Stocks & Investing
Stocks and Investing
Stocks and Investing
Mon, February 2, 2009
Fri, January 30, 2009
Thu, January 29, 2009 Quantum Corporation: Quantum Corporation Reports Fiscal Third Quarter Results
SAN JOSE, CA--(Marketwire - January 29, 2009) - Quantum Corp. (
Compared to the same quarter in the previous year (FQ3'08), Quantum's total revenue was down 19 percent, due to the weaker economic environment, the company's strategy of continuing to shift its sales mix toward higher margin opportunities and a year-over-year decline in branded tape sales and media royalties. Despite the revenue decline, the company's GAAP gross margin rate was 42 percent, up from 35 percent in FQ3'08 and the highest level Quantum has achieved in eight years.
"Our December quarter results clearly demonstrate the progress we've made in executing on key components of our strategy, even in the face of a very challenging economic environment," said Rick Belluzzo, chairman and CEO of Quantum. "We doubled our disk systems and software revenue year-over-year, with strong sales from our new midrange DXi7500 Express solution and our EMC partnership. This helped drive both the significant improvement in GAAP gross margins, which have increased from 28 percent to 42 percent since we merged with ADIC, and the 15 percent non-GAAP operating income we delivered. While we have more work to do to take full advantage of our opportunities and address the challenges posed by our capital structure, we are continuing to strengthen our market position by providing customers with integrated disk, tape and software solutions for multi-site, multi-tier data protection and management."
Due to a combination of factors, including the impact of the economic environment on its business and the decline in its stock price over the last several months, Quantum began conducting an impairment analysis of its goodwill during FQ3'09, as required by GAAP. Based on the analysis to date, the company has included the estimated $350 million non-cash impairment charge in its GAAP results announced today.(1) The charge does not impact Quantum's cash balances, liquidity, ability to generate cash flow or compliance with debt covenants. With the inclusion of the impairment charge, Quantum's GAAP operating expenses for the quarter totaled $420 million, resulting in the GAAP net loss of $340 million, or $1.63 per share. In FQ3'08, GAAP operating expenses were $78 million, and the GAAP net loss was $2 million, or 1 cent per share.
In addition to the estimated $350 million goodwill impairment charge, the $340 million GAAP net loss for FQ3'09 included $9 million in amortization of intangibles, $4 million in restructuring charges and $2 million in stock-based compensation. The net impact of these four items reduced earnings per share on a diluted basis by approximately $1.75.
Quantum's product revenue, which includes sales of the company's hardware and software products, totaled $144 million in the December quarter. This represented a net decrease of $41 million from FQ3'08, due to an expected decline in overall OEM revenue as well as lower sales of branded non-royalty media, tape automation systems and devices.
Disk systems and software revenue, inclusive of related service revenue, was $31 million in FQ3'09, a 100-percent increase over FQ3'08. One of the highlights in this area was the introduction of Quantum's DXi7500 Express deduplication appliance optimized for small and medium-size enterprise environments. Although it only shipped for less than half the quarter, the DXi7500 Express showed strong sales over this period, reinforcing the growing adoption of Quantum's deduplication and replication technology. Based on shipments through the December quarter, this technology is being used to protect more than 400 petabytes of data. In addition, Quantum's DXi7500 Enterprise model was recently named as a finalist in the backup hardware category for the Storage magazine/SearchStorage.com 2008 Product of the Year awards that will be announced in February.
Revenue for Quantum's other two product categories in FQ3'09 was as follows:
-- $85 million in tape automation sales, a decrease of $28 million from the comparable period in the previous year. Approximately two-thirds of the decline related to OEM products, with the other third due mainly to lower branded sales in EMEA. -- $30 million in devices and non-royalty media revenue, down $28 million from FQ3'08. This was primarily the result of two factors -- an anticipated decline in OEM device revenue and lower branded media sales, as Quantum chose not to pursue lower-margin media revenue opportunities.
Excluding royalties, the company's branded share of revenue was 65 percent in FQ3'09, up from 62 percent in FQ3'08.
Quantum generated $19 million in cash from operations for the quarter and, as of Dec. 31, 2008, had $51 million in cash and cash equivalents. The company was also in compliance with all debt covenants as of Dec. 31, 2008, and expects to remain in compliance during the next twelve months.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release -- which are non-GAAP operating income and non-GAAP net income -- exclude the impact of amortization of intangibles, share-based compensation expenses, restructuring charges and goodwill impairment. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.
Quantum believes that these non-GAAP financial measures provide useful and supplemental information to investors regarding its quarterly financial performance, particularly in light of the extraordinary nature of the impact of the estimated goodwill impairment taken this quarter. Quantum management uses these non-GAAP financial measures internally to understand, manage, and evaluate the company's business results and make operating decisions. For instance, Quantum management often makes decisions regarding staffing, future management priorities and how the company will direct future operating expenses on the basis of non-GAAP financial measures.
