Quantum Corp (QMCO) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Quantum Second Quarter Earnings Release and Certance Acquisition Conference Call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. (Caller instructions.) As a reminder, this conference is being recorded today, Wednesday, October 20, 2004. I would now like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Thank you, Rob. Good afternoon, everyone, and welcome. With us today are Rick Belluzzo, CEO, and Ned Hayes, CFO. The webcast of this call along with 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 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 our financial projections and prospects including our outlook for the third fiscal quarter of fiscal year '05, our products, their features and benefits, market share expectations, new product releases and expected ramp cycles, our business prospects, priorities, and opportunities, our acquisition of Certance, including expected impacts and benefits of the transaction, and the general business and IT spending environment.

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 releases announcing our fiscal Q2 results and the acquisition of Certance. We also refer you to our reports filed with the Securities and Exchange Commission from time to time, including pages 34 to 45 of our most recent 10Q filed on August 4, 2004. Such reports contain and identify important factors that can cause actual results to differ materially from those contained in our forward-looking statements. We undertake no obligation to update these statements in the future. With that, I'll turn the call over to Rick Belluzzo.

Well, thank you, Lisa. Good afternoon, and thank you for taking the time to join us. Today, we would first like to discuss the exciting news that we just announced, the agreement to acquire Certance, and then we will follow with our Q2 results. Quantum has been working through a business transition for the past two years. We've made significant improvements in our cost structures through streamlining of processes, quality improvements, outsourcing of manufacturing, and much more. We've reduced our operating expenses by more than 25 percent while continuing to invest in R&D, a tremendous accomplishment. We've restructured the organization to better serve customers and develop leading technologies. We improved our balance sheet and we've released significant new products that provide customers with capacity performance, manageability, and reliability at the top of their class.

Earlier today we announced the next step in enhancing the business and expanding the portfolio of solutions we offer our customers. As detailed in the press release, we've signed a definitive agreement to acquire Certance, a privately held global supplier of tape drives and data protection solutions. The acquisition will provide two primary benefits. One, the combined company will be able to provide an unparalleled range of leading technology choices to best meet end users' individual backup recovery and archive needs. And two, the acquisition will enhance our business by expanding our product and IP portfolio, broadening our end-user base, enhancing our existing media model, further strengthening our revenue and cash generation foundation, and finally, accelerating our efforts to achieve consistent profitability. While the press release includes a lot of information, I do want to discuss the highlights.

To start, Certance generated approximately $225 million in revenue in its most recent fiscal year, which ended in June. It has been profitable and has generated a positive operating cash flow for each of the last three years. Certance has a long history of advanced technology and product development to serve customers of all sizes, and it has been particularly strong in serving small and medium-sized business customers. It has been the global volume leader in tape drives for three years running, driven primarily by leadership in DDS and DAT development and sales, and as well as entry level Travan sales. Certance is also one of the founding members of the LTO SuperDrive technology and was the first to announce availability of the third generation Ultrium drive. Certance benefits from a robust channel presence and a very successful heads business.

All of these traits are complementary to Quantum leading to a natural fit for the two companies. Quantum is a long-standing leader in serving mid-range customers with a powerful combination of super and value drives. Enhanced features such as DLT Sage for manageability and DLT Ice for compliance solution, and a full complement of autoloaders, libraries, and leading edge disk space backup solution. We developed DLT technology which continues to lead unit shipments in the mid-range market segment and maintain strong relationships with all major system OEMs and tape automation providers. Together, Quantum and Certance will be able to offer even more value to customers. The tape driver market is at a turning point with customers looking to refine their storage requirements. The model has evolved from a direct attached storage where one drive was attached to one server to a network-based approach such as NAS and SANS, and new approaches such as information life cycle management promise to facilitate a tiered storage model. The emergence of easily integrated disk space backup like Quantum's DX series tape accumulation solutions combined with a tape library has enabled customers to have the best of both worlds. That is a low cost in removability of tape combined with the speed and high reliability of disks for more effective backup recovery and archive.

In response to these changed--changing customer needs, Quantum rolled out its new tape roadmap last month. It maps out a decade of tape advances, driving capacity to more than 10 terabytes and features both current and future technology targeted directly at increasing capacity.

