UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2020~~September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 001-13449


Quantum Corporation
(Exact name of registrant as specified in its charter)

Delaware

94-2665054

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

224 Airport Parkway

Suite 550

San Jose

95110

(Address of Principal Executive Offices)

(Zip Code)


(408)			944-4000
Registrant's telephone number, including area code



(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

QMCO

Nasdaq Global Market

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

As of the close of business on ~~January 25,~~November 1, 2021, there were ~~41,553,718~~59,281,377 shares of Quantum Corporation’s common stock issued and outstanding.

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QUANTUM CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~December 31, 2020~~September 30, 2021

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As used in this Quarterly Report on Form 10-Q, ~~(this "Quarterly Report"),~~ the terms "Quantum," "we," "us," and "our" refer to Quantum Corporation and its subsidiaries taken as a whole, unless otherwise noted or unless the context indicates otherwise.

Note Regarding Forward-Looking Statements

This report contains forward-looking statements. All statements contained in this report other than statements of historical fact, including statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Item 1A. Moreover, we operate in a competitive and changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking

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statements will be achieved or occur. We do not intend to update any of these forward-looking statements for any reason after the date of this report or to conform these statements to actual results or revised expectations, except as required by law.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts, unaudited)


		December 31, 2020		March 31, 2020			September 30, 2021		March 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	11,632	$	6,440	Cash and cash equivalents	$	22,757	$	27,430
Restricted cash	Restricted cash	766		830		Restricted cash	450		707

Accounts receivable, net of allowance for doubtful accounts of $1,430 and $1,247 as of December 31, 2020 and March 31, 2020, respectively		69,440		70,370
Accounts receivable, net of allowance for doubtful accounts of $350 and $406						Accounts receivable, net of allowance for doubtful accounts of $350 and $406	63,098		73,102
Manufacturing inventories	Manufacturing inventories	33,854		29,196		Manufacturing inventories	28,848		24,467
Service parts inventories	Service parts inventories	22,998		20,502		Service parts inventories	23,564		23,421
Other current assets	Other current assets	7,946		8,489		Other current assets	11,451		6,939
Total current assets	Total current assets	146,636		135,827		Total current assets	150,168		156,066
Property and equipment, net	Property and equipment, net	9,855		9,046		Property and equipment, net	12,295		10,051
Intangible assets, net	Intangible assets, net	5,503		0		Intangible assets, net	9,132		5,037
Goodwill	Goodwill	3,447		0		Goodwill	10,262		3,466
Restricted cash	Restricted cash	5,000		5,000		Restricted cash	—		5,000
Right-of-use assets, net	Right-of-use assets, net	10,096		12,689		Right-of-use assets, net	7,917		9,383
Other long-term assets	Other long-term assets	5,244		3,433		Other long-term assets	8,684		5,921
Total assets	Total assets	$	185,781	$	165,995	Total assets	$	198,458	$	194,924
Liabilities and Stockholders’ Deficit	Liabilities and Stockholders’ Deficit					Liabilities and Stockholders’ Deficit
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	30,027	$	36,949	Accounts payable	$	36,991	$	35,245

Deferred revenue	Deferred revenue	75,442		81,492		Deferred revenue	78,105		84,027

Accrued restructuring charges						Accrued restructuring charges	20		580
Long-term debt, current portion	Long-term debt, current portion	1,850		7,321		Long-term debt, current portion	3,125		1,850

Accrued compensation	Accrued compensation	19,225		14,957		Accrued compensation	15,435		19,214
Other accrued liabilities	Other accrued liabilities	18,449		17,535		Other accrued liabilities	18,750		18,174
Total current liabilities	Total current liabilities	144,993		158,254		Total current liabilities	152,426		159,090
Deferred revenue	Deferred revenue	34,565		37,443		Deferred revenue	40,766		36,126

Long-term debt, net of current portion	Long-term debt, net of current portion	178,276		146,847		Long-term debt, net of current portion	101,368		90,890

Operating lease liabilities	Operating lease liabilities	8,500		10,822		Operating lease liabilities	6,818		8,005
Other long-term liabilities	Other long-term liabilities	13,423		11,154		Other long-term liabilities	13,073		13,058
Total liabilities	Total liabilities	379,757		364,520		Total liabilities	314,451		307,169
Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 10)						Commitments and contingencies (Note 10)	0		0
Stockholders' deficit	Stockholders' deficit					Stockholders' deficit
Preferred stock, 20,000 shares authorized; 0 shares issued as of December 31, 2020 and March 31, 2020, respectively		0		0
Common stock, $0.01 par value; 125,000 shares authorized; 41,554 shares issued and outstanding as of December 31, 2020 and 39,905 as of March 31, 2020, respectively		416		399
Preferred stock, 20,000 shares authorized; no shares issued and outstanding						Preferred stock, 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 125,000 shares authorized; 59,272 and 56,915 shares issued and outstanding						Common stock, $0.01 par value; 125,000 shares authorized; 59,272 and 56,915 shares issued and outstanding	593		570
Additional paid-in capital	Additional paid-in capital	526,307		505,762		Additional paid-in capital	636,538		626,664
Accumulated deficit	Accumulated deficit	(721,161)		(703,164)		Accumulated deficit	(752,029)		(738,623)
Accumulated other comprehensive income (loss)		462		(1,522)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(1,095)		(856)
Total stockholders’ deficit	Total stockholders’ deficit	(193,976)		(198,525)		Total stockholders’ deficit	(115,993)		(112,245)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	185,781	$	165,995	Total liabilities and stockholders’ deficit	$	198,458	$	194,924

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(in thousands, except per share amounts, unaudited)


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended September 30,				Six Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue:	Revenue:									Revenue:
Product	Product	$	63,021	$	66,435	$	153,557	$	200,361	Product	$	54,655	$	50,850	$	106,786	$	90,537
Service	Service	31,169		32,892		93,049		98,673		Service	34,359		31,494		67,189		61,880
Royalty	Royalty	3,833		3,988		10,543		15,700		Royalty	4,166		3,477		8,303		6,709
Total revenue	Total revenue	98,023		103,315		257,149		314,734		Total revenue	93,180		85,821		182,278		159,126
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	43,311		43,672		108,691		140,337		Product	41,124		34,998		79,864		65,380
Service	Service	12,433		12,567		36,593		37,972		Service	13,669		12,089		26,748		24,160
Total cost of revenue	Total cost of revenue	55,744		56,239		145,284		178,309		Total cost of revenue	54,793		47,087		106,612		89,540
Gross profit	Gross profit	42,279		47,076		111,865		136,425		Gross profit	38,387		38,734		75,666		69,586
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	9,589		9,325		29,983		27,058		Research and development	12,389		10,233		23,680		20,395
Sales and marketing	Sales and marketing	15,294		15,421		40,019		46,101		Sales and marketing	15,462		13,153		29,414		24,723
General and administrative	General and administrative	11,103		10,719		32,928		43,623		General and administrative	11,466		10,263		23,293		21,825
Restructuring charges	Restructuring charges	200		(64)		2,837		1,020		Restructuring charges	8		1,585		274		2,637
Total operating expenses	Total operating expenses	36,186		35,401		105,767		117,802		Total operating expenses	39,325		35,234		76,661		69,580
Income from operations		6,093		11,675		6,098		18,623
Other expense, net		(698)		(611)		(1,395)		(446)
Income (loss) from operations										Income (loss) from operations	(938)		3,500		(995)		6
Other income (expense), net										Other income (expense), net	126		(312)		(71)		(697)
Interest expense	Interest expense	(7,808)		(6,425)		(21,823)		(19,079)		Interest expense	(3,070)		(7,578)		(6,956)		(14,015)
Loss on debt extinguishment, net										Loss on debt extinguishment, net	(4,960)		—		(4,960)		—
Net loss before income taxes										Net loss before income taxes	(8,842)		(4,390)		(12,982)		(14,706)
Income tax provision										Income tax provision	411		202		424		622
Net loss										Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)

Net income (loss) before income taxes		(2,413)		4,639		(17,120)		(902)
Income tax provision (benefit)		256		(110)		877		471
Net income (loss)		$	(2,669)	$	4,749	$	(17,997)	$	(1,373)
Net loss per share - basic and diluted										Net loss per share - basic and diluted	$	(0.16)	$	(0.11)	$	(0.23)	$	(0.38)

Net income (loss) per share - basic		$	(0.07)	$	0.12	$	(0.45)	$	(0.04)
Net income (loss) per share - diluted		$	(0.07)	$	0.10	$	(0.45)	$	(0.04)
Weighted average shares - basic		40,927		38,134		40,374		36,828
Weighted average shares - diluted		40,927		46,567		40,374		36,828
Weighted average shares - basic and diluted										Weighted average shares - basic and diluted	58,567		40,286		57,852		40,097

Net income (loss)		$	(2,669)	$	4,749	$	(17,997)	$	(1,373)

Net loss										Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	975		839		1,984		449		Foreign currency translation adjustments, net	(506)		722		(239)		1,009
Total comprehensive income (loss)		$	(1,694)	$	5,588	$	(16,013)	$	(924)
Total comprehensive loss										Total comprehensive loss	$	(9,759)	$	(3,870)	$	(13,645)	$	(14,319)

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


		Nine Months Ended December 31,					Six Months Ended September 30,
		2020		2019			2021		2020
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(17,997)	$	(1,373)	Net loss	$	(13,406)	$	(15,328)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities	Adjustments to reconcile net loss to net cash provided by (used in) operating activities					Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	Depreciation and amortization	3,898		3,119		Depreciation and amortization	3,967		2,580
Amortization of debt issuance costs	Amortization of debt issuance costs	4,906		3,012		Amortization of debt issuance costs	1,629		3,015
Long-term debt related costs	Long-term debt related costs	167		0		Long-term debt related costs	—		167
Provision for product and service inventories	Provision for product and service inventories	4,764		4,946		Provision for product and service inventories	2,418		3,588
Stock-based compensation	Stock-based compensation	6,428		5,408		Stock-based compensation	6,273		4,550
Paycheck Protection Program loan forgiveness						Paycheck Protection Program loan forgiveness	(10,000)		—

Non-cash loss on debt extinguishment						Non-cash loss on debt extinguishment	8,471		—
Other						Other	(20)		1,268

Bad debt expense		123		220
Deferred income taxes		6		242

Unrealized foreign exchange loss		1,984		479

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	1,342		11,731		Accounts receivable, net	10,024		7,568
Manufacturing inventories	Manufacturing inventories	(7,732)		(8,915)		Manufacturing inventories	(5,199)		(8,858)
Service parts inventories	Service parts inventories	(4,559)		(2,881)		Service parts inventories	(1,818)		(4,333)

Accounts payable	Accounts payable	(7,022)		7,676		Accounts payable	1,559		1,601

Accrued restructuring charges	Accrued restructuring charges	210		(2,876)		Accrued restructuring charges	(560)		240
Accrued compensation	Accrued compensation	4,268		(2,345)		Accrued compensation	(3,779)		2,922
Deferred revenue	Deferred revenue	(9,727)		(17,176)		Deferred revenue	(9,032)		(12,584)
Other assets and liabilities	Other assets and liabilities	(1,323)		(6,233)		Other assets and liabilities	(5,789)		(5,693)
Net cash used in operating activities	Net cash used in operating activities	(20,264)		(4,966)		Net cash used in operating activities	(15,262)		(19,297)
Investing activities	Investing activities					Investing activities

Purchases of property and equipment	Purchases of property and equipment	(4,665)		(2,327)		Purchases of property and equipment	(2,396)		(1,434)
Business acquisition, net of cash acquired	Business acquisition, net of cash acquired	(2,636)		0		Business acquisition, net of cash acquired	(5,000)		—

Net cash used in investing activities	Net cash used in investing activities	(7,301)		(2,327)		Net cash used in investing activities	(7,396)		(1,434)
Financing activities	Financing activities					Financing activities
Borrowings of long-term debt, net of debt issuance costs	Borrowings of long-term debt, net of debt issuance costs	19,400		0		Borrowings of long-term debt, net of debt issuance costs	94,961		19,400

Repayments of long-term debt						Repayments of long-term debt	(93,051)		—
Borrowings of credit facility	Borrowings of credit facility	232,663		245,590		Borrowings of credit facility	126,084		140,987
Repayments of credit facility	Repayments of credit facility	(229,847)		(241,539)		Repayments of credit facility	(116,084)		(144,058)
Borrowings of payment protection program	Borrowings of payment protection program	10,000		0		Borrowings of payment protection program	—		10,000
Payment of taxes due upon vesting of restricted stock		0		(171)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	539		0		Proceeds from issuance of common stock	806		537

