What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-02-09 compared with 2021-11-03 · 95 added, 95 removed, 406 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

September 30, 2021 March 31, 2021

December 31, 2021 March 31, 2021

Current assets:

44 unchanged sentences

(in thousands, except per share amounts, unaudited)

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

Three Months Ended December 31, Nine Months Ended December 31,

2021 2020 2021 2020

15 unchanged sentences

Income (loss) from operations ( 7,225 ) 6,093 ( 8,218 ) 6,098

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

Other expense, net ( 150 ) ( 698 ) ( 223 ) ( 1,395 )

Interest expense ( 2,431 ) ( 7,808 ) ( 9,387 ) ( 21,823 )

12 unchanged sentences

(in thousands, unaudited)

Six Months Ended September 30,

Nine Months Ended December 31,

Operating activities

17 unchanged sentences

Deferred revenue ( 8,598 ) ( 9,727 )

Other assets and liabilities ( 5,789 ) ( 5,693 )

Other current assets ( 7,047 ) 846

Other non-current assets ( 1,148 ) 133

Other current liabilities ( 3,350 ) ( 2,432 )

Other non-current liabilities ( 617 ) 130

Net cash used in operating activities ( 26,681 ) ( 20,264 )

34 unchanged sentences

Three Months Ended Shares Amount

Balance, June 30, 2020 39,905 $ 399 $ 519,235 $ ( 713,900 ) $ ( 1,235 ) $ ( 195,501 )

Balance, September 30, 2020 40,740 $ 408 $ 522,357 $ ( 718,492 ) $ ( 513 ) $ ( 196,240 )

Net loss — — — ( 2,669 ) — ( 2,669 )

3 unchanged sentences

Stock-based compensation — — 1,878 — — 1,878

Balance, December 31, 2020 41,554 $ 416 $ 526,307 $ ( 721,161 ) $ 462 $ ( 193,976 )

Balance, September 30, 2021 59,272 $ 593 $ 636,538 $ ( 752,029 ) $ ( 1,095 ) $ ( 115,993 )

Balance, June 30, 2021 57,280 $ 573 $ 629,862 $ ( 742,776 ) $ ( 589 ) ( 112,930 )

Net loss — — — ( 11,060 ) — ( 11,060 )

4 unchanged sentences

Stock-based compensation — — 4,307 — — 4,307

Balance, September 30, 2021 59,272 $ 593 $ 636,538 $ ( 752,029 ) $ ( 1,095 ) $ ( 115,993 )

Balance, December 31, 2021 59,816 $ 599 $ 640,839 $ ( 763,089 ) $ ( 1,132 ) $ ( 122,783 )

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Deficit

Six Months Ended Shares Amount

Nine Months Ended Shares Amount

Balance, March 31, 2020 39,905 $ 399 $ 505,762 $ ( 703,164 ) $ ( 1,522 ) $ ( 198,525 )

3 unchanged sentences

Shares issued under employee incentive plans, net 1,155 12 ( 12 ) — — —

Warrants issued related to long-term debt, net — — 11,515 — — 11,515

Shares issued in connection with business acquisition 361 3 2,077 — — 2,080

Warrants issued related to long-term debt — — 11,515 — — 11,515

Stock-based compensation — — 6,428 — — 6,428

Balance, September 30, 2020

Balance, December 31, 2020

41,554 $ 416 $ 526,307 $ ( 721,161 ) $ 462 $ ( 193,976 )

6 unchanged sentences

Stock-based compensation — — 10,580 — — 10,580

Balance, September 30, 2021

Balance, December 31, 2021

59,816 $ 599 $ 640,839 $ ( 763,089 ) $ ( 1,132 ) $ ( 122,783 )

9 unchanged sentences

Fair Value of Financial Instruments

Subsequent Events

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Description of Business

Quantum is a technology company whose mission is to deliver innovative solutions to organizations around the world.

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), is a technology company whose mission is to deliver innovative solutions to organizations around the world.

We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades.

