QMCO

The following discussion and analysis compares the change in the condensed consolidated financial statements for the quarter ended June 30, 2026 and June 30, 2025, and should be read together with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026 (the “Annual Report”). In particular, the risk factors contained in Part I, Item 1A of the Annual Report under the heading “Risk Factors” may reflect trends, demands,commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. For comparisons of quarters ended June 30, 2025 and June 30, 2024, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, filed with the SEC on September 11, 2025 and amended on September 23, 2025 and incorporated herein by reference. Our fiscal year ends on March 31 of each calendar year. "Fiscal 2027" refers to the fiscal year ending March 31, 2027, and "Fiscal 2026" refers to the fiscal year ended March 31, 2026. The following discussion contains forward-looking statements, such as statements regarding anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements. 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. Macroeconomic Conditions We continue to actively monitor, evaluate and respond to the current uncertain macro environment, including the impact of changing interest rates, inflation, tariffs, lingering supply chain challenges, and fluctuation in the U.S. dollar. During the quarter we continued to experience longer sales cycles for opportunities with our enterprise as well as commercial customers. The macro environment remains unpredictable and our past results may not be indicative of future performance. 28 Table of Contents RESULTS OF OPERATIONS Three Months Ended June 30, (in thousands) 2026 2025 Total revenue $ 80,803 $ 64,286 Total cost of revenue (1) 49,083 41,574 Gross profit 31,720 22,712 Operating expenses Sales and marketing (1) 11,027 12,655 General and administrative (1) 9,609 13,569 Research and development (1) 6,023 6,661 Restructuring charges 23 2,423 Total operating expenses 26,682 35,308 Loss from operations 5,038 (12,596) Other income and expense, net 211 (430) Interest expense (2,097) (6,516) Change in fair value of warrant liability (16,305) — Change in fair value of convertible note (129,715) — Gain (loss) on debt extinguishment, net (11,716) 2,559 Loss before income taxes (154,583) (16,983) Income tax provision 710 223 Net loss $ (155,293) $ (17,206) (1) Includes stock-based compensation as follows: Three Months Ended June 30, (in thousands) 2026 2025 Cost of revenue $ 8 $ (21) Research and development 99 68 Sales and marketing 138 76 General and administrative 503 (652) Total $ 748 $ (529) 29 Table of Contents Comparison of the Three Months Ended June 30, 2026 and 2025 Revenue Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Product revenue $ 53,871 67 % $ 37,535 58 % $ 16,336 44 % Service and subscription revenue 24,668 31 % 24,943 39 % (275) (1) % Royalty revenue 2,264 3 % 1,808 3 % 456 25 % Total revenue $ 80,803 100 % $ 64,286 100 % $ 16,517 26 % Product Revenue In the three months ended June 30, 2026, product revenue increased $16.3 million, or 44%, as compared to the same period in fiscal 2026. The primary driver of this increase was strong demand across all secondary storage product lines including Scalar tape storage products, DXi backup appliances, and ActiveScale object storage appliances. Demand growth increased worldwide with product revenues increasing across all regions. Overall secondary storage revenue increased by $18.5 million, or 100.1% as compared to the same period in fiscal 2026. Devices and media revenues also increased by $0.4 million, or 4.2% as compared to fiscal 2026. These increases were partially offset by declines in primary storage. Service and Subscription Revenue Service and subscription revenue was essentially flat with a small decrease of $0.3 million, or 1%, in the three months ended June 30, 2026, compared to the same period in fiscal 2026. 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 increased $0.5 million, or 25%, in the three months ended June 30, 2026, as compared to the same period in fiscal 2026, related to higher overall unit shipments. Gross Profit and Margin Three Months Ended June 30, (in thousands) 2026 Gross margin % 2025 Gross margin % $ Change Basis point change Product gross profit $ 14,148 26.3 % $ 6,790 18.1 % $ 7,358 820 Service and subscription gross profit 15,308 62.1 % 14,114 56.6 % 1,194 550 Royalty gross profit 2,264 100.0 % 1,808 100.0 % 456 — Gross profit $ 31,720 39.3 % $ 22,712 35.3 % $ 9,008 400 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 820 basis points for the three months ended June 30, 2026, as compared to fiscal 2026. This increase was due primarily to a mix more heavily weighted towards higher margin products, as well as a temporary benefit from higher pricing. Service and Subscription Gross Margin Service and subscription gross margin increased 550 basis points for the three months ended June 30, 2026, as compared to fiscal 2026. This increase was primarily due to lower operational costs and efficiency gains in the support organization. Royalty Gross Margin Royalties do not have significant related cost of sales. 30 Table of Contents Operating Expenses Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Sales and marketing $ 11,027 14 % $ 12,655 20 % $ (1,628) (13) % General and administrative 9,609 12 % 13,569 21 % (3,960) (29) % Research and development 6,023 7 % 6,661 10 % (638) (10) % Restructuring charges 23 — % 2,423 4 % (2,400) (99) % Total operating expenses $ 26,682 33 % $ 35,308 55 % $ (8,626) (24) % In the three months ended June 30, 2026, sales and marketing expenses decreased $1.6 million, or 13%, as compared with fiscal 2026. This decrease was primarily driven by an improved organizational structure following management changes in fiscal 2026. In the three months ended June 30, 2026, general and administrative expenses decreased $4.0 million, or 29%, as compared with fiscal 2026 This decrease was primarily driven by large non-recurring projects in the prior year related to restructuring and compliance related activities. Expenses also decreased as administrative efficiency gains were realized through more streamlined functions and process automation. In the three months ended June 30, 2026, research and development expenses decreased $0.6 million, or 10%, as compared with fiscal 2026. This decrease was the result of the efficiencies realized through improved organization design, further aligning commonalities between major products. In the three months ended June 30, 2026, restructuring charges decreased $2.4 million, or 99%, as compared with fiscal 2025. This decrease is because the corporate restructuring activities are largely complete. Other Expense, net Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Other income (expense), net $ 211 0 % $ (430) (1) % $ (641) (149) % In the three months ended June 30, 2026, the change in other expense resulted in a net increase of $0.6 million or 149%, compared to fiscal 2025. The increase was primarily related to differences in foreign currency gains and losses during each period. Interest expense Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Interest expense $ (2,097) (3) % $ (6,516) (10) % 4,419 (68) % In the three months ended June 30, 2026, interest expense decreased by $4.4 million, or 68%, as compared to fiscal 2025. This decrease was primarily due to the restructuring and subsequent repayment of our Term Loan (as defined herein) in September 2025 and in June 2026, respectively. Warrant liabilities 31 Table of Contents Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Change in fair value of warrant liabilities $ (16,305) (20) % $ — — % $ (16,305) — % In the three months ended June 30, 2026, we recorded a non-cash loss of $16.3 million related to the change in fair value of our forbearance warrant which was issued in September 2025 and conversion warrant which was issued in June 2026. The loss was primarily driven by fluctuations in our stock price. Convertible note Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Change in fair value of convertible note $ (129,715) (161) % $ — — % $ (129,715) — % In the three months ended June 30, 2026, we recorded a non-cash loss of $(129.7) million related to the change in fair value of our convertible note issued in December 2025. This change was primarily driven by fluctuations in our stock price and the conversion of the convertible note in June 2026. (Loss) gain on debt extinguishment, net Three Months Ended June 30, (in thousands) 2026 % of revenue 2025 % of revenue $ Change % Change Loss on debt extinguishment, net $ (11,716) (14) % $ 2,559 4 % $ (14,275) (558) % In the three months ended June 30, 2026, we recorded a loss of $11.7 million on debt extinguishment, primarily related to the repayment of our Term Loan in June 2026. In the same period in fiscal 2025, the gain on debt extinguishment, net was related to the net of discount on issuance of term loans to a new lender and write-off of all unamortized debt issuance costs and fees. Income Tax Provision Three Months Ended June 30, (in thousands) 2026 % of pretax income 2025 % of pretax income $ Change % Change Income tax provision $ 710 0 % $ 223 (1) % $ (487) (218) % Income tax provision for the three months ended June 30, 2026 and 2025 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 incertain 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 proceeds from the sale of common stock. We require significant cash resources to 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 investment needs. 32 Table of Contents We had cash and cash equivalents of $54.4 million as of June 30, 2026, which excludes $0.1 million of short-term restricted cash. Our total outstanding Term Loan debt was fully repaid in the three months ended June 30, 2026. We generated cash flows from operations of approximately $0.9 million for the three months ended June 30, 2026, compared to negative cash flows of $16.9 million for the three months ended June 30, 2025. We generated net losses of approximately $155.3 million and $17.2 million for the three months ended June 30, 2026 and 2025, respectively. We have funded operations through the sale of common stock and debt borrowings as described in Note 4: Debt and Note 7 : Common Stock. On June 1, 2026, the Company entered into Securities Purchase Agreements to issue and sell to certain accredited investors an aggregate of 10,615,712 shares of the Company’s Common Stock. After deducting placement agent fees and other offering expenses payable by the Company, the Company received net proceeds of $94.7 million. On June 4, 2026, the Company paid an aggregate of $57.8 million in connection with the termination of the Term Loan Credit Agreement. This fully paid down and extinguished our Term Loans (as defined herein). Also on June 4, 2026, the Company provided a notice to YA regarding its termination of the SEPA, effective June 11, 2026. There were no amounts owed to YA under the SEPA at the time the termination notice was provided. With the cash proceeds, after repayment of the Term Loans, we forecast that operating performance, cash and current working capital will provide us with sufficient capital to fund operations for at least one year from when the condensed consolidated financial statements are available to be issued. Cash Flows The following table summarizes our consolidated cash flows for the periods indicated. Three Months Ended June 30, (in thousands) 2026 2025 Cash provided by (used in): Operating activities $ 947 $ (16,891) Investing activities (395) (1,192) Financing activities 37,808 39,027 Effect of exchange rate changes (4) — Net change in cash, cash equivalents, and restricted cash $ 38,356 $ 20,944 / Net Cash Provided By (Used In) Operating Activities Net cash provided by operating activities increased by $17.8 million to $0.9 million for the three months ended June 30, 2026 compared to net cash used of $(16.9) million for the three months ended June 30, 2025, primarily due to non-cash fair value adjustments related to the warrant liabilities and Convertible Note and a favorable change in deferred revenue, partially offset by unfavorable changes in accrued compensation and other liabilities. Net cash used by operating activities was $16.9 million for the three months ended June 30, 2025. This use of cash was primarily attributed to lower earnings. Net Cash Used in Investing Activities Net cash used in investing activities was $0.4 million and $1.2 million for the three months ended June 30, 2026 and 2025, respectively, primarily attributable to capital expenditures. Net Cash Provided by Financing Activities Net cash provided by financing activities was $37.8 million for the three months ended June 30, 2026 due primarily to cash proceeds from the private placement, partially offset by the repayment of the Term Loans and associated fees. 33 Table of Contents Net cash provided by financing activities was $39.0 million for the three months ended June 30, 2025 which was related primarily to borrowings on our Term Loan. 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 Quarterly Report on Form 10-Q. 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. 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 condensed consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in the Annual Report under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. 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 condensed consolidated financial statements.