Quantum Completes Restatement and Demonstrates Significant Traction on Business Transformation
SAN JOSE, Calif., Aug. 6, 2019 /PRNewswire/ -- Quantum Corporation (OTC: QMCO) today announced financial results for its first fiscal quarter ended June 30, 2019. In addition, the Company announced that it has completed the previously announced financial restatement process and provided results for each of the three fiscal years ended March 31, 2017, March 31, 2018 and March 31, 2019, which include the financial data and discussion for all interim periods for these fiscal years.
"Today, Quantum is a leaner, more efficient company poised for growth based on a series of transformative steps we have taken," commented Jamie Lerner, Chairman and CEO, Quantum. "With the leadership of our new shareholder-engaged Board of Directors and executive team, we've eliminated over $70 million in annualized expenses, completed the restatement process, and are ready to capitalize on a revitalized and healthy tape market as well as the expanding opportunity to store and manage video and image data across a wide range of industries."
First Fiscal Quarter of 2020 (Period ended June 30, 2019) vs. Prior-Year First Quarter
Revenue was $105.6 million for the first fiscal quarter in 2020, compared to $107.5 million in the year-ago quarter.
Inclusive of $8.3 million in non-recurring charges, net loss was $3.8 million in the first fiscal quarter of 2020, compared to a net loss of $7.5 million including $9.8 million in non-recurring charges in the year ago quarter.
Excluding $8.3 million in non-recurring charges, Adjusted Net Income was $4.4 million, or $0.11 per diluted share in the first fiscal quarter of 2020, compared to an Adjusted Net Income of $2.3 million, or $0.06 per diluted share, in the year-ago quarter after excluding $9.8 million in non-recurring charges.
Gross profit in the first fiscal quarter of 2020 was $45.8 million or 43% gross margin, compared to $46.3 million or 43% in the year-ago quarter. Gross margins remained flat year over year despite lower royalty revenue in the first fiscal quarter of 2020 that was negatively impacted by LTO media supply issues, which were resolved in early August as described below.
Total operating expenses in the quarter were $43.1 million or 41% of sales, compared to $50.7 million, or 47% in the year-ago quarter. SG&A expenses declined 11% to $34.4 million compared to $38.5 million in the year-ago quarter. R&D expenses were $8.4 million, up 1% compared to $8.3 million in the year-ago quarter.
The Company incurred $6.3 million in interest expense, compared to $3.9 million in the year-ago quarter.
Adjusted EBITDA increased 82% to $13.1 million in the first fiscal quarter of 2020, compared to $7.2 million in the year-ago quarter.
Balance Sheet and Liquidity as of June 30, 2019
-- Cash and cash equivalents of $10.8 million as of June 30, 2019, compared
to $10.8 million as of March 31, 2019. These amounts exclude $5.0
million in restricted cash required under the Company's Credit
Agreements.
-- Outstanding long-term debt as of June 30, 2019 was $146.1 million net of
$16.4 million in unamortized debt issuance costs and $1.7 million in
current portion of long-term debt. This compares to $145.6 million of
outstanding debt as of March 31, 2019, net of $17.3 million in
unamortized debt issuance costs and $1.7 million in current portion of
long-term debt. Quantum also has a $45 million revolving credit facility
which was undrawn at both June 30, 2019 and March 31, 2019.
-- Total interest expense for fiscal Q1 2020 was $6.3 million.
Financial and Operational Highlights
-- Gross margins improved by three percentage points from 39% in fiscal
2018 to 42% in fiscal 2019 primarily due to lower headcount in service
and improved gross margins on products.
-- Recurring, high-margin Services revenue decreased slightly from $136.5
million in fiscal 2018 to $134.7 million in fiscal 2019, or 1%. The
related gross profit and gross margin increased from $77.7 million and
57% in fiscal 2018 to $79.5 million and 59% in fiscal 2019.
-- Adjusted EBITDA of $32.5 million for fiscal 2019 compared to Adjusted
EBITDA of negative $4.5 million in fiscal 2018, a year-over-year
improvement of approximately $37 million.
A reconciliation between GAAP and non-GAAP information is contained in the financial information below. Additional information about Adjusted EBITDA and Adjusted Net Income information appears at the end of this release.
