Quantum Corporation Aktie

Thank you. fiscal first quarter 2027 conference call. 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. Thank you.

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 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. 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, Hugh Neva. 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 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 were seen continuously 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 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 I-7's unmatched density and power efficiency enabled us to secure this important technical win.

We believe this one 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, 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's now debt-free, cashflow positive, and profitable for the first time since 2023. Our term 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. Will Smith 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 30th, 2026. Revenue in the quarter was $80.8 million, increasing 2.8% to $1.4 million. million or approximately 4 percent 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 you 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. 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 costs and inventory performance, as well as continued leverage on fixed costs. We continue to focus on gross margin and that 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 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 real-life 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. In 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 $7.6 million. loss of $0.66 per share in the previous quarter and a net loss of $17.2 million, or 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 in 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. That compares to a positive $1 million in the fiscal fourth quarter of 2026 and a negative $6.5 million in the prior year quarter. 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. 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. Total outstanding debt was zero compared to $144.8 million of term debt and convertible notes on March 31st.

Interest expense in a 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 to the company. 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 $1. 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. strongest gross margin in five quarters, positive non-GAAP adjusted net income for the first time since 2023, positive cashflow 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.

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 hand step before pressing the star key. One moment please while we poll for questions. Thank you. Our first question is from Jacob Steven 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 guys just posted $8 million of EBITDA. on 80 million of revenue, 81 million of revenue. You're guiding for 6 million on 82. wondering about the, you know, the step down, is that more OpEx related or, um, are you seen something in gross margin that, you know, might ultimately result in that.

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 B2B, the B2B, the B2B, the B2B, the B2B, the B2B, the B2B. each we've had on revenue, we're anticipating conditions to be higher. So that's factoring it off X. From a margin standpoint, as mentioned, we're just simply, We're 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.

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? Yes.

We didn't give the number, Jacob, but it's significantly higher. Okay. I guess, so just touching on supply.

I know you guys have continued to say that, you know, demand significantly outpaces, but I guess, you know, with IBM kind of easing. the projected easing in Q2 and Q3 here, 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 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.

Okay, got it. And maybe just one last one, you touched on some of the larger deals in the quarter with 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, you know, continue to be kind of on the enterprise side, maybe medium-sized business.

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 an active scale gains a stronger and stronger for the whole enterprise, these are typically very large deals as well. Yes. As the company's growing, I think you can expect most of those, yes.

got it i appreciate all the color guys nice quarter.

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.

Yes, 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 active scale customer adoption. And I probably would have some follow-up based on this here.

Yes, we've seen an increase of seven-digit deals in the enterprise with active skills, so it continues to grow. grows 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, yes. the product is really nicely ramping up right now.

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. You know, is active scale in terms of percent of bookings on say last quarter or last two-quarter basis and where do you think it can go um you know one year or two year 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, but... for that purpose, but active scale 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.

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

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

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.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Fiscal Fourth Quarter and Full Year 2026 Financial Results 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 Vice President, Corporate Affairs and Corporate Secretary, Tara Ilges. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Quantum's Fiscal Fourth Quarter and Full Fiscal Year 2026 financial results. With me on today's call are Hugues Meyrath, Quantum CEO; 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, margins, expenses, adjusted EBITDA, adjusted net income, cash flows or other financial, operational or performance metrics. These statements 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, please refer to the detailed descriptions we provide about these and additional risk factors under the Risk Factors 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's CEO, Hugues Meyrath.

Thank you, Tara, and good afternoon, everyone. Thank you all for joining us today. I'll start with an overview of our fourth quarter. I'm pleased to report that we delivered a strong close to fiscal 2026. Our fourth quarter revenue of $78 million was $10 million above our guidance midpoint, up 5% quarter-over-quarter and 27% year-over-year. Demand was solid across our storage solutions, driven by continued growth in data and increasing AI-related workloads. Our ability to grow faster was limited by supply chain and fulfillment timing particularly around - drives, which continues to be a factor for us in the near term. That said, we expect greater backlog conversion heading into the second half of this fiscal year.

What we're hearing from our customers is very consistent. They're dealing with much higher data volumes and looking for better ways to manage at scale. Rising primary storage costs and lengthy supply chain for flash and disk are affecting their ability to grow within budget. Our constraints are increasingly putting their growth at risk especially in AI, HPC and research verticals. That's where we're seeing increasing demand for our solutions. Our ongoing focus is to support our customers' need to manage the right data for the right workload at the right cost.

With our portfolio across scaler, DXi, ActiveScale and Stornext, we can support both high performance requirements and long-term lower-cost storage in a single integrated approach. This is a critical priority as customers look for practical ways to manage both growth and cost in their environments.

We're seeing very strong momentum in Object Storage with revenue from our ActiveScale solutions tripling year-over-year driven by new use cases around large-scale data management and AI workloads. Adoption of ActiveScale cold storage solution continues to ramp, and we expect ongoing strong demand due to our unique capabilities and performance.

We're also seeing more customers actively moving data out of primary storage and adopting tiered storage architectures, that's driving increased interest in tape and object storage, particularly in large-scale environments where cost and power really matter. As an example, we recently announced a partnership with Pink Elephant. Pink Elephant is a sovereign MSP in Europe, we're using our solutions to deliver cost-effective and energy-efficient data resilience services.

The true value of ActiveScale was evident following an incident involving a fire in one of their data centers, and may I say the fire was unrelated to our equipment. But because they have deployed ActiveScale across multiple data centers, while the affected data center was down, their service remains uninterrupted. It's an excellent example of how our technology performs in real-world conditions and why experience and resiliency matter. We've been tested and our unique capabilities are unmatched enabling business as usual for our customers.

We recently won a large deployment with the global sports network who will be using ActiveScale cold storage with our integrated tape libraries to host their full content archive. We also continue to see existing customers expand their ActiveScale environments towards hundreds of petabytes on the way to exabyte scale.

I would now like to talk about our sales performance. We ended the quarter with great pipeline momentum and with a record $45 million backlog, which is largely tied to supply availability, particularly around discount tape components. Tape library sales and funnel are incredibly strong. However, we're currently limited by IBM's ability to deliver more tape drives. We're actively managing the supply chain challenges with our partners and expect to see much better conversion of the backlog as we move through the second half of the fiscal year. We will continue to navigate the industry-wide supply constraints but expect continued volatility in the coming months.

Looking at the full year, fiscal 2026 was a year of clear progress for Quantum. This past year, most of our growth was in the enterprise storage market, delivering a healthier revenue mix for the company.

Since I assumed the CEO role in June, we focused on improving execution lowering our cost structure and strengthening the balance sheet. Those actions are reflected in our results. We've strengthened our balance sheet through a combination of fully paying off our term debt obligations, converting those into common stock and increasing our cash balance through a $100 million equity raise. We're particularly proud of the quality of the investors and this latest offering as it validates our strategy and market position. Simply said, Quantum is in the strongest financial position in decades.

With this major financial transformation plus our sales momentum and innovating innovative products we're developing, I'm feeling very positive for the future. As we move into fiscal 2027, we're in a much stronger position than we were a year ago. demand continues to grow, and we expect this momentum to persist over the next 24 months. We're seeing our pipeline grow as organizations continue to adjust their storage strategies in response to AI, cost and power constraints.

Our priorities remain the same: drive sustained revenue growth, recovery of margin towards 40%, improved operational efficiency and continue executing with focus and discipline across all functions of the business. Overall, Quantum is operating from a position of renewed strength. I'm very excited about the opportunity we have in front of us as the proliferation of AI-driven data rapidly reshaped the industry and drives demand for our tiered storage solutions.

