Quantum Corporation (QMCO) Earnings Call Transcript & Summary

[Presentation]

Hi, I'm Brian Cabrera, Chief Legal and Compliance Officer at Quantum Corporation. This presentation contains forward-looking statements about the company's plans, strategies and prospects, including capital structure and go-to-market strategies as well as the company's future operating results and financial position. These forward-looking statements are based on information available to the company as of the date of this presentation and are based on management's current views and assumptions. These forward-looking statements involve a number of known and unknown risks that could cause actual results to differ materially from those anticipated. Such risks include changes in market demand and the competition we face, market acceptance of new products and the continued impact of the COVID-19 pandemic on the company's business, including on its supply chain. Information concerning other risks that could cause results to differ materially from our expectations is contained in the Risk Factors section of the company's annual report on Form 10-K filed with the SEC on May 26, 2021. The company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made. In this presentation, the company will be discussing non-GAAP measures of adjusted operating expenses, adjusted EBITDA and adjusted EPS, which are adjusted from results based on GAAP. These non-GAAP financial measures are provided to enhance the user's overall understanding of the company's current financial performance and the company's prospects for the future and are not comprehensive of the company's financial results. Such measures should not be viewed as a substitute for the company's financial statements prepared in accordance with GAAP. You can find a reconciliation of these metrics to the reported GAAP results in the reconciliation tables provided in the appendices to this presentation. A reconciliation of non-GAAP measures to corresponding GAAP measures on a forward-looking basis is not available due to high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. Now let's talk about our agenda for today. Jamie Lerner will talk about our company strategy. Brian Pawlowski is going to talk about technology and innovation. And Bruno Hald will talk about Hyperscale archive leadership. We'll also hear from Rick Valentine on customer success and services transformation, and Eric Burgener will talk to us about industry perspective and market opportunity. John Hurley will present our go-to-market strategy; and finally, Mike Dodson will present our financial strategy and outlook. Then we'll have live Q&A with the executive team. With that said, I'd like to introduce Jamie Lerner, our Chairman and CEO. Jamie?

Hello, and welcome. I'm Jamie Lerner, Chairman and CEO of Quantum. Thanks for joining us today. What I'd like to do is talk to you about what we do as a company, the products we build, but more importantly, why we build them. I'm going to talk to you about an end-to-end architecture that we're building. We're combining our products together into an architecture that's building our 5-year strategy. Over the next 5 years, we want to emerge as the leader in end-to-end solutions for unstructured data. So I want to talk to you a little bit about what is unstructured data. Well, maybe we should start with what it isn't. It's not rows and columns of letters and numbers like you'd see in a spreadsheet or a database. Unstructured data is a 2-hour feature film. Unstructured data is video surveillance data. It is data from a visit to the doctor, could be an x-ray, an MRI, CAT scan. And this data is large, and this data is complicated. It's complicated to analyze. It's complicated to understand what's inside it, and it's 90% of the data on the planet today. Now we've been building technology in and around unstructured data for quite a few years. And we are #1 in 3 markets today. For mission-critical video surveillance workloads, we've got many of the world's largest public transportation systems, many of the world's largest hotels, the world's highest volume airports, huge federal agencies. In addition to that, we've been involved in entertainment video; sports, television, movies. It's very likely that if you watch the news or watch a feature film or television, Quantum Technology was involved in that. 5 of the 5 largest U.S. broadcasters use our technology, the largest sports teams, the largest sports franchises around the world. We have over 100 university athletic departments use our technology to produce their video and bring it to television. We also have emerged as the leader in forever archives, for 100-year archives. When the world's largest hyperscalers and the world's largest federal agencies, the largest governments have to store data for decades or centuries, they turn to Quantum for that. That gives you a sense of what we do today, but I want to talk to you more about our strategy. We're putting our products together into a strategy that we think is a winning strategy for our customers and that the customers that go end-to-end with Quantum are likely to drastically outperform those who don't. And I'd like to talk a bit more about that. Now the reason we're putting so much energy in and around unstructured data is, it's 80% to 90% of all the world's data and it's the fastest-growing segment of data. It's over a $30 billion industry in the next 3 to 4 years of just housing, managing and storing this data. Now where is the data coming from? It's really coming from 3 core segments. One is called non-entertainment images. These are images from military vehicles, they are images from satellites, they are images from medical imagery, surgical imagery, machine generated. The second category is surveillance video. There's surveillance video all around us. There's probably a video -- surveillance video camera in this room. We're just surrounded with surveillance video. Some of it is reading the license plate of our cars as we pass through toll booths, some of it is studying traffic, and some of it is actually specifically looking for loss prevention and keeping us safe in airports and places like that. And the third area is an area we already talked a bit about, which is video for entertainment and communications, much like the video I'm doing right now, communications-oriented video, all the way through video for sports, television movies. Now this video has some very unique characteristics, or this unstructured data has unique characteristics. And the most important point I want to make to you today is that the products of today and the products in the future are made with data. When you get into your car, there's steel and there's cloth and there's brakes and engines. But I don't think those are the predominant ingredients in a vehicle today. The predominant ingredient is data: the navigation system; the communication system; the entertainment system; the computers that make that vehicle work; the computers that sense the other cars around it, that help you parallel park; the computers that allow you to, in some cases, autonomously drive or emergency brake that video -- that car is the core of that product. When you take medicine, yes, there's biology and chemistry involved, but the predominant ingredient in medicine is data. And I think increasingly, the products around us -- when we see rockets shoot in the space, they're shooting into space through data. And almost every product in the world around us is going to be built with data. And that data has a life cycle. That data is collected. It may be collected from a camera, it may be collected from a medical device, a genome sequencer, a machine that is sensing things around it. And that data is collected, it's stored. But that data is so vast, it has to be analyzed. It has to be cataloged. So if you have a video, what's in the video? Who's in the video? What are they doing? What are we learning in that video? That's metadata. That metadata has to be put around the data, it's called often data enrichment. We have to enrich that data so that it can be used later that you know what it is, when do I -- how do I find it, when you have millions of these kinds of data. And then ultimately, that data has to be analyzed. It may be machine learning, different types of statistical analysis. And then ultimately, that data is stored for, in some cases, decades or centuries. If it's a gene, it may be stored for many, many years. One, during your life. But secondly, it will be kept, for scientific research, maybe many years after you passed. And Quantum is building an architecture that goes end-to-end. We're actually even building the workflow that allows you to move data through these many steps. So I want to tell you a little bit about what it is we've built. Now 3 years ago, we had parts -- parts of this architecture. We had the world's fastest file system, specifically for video. We had backup technology, archive technology. But we've begun very aggressively building out this architecture. First, we built out very specific technology for forever archives, for 100-year archives, in working with our hyperscaler customers. We built very specific equipment, the i6, H and we have new products called the i7 that are under development. We built out asset management software so you could catalog this data. We built workflow technology, and we acquired CatDV that had workflow technology for moving data through many steps of analysis and processing. We built out and bought the ActiveScale technology to build out Object Storage. We then started building out surveillance technology internally. We also acquired Pivot3 and EnCloudEn. We built out the ActiveScale cold storage to be able to build a full as-a-service offering for storing data for decades and centuries. We then built a cloud-based monitoring system that can monitor all of our products, whether they're on-premise, in a third-party data center in the cloud so that we can operate our products and help our customers operate our products anywhere around the world. And then we built out a service delivery platform so that we can help our customers run our products seamlessly whether they're on-premise, hybrid or in the cloud. So a huge amount of development. And now what we have today is an end-to-end architecture for the entire life cycle of unstructured data. And I want to talk a bit about why that matters. Our strategy to build this end-to-end architecture is built on this understanding that the customers that go end-to-end with Quantum, when they're building a product that's made of data, they're going to build a better product with us. They're going to build that product faster. They're going to build that product more efficiently. They're going to build a better product because they have better access to the data that allows them to improve it. So the customers that go end-to-end with Quantum are highly likely to outperform the customers who don't. And we've been working on this architecture now for close to 3 years. And we're having pretty amazing results with it. One is we've expanded into new markets; life sciences, autonomous vehicles, different mining and gas exploration applications. We've moved well beyond the world of surveillance and media and entertainment. We've taken point products and put them together into an end-to-end solution. So our products are pre-integrated. They work together. They pass data between our products seamlessly, seamlessly passing data into the cloud, back onto premise, into analytics technologies, back into data lakes. And we've done that moving the license model into a subscription model that allows you to buy the pieces of the architecture that you need, in the amounts that you need, when you need them, knowing that, that architecture is constantly changing. And we created a licensing model that allows you to consume what you need, when you need it versus paying upfront for something that you're not really sure you're going to need over the full life cycle of a project. We've also moved from just being a storage company to really being a data management company. We don't just store data, but we protect it, we move it, we enrich it. We manage workflows. We handle approvals all the way through archive. We put a huge amount of work into the architecture. But the reason we've done that is for an economic outcome. And we've had pretty phenomenal set of changes that have happened economically to our company. Even though we've been dealing with COVID, we've been dealing with various supply chain issues. Those things are not masking the underlying changes that are happening to our company. In the last 6 months, we've had the highest bookings, the highest sales results that we have had in over 5 years. In conjunction with that, we've had a 300% increase in the number of $500,000 deals that we do. And the Quantum didn't historically do a lot of $500,000, 1 million dollar, multimillion dollar deals because we had point products. Now we're bringing our point products together into an end-to-end architecture and people are going all in. And you can see that with our bookings going up, with the size of our average deals going up, and we're learning as a company to set a goal and achieve that goal. We set a goal 3 years ago. We had 1 hyperscaler that we were in very early stages with. And we set out an ambitious goal to say we want to be in all 7 of the world's largest hyperscalers. Well, today, not even 30 months after setting that goal, we've now transacted with all 7 of the world's largest hyperscalers, many of them well north of exabyte scale with us. Now we've also set a goal to change our business model from a onetime license company to a -- really a onetime hardware company where you buy a piece of hardware from us to now being a software company where you have a long-term relationship with us through a subscription. Well, we've moved 200 customers over to that subscription model. And we're announcing that in Q4 -- our fiscal Q4, which ends March 31, we'll be between $8 million and $12 million of software subscription annual recurring revenue, so a midpoint of $10 million of recurring revenue in just software. And that, combined with the other recurring revenue we have from our support customers, we're going to exit this year with $160 million of recurring revenue. So we've been pretty busy not just architecturally, but changing the architecture of the financials of our company as well. So I want to talk about where we expect to be in 2026. So Mike and the other leaders who come after me are going to tell you exactly how we build up to this. But within 5 years, we expect to be the recognized leader in the management of unstructured data -- of end-to-end solutions for unstructured data. We expect predominantly to be a software and services company. We expect to be absolutely #1 and remain #1 in hyperscaler large-scale archives -- not just in hyperscale, but in web scale and in the enterprise. And we believe that the technology we're building is so unique, it's going to be very hard for the competition to stay with us. And right now, we feel pretty strongly that we're pulling away from our competition just from how unique our intellectual property is and how very hard it is to copy what we're doing. Now the result of that, we believe we're going to be 70% recurring revenue within 5 years, and that's going to be recurring revenue of $350 million. We're going to move today from the low 40s in margin up to a 60% gross margin. We're doing that by selling more software and less hardware. We believe this is a $150 million EBITDA company with earnings power of $1.50 non-GAAP net income per share. So we really think the architectural changes we're making are driving financial changes within our company, and we think it's pretty explosive. And with that, to tell you more about how we're going to do this technically and, ultimately, how we're going to do this economically, I welcome Brian Pawlowski.

