Quantum Corp (QMCO) 2015 Q4 法說會逐字稿

Good day, and welcome to the Quantum fourth-quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Shawn Hall, General Counsel. Please go ahead.

Thank you, and good afternoon and welcome.

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 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 6, 2014; and 10-Q, filed on February 6, 2015.

These risks factors are incorporated by reference into today's discussion, and we undertake no obligation to update them in the future.

With that, I'll turn the call over to Jon Gacek.

Thanks, Shawn.

Welcome to our Q4 fiscal 2015 conference call. Today we announced a very strong end to our fiscal year, with total Q4 revenue up 15% year over year and branded revenue up 20%. Growth was driven by scale-out storage and related service revenue, up more than 115%, and DXi and related service revenue up 30%. We also reported non-GAAP net income of $18 million, up significantly from the comparable period last year.

Linda will walk through the details of our Q4 results, but first I want to highlight several key points from our strong financial and operational execution in fiscal 2015.

Throughout the year, we continued to build on our momentum and achieved our best year-over-year total revenue performance in eight years. From a financial standpoint, our total annual revenue of $553 million came within $70,000 of surpassing fiscal 2014, despite a nearly 20% year-over-year decline in OEM revenue and the fact that the prior year included $15 million in revenue from a one-time royalty payment. Excluding that payment, we grew total revenue 3% year over year.

Looking at branded revenue, it was up 7% over fiscal 2014, as we drove year-over-year branded revenue growth each of the quarters of the fiscal year.

A key driver of our branded growth was our scale-out storage portfolio, where product and related service revenue grew nearly 75% year over year in fiscal 2015 to a record $102 million.

The tremendous momentum we are seeing in this product line is reflected in the increased year-over-year growth rates we experienced each quarter. We grew approximately 40% in Q1, 60% in Q2, 80% in Q3, and more than 115% in Q4.

Another driver of our revenue growth was DXi product and related service sales, which were up 10% over fiscal 2014 to $88 million. I will go into more detail about our success in executing on the scale-out and DXi growth objectives shortly.

Moving beyond revenue to other non-GAAP financial metrics for fiscal 2015, our gross-margin rate of 44.7% was the highest in more than five years. Our operating margin of 6.2 was the highest in three years, and we generated more than $38 million in net income, or $0.14 per diluted share, our best performance in four years.

In short, we executed very well this past year, both in terms of growth and profit objectives, and our results reflect the strength of our business model and the leverage it provides. At the same time, these results further validate the multi-year business strategy we've been pursuing, which I will address now.

Several years ago, we made a decision to expand StorNext beyond just the software-only offering, as we recognized the unique value it was providing in [larger-]solution deals and the opportunity for us to capture more of the spend in these deals.

Since then, we have moved from StorNext being just a standalone software product to serving as a foundation for a set of appliances initially, and then, starting just over a year ago, for a complete family of solutions.

These StorNext Pro Solutions, which have continued to build out over the past year, include specialized offering for meeting today's most demanding workflow challenges, such as managing 4K video.

They are also based on our next-generation StorNext 5 platform, which we launched at the start of fiscal 2015 and represented another strategic milestone.

StorNext 5 provides a unique combination of the highest file-streaming performance in the industry; the lowest cost of storage, through the ability to move data to different storage tiers; and the ability to seamlessly bridge applications and workflows from corporate data centers to public clouds.

These tiers include our Lattus extended online storage, on object-storage-based solution that we added to our portfolio a few years ago; as well as Q-Cloud Archive, which was just launched in Q4. Q-Cloud Archive enables StorNext users to realize the full benefits of the public cloud as another storage tier, without having to make any change to their existing applications or processes.

By moving to a StorNext 5 based solutions model and integrating Lattus and the cloud, we have been able to build on our leadership in the media and entertainment market and extend our reach to other verticals and use cases where we're uniquely positioned to address their workflow needs.

In the media and entertainment space, our product revenue, including corporate-video revenue, grew 155% year over year in fiscal 2015, and nearly 190% in Q4.

In addition, some of our largest deals this past year, including our largest deal of more than $4 million, were for corporate-video use cases involving both StorNext and Lattus.

