SOURCE: Quantum Corporation

Quantum Corporation

July 31, 2012 16:10 ET

Quantum Corporation Reports Fiscal First Quarter Results

SAN JOSE, CA--(Marketwire - Jul 31, 2012) - Quantum Corp. (NYSE: QTM)

Highlights:

  • Record first quarter disk systems and software revenue of $31 million, up 11% year-over-year
  • StorNext software and appliances revenue up nearly 50% year-over-year, reflecting continued momentum in meeting customers' big data needs

Quantum Corp. (NYSE: QTM), a proven global expert in data protection and big data management, today reported results for the first quarter of fiscal 2013 (FQ1'13), ended June 30, 2012. Revenue for the quarter totaled $141 million, down 8 percent from the first quarter of fiscal 2012 (FQ1'12) primarily due to lower-than-expected revenue in Europe and challenges closing large deals in the last few weeks of the quarter. Despite the overall revenue decline, disk systems and software sales (including related service revenue) grew 11 percent year-over-year to $31 million, the highest level in a fiscal first quarter to date. The primary drivers of this growth were StorNext® software and appliances for big data environments, which increased nearly 50 percent over FQ1'12, and midrange DXi® disk-based data protection appliances, which increased 10 percent year-over-year.

Due largely to the overall revenue shortfall, Quantum reported a GAAP net loss of $17 million, or 7 cents per share, for FQ1'13, compared to a GAAP net loss of $5 million in FQ1'12. On a non-GAAP basis, the company had a net loss of $9 million, or 4 cents per share, down from net income of $3 million in the same quarter last year.

"Our overall June quarter results were not what we planned for and not what we expected when we started the fiscal year, and they were clearly disappointing," said Jon Gacek, president and CEO of Quantum. "Although we can't do anything about the macroeconomic conditions that impacted Quantum and many other companies, we know we must adjust the business and improve our execution around what we can control to drive better financial performance, including revenue growth and profitability -- and that is our focus.

"We are continuing to enhance and expand our already strong product portfolio in both data protection and big data management. In addition, we are driving increased brand awareness and end user marketing and engaging more closely with key channel partners. As a result, we believe we are still well-positioned to capitalize on market opportunities."

Outlook
For the second quarter of fiscal 2013, the company expects:

  • Revenue of approximately $150 million to $155 million.
  • GAAP gross margin rate of approximately 41 percent and non-GAAP gross margin rate of
    42 percent.
  • GAAP operating expenses of $70 million to $72 million and non-GAAP operating expenses of $64 million to $66 million.
  • Interest expense of $2 million and taxes of $1 million.

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

  • Quantum announced the Scalar LTFS (Linear Tape File System) appliance, offering new modes of portability and user accessibility for archived content on LTO tape. Because the appliance works with existing application and file system tools, it enables LTFS-based content to be easily managed and transported for long-term data protection and archival storage and accessed when needed. The Scalar LTFS appliance can also be used to import and export LTFS open-standard media into a StorNext File System, providing a cost-effective content distribution alternative for cloud services and applications.
  • Building on its leadership in helping customers manage and extract maximum value from big data content, the company announced that it will offer new solutions incorporating next generation object storage technology, which Quantum refers to as "wide area storage." These new solutions will enable both big data content and analytics customers to overcome current challenges in maintaining, protecting and accessing their data on disk over the long term.
  • Quantum unveiled the StorNext M660 metadata appliance which is built to provide centralized control of up to eight StorNext file systems and to manage large-scale, fast-growing datasets, including up to petabytes of economical, tiered content archives. By combining this extended scalability with the industry's leading streaming performance, the StorNext M660 delivers the power and flexibility required for data-intensive environments, ranging from digital media and life science research to surveillance and energy exploration.
  • Quantum's DXi6000 family received its third Product of the Year Award in the past year. The DXi6700 Series of disk backup, deduplication and replication appliances was named "Disk-Based Product of the Year - Enterprise" at the 2012 Storage Awards: The Storries IX in London. This award was the latest validation of Quantum's worldwide leadership in simplifying data protection across distributed sites and different environments.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, July 31, 2012, at 2:00 p.m. PDT, to discuss its fiscal first quarter 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, July 31, 2012, at 2:00 p.m. PDT. Site for the webcast and related information: http://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 50,000 customers trust 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 and StorNext 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 regarding driving improved financial performance, expanding our product portfolio, driving increased brand awareness, end-user marketing and channel partner engagement, capitalizing on market opportunities 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 "Item 1A. Risk Factors," in Quantum's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 2012. 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, 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.

