Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
December 31, 2024 March 31, 2024
Assets
Current assets:
Cash and cash equivalents $ 20,381 $ 25,692
Restricted cash 222 168
Accounts receivable, net of allowance for credit losses of $ 99 and $ 22 , respectively
61,373 67,788
Manufacturing inventories 18,861 17,753
Service parts inventories 1,884 9,783
Prepaid expenses 2,569 2,186
Other current assets 8,538 8,414
Total current assets 113,828 131,784
Property and equipment, net 11,268 12,028
Goodwill 12,969 12,969
Intangible assets, net 509 1,669
Right-of-use assets 8,670 9,425
Other long-term assets 20,812 19,740
Total assets $ 168,056 $ 187,615
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable $ 34,704 $ 26,087
Accrued compensation 11,702 18,214
Deferred revenue, current portion 69,916 78,511
Term debt
98,609 82,496
Revolving credit facility 37,500 26,604
Warrant liabilities 34,005 4,046
Other accrued liabilities 19,108 13,986
Total current liabilities 305,544 249,944
Deferred revenue, net of current portion 35,350 38,176
Operating lease liabilities 9,067 9,621
Other long-term liabilities 13,150 11,372
Total liabilities 363,111 309,113
Commitments and contingencies ( Note 11 )
Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued and outstanding
— —
Common stock, $ 0.01 par value; 225,000 shares authorized; 5,307 and 4,792 shares issued and outstanding
53 48
Additional paid-in capital 740,521 708,027
Accumulated deficit ( 933,160 ) ( 827,380 )
Accumulated other comprehensive loss ( 2,469 ) ( 2,193 )
Total stockholders’ deficit ( 195,055 ) ( 121,498 )
Total liabilities and stockholders’ deficit $ 168,056 $ 187,615
See accompanying Notes to Condensed Consolidated Financial Statements.
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)
Three Months Ended December 31, Nine Months Ended December 31,
2024 2023 2024 2023
Revenue:
Product $ 38,610 $ 37,113 $ 116,389 $ 138,635
Service and subscription 31,615 32,771 90,383 94,229
Royalty 2,326 2,042 7,592 7,235
Total revenue 72,551 71,926 214,364 240,099
Cost of revenue:
Product 30,922 30,044 93,251 105,214
Service and subscription 9,874 12,701 33,954 37,329
Total cost of revenue 40,796 42,745 127,205 142,543
Gross profit 31,755 29,181 87,159 97,556
Operating expenses:
Sales and marketing 12,448 14,244 39,321 45,800
General and administrative 14,142 11,893 49,186 34,833
Research and development 7,683 8,763 24,255 28,828
Restructuring charges 1,342 497 2,916 3,164
Total operating expenses 35,615 35,397 115,678 112,625
Loss from operations ( 3,860 ) ( 6,216 ) ( 28,519 ) ( 15,069 )
Other income (expense), net 967 ( 1,419 ) ( 408 ) ( 2,049 )
Interest expense ( 6,840 ) ( 3,937 ) ( 16,761 ) ( 10,992 )
Change in fair value of warrant liabilities ( 61,630 ) 2,213 ( 56,414 ) 7,341
Loss on debt extinguishment — — ( 3,003 ) —
Net loss before income taxes ( 71,363 ) ( 9,359 ) ( 105,105 ) ( 20,769 )
Income tax provision 70 510 675 1,573
Net loss $ ( 71,433 ) $ ( 9,869 ) $ ( 105,780 ) $ ( 22,342 )
Net loss per share - basic and diluted
$ ( 14.56 ) $ ( 2.08 ) $ ( 21.90 ) $ ( 4.74 )
Weighted average shares - basic and diluted
4,907 4,751 4,831 4,717
Net loss ( 71,433 ) $ ( 9,869 ) ( 105,780 ) $ ( 22,342 )
Foreign currency translation adjustments, net ( 1,077 ) 1,465 ( 276 ) 994
Total comprehensive loss $ ( 72,510 ) $ ( 8,404 ) $ ( 106,056 ) $ ( 21,348 )
See accompanying Notes to Condensed Consolidated Financial Statements.
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended December 31,
2024 2023
Operating activities
Net loss $ ( 105,780 ) $ ( 22,342 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 4,440 7,593
Amortization of debt issuance costs 3,704 1,948
Loss on debt extinguishment 3,003 —
Provision for product and service inventories 1,165 3,328
Stock-based compensation 2,376 3,741
Paid in kind interest 3,515 1,401
Change in fair value of warrant liabilities 56,408 ( 7,340 )
Other non-cash ( 281 ) 1,609
Changes in assets and liabilities:
Accounts receivable, net 6,337 12,616
Manufacturing inventories ( 2,347 ) ( 3,099 )
Service parts inventories 7,972 ( 1,520 )
Prepaid expenses ( 382 ) 394
Accounts payable 9,405 ( 13,226 )
Accrued compensation ( 6,512 ) ( 425 )
Deferred revenue ( 11,421 ) ( 4,780 )
Other current assets ( 124 ) ( 1,698 )
Other non-current assets 1,367 ( 1,532 )
Other current liabilities 5,369 569
Other non-current liabilities 1,441 2,036
Net cash used in operating activities ( 20,345 ) ( 20,727 )
Investing activities
Purchases of property and equipment ( 4,324 ) ( 5,025 )
Net cash used in investing activities ( 4,324 ) ( 5,025 )
Financing activities
Borrowings of long-term debt, net of debt issuance costs 25,000 14,083
Repayments of long-term debt ( 14,092 ) ( 4,497 )
Borrowings of credit facility 311,135 318,223
Repayments of credit facility ( 302,628 ) ( 303,671 )
Net cash provided by financing activities 19,415 24,138
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 3 ) ( 12 )
Net change in cash, cash equivalents and restricted cash ( 5,257 ) ( 1,626 )
Cash, cash equivalents, and restricted cash at beginning of period 25,860 26,175
Cash, cash equivalents, and restricted cash at end of period $ 20,603 $ 24,549
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:
Cash and cash equivalents 20,381 $ 24,377
Restricted cash, current 222 172
Cash, cash equivalents and restricted cash at the end of period
$ 20,603 $ 24,549
Supplemental disclosure of cash flow information
Cash paid for interest $ 8,841 $ 9,154
Cash paid for income taxes, net $ 1,798 $ 1,136
Non-cash transactions
Purchases of property and equipment included in accounts payable $ 88 $ 164
Paid-in-kind interest $ 3,515 $ 1,401
See accompanying Notes to Condensed Consolidated Financial Statements.
