Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investors should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Annual Report on Form 10-K. See also the section titled “Note Regarding Forward-Looking Statements” in this report.
The following discussion of our financial condition and results of operations covers fiscal 2025 and fiscal 2024 items and year-over-year comparisons between fiscal 2025 and fiscal 2024. Discussions of fiscal 2023 items and year-over-year comparisons between fiscal 2024 and 2023 that are not included in this Form 10-K can be found in “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, 2024, that was filed with the SEC on June 28, 2024.
Overview and Highlights
We are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.
We generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; and income taxes.
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 quarter ended December 31, 2024. For additional information related to the quarterly restatement, see Note 14: Restatement of Unaudited Quarterly Financial Statements 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.
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RESULTS OF OPERATIONS
Year Ended March 31,
(in thousands) 2025 2024
Total revenue $ 274,058 $ 311,600
Total cost of revenue (1)
164,226 186,711
Gross profit 109,832 124,889
Operating expenses
Sales and marketing (1)
52,320 60,893
General and administrative (1)
63,961 51,547
Research and development (1)
31,141 38,046
Restructuring charges 4,090 3,280
Total operating expenses 151,512 153,766
Loss from operations (41,680) (28,877)
Other expense, net (710) (1,746)
Interest expense (23,607) (15,089)
Change in fair value of warrant liability (45,270) 5,137
Loss on debt extinguishment, net (3,003) —
Net income (loss) before income taxes (114,270) (40,575)
Income tax provision 821 711
Net income (loss) $ (115,091) $ (41,286)
(1) Includes stock-based compensation as follows:
Year Ended March 31,
(in thousands) 2025 2024
Cost of revenue $ 373 $ 774
Research and development 495 1,091
Sales and marketing 317 669
General and administrative 1,643 2,187
Total $ 2,828 $ 4,721
Comparison of the Years Ended March 31, 2025 and 2024
Revenue
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Product revenue $ 154,182 57 % $ 174,879 56 % $ (20,697) (12) %
Service and subscription revenue 110,658 40 % 126,590 41 % (15,932) (13) %
Royalty revenue 9,218 3 % 10,131 3 % (913) (9) %
Total revenue $ 274,058 100 % $ 311,600 100 % $ (37,542) (12) %
Product Revenue
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In fiscal 2025, product revenue decreased $20.7 million, or 12%, as compared to fiscal 2024. The primary driver of the decrease was a drop in demand from our large hyperscale customers in the first quarter of the prior year, as well as more general decreases in the overall tape market. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. 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 $15.9 million, or 13%, in fiscal 2025 compared to fiscal 2024. 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. Royalty revenue decreased $0.9 million, or 9%, in fiscal 2025, as compared to fiscal 2024, related to lower overall unit shipments.
Gross Profit and Margin
Year Ended March 31,
(in thousands) 2025 Gross
margin % 2024 Gross
margin % $ Change Basis point change
Product gross profit $ 34,452 22.3 % $ 38,459 22.0 % $ (4,007) 30
Service and subscription gross profit 66,162 59.8 % 76,299 60.3 % (10,137) (50)
Royalty gross profit 9,218 100.0 % 10,131 100.0 % (913) —
Gross profit $ 109,832 40.1 % $ 124,889 40.1 % $ (15,057) —
Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Product Gross Margin
Product gross margin decreased 30 basis points for fiscal 2025, as compared to fiscal 2024. This decrease was due primarily to a revenue mix less weighted towards higher margin tape products.
Service and Subscription Gross Margin
Service and subscription gross margin increased 50 basis points for fiscal 2025, as compared to fiscal 2024. This increase was due primarily to improved operational costs as we implemented strict cost controls and improved our organization design.
Royalty Gross Margin
Royalties do not have significant related cost of sales.
Operating expenses
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Sales and marketing $ 52,320 19 % $ 60,893 20 % $ (8,573) (14) %
General and administrative 63,961 23 % 51,547 17 % 12,414 24 %
Research and development 31,141 11 % 38,046 12 % (6,905) (18) %
Restructuring charges 4,090 2 % 3,280 1 % 810 25 %
Total operating expenses $ 151,512 55 % $ 153,766 50 % $ (2,254) (1) %
In fiscal 2025, sales and marketing expenses decreased $8.6 million, or 14%, as compared with fiscal 2024. This decrease was primarily driven by an increase in operational cost management, as well as decreased commission expense on lower revenue.
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In fiscal 2025, general and administrative expenses increased $12.4 million, or 24%, as compared with fiscal 2024 This increase was primarily driven by large non-recurring costs related to our re-evaluation of Topic 606, and other non-recurring projects.
