Quantum Reports Second Quarter Fiscal 2023 Results

Rhea-AI Summary

Quantum Corporation (NASDAQ: QMCO) reported second quarter fiscal 2023 revenue of $99.1 million, a 6% increase year-over-year and at the high end of guidance. The company's backlog reached a record $96.1 million, driven primarily by hyperscale customer orders. Despite a GAAP net loss of $11.9 million or ($0.13) per share, adjusted EBITDA improved to $4.1 million. Looking ahead, Quantum estimates revenues for the next quarter to exceed $103 million, with an anticipated adjusted net loss of ($1.5 million).

Positive

• Record backlog of $96.1 million mainly from hyperscale customers.
• Revenue guidance for Q3 2023 expected to exceed $103 million.
• Significant growth in active subscription customers, up 180% year-over-year.

Negative

• GAAP net loss increased to $11.9 million from $10.6 million in the prior quarter.
• Gross profit margin decreased to 28% from 35% in the prior quarter due to inventory reserve provision.

Revenue of $99.1 Million at High-End of Guidance Amid Improving Supply Chain; Guides to Continued Revenue Growth

SAN JOSE, Calif., Nov. 2, 2022 /PRNewswire/ -- Quantum Corporation (NASDAQ: QMCO) announced today financial results for its fiscal second quarter ended September 30, 2022.

Second Quarter Fiscal 2023 Financial Summary

• Revenue increased 6% year-over-year and 2% sequentially to $99.1 million, which was at the high-end of guidance
• Backlog at quarter end was a record $96.1 million, primarily reflecting future orders by hyperscale customers
• Active subscription customers grew to over 550, an increase of more than 180% year-over-year and 22% sequentially
• GAAP net loss was $11.9 million, or ($0.13) per share; adjusted non-GAAP net loss was $0.5 million, or ($0.01) per share
• Adjusted EBITDA improved to $4.1 million.

"Our supply chain continued to improve in the quarter, underscored by greater availability of materials at more standard pricing and lead times," said Jamie Lerner, Chairman and CEO of Quantum. "These business conditions contributed to revenue being at the high-end of guidance as well as sequential improvements in our overall operating performance for the quarter. Notably, our record backlog consists almost entirely of forward orders from our hyperscale customers and no new unfulfilled orders associated with supply chain constraints. We anticipate these overall favorable trends to extend into the next fiscal quarter, resulting in our expectation for revenue to exceed $100 million."

"Further, our continued execution and cost containment measures lowered our non-GAAP operating expenses to slightly below $35 million, contributing to increased operating leverage as we continue to scale our business."

Second Quarter Fiscal 2023 vs. Prior Quarter

Revenue for the second quarter fiscal 2023 was $99.1 million compared to $97.1 million in the prior quarter. Gross profit in the second quarter of fiscal 2023 was $27.8 million, or 28% of revenue, compared to $34.0 million, or 35% of revenue, in the first quarter of fiscal 2023. Second quarter GAAP gross profit included an extraordinary inventory reserve provision primarily caused by global supply chain disruptions since the start of the pandemic and the longer associated lead times that resulted in older generation products being displaced by next-generation solutions. Non-GAAP gross margin was 35% in the second quarter, which was comparable sequentially.

Total GAAP operating expenses in the second quarter of fiscal 2023 decreased to $39.0 million, or 39% of revenue, compared to $41.1 million, or 42% of revenue, in the prior quarter. Selling, general and administrative expenses were $27.5 million in the quarter, compared to $28.3 million in the prior quarter. Research and development expenses were $10.5 million in the second quarter of fiscal 2023, compared to $12.1 million in the prior quarter. Non-GAAP operating expenses in the second quarter of 2023 decreased to $34.8 million from $36.3 million in the prior quarter.

GAAP net loss in the second quarter of fiscal 2023 was $11.9 million, or ($0.13) per share, compared to a net loss of $10.6 million, or ($0.13) per share, in the first fiscal quarter 2023. Excluding stock compensation, restructuring charges and other non-recurring costs, non-GAAP adjusted loss in the second fiscal quarter of 2023 was $0.5 million, or ($0.01) per share, compared to adjusted net loss of $3.6 million, or ($0.04) per share, in the prior quarter.

