Quantum Corp (QMCO) 2016 Q1 法說會逐字稿

Good day and welcome to the Quantum's first-quarter earnings call conference. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Shawn Hall, General Counsel. Please go ahead, sir.

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 12, 2015. 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. Welcome to our Q1 fiscal 2016 conference call. As we indicated in our preannouncement, our results for the quarter were mixed, with continued strong growth and momentum in Scale-out Storage, despite overall weakness in the general storage market that has significant impact on our data-protection revenue.

The market weakness impacted all products and all geos. Scale-out Storage and related service revenue grew 54% year over year, our fourth straight quarter of 50%-plus growth. We delivered increased sales across StorNext Pro Solutions, StorNext disk storage, and StorNext-related tape storage, as well as Lattus extended online storage.

In data protection, royalty revenue was up slightly and disk backup systems and related service revenue was roughly flat. However, the overall softness in general storage and its impact on the backup segment of the market resulted in revenue declines in OEM tape automation, branded tape automation, and devices and media.

In summary, our total revenue decreased 13% year over year, or approximately $17 million, which can be reconciled as follows: first, we had increases of approximately $10 million in Scale-out Storage and related service revenue; and a $1 million increase in royalties.

Second, these higher revenues were offset by revenue declines of approximately $15 million in branded tape automation and related service, $7 million in devices and media -- which are commodity products that tend to be low margin -- and $6 million in OEM tape automation and related service.

Primarily due to the year-over-year decrease in total revenue, we had a non-GAAP net loss of $7 million. Linda will walk through the details of our Q1 results, but first I want to say a bit more about the market environment in the quarter, our Scale-out Storage success, and the work we did during the quarter to drive further Scale-out Storage growth -- both in targeted vertical markets, and through more horizontal use cases.

First, as other companies have also reported, the overall storage environment was particularly challenging towards the end of the quarter, as customers seemed to pull back on planned purchases. In addition, pricing for commodity, low-margin devices and media was under significant pressure.

While other suppliers aggressively priced these products during the quarter, we chose not to pursue some revenue opportunities that would have provided little or no margin. Doing so would not have been consistent with our business model of taking a balanced approach to growth and profit in data protection, while focusing more exclusively on driving growth in Scale-out Storage.

That brings me to the second point: our continued momentum in Scale-out Storage. And as I mentioned earlier, we grew revenue across StorNext-based solutions, including tape. We continue to see strong adoption of our StorNext Pro solutions as customers recognize the superiority of our offerings for meeting their modern workflow needs, such as storing and managing 4K video.

We were also pleased with the increasing traction of our Lattus Extended online storage platform. This included the nearly $1.5 million StorNext and Lattus sale to an existing media and entertainment customer, and other large deals over $200,000 to new customers in genomics and geospatial markets. This reflects our success in growing out our Scale-out Storage presence beyond just media and entertainment, which I'll say more about shortly.

In terms of media and entertainment, our product revenue grew 32% year over year in Q1. We not only extended our leadership in broadcast and postproduction, but also continued to expand our footprint in corporate and sports video, where our long-standing expertise in enabling high-demand video workflows is a key differentiator.

Large M&E deals -- those over $200,000 -- included wins at a top studio, major broadcast and cable TV networks, and one of the largest consumer electronics companies, and an NBA basketball team.

Outside of M&E, Scale-out Storage product revenue increased more than 250% year over year in Q1. We are quickly gaining traction in video surveillance, where our wins included a follow-on StorNext purchase of disk and tape storage by a municipal police department for managing video generated from body cameras, and a first-time deal in another police department for a similar purpose.

In addition, over the last several months, we have been building partnerships with key players in the surveillance ecosystem. For example, we are engaged with 9 of the top 10 video-management systems, or VMS vendors, including around certification and development projects.

Similarly, we are in discussions with all of the top five camera providers about active opportunities. Our conversations with end users and other ecosystem players have reinforced the unique value Quantum offers in this market through the combination of expertise in managing video, industry-leading streaming performance, and tiered storage for cost efficiency.

Beyond video surveillance, as I mentioned, we had several large Lattus deals in genomics and geospatial vertical markets in Q1. One of these was with a state highway administration that is using Lattus and our new Artico Intelligent NAS archive appliance to store data from sensors along highways for analysis. We also had several wins in network forensics for cyber security.

Finally, we generated Scale-out Storage revenue from selling the full line of Dot Hill disks under the Quantum brand, as a result of the new go-to-market partnership we announced in April.

