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What changed in QUANTUM CORP /DE/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of QUANTUM CORP /DE/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+294 added−157 removedSource: 10-K (2024-06-28) vs 10-K (2023-06-06)

Top changes in QUANTUM CORP /DE/'s 2024 10-K

294 paragraphs added · 157 removed · 116 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeITEM 1. BUSINESS Overview Quantum delivers end-to-end solutions to analyze and enrich, store and manage, and protect and preserve unstructured data across its entire lifecycle. We specialize in solutions for video data, images, and other large files because this “unstructured” data represents more than 80% of all data being created, according to leading industry analyst firms.
Biggest changeWe specialize in solutions for video, images, audio, and other large files because this unstructured data represents more than 80% of all data being created according to leading industry analyst firms. Unstructured data poses both immense potential and significant challenges for organizations looking to retain and analyze their data for AI and other initiatives.
We may 6 Table of Contents also hold foreign patents and patent applications for certain of our products and technologies. Although we believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.
We may Table of Contents also hold foreign patents and patent applications for certain of our products and technologies. Although we believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.
Customers 5 Table of Contents We provide solutions to multiple industries globally. Historically, our primary customers are in hyperscale, technology and industrial, media and entertainment, federal government, life sciences and healthcare, and financial industries. In addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers.
Customers Table of Contents We provide solutions to multiple industries globally. Historically, our primary customers are in hyperscale, technology and industrial, media and entertainment, federal government, life sciences and healthcare, and financial industries. In addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers.
(“Dell”), International Business Machines Corporation, (“IBM”), NetApp, Inc., (“NetApp”), and other enterprise storage vendors in the markets we serve. Our secondary storage solutions, primarily tape storage systems, compete in the midrange and enterprise reseller and end user markets with IBM and other tape library vendors.
(“Dell”), International Business Machines Corporation, (“IBM”), NetApp, Inc., and other enterprise storage vendors in the markets we serve. Our secondary storage solutions, primarily tape storage systems, compete in the midrange and enterprise reseller and end user markets with IBM and other tape library vendors.
(Nasdaq: ITRI), an energy and water network technology and services company, since July 2018, and as Vice President of Finance and Treasury of Itron’s Networks segment from January 2018 to July 2018. Prior to that, from December 2012 to December 2017, Mr.
(Nasdaq: ITRI), an energy and water network technology and services company, since July 2018 to January 2023, and as Vice President of Finance and Treasury of Itron’s Networks segment from January 2018 to July 2018. Prior to that, from December 2012 to December 2017, Mr.
Intellectual Property and Technology We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March 31, 2023, we hold over 160 U.S. patents. In general, these patents have a 20-year term from the first effective filing date for each patent.
Intellectual Property and Technology We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March 31, 2024, we hold over 221 U.S. patents. In general, these patents have a 20-year term from the first effective filing date for each patent.
It is no longer just about storing data— organizations need to extract value from their data. Locked inside video, imagery, security camera footage, scientific data sets, and other sensor-derived data is a wealth of information for informed decision-making.
It is no longer just about storing data— organizations need to extract value from their unique data to gain a competitive advantage. Locked inside video, imagery, security camera footage, scientific data sets, and other sensor-derived data is a wealth of information for informed decision-making.
In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.
We provide warranty and non-warranty repair services through our service team and third-party service providers. In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.
The CAO partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and reward our teams for driving company performance.
The Chief Administrative Officer partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and reward our teams for driving company performance.
We are a member of the consortium that develops, patents, and licenses Linear Tape-Open, (or “LTO® tape”) technology to media manufacturing companies. We receive royalty payments for LTO media technology sold under licensing agreements.
We are a member of the consortium that develops, patents, and licenses linear-tape open, technology to media manufacturing companies. We receive royalty payments for linear-tape open media technology sold under licensing agreements.
Sales to our top five customers represented 32%, 17%, and 16% of revenue in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, of which one of our hyperscale customers represented 10% or more of our total 2023 revenue. Competition The markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements.
Sales to our top five customers represented 26%, 32% and 17% of revenue in fiscal 2024, fiscal 2023 and fiscal 2022, respectively, of which none of our hyperscale customers represented 10% or more of our total 2024 revenue. Competition The markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements.
Information About Our Executive Officers Following are the names and positions of our management team as of May 18, 2023, including a brief account of the business experience of each. Name Position with Quantum James J. Lerner President, Chief Executive Officer and Chairman of the Board Kenneth Gianella Chief Financial Officer Brian E.
Information About Our Executive Officers Following are the names and positions of our management team as of June 12, 2024, including a brief account of the business experience of each. Name Position with Quantum James J. Lerner President, Chief Executive Officer and Chairman of the Board Kenneth P. Gianella Chief Financial Officer Brian E.
We usually experience the lowest demand for our products and services in the first and second quarters of each calendar year, or our fiscal fourth quarter and fiscal first quarter, respectively.
Seasonality We generally have the greatest demand for our products and services in the fourth quarter of each calendar year, or our fiscal third quarter. We usually experience the lowest demand for our products and services in the first and second quarters of each calendar year, or our fiscal fourth quarter and fiscal first quarter, respectively.
Lerner served as President of Cloud Systems and Solutions at Seagate Technology Holdings Public Limited Company (“Seagate”) (Nasdaq: STX), a data storage company. Prior to Seagate, Mr.
Lerner served as President of Cloud Systems and Solutions at Seagate Technology Holdings Public Limited Company (“Seagate”) (Nasdaq: STX), a data storage company. Prior to Seagate, Mr. Lerner served in various executive roles at Cisco Systems, Inc.
Cabrera, 58, most recently served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California. From May 2014 to June 2017, Mr.
Prior to that, he served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California. From May 2014 to June 2017, Mr.
Our workforce is currently distributed across 19 countries, with approximately 850 employees globally as of March 31, 2023, including 460 in North America, 190 in APAC, and 200 in EMEA. We engage with contractors, consultants, or temporary employees as needs for special projects occur.
Table of Contents Our workforce is currently distributed across 19 countries, with approximately 770 employees globally as of March 31, 2024, including 390 in North America, 200 in APAC, and 180 in EMEA. We engage with contractors, consultants, or temporary employees as needs for special projects occur.
Primary Storage Software and Systems include: • Myriad All-Flash File and Object Storage Software: All-flash scale-out file and object storage for high performance enterprise unstructured data applications such as AI, machine learning, and data analytics. • StorNext Hybrid Flash/Disk File Storage Software: For video editing, post-production, and streaming applications, as well as large digital file archives. • Unified Surveillance Platform Software : Unified compute and storage for video surveillance recording, storage, and analytics. • CatDV Asset Management Software : For indexing, cataloging, enriching video, audio, and image files, and workflow orchestration.
Highly Performant Primary Storage Software and Systems include: • Myriad All-Flash Software-Defined Storage: All-flash scale-out file and object storage for high performance enterprise unstructured data applications such as AI, machine learning, and data analytics. • StorNext Hybrid Flash/Disk File Storage Software: For video editing, post-production, and streaming applications, as well as large digital file archives. • Unified Surveillance Platform Software : Unified compute and storage for video surveillance recording, storage, and analytics.
Secondary Storage Software and Systems include: • ActiveScale Object Storage Software: Extremely scalable and durable storage for long term data preservation and protection. • DXi Backup Appliances : Purpose-built backup appliances for high-speed backup and recovery and multisite data protection. • Scalar Tape Storage : Low cost, secure storage for long term data archiving and offline data protection.
Highly Efficient Cost-per-Terabyte Secondary Storage Software and Systems include: • ActiveScale Object Storage Software: Extremely scalable and durable storage for building massive data lakes, storage clouds, and cold archives. • DXi Backup Appliances : Purpose-built backup appliances for high-speed backup and recovery and multisite data protection. • Scalar Tape Storage : Low-cost, secure storage for long-term data archiving and offline data protection.
Cabrera Chief Administrative Officer John Hurley Chief Revenue Officer Lewis Moorehead Chief Accounting Officer James J. Lerner, 53, was appointed as President and Chief Executive Officer of the Company, effective July 1, 2018, and was appointed Chairman of the Company’s Board of Directors (the “Board of Directors”) on August 7, 2018. Mr.
Cabrera Chief Administrative Officer and Chief Legal and Compliance Officer Henk Jan Spanjaard Chief Revenue Officer Laura Nash Chief Accounting Officer James J. Lerner, 54, was appointed as President and Chief Executive Officer of the Company, effective July 1, 2018, and was appointed Chairman of the Company’s Board of Directors (the “Board of Directors”) on August 7, 2018. Mr.
Lerner served in various executive roles at Cisco Systems, Inc. 7 Table of Contents (Nasdaq: CSCO), a networking hardware and software manufacturing company, including most recently as Senior Vice President and General Manager of the Cloud & Systems Management Technology Group. Before beginning his career as a technology company executive, Mr.
(Nasdaq: CSCO), a networking hardware and software manufacturing company, including most recently as Senior Table of Contents Vice President and General Manager of the Cloud & Systems Management Technology Group. Before beginning his career as a technology company executive, Mr. Lerner was a Senior Consultant at Andersen Consulting, a financial advisory and consulting firm. Since 2011, Mr.
Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego. Kenneth Gianella, 50, has served as our Chief Financial Officer since January 2023. Prior to joining us, he served as the Vice President of Investor Relations; Mergers, Divestitures, & Acquisitions; and Environmental, Social & Governance (ESG) Strategy at Itron, Inc.
Kenneth P. Gianella, 51, has served as our Chief Financial Officer since January 2023. Prior to joining us, he served as the Vice President of Investor Relations; Mergers, Divestitures, & Acquisitions; and Environmental, Social & Governance (ESG) Strategy at Itron, Inc.
