Item 1. Business
ITEM 1. BUSINESS
Overview
Quantum is a technology company whose mission is to deliver innovative solutions to organizations around 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.
Massive unstructured data growth may be the defining factor for industries and economies of the 21st century. This data lives everywhere – it is created and processed at the edge, moved to both the cloud and the core data center, and stored and protected in multiple locations. This accelerated data growth, along with the lack of visibility and control over the data, are contributing to organizations' challenges of managing unstructured data sprawl and harnessing the value that is in this unstructured data. Advancements in artificial intelligence and analytics are driving new lifecycle requirements, including the need to ensure data accessibility for decades and beyond, and protecting against data loss, disaster and cyber-attacks. By managing data across its lifecycle, Quantum is empowering customers to navigate the new data landscape and manage data and storage for greater productivity and efficiency.
Products and Services
High-Performance File System Software
At the core of our high-performance shared storage product line is our StorNext software that enables high-speed ingest, editing, processing and management of digital video and image datasets. Major broadcasters and studios, post-production companies including streaming services, sports franchises, and corporations around the world use StorNext.
Our StorNext software is both a shared file system and data management platform. StorNext provides fast streaming performance and data access, a shared file storage environment for macOS, Microsoft Windows, and Linux workstations, and intelligent data management to protect data across its lifecycle. StorNext is sold as software based on a subscription licensing model, runs on standard servers, and is sold with storage arrays that are used within the StorNext environment. These storage arrays include:
• The Quantum F-Series : A line of ultra-fast, highly available non-volatile memory express ("NVMe") storage servers for editing, rendering, and processing of video content and other large unstructured datasets.
• The Quantum H-Series: A line of high-performance storage arrays, offered with either hard disk drives ("HDDs"), solid state drives ("SSDs"), or some combination of the two.
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• Quantum QXS-Series: A line of high performance, storage arrays, offered with either HDD, SSD, or some combination of the two.
Customers are now deploying our StorNext file system with a combination of NVMe storage and more traditional SSD and HDD storage to balance cost and performance. Our StorNext software can also manage data across different types, or pools, of storage, such as public cloud object stores and disk-based object storage systems. StorNext supports a broad range of both private and public object stores to meet customer needs. For customers that archive video and image data for years, StorNext is also integrated with our tape storage, and can assign infrequently used but important data to tape to create a large-scale active archive.
In addition, Quantum also offers the Quantum All-Terrain File System ("ATFS"), which is an easy-to-use Network Attached Storage ("NAS") platform with integrated data classification.
Object Storage Systems
With the acquisition of the ActiveScale object storage business from Western Digital that was completed in March of 2020, we now offer leading object storage systems for massive-scale, online content repositories such as media archives, genome sequencing data repositories, and big data lakes. Our ActiveScale object storage provides high levels of data durability and facilitates the management of many petabytes and billions of objects. ActiveScale object storage software is sold via a subscription licensing model, stores data in object format and uses patented erasure-encoding software to protect data across storage nodes and across multiple geographic sites.
CatDV Asset Management Platform
CatDV is an agile asset management and workflow orchestration platform that provides powerful asset management, automation, and collaboration tools for any organization that manages large volumes of digital media. The software application indexes and catalogs video files, digital images, audio files, and other types of files. CatDV helps organizations browse their content and streamline their workflows. CatDV can be used with StorNext file storage, with ActiveScale object storage, as well as third party storage.
Tape Storage
Our Scalar® tape systems are low-cost, long-term data storage used by large cloud providers and leading enterprises to archive and preserve digital content for decades. The product line scales from entry-level libraries for small backup environments up to massive petabyte and even exabyte scale archive libraries.
Our tape systems provide storage density, offline secure storage to protect against ransomware and malware, and an intelligent, advanced diagnostics engine designed to reduce downtime and operational expense relative to other tape systems. Our tape systems are used by thousands of enterprises around the world as well as by large cloud service providers. In addition to our tape systems, we also sell Linear Tape Open ("LTO") tape cartridges as well as standalone LTO tape drives for small business and desktop use.
Backup Storage Systems
Our DXi backup systems provide high-performance, scalable storage for backup and multi-site disaster recovery. Our variable-length de-duplication technology maximizes data reduction, our replication engine enables multi-site protection and data recovery, and our high-efficiency design enables customers to maximize backup performance while minimizing data center footprint.
