Quantum: Fiscal 3Q10 Financial Results

(in US$ millions)	3Q09	3Q10	9 mo. 09	9 mo. 10
Revenues	203.7	181.7	640.8	517.0
*Growth*		-11%		*-19%*
Net income (loss)	(328.8)	4.6	(346.4)	21.0

Quantum Corp. announced that revenue for its fiscal third quarter (FQ3’10), ended Dec. 31, 2009, was $182 million. This represented an 11 percent decline from the same period last year (FQ3’09), primarily due to expected reductions in OEM revenue, including DXi software, tape, and devices and media sales. Despite the year-over-year decline, revenue increased 4 percent from the prior quarter (FQ2’10) – the second consecutive quarter of sequential growth – and branded revenue was up from both FQ2’10 and the same period last year. As it did in the prior quarter, the company reported a GAAP gross margin rate above 40 percent, although the 41.1 percent rate in the December quarter was down from 42.1 percent in FQ3’09, largely due to the decline in OEM DXi software revenue.

Quantum also delivered its third consecutive quarter of GAAP profit, with $5 million in net income, or diluted earnings per share of two cents. This compared to a GAAP net loss of $329 million in FQ3’09. The $5 million profit included $9 million in amortization of intangibles and $2 million in stock-based compensation charges, which together reduced diluted earnings per share by five cents.

Quantum generated $17 million in cash from operations for FQ3’10 and ended the quarter with over $100 million in cash and cash equivalents.

"The December quarter further demonstrated the strength of our business model, with results in several areas being among the best we’ve achieved over the past 10 years," said Rick Belluzzo, chairman and CEO of Quantum. "With a strong contribution from our branded business and gross margin above 40 percent, we again delivered solid GAAP profits and sequential revenue growth. Our record level of branded disk systems and software revenue also speaks to the opportunity we have in key growth segments of the storage market, particularly given the recent additions we’ve made to our product portfolio with the DXi6500 family of NAS-based deduplication appliances and the latest release of our StorNext data management software."

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $125 million in FQ3’10. This represented a decrease of $19 million from FQ3’09, primarily reflecting the expected declines in OEM revenue.

Disk systems and software revenue, inclusive of related software maintenance and service revenue, was $25 million in the December quarter. This was down approximately $6 million from the same quarter last year, primarily due to reduced OEM DXi software revenue. However, on a branded basis, Quantum generated its highest level of disk systems and software revenue to date. A sampling of major DXi7500 account wins during the quarter included new business with one of the world’s largest technology consulting companies, a leading global supplier of industrial gasses and a national lottery operator in Asia. In addition, Quantum had several repeat DXi7500 orders, including those from two top U.S. and Asian insurance companies, one of the world’s biggest telecommunications providers and a major university medical center in the U.S.

Also contributing to the record disk systems and software revenue in FQ3’10 were significant StorNext wins, most notably a deal for more than a million dollars in which StorNext will play a central role in a multi-site, private cloud implementation for a Fortune Global 10 company. Other key wins included new business with a major television studio in Asia and follow-on orders from a multinational technology company and a large weather services provider in North America.

Comments

In an interview published last November 2009, we asked this question to chairman and CEO Rick Belluzzo:
"How will your revenues will be affected EMC’s acquisition of Data Domain, since EMC is one of your OEMs for de-dupe?"
His answer was:
"What we said is that we believe that it will have a minimal impact, we have an ongoing relationship with EMC, and certainly our growth potential is impacted, but given the other opportunities we have to grow the business, we feel it will have a minimal impact, and furthermore, we will find new partners as well, because the market is still very wide open, and there’s a number of larger players that do not have good partners."

Abstracts of the earnings call transcript:

Jon Gacek, CFO and COO:
"Year-over-year, revenue declined $22 million, as a result of significantly lower OEM DXi software revenue and slightly lower OEM tape and OEM devices and media revenues.
"Devices and media totaled $27.3 million compared to $29.7 million in Q3 a year ago. The decline is attributable to anticipated declines in OEM devices and media of $5.5 million, offset by increases in our branded revenue of $3.1 million.
"Tape automation systems revenue was $75.5 million compared to $85 million in Q3 of fiscal ’09. Approximately $5 million of this decline was related to OEM automation products and the remainder was related to branded products.
"During the quarter, we closed two deals in excess of $1 million and we had a number of very large follow-on orders from existing DXi7500 customers."

Rick Belluzzo, chairman and CEO:
"Next quarter we will release a new enterprise library that is an extension of our current Scalar i2000 and expands our market opportunity into larger enterprise segments. As a result of this, we expect to continue to perform well and we will focus on several incremental opportunities, not only with the new Scalar libraries and LTO-5, but also with the STK installed base, and improve the integration with our DXi deduplication and replication systems.
"In addition, we have recently expanded our tape automation reseller relationship with Fujitsu beyond Western Europe so that we are now their preferred partner everywhere outside of Japan.
"Over the last two quarters, over half of our DXi revenue stream is made from deals over $200,000.
"The EMC Data Domain acquisition has greatly changed the competitive dynamics of market, leading to an increased attention by all storage providers to focus their deduplication or to define, I should say, their deduplication offerings. As I said in our last call, we expect to turn is event into new OEM and partner opportunity. What I can say today is that we are in the final stages of completing the details of our first OEM agreement."