Exhibit 99.2
FINAL TRANSCRIPT
MTIC - MTI Technology Corporation Fiscal 2005 Third Quarter and Nine Months
Financial Results Conference Call
Conference Call Transcript
MTIC - MTI Technology Corporation Fiscal 2005 Third Quarter and Nine Months
Financial Results Conference Call
CORPORATE PARTICIPANTS
Joyce Shinn
MTI Technology Corporation - Manager of Investor Relations
Thomas P. Raimondi, Jr.
MTI Technology Corporation - Chairman, President, CEO
Scott Poteracki
MTI Technology Corporation - Executive Vice President, CFO
CONFERENCE CALL PARTICIPANTS
Andrew Galvin (ph)
Orange County Registry - Analyst
PRESENTATION
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Operator
Good day, ladies and gentlemen, and welcome to the MTI Technology quarterly
financial results conference call. At this time, all participants are in a
listen-only mode. Later, we will conduct a question-and-answer session, and
instructions will follow at that time. If anyone should require assistance
during the call, please press star, then 0 on your touch-tone telephone. And as
a reminder, this call is being recorded. I would now like to turn it over to
your host for today's call, Ms. Joyce Shinn. Let's begin the call.
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Joyce Shinn - MTI Technology Corporation - Manager of IR
Hello, this is Joyce Shinn. We will start the conference call to discuss MTI's
financial results for its fiscal 2005 third quarter and 9 months ended January
1st, 2005. I would like to introduce Mr. Thomas P. Raimondi, Jr., Chairman,
President and CEO; and Mr. Scott Poteracki, CFO. A question-and-answer session
will follow. Tom?
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
Thank you, Joyce. This presentation contains forward-looking statements that
involve known and unknown risks, uncertainties, and other factors that may cause
actual results, performance or achievements or industry results to be materially
different from any future results, expressed or implied by these forward-looking
statements. Forward-looking statements include, but are not limited to,
statements regarding the Company's expectations, goals, or intentions regarding
the future, such as our expansion efforts and business growth, our expectations
regarding cost savings, our commercial relationship with EMC Corporation, our
backlog, and our goals and expectations of revenue, which are subject to change.
The actual results may differ materially from those described in any
forward-looking statement. In particular, there can be no assurance that MTI
will improve revenues, margins, operating efficiencies, or operating results,
achieve cost reductions, or meet its goals and expectations. Important factors
that may cause actual results to differ include competition, evolving
technology, and the economy and world events and other important factors as set
forth in the Company's periodic filings with the U.S. Securities and Exchange
Commission, including its Form 10-K as amended, for the year ending April 3rd,
2004. Given these uncertainties, investors in our securities are cautioned not
to place undue reliance on our forward-looking statements. Forward-looking
statements speak only as of the date they are made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required
by law or the rules of NASDAQ.
Thank you for joining the MTI Q3 FY '05 earnings call. On today's call I will be
speaking about several topics -- an update on our strategies, Q3 financial
results, a view into Q4 and our FY '06. Our strategy is to aggressively grow the
Company and take market share in the commercial and SMB marketplace for storage
infrastructure solutions and services. The commercial mid-range marketplace
represents an abundant opportunity for MTI as EMC and the other large billion
dollar systems and storage OEM's do not typically serve this market with their
direct sales organizations. MTI's customers are the Fortune 2000, companies
between $200 million $1 billion in revenue. Our customers recognize that
information management is critical to the success of their business. Their
business problems are complex, requiring a variety of technologies to solve
their business needs. Unlike the enterprise, the mid-range customer typically
does not have a large enough IT staff to effectively manage all of the different
solutions sets required to run their businesses. Nor do they typically have
enough specialized staff to manage a broad array of technology vendors.
Therefore, companies such as MTI, who can integrate a broad array of technology,
such as networking, SAN, NAS, backup, virtualization, compliance management, and
content management, to name a few, of the many solutions set that we offer, with
our principal partner, EMC, under our comprehensive umbrella of services, such
as assessment, design, implementation, warranty maintenance, provide an
attractive partnership to these companies.
