QUANTUM CORP /DE/ Q2 FY2025 earnings call

• Quarter highlights: Finished Q2 '25 with $70.5 million in revenue, GAAP gross margin of 41.5% and adjusted EBITDA approximately breakeven. Backlog was $14 million, $4 million above typical run rate. Gross margin improved 490 basis points sequentially. Non-GAAP operating expenses reduced by approximately 9% year-over-year. - Innovation agenda: A leading broadcaster in the Americas grew its ActiveScale environment with ActiveScale cold storage and used Quantum Go subscription solution. New DXi T-Series All-Flash data protection appliance had multiple strategic wins. Scalar i7 RAPTOR tape innovation is shipping for AI use cases. - Cost savings: Restructuring and operational improvements expected to result in almost $40 million in total savings as of end of FY '2025 compared to FY '2023. Free cash flow expected to be positive in back half of FY '2025 and cash flow positive in FY '2026 for first time in five years.

In the second quarter of Fiscal 2025, Quantum Corporation had revenue of $70.5 million. GAAP gross margin was 41.5% and adjusted EBITDA was approximately breakeven. Sales bookings and customer win rates were largely in line with expectations. The primary storage solutions contributed less to revenue year-over-year. Backlog was approximately $14 million, $4 million above typical run rate. Myriad and ActiveScale are the leaders for future growth. The DXi T-Series All-Flash data protection appliance had strategic wins. The Scalar i7 RAPTOR tape innovation is shipping. Revenue contribution details: No specific percentage breakdown provided for each segment, but Myriad, ActiveScale, traditional data protection offerings are key segments with different performance in the quarter.

• Third quarter fiscal 2025: Anticipates total revenue to be approximately $72 million, plus or minus $2 million. Non-GAAP operating expense expected to be $31 million, plus or minus $1 million. Non-GAAP adjusted net loss per share expected to be negative $0.75, plus or minus $0.05 per share. Adjusted EBITDA expected to be approximately $2 million. - Fiscal year 2025: Target of $280 million, plus or minus $5 million in revenue. Adjusted EBITDA expected to be $3 million, plus or minus $2 million. Anticipates improvements in second-half of FY '2025 continuing into FY '2026, with efforts to drive growth in revenue, profitability and free cash flow in second half of FY '2025 and beyond.

• Supply chain risks: Operational headwinds related to supply chain continued in recent quarter. High-speed all-flash systems, particularly those using super micro components, have long lead times (up to 10 weeks), which can cause issues with inventory and order fulfillment, potentially affecting revenue and order delivery.

Q: Eric Martinuzzi asked about the revenue shortfall and linkage with the supply chain issue, and steps to correct it.

A: Jamie Lerner said sales team brought in purchase orders needed to meet guidance, high-speed all-flash systems have longer lead times (up to 10 weeks) and they are trying to preorder but avoid scrap material, bookings were on target but backlogs may persist for a period; Ken Gianella said they anticipated some longer lead times coming into the quarter but it persisted deeper than planned.

Q: Nehal Chokshi inquired about conversion rates of pipeline by products, win rates of different products.

A: Ken Gianella said pipeline is growing, win rates slightly down from prior years but expected to go up, ActiveScale was on par with prior years, enterprise tape business had a dip but i7 coming out to get win rates back up, DXi is significantly up and accelerating faster than planned; Jamie Lerner added DXi T10 and T20 all-flash products are accelerating faster than past and planned.

Q: Nehal Chokshi asked if elevated backlog would persist into March quarter.

A: Ken Gianella responded they are snakebit on that front with headwinds persisting and a factory transition consolidating manufacturing operations into one new location at end of the quarter, buffering in guidance