Finally, outside of media and entertainment, scale-out storage product revenue increased 13% over fiscal 2014 and more than 70% year over year in Q4.

As I'll discuss later, in Q4 we also laid the foundation for a significant push into the video-surveillance market in fiscal 2016 and intend to capitalize on StorNext's unique value in other verticals and use cases, as well.

Another area where we have benefitted from strategic actions we've taken is our data-protection product line. In the last 18 months, we've simplified our DXi portfolio by centering on two new platforms, DXi 6900 and DXi 4700, which offer best-in-class performance and scalability.

We have leveraged the streamlined portfolio; our industry-leading deduplication technology; our market-share leadership in tape automation; and the more cost-effective, solution-level approach in our sales and marketing efforts to capitalize on customers' evolving data-protection needs.

This has enabled us to return to a growth path with DXi, which, as I mentioned, had a year-over-year revenue growth of 10% for fiscal 2015 and 30% in Q4.

In addition, we believe our DXi momentum and our ability to offer customers a combination of best-in-class, tightly integrated disk and tape system enabled us to maintain our market-share leadership in tape automation.

The final point on strategic execution I wanted to highlight relates to our expanded market reach through channel and technology partnerships. This has been a key priority over the past year, and we've made significant progress.

In fiscal 2015, we increased the number of scale-out storage resellers by 38%. In addition, we established new technology partnerships in forensics for cyber security with FireEye; video surveillance with Milestone and 3VR; oil and gas with Avere; and cloud services with Amazon.

We also announced two new initiatives with NetApp; a joint-sales effort in Europe around a cobranded DXi, incorporating their E-series disk; and a more focused go-to-market initiative in North America, in which we began selling their E-series disk as a part of a larger StorNext workflow solution through select media and entertainment and federal government resellers.

Beyond this, we expanded our partnership with Fujitsu, offering North America customers a joint solution for enterprise and mainframe backup and archive storage that encompasses Fujitsu disk and Quantum tape technologies.

Most recently, we announced a new partnership with Dot Hill, in which we are integrating its full line of enterprise-class disk systems into our tiered-storage offerings.

Lastly, we have a new technology partner program called Quantum Advantage that will reinforce the strength of our ecosystem relationships across all the markets that we serve.

To sum up, fiscal 2015 was a key turning point for Quantum, with strong revenue and profit results that reflect the strategic actions we've taken to improve our financial and operational performance, deliver greater value to customers, and to position the Company for the future.

I will talk more about how we plan to build on this momentum in fiscal 2016 and provide Q1 and full-year guidance after Linda discusses last quarter's results in more detail. Now I'll turn the call over to her.

Thanks, Jon. Before I walk through our results, 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 reference those documents as I comment.

Total revenue for the fourth quarter ended March 31 was $147.8 million, compared to $128 million a year ago, an increase of 15%. As Jon indicated, branded revenue grew year over year for the fourth quarter in a row, up 20% to $122.1 million.

Scale-out storage and related service revenue was up 116% year over year to an all-time high, driven by revenue growth across all [GOs] and revenue from big deals nearly tripling. Disk backup systems and related service revenue was up 30% year over year, driven by revenue growth in all GOs and an increase in big deals.

Branded tape automation was up 5% year over year, driven primarily by growth in our mid-range offering. Slightly offsetting these increases was a decrease in OEM tape automation of 10%.

We are pleased with the continued growth in our branded business, which more than offset the decline in our overall OEM business. In total, our OEM business contributed $14.8 million of revenue in the quarter. For the quarter, non-royalty revenue totaled $136.8 million, of which 89% was branded and 11% was OEM, compared to 87% branded and 13% OEM a year ago.

Total revenue for fiscal 2015 was $553.1 million. This was an increase of 3% over the $538.2 million in fiscal 2014, which excluded the $15-million one-time payment we received from Microsoft in Q1 of fiscal 2014.

Fiscal 2015 scale-out storage and related service revenue was up 74% to $102.4 million, and disk backup systems and related service revenue increased 10% to $88.2 million.

These increases were offset by year-over-year revenue declines of 22% and 7% in OEM and branded tape automation systems, respectively, and an 11% decline in devices and media.

