Q4 2022 Quantum Corp Earnings Call
[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 fiscal year 2022.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Brian Cabrera from quantum.
Good afternoon, and thank you for joining today's conference call to discuss <unk> fourth quarter and fiscal 2022 financial results I'm, Brian Cabrera, Quantum's, Chief legal and compliance officer. Joining me today are Jamie Lerner, our chairman and CEO and Mike Dodson our CFO .
This afternoon, we issued a press release, which you can access under the Investor Relations section of our website at Www dot quantum dot com.
We are using a slide presentation in conjunction with today's call and this is also accessible under the same section of our website.
During today's call. Our comments may include forward looking statements.
All statements other than statements of historical fact should be viewed as forward looking.
These statements include any projections of revenue margins expenses adjusted EBITDA adjusted net income cash flows or other financial items.
These statements May also concern the expected development performance and market share or competitive performance of our products or services.
All forward looking statements are based on information available to quantum as of today's date.
We advise caution and relying on these statements as they involve known and unknown risks and uncertainties, we've referred to as risk factors.
Risk factors may cause our actual results to differ materially from those involved implied by the forward looking statements.
<unk> unexpected changes in our business.
We include detailed information about these and additional risk factors under their sections labeled the risk factors in our quarterly report on Form 10-Q.
And the annual report on Form 10-K, which we filed with the Securities and Exchange Commission we.
We do not intend to update or alter our forward looking statements, whether as a result of new information future events or otherwise except of course as we are required by applicable law.
Please note that our press release and the management statements. We make during today's call will include certain financial information in GAAP and non-GAAP measures. We include definitions and reconciliations of GAAP to non-GAAP items in our press release.
If you are unable to listen to the entire call. At this time, we will make a recording available for at least 90 days in the Investor Relations section of our website.
Now I'd like to turn the call over to our chairman and CEO , Jamie Lerner Jamie.
Thank you, Brian and thank you all for joining us today.
Earlier this afternoon, we announced results for our fourth fiscal quarter and fiscal year 2022 I'm.
I'm encouraged by the progress we made throughout the year delivering growth in recurring software revenue integrating three acquisitions to build out our portfolio of solutions for video and unstructured data and resetting our balance sheet with our recently completed rights offering.
Today, I will talk more about the progress, we're making in our supply chain and how we plan to improve quantum's, earning power going forward.
Our fourth fiscal quarter revenue was up year on year and exceeded our preliminary results.
And our backlog remains at near record levels.
Our fiscal year 2022 revenue grew six 7% year on year, and we made significant progress toward building recurring revenue.
Exiting fiscal year 2022, with seven $4 million of subscription software a R. R.
165, sorry, $165 million in high value recurring revenue.
The number of active subscription customers grew to 356, an increase of 290% year over year and we expect continued growth in the fiscal year 2023 based on all of the work we have done over the last four quarters to transition our product.
Clients.
Earlier this quarter, we completed an oversubscribed rights offering to strengthen our balance sheet by reducing debt and increasing our cash position.
With the completion of the rights offering.
We have reduced our net debt balance by two thirds from just under $150 million at the end of fiscal 2019 to currently just under $50 million.
In addition, we have reduced cash paid for interest expense from $24 3 million in fiscal year 2021 to an estimated 8 million annual interest expense in fiscal year 2023.
Mike will discuss more about our balance sheet in his section.
As well as how we have reset all debt covenants to more favorable levels.
Now I'd like to talk about our plans to increase earnings over the next four quarters.
Through sales growth operational expense reductions.
Price increases combined with supply chain initiatives to drive margin expansion.
Our goal is to deliver substantial year on year improvement to adjusted EBITDA.
While our sales are ramping we are tightening operational expenses across the company.
We are reducing discretionary spending reducing our facilities footprint and expanding our global engineering presence as we continue to integrate recent acquisitions.
Now I'd like to talk about supply chain.
As we stated in the press release, our backlog remains just over $60 million.
And much of this backlog is tape storage systems for our Hyperscale and enterprise customers.
We are seeing signs of improved tape drives supply from our key supplier, though we expect the environment will remain constrained in the short to medium term.
Starting last year under the new supply chain leadership of Erica item, we put in place a strategy to improve supply chain execution and this is now starting to show results.
Our strategy is based on four main elements.
