SOURCE: Quantum Corporation

Quantum Corporation

October 23, 2013 16:05 ET

Quantum Corporation Reports Fiscal Second Quarter Results

Generates Record Revenue From Big Data Management and Archive Solutions, Including Several Key Lattus Object Storage Deals

SAN JOSE, CA--(Marketwired - Oct 23, 2013) - Quantum Corp. (NYSE: QTM), a proven global expert in data protection and big data management, today reported results for the second quarter of fiscal 2014, ended Sept. 30, 2013. Revenue for the quarter was $131.4 million, down 11 percent from the second quarter of fiscal 2013, primarily as a result of softness in Asia and lower-than-expected revenue from the U.S. federal government and Europe. Quantum achieved record revenue from sales of its big data management and archive solutions and also reported a higher gross margin rate and improved operating income and net income over the same quarter last year.

The GAAP gross margin for the quarter was 42.9 percent, up from 40.2 percent a year earlier, while the non-GAAP gross margin increased to 43.6 percent, from 41.4 percent in the same quarter a year ago. Combined with an 11 percent year-over-year reduction in GAAP and non-GAAP operating expenses, the higher gross margin resulted in improved operating and net income results.

On a GAAP basis, Quantum reported an operating loss of $5.0 million for the quarter, compared to a $10.0 million loss in the same quarter last year, and had a net loss of $8.0 million, or $0.03 per diluted share, compared to a net loss of $12.3 million in the prior year. On a non-GAAP basis, the company generated $1.0 million of operating income, an improvement from a $2.6 million operating loss a year ago. Quantum reported a non-GAAP net loss of $1.9 million, or $0.01 per diluted share, representing a $3.0 million improvement from a year earlier.

"Record quarterly revenue from big data management and archive sales -- including several key Lattus™ storage object deals -- helped support a year-over-year improvement in gross margin, operating income and net income," said Jon Gacek, president and CEO of Quantum. "Our better-than-expected operating results also reflected the strength of our business model and focus on driving profit and cash flow. However, the concerns we expressed as we entered the quarter regarding U.S. federal government spending were validated and were a major contributor to our total revenue falling short of expectations.

"In the second half of the fiscal year, we intend to build on our big data leadership in end-to-end content workflow with our newly announced StorNext 5 platform and Lattus, driving deeper into current vertical markets and expanding into others. We will also leverage our market share leadership in tape automation and our comprehensive data protection portfolio to support share gains in the data center, including deploying Lattus to address converged backup and archive needs. Finally, we are looking to extend our market reach through both existing and new channel and strategic partnerships. Throughout these efforts, we will continue to maintain our balanced approach to driving increased profit and cash flow while pursuing revenue growth."

Outlook
For the third quarter of fiscal 2014, Quantum expects:

  • Revenue of approximately $133 million to $143 million.
  • GAAP gross margin of 41 to 42 percent and non-GAAP gross margin of 42 to 43 percent.
  • GAAP operating expenses of $60 million to $62 million and non-GAAP operating expenses of $55 million to $57 million.
  • Interest expense of $2.5 million and taxes of $500,000.

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

  • Quantum announced its new StorNext 5 platform. Based on a re-architected, high-performance engine, it extends the company's leadership in media and entertainment and offers new opportunities in other markets such as high-performance computing, oil and gas and analytics. StorNext 5 delivers up to 10 times greater performance and five times the scalability of previous StorNext® versions -- up to five billion files can be shared in a single file system. In addition, the new StorNext platform provides an intelligent framework for unified management of flash, disk, tape and object storage technologies from a single interface.
  • Extending the benefits of object storage to the data center, the company introduced a joint solution with CommVault for converged backup and archive. Based on Quantum's Lattus object storage technology and CommVault Simpana 10 software, the solution enables a comprehensive data protection and archive strategy that reduces primary storage costs and optimizes backup performance while minimizing management complexity, administrative overhead and capital expenditures in multi-petabyte environments.
  • Quantum also made it easier for prospective customers to experience a full-scale, cloud-based object storage testing environment with the launch of its new Lattus Demo Lab. Located inside Switch's state-of-the art SUPERNAP data centers, the Demo Lab enables rigorous proof of concept testing at the facility, either onsite or virtually, with no need for customers to provide their own equipment or resources.
  • Info-Tech Research Group named Quantum a Champion in its 2013 Disk Backup Vendor Landscape. Info-Tech recognized the company based on its DXi®-Series deduplication appliances' rich feature set, ease of scaling and management, and continued innovation in data protection. Quantum was also singled out with a Trend Setter Award, for innovation with upstream deduplication and the DXi V1000 virtual backup appliance, as well as for Dynamic Disk Pools technology.
  • In the latest of numerous honors for Quantum's DXi appliances, the DXi6800 was named Product of Excellence in the Disk Backup Appliances category at the Storage Networking World 2013 China show.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Oct. 23, 2013, 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) 629-9866 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Oct. 23, 2013, at 2:00 p.m. PDT. Site for the webcast and related information: www.quantum.com/investors.

