SOURCE: Quantum Corporation

January 28, 2010 16:05 ET

Quantum Corporation Reports Fiscal Third Quarter Results

SAN JOSE, CA--(Marketwire - January 28, 2010) - Quantum Corp. (NYSE: QTM)

Highlights:

--  Total revenue of $182 million -- second consecutive quarter of
    sequential growth
--  GAAP gross margin rate of 41 percent -- second consecutive quarter above
    40 percent
--  GAAP net income of $5 million -- third consecutive quarter of GAAP
    profit
--  Disk systems and software revenue of $25 million -- branded sales up 29
    percent year-over-year to record level
    

Quantum Corp. (NYSE: QTM), the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal third quarter (FQ3'10), ended Dec. 31, 2009, was $182 million. This represented an 11 percent decline from the same period last year (FQ3'09), primarily due to expected reductions in OEM revenue, including DXi™ software, tape, and devices and media sales. Despite the year-over-year decline, revenue increased 4 percent from the prior quarter (FQ2'10) -- the second consecutive quarter of sequential growth -- and branded revenue was up from both FQ2'10 and the same period last year. As it did in the prior quarter, the company reported a GAAP gross margin rate above 40 percent, although the 41.1 percent rate in the December quarter was down from 42.1 percent in FQ3'09, largely due to the decline in OEM DXi software revenue.

Quantum also delivered its third consecutive quarter of GAAP profit, with $5 million in net income, or diluted earnings per share of two cents. This compared to a GAAP net loss of $329 million in FQ3'09. The $5 million profit included $9 million in amortization of intangibles and $2 million in stock-based compensation charges, which together reduced diluted earnings per share by five cents.

Quantum generated $17 million in cash from operations for FQ3'10 and ended the quarter with over $100 million in cash and cash equivalents.

"The December quarter further demonstrated the strength of our business model, with results in several areas being among the best we've achieved over the past 10 years," said Rick Belluzzo, chairman and CEO of Quantum. "With a strong contribution from our branded business and gross margin above 40 percent, we again delivered solid GAAP profits and sequential revenue growth. Our record level of branded disk systems and software revenue also speaks to the opportunity we have in key growth segments of the storage market, particularly given the recent additions we've made to our product portfolio with the DXi6500 family of NAS-based deduplication appliances and the latest release of our StorNext® data management software."

Quantum's product revenue, which includes sales of the company's hardware and software products, totaled $125 million in FQ3'10. This represented a decrease of $19 million from FQ3'09, primarily reflecting the expected declines in OEM revenue.

Disk systems and software revenue, inclusive of related software maintenance and service revenue, was $25 million in the December quarter. This was down approximately $6 million from the same quarter last year, primarily due to reduced OEM DXi software revenue. However, on a branded basis, Quantum generated its highest level of disk systems and software revenue to date. A sampling of major DXi7500 account wins during the quarter included new business with one of the world's largest technology consulting companies, a leading global supplier of industrial gasses and a national lottery operator in Asia. In addition, Quantum had several repeat DXi7500 orders, including those from two top U.S. and Asian insurance companies, one of the world's biggest telecommunications providers and a major university medical center in the U.S.

Also contributing to the record disk systems and software revenue in FQ3'10 were significant StorNext® wins, most notably a deal for more than a million dollars in which StorNext will play a central role in a multi-site, private cloud implementation for a Fortune Global 10 company. Other key wins included new business with a major television studio in Asia and follow-on orders from a multinational technology company and a large weather services provider in North America.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Jan. 28, 2010, at 2:00 p.m. PST, to discuss its fiscal third quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (480) 629-9643 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Jan. 28, 2010, at 2:00 p.m. PST. Site for the webcast and related information: http://www.quantum.com/investors.

About Quantum

Quantum Corp. (NYSE: QTM) is the leading global storage company specializing in backup, recovery and archive. Combining focused expertise, customer-driven innovation, and platform independence, Quantum provides a comprehensive, integrated range of disk, tape, and software solutions supported by a world-class sales and service organization. This includes the DXi™-Series, the first disk backup solutions to extend the power of data deduplication and replication across the distributed enterprise. As a long-standing and trusted partner, the company works closely with a broad network of resellers, OEMs and other suppliers to meet customers' evolving data protection needs. Quantum Corp., 1650 Technology Drive, Suite 800, San Jose, CA 95110, (408) 944-4000, www.quantum.com.

