Greetings, welcome to Quantum Corporation's First Quarter Fiscal Year 2025 Financial Results. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Brian Cabrera, Quantum's Chief Administrative Officer. Thank you. You may begin.

Good afternoon and thank you for joining today's conference call to discuss Quantum's first quarter fiscal 2025 financial results. I'm Brian Cabrera, Quantum's Chief Administrative Officer. Speaking first today is Jamie Lerner, our Chairman and CEO; followed by Ken Gianella, our CFO. We'll then open the call to questions from analysts. Some of our comments during the call today may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenues, 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 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 description 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. We do not intend to update or alter our forward-looking statements once they are issued, whether as a result of new information, future events, or otherwise, except, of course, as we are required by applicable law. Please note that our press release and the management statements we make during today's call will include certain financial information in GAAP and non-GAAP measures. We include definitions and reconciliations of GAAP to non-GAAP items in our press release. Now I would like to turn the call over to our Chairman and CEO, Jamie Lerner. Jamie?

Thank you, Brian, and thank you all for joining us today. Earlier today, we announced our results for our first quarter fiscal 2025. Turning to Slide 3, here are some brief highlights from the quarter. We finished Q1 2025 with $71.3 million in revenue, non-GAAP gross margin of 36.9%, and adjusted EBITDA of negative $3.1 million. These results were largely in line with our expectations, reflecting further rotation of our business toward our long-term initiatives. We continue to take steps to improve the company's capital structure and operational performance, as well as accelerating the growth of profitable revenue streams, which we will discuss further in today's call. First, as part of our ongoing strategic and financial initiatives, we have reached an agreement with our current lenders that significantly increases our liquidity, allows us to take action on improving our operational initiatives and focus on driving Myriad, ActiveScale and the rest of our business to the next level. We added access to over $25 million. This injection of growth capital, combined with the restructuring of our existing debt, allows the company not only to improve its overall capital structure and balance sheet, but positions us well for continued innovation and growth in our target markets. Let me talk more about the company's continued transformation and driving the business to the next level. Quantum has proven experience managing unstructured data with deep roots in video and media and entertainment. The ongoing exponential growth in unstructured data, particularly driven by AI use cases, is creating continued traction for our Myriad and ActiveScale platforms that are uniquely positioned to address these workflows end to end. Our engineering team is delivering the committed Myriad roadmap on time and on plan. With our customers successfully adopting these new features as they are released, giving us confidence…

Thank you, Jamie. Please turn to Slide 6 and I'll provide an overview of the GAAP financial results for our fiscal first quarter. Revenue was $71.3 million, a decrease of approximately 23% year-over-year and essentially flat to the fourth quarter of 2024. The revenue year-over-year decrease was primarily driven by the loss of our largest hyperscaler while the full quarter results do not fully reflect the continued rotation of our business toward our long-term initiatives. We are pleased with the progress. For example, our gross margin for the period was 36.6% compared to 38.5% in the year ago quarter and 38.2% in the prior quarter. This lower margin was due to a very large scale strategic video surveillance sale to the world's largest packing shipping company for all of their ground shipping locations. Also impacting the quarter's profitability was supply constraints that prevented us from shipping higher volumes of higher margin products during the quarter. These supply headwinds resulted in an increase of the quarter end order backlog to approximately $15.5 million, substantially above our normal run rate of $8 million to $10 million. While we anticipate gross margin returning to the low 40% next quarter, we expect higher supply lead times to persist through the end of the calendar year. GAAP net loss in the quarter was 28 – $20.8 million or a loss of share $0.22 per share, compared with a loss of $9.1 million, or $0.10 per share, in the same quarter last year, and compared to a loss of $18.9 million, or $0.20 per share, in the prior quarter. This higher loss in Q1 ‘25 was predominantly driven by one-time expenses of over $10.7 million. The gain or fair value of warrants was $1.7 million in the quarter compared to a $0.7 million gain in the…

Thanks, Ken. As we discussed today, Quantum will continue to prioritize certain initiatives to improve our operating model and our customers’ experience. This includes continuing to prioritize new products and services that help customers maximize their value. Operationally, we will execute our transition to subscription ARR, focused on improved operational efficiencies and work to strengthen our model while also evaluating all possible alternatives to improve shareholder value. With that, let's open it up for questions. Operator?

Thank you. [Operator Instructions] Our first question is from Neal Chokshi with Northland Capital Markets. Please proceed.

All right, thank you. I would like to start with the subscription transition. That particular slide, slide page on the subscription transition. Overall, it looks pretty good, except for that the subscription bookings was down to $3.2 million from $4.5 million a year ago. Is there a narrative behind that?

I think mostly it was a little bit of delayed. We were hoping to bump that up this quarter, but we had delays, as we mentioned, with some of the supply chain elements getting out there that we couldn't add that into the number.

Okay, just to be clear…

We were anticipating higher shipments this quarter than what we gave in the results.

Okay, but can't you take in a booking without shipping?

No.

No, we relied for that one it has to be in place for that.

Yes, you can't RevRec the software unless you've shipped the hardware to run it on because without the hardware, it doesn't have any value.

Okay, got it.

Unless we sell it separately, but these deals weren't separate.

Got it. Understood. Okay. On the gross margin, the three components of product, service and royalty, it looks like, product actually did quite well, on a Q-over-Q basis, I'm sorry, on a – yes, on a Q-over-Q basis it did quite well. But the service gross margin went down 600 basis points, both Q-over-Q and year-over-year. Why is that?