With that, I'll turn it over to Will to go through the financials.

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 fourth quarter that ended on March 31, 2026.

Revenue in the quarter was $78 million, increase of $3.4 million or approximately 5% sequentially from $74.6 million in the prior quarter. This increase of 27.3% over $61.3 million in the prior year's fourth quarter. Revenue of $78 million exceeded our guidance midpoint of $68 million by approximately $10 million, driven by strong enterprise demand across all major product lines worldwide as well as improved shipping velocity near the end of the quarter.

As a result of the robust demand, our quarter-end backlog more than doubled sequentially to approximately $45 million. This is significantly above our historical backlog run rate of $8 million to $10 million. We anticipate near-term backlog to remain meaningfully above our recent run rate in high demand and component part availability.

GAAP gross margin for the fourth quarter was 35.7% compared to 38.8% in the prior quarter and 39.6% in the fiscal fourth quarter of 2025. The decline was driven by several factors. The most notable impact was from the unpredictable increase of numerous industry-wide component prices, which require fulfilling some previous backlog at less standalone margins. Gross margin was also impacted by a revenue decline and higher margin service revenue.

Despite component cost volatility headwinds, we remain committed to improving gross margins back toward 40% over time. To this end, we are planning systems and processes to improve component cost visibility and strengthen margin management, including actively requoting orders where appropriate to protect margins on future sales. We anticipate these new internal processes to support a gradual recovery in our gross margin in the coming quarters.

GAAP operating expenses for the fourth quarter were $30.4 million compared to $30.1 million in the prior quarter and $35.8 million in the year ago quarter. Operating expenses on a non-GAAP basis for the fourth quarter were $27.5 million, in line with our original guidance, compared to $26.9 million in the fiscal third quarter and $29.4 million in the fourth quarter of fiscal year 2025. Higher sales commissions drove a sequential increase in operating expenses as a result of increased revenue.

Excluding commissions, non-GAAP operating expenses were flat sequentially. The year-over-year decrease reflects the continued realized savings from a lower cost structure following our restructuring actions throughout the fiscal year. For the full fiscal year, non-GAAP operating expenses decreased by approximately $11.6 million or 10% from fiscal year 2025. This decrease in operating expenses coincided with higher revenue year-over-year, demonstrating our operational leverage. We remain committed to disciplined cost management and operational efficiencies going into the fiscal year 2027, and we currently expect to hold non-GAAP operating expenses flat year-over-year.

GAAP net loss in the fiscal fourth quarter was $9.5 million or a loss of $0.66 per share compared to a net loss of $27.8 million or a loss of $2.03 per share in the previous quarter and a net loss of $7.7 million or a loss of $1.26 per share in the prior year's fourth quarter.

The prior quarter GAAP net loss included $28.9 million of debt extinguishment costs. Non-GAAP loss for the fourth quarter was $3.1 million or a loss of $0.21 per share compared to a net loss of $4.9 million or a loss of $0.36 per share in the prior quarter and a loss of $12.1 million or a loss of $1.98 per share in the prior year's fourth quarter. Improvement in non-GAAP net loss for the fourth quarter reflected a combination of higher revenue and significant reduction in operating expenses. This includes approximately $2.9 million of interest expense in the quarter that will not continue beyond the fiscal quarter as a result of the recently announced debt elimination, which I'll discuss in more detail shortly.

Adjusted EBITDA for the fourth quarter was a positive $1 million, above the midpoint of our original guidance and compared to a positive $2.9 million in the fiscal third quarter of 2026 and the negative $3.9 million in the prior year quarter. Year-over-year improvement of approximately $4.9 million reflects the benefit of previous restructuring and ongoing cost discipline. Sequential step down reflects the higher commission and lower gross margin discussed earlier. We believe we will begin to see improvements in our quarterly EBITDA in fiscal year 2027 over our EBITDA this quarter.

Turning to an overview of debt and liquidity as of March 31. Cash, cash equivalents and restricted cash at the end of the fiscal fourth quarter were approximately $16.2 million. Total outstanding debt between term debt and our convertible notes was $55.9 million and $90 million, respectively. At the end of the quarter, the company's net debt position was approximately $130.4 million.

As Hugues previously highlighted, subsequent to quarter end, we announced a series of transactions that significantly strengthened our balance sheet and will support our future growth. First, the company completed a private placement led by TC's Capital and Oaktree Capital with participation from several other institutional investors, generating gross proceeds of $100 million. Additionally, Dialectic Technologies agreed to voluntarily convert their -- the entire outstanding principal amount of its senior secured convertible notes together with all associated accrued and unpaid interest into shares of our common stock. Third, a majority of the proceeds for the private placement was used to repay all previously outstanding term debt with the remaining net proceeds to be utilized for working capital and general corporate purposes.

The $94.7 million in net equity proceeds and subsequent full repayment of approximately $56 million of term debt and conversion of all outstanding convertible notes materially change the company's liquidity position. Post transaction, the company added approximately $36.9 million of cash, net of interest and fees to its balance sheet and has no outstanding debt. In addition to meaningfully derisking the company's overall financial position going forward, we now have significantly greater financial flexibility to support ongoing operations as well as to make investments in the future growth of the company.

Turning to the company's outlook for the fiscal first quarter of 2027. As conveyed in our remarks on today's call, we are seeing strong and sustained demand from customers, acknowledging our substantial backlog and continued strong bookings, our near-term revenue will be determined by the extent to which we can fulfill and ship orders in a supply-constrained market. Company's fiscal first quarter had historically averaged a 5% seasonal decline versus the fiscal fourth quarter over the past 5 years.

Due to the strong demand we have seen thus far in the fiscal first quarter, we expect sales to reflect better than typical seasonality and are guiding revenue to be approximately $75 million, plus or minus $2 million. At the midpoint, this represents approximately 17% growth year-over-year. We expect first quarter non-GAAP operating expenses to be approximately $27 million, plus or minus $1 million. As a result, non-GAAP adjusted net loss per share for the fiscal first quarter is anticipated to be negative $0.15, plus or minus $0.10 per share based on an estimated 24 million shares outstanding on a weighted basis. Adjusted EBITDA for the first quarter is expected to be $1.5 million, plus or minus $1 million.

With that, I'll now turn the call to the operator for the Q&A session.

[Operator Instructions] And our first question comes from Jacob Stephan with Lake Street Capital Markets.

Nice quarter and nice guidance. With the $45 million in backlog, you said a couple of times throughout the call, you expect to see backlog conversion improve throughout the year. I guess if you could kind of break down what your confidence level is in that? Is that coming from the actual supply side in IBM? Or is that coming from somewhere else?

Jacob, I think it's a little bit different between flash drives, disk drives and tape drives. IBM is continuing to ramp up production of tape drives throughout the year. Our understanding is still a little tight in this quarter in the June quarter. As you go into September and December quarter, we should see a lot more team drivers out there, which would allow us to convert a backlog into revenue on the tape driver side. With regards to disk drives, I think it's still going to be tight, but some of the vendors are actually right now procuring disk drives some of the chassis, for example, Super Micro. So -- and I think having some capital also allows us to -- with the financing to go place orders a little bit more aggressively in terms of procuring both servers and base drives and flash drives. So I think as we get to the summer and the second half of the year, we should be able to convert a backlog into more revenue.

Okay. Got it. And then just touching on kind of the gross margins. I know the comments this quarter was that you had to fulfill some orders at less favorable gross margins. But $45 million in backlog, I guess. Is that a concern moving forward? Or do you have a different kind of dynamic pricing strategy in place to mitigate that?