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  
    June 30, 2012     June 30, 2011  
                 
Revenue:                
  Product   $ 93,811     $ 102,268  
  Service     36,087       36,696  
  Royalty     10,981       14,571  
    Total revenue     140,879       153,535  
Cost of revenue:                
  Product     64,750       68,507  
  Service     20,334       22,066  
  Restructuring benefit related to cost of revenue     --       (300 )
    Total cost of revenue     85,084       90,273  
      Gross margin     55,795       63,262  
                 
  Operating expenses:                
    Research and development     18,549       18,580  
    Sales and marketing     35,278       30,525  
    General and administrative     16,780       16,002  
    Restructuring benefit     --       (164 )
      70,607       64,943  
      Loss from operations     (14,812 )     (1,681 )
  Other income and expense     (338 )     (98 )
  Interest expense     (1,849 )     (2,809 )
      Loss before income taxes     (16,999 )     (4,588 )
  Income tax provision     499       638  
      Net loss   $ (17,498 )   $ (5,226 )
                 
  Basic and diluted net loss per share   $ (0.07 )   $ (0.02 )
                 
  Basic and diluted weighted average common and common equivalent shares     236,628       228,423  
                 
                 
Included in the above Statements of Operations:                
                 
Amortization of intangibles:                
      Cost of revenue   $ 1,362     $ 2,575  
      Sales and marketing     3,256       3,331  
      General and administrative     --       25  
      4,618       5,931  
Share-based compensation:                
      Cost of revenue     571       455  
      Research and development     900       640  
      Sales and marketing     1,084       719  
      General and administrative     1,732       1,203  
      4,287       3,017  
                 
Acquisition expenses     --       232  
                 
                 
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
             
             
    June 30, 2012     March 31, 2012*  
                 
Assets                
Current assets:                
  Cash and cash equivalents   $ 46,270     $ 51,261  
  Restricted cash     3,958       4,230  
  Accounts receivable, net     86,857       110,840  
  Manufacturing inventories     63,575       61,111  
  Service parts inventories     38,438       39,050  
  Deferred income taxes     4,891       5,295  
  Other current assets     12,059       9,434  
    Total current assets     256,048       281,221  
                 
Long-term assets:                
  Property and equipment, net     25,287       25,440  
  Intangible assets and goodwill     77,107       81,725  
  Other long-term assets     6,086       6,962  
    Total long-term assets     108,480       114,127  
                 
    $ 364,528     $ 395,348  
                 
Liabilities and Stockholders' Deficit                
Current liabilities:                
  Accounts payable   $ 47,367     $ 56,304  
  Accrued warranty     7,797       7,586  
  Deferred revenue, current     86,131       93,441  
  Accrued restructuring charges     1,268       1,752  
  Accrued compensation     31,451       31,971  
  Income taxes payable     618       1,133  
  Other accrued liabilities     18,598       17,866  
    Total current liabilities     193,230       210,053  
                 
Long-term liabilities:                
  Deferred revenue, long-term     36,389       36,430  
  Deferred income taxes     4,530       4,564  
  Long-term debt     49,495       49,495  
  Convertible subordinated debt     135,000       135,000  
  Other long-term liabilities     6,438       6,486  
    Total long-term liabilities     231,852       231,975  
                 
Stockholders' deficit     (60,554 )     (46,680 )
                 
    $ 364,528     $ 395,348  
                 
* Derived from the March 31, 2012 audited Consolidated Financial Statements.  
           