The acquisition of Certance and its complementary product lines will enable Quantum to provide an even greater selection of quality solutions and to provide more choice to customers regardless of product or format. LTO for customers most interested in maximizing transfer rates. DLT Super and ValueDrives for customers more interested in maximizing capacity. DDS DAT for small and medium-sized business customers who have Legacy needs are highly sensitive to tape drive and media price points or have 3½" format requirements and Travan for entry-level customers. Customers have also expressed preferences for streamlining their supply chains. By providing a one-stop shop for entry to enterprise level tape drives of various formats, autoloaders to enterprise level libraries, and disk space backup solutions that integrate seamlessly in existing environments, Quantum will expand its ability to play a larger role with these customers.

In addition to our expanded product line and customer base, we will also add Certance's media revenue stream to our existing media model, providing an enhanced foundation of profit and cash generation. And of course, we intend to capitalize on opportunities to level synergies between the two companies. That means taking advantage of the economies of scale wherever possible. Sales, R&D, marketing, distribution, manufacturing, repair and support, and more.

As mentioned in the press release, Quantum has signed a definitive agreement to acquire Certance for $60 million in an all-cash transaction. The acquisition does not include Certance's cash balance, which the sellers will retain.

Quantum will pay approximately $36 million at close and approximately $18 million with the subsequent--within the subsequent four months. In addition, approximately $6 million will be escrowed for a period of up to two years to cover the seller's indemnification obligations. The closing of the transaction is subject to antitrust review as well as other customary closing conditions. We expect to close in the fourth calendar quarter. We anticipate that the acquisition will be accretive in the first year, excluding any synergies that we realize as a result of the integration process. While it's too early to identify or quantify any synergies, we will focus on realizing as much value from the combination as possible.

Now let me turn to our Q2 results. We established four priorities for Q2. Drive top line growth through the proliferation of our new products and continued focus on increasing sales of Quantum brand new products. Continue to reduce expenses through careful and targeted reductions, improve gross margins, and focus our R&D resources on the next round of new products. I am please with the--with Quantum's solid results in the quarter and the progress we continue to make in improving the business. We increased revenue 4 percent sequentially. We reduced operating expenses to the lowest level since we sold the hard drive business in 2001. We launched a new tape drive road map that will provide customers with unmatched value. And although our gross margin did decline sequentially, as expected, our bottom line results were breakeven at the top of our expected range.

This afternoon, I'll go over results and highlights from the business units, turn it over to Ned for financial discussion, and finish with guidance and our priorities going forward. Well, let me begin with business highlights with storage systems, which produced $72 million in revenue, a 7 percent increase sequentially and 11 percent increase year-over-year. Among the four primary players in mid-range automation, Quantum has been the fastest growing over the past year. As a result of the work we've done to broaden the product line, improve our branded business, and inter--introduce innovative new products, we've been very successful growing the systems business over the past two years. Over that period, revenue has grown more than 40 percent.

Growth in our core automation business occurred across all major product categories with particular strength in the enterprise category with our PX720 library, which grew units more than 30 percent sequentially. We also saw very good growth in autoloaders with both our ValueLoader and SuperLoader products. Our disk space [indiscernible] products, both the DX100 and the DX30 showed very good growth in the quarter. In fact, unit sales of both products tripled sequentially resulting in the most units ever sold in a single quarter. We saw particular strength in the government sector with two very large government agencies and a cluster of air force bases adopting our technology. We also saw more orders that included a combination of a tape library and DEX.

As a part of our efforts to drive additional revenue, we've done a lot of work building and refining our channel sales effort, particularly in Europe. Specifically, we've seen some good success with building relationships with a number of top bars and we've improved the management team with key sales and marketing additions. We saw a benefit from those move this quarter as channel sales increased sequentially in all regions. Coupled with the good performance of our products with a less favorable gross margin profile, the system's gross margin declined from a higher than anticipated level last quarter as last quarter's results were driven by an unusual combination of favorable OEM and product mix and higher service margin. In Q2 we saw a less favorable OEM and product mix and lower service margin.

Our priorities for the system business remain clear. Continue to grow the business, to ramping up new products, and improvement of our branded business, reduce costs, and drive the business to profitability.

Now let me turn to tape drives. Drive revenue grew 6 percent sequentially to $66 million. This growth was fueled primarily by SuperDrive products with shipments increasing 14 percent quarter-over-quarter, and by sales of DS160 drives. After a slower than anticipated beginning of the SDLC600 qualification process, it's now off and running. ADIC joined overloaded Tamberg and Quantum in shipping the 600 and two additional OEM qualifications have been completed. We continue to receive excellent reaction to DLT Sage for manageability and DLT Ice for compliance solution. In fact, last week, [Oberland][ph] and Quantum introduced new compliance products that feature DLT Ice and its leading worm, a write-once read-many technology.

