Quantum Corp (QMCO) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q4 and full-year 2016 Quantum Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder this call is being recorded.

I would now 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 is Jon Gacek, our CEO and Fuad Ahmad, 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 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, and 10-Q filed on February 05, 2016. 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'll turn the call over to Jon Gacek.

Thanks Shawn. Welcome to our Q4 fiscal 2016 conference call. I'm pleased to have Fuad Ahmad, our new CFO joining me today. He's only been on board a few weeks and we're already benefitting from his extensive experience he's bringing to this role. Before I turn the call over to Fuad to discuss the details of our Q4 results, I wanted to talk about these results at a high level and also provide some perspective on fiscal 2016 as a whole.

As we said in our Q4 preannouncement. We are pleased with the progress we made this quarter, particularly given the challenging market environment. We delivered revenue of $120 million at the midpoint of our guidance range a non-GAAP net income of $7 million, which is above the high end of our guidance and indicative of the leverage in our financial model.

In addition, our non-GAAP operating margin of 7.2% was the highest in five quarters and the second highest in nearly three years reflecting the actions we've taken to reduce our cost structure over the last six months. Another Q4 highlight was our 19th consecutive quarter of year-over-year in scale-out storage and related service revenue driven by a 44% increase in product revenue from the Americas.

While this was tempered by scale-out storage revenue declined in EMEA and APAC which lowered our overall scale-out storage growth rate for Q4. We are confident, we can achieve higher overall growth in the current quarter and the rest of fiscal 2017. Stepping back from Q4 to look at fiscal 2016 in its entirety, it was clearly a difficult year in storage overall, which is evident from results that other major players in the industry have reported.

Nevertheless we made progress in key areas throughout the year that provide a strong foundation for fiscal 2017 and give us confidence, we will be able to achieve total revenue growth as well as higher profitability and cash flow, this year.

For the full year 2016 we generated $126 million in scale-out storage and related service revenue. This was up $24 million or 23% over fiscal 2015 despite having $7 million less in megadeals which we define as deals over $1 million. As we've explained in the past, the lower level of revenue from such deals was due to the continued softness in the overall enterprise storage market as well as the lumpiness inherent in these deals.

If we exclude megadeals, our run rate revenue in scale-out storage increased 34% over fiscal 2016. One of the important drivers of our scale-out storage growth during the year and the second key area of progress was our continued growth beyond media and entertainment as we further leveraged our longstanding expertise in managing large data files to capitalize on market opportunities.

This included a major push into video surveillance market in fiscal 2016, where we increased revenue more than 600%. Although, this is off a small based to prior year, we also laid the foundation to build on this momentum by establishing ecosystem partners and certifying solutions with a broad range of major players in the surveillance and security industry.

This includes top video management system providers, six surveillance camera companies and body worn camera vendors. In addition, we signed up the leading global distribution company for video surveillance as well as dozen of new reseller and integration partners that specialize in surveillance and security solutions.

Finally, we started the year with basically no sales funnelling in video surveillance and have grown it dramatically since then with opportunities around the world and many, many large deals. In fact, today we're working a lot of what I would call typical deals in $200,000 to $1 million range, but we are also working on deals that are $1 million to $10 million and beyond that level.

Our third area where we significantly expanded our market presence was in unstructured data archives for technical workflows, we span vertical markets such as genomics and other scientific research, geospatial applications, oil and gas manufacturing and finance. Product revenue from these used cases increased 45% for the year, with a significant majority of this revenue being generated from sales people and channel partners that had primarily sold our data protection solutions in the past.

This speaks to the leverage we can achieve from the data protection side of our business to help drive scale-out storage growth in the future. Of course, it takes more than just people and expertise to expand the Company's market footprint. Technology and product innovation is also critical and this was another key area progress for us over the past year.

We introduced our Xcellis workflow storage system and Artico, NAS appliance both of which are powered by industry leading StorNext technology platform and we added new Q-Cloud services. Xcellis overcomes the limitations of scale-out NAS by automating and simplifying data management through a unique combination of consolidated workflow components continuous scalability and unified SAN, NAS access in a single system.