In fiscal 2025, research and development expenses decreased $6.9 million, or 18%, as compared with fiscal 2024. This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.
In fiscal 2025, restructuring expenses increased $0.8 million, or 25%, as compared with fiscal 2024. This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
Other expense, net
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Other income (expense), net $ (710) 0 % $ (1,746) (1) % $ (1,036) (59) %
In fiscal 2025, other income (expense) resulted in a net decrease of $1.0 million or 59%, compared to fiscal 2024. The decrease was primarily related to differences in foreign currency gains and losses during each period.
Interest expense
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Interest expense $ (23,607) (9) % $ (15,089) (5) % (8,518) 56 %
In fiscal 2025, interest expense increased $8.5 million, or 56%, as compared to fiscal 2024. This increase was primarily due to a higher principal balance on our Term Loan as well as a higher interest rate.
Warrant liabilities
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Change in fair value of warrant liabilities $ (45,270) (17) % $ 5,137 2 % $ (50,407) (981) %
In fiscal 2025, we recorded a non-cash loss of $45.3 million related to the change in fair value of our warrant liabilities, compared to a non-cash gain of $5.1 million in the same period in fiscal 2024. This change was primarily driven by fluctuations in our stock price.
Loss on debt extinguishment, net
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Loss on debt extinguishment, net $ (3,003) (1) % $ — — % $ (3,003) (100) %
In fiscal 2025, loss on debt extinguishment, net was related to prepayment of our long-term debt.
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Income tax provision
Year Ended March 31,
(in thousands) 2025 % of
revenue 2024 % of
revenue $ Change % Change
Income tax provision $ 821 — % $ 711 0 % $ (110) (15) %
In fiscal 2025, the income tax provision increased $110 thousands or 15%, compared to fiscal 2024. The income tax provision increased in 2025 primarily due to a higher valuation allowance and a warrant mark-to-market adjustment, which together offset the federal statutory tax benefit from pre-tax losses. Additionally, the expiration of tax attributes contributed to the increase, as previously available deferred tax assets could no longer be used.
Due to our history of net losses in the U.S., the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.
Comparison of the Three Months Ended December 31, 2024 (Restated) and 2023
Revenue
Three Months Ended December 31,
(dollars in thousands) 2024 % of
revenue 2023 % of
revenue $ Change % Change
Restated
Product revenue $ 38,634 57 % $ 37,113 51 % $ 1,521 4 %
Service and subscription 27,724 40 % 32,771 46 % (5,047) (15) %
Royalty 2,326 3 % 2,042 3 % 284 14 %
Total revenue $ 68,684 100 % $ 71,926 100 % $ (3,242) (5) %
Product Revenue
In the three months ended December 31, 2024, product revenue increased $1.5 million, or 4%, as compared to the same period in fiscal 2024. The primary driver of the increase was in Primary storage systems with higher sales of our StorNext based solutions.
Service and Subscription Revenue
Service and subscription revenue decreased $5.0 million, or 15%, in the three months ended December 31, 2024 compared to the same period in fiscal 2024. This decrease was due to certain long-lived products reaching their end-of-service-life.
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. Royalty revenue saw a small increase of $0.3 million, or 14%, in the three months ended December 31, 2024 compared to the same period in fiscal 2024 due to product mix.
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Gross Profit and Margin
Three Months Ended December 31,
(dollars in thousands) 2024 Gross
margin % 2023 Gross
margin % $ Change Basis point change
Restated
Product $ 7,712 20.0 % $ 7,069 19.0 % $ 643 100
Service and subscription 17,850 64.4 % 20,070 61.2 % (2,220) 320
Royalty 2,326 100.0 % 2,042 100.0 % 284 —
Gross profit $ 27,888 40.6 % $ 29,181 40.6 % $ (1,293) —
Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Product Gross Margin
Product gross margin increased by $0.6 million, or by 100 basis points, for the three months ended December 31, 2024, as compared with the same period in fiscal 2024. This increase was primarily due to a more favorable mix of revenues, weighted towards our higher margin product lines, as well as improvements in our operational efficiency and logistics costs.
Service and Subscription Gross Margin
Service and subscription gross margins increased 320 basis points for the three months ended December 31, 2024, as compared with the same period in fiscal 2024. This increase was primarily driven by improvements in our operations efficiency.
Royalty Gross Margin
Royalties do not have significant related cost of sales.
