What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-05-26 compared with 2020-06-24 · 149 added, 261 removed, 230 unchanged (64% of the section changed)

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Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.

We are a leader in storing and managing digital video and other forms of unstructured data.

We help customers around the world to ingest, process, and analyze digital data at high speed, and preserve and protect it for decades.

Our customers include some of the world’s largest corporations, government agencies, service providers, broadcasters, movie studios, sports leagues and teams, and enterprises in all industries.

We work closely with a broad network of distributors, VARs, DMRs, OEMs and other suppliers to solve our customers most pressing business challenges.

We earn our revenue from the sale of products and services through our channel partners and our sales force.

Our products are sold under both the Quantum brand name and the names of various OEM providers.

Our portfolio of solutions includes:

StorNext scale out file storage:

A line of products designed for the highest speed ingest, processing, and analysis of video and other forms of unstructured data.

Powered by the StorNext file system software and data management platform, this product line includes new NVMe flash storage servers (F-series) and hybrid SSD/HDD storage arrays.

Video Surveillance Systems:

Quantum offers a broad portfolio of solutions designed for video surveillance and physical security, including network video recording servers (NVRs), hyperconverged (HCI) storage servers to host multiple physical security workloads, GPU-based analytics servers, and file and object storage systems for large scale surveillance archives.

ActiveScale Object Storage:

Massively scalable object storage systems used to preserve and protect data with the highest levels of data durability.

Tape Storage:

Low cost, ultra-secure storage systems for long term archiving and ransomware protection.

Quantum provides both the storage systems and sells tape media under the Quantum brand.

Backup Storage Systems:

high-performance, scalable storage for backup and multi-site disaster recovery.

Quantum Services:

A full line of services including managed services and Storage-as-a-Service offerings, as well as maintenance, implementation, training and consulting services.

COVID-19 IMPACT AND ASSOCIATED ACTIONS

Overview and Fiscal Year 2021 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.

Highlights from fiscal year 2021 compared with fiscal year 2020 included:

• We ended fiscal 2021 with $27.4 million in cash and cash equivalents, representing an increase of $21.0 million from the end of fiscal 2020.

Our cash flows used in operating activities during 2021 was $0.8 million, compared to $1.2 million during 2020.

• We completed an equity offering which generated $96.8 million in net proceeds and reduced our total outstanding debt by approximately 50%.

• We fully integrated our Active Scale acquisition to expand our footprint in the object storage space, and completed the acquisition of SBS and their CatDV Media Asset Manager to continue to broaden our solutions and leadership position in video and unstructured data.

• We increased research and development investment 15% as we released several new product lines including StorNext 7, ATFS, and our H-Series platform.

• We began a project to replace and modernize our IT infrastructure and most notably our ERP system which will significantly enhance our operational capabilities and efficiency.

• We hired new leadership with expertise across multiple industries to drive innovation and fuel our next growth phase.

Square Box Systems Acquisition

In December 2020, we expanded our portfolio that classifies, manages, and protects data across its lifecycle by adding technology advancements to further enrich video, digital images and other forms of unstructured data with the acquisition of SBS, a specialist in data cataloging, user collaboration, and digital asset management software.

This acquisition will strengthen our ability to provide software solutions to help companies unlock the business value contained in their data, both on-premises and in the cloud.

Impact of COVID-19 Pandemic

Since the beginning of March 2020, COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

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We have implemented more thorough sanitation practices as outlined by health organizations and instituted social distancing policies at our locations around the world, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

For many of our customers, the COVID-19 pandemic has significantly affected their business.

Movie and television production has been paused, professional and collegiate sports seasons have been postponed or cancelled, and many corporations and enterprises have put information technology spending on hold while they assess the short- and long-term impact of the pandemic.

While our supply chain remains intact and operating, we have experienced issues related to our logistics network.

The reduced capacity within and across freight lanes (aircraft, personnel,

customs clearance, etc.) has caused late deliveries from re-routes and mis-shipments, as well as increased expedite and other charges to deliver and receive products.

To date, we have experienced minimal impact on product availability, although future capacity constraints across the network due to lost capacity from factory down time, closures, as well as reduced staff and demand signal fluctuations are expected to impact product availability in the months and possibly quarters to come.

We believe that these social and economic impacts have had a negative effect on sales due to the decline in our customers' ability or willingness to purchase our products and services.

The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue.

We expect COVID-19 to significantly impact our financial condition, results of operations, and liquidity through at least our second quarter and likely much longer.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

See “The recent COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Part II, Item 1A, Risk Factors, of this Annual Report on Form 10-K for more information regarding the risks we face as a result of the COVID-19 pandemic.

GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, we have presented Adjusted EBITDA and Adjusted Net Income (Loss), non-U.S.

GAAP financial measures defined below.

Adjusted EBITDA is a non-U.S.