Since we began shipping in Q3 Xcellis has been one of our fastest ramping products in our history and has enabled us to win new business in the NAS environments as a standalone workflow director and as a primary storage component within a multi-tier storage environment and incorporating object storage, tape and cloud technologies.

Similarly, Artico has provided us new NAS opportunities for Quantum by offering a flexible, low-cost entry point for archiving data across multiple storage tiers both on-premise and in the cloud. Speaking of the cloud in fiscal 2016 ,we expanded our cloud service offerings with launch of Q-Cloud protect for AWS and Q-Cloud vault also for AWS.

Q-Cloud protect for AWS enables customers to replicate data from either physical or virtual DXi appliance on-premise to virtual DXi instance in the Amazon Web Service's cloud and it employs deduplication to minimize the cost associated with transferring the data over a Wide Area Network or WAN. Q-Cloud vault provides low-cost Quantum managed cold storage in the public cloud fully integrated at the tier within the StorNext environment.

Finally, in fiscal 2016 we had a QXS primary storage to our portfolio offering customers high performance hybrid storage that optimizes flash and disk through real-time automated and intelligent tiering at significantly lowers operating and capital cost.

All of these new solutions have enabled us to deliver broader benefits and greater value to customers strengthening our installed base relationships and attracting new partners and end users. The power of our product portfolio is also evidenced in the industry awards and other honors we received over the past year for Xcellis, Artico, Q-Cloud archive and the DXi 6900.

Xcellis alone has been recognized top products by six different organizations most recently winning best of show award from StudioDaily at NAB. As we begin fiscal 2017, Quantum is also better positioned for success as the result of actions we took to reduce our cost structure and improve our balance sheet in the second half of fiscal 2016.

After a non-GAAP net loss of $14 million in the first two quarters of the year, we generated non-GAAP net income of $12 million for Q3 and Q4, which is a $26 million improvement. In Q3, we also repaid the remainder of our November 2015 convertible notes. To sum it up, the weakness of the enterprise storage market made fiscal 2016 a challenging year particularly compared to 2015 when we had our best year-over-year revenue performance in eight years and our highest non-GAAP net income in four years.

Nevertheless we stayed focused on driving scale-out storage growth while also taking actions to reduce cost and increase profitability. As a result, we finished the year on a positive note and have a stronger foundation to build on fiscal 2017. I will say more about our plans for the coming year after Fuad reviews Q4 and full fiscal year results in more details.

Now I'll turn the call over to him. Fuad?

Thank you, Jon. Before I get into the details I just wanted to say that, I'm really excited to be part of the Quantum team. I've been really impressed with the quality of the team and their mission to retain Quantum technology leadership in the storage arena. As I settle in, I hope to meet many of you in the coming weeks and month.

Turning to our results, as Jon said we have made good progress in Q4 particularly given the continued softness in the enterprise storage market. We maintain our balanced approach of driving scale-out storage growth while also delivering on our operating profit goals. Highlights of the quarter included 44% year-over-year increase in scale-out storage revenue from the Americas sales region and our non-GAAP gross margin of 45.9% and our non-GAAP operating margin of 7.2%.

This was our highest gross margin and operating margin in five quarters, which speaks to our commitment to profitability and efficiency that resulted from these reductions we made to our cost structure over the last six months. As a result, we returned to generating cash from operations. With all that said, we're clearly impacted by the challenging enterprise storage environment most notably in data protection.

In addition, our scale-out storage performance outside America was below our expectations. Now I'll walk through our financial results for Q4 and fiscal 2016. Please refer to the financial statements in the supporting schedules included in today's press release on our website.

Total revenue for the quarter was $120 million compared to $147.8 million a year ago. Non-royalty revenue totaled $109 million of which 89% was branded and 11% was OEM consistent with a year ago. Product and related service revenue for our scale-out storage solutions was $33.1 million and a 4% year-over-year increase and second highest quarter of all time.

