Quantum: Fiscal 4Q10 Financial Results

Quantum Corp. announced that revenue for its fiscal year 2010 (FY10), ended March 31, 2010, was $681 million, with $164 million in fiscal fourth quarter (FQ4’10) revenue.

The company’s FY10 GAAP gross margin rate of 41.1 percent was the highest in nine years, and the FQ4’10 GAAP gross margin rate of 40.8 percent was above 40 percent for the third consecutive quarter. Quantum generated GAAP net income of $17 million for the full year, or eight cents per basic share, with the $17 million profit representing the company’s best fiscal year performance in eight years. Although Quantum reported a GAAP net loss of $4 million, or two cents per share, for the March quarter, this was a significant improvement over the comparable quarter in fiscal year 2009 (FY09).

The strength of Quantum’s financial performance in FY10 is further demonstrated by the fact that the $17 million in GAAP net income included $36 million in amortization of intangibles costs, $10 million in stock-based compensation charges and $5 million in restructuring expenses, offset by only a $13 million net gain related to the retirement of convertible debt. The net impact of these four items reduced FY10 basic earnings per share by 18 cents to the company’s reported 8-cent earnings per basic share. Similarly, the $4 million GAAP net loss in the March quarter included $9 million in amortization of intangibles costs and $3 million in stock-based compensation charges, reducing basic earnings per share by six cents to the reported 2-cent loss per share for the quarter.

Quantum generated $100 million in cash for the full fiscal year, with $19 million in cash from operations for FQ4’10. This strong cash generation enabled the company to pay down $62 million of its senior debt in FY10 and end the year with $117 million in total cash and cash equivalents, the highest year-end level since March 2006.

Quantum’s financial results reflect a successful multi-year strategy of moving away from a more device-centric orientation to becoming a storage systems company. A key element of this strategy has been a shift from reliance on low-margin OEM revenue to driving a greater percentage of higher-margin branded business. For FY10, the company’s branded business represented 74 percent of total non-royalty revenue, up from 67 percent in FY09, with an FQ4’10 branded share of 78 percent compared to 70 percent in the same period the previous year. This mix shift was one of the major factors behind the strong financial results Quantum reported today and also is the basis for the respective 16 percent and 2 percent year-over-year revenue declines for FY10 and FQ4’10, as these declines were largely due to lower OEM revenue.

"Fiscal year 2010 was a critical year in Quantum’s transformation to becoming a storage systems company and providing a strong foundation for growth in the new fiscal year," said Rick Belluzzo, chairman and CEO of Quantum. "We overcame some very difficult challenges and succeeded in delivering our best financial performance in many years, introducing major new products across our portfolio, and shifting our go-to-market focus. As a result, Quantum is well-positioned to capitalize on the improved storage spending environment, on our central role in key market segments such as deduplication and high performance data management, and on channel and other partner opportunities created by changes in the competitive landscape. All of this will enable us to drive revenue growth moving forward, our top priority for fiscal year 2011."

In addition to Quantum’s success in executing on its financial model, the company also continued to make progress in driving disk systems and software momentum. Inclusive of related service revenue, revenue in this product category was $95 million for FY10, and $23 million for FQ4’10. This included record branded disk systems and software revenue for the full fiscal year, with a 19 percent increase over FY09. For the March quarter, branded revenue in this product category grew 29 percent over the same period in FY09, driven by a significant increase in branded DXi sales. New DXi6500 midrange customers in FQ4’10 included a leading U.S. medical technology supplier, a global oil company’s European division and a major American hydroelectric power provider. Notable DXi7500 enterprise account wins during the quarter included new business with one of the world’s largest greeting card companies, a major automobile manufacturer in Asia and a top telecommunications supplier in Europe and Latin America, as well as repeat orders from leading U.S. insurance and wireless providers.

In the March quarter, Quantum also continued building on StorNext’s leadership in the Media and Entertainment industry with major deals at several broadcasting companies around the world. Quantum also strengthened StorNext’s foothold in other key vertical markets such as Government and Life Sciences, where some of the largest revenue contributions came from existing customers, including a national intelligence organization, a governmental geosciences agency, and a genome sequencing center.

Quantum stated that it expects its DXi and StorNext products to be a significant growth driver in fiscal year 2011. Since last October, the company has introduced two new DXi backup, deduplication and replication platforms – the DXi6500 for midrange, NAS environments and the DXi4500 for small- and medium-size businesses and remote offices, both of which are optimized for sales through channel partners – as well as version 4.0 of its StorNext data management software.

Complementing its disk systems and software products, Quantum also said it intends to build on its position as the worldwide leader in open systems tape automation, again leveraging products launched since last fall. These include the Scalar i40 and i80 entry-level libraries and the Scalar i6000 enterprise library, as well as new LTO-5 tape drives that the company is adding to its tape automation systems.

Both the DXi4500 and Scalar i6000 were just introduced in the last six weeks, and many of the other new products only started shipping in the last three months. Although these new products have been well-received by end users and channel partners, their contribution to Quantum’s revenue base is therefore still limited. As they begin to ramp in the coming months, the company expects these products to generate increasing revenue momentum and play a key role in meeting its growth objectives for fiscal year 2011.