Quantum: Fiscal 2Q09 Financial Results

Quantum Corp. announced that revenue for its fiscal second quarter (FQ2’09), ended Sept. 30, 2008, was $215 million. Compared to the same quarter last year (FQ2’08), Quantum’s total revenue was down 13 percent, due primarily to the company’s strategy of shifting its sales mix toward higher margin opportunities and a year-over-year decline in branded tape sales. Despite the revenue decline, the company’s GAAP gross margin rate was 38 percent, up from 31 percent in the same quarter last year. GAAP operating expenses totaled $77 million, an increase of $2 million over FQ2’08.

Quantum reported a GAAP net loss of $3 million, or 1 cent per share, a 9-cent improvement over the same period last year. The $3 million net loss for the quarter included $11 million in amortization of intangibles, $3 million in stock-based compensation charges and $450 thousand in restructuring expenses. The net impact of these items reduced earnings per share on a diluted basis by approximately 6 cents.

"Our results were clearly impacted by the global financial crisis, but we were still able to deliver solid improvements in many areas of our business," said Rick Belluzzo, chairman and CEO of Quantum. "We continued to grow our disk systems and software revenue and reversed the decline in midrange and enterprise tape sales that we had experienced in the first quarter, even though a number of customers held off on closing large deals at the end of September. In addition, we further improved our gross margin performance and paid down another $40 million of debt. Despite the macroeconomic challenges, we still see opportunities for growth over the next several quarters, and we remain focused on leveraging our unique combination of disk, tape, software and service offerings to deliver integrated, edge-to-core solutions for protecting and managing data."

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $143 million in the September quarter. This represented a net decrease of $42 million from FQ2’08, due to an expected decline in overall OEM revenue as well as lower sales of branded devices, non-royalty media and tape automation systems.

Disk systems and software product revenue was $19 million in FQ2’09, up from $15 million in the same period last year. With related service revenue included, the total for the quarter was $21 million, an increase of 31 percent over FQ2’08. Contributing to the revenue growth was the addition of new Quantum DXi-Series and EMC disk customers who purchased systems incorporating Quantum’s de-duplication and replication software. Quantum alone increased its DXi-Series customer base to more than 400 in the September quarter, driven in part by sales of its DXi7500 enterprise solution. Reflecting its strong value proposition, two-thirds of DXi7500 customers to date have purchased replication licenses and nearly a third have taken advantage of the direct tape creation option which provides seamless disk-tape integration.

September quarter revenue for Quantum’s other two product categories was as follows:

• $86 million in tape automation sales, a decrease of $25 million from the comparable period last year. Approximately two-thirds of the decline related to OEM products, with the other third due mainly to lower branded sales in North America.
• $39 million in devices and non-royalty media revenue, down $21 million from FQ2’08. This was largely the result of an anticipated decline in OEM device revenue, although branded device sales were also lower. In addition, Quantum chose not to pursue some lower margin media revenue opportunities.
• Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $42 million in FQ2’09. This was an increase of $3 million over FQ2’08.
• Quantum had $31 million in royalty revenue for the September quarter, which included an $11 million payment from Riverbed Technology as part of a previously announced settlement of patent infringement litigation. The $31 million in royalty revenue was up $6 million from the comparable quarter last year.

Excluding royalties, the company’s branded share of revenue increased to 66 percent in FQ2’09, from 63 percent in FQ2’08.