Quantum: Fiscal 2Q10 Financial Results

Quantum Corp. announced that revenue for its fiscal second quarter (FQ2’10), ended Sept. 30, 2009, was $175 million. This represented a 19 percent decline from the same period last year (FQ2’09), primarily due to the significantly weaker economy, a continued sales mix shift toward higher margin opportunities, and lower royalties (partly reflecting a one-time royalty payment from Riverbed Technology, Inc. last year). Despite the year-over-year decline, revenue grew 9 percent on a sequential basis. In addition, the company increased its GAAP gross margin rate to 43.8 percent and GAAP operating income margin to 8.5 percent – up from 38.5 percent and 2.6 percent, respectively, in FQ2’09. In both cases, this was the highest level achieved in more than eight years.

Quantum also reported its second consecutive quarter of GAAP profits, with $11 million in net income, or basic earnings per share of six cents. This compared to a GAAP net loss of $3 million in FQ2’09 and represented the company’s best performance in nearly five years. The $11 million profit included a $2 million net gain related to the retirement of convertible debt, offset by $9 million in amortization of intangibles, $3 million in stock-based compensation charges and $2 million in restructuring costs. The net impact of these four items reduced basic earnings per share by five cents.

Quantum generated $31 million in cash from operations for the quarter, paid down $20 million of its senior debt, and ended the quarter with $85 million in cash and cash equivalents.

"Despite the continuing impact of the economic downturn and changes in the deduplication landscape, we delivered some of our best results in many years," said Rick Belluzzo, chairman and CEO of Quantum. "This included significantly higher gross margin rates, operating income and margins, and net income, compared to both last year and the prior quarter. We also generated strong growth in disk systems and software revenue, with our branded DXi backup/deduplication sales up significantly, both year-over-year and sequentially."

"Our September quarter results reflect a number of initiatives we have implemented over the past year, as well as an aggressive shift we made in our go-to-market focus during the quarter in response to changed industry dynamics," continued Belluzzo. "While we have more work to do in completing our transformation to a storage systems company, our performance clearly shows the substantial progress we’ve made."

Quantum’s product revenue, which includes sales of the company’s hardware and software products, totaled $118 million in FQ2’10. This represented a decrease of $25 million from FQ2’09, primarily reflecting expected declines in both OEM tape automation sales and OEM devices and media revenue.

Disk systems and software revenue, inclusive of related software maintenance and service revenue, was $28 million in the September quarter. This was up approximately $7 million from the same quarter last year, primarily due to record sales of Quantum’s DXi7500 enterprise disk backup and deduplication system. Contributing to these record sales were several deals of more than a million dollars, including new DXi account wins at one of the top utility companies in the world and another national utility provider in Europe. Other notable DXi7500 wins included a large deal with one of the biggest U.S. insurance companies – a new DXi customer – and repeat business with one of the largest wireless providers in America, a U.S. Federal Reserve Bank and Aéroports de Paris.

The increase in disk systems and software revenue also included modest growth in StorNext sales on both a year-over-year and sequential basis. In addition to a strong contribution from federal government business, Quantum closed several major StorNext deals, including a new win at one of the leading U.S. cable TV networks and repeat purchases by a large multimedia retailer and one of the biggest system integrators in China.

Looking beyond FQ2’10, Quantum said it expects to build on its branded revenue momentum in disk systems and software with last week’s announcement of the company’s new DXi6500 family, a set of preconfigured disk backup and deduplication appliances targeted at the midrange NAS market and optimized for sale through independent channel partners.