Management Commentary
The transformation of Quantum includes the following:
-- New Team
-- Reconstituted Board of Directors to include significant
shareholders; our comprehensive transformation stems from a series
of shareholder campaigns directed at corporate accountability and
operational improvement
-- Since January 2018, replaced almost three-fourths of prior
management
-- Recruited executives including CEO, CFO, CRO, CAO, CIO, VP Supply
Chain, General Counsel, Corporate Controller and Director of
Internal Audit
-- Adopted new business priorities, standards and governance practices
focused on innovation and profitable sales
-- New corporate strategy focused on leading the video storage market,
informed by:
-- The projection that 80% of the world's data by 2025 will be video or
video-like data
-- Quantum's customers find us to be a leader in both the high-speed
processing of video and long-term archiving of video and
unstructured data
-- New gross margin focus
-- Reset sales commission plan that pays on gross margin achievement
-- Curtailed reselling low margin third party products aimed at
boosting revenue at the expense of gross margins
-- Reduced annualized spending by $10 million in cost of sales expenses
representing primarily headcount reductions
-- New and Enhanced Products
-- Significant physical and software enhancements to tape library
products aimed at the hyperscaler and cloud market
-- Quantum F-Series, a new line of NVMe flash storage arrays
-- Quantum VS-Series, a hyperconverged platform for video surveillance
and management of buildings systems
-- Quantum R-Series, ruggedized, removable storage systems for
in-vehicle data capture, mobile surveillance and military
applications
-- Quantum Cloud-Based Analytics, enables monitoring and configuration
through the cloud, connecting all our products to the Quantum
Distributed Cloud
-- New Cost Structure
-- Eliminated $60 million in annualized operating expenses that
included a reduction of approximately 30% of the workforce
-- Vacated nine facilities and offices world wide
"With the restatement behind us, we are focused on growing our business profitably and creating sustainable value for our shareholders," Mr. Lerner said. "Our key next step will be to re-list our shares on a national exchange, a goal we expect to complete by the end of 2019. With the accelerating growth of video and hi-resolution image data across all industries, a healthy tape industry that is expected to return to growth, and a right-sized expense structure, we are well-positioned to deliver positive future results for our shareholders, customers, suppliers and employees."
Outlook
For the second fiscal quarter, management expects revenues in the range of $99 million to $105 million. Excluding approximately $3 million in non-recurring charges, the Company expects resulting Adjusted Net Income to be in the range of $2 million to $4 million. Adjusted EBITDA is expected to be in the range of $10 million to $12 million.
"We believe we have a sustainable platform from which to grow, with exciting new products targeting the future of video storage," added Mr. Lerner. "Historically, our fiscal second quarter tends to have some seasonal impact from holiday schedules and generally slower business during the summer months. Our fiscal third quarter, which ends in December, traditionally is our strongest of the year."
For the remaining three quarters of fiscal 2020, Quantum expects total revenues to increase by $15 million to $30 million or 6% to 10% compared to same period in the prior year, with revenues from new products increasing as the year progresses. Due to the Company's tight cost controls and focus on improving gross margins, Quantum expects Adjusted EBITDA to increase to a range of $50 million to $55 million or by 55% to 70% for the full fiscal year compared to the prior fiscal year.
Financial Restatement Summary
In September 2018 the Company announced the substantial completion of an internal investigation conducted by a Special Committee of the Board of Directors. This investigation concluded that the previous management, who have all been terminated or are no longer part of the Company, had engaged in certain business and sales practices that may have undermined its historical accounting treatment for certain sales transactions with several distributors and at least one end customer. These practices led to the Company prematurely recognizing revenue. The Company's finance department, overseen by the Board's Audit Committee, completed its review of revenue for fiscal years 2015 through 2018 and identified approximately $180 million of revenue that was prematurely recorded. The revenue restatement re-casted the timing of revenue, not the quality or accuracy of the revenue itself. Excluding the first and last quarters of the restatement period, the average quarterly net revenue adjustment ranged from a decrease of approximately $7 million to an increase of approximately $5 million. These restatement adjustments did not affect historical or current cash balances, and there were no significant accounts receivable write-offs over the restatement periods. All of the inventory that is remaining in distributors' inventory and yet to be sold through to an end customer has been paid for by the distributor. Quantum expects to recognize the revenue from this remaining distributor inventory in the future when the products are sold to an end-customer. The total cost expected to be incurred for professional fees related to the internal investigation, financial restatement and related activities is approximately $33 million.
In addition, the Company is cooperating with an on-going investigation by the SEC related to the restatement. Quantum has produced a substantial volume of documents to the SEC and continues to respond to information requests from the SEC staff.