GAAP financial measure defined by us as net loss before interest expense, net, provision for income taxes, depreciation and amortization expense, stock-based compensation expense, restructuring charges, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2:

– Restatement in our Annual Report on Form 10-K for the year ended March 31, 2019, and other non-recurring expenses.

Adjusted Net Income (Loss) is a non-U.S.

GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2:

– Restatement in the Annual Report on Form 10-K for the year ended March 31, 2019 and other non-recurring (income) expenses.

The Company calculates Adjusted Net Income (Loss) per Basic and Diluted share using the Company’s above-referenced definition of Adjusted Net Income (Loss).

The Company considers non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years.

Such expenses include certain strategic and financial restructuring expenses.

We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to Net Income (Loss), the most directly comparable U.S.

GAAP financial measure.

We have presented Adjusted EBITDA because it is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans.

In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business performance.

We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Basic and Diluted Share serve as appropriate measures to be used in evaluating the performance of our business and help our investors better compare our operating performance over multiple periods.

Accordingly, we believe that Adjusted EBITDA and Adjusted Net Income (Loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Our use of Adjusted EBITDA and Adjusted Net Income (Loss) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S.

Some of these limitations are as follows:

Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

Adjusted EBITDA does not reflect:

(1) interest and tax payments that may represent a reduction in cash available to us;

(2) capital expenditures, future requirements for capital expenditures or contractual commitments;

(3) changes in, or cash requirements for, working capital needs;

(4) the potentially dilutive impact

of stock-based compensation expense;

(5) loss on debt extinguishment or (6) potential future restructuring expenses;

Adjusted Net Income (Loss) does not reflect:

(1) potential future restructuring activities;

(2) the potentially dilutive impact of stock-based compensation expense;

(3) loss on debt extinguishment;

or (4) potential future restructuring expenses;

Other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income (Loss) or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) along with other U.S.

GAAP-based financial performance measures, including various cash flow metrics and our U.S.

GAAP financial results.

The following is a reconciliation of Adjusted EBITDA to the most comparable U.S.

GAAP financial measure, Net Income (Loss) (dollars in thousands):

Year Ended March 31,

Interest expense, net

Provision (benefit) for income taxes

Depreciation and amortization expense

Stock-based compensation expense

Restructuring charges

Loss on debt extinguishment

Cost related to financial restatement and related activities

Other non-recurring (income) expense, net

Adjusted EBITDA

The following is a reconciliation of Adjusted Net Income (Loss) to the most comparable U.S.

GAAP financial measure, Net Income (Loss) (in thousands, except per share amounts):

Year Ended March 31,

Restructuring charges

Loss on debt extinguishment

Stock-based compensation

Cost related to financial restatement and related activities

Other non-recurring (income) expense, net

Adjusted net income (loss)

Adjusted net income (loss) per share:

Weighted average shares outstanding:

This was then followed by a gradual stabilization in our business during the second half of fiscal 2021 as customers increasingly adapted to the COVID-19 environment.

Partially offsetting the headwinds from COVID-19 were reduced operating expenses in the areas of travel and marketing costs.

In addition, we effected certain restructuring activities to streamline our operations, such as limited workforce realignments and vacating certain office leases.

We continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

See “The COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Part II, Item 1A, Risk Factors, of this Annual Report on Form 10-K for more information regarding the risks we face as a result of the COVID-19 pandemic.

RESULTS OF OPERATIONS

Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 2020 2019

Total revenue $ 349,576 $ 402,949 $ 402,680

Total cost of revenue (1)

198,823 230,441 235,066

Gross profit 150,753 172,508 167,614

Operating expenses

Research and development (1)

41,703 36,301 32,113

Sales and marketing (1)

54,945 59,524 69,400

General and administrative (1)

42,001 54,457 65,277

Restructuring charges 3,701 1,022 5,570

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Loss on debt extinguishment, net (14,789) — (17,458)

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Loss before income taxes (35,220) (4,407) (40,421)

Income tax provision 239 803 2,376

Net loss $ (35,459) $ (5,210) $ (42,797)

(1) Includes stock-based compensation as follows:

Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 2020 2019

Cost of revenue $ 672 $ 452 $ 334

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General and administrative 4,314 4,147 2,456

Total $ 9,624 $ 6,748 $ 3,409

Comparison of the Years Ended March 31, 2021 and 2020

Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 % of

revenue 2020 1

revenue $ Change % Change

Product revenue

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Product Revenue

In fiscal 2020 , product revenue increased $6.5 million , or 3% , as compared to fiscal 2019.

Primary storage systems represented $18.3 million of the increase driven by growth across both our Media & Entertainment and government vertical markets.

Devices and media increased $3.0 million driven by the resolution of a legal dispute, which had caused a constraint on LTO tape supply between the two principal suppliers in the market.

