SOURCE: Quantum Corporation

Quantum Corporation

May 08, 2013 16:05 ET

Quantum Corporation Reports Fiscal 2013 and Fourth Quarter Results

Grows Disk Systems and Software Revenue to $152 Million for the Year, Highest Level to Date and 11% Increase Over Fiscal 2012

SAN JOSE, CA--(Marketwired - May 8, 2013) - Quantum Corp. (NYSE: QTM), a proven global expert in data protection and big data management, today reported results for fiscal 2013 (FY13) and the fourth quarter (FQ4'13), ended March 31, 2013. Revenue for the year totaled $588 million, down 10 percent from fiscal 2012 (FY12), primarily due to decreased market demand for tape products. Quantum reported record revenue of $152 million from disk systems and software sales (including related service), an 11 percent increase over FY12 driven by record revenue from both StorNext® and midrange DXi® sales. For FQ4'13, Quantum reported $140 million in revenue, a 13 percent decline from the same period last year (FQ4'12), also primarily due to lower demand for tape. Disk systems and software revenue (including related service) grew for the seventh consecutive quarter on a year-over-year basis.

Quantum reported a GAAP net loss for FY13 of $52 million, or 22 cents per diluted share, compared to $9 million in the prior year. On a non-GAAP basis, Quantum had a net loss of $14 million for the year, or 6 cents per diluted share, down from $30 million of net income in FY12. For FQ4'13, Quantum had a GAAP net loss of $15 million, or 6 cents per diluted share, compared to a net loss of $11 million in the same quarter last year. Non-GAAP net loss for FQ4'13 was $5 million, or 2 cents per diluted share, down from $1 million of net income a year earlier. The year-over-year declines were largely due to the lower tape product and royalty revenue.

"Although this was a challenging year for storage generally, and a particularly tough one for tape, we grew our disk systems and software revenue to a new high, maintained our market share leadership in tape, introduced a broad range of innovative new products and further improved our balance sheet," said Jon Gacek, president and CEO of Quantum. "We will build on this progress in the new fiscal year to drive a balance of growth and profit, and we are well-positioned to do so.

"Our product portfolio is a key strength, and we will continue to be aggressive about utilizing our technology assets to create products and solutions that are clearly differentiated and deliver superior value to customers in both data protection and big data management. This will include new deduplication, virtualization, cloud, workflow and archive offerings."

Quantum generated $16 million in cash from operations in FQ4'13 and ended FY13 with $72 million in total cash and cash equivalents.

Outlook
For the full 2014 fiscal year, Quantum expects:

  • Total revenue of $610 million to $630 million.
  • GAAP and non-GAAP gross margin rates in the mid-40 percent range.
  • GAAP and non-GAAP operating expenses of $265 million to $270 million and $245 million to $250 million, respectively.
  • Interest expense of $10 million and taxes of $2 million.
  • GAAP loss per share of 5 cents to breakeven and non-GAAP earnings per share of 5 cents to 10 cents. 

For the first quarter of fiscal 2014, the company expects:

  • Total revenue of $135 million to $140 million.
  • GAAP gross margin rate of 41 to 42 percent and non-GAAP gross margin rate of 42 to 43 percent.
  • GAAP and non-GAAP operating expenses of $65 million to $67 million and $60 million to $62 million, respectively.
  • Interest expense of $2.5 million and taxes of $500,000.

Business Highlights
Key business highlights for the March quarter include the following:

