SOURCE: Quantum Corporation

Quantum Corporation

January 26, 2011 16:08 ET

Quantum Corporation Reports Fiscal Third Quarter Results

SAN JOSE, CA--(Marketwire - January 26, 2011) -


Quantum Corporation -- (NYSE: QTM)

Highlights:

-- Total revenue of $176 million -- up $9 million from prior quarter,
   including a $6 million increase in branded revenue
-- Fifth consecutive quarter of year-over-year branded revenue growth
-- Record level of branded disk systems and software revenue -- up 26
   percent year-over-year
-- GAAP earnings per share of 3 cents and non-GAAP earnings per share
   of 7 cents
-- $18 million in cash generated from operations

Quantum Corp. (NYSE: QTM), the leading global specialist in backup, recovery and archive, today reported results for the third quarter of fiscal 2011 (FQ3'11), ended Dec. 31, 2010. Revenue for the quarter totaled $176 million which, primarily due to expected reductions in OEM revenue, was down from $182 million for the same period last year (FQ3'10). However, total revenue was up $9 million sequentially. In addition, branded revenue, which represented 78 percent of total non-royalty revenue for the quarter, grew 2 percent year-over-year and 5 percent sequentially. Branded disk systems and software revenue also continued to grow, increasing 26 percent from FQ3'10 and 2 percent over the prior quarter.

Quantum's GAAP gross margin rate was 42.9 percent for FQ3'11, up from 41.1 percent a year earlier, while the non-GAAP gross margin rate increased to 44.6 percent from 44.4 percent. GAAP operating income was $11 million, the same level as in FQ3'10, and non-GAAP operating income decreased to $20 million from $23 million the previous year.

For FQ3'11, GAAP net income was $6 million, or 3 cents per diluted share, compared to GAAP net income of $5 million, or 2 cents per diluted share, in FQ3'10. Non-GAAP net income for the quarter was $16 million, or 7 cents per diluted share, the same as in the comparable quarter last year.

"Although we were driving to a higher overall revenue target for the quarter, we made progress on a number of initiatives designed to increase channel traction and grow our branded business that demonstrate we are on the right track," said Rick Belluzzo, chairman and CEO of Quantum. "We grew branded revenue year-over-year for the fifth consecutive quarter. We had record branded disk systems and software sales, with our midrange DXi® product revenue nearly tripling year-over-year and more than doubling sequentially. We generated our highest level of StorNext® quarterly revenue to date, with a record 22 percent of sales from new customers. And we further extended our tape leadership, adding 170 new enterprise and midrange automation customers.

"When you combine this momentum with the enhancements we continue to make across our product portfolio, most notably the new DXi 2.0 software platform we are also announcing today, we are well-positioned to deliver revenue growth and increased profits as the storage market continues to evolve," Belluzzo added.

Quantum ended FQ3'11 with $93 million in total cash and cash equivalents and $280 million in total debt. The company generated $18 million in cash from operations and refinanced its subordinated term debt with subordinated convertible debt at a significantly lower interest rate expected to save Quantum approximately $10 million annually in interest expense. In addition, Moody's Investor Service recently upgraded Quantum's credit rating.

Outlook

For the fourth quarter of fiscal 2011, Quantum said it expects:

-- Revenue of $165 million to $175 million.
-- GAAP and non-GAAP gross margin rates similar to those in FQ3'11.
-- GAAP operating expenses of $65 million to $67 million and non-GAAP
   operating expenses of $59 million to $61 million.
-- Interest expense of $3 million and taxes of $1 million.
-- GAAP earnings per diluted share of 1-2 cents and non-GAAP earnings
   per diluted share of 4-5 cents.


Business Highlights

Key business highlights for the December quarter include the following:

