Quantum reports Q1 fiscal 2026 results with reduced net loss, plans cost-cutting measures and strategic sales focus amid operational restructuring.

OPERATOR - (00:01:42)

Good afternoon and welcome to Quantum Corporation's Fiscal First Quarter 2026 Financial Results Conference call. At this time, all participants are in a listen only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference call is being recorded today, Wednesday, September 10, 2025. I would now like to turn the call over to Tara Ilgis, Quantum's Vice President of Corporate Affairs. Tara, please go ahead.

Tara Ilgis - Vice President of Corporate Affairs - (00:02:25)

Good afternoon and thank you for joining today's conference call to discuss Quantum's first quarter fiscal 2026 financial results. With me on today's call are Hughes Mayrath, Quantum CEO, and Laura Nash, Chief Accounting Officer. Following management's prepared remarks, we will open the call 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 margins, expenses, adjusted EBITDA adjusted net income, cash flows, or other financial, operational or performance topics. These statements 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, please refer to the detailed descriptions we provide about these and additional risk factors under the Risk Factors section in our 10Qs and 10K filed with the securities and Exchange Commission. The Company does not intend to update or alter 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 Mayrath.

Hughes Mayrath - Chief Executive Officer - (00:04:07)

Thank you Tara and good afternoon to everyone. Thank you for joining us on our first fiscal quarter and business update conference call. I am pleased to be joining you for my first investor call as Quantum CEO. It's an exciting time to lead the company as I believe Quantum is on the cusp of a new chapter in its transformation journey. With over 30 years of experience in the networking and data storage industry as a supplier to Quantum, an employee, a competitor and a board member, I've interacted with this company from every angle and my career spans from my early beginnings. The disk drive and tape drive business as a supplier to Quantum to holding executive roles at EMC's Backup and Recovery Services, as well as Juniper Networks and Brocade.. This knowledge and direct experience give me a unique perspective to step into the role and begin taking decisive action toward our goal of improving our financial position and sales execution before diving deeper into the business and go forward strategy. I'd like to first turn the call over to our Chief Accounting Officer, Laura Nash. Laura has been with Quantum since 2019, initially serving as our controller before being named Chief accounting officer in 2023. She'll walk through a brief overview of our recently reported financial results and then I'll talk more about the steps I've taken since my appointment to improve our go to market strategies and operational initiatives. Laura, please go ahead.

Laura Nash - Chief Accounting Officer - (00:05:48)

Thank you Hughes Good afternoon. To those joining us on the phone and webcast, I will provide an overview of the Company's GAAP and non-GAAP financial Results for our first fiscal quarter 2026 ended June 30, 2025. Before I begin, I would like to emphasize that all comparisons to financial figures in prior periods reflect the Company's recent restatement of financial results as well as certain revisions to immaterial misstatements of previously published quarterly financial results for fiscal year 2025. Revenue in the quarter was 64.3 million compared to 61.3 million in the fiscal fourth quarter of 2025 and 72.3 million in the prior year first quarter. The decrease in revenue primarily reflects a shift in product mix as we've continued to transition towards a higher value business backlog at the end of the first quarter was approximately 10 million, which is at the higher end of our target run rate of 8 to 10 million. GAAP gross margin for the first quarter was 35.3% compared to 39.6% in the fourth quarter and 37.4% in the fiscal first quarter of 2025. The sequential and year over year decrease in gross margin is primarily attributable to an increase in our inventory provisions for certain ends of life product in addition to import tariffs incurred, during the quarter. This was partially offset by improvements in operational efficiency in our service organisation. GAAP operating expenses for the first quarter were 35.3 million compared to 35.8 million in the prior quarter and 43.9 million in the year ago quarter. The 8.6 million year over year decrease in operating expenses primarily reflects the significant non recurring accounting and legal expenses incurred in the year ago quarter associated with the Company's previously completed restatement of financial results for the prior prior fiscal years ended March 31, 2022 and March 31, 2023. Operating expenses on a non GAAP basis for the first quarter were 30 million, compared to 29.4 million in the fourth quarter and 30.8 million in the year ago quarter. While the company did realize savings due to restructuring plans executed in fiscal 2025 and the first quarter of 2026, these savings were largely offset by cost of compliance relating to auditing and legal fees. GAAP net loss in the first fiscal quarter was 17.2 million, or a loss of $1.87 per share, compared to a net loss of 7.7 million, or a loss of $1.26 per share in the previous quarter and a net loss of 19.9 million, or a loss of $4.15 per share in the year ago first quarter. The reduction in GAAP net loss compared to the year ago quarter was largely driven by the aforementioned cost of restatement. Non GAAP loss for the first quarter was 14.5 million, or a loss of $1.58 per share, compared to a net loss of 12.3 million, or a loss of $2.01 per share in the prior quarter and a Net loss of 7.6 million or a loss of $1.59 per share in the same quarter a year ago. The higher non GAAP net loss for the quarter reflected a combination of lower revenues coupled with the increased inventory provision and increased import tariffs previously discussed. Adjusted EBITDA for the first quarter was a negative 6.5 million compared with the negative 3.9 million in the fiscal fourth quarter and a negative 2.2 million in the prior year quarter. The lower adjusted EBITDA for the fiscal first quarter was primarily a result of factors that contributed to the previously mentioned higher net loss. Turning to an overview of debt and liquidity at quarter end, cash cash equivalents and restricted cash at the end of the first fiscal quarter were approximately 37.5 million. Total outstanding term debt at quarter end was 104.3 million. During the quarter, the Company utilised proceeds from the sale of shares through its existing standby equity purchase agreement with Yorkville Advisors to pay down the full outstanding balance of its previous revolving credit facility. As a result, there was no outstanding balance on the revolving credit facility as of June 30, and the Company subsequently terminated this credit facility on August 13, 2025. At the end of the quarter, the company's net debt position was approximately 66.8 million, representing a reduction of more than 40% from the net debt position at the end of fiscal 2025. Now turning to the company's outlook for the fiscal second quarter of 2026. Revenue for the second quarter is expected to be approximately 61 million plus or minus 2 million. We expect a significant reduction in second quarter non GAAP operating expenses to approximately 27 million plus or minus 2 million, reflecting the anticipated realized benefits from our most recent cost reduction actions. As a result, non GAAP adjusted net loss per share for the fiscal second quarter is anticipated to be negative $0.26 or plus or minus $0.10 per share, based on an estimated 13.3 million shares outstanding. Adjusted EBITDA for the fiscal second quarter is expected to be approximately breakeven. With that, I'll now hand the call back to Hughes.