Conference call
Management will host a conference call to discuss these results today, August 6(th), at 5:00 p.m. ET (2:00 p.m. PT). To access the call, please dial 844-369-8770 (toll free) or 862-298-0840 (international). The conference call will be simultaneously webcasted on the investor relations section of the Company's website at http://investors.quantum.com under the events and presentations tab. All participants should call or access the website approximately 5 minutes before the conference begins.
The webcast will be available for replay for at least 90 days. A telephonic replay of this conference call will also be available by dialing 919-882-2331 and using the replay ID 52893 until 11:59 p.m. ET on Tuesday, August 13, 2019.
About Quantum
Quantum technology and services help customers capture, create and share digital content - and preserve and protect it for decades. With solutions built for every stage of the data lifecycle, Quantum's platforms provide the fastest performance for high-resolution video, images, and industrial IoT. That's why the world's leading entertainment companies, sports franchises, researchers, government agencies, enterprises, and cloud providers are making the world happier, safer, and smarter on Quantum. See how at www.quantum.com.
Quantum and the Quantum logo 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: This press release contains "forward-looking" statements. Quantum advises caution in reliance on forward-looking statements. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Quantum Corporation and its consolidated subsidiaries ("Quantum") may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, Adjusted EBITDA, Adjusted Net Income, cash flows, or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges and any resulting cost savings, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; the resolution of pending investigations; the expected timing of relisting our securities on a national exchange; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing Quantum's businesses; the competitive pressures faced by Quantum's businesses; risks associated with executing Quantum's strategy; the distribution of Quantum's products and the delivery of Quantum's services effectively; 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 Quantum's 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 Quantum's filings with the Securities and Exchange Commission, including its Form 10-K and Form 10-Q filed with the Securities and Exchange Committee on August 6, 2019. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Public Relations Contact:
Bob Wientzen
Quantum Corporation
720-201-8125
bob.wientzen@quantum.com
Investor Contact:
Rob Fink
FNK IR
646-809-4048
rob@fnkir.com
QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
June 30, 2019
March 31, 2019
---
Assets
Current assets
Cash and cash equivalents $10,806 $10,790
Accounts receivable, net of
allowance for doubtful accounts
of $291 and $2,598 as of June 30,
2019 and March 31, 2019,
respectively 67,329 86,828
Manufacturing inventories 24,436 18,440
Service part inventories 19,163 19,070
Other current assets 18,305 18,095
Restricted cash 1,042 1,065
Total current assets 141,081 154,288
Property and equipment, net 8,003 8,437
Operating lease right-of-use
assets 11,928 -
Restricted cash, long-term 5,000 5,000
Other long-term assets 6,092 5,112
Total assets $172,104 $172,871
---
Liabilities and stockholders' equity (deficit)
Liabilities
Current liabilities
Accounts payable $39,986 $37,395
Deferred revenue, current 81,206 94,692
Accrued restructuring charges,
current 2,405 2,876
Long-term debt current portion 1,650 1,650
Accrued compensation 13,279 17,117
Other accrued liabilities 29,495 29,025
Total current liabilities 168,200 182,755
Deferred revenue, long-term 38,771 36,733
Long-term debt, net of current
portion 146,122 145,621
Operating lease liabilities 9,928 -
Other long-term liabilities 11,599 11,827
Total Liabilities 374,620 376,936
Stockholders' equity (deficit)
Preferred stock, 20,000 shares
authorized; no shares issued or
outstanding at June 30, 2019 and
March 31, 2019 -
Common stock, $0.01 par value;
1,000,000,000 shares authorized;
36,046 and 36,040 shares issued
and outstanding at June 30, 2019
and March 31, 2019, respectively 360 360
Additional paid in capital 500,211 499,224
Accumulated deficit (701,761) (702,236)
Accumulated other comprehensive
income (1,329) (1,413)
Total stockholders' deficit (202,516) (204,065)
Total liabilities and
stockholders' deficit $172,104 $172,871
===
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
Three Months ended June 30,
Revenue 2019 2018
---
Product Revenue $65,796 $66,869
Service Revenue 33,381 33,564
Royalty revenue 6,454 7,079
---
Total Revenue $105,631 $107,512
