What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-02-09 · 126 added, 204 removed, 297 unchanged (53% of the section changed)

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(in thousands, except per share amounts, unaudited)

December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022

Current assets:

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Service parts inventories 25,129 24,254

Prepaid expenses 10,715 7,853

Other current assets 4,574 4,697

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Goodwill 12,969 12,969

Restricted cash — 5,000

Right-of-use assets, net 10,641 11,107

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Deferred revenue 74,267 86,517

Accrued restructuring charges 597 580

Long-term debt, current portion 5,000 4,375

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Deferred revenue 40,196 41,580

Revolving credit facility 17,300 17,735

Long-term debt, net of current portion 69,195 89,448

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(in thousands, except per share amounts, unaudited)

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

2021 2020 2021 2020

Three Months Ended June 30,

Product $ 60,211 $ 52,131

Service 33,162 31,169 100,352 93,049

Service and subscription 33,423 32,831

Royalty 3,440 4,137

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Product 47,921 38,741

Service 15,016 12,433 41,764 36,593

Service and subscription 15,105 13,080

Total cost of revenue 63,026 51,821

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Total operating expenses 41,126 37,334

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

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

Loss from operations ( 7,078 ) ( 56 )

Other income (expense), net 751 ( 198 )

Interest expense ( 2,091 ) ( 3,886 )

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

Loss on debt extinguishment ( 1,392 ) —

Net loss before income taxes ( 9,810 ) ( 4,140 )

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Net loss $ ( 10,220 ) $ ( 4,153 )

Net loss per share - basic and diluted $ ( 0.19 ) $ ( 0.07 ) $ ( 0.42 ) $ ( 0.45 )

Deemed dividend on warrants ( 389 ) —

Net loss attributable to common stockholders $ ( 10,609 ) $ ( 4,153 )

Net loss per share attributable to common stockholders $ ( 0.13 ) $ ( 0.07 )

Weighted average shares - basic and diluted 83,641 57,129

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(in thousands, unaudited)

Nine Months Ended December 31,

Three Months Ended June 30,

Operating activities

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Amortization of debt issuance costs 336 1,004

Long-term debt related costs — 167

Loss on debt extinguishment 992 —

Provision for product and service inventories 1,631 976

Stock-based compensation 3,069 3,201

Paycheck Protection Program loan forgiveness ( 10,000 ) —

Non-cash loss on debt extinguishment 8,471 —

Other ( 1,469 ) 326

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Purchases of property and equipment ( 3,036 ) ( 1,150 )

Business acquisition, net of cash acquired ( 7,808 ) ( 2,636 )

Deferred business acquisition payment ( 2,000 ) —

Net cash used in investing activities ( 5,036 ) ( 1,150 )

Financing activities

Borrowings of long-term debt, net of debt issuance costs 94,961 19,400

Repayments of long-term debt ( 93,677 ) —

Repayments of long-term debt and payment of amendment fees ( 20,846 ) ( 463 )

Borrowings of credit facility 109,740 56,544

Repayments of credit facility ( 200,007 ) ( 229,847 )

Borrowings of payment protection program — 10,000

Proceeds from issuance of common stock 806 539

Repayments of credit facility and payment of amendment fees ( 110,575 ) ( 56,544 )

Proceeds from issuance of common stock, net 66,324 —

Net cash provided by financing activities 44,643 ( 463 )

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Cash paid for interest $ 1,863 $ 2,860

Cash paid (received) for income taxes, net $ 541 $ ( 2,464 )

Cash paid for income taxes, net $ 115 $ 294

Non-cash transactions

Purchases of property and equipment included in accounts payable $ 133 $ 146

Purchases of property and equipment included in accrued liabilities $ 1,212 $ 1,255

Transfer of inventory to property and equipment $ 382 $ 372

Transferred of manufacturing inventory to services inventory $ 890 $ 411

Transfer of manufacturing inventory to property and equipment $ 193 $ 65

Paid-in-kind interest $ 319 $ —

Deemed dividend on warrants $ 389 $ —

See accompanying Notes to Condensed Consolidated Financial Statements.

