Quantum Corporation Reports Fiscal Third Quarter 2016 Results

SAN JOSE, Calif., Jan. 28, 2016 /PRNewswire/ -- Quantum Corp. (NYSE: QTM) today reported results for the fiscal third quarter 2016 ended Dec. 31, 2015.

Fiscal Third Quarter 2016 Results:(All comparisons are relative to the fiscal third quarter 2015.)

• Revenue was $128.0 million, driven by continued strength in scale-out storage offset by overall weakness in the general storage market and pricing environment of commodity tape media products.
• Scale-out storage and related service revenue grew approximately $8.5 million to an all-time high of $35.7 million, a 31 percent increase, marking the 18th consecutive quarter of year-over-year growth.
• Royalty revenue increased $0.6 million to $11.3 million.
• Disk backup systems and related service revenue decreased to $19.6 million.
• Branded tape automation and related service revenue decreased to $38.5 million, while OEM tape automation and related service revenue decreased to $12.7 million.
• Devices and media revenue decreased to $10.2 million as a result of a $3.5 million decline in tape media revenue.
• GAAP and non-GAAP operating income of $2.0 million and $7.2 million, respectively.
• The GAAP net loss was $0.3 million, or $0.00 per diluted share.
• The non-GAAP net income was $5.3 million, or $0.02 per diluted share.

"We are pleased with our overall results and the continued scale-out revenue growth this quarter, to a new record high, especially given the overall weakness in the broad storage market environment," said Jon Gacek, president and CEO of Quantum. "In response to the market conditions, we also successfully implemented significant operational changes during the quarter that improved our profitability. For the quarter, our data protection revenue increased sequentially — with higher sales of both disk and tape automation products. In our scale-out storage solutions line, targeted at specialized workflows, we grew revenue 31 percent over the comparable quarter a year ago, even with no 'mega deals' above $1 million in the just-completed quarter. Excluding mega deals, scale-out storage revenue grew 48 percent and 49 percent, respectively, over the comparable three- and nine-month periods in the prior year.

"For the fourth quarter, we will continue to focus on growing our run-rate scale-out revenue driven by expanding our media and entertainment, surveillance and technical workflow opportunities, and we will continue to work to close the mega deals in our sales funnel. In addition, similar to the third quarter, we will actively manage tape media revenue based on the pricing environment and optimize our activity for profit. We will also continue to manage our spending and our investments to achieve the right balance across our financial objectives."

The company also announced today that Linda Breard has resigned as senior vice president and chief financial officer of Quantum to pursue another opportunity. Chris Willis, vice president, Financial Planning and Analysis of Quantum, will serve as interim CFO while the company completes its search process for a permanent CFO.

Fiscal Fourth Quarter 2016 Outlook

Based on current market conditions, including tape media pricing dynamics and the difficulty in forecasting large and mega deals given their long sales cycles, Quantum provided the following guidance for the fiscal fourth quarter:

• Revenue of $118 million to $122 million.
• GAAP and non-GAAP gross margin of approximately 43-44 percent.
• GAAP and non-GAAP operating expenses of approximately $50 million to $51 million and $48 million to $49 million, respectively.
• Interest expense of $1.5 million and taxes of $400,000.
• GAAP and non-GAAP earnings per share of ($0.01) to $0.00 and $0.00 to $0.01, respectively.

Fiscal Third Quarter 2016 Business Highlights

• Quantum purchased the remaining $83.7 million of aggregate principal amount of its convertible subordinated notes due November 2015, plus accrued interest, using $16.3 million in restricted cash and $68.9 million of its revolving credit facility with Wells Fargo Capital Finance.
• The company unveiled Xcellis™ workflow storage, Quantum's next-generation, high-performance storage solution engineered to optimize demanding workflows, accelerate time to insight and empower organizations to drive greater success. The new solution addresses the explosive growth of unstructured data and the opportunity to capitalize on its strategic value by enabling users to share and leverage this data more quickly, easily and cost-effectively. Powered by Quantum StorNext® and its industry-leading streaming performance, Xcellis can be deployed as a standalone system or as the primary storage component within a multi-tier storage environment incorporating object storage, tape and cloud technologies.
• Quantum extended its StorNext scale-out platform with the release of StorNext 5.3, providing a range of advanced data management capabilities for multi-tier storage and hybrid cloud environments. In addition to powering the company's new Xcellis workflow storage solution, it also serves as the data management engine in Artico™, Quantum's intelligent NAS archive appliance.
• Quantum expanded its Q-Cloud® offerings with the launch of Q-Cloud Vault, a new service that enables users to take advantage of secure, low-cost public cloud storage for long-term retention of digital assets. Q-Cloud Vault is available for StorNext 5.3 users.
• The company released StorNext Connect 1.1, a significantly enhanced version of its easy-to-use management tool that simplifies the installation, discovery, administration and monitoring of StorNext environments. StorNext Connect™ is the first product of its kind to integrate management and reporting of a multi-tier storage environment, including disk, tape, object storage and cloud resources.
• Quantum added LTO-7 technology to its tiered storage portfolio, more than doubling the capacity over previous generations and enabling low-cost, energy-efficient and secure storage for protecting and retaining data.

Conference Call and Audio Webcast NotificationQuantum will hold a conference call today, Jan. 28, 2016, at 2:00 p.m. PST to discuss its fiscal third quarter results. Press and industry analysts are invited to attend in listen-only mode.Dial-in number: (719) 457-2083 (U.S. and International); access code: 4726503Replay number: (719) 457-0820 (U.S. and International); access code: 4726503Replay expiration: Tuesday, Feb. 2, 2016, at 5:00 p.m. PSTWebcast 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, Xcellis, Artico, Q-Cloud, StorNext and StorNext Connect 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 focuses for the fourth quarter of this fiscal year, including growing our run-rate scale-out revenue, closing the mega deals in our sales funnel, managing our tape media revenue and managing our spending and investments; and ii) all of our statements under the heading "Fiscal Fourth 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 November 6, 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 AssetsThis 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 ExpenseShare-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 ChargesRestructuring 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 CostsOutsourcing 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 CostsProxy 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 CostsCrossroads 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 ExpensesThe acquisition expenses were those expenses incurred to acquire Symform, Inc. ("Symform") and are not part of Quantum's future core operations.

Symform Expenses, NetQuantum 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 ExtinguishmentThe 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.

 

 

 

 

 

 

 

 

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SOURCE Quantum Corp.