Quantum Corp /De/ Q2 FY2021 Earnings Call

Good day, ladies and gentlemen, and welcome to the Quantum Fiscal Second Quarter 2021 Earnings Webcast. All lines have been placed on a listen-only mode, and we will open the floor for your questions and comments following the presentation. At this time, I am pleased to turn the floor over to your host, Rob Fink of FNK Investor Relations. Sir, the floor is yours.

Thank you, operator. I'd like to welcome everyone to the call. Hosting on the call today are Jamie Lerner, Quantum's Chairman and CEO; and Mike Dodson, Quantum's CFO. Please be aware that some of the comments made during today’s call may include forward-looking statements. All statements other than statements of historical facts that could be deemed as forward-looking. Quantum advises caution in reliance on forward-looking statements. Forward-looking statements include, without limitation, any projection of revenue, margin, expenses, adjusted EBITDA, adjusted net income, cash flows or other financial items as well as the anticipated impact of the COVID-19 pandemic and Quantum's financial results. Any statements concerning the expected development, performance and market share or competitive performance relating to products or services. All forward-looking statements are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantum's actual results to differ materially from those implied by the forward-looking statements, included unexpected changes in the company's business. More detailed information about these risk factors and additional risk factors are set forth in Quantum's periodic filings, including, but not limited to, those risks and uncertainties listed in the section entitled Risk Factors in Quantum's quarterly report on Form 10-Q and annual report on Form 10-K as filed with the SEC. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. Also note that on this call, the company will be discussing non-GAAP financial information. Management is providing this information as a supplement to information prepared in accordance with accounting principles generally accepted in the U.S. or GAAP. You can find a reconciliation of these metrics to the reported GAAP results and the reference affiliation table provided in the company's earnings release. I would like to remind everyone that this call will be available for replay on Quantum's website for at least 90 days. A link to the website replay of this call is also provided in the earnings release, which was available at the company's website at investors.quantum.com. With all that said, I'd like to turn the call over to Chairman and CEO of Quantum, Jamie Lerner. Jamie, the call is yours.

Thank you, Rob, and thank you all for joining us on today's call. On our last quarterly conference call, I stated that I believe the worst of the COVID-19 impact and disruption was behind us. The results of the second fiscal quarter support this. Our results in the second fiscal quarter exceeded our forecasted outlook benefiting from the strength of our federal government business and solid sales execution. We experienced a gradual recovery throughout the quarter with purchasing and procurement activity ramping up across most end markets. There are some encouraging signs of our customers starting to spend again on new projects and new business initiatives. While there are signs of light in media and entertainment, we now believe the recovery in that industry may take more than one or two quarters, given how the pandemic has impacted movie and TV production and professional sports. We have expanded our salesforce to those industries that are growing during COVID. As we expand our product portfolio this quarter, our story becomes even more relevant outside of our core media and entertainment markets. In response to the pandemic and the short-term volatility it created, we continue to maintain discipline with our expenses, while increasing our investment in research and development to support the introduction of new software products. The 300 basis points sequential improvement in gross margin achieved during the quarter bolstered our adjusted EBITDA to $8.9 million, meaningfully exceeding our guidance. Even with lower revenue levels, we are now a self-sustaining business. While the worst is behind us from a short-term perspective, I'm even more encouraged with the progress we have made in continuing Quantum's transformation. At our Analyst and Investor day in August, we discussed the next phase of our transformation and laid out the strategy for how we will continue to transform our business. At the core of our strategy is helping our customers solve their most pressing business challenges by unlocking the value in their video and unstructured data. The enrichment of this data is what will drive businesses forward. This is what will drive the next discovery, innovation, new ways to communicate and entertain, and new business models. In just 13 days, we will take another significant step in our strategy with the launch of next-generation data management software to classify, visualize, and orchestrate data both on-premise and in the cloud. We are also introducing new software features to automate data movement for optimal performance, along with new features to secure data from cyber threats. In short, we are significantly expanding our portfolio to classify, manage and protect video and unstructured data across its life cycle. In addition, this quarter, we begin to transform our business model with the introduction of subscription-based software licensing to align with the value we are delivering to customers. Historically, we've sold our software bundled with an appliance. Even when we are managing customer data on third-party hardware or on cloud infrastructure, we're not capturing this value in our software. With this launch, we are separating the software from the underlying hardware, establishing a clear value for our software aligned with the unique value we are delivering to customers and setting the stage for running the software in the cloud or on-premise, regardless of the underlying infrastructure. Over time, this will shift our business to a recurring revenue-driven model and increase revenue contribution from software, driving improved gross margins and more predictable revenue streams. Now I would like to provide an update on the status of our program to add new hyperscaler customers. Currently, we have three hyperscaler customers that have qualified our archive solutions for production. This represents our existing and longstanding customer and two new customers. Through the fiscal third quarter, the new customers will have initiated early stage production buys. A fourth hyperscaler is further along in the evaluation process and is expected to begin initial production buys by the end of the fiscal fourth quarter. We also expect to expand our product offerings to our hyperscaler customers beyond archive storage solutions to include a newly developed primary storage solution. If successful, this new product offering could start shipping as early as fiscal fourth quarter.