Good day. I'm Brian Pawlowski, Chief Development Officer at Quantum Corporation. Today, I want to talk to you about technology and innovation at Quantum and how we are helping customers meet the demands of gaining business value from their ever-increasing data. We've accomplished a lot in the past year. We've made great strides in moving from primarily appliance-based product portfolio to a software-defined, cloud-enabled set of offerings. We have delivered on our vision of a hyperconverged storage architecture via the H-Series product line. We've completed the acquisition of Square Box Systems and are shipping the CatDV media asset management software to enable efficient video workflows. With the Pivot3 acquisition, we have bolstered our video surveillance solutions with a software-defined approach that supports end-to-end surveillance workflows. And we are well on our way to enabling our vision of the 100-year archive with the announcement of ActiveScale cold storage, which brings the favorable economics of highly durable low-cost storage in the cloud, on-prem into your data center. As I look at our products and I look at our strategy, I think there are 3 things we need to do. We have to make our products easy to buy, easy to deploy and easy to use. In making our products easy to buy, we decided to go with a licensing model involving subscriptions. We are well on our way to transitioning from a perpetual license appliance sales model to a software subscription model. As part of that move, we've simplified our software licensing to an all-inclusive, capacity-based, cloud-managed licensing system. The goal here is to provide a simplified way to buy and deploy the products that Quantum offers with a simple-to-use, consistent licensing model. The next thing I want to talk about is making our products easier to deploy. We're doing this in several ways. And the first way is delivering our products with a solutions focus. Why this is important? Technology is difficult to consume if it's difficult to deploy. And if the technology you deploy as separate products to a customer is left for them to integrate on-site, that complicates their consumption of your products. So we are looking at creating more solutions for our products combining 2 or more of our products together into a single solution. For example, we're taking our CatDV media access management software, and we have essentially installed it on and integrated with our H-Series hyperconverged architecture with a StorNext file system. It has been redesigned from the user interface perspective to install quickly into a fixed configuration and is intended to be installed by creative people, not by storage administrators. It's meant for small production houses and edge deployments for our larger customers. That integration led to a reduction in time of the integrated product versus the hours needed for the 2 separate products to be installed and integrated at the customer site. The second part of our journey is we've begun partnering with major platform providers. And we've announced our relationship with Supermicro, to essentially deliver our software on their hardware. Now why would Quantum want to do this? The benefits to Quantum customers are increased currency with platform updates from the hardware providers themselves, while we focus on providing competitive software. The platform providers also give us the opportunity to do geographic-specific product variations that are better suited to international markets. We see a lot of opportunity here for optimizing for the customer experience. Third, and most obvious, we're moving forward with providing our software solutions on the major cloud platforms. This provides a well-defined and well-established model of consuming software to our customers because they're already using it for other applications. For Quantum, it is a key part of our enabling a hybrid cloud workflow where the edge to the data center to the cloud work seamlessly and data moves back and forth. Our storage manager software today allows you to easily move from on-prem to the cloud and -- or on-prem to archive storage, and bring the data back and moving it back and forth to the cloud is something our customers do today. By providing our software in the cloud, we provide the ability to burst into the cloud and actually run the applications you use on-prem against your data sets while in the cloud. We want to give our customers the flexibility to consume and use our software wherever they need to. Finally, let's talk about ease of use. To make our products easy to use, we began a journey 2, 3 years ago, driving towards a consistent user experience across our portfolio. This journey will continue and will take place over the next year or 2. And 1 piece that has been completed and delivered is our cloud-based analytics solution. It's our customer self-service platform hosted in the cloud that is a key part of our service delivery platform that Rick Valentine will be talking about later. With cloud-based analytics, a customer or their support person can view all the Quantum assets for that customer across their data centers. The interface is designed to be intuitive and simple to navigate. It emphasizes quickly grasping error conditions and responding to events and alerts, visualizing performance behavior in many cuts of the data and all under user control and understanding how the storage solution is working overall and its health within the data center. In the near future, we're going to be adding support for proactive case opening and replacement parts dispatch. These things are on our road map. In the data center, our H-Series and F-Series platforms have the same user interface as cloud-based analytics. This provides a seamless, consistent user experience from on-prem in the data center to the cloud. Whether you're capturing data in instrumented car to R6000 mobile storage solution or taking that data from the R6000 and doing a rapid ingest to our StorNext file system on-premise to perform data analytics and model training or you're moving data to low-cost archive storage, either our ActiveScale cold storage platform or to any number of the cloud providers as S3 objects, Quantum is there to help you with your entire workflow from edge to cloud. Our vision is that you move data seamlessly between locations to meet the organization's data analysis and management goals. I've talked about what Quantum is doing with our products and what we've done in the past year. But let's step back and look at reality and see where our customers are today and where the industry is today. Many customers still find that their unstructured data, which comprises the majority of business-critical data being management companies to be underused and overly complex to leverage. According to a recent survey by the Enterprise Strategy Group, 88% of the respondents say that retaining more data longer is an avenue to greater business value creation. 89% of those respondents say that more automated tiering could save them substantial money. 78% of the respondents say the organization frequently migrates data between environments from the cloud to on-prem to the edge and back. Data is mobile, distributed and growing, but the result is data sprawl. The challenge facing our customers is how do we enable business success through intelligent data management? Today's customers are guessing what their capacity needs are and where their data lives. Data continues to be siloed. With the cloud instead of being the new location for all data, it's just another silo. Finding business-critical data can take days. Moving data from the edge to on-prem and to the cloud is still, for many people, a manual task. They're fearful to delete anything because they are unable to identify the business value of the data, and they're reluctant to implement tiering solutions that would allow them to reduce the cost of deployment for fear of losing that data. 7 out of 10 management teams put data at the core of growth. At Quantum, we believe the answers lie in intelligent data classification, automation of placements and automated tiering of data from the edge to the cloud. You just can't do this manually. Further, augmenting storage to provide real-time search and analytics and seamlessly bridging data from the edge to the cloud to support an increasingly hybrid world is critical to our customers' success. What you see before you is a picture of our story map that visualizes our product development journey. When I look at this, I try to capture the influences and key movements in our development organization. At Quantum, we have continued to invest in the core architecture of our products. It's not just about delivering features and functionality, but developing platforms that have legs and last into the future. We have increasingly leveraged industry standard open source components for virtualizing and containerizing our software products, [ that's ] represented by the whales with the containers on the back in the picture. This work has been ongoing and is critical to enabling our software-only future from supporting deployment from the edge to the cloud. We've delivered the first fruits of this work in the StorNext 7 on H4000 platform. So the hyperconverged architecture is there and shipping and deployed in our customer sites today. We're investing more and more in delivering solutions, combining 2 or more Quantum products that provide greater capabilities than any 1 product alone. Security vulnerabilities and security threats are only increasing, and the security looms large in our customers' minds. Like many companies, Quantum is working with our customers to share best practices for protection against software vulnerabilities, whether running software scanners on our product as part of our continuous deployment model or providing support for data at rest encryption for the customer or durable right one solutions for compliance purposes. And more recently, we've developed airgap technology that physically prevents any alteration of key archived data. When you think of security, we want you to know that Quantum is there for you. Finally, I just wanted to observe that you see lots of people on the story map. Products don't build themselves. Innovation ultimately rises from people. As you can see in the story map, the landscape is populated with people on a journey. Quantum's key to success is developing, attracting and retaining top talent. Our multi-geography R&D centers provides Quantum a substantial flexibility in attracting the talent we need to ensure our success. Products don't create themselves. Innovation doesn't happen by itself. People innovate and people develop products. Innovation arises with the team. After working at NetApp and Pure and primarily single product companies, it's really exciting for me to be here at Quantum. Working through the portfolio and end-to-end solutions and providing essentially full solutions to our customers and working with partners to enhance those solutions is very different from what I've done before. And I'm looking forward to the road map ahead of us. As you can see from the landscape, we have a lot of things to do and a lot of trails to walk, but the views will be fantastic.