Reducing reliance on broker buys by purchase purchasing long lead components well in advance.
Replacement components that are supply constrained with more common and often cheaper components.
Stronger engagement with and management of critical suppliers.
Localizing supply of tape storage components in Mexico near our contract manufacturer.
The first encouraging sign we are seeing is that pose place last year for long lead time items are now being delivered which is reducing the number of components, we need to buy on the broker market.
Certain components last year had lead times that increase to 60 weeks almost overnight.
This left us gapped on supply so we had to purchase components on the broker market at higher prices to cover the gap.
During this period, we also qualified over 70 alternative components and our tape storage systems.
And these efforts are now showing results with broker buys decreasing 80%.
From fiscal Q4, two this quarter.
In addition, as we are starting to get ahead of demand. We have started to see reduction in freight expedite charges from Asia, particularly this quarter.
Going forward, we expect to use all ocean freight for key bulk materials.
Longer term as we localize more materials in Mexico, we will further reduce freight costs and geopolitical risks.
I am confident that by executing on the programs above will be able to increase the earnings power of quantum while building high value recurring revenue based on software and services.
Now I'd like to turn the call over to Mike to provide more detail on the results then we can take questions Mike.
Thank you Jamie welcome to the call today.
During the current year, we grew recurring software subscription revenue to a total AAR are up seven 4 million as we transitioned store next active scale Dx Si cat DB products to a software subscription model. We also completed two acquisitions that.
<unk> is a serious player in the multibillion dollar video surveillance storage market.
So during the year, we saw a record breaking backlog driven in large part by the demands of our hyperscale customers that we were not able to fulfill due to ongoing supply chain constraints.
So fiscal 2022 was productive but also a year with challenges our revenue although higher than the prior year was lower than expected, primarily driven by supply chain constraints seen by much of the industry as well as the lack of a recovery for our U S federal business or <unk>.
Gross margins were under pressure by unprecedented component price prices.
Supply chain logistic cost increases.
And to a lesser extent at a less favorable product revenue mix.
And finally, our operating expenses increased primarily due to the integration of the operations from recently acquired businesses.
These factors contributed to a weaker than expected operating result.
And significantly lower EBITDA.
Jamie has already touched upon our plans to address these challenges and I will go into more details later in my prepared remarks.
In conjunction with our focus on driving the transition to a recurring software subscription model. We wanted to introduce the supplemental metrics that we will use to track and report our progress.
The first key metric that we will be reporting is annual recurring revenue or <unk>.
Or are we.
We ended fiscal 2022 with <unk> at $7 4 million.
The actual related revenue recorded for the year was $8 4 million.
The number of customers under active contract at year end was $3 56.
Another key metric is total contract value or <unk>.
And it was $13 8 million at the end of the fiscal year.
And finally, the last key metric that we will be reporting as total recurring revenue that includes our service and support contracts software subscription revenue and royalty revenues that totaled $165 million for the year.
Turning to results for the fourth quarter.
Revenue was $95 2 million, an increase of 3% year over year and flat compared to the prior quarter and.
And above their preliminary revenue results, we provided in mid April .
Backlog decreased slightly to $60 million compared to $62 million last quarter as we continued to be supply constrained primarily on tape drives as well as broad based shortages of components for servers network cards and circuit boards.
Approximately $32 million of orders in the ending backlog could have shipped to customers in the quarter in the quarter. If we would have had supply.
This is an increase of $6 million from the prior quarter Sim.
Similar to last quarter, approximately $15 million of the ending backlog represented tape products for which the majority was orders from our hyperscale customers.
During the fourth fiscal quarter secondary storage revenues were up 6% sequentially, primarily driven by ongoing strong demand from hyperscale or customers.
We continue to see improving supply of <unk> that has helped support the sequential revenue growth.
Primary storage system saw a modest rebound in the quarter and was up three 4% sequentially, primarily due to a continued gradual recovery and the media and entertainment business, partially offset by continued weakness in our U S federal business.
Also in the fourth quarter, we continued to close multimillion dollar video surveillance deals.
That we were not able to fulfill due to ongoing supply chain constraints. We expect this business to contribute more significant product revenue in fiscal 2023.
Though this business is expected to be lumpy and characterized by large deals with long sales cycles.