As noted earlier, we have grown quarterly revenue from our scale-out storage solutions on a year-over-year basis for 19 consecutive quarters. Revenue for large deals those in excess of $200,000 was up 5% compared to the same quarter in the prior year. Our year-over-year scale-out storage growth was particularly strong in video surveillance and structured data archived used cases.

Although our Q4 growth was driven by the Americas, we continued to add to our worldwide base, worldwide selling partners for our scale-out solutions which now total 170. Overall win rates for the quarter remains strong at 77% and we added approximately 110 new scale-out storage customers in Q4, for a total of approximately 460 new customers in fiscal 2016.

Turning to our data protection products, revenue in this area were impacted by overall market weakness in both general storage and data protection and back up. In total, tape automation systems and related service revenue was $44.7 million for the quarter compared to $61.4 million in Q4 of fiscal 2015.

OEM tape automation and related service revenue was down $2.7 million or 21% year-over-year. This decline was a result of lower sales in mid-range and entry library partially offset by an increase in enterprise revenue. Branded tape automation and related service revenue decreased $14 million or 29% year-over-year due to lower revenue in all product categories.

Revenue from large deals again those are worth $200,000 decreased by 6% from the same period in the prior year. However, our win rates remained strong at 79% and we acquired approximately 16 new branded mid-range and enterprise customers in Q4, for a total of approximately of 300 new customers in fiscal 2016.

Disk system backup and related revenue was $18.1 million down $7.1 million from the prior year due to the decrease in revenue from mid-range products. Our overall DXi win rates remain at a healthy 66% and we added approximately 50 new customers in Q4 for a total of approximately 220 for fiscal 2016. Finally for our data protection revenue, devices and media totaled $13.1 million in Q4 down $5.3 million from prior year due primarily to lower media revenue as a result of our conscious decision not to pursue very low margin or unprofitable opportunities.

Moving to our service revenue, it was $36.3 million in Q4 down 7% from $38.8 million in the same quarter last year. The decrease was primarily was driven by decline in service contracts with tape automation systems partially offset by growth in contracts for scale-out storage solutions.

Royalty revenue was $11 million flat from a year ago. LTO fixed royalties grew 36% offset by a decrease in LTO generations one through five. LTO-7 launched during the third quarter and is expected to grow in the future quarters. On a full year basis, total revenue for fiscal 2016 was $476 million, a 14% decline from $553.1 million in fiscal 2015.

Fiscal 2016 scale-out storage and related service revenue was up $23 million to $126.5 million, this increase was offset by year-over-year revenue declines of 27% in tape automation systems and related service revenue and 17 in the disk backup system and related service revenue and 27 in devices and media.

Our fiscal 2016 branded revenue declined 13% year-over-year or $59.8 million. For the year, non-royalty revenue totaled $434.8 million of which 89% was branded and 11% was OEM compared to 88% branded and 12% OEM a year ago. Now turning to our gross margins, non-GAAP gross margin was 45.9% in Q4 compared to 42.4% in the fourth quarter of fiscal 2015, which represented a 350 basis points increase year-over-year.

This improvement is primarily attributable to the cost reduction we implemented in the second half of 2016, and an increase in material margin related to changes in our overall revenue mix for the quarter. Our non-GAAP operating expenses decreased $10.6 million totaling $46.4 million in Q4, compared to $56.5 million in the prior year. Year-over-year our research and development expenses declined $3.7 million primarily due to lower salaries and benefits resulting from lower headcount in connection with the cost reduction actions implemented in the second half of 2016.

Sales and marketing cost decreased $5.2 million primarily due to lower marketing spend and lower commission expense due to lower revenue. General and administrative expenses decreased $1.2 million primarily to no bonus expense in Q4 of fiscal 2016. Our Q4 GAAP operating expenses totaled $55.6 million and non-cash and we also included a non-cash goodwill impairment charge, which is attributable to a drop in our stock price during the quarter and that reduces our goodwill balance to zero.

