PR Newswire | Oct 28, 2020 04:06PM EDT

10/28 15:05 CDT

Quantum Announces Fiscal 2021 Second Quarter Financial Results300 Basis Point Improvement in Gross Margin Performance, Drives Narrowing of GAAP Net Loss by $6.1 Million Sequentially to $4.6 Million; Company Generates $8.9 Million in Adjusted EBITDA SAN JOSE, Calif., Oct. 28, 2020

SAN JOSE, Calif., Oct. 28, 2020 /PRNewswire/ -- Quantum Corporation (NASDAQ: QMCO) today announced financial results for its fiscal second quarter ended September 30, 2020.

Second Quarter Fiscal 2021 Financial Summary

* Revenue was $85.8 million * Gross margin was 45.1% * Total operating expenses decreased $4.1 million, or 10%, compared to the year ago quarter * GAAP net loss of $4.6 million, or $(0.11) per diluted share * Adjusted net loss of $0.2 million, or $(0.01) per diluted share * Adjusted EBITDA of $8.9 million

Jamie Lerner, Chairman and CEO, Quantum commented, "Our results in the second fiscal quarter exceeded our forecasted outlook, benefitting from the strength of our Federal government business, and solid sales execution. We are seeing a gradual and steady recovery across most of our vertical markets and key geographies, and simultaneously maintaining discipline with our expenses while increasing our investment in research and development to support the introduction of new software products. The 300 basis point sequential improvement in gross margins during the quarter, bolstered our Adjusted EBITDA to $8.9 million, meaningfully exceeding our guidance. Our pipeline remains strong, and we continue to identify and pursue significant opportunities to help customers manage video and other forms of unstructured data across its lifecycle."

Mr. Lerner continued, "At our analyst and investor day in August, we discussed Quantum's transformation over the next few years to a more software-defined and recurring revenue driven model that will drive margin enhancement and expansion of our addressable market. On November 10, 2020 we take the first step in this regard, with the launch of next generation data management software to classify, visualize, and orchestrate data, both on premise and in the cloud, along with new ways to automate data movement in the highly anticipated release of StorNext 7. These new solutions will enable our customers to gain visibility into their data, derive new insights, and unlock more business value from this data. All of these new offerings will be available on a subscription basis, driving more predictable revenue streams and improved margins for us in the future while increasing our addressable market in the near-term."

Second Quarter of Fiscal 2021 vs. Prior-Year Quarter

Revenue was $85.8 million for the second quarter of fiscal 2021, down 19% compared to $105.8 million in the year ago quarter and exceeding Quantum's guidance. Business with Federal government customers improved, partially offsetting COVID-19-related declines in the Company's other vertical markets as well as challenges related to fluctuating purchase cycles with hyperscaler customers.

Gross profit in the second quarter of fiscal 2021 was $38.7 million, or 45.1% gross margin, compared to $43.5 million, or 41.1% gross margin, in the year ago quarter. Gross margins improved year over year primarily due to a more favorable mix of enterprise products sold.

Total operating expenses in the second quarter of fiscal 2021 were $35.2 million, or 41.1% of revenue, compared to $39.3 million, or 37.2% of revenue, in the year ago quarter. Selling, general and administrative expenses declined 3% to $23.4 million for the second quarter of fiscal 2021 compared to $24.2 million in the year ago quarter. Research and development expenses were $10.2 million in the second quarter of fiscal 2021, up 9% compared to $9.4 million in the year ago quarter.

Net loss in the second quarter of fiscal 2021 was $4.6 million, or ($0.11) per basic and diluted share, compared to a Net loss of $2.3 million, or ($0.06) per basic and diluted share, in the year ago quarter.

Excluding stock compensation, restructuring charges and non-recurring charges, Adjusted Net Loss in the second quarter of fiscal 2021 was $0.2 million, or ($0.01) per diluted share, compared to Adjusted Net Income of $5.1 million, or $0.11 per diluted share, in the year ago quarter.

Adjusted EBITDA in the second quarter of fiscal 2021 decreased $3.8 million to $8.9 million, compared to $12.7 million in the year-ago quarter.