Thank you, Jamie. Welcome to everyone that has joined our call today. As Jamie mentioned in his opening comments, the second fiscal quarter of 2021 demonstrated that the worst of the COVID-19 impact seems to be behind us and our end markets are generally in a recovery mode. Revenue was $85.8 million in the second fiscal quarter, compared to $105.8 million in the year-ago quarter, and exceeded the high end of our guidance we provided on our previous call. The year-over-year decline of $20 million or 19% was driven by lower revenues across all the company's vertical markets, with the exception of the federal government business, largely due to the COVID-19 pandemic, as well as a fluctuating purchase cycle with our hyperscaler customers. Despite the fluctuating purchasing cycles with our hyperscaler customers to date, with the new hyperscaler customers starting initial production buys during fiscal 2021, we expect the level of business from the hyperscalers in the current fiscal year to approximate the prior year. While we are encouraged by the growth opportunities presented by the new hyperscaler customers, we are mindful that these customers are expected to have dual sourcing strategies for production buys, and each customer has a different cadence to ramping up their archive storage systems and their related data centers. Taking these points into consideration, we believe it could be a multi-year period to ramp the new hyperscaler production buys to full capacity levels that we have experienced with our longstanding hyperscaler customer. The gross margins in the second fiscal quarter were 45.1%, compared to 41.1% last year. Despite recording lower service revenues and royalties, both high-margin contributors, gross margins expanded due to a more favorable mix of enterprise products as well as reduced repair costs in our service business. In total, operating expenses in the second quarter decreased 10% to $35.2 million or 41% of revenue, compared to $39.3 million or 37% of revenue in the same period last year. The $4.1 million decrease in operating expenses was driven by a $4.1 million decrease in general and administrative expenses primarily due to $4.2 million of restatement costs in the prior year period, and a $1.7 million decrease in sales and marketing expense in the current period, primarily due to lower spending on marketing programs and travel and entertainment. These reductions were partially offset by an increase of $0.9 million in research and development costs primarily due to higher headcount and related costs to support the introduction of new software products. GAAP net loss in the second fiscal quarter was $4.6 million or $0.11 per diluted share, compared to a net loss of $2.3 million or $0.06 per diluted share in the year-ago quarter. Excluding stock compensation, restructuring charges and non-recurring charges, adjusted net loss in the second fiscal quarter was $213,000 or $0.01 per diluted share, compared to adjusted net income of $5.1 million or $0.11 per diluted share in the year-ago quarter. Adjusted EBITDA in the second fiscal quarter was $8.9 million, compared to $12.7 million in the year-ago quarter. There's a full reconciliation of our non-GAAP results to the most directly comparable GAAP measure in both the press release and Form 10-Q released today. Because our share count is not a straightforward calculation, I wanted to provide more color. Based on our loss position for this fiscal second quarter, our shares used to calculate the loss per share were $40.3 million. For the same period, assuming a profit, the share count per share calculations would have been $48.3 million. Now looking at the balance sheet, liquidity, and cash flows. Cash and cash equivalents were $18.3 million as of September 30, 2020, compared to $12.3 million at March 31, 2021. Both balances included $5 million in restricted cash required under the credit agreements and $0.8 million of short-term restricted cash. Adjusted working capital increased by $7.5 million during the second fiscal quarter from $52.4 million at the end of the first fiscal quarter to $59.9 million at the end of the second fiscal quarter. This increase was the result of the build of accounts receivable reflective of the