Quantum: Fiscal 3Q11 Financial Results

Quantum Corp. reported results for the third quarter of fiscal 2011 (FQ3’11), ended Dec. 31, 2010.

Revenue for the quarter totaled $176 million which, primarily due to expected reductions in OEM revenue, was down from $182 million for the same period last year.

However, total revenue was up $9 million sequentially. In addition, branded revenue, which represented 78 percent of total non-royalty revenue for the quarter, grew 2 percent year-over-year and 5 percent sequentially.

Branded disk systems and software revenue also continued to grow, increasing 26 percent from FQ3’10 and 2 percent over the prior quarter.

Quantum’s GAAP gross margin rate was 42.9 percent for FQ3’11, up from 41.1 percent a year earlier, while the non-GAAP gross margin rate increased to 44.6 percent from 44.4 percent. GAAP operating income was $11 million, the same level as in FQ3’10, and non-GAAP operating income decreased to $20 million from $23 million the previous year.

For FQ3’11, GAAP net income was $6 million, or 3 cents per diluted share, compared to GAAP net income of $5 million, or 2 cents per diluted share, in FQ3’10. Non-GAAP net income for the quarter was $16 million, or 7 cents per diluted share, the same as in the comparable quarter last year.

"Although we were driving to a higher overall revenue target for the quarter, we made progress on a number of initiatives designed to increase channel traction and grow our branded business that demonstrate we are on the right track," said Rick Belluzzo, chairman and CEO of Quantum. "We grew branded revenue year-over-year for the fifth consecutive quarter. We had record branded disk systems and software sales, with our midrange DXi product revenue nearly tripling year-over-year and more than doubling sequentially. We generated our highest level of StorNext quarterly revenue to date, with a record 22 percent of sales from new customers. And we further extended our tape leadership, adding 170 new enterprise and midrange automation customers."

"When you combine this momentum with the enhancements we continue to make across our product portfolio, most notably the new DXi 2.0 software platform we are also announcing today, we are well-positioned to deliver revenue growth and increased profits as the storage market continues to evolve," Belluzzo added.

Quantum ended FQ3’11 with $93 million in total cash and cash equivalents and $280 million in total debt. The company generated $18 million in cash from operations and refinanced its subordinated term debt with subordinated convertible debt at a significantly lower interest rate expected to save Quantum approximately $10 million annually in interest expense. In addition, Moody’s Investor Service recently upgraded Quantum’s credit rating.

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

• Revenue of $165 million to $175 million.
• GAAP and non-GAAP gross margin rates similar to those in FQ3’11.
• GAAP operating expenses of $65 million to $67 million and non-GAAP operating expenses of $59 million to $61 million.
• Interest expense of $3 million and taxes of $1 million.
• GAAP earnings per diluted share of 1-2 cents and non-GAAP earnings per diluted share of 4-5 cents.

Key business highlights for the December quarter
include the following:
Quantum began shipping the DXi8500, its new enterprise backup and deduplication solution designed to anchor a multi-tier, enterprise-wide data protection and disaster recovery strategy. The product has been well-received by both new and existing DXi customers. Among those purchasing DXi8500 systems during the quarter were a network of Texas community hospitals, an energy conglomerate in Asia and a large U.S. public university.
Quantum had a record number of new midrange DXi customers for the quarter. This reflected the increasing adoption of the DXi6500 and DXi6700 appliances, including by a Big Four accounting firm, a leading North American telecommunications provider, a major U.S. specialty retailer and a European mobile phone company. Growing traction with independent channel partners also helped drive the significant growth in midrange DXi sales. In North America alone, there was a 30 percent sequential increase in the number of channel partners selling these products, and midrange DXi revenue from Quantum’s top partners was up 50 percent over the prior quarter.
In addition to generating record StorNext revenue for the quarter – with key customer wins in the Media and Entertainment, Oil and Gas, and Intelligence sectors – Quantum continued to enhance the software.In October, the company introduced a new archive conversion feature that simplifies migration of files to StorNext from legacy archive platforms, such as Oracle’s SAM-FS/QFS.
Barclaycard US won a Storage Networking World (SNW) Fall 2010 ‘Best Practices’ Award based on its implementation of a lights-out disaster recovery system utilizing Quantum DXi appliances. In addition, both the DXi6500 and StorNext 4.0 were recently named Storage magazine/ SearchStorage.com 2010 Products of the Year finalists.