Quantum (QMCO) Q1 2027 Earnings Call Transcript

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DATE

Monday, Aug. 10, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Hugues Meyrath
• Chief Financial Officer - William White
• General Counsel - Tara Ilges

TAKEAWAYS

• Revenue -- $80.8 million, representing 25.7% year-over-year growth and exceeding the company's guidance range of $73 million to $77 million.
• Non-GAAP Adjusted Net Income -- $4.0 million or $0.18 per share, compared to a net loss of $14.5 million or $1.58 per share in the prior-year period.
• Adjusted EBITDA -- $8.0 million, which exceeded the company's internal guidance by $5.5 million and compared to negative $6.5 million a year ago.
• GAAP Gross Margin -- 39.3%, increasing 360 basis points sequentially and 400 basis points year over year to reach its highest level in five quarters.
• Total Outstanding Debt -- zero, following the elimination of $144.8 million in term debt and convertible notes using proceeds from a $94.6 million private placement.
• Cash and Cash Equivalents -- $54.6 million as of June 30, 2026, an increase from $16.2 million at the end of the previous fiscal year.
• GAAP Net Loss -- $155.3 million or $7.06 per share, primarily reflecting $157.7 million in one-time noncash charges related to debt extinguishment and fair value changes for warrants and convertible notes.
• Non-GAAP Adjusted Operating Expenses -- $25.1 million, representing a 16% year-over-year decrease driven by prior restructuring actions and lower sales and marketing costs.
• Service and Subscription Revenue -- $24.7 million, with management noting that service revenue increased approximately 10% quarter over quarter.
• LTO Capacity Shipments -- increased 15% sequentially, a metric management identified as evidence of broader industry adoption of tape technologies for storage economics and cyber resilience.
• Interest Expense -- $2.1 million for the quarter, down from $6.5 million in the prior-year period, with minimal expense expected in future periods following debt elimination.
• Hyperscaler Deal -- valued at over eight figures, involving a Scalar i7 tape library deployment secured in the APAC region during the quarter.
• Large Enterprise Deals -- increased in frequency, with the majority of deals valued at more than $1 million exceeding the $3 million threshold.
• Backlog -- reached record levels during the quarter, increasing significantly from the $45 million reported as of March 31, 2026.
• Fiscal Q2 2027 Revenue Guidance -- $80 million to $84 million, which represents approximately 31% year-over-year growth at the midpoint of the range.
• Fiscal Q2 2027 Adjusted EBITDA Guidance -- $5 million to $7 million, reflecting anticipated sequential increases in sales commissions and research and development hiring.
• Fiscal Q2 2027 Adjusted Net Income Guidance -- $0.12 per share plus or minus $0.10 per share, assuming 39.4 million weighted average basic shares outstanding.
• Operating Cash Flow -- positive $900,000 for the quarter, compared to a cash outflow of $16.9 million in the fiscal first quarter of 2026.
• Capital Expenditures -- $400,000, representing less than 0.5% of total revenue for the period.
• Geographic Performance -- revenue in the Americas increased more than 20% sequentially, while revenue in the APAC region rose more than 50% sequentially.

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RISKS

• Meyrath stated, "Simply put, customers' demand remains stronger than our ability to fulfill it," regarding ongoing supply constraints for tape drives and certain disk drives.
• Meyrath warned that the company is "still not getting adequate supply of tape drives," specifically noting that an expected production increase from primary supplier IBM has not yet reached an inflection point as of Aug. 2026.

SUMMARY

Quantum Corporation (NASDAQ:QMCO) achieved a debt-free balance sheet and its first non-GAAP profitable quarter since 2023. Management reported that revenue growth was driven by demand for ActiveScale and tape storage solutions, despite ongoing supply chain constraints for tape and disk drives that have resulted in record backlog levels. The company completed a private placement generating $94.6 million in net proceeds, which facilitated the repayment of all outstanding term debt and convertible notes. Looking ahead to the second fiscal quarter of 2027, the company expects sequential revenue growth and plans to increase research and development hiring to support its expanding pipeline of large-scale enterprise and hyperscaler deals.

• CEO Meyrath indicated that tape opportunity funnels have reached the highest levels in years, noting, "Organizations are increasingly turning to tape to improve storage economics, reduce power consumption, and strengthen cyber resilience."
• The company secured a renewal and expansion of an ActiveScale deployment with a European biometrics institution, which management identified as evidence of continued capacity extensions once customers implement the platform.
• CFO White noted that while gross margins reached 39.3%, the company is "being conservative in how we're doing margin going into Q2" due to component pricing volatility and the mix of large deals in the pipeline.
• Management attributed the reduction in non-GAAP operating expenses to realized savings from prior restructuring actions and continued discipline in fixed costs.
• The company expects a sequential increase in operating expenses for the second fiscal quarter to approximately $27 million, driven by higher sales commissions and a faster pace of research and development hiring.
• CEO Meyrath reported that the Scalar i7 technical win in APAC highlights the "growing relevance of the Scalar i7 in modern tape architectures and hyperscale environments."
• Management noted that recent industry data showing a 15% sequential increase in LTO capacity shipments validates their strategy of combining ActiveScale with modern tape architectures for durable data lakes.