Quantum, the Quantum logo and StorNext are registered trademarks of Quantum Corporation and its affiliates. DXi is a trademark of Quantum Corporation. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement: This press release contains "forward-looking" statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Specifically, but without limitation, the statement that our record level of branded disk systems and software revenue speaks to the opportunity we have in key growth segments of the storage market could be deemed a forward-looking statement within the meaning of the Safe Harbor. All forward-looking statements in this press release are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantum's actual results to differ materially from those implied by the forward-looking statements. These risks include operational difficulties, unforeseen technical limitations, unexpected material deviation in product operation, the ability of competitors to introduce new solutions that compete more successfully with our solutions, unexpected changes in market conditions and unanticipated changes in customers' needs or requirements, as well as the risks set forth in Quantum's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Risk Factors," in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2009 and in Quantum's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 30, 2009. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

                            QUANTUM CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per-share amounts)
                                (Unaudited)


                           Three Months Ended         Nine Months Ended
                        ------------------------  ------------------------
                        December 31, December 31, December 31, December 31,
                           2009          2008        2009         2008
                        -----------  -----------  -----------  -----------
Revenue:
  Product               $   124,580  $   143,882  $   348,131  $   444,658
  Service                    38,991       40,757      117,650      124,593
  Royalty                    18,139       19,029       51,195       71,598
                        -----------  -----------  -----------  -----------
    Total revenue           181,710      203,668      516,976      640,849
Cost of Revenue:
  Product                    82,509       88,949      227,672      303,583
  Service                    24,485       28,933       76,316       93,766
                        -----------  -----------  -----------  -----------
    Total cost of revenue   106,994      117,882      303,988      397,349
                        -----------  -----------  -----------  -----------
      Gross margin           74,716       85,786      212,988      243,500
  Operating expenses:
    Research and
     development             18,155       16,053       51,594       53,809
    Sales and marketing      29,029       32,821       84,202      111,006
    General and
     administrative          16,289       17,015       46,012       58,860
    Restructuring charges
     (benefits)                 (22)       4,062        4,784        4,469
    Goodwill impairment          --      339,000           --      339,000
                        -----------  -----------  -----------  -----------
                             63,451      408,951      186,592      567,144
                        -----------  -----------  -----------  -----------
      Income (loss)
       from operations       11,265     (323,165)      26,396     (323,644)
  Interest income and
   other, net                   526         (594)       1,795          503
  Interest expense           (6,813)      (7,276)     (19,399)     (23,561)
  Gain on debt
   extinguishment, net
   of costs                      --           --       12,859           --
                        -----------  -----------  -----------  -----------
    Income (loss) before
     income taxes             4,978     (331,035)      21,651     (346,702)
  Income tax provision
   (benefit)                    342       (2,259)         652         (324)
                        -----------  -----------  -----------  -----------
      Net income (loss) $     4,636  $  (328,776) $    20,999  $  (346,378)
                        ===========  ===========  ===========  ===========


  Net income (loss)
   per share:
     Basic              $      0.02  $     (1.58) $      0.10  $     (1.66)
     Diluted                   0.02        (1.58)        0.04        (1.66)

  Income (loss) for
   purposes of computing
   net income (loss)
   per share:
     Basic              $     4,636  $  (328,776) $    20,999  $  (346,378)
     Diluted                  4,636     (328,776)       9,389     (346,378)

  Weighted average
   common and common
   equivalent shares:
     Basic                  213,525      210,086      212,092      208,665
     Diluted                220,710      210,086      223,143      208,665


Included in the above Statements of Operations:

Amortization of
 intangibles:
   Cost of revenue            5,548        5,510       16,522       19,158
   Research and
    development                 100          100          300          300
   Sales and marketing        3,393        3,394       10,181       11,642
   General and
    administrative               25           25           75           75
                        -----------  -----------  -----------  -----------
                              9,066        9,029       27,078       31,175
Share-based
 compensation:
   Cost of revenue              333          141          952        1,099
   Research and
    development                 513          601        1,733        2,173
   Sales and marketing          619          276        1,837        1,989
   General and
    administrative              877        1,314        2,633        2,831
                        -----------  -----------  -----------  -----------
                              2,342        2,332        7,155        8,092



                           QUANTUM CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             (In thousands)
                              (Unaudited)