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

Quantum, the Quantum logo, Be Certain, DXi, Lattus 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 our priorities and focuses for the second half of our fiscal year, that we will maintain our balanced approach to driving increased profit and cash flow while pursuing revenue growth 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 7, 2013 and in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2013. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

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

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

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.

Note 1

In the first quarter of fiscal year 2014, Quantum identified an error related to the accounting for certain allowances for estimated future price adjustments to customers which impacted prior reporting periods. As a result, the company's financial statements for the second quarter and first six months of fiscal 2013 have been revised. For additional information, refer to our Form 10-Q filed with the Securities and Exchange Commission on August 9, 2013.

QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
(Unaudited)  
                         
    Three Months Ended     Six Months Ended  
    September 30, 2013     September 30, 2012     September 30, 2013     September 30, 2012  
          (Revised) Note 1           (Revised) Note 1  
Revenue:                                
  Product   $ 84,707     $ 100,041     $ 170,676     $ 193,826  
  Service     36,194       35,711       72,686       71,798  
  Royalty     10,529       11,562       36,037       22,543  
    Total revenue     131,430       147,314       279,399       288,167  
Cost of revenue:                                
  Product     57,882       67,884       116,665       132,634  
  Service     17,116       20,232       36,347       40,536  
  Restructuring charges related to cost of revenue     89       --       89       --  
    Total cost of revenue     75,087       88,116       153,101       173,170  
      Gross margin     56,343       59,198       126,298       114,997  
                                 
  Operating expenses:                                
    Research and development     16,359       19,475       33,053       38,024  
    Sales and marketing     29,995       34,441       60,153       68,885  
    General and administrative     14,813       15,279       29,510       32,059  
    Restructuring charges     208       --       2,767       --  
  Total operating expenses     61,375       69,195       125,483       138,968  
        Income (loss) from operations     (5,032 )     (9,997 )     815       (23,971 )
                                 
  Other income and expense     46       (110 )     421       (448 )
  Interest expense     (2,440 )     (1,817 )     (4,879 )     (3,666 )
        Loss before income taxes     (7,426 )     (11,924 )     (3,643 )     (28,085 )
  Income tax provision     534       370       924       869  
        Net loss   $ (7,960 )   $ (12,294 )   $ (4,567 )   $ (28,954 )
                                 
                                 
  Basic and diluted net loss per share:   $ (0.03 )   $ (0.05 )   $ (0.02 )   $ (0.12 )
                                 
  Weighted average basic and diluted shares:     247,074       239,856       246,569       238,251  
                                 
                                 
  Included in the above Statements of Operations:                                
  Amortization of intangibles:                                
        Cost of revenue   $ 368     $ 1,134     $ 736     $ 2,496  
        Sales and marketing     1,857       2,556       3,713       5,812  
      2,225       3,690       4,449       8,308  
  Share-based compensation:                                
        Cost of revenue     523       642       1,051       1,213  
        Research and development     908       947       1,776       1,847  
        Sales and marketing     1,080       1,246       2,154       2,330  
        General and administrative     980       891       1,866       2,623  
      3,491       3,726       6,847       8,013  
                                 
                                 
Note 1 is presented above, before the Condensed Consolidated Statements of Operations.  
   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
             
    September 30, 2013     March 31, 2013*  
          (Revised) Note 1  
Assets            
Current assets:                
  Cash and cash equivalents   $ 73,829     $ 68,976  
  Restricted cash     3,255       3,023  
  Accounts receivable     87,097       97,546  
  Manufacturing inventories     49,847       53,075  
  Service parts inventories     30,064       35,368  
  Other current assets     10,748       12,192  
    Total current assets     254,840       270,180  
                 
