Sign in

You're signed outSign in or to get full access.

QC

QUANTUM CORP /DE/ (QMCO)·Q1 2020 Earnings Summary

Executive Summary

  • Q1 FY2020 revenue was $105.6M, down 2% YoY, with gross margin holding at 43%; GAAP net loss improved to $(3.8)M and Adjusted Net Income rose to $4.4M, driven by cost reductions and mix shifts .
  • Guidance: Q2 FY2020 revenue $99–$105M, Adjusted Net Income $2–$4M (excluding ~$3M non-recurring), Adjusted EBITDA $10–$12M; full-year Adjusted EBITDA guided to $50–$55M, reflecting sustainable margin focus and opex discipline .
  • Strategic catalysts: completion of multi-year restatement and SEC filing catch-up; LTO-8 media supply resolution expected to lift royalty and tape demand; plan to re-list shares on a national exchange by end of 2019 .
  • Mix shift toward hyperscaler tape systems and services supported margin stability despite devices/media headwinds; secondary storage revenue +11% YoY on hyperscaler growth .
  • Leverage remains elevated (net long-term debt $146.1M; interest expense $6.3M in Q1), but covenant compliance strong and revolver undrawn; liquidity of $10.8M cash plus $5.0M restricted cash .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability: Adjusted EBITDA rose 82% YoY to $13.1M; Adjusted Net Income doubled to $4.4M via opex cuts and margin focus (“empty calories” avoided) .
  • Hyperscaler momentum: secondary storage systems revenue +11% YoY; CEO: “tape has been invited to the cloud… most every major hyperscaler is in some form of purchasing or deployment” .
  • Services margin expansion: service GM improved to 62% (+9 pts YoY) aided by 20% spend reduction and lower service headcount .
  • Restatement and filings: company completed restatement ( ~$33M professional fees, ~$57k/day historically) and is now current with SEC filings; management expects improved focus and governance .

What Went Wrong

  • Devices/media weakness: devices and media revenue fell 25% YoY due to LTO supply constraints and mix toward older generations, pressuring product margin (-4 pts YoY) .
  • Interest burden and leverage: interest expense increased to $6.3M (+60% YoY); long-term debt net $146.1M at ~12%+ rates, constraining free cash flow conversion .
  • Non-recurring costs: ~$8.0M restatement-related costs persisted in Q1, limiting GAAP profitability despite core improvements .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ3 FY2019 (Dec 31, 2018)Q4 FY2019 (Mar 31, 2019)Q1 FY2020 (Jun 30, 2019)
Revenue ($M)$102.0 $103.3 $105.6
Gross Margin %42% 41% 43%
Total Operating Expenses ($M)$39.6 $43.2 $43.1
Interest Expense ($M)$6.24 $6.29 $6.31
Net Loss ($M)$(4.29) $(9.41) $(3.81)

Current Quarter vs Prior-Year and Adjusted Measures

MetricQ1 FY2019 (Jun 30, 2018)Q1 FY2020 (Jun 30, 2019)
Revenue ($M)$107.5 $105.6
Gross Margin %43% 43%
GAAP Net Loss ($M)$(7.49) $(3.81)
EPS (GAAP, $)$(0.21) $(0.11)
Adjusted Net Income ($M)$2.29 $4.45
Adjusted EBITDA ($M)$7.21 $13.10

Segment/Product Mix (Q1 FY2020 vs Q1 FY2019)

Segment ($M)Q1 FY2019Q1 FY2020
Primary Storage Systems$15.95 $15.55
Secondary Storage Systems$33.04 $36.79
Devices and Media$17.87 $13.46
Service$33.56 $33.38
Royalty$7.08 $6.45

KPIs and Balance Sheet Highlights

KPIQ1 FY2019Q1 FY2020
Service Gross Margin %53% 62%
Adjusted EBITDA ($M)$7.21 $13.10
Adjusted Net Income ($M)$2.29 $4.45
Cash & Equivalents ($M)$10.23 $10.81
Restricted Cash ($M)$6.22 (total current+LT) $6.04 (total current+LT)
Long-Term Debt, net ($M)$145.6 (as of Mar 31, 2019) $146.1 (as of Jun 30, 2019)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q2 FY2020—$99–$105 New
Adjusted Net Income ($M)Q2 FY2020—$2–$4 (excl. ~$3 non-recurring) New
Adjusted EBITDA ($M)Q2 FY2020—$10–$12 New
Adjusted EBITDA ($M)FY2020—$50–$55 New
Revenue vs PY ($M)FY2020 remaining 3 qtrs—+$15–$30 (+6%–10%) vs PY periods New