For fiscal year 2022, total revenue increased six 7% to $372 8 million with a year over year growth, primarily driven by strong demand from the hyperscale customers.
Combined with an increase in software subscription revenue.
And video surveillance product and services revenue related to our recent acquisitions.
These increases were partially offset by lower U S federal business and the Golden glide of lower services apart revenues for end of life products.
Okay.
Gross margin in the fourth fiscal quarter improved 110 basis points to 38% from 36, 9% in the prior quarter, reflecting less than full benefit from the price increases we implemented.
These improvements were partially offset by continued inflationary costs in the supply chain and product revenue mix.
For the full fiscal year gross margin decreased by 370 basis points to 39, 4% from.
From 43, 1% in the prior fiscal year, which primarily reflects the substantially higher component.
Warehouse and related logistics costs.
And to a lesser extent, a less favorable revenue mix of higher hyperscale revenue and lower U S federal revenue.
Despite the upside from increased pricing on our products, we expect the pressure on gross margins to continue at the levels experienced in the back half of fiscal 2022.
Into the first half of fiscal 2023, given that we expect it will take additional time to realize meaningful improvements in terms of both product mix and the inflationary cost environment.
In addition, the deferred PPV will.
We will be amortized during the first quarter and therefore, we don't expect any improvements from PPV margin pressure until the second quarter of next year.
GAAP operating expenses in the fourth quarter.
Were $41 8 million compared to $42 4 million in the prior quarter.
non-GAAP operating expenses during the fourth fiscal quarter increased <unk> 9 million to $37 2 million as compared to $36 3 million in the prior quarter.
The prior quarter expense level reflects a onetime nonrecurring benefit of $1 8 million from reduced ERP support costs related to the legacy ERP installation that is being replaced.
When you exclude this one time prior quarter benefit the operating expense run rate decreased by $1 9 million for the current quarter.
Just under the range of $1 million to $2 million that we noted on our call last quarter.
In addition, the fourth quarter fiscal <unk> operating expense run rate does not reflect any anticipated benefit of additional cost reductions to be fully implemented by the end of the first quarter of fiscal 'twenty three.
Okay.
For fiscal 2022, GAAP operating expenses were $160 9 million compared to $142 4 million in the prior year.
non-GAAP operating expenses for fiscal 2022 increased $14 9 million to $142 2 million as compared to the prior year of $127 3 million.
Just over three quarters of the annual increase in non-GAAP operating expenses reflect the costs associated with the Companys recent acquisitions and are primarily in R&D and sales and marketing.
Other increases in operating expenses, including travel costs as the global Covid travel restrictions were relaxed as well as increased investment for the development of our next generation <unk> technology.
As I mentioned last quarter, and Jamie mentioned earlier, we are implementing a series of cost reduction programs to rightsize and align the business with current revenue and margin levels. During this supply constrained environment.
We are focused on reducing spending in areas such as R&D TNA facility costs and continued integration efforts related to recent acquisitions.
We're also continuing our efforts to improve our geographic head count mix to better leverage global facilities with a focus on Asia.
We expect these actions will reduce our current operating expense run rate by one $5 million to $2 million per quarter by the second half of fiscal 2023.
GAAP net loss in the fourth fiscal quarter was $7 8 million or a loss of <unk> 13 per share.
Compared to a net loss of $11 1 million or a loss of <unk> 19 per share in the prior fiscal quarter.
Excluding stock compensation restructuring charges and nonrecurring charges non-GAAP adjusted net loss in the fourth quarter was $2 8 million or <unk> <unk> per share compared to adjusted net loss of $4 6 million or <unk> <unk> per share in the prior quarter for the <unk>.
Full year 2022, non-GAAP adjusted net loss was $7 2 million or <unk> 12 per share compared to adjusted net loss of $4 9 million or <unk> 11 per share in the prior fiscal quarter.
Adjusted EBITDA for the fourth fiscal quarter was <unk> 4 million compared to <unk> 8 million in the prior quarter.
For the fiscal year 2022, adjusted EBITDA was $11 8 million compared to $28 million in the fiscal year 2021.
The year over year adjusted EBITDA decrease was driven by.
As previously discussed challenges, including lower gross margins and higher operating costs.
As we have been discussing our priority is to drive improvements in our adjusted EBITDA by growing revenues, increasing gross margins and reducing operating expenses.