Long-term assets:                
  Property and equipment     19,437       21,456  
  Intangible assets     8,364       12,813  
  Goodwill     55,613       55,613  
  Other long-term assets     9,541       9,531  
    Total long-term assets     92,955       99,413  
                 
    $ 347,795     $ 369,593  
                 
Liabilities and Stockholders' Deficit                
Current liabilities:                
  Accounts payable   $ 33,417     $ 47,634  
  Accrued warranty     6,489       7,520  
  Deferred revenue, current     84,273       91,108  
  Accrued restructuring charges, current     3,529       3,021  
  Accrued compensation     25,902       30,964  
  Other accrued liabilities     21,766       20,188  
    Total current liabilities     175,376       200,435  
                 
Long-term liabilities:                
  Deferred revenue, long-term     38,778       38,393  
  Convertible subordinated debt     205,000       205,000  
  Other long-term liabilities     9,433       9,547  
    Total long-term liabilities     253,211       252,940  
                 
  Stockholders' deficit     (80,792 )     (83,782 )
                 
    $ 347,795     $ 369,593  
                 
* Derived from the March 31, 2013 audited Consolidated Financial Statements.  
Note 1 is presented above, before the Condensed Consolidated Statements of Operations.  
   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
             
    Six Months Ended  
    September 30, 2013     September 30, 2012  
          (Revised) Note 1  
Cash flows from operating activities:                
  Net loss   $ (4,567 )   $ (28,954 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
    Depreciation     5,671       6,151  
    Amortization     5,265       8,895  
    Service parts lower of cost or market adjustment     6,659       4,700  
    Deferred income taxes     59       274  
    Share-based compensation     6,847       8,013  
    Changes in assets and liabilities:                
      Accounts receivable     10,449       11,328  
      Manufacturing inventories     185       1,499  
      Service parts inventories     1,688       2,019  
      Accounts payable     (14,245 )     (13,347 )
      Accrued warranty     (1,031 )     318  
      Deferred revenue     (6,449 )     (11,058 )
      Accrued restructuring charges     359       (828 )
      Accrued compensation     (5,195 )     (4,546 )
      Other assets and liabilities     2,533       1,014  
Net cash provided by (used in) operating activities     8,228       (14,522 )
                 
Cash flows from investing activities:                
  Purchases of property and equipment     (3,226 )     (6,691 )
  (Increase) decrease in restricted cash     (117 )     169  
  Purchases of other investments     (534 )     (2,169 )
  Return of principal from other investments     --       208  
Net cash used in investing activities     (3,877 )     (8,483 )
                 
Cash flows from financing activities:                
  Payment of taxes due upon vesting of restricted stock     (1,770 )     (1,882 )
  Proceeds from issuance of common stock     2,247       2,599  
Net cash provided by financing activities     477       717  
                 
Effect of exchange rate changes on cash and cash equivalents     25       (1 )
                 
Net increase (decrease) in cash and cash equivalents     4,853       (22,289 )
Cash and cash equivalents at beginning of period     68,976       51,261  
Cash and cash equivalents at end of period   $ 73,829     $ 28,972  
                 
                 
Note 1 is presented above, before the Condensed Consolidated Statements of Operations.  
   
QUANTUM CORPORATION
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)
(Unaudited)
                                           
    Three Months Ended September 30, 2013    
    Gross Margin   Gross Margin Rate     Operating Expenses     Income (Loss) From Operations     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted    
GAAP   $ 56,343   42.9 %   $ 61,375     $ (5,032 )   $ (7,960 )   $ (0.03 )   $ (0.03 )  
Non-GAAP Reconciling Items:                                                      
  Amortization of intangibles     368           (1,857 )     2,225       2,225                    
  Share-based compensation     523           (2,968 )     3,491       3,491                    
  Restructuring charges     89           (208 )     297       297                    
Non-GAAP   $ 57,323   43.6 %   $ 56,342     $ 981     $ (1,947 )   $ (0.01 )   $ (0.01 ) **
                                                       
    Computation of basic and diluted net loss per share:                                         GAAP       Non-GAAP    
      Net loss                                       $ (7,960 )   $ (1,947 )  
                                                       
    Weighted average shares:                                                      
      Basic and diluted                                         247,074       247,074    
                     
