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Quantum: Fiscal 1Q17 Financial Results

Surprisingly, tape backup revenue finally stabilized

(in $ million) 1Q16 1Q17 Growth
Revenue
110.9 116.3 5%
Net income (loss) (10.8) (3.8)  

Quantum Corp. reported results for the fiscal first quarter 2017 ended June 30, 2016 (all comparisons are relative to the fiscal first quarter 2016):

  • Total revenue was $116.3 million, an increase of $5.4 million.Scale-out storage revenue grew to $30.8 million, up from $27.8 million.
  • Total data protection revenue increased to $76.9 million, consisting of $21.5 million in disk backup systems revenue (up 24%), $42.6 million in tape automation revenue (down 4%) and $12.8 million in devices and media revenue (up 17%).
  • Royalty revenue was $8.6 million, a decline of $1.6 million.
  • GAAP operating loss of $2.1 million and non-GAAP operating income of $2.1 million, an improvement of $6.1 million and $6.5 million, respectively.
  • The GAAP net loss was $3.8 million, or $0.01 per diluted share, and non-GAAP net income was $360,000, or $0.00 per diluted share. This represented an improvement of $0.03 per diluted share on both a GAAP and non-GAAP basis.
  • The company generated $5.2 million in cash from operations, in contrast to using $13.6 million in cash in the comparable quarter a year ago.

We’re very pleased with our first quarter results, as we delivered year-over-year revenue growth, with strong contributions from both our scale-out storage and data protection product lines,” said Jon Gacek, president and CEO. “In scale-out storage, we continued to build on our momentum, securing major wins across our priority vertical markets and use cases and further expanding the addressable markets where our scale-out storage solutions offer unique value. For example, in April we announced a large public cloud, scale-out storage win, which we expected to generate $10 million in total revenue for the year. That opportunity has since expanded, and we now expect the resulting revenue contributions – which started in the first quarter – to total at least $20 million for the year.

“On the data protection side of our business, we closed a multi-million dollar DXi deduplication deal and capitalized on a more stable tape backup market, where we are a long-standing leader. We also improved our bottom line performance, as we continued to benefit from the cost reductions and operational changes we implemented over the previous six months, which further strengthened our business model and the leverage it provides.

“In short, we had a strong start to fiscal 2017, and we’re focused on building on our momentum to drive continued growth, profitability and cash flow. Based on our first quarter results, we have increased confidence in our ability to meet the full year guidance we provided on our May earnings call.”

Fiscal Second Quarter 2017 Outlook

  • Total revenue of $118 million to $122 million.
  • GAAP and non-GAAP gross margin of 41-42%.
  • GAAP and non-GAAP operating expenses of $50 million to $51 million and $48 million to $49 million, respectively.
  • Interest expense of $1.5 million and taxes of $400,000.
  • GAAP and non-GAAP loss per share of $0.01 to $0.00.

Finally, CFO Fuad Ahmad provided an update on the company’s refinancing activities: “We are in discussions with a number of financial institutions regarding expanding our credit line to provide sufficient near- and long-term liquidity and to create a clear and executable roadmap to address our convertible notes due November 2017. We’ve received strong indications of interest from two different lending sources, each of which has provided preliminary terms that, if successfully executed in a definitive agreement, not only would provide substantial additional liquidity but also should alleviate any perceived market risks related to the convertible notes.”