Earlier in the month, Quantum was honored at the TechX New York Conference with a Best of Show Award for DLT Ice. This is the same award that DLT Sage won at last year's show. Adding to the success of our most recent products is the tape drive road map I mentioned earlier.

Now to media. Q2 revenues of $42 million, about flat sequentially, but with a greater mix of Quantum-branded media, which is mentioned earlier, had a negative impact on gross margin rates. pricing in the quarter was roughly as expected. DLT taped four media royalty volumes to clients sequentially reflected the impact of last quarter's [by ford][ph] by a media company planning to change over in manufacturing locations. We continue to expect this to affect this company's purchases in Q3 and Q4. Unit shipments of SDLT media increased sequentially.

At this point, I'd like to turn the call over to Ned for some additional financial details.

Thanks, Rick. We're pleased with our top line results in the quarter with revenue increasing 4 percent sequentially to $180 million. The strength was driven by both drives and systems and across virtually all product lines. Non-GAAP operating expenses declined another 6 percent sequentially to $53 million. As Rick mentioned, the lowest level since the sale of the hard drive business to MAC store in April of 2001. While this level is due to an atypical combination of factors that went in our favor and is not yet sustainable, it is nevertheless a testament to the restructuring work that we've done and to our unyielding focus on expense control.

As a comparison, two years ago in Q2 fiscal '03, non-GAAP operating expense was $20 million higher at $73 million. In this September quarter, GAAP OpEx came in at $58 million, down 10 percent sequentially. As expected, and as we indicated last quarter, we did see a decline in gross margin rate from a very strong Q1. Q1 featured an unusual combination of positive factors, a higher mix of media royalty revenue, favorable OEM and product mix, and higher than anticipated service margins.

In Q2, non-GAAP gross margin was 31 percent with GAAP gross margin coming in at 29 percent. These results reflect a lower mix of royalty revenue, a small decline in QSS service margin, and a less favorable OEM and product mix. While we would expect gross margin rates to fluctuate from quarter to quarter, based on these and other factors, our goal continues to be to reach a sustainable mid-30 percent level.

On a non-GAAP basis we were breakeven on the bottom line, even with last quarter's performance. GAAP loss per share was 3 cents versus a 6-cent loss in Q1. The quarter's GAAP loss included--includes $3.2 million in special charges, consisting mostly of severance, a $1.2 million gain related to the sale of our snap appliance interest, and a $4.4 million intangibles amortization amounts.

Our ongoing efforts to reduce taxes bore fruit this quarter with a reduction in the tax provision line from $2.8 million last quarter to $430K this quarter. In addition to some tax advantage strategies, a recent Japan-U.S. tax treaty has resulted in the elimination of withholding taxes on royalty payments to the U.S. from our Japanese licensees for the foreseeable future. Tax expense should be less than $1 million in Q3.

We continued to generate cash with positive cash flow from operations of about $12 million and free cash flow of about $8 million. We ended the quarter with cash and short-term investments totaling $289 million, up almost $21 million sequentially. In Q3, we expect to be a small user of cash in our operations, excluding impacts [indiscernible].

Focused working capital management delivered an improvement in DSOs from 54 to 51 days. And an improvement in inventory turns from 8.3 to 10.4. Payables were roughly flat dollar-wise as were AP days at 47.

Last quarter, I spoke with you about my priorities as I started my tenure here at Quantum and about the focus on execution that we all share here at the Company. Overall, I think we've made good progress in steadily improving the fundamentals of the Company. But let me expand a bit on some of the critical action items. First, improve execution. While it's a bit early to fully assess our overall progress on improving execution, the SDLT600 progress was certainly a positive in the quarter. The corporate restructuring activities we drove in the quarter were also very positive. We will continue to emphasis execution in everything we do.

Second, drive incremental costs and expense reductions through focus on quality, process simplification, and organizational streamlining. While Q2 operating expenses were atypically low for this point in time, those results and the restructuring accomplished in the quarter depict our resolve in driving costs and expenses hard to optimal levels.

Our exhaustive review of cost and expense structure continues and with a sense of commitment across the enterprise. Quality and customer satisfaction will be major focal points going forward.

And finally, driving those actions required to get to sustained profitability while optimizing cash. We made good progress here, as the results demonstrate, especially on the cash front.

