MDC Partners Inc. Reports Results For The Three And Nine Months Ended September 30, 2019

MDC Partners Inc. Reports Results For The Three And Nine Months Ended September 30, 2019

Company Demonstrates Prudent Financial Management as it Executes on Strategic Plan
NEW YORK , Nov. 5,
THIRD QUARTER & YTD HIGHLIGHTS:
Revenue of $342.9 million in the third quarter versus $375.8 million in the prior period, a decline of 8.8% and $1.03 billion YTD versus $1.08 billion in the prior year period, a decline of 4.5%. Organic revenue declined 7.5% in the third quarter and 3.7% YTD. Net loss attributable to MDC Partners common shareholders was $5.1 million in the third quarter of 2019 versus $18.2 million a year ago. Net loss attributable to MDC Partners common shareholders was $6.5 million in the nine months ended September 30, 2019 versus $48.3 million a year ago. Net loss attributable to MDC Partners common shareholders for the last twelve months (LTM) of $90.5 million (inclusive of a $57 million goodwill impairment and a $49 million income tax valuation allowance in the fourth quarter of 2018) as of September 30, 2019 versus $103.7 million as of June 30, 2019 . Adjusted EBITDA of $49.2 million versus $59.8 million a year ago, a decrease of 17.8%. Adjusted EBITDA Margin of 14.3%, compared with 15.9% in the prior year quarter. Adjusted EBITDA of $117.1 million versus $110.6 million a year ago, an increase of 5.9%. Adjusted EBITDA Margin of 11.3%, compared with 10.2% in the prior year quarter. Covenant EBITDA (LTM) of $178.9 million versus $187.9 million for the second quarter of 2019, a decline of 4.8%. (Refer to Schedule 7) Net New Business wins totaled a positive $30.5 million in the third quarter. (NASDAQ: MDCA ) – MDC Partners Inc. (“MDC Partners” or the “Company”) today announced financial results for the three and nine months ended September 30, 2019 .
“We are seeing the results of prudent financial management while we cycle through revenue softness in select areas of the portfolio and actively execute against our strategic plan,” said Mark Penn , Chairman and CEO of MDC Partners. “We’ve delivered year-to-date growth in adjusted EBITDA, up $6.5 million , and margin up 110 basis points. Net new business also remained strong this quarter at $30 million and we continued this momentum into the fourth quarter. We delivered over $21 million in cash flow from operations and lowered our revolver balance to $8 million . As we continue to move decisively on our plan, we have confidence in our ability to return to revenue growth and continue to deliver improving profit margins.”
Frank Lanuto , Chief Financial Officer, added, “Execution of cost-savings initiatives and ongoing disciplined management of expenses helped to offset softer revenues during the period. Based on our performance in the quarter, we reiterate our 2019 Covenant EBITDA guidance but have revised our organic revenue guidance lower to reflect YTD topline softness in select areas.”
Third Quarter and Year-to-Date 2019 Financial Results
Revenue for the third quarter of 2019 was $342.9 million versus $375.8 million for the third quarter of 2018, a decline of 8.8%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 0.6%, the impact of non-GAAP acquisitions (dispositions), net was negative 0.6%, and organic revenue declined 7.5%. Organic revenue was favorably impacted by 101 basis points from increased billable pass-through costs incurred on clients’ behalf from certain of our partner firms acting as principal.
Net New Business wins in the third quarter of 2019 totaled $30.5 million .
Net loss attributable to MDC Partners common shareholders for the third quarter of 2019 was $5.1 million versus a net loss of $18.2 million for the third quarter of 2018. This improvement was primarily due to a decline in expenses principally driven by a reduction in staff costs, and a lower impairment charge and a foreign exchange gain in the third quarter of 2019 versus a loss in the prior year third quarter, partially offset by a decline in revenues. Diluted loss per share attributable to MDC Partners common shareholders for the third quarter of 2019 was $0.07 versus diluted loss per share of $0.32 for the third quarter of 2018.
Adjusted EBITDA for the third quarter of 2019 was $49.2 million versus $59.8 million for the third quarter of 2018, a decrease of 17.8%. The decline was primarily driven by lower revenue, partially offset by a reduction in staff costs. This led to a 160 basis point decline in Adjusted EBITDA margin in the third quarter of 2019 to 14.3% from 15.9% in the third quarter of 2018.
Net loss attributable to MDC Partners common shareholders for the last twelve months (LTM) was $90.5 million as of September 30, 2019 versus a $103.7 million loss as of June 30, 2019 .
Covenant EBITDA for the last twelve months (LTM) was $178.9 million at September 30, 2019 versus $187.9 million at June 30, 2019 , a decrease of 4.8%. The change was primarily driven by the decline in Adjusted EBITDA.
Revenue for the first nine months of 2019 was $1.03 billion versus $1.08 billion for the first nine months of 2018, a decrease of 4.5%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 1.1%, the impact of non-GAAP acquisitions (dispositions), net was positive 0.3%, and organic revenue decline was 3.7%. Organic revenue was favorably impacted by 179 basis points from increased billable pass-through costs incurred on clients’ behalf from certain of our partner firms acting as principal.
Net New Business wins for the first nine months of 2019 totaled $56.4 million , including a $5 million reduction for our Q2 2019 Net New Business.
Net loss attributable to MDC Partners common shareholders for the first nine months of 2019 was $6.5 million , an improvement versus a net loss of $48.3 million for the first nine months of 2018. This change was principally due to a decline in expenses primarily driven by a reduction in staff and administrative costs, a lower impairment charge and a foreign exchange gain for the first nine months of 2019 versus a loss for the first nine months of 2018, partially offset by a decline in revenues. Diluted loss per share attributable to MDC Partners common shareholders for the nine months of 2019 was $0.10 versus a diluted loss per share of $0.85 for the first nine months of 2018.
Adjusted EBITDA for the first nine months of 2019 was $117.1 million versus $110.6 million for the first nine months of 2018, an increase of 5.9%. The improvement was primarily driven by lower staff and administrative costs at Partner agencies and at corporate, partially offset by a decline in revenues. This led to a 110 basis point improvement in Adjusted EBITDA margin in the first nine months of 2019 to 11.3% from 10.2% in the first nine months of 2018.
Financial Outlook
2019 financial guidance is updated as follows:
2019 Outlook Commentary *
Organic Revenue Growth
We expect an approximate 3 to 5% decline in organic revenue.
Foreign Exchange Impact, net
Assuming prevailing currency rates, the net impact of foreign exchange is expected to decrease revenue by approximately 1%.
Impact of Non-GAAP Acquisitions (Dispositions), net
Our current expectations are that the impact of acquisitions, net of disposition activity, will decrease revenue by approximately 90 basis points.
Covenant EBITDA and Adjustments
