Quantum Corporation

ladies and gentlemen, and welcome to your Quantum Fiscal Second Quarter 2021 Earnings Webcast. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Rob Fink of FNK Investor Relations. Sir, the floor is yours.

Thank you, operator. I'd like to welcome everyone to the call. Hosting the call today are Jamie Lerner, Quantum's chairman and CEO, and Mike Dotson, Quantum's CFO. Please be aware that some of the comments made during today's call might include forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. Quantum advises caution and reliance on forward-looking statements. Forward-looking statements include, without limitation, any projections of revenue, margins, expenses, adjusted EBITDA, adjusted debt income, cash flows, or other financial items, as well as the anticipated impact of the COVID-19 pandemic on Quantum's financial results, any statements concerning the expected development, performance, and market share, or competitive performance relating to products or services. All forward-looking statements are based on information available to Quantum on the date you're up. It involves known and unknown risks, uncertainties, and other factors that may cause Quantum's actual results to differ materially from those implied by the forward-looking statements, including unexpected changes in the company's business. More detailed information about these risk factors and additional risk factors are set forth in Quantum's periodic filings with the Security and Exchange Commission. including, but not limited to, those risks and uncertainties listed in the section entitled Risk Factors in Quantum's quarterly report on Form 10-Q and annual report on Form 10-K as filed with the FCC. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Also note, on this call, the company will be discussing non-GAAP financial information. Management is providing this information as a supplement to information prepared in accordance with accounting principles generally accepted in the U.S. or GAAP. You can find a reconciliation of these metrics to the reported GAAP results in the reconciliation table provided in the company's earnings release. I would like to remind everyone that this call will be available for replay on Quantum's website for at least 90 days. A link to the website replay of this call is also provided in the earnings release, which is available at the company's website at investors.quantum.com. With all that said, I would like to turn the call over to Chairman and CEO of Quantum, Jamie Lerner. Jamie, the call is yours.

Thank you, Rob, and thank you all for joining us on today's call. On our last quarterly conference call, I stated that I believe the worst of the COVID-19 impact and disruption is was behind us. The results of the second fiscal quarter support this. Our results in the second fiscal quarter exceeded our forecasted outlook, benefiting from the strength of our federal government business and solid sales execution. We experienced a gradual recovery throughout the quarter with purchasing and procurement activity ramping up across most end markets. There are some encouraging signs of our customers starting to spend again on new projects and new business initiatives. And while there are signs of life in media and entertainment, we now believe the recovery in that industry may take more than one or two quarters, given how the pandemic has impacted movie and TV production and professional sports. We have expanded our sales force to those industries that are growing during COVID. And as we expand our product portfolio this quarter, our story becomes even more relevant outside of our core media and entertainment markets. In response to the pandemic and the short-term volatility it created, we continue to maintain discipline with our expenses while increasing our investment in research and development to support the introduction of new software products. The 300 basis point sequential improvement in gross margin achieved during the quarter bolstered our adjusted EBITDA to $8.9 million, meaningfully exceeding our guidance. Even with lower revenue levels, we are now a self-sustaining business. While the worst is behind us from a short-term perspective, I am even more encouraged with the progress we have made in continuing Quantum's transformation. At our analyst and investor day in August, we discussed the next phase of our transformation and laid out the strategy for how we will continue to transform our business. At the core of our strategy is helping our customers solve their most pressing business challenges by unlocking the value in their video and unstructured data. The enrichment of this data is what will drive businesses forward. This is what will drive the next discovery, the next innovation, new ways to communicate and entertain, and new business models. In just 13 days, we will take another significant step in our strategy with the launch of next-generation data management software to classify, visualize, and orchestrate data both on-premise and in the cloud. We are also introducing new software features to automate data movement for optimal performance, along with new features to secure data from cyber threats. In short, we are significantly expanding our portfolio to classify, manage, and protect video and unstructured data across its lifecycle. In addition, this quarter we begin to transform our business model with the introduction of subscription-based software licensing to align with the value we are delivering to customers. Historically, we've sold our software bundled with an appliance. Even when we are managing customer data on third-party hardware or on cloud infrastructure, we're not capturing this value in our software. With this launch, we are separating the software from the underlying hardware, establishing a clear value for our software aligned with the unique value we are delivering to customers and setting the stage for running the software in the cloud or on-premise regardless of the underlying infrastructure. Over time, this will shift our business to a recurring revenue-driven model and increase revenue contribution from software, driving improved gross margins and more predictable revenue streams. Now, I would like to provide an update on the status of our program to add new hyperscaler customers. Currently, we have three hyperscaler customers that have qualified our archive solutions for production. This represents our existing and long-standing customer and two new customers. Through the fiscal third quarter, the new customers will have initiated early-stage production buys. A fourth hyperscaler is further along in the evaluation process and is expected to begin initial production buys by the end of the fiscal fourth quarter. We also expect to expand our product offerings to our hyperscaler customers beyond archived storage solutions to include a newly developed primary storage solution. If successful, this new product offering could start shipping as early as fiscal fourth quarter. With that, I'd like to turn the call over to Mike Dodson, our CFO, to discuss the financials.