Quantum Corporation (QMCO) Earnings Call Transcript & Summary

Thank you. fiscal first quarter 2027 conference call. This time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to introduce your host, Quantum's General Counsel, Tara Ilgis. Please go ahead. Thank you.

Good afternoon, and thank you for joining today's conference call to discuss Quantum's Fiscal First Quarter 2027 financial results. With me on today's call are Hughes Mayrath, Quantum President and Chief Executive Officer, and William White, our Chief Financial Officer. Following management's prepared remarks, we will open the call up to questions from analysts. Before we begin, I would like to remind you that comments made on today's call may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenue, demand, backlog, supply constraints, margins, expenses, adjusted EBITDA, adjusted net income, growth, profitability, cash flows, liquidity, or other financial, operational, or performance metrics. These statements are based on our current expectations and projections and involve known and unknown risks and uncertainties that we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information about risk factors, please refer to the detailed descriptions we provide under the Risk Factor section in our 10-K and 10-Qs filed with the Securities and Exchange Commission. The company does not intend to update forward-looking statements once they are issued, whether as a result of new information, future events, or otherwise, except when required by applicable law. Please note that today's press release and management statements during today's call will include certain financial information in GAAP and non-GAAP measures. include definitions and reconciliations of GAAP to non-GAAP items in our press release. With that, it's my pleasure to turn the call over to Quantum CEO, Hugh Neva. Thank you, Tara, and thank you to everyone for joining us today.

We delivered another strong quarter as we continue executing against our strategy and helping customers address some of the biggest challenges they face around data growth, infrastructure costs and power consumption. Revenue for the quarter was approximately $81 million, well above our guidance of $75 million. We also delivered gross margin and EBITDA performance above expectations while growing our backlog. Our results continue to be driven by strong enterprise demand across the business. At the same time, we have significant hyperscaler opportunities that remain constrained primarily by supply chain challenges. As those constraints improve, we believe there's meaningful additional opportunity ahead. The key takeaway from the quarter is simple. We're executing better, demand remains strong, and we're delivering against the commitments we've made. We're hearing a consistent message from customers. Data volumes continue to grow at unprecedented rates while budgets, power availability, and infrastructure resources remain constrained. More than ever, organizations need the right data in the right place at the right cost. They're looking at ways to optimize storage economics, improve efficiency, reduce power consumption, and scale without continually adding cost and complexity. As these challenges grow, the value of what we do grows as well, driving increased demand for solutions that enable more efficient, resilient, and cost-effective data infrastructures. Revenue in the Americas increased more than 20% sequentially, while revenue in APAC increased more than 50% sequentially, reflecting strong customer demand across both enterprise and cloud-oriented environments. Importantly, we've now delivered growth in each of the last two quarters, periods that have historically been seasonally weaker for quantum. We're seeing momentum across multiple areas of business. Service revenue increased approximately 10% quarter over quarter, reflecting stabilization after multiple years of decline. We're also seeing continued strength in tape-related royalty revenue, reflecting broader adoption of tape technologies across the industry. Recent LTO shipment data showed capacity shipments increasing 15% sequentially from the prior quarter, reinforcing what we're hearing from customers every day. Organizations are increasingly turning to tape to improve storage economics, reduce power consumption, and strengthen cyber resilience. That momentum is reflected in our pipeline with our tape opportunity funnel reaching the highest level we've seen in years. the scale of opportunities were seen continuously increase. This quarter we experienced a dramatic increase in deals valued at more than a million dollars with the majority of these exceeding $3 million. Active scale combined with tape continues to be a cornerstone offering in our portfolio, and its strength is clearly reflected in customer wins. During the quarter, we secured a significant renewal and expansion of an active-scale deployment with a leading European biometrics institution. Once customers implement active scale and experience its resilience, performance, and power efficiency, we typically see continued capacity extensions and footprint growth in subsequent quarters. We also secured a significant hyperscaler deployment in APAC centered around our scalar I7 tape library. This transaction was valued at well over eight figures. The I-7's unmatched density and power efficiency enabled us to secure this important technical win. We believe this one highlights the growing relevance of the scalar I7 in modern tape architectures and hyperscale environments, while also validating the significant opportunity we see across the APAC region. The biggest challenge we continue to face is supply. Simply put, customers' demand remains stronger than our ability to fulfill it. During the quarter, we continue to face constraints around tape drive availability and certain disk drives. While we expect conditions to improve over the course of the year, component availability and pricing pressures remain areas of focus. Despite those challenges, our operations, supply chain, did an outstanding job enabling us to deliver results above guidance. I also want to recognize Avnet, our primary partner, for helping us support customers and navigate a difficult supply environment. As we look ahead, we like what we're seeing. Demand remains strong. Our pipeline continues to grow, backlogs increasing, and the revenue has now grown sequentially for several quarters. We're winning larger and more strategic opportunities and seeing strength across all product lines and across every region. Factoring in our most recent fundraising, Quantum's now debt-free, cashflow positive, and profitable for the first time since 2023. Our term is stronger today than it was a year ago, and we're well positioned for continued growth and long-term value creation.