higher revenue levels for the quarter and an increase in inventory to support customer order backlog that were shipped in the first few weeks of the following quarter, partially offsetting these increases is an increase in accounts payable, reflecting the higher inventory levels. Outstanding debt as of September 30, 2020, on a gross basis was $195.2 million. And on a net basis was $172.4 million after netting $22.8 million in unamortized debt issuance costs. This compares to $195.2 million of outstanding debt as of June 30, 2020, on a gross basis and on a net basis was $170.6 million after netting $24.6 million in unamortized debt issuance costs. Related to the term debt credit facilities, there's a holiday period for certain financial covenants through June 30, 2021. Also, there was no balance borrowed on the line of credit at the end of the second fiscal quarter. As we discussed during our Analyst Day back in August, we were going to be working to lay out a strategy to address the overhang on our valuation created by the legacy high costs of term debt. Moving in that direction, we will become S3 eligible on November 8. As a practical and responsible step, we intend to file a self-registration. Related to the term debt, the expensive may call provision we currently have will expire on June 27, 2021. Following that expiration, the optionality to address our capital structure increases significantly. Leading up to this date, we will be working to establish our financial strategy to improve our capital structure that will be accretive to our shareholders. In the meantime, the equity call back provision that allows the paydown of up to 50% of the outstanding term debt and a reduced call premium of 5% is available to us. To provide further optionality leading up to the June 27 date, we will consider concluding an at-the-market offering in the self-registration. This only increases our optionality and there's no obligation nor current strategy around putting it to use. Any proceeds from this offering will be strictly limited to paying down the term debt. In summary, over the next six plus months, we will be working to strategically improve the capital structure in a manner that will prove to be accretive to our shareholders. Related to free cash flows generated by operations for the first six months of fiscal 2021, before the effect of changes in assets and liabilities, net cash used by operations was $0.2 million, or essentially cash flow breakeven from operating results. Other uses of cash during the period included net changes in other assets and liabilities of $19.5 million. Other sources of cash during the first six months of fiscal 2021 included net borrowings of long-term debt of $19.4 million and borrowings of $10 million under the payment protection program. Related to the payment protection program loan, we have utilized the proceeds for qualifying expenses and have applied for forgiveness in accordance with the terms of the loan agreement. At this time, we cannot be assured that the loan will be forgiven partially or in full. Finally turning to our financial outlook. First, although we have seen a gradual and steady recovery across most of our end markets and key geographies, our visibility continues to be uncertain given the volatility and related adverse effects on the global economy brought on by the COVID-19 pandemic, as well as the uncertainties created by the current election cycle. As a result, our outlook for the third fiscal quarter has many evaluated taking these factors into consideration. The revenues are forecasted to be $93 million plus or minus $2 million. Adjusted net loss of $1 million, plus or minus $1 million. Adjusted net loss per share of $0.02 per share plus or minus $0.02 per share and adjusted EBITDA of $8 million plus or minus $1 million. When looking beyond the third fiscal quarter, the historical seasonality trends typically resulted in lower sequential revenue in the fiscal fourth quarter, although we are not prepared to provide a revenue outlook for the fiscal fourth quarter at this time, given the continued gradual and steady recovery, we don't believe we will experience the seasonality trend of lower sequential fiscal fourth quarter revenues this year.

