QUANTUM CORP /DE/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 48 Consolidated Balance Sheets 52 Consolidated Statements of Operations and Comprehensive Loss 53 Consolidated Statements of Cash Flows 54 Consolidated Statements of Stockholders’ Deficit 55 Index to Notes to Consolidated Financial Statements 56 46 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Quantum Corporation San Jose, California Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Quantum Corporation and its subsidiaries (the Company) as of March 31, 2021 and 2020 and the related consolidated statements of operations and comprehensive loss, stockholders' deficit, and cash flows for each of the years in the three year period ended March 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable 47 Table of Contents assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition — Refer to Note 1 to the Consolidated Financial Statements Critical Audit Matter Description The Company recognizes revenue from sales of products as control is transferred to customers, which generally occurs at the point of shipment or upon delivery, unless customer acceptance is uncertain. Revenue from distributors is recognized when the customer obtains control of the product, which generally occurs at the point of shipment or upon delivery, unless customer acceptance is uncertain. Net sales for the fiscal year ended March 31, 2021 was $349.6 million, which principally consist of product sales. We identified the timing of revenue recognition for product sales (i.e., whether the Company recorded product sales in the appropriate fiscal year) as a critical audit matter because of the significant judgments used when applying Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers – to contracts with customers. The Company utilizes a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers ship products and fulfill performance obligations. This made auditing the timing of revenue recognition for product sales challenging and required significant audit effort to validate the timing of revenue recognition. 48 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures related to the timing of revenue recognition for product sales included the following, among others: • We tested the effectiveness of internal controls over the timing of revenue recognition. • We selected a sample of product sales obtained the invoice, purchase order, customer contract or agreement, packing list, bill of lading, proof of delivery, and evidence of cash collection, to validate revenue was recognized in the appropriate fiscal year. • We selected a sample of product sales for the year and examined the related contract to validate no customer acceptance clauses existed that would preclude revenue recognition. • We selected a sample of credit memos from the period immediately subsequent to the Company’s fiscal year end and the related invoice, return merchandise authorization form, and shipping documents, to and validated revenue was recognized in the fiscal year ended March 31, 2021 only when control was transferred to the customer and if applicable, customer acceptance had occurred. • We obtained and evaluated internal certifications provided by the Company’s sales employees to validate no side agreements existed that could impact the timing of revenue recognition. 49 Table of Contents Inventories – Excess and Obsolescence Reserve — Refer to Note 1 to the Consolidated Financial Statements Critical Audit Matter Description The Company’s manufacturing and service parts inventories are recorded on a first-in, first-out (“FIFO”) basis, subject to the lower of cost or net realizable value, and as necessary, the Company writes down the valuation of inventories for excess and obsolescence. Provision for manufacturing and service inventories for the fiscal year ended March 31, 2021 was $12.8 million. We identified the excess and obsolescence write-down as a critical audit matter because of the judgment’s management makes to estimate the excess and obsolescence write-downs. This required a high degree of auditor judgment and significant effort to validate the methodology and the reasonableness of the excess and obsolescence write-downs. How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures related to the Company’s excess and obsolescence write-down included the following procedures, among others: • We tested the effectiveness of internal controls over inventory valuation. • We gained an understanding and evaluated the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process. • We evaluated the assumptions used by the Company to define what is considered aged inventory by assessing historical trends in the Company’s product life cycle as well as evaluating the underlying calculations applied to the aged inventory. • We evaluated the inventory valuation utilizing the methodology above to assess the inventory write-down rate applied to different products. /s/ Armanino LLP San Ramon, California May 26, 2021 We have served as the Company's auditor since 2019. 50 Table of Contents QUANTUM CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) March 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 27,430 $ 6,440 Restricted cash 707 830 Accounts receivable, net of allowance for doubtful accounts of $ 406 and $ 1,247 , respectively 73,102 70,370 Manufacturing inventories 24,467 29,196 Service parts inventories 23,421 20,502 Other current assets 6,939 8,489 Total current assets 156,066 135,827 Property and equipment, net 10,051 9,046 Intangible assets, net 5,037 — Goodwill 3,466 — Restricted cash 5,000 5,000 Right-of-use assets, net 9,383 12,689 Other long-term assets 5,921 3,433 Total assets $ 194,924 $ 165,995 Liabilities and Stockholders’ Deficit Current liabilities: Accounts payable $ 35,245 $ 36,949 Deferred revenue 84,027 81,492 Accrued restructuring charges 580 — Long-term debt, current portion 1,850 7,321 Accrued compensation 19,214 14,957 Other accrued liabilities 18,174 17,535 Total current liabilities 159,090 158,254 Deferred revenue 36,126 37,443 Long-term debt, net of current portion 90,890 146,847 Operating lease liabilities 8,005 10,822 Other long-term liabilities 13,058 11,154 Total liabilities 307,169 364,520 Commitments and Contingencies (Note 11) Stockholders’ deficit Preferred stock: Preferred stock, 20,000 shares authorized; no shares issued as of March 31, 2021 and 2020 — — Common stock: Common stock, $ 0.01 par value; 125,000 shares authorized; 56,915 and 39,905 shares issued and outstanding at March 31, 2021 and 2020, respectively 570 399 Additional paid-in capital 626,664 505,762 Accumulated deficit ( 738,623 ) ( 703,164 ) Accumulated other comprehensive loss ( 856 ) ( 1,522 ) Total stockholders' deficit ( 112,245 ) ( 198,525 ) Total liabilities and stockholders' deficit $ 194,924 $ 165,995 The accompanying notes are an integral part of these consolidated financial statements. 51 Table of Contents QUANTUM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share amounts) Year Ended March 31, 2021 2020 2019 Revenue: Product $ 209,808 $ 251,168 $ 244,654 Service 124,904 131,050 134,696 Royalty 14,864 20,731 23,330 Total revenue 349,576 402,949 402,680 Cost of revenue: Product 150,257 179,760 179,846 Service 48,566 50,681 55,220 Total cost of revenue 198,823 230,441 235,066 Gross profit 150,753 172,508 167,614 Operating expenses: Research and development 41,703 36,301 32,113 Sales and marketing 54,945 59,524 69,400 General and administrative 42,001 54,457 65,277 Restructuring charges 3,701 1,022 5,570 Total operating expenses 142,350 151,304 172,360 Income (loss) from operations 8,403 21,204 ( 4,746 ) Other income (expense), net ( 1,312 ) ( 261 ) 2,878 Interest expense ( 27,522 ) ( 25,350 ) ( 21,095 ) Loss on debt extinguishment, net ( 14,789 ) — ( 17,458 ) Net 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 ) Net loss per share - basic and diluted $ ( 0.83 ) $ ( 0.14 ) $ ( 1.20 ) Weighted average shares - basic and diluted 42,852 37,593 35,551 Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 ) Foreign currency translation adjustments, net 666 ( 112 ) ( 1,136 ) Total comprehensive loss $ ( 34,793 ) $ ( 5,322 ) $ ( 43,933 ) The accompanying notes are an integral part of these consolidated financial statements. 52 Table of Contents QUANTUM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended March 31, 2021 2020 2019 Operating activities Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,697 4,287 4,266 Amortization of debt issuance costs 6,301 4,017 2,825 Long-term debt related costs 167 — — Paid-in-kind interest — 1,858 — Provision for manufacturing and service inventories 6,334 6,255 8,851 Non-cash income tax benefit ( 577 ) — — Stock-based compensation 9,624 6,748 3,409 Deferred income taxes 34 458 2,356 Bad debt expense ( 573 ) 1,221 315 Unrealized foreign exchange (gain) loss, net of income taxes 1,243 128 ( 224 ) Non-cash loss on debt extinguishment 10,087 — 17,851 Gain on investment — — ( 2,729 ) Other non-cash — — 1,795 Changes in assets and liabilities, net of effect of acquisition: Accounts receivable ( 1,625 ) 15,237 8,054 Manufacturing inventories 924 ( 11,092 ) 13,054 Service parts inventories ( 5,879 ) ( 3,817 ) ( 3,506 ) Accounts payable ( 1,994 ) ( 768 ) ( 25,356 ) Deferred revenue 418 ( 11,334 ) ( 8,367 ) Accrued restructuring charges 580 ( 2,876 ) ( 2,943 ) Accrued compensation 4,257 ( 2,161 ) ( 2,342 ) Other assets and liabilities ( 326 ) ( 4,132 ) 8,629 Net cash used in operating activities ( 767 ) ( 1,181 ) ( 16,859 ) Investing activities Purchases of property and equipment ( 6,931 ) ( 2,633 ) ( 2,708 ) Cash distributions from investments — — 2,943 Business acquisitions ( 2,655 ) ( 1,966 ) — Net cash provided by (used in) investing activities ( 9,586 ) ( 4,599 ) 235 Financing activities Borrowings of long-term debt 19,400 — 186,780 Repayments of long-term debt ( 92,782 ) ( 1,238 ) ( 121,807 ) Borrowings of credit facility 309,920 331,632 320,927 Repayments of credit facility ( 313,065 ) ( 329,012 ) ( 369,336 ) Borrowings of paycheck protection program 10,000 — — Proceeds from secondary offering, net 96,756 — — Payment of taxes due upon vesting of restricted stock ( 236 ) ( 171 ) ( 354 ) Proceeds from issuance of common stock 1,335 — — Net cash provided by financing activities 31,328 1,211 16,210 Effect of exchange rate changes on cash and cash equivalents ( 108 ) ( 16 ) 62 Net change in cash, cash equivalents, and restricted cash 20,867 ( 4,585 ) ( 352 ) Cash, cash equivalents, and restricted cash at beginning of period 12,270 16,855 17,207 Cash, cash equivalents, and restricted cash at end of period $ 33,137 $ 12,270 $ 16,855 Supplemental disclosure of cash flow information Cash paid for interest $ 24,324 $ 16,488 $ 17,677 Cash paid for income taxes, net of refunds $ ( 2,283 ) $ ( 490 ) $ 68 Non-cash transactions Purchases of property and equipment included in accounts payable $ 258 $ 368 $ 105 Purchases of property and equipment included in accrued liabilities $ 1,212 $ — $ — Transfer of inventory to property and equipment $ 429 $ 400 $ 408 Payment of litigation settlements with insurance proceeds $ — $ 8,950 $ — The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows: Cash and cash equivalents $ 27,430 $ 6,440 $ 10,790 Restricted cash, current 707 830 1,065 Restricted cash, long-term 5,000 5,000 5,000 Total cash, cash equivalents and restricted cash at the end of period $ 33,137 $ 12,270 $ 16,855 The accompanying notes are an integral part of these consolidated financial statements. 