Quantum corporation's Fiscal first quarter 2014 results reflect execution on strategic growth and profit initiatives

First quarter highlights:

• Delivered total revenue of $128.1 million
• Achieved non-GAAP operating income above high end of guidance range
• Grew scale-out storage revenue 41% year-over-year to more than $18 million, a new quarterly record
• Generated $6.3 million in cash from operations, ending quarter with nearly
  $110 million in cash

London., 24 July 2014 – Quantum Corp. (NYSE: QTM) today reported results for the fiscal first quarter 2015 ended 30 June 2014.

Fiscal first quarter 2015 results

(Unless otherwise noted, all comparisons are relative to the fiscal first quarter 2014.)

• Total revenue was $128.1 million, above the midpoint of Quantum’s May guidance range of $125 million to $130 million. Excluding a one-time $15 million royalty payment reported in the prior year period, revenue was down 4 percent.* This decline was primarily due to lower tape automation sales, with OEM and branded automation revenues down 24 percent and
  9 percent, respectively.
• Total branded revenue grew to $102.3 million.
• Scale-out storage revenue grew 41 percent to $18.1 million, its highest quarterly level to date, reflecting continued momentum in sales of StorNext® appliances.
• GAAP operating loss was $1.5 million. Excluding the one-time royalty payment in the prior year period, GAAP operating loss was reduced by $7.8 million.
• GAAP net loss was $4.3 million, or $0.02 per diluted share. GAAP net loss improved
  $7.4 million, excluding the one-time royalty payment.
• Non-GAAP operating income was $5.2 million. Excluding the one-time royalty payment, this improved from a $1.1 million non-GAAP operating loss.
• Non-GAAP net income was $2.4 million, or $0.01 per diluted share. This was an improvement from a $3.6 million non-GAAP net loss, excluding the one-time royalty payment.
• Cash generated from operations was $6.3 million, and Quantum ended the quarter with $107.2 million in total cash and cash equivalents.

“Our strong first quarter results reflect the adjustments in our business model and other strategic actions we’ve taken over the past five quarters to drive shareholder value by generating increased profit and cash flow while positioning the company to deliver overall revenue growth,” said Jon Gacek, president and CEO of Quantum. “These results also demonstrate the market traction we’re seeing from our continued focus on technology and product innovation. We had strong revenue momentum at quarter end, particularly related to our scale-out storage solutions and DXi®appliances, and this momentum has carried over into the current quarter.

“To cite just one example, late last month we closed a scale-out storage deal for more than
$3 million at a leading consumer electronics company with one of the most recognisable brands in the world. The customer purchased a full suite of Quantum StorNext and Lattus™ products that will be deployed for managing video workflows.”

Fiscal second quarter 2015 outlook

For the fiscal second quarter, Quantum expects:

• Revenue of approximately $130 million to $135 million.
• GAAP and non-GAAP gross margin of 44 to 45 percent.
• GAAP operating expenses of $56 million to $58 million and non-GAAP operating expenses of $53 million to $55 million.
• Interest expense of $2.5 million and taxes of $500,000.

Fiscal first quarter 2015 business highlights

• Quantum continued to build on its scale-out storage leadership in media and entertainment, with significant customer wins that included StorNext deals over $200,000 at a major studio and top international broadcaster, as well as a large follow-on Lattus sale to a multinational TV shopping network. At the same time, the company saw significant interest in its new StorNext Pro Solutions, high-performance storage systems specifically configured to meet the requirements of post-production facilities and smaller broadcasters for refreshing aging Xsan environments, meeting new 4K workflow demands and supporting end-to-end content production and archive.
• Quantum further expanded its growing customer base in sports video, highlighted by a four-year deal with one of the world’s leading sports broadcasters to provide content and workflow management of its new production library and video archive. The company also announced a new joint solution with Telestream, providing ingest, instant review and storage of video from multi-camera, live sporting events. This offering enables sports leagues and teams to improve the viewing experience, as well as repurpose and remonetise their content – all at a fraction of the cost of large, live sports broadcast solutions.
• Beyond its growing footprint in media and entertainment, Quantum saw continued momentum in addressing customer workflow needs in other areas, as demonstrated by the $3 million scale-out storage deal referenced above. In addition, the company began partnering with FireEye on a joint solution announced this week that enables customers to more easily investigate and combat the proliferation of cyber attacks. StorNext provides the high-performance, scale-out storage repository that allows users to keep more network traffic data for forensic analysis and incident response.
• In advance of this week’s announcement regarding a new and simplified DXi-Series family powered by StorNext 5, Quantum began shipping its new DXi6900 enterprise backup and deduplication appliance on a limited availability basis. Designed to meet the increasing range of customers’ data protection workflow needs, it provides industry-leading scalability and faster backups, restores and replication while easing the strain on network bandwidth and reducing overall operating expenses. In addition to preparing for the general availability launch of DXi6900 in the current quarter, the company also continued to see strong traction with its new DXi4700, with nearly 60 percent of those purchasing a DXi4700 being new Quantum customers.

