Quantum reported subdued results for its second FY 2025 quarter but said operational improvements, a product portfolio refresh, and go-to-market enhancements would return the company to growth.
Revenues in the quarter ended September 30 were $70.5 million vs $75.7 million a year ago and down 6.9 percent, with a GAAP loss of $13.5 million compared to a $3.3 million loss a year ago. The revenue fall was largely due to lower primary storage issues, meaning all-flash systems predominantly, and non-recurring project spend. That includes restructuring, getting back on SEC file, and new product introductions.
Quantum chairman and CEO Jamie Lerner said: “Sales bookings and customer win rates for the quarter were consistent with our overall business expectations as we continued to transform the company. However, operational headwinds with the supply chain continued this quarter, resulted in exiting the quarter with higher than anticipated backlog.”
This was approximately $14 million, above the typical $8 million to $10 million run rate.
Lerner said in the earnings call: “We’ve been rotating our portfolio more to high-speed all-flash offers. And as you’ve been watching, high-speed all-flash systems, particularly those from Supermicro, have long lead times. So we’ve been finding that the … SSDs and high-speed servers that use SSDs just have longer lead times. And so we used to have about two to three week lead time on that type of server. Now it can be up to ten weeks.”
Lerner said the Quantum ship was turning around: “Evidence of our transformation can be seen in the progress of gross margin improving 490 basis points sequentially to above 41 percent, as well as non-GAAP operating expenses being reduced by more than 8 percent year-over-year. These actions contributed to our achievement of breakeven adjusted EBITDA for the quarter.”
Financial summary for Q2 FY 2024:
- Gross margin 41.5 percent, up 490 basis points
- ARR: $146 million vs $145 million last quarter
- Subscription ARR: $19.6 million, up 28 percent year-over-year and 5 percent sequentially
- Cash, cash equivalents, and restricted cash at quarter end: $17 million vs $25.8 million at Sep 30, 2023.
Cash, cash equivalents, and restricted cash were $25.9 million last quarter vs $26.2 million the year before that. Interest expense increased to $6.1 million from $3.9 million a year ago, and total debt rose to $133 million from the year-ago $109.4 million.
The chart shows that there was a rising revenue trend starting in FY 2021’s first quarter, which ended ten quarters later in Q3 FY 2023. Then revenues plunged for three quarters in a row and have now stabilized in the $70 million to $71 million area for three quarters. The missing Q3 FY 2024 revenue number will probably be in the $75 million to $72 million area.
Quantum delayed filing its fiscal 2024 SEC report due to an accounting problem with its standalone pricing methods for sales in the period. Last quarter it provided Q1 FY 2024 results and this quarter the Q2 results have been revealed. We still await Q3 FY 2024 results and expect these in three months time when the firm reports its Q3 FY 2025 results.
The chart above shows that Quantum’s new normal for quarterly revenues is around $71 million and it has been cutting costs to try to regain profitability, saving almost $40 million since FY 2023.
CFO Ken Gianella said in the earnings call: “Over the last several years, the company has had significant cash spend on onetime consulting, a new ERP, updated infrastructure, new product introductions, and restructuring expenses. We are pleased to announce that we are substantially complete with these efforts.”
Lerner said restructuring and operational improvements are “improving our free cash flow, which is expected to be positive in the back half of fiscal year 2025 and driving fiscal 2026 to be cash flow positive for the first time in five years.”
A chart below showing Quantum’s revenues sequentially since FY 2016 shows a five-year downward trend, which Lerner then reversed for nine quarters, until that turnaround was itself reversed when the public cloud hyperscalers stopped buying Quantum’s tape libraries in FY 2023.
However, the tape library business is showing signs of growth, with Lerner saying there was “a multimillion-dollar purchase order in-house from one of the world’s leading cloud platforms” for Quantum’s Scalar i7 RAPTOR library. Gianella added: “We’re super excited about the i7 coming out and being a category killer to get those win rates back up.”
The company thinks growth prospects are picking up, with Lerner saying: “Our business strategy remains focused on high-priority growth initiatives, particularly around Myriad and ActiveScale as we are seeing demonstrated proof points of our ability to significantly expand within our target verticals. In Q2 2025, we achieved significant pipeline growth for Myriad and ActiveScale.”
The DXi T-series 1RU all-flash target backup appliances did well in the quarter, with Lerner saying: “We’ve had multiple strategic wins against the competition based on the DXi T-Series fast recovery times in the face of a cyberattack due to its leading data reduction and recovery rates.
“While our efforts are still short of the intended results, we are seeing positive proof points through our new product introductions, including Myriad traction, combined with driving a more operationally efficient business.”
Outlook
Gianella said: “While we are exceeding our expectations on product mix, gross margin, and cost improvements, we need to continue to focus on improving our overall revenue execution. We see improvements in second-half of FY 2025 continuing into FY 2026.”
Next quarter’s revenue outlook is $72.0 million +/- $2.0 million. This will be a sequential rise at the midpoint but, as we don’t yet know the year-ago Q3 revenue number, we don’t know if this will be a revenue rise or fall compared to a year ago. Gianella said that the outlook “reflects management’s view of ongoing operational headwinds including transition to a new manufacturing partner during the quarter … We’re consolidating our manufacturing operations into one new location.”
Lerner said Quantum is “evolving our sales model to focus dedicated sales resources on select product lines” as a way of growing revenue. He added: “We have completed the heavy lift on the operational model. We have fully refreshed our product portfolio and we are now actively engaged in re-energizing our go-to-market approach. All of these combined create positive momentum in the coming quarters and beyond.”
Its full-year outlook is $280 million +/- $5 million, a 10 percent fall on fiscal 2024’s $311.6 million. This implies Quantum’s fourth FY 2025 quarter will bring in around $66 million, a 7.7 percent fall annually.
Delisting
Having avoided a previous Nasdaq delisting threat, because its shares traded below a minimum $1 dollar value, by implementing a reverse stock split, Nasdaq told Quantum on October 4 that it again faced delisting. This time it was because its minimum market value, based on its publicly traded shares, was below the required $15 million for 30 consecutive days. It has 180 days to regain compliance by its traded share market value being above $15 million for ten consecutive days.
