Ladies and gentlemen, greetings and welcome to the Quantum Corporation Fiscal First Quarter 2027 Conference Call. At 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.

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've faced 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 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 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 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 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 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 win 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, 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 a 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-gap 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 realized savings from a lowered cost structure following our restructuring actions throughout the fiscal year. Operating income was $5 million on a gap basis and $6.6 million on a non-gap 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 $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 $0.66 per share in the previous quarter and a net loss of $17.2 million or a 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 and 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. which 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. Turning 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. 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. 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 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, our strongest gross margin in five quarters, positive non-gap 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.

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 handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Jacob Stephen 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 know, 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 million. I'm wondering about the, you know, the step down. Is that more OPEX related or are you seeing something in gross margin that, you know, might ultimately result in that?

Good question. So two parts is one, it is related to OPEX. As I mentioned, there are two main drivers there. I'd previously say that we're investing in R&D. That's our main growth area from an OPEX standpoint. We're also, given the beach we've had on revenue, we're anticipating conditions to be higher. So that's factoring OPEX. From a margin standpoint, as mentioned, we're just simply, we're 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're being conservative and how we're doing margin going into two okay got it um and then just touching on backlog um 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 um what you exited this quarter with i know we didn't give the number jacob but it's a significantly higher okay um i guess so just touching on supply um i know you you guys have continued to say that you know demand significantly outpaces but i guess you know with ibm kind of easing um you know the projected easing in q2 and q3 here um 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, 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.

Okay, got it. And maybe just one last one. You know, you touched on some of the larger deals in the quarter, with several being over $3 million. I guess, you know, how should we think about that for the balance of the year as we look at kind of, you know, Q2 through Q3 and even into Q4? Do you expect, you know, the pipeline growing from larger deals or is it, you know, continuing to be kind of on the enterprise side, maybe medium-sized business?

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. Yeah. As the company is growing, I think you can expect more of those.

Got it. I appreciate all the callers, guys. Thank you, Jacob.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Nihal Kocchi with Northland Capital Markets.

Yeah, thank you. Hey, I'm sorry I missed the opening remarks of the last question here. But I do want to, and this may have been answered then, but I would like to see if you have any updates with respect to at-to-scale customer adoption. And I probably would have some follow-up based on this here.

Yeah, we've seen an increase of seven-digit deals in the enterprise with the active scale, so it continues to grow super fast, and it's getting more and more traction. 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.

Okay. So, I think I asked this question last quarter, and I got it too early to give sort of a perspective on this. So, I'm going to ask it again because maybe it's no longer too early now. You know, where is ActiveScale in terms of percent of bookings on, say, last quarter or last two-quarter basis? and where do you think it can go one year or two years out from here or on an absolute dollar term as well?

Well, it's not too early to give. We just don't give a product bookings. We don't give a bookings breakdown by product for that purpose. But ActiveScale continues to grow and it's a larger and larger part of our solution going forward. 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.

Okay. And so these three customer types of enterprises, hyperscalers, and neoclouds, could you characterize what they represent in terms of the afterscale pipeline?

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

Okay. All right. Thank you very much.

Thank you. This does conclude our question and answer session and our conference for today. We thank you again for your participation. You may now disconnect your lines.