Stumbling StorNext ruins Quantum's solace

Storage biz's seasonality dip exacerbated by sales fall

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Quantum almost failed to meet its revenue expectations in its final fiscal 2017 quarter, as a StorNext revenue dip added to a seasonal decline.

That StorNext dip was ascribed to fewer large deals than the same quarter a year earlier.

Quantum’s fourth fiscal 2017 quarter showed annual growth, but only just, as the firm slipped back into loss-making.

Fourth quarter revenues were $120.8m, a smidge up on the year-ago $120m and well down – though with some expected seasonality – on the third quarter’s $133.5m. There was a net loss of $1.9m, which compares poorly to a $5m profit in the prior quarter but was much better than the thumping $52.9m loss a year ago.

Quantum_Revs_to_Q4fy2017

Full year revenues of $505.3m were 6.1 per cent higher than a year ago. Annual growth for Quantum is a rare event, so it’s a notable year.

Quantum_A_revs_to_fy2017

Quantum annual revenue history

CEO and president Jon Gacek, no doubt relieved that the fourth quarter revenues were $0.8m over the low end of his guidance range, said, “Our solid fourth-quarter results closed out a year of strong overall performance and execution. We generated year-over-year growth and significantly improved profitability in a year of ongoing industry disruption.”

Scale-out storage revenues of $31.0m were down from the $33.1m reported a year ago, and lower than two of the intervening quarters, ending a 22-quarter run of year-over-year growth in scale-out storage revenues. We’ve charted this and the other segment revenues:

Quantum_Sector_Splits_Q4_fy2017

We can see tape revenues dived as well, and that scale-out storage has declined for two quarters in a row – worrying. That is supposed to be Quantum’s growth engine.

Gacek says Quantum is financially well-situated: “We secured a large financing package that addresses our November, 2017 convertible debt and provides a stable, more flexible capital structure over the next five years.” He mentioned that two new (independent) board directors had arrived – Adalio Sanchez and Marc Rothman – and expects to add a third new director to Quantum’s re-constituted board.

The context here is that VIEX, an activist investor, has forced a boardroom shakeup on Quantum, due to VIEX’ perception that Quantum has under-performed against its potential.

The board members are:

  • Paul Auvil III, chairman
  • Gregg Powers
  • Clifford Press
  • Raghavendra Rau (VIEX nominee)
  • David Roberson
  • Marc Rothman
  • Adalio Sanchez

Previous board members Robert Andersen, Louis DiNardo, Dale Fuller, David Krall and CEO Jon Gacek have left the board.

The firm has also carried out an 8:1 reverse stock split to avoid NYSE delisting due to a too-low stock price. This is another aspect of VIEX’ assertion that Quantum has not delivered shareholder value.

The CEO referred to this background in his prepared remarks: “As soon as the new board is fully in place, we will go through a comprehensive strategic review – taking a detailed look at the market and its trends, our product and solution capabilities, our sales model, R&D roadmaps, expenses and areas of investment, and capital structure – and then make decisions on how to take Quantum to the next level and drive increased shareholder value.”

“When that process is complete, we will provide guidance for fiscal 2018 and update our strategic direction for the year and beyond. In the meantime, our current expectation is that we will grow total revenue year-over-year in the fiscal first quarter, driven by growth in scale-out tiered storage revenue.”

Presumably the laggard large deals will come in. ®

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