We expect the cost reduction actions combined with the product price increases and supply chain initiatives will begin to show increasing benefits to our EBITDA results by the second half of fiscal 2023.
When discussing EBITDA trends, it's also important to understand the underlying cash implications of the company's efforts to reduce the outstanding debt balances and related interest rates for example in the prior year.
The adjusted EBITDA was 28 million, but interest paid was $24 3 million.
While in the current year. The adjusted EBITDA was $11 8 million in interest paid was only $9 1 million.
Net cash implications of these two factors for these two years is within $1 million.
There's a full reconciliation of our non-GAAP results to the most directly comparable GAAP measure in both the press release and the Form 10-K released today.
Now turning to the balance sheet liquidity and cash flows.
Given that our recently completed rights offering closed in late April I'll first review the balance sheet and cash flows through the end of the fiscal quarter.
And then provide some commentary on the changes in our cash and debt balances subsequent to the rights offering.
Cash and cash equivalents as of March 31, 2022 were $5 5 million compared to $4 3 million on December 31 2021.
Outstanding term debt as of March 31, 2022 was $98 7 million.
This compares to outstanding term debt of $98 8 million as of December 31, 2021.
At the end of the fourth fiscal quarter, the outstanding balance on the company's revolving line of credit was $17 7 million compared to $7 6 million in the prior quarter.
Interest expense was $2 5 million and $11 9 million for the three and 12 months ended March 31 2022, respectively.
Net cash used during the quarter was $1 2 million.
Excluding changes in assets and liabilities net cash used by operating activities for the quarter was <unk> 3 million.
The net cash used related to changes in assets and liabilities was $6 6 million and primarily represented increases in accounts receivable.
Inventories and a paydown of accounts payable.
Partially offset by increases in deferred revenue.
Capex for the quarter was $2 4 million.
The cash provided by financing activities during the quarter was $10 5 million.
Primarily represents the increase in the revolver balance by $10 2 million to $17 7 million at the end of the quarter compared to $7 5 million at the end of the prior quarter.
Net cash used during fiscal 2022 was $27 6 million.
Excluding changes in assets and liabilities net cash used by operating activities for the year was $3 2 million.
The net cash used related to changes in assets and liabilities was $30 5 million and primarily primarily represented increases in inventories, including pre buys of inventory for the contract manufacturer of approximately $19 million and.
And reductions in liabilities that include AP accrued compensation restructuring and deferred revenue and total approximated 11 million.
Capex for the year was $6 3 million and cash used for business acquisitions was $7 8 million.
Cash provided during the year by financing activities was $20 2 million and primarily represents the $17 7 million outstanding on the revolver at the end of the year.
And $1 8 million from the issuance of common stock in connection with the employee stock purchase plan.
Turning to the improvements in our balance sheet subsequent to our our oversubscribed rights offering the.
The company raised the maximum available of $67 5 million and which we used $20 million of the proceeds to reduce outstanding term debt.
And added $45 million to our cash position.
We plan to use the added cash for working capital for such purposes is purchased and key material or for paying certain manufacturing fees to gain access to additional supply.
But I want to make it clear these funds are not earmarked for acquisitions.
To provide more flexibility with managing the ebbs and flows of the working capital requirements of the business, we increased our revolving line of credit by 10 million to $40 million.
By using a portion of the proceeds from the rights offering to reduce our term debt. We were in a more favorable position to work with our lenders to substantially reset all of the debt covenants to a more favorable terms for example related to the revolving line of credit risk.
We secured a waiver on compliance with the fixed charge coverage ratio until the fiscal quarter ended March 31 2025.
And amended the covenant levels for the total leverage ratio and minimum liquidity commencing with a current fiscal quarter ended June 32022 at conservative levels that provide comfortable cushions through the current challenging business environment.
Related to the term loan covenants, we amended the covenants covenant levels for the total net leverage covenant and the minimum liquidity financial covenant to match the revolver covenants and likewise these commenced with the current fiscal quarter ended June 32022.
Collectively the reduction of debt.
Increase in cash balances and resetting the covenant to more favorable terms significantly strengthened our balance sheet and financial position for the foreseeable future.
