QUANTUM CORP DE

Previous wording

We are a technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We specialize in solutions for unstructured data including video, images, audio, and other large files. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.

Current wording

We are a technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.

Previous wording

Service and subscription revenue decreased 3.5 million, or 11%, in the three months ended June 30, 2024 compared to the same period in 2023, partially driven by certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing.

Current wording

Service and subscription revenue increased $0.8 million, or 3%, in the three months ended September 30, 2024 compared to the same period in fiscal 2024. This increase was due to new support bookings and the transition towards subscription-based licensing, partially offset by certain long-lived products reaching their end-of-service-life.

Previous wording

Product gross margin decreased to 20.6% or by 350 basis points for the three months ended June 30, 2024, as compared with the same period in 2023. This decrease was primarily due to a less favorable mix of revenues, weighted towards our lower margin product lines, which were partially offset from improvements in our operational efficiency and logistics costs.

Current wording

Product gross margin decreased by $5.2 million, or by 940 basis points, for the three months ended September 30, 2024, as compared with the same period in fiscal 2024.. This decrease was primarily due to a less favorable mix of revenues, weighted towards our lower margin product lines, which were partially offset from improvements in our operational efficiency and logistics costs.

Previous wording

In the three months ended June 30, 2024, sales and marketing expense decreased $2.5 million, or 16%, as compared with the same period in 2023. This decrease was primarily driven by improved operational efficiency and increased leverage from our channel.

Current wording

In the three months ended September 30, 2024, sales and marketing expenses decreased $2.1 million, or 14%, as compared with the same period in fiscal 2024 This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.

Previous wording

In the three months ended June 30, 2024, general and administrative expense increased $8.4 million, or 66%, as compared with the same period in 2023. This increase was primarily driven by non-recurring costs related to our previously announced restatement of our historical financial statements, and other related projects.

Current wording

In the three months ended September 30, 2024, general and administrative expenses increased $3.7 million, or 36%, as compared with the same period in fiscal 2024 This increase was primarily driven by non-recurring costs related to our previously announced restatement of our historical financial statements, and other related projects.

Previous wording

In the three months ended June 30, 2024, research and development expense decreased $2.6 million, or 24%, as compared with the same period in 2023. This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.

Current wording

In the three months ended September 30, 2024, research and development expenses decreased $0.9 million, or 10%, as compared with the same period in fiscal 2024 This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.

Previous wording

In the three months ended June 30, 2024, restructuring expenses decreased $0.1 million as compared with the same period in 2023. The decrease was the result of cost reduction initiatives.

Current wording

In the three months ended September 30, 2024, restructuring expenses decreased $1.0 million, or 71% as compared with the same period in fiscal 2024 The decrease was the result of cost reduction initiatives in the previous year.

Previous wording

The change in other income (expense), net during the three months ended June 30, 2024 compared with the same period in 2023 was related primarily to fluctuations in foreign currency exchange rates during the three months ended June 30, 2024.

Current wording

The change in other income (expense), net during the three months ended September 30, 2024 compared with the same period in fiscal 2024 was related primarily to fluctuations in foreign currency exchange rates during the three months ended September 30, 2024.

Previous wording

In the three months ended June 30, 2024, interest expense increased $0.6 million, or 18%, as compared with the same period in 2023 due to a principal balance and interest rate on our Term Loan.

Current wording

In the three months ended September 30, 2024, interest expense increased $2.3 million, or 59%, as compared with the same period in fiscal 2024 due to a higher effective interest rate on our Term Loan.

Previous wording

In June 30, 2024, the change in fair value of warrant liabilities increased $0.9 million, or 129%, as compared with the same period in 2023 due to a lower average stock price in the first fiscal quarter of 2024.

Current wording

In September 30, 2024, the change in fair value of warrant liabilities increased $0.9 million, or (19)%, as compared with the same period in fiscal 2024 due to a lower average stock price in the second fiscal quarter of 2024.

Previous wording

In the three months ended June 30, 2024, loss on debt extinguishment of $0.7 million was related to prepayment of our Term Loan.

Current wording

In the three months ended September 30, 2024, loss on debt extinguishment was related to prepayment of our Term Loan.

Previous wording

The income tax provision for the three months ended June 30, 2024 and 2023 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Current wording

The income tax provision for the three months ended September 30, 2024 and 2023 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Previous wording

In the three months ended June 30, 2024, product revenue decreased $17.6 million, or 30%, as compared to the same period in 2023. The primary driver of the decrease was a $20 million decrease in demand from our large hyperscale customers, as well as more general decreases in the overall tape market with declines in media and devices revenue. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. We expect the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.

Current wording

In the six months ended September 30, 2024, product revenue decreased $23.7 million, or 23%, as compared to the same period in fiscal 2024. The primary driver of the decrease was a $20 million decrease in demand from our large hyperscale customers, as well as more general decreases in the overall tape market with declines in media and devices revenue. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. We expect the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.

Previous wording

We receive royalties from third parties that license our linear-tape open (“LTO”) media patents through our membership in the LTO consortium. Royalty revenue decreased $0.1 million, or 2%, in the three months ended June 30, 2024 compared to the same period in 2023 due to decreased market volume of older generation LTO media.

Current wording

We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium. Royalty revenue saw a small increase of $0.1 million, or 1%, in the three months ended September 30, 2024 compared to the same period in 2023 due to product mix.

Previous wording

Service and subscription gross margins decreased 600 basis points for the three months ended June 30, 2024, as compared with the same period in 2023. This decrease was primarily driven by lower service revenues.

Current wording

Service and subscription gross margin decreased 90 basis points for the six months ended September 30, 2024, as compared with the same period in fiscal 2024. This decrease was primarily driven by lower service revenues.

Previous wording

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our credit facility with PNC Bank, National Association (as amended from time to time, the “PNC Credit Facility”) pursuant to the Amended Restated Revolving Credit and Security Agreement dated December 27, 2018. We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.

Current wording

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our revolving credit facility agreement with PNC Bank, National Association as amended from time to time (the “PNC Credit Facility”). We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.

Previous wording

We had cash and cash equivalents of $17.3 million as of June 30, 2024, which consisted primarily of bank deposits and money market accounts. As of June 30, 2024, our total outstanding Term Loan debt was $75.8 million and out outstanding PNC Credit Facility was $35.8 million with $0.1 million available to borrow.

Current wording

We had cash and cash equivalents of $16.7 million as of September 30, 2024, which consisted primarily of bank deposits and money market accounts. As of September 30, 2024, our total outstanding Term Loan debt was $104.7 million and PNC Credit Facility borrowings were $28.4 million. As of September 30, 2024 we had $0.1 million available to borrow under the PNC Credit Facility.

Previous wording

For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Business Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Current wording

We are subject to various debt covenants under our debt agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in the Annual Report.

Previous wording

Net cash used in operating activities was $9.4 million for the three months ended June 30, 2023. This use of cash was primarily attributable to changes in working capital of $7.2 million.

Current wording

Net cash used in operating activities was $17.2 million for the six months ended September 30, 2024. This use of cash was primarily attributed to lower earnings.

Previous wording

Net cash used in operating activities was $1.9 million for the three months ended June 30, 2024. This use of cash was primarily attributed to cash used in operations excluding changes in assets and liabilities of $16.3 million offset in part by cash provided by working capital changes.

Current wording

Net cash used in operating activities was $11.3 million for the six months ended September 30, 2023. This use of cash was primarily attributed to cash used in operations excluding changes in assets and liabilities of $6.9 million in addition to cash used from working capital changes.

Previous wording

Net cash used in investing activities was $1.6 million in the three months ended June 30, 2024, which was attributable to capital expenditures.

Current wording

Net cash used in investing activities was $3.2 million in the six months ended September 30, 2024, which was attributable to capital expenditures.

Previous wording

Net cash used in investing activities was $2.3 million in the three months ended June 30, 2023, which was primarily attributable to capital expenditures.

Current wording

Net cash used in investing activities was $3.9 million in the six months ended September 30, 2023, which was attributable to capital expenditures.

Previous wording

Net cash provided by financing activities was $11.2 million in the three months ended June 30, 2023, which was related primarily to borrowings on our Term Loan of $12.9 million.

Current wording

Net cash provided by financing activities was $11.5 million for the six months ended September 30, 2024, which was related primarily to borrowings on our Term Loan.

Previous wording

Net cash used in financing activities was $4.8 million for the three months ended June 30, 2024, which was related primarily to borrowings on our PNC Credit Facility.

Current wording

Net cash provided by financing activities was $14.8 million for the six months ended September 30, 2023, which was related primarily to borrowings on our Term Loan of $14.1 million net of issuance costs.

Previous wording

We have contractual obligations and commercial commitments, some of which, such as purchase obligations, are not recognized as liabilities in our financial statements. There have not been any other material changes to the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Current wording

We have contractual obligations and commercial commitments, some of which, such as purchase obligations, are not recognized as liabilities in our financial statements. There have not been any material changes to the contractual obligations disclosed in the Annual Report.

Previous wording

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in our most recently filed Annual Report on Form 10-K for the fiscal year ended March 31, 2024 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in the Annual Report under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.