PR Newswire | Aug 5, 2020 04:06PM EDT

08/05 15:05 CDT

Quantum Announces Fiscal 2021 First Quarter Financial ResultsCost Controls and Balance Sheet Actions Help Mitigate Impact of COVID-19, Delivers Results In-Line with Guidance; Company Anticipates $10 Million Sequential Revenue Improvement in Fiscal Q2 SAN JOSE, Calif., Aug. 5, 2020

SAN JOSE, Calif., Aug. 5, 2020 /PRNewswire/ -- Quantum Corporation (NASDAQ: QMCO) today announced financial results for its fiscal first quarter ended June 30, 2020.

First Quarter Fiscal 2021 Financial Summary

* Revenue was $73.3 million * Gross margin was 42.1% * Total operating expenses decreased $8.7 million, or 20%, compared to the year ago quarter * GAAP Net loss of $10.7 million, or $(0.27) per diluted share * Adjusted Net Loss of $6.8 million or $(0.17) per diluted share * Adjusted EBITDA of $1.4 million

Jamie Lerner, Chairman and CEO, Quantum commented, "The Quantum team executed with agility and resiliency in the first fiscal quarter, advancing our long-term transformation strategy amidst a dynamic and challenging environment. Our quarterly financial results were in-line with expectations, and while we recognize many of our customers are still facing uncertainty and volatility, we have seen some encouraging trends already in the second quarter supporting our belief that the first quarter was the trough in our business. Now, as many industries begin to resume operations, our solutions are increasingly in demand. We already have clear visibility to revenue targets in the second fiscal quarter representing a double-digit percentage increase sequentially as compared to the first fiscal quarter."

Mr. Lerner continued, "Our second fiscal quarter is typically strong from a seasonal perspective. Sports and entertainment customers are ramping back up albeit with shortened seasons, and our business with these customers does not require spectators, just the resumption of operations and the capture of video data for streaming and other uses. We have continued to innovate our technology and serve our customers' growing video and unstructured data needs all while controlling costs and strengthening our balance sheet. Combined with the improvements we have made to the company over the past 24 months, I am confident that the re-built earnings power of Quantum will become increasingly apparent as we navigate through this crisis and expand our leadership in managing and retaining unstructured data."

First Quarter of Fiscal 2021 vs. Prior-Year Quarter

Revenue was $73.3 million for the first quarter of fiscal 2021, down 31% compared to $105.6 million in the year ago quarter and in-line with Quantum's guidance. Revenue declined across the company's product lines largely due to COVID-19 pandemic. The revenue decline was led by a decrease in product revenue due to reduced demand for secondary storage systems and lower hyperscale revenue, as well as a decrease in royalty revenue due to overall declines in market unit volumes as the primary use of tape continues to transition from backup to archive workflows. Revenue in the first fiscal quarter of 2020 includes incremental contribution from the acquisition of the ActiveScale object storage business, which closed on March 17, 2020.

Gross profit in the first quarter of fiscal 2021 was $30.9 million, or 42.1% gross margin, compared to $45.8 million, or 43.4% gross margin, in the year ago quarter. Gross margins contracted modestly year over year primarily due to spreading fixed overhead costs over lower revenue combined with lower high margin royalty revenues.

Total operating expenses in the first quarter of fiscal 2021 were $34.3 million, or 46.9% of revenue, compared to $43.1 million, or 40.8% of revenue, in the year ago quarter. Selling, general and administrative expenses declined 33% to $23.1 million for the first quarter of fiscal 2021 compared to $34.4 million in the year ago quarter. Research and development expenses were $10.2 million in the first quarter of fiscal 2021, up 21% compared to $8.4 million in the year ago quarter.

Net loss in the first quarter of fiscal 2021 was $10.7 million, or ($0.27) per basic and diluted share, compared to a Net loss of $3.8 million, or ($0.11) per basic and diluted share, in the year ago quarter.

Excluding stock compensation, restructuring charges and non-recurring charges, Adjusted Net Loss in the first quarter of fiscal 2021 was $6.8 million, or ($0.17) per diluted share, compared to Adjusted Net Income of $5.4 million, or $0.13 per diluted share, in the year ago quarter.

Adjusted EBITDA in the first quarter of fiscal 2021 decreased $11.7 million to $1.4 million, compared to $13.1 million in the year-ago quarter.

