What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-04 · 104 added, 61 removed, 362 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Current assets:

44 unchanged sentences

(in thousands, except per share amounts, unaudited)

Three Months Ended June 30,

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

2022 2021 2022 2021

Product $ 62,967 $ 54,655 $ 123,178 $ 106,786

31 unchanged sentences

(in thousands, unaudited)

Three Months Ended June 30,

Six Months Ended September 30,

Operating activities

Net loss $ ( 22,164 ) $ ( 13,406 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization 5,133 3,967

3 unchanged sentences

Stock-based compensation 5,357 6,273

Paycheck Protection Program loan forgiveness — ( 10,000 )

Non-cash loss on debt extinguishment — 8,471

Other ( 152 ) 41

Unrealized foreign exchange loss ( 2,766 ) ( 61 )

Changes in assets and liabilities:

2 unchanged sentences

Service parts inventories ( 1,971 ) ( 1,818 )

Prepaid expenses ( 1,208 ) ( 3,224 )

Accounts payable 293 1,559

9 unchanged sentences

Purchases of property and equipment ( 7,795 ) ( 2,396 )

Deferred business acquisition payment ( 2,000 ) —

Business acquisition payments ( 2,000 ) ( 5,000 )

Net cash used in investing activities ( 9,795 ) ( 7,396 )

Financing activities

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

Repayments of long-term debt and payment of amendment fees ( 22,096 ) ( 93,051 )

10 unchanged sentences

Restricted cash, current 223 450

Restricted cash, long-term — 5,000

Cash, cash equivalents and restricted cash at the end of period $ 26,783 $ 24,644

Cash and cash equivalents at the end of period $ 25,921 $ 23,207

Supplemental disclosure of cash flow information

3 unchanged sentences

Purchases of property and equipment included in accounts payable $ 548 $ 309

Transferred of manufacturing inventory to services inventory $ 890 $ 411

Transfer of manufacturing inventory to services inventory $ 1,905 $ —

Transfer of manufacturing inventory to property and equipment $ 279 $ 76

7 unchanged sentences

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

Three Months Ended Shares Amount

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

Shares Amount

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

Net loss — — — ( 9,253 ) — ( 9,253 )

1 unchanged sentence

Shares issued under employee stock purchase plan 145 1 805 — — 806

Shares issued under employee incentive plans, net 1,387 14 ( 14 ) — — —

Shares issued in connection with business acquisition 460 5 2,813 — — 2,818

Stock-based compensation — — 3,072 — — 3,072

Balance, September 30, 2021

59,272 $ 593 $ 636,538 $ ( 752,029 ) $ ( 1,095 ) $ ( 115,993 )

Balance, June 30, 2022 90,606 $ 907 $ 714,128 $ ( 781,123 ) $ ( 2,699 ) $ ( 68,787 )

Net loss — — — ( 11,944 ) — ( 11,944 )

Foreign currency translation adjustments, net — — — — ( 1,298 ) ( 1,298 )

Shares issued under employee stock purchase plan 300 2 469 — — 471

Shares issued under employee incentive plans, net 1,252 13 ( 13 ) — — —

Rights offering expenses — — ( 71 ) — — ( 71 )

Stock-based compensation — — 2,287 — — 2,287

Balance, September 30, 2022

92,158 $ 922 $ 716,800 $ ( 793,067 ) $ ( 3,997 ) $ ( 79,342 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

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

Shares Amount

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

2 unchanged sentences

Shares issued under employee stock purchase plan 145 1 805 — — 806

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

Shares issued under employee incentive plans, net 1,752 17 ( 17 ) — — —

Shares issued in connection with business acquisition 460 5 2,813 — — 2,818

Stock-based compensation — — 6,273 — — 6,273

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

Balance, March 31, 2022 60,433 $ 605 $ 645,038 $ ( 770,903 ) $ ( 1,423 ) $ ( 126,683 )

Net loss — — — ( 22,164 ) — ( 22,164 )

Foreign currency translation adjustments, net — — — — ( 2,574 ) ( 2,574 )

Shares issued under employee stock purchase plan 300 3 469 — — 472

Shares issued under employee incentive plans, net 1,425 14 ( 14 ) — — —

Shares issued in connection with rights offering, net 30,000 300 65,950 — — 66,250

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 )

Stock-based compensation — — 5,357 — — 5,357

Balance, September 30, 2022 92,158 $ 922 $ 716,800 $ ( 793,067 ) $ ( 3,997 ) $ ( 79,342 )

See accompanying Notes to Condensed Consolidated Financial Statements.

11 unchanged sentences

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’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 and are tied together leveraging a single namespace view of the entire data environment.

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

5 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 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.

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, 2022, 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, 2022 and 2021.

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

5 unchanged sentences

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

Recently Issued but not Adopted Accounting Pronouncements

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Program s.

The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

The amendments in this update do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance.

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

4 unchanged sentences

Revenue by geography is based on the location of the customer from which the revenue is earned.