Net cash provided by financing activities	Net cash provided by financing activities	32,755		3,880		Net cash provided by financing activities	12,716		26,866
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(62)		(3)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		(96)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	5,128		(3,416)		Net change in cash, cash equivalents and restricted cash	(9,930)		6,039
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	12,270		16,855		Cash, cash equivalents, and restricted cash at beginning of period	33,137		12,270
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	17,398	$	13,439	Cash, cash equivalents, and restricted cash at end of period	$	23,207	$	18,309
Cash, Cash Equivalents and Restricted Cash at end of period						Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents						Cash and cash equivalents	$	22,757	$	12,517
Restricted cash, current						Restricted cash, current	450		792
Restricted cash, long-term						Restricted cash, long-term	—		5,000
Cash, cash equivalents and restricted cash at the end of period						Cash, cash equivalents and restricted cash at the end of period	$	23,207	$	18,309
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid for interest	Cash paid for interest	$	19,992	$	15,942	Cash paid for interest	$	5,198	$	14,181
Cash paid (received) for income taxes, net of refunds		$	(2,464)	$	155
Cash paid (received) for income taxes, net						Cash paid (received) for income taxes, net	$	480	$	(1,578)
Non-cash transactions	Non-cash transactions					Non-cash transactions
Purchases of property and equipment included in accounts payable	Purchases of property and equipment included in accounts payable	$	67	$	178	Purchases of property and equipment included in accounts payable	$	309	$	294
Purchases of property and equipment included in accrued liabilities	Purchases of property and equipment included in accrued liabilities	$	1,255	$	0	Purchases of property and equipment included in accrued liabilities	$	—	$	1,255
Transfer of inventory to property and equipment	Transfer of inventory to property and equipment	$	372	$	253	Transfer of inventory to property and equipment	$	76	$	207
Payment of litigation settlements with insurance proceeds		$	0	$	8,950
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:
Cash and cash equivalents		$	11,632	$	7,542
Restricted cash, current		766		897
Restricted cash, long-term		5,000		5,000
Total cash, cash equivalents and restricted cash at the end of period		$	17,398	$	13,439

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands, unaudited)

Common Stock Additional
Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Deficit
Three Months Ended Shares Amount
Balance, September 30, 2019 36,717 $ 368 $ 502,398 $ (704,076) $ (1,800) $ (203,110)
Net income — — — 4,749 — 4,749
Foreign currency translation adjustments, net — — — — 839 839
Shares issued under employee incentive plans, net 355 3 (4) — — (1)
Warrants exercised related to long-term debt, net 2,783 28 (28) — — 0
Stock-based compensation — — 2,056 — — 2,056
Balance, December 31, 2019 39,855 $ 399 $ 504,422 $ (699,327) $ (961) $ (195,467)
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 incentive plans, net 453 5 (5) — — 0
Shares issued in connection with business acquisition 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)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
Three Months Ended	Shares	Amount
Balance, June 30, 2020	39,905	$	399	$	519,235	$	(713,900)	$	(1,235)	$	(195,501)
Net loss	—	—		—		(4,592)		—		(4,592)
Foreign currency translation adjustments, net	—	—		—		—		722		722
Shares issued under employee stock purchase plan	133	2		537		—		—		539
Shares issued under employee incentive plans, net	702	7		(7)		—		—		—


Stock-based compensation	—	—		2,592		—		—		2,592
Balance, September 30, 2020	40,740	$	408	$	522,357	$	(718,492)	$	(513)	$	(196,240)

Balance, June 30, 2021	57,280	$	573	$	629,862	$	(742,776)	$	(589)	(112,930)
Net loss	—	—		—		(9,253)		—		(9,253)
Foreign currency translation adjustments, net	—	—		—		—		(506)		(506)
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)

See accompanying Notes to Condensed Consolidated Financial Statements.

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	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Deficit
Six Months Ended	Shares	Amount
Balance, March 31, 2020	39,905	$	399	$	505,762	$	(703,164)	$	(1,522)	(198,525)
Net loss	—	—		—		(15,328)		—		(15,328)
Foreign currency translation adjustments, net	—	—		—		—		1,009		1,009
Shares issued under employee stock purchase plan	133	2		537						539
Shares issued under employee incentive plans, net	702	7		(7)		—				—
Warrants issued related to long-term debt, net	—	—		11,515		—		—		11,515

Stock-based compensation	—	—		4,550		—		—		4,550
Balance, September 30, 2020	40,740	$	408	$	522,357	$	(718,492)	$	(513)	$	(196,240)

Balance, March 31, 2021	56,915	$	570	$	626,664	$	(738,623)	$	(856)	$	(112,245)
Net loss	—	—		—		(13,406)		—		(13,406)
Foreign currency translation adjustments, net	—	—		—		—		(239)		(239)
Shares issued under employee stock purchase plan	145	1		805				—		806
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)

See accompanying Notes to Condensed Consolidated Financial Statements.

~~Table of Contents~~

Common Stock Additional
Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Deficit
Nine Months Ended Shares Amount
Balance, March 31, 2019 36,040 $ 360 $ 499,224 $ (697,954) $ (1,410) $ (199,780)
Net loss — — — (1,373) — (1,373)
Foreign currency translation adjustments, net — — — — 449 449
Shares issued under employee incentive plans, net 1,032 11 (182) — (171)
Warrants exercised related to long-term debt, net 2,783 28 (28) — — 0
Stock-based compensation — — 5,408 — — 5,408
Balance, December 31, 2019 39,855 $ 399 $ 504,422 $ (699,327) $ (961) $ (195,467)
Balance, March 31, 2020 39,905 $ 399 $ 505,762 $ (703,164) $ (1,522) $ (198,525)
Net loss — — — (17,997) — (17,997)
Foreign currency translation adjustments — — — — 1,984 1,984
Shares issued under employee stock purchase plan 133 2 537 — — 539
Shares issued under employee incentive plans, net 1,155 12 (12) — — 0
Shares issued in connection with business acquisition 361 3 2,077 — — 2,080
Shares surrendered for employees' tax liability upon settlement of restricted stock units — — — — — 0
Warrants exercised related to long-term debt — — 11,515 — — 11,515
Stock-based compensation — — 6,428 — — 6,428
Balance, December 31, 2020 41,554 $ 416 $ 526,307 $ (721,161) $ 462 $ (193,976)

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Page
Note 1:	Description of Business and Summary of Significant Accounting Policies	7
Note 2:	Revenue	97
Note 3:	~~Inventories~~Business Combination	109
Note 4:	~~Business Combination~~Balance Sheet Information	119
Note 5:	Long-Term Debt	1211
Note 6:	Leases	1413
Note 7:	Restructuring Charges	1514
Note 8:	Net ~~Income (Loss)~~Loss Per Share	15

Note 9:	Income Taxes	1615
Note 10:	Commitments and Contingencies	1615
Note 11:	Fair Value of Financial Instruments	17
Note 12:	Subsequent Events	17

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), was founded in 1980 and reincorporated in Delaware in 1987, and is headquartered in San Jose, California. 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 customerstechnology company whose mission is to deliver innovative solutions to organizations around the ~~world~~world. We design, manufacture and sell technology and services that help customers capture, create and share digital ~~data and preserve~~content, and protect it for decades. ~~The Company’s software-defined, hyperconverged storage solutions span from non-volatile memory express (“NVMe”),~~We emphasize innovative technology in the design and manufacture of our products to ~~solid state drives, (“SSD”), hard disk drives, (“HDD”), tape~~help our customers unlock the value in their video and ~~the cloud and are tied together leveraging a single namespace view of the entire~~unstructured 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 suppliersin new ways to ~~meet customers’ evolving needs.~~solve their most pressing business challenges.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. 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, 2020,~~September 30, 2021, the results of operations and comprehensive ~~income (loss)~~loss, statements of cash flows, and changes in stockholder's deficit for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019, and the statement of cash flows for the nine months ended December 31, 2020 and 2019.~~2020. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

~~COVID-19 Risks and Uncertainties~~

Quantum is subject to risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S. and the global economy. For many of the Company’s customers, the COVID-19 pandemic has significantly affected their business. Movie and television production has decreased significantly, professional and collegiate sports seasons have been postponed or cancelled, and many corporations and enterprises have put information technology spending on hold while they assess the short- and long-term impact of the pandemic. While the Company’s supply chain remains intact and operating, it has experienced issues related to its logistics network. The reduced capacity within and across freight lanes (aircraft, personnel, customs clearance, etc.) has caused late deliveries from re-routes and mis-shipments, as well as increased expedite and other charges to deliver and receive products. To date, the Company has experienced minimal impact on product availability, although future capacity constraints across the network due to lost capacity from factory down time, closures, as well as reduced staff and demand signal fluctuations are expected to impact product availability in the months and possibly quarters to come.

Quantum believes that these social and economic impacts have had a negative effect on sales due to the decline in customers' ability or willingness to purchase its products and services. The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue. The Company’s management continues to actively monitor the situation and may take further actions altering its business operations that are determined to be in the best interests of its employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

Use of Estimates

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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.

~~Common Stock~~

On November 25, 2020, the Company filed a shelf registration statement on Form S-3 for the issuance common stock, preferred stock, debt securities, warrants, units or rights, from time to time, in one or more offerings up to an aggregate of $200 million (the “Registration Statement”). On November 25, 2020 the Company entered into a Sales Agreement with B.Riley Securities, Inc. (“B. Riley”) and filed a prospectus supplement to the Registration Statement to establish an at-the-market equity offering program (the “ATM Program”) pursuant to which the Company may, from time to time, sell shares of the Company’s common stock up to an aggregate of $50 million through B. Riley, as the Company’s sales agent. The Company pays B. Riley a commission equal to 3% of the gross proceeds the Company receives from sales of common stock under the ATM Program. During the three and nine months ended December 31, 2020, ~~the Company did not issue any shares under the ATM Program.~~ ~~As of December 31, 2020, the Company had $50 million available for sale of common stock under the ATM Program.~~

~~Fair Value Measurements~~

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:


~~Level 1:~~						~~Unadjusted quoted prices in active markets for identical assets or liabilities.~~
~~Level 2:~~						Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
~~Level 3:~~						~~Inputs are unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.~~

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments consist of Level 1 assets and Level 2 liabilities.

~~Recently Adopted~~Recent Accounting Pronouncements

~~The Company adopted~~Recent accounting pronouncements issued by the ~~guidance in ASU 2016-13,~~ Financial ~~Instruments - Credit Losses (Topic 326) - Measurement~~Accounting Standards Board (including its Emerging Issues Task Force), the American Institute of ~~Credit Losses of Financial Instruments~~ ~~("CECL") on April 1, 2020. The ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over~~Certified Public Accountants, and the ~~lifetime of the asset rather than incurred losses. The adoption of ASU 2016-13~~Securities and Exchange Commission did not have, or are not expected to have, a material impact on ~~the condensed~~our present or future consolidated financial statements.

~~The Company adopted the guidance in ASU 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~ on April 1, 2020. The ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The adoption of ASU 2018-15 did not have a material impact on the condensed consolidated financial statements.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

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In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year ending March 31, 2022, and we do not expect it to have a material effect on our consolidated financial statements.

NOTE 2: REVENUE

Based on how the Company manages its business, the Company has determined that it currently operates in 1 reportable segment. The Company operates in 3 geographic regions: (a) Americas; (b) Europe, Middle East and

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Africa (“EMEA”); and (c) Asia Pacific (“APAC”). 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 December 31,				Nine Months Ended December 31,					Three Months Ended September 30,				Six Months Ended September 30,
		2020		2019 1		2020		2019 1			2021		2020		2021		2020
Americas2
Americas1										Americas1
Primary storage systems	Primary storage systems	$	18,755	$	17,744	$	42,547	$	43,516	Primary storage systems	$	11,264	$	16,933	$	18,458	$	23,792
Secondary storage systems	Secondary storage systems	11,124		9,465		29,117		49,761		Secondary storage systems	12,174		9,317		28,886		17,993
Device and media	Device and media	5,347		6,467		17,777		24,486		Device and media	5,269		6,069		11,791		12,431
Service	Service	18,913		20,628		56,907		62,563		Service	21,341		19,399		41,534		37,994
Total revenue	Total revenue	54,139		54,304		146,348		180,326		Total revenue	50,048		51,718		100,669		92,210

EMEA	EMEA									EMEA
Primary storage systems	Primary storage systems	3,680		5,320		8,774		12,545		Primary storage systems	4,244		2,798		7,020		5,094
Secondary storage systems	Secondary storage systems	10,113		11,297		23,081		29,273		Secondary storage systems	9,720		6,352		17,479		12,968
Device and media	Device and media	5,900		7,933		14,668		18,106		Device and media	4,513		4,745		9,894		8,767
Service	Service	10,339		10,063		30,380		29,115		Service	11,035		10,227		21,847		20,042
Total revenue	Total revenue	30,032		34,613		76,903		89,039		Total revenue	29,512		24,122		56,240		46,871

APAC	APAC									APAC
Primary storage systems	Primary storage systems	1,219		2,555		3,157		5,480		Primary storage systems	1,175		879		2,516		1,938
Secondary storage systems	Secondary storage systems	4,074		4,612		10,507		12,856		Secondary storage systems	4,365		3,234		8,098		6,434
Device and media	Device and media	2,809		1,042		3,929		4,338		Device and media	1,931		523		2,644		1,120
Service	Service	1,917		2,201		5,762		6,995		Service	1,983		1,868		3,808		3,844
Total revenue	Total revenue	10,019		10,410		23,355		29,669		Total revenue	9,454		6,504		17,066		13,336

Consolidated	Consolidated									Consolidated
Primary storage systems	Primary storage systems	23,654		25,619		54,478		61,541		Primary storage systems	16,683		20,610		27,994		30,824
Secondary storage systems	Secondary storage systems	25,311		25,374		62,705		91,890		Secondary storage systems	26,259		18,903		54,463		37,395
Device and media	Device and media	14,056		15,442		36,374		46,930		Device and media	11,713		11,337		24,329		22,318
Service	Service	31,169		32,892		93,049		98,673		Service	34,359		31,494		67,189		61,880
Royalty3		3,833		3,988		10,543		15,700
Royalty2										Royalty2	4,166		3,477		8,303		6,709
Total revenue	Total revenue	$	98,023	$	103,315	$	257,149	$	314,734	Total revenue	$	93,180	$	85,821	$	182,278	$	159,126

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1 ~~Primary and Secondary storage system revenue has been adjusted for December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.~~

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

32 Royalty revenue is not allocable 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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 (in thousands):


	~~December 31, 2020~~September 30, 2021
Contract liabilities (deferred revenue)	$	~~110,007~~118,871
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period	~~69,355~~53,833

Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and contractually agreed upon amounts, yet to be invoiced, that will be recognized as revenue in future periods. Remaining performance obligations are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, adjustments for revenue that have not materialized and foreign exchange adjustments. The Company applied the practical expedient in accordance within ASC 606, ~~Revenue from Contracts with Customers~~ (“ASC 606”), to exclude amounts for variable consideration constituting a sale- or usage-based royalty promised in exchange for a license of intellectual property from remaining performance obligations.