And with that, I'll turn the call over to Will. Will Smith Thank you, Hughes. Good afternoon to those joining us on the phone and webcast. I'll provide an overview of the company's GAAP and non-GAAP financial results for our fiscal first quarter that ended on June 30th, 2026. Revenue in the quarter was $80.8 million, increasing 2.8% to $1.4 million. million or approximately 4 percent sequentially from 78 million in the prior quarter. This is an increase of 25.7 over 64.3 million in the prior year's first quarter. Revenue exceeded the high end of guidance range of 75 million plus or minus 2 million driven by strong demand for our active scale and tape storage solutions. As you stated, our backlog has increased significantly and we expect it to continue to be strong throughout the current quarter. Gap gross margins reached 39.3 in our first quarter, up 360 basis points sequentially, and nearly 400 basis points year over year. highest level in five quarters. Gross profit grew 40% year over year on 26% revenue growth and 14% sequentially. The improvement was driven across our business with stronger pricing and disciplined cost execution together with favorable standard costs and inventory performance, as well as continued leverage on fixed costs. We continue to focus on gross margin and that expect pricing volatility as we navigate ongoing component shortages. Much of the past year's improvement is structural, and we anticipate year-over-year improvement in second quarter gross margins. GAAP operating expenses for the first quarter were $26.7 million compared to $30.4 million in the prior quarter and $35.3 million in the year-ago quarter. operating expenses on a non-GAAP basis for the first quarter were $25.1 million, below the low-end of our guidance range of $27 million, plus or minus $1 million, and down 16% year-over-year on 26% higher revenue. This compares with fiscal fourth quarter at $27.5 million and $30 million in the first quarter of fiscal year 2026. The sequential decrease was driven by lower sales and marketing expenses, as well as continued commitment to operating expense discipline. The year-over-year decrease reflects the continued real-life savings from a lowered cost structure following our restructuring actions throughout the fiscal year. Operating income was $5 million on a GAAP basis and $6.6 million on a non-GAAP basis. In compared to operating losses of $12.6 million and $7.4 million, respectively, in the prior year quarter. We also generated positive cash flow from operations of approximately $0.9 million with capital expenditures of $0.4 million or under half a percent of revenue. That net loss in the fiscal first quarter was $155.3 million, or a loss of $7.06 per share, compared to a net loss of $9.5 million, or a loss of $7.6 million. loss of $0.66 per share in the previous quarter and a net loss of $17.2 million, or loss of $1.87 per share in the prior year's first quarter. The first quarter net loss includes one-time, non-cash items related to the extinguishment of debt in convertible notes. These include $129.7 million loss on the change in fair value of our convertible notes. $16.3 million loss on the change of fair value of warrant liabilities and an 11.7 million loss on debt extinguishment, representing 157.7 million in total. including these debt related items and 0.8 million of other non-recurring costs, as well as a stock-based compensation, Non-GAAP income for the first quarter was $4 million, or income of $0.18 per share, compared to a net loss of $3.1 million, or loss of $0.21 per share, in the prior quarter, and a net loss of $14.5 million, or loss of $1.58 per share, in the prior year's first quarter. The achievement of a non-GAAP adjusted net income for the first quarter reflected a combination of higher revenue and lower expenses, as well as favorable gross margin, as I mentioned earlier. Adjusted EBITDA for the first quarter was a positive $8 million, which is $5.5 million above the high end of our guidance range. That compares to a positive $1 million in the fiscal fourth quarter of 2026 and a negative $6.5 million in the prior year quarter. year-over-year improvement in EBITDA of approximately $14.5 million came on $16.5 million of incremental revenue, reflecting the benefit of our previous restructuring and ongoing cost discipline. Turning to debt and liquidity, cash, cash equivalents, and restricted cash at the end of the fiscal first quarter were approximately $54.6 million. from $16.2 million at the end of fiscal 2026. During the quarter, we generated approximately $94.6 million of net proceeds from our private placement, of which $56.8 million was used to repay debt as of June 30th. Total outstanding debt was zero compared to $144.8 million of term debt and convertible notes on March 31st. Interest expense in a quarter was 2.1 million, down from 6.5 million a year ago. With our debt fully eliminated, we expect interest expense to be minimal going forward, against $21.6 million of interest expense in fiscal 2026. Turning to the company's outlook for the fiscal second quarter of 2027, as we discussed today, we expect demand from customers to remain strong. Given our substantial backlog and continued strong bookings, we expect near-term revenue upside will be determined largely to the extent to which we can fulfill and ship orders to the company. supply-constrained market. As such, we expect fiscal second quarter revenue to be approximately $82 million, plus or minus $2 million. At the midpoint, this represents approximately 31% year-over-year. We expect second quarter non-GAAP adjusted operating expenses to be approximately $27 million, plus or minus $1 million, with a sequential increase reflecting sales commissions on stronger performance and an increase in the pace of R&D hiring. As a result, non-GAAP adjusted net income per share for the second quarter is anticipated to be $1. plus or minus $0.10 per share, based on an estimated 39.4 million weighted average basic shares outstanding. Just an EBITDA for the second quarter is expected to be $6 million, plus or minus $1 million. Stepping back, we delivered our third consecutive year-over-year revenue growth. strongest gross margin in five quarters, positive non-GAAP adjusted net income for the first time since 2023, positive cashflow from operations, and a debt-free balance sheet with 54.6 million in cash. Our priorities from here are straightforward. Hold the cost discipline we built and generate consistent positive cash flow. With that, I'll turn the call over to the operator for questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand step before pressing the star key. One moment please while we poll for questions. Thank you. Our first question is from Jacob Steven with Lake Street Capital Markets.