Storage Systems for Surveillance and Physical Security
We offer a broad portfolio of products designed for the capture and analysis of video surveillance and security. These products include network video recording servers, as well as hyper-converged storage systems for video surveillance management and recording. In addition, we offer appliances designed for video surveillance analytics and to run different types of access control systems.
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Our strategy is to offer the broadest physical security server and storage portfolio available from any single supplier, with solutions designed and optimized for surveillance and physical security workloads, providing high performance and density, resulting in cost-effective solutions.
In-Vehicle Storage Systems
Our R-Series is a line of ruggedized, removable storage systems for in-vehicle data capture, mobile surveillance, and military applications. Our R-Series includes a removable storage magazine which allows data generated in the vehicle to be easily uploaded to a shared storage environment, such as our StorNext file system, for processing and analytics.
Services
We offer a broad range of services to complement our systems and technology, including managed services, professional services, implementation and training services, and support services for our customers around the world. Our customers are increasingly looking to purchase our technology using an as-a-service model, or different forms of managed services, and we now offer a full line of these services to meet these needs.
Global Services and Warranty
Our global services strategy is an integral component of our total customer solution. Service is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage solutions. Consequently, our ability to provide comprehensive installation and integration services as well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers. In addition, we believe that our ability to retain long-term customer relationships and secure repeat business is frequently tied directly to our comprehensive service capabilities and performance.
Our extensive use of technology and innovative product intelligence allows us to scale our global services operations to meet the needs of our customers. We are currently able to provide service to customers in more than 100 countries, supported by 24-hour, multi-language technical support centers located in North America, Europe, and Asia. We provide our customers with warranty coverage on our products. Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems. We offer this additional support coverage at a variety of response levels up to 24-hours a day, seven-days-a-week, 365-days-a-year, for customers with stringent high-availability needs. We provide support ranging from repair and replacement to 24-hour rapid exchange to on-site service support for our midrange and enterprise-class products. In addition to these traditional installation and maintenance services, we also provide project management, managed services, and other value-added services to enhance our customer’s experience and engagement. These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions.
We generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale. We provide warranty and non-warranty repair services through our service team and third-party service providers. In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.
Research and Development
We compete in an industry characterized by rapid technological change and evolving customer requirements. Our success depends, in part, on our ability to introduce new products and features to meet end user needs. Our research and development teams are focused on technology and services to make our storage systems smarter and easier to manage at scale; software enhancements to make our storage more searchable and accessible, software-defined hyperconverged storage technology, next generation solid-state and hard-drive storage system software, data deduplication and other data reduction technologies, and making tape even more efficient as a storage medium for long term archival storage.
Sales and Distribution Channels
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Product Sales Channels
We utilize distributors, value-added resellers ("VARs") and direct market resellers ("DMRs") in our sales process. Our reseller program provides our channel partners the option of purchasing products directly or through distribution channels and provides them access to a more comprehensive product line. Additionally, we sell directly to multiple large corporate entities and government agencies.
OEM Relationships
We sell our products to several original equipment manufacturer ("OEM") customers that resell our hardware products under their own brand names and typically assume responsibility for product sales, end user service and support. We also license our software to certain OEM customers that include this software in their own brand name products. These OEM relationships enable us to reach end users not served by our branded distribution channels or our direct sales force. They also allow us to sell to select geographic or vertical markets where specific OEMs have exceptional strength.
Customers
Our customers vary across multiple industries worldwide ranging from small businesses to global enterprises. In addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers. Sales to our top five customers represented 16%, 23%, and 33% of revenue in fiscal 2021, fiscal 2020 and fiscal 2019, respectively, of which no customer represented 10% or more of our total revenue.
Competition
The markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements. In some cases, our competitors in one market area are customers or suppliers in another. Our competitors often have greater financial, technical, manufacturing, marketing, or other resources than we do. Additionally, the competitive landscape continues to change due to merger and acquisition activity as well as new entrants into the market.
As our customers look to use more public cloud storage services, providers provide both a competitive threat and new platforms on which to run our software. We expect that the infrastructures of the future will be both hybrid-cloud and multi-cloud, meaning our customers will store their data in the various large public cloud environments, and also want to use services from multiple public cloud vendors.
Our high-performance shared storage systems and object storage systems primarily face competition from the EMC business unit of Dell Inc., (“Dell”), International Business Machines Corporation, (“IBM”), NetApp, Inc., (“NetApp”), and other enterprise storage vendors in the markets we serve.
