Q4 2021 Quantum Corp Earnings Call
Yeah.
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss Quantum's financial results for the fourth quarter and full year results for fiscal year 2021. At this time all participants are in a listen only mode. A question and answer session will follow the formal.
And if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to Lee and Sievers with Shelton group.
Good afternoon, and thank you for joining today's conference call to discuss Quantum's fourth quarter and full year fiscal 2021 financial results and Leanne Sievers President of Shelton Group Quantum's Investor Relations firm joining me today are Jamie Lerner, Chairman and CEO and Mike Dodson CFO.
Afternoon, we issued a press release, which you can access the copy on Quantum's website at Www dot quantum dot com under the Investor Relations section. There is also a slide presentation that will be using in conjunction with today's call that may be accessed through the webcast link on the IR website and is also posted as a PDF in the Investor Relations section.
As a reminder comments made during today's conference call May include forward looking statements all statements other than statements of historical fact could be deemed as forward looking quantum advises caution and reliance on forward looking statements. These statements include without limitation any projections of revenue margin expenses adjusted EBITDA adjusted net income.
Cash flows or other financial items any statements concerning the expected development performance and market share or competitive performance relating to products or services.
Forward looking statements 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 statements, including unexpected changes and the company's business.
More detailed information about these risk factors and additional risk factors are set forth and quantum's periodic filings with the securities and exchange Commission, including but not limited to those risks and uncertainties listed in the section entitled Risk factors and Quantum's quarterly report on form 10-Q, and annual report on form 10-K as filed with the SEC 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 required by applicable law. Additionally, the company's press release and management statements. During this conference call will include discussions of certain measures and financial information and GAAP and non-GAAP terms included in the company's press release our definition.
And reconciliations of GAAP to non-GAAP items, which provide additional details for those of you unable to listen to the entire call. At this time, a recording will be available for at least 90 days and the Investor Relations section of Quantum's website, now I'd like to turn I'll call over to chairman and CEO, Jamie Lerner Jamie. Please go ahead.
Thank you Julian and thank you all for joining us on today's call earlier today, we announced results for our fourth quarter and fiscal year 2021, with both adjusted net income and earnings per share exceeding our guidance.
Strong demand led to our third consecutive quarter of increasing customer orders, allowing us to finish the year with a material increase and bookings while demonstrating early traction on our software and subscription contracts.
As we announced it and our earnings press release, the industry wide supply chain shortages impacted our ability to fulfill all customer orders.
Without these challenges late in the quarter, we would've been able to exceed our prior revenue guidance.
And this dynamic we are entering the first fiscal quarter with a significant backlog.
We expect customer demand to remain strong and we are working closely with our suppliers to manage through these temporary shortages.
Fiscal year 2021 posed numerous challenges for companies around the globe due to the pandemic, yes, we made significant progress in transforming quantum.
We made notable progress on our transition from selling point products to solving business challenges with a broader set of solutions and services.
During fiscal 2021, we closed a record number of $500000 plus deals and saw new customers buy more services versus the prior year.
In addition, we introduced subscription licensing for many of our products and November and now have over 120 customers on the recurring revenue subscription also and earlier February.
We completed and accretive $100 million secondary offering using the proceeds to reduce our senior secured term loan by 50% and materially strengthening our balance sheet and cash position, while reducing our interest expense.
Over the past year, we have also made tremendous progress architecturally per.
Moving that store and X 7 is the fastest file system for video workloads verified through independent testing.
During the quarter, we introduced our software defined architecture, enabling store and ex software to run on standardized hardware or any cloud infrastructure.
We are entering the fiscal year with more momentum and our hyper scale our business.
As of today, we have multiple engagements across many of the world's major hyperscale customers and are in various stages of evaluation with others.
And our engagement is deeper than just serving point product or software solution needs and.
As quantum as engineering teams have become and integrated partner to these hyperscale, our customers, allowing us to develop new technologies and solutions in tandem with the largest global consumers of data.
Quantum has set the standard for architectural leadership.
In Hyperscale deep archive and cold storage.
And we are years ahead of the competition in this space.
Our hyperscale customers are demonstrating this with an increased volume of orders as well as working with us to provide better visibility into their out quarter demand as we work through industry wide supply chain constraints.
We see our engagement with leading hyperscale customers as an advantage to constantly push quantum to accelerate the innovation of technology, which allows us to not only expand our architectural leadership book create exciting new solutions and software that can be replicated for leading web scale and fortune.
500 enterprise customers facing the same exit by its scale data challenges.
As the economy moves into post pandemic era customer and demand for video is accelerating.
Movies, TV and sports.
<unk> begun to return and are driving big investments in technology and content delivery shifts from TV and theaters to streaming services.
Video has expanded as a communication platform and the enterprise overtaking email.
And corporate video recording editing and communications is in expansion mode.
Genomic research driven by the dynamics of requiring effective COVID-19 vaccines and therapeutics development is in strong growth mode, along with life Sciences and bioinformatics.
Space exploration satellite and advanced satellite Tech is also driving massive growth and large sized data storage requirements.
Finally, as the world moves toward a more autonomous everything not just driving but delivery forklifts farming mining warehouses. These technologies are driving significant data growth used to develop complex machine learning models.