Our extensive use of technology and innovative product intelligence allows us to scale our global services operations to meet the needs of our customers. We are currently able to provide service to customers in more than 100 countries, supported by 24-hour, multi-language technical support centers located in North America, Europe, and Asia.
We are currently able to provide service to customers in more than 100 countries, supported by 24-hour, multi-language technical support centers located in North America, Europe, and Asia. We provide our customers with warranty coverage on our products.
Lerner was a Senior Consultant at Andersen Consulting, a financial advisory and consulting firm. Since 2011, Mr. Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr.
Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr. Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego.
We also offer a broad portfolio of services including 24x7x365 global support, deployment and consulting services, education services, and Quantum-as-a-Service. Our services are delivered with a combination of expertise and technology, including the MyQuantum Service Delivery Platform, and Cloud-Based Analytics (CBA) AIOps software for proactive remote monitoring.
Our services are delivered with a combination of expertise and technology, including the MyQuantum Service Delivery Platform, and Cloud-Based Analytics ("CBA") AIOps software for proactive remote monitoring. Global Support and Services, and Warranty Table of Contents Our global services strategy is an integral component of our total customer solution.
Gianella holds a Master of Business Administration from University of Pittsburgh and a Bachelor of Science in Business Administration from Duquesne University. Brian E.
Gianella holds a Master of Business Administration from University of Pittsburgh and a Bachelor of Science in Business Administration from Duquesne University. Brian E. Cabrera, 59, was appointed Chief Legal and Compliance Officer in September 2021 and Chief Administrative Officer in August 2022.
We provide our customers with warranty coverage on our products. Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems.
Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems. We offer this additional support coverage at a variety of response levels up to 24-hours a day, seven-days-a-week, 365-days-a-year, for customers with stringent high-availability needs.
Consequently, our ability to provide comprehensive installation and integration services as well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers. In addition, we believe that our ability to retain long-term customer relationships and secure repeat business is frequently tied directly to our comprehensive service capabilities and performance.
Service is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage solutions. Consequently, our ability to provide comprehensive installation and integration services as well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 or (202) 551-5450. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. 9 Table of Contents
The contents of our website are not incorporated into this Annual Report on Form 10-K. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Table of Contents
In addition to these traditional installation and maintenance services, we also provide project management, managed services, and other value-added services to enhance our customer’s experience and engagement. These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions.
These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions. We generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale.
He holds a Bachelor of Business Administration, in Accounting from the University of Wisconsin-Whitewater. Human Capital 8 Table of Contents Our Chief Administrative Officer ("CAO") leads our human capital initiatives, which include the design and execution of all people strategies.
She is a member of the Institute of Chartered Accountants of Scotland. Human Capital Our Chief Administrative Officer leads our human capital initiatives, which include the design and execution of all people strategies.
Scalar tape storage systems are used by the world’s largest hyperscalers as well as thousands of enterprises worldwide. Devices and Media includes the sale of standalone Linear Tape-Open (“LTO®”) tape drives for small business data protection and archiving, and LTO® media for use in tape storage systems.
Devices and Media includes the sale of standalone linear-tape open tape drives for small business data protection and archiving, and linear-tape open media for use in tape storage systems. We also offer a broad portfolio of services including 24x7x365 global support, deployment and consulting services, education services, and Quantum-as-a-Service.
This unstructured data has driven a fundamental shift in the nature of data and the role data plays in every industry. It is exponentially larger than traditional corporate data, contains immense value, and must be captured, protected, and stored for many years, decades, and longer.
Effectively managing and leveraging this data with an intelligent data management platform is not just an option but a necessity for businesses aiming to uncover hidden insights and create value. Unstructured data is exponentially larger than traditional corporate data, contains tremendous value, and must be captured, protected, and stored for many years, decades, and longer.
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As a result, organizations need end-to-end solutions that allow them to manage and preserve data for decades and to easily extract insights from the detail. Whether data lives in the workplace, at the edge, or in the cloud, we provide organizations with the technology, software, and services they need to store, manage, protect, and enrich data throughout its lifecycle.
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ITEM 1. BUSINESS Overview Quantum delivers end-to-end data management solutions designed for unstructured data in the artificial intelligence ("AI") era. From high-performance ingest that powers AI applications and demanding data-intensive workloads to massive, durable data lakes to fuel AI models, Quantum delivers one of the most comprehensive and cost-efficient solutions for the entire data lifecycle.
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Global Support and Services, and Warranty 4 Table of Contents Our global services strategy is an integral component of our total customer solution. Service is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage solutions.
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Scalar tape storage systems are used by the world’s largest hyperscalers as well as thousands of enterprises worldwide. CatDV Asset Management Software : For indexing, cataloging, AI data enrichment, and workflow orchestration, making data easily searchable and accessible so it can contribute to business insights .
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We offer this additional support coverage at a variety of response levels up to 24-hours a day, seven-days-a-week, 365-days-a-year, for customers with stringent high-availability needs. We provide support ranging from repair and replacement to 24-hour rapid exchange to on-site service support for our midrange and enterprise-class products.
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In addition, we believe that our ability to retain long-term customer relationships and secure repeat business is frequently tied directly to our comprehensive service capabilities and performance. Our extensive use of technology and innovative product intelligence allows us to scale our global services operations to meet the needs of our customers.
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We generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale. We provide warranty and non-warranty repair services through our service team and third-party service providers.
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We provide support ranging from repair and replacement to 24-hour rapid exchange to on-site service support for our midrange and enterprise-class products. In addition to these traditional installation and maintenance services, we also provide project management, managed services, and other value-added services to enhance our customer’s experience and engagement.
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Seasonality As is typical in our industry, we generally have the greatest demand for our products and services in the fourth quarter of each calendar year, or our fiscal third quarter.
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Henk Jan Spanjaard, 58, was appointed Chief Revenue Officer in November 2023. Prior to that, he served as Vice President, EMEA Sales , from July 2020 to November 2023. From August 2018 to July 2020, he served as Vice President and General Manager, EMEA & India , of DriveScale, Inc., a software development company.
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John Hurley, 57, has served as Quantum's Chief Revenue Officer since August 2021. Prior to Quantum, Mr. Hurley was at Cisco Systems, Inc. (Nasdaq: CSCO), a networking hardware and software manufacturing company, from 2008 to 2021, and most recently served as Vice President at Cisco, global commercial segment. Mr. Hurley also spent several years overseeing Cisco's service provider business.
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Prior to that, he served as Vice President, EMEA , of A10 Networks, Inc. (NYSE: ATEN), an application security company, from January 2015 to July 2018. Prior to his role at A10 Networks, Inc., he held several technology sales leadership roles, including at Infoblox, Inc., an IT automation and security company, and NetApp, Inc. (Nasdaq: NTAP), intelligent data infrastructure company.
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Additionally, Mr. Hurley led transformational enterprise relationships with Cisco's largest enterprise customers in aerospace and automotive. From 2005 to 2008, he served as area Vice President, Midwest Global / Corporate Business Group at Dell Technologies Inc. (NYSE: DELL), a multinational technology company, where he led regional sales directors and their teams to support multiple Fortune 100 customers. Mr.
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Mr. Spanjaard holds a degree from M.T.S Technical College (Electronics), from Ede, The Netherlands. Laura Nash, 44, has served as Chief Accounting Officer of the Company since June 2023. Prior to her appointment as Chief Accounting Officer, Ms. Nash served as Controller from June 2019 to June 2023. Prior to that, from September 2005 to June 2019, Ms.
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Hurley held leadership roles at transformational early-stage software companies, where he helped drive the businesses to successful acquisitions by industry leaders Microsoft Corporation and HP Inc. Mr. Hurley holds a Bachelor of Science in Economics from Pennsylvania State University. Lewis Moorehead, 51, has served as our Chief Accounting Officer since October 2018. Prior to joining Quantum, Mr.
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Nash held various positions in Audit and Financial Accounting Advisory Services at Ernst & Young, an accounting firm, in both the U.S. and the U.K. Ms. Nash holds a Bachelor of Laws from University of Aberdeen and a Certificate in Accounting from University of Washington – Michael G. Foster School of Business.
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Moorehead was the Director of Finance, Accounting and Tax at Carvana, Co. (NYSE: CVNA), a publicly traded on-line retailer, from November 2016 to October 2018. Beginning in September 2004, he has served as Managing Partner at Quassey, an investment firm. While at Quassey, he also served as Vice President of Finance and Principal Accounting Officer at Limelight Networks, Inc.
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(now Edgio, Inc.), a Nasdaq-listed global content delivery network and SaaS provider, from March 2010 to August 2013.
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He has also held finance and accounting positions at eTelecare Global Solutions, an outsourcing service company, Rivers and Moorehead PLLC, an accounting advisory firm, Intelligentias, Inc., a data intelligence company, American Express Company (NYSE: AXP), a payment card services company, and PricewaterhouseCoopers LLP, an advisory and tax services firm.
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The contents of our website are not incorporated into this Annual Report on Form 10-K. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result of our indebtedness: • Our ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to: ▪ Incur debt and liens; ▪ Acquire businesses or entities or sell certain assets; ▪ Make investments, including loans, guarantees, and advances; ▪ Engage in transactions with affiliates; ▪ Pay dividends or repurchase stock; and ▪ Enter into certain restrictive agreements; 16 Table of Contents • We must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage; • We are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds; • We may be more vulnerable to adverse economic and industry conditions; and • We may be unable to make payments on other indebtedness or obligations.
