SOURCE: Quantum Corporation

Quantum Corporation

January 30, 2013 16:05 ET

Quantum Corporation Reports Fiscal Third Quarter Results

SAN JOSE, CA--(Marketwire - Jan 30, 2013) - Quantum Corp. (NYSE: QTM)

Highlights:

  • Total revenue of $159 million, up 8% sequentially
  • Disk systems and software revenue of $41 million, up 13% year-over-year
  • Record DXi revenue, up 19% year-over-year
  • Strong rebound in tape automation revenue over prior quarter, up 25%

Quantum Corp. (NYSE: QTM), a proven global expert in data protection and big data management, today reported results for the third quarter of fiscal 2013 (FQ3'13), ended Dec. 31, 2012. Revenue for the quarter totaled $159 million, down 8 percent from the third quarter of fiscal 2012 (FQ3'12), primarily due to expected declines in OEM and branded tape automation revenue. However, total revenue was up $12 million, or 8 percent, over the prior quarter (FQ2'13). Quantum reported revenue of $41 million from disk system and software sales (including related service), a 13 percent increase over FQ3'12 due to record revenue from DXi® disk system sales. The company also grew tape automation revenue by 25 percent over the prior quarter, as both midrange and enterprise sales rebounded strongly.

Quantum reported a GAAP net loss of $8 million, or 4 cents per share, for FQ3'13, compared to GAAP net income of $4 million in the same quarter of last year. On a non-GAAP basis, the company had net income of $5 million, or 2 cents per share, down from net income of $12 million a year earlier. The year-over-year declines were largely driven by the lower overall revenue. Compared to the prior quarter's results, the GAAP net loss in FQ3'13 was $4 million smaller, and the non-GAAP net income was $10 million higher.

"We improved our financial performance in the December quarter, growing revenue sequentially, driving better-than-expected non-GAAP profits and generating cash," said Jon Gacek, president and CEO of Quantum. "We also had another quarter of record DXi deduplication sales, which contributed to the 14 percent year-over-year increase in combined DXi and StorNext® revenue we've achieved over the first three quarters of the fiscal year.

"In addition, even as we scaled back spending, we continued to invest in new, industry-leading products and solutions for protecting and managing digital content in physical, virtual, cloud and big data environments. These include our Lattus™ wide area storage systems, vmPRO 3.0 virtual backup software, DXi6800 deduplication appliances and Scalar i6000 HD enterprise tape libraries."

Quantum generated $6 million in cash from operating activities in FQ3'13 and ended the quarter with $55 million in cash and cash equivalents.

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

  • Revenue of approximately $145 million to $150 million, reflecting typical seasonality, with higher sequential disk systems and software revenue.
  • GAAP gross margin rate of approximately 41 percent and non-GAAP gross margin rate of 42 percent.
  • GAAP operating expenses of $66 million to $68 million and non-GAAP operating expenses of $61 million to $63 million.
  • Interest expense of $2.5 million and taxes of $500,000.

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

  • Quantum introduced a new family of wide area storage solutions, named Lattus, which provides globally distributed disk-based archives that are extremely scalable and cost-effective and allows storage of data forever on disk without interruption or migration. Integrating dispersed next-generation object storage and Quantum file system technologies, the Lattus family offers a new approach to archiving that overcomes the limitations and inefficiencies posed by traditional disk architectures in multi-petabyte storage environments. The first Lattus product, Lattus-X, began shipping in December.
  • The company integrated its Q-Cloud™ backup and disaster recovery services with Symantec OpenStorage (OST) technology, providing NetBackup and Backup Exec customers with multiple options for leveraging Q-Cloud's services. Q-Cloud now directly supports NetBackup and Backup Exec software, enabling both backup applications to stay completely aware of all copies of data backed up to a Q-Cloud DXi appliance.
  • Quantum began offering full-featured, free downloads of its vmPRO virtual machine backup software and DXi V1000 virtual deduplication appliance, providing a risk-free way to explore their superior features and value. The vmPRO Standard Edition software protects up to 1 TB of virtual data and can be upgraded to vmPRO Enterprise Edition for additional capacity, making it easy for customers to adopt Quantum vmPRO™ and scale it to meet their growth requirements. The DXi V1000 stores up to 15 TB of deduplicated data and works with vmPRO software to offer a 100 percent virtual data protection solution as well as a path to the cloud.
  • LTO-6 technology started shipping in Quantum's Scalar i6000 and i500 tape libraries, as well as in its autoloaders, drives and media. LTO-6 nearly doubles capacity and increases transfer rates by up to 43 percent over LTO-5 technology, further enhancing the role of tape as an integral component of a broader tiered storage strategy.
  • Quantum products continued to garner industry honors, as the DXi V1000 was named "Virtualisation Product of the Year" at the 2012 Storage, Virtualisation and Cloud Computing (SVC) Awards, and Quantum's StorNext data management software was recognized as runner-up in the Storage Software Appliance category. In addition, earlier this month, Storage magazine announced that the DXi V1000 is a finalist for its 2012 Product of the Year awards, and Network Computing selected the DXi6701/02 midrange deduplication appliance as a Product of the Year finalist for its upcoming awards.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Jan. 30, 2013, 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) 629-9645 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Jan. 30, 2013, at 2:00 p.m. PST. 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 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/BeCertain.

