Quantum Corporation (QTM)

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Quantum Corp. (QTM)

F4Q10 Earnings Call

May 13, 2010 5:00 pm ET

Executives

Rick Belluzzo - Chief Executive Officer

Jon Gacek - Chief Operating Officer & Chief Financial Officer

Bill Britts - Executive Vice President of Sales and Marketing

Shawn Hall - Senior Vice President, General Counsel

Analysts

Brian Freed - Morgan Keegan

Glenn Hanus - Needham & Company

Joe Feshbach - JFP

Newhall Chuckie - Technology Insight Research

Presentation

Operator

Good afternoon ladies and gentleman. Thank you for standing by. Welcome to the Quantum Corporation, fourth quarter 2010 teleconference. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

I would now like to turn the conference over to Shawn Hall, General Counsel; please go ahead, sir.

Shawn Hall

Thanks, and good afternoon and welcome. With me today are Rick Belluzzo, our CEO; Jon Gacek, our COO and CFO; and Bill Britts, our EVP for Sales and Marketing.

The webcast of this call, our earnings release, and a quantitative reconciliation of any GAAP and non-GAAP financial measures discussed today can be accessed at the Investor Relations section of our website at www.quantum.com and will be archived for one year.

During the course of today’s discussion, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our business strategy, opportunities and priorities, anticipated product launches and plans, future financial performance, including expected revenue, gross margin and expense performance, and debt covenant compliance, and trends in our business and in the markets in which we compete.

We’d like to caution you that our statements are based on current expectations, and involve risks and uncertainties that could cause actual results to differ materially. We refer you to the risk factors and cautionary language contained in today’s press release announcing our fiscal Q4 2010 results, as well as to our reports filed with the Securities and Exchange Commission from time to time, including our most recent 10-Q filed on February 5, 2010.

Such reports contain and identify important factors that could cause actual results to differ materially from those contained in our forward-looking statements. All such risk factors are identified in our press release and in our filings with the SEC who are incorporated by reference into today’s discussion. We undertake no obligation to update these forward-looking statements in the future.

With that, I’ll turn the call over to Jon Gacek.

Jon Gacek

Thanks Shawn. Good afternoon and thank you for joining us, as we report our fiscal 2010 and fourth quarter results. I’m going to walk through our results for the year and quarterly period ended March 31, 2010, and comment on a few areas where we’ve made significant progress towards Quantum becoming a more profitable growing storage systems company.

As we end fiscal 2010 and begin fiscal 2011, it is clear that Quantum is well positioned, having greatly expanded our portfolio of tape, disk and software products during the year and shifted our go-to-market focus to capitalize on change in the competitive landscape and is growing market opportunity.

In just the last five months of fiscal 2010, we introduced a new DXi family of mid-range, disk phase, eduplication and replication appliances, a new version of our StorNext software, a new entry level Scalar type automation platform, and take drive library and media, incorporating the newest generation of LTO technology.

Most of these products began shipping during the March quarter, during which we also prepared for last month launch of the new Scalar enterprise library, and this week’s announcement of the new DXi plans that design for SMB and remote office customers. Our financial model, product introduction, and fiscal 2010 results, provide a strong foundation for growth in 2011.

Now I move to the results. Revenue for fiscal 2010 and the fourth quarter were $681.4 million and $164.5 million respectively. Non-GAAP EPS for the year was $0.26 and for the fourth quarter was $0.04, compared to $0.18 in fiscal 2009 and $0.01 in the year ago quarter.

When we evaluate our performance, there are several measures that are important to both our fiscal 2010 results, and our mid to long-term business strategy. These include the branded versus OEM revenue mix, non-GAAP gross margin, disk systems and software revenue growth, non-GAAP operating profit, and finally cash generation and EBITDA. Let me comment on each of these.

For the fourth quarter, our branded business represented 78% of our non-wealthy revenue, compared to 70% in the same period the year ago. On a year-over-year basis, our fourth quarter branded revenue grew 8%. As we look to fiscal 2011, we expect our branded business to continue to grow for tape, disk systems and software products.

Non-GAAP gross margin for fiscal 2010 was 44.5%, up from 40.8% in fiscal 200, and is our best result in ten years. For Q4, non-GAAP gross margin was 44.4%, compared to 39.6% for the same quarter last year. This is a 480 basis point improvement, and reflects the increase in $6.4 million in gross profit dollars on slightly lower revenue.

Disk systems and software revenue was $95 million for fiscal 2010, and $22.8 for the fourth quarter. Branded disk and software revenue in Q4 was up 29% year-over-year and comprised 96% of the total, compared to 70% of the total a year ago. As we look forward to fiscal 2011 we expect this product category to be a significant driver of growth. The end user market is large, we have excellent products, and the independent channel partners want an alternative set of solutions to sell to their customers.

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