Yes. So I think the dynamics are changing but between the March quarter and June quarter in the sense that like in the March quarter, this is when everything went to hell where we saw huge increases in disk drives and flash drives and certain pricing on shipment, pricing on arrival to the dock. I think now the industry has adjusted slightly better in terms of telling us a bit out of time what the prices are back to that. It doesn't mean that the prices are lower and the customers can swallow it. But I think everybody understands the situation better now and as we're speaking right now versus 4, 5 months ago. So now we have to do a better job of trying to match up the cost of the supply chain to the orders. And obviously, there's still some tightness with the customers. If you look at government customers and government contracts and in the backlog, it's really hard for them to -- it's hard to regrow those deals without losing them. But I think in general, I think we can work on the gross margin and improving it through the rest of the year.

Got it. And maybe just to kind of touch on that again. So that -- what percentage -- I mean, I guess, any way that you can break it out, how susceptible or sensitive are your customers to change in price?

It really depends -- it depends a little bit on the customer and on the situation, right? Because the things -- the situation you got into were government customers or contract or research customers under contract like I saw last week that -- they get awarded a certain amount of money, and they're getting inspected for the gear. And if you just don't fulfill the gear on time, then they basically like have to basically cancel the contract, right? So these are extremely price-sensitive situation and there's a mix -- a small mix of those, right? Then your customers like when the price increased a lot and several times without the quarter, throughout the call, you had to record some of the deals 2, 3x. I think now it's slightly more stable than in the March quarter. So once there is more stability, you can control the margins a little bit better. It's when there are major hikes and you get kind of just disconnect between your COGS and the price quality of the customer. I hope that answers...

Got it. Very helpful. Yes, yes, absolutely. Maybe just one last one for me. Last quarter, you guys talked about tape sales doubling sequentially. This quarter, you mentioned active scale revenue tripled year-over-year. I'm wondering if you had any kind of update on the overall tape sales as it relates to last year versus -- even last quarter.

Yes, I would say like our strategy really is like in component tightness, we can move some of the data from primary storage to tape. ActiveScale is actually a combo flash and disk plus tape, so it's not 100% tape. But what it does is like it makes the tape experience much faster on ingestion catalog and retrieval. So basically, that solution is very appealing for everybody because you can actually get high performance that you would get on disk and then you can benefit from the cost and the power consumption of tape and that's been what's tripling year-over-year. And as we're looking forward, that combo of disk drives and paid drives seems to be the winning combo. And as we go back into some of the classic enterprise use cases as well, you can go figure out at about asset data of the customers on primary storage, as you say, not used before in the past years, you kind of like disk drives or buy more flash drives. I think people just realize they can't do it right now with today's budget. So that's why we're hitting the playbook. So -- it got helps.

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

Congrats on the good quarter, especially on the demand side. And with respect to the demand side, you're giving us this backlog number of $45 million. I presume this is largely all brought up. And our math suggested that product bookings was probably like in the $70 million to $75 million range, which I think would then be up basically 2x year-over-year. Could you confirm if that's approximately right?

Yes, Nehal, that is approximately right.

Okay. Great. And so I believe that this represents an even more bigger acceleration from the product demand and we're seeing in the December quarter of about, I think, 30% to 35% year-on-year. So this acceleration that you're seeing, would you attribute it mostly to component price increases? Or is there a material element associated with incremental unit demand?

We're still analyzing the average selling price. But for most of our products, that was primarily driven by demand. It was not driven by average selling price, at least for the fourth quarter.

Okay. So unit basically, more units, more well -- and these would be basically more units? Or is it more hard drive units?

[indiscernible]

There's a little bit of both. I mean what's changed year-over-year really is ActiveScale really take off the most, which is a combo of the tie and team-wise into And that's really been the case right now, it's accelerated for like 3 or 4 quarters.

Okay. Does ActiveScale have a much higher gross margin profile in the rest of your product portfolio?

It typically does, but mind you that like this drive in the March quarter, price increased 250%. Tape drives have started to increase in Q1 and continue to increase through Q2 with 2 more increases. So that when you start like essentially quoting customers, some of them are government customers that we've talked about in the past, it's creating an issue because there's delay between the moment you quote the customer, and you can fulfill both the and the LTO drives in it. So you recorded the best you can, but it's been it's been difficult, especially in the March quarter because there were several successive increases that came out of the left field, and these were essentially what we call like the pricing on shipment which is kind of crazy, right, because our shipment can be anywhere from 6 to 12 to 13 weeks after you quoted the customer. So that was the really dynamic in the March quarter that was particularly harmful for everybody in the market.

Okay. Could you give us a sense as far as how much of a shift in mix towards ActiveScale you're seeing, is it like from 10% to 20% on a Q2 basis in dollar terms?

Yes. I mean we don't disclose our product breakdown in dollar terms, but I can tell you article triple year-over-year. And we're continuing to see momentum as we're right now in the late June time frame. We're seeing a lot of demand for ActiveScale cold storage.

And then ActiveScale cold storage, you would directly link towards the AI and HPC environments that you talked about earlier in the call?

It's AI. It's HPC. It's in the media entertainment market, where they use it for repository of anything to do. I mean it's a genomics customer. It's a medical research. Everybody consumes a lot of data, and they need to have it available either for research or for access or for -- to rehydrate back into an M&E space. So it's across many verticals that are big data usage...

Okay. And then you talked about expectations of getting back to a 40% gross margin. But if this mix shift persists and with normalized supply chains at some point in time, then is that 40% gross margin correct? Or is it actually much higher?

Yes. I mean I think, look, when we started the journey about a year ago, I thought we could be in the -- our goal was to be in the 43%. But we still like assume -- we assume that like there's still going to be issues with regards to procuring flash and disk and tape for several quarters. I think it's less volatile than like the March quarter, but we do expect to see continuing price increase of cold storage for the foreseeable future, which is hard to recover margin, unless you're willing to do it at the cost of your relationship with customers and partner, right? So there's always a way in the short run to say, "Okay, well, I'm just going to go behave a certain way." And -- but I think you're creating potential issues. I want to see a very large customer in Europe last week that said, "Oh my God, your storage vendors are taking advantage of this to increase our margin and porting it publicly." And I mean that's the strategy of some vendors. I think we're trying to be in more channel-friendly and customer-friendly, but we have to find the right balance of also not letting the gross margin deteriorate rate. So a little bit of both takes several aspects into consideration.

Right. Okay. Well, let's just assume that you get back to 40% gross margin, what is the corresponding operating margin you can achieve assuming that you continue to see sustained growth and achieve the operating leverage you hope to achieve over time?

As we look at our gross margin going into the next year, we see a lot of benefits from holding the line on our fixed cost of goods. So that will be one benefit where we'll see increasing benefits of our revenue increases. We'll also see a natural benefit from the average selling prices, while they were not a large impact to Q4, we expect them to be increasingly an impact -- beneficial impact to our margins going into this next year.

I mean I guess effectively, what I'm trying to say is that can your OpEx get down to, say, 20% of revenue? Or is it more like 30% of revenue? Can you give us a sense as far as like on 100% revenue basis of where it can go with -- as you achieve scale?

Certainly, as we look to the next year, we're seeing our operating expenses to be held flat as obviously, the targets as we get into the back half of the year, on revenue. We have released those. We do see our operating expenses holding flat, and we're definitely holding line for the entire year. So I'd say that as the revenue increases, as we're anticipating, we'll see a corresponding decline in OpEx as a percentage of our revenue.

And ladies and gentlemen, there are no further questions at this time. So with that, we will go ahead and conclude today's call. Thank you for participating and all parties may disconnect. Have a good evening. Thank you.

Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Third Quarter Fiscal 2026 Financial Results 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 Vice President, Corporate Affairs and Corporate Secretary, Tara Ilges. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Quantum's Third Quarter fiscal 2026 financial results. With me on today's call are Hugues Meyrath, Quantum's CEO; and William White, our Chief Financial Officer. Following management's prepared remarks, we will open the call 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, 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 that 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 descriptions we provide about these and additional risk factors under the Risk Factors section in our 10-K and 10-Qs filed with the Securities and Exchange Commission. The company does not intend to update or alter 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's 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's CEO, Hugues Meyrath.

Thank you, Tara, and good afternoon, everyone. Thank you for joining us for our third quarter earnings call. As announced earlier this afternoon, revenue EBITDA exceeded the high end of our forecasted range. These results reflect our efforts to maintain disciplined execution of our strategy. Over the past two quarters, we've put a deliberate structure and focus in place to execute our operating plan. As a result, we've seen meaningful improvement in revenue, pipeline and backlog. We also continue to strengthen our financial foundation. Through restructuring initiatives, we've lowered our cost structure in support of our near-time goal of achieving positive cash flow.

During the third quarter, shareholders approved a proposal to exchange the term debt held by Dialectic for convertible notes, reducing our outstanding term debt by approximately 50% to historically low levels. We continue to evaluate options for remaining term debt as we work towards further strengthening our balance sheet. To better frame up our results, let me first address the broader market environment and the conditions impacting infrastructure decisions across the industry. As AI use cases continue to accelerate, customers are feeling the real impact from cost, power, cooling and the volume of data that must be retained for the long term. At the same time, AI-driven demand is increasing pressure on global supply chains. Critical components, particularly memory, disk, and flash are becoming increasingly difficult to procure and prices are rising as a result.

In just the last 10 days, we've seen pricing double and in some case triple. This is not unique to Quantum. It's affecting the entire industry. In addition to pricing volatility, lead times are extending into weeks and sometimes even months. Similar to the early COVID period, the timing and path to stabilization remain unpredictable. Against this backdrop, it's important to highlight that we delivered a strong Q3, and we believe we're off to a strong start to Q4. We are executing on our sales plan and have now delivered 2 consecutive quarters of healthy backlog. Early in Q4, we secured multiple million dollar purchase orders from enterprise and hyperscale customers, reinforcing the strength of demand for our solutions. That said, given the pricing dynamics and component availability, we're erring on the side of caution with our Q4 forecast.

The uncertainty is not about the demand or our expectations for execution on our plan. It's about when we can fulfill and ship orders as supply chains continue to fluctuate. This is a prudent approach in an environment that is changing in real time. These conditions also reinforce where Quantum is uniquely advantaged. Tape is in Quantum's DNA. We are early inventors and long-standing innovators in tape with decades of engineering leadership and deep intellectual property. Quantum's Scalar tape libraries are designed to be modern, high-performance systems that deliver near-line accessibility for AI workloads. It also offers the lowest cost and lowest power consumption of any storage medium available. As flash and disk become more expensive and harder to secure, we believe tape provides customers with a practical way to offload massive volumes of data to a core tier, freeing up primary storage while meaningfully reducing power, cooling and operating costs.

This is especially critical as customers retain more data than ever for AI compliance and long-term reuse. We are already seeing this shift clearly in our results. Our tape sales doubled quarter-over-quarter as customers pivoted toward architectures designed to reduce dependence on constrained components and deliver predictable economics at scale for warm and cold data. As a recent example, in Q3, we secured a 7-figure deal with a large multinational production studio, driven by cost, power efficiency, durability, and security of Quantum's cold storage architecture. The customer selected ActiveScale cold storage integrated with our Scalar tape libraries. This customer was able to repatriate content from the cloud to an on premise archive with predictable long-term economics while maintaining nearline access to archive data for AI-driven repurposing and reuse.

The initial deployment is 100 petabytes with plans to scale to 400 petabytes over time. As the cost of flash and disk continues to rise and availability becomes more constrained, customers are increasingly looking for reliable, low-risk ways to move data off expensive primary storage without disruption. This is where Quantum StorNext creates a unique opportunity for us. StorNext is a leading data movement platform with thousands of customers worldwide. And like traditional data movers, StorNext can seamlessly and reliably migrate data from virtually any storage platform across vendors and architectures directly to tape. This allows customers to offload data from high-cost primary storage to tape with confidence and reclaim valuable capacity. It also allows customers to avoid continuously provisional additional primary storage amid rising prices and component shortages. Together, StorNext and Scalar tape enable customers to reduce their dependence on constrained components, lower costs and extend the life of their existing primary storage infrastructure.

Given StorNext's proven reliability and broad installed base, we see this as a meaningful opportunity for incremental growth as customers reassess their storage strategies in today's market environment. We also continue to execute our broader go-to-market initiatives. We strategically realigned our North America sales model to mirror the successful approach used in EMEA, where we have seen strong results improving focus, coverage and execution. The alignment is driving tighter account prioritization, stronger coordination across sales, marketing and our channel partners and greater consistency in how we pursue and close opportunities. At the same time, our lead generation initiatives are gaining traction, delivering higher quality opportunities into the field and supporting pipeline growth. These efforts are resulting in larger, more strategic multiproduct opportunities as customers increasingly look for trusted partners to help them navigate cost pressure, supply constraints and also long-term data growth.

We're seeing channel partners lean in more actively, particularly around tape and StorNext as customers reassess their storage infrastructures. Before turning the call over to review our financial results in greater detail, I'd like to take this time to welcome our newly appointed CFO, Will White, who's joining us on today's conference call. Will brings an exceptional combination of financial discipline, operational leadership, and strategic vision to help drive Quantum's execution in this next stage of our growth. I look forward to working more closely with Will for his contributions to our future financial strategy and operations. With that, I will now turn the call over to Will.

Thank you, Hugues. Good afternoon to those joining us on the phone and webcast. I will provide an overview of the company's GAAP and non-GAAP financial results for our third fiscal quarter 2026 ended December 31, 2025. Revenue in the quarter was $74.6 million, an increase over the $62.7 million in the prior quarter and $68.7 million in the prior year third quarter. The higher-than-expected revenue was partially driven by strong backlog coming into the quarter as well as a strong shipment into the quarter end. The positive variance to the preliminary result was due to a conservative assumption related to deferred revenue contracts. We exited the third quarter with a strong backlog of over $20 million, which is significantly above our historical run rate of $8 million to $10 million. We expect backlog to remain meaningfully above our historical run rate in the fiscal fourth quarter, reflecting the continued success of our revitalized sales organization.

GAAP gross margin for the third quarter was 38.8% compared to 37.6% in the prior quarter and 40.6% in the fiscal third quarter of 2025. Although we still have more work to do in order to expand gross margins back above 40%, the sequential increase in the third quarter reflects the initial improvement in operating efficiencies from our restructured service organization. As Hugues mentioned, we are also seeing volatility in pricing and component availability throughout the industry, which may be a headwind to our 40% margin target in near term. GAAP operating expenses for the third quarter were $30.1 million compared to $31.7 million in the prior quarter and $35.6 million in the year ago quarter. The increase in GAAP operating expense from our preliminary results announcement is due to additional provision for the outstanding receivable balance with Quantum Storage Asia, also known as QSA, following the termination of their distribution rights in fiscal Q2.