Quantum, the Quantum logo, Be Certain, DXi, StorNext, Lattus, Scalar, Q-Cloud and Quantum vmPRO 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, 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 November 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     Nine Months Ended  
  December 31, 2012     December 31, 2011     December 31, 2012     December 31, 2011  
                               
Revenue:                              
  Product $ 112,517     $ 124,081     $ 306,395     $ 341,475  
  Service   35,340       35,362       107,138       107,956  
  Royalty   11,538       14,049       34,081       42,635  
    Total revenue   159,395       173,492       447,614       492,066  
Cost of revenue:                              
  Product   72,007       77,238       204,641       218,044  
  Service   19,360       22,537       59,926       65,732  
  Restructuring benefit related to cost of revenue   --       --       --       (300 )
    Total cost of revenue   91,367       99,775       264,567       283,476  
      Gross margin   68,028       73,717       183,047       208,590  
                                 
  Operating expenses:                              
    Research and development   18,615       17,629       56,639       55,212  
    Sales and marketing   33,588       33,350       103,307       94,990  
    General and administrative   14,851       15,759       46,910       46,991  
    Restructuring charges   6,602       --       6,602       699  
      73,656       66,738       213,458       197,892  
  Gain on sale of patents   --       --       --       1,500  
      Income (loss) from operations   (5,628 )     6,979       (30,411 )     12,198  
                                 
  Other income and expense   60       (142 )     (388 )     (422 )
  Interest expense   (2,230 )     (2,450 )     (5,896 )     (8,111 )
        Income (loss) before income taxes   (7,798 )     4,387       (36,695 )     3,665  
  Income tax provision   348       473       1,217       1,416  
        Net income (loss) $ (8,146 )   $ 3,914     $ (37,912 )   $ 2,249  
                                 
                                 
  Basic and diluted net income (loss) per share: $ (0.04 )   $ 0.02     $ (0.16 )   $ 0.01  
                                 
  Weighted average common and common equivalent shares:                              
      Basic   240,786       233,812       239,099       231,661  
      Diluted   240,786       239,912       239,099       239,261  
                               
                               
Included in the above Statements of Operations:                              
                               
  Amortization of intangibles:                              
    Cost of revenue $ 911     $ 1,472     $ 3,407     $ 6,148  
    Sales and marketing   1,856       3,256       7,668       9,872  
    General and administrative   --       --       --       32  
    2,767       4,728       11,075       16,052  
  Share-based compensation:                              
    Cost of revenue   626       495       1,839       1,518  
    Research and development   925       795       2,772       2,466  
    Sales and marketing   1,273       1,127       3,603       3,059  
    General and administrative   892       1,007       3,515       3,203  
    3,716       3,424       11,729       10,246  
                               
  Acquisition expenses   --       --       --       325  
                               
   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
           
           
  December 31, 2012     March 31, 2012*  
           
Assets          
Current assets:              
  Cash and cash equivalents $ 51,340     $ 51,261  
  Restricted cash   3,515       4,230  
  Accounts receivable   115,993       110,840  
  Manufacturing inventories   53,845       61,111  
  Service parts inventories   34,931       39,050  
  Deferred income taxes   4,927       5,295  
  Other current assets   8,638       9,434  
    Total current assets   273,189       281,221  
               