Remaining performance obligations consisted of the following (in thousands):

Current Non-Current Total
As of December 31, 2020 $ 89,655 $ 37,169 $ 126,824

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	Current		Non-Current		Total
As of September 30, 2021	$	130,708	$	42,855	$	173,563

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

NOTE 3: ~~INVENTORIES~~BUSINESS ACQUISITION

~~Manufacturing~~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 ~~service inventories consist~~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):

~~Manufacturing inventories~~

December 31, 2020 March 31, 2020
   Finished goods:
      Manufactured finished goods $ 15,578 $ 15,790
      Distributor inventory 237 504
         Total finished goods 15,815 16,294
   Work in progress 2,315 1,001
   Raw materials 15,724 11,901
Total manufacturing inventories $ 33,854 $ 29,196

~~Service parts inventories~~

December 31, 2020 March 31, 2020
Finished goods $ 17,707 $ 15,845
Component parts 5,291 4,657
Total service parts inventories $ 22,998 $ 20,502

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~~NOTE 4: BUSINESS COMBINATION~~

On December 12, 2020 (the “Close Date”), the Company entered into a Stock Purchase Agreement (the “SPA”) to acquire all of the issued and outstanding shares of Square Box Systems Limited (“SBS”). The acquisition builds on Quantum's recently expanded portfolio that classifies, manages, and protects data across its lifecycle by adding technology advancements to further enrich video, digital images and other forms of unstructured data. The purchase price of approximately $7.7 million was comprised of (a) $2.6 million cash (net of cash acquired); (b) approximately 0.4 million shares of the Company’s common stock, with a fair value of $2.1 million; (c) $2.0 million cash payable at the first anniversary of the Closing date; and (d) $1.0 million cash payable at the second anniversary of the Closing Date.


Cash	$	5,000
Fair value of stock consideration	2,818
Total	$	7,818

The ~~purchase price was allocated to tangible assets of approximately $0.8 million, intangible assets of approximately $5.6 million based on their~~following table summarizes the preliminary fair values ~~on the acquisition date, liabilities~~ of ~~approximately $1.0 million, and a net deferred tax liability of $1.1 million. The excess of the purchase price over the amounts allocated to~~ assets acquired and liabilities assumed ~~was approximately $3.4 million, which~~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 ~~been recorded as goodwill.~~

also agreed to license to the Company certain intellectual property rights related to the business. The historical results of operations for ~~SBS~~Pivot 3 were not significant to the Company's consolidated results of operations for the periods presented. Certain estimated values for the acquisition, including goodwill and intangible assets, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

~~The following table summarizes intangible assets related to the SBS acquisition as of December 31, 2020:~~

Three and Nine Months Ended December 31, 2020
Gross Carrying Value Accumulated Amortization Net Carrying Amount
Developed technology $ 4,700 $ (81) $ 4,619
Customer lists 900 (16) 884
Intangible assets, net $ 5,600 $ (97) $ 5,503

NOTE 4: BALANCE SHEET INFORMATION

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

Manufacturing inventories

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	September 30, 2021		March 31, 2021
Finished goods:
Manufactured finished goods	$	11,013	$	12,452
Distributor inventory	136		238
Total finished goods	11,149		12,690
Work in progress	3,653		2,074
Raw materials	14,046		9,703
Total manufacturing inventories	$	28,848	$	24,467

Service parts inventories


	September 30, 2021		March 31, 2021
Finished goods	$	17,817	$	18,773
Component parts	5,747		4,648
Total service parts inventories	$	23,564	$	23,421

Intangibles, net


	September 30, 2021						March 31, 2021
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

Developed technology	$	6,400	$	(1,425)	$	4,975	$	4,700	$	(473)	$	4,227
Customer lists	4,600		(443)		4,157		900		(90)		810

Intangible assets, net	$	11,000	$	(1,868)	$	9,132	$	5,600	$	(563)	$	5,037

Intangible assets amortization expense was $0.8 million and $0 for the three ~~and nine~~ months ended ~~December 31,~~September 30, 2021 and 2020, ~~was $0.1 million.~~respectively, and $1.3 million and $0 for the six months ended September 30, 2021 and 2020, respectively. As of ~~December 31, 2020,~~September 30, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately ~~3.0~~2.8 years.

As of ~~December 31, 2020,~~September 30, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):


Fiscal year ending	Fiscal year ending	Estimated future amortization expense		Fiscal year ending	Estimated future amortization expense
Remainder of 2021		$	465
2022		1,867
Remainder of 2022				Remainder of 2022	$	1,796
2023	2023	1,867		2023	3,641
2024	2024	1,304		2024	2,490
2025		0

Thereafter	Thereafter	0		Thereafter	1,205
Total	Total	$	5,503	Total	$	9,132

Goodwill



	Amount
Balance at March 31, 2021	$	3,466
Goodwill acquired	6,796
Balance at September 30, 2021	$	10,262

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

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NOTE 5: LONG-TERM DEBT

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


		December 31, 2020		March 31, 2020			September 30, 2021		March 31, 2021
Term Loan						Term Loan	$	99,375	$	—
Senior Secured Term Loan	Senior Secured Term Loan	$	185,208	$	165,208	Senior Secured Term Loan	—		92,426
Amended PNC Credit Facility		5,960		2,620
PNC Credit Facility						PNC Credit Facility	10,000		—
Paycheck Protection Program Loan	Paycheck Protection Program Loan	10,000		0		Paycheck Protection Program Loan	—		10,000
Less: current portion	Less: current portion	(1,850)		(7,321)		Less: current portion	(3,125)		(1,850)
Less: unamortized debt issuance costs (1)	Less: unamortized debt issuance costs (1)	(21,042)		(13,660)		Less: unamortized debt issuance costs (1)	(4,882)		(9,686)
Long-term debt, net	Long-term debt, net	$	178,276	$	146,847	Long-term debt, net	$	101,368	$	90,890

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

~~Senior Secured Term Loan~~

On December 27, 2018, the Company entered into a senior secured term loan ~~totaling~~to borrow an aggregate of $165.0 million ~~with U.S. Bank, National Association~~ (the “Senior Secured Term Loan”). In connection with the Senior Secured Term Loan, the Company amended its existing ~~Revolving~~revolving credit facility with PNC (the PNC Credit Facility together with ~~PNC,~~the Senior Secured Term Loan, the “December 2018 Credit Agreements”) providing for ~~borrowing under loans~~borrowings up to a maximum principal amount of the lesser of: (a) $45.0 million or (b) the amount of the borrowing base, ~~(the “Amended PNC Credit Facility”). The maturity date under the Senior Secured Term Loan and the Amended PNC Credit Facility (collectively, the “Credit Agreements”) is December 27, 2023.~~

On March 30, 2020, the Company entered into an amendment to the Senior Secured Term Loan (the “March 30, 2020 Amendment”) which included deferral of payment of the scheduled amortization payment of $0.4 million due on March 31, 2020 to April 1, 2020; and, (b) deferral of payment of the interest due on March 31, 2020 to April 1, 2020. On March 31, 2020, the Company entered into an additional amendment to the Senior Secured Term Loan (the “March 31, 2020 Amendment”) which, among other things, included (a) payment deferral of the scheduled amortization payment of $0.4 million due on April 1, 2020 to June 30, 2020; (b) payment of $1.9 million of the interest due on April 1, 2020 (of the total interest due of $5.0 million) in kind rather than in cash; and (c) the waiver of compliance with the total net leverage ratio covenant, as defined in the ~~Senior Secured Term Loan~~PNC Credit Facility agreement.

On June 16, 2020, the Company entered into ~~an amendment~~amendments to the ~~Senior Secured Term Loan~~December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the amendments to the December 2018 Credit Agreements occurring on March 30, 2020, ~~Amendment and~~ March 31, 2020 ~~Amendment, (the “Term Loan~~and April 3, 2020, the “2020 Amendments”). The June 2020 Amendment provided an additional borrowing of $20.0 million which was immediately drawn in full. The amendment also (a) waived the excess cash flow payment (the “ECF Payment”), as defined in the Senior Secured Term Loan agreement, of $5.3 million for the year ended March 31, 2020; (b) deferred payment of the scheduled amortization payments due on June 30, 2020, September 30, 2020, and December 31, 2020 until the maturity date; (c) amended the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment; (d) waived compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021; (e) added a financial covenant that requires a minimum monthly average undrawn availability of $7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021; and (f) amended the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021. The June 2020 Amendment modified the equity clawback provision to allow the Company to prepay up to 50% of the aggregate principal amount of the outstanding Senior Secured Term Loan balance with cash proceeds of a public offering of the Company’s common stock at a prepayment premium of 5% of the principal amount being repaid (the “Equity Clawback”). The amendment also added an exit fee of 2% of the aggregate principal amount repaid excluding amounts repaid that are subject to the Equity Clawback.

In connection with the June 2020 ~~Term Loan~~ 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

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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.

The ~~Company accounted for the Term Loan~~2020 Amendments ~~as modifications of~~related to the Senior Secured Term ~~Loan.~~Loan were accounted for as modifications. In connection with the modifications, the Company incurred $11.9 million in costs including $11.3 million related to the value of the 2020 Term Loan Warrants and $0.6 million in fees paid to the lenders. These debt issuance costs are reflected as a reduction to the carrying amount of the Senior Secured Term Loan and are amortized to interest expense over the remaining loan term. ~~Approximately $0.8 million in third party costs were expensed~~The 2020 Amendments related to the ~~Term Loan Amendments.~~

~~On December 10, 2020, the Company amended the Senior Secured Term Loan agreement to, among other things, allow the SBS acquisition.~~

~~Amended PNC Credit Facility~~

~~On April 3, 2020, the Company entered into an amendment to the Amended~~ PNC Credit Facility ~~(the “April 2020 PNC Amendment”), which amended certain terms, including to waive compliance with the total net leverage ratio and total leverage ratio covenants~~were accounted for ~~the quarter ending March 31, 2020.~~

On June 16, 2020, the Company entered into an amendment to the Amended PNC Credit Facility (the “June 2020 PNC Amendment” and collectively with the April 2020 PNC Amendment, the “PNC Amendments” and including the Term Loan Amendments, the “Amendments”). The amendment amended certain terms, including: (a) the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment; (b) waived compliance with the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021; (c) added a financial covenant that requires a minimum monthly average undrawn availability level of $7.0 million for the period from June 30, 2020 through and including May 31, 2021; (d) added a financial covenant that requires a minimum liquidity of not less than $10.0 million at the end of each quarter and a minimum average liquidity level $10.0 million for the ninety days preceding the last day of each quarter, beginning with the quarter ending June 30, 2021; (e) amended the covenant levels for the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021; and (f) continued to include a covenant that requires a minimum of $5.0 million of PNC qualified cash at all times. The June 2020 PNC Amendment also adjusted the applicable margin for advances under the Amended PNC Credit Facility such that (i) advances designated as ~~“Domestic Rate Loans” and “Swing Loans” will have an applicable margin of (a) 4.50% for the period from the June 16, 2020 until the date quarterly financial statements are delivered~~modifications. Fees paid to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 3.50% to 4.50% based on the Company’s applicable total leverage ratio and (ii) advances designated as “LIBOR Rate Loans” will have an applicable margin of (a) 5.50% for the period from June 16, 2020, until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 4.50% to 5.50% based on the Company’s applicable total leverage ratio.

