Quantum: Fiscal 3Q08 Financial Results

Quantum Corp. announced that revenue for its fiscal third quarter (FQ3’08), ended Dec. 31, 2007, was $253 million. Although this was down from $302 million in the same quarter last year (FQ3’07), the company more than doubled its GAAP operating income to $9 million. This was the highest level in three years and reflected Quantum’s focus on pursuing higher margin sales over low-margin revenue opportunities.

The company reported a GAAP net loss of $2 million for FQ3’08, or 1 cent per share, compared to a $10 million net loss (5 cents per share) in FQ3’07. The $2 million net loss in the recent December quarter included two major expense items totaling $16 million: $12 million in amortization of intangibles and $4 million in stock-based compensation charges. The net impact of these items reduced earnings per share on a diluted basis by approximately 8 cents.

Quantum increased its GAAP gross margin rate to 35 percent in FQ3’08, up from 29 percent in the comparable quarter last year. This was the highest GAAP gross margin rate for the company in more than five years. In addition to delivering strong gross margin performance, the company reduced its GAAP operating expenses to $78 million, from $85 million in the same period last year. During FQ3’08, Quantum also paid down $20 million of its debt related to the August 2006 acquisition of ADIC. At quarter end, the company had reduced this debt by 27 percent since the acquisition and had a balance of $360 million. Interest expense for the period was $11 million, down $4 million from the comparable quarter last year.

"We are pleased with the continued progress we made in executing on our financial model last quarter," said Rick Belluzzo, chairman and CEO of Quantum. "Our strategy of focusing on the higher margin segments of our business and reducing our expense structure has enabled us to deliver solid operating income, generate cash and pay down our debt. At the same time, however, we recognize the need to grow branded revenue and have undertaken a number of actions across the company which we believe will help drive such growth over the coming quarters. This includes building a stronger disk and software business, with an increasing contribution from our DXi-Series family of disk-based data de-duplication and replication solutions."

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $185 million in FQ3’08. This represented a net decrease of approximately $50 million from the same quarter last year. The components of product revenue were as follows:

• Disk systems and software revenue was $14 million, up $2 million from FQ3’07, as a strong contribution from Quantum’s DXi3500 and DXi5500 de-duplication and replication appliances offset the revenue decline in sales of the company’s legacy disk products.
• Tape automation systems revenue totaled $113 million in FQ3’08, a decline of $30 million from the comparable period last year, with lower sales in almost all product categories.
• Revenue from devices and non-royalty media sales totaled $58 million in the December quarter, down $22 million from the same quarter last year, as non-royalty media revenue grew but device sales declined.

Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $41 million in FQ3’08. This was up $3 million over FQ3’07.

Quantum had $27 million in royalty revenue for FQ3’08, down approximately $2 million from the same quarter last year.

The company increased its branded share of non-royalty revenue to 62 percent in FQ3’08, from 54 percent in FQ3’07.

The company increased its combined DXi3500 and DXi5500 revenues by 31 percent sequentially and now has an installed base of approximately 200 customers across a range of industries and geographies. One-third of Quantum’s DXi-Series revenues in the quarter came from repeat purchases, and about 50 percent of customers bought a replication license, which indicates the continued growth opportunity for the company in this market.

Quantum Corp.