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Common Stock Additional

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

Three Months Ended Shares Amount

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

Net loss — — — ( 2,669 ) — ( 2,669 )

Foreign currency translation adjustments, net — — — — 975 975

Shares issued under employee stock purchase plan 453 5 ( 5 ) — — —

Shares issued under employee incentive plans, net 361 3 2,077 — — 2,080

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 )

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

Foreign currency translation adjustments, net — — — — ( 37 ) ( 37 )

Shares issued under employee stock purchase plan — — — — — —

Shares issued under employee incentive plans, net 183 2 ( 2 ) — — —

Shares issued in connection with business acquisition 361 4 ( 4 ) — — —

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

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

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

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

Nine Months Ended Shares Amount

Three Months Ended Shares Amount

Balance, March 31, 2021 56,915 $ 570 $ 626,664 $ ( 738,623 ) $ ( 856 ) $ ( 112,245 )

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Shares issued under employee stock purchase plan 365 3 ( 3 ) — — —

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

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 — — 3,201 — — 3,201

Balance, December 31, 2020

Balance, June 30, 2021

57,280 $ 573 $ 629,862 $ ( 742,776 ) $ ( 589 ) $ ( 112,930 )

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Shares issued under employee stock purchase plan 173 2 ( 2 ) — — —

Shares issued under employee incentive plans, net 1,935 19 ( 19 ) — — —

Shares issued in connection with business acquisition 821 9 2,809 — — 2,818

Shares issued in connection with rights offering, net 30,000 300 66,023 — — 66,323

Stock-based compensation — — 3,069 — — 3,069

Balance, December 31, 2021

Settlement of warrant down round provision — — 389 — — 389

Deemed dividend on warrants — — ( 389 ) — — ( 389 )

Balance, June 30, 2022

90,606 $ 907 $ 714,128 $ ( 781,123 ) $ ( 2,699 ) $ ( 68,787 )

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Description of Business and Summary of Significant Accounting Policies

Business Combination

Balance Sheet Information

Long-Term Debt

Restructuring Charges

Net Loss Per Share

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Description of Business

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.

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.

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving.

The Company helps customers around the world capture, create and share digital data and preserve and protect it for decades.

The Company’s software-defined, hyperconverged storage solutions span from non-violate memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape, the cloud, and video surveillance are tied together leveraging a single namespace view of the entire data environment.

The Company works closely with a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers to meet customers’ evolving needs.

Basis of Presentation

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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 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.

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 June 30, 2022, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three months ended June 30, 2022 and 2021.

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

Use of Estimates

Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with GAAP.

These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of the COVID-19 pandemic.

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 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.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes.

Actual results could differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic.

Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, stock-based compensation and provision for income taxes including related reserves.

Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Recently Adopted Accounting Pronouncement

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

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

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

2021 2020 2021 2020

Three Months Ended June 30,

Primary storage systems $ 11,414 $ 7,194

1 unchanged sentence

Device and media 4,972 6,521

Service 19,470 18,913 61,003 56,907

Service and subscription 20,145 20,193

Total revenue 59,250 50,620

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Device and media 5,063 5,381

Service 11,606 10,339 33,454 30,380

Service and subscription 11,017 10,813

Total revenue 26,770 26,731

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Device and media 1,580 712

Service 2,086 1,917 5,895 5,762

Service and subscription 2,261 1,825

Total revenue 7,614 7,611

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Device and media 11,615 12,614

Service 33,162 31,169 100,352 93,049

3,660 3,833 11,963 10,543

Service and subscription 33,423 32,831

Total revenue $ 97,074 $ 89,099

2 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 nine months ended December 31, 2021 (in thousands):

December 31, 2021

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the three months ended June 30, 2022 (in thousands):

June 30, 2022

Contract liabilities (deferred revenue) $ 114,463

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Current Non-Current Total

As of December 31, 2021

As of June 30, 2022

$ 98,394 $ 42,146 $ 140,540

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

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 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.

Goodwill obtained in an asset acquisition is deductible for tax purposes.

The total purchase consideration for the acquisition of Pivot3 was $ 7.8 million, which consisted of the following (in thousands):

Fair value of stock consideration 2,818

Total $ 7,818

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):

Amount Estimated Useful Life

Goodwill $ 6,796

Identified intangible assets:

Developed technology 1,700 2 years

Customer lists 3,700 4 years

Property, plant and equipment 4,300 3 years

Net liabilities assumed ( 8,678 )

Total $ 7,818

Pivot 3 has also agreed to license to the Company certain intellectual property rights related to the business.

