Q1 2023 Quantum Corp Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss Quantum's financial results for the first quarter fiscal year 2023.
At this time all participants are in a listen only mode.
<unk> 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.
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 first quarter fiscal 'twenty to 'twenty three financial results I'm, Brian Cabrera, Quantum's, Chief legal and compliance officer joining.
Joining me today are Jamie Lerner, our chairman and CEO and Mike Dodson, our CFO .
Afternoon, we issued a press release, which you can access under the Investor Relations section of our website at Www dot quantum dot com.
We are using a slide presentation in conjunction with today's call and this is also accessible under the same section of our website.
During today's call. Our comments may include forward looking statements.
All statements other than statements of historical fact should be viewed as forward looking <unk>.
These statements include any projections of revenue margins expenses adjusted EBITDA adjusted net income cash flows backlog or other financial items.
These statements May also concern the expected development performance and market share or competitive performance of our products or services.
All forward looking statements are based on information available to quantum as of today's date.
We advise caution and relying on these statements as they may involve as they involve known.
And unknown risks and uncertainties, we referred to as risk factors.
Risk factors may cause our actual results to differ materially from those implied by the forward looking statements, including unexpected changes in our business.
We include detailed information about these and additional risk factors under the section labeled the risk factors in our quarterly report on Form 10-Q, and our annual report on Form 10-K, which we filed with the Securities and Exchange Commission we.
We do not intend to update or alter our forward looking statements, 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 the management statements we make during today's call will include certain financial information in GAAP and non-GAAP measures we.
We include definitions and reconciliations of GAAP to non-GAAP items in our press release.
If you are unable to listen to the entire call. At this time, we will make a recording available for at least 90 days in the Investor Relations section of our website.
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 this afternoon, we announced the results for our first.
<unk> of the fiscal year 2023 with revenue results that exceeded the high end of guidance.
Revenue growth was driven by continued strong hyperscale sales.
While it is sequential growth in our video surveillance.
In addition to the strong revenue results our backlog as of July 31 was $67 million.
A near record level.
So demand continues to be strong and we are confident in the prospects for growth.
We also delivered our fifth consecutive quarter of growth in the number of subscription customers now at over 450, which is an increase of 200% year over year and 29% sequentially.
We are pleased with the progress we have made thus far but thats. The only represents a fraction of the total opportunity that lies ahead.
Currently we have over 10000 active customers and 23000 systems under support contract.
Which represents huge potential toward growing recurring revenue over the next few years.
As these customers come up for renewal or have a need to refresh their quantum products.
They have been very receptive to moving to subscription licensing.
<unk> on multiyear contracts.
As one example in May we closed the largest our next seven subscription deal with a well known shoe and apparel company, who has been a customer for many years using quantum storage solution to create all of their advertising and marketing content.
As they've expanded their brand the amount of video and image data. They are creating has increased.
And there are legacy infrastructure was constrained constraining their creative teams.
To address this need they upgraded their old store next infrastructure to store next seven move.
Moving to subscription software on a five year contract.
And that is F series nvme storage to their infrastructure to provide increased performance and better efficiency.
So our next software licensing was the largest component of this deal and this is a great example of how large brands and enterprises are creating more video and image data as well as the very repeatable sale, we can make to our installed base of customers around the world.
We are also continuing to expand our software offerings and customer adoption of our services technology.
So our next software is now available for purchase.
On the Amazon Web services marketplace, giving customers, a new way to purchase store next and run it on the public cloud.
We will be showcasing this new offering later this quarter at the International Broadcasting Conference in Amsterdam.
We have close to 1000 customers that are now using the my quantum service delivery platform that we announced in April .
And we now have over 2500 customers and close to 4000 products.
<unk> connected to our cloud based analytics software.
Where we are collecting hundreds of thousands of data points to help our customers improve their operations every day.
This service delivery platform enables quantum to become more connected with our customers.
Increase the value, we are providing and ultimately monetize these services as we continue to drive growth in recurring revenue.
Also during the quarter some of our largest wins were at international government agencies for National film and sound archive and digital preservation of valuable cultural artefacts.
In addition to the size of these opportunities.
These wins are also notable because they combine quantum file our object storage software with disk and tape and in some cases cat EV.
Which is used to index catalogue and browse the archive.
These warrants provide a good example of a unique end to end architecture for data archiving and digital preservation that only quantum can provide.
I'm also pleased to report that we had a very strong quarter in our video surveillance business.
We had big wins at one of the world's largest transportation companies as well as wins with transportation authorities.