~~The Company accounted for the PNC Amendments as modifications of the Amended PNC Credit Facility. In connection with the modifications, the Company incurred~~approximately $0.5 million ~~in fees paid to the lenders which was~~were recorded to other assets and isare amortized to interest expense over the remaining term of the ~~Amended PNC Credit Facility.~~agreement.

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On August 5, 2021 (the “Closing Date”), the Company entered into a senior secured term loan to borrow an aggregate of $100.0 million, (the “Term Loan”). A portion of the proceeds were used to repay in full all outstanding borrowings under the Senior Secured Term Loan. Borrowings under the Term Loan mature on August 5, 2026. Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter. Principal 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.

~~On December 10, 2020,~~Loans under the ~~Company amended the Amended PNC Credit Facility to, among other things, allow the~~

~~SBS acquisition. The amendment added~~Term Loan designated as “Prime Rate Loans” will bear interest at a covenant requiring the Company to maintain at least $30.0 million average liquidity (the “Average Liquidity Requirement”), as defined in the Amended PNC Credit Facility, for the preceding thirty days measured as of the last day of each month. If the Average Liquidity Requirement has not been satisfied during the period priorrate per annum equal to the ~~payment~~greatest of (i) 1.75%, (ii) the ~~SBS Deferred Purchase Price,~~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 ~~reserve will be established~~rate per annum equal to ~~reduce borrowings availability under~~ the ~~Amended PNC Credit Facility~~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 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 PNC Credit Facility together with the Term Loan, the “Credit Agreements”). The amendment, among other things (a) ~~$2.0~~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 ~~during~~or (ii) the ~~period from~~amount of the ~~amendment date~~borrowing base, as defined in the PNC Credit Facility agreement;(c) replaced existing debt covenants with net leverage ratio, minimum liquidity and fixed charges coverage ratio covenants; 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 ~~anniversary~~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

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

As of September 30, 2021, the interest rates on the Term Loan and the PNC Credit Facility were 6.75% and 2.34%, respectively, and PNC Credit Facility had a borrowing base of $20.0 million, of which $8.6 million was available at that date. 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 ~~and, (b) $1.0 million during~~to the ~~period from~~PNC Credit Facility removed the ~~first anniversary of the amendment through the second anniversary of the amendment~~restricted cash reserve requirement.

Registration Rights Agreement

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In connection with the June 2020 Amendment to the Senior Secured Term Loan, ~~Amendment,~~ the Company entered into an amended and restated registration rights agreement (the “Amended Registration Rights Agreement”) with the holders of the warrants previously issued to the Senior Secured Term Loan lenders in December 2018 and the 2020 Term Loan Warrants (collectively, the “Term Loan Warrants”). The Amended Registration Rights Agreement grants the holders of the Term Loan Warrants certain registration rights for the shares of common stock issuable upon the exercise of the applicable Term Loan Warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40% of the registrable securities held by such holder as of the issuance date of the applicable Term Loan Warrants; (b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement; and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.

As of December 31, 2020, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0% and 7.8%, respectively. As of December 31, 2020, the Amended PNC Credit Facility had a borrowing base of $27.0 million, of which $19.2 million was available at that date.

As of December 31, 2020, the Company was required to maintain a $5.0 million restricted cash reserve as part of the Amended PNC Credit Facility. This balance is presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of December 31, 2020.

Paycheck Protection Program Loan

On April 13, 2020, the Company entered into a Paycheck Protection Program ~~(“PPP”)~~ 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. ~~The PPP Loan bears interest at a fixed rate of 1% per annum. The PPP Loan has an initial term of two years and is unsecured and guaranteed by~~In July 2021, the ~~Small Business Administration. The~~ Company ~~used the proceeds~~received notice from ~~the PPP Loan for qualifying expenses as defined in~~PNC that the PPP Loan and ~~has applied~~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 the ~~PPP Loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this time that the PPP Loan will be forgiven partially or in full.~~three and six months ended September 30, 2021.

NOTE 6: LEASES

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


Operating leases	Operating leases	December 31, 2020		March 31, 2020		Operating leases	September 30, 2021		March 31, 2021
Operating lease right-of-use asset	Operating lease right-of-use asset	$	10,096	$	12,689	Operating lease right-of-use asset	$	7,917	$	9,383

Other accrued liabilities	Other accrued liabilities	2,806		3,065		Other accrued liabilities	2,092		2,581
Operating lease liability	Operating lease liability	8,500		10,822		Operating lease liability	6,818		8,005
Total operating lease liabilities	Total operating lease liabilities	$	11,306	$	13,887	Total operating lease liabilities	$	8,910	$	10,586

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

Three Months Ended December 31, 2020 Nine Months Ended December 31,
Lease Cost 2020 2019 2020 2019
Operating lease cost    $ 1,018 $ 1,259 $ 3,688 $ 3,835
Variable lease cost    198 109 620 321
Short-term lease cost    37 58 129 89
Total lease cost    $ 1,253 $ 1,426 $ 4,437 $ 4,245

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Maturity of Lease Liabilities Operating Leases
For the fiscal year ended March 31,
   2021, excluding the nine months ended December 31, 2020 $ 1,051
   2022 3,863
   2023 2,799
   2024 2,630
   2025 2,330
   Thereafter 2,948
Total lease payments $ 15,621
Less: imputed interest (4,315)
Present value of lease liabilities $ 11,306


	Three Months Ended September 30,				Six Months Ended September 30,
Lease Cost	2021		2020		2021		2020
Operating lease cost	$	994	$	1,338	$	2,129	$	2,669
Variable lease cost	177		211		351		423
Short-term lease cost	4		39		4		92
Total lease cost	$	1,175	$	1,588	$	2,484	$	3,184


Maturity of Lease Liabilities	Operating Leases
2022, excluding the six months ended September 30, 2021	$	1,734
2023	2,695
2024	2,543
2025	2,264
2026	1,827
Thereafter	698
Total lease payments	$	11,761
Less: imputed interest	(2,851)
Present value of lease liabilities	$	8,910


Lease Term and Discount Rate	Lease Term and Discount Rate	December 31, 2020		March 31, 2020		Lease Term and Discount Rate	September 30, 2021		March 31, 2021
Weighted average remaining operating lease term (years)	Weighted average remaining operating lease term (years)	4.66		4.99		Weighted average remaining operating lease term (years)	4.15		4.53
Weighted average discount rate for operating leases	Weighted average discount rate for operating leases	13.97	%	13.91	%	Weighted average discount rate for operating leases	13.64	%	13.96	%

Operating cash outflows related to operating leases totaled ~~$4.4~~$1.0 million and ~~$3.4~~$1.3 million for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively.

NOTE 7: RESTRUCTURING CHARGES

~~Costs accrued related to restructuring are classified within accrued liabilities on the condensed consolidated balance sheets.~~ The following table summarizes the restructuring activities for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~ (in thousands):


									Severance and Benefits		Facilities		Total
Balance as of March 31, 2021								Balance as of March 31, 2021	$	580	$	—	$	580
Restructuring costs								Restructuring costs	274		—		274
Adjustments to prior estimates								Adjustments to prior estimates	(50)		—		(50)
Cash payments								Cash payments	(784)		—		(784)

Balance as of September 30, 2021								Balance as of September 30, 2021	$	20	$	—	$	20
		Severance and Benefits		Facilities		Total
Balance as of March 31, 2020	Balance as of March 31, 2020	$	0	$	0	$	0	Balance as of March 31, 2020	$	—	$	—	$	—
Restructuring costs	Restructuring costs	2,837		0		2,837		Restructuring costs	2,637		—		2,637

Cash payments	Cash payments	(2,627)		0		(2,627)		Cash payments	(2,397)		—		(2,397)

Balance as of December 31, 2020		$	210	$	0	$	210

Balance as of March 31, 2019		$	0	$	2,876	$	2,876
Restructuring costs		0		0		0
Adjustments to prior estimates		0		1,020		1,020
Cash payments		0		(3,659)		(3,659)
Other non-cash		0		63		63
Balance as of December 31, 2019		$	0	$	300	$	300
Balance as of September 30, 2020								Balance as of September 30, 2020	$	240	$	—	$	240

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NOTE 8: NET ~~INCOME (LOSS)~~LOSS PER SHARE

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

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Three Months Ended December 31, 2020 Nine Months Ended December 31,
2020 2019 2020 2019
8,311 0 7,557 7,385


Three Months Ended September 30,		Six Months Ended September 30,
2021	2020	2021	2020
9,195	8,020	10,315	7,180

The dilutive impact related to common shares from restricted stock units ~~stock options~~ and warrants is determined by applying the treasury stock method ~~of determining value~~ to the assumed vesting of outstanding restricted stock units and the exercise of outstanding ~~options and~~ warrants. The dilutive impact related to common shares from contingently issuable performance share units is determined by applying a two-step approach using both the contingently issuable share guidance and the treasury stock method.

For the three and ~~nine~~six months ended ~~December 31,~~September 30, 2020, there were ~~1.5~~1.6 million and ~~0.4~~0.5 million of contingently issuable market based and performance based restricted stock units, respectively, excluded from the calculation of diluted net income (loss) per share, as their market and performance conditions had not yet been achieved. These shares ~~will be~~were earned based on the Company’s achievement of certain average stock price and performance targets in addition to a time-based vesting period. There were no contingently issuable market based and performance based restricted stock units excluded from the diluted net loss per share as of September 30, 2021.

NOTE 9: INCOME TAXES

The effective tax rate for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020 was ~~-10.6%~~(4.6)% and ~~-5.1%, respectively as compared to -2.7%~~(3.2)% and ~~-52.2% in the three~~1.0% and ~~nine months ended December 31, 2019,~~0.0%, respectively. The effective tax rates differed from the federal statutory tax rate of 21% during each of these periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.

As of ~~December 31, 2020,~~September 30, 2021, including interest and penalties, the Company had ~~$110.4~~$108.4 million of unrecognized tax benefits, ~~$92.1~~$89.9 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance. After taking into account the valuation allowance, of the $89.9 million, only $7.5 million, if recognized, would favorably affect the effective tax rate. As of ~~December 31, 2020,~~September 30, 2021, 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, 2020, $103.6~~September 30, 2021, $100.9 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and ~~$6.8~~$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 ~~$9.2~~$14.0 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations. After taking into account the valuation allowance, of the $14.0 million, only $1.0 million would affect the effective tax rate.

NOTE 10: COMMITMENTS AND CONTINGENCIES

Commitments to Purchase Inventory

The Company uses contract manufacturers for its manufacturing operations. Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon the Company’s forecast of customer demand. 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. 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

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obsolete inventory. As of ~~December 31, 2020,~~September 30, 2021, the Company had issued non-cancelable commitments for ~~$18.9~~$57.3 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

On July 22, 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against the Company in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patents Nos.