Balance Sheet and Liquidity

* Cash and cash equivalents of $29.1 million as of June 30, 2020, compared to $12.2 million as of March 31, 2020. Both balances include $5.0 million in restricted cash required under the Company's Credit Agreements, and $0.8 million of short-term restricted cash. * Outstanding debt as of June 30,2020 on a gross basis was $195.2 million and on a net basis was $170.6 million after netting $24.6 million in unamortized debt issuance costs. This compares to $167.8 million of outstanding debt as of March 31, 2020 on a gross basis, and on a net basis was $154.1 million after netting $13.7 million in unamortized debt issuance costs. The increase in long-term debt from March 31, 2020 was primarily due to term debt borrowings of $20.0 million and a $10.0 million Paycheck Protection Program Term Loan. * Total interest expense was $6.4 million for the three months ended June 30, 2020.

On June 16, 2020 the Company announced that it had agreed to amend its revolving and term loan credit facilities, securing an additional $20 million in incremental liquidity and negotiating more flexible loan terms and conditions. The facilities expire on December 27, 2023. Among other terms, the amended credit facilities provide a holiday period for certain financial covenants through June 30, 2021 and the term loan credit facility contains a more favorable equity claw back feature. The terms of the 2020 term loan credit agreement are substantially similar to the terms of the existing term loan, including in relation to maturity, security and pricing.

Outlook

For the second fiscal quarter of 2021, the Company expects revenues of $83 million plus or minus $2 million. The Company expects Adjusted Net Loss to be $3 million plus or minus $0.5 million and related Adjusted Net loss per share of $(0.08) plus or minus $0.01. Adjusted EBITDA is expected to be $5 million plus or minus $1 million.

Conference Call and Audio Webcast

Management will host a live conference call today, August 5, 2020, at 4:30 p.m. ET (1:30 p.m. PT) to discuss these results. The conference call will be accessible by dialing 1-844-602-0380 (U.S. Toll-Free) or 1-862-298-0970 (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.

A recording of the call will be available one hour after the end of the conference call until Wednesday, August 12, 2020 by dialing 1-877-481-4010 (U.S. Toll-Free) or 1-919-882-2331 (International) and providing playback passcode 36227. A replay of the webcast will be available on the Company's website for at least 90 days.

Virtual Analyst Day

Quantum will be hosting a Virtual Analyst and Investor Day on Wednesday August 26th, providing the investment community with a deeper and more comprehensive look into the company's long-term vision, addressable markets, strategy and financial goals. To pre-register or receive more information on this event, please email qmco@fnkir.com.

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. Quantum is listed on Nasdaq (QMCO) and was added to the Russell 2000(r) Index on June 26, 2020. For more information visit www.quantum.com.

Quantum, the Quantum logo, Active Scale(tm) and Atavium(r) 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 as well as the anticipated impact of the COVID-19 pandemic on Quantum's financial results; 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 regarding expected trends in target markets and target customers, 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 June 24, 2020. 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.

Contacts:

Public Relations Contact:Investor Contact: Bob Wientzen Rob Fink Quantum Corporation FNK IR 720-201-8125 646-809-4048 bob.wientzen@quantum.com rob@fnkir.com

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts, unaudited)



June 30, 2020March 31, 2020

Assets

Current assets:

Cash and cash equivalents $23,307 $6,440

Restricted cash 805 830

Accounts receivable, net of allowance for doubtful accounts of $1,348 and $1,247 as of 49,339 70,370 June 30, 2020 and March 31, 2020, respectively

Manufacturing inventories 29,981 29,196

Service parts inventories 21,111 20,502

Other current assets 8,766 8,489

Total current assets 133,309 135,827

Property and equipment, net 9,980 9,046

Restricted cash 5,000 5,000

Right-of-use assets, net 12,325 12,689

Other long-term assets 4,329 3,433

Total assets $164,943 $165,995

Liabilities and Stockholders' Deficit

Current liabilities:

Accounts payable $26,957 $36,949

Deferred revenue 76,003 81,492

Accrued restructuring charges 458 -

Long-term debt, current portion 925 7,321

Accrued compensation 14,092 14,957

Other accrued liabilities 15,773 17,535

Total current liabilities 134,208 158,254

Deferred revenue 34,743 37,443

Long-term debt, net of current portion 169,705 146,847

Operating lease liabilities 10,402 10,822

Other long-term liabilities 11,386 11,154

Total liabilities 360,444 364,520



Stockholders' deficit

Preferred stock, 20,000 shares authorized; no shares issued as of June 30, 2020 and March 31,- - 2020, respectively

Common stock, $0.01 par value; 125,000 shares authorized; 39,905 shares issued and 399 399 outstanding as of June 30, 2020 and March 31, 2020, respectively

Additional paid-in capital 519,235 505,762

Accumulated deficit (713,900) (703,164)

Accumulated other comprehensive loss (1,235) (1,522)

Total stockholders' deficit (195,501) (198,525)

Total liabilities and stockholders' deficit $164,943 $165,995

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts, unaudited)