As we all experience on an everyday basis. The world is generating enormous amounts of data and video content and must be managed protected and analyzed.
Quantum portfolio is ideally suited to address these challenges.
Our solutions enable organizations to manage and store the increased flow of data both on premise and in the cloud.
We're helping to protect valuable digital edge assets, not just for years, but decades and centuries, while enabling organizations to unlock the untapped potential.
And business value in this data to our storage and data analytic solutions.
As we look to the coming quarters, we remain focused on driving our transformational initiatives forward and growing our recurring revenue and services revenue.
Our products and software solutions are helping global customers solve their most challenging needs for long term data storage and analytics.
And while supply shortages have limited our ability to fulfill all the demand we're seeing and the near term. We expect this revenue to flow into the coming quarters as the supply chain normalizes and component manufacturing is able to catch up to the demand.
I remain encouraged by the progress we've made over the past year and look forward to further accelerating our transformation throughout fiscal 2022.
With that I'd like to turn the call over to Mike Dodson, our CFO to discuss the financials Mike.
Thank you Jamie welcome to everyone, who has joined our call today.
As Jamie mentioned in his opening comments, our fourth fiscal quarter 2021 demonstrated very strong customer demand, representing the third consecutive increase and bookings with customer demand returning to pre COVID-19 levels. However, the industry wide supply chain shortages that materialized late in the quarter.
Restricted our ability to fulfill orders and.
As a result of these supply chain constraints revenue was $92.4 million for the fourth fiscal quarter of 2021.
These supply shortages have the most prominent impact on our secondary storage system customers. Despite this lower revenue level all product segments grew sequentially with the exception of our primary storage systems, which declined sequentially predominantly due to seasonality and the government business.
For the full year of fiscal year 2021 revenues were $349.6 million down 13, 2% year over year, primarily reflecting the COVID-19 related headwinds impacting all geographies and product lines.
On a vertical view year over year, the government business increased by 32%.
While the media and entertainment business declined by 36% with all other verticals declining to a lesser extent.
Gross margin in the fourth fiscal quarter was 42, 1% compared to 43, 1% and the prior quarter.
The sequential decline is primarily due to lower government business revenues, which carry higher gross margin.
Year over year gross margin improved slightly to 43, 1% compared to 42, 8% and the prior year.
GAAP operating expenses and the fourth quarter were $36.6 million compared to $36.2 million and the prior quarter.
Non-GAAP operating expenses during the fourth fiscal quarter were $32 million.
Decrease of $1.7 million sequentially.
Sequential decrease and non-GAAP operating expenses was primarily due to higher R&D expenses more than offset by lower G&A expenses.
The increase and research and development spending was due to increased head count primarily related to a business acquisition and professional services costs related to new product development.
The decrease in general and administrative expense spending.
Was primarily reduced compensation costs and other discretionary cost savings.
On a year over year basis, GAAP operating expenses were $142.4 million compared to $151.3 million and the prior year.
The non-GAAP operating expenses of $127.3 million and fiscal year 2021 was a $3.8 million decrease versus prior year at $131.1.
And the euro year over year changes and non-GAAP operating expenses represent additional investment levels and research and development more than offset by decreases in sales and marketing and general and administrative costs and the decrease in sales and marketing costs was primarily due to lower compensation.
And as a result of lower sales levels and.
Kris and marketing programs and related professional services costs.
The decrease in general and administrative costs is primarily due to expense reduction actions and which we moved certain back office functions and higher cost regions to a lower cost region and reduce facilities expenses as we consolidate our physical footprint.
Partially offset by increases to software expense as we modernize our existing infrastructure.
Infrastructure.
GAAP net loss and the force for the <unk> quarter was $17.5 million or a loss of 35 per share.
Per to a net loss of $2.7 million or a loss of <unk> <unk> per share and the prior fiscal quarter.
Our fourth quarter GAAP results included a debt extinguishment charge of $14.8 million related to the retirement of 50% of our senior secured term loan.
Excluding stock compensation and restructuring charges and nonrecurring charges non-GAAP adjusted net income and the fourth fiscal quarter was $2.1 million or <unk> <unk> per share compared to adjusted net income of 10000 or breakeven and the prior quarter.
Adjusted EBITDA during the fourth fiscal quarter was $8.3 million and decrease on a sequential basis from $9.4 million, primarily due to lower revenue.
There is a full reconciliation of our non-GAAP results to the most directly comparable GAAP measure and both the press release and the form 10-K released today.
Now turning to the balance sheet liquidity and cash flows cash.
Cash and cash equivalents were $33.1 million as of March 31, 2021.
Compared to $12.7 million on December 31, 2020.
These balances include $5 million and restricted cash under the credit agreements.
Adjusted working capital, excluding deferred revenue balances decreased by $10.9 million during the fourth fiscal quarter to $55.8 million from $66.7 million at the end of the prior fiscal quarter.
This decrease was primarily the result of the buildup of accounts receivable, despite lower revenues due to a more backend loaded shipping schedule for the quarter more than offset by reduced inventory balances from moving certain product manufacturing to a new manufacturing partner carriers that related inventory and and <unk>.
Kris and accounts payable.