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7,161,506, 7,378,992, 7,415,530, 8,643,513, 9,054,728, and 9,116,908. The lawsuit has been transferred to the U.S. District Court for the Northern District of California for further proceedings. 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. On July 31, 2017, the District Court stayed proceedings in this litigation pending ~~decision in~~the outcome of Inter Partes Review proceedings before the Patent Trial and Appeal Board relating to the Realtime patents. In those proceedings the asserted claims of the ’506 patent, the ’992 patent, and the ’513 patent were found unpatentable. In addition, on July 19, 2019, the United States District Court for the District of Delaware issued a decision finding that all claims of the ’728 patent, the ’530 patent, and the ’908 patent are ~~invalid~~not eligible for patent protection under 35 U.S.C. § 101 (the “Delaware Action”). On appeal, the Federal Circuit vacated the decision in the Delaware Action and remanded for the Court to “elaborate on its ruling.” ~~As of now, the~~The case pending against Quantum in the Northern District of California remains ~~stayed. The Court~~stayed pending the final outcome in the ~~Northern District of California has scheduled a Case Management Conference for March 29,~~Delaware Action. On May 4, 2021, ~~and will decide at that point whether to keep~~ the ~~stay in place pending further developments~~Court in the Delaware Action ~~or lift~~reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101. The Court also granted Realtime Data fourteen days to file amended complaints in the ~~stay~~Delaware Action where they sought leave to do so. On May 19, 2021, Realtime Data filed amended complaints including revised bases for claims of infringement of the same patents. On June 29, 2021, defendants in the Delaware Action filed a renewed motion to dismiss under Section 101. Realtime Data filed its opposition to the motion to dismiss on July 13, 2021. On August 23, 2021, the Court again reaffirmed its earlier ruling and ~~set a schedule for discovery and other proceedings. The Company~~granted defendants’ motions to dismiss under Section 101. 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 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 ~~did not~~hid its failure to meet those performance objectives ~~but hid that~~ by improperly recognizing revenue in fiscal ~~2015, with the alleged objective of entrenching Messrs. Gacek and Auvil and then-current management.~~2015. Mr. Gacek resigned from the board effective May 1, 2017, and as CEO effective November 7, 2017; Mr. 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 weQuantum 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). Based on these allegations, the complaint asserts putative claims for intentional misrepresentation/fraud in the inducement, intentional misrepresentation/fraud and negligent misrepresentation against Quantum, Gacek and Auvil, false promise/promissory fraud and unjust enrichment against Quantum and breach of fiduciary duty against Gacek and Auvil. Starboard is demanding a jury trial, and seeks unspecified damages including punitive damages, an award of rescission or rescissory damages, and award of restitution in an amount necessary to compensate for the alleged unjust enrichment of Quantum, attorney fees and costs and other relief deemed just or appropriate by the court. On September 14, 2020, ~~all~~ defendants filed a ~~joint~~ motion to dismiss ~~this~~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, ~~and therefore,~~ in effect dismissing Quantum ~~has been dismissed~~ from the ~~action~~California action. On January 8, 2021, Messrs. Gacek and ~~is no longer a party. The first~~Auvil moved to dismiss the amended complaint ~~reasserts with only minor modifications~~in California on grounds of forum non conveniens and the ~~existing claims against~~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 April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs. Gacek and Auvil and ~~adds a~~Quantum. The new ~~claim~~action largely repeats the allegations of the California action, alleging claims for fraud against all defendants, fraudulent concealment against all defendants, negligent misrepresentation against all defendants, breach of contract against Quantum, breach of the implied covenant of good faith and fair dealing against Quantum, and breach of fiduciary duty against Messrs. Gacek and ~~Auvil, alleging that they aided~~Auvil. The complaint prays for unspecified damages in an amount to be determined at trial, costs and ~~abetted~~attorneys’ fees, and any other relief deemed just or appropriate by the court. On May 10, 2021, Quantum ~~in committing~~filed a ~~fraud~~motion to dismiss this Delaware action, as did Messrs. Gacek and Auvil. Under the briefing schedule agreed to by the parties and approved by the Court of

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Chancery, briefing on ~~plaintiffs by intentionally or recklessly misrepresenting~~the motions ended July 26, 2021. The Court set oral argument on the motions for September 28, 2021, but on August 4, 2021, on its ~~financial performance and concealing~~own motion, postponed the ~~misstatements~~hearing to allow the alleged fraud to continue. The amended complaint seeks no relief from Quantum. However, Quantum expects to continue to incur expenses related to this litigation, subject to potential offset from insurance.November 1, 2021. At this time, ~~the Company~~Quantum is unable to estimate the range of possible outcomes with respect to this matter.

Other Commitments

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.

NOTE 11: 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.

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No ~~impairments~~impairment charges were recognized for non-financial assets in the ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019.~~2020. The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Long-term Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of ~~December 31, 2020~~September 30, 2021 and ~~2019.~~2020. The fair value has been classified as Level 2 within the fair value hierarchy.


		December 31,									September 30,
		2020				2019					2021				2020
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Senior Secured Term Loan	Senior Secured Term Loan	$	185,208	$	188,471	$	163,350	$	159,054	Senior Secured Term Loan	$	99,375	$	99,375	$	185,208	$	185,208
Amended PNC Credit Facility	Amended PNC Credit Facility	5,960		5,812		5,289		3,880		Amended PNC Credit Facility	10,000		10,000		—		—

NOTE 12: SUBSEQUENT EVENTS

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this ~~quarterly report~~Quarterly Report and our annual report for the year ended March 31, ~~2020.~~2021. In particular, the disclosure contained in Item 1A in our annual report, as updated by Part II, Item 1A in this ~~quarterly report,~~Quarterly Report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

The following discussion contains forward-looking statements, such as statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and

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plans, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.

OVERVIEW

We are a ~~leader in storing~~technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and ~~managing digital video~~sell technology and ~~other forms of unstructured data. We~~services that help customers ~~around the world to ingest, process,~~capture, create and ~~analyze~~share digital ~~data at high speed, and preserve~~content, and protect it for decades. ~~Our~~We emphasize innovative technology in the design and manufacture of our products to help our customers ~~include some of~~unlock the ~~world’s largest corporations, government agencies, service providers, broadcasters, movie studios, sports leagues~~value in their video and ~~teams, and enterprises~~unstructured data in ~~all industries. We work closely with a broad network of distributors, VARs, DMRs, OEMs and other suppliers~~new ways to solve ~~our customers~~their most pressing business challenges.

We ~~earn~~generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our ~~revenue from the sale of~~ products and ~~services through~~services; data center costs in support of our ~~channel partners~~cloud-based services; interest associated with our long term debt and ~~our sales force. Our products are sold under both the Quantum brand name and the names~~income taxes.

Highlights from second quarter of ~~various OEM providers. Our portfolio of solutions includes:~~fiscal year 2022 included:

•~~CatDV Asset Management Software—An agile asset management~~Revenue increased 5% from the prior quarter and ~~workflow automation platform that helps organizations with large amounts of video and digital image content~~9% year-over-year to ~~communicate and collaborate more effectively.~~$93 million.

•~~StorNext high performance file system~~—We ~~offer~~completed the Pivot3 assets acquisition, which adds a ~~line~~portfolio of ~~products designed~~industry leading hyperconverged infrastructure (HCI) and intelligent software solutions for the ~~highest speed ingest, processing,~~security and analysis of video and other forms of unstructured data. Powered by the StorNext file system software and data management platform, this product line includes new NVMe flash storage servers (F-series) and hybrid SSD/HDD storage arrays.surveillance markets.

•~~Quantum All~~ ~~- Terrain File System (ATFS)—An easy~~We completed the EnClouden assets acquisition which will enable us to ~~deploy, easy to use network attached storage (“NAS”) platform~~expand the addressable market for our video surveillance portfolio, offering customers a solution using their server hardware of choice with ~~integrated data classification.~~a flexible subscription-based software model.

•~~ActiveScale Object Storage~~—We ~~also sell massively scalable object storage systems used~~completed the refinancing of our term loan, significantly reducing our annual debt service and greatly increasing our financial flexibility related to ~~preserve~~covenants and ~~protect data with high levels of data durability.~~

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•~~Tape Storage—We provide low cost, secure storage systems for long term archiving and ransomware protection. We provide both the storage systems and sell tape media under the Quantum brand.~~restrictions.

•~~Video Surveillance Systems~~—We ~~offer a broad portfolio of solutions designed for video surveillance~~brought on industry veteran John Hurley as Chief Revenue Officer. John brings extensive experience working with the largest global enterprise, commercial, and physical security, including network video recording servers (NVRs), hyperconverged (HCI) storage servers to host multiple physical security workloads, GPU-based analytics servers, and file and object storage systems for large scale surveillance archives.

•~~Backup Storage Systems—We offer high-performance, scalable storage for backup and multi-site disaster recovery.~~

•~~Quantum Services—We offer a full line of services including managed services and Storage-as-a-Service offerings, as well as maintenance, implementation, training and consulting services.~~service provider customers.

COVID-19 IMPACT AND ASSOCIATED ACTIONS

Since the beginning of March 2020, COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place for a significant period of time.

In light of these events, we have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business. We have implemented more thorough sanitation practices as outlined by health organizations and instituted social distancing policies at our locations around the world, including working from home, limiting the number of employees attending ~~in person~~ meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

~~For many~~We have seen a gradual stabilization in our business during the second half of ~~our~~fiscal 2021 and into fiscal 2022 as customers increasingly adapted to the COVID-19 ~~pandemic has significantly affected their~~environment. The pervasive disruption in the global supply chain continues to have an impact on our business. ~~Movie~~Before the current disruptions in the global supply chain our historical backlog was very limited and ~~television production has been paused, professional and collegiate sports seasons~~typically represented less than 5% of quarterly revenues. During our second fiscal quarter our backlog grew to $50 million from $30 million at the end of the prior quarter. This unprecedented backlog is a result of the strong demand we have been ~~postponed or cancelled, and many corporations and enterprises have put information technology spending on hold while they assess~~seeing across our business but limited by the ~~short- and long-term impact~~ongoing supply constraints. Of the $50 million ending backlog, just over 70% of the ~~pandemic. While our supply chain remains intact~~backlog was from hyperscaler customers and ~~operating, we have experienced issues~~just over 85% of the backlog was related to our logistics network. The reduced capacity within and across freight lanes (aircraft, personnel, customs clearance, etc.) has caused late deliveries from re-routes and mis-shipments, as well as increased expedite and other charges to deliver and receivetape products. ~~To date, we have experienced minimal impact on product availability, although future capacity constraints across~~Approximately two-thirds of the ~~network due to lost capacity from factory down time, closures, as well as reduced staff and demand signal fluctuations are~~backlog is expected to ~~impact product availability~~be shipped in the ~~months~~second half of fiscal 2022 and ~~possibly quarters to come.~~the remaining one-third of the backlog has ship dates early in fiscal 2023.

~~We believe that these social and economic impacts have had a negative effect on sales due to the decline in our customers' ability or willingness to purchase our products and services. The extent~~

Table of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue. We expect COVID-19 to significantly impact our financial condition, results of operations, and liquidity through at least our third quarter and likely much longer.Contents

We will continue to actively monitor the ~~situation~~impact of COVID-19 and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. See “The recent COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Part II, Item 1A, Risk Factors, of our most recent Annual Report on Form 10-K for more information regarding the risks we face as a result of the COVID-19 pandemic.

~~NON-U.S. GAAP FINANCIAL MEASURES~~

~~To provide investors with additional information regarding our financial results, we have presented Adjusted EBITDA and Adjusted Net Income (Loss), non-U.S. GAAP financial measures defined below.~~

RESULTS OF OPERATIONS


	Three Months Ended September 30,				Six Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Total revenue	$	93,180	$	85,821	$	182,278	$	159,126
Total cost of revenue (1)	54,793		47,087		106,612		89,540
Gross profit	38,387		38,734		75,666		69,586
Operating expenses
Research and development (1)	12,389		10,233		23,680		20,395
Sales and marketing (1)	15,462		13,153		29,414		24,723
General and administrative (1)	11,466		10,263		23,293		21,825
Restructuring charges	8		1,585		274		2,637
Total operating expenses	39,325		35,234		76,661		69,580
Income (loss) from operations	(938)		3,500		(995)		6
Other income (expense), net	126		(312)		(71)		(697)
Interest expense	(3,070)		(7,578)		(6,956)		(14,015)
Loss on debt extinguishment, net	(4,960)		—		(4,960)		—
Net loss before income taxes	(8,842)		(4,390)		(12,982)		(14,706)
Income tax provision	411		202		424		622
Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)

(1) Includes stock-based compensation as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	298	$	227	$	591	$	396
Research and development	1,331		591		2,863		1,062
Sales and marketing	613		495		1,113		832
General and administrative	830		1,279		1,706		2,260
Total	$	3,072	$	2,592	$	6,273	$	4,550

Adjusted EBITDA is a non-U.S. GAAP financial measure defined by us as net loss before interest expense (net), provision for income taxes, depreciation and amortization expense, stock-based compensation expense, restructuring charges, long-term debt related costs, costs related to the financial restatement and related activities

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~~described in our Annual Report on Form 10-K for the year ended March 31, 2020, and other non-recurring expenses.~~

Adjusted Net Income (Loss) is a non-U.S. GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, long-term debt related costs, business acquisition costs, costs related to the financial restatement and related activities described in the Annual Report on Form 10-K for the year ended March 31, 2020 and other non-recurring (income) expenses. The Company calculates Adjusted Net Income (Loss) per Basic and Diluted share using the Company’s above-referenced definition of Adjusted Net Income (Loss).

The Company considers other non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Such expenses include certain strategic and financial restructuring expenses.

We have provided below a reconciliation of Adjusted EBITDA and Adjusted Net Income (Loss) to Net Income (Loss), the most directly comparable U.S. GAAP financial measure. We have presented Adjusted EBITDA because it is a key measure used by our management and the board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business performance. We believe Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Basic and Diluted Share serve as appropriate measures to be used in evaluating the performance of our business and help our investors better compare our operating performance over multiple periods. Accordingly, we believe that Adjusted EBITDA and Adjusted Net Income (Loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Our use of Adjusted EBITDA and Adjusted Net Income (Loss) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are as follows:

•Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•Adjusted EBITDA does not reflect: (1) interest and tax payments that may represent a reduction in cash available to us; (2) capital expenditures, future requirements for capital expenditures or contractual commitments; (3) changes in, or cash requirements for, working capital needs; (4) the potentially dilutive impact of stock-based compensation expense; (5) potential future costs related to our long-term debt; (6) potential future restructuring expenses; (7) potential future costs related to business acquisitions; or (8) potential future costs related to our financial statement restatement and other related activities;

•Adjusted Net Income (Loss) does not reflect: (1) potential future restructuring activities; (2) the potentially dilutive impact of stock-based compensation expense; (3) potential future costs related to our long-term debt; (4) potential future costs related to business acquisitions; (5) potential future costs related to our financial statement restatement and other related activities; and

•Other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income (Loss) or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) along with other U.S. GAAP-based financial performance measures, including various cash flow metrics and our U.S. GAAP financial results.