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(in thousands, unaudited)
Common Stock Additional
Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit
Three Months Ended Shares Amount
Balance, September 30, 2023
4,775 $ 47 $ 706,138 $ ( 798,567 ) $ ( 2,052 ) $ ( 94,434 )
Net loss — — — ( 9,869 ) — ( 9,869 )
Foreign currency translation adjustments, net — — — — 1,465 1,465
Shares issued under employee incentive plans, net 17 — — — — —
Stock-based compensation — — 906 — — 906
Balance, December 31, 2023
4,792 $ 47 $ 707,044 $ ( 808,436 ) $ ( 587 ) $ ( 101,932 )
Balance, September 30, 2024
4,792 $ 48 $ 709,667 $ ( 861,727 ) $ ( 1,392 ) $ ( 153,404 )
Net loss — — — ( 71,433 ) — ( 71,433 )
Foreign currency translation adjustments, net — — — — ( 1,077 ) ( 1,077 )
Shares issued under employee incentive plans, net 109 1 ( 1 ) — — —
Shares issued related to warrants
406 4 30,119 — — 30,123
Stock-based compensation — — 736 — — 736
Balance, December 31, 2024
5,307 $ 53 $ 740,521 $ ( 933,160 ) $ ( 2,469 ) $ ( 195,055 )
See accompanying Notes to Condensed Consolidated Financial Statements.
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Common Stock Additional
Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit
Nine Months Ended Shares Amount
Balance, March 31, 2023 4,678 $ 47 $ 703,259 $ ( 786,094 ) $ ( 1,581 ) $ ( 84,369 )
Net loss — — — ( 22,342 ) — ( 22,342 )
Foreign currency translation adjustments, net — — — — 994 994
Shares issued under employee incentive plans, net 114 — — — — —
Warrants issued in connection with debt refinancing — — 49 — — 49
Stock-based compensation — — 3,736 — — 3,736
Balance, December 31, 2023
4,792 $ 47 $ 707,044 $ ( 808,436 ) $ ( 587 ) $ ( 101,932 )
Balance, March 31, 2024 4,792 $ 48 $ 708,027 $ ( 827,380 ) $ ( 2,193 ) $ ( 121,498 )
Net loss — — — ( 105,780 ) — ( 105,780 )
Foreign currency translation adjustments, net — — — — ( 276 ) ( 276 )
Shares issued under employee incentive plans, net 109 1 ( 1 ) — — —
Shares issued related to warrants
406 4 30,119 — — 30,123
Stock-based compensation — — 2,376 — — 2,376
Balance, December 31, 2024
5,307 $ 53 $ 740,521 $ ( 933,160 ) $ ( 2,469 ) $ ( 195,055 )
See accompanying Notes to Condensed Consolidated Financial Statements.
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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Note 1: Description of Business and Summary of Significant Accounting Policies
7
Note 2: Revenue
9
Note 3: Balance Sheet Information
10
Note 4: Debt
12
Note 5: Fair Value of Financial Instruments
15
Note 6: Leases
15
Note 7: Restructuring Charges
16
Note 8: Common Stock
16
Note 9: Net Loss Per Share
18
Note 10: Income Taxes
19
Note 11: Commitments and Contingencies
19
Note 12: Subsequent Event
20
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), stores and manages digital video and other forms of unstructured data, providing streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving. The Company helps customers around the world capture, create and share digital data and preserve and protect it for decades. The Company’s software-defined, hyperconverged storage solutions span from non-volatile memory express, to solid state drives, hard disk drives, tape and the cloud and are tied together leveraging a single namespace view of the entire data environment. The Company works closely with a broad network of distributors, value-added resellers, direct marketing resellers, original equipment manufacturers and other suppliers to meet customers’ evolving needs.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (the “Annual Report”).
The unaudited condensed consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of December 31, 2024, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholders’ deficit for the three and nine months ended December 31, 2024 and 2023. Interim results are not necessarily indicative of full year performance because of short-term variations.
Reverse Stock Split
On August 15, 2024, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued shares of the Company’s common stock, par value $ 0.01 per share (the “Common Stock”), at a ratio ranging from 1 share-for-5 shares up to a ratio of 1-for-20 shares, with the exact ratio, if any, to be selected by the board of directors (the “Board”). On August 15, 2024, the Board approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Common Stock. The Reverse Stock Split became effective as of August 26, 2024 at 4:01 p.m., Eastern Time (the “Effective Time”). At the Effective Time, every twenty issued shares of Common Stock were automatically reclassified into one issued share of Common Stock, with any fractional shares resulting from the Reverse Stock Split rounded up to the nearest whole share. The number of outstanding shares of Common Stock was reduced from approximately 95.9 million shares to approximately 4.8 million shares.
All share and per share amounts for Common Stock in these condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.
Going Concern
These consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern has been raised.
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The Company believes it is probable that it will be in violation of the net leverage covenant at the testing date for the first quarter of fiscal 2026. If the Company is unable to obtain waivers, the Term Loan and PNC Credit Facility will become immediately due, and additional liquidity will be required to satisfy the obligations. Due to the fact that a violation of the debt covenants results in the debt becoming currently payable, the long-term portion of the Term Loan and PNC Credit Facility have been classified as a current liability in the accompanying consolidated balance sheet as of December 31, 2024. See Note 4: Debt for additional information related to the Company’s debt agreements.
