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Date

Thursday, Nov. 13, 2025 at 5 p.m. ET

Call participants

  • Chief Executive Officer — Hugues Meyrath
  • Chief Accounting Officer — Laura Nash
  • Vice President, Investor Relations — Tara Ilges

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Risks

  • GAAP net loss increased to $46.5 million, primarily due to a $25 million non-cash charge related to forbearance warrant issuance from the term debt amendment.
  • Management cited ongoing manufacturing constraints, particularly in low- and mid-range tape libraries, which limited shipment volumes and left "money on the table."
  • Hugues Meyrath stated, "transition to Avnet is not fully complete. And, you know, that caused a little bit of a pause as to how we can monetize some of those bookings in the current quarter," highlighting operational risk.
  • Management acknowledged heightened volatility in future GAAP earnings related to fair value adjustments on liability-classified warrants tied to stock price movements.

Takeaways

  • Revenue -- $62.7 million, down from $64.3 million sequentially and $71.8 million year-over-year, but described as reaching the high end of internal guidance.
  • GAAP gross margin -- 37.6%, up from 35.3% sequentially, but below 42.7% year-over-year, with improvement attributed to realized operating efficiencies.
  • GAAP operating expenses -- $31.7 million, improving from $35.3 million sequentially and $36.2 million year-over-year, reflecting cost-reduction initiatives.
  • Non-GAAP operating expenses -- $24.8 million, down from $30 million sequentially and $30.4 million year-over-year, due to restructuring actions in the current fiscal year.
  • GAAP net loss -- $46.5 million, or $3.49 per share, compared to $17.2 million, or $1.87 per share, sequentially, and $12.2 million, or $2.54 per share, year-over-year, with most of the delta resulting from a non-cash warrant charge.
  • Non-GAAP net loss -- $7.1 million, or $0.54 per share, improved from non-GAAP net loss of $14.5 million, or $1.58 per share, sequentially, and similar to non-GAAP net loss of $7.4 million, or $1.54 per share, year-over-year, reflecting margin and expense improvements.
  • Adjusted EBITDA for the second fiscal quarter 2026 -- positive $0.5 million, a sequential increase from negative $6.5 million and down from positive $1.1 million year-over-year, primarily driven by cost structure improvements.
  • Backlog -- Over $25 million, described as one of the largest in company history and well above the historical $8 million–$10 million range, consisting of product revenue alone and diversified by product, customer, and geography.
  • Regional performance highlights -- Americas business outperformed other regions, EMEA maintained strong execution, and APAC revenue more than doubled sequentially following a switch to exclusive distributors after a prior distributor relationship ended.
  • Debt and liquidity -- Cash, cash equivalents, and restricted cash totaled $15.3 million, with total outstanding term debt at $106.1 million and net debt at approximately $90.8 million.
  • Debt exchange agreement -- Executed an agreement to convert approximately $52 million of term debt into senior secured convertible notes, subject to shareholder approval, enabling elimination of leverage and minimum liquidity requirements and allowing $15 million of standby equity proceeds for working capital.
  • Library of Congress win -- Secured a high-profile archive deal, with the project awarded following a two-year evaluation against competing platforms; associated revenue remains in backlog.
  • Product innovation -- Announced new ActiveScale cold storage features, including RangeRestore and significantly faster access to small objects, targeting AI and analytics applications for archived data.
  • Partnership -- Formed a strategic partnership with Entanglement to serve next-generation AI and HPC data centers, integrating post-quantum encryption and positioning Quantum as a preferred intelligent data platform.
  • Outlook -- Revenue guidance for the fiscal third quarter 2026 is approximately $67 million, plus or minus $2 million; non-GAAP operating expenses expected near $25 million, plus or minus $2 million; adjusted EBITDA expected to be positive $1 million, plus or minus $1 million.

Summary

Quantum (QMCO 8.70%) reported a sequential improvement in operating metrics, led by restructuring-driven reductions in expenses and achievement of positive adjusted EBITDA. The company closed a term debt restructuring agreement intended to convert $52 million of debt to senior secured convertible notes, contingent upon shareholder approval, which management said will eliminate leverage covenants and provide greater liquidity. During the quarter, Quantum recorded a $25 million non-cash charge for forbearance warrants related to the debt amendment, driving a higher GAAP net loss and future earnings volatility as warrant valuations fluctuate. A record product backlog exceeding $25 million was reported, with management specifying that this backlog is diversified and not overly concentrated in any single customer or product area. Despite operational progress, management cited ongoing manufacturing and supply chain challenges, particularly in tape libraries, as limiting revenue recognition from backlog in the near term.