Hughes Mayrath - Chief Executive Officer - (00:11:57)

Let me now outline our path forward and areas of operational focus. Since my appointment in early June, I've been dedicating a significant portion of my time to conducting in depth reviews of the business operations with our internal teams as well as meeting with key customers and partners. Quantum has a solid foundation of high value assets with a tangible opportunity to improve sales, distribution and execution as part of a bolder product first approach. The Company's solutions and roadmap are very well aligned with growth trends in AI, media and entertainment, data protection and long term archiving. I believe in operating with transparency, honesty and urgency. I expect the same from our team. We need to be clear about the work ahead, honor our commitments and move quickly to deliver results. That's the standard I hold myself to and the standard I expect across the organization. In my first 90 days, we've taken critical steps. We established a new board operating plan. We raised funds to improve our financial position, reduced operating expenses and rightsized the organization to align with current revenue and growth. These were not easy decisions, but they were necessary to stabilize the company and strengthen strengthen its financial position to improve EBITDA results and achieve positive cash flow. We've also strengthened our executive team and board with accomplished leaders who bring the expertise we need to guide this next chapter. As a first step, I recruited Tony Kraithorne as Chief Revenue Officer. Tony brings more than 25 years of executive sales and marketing experience across the US, Europe and Asia at companies that include Index Engine, Zadara, Comprise Brocade and Hitachi Data Systems. Having worked with Tony before, I know he brings discipline and energy to scaling sales organizations. We also appointed Greg Pugmire as Vice President of America's Sales. Greg has more than 30 years of experience delivering high impact solutions across storage, cloud and software. His customer first leadership style makes him the right person to lead our sales execution across the US, Canada and Latin America. We added two highly accomplished board members. Tony Blevins brings over 20 years of experience in supply chain management and operations at Apple and IBM and Tony was named the 2022 Captain of Industry by the International Institute of Industrial and Systems Engineering. Jim Clancy brings more than 30 years of sales leadership in data protection and cyber recovery at Dell and EMC and will help us refine our sales and go to market model. With these additions, our board is now aligned with each part of the business including R and D, finance, sales, operations and supply chain bringing greater oversight and guidance. As you likely noted, we recently terminated our outstanding Revolving Credit agreement after paying down the outstanding balance. In addition, we continue to make progress with our current lenders with respect to potential transactions to restructure our remaining outstanding term debt. We expect we will be in a position to announce something more definitive before our next earnings call as a key step towards this goal and to improve overall liquidity. We've raised approximately 83 million in new capital from the previously announced standby Equity Purchase Agreement through our partner Yokeville Advisors. This has been a highly successful partnership and equity vehicle, providing immediate access to capital in support of our ongoing operations while also strengthening our balance sheet. With this stronger foundation in place, our attention is now squarely on product and sales level execution. In sales, this means sharpening our discipline, using metrics and numbers to guide decisions and building a culture of accountability. We are restructuring teams to align with our growth model and ensure every part of the sales process from forecasting to customer support, operates with precision and discipline. At the same time, we're placing a greater focus on our channel partners. We are giving more attention to our top partners in each region, helping them cross sell and upsell across the portfolio and providing stronger incentives. We're also bringing in new partners that specialize in data protection and cybersecurity, key areas of growth for us. And we already made swift changes in apac, adding new distributors in South Asia, India and China to expand our reach, strengthen support and drive increased sales in fast growing markets. As we build momentum, our portfolio remains one of the greatest strength and we're focusing our resources on the solutions where we deliver the most differentiated value. This quarter we launched two new DXi Series