For a full reconciliation of our GAAP to non-GAAP financial results and additional cautionary language about the use of non-GAAP financial measures, please see the tables below.

Balance Sheet and Liquidity

* Cash, cash equivalents, and restricted cash of $18.3 million as of September 30, 2020, compared to $12.3 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 September 30,2020 on a gross basis was $195.2 million and on a net basis was $172.4 million after netting $22.8 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. * Total interest expense was $7.6 million for the three months ended September 30, 2020.

OutlookFor the third fiscal quarter of 2021, the Company expects revenues of $93 million plus or minus $2 million. The Company expects Adjusted Net Loss to be $1 million plus or minus $1 million and related Adjusted Net loss per share of $(0.02) plus or minus $0.02. Adjusted EBITDA is expected to be $8 million plus or minus $1 million.

Conference Call and Audio WebcastManagement will host a live conference call today, October 28, 2020, at 4:30 p.m. ET (1:30 p.m. PT) to discuss these results. The conference call will be accessible by dialing 844-369-8770 (U.S. 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.

A recording of the call will be available one hour after the end of the conference call until Wednesday, November 4, 2020 by dialing 877-481-4010 (U.S. Toll-Free) or 919-882-2331 (International) and providing playback passcode 38181. A replay of the webcast will be available on the Company's website for at least 90 days.

About QuantumQuantum 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 in 2020. 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 StatementsThis 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 (Loss), cash flows, or other financial items as well as the anticipated impact of the COVID-19 pandemic on Quantum's financial results; statements regarding pipeline, 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 does not intend 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.

QUANTUM CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts, unaudited)



September 30, 2020March 31, 2020

Assets

Current assets:

Cash and cash equivalents $ 12,517 $6,440

Restricted cash 792 830

Accounts receivable, net of allowance for doubtful accounts of $1,399 and $1,247 as 62,712 70,370 of September 30, 2020 and March 31, 2020, respectively

Manufacturing inventories 35,882 29,196

Service parts inventories 23,211 20,502

Other current assets 8,330 8,489

Total current assets 143,444 135,827

Property and equipment, net 9,655 9,046

Restricted cash 5,000 5,000

Right-of-use assets, net 10,597 12,689

Other long-term assets 4,585 3,433

Total assets $ 173,281 $165,995

Liabilities and Stockholders' Deficit

Current liabilities:

Accounts payable $ 37,834 $36,949

Deferred revenue 73,101 81,492

Long-term debt, current portion 1,388 7,321

Accrued compensation 17,878 14,957

Other accrued liabilities 14,750 17,535

Total current liabilities 144,951 158,254

Deferred revenue 33,249 37,443

Long-term debt, net of current portion 171,010 146,847

Operating lease liabilities 9,114 10,822

Other long-term liabilities 11,197 11,154

Total liabilities 369,521 364,520



Stockholders' deficit

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

Common stock, $0.01 par value; 125,000 shares authorized; 40,740 shares issued 408 399 and outstanding as of September 30, 2020 and March 31, 2020, respectively

Additional paid-in capital 522,357 505,762

Accumulated deficit (718,492) (703,164)

Accumulated other comprehensive loss (513) (1,522)

Total stockholders' deficit (196,240) (198,525)

Total liabilities and stockholders' $ 173,281 $165,995 deficit

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,

2020 2019 2020 2019

Revenue:

Product $ 50,850 $ 68,130 $ 90,537 $133,926

Service 31,494 32,401 61,880 65,781

Royalty 3,477 5,258 6,709 11,712

Total revenue 85,821 105,789 159,126 211,419

Cost of revenue:

Product 34,998 49,467 65,380 96,666

Service 12,089 12,799 24,160 25,404

Total cost of revenue 47,087 62,266 89,540 122,070

Gross profit 38,734 43,523 69,586 89,349

Operating expenses:

Research and development 10,233 9,350 24,723 17,733

Sales and marketing 13,153 14,824 21,825 30,680

General and administrative 10,263 14,329 20,395 32,905

Restructuring charges 1,585 821 2,637 1,084

Total operating expenses 35,234 39,324 69,580 82,402

Income from operations 3,500 4,199 6 6,947

Other income (expense), net (312) 76 (697) 165

Interest expense (7,578) (6,347) (14,015) (12,653)

