Quantum Corp (QMCO) 2012 Q2 法說會逐字稿

Welcome to the Quantum Corporation Second Quarter 2012 Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for your questions. (Operator Instructions). This conference is being recorded today, Thursday October 27th of 2011, and I'd now like to turn the conference to General Counsel, Mr. Shawn Hall. Please go ahead.

Thank you. Here with me today are Jon Gacek, our CEO, and Linda Breard, our CFO. 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 at 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 14th, 2011 and 10-Q filed on August 9th, 2011. These risk factors are incorporated by reference into today's discussion and we undertake no obligation to update them in the future.

With that I will turn the call over to Jon Gacek.

Thanks, Shawn. Thank you for joining us today as we report our second quarter results. For today's call I'm going to start with a summary of this quarter's business highlights including revenue results and product launches. Linda will provide more financial color and detailed results for the quarter and then I will come back to discuss our view on the macro environment and provide Q3 guidance.

One of the key results this quarter is branded revenue growth. Our branded revenue was up 4% year-over-year and 11% sequentially. This was the eighth consecutive quarter of year-over-year branded revenue growth. Branded revenue represented 82% of our overall product and service revenue for the quarter, which is the highest since the merger of Quantum and ADIC.

Overall we had strength in our data protection products, which include our Scalar tape products, devices in media, DXi, de-duplication solutions, vmPRO appliances for virtual environments and virtual data protection software, which we acquired through our acquisition of Pancetera and have re-branded as vmPRO Software.

We also had a strong quarter with our big data management and archive products, which includes StorNext software and our recently released StorNext appliances.

At a macro level we were very strong in Asia and the Federal Government space and we saw sequential revenue improvement in Europe and in the rest of North America.

We also had significant improvement in two metrics related to the channel, which is important because growing independent channel is one of our key initiatives for driving branded revenue growth.

First, total revenue from our top tier partners increased 110% sequentially driven by DXi revenue, which was up nearly 165% sequentially and tape revenue, which increased 60% from the prior quarter.

Second, we had a sequential increase of nearly 40% in the number of channel partners who sold DXi this quarter. In both cases the July launch of the DXi 6701 clearly had a positive impact.

Now I will drill down a little deeper on a revenue performance by major product category. Disk systems and software and related maintenance, which includes our DXi, vmPRO appliance and Pancetera software from our data protection group as well as our StorNext software and our StorNext appliances from our Big Data Management and Archive group, was 306 -- sorry $36 million -- I'm thinking ahead -- $36 million for the quarter.

This product category grew 17% year-over-year and 30% sequentially driven by DXi and the rebound in our StorNext software sales from the prior quarter and the launch of our StorNext appliances.

DXi 6701/02 is based on our DXi 2.0 software, scales from eight to 80 terabytes, is multi-protocol, includes our accent distributed de-duplication software and provides twice the performance for half the list price of the comparable product from the market share leader. The 6701/02 launched at the end of July and was very strong right from the start. In fact, the 6701/02 had the most successful launch quarter of any branded system product that Quantum has introduced in terms of revenue.

The message of twice the performance at half the price resonated well with end users and, as I previously mentioned, we had improved traction with the independent channel partners as a result of 6701/02 scalability, simplicity to position, performance, price and overall value. Finally, the win rate for DXi 6701/02 was 57% in Q2.

In summary, we had a great first quarter with 6701/02. It is a very good product and it was key to our revenue performance in the quarter and will be key to our performance going forward as well.

Moving on to StorNext software and appliances, earlier in the call I mentioned that StorNext revenue improved this quarter. To be more specific, it increased 15% year-over-year and 55% sequentially. We had another strong quarter of customer acquisition but we also had a more typical quarter of sales into our installed base for both the StorNext File System and the Storage Manager.

In addition we had initial success with our StorNext appliances including the StorNext Archive Enabled Library, SAEO, StorNext M330 and Attached Storage. As a reminder our strategy is to launch a set of StorNext based appliances targeted at specific customer use cases broadening our overall addressable market and increasing the deal size. We launched our first appliance, the M330, in June and we have announced that we will launch additional models during this quarter.

This quarter's results do not include, and I'm talking about Q2, this quarter's results do not include any measurable revenue from our StorNext reseller arrangements with NetApp or Active Storage.

Moving to tape, our tape automation product revenue including both branded and OEM products, was relatively flat year-over-year and up 8% sequentially. Our branded tape automation revenue grew 5% year-over-year and 15% sequentially. This branded growth was the result of adding new enterprise and mid-range tape customers, which totaled 135 for the quarter.