Now moving to our financial outlook as we have outlined our fiscal 2023 plan is to continue to grow our revenues, while implementing cost reduction plans.
We anticipate the most challenging area will be to address the pressure on the gross margins. We are beginning to see traction with our price increases and supply chain initiatives, but the inflationary cost environment is difficult to predict.
We do expect especially in the back half of fiscal 2023.
To see measurable improvements in adjusted EBITDA, all while keeping the interest payments at the historical annual low level of approximately $8 million.
As we discussed last quarter, we have implemented a more conservative approach to forecasting primarily based on deals we have already closed and taken into consideration parts that we already have in inventory or are on their way.
Based on this approach we expect revenue for the first quarter to be in the range of $94 million plus or minus $3 million.
non-GAAP adjusted net loss is expected to be $3 million, plus or minus $1 million.
And adjusted net loss per share of <unk>.
<unk>, plus or minus <unk> <unk> per share.
Using a share count of $83 6 million.
To reflect the shares issued during the first quarter related to the rights offering.
And we expect adjusted EBITDA in the fiscal first quarter to be breakeven plus or minus $1 million.
With that I'll turn the call back to Jamie for closing remarks, Jamie.
Thanks, Mike.
Even as we navigated a challenging global supply environment, and an increasingly challenging economic environment quantum is well positioned to execute on our long term strategy and the <unk>.
Last three years, we have built a leading portfolio of solutions for of video and unstructured data that has dramatically expanded our addressable market.
Our balance sheet is stronger than ever and we have reduced our debt and associated interest expenses by two thirds.
We have a strong base of $160 million of recurring revenue and we have demonstrated the ability to grow recurring software revenue across our product lines.
And we are committed to our long term vision of becoming predominantly a software company focused on storing protecting archiving and enriching video and unstructured data in all its forms.
With that we will now take any questions you may have operator.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Formation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
In addition, we ask that you. Please limit to one question followed by one follow up.
One moment, please while we poll for questions.
Our first question is from George <unk> with Oppenheimer. Please proceed with your question.
Thank you for taking my question so.
So Jamie.
Could you give us maybe a little bit more cover color on what youre seeing in the macro environment have there been any changes too.
The length of sales cycles are you having different types of conversations with customers in any region.
Yes, Hey, George Thanks for the question.
I am seeing a more value oriented customer.
And what I mean by that is our customer I think during the best of times people are less price and value sensitive and they wanted to be with what is viewed as the hottest startup or what is.
The widest hot trends.
We're seeing people returning more to value where theyre looking at quantum as.
Many of our products our value oriented people use case, because it's really good.
Bang for the Bakken really good.
Value people are looking at our compression technology in Dx side, because again it compresses 'twenty to one so it's really good value.
Store and act.
Gives you a flashlight performance with a lower cost disc based product. So again, it's a value oriented technique.
Technology so.
And I see that in the hyper scaler says wow, they're becoming more oriented for value.
So in that sense I am seeing the value oriented portions of the portfolio.
<unk> really well.
<unk> product is having record sales.
Where I think more and more smaller companies are leveraging K both for its resilience to ransomware combined with the fact that you can get a lot of storage at a really aggressive pricing.
Okay in that.
Maybe just building on that but the follow up question from a regional standpoint in Europe and Asia are there any unusual dynamics going on there.
No Europe continues to be really strong for us.
The only areas that I've got a question Mark on.
One is U S. Federal work going next quarter is.
The final.
End of year for U S. Federal last year, it was pretty soft so it's going to be interesting to see federal spending returns to historic levels.
In addition, we did.
We did have to walk away from about $1 million in revenue and.
Russia because of the changes there, but I don't think that was a big hit to us, but we did walk away from about $1 million in revenue.
Q predominantly Russian calibration and media and entertainment outlets.
And the area, where we're just seeing tremendous growth is in.
And I expect to India.
Well just given the populations are so large and growing so quickly and so we're putting a lot more energy into those regions, but I have not seen a macro slowdown in Europe .
Thank you.
Our next question is from Craig Ellis with B Riley. Please proceed with your question.
Yes, thanks for taking the question.
One.
<unk> has two parts to it one Virginia, one for Mike Jamie You mentioned in your prepared remarks that.
This year, you're targeting EBITDA expansion via sales growth operating expense reduction.