Biggest changeAs a result of our indebtedness: • Our ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to: ▪ Incur debt and liens; ▪ Acquire businesses or entities or sell certain assets; ▪ Make investments, including loans, guarantees, and advances; ▪ Engage in transactions with affiliates; ▪ Pay dividends or repurchase stock; and ▪ Enter into certain restrictive agreements; • We must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage; • If we are not able to generate sufficient cash flows to meet our substantial debt service obligations or to fund our other liquidity needs, we may have to take actions such as selling assets or raising additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, restructuring our debt and other capital-intensive activities; • We are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds; • We may be more vulnerable to adverse economic and industry conditions; • We may not be able to fund future working capital, capital investments and other business activities; and • We may be unable to make payments on other indebtedness or obligations.
Risks that we may face in our efforts to integrate any recent or future acquisitions include, among others: • failure to realize anticipated synergies or return on investment from the acquisition; • difficulties assimilating and retaining employees, business culture incompatibility, or resistance to change; • diverting management’s attention from ongoing business concerns; • coordinating geographically separate organizations and infrastructure operations in a rapid and efficient manner; • the potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services; • failure of acquired technology or products to provide anticipated revenue or margin contribution; • insufficient revenues to offset increased expenses associated with the acquisition; • costs and delays in implementing or integrating common systems and procedures; • reduction or loss of customer orders due to the potential for market confusion, hesitation and delay; • impairment of existing customer, supplier and strategic relationships of either company; • insufficient cash flows from operations to fund the working capital and investment requirements; • difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; • dissatisfaction or performance problems with the acquired company; • the assumption of risks, unknown liabilities, or other unanticipated adverse circumstances of the acquired company that are difficult to quantify; and • the cost associated with the acquisition, including restructuring actions, which may require cash payments that, if large enough, could materially and adversely affect our liquidity.
Risks that we may face in our efforts to integrate any recent or future acquisitions include, among others: • failure to realize anticipated synergies or return on investment from the acquisition; • difficulties assimilating and retaining employees, business culture incompatibility, or resistance to change; • diverting management’s attention from ongoing business concerns; • coordinating geographically separate organizations and infrastructure operations in a rapid and efficient manner; • the potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services; • failure of acquired technology or products to provide anticipated revenue or margin contribution; • insufficient revenues to offset increased expenses associated with the acquisition; • costs and delays in implementing or integrating common systems and procedures; • reduction or loss of customer orders due to the potential for market confusion, hesitation and delay; • impairment of existing customer, supplier and strategic relationships of either company; • insufficient cash flows from operations to fund the working capital and investment requirements; • difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; • dissatisfaction or performance problems with the acquired company; Table of Contents • the assumption of risks, unknown liabilities, or other unanticipated adverse circumstances of the acquired company that are difficult to quantify; and • the cost associated with the acquisition, including restructuring actions, which may require cash payments that, if large enough, could materially and adversely affect our liquidity.
Because of these operations, we are subject to a number of risks in addition to those already described, including: 11 Table of Contents • increasing import and export duties and value-added taxes, or trade regulation changes that could erode our profit margins or delay or restrict our ability to transport our products; • war, military conflict, and geopolitical unrest, including the war between Russia and Ukraine, may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries; • reduced or limited protection of our intellectual property; • difficulty complying with multiple and potentially conflicting regulatory requirements and practices, including laws governing corporate conduct outside the U.S., such as the Foreign Corrupt Practices Act, United Kingdom Bribery Act, and similar regulations; • commercial laws that favor local businesses and cultural differences that affect how we conduct business; • differing technology standards or customer requirements; • exposure to economic uncertainty and fluctuations including inflation, adverse movement of foreign currencies against the U.S. dollar (the currency in which we report our results), restrictions on transferring funds between countries, and continuing sovereign debt risks; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points for our products and shipments; • inflexible employee contracts and employment laws that may make it difficult to terminate or change the compensation structure for employees in the event of business downturns; • difficulties attracting and recruiting employees and wage inflation in highly competitive markets; • political instability, military, social and infrastructure risks, especially in emerging or developing economies; • political or nationalist sentiment impacting global trade, including the willingness of non-U.S. consumers to purchase goods or services from U.S. corporations; • natural disasters, including earthquakes, flooding, typhoons and tsunamis; and • pandemics and epidemics, and varying and potentially inconsistent governmental restrictions on the operation of businesses, travel and other restrictions.
Because of these operations, we are subject to a number of risks in addition to those already described, including: Table of Contents • increasing import and export duties and value-added taxes, or trade regulation changes that could erode our profit margins or delay or restrict our ability to transport our products; • war, military conflict, and geopolitical unrest, including the Russia-Ukraine and Hamas-Israel conflicts, may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries; • reduced or limited protection of our intellectual property; • difficulty complying with multiple and potentially conflicting regulatory requirements and practices, including laws governing corporate conduct outside the U.S., such as the Foreign Corrupt Practices Act, United Kingdom Bribery Act, and similar regulations; • commercial laws that favor local businesses and cultural differences that affect how we conduct business; • differing technology standards or customer requirements; • exposure to economic uncertainty and fluctuations including inflation, adverse movement of foreign currencies against the U.S. dollar (the currency in which we report our results), restrictions on transferring funds between countries, and continuing sovereign debt risks; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points for our products and shipments; • inflexible employee contracts and employment laws that may make it difficult to terminate or change the compensation structure for employees in the event of business downturns; • difficulties attracting and recruiting employees and wage inflation in highly competitive markets; • political instability, military, social and infrastructure risks, especially in emerging or developing economies; • political or nationalist sentiment impacting global trade, including the willingness of non-U.S. consumers to purchase goods or services from U.S. corporations; • natural disasters, including earthquakes, flooding, typhoons and tsunamis; and • pandemics and epidemics, and varying and potentially inconsistent governmental restrictions on the operation of businesses, travel and other restrictions.
The trading price of our common stock may continue to fluctuate in response to a number of events and factors, many of which may be beyond our control, such as: • quarterly variations in our operating results; • failure to meet our financial guidance or the expectations of securities analysts and investors; • new products, services, innovations, strategic developments, or business combinations and investments by our competitors or us; • changes in our capital structure, including incurring new debt, issuing additional debt or equity to the public, and issuing common stock upon exercise of our outstanding warrants or subscribing to our recent rights offering; • large or sudden purchases or sales of stock by investors; • changes in interest and exchange rates; • a continued widespread decline in the U.S. or global economy as a result of the impact of COVID-19, supply chain constraints, or other factors; • fluctuations in the stock market in general and market prices for technology companies in particular; • tariffs imposed by the U.S. government on sales originating in or being shipped to countries with which we have on-going trade or other political conflicts; • investigations or enforcement actions related to a potential or actual failure to comply with applicable regulations; • costs of new or ongoing commercial litigation; and • significant changes in our brand or reputation.
The trading price of our common stock may continue to fluctuate in response to a number of events and factors, many of which may be beyond our control, such as: • quarterly variations in our operating results; • failure to meet our financial guidance or the expectations of securities analysts and investors; • new products, services, innovations, strategic developments, or business combinations and investments by our competitors or us; • changes in our capital structure, including incurring new debt, issuing additional debt or equity to the public, and issuing common stock upon exercise of our outstanding warrants or subscribing to our recent rights offering; • large or sudden purchases or sales of stock by investors; • changes in interest and exchange rates; • market volatility resulting from a public health emergency; • a continued widespread decline in the U.S. or global economy as a result of the impact of COVID-19, supply chain constraints, or other factors; • fluctuations in the stock market in general and market prices for technology companies in particular; • tariffs imposed by the U.S. government on sales originating in or being shipped to countries with which we have on-going trade or other political conflicts; • investigations or enforcement actions related to a potential or actual failure to comply with applicable regulations; • costs of new or ongoing commercial litigation; and • significant changes in our brand or reputation.
A limited number of products comprise a significant majority of our sales, and due to rapid technological change in our industry, our future operating results depend on our ability to improve existing products and develop and successfully introduce new products. We have devoted and expect to continue to devote considerable management and financial resources to these efforts.
Table of Contents A limited number of products comprise a significant majority of our sales, and due to rapid technological change in our industry, our future operating results depend on our ability to improve existing products and develop and successfully introduce new products. We have devoted and expect to continue to devote considerable management and financial resources to these efforts.
Any imposition of liability or litigation costs that are not covered by insurance or could harm our business. Competition is intense in the data storage and protection market in which we operate. Our competitors in the data storage and protection market are aggressively trying to advance and develop new technologies and products to compete against us.
Any imposition of liability or litigation costs that are not covered by insurance or could harm our business. Competition is intense in the data storage and protection market in which we operate. Table of Contents Our competitors in the data storage and protection market are aggressively trying to advance and develop new technologies and products to compete against us.
While we maintain a rigorous corporate ethics and compliance program, we may be subject to increased regulatory scrutiny, significant monetary fines or penalties, suspension of business opportunities, loss of jurisdictional operating rights, and increased litigation and investigation costs as a result of any failure to comply with those requirements.
While we maintain a Table of Contents rigorous corporate ethics and compliance program, we may be subject to increased regulatory scrutiny, significant monetary fines or penalties, suspension of business opportunities, loss of jurisdictional operating rights, and increased litigation and investigation costs as a result of any failure to comply with those requirements.
Future spending cuts by the U.S. federal government, temporary shutdowns of the U.S. federal government, or changes in its procurement processes or criteria could decrease our sales to the federal government and materially and adversely affect our operating results. In addition, changes in government certification requirements applicable to our products could impact our ability to see to U.S. federal customers.
Future spending cuts by the U.S. federal government, temporary shutdowns of the U.S. federal government, or changes in its procurement processes or criteria could decrease our sales to the federal government and materially and adversely affect our operating results. In addition, changes in government certification requirements applicable to our products could impact our ability to sell to U.S. federal customers.
