SOURCE: Quantum Corporation

Quantum Corporation

October 24, 2012 16:05 ET

Quantum Corporation Reports Fiscal Second Quarter Results

SAN JOSE, CA--(Marketwire - Oct 24, 2012) - Quantum Corp. (NYSE: QTM)

Highlights:

  • Total revenue of $147 million, up 5% sequentially
  • Record disk systems and software revenue of $42 million, up 18% year-over-year
  • Record DXi revenue driven by 30% year-over-year increase in enterprise sales
  • Record StorNext revenue, up 27% year-over-year and reflecting continued StorNext appliances momentum

Quantum Corp. (NYSE: QTM), a proven global expert in data protection and big data management, today reported results for the second quarter of fiscal 2013 (FQ2'13), ended Sept. 30, 2012. Revenue for the quarter totaled $147 million, down 11 percent from the second quarter of fiscal 2012 (FQ2'12) primarily due to lower-than-expected OEM and branded tape automation revenue. However, total revenue was up $6 million, or 5 percent, sequentially. In addition, Quantum reported record revenue of $42 million from disk system and software sales (including related service), which increased 18 percent from FQ2'12 and 38 percent sequentially. Both DXi® and StorNext® revenues were also the highest they have ever been for a quarter, growing 14 percent and 27 percent, respectively, over FQ2'12.

Quantum reported a GAAP net loss of $12 million, or 5 cents per share, for FQ2'13, compared to GAAP net income of $4 million in FQ2'12. On a non-GAAP basis, the company had a net loss of $5 million, or 2 cents per share, down from net income of $14 million in the same quarter last year. The year-over-year declines were largely driven by the lower overall revenue.

"We are very pleased with our record results in disk systems and software, as these products are key to driving higher revenue growth and profit," said Jon Gacek, president and CEO of Quantum. "In the September quarter, we also continued to expand and enhance our product portfolio to build on this momentum moving forward, launching our Q-Cloud™ backup and disaster recovery subscription service, shipping the next generation of our vmPRO virtual data protection software, adding 3 TB drives to our DXi8500 enterprise deduplication line and releasing a new version of our StorNext big data management software.

"We believe the shortfall in tape revenue and impact on profits was largely due to the industry transitioning to the latest LTO generation technology. Nevertheless, as we begin the second half of the fiscal year, we are taking actions to reduce spending in certain areas so that we can continue to make the investments that best support our growth strategy."

Outlook
For the third quarter of fiscal 2013, Quantum expects:

  • Revenue of approximately $160 million.
  • GAAP gross margin rate of approximately 41 percent and non-GAAP gross margin rate of
    42 percent.
  • GAAP operating expenses of $67 million to $69 million and non-GAAP operating expenses of $62 million to $64 million.
  • Interest expense of $2 million and taxes of $500,000.

For the full fiscal year, the company now expects:

  • Revenue of approximately $600 million.
  • GAAP gross margin rate of approximately 41 percent and non-GAAP gross margin rate of 42 percent.
  • GAAP operating expenses of approximately $273 million and non-GAAP operating expenses of approximately $250 million.