Outstanding term debt as of March 31, 2021, and our gross basis was $102.5 million and then net net basis was $90.9 million after netting $9.7 million and unamortized debt issuance costs and $1.9 million and current portion of long.
Term debt.
This compares to $167.8 million of outstanding debt as of December 31, 2020 on a gross basis and on a net basis. It was $146.8 million after netting and $13.7 million and under.
Amortized debt issuance costs, and $7.3 million and current portion of long term debt.
Related to the long term debt credit facilities.
And it remains a holiday period for certain financial covenants through June 30 of 2021.
Following the exploration of the expensive make whole repayment term of the debt agreement at the end of the first fiscal quarter of 2022, we expect to refinance the remaining balance of our senior secured term loan early and the second fiscal quarter.
And much more favorable rates compared to the 12% paid today this share.
And further reduce our annualized interest expense by as much as 50% once completed.
And the fourth fiscal quarter, there were no funds drawn on the company's credit line compared to $6 million at the end of the prior quarter.
During the fourth quarter.
Before the effect from changes in assets and liabilities cash used was $1.4 million offset by $20.9 million of cash generated by changes in working capital accounts.
Other uses of cash during the fourth quarter included $92.8 million to pay down half of our senior secured term loan as well as $2.3 million for capital expenditures.
Cash flows generated from operations for fiscal year 2021, before the effect of changes and assets and liabilities was $2.9 million net.
Net cash from operating activities and fiscal year 2021 include use of cash equaled $2.8 million as working capital was impacted by a decrease in inventories and an increase in accounts payable.
Partially offset by an increase in accounts receivable.
Other notable uses of cash and fiscal 2021 were $6.9 million and capital expenditures and the pay down of our senior secured term loan as previously noted.
Finally, turning to our financial outlook.
And as we disclosed in today's press release, we've experienced 3 quarters of increasing broad based customer demand.
And we expect continued strength and demand and related customer orders at or above pre COVID-19 levels and the first fiscal quarter of 2022.
Given the widespread supply chain shortages and the fourth quarter, we enter the first fiscal quarter of 2022 with a sizable backlog.
We continue to manage through the supply chain constraints by working closely with our key suppliers and extending supply commitments as we address these short term challenges as a result, we are guiding revenue for the first fiscal quarter of 2022 to be and the range of $92 million plus.
Or minus $3 million.
Non-GAAP adjusted net loss is expected to be $1 million, plus or minus $1 million.
Adjusted net loss per share of 1 penny per share plus or -1 penny and adjusted EBITDA of $5 million plus or minus $1 million.
Despite these near term supply chain constraints, we expect strong demand to continue throughout the coming fiscal year further supported by an expanding pipeline of opportunities across our business.
Though we remain cautious regarding the timing as to the normalization of the supply chain.
We continue to work closely with our key suppliers as I previously mentioned as such we expect revenue for the full fiscal year 2022 to be in a range of $380 million to $420 million does.
Determined by the timing of supply chain improvements.
With that I'll turn the call back to Jamie for closing comments Jamie.
Thanks, Mike.
As I reflect on the last year I'm very proud of the quantum team for how far we've come we've.
Great and exceptional resilience during this global pandemic and I want to acknowledge our employees and their families and many of whom are faced incredible challenges during the last year.
It has been a unique year for everyone, including quantum but even in the face of these challenges brought on from the pandemic, we are still making substantial progress on our transformation initiatives throughout the year. In addition during fiscal 2021, we made significant improvements on our capital structure.
Share, which enabled us to reduce debt and strengthen our cash position and improve our operating flexibility to support our growth initiatives, both organically and inorganically.
We are starting the new fiscal year with strong product bookings and increasing momentum and subscription and software and contracts.
We're working closely with our suppliers to address the supply constraints remain pleased with the increased level of demand, we're seeing and a post pandemic world.
With an expanded portfolio of solutions and a solid balance sheet, we are much better positioned than in previous years to withstand the short term supply chain disruptions and we are poised for a return to growth with increasing demand and orders across our business.
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 have any questions or comments. Please press star 1 on your phone now.
We ask that we're posing your question you. Please pick up your handset if lets me on speaker phone to provide optimum sound quality. Please hold them on the only poll for questions.
Your first question is coming from Craig Ellis.
Your line is live.
Yes, thanks for taking the question guys and congratulations on the demand profile back at pre Covid levels, Mike I wanted to start off just by understanding the nature of the component issues that you and Jamie spoke to so 1 you identified that they started to emerge late quarter can you provide some color on on what.
And it's they were we've seen tightness in hdds and Ssds, but I think you said there was more of an impact on the secondary business and and that doesn't sounds like H D D or SST.
So if you could just give some more color on what's at play there.
And the extent to which those issues are either stabilizing and starting to get better or may be intensifying further.
And that would help as well as a start on that issue.
Sure Craig.
It was like we mentioned on the call.
There was and the secondary area, which is our <unk> business right and we don't like to get into and to a lot of specifics as far as the suppliers, but it's really specialized silicon that is really for us. It's a pretty short lead time, so it really surprised us at the end of the quarter.
And from that standpoint, that's something we expect.
Work its way out hopefully in the next 1 or 2 quarters, but it <unk>.
