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Quantum Corporation's Fiscal Second Quarter Results Show Continued Progress In Executing On Key Goals

  • 29 October, 2007 14:21

<p>Combined Disk Systems and Software Revenue Up Nearly 100 Percent Year-over-Year</p>
<p>SAN JOSE, Calif.- 29 October 2007 – Quantum Corp. (NYSE:QTM), the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal second quarter (FQ2’08), ended Sept. 30, 2007, was $249 million. Although this was roughly flat with the same quarter last year (FQ2’07)* , the company increased its GAAP gross margin rate from 28.2 percent to 31.5 percent, reflecting its focus on pursuing higher margin sales over low-margin revenue opportunities.</p>
<p>The company reported a GAAP net loss of $20 million for FQ2’08, or 10 cents per share, compared to a $31 million net loss (16 cents per share) in FQ2’07. The $20 million net loss in FQ2’08 included a number of major expense items totaling $29 million: $13 million in costs primarily associated with refinancing the ADIC acquisition-related debt on more favorable terms; $12 million in amortization of intangibles; and $4 million in stock-based compensation charges. The net impact of these items reduced earnings per share on a diluted basis by approximately 14 cents.</p>
<p>In addition to Quantum’s strong gross margin performance, the company continued to reduce its operating expenses. In FQ2’08, GAAP operating expenses totaled $75 million, down from
$92 million in the same quarter last year.</p>
<p>“Our September quarter results demonstrate the solid progress we’re making in executing on our strategic goals,” said Rick Belluzzo, chairman and CEO of Quantum.</p>
<p>“Our operating income as a percentage of revenue was the highest it’s been in more than five years, when intangible amortization, stock-based compensation and acquisition-related expenses are excluded. In addition, we increased our disk systems and software revenue by nearly 100 percent year-over-year, with growing momentum behind our DXi-Series disk-based solutions featuring data de-duplication and replication.”</p>
<p>Among the other highlights in the quarter, Quantum’s branded sales reached an all-time high as a percentage of total non-royalty revenue, which helped drive the company’s strong gross margin performance and reflected its continued success in building a more end-user focused business. Nevertheless, Quantum said it recognized the need to demonstrate further branded revenue growth and that this would be a major priority moving forward.</p>
<p>Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $185 million in FQ2’08. This represented a net decrease of approximately $10 million over FQ2’07, with greater revenue contributions from tape automation and disk systems and software partially offsetting a decline in lower-margin device and non-royalty media revenue. Reflecting Quantum’s strategic focus on growing its branded sales, the company increased the percentage of its non-royalty revenue from such sales to 63 percent in the September quarter. This exceeded the 60 percent target Quantum set last year shortly after completing the ADIC acquisition.</p>
<p>The components of product revenue were as follows:</p>
<p>· Tape automation systems revenue totaled $110 million in FQ2’08, an increase of
$5 million over the comparable quarter last year, with an increase in higher-margin branded sales offsetting a decline in lower-margin OEM business.</p>
<p>· Disk systems and software revenue was $15 million, up $7 million from FQ2’07, with significant increases in both disk systems and software revenues.</p>
<p>· Revenue from devices and non-royalty media sales totaled $60 million in the September quarter, down $22 million from the same quarter last year, largely reflecting Quantum’s focus on pursuing higher margin sales over lower-margin revenue opportunities.</p>
<p>Service revenue, which includes hardware service contracts as well as repair, installation and professional services, was $39 million in FQ2’08. This was up $12 million over FQ2’07, due to a larger installed base of branded product customers.</p>
<p>Quantum had $25 million in royalty revenue for FQ2’08, down approximately $3 million from the same quarter last year.</p>
<p>Continued Disk Systems and Software Momentum</p>
<p>In announcing its September quarter results, Quantum highlighted the continuing momentum in its disk systems and software business. After only two full quarters of shipping its DXi3500 and DXi5500 disk backup appliances with data de-duplication and replication capabilities, Quantum already has more than 120 customers, spanning a range of industries and geographies. Among these are a number of large accounts that have standardized on its DXi-Series solutions, including a Fortune 500 beverage company, a U.S. government security agency, a major international telecommunications provider, a regional health care benefits provider in the U.S., and one of the leading international broadcasting companies – to name just a few.</p>
<p>The company is also starting to see significant repeat purchases, reflecting the DXi-Series’ strong value proposition and positive customer experience. These purchases accounted for roughly a third of DXi-Series revenue in FQ2’08 and helped increase the average size of a DXi-Series deal to more than double that of the prior quarter.</p>
<p>Quantum also cited several factors that make it well positioned to build on the DXi-Series momentum. The company reported significant customer interest in its new enterprise system, the DXi7500, with nearly 150 requests for quotes already received since the product was announced this summer.</p>
<p>With the addition of the DXi7500, scheduled to begin shipping in the next few months, Quantum will be the first company to provide the benefits of data de-duplication, remote replication and disk-to-tape creation across distributed sites, midrange environments, and primary data centers. This strength will be particularly valuable as Quantum looks to grow its DXi-Series revenue, in part by leveraging its installed base of more than 60,000 branded tape automation systems and 3,600 other disk systems and software deployments.</p>