Adjusted EBITDA in the second quarter of fiscal 2023 was $4.1 million, compared to $0.3 million in the prior quarter.

Balance Sheet and Liquidity 

• Cash and cash equivalents including restricted cash was $25.9 million as of September 30, 2022, compared to $26.8 million as of June 30, 2022.
• Outstanding term loan debt was $77.2 million as of September 30, 2022, compared to $78.4 million as of June 30, 2022. Outstanding borrowings on the Company's revolving credit facility were $21.5 million as of September 30, 2022, compared to $17.3 million as of June 30, 2022.
• Total interest expense in the second quarter 2023 was $2.7 million compared to $2.1 million in the prior quarter and $3.1 million during the same quarter a year ago.

Outlook

The Company expects the following guidance for the third fiscal quarter of 2023:

• Revenues of $103 million, plus or minus $3 million
• Non-GAAP adjusted net loss of ($1.5 million), plus or minus $1 million
• Non-GAAP adjusted net loss per share of ($0.01), plus or minus $0.01
• Adjusted EBITDA of approximately $3.5 million

Conference Call and Webcast

Management will host a live conference call today, November 2, 2022, at 5:00 p.m. ET (2:00 p.m. PT) to discuss these results. The conference call will be accessible by dialing 866-424-3436 (U.S. Toll-Free) or +1-201-689-8058 (International) and entering conference ID 13732851. This conference call will be broadcast live over the Internet with a slide presentation and can be accessed by all interested parties on the investor relations section of the Company's website at investors.quantum.com under the events and presentations tab.

A telephone replay of the conference call will be available approximately two hours after the conference call and will be available through November 9, 2022. To access the replay dial 1-877-660-6853 and enter the conference ID 13732851 at the prompt. International callers should dial +1-201-612-7415 and enter the same conference ID. Following the conclusion of the live call, a replay of the webcast will be available on the Company's website for at least 90 days.

About Quantum

Quantum technology, software, and services provide the solutions that today's organizations need to make video and other unstructured data smarter – so their data works for them and not the other way around. With over 40 years of innovation, Quantum's end-to-end platform is uniquely equipped to orchestrate, protect, and enrich data across its lifecycle, providing enhanced intelligence and actionable insights. Leading organizations in cloud services, entertainment, government, research, education, transportation, and enterprise IT trust Quantum to bring their data to life, because data makes life better, safer, and smarter. Quantum is listed on Nasdaq (QMCO). For more information visit www.quantum.com.

Quantum and the Quantum logo are registered trademarks of Quantum Corporation and its affiliates in the United States and/or other countries. All other trademarks are the property of their respective owners.

Forward-Looking Information

The information provided in this press release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting our business. Such forward-looking statements include, in particular, statements related to future projections of our financial results;  our expectations to continue our operational execution; our anticipation that overall favorable trends in our business, including in our supply chain, extend into our next fiscal quarter; statements about our backlog and the implication that this backlog will translate into future revenue; the trend in our underlying business remaining robust; and the Company's position for long-term sustainable growth and profitability.

These forward-looking statements may be identified by the use of terms and phrases such as "anticipates", "believes", "can", "could", "estimates", "expects", "forecasts", "intends", "may", "plans", "projects", "targets", "will", and similar expressions or variations of these terms and similar phrases. Additionally, statements concerning future matters and other statements regarding matters that are not historical are forward-looking statements. Investors are cautioned that these forward-looking statements relate to future events or our future performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, including without limitation, the following: risks related to the need to address the many challenges facing our business; the potential impact of the COVID-19 pandemic and macroeconomic and inflationary conditions on our business, including potential disruptions to our supply chain, employees, operations, sales and overall market conditions; the competitive pressures we face; risks associated with executing our strategy; the distribution of our products and the delivery of our services effectively; our ability to integrate the business, products, employees and other aspects of our recent acquisitions; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; estimates and assumptions related to the cost (including any possible disruption of our business) and the anticipated benefits of the transformation and restructuring plans; the outcome of any claims and disputes; and other risks that are described herein, including but not limited to the items discussed in "Risk Factors" in our filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Committee on June 8, 2022. The Company does not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law or regulation.