Operating Expenses
Three Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Sales and marketing $ 12,448 18 % $ 14,244 20 % $ (1,796) (13) %
General and administrative 14,142 21 % 11,893 17 % 2,249 19 %
Research and development 7,683 11 % 8,763 12 % (1,080) (12) %
Restructuring charges 1,342 2 % 497 1 % 845 170 %
Total operating expenses $ 35,615 52 % $ 35,397 49 % $ 218 1 %
In the three months ended December 31, 2024, sales and marketing expenses decreased $1.8 million, or 13%, as compared with the same period in fiscal 2024. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.
In the three months ended December 31, 2024, general and administrative expenses increased $2.2 million, or 19%, as compared with the same period in fiscal 2024 This increase was primarily driven by higher expense in compliance focused outside services related to ongoing projects.
In the three months ended December 31, 2024, research and development expenses decreased $1.1 million, or 12%, as compared with the same period in fiscal 2024 This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.
In the three months ended December 31, 2024, restructuring expenses increased $0.8 million, or 170% as compared with the same period in fiscal 2024 The increase was the result of cost reduction initiatives in the current year.
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Other Income (Expense)
Three Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Other income (expense) $ 967 1 % $ (1,419) (2) % $ 2,386 168 %
The change in other income (expense), net during the three months ended December 31, 2024 compared with the same period in fiscal 2024 was related primarily to fluctuations in foreign currency exchange rates during the three months ended December 31, 2024.
Interest Expense
Three Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Interest expense $ (6,840) (10) % $ (3,937) (5) % $ (2,903) 74 %
In the three months ended December 31, 2024, interest expense increased $2.9 million, or 74%, as compared with the same period in fiscal 2024 due to a higher effective interest rate on our Term Loan.
Warrant liabilities
Three Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Change in fair value of warrant liabilities $ (61,630) (90) % $ 4,402 6 % $ (66,032) (1,500) %
In December 31, 2024, we recorded a non-cash loss of $61.6 million related to the change in fair value of our warrant liabilities, compared to a non-cash gain of $4.4 million in the same period in fiscal 2024. This change was primarily driven by fluctuations in our stock price.
Income Taxes
Three Months Ended December 31,
(dollars in thousands) 2024 % of pretax income 2023 % of pretax income $ Change % Change
Income tax provision $ 70 — % $ 510 (5) % $ (440) (86) %
The income tax provision for the three months ended December 31, 2024 and 2023 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.
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Comparison of the Nine Months Ended December 31, 2024 (Restated) and 2023
Revenue
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Restated
Product revenue $ 120,565 56 % $ 138,635 58 % $ (18,070) (13) %
Service and subscription 84,640 40 % 94,229 39 % (9,589) (10) %
Royalty 7,592 4 % 7,235 3 % 357 5 %
Total revenue $ 212,797 100 % $ 240,099 100 % $ (27,302) (11) %
Product Revenue
In the nine months ended December 31, 2024, product revenue decreased $18.1 million, or 13%, as compared to the same period in fiscal 2024. The primary driver of the decrease was a $20 million decrease in demand from our large hyperscale customers, as well as more general decreases in the overall tape market with declines in media and devices revenue. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. We expect the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.
Service and Subscription Revenue
We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.
Service and subscription revenue decreased $9.6 million, or 10%, in the nine months ended December 31, 2024 compared to the same period in fiscal 2024. This decrease was primarily driven by certain long-lived products reaching their end-of-service-life, partially offset by increases in subscription-based revenue.
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. Royalty revenue saw a small increase of $0.4 million, or 5%, in the nine months ended December 31, 2024 compared to the same period in fiscal 2024 due to product mix.
Gross Profit and Margin
Nine Months Ended December 31,
(dollars in thousands) 2024 Gross
margin % 2023 Gross
margin % $ Change Basis point change
Restated
Product $ 27,314 22.7 % $ 33,421 24.1 % $ (6,107) (141)
Service and subscription 50,686 59.9 % 56,900 60.4 % (6,214) (48)
Royalty 7,592 100.0 % 7,235 100.0 % 357 —
Gross profit $ 85,592 40.2 % $ 97,556 40.6 % $ (11,964) (43)
Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Product Gross Margin
Product gross margin decreased 140 basis points, for the nine months ended December 31, 2024, as compared with the same period in fiscal 2024. This decrease was primarily due to a less favorable mix of revenues, weighted towards our lower margin product lines, which were partially offset from improvements in our operational efficiency and logistics costs.
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Service and Subscription Gross Margin
Service and subscription gross margin decreased 50 basis points for the nine months ended December 31, 2024, as compared with the same period in fiscal 2024. This decrease was primarily driven by lower service revenues.