Overall, our Scale-out Storage results reflect our success in executing on our strategy of expanding our leadership in M&E while growing our footprint in other verticals and use cases by capitalizing on StorNext's unique value. One of the keys to this success is leveraging our entire sales force to identify new opportunities, including when we engage with an existing and potential customers around their data-protection needs. And we continued to make progress on this in Q1.

At the same time, even as we continue to generate strong Scale-out Storage growth, we also took actions in the quarter that we expect to drive additional growth opportunity, particularly around archiving. Most notably, we introduced our new Artico Intelligent NAS Archive appliance that I mentioned.

Artico offers those using scale-out NAS systems, a flexible, low-cost entry point for establishing archives outside of StorNext environments; scaling to hold petabytes of data across our Lattus, tape, and cloud-storage tiers. Powered by StorNext Five software, it incorporates StorNext storage manager policies to move data between storage tiers, maximizing efficiency and reducing total cost.

We are already seeing significant interest in Artico and initial deals from customers in different markets who see the benefit of being able to easily deploy it as a backend to their NAS primary storage and have a massively scalable data repository that leverages different technology tiers for the optimal balance of access and costs.

Another new archive offering we introduced in Q1 centers on DXi, combining it with Rocket Arkivio Autostor software in a multipurpose appliance. This provides not only backup, but also archive, thereby significantly improving the ROI of a DXi investment. In fact, it can help customers save in excess of 60% of total storage cost for each terabyte of unstructured data that has moved from primary storage to archive.

In addition to Artico and the enhanced DXi solution, we also integrated new storage nodes with six-terabyte drives into Lattus. This provides 50% greater density while lowering cost-per-terabyte by 15%, making Lattus an even more compelling active archive or private cloud solution.

Finally, we announced a new partnership with Dot Hill, in which we are integrating its full line of enterprise-class disk-storage system into our tiered storage offerings. This further expands our range of solutions for storing and protecting data, including tiering data within and across primary storage, backup, and archive.

In summary, despite the broad challenges in the storage market for the quarter and the impact on our data-protection and Scale-out Storage revenue -- and our overall profitability -- Scale-out Storage grew 54%. And we further expanded our solutions to drive -- solutions portfolio to drive additional value to customers. I will say more about what this means looking forward after Linda provides additional details on our Q1 results.

Now I'll turn the call over to Linda.

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.

I also wanted to highlight a change we made to one of those documents: our trended financial data schedule. For each of our primary product revenue categories, we now include both product revenue and total product and service revenue. We have previously provided this information for both Disk Backup Systems and Scale-out Storage, but we are now doing so for all our primary product categories to show more clearly how much each category contributes to our overall revenue.

Now I'll turn to our results. Total revenue for our first quarter ended June 30 was $110.9 million compared to $128.1 million a year ago. Our OEM business contributed $10 million of revenue, down from $16.3 million in Q1 of last year. Non-royalty revenue totaled $100.7 million, of which 90% was branded and 10% was OEM compared to 86% branded and 14% OEM a year ago.

In Scale-out Storage solutions, our product and related service revenue was $27.8 million -- a first-quarter record. And as Jon said, a 54% year-over-year increase. We have grown quarterly revenue from our Scale-out Storage solutions on a year-over-year basis for 16 consecutive quarters.

In addition to the points Jon made about our Scale-out Storage momentum across different products -- verticals and use cases -- I would note that our growth was driven by North America and APAC, and that the number of worldwide partners selling our Scale-out Storage solutions increased nearly 20%. Overall win rates for the quarter remain strong, in the mid-70th percentile, and we added over 100 new Scale-out Storage customers in Q1.

Turning to our Data-Protection products, as Jon said, our revenues in this area were impacted by overall weakness in the general storage and backup market. In total, tape-automation systems and related service revenue was $44.6 million for the quarter compared to $65.2 million in Q1 of fiscal 2015. OEM tape automation and related service revenue was down $5.6 million or 37% year over year. This reflected lower sales in all product categories, with the largest decline in midrange libraries.

On the branded side, tape-automation and related service revenues decreased $14.9 million or 30% year over year due to lower revenue in all product categories. Revenue from large deals -- those over $200,000 -- was down nearly 90% from the same period in the prior year. However, our win rates remain strong, at 75%, and we acquired approximately 70 new branded midrange and enterprise customers.