models that deliver the industry's first one new all-flash deduplication appliances offering up to 480 terabytes and built for fast recovery. These extend our award winning T series line and position us to capture share in a multibillion dollar backup market. At the same time, the explosion of AI and data growth is fueling unprecedented demand for the cold storage and long term archiving at the lowest possible cost. Quantum is uniquely positioned to meet this need. We provide not only the fastest primary storage for AI and media and entertainment workflows, but also the lowest cost archiving solutions used today by most of the world's largest hyperscalers. Active scale cold storage and the Scalar I7 Raptor tape library give customers unmatched price, performance and scalability. Anchoring our long term archive strategy and meeting the data challenges of the AI era, we are also turning our attention to StorNext, reinvigorating one of Quantum's most trusted solution and the gold standard in media and entertainment for performance, scalability and reliability. Customers can now connect however they prefer Ethernet, IP or fiber channel without sacrificing performance. Our Ethernet based parallel client delivers aggregate read performance of up to 90 gigabytes per second, making StoreNext one of the most capable shared storage systems for modern creative workflows. Just as important as the products themselves is how we develop them. We are building a tighter cycle of feedback between sales and product so that the voice of customers and their specific use cases flow directly into development. This ensures we're targeting the right markets, aligning our roadmap with real world demand, and delivering solutions that drive adoption and revenue. That closed loop of listening, building and executing will be central to how we operate going forward. In closing, our focus both inside and outside the company comes down to three things integrity, ownership and urgency. We will do what we say we will do, take full responsibility for our commitments and move quickly to achieve results. The decisive steps we've taken in my short tenure are only the beginning. We are strengthening our financial foundation, sharpening sales execution, deepening our partner ecosystem and innovating across our portfolio. While there is more work to do, I'm confident in our path and our ability to deliver long term value for our customers, partners, employees and shareholders. With that, I will now turn the call over to the operator for the Q and A session.

OPERATOR - (00:20:25)

Thank you and at this time we will conduct our question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the STAR keys. One moment please. While we pull for questions and our first question comes from Eric Martinuzzi with Lake Street Capital Markets. Please state your question.

Eric Martinuzzi - Analyst at Lake Street Capital Markets - (00:21:08)

He was curious to know if there was a change in strategy at all. Plan. I noticed you went through kind of the product mix that we're all familiar with. You talked a little bit about the DXI and the tape libraries. Any change in emphasis or go to market with products such as Myriad or ActiveScale or is it kind of hey, this is the product portfolio. Let's go out and sell what we've got.

Hughes Mayrath - Chief Executive Officer - (00:21:37)

Thank you for the question, Eric. Well, first we have to sell what we have, right? I mean DXI has been in the portfolio for a long time so is at this scale called storage. I do believe we have tons of opportunities with DXI as you can see like Jim Clancy joined the board from the Dell side and has plenty of experience with data main. So we're going to push DXI hard the next few quarters because we feel we're underperforming and there's an opportunity for us. ActiveScale cold storage I think is a great product as well. People will need very affordable solutions for long term data retention. So we feel like it's also a place where we can do a lot more. We've Tony and I, Tony Krazler and I spent a lot of time on the road talking to Channel partners and customers and Stornext the last two, three years has been underinvested into so we're heading over to IBC in Europe but we're making changes to stornext. We're pushing the Ethernet IP version of Stornext right now which is, you know, very demanded. So. So we feel like StorNext requires more investments and a push in the Ethernet IP side of the business and we feel that's closer to what the Channel partners and customers want. So these are some of the immediate things we're going to do. In the longer term you can expect to see us refine the portfolio and the solution. So it's a little bit early to go there but if not, let's go focus on those.