We continue to increase our share as a result of the disruption in the channel from industry M&A activity, our strong tightly integrated product portfolio and the tape attach we get as we sell new DXi solutions. Tape is still used in 75% to 80% of customer's data protection architectures and we expect we will perform better than the overall tape market moving forward.

On the product development front, we are continuing to aggressively launch new products enhancements that are in the growth areas of data protect and big data management. We recently added two terabyte drives to our DXi8500 and 6701/02 appliances and in Q3 we plan to launch our DXi 2.0 software on the DXi8500.

Our new vmPRO 4601 appliance for protecting virtual machine data into SMB and remote office environments will be available in the coming weeks. As I mentioned earlier, in Q3 we will begin shipping several recently announced StorNext appliances namely the StorNext QD6000, the QS1200 and the QM1200.

On the tape automation side, we will begin offering dual robots in our Scalar i6K, enterprise tape library and finally this week we announced our new NDX-8 NAS appliance and RDX removable disk library, which provide cost effective complete de-duplication solutions for small business data protection. We expect revenue from all of these products during our third quarter ended December 31.

Overall we are pleased with Q2's sequential revenue growth to $165 million and our overall sales performance. We definitely had improvement across the board in our revenue execution. The key to growth for Quantum is continuing to leverage our proven expertise and intelligent and unique solutions to provide customers with unmatched value in meeting their data protection and big data management and archive needs.

Now I'll turn the call over to Linda for more detail.

Thanks, Jon. Now I will walk through our detailed financial results for Q2. I would like to refer everyone to the financial statements and supporting schedules included in the press release and on our website. It will be helpful to refer to those documents as I comment.

Revenue for our second quarter ended September 30th was $165 million compared to $167.7 million a year ago. As Jon said, year-over-year our branded revenue was up 4%. We grew branded DXi revenue inclusive of maintenance 21%. Branded software solutions including our recently released StorNext appliances were up 15% and we had an increase of 5% in branded tape automation revenue.

Expected declines in our OEM business and royalties contributed equally on an absolute dollar basis to offset the increases in our branded business. Royalty revenue was $14 million for Q2 compared to $17.7 million in the same quarter a year ago. The primary driver of the decline was expected reductions in DLT royalties.

For the quarter non-royalty revenue totaled $151 million of which 82% was branded and 18% was OEM. That compares to non-royalty revenue of $150.1 million a year ago of which 80% was branded and 20% was OEM. The largest contributor to the revenue increase was growth in our branded DXi revenue including related maintenance, which was partially offset by planned declines in our OEM business.

Looking further at various revenue classifications, Devices and Media totaled $21.3 million compared to $22.5 million in Q2 of the prior year. The primary driver of the decline was OEM Devices and Media revenue, which declined $800,000. As a point of reference, OEM Devices and Media revenue combined was less than $500,000 in the quarter.

Due to the events in Japan earlier this year and concern over supply disruption, we continue to report higher than usual sales of branded media, which offset declines in our branded devices business.

Tape automation systems revenue was $62.4 million compared to $62.9 million in Q2 of fiscal 2011. Branded automation grew $1.7 million year-over-year offset by a planned decline in OEM automation of $2.2 million.

Our branded enterprise and mid-range platforms experienced moderate growth in revenue while entry level automation revenue was down slightly during the second quarter compared to the same quarter in fiscal 2011.

We continue to benefit from our strong tape automation product offerings and, as we have said before, are focused on gaining market share and making money in branded tape automation. The addition of 135 new enterprise and mid-range customers during the quarter that Jon mentioned demonstrates our continued success in executing against our objective.

Disk systems and software solutions, including related maintenance revenue, was $35.9 million in Q2, up from $30.6 million in the prior year and $27.6 million last quarter.

As I mentioned earlier, we had a year-over-year increase of 21% in our Quantum branded DXi revenue including related maintenance. On a sequential basis branded DXi revenue was up 22%. This was our highest branded DXi revenue quarter to date.

Mid-range revenue nearly tripled over the same quarter in the prior year and grew 66% sequentially. As Jon mentioned the launch of our DXi 6701 and 6702 appliances was our most successful launch to date of a new branded system product from a revenue perspective. We have received very positive feedback on these products from customers, the channel and industry analysts. Offering twice the performance at half the price of the leading competitor and tremendous overall value, our new DXi 6700 products have proven to be quite disruptive in the market.

