Quantum(QMCO) - 2025 Q4 - Annual Report

Explanatory Note The Company is restating financial statements for the fiscal year ended March 31, 2025, due to revenue recognition issues and identified material weaknesses in internal controls - The Company is restating financial statements for the fiscal year ended March 31, 2025, due to inconsistencies in service and subscription revenue recognition under Topic 606 and an update to the standalone selling price used for revenue allocation[11][12] - Material weaknesses were identified in the Company's internal control over financial reporting and disclosure controls and procedures as of December 31, 2024, and March 31, 2025[13] Summary of Risk Factors Key risks include supply chain disruptions, reliance on third parties, global operations, stock price volatility, leadership changes, and internal control weaknesses - Key risks include cost increases and supply disruptions, reliance on third-party outsourcing, global operations risks, stock price volatility, leadership changes, potential Nasdaq delisting, fluctuating quarterly results, significant indebtedness and covenant compliance issues, challenges in business model transformation, and risks associated with restated financial statements and material weaknesses in internal controls[16][17] Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to various risks, uncertainties, and assumptions detailed in the Risk Factors section - This report contains forward-looking statements based on current expectations and projections, which are subject to various risks, uncertainties, and assumptions, including competitive pressures, macroeconomic trends, supply chain management, intellectual property protection, international operations, new product development, and the risks detailed in Item 1A. Risk Factors[19] PART I ITEM 1. Business Quantum Corporation provides end-to-end data management solutions for unstructured data, particularly for AI applications and data-intensive workloads Overview Quantum delivers end-to-end data management solutions for unstructured data in the AI era, focusing on high-performance ingest and cost-efficient data lifecycle management - Quantum delivers end-to-end data management solutions for unstructured data in the AI era, focusing on high-performance ingest, massive data lakes, and cost-efficient solutions for the entire data lifecycle[22] - The company specializes in solutions for video, images, audio, and other large files, as unstructured data accounts for over 80% of all data created and holds significant value for AI and other initiatives[22] Products and Services Quantum's portfolio includes primary and secondary storage software, devices, media, and global services, alongside CatDV Asset Management Software - Quantum's product portfolio includes primary storage software (Myriad All-Flash, StorNext, Unified Surveillance Platform), secondary storage software (ActiveScale Object Storage, DXi Backup Appliances, Scalar Tape Storage), and devices and media (standalone LTO tape drives and media)[23][24][25][26][28] - The company also offers CatDV Asset Management Software for indexing, cataloging, AI data enrichment, and workflow orchestration[26] - Services include 24x7x365 global support, deployment, consulting, education, and Quantum-as-a-Service, delivered via the MyQuantum Service Delivery Platform and Cloud-Based Analytics (CBA) AIOps software[27] Global Support and Services, and Warranty Global services offer comprehensive installation, integration, and maintenance in over 100 countries, with hardware warranties and additional support options - Global services are a key competitive advantage, providing comprehensive installation, integration, and maintenance in over 100 countries through 24-hour, multi-language technical support centers[29][30] - Hardware products are warranted for one to three years, with additional support options available for high-availability requirements, ranging from repair/replacement to on-site service[31][30] Research and Development R&D focuses on advancing end-to-end storage systems and data management software, including hyperconverged storage, data reduction, and tape efficiency - R&D focuses on technology advancements for end-to-end storage systems and data management software, including ease of management at scale, searchable storage, software-defined hyperconverged storage, next-gen solid-state/hard-drive systems, data reduction, and tape efficiency for archival storage[32] Sales and Distribution Channels Quantum utilizes distributors, VARs, DMRs, direct sales to large entities, and OEM relationships to reach diverse markets - Quantum utilizes distributors, value-added resellers (VARs), and direct market resellers (DMRs) for product sales, offering a comprehensive product line through its reseller program[33] - Direct sales are made to large corporate entities and government agencies[33] - OEM relationships involve selling hardware products under their brands and licensing software, enabling reach into markets not served by branded channels or direct sales[34] Customers Quantum serves multiple global industries, with sales to the top five customers accounting for 21% of fiscal 2025 revenue - Quantum serves multiple global industries, including hyperscale, technology and industrial, media and entertainment, federal government, life sciences and healthcare, and financial sectors[35] - Sales to the top five customers accounted for 21% of revenue in fiscal 2025 and 26% in fiscal 2024, with no single customer representing 10% or more of total fiscal 2025 revenue[35] Competition The markets are highly competitive with rapid technological change, facing rivals like Dell EMC, IBM, NetApp, and public cloud providers - The markets are highly competitive, characterized by rapid technological change, with competitors often having greater resources[36] - Primary storage solutions compete with Dell EMC, IBM, and NetApp; secondary storage (tape) competes with IBM and others, while disk backup competes with Dell, HPE, and Veritas[38][39] - Public cloud storage providers offer a competitive alternative, and future data storage infrastructures are expected to be hybrid-cloud and multi-cloud[37] Manufacturing and Supply Chain Quantum operates a global supply chain with contract manufacturers, facing inflationary pricing, import tariffs, and component constraints - Quantum operates a global supply chain with contract manufacturers in the U.S. and Mexico, and third-party logistics in EMEA and APAC[40] - Primary and secondary disk-based storage systems combine