6 unchanged sentences

However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of September 30, 2021, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three and six months ended September 30, 2021 and 2020.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of December 31, 2021, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three and nine months ended December 31, 2021 and 2020.

Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

3 unchanged sentences

However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that may result from the pandemic.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not have, or are not expected to have, a material impact on our present or future consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU No.

2021-08, Business Combinations (Topic 805);

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10.

Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606 (Revenue Guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer.

Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value.

This update will be effective for the Company for the fiscal year beginning April 1, 2023.

Early adoption is permitted including adoption in interim periods.

The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.

Based on how the Company manages its business, the Company has determined that it currently operates in one reportable segment.

1 unchanged sentence

(a) Americas;

(b) Europe, Middle East and

Africa (“EMEA”);

(b) Europe, Middle East and Africa (“EMEA”);

and (c) Asia Pacific (“APAC”).

1 unchanged sentence

In the following table, revenue is disaggregated by major product offering and geographies (in thousands):

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

Three Months Ended December 31, Nine Months Ended December 31,

2021 2020 2021 2020

23 unchanged sentences

Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the six months ended September 30, 2021 (in thousands):

September 30, 2021

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the nine months ended December 31, 2021 (in thousands):

December 31, 2021

Contract liabilities (deferred revenue) $ 119,305

3 unchanged sentences

Current Non-Current Total

As of September 30, 2021

As of December 31, 2021

$ 102,726 $ 43,276 $ 146,002

The Company's non-current remaining performance obligations are expected to be recognized in the next 13 to 60 months.

BUSINESS ACQUISITION

BUSINESS COMBINATION

On July 20, 2021, the Company purchased specified assets related to the video surveillance business of PV3 (an ABC) LLC, a Delaware limited liability company as assignee for the benefit of Pivot3, Inc., a Delaware corporation (“Pivot 3”).

The transaction costs associated with the acquisition were not material and expensed as incurred.

The transaction costs associated with the acquisition were not material and were expensed as incurred.

Goodwill generated from this acquisition is primarily attributable to the expected post-acquisition synergies from integrating Pivot3's video surveillance portfolio and assets with our platform to expand our video surveillance portfolio with hardware and software offerings that will be offered under the Quantum VS-Series portfolio.

14 unchanged sentences

The historical results of operations for Pivot 3 were not significant to the Company's consolidated results of operations for the periods presented.

On October 1, 2021 the Company acquired all intellectual property rights and certain other assets of EnCloudEn, an early stage hyperconverged infrastructure software company.

The transaction costs associated with the acquisition were not material and were expensed as incurred.

The total purchase consideration for the acquisition was $ 2.8 million with $ 2.6 million paid at closing and an additional $ 0.2 million paid in two equal quarterly installments after closing.

The fair value of the assets acquired was allocated to developed technology with an estimate useful life of three years .

BALANCE SHEET INFORMATION

1 unchanged sentence

Manufacturing inventories

September 30, 2021 March 31, 2021

December 31, 2021 March 31, 2021

Finished goods:

6 unchanged sentences

Service parts inventories

September 30, 2021 March 31, 2021

December 31, 2021 March 31, 2021

Finished goods $ 17,389 $ 18,773

2 unchanged sentences

Intangibles, net

September 30, 2021 March 31, 2021

December 31, 2021 March 31, 2021

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

2 unchanged sentences

Intangible assets, net $ 13,808 $ ( 3,070 ) $ 10,738 $ 5,600 $ ( 563 ) $ 5,037

Intangible assets amortization expense was $ 0.8 million and $ 0 for the three months ended September 30, 2021 and 2020, respectively, and $ 1.3 million and $ 0 for the six months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.8 years.

As of September 30, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):

Intangible assets amortization expense was $ 1.2 million and $ 0.1 for the three months ended December 31, 2021 and 2020, respectively, and $ 2.5 million and $ 0.1 for the nine months ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.6 years.

As of December 31, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

4 unchanged sentences

Goodwill acquired 6,796

Balance at September 30, 2021

There were no impairments to goodwill during the second quarter and first two quarters of fiscal 2021 and 2022.

