Quantum Corp. reached a milestone this week on its quest to regain its listing on New York Stock Exchange. The file and tape storage vendor restated several years of improperly reported earnings, even as securities regulators complete a review of the company’s accounting practices.
Quantum also reported its first earnings since its financial reports were subpoenaed last year by the U.S. Securities and Exchange Commission (SEC). For the quarter that ended June 30, Quantum data storage revenue was $105.6 million, down 2% year over year. Services and royalties accounted for 38%, followed by tape storage (30%), high-performance storage (15%), device and media (12%) and backup products (5%).
Quantum’s guidance for the second current quarter estimates revenue between $99 million and $105 million. Following adjustments for interest, taxes, depreciation and amortization, annual Quantum data storage earnings are estimated between $50 million and $55 million.
Getting past the past
In his first public earnings call since taking over in 2018, Quantum CEO James Lerner said an internal probe by Quantum’s board found $180 million of earnings had been accounted for prematurely. Lerner said Quantum brought its SEC filings up to date, but a separate investigation by the SEC continues. The SEC must conclude its investigation before Quantum regains its NYSE listing.
The SEC probe stemmed from the discovery that Quantum’s former executive team had booked revenue — but did not report it – relating to multiyear service contracts with undisclosed customers. Quantum also this week said it would pay $8 million to settle lawsuits by shareholders that involved former Quantum CEO Jon Gacek and former CFO Fuad Ahmad.
Excluding the first and last quarters of the restatement period, Quantum CFO Mike Dodson said the average quarterly net revenue adjustment ranged from a decrease of $7 million to an increase of $5 million. He said cash balances were not affected and there were no significant write-offs of accounts receivable.
“Just to be clear, the revenue statement impacted the timing of revenue, not the quality or the accuracy of the revenue itself,” Dodson said.
Since assuming command, Lerner has streamlined Quantum data storage products to focus on higher-margin products for cloud services for video storage and storage software. Lerner said Quantum has trimmed about $70 million in annual operating costs, which included about 300 layoffs. Quantum fired nearly 75% of vice presidents and higher executives.
Lerner said Quantum will support its legacy storage gear, such as modern tape systems for the cloud. But the long-range goal, he said, is to derive more product revenue from higher-margin cloud, hyper-converged, software-defined video storage.