We believe that this is prudent for our GAAP results. However, we are now seeking alternative measures to recover these balances to protect our customers' ability to make valid service and warranty claims. As mentioned in last quarter, QSA is not affiliated with Quantum and is not authorized to use our name or sell our products or support. Operating expenses on a non-GAAP basis for the third quarter were $26.9 million compared to $24.8 million in fiscal second quarter of 2026 and $30.1 million in the year ago quarter. The sequential increase preliminarily reflects higher variable sales and marketing expenses related to higher commissions. The year-over-year decrease reflects the realized savings from a lower cost structure following our more recent restructuring actions in the current fiscal year. GAAP net loss in the fiscal third quarter was $27.8 million or a loss of $2.03 per share compared to a net loss of $46.5 million or a loss of $3.49 per share in the previous quarter and a net loss of $75.3 million or a loss of $15.35 per share in the year ago third quarter.

The current GAAP net loss includes $28.9 million in debt extinguishment costs related to the most recent amendment to our term loan in which we converted term debt for a senior secured convertible note. The convertible note was issued in exchange for $54.7 million of term debt and was recorded at a fair value of approximately $76 million. Each quarter, we will record an adjustment to the fair value for both the convertible note and the forbearance warrants, which will be largely driven by our stock price. This requirement will introduce some volatility into our GAAP earnings on a go-forward basis.

Non-GAAP loss for the third quarter was $4.9 million or a loss of $0.36 per share compared to a net loss of $7.1 million or a loss of $0.54 per share in the prior quarter and a net loss of $7.8 million or a loss of $1.59 per share in the same quarter a year ago. The improvement in non-GAAP net loss for the quarter reflects a combination of the revenue increase in the quarter, combined with a significant reduction in operating expenses while we continue to bear approximately $5.9 million of interest expense.

As we execute on our plan to further strengthen our balance sheet, we expect to benefit from reduced interest burden. Adjusted EBITDA for the third quarter improved sequentially and year-over-year to a positive $2.9 million from a positive $0.5 million in the fiscal second quarter of 2026 and $0.8 million in the prior year quarter. The significant improvement in adjusted EBITDA was primarily driven by the execution of our restructuring initiatives that significantly lowered our cost structure over the prior quarter. Turning to an overview of debt and liquidity at quarter end, cash, cash equivalents and restricted cash at the end of the fiscal third quarter were approximately $13.8 million.

Total outstanding debt split between term debt and our convertible notes was $54.6 million and $75.9 million, respectively. At the end of the quarter, the company's net debt position was approximately $116.7 million. The significant decrease in our term debt reflected the successful completion of our strategic debt exchange in which we issued senior secured convertible notes to Dialectic in a dollar-for-dollar exchange for approximately $54.7 million of term debt previously held by Dialectic.

Turning to the company's outlook for the fiscal fourth quarter of 2026. As Hugues discussed, we are erring on the side of caution with our Q4 forecast due to increasing difficulty in procuring critical components across the entire industry. It is not a question of demand or our ability to execute on our plan. It is about when we can fulfill and ship orders in a challenging supply chain environment. In light of the industry-wide supply chain challenges, revenue for the first quarter is expected to be approximately $68 million, plus or minus $2 million. We expect third quarter non-GAAP operating expenses to be approximately $27 million, plus or minus $2 million.

As a result, non-GAAP adjusted net loss per share for the fiscal fourth quarter is anticipated to be negative $0.33, plus or minus $0.10 per share based on an estimated 15 million shares outstanding. Adjusted EBITDA for the fiscal fourth quarter is expected to be breakeven, plus or minus $2 million. With that, I now hand the call back to Hugues.

In closing, I'm pleased with the continued progress the team is making in our sales and operating initiatives as evidenced by our third quarter results. Our revitalized sales team is executing and delivering meaningful improvements to our pipeline and backlog with a growing number of multimillion-dollar deals. We've also significantly lowered our cost structure while further strengthening our balance sheet. We're cautiously navigating the industry-wide pricing dynamics and component shortages. And I believe Quantum is uniquely positioned with our portfolio of Scalar tape libraries, ActiveScale cold storage and StorNext platforms to reduce customers' dependence on constrained components and deliver predictable economics at scale for hot, warm, and cold data. With that, I'll now turn the call to the operator for the Q&A session.

[Operator Instructions] Our first question comes from the line of Eric Martinuzzi with Lake Street Capital Markets.

Congrats on the good results for Q3 and on the healthy guide for Q4. I wanted to dive into the different product segments here just based on the 10-Q filing. It looks like there was good strength in secondary, but the primary systems were -- I hate to judge by one particular quarter, so I'll go with the 9-month contraction here. It looks like it was down about 23% in the 9 months versus 9 months a year ago. What's behind that? Typically, that would be a StorNext, it would be flash related. What can you tell us about the primary storage systems?

I would say we started the year probably very, very slow. And -- but going into fiscal Q3, we saw strength across all the product lines. So we feel confident right now that we're on a strong path for primary storage.

Okay. And then as far as the backlog goes, you talked about, hey, it's elevated, it's $20 million when it typically runs $8 million to $10 million. The expectation that, that's going to stay high, is that driven more from the demand side? Or is that driven more from the lack of component availability side?

The demand continues to be very strong. In fact, we had a very healthy January as well. So we expect the backlog to be healthy going into our fiscal Q4, but it's -- both demand is very strong. We do have some shortages in components, but like it's -- the backlog is growing faster right now than anticipated for sure.

Okay. And then the services business, we've been in contraction mode here for a while. It was down a little bit less in Q3 than it was for the 9-month period. Are we getting to a point where that could potentially flatten out here, and we're no longer seeing that contraction in services?

I would think so. I think we still struggle a little bit from an execution perspective in terms of getting the most of our services from customers. We tend to discount services too much on a blended basis, which is why we have kind of this SSP mechanism in place that we allocate. So I would think right now, it's more of our ability to execute a little bit better on services and not discount so much. That's more of an issue than the contraction. I think we got to do a better job there for sure.

Okay. And then last question for me. You talked about gross margins being somewhat impacted by the price of the components that you need to acquire, but you still are looking at a 40% target. We've seen good progress throughout the year with the non-GAAP gross margins rising in Q3 versus Q2 and Q2 versus Q1. What should we expect for Q4 based on the product mix and the services mix that you're thinking about for Q4? Do we go up sequentially? Do we retrace based on mix?

I think this quarter is actually quite hard because the supply chain issues are hitting everybody in the industry like everybody, and it's pretty bad across the board from server delivery to memory to any storage that you're trying to acquire. The prices are going up. So when prices go up, by the time you turn it over to a quote and you try to build the product and ship the product, it's been very hectic environment. And there are a lot of examples in the industry that prove that that's an issue industry-wide. So it's really hard to guide to margin right now.

Okay. So a conservative view would be to say equivalent would be a good achievement equivalent to Q3.

It would be -- yes, it would be a very good achievement if we could stay there and rising prices. And I mean, we're hearing examples of people literally like prices changing on the docks of some of our partners in the supply chain business until things are inventory flux. So it's quite a challenging environment right now from a pricing perspective and lead times are definitely stretching as well.

Our next question comes from the line of Nehal Chokshi with Northland Capital Markets.

Congrats on a good sustained demand here with the -- as evidenced by the elevated backlog. You made a comment, Hugues, that tape sales doubled Q-over-Q. Could you give some color here in terms of where that demand is coming from with respect to hyperscalers versus non-hyperscalers?