Our fiscal 2015 branded business grew $29.8 million, an increase of 7% year over year. Non-royalty revenue totaled $511.3 million, of which 88% was branded and 12% was OEM, compared to 84% branded and 16% OEM a year ago.

I'll now walk through our revenue results, starting with our data-protection products.

Tape automation systems revenue was $35.9 million, compared to $36.2 million in Q4 of fiscal 2014. Branded tape automation revenue increased $1.1 million, or 5% year over year, due to increases in midrange and entry-level revenue, which were partially offset by a decline in enterprise sales. Revenue from large deals, those over $200,000, was down 32% from the same period in the prior year.

Our win rate increased to 78%, and we acquired more than 100 new branded midrange and enterprise customers for a total of approximately 405 new customers in fiscal 2005.

From an OEM perspective, tape automation revenue was down $1.3 million, or 10%, from Q4 of fiscal 2014. The decline in OEM tape automation revenue was driven by reductions in sales of entry-level and enterprise categories, partially offset by an increase in midrange products.

Moving to DXi and related service revenue, it was $25.2 million, up $5.8 million, or 30%. Increased revenue in all GOs drove the year-over-year growth. We saw strong revenue growth in systems over 80 terabytes with revenue more than doubling over the same period last year.

We had a 77% increase in revenue from big deals, and our overall DXi win rate increased significantly to the mid-[60th] percentile. We also added approximately 85 new customers in Q4, for a total of approximately 325 in fiscal 2005.

Finally, as it relates to data-protection revenue, devices and media totaled $18.5 million in Q4, compared to $18.7 million in the prior year. Lower revenue from devices was almost totally offset by increased media revenue.

Turning to scale-out storage solutions, as I mentioned, our product and related service revenue increased 116% year over year to an all-time quarterly record of $31.7 million. We have grown quarterly revenue from our scale-out storage solutions on a year-over-year basis for 15 consecutive quarters.

In Q4, we delivered strong year-over-year growth across StorNext, Lattus, and related scale-out storage service offerings. We were particularly pleased with the increasing adoption of our StorNext appliances and Pro solutions and Lattus momentum.

We delivered revenue growth in all GOs over the same period in the prior year, and the number of worldwide partners selling our StorNext products increased nearly 40%. Overall, scale-out storage win rates increased significantly for the quarter, to the mid-80th percentile.

From a customer-acquisition standpoint, we added approximately 70 new scale-out storage customers in Q4 and approximately 315 new customers in fiscal 2015.

Scale-out storage and related service revenue for the full year was $102.4 million, an increase of 74% from fiscal 2014, well over the 50% growth rate we were targeting last year.

Moving to service revenue, it was $38.8 million in Q4, up 3% from $37.6 million in the same quarter of the prior year. The increase was primarily driven by growth in branded contracts related to our StorNext appliance strategy.

Royalty revenue was $11 million, which was flat with a year ago. LTO-6 royalties more than doubled, offset by a decrease in royalty for LTO generations 1 through 5.

Turning to gross margins, non-GAAP gross margin was 42.4% in Q4, up 50 basis points compared to 41.9% in the fourth quarter of fiscal 2014. The improvement reflects the positive impact of the changes we have driven in our operations, repair, and service business models. Offsetting this was a decline in material margin related to changes in our overall revenue mix for the quarter.

Looking at expenses, non-GAAP operating expenses were up $2.5 million, or approximately 5%, totaling $56.5 million in Q4, compared to $54 million in the prior year.

Year over year, our sales and marketing costs increased $3.1 million, primarily due to an increase in sales commissions related to the growth in branded revenue and higher marketing spend. Research and development expenses in and general and administrative costs each declined by approximately $300,000.

Q4 non-GAAP operating income was $6.3 million, compared to an operating loss of $159,000 in the same quarter a year earlier. This resulted in a non-GAAP operating margin of 4.2%, a year-over-year improvement of 430 basis points, which was driven by the changes we have made in our business model.

Interest expense for the quarter was $2.1 million, which included cash-interest expense of $1.7 million and amortization of debt-issue cost of $400,000. Interest expense decreased $300,000 from a year ago, as we repaid $50 million of our convertible debt in January 2015. The average interest rate for our $153.7 million of convertible debt is slightly less than 4%.