It's difficult to tell at this time.
Okay, and then that really relates to the second question. So nice to get the color on how youre looking at and <unk>.
Fiscal 'twenty 2 with that.
Range of $380 million to $420 million off of the.
The guidance for the first fiscal quarter.
So and I think that could imply something like $96 million a quarter at the high end.
As much as $109 million a quarter how quickly do you think you can get things resolved. It seems like the business has a demand profile. That's at least 105 to 106 million, but but how quickly can can the supply chain respond to the demand that you have been and can provide any color on.
And how that.
And that nice high level backlog is shaking out either amongst the primary business the secondary business or maybe surfaces.
Yes, I think it will.
Be fair to characterize it and.
And a way that.
When we start to get the supply back it will come back very quickly.
It's a matter of we've got the demand we get the component and we'll catch up very quickly.
And of that nature.
Hey, Craig its Jamie.
The way, Mike and I have been here have been thinking about it is.
We when we think about the range of $3.80 to $4.20 for the year.
We're confident we have the demand to meet the $4.20 or above.
I will have signed contracts purchase orders at the $4.20 or above level and the determining factor of where were land between the 380 and the 420 is not a function of.
Demand for sales performance is purely a function of material availability.
So if materials are available and we're at the high end of that range. If materials are not available or at the lower end of the range and net these industry wide supply issues resolve themselves, which many people are thinking.
And we'll resolve within 12 months, which is within our fiscal year and I think all the backlog flows through we've never.
We've never given backlog guidance because the companies usually when we sell something we ship it within 2 weeks. So we've never really had a backlog of any sizable nature and now we're seeing backlogs that are.
10% to 15% of our quarter is going into backlog.
And really it's now becoming a function of.
The ability for that backlog to flow through and we will.
And that flow through and the year and while the supply chain constraints resolved within the year.
Yes, that's really helpful, Jamie and if I could ask 1 more before jumping back and the Q. You mentioned you have I think it was 120 customers that.
And that have signed up for subscription services and I just wanted to use that as a segue.
Way to get some feedback on how the latest version of <unk>..7 is doing what are you hearing back now that you've got a cat DB product that's out there that more customers can have access to under the quantum umbrella and any of the other.
New or recently refreshed product developments, how are they resonating with with clients.
Yeah.
We have.
Basically and then entirely refreshed portfolio.
Every product we have has a new version out so what store and X 7.
We've made it drastically easier to use and we now have it virtualized and containerized on the H 4000, So it's a.
Effectively a cloud architecture. So it can now run on Amazon and other clouds and it's available on subscription it's.
Monitor bowl and manageable from the cloud and we set the <unk>.
Worldwide speed record for reading and writing video files.
And.
That coupled with the return of media and entertainment and the strength and genomic research autonomous vehicles.
And the product's doing really well.
And <unk>.
And it brings with it or other products because increasingly we're selling the products as a suite.
And for many years quantum sold point products and you bought a tape product you bought a backup product.
And now we're sitting with some on and saying sitting with our customers and saying.
We want to help you solve all of your storage problems, whether they'd be surveillance related backup related high performance analytics related.
And we're really competing with our suite more than a point product and I really think that's how we're going to move.
Move our company to a totally different class of competition over the next several years, where we really bring our whole storage portfolio forward.
And so that's cap Dv just strengthens at right we have a high attach rate from store next to Cat D.
We have a higher attach rate from store next to tape and store and extra backup products and we're increasingly selling and designing our products to sell them as a suite of products, where a combination of products versus single point products.
And Thats really helpful. Thanks, Scott and I'll hop back in the queue.
Your next question is coming from George ironic.
Your line is live.
Hi, Thank you for taking my question.
Jamie maybe just following up on your previous comments about the sales motion can you give us a sense of how far along are you with that shift from <unk>.
Selling to solution selling.
And I've.
And I've already seen a nice step up and average selling price I think it was 21% year over year and.
Do you feel like there is a lot of room to continue to grow both large deals and then the overall breadth of the customer base.
Yeah.
And so there is a large amount of headroom for us.
And really what we're doing is.
We're increasingly shipping our products as solution combinations.
So a good example is.
Well, we have a forthcoming product that is a combination of cat D V and store and ask that their bundled together in a virtualized fashion, we have upcoming products that will be.
Object storage using cold storage technology, so <unk>.
Combining.
Multiple products together to solve a business problem.
So we'll be doing many more solutions of that kind of think of it as a genomics solution and genomic sequencing infrastructure, a movie, making infrastructure and autonomous vehicle development infrastructure versus how many terabytes of storage Tijuana.
So we're doing more.
More solutions, and we're doing more surveillance related solutions as well.
And.
I think that allows us to increase the average selling price and it allows us to compete more effectively many of our competitors just have a point product and we come forward with a full solution. We just have a much stronger position. So I think we're getting much more competitive I think we're getting more relevant with our customers.
And I think the solutions, we sell are much stickier than the point products. We previously sold and that's why we're in this situation where the sales team so well above the range, we gave last quarter they were.
They were there and accelerators they are selling above our guidance levels and really we're throttled by material availability, which as we all know it eventually clears up and flow through.
But what I'm most.