Quantum software with servers from various vendors, integrated by contract manufacturers. Tape storage systems are Quantum-designed and manufactured by a global contract manufacturer[41] - The supply chain has faced inflationary pricing and import tariffs, with ongoing constraints in server and tape automation components, leading to extended lead times and non-cancellable purchase orders[43] Intellectual Property and Technology Quantum relies on patents, copyrights, trademarks, and trade secrets, holding over 198 U.S. patents and participating in the linear-tape open consortium - Quantum relies on patent, copyright, trademark, and trade secret laws, holding over 198 U.S. patents as of March 31, 2025[45] - The company is a member of the linear-tape open consortium, receiving royalty payments for licensed media technology[48] - Quantum engages in patent licensing and cross-licensing agreements, and has sold certain patents while retaining royalty-free licenses[47][48] Segment Information Quantum operates as a single reporting unit and operating segment, with revenue details provided by product group and geographic regions - Quantum operates as a single reporting unit and operating segment, with revenue information by product group in Item 7 and geographic regions in Note 12[49] Seasonality Demand for products and services is typically highest in the fourth calendar quarter and lowest in the second calendar quarter - Demand for products and services is generally highest in the fourth calendar quarter (fiscal third quarter) and lowest in the second calendar quarter (fiscal first quarter)[50] Information About Our Executive Officers This section provides details on Quantum's management team, including recent appointments and their professional backgrounds Quantum Corporation Management Team (as of August 1, 2025) | Name | Position with Quantum | | :-------------- | :-------------------------------- | | Hugues Meyrath | President and Chief Executive Officer | | Lewis W. Moorehead | Chief Financial Officer | | Anthony Craythorne | Chief Revenue Officer | | Laura Nash | Chief Accounting Officer | - Hugues Meyrath was appointed President and CEO effective June 2, 2025, bringing experience from ServiceChannel and Dell Technologies Capital[52][53] - Lewis Moorehead served as CFO from April 2025 to August 2025, previously holding roles as VP of Finance and Treasurer, and Chief Accounting Officer[54] Human Capital Quantum employs approximately 635 individuals globally, focusing on competitive rewards, flexible work, and an inclusive environment for talent development - As of March 31, 2025, Quantum had approximately 635 employees globally, distributed across 19 countries (305 in North America, 180 in APAC, 150 in EMEA)[58] - The company focuses on competitive total rewards programs, flexible/hybrid work arrangements, and fostering an inclusive, diverse, and respectful work environment[59][60][61][62] - Initiatives include a redesigned employee recognition program, 'no internal meeting days,' and regular performance discussions for talent development[64][65] Available Information Annual, Quarterly, and Current Reports are available free of charge on Quantum's and the SEC's websites - Annual, Quarterly, and Current Reports (10-K, 10-Q, 8-K) are available free of charge on Quantum's website (https://www.quantum.com) and the SEC website (http://www.sec.gov)[66](index=66&type=chunk)[67] ITEM 1A. Risk Factors Investing in Quantum's common stock involves significant risks related to its supply chain, customer relationships, global operations, and financial condition Risks Related to Our Supply Chain, Customers and Sales Strategy Risks include cost increases, supply disruptions, reliance on third-party outsourcing, global operations, and dependence on indirect sales channels and key customers - Risks include cost increases, supply disruptions, raw material shortages (especially single-source components), and reliance on third-party outsourcing for component supply, manufacturing, and service repair[69][70][71] - Global operations expose the company to risks like increased duties/tariffs, geopolitical conflicts, intellectual property protection issues, regulatory compliance challenges, and economic uncertainties[80][81][84] - Reliance on indirect sales channels and a few key customers (some of whom are also competitors) poses risks of reduced demand, loss of relationships, and difficulty in forecasting sales[82][86][87][88] Risks Related to Our Operating Results, Financial Condition, or Stock Price The company faces risks from inflation, economic uncertainty, stock price volatility, leadership changes, fluctuating quarterly results, and declining demand for tape technology - The company faces risks from inflation, economic uncertainty, and slow economic growth, which can impact spending, credit markets, and component costs[92][93] - Stock price has experienced significant volatility, influenced by operating results, market expectations, new product announcements, capital structure changes, and broader market fluctuations[94][95] - Significant leadership changes and management transitions might disrupt operations, relationships, and temporarily affect business performance[96] - Quarterly operating results have fluctuated significantly due to factors like IT spending, supply chain constraints, customer order changes, seasonality, and competition[99][104] - Future operating results depend on continued market acceptance of existing products and successful introduction of new products, with significant revenue still derived from tape technology, which faces declining demand[100][103][105][106] - A significant decline in media royalty or branded software revenues, which have higher profit margins, could materially affect profitability[107] Risks Related to Our Indebtedness and Liquidity Quantum has significant indebtedness, faces debt covenant compliance issues, and relies on equity agreements for liquidity, which could be dilutive - Quantum has significant indebtedness, imposing debt service obligations and operating/financial covenants that limit business discretion. Failure to comply could materially affect financial condition[108][109][111][117] - The company has fallen out of compliance with financial covenants multiple times, requiring waivers from lenders, and faces risks if unable to obtain future waivers or refinance debt[109][116][119] - The Standby Equity Purchase Agreement (SEPA) allows for the sale of up to $200.0 million in common stock, but the actual number of shares and proceeds are unpredictable, and