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

Three Months Ended June 30,

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

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

2022 2021 2022 2021

Primary storage systems $ 6,839 $ 11,264 $ 18,253 $ 18,458

17 unchanged sentences

Service and subscription 32,692 34,359 66,116 67,189

3,478 4,166 6,918 8,303

Total revenue $ 99,137 $ 93,180 $ 196,212 $ 182,278

1 Revenue for Americas geographic region outside of the United States is not significant.

2 Royalty revenue is not allocable to geographic regions.

2 Royalty revenue is not allocatable to geographic regions.

Contract Balances

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

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, 2022 (in thousands):

September 30, 2022

Contract liabilities (deferred revenue) $ 110,349

3 unchanged sentences

Current Non-Current Total

As of June 30, 2022

As of September 30, 2022

$ 120,040 $ 42,104 $ 162,144

3 unchanged sentences

Manufacturing inventories

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Finished goods $ 11,443 $ 14,607

3 unchanged sentences

Service parts inventories

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Finished goods $ 20,435 $ 19,234

2 unchanged sentences

Intangibles, net

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

2 unchanged sentences

Intangible assets, net $ 13,808 $ ( 6,563 ) $ 7,245 $ 13,808 $ ( 4,224 ) $ 9,584

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):

Intangible assets amortization expense was $ 1.2 million and $ 0.8 for the three months ended September 30, 2022 and 2021, respectively and $ 2.3 million and $ 1.3 million for the six months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 1.9 years.

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

Fiscal year ending Estimated future amortization expense

1 unchanged sentence

Total $ 7,245

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.

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

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

LONG-TERM DEBT

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

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Term Loan $ 77,167 $ 98,723

18 unchanged sentences

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 %;

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 %;

15 unchanged sentences

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.

During the three months ended 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 September 30, 2022, the interest rate on the Term Loan was 8.32 % and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 8.00 %.

As of September 30, 2022, the PNC Credit Facility had an available borrowing base of $ 30.6 million, of which $ 9.1 million was available to borrow at that date.

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

Operating leases June 30, 2022 March 31, 2022

Operating leases September 30, 2022 March 31, 2022

Operating lease right-of-use asset $ 10,579 $ 11,107

3 unchanged sentences

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

Three Months Ended June 30,

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

Lease Cost 2022 2021 2022 2021

1 unchanged sentence

Variable lease cost 179 177 337 351

Short-term lease cost — 4 — 4

Total lease cost $ 1,182 $ 1,175 $ 2,366 $ 2,484

5 unchanged sentences

Present value of lease liabilities $ 11,608

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

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

Weighted average remaining operating lease term (years) 11.20 10.88

Weighted average discount rate for operating leases 12.8 % 12.9 %

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.

Operating cash outflows related to operating leases totaled $ 2.2 million and $ 1.0 million for the six months ended September 30, 2022 and 2021, respectively.

In the quarter ended September 30, 2022, the Company’s shareholders approved an increase in its authorized shares of common stock from 125 million to 225 million.

Common Stock Rights Offering

10 unchanged sentences

The assumptions used in the model are as follows:

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

dividend rate of 0 %;

expected term of 8 years;

volatility of 56 %;

2 unchanged sentences

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 June 30,

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

2022 2021 2022 2021

2,110 9,195 2,480 10,315

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.

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

The effective tax rate for the three and six months ended September 30, 2022 was ( 11.6 )% and ( 6.5 )%, respectively, as compared to ( 4.6 )% and ( 3.2 )%, respectively, for the three and six months ended September 30, 2021.

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 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.

As of September 30, 2022, including interest and penalties, the Company had $ 102.3 million of unrecognized tax benefits, $ 83.6 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of September 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 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.

As of September 30, 2022, $ 94.5 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 $ 7.7 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.

Upon recognition of the tax benefit related to the expiring statutes of limitation, $ 10.1 million will be offset by the establishment of a related valuation allowance.

The net tax benefit recognized in the statements of operation is estimated to be $ 0.7 million.

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

The Company has similar arrangements with certain other suppliers.

The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast.

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

As of September 30, 2022, the Company had issued non-cancelable commitments for $ 42.6 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

5 unchanged sentences

Realtime Data asserts that the Company has incorporated Realtime Data’s patented technology into its compression products and services.

Realtime Data seeks unspecified monetary damages and other relief that the Court deems appropriate.

11 unchanged sentences

Realtime Data has appealed that decision to the Federal Circuit.

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.

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

The Federal Circuit Court has not yet heard oral arguments.

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

5 unchanged sentences

The complaint’s accounting allegations largely repeat allegations made in now-concluded shareholder class actions, shareholder derivative actions and an SEC investigation, the settlement of which Quantum previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings).

On September 14, 2020, defendants filed a motion to dismiss the California action on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum.

On November 19, 2020, Starboard filed a first amended complaint in which Quantum was not named as a defendant, in effect dismissing Quantum from the California action.

On January 8, 2021, Messrs.

Gacek and Auvil moved to dismiss the amended complaint in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum.

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

On March 11, 2021, after several rounds of motion practice, the California Superior Court stayed the California action.

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

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

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

2 unchanged sentences

Gacek and Auvil.

The complaint prays for unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court.

The complaint prays for

unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court.

On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs.

Gacek and Auvil.

Briefing on the motions ended July 26, 2021.

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.

1 unchanged sentence

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.

The parties have begun the discovery phase in the case.

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 three months ended June 30, 2022 and 2021.

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

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

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

September 30,

Carrying Value Fair Value Carrying Value Fair Value

2 unchanged sentences

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