Balance at December 31, 2021

LONG-TERM DEBT

The Company’s long-term debt consisted of the following (in thousands):

September 30, 2021 March 31, 2021

December 31, 2021 March 31, 2021

Term Loan $ 98,750 $ —

9 unchanged sentences

On December 27, 2018, the Company entered into a senior secured term loan to borrow an aggregate of $ 165.0 million (the “Senior Secured Term Loan”).

In connection with the Senior Secured Term Loan, the Company amended its existing revolving credit facility with PNC (the PNC Credit Facility together with the Senior Secured Term Loan, the “December 2018 Credit Agreements”) 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.

On June 16, 2020, the Company entered into amendments to the December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the amendments to the December 2018 Credit Agreements occurring on March 30, 2020, March 31, 2020 and April 3, 2020, the “2020 Amendments”).

The June 2020 Amendment provided an additional borrowing of $ 20.0 million which was immediately drawn in full.

In connection with the Senior Secured Term Loan, the Company amended its existing revolving credit facility (the “PNC Credit Facility”) with PNC Bank, National Association (“PNC”) (the PNC Credit Facility together with the Senior Secured Term Loan, the “December 2018 Credit Agreements”) 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 (the “PNC Credit Agreement”).

On June 16, 2020, the Company entered into amendments to the December 2018 Credit Agreements, which, among other things, provided an additional borrowing of $ 20.0 million.

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.

2 unchanged sentences

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 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.

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

On August 5, 2021, the Company 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 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 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 of the Term Loan and (b) 5 % of the original principal balance thereof thereafter.

Principal and interest payments are payable on a quarterly basis.

6 unchanged sentences

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

The Term Loan contains certain covenants, including requirements to prepay the Term Loan 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 beginning in the fiscal year ended March 31, 2023, 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.

The Term Loan credit agreement (the “Term Loan Credit Agreement” and, together with the PNC Credit Agreement, the “Credit Agreements”) contains certain covenants, including requirements to prepay the Term Loan 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 beginning in the fiscal year ended March 31, 2023, 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):

7 unchanged sentences

Additionally, the Term Loan contains financial covenants relating to minimum liquidity and total net leverage.

On September 30, 2021, the Company amended the PNC Credit Facility (the PNC Credit Facility together with the Term Loan, the “Credit Agreements”).

On September 30, 2021, the Company 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;

(i) $ 30.0 million or (ii) the amount of the borrowing base, as defined in the PNC Credit 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.

2 unchanged sentences

With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of Blue Torch a fee equal to a percentage per annum equal to the sum of (x) 5.00 %, minus (y) the Applicable Interest Rate, plus (z) if the Alternative Base Rate applicable to such interest payment is less than 1.00 %, (i) 1.00 % minus (ii) such Alternative Base Rate.

Facility), then the Company has agreed to pay affiliates of certain Term Loan lenders a fee at a rate per annum equal to 1.00 % minus a fee percentage between 0.25 % to 0.375 % on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.

As of September 30, 2021, the interest rates on the Term Loan and the PNC Credit Facility were 6.75 % and 2.34 %, respectively, and PNC Credit Facility had a borrowing base of $ 20.0 million, of which $ 8.6 million was available at that date.

If on the last day of any calendar quarter, the average “Usage Amount” during such calendar quarter does not equal the “Maximum Revolving Advance Amount” (as such terms are defined in the PNC Credit Facility), then the Company has agreed to pay affiliates of certain Term Loan lenders a fee at a rate per annum equal to 1.00 % minus a fee percentage between 0.25 % to 0.375 % on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.

As of December 31, 2021, the interest rates on the Term Loan was 6.75 % and the interest rate on the PNC Credit Facility was 4.50 %.

The PNC Credit Facility had a borrowing base of $ 15.1 million, of which $ 7.6 million was available at that date.

As of March 31, 2021, the Company was required to maintain a $ 5.0 million restricted cash reserve as part of the PNC Credit Facility, which was presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of March 31, 2021.

The September 30, 2021 amendment to the PNC Credit Facility removed the restricted cash reserve requirement.