  • Quantum announced the DXi6800 backup and deduplication appliance, which combines industry-leading performance, scalability and efficiency with unique "pay-as-you-grow" extensibility to deliver better overall value than the market leader. The new appliance provides up to 16 TB/hour performance, 13-156 TB of usable capacity in a single system and the smallest footprint per TB available. It can replicate to Quantum Q-Cloud™, enabling cloud-based data protection and disaster recovery, and also integrates with Symantec NetBackup AIR, reducing the time needed to return to business in the event of a disaster.
  • The company introduced its new Scalar i6000 HD enterprise tape library, offering best-in-class slot density and scalability as well as high performance and availability. Designed to address customers' big data and archive needs with slot densities that are twice those offered by competitors, the Scalar i6000 HD makes nearly 5 PB of data available in a single 19" rack and scales to more than 75 PB of capacity. It also incorporates new high-availability and management features, including active-active dual robotics for fast data access times.
  • Contributing to the strong growth in StorNext appliance sales, the StorNext M440 Metadata Appliance began its first full quarter of availability. It enables central control of up to 500 million files for management of large-scale, fast-growing datasets, including petabytes of tiered content archives. Quantum also started early shipments of its StorNext QX Storage, primary disk storage optimized for StorNext collaborative workflow environments. Both appliances are 100 percent compatible with the large installed base of Apple Xsan solutions and ideal for mid-sized creative workflow environments.
  • In the latest global accolades for the company's deduplication products, DXi6800 won the Initiative Mittelstand Innovation IT Award 2013 at the CeBIT trade show, and the DXi6701/02 took top honors as the Network Computing 2013 Product of the Year Award in the Storage Product category. In addition, Turner Studios' Sports Central received a prestigious 2012 Excellence Award from Broadcast Engineering magazine for a solution it created to streamline and centralize the video ingest, management and multi-screen distribution of its sports content. Turner uses Quantum's StorNext File System and StorNext Storage Manager™ software to manage the high-performance sharing, accessing and archiving of content within the system.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, May 8, 2013, at 2:00 p.m. PDT, to discuss its fiscal fourth quarter and full year results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (480) 629-9835 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, May 8, 2013, at 2:00 p.m. PDT. Site for the webcast and related information: www.quantum.com/investors.

About Quantum
Quantum is a proven global expert in data protection and big data management, providing specialized storage solutions for physical, virtual and cloud environments. From small businesses to major enterprises, more than 100,000 customers have trusted Quantum to help maximize the value of their data by protecting and preserving it over its entire lifecycle. With Quantum, customers can Be Certain™ they're able to adapt in a changing world -- keeping more data longer, bridging from today to tomorrow, and reducing costs. See how at www.quantum.com/BeCertain.

Quantum, the Quantum logo, Be Certain, DXi, Scalar, StorNext and Q-Cloud 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.

"Safe Harbor" Statement under the U.S. Private Securities Litigation Reform Act of 1995: This press release contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, without limitation, our statements that we will build on our progress to drive a balance of growth and profit in the new year, and that we will continue to be aggressive about utilizing our technology assets in our product development efforts and all of our statements under the "Outlook" section are forward-looking statements 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 statement. More detailed information about these risk factors, and additional risk factors, are 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 2012 and in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 8, 2013. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

Quantum believes that the non-GAAP financial measures disclosed above provide useful and supplemental information to investors regarding its quarterly financial performance. Quantum management uses these non-GAAP financial measures internally to understand, manage and evaluate the company's business results and make operating decisions. For instance, Quantum management often makes decisions regarding staffing, future management priorities and how the company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, compensation of our employees is based in part on the performance of our business based on non-GAAP operating income.

The non-GAAP financial measures used in this press release exclude the impact of acquisition expenses, amortization of intangibles, loss on debt extinguishment, restructuring charges and share-based compensation expense for the following reasons:

Acquisition Expenses
The acquisition expenses were those expenses incurred to acquire Pancetera, Inc. and are not part of Quantum's future core operations.

Amortization of Intangible Assets
This includes acquired intangibles such as purchased technology and customer relationships in connection with prior acquisitions. These expenses are not factored into management's evaluation of potential acquisitions or Quantum's performance after completion of the acquisitions because they are not related to Quantum's core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Quantum against the performance of other companies without the variability caused by purchase accounting.

Loss on Debt Extinguishment
The loss on debt extinguishment relates to specific debt refinancing actions and is not part of Quantum's future core operations.

Restructuring Charges
Restructuring charges primarily relate to expenses associated with changes to Quantum's operating structure. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Quantum has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges from Quantum's non-GAAP financial measures, as it enhances the ability of investors to compare Quantum's period-over-period operating results from continuing operations.

