Exhibit 99.1
 
   
Contact: For Release:
Brad Cohen Oct. 27, 2010
Public Relations 1:05 p.m. PDT
Quantum Corp.  
(408) 944-4044  
brad.cohen@quantum.com  
 
Christi Lee  
Investor Relations  
Quantum Corp.  
(408) 944-4450  
ir@quantum.com  
 
QUANTUM CORPORATION REPORTS FISCAL SECOND QUARTER RESULTS
 
Highlights:
SAN JOSE, Calif., Oct. 27, 2010 – 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.”
 
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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:
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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:
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.
 
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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®-Series disk-based deduplication and replication systems for fast backup and restore, Scalar® tape automation products for disaster recovery and long-term data retention, and StorNext® 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.
 
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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.
 
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
  Three Months Ended   Six Months Ended
  September 30,
2010		        September 30,
2009		        September 30,
2010		        September 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  
Weigheted 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  

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QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
         September 30, 2010        March 31, 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.
 
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    Six Months Ended
         September 30, 2010        September 30, 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  
                 
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QUANTUM CORPORATION
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)
(Unaudited)
 
  Three Months Ended September 30, 2010
  Gross
Margin		       
Gross
Margin
Rate
   Income
From
Operations		   Operating
Margin		   Net
Income		   Per Share
Net Income,
Basic*		   Per Share
Net Income,
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
  Gross
Margin		      Gross
Margin
Rate		      Income
From
Operations		      Operating
Margin		      Net
Income		      Per Share
Net Income,
Basic*		      Per Share
Net Income,
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         Income for purposes of computing net
       and common equivalent shares:         income per share:
    GAAP   Non-GAAP                     GAAP   Non-GAAP
              Basic:   212,475   212,475                Basic:           $ 11,355   $ 23,175
              Diluted:   213,794   213,668                Diluted:           $ 9,792   $ 23,175

The non-GAAP 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.
 
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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.
 
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