53 Table of Contents QUANTUM CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (in thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit Shares Amount Balance, March 31, 2018 35,443 354 481,610 ( 655,157 ) ( 274 ) ( 173,467 ) Net loss — — — ( 42,797 ) — ( 42,797 ) Foreign currency translation adjustments, net — — — — ( 1,136 ) ( 1,136 ) Shares issued under employee incentive plans, net 597 6 ( 360 ) — — ( 354 ) Stock-based compensation — — 3,409 — — 3,409 Reclassifications of liability classified warrants to equity — — 14,565 — — 14,565 Balance, March 31, 2019 36,040 360 499,224 ( 697,954 ) ( 1,410 ) ( 199,780 ) Net loss — — — ( 5,210 ) — ( 5,210 ) Foreign currency translation adjustments, net — — — — ( 112 ) ( 112 ) Shares issued under employee incentive plans, net 1,082 11 ( 182 ) — — ( 171 ) Shares issued from warrants exercised, net 2,783 28 ( 28 ) — — — Stock-based compensation — — 6,748 — — 6,748 Balance, March 31, 2020 39,905 $ 399 $ 505,762 $ ( 703,164 ) $ ( 1,522 ) $ ( 198,525 ) Net loss — — — ( 35,459 ) — ( 35,459 ) Foreign currency translation adjustments, net of income taxes — — — — 666 666 Shares issued under employee stock purchase plan 320 4 1,331 — — 1,335 Shares issued under employee incentive plans, net 1,264 13 ( 13 ) — — — Shares surrendered for employees' tax liability upon settlement of restricted stock units ( 44 ) — ( 236 ) — — ( 236 ) Shares issued in connection with business acquisition 361 3 2,077 — — 2,080 Shares issued in connection with secondary equity offering, net 15,109 151 96,604 — — 96,755 Warrants issued related to long-term debt — — 11,515 — — 11,515 Stock-based compensation — — 9,624 — — 9,624 Balance, March 31, 2021 56,915 $ 570 $ 626,664 $ ( 738,623 ) $ ( 856 ) $ ( 112,245 ) The accompanying notes are an integral part of these consolidated financial statements. 54 Table of Contents INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Page Note 1: Description of Business and Summary of Significant Accounting Policies 56 Note 2: Revenue Recognition 65 Note 3: Business Acquisition 66 Note 4: Balance Sheet Information 68 Note 5: Debt 69 Note 6: Leases 73 Note 7: Restructuring Charges 74 Note 8: Common Stock 74 Note 9: Net Loss Per Share 77 Note 10: Income Taxes 78 Note 11: Commitments and Contingencies 81 Note 12: Fair Value of Financial Instruments 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving. The Company helps customers around the world capture, create and share digital data and preserve and protect it for decades. The Company’s software-defined, hyperconverged storage solutions span from non-violate memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape and the cloud and are tied together leveraging a single namespace view of the entire data environment. The Company works closely with a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers to meet customers’ evolving needs. Basis of Presentation The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated. The Company reviews subsidiaries and affiliates, as well as other entities, to determine if they should be considered variable interest entities (“VIE”), and whether it should change the consolidation determinations based on changes in their characteristics. The Company considers an entity a VIE if its equity investors own an interest therein that lacks the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or if the entity is structured with non-substantive voting interests. To determine whether or not the entity is consolidated with the Company’s results, the Company also evaluates which interests are variable interests in the VIE and which party is the primary beneficiary of the VIE. Principles of Consolidation The consolidated financial statements include the accounts of Quantum and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. 55 Table of Contents Actual results could differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, stock-based compensation and provision for income taxes including related reserves. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Cash and Cash Equivalents The Company has cash deposits and cash equivalents deposited in or managed by major financial institutions. Cash equivalents include all highly liquid investment instruments with an original maturity of three months or less and consist primarily of money market accounts. At times the related amounts are in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses with these financial institutions and does not believe such balances are exposed to significant credit risk. Restricted Cash Restricted cash is primarily attributable to minimum cash reserve requirements under the Company’s revolving credit agreements. The remaining restricted cash is comprised of bank guarantees and similar required minimum balances that serve as cash collateral in connection with various items including insurance requirements, value added taxes, ongoing tax audits and leases in certain countries. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts for estimated losses based on historical experience and expected collectability of outstanding accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition, and for the majority of its customers require no collateral. For customers that do not meet the Company’s credit standards, the Company often requires a form of collateral, such as cash deposits or letters of credit, prior to the completion of a transaction. These credit evaluations require significant judgment and are based on multiple sources of information. The Company analyzes such factors as its historical bad debt experience, industry and geographic concentrations of credit risk, current economic trends and changes in customer payment terms. The Company will write-off customer balances in full to the reserve when it has determined that the balance is not recoverable. Changes in the allowance for doubtful accounts are recorded in general and administrative expenses. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Inputs are unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company's financial instruments consist of Level 3 liabilities. Manufacturing Inventories Manufacturing inventory is recorded at the lower of cost or net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. Costs include material, direct labor, and an allocation of overhead in the case of work in process. Adjustments to reduce the cost of manufacturing inventory to its net realizable value, if required, are made for estimated excess, obsolete or impaired balances. Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends, 56 Table of Contents product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from the Company’s estimates. Service Parts Inventories Service parts inventories are recorded at the lower of cost or net realizable value, with cost being determined on a FIFO basis. The Company carries service parts because it generally provides product warranty for one to three years and earns revenue by providing enhanced and extended warranty and repair services during and beyond this warranty period. Service parts inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. The Company records adjustments to reduce the carrying value of service parts inventory to its net realizable value and disposes of parts with no use and a net realizable value of zero. Factors influencing these adjustments include product life cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from the Company’s estimates. Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and amortization, computed on a straight-line basis over the estimated useful lives of the assets as follows: Machinery and equipment 3 to 5 years Computer equipment 3 to 5 years Enterprise resource planning software (1) 10 years Other software 3 years Furniture and fixtures 5 years Other office equipment 5 years Leasehold improvements Shorter of useful life or life of lease (1) Included in other long-term assets in the accompanying consolidated balance sheets. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive income (loss) in the period realized. The Company evaluates the recoverability of the carrying amount of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. A potential impairment charge is evaluated when the undiscounted expected cash flows derived from an asset group are less than its carrying amount. Impairment losses, if applicable, are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of impairment testing, the undiscounted cash flows used to assess impairments and the fair value of the asset group. Business Combinations The Company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in its consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred. Goodwill Goodwill represents the excess of the purchase price consideration over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is evaluated for impairment annually in the third quarter of its fiscal year as a single reporting unit, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company may elect to 57 Table of Contents qualitatively assess whether it is more likely than not that the fair value of its reporting unit is less than its carrying value. If the Company opts not to qualitatively assess, a quantitative goodwill impairment test is performed. The quantitative test compares its reporting unit's carrying amount, including goodwill, to its fair value calculated based on its enterprise value. If the carrying amount exceeds its fair value, an impairment loss is recognized for the excess. The Company did not recognize any impairment of goodwill in any of the periods presented in the consolidated financial statements. Purchased Intangible Assets Purchased intangible assets with finite lives are stated at cost, net of accumulated amortization. The Company amortizes its intangible assets on a straight-line basis over an estimated useful life of three to seven years . Impairment of Long-Lived Assets We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, we record an impairment charge for the amount by which the carrying amount of the asset exceeds its fair market value. Operating Leases The Company determines if an arrangement contains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company's operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. The operating lease right-of-use ("ROU") asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives. The Company accounts for the lease and non-lease components of operating lease contract consideration as a single lease component. Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised. In addition, certain operating lease agreements contain tenant improvement allowances from the Company's landlords. These allowances are accounted for as lease incentives and reduce its ROU asset and lease cost over the lease term. For short-term leases with lease term no longer than twelve months, and do not include an option to purchase the underlying asset that is reasonably certain to be exercise, the Company recognizes rent expense in the Company's consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred. Deferred Revenue Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue and performance obligations pertaining to subscription services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet dates. Revenue recognition The Company generates revenue from three main sources: (1) product, (2) professional services, and (3) royalties. Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. The 58 Table of Contents Company's performance obligations are satisfied at a point in time or over time as stand ready obligations. The majority of revenue is recognized at a point in time when products are accepted, installed or delivered. Product Revenue The Company's product revenue is comprised of multiple storage solution hardware and software offerings targeted towards consumer and enterprise customers. Revenue from product sales is recognized at the point in time when the customer takes control of the product. If there are significant post-delivery obligations, the related revenue is deferred until such obligations are fulfilled. Revenue from contracts with customer acceptance criteria are recognized upon end user acceptance. Service Revenue Service revenue primarily consists of three components: (1) post-contract customer support agreements. (2) installation, and (3) consulting & training. Customers have the option to choose between different levels of hardware and software support. The Company's support plans include various stand-ready obligations such as technical assistance hot-lines, replacement parts maintenance, and remote monitoring that are delivered whenever called upon by its customers. Support plans provide additional services and assurance outside the scope of the Company's primary product warranties. Revenue from support plans are recognized ratably over the contractual term of the service contract. The Company offers installation services on all its products. Customers can opt to either have Quantum or a Quantum-approved third-party service provider install its products. Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete. A majority of the Company's consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time. Royalty Revenue The Company licenses certain intellectual property to third party manufacturers which gives the manufacturers rights to intellectual property including the right to either manufacture or include the intellectual property in their products for resale. Licensees pay the Company a per-unit royalty for sales of their products that incorporate its intellectual property. On a periodic and timely basis, the licensees provide us with reports containing units sold to end users subject to the royalties. The reports substantiate that the performance obligation has been satisfied therefore revenue is recognized based on the reports or when amounts can be reasonably estimated. Significant Judgements The Company generally enters into contracts with customers to provide storage solutions to meet their individual needs. Most of the Company’s contracts contain multiple goods and services designed to meet each customers’ unique storage needs. Contracts with multiple goods and services have multiple distinct performance obligations as the promise to transfer hardware, installation services, and support services are capable of being distinct and provide economic benefit to customers on their own. Stand-alone selling price For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price (“SSP”) of the good or service underlying each performance obligation. The SSP represents the amount for which the Company would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundle with any other products or services). Where SSP may not be directly observable (e.g., the performance obligation is not sold separately), the Company maximized the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings. The Company evaluated all methods included in ASC 606 to determine SSP and concluded that invoice price is the best representation of what the Company expects to receive from the delivery of each performance obligation. Variable consideration 59 Table of Contents Product revenue includes multiple types of variable consideration, such as rebates, returns, or stock rotations. All contracts with variable consideration require payment upon satisfaction of the performance obligation typically with net 45-day payment terms. The Company does not include significant financing components in its contracts. The Company constrains estimates of variable consideration to amounts that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be returned to the customer under the specific terms of the underlying programs. The expected value method is used to estimate the consideration expected to be returned to the customer. The Company uses historical data and current trends to drive the estimates. The Company records a reduction to revenue to account for these programs. The Company initially measures this asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in the value of the returned goods. Cost of Service Revenue The Company classifies expenses as service cost of revenue by estimating the portion of its total cost of revenue that relates to providing field support to its customers under contract. These estimates are based upon a variety of factors, including the nature of the support activity and the level of infrastructure required to support the activities from which it earns service revenue. In the event its service business changes, its estimates of cost of service revenue may be impacted. Research and Development Costs Expenditures relating to the development of new products and processes are expensed as incurred. These costs include expenditures for employee compensation, materials used in the development effort, other internal costs, as well as expenditures for third party professional services. The Company has determined that technological feasibility for its software products is reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established have not been material. The Company expenses software-related research and development costs as incurred. Advertising Expense Advertising expense is recorded as incurred and was $ 1.5 million, $ 3.4 million, and $ 4.5 million in fiscal 2021, 2020 and 2019, respectively. Shipping and Handling Fees Shipping and handling fees are included in cost of revenue and were $ 9.4 million, $ 9.4 million, and $ 9.1 million in fiscal 2021, 2020 and 2019, respectively. Restructuring Reserves Restructuring reserves include charges related to the realignment and restructuring of the Company’s business operations. These charges represent judgments and estimates of the Company’s costs of severance, closure and consolidation of facilities and settlement of contractual obligations under its operating leases, including sublease rental rates, asset write-offs and other related costs. The Company reassesses the reserve requirements to complete each individual plan under the restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from the Company’s estimates, additional charges may be required. Foreign Currency Translation The Company's international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are reported as a component of other comprehensive income (loss) and recorded in accumulated other comprehensive loss on its consolidated balance sheets. Income Taxes The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes in which deferred tax asset and liabilities are recognized based on differences between the financial reporting carrying values of assets 60 Table of Contents and liabilities and the tax basis of those assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled. A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is included in the tax provision. The Company assesses whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized in the financial statements from such a position is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances and changes in tax law. The Company recognizes penalties and tax-related interest expense as a component of income tax expense in the consolidated statements of operations. Asset Retirement Obligations The Company records an asset retirement obligation for the fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, the Company recognizes changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. The Company’s obligations relate primarily to certain legal obligations to remediate leased property on which certain assets are located. Warranty Expense The Company warranties its products against certain defects and the terms range from one to three years . The Company provides for the estimated costs of fulfilling its obligations under hardware warranties at the time the related revenue is recognized. The Company estimates the provision based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The Company regularly reassess its estimates to determine the adequacy of the recorded warranty liability and adjusts the provision, as necessary. Debt Issuance Costs Debt issuance costs for revolving credit agreements are capitalized and amortized over the term of the underlying agreements on a straight-line basis. Amortization of these debt issuance costs is included in interest expense while the unamortized debt issuance cost balance is included in other current assets or other assets. Debt issuance costs for the Company’s term loans are recorded as a reduction to the carrying amount and are amortized over their terms using the effective interest method. Amortization of these debt issuance costs is included in interest expense. Stock-Based Compensation The Company classifies stock-based awards granted in exchange for services as either equity awards or liability awards. The classification of an award as either an equity award or a liability award is generally based upon cash settlement options. Equity awards are measured based on the fair value of the award at the grant date. Liability awards are re-measured to fair value each reporting period. Each reporting period, the Company recognizes the change in fair value of awards issued to non-employees as expense. The Company recognizes stock-based compensation on a straight-line