What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-09 · 171 added, 86 removed, 142 unchanged (64% of the section changed)

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In particular, the disclosure contained in Item 1A in our annual report, as updated by Part II, Item 1A in this Quarterly Report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

The following discussion contains forward-looking statements, such as statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, and our objectives for future operations.

plans, and our objectives for future operations.

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

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data center costs in support of our cloud-based services;

and income taxes.

Highlights from first quarter of fiscal year 2022 included:

• Revenue increased 22% year-over-year to $89 million.

• Gross profit was $37 million, an increase of 21% from $31 million.

Product gross profit was $13 million, an increase of 230 basis-points from $9 million in the same quarter last year.

• Operating expenses were 42% of revenue compared to 47% in the same quarter last year.

• We increased research and development investment 11% over the prior year, as we announced a new StorNext architecture and new line of StorNext appliances with the H4000.

• We announced a new partnership with Supermicro and our ActiveScale 6.0 software and storage platform, as we expand our Object Storage line of business.

• We increased Sales & Marketing expense 21% over the prior year as we see accelerated customer activity and invested for growth in strategic markets.

• We continue to hire new leadership across the organization, including industry veterans in our Emerging Markets business unit, and our General Council & Chief Compliance Officer.

interest associated with our long term debt and income taxes.

Highlights from second quarter of fiscal year 2022 included:

• Revenue increased 5% from the prior quarter and 9% year-over-year to $93 million.

• We completed the Pivot3 assets acquisition, which adds a portfolio of industry leading hyperconverged infrastructure (HCI) and intelligent software solutions for the security and surveillance markets.

• We completed the EnClouden assets acquisition which will enable us to expand the addressable market for our video surveillance portfolio, offering customers a solution using their server hardware of choice with a flexible subscription-based software model.

• We completed the refinancing of our term loan, significantly reducing our annual debt service and greatly increasing our financial flexibility related to covenants and restrictions.

• We brought on industry veteran John Hurley as Chief Revenue Officer.

John brings extensive experience working with the largest global enterprise, commercial, and service provider customers.

COVID-19 IMPACT AND ASSOCIATED ACTIONS

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

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

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

marketing costs.

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

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

We have seen a gradual stabilization in our business during the second half of fiscal 2021 and into fiscal 2022 as customers increasingly adapted to the COVID-19 environment.

The pervasive disruption in the global supply chain continues to have an impact on our business.

Before the current disruptions in the global supply chain our historical backlog was very limited and typically represented less than 5% of quarterly revenues.

During our second fiscal quarter our backlog grew to $50 million from $30 million at the end of the prior quarter.

This unprecedented backlog is a result of the strong demand we have been seeing across our business but limited by the ongoing supply constraints.

Of the $50 million ending backlog, just over 70% of the backlog was from hyperscaler customers and just over 85% of the backlog was related to tape products.

Approximately two-thirds of the backlog is expected to be shipped in the second half of fiscal 2022 and the remaining one-third of the backlog has ship dates early in fiscal 2023.

We will continue to actively monitor the impact of COVID-19 and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

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

RESULTS OF OPERATIONS

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

(in thousands) 2021 2020 2021 2020

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Total operating expenses 39,325 35,234 76,661 69,580

Loss from operations (56) (3,495)

Other expense (198) (385)

Income (loss) from operations (938) 3,500 (995) 6

Other income (expense), net 126 (312) (71) (697)

Interest expense (3,070) (7,578) (6,956) (14,015)

Loss before income taxes (4,140) (10,317)

Loss on debt extinguishment, net (4,960) — (4,960) —

Net loss before income taxes (8,842) (4,390) (12,982) (14,706)

Income tax provision 411 202 424 622

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(1) Includes stock-based compensation as follows:

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

(in thousands) 2021 2020 2021 2020

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Total $ 3,072 $ 2,592 $ 6,273 $ 4,550

Comparison of the Three Months Ended June 30, 2021 and 2020

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2021 and 2020

Three Months Ended September 30,

(dollars in thousands) 2021 % of

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Product revenue

In the three months ended June 30, 2021, product revenue increased $12.4 million, or 31%, as compared to the same period in 2020.

Primary storage systems represented $1.1 million of the increase, driven by market improvements across the media & entertainment industries.

Secondary storage systems represented $9.7 million of the increase, driven by higher demand in our hyperscale, backup and archive use cases.

Devices and media represented $1.6 million of the increase, driven by a higher volume of LTO media sold through our high-volume channel partners.