Surveillance of public transit systems.
Universities hospitals and casinos.
These wins provide further evidence of our success with the pivot three acquisition. While also serving as an example of the large opportunities available to significantly grow this business.
As demonstrated this quarter the business is characterized by large wins and although it may fluctuate from quarter to quarter. We're excited about this initial momentum as we continue to ramp the business.
All of these organizations cloud providers Fortune 500 enterprises household brand hospitals and research institutions and government agencies around the World Trust quantum store manage and protect their most valuable asset.
Digital data.
The products and solutions, we provide are more relevant than ever with the exponential growth in video and unstructured data that is mission critical to these organizations with.
With this strong position we have at these accounts combined with our large installed base of customers.
The significant significantly grow recurring revenue.
Over the next few years, while driving improved margins and more predictable revenue streams.
In summary, I believe we have taken the necessary steps to position quantum for continued improvements.
Future operating performance.
The programs, we have put in place to control PPV manage discounting and adjust pricing will begin to show more meaningful results in fiscal Q2, and which we expect to deliver sequential improvements in both gross margin and EBITDA.
Mike will discuss.
Demand remains strong with backlog currently at record levels.
We are continuing to increase the conversion rate of customers to a subscription model and build our recurring revenue.
We are committed to disciplined execution on our initiatives.
Delivering improvements in gross margin and reducing.
Reducing operating expenses expenses that are collectively expected to result in substantial year on year improvement to adjusted EBITDA over the coming quarters.
Now I'd like to turn the call over to Mike to provide more detail on the results.
Then we can take questions.
Mike.
Thank you Jeremy.
Welcome everyone and thank you for joining the call today.
Now turning to the results for the first quarter.
Revenue came in just above the high end of guidance at $97 1 million, representing an increase of 9% year over year, and 2% compared to $95 2 million in the prior quarter.
Backlog at the end of the first quarter was approximately $47 million.
Merrily, reflecting the timing of large orders.
Subsequently increased to a near record of approximately $67 million at July 31, 2022.
Approximately 75% of the first quarter, ending backlog was related to hyperscale or customers and approximately $25 million of the ending backlog were shippable to customers.
We're not supply constrained.
Although we are seeing some signs of improved supply we continue to be constrained primarily on tape drives as well as broad based shortages of components.
During the first quarter.
Secondary storage revenues were up 1% sequentially, primarily driven by ongoing strong demand from hyperscale customers largely offset by a decrease in backup and data protection products.
Primary storage systems had another solid quarter and was up 9% sequentially, primarily driven by a significant increase in shipments of video surveillance solutions.
In conjunction with our focus on driving that transition to a recurring software subscription model last quarter, we introduced a series of supplemental metrics to track our quarterly progress.
The first of these metrics was annual recurring revenue or <unk>, which increased 11% sequentially to $8 2 million.
This figure includes recurring software subscription revenue across all of our transaction product offerings, including store next.
<unk> scale.
Si and cap D P.
Additionally at quarter end, the cumulative number of customers under a subscription contract increased to over 450 active customers.
Represents 200% year over year growth and.
Sequential growth of 29%.
Another key metric, we introduced was total contract value or <unk>, which sequentially increased by 16% to $16 million at the end of the first quarter.
Up from $13 8 million in the prior quarter.
Gross margin in the first quarter was 35% compared to 38% in the prior quarter.
The sequential decrease reflected several factors, including our projected peak and purchase price variance driven from constraints in the supply chain.
Continued inflationary cost pressures in logistics costs.
Product revenue mix was more heavily weighted towards our hyperscale customers.
Roughly 1% of the sequential decline in gross margin is attributed to the less favorable product mix.
2% of the sequential decline in gross margin is due to their higher PPV and other logistics supply chain costs.
Assuming no meaningful deterioration in the overall market environment or supply chain dynamics. The company believes the gross margin in the first quarter represents a low point.
As lasse.
As stated last quarter. It will take additional time to realize meaningful improvements in terms of both product mix and our higher pricing targeted to offset the inflationary cost environment.
GAAP operating expenses in the first quarter were $41 1 million.
Compared to $41 8 million in the prior quarter.
non-GAAP operating expenses during the first quarter decreased <unk> 9 million to $36 3 million as compared to $37 2 million in the prior quarter.
I want to emphasize that the operating expense in the first quarter does not reflect the full anticipated benefit of cost reductions that were implemented in early June .
We continue to expect to reduce the quarterly operating expense run rate.
Targeting approximately $35 million by the end of fiscal 2023.