And <unk> by is the sales team.
Beating plan selling above.
Our guidance range and building the meaningful backlog and I think thats happening.
Some of that is COVID-19 recovery, but I think we all know Europe isn't fully recover to Asia isn't fully recovered a lot of us at being at or above pre COVID-19 levels as the increased relevance of the products and the larger average selling size of our solution approach.
Thank you for that and maybe pivoting a little bit and just focusing on the primary storage.
What type of attach rates are you seeing there and how big do you think that business can get over the let's say the next 12 months.
And within your annual guidance, how much of that.
Positive.
Lever is that.
Yes, I mean.
A lot of our success our forward success and primary storage is becoming relevant outside of our traditional.
Core strength.
Store and AXT is considered to be the industry standard for post production and movies and TV and we have a lot of that market certainly the high end of that market.
So for us to expand we have to become irrelevant elsewhere.
That would be genomic sequencing medical imaging autonomous vehicle development and.
Enterprise and corporate use cases corporate video.
But other forms of unstructured data and that does take us into some new competitors.
But I think that's really where we see our growth is can we begin to take our primary products, which are really storr and <unk> and Etfs.
And begin to sell them into use cases outside of.
Media and entertainment.
And we've.
We're seeing a lot of positive traction there, but we have a long way to go and I think.
Our roadmaps are getting us there and in terms of making the product easier, making the products have different.
Sizes, particularly as we get more software defined and get more cloud enabled it'll bring us into more use cases than we and we.
And we've traditionally served and media and entertainment so it's really about.
Can we be relevant and new vertical markets.
Yeah.
And Mike just a quick question for you on the gross margin side, it sounds like mix and had the biggest impact on the quarter, but with the supply chain constraints and.
Can you give us a kind of a sense for the risk reward outlet core gross margin over the next couple of quarters.
Yes, I think when we look at our gross margins the mix is important.
So when we get into quarters for example, where the government is strong which is our Q3 and.
Q2.
And that will be beneficial as we move to the.
Software subscription.
Obviously, that's a better margin.
The transformation, we will we do expect to see the margin move north as we move forward, but it's going to be gradual.
And the the supply shortages that we see we don't see that having a significant impact on our gross margins.
From that standpoint.
Thank you.
Okay.
Your next question is coming from Neal Chomsky.
Your line is live.
Thank you.
And that's on the thing and order book consistent with pre Covid levels and full order book to continue to increase.
That's great.
And I do actually see a strong free cash flow generation, and a quarter and a drawdown in inventory and the quarter and so.
And the explanation that you saw.
And the shortages definitely makes sense.
However.
And 1 little Bridgeville wanted to clarify here the days inventory heading into March <unk> and about 90 days.
And was $13 million above year ago levels. So it seems like you guys would've had some buffer and deploy for at least this quarter can you just explain what's the missing link here.
Okay.
Yes, I think there is there is offsetting factors.
First as we've talked about on.
On the call we have moved inventory.
The balance sheet to a contract manufacturer so that reduced our inventory offsetting that was with the shortages because it's a component shortage. We had essentially pull units manufactured weighting toward these components to be added right. So there was offsetting factors.
And the inventory that was moved to the contract manufacturer was that.
Finished goods or was that components and then.
It would have been finished goods.
Okay.
Again, I would like and it to automobile makers, who are building full of cars, but can't ship them because theyre missing some chips, we're building for tape arrays.
And the components, we need to.
Last small chips, we need didn't arrive.
Okay. So that that's waiting for those components to ship them, so and may be counterintuitive to be.
Supply constrained, but building up inventory and Thats were building full units to ship, but they are waiting on.
Final component to be able to ship.
And are these basically the asics are the controllers behind the police or is it something else.
Yeah.
And I'd rather not.
Get into with suppliers and suppliers of what they are chips that are integral to the operation of the.
And later tape system. So thats why were seeing this maybe before other folks are seeing it because it's very tape specific and it's very.
And the very short term product.
So.
It hits supply chain and comes to us and a very short cycle.
Got you understood.
By the way is backlog typically reported and your 10-K.
No we.
We've always like I said, we sell and CFO a week or 2 later, so we've never really run backlog or had a backlog that was cigna.
Significant.
And now for the first time.
Have significant backlogs.
And again, if it continues we'll probably provide more and more clarity, but I would.
I would go to this point, we gave guidance for this quarter of 98, plus or -3 so the high and the range was.
100, and 101, we were.
Millions of dollars above that in our sales execution. So we are beating our range and sales achievement.
And that's what I'm, most encouraged about right, where we're executing we're getting our deals done the products are resonating and we've got to deal with this.
But I hope is a short term supply constraint and some of these <unk>.
Specialized chips for <unk> systems.
Okay, great and.
It sounds like you would expect given the guidance that you are providing and the commentary that you expect demand to be above pre COVID-19 levels. Then that you would expect backlog to increase and the June quarter as well.
Yes, slightly yes.
Yes.
If supply doesn't clear, which you probably won't will be building backlog.
Okay great.
And then a nice little a metric that you've given on the software and subscription customers and in the quarter can you give us some context on how that compares to the prior quarter and then maybe percentage of customers that transactions relate with overall.
And maybe also a percentage of the overall customer base.
