QUANTUM CORP /DE/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Quarterly Report and our Annual Report on Form 10-K for the year ended March 31, 2021. In particular, the disclosure contained in Part I, Item 1A in our Annual Report on form 10-K, 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. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements. OVERVIEW We are a technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges. We generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; interest associated with our long term debt and income taxes. Highlights from third quarter of fiscal year 2022 included: • Revenue increased 2% sequentially to $95.3 million and 8% year to date compared to the prior year to $277.6 million. • 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 announced a new collaboration and Remote Editing Solution for Adobe Premiere Pro Users. • We announced a partnership with IBM on the next generation of LTO technology in which we will collaborate with IBM in its development of LTO-10 tape drives and media in order to accelerate time-to-market, capacity, and performance. • We were awarded one Platinum and one Gold 'ASTORS' Homeland Security Award from American Security Today. The Annual 'ASTORS' Awards Program, is specifically designed to honor distinguished government and vendor solutions that deliver enhanced value, benefit, and intelligence to end-users in a variety of government, homeland security, enterprise, and public safety vertical markets. COVID-19 IMPACT AND ASSOCIATED ACTIONS Since the beginning of March 2020, COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place for a significant period of time. 18 Table of Contents In light of these events, we have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business. We have implemented more thorough sanitation practices as outlined by health organizations and instituted mitigation practices 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 decreasing employee travel. 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. However, COVID-19 has caused a significant disruption to the global supply chain, which continues to have a negative 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 third fiscal quarter our backlog grew to $62 million from $50 million at the end of the prior quarter and $30 million as of June 30, 2021. Approximately $50 million of the ending backlog represented tape products a majority of which is for orders from our hyperscale customers. This unprecedented backlog is a result of the strong demand we have been seeing across our business but limited by the ongoing supply constraints. We anticipate that supply chain constraints will remain challenging, limiting our ability to ship against all customer demand and recognize a meaningful portion of the current backlog. 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 December 31, Nine Months Ended December 31, (in thousands) 2021 2020 2021 2020 Total revenue $ 95,344 $ 98,023 $ 277,623 $ 257,149 Total cost of revenue (1) 60,134 55,744 166,746 145,284 Gross profit 35,210 42,279 110,877 111,865 Operating expenses Research and development (1) 14,607 9,589 38,287 29,983 Sales and marketing (1) 16,714 15,294 46,128 40,019 General and administrative (1) 10,538 11,103 33,830 32,928 Restructuring charges 576 200 850 2,837 Total operating expenses 42,435 36,186 119,095 105,767 Income (loss) from operations (7,225) 6,093 (8,218) 6,098 Other expense, net (150) (698) (223) (1,395) Interest expense (2,431) (7,808) (9,387) (21,823) Loss on debt extinguishment, net — — (4,960) — Net loss before income taxes (9,806) (2,413) (22,788) (17,120) Income tax provision 1,254 256 1,678 877 Net loss $ (11,060) $ (2,669) $ (24,466) $ (17,997) (1) Includes stock-based compensation as follows: 19 Table of Contents Three Months Ended December 31, Nine Months Ended December 31, (in thousands) 2021 2020 2021 2020 Cost of revenue $ 208 $ 172 $ 799 $ 569 Research and development 1,935 186 4,798 1,249 Sales and marketing 655 474 1,768 1,306 General and administrative 1,509 1,046 3,215 3,304 Total $ 4,307 $ 1,878 $ 10,580 $ 6,428 Comparison of the Three Months Ended December 31, 2021 and 2020 Revenue Three Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Product revenue Primary storage systems $ 13,791 14 $ 23,654 24 $ (9,863) (42) Secondary storage systems 30,630 32 25,311 26 5,319 21 Devices and media 14,101 15 14,056 14 45 — Total product revenue 58,522 61 63,021 64 (4,499) (7) Service revenue 33,162 35 31,169 32 1,993 6 Royalty revenue 3,660 4 3,833 4 (173) (5) Total revenue $ 95,344 100 $ 98,023 100 $ (2,679) (3) Product revenue In the three months ended December 31, 2021, product revenue decreased $4.5 million, or 7%, as compared to the same period in 2020. Primary storage systems decreased $9.9 million, or 42%, primarily as a result of delayed purchase cycles with some government customers in addition to our transition to a recurring software subscription licensing model which results in a shift from product to services revenue. Secondary storage systems increased $5.3 million, or 21%, driven by higher demand in our hyperscale, backup and archive use cases. 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 6% in the three months ended December 31, 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 decreased $0.2 million, or 5%, in the three months ended December 31, 2021 compared to the same period in 2020 due to decreased market volume of older generation LTO media. 