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

Certain significant amounts included in the Company's consolidated balance sheets consist of the following (in thousands):

Certain significant amounts included in the Company's condensed consolidated balance sheets consist of the following (in thousands):

Manufacturing inventories

December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022

Finished goods $ 11,802 $ 14,607

Manufactured finished goods $ 13,111 $ 12,452

Distributor inventory 170 238

Total finished goods 13,281 12,690

Work in progress 2,066 2,546

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Service parts inventories

December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022

Finished goods $ 19,876 $ 19,234

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Intangibles, net

December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

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Intangible assets, net $ 13,808 $ ( 5,388 ) $ 8,420 $ 13,808 $ ( 4,224 ) $ 9,584

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):

Intangible assets amortization expense was $ 1.2 million and $ 0.5 for the three months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.2 years.

As of June 30, 2022, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

Remainder of 2023 $ 3,404

Thereafter 1,624

Total $ 8,420

Balance at March 31, 2021 $ 3,466

Goodwill acquired 6,796

Balance at December 31, 2021

As of June 30, 2022 and March 31, 2022, goodwill was $ 13.0 million.

There were no impairments to goodwill during the quarters ended June 30, 2022 and 2021.

LONG-TERM DEBT

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

December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022

Term Loan $ 78,417 $ 98,723

Senior Secured Term Loan — 92,426

PNC Credit Facility 17,300 17,735

Paycheck Protection Program Loan — 10,000

current portion ( 5,000 ) ( 4,375 )

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Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying condensed consolidated balance sheets.

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 (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.

The exercise price and the number of shares underlying the 2020 Term Loan Warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments.

The 2020 Term Loan Warrants are exercisable until June 16, 2030.

Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.

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

On December 27, 2018, the Company entered into a senior secured term loan (the "Senior Secured Term Loan”) and amended its existing PNC Bank Credit Facility Agreement (the "PNC Credit Facility").

On February 11, 2021, the Company prepaid $ 92.3 million of its outstanding Senior Secured Term Loan.

On August 5, 2021, the Company entered into a new 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.

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Principal and interest payments are payable on a quarterly basis.

The Company incurred $ 5.1 million in costs related to the Term Loan.

These debt issuance costs are reflected as a reduction of the carrying amount of the Term Loan and are being recognized as interest expense over the term of the Term Loan.

The Company recorded a loss on debt extinguishment of $ 15.0 million related to the repayment of the Senior Secured Term Loan which was comprised of $ 6.4 million in prepayment penalties, $ 0.1 million in legal fees, and the write-off of unamortized debt issuance costs of $ 8.4 million.

Loans under the Term Loan 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 one 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 (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):

(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.

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 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.

The interest rate under the PNC Credit Facility is 2.25 % per annum for LIBOR Rate Loans and 1.25 % per annum for Domestic Rate Loans and Swing Loans through December 31, 2021, and effective as of January 1, 2022 on the first day of each fiscal quarter ending thereafter (the “Applicable Margin Adjustment Date”), between 1.75 % and 2.25 % per annum for LIBOR Rate Loans and between 0.75 % and 1.25 % per annum for Domestic Rate Loans and Swing Loans, based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter prior to the Applicable Margin Adjustment Date (the “Applicable Interest Rate”).

With respect to any LIBOR Rate Loan, the Company has agreed to pay affiliates of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 6.00 %, minus (y) the Applicable Interest Rate, plus (z) if the LIBOR Rate applicable to such interest payment is less than 0.75 %, (i) 0.75 % minus (ii) such LIBOR Rate.

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.

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.

Paycheck Protection Program Loan

On April 13, 2020, the Company entered into a Paycheck Protection Program Term Loan (“PPP Loan”) effective April 11, 2020 with PNC in an aggregate principal amount of $ 10.0 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

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

Small Business Administration (the “SBA”).

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

On April 25, 2022, the Company entered into amendments to the Term Loan and the PNC Credit Facility.

The Term Loan amendment, among other things, (a) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022;

(b) replaced the benchmark rate for LIBOR Rate Loans with a rate based on the Secured Overnight Financing Rate ("SOFR").

The amendment to the Term Loan was accounted for as a modification.

The Company incurred $ 0.4 million in costs related to the modification which are reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term.

Loans under the Term Loan designated as ABR Loans 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 SOFR Rate based upon an interest period of one 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 SOFR Rate Loans bear interest at a rate per annum equal to the SOFR Rate plus an applicable margin of 6.00 %.