Moving to Disk Systems Backup and related service revenue, it was $17.3 million, relatively flat compared to the prior year. We saw strong revenue growth in systems over 80 terabytes, with revenue quadrupling over the same period last year. Revenue was also up in EMEA and APAC; however, revenue from large deals decreased more than 50%. Our overall DXi win rate rates remain in the 60th percentile, and we added approximately 55 new customers in Q1.

Finally, as it relates to data protection revenue, devices and media totaled $10.9 million in Q1 compared to $17.7 million in the prior year. This represented a 38% decline, primarily driven by lower media revenue. However, to reiterate what Jon said, there was a significant pricing pressure in the devices and media market, and we made a conscious decision not to pursue opportunities with little or no margin.

Moving to service revenue, it was $37.9 million in Q1, down 1% from $38.5 million in the same quarter last year. The decrease was primarily driven by a decline in service contracts for tape-automation systems, partially offset by growth in StorNext contracts. I would note that the reduction in tape-automation-related service contracts is consistent with the decline in tape-automation product revenue.

Royalty revenue was $10.2 million, up 8% from $9.4 million a year ago. LTO6 royalties more than doubled, offset by a decrease in royalties for LTO generations 1 through 5. It's interesting to note that royalty revenue increased while our revenue from the sale of branded tape media decreased 33% year over year. This indicates to us that despite a difficult pricing market, a lot of media was sold this quarter, presumably by the larger market makers in tape media.

Turning to gross margins, non-GAAP gross margin was 42.8% in Q1, down 130 basis points compared to 44.1% in the first quarter of fiscal 2015. This decline is attributable to the year-over-year decrease in total revenue, partially offset by an increase in material margin related to changes in our overall revenue mix for the quarter, with higher margin, service, and royalty revenue comprising a larger portion of our total revenue.

Looking at expenses, non-GAAP operating expenses were relatively flat, totaling $51.9 million in Q1 compared to $51.7 million in the prior year. Year over year, our sales and marketing cost increased $1.8 million, primarily due to higher marketing spend in markets with significant growth opportunity.

Research and development expenses declined $1 million, primarily as a result of lower headcount. General and administrative costs declined by $600,000, primarily related to lower cost in IT.

Q1 non-GAAP operating loss was $4.4 million compared to operating income of $5.2 million in the same quarter a year earlier. This represents a non-GAAP operating loss of 4% in Q1, down from operating income of 4.1% in the prior year and reflecting our lower revenue and gross margin.

Interest expense for the quarter was $1.9 million, which included cash interest expense of $1.6 million and amortization of debt-issue cost of $300,000. Interest expense decreased $500,000 from a year ago, as we repaid $50 million of our convertible debt in January of 2015. The average interest rate for our $153.7 million of convertible debt is slightly less than 4%.

In Q1, we had other expense of $300,000, primarily related to foreign currency losses. We also recognized tax expense of $300,000, primarily related to foreign and state taxes.

Summing up Q1, we had a non-GAAP net loss of $7 million or $0.03 per share compared to non-GAAP net income of $2.4 million or $0.01 per share in the same quarter a year earlier.

Let me now turn to cash flow for the quarter and the balance sheet at June 30. Cash flows used in operations for the quarter were $13.6 million. On a sequential basis, accounts receivable decreased $26.8 million, and manufacturing inventories decreased $1.1 million.

EBITDA for the last 12 months was $33.1 million. CapEx was $800,000. At June 30, our debt consisted of $153.7 million of convertible debt, with no covenants and no early call provision. There were no amounts drawn on our revolver at quarter end. Therefore, we have no financial covenant compliance requirements.

Now let me turn the call back over to Jon.

Thanks, Linda. Since the start of the fiscal year, we have been very focused on growing revenue, increasing our profitability, and delivering shareholder value as we did in fiscal 2015. However, our Q1 results across all products and all geos were not what we had planned or expected, largely due to the general storage market environment I have discussed.

Although we don't have control over the broader environment, our best-of-class technology in both disk and tape and tight integration of the two are key strengths in data protection. Our strategy in data protection is to continue to leverage our technology leadership, our extensive customer base and our channel, and technology partners to generate profit and cash from our data-protection offerings.

Earlier I mentioned our new DXi offering, which provides both backup and archive in a single appliance. And yesterday, we announced enhancements to our Scalar i6000 tape library.

These enhancements, including double-drive density to provide the most compact LTO storage footprint in the enterprise market. We also have added new Web-services management capabilities and power-supply efficiencies, further solidifying the Scalar i6000's position as the most feature-rich and technologically advanced enterprise library available today.

We also continue to engage with other ecosystem players in data protection around opportunities for collaboration.