In the three months ended September 30, 2021, product revenue increased $3.8 million, or 7%, as compared to the same period in 2020.

Secondary storage systems represented $7.4 million, or a 39% increase, driven by higher demand in our hyperscale, backup and archive use cases.

Primary storage systems decreased $3.9 million, or 19%, partially driven by our transition to a recurring software subscription licensing model which results in a shift from product to services revenue.

Service revenue

We offer a broad range of services including maintenance, implementation, and training.

We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions.

Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware.

Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue increased 8% in the three months ended June 30, 2021 compared to the same period in 2020 largely driven by increased demand for installation and professional services as well as increases in our managed service offerings.

Service revenue increased 9% in the three months ended September 30, 2021 compared to the same period in 2020 driven partially by growing sales of our recurring software subscription offerings as well as service revenue associated with newly acquired businesses.

Royalty revenue

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

Royalty revenue increased $0.9 million, or 28%, in the three months ended June 30, 2021 compared to the same period in 2020 due to increased market volume of LTO media.

Royalty revenue increased $0.7 million, or 20%, in the three months ended September 30, 2021 compared to the same period in 2020 due to increased market volume of LTO media.

Gross Profit and Margin

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands) 2021 Gross

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Product Gross Margin

Product gross margin increased 230 basis points for the three months ended June 30, 2021, as compared with the same period in 2020.

This increase was due primarily to a more favorable mix of products towards our enterprise solutions, as well as overall gross margin improvements in our secondary storage business line.

Product gross margin decreased 640 basis points for the three months ended September 30, 2021, as compared with the same period in 2020.

This decrease was due primarily to a product mix weighted towards lower margin offerings and cost pressures as a result of constraints in the global supply chain.

Service Gross Margin

Service gross margin remained consistent with the prior year.

Service gross margins decreased 140 basis points for the three months ended September 30, 2021, as compared with the same period in 2020.

This was partially driven by cost pressures as a result of certain constraints in the global supply chain.

Royalty Gross Margin

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Operating expenses

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands) 2021 % of

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Total operating expenses $ 39,325 42.2 $ 35,234 41.1 $ 4,091 12

In the three months ended June 30, 2021, research and development expense increased $1.1 million, or 11%, as compared with the same period in 2020.

In the three months ended September 30, 2021, research and development expense increased $2.2 million, or 21%, as compared with the same period in 2020.

This increase was primarily driven by an increase in personnel costs due to increased headcount focused on new product development.

This increase in headcount includes those employees added through acquisitions over the year.

In the three months ended June 30, 2021, sales and marketing expenses increased $2.4 million, or 21%, as compared with the same period in 2020.

This increase was driven by increases to marketing spend as we see higher levels of customer interaction since the outbreak of the Covid-19 pandemic, as well as increases in personnel costs as we invest for growth in strategic markets.

In the three months ended June 30, 2021, general and administrative expenses increased $0.3 million, or 2%, as compared with the same period in 2020.

In the three months ended September 30, 2021, sales and marketing expenses increased $2.3 million, or 18%, as compared with the same period in 2020.

This increase was driven by increased headcount as we invest in strategic areas to accelerate growth.

This increase in headcount includes those employees added through acquisitions over the year.

Both marketing expense and travel expense have also increased over the prior year as COVID-19 restrictions ease.

In the three months ended September 30, 2021, general and administrative expenses increased $1.2 million, or 12%, as compared with the same period in 2020.

This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

In the three months ended June 30, 2021, restructuring expenses decreased $0.8 million, or 75%, as compared with the same period in 2020.

In the three months ended September 30, 2021, restructuring expenses decreased $1.6 million, or 99%, as compared with the same period in 2020.

The decrease was the result of one-time workforce reductions in the prior year.

Other Income (Expense)

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands) 2021 % of

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Interest expense (3,070) 3 (7,578) 9 4,508 59

The increase in other income (expense), net during the three months ended June 30, 2021 compared with the same period in 2020 was related primarily to fluctuations in foreign currency exchange rates.

In the three months ended June 30, 2021, interest expense decreased $2.6 million, or 40%, as compared with the same period in 2020 due to a lower principal balance.

Three Months Ended June 30,

Loss on debt extinguishment (4,960) 5 — — (4,960) n/a

The increase in other income (expense), net during the three months ended September 30, 2021 compared with the same period in 2020 was related primarily to fluctuations in foreign currency exchange rates.