Represents.
Yes, and we have.
Over 18.19000 customers so hunter.
120 as a percentage.
And it's still not.
Meaningful, but it is growing incredibly fast right I mean in December we had zero.
Near zero. So we are over a pretty short period of time moving this direction quickly.
I think it'll continue to increase at this pace and we'll be moving more of our products to this model.
So we did our first wave, but all of our new product introductions everything going forward is moving more to a subscription Ora and tire service based model and our new comp plan. This year is is waiting that even more for our sellers to get pushed out there and the economics to our end customers are.
Or incentivizing them increasingly to go to service or recurring model. So I expect it to accelerate.
We went from zero to $1.20 and.
For 4.5 months and I think.
And that'll that'll just continue to go up I hope to exit the year at well over 1000.
Fantastic. Thank you very much yet.
Your next question is coming from Nick <unk>.
Your line is live.
This is Nick mariachi on for Chad Bennett, Thanks for taking our questions.
Just had a question on the royalty business I'm curious about what your perspective is on the timeline for the rollout of LTE O 9 and I guess are you seeing any pent up demand for this new generation or if demand is still strong for the prior generations and then maybe if you could just talk about expectations for royalty revenue this year relative to the past year.
Yes, I'll talk to the.
Roadmap and Mike and cover the kind of how we model the royalty.
I do expect.
A surge and demand up when <unk> is available I think there are people running <unk>, 7 and and MAA format that don't have a lot of incentive to upgrade to LTE and 8 but have a lot of incentive to go to LTE and 9.
Right now that is supposed to be and I havent heard otherwise and that is a.
Early fall release.
And I would expect a lot of customers to either refresh and upgrade our move to that.
And that architecture, so I would expect that to increase demand and obviously the newer generations drive royalty as well.
So and we do have customers that are giving us demand signals now that they are waiting for that and are going to be drawing heavily on that you could imagine hyper scalar is they really they want.
The greatest density that they can possibly achieve so you can imagine a lot of people are are going to be moving to that as quickly as possible. So I think it's positive for the library business I think it's positive for refreshes and upgrades and I think it's positive for the royalty and it is running late.
But everything I've heard is it's now settling in on a.
September October.
<unk> timeframe.
Yeah.
And as far as our expectation I mean, our run rate is running between 4 and 5 right now per quarter and it's a.
Little bit lower than it was the previous year, and we would expect that to remain pretty constant and.
And this coming year, so that's that's where it should be coming out.
Got it thank you.
And.
Thanks.
Your next question is coming from Eric Martin Newsy.
Your line is live.
And I had a question on the supply chain issues, just things that you changed from a management perspective, typically when you get a disruption and the normal normal.
And of course, if things there winds up being an extra level of scrutiny or.
And reports that you've got once a week youre now checking out once a day.
Anything changed there as far as.
Tighter grip on the problem.
Yeah.
First of all we know exactly where the problem is.
We do talk to that supplier.
Daily.
And our supply chains are deeply integrated and have been deeply integrated for over 20 years.
So we're pretty intimate with it there because we're not talking about servers here, we're not talking about commodity equipment. This is a specialized chipset for a very specialized item that only several of us and the world make it so.
And there aren't lots of alternative suppliers and it's not like you can make this chip are and another foundry very quickly. So we are I mean, we are beating the bushes and all alternative methods. We are open.
Open to buying allocation if it's possible we are looking at grey market allocation buying alley buying allocation from other vendors. So I mean, we are grinding this 1 as hard as we can.
And I think in terms of putting experts on it actually flying people to sit at the suppliers, we have people actually sitting and certain fabs and factories to see how we can help so we're swimming up and down. This 1 I think and just about every way that is.
Helpful.
And I think we understand this problem deeply and completely this has been our wheelhouse for 20 years.
And this is 1 we really understand.
But I don't think it's a scenario where we could just by the chip from someone else. This is this is 1 we have to.
Work through the supply chain and.
No.
I don't and I have not seen it.
Issues like this last longer than 6 to 12 months and I do not believe this will last longer than 6 to 12 months and I think it will resolve within this year.
And then as far as and as you do get access to these components to to turn them into finished to turn units into finished goods are you satisfying and.
And the order and which they were received or are you prioritizing certain customers.
We are managing our allocation based on economics.
Okay, Alright highest margin customers get allocation first.
And solid orders with the best economics are going to receive allocation for.
I understand the logic there.
And then as far as you did talk on the hyper scaler.
This was plural.
We've got orders from Hyperscale is we're working with more hyperscale and the design phase.
Any issues here are your customers, who had orders in place on the Hyperscale side.
Pathetic to the supply chain issues do we have any.
Reputation or brand damage here with the.
To come now and issue.
I think they have full visibility as to the source of the shortage.
And I think they recognize that isn't it isn't a quantum related item.
It's from a downstream supplier and they understand that so I think they are sympathetic they're frustrated because our hyperscale or customers are cranking their orders up.
I think almost every hyperscale or we have has increased their demand signal with us they are buying more from us.
There are almost saying, they're running out of cloud and they need to buy more and.
And.
This site.
And it affects them and so they are concerned I don't think theres brand damage or anything along those lines because it's.