Branded enterprise DXi revenue was down 35% from the same quarter last year primarily due to the fact that last year's results included a large direct sale to one customer. On a sequential basis, branded enterprise revenue was relatively flat. However, we saw improved channel traction in both unit sales and overall revenue, both year-over-year and sequentially.

Our overall win rate in our branded DXi business was 57%. Entry, mid-range and enterprise win rates were all in the mid to high fiftieth percentile. Our overall win rate is up both year-over-year and sequentially. I would also note, as we have said before, that we believe the sale of DXi systems will pull in tape automation sales with them. To this point the number of customers buying both the tape system and DXi appliance nearly tripled from the same quarter last year and doubled sequentially.

StorNext software and appliance revenue was up 15% year-over-year and 55% sequentially marking our highest level of StorNext and related revenue to date. We had more large deals in the quarter compared to the prior quarter where our shortfall was mostly related to Storage Manager and larger opportunities.

Additionally, new customer acquisition increased significantly, both year-over-year and sequentially. We view this as a positive and although first-time customer purchases tend to be smaller deal sizes, it provides us the opportunity to showcase one of our more unique offerings and provide our expertise to an expanded customer base.

Our recently released StorNext Archive Enabled Library along with our M330 appliance and attached storage began contributing to revenue in the quarter. We anticipate that these products will continue to ramp and look forward to the launch of StorNext QD6000, QS1200 and QM1200 appliances during Q3 that will further expand our StorNext portfolio to solve a broader range of customer issues.

Moving to service revenue, it was $35.9 million in Q2 compared to $37.7 million in the prior year. Branded contract revenue was the primary cause of the decline as revenue from legacy Enterprise Automation service contracts declined year-over-year. While we have continued to post increases in enterprise tape automation revenue over the past few quarters, the service contracts related to newer technology are lower cost than service contracts on some of the legacy products.

Now turning to gross margins, non-GAAP gross margin in Q2 was 45% compared to 45.2% in the prior year period. On a year-over-year basis, non-GAAP gross margin was negatively impacted by the decline in royalties, which contribute 100% gross margin. Removing the additional margin contribution of royalties from the prior year period would have resulted in 100 basis point improvement in gross margin in Q2 of fiscal '12 compared to the same period last year, primarily driven by the growth in our branded business, which typically contributes higher gross margins than OEM business.

Looking at expenses, non-GAAP operating expense totaled $58.7 million in Q2 compared to $56.7 million in the prior year. Year-over-year the primary driver of the increase was sales and marketing spend related to incremental salaries and benefits from additional investments we have made in headcount throughout the past year.

Research and development spend also increased, albeit to a lesser degree, over the same period in the prior year due to investments and headcount in our disk and software teams.

General and administrative expenses were relatively flat compared to the same quarter in fiscal 2011.

During the quarter permitted the sale of certain patents that we were not actively using and recognized a $1.5 million gain. Although ownership of the patents was transferred we retained a license back to the patents.

Non-GAAP operating profit for the quarter was $17.1 million, or 10.3% of revenue, compared to $19.1 million, or 11.4% of revenue, in the same quarter a year earlier. The $3.7 million reduction in royalty revenue was the primary driver of the decline in operating profit compared to the same period last year partially offset by the $1.5 million gain on sale of patents during the quarter.

Interest expense for the quarter was $2.9 million compared to $6 million a year earlier. This included cash interest expense of $2.2 million and amortization of debt issue cost of $700,000. The current coupon interest rate for our remaining senior debt, $59 million at September 30, is 3.74% and the average interest rate for our total debt will be approximately 3.76% for the quarter ending December 31.

For the second quarter we had other expense of $200,000 due to losses we recorded related to our deferred compensation plan and we recognized tax expense of $300,000 primarily related to foreign and state taxes.

Summing it up for Q2, we had non-GAAP net income of $13.7 million with non-GAAP fully diluted EPS of $0.06 compared to non-GAAP net income of $13 million and non-GAAP EPS of $0.06 in the same quarter a year earlier.

Now focusing on cash flow for the quarter and the balance sheet at September 30, I would like to highlight several key points. Cash flows from operations for the quarter were $5.6 million. We paid down $30.3 million of our senior debt in Q2. At quarter end the composition of our debt was $68.8 million of senior debt and $135 million of convertible debt.