In Q4, we had other income of $13.6 million, primarily related to a gain on sale of an investment in a privately held company. We also recognized a net tax benefit of $200,000, primarily related to monetization of certain tax credits, which offset our foreign and state taxes.

Summing up Q4, we had non-GAAP net income of $18 million, or $0.06 per share, compared to non-GAAP net loss of $2.1 million, or $0.01 per share in the same quarter a year earlier.

Given that our non-GAAP net income level this quarter requires the inclusion of shares for both our convertible debt and the EPS denominator, we have included approximately 66 million additional shares related to the [converse] in the denominator and added $2 million of related interest expense back to the numerator.

Focusing on cash flow for the quarter on the balance sheet at March 31, I would like to highlight several key points.

Cash flows used in operations for the quarter were $5.1 million. On a sequential basis, accounts receivable increased $13.5 million, and manufacturing inventories increased $12 million.

EBITDA for the last 12 months was $43.3 million. CapEx was $400,000. We repaid $50 million of convertible debt during the quarter. And at March 31, our debt consisted of $153.7 million of convertible debt with no covenants and no early-call provisions. There were no amounts drawn on our revolver at quarter end. Therefore, we have no financial covenant-compliance requirements.

In closing, I wanted to summarize our results for fiscal 2015 compared to fiscal 2014, excluding the one-time payment from Microsoft we received in Q1 of last year and the gain on the sale of an investment in Q4 of fiscal 2005.

Overall revenue was up 3%. Branded revenue was up 7%. Non-GAAP gross margins increased 190 basis points to 44.7%. Non-GAAP OpEx was down to $213 million, compared to $222 million. We generated $34 million of non-GAAP operating income and $24 million of non-GAAP net income in the fiscal year. This was $26 million above both non-GAAP operating income and non-GAAP net loss for fiscal 2014.

From a balance-sheet perspective, we ended the fiscal year with over $70 million in cash and cash equivalents. In addition, we have an unused revolver of $75 million, and we expect to generate free cash flow in fiscal 2016.

With our cash on hand, the available revolver, and the generation of free cash flow, we have the ability to pay off the $84 million in convertible notes when they come due in November 2015.

Now let me turn the call back over to Jon.

Thanks, Linda. As we begin our new fiscal year, there are a number of important trends driving the storage market. These include the continued growth in unstructured data, such as video, audio, and images; the increasing business value of data over time, and the pressure to monetize it; the importance of being able to collaborate across geographies; and the desire, or even the mandate, to leverage the cloud.

We believe these trends have implications for the kind of storage solutions that will increasingly prevail in the market. First, all data must be treated as having value. Second, performance is essential. Third, being able to share and access data is core. Fourth, storage platforms must accommodate data that has no boundaries. And fifth, TCO is critical.

All of this plays to Quantum's strengths and makes us well positioned to build on the momentum we've established over the past year in both scale-out storage and data protection, to deliver additional growth and profit.

In terms of our scale-out storage plans for 2016, we will further expand our portfolio of full StorNext solutions with the goal of enhancing the customer experience, significantly growing our addressable market, and benefitting from higher ASPs.

We will also continue to focus on increasing our StorNext 5 appliance footprint with large install-base customers, particularly by [deploying] more disk, object, tape, and cloud storage.

In doing, so we will leverage our Q-Cloud service offerings announced last quarter, both Q-Cloud Archive, which is already available, and Q-Cloud Vault, which will be available later this year. Q-Cloud vault provides cold storage in a public cloud for long-term data retention and disaster recovery, but fully managed by StorNext.

We're also excited about our recently introduced Artico intelligence NAS archive appliance, which serves both our scale-out storage and data-protection customers.

Artico offers those using scale-out NAS systems a flexible, low-cost entry point for establishing archives outside of a StorNext environment, with the ability to scale to hold petabytes of content across our Lattus, tape, and cloud storage tiers.

Powered by StorNext 5 software, it incorporates StorNext storage-manager policies to put the right content in the right place at the right time for maximizing storage efficiency and reducing total costs.

Another scale-out storage priority is to build on our leadership in media and entertainment, in both large broadcast and post-production facilities and the midmarket, with particular focus on 4K workflows and [Apple XN] environments.