The Company expects to complete fiscal year 2019 with approximately $175 million to $185 million of Covenant EBITDA. The Company has applied certain pro forma and other adjustments, as expressly provided under the credit facility to derive its 2019E Covenant EBITDA forecast.
* The Company has excluded a quantitative reconciliation with respect to the Company’s 2019 guidance under the “unreasonable efforts” exception in Item 10(e)(1)(i)(B) of Regulation S-K See “Non-GAAP Financial Measures” below for additional information
Conference Call
Management will host a conference call on Tuesday, November 5, 2019 , at 4:30 p.m. (ET) to discuss its results. The conference call will be accessible by dialing 1-412-902-4266 or toll free 1-888-346-6216. An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.
A recording of the conference call will be available one hour after the call until 12:00 a.m. (ET) , November 12, 2019 , by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10136141), or by visiting our website at www.mdc-partners.com .
About MDC Partners Inc.
MDC Partners is one of the most influential marketing and communications networks in the world. As “The Place Where Great Talent Lives,” MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world’s most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. For more information about MDC Partners and its partner firms, visit our website at www.mdc-partners.com and follow us on Twitter at http://www.twitter.com/mdcpartners .
Non-GAAP Financial Measures
In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission defines as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company’s results. Such non-GAAP financial measures include the following:
(1) Organic Revenue: “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.
(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.
(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP measure that represents operating profit plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(4) Covenant EBITDA: Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. We believe that the presentation of Covenant EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. In addition, the presentation of Covenant EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Agreement.
Included in this earnings release are tables reconciling MDC Partners’ reported results to arrive at certain of these non-GAAP financial measures. We are unable to reconcile our projected 2019 Organic Revenue Growth to the corresponding GAAP measure because we are unable to predict the 2019 impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates and because we are unable to predict the occurrence or impact of any acquisitions, dispositions, or other potential changes. We are unable to reconcile our projected 2019 Covenant EBITDA to the corresponding GAAP measure because the amount and timing of many future charges that impact these measures (such as amortization of future acquired intangible assets, foreign exchange transaction gains or losses, impairment charges, provision or benefit for income taxes, and certain assumptions used in the calculation of deferred acquisition consideration) are variable, uncertain, or out of our control and therefore cannot be reasonably predicted without unreasonable effort, if at all. As a result, we are unable to provide reconciliations of these measures. In addition, we believe such reconciliations could imply a degree of precision that might be confusing or misleading to investors. For the same reasons, we are unable to address the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on future GAAP financial results.
This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation the information under the heading “Financial Outlook” and statements about the Company’s beliefs and expectations, earnings guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as “estimates”, “expects”, “contemplates”, “will”, “anticipates”, “projects”, “plans”, “intends”, “believes”, “forecasts”, “may”, “should”, and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
risks associated with severe effects of international, national and regional economic conditions; the Company’s ability to attract new clients and retain existing clients; the spending patterns and financial success of the Company’s clients; the Company’s ability to retain and attract key employees; the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration; the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and foreign currency fluctuations Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission under the caption “Risk Factors” and in the Company’s other SEC filings.
SCHEDULE 1
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(US$ in 000s, Except per Share Amounts)
Three Months Ended September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Revenue:
Services
$
342,907
$
375,830
$
1,033,828
$
1,082,541
Operating Expenses:
Cost of services sold
222,448
238,690
700,351
735,110
Office and general expenses
79,726
102,380
234,120
270,137
Depreciation and amortization
9,368
11,134
28,869
35,212
Goodwill and other asset impairment
1,944
21,008
1,944
23,325
313,486
373,212
965,284
1,063,784
Operating income
29,421
2,618
68,544
18,757
Other Income (Expenses):
Interest expense and finance charges, net
(16,110)
(17,063)
(49,284)
(50,005)
Foreign exchange gain (loss)
(3,973)
3,275
4,401
(9,934)
Other, net
(431)
189
(4,559)
1,222
(20,514)
(13,599)
(49,442)
(58,717)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
8,907
(10,981)
19,102
(39,960)
Income tax expense (benefit)
3,457
2,986
6,292
(3,367)
Income (loss) before equity in earnings of non-consolidated affiliates
5,450
(13,967)
12,810
(36,593)
Equity in earnings of non-consolidated affiliates
63
300
352
358
Net income (loss)
5,513
(13,667)
13,162
(36,235)
Net income attributable to the noncontrolling interest
(7,265)
(2,458)
(10,737)
(5,900)
Net income (loss) attributable to MDC Partners Inc.
(1,752)
(16,125)
2,425
(42,135)
Accretion on and net income allocated to convertible preference shares
(3,306)
(2,109)
(8,931)
(6,204)
Net loss attributable to MDC Partners Inc. common shareholders
$
(5,058)
$
(18,234)
$
(6,506)
$
(48,339)
Loss Per Common Share:
Basic
Net loss attributable to MDC Partners Inc. common shareholders
$
(0.07)
$
(0.32)
$
(0.10)
$
(0.85)
Diluted
Net loss attributable to MDC Partners Inc. common shareholders
$
(0.07)
$
(0.32)
$
(0.10)
$
(0.85)
Weighted Average Number of Common Shares Outstanding:
Basic
72,044,480
57,498,661
68,154,306
57,117,797
Diluted
72,044,480
57,498,661
68,154,306
57,117,797
SCHEDULE 2 MDC PARTNERS INC. UNAUDITED REVENUE RECONCILIATION (US$ in 000s, except percentages)
Three Months Ended
Nine Months Ended
Revenue $
% Change
Revenue $
% Change
September 30, 2018
$ 375,830
$ 1,082,541
Organic revenue growth (decline) (1)
(28,127)
(7.5)%
(40,237)
(3.7)%
Non-GAAP acquisitions (dispositions), net
(2,438)
(0.6)%
3,197
0.3%
Foreign exchange impact
(2,358)
(0.6)%
(11,673)
(1.1)%
Total change
(32,923)
(8.8)%
(48,713)
(4.5)%
September 30, 2019
$ 342,907
$ 1,033,828
(1) “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.
Note: Actuals may not foot due to rounding
SCHEDULE 3
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three Months Ended September 30, 2019
Advertising and Communications
Global Integrated Agencies
Domestic Creative Agencies
Specialist Communications
Media Services
All Other
Corporate
Total
Revenue
$342,907
$145,890
$57,593
$42,101
$21,222
$76,101

