Quantum Management Discusses Q1 2013 Results - Earnings Call Transcript

Quantum (QTM)

Q1 2013 Earnings Call

July 31, 2012 5:00 pm ET

Executives

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

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

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

Analysts

Alex Kurtz - Sterne Agee & Leach Inc., Research Division

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

Cindy Shaw - DISCERN Investment Analytics, Inc

Brian Freed - Wunderlich Securities Inc., Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quantum Corporation First Quarter 2013 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, July 31, 2012. I would now like to turn the conference over to Shawn Hall, General Counsel. Please go ahead.

Shawn D. Hall

Thank you, and good afternoon, and welcome. Here with me today are, Jon Gacek our CEO; and our CFO, Linda Breard. The webcast of this call, our earnings release and a quantitative reconciliation of any GAAP and non-GAAP financial measures discussed today can be accessed at the Investor Relations section of our website at www.quantum.com and will be archived for one year.

During the course of today's discussion, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements regarding our business strategy, opportunities and priorities, anticipated product launches and plans, and future financial performance. We'd like to caution you that our statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially. We refer you to the risk factors and cautionary language contained in today's press release, as well as to our reports filed with the Securities and Exchange Commission from time to time, including our most recent 10-K filed on June 14, 2012. These risk factors are incorporated by reference into today's discussion, and we make -- undertake no obligation to update them in the future. With that, I'll turn the call over to Jon Gacek.

Jonathan W. Gacek

Thanks, Shawn. Welcome to our fiscal 2013 Q1 Earnings Call. Today we reported revenue of $140.9 million and non-GAAP loss per share of $0.04. These amounts are consistent with the announcement of our preliminary results on July 9. Clearly, this is a very disappointing result on both fronts. Although the revenue shortfall was the primary cause of the $0.04 loss. Today, I'm going to address the major factors contributing to our Q1 results and then Linda will provide additional details. I will come back to address our plans for Q2 and the rest of fiscal '13.

Our revenue shortfall was primarily caused by 4 things: first, $6 million or nearly half of the shortfall was due to lower-than-expected results in Europe across all product lines; second, we didn't close forecasted big deals with the non-European portion accounting for another $4 million of the shortfall again across all product lines; third, entry-level OEM revenue was $2 million lower than expected due to a decision by one OEM customer to reduce inventory; and four, we had a one-time change in the basis on which tape royalties are reported and paid by one of the tape media manufacturers which had a $1 million impact on the quarter.

Now, let me say a bit more about each of these 4 factors. In Europe, the $6 million shortfall was due to difficulty closing deals in the last 2 weeks of the quarter. This was across all segments and all products. We believe this is a combination of the economic environment, budget uncertainty and our go-to-market model which relies on a help from channel partners to close deals with end users. We fully recognize that Europe is a difficult market right now and we are increasing our inspection of European deals and driving for more senior end-user contact, especially in larger deals.

Not closing forecasted big deals was part of the issue in Europe but was also a challenge in other reason -- regions most notably North America. We saw it across all our product lines but in -- it was particularly the case with Enterprise DXi. Basically, I'd say that in this economic climate, the bigger the deal, the higher the risk of a purchase not getting funded and appeal not being issued regardless of the size of the entity or geography, and we certainly saw this in Q1. Also, the bigger the deal, the greater the need to be close to the end user which, as I mentioned earlier, is harder with a channel-centric model such as ours. In short, this reinforces both the need to be working more deals, so if a deal falls out, we have others to work on closing and the need to get deals closed as soon as possible during the quarter. As I said earlier, not counting Europe, our inability to close big deals impacted our Q1 revenue by approximately $4 million.

The shortfall in OEM revenue was a unique situation with one of our OEM partners who lowered their forecast and revenue by $2 million during the quarter. This involved a low-end, low-margin product but impacted us at the revenue line. We believe this is a reflection of the economic climate and we have now taken necessary steps to validate our OEM partners' plans early in the quarter.

Finally, our tape royalty was approximately $1 million lower than expected due to a change in the basis on which royalties are reported and paid by one of the tape media manufacturers. This happened during the quarter. This was a one-time event that affected the timing of royalties but not the ultimate amount we will receive. So although it impacted Q1, we will believe -- we believe that we'll be on track for approximately $13 million of tape royalty this quarter.

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