Quantum Corporation (QTM)

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Quantum (QTM)

Q4 2011 Earnings Call

May 17, 2011 5:00 pm ET

Executives

Jon Gacek - Chief Executive Officer, President and Chief Operating Officer

William Britts - Executive Vice President of Sales & Marketing

Linda Breard - Chief Financial Officer, Chief Accounting Officer, Senior Vice President of Finance, IT and Facilities

Shawn Hall - Senior Vice President, General Counsel and Secretary

Analysts

Brian Marshall - Gleacher & Company, Inc.

Shebly Seyrafi - FBN Securities, Inc.

Brian Freed - Wunderlich Securities Inc.

Ian Kell

Glenn Hanus - Needham & Company, LLC

Eric Martinuzzi - Craig-Hallum Capital Group LLC

Alex Kurtz - Merriman Curhan Ford & Co.

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Quantum Corporation Fourth Quarter 2011 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, May 17, 2011. This time, I'd like to turn the conference over to Shawn Hall, General Counsel. Please go ahead, sir.

Shawn Hall

Thanks, and good afternoon, and welcome. Here with me today are Jon Gacek, our CEO; Linda Breard, our CFO; and Bill Britts, our EVP of Sales, Marketing and Service. A 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. The forward-looking statements include statements regarding our business strategy, opportunities and priorities, anticipated product launches and plans, and future financial performance. 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 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 8, 2011. These risk factors are incorporated by reference into today's discussion, and we undertake no obligation to update them in the future.

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

Jon Gacek

Thanks, Shawn. Thank you for joining us today as we formally report our results for the fourth quarter and fiscal year ended March 31, 2011. Today I'm going to start the call by highlighting several key elements of our Q4 results and full-year performance. Linda Breard, our CFO, will then walk through the detailed results for the period, and I will close with comments about our strategic direction, plans for fiscal 2012 and financial guidance.

During our April 4 call announcing the CEO transition, we indicated that we expected Q4 revenue to be approximately $165 million. Today, we are reporting total revenue of $165.1 million, which is slightly more than the $164.5 million we reported in Q4 of fiscal 2010. The important revenue story for the quarter is the growth in our Quantum-branded business. We grew our branded business 9% year-over-year, and we outperformed our historic goal seasonality trend as the Branded business was flat sequentially from Q3 compared to a prior year ago, when it was down 7% sequentially.

Specifically, branded tape automation revenue increased 13%, StorNext revenue was up 14%, and branded DXi revenue was up 40% year-over-year. We continue to improve our branded revenue performance as a result of participating in a strong storage market, introducing great products that have unique value for customers and are differentiated from the competition, growing the number of channel partners selling our products and improving our overall execution.

For fiscal 2012, growing our branded revenue will continue to be a key focus. The second item I want to highlight is the overall strength of our product portfolio and the introduction of our DXi 2.0 software in Q4. We exited fiscal 2011 with our Scalar tape libraries, DXi deduplication appliances and StorNext software, all having received enhancements during the year that offer more value to customers. As a result, we believe we're entering this fiscal year with the strongest product portfolio we have had since the Quantum merger with ADIC in 2006. More specifically, with regard to DXi 2.0, this is our fourth-generation DXi software. It has inline deduplication, it delivers industry-leading performance and it allows Quantum customers much greater value than our competitors. The DXi 2.0 software began shipping in mid-March on our DXi4500 and 6500 hardware platforms, and approximately 100 customers have already deployed it. And 2.0 will begin shipping on the DXi6700 and 8500 platforms this summer. Offered at the same price as DXi products with previous-generation software, our appliances running DXi 2.0 deliver both higher performance and better price performance than any other products in their class and as much as 5x an advantage over the nearest competitive offering. This performance improvement makes us the clear leader in not only performance, but price performance. In short, we believe we have a unique product offering to solve customers' problems at the lowest cost.

I also want to mention the improvement in our balance sheet and our capital structure this quarter and fiscal year. This improvement is the result of paying down $82 million of senior debt during the year, with $40 million this quarter in Q4. We made the final $22 million payment on our 2003 convertible debt last August, and we repaid $122 million in C [convertible] debt, which had a 12% interest rate with proceeds from the convertible note issuance of $135 million that has an interest rate of 3.5%.

At March 31, we had $104 million of senior debt, which we expect to aggressively pay down during fiscal 2012, and $135 million of convertible debt, which we view as a more permanent layer of capital, given its maturity in 2015.

As I look back, fiscal 2011 was a year that we shifted our focus from repositioning and restructuring Quantum to a focus on growing the company. We did see the expected revenue declines in our OEM business and in tape royalties this year, but we delivered revenue growth in the areas where we were focused; namely, total branded revenue and both branded DXi and StorNext. In fact, branded revenue grew 5% for the year, branded DXi grew 43%, and StorNext revenue grew 28% this year.

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