Our tape storage systems primarily compete in the midrange and enterprise reseller and end user markets with IBM, Oracle Corporation and SpectraLogic Corporation as well as Hewlett-Packard Enterprise Company, (“HPE”), through its OEM relationship with other tape system suppliers. Competitors for entry-level and OEM tape systems include BDT Products, Inc. and several others that supply or manufacture similar products. In addition, disk backup products and cloud storage are an indirect competitive alternative to tape storage.
Our backup storage systems primarily compete with products sold by Dell, HPE and Veritas Technologies LLC. Additionally, several software companies that have traditionally been partners with us have deduplication features in their products and will, at times, compete with us.
Manufacturing and Supply Chain
We are constantly improving our supply chain and manufacturing operations to deliver a variable cost model while improving customer delivered quality and service. This process includes the transition to a multi-geographical manufacturing model using a configure-to-order methodology; a redesign of our service and supplier network; and talent acquisition and development. Our supply chain and manufacturing strategy minimizes geo-political and environmental causal risks and provides flexibility to support demand fluctuations by region, further enhancing our variable cost structure.
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Manufacturing of our tape, backup, and shared storage systems is performed in the U.S. and Mexico using contract manufacturers, along with supporting third-party logistics companies in the Europe, Middle East, and Africa region, or (“EMEA”), and the Asia-Pacific region, or (“APAC”). The value of utilizing well-run logistics companies and supply chain solutions is that our product logistics is optimized for cost reductions with a competitive advantage allowing the physical flow and information flow to work together seamlessly.
Our tape media is manufactured in Japan and distributed globally.
Intellectual Property and Technology
We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March 31, 2021, we hold approximately 319 U.S. patents and have 40 pending U.S. patent applications. In general, these patents have a 20-year term from the first effective filing date for each patent. We also hold multiple foreign patents and patent applications for certain of our products and technologies. Although we believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.
From time to time, third parties have asserted that the manufacture and sale of our products have infringed on their patents. We are not knowingly infringing any third-party patents. Should it ultimately be determined that licenses for third-party patents are required, we will undertake best efforts to obtain such licenses on commercially reasonable terms. See Note 11 Commitments and Contingencies for additional disclosures regarding lawsuits alleging patent infringement.
On occasion, we have entered into various patent licensing and cross-licensing agreements with other companies. We may enter into patent cross-licensing agreements with other third parties in the future as part of our normal business activities. These agreements, when and if entered into, would enable these third parties to use certain patents we own and enable us to use certain patents owned by these third parties. We have also sold certain patents, retaining a royalty-free license for these patents.
We are a member of the consortium that develops, patents, and licenses Linear Tape-Open, (or “LTO® tape”) technology to media manufacturing companies. We receive royalty payments for LTO media technology sold under licensing agreements. We have also entered into various licensing agreements with respect to our technology, patents and similar intellectual property which provide licensing revenues in certain cases and may expand the market for products and solutions using these technologies.
Segment Information
We operate as a single reporting unit and operating segment for business and operating purposes. Information about revenue attributable to each of our product groups is included in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations and information about revenue and long-lived assets attributable to certain geographic regions is included in Note 2 , Revenue and Note 4, Balance Sheet Information , respectively, to the consolidated financial statements and risks attendant to our foreign operations is set forth below in Item 1A Risk Factors.
Seasonality
As is typical in our industry, we generally have the greatest demand for our products and services in the fourth quarter of each calendar year, or our fiscal third quarter. We usually experience the lowest demand for our products and services in the first and second quarters of each calendar year, or our fiscal fourth quarter and fiscal first quarter, respectively.
Backlog
On a historical basis we do not believe that product backlog was a meaningful indicator of net revenue that can be expected for any period. Our products are manufactured based on forecasts of customer demand and we work with our manufacturers and suppliers to support increases and decreases in demand. Orders are generally placed by customers on an as-needed basis. Product orders are confirmed and, in most cases, shipped to customers within four to six weeks. More complex systems and product configurations often have longer lead times, sometimes as
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much as 26 weeks. Much of the product backlog is from these more complex systems and typically increases at the end of each fiscal quarter, with these products typically being shipped in the following quarter. During the fourth quarter of fiscal year 2021, there were supply chain shortages experienced industry-wide which restricted our ability to fulfill all orders. These shortages combined with customer bookings have created a significant backlog entering the first quarter of fiscal year 2022.
Executive Officers and Management Team
Following are the names and positions of our management team as of May 18, 2021, including a brief account of the business experience of each.