basis over the award’s requisite service period, which is generally the vesting period of the award, less actual forfeitures. No compensation expense is recognized for awards for which participants do not render the requisite services. For equity and liability awards earned based on performance or upon occurrence of a contingent event, when and if the awards will be earned is estimated. If an award is not considered probable of being earned, no amount of stock-based compensation is recognized. If the award is deemed probable of being earned, related compensation expense is recorded over the estimated service period. To the extent the estimate of 61 Table of Contents awards considered probable of being earned changes, the amount of stock-based compensation recognized will also change. Concentration of Credit Risk The Company sells products to customers in a wide variety of industries on a worldwide basis. In countries or industries where the Company is exposed to material credit risk, the Company may require collateral, including cash deposits and letters of credit, prior to the completion of a transaction. The Company does not believe it has significant credit risk beyond that provided for in the consolidated financial statements in the ordinary course of business. During the fiscal years ended March 31, 2021, 2020 and 2019 no customers represented 10% or more of the Company’s total revenue. Two customers comprised approximately 22 % of accounts receivable as of March 31, 2021. No customers comprised more than 10% of accounts receivable as of March 31, 2020. One customer comprised approximately 21 % of accounts receivable as of March 31, 2019. If the Company is unable to obtain adequate quantities of the inventory needed to sell its products, the Company could face costs increases or delays or discontinuations in product shipments, which could have a material adverse effect on the Company’s results of operations. In many cases, the Company’s chosen vendor may be the sole source of supply for the products or parts they manufacture, or services they provide, for the Company. Some of the products the Company purchases from these sources are proprietary or complex in nature, and therefore cannot be readily or easily replaced by alternative sources. Segment Reporting Business segments are defined as components of an enterprise about which discrete financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Based on the way the Company manages its business, the Company has determined that it currently operates with one reportable segment. The chief operating decision maker focuses on consolidated results in assessing operating performance and allocating resources. Furthermore, the Company offers similar products and services and uses similar processes to sell those products and services to similar classes of customers. The Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision-maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable segment and operating segment structure. Based on how the Company manages its business, the Company has determined that it currently operates in one reportable segment. The Company operates in three geographic regions: (a) Americas; (b) Europe, Middle East, and Africa (“EMEA”); and (c) Asia Pacific (“APAC”). The following table summarizes property and equipment, net by geographic region (in thousands): For the year ended March 31, 2021 2020 United States $ 9,787 $ 8,488 International 264 558 Total $ 10,051 $ 9,046 Defined Contribution Plan The Company sponsors a qualified 401(k) retirement plan for its U.S employees. The plan covers substantially all employees who have attained the age of 18. Participants may voluntarily contribute to the plan up to the maximum limits established by Internal Revenue Service regulations. For the year ended March 31, 2021, the Company incurred $ 1.2 million in matching contributions. No matching contributions were made in the fiscal years ended March 31, 2020 and 2019. Recently Adopted Accounting Pronouncements 62 Table of Contents The Company adopted the guidance in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments ("CECL") on April 1, 2020. The ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over the lifetime of the asset rather than incurred losses. The adoption of ASU 2016-13 did not have a material impact on the condensed consolidated financial statements. The Company adopted the guidance in ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract on April 1, 2020. The ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises as authoritative guidance for internal-use software and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The adoption of ASU 2018-15 did not have a material impact on the condensed consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt this pronouncement for our fiscal year ending March 31, 2022, and does not expect it to have a material effect on its consolidated financial statements. 63 Table of Contents NOTE 2: REVENUE In the following table, revenue is disaggregated by major product offering and geographies (in thousands): Year Ended March 31, 2021 2020 2019 1 Americas 2 Primary storage systems $ 52,295 $ 54,211 $ 33,789 Secondary storage systems 41,948 57,192 72,696 Device and media 24,410 31,228 34,079 Service 76,039 82,607 87,040 Total revenue 194,692 225,238 227,604 EMEA Primary storage systems 12,940 16,078 18,902 Secondary storage systems 33,688 40,008 40,666 Device and media 20,881 25,484 19,064 Service 41,261 39,467 37,216 Total revenue 108,770 121,037 115,848 APAC Primary storage systems 4,409 6,863 6,120 Secondary storage systems 13,364 14,472 13,166 Device and media 5,873 5,632 6,172 Service 7,604 8,976 10,440 Total revenue 31,250 35,943 35,898 Consolidated Primary storage systems 69,644 77,152 58,811 Secondary storage systems 89,000 111,672 126,528 Device and media 51,164 62,344 59,315 Service 124,904 131,050 134,696 Royalty 3 14,864 20,731 23,330 Total revenue $ 349,576 $ 402,949 $ 402,680 1 Primary and Secondary storage system revenue has been adjusted for fiscal year 2019 due to certain reclassifications from Primary to Secondary storage systems. 2 Revenue for Americas geographic region outside of the United States is not significant. 3 Royalty revenue is not allocable to geographic regions. Contract Balances The following table presents the Company’s contract liabilities and certain information related to this balance as of March 31, 2021 (in thousands): 64 Table of Contents March 31, 2021 Deferred revenue $ 120,153 Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period $ 79,921 Remaining Performance Obligations Remaining performance obligations consisted of the following (in thousands): Current Non-Current Total As of March 31, 2021 $ 102,468 $ 38,771 $ 141,239 The Company expects to recognize approximately 72.5 % of the remaining performance obligations within the next 12 months. The majority of the Company’s noncurrent remaining performance obligations is expected to be recognized in the next 13 to 60 months. NOTE 3: BUSINESS ACQUISITION On December 12, 2020, the Company entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Square Box Systems Limited (“SBS”). The purchase price of approximately $ 7.7 million was comprised of (a) $ 2.6 million cash (net of cash acquired); (b) approximately 0.4 million shares of the Company’s common stock, with a fair value of $ 2.1 million; (c) $ 2.0 million cash payable at the first anniversary of the Closing date; and (d) $ 1.0 million cash payable at the second anniversary of the Closing Date. Contingently issuable restricted stock units in the amount of $ 5.3 million, which is subject to continuous employment, are being recognized as stock-based compensation over the related two years vesting period. The purchase price was allocated to tangible assets of approximately $ 0.8 million, intangible assets of approximately $ 5.6 million based on their fair values on the acquisition date, liabilities of approximately $ 1.0 million, and a net deferred tax liability of $ 1.1 million. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed was approximately $ 3.4 million, which has been recorded as goodwill. The historical results of operations for SBS were not significant to the Company's consolidated results of operations for the periods presented. The following table summarizes intangible assets related to the SBS acquisition as of March 31, 2021: Intangible assets, net March 31, 2021 Gross Carrying Value Accumulated Amortization Net Carrying Amount Developed technology $ 4,700 $ ( 473 ) $ 4,227 Customer lists 900 ( 90 ) 810 Intangible assets, net $ 5,600 $ ( 563 ) $ 5,037 There was no intangible amortization expense for fiscal years 2020 and 2019. At the end of fiscal 2021, the weighted-average remaining amortization period was 2.7 years for developed technology and customer lists. The Company recorded amortization of developed technology in cost of product revenue, and customer lists in sales and marketing expenses in the consolidated statements of operations. As of March 31, 2021, the future expected amortization expense for intangible assets is as follows (in thousands): 65 Table of Contents Fiscal year ending Estimated future amortization expense 2022 1,867 2023 1,867 2024 1,303 2025 — Thereafter — Total $ 5,037 Goodwill Amount Balance at March 31, 2020 $ — Goodwill acquired 3,466 Balance at March 31, 2021 $ 3,466 66 Table of Contents NOTE 4: BALANCE SHEET INFORMATION Certain significant amounts included in the Company's consolidated balance sheets consist of the following (in thousands): Manufacturing inventories March 31, 2021 2020 Finished goods Manufactured finished goods $ 12,452 $ 15,790 Distributor inventory 238 504 Total finished goods 12,690 16,294 Work in progress 2,074 1,001 Raw materials 9,703 11,901 Total manufacturing inventories $ 24,467 $ 29,196 Service inventories March 31, 2021 2020 Finished goods $ 18,773 $ 15,845 Component parts 4,648 4,657 Total service inventories $ 23,421 $ 20,502 Property and equipment, net March 31, 2021 2020 Machinery and equipment $ 38,027 $ 33,804 Leasehold improvements 7,080 6,733 Furniture and fixtures 847 1,862 Software 300 — 46,254 42,399 Less: accumulated depreciation ( 36,203 ) ( 33,353 ) Total property, plant and equipment, net $ 10,051 $ 9,046 Depreciation and amortization expense for property and equipment amounted to $ 5.7 million, $ 4.3 million, and $ 4.3 million for the years ended March 31, 2021, 2020, and 2019, respectively. Other accrued liabilities March 31, 2021 2020 Accrued expenses $ 6,799 $ 3,338 Asset retirement obligation 2,906 1,655 Accrued warranty 2,383 2,668 Accrued interest 57 3,192 Other 6,029 6,682 Total other accrued liabilities $ 18,174 $ 17,535 67 Table of Contents The following table details the change in the accrued warranty balance (in thousands): Year Ended March 31, 2021 2020 2019 Balance as of April 1 $ 2,668 $ 3,456 2,422 Current period accruals 4,699 3,516 5,766 Adjustments to prior estimates ( 472 ) ( 114 ) 326 Charges incurred ( 4,512 ) ( 4,190 ) ( 5,058 ) Balance as of March 31 $ 2,383 $ 2,668 $ 3,456 NOTE 5: DEBT The following table summarizes the Company's borrowing as of the dates presented (in thousands): Year Ended March 31, 2021 2020 Senior Secured Term Loan $ 92,426 $ 165,208 Amended PNC Credit Facility — 2,620 Paycheck Protection Program 10,000 — Less: current portion ( 1,850 ) ( 7,321 ) Less unamortized debt issuance costs (1) ( 9,686 ) ( 13,660 ) Long-term debt, net $ 90,890 $ 146,847 (1) The unamortized debt issuance costs related to the Senior Secured Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying consolidated balance sheets. Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying consolidated balance sheets. TCW Term Loan and PNC Credit Facility On October 21, 2016 (the “Closing Date”), the Company entered into a term loan and security agreement (the “TCW Term Loan”) with TCW Asset Management Company LLC (“TCW”) and a revolving credit and security agreement (the “PNC Credit Facility” and together with the TCW Term Loan, the “Credit Agreements”) with PNC Bank, National Association (“PNC”). In August 2018, the Company amended the Credit Agreements issued TCW warrants to purchase 1,099,533 of the Company’s common stock at an exercise price of $ 2.11 per share. To the extent that the Company did not repay the entire TCW Term Loan by September 30, 2018, October 31, 2018, November 30, 2018 and December 31, 2018, then on each such date the Company was required to issue additional warrants to purchase 3 % of the then outstanding common stock of the Company with an exercise price equal to the closing price of the Company’s common stock on the business day immediately prior to the date of issuance of the warrants. A total of 4,398,132 warrants to purchase the Company’s common stock were issued related to the amendment (the “August 2018 Amendment Warrants”) with warrants to purchase 1,099,533 shares issued on each of September 30, 2018, October 31, 2018 and November 30, 2018 with exercise prices of $ 2.40 per share, $ 2.39 per share and $ 2.40 per share, respectively. The August 2018 Amendment Warrants were not exercisable until February 1, 2019, on which date, the exercise price of each of the warrants that were issued was reset to the lower of: (a) the applicable existing exercise price for such warrant or (b) the lowest of the 5-day volume-weighted average closing prices of the Company’s common stock for the last five trading days in the months of September 2018, October 2018, November 2018, December 2018 and January 2019. The exercise price for all of the August 2018 Amendment Warrants was adjusted to $ 1.62 per share on February 1, 2019. 68 Table of Contents Due to the exercise price reset provision in the August 2018 Amendment Warrants, the Company initially recorded the value of the warrants as a liability with changes in fair value recorded as other income (expense) in the accompanying consolidated statements of operations. The Company reclassified the fair value of the warrants of $ 5.6 million to additional paid in capital on February 1, 2019, the exercise price reset date. A loss of approximately $ 0.4 million was recorded to other income (expense) during fiscal year 2019 before the reclassification to equity. The August 2018 Amendment provided a repurchase right allowing the Company to repurchase 50 % of the August 2018 Amendment Warrants issued within 30 days of repayment of amounts due under the TCW Term Loan for $ 0.001 per warrant. The Company repaid the TCW Term Loan on December 27, 2018 and repurchased 549,766 warrants for $ 550 which resulted in a reduction in the fair value of the August 2018 Amendment Warrants liability of $ 0.4 million which was recorded as other income (expense) in the accompanying consolidated statements of operations and comprehensive income. On November 18, 2019, the 3.8 million outstanding August 2018 Amendment Warrants were exercised on a cashless basis, resulting in the issuance of 2.8 million shares of common stock. The Company accounted for the August 2018 Amendment related to the TCW Term Loan as a debt extinguishment. Accordingly, a $ 14.9 million loss on debt extinguishment was recorded during the year ended March 31, 2019 related primarily to fees paid to TCW (including $ 5.7 million related to the value of the August 2018 Amendment Warrants). The Company also accounted for the August 2018 Amendment related to the PNC Credit Facility as a debt extinguishment and recorded a loss on debt extinguishment of approximately $ 1.8 million related to a portion of the unamortized debt issuance costs. The Company paid PNC an amendment fee of $ 1.7 million which was included into other current assets and amortized to interest expense over the original term of the PNC Credit Facility. Senior Secured Term Loan and Amended PNC Credit Facility On December 27, 2018 (the “Closing Date”), the Company entered into a senior secured term loan of $ 150.0 million with U.S. Bank, National Association (“U.S. Bank”), drawn on the Closing Date, and a senior secured delayed draw term loan of $ 15.0 million (collectively, “the Senior Secured Term Loan”) which was drawn in January 2019. In connection with the Senior Secured Term Loan, the Company amended its existing PNC Credit Facility providing for borrowings up to a maximum principal amount of the lesser of: (a) $ 45.0 million or (b) the amount of the borrowing base, as defined in the PNC Credit Facility agreement. Borrowings under the Senior Secured Term Loan and Amended PNC Credit Facility (collectively, the “December 2018 Credit Agreements”) mature on December 27, 2023. A portion of the proceeds from the Senior Secured Term Loan was used to repay all outstanding borrowings under the TCW Term Loan. The Company recorded a loss on debt extinguishment of $ 0.8 million related to repayment of the TCW Term Loan including unamortized debt issuance costs of $ 0.1 million and costs paid to TCW of $ 0.7 million. The Company accounted for the Amended PNC Credit Facility as a modification. The Company incurred $ 1.4 million in costs related to the amendment which was recorded to other assets and is being recognized as interest expense over the term of the Amended PNC Credit Facility. Borrowings under the Senior Secured Term Loan bear interest at a rate per annum, at the Company’s option, equal to (a) the greater of (i) 3.00 %, (ii) the Federal funds rate plus 0.50 %, (iii) the LIBOR Rate based upon an interest period of 1 month 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 the Company is required to perform a calculation of excess cash flow, as defined in the Senior Secured Term Loan agreement, which may require an additional payment of the principal in certain circumstances (the "ECF Payment"). Borrowings under the Amended PNC Credit Facility bear interest, at the Company’s option, equal to, (a) the greater of (i) the base rate, as defined in the PNC Credit Facility, (ii) the daily Overnight Bank Funding Rate plus 0.5 % and (iii) the daily LIBOR rate plus 1.0 %, plus an applicable margin of (a) 4.50 % for the period from the Amendment Date 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 the Company’s applicable Total Leverage Ratio, as defined, or (b) the LIBOR Rate plus an applicable margin of (a) 5.00 % for the period from the Amendment Date until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, 69 Table of Contents ranging from 4.50 % to 5.00 % based on the Company’s applicable total leverage ratio, as defined in the Amended PNC Credit Facility agreement. Interest on the Amended PNC Credit Facility is payable quarterly. In connection with the Senior Secured Term Loan agreement, the Company issued warrants to purchase 7,110,616 shares of the Company’s common stock, at an exercise price of $ 1.33 per share (the “2018 Term Loan Warrants”). The exercise price and the number of shares underlying the 2018 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 warrants (“Down Round Feature”), a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments. The 2018 Term Loan Warrants are exercisable until December 27, 2028. 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 the Company’s common stock at the time of exercise. In accordance with ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”), the presence of the Down Round Feature does not preclude the Term Loan Warrants from being classified in stockholders’ deficit. Accordingly, the Company determined that the fair value of the warrants of $ 8.8 million should be classified within stockholders’ deficit upon issuance. The Company incurred $ 18.3 million in costs related to the Senior Secured Term Loan (including $ 8.8 million related to the value of the Term Loan Warrants). These debt issuance costs are reflected as a reduction of the carrying amount of the Senior Secured Term Loan and are being recognized as interest expense over the term of the Senior Secured Term Loan. The December 2018 Credit Agreements contain certain 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 equity issuances. Amounts outstanding under the December 2018 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) (i) failure to pay principal, interest, or any fees when due, (ii) breach of any representation or warranty, covenant, or other agreement, (iii) the occurrence of a bankruptcy or insolvency proceeding with respect to the Company or any of its subsidiaries, (iv) any event of default with respect to other indebtedness involving an aggregate amount of $ 1.0 million or more, (v) any lien created by the December 2018 Credit Agreements or any related security documents ceasing to be valid and perfected; (vi) the December 2018 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 shall occur. The December 2018 Credit Agreements contain financial covenants relating to a fixed charge coverage ratio, total net leverage ratio, minimum EBITDA, and minimum liquidity. The Amended PNC Credit Facility also includes a total leverage ratio covenant. As of March 31, 2021, the Company was in compliance with all covenants. The Senior Secured Term Loan contains a prepayment penalty which is calculated based on (i) if prepayment occurs prior to 30-month anniversary of the Closing Date, the prepayment penalty is the present value of all required interest payments due on the Senior Secured Term Loan that are prepaid from the date of prepayment through and including the 30-month anniversary of the Closing Date calculated based on the 3 month LIBOR Rate plus 10 %, plus 5.0 % of the amount of principal prepaid, (ii) if prepayment occurs between the 30-month anniversary of Closing Date through the third anniversary of the Closing Date, the prepayment penalty is 5.0 % of the principal prepaid and (iii) if prepayment occurs between the third anniversary of the Closing Date through the fourth anniversary of Closing