The Company entered into a Standby Equity Purchase Agreement (the “SEPA”) on January 25, 2025, pursuant to which the Company has the right, but not the obligation, to sell up to $ 200 million of Common Stock at any time during the three-year period following the date of the SEPA. See Note 12: Subsequent Events for additional information related to the SEPA. Additionally, the Company is evaluating strategies to obtain additional funding, however there is no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms.
The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. Our credit facilities are collateralized by a pledge of all our assets.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions due to risks and uncertainties. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, inventory adjustments, useful lives of intangible assets and property and equipment, stock-based compensation, fair value of warrants, and provision for income taxes including related reserves. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Restricted Cash
Restricted cash is comprised of bank guarantees and similar required minimum balances that serve as cash collateral in connection with various items including insurance requirements, value added taxes, ongoing tax audits and leases in certain countries.
Recent Accounting Pronouncements
In November 2024, the FASB issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220) , which requires public entities to disclose information about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion for each income statement line item that contains those expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures , which includes amendments that further enhance tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024 and may be applied either prospectively or retrospectively. The Company does not anticipate the adoption will have a material impact to the Company's financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires disclosure of incremental segment information on an annual and interim basis. ASU 2023-07 will be effective for our fiscal year beginning April 1, 2024, and interim periods within our fiscal year beginning April 1, 2025, with early adoption permitted and requires application on a fully retrospective basis. We are currently evaluating the impact of this standard on our financial statement disclosures.
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NOTE 2: REVENUE
Based on how the Company manages its business, the Company has determined that it currently operates in one reportable segment. The Company operates in three geographic regions: (a) Americas; (b) Europe, Middle East and Africa (“EMEA”); and (c) Asia Pacific (“APAC”). Revenue by geography is based on the location of the customer from which the revenue is earned.
In the following table, revenue is disaggregated by major product offerings and geographies (in thousands):
Three Months Ended December 31, Nine Months Ended December 31,
2024 2023 2024 2023
Americas 1
Product revenue 18,294 16,159 62,410 78,287
Service and subscription 16,563 18,282 48,975 53,871
Total revenue 34,857 48 % 34,441 47 % 111,385 52 % 132,158 55 %
EMEA
Product revenue 15,235 14,786 39,892 42,609
Service and subscription 12,077 12,282 33,471 34,234
Total revenue 27,312 38 % 27,068 38 % 73,363 34 % 76,843 32 %
APAC
Product revenue 5,081 6,168 14,087 17,739
Service and subscription 2,975 2,207 7,937 6,124
Total revenue 8,056 11 % 8,375 12 % 22,024 10 % 23,863 10 %
Consolidated
Product revenue 38,610 37,113 116,389 138,635
Service and subscription 31,615 32,771 90,383 94,229
Royalty 2
2,326 3 % 2,042 3 % 7,592 4 % 7,235 3 %
Total revenue $ 72,551 100 % $ 71,926 100 % $ 214,364 100 % $ 240,099 100 %
1 Revenue for the Americas geographic region outside of the United States is not significant.
2 Royalty revenue is not allocatable to geographic regions.
Revenue by Solution
Three Months Ended December 31, Nine Months Ended December 31,
2024 % 2023 % 2024 % 2023 %
Primary storage systems $ 12,404 17 % $ 12,887 18 % $ 41,034 19 % $ 41,394 17 %
Secondary storage systems 23,276 33 % 20,206 28 % 60,787 28 % 82,118 34 %
Device and media 7,575 10 % 7,716 11 % 24,254 11 % 23,801 10 %
Service 26,970 37 % 29,075 40 % 80,697 38 % 85,551 36 %
Royalty 2,326 3 % 2,042 3 % 7,592 4 % 7,235 3 %
Total revenue 1
$ 72,551 100 % $ 71,926 100 % $ 214,364 100 % $ 240,099 100 %
1 Subscription revenue of $ 4.6 million and $ 2.3 million was allocated to Primary and Secondary storage systems for the three months ended December 31, 2024 and 2023, respectively. Subscription revenue of $ 11.3 million and $ 4.8 million was allocated to Primary and Secondary storage systems for the nine months ended December 31, 2024 and 2023, respectively.
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Contract Balances
The following table presents the Company’s contract liabilities and certain information related to this balance as of March 31, 2024 and December 31, 2024 (in thousands):
March 31, 2024
Deferred revenue $ 116,687
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period $ 76,304
December 31, 2024
Deferred revenue $ 105,266
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period $ 64,539
Remaining Performance Obligations
Total remaining performance obligations (“RPO”) representing contracted but not recognized revenue was $ 122.6 million as of December 31, 2024. RPO consists of both deferred revenue and uninvoiced, non-cancelable contracts that are expected to be invoiced and recognized as revenue in future periods and excludes variable consideration related to sales-based royalties. Of the $ 122.6 million RPO at the end of the third quarter of fiscal 2025, $ 105.4 million was for invoiced deferred revenue and $ 17.2 million was for uninvoiced, non-cancelable contracts. The non-current portion of the RPO will be recognized over the next 13 to 60 months.