Excluding stock compensation restructuring charges and nonrecurring charges non-GAAP adjusted net loss in the first quarter was $3 7 million or <unk> <unk> per share compared to adjusted net loss of $2 8 million or <unk> <unk> per share in the prior quarter.
Adjusted EBITDA for the first quarter was just above the midpoint of guidance at <unk> 3 million compared to $4 million in the prior quarter.
As we have discussed previously driving continuous improvements in our adjusted EBITDA remains one of our highest priorities.
We expect to achieve this through a combination of growing revenue expanding gross margin and reducing operating expenses.
We expect the cost reduction actions together with product price increases and supply chain initiatives will increasingly contribute to positive EBITDA results during the second half of fiscal 2023.
There is a full reconciliation of our non-GAAP results to the most directly comparable GAAP measure in both the press release and Form 10-Q released today.
Now turning to the balance sheet liquidity and cash flows all of which now reflect the company's successful rights offering that was closed in April .
Cash and cash equivalents at the end of the quarter were $26 8 million compared to $5 5 million in the prior quarter.
Outstanding term debt at the end of the first quarter decreased to $78 4 million from $98 7 million at the end of the prior quarter.
This decrease of approximately $20 million reflects the pay down the term debt after completing the rights offering.
At the end of the first quarter the outstanding balance on the company's revolving line of credit was $17 3 million compared to $17 7 million in the prior quarter.
In the first quarter interest expense decreased to $2 1 million compared to $2 5 million in the prior quarter and $3 9 million during the same quarter a year ago.
Our cash and cash equivalents increased by $21 $3 million during the quarter.
Net cash used in operating activities was $18 3 million.
Excluding changes in assets and liabilities.
Net cash used by operating activities for the quarter was $3 1 million.
Of which approximately two thirds represent of interest expense.
The net cash used related to changes in assets and liabilities was $15 2 million driven primarily by season seasonality related decline in deferred revenue.
Historically, the heaviest cash collections for service contract renewals have been the December and March quarters.
With decreases in cash collections in the June and September quarters.
In addition to the normal seasonality one other factor contributing to the current quarter sequential decline of $13 6 million in deferred revenue was the lengthy contract renewal negotiation with one of our largest customers that was not completed by the end of the quarter and represented an annual contract.
Value of just over $4 million.
Also our use of cash during the quarter was an increase in other current assets of approximately $2 7 million.
Represented by the prepayment for key inventory as.
As well as annual subscription for group insurance.
Okay.
Net cash used.
In investing activities was $5 million.
Which included Capex of $3 million, and a $2 million deferred business acquisition payment.
The net cash provided by financing activities during the quarter was $44 6 million and primarily represents the net proceeds of the rights offering.
Approximately $20 6 million used to pay down outstanding term debt.
Now moving to our financial outlook.
As we have outlined our fiscal 2023 plan is to continue to grow our revenues, while implementing cost reduction programs.
We anticipate the most challenging area will be will be to address the pressure on gross margins. We do expect in the back half of fiscal 2023 to see measurable improvements in adjusted EBITDA.
We expect revenue for the second quarter to be in the range of $95 million.
Plus or minus $4 million.
non-GAAP adjusted net loss is expected to be $1 5 million plus or minus $1 million.
And adjusted net loss per share of <unk> plus.
Plus or minus <unk> <unk> per share.
Using an anticipated basic share count of 94 5 million shares.
We expect adjusted EBITDA in the second quarter to be $2 5 million plus or minus $1 million.
With that I'll turn the call back to Jamie for closing remarks, Jamie.
Thanks, Mike.
In closing demand continues to be strong with strong revenue results in our large backlog.
We're very pleased with the growth in subscription customers and we see huge potential to continue to grow recurring revenue over the next few years.
We have taken the steps to improve supply chain and deliver improvements in gross margin and adjusted EBITDA in the coming quarters.
With that we'll open it up for questions operator.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
We ask that you please limit to one question and one follow up.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Craig Ellis with B Riley Securities. Please proceed with your question.
Thanks for taking the question and I'll start with a clarification on the gross margin outlook. So.
Mike if I step back three months I think.
We're looking at.
Gibson takes some gross margin that at the time, we it's going to sustain at 38% gross margin until we got some benefit from some of the initiatives that <unk> had underway and now we're at 35% and I think the view is that this will be the bottom and we hope for leverage against that bottom in the back half of the.
Year, so so given the significant change versus our recent.