We ended the quarter with $49.5 million in cash. Bank EBITDA for the quarter was $21 million. We are in compliance with all debt covenants at September 30 and we expect to be in compliance with our debt covenants during the next 12 months.

EBITDA for the last 12 months was $71.9 million. For purposes of computing EBITDA for the last 12 months, the net loss of Pancetera software for the 8.5 months prior to the acquisition has been included in the computation.

On a sequential basis, manufacturing inventory increased $1.4 million. Accounts receivable increased $11.8 million and we had an accelerated payment of $7.7 million from one customer.

CapEx was $2.6 million and purchases of service parts inventories were approximately $400,000.

Depreciation, amortization and service products lower of cost or market expense totaled $11.1 million for the quarter.

To summarize the quarter, our revenue increased 7% sequentially and drove an increase of 13% in non-GAAP gross margin dollars and 142% in non-GAAP operating income compared to Q1. As we have said, our business model is leveraged and as we grow our revenue our results are positively impacted. In addition, we continued to focus on improving our capital structure, repaying over $30 million of debt in Q2. The term debt is now at $69 million.

Due to the progress in de-levering the Company, in late July S&P upgraded its outlook on Quantum from stable to positive. We have paid down over 85% of the ADIC acquisition debt in just over five years and will continue to utilize cash from operations to further pay down the debt this year.

Finally, I just want to provide an update on the impact to our business related to the flooding in Thailand. Currently we see minimal impact to our third quarter of fiscal 2012 as we have visibility into our supply chain pipeline and are continuing to use existing stock on hand. We will continue to actively monitor and manage this in the upcoming weeks and months with a goal of supporting our customer requirements without any interruptions in supply.

Now, let me turn the call back over to Jon.

Thanks, Linda. I want to repeat one of the points that Linda made. We have a very good business model. We generate cash and, as our revenue grows, we have significant earnings power and I think this quarter demonstrated all of those attributes.

The other point I want to emphasize is this quarter we have begun to position Quantum's proven expertise in providing intelligent solutions that have unmatched value for customers into two distinct market opportunities and related product offerings. Those groupings are data protection and big data management and archive. And, as I mentioned earlier, our data protection solutions include our Scalar Tape Automation products, Quantum Devices and Media including our new NAS appliance an RDX Removable Library, our DXi, disk space de-duplication appliances and our virtual environment offerings, vmPRO appliances and vmPRO software.

Our intelligent solutions that address the big data opportunity are our StorNext software and our StorNext appliances. We think these are distinct markets and we have aligned our resources accordingly to address them. As a result, you will hear us talk about Quantum's vision and strategic direction more and more in terms of these groupings.

Now I'll move to our guidance for Q3 and the rest of fiscal 2012. As we enter December or the December quarter, we have a lot of optimism about our market opportunity, our product portfolio and our internal sales and channel initiatives. Like the other storage companies that have reported earnings, we believe this upcoming quarter will be seasonally strong but our customers are watching budgets closely and are being selective about where they spend money. We are mindful of both this and the overall macro environment as we provide our guidance for the December quarter.

So, for those of you that have models, here's our guidance; revenue of $170 million, non-GAAP gross margin of 45% and total non-GAAP operating expenses of $61 million. Interest expense will be approximately $3 million and we still believe it's reasonable to model tax expense of $1 million for the quarter. Assume weighted average shares outstanding will be 270 million.

For fiscal '12 we still believe that both branded revenue and total disk systems and software revenue will grow over fiscal 2011. For total revenue we think it is a reasonable range of 655 to 675 given our momentum and product launches tempered by the macro uncertainty.

Now I'll turn the call over to the operator for questions. Operator?

(Operator Instructions). Our first question comes from the line of Shelby Seyrafi with FBN Securities.

Congratulations on the margin improvement in the nice results. I guess my question is on the guidance. You're guiding I think below the Street yet you're going to have the 2.0 software on the 8500 in Q4. I would think that could drive up side along with seasonality. We had a good GDP report today so perhaps talk about the timing of 2.0 software on the 8500 and why, whether you're conservative in your guidance.

Well, let me hit the guidance first and then I'll come back to the specific product question. I hope that you get the feeling that we feel good about the quarter and the direction that we're headed. Having said that, it is difficult to think about all the macro things going on around us. I agree with you. Today was a good announcement.

Candidly we didn't take that into account as we were putting this together but I think we are trying to be cautious about things that we don't control. The things that we do control we feel really good about and we also feel good about some of the things like the 8500 and the 2.1 software like the StorNext appliances and candidly we still have some new partnerships that haven't taken hold yet. So I would say we are being cautious about the economy but we are very positive.

