Quantum: Fiscal 1Q12 Financial Results

(in US$ millions)	1Q11	1Q12
Revenues	163.2	153.5
*Growth*		-6%
Net income (loss)	(2.7)	(5.2)

Quantum Corp. reported results for the first quarter of fiscal 2012 (FQ1’12), ended June 30, 2011.

Highlights:

Total revenue of $154 million, with branded growth up 3% over prior year period
Branded disk systems and related maintenance revenue up 15% year-over-year
Branded tape automation revenue up 8% year-over-year
Expanded future market reach with StorNext appliance launch, StorNext reseller agreement with NetApp, Pancetera acquisition and other new products/partnerships

Revenue for the quarter totaled $154 million, down 6 percent from the first quarter of fiscal 2011 (FQ1’11) primarily due to the recognition of $9.5 million in OEM deduplication software license revenue in FQ1’11 that was not repeated. Branded revenue, which represented 80 percent of total non-royalty revenue for the quarter, grew 3 percent year-over-year.

For FQ1’12, GAAP net loss was $5 million, or 2 cents per diluted share, compared to a GAAP net loss of $3 million, or 1 cent per diluted share, in FQ1’11. Non-GAAP net income for the quarter was $3 million, or 1 cent per diluted share, down from $9 million, or 4 cents per diluted share, in the comparable quarter last year.

"We are not pleased with our overall revenue result for the quarter and specifically the fact that disk systems and software sales did not meet our growth expectations; however, our branded business grew 3 percent and we delivered another strong quarter for tape automation," said Jon Gacek, president and CEO of Quantum. "We also took a number of actions that we believe will expand our market reach and drive growth in the coming quarters, including introducing our first StorNext appliance, acquiring Pancetera Software and preparing for today’s launch of our new DXi6701 and DXi6702 appliances. We believe these actions, along with our continued focus on improving sales and go-to-market execution, will enable us to get back on track and deliver on our fiscal 2012 goals."

For the second quarter of fiscal 2012,
the company expects:

Revenue of approximately $160 million.
A GAAP gross margin rate slightly higher and non-GAAP gross margin rate slightly lower than those in FQ1’12.
GAAP operating expenses of $66 million and non-GAAP operating expenses of $60 million.
Interest expense of approximately $3 million and taxes of $1 million.

Business Highlights for the June Quarter:

Quantum announced and began shipping the StorNext M330, the first in a new family of StorNext appliances. It combines the high-performance, heterogeneous software file sharing and tiered, vendor-agnostic archiving benefits found in Quantum’s StorNext data management software with the simplicity of purpose-built hardware. Targeting organizations with sustained large data throughput challenges, the StorNext M330 addresses complex ‘big data’ management needs yet is designed for ease of deployment with minimal configuration requirements.
Also extending the market reach for StorNext, the company announced that NetApp would begin reselling StorNext software in combination with its disk-based products, giving customers a powerful unified storage solution for simultaneous sharing, managing, on-demand distribution and archiving of rich media files.
With its acquisition of Pancetera Software Inc., Quantum gained key assets for reducing the complexity and cost of managing and protecting data in virtual server environments. Pancetera technology is already compatible with Quantum’s DXi disk backup and deduplication products, and the company plans to further integrate the technology into its DXi and StorNext roadmaps.
The company finalized its new DXi6701 and DXi6702 deduplication appliances just being announced. Incorporating Quantum’s latest generation DXi 2.0 software, the new appliances provide performance (twice that of leading competitors) and scalability, as well as an approach to distributing deduplication across a network. The DXi6701 and DXi6702 also deliver value, starting at a price point as low as half that of leading competitors and with all the software licenses included in the base price.
Quantum’s DXi6000 disk backup and deduplication appliances were named ‘Storage Product of the Year’ at the 2011 Storage Awards: The Storries VIII. The awards were based on votes cast by the readers of Storage Magazine, the UK’s leading IT and storage publication.
The company announced a new OEM agreement with HP under which HP will brand and sell a new enterprise tape library based on Quantum’s Scalar i6000 platform. The agreement builds on the strong partnership the two companies have established in tape-based storage, including a previous OEM relationship in enterprise tape automation.
Enhancing its tape archiving capabilities, Quantum introduced a new Extended Data Life Management (EDLM) feature that is part of the Scalar i6000 tape library’s iLayer management software. EDLM automates the integrity checking of tapes, improving resiliency and helping to protect valuable archived content that can be stored for years on tape. EDLM also integrates with StorNext Storage Manager archiving software to migrate content automatically from a suspect tape based on the results of an EDLM scan.

Comments

Abstracts of the earnings call transcript:

Jon Gacek, president, COO and CEO:
"Q1 revenue was $153.5 million compared to our guidance of $160 million. We grew our branded business year-over-year and had another strong quarter for tape automation. But both our disk systems and our software sales did not meet expectations for the quarter, so I'm going to address both. First, disk systems. While branded DXi, including related maintenance, grew 15% over the same quarter last year, we only achieved approximately 70% of our DXi revenue plan for the quarter. At a high level, we made progress in closing DXi8500 deals, resulting in DXi8500 revenue increasing over 80% sequentially. This was a significant improvement from the past 2 quarters, but we still fell short of our goal. Our DXi8500 product is very competitive and well positioned but we still need to do a better job of closing deals that we are working. What was more significant this quarter, however, was that we had a sequential decline in our mid-range DXi6000 family revenue. We believe our DXi results were impacted by 3 factors. First, overall sales execution by us and our channel partners. We had plenty of opportunities to meet and exceed our DXi revenue plan. We just didn't get the deals closed by quarter end. We still are not getting uniform and consistent results from our team or our channel partners. The second factor impacting our DXi6000 family revenue was product positioning and messaging. Our DXi6500 and 6700 products are very solid, and represent a good solution for customers, as reflected by the fact that Q1 was the best quarter for new customer acquisition that we've had since the products launched. However, they were not as good as we planned, but they were still the best.
"In retrospect, I believe the introduction of DXi 2.0 software on the 6500 while the 6700 remained on a previous generation software for several months, made it more complicated for our channel partners and our own sales team to drive the intended level of sales velocity. With today's announcement of our new DXi6701 and 02 appliances which includes the DXi 2.0 software, this is obviously no longer an issue.
"The other main driver of the revenue shortfall was StorNext. Q1 was the first time in 5 quarters where we didn't grow StorNext either sequentially or on a year-over-year basis. While this fact has our attention, we do not think this is a start of a trend that will continue.
"On the tape automation side, the story is much more positive as we delivered another strong quarter. We grew branded tape automation revenue 8% year-over-year, and we met our overall branded and OEM tape products and service revenue plan. We also continued the trend of new customer acquisition, adding approximately 120 new mid-range Enterprise tape customers."

Linda Breard, CFO:
"The primary driver of this decline was the recognition of approximately $9.5 million in OEM software revenue in Q1 of last year.
"Year-over-year, our branded revenue was up 3%, we had 8% growth in branded tape automation revenue, 15% growth in branded disk revenue, inclusive of maintenance, and a decline of 9% in branded software revenue. Royalty revenue was $14.6 million for Q1, compared to $16.1 million in the same quarter a year ago. The primary driver of the decline was expected reduction in DLT royalties.
"Tape automation systems revenue was $57.7 million, up $1 million from Q1 of fiscal 2011. Branded automation grew $2.3 million year-over-year, offset by declining OEM automation of $1.3 million.
"Disk systems and software products and related service revenue was $27.6 million in Q1, down from $34.7 million in the prior year. Last year's results included a $9.5 million of OEM software revenue.
"We continued to make progress paying down our term debt which is now less than $100 million. We have paid down 80% of the debt from acquiring ADIC in less than 5 years, and we'll continue to utilize cash from operations to further pay down the debt this year."