Gross margins could potentially bottom what gives you the confidence that 35% is the bottom end and maybe more importantly, what are the specific things that arent going to drive materially higher gross margin from here.
Yes sure Craig.
What we experienced in Q1, we really expected we understood our PPV a lot of the broker buys that we did with two or three quarters ago, but the inventory didn't move out until this quarter. So we knew that this was going to be the toughest quarter for gross margin and in our prepared remarks last quarter.
We really said, we expected to see meaningful improvement in the back half of the year. So we know what was going to be tough, especially the PPV because I was we knew that was being amortized right.
The inflationary cost pressures continued but we do feel confident.
We can see PPV getting a lot better.
No longer putting things on airplanes. They are on boats. We've done a lot that we can to control those costs. So we feel confident unless there are some other macro events that impact the supply chain that this should be the low point.
Okay. Then let me just ask a follow up because I think when we talked about the.
The potential for gross margin in the current quarter. It was relatively late in the quarter. So I think the inputs would've been known and yet we were still two basis points below so how do you feel about the businesses ability to really.
Drive the kind of inputs for forecasting new then put sticking to and so that we've got the.
But for a line item like that and the ability to execute against that line item.
Yes, I think.
We are very clear.
Visibility into PPV and we know that's improving we also are getting more traction on the price increases that we put into place as well as efforts to reduce our discounts were seeing more and more traction. There. So we have a number of programs in place that we're seeing improvement Shan.
It still will be there'll be a gradual improvement and we would expect next quarter and then more improvement further in Q3 and Q4.
And finally, just to clarify Mike How're you.
Intermodal gross margin should be flattish just called <unk> and then you get those those initiative benefits in the back half or are you looking for something up or down.
Yes.
We're definitely expecting an improvement in Q2.
Okay.
I'll just ask one more on that Jamie and then I'll hop back in the queue, So Jamie nice to see.
Can customers go up by almost 100.
Progress in the quarter, but finite but.
Incremental.
Value for.
Our customer it looks like sequentially went from 13000 to 8000, so that's down pretty significantly from where we started and I know that we've gone through the store.
Correct mix with subscription to some of the other solution but.
Talk about what a reasonable set of expectations.
From this level of incremental.
<unk> per customer and Ken.
Normalized long term culturally come thank you.
Yes, I mean.
You got to understand the mix of products available under subscription has changed significantly.
We started predominantly with store in Ax, which is probably our.
Tends to have a large deal size and now we've added Dx side of that which is a high runner.
Product, but it has an ASP.
Below $25000.
What youre seeing is were building momentum in customers.
Asps coming down because again we've added.
More products more products that are high runners.
And so.
I think we're still.
Kind of characterizing the business.
As we've just begun adding these new products. So in terms of fully understanding the ESP three year value I still think <unk>.
Got some work to do there, but I mean really what we're looking for at this point is.
Do customers want to go to subscription.
They have pushed back are there problems with the modeling right now.
We're not seeing a lot of problems and pushed back.
And so we're just trying to pick up the velocity.
And again as we stated in our last earnings call. Our goal is to double this year and I think we're on a.
We're on a path to achieve that and.
So I feel pretty good about that part of the business, obviously all of our our huge amount of our effort is all around EBITDA.
And that's where I feel really good for the first time in several quarters, where that EBITDA is jumping from 300000 to $2 5 million I mean, that's that really shows you. The work that we're doing on pricing.
Its counting controlling our spend.
In Opex and managing our suppliers and managing the unexpected.
Increases and that's all coming more in the control and again, we're seeing that EBITA return what's really.
US as business operators is the best thing we have seen a few quarters and we're just excited about that and we're going to grow that every quarter. We're just going to bring our revenue op every quarter, we see line of sight to that and we see that we're just going to keep expanding EBITDA.
Over the next several quarters and get returned to the levels, we used to be at but.
To follow up on Mike's comments, we really view that 35% is our low point this quarter looks much more than that.
100 to 200 basis points above that.
We see that pretty clearly right now and I think we'll be able to build on that every quarter as we get the business back to historic levels.
Got it.
Thanks, Jamie Thanks, Mike.
Thanks, Craig.
Our next question is from Eric <unk> with Lake Street. Please proceed with your question.
Yes.
On the revenue guidance for Q2.
I am not expecting a lot of volatility in the service of the royalty revenue, but based on the midpoint of the guidance would be down sequentially. So I'm assuming that that's.
In the product area is that assumption correct and why would that be given normal seasonality.
Yeah.
I don't think those assumptions are correct.