In the three months ended September 30, 2021, interest expense decreased $4.5 million, or 59%, as compared with the same period in 2020 due to a lower principal balance and a lower effective interest rate.

Loss on debt extinguishment, net during the three months ended September 30, 2021 was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program Loan.

Three Months Ended September 30,

(dollars in thousands) 2021 % of

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Income tax provision $ 411 — $ 202 — $ 209 103

The income tax provision for the three months ended June 30, 2021 and 2020 is primarily influenced by foreign and state income taxes.

The income tax provision for the three months ended September 30, 2021 and 2020 is primarily influenced by foreign and state income taxes.

Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets.

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Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Comparison of the Six Months Ended September 30, 2021 and 2020

Six Months Ended September 30,

(dollars in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Product revenue

Primary storage systems 27,994 15 % $ 30,824 19 % $ (2,830) (9) %

Secondary storage systems 54,463 30 37,395 24 17,068 46

Devices and media 24,329 13 22,318 14 2,011 9

Total product revenue $ 106,786 58 % $ 90,537 57 % $ 16,249 18

Service revenue 67,189 37 61,880 39 5,309 9

Royalty revenue 8,303 5 6,709 4 1,594 24

Total revenue $ 182,278 100 % $ 159,126 100 % $ 23,152 15

Product revenue

In the six months ended September 30, 2021, product revenue increased $16.2 million, or 18%, as compared to the same period in 2020.

Secondary storage systems represented $17.1 million of the increase, driven primarily by a growing customer base in the hyperscale segment.

Devices and media represented $2.0 million of the increase, driven by higher volume of LTO media sold through our high-volume channel partners.

Primary storage systems decreased $2.8 million driven partially by driven by our transition to a recurring software subscription licensing model which results in a shift from product to services revenue.

Service revenue

We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions.

Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware.

Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue increased $5.3 million, or 9% in the six months ended September 30, 2021 compared to the same period in 2020, driven partially by the increase in recurring software subscription revenue.

Growth is also driven by a higher level of installation and professional services attached to our product sales.

Royalty revenue

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

Royalty revenue increased $1.6 million, or 24%, in the six months ended September 30, 2021 compared to the same period in 2020 due to higher overall market volume .

Gross Profit and Margin

Six Months Ended September 30,

(dollars in thousands) 2021 Gross

margin % 2020 Gross

margin % $ Change Basis point change

Product gross profit $ 26,922 25.2 % $ 25,157 27.8 % $ 1,765 (260)

Service gross profit 40,441 60.2 37,720 61.0 2,721 (80)

Royalty gross profit 8,303 100.0 6,709 100.0 1,594 —

Gross profit $ 75,666 41.5 % $ 69,586 43.7 % $ 6,080 (220)

Product Gross Margin

Product gross margin decreased 260 basis points for the six months ended September 30, 2021, as compared with the same period in 2020.

This decrease was primarily the result of a less favorable product mix to our enterprise customers, as well as cost pressures as a result of constraints in the global supply chain.

Service Gross Margin

Service gross margin decreased 80 basis points for the six months ended September 30, 2021, as compared with the same period in 2020.

This decrease was partially due to cost pressures as a result of constraints in the global supply chain.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

Operating expenses

Six Months Ended September 30,

(dollars in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Research and development $ 23,680 12.9 % $ 20,395 12.8 % $ 3,285 16 %

Sales and marketing 29,414 16.1 24,723 15.5 4,691 19

General and administrative 23,293 12.8 21,825 13.7 1,468 7

Restructuring charges 274 0.2 2,637 1.7 (2,363) (90)

Total operating expenses $ 76,661 42.1 % $ 69,580 43.7 % $ 7,081 10

In the six months ended September 30, 2021, research and development expense increased $3.3 million, or 16%, as compared with the same period in 2020.

This increase was primarily driven by an increase in personnel costs due to increased headcount focused on new product development.

This increase in headcount includes those employees added through acquisitions over the year.

In the six months ended September 30, 2021, sales and marketing expenses increased $4.7 million, or 19%, as compared with the same period in 2020.

This increase was driven by increased headcount as we invest in strategic areas to accelerate growth.

This increase in headcount includes those employees added through acquisitions over the year.

Both marketing expense and travel expense have also increased over the prior year as COVID-19 restrictions ease.

In the six months ended September 30, 2021, general and administrative expenses increased $1.5 million, or 7% as compared with the same period in 2020.

This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

In the six months ended September 30, 2021, restructuring expenses decreased $2.4 million, or 90% as compared with the same period in 2020.