Registration Rights Agreement

In connection with the June 2020 Amendment to the Senior Secured Term Loan, 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 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

2 unchanged sentences

Small Business Administration (the “SBA”).

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

The Company recorded the amount forgiven as gain on debt extinguishment of $ 10.0 million in nine months ended December 31, 2021.

Supplemental balance sheet information related to leases is as follows (in thousands):

Operating leases September 30, 2021 March 31, 2021

Operating leases December 31, 2021 March 31, 2021

Operating lease right-of-use asset $ 3,483 $ 9,383

3 unchanged sentences

Components of lease cost were as follows (in thousands):

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

Three Months Ended December 31, Nine Months Ended December 31,

Lease Cost 2021 2020 2021 2020

4 unchanged sentences

Maturity of Lease Liabilities Operating Leases

2022, excluding the six months ended September 30, 2021

2022, excluding the nine months ended December 31, 2021

Thereafter 460

2 unchanged sentences

Present value of lease liabilities $ 3,855

Lease Term and Discount Rate September 30, 2021 March 31, 2021

Lease Term and Discount Rate December 31, 2021 March 31, 2021

Weighted average remaining operating lease term (years) 3.63 4.53

Weighted average discount rate for operating leases 13.16 % 13.96 %

Operating cash outflows related to operating leases totaled $ 1.0 million and $ 1.3 million for the six months ended September 30, 2021 and 2020, respectively.

Operating cash outflows related to operating leases totaled $ 3.1 million and $ 4.4 million for the nine months ended December 31, 2021 and 2020, respectively.

During the quarter ended December 31, 2021, the Company exited an office location which resulted in a reduction of $ 3.8 million in the right-of-use asset and $ 3.7 million in the operating lease liability.

RESTRUCTURING CHARGES

The following table summarizes the restructuring activities for the six months ended September 30, 2021 and 2020 (in thousands):

Severance and Benefits Facilities Total

The following table summarizes the restructuring activities for the nine months ended December 31, 2021 and 2020 (in thousands):

Severance and Benefits

Balance as of March 31, 2021 $ 580

2 unchanged sentences

Cash payments ( 785 )

Balance as of September 30, 2021

$ 20 $ — $ 20

Other non-cash ( 20 )

Balance as of December 31, 2021

Balance as of March 31, 2020 $ —

1 unchanged sentence

Cash payments ( 2,627 )

Balance as of September 30, 2020

$ 240 $ — $ 240

Balance as of December 31, 2020

NET LOSS PER SHARE

The following outstanding stock-based instruments which are comprised of performance share units, restricted stock units, and warrants were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive (in thousands):

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

Three Months Ended December 31, Nine Months Ended December 31,

2021 2020 2021 2020

8,802 8,311 9,811 7,557

The dilutive impact related to common shares from restricted stock units and warrants is determined by applying the treasury stock method to the assumed vesting of outstanding restricted stock units and the exercise of outstanding 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.

For the three and six months ended September 30, 2020, there were 1.6 million and 0.5 million of contingently issuable market based and performance based restricted stock units, respectively, excluded from the calculation of diluted net income (loss) per share, as their market and performance conditions had not yet been achieved.

These shares were earned based on the Company’s achievement of certain average stock price and performance targets in addition to a time-based vesting period.

There were no contingently issuable market based and performance based restricted stock units excluded from the diluted net loss per share as of September 30, 2021.

The effective tax rate for the three and six months ended September 30, 2021 and 2020 was ( 4.6 )% and ( 3.2 )% and 1.0 % and 0.0 %, respectively.

The dilutive impact related to common stock from restricted stock units and warrants is determined by applying the treasury stock method to the assumed vesting of outstanding restricted stock units and the exercise of outstanding warrants.

The dilutive impact related to common stock 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.

For the three and nine months ended December 31, 2021 there were 0.2 million contingently issuable market based restricted stock units excluded from the calculation of diluted net loss per share as their market conditions had not yet been achieved.