This was offset in part by a $14.9 million decrease in Secondary storage systems due to declines in our legacy enterprise backup business for both branded and OEM products.

In fiscal 2021, product revenue decreased $41.4 million, or 16%, as compared to fiscal 2020.

Secondary storage systems decreased by 20%, driven by fluctuating purchase cycles with our hyperscale customers.

Primary storage systems decreased 10%, driven by early disruption in the media and entertainment market as COVID-19 significantly decreased major television and film production.

We have since returned much closer to our pre-COVID quarterly run rate in this vertical as we closed out the fiscal year.

Devices and media decreased $11.2 million driven partially by unusually high demand in fiscal 2020 following the resolution of a legal dispute, which had caused a constraint on LTO tape supply between the two principal suppliers in the market.

Service Revenue

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Year Ended March 31,

(dollars in thousands)

Basis point change

(in thousands) 2021 Gross

margin % 2020 Gross

margin % $ Change Basis point change

Product gross profit $ 59,551 28.4 % $ 71,408 28.4 % $ (11,857) —

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Royalty gross profit 14,864 100.0 % 20,731 100.0 % (5,867) —

Gross profit $ 150,753 43.1 % $ 172,508 42.8 % $ (21,755) 30

Product Gross Margin

Product gross margin increased 190 basis points in fiscal 2020 , as compared with fiscal 2019.

This increase was due primarily to cost reductions across a wide range of product offerings, and a mix weighted towards more profitable products.

Product gross margin was flat comparing fiscal 2021 to fiscal 2020.

Service Gross Margin

Service gross margin increased 230 basis points for fiscal 2020 , as compared with the same period in 2019.

This increase was due primarily to reductions in cost of service.

Service gross margin decreased 20 basis points for fiscal 2021, as compared with the same period in 2020.

This decrease was due primarily to reduced service revenues from some of our legacy backup customers, partially offset by a reduction in service costs.

Royalty Gross Margin

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Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Research and development $ 41,703 12 % $ 36,301 9 % $ 5,402 15 %

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This increase was partially attributable to an increase in research and development headcount and professional services cost related to new product development.

Most notably this includes headcount related to business acquisitions and integration of the associated development teams.

In fiscal 2021, sales and marketing expenses decreased $4.6 million, or 8%, as compared with fiscal 2020.

This decrease was driven by a decrease in compensation and benefits as the result of lower headcount and a decrease in marketing programs and professional services costs.

This decrease was driven by a decrease in compensation as the result of lower sales performance and a decrease in marketing programs and professional services costs.

Travel expenses were also significantly reduced during the fiscal year due to restrictions from the COVID-19 pandemic.

In fiscal 2021, general and administrative expenses decreased $12.5 million, or 23%, as compared with fiscal 2020.

This decrease was driven primarily by lower costs related to our prior financial restatement and related activities, which we primarily incurred in fiscal 2019 compared to fiscal 2020, lower software expenses as we streamline our processes and tools throughout the company, decreased facilities expenses as we consolidate our physical footprint, and decreased bank fees.

These decreases were partially offset by increases to stock compensation expense.

In fiscal 2020 , restructuring expenses decreased $4.5 million , or 82% , as compared with fiscal 2019.

This decrease was primarily due to the higher level of headcount reductions that occurred during fiscal 2019.

This decrease was driven primarily by lower costs related to our prior financial restatement and related activities, which we primarily incurred during fiscal 2019 and fiscal 2020 and decreased facilities expenses as we consolidate our physical footprint.

These decreases were partially offset by increases to software expense as we modernize our existing IT infrastructure.

In fiscal 2021, restructuring expenses increased $2.7 million, or 262%, as compared with fiscal 2020.

This increase was primarily due to footprint and associated headcount reductions that occurred in fiscal 2021, as well as changes in key leadership positions.

Other Income (Expense)

Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Other income (expense) $ (1,312) 0 % $ (261) 0 % $ 1,051 403 %

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Loss on debt extinguishment (14,789) — % — — % 14,789 100 %

In fiscal 2020, other (income) expense, net decreased $3.1 million or 109% , compared to fiscal 2019.

The decrease was primarily related to a gain on the disposal of an investment that occurred in fiscal 2019, and differences in foreign currency gains and losses during each period.

In fiscal 2021, other (income) expense, net increased $1.1 million or 403%, compared to fiscal 2020.

The increase was primarily related to differences in foreign currency gains and losses during each period.

In fiscal 2021, interest expense increased $2.2 million, or 9%, as compared to fiscal 2020.

This increase was primarily due to a higher average principal balance of our outstanding debt.

In fiscal 2019, we incurred a loss on debt extinguishment related to our Term Loan.

In fiscal 2021, we incurred a loss on debt extinguishment related to our Senior Secured Term Loan.

