Quantum: Fiscal 2Q11 Financial Results

Quantum Corp. reported results for the second quarter of fiscal 2011 (FQ2’11), ended Sept. 30, 2010.

Revenue for the quarter totaled $168 million which, primarily due to an expected reduction in OEM deduplication software revenue, was down from $175 million for the same period last year (FQ2’10). However, total revenue was up $5 million sequentially, as branded growth more than offset the reduced OEM revenue. Excluding royalty revenue, Quantum’s branded revenue increased 4 percent year-over-year and 11 percent sequentially and represented 80 percent of total non-royalty revenue for the quarter. Branded disk systems and software revenue was a key contributor to this growth, increasing 29 percent from FQ2’10 and 19 percent sequentially.

Quantum’s GAAP gross margin rate was 42.6 percent for FQ2’11, down from 43.8 percent a year earlier, while the non-GAAP gross margin rate decreased to 45.2 percent from 47.1 percent. GAAP operating income was $9 million for the quarter, down from $15 million in FQ2’10, and non-GAAP operating income decreased to $19 million from $28 million. In all cases, the largest driver of the declines was the reduction in OEM deduplication software revenue.

For FQ2’11, GAAP net income was $3 million, or 1 cent per diluted share, compared to GAAP net income of $11 million, or 4 cents per diluted share, for the same period in the prior year. Non-GAAP net income for the quarter was $13 million, or 6 cents per diluted share, compared to non-GAAP net income of $23 million, or 11 cents per diluted share, in FQ2’10.

"Our September quarter results were better than the prior quarter in nearly every area where we are focused, including revenue, gross margin, operating income, net income and cash generation," said Rick Belluzzo, chairman and CEO of Quantum. "We achieved all this while absorbing an anticipated $9 million sequential reduction in OEM deduplication software revenue, which demonstrates the strength of our business model. In short, our second quarter performance can be viewed as a foundation on which to drive greater revenue growth in the second half of the fiscal year, leveraging the refresh and expansion of nearly our entire product line over the past 12 months and the progress we are making in generating more business through the independent reseller channel."

Quantum ended FQ2’11 with $98 million in total cash and cash equivalents and $307 million in total debt. The company generated $26 million in cash from operations and paid off the remaining $22 million of its convertible debt.

For the third quarter of fiscal 2011,
Quantum said it expects:

• Revenue of $185 million to $200 million.
• GAAP and non-GAAP gross margin rates slightly higher than those in FQ2’11.
• GAAP operating expenses of $64 million to $68 million and non-GAAP operating expenses of $58 million to $62 million.
• Interest and taxes similar to those in FQ2’11.
• GAAP earnings per diluted share of 4-6 cents and non-GAAP earnings per diluted share of 8-10 cents.

Business Highlights
During FQ2’11, Quantum continued to focus on building revenue momentum through the introduction and ramp of new products, deeper engagement with independent resellers and industry partners, and focused sales and marketing initiatives.

Key business highlights included the following:

• Quantum introduced and began shipping the DXi6700, a new backup and deduplication appliance with a VTL interface that offers midrange and enterprise customers an unmatched combination of performance, simplicity and value for Fibre Channel SAN environments.
• The company finalized preparations for the launch of DXi8500, its new enterprise backup and deduplication solution announced shortly after quarter-end that will begin shipping in the next few weeks. The DXi8500 offers the highest single-unit VTL performance in the industry (6.4 TB/hour) while also providing high performance in other presentation options, including NAS and OST. The DXi8500 is designed to anchor a multi-tier, enterprise-wide disaster recovery and data retention strategy.
• Quantum generated record revenue for branded disk systems, with particularly strong demand for the DXi7500 from both new and existing customers. This included a multi-unit, multi-million dollar purchase by a Fortune 50 company that already had over 20 DXi systems, as well as large sales to a U.S. cabinet department, a European central bank and a top U.S. investment firm. Quantum also had a number of customers that purchased both DXi4500 and DXi6500 appliances, including a large U.S. federal agency, a leading provider of business commerce solutions and a large telecommunications provider.
• The company had record StorNext revenue. Contributing to this growth were four StorNext sales involving archives with more than one petabyte of data and increased adoption of the new functionality in StorNext 4.0. In addition, approximately half of the deals involving StorNext Storage Manager were integrated hardware-software solutions that also included Quantum Scalar tape libraries. Key StorNext wins included new business with one of the largest media and entertainment conglomerates in the world, a European music company and two Asian television stations, as well as follow-on business with an American television network, a North American agency that provides meteorological information and weather forecasts, and a European international broadcast channel.