Quantum Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Quantum's financial results for the third quarter fiscal 2022. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Brian Cabrera from Quantum.

Good afternoon, and thank you for joining today's conference call to discuss Quantum's third quarter fiscal 2022 financial results. I'm Brian Cabrera, Quantum's Chief Legal and Compliance Officer. Joining me today are Jamie Lerner, Chairman and CEO, and Mike Godson, CFO. This afternoon, we issued a press release, which you can access a copy of on Quantum's website at www.quantum.com. under the Investor Relations section. There is also a slide presentation that we will be using in conjunction with today's call that may be accessed through the webcast link on the IR website and is also posted as a PDF in the Investor Relations section. As a reminder, comments made during today's conference call may 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. These statements include, without limitation, any projections of revenue, margins, expenses, adjusted EBITDA, adjusted net income, cash flows, or other financial items. Also, 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 day hereof. These statements involve 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 statement, 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 Securities and Exchange Commission. These risk factors include, but are not limited to, 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 SEC. 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 applicable law. Additionally, the company's press release and management statements during the conference call will include discussions of certain measures and financial information in GAAP and non-GAAP. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available for at least 90 days in the investor relations section of Quantum's website. Now I would like to turn the call over to the chairman and CEO, Jamie Lerner. Jamie?

Thank you, Brian, and thank you all for joining us today. Earlier this afternoon, we announced results for our third fiscal quarter. Revenue was $95.3 million, with backlog increasing sequentially to $62 million, another quarterly record for the company with strong demand offset by ongoing supply chain headwinds. Our recurring revenue transition continued to accelerate with more than 255 customers utilizing Quantum's subscription solutions, up 30% sequentially and 98% year-over-year. With more products transitioning to a subscription contract, our year-over-year subscription revenues increased more than 190%. Our flat third quarter revenue results are not indicative of the true underlying demand trends in our business, which have been at historically high levels, but impacted by the unprecedented supply chain headwinds. The third fiscal quarter represents our fifth sequential quarter of bookings exceeding revenues. As Mike will discuss, we estimate that roughly $26 million of customer orders in the quarter could not be fulfilled, which had a major impact on revenue, gross margins, earnings, and adjusted EBITDA. I'll discuss the supply chain situation and the actions we are taking in more detail shortly. Our hyperscale business grew meaningfully both sequentially and year over year, despite the supply challenges and has become less lumpy over the last four quarters. Our media and entertainment vertical has begun to stabilize, while not above pre-COVID levels. Our progress within StoreNext, the first point product we transitioned to a subscription model, has begun to take hold. Revenues for StoreNext in the third fiscal quarter were flat year over year, but the prior year was primarily a product sale, while this quarter we are deferring a portion of the initial upfront revenue due to our shift toward subscriptions. The chart on the left provides a picture of how significant the increase in backlog has been over the last five quarters, while revenue has remained essentially flat. The disconnect between our reported quarterly revenue and acceleration in levels of backlog is due to the unprecedented headwinds we have faced within our supply chain. Also during the quarter, we had multiple shipping partners decide not to accept deliveries on New Year's Eve, a change from years past, which further limited our ability to ship and recognize revenue. We also saw significant cost increases for raw materials needed to fulfill customer orders, coupled with much higher levels of freight and shipping costs that were materially higher than we previously anticipated. Now let me turn to a more detailed discussion of the supply situation, which remains very dynamic with new challenges being introduced that weren't present even a few months ago. While supply of tape drives has improved for LTO7 and LTO8, the biggest impact to our business remains the quantity of supply, which has not yet returned to normalized levels. During the third quarter, LTO9 tape drives started shipping, but overall supply of LTO9 drives has been constrained due to initial manufacturing challenges. which is typical during a transition to a new version of LTO technology. This was especially notable with one of our largest hyperscale customers who converted a large order for LTO8 drives to LTO9 drives during the quarter and increased their order by $10 million. Due to the limited availability of LTO9 drives, this switch impacted our ability to fulfill the order. and our reported revenue as our prior guidance included shipments for LTO-8-based drives to this customer. In addition to the headwinds we are facing in supply of tape drives, we are experiencing broad-based shortages of components for servers, network cards, and circuit boards, very consistent with what peers in the storage industry are citing. We continue to work closely with our suppliers as well as our contract manufacturers to mitigate current supply shortages, which as of today, we lack the visibility to state when a more normalized supply chain will return. Under these circumstances, we are immediately implementing a series of cost reduction measures. We are instituting pricing increases across our product categories, and we are focusing on supply chain and operational excellence. Some other highlights from the quarter include continued share gains in the hyperscale tape market. As of today, four of our hyperscale customers now utilize more than an exabyte of storage capacity, and we continue to view this business as a growth driver in future years. During the third fiscal quarter, we closed a multimillion-dollar video surveillance deal at a government agency, which is currently in backlog. This deal highlights our recent success at the cross-selling and up-selling occurring between Pivot3 and quantum-based solutions. Another example of our product cross-selling success we've had to date, we sold Stornex as a subscription combined with Tape, to create an effective, customer-friendly solution for long-term retention of surveillance data. This was a conversion win, utilized by a large distributor in Southern California, previously using a competitive solution. The newly deployed solution now captures surveillance data on quantum software and uses quantum tape for long-term retention and archiving. We believe this type of win is very repeatable, and only Quantum offers this end-to-end portfolio. Also during the quarter, we closed a multimillion-dollar object storage deal with a genomics research institution and closed our first six-figure software-only object storage win at a large semiconductor manufacturer with a third party providing the hardware component. Both customers are managing large, unstructured data sets, and Quantum's solution offers unique value in terms of scale, durability, and ease of use. It was also a solid quarter for the H-series and F-series within primary storage, mostly within the media and entertainment vertical. We continue to get recognized for our innovation during the quarter as our ransom block solution garnered two industry awards, and our solutions for ransomware protection and cyber resilience continue to resonate and gain traction in the market. Now, I'd like to turn the call over to Mike to provide more detail on the results. Then we can take questions. Mike.