$342,907
Net loss attributable to MDC Partners Inc. common shareholders
(5,058)
Adjustments to reconcile to operating profit (loss):
Accretion on convertible preference shares
3,306
Net income attributable to the noncontrolling interests
7,265
Equity in losses of non-consolidated affiliates
(63)
Income tax expense
3,457
Interest expense and finance charges, net
16,110
Foreign exchange loss
3,973
Other, net
431
Operating income (loss)
$38,532
$21,036
$7,216
$5,129
$(1,677)
$6,828
$(9,111)
$29,421
margin
11.2%
14.4%
12.5%
12.2%
(7.9)%
9.0%
8.6%
Additional adjustments to reconcile to Adjusted EBITDA:
Depreciation and amortization
9,176
4,009
1,213
644
755
2,555
192
9,368
Other asset impairment
1,944
1,944





1,944
Stock-based compensation
5,193
4,673
352
45
5
118
833
6,026
Deferred acquisition consideration adjustments
1,943
(473)
678
1,467
2
269

1,943
Distributions from non- consolidated affiliates (2)
(250)

(250)



48
(202)
Other items, net (3)






705
705
Adjusted EBITDA (1)
$56,538
$31,189
$9,209
$7,285
$(915)
$9,770
$(7,333)
$49,205
margin
16.5%
21.4%
16.0%
17.3%
(4.3)%
12.8%
14.3%
(1) Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(2) Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses).
(3) Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.
Note: Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments.The changes were as follows: 1) Doner, previously within the Global Integrated Agencies category is now aggregated into the Domestic Creative Agencies reportable segment, 2) Yes and Co, previously within the Media Services category, was included within the Domestic Creative Agencies reportable segment, 3) HL Design and Redscout, previously within Specialist Communications and All Other category, respectively are included in Yes & Company, and 4)Varick Media, previously within the Yes & Company operating segment is included within MDC Media Partners.
SCHEDULE 4
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Nine Months Ended September 30, 2019
Advertising and Communications
Global Integrated Agencies
Domestic Creative Agencies
Specialist Communications
Media Services
All Other
Corporate
Total
Revenue
$1,033,828
$429,977
$176,711
$128,224
$75,815
$223,101

$1,033,828
Net loss attributable to MDC Partners Inc. common shareholders
(6,506)
Adjustments to reconcile to operating profit (loss):
Accretion on convertible preference shares
8,931
Net income attributable to the noncontrolling interests
10,737
Equity in earning of non-consolidated affiliates
(352)
Income tax expense
6,292
Interest expense and finance charges, net
49,284
Foreign exchange income
(4,401)
Other, net
4,559
Operating income (loss)
$99,109
$45,527
$22,533
$18,889
$(3,630)
$15,790
$(30,565)
$68,544
margin
9.6%
10.6%
12.8%
14.7%
(4.8)%
7.1%
6.6%
Additional adjustments to reconcile to Adjusted EBITDA:
Depreciation and amortization
28,239
12,511
3,708
1,909
2,531
7,580
630
28,869
Other asset impairment
1,944
1,944





1,944
Stock-based compensation
12,180
9,672
1,338
123
(11)
1,058
452
12,632
Deferred acquisition consideration adjustments
(3,627)
(3,627)
(91)
418
75
(402)

(3,627)
Distributions from non- consolidated affiliates (2)
(250)

(250)



79
(171)
Other items, net (3)