Q4 non-GAAP operating income was $8.7 million compared to $6.3 million in the same quarter a year ago. A $2.4 million increase despite a $27.8 million decrease in revenue. This represents a non-GAAP operating margin of 7.2% in Q4 up from 4.2% in the prior year and reflecting our higher gross margin rate and lower operating expenses.

Interest expense for the quarter was $1.5 million which included cash interest expense of $1.3 million. Interest expense decreased approximately $600,000 from a year ago, as we repaid our convertible debt that was due November 15, 2015. The average interest rate for our $135.7 million of remaining debt at March 31 was 2.86%. Other expenses consisted primarily of foreign exchange losses and income tax expense.

In Q4, we had a non-GAAP net income of $6.5 million of $0.02 per diluted share compared to a non-GAAP net income of $18 million or $0.06 per diluted share in the same quarter a year earlier. As a reminder, non-GAAP income in Q4 of fiscal 2015 included $13.6 million gain on a sale of an investment.

Comparing the full year fiscal 2016 to fiscal 2015, non-GAAP gross margin decreased slightly to 43.3% from 44.7%. We reduced non-GAAP OpEx of 6% for fiscal 2016 from $213.4 million to $200.6 million. We generated $5.6 million of non-GAAP operating income for the year compared to $34.4 million in the fiscal 2015. And we had a $2.6 million non-GAAP net loss in fiscal 2015 compared to $24.5 million in non-GAAP net income the prior year, the one-time $13.6 million gain on the sale of an investment in 2015 excluded.

And finally to our cash flows for the quarter and debt as of March 31. Cash flows from operations for the quarter were $4.2 million. We remain in compliance with our debt agreement and expect to remain in compliance over the next 12 months. Also as previously reported, we recently amended our Wells Fargo credit agreement to extend a maturity of the revolver to August, 2017.

Jon will discuss our fiscal 2017 plans and guidance, but I wanted to reiterate our strategy for increasing shareholder value by growing scale-out storage revenue and overall profitability. Also as I begin my tenure at Quantum I intend to remain focused on our strategy of generating free cash flow by driving an optimal cost structure for revenue growth, that will require us to continue to find efficiency in our cost structure invest sensibly into areas with greatest revenue potential.

I'm also focused on our debt maturities in late calendar 2017. We will be opportunistic as it relates to our capital structure. While maturities of these convertible notes is more than 18 months away, we have already started the preliminary work and will take an active approach to addressing any market concerns.

Now let me turn back the call to Jon and talk about fiscal 2017.

Thanks, Fuad. As I said earlier and as results of the work we did this past year, we're well positioned to drive greater success in fiscal 2017. In scale-out storage, we plan to build on our momentum in three main areas. The first is media and entertainment. We will continue to expand beyond traditional broadcast production and post-production environment to serve corporate departments, sports organizations, ad agencies and houses of worship in storing and managing their growing video assets.

We've seen increasing traction in these used cases over the past year and have secured some notable wins. As just one example, the University of Notre Dame is using our StorNext solution at the foundation for delivering sports video content across multiple media platforms.

In addition to serving a broader range of media and entertainment customers in fiscal 2017, we are expanding the use of our technology to application such as animation and visual FX, content processing and content delivery. At the recent NAB show for example, we ran live demonstrations of the 4K edit workflow and a VFX animation workflow streaming simultaneously from a single StorNext infrastructure.

Uniting these different workflows within a shared environment eliminate time consuming transfer of content and increases productivity. Also at NAB, we demonstrated the ability to transcode and deliver content directly from Lattus, which is our object storage without restoring the content to online storage or converting objects back to files. Thereby enabling a more efficient and cost effective workflow.

Media and entertainment is still our largest vertical market and an area where we have dedicated product and sales resources to drive our growth. In fiscal 2017, we intend to continue building our success in North America and replicate it as appropriate in Europe and Asia. The second area where we plan to build on a scale up storage momentum is surveillance and intelligence which includes video surveillance network forensics and government intelligence used cases.

Video surveillance will continue to be a key focus and we're continuing to expand our ecosystem partnerships and certifications. In addition, last month we announced three new reference architectures for addressing the storage challenges presented by new fix camera, expansions of existing security systems and law enforcement implementations.

