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Quantum Corporation Reports Fiscal Second Quarter Results
Highlights: -- Total revenue of $168 million - up $5 million from prior quarter, including an $11 million increase in branded revenue -- Record level of branded disk systems and software revenue - up 29 percent year-over-year and 19 percent sequentially -- GAAP earnings per share of 1 cent and non-GAAP earnings per share of 6 cents -- $26 million in cash generated from operations

SAN JOSE, CA, Oct 27, 2010 (MARKETWIRE via COMTEX) --

Quantum Corp. (NYSE: QTM), the leading global specialist in backup, recovery and archive, today reported results for the second quarter of fiscal 2011 (FQ2'11), ended Sept. 30, 2010. Revenue for the quarter totaled $168 million which, primarily due to an expected reduction in OEM deduplication software revenue, was down from $175 million for the same period last year (FQ2'10). However, total revenue was up $5 million sequentially, as branded growth more than offset the reduced OEM revenue. Excluding royalty revenue, Quantum's branded revenue increased 4 percent year-over-year and 11 percent sequentially and represented 80 percent of total non-royalty revenue for the quarter. Branded disk systems and software revenue was a key contributor to this growth, increasing 29 percent from FQ2'10 and 19 percent sequentially.

Quantum's GAAP gross margin rate was 42.6 percent for FQ2'11, down from 43.8 percent a year earlier, while the non-GAAP gross margin rate decreased to 45.2 percent from 47.1 percent. GAAP operating income was $9 million for the quarter, down from $15 million in FQ2'10, and non-GAAP operating income decreased to $19 million from $28 million. In all cases, the largest driver of the declines was the reduction in OEM deduplication software revenue.

For FQ2'11, GAAP net income was $3 million, or 1 cent per diluted share, compared to GAAP net income of $11 million, or 4 cents per diluted share, for the same period in the prior year. Non-GAAP net income for the quarter was $13 million, or 6 cents per diluted share, compared to non-GAAP net income of $23 million, or 11 cents per diluted share, in FQ2'10.

"Our September quarter results were better than the prior quarter in nearly every area where we are focused, including revenue, gross margin, operating income, net income and cash generation," said Rick Belluzzo, chairman and CEO of Quantum. "We achieved all this while absorbing an anticipated $9 million sequential reduction in OEM deduplication software revenue, which demonstrates the strength of our business model. In short, our second quarter performance can be viewed as a foundation on which to drive greater revenue growth in the second half of the fiscal year, leveraging the refresh and expansion of nearly our entire product line over the past 12 months and the progress we are making in generating more business through the independent reseller channel."

Quantum ended FQ2'11 with $98 million in total cash and cash equivalents and $307 million in total debt. The company generated $26 million in cash from operations and paid off the remaining $22 million of its convertible debt.

Outlook

For the third quarter of fiscal 2011, Quantum said it expects:

-- Revenue of $185 million to $200 million.

-- GAAP and non-GAAP gross margin rates slightly higher than those in FQ2'11.

-- GAAP operating expenses of $64 million to $68 million and non-GAAP operating expenses of $58 million to $62 million.

-- Interest and taxes similar to those in FQ2'11.

-- GAAP earnings per diluted share of 4-6 cents and non-GAAP earnings per diluted share of 8-10 cents.

Business Highlights

During FQ2'11, Quantum continued to focus on building revenue momentum through the introduction and ramp of new products, deeper engagement with independent resellers and industry partners, and focused sales and marketing initiatives. Key business highlights included the following:

-- Quantum introduced and began shipping the DXi6700, a new backup and deduplication appliance with a VTL interface that offers midrange and enterprise customers an unmatched combination of performance, simplicity and value for Fibre Channel SAN environments.

-- The company finalized preparations for the launch of DXi8500, its new enterprise backup and deduplication solution announced shortly after quarter-end that will begin shipping in the next few weeks. The DXi8500 offers the highest single-unit VTL performance in the industry (6.4 TB/hour) while also providing high performance in other presentation options, including NAS and OST. The DXi8500 is designed to anchor a multi-tier, enterprise-wide disaster recovery and data retention strategy.