8,926
8,926
Adjusted EBITDA (1)
$137,595
$66,027
$27,238
$21,339
$(1,035)
$24,026
$(20,478)
$117,117
margin
13.3%
15.4%
15.4%
16.6%
(1.4)%
10.8%
11.3%
(1) Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(2) Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses).
(3) Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.
Note: Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments.The changes were as follows: 1) Doner, previously within the Global Integrated Agencies category is now aggregated into the Domestic Creative Agencies reportable segment, 2) Yes and Co, previously within the Media Services category, was included within the Domestic Creative Agencies reportable segment, 3) HL Design and Redscout, previously within Specialist Communications and All Other category, respectively are included in Yes & Company, and 4)Varick Media, previously within the Yes & Company operating segment is included within MDC Media Partners.
SCHEDULE 5
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three Months Ended September 30, 2018
Advertising and Communications
Global Integrated Agencies
Domestic Creative Agencies
Specialist Communications
Media Services
All Other
Corporate
Total
Revenue
$375,830
$157,308
$59,151
$38,838
$29,593
$90,940

$375,830
Net loss attributable to MDC Partners Inc. common shareholders
(18,234)
Adjustments to reconcile to operating profit (loss):
Accretion on convertible preference shares
2,109
Net income attributable to the noncontrolling interests
2,458
Equity in earnings of non-consolidated affiliates
(300)
Income tax expence
2,986
Interest expense and finance charges, net
17,063
Foreign exchange income
(3,275)
Other, net
(189)
Operating income (loss)
$20,642
$23,486
$(14,031)
$3,703
$850
$6,634
$(18,024)
$2,618
margin
5.5%
14.9%
(23.7)%
9.5%
2.9%
7.3%
0.7%
Additional adjustments to reconcile to Adjusted EBITDA:
Depreciation and amortization
10,935
4,553
1,266
1,100
675
3,341
199
11,134
Goodwill and other asset impairment
21,008
3,180
17,828




21,008
Stock-based compensation
4,622
3,241
550
52
102
677
1,620
6,242
Deferred acquisition consideration adjustments
11,003
3,953
(923)
1,452
(27)
6,548

11,003
Distributions from non- consolidated affiliates (2)






478
478
Other items, net (3)






7,346
7,346
Adjusted EBITDA (1)
$68,210
$38,413
$4,690
$6,307
$1,600
$17,200
$(8,381)
$59,829
margin
18.1%
24.4%
7.9%
16.2%
5.4%
18.9
15.9%
(1) Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(2) Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses).
(3) Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.
Note: Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments.The changes were as follows: 1) Doner, previously within the Global Integrated Agencies category is now aggregated into the Domestic Creative Agencies reportable segment, 2) Yes and Co, previously within the Media Services category, was included within the Domestic Creative Agencies reportable segment, 3) HL Design and Redscout, previously within Specialist Communications and All Other category, respectively are included in Yes & Company, and 4)Varick Media, previously within the Yes & Company operating segment is included within MDC Media Partners.
SCHEDULE 6
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Nine Months Ended September 30, 2018
Advertising and Communications
Global Integrated Agencies
Domestic Creative Agencies
Specialist Communications
Media Services
All Other
Corporate
Total
Revenue
$1,082,541
$444,995
$183,504
$117,966
$90,948
$245,128

$1,082,541
Net loss attributable to MDC Partners Inc. common shareholders
(48,339)
Adjustments to reconcile to operating profit (loss):
Accretion on convertible preference shares
6,204
Net income attributable to the noncontrolling interests
5,900
Equity in earning of non-consolidated affiliates
(358)
Income tax benefit
(3,367
Interest expense and finance charges, net
50,005
Foreign exchange loss
9,934
Other, net
(1,222)
Operating income (loss)
$63,993
$28,247
$(6,887)
$13,646
$(78)
$29,065
$(45,236)
$18,757
margin
5.9%
6.3%
(3.8)%
11.6%
(0.1)%
11.9%
1.7%
Additional adjustments to reconcile to Adjusted EBITDA:
Depreciation and amortization
34,629
16,705
3,793
3,059
1,995
9,077
583
35,212
Goodwill and other asset impairment
21,008
3,180
17,828



2,317
23,325
Stock-based compensation
12,793
8,176
2,056
291
251
2,019
4,089
16,882
Deferred acquisition consideration adjustments
8,522
2,779
539
2,216
144
2,844

8,522
Distributions from non- consolidated affiliates (2)






509
509
Other items, net (3)






7,400
7,400
Adjusted EBITDA (1)
$140,945
$59,087
$17,329
$19,212
$2,312
$43,005
$(30,338)
$110,607
margin
13.0%
13.3%
9.4%
16.3%
2.5%
17.5%
10.2%
(1) Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(2) Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses).
(3) Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.
Note: Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments.The changes were as follows: 1) Doner, previously within the Global Integrated Agencies category is now aggregated into the Domestic Creative Agencies reportable segment, 2) Yes and Co, previously within the Media Services category, was included within the Domestic Creative Agencies reportable segment, 3) HL Design and Redscout, previously within Specialist Communications and All Other category, respectively are included in Yes & Company, and 4)Varick Media, previously within the Yes & Company operating segment is included within MDC Media Partners.
SCHEDULE 7
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO COVENANT EBITDA
(US$ in 000s)
2018
2019
Covenant EBITDA (LTM) (1)
Q3
Q4
Q1
Q2
Q3
Q2-2019 – LTM
Q3-2019 – LTM
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(18,234)
$
(83,749)
$
(2,496)
$
775
$
(5,058)
$
(103,704)
$
(90,528)
Adjustments to reconcile to operating profit (loss):
Accretion on and net income allocated to convertible preference shares
2,109
2,151
2,383
3,515
3,306
10,158
11,355
Net income attributable to the noncontrolling interests
2,458
5,885
429
3,043
7,265
11,815
16,622
Equity in earnings (losses) of non-consolidated affiliates
(300)
296
(83)
(206)
(63)
(293)
(56)
Income tax expense
2,986
34,970
748
2,088
3,457
40,792
41,263
Interest expense and finance charges, net
17,063
17,070
16,760
16,413
16,110
67,306
66,353
Foreign exchange loss (gain)
(3,275)
13,324
(5,442)
(2,932)
3,973
1,675
8,923
Other, net
(189)
992
3,383
746
431
4,932
5,552
Operating income (loss)
2,618
(9,061)
15,682
23,442
29,421
32,681
59,484
Adjustments to reconcile to Adjusted EBITDA:
Depreciation and amortization
11,134
10,984
8,838
10,663
9,368
41,619
39,853
Goodwill and other asset impairment
21,008
56,732