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~~The following is a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP financial measure, Net Loss (in thousands):~~

Three Months Ended Nine Months Ended
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Net income (loss) $ (2,669) $ 4,749 $ (17,997) $ (1,373)
Interest expense 7,808 6,425 21,823 19,079
Provision for income taxes 256 (110) 877 471
Depreciation and amortization expense 1,347 1,081 3,898 3,119
Stock-based compensation expense 1,878 2,056 6,428 5,408
Long-term debt related costs 208 — 1,377 —
Acquisition related costs 393 — 393 —
Restructuring charges 200 (64) 2,837 1,020
Cost related to financial restatement and related activities — 564 — 12,743
Adjusted EBITDA $ 9,421 $ 14,701 $ 19,636 $ 40,467
The following is a reconciliation of Adjusted Net Income (Loss) to the most comparable U.S. GAAP financial measure, Net Income (Loss) (in thousands):
Three Months Ended Nine Months Ended
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Net income ( loss) $ (2,669) $ 4,749 $ (17,997) $ (1,373)
Restructuring charges 200 (64) 2,837 1,020
Stock-based compensation 1,878 2,056 6,428 5,408
Long-term debt related costs 208 — 1,377 —
Acquisition related costs 393 — 393 —
Cost related to financial restatement and related activities — 564 — 12,743
   Adjusted net income (loss) $ 10 $ 7,305 $ (6,962) $ 17,798
   Adjusted net income (loss) per share:
      Basic $ 0.00 $ 0.19 $ (0.17) $ 0.48
      Diluted $ 0.00 $ 0.16 $ (0.15) $ 0.40
   Weighted average shares outstanding:
      Basic 40,927 38,134 40,374 36,828
      Diluted 49,238 46,567 47,931 44,213

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~~RESULTS OF OPERATIONS~~

Three Months Ended December 31, 2020 Nine Months Ended December 31,
(in thousands) 2020 2019 2020 2019
Total revenue $ 98,023 $ 103,315 $ 257,149 $ 314,734
Total cost of revenue (1)
55,744 56,239 145,284 178,309
Gross profit 42,279 47,076 111,865 136,425
Operating expenses
Research and development (1)
9,589 9,325 29,983 27,058
Sales and marketing (1)
15,294 15,421 40,019 46,101
General and administrative (1)
11,103 10,719 32,928 43,623
Restructuring charges 200 (64) 2,837 1,020
Total operating expenses 36,186 35,401 105,767 117,802
Income from operations 6,093 11,675 6,098 18,623
Other income (expense) (698) (611) (1,395) (446)
Interest expense (7,808) (6,425) (21,823) (19,079)
Loss before income taxes (2,413) 4,639 (17,120) (902)
Income tax provision 256 (110) 877 471
Net loss $ (2,669) $ 4,749 $ (17,997) $ (1,373)

~~(1)~~ ~~Includes stock-based compensation as follows:~~

Three Months Ended September 30, Nine Months Ended December 31,
(in thousands) 2020 2019 2020 2019
Cost of revenue $ 172 $ 162 $ 569 $ 335
Research and development 186 480 1,249 745
Sales and marketing 474 300 1,306 708
General and administrative 1,046 1,114 3,304 3,620
Total $ 1,878 $ 2,056 $ 6,428 $ 5,408

Comparison of the Three Months Ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~

~~Revenue~~

Three Months Ended December 31,
(dollars in thousands) 2020 % of
revenue
2019 1
% of
revenue $ Change % Change
Product revenue
   Primary storage systems $ 23,654 24 % $ 25,619 24 % $ (1,965) (8) %
   Secondary storage systems 25,311 26 25,374 25 (63) —
   Devices and media 14,056 14 15,442 15 (1,386) (9)
      Total product revenue $ 63,021 64 % $ 66,435 64 % $ (3,414) (5)
Service revenue 31,169 32 32,892 32 (1,723) (5)
Royalty revenue 3,833 4 3,988 4 (155) (4)
Total revenue $ 98,023 100 % $ 103,315 100 % $ (5,292) (5)

Revenue


	Three Months Ended September 30,
(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change
Product revenue
Primary storage systems	$	16,683	18	$	20,610	24	$	(3,927)	(19)
Secondary storage systems	26,259		28	18,903		22	7,356		39
Devices and media	11,713		13	11,337		13	376		3
Total product revenue	54,655		59	50,850		59	3,805		7
Service revenue	34,359		37	31,494		37	2,865		9
Royalty revenue	4,166		4	3,477		4	689		20
Total revenue	$	93,180	100	$	85,821	100	$	7,359	9

1 ~~Primary and Secondary storage system revenue has been adjusted for the three months ended December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.~~

Product revenue

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In the three months ended ~~December 31, 2020,~~September 30, 2021, product revenue ~~decreased $3.4~~increased $3.8 million, or 5%7%, as compared to the same period in ~~2019.~~2020. Secondary storage systems represented $7.4 million, or a 39% increase, driven by higher demand in our hyperscale, backup and archive use cases. Primary storage systems ~~represented $2.0~~decreased $3.9 million, ~~of the decrease,~~or 19%, partially driven by our transition to a ~~decrease~~recurring software subscription licensing model which results in ~~sales~~a shift from product to the US federal government due to related purchasing activity. Devices and media represented $1.4 million of the decrease, driven by a lower volume of LTO media sold through our high-volume channel partners. The prior year included a spike in volume as supply issues were resolved between two major vendors in the market.services revenue.

Service revenue

We offer a broad range of services including product maintenance, implementation, and ~~training.~~training as well as software subscriptions. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue ~~decreased 5%~~increased 9% in the three months ended ~~December 31, 2020~~September 30, 2021 compared to the same period in ~~2019 due to a combination~~2020 driven partially by growing sales of ~~reduced new customer installations and reduced support renewals from~~ our ~~legacy customers.~~recurring software subscription offerings as well as service revenue associated with newly acquired businesses.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue ~~decreased $0.2~~increased $0.7 million, or 4%20%, in the three months ended ~~December 31, 2020~~September 30, 2021 compared to the same period in ~~2019~~2020 due to ~~lower overall~~increased market volume. of LTO media.

Gross Profit and Margin


		Three Months Ended December 31,												Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2020		Gross margin %		2019		Gross margin %		$ Change		Basis point change	(dollars in thousands)	2021		Gross margin %	2020		Gross margin %	$ Change		Basis point change
Product gross profit	Product gross profit	$	19,709	31.3	%	$	22,763	34.3	%	$	(3,054)	(300)	Product gross profit	$	13,531	24.8	$	15,852	31.2	$	(2,321)	(640)
Service gross profit	Service gross profit	18,737		60.1		20,325		61.8		(1,588)		(170)	Service gross profit	20,690		60.2	19,405		61.6	1,285		(140)
Royalty gross profit	Royalty gross profit	3,833		100.0		3,988		100.0		(155)		—	Royalty gross profit	4,166		100.0	3,477		100.0	689		—
Gross profit	Gross profit	$	42,279	43.1	%	$	47,076	45.6	%	$	(4,797)	(250)	Gross profit	$	38,387	41.2	$	38,734	45.1	$	(347)	(390)

Product Gross Margin

Product gross margin decreased ~~300~~640 basis points for the three months ended ~~December 31, 2020,~~September 30, 2021, as compared with the same period in ~~2019.~~2020. This decrease was due primarily to a ~~less favorable~~product mix weighted towards lower margin offerings and cost pressures as a result of ~~enterprise products sold, along with a relatively flat operations departmental expense.~~constraints in the global supply chain.

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Service Gross Margin

Service gross ~~margin~~margins decreased ~~170~~140 basis points for the three months ended ~~December 31, 2020,~~September 30, 2021, as compared with the same period in ~~2019.~~2020. This ~~decrease~~ was ~~primarily~~partially driven by cost pressures as a result of certain constraints in the ~~effect of lower service revenue on a relatively flat expense profile~~global supply chain.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

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Operating expenses


		Three Months Ended December 31,													Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2020		% of revenue		2019		% of revenue		$ Change		% Change		(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change
Research and development	Research and development	$	9,589	9.8	%	$	9,325	9.0	%	$	264	3	%	Research and development	$	12,389	13.3	$	10,233	11.9	$	2,156	21
Sales and marketing	Sales and marketing	15,294		15.6		15,421		14.9		(127)		(1)		Sales and marketing	15,462		16.6	13,153		15.3	2,309		18
General and administrative	General and administrative	11,103		11.3		10,719		10.4		384		4		General and administrative	11,466		12.3	10,263		12.0	1,203		12
Restructuring charges	Restructuring charges	200		0.2		(64)		(0.1)		264		(413)		Restructuring charges	8		—	1,585		1.8	(1,577)		(99)
Total operating expenses	Total operating expenses	$	36,186	36.9	%	$	35,401	34.3	%	$	785	2		Total operating expenses	$	39,325	42.2	$	35,234	41.1	$	4,091	12

In the three months ended ~~December 31, 2020,~~September 30, 2021, research and development expense increased ~~$0.3~~$2.2 million, or 3%21%, as compared with the same period in ~~2019.~~2020. This increase was ~~due in part to~~primarily driven by an increase in personnel costs due to increased headcount focused on new product development. This increase in headcount includes those employees added through acquisitions over the year.

In the three months ended ~~December 31, 2020,~~September 30, 2021, sales and marketing expenses ~~decreased $0.1~~increased $2.3 million, or 1%18%, as compared with the same period in ~~2019.~~2020. This ~~decrease~~increase was ~~largely~~ driven by ~~suspended~~increased headcount as we invest in strategic areas to accelerate growth. This increase in headcount includes those employees added through acquisitions over the year. Both marketing expense and travel ~~and entertainment~~ expense ~~due to current~~have also increased over the prior year as COVID-19 ~~related restrictions.~~restrictions ease.

In the three months ended ~~December 31, 2020,~~September 30, 2021, general and administrative expenses increased ~~$0.4~~$1.2 million, or 4%12%, as compared with the same period in ~~2019.~~2020. This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

In the three months ended ~~December 31, 2020,~~September 30, 2021, restructuring expenses ~~increased $0.3~~decreased $1.6 million, or ~~413%~~99%, as compared with the same period in ~~2019.~~2020. The ~~increase~~decrease was the result of ~~a reduction~~one-time workforce reductions in ~~workforce to improve operational efficiency and rationalize our cost structure.~~the prior year.

Other Income (Expense)


		Three Months Ended December 31,													Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2020		% of revenue		2019		% of revenue		$ Change		% Change		(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change
Other income (expense)	Other income (expense)	$	(698)	(1)	%	$	(611)	(1)	%	$	(87)	(14)	%	Other income (expense)	$	126	0	$	(312)	—	$	438	140
Interest expense	Interest expense	(7,808)		(8)		(6,425)		6		(1,383)		22		Interest expense	(3,070)		3	(7,578)		9	4,508		59
Loss on debt extinguishment														Loss on debt extinguishment	(4,960)		5	—		—	(4,960)		n/a

~~Other~~The increase in other income (expense), net during the three months ended ~~December 31,~~September 30, 2021 compared with the same period in 2020 ~~and 2019 were~~was related primarily to fluctuations in foreign currency exchange rates.

In the three months ended ~~December 31, 2020,~~September 30, 2021, interest expense ~~increased $1.4~~decreased $4.5 million, or ~~22%~~59%, as compared with the same period in ~~2019~~2020 due ~~primarily~~ to a ~~higher~~lower principal ~~balance.~~balance and a lower effective interest rate.

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Loss on debt extinguishment, net during the three months ended September 30, 2021 was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program Loan.

Income Taxes


		Three Months Ended December 31,													Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2020		% of revenue		2019		% of revenue		$ Change		% Change		(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change
Income tax provision	Income tax provision	$	256	1	%	$	(110)	—	%	$	366	(333)	%	Income tax provision	$	411	—	$	202	—	$	209	103

The income tax provision for the three months ended ~~December 31,~~September 30, 2021 and 2020 and 2019 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal.

