Q2 2021 Quantum Corp Earnings Call
Good day, ladies and gentlemen, and welcome to your quantum fiscal second quarter 2021 earnings webcast. All lines have been placed on a listen only mode and the floor will be open for your questions and comments following the presentation.
If you should require assistance throughout the conference. Please press star zero to reach a live operator.
At this time it is my pleasure to turn the floor over to your host Rob think of EPS NK Investor Relations, Sir the floor is yours.
Thank you operator, I'd like to welcome everyone to the call hosting the call today are JB learner, Quantums, chairman and CEO, Mike Datsun quantum CFO. Please.
Please be aware that some of the comments made during today's call may include forward looking statements.
All statements other than statements of historical fact couldn't be deemed as forward looking [laughter] quantum advisors caution reliance on forward looking statements forward looking statements include without limitation any projections of revenue margins expenses adjusted EBITDA adjusted net income cash flows or other financial items as well as the anticipate.
Then.
Oh, good 19 pandemic equine Quantums financial results any statements concerning the expected development performance market share or competitive performance related products or services.
Forward looking statements are based on information available to quantify on the date hereof.
Oh, no not known risks uncertainties and other factors that may cause quantums actual results to differ materially from those implied by the forward looking statements, including unexpected changes in the company's business more detailed information about these risks factors additional risks risk factors are set forth in quantums periodic filings with the suit.
Already and exchange commission, including but not limited to those risks and uncertainties listed in the section entitled risk.
Doctors Quantums quarterly report on form 10-Q, and annual report on form 10-K as filed with the C series.
Quantum expressly disclaims any obligation to update or alter its forward looking statements, whether as a result of new information future events or otherwise except as well.
Acquired by law.
Also note on this call the company will be discussing non-GAAP financial information management is providing this information as a supplement information prepared in accordance with accounting principles generally accepted in the U.S. or GAAP you can find a reconciliation of these metrics to the reported GAAP results in the reconciliation table provided in the company's earnings release.
Yes.
I would like to remind everyone that this call will be available for replay on quantum's website for at least 90 days a link to the website replay. This call was also provided in the earnings release, which is available properties.
Site and investors quantum dot com and all that.
That said I would like to turn the call over to <unk>, Chairman and CEO quantum Jamie Lerner, Jamie the call's yours.
Thank you Rob and thank you all for joining us on today's call.
On our last quarterly conference call I stated that I believe the worst of the COVID-19 impact and disruption was behind us.
Adults or the second fiscal quarter support yes.
Our results in the second fiscal quarter exceeded our forecasted outlook.
Benefiting from the strength of our federal government business and solid sales execution.
We experienced a gradual recovery throughout the quarter with purchasing and procurement activity ramping up across.
Across most end markets.
There are some encouraging signs of our customers starting to spend again on new projects and new business initiatives.
And while there are signs of life in media and entertainment. We now believe the recovery in that industry may take more than one or two quarters, given how the pandemic it impacted movie and TV production and professional sports.
We have expanded our sales force to those industries that are growing journeying told it.
And as we expand our product portfolio this quarter, our story becomes even more relevant outside of our core media and entertainment markets.
In response to that haven't done that in the short term volatility. It created we continue to maintain disciplined with our expenses, while increasing our investment in research and development to support the introduction of new software products.
The 300 basis point sequential improvement in gross margin achieved during the quarter bolstered our adjusted EBITDA to 8.9 million meaningfully exceeding our guidance.
Even with lower revenue levels, we are now a self sustaining business.
Well the worst is behind us from a short term perspective, I am even more encouraged with the progress we have made in continuing quantums transformation.
At our analyst and Investor Day in August we discussed the next phase of our transformation and laid out the strategy for how we will continue to transform our business.
At the core of our strategy is helping our customers solve their most pressing business challenges.
I unlocking the value in their video and unstructured data.
The enrichment. This data is what will drive businesses for it.
This is what will drive the next discovery next innovation, new ways to communicate and entertain and new business models.
In just 13 days, we'll take another significant step in our strategy with the launch of next generation data management software to classified visualize and orchestrate data both on premise and in the cloud.
We're also introducing new software features to automate data movement for optimal performance.
Along with new features to secure data from cyber threats.
Sure, we're significantly expanding our portfolio to classify manage and protect video and unstructured data across its lifecycle.
