Quantum Corporation (QMCO) Earnings

Management highlights

• Financial Position Transformation - Completed a $100 million gross private placement of equity, with participation from major institutional investors, validating the company's strategy. - Fully repaid all outstanding term debt, converted all outstanding convertible notes to common stock, and added ~$36.9 million in net cash to the balance sheet. - Quantum now has no outstanding debt, putting it in the strongest financial position it has been in for decades, with increased flexibility for growth investments. • Demand and Sales Performance - Q4 FY2026 closed with strong pipeline momentum and a record $45 million order backlog, almost entirely tied to component supply availability constraints. - Demand is growing across the portfolio, driven by rising data volumes, AI-related workload growth, increasing primary storage costs, and supply chain delays for flash/disk that push customers to adopt tiered storage architectures. - ActiveScale cold storage adoption is accelerating, with existing customers expanding their deployments to hundreds of petabytes, moving toward exabyte scale, across verticals including AI, HPC, media entertainment, genomics, and medical research. - Announced a new partnership with Pink Elephant, a European sovereign managed service provider, to deliver cost-effective, energy-efficient data resilience services using ActiveScale and integrated tape libraries. • Cost Structure and Operational Efficiency - Completed restructuring actions in FY2026 that reduced full year non-GAAP operating expenses by $11.6 million (10%) year-over-year, demonstrating operational leverage as revenue grew. - Management remains committed to disciplined cost management going forward, and plans to hold non-GAAP operating expenses flat year-over-year in FY2027. • Strategic Priorities - Continue driving sustained revenue growth, recover gross margin toward 40%, improve operational efficiency, and execute with focus and discipline across all business functions. - Leverage growing demand for tiered storage solutions driven by AI-driven data proliferation, delivering integrated solutions that combine high performance and low-cost long-term storage.

Guidance

• Fiscal Q1 2027: The company expects a 5% seasonal revenue decline from Q4 FY2026, in line with historical seasonal trends, constrained by ongoing component supply constraints. Adjusted non-GAAP net loss per share is expected to be -$0.15, plus or minus $0.10. Adjusted EBITDA is expected to be $1.5 million, plus or minus $1 million. • Full year FY2027: Non-GAAP operating expenses are expected to be flat compared to FY2026. Management expects backlog conversion to improve significantly in the second half of FY2027 as component supply constraints ease, allowing more backlog to be converted to revenue. The company expects sustained demand momentum over the next 24 months. Gross margin is targeted to recover toward 40% over time, with the near-term goal of improving margins through the remainder of FY2027.

Segment performance

Quantum does not disclose full formal segment revenue breakdowns in this call. The key product line performance is as follows: 1. ActiveScale object storage: Revenue tripled year-over-year in Q4 FY2026, driven by growing demand for large-scale data management and AI workloads. ActiveScale is a combined solution of flash, disk, and tape storage, and typically carries a higher gross margin than Quantum's legacy product portfolio. 2. Tape libraries: Tape library sales funnels are incredibly strong, but deliveries are currently constrained by IBM's limited ability to supply tape drives. Demand for tape storage is growing as customers shift to tiered storage architectures to reduce primary storage costs. 3. Overall company: Total Q4 FY2026 revenue was $78 million, up 5% quarter-over-quarter and 27% year-over-year, and $10 million above the prior guidance midpoint. Full year FY2026 revenue grew year-over-year, with most growth coming from the enterprise storage market, improving the company's revenue mix.

Risks & headwinds

• Industry-wide component supply chain constraints: The company's growth is currently limited by tight supply of disk drives, flash drives, and IBM-produced tape drives, which prevents the company from fulfilling its large existing backlog in the near term. Management expects continued supply chain volatility in the coming months. • Gross margin pressure: Unpredictable successive increases in component prices over recent quarters have created margin pressure, as the company had to fulfill backlog ordered at lower quoted prices with higher-cost components. Government and fixed-price contract customers are particularly sensitive to price increases, making it difficult to adjust pricing to offset higher component costs without risking canceled contracts. • Forward-looking statement risk: All forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from projections, as detailed in the company's SEC filings.

Analyst Q&A

• Q: With $45 million in backlog and expected improved conversion through the year, what is driving this improvement, and how confident is management in the timeline? /

  A: Supply constraints differ by component. IBM is ramping tape drive production through the year; constraints are expected to remain in the June 2027 quarter but ease significantly in the September and December quarters. Disk and flash supply remains tight, but the company's new cash position allows it to place larger, more aggressive component orders. Management expects conversion to improve substantially in the second half of FY2027.

• Q: The Q4 gross margin was lower than expected due to low-margin backlog fulfillment; is this a continuing concern going forward, and how is pricing strategy adjusted to mitigate this? /

  A: Pricing volatility was far worse in the March FY2026 quarter than it is today, when multiple unanticipated successive component price hikes created disconnects between quoted prices and actual costs. The industry now provides advance price notification, allowing better alignment of order and component costs. While some fixed-price government backlog will remain a drag, management expects gross margins to improve through the rest of the year.

• Q: The backlog indicates accelerating product demand; is this growth driven by component price increases or real unit demand growth, and what product lines are driving this? /

  A: The growth is primarily driven by higher unit demand, not average selling price increases, from accelerating adoption of ActiveScale, which is a combination of disk and tape object storage. ActiveScale growth has accelerated for multiple consecutive quarters, and it is used across AI, HPC, media, and research verticals with large big data workloads.

• Q: If the mix shift to higher-margin ActiveScale continues and supply chains normalize, is the 40% gross margin target still accurate, or can margins go higher? /

  A: Management's original long-term goal was 43%, but ongoing component price increases are expected to continue for the foreseeable future. The company is prioritizing a customer-friendly, channel-friendly approach to pricing, rather than passing all increases immediately to recover margin faster, so the 40% target remains the near-term guidance.