Investor Relations Contacts:
Shelton Group
Leanne K. Sievers | Brett L. Perry
P: 949-224-3874 | 214-272-0070
E: sheltonir@sheltongroup.com

QUANTUM CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts, unaudited)
	September 30, 2022		March 31, 2022
Assets
Current assets:
Cash and cash equivalents	$                            25,698		$                             5,210
Restricted cash	223		283
Accounts receivable, net of allowance for doubtful accounts of $195 and $422	61,309		69,354
Manufacturing inventories	23,671		33,546
Service parts inventories	25,458		24,254
Prepaid expenses	9,241		7,853
Other current assets	4,839		4,697
Total current assets	150,439		145,197
Property and equipment, net	15,973		12,853
Intangible assets, net	7,245		9,584
Goodwill	12,969		12,969
Right-of-use assets, net	10,579		11,107
Other long-term assets	12,477		9,925
Total assets	$                          209,682		$                          201,635
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$                            34,263		$                           34,220
Deferred revenue	70,184		86,517
Long-term debt, current portion	5,000		4,375
Accrued compensation	13,192		16,141
Other accrued liabilities	14,502		16,562
Total current liabilities	137,141		157,815
Deferred revenue	40,165		41,580
Revolving credit facility	21,500		17,735
Long-term debt, net of current portion	68,250		89,448
Operating lease liabilities	10,315		9,891
Other long-term liabilities	11,653		11,849
Total liabilities	289,024		328,318
Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 225,000 shares authorized; 92,158 and 60,433 shares issued and outstanding	922		605
Additional paid-in capital	716,800		645,038
Accumulated deficit	(793,067)		(770,903)
Accumulated other comprehensive loss	(3,997)		(1,423)
Total stockholders' deficit	(79,342)		(126,683)
Total liabilities and stockholders' deficit	$                          209,682		$                          201,635

 

QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share amounts, unaudited)
	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Product	$                62,967		$                54,655		$               123,178		$               106,786
Service and subscription	32,692		34,359		66,116		67,189
Royalty	3,478		4,166		6,918		8,303
Total revenue	99,137		93,180		196,212		182,278
Cost of revenue:
Product	56,561		41,124		104,482		79,864
Service and subscription	14,745		13,669		29,850		26,748
Total cost of revenue	71,306		54,793		134,332		106,612
Gross profit	27,831		38,387		61,880		75,666
Operating expenses:
Research and development	10,546		12,389		22,671		23,680
Sales and marketing	15,593		15,462		31,555		29,414
General and administrative	11,940		11,466		24,254		23,293
Restructuring charges	921		8		1,646		274
Total operating expenses	39,000		39,325		80,126		76,661
Loss from operations	(11,169)		(938)		(18,246)		(995)
Other income (expense), net	2,431		126		3,182		(71)
Interest expense	(2,745)		(3,070)		(4,836)		(6,956)
Loss on debt extinguishment	—		(4,960)		(1,392)		(4,960)
Net loss before income taxes	(11,483)		(8,842)		(21,292)		(12,982)
Income tax provision	461		411		872		424
Net loss	$               (11,944)		$                 (9,253)		$               (22,164)		$               (13,406)
Deemed dividend on warrants	—		—		(389)		—
Net loss attributable to common stockholders	$               (11,944)		$                 (9,253)		$               (22,553)		$               (13,406)
Net loss per share attributable to common stockholders	$                   (0.13)		$                   (0.16)		$                   (0.26)		$                   (0.23)
Weighted average shares - basic and diluted	91,550		58,567		87,617		57,852
Net loss	$               (11,944)		$                 (9,253)		$               (22,164)		$               (13,406)
Foreign currency translation adjustments, net	(1,298)		(506)		(2,574)		(239)
Total comprehensive loss	$               (13,242)		$                 (9,759)		$               (24,738)		$               (13,645)

 

QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)
	Six Months Ended September 30,
	2022		2021
Operating activities
Net loss	$                           (22,164)		$                           (13,406)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	5,133		3,967
Amortization of debt issuance costs	768		1,629
Loss on debt extinguishment	992		—
Provision for product and service inventories	9,946		2,418
Stock-based compensation	5,357		6,273
Paycheck Protection Program loan forgiveness	—		(10,000)
Non-cash loss on debt extinguishment	—		8,471
Other	(152)		41
Unrealized foreign exchange loss	(2,766)		(61)
Changes in assets and liabilities:
Accounts receivable, net	8,264		10,024
Manufacturing inventories	416		(5,199)
Service parts inventories	(1,971)		(1,818)
Prepaid expenses	(1,208)		(3,224)
Accounts payable	293		1,559
Accrued restructuring charges	115		(560)
Accrued compensation	(2,949)		(3,779)
Deferred revenue	(17,747)		(9,032)
Other current assets	(486)		(962)
Other non-current assets	(349)		(1,266)
Other current liabilities	769		(353)
Other non-current liabilities	(196)		16
Net cash used in operating activities	(17,935)		(15,262)
Investing activities
Purchases of property and equipment	(7,795)		(2,396)
Business acquisition payments	(2,000)		(5,000)
Net cash used in investing activities	(9,795)		(7,396)
Financing activities
Repayments of long-term debt and payment of amendment fees	(22,096)		(93,051)
Borrowings of credit facility	229,605		126,084
Repayments of credit facility and payment of amendment fees	(226,240)		(116,084)
Proceeds from issuance of common stock, net	66,723		806
Net cash provided by financing activities	47,992		12,716
Effect of exchange rate changes on cash, cash equivalents and restricted cash	166		12
Net change in cash, cash equivalents and restricted cash	20,428		(9,930)
Cash, cash equivalents, and restricted cash at beginning of period	5,493		33,137
Cash, cash equivalents, and restricted cash at end of period	$                             25,921		$                             23,207
Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents	$                            25,698		$                            22,757
Restricted cash, current	223		450
Cash and cash equivalents at the end of period	$                             25,921		$                             23,207
Supplemental disclosure of cash flow information
Cash paid for interest	$                               4,114		$                               5,198
Cash paid for income taxes, net	$                                 465		$                                 480
Non-cash transactions
Purchases of property and equipment included in accounts payable	$                                  548		$                                  309
Transfer of manufacturing inventory to services inventory	$                               1,905		$                                    —
Transfer of manufacturing inventory to property and equipment	$                                  279		$                                    76
Paid-in-kind interest	$                                  319		$                                    —
Deemed dividend on warrants	$                                  389		$                                    —

NON-U.S. GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, we have presented Adjusted EBITDA and Adjusted Net Income (Loss), non-U.S. GAAP financial measures defined below.

Adjusted EBITDA is a non-U.S. GAAP financial measure defined by us as net loss before interest expense, net, provision for income taxes, depreciation and amortization expense, stock-based compensation expense, restructuring charges, and other non-recurring expenses.

"GAAP net loss" as referred to in this press release represents "Net loss attributable to common stockholders". Adjusted Net Income (Loss) is a non-U.S. GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, and other non-recurring (income) expenses. The Company calculates Adjusted Net Income (Loss) per Basic and Diluted share using the Company's above-referenced definition of Adjusted Net Income (Loss).

We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to Net Income (Loss), the most directly comparable U.S. GAAP financial measure. We have presented Adjusted EBITDA because it is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business performance. For example, in the quarter ended September 30, 2022, we have excluded a large inventory reserve provision caused by global supply chain disruptions since the start of the pandemic and the longer associated lead times that resulted in older generation products being displaced by next-generation solutions. We do not believe an inventory adjustment of this magnitude is reasonably likely to reoccur in the foreseeable future and do not believe it is indicative of our ongoing operations; accordingly, we have excluded its impact from our non-GAAP results. We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Basic and Diluted Share serve as appropriate measures to be used in evaluating the performance of our business and help our investors better compare our operating performance over multiple periods. Accordingly, we believe that Adjusted EBITDA and Adjusted Net Income (Loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Our use of Adjusted EBITDA and Adjusted Net Income (Loss) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:

• Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Adjusted EBITDA does not reflect: (1) interest and tax payments that may represent a reduction in cash available to us; (2) capital expenditures, future requirements for capital expenditures or contractual commitments; (3) changes in, or cash requirements for, working capital needs; (4) the potentially dilutive impact of stock-based compensation expense; (5) potential future costs related to our long-term debt; (6) potential future restructuring expenses; (7) potential future costs related to business acquisitions; (8) gain (loss) on debt extinguishment, (9) and acquisition-related amortization of intangibles assets from business combinations, (10) deemed dividend related to warrants, or (11) manufacturing inventory provisions.
• Adjusted Net Income (Loss) does not reflect: (1) potential future restructuring activities; (2) the potentially dilutive impact of stock-based compensation expense; (3) potential future costs related to our long-term debt; (4) potential future costs related to business acquisitions; (5) gain (loss) on debt extinguishment,  (6) acquisition-related amortization of intangibles assets from business combinations, (7) deemed dividend related to warrants, or (8) manufacturing inventory provisions.

Other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income (Loss) or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) along with other U.S. GAAP-based financial performance measures, including various cash flow metrics and our U.S. GAAP financial results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Net Income (Loss) (dollars in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net loss attributable to common stockholders	$               (11,944)		$                 (9,253)		$               (22,553)		$               (13,406)
Interest expense, net	2,745		3,070		4,836		6,956
Provision for income taxes	461		411		871		424
Depreciation expense	1,372		1,688		2,794		3,031
Stock-based compensation expense	2,288		3,072		5,357		6,273
Restructuring charges	921		8		1,646		274
Loss on extinguishment of Senior Secured Term Loan	—		14,960		1,392		14,960
Gain on PPP loan forgiveness	—		(10,000)		—		(10,000)
Amortization of acquisition related intangible assets	1,175		471		2,339		936
Acquisition-related costs	65		811		192		950
Long-term debt related costs	108		45		274		252
Deemed dividend related to warrants	—		—		389		—
Manufacturing inventory provision	6,926		—		6,926		—
Adjusted EBITDA	$                  4,117		$                  5,283		$                  4,463		$                10,650
The following is a reconciliation of Adjusted Net Income to the most comparable U.S. GAAP financial measure, Net Income (Loss) (in thousands):
	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net loss attributable to common stockholders	$               (11,944)		$                 (9,253)		$               (22,553)		$               (13,406)
Stock-based compensation	2,288		3,072		5,357		6,273
Restructuring charges	921		8		1,646		274
Loss on extinguishment of Senior Secured Term Loan	—		14,960		1,392		14,960
Gain on PPP loan forgiveness	—		(10,000)		—		(10,000)
Amortization of acquisition related intangible assets	1,175		471		2,339		936
Acquisition-related costs	65		811		192		950
Long-term debt related costs	108		45		274		252
Deemed dividend related to warrants	—		—		389		—
Manufacturing inventory provision	6,926		—		6,926		—
Adjusted net income (loss)	$                    (461)		$                     114		$                 (4,038)		$                     239
Adjusted Net Income (Loss) per share:
Basic	$                   (0.01)		$                    0.00		$                   (0.05)		$                    0.00
Diluted	$                   (0.01)		$                    0.00		$                   (0.05)		$                    0.00
Weighted average shares outstanding:
Basic	91,550		50,129		87,617		57,852
Diluted	91,550		68,565		87,617		68,167

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FAQ

What are Quantum Corporation's Q2 2023 earnings results?

Quantum Corporation reported Q2 2023 revenue of $99.1 million, a 6% year-over-year increase, and a GAAP net loss of $11.9 million.

What is Quantum Corporation's revenue guidance for Q3 2023?

Quantum expects revenues for Q3 2023 to be around $103 million, plus or minus $3 million.

What was the gross profit margin in Quantum Corporation's latest earnings report?

In Q2 2023, Quantum's gross profit margin was 28%, down from 35% in Q1 2023.

How many active subscription customers does Quantum Corporation have?

Quantum has over 550 active subscription customers, reflecting a 180% increase year-over-year.

What is Quantum Corporation's adjusted EBITDA for Q2 2023?

Quantum reported an adjusted EBITDA of $4.1 million for Q2 2023.