Note: Prior formal guidance not disclosed in filings; company re-initiated guidance post-restatement completion .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 FY2020)Trend
Cloud/hyperscaler tape adoptionGM expansion and margin focus; cloud tape architectures developing “Tape invited to the cloud… most hyperscalers in purchasing/deployment”; secondary storage +11% YoY Strengthening demand; multi-year cycle
LTO-8 supply/royaltiesRoyalty declines due to legal disputes; supply halted in US Dispute resolved; royalty upside expected as supply normalizes Improving
Cost structure/SG&AFY2019 sales & marketing -32% YoY; workforce reduction programs Continued opex discipline; service spend down 20%; headcount reductions maintained Sustained efficiency
New products (F-, VS-, R-Series)Launched in FY2019, early days Production deployments; margin potential TBD (too early for quantification) Early traction; margin discovery ahead
Tariffs/macro (Mexico)Tariff risks could erode cost savings in supply chain moves No near-term impact disclosed; monitoring manufacturing shift to Mexico Risk monitored
Regulatory/legalSEC investigation ongoing; class/derivative settlements covered by insurance SEC process continues; company cooperating Ongoing

Management Commentary

  • “Quantum is a leaner, more efficient company poised for growth… eliminated over $70 million in annualized expenses… capitalize on a revitalized tape market and the expanding opportunity to store and manage video and image data” (CEO Jamie Lerner) .
  • “Our transformation… two core tenets: 80% of the world’s data by 2025 will be video or video-like; Quantum leads in high-speed processing and long-term cold storage of unstructured data” (CEO) .
  • “Tape has been invited to the cloud… most every major hyperscaler… purchasing or deployment… only economic way to store data at the exabyte scale” (CEO) .
  • “Adjusted EBITDA of $13.1M reflects a run rate supporting $50–$55M full-year… revenue baseline $105.6M with upside from new products and royalties” (CFO Mike Dodson) .
  • “Restatement costs totaled approximately $33M; ~$57,000 per day since SEC subpoena… nonrecurring charges largely stop today” (CFO) .
  • “Next step will be to re-list shares on a national exchange… expect to complete by end of 2019” (CEO) .

Q&A Highlights

  • Growth drivers: 6%–10% FY revenue uplift expected from LTO-8 availability (royalties and tape systems), expanding video workloads, and hyperscaler cold storage use cases .
  • New product margins: Too early to quantify; margin appreciation expected as competitive dynamics and ramp clarify (F-, VS-, R-Series) .
  • Free cash flow conversion: ~$24–$25M annual interest (about half cash); capex 2%–3% of revenue; revolver available for working capital if needed .
  • Relisting mechanics: NASDAQ relisting feasible “within days” once stock at $4; warrants outstanding (~11M) dilute over time on exercise (exercise price $1–$2, 10-year life) .
  • Royalty upside: Guidance assumed steady run-rate; LTO-8 resolution presents potential upside to royalty revenue .

Estimates Context

  • Street consensus revenue and EPS for Q1 FY2020 were unavailable due to S&P Global access limitations at time of analysis; we attempted retrieval but hit daily request limits. As a result, beat/miss vs consensus cannot be determined [functions.GetEstimates error].

Key Takeaways for Investors

  • Margin-focused reset is working: stable 43% GM with notably lower opex and higher Adjusted EBITDA; expect EBITDA leverage to continue if hyperscaler tape and services mix persists .
  • Mix shift to hyperscalers is a secular catalyst: multi-year hyperscaler cold storage deployments and LTO-8 normalization should support secondary storage and royalties, offsetting devices/media declines .
  • Watch cash/interest burden: High-cost debt (12%+) and ~$6.3M quarterly interest are headwinds; improving EBITDA and undrawn revolver provide runway, but deleveraging path is key to equity upside .
  • Non-recurring costs rolling off: restatement-related expenses (~$8.0M in Q1) largely behind; this should lift GAAP profitability versus adjusted metrics in coming quarters .
  • Guidance sets conservative baseline: Q2 revenue $99–$105M with EBITDA $10–$12M and FY EBITDA $50–$55M; upside tied to royalties and product ramps (F-, VS-, R-Series) .
  • Stock catalysts: execution on relisting, tangible hyperscaler wins, and royalty rebound; any debt refinancing at lower cost would be material .
  • Risks: tariff exposure on Mexico manufacturing, regulatory overhang (SEC), devices/media demand softness; monitor supply chain and legal developments .