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Quantum: Fiscal 1Q14 Financial Results

Got $15 million from Microsoft for IP.

 (in $ million) 1Q13 1Q14
 Revenue 140.9 148.0
 Growth     5%
 Net income (loss)
 (16.7) 3.4

Quantum Corp. reported results for the first quarter of fiscal 2014 (FQ1’14), ended June 30, 2013.

Revenue for the quarter totaled $148 million, up 5% from the first quarter of fiscal 2013 (FQ1’13), primarily due to a $15 million one-time royalty payment associated with an IP agreement.

Quantum generated revenue of $31 million from disk system and software sales (including related service), a 2% increase over FQ1’13 driven mostly by growth of 23% in midrange DXi revenue and 13% in big data sales.

It reported GAAP net income of $3 million, or 1 cent per diluted share, for FQ1’14, compared to a GAAP net loss of $17 million in the same quarter of last year. On a non-GAAP basis, the company had net income of $12 million, or 4 cents per diluted share, up from a net loss of $8 million a year earlier. The year-over-year increases were largely driven by the higher overall revenue.

"Our June quarter results clearly reflect the benefits of our strong intellectual property portfolio and the actions we’ve taken to drive growth and profit," said Jon Gacek, president and CEO, Quantum. "With a few exceptions, our revenue performance was generally good and in line with our expectations, and we were particularly pleased by the double-digit growth we generated in midrange DXi and overall StorNext revenue. We also improved our gross margin rates and operating income, even without the additional royalty revenue resulting from the intellectual property agreement we concluded during the quarter.

"Moving forward we will maintain our balanced approach of driving revenue growth and spending wisely to generate cash and profit. This will include the continued expansion of our data protection and big data management offerings for physical, virtual and cloud environments, leveraging our technology leadership to help customers store, manage and quickly access their increasingly valuable digital content throughout its lifecycle."

Quantum generated $9 million in cash from operations in FQ1’14, ending the quarter with $80 million in total cash and cash equivalents.

For 2Q14, Quantum expects:

  • Revenue of approximately $135 million to $140 million.
  • GAAP gross margin rate of approximately 41 to 42% and non-GAAP gross margin rate of 42 to 43 percent.
  • GAAP operating expenses of $63 million to $65 million and non-GAAP operating expenses of $58 million to $60 million.
  • Interest expense of $2.5 million and taxes of $500,000.

Business highlights for 1Q14 include:

  • It expanded its Lattus object storage product line to include a lower-capacity, lower-cost model that extends its value beyond big data archive for large enterprises to smaller organizations with growing big data archives as well as commercial data center customers seeking a consolidated backup and archive solution. Lattus enables nearline access to archived data in a durable, scalable and cost-effective disk solution that never requires a ‘forklift’ upgrade – a forever disk archive.
  • The company continued to expand and enhance its virtual data protection technologies, announcing that its vmPRO software can now leverage Scalar LTFS tape technology to provide user-accessible, searchable archive capabilities for VMware data. In addition, Quantum introduced DXi V4000, an all-software, all-virtual solution delivering up to 24TB of usable capacity for deduplication and replication to other DXi appliances and its Q-Cloud service.
  • It announced a partnership with BlackBridge Networks Ltd., a Canadian cloud and colocation company, to provide cloud-based enterprise backup as a service in Canada. BlackBridge Stratus – Powered by Quantum enables customers to protect data both locally and in the BlackBridge secure cloud, leveraging Quantum’s DXi and vmPRO technologies.
  • Revenue from sales of the company’s Scalar i500 tape library surpassed $1 billion. The Scalar i500, which offers best-in-class scalability, reliability, intelligence and management for midrange and enterprise environments, is the highest selling library in Quantum’s history. In addition, Quantum’s Scalar i6000 was named Tape Based Product of the Year at the 2013 Storage Awards: The Storries X.
  • A lab evaluation conducted by Enterprise Strategy Group affirmed the performance, scalability and security of Quantum’s DXi6800 backup and deduplication appliance as well as the strength of the company’s overall data protection portfolio in meeting customers’ needs across physical, virtual and cloud environments.

Comments

Abstracts the earnings call transcript:

Jon Gacek, president and CEO:
"We still grew midrange DXi by 23% year-over-year, added new DXi customers at a good rate with approximately 105 new customers, and had an overall win rate of nearly 55%. After 2 record DXi quarters in a row, the last 2 quarters have not yielded the results we expected. While Q4 and Q1 are our 2 weakest seasonal quarters, the DXi result still needs to improve.
"Let me now touch on the IP arrangement with Microsoft we announced in June. The agreement is multifaceted, covers technology from both companies and resulted in the $15 million payment to Quantum.
"Moving beyond Q1, we recently announced the expansion of our long-term partnership with Benchmark Electronics. BEI has been manufacturing our tape products since 2003, including the Scalar i500, which surpassed $1 billion in revenue during Q1 over its lifetime. The i500 is a Quantum-branded product and also has been sold as an OEM product to Dell and IBM for the past 8 years. We are leveraging Benchmark's scale and manufacturing expertise by adding our Scalar i6000, i40 and i80 and SuperLoader products to the existing manufacturing they do for Quantum."


Linda Breard, CFO:
"StorNext revenue was up 13%, but was partially offset by a 4% decline in disk systems and related maintenance compared to the same quarter last year. We had a year-over-year revenue decline of $5.8 million in tape automation systems. For the quarter, nonroyalty revenue totaled $122.5 million, of which 83% was branded and 17% was OEM.
"Royalty revenue was $25.5 million for Q1 compared to $11 million in the same quarter a year ago. The primary driver of the increase was the $15 million of royalty revenue related to the intellectual property agreement. LTO royalties were up slightly year-over-year, offset by expected reductions in the DLT royalties.
"Looking further at various revenue classifications, devices and media totaled $18.1 million in Q1 compared to $18.6 million in the prior year. Expected revenue reductions from branded devices were the primary driver of the year-over-year decline. Tape automation systems revenue was in line with our expectations at $44.7 million compared to $50.5 million in Q1 of fiscal 2013.
"As we saw last year, our branded business performed better than our OEM business this quarter. In Q1, branded revenue declined 10% or approximately $3.1 million year-over-year compared to OEM revenue being down 13% or $2.7 million.
"On a percentage basis, year-over-year revenues were down in the high single digits to low teens across our enterprise, midrange and entry-branded tape automation business.
"The decline in OEM tape automation revenues was primarily driven by a reduction in enterprise revenue. Despite the year-over-year revenue decline, we acquired approximately 105 new branded midrange and Enterprise customers in Q1.
"Object Storage solutions and our StorNext software and appliances for big data management and archive, was $31.5 million in Q1. This was up 2% from $30.7 million in the prior year.
"Looking more specifically at disk systems and related maintenance revenue, it was down 4% year-over-year.
"Our midrange DXi business, driven by the continued strong performance of the DXi 6800, grew 23% over Q1 in fiscal 2013. Our entry DXi revenue was up slightly compared to the prior year with unit shipments up 20% year-over-year.
"Turning to StorNext software and appliances, revenue including maintenance increased 13% year-over-year. StorNext AEL, server-based appliances and related disk revenue combined, increased over 60% from Q1 to the prior year. This growth was somewhat offset by stand-alone StorNext software sales, which declined over Q1 of last year due to one large deal in Q1 '13 that was not repeated in the same quarter this year.
"From a customer acquisition standpoint, we added approximately 55 new StorNext customers in Q1 and continue to see strong win rates in our StorNext solutions offering."

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