-- Quantum began shipping the DXi8500, its new enterprise backup and
   deduplication solution designed to anchor a multi-tier, enterprise-wide
   data protection and disaster recovery strategy. The product has been
   well-received by both new and existing DXi customers. Among those
   purchasing DXi8500 systems during the quarter were a network of Texas
   community hospitals, an energy conglomerate in Asia and a large U.S.
   public university.
-- Quantum had a record number of new midrange DXi customers for the
   quarter. This reflected the increasing adoption of the DXi6500 and
   DXi6700 appliances, including by a Big Four accounting firm, a leading
   North American telecommunications provider, a major U.S. specialty
   retailer and a European mobile phone company. Growing traction with
   independent channel partners also helped drive the significant growth in
   midrange DXi sales. In North America alone, there was a 30 percent
   sequential increase in the number of channel partners selling these
   products, and midrange DXi revenue from Quantum's top partners was up 50
   percent over the prior quarter.
-- In addition to generating record StorNext revenue for the quarter --
   with key customer wins in the Media and Entertainment, Oil and Gas,
   and Intelligence sectors -- Quantum continued to enhance the software.
   In October, the company introduced a new archive conversion feature that
   simplifies migration of files to StorNext from legacy archive platforms,
   such as Oracle's SAM-FS/QFS.
-- Barclaycard US won a Storage Networking World (SNW) Fall 2010 "Best
   Practices" Award based on its implementation of a lights-out disaster
   recovery system utilizing Quantum DXi appliances. In addition, both the
   DXi6500 and StorNext 4.0 were recently named Storage magazine/
   SearchStorage.com 2010 Products of the Year finalists.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Jan. 26, 2011, at 2:00 p.m. PST, to discuss its fiscal third quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (480) 629-9678 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Jan. 26, 2011, at 2:00 p.m. PST. Site for the webcast and related information: http://www.quantum.com/investors.

About Quantum

Quantum Corp. (NYSE: QTM) is the leading global specialist in backup, recovery, and archive. From small businesses to multinational enterprises, more than 50,000 customers trust Quantum to solve their data protection, retention and management challenges. Quantum's best-of-breed, open systems solutions provide significant storage efficiencies and cost savings while minimizing risk and protecting prior investments. They include three market-leading, highly scalable platforms: DXi®-Series disk-based deduplication and replication systems for fast backup and restore, Scalar® tape automation products for disaster recovery and long-term data retention, and StorNext® data management software for high-performance file sharing and archiving. Quantum Corp., 1650 Technology Drive, Suite 800, San Jose, CA 95110, (408) 944-4000, www.quantum.com. Quantum, the Quantum logo, DXi, Scalar and StorNext are registered 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, the statement "we are well-positioned to deliver revenue growth and increased profits as the storage market continues to evolve" 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors," in Quantum's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 11, 2010 and in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 5, 2010. 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, share-based compensation expense, restructuring charges, senior debt amendment fees and gain (loss) on extinguishment of debt, net, 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.

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.

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.

Senior Debt Amendment Fees

The senior debt amendment fees relate to a specific amendment fee and are not part of Quantum's future core operations.

Gain (Loss) on Extinguishment of Debt, Net

The gain (loss) on extinguishment of debt, net relates to specific debt refinancing actions and is not part of Quantum's future core operations.

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         Nine Months Ended
                        ------------------------  ------------------------
                        December 31, December 31, December 31, December 31,
                           2010          2009        2010         2009
                        -----------  -----------  -----------  -----------

Revenue:
  Product               $   123,218  $   124,580  $   344,001  $   348,131
  Service                    37,365       38,991      113,730      117,650
  Royalty                    15,643       18,139       49,442       51,195
                        -----------  -----------  -----------  -----------
    Total revenue           176,226      181,710      507,173      516,976
Cost of Revenue:
  Product                    77,456       82,509      221,158      227,672
  Service                    23,200       24,485       71,595       76,316
                        -----------  -----------  -----------  -----------
    Total cost of
     revenue                100,656      106,994      292,753      303,988
                        -----------  -----------  -----------  -----------
       Gross margin          75,570       74,716      214,420      212,988

  Operating expenses:
    Research and
     development             18,240       18,155       54,490       51,594
    Sales and marketing      31,776       29,029       90,973       84,202
    General and
     administrative          14,176       16,289       44,600       46,012
    Restructuring charges
     (benefits)                  --          (22)          11        4,784
                        -----------  -----------  -----------  -----------
                             64,192       63,451      190,074      186,592
                        -----------  -----------  -----------  -----------
       Income from
        operations           11,378       11,265       24,346       26,396
  Interest income and
   other, net                  (250)         526           24        1,795
  Interest expense           (4,761)      (6,813)     (16,877)     (19,399)
  Gain (loss) on debt
   extinguishment, net
   of costs                  (1,186)          --       (1,186)      12,859
                        -----------  -----------  -----------  -----------
       Income before
        income taxes          5,181        4,978        6,307       21,651
  Income tax provision
   (benefit)                   (683)         342          114          652
                        -----------  -----------  -----------  -----------
       Net income       $     5,864  $     4,636  $     6,193  $    20,999
                        ===========  ===========  ===========  ===========