sales will be dilutive to stockholders[120][121] Risks Related to Our Business and Industry Unsuccessful business model changes, insufficient cost reduction, acquisition integration failures, cybersecurity breaches, product failures, and intense competition pose significant risks - Unsuccessful management of business model changes (e.g., transition to recurring software revenue), infrastructure, and management could disrupt operations and adversely impact financial results[123][124][125] - Cost reduction steps may be insufficient to achieve profitability, and failure to successfully integrate future acquisitions could harm the business[126][128] - Cybersecurity breaches could affect business operations, harm reputation, lead to significant liability, or damage financial results, despite security measures[129][130] - Product failures could lead to increased warranty costs, reduced orders, loss of reputation, and potential liability for data loss or property damage[131][132][133] - Intense competition in the data storage and protection market, including larger and financially stronger competitors, could lead to declining sales or gross margins[137][138][139] Risks Related to Intellectual Property Risks include loss of third-party technology licenses, infringement claims, failure to protect proprietary IP, and challenges associated with open-source software - Loss or inability to obtain licenses for third-party technology, which provides important product functionality, could materially affect the business[140] - Third-party intellectual property infringement claims could result in substantial liability and significant costs, regardless of the outcome[141] - Failure to protect proprietary intellectual property (patents, copyrights, trademarks, trade secrets) or unauthorized use by others could harm the competitive position[144][145] - Use of open-source software carries risks, including competitors using it to develop their own products, potential price pressure, and inadvertent release of proprietary code[146][147][148] Risks Related to Regulatory Matters Violations or changes in U.S. and international laws and regulations, including data privacy, could materially affect business and financial results - Violation of or changes in numerous U.S. and international laws and regulations (corporate conduct, fair competition, corruption, import/export, hazardous materials) could materially affect the business, leading to fines, penalties, or litigation[149][150] - Failure to adequately protect personally identifiable information, subject to evolving privacy and data protection laws, could adversely affect the business, financial condition, and operating results[151][152] Risks Related to Being a Public Company Operating as a public company incurs significant costs, requires compliance with SEC and Nasdaq rules, and faces risks from delisting and internal control weaknesses - Operating as a public company incurs significant costs and requires substantial management time for compliance with SEC reporting, Nasdaq requirements, and Sarbanes-Oxley Act provisions[153][154] - Failure to meet Nasdaq listing requirements could result in delisting, impacting stock value and liquidity. The company has received multiple deficiency notices related to minimum bid price and timely filings[155][156][157][163][164] - Restatement of prior financial statements has resulted in unanticipated costs, potential litigation, loss of investor confidence, and negative impacts on stock price[165][166] - Identified material weaknesses in internal control over financial reporting could lead to additional misstatements, impair accurate financial reporting, and adversely affect investor confidence[167][168][170] General Risk Factors Health epidemics, foreign currency fluctuations, higher future tax liabilities, and anti-takeover provisions are general risks affecting the company - Health epidemics (like COVID-19) can adversely affect business and financial results by impacting workforce, operations, supply chains, and increasing costs[171][172] - Fluctuations in foreign currency exchange rates can materially impact business, financial condition, and operating results, especially if exposures are inadequately hedged[173][174] - Future tax liabilities could be higher than estimated due to challenges from taxing authorities or limitations on net operating loss and tax credit carryovers from stock ownership changes[175][176] - Anti-takeover provisions in corporate documents and Delaware law could impair acquisition attempts, even if deemed desirable by stockholders[178][179][180] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[181] Item 1C. Cybersecurity Quantum Corporation maintains a robust cybersecurity program, including a Cyber Incident Evaluation Committee (CIEC) and an Incident Response Plan (IRP), to manage threats and incidents Risk Management and Strategy Quantum employs a Cyber Incident Evaluation Committee and an Incident Response Plan to assess and manage cybersecurity threats, engaging external experts for evaluation - Quantum has a Cyber Incident Evaluation Committee (CIEC) and an Incident Response Plan (IRP) to assess, respond to, and manage cybersecurity threats and incidents[183] - The CIEC, managed by the CIO, leads company-wide cybersecurity strategy, policy, standards, architecture, and processes, with the IRT responsible for incident response[183] - External experts, including cybersecurity assessors and consultants, are engaged to evaluate and test management systems and the IRP, aligning strategies with industry best practices[186] - To date, no identified cybersecurity threats or incidents have materially affected the Company's operations, business strategy, results, or financial condition[187] Governance The Board of Directors oversees the cybersecurity risk management program, receiving regular reports from the Cyber Incident Evaluation Committee and Incident Response Team - The Board of Directors considers cybersecurity risk as part of its risk oversight function and oversees management's implementation of the cybersecurity risk management program[188] - The Board receives regular reports from the CIEC on cybersecurity risks and updates on material incidents, along with briefings from the IRT on the cyber risk management program[188] - The CIEC, with over 20 years of combined experience, is responsible for assessing and managing material risks, supervising internal personnel and external consultants[190] Item 2. Properties Quantum's headquarters moved from San Jose, California, to Centennial, Colorado, effective