QUANTUM CORP /DE/

Previous wording

The following discussion and analysis compares the change in the consolidated financial statements for quarters and six months ended September 30, 2025 and September 30, 2024, and should be read together with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 (the “Annual Report”). In particular, the risk factors contained in Part I, Item 1A of the Annual Report under the heading “Risk Factors” may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. For comparisons of quarters and six months ended September 30, 2024 and September 30, 2023, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, filed with the SEC on November 14, 2024, and incorporated herein by reference. Our fiscal year ends on March 31 of each calendar year. "Fiscal 2025" refers to the fiscal year ended March 31, 2025.

Current wording

The following discussion and analysis compares the change in the condensed consolidated financial statements for quarters and nine months ended December 31, 2025 and December 31, 2024, and should be read together with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 (the “Annual Report”). In particular, the risk factors contained in Part I, Item 1A of the Annual Report under the heading “Risk Factors” may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. For comparisons of quarters and nine months ended December 31, 2024 and December 31, 2023, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2025, filed with the SEC on August 26, 2025 and incorporated herein by reference. Our fiscal year ends on March 31 of each calendar year. "Fiscal 2025" refers to the fiscal year ended March 31, 2025.

Previous wording

We continue to actively monitor, evaluate and respond to the current uncertain macro environment, including the impact of changing interest rates, inflation, tariffs, lingering supply chain challenges, and fluctuation in the U.S. dollar. During the quarter we continued to experience longer sales cycle for opportunities with our enterprise as well as commercial customers.

Current wording

We continue to actively monitor, evaluate and respond to the current uncertain macro environment, including the impact of changing interest rates, inflation, tariffs, lingering supply chain challenges, and fluctuation in the U.S. dollar. During the quarter we continued to experience longer sales cycles for opportunities with our enterprise as well as commercial customers.

Previous wording

In the three months ended September 30, 2025, product revenue decreased $3.9 million, or 10%, as compared to the same period in fiscal 2025. The primary driver of the decrease was due to large orders in the prior period across secondary and primary storage.

Current wording

In the three months ended December 31, 2025, product revenue increased $7.8 million, or 20%, as compared to the same period in fiscal 2025. The primary driver of the increase was due to higher sales across secondary storage, devices and media product lines.

Previous 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 decreased $0.6 million, or 27%, in the three months ended September 30, 2025 compared to the same period in fiscal 2025 due to both lower market volume and a mix weighted towards linear-tape-open (“LTO”) types with lower royalty rates.

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 decreased $0.7 million, or 31%, in the three months ended December 31, 2025 compared to the same period in fiscal 2025 due to both lower market volume and a mix weighted towards linear-tape-open (“LTO”) types with lower royalty rates.

Previous wording

Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.

Current wording

Gross profit and margin percentages are key metrics that management monitors to assess the performance of the business.

Previous wording

In the six months ended September 30, 2025, sales and marketing expenses decreased $2.4 million, or 9%, as compared with the same period in fiscal 2025. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.

Current wording

In the three months ended December 31, 2025, sales and marketing expenses increased $0.5 million, or 4%, as compared with the same period in fiscal 2025. This increase was primarily driven by higher commission expense related to product and service sales.

Previous wording

In the three months ended September 30, 2025, general and administrative expenses decreased $3.0 million, or 21%, as compared with the same period in fiscal 2025. This decrease was primarily driven by higher expense in the prior year related to compliance focused outside services.

Current wording

In the three months ended December 31, 2025, general and administrative expenses decreased $4.1 million, or 29%, as compared with the same period in fiscal 2025. This decrease was primarily driven by higher expense in the prior year related to compliance focused outside services.

Previous wording

In the three months ended September 30, 2025, research and development expenses decreased $2.6 million, or 31%, as compared with the same period in fiscal 2025. This decrease was the result of efficiencies realized through improved organization design, including the consolidation of common functions and increased weighting of resources in lower-cost regions.

Current wording

In the three months ended December 31, 2025, research and development expenses decreased $2.1 million, or 27%, as compared with the same period in fiscal 2025. This decrease was the result of efficiencies realized through improved organization design, including the consolidation of common functions.