Thanks, Mike. In summary, this was a productive and encouraging quarter for Quantum, signaling that the worst of COVID-19 is behind us. As we continue this transformation, our focus is on helping customers unlock the value of their video and unstructured data in a way to meet their most pressing business challenges. While we transform our business model to drive more predictable revenue streams and expanded margins. My excitement at our potential continues to grow. With that, we'll now take any questions you may have. Operator?

Thank you. Ladies and gentlemen, the floor is now open for questions. We will take our first question from Craig Ellis with B. Riley Securities. Please go ahead, sir.

Thanks for taking the question and congratulations on the very strong results. I just want to start with a couple of clarifications, and I'll start with gross margin, which was very strong, nice 300 basis point increase. Mike, was that entirely due to the mix that we saw inside of the products business, or were there other factors at play? And if so, can you just give us a breakdown of what the contributing factors were about the big sequential move?

Yes. I mean, it was within our product group. We had just a very favorable mix, and of course, with a higher federal business, that will always help our mix gross margin-wise. So that was probably the biggest contributor towards the rich margin. And I would just say that it's not necessarily sustainable when we look forward, but we are very pleased to have a strong performance this quarter.

On that note, Mike, is it fair to say that we know that government seasonality is very strong in the September quarter, isn't typically strong in the December quarter, and it sounds like from some of the hyperscale commentary that that should be rising? So is it fair to say that mix would be working more against gross margin in the fiscal third quarter versus the tailwind that it provided in the second?

Yes, that’s correct.

Okay. And then a follow-up question relates to some of the hyperscale commentary, and guys, thanks for really clarifying how you're engaged with a number of players there. Mike, I wasn't clear on your comments regarding revenue potential relative to an existing customer where you expressed that combined the three incremental hyperscale engagements could match that, or were you speaking to them individually, potentially matching that level with the other customer?

No, I was grouping all the hyperscalers. So when we looked at our revenue from our legacy hyperscaler last year on an annual basis, we would expect this year the legacy plus the new customers that are just starting to ramp up would be consistent year-over-year in total.

Okay, got it. And then I'll just ask one more, and then hop back in the queue. Jamie, there's a large player in the tape business that has recently announced that it's going to split its business. And it looks like it's extracting managed infrastructure from software and hardware. Those types of things often create customer uncertainty and it's real clear from Analyst Day. Quantum has established its own path and you're driving towards a different business model. But does that kind of thing create any incremental opportunity for your products business services or with what you'll be announcing with your next software release here on the 10th of November?

Yes, I mean, I can speak in detail to what our friends at IBM are doing. But I can speak about what we're doing. And at this stage, we are innovating in not just tape architecture, but in tape software, faster than anyone else in the market. We are going to be announcing in just 13 days not only do we lead the world in hyperscaler archive density and serviceability and electromechanical design of our robots. But beyond that, we're actually going to be providing the entire software stack that is needed to run that at exabyte scale. We'll be the first vendor to come out with a complete multi-exabyte scale software stack that can be literally rolled directly into production with cloud players. I think our speed of innovation is beyond anyone else's, IBM or anyone else in the archive space. I think our software integration and software innovation is unmatched. That's why you see us bringing up those R&D investments. We are cutting costs almost everywhere else, but we are increasing the costs in our innovation and our leadership position. Issues at IBM are less about breaking the business apart. I don't see that changing their innovation cycle. I don't see that changing their velocity. The speed of innovation, the rate of creativity, and the repeated breakthroughs in software are just making us the clear choice for the exabyte scale customer.

That's very helpful. Thanks, Jamie. Thanks, Mike.

We'll take our next question from George Iwanyc with Oppenheimer. Please go ahead.

Thank you for taking my questions. So Jamie, building on your comments on the software and the next generation opportunities, can you give us a sense of the ability to reach new customers with the type of development you're doing, and the type of TAM expansion that's on the table as the software rolls out?

Yes, I mean, we've been very intentional over the last nine months that we have to reach a broader customer base. Our management team feels, and I think many people feel that this is a K-shaped recovery. There are businesses that have been blessed by COVID-19 and businesses that have been put in a very tough and challenging place. We've been shifting our sales to the businesses that are benefiting. That includes online retail, particularly online retail that has a lot of videos. If you look at home improvement sites, there's huge amounts of video that also includes social media that has a large amount of video and photography. It includes over-the-top video providers, video broadcasters, and life science research, drug development, genomic research. We've been identifying the industries that are on the top of the K that use a lot of unstructured data that needs very high-speed processing, as well as needs to be archived for many years. Autonomous vehicle makers also fit into that category, and we have been deploying our resources into those areas. We don't expect media and entertainment to recover over the next three or four quarters; it'll be probably depressed for another year. I expect that to be completely offset by these other areas that we're entering, and all the data I’m seeing supports them.