Product cost of revenue 47,200 45,438
Service cost of revenue 12,593 15,735
---
Total cost of revenue $59,793 $61,173
---
Gross profit $45,838 $46,339
---
Operating expenses:
Research and development 8,383 8,261
Sales and marketing 15,856 19,125
General and administrative 18,588 19,391
Restructuring charges 263 3,907
---
Total operating expenses $43,090 $50,684
---
Income (loss) from operations 2,748 (4,345)
Other expenses and losses, net:
Interest expense, net 6,306 3,935
Other (income) expense, net (89) (220)
---
Net loss before income taxes $(3,469) $(8,060)
Income tax expense (benefit) 338 (575)
---
Net loss $(3,807) $(7,485)
===
Basic and diluted loss per share $(.11) $(.21)
Weighted-average shares outstanding-basic and diluted 36,045 35,444
Net loss $(3,807) $(7,485)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments 84 880
---
Total comprehensive loss $(3,723) $(6,605)
===
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months
Three Months
Ended
Ended
June 30, 2019
June 30, 2018
---
Cash flows from operating activities:
Net loss $(3,807) $(7,485)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 1,021 1,131
Amortization of debt issuance costs 1,004 171
Provision for product and service inventories 1,572 3,871
Stock-based compensation expense 987 427
Non-cash interest expense 5 632
Bad debt expense 214 (895)
Deferred income taxes, net (49) (376)
Unrealized foreign exchange (gain) loss 130 (238)
Change in fair value of liability classified warrants - (108)
Changes in assets and liabilities:
Accounts receivable 19,360 15,017
Manufacturing inventories (7,141) 3,170
Service parts inventories (639) (860)
Accounts payable 2,593 (11,048)
Accrued restructuring charges (471) (706)
Accrued compensation (3,838) (4,278)
Deferred revenue (7,648) (4,433)
Other assets and liabilities (2,390) 8,562
Net cash provided by operating activities 903 2,554
Cash flows from investing activities:
Purchases of property and equipment (444) (695)
Cash distributions from investments - 322
---
Net cash used in investing activities (444) (373)
Cash flows from financing activities:
Borrowings of long-term debt and subordinated convertible debt,
net of debt issuance costs 0 77,806
Repayments on long-term debt (413) (80,674)
Payment of tax withholding due upon vesting of restricted stock - (6)
---
Net cash used in financing activities (413) (2,874)
Effect of exchange rate changes on cash, cash equivalents and
restricted cash (53) (67)
Net decrease in cash, cash equivalents and restricted cash (7) (760)
Cash, cash equivalents and restricted cash at the beginning of
period 16,855 17,207
Cash, cash equivalents and restricted cash at the end of period $16,848 $16,447
===
Supplemental disclosure of cash flow information:
Purchases of property and equipment included in accounts payable $155 $2
Transfer of inventory to property and equipment 118 72
Cash Paid For:
Interest $5,129 $4,399
Income taxes, net of refunds 126 (58)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets
that sum to the total of the same such amounts shown in the statement of cash flows:
Cash and cash equivalents $10,806 $10,227
Restricted cash 1,042 1,220
Restricted cash, long-term 5,000 5,000
Total cash, cash equivalents and restricted cash at the end of
period $16,848 $16,447
===
QUANTUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31,
2019 2018
---
ASSETS
Current Assets
Cash and cash equivalents $10,790 $10,865
Accounts receivable, net of
allowance for doubtful accounts
of $2,548 and $9,209 as of March
31, 2019 and 2018, respectively 86,828 96,350
Manufacturing inventories 18,440 34,428
Service part inventories 19,070 21,889
Other current assets 18,095 13,565
Restricted cash 1,065 1,342
---
Total current assets 154,288 178,439
---
Property and equipment, net 8,471 9,836
Restricted cash, long-term 5,000 5,000
Other long-term assets 5,112 9,364
---
Total Assets $172,871 $202,639
---
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current liabilities
Accounts payable $37,395 $62,646
Deferred revenue, current 90,407 96,866
Accrued restructuring charges,
current 2,876 3,166
Long-term debt, current portion 1,650 7,500
Accrued compensation 17,117 19,460
Other accrued liabilities 29,025 17,638
---
Total current liabilities 178,470 207,276
---
Deferred revenue, long-term 36,733 38,587
Accrued restructuring charges,
long-term - 2,653
Long-term debt, net of current
portion 145,621 115,986
Other long-term liabilities 11,827 11,604
---
Total liabilities 372,651 376,106
---
Commitment and contingencies (Note 11)
Stockholders' Deficit
Preferred stock 20,000 shares
authorized; no shares issued or
outstanding as of March 31, 2019
and 2018 -
Common stock, $0.01 par value per
share; 1,000,000 shares
authorized; 36,040 and 35,443
shares issued and outstanding at
March 31, 2019 and March 31,
2018, respectively 360 354
Additional paid in Capital 499,224 481,610
Accumulated deficit (697,954) (655,157)
Accumulated other comprehensive
loss (1,410) (274)
---
Total stockholders' deficit (199,780) (173,467)
---
Total Liabilities and
Stockholders' Deficit $172,871 $202,639
===
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
Years Ended
March 31,
2019 2018 2017
(As Restated)
---
Revenue
Product revenue $244,654 $268,582 $308,318
Service revenue 134,696 136,523 145,938
Royalty revenue 23,330 32,579 38,798
---
Total revenue 402,680 437,684 493,054
---
Costs and expenses
Product cost of revenue 179,846 206,111 226,660
Service cost of revenue 55,220 58,789 61,122
---
Total cost of revenue 235,066 264,900 287,782
---
Gross profit 167,614 172,784 205,272
---
Operating expense
Research and development 32,113 38,562 44,379
Sales and marketing 69,400 102,242 100,527
General and administrative 65,277 52,128 51,590
Restructuring charges 5,570 8,474 2,095
---
Total operating expenses 172,360 201,406 198,591
---
Income (loss) from operations (4,746) (28,622) 6,681
Other (income) expense, net:
Interest expense, net 21,095 11,670 7,993
Loss on debt extinguishment 17,458 6,934 41
Other (income) expense, net (2,878) (767) (601)
---
Net loss before income taxes (40,421) (46,459) (752)
Income tax expense (benefit) 2,376 (3,113) 1,656
---
Net loss $(42,797) $(43,346) $(2,408)
Loss per share - basic and diluted $(1.20) $(1.25) $(0.07)
Weighted-average common shares outstanding - basic and
diluted 35,551 34,687 33,742
===
Net loss $(42,797) $(43,346) $(2,408)
Change in foreign currency translation adjustments (1,136) 1,402 (770)
---
Total comprehensive loss $(43,933) $(41,944) $(3,178)
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
2019 2018 2017
---
(as restated)
Cash flows from operating activities:
Net loss $(42,797) $(43,346) $(2,408)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,266 4,970 5,635
Amortization of debt issuance costs 2,825 1,537 1,373
Product and service parts lower of cost or market
adjustment 8,851 8,146 7,609
Tax benefit from settlement and Tax Reform Act (3,952) -
Share-based compensation expense 3,409 5,394 6,698
Non-cash interest expense 1,670 49
Non-cash loss on debt extinguishment 17,851 6,962
Non-cash restructuring charges 598 -
Bad debt expense 315 295 24
Deferred income taxes, net 2,356 69 497
Loss on disposal of property and equipment 268 129 11
Unrealized foreign exchange (gain) loss (224) 1,437 (650)
Change in fair value of liability classified
warrants (143) (210)
(Gain) loss on investment (2,729) 118
Changes in assets and liabilities:
Accounts receivable 8,054 6,510 (370)
Manufacturing inventories 13,054 (2,613) 3,827
Service parts inventories (3,506) (6,760) (3,404)
Accounts payable (25,356) 21,647 (5,284)
Accrued restructuring charges (2,943) (463) (1,644)
Accrued compensation (2,342) (4,330) 1,784
Deferred revenue (8,367) 4,228 (1,686)
Other assets and liabilities 8,629 (5,447) (3,456)
---
Net cash provided by (used in) operating
activities (16,859) (5,032) 8,556
---
Cash flows from investing activities:
Purchases of property and equipment (2,708) (2,584) (2,217)
Proceeds from sale of assets 51 10 736
Cash distributions from investments 2,892 278 48
---
Net cash provided by (used in) investing
activities 235 (2,296) (1,433)
---
Cash flows from financing activities:
Borrowings of long-term debt and subordinated
convertible debt, net of debt issuance costs 507,707 367,755 104,914
Repayments long-term of debt (491,143) (316,053) (113,082)
Repayment of convertible subordinated debt (62,827) -
Payment of tax withholding due upon vesting of
restricted stock (354) (1,822) (737)
Proceeds from issuance of common stock, net 1,715 1,019
Net cash provided by (used in) financing
activities 16,210 (11,232) (7,886)
---
Effect of exchange rate changes on cash, cash
equivalents and restricted cash 62 (145) 16
---
Net decrease in cash, cash equivalents and
restricted cash (352) (18,705) (746)
Cash, cash equivalents and restricted cash at the
beginning of period 17,207 35,912 36,658
---
Cash, cash equivalents and restricted cash at the
end of period $16,855 $17,207 $35,912
Supplemental disclosure of cash flow information:
Purchases of property and equipment included in
accounts payable $105 $173 $279
Transfer of inventory to property and equipment 408 1,036 1,928
Cash Paid For:
Interest $17,677 $10,244 $5,966
Income taxes, net of refunds 68 1,455 677
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, cost related to the financial restatement and related activities described in the Explanatory Paragraph and Footnote 2 - "Restatement" in our most recently filed Annual Report on Form 10-K and other non-recurring expenses.