Margin expansion initiatives and supply chain strategy can you just speak qualitatively to.
How those would rank and magnitude.
Relative to the EBITDA expansion, you would hope to drive in and Mike sense margin expansion initiatives were part of that was helpful to get your quantification around Opex helped but can you help us understand what kind of gross margin expansion you would expect in the back half of the year since it sounds like it'll be pretty flat.
In the first half from current levels.
Hey, Craig.
You talked to yet.
I want to talk about.
How we're going to achieve.
EBIT expansion.
For our major programs.
The first program as we are looking to reduce our spending.
We are targeting roughly a reduction of $8 billion annually.
We've already action over $5 million of that.
Or.
Two thirds roughly two thirds of that work is already done and the remainder is in sight to try and get our adjusted Opex roughly at $35 million.
That's an important action, it's something we control completely and can execute and Thats why were mostly already executed on that program.
The second program is as you know we've implemented two price increases.
Don't feel and I am not seeing enough return from that so.
So we are contemplating a third pricing action, which could take place as a price increase a discount reduction theres a variety of ways to achieve it but we are roughly around July one.
Going to implement another pricing action to drive.
<unk>.
More margin increased margin and offset continual.
Continual price increases that we're seeing.
On the sales expansion plan, our number one goal and that is to fill key territories, where we are under represented so it's putting sales teams into.
The critical territories that we've historically driven.
The best sales and margin from combined with changing a bit of our channel focus and a.
Bit of our sales focus from niche sales in automotive medical media and entertainment to more of a generalized enterprise focus as our portfolio becomes more generally targeted to the enterprise.
And then our fourth initiative is all about supply chain, reducing the broker by changing out the spoke components to more commodities.
Engaging with our critical suppliers and then vertically integrating more of the technology down in Mexico. So.
So we don't need to ship it very far we did build and vertically integrate as much as we can in Guadalajara and.
And limit the amount of logistics required to build our products.
Those together.
Our first focus is to get back to a $25 million EBITDA run rate and then that is our first milestone and we would view that as.
We're healthy and then the second milestone is to get to back to a $50 million EBITDA, where we view ourselves as prosperous.
Got it and Mike any color on second half gross margins.
Well the second half.
As we have said in the prepared remarks for the first half we expected to see a lot of the same pressure points.
Partly.
PPV, which we've amortized we're going be amortizing over the first half so we really even though the underlying market is getting better there.
We just have carryover of that but we would expect.
We're at 38% margin now.
Improvement in the back half.
<unk>.
Build EBITDA build our gross margins.
And it will be.
Is it two points better plus or minus.
To get into the.
The low forties.
If we're successful there is.
A lot of unknowns and dynamics.
Obviously, the inflationary cost environment is going to be a big driver for that if that continues and we don't see much relief there and we'll just see.
Stretch it out a little longer.
Got it and then the follow up question on a number of subscription customers up 100 quarter on quarter. So Jamie that's two X what the change was in the prior quarter. So.
Real nice quarter on quarter gain so good for the team what drove that and what's the path to something that Ive had 750 in the back of my mind is the number we need to do to convert the installed based how do we get there.
Yes.
Yeah.
I guess there is a good and bad in your question, meaning the reason why it accelerated as we got several of our products moved from a perpetual model to a subscription model.
And by getting more products on the model, we're getting more customers the challenges.
We're.
It was harder than we had expected to get those products converted so they converted much later in the year, we had expected them to convert to subscription several quarters earlier and be at.
A larger number than 356 at the end of the year. So we got to work done we've done all of the products converted but a little later in the year than we anticipated. So now we're at the right run rate. So I think we're accelerating the way.
We want to be just a little later at the end of fiscal 'twenty two than we had hoped.
That makes sense and within some of the objectives that you talked about on the earlier question where are we.
Would you expect or want the number of subscription customers to be when we exit fiscal 'twenty three.
I think.
We're thinking about it more in terms of.
The IRR.
And I think we're still trying to figure out.
How that translates to customers because we've done some deals that are $2 million a year and we have some that are $2000 a year right and there are about one customer.
And so I'm thinking about it more in terms of the IRR and we know we need.
Minimally wanted double the IRR and we think we can do quite a bit better than that but our focus is to minimally double and.
And try and go beyond that and our IRR.
And what that does in terms of customers I think that's less clear.