And while I am pleased with all that we've accomplished, we still have much work to do. Our priorities are clear, as Rick will discuss here in a minute. So with that, I'll turn the call back over to Rick, who will provide you that color and the outlook for the next quarter.

Thank you, Ned. Our priorities for Q3 and the rest of fiscal 2005 are one, drive revenue growth aggressively and everywhere. We are very focused on revenue growth. Two, continue our cost and expense reduction programs. We've made a lot of progress here, but we still have more work ahead of us. Three, to focus our technology resources on developing innovative next generation products such as those that are in our new road map. And finally, close the Certance transaction, begin the integration planning, and after the close, work aggressively to leverage the many benefits of being a combined company.

And going into fiscal 2006, beginning in April, we will shift our attention to the next round of new products. We believe we are well positioned, having continued to invest in R&D even during some challenging times.

With that backdrop, I'll provide guidance for the fiscal third quarter ending in December. All Q3 guidance excludes any impact of the Certance acquisition. We expect overall revenues to be approximately $185 million to $190 million reflecting typical seasonal demand. We expect non-GAAP gross margins in Q3 to be roughly flat sequentially. While product margins are expedited to increase, we anticipate a lower percentage of media royalties reflecting the previously discussed by ford in Q1 by a media company. We expect non-GAAP operating expenses to be approximately $56 million to $58 million with the increase from Q3--2 levels primarily reflecting increased expenses associated with Sarbanes Oxley compliance as well as increased legal expenses. As a result, we expect non-GAAP bottom-line results to be roughly breakeven to a slight loss. We expect GAAP gross margins in Q3 to be roughly flat sequentially. We expect our GAAP operating expenses to be between $57 million and $59 million. The GAAP to non-GAAP differences reflect amortization of acquisition related intangibles of $4.4 million. As a result, we expect GAAP bottom-line results to be roughly flat to slightly down.

So to close, we are pleased with our Q2 performance and we're very excited to announce the acquisition today. The benefits and opportunities it provides along with the strength and foundation that we have developed bodes well for the future of Quantum. While we won't be able to answer any detailed questions about the integration of Certance, because that process won't be given until after closing, I will open it up for any general questions that you might have. Thank you. Operator?

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session. (Caller instructions.) Our first question comes from Harry Blount with Lehman Brothers. Please go ahead.

Hi guys. Rick, I understand your caveat with Certance in terms of not being able to answer specifics on synergies. I was wondering if you might be able to, however, provide some additional color in terms of the revenue mix that they have at a high level between things like media versus hardware, royalty, kind of the sales mix direct versus channel, that type of thing, just to understand better how it fits with the Quantum organization overall.

Okay. Will do. I'll let Ned take that.

Hey, Harry. Long time, no speak to. Glad to--glad to see you're still following the Company here and looking forward to working with you going forward.

Same here.

Just on a product revenue breakdown, it won't be disclosed publicly, but I'll give you a broad barometer. DBS and DAT and Travan represented a bit more than 50 percent of revenue in fiscal 2004. The remainder of that--of that revenue split would be LTO, media, tape heads business, and service representing the remainder. With regard to our channel splits, about 55 percent of revenue in fiscal '04 went through the OEM channel, while 45 percent went through their branded channels.

You know, another way to look at that--I think it speaks again to the complementary nature of what we're doing. We have very little business at the low end today. They've got a pretty strong established position there. We have strong capabilities in the mid-range where they have come up with some new product innovations and opportunities there with LTO that we can complement. That's what we do well. So it does fit together, you know, quite well. And whether serving OEMs or channel customers, we have a very strong offering that allows us to, you know, to deliver a broad set of customers with a common infrastructure and a common capability.

Great. Thank you.

And our next question comes from Dan Renouard with R.W. Baird. Please go ahead.

Thanks. I'm wondering if you could help us out with the schedule. What should we be expecting, and I know it's not all under your control, but just loose guidelines on when you're currently thinking this might close.

We said that it will close this--in this quarter, by the end of the year. You know, we have to go through HSR and, you know, that's always the unknown. I mean, there is no shareholder approval required on their side. It's a private company. I mean, all those things are pretty straightforward.

Can you speak to how profitable Certance is? I mean, I'm guessing it's not far above breakeven.

Well, let me take that one. This is Ned. Anticipating a number of different questions on the financial front, let's just kind of go through what their fiscal 2004 audited financials look like. Now Rick has already eluded to the fact that they had very nice revenue of about $226 million.