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~~Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.~~

~~Comparison of the Nine Months Ended December 31, 2020 and 2019~~

~~Revenue~~

Nine Months Ended December 31,
(dollars in thousands) 2020 % of
revenue
2019 1
% of
revenue $ Change % Change
Product revenue
   Primary storage systems $ 54,478 21 % $ 61,541 20 % $ (7,063) (11) %
   Secondary storage systems 62,705 24 91,890 29 (29,185) (32)
   Devices and media 36,374 14 46,930 15 (10,556) (22)
      Total product revenue $ 153,557 60 % $ 200,361 64 % $ (46,804) (23)
Service revenue 93,049 36 98,673 31 (5,624) (6)
Royalty revenue 10,543 4 15,700 5 (5,157) (33)
Total revenue $ 257,149 100 % $ 314,734 100 % $ (57,585) (18)

1 ~~Primary and Secondary storage system revenue has been adjusted for the six months ended December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.~~

~~Product revenue~~

In the nine months ended December 31, 2020, product revenue decreased $46.8 million, or 23%, as compared to the same period in 2019. Secondary storage systems represented $29.2 million of the decrease, driven primarily by fluctuating purchase cycles with our hyperscale customers in addition to the impact of decreased purchasing due to COVID-19. Devices and media represented $10.6 million of the decrease, driven by lower volume of LTO media sold through our high-volume channel partners. The prior year included a spike in volume as supply issues were resolved between two major vendors in the market. Primary storage systems represented $7.1 million of the decrease, driven by declines in the media and entertainment industry as a result of the COVID-19 pandemic.

~~Service revenue~~

We offer a broad range of services including maintenance, implementation, and training. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue decreased $5.6 million, or 6% in the nine months ended December 31, 2020 compared to the same period in 2019 due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

~~Royalty revenue~~

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue decreased $5.2 million, or 33%, in the nine months ended December 31, 2020 compared to the same period in 2019 due to lower overall market volume.

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~~Gross Profit and Margin~~

Nine Months Ended December 31,
(dollars in thousands) 2020 Gross
margin % 2019 Gross
margin % $ Change Basis point change
Product gross profit $ 44,866 29.2 % $ 60,024 30.0 % $ (15,158) (80)
Service gross profit 56,456 60.7 60,701 61.5 (4,245) (80)
Royalty gross profit 10,543 100.0 15,700 100.0 (5,157) —
Gross profit $ 111,865 43.5 % $ 136,425 43.3 % $ (24,560) 20

~~Product Gross Margin~~

Product gross margin decreased 70 basis points for the nine months ended December 31, 2020, as compared with the same period in 2019. This decrease was primarily the result of a less favorable product mix to our enterprise customers.

~~Service Gross Margin~~

Service gross margin decreased 80 basis points for the nine months ended December 31, 2020, as compared with the same period in 2019. This decrease was due primarily to total service revenue decreases of 6% with relatively flat corresponding departmental expense.

~~Royalty Gross Margin~~

~~Royalties do not have significant related cost of sales.~~

~~Operating expenses~~

Nine Months Ended December 31,
(dollars in thousands) 2020 % of
revenue 2019 % of
revenue $ Change % Change
Research and development $ 29,983 11.6 % $ 27,058 8.6 % $ 2,925 11 %
Sales and marketing 40,019 15.6 46,101 14.6 (6,082) (13)
General and administrative 32,928 12.8 43,623 13.9 (10,695) (25)
Restructuring charges 2,837 1.1 1,020 0.3 1,817 178
Total operating expenses $ 105,767 41.1 % $ 117,802 37.4 % $ (12,035) (10)

In the nine months ended December 31, 2020, research and development expense increased $2.9 million, or 11%, as compared with the same period in 2019. This increase was due in part to an increase in personnel costs due to increased headcount focused on new product development.

In the nine months ended December 31, 2020, sales and marketing expenses decreased $6.1 million, or 13%, as compared with the same period in 2019. This decrease was due primarily to a decrease in personnel costs due to lower headcount, a decrease in marketing programs and professional services costs, and suspended travel and entertainment expense due to current COVID-19 related restrictions.

In the nine months ended December 31, 2020, general and administrative expenses decreased $10.7 million, or 25% as compared with the same period in 2019. This decrease was due primarily to higher costs in 2019 related to the financial restatement and related activities.

In the nine months ended December 31, 2020, restructuring expenses increased $1.8 million, or 178% as compared with the same period in 2019. The increase was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure.

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~~Other Income (Expense)~~

Nine Months Ended December 31,
(dollars in thousands) 2020 % of
revenue 2019 % of
revenue $ Change % Change
Other income (expense) $ (1,395) (1) % $ (446) — % $ (949) (213) %
Interest expense (21,823) (8) (19,079) 6 (2,744) 14

~~Other income (expense), net during the nine months ended December 31, 2020 and 2019 were related primarily to fluctuations in foreign currency exchange rates.~~

~~In the nine months ended December 31, 2020, interest expense increased $2.7 million, or 14%, as compared with the same period in 2019 due primarily to a higher principal balance.~~

~~Income Taxes~~

Nine Months Ended December 31,
(dollars in thousands) 2020 % of
revenue 2019 % of
revenue $ Change % Change
Income tax provision $ 877 — % $ 471 — % $ 406 86 %

~~The income tax provision for the nine months ended December 31, 2020 and 2019~~ is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Comparison of the Six Months Ended September 30, 2021 and 2020

Revenue


	Six Months Ended September 30,
(dollars in thousands)	2021		% of revenue		2020		% of revenue		$ Change		% Change
Product revenue
Primary storage systems	27,994		15	%	$	30,824	19	%	$	(2,830)	(9)	%
Secondary storage systems	54,463		30		37,395		24		17,068		46
Devices and media	24,329		13		22,318		14		2,011		9
Total product revenue	$	106,786	58	%	$	90,537	57	%	$	16,249	18
Service revenue	67,189		37		61,880		39		5,309		9
Royalty revenue	8,303		5		6,709		4		1,594		24
Total revenue	$	182,278	100	%	$	159,126	100	%	$	23,152	15

Product revenue

In the six months ended September 30, 2021, product revenue increased $16.2 million, or 18%, as compared to the same period in 2020. Secondary storage systems represented $17.1 million of the increase, driven primarily by a growing customer base in the hyperscale segment. Devices and media represented $2.0 million of the increase, driven by higher volume of LTO media sold through our high-volume channel partners. Primary storage systems decreased $2.8 million driven partially by driven by our transition to a recurring software subscription licensing model which results in a shift from product to services revenue.

Service revenue

We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue increased $5.3 million, or 9% in the six months ended September 30, 2021 compared to the same period in 2020, driven partially by the increase in recurring software subscription revenue. Growth is also driven by a higher level of installation and professional services attached to our product sales.

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Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue increased $1.6 million, or 24%, in the six months ended September 30, 2021 compared to the same period in 2020 due to higher overall market volume.

Gross Profit and Margin



	Six Months Ended September 30,
(dollars in thousands)	2021		Gross margin %		2020		Gross margin %		$ Change		Basis point change
Product gross profit	$	26,922	25.2	%	$	25,157	27.8	%	$	1,765	(260)
Service gross profit	40,441		60.2		37,720		61.0		2,721		(80)
Royalty gross profit	8,303		100.0		6,709		100.0		1,594		—
Gross profit	$	75,666	41.5	%	$	69,586	43.7	%	$	6,080	(220)

Product Gross Margin

Product gross margin decreased 260 basis points for the six months ended September 30, 2021, as compared with the same period in 2020. This decrease was primarily the result of a less favorable product mix to our enterprise customers, as well as cost pressures as a result of constraints in the global supply chain.

Service Gross Margin

Service gross margin decreased 80 basis points for the six months ended September 30, 2021, as compared with the same period in 2020. This decrease was partially due to cost pressures as a result of constraints in the global supply chain.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

Operating expenses



	Six Months Ended September 30,
(dollars in thousands)	2021		% of revenue		2020		% of revenue		$ Change		% Change
Research and development	$	23,680	12.9	%	$	20,395	12.8	%	$	3,285	16	%
Sales and marketing	29,414		16.1		24,723		15.5		4,691		19
General and administrative	23,293		12.8		21,825		13.7		1,468		7
Restructuring charges	274		0.2		2,637		1.7		(2,363)		(90)
Total operating expenses	$	76,661	42.1	%	$	69,580	43.7	%	$	7,081	10

In the six months ended September 30, 2021, research and development expense increased $3.3 million, or 16%, as compared with the same period in 2020. This increase was primarily driven by an increase in personnel costs due to increased headcount focused on new product development. This increase in headcount includes those employees added through acquisitions over the year.

In the six months ended September 30, 2021, sales and marketing expenses increased $4.7 million, or 19%, as compared with the same period in 2020. This increase was driven by increased headcount as we invest in strategic areas to accelerate growth. This increase in headcount includes those employees added through acquisitions over the year. Both marketing expense and travel expense have also increased over the prior year as COVID-19 restrictions ease.

In the six months ended September 30, 2021, general and administrative expenses increased $1.5 million, or 7% as compared with the same period in 2020. This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

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In the six months ended September 30, 2021, restructuring expenses decreased $2.4 million, or 90% as compared with the same period in 2020. The decrease was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure in the prior year.

Other Income (Expense)



	Six Months Ended September 30,
(dollars in thousands)	2021		% of revenue	2020		% of revenue		$ Change		% Change
Other income (expense)	$	(71)	0	$	(697)	—	%	$	626	90	%
Interest expense	(6,956)		(4)	(14,015)		(9)		7,059		(50)
Loss on debt extinguishment	(4,960)		(3)	—		—		(4,960)		n/a

The change in other income (expense), net during the six months ended September 30, 2021 and 2020 was related primarily to fluctuations in foreign currency exchange rates.

In the six months ended September 30, 2021, interest expense decreased $7.1 million, or 50%, as compared with the same period in 2020 due primarily to a lower principal balance and a lower effective interest rate on the term debt.

Loss on debt extinguishment, net during the six months ended September 30, 2021 was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program loan.

Income Taxes



	Six Months Ended September 30,
(dollars in thousands)	2021		% of revenue		2020		% of revenue		$ Change		% Change
Income tax provision	$	424	—	%	$	622	—	%	$	(198)	(32)	%

The income tax provision for the six months ended September 30, 2021 and 2020 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

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LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $22.8 million as of September 30, 2021, which consisted primarily of bank deposits and money market accounts.

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our ~~Amended~~ PNC Credit ~~Facility (as defined below).~~Facility. We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. We are subject to the risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S. and the global economy. We believe that these social and economic impacts have had a negative effect on sales due to ~~the~~disruptions in our supply chain and a decline in our customers' ability or willingness to purchase our products and services. The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue. We expect the impact of COVID-19 to continue to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of $11.6 million as of December 31, 2020, compared to $6.4 million as of March 31, 2020. These amounts exclude, as of both dates, $5.0 million in restricted cash that we are required to maintain under the Credit Agreements (as defined below), and $0.8 million of short-term restricted cash.

Our outstanding long-term debt amounted to $178.3 million as of December 31, 2020, net of $21.0 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt, and $146.8 million as of March 31, 2020, net of $13.7 million in unamortized debt issuance costs and $7.3 million in current portion of long-term debt. Included in long-term debt as of December 31, 2020 is $10.0 million borrowed under the Paycheck Protection Program which was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of

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December 31, 2020, we had $19.2 million of borrowing availability on our Amended PNC Credit Facility (subject to change based on certain financial metrics). See “—Debt Profile and Covenants” and “—Contractual Obligations” below for further information about our outstanding debt.

We are subject to various debt covenants under our Credit ~~Agreements (as defined below).~~Agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Business Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020.~~2021.

Term Loan

On August 5, 2021 (the “Closing Date”), we entered into a senior secured term loan to borrow an aggregate of $100.0 million, (the “Term Loan”). A portion of the proceeds were used to repay in full all outstanding borrowings under the Senior Secured Term Loan. Borrowings under the Term Loan mature on August 5, 2026. Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter. Principal and interest payments are payable on a quarterly basis.

Revolving Credit Facility

On September 30, 2021, we amended the PNC Credit Facility. The amendment, among other things (a) extended the maturity date to August 5, 2026; (b) reduced the principal amount of the revolving commitments to a maximum amount equal to the lesser of: (i) $30.0 million or (ii) the amount of the borrowing base, as defined in the PNC Credit Facility agreement;(c) replaced existing debt covenants with net leverage ratio, minimum liquidity and fixed charges coverage ratio covenants; and, (d) removed the requirement to maintain a $5.0 million restricted cash reserve with PNC.

Paycheck Protection Program Loan

In July 2021, we received notice from PNC that the Paycheck Protection Program Loan and related accrued interest was approved for forgiveness in full by the U.S. Small Business Administration. We recorded the amount forgiven as gain on debt extinguishment of $10.0 million in the three and six months ended September 30, 2021.

Cash Flows

The following table summarizes our consolidated cash flows for the periods indicated.

Nine Months Ended December 31,
(Dollars in thousands) 2020 2019
Cash provided by (used in):
   Operating activities $ (20,264) $ (4,966)
   Investing activities (7,301) (2,327)
   Financing activities 32,755 3,880
   Effect of exchange rate changes (62) (3)
Net increase (decrease) in cash and cash equivalents and restricted cash $ 5,128 $ (3,416)

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	Six Months Ended September 30,
(in thousands)	2021		2020
Cash provided by (used in):
Operating activities	$	(15,262)	$	(19,297)
Investing activities	(7,396)		(1,434)
Financing activities	12,716		26,866
Effect of exchange rate changes	12		(96)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(9,930)	$	6,039

Cash Used In Operating Activities

Net cash used in operating activities was ~~$20.3~~$15.3 million for the ~~nine~~six months ended ~~December 31, 2020.~~September 30, 2021. This use of cash iswas primarily attributable to changes in working capital of ~~$26.3~~$14.6 million driven by ~~the increase~~increases in manufacturing and service ~~inventory~~part inventories of ~~$12.3~~$7.0 million, a decrease in deferred revenue of ~~$9.7~~$9.0 million and a net changes in other assets and liabilities of $5.8 million. These were partially offset by cash generated by a $10.0 million decrease in accounts receivables. The decrease in deferred revenue reflects the seasonal nature of service contract renewals.