20 Table of Contents Gross Profit and Margin Three Months Ended December 31, (dollars in thousands) 2021 Gross margin % 2020 Gross margin % $ Change Basis point change Product gross profit $ 13,404 22.9 $ 19,710 31.3 $ (6,306) (840) Service gross profit 18,146 54.7 18,736 60.1 (590) (540) Royalty gross profit 3,660 100.0 3,833 100.0 (173) — Gross profit $ 35,210 36.9 $ 42,279 43.1 $ (7,069) (620) Product Gross Margin Product gross margin decreased 840 basis points for the three months ended December 31, 2021, as compared with the same period in 2020. This decrease was due primarily to recent cost surges in materials across our global supply chain. We expect these cost increases to continue for the foreseeable future and are taking proactive measures to address the impact these cost increases could have on our business in the future. Service Gross Margin Service gross margins decreased 540 basis points for the three months ended December 31, 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 Royalties do not have significant related cost of sales. Operating expenses Three Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Research and development $ 14,607 15.3 $ 9,589 9.8 $ 5,018 52 Sales and marketing 16,714 17.5 15,294 15.6 1,420 9 General and administrative 10,538 11.1 11,103 11.3 (565) (5) Restructuring charges 576 0.6 200 0.2 376 188 Total operating expenses $ 42,435 44.5 $ 36,186 36.9 $ 6,249 17 In the three months ended December 31, 2021, research and development expense increased $5.0 million, or 52%, as compared with the same period in 2020. This increase was primarily driven by an increase in personnel costs due to increased headcount due to acquisitions occurring during the current fiscal year. In the three months ended December 31, 2021, sales and marketing expenses increased $1.4 million, or 9%, 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 December 31, 2021, general and administrative expenses decreased $0.6 million, or 5%, as compared with the same period in 2020. This decrease was driven by offsets between reduced IT liabilities and increased intangible amortization from recent acquisitions. The decrease was also partially driven by reduced facilities expenses as we continue to optimize our physical footprint. In the three months ended December 31, 2021, restructuring expenses increased $0.4 million, or 188%, as compared with the same period in 2020. The increase was the result of certain strategic restructuring activities. 21 Table of Contents Other Income (Expense) Three Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Other income (expense) $ (150) 0 $ (698) (1) $ 548 79 Interest expense (2,431) 3 (7,808) 8 5,377 69 The decrease in other income (expense), net during the three months ended December 31, 2021 compared with the same period in 2020 was related primarily to fluctuations in foreign currency exchange rates. In the three months ended December 31, 2021, interest expense decreased $5.4 million, or 69%, as compared with the same period in 2020 due to a lower principal balance and a lower effective interest rate on our Term Loan. Income Taxes Three Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Income tax provision $ 1,254 1 $ 256 1 $ 998 390 The income tax provision for the three months ended December 31, 2021 and 2020is 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. 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. Comparison of the Nine Months Ended December 31, 2021 and 2020 Revenue Nine Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Product revenue Primary storage systems 41,787 15 % $ 54,478 21 % $ (12,691) (23) % Secondary storage systems 85,093 31 62,705 24 22,388 36 Devices and media 38,428 14 36,374 14 2,054 6 Total product revenue $ 165,308 60 % $ 153,557 60 % $ 11,751 8 Service revenue 100,352 36 93,049 36 7,303 8 Royalty revenue 11,963 4 10,543 4 1,420 13 Total revenue $ 277,623 100 % $ 257,149 100 % $ 20,474 8 Product revenue In the nine months ended December 31, 2021, product revenue increased $11.8 million, or 8%, as compared to the same period in 2020. Secondary storage systems represented $22.4 million of the increase, driven primarily by a growing customer base in the hyperscale segment. Devices and media represented $2.1 million of the increase, driven by higher volume of LTO media sold through our high-volume channel partners. Primary storage systems 22 Table of Contents decreased $12.7 million driven primarily by delayed purchase cycles with some government customers in addition to 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 $7.3 million, or 8%, in the nine months ended December 31, 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 $1.4 million, or 13%, in the nine months ended December 31, 2021 compared to the same period in 2020 due to higher overall market volume of LTO media. Gross Profit and Margin Nine Months Ended December 31, (dollars in thousands) 2021 Gross margin % 2020 Gross margin % $ Change Basis point change Product gross profit $ 40,326 24.4 % $ 44,866 29.2 % $ (4,540) (480) Service gross profit 58,588 58.4 56,456 60.7 2,132 (230) Royalty gross profit 11,963 100.0 10,543 100.0 1,420 — Gross profit $ 110,877 39.9 % $ 111,865 43.5 % $ (988) (360) Product Gross Margin Product gross margin decreased 480 basis points for the nine months ended December 31, 2021, as compared with the same period in 2020. This decrease was due primarily to recent cost surges in materials across our global supply chain. Service Gross Margin Service gross margin decreased 230 basis points for the nine months ended December 31, 2021, as compared with the same period in 2020. This decrease was primarily 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 Nine Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Research and development $ 38,287 13.7 % $ 29,983 11.7 % $ 8,304 28 % Sales and marketing 46,128 16.6 40,019 15.6 6,109 15 General and administrative 33,830 12.2 32,928 12.8 902 3 Restructuring charges 850 0.3 2,837 1.1 (1,987) (70) Total operating expenses $ 119,095 42.9 % $ 105,767 41.1 % $ 13,328 13 23 Table of Contents In the nine months ended December 31, 2021, research and development expense increased $8.3 million, or 28%, as compared with the same period in 2020. This increase was primarily driven by an increase in personnel costs due to increased headcount due to acquisitions occurring during the current fiscal year. In the nine months ended December 31, 2021, sales and marketing expenses increased $6.1 million, or 15%, 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 nine months ended December 31, 2021, general and administrative expenses increased $0.9 million, or 3%, 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 nine months ended December 31, 2021, restructuring expenses decreased $2.0 million, or 70%, 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) Nine Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Other income (expense) $ (223) 0 $ (1,395) (1) % $ 1,172 84 % Interest expense (9,387) (3) (21,823) (8) 12,436 (57) Loss on debt extinguishment, net (4,960) (2) — — (4,960) n/a The change in other income (expense), net during the nine months ended December 31, 2021 and 2020 was related primarily to fluctuations in foreign currency exchange rates. In the nine months ended December 31, 2021, interest expense decreased $12.4 million, or 57%, as compared with the same period in 2020 due primarily to a lower principal balance and a lower effective interest rate on our Term Loan. Loss on debt extinguishment, net during the nine months ended December 31, 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. Income Taxes Nine Months Ended December 31, (dollars in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Income tax provision $ 1,678 1 % $ 877 — % $ 801 91 % The income tax provision for the nine months ended December 31, 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. 