At the same time, we will leverage our broadcast and post-production expertise into related areas such as corporate video, call stations, and ad agencies.

Beyond media and entertainment, we will make a major push into video surveillance, as I mentioned earlier. This is a rapidly growing market, with more and more cameras operating at higher resolutions being deployed. In fact, nearly an exabyte of total data is captured each day, and the data must be retained for increasingly longer period of times.

All of this means the underlying storage infrastructure is critically important. Performance is essential to ensure that no video frames are dropped during the ingest of the footage, as dropped frames result in incomplete or degraded images that can undermine analysis.

Because budgets are not unlimited, the footage must also be retained as cost effectively as possible. These are exactly the types of storage challenges StorNext has long addressed elsewhere, so video surveillance offers a significant opportunity for Quantum, and it also includes tape.

Given the retention requirements and the fact that much of the footage captured in surveillance can be put into cold storage, tape has a clear roll to play in a video-surveillance storage strategy in today's world. We think our unique value of performance, storage tiering, and seamlessly integrating with the public cloud are a great fit for this market.

In addition to surveillance, other key verticals we will target include network forensics for cyber security, government intelligence, and high-performance computing.

In all these markets, the ability to ingest data extremely fast, retain it indefinitely, and access it whenever and wherever needed, all as cost effectively as possible, is critical.

Our scale-out storage solutions are specifically designed to deliver this. And as we've seen in the case of 4K media workflows, the general-purpose IT-centric solutions offered by so many of our competitors simply can't meet these needs.

Given this and all the opportunities we see in scale-out storage, we expect to grow revenue in this area 50% year over year in fiscal 2016.

Turning to our data-protection plans for 2016, our best-in-class technology in both disk and tape, and the tight integration of our two product lines, are key strengths; and we will continue to focus on increasing our combined tape/disk market share to drive more profit and cash, as well as growth.

In addition, this year we have more to offer data-center customers, in terms of archives, as already reflected by the introduction of Artico and a new DXi archive solution a few weeks ago.

Having set new standards for high-performance backup and overall value, our DXi 6900 and DXi 4700 appliances are now available with Arkivio data-archiving software, providing both backup and archive functionality in the same multi-purpose appliance and significantly improving the ROI of a DXi investment.

On a similar note, we will also increase the value DXi can bring to customers through our Q-Cloud Protect for AWS service. Announced in January and available later this year, Q-Cloud Protect for AWS is a subscription service through Amazon Marketplace, which enables customers to replicate from either a physical or virtual DXi appliance on premise to a virtual DXi in the Amazon web-services cloud.

Another key priority in 2016 that cuts across both scale-out storage and data protection is capitalizing on our new go-to-market partnership with Dot Hill that I mentioned earlier.

We already use Dot Hill storage in the form of the StorNext QXS disk systems, including the StorNext QXS 5600, which has been extremely well received by customers.

As we continue to build on our scale-out storage leadership in select vertical markets and use cases, we will leverage Dot Hill's technology to address customers' specialized storage requirements.

On the data-protection side, we have a large install base of customers that have long relied on us to meet their data-protection needs and to help them adapt to an ever-changing storage demand.

By incorporating Dot Hill disks into our portfolio, we will now be able to offer these customers an even broader range of solutions for storing and protecting data, including tiering data within and across primarily storage, backup, and archive.

With that background for fiscal 2016, let me turn to guidance.

For Q1, we expect total revenue of $125 million to $130 million, with scale-out storage revenue projected to grow 50% over Q1 of last year. In addition to typical seasonality, our revenue estimate reflects the fact that last quarter was very strong and a lot of significant deals closed towards the end of the quarter, as well as our caution regarding OEM revenue based upon the performance last year.

Beyond revenue, we expect non-GAAP gross margins of approximately 45% to 46%, non-GAAP operating expenses of $54 million, and non-GAAP operating income of $3 million to $5 million. We also expect interest expense of $1.9 million, taxes of $400,000, and non-GAAP net income of $1 million to $3 million, or break-even to $0.01 per diluted share.

For the fiscal year, we're not providing specific guidance ranges in dollars, but we are targeting total revenue to grow 4% to 5% year over year, with scale-out storage growth of 50% over fiscal 2015. In addition, we are targeting operating income to increase 8% to 10% year over year.

Given our focus on growth and the significant market opportunity we see, to the extent we exceed the total revenue targets, we expect to reinvest into the Company to deliver further differentiated solutions, pursue additional go-to-market initiatives, and improve long-term growth for the business overall.

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

(operator instructions) Chad Bennett, Craig-Hallum.

Thanks for taking my questions. Nice job on the quarter. The StorNext growth was great, and it sounds like obviously we're expecting good growth this year. Just on the fiscal 2016 guide -- if we back out the scale-out growth of 50%, that implies, I think -- it depends on how you mix it up, but a pretty big deceleration in DXi growth and/or tape declines that are at or above historical norms. Are we just being conservative, or could you provide any other color into the other segments of the business and how you're thinking about them next year?

So first I thought you were going to comment on the 30% DXi growth in Q4 (laughter).

I'm assuming it's going to grow 30% again this year, which would mean the guidance doesn't make sense.

We're really targeting the market around -- on that piece. Basically, one of the things we decided to do is, we have so many really strong moving parts for the year that we wanted to get Q1 under our belt. And we'll provide more guidance as we get along, here. We think there's a huge opportunity for us in video surveillance. And we want to see how that materializes.

I think, from a plan perspective, we expect DXi to grow next year. We expect tape to kind of be down in the 5% to 7% range. And I think if you do all that math, that should be pretty close to reconciling.

Okay. And --.

And you know, the OEM piece -- I commented on that for the quarter -- it's down to -- it's half the size of scale-out now, less than half the size. It's still about $60 million. It, by far, is the piece that we have the least control over and the lowest expectations for, for next year.

Having said that, it's getting to be a fairly nominal amount compared to the other growth pieces. So it just depends, I think, Chad, on what you pick for all those pieces.

I think for the royalty -- it's been a great royalty year for tape, better than we anticipated at the start of the year. It's hard to forecast it that way, but tape's increasing role in archive might surprise us. So I think the second thing that's down in that analysis is royalty.

Okay. So royalty kind of -- from our expectation's standpoint should be down in line with tape?

I'd probably make it a little over -- probably 10% for the royalty and probably 7% for tape. That's what we're starting with.

And as you know -- and you've asked this question before -- because tape is such an important part of the Company, both in terms of install base and profitability, we're trying to not -- we're going to drive to get every tape dollar we can. But from a modeling standpoint, if we miss it on the revenue, it hurts us from a profitability standpoint. So we're trying to be conscious about that.

And then a couple things more. On the scale-out growth that you're talking about, 50%, I know you're definitely investing in penetrating into new verticals there. But can we get to the 50% growth just -- I don't know if you call it blocking and tackling in the media and entertainment market and just growing within that vertical, or do we need these other verticals to really kick in to achieve that 50% growth rate?

I would say we feel really good about the 50% growth rate, in terms of what we know and what we see. I think -- say these other verticals take off in any way, shape, or form, we see a lot of upside.

Okay. And then maybe the last one from me -- and this might be more for Linda -- Linda, is there any kind of ballpark you can give us over the next couple quarters of what you can generate from working capital on a cash flow basis? I know December quarter's is a pretty good use, and March quarter is a pretty good use of working capital. How much can we expect to realize in the next couple quarters?

We -- as you know, we ended the year with $50 million in inventory, which is higher than we had last year at the $35 million, and we expect to even be lower with the [outsource] model. So there's definitely cash that will come off the balance sheet with both AR and inventory over the next couple quarters.

I think if you look, Chad -- we've got to get used to this growth-company thing, for sure. We don't want to leave revenue in the docks, as you might say. But the balance sheet definitely has -- I don't know, Linda and I have talked about maybe $20 million of improvement in it, maybe even a little more than that. It's a nice problem to have with receivables going up.

Right. All right, thanks. Nice job on the quarter and the year.

You bet. Thanks.

Tim Klasell, Northland Securities.

Hi, guys. Congratulations on the quarter, as well. My first question is, how should we think about balancing out DXi and tape? They're sold into the same customer base. Should we blend those two products together with the idea that DXi just may be grabbing some share from tape over time? Or maybe you can help me to frame up how we should think about that.

