Quantum Corporation (QTM)

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Quantum (QTM)

Q2 2013 Earnings Call

October 24, 2012 5:00 pm ET

Executives

Shawn D. Hall - Senior Vice President, General Counsel and Secretary

Jonathan W. Gacek - Chief Executive Officer, President and Director

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

Analysts

Cindy Shaw - DISCERN Investment Analytics, Inc

Brian Freed - Wunderlich Securities Inc., Research Division

Ryan R. Bergan - Craig-Hallum Capital Group LLC, Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

Presentation

Operator

Good day, ladies and gentleman. Thank you for standing by. Welcome to the Quantum Corporation Second Quarter 2013 Conference Call. [Operator Instructions] Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, Wednesday, October 24 of 2012. And I would now like to turn the conference over to Shawn Hall, General Counsel. Please go ahead, sir.

Shawn D. Hall

Thanks. And good afternoon and welcome. Here with me today are Jon Gacek, our CEO; and Linda Breard, our CFO. The webcast for 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, opportunity 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-K filed on June 14, 2012, and 10-Q filed on August 9, 2012. 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.

Jonathan W. Gacek

Thanks, Shawn. Welcome to our fiscal 2013 Q2 earnings call. Today, we reported revenue of $147.3 million and non-GAAP loss per share of $0.02. While total revenue was slightly below the guidance we provided due mainly to lower than expected OEM and branded tape automation revenue, we had record disk and software revenue and met EPS consensus. I'm going to address the key elements of the quarter's results. Linda will give more detail on the results, and I will come back to address our second half fiscal 2013 plans.

The clear highlight in Q2 was our disk and software revenue of $42.4 million, up 18% year-over-year and 38% sequentially, and the result of record quarters for both DXi and StorNext. The record DXi revenue was driven by our DXi8500 enterprise product family, which increased 30% year-over-year and 129% sequentially. Our win rates against the reference competitor increased to 55% as well.

What we see when we compete and win is the customer sees that we have a better product from a performance, ease of use and a value perspective. We also provide a better solution for the customer if they are using tape in their architecture, which most customers still do. We are happy to have customers try and use our products and compare them to the competition. Generally, when we lose a deal, it's when the reference competitor is successful in selling their size and scale, market share position, financial condition and broader overall storage portfolio. In particular, they focus on our size, our market share and our financial statements and not really on our products. We have been much more proactive in competitive deals, making sure that we sell the value of Quantum DXi solutions and proactively addressing the competitors' selling tactics. We are also seeing success because of our increase in end-user awareness about our DXi solutions.

We will never be as big or as broad as EMC, but we believe our DXi solutions are better than theirs, expect our market share will grow and we don't mind competing. In addition, we will be opportunistic in reviewing and improving our capital structure, making their use of our financials as a competitive tool a non-issue.

Our success in Q2 reflected on our focus on getting deals closed early in the quarter, qualifying deals early, making end-user contact at senior levels to tell our story and making sure that they understand it -- understood, sorry, our key product features and price differentiation. Finally, we have a lot of new salespeople who've come on board over the past 6 months, and we saw the impact of them becoming more productive as well. The market for purpose-built backup appliances is expected to reach $5.3 billion in 2015, more than doubling from 2011, and we think we are well-positioned to increase our share of this growing market. We also believe we offer end users the best overall solution including performance, manageability and value. Our win rates continue to improve and our funnels continue to grow.

Turning to StorNext. The record revenue result was due to solid sales of standalone StorNext software and record appliance quarter, and the first sale of our new wide area storage solution, which leverages the next-generation object storage technology and our StorNext expertise. We launched our first StorNext appliance a little over a year ago. And through today, we have introduced 9 StorNext appliances in total, including the M330 and M660 metadata appliances, the Q series disk storage appliances, and archive-enabled libraries or AEL appliances.

Read the rest of this transcript for free on seekingalpha.com