August 1, 2025, with leased facilities globally deemed adequate - Quantum's headquarters moved from San Jose, California, to Centennial, Colorado, effective August 1, 2025[191] - The company leases facilities across North America, Europe, and Asia Pacific, which are deemed adequate for immediate future needs[191] Item 3. Legal Proceedings Information regarding legal proceedings is referenced in Note 10: Commitments and Contingencies to the consolidated financial statements - Legal proceedings information is detailed in Note 10: Commitments and Contingencies[192] Item 4. Mine Safety Disclosures The company has no mine safety disclosures to report - There are no mine safety disclosures[192] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Quantum's common stock trades on Nasdaq under "QMCO", with 200 holders of record, no cash dividends planned, and recent sales of unregistered securities under SEPA Market Information Quantum's common stock is traded on the Nasdaq Global Market under the symbol "QMCO" - Quantum's common stock is traded on the Nasdaq Global Market under the symbol "QMCO"[194] Holders of Record As of June 24, 2025, there were 200 holders of record of Quantum's common stock - As of June 24, 2025, there were 200 holders of record of Quantum's common stock[195] Dividends Quantum does not intend to pay cash dividends in the foreseeable future due to debt covenant restrictions - Quantum has no intention of paying cash dividends in the foreseeable future, as its ability to do so is restricted by covenants in its senior secured term loan and amended credit facility agreements[196] Recent Sales of Unregistered Securities Quantum issued 42,158 commitment shares and 1,114,981 additional shares under the SEPA between January and March 2025 - In connection with the SEPA, Quantum issued 42,158 commitment shares on January 29, 2025, and additional shares totaling 1,114,981 between February and March 2025[197] Issuer Purchases of Equity Securities There were no purchases of common stock by or on behalf of Quantum during the three months ended March 31, 2025 - There were no purchases of common stock by or on behalf of Quantum or its affiliated purchasers during the three months ended March 31, 2025[198] ITEM 6. [Reserved] This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Quantum's financial condition and results for fiscal years 2025 and 2024, including a restatement, revenue decrease, net loss, and liquidity concerns Overview and Highlights Quantum's mission is to deliver innovative solutions for capturing, creating, sharing, and protecting digital content, focusing on unstructured data value - Quantum's mission is to deliver innovative solutions for capturing, creating, sharing, and protecting digital content, emphasizing unlocking value from video and unstructured data[202] - Revenue is generated from selling technology and services, with significant expenses related to employee compensation, product design/manufacturing/marketing, data center costs, and income taxes[203] Restatement The Management's Discussion and Analysis incorporates restatement adjustments for the quarter ended December 31, 2024, primarily due to revenue recognition issues - The Management's Discussion and Analysis gives effect to restatement adjustments made to previously reported consolidated financial statements for the quarter ended December 31, 2024, primarily due to revenue recognition inconsistencies[204] Results of Operations This section provides a detailed comparison of Quantum's financial performance for fiscal years 2025 and 2024, and specific quarterly and nine-month periods Comparison of the Years Ended March 31, 2025 and 2024 This section compares Quantum's financial performance for fiscal years 2025 and 2024, detailing changes in revenue, gross profit, and operating expenses Total Revenue (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :----------------------- | :-------- | :----------- | :-------- | :----------- | :-------- | :------- | | Product revenue | $154,182 | 57% | $174,879 | 56% | $(20,697) | (12)% | | Service and subscription | $110,658 | 40% | $126,590 | 41% | $(15,932) | (13)% | | Royalty revenue | $9,218 | 3% | $10,131 | 3% | $(913) | (9)% | | Total revenue | $274,058 | 100% | $311,600 | 100% | $(37,542) | (12)% | - Product revenue decreased by $20.7 million (12%) due to lower demand from hyperscale customers and general decreases in the overall tape market, with an anticipated further decrease as the company transitions to subscription-based offerings[210] - Service and subscription revenue decreased by $15.9 million (13%) due to certain long-lived products reaching end-of-service-life, partially offset by new support bookings and subscription transition[211] Gross Profit and Margin (in thousands) | Category | 2025 | Gross margin % | 2024 | Gross margin % | $ Change | Basis point change | | :---------------------------- | :-------- | :------------- | :-------- | :------------- | :--------- | :----------------- | | Product gross profit | $34,452 | 22.3% | $38,459 | 22.0% | $(4,007) | 30 | | Service and subscription gross profit | $66,162 | 59.8% | $76,299 | 60.3% | $(10,137) | (50) | | Royalty gross profit | $9,218 | 100.0% | $10,131 | 100.0% | $(913) | — | | Gross profit | $109,832 | 40.1% | $124,889 | 40.1% | $(15,057) | — | - Product gross margin decreased by 30 basis points due to a revenue mix less weighted towards higher margin tape products[214] - Service and subscription gross margin increased by 50 basis points due to improved operational costs and organization design[215] Operating Expenses (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :------------------------ | :-------- | :----------- | :-------- | :----------- | :-------- | :------- | | Sales and marketing | $52,320 | 19% | $60,893 | 20% | $(8,573) | (14)% | | General and administrative | $63,961 | 23% | $51,547 | 17% | $12,414 | 24% | | Research and development | $31,141 | 11% | $38,046 | 12% | $(6,905) | (18)% | | Restructuring charges | $4,090 | 2% | $3,280 | 1% | $810 | 25% | | Total operating expenses | $151,512 | 55% | $153,766 | 50% | $(2,254) | (1)% | - Sales and marketing expenses decreased by 14% due to operational cost management and lower commission expense[217] - General and administrative expenses increased by 24% due to large non-recurring costs related to Topic 606 re-evaluation and other projects[218] - Research and development expenses decreased by 18% due to consolidation of acquisition costs and improved organization design[218] - Restructuring expenses increased by 25% due