    Six Months Ended September 30, 2013    
    Gross Margin   Gross Margin Rate     Operating Expenses     Income From Operations   Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted    
GAAP   $ 126,298   45.2 %     125,483       815   $ (4,567 )   $ (0.02 )   $ (0.02 )  
Non-GAAP Reconciling Items:                                                    
  Amortization of intangibles     736           (3,713 )     4,449     4,449                    
  Share-based compensation     1,051           (5,796 )     6,847     6,847                    
  Restructuring charges     89           (2,767 )     2,856     2,856                    
Non-GAAP   $ 128,174   45.9 %   $ 113,207     $ 14,967   $ 9,585     $ 0.04     $ 0.04   **
                                                     
    Computation of basic and diluted net income (loss) per share:                                       GAAP       Non-GAAP    
      Net income (loss)                                     $ (4,567 )   $ 9,585    
        Interest on dilutive convertible notes                                       --       1,575    
      Income (loss) for purposes of computing income (loss) per diluted share                                     $ (4,567 )   $ 11,160    
                                                     
    Weighted average shares:                                                    
      Basic                                       246,569       246,569    
        Dilutive shares from stock plans                                       --       2,851    
        Dilutive shares from convertible notes                                       --       42,502    
      Diluted                                       246,569       291,922    
 
** Non-GAAP per share net income (loss): Each fiscal period is calculated independently, thus the sum of each of the quarter's non-GAAP per share net income (loss) does not necessarily equal the year-to-date non-GAAP per share net income (loss). For example, certain convertible subordinated notes were anti-dilutive in the second quarter of fiscal 2014 but were dilutive for the year-to-date period.
 
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.
                                         
    Three Months Ended September 30, 2012  
    (Revised) Note 1  
    Gross Margin   Gross Margin Rate     Operating Expenses     Loss From Operations     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP   $ 59,198   40.2 %   $ 69,195     $ (9,997 )   $ (12,294 )   $ (0.05 )   $ (0.05 )
Non-GAAP Reconciling Items:                                                    
  Amortization of intangibles     1,134           (2,556 )     3,690       3,690                  
  Share-based compensation     642           (3,084 )     3,726       3,726                  
Non-GAAP   $ 60,974   41.4 %   $ 63,555     $ (2,581 )   $ (4,878 )   $ (0.02 )   $ (0.02 )
                                                     
    Computation of basic and diluted net loss per share:                                         GAAP       Non-GAAP  
      Net loss                                       $ (12,294 )   $ (4,878 )
                                                     
    Weighted average shares:                                                    
      Basic and diluted                                         239,856       239,856  
                                         
    Six Months Ended September 30, 2012  
    (Revised) Note 1  
    Gross Margin   Gross Margin Rate     Operating Expenses     Loss From Operations     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP   $ 114,997   39.9 %   $ 138,968     $ (23,971 )   $ (28,954 )   $ (0.12 )   $ (0.12 )
Non-GAAP Reconciling Items:                                                    
  Amortization of intangibles     2,496           (5,812 )     8,308       8,308                  
  Share-based compensation     1,213           (6,800 )     8,013       8,013                  
Non-GAAP   $ 118,706   41.2 %   $ 126,356     $ (7,650 )   $ (12,633 )   $ (0.05 )   $ (0.05 )
                                                     
    Computation of basic and diluted net loss per share:                                         GAAP       Non-GAAP  
      Net loss                                       $ (28,954 )   $ (12,633 )
                                                     
    Weighted average shares:                                                    
      Basic and diluted                                         238,251       238,251  
                                                     
                                                     
Note 1 is presented above, before the Condensed Consolidated Statements of Operations.  
   
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 FISCAL 2014
GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions)
 
 
       
       
  Percentage Range
Forecast third quarter gross margin rate on a GAAP basis 41.3% - 42.3%
       
Forecast amortization of intangibles 0.3%
Forecast share-based compensation 0.4%
       
Forecast third quarter gross margin rate on a non-GAAP basis 42.0% - 43.0%
       
       
  Dollar Range
Forecast third quarter operating expense on a GAAP basis $59.9 - $61.9
       
Forecast amortization of intangibles 1.9
Forecast share-based compensation 3.0
       
Forecast third quarter operating expense on a non-GAAP basis $55.0 - $57.0
       
       
       
Estimates based on current (October 23, 2013) projections.
       
The projected GAAP and non-GAAP financial information set forth in this table represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For risk factors that could impact these projections, see our Annual Report on Form 10-K as filed with the SEC on June 7, 2013. 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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