Quantum (QMCO) Q1 2027 earnings call transcript

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 where 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. We will 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, Hughes Navas.

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 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, This, 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 for 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 our 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 In 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 order, 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 we're seeing continues to 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 TAFE 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 expansions and footprint growth in subsequent quarters We also secured a significant hyperscalary deployment in APAC centered around our scalar i7 tape library. This transaction was valued at well over eight figures.

The i7's unmatched density and power efficiency enabled us to secure this important technical win. We believe this will highlight the growing relevance of the Scalar I7 in modern tape architectures and high-fascale 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 continued 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, and manufacturing teams 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 is now debt-free, cash flow positive, and profitable for the first time since 2023. QUANTUM is stronger today than it was a year ago, and we're well positioned for continued growth and long-term value creation.

With that, I'll turn the call over to Will.

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 30, 2026. Revenue in the quarter was $80.8 million, increasing $2.8 million or approximately 4% 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 he has 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, our 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 cost and inventory performance as well as continued leverage on fixed costs. We continue to focus on gross margin improvement but 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. Gap 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, which was a $25.7 million. The QANTUM CORP, EARN, 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, 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 . 9 million with capital expenditures of . 4 million, or under half a percent of revenue. The 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 $0.66 per share in the previous quarter and a net loss of $17.2 million, The first quarter net loss includes one non items related to the extinguishment of debt and convertible notes These a million loss on the change in fair value of our convertible notes a million loss on the change of fair value of warrant liabilities and an million loss on debt extinguishment representing million in total Including these debt-related items and $0.8 million of other nonrecurring 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, 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. This compares to a positive $1 million in the fiscal fourth quarter of 2026 and a negative $6.5 million in the prior year quarter. The 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. Earning to debt and liquidity, cash, cash equivalents, and restricted cash at the end of the fiscal first quarter were approximately $54.6 million, up 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.

The total outstanding debt was zero, compared to $144.8 million of term debt and convertible notes on March 31st. The interest expense in the 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 in a 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 $0.12 ±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 ±1 million. Stepping back, we deliver our third consecutive year-over-year revenue growth. Our strongest gross margin in five quarters, positive non-GAAP adjusted net income for the first time since 2023, positive cash flow from our 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.

Great question. So two parts. One, it is related to OPEX. As I mentioned, there are two main drivers there. I previously say that we investing in R That our main growth area from an OPEX standpoint We also given the beach we had on revenue we anticipating conditions to be higher So that factoring in OPEX From a margin standpoint as mentioned we just simply we honestly looking and saying that you know we have some large deals coming in the pipe We still have a lot of uncertainty so we being conservative in how we doing margin going into QANTUM Okay, got it.

We didn't give the number, Jacob, but it's significantly higher.

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 I'm hoping to get a further update from IBM in the next week when I go there. But, you know, they've mentioned that it 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.

Yeah, good question. A lot of those large deals were actually enterprise deals. There was one hyperscaler there, but a lot of them are also large enterprise deals. So as an active scale gains a stronger and stronger foothold in the enterprise, these are typically very large deals as well.

As the company is growing, I think you can expect most of those, yeah.

Thank you, Jacob.

Yeah, we've seen an increase of seven-digit deals in the enterprise with active skills, so it continues to grow super fast and it's, you know, it's getting more and more traction. And we're also seeing a lot of customer expansions around active scale because once the solution is in there, people see the benefit and what it can do from a cost perspective and power perspective and scaling and availability. So the product is really nicely ramping up right now.

Well, it's not too early to give. We just don't give a product bookings. We don't give a booking breakdown by product for that purpose. But ActiveScale continues to grow and it's a larger and larger part of our solution going forward. And it's very attractive to large enterprise customers and some of hyperscalers and neoscalers that need more turnkey solutions. So it's been a good growing business for us.

We don't break down our bookings or our pipeline by product, you know.

Thank you.