-- Quantum generated record revenue for branded disk systems, with particularly strong demand for the DXi7500 from both new and existing customers. This included a multi-unit, multi-million dollar purchase by a Fortune 50 company that already had over 20 DXi(R) systems, as well as large sales to a U.S. cabinet department, a European central bank and a top U.S. investment firm. Quantum also had a number of customers that purchased both DXi4500 and DXi6500 appliances, including a large U.S. federal agency, a leading provider of business commerce solutions and a large telecommunications provider.

-- The company had record StorNext(R) revenue. Contributing to this growth were four StorNext sales involving archives with more than one petabyte of data and increased adoption of the new functionality in StorNext 4.0. In addition, approximately half of the deals involving StorNext Storage Manager were integrated hardware-software solutions that also included Quantum Scalar(R) tape libraries. Key StorNext wins included new business with one of the largest media and entertainment conglomerates in the world, a European music company and two Asian television stations, as well as follow-on business with an American television network, a North American agency that provides meteorological information and weather forecasts, and a European international broadcast channel.

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, Oct. 27, 2010, at 2:00 p.m. PDT, to discuss its fiscal second quarter results. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: (480) 629-9774 (U.S. & International). Quantum will provide a live audio webcast of the conference call beginning today, Oct. 27, 2010, at 2:00 p.m. PDT. Site for the webcast and related information: http://www.quantum.com/investors.

About Quantum

Quantum (NYSE: QTM) is the leading global specialist in backup, recovery, and archive. From small businesses to multinational enterprises, more than 50,000 customers trust Quantum to solve their data protection, retention and management challenges. Quantum's best-of-breed, open systems solutions provide significant storage efficiencies and cost savings while minimizing risk and protecting prior investments. They include three market-leading, highly scalable platforms: DXi(R)-Series disk-based deduplication and replication systems for fast backup and restore, Scalar(R) tape automation products for disaster recovery and long-term data retention, and StorNext(R) data management software for high-performance file sharing and archiving. Quantum Corp., 1650 Technology Drive, Suite 800, San Jose, CA 95110, (408) 944-4000, www.quantum.com.

Quantum, the Quantum logo, DXi, Scalar and StorNext are either registered trademarks or trademarks of Quantum Corporation and its affiliates in the United States and/or other countries. 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, all of our statements under the "Outlook" section are forward-looking statements within the meaning of the Safe Harbor. All forward-looking statements in this press release are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantum's actual results to differ materially from those implied by the forward-looking statement. 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 11, 2010. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

Quantum believes that the non-GAAP financial measures disclosed above provide useful and supplemental information to investors regarding its quarterly financial performance. 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. In addition, compensation of our employees is based in part on the performance of our business based on non-GAAP operating income.

The non-GAAP financial measures used in this press release exclude the impact of amortization of intangibles, share-based compensation expense, restructuring charges and gain on extinguishment of debt, net, for the following reasons:

Amortization of Intangible Assets

This includes acquired intangibles such as purchased technology and customer relationships in connection with prior acquisitions. These expenses are not factored into management's evaluation of potential acquisitions or Quantum's performance after completion of the acquisitions because they are not related to Quantum's core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Quantum against the performance of other companies without the variability caused by purchase accounting.

Share-Based Compensation Expense

Share-based compensation expense relates primarily to equity awards such as stock options and restricted stock units. Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Quantum's control. As a result, management excludes this item from Quantum's internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Quantum's core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Restructuring Charges

Restructuring charges primarily relate to expenses associated with changes to Quantum's operating structure. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Quantum has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges from Quantum's non-GAAP financial measures, as it enhances the ability of investors to compare Quantum's period-over-period operating results from continuing operations.

Gain on Extinguishment of Debt, Net

The gain on extinguishment of debt, net relates to specific debt refinancing actions undertaken in fiscal 2010 and is not part of Quantum's future core operations.