Year Ended March 31,

(dollars in thousands)

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Income tax provision $ 239 — % $ 803 — % $ (564) (70) %

Our income tax provision is primarily influenced by foreign and state income taxes.

In fiscal 2020, the income tax provision decreased $1.6 million or 66%, compared to fiscal 2019, related primarily to an unfavorable $1.4 million valuation allowance recorded in fiscal 2019 for our Australian deferred tax assets.

In fiscal 2021, the income tax provision decreased $0.6 million or 70%, compared to fiscal 2020, related primarily to an unfavorable $1.4 million valuation allowance recorded in fiscal 2020 for certain foreign deferred tax assets.

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.

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Year Ended March 31,

(dollars in thousands)

( in thousands) 2020 % of

revenue 2019 1

revenue $ Change % Change

Product revenue

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Total revenue $ 402,949 100 % $ 402,680 100 % $ 269 — %

1 Primary and Secondary storage system revenue has been adjusted for fiscal years 2019 and 2018 due to certain reclassifications from Primary to Secondary storage systems.

1 Primary and Secondary storage system revenue has been adjusted for fiscal years 2019 due to certain reclassifications from Primary to Secondary storage systems.

Product Revenue

In fiscal 2019 , product revenue decreased $23.9 million , or 9% , as compared to fiscal 2018.

Primary storage systems represented $19.2 million of the decrease, driven by declines in lower margin disk business in our U.S.

domestic market.

Devices and media decreased $9.9 million driven by a legal dispute, which caused a constraint on LTO tape supply between the two principal suppliers in the market.

These were offset in part by secondary storage systems which increased $5.1 million driven by growth with our hyperscale customers.

In fiscal 2020, product revenue increased $6.5 million, or 3%, as compared to fiscal 2019.

Primary storage systems represented $18.3 million of the increase driven by growth across both our Media & Entertainment and government vertical markets.

Devices and media increased $3.0 million driven by the resolution of a legal dispute, which had caused a constraint on LTO tape supply between the two principal suppliers in the market.

This was offset in part by a $14.9 million decrease in Secondary storage systems due to declines in our legacy enterprise backup business for both branded and OEM products.

Service Revenue

Service revenue was relatively flat, decreasing 1% in fiscal 2019 compared to fiscal 2018.

This decrease was due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

Service revenue decreased $3.6 million, or 3%, in fiscal 2020 compared to fiscal 2019.

This decrease was due to reduced support renewals from our legacy backup customers, partially offset by new customer support agreements and installations.

Royalty Revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.

Royalty revenue decreased $9.2 million , or 28% , in fiscal 2019 as compared to fiscal 2018 due to overall declines in market unit volumes as the primary use of tape transitions from backup to archive workflows.

Royalty revenue decreased $2.6 million, or 11%, in fiscal 2020, as compared to fiscal 2019, related to overall declines in market unit volumes as the primary use of tape transitions from backup to archive workflows.

Gross Profit and Margin

Year Ended March 31,

(dollars in thousands)

Basis point change

(in thousands) 2020 Gross

margin % 2019 Gross

margin % $ Change Basis point change

Product gross profit $ 71,408 28.4 % $ 64,808 26.5 % $ 6,600 190

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Royalty gross profit 20,731 100.0 % 23,330 100.0 % (2,599) —

Gross profit $ 172,508 42.8 % $ 167,614 41.6 % $ 4,894 120

Product Gross Margin

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Service Gross Margin

Service gross margin increased 210 basis points in fiscal 2019 , as compared with fiscal 2018.

Service gross margin increased 230 basis points for fiscal 2020, as compared with the same period in 2019.

This increase was due primarily to reductions in cost of service.

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Year Ended March 31,

(dollars in thousands)

(in thousands) 2020 % of

revenue 2019 % of

revenue $ Change % Change

Research and development $ 36,301 9 % $ 32,113 8 % $ 4,188 13 %

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Total operating expenses $ 151,304 38 % $ 172,360 43 % $ (21,056) (12) %

In fiscal 2019 , research and development expense decreased $6.4 million , or 17% , as compared with fiscal 2018.

This decrease was partially attributable to a decrease in research and development headcount and professional services cost as we drove efficiencies throughout the business.

In fiscal 2020, research and development expense increased $4.2 million, or 13%, as compared with fiscal 2019.

This increase was partially attributable to an increase in research and development headcount and professional services cost related to new product development.

In fiscal 2020, sales and marketing expenses decreased $9.9 million, or 14%, as compared with fiscal 2019.

This decrease was driven by a decrease in compensation and benefits as the result of lower headcount and a decrease in marketing programs and professional services costs.

In fiscal 2019 , general and administrative expenses increased $13.1 million , or 25% , as compared with fiscal 2018.

This increase was driven primarily by higher costs in fiscal 2019 related to our prior financial restatement and related activities.

and increases in stock compensation expense.