to corporate restructuring activities[219] Other Expense, Net (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :---------------------- | :----- | :----------- | :------ | :----------- | :--------- | :------- | | Other income (expense), net | $(710) | 0% | $(1,746) | (1)% | $(1,036) | (59)% | - Other expense, net decreased by $1.0 million (59%) primarily due to differences in foreign currency gains and losses[220] Interest Expense (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :------------- | :-------- | :----------- | :-------- | :----------- | :-------- | :------- | | Interest expense | $(23,607) | (9)% | $(15,089) | (5)% | $(8,518) | 56% | - Interest expense increased by $8.5 million (56%) due to a higher principal balance on the Term Loan and a higher interest rate[221] Change in Fair Value of Warrant Liabilities (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :----------------------------- | :--------- | :----------- | :------ | :----------- | :--------- | :------- | | Change in fair value of warrant liabilities | $(45,270) | (17)% | $5,137 | 2% | $(50,407) | (981)% | - A non-cash loss of $45.3 million was recorded in fiscal 2025 related to warrant liabilities, compared to a $5.1 million gain in fiscal 2024, primarily driven by stock price fluctuations[222] Loss on Debt Extinguishment, Net (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :--------------------------- | :------- | :----------- | :--- | :----------- | :--------- | :------- | | Loss on debt extinguishment, net | $(3,003) | (1)% | — | —% | $(3,003) | (100)% | - A $3.0 million loss on debt extinguishment was recorded in fiscal 2025 due to prepayment of long-term debt[223] Income Tax Provision (in thousands) | Category | 2025 | % of revenue | 2024 | % of revenue | $ Change | % Change | | :----------------- | :--- | :----------- | :--- | :----------- | :------- | :------- | | Income tax provision | $821 | 0% | $711 | 0% | $(110) | (15)% | - The income tax provision increased by $110 thousand (15%) in fiscal 2025 due to a higher valuation allowance, warrant mark-to-market adjustment, and expiration of tax attributes[224] Comparison of the Three Months Ended December 31, 2024 (Restated) and 2023 This section compares Quantum's restated financial results for the three months ended December 31, 2024, against the same period in 2023 Total Revenue (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 (Restated) | % of revenue | 2023 | % of revenue | $ Change | % Change | | :----------------------- | :-------------- | :----------- | :-------- | :----------- | :------- | :------- | | Product revenue | $38,634 | 57% | $37,113 | 51% | $1,521 | 4% | | Service and subscription | $27,724 | 40% | $32,771 | 46% | $(5,047) | (15)% | | Royalty | $2,326 | 3% | $2,042 | 3% | $284 | 14% | | Total revenue | $68,684 | 100% | $71,926 | 100% | $(3,242) | (5)% | - Product revenue increased by 4% in Q3 FY25, driven by higher sales of Primary storage systems[227] - Service and subscription revenue decreased by 15% due to long-lived products reaching end-of-service-life[228] Gross Profit and Margin (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 (Restated) | Gross margin % | 2023 | Gross margin % | $ Change | Basis point change | | :---------------------------- | :-------------- | :------------- | :-------- | :------------- | :--------- | :----------------- | | Product | $7,712 | 20.0% | $7,069 | 19.0% | $643 | 100 | | Service and subscription | $17,850 | 64.4% | $20,070 | 61.2% | $(2,220) | 320 | | Royalty | $2,326 | 100.0% | $2,042 | 100.0% | $284 | — | | Gross profit | $27,888 | 40.6% | $29,181 | 40.6% | $(1,293) | — | - Product gross margin increased by 100 basis points due to a more favorable revenue mix and improved operational efficiency[231] - Service and subscription gross margin increased by 320 basis points due to operational efficiency improvements[232] Operating Expenses (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :------------------------ | :-------- | :----------- | :-------- | :----------- | :-------- | :------- | | Sales and marketing | $12,448 | 18% | $14,244 | 20% | $(1,796) | (13)% | | General and administrative | $14,142 | 21% | $11,893 | 17% | $2,249 | 19% | | Research and development | $7,683 | 11% | $8,763 | 12% | $(1,080) | (12)% | | Restructuring charges | $1,342 | 2% | $497 | 1% | $845 | 170% | | Total operating expenses | $35,615 | 52% | $35,397 | 49% | $218 | 1% | - Sales and marketing expenses decreased by 13% due to improved operational efficiency[234] - General and administrative expenses increased by 19% due to higher compliance-focused outside services[235] - Research and development expenses decreased by 12% due to consolidation of acquisition costs and improved organization design[236] - Restructuring expenses increased by 170% due to cost reduction initiatives[237] Other Income (Expense) (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :---------------------- | :----- | :----------- | :------- | :----------- | :------- | :------- | | Other income (expense), net | $967 | 1% | $(1,419) | (2)% | $2,386 | 168% | - Other income (expense), net increased by $2.4 million (168%) primarily due to fluctuations in foreign currency exchange rates[238] Interest Expense (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :------------- | :-------- | :----------- | :-------- | :----------- | :--------- | :------- | | Interest expense | $(6,840) | (10)% | $(3,937) | (5)% | $(2,903) | 74% | - Interest expense increased by $2.9 million (74%) due to a higher effective interest rate on the Term Loan[239] Change in Fair Value of Warrant Liabilities (in thousands) - Q3 FY25 vs Q3 FY24 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :----------------------------- | :--------- | :----------- | :------ | :----------- | :--------- | :------- | | Change in fair value of warrant liabilities | $(61,630) | (90)% | $4,402 | 6% | $(66,032) | (1,500)% | - A non-cash loss of $61.6 million was recorded in Q3 FY25 related to warrant liabilities, compared to a $4.4 million gain in Q3 FY24, primarily driven by stock price fluctuations[240] - The income tax provision for Q3 FY25 and Q3 FY24 is primarily influenced by foreign and state income taxes, with a full valuation allowance against U.S. and certain foreign net deferred tax assets[241] Comparison of the Nine Months Ended December 31, 2024 (Restated) and 2023 This section compares Quantum's restated financial results for the nine months ended December 31, 2024, against the same period in 2023 Total Revenue (in thousands) - Nine Months Ended Dec 31 | Category | 2024 (Restated) | % of revenue | 2023 | % of revenue | $ Change | % Change | | :----------------------- | :-------------- | :----------- | :-------- | :----------- | :-------- | :------- | | Product revenue | $120,565 | 56% | $138,635 | 58% | $(18,070) | (13)% | | Service and subscription | $84,640 | 40% | $94,229 | 39% | $(9,589) | (10)% | | Royalty | $7,592 | 4% | $7,235 | 3% | $357 | 5% | | Total revenue | $212,797 | 100% | $240,099 | 100% | $(27,302) | (11)% | - Product revenue decreased by 13% due to a $20 million drop in demand from hyperscale customers and general declines in the tape market[243] - Service and subscription revenue decreased by 10% due to long-lived products reaching end-of-service-life, partially offset by subscription-based revenue increases[245] Gross Profit and Margin (in thousands) - Nine Months Ended Dec 31 | Category | 2024 (Restated) | Gross margin % | 2023 | Gross margin % | $ Change | Basis point change | | :---------------------------- | :-------------- | :------------- | :-------- | :------------- | :--------- | :----------------- | | Product | $27,314 | 22.7% | $33,421 | 24.1% | $(6,107) | (141) | | Service and subscription | $50,686 | 59.9% | $56,900 | 60.4% | $(6,214) | (48) | | Royalty | $7,592 | 100.0% | $7,235 | 100.0% | $357 | — | | Gross profit | $85,592 | 40.2% | $97,556 | 40.6% | $(11,964) | (43) | - Product gross margin decreased by 140 basis points due to a less favorable revenue mix[248] - Service and subscription gross margin decreased by 50 basis points due to lower service revenues[249] Operating Expenses (in thousands) - Nine Months Ended Dec 31 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :------------------------ | :-------- | :----------- | :-------- | :----------- | :------- | :------- | | Sales and marketing | $39,321 | 18% | $45,800 | 19% | $(6,479) | (14)% | | General and administrative | $49,186 | 23% | $34,833 | 15% | $14,353 | 41% | | Research and development | $24,255 | 11% | $28,828 | 12% | $(4,573) | (16)% | | Restructuring charges | $2,916 | 1% | $3,164 | 1% | $(248) | (8)% | | Total operating expenses | $115,678 | 54% | $112,625 | 47% | $3,053 | 3% | - Sales and marketing expenses decreased by 14% due to improved operational efficiency[251] - General and administrative expenses increased by 41% due to non-recurring costs related to the restatement[252] - Research and development expenses decreased by 16% due to consolidation of acquisition costs and improved organization design[253] - Restructuring expenses decreased by 8% due to prior year cost reduction initiatives[254] Other Income (Expense) (in thousands) - Nine Months Ended Dec 31 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :---------------------- | :----- | :----------- | :------- | :----------- | :------- | :------- | | Other income (expense), net | $(408) | 0% | $(2,049) | (1)% | $1,641 | 80% | - Other income (expense), net increased by $1.6 million (80%) primarily due to fluctuations in foreign currency exchange rates[255] Interest Expense (in thousands) - Nine Months Ended Dec 31 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :------------- | :--------- | :----------- | :--------- | :----------- | :--------- | :------- | | Interest expense | $(16,761) | (8)% | $(10,992) | (5)% | $(5,769) | 52% | - Interest expense increased by $5.8 million (52%) due to a higher effective interest rate on the Term Loan[256] Change in Fair Value of Warrant Liabilities (in thousands) - Nine Months Ended Dec 31 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :----------------------------- | :--------- | :----------- | :------ | :----------- | :--------- | :------- | | Change in fair value of warrant liabilities | $(56,414) | (27)% | $7,341 | 3% | $(63,755) | (868)% | - A non-cash loss of $56.4 million was recorded in the nine months ended December 31, 2024, related to warrant liabilities, compared to a $7.3 million gain in the same period in fiscal 2024, driven by stock price fluctuations[257] Loss on Debt Extinguishment (in thousands) - Nine Months Ended Dec 31 | Category | 2024 | % of revenue | 2023 | % of revenue | $ Change | % Change | | :--------------------------- | :------- | :----------- | :--- | :----------- | :--------- | :------- | | Loss on debt extinguishment | $(3,003) | 1% | — | —% | $(3,003) | 100% | - A $3.0 million loss on debt extinguishment was recorded in the nine months ended December 31, 2024, related to a prepayment of the Term Loan[258] - The income tax provision for the nine months ended December 31, 2024 and 2023 is primarily influenced by foreign and state income taxes, with a full valuation allowance against U.S. and certain foreign net deferred tax assets[259] Liquidity and Capital Resources Quantum's liquidity is primarily from operating activities and credit facilities, but negative cash flows and potential debt covenant violations raise going concern doubts - Quantum's principal liquidity sources are cash from operating activities, cash and cash equivalents, and the revolving credit facility[260] - As of March 31, 2025, cash and cash equivalents were $16.5 million, with total outstanding Term Loan debt of $102.5 million and $0.4 million available under the PNC Credit Facility[261] - The company generated negative cash flows from operations of $23.6 million in fiscal 2025 and $10.2 million in fiscal 2024, with net losses of $115.1 million and $41.3 million, respectively[262] - Quantum entered into a Standby Equity Purchase Agreement (SEPA) in January 2025 to sell up to $200 million of common stock, having sold 1.2 million shares for $16.4 million by March 31, 2025, and an additional 6.3 million shares for $66.6 million by July 31, 2025[263] - The company expects to violate its net leverage covenant by September 30, 2025, which would make the Term Loan immediately due, raising substantial doubt about its ability to continue as a going concern[264] Cash Flows This section details Quantum's cash flows from operating, investing, and financing activities for fiscal years 2025 and 2024 Consolidated Cash Flows (in thousands) | Activity | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :------------------------ | :------------------------ | :------------------------ | | Operating activities | $(23,613) | $(10,156) | | Investing activities | $(4,947) | $(5,869) | | Financing activities | $19,306 | $15,713 | | Effect of exchange rate changes | $(3) | $(3) | | Net change in cash, cash equivalents, and restricted cash | $(9,257) | $(315) | - Net cash used in operating activities increased by $13.5 million to $23.6 million