SOURCE: Quantum Corporation

May 15, 2008 16:37 ET

Quantum Corporation Reports Fiscal Fourth Quarter and Year-End Financial Results

Company Also Announces General Availability of DXi7500 Enterprise Disk Backup System With De-Duplication and Replication

SAN JOSE, CA--(Marketwire - May 15, 2008) - Quantum Corp. (NYSE: QTM), the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal fourth quarter (FQ4'08), ended March 31, 2008, was $229 million and that revenue for the full fiscal year 2008 (FY08) was approximately $976 million, representing respective declines of 17 percent and 4 percent over the comparable periods for fiscal year 2007 (FY07).(1) In part, these declines reflected the company's strategy of shifting its sales mix toward higher margin opportunities -- this shift resulted in a year-over-year increase of 4 percentage points in its GAAP gross margin rate and an increase in its branded share of non-royalty revenue to 66 percent in FQ4'08 from 57 percent in the same period of FY07.

The company reported a GAAP net loss of $15 million for FQ4'08, or 8 cents per share, a 2-cent improvement over the fiscal fourth quarter of 2007 (FQ4'07). This $15 million net loss included $11 million in amortization of intangibles and $4 million in stock-based compensation charges, and the net impact of these items reduced earnings per share on a diluted basis by approximately 8 cents.

Quantum generated $32 million in cash from operations for the quarter and paid down another $20 million of debt related to the acquisition of ADIC.

Additionally, Quantum today announced general availability of its DXi7500 enterprise disk backup system with de-duplication and replication. (See release titled, "Quantum Announces General Availability of Industry's First Solution Designed to Match De-duplication Functionality to Specific Backup Needs.")

"Over the past year, we've made significant progress in improving our financial model and further refining our strategic focus to drive greater growth potential," said Rick Belluzzo, chairman and CEO of Quantum. "Both our operating income and net income for FY08 were the highest they've been in five years, when intangible amortization, stock-based compensation, acquisition-related expenses and debt refinancing costs are excluded.

"Nevertheless, we did not meet our revenue goals for our overall branded business and disk systems and software products, and driving growth in these areas will be our top priority in the coming year," continued Belluzzo. "We also believe we are better positioned to deliver on this objective going forward. Our DXi7500 enterprise disk backup system is now generally available, enabling us to provide customers with end-to-end data protection that integrates closely with tape. We feel very good about our technology leadership in this area and the partnership opportunities it provides, as reflected in our January announcement that a major OEM would be licensing our de-duplication and replication software. Finally, we've taken a number of steps in the areas of engineering, sales and marketing to address the challenges we encountered over the last year and achieve greater market momentum."

Quantum's GAAP gross margin rate for FQ4'08 was 33.0 percent, a solid increase over the 29.5 percent rate in FQ4'07. Operating expenses were $82 million, down from $88 million in FQ4'07.

For the full fiscal year 2008, the GAAP gross margin rate was 32.7 percent, up from 28.9 percent in FY07. Operating expenses in FY08 totaled $327 million, an increase of $7 million over the prior year. Quantum had a GAAP net loss of $60 million, or 30 cents per share, in FY08. This compared to a net loss of $64 million, or 33 cents per share, in FY07, reflecting the improved gross margins. The $60 million net loss in FY08 included a number of major expense items totaling $88 million: $49 million in amortization of intangibles; $14 million in stock-based compensation charges; $13 million in costs associated with refinancing the ADIC acquisition-related debt on more favorable terms; and $12 million in restructuring and other transition expenses related to the ADIC acquisition. The net impact of these items reduced FY08 earnings per share on a diluted basis by approximately 44 cents.

Quantum's product revenue, which includes sales of the company's hardware and software products, totaled $163 million in the March quarter. This represented a net decrease of $46 million over FQ4'07, primarily due to a decline in OEM sales. The components of product revenue were as follows:

--  Disk systems and software revenue was $11 million, up $3 million from
    FQ4'07, with sales of Quantum's DXi3500 and DXi5500 de-duplication and
    replication appliances offsetting the revenue decline in the company's
    legacy disk products.
--  Tape automation systems revenue totaled $94 million in the March
    quarter, a decrease of $25 million from the comparable period last year,
    primarily related to expected declines in OEM sales.
--  Revenue from devices and non-royalty media sales totaled $58 million
    in FQ4'08, down $24 million from the same quarter in FY07, with nearly all
    the decline coming from lower device sales.
    

Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $41 million in FQ4'08. This was an increase of $3 million over FQ4'07.

Quantum had $25 million in royalty revenue for the March quarter, down approximately $5 million from the comparable quarter in FY07. However, $3 million of this decline reflected a one-time royalty payment the company received in FQ4'07 as a result of a cross-license agreement.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, May 15, 2008, at 2:00 p.m. PDT, to discuss its fiscal fourth quarter and year-end results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (303) 262-2130 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, May 15, 2008, at 2:00 p.m. PDT. 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 de-duplication 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 and the Quantum logo are trademarks of Quantum Corporation registered in the United States and other countries. DXi is a trademark of Quantum Corporation. 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, statements relating to: (1) our belief that actions undertaken across the company will help drive growth in branded revenue and disk systems and software products over the coming quarters; (2) the expected benefits of our DXi7500; and (3) our FY 2009 priorities, are forward-looking statements within the meaning of the Safe Harbor. These statements are based on management's current expectations and are subject to certain risks and uncertainties. As a result, actual results may differ materially from the forward-looking statements contained herein. Factors that could cause actual results to differ materially from those described herein include, but are not limited to: (a) the failure to compete successfully in the highly competitive and rapidly changing marketplace for backup, recovery, archive and other storage products and services; (b) our ability to successfully execute to our product roadmaps and timely ship our products; (c) the risk that lower volumes and continuing price and cost pressures could lead to lower gross margin rate; (d) media royalties from media manufacturers coming in at lower levels than expected; (e) operational risks associated with the changes being made to our manufacturing infrastructure; (f) acceptance of, or demand for, our products being lower than anticipated; and (g) difficulties in retaining key employees. 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," on pages 12 to 21 of Quantum's Annual Report on Form 10-K for fiscal year 2007, filed with the Securities and Exchange Commission on June 13, 2007 and on pages 36 to 46 of Quantum's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2007, filed with the Securities and Exchange Commission on February 8, 2008. In particular, you should review the risk factors on pages 12 through 14 of our Form 10-K under the headings "A large percentage of our sales come from a few customers, and these customers have no minimum or long-term purchase commitments. The loss of, or a significant reduction in demand from, one or more key customers could materially and adversely affect our business, financial condition, and operating results", "From time to time we make acquisitions, such as the recent acquisition of ADIC. The failure to successfully integrate recent or future acquisitions could harm our business, financial condition, and operating results," "We derive almost all of our revenue from products incorporating tape technology. If competition from alternative storage technologies continues or increases, our business, financial condition, and operating results would be materially and adversely harmed" and "Competition has increased, and may increasingly intensify, in the tape drive and tape automation markets as a result of competitors introducing products based on new technology standards, which could materially and adversely affect our business, financial condition, and results of operations." Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

(1) FY07 included only two full quarters of combined results, following Quantum's acquisition of ADIC in August 2006.


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


                           Three Months Ended       Twelve Months Ended
                        ------------------------  ------------------------
                         March 31,    March 31,    March 31,    March 31,
                            2008         2007         2008         2007
                        -----------  -----------  -----------  -----------
                        (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)

Revenue:
  Product               $   163,103  $   209,330  $   714,837  $   780,323
  Service                    41,180       38,473      160,920      121,933
  Royalty                    24,633       29,507       99,945      113,918
                        -----------  -----------  -----------  -----------
    Total revenue           228,916      277,310      975,702    1,016,174
Cost of Revenue:
  Product                   119,314      156,459      531,937      630,307
  Service                    34,003       38,220      124,424       91,582
  Restructuring charges
   related to cost of
   revenue                       --          900          237          900
                        -----------  -----------  -----------  -----------
    Total cost of
     revenue                153,317      195,579      656,598      722,789
                        -----------  -----------  -----------  -----------
      Gross margin           75,599       81,731      319,104      293,385