Date, the prepayment penalty is 2.0 % of the principal prepaid (the “Prepayment Penalty”). There is no Prepayment Penalty after the fourth anniversary of the Closing Date. In the event of a change in control, as defined in the Senior Secured Term Loan agreement, the Company is required to make a change in control premium payment equal to the greater of the Prepayment Penalty or 1.0 % of the principal amount being repaid. The Company is permitted 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 the Company’s common stock at a prepayment premium of 5 % of the principal amount being repaid (the "Equity Clawback"). In addition to the Prepayment Penalty, the Company is required to pay an exit fee of 2 % of the aggregate principal amount repaid excluding amounts repaid that are subject to the Equity Clawback. On March 30, 2020, March 31, 2020 and April 3, 2020, the Company entered into amendments to the December 2018 Credit Agreements which, among other things, included (a) payment deferral of the scheduled amortization payment of $ 0.4 million due on April 1, 2020 to June 30, 2020; payment of $ 1.9 million of the interest due on April 1, 70 Table of Contents 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, the Company entered into an amendment to the December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the March 30, 2020, March 31, 2020 and April 3, 2020 amendment, (the “2020 Amendments”). The June 2020 Amendment provided an additional borrowing of $ 20.0 million which was immediately drawn in full. The amendment also (a) waived the ECF Payment of $ 5.3 million for the year ended March 31, 2020; (b) deferred payment of the scheduled amortization payments due on June 30, 2020, September 30, 2020, and December 31, 2020 until the maturity date; (c) amended 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) waived 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) added 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) amended 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. In connection with the June 2020 Amendment, the Company issued to the lenders warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares of the Company’s 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 warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s 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 the Company’s common stock at the time of exercise. The 2020 Amendments related to the Senior Secured Term Loan were accounted for as modifications. In connection with the modifications, the Company incurred $ 11.9 million in costs including $ 11.3 million related to the value of the 2020 Term Loan Warrants and $ 0.6 million in fees paid to the lenders. These debt issuance costs are reflected as a reduction to the carrying amount of the Senior Secured Term Loan and are amortized to interest expense over the remaining loan term. The 2020 Amendments related to the Amended PNC Credit Facility were accounted for as modifications. Fees paid to PNC of approximately $ 0.5 million were recorded to other assets and are amortized to interest expense over the remaining term of the agreement. Approximately $ 0.8 million in third party costs were expensed related to the 2020 Amendments. As of March 31, 2021, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.75 %, respectively, and the Amended PNC Credit Facility had a borrowing base of $ 32.7 million, all of which was available at that date. The Company is required to maintain a $ 5.0 million restricted cash reserve as part of the Amended PNC Credit Facility, which is presented as long-term restricted cash within the accompanying consolidated balance sheet as of March 31, 2021 S enior Secured Term Debt Prepayment On February 11, 2021 (the “Prepayment Date”), the Company prepaid $ 92.3 million of its outstanding Senior Secured Term Loan utilizing the proceeds of the secondary public offering discussed in Note 8: Common Stock . The Company utilized the Equity Clawback which allowed prepayment of up to 50 % of the aggregate principal amount of the outstanding Senior Secured Term Loan with net cash proceeds from a public equity offering at a prepayment penalty of 5 %. The Company recognized a loss on debt extinguishment of $ 14.8 million which included the write-off of debt issuance costs of $ 10.1 million, a prepayment penalty of $ 4.6 million and other costs of $ 0.1 million. Registration Rights Agreement In connection with the June 2020 Term Loan Amendment, the Company entered into an amended and restated registration rights agreement (the “Amended Registration Rights Agreement”) with the holders of the warrants previously issued to the Senior Secured Term Loan lenders in December 2018 and the 2020 Term Loan Warrants (collectively, the “Term Loan Warrants”). The Amended Registration Rights Agreement grants the holders of the Term Loan Warrants certain registration rights for the shares of common stock issuable upon the exercise of the 71 Table of Contents applicable Term Loan Warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40 % of the registrable securities held by such holder as of the issuance date of the applicable Term Loan Warrants; (b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement; and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations. Paycheck Protection Program Loan On April 13, 2020, the Company entered into a Paycheck Protection Program (“PPP”) Term Loan (“PPP Loan”) effective April 11, 2020 with PNC 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 bears interest at a fixed rate of 1 % per annum. The PPP Loan has an initial term of two years and is unsecured and guaranteed by the Small Business Administration. The Company used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP Loan and has applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this time that the PPP Loan will be forgiven partially or in full. To the extent that all or a portion of the PPP Loan is not forgiven, payment of the outstanding balance will be required on April 11, 2022. NOTE 6: LEASES Supplemental balance sheet information related to leases is as follows (in thousands): Operating leases March 31, 2021 March 31, 2020 Operating lease right-of-use assets $ 9,383 $ 12,689 Other current liabilities $ 2,581 $ 3,065 Operating lease liability 8,005 10,822 Total operating lease liabilities $ 10,586 $ 13,887 The components of lease expense were as follows (in thousands): Year Ended March 31, Lease expense 2021 2020 Operating lease expense $ 4,718 $ 4,901 Variable lease expense 820 277 Short-term lease expense 132 102 Total lease expense $ 5,670 $ 5,280 Maturity of Lease Liabilities Operating Leases 2022 $ 3,818 2023 2,766 2024 2,602 2025 2,310 2026 1,910 Thereafter 1,002 Total lease payments $ 14,408 Less: Imputed interest ( 3,822 ) Present value of lease liabilities $ 10,586 72 Table of Contents Lease Term and Discount Rate March 31, 2021 2020 Weighted average remaining operating lease term (years) 4.53 4.99 Weighted average discount rate for operating leases 13.96 % 13.91 % Operating cash outflows related to operating leases totaled $ 4.9 million and $ 4.5 million for the fiscal years ended March 31, 2021 and March 31, 2020, respectively. NOTE 7: RESTRUCTURING CHARGES During fiscal years 2021, 2020 and 2019, the Company approved certain restructuring plans to improve operational efficiencies and rationalize its cost structure. The following tables show the activity and the estimated timing of future payouts for accrued restructuring (in thousands): Severance and benefits Facilities Total Balance as of March 31, 2018 $ 1,430 $ 4,389 $ 5,819 Restructuring costs 4,708 862 5,570 Cash payments ( 6,138 ) ( 2,375 ) ( 8,513 ) Balance as of March 31, 2019 — 2,876 2,876 Adjustments of prior estimates — 1,022 1,022 Cash payments — ( 3,961 ) ( 3,961 ) Other non-cash — 63 63 Balance as of March 31, 2020 — — — Restructuring costs 3,701 — 3,701 Cash payments ( 3,121 ) — ( 3,121 ) Balance as of March 31, 2021 $ 580 $ — $ 580 Facility restructuring accruals were paid in accordance with the respective facility lease terms and amounts in the table above were recorded net of estimated sublease amounts. NOTE 8: COMMON STOCK Secondary Public Offering On February 8, 2021, the Company closed a secondary public offering of 15,109,489 shares of its common stock for gross proceeds of $ 103.5 million. The Company received net proceeds of $ 96.8 million after deducting underwriters' discounts and other offering related expenses. Amended and Restated 2012 Long-Term Incentive Plan The Company has a stockholder-approved 2012 Long-Term Incentive Plan (the “Plan”) which has 5.2 million shares authorized for issuance of new shares at March 31, 2021. There were 4.4 million performance shares and restricted shares outstanding, and 0.8 million shares available for future issuance under the Plan as of March 31, 2021. Stock options under the Plan are granted at prices determined by the Board of Directors, but at not less than the fair market value of the Company's common stock on the date of grant. The majority of performance share units, restricted stock units and stock options granted to employees vest over three to four years . Stock options, performance shares and restricted stock grants to non-employee directors typically vest over one year . The term of 73 Table of Contents each stock option under the Plan will not exceed seven years . Stock options, performance share units and restricted stock units granted under the Plan are subject to forfeiture if employment terminates. The Company accounts for all forfeitures of stock-based awards when they occur. 