RPO consisted of the following (in thousands):
Current Non-Current Total
As of December 31, 2024
$ 84,644 $ 37,929 $ 122,573
Deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenue including performance obligations pertaining to subscription services. The table below reflects the Company’s deferred revenue as of December 31, 2024 (in thousands):
Deferred revenue by period
Total 1 year or less 1 – 3 Years 3 year or greater
Service revenue 84,624 60,782 21,815 $ 2,027
Subscription revenue $ 20,642 $ 9,134 $ 8,773 $ 2,735
Balance as of December 31, 2024 $ 105,266 $ 69,916 $ 30,588 $ 4,762
NOTE 3: BALANCE SHEET INFORMATION
Certain significant amounts included in the Company's condensed consolidated balance sheets consist of the following (in thousands):
Manufacturing inventories
December 31, 2024 March 31, 2024
Finished goods $ 9,741 $ 7,074
Work in progress 1,399 770
Raw materials 7,721 9,909
Total manufacturing inventories $ 18,861 $ 17,753
Service parts inventories
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December 31, 2024 March 31, 2024
Finished goods $ 1,377 $ 3,660
Component parts 507 6,123
Total service parts inventories $ 1,884 $ 9,783
Intangibles, net
December 31, 2024 March 31, 2024
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Developed technology $ 9,013 $ ( 9,013 ) $ — $ 9,013 $ ( 8,550 ) $ 463
Customer lists 4,398 ( 3,889 ) 509 4,398 ( 3,192 ) 1,206
Intangible assets, net $ 13,411 $ ( 12,902 ) $ 509 $ 13,411 $ ( 11,742 ) $ 1,669
Intangible assets amortization expense was $ 0.2 million and $ 1.2 million and $ 0.8 million and $ 3.0 million for the three and nine months ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 0.6 years. The Company recorded amortization of developed technology in cost of product revenue, and customer lists in sales and marketing expenses in the condensed consolidated statements of operations.
As of December 31, 2024, the future expected amortization expense for intangible assets is as follows (in thousands):
Fiscal year ending Estimated future amortization expense
Remainder of 2025 $ 228
2026 281
Total $ 509
Goodwill
As of December 31, 2024 and March 31, 2024, goodwill was $ 13.0 million. There were no impairments to goodwill as of December 31, 2024 and March 31, 2024.
Other long-term assets
December 31, 2024 March 31, 2024
Capitalized SaaS implementation costs for internal use $ 14,786 $ 15,349
Capitalized debt costs 3,292 1,923
Contract asset 1,264 1,477
Deferred taxes 711 734
Other 759 257
Total other long-term assets $ 20,812 $ 19,740
Other accrued liabilities
December 31, 2024 March 31, 2024
Accrued expenses
$ 8,093 $ 4,251
Asset retirement obligation
3,683 2,069
Accrued warranty
1,195 1,545
Accrued interest
506 524
Lease liability 1,227 1,256
Accrued income taxes
390 1,044
Other
4,014 3,297
Total other accrued liabilities $ 19,108 $ 13,986
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The following table details the change in the accrued warranty balance (in thousands):
December 31, 2024 March 31, 2024
Beginning balance $ 1,545 $ 2,094
Current period accruals 1,696 2,563
Adjustments to prior estimates 46 ( 141 )
Charges incurred ( 2,092 ) ( 2,971 )
Ending balance $ 1,195 $ 1,545
NOTE 4: DEBT
The Company’s debt consisted of the following (in thousands):
December 31, 2024 March 31, 2024
Term Loan $ 105,880 $ 87,942
PNC Credit Facility 37,500 26,604
Less: current portion ( 136,109 ) ( 109,100 )
Less: unamortized debt issuance costs (1)
( 7,271 ) ( 5,446 )
Long-term debt, net $ — $ —
(1) The unamortized debt issuance costs related to the Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying condensed consolidated balance sheets.
On August 5, 2021, the Company entered into a senior secured term loan (as amended, the “2021 Term Loan”), maturing on August 5, 2026. The Company also has a revolving credit facility agreement with PNC Bank (as amended, the “PNC Credit Facility” and together with the Term Loan (as defined below), the “Credit Agreements”) maturing on August 5, 2026 and providing for borrowings up to a maximum principal amount of the lesser of: (a) $ 40.0 million or (b) the amount of the borrowing base, as defined in the PNC Credit Facility agreement.
On June 1, 2023, the Company entered into amendments to the Credit Agreements (the “June 2023 Amendment”) which, among other things, provided an advance of $ 15.0 million in additional term loan borrowings (as amended, the “2023 Term Loan” and, together with the 2021 Term Loan, the "Term Loan") and incurred $ 0.9 million in original issuance discount and origination fees which have been recorded as a reduction to the carrying amount of the 2023 Term Loan and amortized to interest expense over the loan term. The terms of the 2023 Term Loan are substantially similar to the terms of the 2021 Term Loan, including in relation to maturity and security, except that, among other things, (a) the Applicable Margin (i) for any 2023 Term Loan designated an “ABR Loan” is 9.00 % per annum and (ii) for any 2023 Term Loan designated as a “SOFR Loan” is 10.00 % per annum, (b) accrued interest on the 2023 Term Loan is payable in kind ("PIK"), and is capitalized and added to the principal amount of the 2023 Term Loan at the end of each interest period applicable thereto, (c) the 2023 Term Loan does not amortize prior to the maturity date thereof, and (d) the 2023 Term Loan may not be prepaid prior to the payment in full of the existing term loans. In connection with the 2023 Term Loan, the Company issued warrants to purchase an aggregate of 0.06 million shares (the “June 2023 Warrants”) of the Common Stock, at an exercise price of $ 20.00 per share. See Note 8: Common Stock for additional discussion related to the June 2023 Warrants.
The June 2023 Amendment to the 2021 Term Loan was accounted for as a modification. The value of the June 2023 Warrants in addition to $ 0.7 million of fees paid to the lenders have been reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term. The Company incurred $ 0.9 million of legal and financial advisory fees which were included in general and administrated expenses in the condensed consolidated statement of operations and comprehensive loss. The June 2023 Amendment to the PNC Credit Facility was accounted for as a modification and $ 0.7 million in related fees and expenses were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.
On February 14, 2024, the Company entered into amendments to the Credit Agreements (“February 2024 Amendments”) which waived testing of the total net leverage ratio financial covenant for the fiscal quarter ended December 31, 2023. In connection with the amendment, the Company incurred fees related to the Term Loan that
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was paid-in-kind of $ 1.2 million and an amendment fee of $ 0.1 million that was paid in cash. As the February 2024 Amendments were accounted for as a modification, the fees were reflected as a reduction to the carrying amount of the Term Loan and are amortized to interest expense over the remaining loan term. In connection with the related PNC Credit Facility amendment, the Company incurred $ 0.2 million in fees and expenses.
