Q4 2021 Quantum Corp Earnings Call
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 press.
Dentation if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad other.
And 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 I'm Leanne Sievers President of Shelton Group Quantum's Investor Relations firm joining me today are Jamie Lerner, Chairman, and CEO, and Mike Doss and CFO.
This afternoon, we issued a press release, which you can access a copy and quantum's website at www dot quantum dot com under the Investor Relations section. There's 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 and as a PDF and 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 margins expenses adjusted EBITDA adjusted net.
<unk> cash flows or other financial items any statements concerning the expected development performance and market share or competitive performance relating to products or services. All forward looking statements are based on information available for quantum on the date hereof. These statements involve known and unknown risks uncertainties and other factors that may cause quantum's actual results to <unk>.
For 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.
<unk> 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.
And as 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 the chairman and CEO, Jamie Lerner Jamie. Please go ahead.
Thank you Julianne 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.
And we announced it and our earnings press release, the industry wide supply chain shortages impacted our ability to fulfill all customer orders.
These challenges late in the quarter, we would've been able to exceed our prior revenue guidance. Given 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 post 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.
The recurring revenue subscription also and earlier February.
<unk> 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.
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 of a 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.
Quantum is engineering teams have become and integrated partner to these hyperscale 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.
And our 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 our 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 exabyte scale data challenges.
As the economy moves into post pandemic era customer and demand for video is accelerating.
Movies, TV and sports have 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.
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.
And the 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 that 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 and this data through 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 or.
Our products and software solutions are helping global customers solve their most challenging needs for long term data storage and analytics.
And I'll 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.
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 as a result of these supply chain constraints revenue was $92.4 million for the fourth fiscal quarter of 2020.1.
These supply shortages had 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 and.
On a vertical view year over year, the government business increased by 32%.
For 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 margins.
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, a decrease of $1.7 million sequentially.
The 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.
And was primarily reduced compensation costs and other discretionary cost savings.
And our 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, 2020, 1 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 is primarily due to lower.
<unk> as a result of lower sales levels, and a decrease 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 for software expense as we modernize our existing infrastructure.
Infrastructure.
GAAP net loss and the force for the score quarter was $17.5 million or a loss of <unk> 35 per share.
Impaired for a net loss of $2.7 million or a loss of 7 cents 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 and a sequential basis from $9.4 million, primarily due to lower revenue.
There is a full reconciliation of our non-GAAP results for 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 a build of accounts receivable. Despite lower revenues due to a more backend loaded shipping schedule for the quarter more than offset by reduced inventory balances for 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 and a 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 a $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 there 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.
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.
And before the effect of changes and assets and liabilities cash used was $1.4 million offset by $20.9 million of cash generated by changes in working capital accounts and.
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 equal to $1.8 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 -1 million with 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 and 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.
Mike.
And I reflect on the last year I'm very proud of the quantum team for how far we've come we've demonstrated 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, which enabled us to reduce debt and strengthen our cash position and improve our operating flexibility to support our growth initiatives for 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 are working closely with our suppliers to address the supply constraints.
Main pleased with the increased level of demand, we're seeing and a post pandemic world.
And 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.
We're 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.
Yeah. Thanks for taking the question guys and congratulations on the demand profile back at pre Covid levels, Mike I wanted to just 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 stay where 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.
That would help as well as a start on that issue.
Sure Craig well it was like we mentioned on the call.
There was and the secondary area, which is our tape business right and you know, we don't like to get into 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 from that stands.
And that's something we expect you know will work its way out hopefully in the next 1 or 2 quarters.
But really it's you know 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 physical.
Fiscal 'twenty 2 with that.
Range of $380 million to $420 million off of the guidance.
Guidance for the first fiscal quarter at the low 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 for us all but it seems like the business has a demand profile, that's at least $105 million to $106 million, but but how quickly can can the supply chain respond to the demand that you have and can provide any color on on how that you know that nice high level backlog.
Log is shaking out either amongst the primary business the secondary business or maybe surfaces.
And.
Yeah, I think it'd be fair to characterize it.
And a way that we.
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.
As of that nature.
Yeah, Hey, Craig it's Jamie.
The way, Mike and I have them and 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 for 20 or above.
It 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 for 'twenty is not a function of.
Demand for our 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 than I think all the backlog flows through.
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 you know really it's now becoming a function of.
The ability for that backlog to flow through and will it flow through and the year and while the supply chain constraints resolved within the year.
Yeah, that's really helpful, Jamie and if I could ask 1 more for 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 to get some feedback on how the latest version of store and X..7 is doing what are you hearing back now that you've got the cat D. B product that's out there that more customers can have access to under the quantum umbra.
And any of the other newer.
Simply refresh product developments, however, they resonating with with clients.
Yeah.
We have.
Basically and entirely refreshed portfolio.
Every product we have has a new version out so with store next 7.
We've made it drastically easier to use we now have it virtualized and containerized on the H 4000, so it's effectively a cloud architecture. So it can now run on Amazon and other clouds, it's available on subscription it's.
Monitor a bowl and manageable from the cloud and we set the 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.
The product's doing really well.
And.