[indiscernible] is very strong across the board right now. But what we're seeing mostly from a growth perspective is people are just running out of storage. And with ActiveScale cold storage, they found a way for -- to keep storage on-prem for longer. So some of it, we see people that are migrating back from the cloud because they want to use data and ActiveScale cold storage allows them to use and reuse the data. We've seen some wins in the Fed space last quarter. So I mean, it's pretty much across the board. Hyperscalers also have capacity upgrades planned. Some of them are not realized yet. They're more coming as well. So I think in general, I'm very optimistic on tape because people are running out of storage, and I think that's creating a new wave of demand in additional to what we have today.

So it's not just object store, but I think people are going to need to offload some of their primary storage data somewhere because clearly, the demand is way for storage, is way ahead of the supply right now.

Okay. And then you also mentioned that you have a growing number of multimillion dollar deals. Is that with respect to pipeline or in backlog?

It's -- we have a bunch of them in backlog, yes.

Okay. And can you give us a sense of the composition there, again, with respect to hyperscalers versus non-hyperscalers?

It is the multimillion dollar deal, like we're talking mainly -- I mean, we expect hyperscalers to be multimillion dollar deals than they are. So in general, what we're talking about there is our typical customers right now are adding more to their orders. So you can have a combination of StorNext and ActiveScale and cold storage and an order where we feel so people really building larger and larger like environments, especially with regards around like an i7, for example. So you can actually have good like AI content like around that solution with ActiveScale.

Okay. And you already talked about backlog levels. You said at the end of December quarter, it was already at [ $20 million ]. It's growing faster than anticipated. over the last 6 weeks, which then implies that it has gone up as the quarter has progressed. It sounds like it's a function of demand as well supply. But I guess we're trying to frame up though that demand is -- your core demand from the enterprises is up year-over-year and then also the hyperscalers are helping there as well. Is that a correct read-through on the description that you're giving here on backlog and the trajectory there?

Yes. It's -- January has been -- it's been strong Q3, but it's fiscal Q3, but January has been strong as well, and we don't fulfill as many orders in January. So the backlog keeps growing, but we'll probably exit next quarter with a much greater backlog as well as the number we guided to. So we're seeing strength across both enterprise and hyperscalers for sure.

At this point in time, do you see supply -- it sounds like you see supply actually worsening. So if demand continues to sustain at this current level, you would anticipate then that backlog would continue to grow from whatever level that it is right now?

At our guidance level, the backlog will grow, yes.

Okay. Last question for me is that -- you've been in the seat now for about 9 months, right? And I know that you've gone through a lot of restructuring, reorganization. But you have a really deep storage industry experience. And as a result, do you have some perspective as far as like what sort of long-term margin structure you can achieve?

Yes. I mean -- look, I mean, going back into the 40% long-term margin with the products we have right now on -- in our go-to-market we have right now is obviously possible. I mean I'm more concerned right now with the way the supply chain is working these days, it's -- you can go listen to anybody else. It's not clear how there will be relief from a supply perspective in the near term, right? So it feels like a COVID era right now. It's hard to get lead times. It's hard to get commit from suppliers. It's hard to get pricing from the suppliers, right? So right now, we're just trying to manage the business that's ahead of us and what we can get our hands on what the prices are and make sure we treat our customers and partners with the utmost respect, right?

Now from a long-term perspective, I don't know when that is, but the supply chain needs to normalize. We'll get back into the 40s. I think we've done the restructuring needed to be in the 40% margin business and continue to improve it. But right now, it's kind of a little bit across the industry and charted territory from a pricing and lead time perspective. So -- but I think the restructuring is definitely paying dividends for sure.

There are no further questions at this time. And with that, this concludes today's webinar. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded for replay purposes. It is now my pleasure to introduce your host, Quantum's Vice President, Corporate Affairs and Corporate Secretary, Tara Ilges. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Quantum's Second Quarter Fiscal 2026 Financial Results. With me on today's call are Hugues Meyrath, Quantum's CEO; and Laura Nash, Chief Accounting Officer. Following management's prepared remarks, we will open the call 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, 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 that 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 descriptions we provide about these and additional risk factors under the Risk Factors section in our 10-K and 10-Qs filed with the Securities and Exchange Commission.

The company does not intend to update or alter 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 statement 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's CEO, Hugues Meyrath.

Thank you, Tara, and good afternoon, everyone. Thank you for joining us for our second quarter earnings conference call. As announced earlier this afternoon, we made solid progress during the quarter with revenue at the high end of our guidance range. Non-GAAP operating expenses, $5 million lower from the prior quarter and positive adjusted EBITDA. These results demonstrate the initial benefits of the restructuring we implemented in June. Although there is still more work to be done, I believe this puts the company on the right track and sets the stage for continued progress in the quarters ahead.

Also notable during the quarter, we reached a key milestone toward our goal of becoming debt-free by entering into a definitive agreement with Dialectic to convert approximately $52 million in term debt to senior secured convertible notes subject to shareholder approval. At the same time, we also eliminated the existing leverage and minimum liquidity requirements and agreed that $15 million of proceeds from our standby equity purchase agreement can be used for additional working capital if required.

This important milestone in our financial transformation provides increased financial flexibility to execute on our operating initiatives and revitalized go-to-market strategy. To underscore this point, I can confidently say that this is the best financial position that Quantum has been in for some time. Assuming we receive shareholder approval for the prior reference debt exchange, the company will have eliminated $140 million in total debt from the balance sheet since the peak debt in 2020.

As I discussed last quarter, since taking on the CEO role, I focused on building a leadership team and Board of Directors that combine deep market expertise with operational excellence. Most recently, we added Geoff Barrall as Chief Product Officer, who is highly respected technology innovator and leader with decades-long track record across the enterprise storage industry. He founded BlueArc, served as CTO of Hitachi Vantara and most recently was CPO at Index Engines, where he led product and engineering strategies that shaped several category defining storage and data management platforms.

At Quantum, Geoff is conducting a comprehensive review of our product portfolio and pipeline, identifying along with sales where we can deliver the greatest value, sharpen road map priorities and align engineering investments directly with customer needs and market opportunities. His leadership is ensuring that our innovation engine is tightly focused on the solutions and use cases where Quantum can lead and win. This alignment across product, sales and customer success is already fostering a faster, more data-driven decision cycle, one that's anchored in real-world customer feedback and measurable return on investment. As part of our revitalized go-to-market strategy, our CRO, and I met with more than 60 customers and partners this quarter. What this confirmed is that Quantum has a very loyal customer and partner installed base as well as a very solid sales team. Our customers believe in the value we provide and they want us to succeed.

Regionally, we're seeing strong execution across the globe. EMEA continues to execute and perform well. APAC revenue more than doubled quarter-over-quarter following our shift to a new distribution model. As a reminder, we nominated new exclusive distributors after ending a relationship with Quantum Storage Asia, also known as QSA.

QSA is an unrelated and unaffiliated entity and is not authorized to use our name, sell our products or sell our support. Under Gregg Pugmire's leadership, the Americas business rebounded and outperformed other regions, reflecting the tighter structure and coordination between inside and field sales teams.

I would also like to point out that we closed the quarter with one of the largest backlogs in recent history, over $25 million compared to our historical target range of $8 million to $10 million underscoring strong sales traction and customer confidence. Ultimately, our focus remains on the customer experience, aligning more deeply with trusted long-term partners to deliver transformative data solutions at scale across industries and borders.

One of the most meaningful proof points this quarter was winning the Library of Congress 100-year Archive project. After a rigorous 2-year evaluation, they moved away from a competing platform and selected Quantum's ActiveScale Cold Storage and Scalar i7 RAPTOR to preserve the nation's most valuable digital archive for generation to come. This wasn't just a competitive win. It was validation of the architecture we've been building.