Part of this is just when we get to scale; it's trying to clean up some of the regions where we were operating in. We had a little bit staffing that we were working through and higher operating costs in some of our regions, predominantly North America and Europe. And we're looking to find ways to operate a little bit more effectively than we were in the past.

Okay. It has nothing to do with selling the receivables on the services business, right?

No, that was purely an operational element that would follow through it or didn’t – the overall COGS of the business, but that was not an impact to it. This was more just operational efficiencies that we saw in the regions in Q1.

Okay. And then Jamie, can you comment on what is the Q-o-Q bookings trend for Myriad and ActiveScale?

Yes, I mean, we don't put those numbers out, but we're pretty encouraged right now. I mean, ActiveScale, it's really starting to stand apart from its competitors, really, based on two things. One is its tremendous ease of install and ease of use, particularly at scale, and the fact that it's one of the only, but pretty much the only object store that has erasure coded tape integration. So the ability to support flash, disk and tape simultaneously, there's just no other object store that does that. So we're seeing good adoption of ActiveScale. I think our partners are well trained to sell it. I think our sales team is well trained to sell it. With Myriad, we're at an earlier part in the growth curve. We've been getting a lot of independent testing, validation that shows the product is outperforming, even what are viewed today as the world’s fastest file systems. We're outperforming those in some cases by 250%, just 2.5 times faster than our next closest competitor. So I really like how it's doing in trials. A lot of those trials are actually right now converting into sales. Myriad has a little bit of a more unique network configuration, but once configured, what it can do and its ease of use are incredible. So I think this quarter, the current quarter, were in subsequent quarters, we're seeing the Myriad trials that we were in last quarter converting. So I feel really good about that. I think we're getting a very high success rate and conversion rate on the trials and where we have more work to do there is training our broader sales force, training the partner community on selling what is a new product and a very new architecture. So that's where a lot of our energy is going, is not just having our best people be able to sell it, but having our top integrators, our top resellers, our top distributors really starting to build that knowledge base as well. So we're putting a lot more energy into training and education around the Myriad product.

Okay, awesome. That's great, color. I appreciate that. I'll get back into the queue. Thank you.

Thanks, Nehal.

[Operator Instructions] Our next question is from Max Michaelis with Lake Street Capital Markets. Please proceed.

Hey, guys. Thanks for taking my questions. First question here, just related to really no mention of the fiscal year 2025 guide you guys provided last quarter. Just kind of want to get a comment from you guys on maybe what went into stepping away from that or not reaffirming that. Was it mainly just these supply chain constraints here, or I guess, comment on what you guys are thinking for the full year guide?

Well, first we gave the first the full year outlook at the beginning of the fiscal year, and traditionally we give that at the beginning of the year and we don't reiterate it. So I wouldn't read anything into it. I mean, Q1 was slightly down, but that went into backlog than what we anticipated. Q2 is kind of the same thing and we do see some headwinds, but we are looking for elements to try to catch up here as that loosens up towards the back half of the year. So I wouldn't read into that in any way other than traditionally how we approach it.

Okay, I think I forgot. So that previous adjusted EBITDA guide for $10 million to $20 million still sort of stands is what you're saying.

Yes, I mean, we said on the prior call when we put that out there, it was going to be back half weighted. You might have heard in my prepared remarks where we were very clear about $10.7 million of GAAP expenses that were hitting the company, that transition. Because if you guys remember, we were just getting back on file. Getting back on file coupled with active restructuring of the organization, coupled with several new MPI launches that we're doing in the back half of the year as well as now, as you heard Jamie mention, when I'm really proud of is the DXi launch that went out and it was a couple days out in Public GA, and we won two big deals away from one of our key competitors. So we've invested a lot of capital dollars here in the back half of the year, and this first half of the year that once we get through this one time spend, we see the profitability really starting to take hold into Q3, into Q4 to make us up to that number.

Okay, perfect. Thanks, guys. And then last one for me, I think the number was $16 million of operational efficiencies. I kind of want to get an idea where we're at. I mean, how much have we recognized? I guess in Q1 out of that $16 million going forward throughout the year and if we're on track there.

I don't give that specific number. I don't want to get into a thing of every quarter announcing kind of where we're at for a lot of reasons. But I will say that we are on track and our goal is to have that number at least fully in hand by the end of the calendar year.

But, I mean, Ken, to give you a little more credit, I mean, we did have OpEx last quarter of over $35 million.

Yes.

And this quarter it was $30.8 million.

Correct. Over $5 million

So that's over $5 million annualized. That's pretty good. We have more we can do, but I don't. Other than one quarter where we had some anomalies, we've never had OpEx at $30.8 million. And I think we see a pretty clear path to getting under $30 million, which is just, we've never been at levels of that kind of efficiency before, even before we made our acquisitions. So it's pretty good. I'm pretty pleased with it. Now, the gross margin, not so much, but we'll resolve that.

All right. Thanks, guys for taking my questions.

With no further questions at this time, I would now like to turn the call back over to Jamie Lerner for closing remarks.

Yes. Look thanks, everyone. Thanks for sticking with us. I do think there's better days ahead. I'm really encouraged that our lenders supported us with the $25 million that we brought in. I feel really excited in what we can achieve in the explosion in AI and just how much our media and entertainment experience translates to AI success and how our products, particularly Myriad and ActiveScale, are just turning out to be so unique in that space. And now that we have the runway to really play that out completely with our lender support, I really am encouraged for what's going to happen in the future for us. And I'm excited to talk more over the coming quarters of how we're going to expand in these new markets. So thanks, everyone, and thanks for today's call.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.