INDUSTRY GLOSSARY

• ActiveScale: An object storage platform designed for massive-scale unstructured data, offering high durability and storage efficiency.
• LTO (Linear Tape-Open): An open-format tape storage technology used for high-capacity, long-term data archiving.
• Scalar: A line of tape library systems used for automated data backup, recovery, and archiving.
• DXi: A portfolio of backup appliances that provide data deduplication and disaster recovery capabilities.
• StorNext: A file system software designed for high-speed processing and management of large digital video and imaging data sets.
• CatDV: A media asset management platform used for organizing and automating digital media workflows.
• Hyperscaler: Large-scale cloud service providers that require massive data center infrastructure and storage capacity.

Full Conference Call Transcript

Operator: Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Fiscal First Quarter 2027 Conference Call. [Operator Instructions] 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 Ilges. Please go ahead.

Tara Ilges: 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 Hugues Meyrath, 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. 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, Hugues Meyrath.

Hugues Meyrath: 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 2 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 $1 million with the majority of these exceeding $3 million. ActiveScale 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 ActiveScale deployment with a leading European biometrics institution.

Once customers implement ActiveScale 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 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 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, backlog is 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, cash flow positive, and profitable for the first time since 2023. Our team 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.

William White: Thank you, Hugues. 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 our guidance range of $75 million, plus or minus $2 million, driven by strong demand for our ActiveScale and tape storage solutions.

As Hugues stated, our backlog has increased significantly and we expect it to continue to be strong throughout the current quarter. GAAP gross margins reached 39.3% in our first quarter, up 360 basis points sequentially, and nearly 400 basis points year over year, the highest level in 5 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 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 the 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 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 $0.9 million with capital expenditures of $0.4 million, or under 0.5% of revenue.

GAAP 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 a $129.7 million loss on the change in fair value of our convertible notes, a $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.

Excluding these debt-related items and $0.8 million of other non-recurring costs, as well as 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 a loss of $0.21 per share, in the prior quarter, and a net loss of $14.5 million, or a 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. 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. 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 30. Total outstanding debt was zero compared to $144.8 million of term debt and convertible notes on March 31. 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 growth. 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. Adjusted 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 5 quarters, positive non-GAAP adjusted net income for the first time since 2023, positive cash flow 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.

Operator: [Operator Instructions] Our first question is from Jacob Stephan with Lake Street Capital Markets.

Jacob Stephan: Congrats on a really nice quarter and guidance 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 million. Wondering about the step-down, is that more OpEx related or are you seeing something in gross margin that might ultimately result in that?

William White: 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 beat we've had on revenue, we're anticipating commissions to be higher. So that's factoring into OpEx. From a margin standpoint, as mentioned, we're just simply 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.

Jacob Stephan: 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?

Hugues Meyrath: I know we didn't give the number, Jacob, but it's significantly higher.

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

Hugues Meyrath: Right now, the reason we're guiding to around $82 million, 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.

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

Hugues Meyrath: Yes, 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 ActiveScale gains a stronger and stronger foothold in the enterprise, these are typically very large deals as well. Yes. As the company's growing, I think you can expect most of those.

Jacob Stephan: Got it. I appreciate all the color, guys. Nice quarter.

Operator: [Operator Instructions] Our next question is from Nehal Chokshi with Northland Capital Markets.

Nehal Chokshi: 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 ActiveScale customer adoption. And I probably would have some follow-up based on this here.

Hugues Meyrath: Yes, we've seen an increase of seven-digit deals in the enterprise with ActiveScale, 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 ActiveScale 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, yes, the product is really nicely ramping up right now.

Nehal Chokshi: So I think I asked this question last quarter, and I got it too early to give sort of a perspective on it. So I'm going to ask it again, because maybe it's no longer too early now. 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 year out from here or on an absolute dollar term as well?

Hugues Meyrath: 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, 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.

Nehal Chokshi: Okay. And so these 3 customer types of enterprises, hyperscalers, and neoclouds, could you characterize what they represent in terms of the ActiveScale pipeline?

Hugues Meyrath: We don't break down our bookings or our pipeline by product, Nehal.

Operator: 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.

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