Adjusted Net Income (Loss) is a non-U.S. GAAP financial measure defined by us as net loss before, restructuring charges, cost related to the financial restatement and related activities described in the Explanatory Paragraph and Footnote 2 - "Restatement" in our most recently filed Annual Report on Form 10-K and other non-recurring 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).
The Company considers non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Such expenses include certain strategic and financial restructuring expenses.
We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to net 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. The Company believes 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 its business and help its investors better compare the Company's 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; (5) potential
ongoing costs related to the financial restatement and related
activities; or (6) potential future strategic and financial
restructuring expenses;
-- Adjusted Net Income (Loss) does not reflect: (1) potential future
restructuring activities; (2) potential (3) potential ongoing costs
related to the financial restatement and related activities; or (4)
potential future strategic and financial restructuring expenses; and
-- other companies, including companies in our industry, may calculate
Adjusted EBITDA, Adjusted Net Income 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, loss, and our U.S. GAAP financial results. The following is a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to net loss, the most directly comparable financial measure calculated in accordance with U.S. GAAP, for each of the periods indicated:
RECONCILIATION OF U.S. GAAP TO NON-GAAP
Adjusted EBITDA three months ended June 30,
(dollars in thousands) 2019 2018
Net Loss $(3,807) $(7,485)
Interest expense, net 6,306 3,935
Provision for income taxes 338 (575)
Depreciation and amortization expense 1,021 1,130
Stock-based compensation expense 987 427
Restructuring charges 263 3,907
Cost related to financial restatement and
related activities 7,990 5,122
Other non-recurring expenses 749
Adjusted EBITDA $13,098 $7,210
Adjusted Net Income For the three months ended June 30,
(dollars in thousands, except per share
amounts) 2019 2018
Net Loss $(3,807) $(7,485)
Restructuring charges 263 3,907
Cost related to financial restatement and
related activities 7,990 5,122
Other non-recurring expenses 749
Adjusted Net Income $4,446 $2,293
Adjusted EBITDA three months ended June 30,
(dollars in thousands) 2019 2018
Adjusted Income per share:
Basic $0.12 $0.06
Diluted $0.11 $0.06
Weighted average shares outstanding:
Basic 36,045 35,444
Diluted 40,973 36,638
Adjusted EBITDA For the years ended March 31,
(dollars in thousands)
2019 2018 2017
(As Restated)
---
Net loss $(42,797) $(43,345) $(2,408)
Interest expense, net 21,095 11,670 7,993
Income tax (benefit) expense 2,376 (3,113) 1,656
Depreciation and amortization expense 4,266 4,970 5,635
Stock based compensation expense 3,409 5,394 6,698
Restructuring charges 5,570 8,474 2,095
Loss on extinguishment of debt 17,458 6,934 41
Cost related to financial restatement and
related activities 19,664 1,709
Non-recurring other 1,500 2,848
Adjusted EBITDA $32,541 $(4,460) $21,710
Adjusted Net Income (Loss) For the years ended March 31,
(dollars in thousands except per share
amounts)
2019 2018 2017
(As Restated)
---
Net loss $(42,797) $(34,345) $(2,408)
Restructuring charges 5,570 8,474 2,095
Loss on extinguishment of debt 17,458 6,934 41
Cost related to financial restatement and
related activities 19,664 1,359
Non-recurring other 1,500 2,848
Adjusted net income (loss) $1,395 $(23,381) $(272)
Adjusted net income (loss) per share:
Basic $0.08 $(0.66) $(0.01)
Diluted $0.07 $(0.66) $(0.01)
Weighted average shares outstanding:
Basic 35,551 34,687 33,742
Diluted 40,515 34,687 33,742
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SOURCE Quantum Corp.