On 2.1 specifically we are looking forward to having the whole DXi family on one software stack. We think that that's an easier set of solutions to position. I think our results on the 6701/02 this quarter demonstrate that with the product positioned correctly with the right set of features with the right performance with the right positioning we've got a -- we have a very good story and I think the 2.1 software onto the 8500 will just enhance that that much more.

Right but do you expect it to occur early in the quarter or later on the quarter?

I am looking around the room. I think it's shortly here or it will be in the middle of the quarter. I think it's the middle of the quarter yes.

Also, your gross margin improved nicely. I think you guided it a sequential decline and it grew two percentage points sequentially. And you didn't have any help from royalty so maybe you can talk about the drivers of that. My segmented gross margin model spits out a 10 percentage point increase in your DXi gross margin but that's just using assumptions. Maybe you can talk about the drivers of that gross margin improvement.

Sure. It's mostly mix and then just having more revenue to absorb the fixed costs but the moving to the 36 million of disk and software and having StorNext rebound, those are all higher than corporate margin products generally. We also grew the branded business. I think, as we said, it's a record quarter for branded. The branded business has better margins and we get a lot of earnings power as revenue grows. So it's a combination of mix and just growth.

Okay congratulations. Thank you.

Brian Freed, Wunderlich Securities.

Good afternoon and good quarter. Couple of quick questions for you, Jon, first and foremost as you look out tape market what particular industries or applications are you really seeing the most uptake for tape, one? And also, can you talk a little bit about the adoption rates for LTO-5 and are there particular features in LTO-5 or related to LTO-5 that might drive a resurgence in tape? Or do you think it's much more a function of share shift?

Well, let's start with LTO-5. Everybody has LTO-5 so it's not like it's unique to us and so I think the fact that we're growing faster than the market is more about our overall solution set. Candidly, we're the only tape company that both has products that go from small to large that has a I'll call it competitive and integrated de-duplication front end. Our DXi and path to tape capability is unique and I think Linda mentioned in hers our attach rate I think doubled or tripled this quarter with the sales of DXi so we're definitely driving more tape automation sales as we sell DXi.

As far as industries go, you know, I can't think of anything specifically. As far as I can tell, we've sold tape everywhere. I would say from a use case perspective you don't sell it as much in small environments. Those tend to be disk space but we sold a lot of mid range and enterprise tape. We sold some big libraries and we're also really excited about our new dual robot feature that will come on line this quarter. That's been a deficiency in our product line for some of the deals that we can compete in and now I think we'll be able to be in some of these bigger opportunities.

So I think we've done a good job executing on tape. I think our I layer story resonates with customers. Our price positioning is good. Our roadmaps are strong and we've made a lot of continued software improvement in the products.

My second question, kind of an industry question as well, but Overland Storage is in the process of suing BDT and they've been hinting around in the industry that you're next. Have you guys had a chance to review Overland's patents and are you concerned about that?

I prefer not to comment on their comments. I would say that just this though. We, everybody has seen that litigation and I believe that with BDT and IBM and Dell as well and we'll just have to watch and see where that is. We really haven't spent too much time worrying about it.

Okay and then my final question, what line item did your patents -- where did you put your patent sale in?

It's actually in its own line item in operating profit. Linda, do you want to--?

Yes it's right below operating expenses and above operating profit.

So it's not in revenue.

It's called out separate.

All right.

(Operator Instructions). Alex Kurtz, Sterne Agee.

Yes thanks for taking the question, guys, and good quarter. Jon, if you could just talk about the run rate of the DXi and the server system and the software last quarter you were at $36 million. Is honestly that's a good step up from June but I think where we all sort of expected this product to be at some point anyway so is that a good base level for our model moving forward is something with a 30 handle on it or a mid to high 30 handle on it moving forward at growing at some clip?

I know what you're trying to drive. I'm going to do a little marketing before I answer your question since you threw me the ball.

Oh boy.

You know, products matter and the 6701/02 is a really, really good product and I think when we get 2.1 on our software we're going to further improve the 8500, which also is a really good product and it just makes it that much better. So this is a sequentially stronger quarter for us. I would expect that we will continue to grow that revenue into this quarter and then when we see where we ended up for Q3 we can talk about Q4 but I really like where we're positioned. I think the sales team likes the products, the channel likes the products. They're very, very good and they're positioned very well so I think I'd like to think that the take off spot was last quarter and now we're moving up and we'll continue to drive to so do so, continue to drive to continue to do that.