Eric Martinuzzi - Analyst at Lake Street Capital Markets - (00:23:12)

And you mentioned some of the management changes as well as the changes on the board. Are we filling other open positions that you're looking to fill as far as your direct reports go?

Hughes Mayrath - Chief Executive Officer - (00:23:27)

Well, we've changed a lot right now so there may be, you know, maybe a tweak or two but I don't expect some radical changes going forward at this point. We've tried to be very swift in the changes we've made so we don't disrupt the business too much. It's a lot to change a management team. It's sometimes a little bit confusing for some of the customers or partners, but the reception was very, very warm. I think everybody was very collaborative and everybody's on Quantum's team. So I feel very confident that we're on the right path right now and we have a very strong management team.

Eric Martinuzzi - Analyst at Lake Street Capital Markets - (00:24:06)

Okay, and then last question for me is on the operating expense. You mentioned a recent restructuring. So bridge me from the 30 million of non GAAP operating expense that we had last quarter to the 27 million midpoint. Was that all, did all of that change take place July 1st? So we're going to see 30 become 27 kind of overnight or is there a chance this kind of rolls into Q3, Q4?

Hughes Mayrath - Chief Executive Officer - (00:24:39)

Yeah, I mean I have Laura answer that, but we've made a lot of changes. There are some restructuring expenses. Some of the headcount is also transitioning out over a few months. So she can help with more details on that.

Laura Nash - Chief Accounting Officer - (00:24:52)

Yes, absolutely. So there have been certain restructuring events that had happened in fiscal Q1 as well. Those coupled with the changes that happened in early July are expected to materialize in fiscal Q2 to a large extent, which is causing the the expected changes in our operating expenses. Also, there are some additional costs we incur during our fiscal Q1 which are not likely to repeating in our fiscal Q2, but our normal run rate business. Got it.

Eric Martinuzzi - Analyst at Lake Street Capital Markets - (00:25:28)

Thanks for taking my questions and good luck.

Hughes Mayrath - Chief Executive Officer - (00:25:32)

Thank you. Thank you.

OPERATOR - (00:25:35)

Your next question comes from Nehal Chokshi with Northland Capital Markets. Please state your question.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:25:43)

Yeah, thank you. And good to see that your overall debt's been reduced, the revolver specifically, and that your net debt significantly reduced here through the use of the CEPA. For. The term debt that you do have. Can you remind us what's the interest rate on it and how much of that is paid in kind?

Laura Nash - Chief Accounting Officer - (00:26:11)

We make. Yeah. Thank you. Sorry. Thank you for your question. Yes, we make full disclosure of that in our 10Q and that will be included in our footnote for to the 10Q.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:26:22)

Okay. And is that filed now to 10Q?

Laura Nash - Chief Accounting Officer - (00:26:28)

Excuse me, sorry, can you repeat the question?

Nehal Chokshi - Analyst at Northland Capital Markets - (00:26:30)

Has the 10Q been filed for the June quarter yet?

Laura Nash - Chief Accounting Officer - (00:26:34)

And the 10Q will be filed shortly.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:26:37)

Got it. Okay. And then I think Eric asked this question, but I'm going to ask in a slightly different way based on the EBITDA guidance, which is going to improve from a negative 6.5 million from the June Q to which we're going to break even for The September quarter on a midpoint 3 million quarter-to-quarter (Q2Q) revenue decline, does that presume basically a flattish gross margin? quarter?

Laura Nash - Chief Accounting Officer - (00:27:10)

Yes. So we do have certain one time expenses in our current gross margin, including the inventory provision for certain end of life product. While the expected impact of tariffs we are anticipating will continue, we're expecting a gross margin more in line with our fiscal Q2 2025 in our GUID. However, we would like to caution, you know, that does depend on our revenue mix. And so you know, as we see increases in hyperscaler activity that does impact our gross margin as well as the macroeconomic environment.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:27:48)

Okay. And it sounds like the actual non GAAP opex, you're expecting it to be about flattish Q as well. From June Q to September quarter.

Laura Nash - Chief Accounting Officer - (00:27:59)

From June quarter to September quarter, we are expecting a decline in our opex. This is due to the realization of the restructuring activities that happened early in the quarter as well as some run rate expenses that are seen in Q1. We are not expecting recurring Q2.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:28:19)

Okay, so that's like what about a 6 to 9 million QRQ decline in Opex then.

Laura Nash - Chief Accounting Officer - (00:28:30)

From a GAAP OPEX perspective, we have not guided that number. However, from a non GAAP perspective, we're anticipating approximately a 3 million in decline.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:28:40)

Great, thank you. Okay. All right. And then what is the typical seasonality for September quarter and any reasons for any divergence from what, what is typical seasonality?