Share-Based Compensation Expense
Share-based compensation expense relates primarily to equity awards such as stock options and restricted stock units. Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Quantum's control. As a result, management excludes this item from Quantum's internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Quantum's core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material impact on the company's reported financial results and, therefore, should not be relied upon as the sole financial measures to evaluate the company. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

   
   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
(Unaudited)  
                         
    Three Months Ended     Twelve Months Ended  
    March 31, 2013     March 31, 2012     March 31, 2013     March 31, 2012  
                         
Revenue:                                
  Product   $ 92,648     $ 109,865     $ 399,043     $ 451,340  
  Service     36,899       36,408       144,037       144,364  
  Royalty     10,411       14,031       44,492       56,666  
    Total revenue     139,958       160,304       587,572       652,370  
Cost of revenue:                                
  Product     62,633       72,332       267,274       290,376  
  Service     19,721       22,727       79,647       88,459  
  Restructuring benefit related to cost of revenue     --       --       --       (300 )
    Total cost of revenue     82,354       95,059       346,921       378,535  
      Gross margin     57,604       65,245       240,651       273,835  
                                 
Operating expenses:                                
  Research and development     17,321       19,153       73,960       74,365  
  Sales and marketing     33,734       35,948       137,041       130,938  
  General and administrative     15,269       15,919       62,179       62,910  
  Restructuring charges     3,569       1,231       10,171       1,930  
    Total operating expenses     69,893       72,251       283,351       270,143  
Gain on sale of patents     --       --       --       1,500  
  Income (loss) from operations     (12,289 )     (7,006 )     (42,700 )     5,192  
                                 
Other income and expense     172       304       (216 )     (118 )
Interest expense     (2,446 )     (2,575 )     (8,342 )     (10,686 )
Loss on debt extinguishment     --       (2,310 )     --       (2,310 )
        Loss before income taxes     (14,563 )     (11,587 )     (51,258 )     (7,922 )
Income tax provision (benefit)     (56 )     (529 )     1,161       887  
        Net loss   $ (14,507 )   $ (11,058 )   $ (52,419 )   $ (8,809 )
                                 
                                 
Basic and diluted net loss per share   $ (0.06 )   $ (0.05 )   $ (0.22 )   $ (0.04 )
                                 
Basic and diluted weighted average shares     242,165       235,429       239,855       232,599  
                                 
                                 
                                 
Included in the above Statements of Operations:                                
                                 
Amortization of intangibles:                                
  Cost of revenue   $ 368     $ 1,435     $ 3,775     $ 7,583  
  Sales and marketing     1,856       3,256       9,524       13,128  
  General and administrative     --       --       --       32  
      2,224       4,691       13,299       20,743  
Share-based compensation:                                
  Cost of revenue     550       685       2,389       2,203  
  Research and development     893       784       3,665       3,250  
  Sales and marketing     1,096       989       4,699       4,048  
  General and administrative     871       1,033       4,386       4,236  
      3,410       3,491       15,139       13,737  
                                 
Acquisition expenses     --       --       --       325  
                                 
                                 
                                 
QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
             
             
    March 31, 2013     March 31, 2012*  
             
Assets                
Current assets:                
  Cash and cash equivalents   $ 68,976     $ 51,261  
  Restricted cash     3,023       4,230  
  Accounts receivable     99,093       110,840  
  Manufacturing inventories     53,075       61,111  
  Service parts inventories     35,368       39,050  
  Other current assets     12,192       14,729  
    Total current assets     271,727       281,221  
                 
Long-term assets:                
  Property and equipment     21,456       25,440  
  Intangible assets and goodwill     68,426       81,725  
  Other long-term assets     9,531       6,962  
    Total long-term assets     99,413       114,127  
                 
    $ 371,140     $ 395,348  
                 
Liabilities and Stockholders' Deficit                
Current liabilities:                
  Accounts payable   $ 47,634     $ 56,304  
  Accrued warranty     7,520       7,586  
  Deferred revenue, current     91,108       93,441  
  Accrued restructuring charges     4,756       1,752  
  Accrued compensation     30,311       31,971  
  Other accrued liabilities     20,188       18,999  
    Total current liabilities     201,517       210,053  
                 
Long-term liabilities:                
  Deferred revenue, long-term     38,393       36,430  
  Long-term debt     --       49,495  
  Convertible subordinated debt     205,000       135,000  
  Other long-term liabilities     7,812       11,050  
    Total long-term liabilities     251,205       231,975  
                 
  Stockholders' deficit     (81,582 )     (46,680 )
                 
    $ 371,140     $ 395,348  
                 
* Derived from the March 31, 2012 audited Consolidated Financial Statements.        
 