In addition, this quarter, we begin to transform our business model, we did with the introduction of subscription based software licensing so.
So in line with the value we are delivering to customers.
Historically, we've sold our Sop are bundled with an appliance either.
Even when we are managing customer data on third party hardware or on cloud infrastructure or not capturing this value in our software.
With this launch we are separating the software from the underlying hardware, establishing a clear value for our software aligned with the unique value, we are delivering to customers and setting the stage for running the software in the cloud or on premise regardless of the underlying infrastructure.
Time, this will shift our business to a recurring revenue driven model.
And increased revenue contribution from software driving improved gross margins and more predictable revenue streams.
Now I would like to provide an update on the status of our program to add new hyperscaler customers.
Currently we have three hyperscaler customers that have qualified our archive solutions for production.
This represents our existing and longstanding customer into new customers.
Through the fiscal third quarter, the new customers will have initiated early stage production box.
A sports Hyperscalers. It's further along in the evaluation process and is expected to begin initial production by size by the end of the fiscal fourth quarter.
We also expect to expand our product offerings to our hyperscaler customers beyond archive storage solutions to include a newly developed primary storage solution if.
If successful this new product offering could start shipping as early as fiscal fourth quarter.
With that I'd like to turn the call over to Mike Dodson, our CFO does get to discuss the financials.
Mike.
Thank you Jamie welcome.
Welcome to everyone that has joined our call today.
As Jamie mentioned in his opening comments.
Second fiscal quarter up 2021 demonstrated the worst of the COVID-19 impact seems to be behind us.
And our end markets are generally in a recovery mode.
[noise] revenue was 85.8 million in the second fiscal quarter compared to 105.8 million in the year ago quarter.
And exceeded the high end of our guidance, we provided on our previous call.
The year over year decline of 20 million or 19%.
What's driven by lower revenues across all of the company's vertical markets.
With the exception of the federal government business largely due to the cold at 19 pandemic.
As well as a fluctuating purchase cycle with our Hyperscaler customers.
[noise] [noise], despite the fluctuating purchasing cycles voter hyperscaler customers to date.
With the new Hyperscaler customers, starting initial production buys during fiscal 2021.
We expect the level of business.
The hyperscalers in the current fiscal year <unk>.
The approximate the prior year.
While we are encouraged by the growth opportunities presented by the new Hyperscaler customers.
We are mindful that these customers are expected to have dual sourcing strategies for production buys.
And each customer has a different cadence to wrapping up there are there archive storage systems in there related data centers.
Taking these points into consideration.
We believe it could be a multi year period to ramp the new hyperscale or production buys to full capacity levels that we have experienced with our long standing hyperscale customer.
The gross margins in the second fiscal quarter were 45.1% compared to 41.1% last year.
Despite recording lower service revenues and royalties both high margin contributors gross margins expanded due to a more favorable mix of enterprise products as well as reduced repair costs and our service business.
In total operating expenses in the second quarter decreased 10%.
35.2 million or 41% of revenue.
Compare to 39.3 million or 37% of revenue in the same period last year.
The 4.1 million decrease in operating expenses was driven by a 4.1 billion decrease in general and administrative expenses.
Primarily due to a 4.2 million.
4.2 million up restatement costs in the prior year period.
And a 1.7 million a decrease in sales and marketing expenses in the current period, primarily due to lower spending on marketing programs and travel and entertainment.
These reductions were partially offset by an increase I point Ninemillion in research and development costs, primarily due to higher headcount and related cost to support the introduction of new software products.
GAAP net loss in the second fiscal quarter was 4.6 million or 11 cents per diluted share.
Compared to a net loss of 2.3 million or six cents per diluted share in the year ago quarter.
Excluding stock compensation restructuring charges and nonrecurring charges adjusted net loss in the second fiscal quarter was 213000 or one cents per diluted share compared to adjusted net income of 5.1 million or 11 cents per.
Our diluted share in the year ago quarter.
Adjusted EBITDA in the second fiscal quarter was 8.9 million compared.
Compared to 12.7 billion in the year ago quarter.
[noise], there's a full reconciliation of our non-GAAP results to the most directly comparable GAAP measure in both the press release and form 10-Q released today.
Because our share count is not as straightforward calculation I wonder could probably provide more color.