in fiscal 2025, primarily due to decreased revenue, lower gross profit, and increased non-recurring costs related to Topic 606 re-evaluation[267] - Net cash used in investing activities was $4.9 million in fiscal 2025 (capital expenditures) and $5.9 million in fiscal 2024 (ERP system implementation)[268] - Net cash provided by financing activities was $19.3 million in fiscal 2025 and $15.7 million in fiscal 2024, primarily from Term Loan credit facility borrowings[269] Commitments and Contingencies Contingent liabilities include financial guarantees and ordinary course litigation, with historical payments not materially impacting operating results - Contingent liabilities include financial guarantees related to product liability and potential intellectual property infringement, with historical payments not materially impacting operating results[270] - The company is also subject to ordinary course of business litigation, as detailed in Note 10[271] Contractual Obligations This section outlines Quantum's debt obligations, future lease commitments, and purchase obligations as of March 31, 2025 Contractual Obligations as of March 31, 2025 (in thousands) | Category | Total | 1 year or less | 1 – 3 Years | 3 – 5 Years | More than 5 years | | :------------------- | :-------- | :------------- | :---------- | :---------- | :---------------- | | Debt obligations | $129,107 | $129,107 | $— | $— | $— | | Future lease commitments | $19,111 | $2,346 | $3,429 | $2,481 | $10,855 | | Purchase obligations | $48,612 | $48,612 | $— | $— | $— | | Total | $196,830 | $180,065 | $3,429 | $2,481 | $10,855 | Off-Balance Sheet Arrangements Quantum currently has no off-balance sheet arrangements or holdings in variable interest entities - Quantum currently has no off-balance sheet arrangements or holdings in variable interest entities[273] Critical Accounting Estimates and Policies Critical accounting policies require significant management judgment, particularly in revenue recognition, income taxes, inventories, and warrant accounting - Critical accounting policies require significant management judgment and include revenue recognition (standalone selling price, variable consideration), income taxes (deferred tax assets, valuation allowance, uncertain tax positions), inventories (manufacturing and service parts valuation), and warrant accounting (equity vs. liability classification)[275][276][277][278][279][280][281][283][284][285][286] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Quantum's primary market risks are from inflation, interest rates, and foreign currency exchange rates, with efforts to minimize foreign currency exposures Interest Rate Risk Quantum is exposed to interest rate risk on its variable interest rate term debt and credit facility, though a 100-basis point change would not materially impact annual interest expense - Quantum is exposed to interest rate risk on its variable interest rate term debt and PNC Credit Facility. A hypothetical 100-basis point change in market interest rates would not materially change annual interest expense for fiscal 2025[289] Foreign Exchange Risk International operations expose Quantum to foreign currency risk, which the company minimizes through natural hedges and potential future derivative contracts - International operations expose Quantum to foreign currency risk, primarily from transacting in foreign currencies and translating activity into U.S. dollars, which can result in transaction gains or losses[290] - The company minimizes foreign currency exposures by maintaining natural hedges between assets, liabilities, revenues, and expenses denominated in foreign currencies, and may use derivative contracts in the future[291] ITEM 8. Financial Statements and Supplementary Data This section presents Quantum's audited consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes, with an auditor's going concern opinion Report of Independent Registered Public Accounting Firm Grant Thornton LLP issued an opinion on the consolidated financial statements, highlighting a going concern uncertainty and identifying standalone selling price determination as a critical audit matter - Grant Thornton LLP audited the consolidated financial statements for March 31, 2025, and 2024, and issued an opinion that they present fairly, in all material respects, the financial position, results of operations, and cash flows[295] - The auditor noted a going concern uncertainty due to the Company's expected violation of the net leverage covenant by September 30, 2025, which could make the Term Loan immediately due[296] - The determination of Standalone Selling Price (SSP) for revenue recognition was identified as a critical audit matter due to the high degree of auditor judgment and subjective assumptions required in the absence of directly observable data[301][302][303] Consolidated Balance Sheets This section presents Quantum's consolidated balance sheets, showing a decrease in total assets and an increase in total liabilities and stockholders' deficit from 2024 to 2025 Consolidated Balance Sheet Highlights (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :--------------------------- | :------------- | :------------- | | Cash and cash equivalents | $16,464 | $25,692 | | Total current assets | $102,806 | $131,784 | | Total assets | $155,402 | $187,615 | | Total current liabilities | $257,607 | $249,944 | | Total liabilities | $319,768 | $309,113 | | Total stockholders' deficit | $(164,366) | $(121,498) | - Total assets decreased from $187.6 million in 2024 to $155.4 million in 2025, while total liabilities increased from $309.1 million to $319.8 million[306] - Stockholders' deficit worsened from $(121.5) million in 2024 to $(164.4) million in 2025[306] Consolidated Statements of Operations and Comprehensive Loss This section details Quantum's consolidated statements of operations, showing a decrease in total revenue and a significant increase in net loss for fiscal year 2025 Consolidated Statements of Operations Highlights (in thousands) | Category | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :------------------------------- | :------------------------ | :------------------------ | | Total revenue | $274,058 | $311,600 | | Gross profit | $109,832 | $124,889 | | Loss from operations | $(41,680) | $(28,877) | | Interest expense | $(23,607) | $(15,089) | | Change in fair value of warrant liability | $(45,270) | $5,137 | | Net loss | $(115,091) | $(41,286) | | Net loss per share - basic and diluted | $(22.35) | $(8.68) | - Total revenue decreased by 12% from $311.6 million in 2024 to $274.1 million in 2025[307] - Net loss significantly increased from $(41.3) million in 2024 to $(115.1) million in 2025[307] - The increase in net loss was largely driven by a $45.3 million non-cash loss from the change in fair value of warrant liabilities in 2025, compared to a $5.1 million gain in 2024[307] Consolidated Statements of Cash Flows This section presents Quantum's consolidated statements of cash flows, indicating increased net cash used in operating activities and net cash provided by financing activities in fiscal 2025 Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :------------------------ | :------------------------ | :------------------------ | | Operating activities | $(23,613) | $(10,156) | | Investing activities | $(4,947) | $(5,869) | | Financing activities | $19,306 | $15,713 | | Net change in cash, cash equivalents, and restricted cash | $(9,257) | $(315) | - Net cash used in operating activities increased to $23.6 million in 2025 from $10.2 million in 2024[310] - Net cash provided by financing activities was $19.3 million in 2025, primarily from long-term debt borrowings and proceeds from SEPA shares[310] Consolidated Statements of Stockholders' Deficit This section outlines changes in Quantum's stockholders' deficit, reflecting a significant increase in accumulated deficit and additional paid-in capital from 2024 to 2025 Consolidated Statements of Stockholders' Deficit Highlights (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :--------------------------- | :------------- | :------------- | | Common Stock (shares) | 6,962 | 4,792 | | Common Stock (amount) | $70 | $48 | | Additional paid-in capital | $779,645 | $708,027 | | Accumulated deficit | $(942,471) | $(827,380) | | Total stockholders' deficit | $(164,366) | $(121,498) | - The accumulated deficit increased significantly from $(827.4) million in 2024 to $(942.5) million in 2025, reflecting the net losses[312] - Additional paid-in capital increased due to warrants exercised related to long-term debt ($52.9 million) and shares issued related to the SEPA ($15.8 million)[312] Notes to Consolidated Financial Statements This section provides detailed notes to Quantum's consolidated financial statements, covering business description, accounting policies, revenue, debt, and other financial information Note 1: Description of Business and Significant Accounting Policies This note describes Quantum's business of managing digital video and unstructured data, significant accounting policies, a reverse stock split, and going concern uncertainty - Quantum stores and manages digital video and unstructured data, offering software-defined, hyperconverged storage solutions across NVMe, SSD, HDD, tape, and cloud, leveraging a single namespace view[316] - A 1-for-20 reverse stock split became effective on August 26, 2024, retroactively adjusting all share and per share amounts[319][320] - Substantial doubt exists about the Company's ability to continue as a going concern due to an expected violation of the net leverage covenant by September 30, 2025, which would make the Term Loan immediately due[321][322] - Critical accounting estimates include standalone selling price for revenue, inventory adjustments, useful lives of assets, stock-based compensation, fair value of warrants, and income tax provisions[324] Note 2: Revenue This note details Quantum's revenue recognition policies, contract balances, and remaining performance obligations, including deferred revenue by period Contract Balances (in thousands) | Category | March 31, 2025 | March 31, 2024 | March 31, 2023 | | :----------------------- | :------------- | :------------- | :------------- | | Accounts receivable, net | $52,502 | $67,788 | $72,464 | | Deferred revenue | $113,923 | $116,687 | $115,302 | - Revenue recognized from amounts included in contract liabilities at the beginning of the period was $74.0 million in 2025 and $76.3 million in 2024[387] - Total remaining performance obligations (RPO) were $138.0 million as of March 31, 2025, with $97.0 million current and $41.0 million non-current[388][389] Deferred Revenue by Period (in thousands) | Category | Total | 1 year or less | 1 – 3 Years | 3 year or greater | | :---------------- | :-------- | :------------- | :---------- | :---------------- | | Service revenue | $94,462 | $65,498 | $23,342 | $5,622 | | Subscription revenue | $19,461 | $9,578 | $7,918 | $1,965 | | Total | $113,923 | $75,076 | $31,260 | $7,587 | Note 3: Balance Sheet Information This note provides detailed breakdowns of Quantum's manufacturing and service inventories, property and equipment, intangible assets, goodwill, and other accrued liabilities Manufacturing and Service Inventories (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :----------------------- | :------------- | :------------- | | Manufacturing inventories | $20,336 | $17,753 | | Service inventories | $2,098 | $9,783 | Property and Equipment, Net (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :------------------------------- | :------------- | :------------- | | Machinery and equipment, and software | $47,385 | $49,095 | | Leasehold improvements | $13,529 | $12,473 | | Furniture and fixtures | $1,095 | $1,109 | | Less: accumulated depreciation | $(50,631) | $(50,649) | | Total property, plant and equipment, net | $11,378 | $12,028 | Intangible Assets, Net (in thousands) | Category | March 31, 2025 Net | March 31, 2024 Net | | :------------------ | :----------------- | :----------------- | | Developed technology | $— | $463 | | Customer lists | $281 | $1,206 | | Intangible assets, net | $281 | $1,669 | - Goodwill remained constant at $12.97 million for both fiscal years[394] - Other long-term assets primarily include capitalized SaaS implementation costs ($13.9 million in 2025) and capitalized debt costs ($2.9 million in 2025)[394] Other Accrued Liabilities (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :----------------------- | :------------- | :------------- | | Accrued expenses | $7,558 | $4,251 | | Asset retirement obligation | $3,497 | $2,069 | | Accrued warranty | $1,032 | $1,545 | | Total other accrued liabilities | $17,982 | $13,986 | Note 4: Debt This note summarizes Quantum's Term Loan and PNC Credit Facility, detailing amendments, interest rates, and warrant issuances to lenders Summary of Borrowings (in thousands) | Category | March 31, 2025 | March 31, 2024 | | :------------------ | :------------- | :------------- | | Term Loan | $102,507 | $87,942 | | PNC Credit Facility | $26,600 | $26,604 | | Less: current portion | $(123,086)