Quantum: Fiscal 2FQ15 Financial Results

(in $ million)	2Q14	2Q15	6 mo. 14	6 mo. 15
Revenue	131.5	135.1	279.3	263.2
*Growth*		3%		*-6%*
Net income (loss)	(7.9)	1.2	(4.6)	(3.1)

Quantum Corp. reported results for the fiscal second quarter 2015 ended Sept. 30, 2014.

Fiscal Second Quarter 2015 Results
(Unless otherwise noted, all comparisons are relative to the fiscal second quarter 2014.)

Total revenue was $135.1 million, an increase of 3%.
Total branded revenue grew to $107.5 million, a 7% increase.
Scale-out storage and related service revenue grew 58% to a record $25.5 million, reflecting increasing demand for StorNext 5 high-performance shared storage and Lattus extended online storage solutions.
DXi backup and deduplication appliance revenue increased 11%, driven by the strong performance of new DXi6900 and DXi4700 platforms.
GAAP operating income was $3.8 million, up from a GAAP operating loss of $5.0 million.
GAAP net income was $1.2 million, or less than $0.01 per diluted share, up from a GAAP net loss of $7.9 million, or $0.03 per diluted share.
Non-GAAP operating income increased to $9.4 million, from $1.0 million.
Non-GAAP net income improved to $6.8 million, or $0.03 per diluted share, up from a non-GAAP net loss of $1.9 million, or $0.01 per diluted share.
Cash generated from operations was $2.3 million, and Quantum ended the quarter with nearly $110 million in total cash and cash equivalents.

“Our positive second quarter results reflect the improvements we’ve made in our financial model and the increased leverage it provides as we capitalize on the market momentum we’re seeing across our business,” said Jon Gacek, president and CEO. “In scale-out storage, we are driving significant growth through our unique combination of industry-leading performance and policy-driven tiering software, which is ideally suited to meeting customers’ evolving workflow needs. In data protection, we are taking advantage of growth and profit opportunities with a more efficient, integrated solutions approach that leverages our best-in-class disk and tape technologies to help organizations meet new backup and archive requirements.

“As we begin the second half of the fiscal year, we are well-positioned to build on this market momentum and the power of our scale-out storage and data protection portfolios to deliver greater growth, profit and shareholder value.”

Fiscal 2015 updated outlook
Reflecting its performance over the last two quarters and increasing market momentum, Quantum has raised the lower end of its revenue guidance for the full fiscal year and increased its net income and earnings per share guidance.

Revenue of approximately $545 million to $550 million.
GAAP net income of $8.9 million to $9.9 million, or $0.03-$0.04 per diluted share.
Non-GAAP net income of $24 million to $25 million, or $0.08-$0.09 per diluted share.

Fiscal third quarter 2015 outlook

Revenue of approximately $145 million to $150 million.
GAAP net income of $7.9 million to $8.9 million, or $0.03 per diluted share.
Non-GAAP net income of $11 million to $12 million, or $0.04 per diluted share.

Fiscal second quarter 2015 business highlights

Acquired Symform’s cloud storage services platform and development team, gaining technology and expertise that the company plans to leverage in both scale-out storage and data protection. Used by 45,000 individuals and small businesses in 170 countries, Symform’s extensible cloud service has petabytes of storage and billions of data objects under management in a range of use cases. It offers options for integrating customer data into the cloud – including file sync and share, file backup and archive and system replication – with a focus on ease of use.
Announced StorNext Pro Workgroup, a new easy-to-deploy, high-performance and high-capacity content workflow solution for post-production and broadcast professionals. This integrated solution supports ingest, production, review and delivery, along with different options for petascale content storage and access at any stage of the workflow – all in one system. By choosing StorNext Pro Workgroup with Lattus object storage-based system, users can extend their online collaboration by shifting non-real-time workflow operations to Lattus – a protected, infinitely scalable storage infrastructure – with no negative impact on performance.
New DXi6900 enterprise backup and deduplication appliance, which became available during the quarter, gained market traction, with wins of more than $200,000 each at a range of customers, including a multinational biopharmaceutical company, a major insurance provider in Asia and a large county health network. In addition, the company continued to see strong adoption of its DXi4700 appliance, which was introduced earlier this year. DXi4700 revenue increased nearly 60% sequentially, and approximately 45% of sales were to new Quantum customers.
TVBEurope honored StorNext Pro Solutions with StorNext Connect as a Best of Show Award winner at IBC2014. The awards recognize the best technology, equipment and companies serving the broadcast industry. The award reflects the benefits of easy-to-deploy, high-performance StorNext Pro storage systems for complex workflow environments.