1,944
77,740
58,676
Stock-based compensation
6,242
1,534
2,972
3,634
6,026
14,382
14,166
Deferred acquisition consideration adjustments
11,003
(8,979)
(7,643)
2,073
1,943
(3,546)
(12,606)
Distributions from non- consolidated affiliates
478
270

31
(202)
779
99
Other items, net (2)
7,346
479
1,626
6,594
705
16,045
9,404
Adjusted EBITDA
59,829
51,959
21,475
46,437
49,205
179,700
169,076
Adjustments to reconcile to Covenant EBITDA:
Proforma acquisitions/dispositions
(1,195)
(2,148)
(1,965)


(5,308)
(4,113)
Severance due to eliminated positions
1,155
3,615
1,534
2,346
1,956
8,650
9,451
Other adjustments, net (3)
600
1,877
1,412
989
228
4,878
4,506
$
60,389
$
55,303
$
22,456
$
49,772
$
51,389
$
187,920
$
178,920
(1) Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, and other adjustments, as defined in the Credit Agreement. Covenant EBITDA is calculated as the aggregate of operating results for the rolling last twelve months (LTM). Each quarter is presented to provide the information utilized to calculate Covenant EBITDA. Historical Covenant EBITDA may be recasted in the current period for any proforma adjustments related to acquisitions and/or dispositions in the current period.
(2) Other items, net includes items such as severance expense and other restructuring expenses and costs associated with the company’s strategic review process.
(3) Other adjustments, net primarily includes one time professional fees and costs associated with real estate consolidation. Note: Actuals may not foot due to rounding.
SCHEDULE 8
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(US$ in 000s)
September 30, 2019
December 31, 2018
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$
27,280
$
30,873
Accounts receivable, less allowance for doubtful accounts of $2,728 and $1,879
411,805
395,200
Expenditures billable to clients
38,652
42,369
Assets held for sale

78,913
Other current assets
35,939
42,499
Total Current Assets
513,676
589,854
Fixed assets, at cost, less accumulated depreciation of $147,342 and $128,546
82,946
88,189
Right-of-use assets – operating leases
234,137

Investments in non-consolidated affiliates
6,824
6,556
Goodwill
740,955
740,955
Other intangible assets, net of accumulated amortization of $171,941 and $161,868
56,734
67,765
Deferred tax assets
92,439
92,741
Other assets
24,018
25,513
Total Assets
$
1,751,729
$
1,611,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable
$
178,946
$
221,995
Accruals and other liabilities
280,783
313,141
Liabilities held for sale

35,967
Advance billings
169,857
138,505
Current portion of lease liabilities – operating leases
47,722

Current portion of deferred acquisition consideration
31,579
32,928
Total Current Liabilities
708,887
742,536
Long-term debt
895,379
954,107
Long-term portion of deferred acquisition consideration
24,611
50,767
Long-term lease liabilities – operating leases
230,209

Other liabilities
17,933
54,255
Deferred tax liabilities
7,486
5,329
Total Liabilities
1,884,505
1,806,994
Redeemable Noncontrolling Interests
41,519
51,546
Commitments, Contingencies, and Guarantees
Shareholders’ Deficit:
Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2019 and 95,000 at December 31, 2018
152,746
90,123
Common stock and other paid-in capital
98,364
58,579
Accumulated deficit
(462,483)
(464,903)
Accumulated other comprehensive (loss) income
(2,878)
4,720
MDC Partners Inc. Shareholders’ Deficit
(214,251)
(311,481)
Noncontrolling interests
39,956
64,514
Total Shareholders’ Deficit
(174,295)
(246,967)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Deficit
$
1,751,729
$
1,611,573
SCHEDULE 9
MDC PARTNERS INC.
UNAUDITED SUMMARY CASH FLOW DATA
(US$ in 000s)
Nine Months Ended September 30,
2019
2018
Net cash used in operating activities
$
(5,840)
$
(31,729)
Net cash provided by (used in) investing activities
3,307
(48,355)
Net cash provided by (used in) financing activities
(2,202)
59,122
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts
8
(161)
Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale
$
(4,727)
$
(21,123)
Change in cash and cash equivalents held in trusts classified within held for sale
(3,307)

Change in cash and cash equivalents classified within assets held for sale
4,441

Net decrease in cash and cash equivalents
$
(3,593)
$
(21,123)
SCHEDULE 10
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF COMPONENTS OF NON- GAAP MEASURES
(US$ in 000s)
2018
2019
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
YTD
NON-GAAP ACQUISITIONS (DISPOSITIONS), NET
GAAP revenue from current year acquisitions
$

$
11,066
$
12,734
$
12,317
$
36,117
$

$
698
$
1,347
$
2,045
GAAP revenue from prior year acquisitions (1)





15,685
1,519
1,109
18,313
Impact of adoption of ASC 606 exclusion

450
(1,122)
504
(168)




Foreign exchange impact







470
470
Contribution to organic revenue (growth) decline (2)

(3,417)
(945)
(3,243)
(7,605)
(4,008)
(440)
(2,185)
(6,633)
Prior year revenue from dispositions (3)
(5,261)
(5,592)
(3,847)