What I've done is I guided to 92, two quarters ago, then in 94 and this quarter we're now.
Current quarter guiding their 95, so I'm guiding up every quarter.
Now, we all know that we've had late in quarter.
Supply.
Fluctuations predominantly.
Predominantly we've had the rug pulled out from US a few times, where our suppliers are committed to delivering certain quantities to us.
And told US with days and weeks left in the quarter. They couldnt do it.
So my guide incorporates that.
Alright, and 95 incorporate that I've got a reserved several million dollars for those surprises occurring if those surprises don't occur I expect we're going to be at the top end of the range. So right now I am expecting quarter on quarter growth.
But I am taking.
Taking several million dollars away from that until the supply chain in a late breaking surprises are a thing of the past if we don't get surprised I don't think youre going to see.
I think you'll see it at the high end of the range.
If we do get surprised it wont be related to any business performance that would be related to what product.
Did we get shorted by a supplier it wont be related to the sales of our part of the business being lower than we expected.
Our sales are pretty much we're hitting our expectations.
And the shipments and revenue are really tied to availability of materials and as we said.
Now about 93% of our constrained materials.
Entirely related to tape drives.
Gotcha, So just conservatism on the product side understand.
Shifting over to the services side.
Historically.
We would see given the healthy product sales, we would see a step up in service and yet.
Kind of stalled out here in the.
The 33 34 range should we expect that to grow over time as we move back to a positive comp in the products.
Mike do you want to address that.
Kind of service projections.
Yes, I think when.
When we look at service I mean, we address the cash implications is just the seasonality I think on a longer term basis.
The struggle we have there the challenge that we have there is the golden glide. So it's.
Underneath that we're growing the service, but we're also dealing with the Golden glide.
Older established products.
As they come off and were not renewed so I think thats why you see a bit of a stall.
Rick is that struggle.
Okay, and then just macro commentary you guys do have a global view.
Thousands of customers worldwide curious to know what youre seeing in Europe .
Is your guidance being impacted and this is both an FX question in a macro demand question, but just curious to hear what are your your larger customers in Europe .
Are they on track.
They're getting more tentative if we've seen any sales cycles extend it and then is there an FX impact.
In your outlook.
I can.
Yeah, Mike why don't I cover the macro and you talked cataracts okay.
Right now in Europe .
We are not seeing anything that I would call <unk>.
<unk> spread broad based.
Slowing down on technology spending.
I think people are being judicious, so I'm seeing more process steps where people are.
Seeking greater approval there are process steps to justify and make sure that people are making justified orders, but at this stage, we're not seeing a broad based slowdown.
Okay and on the FX side.
To date, we haven't seen a significant impact on our business due to FX.
First when you think of our revenue streams. After you back out the service business, because thats basically amortizing deferred revenue down the level of business that we have outside the U S denominated in the foreign currency is about 20% of our total revenues.
And when you look at that level and the mix of currency movements, we just haven't seen a significant impact.
Okay, that's encouraging.
And then a couple of housekeeping items, if I may.
Weighted average share count upon which are based on your guidance for non-GAAP adjusted net loss per share for Q2 was $94 5 million shares and I saw in the Q that you filed as of August 1st We've got a 102 7 million shares. So help me understand the delta there.
Yes.
Yes.
Im not familiar with the 102.
Eric.
But when we look at what our share counts how they've moved the last few quarters, because it's it's the impact of the rights offering right.
Yes, the basic level because as long as we have a loss we don't have the dilutive effect of all the other equity instruments.
But for Q4, we were at $63 million.
Then Q1, we're at $83.6 million.
And really what we expect.
Looking at the schedule now Eric is I would expect 90 to $1 6 million for Q2, it looks like the $94 five really includes a dilutive effect, but that's only if we were profitable.
Okay. So 91 six versus $94 five got it out and then the last housekeeping item what should we use for interest expense in Q2, I know you had $2 1 million in Q1.
That had some puts and takes in it.
Yes, I think that I mean, the $2 million.
A good number for right now.
Great. Thanks for taking my questions.
Sure.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
Our next question is from Nihon <unk> with Northland Capital. Please proceed with your question.
Oh, yes. Thank you.
It seems like solid results congratulations on that.
Slide nine shows your shippable backlog and an order schedule for future quarters within those orders scheduled for future quarters.
That is what's happened within the June quarter. So does that mean that their orders are shippable within the September quarter.
Okay.
Okay.
Yes.
Let me turn to the slide and see.
Are you looking you're looking at the.
The light blue shippable or the.