Three Months Ended June 30,

2020 2019

Revenue:

Product $39,687 $65,796

Service 30,386 33,381

Royalty 3,232 6,454

Total revenue 73,305 105,631

Cost of revenue:

Product 30,382 47,200

Service 12,071 12,605

Total cost of revenue 42,453 59,805

Gross profit 30,852 45,826

Operating expenses:

Research and development 10,162 8,383

Sales and marketing 11,570 15,856

General and administrative 11,563 18,576

Restructuring charges 1,052 263

Total operating expenses 34,347 43,078

Income (loss) from operations (3,495) 2,748

Other income (expense), net (385) 89

Interest expense (6,437) (6,306)

Net loss before income taxes (10,317) (3,469)

Income tax provision 419 338

Net loss $(10,736) $(3,807)



Net loss per share - basic and diluted $(0.27) $(0.11)

Weighted average shares - basic and diluted 39,905 36,045



Net loss $(10,736) $(3,807)

Foreign currency translation adjustments, net 287 84

Total comprehensive loss $(10,449) $(3,723)

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)



Three Months Ended June 30,

2020 2019

Operating activities

Net loss $(10,736)$(3,807)

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

Depreciation and amortization 1,286 1,021

Amortization of debt issuance costs 1,124 1,004

Long-term debt related costs 167 -

Provision for product and service inventories 1,629 1,572

Stock-based compensation 1,958 987

Bad debt expense 39 214

Deferred income taxes 13 (49)

Unrealized foreign exchange loss 482 130

Changes in assets and liabilities:

Accounts receivable, net 20,993 19,360

Manufacturing inventories (1,784) (7,141)

Service parts inventories (1,399) (639)

Accounts payable (9,967) 2,593

Accrued restructuring charges 458 (471)

Accrued compensation (864) (3,838)

Deferred revenue (8,188) (7,648)

Other assets and liabilities (4,198) (2,385)

Net cash provided by (used in) operating activities (8,987) 903

Investing activities

Purchases of property and equipment (484) (444)

Net cash used in investing activities (484) (444)

Financing activities

Senior Secured Term Loan borrowings, net of debt 19,400 - issuance costs

PNC Credit Facility borrowings 78,582 (413)

PNC Credit Facility repayments (81,653) -

Paycheck Protection Program borrowing 10,000 -

Net cash provided by (used in) financing activities 26,329 (413)

Effect of exchange rate changes on cash, cash (16) (53) equivalents and restricted cash

Net change in cash, cash equivalents and restricted 16,842 (7) cash

Cash, cash equivalents, and restricted cash at 12,270 16,855 beginning of period

Cash, cash equivalents, and restricted cash at end of$29,112 $16,848 period

Supplemental disclosure of cash flow information

Cash paid for interest $8,445 $5,129

Cash paid (received) for income taxes, net of $(1,964) $126 refunds

Non-cash transactions

Purchases of property and equipment included in$262 $155 accounts payable

Purchases of property and equipment included in$1,315 $- accrued liabilities

Transfer of inventory to property and equipment$159 $118

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 $23,307 $10,806

Restricted cash, current 805 1,042

Restricted cash, long-term 5,000 5,000

Total cash, cash equivalents and restricted cash at $29,112 $16,848 the end of period

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, long-term debt related costs, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2: - Restatement in our Annual Report on Form 10-K for the year ended March 31, 2019, 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, stock-based compensation expense, long-term debt related costs, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2: - Restatement in the Annual Report on Form 10-K for the year ended March 31, 2019 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).

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 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. 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; or (6) potential future costs related to our financial statement restatement and other related activities; * 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; or (4) potential future costs related to our financial statement restatement and other related activities; and * 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) (in thousands):

Three Months Ended

June 30, June 30, 2020 2019

Net loss $(10,736)$(3,807)

Interest expense, net 6,437 6,306

Provision for income taxes 419 338

Depreciation and amortization expense 1,286 1,021

Stock-based compensation expense 1,958 987

Long-term debt related costs 965 -

Restructuring charges 1,052 263

Cost related to financial restatement and related - 7,990 activities

Adjusted EBITDA $1,381 $13,098



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

June 30, June 30, 2020 2019

Net loss $(10,736)$(3,807)

Restructuring charges 1,052 263

Stock-based compensation 1,958 987

Long-term debt related costs 965 -

Cost related to financial restatement and related - 7,990 activities

Adjusted net income (loss) $(6,761) $5,433

Adjusted net income per share:

Basic $(0.17) $0.15

Diluted $(0.17) $0.13

Weighted average shares outstanding:

Basic 39,905 36,045

Diluted 39,905 40,973

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SOURCE Quantum Corp.