Quantum: Fiscal 4Q16 Financial Results

Quantum Corp. reported results for the fiscal fourth quarter and full year 2016 ended March 31, 2016.

Total revenue was $120.0 million for FQ4 and $476.0 million for the year.

These results were down from the comparable prior year periods, reflecting weakness in the enterprise storage market that has also impacted many other companies in the industry.

Despite the challenging environment, Quantum generated $33.1 million in scale-out storage and related service revenue in FQ4. This was a 4% increase over the same quarter the year before – representing the 19th consecutive quarter of year-over-year growth – and was driven by a 44% increase in Americas product sales.

For FY16, Quantum had $126.5 million in total scale-out storage and related service revenue. This was a 23% increase over fiscal 2015, and when deals over $1 million (mega deals) are excluded, total revenue in this category increased 34% for the full year.

Quantum also reported following revenue totals for FQ4 and FY16, respectively:

• Disk backup systems and related service: $18.1 million and $73.2 million.
• Branded tape automation and related service: $34.6 million and $146.3 million.
• OEM tape automation and related service: $10.1 million and $43.0 million.
• Devices and media: $13.1 million and $45.8 million.
• Royalty: $11.0 million and $41.2 million.

With a non-cash goodwill impairment charge of $55.6 million included, the company had a GAAP operating loss of $50.2 million in FQ4 and a GAAP net loss of $52.4 million, or $0.20 per diluted share. On a non-GAAP basis, Quantum generated operating income of $8.7 million for FQ4, resulting in the highest non-GAAP operating margin in five quarters and reflecting the cost structure reductions the company made in the second half of FY16. Non-GAAP net income for FQ4 was $6.5 million, or $0.02 per diluted share.

For the full year, Quantum had a GAAP net loss of $74.7 million, or $0.28 per diluted share, again including the fourth quarter goodwill impairment charge of $55.6 million. On a non-GAAP basis, the company had a net loss of $2.6 million, or $0.01 per diluted share, for FY16. The positive impact of Quantum’s cost structure reductions in the second half of the year are clear from a comparison of bottom line results for that period with the first half of the year – a $24.9 million improvement on a GAAP basis when the goodwill impairment charge is excluded and a $26.3 million non-GAAP improvement.

“In fiscal 2016 we made progress in key areas despite the weakness in the enterprise storage market making this a difficult year for the storage industry, overall,” said Jon Gacek, president and CEO. “We grew scale-out storage 23%, expanded our reach in high-growth vertical markets and use cases, introduced a range of new, award-winning solutions, reduced our cost structure and improved our balance sheet. All of this provides a strong foundation for fiscal 2017 that makes us confident we will be able to achieve total revenue growth and higher profitability this year.

“We are excited about the opportunity to expand our scale-out storage leadership in media and entertainment while building on our momentum in video surveillance and unstructured data archives for technical workflows. Our ability to provide high-performance, low-cost capacity and easy access in a single, integrated tiered storage solution encompassing flash, spinning disk, object storage, tape and the cloud will be an increasingly key differentiator for customers.

“Finally, our new CFO, Fuad Ahmad, will focus on further balance sheet optimization to enhance free cash flow and on opportunities to further strengthen our capital structure.”

Fiscal 2017 Outlook
Noting that the fiscal first quarter is typically its weakest, Quantum provided the following guidance for the first quarter:

• Total revenue of $111 million to $115 million.
• GAAP and non-GAAP gross margin of 43-44%.
• GAAP and non-GAAP operating expenses of $54 million to $55 million and $52 million to $53 million, respectively.
• Interest expense of $1.5 million and taxes of $400,000.
• GAAP and non-GAAP loss per share of $0.02 to $0.03 and $0.01 to $0.02, respectively.

For the full fiscal 2017 year, the company expects:

• Total revenue of at least $500 million, with scale-out storage and related service revenue driving the year-over-year growth and rising to 35-40% of total revenue.
• A decline in overall data protection revenue, with modest growth in disk backup and related service revenue offset by declines in branded and OEM tape backup revenue.
• Royalty revenue of approximately $35 million.
• GAAP and non-GAAP gross margin of 43-44%.
• GAAP and non-GAAP operating expense of $207 million and $200 million, respectively.
• Interest expense of $6.1 million and taxes of $1.6 million.
• GAAP and non-GAAP earnings per share of $0.01 and $0.04, respectively.

“We have a growing opportunity funnel in scale-out storage and multiple deals of significant size that we are actively working,” said Gacek. “As the year progresses, we believe we will close at least some of these deals, but we are not ready to include them in our guidance at this time.”

Fiscal Fourth Quarter 2016 Business Highlights

• In its first full quarter shipping, new Xcellis workflow storage system gained strong market traction. The company secured Xcellis deals at a broad range of customers, including a top U.S. broadcast network, a leading chemical manufacturer, an NFL team and a pioneering virtual reality company. Optimized for demanding workflows and powered by StorNext platform, Xcellis addresses the 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.
• Demonstrating its expanding ecosystem partnerships in video surveillance, the company highlighted joint development initiatives with video management system firms 3VR, Genetec Inc. and Milestone Systems, as well as HauteSpot Networks, provider of solutions for IP video. As members of the Quantum Advantage Program for technology partners, these companies have certified interoperability with Quantum offerings, including StorNext 5 data management and Quantum disk products.
• Announced that Q-Cloud Protect is now available as a cloud-based appliance running on top of the AWS Marketplace infrastructure. Q-Cloud Protect is a virtual deduplication appliance that works with DXi systems to provide a hybrid-cloud backup and DR solution. It is designed for companies with single sites looking to protect their business against localized disasters, organizations eliminating tape for off-site protection and users seeking a hybrid-cloud approach to backup and DR.
• Products continued to garner industry awards and honors. Xcellis won the 2016 Storage Visions Award for Visionary Products, Professional-Class System and was named a finalist in the StudioDaily Prime Awards, which “represent the top tier of new technology, creative thinking, and high-end craftsmanship in media and entertainment” (Xcellis won the award in the following quarter). Xcellis also won an innovation award in China and was shortlisted for a product of the year award in Europe. In addition, Quantum’s Artico active archive appliance was a finalist in the Storage magazine/SearchStorage.com‘s Product of the Year Awards.