In fiscal 2020, general and administrative expenses decreased $10.8 million, or 17%, as compared with fiscal 2019.

These decreases were partially offset by increases to stock compensation expense.

In fiscal 2020, restructuring expenses decreased $4.5 million, or 82%, as compared with fiscal 2019.

This decrease was primarily due to the high level of headcount reductions that occurred during fiscal 2018.

This decrease was primarily due to the higher level of headcount reductions that occurred during fiscal 2019.

Other Income (Expense)

Year Ended March 31,

(dollars in thousands)

(in thousands) 2020 % of

revenue 2019 % of

revenue $ Change % Change

Other income (expense) $ (261) 0 % $ 2,878 1 % 3,139 (109) %

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In fiscal 2020, other income (expense), net increased $3.1 million or 109%, compared to fiscal 2019.

The increase was primarily due to a gain of $2.8 million on the disposal of an investment in fiscal 2019, offset by a $0.6 million reduction in foreign exchange gain as compared to fiscal 2018.

In fiscal 2019 , interest expense increased $9.4 million , or 81% , as compared with fiscal 2018.

This increase was primarily due to a higher average principal balance.

Loss on debt extinguishment increased $10.5 million or 152% in fiscal 2019 compared to fiscal 2018.

The fiscal 2019 loss on debt extinguishment included $14.9 million related to the August 2018 modification of our TCW Term Loan, $1.8 million related to the August 2018 amendment to the PNC Credit Facility, and $0.8 million related to the December 2018 amendment to the PNC Credit Facility.

During fiscal 2018, we recorded a loss on debt extinguishment of $6.9 million related to the February 2018 amendment to our TCW Term Loan.

The increase was primarily related to a gain on the disposal of an investment that occurred in fiscal 2019, and differences in foreign currency gains and losses during each period.

In fiscal 2020, interest expense increased $4.3 million, or 20%, as compared to fiscal 2019.

This increase was primarily due to a higher average principal balance of our outstanding debt.

In fiscal 2019, we incurred a loss on debt extinguishment related to our Term Loan.

Income Tax Provision

Year Ended March 31,

(dollars in thousands)

Income tax provision (benefit)

(in thousands) 2020 % of

revenue 2019 % of

revenue $ Change % Change

Income tax provision $ 803 — % $ 2,376 1 % $ (1,573) (66) %

Our income tax provision is primarily influenced by foreign and state income taxes.

In fiscal 2019, our income tax provision (benefit) increased $5.5 million or 176%, compared to fiscal 2018.

The increase was primarily due to fiscal 2018 benefitting from a $2.1 million reserve release resulting from an audit settlement with a foreign taxing authority and a $2.9 million refundable tax credit resulting from the repeal of the Corporate Alternative Minimum Tax enacted as part of the Tax Cuts and Jobs Act in 2017.

Quarterly Results of Operations and Key Business Metrics

The following tables set forth our unaudited quarterly statements of operations data for the most recent eight quarters, as well as the percentage that each line item represents of our revenue for each quarter presented.

The information for each quarter has been prepared on a basis consistent with our consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair presentation of the financial information contained in those statements.

The following quarterly financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," our audited consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data" and other financial information included elsewhere in this Annual Report on Form 10-K.

Three Months Ended

June 30, 2019

June 30, 2018

Total revenue

Total cost of revenue

Operating expenses:

Research and development

Sales and marketing

General and administrative

Restructuring charges

Income (loss) from operations

Other income (expense)

Interest expense

Loss on debt extinguishment, net

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Net income (loss) per share

In fiscal 2020, the income tax provision decreased $1.6 million or 66%, compared to fiscal 2019, related primarily to an income tax benefit of $0.6 million recorded in fiscal 2021 for foreign currency related gains recognized in other comprehensive income.

Accordingly, we have established a full valuation allowance against our U.S.

and certain foreign net deferred tax assets.

Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets.

We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal.

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

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The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue.

We expect the impact of COVID-19 to have a significant impact on our liquidity and capital resources.

We expect the impact of COVID-19 to continue to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of $27.4 million as of March 31, 2021, compared to $6.4 million as of March 31, 2020.

These amounts exclude, as of both dates, $5.0 million in restricted cash that we are required to maintain under our Amended PNC Credit Agreement and $0.7 million and $0.8 million of short-term restricted cash, respectively.

As of March 31, 2021 we had $32.7 million available to borrow under the Amended PNC Credit Agreement.

We believe that our existing sources of liquidity including the Amended PNC Credit Facility will be sufficient to fund our cash flow requirements for at least the next 12 months.

We may need or decide to seek additional funding through equity or debt financings but cannot guarantee that additional funds would be available on terms

acceptable to us, if at all.