Okay. And just briefly following up on that go-to-market transformation you're talking about, can you give us a sense of how healthy the lift in productivity from a sales perspective and the overall pipeline plan is?

Yes, right now we measure our future quarters with a variety of metrics that include the creation of new opportunities, it includes the number of RFPs we receive, it includes an analysis of average deal size, how large are the deals that we are bidding on, how many deals are we bidding on, how many new people are reaching out to us. Right now, that is just shy of our historic highs. We're not exactly back to the highs we once were at, but fairly close. What it is, is activity in new markets, new segments, and new geographies that is starting to accelerate our business. I expect that just to continue to grow as we head into the spring and summer. I think it will have a drastically larger pipeline we're working over the next several months. The trends have been pretty steady over the last six months. Post November 13, I think we just appeal to a much broader set of customers than we historically have.

Next, we'll go to Chad Bennett with Craig-Hallum. Please go ahead, sir.

Great. Thanks for taking my questions. Nice job again on a really good seasonal quarter, guys. Jamie, I just want to follow up on a comment you made and just to clarify and maybe elaborate on it. You talked about a newly developed primary storage system that would start shipping in the fourth quarter, and I believe that's attached to or connected to one of your newer hyperscaler customers. I guess first, is that correct? And then can you at least elaborate on the kind of use case or innovation that's bringing to them?

Yes, I guess my point is we're not just a one-trick pony to the hyperscaler. I think most of what we talked about is selling enormous tape libraries to the hyperscaler. We've moved beyond that, and they are buying other technologies from us. More encouraging is that the primary storage technologies they're buying from us. The core reason, the core differentiator is what they are buying from us is software. That has been a key goal over the last two years that we want to appeal to our customers with multiple products, and we want to increasingly appeal with software-driven, software-defined, or software-led products. We are in the middle of that with one of the hyperscalers, actually two of them, one of them we're giving them a new primary storage product, and one of them is not just buying tape hardware, but also buying the management and all the storage software with it as well. So we're really reaching out beyond just selling large quantities of hardware.

And Jamie, this includes and is more than StorNext?

Yes, it doesn't include StorNext. It's a different product.

Okay, very interesting. Okay. And then maybe just an update on next-generation LTO. I think we're onto 10. Just timing there and then Mike could probably handle that also. But just how you expect the royalty piece to flow over the next couple of quarters if you can give that type of visibility there?

I can give a little update. For those of you who follow the LTO world, LTO-9 is late. Probably as pursuant to my comments earlier on IBM, they are late and they are quite a bit late. This will delay any LTO-9 uplift that anyone may have expected and will push LTO-10, which is probably about two, two-and-a-half to three years away. This obviously has us concerned. We've been designing our business so we are not dependent on this trust fund or royalty. We are increasingly running the business to meet all our revenue objectives, all of our margins, and earnings objectives on our own steam. We're looking at the royalty as upside.

I agree with everything that you've outlined, Jamie. And when we look at our run rate, the last couple of quarters, it's been $3 million and change. But we would be between a million and $4 million in the foreseeable future, unless something changes significantly. That's about where we would expect to be.

Okay. And then maybe just one last one for me. It sounds like decently better than normal seasonality in the fourth quarter, the March quarter, and potentially even being up sequentially from the December quarter, which would be very good.

Yes, I mean, when you do the math and you understand that the royalty is lower, right, and that the service business is more or less starting to level off, we're working really hard to increase that and take it off the golden glide than we've seen over the recent past. Everything else that we've been doing, to introduce new products, go into new markets, leverage geographies; it all starts to come together as we can put more and more of the COVID impact behind us.

We'll take our next question from Eric Martinuzzi with Lake Street. Please go ahead.