Hi. My name is Bruno Hald. I'm General Manager for our secondary storage business here at Quantum. And I would like to talk to you today a little bit about our Hyperscale business as well as the products that are involved with this side of our business. So over the past year, we made tremendous progress with our Hyperscale business overall. We grew our customer base to 7 customers and converted customers that had been in trials with us last year. We now have over 30 exabytes of data deployed between those 7 customers. Some of them are still in trial as well. So the size is a little smaller there. But to give you a little bit context about what 30-plus exabytes are, this equals to over 6.4 billion single-sided DVDs of data content. So these are huge installations that we have out there. Currently, we have about -- between all of these installations, we have about 3 million LTO tapes under management. And if you look at the length of all of the tape together back to back, you're talking about 1.65 million miles of tape. This is a tremendous accomplishment and a huge success for our customers as well as for Quantum. Here's a little fun fact for you. If we would take the tapes in just 1 customer's installation and tie them all together, we would actually get up to the moon 3 times and back. This is a pretty amazing feat and we feel very proud of this accomplishment at this customer. Looking at the market overall, based on data from IDC, what we're seeing here is that, as you can see on the chart on the left-hand side, capacity growth that's projected for the market overall is significantly growing over the next years, which poses a challenge for the infrastructure to really keep up because the spending is just [ an ordeal ]. What this causes is that we see this gap between available capacity and needed capacity continue to increase. What this does is, obviously, it generates an opportunity for companies like Quantum to provide products that can play in this space to help really close this gap. What you see on the right-hand side is the projection from IDC that most of the data that gets generated over the next time, 60% of it will be in a state of cold storage. Cold, in this case, means data that's infrequently accessed and sometimes not accessed at all. The products I'm going to talk about play in the space of cold storage and even go up a little bit into the warm storage space. I'm going to talk about a few of these products in later slides. Over the past year, we have announced and released multiple significant releases that bring us forward into the direction of what we're trying to develop for our customers. We started out on June 24th with a major release for our ActiveScale Object Storage platform. The improvements here were around exabyte scalability, unlimited size really of data capabilities and data capacity in the system as well as support for a hardware platform that is at least 7x fast as our current platform. We followed up in October with a press release around our ActiveScale cold storage product which we will be shipping shortly. And I have some further slides further down to talk a little more in detail about this product. Mid-October, we announced a more in-depth partnership with IBM for the next-generation LTO technology advancements. It is in Quantum's interest to really continue to push the envelope around tape. And this partnership with IBM allows us to press forward on capacity and time-to-market improvements for LTO overall. And then lastly, we just last week announced introduction of our Scalar Ransom Block. This is a feature around our Scalar tape products that is really geared more towards cybersecurity and ransomware protection, but still very relevant as it complements the overall strategy of our products going forward. The diagram on this slide shows our ActiveScale cold storage product, which is a combination between our ActiveScale opted storage and our Scalar tape product. The idea here is that you tier data down into the tape layer, and we have a patented approach and how we're doing this was spreading the data across multiple libraries, multiple tapes and protected with erasure coding. The benefit of this is high durability and easy access to the data compared to competitive products or even the cloud. You're talking about access time to the data on tape in minutes instead of hours, sometimes specked on these public cloud offerings. So there's a big advantage for customers who have a more active data archive, if you will, and want access to this data on a more frequent basis. We also project pretty significant savings around the overall solution, and I'll get to this in the next slide. The utilization of the storage in place is also extremely efficient because the way the data gets spread across the systems and across the tapes and across the libraries, with only an estimated 15% overhead in the system. So talking about the cost savings. So compared to your more traditional disk-based alternatives, we project about an 80% savings for the ActiveScale cold storage solution relative to even public cloud. Depending on the use case there, we can see savings up to over 30% as well. So a very cost-effective way to help with bridging the gap that I've been talking about earlier. What we're showing here is a use case of 10 petabytes basically stored over 10 years. And you can see the dollar savings can be really, really significant in this application. So this slide talks about the Ransom Block that I have been talking about earlier. This was the announcement we just made last week. What you see here is -- on the left-hand side is your classic tape library product with a robot in the middle, tapes on the left-hand side, magazines that hold the tapes, the drives would be in the back. So for a customer to basically read data, the robot would pick the tape and put it back into the tape drive, where you then can basically do read/write operations to the media. And either store or restore your data. As the first innovation to improve the security around the data stored in these tapes, we implemented a little while back what we call logical tape blocking. This is basically a software implementation to protect the tape from being taken by the robot. So meaning if there's a request coming in from a host that wants the data from a certain tape, the robot is basically disallowed. We have software to grab that tape. So now we took this a step further, reason being is software-based protection. It's a good protection, but it doesn't necessarily give you full protection, right? So we implemented what we call Ransom Block, which is a hardware feature that really allows another level of security be brought into the system. The way this works is basically a system can e-check a magazine and the magazine gets stopped a little bit out of the system. What this does is that the robot now physically can't access this tape that a hacker or some intruder wants to have access to. This is a very powerful solution because now what you really need is you need a second step. You need to have somebody physically go over to the data center, push the magazine back into the system so that it's in a location so the robot can read it. The other nice benefit of this Ransom Block is that the media stays in a, let's say, visible envelope for the robot. So the robot actually can still, let's say, see the barcodes on the tapes, inventory it and, for auditing purposes, you can have a report that your media has been in a library, hasn't been removed, and therefore, you can have an audit trail to show that your data is safe. This is a pretty nice feature to really add that additional level of security into our product line and complements our overall strategy around cyber resilience that we're trying to provide with our tape automation products and all of our other products for that matter. So to somewhat in conclusion, I mean where are we going? We're driving a -- I would say, a 2-pronged approach here. We have been really pushing very hard on the top layer in this pyramid hill. These like 10, 12 hyperscalers we're talking about in general. Our products have been a combination of infrastructure play, I would say, where it was mainly about the tape hardware, but we also, in recent wins, I should say, included a certain software layer on top of this. We're now starting to use that experience that we have out of these accounts, and that's the second approach, really the second prong, that we're starting to push down into the web scale businesses, in the 200 larger businesses as well as into the Fortune 2000 enterprise businesses with that solution that I talked about around ActiveScale -- ActiveScale cold storage, right? Combination of the 2 products to really provide that layer of inexpensive, highly durable and highly reliable storage for customers that don't necessarily want to go to the cloud, have their own data set, they want to keep local, maybe want to have a more active kind of data archive for these long-term data protection things they have in scheme, maybe run AI type schemes over the data and need to have access on a regular basis to this data. So the combination of that ActiveScale cold storage software plus additional software that Quantum offers provides really an end-to-end solution for our customers that are looking for this option of having a relatively inexpensive but highly secure and highly durable storage space outside of the public cloud available for themselves.