                 
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
             
    Three Months Ended  
    June 30, 2012     June 30, 2011  
                 
Cash flows from operating activities:                
  Net loss   $ (17,498 )   $ (5,226 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
    Depreciation     3,021       2,982  
    Amortization     4,912       6,482  
    Service parts lower of cost or market adjustment     2,029       1,735  
    Deferred income taxes     382       (493 )
    Share-based compensation     4,287       3,017  
    Changes in assets and liabilities, net of effect of acquisition:          
      Accounts receivable     23,983       18,150  
      Manufacturing inventories     (4,603 )     (2,564 )
      Service parts inventories     722       1,328  
      Accounts payable     (8,891 )     (1,364 )
      Accrued warranty     211       123  
      Deferred revenue     (7,351 )     (7,055 )
      Accrued restructuring charges     (484 )     (2,486 )
      Accrued compensation     (274 )     (1,019 )
      Income taxes payable     (474 )     303  
      Other assets and liabilities     (1,081 )     (2,545 )
Net cash provided by (used in) operating activities     (1,109 )     11,368  
                 
Cash flows from investing activities:                
  Purchases of property and equipment     (3,984 )     (3,413 )
  Decrease in restricted cash     109       300  
  Return of principal from other investments     208       --  
  Payment for business acquisition, net of cash acquired     --       (8,152 )
Net cash used in investing activities     (3,667 )     (11,265 )
                 
Cash flows from financing activities:                
  Repayments of long-term debt     --       (5,267 )
  Payment of taxes due upon vesting of restricted stock     (321 )     (424 )
  Proceeds from issuance of common stock     176       3,433  
Net cash used in financing activities     (145 )     (2,258 )
                 
Effect of exchange rate changes on cash and cash equivalents     (70 )     (26 )
                 
Net decrease in cash and cash equivalents     (4,991 )     (2,181 )
Cash and cash equivalents at beginning of period     51,261       76,010  
Cash and cash equivalents at end of period   $ 46,270     $ 73,829  
                 
                 
   
QUANTUM CORPORATION  
GAAP TO NON-GAAP RECONCILIATION  
(In thousands, except per share amounts)  
(Unaudited)  
                             
    Three Months Ended June 30, 2012  
    Gross Margin   Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP   $ 55,795   39.6 %   $ (17,498 )   $ (0.07 )   $ (0.07 )
Non-GAAP Reconciling Items:                                    
  Amortization of intangibles     1,362           4,618                  
  Share-based compensation     571           4,287                  
Non-GAAP   $ 57,728   41.0 %   $ (8,593 )   $ (0.04 )   $ (0.04 )
                                     
      Computation of basic and diluted net loss per share:                        GAAP       Non-GAAP   
        Net loss                       $ (17,498 )   $ (8,593 )
                                     
      Weighted average shares:                                    
        Basic                         236,628       236,628  
          Dilutive shares from stock plans                         --       --  
          Dilutive shares from convertible notes                         --       --  
        Diluted                         236,628       236,628  
                                           
                               
    Three Months Ended June 30, 2011  
    Gross Margin     Gross Margin Rate     Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted  
GAAP   $ 63,262     41.2 %   $ (5,226 )   $ (0.02 )   $ (0.02 )
Non-GAAP Reconciling Items:                                      
  Amortization of intangibles     2,575             5,931                  
  Share-based compensation     455             3,017                  
  Restructuring benefit     (300 )           (464 )                
  Acquisition expenses     --             232                  
Non-GAAP   $ 65,992     43.0 %   $ 3,490     $ 0.02     $ 0.01  
                                       
      Computation of basic and diluted net income (loss) per share:                         GAAP     Non-GAAP  
        Net income (loss)                         $ (5,226 )   $ 3,490  
                                       
      Weighted average shares:                                      
        Basic                           228,423       228,423  
          Dilutive shares from stock plans                           --       9,689  
          Dilutive shares from convertible notes                           --       --  
        Diluted                           228,423       238,112  
                                       
                                       

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    
FORECAST SECOND QUARTER FISCAL 2013    
GAAP TO NON-GAAP RECONCILIATION    
(Dollars in millions)    
     
     
     
    Percentage
     
Forecast second quarter gross margin rate on a GAAP basis   40.9%
     
Forecast amortization of intangibles   0.7%
Forecast share-based compensation   0.4%
     
Forecast second quarter gross margin rate on a non-GAAP basis   42.0%
     
    Dollar range
     
Forecast second quarter operating expense on a GAAP basis   $69.9 - $71.9
     
Forecast amortization of intangibles   2.6
Forecast share-based compensation   3.3
     
Forecast second quarter operating expense on a non-GAAP basis   $64.0 - $66.0
     

Estimates based on current (July 31, 2012) 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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