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.

                            QUANTUM CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share amounts)
                                (Unaudited)
                              Three Months Ended       Six Months Ended
                            ----------------------  ----------------------
                             September   September   September   September
                             30, 2010    30, 2009    30, 2010    30, 2009
                            ----------  ----------  ----------  ----------
Revenue:
  Product                   $  112,329  $  118,327  $  220,783  $  223,551
  Service                       37,728      39,757      76,365      78,659
  Royalty                       17,665      16,842      33,799      33,056
                            ----------  ----------  ----------  ----------
    Total revenue              167,722     174,926     330,947     335,266
Cost of Revenue:
  Product                       73,067      73,077     143,702     145,163
  Service                       23,259      25,220      48,395      51,831
                            ----------  ----------  ----------  ----------
    Total cost of revenue       96,326      98,297     192,097     196,994
                            ----------  ----------  ----------  ----------
      Gross margin              71,396      76,629     138,850     138,272
Operating expenses:
  Research and development      18,128      16,907      36,250      33,439
  Sales and marketing           29,119      27,880      59,197      55,173
  General and administrative    14,941      15,218      30,424      29,723
  Restructuring charges             94       1,696          11       4,806
                            ----------  ----------  ----------  ----------
                                62,282      61,701     125,882     123,141
                            ----------  ----------  ----------  ----------
    Income from operations       9,114      14,928      12,968      15,131
Interest income and other,
 net                               306       1,265         274       1,269
Interest expense                (6,001)     (6,935)    (12,116)    (12,586)
Gain on debt extinguishment,
 net of costs                       --       1,569          --      12,859
                            ----------  ----------  ----------  ----------
      Income before income
       taxes                     3,419      10,827       1,126      16,673
Income tax provision
 (benefit)                         394        (528)        797         310
                            ----------  ----------  ----------  ----------
      Net income            $    3,025  $   11,355  $      329  $   16,363
                            ==========  ==========  ==========  ==========
Net income per share:
      Basic                 $     0.01  $     0.06  $     0.00  $     0.08
      Diluted                     0.01        0.04        0.00        0.02
Income for purposes of
 computing net income per
 share:
      Basic                 $    3,025  $   11,355  $      329  $   16,363
      Diluted                    3,025       9,792         329       4,753
Weighted average common and
 common equivalent shares:
      Basic                    218,856     212,475     217,167     211,372
      Diluted                  221,999     213,794     224,267     225,752
--------------------------------------------------------------------------
Included in the above
 Statements of Operations:
Amortization of intangibles:
  Cost of revenue                3,966       5,499       9,513      10,974
  Research and development         100         100         200         200
  Sales and marketing            3,362       3,394       6,756       6,788
  General and administrative        25          25          50          50
                            ----------  ----------  ----------  ----------
                                 7,453       9,018      16,519      18,012
Share-based compensation:
  Cost of revenue                  444         319         904         619
  Research and development         581         582       1,330       1,220
  Sales and marketing              720         760       1,605       1,218
  General and administrative       729       1,014       1,677       1,756
                            ----------  ----------  ----------  ----------
                                 2,474       2,675       5,516       4,813
--------------------------------------------------------------------------
                            QUANTUM CORPORATION
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (In thousands)
                                (Unaudited)
                                            September 30,      March 31,
                                                2010             2010*
                                           --------------   --------------
                  Assets
Current assets:
  Cash and cash equivalents                $       96,212   $      114,947
  Restricted cash                                   1,830            1,896
  Accounts receivable, net                        100,838          103,397
  Manufacturing inventories, net                   51,709           54,080
  Service parts inventories, net                   48,476           53,217
  Deferred income taxes                             7,919            7,907
  Other current assets                             13,489           14,500
                                           --------------   --------------
    Total current assets                          320,473          349,944
Long-term assets:
  Property and equipment, net                      26,320           24,528
  Intangible assets, net                           56,573           73,092
  Goodwill                                         46,770           46,770
