Quantum Corporation

Greetings. Welcome to Quantum's fourth quarter and fiscal year 2023 financial results conference call. 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. Please note this conference is being recorded. I will now turn the conference over to Brian Cabrera, Quantum's chief administrative officer. Thank you. You may begin.

Good morning, and thank you for joining today's conference call to discuss Quantum's fourth quarter and fiscal 2023 financial results. I'm Brian Cabrera, Quantum's Chief Administrative Officer. Speaking first today is Jamie Lerner, our Chairman and CEO, followed by Ken Gianella, our CFO. We'll then open the call to questions from analysts. Some of our comments during the call today may include forward-looking statements. all statements other than statements of historical facts to 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 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 factor section in our 10Qs and 10K filed with the Securities and Exchange Commission. We do not intend to update or alter our forward-looking statements once they are issued, whether as a result of new information, future events, or otherwise, except, of course, as we are required by applicable law. Please note that our press release and our financial statements we make during today's call and the management statements we make during today's call will include certain financial information in GAAP and non-GAAP measures. We include definitions and reconciliations of GAAP to non-GAAP items in our press release. Now I would like to turn the call over to our Chairman and CEO, Jamie Lerner. Jamie?

Thank you, Brian, and thank you all for joining us today. Earlier today, we announced our results for our fourth quarter and full fiscal 2023, with revenue results that exceeded the high end of guidance. We are pleased with the revenue results, we feel good about supply chain, and we're excited about recent product launches. But we have work to do in fiscal year 2024 to improve our bottom line results. Today, Ken and I will walk through actions we have taken to strengthen our company, and deliver adjusted EBITDA of at least $20 million, as we described in our press release. Turning to slide three, here is a brief overview of the results from the quarter and the full fiscal year. We finished the quarter with $105.3 million in revenue above the high end of guidance and an increase of 10.7% year over year. Non-GAP gross margin of 35.5%. Adjusted EBITDA of $1 million compared to $400,000 a year ago, driven by higher revenue and improved operating performance. For the full fiscal year 2023, we delivered revenue of $412.8 million, an increase of 10.7% year over year, primarily driven by strong demand from hyperscale customers and growth in our video surveillance business. Non-GAAP gross profit in fiscal 2023 was $147 million, or 35.6% of revenue, primarily driven by a higher mix of low-margin hyperscaler business along with inflationary cost pressures in our supply chain. And adjusted EBITDA in fiscal 2023 was $11.8 million. Now, turning to slide four, I would like to share some operational insights from the quarter. We exceeded revenue and EBITDA guidance in fiscal Q4 based on another strong quarter of hyperscale sales, a sequential increase in royalty revenue, and improved operational executions. We had an incredible year of hyperscale sales with two times revenue growth versus the prior year. As we discussed, that segment is characterized by generally lower margins. So the hyperscale business has had a strong influence on our revenue and margin mix profile. In addition to strong hyperscale sales, we are pleased with the progress we are seeing in our video surveillance business and improving our efforts to sell the full portfolio of products. We continue to see improving conditions internationally, and we are starting to realize the results of our transformation work, especially in the Americas. As an example, we are seeing a higher volume of large deals becoming a bigger component of our revenue mix in the pipeline. As part of the sales transformation, we are directly engaging in larger enterprise deals especially in areas of repatriation of data back on-premise from cloud providers. We also are extremely encouraged that our end-to-end portfolio of products is gaining traction, supporting AI ML projects and expanding deeper to other verticals. An illustration of this was a large-scale deal we closed in the financial sector at one of the largest banks in Asia and a Fortune 500 company. We are also working on several OEM partnership opportunities with global technology providers. Just this past quarter, we secured an active scale OEM win at a global provider of video streaming solutions that will add to our subscription ARR in fiscal year 2024. Expanding our solution footprint at existing accounts is a key part of our strategy. It is also notable that in fiscal Q4, we were selected by a West Coast Major League Baseball team to provide AI-driven analytics for their video and image content. This team is an existing Quantum StoreNext customer, and we were able to drive a broader engagement with them to help them catalog, analyze, and enrich their content to drive better fan engagement. This is a perfect example of our end-to-end strategy coming together and represents the opportunity in front of us to move from storing data to analyzing, manage, and enriching it to drive improved business outcomes. These sales highlights are just an example of our sales transformation strategy. As we focus our execution to improve revenue mix This includes growing total annual recurring revenue. Another positive indicator in fiscal year 2023 was that we grew the subscription ARR by 81% year over year to $13.4 million in subscription ARR and over $22 million in TCV bookings. We anticipate our continued innovation will accelerate future growth of subscription ARR into new markets for us, such as the high growth all-flash storage market. Providing improved operational efficiency is another part of our transformation. Our supply chain continues to stabilize and improve with greater parts availability and at lower costs. And we expect that to carry forward into fiscal year 2024. Also, our focused efforts to improve working capital and decrease inventory yielded positive results to further strengthen our company. As we execute our strategy, it is important that we operate our company to drive profitable growth. To that end, we recently implemented a global efficiency plan and worked with our lenders to improve our strategic flexibility by securing additional liquidity through an upsizing of our existing debt. Ken will discuss these items in more detail during his prepared remarks. Turning to slide five, I would like to give you an update on our product innovation progress. On April 3rd, we announced Myriad, a new all-flash storage platform for the enterprise. This is a huge milestone for the company and introduces a totally modern software design to one of the highest growth segments in storage right now. The initial reception has been incredible, starting with phenomenal press coverage and positive reception from industry analysts and experts. We then showcased Myriad at the NAB Trade Show, which is the largest broadcast trade show in the world, with an opportunity for us to meet with our customers in this space. The reception from our customers and partners has been outstanding. They were frankly blown away that Quantum has been able to develop an all-new software-defined storage platform to address this space. And the innovation was recognized by the industry, with Myriad winning three industry awards, including this year's NAB Show Product of the Year. We also introduced the latest version of our unified surveillance platform software at the ISC West trade show in March. The unified surveillance platform is the culmination of our strategy to combine the best software innovation from Pivot3 with a totally modern software platform that can run on any hardware. The unified surveillance platform has also been recognized with multiple industry awards and will be a key opportunity for us to build on the success we achieved in our video surveillance business this year. With the introduction of Myriad and the unified surveillance platform, Quantum now offers end-to-end solutions for the world's biggest unstructured data workloads, including AI and machine learning, corporate video for entertainment, branding and communications, video surveillance, massive data lakes for archiving and digital preservation, and data protection. Only Quantum offers solutions that cover the entire data lifecycle, from high-speed ingest and processing through forever data archiving, along with AI-enabled data cataloging and monitoring software for managing and enriching unstructured data. Now I'd like to turn it over to Ken to walk through our financial results in more detail. Ken?