These reference architectures are based on a tiered storage approach that provides storage performance, capacity and accessibility that customers and integrators require at the foundation of today's new surveillance and security installations. These installations can range from 100 cameras to tens of thousands of cameras with massive storage requirements.

As I mentioned earlier, our sales funnel has grown dramatically over the past year and we are working both typical deals in the $200,000 to $1 million range and also deals that are $1 million to $10 million and beyond, this market is moving very quickly with the collision of technology, world events and regulatory requirements and we have developed a very unique and differentiated solution to address it.

The third area of focus and scale-out storage is unstructured data archives and technical workflows. As I mentioned earlier, the spans range of verticals such as genomics and other scientific research, geospatial applications, oil and gas, manufacturing and finance.

In fiscal 2017, we will continue to build on our momentum by expanding and enhancing our reference solutions as well as establishing additional technological partnership around data creation, movement and management. We've seen significant opportunities in unstructured data archiving as sensor-based, Internet of Things applications further proliferate.

The common element in each of these areas of focus is demanding workflows involving large valuable data files that must be quickly captured, cost effectively retained for analysis or reuse and made easily available for sharing and collaboration. In other words, these markets and used cases require storage that provides high performance, low-cost capacity and easy access and our ability to deliver all three attributes in a single integrated tiered storage solution encompassing flash, spinning disk, object storage tape and cloud is very differentiated and unique.

Expanding our solution set for the cloud and to cloud providers has been a key element of our strategy and as we mentioned in our earnings pre-announcement. We recently secured a major multi-year scale-out storage win for a large cloud project. We expect this engagement to contribute at least $10 million of revenue in fiscal 2017, in reference to this customer I cannot provide further detail on this deal, but it points to another key opportunity for growth going forward namely providing scale-out storage infrastructure to public cloud providers.

Turning to data protection, our focus is to continue to leveraging our technology leadership, our extensive customer base and our channel and technology partners to generate profit and cash. Although, we expect the enterprise storage market will remain challenging, our best of class technology in both disc and tape and tight integration of the two are key strength in data protection.

In addition, as data center customers continue to move away from traditional backup. We believe our tiered storage expertise and broad archive portfolio encompassing our Artico archive appliance, Lattus object storage, tape and Q-Cloud archive and vault services will enable us to capitalize our new opportunities.

In addition, we are continuing to pursue partnerships with other ecosystem partners in data protection and archive as we've done most recently with Veeam. Finally, as we begin fiscal 2017 we have adjusted our go-to-market model to capitalize more effectively on market opportunities in both scale-out storage and data protection.

We will continue to have dedicated sales resources in the traditional media and entertainment accounts and the rest of our sales force will now have responsibility for selling both scale-out storage and data protection in an account based sales model. We believe the market opportunity for our scale-out storage solutions has tipped across all vertical markets and we intend to capitalize on that opportunity with our entire sales force, our channel partners and our unique combination of high performance, low cost capacity and fast access in a tiered storage architecture.

Now I will turn to guidance for Q1 and fiscal 2017. The June quarter is historically our weakest seasonal quarter. With this in mind for Q1, we are guiding to total revenue of $111 million to $115 million, non-GAAP gross margin of 43% to 44%, non-GAAP operating expenses at $52 million to $53 million, interest expense of $1.5 million, income taxes of $400,000 and non-GAAP loss per share of a $0.01 to $0.02.

For the full fiscal year, we are forecasting total revenue of at least $500 million which is year-over-year growth of at least 5%. We expect this growth to be driven by increase scale-out storage revenue including growth in each of our three areas of focus. Media and entertainment, surveillance and intelligence and unstructured data archives for technical workflows.

In total, we expect scale-out storage and related service revenue to make up 35% to 40% of our overall fiscal 2017 revenue, which represents an annual growth rate of approximately 40% to 60%. For data protection, we expect decline in overall revenue with modest growth in the DXi revenue offset by decline in branded and OEM tape backup revenue.