Based on our loss position for this fiscal second quarter, our shares used to calculate the loss per share were 40.3 million.
For the same period, assuming a profit share count.
Per share calculations.
For the per share calculations.
Would have been 48.3 million.
Now looking at the balance sheet liquidity and cash flows.
Cash and cash equivalents were 18.3 million as of September Thirtyth 2020, compared to 12.3 million at March 31st 2021.
<unk> balances include 5 million in restricted cash acquired under the credit agreements and point Eightmillion up short term restricted cash.
Adjusted working capital increased by 7.5 million during the second fiscal quarter from 52.4 million at the end of the first fiscal quarter to 59.9 million at the end of the second fiscal quarter.
This increase was the result of a build of accounts receivable reflect reflective of the higher revenue levels for the quarter.
And an increase in inventory to support customer order backlog.
That was shipped in the first few weeks of the following quarter.
Partially offsetting these increases is an increase in accounts payable, reflecting the higher inventory levels.
Outstanding debt as of September Thirtyth 2020 on a gross basis was 195.2 million.
And on a net basis was 172.4 million.
After netting 22.8 million and unamortized debt issuance costs [noise] there's.
This compares to 195.2 million outstanding debt as of June Thirtyth 2020 on a gross basis.
And on a net basis wasn't <unk> hundred and 70 point Sixmillion after netting 24.6 million and unamortized debt issuance costs.
Related to the term debt credit facilities, there's a holiday periods for certain financial covenants through June Thirtyth 2021.
Also there was no balanced borrowed on the line of credit at the end of the second fiscal quarter.
[noise] as we discussed during our analyst day back in August we were going to be working to outline a strategy to address the overhang on our valuation created by the legacy high cost term debt.
Moving in that direction, we will become S. Three eligible on November eightth.
And that's a practical and responsible stuff.
Intend to file a shelf registration.
[noise] related to the term debt.
Expenses make whole call provision, we currently have well.
Will expire on June 27th 2021.
Following that expiration the optionality to address our capital structure increases significantly.
Leading up to this date really working to establish a financial strategy.
Improve our capital structure that will be accretive to our shareholders.
In the meantime, the equity Clawback provision that allows the pay down of up to 50% of the outstanding term debt.
I had to reduce call premium of 5% is available to us.
In addition.
To provide further optionality, leading up to the June 27th dates we will consider including an at the market offering in the shelf registration.
There's only increases our optionality and there's no obligation nor current strategy around putting it to use.
Any proceeds from this offering will be strictly limited to pay down the term debt.
So in summary over the next six plus months, we will be working to strategically improve the capital structure in a manner that will prove to be accretive to our shareholders.
Related to free cash flows generated by operations for the first six months of fiscal 2021.
Before the effect of changes in assets and liabilities nuts.
Net cash used by operations was <unk> point 2 million or essentially cash flow breakeven from operating results.
Other uses of cash during the period included that changes and other assets and liabilities of 19.5 million.
[noise] other sources of cash during the first six months of fiscal 2021 included net borrowings of long term debt of 19.4 million.
And borrowings of 10 million under the payment protection program.
Related to the payment protection program low where.
We have utilized the proceeds for qualifying expenses and have applied for forgiveness and of course with the turns are the loan agreement [noise] package.
This time, we cannot be assured that the loan will be forgiven, partially or in fall.
Finally, turning to our financial outlook.
First although.
Although we have seen a gradual and steady recovery across most of our end markets and key geographies.
Our visibility continues to be uncertain, given the volatility and related adverse effects on the global economy brought on by the COVID-19 pandemic as well as the uncertainties created by the current election cycle.
As a result, our outlook for the third fiscal quarter has been evaluated taking these factors into consideration.
The revenues are forecasted to be 93 million.
Plus or minus 2 million.
Adjusted net loss of 1 million plus or minus 1 million.
Adjusted net loss per share of two cents per share plus or minus two cents per share.
And adjusted EBITDA of 8 million.
Plus or minus 1 million.
[noise] when looking beyond the third fiscal quarter, the historical seasonality trends typically resulted in lower sequential revenue in the fiscal fourth quarter.
Although we are not prepared to provide your revenue outlook for the fiscal fourth quarter at this time.
Given the continued gradual and steady recovery.
We don't believe we will experience the seasonality trend of lower sequential fiscal fourth quarter revenues this year.