The decrease was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure in the prior year.

Other Income (Expense)

Six Months Ended September 30,

(dollars in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Other income (expense) $ (71) 0 $ (697) — % $ 626 90 %

Interest expense (6,956) (4) (14,015) (9) 7,059 (50)

Loss on debt extinguishment (4,960) (3) — — (4,960) n/a

The change in other income (expense), net during the six months ended September 30, 2021 and 2020 was related primarily to fluctuations in foreign currency exchange rates.

In the six months ended September 30, 2021, interest expense decreased $7.1 million, or 50%, as compared with the same period in 2020 due primarily to a lower principal balance and a lower effective interest rate on the term debt.

Loss on debt extinguishment, net during the six months ended September 30, 2021 was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program loan.

Six Months Ended September 30,

(dollars in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Income tax provision $ 424 — % $ 622 — % $ (198) (32) %

The income tax provision for the six months ended September 30, 2021 and 2020 is primarily influenced by foreign and state income taxes.

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

and certain foreign net deferred tax assets.

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

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

Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $22.8 million as of September 30, 2021, which consisted primarily of bank deposits and money market accounts.

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities.

Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our Amended PNC Credit Facility.

Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our PNC Credit Facility.

We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures.

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

We had cash and cash equivalents of $19.1 million as of June 30, 2021, compared to $27.4 million as of March 31, 2021.

These amounts exclude, as of both dates, $5.0 million in restricted cash that we are required to maintain under the Credit Agreements (as defined below), and $0.5 million of short-term restricted cash.

Our outstanding long-term debt amounted to $81.3 million as of June 30, 2021, net of $8.8 million in unamortized debt issuance costs and $11.9 million in current portion of long-term debt, and $90.9 million as of March 31, 2021, net of $9.7 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt.

Included in long-term debt as of June 30, 2021 is $10.0 million borrowed under the Paycheck Protection Program (“PPP Loan”) which was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

In July 2021, we received notice from PNC Bank that the PPP Loan and related accrued interest was approved for forgiveness in full by the U.S.

As of June 30, 2021, we had $20.4 million of borrowing availability on our Amended PNC Credit Facility (subject to change based on certain financial metrics).

On August 5, 2021 (the “Closing Date”), the Company entered into a senior secured term loan of $100.0 million, million (the “Term Loan”).

A portion of the proceeds were used to prepay all outstanding borrowings under the Senior Secured Term Loan.

Borrowings under the Term Loan mature on August 5, 2026.

Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter.

Principal and interest payments are payable on a quarterly basis.

Loans under the Term Loan Credit Agreement designated as “Prime Rate Loans” will bear interest at a rate per annum equal to the greatest of (i) 1.75%, (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” last quoted by the Wall Street Journal, plus an applicable margin of 5.00%.

Loans designated as “LIBOR Rate Loans” will bear interest at a rate per annum equal to the LIBOR Rate plus an applicable margin of 6.00%.

The “LIBOR Rate” is subject to a floor of 0.75%.

The Company can designate a loan as a Prime Rate Loan or LIBOR Rate Loan in its discretion.

The Term Loan Credit Agreement contains certain customary covenants, including requirements to prepay the loans in an amount equal to (i) 100% of the net cash proceeds from certain asset dispositions, extraordinary receipts, debt issuances and equity issuances, subject to certain reinvestment rights and other exceptions and (ii) 75% of certain

excess cash flow of the Company and its subsidiaries, subject to certain exceptions, including reductions to the percentage of such excess cash flow that is required to prepay the loans to 50% and 0%, based on the Company’s applicable total net leverage ratio.

Amounts outstanding under the Term Loan 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 in the Term Loan and other related loan documents;

(iii) the occurrence of a bankruptcy or insolvency proceeding with respect to the Company or certain of its subsidiaries;

(iv) any “Event of Default” with respect to other indebtedness involving an aggregate amount of $3,000,000 or more;

(v) any lien created by the Term Loan or any related security documents ceasing to be valid and perfected;

(vi) the Term Loan Credit Agreement or any related security documents or guarantees ceasing to be legal, valid, and binding upon the parties thereto;

or (vii) a change of control shall occur.

The Term Loan contains financial covenants relating to minimum liquidity and total net leverage ratio.

We are subject to various debt covenants under our Credit Agreements.

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For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Business Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

On August 5, 2021 (the “Closing Date”), we entered into a senior secured term loan to borrow an aggregate of $100.0 million, (the “Term Loan”).