Hi, everyone, I'm Rick Valentine, Chief Customer Officer here at Quantum. As Jamie mentioned earlier, we are in the middle of a major transformation here in the services business, moving not just from storing data, but also managing, protecting and enriching it. Your difference is in your data, and that's especially true in the services side of the business as we move to more recurring revenue models. But before I dig into that, it's important to note that what we said we would do last year and what we have accomplished. In this slide from last year's analyst meeting, we declared that we would move to new Quantum as-a-service models and that we would focus on automating service delivery. And I'm happy to say we've made great progress in both areas. As Bruno just reviewed, we recently announced the launch of our brand-new Quantum as-a-service offering, ActiveScale cold storage. This service offers best-in-class data retrieval, accessibility and durability at very competitive pricing. And the best part is Quantum does it all. The customer simply tells us how much storage they need and we do the rest. From owning, installing and managing, scaling and protecting it, it's all done by Quantum. And that's just the first of many do-it-for-me offerings we have in the planning phase. Ultimately, we look to offer any Quantum product in a do-it-for-me services model. We also committed last year to automating service delivery. And I'm really excited about what we have accomplished. This last summer, we launched our new service delivery portal, MyQuantum. MyQuantum provides customers with 1 place to do everything Quantum. This online portal is designed with the customer in mind, making it easy to interact with Quantum on products and services with just a few clicks. This one-stop single sign-in portal enables customers to easily manage everything Quantum: product registration, updates on the latest product revisions, support requests and case management, trial downloads -- demos and much more. This is available right now for most Quantum customers, and we look to move our CatDV, Pivot3 and then cloud and customers to this portal early next year as we migrate to a new enterprise CRM system. As Brian touched on earlier, customers can access, right from MyQuantum, our version of AI Ops software that we call cloud-based analytics. CBA is currently used to monitor thousands of systems worldwide, capture telemetry data and use predictive analytics to assist in system maintenance and to reduce downtime. It is also used by the Quantum services organization to help deliver these services when we do them for customers. CBA is available in many of our Quantum products today and will be available in all Quantum products in the near future. So we did what we said we would do, what's next? As Jamie mentioned, we deliver products and support to many of the largest industry-leading companies on the planet. The largest cloud providers, the largest movie and television studios, sports teams, they all use Quantum products. And since we believe your difference is in your data, we want to help our customers completely unlock the power of that data. So we are moving our professional services organization from what is now an install and upgrade organization to a true consulting organization. We are hiring solutions architects and PS consultants to work with our customers to not only maximize the potential of their Quantum offerings but help them move their businesses forward by assisting them in creating new cloud architectures, launching autonomous vehicle programs or solving challenges in the movie and television industries. Our goal is to not only help customers use Quantum products but help them solve challenges among multiple products and platforms. We are looking for significant revenue growth in this area over the next several years. So because of our laser focus on increasing recurring revenue by offering our software through a subscription model, I think it's important to point out that we have over 11,000 customers currently on multiyear maintenance contracts. And as we've noted before, over the last several years, we have seen a decline in the maintenance revenue line or what we call the golden glide. We have doubled down on our efforts this year to do 2 things: attach more services at the point of sale and work with customers who are at the end of service life on old equipment to move them to OpEx recurring models. And as a result, this year, we are projecting, and this is the first time in over 10 years that we can say this, that our maintenance TCV bookings will increase significantly reducing the effects of the golden glide. So that said, that's our strategy, offer new and compelling as-a-service offerings that let the experts Quantum do the work for the customers, automate and make it easy for our customers and partners to do business with Quantum, provide insights and analytics so that our customers can bring their businesses forward, provide meaningful professional services offerings that allow our customers to unlock the power of their data and clip the wings on that golden glide. Thanks for your time today.