With that I'll turn the call back to Jamie for closing comments Jamie.
Thanks, Mike.
In summary, this was a productive and encouraging quarter for quantum.
Signaling that the worst of COVID-19 is behind us.
As we continue this transformation.
Focus is on helping customers to unlock the value of their video and unstructured data in new ways to solve their most pressing business challenges, while we transform our business model to drive more predictable revenue streams and expanded margins.
My excitement at our potential continues to grow.
With that we'll now take any questions you may have operator.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone, we I said well posing your question you pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment Please press star.
One on your telephone keypad at this time.
We'll take our first question from Craig Ellis with B. Riley Securities. Please go ahead Sir.
Hi, Thanks for taking the question and congratulations on the very strong results I just want to start with a couple of clarifications and I'll start with gross margin, which was very strong nice 300 basis point increase Mike was that entirely due to the mix that we saw inside of inside of the products business.
Or were there other factors at play and and if so can you just give us a breakdown of what the contributing factors works about big sequential move.
Yeah, I mean, it was within a product group a we had a just a very favorable mix and of course with a higher federal business that will always help our mix gross margin wise. So that was probably the biggest contributor to the rich margin and I would just you know.
Say that it's not necessarily sustainable when we look forward.
We are very pleased to have a strong performance this quarter.
On that note Mike is it fair to say that you know we know that government seasonality is very strong in the September quarter isn't typically as strong in the December quarter and it sounds like from some of the Hyperscale commentary that that should be rising. So is it fair to say that mix would be working more against gross margin.
The in the fiscal third quarter persist the tailwind that provided in in the second.
Yes, that's correct.
Okay, and then a follow up question and it relates to some hyperscale commentary and guys. Thanks for really clarifying how you're engaged with a number of players there Mike I wasn't clear on your comments regarding revenue potential relative to an existing customer were you expressing.
Things that combine the three incremental hyperscale engagement could match that or were you speaking to them individually.
Attention <unk> matching that above what the other customer.
No I was grouping all the hyperscalers. So what do we looked at our revenue from our legacy Hyperscaler last year on an annual basis, we would expect a this year.
The legacy plus the the new customers that are just starting to ramp up.
Would be consistent year over year.
Okay got it and then I'll just ask one more and then hop back in the queue.
Jamie there's a there's a large player and the tape business that has recently announced that its going to split its business and it looks like its extracting managed infrastructure from software and hardware.
Those types of things often create customer uncertainty and it's real clear from analyst day quantum is establish its own path and you're driving towards a different business model, but I just that kind of thing create any incremental opportunities in either your products business services or whats like you'll be announcing with.
With your next software release here on the 10th of November.
Yeah, I mean I.
I can't speak in detail to what.
Our friends at I.B.M. are doing but.
But I can't speak about what we're doing.
And.
At this stage.
We are innovating in not just tape.
Architecture, but in tapes software faster than anyone else in the market.
We are going to be announcing ingest 13 days not only do we lead the world in Hyperscaler arc high density and serviceability and electro mechanical design of our robots.
Beyond that we're actually going to be providing the entire software stack that is needed to run that at the bites scale and will be the first vendor to come out with a complete.
Multi exit by scale software stack.
It can be literally roll directly in production with cloud players and so I think our our speed of innovation is beyond anyone else's.
I b M or anyone else in the archives space.
I think our software integration and software innovation that is unmatched and.
That's why you see US you know.
Bringing up those R&D investments, we are you know cutting costs almost everywhere else, but we are increasing the costs in our innovation and our leadership position. So I think.
Didn't hear issues and I began more or less about breaking the business apart I I don't see that changing their innovation cycle I don't see that changing their velocity and I think why hyperscalers are choosing us is just.
The speed of innovation, the repeat rate of creativity and the breakthroughs repeated breakthroughs in software.
Just making us the clear choice for the exabyte scale customer.
That's very helpful. Thanks, Jami Thanks, Mike.
Well take our next question from George I wanted with Oppenheimer. Please go ahead.
Thank you for taking my questions. So Jamie Ah building on your comments on the software and the the next generation opportunities can you give us a sense of you know the ability to reach new customers with the type of develop you're doing and the type of Tam expansion. That's on the table at the top of walls out.
Yeah, I mean it.
We've been very intentional over the last nine months.
That we have to.
