Quantum Announces 18% Increase in Revenue for Second Quarter of Fiscal 2020

SAN JOSE, Calif., Nov. 5, 2019 /PRNewswire/ -- Quantum Corporation (OTC: QMCO) today announced financial results for its second fiscal quarter ended September 30, 2019.

Highlights: Second Quarter of Fiscal 2020 vs. Prior-Year Second Quarter

• Revenue increased 18% to $105.8 million
• Gross margins increased 160 basis points to 41.1%
• Research and development investments increased 19%
• Adjusted Net Income increased by $10.7 million to $5.1 million
• Adjusted EBITDA increased by $10.3 million to $12.7 million

"Our strategic transformation accelerated in the second quarter as we reported double-digit revenue growth, margin expansion, and excluding non-recurring items, continued reductions in operating expenses, all of which led to continued profitability," commented Jamie Lerner, Chairman and CEO, Quantum.  "Our continued expense discipline more than offset an incremental investment in research and development, supporting recently released products and our pipeline of future offerings. We are well-positioned as a recognized industry leader in the storage and management of video and video-like data, and this accelerating trend should support future profitable growth for Quantum."

Second Quarter of Fiscal 2020 vs. Prior-Year Quarter

Revenue was $105.8 million for the second quarter in fiscal 2020, up 18% compared to $89.9 million in the year ago quarter.

Gross profit in the second quarter of fiscal 2020 was $43.5 million or 41.1% gross margin, compared to $35.5 million, or 39.5% gross margin, in the year ago quarter. Gross margins improved year over year primarily due to cost reductions across a wide range of products and a sales mix weighted towards more profitable product lines.

Total operating expenses were $39.3 million, or 37% of revenue, in the second quarter of fiscal 2020 compared to $38.9 million, or 43% of revenue, in the year ago quarter. Selling, general and administrative expenses declined 5% to $29.2 million for the second quarter of fiscal 2020 compared to $30.8 million in the year ago quarter. Research and development expenses were $9.4 million in the second quarter of fiscal 2020, up 19% compared to $7.9 million in the year ago quarter.

Excluding non-recurring charges, stock compensation and restructuring charges, Adjusted Net Income was $5.1 million, or $0.11 per diluted share in the second quarter of fiscal 2020, compared to an Adjusted Net Loss of ($5.6) million, or $(0.16) per diluted share, in the year ago quarter.

Adjusted EBITDA increased $10.3 million to $12.7 million in the second quarter of fiscal 2020, compared to $2.4 million in the year-ago quarter.

Year-to-Date Fiscal 2020 vs. Year-to-Date Fiscal 2019

Revenue was $211.4 million and increased 7% for the first six months of fiscal 2020, compared to $197.4 million in the year-ago period.

Gross profit for the first six months of fiscal 2020 was $89.3 million, or 42.3% gross margin, compared to $81.9 million, or 41.5% gross margin, in the year ago period. Gross margins improved year over year primarily due to cost reductions across a wide range of products and a sales mix weighted towards more profitable product lines.

Total operating expenses for the first six months of fiscal 2020 were $82.4 million, or 39% of revenue, compared to $89.6 million, or 45% of revenue, in the year ago period. Selling, general and administrative expenses declined 8% to $63.6 million for the first six months of fiscal 2020 compared to $69.3 million for the year ago period. Research and development expenses were $17.7 million for the first six months of fiscal 2020, up 10% compared to $16.1 million in the year ago period.

Excluding non-recurring charges, stock compensation and restructuring charges, Adjusted Net Income was $10.5 million, or $0.24 per diluted share for the first six months of fiscal 2020, compared to an Adjusted Net Loss of ($3.3) million, or $(0.09) per diluted share, in the same period last year.

Adjusted EBITDA increased $16.2 million to $25.8 million for the first six months of fiscal 2020, compared to $9.6 million in the year ago period.

Balance Sheet and Liquidity as of September 30, 2019

• Cash and cash equivalents of $6.0 million as of September 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 September 30, 2019 was $153.6 million net of $15.5 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. The increase in long term debt from March 31, 2019 was primarily due to borrowings of $7.0 million at September 30, 2019 from the revolving credit facility to meet short term working capital requirements.
• Total interest expense for fiscal Q2 2020 was $6.3 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.

Outlook

The third fiscal quarter that ends in December is traditionally the Company's strongest of the fiscal year and management expects revenues in the range of $106 million to $112 million. Excluding approximately $2 million of stock-based compensation charges, the Company expects resulting Adjusted Net Income to be in the range of $6 million to $8 million and related diluted Adjusted Net Income per share of $0.13 to $0.18.  Adjusted EBITDA is expected to be in the range of $13 million to $15 million.

For the full fiscal year, Quantum expects total revenues in the range of $424 million to $430 million and adjusted EBITDA to be in a range of $51 million to $55 million.

Change in Board of Directors

Quantum also announced that Eric Singer has decided to retire from the Board of Directors effective as of November 3, 2019.  Mr. Singer had served as an independent director since 2017, and had served as Chairman of Quantum's Leadership and Compensation Committee and as a member of the Corporate Governance and Nominating Committee.

"We are extremely appreciative of Eric's leadership on Quantum's Board," said Jamie Lerner, Quantum's Chairman of the Board and Chief Executive Officer. "Eric, as a representative of our largest stockholder at that time, VIEX Capital Advisors, began a campaign to replace the Board and change the management of Quantum in early 2016.  He was appointed to our Board in 2017."  Lerner continued, "Simply put, we would not be in the position we are today without Eric's steadfast commitment to and leadership in Quantum's turnaround.  He was the catalyst of change that led to a complete turnover in management and the Board, improved operating performance and the implementation of strong corporate governance practices at Quantum.  We thank him for his active involvement and tireless dedication in restoring Quantum and helping position us for the future."

Conference call

Management will host a conference call to discuss these results today, November 5, 2019 at 5 p.m. ET (2 p.m. PT).

Dial-in Numbers

• 844-407-9500 (U.S. Toll-Free)
• 862-298-0850 (International)

Audio WebcastThe 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. 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.

Replay Numbers

• 877-481-4010 (U.S. Toll-Free)
• 919-882-2331 (International)
• Replay Passcode: 55680
• Replay Expiration: Tuesday, November 12, 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.

Forward-Looking Statements

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; 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 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.

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:

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SOURCE Quantum Corp.