Quantum Corporation reports twelve percent sequental revenue growth and solid profit for fiscal third quarter

GAAP-Based Earnings Per Share of Eight Cents (Five Cents Non-GAAP) Reflects Strong Product Momentum Across Quantum and Continued Expense Management
(PresseBox) (SAN JOSE, Calif.,, ) Quantum Corp. (NYSE:DSS), a global leader in storage, today announced that revenue for its fiscal third quarter (FQ3’05), ended Dec. 26, 2004, was $201 million, up 12 percent from the fiscal second quarter (FQ2’05), and down 2 percent compared to the fiscal third quarter of 2004 (FQ3’04). The sequential revenue growth was driven by increases in tape drive, media and storage systems sales, and across nearly all major product categories. Quantum had a GAAP profit of $16 million, or 8 cents per share (diluted), compared to a loss of 3 cents per share in FQ2’05 and a loss of 4 cents per share in FQ3’04. The GAAP profit reflected a $12.1 million tax benefit related to the settlement with Maxtor of tax issues associated with the sale of Quantum’s former hard disk drive business in 2001. The company achieved a non-GAAP profit of $9 million, or 5 cents per share (diluted), an increase of 5 cents per share sequentially and 4 cents per share on a year-over-year basis. (For a reconciliation of GAAP to non-GAAP figures, please see the accompanying table ”Third Quarter Fiscal Year 2005 GAAP to Non-GAAP Reconciliation.”) The financial results announced today do not include any contribution from Quantum’s acquisition of Certance, which was completed on Jan. 5, 2005, after the close of FQ3’05.

”We achieved solid momentum in the December quarter, with significant improvements in revenue and earnings over the prior quarter, double-digit revenue growth in both storage systems and tape media, and strong sales of our leading tape drive, tape automation and disk-based product offerings,” said Rick Belluzzo, chairman and CEO of Quantum. ”The significant progress we’ve made, combined with the recently closed acquisition of Certance, provides a tremendous foundation on which to further grow our business in backup, recovery and archive.”

Contributing to Quantum’s strong bottom line results in the December quarter was the company’s continued focus on managing expenses. On a GAAP basis, operating expenses were $55 million, down from $58 million in the prior quarter and $67 million in FQ3’04. Non-GAAP operating expenses were $53 million, flat with the three-year-low expense level achieved in FQ2’05 and down from $60 million on a year-over-year basis. GAAP gross margin rates in FQ3’05 were up slightly on a sequential basis from 28.9 percent to 29.8 percent, while non-GAAP gross margin rates increased from 30.5 percent to 31.3 percent sequentially. Compared to the same quarter last year, both GAAP and non-GAAP gross margin rates were down about two percentage points in FQ3’05.

Revenue in Quantum’s Storage Systems business for FQ3’05 was $84 million, an increase of 16 percent over the September quarter and 17 percent over the comparable quarter last year. Contributing to this growth were higher sales across all of the company’s major tape automation product categories, with particular strength in the enterprise, where unit shipments of the PX720 library were up more than 40 percent sequentially. In addition, unit shipments of both Quantum’s L-Series autoloaders and mid-range M-Series libraries increased approximately 20 percent sequentially.

The company’s DX-Series disk-based backup systems continued to gain momentum in the December quarter, with revenue nearly doubling on a year-over-year basis. Demand in the government sector remained particularly strong, and Quantum also said it is experiencing an increased number of bids for large DX100 systems.

Quantum’s tape drive revenue grew 3 percent sequentially in the December quarter, to $67 million, down from $82 million in the comparable quarter last year. The sequential growth was fueled primarily by increased unit shipments of the SDLT 600, which more than doubled over the prior quarter, and shipments of the DLT VS160, which were up approximately 50 percent sequentially, while sales of older products transitioned down. The company said it anticipated further tape drive momentum in the current quarter, as two more major system OEMs are expected to begin shipping the SDLT 600 and as Quantum expands its product portfolio with new tape drive technologies acquired through Certance.

Tape media revenue in FQ3’05 was $51 million, an increase of 19 percent on a sequential basis. Unit shipments of SDLT™ media increased significantly over the September quarter, and DLTtape IV branded and royalty volumes also were up over the prior quarter. On a year-over-year basis, media revenue was down about 3 percent.