Hey guys, appreciate you taking the questions. Congrats on a really nice quarter and guide here. Maybe just first, on the adjusted EBITDA guide, you guys just posted $8 million of EBITDA. on 80 million of revenue, 81 million of revenue. You're guiding for 6 million on 82. wondering about the, you know, the step down, is that more OpEx related or, um, are you seen something in gross margin that, you know, might ultimately result in that.

So, two parts. One, it is related to OpEx. As I mentioned, there are two main drivers there. I previously said that we're investing in R&D. That's our main growth area from an OpEx standpoint. We're also given the B2B, the B2B, the B2B, the B2B, the B2B, the B2B, the B2B. each we've had on revenue, we're anticipating conditions to be higher. So that's factoring it off X. From a margin standpoint, as mentioned, we're just simply, We're honestly looking and saying that we have some large deals coming in the pipe. We still have a lot of uncertainty, so we're being conservative in how we're doing margin going into Q2.

Okay, got it. And then just touching on backlog, you know, I know you guys said record levels, you know, last quarter was 45 million. I might have just missed the number, but can you give us an update on what you exited this quarter with? Yes.

We didn't give the number, Jacob, but it's significantly higher. Okay. I guess, so just touching on supply.

I know you guys have continued to say that, you know, demand significantly outpaces, but I guess, you know, with IBM kind of easing. the projected easing in Q2 and Q3 here, towards the back half of calendar 27. You know, how are you thinking about that versus, you know, just a month and a half ago when we last got an update?.

Right now, the reason we're getting to around 82, which is mildly up, is because we're still not getting adequate supply of tape drives. So it's looking right now, it's continuing to be flat for the past handful of months. So I'm hoping to get a further update from IBM in the next week when I go there, but they've mentioned that they would increase production towards the back half of the year, but right now, as of the latest month, which is August. We're still not seeing the inflection point.