Reach a broader customer base.
Our management team feels and I think many people feel that this is a case shaped recovery.
There are businesses.
That had been blessed by co bit 19, and businesses that have been put in a very tough and challenging place.
And we've been shifting our sales to the businesses that are benefiting.
And that is online business.
Online video and you think about video it is very hard for television and movie companies to produce new video yeah.
Yet there's a huge amount of video on tick Tock, Instagram Facebook and other online outlet you too and so we are realigning too.
A broader set of markets were realigning to a broader set of geographies.
And were putting our investments in the products that are most topically selling during this period.
And that includes.
A lot of Tam expansion for us.
We put new leaders in Europe, we put a new sales leaders in Europe, we put new sales leaders into Asia.
We have.
Begun adding more enterprise sellers, not just media and entertainment focused sellers, but rocker skilled.
People, who can sell into the general enterprise.
And I think.
Host our announcement in November Uh Huh.
13 days.
We are going to have a portfolio, which is much more broadly applicable.
We're launching an entirely new file system that is.
Applicable in every enterprise there is it is not just for moviemaking or just for you know very high end video, it's a broad based enterprise platform.
And I think this.
Reduces our risk by being over rotated into any one vertical and drastically increases our tam size. So while it's pretty exciting we've been recruiting a lot of new channel partners or beyond our traditional channel partners that have different geographic reach and have different vertical reach.
And those verticals include assisted and autonomy is driving.
Video surveillance.
Life Sciences and healthcare as.
As well as just general enterprise.
And the feedback we've gotten so far is very encouraging.
So more to come in at 13 days.
Okay, and just being a great play following up on that go to market transformation that you know you're talking about can you give us a sense of you know you know how healthy the lift in productivity from a sales perspective, and the overall type plane as.
Yeah right now.
We.
We measure our.
Future quarters with a variety of metrics that include the creation of new opportunities.
It includes a number of our piece we receive it includes an analysis of the average deal size. How large are the deals that we are bidding on.
How many deals are we bidding on.
How many.
New people are reaching out to lives.
And right now.
That is.
Just shy of our historic highs.
So we're not into it.
Exactly back to the highs we once were at but.
Fairly close and what it is is it a tivity in new markets new segments new geographies.
That is a pretty accelerate our business and I expect that just to continue to grow.
As we you know Ah head into the spring and into the summer I think it will have a drastically larger pipeline. We're working over the next several months and the trends have been.
Pretty steady over the last six months and again post November 13th I think we just.
We appeal to a much broader set of customers than we historically have.
Thank you.
And next we'll go to Chad Bennett with Craig Hallum. Please go ahead Sir.
Great. Thanks for taking my questions nice job again on a on a really good seasonal quarter guys.
Jamie I just want to follow up on a comment that you made.
And just a clarification in and maybe elaboration on it on and you talked about newly developed primary storage system that would start shipping in fourth quarter and I believe that's attached to her connected to one of your newer hyperscaler.
Customers <unk> I guess first is that correct and then can you at least.
It sounds pretty interesting to me at least elaborate kind of you know what.
What type of.
Kinda use case or or innovation that is bringing to them.
Yeah.
I guess.
My point.
It is.
We're not just a one trick pony to the Hyperscalers.
I think most of what we talked about is selling enormous.
Tape libraries to the Hyperscale.
Ah, we moved beyond that and they're buying other technologies from us.
And I think that's encouraging and more encouraging is.
Those primary storage technology, they're buying from us the core reason the core differentiator.
It's what they're buying from us is software.
And that.
Is.
You know has been a key goal over the last two years that you know, we we want to appeal to our customers with multiple products and we want to increasingly appeal with software driven software defined or software led products and you know we are in the middle of that would would.
One of the Hyperscalers actually two of them one of them.
We're we're giving them a new primary storage product and.
One of them is not just buying tape hardware, but is buying the management and all the storage software with it as well so were.
You know were really.
Reaching out beyond just selling large quantities of hardware.
It does not.
And Jamie. This this includes and and is more than than store next.
Yes. It does it includes foreigner.
It does not and you know it's a different product.
A very interesting okay, and then maybe maybe just a update on on next generation LTL I think it I think we're on to 10 just.
Just timing, there and and then and might could probably handle that that also but just how you expect.