Royalty Gross Margin
Royalties do not have significant related cost of sales.
Operating Expenses
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Sales and marketing $ 39,321 18 % $ 45,800 19 % $ (6,479) (14) %
General and administrative 49,186 23 % 34,833 15 % 14,353 41 %
Research and development 24,255 11 % 28,828 12 % (4,573) (16) %
Restructuring charges 2,916 1 % 3,164 1 % (248) (8) %
Total operating expenses $ 115,678 54 % $ 112,625 47 % $ 3,053 3 %
In the nine months ended December 31, 2024, sales and marketing expense decreased $6.5 million, or 14% , compared with the same period in fiscal 2024. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.
In the nine months ended December 31, 2024, general and administrative expense increased $14.4 million, or 41%, compared with the same period in fiscal 2024. This increase was primarily driven by non-recurring costs related to our previously announced restatement of our historical financial statements, and other related projects.
In the nine months ended December 31, 2024, research and development expenses decreased $4.6 million, or 16%, as compared with the same period in fiscal 2024. This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.
In the nine months ended December 31, 2024, restructuring expenses decreased $0.2 million, or 8% , as compared with the same period in fiscal 2024. The decrease was the result of cost reduction initiatives in the prior year.
Other Income (Expense)
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Other income (expense) $ (408) 0 % $ (2,049) (1) % $ 1,641 80 %
The change in other income (expense), net during the nine months ended December 31, 2024 compared with the same period in fiscal 2024 was related primarily to fluctuations in foreign currency exchange rates during the nine months ended December 31, 2024.
Interest Expense
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Interest expense $ (16,761) (8) % $ (10,992) (5) % $ (5,769) 52 %
In the nine months ended December 31, 2024, interest expense increased $5.8 million, or 52%, as compared with the same period in fiscal 2024 due to a higher effective interest rate on our Term Loan.
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Warrant liabilities
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Change in fair value of warrant liabilities $ (56,414) (27) % $ 7,341 3 % $ (63,755) (868) %
In December 31, 2024, we recorded a non-cash loss of $56.4 million related to the change in fair value of our warrant liabilities, compared to a non-cash gain of $7.3 million in the same period in fiscal 2024. This change was primarily driven by fluctuations in our stock price.
Loss on Debt Extinguishment
Nine Months Ended December 31,
(dollars in thousands) 2024 % of revenue 2023 % of revenue $ Change % Change
Loss on debt extinguishment $ (3,003) 1 % $ — — % $ (3,003) 100 %
In the nine months ended December 31, 2024, loss on debt extinguishment was related to a prepayment of our Term Loan.
Income Taxes
Nine Months Ended December 31,
(dollars in thousands) 2024 % of pretax income 2023 % of pretax income $ Change % Change
Income tax provision $ 675 (1) % $ 1,573 (8) % $ (898) (57) %
The income tax provision for the nine months ended December 31, 2024 and 2023 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.
Liquidity and Capital Resources
We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our revolving credit facility agreement with PNC Bank, National Association, as amended from time to time (the “PNC Credit Facility”). We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.
We had cash and cash equivalents of $16.5 million as of March 31, 2025, which excludes $0.1 million of short-term restricted cash. Our total outstanding Term Loan debt was $102.5 million, and we had $0.4 million available to borrow under the PNC Credit Facility as of March 31, 2025.
We generated negative cash flows from operations of approximately $23.6 million and $10.2 million for the fiscal years ended March 31, 2025 and 2024, respectively, and generated net losses of approximately $115.1 million and $41.3 million for the fiscal years ended March 31, 2025 and 2024, respectively. We have funded operations through the sale of common stock, term debt borrowings and PNC Credit Facility borrowings described in Note 4: Debt .
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On January 25, 2025, the Company entered into a SEPA in which pursuant to and subject to its terms, the Company has the right, but not the obligation, to sell up to $200 million of Common Stock at any time during the three-year period following the date of the SEPA. As of March 31, 2025, the Company has sold 1.2 million shares of Common Stock under the SEPA with net proceeds of approximately $16.4 million. Subsequent to March 31, 2025 through July 31, 2025, the Company sold an additional 6.3 million shares of Common Stock under the SEPA with net proceeds of $66.6 million. As of July 31, 2025, the Company had cash and cash equivalents of approximately $28.1 million as well as $0.0 borrowed. See Note 7: C ommon Stock for additional information related to the SEPA. On August 13, 2025, the Company terminated the PNC Credit Facility.