We're talking about the data-center products together. And I think the way you just worded it is right. On a combined basis, we would expect those to be flattish to a little bit of growth.

We've added some new partnerships on DXi. We've had a new partnership in tape with Teradata for a couple years. But the sales force really looks at them together, in terms of, they're part of a workflow of backup, or data protection. And so if we can sell tape, great. If we can sell both, great. If we need to sell DXi, great.

So we're not doing anything unnatural to just drive one over the other. We're trying to leverage them together, and that's really helped in terms of both focus but also our cost model.

So we're going to keep reporting them that way, because some of your peers are used to that. But the way we think about it and the way we operate it, for sure we think about those as part of a data-protection and backup workflow.

Okay, great. And then on scale, you hit a little bit on it, that security is picking up. But if you look at your pipeline on the scale-out, how much of it is media and entertainment, and how much of it is outside of that?

Media and entertainment for sure is the majority. It's more than half. It's probably less than 75%, though. And when we talk about media and entertainment, we're including corporate video, which, candidly, has a similar use case but a different go-to-market cadence inside of Quantum.

So we think the M&E -- we think we're just getting started on 4K and high performance and all the attributes that are driving us so far [XN] replacement. We think the new Artico product actually is a very interesting addition to the repertoire to be able to do just archive on some of the workflows where performance isn't as critical. So it's a nice complement to StorNext the file system.

So we see plenty of opportunity in M&E. We thought we would grow 50% last year, and we ended up 74%. If some of these other vertical market or opportunities take off, that's just going to be supplemental to what we're already doing.

Okay, great. Thank you very much.

You bet.

Eric Martinuzzi, Lake Street Capital Markets.

I wanted to dive into the international mix, here. Can you give me -- where did we finish out 2015? Could you go over that again -- percent international versus domestic?

So we're probably, Eric, I would say, in the 50% to 60% North America and then around 30% EMEA, and the rest is APAC.

Okay. And then the reason I ask is that I'm just curious to know if you guys saw any pressure in that roughly 50% of the business that was international. I've been hearing from some of my other global storage data-center-focused companies -- and again, this is, I guess, data at rest as opposed to revenue-generating or workflow data -- but issues with CapEx budgets, not just with international buyers and FX-related issues, but domestic multi-nationals that have seen CapEx budgets trimmed back because of the international demand. Have you seen anything there, either in the fourth quarter or early here in Q1?

Last quarter for us -- I mean, all three GOs did great. And it was really across portfolios. I think if there was a segmentation where we saw the least amount of traction on an international or even a global basis was on enterprise backup for tape. But for us, the DXi stuff, and of course, the scale-out -- we saw a lot of tape with scale-out, too. So it kind of balanced it out.

We definitely got impacted by currency these last two quarters -- I don't know, it was probably $4 million, $5 million. We don't usually break that out.

(multiple speakers) two quarters.

Over two quarters probably $4 million to $5 million.

Top line.

On the top line, and I don't know, probably a couple million on profit. But we had such strong performance everywhere else that we kind of blew through that.

I noticed a lot of announcements the last week, and it feels to me that the enterprise-storage market does have some challenges for some people. We're cautious about the overall market. Having said that, we love where we are vis-a-vis our piece of it, around the opportunities with scale-out and leveraging our install base and data protection.

So we're trying to be cautious about the world around us but be super-energized by what we've accomplished this year and how we're positioned for the future.

Okay. And then a question on the guidance. You gave an outlook for non-GAAP operating income growth of 8% to 10%. So starting with the FY 2015 base of 34.4 [million], I'm coming up with roughly $37.5 million at the midpoint, which is a little bit below where I was thinking. I know we have some interest expense that goes against that and some taxes that go against that, but I'm looking at roughly $0.10 is what I'm coming up with for FY 2016. Is there anything -- I know you're focused on growing the top line, and you've got a growth opportunity with the market-share land grab, but is there anything else in there, either products, product extensions, partnerships, go-to-market strategies, channel incentives, why not a bigger step up from the successful year you just had?

I think we're -- we kind of shifted the -- I think you're land-grab statement is what I want to comment on.