We are forecasting tape media royalty revenue of approximately $35 million. In addition, as I previously mentioned, we have a growing opportunity funnel in scale-out storage and multiple deals of significant size that we are actively working. As the year progresses, we believe we will close at least some of them but we're not ready to include them in our guidance at this time.

On the $500 million revenue forecast, we expect non-GAAP gross margin of 43% to 44% and non-GAAP OpEx of $200 million, which reflects our expectation that we will continue to lower our OpEx run rate throughout the year. We expect interest expense of $6.1 million in fiscal 2017, taxes of $1.6 million and non-GAAP EPS of $0.04.

In short, we are excited about fiscal 2017 as we have a strategy and a business model to drive growth and profit and a significant opportunity for upside. Now I'd like to turn the call over to the operator for questions. Operator?

(Operator Instructions) and our first question comes from the line of Brian Alger of ROTH Capital Partners. Your line is now open.

Good afternoon, guys. Thanks for taking the questions and welcome, Fuad. I guess the first question I have, has to do with kind of the outlook if you will and that, the June quarter is not really looking like it's going to be anything to really right home about but yet at least $500 million on the top line implies some pretty good growth at the back end of the year, what gives you the confidence given the last couple of quarters of top line performance that we're going to even be able to do $500 million.

Sure, let me start and Fuad, you can if you can chime here within. We're sure the June quarter is our seasonally weakest. I think, I didn't I did this math real quickly but at the high end of our range, that would be roughly 4.5% or 5% growth for the quarter, Brian which is --

Yes.

With the $500 million represents. So in terms of the seasonality that exists in the business that would be consistent to 5%.

As I said in my remarks, we have ust a lot of momentum in building around opportunities set. We've had this new used case around the cloud, that we have referenced it's one of our more major branded contracts that we've ever had and we think that's going to be a big contributor. We also can see what's going on the data protection side.

And I think probably the most important thing together is the fact that a lot of the scale-out revenue that we're seeing and is being created is coming from our legacy channel from our data protection customers and this tipping that I referred is occurring real-time.

I mean we just see opportunity after opportunity in these various industries, where people have -- we go into sell off $100,000 back up deal and it turns into $600,000 scale-out deal because they're managing unstructured video images or they're trying to do analysis or what have you, so the acceleration of that during the year is been significant.

And then I feel like the $500 million is a reasonable place to target. As I said in my -- we're working things that are of size that will allow us to even be higher than that, but we're not ready to include them in guidance. So the 5% seems reasonable enough. We'll start with Q1 which will be 4% and 5% and we'll go from there.

All right and a follow-up, as I look in the guidance on a royalties at $35 million, royalties have kind of gone all over the place. I was pleasantly surprised to see a back up to about 11, again here in the March quarter. LTO-7 is just kind of taking off. 35 kind of implies that you expect it to kind of dip back down towards $9 million per quarter. Is there any visibility on that or is that just kind of being conservative?

Yes, we do the best we can to estimate but as you know that comes from the median manufacturers. With LTO-7 there definitely is a higher royalty rate and as in Fuad remarks he talked about LTO-6 being, I think 36% or so.

I don't want to say there is upside, I mean that's our best guess right now. And remember when we're doing a plan like this, we're trying to set out spending plan relative to our revenue plan. In the case for something like royalty, if it were to come in flat or close to $40 million that's just increased profitability.

So, we tried to be thoughtful. I don't want to say conservative but thoughtful around how we set that.

You're correct. This year it's been higher than we've expected three times and lower than we expected once. So and net net, this is another strong royalty year. It'd be great for it to come in at 40, I just think as we put the plan together, we didn't want to go spending around that.

Okay, great. And just one last one, if I might sneak it in. You talked about the scale-out storage being 35%, 40% of revenues in the next fiscal year. Is that of total revenues or is that product revenues?

Total.

Great, thanks.

Yes.

Thank you. (Operator Instructions) our next question comes from the line of Tim Klasell of Northland Securities. Your line is now open.