Additional industry consolidation may further result in: 19 Table of Contents • competitors consolidating, having greater resources and becoming more competitive with us; • new entrants into one or more of our primary markets increasing competition; • customers that are also competitors becoming more competitive with us and/or reducing their purchase of our products; • competitors acquiring our current suppliers or business partners and negatively impacting our business model; and • market uncertainty and disruption due to the impact and timing of announced and completed transactions.
Additional industry consolidation may further result in: • competitors consolidating, having greater resources and becoming more competitive with us; • new entrants into one or more of our primary markets increasing competition; • customers that are also competitors becoming more competitive with us and/or reducing their purchase of our products; • competitors acquiring our current suppliers or business partners and negatively impacting our business model; and • market uncertainty and disruption due to the impact and timing of announced and completed transactions.
Our reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including: • the inability to obtain an adequate supply of key components; • price volatility for the components of our products; • failure of a supplier to meet our quality or production requirements; • failure of a supplier of key components to remain in business or adjust to market conditions; and • consolidation among suppliers, resulting in some suppliers exiting the industry, discontinuing the manufacture of components or increasing the price of components.
Our reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including: • the inability to obtain an adequate supply of key components; • the inability to control delivery schedules; • price volatility for the components of our products; • failure of a supplier to meet our quality or production requirements; • failure of a supplier of key components to remain in business or adjust to market conditions; and • consolidation among suppliers, resulting in some suppliers exiting the industry, discontinuing the manufacture of components or increasing the price of components.
As recently as March 2023, we were in danger of failing to meet certain financial covenants in our debt agreements, which could have resulted in a default under these agreements if we had not obtained a waiver of noncompliance from our lenders.
As recently as March 2024, we were in danger of failing to meet certain financial covenants in our debt agreements, which could have resulted in a default under these agreements if we had not obtained a waiver of noncompliance from our lenders.
If this customer or any other large customers should significantly decrease or stop purchasing our solutions we would see a significant reduction in revenue that may result in a material adverse effect on our operating results. The U.S. federal government is an important customer, and our business may be materially and adversely harmed by changes in government purchasing activity.
If any of our large customers should significantly decrease or stop purchasing our solutions, we would see a significant reduction in revenue that may result in a material adverse effect on our operating results. The U.S. federal government is an important customer, and our business may be materially and adversely harmed by changes in government purchasing activity.
If we are unable to successfully manage the changes that we implement and detect and address issues as they arise, our business could be disrupted, and our results of operations and financial condition could be materially and adversely impacted.
If we are Table of Contents unable to successfully manage the changes that we implement and detect and address issues as they arise, our business could be disrupted, and our results of operations and financial condition could be materially and adversely impacted.
Disk, solid-state, and flash storage products, as well as various software solutions and alternative technologies have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward 15 Table of Contents these other products and solutions and their proportionate contribution to our revenue will increase in the future.
Disk, solid-state, and flash storage products, as well as various software solutions and alternative technologies have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward these other products and solutions and their proportionate contribution to our revenue will increase in the future.
In addition, recently we have focused our direct-sales business on the largest users of hierarchical storage architectures, the so-called “Hyper-scalers”; there are very few of these extremely large storage customers, but their order activity has a significant impact on our results from quarter to quarter.
In addition, recently we have focused our direct-sales business on the largest users of hierarchical storage architectures, the so-called “hyperscalers”; there are very few of these extremely large storage customers, but their order activity has a significant impact on our results from quarter to quarter.
As a result, our business, financial condition, and operating result could be materially and adversely affected. If we fail to protect our intellectual property or if others use our proprietary technology without authorization, our competitive position may suffer. Our future success and ability to compete depends in part on our proprietary technology.
As a result, our business, financial condition, and operating result could be materially and adversely affected. Table of Contents If we fail to protect our intellectual property or if others use our proprietary technology without authorization, our competitive position may suffer. Our future success and ability to compete depends in part on our proprietary technology.
In the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute 17 Table of Contents strategic management decisions, and to rationalize our operations following acquisitions.
In the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute strategic management decisions, and to rationalize our operations following acquisitions.
In addition, we continue to face risks related to uncertain tariff levels between countries where our products are manufactured and sold, unstable political and economic conditions in Europe, including the war between Russia and Ukraine, and concerns about sovereign debt, which could negatively impact the U.S. and global economies and adversely affect our financial results.
In addition, we continue to face risks related to uncertain tariff levels between countries where our products are manufactured and sold, unstable political and economic conditions, including the war between Russia and Ukraine and the Hamas-Israel conflict, and concerns about sovereign debt, which could negatively impact the U.S. and global economies and adversely affect our financial results.
Uncertainty about economic conditions pose risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results.
Table of Contents Uncertainty about economic conditions poses risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results.
Risks Related to Our Indebtedness We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business.
Table of Contents Risks Related to Our Indebtedness We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business.
While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, 18 Table of Contents security breaches, and other system disruptions.
While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, security breaches, and other system disruptions.
Our quarterly operating results have fluctuated significantly, and past results should not be used to predict future performance. 14 Table of Contents Our quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, our quarterly operating results should not be used to predict future performance.
Our quarterly operating results have fluctuated significantly, and past results should not be used to predict future performance. Our quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, our quarterly operating results should not be used to predict future performance.
Risks Related to Our Operating Results, Financial Condition, or Stock Price 13 Table of Contents We continue to face risks related to inflation, economic uncertainty, and slow economic growth.
Risks Related to Our Operating Results, Financial Condition, or Stock Price We continue to face risks related to inflation, economic uncertainty, and slow economic growth.
If we were to default and be unable to cure it within any applicable grace periods or obtain a waiver of such default, the lenders would have a right to foreclose on our assets to satisfy our obligations under these agreements.
Table of Contents Our credit facilities are collateralized by a pledge of all our assets. If we were to default and be unable to cure it within any applicable grace periods or obtain a waiver of such default, the lenders would have a right to foreclose on our assets to satisfy our obligations under these agreements.
During the fiscal year ended March 31, 2023 we had one Hyperscale customer represent 10% or more of our total revenue versus the prior fiscal year, March 31, 2022, when we had no single customer represent 10% or more of our total revenue.
During the fiscal year ended March 31, 2024, no customer represented 10% or more of our total revenue compared to the fiscal year ended March 31, 2023, when we had one customer represent 10% or more of our total revenue.
Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. We may be unable to incur additional debt or refinance our existing debt on acceptable terms, if at all. Our credit facilities are collateralized by a pledge of all our assets.
Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. We may be unable to incur additional debt or refinance our existing debt on acceptable terms, if at all, which could result in a default on our debt obligations.
Our results of operations could be adversely affected by any number of factors related to our channel partners, including: • a change in competitive strategy that adversely affects a partner’s willingness or ability to distribute our products; • the reduction, delay, or cancellation of orders or the return of significant products volume; • our inability to gain traction in developing new indirect sales channels for our branded products, or the loss of one or more existing partners; or • changes in requirements or programs that allow our products to be sold by third parties to government or other customers. 12 Table of Contents Because we rely heavily on channel partners to market and sell our products, if one or more of them were to experience a significant deterioration in its financial condition or its relationship with us, this could disrupt our product distribution and reduce our revenue, which could materially and adversely affect our business, financial condition, and operating results.
Our results of operations could be adversely affected by any number of factors related to our channel partners, including: • a change in competitive strategy that adversely affects a partner’s willingness or ability to distribute our products; • the reduction, delay, or cancellation of orders or the return of significant products volume; • our inability to gain traction in developing new indirect sales channels for our branded products, or the loss of one or more existing partners; or • changes in requirements or programs that allow our products to be sold by third parties to government or other customers.
Alternatively, insufficient supply levels may lead to shortages resulting in delayed or lost revenue or reduced product margins. We could experience operating losses based on any of these conditions.
If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory. Alternatively, insufficient supply levels may lead to shortages resulting in delayed or lost revenue or reduced product margins. We could experience operating losses based on any of these conditions.
Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations.
Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations. Our actual or perceived failure to adequately protect personally identifiable information could adversely affect our business, financial condition, and operating results.
When exercised, these warrants will result in significant dilution to our stockholders. As a result, the issuance of common stock upon the exercise of our outstanding warrants may cause our stock price to decline.
When exercised, these warrants will result in significant dilution to our stockholders. As a result, the issuance of common stock upon the exercise of our outstanding warrants may cause our stock price to decline. We must maintain compliance with the terms of our existing credit facilities or receive a waiver for any non-compliance.
We could be responsible for the financial impact from any forecast reduction or product mix shift relative to materials already purchased under a prior forecast, including the cost of finished goods in excess of current customer demand or for excess or obsolete inventory. 10 Table of Contents In some cases, we may retain the responsibility to purchase component inventory to support third-party manufacturing activities, which presents a number of risks that could materially and adversely affect our financial condition.
We could be responsible for the financial impact from any forecast reduction or product mix shift relative to materials already purchased under a prior Table of Contents forecast, including the cost of finished goods in excess of current customer demand or for excess or obsolete inventory.
Because of the characteristics of opensource software licenses, it may be relatively easy for competitors, some of whom have greater 20 Table of Contents resources than we have, to enter our markets and compete with us.
Because of the characteristics of open source software licenses, it may be relatively easy for competitors, some of whom have greater resources than we have, to enter our markets and compete with us. In addition, our failure to comply with the terms of open source licenses could have a material adverse effect on our competitive position and financial results.
These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development or implementation of new products or internal systems.
Compliance with these laws and regulations can be costly and can delay or impede the development or implementation of new products or internal systems.
If we fail to maintain proper and effective internal controls, material misstatements in our financial statements could occur, impairing our ability to produce accurate and timely financial statements and adversely affecting investor confidence in our financial reports, which could negatively affect our business.