Net loss before income taxes (4,390) (2,072) (14,706) (5,541)

Income tax provision 202 243 622 581

Net loss $ (4,592) $ (2,315) $ (15,328) $(6,122)



Net loss per share - basic and diluted $ (0.11) $ (0.06) $ (0.38) $(0.17)

Weighted average shares - basic and diluted 40,286 36,297 40,097 36,172



Net loss $ (4,592) $ (2,315) $ (15,328) $(6,122)

Foreign currency translation adjustments, net722 (474) 1,009 (390)

Total comprehensive loss $ (3,870) $ (2,789) $ (14,319) $(6,512)

QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)



Six Months Ended September 30,

2020 2019

Operating activities

Net loss $(15,328) $(6,122)

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

Depreciation and amortization 2,580 2,034

Amortization of debt issuance costs 3,015 2,008

Long-term debt related costs 167 -

Provision for product and service inventories 3,588 3,442

Stock-based compensation 4,549 3,352

Bad debt expense 90 199

Deferred income taxes (15) -

Unrealized foreign exchange (gain) loss 1,193 (99)

Changes in assets and liabilities:

Accounts receivable, net 7,568 15,239

Manufacturing inventories (8,858) (5,799)

Service parts inventories (4,333) (1,180)

Accounts payable 1,601 1,478

Accrued restructuring charges 240 (2,576)

Accrued compensation 2,922 (2,111)

Deferred revenue (12,584) (15,582)

Other assets and liabilities (5,694) (3,939)

Net cash used in operating activities (19,299) (9,656)

Investing activities

Purchases of property and equipment (1,434) (1,315)

Net cash used in investing activities (1,434) (1,315)

Financing activities

Borrowings of long-term debt, net of debt 19,400 - issuance costs

Repayments of long-term debt - (825)

Borrowings of credit facility 140,987 172,119

Repayments of credit facility (144,058) (165,143)

Borrowings of payment protection program 10,000 -

Payment of taxes due upon vesting of - (171) restricted stock

Proceeds from issuance of common stock 539 -

Net cash provided by financing activities 26,868 5,980

Effect of exchange rate changes on cash, cash (96) 72 equivalents and restricted cash

Net change in cash, cash equivalents and 6,039 (4,919) restricted cash

Cash, cash equivalents, and restricted cash at12,270 16,855 beginning of period

Cash, cash equivalents, and restricted cash at$18,309 $11,936 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 Six Months Ended

September September September September 30, 2020 30, 2019 30, 2020 30, 2019

Net loss $(4,592)$(2,315)$(15,328)$(6,122)

Interest expense, net 7,578 6,347 14,015 12,653

Provision for income taxes 202 243 622 581

Depreciation and amortization expense 1,295 1,013 2,580 2,034

Stock-based compensation expense 2,591 2,365 4,549 3,352

Long-term debt related costs 203 - 1,169 -

Restructuring charges 1,585 821 2,637 1,084

Cost related to financial restatement and related activities- 4,188 - 12,179

Adjusted EBITDA $8,862 $12,662 $10,244 $25,761



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

Three Months Ended Six Months Ended

September September September September 30, 2020 30, 2019 30, 2020 30, 2019

Net loss $(4,592)$(2,315)$(15,328)$(6,122)

Restructuring charges 1,585 821 2,637 1,084

Stock-based compensation 2,591 2,365 4,549 3,352

Long-term debt related costs 203 - 1,169 -

Cost related to financial restatement and related activities- 4,188 - 12,179

Adjusted net income (loss) $(213) $5,059 $(6,973) $10,493

Adjusted net income (loss) per share:

Basic $(0.01) $0.14 $(0.17) $0.29

Diluted $(0.01) $0.11 $(0.17) $0.24

Weighted average shares outstanding:

Basic 40,286 36,297 40,097 36,172

Diluted 40,286 44,923 40,097 43,032

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

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SOURCE Quantum Corp.