Previous wording

In the three months ended September 30, 2025, restructuring expenses increased $2.8 million, or 734% as compared with the same period in fiscal 2025. This increase in restructuring expenses primarily involves workforce reductions and related severance and termination benefits.These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units.

Current wording

In the three months ended December 31, 2025, restructuring expenses increased $0.2 million, or 14%, as compared with the same period in fiscal 2025. This increase in restructuring expenses primarily involves workforce reductions and related severance and termination benefits. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units.

Previous wording

The Company expects these initiatives to result in future cost savings and productivity improvements beginning in fiscal 2026. The restructuring activities are expected to be substantially completed by the end of the fourth quarter of fiscal year 2026; however, the timing and total amount of charges are subject to change as implementation progresses.

Current wording

The Company expects these initiatives to result in future cost savings and productivity improvements beginning in fiscal 2026. The restructuring activities are expected to be substantially completed by the end of fiscal year 2026; however, the timing and total amount of charges are subject to change as implementation progresses.

Previous wording

In the three months ended September 30, 2025, we recorded a non-cash gain of $1.5 million related to the change in fair value of our Forbearance Warrant liabilities. In the three months ended September 30, 2024, we recorded a non-cash gain of $3.6 million.

Current wording

In the three months ended December 31, 2025, we recorded a non-cash gain of $7.6 million related to the change in fair value of our Forbearance Warrant liabilities. In the three months ended December 31, 2024, we recorded a non-cash loss of $61.6 million related to the change in fair value of our Lender Warrant liabilities. These changes were primarily driven by fluctuations in our stock price.

Previous wording

In the six months ended September 30, 2025, product revenue decreased $$9.0 million, or 11%, as compared to the same period in fiscal 2025. The primary driver of the decrease was in Primary storage systems with a large video surveillance order in the prior period.

Current wording

In the nine months ended December 31, 2025, product revenue decreased $1.2 million, or 1%, as compared to the same period in fiscal 2025. The primary driver of the decrease was in primary storage systems with a large video surveillance order in the prior period.

Previous wording

Service and subscription revenue decreased $4.6 million, or 15%, in the three months ended September 30, 2025 compared to the same period in fiscal 2025. This decrease was due to certain long-lived products reaching their end-of-service-life.

Current wording

Service and subscription revenue decreased $7.6 million, or 9%, in the nine months ended December 31, 2025 compared to the same period in fiscal 2025. This decrease was due to certain long-lived products reaching their end-of-service-life.

Previous 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 decrease of $1.7 million, or 33%, in the six months ended September 30, 2025 compared to the same period in fiscal 2025 due to both lower market volume and a mix weighted towards LTO types with lower royalty rates.

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 decrease of $2.5 million, or 32%, in the nine months ended December 31, 2025 compared to the same period in fiscal 2025 due to both lower market volume and a mix weighted towards LTO types with lower royalty rates.

Previous wording

Product gross margin decreased by $6.2 million, or by 550 basis points, for the six months ended September 30, 2025, as compared with the same period in fiscal 2025. This decrease was primarily due to an inventory provision accrued for certain end-of-life products, as well as supply chain logistics costs including import tariffs.

Current wording

Product gross margin decreased by $3.0 million, or by 70 basis points, for the nine months ended December 31, 2025, as compared with the same period in fiscal 2025. This decrease was primarily due to an inventory provision accrued for certain end-of-life products, as well as supply chain logistics costs including import tariffs.

Previous wording

Service and subscription gross margins decreased 290 basis points for the three months ended September 30, 2025, as compared with the same period in fiscal 2025. This decrease was primarily driven by reduced revenue as many long-lived products reach their end-of-service life. To mitigate these declines, costs of service has been reduced across the organization, including logistics, repair, and labor.

Current wording

Service and subscription gross margins decreased by $4.9 million, or by 220 basis points for the nine months ended December 31, 2025, as compared with the same period in fiscal 2025. This decrease was primarily driven by the reduction of service costs across the organization, including logistics, repair, and labor.

Previous wording

In the three months ended September 30, 2025, sales and marketing expenses decreased $1.8 million, or 13%, as compared with the same period in fiscal 2025. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.

Current wording

In the nine months ended December 31, 2025, sales and marketing expenses decreased $1.9 million, or 5%, as compared with the same period in fiscal 2025. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.

Previous wording

In the six months ended September 30, 2025, general and administrative expenses decreased $10.5 million, or 30%, as compared with the same period in fiscal 2025. This decrease was primarily driven by higher expense in the prior year related to compliance focused outside services.

Current wording

In the nine months ended December 31, 2025, general and administrative expenses decreased $14.6 million, or 30%, as compared with the same period in fiscal 2025. This decrease was primarily driven by higher expense in the prior year related to compliance focused outside services.

Previous wording

In the six months ended September 30, 2025, research and development expenses decreased $4.2 million, or 25%, as compared with the same period in fiscal 2025. This decrease was the result of efficiencies realized through improved organization design, including the consolidation of common functions and increased weighting of resources in lower-cost regions.

Current wording

In the nine months ended December 31, 2025, research and development expenses decreased $6.3 million, or 26%, as compared with the same period in fiscal 2025. This decrease was the result of efficiencies realized through improved organization design, including the consolidation of common functions.

Previous wording

In the six months ended September 30, 2025, restructuring expenses increased $4.0 million, or 257% as compared with the same period in fiscal 2025. The increase was the result of significant changes in management structure, and overall consolidation of resources designed to improve operational efficiencies and rationalize its cost structure. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units. The restructuring plan primarily involves workforce reductions and related severance and termination benefits.

Current wording

In the nine months ended December 31, 2025, restructuring expenses increased $4.2 million, or 145%, as compared with the same period in fiscal 2025. The increase was the result of significant changes in management structure, and overall consolidation of resources designed to improve operational efficiencies and rationalize its cost structure. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units. The restructuring plan primarily involves workforce reductions and related severance and termination benefits.

Previous wording

The change in other income (expense), net during the six months ended September 30, 2025 compared with the same period in fiscal 2025 was related primarily to fluctuations in foreign currency exchange rates during the three months ended September 30, 2025.

Current wording

The change in other income (expense), net during the nine months ended December 31, 2025 compared with the same period in fiscal 2025 was related primarily to fluctuations in foreign currency exchange rates during the nine months ended December 31, 2025.

Previous wording

In the three months ended September 30, 2025, interest expense increased $0.1 million, or 2%, as compared with the same period in fiscal 2025 due to a higher effective interest rate on our Term Loan.

Current wording

In the nine months ended December 31, 2025, interest expense increased $1.9 million, or 11%, as compared with the same period in fiscal 2025 due to a higher effective interest rate on our Term Loan as well as increased amortization of deferred debt issuance costs.

Previous wording

In the six months ended September 30, 2025, we recorded a non-cash gain of $1.5 million related to the change in fair value of our Forebearance Warrant liabilities. In the six months ended September 30, 2024, we recorded a non-cash gain of $5.2 million.

Current wording

In the nine months ended December 31, 2025, we recorded a non-cash gain of $9.1 million related to the change in fair value of our Forbearance Warrant liabilities. In the nine months ended December 31, 2024, we recorded a non-cash loss of $56.4 million related to the change in fair value of our Lender Warrant liabilities. These changes were primarily driven by fluctuations in our stock price.

Previous wording

The income tax provision for the six months ended September 30, 2025 and 2024 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.

Current wording

The income tax provision for the nine months ended December 31, 2025 and 2024 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

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, and cash and cash equivalents on our balance sheet. 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 ability to raise additional capital, 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 and financing activities, and cash and cash equivalents on our balance sheet. 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 ability to raise additional capital, research and development plans and capital asset needs.

Previous wording

We had cash and cash equivalents of $14.7 million as of September 30, 2025, which consisted primarily of bank deposits and money market accounts. As of September 30, 2025, our total outstanding Term Loan debt was $106.1 million.

Current wording

We had cash and cash equivalents of $13.2 million as of December 31, 2025, which consisted primarily of bank deposits and money market accounts. As of December 31, 2025, our total outstanding Term Loan debt was $54.6 million.

Previous wording

We generated negative cash flows from operations of approximately $32.5 million and $17.2 million for the six months ended September 30, 2025 and 2024, respectively, and generated net losses of approximately $63.7 million and $32.0 million for the six months ended September 30, 2025 and 2024, respectively. We have funded operations through the sale of Common Stock, Term Loan borrowings and PNC Credit Facility borrowings described in Note 4: Debt.

Current wording

We generated negative cash flows from operations of approximately $37.4 million and $20.3 million for the nine months ended December 31, 2025 and 2024, respectively, and generated net losses of approximately $91.5 million and $107.3 million for the nine months ended December 31, 2025 and 2024, respectively. We have funded operations through the sale of common stock, Term Loan borrowings and PNC Credit Facility borrowings described in Note 4: Debt.

Previous wording

On January 25, 2025, the Company entered into the SEPA, in which pursuant to and subject to its terms, the Company has the right, but not the obligation, to sell up to $200 million of Common Stock at any time during the three-year period following the date of the SEPA. As of September 30, 2025, the Company has issued approximately 7.5 million shares of Common Stock under the SEPA for net proceeds of approximately $82.8 million, of which 6.3 million shares of Common Stock for net proceeds of approximately $66.9 million were issued in the six months ended September 30, 2025. No shares were issued in the three months ended September 30, 2025.

Current wording

On January 25, 2025, we entered into the SEPA, pursuant to which, and subject to its terms, we have the right, but not the obligation, to sell up to $200 million of our common stock during the three-year period following the date of the SEPA. As of December 31, 2025, we sold approximately 8.2 million shares of common stock under the SEPA for net proceeds of approximately $89.6 million. There were 0.7 million and 7.1 million shares of common stock sold for net proceeds of approximately $5.0 million and $72.0 in the three and nine months ended December 31, 2025.

Previous wording

Our Term Loan has a maturity date of August 5, 2026. As discussed in Note 1: Description of Business and Summary of Significant Accounting Policies—Going Concern, we believe we will not be able to make the required repayment on that date using cash generated from operating activities. We entered into the Transaction Agreement that will convert Dialectic’s portion of the Term Loan into a Convertible Note with a three year maturity. We also agreed to use the proceeds from the SEPA to repay the OC III Lenders portion of the Term Loan. The issuance of the Convertible Note is subject to stockholder approval and there is no assurance that it will be approved. Also, we may not be able to access the SEPA to generate sufficient cash to repay OC III Lenders by the maturity date. We may be unable to obtain additional funding from other sources.

Current wording

On December 18, 2025, we completed an exchange of Dialectic’s portion of the Term Loan for one or more senior secured Convertible Note with a three-year maturity. This exchange reduced the amount of the Term Loan principal scheduled to mature on August 5, 2026. However, we remain obligated to repay the remaining Term Loan balance at maturity. As discussed in Note 1: Description of Business and Summary of Significant Accounting Policies—Going Concern, we do not expect to be able to repay the Term Loan at maturity using cash generated from operating activities. While we intend to use proceeds from the SEPA and/or other financing sources to support repayment of the remaining Term Loan balance, there can be no assurance that we will be able to access sufficient proceeds under the SEPA, obtain additional financing on acceptable terms, or at all.

Previous wording

Net cash used in operating activities was $32.5 million for the six months ended September 30, 2025. This use of cash was primarily attributed to lower earnings.

Current wording

Net cash used in operating activities was $37.4 million for the nine months ended December 31, 2025. This use of cash was primarily attributed to the net loss and changes in working capital, partially offset by non-cash charges including loss on debt extinguishment, paid-in-kind interest, and changes in the fair value of warrant liabilities and the Convertible Note.

Previous wording

Net cash used in investing activities was $1.6 million in the six months ended September 30, 2025, which was attributable to capital expenditures.

Current wording

Net cash used in investing activities was $0.9 million in the nine months ended December 31, 2025, which was attributable to capital expenditures.

Previous 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.

Current wording

Net cash used in investing activities was $4.3 million in the nine months ended December 31, 2024, which was attributable to capital expenditures.

Previous wording

Net cash provided by financing activities was $11.5 million for the six months ended September 30, 2024, which was related primarily to proceeds from shares issued under the SEPA.

Current wording

Net cash provided by financing activities was $35.6 million for the nine months ended December 31, 2025, which was related primarily to net borrowings, the issuance of the Convertible Note, and proceeds from the SEPA, partially offset by repayments of long-term debt and credit facility borrowings.

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 condensed 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.

Current wording

The preparation of our condensed 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 condensed 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.