Quantum's Q1 2026 Earnings Call: Contradictions Emerge on Operating Expense Timeline, All-Flash Product, and Supply Chain Challenges

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 10, 2025

Financials Results

• Revenue: $64.3M, compared to $61.3M in Q4 FY25 and $72.3M in the prior-year quarter
• EPS: Loss of $1.87 per share (GAAP), versus loss of $1.26 in Q4 FY25 and loss of $4.15 in the prior-year quarter
• Gross Margin: 35.3%, compared to 39.6% in Q4 FY25 and 37.4% in the prior-year quarter

Guidance:

• Q2 FY26 revenue expected ~$61M (+/- $2M).
• Q2 non-GAAP operating expenses expected ~$27M (+/- $2M).
• Q2 non-GAAP adjusted net loss per share ~-$0.26 (+/- $0.10) on ~13.3M shares.
• Q2 adjusted EBITDA expected approximately breakeven.
• Gross margin expected roughly in line with fiscal Q2 FY2025; tariffs persist and mix (e.g., hyperscalers) may impact.
• Sequential non-GAAP OpEx to decline by ~$3M from Q1 due to restructuring and nonrecurring Q1 costs.
• Company progressing on restructuring remaining term debt; expects definitive update before next earnings call.

Business Commentary:

* Revenue and Product Mix Shift: - Quantum reported revenue of $64.3 million for Q1 2026, a decrease compared to the prior year's first quarter of $72.3 million. - The decrease reflects a shift in product mix, driven by a transition towards higher-value business offerings.

• Operating Expense Reduction:
• Non-GAAP operating expenses for Q1 2026 were $30 million, which is expected to decline to $27 million in Q2 2026.

• This reduction is attributed to restructuring plans, cost savings, and anticipated benefits from recent cost reduction actions.

• Gross Margin Decline:

• GAAP gross margin for Q1 2026 was 35.3%, down from 39.6% in Q4 2025 and 37.4% in Q1 2025.

• The decline is primarily due to inventory provisions for end-of-life products and import tariffs incurred during the quarter.

• Debt Reduction and Financial Position Strengthening:

• Quantum reduced its total outstanding term debt from $104.3 million to $0, paying off its revolving credit facility and terminating the agreement.
• This improvement was achieved through the utilization of funds from a standby equity purchase agreement with Yorkville Advisors, strengthening the company's balance sheet and liquidity.

Sentiment Analysis:

• Revenue fell vs prior year and gross margin declined, with higher inventory provisions and tariffs; adjusted EBITDA was -$6.5M. Management raised ~$83M, paid down the revolver, reduced net debt >40%, and guided Q2 adjusted EBITDA to breakeven with lower non-GAAP OpEx. They are refocusing sales execution and product priorities (DXi, ActiveScale, StorNext) and expect further debt restructuring progress.

Q&A:

• Question from Eric Martinuzzi (Lake Street Capital Markets): Any change in strategy or go-to-market emphasis for products like Myriad or ActiveScale?
  Response: Focus on selling current portfolio; push DXi harder, invest in StorNext (Ethernet IP) and expand ActiveScale cold storage; refine portfolio longer term.

• Question from Eric Martinuzzi (Lake Street Capital Markets): Are you filling other open leadership positions among your direct reports?
  Response: Major leadership changes are complete; only minor tweaks may follow, and the team is considered strong.

• Question from Eric Martinuzzi (Lake Street Capital Markets): Bridge non-GAAP OpEx from ~$30M in Q1 to ~$27M in Q2—timing and drivers?
  Response: Restructuring actions in Q1 and early July drive most of the Q2 reduction; some Q1 costs won’t recur; expect ~$3M sequential decline in non-GAAP OpEx.

• Question from Nehal Chokshi (Northland Capital Markets): What’s the term-debt interest rate and PIK component?
  Response: Details will be disclosed in the upcoming 10-Q (footnote 4); filing is expected shortly.

• Question from Nehal Chokshi (Northland Capital Markets): Does breakeven Q2 EBITDA imply flattish gross margin Q/Q?
  Response: Gross margin expected roughly in line with fiscal Q2 2025; tariffs persist and mix (e.g., hyperscalers) can affect margins.

• Question from Nehal Chokshi (Northland Capital Markets): Typical September-quarter seasonality and any deviation?
  Response: Q2 is typically strong (includes U.S. federal year-end); guidance reflects normal patterns with no expected deviation.

• Question from Nehal Chokshi (Northland Capital Markets): Where is Quantum most differentiated?
  Response: DXi dedupe/backup (including new all-flash), Tape plus ActiveScale cold storage for low-cost archive (AI/M&E), and upsell/cross-sell into marquee customers.

• Question from Nehal Chokshi (Northland Capital Markets): Why hasn’t all-flash DXi driven more top-line impact?
  Response: Lead-to-close and incentives were weak; consolidating sales/marketing, revamping comp, and building an enterprise channel to improve conversion.