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. 24 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We had cash and cash equivalents of $4.0 million as of December 31, 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 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. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. We are subject to the risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S. and the global economy. We believe that these social and economic impacts have had a negative effect on sales due to disruptions in our supply chain and a decline in our customers' ability or willingness to purchase our products and services. We have also been impacted by significant increases in the procurement cost of certain materials which has negatively impacted our margins. The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue. We expect the impact of COVID-19 to continue to have a significant impact on our liquidity and capital resources. We are subject to various debt covenants under our Credit Agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. As of December 31, 2021, we were in compliance with our debt covenants. However, we believe the challenges that we have experienced in recent periods with our supply chain, including challenges sourcing components for our products and increased costs, will continue to negatively impact our results of operations and liquidity for the foreseeable future. As a result, we are working with our lenders to address any potential future covenant compliance issues as well as any potential need for additional liquidity. We believe this is the prudent course to take at this time to address any potential issues as we attempt to work through and address the temporary headwinds from supply chain. 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. Term Loan On August 5, 2021, 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 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. 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 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 nine months ended December 31, 2021. Cash Flows The following table summarizes our consolidated cash flows for the periods indicated. 25 Table of Contents Nine Months Ended December 31, (in thousands) 2021 2020 Cash provided by (used in): Operating activities $ (26,681) $ (20,264) Investing activities (11,779) (7,301) Financing activities 9,646 32,755 Effect of exchange rate changes 12 (62) Net increase (decrease) in cash and cash equivalents and restricted cash $ (28,802) $ 5,128 Cash Used In Operating Activities Net cash used in operating activities was $26.7 million for the nine months ended December 31, 2021. This use of cash was primarily attributable to changes in working capital of $24.3 million driven by increases in manufacturing and service part inventories of $13.0 million, a decrease in deferred revenue of $8.6 million and a net change in other assets and liabilities of $12.2 million which includes an increase in prepaid inventory of approximately $5.5 million in order to secure manufacturing materials. These were partially offset by a decrease in accounts receivable of $7.0 million and a $5.4 million increase in accounts payable. The decrease in deferred revenue reflects the seasonal nature of service contract renewals. Net cash used in operating activities was $20.3 million for the nine months ended December 31, 2020. This use of cash is primarily attributable to changes in working capital of $24.5 million driven by an increase in manufacturing and service inventory of $12.3 million, a decrease in deferred revenue of $9.7 million, and a decrease in accounts payable of $7.0 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 $11.8 million in the nine months ended December 31, 2021, which was primarily attributable to cash paid for our acquisition of Pivot3 of $5.0 million and capital expenditures of $2.8 million. Net cash used in investing activities was $7.3 million in the nine months ended December 31, 2020, which included approximately $2.6 million related to the Square Box Systems acquisition and capital expenditures. Cash Provided by Financing Activities Net cash provided by financing activities was $9.6 million in the nine months ended December 31, 2021, which 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 $32.8 million in the nine months ended December 31, 2020 which included 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 PNC Credit Facility. Commitments and Contingencies Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage. In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims. We also have indemnification agreements with our current and former officers and directors. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of our indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our operating results, financial position or cash flows. 26 Table of Contents We are also subject to ordinary course litigation and potential costs related to our financial statement restatement activities and related legal costs. Off Balance Sheet Arrangements Except for the indemnification commitments described under “—Commitments and Contingencies” above, we do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities. Contractual Obligations We have contractual obligations and commercial commitments, some of which, such as purchase obligations, are not recognized as liabilities in our financial statements. There have not been any other material changes to the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. Critical Accounting Estimates and Policies The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in our most recently filed Annual Report on Form 10-K for the fiscal year ended March 31, 2021 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Recently Issued and Adopted Accounting Pronouncements See Note 1 to the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our most recently filed Annual Report on Form 10-K.