And it brings with it or other products because increasingly we're selling the products as a suite where for many years quantum sold point products.
You bought a tape product and you bought a backup product now.
And now, we're sitting with someone and saying sitting with our customers and saying.
We want to help you solve all of your storage problems, whether they be surveillance related backup related high performance analytics related.
And we're really competing with our suite more than the point products 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 Thats Cat D V. Just strengthens at right. We have a high attach rate from store next to Cat D. We have a high attach rate from store next day tape and store and ex the backup products and we are increasingly selling and designing our products to sell them as a suite of products for a combination of products.
As single point products.
And Thats really helpful. Thanks, guys 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 product 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's a lot of room to continue to grow both large deals and then the overall breadth of the customer base.
Yeah.
I feel 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, as.
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 a genomic sequencing infrastructure, a movie, making infrastructure and autonomous vehicle development infrastructure versus how many terabytes of storage do you want.
So we're doing.
More solutions, we're doing more surveillance related solutions as well.
And.
I think that allows us to increase average selling price. 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.
<unk>.
And I think the solutions, we still are much stickier than the point products. We previously sold.
And that's why we're in this situation where the sales team so the well above the range, we gave last quarter they were.
They were there and accelerators and 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 flows through but what I'm. Most encouraged by is the sales team.
Beating plan selling above that.
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 recovered and 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.
Within your annual guidance, how much of that.
Positive.
Or 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.
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 store and accident 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 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 will bring us into more use cases than we than 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 had the biggest impact on the quarter, but with the supply chain and Spain and.
Can you give us a kind of a sense for the risk reward outlet for our 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.
2.2.
And that will be beneficial as we move to the.
Software subscription.
Obviously, that's a better margin.
For 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.
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 trustee.
Your line is live.
Thank you and <unk>.
And that's on the thing and order book consistent with pre Covid levels and for the 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 the explanation that you saw.
Component shortages and definitely makes sense.
However.
And 1 little Bridgeville wanted to clarify here for 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.
Can you just explain what's the missing link here.
Okay.
Yes, I think there is there is offsetting factors.
First as we have talked about.
On the call we have moved inventory.
Off 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 waiting for 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 then.
It would have been finished goods.
Okay.
Got it.
I would liken it to automobile makers, who are building for cars, but can't ship them because they are 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 for units to ship, but they are waiting on.
Final component to be able to ship.
And are these basically the asics for the controllers behind the police or is it something else.
Yeah.
I'd rather not.
Get into with suppliers and suppliers of what they are chips that are integral to the operation of the predominantly the 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 it's.
The very short term product.
So.
It had supply chain and comes to us and a very short cycle.
Gotcha understood Yep.
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, 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.
What 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 it probably will be building backlog.
Okay great.
And then nice little a metric that you've given on the software and subscription customers from the quarter can you give us some context on how that compares to the prior quarter and then maybe percentage of customers that transactions were made with overall.
And maybe also percentage of the overall customer base.
Represents.
Yes, and we have.
Over 18, and 19000 customers so.
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.
Our incentivizing them increasingly to go to service or recurring model. So I expect it to accelerate.
We went from zero to 120 and.
For for 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 on for Chad Bennett, and thanks for taking our questions I.
Just had a question on the royalty business I'm curious about what your perspective is on the timeline for the rollout of L. T 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.
Yeah, I'll talk to the.
Roadmap and Mike and cover the kind of how we've modeled the royalty.
I do expect.
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 <unk> 8 but have a lot of incentive to go to LTE and 9 so right now that is supposed to be and I havent heard otherwise and that is a.
And <unk>.
Early fall release and.
And I would expect a lot of customers to either refresh and upgrade or move to that.
That architecture, so I would expect that to increase demand and obviously the newer generations drive royalty as well.
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 can 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 is 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.
Release 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 and there 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.
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.
The reports that you got once a week youre now checking out once a day.
Anything changed there as far as a tighter grip on the problem.
Yeah.
First of all we know exactly where the problem is.
We do talk to that supplier.
Daily.
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 arent 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 and 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.
For 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. So this is 1 we really understand.
But I don't think its a scenario where we could just buy.
The chip from someone else. This is this is 1 we have to work through the supply chain and.
I don't and I have not seen.
Issues like this last longer than 6 months 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.
And to turn them into finished to turn units into finished goods are you satisfying orders 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 Custer.
Customers get allocation for us.
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 scalar and <unk>.
This was plural.
Got orders from Hyperscale is we're working with more Hyperscale is and the design phase.
Any issues here are your customers, who had orders in place on the Hyperscale side of a sympathetic 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.
Downstream supplier and they understand that so I think they are sympathetic they're frustrated because our hyperscale are 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 on.
And theyre, almost saying, they're running out of cloud and.
And they need to buy more 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 components.
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 margins.
Okay.
And then last question for me has to do with you mentioned media and entertainment. It sounded like there was a little bit of a come back on and whether thats kind of a reopening of the ability to confirm for them to conduct their business for reopening of them demanding product from quantum and could you address this.
Media and entertainment and kind of compare versus January of this year.
Yes, there's just.
There's more there's more demand for movies.