These arent things that they are not commodity component.
But we meet with them regularly we're giving them, we're asking them for very clear demand signal, we're providing them very clear.
Allocation expectations.
And it's allowing us and in some cases to reset the table in terms of margin.
Okay.
And then last question from me has to do with you mentioned media and entertainment. It sounded like there was a little bit of a comeback I don't know, whether thats kind of a reopening of the ability to confirm for them to conduct their business or reopening of them demanding product from quantum and could you address at this meeting.
And entertainment kind of compared to versus January of this year.
Yes.
There's more there's more demand for movies.
And now people can see opening of theatrical and Theres more streaming the content wars are are heated back up and it's <unk>.
<unk> for sports it's game on for TV production, it's game on from Moviemaking.
So I think we're returning to pre COVID-19 levels there.
To get our store and <unk> business above pre COVID-19 levels, we need to start moving to other markets I think we.
We recovered there.
And we're getting a lot more attach rate with cat television, but to really grow that business, we're probably not going to grow a lot more and media and entertainment, we're going to start branching into bigger markets that are less niche markets.
Yes.
Okay.
Alright, Thanks for taking my questions and good luck from Q1.
Thank you Sir.
Your next question is coming from and then the Barra.
Your line is live.
Hey, Thanks, guys I appreciate you taking the question.
Gave you a little bit of a bigger picture 1 here.
Or would you describe to me the most important growth drivers for this year and.
And.
And what are some of the things that you feel like you need to do to go after them and.
And generate that generate.
Is there the bookings that you want from that and then have a quick follow up as well. Thanks.
Yes, I think the big new motions, both technical and technical architecture motions as well as selling motions.
And are all about solutions.
And we've refreshed our whole product portfolio. So our point products store next Dx Tsai, our scalar tape products. The <unk> product the cap Dv product every 1 of those is and a is and a brand new refresh.
But now what we're doing and we did that last year now what we're doing this year is combining them into solutions specific solutions for genomic sequencer is for autonomous vehicle makers from moviemakers.
And it's that architectural bundling of products and the selling motion of our solution and our suite of products is really what we're working to execute on this year and moving more and more of those suites of products to operate both on premise and in the cloud and <unk>.
Those are the 2 big moves selling solutions, and those solutions being hybrid and nature and that they work on premise and and the cloud.
And as we do that I, just think the company continues to accelerate.
That's super helpful and what.
And the technical.
And I can do.
And it takes it from point product and the bundles are those sophisticated or are they pretty straightforward.
Well I think there is.
2 items that we have to achieve that.
First is a cultural item and it's very easy for a product company to organize and itself byproduct.
But when you begin to build solutions those siloed teams have to work together communicated so a lot of it is how we run our business.
Our product teams now think about solving business problems and working together and combined products. So it's a different way of working.
GAAP, 1 and step 2 is the technical issues, how do we combine our products that the combination is greater than the sum of the parts and a lot of that is a much deeper understanding of the problem we're solving right.
We're not just building a storage system, we're helping a genomic sequencer and we're not just creating storage features we're helping someone make a movie or helping assets go to Mars right. So it's really changes and how we as leaders lead the team and how we organize our team and that they are organized.
Collaborate and.
And they think about solving a business problem versus adding lots of technical features.
So, it's all really and <unk>.
<unk> about how we build and sell.
And it really starts with a with leadership and kind of.
And what our goals are and our goals are becoming less technical feature goals and more working with our customers to solve business problems and that's it.
Big mindset change for us.
That's helpful and that's really helpful. I appreciate the detail.
Thanks for that and just quick.
Quick follow up here on the supply constraint.
Given the specificity of the componentry.
Feel like you have a handle on.
How bad how constrained it could become.
And what's the visibility there I appreciate it.
Yeah, I mean, we.
We have minimum volumes, we've been given so I think we know what the low Mark is and we've been given strong commitments that it will not go lower than.
Certain levels and we packed that into our guide so I think we understand the low mark.
And so far our suppliers are meeting that are a bit above that so I think we're in a model where it can only improve but we can feel pretty comfortable that we basically received these materials are weekly and it's we're getting what they committed to us.
While it's not what we want.
It is and unstable.
And it's stable at lower levels.
And they've committed that it won't go any lower so.
That extent I don't think it's volatile it's just consistently low.
Got it that's helpful.
Thanks, a lot.
Thanks.
Your next question is coming from David Dooley.
Your line is Michael.
Hi, Colin.
Yes, thanks, and thanks for taking my question.
And just a clarification I think you mentioned without supply constraints that you would've shipped you would've had revenue with much higher levels and the current quarter.
I can't.
My phone and had some technical difficulties did you say that you would have hit the $98 million or you would hit the pre COVID-19 levels of like a $105 million.
Yeah, I would say more and the pre COVID-19 levels.
We were above the sales execution for this quarter, we said 98, plus or -3.101, the high end of the range sales and executed above that range.
Okay back at those pre Covid numbers, yes.
Yes, so without supply constraints and would have been doing 100, and probably both of the margin and the june quarter or something greater than that.
Okay.
Maybe not that hot but.
We were above 101.
Okay.
Thank you for the clarification.
Given the supply constraints that you're seeing.