Name Position with Quantum
James J. Lerner President, Chief Executive Officer and Chairman of the Board
J. Michael Dodson Chief Financial Officer
Elizabeth King Chief Revenue Officer
Lewis Moorehead Chief Accounting Officer
Brian E. Cabrera Chief Legal and Compliance Officer
James J. Lerner, 51, was appointed as President and CEO of the Company, effective July 1, 2018, and was appointed Chairman of the Board on August 7, 2018. Mr. Lerner has previously served as Vice President and Chief Operating Officer at Pivot3 Inc. from March 2017 to June 2018, and Chief Revenue Officer from November 2016 to March 2017. Prior to Pivot3, from March 2014 to August 2015, Mr. Lerner served as President of Cloud Systems and Solutions at Seagate Technology Public Limited Company. Prior to Seagate, Mr. Lerner served in various executive roles at Cisco Systems, Inc., including most recently as Senior Vice President and General Manager of the Cloud & Systems Management Technology Group. Before beginning his career as a technology company executive, Mr. Lerner was a Senior Consultant at Andersen Consulting. Since 2011, Mr. Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr. Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego.
J. Michael Dodson, 60, was appointed Chief Financial Officer effective May 31, 2018. He was also appointed interim Chief Executive Officer, a position in which he served until James J. Lerner joined the Company on July 1, 2018. From August 2017 to May 2018, Mr. Dodson served as the Chief Financial Officer of Greenwave Systems. Prior to joining Greenwave Systems, Mr. Dodson served as the Chief Operating Officer and Chief Financial Officer at Mattson Technology, Inc. from 2012 to 2017. He joined Mattson as Executive Vice President, Chief Financial Officer and Secretary in 2011. Prior to joining Mattson, Mr. Dodson served as Chief Financial Officer at four global public technology companies and Chief Accounting Officer for an S&P 500 company. Mr. Dodson started his career with Ernst & Young in San Jose, California. From 2013 through 2020, he served on the Board of Directors of Sigma Designs, Inc., a provider of system-on-chip solutions, including as Lead Independent Director starting in 2014 and Chairman of the Audit Committee starting in 2015. He has also served on Board of Directors of A10 Network from February 2020 until April 2021 and was named Chairman of their Audit Committee in June 2020. In addition, Mr. Dodson serves as a director of two private entities: a charitable organization and a privately held for-profit company. He holds a B.B.A. degree with dual majors in Accounting and Information Systems Analysis and Design from the University of Wisconsin-Madison.
Elizabeth King, 63, has served as Quantum’s Chief Revenue Officer since March 2019. Prior to Quantum, from January 2017 to February 2019, she was Vice President, Go-to-Market & Enablement, HPC & AI at HPE. She joined HPE as part of HPE’s acquisition of SGI, where she served as SVP of worldwide sales from January 2014 through December 2016. Prior to HPE/SGI, she was vice president of strategic alliances for IBM and global systems integrators at Juniper Networks from June 2010 to January 2014. Prior to Juniper, she was vice president and general manager of the Hitachi Server Group of Hitachi Data Systems. She also held key senior sales, business development and operations roles at Nokia (formerly Alcatel-Lucent), Oracle (formerly Sun Microsystems), Raytheon, and Texas Instruments. Ms. King holds an MBA with honors from the University of Dallas and a Bachelor of Science in mechanical engineering from Lehigh University.
Lewis Moorehead, 49, has served as our Chief Accounting Officer since October 2018. Prior to joining Quantum, Mr. Moorehead was the Director of Finance, Accounting and Tax at Carvana, Co., a publicly traded on-line retailer,
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from November 2016 to October 2018. From September 2004 to October 2016, he served as Managing Partner at Quassey, an investment firm. While at Quassey, he also served as Vice President of Finance and Principal Accounting Officer at Limelight Networks, a NASDAQ-listed global content delivery network and SaaS provider, from March 2010 to August 2013. He has also held finance and accounting positions at eTelecare Global Solutions, Rivers and Moorehead PLLC, Intelligentias, Inc., American Express and PricewaterhouseCoopers. He holds a Bachelor of Business Administration (B.B.A.), in Accounting from the University of Wisconsin-Whitewater.