Going forward, Quantum said its strategic priorities would remain largely the same, but with some refinement as a result of the Certance acquisition. Intended to deliver sustained growth and profit over the long-term, these refined priorities include:
- Capitalizing on the company’s unique position as the independent volume leader in tape drives;
- Continuing to transition its tape automation platforms;
- Making selective investments to grow beyond its traditional tape businesses, as the company has done with its DX-Series disk-based systems; and
- Leveraging synergies from the Certance acquisition to improve its cost and expense structure even further, while the company also shifts more focus to increasing gross margins and enhancing new product execution.

In providing guidance for the fiscal fourth quarter (FQ4’05), Quantum’s first as a newly combined company since the Certance acquisition, the company said it expects the quarter to reflect typical seasonal weakness as compared to FQ3’05. Quantum also said it wanted to be a bit cautious as the company works to integrate Certance employees, systems, products and processes.

Quantum said it expects overall revenues for the current quarter to be in the range of $225 million to $240 million. The company anticipates that GAAP gross margin rates will be slightly down sequentially and that non-GAAP gross margin rates will be roughly flat compared to the December quarter. GAAP operating expenses in FQ4’05 are expected to be in the range of $71 million to $73 million, while non-GAAP operating expenses are expected to be in the $66 million to $68 million range, with no material synergies from the Certance acquisition expected in this first quarter of integration. Quantum expects GAAP bottom line results for the current quarter to be in the range of breakeven to a loss of 4 cents per share, with non-GAAP earnings per share expected to be in the range of breakeven to 4 cents profit. The GAAP to non-GAAP difference reflects estimates of $6.8 million in amortization of acquisition-related intangibles, of approximately $2 million in special charges related to restructuring, and of approximately $200 thousand related to the write-off of Certance in-process R&D. (For a reconciliation of GAAP to non-GAAP amounts, please see the accompanying table entitled ”GAAP to Non-GAAP Reconciliation of Projected Fiscal Year 2005 Fourth Quarter Data.”)

In addition to reporting its December quarter results, Quantum announced today that John Gannon, president and chief operating officer, will retire from the company at the end of the current fiscal year. Following his retirement, the position of president and COO will be eliminated. Quantum also announced that Lew Frauenfelder, senior vice president and general manager of the company’s Storage Devices Business Unit, is retiring at the end of January and will be succeeded by Jim Wold, Quantum’s vice president of engineering for that business unit. Wold, who was previously vice president of engineering at Certance, has 28 years of engineering and manufacturing experience and, during just the last eight years alone, has overseen the development and launch of more than 25 tape products. Frauenfelder will continue to work with Quantum on a part-time basis for six months to assist with the transition, product roadmaps and new technology development.

Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release exclude the impact of: amortization of acquisition-related intangible assets, special charges, charges for vacant facilities, gain on sale of equity interest, loss on debt extinguishment, deferred tax asset valuation charge, the $12.1 million tax benefit related to the settlement with Maxtor and results of discontinued operations. 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. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Quantum relies on non-GAAP financial measures in assessing what it believes to be its core operating performance, and to assist in making operating decisions, including staffing, future management priorities and how it will direct future operating expenses. Quantum’s business changed significantly with the disposition of the hard disk drive business in 2001, and total revenue and margins have declined significantly over the past three years. Because of this, the company has incurred significant charges associated with these changes and ”right-sizing” the company toward expected revenue levels. Quantum excludes the financial impact of these and other items in reviewing what it believes are its core operating results. In this regard, the company believes that non-GAAP financial measures provide meaningful supplemental information regarding its core operational performance. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to Quantum’s historical operating results and comparisons to competitors’ operating results. Quantum reports these non-GAAP financial measures because it believes they are useful to investors, providing visibility to supplemental information used by management in its financial and operational decision-making. In addition, the company has historically reported similar non-GAAP financial measures to its investors and believes the inclusion of comparative numbers provides consistency in the company’s financial reporting at this time. 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.

Conference Call and Audio Webcast Notification
Quantum will hold a conference call today, Jan. 19, 2005, at 2 p.m. PST, to discuss its December quarter results. Dial-in number: 303-262-2131 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Jan. 19, 2005, at 2 p.m. PST. Site for the webcast and related information: http://investors.quantum.com/.

Contact

Quantum, ATL Products Vertriebs GmbH
Willy Brandt Allee 4
D-81829 München
Telephone: 089-930806-0
Regina Glaser
Pressekontakt
Telephone: 0821-34300-17
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