Conference call and audio webcast notification

Quantum will hold a conference call today, 23 July 2014, at 2:00 p.m. PDT to discuss its fiscal first quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: 719-457-2627, conference ID: 7891315. Quantum will provide a live audio webcast of the conference call beginning today, 23 July 2014, at 2:00 p.m. PDT. Site for the webcast and related information: www.quantum.com/investors.

Following completion of the call, a recorded replay of the webcast will be available at www.quantum.com/investors. For those without access to the Internet, a replay of the call will be available beginning at 5:00 p.m. PDT on 23 July 2014 through 28 July 2014 at 5:00 p.m. PDT. To listen to the telephone replay, call 888-203-1112 (U.S. & Canada) or 719-457-0820 (International), replay passcode: 7891315.

*   For reference, the financial statements at the end of this press release include a table reconciling the comparisons of the quarter’s results to the fiscal first quarter of 2014, excluding the one-time royalty payment.

Contact details

Joanna Clark

quantum@rlyl.com

44 (0)20 7403 8878

www.rlyl.com 

About Quantum

Quantum is a leading expert in scale-out storage, archive and data protection, providing solutions for capturing, sharing and preserving digital assets over the entire data lifecycle. From small businesses to major enterprises, more than 100,000 customers have trusted Quantum to address their most demanding data workflow challenges. With Quantum, customers can Be Certain™ they have the end-to-end storage foundation to maximise the value of their data by making it accessible whenever and wherever needed, retaining it indefinitely and reducing total cost and complexity. See how at www.quantum.com/customerstories.

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Quantum, the Quantum logo, Be Certain, DXi, StorNext and Lattus are either registered trademarks or 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.

“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995: This press release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, without limitation, our statements regarding revenue recognition in the current quarter, all of our statements under the “Fiscal Second Quarter 2015 Outlook” section and the general availability launch of DXi6900 in the current quarter are forward-looking statements within the meaning of the Safe Harbor. All forward-looking statements in this press release are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantum’s actual results to differ materially from those implied by the forward-looking statement. More detailed information about these risk factors, and additional risk factors, are set forth in Quantum’s periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Risk Factors” in Quantum’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 6, 2014. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP financial measures

Quantum believes that the non-GAAP financial measures disclosed above provide useful and supplemental information to investors regarding its quarterly financial performance. Quantum management uses these non-GAAP financial measures internally to understand, manage and evaluate the company’s business results and make operating decisions. For instance, Quantum management often makes decisions regarding staffing, future management priorities and how the company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, compensation of our employees is based in part on the performance of our business based on non-GAAP operating income.

The non-GAAP financial measures used in this press release exclude the impact of amortisation of intangibles, share-based compensation expense, restructuring charges, outsourcing transition costs, proxy contest and related costs and Crossroads patent litigation costs for the following reasons:

Amortisation of intangible assets

This includes acquired intangibles such as purchased technology and customer relationships in connection with prior acquisitions. These expenses are not factored into management’s evaluation of potential acquisitions or Quantum’s performance after completion of the acquisitions because they are not related to Quantum’s core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Quantum against the performance of other companies without the variability caused by purchase accounting.

Share-based compensation expense

Share-based compensation expense relates primarily to equity awards such as stock options and restricted stock units. Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that
are often beyond Quantum’s control. As a result, management excludes this item from Quantum’s internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Quantum’s core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Restructuring charges

Restructuring charges primarily relate to expenses associated with changes to Quantum’s operating structure. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Quantum has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges from Quantum’s non-GAAP financial measures, as it enhances the ability of investors to compare Quantum’s period-over-period operating results from continuing operations.

Outsourcing transition costs

Outsourcing transition costs are expenses attributable to transitioning our manufacturing to an outsourced model. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities, and management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum’s period-over-period operating results from continuing operations.

Proxy contest and related costs

Proxy contest and related costs are expenses incurred to respond to activities and inquiries of Starboard Value LP, including their proxy solicitation. The Company has not incurred such expenses in historical periods and these costs are not considered core operating activities. These costs are excluded from internal operating forecasts and models. Management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum’s period-over-period operating results from continuing operations.

Crossroads Patent Litigation Costs

Crossroads patent litigation costs are expenses incurred to defend ourselves and perform other activities related to a patent infringement lawsuit filed by Crossroads Systems, Inc. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities, and management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantum’s period-over-period operating results from continuing operations.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material impact on the company’s reported financial results and, therefore, should not be relied upon as the sole financial measures to evaluate the company. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

Note 1

In the fourth quarter of fiscal year 2014, Quantum identified errors related to the accounting for rent expense and certain allowances for estimated future price adjustments to customers which impacted prior reporting periods. As a result, the company’s financial statements for the first quarter of fiscal 2014 have been revised. Revenue for the first quarter of fiscal 2014 has been reduced $0.1 million and general and administrative expense has been reduced by less than $0.1 million. For additional information, refer to our Form 10-K filed with the Securities and Exchange Commission on June 6, 2014.

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