Brian E. Cabrera, 56, most recently served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California. From May 2014 to June 2017, Mr. Cabrera served as Senior Vice President & General Counsel of NVIDIA Corporation. Prior to NVIDIA, Mr. Cabrera served as General Counsel and Corporate Secretary, Chief Ethics & Compliance Officer of Synopsys, Inc. from 2006 to 2014. From 1999 to 2006, Mr. Cabrera served as Senior Vice President, Operations, General Counsel and Corporate Secretary of Callidus Software, Inc. Prior to Callidus Software, Mr. Cabrera held various legal positions with PeopleSoft, Inc., Netscape Communications Corporation, Silicon Graphics and Bronson, Bronson & McKinnon.
Human Capital
Our Chief Human Resources Officer ("CHRO") leads our human capital initiatives which includes the design and execution of all people strategies. The CHRO partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and rewards our teams for driving company performance.
This past year we saw the evolution and pivot of our business strategy to cloud and data services which tested our organization’s agility and overall effectiveness. This inflection point served as a springboard to drive additional improvements across our business, including as it relates to our people strategy.
Our workforce is distributed over 18 countries, with 827 employees globally as of March 31, 2021, with 509 in the U.S. and 318 internationally. We mobilize and engage our teams to support our cloud and data services strategy using the following objectives and measures.
Overall Employee Satisfaction
To measure employee engagement and satisfaction, we surveyed our employees four different times throughout fiscal year including (1) assessing their concerns when the pandemic first began, (2) conducted our annual Pulse Survey to measure our employees’ opinions on leadership and business strategy, culture, work environment, management, career development, and rewards and recognition, (3) assessed our employees’ thoughts on new people programs initiatives introduced in the year, and (4) our employees thoughts for what our work environment will look like beyond the pandemic.
Response to COVID-19 Pandemic
In February 2020, our CHRO addressed the rising concerns of the COVID-19 pandemic at the regular executive staff meeting. As the pandemic ensued, the CHRO with other leaders in the business formed the COVID-19 Task Force that met daily to determine employee safety protocols, build and communicate a workforce pandemic guide, produce regular communications about working from home and what to do if you test positive for the virus.
Highlights from fiscal year 2021 included:
• Work-from-home : To support the transition to working from home, we ensured all our team members were equipped with the online meeting and chat tools for each virtual collaboration. We allowed our employees to take home equipment from the office including chairs or monitors to make them more comfortable at home.
• Benefits : As the duration of the pandemic ensued, we communicated to our employees the importance of mental health and well-being. We encourage our teams to take advantage of our virtual mental health resources and utilize virtual health care when doctor’s offices were closed. In addition, we implemented a Summer Hours program that allows people to take every other Friday off as a way to prevent employee burn out and spend time away from their workstations.
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• Essential worker safety : For our essential workers that could not work remotely, we provided all personal protective equipment including hand sanitizing stations, masks, gloves, added cleaning services and ensured social distancing. We provide the employees with a mobile application to personally screen for symptoms before accessing our sites. The safety of our employees and work environments remain a top priority. We published our pandemic guide with all written safety policies and protocols.
• Workforce of the future : Following the results of our Post Pandemic survey, we will continue to offer a hybrid work-from-home policy and use of current office space as centers of collaboration where our employees will have larger dedicated spaces for team meetings, customer engagements, or other social gatherings. To ensure we offer our employees the best work environment for productivity and success that suits their needs, we will also have space designated for single day use workstations.
Culture of Excellence, Accountability, and Innovation
Our company goals and leadership attributes set the tone for our culture of excellence and accountability. Through our Code of Conduct, Culture of Compliance survey, and monthly compliance newsletter, employees are empowered to ask questions, use their voice and report concerns without fear of retaliation.
Our company culture supports and inspires innovation. Employees are encouraged to seek out new projects or experiences even outside their own working group. The leadership team created regular “no internal meetings” days so employees can have more time to work on innovative projects, plan, take a training course, or use the uninterrupted time for personal development.
Talent Development
Our talent is our greatest asset. We are actively growing our employees from a skills and leadership perspective while also retaining our high potential and most critical talent. We offer a worldwide mentorship program that last six months in duration and is available to any interested employee. All of our senior leaders participate in the program and get paired with an employee on key developmental skills or behaviors. In addition, we focus our performance reviews on a semi-annual basis in order to closely monitor and discuss our talent successes, needs, and aspirations. Our managers and employees participate in semi-annual discussions that help facilitate conversations of employee contributions, goals and expectations.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at https://www.quantum.com generally when such reports are available on the SEC website. The contents of our website are not incorporated into this Annual Report on Form 10-K.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.