  Operating expenses:
    Research and
     development             20,578       29,139       89,563      107,546
    Sales and marketing      40,387       36,890      149,367      123,134
    General and
     administrative          20,499       16,853       78,789       63,251
    Restructuring charges        53        4,620        9,482       11,908
    In-process research
     and development             --           --           --       14,700
                        -----------  -----------  -----------  -----------
                             81,517       87,502      327,201      320,539
                        -----------  -----------  -----------  -----------
  Loss from operations       (5,918)      (5,771)      (8,097)     (27,154)
  Interest income and
   other, net                  (192)       2,473        6,008        8,746
  Interest expense           (9,842)     (14,774)     (58,627)     (40,748)
                        -----------  -----------  -----------  -----------
  Loss before income
   taxes                    (15,952)     (18,072)     (60,716)     (59,156)
  Income tax provision
   (benefit)                 (1,160)       2,246         (482)       4,938
                        -----------  -----------  -----------  -----------
      Net loss          $   (14,792) $   (20,318) $   (60,234) $   (64,094)
                        ===========  ===========  ===========  ===========


  Basic and diluted net
   loss per share       $     (0.08) $     (0.10) $     (0.30) $     (0.33)
  Basic and diluted
   weighted average
   common and common
   equivalent shares        206,259      196,499      202,432      192,236




  Included in the above Statements of Operations:

  Expense related to
   retiring prior debt
   facility             $        --  $        --  $    12,602  $        --

  Accelerated
   depreciation on
   legacy IT system              --          988        2,179          988
  Accelerated
   depreciation related
   to facility closures          --           --          132           --

  Amortization of
   inventory valuation
   step-up                       --           --           --        1,960

  Retention expense:
      Cost of revenue            --           --          252          747
      Research and
       development               --           --           --          490
      Sales and
       marketing                 --           --           --        1,097
      General and
       administrative            --           --          114          126
                        -----------  -----------  -----------  -----------
                                 --           --          366        2,460

  Amortization of
   intangibles:
      Cost of revenue         6,918        8,503       30,825       26,567
      Research and
       development              100          134        1,032          999
      Sales and
       marketing              4,131        4,214       16,754       14,217
      General and
       administrative            25           20          100          209
                        -----------  -----------  -----------  -----------
                             11,174       12,871       48,711       41,992
  Share-based
   compensation:
      Cost of revenue           407          337        1,929        1,191
      Research and
       development              877          787        3,778        2,544
      Sales and
       marketing                825          561        3,269        1,965
      General and
       administrative         1,465          740        5,022        3,272
                        -----------  -----------  -----------  -----------
                              3,574        2,425       13,998        8,972







                            QUANTUM CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             ( In thousands )


                                                     March 31,    March 31
                                                       2008        2007
                                                    ----------- -----------
                                                    (Unaudited)      *
Assets
  Current assets:
    Cash and cash equivalents                       $    93,643 $    59,926
    Marketable securities                                     -      35,000
    Accounts receivable, net                            182,998     150,090
    Inventories                                          75,995      91,153
    Deferred income taxes                                12,060      17,137
    Other current assets                                 30,601      33,155
                                                    ----------- -----------
      Total current assets                              395,297     386,461

  Long-term assets:
    Property and equipment, less accumulated
     depreciation                                        39,271      50,241
    Service parts for maintenance, less accumulated
     amortization                                        77,211      82,361
    Purchased technology, less accumulated
     amortization                                        74,667     106,524
    Other intangible assets, less accumulated
     amortization                                        75,223      92,077
    Goodwill                                            390,776     390,032
    Other long-term assets                               13,280      18,133
                                                    ----------- -----------
      Total long-term assets                            670,428     739,368

                                                    ----------- -----------
                                                    $ 1,065,725 $ 1,125,829
                                                    =========== ===========

