SOURCE: Quantum Corporation

October 27, 2009 16:36 ET

Quantum Corporation Reports Fiscal Second Quarter Results

Highlights:

-- Total revenue of $175 million - up 9 percent sequentially

-- GAAP gross margin rate of 43.8 percent - highest in more than eight years

-- GAAP net income of $11 million - highest in nearly five years

-- Disk systems and software revenue of $28 million - up 36 percent year-over-year and 47 percent sequentially

SAN JOSE, CA--(Marketwire - October 27, 2009) - Quantum Corp. (NYSE: QTM), the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal second quarter (FQ2'10), ended Sept. 30, 2009, was $175 million. This represented a 19 percent decline from the same period last year (FQ2'09), primarily due to the significantly weaker economy, a continued sales mix shift toward higher margin opportunities, and lower royalties (partly reflecting a one-time royalty payment from Riverbed Technology, Inc. last year). Despite the year-over-year decline, revenue grew 9 percent on a sequential basis. In addition, the company increased its GAAP gross margin rate to 43.8 percent and GAAP operating income margin to 8.5 percent -- up from 38.5 percent and 2.6 percent, respectively, in FQ2'09. In both cases, this was the highest level achieved in more than eight years.

Quantum also reported its second consecutive quarter of GAAP profits, with $11 million in net income, or basic earnings per share of six cents. This compared to a GAAP net loss of $3 million in FQ2'09 and represented the company's best performance in nearly five years. The $11 million profit included a $2 million net gain related to the retirement of convertible debt, offset by $9 million in amortization of intangibles, $3 million in stock-based compensation charges and $2 million in restructuring costs. The net impact of these four items reduced basic earnings per share by five cents.

Quantum generated $31 million in cash from operations for the quarter, paid down $20 million of its senior debt, and ended the quarter with $85 million in cash and cash equivalents.

"Despite the continuing impact of the economic downturn and changes in the deduplication landscape, we delivered some of our best results in many years," said Rick Belluzzo, chairman and CEO of Quantum. "This included significantly higher gross margin rates, operating income and margins, and net income, compared to both last year and the prior quarter. We also generated strong growth in disk systems and software revenue, with our branded DXi backup/deduplication sales up significantly, both year-over-year and sequentially.

"Our September quarter results reflect a number of initiatives we have implemented over the past year, as well as an aggressive shift we made in our go-to-market focus during the quarter in response to changed industry dynamics," continued Belluzzo. "While we have more work to do in completing our transformation to a storage systems company, our performance clearly shows the substantial progress we've made."

Quantum's product revenue, which includes sales of the company's hardware and software products, totaled $118 million in FQ2'10. This represented a decrease of $25 million from FQ2'09, primarily reflecting expected declines in both OEM tape automation sales and OEM devices and media revenue.

Disk systems and software revenue, inclusive of related software maintenance and service revenue, was $28 million in the September quarter. This was up approximately $7 million from the same quarter last year, primarily due to record sales of Quantum's DXi7500 enterprise disk backup and deduplication system. Contributing to these record sales were several deals of more than a million dollars, including new DXi account wins at one of the top utility companies in the world and another national utility provider in Europe. Other notable DXi7500 wins included a large deal with one of the biggest U.S. insurance companies -- a new DXi customer -- and repeat business with one of the largest wireless providers in America, a U.S. Federal Reserve Bank and Aéroports de Paris.

The increase in disk systems and software revenue also included modest growth in StorNext® sales on both a year-over-year and sequential basis. In addition to a strong contribution from federal government business, Quantum closed several major StorNext deals, including a new win at one of the leading U.S. cable TV networks and repeat purchases by a large multimedia retailer and one of the biggest system integrators in China.

