Quantum has finally announced its delayed full fiscal 2024 profit and loss accounts, and they don’t make for pretty reading for employees, investors or customers.
Revenues for FY 2024, ended March 31, fell 26 percent year-over-year to $311.6 million, its lowest annual revenue for more than 30 years,. It reported a net loss of $41.3 million compareds to a net loss of $16.4 million in the prior year.
The top and bottom lines for FY 2022 and 2023 have been restated after an accounting investigation concerning standalone pricing of product components used in product bundles. FY 2022 revenues of $372.8 million were restated as $383.4 million and the previous net loss of $32.3 million has become a profit of $38.4 million. Revenues in FY 2023, which were $412.8 million, are now $422.1 million with the previously reported loss of $37.9 million now restated as an $18.4 million profit.
However, the good news ends there, given the revenue plunge and mounting losses in the last full financial year.
Chairman and CEO Jamie Lerner said: ”Our full year 2024 results reflect a significant reduction of revenue from our largest hyperscale customer, which we had expected would scale down over time but instead stopped placing orders at the end of fiscal Q1 2024.” We understand that the hyperscaler stopped buying tape libraries. Tape media and product royalty revenues also declined.
CFO Ken Gianella said on the earnings call: “The hyperscaler wanted a custom solution that didn’t align with our business model. They sought a contract manufacturing model with 3-5 percent margins and required us to contribute our intellectual property, which we declined.”
This was Quantum’s largest customer by revenue and the effect of the buying pause was dramatic – $100 million + went south. Product sales of $174.9 million in FY 2024 were down 36.4 percent year-on-year. Quantum’s revenues for the second, third, and fourth FY 2024 quarters were $219.8 million, 30.1 percent lower than the equivalent nine months in FY 2023.
Lerner said: “While extremely disappointed with the impact from significantly lower revenue year-over-year, we have been proactively accelerating our business transformation. During this time, our team continues to focus on improving the Company’s capital structure as well as optimizing our overall business operations.”
The accounting investigation ”found no evidence of intentional misconduct.”
Financial summary for FY24
- ARR: $145 million
- Subscription ARR: $17.8 million, up 33 percent year-over-year
- Cash, cash equivalents & restricted cash at quarter end: $25.9 million vs $26.2 million a year ago
Gianella’s presentation stated that there were “aggressive cost reduction actions taken through FY 2024” and they’re continuing in the current financial year. He said there are more than “$33 million of annualized operational efficiency and self help cost actions through FY 2025.”
Lerner said Quantum was entering turnkey and manufacturing partnerships, and pursuing paths to monetize non-strategic assets. It sold its service inventory assets for $15 million in April.
He mentioned senior leadership and sales team changes in his results presentation. CRO John Hurley resigned and was replaced by VP EMEA Henk Jan Spanjaard in April. SVP and chief customer officer Rich Valentine left in March.
Lerner said: “Looking ahead, we remain committed to getting back to profitability as well as stabilizing and improving the performance of our legacy Automation and StorNext solutions. Quantum remains dedicated to use cases for Media & Entertainment, Life Sciences, Industrial Technology, and Federal while improving our position to address the prevailing industry trends around Artificial Intelligence across the multiple verticals we serve.”
The Nasdaq delisting threat (due to stock price woes) was put on hold after a hearing on May 14 in which the panel “granted the Company’s request for relief that the Company meet the minimum bid price requirement by September 16, 2024, and that its Quarterly Reports on Form 10-Q for the fiscal quarters ending September 30, 2023 and December 31, 2023 be filed by July 1, 2024.”
The delay to the quarterly reports is due to ongoing audit work.
Quantum’s product focus is on “rationalized platforms and portfolio.” It will look for resellers with reach in AI and life sciences.
The sales focus from now on is on the ActiveScale and Myriad products “serving use cases that drive higher recurring revenue, with improved margins, in faster growing market segments.” Lerner reckons: “Execution of our strategy to advance our operating model, combined with improving our capital structure, will drive step-change improvements to Quantum in fiscal 2025.”
He added: “ActiveScale is currently the fastest-growing product, and Myriad is expected to follow closely. We see high demand and significant attach rates between Myriad and ActiveScale, leading to higher ASPs and margins.”
The outlook for the first fiscal 2025 quarter is $72 million +/- $2 million revenues, a 22.7 percent fall at the midpoint. The full FY 2025 revenue outlook is guided at $310 million +/- $10 million, essentially flat at the midpoint.
The hyperscaler headwind, Lerner said, “will be felt in Q1, but we expect a slight uptick in Q2. The decline will be offset by growth in primary storage, Myriad, and ActiveScale, along with stabilizing legacy business.”
Quantum expects “product margins to improve as we focus on subscription-based and service revenue. The shift to subscription models impacts product revenue but enhances overall profitability.”