The royalty piece to flow over the next couple of quarters. If you. If you can give that type of visibility there.
Well I can give a little update for.
For those who follow.
The L.T. O World LTL nine is late.
And it.
Please pursuant to my.
Comments earlier on I B M.
They're late and they're quite a bit late.
So that will.
I think delay any LTL nine uplift.
That anyone may have expected.
And that will push LTL Tan.
Which is probably about two two and a half to three years away I mean, it pushes that out as well.
So I.
I mean that obviously has a concern.
And increasingly we'd been designing our business I think this quarter is a great example, where we're not dependent on.
That's true.
Trust fund, we're not dependent on that royalty.
So we are increasingly designing the business that we can meet all our revenue objectives, all of our margins and earnings objectives on our own steam and increasingly looking at the royalty as outside.
As you know we have gone through the losses between Sony in Fuji and now the delays and all the knock on effects you know, we have really changed our thinking.
Two years ago, where it was something we were really highly dependent upon and as you've seen we've had record lows in the royalty we've been having record highs in our margins and it just shows you know our management teams.
Strength.
Oh, how we're running the business and just to break that.
Reliance on something that we just don't control. So in our models, we kept it very conservative of what our expectations are on the royalty and Mike I don't know if you have further comments.
Yeah, I would I agree with with everything that you have outlined JV and when we look at our run rate you.
You know the last couple of quarters, its been 3 million and change, but we would be between three and 4 million in the foreseeable future unless something changes significantly that's about where we would expect to be okay.
Okay, and then maybe just one one last one for me and maybe it's just a observation.
Tension confirmation by you guys. So Mike you spoke about.
It sounds like decently better than a normal seasonality in the fourth quarter, the march quarter, and potentially even being up sequentially from the December quarter, which would be very good but I.
I mean, if if if were talking that type of momentum directionally.
I mean, we we cross back into year over year revenue growth, but but most importantly product revenue growth.
I mean, it it has to move back into the kind of mid to upper teens to to kind of have that type of.
You know directional revenue progress is is that a fair assessment.
Yeah, I mean, it's when you when you do the math and you understand that the royalty is lower right.
The service business.
You know is more or less is starting to level off and we're working really hard to increase that and take it off the golden glide that we've seen over the over the recent past.
To continue to move north into two bucked the trend of the seasonality that typically if the Q4, there's lower you know that's a that's a strong statement as far as how well our products are doing.
And.
Part of that of course is we're just getting back to.
Our historical levels right, we're still climbing out of coming off the low at the June quarter due to cold so.
So part of it is what caused him back out but everything else that we've been doing to introduce new products go into new markets go leverage or geography.
You know it all starts to come together as good as we can put more and more of the code that impact behind us.
Sounds good thanks much.
Okay.
Well take our next question from Eric Martinuzzi with Lake Street. Please go ahead.
Regarding the operating expense expectation for the December quarter.
Keep a lid on expenses the sales and marketing wise, but you are investing R&D, what should we be planning for as far as your operating expenses for December comparison to September.
Yeah, I would I would say that you know well continue to work to optimize that I mean to the primary areas in general I wouldnt be facilities and lucky in that you know understanding how we can better utilize their remote.
<unk> activity that we have to do this pandemic time kind of lean leads us to be more efficient on the facilities, which takes more time to do that type of a.
Restructuring, but that's definitely a.
Will allow us to be more efficient on Opex and then always the continued move too.
Ah add people and grow our resources and more cost efficient areas.
And to say it another way Bob to increase it and higher cost areas. So we'll continue that trend as well, but if you were to look at it by function you know the DNA should be staying flat or you will see sales and marketing go up because as our revenues go up you know what are their biggest variable costs is on the commission side.
So I would expect sales and marketing to increase as our revenues increase and then R&D. You know you won't see that go down and you'll probably see a gradually go up just because it's so important for us to maintain the innovation and keep.
Keep moving new products out.
Okay. That's helpful.
When you talk about the business, where hey.
That was great and that was offset by coated and then.
Clearly the coda related impacts to other vertical markets, specifically talked about media and entertainment are there other verticals that are kind of on the wrong side of Acacia its recovery.
It's emoney that you're talking about.
I mean, it Anthony is the most obvious and you know the one that we are most known in.
I I think.
It varies I mean it it varies you know it's not like we have a heavy business in hotel and and airline but.
What we are doing it.
It.
It's more intentional.
And that we've gone out and studied.
Who on the top side and the K.
He is growing very quickly.
And has a lot of unstructured data.
He's in a geography, that's expanding quickly.
And.
Need the products the kind we have.
And we are redeploying to those verticals. So those are online retail.
60 online retail that has a lot of videos and if you look at like home improvement site, there's huge amounts of video.
It also includes.
Social media and has a large amount of video and photography.
It includes.
Over the top video providers.
Video broadcasters and life science.
Research and drug development Ah genomic research. So we have been identifying the industries that are on the top of the K that use a lot of unstructured data unstructured data that needs very high speed processing as well as needs to be archived for many years.
Autonomous vehicle makers also fit into that category.
Category and have been deploying our resources into those areas and they are.
While I don't expect media and entertainment to recover over the next.
You know three or four quarters, it'll be probably depressed for another year.
I expect that to be completely offset by these other areas that were entering and and all the data on seeing is supporting that.
[laughter], where you can think of it as we're just adjusting to a new normal.
Okay.
That's certainly captured them yet.
Just a clarification on the share count Mike you talked about if we had had positive.
Net income would have been roughly 8 million shares of dilution is that to say then you know based on your guidance for Q3 or whatever kind of popping around breakeven.
Break even on the adjusted.
That was to be a million plus or minus a million that if were positive then use at 48.3 or should we be modeling.
Creep in there alongside the 48.3.
Mike you may be on mute.
Sorry that was I just gave you a wonderful answer.
[laughter] [laughter] almost part it [laughter] I was going to say you know it's it's the conundrum you face a when you're close to breakeven you're you know a little bit profitable a little bit of a loss and it's just a different it it'll be a different share count depending on which side you end up right. If your loss.
Don't bring in the dilutive securities.
Using the Treasury stock method, if your profit you do.
But it's all it's kind of splitting hairs, because you're talking about a penny one way or the other right, but it's just you know the difference between you know.
What number you used for a gain of what number you lose use for a loss.
Okay, and then obviously.
Sure.
Okay, well that covers it for me thanks.
Okay. Thanks, Eric.
We'll take our next question from David Duley with Steelhead Securities. Please go ahead.
Yeah, Thanks for taking my questions and congratulations on the revenue recovery.
I guess first question for Mike you talked about how Hyperscale revenue I guess will be flat this fiscal year versus last fiscal year.
It is not a calendar number and could you help us understand what exactly hyperscale now than it was last year.
Yeah sure I mean, it is the fiscal year or fiscal.
Fiscal year over fiscal year, and we don't breakout you know when we look at revenue by verticals or by customer or we just we don't break that level of information out.
Okay.
And then.
Then I guess you portrayed having a couple new hyperscale customers in the fold now that are starting their volume ramps of moving stuff into production.
Talk about how the opportunity with these two other folks are aren't nearly as big as your initial customer for an assortment of reasons I got some dual sourcing and whatnot, but.
But over time you know once these two new customers ramp up what do you think is kind of the.
Camera opportunity for per large customer or any sort of metrics you can help us understand.
What your qualitative comments into an actual revenue figure going forward.
[noise] well again.
We don't talk.
Talk about individual customers, Dave not to not because I don't want to answer your question, but what I did mention in the prepared remarks was we would expect it could take years for these guys to build up to the same level that we've seen from our legacy customer.
So it's definitely going to be something that will be gradual overtime and it's just very difficult to predict.
It's just on a standalone basis are predicting one customer is difficult.
And these guys will just wrap up overtime.
And you know will it be bigger will be smaller it's just it's just very difficult if not impossible to predict.
Okay.
No I guess you have a new product coming in 30 days he mentioned.
I guess, it's my passion and just listen to what you guys thought about this this is kind of.
Scaled down Hyperscale product for the enterprise.
And just help me understand you know, there's an awful lot of fortune 500 companies. Many more than you know the 10 or 12, hyperscale worldwide, but how big of an opportunity to market do you think this could ultimately be for you guys.
Well, we are well.
We're introducing multiple products.
On the 13th.
And multiple enhancements to existing products.
And the town is.
I would just say it is.
Much larger.
Then what we do today.
You know we in the analyst day, we talked about potential towns but.
But I would say this is a.
Order of magnitude increase of the aperture of our Tam.
