Good afternoon, and welcome to Quantum Corporation's Fiscal First Quarter 2026 Financial Results Conference Call. 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 Ilges, Quantum's Vice President of Corporate Affairs. Tara, please go ahead.

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 Hugues Meyrath, Quantum's 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 10-Qs and 10-K 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's CEO, Hugues Meyrath.

Thank you, Tara, and good afternoon to everyone. Thank you for joining us on our first fiscal quarter and business update conference call. I'm pleased to be joining you for my first investor call as Quantum's 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. My career spans from my early beginnings in 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.

Thank you, Hugues. 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 million 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 end-of-life products in addition to import tariffs incurred during the quarter. This was partially offset by improvements in operational efficiency in our service organization. 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 nonrecurring accounting and legal expenses incurred in the year-ago quarter associated with the company's previously completed restatement of financial results for the 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 increases in the 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 a 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 utilized 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, 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 Hugues.

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 road map 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 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 Craythorne as Chief Revenue Officer. Tony brings more than 25 years of executive sales and marketing experience across the U.S., Europe, and Asia at companies that include Index Engines, Zadara, Komprise, Brocade, and Hitachi Data Systems. Having worked with Tony before, I know he brings discipline and energy to scaling sales organizations. We also appointed Gregg Pugmire as Vice President of Americas Sales. Gregg 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 U.S., 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 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&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, Yorkville 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. 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 strengths, and we're focusing our resources on the solutions where we deliver the most differentiated value. This quarter, we launched two new DXi T-Series models that deliver the industry's first one rack unit 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 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. ActiveScale 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 solutions and the gold standard in media and entertainment for performance, scalability, and reliability. Customers can now connect however they prefer, Ethernet IP or fibre channel without sacrificing performance. Our Ethernet-based parallel client delivers aggregate read performance of up to 90 gigabytes per second, making StorNext 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 road map 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&A session.

Our first question comes from Eric Martinuzzi with Lake Street Capital Markets.

I 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.

Thank you for the question, Eric. First, we need to focus on selling what we currently have. DXi has been part of our portfolio for a long time, and I believe there are many opportunities with it. With Jim Clancy joining the Board from Dell, we have an experienced leader who can help us push DXi hard in the upcoming quarters since we think it's underperforming and there's potential for growth. ActiveScale cold storage is also a strong product that meets the demand for cost-effective long-term data retention solutions. Tony and I are actively engaging with channel partners and customers, and we recognize that StorNext hasn't received enough investment over the last couple of years. We're heading to IDC in Europe and are making changes to StorNext, particularly focusing on the Ethernet IP version, which is in high demand. We believe StorNext needs more investment and emphasis on the Ethernet IP aspect, aligning with what our channel partners and customers desire. These are some immediate steps we're taking. In the long term, we aim to refine our portfolio and solutions, but for now, let's concentrate on these efforts.

Got it. 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?

Well, we've changed a lot right now. So there may be 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 the 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 is on Quantum's path. So I feel very confident that we're on the right path right now, and we have a very strong management team.

Okay. My last question is about operating expense. You mentioned a recent restructuring. Can you explain how we go from the $30 million of non-GAAP operating expense last quarter to the $27 million midpoint? Did all of that change occur on July 1? Should we expect to see the $30 million drop to $27 million immediately, or is there a possibility this will carry into Q3 and Q4?

Yes. I'm going to 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.

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 expected changes in our operating expenses. Also, there are some additional costs we incur during our fiscal Q1, which are not likely to repeat in our fiscal Q2, but our normal run rate business.

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

Yes, it's great to see that your overall debt has been reduced, particularly the revolver, and that your net debt has significantly decreased through various measures. Regarding the term debt you have, could you remind us of the interest rate on it and how much of that is paid in kind?

Thank you for your question. We make full disclosure of that in our 10-Q, and it will be included in footnote 4 to the 10-Q.

Okay. And is that filed now to the 10-Q?

Excuse me, sorry, can you repeat the question?

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

And the 10-Q will be filed shortly.

Got it. Okay. And then I think Eric asked this question, but I'm going to ask it 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 what you're guiding to breakeven for the September quarter on a midpoint $3 million quarter-over-quarter revenue decline. Does that presume basically a flattish gross margin quarter-over-quarter?

Yes. We have some one-time expenses affecting our current gross margin, such as the inventory provision for certain end-of-life products. While we expect the impact of tariffs to persist, we anticipate our gross margin will align more closely with our fiscal Q2 2025 guidance. However, I want to emphasize that this is contingent on our revenue mix. Increases in hyperscaler activity will influence our gross margin, as will the overall macroeconomic environment.

Okay. And it sounds like the actual non-GAAP OpEx, you're expecting that to be about flattish quarter-over-quarter as well from June to September quarter?

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 that we are not expecting to recur in Q2.

Okay. So that's like about a $6 million to $9 million quarter-over-quarter decline in OpEx then?

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

Okay. All right. And then what is the typical seasonality for the September quarter? And any reasons for any divergence from what is typical seasonality?

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

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

Yes, that will be provided in Q2. That will be in our footnote 12.

Okay. Hugues, you mentioned that you want to focus on areas in the market where you believe Quantum provides the most value. Can you explain which areas you think Quantum's products stand out the most?

Certainly. I believe we have a rightful place in the DXi space since we were pioneers in data technology. We might have taken that for granted and not utilized this asset effectively for some time. However, with our latest products, including a new flash-based solution that offers extremely fast backup and instant recovery, we have a strong offering. The Tape market is intriguing, as is ActiveScale cold storage. We have been a key player for many hyperscalers, and I anticipate significant data growth in the AI and media entertainment sectors over the next few years, prompting concerns about spending. Currently, there is a renewed interest in Tape technology. We are equipped with innovations like Erasure coding and enhanced security, allowing us to present Tape as a manageable storage solution through ActiveScale cold storage. During conversations with channel partners and customers, ActiveScale cold storage has emerged as a compelling topic for those facing cost challenges. This is an area where strong execution is essential. We have valuable customers at Quantum, although I can't disclose their names. However, if you enjoy sports, TV shows, movies, or use cloud storage, you're likely encountering Quantum technology without even realizing it. We have a solid narrative and fantastic clients, and now we need to identify opportunities for upselling and cross-selling to these customers. With our sales restructuring, the team is highly motivated to engage these clients and seek a fair share of business. I feel very positive about our prospects.

Great. On that first area that you talked about, the deduplication 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 transfer, or is it just too small to be driving the top line here?

Yes. I think 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 have to change the process. So we've consolidated sales and marketing right now into one group. 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 drill the generations. 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. We also have, frankly, to go build an enterprise channel for DXi, right? So Quantum has been focused in North America, mainly on media and 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 compensation to partners to partners test and everything is being retooled right now between Gregg Pugmire and Tony Craythorne.

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.