ActiveScale is unlike anything else on the market. It's an end-to-end object storage platform with intelligent tiering across flash disk and tape, so customers can get the right performance at the right cost as data ages from hot to hold.

Our patented 2-dimensional erasure coding delivers a high level of durability, efficiency, and cyber resilience that traditional object stores can't match, which is exactly why an organization like the Library of Congress chose Quantum. Scalar i7 RAPTOR is the backbone of the solution. It's the industry's densest tape system, delivering up to 200% more capacity per rack, outstanding power efficiency and an automated cyber resilient architecture. It's built for true hyperscale archiving and customers see that. It recently achieved Veeam Ready status and won Best of Show at IBC, Europe's largest media and entertainment conference reaffirming our leadership in secure high-density storage for markets like government, research and media. And we're building on that leadership.

Last week, we introduced new capabilities in ActiveScale that fundamentally changed what cold data can do. With industry first ranged, restore and more than 5x faster access to small objects, customers can now pull back only the data they need instead of rehydrating entire files. That means long-term archive and AI data lakes can behave like active query ready data sets. Cold data becomes live data, instantly usable for AI training, inference, analytics, compliance, you name it. No other vendor can do that.

On the innovation front, I also want to highlight our strategic partnership with Entanglement. They chose Quantum as the storage fabric for their next-generation AI and HPC data centers. The future of AI isn't just about faster compute. It's about secure, scalable, high durability data infrastructure that can feed those compute engines continuously and efficiently. Our solutions give them exactly that: tiered sovereign cyber resilience storage with the scale and performance AI requires.

Together, we're enabling a new class of regionalized AI infrastructure, one that brings compute to the data, protects the data with post-quantum encryption and supports massive AI and HPC workloads at scale. This partnership underscores something we're seeing across the market. The next era of AI depends on the intelligent data platform and Quantum is becoming the platform of choice.

With that, let me turn the call over to Laura Nash, our Chief Accounting Officer, to review our second fiscal quarter results in more detail and our third fiscal quarter outlook. Laura, please go ahead.

Thank you, Hugues. Good afternoon to those joining us on the phone and webcast. I will provide an overview of the company's GAAP and non-GAAP financial results for our second fiscal quarter 2026 ended September 30, 2025. Before I begin, I would like to emphasize that all comparisons to financial figures in prior periods reflect the company's previous restatement of financial results as well as certain revisions to immaterial misstatement of published quarterly financial results for the fiscal year 2025.

Revenue in the quarter was $62.7 million compared to $64.3 million in the first fiscal quarter of 2026 and $71.8 million in the prior year second quarter. We saw a notable increase in backlog to over $25 million at the end of the second quarter which is significantly above our historical target run rate of $8 billion to $10 billion and has given us a strong start to fiscal third quarter.

GAAP gross margin for the second quarter was 37.6%, compared to 35.3% in the prior quarter and 42.7% in the fiscal second quarter of 2025. Although we still have more work to do in order to expand our gross margins back above 40%, the sequential improvement in the second quarter reflects the initial operating efficiencies from our restructured service organization.

GAAP operating expenses for the second quarter were $31.7 million, compared to $35.3 million in the prior quarter and $36.2 million in the year ago quarter. Operating expenses on a non-GAAP basis for the second quarter were $24.8 million compared to $30 million in the fiscal first quarter of 2026 and $30.4 million in the year ago quarter.

The $5.2 million sequential reduction in operating expenses and $5.6 million reduction from the year ago quarter primarily reflects the realized savings from a lowered cost structure following on those recent restructuring actions in the current fiscal year. GAAP net loss for the fiscal second quarter was $46.5 million or a loss of $3.49 per share compared to a net loss of $17.2 million or a loss of $1.87 per share in the previous quarter and a net loss of $12.2 million or a loss of $2.54 per share in the year ago second quarter. The primary driver for the increase in our net loss was due to the most recent debt amendment to our term line.

As Hugues previously mentioned, this amendment provides us with covenant relief and access to proceeds from the standby equity purchase agreement for working capital. It was treated as a partial debt extinguishment for accounting purposes and resulted in a sizable noncash loss, largely due to the issuance of the forbearance warrants. The warrants were recorded at a fair value of approximately $25 million and our liability classified which will introduce some volatility into our GAAP earnings on a go-forward basis as the warrant valuation is adjusted for our stock price at each reported period.

Non-GAAP loss for the second quarter was $7.1 million or a loss of $0.54 per share compared to a net loss of $14.5 million or a loss of $1.58 per share in the prior quarter and a net loss of $7.4 million or a loss of $1.54 per share in the same quarter a year ago. The improvement in non-GAAP net loss for the quarter reflects a combination of the improvement in gross margin and a significant reduction in operating expenses, while we continue to bear approximately $6 million of interest expense per quarter, as we execute on our plans to become debt free, we will expect to benefit from the reduced interest burden.

Adjusted EBITDA for the second quarter improved sequentially to a positive $0.5 million from a negative $6.5 million in the first fiscal quarter of 2026, and compared to a positive $1.1 million in the prior year quarter. The achievement of positive adjusted EBITDA above our expectation of approximately breakeven for the fiscal second quarter was primarily driven by the execution of our restructuring initiatives that significantly lowered our cost structure over the prior quarter.

Turning to the overview of debt and liquidity at quarter end. Cash, cash equivalents and restricted cash at the end of the fiscal second quarter were approximately $15.3 million. Total outstanding term debt at quarter end was $106.1 million and company's net debt position was approximately $90.8 million.

As Hugues previously mentioned, in late September, the company announced a definitive agreement to restructure approximately $52 million of outstanding term debt held by Dialectic for senior secured convertible notes, which is subject to shareholder approval. Upon closing, the proposed debt exchange transaction will meaningfully reduce the company's future outstanding debt and interest expense while also increasing our overall liquidity and financial flexibility.

Turning to the company's outlook for the fiscal third quarter of 2026. Revenue for the third quarter is expected to be approximately $67 million, plus or minus $2 million. We expect the third quarter non-GAAP operating expenses to be approximately $25 million, plus or minus $2 million, reflecting the continued realized benefit from our most recent cost reduction actions. As a result, non-GAAP adjusted net loss per share for the fiscal third quarter is anticipated to be a negative $0.51 plus or minus $0.10 per share based on an estimated 14 million shares outstanding. Adjusted EBITDA for the fiscal third quarter is expected to be positive $1 million, plus or minus $1 million.

With that, I'll now hand the call back to Hugues.

Thank you, Laura. In closing, the second fiscal quarter marked a pivotal step forward for Quantum with initial evidence of progress from the restructuring actions we've taken, combined with tangible proof points resulting from our refreshed leadership and reinvigorated sales team. We've fortified our financial foundation by significantly reducing operating expenses, added liquidity by raising additional capital and proposed a transformative debt exchange to decrease our outstanding debt by 50%. With renewed customer loyalty, a reenergized team and sharpened go-to-market strategy, Quantum is poised for growing momentum and value creation in the quarters ahead.

With that, I'll now turn the call to the operator for the Q&A session.

[Operator Instructions] We take the first question from the line of Elle Niebuhr from Lake Street Capital Markets.

This is Elle on for Eric Martinuzzi. I was just wondering if you could give a little more color on your pipeline build. So given the new senior sales additions, what is the current health of the North American pipeline? And then are there any new lead development processes implemented recently?

Yes, I can touch base on that. The pipeline is actually pretty good. As we mentioned, we have record backlog in the $25 million range. It's really a bit all over the place, all over the product line from tape, tape media anywhere DXi has a pretty solid pipeline as well. And StorNext, like it's pretty much across the board. So no specific issues in the pipeline right now. I think the changes in the sales force have been really impactful. The team is very energized. And frankly, we see our 3 geographical teams competing with each other, which is great. So it's a positive dynamic.