Looking beyond FQ2'10, Quantum said it expects to build on its branded revenue momentum in disk systems and software with last week's announcement of the company's new DXi6500 family, a set of preconfigured disk backup and deduplication appliances targeted at the midrange NAS market and optimized for sale through independent channel partners (see press release titled, "New Quantum DXi6500 Family Delivers Unparalleled Combination of Simplicity and Value in Midrange Deduplication," Oct. 21, 2009).

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Oct. 27, 2009, at 2:00 p.m. PDT, to discuss its fiscal second 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, Oct. 27, 2009, 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 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 Quantum expects to build on its branded revenue momentum in disk systems and software with last week's announcement of the company's new DXi6500 family, is 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 August 7, 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           Six Months Ended
                    --------------------------  --------------------------
                    September 30, September 30, September 30, September 30,
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------
Revenue:
  Product           $    118,327  $    143,192  $    223,551  $    300,776
  Service                 39,757        41,579        78,659        83,836
  Royalty                 16,842        30,619        33,056        52,569
                    ------------  ------------  ------------  ------------
    Total revenue        174,926       215,390       335,266       437,181
Cost of Revenue:
  Product                 73,077        99,631       145,163       214,634
  Service                 25,220        32,884        51,831        64,833
                    ------------  ------------  ------------  ------------
    Total cost of
     revenue              98,297       132,515       196,994       279,467
                    ------------  ------------  ------------  ------------
      Gross margin        76,629        82,875       138,272       157,714
Operating expenses:
  Research and
   development            16,907        18,766        33,439        37,756
  Sales and
   marketing              27,880        38,148        55,173        78,185
  General and
   administrative         15,218        19,820        29,723        41,845
  Restructuring
   charges                 1,696           457         4,806           407
                    ------------  ------------  ------------  ------------
                          61,701        77,191       123,141       158,193
                    ------------  ------------  ------------  ------------
Income (loss) from
 operations               14,928         5,684        15,131          (479)
Interest income and
 other, net                1,265          (385)        1,269         1,097
Interest expense          (6,935)       (7,510)      (12,586)      (16,285)
Gain on debt
 extinguishment,
 net of costs              1,569            --        12,859            --
                    ------------  ------------  ------------  ------------
    Income (loss)
     before income
     taxes                10,827        (2,211)       16,673       (15,667)
Income tax provision
 (benefit)                  (528)        1,053           310         1,935
                    ------------  ------------  ------------  ------------
    Net income
     (loss)         $     11,355  $     (3,264) $     16,363  $    (17,602)
                    ============  ============  ============  ============


Net income (loss)
 per share:
    Basic           $       0.06  $      (0.01) $       0.08  $      (0.08)
    Diluted                 0.04         (0.01)         0.02         (0.08)

Income (loss) for
 purposes of
 computing net
 income(loss)
 per share:
    Basic           $     11,355  $     (3,264) $     16,363  $    (17,602)
    Diluted                9,792        (3,264)        4,753       (17,602)

Weighted average
 common and common
 equivalent shares:
    Basic                212,475       208,960       211,372       207,943
    Diluted              213,794       208,960       225,752       207,943


Included in the
 above Statements
 of Operations:

Amortization of
 intangibles:
  Cost of revenue          5,499         6,730        10,974        13,648
  Research and
   development               100           100           200           200
  Sales and
   marketing               3,394         4,117         6,788         8,248
  General and
   administrative             25            25            50            50
                    ------------  ------------  ------------  ------------
                           9,018        10,972        18,012        22,146
Share-based
 compensation:
  Cost of revenue            319           603           619           958
  Research and
   development               582           807         1,220         1,572
  Sales and
   marketing                 760           972         1,218         1,713
  General and
   administrative          1,014           684         1,756         1,517
                    ------------  ------------  ------------  ------------
                           2,675         3,066         4,813         5,760




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

                                                September 30,   March 31,
                                                    2009          2009*
                                                ------------  ------------