(14,700)
(1,825)
(5,995)
(3,178)
(10,998)
Non-GAAP acquisitions (dispositions), net
$
(5,261)
$
2,507
$
6,820
$
9,578
$
13,644
$
9,852
$
(4,218)
$
(2,437)
$
3,197
2018
2019
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
YTD
OTHER ITEMS, NET
SEC investigation and class action litigation expenses
122
235
(88)
131
400




D&O insurance proceeds

(303)
(231)
(24)
(558)




Severance and other restructuring expenses


7,665
372
8,037

6,703
705
7,408
Strategic review process costs





1,626
(109)

1,517
Total other items, net
$
122
$
(68)
$
7,346
$
479
$
7,879
$
1,626
$
6,594
$
705
$
8,925
2018
2019
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
YTD
CASH INTEREST, NET & OTHER
Cash interest paid
(649)
(30,765)
(1,597)
(31,001)
(64,012)
(1,629)
(30,014)
(882)
(32,525)
Bond interest accrual adjustment
(14,625)
14,625
(14,625)
14,625

(14,625)
14,625
(14,625)
(14,625)
Adjusted cash interest paid
(15,274)
(16,140)
(16,222)
(16,376)
(64,012)
(16,254)
(15,389)
(15,507)
(47,150)
Interest income
148
159
91
227
625
149
138
165
452
Total cash interest, net & other
$
(15,126)
$
(15,981)
$
(16,131)
$
(16,149)
$
(63,387)
$
(16,105)
$
(15,251)
$
(15,342)
$
(46,698)
2018
2019
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
YTD
CAPITAL EXPENDITURES, NET
Capital expenditures
(3,799)
(5,890)
(5,543)
(5,032)
(20,264)
(3,606)
(4,317)
(5,863)
(13,786)
Landlord reimbursements
219
851
291
442
1,803
1


1
Total capital expenditures, net
$
(3,580)
$
(5,039)
$
(5,252)
$
(4,590)
$
(18,461)
$
(3,605)
$
(4,317)
$
(5,863)
$
(13,785)
2018
2019
Q1
Q2
Q3
Q4
FY
Q1
Q2
Q3
YTD
MISCELLANEOUS OTHER DISCLOSURES
Net income attributable to the noncontrolling interests
897
2,545
2,458
5,885
11,785
429
3,043
7,265
10,737
Cash taxes
$
1,333
$
1,293
$
2,196
$
(986)
$
3,836
$
1,677
$
1,817
$
137
$
3,631
(1) GAAP revenue from prior year acquisitions for 2019 and 2018 relates to acquisitions which occurred in 2018 and 2017, respectively.
(2) Contributions to organic revenue growth (decline) represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is included in the Company’s organic revenue growth (decline) calculation.
(3) Prior year revenue from dispositions reflects the incremental impact on revenue for the comparable period after the Company’s disposition of such disposed business, plus revenue from each business disposed of by the Company in the previous year through the twelve month anniversary of the disposition.
Note: Actuals may not foot due to rounding.
CONTACT:
Erica Bartsch
Sloane & Company
212-446-1875
[email protected]
SOURCE MDC Partners Inc.
Related Links http://www.mdc-partners.com

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Quantum Announces 18% Increase in Revenue for Second Quarter of Fiscal 2020