  Other long-term assets                            9,424            9,809
                                           --------------   --------------
    Total long-term assets                        139,087          154,199
                                           --------------   --------------
                                           $      459,560   $      504,143
                                           ==============   ==============
   Liabilities and Stockholders' Deficit
Current liabilities:
  Accounts payable                         $       53,116   $       56,688
  Accrued warranty                                  6,214            5,884
  Deferred revenue, current                        77,705           94,921
  Current portion of long-term debt                 1,884            1,884
  Current portion of convertible
   subordinated debt                                   --           22,099
  Accrued restructuring charges                     1,063            3,795
  Accrued compensation                             28,207           31,237
  Income taxes payable                              1,677            2,594
  Other accrued liabilities                        22,782           23,555
                                           --------------   --------------
    Total current liabilities                     192,648          242,657
Long-term liabilities:
  Deferred revenue, long-term                      29,797           30,724
  Deferred income taxes                             8,491            8,676
  Long-term debt                                  304,957          305,899
  Other long-term liabilities                       7,346            7,444
                                           --------------   --------------
    Total long-term liabilities                   350,591          352,743
  Stockholders' deficit                           (83,679)         (91,257)
                                           --------------   --------------
                                           $      459,560   $      504,143
                                           ==============   ==============
---------------------------------------------------------------------
* Derived from the March 31, 2010 audited Consolidated Financial
  Statements.
                            QUANTUM CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                (Unaudited)
                                                   Six Months Ended
                                           -------------------------------
                                            September 30,    September 30,
                                                2010             2009
                                           --------------   --------------
Cash flows from operating activities:
  Net income
                                           $          329   $       16,363
  Adjustments to reconcile net income
   to net cash provided by operating
   activities:
    Depreciation                                    5,878            6,257
    Amortization                                   17,327           19,513
    Service parts lower of cost or
     market adjustment                              7,053            4,391
    Gain on debt extinguishment                        --          (15,613)
    Deferred income taxes                            (171)            (235)
    Share-based compensation                        5,516            4,813
    Changes in assets and liabilities:
      Accounts receivable                           2,559            1,844
      Manufacturing inventories                      (974)           7,937
      Service parts inventories                     1,033            3,729
      Accounts payable                             (3,595)           5,139
      Accrued warranty                                329           (4,052)
      Deferred revenue                            (18,142)          15,472
      Accrued restructuring charges                (2,737)             683
      Accrued compensation                         (3,154)             976
      Income taxes payable                           (907)          (2,399)
      Other assets and liabilities                    145             (365)
                                           --------------   --------------
Net cash provided by operating activities          10,489           64,453
Cash flows from investing activities:
  Purchases of property and equipment              (7,677)          (3,096)
  Decrease in restricted cash                          69               74
  Return of principal from other
   investments                                         95               --
                                           --------------   --------------
Net cash used in investing activities              (7,513)          (3,022)
Cash flows from financing activities:
  Borrowings of long-term debt, net                    --          120,042
  Repayments of long-term debt                       (942)         (60,992)
  Repayments of convertible subordinated
   debt                                           (22,099)        (122,288)
  Payment of taxes due upon vesting of
   restricted stock                                (2,076)            (928)
  Proceeds from issuance of common stock            3,366                8
                                           --------------   --------------
Net cash used in financing activities             (21,751)         (64,158)
Effect of exchange rate changes on cash
 and cash equivalents                                  40              251
Net decrease in cash and cash equivalents         (18,735)          (2,476)
Cash and cash equivalents at beginning of
 period                                           114,947           85,532
                                           --------------   --------------
Cash and cash equivalents at end of period $       96,212   $       83,056