For the three and nine months ended December 31, 2020 there were 1.5 million and 0.4 million of contingently issuable market based and performance based restricted stock units excluded from the calculation of diluted net income (loss) per share as their market and performance conditions had not yet been achieved.

These shares will be earned based on the Company’s achievement of certain average stock price and performance targets in addition to a time-based vesting period.

The effective tax rate for the three and nine months ended December 31, 2021 and 2020 was ( 12.6 )% and ( 7.3 )% and ( 10.6 )% and ( 5.1 )%, respectively.

The effective tax rates differed from the federal statutory tax rate of 21% during each of these periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.

As of September 30, 2021, including interest and penalties, the Company had $ 108.4 million of unrecognized tax benefits, $ 89.9 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

After taking into account the valuation allowance, of the $ 89.9 million, only $ 7.5 million, if recognized, would favorably affect the effective tax rate.

As of September 30, 2021, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.3 million.

As of December 31, 2021, including interest and penalties, the Company had $ 109.2 million of unrecognized tax benefits, $ 90.6 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of December 31, 2021 the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.4 million.

The Company recognizes interest and penalties related to income tax matters in the income tax provision in the condensed consolidated statements of operations.

As of September 30, 2021, $ 100.9 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 7.5 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

As of December 31, 2021, $ 101.4 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 7.8 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

During the next 12 months, it is reasonably possible that approximately $ 14.0 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.

After taking into account the valuation allowance, of the $ 14.0 million, only $ 1.0 million would affect the effective tax rate.

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

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 September 30, 2021, the Company had issued non-cancelable commitments for $ 57.3 million to purchase inventory from its contract manufacturers and suppliers.

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 December 31, 2021, the Company had issued non-cancelable commitments for $ 66.3 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

19 unchanged sentences

Quantum 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.

On September 7, 2021, the case against Quantum in the Northern District of California was stayed pending the outcome of Realtime Data’s appeal in the Delaware Action.

Quantum 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, 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.

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 hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015.

7 unchanged sentences

On March 11, 2021, the California Superior Court stayed the California action.

A further status conference in that action is set for March 10, 2022.

On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs.

5 unchanged sentences

Gacek and Auvil.

Under the briefing schedule agreed to by the parties and approved by the Court of

Chancery, briefing on the motions ended July 26, 2021.

The Court set oral argument on the motions for September 28, 2021, but on August 4, 2021, on its own motion, postponed the hearing to November 1, 2021.

Briefing on the motions ended July 26, 2021.

The Court held oral argument on the motions on November 1, 2021 and on January 28, 2022, the Court granted the motions to dismiss the breach of fiduciary duty claims against Messrs.

Gacek and Auvil and denied the motions to dismiss the remaining claims.

At this time, Quantum is unable to estimate the range of possible outcomes with respect to this matter.

4 unchanged sentences

The Company’s assets, measured and recorded at fair value on a recurring basis, may consist of money market funds which are included in cash and cash equivalents in the Condensed Consolidated Balance Sheets and are valued using quoted market prices (level 1 fair value measurements) at the respective balance sheet dates.

No impairment charges were recognized for non-financial assets in the six months ended September 30, 2021 and 2020.

No impairment charges were recognized for non-financial assets in the nine months ended December 31, 2021 and 2020.

The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Long-term Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of September 30, 2021 and 2020.

The table below represents the carrying value and total estimated fair value of long-term debt as of December 31, 2021 and 2020.

The fair value has been classified as Level 2 within the fair value hierarchy.

September 30,

Carrying Value Fair Value Carrying Value Fair Value

Senior Secured Term Loan $ 99,375 $ 99,375 $ 185,208 $ 185,208

Amended PNC Credit Facility 10,000 10,000 — —

SUBSEQUENT EVENTS

On October 1, 2021, the Company acquired the assets of EnCloudEn, an early stage hyperconverged infrastructure software company, for $ 2.3 million in cash.

Term Loan $ 98,750 $ 98,750 $ 185,208 $ 188,471

PNC Credit Facility 7,556 7,556 5,960 5,289

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 1. Financial Statements