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

  • Quantum introduced Q-Cloud, a new cloud-based backup and disaster recovery subscription service incorporating Quantum's DXi and vmPRO technology and delivering business-class data protection for as little as 1 cent/GB/month. Q-Cloud provides backup of both physical and virtual infrastructures for capacities ranging from 1 TB up to 1 PB of protected data. With an on-premise DXi appliance, Q-Cloud customers can benefit from the speed and convenience of local recovery with the security of cloud-based backup.
  • The company increased the storage density and power savings in its DXi8500 appliances, creating the industry's most efficient disk backup and deduplication solution for enterprise customers. The DXi8500 now incorporates 3 TB disk drives to deliver 50 percent greater storage density, 42 percent more power savings and 25 percent higher performance, offering the smallest footprint and the highest value of any enterprise disk backup solution available.
  • Shipments of the DXi6700 appliance family surpassed 1,000 units, reflecting the broad adoption of the DXi6701 and DXi6702 during its first year in the market. Designed to eliminate the trade-offs customers have to make with other deduplication solutions, the DXi6701/02 has received several product of the year honors and other industry recognition. (See separate press release issued today titled, "Quantum Ships 1,000th DXi6701/02 Midrange Deduplication Appliance.")
  • Quantum released StorNext 4.3 software, which brings new intelligence features, greater performance and increased scale to managing big data, including support for up to one billion files and dozens of petabytes of tiered storage. This latest generation StorNext software also includes unique capabilities for emerging needs, such as archive on ingest, active vaulting and project-based capacity management -- all designed to help customers extract maximum value from their data.
  • StorNext File System shipments surpassed 70,000, representing an increase of nearly 20 percent in less than nine months. In addition, the unique value StorNext provides in helping customers manage big data was reflected in two other announcements made during the quarter. First, a NASCAR video project in which StorNext played a central role won a prestigious Innovation Award at IBC 2012, a leading international conference for the media and entertainment industry. Second, in research sponsored by Quantum and conducted by IDC, the industry analyst firm found that StorNext customers experienced a return of nearly $6.50 for every $1 invested over three years, with payback in just over four months.
  • Teradata, the leading analytic data solutions company, selected Quantum's Scalar® tape libraries and Scalar Key Manager™ encryption software as standard elements in its enterprise data protection solution offerings for customers. This partnership speaks to Quantum's worldwide market share leadership in open systems tape automation and enables the company to extend its customer reach even further.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Oct. 24, 2012, 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) 629-9818 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Oct. 24, 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, Q-Cloud, DXi, StorNext, Scalar and Scalar Key Manager 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 taking actions to reduce spending so that we can continue to make the investments that best support our growth strategy, that the Teradata relationship enables us to extend our customer reach 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 August 9, 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     Six Months Ended  
    September 30, 2012     September 30, 2011     September 30, 2012     September 30, 2011  
                                 
Revenue:                                
  Product   $ 100,067     $ 115,126     $ 193,878     $ 217,394  
  Service     35,711       35,898       71,798       72,594  
  Royalty     11,562       14,015       22,543       28,586  
    Total revenue     147,340       165,039       288,219       318,574  
Cost of revenue:                                
  Product     67,884       72,299       132,634       140,806  
  Service     20,232       21,129       40,566       43,195  
  Restructuring benefit related to cost of revenue     --       --       --       (300 )
    Total cost of revenue     88,116       93,428       173,200       183,701  
      Gross margin     59,224       71,611       115,019       134,873  
                                 
  Operating expenses:                                
    Research and development     19,475       19,003       38,024       37,583  
    Sales and marketing     34,441       31,115       69,719       61,640  
    General and administrative     15,279       15,230       32,059       31,232  
    Restructuring charges     --       863       --       699  
      69,195       66,211       139,802       131,154  
  Gain on sale of patents     --       1,500       --       1,500  
      Income (loss) from operations     (9,971 )     6,900       (24,783 )     5,219  
                                 
  Other income and expense     (110 )     (182 )     (448 )     (280 )
  Interest expense     (1,817 )     (2,852 )     (3,666 )     (5,661 )
        Income (loss) before income taxes     (11,898 )     3,866       (28,897 )     (722 )
  Income tax provision     370       305       869       943  
        Net income (loss)   $ (12,268 )   $ 3,561     $ (29,766 )   $ (1,665 )
                                 
                                 
  Basic and diluted net income (loss) per share:   $ (0.05 )   $ 0.01     $ (0.12 )   $ (0.01 )
                                 
  Weighted average common and common equivalent shares:                                   
        Basic     239,856       232,712       238,251       230,579  
        Diluted     239,856       238,459       238,251       230,579  
                                 
                                 
  Included in the above Statements of Operations:                                
                                 
  Amortization of intangibles:                                
      Cost of revenue   $ 1,134     $ 2,101     $ 2,496     $ 4,676  
      Sales and marketing     2,556       3,285       5,812       6,616  
      General and administrative     --       7       --       32  
      3,690       5,393       8,308       11,324  
  Share-based compensation:                                
      Cost of revenue     642       568       1,213       1,023  
      Research and development     947       1,031       1,847       1,671  
      Sales and marketing     1,246       1,213       2,330       1,932  
      General and administrative     891       993       2,623       2,196  
      3,726       3,805       8,013       6,822  
                                 
  Acquisition expenses     --       93       --       325  
                                   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
             
    September 30,     March 31,  
    2012     2012*  
                 
Assets                
  Current assets:                
    Cash and cash equivalents   $ 28,972     $ 51,261  
    Restricted cash     3,981       4,230  
    Accounts receivable, net     99,564       110,840  
    Manufacturing inventories     54,794       61,111  
    Service parts inventories     37,149       39,050  
    Deferred income taxes     4,950       5,295  
    Other current assets     8,918       9,434  
      Total current assets     238,328       281,221  
                   