Do you think -- I mean do you think you could hit the $40 million, not to put you in a box here, Jon, but do you think you could in the next couple of quarters you could get to the 40 level? Is that a safe assumption maybe exiting the year?

Yes well let's say it this way. I think if you just ask me to -- if you did pin me down I would say this next quarter should be a strong quarter for disk and software and we've got a lot going on around it and a 10% uptick doesn't seem that scary but we still have to go execute on it.

And just back on the patent gain here, obviously -- I'm just trying to understand why this is included in the non-GAAP operating margin because it's a one time in nature. Should we be thinking about the non-GAAP operating margin excluding that obviously moving forward?

I would say two things. There's the accounting for these types of things is not clear. You can have it in revenue. You can have it in other. You can have it where we put it. Most people put it where we did. No question it's a unique line item for us. The industry has had a lot of this activity of late.

I will say we have a very robust patent portfolio and felt like these two patents in particular, others could do more with than we could but we're a formidable -- we have a formidable set of patents and if there are opportunity to monetize them we'll continue to look at that and we'll also use them if we need to in other situations. So we try to put it in the most appropriate most common place. But I have no problem with you thinking of it as being one time, at least for anything you've seen us in the past.

And last question for Linda here, obviously there's going to be I think fluctuation in the share count, potentially related to the convert. Could you just remind us how that sort of flows through for the next couple of quarters sort of for modeling perspective like are we at that 270 level throughout fiscal '13 and the remainder of fiscal '12 or there are changes in the first half of fiscal '13?

So for Q3, like Jon said in his guidance, we would -- given the 170 number for revenue we would be using that 270 million share count and then we'll come back at the end of Q3 when we report and forecast out for Q4 where we would be. But In general, Alex, if you're between or about $8 million to $10 million in operating profit, that would be the time where you start triggering into having those 270 million shares come in versus 240 million.

Right thanks for that. Thank you, guys.

Eric Martinuzzi, Craig-Hallum.

The royalty is something that obviously has a big impact on the profitability overall. We just posted the $14 million of revenue in royalty. Is that -- as I look it trended down from Q2 to Q4 last year. Are we basing here or is there another leg down on royalty?

Well I think, Eric, we've talked about the composition of it in the past. The part that's declining is the DLT piece which is our proprietary technology. It's we're 2% or 3% of market share now if that so at some point that's going to flatten out. The other thing that happens to the royalty is that there are reductions in the royalty rates at different times based upon the contractual arrangements with the media manufacturers and those hit at different times. So it's down a little bit. I guess it's down three million year-over-year. Traditionally, generally the December quarter comes back up but I think we're on a run rate of right around 60 million I think is the way to think about it, maybe even you could probably think about it that way in the next year too.

Okay and then you had some organizational or you made some organizational moves over the last quarter, just wondering have there been -- what other changes have taken place beyond maybe the addition of the head of worldwide sales in the new PP channel. What other changes are taking place?

Yes we've started the year with a drive to get our sales teams integrated selling all of our products, both the data protection as well as the big data and archive products so we continue to move that direction around resources and where people are reporting. Another thing that we've done, which hopefully we'll start seeing benefit from is we have dedicated a very seasoned VP level person to work with Network Appliance in driving their revenue with our StorNext product. This individual is very strong, very good with customers and really understands the technology and we think his focus with the Net App team is going to yield results.

And then we've made some others; I would call them important but more down in the organization changes within sales.

But there hasn't been any kind of mass retooling of sales managers, sales reps?

No. I think the other thing that's we've done is we've really looked at -- I think we made a nice change during the year about how the teams were compensated around some of the newer products and I think that's been well received by the team and also helped drive I think some of the growth that you saw this quarter.

Thanks.

(Operator Instructions). And I am showing no further questions at this time. Management, please continue.

Thank you. Well, I want to thank everybody for joining and we appreciate the support and the comments and we are very enthusiastic about where we are. We know we have more work to do and we know we're in a tough competitive environment and uncertain economic times but make no mistake we like where we're positioned and we think we're going to grow. We'll report our third quarter, the December quarter, towards the end of January and we look forward to talking to everybody then. Thanks very much.

Ladies and gentlemen, that concludes our call for today. Thank you very much for your participation. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 and enter the access code of 4456042. You may now disconnect.