Long-term assets:              
  Property and equipment   24,055       25,440  
  Intangible assets and goodwill   70,650       81,725  
  Other long-term assets   10,055       6,962  
    Total long-term assets   104,760       114,127  
               
  $ 377,949     $ 395,348  
               
Liabilities and Stockholders' Deficit              
Current liabilities:              
  Accounts payable $ 46,539     $ 56,304  
  Accrued warranty   7,746       7,586  
  Deferred revenue, current   86,030       93,441  
  Accrued restructuring charges   4,935       1,752  
  Accrued compensation   32,289       31,971  
  Income taxes payable   227       1,133  
  Other accrued liabilities   17,477       17,866  
    Total current liabilities   195,243       210,053  
               
Long-term liabilities:              
  Deferred revenue, long-term   39,191       36,430  
  Deferred income taxes   4,432       4,564  
  Long-term debt   --       49,495  
  Convertible subordinated debt   205,000       135,000  
  Other long-term liabilities   6,163       6,486  
    Total long-term liabilities   254,786       231,975  
               
  Stockholders' deficit   (72,080 )     (46,680 )
               
  $ 377,949     $ 395,348  
               
               
* Derived from the March 31, 2012 audited Consolidated Financial Statements.          
           
   
   
QUANTUM CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
           
  Nine Months Ended  
  December 31, 2012     December 31, 2011  
Cash flows from operating activities:              
  Net income (loss) $ (37,912 )   $ 2,249  
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:              
    Depreciation   9,283       8,776  
    Amortization   12,013       17,785  
    Service parts lower of cost or market adjustment   7,026       7,564  
    Deferred income taxes   231       (785 )
    Share-based compensation   11,729       10,246  
    Changes in assets and liabilities, net of effect of acquisition:              
      Accounts receivable   (5,153 )     (131 )
      Manufacturing inventories   1,502       (17,463 )
      Service parts inventories   2,857       3,150  
      Accounts payable   (9,748 )     7,052  
      Accrued warranty   160       46  
      Deferred revenue   (4,650 )     (2,727 )
      Accrued restructuring charges   3,184       (3,347 )
      Accrued compensation   326       1,975  
      Income taxes payable   (901 )     438  
      Other assets and liabilities   1,921       (1,735 )
Net cash provided by (used in) operating activities   (8,132 )     33,093  
               
Cash flows from investing activities:              
  Purchases of property and equipment   (9,389 )     (8,538 )
  (Increase) decrease in restricted cash   691       (2,317 )
  Purchases of other investments   (2,169 )     --  
  Return of principal from other investments   208       97  
  Payment for business acquisition, net of cash acquired   --       (8,152 )
Net cash used in investing activities   (10,659 )     (18,910 )
               
Cash flows from financing activities:              
  Repayments of long-term debt   (49,495 )     (35,698 )
  Borrowings of convertible subordinated debt, net   67,701       --  
  Payment of taxes due upon vesting of restricted stock   (1,926 )     (2,638 )
  Proceeds from issuance of common stock   2,604       7,506  
Net cash provided by (used in) financing activities   18,884       (30,830 )
               
Effect of exchange rate changes on cash and cash equivalents   (14 )     (113 )
               
Net increase (decrease) in cash and cash equivalents   79       (16,760 )
Cash and cash equivalents at beginning of period   51,261       76,010  
Cash and cash equivalents at end of period $ 51,340     $ 59,250  
               
   
   
QUANTUM CORPORATION  
GAAP TO NON-GAAP RECONCILIATION  
(In thousands, except per share amounts)  
(Unaudited)  
                           
  Three Months Ended December 31, 2012  
  Gross Margin   Gross Margin Rate     Net Income (Loss)     Per Share Net Income (Loss), Basic     Per Share Net Income (Loss), Diluted  
GAAP $ 68,028   42.7 %   $ (8,146 )   $ (0.04 )   $ (0.04 )
Non-GAAP Reconciling Items:                                  
  Amortization of intangibles   911           2,767                  
  Share-based compensation   626           3,716                  
  Restructuring charges   --           6,602                  
Non-GAAP $ 69,565   43.6 %   $ 4,939     $ 0.02     $ 0.02  
                                   