                                                  December 31,  March 31,
                                                      2009        2009*
                                                  -----------  -----------
Assets
  Current assets:
    Cash and cash equivalents                     $   100,700  $    87,305
    Accounts receivable, net                          116,553      107,851
    Manufacturing inventories, net                     49,829       61,237
    Service parts inventories, net                     54,688       63,029
    Deferred income taxes                               9,970        9,935
    Other current assets                               17,292       24,745
                                                  -----------  -----------
      Total current assets                            349,032      354,102

  Long-term assets:
    Property and equipment, less accumulated
     depreciation                                      25,128       28,553
    Purchased technology, less accumulated
     amortization                                      32,326       49,148
    Other intangible assets, less accumulated
     amortization                                      49,832       60,088
    Goodwill                                           46,770       46,770
    Other long-term assets                             10,518       10,708
                                                  -----------  -----------
      Total long-term assets                          164,574      195,267

                                                  -----------  -----------
                                                  $   513,606  $   549,369
                                                  ===========  ===========

Liabilities and Stockholders' Deficit
  Current liabilities:
    Accounts payable                              $    56,571  $    45,182
    Accrued warranty                                    6,428       11,152
    Deferred revenue, current                         100,580       84,079
    Current portion of long-term debt                   1,884        4,000
    Current portion of convertible
     subordinated debt                                 22,099           --
    Accrued restructuring charges                       4,522        4,681
    Accrued compensation                               28,925       27,334
    Income taxes payable                                2,674        4,752
    Other accrued liabilities                          26,209       34,550
                                                  -----------  -----------
      Total current liabilities                        249,892      215,730

  Long-term liabilities:
    Deferred revenue, long-term                        29,445       32,082
    Deferred income taxes                              10,815       11,190
    Long-term debt                                    306,370      244,000
    Convertible subordinated debt                          --      160,000
    Other long-term liabilities                         7,026        6,326
                                                  -----------  -----------
      Total long-term liabilities                     353,656      453,598

  Stockholders' deficit                               (89,942)    (119,959)

                                                  -----------  -----------
                                                  $   513,606  $   549,369
                                                  ===========  ===========

* Derived from the March 31, 2009 audited Consolidated Financial
  Statements.




                            QUANTUM CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (Unaudited)


                                                      Nine Months Ended
                                                  ------------------------
                                                  December 31, December 31,
                                                     2009         2008
                                                  -----------  -----------
Cash flows from operating activities:
  Net income (loss)                               $    20,999  $  (346,378)
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
     Depreciation                                       9,111       12,054
     Amortization                                      28,987       32,804
     Service parts lower of cost or market
      adjustment                                        8,092       13,832
     Gain on debt extinguishment                      (15,613)          --
     Goodwill impairment                                   --      339,000
     Deferred income taxes                               (410)         141
     Share-based compensation                           7,155        8,092
     Changes in assets and liabilities:
       Accounts receivable                             (8,702)      37,790
       Manufacturing inventories, net                   8,387        2,265
       Service parts inventories, net                   3,270          223
       Accounts payable                                11,389      (38,949)
       Accrued warranty                                (4,724)      (7,261)
       Deferred revenue                                13,864       11,012
       Accrued restructuring charges                     (159)       2,248
       Accrued compensation                             1,591       (5,385)
       Income taxes payable                            (2,078)          93
       Other assets and liabilities                       706      (11,704)
                                                  -----------  -----------
Net cash provided by operating activities              81,865       49,877

Cash flows from investing activities:
  Purchases of property and equipment                  (5,728)      (4,289)
  Return of principal from other investments              166        1,038
                                                  -----------  -----------
Net cash used in investing activities                  (5,562)      (3,251)
Cash flows from financing activities:
  Borrowings of long-term debt, net                   120,042           --
  Repayments of long-term debt                        (61,463)     (91,000)
  Repayments of convertible subordinated debt        (122,288)          --
  Payment of taxes due upon vesting of
   restricted stock                                      (960)        (768)
  Proceeds from issuance of common stock                1,761        2,738
                                                  -----------  -----------
Net cash used in financing activities                 (62,908)     (89,030)

Net increase (decrease) in cash and cash
 equivalents                                           13,395      (42,404)
Cash and cash equivalents at beginning of period       87,305       93,643
                                                  -----------  -----------
Cash and cash equivalents at end of period        $   100,700  $    51,239
                                                  ===========  ===========

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