Hey guys. Just a couple quick questions and I missed part of the call, so maybe you went over this. But the scale of business, the weakness internationally, could you guys do something different there was it just purely macro or maybe you can get to help us understand how come those geos didn't do as well as we had hope.

I don't have anything really specific. We're comparing on a year-over-year basis. We talked about the megadeals year-over-year. Those markets are not -- they're more fragmented I guess will be the say it, Tim, than here in the US. In the US, our team is more mature. Our go-to-market is more mature. I think in my or Fuad's comments, we grew 44% in Americas, right?

I just think that in a business of this size, there's going to be times when things are lumpy. You know the thing I'm pleased about is, we delivered $120 million and higher profitability with the scale-out not having it's big growth quarter now. If it was $3 million or $4 million higher than would be great and the percentage would be closer to 20% plus.

We grew 35% for the year, without the megadeals. We've added one of these real large deals so I feel good about that. I just think it was that kind of quarter and clearly we were teed up to even do better than the midpoint of the range and over the high end of the range and profitability.

I've been trying to set -- I mean I'm going to do a sports analogy. I think I'll do it here. Given what happen last night, in last night's game I think, a way to think about is, we won the game, we covered the spread and you know our best player didn't have a very good game or really didn't play as well and the best player in this case is scale-out. And I just think the scale-out opportunity will be there for us. We've got a very differentiated solution. We've added some great accounts with whether it's new megadeals fund.

All in all I think, to be where we were for this quarter and nothing going around us, the team did a great job and the profitability that we delivered was significant and we're super well teed up for next year. So I think, Asia and the Europe will work its way through again it's the fun of growth opportunity but fortunately we've got other players on the, other things to pick that up around us.

Okay, good, good. And then maybe you could touch a little bit on the competitive landscape. I know you guys will walk away from an unprofitable deal, but what do you see the competitors out there? As you mentioned this is not exactly an easy space right now. What sort of activity you're seeing there?

Yes, that's a great question. Over the years, when markets get tough, people play really hard and in the space that we're in, that's generally comes in either discounting aggressively or bundling and giving things away for free. And you can see the results of the broader storage players, even some of the specialized players, you can see their results. And so, it's an aggressive market.

What's interesting about that for us is -- and we harp on this, I don't know how many times I've said it in my remarks and Fuad had it in his too. We deliver both performance and a storage out of value based cost. And so what happens is when our competitors play a little too hard, sometimes they might win and the next thing you know, we're getting invited back in.

And so we have to stay on message because our message resonates in this market so we're both performance cost and access. Even on DXi and tape, we tend to be the value-based provider and for years, we compete on the tape side against the proprietary folks with a value message.

So when we get the opportunity to speak with people and show, we can do it's fine. And you can see it in the win rates that Fuad had -- when we get into deals we're very, very difficult to beat.

So I wish the market was better overall. People don't buy back up products just because they want to. They buy in because they're buying servers and they're buying storage and so we'd like to see a more robust market for sure, but we also feel like our solution set allows us to compete effectively especially when the competitors are having to discount or give things away for free, customers figure that out.

Perfect, that's very helpful. Thank you.

Thank you and we do have a follow-up from the line of Brian Alger of ROTH Capital Partners. Your line is now open.

Yes, guys, just coming back to I guess the balance sheet and the elephant in the room, stocks been absolutely decimated, right or pick a different adjective I don't know, but it's not good. And it appears there's at least some fear of your guy's ability to deal with the debt not the bank line obviously, you guys got that extended but the debt that's obviously trading at a pretty deep discount right now.

What are we going to do about it? What can you do about it? Is it something that, you guys feel you need to address in the short-term or is this something you can wait out? Because I guess from where I sit it appears that, that is driving at least a lot of the conversations I'm having with investors and I don't know that we're going to be able to talk about scale-out storage until that's dealt with.

Yes, so let me start in and Fuad and can jump in. The debt is due basically 18 months from now -- the convert. When we did the most recent convert pay off, we entered into an amendment with Wells about three months before we paid it off to use a line of credit.