Okay got it thanks guys.
Yeah. Thanks for thanks, Greg.
Our next question is from Max <unk> with Lake Street. Please proceed with your question.
Hey, guys just one for me, it's about price increases.
I know you guys said you guys were going to increase prices again here in July I'm. Just wondering if you guys have gotten any feedback maybe some pushback from customers and have you seen any customer attrition from your first price increase I believe it was last quarter, yes.
The short answer is no and no.
I think if I were to falter ourselves I think we've been so sensitive about it that we've.
We've been too modest and the price increases I'm seeing our competitors.
And.
The people we buy from.
Increased their prices, 10% to 25%.
And we were much more modest than that.
We increased list prices.
Up to 15%, but then after we apply discounts and rebates and whatnot it came to something much more modest in the.
Low low to mid single digits.
And quite frankly, we've been.
Not as aggressive as we have needed to be in that so the price increases have worked we haven't seen any churn we haven't really seen any loss in business.
But the opposite is we've been too modest and we need to turn those prices up more given the amount of price increases we're seeing in shipping where.
Housing.
Trucking fees chips.
<unk> you name it we just got to lift our prices more to just offset the prices that are coming in to us and we're going to do that quite rapidly here.
Alright, thanks, guys.
Yes, Thanks Max.
Our next question is from Nihon <unk> with Northland Capital markets. Please proceed with your question.
Yes. Thank you.
And it looks like bookings Susan Shippable backlog was about $101 million, which is well above what we were expecting still down a little to $3 million I think from the December quarter were $104 million or.
<unk> <unk> from a portfolio perspective bookings trajectory, albeit still very good I think.
Well.
I'm not.
Sure exactly where you're pulling the numbers from but.
What I would say is.
We had some enormous backlog expansion from predominantly our large hyper scalar customers placing.
Two and three quarter out orders on us the idea of being if we placed a very large order on you going out several quarters that will improve our ability to get supply.
And in our conversations with them our conversation with our suppliers.
That isn't getting quantum are getting the hyperscale or any more material.
Just because they place the giant purchase order on us and so I think if you look at the graph that was provided in the Powerpoint.
You'll see that the big out quarter orders are coming down a bit.
I think there's less motivation to place those enormous out quarter orders and the part you see growing in the bookings or the backlog is the things that are shippable immediately we just don't have the parts of the ship.
So it's a higher quality backlog because more of it is shippable immediately.
Yes, yes, so the calc comes from calculating the change in shippable backlog from that particular slide that you're referencing plus the revenue in the March quarter in the December quarter.
Backlog was up I think.
9 million share with you in the December quarter, and 6 million cubic here in the March quarter.
We weren't expecting it to be up 6 million <unk> in the March quarter. So that's why I'm, saying, hey, that's better than what we expected, yes, yes still down Q. When you look at the bookings shippable bookings basically so that's the question.
And.
The question is which parts of a product saw that kit, which a downtick in terms of the bookings.
Okay.
Okay.
Sorry was there a question.
Yeah.
The question is that.
From a bookings perspective, which we can back out based on that slide that you provide shippable bookings perspective.
Bookings was down $3 million year with you much better than what we were expecting but still down three nine share with you from a product perspective, which products were down here with you.
Yes, I mean, I think we really don't go into that level of detail on our on our bookings.
Alright, let me know.
As we've shared where the revenue is and where the revenue strength is and where the revenue had declined.
Alright understood Okay understood.
And what's so.
Great to see the revenue outlook as well as the.
Statement of expect substantial improvement in that.
The full year.
But what's your outlook for.
Okay, which is the true.
Rather shippable bookings, which is the indicator.
As opposed to supply here.
Well I guess.
The guidance on bookings.
Okay understood Alright, and then the $25 million.
Milestone whats your thinking on timeframe for getting to that annualized level.
Yes, I mean, we haven't provided annual guidance on EBITDA margin or revenue at this point is just too much uncertainty.
Our goal obviously is get there as fast as we can.
I think it's going to take quarters to get there.
Every confidence we have everything at our disposal to return to that level.
But we are not providing EBITDA guidance at this point, there's just too much.
Uncertain uncertainties.
Yes, yes, yes, especially in the context of the four levers that you're talking about certainly understand that.