SAN JOSE, Calif. Quantum Corporation (OTC: QMCO) today announced financial results for its second fiscal quarter ended September 30, 2019 .
Highlights: Second Quarter of Fiscal 2020 vs. Prior-Year Second Quarter
Revenue increased 18% to $105.8 million Gross margins increased 160 basis points to 41.1% Research and development investments increased 19% Adjusted Net Income increased by $10.7 million to $5.1 million Adjusted EBITDA increased by $10.3 million to $12.7 million “Our strategic transformation accelerated in the second quarter as we reported double-digit revenue growth, margin expansion, and excluding non-recurring items, continued reductions in operating expenses, all of which led to continued profitability,” commented Jamie Lerner , Chairman and CEO, Quantum. “Our continued expense discipline more than offset an incremental investment in research and development, supporting recently released products and our pipeline of future offerings. We are well-positioned as a recognized industry leader in the storage and management of video and video-like data, and this accelerating trend should support future profitable growth for Quantum.”
Second Quarter of Fiscal 2020 vs. Prior-Year Quarter
Revenue was $105.8 million for the second quarter in fiscal 2020, up 18% compared to $89.9 million in the year ago quarter.
Gross profit in the second quarter of fiscal 2020 was $43.5 million or 41.1% gross margin, compared to $35.5 million , or 39.5% gross margin, in the year ago quarter. Gross margins improved year over year primarily due to cost reductions across a wide range of products and a sales mix weighted towards more profitable product lines.
Total operating expenses were $39.3 million , or 37% of revenue, in the second quarter of fiscal 2020 compared to $38.9 million , or 43% of revenue, in the year ago quarter. Selling, general and administrative expenses declined 5% to $29.2 million for the second quarter of fiscal 2020 compared to $30.8 million in the year ago quarter. Research and development expenses were $9.4 million in the second quarter of fiscal 2020, up 19% compared to $7.9 million in the year ago quarter.
Excluding non-recurring charges, stock compensation and restructuring charges, Adjusted Net Income was $5.1 million , or $0.11 per diluted share in the second quarter of fiscal 2020, compared to an Adjusted Net Loss of ($5.6) million , or $(0.16) per diluted share, in the year ago quarter.
Adjusted EBITDA increased $10.3 million to $12.7 million in the second quarter of fiscal 2020, compared to $2.4 million in the year-ago quarter.
Year-to-Date Fiscal 2020 vs. Year-to-Date Fiscal 2019
Revenue was $211.4 million and increased 7% for the first six months of fiscal 2020, compared to $197.4 million in the year-ago period.
Gross profit for the first six months of fiscal 2020 was $89.3 million , or 42.3% gross margin, compared to $81.9 million , or 41.5% gross margin, in the year ago period. Gross margins improved year over year primarily due to cost reductions across a wide range of products and a sales mix weighted towards more profitable product lines.
Total operating expenses for the first six months of fiscal 2020 were $82.4 million , or 39% of revenue, compared to $89.6 million , or 45% of revenue, in the year ago period. Selling, general and administrative expenses declined 8% to $63.6 million for the first six months of fiscal 2020 compared to $69.3 million for the year ago period. Research and development expenses were $17.7 million for the first six months of fiscal 2020, up 10% compared to $16.1 million in the year ago period.
Excluding non-recurring charges, stock compensation and restructuring charges, Adjusted Net Income was $10.5 million , or $0.24 per diluted share for the first six months of fiscal 2020, compared to an Adjusted Net Loss of ($3.3) million , or $(0.09) per diluted share, in the same period last year.
Adjusted EBITDA increased $16.2 million to $25.8 million for the first six months of fiscal 2020, compared to $9.6 million in the year ago period.
Balance Sheet and Liquidity as of September 30, 2019
Cash and cash equivalents of $6.0 million as of September 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 September 30, 2019 was $153.6 million net of $15.5 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. The increase in long term debt from March 31, 2019 was primarily due to borrowings of $7.0 million at September 30, 2019 from the revolving credit facility to meet short term working capital requirements. Total interest expense for fiscal Q2 2020 was $6.3 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.
Outlook
The third fiscal quarter that ends in December is traditionally the Company’s strongest of the fiscal year and management expects revenues in the range of $106 million to $112 million . Excluding approximately $2 million of stock-based compensation charges, the Company expects resulting Adjusted Net Income to be in the range of $6 million to $8 million and related diluted Adjusted Net Income per share of $0.13 to $0.18 . Adjusted EBITDA is expected to be in the range of $13 million to $15 million .
For the full fiscal year, Quantum expects total revenues in the range of $424 million to $430 million and adjusted EBITDA to be in a range of $51 million to $55 million .
Change in Board of Directors
Quantum also announced that Eric Singer has decided to retire from the Board of Directors effective as of November 3 , 2019. Mr. Singer had served as an independent director since 2017, and had served as Chairman of Quantum’s Leadership and Compensation Committee and as a member of the Corporate Governance and Nominating Committee.
“We are extremely appreciative of Eric’s leadership on Quantum’s Board,” said Jamie Lerner , Quantum’s Chairman of the Board and Chief Executive Officer. “Eric, as a representative of our largest stockholder at that time, VIEX Capital Advisors, began a campaign to replace the Board and change the management of Quantum in early 2016. He was appointed to our Board in 2017.” Lerner continued, “Simply put, we would not be in the position we are today without Eric’s steadfast commitment to and leadership in Quantum’s turnaround. He was the catalyst of change that led to a complete turnover in management and the Board, improved operating performance and the implementation of strong corporate governance practices at Quantum. We thank him for his active involvement and tireless dedication in restoring Quantum and helping position us for the future.”
Conference call
Management will host a conference call to discuss these results today, November 5, 2019 at 5 p.m. ET ( 2 p.m. PT ).
Dial-in Numbers
844-407-9500 (U.S. Toll-Free) 862-298-0850 (International) Audio Webcast 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. Following the conclusion of the live call, a replay of the webcast will be available on the Company’s website for at least 90 days.
Replay Numbers
877-481-4010 (U.S. Toll-Free) 919-882-2331 (International) Replay Passcode: 55680 Replay Expiration: Tuesday, November 12, 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.
Forward-Looking Statements
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; 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 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.
Contacts:
Public Relations Contact:
Investor Contact:
Bob Wientzen
Rob Fink
Quantum Corporation
FNK IR
720-201-8125
646-809-4048
[email protected]
[email protected]
QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
September 30, 2019
March 31, 2019
Assets
Current assets:
6,000
$
10,790
Restricted cash
936
1,065
Accounts receivable, net of allowance for doubtful accounts of $275 and $68 as of September 30, 2019 and March 31, 2019, respectively
71,390
86,828
Manufacturing inventories
22,032
18,440
Service parts inventories
18,845
19,070
Other current assets
9,840
18,095
Total current assets
129,043
154,288
Property and equipment, net
8,606
8,437
Restricted cash
5,000
5,000
Right-of-use assets, net
11,933

Other long-term assets
3,678
5,146
Total assets
158,260
172,871
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable
39,354
37,395
Deferred revenue
76,578
90,407
Accrued restructuring charges
299
2,876
Long-term debt
1,650
1,650
Accrued compensation
15,006
17,117
Other accrued liabilities
18,821
29,025
Total current liabilities
151,708
178,470
Deferred revenue
34,981
36,733
Long-term debt, net of current portion
153,600
145,621
Operating lease liabilities
9,848

