What changed in this filing

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Item 1. Financial Statements

2023-02-02 compared with 2022-11-02 · 59 added, 73 removed, 393 unchanged (25% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

September 30, 2022 March 31, 2022

December 31, 2022 March 31, 2022

Current assets:

44 unchanged sentences

(in thousands, except per share amounts, unaudited)

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

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

2022 2021 2022 2021

14 unchanged sentences

Total operating expenses 38,521 42,435 118,647 119,095

Loss from operations ( 11,169 ) ( 938 ) ( 18,246 ) ( 995 )

Income (loss) from operations 1,768 ( 7,225 ) ( 16,479 ) ( 8,218 )

Other income (expense), net ( 544 ) ( 150 ) 2,638 ( 223 )

15 unchanged sentences

(in thousands, unaudited)

Six Months Ended September 30,

Nine Months Ended December 31,

Operating activities

59 unchanged sentences

Shares Amount

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

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

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

4 unchanged sentences

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

Balance, September 30, 2021

Balance, December 31, 2021

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

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

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

Net loss — — — ( 2,170 ) — ( 2,170 )

2 unchanged sentences

Shares issued under employee incentive plans, net 625 6 ( 6 ) — — —

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

Rights offering expenses — — ( 2 ) — — ( 2 )

Stock-based compensation — — 2,981 — — 2,981

Balance, September 30, 2022

Balance, December 31, 2022

93,144 $ 932 $ 719,769 $ ( 795,237 ) $ ( 2,517 ) $ ( 77,053 )

10 unchanged sentences

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

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

Balance, December 31, 2021

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

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

3 unchanged sentences

Shares issued under employee incentive plans, net 2,050 20 ( 20 ) — — —

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

Shares issued in connection with rights offering, net 30,000 300 65,946 — — 66,246

2 unchanged sentences

Stock-based compensation — — 8,340 — — 8,340

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

Balance, December 31, 2022

93,144 $ 932 $ 719,769 $ ( 795,237 ) $ ( 2,517 ) $ ( 77,053 )

See accompanying Notes to Condensed Consolidated Financial Statements.

6 unchanged sentences

Fair Value of Financial Instruments

Subsequent Event

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11 unchanged sentences

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

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of September 30, 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.

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, 2022, 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, 2022 and 2021.

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

6 unchanged sentences

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.

5 unchanged sentences

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,

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

2022 2021 2022 2021

23 unchanged sentences

Contract Balances

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

September 30, 2022

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, 2022 (in thousands):

December 31, 2022

Contract liabilities (deferred revenue) $ 113,745

3 unchanged sentences

Current Non-Current Total

As of September 30, 2022

As of December 31, 2022

$ 105,981 $ 42,645 $ 148,626

3 unchanged sentences

Manufacturing inventories

September 30, 2022 March 31, 2022

December 31, 2022 March 31, 2022

Finished goods $ 13,639 $ 14,607

3 unchanged sentences

Service parts inventories

September 30, 2022 March 31, 2022

December 31, 2022 March 31, 2022

Finished goods $ 21,215 $ 19,234

2 unchanged sentences

Intangibles, net

September 30, 2022 March 31, 2022

December 31, 2022 March 31, 2022

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

2 unchanged sentences

Intangible assets, net $ 13,411 $ ( 6,914 ) $ 6,497 $ 13,411 $ ( 3,827 ) $ 9,584

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):

Intangible assets amortization expense was $ 0.7 million and $ 1.2 million for the three months ended December 31, 2022 and 2021, respectively and $ 3.1 million and $ 2.5 million for the nine months ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 1.8 years.

As of December 31, 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 $ 6,497

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.

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

There were no impairments to goodwill during the nine months ended December 31, 2022 and 2021.

LONG-TERM DEBT

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

September 30, 2022 March 31, 2022

December 31, 2022 March 31, 2022

Term Loan $ 75,917 $ 98,722

4 unchanged sentences

Long-term debt, net $ 95,042 $ 107,183

(1) The unamortized debt issuance costs related to the Senior Secured Term Loan and the Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets.

(1) The unamortized debt issuance costs related to the Term Loan is presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets.

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

30 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 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.

During the nine months ended December 31, 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 December 31, 2022, the interest rate on the Term Loan was 9.81 % and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 9.25 %.

As of December 31, 2022, the PNC Credit Facility had an available borrowing base of $ 33.4 million, of which $ 5.7 million was available to borrow at that date.

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

Operating leases September 30, 2022 March 31, 2022

Operating leases December 31, 2022 March 31, 2022

Operating lease right-of-use asset $ 10,468 $ 11,107

3 unchanged sentences

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

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

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

Lease Cost 2022 2021 2022 2021

9 unchanged sentences

Present value of lease liabilities $ 11,548

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

Lease Term and Discount Rate December 31, 2022 March 31, 2022

Weighted average remaining operating lease term (years) 11.11 10.88

Weighted average discount rate for operating leases 12.6 % 12.9 %

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.

Operating cash outflows related to operating leases totaled $ 2.4 million and $ 3.1 million for the nine months ended December 31, 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.

On December 30, 2022 the Leadership and Compensation Committee of the Board approved an amendment to the 2021 Inducement Plan to increase the number of shares of common stock of the Company authorized for issuance thereunder from 770,000 to 1.5 million.

Common Stock Rights Offering

7 unchanged sentences

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.

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.

4 unchanged sentences

and a risk-free rate 2.85 %.

As of December 31, 2022, there were approximately 10.8 million warrants outstanding.

NET LOSS PER SHARE

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

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

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

2022 2021 2022 2021

2 unchanged sentences

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 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 rate for the three and nine months ended December 31, 2022 was ( 7.1 )% and ( 6.7 )%, respectively, as compared to ( 12.6 )% and ( 7.3 )%, respectively, for the three and nine months ended December 31, 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 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.

As of December 31, 2022, including interest and penalties, the Company had $ 103.0 million of unrecognized tax benefits, $ 84.3 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of December 31, 2022, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.4 million.

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

As of September 30, 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.

As of December 31, 2022, $ 95.0 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 $ 8.0 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.

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

As of December 31, 2022, the Company had issued non-cancelable commitments for $ 36.7 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™ 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’s 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.

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.

Gacek resigned from the board effective May 1, 2017, and as CEO effective November 7, 2017;

Auvil resigned from the board effective November 8, 2017.

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 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 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 alleging that between 2012 and 2014, Starboard purchased 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 lawsuit further alleges that Quantum hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015.

The California action was stayed and then dismissed.

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.

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

Gacek and Auvil.

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.

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.

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.

As of January 12, 2023, all parties signed a settlement agreement amicably resolving both actions.

The litigation will have no material effect on the Company’s financial statements or business operations.

Other Commitments

3 unchanged sentences

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

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

No impairment charges were recognized for non-financial assets in the nine months ended December 31, 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 September 30, 2022 and 2021.

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

September 30,

The Company’s financial liabilities were comprised primarily of long-term debt at December 31, 2022.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in the accounting guidance) that it believes market participants would use in pricing debt.

The carrying value and fair value of the Company’s financial liabilities were primarily comprised of the following as of December 31, 2022 (in thousands):

Carrying Value Fair Value Carrying Value Fair Value

1 unchanged sentence

PNC Credit Facility 27,736 27,736 7,556 7,556

SUBSEQUENT EVENTS

As of January 12, 2023, all parties in the Starboard legal matter signed a settlement agreement amicably resolving both actions (see Note 9, Commitments and Contingencies ), The litigation will have no material effect on the Company’s financial statements or business operations.

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