Quantum: Fiscal 3Q15 Financial Results

(in $ million)	3Q14	3Q15	9 mo. 14	9 mo. 15
Revenues	145.9	142.1	425.2	405.3
*Growth*		-3%		*-5%*
Net income (loss)	(2.5)	6.9	(7.1)	3.9

Quantum Corp. reported results for the fiscal third quarter 2015 ended Dec. 31, 2014.

Fiscal Third Quarter 2015 Results
(Unless otherwise noted, all comparisons are relative to the fiscal third quarter 2014.)
– Total revenue was $142.1 million, down slightly due primarily to a 33% decline in OEM tape automation revenue. In addition, total revenue was $1.4 million lower than it would have been had foreign exchange rates remained the same year-over-year.
– Total branded revenue grew to $116.2 million, a 2% increase.
– Scale-out storage and related service revenue increased 77% to a record $27 million, with significant contributions from both StorNext Pro Solutions and Lattus extended online storage systems.
– DXi backup and deduplication appliance revenue increased 5% to $24 million, driven by the strong performance of Quantum’s new DXi6900 platform.
– GAAP operating income was $9.6 million, up from an operating loss of $0.1 million.
– GAAP net income was $6.9 million, or $0.03 per diluted share, up from a net loss of
$2.5 million, or $0.01 per diluted share.
– Non-GAAP operating income increased to $13.6 million, from $8.6 million.
– Non-GAAP net income improved to $10.9 million, or $0.04 per diluted share, up from
$6.2 million, or $0.02 per diluted share.
– Quantum generated $2.6 million in cash from operations and ended the quarter with nearly
$110 million in total cash and cash equivalents.

“We are very pleased with our strong third quarter results, as we continued to build on the momentum we saw in the first half of our fiscal year,” said Jon Gacek, president and CEO. “Branded revenue increased year-over-year for the third consecutive quarter, driven by scale-out storage revenue growth of nearly 80% as well as higher DXi revenue. Reflecting the improvements we’ve made in our operating model, we also increased net income year-over-year and delivered our best operating margins in four years – nearly 7% and 10% on a GAAP and non-GAAP basis, respectively.

“With our market momentum, our strong solutions portfolio and the significant leverage our financial model provides, we are well-positioned to drive year-over-year growth and increased profit in the final quarter of fiscal 2015 and in the coming year.”

In addition, Quantum has entered into an agreement to repurchase $50 million of its convertible notes due November 2015 in an all-cash transaction expected to close on Jan. 30, 2015.

For the fiscal fourth quarter, Quantum expects:
– Revenue of approximately $130 million to $135 million, based on typical seasonality.
– GAAP and non-GAAP gross margin of approximately 43-45%.
– GAAP operating expenses of approximately $55 million to $56 million and non-GAAP operating expenses of $52 million to $53 million.
– GAAP operating income of $2.5 million to $3.5 million and non-GAAP operating income of
$6 million to $7 million.
– Interest expense of $2.1 million and taxes of $0.5 million.
– GAAP net loss of $0.8 million to $1.8 million, or a loss of less than $0.01 to a loss of $0.01 per diluted share, and non-GAAP net income of $3 million to $4 million, or $0.01 to $0.02 per diluted share.

Comments

Jon Gacek, CEO:
"This was one of the key contributors to our overall media and entertainment product revenue growing more than 150% year-over-year in Q3 and our mid-market media and entertainment product sales nearly tripling. Our largest M&E during the quarter was a $4 million StorNext Lattus deal for managing video in one of the world's largest consumer electronics companies, $3 million of that has been recognized in Q3. Other major M&E wins include a StorNext Lattus sale of nearly $3,000 to a large media production company and StorNext sales of more than $3000 each to two of the top U.S. broadcast networks and a major international radio broadcaster.
"Beyond, media and entertainment total Q3 scale out revenue from other non-government customers such as oil and gas, life sciences, high performance computing, and geospatial applications grew 25% year-over-year. Key wins from these verticals include StorNext deals with a major genome sequencing center a large national oil company in Asia and one of the world’s top non-profit research institutes as well as a lot of sale to a leading provider of commercial satellites.
"DXi 6900 product revenue doubled from Q2 with key wins including deals of more than 200,000 each at a large European banking group a global financial service provider, multinational biopharmaceutical company and a major insurance company in Asia.
"We've entered into a new partnership agreement with NetApp in this case, this relationship is a joint sales effort in Europe around a co-branded NetApp and Quantum branded DXI 6900 incorporating NetApp's E-Series disk."

Linda Breard, CFO:
"For the quarter, non-royalty revenue totaled $131.4 million, of which 88% was branded and 12% was OEM compared to 84% branded and 16% OEM a year ago.
"Tape automation systems revenue was $40.5 million compared to $52.1 million in Q3 of fiscal 2014. Branded tape automation revenue declined $5.3 million or 16% year-over-year, primarily due to declines in enterprise and midrange revenue, which were slightly offset by year-over-year growth in entry level sales.
"Revenue from large deals, those over $200,000, was down 34% from the same period in the prior year.
"As it relates to data protection revenue, devices and media totaled $13.5 million in Q3, compared to $17.2 million in the prior year. Lower media revenue was the primary driver of the decline.
"Moving to service revenue, it was $39.2 million in Q3, up 6% from $36.9 million in the same quarter of the prior year. The increase was primarily driven by growth in branded contracts related to our StorNext appliance strategy.
"Royalty revenue was $10.7 million which is flat with a year ago, a 40% year-over-year increase in LTO-6 royalties and a moderate increase in LTO-5 royalties were offset by a decrease in royalties for LTO generations 1 through 4."