Finally, I would note that the strength and increasing momentum of our Scale-out Storage portfolio -- including around archiving -- makes Quantum a more compelling provider and partner than many other companies in the data-protection market. This is something we intend to capitalize on in both data protection and Scale-out Storage, as our general sales force can be leveraged to drive business across both product lines.

While the market conditions that existed in the June quarter presented challenges in data protection, they also further validated our strategy of focusing our investments in the area of Scale-out Storage and the unique value we provide to customers. Our ability to deliver integrated solutions that offer both unmatched performance and low total cost of ownership through tiered storage approach encompassing Flash, spinning disk, object storage, tape, and the cloud is very differentiated.

We've seen this in media and entertainment, where the high-performance content sharing that StorNext provides is critical, creative collaboration in Lattus -- which can serve as an extended online storage for non-real-time tasks -- as well as massively scalable, active archives for content preservation and re-monetization.

In addition, as 4K and other high-resolution video adoption continues to grow, we are hearing from more and more customers that StorNext is the only solution that can ingest and deliver content at the speeds and a level of predictability they require.

Finally, because StorNext is 100% compatible with Apple Xsan, we are uniquely positioned to help current Xsan customers grow, enhance, or refresh their storage environments. In fact, as we recently announced, the upcoming version of Apple's operating system -- which is now in public beta -- provides new functionality that enable Xsan users with the new OS to easily access the full benefits of our StorNext platform over a simple Ethernet connection.

Beyond the media and entertainment, this past quarter indicated the opportunity we have with our Scale-out Storage solutions in other vertical markets and use-case markets. This was most notable from the early signs of success we had in video surveillance and archiving of the unstructured data and general IT workflows.

These opportunities are very strategic for us, as they represent increasing demands for performance and data retention. And are also geographically dispersed in nature -- all of which aligns very well with our solutions and our customer calling patterns, as well as our channel.

Video surveillance is a rapidly growing market, with more and more cameras operating at higher resolutions being deployed, and with requirements that capture data to be retained for increasing longer periods of time. All of this makes the underlying storage infrastructure 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 the analysis.

Because budgets are not limited, the footage must also be retained as cost effectively as possible. As I said earlier, we are well positioned to capitalize on this opportunity based on our long-standing expertise in managing video, industry-leading streaming performance, and the ability to provide multiple tiers of storage for cost efficiency within a single managed system.

With regard to Artico, I explained earlier this is an intelligent NAS archive appliance, which offers those using scale-out NAS systems a flexible, low-cost entry point for establishing archives outside of StorNext environments. Artico can also provide substantial savings by moving large unstructured data files off primary storage to a lower-cost tier such as Lattus, tape, or the cloud, while maintaining access to all the files.

So in summary, the environment is challenging, particularly in general IT data protection. However, we see significant opportunity for growth in our Scale-out Storage solutions for media and entertainment, surveillance, and other archive workflows across industry segments.

From a strategy standpoint, we are continuing to invest in Scale-out Storage solutions, with a focus on expanding our footprint in key vertical markets and use cases, dedicating specialized resources to capitalize on the opportunities, and leveraging our broader sales force for market coverage and customer relationships. We see significant opportunities for growth in Scale-out Storage.

As I mentioned, the other main component of our strategy is to continue leveraging our technology leadership, our extensive customer base, and our channel and technology partnerships to generate profit and cash from our data-protection offerings.

Let me now turn to guidance for Q2. Taking into account both the challenging environment in Q1 and the growth opportunities we see for Scale-out Storage going forward, we are taking a balanced approach to operating the Company this quarter, which is also reflected in our guidance.

We expect revenue of $120 million to $130 million, non-GAAP gross margin of 42% to 43%, non-GAAP OpEx of $52 million to $54 million, interest expense of $1.9 million, and taxes of $400,000.

Regarding the $84 million in convertible notes that are due this November, as we've previously said, we have the resources to pay off this obligation. And we expect to utilize a combination of our cash on hand, cash we generate from operations, and our $75 million revolver to do so.

With regard to fiscal 2016, in our May 6th, 2015, earnings press release and conference call, we did not provide annual guidance, but instead shared our financial targets for the full year. These are still our internal targets for the current fiscal year. However, considering the challenging market environment in Q1 and certain market conditions going forward, and the potential for Scale-out Storage to exceed current expectations, we are not providing guidance for the full fiscal year at this time.