  • The sales pipeline remains robust across segments, with "accelerated bookings" and improved sales culture attributed to recent organizational changes, though management remains cautious in near-term guidance amid lingering supply constraints.
  • Management acknowledged that product gross margins remain under pressure, primarily due to increased SKU complexity, aging platform components facing cost inflation, and supply chain tightness, and stated these issues may persist for several quarters as streamlining efforts continue.
  • Actions in innovation and go-to-market strategy include focusing StorNext and DXi on customer feedback and pipeline conversion, with a new Chief Product Officer now overseeing realignment of the product roadmap and engineering investments.
  • The Library of Congress selection, new feature launches, and the Entanglement partnership were cited as validation of Quantum's positioning in high-density storage and AI data infrastructure, with the company targeting sustainable growth by deepening alignment with partners and customers.

Industry glossary

  • ActiveScale: Quantum's proprietary object storage platform with intelligent tiering for managing data across flash, disk, and tape.
  • RangeRestore: A feature in ActiveScale enabling selective, rapid retrieval of small data segments from cold storage without full file restoration.
  • Scalar i7 Raptor: An ultra-dense tape library system designed for large-scale archival and cyber-resilient data storage.
  • DXi Appliances: Quantum's backup storage solutions supporting data deduplication and multi-site disaster recovery.
  • StorNext: Quantum's file system and data management software for high-performance collaborative environments.
  • Forbearance warrants: Financial instruments issued as part of a debt amendment, granting the holder rights to purchase shares subject to future conditions; their valuation impacts GAAP earnings.

Full Conference Call Transcript

Tara Ilges: 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.

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 revitalize our 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 referenced 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 Jeff Barrow as Chief Product Officer, who is a highly respected technology innovator and leader with a decades-long track record across the enterprise storage industry.

He founded BlueArc, served as CTO of Hitachi Vantara, and most recently was CTO at Index Engines, where he led product and engineering strategies that shaped several category-defining storage and data management platforms. At Quantum, Jeff is conducting a comprehensive review of our product portfolio and pipeline, identifying along with sales where we can deliver the greatest value, sharpen roadmap 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 Greg Pachmeyer'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 one hundred year archive project. After a rigorous two-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 generations 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 cold. Our patented two-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 Beam 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 change what cold data can do. With industry-first RangeRestore and more than five times faster access to small objects, customers can now pull back only the data they need instead of rehydrating entire files. That means long-term archives and AI data lakes can behave like active, query-ready datasets. 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 that can feed those compute engines continuously and efficiently. Our solutions give them exactly that: tiered, sovereign, cyber-resilient 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 intelligent data platforms, 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.

Laura Nash: 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 misstatements in our published quarterly financial results for the fiscal year 2025. Revenue in the quarter was $62.7 million compared to $64.3 million in the 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 quarter, which is significantly above our historical target run rate of $8 million to $10 million and has given us a strong start to our 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 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 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 our most 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 loan. As Hugues previously mentioned, this amendment provides us with covenant relief and access to proceeds from the standby purchase agreement for working capital.

It was treated as a partial debt extinguishment for accounting purposes and resulted in a sizable non-cash loss largely due to the issuance of the forbearance warrants. The warrants were recorded at a fair value of approximately $25 million and are 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 reporting 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 $500,000 from a negative $6.5 million in the 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 an 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 the 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 CDN 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 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.

Hugues Meyrath: 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 a 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. Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Before pressing the star keys.

Laura Nash: We take the first question.

Operator: From the line of El Niebuhr from Lake Street Capital Markets. Please go ahead.

El Niebuhr: Hey, guys. This is El on for Eric Martinuzzi. I was just wondering if you could give a little more color on your pipeline build. 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? Yeah. I can touch base on that. You know, it's actually pretty good.

Hugues Meyrath: 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 not specific issues in the pipeline right now. I think the changes in the Salesforce have been really impactful. The team is very energized. And, frankly, we see our three geographical teams competing with each other, which is great. So it's a very positive dynamic.

With regards 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 our way to reinvigorate the channels, not just focus 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.

El Niebuhr: 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, the StorNext file management software?

Hugues Meyrath: Yeah. I mean, good question. I mean, 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, you know, 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. That's 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 RangeRestore and talked about it during the call.

So they're on the path of continuing to improve, and specifically for us, the winning combo is having object store focused on cold storage and whatever we can build that's differentiated because it's the combo of ActiveScale and the tape libraries together that make a killer combo right now in the market. But they're their own team, so we don't really have to prioritize that versus something else. StorNext, we have a new Chief Product Officer, Jeff Barrow. StorNext is super important to us. So we're in the midst of reintegrating the roadmap on StorNext. And as we've talked in the prior calls, it's a very important product for us. We have a huge install base.

We're getting a lot of feedback daily from our customers 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 development team. So our focus right now on DXi really is about lead generation, conversion to opportunities, and really scaling sales on the DXi side of things.