Quarter four one yes, so I'm just wondering if because the.
Orders that were scheduled for future quarters within the June quarter does that mean, then its shippable in the September quarter, some portion of that number.
Peter.
Not necessarily because some of them could go out beyond the quarter.
But I guess the question is some of that still shippable within the September quarter.
Yes.
Got it okay.
Because otherwise what it looks like is that you have very little visibility into your <unk>.
September quarter guidance relative to your June quarter guidance.
So thats essentially what my question is is that what gives you this confidence to guide the flash QQ with what appears to be if I were to just use a cubic you changed and shippable backlog plus your revenue as a gauge for what your orders were in the quarter. It looks like it went down significantly.
But.
Whats Youre trying to say is that no thats not the case.
Or orders or shippable within the September quarter.
Right.
Quite robust actually and Thats why it gives you confidence to guide that way that you have guided is that correct yes.
Yes, definitely when you look at that July orders that has.
Q2 business.
Right.
Yes got it very good okay.
Okay.
And then Jamie last quarter, you talked about your four levers to achieving a $25 million a bit then.
I wouldn't say the near future but.
Near to mid term future and then the $50 million annualized target.
Mid to long term basis.
Yes, how do you feel about the.
<unk>.
So how those levers have been coming along relative to when you laid them out a quarter ago.
Yes, I think we're.
But we feel we're on our plan.
If you look at this quarter, we're bringing up gross margin.
Now we're looking at.
Kind of that 50 to 100 basis points, a quarter, bringing that up I think we'll do better than that this quarter.
We're looking at getting greater supply we're seeing.
We're selling faster than we're getting supply, but the supply is coming up.
And there is EBITDA in that supply, we need to get the company well over $100 million.
Given our mix, we see that coming together, we see that supply coming together.
Our pricing and discounting has been put in place.
That's been generally accepted at first there was some grumbling, but I think people generally understood. It's we're in an inflationary period for putting that in place and then we've taken a series of Opex reduction measures that are behind us at this point and those are taking effect and all of that has come in.
Together and it's good to see Us go.
Now from 300 K EBITDA.
The $2 5 million, that's the kind of growth that growth I think our investors want to see them, we got to keep walking that up but it's taken a lot of work to get here and now we're restoring that EBITDA will you now and get free cash flow restored again, as we bring it up but.
Now to go from 300 K to two five is a good jump we need to get that $2 five up to $5 million.
And.
Up to 25 up to 50, and we'll keep working it up.
But I.
What I feel also good about as you know most of the supply chain issues are now under control, we're not paying broker fees for not paying expedite fees, 93% of our supply chain issue is all about tech drive.
So we have everything else, we have our servers, we have our hard drives we have our network cards, we have our power supplies. We have all the stuff we need to build tape libraries literally 93% of our issue.
Right now it's just.
Getting their tape drives shipped to us.
And we just put them in libraries and ship them.
Okay. That's very helpful and just stood at 93% perspective, what was the quarter and two quarters ago.
It was still pretty high it was in the low eighties.
So we had think of it is 80% of our issue was tape drives 20% was other sundry items, we've gotten all of those items kind of work down and basically our supply chain issue is laser focused on a single supplier.
Okay, and if I recall correctly, one of the longer term key levers was.
Territory and territory and vertical sales still and.
Presumably that's something that's going to be worked on.
And through this fiscal year and not something that you worked on this most recent fiscal quarter Brooks.
We've been working on that as well I mean, we're putting those people in place now.
The hiring environment has changed drastically.
There's a lot of talent available.
There's a lot of people coming out of companies right now.
That are doing a reductions in force so I'm seeing a much more favorable hiring environment for quantum.
And we are getting really good talent.
We're placing into key territories, so I feel like we're getting much.
Closer to full strength in our sales organization and we'll see that as we get people through boot camps training I think we're going to see.
The sales come through and we're hiring people to address mix.
I mean, everyone knows a big part of our mix is hyperscale or those are big volume deals, but they are lower margin.
And I feel really good about how that business is performing so the people. We're hiring are in higher margin businesses to help us with mix going after enterprise media and entertainment.
And.
Ah.
The fed or other key U S. Federal absolutely other key verticals for us that will help us get our mix more balanced.
Okay, great. Thank you.
We have reached the end of the question and answer session and I will now turn the call over to Jamie Lerner for closing remarks.
Okay. Thanks, everyone. Thanks for attending today and this concludes our call.
We'll see you next quarter thanks, everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
[music].
Yes.
[music].