payable

(25,356)

21,647

(5,284)

Accrued restructuring charges

(2,943)

(463)

(1,644)

Accrued compensation

(2,342)

(4,330)

1,784

Deferred revenue

(8,367)

4,228

(1,686)

Other assets and liabilities

8,629

(5,447)

(3,456)





Net cash provided by (used in) operating activities

(16,859)

(5,032)

8,556

Cash flows from investing activities:




Purchases of property and equipment

(2,708)

(2,584)

(2,217)

Proceeds from sale of assets

51

10

736

Cash distributions from investments

2,892

278

48





Net cash provided by (used in) investing activities

235

(2,296)

(1,433)

Cash flows from financing activities:




Borrowings of long-term debt and subordinated convertible debt, net of debt issuance costs

507,707

367,755

104,914

Repayments long-term of debt

(491,143)

(316,053)

(113,082)

Repayment of convertible subordinated debt

(62,827)

Payment of tax withholding due upon vesting of restricted stock

(354)

(1,822)

(737)

Proceeds from issuance of common stock, net

1,715

1,019





Net cash provided by (used in) financing activities

16,210

(11,232)

(7,886)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

62

(145)

16





Net decrease in cash, cash equivalents and restricted cash

(352)

(18,705)

(746)





Cash, cash equivalents and restricted cash at the beginning of period

17,207

35,912

36,658





Cash, cash equivalents and restricted cash at the end of period

$       16,855

$       17,207

$       35,912





Supplemental disclosure of cash flow information:




Purchases of property and equipment included in accounts payable

$             105

$             173

$             279

Transfer of inventory to property and equipment

408

1,036

1,928

Cash Paid For:




Interest

$       17,677

$       10,244

$          5,966

Income taxes, net of refunds

68

1,455

677

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, cost related to the financial restatement and related activities described in the Explanatory Paragraph and Footnote 2 – "Restatement" in our most recently filed Annual Report on Form 10-K and other non-recurring expenses.

Adjusted Net Income (Loss) is a non-U.S. GAAP financial measure defined by us as net loss before, restructuring charges, cost related to the financial restatement and related activities described in the Explanatory Paragraph and Footnote 2 – "Restatement" in our most recently filed Annual Report on Form 10-K and other non-recurring 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).

The Company considers non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Such expenses include certain strategic and financial restructuring expenses.

We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to net 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. The Company believes 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 its business and help its investors better compare the Company's 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; (5) potential ongoing costs related to the financial restatement and related activities; or (6) potential future strategic and financial restructuring expenses;
  • Adjusted Net Income (Loss) does not reflect: (1) potential future restructuring activities; (2) potential (3) potential ongoing costs related to the financial restatement and related activities; or (4) potential future strategic and financial restructuring expenses; and
  • other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income 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, loss, and our U.S. GAAP financial results. The following is a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to net loss, the most directly comparable financial measure calculated in accordance with U.S. GAAP, for each of the periods indicated:

RECONCILIATION OF U.S. GAAP TO NON-GAAP




Adjusted EBITDA

three months ended June 30,

(dollars in thousands)

2019

2018

Net Loss

$       (3,807)

$       (7,485)

Interest expense, net

6,306

3,935

Provision for income taxes

338

(575)

Depreciation and amortization expense

1,021

1,130

Stock-based compensation expense

987

427

Restructuring charges

263

3,907

Cost related to financial restatement and related activities

7,990

5,122

Other non-recurring expenses

749




Adjusted EBITDA

$      13,098

$         7,210






Adjusted Net Income

For the three months ended June 30,

(dollars in thousands, except per share amounts)

2019

2018

Net Loss

$       (3,807)

$       (7,485)

Restructuring charges

263

3,907

Cost related to financial restatement and related activities

7,990

5,122

Other non-recurring expenses

749




Adjusted Net Income

$         4,446

$         2,293




Adjusted EBITDA

three months ended June 30,

(dollars in thousands)

2019

2018

Adjusted Income per share:



Basic

$           0.12

$           0.06

Diluted

$           0.11

$           0.06

Weighted average shares outstanding:



Basic

36,045

35,444

Diluted

40,973

36,638





Adjusted EBITDA

(dollars in thousands)

For the years ended March 31,

2019

2018

2017
(As Restated)

Net loss

$      (42,797)

$      (43,345)

$              (2,408)

Interest expense, net

21,095

11,670

7,993

Income tax (benefit) expense

2,376

(3,113)

1,656

Depreciation and amortization expense

4,266

4,970

5,635

Stock based compensation expense

3,409

5,394

6,698

Restructuring charges

5,570

8,474

2,095

Loss on extinguishment of debt

17,458

6,934

41

Cost related to financial restatement and related activities

19,664

1,709

Non-recurring other

1,500

2,848





Adjusted EBITDA

$       32,541

$        (4,460)

$             21,710







Adjusted Net Income (Loss)

(dollars in thousands except per share amounts)

For the years ended March 31,

2019

2018

2017
(As Restated)

Net loss

$      (42,797)

$      (34,345)

$              (2,408)

Restructuring charges

5,570

8,474

2,095

Loss on extinguishment of debt

17,458

6,934

41

Cost related to financial restatement and related activities

19,664

1,359

Non-recurring other

1,500

2,848





Adjusted net income (loss)

$          1,395

$      (23,381)

$                 (272)





Adjusted net income (loss) per share:




Basic

$           0.08

$          (0.66)

$              (0.01)

Diluted

$           0.07

$          (0.66)

$              (0.01)

Weighted average shares outstanding:




Basic

35,551

34,687

33,742

Diluted

40,515

34,687

33,742

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SOURCE Quantum Corp.