  Long-term assets:                
    Property and equipment, net     25,945       25,440  
    Intangible assets and goodwill     73,417       81,725  
    Other long-term assets     8,077       6,962  
      Total long-term assets     107,439       114,127  
                 
    $ 345,767     $ 395,348  
                 
Liabilities and Stockholders' Deficit                
  Current liabilities:                
    Accounts payable   $ 42,930     $ 56,304  
    Accrued warranty     7,904       7,586  
    Deferred revenue, current     82,520       93,441  
    Accrued restructuring charges     924       1,752  
    Accrued compensation     28,223       31,971  
    Income taxes payable     351       1,133  
    Other accrued liabilities     19,023       17,866  
      Total current liabilities     181,875       210,053  
                   
  Long-term liabilities:                
    Deferred revenue, long-term     36,293       36,430  
    Deferred income taxes     4,476       4,564  
    Long-term debt     49,495       49,495  
    Convertible subordinated debt     135,000       135,000  
    Other long-term liabilities     6,313       6,486  
      Total long-term liabilities     231,577       231,975  
                   
    Stockholders' deficit     (67,685 )     (46,680 )
                 
    $ 345,767     $ 395,348  
                 
                 
* Derived from the March 31, 2012 audited Consolidated Financial Statements.          
           
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
             
    Six Months Ended  
    September 30, 2012     September 30, 2011  
Cash flows from operating activities:                
  Net loss   $ (29,766 )   $ (1,665 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
    Depreciation     6,151       5,928  
    Amortization     8,895       12,521  
    Service parts lower of cost or market adjustment     4,700       3,851  
    Deferred income taxes     274       (713 )
    Share-based compensation     8,013       6,822  
    Changes in assets and liabilities, net of effect of acquisition:                
      Accounts receivable     11,276       6,330  
      Manufacturing inventories     1,499       (5,992 )
      Service parts inventories     2,019       2,166  
      Accounts payable     (13,347 )     1,189  
      Accrued warranty     318       79  
      Deferred revenue     (11,058 )     (5,578 )
      Accrued restructuring charges     (828 )     (2,761 )
      Accrued compensation     (3,682 )     (4,506 )
      Income taxes payable     (765 )     248  
      Other assets and liabilities     1,779       (913 )
Net cash provided by (used in) operating activities     (14,522 )     17,006  
                 
Cash flows from investing activities:                
  Purchases of property and equipment     (6,691 )     (6,036 )
  (Increase) decrease in restricted cash     169       (1,245 )
  Purchases of other investments     (2,169 )     --  
  Return of principal from other investments     208       --  
  Payment for business acquisition, net of cash acquired     --       (8,152 )
Net cash used in investing activities     (8,483 )     (15,433 )
                 
Cash flows from financing activities:                
  Repayments of long-term debt     --       (35,521 )
  Payment of taxes due upon vesting of restricted stock     (1,882 )     (2,544 )
  Proceeds from issuance of common stock     2,599       6,975  
Net cash provided by (used in) financing activities     717       (31,090 )
                 
Effect of exchange rate changes on cash and cash equivalents     (1 )     (33 )
                 
Net decrease in cash and cash equivalents     (22,289 )     (29,550 )
Cash and cash equivalents at beginning of period     51,261       76,010  
Cash and cash equivalents at end of period   $ 28,972     $ 46,460  
                 
                 
QUANTUM CORPORATION  
GAAP TO NON-GAAP RECONCILIATION  
(In thousands, except per share amounts)  
(Unaudited)  
                               
    Three Months Ended September 30, 2012  
    Gross Margin     Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP   $ 59,224     40.2 %   $ (12,268 )   $ (0.05 )   $ (0.05 )
Non-GAAP Reconciling Items:                                      
  Amortization of intangibles     1,134             3,690                  
  Share-based compensation     642             3,726                  
Non-GAAP   $ 61,000     41.4 %   $ (4,852 )   $ (0.02 )   $ (0.02 )
                                       
    Computation of basic and diluted net loss per share:                     GAAP     Non-GAAP  
      Net loss                         $ (12,268 )   $ (4,852 )
                                       
    Weighted average shares:                                      
      Basic and diluted                           239,856       239,856  
                                       