  Net income per share:
    Basic               $      0.03  $      0.02  $      0.03  $      0.10
    Diluted                    0.03         0.02         0.03         0.04

  Income for purposes of
   computing net income
   per share:
       Basic            $     5,864  $     4,636  $     6,193  $    20,999
       Diluted                5,864        4,636        6,193        9,389

  Weighted average
   common and common
   equivalent shares:
       Basic                222,801      213,525      219,052      212,092
       Diluted              235,099      220,710      228,154      223,143


  Included in the above
   Statements of Operations:

  Amortization of
   intangibles:
    Cost of revenue     $     2,574  $     5,548  $    12,087  $    16,522
    Research and
     development                 --          100          200          300
    Sales and marketing       3,332        3,393       10,088       10,181
    General and
     administrative              25           25           75           75
                        -----------  -----------  -----------  -----------
                              5,931        9,066       22,450       27,078

  Share-based
   compensation:
    Cost of revenue             459          333        1,363          952
    Research and
     development                603          513        1,933        1,733
    Sales and marketing         786          619        2,391        1,837
    General and
     administrative             686          877        2,363        2,633
                        -----------  -----------  -----------  -----------
                              2,534        2,342        8,050        7,155

  Senior debt amendment
   fees                         861           --          861           --




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

                                                  December 31,  March 31,
                                                      2010        2010*
                                                  -----------  -----------
                                 Assets
Current assets:
  Cash and cash equivalents                       $    91,198  $   114,947
  Restricted cash                                       1,667        1,896
  Accounts receivable, net                            118,747      103,397
  Manufacturing inventories, net                       54,086       54,080
  Service parts inventories, net                       46,591       53,217
  Deferred income taxes                                 8,079        7,907
  Other current assets                                 10,667       14,500
                                                  -----------  -----------
    Total current assets                              331,035      349,944

Long-term assets:
  Property and equipment, net                          24,994       24,528
  Intangible assets, net                               50,642       73,092
  Goodwill                                             46,770       46,770
  Other long-term assets                               12,909        9,809
                                                  -----------  -----------
    Total long-term assets                            135,315      154,199

                                                  -----------  -----------
                                                  $   466,350  $   504,143
                                                  ===========  ===========

            Liabilities and Stockholders' Deficit
Current liabilities:
  Accounts payable                                $    58,708  $    56,688
  Accrued warranty                                      6,511        5,884
  Deferred revenue, current                            83,539       94,921
  Current portion of long-term debt                     1,477        1,884
  Current portion of convertible subordinated
   debt                                                    --       22,099
  Accrued restructuring charges                           944        3,795
  Accrued compensation                                 30,259       31,237
  Income taxes payable                                  1,408        2,594
  Other accrued liabilities                            22,527       23,555
                                                  -----------  -----------
    Total current liabilities                         205,373      242,657

Long-term liabilities:
  Deferred revenue, long-term                          32,793       30,724
  Deferred income taxes                                 8,398        8,676
  Long-term debt                                      143,227      305,899
  Convertible subordinated debt                       135,000           --
  Other long-term liabilities                           6,749        7,444
                                                  -----------  -----------
    Total long-term liabilities                       326,167      352,743

  Stockholders' deficit                               (65,190)     (91,257)

                                                  -----------  -----------
                                                  $   466,350  $   504,143
                                                  ===========  ===========


* Derived from the March 31, 2010 audited Consolidated Financial
  Statements.




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

                                                      Nine Months Ended
                                                  ------------------------
                                                  December 31, December 31,
                                                      2010         2009
                                                  -----------  -----------
Cash flows from operating activities:
  Net income                                      $     6,193  $    20,999
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation                                        8,780        9,111
    Amortization                                       23,728       28,987
    Service parts lower of cost or market
     adjustment                                        10,957        8,092
    (Gain) loss on debt extinguishment                  1,186      (15,613)
    Deferred income taxes                                (417)        (387)
    Share-based compensation                            8,050        7,155
    Changes in assets and liabilities:
      Accounts receivable                             (15,350)      (8,702)
      Manufacturing inventories                        (5,861)       8,387
      Service parts inventories                         1,524        3,270
      Accounts payable                                  2,000       11,354
      Accrued warranty                                    626       (4,724)
      Deferred revenue                                 (9,312)      13,864
      Accrued restructuring charges                    (2,856)        (190)
      Accrued compensation                             (1,068)       1,312
      Income taxes payable                             (1,159)      (2,268)
      Other assets and liabilities                      1,900          954
                                                  -----------  -----------
Net cash provided by operating activities              28,921       81,601