 
 
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
           
  Twelve Months Ended  
  March 31, 2013     March 31, 2012  
Cash flows from operating activities:              
  Net loss $ (52,419 )   $ (8,809 )
  Adjustments to reconcile net loss to net cash provided by operating activities:              
    Depreciation   12,413       11,774  
    Amortization   14,646       23,101  
    Service parts lower of cost or market adjustment   10,081       10,736  
    Loss on debt extinguishment   --       2,310  
    Deferred income taxes   (142 )     (1,280 )
    Share-based compensation   15,139       13,737  
    Changes in assets and liabilities, net of effect of acquisition:              
      Accounts receivable   11,747       4,134  
      Manufacturing inventories   (2,098 )     (21,373 )
      Service parts inventories   3,735       3,642  
      Accounts payable   (8,630 )     4,107  
      Accrued warranty   (66 )     552  
      Deferred revenue   (370 )     8,073  
      Accrued restructuring charges   3,009       (2,284 )
      Accrued compensation   (1,452 )     810  
      Other assets and liabilities   2,142       (3,570 )
Net cash provided by operating activities   7,735       45,660  
               
Cash flows from investing activities:              
  Purchases of property and equipment   (10,099 )     (11,414 )
  (Increase) decrease in restricted cash   1,113       (2,505 )
  Purchases of other investments   (2,169 )     --  
  Return of principal from other investments   247       97  
  Payment for business acquisition, net of cash acquired   --       (8,152 )
Net cash used in investing activities   (10,908 )     (21,974 )
               
Cash flows from financing activities:              
  Borrowings of long-term debt, net   --       48,535  
  Repayments of long-term debt   (49,495 )     (104,334 )
  Borrowings of convertible subordinated debt, net   67,701       --  
  Payment of taxes due upon vesting of restricted stock   (2,036 )     (2,944 )
  Proceeds from issuance of common stock   4,805       10,390  
Net cash provided by (used in) financing activities   20,975       (48,353 )
               
Effect of exchange rate changes on cash and cash equivalents   (87 )     (82 )
               
Net increase (decrease) in cash and cash equivalents   17,715       (24,749 )
Cash and cash equivalents at beginning of period   51,261       76,010  
Cash and cash equivalents at end of period $ 68,976     $ 51,261  
               
               
               
QUANTUM CORPORATION  
GAAP TO NON-GAAP RECONCILIATION  
(In thousands, except per share amounts)  
(Unaudited)  
                             
  Three Months Ended March 31, 2013  
  Gross Margin     Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP $ 57,604     41.2 %   $ (14,507 )   $ (0.06 )   $ (0.06 )
Non-GAAP Reconciling Items:                                    
  Amortization of intangibles   368             2,224                  
  Share-based compensation   550             3,410                  
  Restructuring charges   --             3,569                  
Non-GAAP $ 58,522     41.8 %   $ (5,304 )   $ (0.02 )   $ (0.02 )
                                     
            GAAP     Non-GAAP  
    Computation of basic and diluted net loss per share:                                    
      Net loss                       $ (14,507 )   $ (5,304 )
                                     
    Weighted average shares:                                    
      Basic                         242,165       242,165  
        Dilutive shares from stock plans                         --       --  
        Dilutive shares from convertible notes                         --       --  
      Diluted                         242,165       242,165  
                           
  Twelve Months Ended March 31, 2013  
  Gross Margin     Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP $ 240,651     41.0 %   $ (52,419 )   $ (0.22 )   $ (0.22 )
Non-GAAP Reconciling Items:                                    
  Amortization of intangibles   3,775             13,299                  
  Share-based compensation   2,389             15,139                  
  Restructuring charges   --             10,171                  
Non-GAAP $ 246,815     42.0 %   $ (13,810 )   $ (0.06 )   $ (0.06 )
                                     
            GAAP     Non-GAAP  
    Computation of basic and diluted net loss per share:                                    
      Net loss                       $ (52,419 )   $ (13,810 )
                                     
    Weighted average shares:                                    
      Basic                         239,855       239,855  
        Dilutive shares from stock plans                         --       --  
        Dilutive shares from convertible notes                         --       --  
      Diluted                         239,855       239,855  
                                     
                                     
  Three Months Ended March 31, 2012  
  Gross Margin     Gross Margin Rate     Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted  
GAAP $ 65,245     40.7 %   $ (11,058 )   $ (0.05 )   $ (0.05 )
Non-GAAP Reconciling Items:                                    
  Amortization of intangibles   1,435             4,691                  
  Share-based compensation   685             3,491                  
  Restructuring charges   --             1,231                  
  Loss on debt extinguishment   --             2,310                  
Non-GAAP $ 67,365     42.0 %   $ 665     $ 0.00     $ 0.00  
                                     