So just to recap the three key points: we have the resources to pay off the November convert, and we'll do so; we will focus on and invest in the scale-out part of the business to drive growth; and we will manage the data-protection part of the business based on how the general storage and backup market evolves over the remainder of the year.

Now we'll turn the call over to the operator for questions.

Operator?

Thank you. (Operator Instructions)

We will go next to Tim Klasell with Northland Securities

I just want to drill in on a couple of things. First, on the non-media and entertainment uses for the scale-out business, are those -- I know your deals in that space can vary widely. Is there a different set of patterns that you see in those use cases than the media and entertainment?

So generally in media and entertainment, the use case or the thing that we have that's unique compared to everybody else is our performance. So our ability to manage streaming files at a rate that others cannot, so it usually starts with that.

And then depending on what the workflow is will depend on what the next part of the transaction could be -- whether it's we sell more disk storage, more Lattus. We have a tape archive. And that generally is around how much data you have, and your cost to retain it.

So in M&E, it generally starts with performance, and then moves to what I'd call tiering. There are use cases in M&E where it starts with tiering. Some of the traction we are getting, for instance, in sports video -- some of those are very tiering-centric. Others of them, like the Major Leagues or the stadiums or the racetracks -- that's got performance and tiering in it.

When you get outside of that, out of M&E, I think it tilts a little bit more towards tiering, so lowering your overall cost of storage. But in some of the use cases, there still is a real need for performance.

One of the reasons in surveillance that we are so excited is as we've -- we've really only started pushing on surveillance the last 120 days, in real-time. So not even a half a year yet. And the feedback that we're getting is because our file system is so fast that the integrators can put more cameras into the servers that we manage and that lowers their cost. And then our ability to tier the data on the backend also lowers the overall cost of storage. And so storage has become a really expensive part of a surveillance solution, and our two attributes fit with both of them.

Outside of surveillance, it's a combination; oftentimes, it is just real inexpensive archive. There are some use cases like genomic sequencing or managing satellite imagery, where our performance matters as well. So it kind of comes from both, depending on the use case. Hopefully, that helps you.

Yes, that's helpful. Then the second question is the device and media obviously disappointed, but we saw better royalties. And given the margin profile of the two product set, how should we think about that as on the bottom line? How much of an impact is really felt?

Yes, so, an extra million dollars of -- an extra million dollars of royalty is -- more than covers -- well, profitability more than covers a loss of $7 million in revenue. So we said for a long time and it continues to be the case: we manage media and devices based on profit, not on revenue.

And so if you take -- that's why I did the reconciliation that I did there, Tim. That's a conscious decision for us to not chase revenue that's not profitable. You know, that was almost 40% of our decline year on year.

So for sure, we'll do media deals when it makes sense. But when the market got like it got, it just doesn't work for us to go chasing revenue, but shipping dollar bills with it.

Okay. And then I know we're still sort of early on in the quarter, but are the pressures that you saw in the first quarter -- have they alleviated any or they still there?

I would say a month in, it feels better than it did at the end of the quarter, in terms of activity. I think, as you can tell in our guidance, we're probably below -- I'm sure we're below your model, but the low end of our range is 10% up sequentially and the high end is probably close to -- is 20%.

So I think we feel better. This is always a tough quarter for management, because Europe really doesn't do a lot in August. And so you really become focused on what happens in September.

But other than everybody else reporting since we preannounced and feeling the same thing that we're feeling, I think it feels a little bit better than it felt at the end, for sure. So we're cautiously optimistic there, but you can tell by people's results this kind of a widespread phenomenon and we'll just have to see how it plays out.

On the flipside, the momentum around scale-out is -- feels great. And we have a lot of opportunities; we're trying to be transparent that we think there's a lot to be done there. Much work to be done on our side, but we feel really good about the investments that we're making, how we're positioned against the competition, and the market opportunity.

Great. Thank you very much.

Tom Cullum with Lake Street Capital Market.

Thanks very much. Just one question -- can you talk to your ability to sell more or help the OEMs sell more tape?

Sure. Yes, so we have three OEM partners, as you know, and we are engaged with all three of them. But their go-to-market models are their own go-to-market models. So while we engage with them on positioning new product features, how to position their product against the competition, that's really all that we can do.

We have historically -- you know, we have a pretty good feel about what they're going to sell. For about the last year, it's been more difficult for us to get a handle on that.

You know, the revenue is getting to the point where it's pretty small in total; I wish it was higher, actually -- I like doing the OEM revenue. But we really don't control it, but we try to do our best at predicting it.