Okay, and then can you give us a scope date on that to the three video surveillance asset purchase.
Yeah.
That business is performing quite well.
We've closed now multiple million dollar plus deals with.
U S federal agencies with large universities and school districts.
One of the world's largest shipping and logistics companies did have enormous purchased with us so.
I think it's going well.
I think for us too.
Breakout will be that selling video surveillance that come as part of it.
Everything quantum does today, we have a specialist team that can sell it really well.
What we need is the generalist team the 200, plus salespeople, we have to all sell it to their customers versus a specialist team and that's going to take a while for everyone to fully understand how to sell that technology, how to explain it how to be comfortable engaging with our customers and thats one of our big goals for the year.
Here is move it from a specialist sale to a generalist sale and.
We think that's going to allow us to expand I think the margins of that business have been really good better than we expected.
And.
Yeah.
The traction.
Through the acquisition has maintained pretty steady sometimes an acquisition can destabilize the business for a period of time and we've seen sales be pretty steady through the whole transition from pivot <unk> being independent banks hardest on them.
Great Thanks for that update.
Yeah.
Thanks Noah.
Our next question is from David Duley with Steelhead Securities. Please proceed with your question.
Yes. Thanks for taking my question I think in the past you mentioned that you had a critical IC component shortage in your tape storage business.
I'm just wondering when would you think that that particular issue will be solved and are you waiting for that particular customer to add capacity, which I'm guessing that would be calendar year end before that problem solved or have you been able to shift to design a shift to manufacturing of that product.
Two different <unk>.
<unk>.
Okay, I think what we're talking about is the tape drive.
Yes.
And that is only made by one company in the world.
There are not alternative suppliers.
We engaged very deeply with this supplier I personally fly out to meet with them with other executives and I would say the relationship is really strong I would say that the communication and transparency is better than it's ever been but at the same.
<unk> time.
They are making that product are.
Pretty large amount of it in China. There is all the issues that we know about in China. So they are not clear to build in volume. They are under very constrained volumes I feel comfortable we're getting a high quality allocation of the volumes that theyre, making.
Think those allocations are going to go up.
And I think they are taking the steps that they need to take to bring their volumes up and they are still telling us while we're constrained now.
Believe they can meet our demand for the year now clearly they are not meeting our demand now, but they think they can pick it up in the subsequent quarters this year to get us at or pretty close to our full demand, we will see but so far I'm pretty encouraged with what im hearing.
<unk>.
We are in a situation, where we have to work very closely with the supplier because there are not alternative suppliers.
For this component.
So that chip design cannot be ported to a different manufacturers.
The sub components can yes.
So the components that are constrained inside the drive they are looking at alternative suppliers they are changing out.
<unk>.
They are looking at alternative ways Theyre now manufacturing in multiple countries. So they are taking the steps.
But like a lot of US are seeing you move from one chip that's constrained to one that isn't and just about as soon as you do that that chip you move to becomes constrained.
I mean, because all of US are doing the same thing where I'll flip flopping from one ship to another defined supply.
Just about everyone's getting constrained.
Okay.
As you mentioned hopefully in the back half of this year. This particular supplier picks up it's supply to Europe . This component for your tape drives and I assume what that would mean would be as you would then sometime in the back half of this calendar year or the first part of next year sometime in that timeframe, you would be able to ship.
<unk> to current demand from the Hyperscale customers and shrink this little backlog.
Built.
Correct correct, yes.
Okay. That's helpful.
For me.
Okay. Thanks, Dave.
We have reached the end of the question and answer session and I will now turn the call over to Jamie Lerner for closing remarks.
Yes, Thank you listen I want to thank everyone for the support of quantum many of you on this call participated in our rights offer and.
I want to thank you for that but thank you show of support of the company and I feel like we've got strengthen our balance sheet.
Not to say the timing of the rights offer was pretty excellent given that <unk>.
Capital is getting more expensive and more constrained. So I think we have the capital we need.
I think we've got the portfolio, we need and we're taking the very aggressive steps to get back to the levels of EBITDA that our investors expect and I have every confidence we're going to get there. So thank you everyone and.
Given how late.
We are in this call given our end of year, we'll be back on a conference call on this six or seven weeks.
Q1 results. So we'll I'll speak that thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].
Okay.
Yeah.