    Six Months Ended September 30, 2012  
    Gross Margin     Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP   $ 115,019     39.9 %   $ (29,766 )   $ (0.12 )   $ (0.12 )
Non-GAAP Reconciling Items:                                      
  Amortization of intangibles     2,496             8,308                  
  Share-based compensation     1,213             8,013                  
Non-GAAP   $ 118,728     41.2 %   $ (13,445 )   $ (0.06 )   $ (0.06 )
                                       
    Computation of basic and diluted net loss per share:                     GAAP     Non-GAAP  
      Net loss                         $ (29,766 )   $ (13,445 )
                                       
    Weighted average shares:                                      
      Basic and diluted                           238,251       238,251  
                                       
                                       
    Three Months Ended September 30, 2011  
    Gross Margin     Gross Margin Rate     Net Income     Per Share Net Income, Basic     Per Share Net Income, Diluted  
GAAP   $ 71,611     43.4 %   $ 3,561     $ 0.01     $ 0.01  
Non-GAAP Reconciling Items:                                      
  Amortization of intangibles     2,101             5,393                  
  Share-based compensation     568             3,805                  
  Restructuring charges     --             863                  
  Acquisition expenses     --             93                  
Non-GAAP   $ 74,280     45.0 %   $ 13,715     $ 0.06     $ 0.06  
                                       
    Computation of basic and diluted net income per share:                     GAAP     Non-GAAP  
      Net income                         $ 3,561     $ 13,715  
        Interest on dilutive convertible notes                           --       1,191  
      Income for purposes of computing income per diluted share                         $ 3,561     $ 14,906  
                                           
    Weighted average shares:                                      
      Basic                           232,712       232,712  
        Dilutive shares from stock plans                           5,747       5,747  
        Dilutive shares from convertible notes                           --       31,158  
      Diluted                           238,459       269,617  
                                       
    Six Months Ended September 30, 2011  
    Gross Margin     Gross Margin Rate     Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted  
GAAP   $ 134,873     42.3 %   $ (1,665 )   $ (0.01 )   $ (0.01 )
Non-GAAP Reconciling Items:                                      
  Amortization of intangibles     4,676             11,324                  
  Share-based compensation     1,023             6,822                  
  Restructuring charges     (300 )           399                  
  Acquisition expenses     --             325                  
Non-GAAP   $ 140,272     44.0 %   $ 17,205     $ 0.07     $ 0.07  
                                       
    Computation of basic and diluted net income (loss) per share:                     GAAP     Non-GAAP  
      Net income (loss)                         $ (1,665 )   $ 17,205  
        Interest on dilutive convertible notes                           --       --  
      Income (loss) for purposes of computing income (loss) per diluted share                         $ (1,665 )   $ 17,205  
                                           
                                           
    Weighted average shares:                                      
      Basic                           230,579       230,579  
        Dilutive shares from stock plans                           --       7,835  
        Dilutive shares from convertible notes                            --        --  
      Diluted                           230,579       238,414  
                                             
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 THIRD QUARTER AND FULL YEAR FISCAL 2013
GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions)
 
   
FORECAST THIRD QUARTER FISCAL 2013
   
   
  Percentage
Forecast third quarter gross margin rate on a GAAP basis 41.0%
   
Forecast amortization of intangibles 0.6%
Forecast share-based compensation 0.4%
   
Forecast third quarter gross margin rate on a non-GAAP basis 42.0%
   
   
  Dollar Range
Forecast third quarter operating expense on a GAAP basis $67.2 - $69.2
   
Forecast amortization of intangibles 1.9
Forecast share-based compensation 3.3
   
Forecast third quarter operating expense on a non-GAAP basis $62.0 - $64.0
   
   
   
FORECAST FULL YEAR FISCAL 2013
   
   
   
  Percentage
Forecast fiscal 2013 gross margin rate on a GAAP basis 41.0%
   
Forecast amortization of intangibles 0.6%
Forecast share-based compensation 0.4%
   
Forecast fiscal 2013 gross margin rate on a non-GAAP basis 42.0%
   
   
  Dollars
Forecast fiscal 2013 operating expense on a GAAP basis $272.7
   
Forecast amortization of intangibles 9.5
Forecast share-based compensation 13.2
   
Forecast fiscal 2013 operating expense on a non-GAAP basis $250.0
   
   
Estimates based on current (October 24, 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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