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Quantum Corporation (NYSE:QTM)

F2Q09 Earnings Call

October 22, 2008 5:00 pm ET

Executives

Shawn D. Hall – Vice President, Secretary & General Counsel

Richard E. Belluzzo – Chief Executive Officer

John W. Gacek – Chief Financial Officer

William C. Britts – Executive Vice President of Sales, Marketing & Service

Analysts

Brian Freed – Morgan, Keegan & Company, Inc.

Glenn Hanus – Needham & Company

James Bash – Dialectic Capital

Jason Bernstein – Quattro Global

Steve Bogman – Advisor Partners

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Quantum Corporation second quarter fiscal 2009 conference call. (Operator Instructions) I would now like to turn the conference over to Shawn Hall, General Counsel. Please go ahead sir.

Shawn D. Hall

Thanks and good afternoon and welcome. With me today are Rick Belluzzo, our CEO; John Gacek, our CFO and Bill Britts, our Executive Vice President for Sales, Marketing and Service. 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 prospects, priorities and opportunities; future financial performance, including anticipated revenue; gross margin; expense and income performance; and debt covenant compliance; and trends in our business and in the markets in which we compete.

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 announcing our fiscal Q2 2008 results as well as to our reports filed with the Securities and Exchange Commission from time to time, including our most recent Form 10-K filed on June 13, 2008 and our most recent Form 10-Q filed on August 8, 2008.

Such reports contain and identify important factors that could cause actual results to differ materially from those contained in our forward-looking statements. All such risk factors identified in our press release and in our filings with the SEC are incorporated by reference into today’s discussion. We undertake no obligation to update these forward-looking statements in the future.

With that I’ll turn the call over to John Gacek.

John W. Gacek

Thanks Shawn. Good afternoon and thank you for joining us. Today we are reporting our results for the second quarter of fiscal 2009. This is definitely a challenging time for many companies and investors. We are very focused on execution, paying down our debt and improving our operating profit.

Clearly the economic climate continued to deteriorate during the period and impacted our business. However, we did make progress in a number of areas in Q2. First, we paid down

$40 million of our acquisition debt. Our ADIC acquisition debt was nearly $400 million a year ago. As of September 30, it was $250 million.

Second, we settled with Riverbed and received a one time payment from them of $11 million, which is included in our royalty revenue line on the income statement. Third, our non-GAAP gross margin was 41.9%, 38.8% excluding the Riverbed revenue, compared to 35% for the same quarter last year.

Finally, we again increased our disk and software revenue on a year-over-year basis. Our disk and software revenue was $20.8 million including related maintenance revenue compared to

$15.8 in the same quarter a year ago.

I would like to refer everyone to the financial statement and supporting schedules included in the press release. It will be helpful to refer to them as I make my comments.

Revenue for our second quarter ended September 30 was $215.4 million compared to

$248.5 million a year ago. For the quarter, non royalty revenue totaled $184.8 million of which 66% was branded and 34% was OEM. That compares to non royalty revenue of $224 million a year ago of which 63% was branded and 37% was OEM.

Royalty revenue was approximately $30.6 million for the second quarter compared to

$24.5 million in the same quarter a year ago. The increase is a result of the Riverbed revenue of $11 million, an increase in the LTO royalty and a decline in DLT royalties.

Looking further at product revenue, tape automation systems revenue was $85.8 million compared to $110.6 million in Q2 of fiscal ’08. Approximately two-thirds of this decline was related to OEM products and one-third related to branded automation in North America.

Sequentially, branded tape automation systems revenue increased in Q2, including increases in our enterprise and mid-range tape products. Entry tape automation systems revenues were flat sequentially. We believe the changes that have been implemented in our branded sales force are beginning to make a positive impact on our results.