Yes, regarding the operating expense expectation for the December quarter, you did keep a lid on expenses, the sales and marketing wise, but you are investing in R&D. What should we be planning for as far as your operating expenses for December in comparison to the September quarter?

Yes, I would say that we'll continue to work to optimize that. I mean, two of the primary areas in general would be facilities and looking at understanding how we can better utilize the remote activity we have through this pandemic. This leads us to be more efficient on the facilities, which takes more time to do that type of restructuring. But that's definitely going to allow us to be more efficient on OpEx and then always the continued move to add people and grow our resources in more cost-efficient areas. And to say it another way, not to increase it in higher cost areas. We'll continue that trend as well. But if you were to look at it by function, the G&A should be staying flat. You'll see sales and marketing go up because as our revenues increase, one of our biggest variable costs is on the commission side. I would expect sales and marketing to increase as our revenues increase. And then R&D, you won't see that go down, and you'll probably see it gradually go up because it's so important for us to maintain the innovation and keep moving new products out. I mean, M&E is the most obvious and the one that we're most known in. I think it varies. It's not like we have a heavy business in hotel and airline, but what we're doing is more intentional in that we've gone out and studied who's on the top side of the K, is growing very quickly and has a lot of unstructured data, is in a geography that's expanding quickly and needs the products of the kind we have. We're redeploying to those verticals. Those include online retail, particularly online retail that has a lot of videos, over-the-top video providers, video broadcasters, and life science research, drug development, genomic research. We have been identifying the industries that are on the top of the K that use a lot of unstructured data that needs very high-speed processing, as well as needs to be archived for many years. Autonomous vehicle makers also fit into that category. While I don't expect media and entertainment to recover over the next three or four quarters, I expect that to be completely offset by these other areas.

I understand.

You can think of it as we're just adjusting to a new normal.

Okay. And that's certainly captured in the outlook, I'm sure. Just a clarification on the share count, Mike, you talked about, hey, if we had had a positive net income, it would have been roughly eight million shares at dilution. Is that to say then, based on your guidance for Q3 here, where we're kind of bopping around breakeven on the adjusted net loss to be a $1 million plus or minus a million that if we're positive, then use that 48.3, or should we be modeling kind of a creep in there alongside the 48.3?

Mike, you may be on mute.

Sorry that was – I just gave you a wonderful answer, Eric.

And I almost heard it.

I was going to say, it's the conundrum you face when you're close to breakeven you are a little bit profitable, a little bit of a loss, and it's just a different – it'll be a different share count, depending on which side you end up, right. If you are loss, you don't bring in the dilutive securities using the treasury stock method. If you're a profit, you do. It's kind of splitting hairs, because you're talking about a $0.01 one way or the other, right. But it's just the difference between what number you use for a gain and what number you use for a loss.

We'll take our next question from David Duley with Steelhead Securities. Please go ahead.

Yes, thanks for taking my questions. And congratulations on the revenue recovery. I guess the first question for Mike, you talked about how hyperscale revenue, I guess, will be flat this fiscal year versus last fiscal year, or is that a calendar number? And could you help us understand what exactly hyperscale revenue was last year?

Yes, sure. It is the fiscal year, fiscal year over fiscal year. We don't break out revenue by verticals or by customer, we don't break that level of information now.

Okay. And then I guess you've portrayed having a couple of new hyperscale customers in the pool now that are starting their volume ramps or moving stuff into production. You've talked about how the opportunity with these two other folks aren't nearly as big as your initial customer. For an assortment of reasons, I guess dual sourcing and whatnot. But over time, once these two new customers ramp up, what do you think is kind of the TAM or opportunity for per large customer or any sort of metrics you can help us understand what your qualitative comments mean to an actual revenue figure going forward?

Well, again, we don't talk about individual customers, Dave, not that I don't want to answer your question. What I did mention in our prepared remarks was we would expect, it could take years for these guys to build up to the same level that we've seen from our legacy customer. It's definitely going to be something that will be gradual over time and it's just very difficult to predict. Just on a standalone basis, predicting one customer is difficult. And these guys will just ramp up over time. Will they be bigger, will they be smaller, it's just very difficult if not impossible to predict.

