Quantum: Fiscal 3Q14 Financial Results

Sales up 11% sequentially, down 8% yearly

Quantum Corp. reported results for the third quarter of fiscal 2014, ended Dec. 31, 2013.

Highlights:

• Total revenue of $146 million, up 11% sequentially
• Sequential increase in branded tape automation and DXi revenue of 37% and 32%, respectively
• 20% year-over-year growth in StorNext and related service revenue, driven by near doubling of North America sales
• Year-over-year improvement in GAAP and non-GAAP net income of 70% and 27%, respectively, on 8% revenue decline

Revenue for the quarter was $145.9 million, down 8% from the third quarter of fiscal 2013, primarily due to lower tape automation revenue and a decline in DXi sales from the record DXi quarter a year earlier.

On a sequential basis, total revenue was up 11% and, as previously announced, above the high end of the guidance range provided in the company's Oct. 23, 2013 earnings announcement.

Product highlights included growth in StorNext and related service revenue of 20% year-over-year and 5% over the prior quarter, as well as sequential increases in branded Scalar tape automation and DXi sales of 37% and 32 percent, respectively.

On a GAAP basis, Quantum reported breakeven operating income for the quarter, better than the $5.7 million operating loss a year earlier, and had a net loss of $2.4 million, or $0.01 per diluted share, compared to a net loss of $8.2 million in the prior year, a 70% improvement. On a non-GAAP basis, the company generated $8.6 million of operating income, up $1.2 million year-over-year. Finally, it reported non-GAAP net income of $6.2 million, or $0.02 per diluted share, approximately $1.3 million, or 27 percent, higher than a year earlier. The operating and net income results were better than the high end of the third quarter guidance given in October.

"Our December quarter results reflect our focus on driving increased profitability and cash flow while capitalizing on revenue opportunities," said Jon Gacek, president and CEO, Quantum. "We reduced our GAAP operating expenses by 17% year-over-year - and 12% on a non-GAAP basis - improving our bottom-line results and helping us end the quarter with our highest cash balance in three years. At the same time we continued to increase our StorNext revenue, with particularly strong year-over-year growth driven by a near doubling of sales in North America, and improved our DXi and tape automation revenue performance over the prior quarter. Moving forward, we will maintain a balanced approach between growth and profit, building on our expanding product portfolio and market reach and the actions we've taken to reduce our cost structure."

Quantum generated $7.3 million in cash from operations in the quarter, ending the quarter with $82.8 million in total cash and cash equivalents.

For the fourth quarter of fiscal 2014, Quantum expects:

• Revenue of approximately $125 million to $130 million.
• GAAP gross margin of 42 to 43% and non-GAAP gross margin of 43 to 44 percent.
• GAAP operating expenses of $60 million to $61 million and non-GAAP operating expenses of $55 million to $56 million.
• Interest expense of $2.5 million and taxes of $500,000.

The company noted that its fourth quarter operating expense guidance is $10 million to $11 million lower than actual operating expenses on a GAAP basis in the comparable quarter a year ago and $7 million to $8 million lower on a non-GAAP basis. Quantum also reiterated that it expects approximately $16 million to $18 million of additional annual expense savings from the outsourcing of manufacturing operations and staffing reductions announced earlier this month to be reflected in the company's results beginning in the fiscal first quarter of 2015 (June 2014 quarter).

Business highlights for the December quarter include:

Based on the integration of the company's Lattus Object Storage with Rocket Arkivio data archiving software,it announced a new solution to reduce primary storage and backup costs by archiving static, unstructured data. Customers using the combined solution can save 30% or more in annual storage expenses and, in many cases, pay back their investment within a year.
The company introduced a new program enabling MSPs and VARs to expand their businesses with a cloud backup service powered by DXi virtual deduplication appliances and vmPRO backup software. Through capacity-based subscription pricing, the program allows MSPs and VARs to brand, market and sell cloud backup-as-a-service offerings that scale as their revenues grow, thereby reducing the need for large up-front capital expenditures on hardware.
The company and its Lattus Object Storage solution were named as finalists for 2014 Storage Visions Awards, which honor excellence and innovation in media and entertainment technology. The solution also received honorable mention in the Tiered Storage Product of the Year category at the 2013 Storage Virtualization Cloud Awards. At these same awards, the Quantum Alliance reseller program was also selected as Vendor's Reseller Channel Program of the Year.