So this quarter, I think we did a reasonable job of predicting it, but even that prediction was down quite dramatically. So I really like the partners that we have. I think one of our strategic initiatives continues to be access to customers, so I'm not anxious at all for that revenue to decline. But we really don't have much control over it. We try to manage it the best we can.

Chad Bennett with Craig-Hallum.

So in the guidance that you gave, $120 million to $130 million for this quarter, can you give us some insight into the segment? So do you still believe the scale-up business will grow north of 50% year over year? And can you give us any indication where the other two businesses roughly will be based on your guidance?

Well, between the -- I mean, for sure, the most opportunity is in scale-out. And we are -- as I said in the prepared, we are really comfortable that we've got opportunities to grow 50% on that over the course of the year.

What we're trying to not manage everything by product, but on the next step up, I think DXi, we feel the next-most comfortable with. We think our product positioning is well. It is still a difficult backup market, again. Even some of the software companies that have announced, you can see how difficult protection is.

But DXi probably has an ability to look like last quarter or last year, maybe grow some. And then the thing that we're the most anxious about, besides how big scale-out can be, would just be data-protection tape. And hopefully at the high end of the range or the low-end of the range, depending on where you go there, it will start to not look like it did last quarter, but still be down some.

You know, if we're down year over year with that guidance, we get that. Quite a bit of that is driven by OEM as well as devices and media. So again, a similar kind of scenario. We'll see how it all plays out.

Scale-out for sure is a big beta on the upside. There might be some in DXi, and the rest of it is really how does the market develop.

So, I mean, I understand the results of kind of peers in the storage market since your preannouncement, but quite frankly, the results for the last year in storage haven't been phenomenal.

So I guess what -- do you think something changed structurally going forward? Obviously, you guided down; you pulled guidance. You think something changed structurally for your business going forward, mainly in the tape and DXi side?

And you know, two quarters ago, a couple quarters ago, we were talking about a revenue growth company. Obviously, that's now far-fetched. So are we willing to rightsize the business to either not be a revenue-growth company, or make money, or vice versa? Do you understand what I'm saying?

Yes, I do. I think -- so a couple things. We think there's a lot of opportunity in scale-out, and I tried to be really clear on the call to give you both, to give both reasons why we feel that way, that people can go and validate themselves, and being clear that we intend to invest there during the year.

I also wanted to be very clear on the call that we're going to operate the business in a way that we can meet our debt obligations. And we intend to do that. We have that money set aside, so we're going to do that as well.

On the broader data protection, is really what you were referring to, we're going to take an active approach to monitoring what's going on, and figuring out how we want to adjust spending if we need to. But I would say that our goal is we really do think we have something unique in the scale-out side, and the strategy from the Board through the Company is we need to drive on that opportunity.

So if you ask me today, we're going to be focusing on growth. And if we have to spend money to do that on the scale-outside, we will. And we will be super-thoughtful about money we spend on the other side if the market doesn't warrant that kind of expenditure.

I really feel like the team overall did a very good job in a very difficult market. I'm not happy with the result; nobody is. But as we dug into it, this isn't a -- in past years, we've been more self-deprecating on stuff like this.

This wasn't really an execution issue. The team closed very hard. We had a lot of opportunities. We still thought we were going to make it, with not that much time left in the quarter, and it just didn't come together.

So, you know, the offense -- I've been using this sports analogy; I haven't used one on this call, so I'll throw one out. You know, the offense has been working for us for the last six quarters or so. We recognize that we didn't have a very good start to the year.

We're not going to throw the whole offense out and start over, but we're going to be thoughtful about what changes or what other things that we might need to do over the course of the year.

But our bottom line is we're going to pay off the debt; number two is, we're going to invest in scale-out; and number three is we will adjust spending if necessary depending on how the market develops here on the data-protection side.

Do you have full access to the $75 million on the LOC?

Yes.

Okay, thanks.

And it appears there are no further questions at this time. Mr. Gacek, I'd like to turn the conference back to you for any additional or closing remarks.

Great. Thank you. Well, appreciate you being on today. It's been an interesting month for sure, and we will be driving to the goals that we set at the beginning of the year.

As I mentioned in the call, we are really -- even in a bad market and overall results, we are very excited about our position. There weren't a lot of companies reporting 50%-plus growth in a major category. We're excited about that, and we will manage the business accordingly.

So we'll look forward to talking at the end of Q2, and appreciate your support. Thanks.

This does conclude today's conference; thank you for your participation. You may now disconnect.