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material impact on the company's reported financial results and, therefore, should not be relied upon as the sole financial measures to evaluate the company. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.
Non-GAAP Operating Income
The calculation of non-GAAP operating income is described in the table below. It excludes the amortization of intangibles of $9 million, share-based compensation expenses of $2 million and goodwill impairment of $350 million. These items are excluded from operating income because the amounts are non-cash, Quantum cannot influence the timing and amount of these items and doing so provides investors and management with better visibility into core operating income performance. The calculation of non-GAAP operating income also excludes restructuring charges because the charges relate to specific consolidation actions and are not part of our future core operations.
Three months ended (In thousands) December 31, 2008 ------------------ Loss from operations on a GAAP basis $ (334,165) Amortization of intangibles 9,029 Share-based compensation 2,332 Restructuring charges 4,062 Goodwill impairment 350,000 Operating income on a non-GAAP basis $ 31,258
Non-GAAP Net Income
The calculation of non-GAAP net income is described in the table below. Because net income is derived from operating income, the non-GAAP net income calculation excludes the amounts for amortization of intangibles, share-based compensation expenses, restructuring charges and goodwill impairment as described for non-GAAP operating income above.
Three months ended (In thousands) December 31, 2008 ------------------ Net loss on a GAAP basis $ (339,776) Amortization of intangibles 9,029 Share-based compensation 2,332 Restructuring charges 4,062 Goodwill impairment 350,000 Net income on a non-GAAP basis $ 25,647
Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Jan. 29, 2009, at 2:00 p.m. PST, to discuss its fiscal third quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (303) 262-2161 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Jan. 29, 2009, at 2:00 p.m. PST. Site for the webcast and related information: [ http://www.quantum.com/investors ].
(1) As of the date of this press release, Quantum has not finalized its impairment analysis. Therefore, for purposes of these results, the company is using an estimated $350 million charge.
About Quantum
Quantum Corp. (
Quantum and the Quantum logo are trademarks of Quantum Corporation registered in the United States and other countries. DXi is a trademark 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) the ultimate amount of our goodwill impairment charge for FQ3'09; and (2) our expectation that we will comply with all of our credit agreement covenants over the next 12 months, 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, the consequences of the continued U.S. and global financial crisis and the accompanying worldwide recession, uncertainty regarding information technology spending and the corresponding uncertainty in the demand for our products and services, our ability to achieve anticipated pricing, cost and gross margin levels, the successful execution of our strategy to expand our businesses into new directions, the availability of credit on terms that are beneficial to us, particularly in light of the continuing global credit crisis and worldwide recession, our ability to comply with NYSE continued listing requirement to the satisfaction of the NYSE and the final results of our goodwill impairment analysis. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors," in Quantum's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2008 and in Quantum's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 13, 2008. 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 Nine Months Ended -------------------------- -------------------------- December 31, December 31, December 31, December 31, 2008 2007 2008 2007 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue: Product $ 143,882 $ 185,130 $ 444,658 $ 551,734 Service 40,757 40,628 124,593 119,740 Royalty 19,029 26,753 71,598 75,312 ------------ ------------ ------------ ------------ Total revenue 203,668 252,511 640,849 746,786 Cost of Revenue: Product 88,949 133,885 303,583 412,623 Service 28,933 31,453 93,766 90,421 Restructuring charges related to cost of revenue -- -- -- 237 ------------ ------------ ------------ ------------ Total cost of revenue 117,882 165,338 397,349 503,281 ------------ ------------ ------------ ------------ Gross margin 85,786 87,173 243,500 243,505 Operating expenses: Research and development 16,053 20,127 53,809 68,985 Sales and marketing 32,821 39,371 111,006 108,980 General and administrative 17,015 18,787 58,860 58,290 Restructuring charges 4,062 98 4,469 9,429 Goodwill impairment 350,000 -- 350,000 -- ------------ ------------ ------------ ------------ 419,951 78,383 578,144 245,684 ------------ ------------ ------------ ------------ Income (loss) from operations (334,165) 8,790 (334,644) (2,179) Interest income and other, net (594) 331 503 6,200 Interest expense (7,276) (10,952) (23,561) (48,785) ------------ ------------ ------------ ------------ Loss before income taxes (342,035) (1,831) (357,702) (44,764) Income tax provision (benefit) (2,259) 559 (324) 678 ------------ ------------ ------------ ------------ Net loss $ (339,776) $ (2,390) $ (357,378) $ (45,442) ============ ============ ============ ============ Basic and diluted net loss per share $ (1.63) $ (0.01) $ (1.71) $ (0.22) Basic and diluted weighted average common and common equivalent shares 210,086 204,243 208,665 201,211 Included in the above Statements of Operations: Expense related to retiring prior debt facility $ -- $ -- $ -- $ 12,602 Accelerated depreciation on legacy IT system -- -- -- 2,179 Accelerated depreciation related to facility closures -- 66 -- 132 Retention expense: Cost of revenue -- 33 -- 252 General and administrative -- 41 -- 114 ------------ ------------ ------------ ------------ -- 74 -- 366 Amortization of intangibles: Cost of revenue 5,510 7,351 19,158 23,907 Research and development 100 521 300 932 Sales and marketing 3,394 4,177 11,642 12,623 General and administrative 25 25 75 75 ------------ ------------ ------------ ------------ 9,029 12,074 31,175 37,537 Share-based compensation: Cost of revenue 141 584 1,099 1,522 Research and development 601 984 2,173 2,901 Sales and marketing 276 861 1,989 2,444 General and administrative 1,314 1,476 2,831 3,557 ------------ ------------ ------------ ------------ 2,332 3,905 8,092 10,424 QUANTUM CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) December 31, March 31, 2008 2008 ------------ ------------- (Unaudited) * Assets Current assets: Cash and cash equivalents $ 51,239 $ 93,643 Accounts receivable, net 145,208 182,998 Inventories 66,385 75,995 Deferred income taxes 12,193 12,060 Other current assets 32,079 30,601 ------------ ------------- Total current assets 307,104 395,297 Long-term assets: Property and equipment, less accumulated depreciation 31,046 39,271 Service parts for maintenance, less accumulated amortization 70,501 77,211 Purchased technology, less accumulated amortization 55,209 74,667 Other intangible assets, less accumulated amortization 63,506 75,223 Goodwill 40,776 390,776 Other long-term assets 11,393 13,280 ------------ ------------- Total long-term assets 272,431 670,428 ------------ ------------- $ 579,535 $ 1,065,725 ============ ============= Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable $ 59,016 $ 97,965 Accrued warranty 12,601 19,862 Deferred revenue, current 82,998 73,525 Current portion of long-term debt 4,000 4,000 Accrued restructuring charges 6,082 3,834 Other accrued liabilities 73,175 82,997 ------------ ------------- Total current liabilities 237,872 282,183 Long-term liabilities: Deferred revenue, long-term 32,691 31,152 Deferred income taxes 13,914 13,640 Long-term debt 245,000 336,000 Convertible subordinated debt 160,000 160,000 Other long-term liabilities 11,202 14,746 ------------ ------------- Total long-term liabilities 462,807 555,538 Stockholders' equity (deficit) (121,144) 228,004 ------------ ------------- $ 579,535 $ 1,065,725 ============ ============= * Derived from the March 31, 2008 audited Consolidated Financial Statements QUANTUM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Nine Months Ended -------------------------- December 31, December 31, 2008 2007 ------------ ------------ (Unaudited) (Unaudited) Cash flows from operating activities: Net loss (357,378) (45,442) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 12,054 20,411 Amortization ** 46,636 58,497 Goodwill impairment 350,000 -- Realized gain on sale of investment -- (2,122) Deferred income taxes 141 (18) Share-based compensation 8,092 10,424 Fixed assets written off in restructuring -- 568 Changes in assets and liabilities: Accounts receivable 37,790 (59,713) Inventories 2,265 2,153 Service parts for maintenance 223 885 Accounts payable (38,949) 14,214 Income taxes payable 93 33 Accrued warranty (7,261) (8,606) Deferred revenue 11,012 13,280 Accrued restructuring charges 2,248 (8,314) Other assets and liabilities (17,089) (1,491) ------------ ------------ Net cash provided by (used in) operating activities 49,877 (5,241) Cash flows from investing activities: Purchases of marketable securities -- (65,000) Proceeds from sale of marketable securities -- 100,000 Purchases of property and equipment (4,289) (17,356) Proceeds from sale of investment -- 5,441 Return of principal from equity investment 1,038 -- Proceeds from sale of subsidiary, net of cash sold -- 2,176 ------------ ------------ Net cash provided by (used in) investing activities (3,251) 25,261 Cash flows from financing activities: Borrowings of long-term debt, net -- 441,953 Repayments of long-term debt (91,000) (452,500) Proceeds from issuance of common stock, net 1,970 14,021 ------------ ------------ Net cash provided by (used in) financing activities (89,030) 3,474 Net increase (decrease) in cash and cash equivalents (42,404) 23,494 Cash and cash equivalents at beginning of period 93,643 59,926 ------------ ------------ Cash and cash equivalents at end of period $ 51,239 $ 83,420 ============ ============ ** Amortization for the nine months ended December 31, 2007 includes $8.1 million of the prior debt facility's capitalized debt costs.