I keep hearing this comment that the debt is trading at a big discount, but then I don't ever see it actually trade. So it is in a very liquid security. I don't think you can buy it in volume for the amount of money that it's trading for. There haven't been any transactions.

So we're not -- I mean we just had a board meeting and went through and discuss this, it's 18 months out. We're going to generate cash and within that period and we'll, be opportunistic.

We don't feel big sense of urgency to do something immediately and it's not really obvious especially given our past and our debt structure and the amount that we paid off that there should be as much anxiety about it, that there appears to be. It's not clear where that anxiety is coming from or why, so that's kind it from me. Fuad's [pod] sold out, when he joined us and he spent a lot time thinking about, so let me turn it over to him and let him give you his perspective.

Yes, just to add just addition color. I think the first thing to consider is the debt is in fact 18 months out and we have about 18 months window to find a solution, but my view on how we'll solve this is, I think we solved it from generating cash from operations, showing growth year-over-year. That's why I'm focused on optimal cost structure so we can -- and provide the platform for the revenue to grow. And if we do that and generate the cash that we I feel, we can generate this year, it gives us optionality not just next year but even this year.

So we are focused on growing the business foundationally and fundamentally, change the way people view the Quantum story and get as much credibility on the street, credibility with the investors and then address it because I think a solution now would not be something that company will be, want to will not be palatable. So we have to address in a holistic way but I think it all starts with creating a foundation in the Company.

All right. Well I mean if I can maybe pushback a little bit and it seems to be a bit much to ask of your shareholders. I mean you guys had a preannouncement which by at least my impression was a positive preannouncement and that you announced a major way and then you talked about having a growth year and in your next fiscal year and yet the stock obviously went down. And what I'm hearing from the two of you is that, investors needs to wait 18 months for the debt to be dealt with knowing that the debt in that issue is driving the stock down currently.

So for a shareholder without anything other than a continuation of a rough market environment and effectively you guys running the business for the long-term, there isn't much to hang on to. And I don't know if it's doing a reverse stock split or everyone on the board buying stock but it seems to me that there needs to be a better communication from not just the two of you, but probably from the board as well, that you guys believe in this business and that it is undervalued because if you guys are -- look, if things are going the way you're describing them, this valuation makes absolutely no sense. It just -- there's no way it can be possibly explained if what you're saying is in fact true. And if you have faith in that and the board has faith in you guys, it seems like you should be doing more to communicate that.

Well, if you're talking about buyback, Brian, I mean at least half the board, almost half the board bought shares in December. So, that's occurred.

I take your points directly. I think the thing that's difficult and you know, even I talked about this. The market trades for lots of different reasons. I don't know for sure that it's the bonds that are causing the pressure on the stock. It very well could be. Certainly it's come up a lot more in conversations. You've heard it, I've heard it. What's unique about that is that a fairly new phenomenon and the bonds aren't new and we've had debt in the past.

So I think that my expectation is we were to go do a tender offer for those bonds, they wouldn't be trading for $0.70. So you know, they just don't trade that much and as Fuad said we have already started looking at it, we've had our advisors looking at it, we've had a discussion at the board about it.

But I guess there is two ways to think about it. I'm communicating we're not going to do something to hurry that's super dilutive because we don't think we need to or should and that is a discussion that we've obviously had internally.

If we can do it and it makes sense over the next 18 months, then we'll do that but we're not, we don't feel a sense of urgency to do something financially that doesn't make sense for the Company or shareholders in the overtime. And we definitely had the conversation though and I appreciate you sharing your perspective.

All right.

Thank you and I'm showing no further questions at this time.

All right. We appreciate everybody joining and as you know this is a longer wait for us because of the audit period and we'll begin our 10-K out in early June and expect that to be back in front with our conference call in late July for Q1 and we'll be gaining out on the road as well, so people can meet Fuad and ask the same questions in person that we've got today. So thanks again for joining today and we look forward to talking to you, after Q1. Thanks very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, you may all disconnect. Everyone have a great day.