2021 Inducement Plan The Company's 2021 Inducement Plan became effective on February 1, 2021 and provides for issuance of inducement equity awards to individuals who were not previously an employee or non-employee director of the Company as an inducement material to such individual's entering into employment with the Company. The number of shares of common stock reserved for issuance under the 2021 Inducement Plan was 0.8 million. The term of each stock option and restricted stock unit under the plan will not exceed seven years , and each award generally vests between two and four years . The Company accounts for all forfeitures of stock-based awards when they occur. The Company have reserved shares of common stock for future issuance under its 2021 Inducement Plan as follows (in thousands): March 31, 2021 Shares available for issuance at beginning of period — Shares authorized during the period 770 Shares issued during the period ( 520 ) Total shares available for future issuance at end of period 250 Employee Stock Purchase Plan The Company's Employee Stock Purchase Plan (the "ESPP") has 9.7 million shares authorized at March 31, 2021. The plan enables eligible employees to purchase shares of its common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. On each purchase date, eligible employees will purchase the Company's common stock at a price per share equal to 85 % of the lesser of (i) the fair market value of the Company's common stock on the first trading day of the offering period, and (ii) the fair market value of the Company's common stock on the purchase date. The Company has reserved shares of common stock for future issuance under its ESPP as follows (in thousands): March 31, 2021 2020 Shares available for issuance at beginning of period 1,397 497 Additional shares authorized during the period — 900 Shares issued during the period ( 320 ) — Total shares available for future issuance at end of period 1,077 1,397 The Company uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to determine the fair value for stock options, shares forecasted to be issued pursuant to its ESPP, and warrants. This requires the use of assumptions about expected life, stock price, volatility, risk-free interest rates and expected dividends. Expected Life —The expected term was based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns and post-vesting forfeitures. Volatility —The expected stock price volatility for the Company's common stock was based on the historical volatility of its common stock over the most recent period corresponding with the estimated expected life of the award. Risk-Free Rate —The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. 74 Table of Contents Dividend Yield —The Company has never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used. The weighted-average grant date fair value and the assumptions used in calculating fair values of shares forecasted to be issued pursuant to the Company's ESPP are as follows: Year Ended March 31, 2021 2020 2019 Expected life 0.5 years 0.5 years n/a Volatility 55 % - 133 % 49.81 % n/a Risk-free interest rate 0.05 % - 0.11 % 0.41 % n/a Dividend yield — % — % n/a Fair value of common stock $ 4.99 - $ 8.05 $ 4.78 n/a Performance Stock Units The Company granted 0.9 million, 1.5 million and 0.7 million of performance share units with market conditions (“Market PSUs”) in fiscal 2021, 2020, and 2019, respectively. Market PSUs vest one to three years from the issuance date and become eligible for vesting based on the Company achieving certain stock price targets and are contingent upon continued service of the holder of the award during the vesting period. The estimated fair value of these Market PSUs is determined at the issuance date using a Monte Carlo simulation model. Assumptions used in the Monte Carlo model to calculate fair values of market PSU’s during each fiscal period are as follows: Weighted-Average 2021 2020 2019 Discount period (years) 2.54 3.00 1.95 Risk-free interest rate 0.31 % 1.45 % 2.63 % Stock price volatility 82.00 % 72.00 % 69.35 % Grant date fair value $ 3.77 $ 5.92 $ 1.70 The Company granted 0.5 million, 0.3 million and 0.0 million of performance share units with financial performance conditions (“Performance PSUs”) in the fiscal years ended March 31, 2021, 2020 and 2019, respectively. Performance PSUs become eligible for vesting based on the Company achieving certain financial performance targets through the end of the fiscal year when the performance PSUs were granted, and are contingent upon continued service of the holder of the award during the vesting period. Performance PSUs are valued at the market closing share price on the date of grant and compensation expense for Performance PSUs is recognized when it is probable that the performance conditions will be achieved. Compensation expense recognized related to Performance PSUs is reversed if the Company determines that it is no longer probable that the performance conditions will be achieved. The following table summarizes activity for Market PSUs and Performance PSUs for the year ended March 31, 2021 (shares in thousands) : Shares Weighted-Average Grant Date Fair Value per Share Outstanding as of March 31, 2020 1,944 $ 4.09 Granted 1,346 $ 3.67 Vested ( 745 ) $ 3.94 Forfeited or cancelled ( 190 ) $ 4.66 Outstanding as of March 31, 2021 2,355 $ 3.85 75 Table of Contents As of March 31, 2021 , there was $ 4.1 million and $ 1.8 million of unrecognized stock-based compensation related to Market PSUs and Performance PSUs, respectively, which is expected to be recognized over a weighted-average period of one year . The total fair value of shares vested during fiscal years ended March 31, 2021 , 2020, and 2019 was $ 2.9 million, $ 0.6 million, and $ 0.1 million, respectively. Restricted Stock Units The Company granted 2.4 million, 0.6 million, and 1.0 million of service-based restricted stock units (“RSUs”) in the fiscal years ended March 31, 2021, 2020 and 2019, respectively, which generally vest ratably over a three-year service period. RSUs are valued at the market closing share price on the date of grant and compensation expense for RSUs is recognized ratably over the applicable vesting period. The following table summarizes activity for restricted stock units for the year ended March 31, 2021 (shares in thousands) : Shares Weighted-Average Grant Date Fair Value per Share Outstanding as of March 31, 2020 986 $ 3.42 Granted 2,440 $ 4.41 Vested ( 518 ) $ 3.99 Forfeited or cancelled ( 198 ) $ 3.78 Outstanding as of March 31, 2021 2,710 $ 4.17 As of March 31, 2021 , there was $ 11.7 million of total unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted-average period of two years . The total fair value of RSUs vested during fiscal years ended March 31, 2021, 2020, and 2019 was $ 2.1 million, $ 4.0 million, and $ 5.1 million, respectively. Compensation Expense The following table details the Company's stock-based compensation expense, net of forfeitures (in thousands): Year Ended March 31, 2021 2020 2019 Cost of revenue $ 672 $ 452 $ 334 Research and development 2,881 984 440 Sales and marketing 1,757 1,165 179 General and administrative 4,314 4,147 2,456 Total share-based compensation $ 9,624 $ 6,748 $ 3,409 Year Ended March 31, 2021 2020 2019 Restricted stock units $ 4,041 $ 3,610 $ 3,178 Performance share units 4,904 3,103 231 Employee stock purchase plan 679 35 — Total stock-based compensation $ 9,624 $ 6,748 $ 3,409 NOTE 9: NET LOSS PER SHARE Equity Instruments Outstanding 76 Table of Contents The Company has stock options, performance share units, restricted stock units and options to purchase shares under its ESPP, granted under various stock incentive plans that, upon exercise and vesting, respectively, would increase shares outstanding. The Company has also issued warrants to purchase shares of the Company’s stock. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per-share data): Year Ended March 31, 2021 2020 2019 Numerator: Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 ) Denominator: Weighted average shares - basic and diluted 42,852 37,593 35,551 Net loss per share - basic and diluted $ ( 0.83 ) $ ( 0.14 ) $ ( 1.20 ) The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stock for the periods presented because their effect would have been anti-dilutive (in thousands): Year Ended March 31, 2021 2020 2019 Stock awards 1,818 931 307 Warrants 6,573 6,312 4,657 ESPP 11 223 — Total 8,402 7,466 4,964 The dilutive impact related to common shares from stock incentive plans and outstanding warrants is determined by applying the treasury stock method to the assumed vesting of outstanding performance share units and restricted stock units and the exercise of outstanding options and warrants. The dilutive impact related to common shares from contingently issuable performance share units is determined by applying a two-step approach using both the contingently issuable share guidance and the treasury stock method. The Company has outstanding market based restricted stock units as of March 31, 2021 that were eligible to vest into shares of common stock subject to the achievement of certain stock price targets in addition to a time-based vesting period. These contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. There were 0.5 million shares of contingently issuable market-based restricted stock units that were excluded from the table above as the market conditions were not satisfied as of March 31, 2021. NOTE 10: INCOME TAXES Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2021, 2020 and 2019 is as follows (in thousands): Year Ended March 31, 2021 2020 2019 U.S. $ ( 36,648 ) $ ( 6,318 ) $ ( 40,935 ) Foreign 1,428 1,911 514 Total $ ( 35,220 ) $ ( 4,407 ) $ ( 40,421 ) 77 Table of Contents Income tax provision consists of the following (in thousands): Year Ended March 31, 2021 2020 2019 Current tax expense Federal $ ( 76 ) $ ( 115 ) $ ( 217 ) State 339 106 31 Foreign 747 1,271 1,103 Total current tax expense 1,010 1,262 917 Deferred tax expense Federal ( 577 ) — — State 9 33 32 Foreign ( 203 ) ( 492 ) 1,427 Total deferred tax expense (benefit) ( 771 ) ( 459 ) 1,459 Income tax provision $ 239 $ 803 $ 2,376 The income tax provision differs from the amount computed by applying the federal statutory rate of 21 % to loss before income taxes as follows (in thousands): For the year ended March 31, 2021 2020 2019 Expiration of attributes $ 9,862 $ 11,679 $ 12,268 Valuation allowance 5,444 ( 2,639 ) 10,913 Permanent items 1,295 914 359 Equity compensation 345 280 905 Tax reform — — ( 207 ) Credit monetization — — — Foreign taxes ( 129 ) 1,612 ( 2,133 ) State income taxes ( 969 ) ( 20 ) ( 997 ) Research and development credits ( 1,829 ) ( 1,566 ) ( 879 ) Uncertain tax positions ( 6,695 ) ( 8,654 ) ( 9,278 ) Expense at the federal statutory rate ( 7396 ) ( 925 ) ( 8488 ) Other 311 122 ( 87 ) Income tax provision $ 239 $ 803 $ 2,376 78 Table of Contents Significant components of deferred tax assets and liabilities are as follows (in thousands): As of March 31, 2021 2020 Deferred tax assets Loss carryforwards $ 76,153 $ 85,638 Deferred revenue 21,839 17,043 Tax credits 16,574 17,416 Disallowed interest 12,132 8,958 Other accruals and reserves not currently deductible for tax purposes 8,192 16,339 Capitalized research and development 7,811 — Lease obligations 1,747 3,413 Inventory 1,374 924 Accrued warranty expense 569 650 Acquired intangibles 454 2,660 Gross deferred tax assets 146,845 153,041 Valuation allowance ( 143,263 ) ( 137,814 ) Total deferred tax assets, net of valuation allowance $ 3,582 $ 15,227 Deferred tax liabilities Depreciation $ ( 1,440 ) $ ( 1,440 ) Lease assets ( 1,670 ) ( 3,413 ) Other ( 1,013 ) ( 967 ) Total deferred tax liabilities $ ( 4,123 ) $ ( 5,820 ) Net deferred tax assets (liabilities) $ ( 541 ) $ 9,407 The valuation allowance increased by $ 5,449 during the year ended March 31, 2021, decreased by $ 2,545 during the year ended March 31, 2020, and increased by $ 10,311 during the year ended March 31, 2019. A reconciliation of the gross unrecognized tax benefits is as follows (in thousands): For the year ended March 31, 2021 2020 2019 Beginning Balance $ 107,282 $ 116,032 $ 150,559 Increase in balances related to tax positions in current period 2,560 2,275 1,718 Increase in balances related to tax positions in prior period — 144 — Increase in balances related to acquisitions 511 — — Decrease in balances related to tax positions in prior period ( 522 ) ( 4 ) ( 25,095 ) Decrease in balances due to lapse in statute of limitations ( 8,712 ) ( 11,165 ) ( 11,150 ) Ending balance $ 101,119 $ 107,282 $ 116,032 During fiscal 2021, excluding interest and penalties, there was a $ 6.2 million change in the Company's unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2021 was $ 102.2 million, of which $ 83.9 million, if recognized, would favorably affect the effective tax rate. At March 31, 2021, accrued interest and penalties totaled $ 1.2 million. The Company's practice is to recognize interest and penalties related to income tax matters in the income tax provision in the consolidated statements of operations. As of March 31, 2021, $ 95.