Quantum: Fiscal 2Q17 Financial Results

Total sales up 15%, scale-out storage revenue up 52% Q/Q
This is a Press Release edited by on 2016.10.31

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(in $ million) 2Q16 2Q17 6 mo. 16 6 mo. 17
Revenue 117.0 134.7 227.9 251.0
Growth   15%   10%
Net income (loss) (11.2) 3.8 (22.0) 0.0

Quantum Corp. reported results for the fiscal second quarter 2017 that ended 30 September 2016 (all comparisons are relative to the fiscal second quarter 2016 unless otherwise stated):

  • Total revenue was $134.7 million, an increase of $17.7 million.
  • Scale-out storage revenue grew to a record $46.7 million, up from $29.9 million and the
    21st consecutive quarter of year-over-year growth.
  • Total data protection revenue was flat at $78.5 million, consisting of $18.7 million in disk backup systems revenue (up 3%), $45.2 million in tape automation revenue (down 7%) and $14.6 million in devices and media revenue (up 26%).
  • Royalty revenue was $9.5 million, an increase of 9%.
  • GAAP gross margin was 41.2%, and non-GAAP  gross margin was 41.4%, up from 39.6%  and 39.9%, respectively.
  • GAAP operating income was $5.3 million, and non-GAAP operating income was $7.5 million, an improvement of $15.0 million and $13.3 million, respectively.
  • GAAP net income was $3.8 million, or $0.01 per diluted share, and non-GAAP net income was $6.0 million, or $0.02 per diluted share. This represented an improvement of $0.05 per diluted share on both a GAAP and non-GAAP basis.

"We began this fiscal year with a clear focus on delivering solid growth and profitability, and our results in the first two quarters demonstrate our strong execution and increasing momentum," said Jon Gacek, president and CEO. "For the first half of the fiscal year, we've increased total revenue by $23 million over the same period last year, growing scale-out storage by 34% and data protection - where the market remains challenging - by 3%. On this $23 million of additional revenue, we've improved net income by more than $20 million, reflecting the significant leverage our financial model provides as we grow.

"As we start the second half of fiscal 2017, we're focused on continuing to drive scale-out storage growth by further extending our media and entertainment leadership and expanding our footprint in video surveillance and in technical workflows with large unstructured data archive needs. For data protection, we're continuing to leverage our technology leadership, extensive customer base, and channel and technology partnerships to generate profit and cash."

Fiscal third quarter 2017 outlook

  • Total revenue of $125 million to $130 million.
  • GAAP and non-GAAP gross margin of 41-43% .
  • GAAP and non-GAAP operating expenses of $49 million to $51 million and $47 million to $49 million, respectively.
  • Interest expense of $2.4 million and taxes of $400,000.
  • GAAP loss per share of $0.01 to GAAP earnings per share of $0.01 and non-GAAP earnings per share of $0.00 to $0.02.

Fiscal second quarter 2017 business highlights

  • Quantum announced a new media reference architecture for animation and visual effects workflows that is built on the company's award-winning Xcellis high-performance storage. This architecture overcomes the time- and resource-consuming challenge of transferring content between animation and editorial departments over a network by optimising storage capabilities for both operations in a single shared environment, thereby streamlining workflows and boosting overall efficiency and productivity.
  • The company introduced the DXi6900-S, a deduplication appliance that incorporates 8TB self-encrypting drives, delivering the highest density backup available and enabling customers to reduce power consumption by 50%, compared to competing deduplication appliances. It also integrates the SSD technology to provide metastorage and access. As a result, the DXi6900-S speeds ingest, read, replication and space reclamation performance, allowing users to complete all these tasks several times faster than with previous DXi systems and many competitive products.
  • Continuing to expand its ecosystem partnerships in video surveillance, Quantum announced joint development initiatives with four video management system - Aimetis Corp., On-Net Surveillance Systems Inc. (OnSSI), Qognify and Verint Systems Inc. Under the initiatives, these partners have certified interoperability with Quantum multi-tier storage offerings, including StorNext 5 data management and QXS hybrid storage, ensuring that users have access to tested and integrated storage solutions suited to their environment.
  • Key scale-out storage customer wins included million dollar-plus deals with a major media company for a multi-faceted project and a global consumer electronics company for corporate video, as well as large deals with a leading car company using video surveillance in its manufacturing facility and a solar company that uses surveillance for product line quality control. Other notable scale-out storage wins included large deals involving technical workflows and management of unstructured data archives at a U.S. military agency, an electric power administrator and a global laboratory testing services provider.
  • In data protection, major customer wins included million dollar-plus deals at a European banking IT support operation, a large supermarket chain and a U.S. government department, with the first two involving new DXi6900-S deduplication appliance.

Our Comments

The company realized strong second quarter performances with about all figures being positive after a respectable first three-month period.

Sales are up 16% Q/Q and 15% Y/Y resulting in an increase of 10% last six months. Former quarter loss of $3.8 million is reverse with this time the same amount but in profit.

All businesses are increasing quarterly but disk backup activity.

The company is finally largely successful into scale-out storage, a business growing up as much as 52% Q/Q to reach a record of 47 million. More that that, its the 21st consecutive quarter of year-over-year growth and this activity is contributing to a 34% growth rate for 1FH17, compared to the same period a year ago.

Even tape automation is growing (6% Q/Q) with very strong tape royalty revenue even if the company said that level will not repeat this year.

CEO Jon Gazek finally reaffirms his annual guidance and expects total revenue of "at least $500 million for the year." It has to be confirmed. At mid-year the figure is $251 million and the company expects a not so successful next quarter with sales between $125 million and $130 million. More than half billion dollar will be a complete change for Quantum with revenue down each fiscal year since FY08.

The vendor reported the following numbers in term of new customers during the quarter: 85 for scale-out storage, 60 in branded tape automation, 40 in disk backup systems including some big deals from unknown organizations and more coming.

Non-royalty revenue totaled $125.2 million of which 93% was branded and 7% of OEM, compared to 90% and 10% respectively a year ago.

Branded revenue grew year-over-year in both last two quarters, at 20% clip.

Service revenue was 36.6 million in 2FQ17, down 2% from 37.2 million in the same quarter last year. The decrease was primarily driven by a decline in service contracts with tape automation systems offset by growth for scale-out storage solution and disk backup system.

Increase in royalties for LTO-6 and -7 is offsetting a decrease for former LTO generations. 

Revenue by business in $ million

Business 1FQ17 2FQ17 % in 2FQ17
Q/Q growth
Scale-out storage 30.8 46.7 35%  52%
Disk backup 21.5 18.7 14% -13%
Tape automation 42.6 45.2 34%  6%
Devices and media 12.8 14.6  11%  14%
Royalty 8.6 9.5 7%  11%
TOTAL 116.3 134.7 100%  16%

To read the earnings call transcript