Now people can see opening of theatrical and theres more streaming.
And the content wars are are heated back up and it's it's.
Game on for sports it's game on for TV production, it's game on for movie, making so I think we're returning to pre COVID-19 levels there.
To get our store and ex 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 D V, 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.
Okay.
Okay.
Alright, Thanks for taking my questions and good luck for 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.
And I gave you a little bit of a bigger picture 1 here.
How would you.
Scribe yesterday and the most important growth drivers for this year.
And what are some of the things do you feel like you need to do to go after them and.
And generate that generate the.
Is there the bookings that you want from them and they have.
A quick follow up as well.
Yes, I think the big new motions, both technical and technical architecture motions as well as selling motions are all about solutions.
We've refreshed our whole product portfolio. So our point products store next Dx Tsai, our scalar tape products. The <unk> product the cap EV product every 1 of those is and a isn't a brand new refresh.
But now what we're doing and we did that last year now where we're doing this year is combining them into solutions specific solutions for genomic sequencer is for autonomous vehicle makers for movie makers.
And it's that architectural bundling of products and the selling motion of a solution and a suite of products is really what we're working to execute on this year and.
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 in the cloud and.
And as we do that I, just think the company continues to accelerate.
That's super helpful and what.
The technical action items.
Take them from point product into bundles and 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 itself byproduct.
But when you begin to build solutions those siloed teams have to work together communicate 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 product. So it is it a different way of working.
<unk>, 1 and step 2 is the technical issues, how do we combine our products that the combination is greater than the some other 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 and we're helping a genomic sequencer, where 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 to collaborate and.
And they think about solving a business problem versus adding lots of technical features.
It's all really <unk> 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 and solve business problems and that's it.
Big mindset change for us.
That's helpful. Yeah, No that's really helpful. I appreciate the detail.
Thanks for that and just so just quick follow up here on the supply constraint.
Given the specificity of the component tree you feel like you have a handle on.
How bad how constrained it could become.
And and.
And what's the visibility there I appreciate it thanks.
Yeah, I mean, 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 pass 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 are 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.
Not what we want.
It is and unstable.
Think it's stable at lower levels.
And they've committed that it won't go any lower so for.
To that extent I don't think it's volatile it's just consistently low.
Got it that's helpful that really and thanks.
Thanks, a lot.
Thanks.
Your next question is coming from David Dooley.
Your line is Michael.
And my column.
Yes, thanks, and thanks for taking my question.
And just a clarification I think you mentioned without supply constraints that you would've shipped or 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 $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 so 101, the high end of the range sales executed above that range.
Okay back at those pre Covid numbers, yeah, so without supply constraints, you would've been doing 100, and probably both of the marks from the June quarter or something greater than that.
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 and you longer visibility and.
And bring you closer into their planning.
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.
Abnormally large orders just to try and tick.
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 and 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.
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 what theyre 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.
Hold down supply so we are getting.
Better demand planning.
Right. So for an assortment of reasons right you have new products and.
Oh and large customers want your products, but you know the fact is the 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 for <unk>.
Other in.
And the fiscal fourth for fiscal first quarter, but given other comments around the nextgen of L. T O.
Coming out maybe and this timber October timeframe does that mean that that fourth hyperscale or would be closer to that timeframe or would we be potentially shipping inside of <unk>.
Yeah.
Yeah.
And we're loading.
I mean, the business is now at a point where.
We're just not listing out each customer we have we are doing business now with.
More than for Hyperscale or is there a different levels of volumes, they're purchasing more than just pay 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 may be smaller than the top 3 or 4 hyper scaler, but there is still enormous and nature. So we're just we're hitting with more customers.
If you remember that pyramid slide we used to just work with the top 2 or 3 hyper scalar and the world now we're dealing with large telcos, we're dealing with large different types of service providers web scalar and <unk>. So I think the business is becoming a little more diversified.
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.
And certain hyper scalar is also make movies and television and Theyre starting to buy our primary products theyre starting to buy our media asset management and cat TV products. So.
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 and by the way. Thanks for all the comments through the call. It's clear that you guys for use in a tough situation.
Advance on some of the longer term objectives for the company you mentioned leadership a couple of times. So I just wanted to follow up on a recent appointment.
<unk> it looks like a real important add to the broader team and and I believe you did add some video surveillance is your sales expert. So the question is from from where you've got the organization set now.
Where are we relative to having that optimal organization that you would envision and driving the business forward.
Phil more appointments to make or are we.
Are we meaningfully there.
Yes.
Yes.
Okay.
And when it comes to leadership I'm not sure you ever there right you are constantly evaluating youre constantly improving and the situation is our company is.
And a very different place and it was <unk>.
Even 2 years ago, 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 dollar company and we put in that kind of a leadership team and I am going to continue to over hire I mean, Brian was.
The GC and Nvidia.
Brian Polaski higher before and was the CTO at net App and we are 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.
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've effectively 10 ex 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.
And I'm 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.
Having calls with many of you we always like to make ourselves available and just want to thank everyone and be safe and.
And.
Hopefully, we'll be meeting again and person very soon thank.
And thank you so much.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.