Assets
  Current assets:
    Cash and cash equivalents                   $     84,772  $     87,305
    Accounts receivable, net                         106,007       107,851
    Manufacturing inventories                         51,069        61,237
    Service parts inventories                         57,140        63,029
    Deferred income taxes                              9,917         9,935
    Other current assets                              18,353        24,745
                                                ------------  ------------
      Total current assets                           327,258       354,102

  Long-term assets:
    Property and equipment, less accumulated
     depreciation                                     25,495        28,553
    Purchased technology, less accumulated
     amortization                                     37,974        49,148
    Other intangible assets, less accumulated
     amortization                                     53,250        60,088
    Goodwill                                          46,770        46,770
    Other long-term assets                            10,859        10,708
                                                ------------  ------------
      Total long-term assets                         174,348       195,267

                                                ------------  ------------
                                                $    501,606  $    549,369
                                                ============  ============

Liabilities and Stockholders' Deficit
  Current liabilities:
    Accounts payable                            $     50,362  $     45,182
    Accrued warranty                                   7,100        11,152
    Deferred revenue, current                        103,538        84,079
    Current portion of long-term debt                  1,884         4,000
    Current portion of convertible subordinated
     debt                                             22,099            --
    Accrued restructuring charges                      5,392         4,681
    Accrued compensation                              28,648        27,334
    Income taxes payable                               2,569         4,752
    Other accrued liabilities                         25,599        34,550
                                                ------------  ------------
      Total current liabilities                      247,191       215,730

  Long-term liabilities:
    Deferred revenue, long-term                       28,096        32,082
    Deferred income taxes                             10,906        11,190
    Long-term debt                                   306,841       244,000
    Convertible subordinated debt                         --       160,000
    Other long-term liabilities                        7,122         6,326
                                                ------------  ------------
      Total long-term liabilities                    352,965       453,598

    Stockholders' deficit                            (98,550)     (119,959)

                                                ------------  ------------
                                                $    501,606  $    549,369
                                                ============  ============


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




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

                                                     Six Months Ended
                                                --------------------------
                                                September 30, September 30,
                                                    2009          2008
                                                ------------  ------------
Cash flows from operating activities:
  Net income (loss)                             $     16,363  $    (17,602)
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
    Depreciation                                       6,257         8,524
    Amortization                                      19,513        23,333
    Service parts lower of cost or market
     adjustment                                        4,391         9,068
    Gain on debt extinguishment                      (15,613)           --
    Deferred income taxes                               (266)          174
    Share-based compensation                           4,813         5,760
    Changes in assets and liabilities:
      Accounts receivable                              1,844        34,976
      Manufacturing inventories                        7,937        (7,490)
      Service parts inventories                        3,729        (1,099)
      Accounts payable                                 5,180       (19,973)
      Accrued warranty                                (4,052)       (4,622)
      Deferred revenue                                15,473         3,356
      Accrued restructuring charges                      711          (320)
      Accrued compensation                             1,314           960
      Income taxes payable                            (2,183)         (154)
      Other assets and liabilities                      (690)       (4,312)
                                                ------------  ------------
Net cash provided by operating activities             64,721        30,579

Cash flows from investing activities:
  Purchases of property and equipment                 (3,096)       (3,025)
                                                ------------  ------------
Net cash used in investing activities                 (3,096)       (3,025)

Cash flows from financing activities:
  Borrowings of long-term debt, net                  120,042            --
  Repayments of long-term debt                       (60,992)      (90,000)
  Repayments of convertible subordinated debt       (122,288)           --
  Payment of taxes due upon vesting of
   restricted stock                                     (928)         (759)
  Proceeds from issuance of common stock, net              8         2,739
                                                ------------  ------------
Net cash used in financing activities                (64,158)      (88,020)

Net decrease in cash and cash equivalents             (2,533)      (60,466)
Cash and cash equivalents at beginning of
 period                                               87,305        93,643
                                                ------------  ------------
Cash and cash equivalents at end of period      $     84,772  $     33,177
                                                ============  ============

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