Hi. I'm Eric Burgener. I'm a Research Vice President in the Infrastructure Systems Group at IDC, and I focus primarily on storage. Today, I'd like to talk with you about some of the growth opportunities in the unstructured storage arena going forward. Now in today's world, we see a lot of enterprises moving in what we call a digital-first direction, and this is the digital transformation that you probably heard talked about. What that really means is a migration or an evolution towards much more data-centric business models. Companies are capturing, storing, protecting and analyzing more data than they ever have in the past. And most of that data going forward will actually be unstructured data. So there's an explosion in unstructured data going forward. And that requires some new kinds of storage platforms and IT infrastructure to be able to effectively analyze that data and turn that into value for businesses. Now if we take a look at the actual growth, you can see that the amount of unstructured data that's stored today is a little over 4 exabytes. By 2025, that will be over 9 exabytes, and that's on an annual basis. So this is huge growth. That will be more than 80% of all the data that is captured and stored by 2025. And what's interesting about this is that this will require more enterprises than ever to manage data sets at a multi-petabyte scale. And that's one of the things that's driving need for new types of storage architectures and new approaches for storage to be able to cost effectively handle this data and also make it available for analysis. Now we've also seen the rise of artificial intelligence, machine learning and deep learning technologies to use in the analysis of this data. And those workloads bring some of their own requirements to storage infrastructure going forward. So let's take a look at exactly what this looks like. Now in terms of data, there's 3 kinds of data. There's block, there's file and object. File and object are considered unstructured. So here's a quick look at the forecast for unstructured data from IDC. You can see that object is more than twice the size of file. And what's interesting here is that because object is actually an excellent medium for storing colder data very cost effectively. It's massively scalable, much more cost effective than file but doesn't provide necessarily as high a performance. And we're seeing a new architecture emerge where you've got high-performance file systems on the front end, that's where you might capture the data, ingest it very quickly, analyze it, and then you might want to keep that data over time. And it's very effective to be able to move that data to back-end object storage. And in fact, a lot of the growth that we see coming in object storage going forward will be exactly driven by that. So you can see that this is the largest. It's almost a $30 billion market overall in terms of all the data that will be stored by 2024. But clearly, scale-out object will be the dominant, but there's also good growth in scale-out file. Now what's actually driving this data growth? Well, interestingly, most of the unstructured data is actually some kind of video data. Now that might be video surveillance. It might be entertainment communication, like marketing and training videos that are used. It could be digital images like MRIs, CAT scans, genome sequencing and health care. Those are the types of data. So it's not just video surveillance data that you might think of [ lastly ] in this arena from the transportation and military industries. But there'll be a more sort of a business orientation to justifying the purchase of systems to be able to capture, analyze and then store over long periods of time this data. Now let's take a little bit closer look at the video surveillance data and what it actually means. So today, the 2 largest markets for that are the military and transportation. Those aren't really the traditional ones. But government is a fast-growing third place, and that's going to be -- there will be a lot of growth in that arena going forward. Now I mentioned a little bit earlier that in the past, most even safety and security that have justified the purchase of video surveillance. But going forward, that will be more oriented by business requirements. And this is where the analysis comes in. And in fact, that's really what video analytics is all about. Now one other point I'll mention here is edge-driven analytics. With the explosion in data that's happening, we just don't have the network bandwidth to be able to get all of that data back to core locations where analytics have traditionally been run. So what we're seeing are customers looking for ways to be able to analyze that data at the edge, so they capture -- capture it at the edge, they run some preliminary analytics and they create results that tend to be much smaller percentages of that data. It could be 90% to 95% less than the actual raw data that they capture. And then they send the results back to the core. And so this addresses this concern about network backhaul bandwidth. And 5G will certainly help that but the rise of edge analytics is another very popular approach to be able to help manage all of this data going forward. Now I mentioned a little bit earlier, cold storage. Well, there's actually 3 kinds of data out there. There's hot, there's warm and there's cold. And how you determine which of those buckets data fits into is basically how frequently that they're accessed. So hot data, that's where you want to keep in your high-performance systems. This is data that might be accessed daily, hourly, that kind of thing. Warm data is data that you might access on a weekly basis. So we need some performance there, but you don't need to pay the same prices to get the performance that you have in your hot tier. And then you've got your cold tier. And you can see here that's 60% of the data. So a lot more of the data needs to be stored in the cold tier. This is where you need massive scalability. You need low dollar per gigabyte cost to be able to store that data. But if you want to be able to analyze that data at some point in the future, which is a very common requirement in AI, ML and DL workloads, you want to be able to access that data in an online manner. You don't want it to be offline in such a way that you need manual involvement to be able to reload that data and then start to run analytics on. So this really sort of shores up the need for a new kind of technology within that cold storage tier. And I'll just mention 1 other thing that's interesting about this and really underlines this massive opportunity in cold storage, is if you look at the data growth rates, which are about 30% per year, and you look at the planned IT infrastructure budget growth, which is sort of on the order of 10% to 12% a year, clearly, there's a mismatch there. Data is growing at 30%. The budget that's supposedly growing to be able to handle all of the infrastructure around that data is growing at about 1/3 of that. So this just means that there has to be a better way, a way that didn't exist today to be able to handle that whole data on the back end. Now let's talk a little bit more about the artificial intelligence and machine learning workloads. And there's something very interesting development here. So I'll just mention there's 3 kinds of file systems out there. There's scale-up clusters. This is sort of the traditional NetApp. There's distributed file systems. That's kind of the traditional Isilon, which is now called PowerScale. And then there's parallel scale-out file systems. And the parallel scale-out file systems have traditionally been sold in the technical computing space, which has been a relatively small market segment. But what parallel brings to the table that you don't get from the other 2 approaches is an ability to scale performance to single very large files to literally hundreds of gigabytes. And if you look at the ability of the other 2 types of file systems, those are really limited generally to the kind of performance you can get from NFS, which is going to be 2 to maybe 9 gigabytes a second as opposed to potentially getting 150 to 200 gigs a second into a particular file. Now in the AIML world, there are a lot of large files. And in many cases, you want to be able to run analytics against all of that data at the same time. And there are also a number of real-time applications that are arising in the AIML space. What this has really pointed up the need for in this arena is bringing parallel scale-out file systems and the scalable throughput that they provide into the enterprises that are deploying AIML. So no longer will parallel just be sold into technical computing and media and entertainment spaces, but you'll see this used in much more mainstream business opportunities. Now enterprises have some different requirements relative to technical computing, in particular around things like high availability, resiliency, fast recovery. And so what we've started to see are vendors that have figured this out, figured out the opportunity for AIML in the enterprise, are starting to modify their products to be able to provide those capabilities that traditionally parallel scale-out file systems did not bring to the table. And I'll mention one other thing that's interesting here. We've noticed in a lot of discussions with customers in this area that when they bring AIML pilots into their enterprises, and they probably already got some kind of a file system running, often that's a scale up or it's a distributed. They put their AIML workloads into those environments. They tend to work pretty well when they're small. But if those workloads are successful and the data sets begin to grow, they pretty quickly outrun the performance capabilities of those other architectures. And that's the point where they realize they need to look at something like parallel scale-out file system to be able to handle that. Now this is a high-growth market. In fact, if we take a look at the growth for storage for just AI workloads, that's just 1 workflow that is deployed in enterprise, you can see that this is going to be driving $2.5 billion worth of storage revenues that are specific just to that 1 workflow. So this is a very high growth rate. This is growing at about 8x the rate of enterprise storage overall. So this is a very interesting area and the parallel scale-out file system market growth will be significantly higher than that of the distributed and the scale-up space, primarily because of all the growth opportunity around AI. So let me make a few comments about IDC's view on a Quantum. So Quantum is actually a 40-year-old company. They've been around quite a while. They started out in tape in the '80s. We're very successful in that space, moved into backup appliances around the 2000 time frame. And then they purchased a parallel scale-out file system prior to 2010, which is called StorNext. That is a parallel scale-out file system. That file system has been sold very successfully by Quantum into M&E accounts and also a lot of life sciences and health sciences accounts over time. But it's the right architecture for a lot of the new AIML-driven workloads and in particular, for video analytics, where Quantum has already really established a leadership position. This is a very nice match of technical capabilities of that vendor with growth opportunities that are out there in the market. Now Quantum got a new CEO back in 2018, Jamie Lerner. I think you heard a little bit from him earlier today. And Jamie has really turned this company around. He focused early on in addressing some of the financial issues around the company. But by 2019, we're starting to look at strategic acquisitions that could move the company more in the leadership direction around video surveillance and video data. And I must mention Quantum already had a strong position in this market even before they bought companies like Atavium, Square Box, Pivot3, EnCloudEn. I'm going to talk a little bit about what some of these technology acquisitions were about. So number one, ActiveScale. This was an object storage platform. Quantum did not own their own technology in this arena, but they saw the strategic importance of this arising architecture where you've got high-performance file system on the front end; object storage, massively scalable object storage on the back end; and they wanted to own that technology so they could create those integration points and provide a complete solution under a -- from a single vendor. So that's what the ActiveScale acquisition was all about. That is the object back end. Now you can obviously use StorNext with other object back ends, but there are some integration that's been done between these 2 products that provide some additional advantages to customers there. Now with all of this data being stored, it's much easier to drive value from that data if you can classify that data. So the Atavium purchase brought real-time file classification capabilities into their portfolio. So this allows them to be able to tag files as they're ingested with metadata tags that make that data easier to search and it's easier to find components within files. So it makes these things much faster, leading to better analytics. CaTDV, which was the main product from Square Box, provides media asset management capabilities that are important. Now if you think about what the underlying media types look like in a -- one of these cold storage front-ended by a higher performance file system environment looks like, you've got potentially NVMe, SSDs, flash SSDs, hard disk drives, that could all be sitting idle because there are some performance orientations there. Then you get into object. That will probably primarily be HDVs, but then you might also have tape on the back end. And remember, Quantum is a leader in tape. So the immediate asset management capabilities that CaTDV brings to the table across all of those media types is an important efficiency advantage in terms of building this kind of infrastructure. Now in the industry overall, there's been a move towards more software-defined kind of products. Enterprises software-defined because they're more flexible, they are easier to use and they have better economics than what you traditionally find from more hardware-defined products. And that's sort of the classic SAN and NAS arrays that you've seen in the past. Well, Quantum has been moving in a more software-defined direction over time. A couple of recent acquisitions Pivot3 and EnCloudEn help them to move more in that direction. And they also bring what I call hyperconverged infrastructure technologies into their environment. Now it's important to note that Quantum is not selling an HCI competitor against the leaders in that arena like VMware and Nutanix. But what they are doing is leveraging the capabilities of the HCI infrastructure to be able to provide a more easily scalable, more easily deployable version of their own infrastructure. And in fact, the EnCloudEn purchase brought along some particular capabilities that will help them with edge analytics solutions, which I mentioned a little bit earlier, is going to be a rising new area, a very interesting new area. Now actually, Quantum had already introduced an edge analytics offering in April of this year with the H4000, but they get some additional capabilities with EnCloudEn that will be important there. And then with Pivot3, what was of interest there is they not only got a mature software stack that had been being sold into the video surveillance state specifically for a long time, a very mature proven product, but they also got 500 customers that were using that product in that arena. So this adds to Quantum's capabilities in the video surveillance area. It gives them 500 new customers right away that they can begin to sell the additional portfolio components in their own product line for those customers as they struggle with their own challenges around unstructured data growth. So it's really interesting what these acquisitions have done in terms of moving the company forward. Now I talked a little bit about them moving in a more software-defined direction. One of the other reasons why that's really interesting for enterprises is that gives you the opportunity to deploy software in an appliance of your choice, maybe you already own some of the hardware and you want to run it on that on top of virtual machines, deployed in the cloud. It gives you a lot of flexibility about running the same product, the same capabilities in multiple environments. Now we all know that hybrid cloud has become a mainstream deployment model for IT infrastructure. And software defined as one of the capabilities that enterprise is building hybrid clouds for because it lets them run the same consistent management set across all areas. So that's another reason why software is important. And also enterprises are looking for more flexible consumption models. They don't want to just have to buy hardware and software outright. They'd like to be able to rent those on an as-a-service basis. So subscription-based pricing. And many of them are also looking for managed services so that they don't have to worry about managing that underlying infrastructure at all. They just use it to provide application services. And Quantum has also stated that they'll be moving in that direction. And in fact, has introduced a number of products already that used a subscription-based model, and they've also introduced some managed services offerings. In fact, there's a new cold storage offering that was announced just last month that is only available as a managed service. So this is something that would sit on-prem in a customer. Quantum is actually managing that for that customer. And they own the hardware, they own the software, but the customer gets the benefit, they run their applications on it, they store their data in it, and they get the value of that. So if you think about all of these things, really, Quantum has done a lot of the right things to take advantage of long-term market trends in the industry, the growth of unstructured data, the dominance of video content within that data, the rise of video analytics, the penetration of AI-driven workloads into the enterprise. And they are also leveraging new technology trends like software-defined and subscription-based services to make their offerings easier for their customers to buy, use and scale over time. Execution will be key to success going forward, but Quantum has built the right foundation on which long-term success can be built. Thank you for your time today. I'm Eric Burgener from IDC.