Laura Nash - Chief Accounting Officer - (00:28:59)

I'll take that one. So thinking about our seasonality, we experience our, our peak ordering in our, in our fiscal Q3. We do see some, some strong business in our fiscal Q2. However, we believe that the guidance we have put out is, is accurate and we are, we're not expecting any deviations from kind of our normal experience.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:29:28)

Okay. I feel like from like fiscal year 18 to like fiscal year 23, typically fiscal Q2 was up. Q and that may have had a lot to do with federal vertical buying. I'm not sure. Is that correct?

Laura Nash - Chief Accounting Officer - (00:29:47)

Yes, we do see the Fed year end hitting in our fiscal Q2. That is correct.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:29:54)

Okay, but that, that from your, your lens of perspective that doesn't typically produce a overall quarter 2 increase in revenue.

Laura Nash - Chief Accounting Officer - (00:30:05)

That does depend quarter over quarter and year over year. So as I said, we're expecting the guidance that we've put out to be accurate.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:30:18)

Yep, absolutely. I would expect that as well. Okay. And then I'm sure this will be disclosed in the 10Q. But if you could disclose it now, the segment data.

Laura Nash - Chief Accounting Officer - (00:30:34)

Yes, that will be provided in Q2 that, that will be enough at Note 12.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:30:39)

Okay. All right, Hughes, you mentioned that you want to be, you know, pivoting to areas in the market where you believe Quantum delivers the most value. Can you detail what are those areas where you believe Quantum can has the most differentiated products here?

Hughes Mayrath - Chief Executive Officer - (00:31:00)

Yeah, for sure. You know, first, like I said earlier, I do feel like we have a given right to play in the DXi space because we actually invented data dedupe. So I think we took it for granted for a long time and just left like this asset on the line for a bit. But with our recent products that have a 1U flash-based, extremely fast, extreme extremely fast both from backup and instant recovery, I feel like we have a great solution. I would say, you know, the tape market is, is interesting, right? And active scale cold storage as well. We've been behind like a lot of the hyperscalers and I do believe that going forward you can look at AI, you can look at the media entertainment space. Everybody's going to go see a lot of data growth in the next two, three years and people are concerned about the spend. And from what we can see, people are looking back at tape with a different eye. Right now we have different technology for tape. We have erasure coding, we have all types of security behind it. And we can present tape like as a poor storage through active scale called storage, which makes it very easy to use. So you know, when I was talking to all the channel partner and customers, unexpectedly active scale cold storage became this really interesting topic to everybody that's struggling with cost right now. So I think that's something we, we need to put some strong execution behind. We have great customers at Quantum. Unfortunately I can't get the list of all the customers. But you know, if you watch tv, if you have a favorite sports team, a TV show, a movie, or if you store files in the cloud, everybody's using Quantum one way or another and you just don't know it. Right? So I feel like we have a strong story. We have great customers. We need to figure out how to upsell and cross sell through those great customers we have. And with the restructuring in sales and the team right now is super motivated to go to those customers and ask for a fair share of the business. So I feel really optimistic about that.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:33:17)

Great, thanks for that detail there on that first area that you talked about of the de duplication space, backup space. You guys have been out with your all Flash product I think for more than a year now. And if I recall, Quantum executives were pretty excited about initial demand indications There did that not transpire or it's transferred, but it's just too small to be driving the top line here. Yeah.

Hughes Mayrath - Chief Executive Officer - (00:33:53)

I think as, as we're going through the process right now, what we're finding out is our lead generation all the way to the conversion is not that great. We, we have to change the process so we've consolidated sales and marketing right now into one group, you know, so I think it's important right now that you don't have a sales and marketing finger pointing. We're going to change the way we do lead generation. We've changed the sales compensation programs because there are gaps and we can get excited, but if the salespeople don't get paid or the incentives are in the wrong places, then it just doesn't work as well. And we also have frankly to go build like an enterprise channel for dxi. Right. So Quantum has been focused in North America mainly on media entertainment. So we're going to need new partners and we're going to have to train them. So the whole flow, the whole process anyway, from leads to sales compensations to partners to partners, Best and everything is being retooled right now between Greg Pugmire and Tony Kreithorn.

Nehal Chokshi - Analyst at Northland Capital Markets - (00:34:57)

Okay, great. Thank you for taking all my questions.

OPERATOR - (00:35:03)

Thank you. And there are no further questions at this time. So with that, we will conclude today's conference. Thank you for connecting and all parties may now disconnect. Have a good day.