We may need or decide to seek additional funding through equity or debt financings but cannot guarantee that additional funds would be available on terms acceptable to us, if at all.

We believe we were in compliance with all covenants under the Credit Agreements as of the date of filing of this Annual Report on Form 10-K.

We had cash and cash equivalents of $6.4 million as of March 31, 2020 , compared to $10.8 million as of March 31, 2019.

These amounts exclude, as of both dates, $5.0 million in restricted cash that we are required to maintain under the Credit Agreements (as defined below) and $ 0.8 million and $ 1.1 million of short-term restricted cash, respectively.

Our outstanding long-term debt amounted to $90.9 million as of March 31, 2021, net of $9.7 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt, and $146.8 million as of March 31, 2020 net of $13.7 million in unamortized debt issuance costs and $7.3 million in current portion of long-term debt.

Included in long-term debt as of March 31, 2020 was $2.6 million of borrowings under our Amended PNC Credit Facility, which had an additional $22.7 million of borrowing availability as of March 31, 2020 (subject to change based on certain financial metrics).

See “—Liquidity and Long-Term Debt” and “—Contractual Obligations” below for further information about our outstanding debt.

We are subject to various debt covenants under our Credit Agreements (as defined below).

We are subject to various debt covenants under our debt agreements.

Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations.

See "Risks Related to our Business Operations" section of Item 1A Risk Factors.

See "Risks Related to our Indebtedness" section of Item 1A Risk Factors.

The following table summarizes our consolidated cash flows for the periods indicated.

Year Ended March 31,

(Dollars in thousands)

( in thousands) 2021 2020 2019

Cash provided by (used in):

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Effect of exchange rate changes (108) (16) 62

Net decrease in cash and cash equivalents and restricted cash

Net change in cash, cash equivalents, and restricted cash $ 20,867 $ (4,585) $ (352)

Net Cash Used In Operating Activities

Net cash used in operating activities was $0.8 million for the year ended March 31, 2021, primarily attributable to greater net loss, offset in part by a $10.1 million non-cash adjustment pertaining to the debt refinancing.

Net cash used in operating activities was $1.2 million for the year ended March 31, 2020, primarily attributable $20.9 million of changes in assets and liabilities due primarily to lower deferred revenue and manufacturing inventories, offset in part by certain non-cash items.

Net cash used in operating activities was $16.9 million in fiscal 2019, an increase of $11.8 million from $5.0 million in fiscal 2018, mainly reflecting a $25.4 million decrease in payables in fiscal 2019, compared to a $21.6 million increase in fiscal 2018, and an approximately $7.4 million increase in cash interest expense in fiscal 2019 compared to fiscal 2018, reflecting the terms of our refinanced debt.

Our outstanding payables increased steadily through each quarter in 2018 due to our efforts to manage working capital, undertaken mainly to fund costs related to professional fees associated with the financial restatement activities and related civil ligation defense costs, and decreased steadily through fiscal 2019, except in the fourth quarter, reflecting a normalization of our payables cycles following our debt refinancing in late December 2018.

These factors more than offset the impact of a $20.9 million improvement in loss from operations.

Net cash used in operating activities was $16.9 million in fiscal 2019, mainly reflecting changes in working capital accounts including inventories and accounts payable.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $9.6 million for the year ended March 31, 2021, primarily attributable to $6.9 million of capital expenditures and $2.7 million for the acquisition of SBS.

Net cash used in investing activities was $4.6 million for the year ended March 31, 2020, primarily attributable to $2.6 million of capital expenditures and $2.0 million for the purchase of the ActiveScale business.

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Net Cash Provided by (Used in) Financing Activities

Net cash provided by (used in) financing activities was $1.2 million , $16.2 million, and ($11.2) million for the years ended March 31, 2020 , 2019 and 2018.

Net cash provided by financing activities was $31.3 million for the year ended March 31, 2021 due primarily to a secondary equity offering which generated net proceeds of $96.8 million, Senior Secured Term Loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program, offset in part by the prepayment of $92.3 million of our Senior Secured Term Loan.

Net cash provided by (used in) financing activities was $1.2 million and $16.2 million for the years ended March 31, 2020 and 2019, respectively.

Net cash provided by financing activities during the year ended March 31, 2020 related primarily to net borrowings under the Amended PNC Credit Facility.

Activity during the years ended March 31, 2019 and 2018 related primarily to our debt refinancing activities, which are summarized under “—Debt Profile and Covenants” below and Note 4:

Debt , to our consolidated financial statements.

Liquidity and Long-Term Debt

Paycheck Protection Program

On April 13, 2020, we entered into a Payment Protection Term Note (the “Note”) effective April 11, 2020 with PNC Bank, National Association as the lender (“Lender”) in an aggregate principal amount of $10.0 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “PPP Loan”).

Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of 1% per annum, with interest deferred up to a maximum of 10 months payable monthly thereafter, has an initial term of two years and is unsecured and guaranteed by the Small Business Administration.

Under the terms of the PPP Loan, we may apply for forgiveness of the amount due on the Loan.

We have utilized the proceeds from the PPP Loan for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

However, we cannot be assured at this time that the PPP Loan will be forgiven partially, or in full.

Long-Term Debt

We are party to the Amended PNC Credit Agreement, a senior secured revolving credit facility in an available principal amount equal to the lesser of (i) $45.0 million and (ii) the “borrowing base” (as defined under the Amended PNC Credit Agreement).

The Amended PNC Credit Facility had a borrowing base of $27.0 million as of March 31, 2020, $22.7 million of which was available at that date.

We are also party to a senior secured term loan facility in an aggregate principal amount of $165.2 million as of March 31, 2020 (the “Senior Secured Term Loan” and together with the Amended PNC Credit Agreement, the “Credit Agreements”).

The Senior Secured Term Loan provides for a senior secured term loan of $150.0 million, drawn on the closing date, and a senior secured delayed draw term loan of $15.0 million, drawn in January 2019.

The proceeds of the Senior Secured Term Loan were used to repay our previously outstanding long-term debt and fund our working capital requirements.

Outstanding amounts under both Credit Agreements mature and are due and payable on December 27, 2023.

Pursuant to each Credit Agreement, we granted a lien to the respective agents under the Senior Secured Term Loan and the Amended PNC Credit Facility in all of the assets now owned or hereafter acquired by us, Quantum LTO Holdings, LLC, our wholly-owned direct subsidiary and any future domestic subsidiary that, at the respective agent’s discretion, becomes a loan party under the Credit Agreements, including, without limitation:

accounts, books, chattel paper, commercial tort claims, deposit accounts, equipment, fixtures, general intangibles, inventory, investment property, intellectual property and intellectual property licenses, equity interests, securities accounts, supporting obligations, money and cash equivalents, and the proceeds and products of each of the foregoing, in each case, subject to certain exceptions.

The Credit Agreements contain certain customary financial and other covenants, including requirements to prepay the loans in an amount equal to 100% of the net cash proceeds from certain assets dispositions, subject to certain reinvestment rights and other exceptions, and restrictions on the payment of dividends and certain other payments (subject to certain exceptions).

Amounts outstanding under the Credit Agreements may become due and payable upon the occurrence of specified events, which among other things include (subject to certain exceptions and cure periods):

failure to pay principal, interest, or any fees when due;

breach of any representation or warranty, covenant, or other agreement in the Credit Agreements;

the occurrence of a bankruptcy or insolvency proceeding with respect us or any of our subsidiaries;

any “Event of Default” with respect to other indebtedness involving an aggregate amount of $1.0 million or more;

any lien created by the Credit Agreements or any related security

documents ceasing to be valid and perfected;

the Credit Agreements or any related security documents or guarantees ceasing to be legal, valid, and binding upon the parties thereto;

or a change of control.

Amendments to the Senior Secured Term Loan

On March 30, 2020 and March 31, 2020, we entered into amendments to the Senior Secured Term Loan which, among other things, included (a) a payment of $1.9 million of the interest due on April 1, 2020 in kind rather than in cash, and (b) the waiver of compliance with the total net leverage ratio covenant, as defined in the Senior Secured Term Loan agreement, for the quarter ended March 31, 2020.

On June 16, 2020, we entered into an amendment to the Senior Secured Term Loan (the "June 2020 Term Loan Amendment").

The amendment provides an additional borrowing of $20.0 million in senior secured term loans, which was immediately drawn in full.

The amendment also:

(a) waives the excess cash flow payment ("ECF") of $5.3 million for the year ended March 31, 2020;

(b) defers payment of the scheduled amortization payments due on June 30, 2020, September 30, 2020, and December 31, 2020 until the maturity date;

(c) amends the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment;

(d) waives compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021;

(e) adds a financial covenant that requires a minimum monthly average undrawn availability of $7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021;

and (f) amends the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021.

The amendment modified the Equity Clawback to allow us to prepay up to 50% of the aggregate principal amount of the outstanding Senior Secured Term Loan balance with cash proceeds of a public offering of our common stock at a prepayment premium of 5% of the principal amount being repaid.

The amendment also added an exit fee of 2% of the aggregate principal amount repaid excluding amounts repaid that are subject to the Equity Clawback.

Borrowings under the Senior Secured Term Loan bear interest at a rate per annum, at our option, equal to (a) the greater of (i) 3.00%, (ii) the Federal funds rate plus 0.50%, (iii) the LIBOR rate plus 1.0%, and (iv) the Prime rate as quoted by the Wall Street Journal, plus an applicable margin of 9.00% or (b) LIBOR Rate plus an applicable margin of 10.00%.