On March 22, 2024, the Company entered into amendments to the Credit Agreements. The amendments, among other things, (i) permits the sale of certain assets by the Company and (ii) requires that certain proceeds from the sale of such assets be applied to partially prepay the outstanding term loans under the Term Loan credit facility. The Company did not incur any amendment fees related to the March 2024 amendments and the financial terms of the Credit Agreements were not impacted.
During the quarter ended June 30, 2024, the Company prepaid $ 12.3 million of the Term Loan. In connection with this prepayment, the Company recorded a loss on debt extinguishment of $ 0.7 million related to the write-off of a portion of unamortized debt issuance costs.
On May 24, 2024, the Company entered into amendments to the Credit Agreements (the “May 2024 Amendments”) which, among other things, (i) waived compliance with the Company’s net leverage covenant as of March 31, 2024; and (ii) reduced the daily minimum liquidity covenant below $ 15.0 million until June 16, 2023 and waived any default that might arise as a result of the restatement of certain of the Company’s historical financial statements. In connection with the May 2024 Amendments, the Company issued to the Term Loan lenders warrants to purchase an aggregate of 100,000 shares of the Common Stock at a purchase price of $ 9.20 (the “May 2024 Warrants”). See Note 8: Common Stock for additional discussion related to the May 2024 Warrants. Additionally, in connection with the May 2024 Amendment to the Term Loan, the Company incurred an amendment fee that was paid-in-kind of $ 0.8 million and issued the 2024 Term Loan Warrants with a fair market value of $ 0.8 million. In connection with the May 2024 Amendment to the PNC Credit Facility Amendment, the Company incurred $ 0.5 million of fees and expenses paid to the lender.
The May 2024 Amendment to the Term Loan was accounted for as a modification. The value of the May 2024 Warrants, in addition to $ 0.8 million of amendment fees paid to the lenders, have been reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term. The May 2024 Amendment to the PNC Credit Facility was accounted for as a modification and the $ 0.5 million in related fees and expenses were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.
On July 11, 2024, the Company entered into amendments to the Credit Agreements (the “July 2024 Amendments”) which, among other things, delayed the testing of the Company’s June 30, 2024 net leverage ratio financial covenant until July 31, 2024. In connection with the amendments, the Company issued the Term Loan lenders (the “July 2024 Warrants”) to purchase an aggregate of 50,000 shares of the Common Stock at a purchase price of $ 8.20 . See Note 8: Common Stock for additional discussion related to the July 2024 Warrants.
The July 2024 Amendments to the 2021 Term Loan were accounted for as a modification. The fair value of the July 2024 Warrants of $ 0.4 million is reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term. The July 2024 Amendment to the PNC Credit Facility was accounted for as a modification and the $ 0.1 million in related fees and expenses were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.
On August 13, 2024, the Company entered into amendments to the Credit Agreements (the “August 2024 Amendments”) which, among other things, (i) waived compliance with the June 30, 2024 net leverage ratio financial covenant; (ii) waived any non-compliance with the minimum liquidity financial covenant through the date of the amendments; (iii) removed the fixed charges coverage ratio financial covenant until the fiscal quarter ending September 30, 2025; (iv) waived the testing requirement for the net leverage financial covenant for the fiscal quarter ending September 30, 2024; (v) replaced the net leverage financial covenant with a minimum EBITDA financial covenant for the fiscal quarters ending December 31, 2024 and March 31, 2025; (vi) reset the net leverage financial covenant requirements for the fiscal quarters ending June 30, 2025 and September 30, 2025; (vii) reduced the minimum liquidity covenant to $ 10 million through September 30, 2025; (viii) adjusted the applicable interest rates on the Term Loan and PNC Credit Facility; (ix) removed required 2021 Term Loan principal amortization until the fiscal quarter ending September 30, 2025; and (x) repriced certain Lender Warrants.
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In connection with the August 2024 Amendments, the Company received a new senior secured delayed draw term loan facility with a borrowing capacity of up to $ 26.3 million ($ 25.0 million after original issuance discount) and a commitment period expiring on October 31, 2024 (each draw, an “August 2024 Term Loan”). The Company borrowed $ 10.5 million at closing (“Initial August 2024 Term Loan”). Borrowings under the August 2024 Term Loan have an August 5, 2026 maturity date which aligns with the 2021 Term Loan. The principal is payable quarterly beginning September 30, 2025, at a rate per annum equal to 5 % of the original principal balance. The August 2024 Term Loan’s interest rate margin is (a) until March 31, 2025 (i) for any August 2024 Term Loan designated as a ‘SOFR Loan’ is 12.00 % per annum and (ii) for any August 2024 Term Loan designated an ‘ABR Loan’ is 11.00 % per annum, in each case, with 6.00 % of such interest rate margin paid-in-kind, and (b) from April 1, 2025, (i) for any August 2024 Term Loan designated as a ‘SOFR Loan’ is 14.00 % per annum and (ii) for any August 2024 Term Loan designated an ‘ABR Loan’ is 13.00 % per annum, in each case, with 8.00 % of such interest rate margin paid-in-kind. The August 2024 Term Loan also includes a multiple on invested capital payable to the August 2024 Term Loan lenders. Subsequently, the Company borrowed the remaining $ 15.8 million of the August 2024 Term Loan’s borrowing capacity before September 30, 2024.
Subsequent to the August 2024 Amendments, the 2021 Term Loan amortizes at 5.00 % per annum commencing on September 30, 2025. Subsequent to the August 2024 Amendments and (A) until March 31, 2025, loans under the 2021 Term Loan designated as (x) ABR Loans bear interest at a rate per annum equal to the “ABR Rate” (calculated as the greatest of (i) 1.75 %; (ii) the Federal funds rate plus 0.50 %; (iii) a secured overnight financing rate based rate (the “SOFR Rate”) based upon an interest period of one month plus 1.0 %; and (iv) the “Prime Rate” last quoted by the Wall Street Journal), plus an applicable margin of 8.75 %, and (y) SOFR Rate Loans bear interest at a rate per annum equal to the SOFR Rate plus an applicable margin of 9.75 %, in each case, with 3.75 % of such interest rate margin paid-in-kind, with two specified step-downs in such applicable margin upon the receipt by the Company of cash proceeds from certain specified capital raises, and (B) from and after April 1, 2025, loans under the 2021 Term Loan designated as (x) ABR Loans bear interest at a rate per annum equal to the ABR Rate, plus an applicable margin of 8.75 %, and (y) SOFR Rate Loans bear interest at a rate per annum equal to the SOFR Rate plus an applicable margin of 9.75 %, in each case, with 3.75 % of such applicable margin paid-in-kind, with a step-up of 1.00 % per annum (which shall be paid-in-kind) if the Company’s total net leverage ratio is greater than 4.00 x, and a step-down of 1.00 % per annum if the Company’s total net leverage ratio is less than 3.50 x (which shall reduce the paid-in-kind component of the applicable margin). The SOFR Rate is subject to a floor of 2.00 %. The Company can designate a loan as an ABR Rate Loan or SOFR Rate Loan in its discretion.
Subsequent to the August 2024 Amendments, PNC Credit Facility loans designated as (x) PNC SOFR Loans bear interest at a rate per annum equal to a SOFR based rate (subject to a 0.0 % floor), plus an applicable margin of 4.75 %and (y) PNC Domestic Rate Loans and Swing Loans bear interest at a rate per annum equal to the greatest of (i) the base commercial lending rate of PNC Bank; (ii) the Overnight Bank Funding Rate plus 0.5 %; and (iii) the daily SOFR rate plus 1.0 %, plus an applicable margin of 3.75 %. The Company can designate a loan as a PNC SOFR Loan or PNC Domestic Rate Loan in its discretion.
In connection with the August 2024 Amendments, the Company issued warrants to purchase an aggregate of 380,510 shares of the Common Stock, at an exercise price of $ 6.20 per share (“August 2024 Warrants”) and had a fair value of $ 2.0 million. See Note 8: Common Stock for additional discussion related to the August 2024 Warrants.
The August 2024 Amendments to the 2021 Term Loan held by one lender was accounted for as a modification. The $ 1.2 million fair value of the August 2024 Warrants issued to this lender and the $ 0.5 million of PIK fees paid to this lender are reflected as a reduction to the carrying amount of their Term Loan and their initial delayed draw term loan and amortized to interest expense over the remaining loan terms. The August 2024 Amendments to the 2021 Term Loan held by another lender was accounted for as a debt extinguishment. The Company recorded a loss on debt extinguishment of $ 3.0 million related to the write-off of a portion of unamortized debt issuance costs and fees and expenses incurred with the August 2024 Amendments.
The August 2024 Amendments to the PNC Credit Facility were accounted for as a modification, and the $ 0.7 million in related fees and expenses were recorded to other assets and amortized to interest expense over the remaining term of the agreement.
As of December 31, 2024, the interest rate on the 2021 Term Loan, 2023 Term Loan, and 2024 Term Loans were 14.59 %, 14.34 %, and 16.59 %, respectively. As of December 31, 2024, the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 11.25 % and for PNC SOFR Loans was 9.66 %.
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The Term Loan amendments and certain warrants issued to term lenders during fiscal 2023 and fiscal 2024 were entered into with certain entities managed by Pacific Investment Management Company, LLC ("PIMCO"), which is considered a related party due to the fact that Christopher D. Neumeyer is a member of the Company's Board of Directors and also an executive vice president and portfolio manager at PIMCO. The principal and PIK interest related to the June 2023 Term Loan which totaled $ 19.6 million as of December 31, 2024, are payable at maturity.
Also, as of December 31, 2024, the PNC Credit Facility had an available borrowing base of 39.1 million, of which $ 1.6 million was available to borrow at that date.
NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s assets, measured and recorded at fair value on a recurring basis, may consist of money market funds which are included in cash and cash equivalents in the Condensed Consolidated Balance Sheets and are valued using quoted market prices (level 1 fair value measurements) at the respective balance sheet dates.
No impairment charges were recognized for non-financial assets in the nine months ended December 31, 2024 and 2023. The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.
Long-term Debt
The Company’s financial liabilities were comprised primarily of long-term debt as of December 31, 2024. The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in the accounting guidance) that it believes market participants would use in pricing debt.
The carrying value and fair value of the Company’s financial liabilities were primarily comprised of the following (in thousands):
December 31, 2024 March 31, 2024
Carrying Value Fair Value Carrying Value Fair Value
Term Loan $ 105,880 $ 96,780 $ 87,942 $ 75,143
PNC Credit Facility 37,500 34,470 26,604 24,743
NOTE 6: LEASES
Supplemental balance sheet information related to leases is as follows (in thousands):
Operating Leases December 31, 2024 March 31, 2024
Operating lease right-of-use asset $ 8,670 $ 9,425
Operating lease liability within other accrued liabilities
1,227 1,256
Operating lease liability, net 9,067 9,621
Total operating lease liabilities $ 10,294 $ 10,877
Components of lease cost were as follows (in thousands):
Three Months Ended December 31, Nine Months Ended December 31,
Lease Cost 2024 2023 2024 2023
Operating lease cost $ 716 $ 710 $ 2,207 $ 2,316
Variable lease cost 69 51 221 233
Total lease cost $ 785 $ 761 $ 2,428 $ 2,549
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Maturity of Lease Liabilities Operating Leases
Remainder of fiscal year 2025 $ 670
2026
2,276
2027
1,770
2028
1,550
2029
1,228
Thereafter 12,095
Total lease payments $ 19,589
Less: imputed interest ( 9,295 )
Present value of lease liabilities $ 10,294
Lease Term and Discount Rate December 31, 2024 March 31, 2024
Weighted average remaining operating lease term (years) 10.25 10.85
Weighted average discount rate for operating leases 12.6 % 12.7 %
Operating cash outflows related to operating leases totaled $ 2.1 million and $ 2.3 million for the nine months ended December 31, 2024 and 2023, respectively.