Our partnership with EMC continues to strengthen. Our sales of EMC products
during last calendar year were approximately $70 million, in only the first full
year of our relationship. During the quarter we entered into a security
arrangement with EMC that allows MTI for a very sufficient credit facility for
our rapid-growing needs. We're very pleased to report that our strategy to focus
in the commercial mid-range marketplace, in partnership with EMC, by investing
aggressively in sales and service and headcount continues to be very successful.
We are on track. Revenue is accelerating quarter-over-quarter for the fifth
quarter in a row, with strong year-over-year growth. In Q1 we grew 46 percent
year-over-year. In Q2 we grew 54 percent year-over-year. Now in Q3 we have grown
86 percent year-over-year.
The storage market is growing approximately 10 percent annually. MTI is now
growing 8 times faster than the marketplace -- marketplace. We are now growing
up from approximately 5 times faster than the marketplace was growing just
90-days ago. So the Company's not just accelerating its pace, the Company is
accelerating its pace at almost 60 percent quarter-over-quarter when we look at
market share gains that we're experiencing today. In fiscal 2004, we did $83
million in revenue. We expect to finish this year out with about $140 million in
revenue, growing approximately 69 percent year-over-year for the year. As we
gear up for fiscal 2006, we see the Company achieving revenues well over the
$200 million mark.
We recognize the results we're achieving have required heavy investments. We
feel that the investments have been more than appropriate, based on the
fantastic results we are accomplishing. Few companies are enjoying the kind of
growth we are experiencing. Now, with the platform we have put in place, our
investment requirements for the future will be moderate, as we look forward to
continuing to grow revenue while driving towards profitability. Over the next 2
quarters, we intend to keep our operating expenses relatively flat, while
continuing to add sales resources selectively. This is possible with the
operational efficiencies we're putting in place, including the closure of our
Dublin logistics facilities that we announced today. As a result of these cost
reductions, when combined with expected sales growth and improving service
margins, we expect the Company to turn profitable early to middle of our
upcoming fiscal year. Scott will now walk you through some of the numbers.
Scott?
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Scott Poteracki - MTI Technology Corporation - CFO
Thank you, Tom. Total revenue for the third quarter of fiscal 2005 was $39.5
million, a gain of 86 percent from the prior year. Sequential growth from the
most recent quarter was 25 percent, indicating as Tom remarked, that growth
continues to accelerate. Product revenue increased by 31 percent to $29.3
million from the prior quarter, and increased by 138 percent as compared to a
year ago. The increase from product revenue continues to be driven primarily by
a strong demand for EMC server and software products. EMC product revenue
accounted for $22 million in the third quarter of fiscal 2005, an increase of 27
percent compared to the prior fiscal quarter, an increase of 235 percent
compared to the same quarter of the prior fiscal year. Backlog continued to be
strong, at approximately $5 million.
Product gross margin was 20.5 percent for the third quarter of fiscal 2005,
compared with 24.8 percent for the prior fiscal quarter, and compared to 24.4
percent for the same quarter of the prior fiscal year. Product margins were at
the lower end of our expected range, due to several large competitive
transactions. Service revenues were at $10.2 million, compared with $9.2 million
in the prior quarter, and $8.9 million in the same quarter of the prior year.
Growth was driven by increasing professional services revenue, a trend with
which we expect to continue. Service gross margins were 17.3 percent, compared
to 18.2 percent for the prior fiscal quarter, and 25.6 percent for the same
quarter of the prior fiscal year. Margins were negatively impacted by the
continuing build-out of the professional services organization in advance of
expected growth.