Liabilities and Stockholders' Equity
  Current liabilities:
    Accounts payable                                $    97,965 $    92,292
    Accrued warranty                                     19,862      30,669
    Deferred revenue, current                            73,525      57,617
    Current portion of long-term debt                     4,000      25,000
    Accrued restructuring charges                         3,834      13,289
    Other accrued liabilities                            82,997     110,583
                                                    ----------- -----------
      Total current liabilities                         282,183     329,450

  Long-term liabilities:
    Deferred revenue, long-term                          31,152      27,634
    Deferred income taxes                                13,640      16,751
    Long-term debt                                      336,000     337,500
    Convertible subordinated debt                       160,000     160,000
    Other long-term liabilities                          14,746          53
                                                    ----------- -----------
      Total long-term liabilities                       555,538     541,938

Stockholders' equity                                    228,004     254,441

                                                    ----------- -----------
                                                    $ 1,065,725 $ 1,125,829
                                                    =========== ===========

* Derived from the March 31, 2007 audited Consolidated Financial Statements






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


                                                    Twelve Months Ended
                                                  ------------------------
                                                   March 31,    March 31,
                                                      2008         2007
                                                  -----------  -----------
                                                  (Unaudited)  (Unaudited)
Cash flows from operating activities:
  Net loss                                        $   (60,234) $   (64,094)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
    Depreciation                                       25,184       29,416
    Amortization  **                                   74,713       55,784
    Realized gain on sale of investment                (2,122)          --
    In-process research and development                    --       14,700
    Gain on Ireland facility closure                       --         (476)
    Deferred income taxes                                (260)       1,006
    Share-based compensation                           13,998        8,972
    Fixed assets written off in restructuring             568        1,229
    Common stock received for license fee                  --       (3,319)
    Changes in assets and liabilities, net of
     effects from acquisition and sale of
     subsidiary:
      Accounts receivable                             (32,908)      47,620
      Inventories                                       8,126       26,430
      Service parts for maintenance                   (10,957)     (19,767)
      Accounts payable                                 13,978       (4,914)
      Income taxes payable                               (234)       1,305
      Accrued warranty                                (10,807)      (8,698)
      Deferred revenue                                 19,426        8,425
      Accrued restructuring charges                    (8,953)     (13,515)
      Other assets and liabilities                     (3,777)     (16,342)
                                                  -----------  -----------
Net cash provided by operating activities              25,741       63,762

Cash flows from investing activities:
  Purchases of marketable securities                  (65,000)    (714,758)
  Proceeds from sale of marketable securities         100,000      781,834
  Purchases of property and equipment                 (21,110)     (17,195)
  Proceeds from sale of investment                      5,441           --
  Proceeds from sale of facility                           --        6,000
  Proceeds from sale of subsidiary, net of cash
   sold                                                 2,176           --
  Payments made in connection with business
   acquisitions, net of cash acquired                      --     (545,385)
                                                  -----------  -----------
Net cash provided by (used in) investing
 activities                                            21,507     (489,504)

Cash flows from financing activities:
  Borrowings of long-term debt, net                   441,953      486,683
  Repayments of long-term debt                       (472,500)    (134,000)
  Proceeds from issuance of common stock, net          17,016       10,295
                                                  -----------  -----------
Net cash provided by (used in) financing
 activities                                           (13,531)     362,978

Net increase (decrease) in cash and cash
 equivalents                                           33,717      (62,764)
Cash and cash equivalents at beginning of period       59,926      122,690
                                                  -----------  -----------
Cash and cash equivalents at end of period        $    93,643  $    59,926
                                                  ===========  ===========


**  Amortization for fiscal 2008 includes $8.1 million of unamortized debt
    costs written off due to payoff of our prior August 2006 debt facility;
    and for fiscal 2007 includes $8.1 million of unamortized debt costs
    written off due to payoff of our prior October 2005 amended debt
    facility.

Contact Information


  • Contact:
    Brad Cohen
    Public Relations
    Quantum Corp.
    (408) 944-4044
    Email Contact

    Marilyn Keys
    Investor Relations
    Quantum Corp.
    (408) 944-4450
    Email Contact