El Niebuhr: Awesome. Good to hear. I will hop back in queue. Thank you.

Hugues Meyrath: Thank you.

Operator: Thank you. Take the next question from the line of Nehal Chokshi from Northland Capital Markets. Please go ahead.

Nehal Chokshi: Thank you.

Operator: That

Hugues Meyrath: backlog number is John Tropic. Congratulations. That's amazing. Let's talk about that backlog. Let's frame this up in terms of bookings.

Nehal Chokshi: Well, first, before we do that, that backlog is just product. Is that kind of plus booked services as well?

Laura Nash: Hi. It's Laura here. Hi, Nehal. Thank you for your question. So the backlog is product.

Nehal Chokshi: Product only. And therefore, product bookings would have to be up, let's see here. Sorry. Just give me a second. The product bookings were up 28% year over year at least. Is that correct?

Laura Nash: So I think, and Hugues can add in here, I think what we're seeing is the sales team was really executing well towards the end of the quarter, and we're seeing a kind of a significant effort to drive the revenue linearity that I know we've discussed previously to make sure that, you know, we can 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.

Hugues Meyrath: Yeah. I don't have one. Top of my mind with what the number was a year ago. But from a mix, it 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 ship the low-end tape libraries. So there's a bit of that. You have some hyperscaler demand in there. And, you know, with the new sales team in place, a lot of people have been closing a lot of deals late in the quarter. And we did not have the ability to ship them this quarter. So that backlog is going to be useful as we enter the current quarter.

Nehal Chokshi: Got it. And is there a significant customer concentration in the backlog? Sorry, didn't hear the question. Do you mind repeating? Of that $25 million product backlog, is there significant customer concentration, especially given that there's some hyperscaler there? I mean, is there like 55% of that backlog to one customer or anything like that?

Hugues Meyrath: No. It's not specifically to one hyperscaler. It's not. It's fairly blended across products. There's a little bit from one for hyperscaler, but not in a meaningful way that this would skew this off.

Nehal Chokshi: Did that Library of Congress win go into backlog? Or was that recognized into revenue within the quarter?

Hugues Meyrath: It's in backlog.

Nehal Chokshi: It's in backlog. Okay. Would that be the largest settlement within your backlog then?

Laura Nash: I mean, Library of Congress is a go ahead, Laura. Was going to say, yes, so there is a mix of customers, geographies, and product types within that. Library of Congress is one component. Not necessarily the largest component.

Nehal Chokshi: Okay. Alright. So the bottom line 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?

Hugues Meyrath: I think it's certainly 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, sales culture, where we did accelerated bookings throughout the quarter, and they've continued to close deals like the first month of this quarter as well. So I think it's a good sign from a recovery perspective. You know, past that, like, I think, you know, it's an endurance race. Right? We have to deliver quarter over quarter. And I think they do have that mindset. So but it's definitely a feel-good moment for the sales team.

Nehal Chokshi: Okay. And, don't you guys have a significant federal vertical exposure?

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

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

Hugues Meyrath: Yeah. I mean, not significantly. But I think now we have to go back and close some of those deals. Right? So fortunately, we're back on track there.

Nehal Chokshi: 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 September and through the first month, first one and a half months of December.

Hugues Meyrath: So you're asking why we're guiding so low in the current quarter?

Laura Nash: I mean, it definitely implies that you're kind of expecting a big fallout in bookings momentum.

Nehal Chokshi: Is that what you are, you know, implying or no? That's the question.

Hugues Meyrath: Yeah. 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 of CEO, and it's the first quarter for our CROs, the first quarter for our North America VP. I think we did great. But, you know, we have to continue to close at an impressive rate. The sample of three to four 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, you know, we're on solid footing as we 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. You know, I think we left money on the table specifically in the lower end to mid-range market and 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, you know, that caused a little bit of a pause as to how we can monetize some of those bookings in the current quarter.

Nehal Chokshi: Got it. Final question for me. Product gross margin, while gross margin did improve significantly overall, Laura, as you noted, that's because of basically cost takeouts in the service organization. We look at the product gross margin, it's still down, you know, like, 500 plus basis points year over year. Can you put a narrative behind why that is? And do you expect some improvements on that product gross margin? If so, why?

Hugues Meyrath: Yeah. 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 servers. Some platforms have, like, aging DDR4 in there, which is tight. So I think there's the in general, this 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 figuring out who the optimum partner is for us and how we streamline our supply chain so that we can deliver more consistent margins forward. It's something that takes, like, two to three quarters to get through, but definitely, definitely get the message. And I think there's a lot of tightness right now in the supply chain that affects the costs. Okay. Great.

Nehal Chokshi: Thank you for taking my questions.

Hugues Meyrath: Thank you.

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