Looking at devices in media, they totaled $38.8 million compared to $59.5 million in Q2 a year ago. The decline is primarily attributable to our anticipated decrease in OEM device revenue. In addition, we had a decline in both our branded device and media revenue. We continue to manage our media business opportunistically to generate gross profit dollars. This quarter’s media market pricing resulted in us not pursuing additional revenue opportunities.

This systems and software product and service revenue was $20.8 million, up from $15.8 million a year ago, a 31% increase. Just to provide some further specifics on DXI, our year-over-year growth was largely driven by the addition of the DXI 7500 to our portfolio and license revenue from EMC. In addition to EMC disk customers who purchased systems incorporating our replication software, Quantum alone increased our DXI customer base to more than 400 in September, driven in part by our sales of our DXI 7500 enterprise solution.

Reflecting its strong value proposition, two-thirds of DXI customers to date have purchased replication licenses and nearly a third have taken advantage of the direct tape creation option which provides seamless disk to tape integration.

Turning to gross margins, non-GAAP gross margins in Q2 was 41.9 compared to 35% in the prior year period. Excluding the Riverbed revenue, the non-GAAP gross margin was 38.8. Overall this is a result of a higher branded mix but going a little deeper into this quarter we had less OEM product revenue, less branded device revenue and less branded media revenue. These are all lower margin product segments.

We also had higher disk and software revenue and had an increase in our service revenue. So excluding the Riverbed revenue, the 380 basis point improvement of gross margin on revenue that is approximately 20% lower shows how far we’ve moved the company into developing and introducing and selling higher value added solutions.

Moving to expenses, non-GAAP operating expense totaled $70 million compared to $67 million a year earlier. For the quarter R&D was $17.9 million, sales and marketing was $33.1 and general administrative expenses were $19.1 million. Non-GAAP operating profit for the quarter was $20.2 million or 9.4% of revenue compared to $19.9 million or 8% of revenue in the same quarter a year ago.

Net other expense of $385,000 was primarily comprised of a million in foreign currency losses, partially offset by a gain in related to our interest rate [callers]. Interest expense for the quarter was $7.5 million compared to $11.6 million a year earlier. This includes cash interest expense of $7 million and amortization of debt issue costs of $500,000.

The coupon interest rate for our remaining acquisition debt of $250 million at September 30 will be approximately 7.3% for the quarter ended December 31. For the second quarter we recognized tax expense of $1.1 million related to foreign and state taxes. We still believe it’s reasonable to model tax expense of $1 million per quarter looking forward. So summing it up for Q2 we had non-GAAP net income of $11.2 million, non-GAAP EPS of $0.05 compared to non-GAAP EPS of $0.04 in Q2 of fiscal 2008.

Focusing on cash flow for the quarter and the balance sheet at September 30, I want to highlight several key points. Cash flow from operations for the quarter was $5.1 million. We paid down

$40 million of our ADIC acquisition debt during the quarter which now totals $250 million. For purposes of calculating our debt covenants, our non-GAAP EBITDA for the quarter was

$28.3 million and for the last 12 months it was $99.5 million. We are in compliance with all debt covenants at September 30 and we expect to be in compliance with our debt covenants during the next 12 months.

Sequentially inventory increased $1.2 million and accounts receivable decreased $1.4. We had an accelerated payment of $17.5 million from one major customer. CapEx was $1.3 million and purchases of service parts for maintenance were approximately $600,000. Depreciation and amortization totaled $20.2 million for the quarter.

As we look forward to the remainder of the fiscal year, there is clearly uncertainty surrounding the macroeconomic environment and we are very focused on optimizing around generating EBITDA. Therefore we feel it’s important to note that our results for the remaining two quarters of the fiscal year could turn out differently than we expect today. Having said that, we recognize that current and potential shareholders as well as debt holders would like financial information about the rest of the year so therefore let me summarize our current thinking about Q3 and Q4 guidance.

So this is the next two quarters combined. Total revenue of $400 to $450 million; non-GAAP gross margins of 38 to 40%; non-GAAP OpEx of $130 to $140 million; total interest costs of approximately $12 to $14 million and tax expense of $2 million or $1 million per quarter. When you combine the above with our first half actuals, this results in a non-GAAP net income of

$25 to $30 million for the full fiscal year ended March 31, 2009. Again let me emphasize that our focus over the next two quarters is to generate EBITDA and therefore we will make trade-offs to do so.

Now let me turn the call over to Rick.

Richard E. Belluzzo

Well thank you John. As John said we achieved most of our performance goals in Q2. Some of the highlights include growth in our disk systems and software business even with some significant challenges posed by the financial crisis toward the end of the quarter, a continued improvement in gross margins reflecting our focus on shifting our revenue mix, and aggressive work in operations. We had an OpEx reduction of more than $4 million from last quarter. We completed another Deduplication agreement, this time with Riverbed, and finally a reduction of

$40 million of term debt.

All these accomplishments reflect our continued strategy of focusing our investments on growth opportunities, shifting our business mix to higher margin segments and paying down debt. We’ve pursued these objectives by building a disk systems and software growth business, reducing investments and declining market segments, and continuing to generate cash. Our revenue performance was a disappointment this quarter.

We believe we have taken many of the right actions in order to deliver improved revenue results, but this quarter it was clear that the global financial crisis impacted our ability to close business at the end of the quarter. Our third month of the quarter, September, underperformed relative to typical quarters as we saw numerous sizable deals fall out of the quarter. This was clearly evident on the DXI side where much of our business tends to get closed toward the end of the quarter, particularly larger deals that we are increasingly involved in with the DXI 7500.

We believe that many of these will close in the coming quarters, but given the strong Deduplication replication market that there remains a significant risk that opportunities more generally will become soft as our customers manage their investments more carefully. So was the end of the quarter climate that prevented us from being able to report a very strong quarter. We know that we have many opportunities to enhance our business over the next few quarters and we are focused on driving more customer opportunity and more aggressively closing business in this challenging environment.

These opportunities include product enhancements in our DXI line, continued growth in our EMC business, investments in our channel program and returns from investments we’ve made in growing sales territories to mention just a few. In short, Q2 was a challenging quarter given the impact of the global financial crisis but in spite of this we were able to deliver solid improvements in most areas of the business.

Now let me make a few comments regarding our strategic priorities and say a few words of how we intend to respond to the current economic environment. We continue to feel that the transformation we began a couple of years ago is focused on the areas that provide Quantum with the greatest opportunity to deliver greater value. Our focus is about delivering a set of products and solutions that protect data from the edge of the network to the core of the data center.

We will combine our disk, tape, software and services to provide customers in the mid-range up to the enterprise with integrated, highly scaleable solutions that meet the full range of needs of the data protection, retention and management offering. To achieve this we have focused our investments on strengthening our product offering in the disk systems and software segment, building on our leadership position in deduplication technology, providing tight integration with tape and by working with partners we intend to deliver these solutions with the right surrounding applications and services.

The market for deduplication replication systems is very strong and building leadership here remains our top priority. In addition to the growth we have experienced and the increased traction we are seeing through our software license agreement with EMC, we have recently reinforced the strength of our core intellectual property in deduplication through the Riverbed settlement. Going forward we intend to pursue additional opportunities to leverage our deduplication IP and broader software stack which will enable us to further build our leadership in this rapidly growing market.

Going forward we will also continue to refine our go to market model in order to provide greater return on our overall investment. This will include working more closely with EMC to fully leverage joint opportunities, driving more opportunities overall, and building our channel program, expanding our partnerships and aggressively closing business. There is no doubt that this is a challenging environment but we believe that we can capitalize on these opportunities.

And finally we intend to be more aggressive at managing our cost structure. We will approach this environment as one of uncertainty which will require us to be even more aggressive in managing our investments and costs. Therefore we expect to reduce OpEx in order to achieve greater flexibility in our financial model.