            GAAP     Non-GAAP  
    Computation of basic and diluted net income (loss) per share:                                    
      Net income (loss)                       $ (11,058 )   $ 665  
        Interest on dilutive convertible notes                         --       --  
      Income (loss) for purposes of computing income (loss) per diluted share                       $ (11,058 )   $ 665  
                                     
    Weighted average shares:                                    
      Basic                         235,429       235,429  
        Dilutive shares from stock plans                         --       6,321  
        Dilutive shares from convertible notes                         --       --  
      Diluted                         235,429       241,750  
                                     
  Twelve Months Ended March 31, 2012  
  Gross Margin     Gross Margin Rate     Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted  
GAAP $ 273,835     42.0 %   $ (8,809 )   $ (0.04 )   $ (0.04 )
Non-GAAP Reconciling Items:                                    
  Amortization of intangibles   7,583             20,743                  
  Share-based compensation   2,203             13,737                  
  Restructuring charges   (300 )           1,630                  
  Loss on debt extinguishment   --             2,310                  
  Acquisition expenses   --             325                  
Non-GAAP $ 283,321     43.4 %   $ 29,936     $ 0.13     $ 0.12  
                                     
            GAAP     Non-GAAP  
    Computation of basic and diluted net income (loss) per share:                                    
      Net income (loss)                       $ (8,809 )   $ 29,936  
        Interest on dilutive convertible notes                         --       --  
      Income (loss) for purposes of computing income (loss) per diluted share                       $ (8,809 )   $ 29,936  
                                     
    Weighted average shares:                                    
      Basic                         232,599       232,599  
        Dilutive shares from stock plans                         --       7,028  
        Dilutive shares from convertible notes                         --       --  
      Diluted                         232,599       239,627  
                                     

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies. 

 
QUANTUM CORPORATION
FULL YEAR AND FIRST QUARTER FISCAL 2014 FORECASTS
GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions, except per share amounts)
 
FULL YEAR FISCAL 2014
 

For fiscal 2014, we forecast GAAP and non-GAAP gross margin rates in the mid-40 percent range, with non-GAAP gross margin approximately 60 basis points higher than GAAP gross margin, comprised of 0.2% for intangible amortization and 0.4% for share-based compensation.

       
    Dollar Range  
Forecast fiscal 2014 operating expense on a GAAP basis   $ 264.5   - $ 269.5  
                 
Forecast amortization of intangibles     7.4  
Forecast share-based compensation     12.1  
                 
Forecast fiscal 2014 operating expense on a non-GAAP basis   $ 245.0   - $ 250.0  
                 
       
    Dollar Range  
Forecast fiscal 2014 diluted earnings (loss) per share on a GAAP basis   $ (0.05 ) - $ 0.00  
                 
Forecast amortization of intangibles     0.04  
Forecast share-based compensation     0.06  
                 
Forecast fiscal 2014 diluted earnings per share on a non-GAAP basis   $ 0.05   - $ 0.10  
                 
                 
FIRST QUARTER FISCAL 2014  
       
    Percentage Range  
Forecast first quarter fiscal 2014 gross margin rate on a GAAP basis     41.3 % -   42.3 %
                 
Forecast amortization of intangibles     0.3%  
Forecast share-based compensation     0.4%  
                 
Forecast first quarter fiscal 2014 gross margin rate on a non-GAAP basis     42.0 % -   43.0 %
                 
       
    Dollar Range  
Forecast first quarter fiscal 2014 operating expense on a GAAP basis   $ 64.9   - $ 66.9  
                 
Forecast amortization of intangibles     1.9  
Forecast share-based compensation     3.0  
                 
Forecast first quarter fiscal 2014 operating expense on a non-GAAP basis   $ 60.0   - $ 62.0  
                 
                 

Estimates based on current (May 8, 2013) projections.                            

The projected GAAP and non-GAAP financial information set forth in this table represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For risk factors that could impact these projections, see our Annual Report on Form 10-K as filed with the SEC on June 14, 2012. We disclaim any obligation to update information in any forward-looking statement. 

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.   

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