Net cash used in operating activities was $19.3 million for the six months ended September 30, 2020. This use of cash was primarily attributable to changes in working capital of $19.1 million driven by the increases in manufacturing and service inventory of $13.2 million and a decrease in deferred revenue of $12.6 million. These were partially offset by a decrease in accounts ~~payable~~receivable of ~~$5.0~~$7.6 million. The decrease in deferred revenue reflects the seasonal nature of service contract renewals which peak in the fourth fiscal quarter.

Net cash used in operating activities was $5.0 million for the nine months ended December 31, 2019 which is primarily attributable to a decrease of $17.1 million in deferred revenue related to the timing of service contract renewals which are historically more heavily weighted to our third and fourth fiscal quarters, a decrease in manufacturing and service inventory of $11.7 million and a decrease in accounts receivable of $11.7 million, partially offset by an increase in accounts payable of $7.6 million.

Cash Used in Investing Activities

Net cash used in investing activities ~~was $7.3 million in~~for the ~~nine~~six months ended ~~December 31, 2020, which included approximately $3.1~~September 30, 2021 was attributable to cash paid for our acquisition of Pivot3 of $5.0 million ~~related to the Square Box Systems acquisition~~ and capital ~~expenditures.~~ expenditures of $2.4 million.

Net cash used in investing activities was $1.4 million in the ~~nine~~six months ended ~~December 31, 2019 consisted of fixed asset purchases.~~September 30, 2020 related to capital expenditures.

Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended September 30, 2021 was ~~$32.8~~related primarily to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.

Net cash provided by financing activities was $26.9 million in the ~~nine~~six months ended ~~December 31,~~September 30, 2020 which included Senior Secured Term Loan borrowings of $19.4 million, ~~(net of lender fees of $0.6 million),~~ $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.

~~Net cash provided by financing activities was $3.9 million in the nine months ended December 31, 2019 related primarily to borrowings under our credit facility.~~

~~Debt Profile and Covenants~~

~~PNC Credit Facility~~

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We are party to the Amended PNC Credit Agreement, a senior secured revolving credit facility in an available principal amount equal to the lesser of (i) $45.0 million and (ii) the “borrowing base” (as defined under the Amended PNC Credit Agreement). The Amended PNC Credit Facility had a borrowing base of $27.0 million as of December 31, 2020, $19.2 million of which was available to us at that date.

On June 16, 2020, we entered into an amendment to the Amended PNC Credit Facility. The amendment, among other things, waived compliance with the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, minimum average liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021, added a financial covenant that requires a minimum monthly average undrawn availability level of $7.0 million for the period from June 30, 2020 through and including May 31, 2021, added a financial covenant that requires a minimum liquidity of not less than $10.0 million at the end of each quarter, beginning with the quarter ending June 30, 2021 and amended the covenant levels for the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021. The Amended PNC Credit Facility continues to include a covenant that requires a minimum of $5.0 million of PNC qualified cash at all times. On December 10, 2020, we amended the Amended PNC Credit Facility to, among other things, allow the SBS acquisition. The amendment added a covenant requiring the us to maintain at least $30.0 million average liquidity (the “Average Liquidity Requirement”), as defined in the Amended PNC Credit Facility, for the preceding thirty days measured as of the last day of each month. If the Average Liquidity Requirement has not been satisfied during the period prior to the payment of the deferred payments related to the Square Box Systems acquisition, a reserve will be established to reduce borrowings availability under the Amended PNC Credit Facility in an amount equal to (a) $2.0 million during the period from the amendment date through the first anniversary of the amendment, and, (b) $1.0 million during the period from the first anniversary of the amendment through the second anniversary of the amendment

~~Senior Secured Term Loan~~

We are also party to a senior secured term loan facility in an aggregate principal amount of $185.2 million as of December 31, 2020 (the “Senior Secured Term Loan” and together with the Amended PNC Credit Agreement, the “Credit Agreements”). The Senior Secured Term Loan initially provided for borrowings of $165.0 million. The proceeds of the Senior Secured Term Loan were used to repay our previously outstanding long-term debt and fund our working capital requirements.

On June 16, 2020, we entered into an amendment to the Senior Secured Term Loan (the "June 2020 Term Loan Amendment"). The amendment provides an additional borrowing of $20.0 million which was immediately drawn in full. The amendment, among other things, waived compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021, added a financial covenant that requires a minimum monthly average undrawn availability of $7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021 and amended the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021. On December 10, 2020, we amended the Senior Secured Term Loan to, among other things, allow the SBS acquisition.

~~Paycheck Protection Program~~

On April 13, 2020, we entered into a Paycheck Protection Program (the “PPP”) Term Loan (the “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 ). The PPP Loan bears interest at a fixed rate of 1% per annum. The PPP Loan has an initial term of two years and is unsecured and guaranteed by the Small Business Administration. We used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP Loan and has applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, we cannot assure at this time that the PPP Loan will be forgiven partially or in full.

Commitments and Contingencies

Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with

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such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage. In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims. We also have indemnification agreements with our current and former officers and directors. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of our indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our operating results, financial position or cash flows.

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We are also subject to ordinary course litigation and potential costs related to our financial statement restatement activities and related legal costs.

Off Balance Sheet Arrangements

Except for the indemnification commitments described under “—Commitments and Contingencies” above, we do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.

Contractual Obligations

We have contractual obligations and commercial commitments, some of which, such as purchase obligations, are not recognized as liabilities in our financial statements. There have not been any other material changes to the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020.~~2021.

Critical Accounting Estimates and Policies

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in our most recently filed Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020~~2021 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Critical Accounting Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recently Issued and Adopted Accounting Pronouncements

See Note 1 to the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our most recently filed Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosures about market risk from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K, which such section is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities

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Exchange Act of 1934), as of the end of the period covered by this ~~quarterly report.~~Quarterly Report. Based on such evaluation, our principal executive and principal financial officers have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level described below.

Changes in Internal Control

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In connection with the evaluation required by Rule 13a-15(d) under the Securities Exchange Act of 1934, there were no changes in our internal control over financial reporting that occurred during the quarter ended ~~December 31, 2020~~September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 10 , Commitments and Contingencies, of the notes to the unaudited consolidated financial statements for a discussion of our legal matters.

ITEM 1A. RISK FACTORS

There have been no material changes to the previously disclosed risk factors discussed in Part 1 “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2020.~~2021. You should consider carefully these factors, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, before making an investment decision.

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ITEM 6. EXHIBITS

The exhibits required to be filed or furnished as part of this Quarterly Report are listed below. Notwithstanding any language to the contrary, exhibits 32.1 and 32.2 shall not be deemed to be filed as part of this Quarterly Report for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, except to the extent that The Company specifically incorporates it by reference.

Incorporated by Reference
Exhibit
Number Exhibit Description Form Filing Date Exhibit Filed or Furnished Herewith
2.1
Stock Purchase Agreement between Quantum Corporation and the securityholders of Square Box Systems Limited, a company incorporated in England and Wales, dated December 12, 2020.
8-K 12/14/2020 2.1
4.1
Registration Rights Agreement between Quantum Corporation and the securityholders of Square Box Systems Limited, a company incorporated in England and Wales, dated December 12, 2020.
8-K 12/14/2020 4.1
10.1

Sales Agreement, dated November 25, 2020 by and between Quantum Corporation and B. Riley Securities, Inc.
8-K 11/25/2020 10.1
10.2
Amendment No. 5 to Term Loan Credit and Security Agreement, dated as of December 10, 2020, among the Company, Quantum LTO Holdings, LLC, and the lenders party thereto.
8-K 12/14/2020 10.1
10.3
Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of December 10, 2020, among the Company, Quantum LTO Holdings, LLC, the lenders party thereto, and PNC Bank, National Association, as administrative agent for such lenders.
8-K 12/14/2020 10.2
10.4
Quantum Corporation Severance Benefit Plan and Summary Plan Description dated January 29, 2018
X
10.5
Quantum Employee Release of Claims dated November 4, 2020
X
23.1
Consent of Armanino LLP, independent registered public accounting firm.
S-3 11/25/2020 23.1
31.1
Certification of the Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of the Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002
X
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002
X
101 Interactive data files X
104 Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101) X

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Filing Date

Exhibit

Filed or Furnished Herewith

2.1

Purchase Agreement dated July 18, 2021 by and between PV3 (an ABC) LLC, a Delaware limited liability company as assignee for the benefit of Pivot3, Inc., a Delaware corporation, and Quantum Corporation.*

8-K

7/22/2021

2.1

10.1

Quantum Corporation 2012 Long Term Incentive Plan, as amended and restated on September 21, 2021.

10.2

Term Loan Credit and Security Agreement, dated August 5, 2021, between the Company, Quantum LTO, Square Box, the lenders party thereto, and Blue Torch Finance LLC, as disbursing and collateral agent.

8-K

8/5/21

10.1

10.3

First Amendment to Term Loan Credit and Security Agreement, dated September 30, 2021, among the Company, Quantum LTO Holdings, LLC, the borrowers and guarantors party thereto, the lenders party thereto, and Blue Torch Finance LLC, as disbursing agent and collateral agent.

8-K

10/6/21

10.2

10.4

Seventh Amendment to Amended and Restated Revolving Credit and Security Agreement, dated September 30, 2021, between the Company, Quantum LTO Holdings, LLC, the borrowers and guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as administrative agent.

8-K

10/6/21

10.1

31.1

Certification of the Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002

101

Interactive data files

104

Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101)

* Schedules and attachments to the Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and attachments upon request by the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Quantum Corporation

(Registrant)

~~January 27,~~November 3, 2021

/s/ James J. Lerner

(Date)

James J. Lerner

President, Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

November 3, 2021

/s/ J. Michael Dodson

(Date)

J. Michael Dodson

Chief Financial Officer

(Principal Financial Officer)

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	Three and Nine Months Ended December 31, 2020
	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount

Developed technology	$	4,700	$	(81)	$	4,619
Customer lists	900		(16)		884

Intangible assets, net	$	5,600	$	(97)	$	5,503


	Three Months Ended December 31, 2020				Nine Months Ended December 31,
Lease Cost	2020		2019		2020		2019
Operating lease cost	$	1,018	$	1,259	$	3,688	$	3,835
Variable lease cost	198		109		620		321
Short-term lease cost	37		58		129		89
Total lease cost	$	1,253	$	1,426	$	4,437	$	4,245


Maturity of Lease Liabilities	Operating Leases
For the fiscal year ended March 31,
2021, excluding the nine months ended December 31, 2020	$	1,051
2022	3,863
2023	2,799
2024	2,630
2025	2,330
Thereafter	2,948
Total lease payments	$	15,621
Less: imputed interest	(4,315)
Present value of lease liabilities	$	11,306


	Three Months Ended				Nine Months Ended
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Net income (loss)	$	(2,669)	$	4,749	$	(17,997)	$	(1,373)
Interest expense	7,808		6,425		21,823		19,079
Provision for income taxes	256		(110)		877		471
Depreciation and amortization expense	1,347		1,081		3,898		3,119
Stock-based compensation expense	1,878		2,056		6,428		5,408
Long-term debt related costs	208		—		1,377		—
Acquisition related costs	393		—		393		—
Restructuring charges	200		(64)		2,837		1,020
Cost related to financial restatement and related activities	—		564		—		12,743

Adjusted EBITDA	$	9,421	$	14,701	$	19,636	$	40,467

The following is a reconciliation of Adjusted Net Income (Loss) to the most comparable U.S. GAAP financial measure, Net Income (Loss) (in thousands):
	Three Months Ended				Nine Months Ended
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Net income ( loss)	$	(2,669)	$	4,749	$	(17,997)	$	(1,373)
Restructuring charges	200		(64)		2,837		1,020

Stock-based compensation	1,878		2,056		6,428		5,408
Long-term debt related costs	208		—		1,377		—
Acquisition related costs	393		—		393		—
Cost related to financial restatement and related activities	—		564		—		12,743

Adjusted net income (loss)	$	10	$	7,305	$	(6,962)	$	17,798
Adjusted net income (loss) per share:
Basic	$	0.00	$	0.19	$	(0.17)	$	0.48
Diluted	$	0.00	$	0.16	$	(0.15)	$	0.40
Weighted average shares outstanding:
Basic	40,927		38,134		40,374		36,828
Diluted	49,238		46,567		47,931		44,213