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $ 6.7 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets. 79 Table of Contents The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. The Company's U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, the Company is generally open to examination for the most recent three to five fiscal years. During the next 12 months, it is reasonably possible that approximately $ 9.1 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations. As of March 31, 2021, the Company had federal net operating loss and tax credit carryforwards of approximately $ 293.2 million and $ 59.5 million, respectively. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal year 2022 if not previously utilized, and $ 12.8 million are indefinite-lived net operating loss carryforwards. These carryforwards include $ 11.1 million of acquired net operating losses and $ 8.0 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership. Certain changes in stock ownership could result in a limitation on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges. Due to its history of net losses and the difficulty in predicting future results, Quantum believes that it cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, it has established a full valuation allowance against its U.S. and certain foreign net deferred tax assets. Significant management judgement is required in determining the Company's deferred tax assets and liabilities and valuation allowances for purposes of assessing its ability to realize any future benefit from its net deferred tax assets. The Company intends to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. The Company's 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, its valuation allowance. The Company recorded an income tax benefit in the fiscal year ended March 31, 2021 of $ 0.6 million related to foreign currency-related gains recognized in other comprehensive income on U.S. taxes previously imposed on certain income of its foreign subsidiaries. Pursuant to an exception to the incremental method of intraperiod-tax allocation applicable for fiscal years beginning on or before December 15, 2020, tax benefit is recognized on a loss from continuing operations to the extent of income from other comprehensive income. A commensurate amount of tax expense is charged to other comprehensive income for this gain. NOTE 11: COMMITMENTS AND CONTINGENCIES Commitments to Purchase Inventory The Company uses contract manufacturers for its manufacturing operations. Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon its forecast of customer demand. The Company has similar arrangements with certain other suppliers. The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast. Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or obsolete inventory. As of March 31, 2021, the Company had issued non-cancelable commitments for $ 39.6 million to purchase inventory from its contract manufacturers and suppliers. Legal Proceedings On July 22, 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against the Company in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patents Nos. 7,161,506, 7,378,992, 7,415,530, 8,643,513, 9,054,728, and 9,116,908. The lawsuit has been transferred to the U.S. District Court for the Northern District of California for further proceedings. Realtime Data asserts that the Company has incorporated Realtime Data’s patented technology into its compression products and services. Realtime Data seeks unspecified monetary damages and other relief that the Court deems appropriate. On July 31, 2017, the District Court stayed proceedings in this litigation pending decision in Inter Partes Review proceedings before the Patent Trial and Appeal Board relating to the Realtime patents. In those proceedings the asserted claims of the ’506 patent, the ’992 patent, and the ’513 patent were found unpatentable. In addition, on July 19, 2019, the United States District Court for the District of Delaware issued a decision finding that all claims of the ’728 patent, the ’530 patent, and the ’908 patent are not eligible for patent protection under 35 U.S.C. § 101 (the “Delaware 80 Table of Contents Action”). On appeal, the Federal Circuit vacated the decision in the Delaware Action and remanded for the Court to “elaborate on its ruling.” The case pending against Quantum in the Northern District of California remains stayed pending the final outcome in the Delaware Action. On May 4, 2021, the Court in the Delaware Action reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101. The Court also granted Realtime Data 14 days to file amended complaints in certain of the Delaware Actions where they sought leave to do so. On May 19, 2021, Realtime Data filed amended complaints including revised bases for claims of infringement of the same patents. Quantum is currently preparing its response to the amended complaints to be filed in the coming weeks. The Company believes the probability that this lawsuit will have a material adverse effect on our business, operating results or financial condition is remote. On July 14, 2020, Starboard Value LP, Starboard Value and Opportunity Master Fund Ltd., Starboard Value and Opportunity S LLC, and Starboard Value and Opportunity C LP (collectively, “Starboard”) filed a lawsuit against Quantum Corporation, Quantum’s former CEO and board member Jon Gacek, and former Quantum board member Paul Auvil in the California Superior Court in Santa Clara County. The complaint alleges that between 2012 and 2014, Starboard purchased a large number of shares of Quantum’s common stock, obtained three seats on Quantum’s board of directors and then, in July 2014, entered into an agreement with Quantum whereby Starboard would not seek control of Quantum’s board but would instead support Quantum’s slate of board nominees so long as Quantum met certain performance objectives by the end of fiscal 2015. The complaint further alleges that Quantum did not meet those performance objectives but hid that by improperly recognizing revenue in fiscal 2015, with the alleged objective of entrenching Messrs. Gacek and Auvil and then-current management. Mr. Gacek resigned from the board effective May 1, 2017 and as CEO effective November 7, 2017; Mr. Auvil resigned from the board effective November 8, 2017. The complaint’s accounting allegations largely repeat allegations made in now-concluded shareholder class actions, shareholder derivative actions and SEC investigation, the settlement of which we previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings). On September 14, 2020, all defendants filed a joint motion to dismiss this action in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On November 19, 2020, Starboard filed a first amended complaint, in which Quantum was not named as a defendant and therefore, in effect Quantum had been dismissed from the California action. The first amended complaint reasserts with only minor modifications the existing claims against Messrs. Gacek and Auvil, and adds a new claim against Messrs. Gacek and Auvil, alleging that they aided and abetted Quantum in committing a fraud on plaintiffs. The amended complaint sought no relief from Quantum. On January 8, 2021, Messrs. Gacek and Auvil moved to dismiss the amended complaint in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On March 11, 2021, the California Superior Court stayed the California action. On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs. Gacek and Auvil and Quantum. The new action largely repeats the allegations of the California action, alleging claims for fraud against all defendants, fraudulent concealment against all defendants, negligent misrepresentation against all defendants, breach of contract against Quantum, breach of the implied covenant of good faith and fair dealing against Quantum, and breach of fiduciary duty against Messrs. Gacek and Auvil. The complaint prays for unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court. On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs. Gacek and Auvil. At this time, Quantum is unable to estimate the range of possible outcomes with respect to this matter. 81 Table of Contents Indemnifications The Company has certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. Other than certain product warranty liabilities recorded as of March 31, 2021 and 2020, the Company did not record a liability associated with these guarantees, as the Company has little, or no history of costs associated with such indemnification requirements. Contingent liabilities associated with product liability may be mitigated by insurance coverage that the Company maintains. In the normal course of business to facilitate transactions of the Company’s services and products, the Company indemnifies certain parties with respect to certain matters. The Company has agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contains similar indemnification obligations to its agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of the Company’s indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on its operating results, financial position, or cash flows. NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when an impairment is recognized. These assets include property and equipment and amortizable intangible assets. The Company did not record impairments to any non-financial assets in the fiscal years ended March 31, 2021, 2020 and 2019. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis. The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. Debt The table below represents the carrying value and total estimated fair value of long-term debt as of March 31, 2021 and March 31, 2020, respectively. The fair value has been classified as Level 2 within the fair value hierarchy. March 31, 2021 2020 Carrying Value Fair Value Carrying Value Fair Value Senior Secured Term Loan $ 92,426 $ 97,047 $ 165,208 $ 151,678 Amended PNC Credit Facility — — 2,620 2,226 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.