Operating expenses were $11 million for the third quarter of fiscal 2005,
compared with $9.6 million for the preceding fiscal quarter, and $7.1 million
for the same quarter of the prior fiscal year. The increase in expenses during
the third quarter is due primarily to increased selling expense associated with
the addition of sales people, higher commissions, and higher international
spending due to the weaker dollar. Operating expenses were 27.9 percent of total
revenue for the third quarter of fiscal 2005, compared with 30.5 percent for the
preceding fiscal quarter, and 33.7 percent for the same quarter of the prior
fiscal year. In the third quarter of fiscal 2005 the Company reported a net loss
of $2.6 million, or $0.07 per share, compared to a net loss of $2.5 million,
also $0.07 per share for the preceding fiscal quarter and a net gain of $1.5
million, or $0.04 per share for the same quarter of the prior fiscal year. Last
year's results benefited from a one-time $3 million tax benefit.
The consolidated statement of operations for the third quarter of fiscal 2005
includes a line item entitled "net loss applicable to common shareholders"
totaling $3.2 million, or $0.09 per share. The difference results from non-cash
charges including the amortization of a beneficial conversion feature of
$300,000, and dividend payable, also $300,000, reported to equity related to the
issuance of preferred stock in the first quarter, fiscal quarter, of 2005. The
Company had cash and cash equivalents of $14.2 million and $10.1 million of
working capital at the third quarter ending January 1, 2005. Cash increased by
about $700,000, from the preceding quarter, due to improving asset performance.
Accounts receivable increased by a $5.5 million from the preceding quarter to
$34.4 million, due to higher sales, however, turnover improved. Inventories
decreased to $5.9 million during the quarter, compared to $7 million during the
prior quarter as inventory-in-transit and the net book value of spares declined.
As mentioned in the press release, the Company has undertaken what it considers
the remaining structural changes necessary to support the transformation of the
organization from a developer and manufacturer of data storage to a provider of
professional services and storage solutions for mid-sized organizations. These
steps include changes to processes and information systems and reductions in
headcount and facilities, the most significant action being closure of the
Dublin, Ireland facility. With -- these changes should be completed by the
second quarter of fiscal 2006, around the first of July. When fully in place,
the Company expects improved order processing performance, with operating
expenses reduced by approximately $700,000 to $1 million per quarter. One-time
costs associated with the change are expected to be approximately $2 to $4
million. At this time, I'd like to open the conference call for questions.
QUESTION AND ANSWER
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Operator
Ladies and gentlemen, to ask a question, please press star, 1 on your touch-tone
phone. And the first question comes from the line of Andrew Galvin with the
Orange County Registry. Please proceed, sir.
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Andrew Galvin - Orange County Registry - Analyst
Hi, there.
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
Hi.
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Andrew Galvin - Orange County Registry - Analyst
I have a question about headcount. You -- you closed the Dublin facility. Can
you tell me how many jobs that eliminated and how has your total headcount
changed over the past year?
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Scott Poteracki - MTI Technology Corporation - CFO
Well, our total headcount is actually up on a worldwide basis.
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
Right now, we have approximately 334 employees worldwide. In our Dublin, Ireland
facility, as we wind that facility down over the next couple of months, we will
eliminate approximately 17 jobs. But net-net, you know, the Company is up in
headcount, and we've been hiring, over the past year, a substantial number of
sales people and professional sales people throughout the U.S. and Europe.
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Andrew Galvin - Orange County Registry - Analyst
Okay. How many people -- how many employees do you have in Orange County now?
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
In Orange County we have approximately 70 employees. And Orange County is our
worldwide corporate headquarters.
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Andrew Galvin - Orange County Registry - Analyst
Okay. Thank you.
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
You're welcome.
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Operator
Again, ladies and gentlemen, to ask a question, star, 1. There are no further
questions, gentlemen.
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Thomas P. Raimondi, Jr. - MTI Technology Corporation - Chairman, President, CEO
Okay. Well, in summary, I'd like to say that we are completing our
transformation to a solutions provider. The Company is succeeding in its
strategy to grow rapidly and take market share, growing 8 times faster than the
marketplace. The investments made in our sales and professional services
platform, combined with our cost adjustments and our focus on continued market
share growth, will allow us to drive the Company to profitability in the
upcoming fiscal year. We appreciate your interest in MTI and joining us today
for this call. Thank you, and have a great day.
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Operator
Ladies and gentlemen, thank you for your participation in today's conference.
You may now disconnect.