Just so we're on the same page, fiscal '04 is a March quarter?

That is a July 2, 2004 fiscal yearend.

July--okay.

Okay. So if you take a look at that GAAP gross margins off that revenue level about $66 million or 29 percent, an OpEx run rate that looks around $53 million in that same year. The splits on that, roughly R&D $30 million, M&S $12 million, G&A $9 million that will give rise to, again, a fiscal 2004 GAAP income from operations around $13 million, a net income of about $10 million, and about $18 million in positive cash flow from operations. A pretty strong little company.

And then, how much is LTO? You quantified DDS and DAT. Is LTO 25 percent?

There's two ways to think about LTO. One is the drive and the other is the media flow. And the media piece is--you know, the drive piece is not--is not really significant as of yet. I think that's--that's a growing part of the company.

So I--just, in aggregate, how significant is LTO?

Dan, this is Lisa. It's actually not broken down in that much granularity at this point.

Okay. In terms of the LTO vendors, I guess, does the LTO media that Certance sells, can it be on HP or IBM or anyone's LTO media or anyone that--anyone's drives I take it? Or is it restricted to the certain drives?

They have a--we can't really disclose the media arrangement, but it is an arrangement, a sharing that exists across the consortium, and they have a--they have a model on which they--on which that is done. That does--that does not just include what's sold on their drives.

And then, who are the primary media customers?

The media OEMs is a fairly rich list of people with Fuji, Maxell, Imation, TDK--.

--Sony--.

--Sony.

Okay. And then, in terms of Certance is there any--how many--maybe customer concentration, 10 percent customers, how many 10 percent customers?

They do have top customers. Certance had two 10 percent top customers in fiscal 2004. Dell was a 23 percent customer, and IBM, a 14 percent customer.

Okay. And then I guess just have you talked to any of--I would imagine not, but have you talked to any of their customers before making this transaction?

Yeah, we're making--we're having discussions with analysts and customers and it's been an incredibly positive discussion. People see the value of the commitment we have to the market and being able to serve customers with this broad range of products. So it's been a very good, very positive experience.

Okay. And then my last question, and I apologize for all these questions. But this is a pretty radical move, certainly relative to some of the things I think you've said in the past, or maybe it's not completely as radical as that. But you have indicated in the past that LTO was an area you were not interested in playing. Now at least part of what--your Company's is going to be playing in LTO. Is there any additional consideration or any thought to getting out of the library business or is that on the table or is that something you--I mean, obviously, you can't talk about it.

Well, it's not--it's not on the table. It's not something that we, you know, we can talk about. This from a strategy perspective really is totally consistent with what we've tried to do, which is the fact that we've always said it was important to have a solid foundation for the Company around tape drives and media, that that was a business model and a mature largely business that had tremendous cash generation and profit potential. In order for that, you know, vision to work we had to get more critical mass. I mean, we really felt it was necessary to expand the portfolio and be able to utilize all the infrastructure we have across more volume. And so, we think it does that--this does that and it very much is consistent with the strategy that we have. Going forward though, you know, the growth and innovation, and--you know, will also occur in other areas. And that's why we felt it was simultaneously important to get the system business to critical mass, which we are making progress in.

But we have to follow that through by getting that business to profitability, which we feel we've made good progress on. There have been many, many efforts that have had to be pursued in terms of the very complex product lines that came from multiple acquisitions and multiple sites around the world with different financial systems, and all of the stuff that we had to deal with. We are largely through and we are simplifying the product line, improving growth, and feel that that two-prong strategy coupled with our growth and disk-based backup, that we have a very rich downstream profit-generating capability. There are more. We're just, again, getting ready on our next round of new products. And, you know that's the--the decision we made early on was to invest in innovation and products and growth in spite of all this. And we feel this is--at this point we have a really good portfolio going forward.

Thanks.

And our next question comes from Glenn Hanus with Needham & Company. Please go ahead.

Hi guys. Just following up on the last question. On LTO, you know, Certance has always been a distant third. And I saw something in the press release about you announced--they announced LTO3 I guess earlier. And yet, it--you know, it competes with the Super DLT stuff and the razor-razorblade business model you kind of have with Super DLT. I was just wondering if you had any thoughts about whether that--you know, that LTO and LTO3 piece of it was something you would de-emphasize going forward or emphasize, and any thoughts there?