Cash flows from investing activities:
  Purchases of property and equipment                  (9,348)      (5,728)
  (Increase) decrease in restricted cash                  222         (120)
  Return of principal from other investments               95          166
                                                  -----------  -----------
Net cash used in investing activities                  (9,031)      (5,682)

Cash flows from financing activities:
  Borrowings of long-term debt, net                        --      120,042
  Repayments of long-term debt                       (163,079)     (61,463)
  Borrowings of convertible subordinated debt, net    130,022           --
  Repayments of convertible subordinated debt         (22,099)    (122,288)
  Payment of taxes due upon vesting of restricted
   stock                                               (2,165)        (960)
  Proceeds from issuance of common stock               13,635        1,761
                                                  -----------  -----------
Net cash used in financing activities                 (43,686)     (62,908)

Effect of exchange rate changes on cash and cash
 equivalents                                               47          248

Net increase (decrease) in cash and cash
 equivalents                                          (23,749)      13,259
Cash and cash equivalents at beginning of period      114,947       85,532
                                                  -----------  -----------
Cash and cash equivalents at end of period        $    91,198  $    98,791
                                                  ===========  ===========




                            QUANTUM CORPORATION
                      GAAP TO NON-GAAP RECONCILIATION
                 (In thousands, except per share amounts)
                                (Unaudited)


                           Three Months Ended December 31, 2010
                ----------------------------------------------------------
                                                              Per     Per
                                                             Share   Share
                         Gross   Income                       Net     Net
                Gross    Margin   From    Operating  Net    Income, Income,
                Margin   Rate  Operations  Margin  Income   Basic* Diluted*
                -------  ------  -------   ------  ------- ------- -------
GAAP            $75,570    42.9% $11,378      6.5% $ 5,864 $  0.03 $  0.03
Non-GAAP
 Reconciling
 Items:
  Amortization of
   Intangibles    2,574            5,931             5,931
  Share-based
   Compensation     459            2,534             2,534
  Loss on Debt
   Extinguishment                                    1,186
  Senior Debt
   Amendment Fees                                      861
                -------          -------           -------
Non-GAAP        $78,603    44.6% $19,843    11.3%  $16,376 $  0.08 $  0.07


* Weighted average
  common and common
  equivalent shares:
                  GAAP  Non-GAAP
  Basic:        222,801 222,801
  Diluted:      235,099 250,678


                             Three Months Ended December 31, 2009
                 ----------------------------------------------------------
                                                              Per     Per
                                                             Share   Share
                         Gross   Income                       Net     Net
                Gross    Margin   From    Operating  Net    Income, Income,
                Margin   Rate  Operations  Margin  Income   Basic* Diluted*
                ------- -------  -------  -------  ------- ------- --------
GAAP            $74,716    41.1% $11,265      6.2% $ 4,636 $  0.02 $  0.02
Non-GAAP
 Reconciling
 Items:
  Amortization of
   Intangibles    5,548            9,066             9,066
  Share-based
   Compensation     333            2,342             2,342
  Restructuring
   Benefits                          (22)              (22)
                -------          -------           -------
Non-GAAP        $80,597    44.4% $22,651    12.5%  $16,022 $  0.07 $  0.07


* Weighted average
   common and common
   equivalent shares:
                  GAAP  Non-GAAP
  Basic:        213,525 213,525
  Diluted:      220,710 220,710


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
                    FOURTH QUARTER FISCAL 2011 FORECAST
                      GAAP TO NON-GAAP RECONCILIATION
                  (In millions, except per share amounts)
                                                                           

                                                        -------------------
                                                           Dollar range
                                                        -------------------

Forecast Revenue                                        $  165.0 - $  175.0


                                                        -------------------
                                                           Dollar range
                                                        -------------------

Forecast operating expense on a GAAP basis              $   64.5 - $   66.5

Forecast amortization of intangibles                            3.4
Forecast share-based compensation                               2.1

                                                        -------------------
Forecast operating expense on a non-GAAP basis          $   59.0 - $   61.0
                                                        ===================


                                                        -------------------
                                                           Dollar range
                                                        -------------------

Forecast diluted earnings per share on a GAAP basis     $   0.01 - $   0.02

Forecast amortization of intangibles                            0.02
Forecast share-based compensation                               0.01

                                                        -------------------
Forecast diluted earnings per share on a non-GAAP basis $   0.04 - $   0.05
                                                        ===================

Estimates based on current (January 26, 2011) 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 11, 2010.  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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