In summary, our strategy is clear and very focused and the opportunity is significant. We made good progress in Q2 but did not achieve all that we wanted as a result of the weakening macroeconomic environment. We are committed to taking actions to improve our revenue performance and reduce costs as we manage our way through this uncertain environment.

With that, I’d like to turn the call back over to the operator for questions. Thank you.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions) Your first question comes from Brian Freed – Morgan, Keegan & Company, Inc.

Brian Freed – Morgan, Keegan & Company, Inc.

Can you talk a little bit about media and drive? Obviously we’re the biggest component in the shortfall relative to your revenue expectations in the quarter. From a margin perspective, can you kind of give us a sense – is that a profitable business or is it really much more of a break-even business as we kind of think about the value of that revenue versus the more [inaudible] revenue out there?

John W. Gacek

Let’s do media first. Media is clearly sold as a commodity through multiple channels and we have opportunities to have really good business there, but if somebody at one of the media suppliers and one of the big system OEM’s decides that they want to drive revenue and not margin that pushes hard on the price. And we’re not going to chase that business if we’re not going to make money. So we have an internal threshold of what we’re trying to target in the media space. I can tell you it’s positive. There have been times when it hasn’t been positive actually. But it is positive today.

And we’re not going to chase that business down if the dynamics in the market are bad. So it’s just a trade-off and I don’t feel like it is – contributes a lot financially to chase it down. So we’re not going to do that. It burns up cash and doesn’t generate EBITDA.

Device is a little bit different. We have a LTO-4 drive that we’ve announced and launched and we think that there is more opportunity there in the channel as we deliver that product and put channel programs around it. So I think that is a place where we would like to see some growth. It does – it is a nice profitable business for us and that’s a place where we’re going to focus some effort.

Brian Freed – Morgan, Keegan & Company, Inc.

Secondly related to the EMC relationship can you give us any quantification from how the ramp’s going with the EMC? And secondly can you give us a little bit more granularity in terms of timing for reporting EMC royalty? Is it in the quarter is there any sort of lag?

John W. Gacek

Let me start with the second question. We get a royalty report from them monthly, so this quarter included the three months of the quarter. As far as their business all I’m going to say is we’re pleased with the partnership and I don’t want to talk about their products. I know they already had their call. That would be a good question for them as compared to us. But we’re pleased how the relationship has started. This is the first full quarter. And we look forward to more opportunity there.

Brian Freed – Morgan, Keegan & Company, Inc.

And then finally as you kind of look forward can you give us some sense – how much visibility do you think you have into your pipeline at least one quarter out, given the backend loaded nature of things in terms of forecasting, scrubbing the pipeline, do you feel like you’re getting more accurate?

John W. Gacek

I’m going to let Bill comment. I guess what I wanted to say about the guidance we gave is obviously we lowered our numbers down to try to take into account the economic environment and what we could see. And that was based upon a scrubbing process. With that I’ll let Bill answer the rest.

William C. Britts

So I’m going to focus my remarks mostly on the branded systems because that part of the business is really the one that’s backend loaded, it’s where we have the largest pipeline that we have visibility all the way through to the end user. And it’s also where we saw at the end of last quarter starting in week ten we saw that we fell behind kind of our historical pacing and really didn’t close the quarter with kind of the revenue that we had expected, certainly looking at it kind of midway through the quarter and all the way up until kind of early September.

So we’ve gone through the process of analyzing that pipeline. We’re trying to basically make sure that we don’t build into that pipeline and looking at kind of this quarter and the next quarter, a lot of uncertainty about decision making around going forward with larger projects in particular. We saw a number of larger deals that got pushed. At this point it’s still very uncertain. But certainly from a pipeline standpoint we feel like the overall opportunity has been growing and it’s really just a very uncertain environment in terms of trying to project what the macroeconomic environment is going to do to our specific business.

Richard E. Belluzzo

Yes let me make a comment about DXI generally related to this and this applies to a number of questions that you may have. And that is that our strength in that product line is the DXI 7500. It’s a highly scaleable, high performance, well differentiated product. That has tended to take us into bigger accounts and bigger deals and pretty exciting sets of opportunities. But those that become more visible are a little bit harder to close. And also the ones that tend to go to the end of the quarter, and I think that was why we were maybe more susceptible to that backend than other people might be.

So our strategy to expand on that is we need to take the platform and move it down more and strengthen our position in the mid-range where we can have more of a channel play, where we can have more velocity, we can have smaller deals with more leverage with partners. That I think is really the key of what we need to address to be able to improve that revenue but also change the nature of it so that we now have a velocity business plus the big deal business. And that really I think gives us the best overall opportunity.

Operator

Your next question comes from Glenn Hanus – Needham & Company.

Glenn Hanus – Needham & Company

I think you said early in the script you’ve had some issues with sales, organizational issues I guess in the U.S. mostly in the branded business and you said you made some progress. Could you kind of talk about that?

William C. Britts

Yes. At the beginning of the fiscal year we reorganized the America’s field sales organization. We also did some restructuring in our channel sales organization. We made investments also to better support our strategic OEM relationships where we have a branded reseller relationship so EMC would be the largest example of that. And just in general we’re looking for better ways to leverage our very focused, solution oriented resources. So we made progress in the Americas, in Europe, again it was largely driven by the last month of the quarter where the business didn’t really close that we expected.

And again we look at this as still a very, very good opportunity for us to be able to take the 7500 momentum that we’ve built through our OEM relationship and with our own branded sales force and to be able to take that and get leverage from the channel. So you’re going to see us very focused on taking that very unique positioning, edge to core solution, using deduplication, replication, and integrated path to tape, taking that and enabling the channel to build service offerings around that, that really address what I would call the major re-architecting of backup in the enterprise and in the mid-range enterprise types of companies.

And this is going to happen – we believe that this is happening even independent of some of these macro environmental pressures on companies, because this is something that has a very strong ROI for these end user customers.

Glenn Hanus – Needham & Company

Can you talk a little bit about the competition in the dedup space and competing with data domain and how you feel you’re doing there? And I guess you want to have a little more penetration in what you’re calling the mid-range space, and with those that were sort of more high velocity sales if you will and that should help get that going a little more? Is that what you’re saying?

William C. Britts

Yes there are multiple aspects of that. I would say first of all how we’re doing, this was the first full quarter of 7500 shipments for us and the EMC OEM version of our software. I would say we’re rapidly gaining share in the deduplication space. And then if you look specifically at the enterprise part of the market, and again there aren’t analyst reports that break this out, but if you just combine kind of the systems sold through EMC and through us I think what you’ll see is we made significant progress and actually we’re growing very, very rapidly in that enterprise segment.

So our challenge now and we see opportunities to do this with channel partners is basically help them understand the overall edge to core solution and our ability to be able to help them build services around that, helping them understand that not all data deduplicates the same way. Policy based deduplication where you can basically choose the type of deduplication at the VTL or NAS level you can do that in a way that better fits the customer’s needs. That’s a key initiative for us is to be able to take that technology and get more leverage from our Quantum branded independent channel partners.

Glenn Hanus – Needham & Company

John can you talk a little bit about how to think about the two upcoming quarters? You gave the combined number. Normally December is a strong quarter and then March is the weaker quarter. Would we expect to have the same sort of seasonality that you typically have?

John W. Gacek

Normally I would say yes and I will say our guidance that we gave incorporates that concept. We would expect Q3 would be stronger than Q4. We’re just caveating that by the uncertainty around the economic environment. But generally yes and our plan also does that. I think on the expense side, same with track, our expenses would be a little higher in Q3 but lower in Q4.

Operator

Your next question comes from [James Bash] – Dialectic Capital.

James Bash – Dialectic Capital

For the three months ended September 30 of ’08 over ’07, revenues look like they decreased on an absolute basis around $33 million yet operating expenses were higher by over $2 million. I’m kind of surprised and disappointed to see that trend and I’m actually even more surprised and disappointed to see that sales and marketing expense was actually up around $4 million over that timeframe. Well again you guys had a significant retrenchment in revenues. Why is that happening? I see that operating expenses are going down now, but it’s a little bit late to find religion.

And what are you guys doing to address it right now? How much more room do you guys have in terms of operating expenses? What specifically are you doing on that sales and marketing line? And then a second question would be concerning cash. You had around $34 million in cash right now. You guys are kind of hovering around the free cash flow, breakeven point if you were to try to kind of normalize things right now. Do you feel comfortable with $34 million in cash given that you’re not consistently generating strong free cash flow at this point? And I might have a follow up depending on your answer.

Richard E. Belluzzo

Let me say something about the expense revenue piece. So you know one factor that’s pretty important is our branded and OEM revenue is very different. Our OEM revenue is declining significantly. It has low gross margins. It has low expenses. Our branded revenue is stronger and requires more sales and marketing expense. It has much higher gross margin. So a big piece of that transition one would expect even in normal times, you would expect to not necessarily just look at the revenue number, you should look at the gross margin number.

It’s still not storing as strong as it should be but it does change it quite a bit. It just costs you more money to be in the branded business but you get that because you sell a service contract and you have a higher gross margin and by probably maybe double what the gross margin would be in OEM. So I would start there.

Secondly I would say clearly we have work to do on expenses. Clearly we have been working to fine tune our sales and marketing to match the opportunity. I think today we’re very much focused on driving productivity. That’s another way of saying that we either improve revenue or we lower costs. And we intend to do some of both.

And then I would say that in this environment it’s important for us to do a fairly top to bottom look across our expense structure, not only sales and marketing, to understand how else we can optimize things. Because we’d like to have more margin in our plan and the best way to do it is with something you control and that’s expenses.

John W. Gacek

Yes, I’ll just add to the expense comments that Rick had. We have been clear that growing the branded business is part of the strategy and we have invested ahead of revenue. And I think if you look at it more sequentially than year-over-year as it relates to expense line, on a non-GAAP basis I know those numbers better and it goes from $35 million to $33 million sales and marketing. So we’re trying to be smart about where we invest, how far ahead we invest, understanding that this new business we’re entering is a very high gross margin business.

And the business that we’re exiting is not nearly this high. And the media example I gave earlier, I think the media number’s down roughly $10 million sequentially. That looks like a $10 million decline in revenue, but it really is very little in gross margin.

The other point on expenses is in G&A we still had roughly $1.75 million of litigation Riverbed expenses included in G&A that will not reoccur next quarter. So that’s one of the reasons why we’ve guided down expenses to from $70 million on a non-GAAP basis to as low as

$130 million or $65 million on a non-GAAP basis for the next two quarters. So that’s kind of the room that we’re targeting right now. You asked a question of where we’re targeting. It’s really that.

We expect to try and keep R&D about flat, G&A, marketing and sales down. As it relates to cash we think that we are generating some cash. We have some room to do that in the balance sheet still. But we’re going to be smart about balancing our cash use and our debt pay down. And we’ve been aggressively paying down debt and we think that’s a good thing overall for both shareholders and where we’re trying to head. I think we were very clear that we’re very focused on generating EBITDA which is the proxy for generating cash.

And we’re going to try and continue to aggressively pay down our acquisition debt. We think our capital structure and our capital structure generally is a weight on the stock and we’d like to continue to show that we can pay that down.

James Bash – Dialectic Capital

I would just add this. I understand you’re taking down OpEx. Given how conservative, extremely conservative you guys should be operating in this environment, given that you posted inconsistent results, certainly your top line has fallen below your expectations, at least over the last two quarters, I would stress how important that it is to be phenomenally conservative in managing your OpEx at this point especially considering you’re a levered firm.

I don’t think that $130 to $140 is conservative enough. Not even close, given that your revenues are contracting at a more accelerated clip. I just want you guys to really meditate and think about that. And I guess I’d just leave it with that.

John W. Gacek

Thanks.

Operator

Thank you. Your next question comes from Jason Bernstein – Quattro Global.

Jason Bernstein – Quattro Global

Regarding the pay in debt, the $40 million this quarter and $90 million year-to-date, can you provide any guidance on the convertible debt?

John W. Gacek

Guidance on it?

Jason Bernstein – Quattro Global

Yes. How you guys tend to either pay it down or handle the 2010 maturities?

John W. Gacek

Yes. Right now we have $160 million convert, it’s due in August of 2010, we have a date before that from our senior debt agreement which is February of 2010 when we have to refinance

$135 million. If you don’t know and all I’ll say is the convert market right now is basically closed. A lot of financial institutions had done converts and our advisors are telling us it’s going to be a while until that washes it’s way through so the traditional way to refinance that doesn’t exist. We hope over the next 15 months that will come back. Having said that we’ll look at other alternatives as necessary to refinance it.

There’s no ambiguity in our mind. We understand that something needs to happen by February of 2010. Right now there’s just not a lot of choices.

Operator

Your next question comes from [Steve Bogman] – Advisor Partners.

Steve Bogman – Advisor Partners

John did you say if you had already received the Riverbed proceeds and if that was included on the balance sheet?

John W. Gacek

We received the proceeds after September 30, but we have received them.

Steve Bogman – Advisor Partners

Okay so that was included in the AR as of September 30?

John W. Gacek

That’s right.

Steve Bogman – Advisor Partners

And then the other thing just on the cash question that one of the previous callers asked about. What other sort of cash resources do you guys have? Can you just remind us? Do you have availability on a revolver?

John W. Gacek

Yes. We have a $50 million revolver. I think if you look in our last Q we borrowed $15 or

$20 million after quarter end and then repaid it shortly thereafter, just dealing with fluctuations of cash expenses during the quarter.

Steve Bogman – Advisor Partners

So you are comfortable running with stated cash on the balance sheet at the current level or at the $33 million level because you have availability if you need it for short term cash needs?

John W. Gacek

That’s right. We again, I think I said in prior calls, we could run lower than that if we needed to. We just right now that’s fine. That level is fine with us. And we’re always balancing the difference between paying down debt and then borrowing it back. And that’s where we’re comfortable at the end of this quarter. So if you think about it liquidity wise we have that cash plus the $50 million.

Steve Bogman – Advisor Partners

And then just on the interest rate on the debt and I know that this is probably stuff that’s able to be figured out from you guys’ filings, but I don’t have it on the top of my head. You mentioned the 7.3%. Is that set for the entire fourth calendar quarter?

John W. Gacek

Yes. So it’s libor plus 3.5.

Steve Bogman – Advisor Partners

Okay. But it’s your guys’ alternative right? You could also do prime plus 250?

John W. Gacek

That’s correct.

Steve Bogman – Advisor Partners

So if the markets – if the credit markets continue to be troubled through the end of the year the way they’ve been you guys always have that opportunity to go to prime plus 250?

John W. Gacek

That’s right.

Steve Bogman – Advisor Partners

Just wondered on the DXI 7500, you mentioned that you guys had quite a few large sales slip. Have any of those closed yet?

William C. Britts

Yes. Several have.

Operator

And management as there are no further questions I’ll turn it back to you for closing comments then.

Richard E. Belluzzo

Okay. Thank you for joining us and we look forward to talking to you again at our next release. Thanks.

Operator

Thank you. Ladies and gentlemen that will conclude today’s teleconference. We do thank you again for your participation. And at this time you may disconnect.

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Source: Quantum Corporation F2Q09 (Qtr End 9/30/08) Earnings Call Transcript
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