Other long-term liabilities
11,233
11,827
Total liabilities
361,370
372,651
Commitments and contingencies (Note 6)
Stockholders’ deficit
Common stock, $0.01 par value; 1,000,000 shares authorized; 36,717, and 36,040 shares issued and outstanding at September 30, 2019 and March 31, 2019, respectively
368
360
Additional paid-in capital
502,398
499,224
Accumulated deficit
(704,076)
(697,954)
Accumulated other comprehensive loss
(1,800)
(1,410)
Total stockholders’ deficit
(203,110)
(199,780)
Total liabilities and stockholders’ deficit
$
158,260
$
172,871
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)
Three Months Ended
Six
September 30, 2018
September
Revenue:
Product
$
68,130
$
51,622
$
133,926
$
118,491
Service
32,401
33,352
65,781
66,916
Royalty
5,258
4,938
11,712
12,017
Total revenue
105,789
89,912
211,419
197,424
Cost of revenue:
Product
49,467
41,319
96,666
86,756
Service
12,799
13,066
25,404
28,802
Total cost of revenue
62,266
54,385
122,070
115,558
Gross profit
43,523
35,527
89,349
81,866
Operating expenses:
Research and development
9,350
7,862
17,733
16,123
Sales and marketing
14,824
16,682
30,680
35,807
General and administrative
14,329
14,072
32,905
33,461
Restructuring charges
821
294
1,084
4,201
Total operating expenses
39,324
38,910
82,402
89,592
Income (loss) from operations
4,199
(3,383)
6,947
(7,726)
Other income (expense), net
76
(196)
165
24
Interest expense
(6,347)
(4,636)
(12,653)
(8,571)
Loss on debt extinguishment, net

(12,425)

(12,425)
Net loss before income taxes
(2,072)
(20,640)
(5,541)
(28,698)
Income tax provision
243
977
581
402
Net loss
$
(2,315)
$
(21,617)
$
(6,122)
$
(29,100)
Loss per share – basic and diluted
$
(0.06)
$
(0.61)
$
(0.17)
$
(0.82)
Weighted average shares – basic and diluted
36,297
35,502
36,172
$
35,473
Net loss
$
(2,315)
$
(21,617)
$
(6,122)
$
(29,100)
Foreign currency translation adjustments, net
(474)
(86)
(390)
(969)
Total comprehensive loss
$
(2,789)
$
(21,703)
$
(6,512)
$
(30,069)
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six
Operating activities
Net loss
$
(6,122)
$
(29,100)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization
2,034
2,181
Amortization of debt issuance costs
2,008
842
Provision for product and service inventories
3,442
5,859
Stock based compensation
3,352
1,718
Non-cash loss on debt extinguishment

12,425
Bad debt expense
199
(383)
Deferred income taxes


Unrealized foreign exchange (gain) loss
(99)
(286)
Changes in assets and liabilities:
Accounts receivable
15,239
19,434
Manufacturing inventories
(5,799)
11,677
Service parts inventories
(1,180)
(1,122)
Accounts payable
1,478
(17,520)
Accrued restructuring charges
(2,576)
(1,382)
Accrued compensation
(2,111)
(4,415)
Deferred revenue
(15,582)
(11,426)
Other assets and liabilities
(3,939)
14,209
Net cash provided by (used in) operating activities
(9,656)
2,711
Investing activities
Purchases of property and equipment
(1,315)
(1,331)
Net cash used in investing activities
(1,315)
(1,331)
Financing activities
Borrowings of long-term debt and credit facility
172,119
164,968
Repayments of long-term debt and credit facility
(165,968)
(171,584)
Payment of taxes due upon vesting of restricted stock
(171)
(6)
Proceeds from issuance of common stock


Net cash provided by (used in) financing activities
5,980
(6,622)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
72
(137)
Net change in cash, cash equivalents and restricted cash
(4,919)
(5,379)
Cash, cash equivalents, and restricted cash at beginning of period
16,855
17,207
Cash and cash equivalents at end of period
$
11,936
$
11,828
Supplemental disclosure of cash flow information
Cash paid for interest
$
10,567
$
9,938
Cash paid for income taxes, net of refunds
$
(51)
$
(45)
Non-cash transactions
Purchases of property and equipment included in accounts payable
$
249
$
104
Transfer of inventory to property and equipment
$
169
$
176
Payment of litigation settlements with insurance proceeds
$
8,950
$

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:
6,000
$
5,704
Restricted cash, current
936
6,124
Restricted cash, long-term
5,000

Total cash, cash equivalents and restricted cash at the end of period
$
11,936
$
11,828
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, 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 (in thousands)
Three Months Ended
Six
September 30, 2018
September
U.S. GAAP net loss
$
(2,315)
$
(21,617)
$
(6,122)
$
(29,100)
Interest expense, net
6,347
4,636
12,653
8,571
Provision for income taxes
243
977
581
402
Depreciation and amortization expense
1,013
1,051
2,034
2,181
Stock-based compensation expense
2,365
1,291
3,352
1,718
Restructuring charges
821
294
1,084
4,201
Loss on debt extinguishment

12,425

12,425
Cost related to financial restatement and related activities
4,188
3,324
12,179
8,445
Other non-recurring expenses



749
Adjusted EBITDA
$
12,662
$
2,381
$
25,761
$
9,592
Adjusted Net Income (Loss) (in thousands)
Three Months Ended
Six
September 30, 2018
September
U.S. GAAP net loss
$
(2,315)
$
(21,617)
$
(6,122)
$
(29,100)
Restructuring charges
821
294
1,084
4,201
Loss on debt extinguishment

12,425

12,425
Stock-based compensation
2,365

3,352

Cost related to financial restatement and related activities
4,188
3,324
12,179
8,445
Other non-recurring expenses



749
Adjusted Net Income (Loss)
$
5,059
$
(5,574)
$
10,493
$
(3,280)
Adjusted Net Income (Loss) per share:
Basic
$
0.14
$
(0.16)
$
0.29
$
(0.09)
Diluted
$
0.11
$
(0.16)
$
0.24
$
(0.09)
Weighted average shares outstanding:
Basic
36,297
35,502
36,172
35,473
Diluted
44,923
35,502
43,032
35,473
SOURCE Quantum Corp.
Related Links http://www.quantum.com

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