We have identified material weaknesses in our internal control over financial reporting, which could, if not properly remediated, result in additional material misstatements in our interim or annual consolidated financial statements, could impair our ability to produce accurate and timely financial statements and could adversely affect investor confidence in our financial reports, which could negatively affect our business.
Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to make accurate forecasts and effectively manage our component and product supply. If we ultimately determine that we have excess supply, we may have to reduce our prices and write down or write off excess or obsolete inventory.
In addition, in order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue non-cancelable and non-returnable component or product orders. Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to make accurate forecasts and effectively manage our component and product supply.
For instance, as part of our component planning, we may place orders with or pay certain suppliers for components in advance of receiving customer purchase orders. We may occasionally enter into large orders with vendors to ensure that we have sufficient components for our products to meet anticipated customer demand.
We may occasionally enter into large orders with vendors to ensure that we have sufficient components for our products to meet anticipated customer demand. It is possible that we could experience a design or manufacturing flaw that could delay or even prevent the production of the components for which we previously committed to pay.
Any of these events and factors may cause our stock price to rise or fall and may adversely affect our business and financing opportunities. We may be unable to attract and retain key talent necessary to effectively meet our business objectives.
Any of these events and factors may cause our stock price to rise or fall and may adversely affect our business and financing opportunities. We are not in compliance with the Nasdaq Global Market’s continued listing standards, and if we do not regain compliance, we will be delisted from Nasdaq.
Our actual or perceived failure to adequately protect personally identifiable information could adversely affect our business, financial condition, and operating results. 21 Table of Contents A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, deletion, and other processing of personally identifiable information.
A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, deletion, and other processing of personally identifiable information. These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations.
Removed
It is possible that we could experience a design or manufacturing flaw that could delay or even prevent the production of the components for which we previously committed to pay. In addition, in order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue non-cancelable and non-returnable component or product orders.
Added
In some cases, we may retain the responsibility to purchase component inventory to support third-party manufacturing activities, which presents a number of risks that could materially and adversely affect our financial condition. For instance, as part of our component planning, we may place orders with or pay certain suppliers for components in advance of receiving customer purchase orders.
Removed
In addition, our failure to comply with the terms of open source licenses could have a material adverse effect on our competitive position and financial results.
Added
Table of Contents Because we rely heavily on channel partners to market and sell our products, if one or more of them were to experience a significant deterioration in its financial condition or its relationship with us, this could disrupt our product distribution and reduce our revenue, which could materially and adversely affect our business, financial condition, and operating results.
Removed
General Risk Factors We face risks related to health epidemics which could have a material adverse effect on our business and results of operations. We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the COVID-19 pandemic.
Added
The listing of our common stock on the Nasdaq Global Market is contingent on our compliance with the Nasdaq Global Market’s rules for continued listing.
Removed
The COVID-19 pandemic and efforts to control its spread have impacted and may continue to impact our workforce and operations, and those of our strategic partners, customers, suppliers, and logistics providers.
Added
On September 20, 2023, we received a deficiency notice from the Nasdaq Listing Qualifications Department (the “Nasdaq Staff”) notifying us that we were not in compliance with Nasdaq’s minimum closing bid price requirement of $1.00 per share for 30 consecutive business days, as set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”).
Removed
These impacts have included and may include increased component, product, transportation, and overhead costs, increased logistics capacity and flexibility needs, decreased workforce availability, component supply, and product output, increased cybersecurity threats from remote work, and general economic downturns.
Added
We did not regain compliance with the Minimum Bid Price Requirement within 180 days from the initial deficiency notice, and on March 19, 2024, we were notified by the Nasdaq Staff that we would be delisted unless we timely request a hearing before a Nasdaq hearings panel (the “Panel”).
Removed
We or our third-party business partners have been and may continue to be subject to government restrictions that impact our ability to continue efficient business operations. While we have taken many actions to mitigate the ongoing effects of the COVID-19 pandemic, we cannot guarantee that they will be sufficient to mitigate all related risks.
Added
We were also notified on November 14, 2023 and February 13, 2024 that we were not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Filings Requirement”) as a result of our failure to timely file the Quarterly Reports on Table of Contents Form 10-Q for the fiscal quarters ended September 30, 2023 and December 31, 2023.
Removed
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in more detail in this “Risk Factors” section, such as those relating to adverse global or regional conditions, our highly competitive industry, supply chain disruption, customer demand conditions and our ability to forecast demand, cost saving initiatives, our indebtedness and liquidity, and cyber-attacks.
Added
The Nasdaq Staff initially provided us until May 7, 2024 to regain compliance with the Filings Requirement. On May 14, 2024, we had a hearing before the Panel to address the deficiencies in complying with the Minimum Bid Price Requirement and the Filings Requirement and to present a plan to regain compliance.
Removed
If we fail to maintain proper and effective internal controls, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results in the future.
Added
The hearing and stay request with respect to the Minimum Bid Price Requirement and the Filings Requirement stayed any further action by the Nasdaq Staff pending a written decision from the Panel and our common stock remains listed and eligible for trading on the Nasdaq Global Market.
Removed
Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed.
Added
On June 6, 2024, the Panel issued a ruling granting us an extension period for (i) the Minimum Bid Price Requirement until September 16, 2024 and (ii) the Filings Requirement until July 1, 2024.
Removed
Restated financial statements and failures in internal control may also cause us to fail to meet reporting obligations or debt covenants, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and materially and adversely impact our business and financial condition.
Added
As a result of the filing of this Annual Report on Form 10-K, which includes the financial statements and other information required in the Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2023 and September 30, 2023, we have complied with the Filings Requirement.
Removed
We are exposed to fluctuations in foreign currency exchange rates, and an adverse change in foreign currency exchange rates relative to our position in such currencies could have a material adverse impact on our business, financial condition and results of operations. We do not currently use derivative financial instruments for speculative purposes.
Added
In addition, we plan to comply with the Minimum Bid Price Requirement by the extension period by effecting a reverse stock split of our common stock by such date. While we expect to regain compliance with the Minimum Bid Price Requirement within the granted extension period, there can be no guarantee that we will regain compliance by such date.
Removed
To the extent that we have assets or liabilities denominated in a foreign currency that are inadequately hedged or not hedged at all, we may be subject to foreign currency losses, which could be significant. Our international operations can act as a natural hedge when both operating expenses and sales are denominated in local currencies.
Added
If we do not regain compliance with the Minimum Bid Price Requirement within the extension period, we will be delisted from Nasdaq. Furthermore, there can be no assurance that we will maintain compliance with the other Nasdaq listing requirements. We may be unable to attract and retain key talent necessary to effectively meet our business objectives.
Removed
In these instances, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar would result in lower sales when translated to U.S. dollars, operating expenses would also be lower in these circumstances.
Added
The failure to do so could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.
Removed
The competitive price of our products relative to others could also be negatively impacted by changes in the rate at which a foreign 22 Table of Contents currency is exchanged for U.S. dollars. Such fluctuations in currency exchange rates could materially and adversely affect our business, financial condition and results of operations.
Added
In March 2024, we fell out of compliance with certain financial covenants in our credit agreements, which would have resulted in default had we not received a waiver of noncompliance from our lenders. Our credit agreements contain negative covenants and customary events of default provisions, including for payment default, covenant default, cross default to other material indebtedness, and judgment default.
Removed
If the future outcomes related to the estimates used in recording tax liabilities to various taxing authorities result in higher tax liabilities than estimated, then we would have to record tax charges, which could be material. We have provided amounts and recorded liabilities for probable and estimable tax adjustments required by various taxing authorities in the U.S. and foreign jurisdictions.
Added
Each of these limitations are subject to certain liquidity levels, thresholds, or grace periods. In addition, the credit agreement contains affirmative covenants, including certain financial covenants that require us to maintain minimum fixed charge coverage ratios.
Removed
If events occur that indicate payments of these amounts will be less than estimated, then reversals of these liabilities would create tax benefits recognized in the periods when we determine the liabilities have reduced. Conversely, if events occur which indicate that payments of these amounts will be greater than estimated, then tax charges and additional liabilities would be recorded.
Added
The applicable interest rate on the facility may increase if our total leverage ratio increases to specified amounts that would result in our interest expenses rising. These covenants could materially adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business.
Removed
In particular, various foreign jurisdictions could challenge the characterization or transfer pricing of certain intercompany transactions. In the event of an unfavorable outcome of such challenge, material tax charges and adverse impacts on operating results could occur in the period in which the matter is resolved or an unfavorable outcome becomes probable and estimable.
Added
There are no assurances that we can continue to maintain compliance with these covenants. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations.
Removed
Certain changes in stock ownership could result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year.
Added
The restrictions limit our ability to obtain future financings or to withstand a future downturn in our business or the economy in general, which may affect our ability to make the payments required of us under the waiver.
Removed
Should we undergo such a change in stock ownership, it would severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges, which could be material. 23 Table of Contents
Added
Complying with these covenants may also cause us to take actions that may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.
Added
If we do not maintain compliance with all of the continuing covenants imposed by the credit agreements and other terms and conditions of the credit facility, we could be required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition.
Added
There is no assurance that we will be able to negotiate an amendment that will provide for modified financial covenant levels that we can satisfy, or that we will be able to obtain an additional waiver to the credit agreement in the case of future events of default (including but not limited to those related to financial covenants).
Added
Any additional amendment or waiver will likely require concessions from the Company, such as prepayments, the imposition of other covenants or restrictions, limitations on future borrowing, or the payment of lender expenses. Furthermore, if the debt is accelerated, we may not be able to make all of the required payments or borrow sufficient funds to refinance such debt.
Added
Even if new financing were available at such time, it may not be on terms that are acceptable to us or as favorable to us as our current agreements. Without a sufficient credit facility, we would be adversely affected by a lack of access to liquidity needed to operate our business.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

2 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5 . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6 . [Reserved] 27 Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A . Quantitative and Qualitative Disclosures About Market Risk 36 Item 8 .
Biggest changeItem 4. Mine Safety Disclosures 30 PART II Item 5 . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 6 . [Reserved] 33 Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A . Quantitative and Qualitative Disclosures About Market Risk 56 Item 8 .
Financial Statements and Supplementary Data 37 Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73 Item 9A . Controls and Procedures 73 Item 9B . Other Information 73
Financial Statements and Supplementary Data 57 Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 127 Item 9A . Controls and Procedures 127 Item 9B . Other Information 128

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities During the quarter ended March 31, 2023, there were no purchases of our common stock by or on behalf of us or any of our affiliated purchasers, as such term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended ("the "Exchange Act"). 25 Table of Contents Stock Performance Graph The graph below compares the cumulative total return of a $100 investment in our common stock with the cumulative total return of the same investment in the Nasdaq and the S&P 500 Index from March 31, 2018 through March 31, 2023. 26 Table of Contents
Biggest changeIssuer Purchases of Equity Securities During each of the fiscal quarters ended March 31, 2024, December 31, 2023 and September 30, 2023, there were no purchases of our common stock by or on behalf of us or any of our affiliated purchasers, as such term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended ("the "Exchange Act").
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5: Debt to the consolidated financial statements. Recent Sales of Unregistered Securities During the period covered by this Annual Report, we did not sell any equity securities that were not registered under the Securities Act of 1933.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5: Debt to the consolidated financial statements. Recent Sales of Unregistered Securities During the periods covered by this Annual Report, we did not sell any equity securities that were not registered under the Securities Act of 1933.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "QMCO". Holders of Record, and Dividends As of May 18, 2023, we had 226 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "QMCO". Holders of Record, and Dividends As of June 25, 2024, we had 223 holders of record of our common stock.
Added
Table of Contents Stock Performance Graph The graph below compares the cumulative total return of a $100 investment in our common stock with the cumulative total return of the same investment in the Nasdaq and the S&P 500 Index from March 31, 2019 through March 31, 2024. Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRESULTS OF OPERATIONS Year Ended March 31, (in thousands) 2023 2022 Total revenue $ 412,752 $ 372,827 Total cost of revenue (1) 278,813 225,792 Gross profit 133,939 147,035 Operating expenses Research and development (1) 44,555 51,812 Sales and marketing (1) 66,034 62,957 General and administrative (1) 47,752 45,256 Restructuring charges 1,605 850 Total operating expenses 159,946 160,875 Loss from operations (26,007) (13,840) Other income (expense), net 1,956 (251) Interest expense (10,560) (11,888) Loss on debt extinguishment, net (1,392) (4,960) Net loss before income taxes (36,003) (30,939) Income tax provision 1,940 1,341 Net loss $ (37,943) $ (32,280) (1) Includes stock-based compensation as follows: 28 Table of Contents Year Ended March 31, (in thousands) 2023 2022 Cost of revenue $ 929 $ 1,112 Research and development 2,997 5,843 Sales and marketing 2,397 2,516 General and administrative 4,427 4,358 Total $ 10,750 $ 13,829 Comparison of the Years Ended March 31, 2023 and 2022 Revenue Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Product revenue $ 266,537 65 % $ 223,761 60 % $ 42,776 19 % Service and subscription revenue 132,510 32 % 133,689 36 % (1,179) (1) % Royalty revenue 13,705 3 % 15,377 4 % (1,672) (11) % Total revenue $ 412,752 100 % $ 372,827 100 % $ 39,925 11 % Product Revenue In fiscal 2023, product revenue increased $42.8 million, or 19%, as compared to fiscal 2022.
Biggest changeTable of Contents RESULTS OF OPERATIONS Year Ended March 31, (in thousands) 2024 2023 2022 Restated Restated Total revenue $ 311,600 $ 422,077 $ 383,432 Total cost of revenue (1) 186,711 278,813 225,792 Gross profit 124,889 143,264 157,640 Operating expenses Sales and marketing (1) 60,893 66,034 62,957 General and administrative (1) 51,547 47,752 45,256 Research and development (1) 38,046 44,555 51,812 Restructuring charges 3,280 1,605 850 Total operating expenses 153,766 159,946 160,875 Loss from operations (28,877) (16,682) (3,235) Other income (expense), net (1,746) 1,956 (251) Interest expense (15,089) (10,560) (11,888) Change in fair value of warrant liability 5,137 10,250 60,030 Loss on debt extinguishment, net — (1,392) (4,960) Net income (loss) before income taxes (40,575) (16,428) 39,696 Income tax provision 711 1,940 1,341 Net income (loss) $ (41,286) $ (18,368) $ 38,355 (1) Includes stock-based compensation as follows: Year Ended March 31, (in thousands) 2024 2023 2022 Cost of revenue $ 774 $ 929 $ 1,112 Research and development 1,091 2,997 5,843 Sales and marketing 669 2,397 2,516 General and administrative 2,187 4,427 4,358 Total $ 4,721 $ 10,750 $ 13,829 Comparison of the Years Ended March 31, 2024 and 2023 (restated) Revenue Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Product revenue $ 174,879 56 % $ 274,854 65 % $ (99,975) (36) % Service and subscription revenue 126,590 41 133,518 32 (6,928) (5) % Royalty revenue 10,131 3 13,705 3 (3,574) (26) % Total revenue $ 311,600 100 % $ 422,077 100 % $ (110,477) (26) % Product Revenue Table of Contents In fiscal 2024, product revenue decreased $100.0 million, or 36%, as compared to fiscal 2023.
Net Cash Provided by Financing Activities Net cash provided by financing activities was $41.2 million for the year ended March 31, 2023 due primarily to $66.2 million of net cash received from the Rights Offering of 30 million shares of our common stock offset in part by a $20.0 million prepayment of our term debt and term debt principal amortization payments and amendment fees totaling $3.3 million.
Net cash provided by financing activities was $41.2 million for the year ended March 31, 2023 due primarily to $66.2 million of net cash received from the rights offering of 30 million shares of our common stock offset in part by a $20.0 million prepayment of our term debt and term debt principal amortization payments and amendment fees totaling $3.3 million.
Excluding this non-recurring adjustment, product gross margin has declined approximately 370 basis points for fiscal 2023, as compared to fiscal 2022 primarily due to the continuation of pricing pressure on materials cost and freight, as global supply chain constraints disrupted normal procurement channels. Our product mix was also more heavily weighted to lower margin solutions.
Excluding this non-recurring adjustment, product gross margin declined approximately 370 basis points for fiscal 2023, as compared to fiscal 2022 primarily due to the continuation of pricing pressure on materials cost and freight, as global supply chain constraints disrupted normal procurement channels. Our product mix was also more heavily weighted to lower margin solutions.
Loss on debt extinguishment, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Loss on debt extinguishment, net (1,392) — % (4,960) (1) % (3,568) (72) % In fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.
Loss on debt extinguishment, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Loss on debt extinguishment, net $ (1,392) — % $ (4,960) (1) % $ 3,568 72 % In fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.
Income tax provision Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Income tax provision $ 1,940 1 % $ 1,341 — % $ 599 45 % Our income tax provision is primarily influenced by foreign and state income taxes.
Income tax provision Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Income tax provision $ 1,940 1 % $ 1,341 — % 599 45 % Our income tax provision is primarily influenced by foreign and state income taxes.
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.
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.
Commitments and Contingencies Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage.
Commitments and Contingencies Table of Contents Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage.
The primary driver of the increase was demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offer as a subscription.
The primary driver of the increase was demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription.
See Note 9: Income Taxes , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Inventories Manufacturing Inventories Our manufacturing inventory is recorded at the lower of cost or net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. Costs include material, direct labor, and an allocation of overhead.
See Note 10: Income Taxes , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Inventories Manufacturing Inventories Table of Contents Our manufacturing inventory is recorded at the lower of cost or net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. Costs include material, direct labor, and an allocation of overhead.
This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing. Royalty Revenue We receive royalties from third parties that license our LTO® media patents through our membership in the LTO® consortium.
This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing. Royalty Revenue We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium.
Revenue Recognition Our revenue is derived from three main sources: (a) products, (b) service and subscription, and (c) royalties. Our performance obligations are satisfied at a point in time or over time as stand ready obligations.
Revenue Recognition Table of Contents Our revenue is derived from three main sources: (a) products, (b) service and subscription, and (c) royalties. Our performance obligations are satisfied at a point in time or over time as stand ready obligations.
Product revenue may be impacted by a variety of price adjustments or other factors, including rebates, returns and stock rotation. We use the expected value method to estimate the net consideration expected to be returned by the customer. We use historical data and current trends to drive our estimates.
We reassess standalone selling price determination periodically. Product revenue may be impacted by a variety of price adjustments or other factors, including rebates, returns and stock rotation. We use the expected value method to estimate the net consideration expected to be returned by the customer. We use historical data and current trends to drive our estimates.
Service and subscription Gross Margin Service and subscription gross margin decreased 250 basis points for fiscal 2023, as compared to fiscal 2022.
Service and subscription Gross Margin Service and subscription gross margin decreased 320 basis points for fiscal 2023, as compared to fiscal 2022.
There are significant judgements used when applying Accounting Standards Codification (“ASC”) Topic 606 to contracts with customers. Most of our contracts contain multiple goods and services designed to meet each customers’ unique storage needs.
There are significant judgments used when applying Accounting Standards Codification (“ASC”) Topic 606 to contracts with customers. Most of our contracts contain multiple goods and services designed to meet each customer's unique storage needs.