This is a 10 x.
Widening of the Tam from kind of.
Traditional tape Hyperscaler tape and media and entertainment. This is a enterprise wide.
Hi.
Hybrid and multi cloud storage class.
So this is it's irrelevant to cloud storage, it's relevant to on premise, it's relevant to again hybrid and it's relevant to any enterprise that's managing a large amount of unstructured data and I would say.
As opposed to 10 years ago, I think almost every major company today has.
Hi to buy or larger.
Our you know not just archives, but at collections.
Of unstructured data.
And you know that is what we're trying to act.
Expand into and we're starting that on the 13th it'll take a you know it's a multi year journey, but we're coming at it pretty aggressively and there'll be a lot more product details I don't want to scoop those product details now, but in 13 days it's.
It's not just one product were announcing.
[noise] final one from me you made some commentary about the March quarter, not see seasonality like you typically might Ah that's completely understandable, given you're coming off a trough with the coated [noise].
But I'm just kind of try to pin you down a little bit more <unk> do you think that means that revenue can be flat or up or will it just people down less than it normally would be.
Yeah.
The purpose of providing that guidance was to help everyone understand that you know what we typically see we don't expect so you know that at the very least you know what we're saying is it should be flat.
But you know the visibility is just very difficult at this time.
And [laughter] cool.
It will decline in the March quarter for you guys over whatever period of time that you think is relevant for.
For us to measure this progress against.
Sorry could you repeat that I'm not quite sure I understand yeah.
Exactly the March quarter is down sequentially versus the December quarter, what is the typical seasonal pattern of decline in the March quarter versus the December quarter.
Yeah, I want to say that it was.
Probably high high single digits, low double digits and that range, but it doesn't always follow that for different reasons.
Normal seasonal.
Okay.
It's an average number thank you very much and congratulations on nice results.
Thanks, Dave.
Our next question will return to Craig Ellis with B. Riley Securities. Please go ahead Sir.
Yeah. Thanks for taking the follow up question, Jamie I wanted to I go back to about to the analyst day in and kind of ask a question related to that but also with the product announcements that's coming up in early November so not to put the cart before the horse, but beyond what is going to be a very significant software now announcement.
What are some of the things that investors should have their eye on.
Over the next three to six months that are milestones that showed that the quantum is on track with the transformation you identified at analyst day.
It may be.
Longer than three to six months.
But at some point.
In the transformation, Mike will begin talking about the company.
Using different metrics.
And they will be the metrics of a software company and the metrics of the recurring cloud software company.
Oh, you don't hear us typically talking about a R.R.
Right you don't typically hear us talk about TCV and RPL.
And I think.
Your shoes, and we you know we do not know yet and we're working very closely with our customers.
As we roll out this new business model.
And we have to gather metrics, we're into a rating, we're getting feedback and and integrating and getting more feedback and making adjustments where.
We're very Mike's doing this rollout hand in glove with our customers.
And as it become significant.
We'll begin talking about it again using these new metrics new measurements, New guide posts and I think when might roll those out into when their earnings call will be the first sign post that.
You know what the numbers are significant and were starting to.
Share them with the investment community and I think that maybe longer than three to six months, but I don't think thats longer than a year.
That's helpful on that Mike.
With the upcoming software release.
It will be offered via subscription model does that mean.
I mean that we'll be looking at deferred revenue and if so how is that incorporated into the guidance that was provided poor I think it was 93 million in midpoint revenue for the quarter.
Yeah.
I mean, what do we look at our business in the near term or the expected financial impact is very minimal from the new products.
So I would say that it wasn't much of an impact and what we'd looked at next quarter.
Got it, but but six to 12 months from now it should be a much more significant impact.
Yes, bad and other things like storage as a service okay got it okay gentlemen, thank you very much.
Ladies and gentlemen that will conclude our question and answer session. Okay. I'll now turn the floor back over to Mr. learner.
All right well thanks, everyone. I know, we are executing a profound how pervasive and somewhat rapid.
Transformation and I think it.
Only appropriate given the time that we're using this crisis to accelerate our transformation and we will be.
Be working as hard as we can to get you guys.
The most up to date information the most up to date metrics as we go through this so hopefully on the next time, we'll talk we'll be on the 13th and then again at our next call. So thanks, everyone for joining.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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