I think we feel like we've got a unique opportunity here. For instance, we're going to invest in surveillance. We've hired a VP who is going to work for Geoff Stedman. We're hiring dedicated salespeople. Those guys won't be productive right away. And I think we have a fairly modest expectation for first-year revenue, but it could be binarily a lot bigger.

And so we're we've got really not a lot of the upside in all the cost into the plan, I think -- we feel like we've hit on something with where the market is headed that is going to run for a while. And I think if -- we had some very specific goals this fiscal year that we more than achieved and -- you know, we're paying a bonus for the first time. And I think we've done a good job of operating both growth and profit.

We're going to lean a little bit more on setting ourselves up for growth and making some investments where we think it makes sense. And so I think you get a little bit sense of that.

And the tape business is historically profitable. The royalty is profitable. And we're replacing 100% royalty revenue with 50%-ish scale-out revenue, so you're getting some of that [math] stuff, too. All of that looks great when you grow revenue like we did this last quarter.

So we're trying to -- we think we're in a spot to really grow our way through into places where we can earn a lot of money but also grow revenue a lot.

Now, you did have --.

We're in our teenage years.

Okay. You did have a gain on sale in fiscal 2015. Was that part of the 34.4 [million], or was that extracted --?

No, that's not part of it.

Okay.

So this 34.4 [million], the 8% to 10% reflects the actual number that we reported, not the gain on sale down below.

Okay.

But I don't know where your $0.10 came from. When I'm looking at it, it looks higher than that to me.

Okay. Well, I do know your interest expense is going to change, here, given the amount that you've paid down on the -- part of the convert, as well as the clearing out of the convert. So maybe I'm being overly cautious.

You're in the neighborhood. But -- I mean, I think the message that we're trying make sure that -- it's a different time for us. We have grown in the fiscal year. We've grown every quarter this year.

We have a lot of momentum in the markets that we're in, and I think this year in particular we're going to lean a little bit more towards being a growth company. And we have a unique position. We've got a unique marketplace. If the stuff with surveillance takes off, we're going to -- it has the potential to be M&E-like, for sure.

So the attributes are very, very similar. And that's a huge market shift. There was a lot of, just plain old [mass] sold in surveillance when they were standard-definition cameras and the retention periods were 30 days or less. And now we're in a world where it's all HD. There's analytics on top of it, and they want to retain the data for a year, or forever, and it just fits right into our sweet spot.

So we've won a few surveillance deals already. We've won a couple -- at least one I know of, a major one, this quarter. So that, plus continuing to outperform on M&E, is going to be the big drivers.

I was actually very impressed there in Q4. I was curious -- I'm not trying to be, not trying to poke at you, but -- you gave your Q4 preliminary numbers there on April 9 of $145 million, and you reported $147.8 million. So what is it, and where did you find an extra $2.8 million lying around? I love the revenue upside, but where'd that --?

Actually, to be clear, we said it was at least $145 million. You can go back and check. That's the accountant in me that got you there, but we said at least $145 million.

Okay, my bad.

Linda is correcting me -- in excess of $145 million.

Okay. All right, thanks.

You know, it's always hard on your fiscal year end. When you're going through the audit, you don't want to put out a surprise. But we felt we were so far over the range we gave that we needed to get pre-released pretty quickly, because there was a lot of buzz inside the Company.

And we still had to get through the audit process, which we're still in the midst of now, actually. And so as the auditors would say, the numbers aren't done until the 10-K is out. But we wanted to give ourselves a little room. So we didn't find it, so to speak.

Got you. Thank you.

You bet. Thanks for the help.

Thanks, Eric.

And with no questions remaining, I would like to turn the call back to Management for any additional or closing comments.

Great. Well, thank you for dialing in today. I hope you can tell, we are pleased with the year but not satisfied with all the opportunities that lie in front of us. We think we have a lot. It's been a great year in kind of positioning the Company differently, and we think it's going to be a very interesting next 12 months and beyond.

And we look forward to talking about that progress over the next fiscal year. And we'll be having our Q1 call in July, so we'll look forward to talking to you then. Thanks very much.

Ladies and gentlemen, that does conclude today's conference, and we thank you for your participation.