The SOFR Rate is subject to a floor of 0.75 %.

The Company can designate a loan as an ABR Rate Loan or SOFR Rate Loan in its discretion.

The PNC Credit Facility amendment, among other things, (a) increased the principal amount of revolving commitments from $ 30.0 million to $ 40.0 million;

(b) waived compliance with the fixed charge coverage ratio financial covenant until the fiscal quarter ended March 31, 2025;

(c) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022;

and (d) replaced the benchmark rate for PNC LIBOR Rate Loans with a rate based on SOFR.

The amendment to the PNC Credit Facility was accounted for as a modification.

The Company incurred $ 0.4 million in costs which were recorded to other assets and amortized to interest expense over the remaining term of the agreement.

Loans designated as PNC SOFR Loans bear interest at a rate per annum equal to the SOFR Rate plus 2.75 % until December 31, 2023 and thereafter between 2.25 % and 2.75 % determined based on the Company’s Total Net Leverage Ratio, (as defined in the PNC Credit Facility Agreement) for the most recently completed fiscal quarter (the "PNC SOFR Loan Interest Rate").

Loans under the PNC Credit Facility designated as PNC Domestic Rate Loans and Swing Loans bear interest at a rate per annum equal to the greatest of (i) the base commercial lending rate of PNC Bank;

(ii) the Overnight Bank Funding Rate plus 0.5 %;

and (iii) the daily SOFR Rate plus 1.0 %, plus 1.75 % until December 31, 2023 and thereafter between 1.25 % and 1.75 % determined based on the Company’s Total Net Leverage Ratio (the “PNC Domestic Loan Interest Rate”).

With respect to any PNC SOFR Rate Loan, the Company has agreed to pay affiliates of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 6.50 %, minus (y) the PNC SOFR Loan Interest Rate, plus (z) if the SOFR Rate applicable to such interest payment is less than 0.75 %, (i) 0.75 % minus (ii) such SOFR Rate.

With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 5.50 %, minus (y) the PNC Domestic Loan 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.

During the first fiscal quarter ending June 30, 2022, the Company recorded a loss on debt extinguishment of $ 1.4 million related to a $ 20.0 million prepayment of the Term Loan which was comprised of a $ 0.4 million prepayment penalty and the write-off of unamortized debt issuance costs of $ 1.0 million.

As of June 30, 2022, the interest rate on the Term Loan was 7.01 % and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 6.50 % and for LIBOR Loans was 2.61 %.

As of June 30, 2022, the PNC Credit Facility had a borrowing base of $ 29.1 million, of which $ 11.8 million was available at that date.

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

Operating leases December 31, 2021 March 31, 2021

Operating leases June 30, 2022 March 31, 2022

Operating lease right-of-use asset $ 10,641 $ 11,107

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

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

Three Months Ended June 30,

Lease Cost 2022 2021

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Variable lease cost 158 174

Short-term lease cost 17 37 17 129

Total lease cost $ 1,184 $ 1,309

Maturity of Lease Liabilities Operating Leases

2022, excluding the nine months ended December 31, 2021

Remainder of 2023 $ 2,139

Thereafter 14,560

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Present value of lease liabilities $ 11,453

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

Lease Term and Discount Rate June 30, 2022 March 31, 2022

Weighted average remaining operating lease term (years) 11.18 10.88

Weighted average discount rate for operating leases 12.9 % 12.9 %

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 nine months ended December 31, 2021 and 2020 (in thousands):

Severance and Benefits

Balance as of March 31, 2021 $ 580

Restructuring costs 850

Adjustments to prior estimates ( 28 )

Cash payments ( 785 )

Other non-cash ( 20 )

Balance as of December 31, 2021

Balance as of March 31, 2020 $ —

Restructuring costs 2,837

Cash payments ( 2,627 )

Balance as of December 31, 2020

Operating cash outflows related to operating leases totaled $ 0.7 million and $ 1.1 million for the three months ended June 30, 2022 and 2021, respectively.

Common Stock Rights Offering

On April 25, 2022, the Company completed a rights offering of 30 million shares of its common stock for $ 2.25 per share (the “Rights Offering”).

The proceeds net of offering expenses was $ 66.3 million.