Well, I would say a couple things. First, the quick answer is no, we're not going to deemphasize LTO. We think LTO is obviously well accepted in the industry and the fact that Certance was a leader in shipping LTO3 we see as a plus. And so, we intend to capitalize on it. When we announced our new roadmap a few months ago--a couple months ago, we really worked long and hard to define what value around DLT we could bring that, you know, that makes its position in the industry something of important value. And we decided that we were focusing our product line on capacity along with some of the capabilities like the Write Once capability and other things that we've integrated. So we think today we have a complementary story between DLT and LTO, and we're not gonna shy away anyway from the LTO offering. We think that both business models can be good. They both have different but some form of razor-razorblade component to it. And we think one of the real pluses we have is that we can have, you know, both product lines, both formats, and that we can position them for success and really meet the choice needs the customers have.

Is the drive business of Certance in effect profitable without media?

They don't--we haven't had that information broken down to that level of detail.

Okay. And I--.

--And it's changing frequently because the media piece is becoming a more important piece of the Company as the LTO install base grows.

Okay. And when you said accreted in the first year, given they're profitable, I guess right now, you mean they'll be accretive in the first quarter or will that take a while given some integration?

Yeah, we're saying the first year. It is a profitable business, so obviously, saying its accretive is not a bold statement given that we've maintained their profit when we're, you know, at a--running around this breakeven rate. So, you know, as we put this business together we will put it together to get the best overall capabilities for our customers and for the Company and we'll continue to work and gain efficiencies around it as, you know, as we move forward. So we think that's a real plus short-term as well as we transition through the year.

This is Ned. Just to follow on that, we continue to give guidance one quarter in advance. Just so you know, we do expect to file, as required, an amended 8K within 60 to 70 days following the close of the transaction. And that'll include full Certance financials as well as pro formas.

Okay. And maybe any, you know, conceptual thoughts of where the synergies will really come from, you know, selling, using their channel, or through the--you know, how the synergies may come from a revenue standpoint, or then on the plus side, are there some duplicative operations or, you know, can you give us maybe just at a high level you're thoughts and emphasis on where there might be some synergies?

Well, we think there are many. We think it's exciting. I am not prepared to go through them now, because we really want to go through the planning process and decide which ones we will focus on and I don't want to speculate about those right now. But we know there are many, both in terms of revenue as well as cost. And we're just gonna, you know, we have to be thoughtful about our investments and how we optimize those. But they'll [indiscernible] confused about stock that we want to make this a positive combination that brings Quantum more quickly to a sustained rate of growth and profitability. That is totally our mission and focus in everything we do and this transaction is certainly an important element of that.

And maybe lastly, to the extent you are able to comment, you know, there's been obviously a lot of chatter in the trade rags about HP and Storage Tech's SL500, and indicating sort of maybe a tenuous position for you in the high end there with HP. Can you give us any color there?

Yeah. We don't think we have a tenuous position with HP at the high end. We know the same, you know, rumors that HP is looking at filling this gap in their--in their product line. And as I mentioned in our results, our PX720, the [indiscernible] is doing well, and so we're not feeling that--that that's a threatening situation.

Okay. Thank you.

And our next question comes from Robert Jaworski with Jeffries & Company. Please go ahead, sir.

Hi. What was CapEx and D&A during the quarter. Maybe you have guidance for those for next quarter?

I'm sorry. I didn't hear. You broke up there a little bit.

Okay. I'm looking for CapEx and depreciation and amortization values for this quarter.

Okay. For the most recent quarter, the total operating cash flow was $12 million, CapEx was a $4 million expenditure, depreciation was 5.6, and amortization of intangibles about 4.4

And you have guidance for the next quarter for these?

Amortization for intangibles will again be about 4.4. Other than that we haven't given any specific guidance.

Okay. Thank you.

(Caller instructions.) One moment please for the next question. At this time we have no further question. I would like to turn the conference back to Management for any concluding comments. Please go ahead.

Well, thank you again for joining us. We are excited about the quarter. We are excited about the announcement today with Certance, and we really do believe that the combination of the progress we've been making on the foundation of the Company along with the opportunity to get more critical mass is something that we'll combine for some much-improved results going forward. That's our vision for all of this. And we look forward to talking to you more about it in the future. Thank you.

Ladies and gentlemen, that concludes the Quantum Second Quarter Earnings Release and Certance Acquisition Conference Call. If you would like to listen to a replay of today's conference you may dial 303-590-3000, using pass code 11010183#. Thank you again for your participation on today's conference call and you may now disconnect.