Okay. Now I guess you have a new product coming in 30 days you mentioned. I guess it's my impression and just listening to what you guys said about this, is this kind of a scale-down hyperscale product for the enterprise? Just help me understand there's a lot of Fortune 500 companies, many more than the 10 or 12 hyperscalers worldwide. How big of an opportunity to market do you think this can ultimately be for you guys?

Well, we're introducing multiple products on the 13 and multiple enhancements to existing products. The TAM is, I would just say it is much larger than what we do today. In the Analyst Day, we talked about potential TAMs, but I would say this is an order of magnitude increase of the aperture of our TAM. This is a 10x widening the TAM from traditional tape, hyperscaler tape, and media and entertainment. This is enterprise, hybrid, and multi-cloud storage play. It is relevant to cloud storage, it's relevant to on-premise, it's relevant to hybrid, and it's relevant to any enterprise that's managing a large amount of unstructured data. Almost every major company today has petabyte or larger collections of structured data, and that is what we're trying to expand into. We're coming at it pretty aggressively. There will be a lot more product details I don't want to scoop those product details now, but in 13 days, it's not just one product we're announcing.

Okay. Final one from me is you made some commentary about the March quarter, not seeing seasonality like you typically might. That's completely understandable given you're coming off the trough with the COVID. But I'm just trying to pin you down a little bit more. Do you think that means that revenue can be flat, up, or will it just be down less than it normally would be?

Yes, the purpose of providing that guidance was to help everyone understand that what we typically see, we don't expect. At the very least, what we're saying is it should be flat. But the visibility is just very difficult at this time.

And there is a typical sequential decline in the March quarter for you guys over whatever period of time that you think is relevant for us to measure this progress against?

Yes, I want to say that it was probably high single digits, low double digits in that range, but it didn't always follow that for different reasons, but it's just normal seasonal.

For our next question, we'll return to Craig Ellis with B. Riley Securities. Please go ahead, sir.

Yes, thanks for taking the follow-up question. Jamie, I wanted to go back to the analyst day and kind of ask a question related to that, but also with the product announcement that's coming up in early November. So not to put the cart before the horse, but beyond what is going to be a very significant software announcement, what are some of the things that investors should have their eye on over the next three to six months that are milestones that show that Quantum is on track with the transformation you identified at Analyst Day?

It may be longer than three to six months, but at some point in the transformation, Mike will begin talking about the company using different metrics. They will be the metrics of a software company and the metrics of a recurring cloud software company. You don't hear us typically talk about ARR, right? You don't typically hear us talk about TCV and RPO. We do not know yet, and we're working closely with our customers as we rollout this new business model. We have to gather metrics, we're iterating, we're getting feedback and iterating again, and getting more feedback and making adjustments. We're very much doing this rollout hand in glove with our customers. When Mike rolls those out into an earnings call, that will be the first signposts that the numbers are significant, and we're starting to share them with the investment community. I think that may be longer than three to six months, but I don't think that's longer than a year.

That's helpful. On that note, Mike, with the upcoming software release, it will be offered via subscription model, does that mean that we'll be looking at deferred revenue? If so, how is that incorporated into the guidance that was provided for, I think, it was $93 million in midpoint revenue for the quarter?

Yes. When we look at our business in the near term, the expected financial impact is very minimal from the new products. I would say that it wasn't much of an impact in what we looked at next quarter.

Got it. But six to 12 months from now, it should be a much more significant impact?

Yes.

That and other things like Storage-as-a-Service. Okay, got it. Yes, gentlemen, thank you very much.

Ladies and gentlemen, that will conclude our question-and-answer session for today. We'll now turn the floor back over to Mr. Lerner.

All right, well, thanks everyone. I know we are executing a profound, pervasive, and somewhat rapid transformation. I think it's only appropriate given the time that we’re using this crisis to accelerate our transformation. We'll be working as hard as we can to get you the most up-to-date information, the most up-to-date metrics as we go through this. Hopefully, the next time we’ll talk will be on the 13, and then again at our next call. So thanks everyone for joining.

Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.