      Computation of basic and diluted net income (loss) per share:                       GAAP       Non-GAAP  
        Net income (loss)                     $ (8,146 )   $ 4,939  
          Interest on dilutive convertible notes                       --       533  
        Income (loss) for purposes of computing income (loss) per diluted share                     $ (8,146 )   $ 5,472  
                                         
      Weighted average shares:                                  
        Basic                       240,786       240,786  
          Dilutive shares from stock plans                       --       1,892  
          Dilutive shares from convertible notes                       --       28,490  
        Diluted                       240,786       271,168  
                                   
  Nine Months Ended December 31, 2012  
  Gross Margin   Gross Margin Rate     Net Loss     Per Share Net Loss, Basic     Per Share Net Loss, Diluted  
GAAP $ 183,047   40.9 %   $ (37,912 )   $ (0.16 )   $ (0.16 )
Non-GAAP Reconciling Items:                                  
  Amortization of intangibles   3,407           11,075                  
  Share-based compensation   1,839           11,729                  
  Restructuring charges   --           6,602                  
Non-GAAP $ 188,293   42.1 %   $ (8,506 )   $ (0.04 )   $ (0.04 )
                                   
      Computation of basic and diluted net loss per share:                       GAAP       Non-GAAP  
        Net loss                     $ (37,912 )   $ (8,506 )
                                         
      Weighted average shares:                                  
        Basic and diluted                       239,099       239,099  
                                   
                                   
  Three Months Ended December 31, 2011  
  Gross Margin   Gross Margin Rate     Net Income     Per Share Net Income, Basic     Per Share Net Income, Diluted  
GAAP $ 73,717   42.5 %   $ 3,914     $ 0.02     $ 0.02  
Non-GAAP Reconciling Items:                                  
  Amortization of intangibles   1,472           4,728                  
  Share-based compensation   495           3,424                  
Non-GAAP $ 75,684   43.6 %   $ 12,066     $ 0.05     $ 0.05  
                                   
      Computation of basic and diluted net income per share:                       GAAP       Non-GAAP  
        Net income                     $ 3,914     $ 12,066  
          Interest on dilutive convertible notes                       --       1,191  
        Income for purposes of computing income per diluted share                     $ 3,914     $ 13,257  
                                         
      Weighted average shares:                                  
        Basic                       233,812       233,812  
          Dilutive shares from stock plans                       6,100       6,100  
          Dilutive shares from convertible notes                       --       31,158  
        Diluted                       239,912       271,070  
                                   
  Nine Months Ended December 31, 2011  
  Gross Margin   Gross Margin Rate     Net Income     Per Share Net Income, Basic     Per Share Net Income, Diluted  
GAAP $ 208,590   42.4 %   $ 2,249     $ 0.01     $ 0.01  
Non-GAAP Reconciling Items:                                  
  Amortization of intangibles   6,148           16,052                  
  Share-based compensation   1,518           10,246                  
  Restructuring charges   (300 )         399                  
  Acquisition expenses   --           325                  
Non-GAAP $ 215,956   43.9 %   $ 29,271     $ 0.13     $ 0.12  
                                   
      Computation of basic and diluted net income per share:                       GAAP       Non-GAAP  
        Net income                     $ 2,249     $ 29,271  
          Interest on dilutive convertible notes                       --       3,560  
        Income for purposes of computing income per diluted share                     $ 2,249     $ 32,831  
                                         
      Weighted average shares:                                  
        Basic                       231,661       231,661  
          Dilutive shares from stock plans                       7,600       7,600  
          Dilutive shares from convertible notes                       --       31,158  
        Diluted                       239,261       270,419  
                                   
                                   
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 FOURTH QUARTER FISCAL 2013
GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions)
         
    Percentage
Forecast fourth quarter gross margin rate on a GAAP basis   41.3%
         
Forecast amortization of intangibles   0.3%
Forecast share-based compensation   0.4%
         
Forecast fourth quarter gross margin rate on a non-GAAP basis   42.0%
         
         
    Dollar Range
Forecast fourth quarter operating expense on a GAAP basis   $65.9 - $67.9
         
Forecast amortization of intangibles   1.8
Forecast share-based compensation   3.1
         
Forecast fourth quarter operating expense on a non-GAAP basis   $61.0 - $63.0
         
         
         
Estimates based on current (January 30, 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 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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