Quantum: Fiscal 4Q08 Financial Results

Quantum Corp. announced that revenue for its fiscal fourth quarter (FQ4’08), ended March 31, 2008, was $229 million and that revenue for the full fiscal year 2008 (FY08) was approximately $976 million, representing respective declines of 17 percent and 4 percent over the comparable periods for fiscal year 2007 (FY07). In part, these declines reflected the company’s strategy of shifting its sales mix toward higher margin opportunities — this shift resulted in a year-over-year increase of 4 percentage points in its GAAP gross margin rate and an increase in its branded share of non-royalty revenue to 66 percent in FQ4’08 from 57 percent in the same period of FY07.

The company reported a GAAP net loss of $15 million for FQ4’08, or 8 cents per share, a 2-cent improvement over the fiscal fourth quarter of 2007 (FQ4’07). This $15 million net loss included $11 million in amortization of intangibles and $4 million in stock-based compensation charges, and the net impact of these items reduced earnings per share on a diluted basis by approximately 8 cents.

Quantum generated $32 million in cash from operations for the quarter and paid down another $20 million of debt related to the acquisition of ADIC.

"Over the past year, we’ve made significant progress in improving our financial model and further refining our strategic focus to drive greater growth potential," said Rick Belluzzo, chairman and CEO of Quantum. "Both our operating income and net income for FY08 were the highest they’ve been in five years, when intangible amortization, stock-based compensation, acquisition-related expenses and debt refinancing costs are excluded."

"Nevertheless, we did not meet our revenue goals for our overall branded business and disk systems and software products, and driving growth in these areas will be our top priority in the coming year," continued Belluzzo. "We also believe we are better positioned to deliver on this objective going forward. Our DXi7500 enterprise disk backup system is now generally available, enabling us to provide customers with end-to-end data protection that integrates closely with tape. We feel very good about our technology leadership in this area and the partnership opportunities it provides, as reflected in our January announcement that a major OEM would be licensing our de-duplication and replication software. Finally, we’ve taken a number of steps in the areas of engineering, sales and marketing to address the challenges we encountered over the last year and achieve greater market momentum."

Quantum’s GAAP gross margin rate for FQ4’08 was 33.0 percent, a solid increase over the 29.5 percent rate in FQ4’07. Operating expenses were $82 million, down from $88 million in FQ4’07.

For the full fiscal year 2008, the GAAP gross margin rate was 32.7 percent, up from 28.9 percent in FY07. Operating expenses in FY08 totaled $327 million, an increase of $7 million over the prior year. Quantum had a GAAP net loss of $60 million, or 30 cents per share, in FY08. This compared to a net loss of $64 million, or 33 cents per share, in FY07, reflecting the improved gross margins. The $60 million net loss in FY08 included a number of major expense items totaling $88 million: $49 million in amortization of intangibles; $14 million in stock-based compensation charges; $13 million in costs associated with refinancing the ADIC acquisition-related debt on more favorable terms; and $12 million in restructuring and other transition expenses related to the ADIC acquisition. The net impact of these items reduced FY08 earnings per share on a diluted basis by approximately 44 cents.

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $163 million in the March quarter. This represented a net decrease of $46 million over FQ4’07, primarily due to a decline in OEM sales. The components of product revenue were as follows:

• Disk systems and software revenue was $11 million, up $3 million from FQ4’07, with sales of Quantum’s DXi3500 and DXi5500 de-duplication and replication appliances offsetting the revenue decline in the company’s legacy disk products.
• Tape automation systems revenue totaled $94 million in the March quarter, a decrease of $25 million from the comparable period last year, primarily related to expected declines in OEM sales. Revenue from devices and non-royalty media sales totaled $58 million in FQ4’08, down $24 million from the same quarter in FY07, with nearly all the decline coming from lower device sales.

Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $41 million in FQ4’08. This was an increase of $3 million over FQ4’07.

Quantum had $25 million in royalty revenue for the March quarter, down approximately $5 million from the comparable quarter in FY07. However, $3 million of this decline reflected a one-time royalty payment the company received in FQ4’07 as a result of a cross-license agreement.