Good afternoon. My name is John Hurley, I'm the Chief Revenue Officer at Quantum. I really appreciate the time you're giving us today to listen to our vision and where we want to go in the future. Why did I come to Quantum is a topic that I'd like to talk and start my presentation with, and it's really about the excitement of what I saw when Jamie first called me and said, "I need somebody like you with your background to come help us scale at a global reach." So when I looked at the opportunities that he was putting together, it really came down to a couple of things, one, which was an end-to-end architecture that allowed us to break into new target markets. Enterprise, service provider and web scale being those specific target markets. The other part that really got me excited was the market is actually coming to us. When you think about our tagline, your difference is your data, we're talking about massive digital opportunities that are out there that require a company to be able to manage, secure and monetize their most precious data. We have that opportunity and Jamie put those pieces together. When I looked at the peers in the industry, the vision was spot on. We have an opportunity to differentiate ourselves and we're doing that today in many of those marketplaces today. So for me, it was really exciting to have the opportunity to come in here and build that sales model and accelerate our reach around the globe as we move forward. But last year, we came when we talked about what we were going to do. What I'd like to be able to do is update you on how we're doing. We're doing great. Growth is back at Quantum. Last quarter, in the first half was the biggest first half in many, many years. We had the greatest backlog going into the second half, which gives us a base to build from as we think about our second half in our business. We secured and went from 1 hyperscaler win to 7. And now 5 of the top 5 hyperscalers, I'm proudly to say, are Quantum customers, and they're continuing to buy. We had a 20% year-on-year growth in the company in sales, and we continue to see that. We have more end-to-end opportunities in our sales process as we transform our sales organization, which again allows us to go into a business outcome conversation as we help our customers transform. We had record amounts of $500,000 deals in Q2, again, a sign that the end-to-end architectures and cross-architecture opportunities the sales teams are out talking to customers about, and we're having success. We launched Channel 2.0 with our Channel Chief, James Mundle, last year, and we're now starting to see incredible opportunity and growth with those partners in the marketplace today. And one of the things we'll talk about where we're going is how do we recruit and take advantage of the Channel 2.0 partners and that program going forward. So as I talk about how do we think we can grow, it really comes out to the marketplaces that we think we can from a TAM expansion perspective. So how do we grow from the extended portfolio perspective? How do we branch into adjacent markets? And then from a geo perspective, how do we expand? We're seeing progress in all areas. Through the last 1.5 years, we've made several acquisitions, it's really given us an opportunity when you think about one of the biggest markets that's out there today in video surveillance, it's a $20 billion unstructured data marketplace. That not only gives us an opportunity to talk about areas in health care, life sciences, universities, but it gives us an opportunity to cross-pollinate and cross-architecture sell into those markets. We talked about the geo expansion. We're seeing massive growth in our Asian market, well over 20% year-on-year. And now that we have an office through the EnCloudEn acquisition, we now have a base in the Bangalore area, so we can now start to invest more heavily in our geo market there in Asia to go after the China market and the India market as well. And I talked about this differentiation in the expanded portfolio. And with CaTDV, we now have started to look at areas to helping customers as they try to ingest video, how do they manage that video as it's going into that cycle along with the other opportunity we talked about with video surveillance. How are we doing from a subscription perspective? Very strong growth and how we're looking at the amount of customers today that Quantum has in a subscription format. Well over 200 customers today and growing. We saw a 50% sequential growth quarter-on-quarter from Q1 to Q2. And we've already seen a large cross-architecture software opportunity with 1 of the largest sports networks last quarter, well over $2 million. So it's working, customers want to have a subscription opportunity with us and they're buying from us that way. So we talked about the growth in subscriptions. So what are we going to do going forward? And this is what I'm really excited about. We're going to do 3 things over the next year. And it was really about why, again, why I'm excited here and why I think this is a great place to be. Why I think this is a great place to invest and why I think our customers are going to continue to look for other things from Quantum. We are going to go out and convert those existing customers from what was an older portfolio sale into a subscription opportunity, and we're going to take that same opportunity and add subscription opportunities as we move the portfolio into a broader level that they can take advantage of. We're expanding our partner base to go talk to partners that focus specifically in large enterprise, federal and web scale. And as we've had those early conversations in the last several months that I've been here, there's an excitement about the new Quantum. And so I really feel strongly that having that partner base will accelerate even more our opportunities in that new TAM. And then if you look at the market way that Jamie has taken the technology, we're either going to build it. So you think about what we're doing with ActiveScale cold storage, build it. We're going to partner. So we'll look at those different partnerships, whether that be with a rubric or what other partners we may have out there, or we're going to acquire like we've done with Pivot3 and EnCloudEn or CaTDV. So there's a great opportunity for us to continue that business outcome conversation and how we're going to go expand the market to where we need to go and how we grow. But here's the really exciting part when you talk about a broad portfolio. I was talking to a Midwestern large university. And we are having a great conversation about what they're doing in health sciences and research. And so obviously, it was a really fun and engaging conversation around storage and indexing and how can we manage their data and how can they get information better out of it. But at the same time, we started investigating this opportunity they had in their hospital system and is around how they're going to change doctor patient care which would then revolve around putting cameras and surveillance into the rooms, which then was an opportunity for us to start talking about other solutions that we have. So it's a really small example, but it gives me confidence that our teams now have an ability to branch out from a standard offer that we would normally sell and start to sell the broad portfolio that we're starting to put together. All of this can be wrapped up in a subscription offer. So how do I think we're going to do this? My history from where I have been over the last 20 years in large companies like Cisco and Dell is taking these types of outcomes, attaching a broad level architecture to it, working with a large partner and scaling it globally. I think we have a terrific opportunity to do this at Quantum and grow the company. Come talk to us in the Q&A, and thank you for your time. I appreciate it.

Thank you for joining us today. I am Mike Dodson, the CFO for Quantum. Before we go into the presentation, I wanted to give a little bit of background about the model that we're going to look at. A year ago, August, when we got together, was the first time that we looked at the long-range plan, taking into account the transformation that we were looking at. And this transformation is really going from an appliance hardware company to selling software on a subscription basis. Last year at the time that we were doing that model, we didn't have any subscription products. We were working on a lot of assumptions on top level. So that was the basis of that model at that time. Flash forward to today and it's a little bit more than a year. And we actually have 2 products, 2 subscription products in the marketplace. So when we went to roll up the long-term plan, what we had was the benefit of almost a year of experience of calculating the gross margins, understanding how the business flow through the different transactions. So we feel very good that how we generated this model was based on much better assumptions. We went product by product. We rolled it up almost contract by contract. So that's the model that we'll be looking at as we go through the details here, but just to give a little bit of perspective and background. So the first slide here is how do we achieve the long-term financial targets. And it's really all about our transformation. We have -- one target is to introduce recurring software licensing and as-a-service models for all major product lines by the end of fiscal year '22, which is March 31, 2022. And we have, to date, released 2, and we'll be releasing the remainder through the second half of the year. And of course, there's phases to this transformation. The first phase is we just need to break the software out of the appliance. And once we have a stand-alone software program, then we can -- on a software basis, we can sell that with our own hardware or we can sell it with third-party hardware. And that's the stage that we're in today is we're selling it really is different SKUs. We've got -- we sell the hardware and we sell the software. But eventually, we will be selling just the software, and it will be exclusively on a third-party software or in the cloud as a standard SaaS offering. So those are the phases. What's important about those phases, though, is we grow recurring revenue. That is the fundamental metric to track because as our product mix grows to become more and more recurring revenue, we will see the gross margins increase. So when you look at recurring growth, it will come from the combination of the installed base conversion of 11,000 customers and new customer acquisition. With the revenue mix, that's 70% recurring revenue, we would expect 60% of consolidated gross margins. Another key factor of our transformation is the hyperscaler business. We look at the hyperscaler business as growing 15% to 20% per year through fiscal year 2026. And it's a key part of our revenue growth. And it would represent the majority of the nonrecurring revenue that remains at the end of FY 2026. Another key point of our transformation is to remove empty calorie revenue. And to date, we have 1 group, the media revenue that runs plus or minus $50 million a year. That would be the mid- to high single-digit gross margin. We will work that down over this period, this 5-year period, but it will really help improve the quality of our gross margin. And then finally, we always will maintain tough, strict OpEx controls. What we believe is a good target would be 32% to 36% of the TCV bookings. But when you look at the combination of maintaining good OpEx controls, getting rid of low-cost empty calorie-type revenue, keeping the hyperscale business, even though it is lower margin, it is growing 15% to 20% per year. And of course, the biggest transformation and the biggest impact on our long-term plan is getting -- moving from an appliance hardware seller to a company that provides software subscriptions and a nice recurring revenue stream. So those are the key points for the target. What are the ramifications of putting that into place. You can see the dark blue bars, that's the recurring revenue, and that's the percentage of the total. So you can see from FY 2019 to FY '22, it bounces between 40% and 43%. So that's our historical run rate of our support business. Our support business, typically, our customers will sign up for 3 years and then renew 1 year at a time. It's a very high-margin business for us. When we look at increasing our recurring revenue, you can see the rate that we go up. We go 48%, 56%, 65% and then 70% out in FY 2026. So it's a gradual movement to the recurring model. When you see we end in 2026 at 30% of nonrecurring revenue, and that's predominantly going to be the hyperscaler business. So we're not going 100% to the software recurring revenue model. So we're going to be a bit of a hybrid. But this gives you a real good sense of where we've been the last 4 years and then how it moves north, which is really critical because you can see that line, the black line is gross margin. So you can see the gross margins bumping around the first 4 years in the low 40s and then steady growth. And that growth is dependent on the recurring revenue increasing as a mix. As you can see, we get actually a little bit north of 60% by the time we get out to FY 2026. This is another key slide and key to our transformation. This is a subscription and managed services, and we're looking at the ARR growth, and that's the black line. So you can see the annual recurring revenue, and this is really what drives the profitability in the model. And it starts off very low. You can see where we are in FY 2022, and it grows to -- we get over $200 million by the time we get out to FY 2026, and this is excluding our support revenue. You would expect would start off as again, 3-year initial contracts, 1-year renewals and expect a 10% churn rate. Also, you can see how many customers we are growing to get to this point. Understanding we have 11,000 customers today, so that helps put into scale this number of customers, but we would expect to leave just in the neighborhood of 12,000 customers by FY 2026 that would be on our subscription and managed services contracts. On the next slide, what we've done here is we've combined the previous slide with our existing support business today. And you can see that's the light blue. So the growth really is definitely when we started to add the subscription and managed services contracts. And you can see that black line as it goes up, it approaches $350 million. And we'll look at a summary of this, but I just wanted to show the scale of the total recurring revenue after we add in our legacy managed services revenue. And then finally, this is a summary of some key metrics. The TCV bookings, you can see we expect that to be in the range of $380 million to $420 million this year, FY 2022. And by FY 2026, it's $540 million to $580 million. It's an interesting metric, and we provide it for information purposes. But really, what is very important to our profitability and our success is the recurring revenue. So you can see the recurring revenue for FY 2022 is at $160 million to $170 million. That is our initial subscription revenue that we've gotten this year plus our managed services, our legacy managed services. What's interesting to note here is we're looking at a CAGR annual growth rate of 20% to 24% of the recurring revenue and going up to $360 million to $370 million by FY 2026. So this is really the -- this will drive the success, tracking against this. If we're successful at this mix and growing the recurring revenue at this level, then when you look over and you look at our gross margin percentage, you can see we were bumping around the low 40s, both in FY 2020 and FY 2022. But by the time we get out to FY 2026, we get to 57% to 63% midpoint being 60%. So we're thinking of that as 60%. When we looked at the model last year, we had a gross margin of 60%. So it's consistent year-over-year from a modeling standpoint on the gross margin basis. Then when you look at the adjusted EBITDA, we are in FY 2022 with the pressures of the pandemic, with the supply constraints, we're looking at an EBITDA level of $20 million to $30 million. Of course, if you're going to grow your recurring revenue to the levels that we've got in this model, if you're going to have gross margins of 60%, you're going to have significantly higher adjusted EBITDA. And this adjusted EBITDA has an annual growth rate of averaging 55% to 65%, and it would be in the range of $140 million to $160 million. Of course, the midpoint of that's $150 million. When we look at our model last year, the adjusted EBITDA in that model was $140 million. So this is running just a little bit ahead of the model last year, but in the same neighborhood. Then when you look at our non-GAAP net income per share, of course, we're plus or minus breakeven in FY 2022, and we're looking at $1.50 to $1.70. So a much, much stronger EPS result from this model out in FY 2026. When we did the model last year, actually, we had an earnings per share here of $2. And what I would share with you is we weren't very accurate in estimating the number of shares we should really be putting into that calculation. For example, we did an offering in February of this year to pay down half of our debt. And we're continuing to do some acquisitions, and we're using shares. So some of those factors we didn't take into account when we did our long-range model last time. Now we've taken those types of things into account. So even though the profitability may be a little better, the share count, we think is more reflective of what we would expect. And that's driving the $1.50 to $1.70 earnings per share. And then finally, as you would expect on the free cash flow line, it's going to pretty much mirror for the most part, the adjusted EBITDA. And you can see a very, very healthy $130 million to $150 million cash that would be generated by the companies as a result of this business transformation. So that is the summary. You can see if we are successful, it is a very much a different company, a different profile. It's a journey that we are just starting, and we're very excited to move forward and would like to open everything up to questions at this time.