We are subject to various debt covenants under our credit agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. As discussed in Note 1: Description of Business and Significant Accounting Policies—Going Concern , we believe we will be in violation of our net leverage covenant as of the September 30, 2025 testing date and the violation will cause the Term Loan outstanding balance to become due as an event of default. As a result, we classified the Term Loan as current liabilities in the accompanying consolidated balance sheet. Additionally, the Company is evaluating strategies to restructure or refinance our debt, including potential covenant waivers. We may be unable to obtain additional funding. 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. For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Indebtedness and Liquidity” in Item 1A. Risk Factors and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this Annual Report.
Cash Flows
The following table summarizes our consolidated cash flows for the periods indicated.
Year Ended March 31,
( in thousands) 2025 2024
Cash provided by (used in):
Operating activities $ (23,613) $ (10,156)
Investing activities (4,947) (5,869)
Financing activities 19,306 15,713
Effect of exchange rate changes (3) (3)
Net change in cash, cash equivalents, and restricted cash $ (9,257) $ (315)
Net Cash Used in Operating Activities
Net cash used in operating activities increased by $13.5 million to $23.6 million for the year ended March 31, 2025 compared to $10.2 million for the year ended March 31, 2024, The increase was primarily attributable the decrease in revenue and associated gross profit in addition to an increase in large non-recurring costs related to our re-evaluation of Topic 606, and other non-recurring projects.
Net Cash Used in Investing Activities
Net cash used in investing activities was $4.9 million for the year ended March 31, 2025, primarily attributable to capital expenditures.
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.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities was $19.3 million for the year ended March 31, 2025 due primarily to borrowings under our Term Loan credit facility.
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.
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. In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims. We also have indemnification agreements with our current and former officers and directors. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of our indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our operating results, financial position or cash flows.
We are also subject to ordinary course of business litigation, See Note 10: Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Contractual Obligations
Contractual obligations are cash amounts that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business. Below is a table that shows our contractual obligations as of March 31, 2025 (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)
$ 129,107 $ 129,107 $ — $ — $ —
Future lease commitments (2)
19,111 2,346 3,429 2,481 10,855
Purchase obligations (3)
48,612 48,612 — — —
Total $ 196,830 $ 180,065 $ 3,429 $ 2,481 $ 10,855
(1) Consists of principal on our Term Loan and PNC Credit Facility.
(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.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the
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circumstances. We consider the following accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. The following accounting policies include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain. For information on our significant accounting policies, including the policies discussed below, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.
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. Product revenue is recognized at the point in time when the customer takes control of the product, which typically occurs at the point of shipment. Service and subscription revenue consists of customer support agreements, software subscriptions, installation, and consulting & training. Our software subscriptions include term licenses which are recognized as revenue when the license has been delivered to the customer and related customer support which is recognized ratably over the service period. Revenue from customer support agreements is recognized ratably over the contractual term of the agreement. Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete. A majority of our consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services over time as each day is completed. We license certain products under royalty arrangements, pursuant to which our licensees periodically provide us with reports containing units sold to end users subject to the royalties. The reports substantiate that our performance obligation has been satisfied and we recognize royalty revenue based on the reports or when amounts can be reasonably estimated.
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. For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price of the good or service underlying each performance obligation. 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 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. 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.
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. Based on the evaluation of available evidence, both positive and negative, we recognize future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.
A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision.
We recognize the financial statement effects of an uncertain income tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
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circumstances and changes in tax law. We recognize penalties and tax-related interest expense as a component of income tax expense in our consolidated statements of operations. 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. Adjustments to reduce the cost of manufacturing inventory to its net realizable value, if required, are made for estimated excess, obsolete or impaired balances. Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our estimates.
Service Parts Inventories
Our service parts inventories are recorded at the lower of cost or net realizable value, with cost being determined on a FIFO basis. Service parts inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of service parts inventory to its net realizable value and dispose of parts with no use and a net realizable value of zero. Factors influencing these adjustments include product life cycles, end of service life plans and the volume of enhanced or extended warranty service contracts. Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from our estimates.
Warrant Accounting
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance ASC 480, Distinguishing Liabilities from Equity (“Topic 480”) and ASC 815, Derivatives and Hedging (“Topic 815”) . The assessment considers whether the warrants are freestanding financial instruments pursuant to Topic 480, meet the definition of a liability pursuant to Topic 480, and whether the warrants meet all of the requirements for equity classification under Topic 815, including whether the warrants are indexed to the Company’s own shares of common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance or modification. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. 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
For recently issued and adopted accounting pronouncements, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.