Quantum: Fiscal 1Q09 Financial Results

Quantum Corp. announced that revenue for its fiscal first quarter (FQ1’09), ended June 30, 2008, was $222 million. Although this represented a 10 percent decline from the same period last year (FQ1’08), the company’s non-royalty branded revenue grew by 3 percent. The greater mix of branded sales also helped increase the overall GAAP gross margin rate from 32 to 34 percent, year-over-year. In addition, Quantum’s GAAP operating expenses of $81 million were down $11 million, $9 million of which was related to restructuring charges incurred in FQ1’08.

Quantum reported a GAAP net loss of $14 million for FQ1’09, or 7 cents per share, a 4-cent improvement over FQ1’08. This $14 million net loss included $11 million in amortization of intangibles and $3 million in stock-based compensation charges, and the net impact of these items reduced earnings per share on a diluted basis by approximately 7 cents.

One of the major highlights of the quarter was the growth in Quantum’s disk systems and software sales. Product and service revenue in this category totaled $20 million, an increase of 100 percent over FQ1’08 and 60 percent over the prior quarter. Quantum’s newly released DXi7500 enterprise de-duplication and replication system was a significant contributor to this growth, and the company also received revenue from its software license agreement with EMC.

Quantum generated $26 million in cash from operations for the quarter and paid down $50 million of debt. The company’s cash balance as of June 30, 2008 was $67 million.

"Although the June quarter was a transitional one in many ways, we demonstrated significant progress in several key areas," said Rick Belluzzo, chairman and CEO of Quantum. "We achieved record disk systems and software revenue with just a month’s contribution from our branded DXi7500 shipments and expanded relationship with EMC. We also had record service revenue and increased both our branded revenue and gross margin rate. And our cash generation enabled us to pay down an even larger amount of debt than we have in recent quarters. While we have more work to do, all of this reflects our continuing focus on further improving our operating model and delivering a stable and more profitable revenue stream by growing our branded business."

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $158 million in the June quarter. This represented a net decrease of $24 million from FQ1’08, primarily due to an expected decline in overall OEM revenue. Sales of branded devices and tape automation were also lower on a year-over-year basis, while revenue from branded disk systems, software and non-royalty media grew.

Disk systems and software product revenue was $18 million in FQ1’09, double the $9 million generated in the same period last year. Quantum now has more than 300 DXi-Series customers, with a number of significant DXi7500 wins secured, both in the U.S. and abroad, during the June quarter. These wins include multiple unit purchases by a top U.S. cable company, a leading supplier of broadband service in Europe and a major electrical utility supplier in Australia, as well as deals with one of America’s most respected newspaper publishers, a large operator of luxury resorts and casinos in Las Vegas, and various governmental agencies. A majority of DXi7500 customers bought a replication license and nearly half purchased the path-to-tape option, reinforcing the unique value Quantum provides by offering a single family of disk-based de-duplication and replication solutions for remote sites, midrange offices and primary data centers and by delivering integrated tape creation for enterprise customers.

Tape automation product revenue totaled $86 million in the June quarter, a decrease of $22 million from the comparable period last year, with two-thirds of the decline related to OEM products and the other third mainly due to lower branded sales in North America.

Product revenue from devices and non-royalty media sales totaled $54 million in FQ1’09, down $10 million year-over-year. This was largely the result of an anticipated decline in OEM device revenue offset by a slight increase in branded non-royalty media sales.

Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $42 million in FQ1’09. This was an increase of $2 million over FQ1’08 and a new record for Quantum.

The company had $22 million in royalty revenue for the June quarter, down $2 million from the comparable quarter in Fiscal Year 2008.

Quantum increased its branded share of non-royalty revenue to 66 percent in FQ1’09, from 58 percent in FQ1’08.