Thank you, everyone. I would like to now pass to CEO of Quantum, Jamie Lerner for a few comments before we open for Q&A. Jamie?

Well, thanks for that. Thanks, everyone, for joining today. I know we put a lot of information forward about our tech strategy, about our business strategy. I think you got to meet some of our newest members of our executive staff, and I welcome you to bring anything we didn't cover forward as a question, and we'll do our best to answer all those questions. [Operator Instructions] So with that, Jeff, why don't you lead us through.

Yes. Thank you, everyone. We'll now open the Q&A portion of today's analyst call. I think the first question that we have -- if everyone could continue to please put their questions in the Q&A box. Jamie, the first question comes to you. Given the acquisition slide you showed and the strategy of building businesses on top of what Quantum has already had, there seems to be maybe that there could be some holes still in that overall strategy. What's the company's position on future acquisitions and to build out this option that you have for the company?

Yes. I mean first, I want to say, our strategy is composed of internal development, combined with acquisitions. So I wanted to be said that -- I don't want people to think that the only way that we gain new technologies is through acquisition. We combine that with our own internal efforts. Now where we would likely to do acquisitions or where we would likely put our energy is going to be at the management and control tier. I'd have you think about our architecture as a hardware tier, storage software tier and then management and control plane. Now at the hardware tier, unlikely to do acquisitions there, given that we're deemphasizing that part of our business. The only thing we would consider there would be forms of vertical integration that just make the manufacturing process for tape libraries easier. At the storage tier, not many holes there. We got file block object, we have hyperconverged. I think we're feeling pretty strong about where we are in our storage software. But where I think you're likely to see the most activity is software for moving data, classifying data, organizing data, analyzing data. I think that area of management, control and analytics of data is where we'd likely do acquisitions because it's a little bit outside of our skill set. So we would look to gain new talent and skills there. And that's where I think the greatest opportunity for software is.

Mike, a question came in for you that we wanted to direct your way. Could you clarify the statement that was made regarding the $1.50 per earnings per share? And what is the connection or how does that coincide with the top line revenue?

That puts the net income number in the range of $130 million. And that coincides pretty well with the midpoint of the EBITDA number. When you think the difference between the net income and the EBITDA is about $20 million when you take a look at the stock comp, depreciation and interest, dividends.

We had a question for Mr. Valentine. Just trying to understand some of the key milestones as the company moves from 200 customers on subscription towards a number maybe close to 11,000 in 2026?

In terms of the strategy, part of what Mike has said is that we're really going to try to move those 11,000 customers over to some type of subscription model. So really, how do we attract those customers. And we're really working on a strategy to say what value add from services, and from support can we kind of use as a carrot to pull these customers along to subscription, and what value add do they get by being on subscription and subscription maintenance versus just being on a perpetual license. So that's really what our strategy is. I hope that answers the question.

No. Thank you, Rick. We appreciate your time. Bruno, we also had a question come in for you on the hyperscale vertical. If you could please elaborate perhaps about how much software in this vertical is being used today.

Yes. Thanks, Jeff. So I would say it's split depending on which customer we're talking about. As I mentioned in my presentation, some of the hyperscalers really mainly leverage the tape hardware infrastructure that we provide and others include a software layer on top of this, right? So it's really depending on which specific customers we're talking about, if that makes sense. But we're pushing definitely much more in the direction as we -- as I explained as we go down the pyramid in terms of customers that are not necessarily maybe not as sophisticated, if that's the right word or they don't necessarily have the capabilities to do that layer of software, we see a lot of opportunity there, especially with ActiveScale and ActiveScale cold storage, right?

I'd add some color to that. I think the 2 or 3 largest hyperscalers in the world have the wherewithal to spend 4 to 5 years building a storage stack forte. I would say other than those 2 to 3 players, the majority of others would buy something that is tested and proven, and they don't view that as a strategic differentiator and they'd buy that on a subscription from Quantum. So of our 7, I would say just over half of those are not only using our tape hardware, but they're using either a file system or an object system from Quantum as the storage software tier that talks to that tape hardware.

And the next question, perhaps for Bruno or perhaps Jamie. Could you talk about what drove the development of the Scalar Ransom Block product? And how many deployments are occurring today? And what's the uptake and feedback that you're receiving from customers?

Yes. So the Ransom -- you're talking about Ransom Block, right? So this is a feature we literally just are in the process of releasing. So we have a few of these larger customers that we're talking to where security around their data is absolutely key in terms of being able to really protect that data and have a copy that is absolutely not accessible to anybody else. So there's a huge opportunity in that space. And then we're also making this feature available across all of our branded tape offerings that we have out there, and we expect quite an uptick on there as well because it is to some degree, the last line of defense, if you will, right? So this is your, if you will, off-site copy of your data, that is absolutely not accessible to any hacker or whatever malicious actor that's around there. So we would expect that a majority of our branded sales around our tape products will include this feature going forward.

Jamie, perhaps maybe for you. We noted -- that was noted in the presentation today that 60% of all data is cold data. And just trying to better understand perhaps what percentage of the storage dollars today is spent on cold data versus active or noncold storage?