                                           ==============   ==============
                             QUANTUM CORPORATION
                       GAAP TO NON-GAAP RECONCILIATION
                  (In thousands, except per share amounts)
                                 (Unaudited)
                           Three Months Ended September 30, 2010
                  --------------------------------------------------------
                                                            Per     Per
                                                           Share   Share
                          Gross    Income   Operat-         Net     Net
                   Gross  Margin    From     ing     Net   Income, Income,
                   Margin  Rate  Operations Margin Income  Basic*  Diluted*
                  ------- ------ ---------- ------ ------- ------- -------
GAAP              $71,396  42.6% $    9,114   5.4% $ 3,025 $  0.01 $  0.01
Non-GAAP
 Reconciling
 Items:
  Amortization of
   Intangibles      3,966             7,453          7,453
  Share-based
   Compensation       444             2,474          2,474
  Restructuring
   Charges                               94             94
                  -------        ----------        -------
Non-GAAP
                  $75,806  45.2% $   19,135  11.4% $13,046 $  0.06 $  0.06
* Weighted average common and
  common equivalent shares:
   Basic:         218,856
   Diluted:       221,999
                           Three Months Ended September 30, 2009
                  --------------------------------------------------------
                                                            Per     Per
                                                           Share   Share
                          Gross    Income   Operat-         Net     Net
                   Gross  Margin    From     ing     Net   Income, Income,
                   Margin  Rate  Operations Margin Income  Basic*  Diluted*
                  ------- ------ ---------- ------ ------- ------- -------
GAAP              $76,629  43.8% $   14,928   8.5% $11,355 $  0.06 $  0.04
Non-GAAP
 Reconciling
 Items:
  Amortization of
   Intangibles      5,499             9,018          9,018
  Share-based
   Compensation       319             2,675          2,675
  Restructuring
   Charges                            1,696          1,696
  Gain on
   Extinguishment
   of Debt, Net                                     (1,569)
                  -------        ----------        -------
Non-GAAP          $82,447  47.1% $   28,317  16.2% $23,175 $  0.11 $  0.11
* Weighted average common and     Income for purposes of computing
  common equivalent share:        net income per share:
                       Non-                         Non-
               GAAP    GAAP                 GAAP    GAAP
              ------- -------              ------- -------
  Basic:      212,475 212,475     Basic:   $11,355 $23,175
  Diluted:    213,794 213,668     Diluted: $ 9,792 $23,175
The non-GAAP financial information set forth in this table is not prepared
in accordance with generally accepted accounting principles and may be
different from non-GAAP financial information used by other companies.
                            QUANTUM CORPORATION
                     THIRD QUARTER FISCAL 2011 FORECAST
                      GAAP TO NON-GAAP RECONCILIATION
                  (In millions, except per share amounts)
                                                        -------------------
                                                            Dollar range
                                                        -------------------
Forecast Revenue                                        $ 185.0  -  $ 200.0
                                                        -------------------
                                                            Dollar range
                                                        -------------------
Forecast operating expense on a GAAP basis              $  63.5  -  $  67.5
Forecast amortization of intangibles                             3.4
Forecast share-based compensation                                2.1
                                                        -------------------
Forecast operating expense on a non-GAAP basis          $  58.0  -  $  62.0
                                                        ===================
                                                        -------------------
                                                            Dollar range
                                                        -------------------
Forecast diluted earnings per share on a GAAP basis     $  0.04  -  $  0.06
Forecast amortization of intangibles                            0.03
Forecast share-based compensation                               0.01
                                                        -------------------
Forecast diluted earnings per share on a non-GAAP basis $  0.08  -  $  0.10
                                                        ===================
Estimates based on current (October 27, 2010) projections.
The projected GAAP and non-GAAP financial information set forth in this
table represent forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. For risk factors that
could impact these projections, see our Annual Report on Form 10-K as
filed with the SEC on June 11, 2010. We disclaim any obligation to update
information in any forward-looking statement.
The non-GAAP financial information set forth in this table is not prepared
in accordance with generally accepted accounting principles and may be
different from non-GAAP financial information used by other companies.

Contact:
Brad Cohen
Public Relations
Quantum Corp.
(408) 944-4044
brad.cohen@quantum.com  

Christi Lee
Investor Relations
Quantum Corp.
(408) 944-4450
ir@quantum.com


SOURCE: Quantum Corporation