Comments

Quantum's revenue for fiscal quarters
(in $ million)

Fiscal quarter

Revenue*

Q/Q growth

1Q13

140.9

-12%

2Q13

147.3

3Q13

159.4

4Q13

140.0

-8%

1Q14

147.8

2Q14

131.4

-11%

3Q14

145.9

11%

4Q14

128.0

-12%

1Q15

128.1

2Q15

135.1

Jon Gacek, CEO:
"We see fiscal '15 as an inflection point in which we're starting on a new trajectory of growth and profit.
"Contributing to this growth was a StorNext Lattus deal totaling $2 million at one of the fastest growing sports broadcasters and a number of StorNext specific deals over $200,000, including new customer wins in one of the world's largest video game companies and a top online video streaming provider.
"Total revenue from the group of non M&E customers nearly doubled in Q2, with deals exceeding $200,000 including sales to a global energy supplier, a Chinese based oil company, two major genomics research institutes, and a European provider of geospatial products and services.
"DXi 6900 can be combined with Quantum's Q-Cloud protect services to enable customers to build data protection workflows that extend across into the cloud. It has been well-received in the market, resulting in Q2 wins of more than $200,000 each at a range of customers, including a multinational biopharmaceutical company, a major insurance provider in Asia, and a large county health network."

Linda Breard, CFO:
"Disk backup systems and related service revenue was up 11% year over year, driven by revenue growth in APAC and EMEA and an increase in big deals.
"Offsetting what would have been even larger top line growth were declines in devices and media revenue of 22% and OEM tape automation revenue of approximately 17% year over year.
"Tape automation systems revenue was $37.9 million, compared to $41.6 million in Q2 of fiscal 2014. Branded tape revenue declined $740,000, or 3% year over year, primarily due to a modest decline in revenues from our enterprise tape automation systems, which was slightly offset by year over year growth in midrange tape automation systems.
"Entry level revenue was relatively flat year over year. Revenue from large deals, those over $200,000, was down 12% from the same period in the prior year.
"From an OEM perspective, tape automation revenue was down $3 million or 17% from Q2 of 2014. The decline in OEM tape automation revenue was driven equally by reductions in both midrange and enterprise tape automation sales.
"Moving to disk backup systems and related service revenue, it was $21.2 million, up $2.1 million or 11% from a year earlier. Increased revenue in APAC and EMEA drove the year over year growth, but was somewhat offset by reduced fed spend.
"We saw strong growth in revenue in our over 80TB systems, with revenue more than doubling over the same period last year. We had a 15% increase in revenue for big deals, and our overall DXi win rates increased for the quarter, to over 60%. We also added approximately 80 new customers in Q2.
"Finally, as it relates to data protection revenue, devices and media totaled $13 million in Q2, compared to $16.8 million in the prior year. Lower media revenue was the primary driver of the decline. We had fewer big media deals in Q2 compared to a year ago.
"Royalty revenue was $10.7 million for Q2, compared to $10.5 million in the same quarter a year ago. This increase was the net result of increases in LTO royalties from LTO-6, which more than doubled year over year, and a slight increase in LTO-5 royalties, just partially offset by a decrease in royalties for generations 1 through 4 of LTO.
"At September 30, our debt consisted of $203.7 million of convertible debt with no covenants and no early call provision."