NOTE 7: RESTRUCTURING CHARGES
During the quarters ending December 31, 2024 and 2023, the Company had certain approved restructuring plans to improve operational efficiencies and rationalize its cost structure.
The following tables show the activity and the estimated timing of future payouts for accrued restructuring (in thousands) included in other current liabilities:
Severance and Benefits
Balance as of March 31, 2023
$ —
Restructuring charges 3,164
Cash payments ( 3,164 )
Balance as of December 31, 2023
$ —
Balance as of March 31, 2024
$ —
Restructuring charges 2,916
Cash payments ( 2,849 )
Other non-cash ( 67 )
Balance as of December 31, 2024
$ —
NOTE 8: COMMON STOCK
Long-Term Incentive Plan
On September 12, 2023 the stockholders of the Company approved the Quantum Corporation 2023 Long-Term incentive plan (“2023 LTIP”). The 2023 LTIP serves as the successor to the Company’s 2012 Long-Term Incentive Plan and provides for grants of performance share units, restricted stock units and stock options. On August 15, 2024, the stockholders of the Company approved an additional 250,000 shares of Common Stock under the 2023 LTIP for future issuance.
Reverse Stock Split
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On August 26, 2024, the Company effected the Reverse Stock Split of the Company’s our issued and outstanding Common Stock. The Common Stock began to trade on a post-split basis on August 27, 2024. The par value of the Common Stock was unchanged as a result of the Reverse Stock Split, remaining at $ 0.01 per share, which resulted in the reclassification of capital from par value to capital in excess of par value. All share and per share data for comparative periods included within the Company’s Condensed Consolidated Financial Statements and related footnotes have been adjusted to account for the effect of the Reverse Stock Split.
Warrants
In connection with debt refinancing and amendment activities, the Company issued warrants to purchase shares of the Common Stock in December 2018 which are exercisable until December 27, 2028 (the "December 2018 Warrants”), in June 2020 which are exercisable until June 16, 2030 (the "June 2020 Warrants") and issued the June 2023 Warrants and May 2024 Warrants are until June 1, 2033 and May 24, 2034, respectively (collectively, the “Lender Warrants”). In July 2024, the Company issued warrants which are exercisable until July 11, 2034 and additional warrants were issued in August 2024 which are exercisable until August 13, 2034 (the “August 2024 Warrants”).
As part of the August 2024 Warrants, the Company agreed to lower the exercise price of certain outstanding warrants to purchase an aggregate of 430,711 shares of Common Stock held by the Term Loan lenders or their affiliates to $ 6.20 per share (the “Amended and Restated Warrants”). Other than lowering the exercise price and inserting certain restrictions on adjustments in the event of dilutive issuances at a price lower than the amended exercise price, the terms of the Amended and Restated Warrants are substantially similar to those contained in the original warrants.
On December 30, 2024, 467,248 warrants were exercised in a cashless exercise whereby 61,270 shares with a value of $ 6.20 per share were used to settle the exercise price and the remaining 405,978 shares were issued to the warrant holders.
The following summarizes the Company's outstanding Lender Warrants (in thousands, except exercise price):
December 2018 Warrants June 2020 Warrants June 2023 Warrants May 2024 Warrants July 2024 Warrants August 2024 Warrants Total
March 31, 2024:
Exercise price $ 26.60 $ 55.40 $ 20.00 n/a n/a n/a
Number shares under warrant(s) 357 184 63 n/a n/a n/a 604
Fair value $ 2,320 $ 1,135 $ 591 n/a n/a n/a $ 4,046
December 31, 2024:
Exercise price $ 6.20 - $ 26.04
$ 6.20 - $ 54.19
$ 6.20 $ 6.20 $ 6.20 $ 6.20
Number shares under warrant(s) 220 114 63 38 19 224 678
Fair value $ 10,518 $ 5,369 $ 3,336 $ 1,979 $ 989 $ 11,814 $ 34,005
The table below sets forth a summary of changes in the fair value of the Company’s Level 2 warrant liabilities as of December 31, 2023 and 2024:
Balance as of March 31, 2023 $ 7,989
Issuance of warrants 1,194
Change in fair value of warrant liabilities ( 7,340 )
Balance as of December 31, 2023 $ 1,843
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Balance as of March 31, 2024 $ 4,046
Issuance of warrants
3,157
Exercise of warrants
( 30,118 )
Change in fair value of warrant liabilities 56,408
Repricing adjustment 512
Balance as of December 31, 2024 $ 34,005
Upon exercise, the aggregate exercise price of the Lender Warrants may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Common Stock at the time of exercise. The exercise price and the number of shares underlying the Lender Warrants are subject to adjustment in the event of specified events, including dilutive issuances of equity instruments at a price lower than the exercise price of the respective warrants (the "Down Round Feature"), repricing of existing equity-linked instruments at a price lower than the exercise price of the respective warrants (the "Warrant Repricing Feature"), a subdivision or combination of the Common Stock, a reclassification of the Common Stock or specified dividend payments. The Company's warrants also have a provision that determines the potential stock price used when applying the Black-Scholes valuation model to determine the settlement price of the warrants in Successor Major Transactions ("SMT"), as defined in the respective warrant agreements, which include a change in control or liquidation (the "Warrant Settlement Price Provision"). The Warrant Settlement Price Provision requires the use of the greater of the closing price of the Common Stock on the trading day immediately preceding the date on which an SMT is consummated, the closing market price of the Common Stock following the first public announcement of an SMT or the closing market of the Common Stock immediately preceding the announcement of an SMT. Due to these terms, equity classification was precluded, and these warrants are carried as liabilities at fair value.
The Company also issued 2,500 warrants to purchase the Common Stock in June 2020 and June 2023 to advisors of the Company at an exercise price of $ 60.00 and $ 20.00 , respectively (collectively the "Other Warrants"). The Company has concluded that the Other Warrants do not contain provisions that would require liability classification under Topic 480 or Topic 718 and have been equity classified.
Registration Rights Agreements
The Lender Warrants grant the holders certain registration rights for the shares of Common Stock issuable upon the exercise of the applicable warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40 % of the registrable securities held by such holder as of the issuance date of the applicable warrants; (b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement; and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.
NOTE 9: NET LOSS PER SHARE
The Company has performance share units, restricted stock units and options to purchase shares under its Employee Stock Purchase Plan, as amended and restated on July 25, 2023 (“ESPP”), granted under various stock incentive plans that, upon exercise and vesting, would increase shares outstanding. The Company has also issued warrants to purchase shares of the Common Stock.
The dilutive impact related to Common Stock from restricted stock units and warrants is determined by applying the treasury stock method to the assumed vesting of outstanding restricted stock units and the exercise of outstanding warrants. The dilutive impact related to Common Stock from contingently issuable performance share units is determined by applying a two-step approach using both the contingently issuable share guidance and the treasury stock method.
The following weighted-average outstanding shares of Common Stock equivalents were excluded from the computation of diluted net income (loss) per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
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Three Months Ended December 31, Nine Months Ended December 31,
2024 2023 2024 2023
Stock Awards 181 — 76 17
Warrants 678 608 845 608
The Company had outstanding market based restricted stock units as of December 31, 2024 that were eligible to vest into shares of the Common Stock subject to the achievement of certain stock price targets in addition to a time-based vesting period. These contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. There were 170,750 shares of contingently issuable market-based restricted stock units that were excluded from the table above as the market conditions were not satisfied as of December 31, 2024.
NOTE 10: INCOME TAXES
The effective tax rate for the three and nine months ended December 31, 2024 was ( 0.1 )% and ( 0.6 )%, respectively, as compared to ( 5.5 )% and ( 7.6 )%, for the three and nine months ended December 31, 2023, respectively. The effective tax rates differed from the federal statutory tax rate of 21% during each of these periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.
As of December 31, 2024, including interest and penalties, the Company had $ 90.9 million of unrecognized tax benefits, $ 78.5 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance. As of December 31, 2024, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.4 million. The Company recognizes interest and penalties related to income tax matters in the income tax provision in the condensed consolidated statements of operations. As of December 31, 2024, $ 83.2 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheet and $ 7.8 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets. During the next 12 months, it is reasonably possible that approximately $ 12.8 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations. Upon recognition of the tax benefit related to the expiring statutes of limitation, $ 11.8 million will be offset by the establishment of a related valuation allowance. The net tax benefit recognized in the statements of operation is estimated to be $ 1.0 million.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Commitments to Purchase Inventory
The Company uses contract manufacturers for its manufacturing operations. Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon the Company’s forecast of customer demand. The Company has similar arrangements with certain other suppliers. The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast. Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or obsolete inventory. As of December 31, 2024, the Company had issued non-cancelable commitments for $ 29.5 million to purchase inventory from its contract manufacturers and suppliers.
Legal Proceedings
Arrow Electronics Matter
On July 27, 2023, an electronics component distributor filed a lawsuit in a federal court in the Northern District of California against Quantum, alleging breach of contract and breach of the covenant of good faith and fair dealing, seeking, among other things just over $ 4.0 million in damages. Quantum has filed a responsive pleading disputing Arrow Electronics’ claims and plans to aggressively defend itself against them. Written and oral discovery is complete and both parties have filed motions for summary judgment. As of date, Arrow Electronics’ motion for summary judgment has been denied, and Quantum’s motion for summary judgment has been granted in part and denied in part. Quantum also filed a motion to exclude Arrow Electronics’ expert witness report, which was granted. Trial is currently set to commence in February 2025. At this time, Quantum believes the probability that this lawsuit will have a material adverse effect on our business, operating results, or financial condition is remote.
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Other Commitments
Additionally, from time to time, the Company is party to various legal proceedings and claims arising from the normal course of business activities. Based on current available information, the Company does not expect that the ultimate outcome of any currently pending matters, individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, cash flows or financial position.
NOTE 12: SUBSEQUENT EVENTS
Warrants
On January 3, 2025, 677,905 warrants were exercised in a cashless exercise whereby 228,195 shares with a weighted average value of $ 35.42 per share were used to settle the exercise price and the remaining 449,710 shares were issued to the warrant holders.
Standby Equity Purchase Agreement
On January 25, 2025, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”), with YA II PN, Ltd., a Cayman Islands exempt limited partnership (“YA”) managed by Yorkville Advisors Global, LP. Pursuant to and subject to the terms of the SEPA, YA has committed to purchase up to $ 200 million of Common Stock at any time during the three-year period following the date of the SEPA.
Any sale of Common Stock pursuant to the SEPA is subject to certain limitations, including that we may not issue to YA more than 19.99 % of the Common Stock outstanding immediately prior to the execution of the SEPA. In connection with the execution of the SEPA, the Company has issued to YA 42,158 shares of Common Stock as consideration for YA’s commitment to purchase shares of Common Stock under the SEPA.
Term Loan Amendments
On January 27, 2025, the Company entered into an amendment (the “January 2025 Term Loan Amendment”) to the Term Loan. The January 2025 Term Loan Amendment, among other things, (i) amends the minimum EBITDA covenant so that such covenant is not tested on December 31, 2024 or March 31, 2025, (ii) amends certain mandatory prepayment events, and (iii) waives certain events of default, in each case, as set forth in the January 2025 Term Loan Amendment.
On January 27, 2025, the Company entered into an amendment (the “January 2025 Revolver Amendment”) to the PNC Credit Facility. The January 2025 Revolver Amendment, among other things, (i) amends the minimum EBITDA covenant so that such covenant is not tested on December 31, 2024 or March 31, 2025, (ii) amends certain mandatory prepayment events, and (iii) waives certain events of default, in each case, as set forth in the January 2025 Revolver Amendment.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.