Other expense, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Other income (expense), net $ 1,956 1 % $ (251) 0 % $ (2,207) (879) % 30 Table of Contents In fiscal 2023, other income (expense), net increased $2.2 million or 879%, compared to fiscal 2022.
Other expense, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Other income (expense), net $ 1,956 1 % $ (251) 0 % $ 2,207 879 % In fiscal 2023, other income (expense), net increased $2.2 million or 879%, compared to fiscal 2022.
Operating expenses Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Research and development $ 44,555 11 % $ 51,812 14 % $ (7,257) (14) % Sales and marketing 66,034 16 % 62,957 17 % 3,077 5 % General and administrative 47,752 12 % 45,256 12 % 2,496 6 % Restructuring charges 1,605 — % 850 — % 755 89 % Total operating expenses $ 159,946 39 % $ 160,875 43 % $ (929) (1) % In fiscal 2023, research and development expense decreased $7.3 million, or 14%, as compared with fiscal 2022.
Table of Contents Operating expenses Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Sales and marketing $ 66,034 16 % $ 62,957 16 % $ 3,077 5 % General and administrative 47,752 11 % 45,256 12 % 2,496 6 % Research and development 44,555 11 % 51,812 14 % (7,257) (14) % Restructuring charges 1,605 — % 850 — % 755 89 % Total operating expenses $ 159,946 38 % $ 160,875 42 % $ (929) (1) % In fiscal 2023, sales and marketing expenses increased $3.1 million, or 5%, as compared with fiscal 2022.
We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings. The Devices and media also decreased partially driven by lower volume of LTO® media sales. Service and Subscription Revenue Service and subscription revenue decreased $1.2 million, or 1%, in fiscal 2023 compared to fiscal 2022.
We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings. The devices and media also decreased partially driven by lower volume of linear-tape open media sales. Service and Subscription Revenue Service and subscription revenue decreased $3.7 million, or 3%, in fiscal 2023 compared to fiscal 2022.
This increase was driven primarily by transition costs as we complete large projects in our IT and facilities infrastructure. In fiscal 2023, restructuring expenses increased $0.8 million, or 89%, as compared with fiscal 2022. This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
In fiscal 2023, restructuring expenses increased $0.8 million, or 89%, as compared with fiscal 2022. This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
Term loan debt matures on August 5, 2026. (2) Represents aggregate future minimum lease payments under non-cancelable operating leases. (3) Includes primarily non-cancelable inventory purchase commitments. 33 Table of Contents Off-Balance Sheet Arrangements We do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.
(2) Represents aggregate future minimum lease payments under non-cancelable operating leases. (3) Includes primarily non-cancelable inventory purchase commitments. Off-Balance Sheet Arrangements We do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.
As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments 35 Table of Contents to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations.
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.
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.
This decrease was due primarily to a $9.8 million inventory provision recorded during fiscal 2023. Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued.
Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued.
Where standalone selling price may not be directly observable (e.g., the performance obligation is not sold separately), we maximize the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings.
Where standalone selling price may not be directly observable (e.g., the performance obligation is not sold separately), we maximize the use of observable inputs by using information including internal discounting practices, competitor pricing, competitor margins, performance obligations with similar customers and product groupings. Determining the observable inputs and applying them to our performance obligations requires significant judgment.
We generated negative cash flows from operations of approximately $4.9 million and $33.7 million for the fiscal years ended March 31, 2023 and 2022, respectively, and generated net losses of approximately $37.9 million and $32.3 million for the fiscal years ended March 31, 2023 and 2022, respectively.
We generated negative cash flows from operations of approximately $10.2 million and $4.9 million for the fiscal years ended March 31, 2024 and 2023, respectively, and generated net losses of approximately $41.3 million and $18.4 million for the fiscal years ended March 31, 2024 and 2023, respectively.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2023 and 2022 and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion gives effects to the restatement of our consolidated financial statements for the fiscal years ended March 31, 2023 and 2022, discussed in Note 14 to the consolidated financial statements of this Annual Report. and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.
Interest expense Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Interest expense (10,560) (3) % (11,888) (3) % (1,328) (11) % In fiscal 2023, interest expense decreased $1.3 million, or 11%, as compared to fiscal 2022. This decrease was primarily due to a lower principal balance on our Term Loan.
Interest expense Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Interest expense $ 10,560 3 % $ 11,888 3 % $ (1,328) (11) % In fiscal 2023, interest expense decreased $1.3 million, or 11%, as compared to fiscal 2022.
Net cash used in operating activities was $33.7 million for the year ended March 31, 2022, primarily attributable to $30.5 million of changes in assets and liabilities due primarily to working capital requirements due to higher manufacturing and service inventories. 32 Table of Contents Net Cash Used in Investing Activities Net cash used in investing activities was $15.6 million for the year ended March 31, 2023, primarily attributable to $12.6 million of capital expenditures and $3.0 million of cash paid related to the deferred purchase price for a prior business acquisition.
Net cash used in investing activities was $15.6 million for the year ended March 31, 2023, primarily attributable to $12.6 million of capital expenditures and $3.0 million of cash paid related to the deferred purchase price for a prior business acquisition.
In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.
In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. Our fiscal year ends on March 31 of each calendar year. "Fiscal 2024" in this Annual Report refers to the fiscal year ended March 31, 2024.
We initially measure a returned asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in value of the returned goods. 34 Table of Contents Income Taxes Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled.
Income Taxes Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled.
Year Ended March 31, ( in thousands) 2023 2022 Cash provided by (used in): Operating activities (4,894) (33,728) Investing activities (15,601) (14,124) Financing activities 41,165 20,157 Effect of exchange rate changes 12 51 Net change in cash, cash equivalents, and restricted cash $ 20,682 $ (27,644) Net Cash Used in Operating Activities Net cash used in operating activities was $4.9 million for the year ended March 31, 2023, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $1.5 million offset by cash used associated with working capital changes of $6.4 million including cash used related to manufacturing and service inventories of $5.3 million.
Net cash used in operating activities was $4.9 million for the year ended March 31, 2023, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $1.5 million offset by cash used associated with working capital changes of $6.4 million including cash used related to manufacturing and service inventories of $5.3 million.
Our total outstanding Term Loan debt was $74.7 million, and we had $20.0 million available to borrow under the PNC Credit Facility as of March 31, 2023.
We had cash and cash equivalents of $25.7 million as of March 31, 2024, which excludes $0.2 million of short-term restricted cash. Our total outstanding Term Loan debt was $87.9 million, and we had $27.3 million available to borrow under the PNC Credit Facility as of March 31, 2024.
This decrease was the result of one-time acquisition-related costs that occurred in the prior year, as well as the overall consolidation of those acquisitions. In fiscal 2023, sales and marketing expenses increased $3.1 million, or 5%, as compared with fiscal 2022.
This increase was driven primarily by transition costs as we complete large projects in our IT and facilities infrastructure. In fiscal 2023, research and development expense decreased $7.3 million, or 14%, as compared with fiscal 2022. This decrease was the result of one-time acquisition-related costs that occurred in the prior year, as well as the overall consolidation of those acquisitions.
Net cash provided by financing activities was $20.2 million for the year ended March 31, 2022, primarily related to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.
Net Cash Provided by Financing Activities Net cash provided by financing activities was $15.7 million for the year ended March 31, 2024 due primarily to borrowings under our Term Loan credit facility.
Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations. Recently Issued and Adopted Accounting Pronouncements For recently issued and adopted accounting pronouncements, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.
This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statement of operations. Recently Issued and Adopted Accounting Pronouncements Table of Contents For recently issued and adopted accounting pronouncements, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.
Below is a table that shows our contractual obligations as of March 31, 2023 (in thousands): Payments Due by Period (in thousands) Total 1 year or less 1 – 3 Years 3 –5 Years More than 5 years Debt obligations (1) $ 140,407 $ 15,109 $ 108,548 $ 16,750 $ — Future lease commitments (2) 22,993 2,700 3,989 3,042 13,262 Purchase obligations (3) 28,688 28,688 — — — Total $ 192,088 $ 46,497 $ 112,537 $ 19,792 $ 13,262 (1) Consists of (i) principal and interest payments on our term loan based on the amount outstanding and interest rates in effect at March 31, 2023, and (ii) principal, interest, and unused commitment fees on our PNC Credit Facility based on the amount outstanding and rates in effect at March 31, 2023.
Below is a table that shows our contractual obligations as of March 31, 2024 (in thousands): Payments Due by Period (in thousands) Total 1 year or less 1 – 3 Years 3 –5 Years More than 5 years Debt obligations (1) $ 114,546 $ 114,546 $ — $ — $ — Future lease commitments (2) 21,127 2,538 3,776 2,730 12,083 Purchase obligations (3) 32,400 32,400 — — — Total $ 168,073 $ 149,484 $ 3,776 $ 2,730 $ 12,083 (1) Consists of principal on our Term Loan and PNC Credit Facility.
We record a reduction to revenue to account for these items that may result in variable consideration.
We record a reduction to revenue to account for these items that may result in variable consideration. We initially measure a returned asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in value of the returned goods.
Net cash used in investing activities was $14.1 million for the year ended March 31, 2022, primarily attributable to $7.8 million of business acquisitions and $6.3 million of capital expenditures.
Net Cash Used in Investing Activities Net cash used in investing activities was $5.9 million for the year ended March 31, 2024, primarily attributable to the implementation costs of a new Enterprise Resource Planning system.
We have funded operations through the sale of common stock, term debt borrowings and revolving credit facility borrowings described in Note 5: Debt . On June 1, 2023, the Company entered into amendments to the Term Loan and the PNC Credit Facility.
We have funded operations through the sale of common stock, term debt borrowings and revolving credit facility borrowings described in Note 5: Debt . 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.