<p>On the software side, Quantum continued to expand the market presence of its StorNext data management software in FQ2’08, with particularly strong growth in EMEA and APAC. This was the first full quarter of shipments with Distributed LAN Client capability, which extends high-performance and resilient data sharing beyond Fibre Channel SAN environments to clients connecting via IP-based networks. This led to a range of new customer wins, including a major U.S. government agency, a large oil and gas company in China, and two leading defense and technology companies.</p>
<p>In addition, Quantum worked with HP to extend HP’s sales of StorNext beyond the media and entertainment industry to federal government and high performance computing environments. All of this will add to the more than 100 petabytes of data already managed by StorNext around the world.</p>
<p>About Quantum</p>
<p>Quantum Corp. (NYSE:QTM) is the leading global storage company specializing in backup, recovery and archive. Combining focused expertise, customer-driven innovation, and platform independence, Quantum provides a comprehensive, integrated range of disk, tape, and software solutions supported by a world-class sales and service organization. As a long-standing and trusted partner, the company works closely with a broad network of resellers, OEMs and other suppliers to meet customers’ evolving data protection needs. Quantum Corp., 1650 Technology Drive, Suite 800, San Jose, CA 95110, (408) 944-4000,</p>
<p>Quantum and the Quantum logo are trademarks of Quantum Corporation registered in the United States and other countries. DXi and StorNext are trademarks of Quantum Corporation. All other trademarks are the property of their respective owners.</p>
<p>“Safe Harbor” Statement under the U.S. Private Securities Litigation Reform Act of 1995: This press release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, without limitation, statements relating to: (1) the Company being well positioned to build on the DXi-Series momentum; (2) the scheduled shipping of the DXi7500 in the next few months, along with the product’s expected benefits; and (3) the Company’s expectation that it will add to the more than 100 petabytes of data already managed by StorNext around the world, are forward-looking statements within the meaning of the Safe Harbor. These statements are based on management’s current expectations and are subject to certain risks and uncertainties. As a result, actual results may differ materially from the forward-looking statements contained herein. Factors that could cause actual results to differ materially from those described herein include, but are not limited to: (a) the failure to compete successfully in the highly competitive and rapidly changing marketplace for backup, recovery, archive and other storage products and services; (b) our ability to successfully execute to our product roadmaps and timely ship our products; (c) the risk that lower volumes and continuing price and cost pressures could lead to lower gross margin rate; (d) media royalties from media manufacturers coming in at lower levels than expected; (e) operational risks associated with the changes being made to our manufacturing infrastructure; (f) acceptance of, or demand for, our products being lower than anticipated; and (g) difficulties in retaining key employees. More detailed information about these risk factors, and additional risk factors, are set forth in Quantum’s periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Risk Factors,” on pages 12 to 21 of Quantum’s Annual Report on Form 10-K for fiscal year 2007, filed with the Securities and Exchange Commission on June 13, 2007 and on pages 32 to 42 of Quantum’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007, filed with the Securities and Exchange Commission on August 9, 2007. In particular, you should review the risk factors on pages 12 through 14 of our Form 10-K under the headings “A large percentage of our sales come from a few customers, and these customers have no minimum or long-term purchase commitments. The loss of, or a significant reduction in demand from, one or more key customers could materially and adversely affect our business, financial condition, and operating results”, “From time to time we make acquisitions, such as the recent acquisition of ADIC. The failure to successfully integrate recent or future acquisitions could harm our business, financial condition, and operating results”, “In connection with the acquisition of ADIC, we drew on our $500 million credit facility with Key Bank, substantially increasing our debt service obligations and constraining our ability to operate our business. If we are unable to generate sufficient cash flow from operations to meet these debt obligations, our business financial condition and operating results will be materially and adversely affected”, “Our credit agreement contains various covenants that limit our discretion in the operation of our business, which could have an adverse effect on our business, financial condition, and results of operations”, “We derive almost all of our revenue from products incorporating tape technology. If competition from alternative storage technologies continues or increases, our business, financial condition, and operating results would be materially and adversely harmed” and “Competition has increased, and may increasingly intensify, in the tape drive and tape automation markets as a result of competitors introducing products based on new technology standards, which could materially and adversely affect our business, financial condition, and results of operations.” Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.</p>
<p>* FQ2’07 included only five-and-a-half weeks of combined Quantum and ADIC results.</p>
<p>Media Contact:</p>
<p>Angela Coombes
MAX Australia
612 9954 3492</p>

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