A portion of the proceeds from the Rights Offering was used to prepay $ 20.0 million of the Company’s Term Loan.

As of the date of the Rights Offering, the Company had outstanding warrants to purchase 7,110,616 shares of the Company’s common stock at an exercise price of $ 1.33 per share and outstanding warrants to purchase 3,400,000 shares of the Company's common stock at an exercise price of $ 3.00 per share (the “$ 3.00 Warrants").

The exercise price and the number of shares underlying these warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments (the “Down Round Feature”).

On April 25, 2022, the Down Round Feature was triggered for the $ 3.00 Warrants due to the price per share received in the Rights Offering.

The exercise price for the $ 3.00 Warrants was adjusted to $ 2.79 per share and an additional 256,113 warrants were subsequently issued with an exercise price of $ 2.79 .

The Company calculated the difference between the $ 3.00 Warrants’ fair value before and after the Down Round Feature was triggered using the original exercise price and the new exercise price in addition to the value of the newly issued warrants.

The difference in fair value of the effect of the Down Round Feature of $ 0.4 million was reflected as a deemed dividend and a reduction to income available to common stockholders in the basic earnings per share calculation.

The Company used the Black-Scholes-Merton option-pricing model to determine the fair value of the deemed dividend.

The assumptions used in the model are as follows:

dividend rate of 0 %;, expected term of 8 years;

volatility of 56 %;

and a risk-free rate 2.85 %.

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 December 31, Nine Months Ended December 31,

2021 2020 2021 2020

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

Three Months Ended June 30,

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 rate for the three months ended June 30, 2022 and 2021 was ( 4.2 )% and ( 0.3 )%.

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 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.

As of June 30, 2022, including interest and penalties, the Company had $ 101.5 million of unrecognized tax benefits, $ 82.9 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of June 30, 2022 the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.3 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 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.

As of June 30, 2022, $ 94.0 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.

During the next 12 months, it is reasonably possible that approximately $ 10.8 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.

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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.

As of June 30, 2022, the Company had issued non-cancelable commitments for $ 50.9 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

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Realtime Data has appealed that decision to the Federal Circuit.

Quantum believes the probability that this lawsuit will have a material adverse effect on our business, operating results or financial condition is remote.

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.

On July 14, 2020, Starboard Value LP, Starboard Value and Opportunity Master Fund Ltd., Starboard Value and Opportunity S LLC, and Starboard Value and Opportunity C LP (collectively, “Starboard”) filed a lawsuit against Quantum Corporation, Quantum’s former CEO and board member Jon Gacek, and former Quantum board member Paul Auvil in the California Superior Court in Santa Clara County.

The complaint alleges that between 2012 and 2014, Starboard purchased a large number of shares of Quantum’s common stock, obtained three seats on Quantum’s board of directors and then, in July 2014, entered into an agreement with Quantum whereby Starboard would not seek control of Quantum’s board but would instead support Quantum’s slate of board nominees so long as Quantum met certain performance objectives by the end of fiscal 2015.

The complaint further alleges that Quantum hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015.

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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.

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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.

The Court held oral argument on the motions on November 1, 2021.

On January 28, 2022, via a bench ruling, 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;

the bench ruling was confirmed in a written order filed February 24, 2022.

On March 28, 2022, Quantum filed an answer and affirmative defenses to the complaint, as did Messrs.

Gacek and Auvil.

On May 3, 2022, the Court filed a stipulated order governing case schedule, setting trial for June 6-9, 2023, and also setting a number of pretrial deadlines.

On March 4, 2022, Starboard filed a request for dismissal without prejudice of the California action because the matter is proceeding in Delaware.

On March 10, 2022, the California Superior Court entered a minute order dismissing the action without prejudice.

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

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Additionally, from time to time, the Company is a party to various legal proceedings and claims arising from the normal course of business activities.

Based on current available information, the Company does not expect that the ultimate outcome of any of these other currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, cash flows or financial position.

Based on current available information, the Company does not expect that the ultimate outcome of any currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on its results of operations, cash flows or financial position.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 nine months ended December 31, 2021 and 2020.

No impairment charges were recognized for non-financial assets in the three months ended June 30, 2022 and 2021.

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 December 31, 2021 and 2020.

The table below represents the carrying value and total estimated fair value of long-term debt as of June 30, 2022 and 2021.

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

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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 1. Financial Statements