If required, there is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, would be obtainable on terms satisfactory to us.
As such, there can be no assurance that we will be able to obtain additional liquidity when needed or under acceptable terms, if at all. See "Risks Related to our Indebtedness" section of Item 1A. Risk Factors.
Removed
For comparisons of fiscal years 2022 and 2021, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, , Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on June 8, 2022, and incorporated herein by reference.
Added
Restatement The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported consolidated financial statements for the fiscal years ended March 31, 2022 and March 31, 2023.
Removed
Gross Profit and Margin Year Ended March 31, (in thousands) 2023 Gross margin % 2022 Gross margin % $ Change Basis point change Product gross profit $ 46,506 17.4 % $ 53,981 24.1 % $ (7,475) (670) Service and subscription gross profit 73,728 55.6 % 77,677 58.1 % (3,949) (250) Royalty gross profit 13,705 100.0 % 15,377 100.0 % (1,672) — Gross profit $ 133,939 32.5 % $ 147,035 39.4 % $ (13,096) (690) 29 Table of Contents Product Gross Margin Product gross margin decreased 670 basis points for fiscal 2023, as compared to fiscal 2022.
Added
For additional information and a detailed discussion of the restatement, see Note 14: Restatement of Previously Issued Financial Statements in the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8. Financial Statements and Supplementary Data .
Removed
Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. 31 Table of Contents We had cash and cash equivalents of $26.0 million as of March 31, 2023, which excludes $0.2 million. of short-term restricted cash as of March 31, 2023.
Added
Restatement adjustments have also been made to the previously reported consolidated financial statements for the quarterly periods ended June 30, 2022 and June 30, 2023 as well as the quarters ended September 30, 2022 and December 31, 2022.
Removed
The amendments, among other things, (a) amended the total net leverage ratio financial covenant commencing with the fiscal quarter ended June 30, 2023; (b) amended the minimum liquidity financial covenant to decrease the minimum liquidity to $15 million; and (c) amended the “EBITDA” definition to increase the add-back cap on non-recurring items including restructuring charges during the fiscal years ended March 31, 2024 and 2025.
Added
For additional information related to the quarterly restatement, see Note 15: Quarterly Financial Summary (Unaudited) in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K under the caption Item 8. Financial Statements and Supplementary Data .
Removed
The Term Loan amendment also provided an advance of $15 million in additional Term Loan borrowings.
Added
The primary driver of the decrease was a $62.5 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.
Removed
With the additional term debt borrowings, in addition to the amendments to the credit agreements, we forecasted that operating performance, cash, current working capital and borrowings available under the PNC Credit Facility will provide us with sufficient capital to fund operations for at least one year from the financial statement issuance date.
Added
We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings. Service and Subscription Revenue Service and subscription revenue decreased $6.9 million, or 5%, in fiscal 2024 compared to fiscal 2023.
Removed
Our outstanding long-term debt amounted to $83.1 million as of March 31, 2023, net of $3.3 million in unamortized debt issuance costs and $5.0 million in current portion of long-term debt. We are subject to various debt covenants under our debt agreements.
Added
Royalty revenue decreased $3.6 million, or 26%, in fiscal 2024, as compared to fiscal 2023, related to lower overall unit shipments.
Removed
Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Annual Report on Form 10-K. See "Risks Related to our Indebtedness" section of Item 1A. Risk Factors.
Added
Gross Profit and Margin Year Ended March 31, (in thousands) 2024 Gross margin % 2023 Gross margin % $ Change Basis point change Restated Product gross profit $ 38,459 22.0 % $ 54,823 19.9 % $ (16,364) 210 Service and subscription gross profit 76,299 60.3 % 74,736 56.0 % 1,563 430 Royalty gross profit 10,131 100.0 % 13,705 100.0 % (3,574) — Gross profit $ 124,889 40.1 % $ 143,264 33.9 % $ (18,375) 614 Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Removed
We determined that invoice price is the best representation of what we expect to receive from the delivery of each performance obligation.
Added
Product Gross Margin Product gross margin increased 210 basis points for fiscal 2024, as compared to fiscal 2023. This increase was due primarily to a $9.8 million inventory provision recorded during fiscal 2023.
Removed
This judgment is based on the fact that each storage solution is customizable to meet an individual customer’s needs and every product’s transaction price can vary depending on the mix of other products included in the same purchase order and there are no identifiable trends that provide a good representation of expected margin for each product.
Added
Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory had become obsolete due to next generation products being released and legacy products being discontinued.
Added
In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete. We do not believe that the magnitude of this inventory provision is indicative of our ongoing operations and was not repeated in fiscal 2024.
Added
The other primary driver of product gross margin improvement in fiscal 2024 was a revenue mix less weighted towards hyperscalers, media, and devices. These revenue lines typically carry a lower gross margin than sales of our other secondary and primary storage products.
Added
Service and subscription Gross Margin Service and subscription gross margin increased 430 basis points for fiscal 2024, as compared to fiscal 2023. This increase was due primarily to improved operational costs as we implemented strict cost controls and improved our organization design.
Added
It was also partially driven by service parts inventory write downs in fiscal 2023, caused by the transition of certain service logistics activities to a third party provider Royalty Gross Margin Royalties do not have significant related cost of sales.
Added
Table of Contents Operating expenses Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Sales and marketing $ 60,893 20 % $ 66,034 16 % $ (5,141) (8) % General and administrative 51,547 17 % 47,752 11 % 3,795 8 % Research and development 38,046 12 % 44,555 11 % (6,509) (15) % Restructuring charges 3,280 1 % 1,605 — % 1,675 104 % Total operating expenses $ 153,766 49 % $ 159,946 38 % $ (6,180) (4) % In fiscal 2024, sales and marketing expenses decreased $5.1 million, or 8%, as compared with fiscal 2023.
Added
This decrease was primarily driven by decreased commission expense on lower revenue. In fiscal 2024, general and administrative expenses increased $3.8 million, or 8%, as compared with fiscal 2023 This increase was primarily driven by large non-recurring costs related to our re-evaluation of Topic 606, and other related projects.
Added
In fiscal 2024, research and development expenses decreased $6.5 million, or 15%, as compared with fiscal 2023. This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design. In fiscal 2024, restructuring expenses increased $1.7 million, or 104%, as compared with fiscal 2023.
Added
This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
Added
Other expense, net Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Other income (expense), net $ (1,747) (1) % $ 1,956 1 % $ 3,703 (189) % In fiscal 2024, other income (expense), net decrease of $3.7 million or 189%, compared to fiscal 2023.
Added
The decrease was primarily related to differences in foreign currency gains and losses during each period, as well as the non-recurring sale of $2.3 million IP licenses in fiscal 2023.
Added
Interest expense Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Interest expense $ 15,089 5 % $ 10,560 3 % 4,529 43 % In fiscal 2024, interest expense increased $4.5 million, or 43%, as compared to fiscal 2023.
Added
This increase was primarily due to a higher principal balance on our Term Loan as well as a higher interest rate.
Added
Table of Contents Warrant liabilities Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Change in fair value of warrant liabilities $ 5,137 2 % $ 10,250 2 % $ (5,113) (50) % In fiscal 2024, the fair value of warrant liabilities decreased $5.1 million, or 50%, as compared to fiscal 2023.
Added
The decrease was primarily due to a lower average stock price in fiscal 2024.
Added
Loss on debt extinguishment, net Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Loss on debt extinguishment, net $ — — % $ (1,392) — % $ 1,392 100 % In fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.
Added
Income tax provision Year Ended March 31, (in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change Restated Income tax provision $ 711 — % $ 1,940 1 % $ 1,229 63 % Our income tax provision is primarily influenced by foreign and state income taxes.
Added
In fiscal 2024, the income tax provision decreased $1.2 million or 63%, compared to fiscal 2023, related primarily to lower current foreign taxes as a result of a decrease in foreign taxable income.
Added
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.
Added
Comparison of the Years Ended March 31, 2023 and 2022 Revenue Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Restated Restated Product revenue $ 274,854 65 % $ 230,814 60 % $ 44,040 19 % Service and subscription revenue 133,518 32 % 137,241 36 % (3,723) (3) % Royalty revenue 13,705 3 % 15,377 4 % (1,672) (11) % Total revenue $ 422,077 100 % $ 383,432 100 % $ 38,645 10 % Product Revenue Table of Contents In fiscal 2023, product revenue increased $44.0 million, or 19%, as compared to fiscal 2022.
Added
This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing. Royalty Revenue We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium.
Added
Gross Profit and Margin Year Ended March 31, (in thousands) 2023 Gross margin % 2022 Gross margin % $ Change Basis point change Restated Restated Product gross profit $ 54,823 19.9 % $ 61,034 26.4 % $ (6,211) (650) Service and subscription gross profit 74,736 56.0 % 81,229 59.2 % (6,493) (320) Royalty gross profit 13,705 100.0 % 15,377 100.0 % (1,672) — Gross profit $ 143,264 33.9 % $ 157,640 41.1 % $ (14,376) (720) Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed5 unchanged
Biggest changeWe may enter into foreign exchange derivative contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes that exchange rates might have on our earnings. 36 Table of Contents
Biggest changeWe may enter into foreign exchange derivative contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes that exchange rates might have on our earnings. Table of Contents
Assuming no change in the outstanding borrowings under the term debt and the PNC Credit Facility during fiscal 2023, a hypothetical 100-basis point increase or decrease in market interest rates sustained throughout the year would not result in a material change to our annual interest expense.
Assuming no change in the outstanding borrowings under the term debt and the PNC Credit Facility during fiscal 2024, a hypothetical 100-basis point increase or decrease in market interest rates sustained throughout the year would not result in a material change to our annual interest expense.

Other QMCO 10-K year-over-year comparisons