A portion of the proceeds were used to repay in full all outstanding borrowings under the Senior Secured Term Loan.

Borrowings under the Term Loan mature on August 5, 2026.

Principal and interest payments are payable on a quarterly basis.

Revolving Credit Facility

On September 30, 2021, we amended the PNC Credit Facility.

The amendment, among other things (a) extended the maturity date to August 5, 2026;

(b) reduced the principal amount of the revolving commitments to a maximum amount equal to the lesser of:

(i) $30.0 million or (ii) the amount of the borrowing base, as defined in the PNC Credit Facility agreement;(c) replaced existing debt covenants with net leverage ratio, minimum liquidity and fixed charges coverage ratio covenants;

and, (d) removed the requirement to maintain a $5.0 million restricted cash reserve with PNC.

Paycheck Protection Program Loan

In July 2021, we received notice from PNC that the Paycheck Protection Program Loan and related accrued interest was approved for forgiveness in full by the U.S.

Small Business Administration.

We recorded the amount forgiven as gain on debt extinguishment of $10.0 million in the three and six months ended September 30, 2021.

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

Three Months Ended June 30,

(Dollars in thousands) 2021 2020

Six Months Ended September 30,

(in thousands) 2021 2020

Cash provided by (used in):

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Cash Used In Operating Activities

Net cash used in operating activities was $6.9 million for the three months ended June 30, 2021.

This use of cash is primarily attributable to changes in working capital of $10.0 million driven by an increase in manufacturing and service parts inventories of $4.4 million, an increase in accounts payable, accrued compensation, deferred revenue of $3.2 million, $4.9 million and $6.3 million, respectively, in addition to miscellaneous changes in other current and non-current assets and liabilities, partially offset by a reduction in accounts receivable of $15.2 million.

The decrease in deferred revenue reflects the seasonal nature of service contract renewals which peak in the fourth fiscal quarter.

Net cash used in operating activities was $9.0 million for the three months ended June 30, 2020.

This use of cash is primarily attributable to the net loss adjusted for non-cash items of $4.0 million and changes in working capital of $4.9 million.

Cash used related to working capital was driven by a decrease of $21.0 million in accounts receivable more than offset by the increase in manufacturing and service inventory of $3.2 million and decreases in accounts payable, deferred revenue and other assets and liabilities of $9.9 million, $8.2 million and $4.2 million, respectively.

Net cash used in operating activities was $15.3 million for the six months ended September 30, 2021.

This use of cash was primarily attributable to changes in working capital of $14.6 million driven by increases in manufacturing and service part inventories of $7.0 million, a decrease in deferred revenue of $9.0 million and a net changes in other assets and liabilities of $5.8 million.

These were partially offset by cash generated by a $10.0 million decrease in accounts receivables.

The decrease in deferred revenue reflects the seasonal nature of service contract renewals.

Net cash used in operating activities was $19.3 million for the six months ended September 30, 2020.

This use of cash was primarily attributable to changes in working capital of $19.1 million driven by the increases in manufacturing and service inventory of $13.2 million and a decrease in deferred revenue of $12.6 million.

These were partially offset by a decrease in accounts receivable of $7.6 million.

The decrease in deferred revenue reflects the seasonal nature of service contract renewals which peak in the fourth fiscal quarter.

Cash Used in Investing Activities

Net cash used in investing activities was $1.2 million in the three months ended June 30, 2021, which included approximately $1.0 million related to new ERP systems software.

Net cash used in investing activities was $0.5 million in the three months ended June 30, 2020, which was mostly flat compared to the same period in the prior year.

Our capital expenditures in both periods consisted primarily of tooling purchases and leasehold improvements.

Cash Provided by (Used In) Financing Activities

Net cash used in financing activities was $0.5 million in the three months ended June 30, 2021 related to debt principal amortization payment.

Net cash provided by financing activities was $26.3 million in the three months ended June 30, 2020 which included new Senior Secured Term Loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.

Net cash used in investing activities for the six months ended September 30, 2021 was attributable to cash paid for our acquisition of Pivot3 of $5.0 million and capital expenditures of $2.4 million.

Net cash used in investing activities was $1.4 million in the six months ended September 30, 2020 related to capital expenditures.

Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended September 30, 2021 was related primarily to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.

Net cash provided by financing activities was $26.9 million in the six months ended September 30, 2020 which included Senior Secured Term Loan borrowings of $19.4 million, $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.

Commitments and Contingencies

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis