Quantum Corporation Reports Fiscal First Quarter Results

SAN JOSE, Calif., Aug. 1 /PRNewswire-FirstCall/ -- Quantum Corp. , the leading global specialist in backup, recovery and archive, today announced that revenue for its fiscal first quarter (FQ1'08), ended June 30, 2007, was $246 million. This represented a 32 percent increase over the same quarter last year (FQ1'07), largely resulting from Quantum's acquisition of Advanced Digital Information Corp. (ADIC) in August 2006.

The company reported a GAAP net loss of $23 million for FQ1'08, or 11 cents per share, compared to a 2-cent loss in FQ1'07. The $23 million net loss in FQ1'08 and year-over-year earnings per share decline reflected a number of major expense items totaling $28 million, much of which was also driven by the ADIC acquisition: $13 million in amortization of intangibles, $12 million in restructuring and other transition expenses related to the acquisition, and $3 million in stock-based compensation charges. The net impact of these items reduced earnings per share on a diluted basis by approximately 14 cents.

One of the highlights of the June quarter was Quantum's gross margin results. The company's GAAP gross margin rate was 31.8 percent, a significant increase over the 27.9 percent rate in the same quarter last year and its best performance in three years. Operating expenses were $92 million, up from $55 million in FQ1'07 primarily as a result of the ADIC acquisition.

"It has been just under a year since we completed the ADIC acquisition, and we are very pleased with what we have been able to achieve as a combined company in this relatively short time," said Rick Belluzzo, chairman and CEO of Quantum. "As in previous years, the June quarter was challenging from a revenue standpoint, but our operating income as a percentage of revenue over the last three quarters has been the best we've achieved in more than five years, when amortization, stock-based compensation and acquisition-related expenses are excluded. In addition, we've completed the vast majority of the integration and strategic actions that will now allow us to focus on growing the business by taking advantage of our expanded opportunities."

Quantum's product revenue, which includes sales of the company's hardware and software products and services, totaled $222 million in FQ1'08. This represented a net increase of $63 million over FQ1'07, with greater revenue contributions from tape automation, disk systems and software, and services offsetting a decline in royalties and device revenues. Quantum continued to increase the percentage of its product revenue coming from branded sales, which rose to 58 percent in the June quarter.

The components of product revenue were as follows: -- Tape automation systems revenue totaled $108 million in FQ1'08, an increase of $54 million over the comparable quarter last year. -- Disk systems and software revenue was $9 million, up $7 million from FQ1'07. -- Revenue from devices and non-royalty media sales totaled $64 million in the June quarter, down $21 million from the same quarter last year, mostly due to lower sales of non-LTO tape drives. -- Revenue in the "services and other" category -- which includes hardware service contracts as well as repair, installation and professional services -- was $40 million in FQ1'08, an increase of $22 million over FQ1'07.

Quantum had $24 million in royalty revenue for FQ1'08, down approximately $3.5 million from the same quarter last year.

Disk Systems and Software Momentum

In announcing its June quarter results, Quantum also highlighted the momentum in its disk systems and software business. The company began shipping its DXi3500 and DXi5500 disk backup appliances with data de-duplication and remote replication capabilities less than six months ago, and in the last two months alone has sold nearly twice as many units as it did in the previous four months. These DXi-Series products have attracted a broad range of customers around the world -- from smaller organizations to leading brand name companies to major governmental agencies -- with representation across a wide array of industries, including telecommunications, financial services, health care, education, technology, and consumer products.

Quantum also pointed to several competitive advantages that position it to capitalize on the opportunities in disk-based data protection moving forward. Along with Quantum's global scale and strong sales and service infrastructure, these advantages include a large installed base of tape automation customers it can help in transitioning to disk backup and an industry-leading tape library portfolio the company can leverage in bundled disk-tape offerings. Quantum is already seeing the benefits of this combination, as roughly 20 percent to 25 percent of customers that purchase a DXi-Series unit also buy tape at the same time.

In addition to building momentum in its disk-based backup business over the last several months, Quantum has strengthened its StorNext data management software portfolio. In April, the company introduced StorNext 3.0, which extends high performance, resilient data sharing to local area network clients and offers data de-duplication for archiving. Quantum has also enhanced its StorNext market position with HP as a global reseller and continued to gain new enterprise customers such as Microsoft, Fox News and the U.S. Bureau of Land Management.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Aug. 1, 2007, at 2:00 p.m. PDT, to discuss its fiscal first quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (303) 262-2005 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Aug. 1, 2007, at 2:00 p.m. PDT. Site for the webcast and related information: http://www.quantum.com/investors.

About Quantum

Quantum Corp. 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 700, San Jose, CA 95110, (408) 944-4000, http://www.quantum.com/.

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.

"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) growing the business by taking advantage of our expanded opportunities; (2) momentum we are seeing in our disk systems and software business; and (3) competitive advantages that will enable Quantum to capitalize on opportunities in disk-based backup moving forward, 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) difficulties in retaining key employees; (c) our ability to successfully execute to our product roadmaps and timely ship our products; (d) the risk that lower volumes and continuing price and cost pressures could lead to lower gross margin rate; (e) media royalties from media manufacturers coming in at lower levels than expected; (f) operational risks associated with the changes being made to our manufacturing infrastructure; (g) acceptance of, or demand for, our products being lower than anticipated; and (h) challenges in successfully integrating ADIC, its products and its employees into Quantum. 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 in Quantum's Annual Report on Form 10-K for fiscal year 2007, filed with the Securities and Exchange Commission on June 13, 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.

QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ( In thousands, except per-share amounts ) Three Months Ended June 30, 2007 June 30, 2006 (Unaudited) (Unaudited) Product revenue $221,735 $159,044 Royalty revenue 24,033 27,551 Total revenue 245,768 186,595 Cost of product revenue 167,474 134,570 Restructuring charges related to cost of revenue 237 - Total cost of revenue 167,711 134,570 Gross margin 78,057 52,025 Operating expenses: Research and development 26,358 22,328 Sales and marketing 35,356 20,118 General and administrative 21,517 12,858 Restructuring charges 9,114 83 92,345 55,387 Loss from operations (14,288) (3,362) Interest income and other, net 4,357 1,963 Interest expense (13,634) (2,162) Loss before income taxes (23,565) (3,561) Income tax provision (benefit) (980) 15 Net loss $(22,585) $(3,576) Basic and diluted net loss per share $(0.11) $(0.02) Basic and diluted weighted average common and common equivalent shares 198,289 188,198 Included in the above Statements of Operations: Accelerated depreciation on legacy IT system $2,179 $- Retention expense Cost of revenue 166 - Research and development - - Sales and marketing - - General and administrative - - 166 - Amortization of intangibles Cost of revenue 8,509 4,131 Research and development 205 195 Sales and marketing 4,223 1,065 General and administrative 25 146 12,962 5,537 Share-based compensation Cost of revenue 366 251 Research and development 859 477 Sales and marketing 583 340 General and administrative 1,042 710 2,850 1,778 QUANTUM CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ( In thousands ) June 30 March 31 2007 2007 (Unaudited) * Assets Current assets: Cash and cash equivalents $79,937 $60,581 Marketable securities 10,000 35,000 Accounts receivable, net of allowance for doubtful accounts of $6,754 and $6,431, respectively 175,232 149,435 Inventories 76,316 91,153 Deferred income taxes 14,679 17,137 Assets held for sale, net 8,194 - Other current assets 38,312 33,155 Total current assets 402,670 386,461 Long-term assets: Property and equipment, less accumulated depreciation 39,359 50,241 Service parts for maintenance, less accumulated amortization 79,503 82,361 Purchased technology, less accumulated amortization 97,810 106,524 Other intangible assets, less accumulated amortization 87,829 92,077 Goodwill 389,530 390,032 Other long-term assets 13,706 18,133 Total long-term assets 707,737 739,368 $1,110,407 $1,125,829 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $77,146 $92,292 Accrued warranty 26,807 30,669 Deferred revenue, current 57,241 57,617 Current portion of long-term debt 25,000 25,000 Accrued restructuring charges 14,763 13,289 Other accrued liabilities 94,060 110,583 Total current liabilities 295,017 329,450 Long-term liabilities: Deferred revenue, long-term 27,551 27,634 Deferred income taxes 14,310 16,751 Long-term debt 361,250 337,500 Convertible subordinated debt 160,000 160,000 Other long-term liabilities 13,875 53 Total long-term liabilities 576,986 541,938 Stockholders' equity 238,404 254,441 $1,110,407 $1,125,829 * Derived from the March 31, 2007 audited Consolidated Financial Statements QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended June 30, 2007 June 30, 2006 (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $(22,585) $(3,576) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 9,667 4,569 Amortization 17,575 5,796 Realized gain on sale of securities (2,122) - Gain on Ireland facility closure - (476) Deferred income taxes 17 (37) Share-based compensation 2,850 1,778 Fixed assets written off in restructuring 360 - Changes in assets and liabilities, net of effects from acquisition and assets held for sale: Accounts receivable (25,797) (4,938) Inventories 7,919 1,312 Service parts for maintenance (1,058) (6,212) Accounts payable (6,839) 2,038 Accrued warranty (3,862) (2,180) Deferred revenue (459) (256) Accrued restructuring charges 1,976 (7,103) Other assets and liabilities 1,165 (2,958) Net cash used in operating activities (21,193) (12,243) Cash flows from investing activities: Purchases of marketable securities (65,000) (287,473) Proceeds from sale of marketable securities 90,000 246,275 Purchases of property and equipment (4,746) (5,169) Proceeds from sale of Ireland facility - 6,000 Net cash provided by (used in) investing activities 20,254 (40,367) Cash flows from financing activities: Borrowings of long-term debt 50,000 - Repayments of long-term debt (26,250) - Proceeds from issuance of common stock, net 2,678 297 Net cash provided by financing activities 26,428 297 Net increase (decrease) in cash and cash equivalents 25,489 (52,313) Cash and cash equivalents at beginning of period 60,581 123,298 Cash and cash equivalents at end of period $86,070 $70,985 Reconciliation of cash and cash equivalents at end of period: Cash and cash equivalents included in assets held for sale $6,133 $- Cash and cash equivalents 79,937 70,985 Cash and cash equivalents at end of period $86,070 $70,985