With regard to lead generation, we actually are changing the lead generation program and trying to focus on qualifying leads down to opportunities and pass some of those to our channel partners. So it's part of -- part of our way to reinvigorate the channels is not the focus just on leads, but just try to qualify them as far as we can to the finish line before we hand it over to our partners. So I'm really pleased with the progress so far.

Awesome. Good to hear. And then one more for me. Just going off of product R&D, what are your development priorities for DXi backup appliances, the Scalar tape libraries and the StorNext file management software?

Yes, I mean, good question. And we have a lot of products in the portfolio. I think from a tape library perspective with i7 launching, we feel like our focus right now is scaling manufacturing, and it's really in the finished touches of the product, right? So it's about trying to build and sell as many of those as possible this kind of the phase we're in. And this could be a really big product for us.

ActiveScale Cold Storage and ActiveScale in general has its own dedicated team. There was a press release yesterday with the Ranged Restore, and we talked about it during the call. So they're on the path of continuing to improve and specifically, for us the winning combos, having object store focused on cold storage and whatever we can do that's differentiated because it's the combo of ActiveScale and tape libraries together make a killer combo right now in the market.

But they're -- they have their own team, so we don't really have to prioritize that versus something else. StorNext, we have a new Chief Product Officer, Geoff Barrall, StorNext is super important to us. So we're in the midst of [ reinvigorating ] the road map on StorNext. And as we talked in the prior calls, it's a very important product for us. We have a huge installed base. We're getting a lot of feedback daily from our customers as to what they need. So we're realigning resources to focus on that and make sure we put more energy into our core StorNext customers.

With regards to DXi, I think it's a product, again, like in good shape with its own separate development team. So our focus right now on DXi really is about lead generation conversion to opportunities and really scaling sales onto the DXi side of things?

We take the next question from the line of Nehal Chokshi from Northland Capital Markets.

That backlog number is jaw-dropping, congratulations. That's amazing. So let's talk about that backlog. Let's frame this up in terms of bookings. Well, first, before we do that, that backlog is just product? Or is that kind of plus book services as well?

It's Laura here. Thank you for your questions. So the backlog is product.

Product only. And therefore, product bookings would have to be up -- sorry, just give me a second. So product bookings were up 28% year-over-year, at least. Is that correct?

So I think -- and Hugues can add in here. I think what we're seeing is the sales team was really executed well towards the end of the quarter. And where we're seeing kind of a significant effort to drive the revenue linearity. And I know we've discussed previously to make sure that we could start to get kind of a more linear revenue and invoicing pattern. So Hugues, I don't know if you have anything further to add there?

Yes. I don't have on top of my mind what the number was a year ago. But from a mix, there was a very strong mix across the product as well. We definitely have a little bit of manufacturing limitations in terms of our ability to shift the low end tape libraries. So there's a bit of that. You have some hyperscaler demand in there. And with the new sales team in place, a lot of people have been closing a lot of deals, late in the quarter, and we do not have the ability to ship them this quarter. So that backlog is going to be useful as we enter the next quarter, the current quarter.

Got it. And is there a significant customer concentration in the backlog?

Sorry, I didn't hear the question. Do you mind repeating?

Of that $25 million product backlog, is there a significant customer concentration, especially given that there's some hyperscalers there? I mean is there like [ 15%, 20% ] of that backlog to some customer, or anything like that?

No, it's not specifically to one hyperscaler, it's not, it's fairly blended across products. There is a little bit from one of a hyperscaler but not in a meaningful way that this would skew this off.

Did that Library of Congress one go into backlog? Or is that -- was that recognized into revenue within the quarter?

It's in backlog.

It's in backlog. Okay. Would that be potentially the largest element within your backlog then?

I mean Library of Congress is a -- go ahead, Laura, yes.

I was going to say, yes. So there is a mix of customers, geographies and product types within that. Library of Congress is one component, but not necessarily the largest component.

Okay. All right. So the bottom line is here is that you are seeing significant product momentum. And it sounds like you're attributing this to the changes in the organization that you brought to the table. Is that correct?

I think it's certainly a component that sales has been executing extremely well. For sure. I mean, between the beginning of the quarter and the last day of the quarter, we've seen a change in sales momentum in sales culture, where we did accelerated bookings throughout the quarter and they continue to close deals like the first month of this quarter as well.

So I think it's a good sign from a recovery perspective. Past that, like I think it's an endurance race, right? We have to deliver quarter after quarter. And I think they do have that mindset. So -- but it's definitely -- definitely feel a good moment for the sales team.

Okay. And don't you guys have a significant federal vertical exposure?

We do have some federal business as well. I would say it's probably understaffed in an area where we need to put more heads into, to go back and grow the business.

Okay. But the government shutdown did not impact that portion of the business there, it sounds like.

Yes. I mean not significantly, but I think now we have to go back and flow some of those deals, right? So fortunately, we're back on track there.

Okay. And then just given this significant product bookings backlog here, I mean, your $65 million implies that your product revenue would still be down year-over-year. Just walk us through the logic on why you're guiding that way given the significant bookings momentum that you saw through the September quarter and through the first month -- first 1.5 months of the December quarter.

So you're asking why we're guiding so low in the next -- in the current quarter.

I mean that implies that you're kind of expecting a big falloff in bookings momentum. Is that what implying or no? That's the question.

Yes. Look, I mean, there are a couple of challenges we still have that I'm not 100% comfortable with, right? We definitely had a huge spike in bookings, like I said, it's an endurance race, and it's the first quarter as CEO. And I understood first quarter for our CROs, it's the first quarter for North America, VP, I think we did great. But we have to continue to close and there was an impressive rate the sample of 3 to 4 months, right? So I think fundamentally, there's nothing to indicate that they can't continue to execute on that. But we definitely want to make sure that we provide like -- we're on solid footing as move forward and don't overpromise.

I do think from a supply chain perspective, we still have some challenges, most of them are associated with the manufacturing of the tape libraries. I think we left money on the table, specifically in the lower and mid range market in tape libraries because of our inability to manufacture and ship fast enough. And I think that challenge expands a little bit to even the higher end of the tape libraries. I think our transition to Avnet is not fully complete. And that causes a little bit of a pause as to how we can monetize some of those bookings in the current quarter.

Okay. Got it. That's helpful. Final question for me. Product gross margin while gross margin did improve significantly overall, Laura, as you know, that's because of basically cost takeouts in the service organization. When we look at the product gross margin, it's still down like 500-plus basis points year-over-year. Can you put a narrative behind why that is? And do you expect an improvement on that product gross margin, and if so, why?

Yes. I mean I can give you a macro reason first before we go into the details, but the biggest issue we have is we have too many SKUs, we have too many platforms, and there's tightness in many of the platforms we have from a supply perspective. Prices are going up on some of the levers, some platforms have like aging DDR4 in there, which is tight. So I think there's -- in general, the supply chain is tight across the board from a cost perspective and quite -- not super consistent from a pricing perspective. And I think that's kind of something we need to work through.

We are focusing on reducing platforms and figure out who the optimum partner is for us and how we stream on our supply chain so that we can deliver more consistent margins forward. It's something that takes though like 2, 3 quarters to get through, but definitely get the message, and I think a lot of tightness right now in the supply chain that affects the cost.

[Operator Instructions] As there are no further questions, we conclude today's conference call of Quantum Corporation. Thank you for your participation. You may now disconnect your lines. .