Is this like.
Are your large enterprise and hyperscale customers essentially you longer visibility.
And you know bring you closer into their planning.
And so.
And they don't get surprised and the future from constraints from yourself.
Yes, I mean, 1 thing I think we feel good we're not seeing is people playing placing.
Normally large orders just to try and.
To get supply so we're not seeing like double orders or abnormally large orders, but we are seeing people, giving us greater view into multiple quarters for a long time, and you gave us and order and you received it in 2 weeks.
So people werent really conditioned to give us a whole lot of visibility now.
Because not only are we supply constrained, but its pretty industry wide I think we're getting much better behavior, where people, where our customers, particularly our larger customers are giving us some of them several quarters and our bigger customers are giving us full year full 12 months.
<unk> demand signal and some of them are giving US 12 month demand signal and the purchase orders behind it and then and attempt to.
And get in the queue. So we are seeing better visibility.
People are not just giving a signal that they are backing up the signal with pose and I think that they're putting on us are reasonable and.
And not just.
Large numbers to try and <unk>.
Hold down supply.
We are getting.
Better demand planning.
Right, so far and assortment of reasons right you have new products.
And large customers want your products, but you know the fact that current environment is basically forcing them to lay down their cards and give you much longer visibility and you've ever had before.
I think thats a fair statement.
Okay. Thank you.
Alright, thank you.
Your next question is coming from Craig Ellis.
Your line is live and thanks for taking thanks for taking the follow up just a couple of quick ones.
If I went back to the last call I think we were thinking that.
At the time, we were shipping to 3 hyperscale or with the potential to go to 4.
Either and.
The fiscal fourth your fiscal first quarter, but given the comments around the Nextgen a L T O.
Coming out maybe in the September October timeframe does that mean that that force hyper scaler would be closer to that timeframe or would we be potentially shipping inside of <unk>.
Okay.
Yes.
And we're loading.
I mean, the business is now at a point where.
And we're just not lifting out each customer we have we are doing business now with.
More than 4 hyper scaler, they're at different levels of volumes they are purchasing more than just tape products.
And we're starting to work with groups that are.
Somewhere between a web scalar and a hyper scaler right. So we're starting to sell now too.
Businesses that are much larger than and enterprise, maybe smaller than the top 3 or 4 hyper scaler, but there's still enormous and nature. So we're just we're hitting with more customers I think if you remember that pyramid slide we used to just work with the top.
2 or 3 Hyperscale and the world now we're dealing with large telcos, we are dealing with large different types of service providers.
Net scalar so.
I think the business is becoming a little more diversified and.
And what the biggest movement that I'm encouraged by is more and more of these large scale customers.
Our software as much as our hardware.
And to the solution discussion some of them are buying multiple products.
Certain hyper scaler also make movies and television and Theyre starting to buy our primary products.
Turning to buy our media asset management and Cat Dv products. So.
And what started as a big hardware sale and now we have multiple lines of business, it's just becoming a healthier and more diversified business.
That's helpful, Jamie and by the way Thanks for all the comments through the call. It's clear that you guys are used and a tough situation.
Advance on some of the longer term objectives of the company you mentioned leadership a couple of times. So I just wanted to follow up on a recent appointment Brian Cooper error. It looks like a real important add the broader team and and I believe you did add some video surveillance as your sales expert. So the question is from from where you've got the.
<unk> set now.
Where are we relative to having that optimal organization that you would envision and driving the business forward still.
Still more appointments to make or are we are we meaningfully there.
Yes.
Yes.
And when it comes to leadership I'm not sure you ever there.
You're constantly evaluating you're constantly improving and the situation is our company is.
And a very different place and it was.
Even 2 years ago, or even 1 year ago.
And I mean, we.
We are growing in size for growing and relevant and so I think I am constantly looking to put the very best leadership.
And that we can find.
Into the company. So I think we have a amazing leadership team I think it's a stronger leadership team than you would normally see at a $500 million company, because we don't see ourselves as building a $500 million company, we see ourselves as building a $5 billion company.
And we put in that kind of a leadership team and I am going to continue to over hire mean, Brian was.
And the GC and.
And video.
Brian <unk> and a higher before and was the CTO at net App and we're hiring the absolute best executives in this industry.
Because our goal is to be a heck of a lot more than a $500 million company and 3 years ago I wasn't sure we could do it.
But we have done so much and the last 3 years when we pick this company up and you remember the state it was in.
And we have effectively <unk> the market cap from our low point.
And we think we're going to 10 exit again, but to do that we're going to need really strong leadership, we're going to need to be able to drive through all of these choppy waters and we just need the most seasoned people we can find.
And.
Im not going to stop if we keep finding better talent I'm going to I'm going to upgrade and bring on more leaders.
Every time I have that opportunity.
Because I do think it's leadership that makes the difference.
That's great color. Thanks, Jamie.
We have no further questions from the lines at this time.
Alright, well I would like to thank everyone for joining us today.
Mike and I will be.
Haven't calls with many of you we always like to make ourselves available and just wanted to thank everyone and be safe and.
And.
Hopefully, we'll be meeting again and person very soon thank.
Thank you so much.
Thank you, ladies and gentlemen, and this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.