I don't have the TAM numbers in front of me, so I can't speak to that. What I can speak to is several trends that we know are occurring. Typically, data was capped for the minimal amount of time required by law. So you would throw it out pretty quickly. But now with the deep learning algorithms, the analytics algorithms, people are saying, "I'm going to keep data. I'm going to keep medical images so I can do research against X-rays, CAT scans, MRIs. I can do disease studies. If I keep genomes, I can do genomic studies. If I keep surveillance data, I can learn about purchasing patterns, parking patterns, driving patterns." So there's a trend to say, if storing data indefinitely is priced properly, I'm going to keep more cold data because I know that I can learn from it in the future. And so these archives are growing. In addition, the production of data is just so much larger that cold data is growing. It is many, many times larger than the small amounts of what is called a warm data or hot data, which would be on an all-flash array, and that's likely going to be structured data. Your address, your phone number, what you purchased from Amazon last week. That's -- that is structured data. That is usually the most expensive data on a per terabyte basis. But what's happening is cold storage is getting so much bigger, faster that even though it's cheaper per terabyte, the sheer numbers of terabytes is eclipsing everything. So secondary storage has the fastest-growing TAM. I think it said about -- some analysts put it at about an 8% to 10% CAGR, where primary storage is more or less flat to down. So secondary storage is the fastest-growing data segment both in terms of dollars spent and in terms of just total addressable market. And I think the speed of it is going to accelerate because of the production of more data and our ability to analyze what was once opaque data, now we can do much more with it. So it's really -- I think -- not just I think, I know statistically, it is the hottest segment in the storage industry. I think there's going to be more competitors chasing us here. But I think we've got a pretty good head start in these 10-year, 20-year and 100-year archives. I mean we're just ahead of everyone in that space right now.

Great. Thank you, Jamie, for that answer. I think I have another question for Mike that has several questions have kind of come in that fit this in the same realm. Talking about -- Mike, about the linearity and the confidence in linearity of the buildup of the recurring revenue. Can you help us kind of understand the confidence the company has in the attainment of this linearity that we demonstrated today in some of the slides?

Sure. I mean I think one thing that helps the smoothness of our forecast is we're just not moving everything, right? At the end of the day, when we get out to 2026, we still have 30% of our business that is products. So I think that affords us a bit of a smoother ramp as we move forward in this transition, but otherwise, you don't have that luxury, if you're moving all your products. And you're going to feel the headwinds of lower revenues as you move through this as well as we're looking at taking $50 million out of our top line revenue with moving media out, the low-margin media business.

I'd add just a little color on that. We have 11,000 customers that have a very high renewal rate. They renew well above 90%. In some years, it's higher than 95% renewal. And they won't have the option to renew in the traditional model. The only option that we'll be giving any of our customers to buy new product or refresh old product is on a subscription. And we have very good line of sight of when customers' old contracts come up for renewal, when their systems age out and need to be replaced, that is a fairly well-worn pattern for us. And the options they'll be given, the only options they are going to be given is moving to our new subscription model. And that gives us pretty good line of sight of that linearity. And why -- while it looks very steep, you have to understand that they're not all brand-new customers that we won, a lot of them are the customers who've been with us for 10 or 20 years that we'll be bringing into the subscription model. So that's why we have pretty good confidence on that rate. And we've been doing it for a year now. We've been taking old customers, bringing them over to [ Quantum ] to subscription. We have engaged with new customers and very competitive deals with competitors who some have and some do not have subscription. And we're pretty confident that we're seeing very, very little friction in moving old customers and winning new customers on a subscription model. And quite frankly, it's one of the benefits of not being first to market, right? Salesforce.com's been doing subscription for years. Amazon has been doing subscription for over 10 years. Our customers are very used to it. And when we say, hey, we're going to subscription, I don't think it surprises anyone. I don't think it concerns anyone. And quite frankly, I think most of our customers are well over 50% of what they're acquiring in our IT department is subscription-based services already. So it's actually been a lot smoother than we anticipated.

[Operator Instructions] We have one other question, Mike, that came in that we wanted to ask your way. Just looking at the overall composition of the $8 million to $12 million in ARR, is there any breakup of that ARR that you can give a little bit more color into at this time?

Yes. The current ARR that we'll have by the end of the year is going to be predominantly StorNext 7. We still have certain products like CaTDV, which is on a perpetual license. So we have other software revenue, but the subscription-based revenue through this year is going to be predominantly StorNext 7.

Okay. And then a question perhaps for Jamie. The question is posed as such. Can you help us understand the breakup of recurring revenue that the growth of which is coming from organic and switching to existing customers? And what percentage perhaps if quantifiable is coming from perhaps new wins?

Yes. I mean we don't break those out, but I would tell you there has been no new win in this company on ActiveScale or StorNext or the system that have moved to subscription. There has been no deviations from that. So every single new win we've had in those products is on subscription. And with the exception of a few government contracts that go out 5 and 10 years on a very rigid model, everything else we've moved is subscription, and it would basically no pushback. And that's why we've announced now CaTDV is going to subscription, DXi is going to subscription. Every single product in this company with the exception of just buying tape hardware is on subscription. And most tape hardware going forward is going to be ActiveScale cold storage. That's on a managed services subscription. So predominantly our model for buying everything from this company is going to subscription, given the success we've had over the last several months. We'll be turning all those new subscriptions on this month. That's why Mike says, "Hey, we're turning them on this month." I think it's November and December, everything is getting turned on to subscription. So we'll the last quarter of the year to execute on that. So again, most of the momentum is StorNext 7 because we've been quoting it on subscription for a while. So it needs to be said, when we flip a product to subscription, it typically has a 6- to 9-month sales cycle. So we start quoting subscriptions immediately, but we have quotes that we did as much as a year ago that we honor that are still on the perpetual model. So there's a bit of lag from when we flip the switch to subscription to when it gets going. And again, Mike has that put in this model. But every single product in this company by December 31, is going to be on subscription with the exception of if you just want to buy a big piece of tape hardware.

Another question for you, Jamie, is how is the experience of the acquisitions the company has completed in the last 18 months, giving your informed view of what might be possible or what could lie ahead?

Yes. Well, I guess you have to start by the admission that acquisitions are risky. I spent many years at Cisco, and it's a risky game. Some work, some don't. And I've been somewhat surprised and maybe we've been conservative, but we've bought 3 to 4 companies of some size 20, 30, 40 people, several hundred customers each. And we've had a somewhat abnormal success rate. I think [ to be ] that 500, 50% of them are successful, you would consider yourself doing really well. I would say everything we've bought so far has been a success. We met our financial objectives. In many cases, we've beaten them. They fit in our culture, in most cases, really enjoyed our culture, thrived in our culture. We've been able to take products and integrate them. So people are working together. I mean ActiveScale cold storage, we took our tape and one of our acquisitions and merged them during COVID. And they work together and got the product out on time and on budget. We took CaTDV and StorNext and we merged them into a new product called the H4000 Essentials, that's launching in December. Again, both ActiveScale and CaTDV are European companies, and they're working with our U.S. resources, all during COVID. No one never met each other. No one was able to ever meet each other in person. -- and we met our financial objectives and our integration objectives. So I've been really pleased. We just promoted Appaji, who runs corp dev for our company. He's done a wonderful job. And I think that's giving us confidence to get a little more aggressive, not be irresponsible, but we're viewing this as a strength. And I'm the first guy in line to exploit a strength. And I think M&A is becoming one of our strengths. I think we're finding good opportunities. I think we're getting good value. And I think we're getting high-quality integration and bounce from them. The Pivot3 thing is somewhat stunning how well that's going. And you'll see that this quarter. And we'll give you guys a little more color on that business in our next earnings. But we've done really well. And I think when we do well at something, we do more of it.

All right. Well, Jamie, thank you for that answer. And at this time, it seems that we have no further questions in the Q&A panel. So I'll turn it back over to Jamie Lerner for some final comments.

Okay. I hope we gave you the color that you were looking for. We are moving rapidly. We are making changes rapidly. We feel this market is evolving and the companies that move fast, move aggressively are going to win, and we're learning to move fast. And we hope those moves, we don't want to surprise anyone, our customers or our investors. So we're trying to provide as much color as we can in the rapid changes we're making. We have catch up to do. So not only do we have to move fast to keep up with the market, but we have some catch-up to do as we accelerate into these new models. I couldn't be more proud of our team. I think our customers, our partners, and I hope our investors are cheering us on to get this done. And I think as the supply chain issues ease, combined with as we step further away from hardware, the company is just going to continue to accelerate on all dimensions. And I can't wait to give you our updates every 90 days. So we'll all be talking again at our next earnings call. So thanks, everyone. Thanks for joining.

Thank you, everyone. We appreciate your time today.