Fiscal First Quarter 2017 Business Highlights

  • Introduced three new reference architectures for video surveillance and security environments. These architectures address the storage challenges presented by new fixed cameras, expansions of existing security systems, and law enforcement implementations. They are based on the company’s tiered storage approach which provides the performance, capacity and accessibility to meet increasing demands for managing surveillance data.
  • Announced that Avid has developed a connector for its Interplay | MAM system and Quantum’s StorNext Storage Manager that enables seamless integration of Quantum archive storage systems into Avid media environments. As a result, media and entertainment customers now have the ability to access and control StorNext archive and restore functions through Interplay | MAM, including automated movement of content across different archive storage tiers. This solution provides more intelligent, long-term content management, faster access to a nearline archive tier via standard network protocols and better protection of Avid projects with an archive strategy.
  • Lab testing by Enterprise Strategy Group, an independent analyst firm, confirmed that Quantum’s Artico active archive appliance offers a simple-to-configure-and-manage tiered archive that is easily integrated into existing workflows. ESG Lab demonstrated that Artico works with tape, object storage and cloud repositories while its policy-based data management enables data movement, protection and resiliency, retention and encryption. ESG also affirmed that Artico’s NAS connectivity makes it easy to integrate and that its automated tiered storage engine makes it transparent to archive data on demand.
  • Komprise Inc. and Quantum announced a joint solution which enables organizations to seamlessly integrate archive storage into their active workflows to cope with exponential data growth under tight budgets. The combination of Komprise data management software and services with Lattus object storage or Artico active archive solutions delivers scalable capacity and automated data movement without disrupting users or applications.

Comments

It will once more difficult for Quantum to be profitable for its current fiscal year. Since 2003, it recorded net income only in FY2010, 2011 and 2015. But there is good chance to come back to growth revenue never reached since nine fiscal years.

For the most recent quarter, sales increased 5% Y/Y and down 3% Q/Q with notable decreased losses.

OEM revenue increase 6% Y/Y and the storage firm grew branded revenue 7% 1FQ16 driven by increases in scale-out storage and data protection revenue, 11% and 15% respectively with related service revenue included.

Concerning scale-out storage, 1FQ17 was the 20th consecutive Y/Y growth quarter. The number of worldwide partners selling scale-out storage solution increased 10% over the same period last year. Overall win rate for the quarter is in the 70% range and the firm added 120 new scale-out storage customers this quarter compared to 90% for the same period last year.

In media and entertainment, Quantum extends its position beyond traditional broadcast production and post-production environment. One of its 1FQ17 wins was a $200,000 deal with an emerging leader in virtual reality, a submarket with significant opportunity given the high storage requirements.

The firm continues to drive growth in video surveillance. Among its wins, there were a $200,000 deal in APAC for a pilot project that has the potential to expand to a larger deployment, and $150,000 installation at a government run medical center. The company had four new ecosystem partners and signed six new integrators.

1FQ17 revenue for the data protection product family included related service revenue was up 6% Y/Y. A key driver was a multi-million dollar DXi win at a telecommunications company, which contributed to a 24% Y/Y increase in disk systems backup and related service revenue. This increase is attributed to a number of big orders in the quarter. Overall DXi win rates remain in the mid-60% range and the company added 40 new customers during the quarter.

More surprisingly, tape backup revenue stabilized during the most recent quarter as total product and related service revenue from tape automation devices and media sales was essentially flat. CEO John Gazek commented: "This is clearly a positive and we believe it's indicative of a more stable traditional storage market including tape backup than the industry has seen over the last couple of years." Tape automation systems and related service revenue was $42.6 million for the quarter compared to $44.6 million one year ago. Branded tape automation and related service revenue decreased to $32.5 million as a result of decline in service revenues related to company's installed base. Win rate is in high 70% range and the company acquired 16 new branded mid-range enterprise tape automation customers.

Device and media totaled $12.8 million in 1FQ17 up 17% from the prior year driven equally by higher media and device revenue.

Royalty revenue was down 16% Y/Y. The decrease primarily related to royalties for LTO-1 through LTO-6 was partially offset by LTO-7 royalties. LTO-7 is in initial stages of launch and is expected to draw in future quarters. Additionally, Quantum signed new agreement in support of LTO-8 development and commercialization, expecting LTO-8 based media and hardware will begin shipping in calendar 2016 further extending on royalty cash.

The company expects revenue up 1% to 5% Q/Q and Gazek stated: "We're off to a strong start in scale-out storage where we've already received orders in excess of $15 million." 

Revenue by business in $ million

Business 1FQ16 1FQ17 % Y/Y growth
Scale-out storage 27.8 30.8 62% 15%
Service 37.9 35.8 31% -5%
Royalty 10.2 8.6 7% -16%
TOTAL 110.9 116.3 100% 5%

To read the earnings call transcript

 

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