Interest on the Senior Secured Term Loan is payable quarterly.

Principal payments of 0.25% of the original balance of the Senior Secured Term Loan are due quarterly with the remaining principal balance due at maturity.

Additionally, on an annual basis beginning with the fiscal year ending March 31, 2021, we will be required to perform a calculation of ECF which may require an additional payment of the principal in certain circumstances.

The interest rate applicable to our borrowings under the Senior Secured Term Loan as of March 31, 2020 was 12.0%.

In connection with the June 2020 Term Loan Amendment, we issued to certain lenders and certain of their affiliates warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares our common stock, at an exercise price of $3.00 per share.

The exercise price and the number of shares underlying the 2020 Term Loan Warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the 2020 Term Loan Warrants, a subdivision or combination of our common stock, a reclassification of our common stock or specified dividend payments.

The 2020 Term Loan Warrants are exercisable until June 16, 2030.

Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of our common stock at the time of exercise.

Amendments to Amended PNC Credit Facility

On April 3, 2020, we entered into an amendment to the Amended PNC Credit Facility.

The amendment amends certain terms, including to waive compliance with the total net leverage ratio and total leverage ratio covenants for the quarter ending March 31, 2020.

On June 16, 2020, we entered into an amendment to the Amended PNC Credit Facility.

The amendment includes certain terms, including:

(a) amend the definition of “EBITDA” to, among other things, an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment;

(b) waive compliance with the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, minimum average liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and

March 31, 2021;

(c) add a financial covenant that requires a minimum monthly average undrawn availability level of $7.0 million for the period from June 30, 2020 through and including May 31, 2021;

(d) add a financial covenant that requires a minimum liquidity of not less than $10.0 million at the end of each quarter, beginning with the quarter ending June 30, 2021;

and (e) amend the covenant levels for the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021.

The Amended PNC Credit Facility continues to include a covenant that requires a minimum of $5.0 million of PNC qualified cash at all times.

The amendment also adjusts the applicable margin for advances under the Amended PNC Credit Facility such that (i) advances designated as “Domestic Rate Loans” and “Swing Loans” will have an applicable margin of (a) 4.50% for the period from the June 16, 2020 until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 3.50% to 4.50% based on our applicable total leverage ratio and (ii) advances designated as “LIBOR Rate Loans” will have an applicable margin of (a) 5.50% for the period from June 16, 2020, until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 4.50% to 5.50% based on our applicable total leverage ratio.

Activity during the year ended March 31, 2019 related primarily to our debt refinancing activities.

Commitments and Contingencies

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We are also subject to ordinary course of business litigation, See Note 11, Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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.

Contractual Obligations

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Payments Due by Period

(in thousands)

(in thousands) Total 1 year or less 1 – 3 Years 3 –5 Years More than

Long-term debt (1)

$ 92,426 $ 1,850 $ 90,576 $ — $ —

Interest on long-term debt (2)

27,390 10,154 17,236 — —

Operating leases (3)

14,408 3,818 5,368 4,220 1,002

Purchase obligations (4)

39,615 39,615 — — —

Total $ 173,839 $ 55,437 $ 113,180 $ 4,220 $ 1,002

(1) Represents nominal principal amount of debt outstanding under the Senior Secured Term Loan as of March 31, 2021.

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Debt , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

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For information on our significant accounting policies, including the policies discussed below, see Note 1:

Description of Business and Summary of Significant Accounting Policies , to our consolidated financial statements.

Description of Business and Significant Accounting Policies , to our consolidated financial statements.

Revenue Recognition

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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.

Restructuring Reserves

Restructuring reserves include charges related to the realignment and restructuring of our business operations.

These charges represent judgments and estimates of costs of severance, closure and consolidation of facilities and settlement of contractual obligations under our operating leases, including sublease rental rates, asset write-offs and other related costs.

We reassess the reserve requirements to complete each individual plan under restructuring programs at the end of each reporting period.

If these estimates change in the future or actual results differ from our estimates, additional charges may be required.

Business Acquisitions, Goodwill and Acquisition-Related Intangible Assets

We allocate the purchase price to the intangible and tangible assets acquired and liabilities assumed in a business combination at their estimated fair values on the date of acquisition, with the excess recorded to goodwill.

We use our best estimates and assumptions to assign fair value to the assets acquired and liabilities assumed as well as the useful lives of the acquired intangible assets.

Examples of critical estimates in valuing certain intangible assets we have acquired include, but are not limited to, future expected cash flows, expected technology life cycle, attrition rates of customers, and discount rates.

We estimate the useful lives of each intangible asset based on the expected period over which we anticipate generating economic benefit from the asset.

The amounts and useful lives assigned to acquired intangible assets impact the amount and timing of future amortization expense.

While we use our best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations.

Recently Issued and Adopted Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis