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 ~~September 30,~~December 31, 2022


☐			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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 ~~October~~January 30, ~~2022,~~2023, there were ~~103,840,002~~105,214,639 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 ~~September 30,~~December 31, 2022

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As used in this Quarterly Report on Form 10-Q, 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 Part II, 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 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)


		September 30, 2022		March 31, 2022			December 31, 2022		March 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	25,698	$	5,210	Cash and cash equivalents	$	26,028	$	5,210
Restricted cash	Restricted cash	223		283		Restricted cash	219		283

Accounts receivable, net of allowance for doubtful accounts of $195 and $422		61,309		69,354
Accounts receivable, net of allowance for doubtful accounts of $219 and $422						Accounts receivable, net of allowance for doubtful accounts of $219 and $422	72,911		69,354
Manufacturing inventories	Manufacturing inventories	23,671		33,546		Manufacturing inventories	32,402		33,546
Service parts inventories	Service parts inventories	25,458		24,254		Service parts inventories	25,822		24,254
Prepaid expenses	Prepaid expenses	9,241		7,853		Prepaid expenses	7,198		7,853
Other current assets	Other current assets	4,839		4,697		Other current assets	7,489		4,697
Total current assets	Total current assets	150,439		145,197		Total current assets	172,069		145,197
Property and equipment, net	Property and equipment, net	15,973		12,853		Property and equipment, net	16,794		12,853
Intangible assets, net	Intangible assets, net	7,245		9,584		Intangible assets, net	6,497		9,584
Goodwill	Goodwill	12,969		12,969		Goodwill	12,969		12,969

Right-of-use assets, net	Right-of-use assets, net	10,579		11,107		Right-of-use assets, net	10,468		11,107
Other long-term assets	Other long-term assets	12,477		9,925		Other long-term assets	13,600		9,925
Total assets	Total assets	$	209,682	$	201,635	Total assets	$	232,397	$	201,635
Liabilities and Stockholders’ Deficit	Liabilities and Stockholders’ Deficit					Liabilities and Stockholders’ Deficit
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	34,263	$	34,220	Accounts payable	$	41,788	$	34,220

Deferred revenue	Deferred revenue	70,184		86,517		Deferred revenue	72,669		86,517

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

Accrued compensation	Accrued compensation	13,192		16,141		Accrued compensation	15,527		16,141
Other accrued liabilities	Other accrued liabilities	14,502		16,562		Other accrued liabilities	15,852		16,562
Total current liabilities	Total current liabilities	137,141		157,815		Total current liabilities	150,836		157,815
Deferred revenue	Deferred revenue	40,165		41,580		Deferred revenue	41,076		41,580

Revolving credit facility	Revolving credit facility	21,500		17,735		Revolving credit facility	27,736		17,735
Long-term debt, net of current portion	Long-term debt, net of current portion	68,250		89,448		Long-term debt, net of current portion	67,306		89,448

Operating lease liabilities	Operating lease liabilities	10,315		9,891		Operating lease liabilities	10,346		9,891
Other long-term liabilities	Other long-term liabilities	11,653		11,849		Other long-term liabilities	12,150		11,849
Total liabilities	Total liabilities	289,024		328,318		Total liabilities	309,450		328,318
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)					Commitments and contingencies (Note 9)
Stockholders' deficit	Stockholders' deficit					Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued and outstanding	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; 225,000 shares authorized; 92,158 and 60,433 shares issued and outstanding		922		605
Common stock, $0.01 par value; 225,000 shares authorized; 93,144 and 60,433 shares issued and outstanding						Common stock, $0.01 par value; 225,000 shares authorized; 93,144 and 60,433 shares issued and outstanding	932		605
Additional paid-in capital	Additional paid-in capital	716,800		645,038		Additional paid-in capital	719,769		645,038
Accumulated deficit	Accumulated deficit	(793,067)		(770,903)		Accumulated deficit	(795,237)		(770,903)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,997)		(1,423)		Accumulated other comprehensive loss	(2,517)		(1,423)
Total stockholders’ deficit	Total stockholders’ deficit	(79,342)		(126,683)		Total stockholders’ deficit	(77,053)		(126,683)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	209,682	$	201,635	Total liabilities and stockholders’ deficit	$	232,397	$	201,635

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts, unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended December 31,				Nine Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue:	Revenue:									Revenue:
Product	Product	$	62,967	$	54,655	$	123,178	$	106,786	Product	$	75,420	$	58,522	$	198,597	$	165,308
Service and subscription	Service and subscription	32,692		34,359		66,116		67,189		Service and subscription	32,950		33,162		99,066		100,352
Royalty	Royalty	3,478		4,166		6,918		8,303		Royalty	2,826		3,660		9,744		11,963
Total revenue	Total revenue	99,137		93,180		196,212		182,278		Total revenue	111,196		95,344		307,407		277,623
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	56,561		41,124		104,482		79,864		Product	58,528		45,118		163,010		124,982
Service and subscription	Service and subscription	14,745		13,669		29,850		26,748		Service and subscription	12,379		15,016		42,229		41,764
Total cost of revenue	Total cost of revenue	71,306		54,793		134,332		106,612		Total cost of revenue	70,907		60,134		205,239		166,746
Gross profit	Gross profit	27,831		38,387		61,880		75,666		Gross profit	40,289		35,210		102,168		110,877
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	10,546		12,389		22,671		23,680		Research and development	11,254		14,607		33,925		38,287
Sales and marketing	Sales and marketing	15,593		15,462		31,555		29,414		Sales and marketing	16,339		16,714		47,894		46,128
General and administrative	General and administrative	11,940		11,466		24,254		23,293		General and administrative	10,969		10,538		35,223		33,830
Restructuring charges	Restructuring charges	921		8		1,646		274		Restructuring charges	(41)		576		1,605		850
Total operating expenses	Total operating expenses	39,000		39,325		80,126		76,661		Total operating expenses	38,521		42,435		118,647		119,095
Loss from operations		(11,169)		(938)		(18,246)		(995)
Income (loss) from operations										Income (loss) from operations	1,768		(7,225)		(16,479)		(8,218)
Other income (expense), net	Other income (expense), net	2,431		126		3,182		(71)		Other income (expense), net	(544)		(150)		2,638		(223)
Interest expense	Interest expense	(2,745)		(3,070)		(4,836)		(6,956)		Interest expense	(2,701)		(2,431)		(7,537)		(9,387)
Loss on debt extinguishment	Loss on debt extinguishment	—		(4,960)		(1,392)		(4,960)		Loss on debt extinguishment	—		—		(1,392)		(4,960)
Net loss before income taxes	Net loss before income taxes	(11,483)		(8,842)		(21,292)		(12,982)		Net loss before income taxes	(1,477)		(9,806)		(22,770)		(22,788)
Income tax provision	Income tax provision	461		411		872		424		Income tax provision	693		1,254		1,564		1,678
Net loss	Net loss	$	(11,944)	$	(9,253)	$	(22,164)	$	(13,406)	Net loss	$	(2,170)	$	(11,060)	$	(24,334)	$	(24,466)
Deemed dividend on warrants	Deemed dividend on warrants	—		—		(389)		—		Deemed dividend on warrants	—		—		(389)		—
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(11,944)	$	(9,253)	$	(22,553)	$	(13,406)	Net loss attributable to common stockholders	$	(2,170)	$	(11,060)	$	(24,723)	$	(24,466)

Net loss per share attributable to common stockholders	Net loss per share attributable to common stockholders	$	(0.13)	$	(0.16)	$	(0.26)	$	(0.23)	Net loss per share attributable to common stockholders	$	(0.02)	$	(0.19)	$	(0.28)	$	(0.42)
Weighted average shares - basic and diluted	Weighted average shares - basic and diluted	91,550		58,567		87,617		57,852		Weighted average shares - basic and diluted	92,752		59,486		89,335		58,399

Net loss	Net loss	$	(11,944)	$	(9,253)	$	(22,164)	$	(13,406)	Net loss	$	(2,170)	$	(11,060)	$	(24,334)	$	(24,466)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	(1,298)		(506)		(2,574)		(239)		Foreign currency translation adjustments, net	1,480		(37)		(1,094)		(276)
Total comprehensive loss	Total comprehensive loss	$	(13,242)	$	(9,759)	$	(24,738)	$	(13,645)	Total comprehensive loss	$	(690)	$	(11,097)	$	(25,428)	$	(24,742)

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


		Six Months Ended September 30,					Nine Months Ended December 31,
		2022		2021			2022		2021
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(22,164)	$	(13,406)	Net loss	$	(24,334)	$	(24,466)
Adjustments to reconcile net loss to net cash used in operating activities	Adjustments to reconcile net loss to net cash used in operating activities					Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	Depreciation and amortization	5,133		3,967		Depreciation and amortization	7,235		6,795
Amortization of debt issuance costs	Amortization of debt issuance costs	768		1,629		Amortization of debt issuance costs	1,201		1,981
Loss on debt extinguishment	Loss on debt extinguishment	992		—		Loss on debt extinguishment	992		—
Provision for product and service inventories	Provision for product and service inventories	9,946		2,418		Provision for product and service inventories	11,334		4,016
Stock-based compensation	Stock-based compensation	5,357		6,273		Stock-based compensation	8,340		10,580
Paycheck Protection Program loan forgiveness	Paycheck Protection Program loan forgiveness	—		(10,000)		Paycheck Protection Program loan forgiveness	—		(10,000)

Non-cash loss on debt extinguishment	Non-cash loss on debt extinguishment	—		8,471		Non-cash loss on debt extinguishment	—		8,471
Other	Other	(152)		41		Other	(2,059)		282

Unrealized foreign exchange loss	Unrealized foreign exchange loss	(2,766)		(61)		Unrealized foreign exchange loss	(1,134)		—

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	8,264		10,024		Accounts receivable, net	(3,367)		7,008
Manufacturing inventories	Manufacturing inventories	416		(5,199)		Manufacturing inventories	(9,352)		(10,672)
Service parts inventories	Service parts inventories	(1,971)		(1,818)		Service parts inventories	(2,671)		(2,281)
Prepaid expenses	Prepaid expenses	(1,208)		(3,224)		Prepaid expenses	654		(5,653)
Accounts payable	Accounts payable	293		1,559		Accounts payable	7,015		5,369

Accrued restructuring charges	Accrued restructuring charges	115		(560)		Accrued restructuring charges	130		17
Accrued compensation	Accrued compensation	(2,949)		(3,779)		Accrued compensation	(614)		(3,021)
Deferred revenue	Deferred revenue	(17,747)		(9,032)		Deferred revenue	(14,351)		(8,598)
Other current assets	Other current assets	(486)		(962)		Other current assets	(2,812)		(1,394)
Other non-current assets	Other non-current assets	(349)		(1,266)		Other non-current assets	1,357		(1,148)
Other current liabilities	Other current liabilities	769		(353)		Other current liabilities	2,540		(3,350)
Other non-current liabilities	Other non-current liabilities	(196)		16		Other non-current liabilities	300		(617)
Net cash used in operating activities	Net cash used in operating activities	(17,935)		(15,262)		Net cash used in operating activities	(19,596)		(26,681)
Investing activities	Investing activities					Investing activities

Purchases of property and equipment	Purchases of property and equipment	(7,795)		(2,396)		Purchases of property and equipment	(10,644)		(3,971)
Business acquisition payments	Business acquisition payments	(2,000)		(5,000)		Business acquisition payments	(2,000)		(7,808)

Net cash used in investing activities	Net cash used in investing activities	(9,795)		(7,396)		Net cash used in investing activities	(12,644)		(11,779)
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	—		94,961		Borrowings of long-term debt, net of debt issuance costs	—		94,961
Repayments of long-term debt and payment of amendment fees	Repayments of long-term debt and payment of amendment fees	(22,096)		(93,051)		Repayments of long-term debt and payment of amendment fees	(23,346)		(93,677)
Borrowings of credit facility	Borrowings of credit facility	229,605		126,084		Borrowings of credit facility	363,103		207,563
Repayments of credit facility and payment of amendment fees	Repayments of credit facility and payment of amendment fees	(226,240)		(116,084)		Repayments of credit facility and payment of amendment fees	(353,502)		(200,007)

Proceeds from issuance of common stock, net	Proceeds from issuance of common stock, net	66,723		806		Proceeds from issuance of common stock, net	66,718		806

Net cash provided by financing activities	Net cash provided by financing activities	47,992		12,716		Net cash provided by financing activities	52,973		9,646
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	166		12		Effect of exchange rate changes on cash, cash equivalents and restricted cash	21		12
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	20,428		(9,930)		Net change in cash, cash equivalents and restricted cash	20,754		(28,802)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	5,493		33,137		Cash, cash equivalents, and restricted cash at beginning of period	5,493		33,137
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	25,921	$	23,207	Cash, cash equivalents, and restricted cash at end of period	$	26,247	$	4,335
Cash, Cash Equivalents and Restricted Cash at end of period	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	$	25,698	$	22,757	Cash and cash equivalents	$	26,028	$	4,004
Restricted cash, current	Restricted cash, current	223		450		Restricted cash, current	219		331

Cash and cash equivalents at the end of period	Cash and cash equivalents at the end of period	$	25,921	$	23,207	Cash and cash equivalents at the end of period	$	26,247	$	4,335
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	$	4,114	$	5,198	Cash paid for interest	$	6,270	$	7,180
Cash paid for income taxes, net	Cash paid for income taxes, net	$	465	$	480	Cash paid for income taxes, net	$	837	$	541
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	$	548	$	309	Purchases of property and equipment included in accounts payable	$	1,198	$	1,148

Transfer of manufacturing inventory to services inventory	Transfer of manufacturing inventory to services inventory	$	1,905	$	—	Transfer of manufacturing inventory to services inventory	$	2,308	$	1,212
Transfer of manufacturing inventory to property and equipment	Transfer of manufacturing inventory to property and equipment	$	279	$	76	Transfer of manufacturing inventory to property and equipment	$	264	$	382
Paid-in-kind interest	Paid-in-kind interest	$	319	$	—	Paid-in-kind interest	$	319	$	—
Deemed dividend on warrants	Deemed dividend on warrants	$	389	$	—	Deemed dividend on warrants	$	389	$	—

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					Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income Loss			Total Stockholders' Deficit
		Shares	Amount											Shares					Amount
Balance, June 30, 2021		57,280	$	573			$	629,862					$	(742,776)			$	(589)		$	(112,930)
Balance, September 30, 2021																		Balance, September 30, 2021		59,272		$	593		$	636,538		$	(752,029)		$	(1,095)		$	(115,993)
Net loss	Net loss	—	—		—				(9,253)		—				(9,253)			Net loss		—		—		—			(11,060)			—			(11,060)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	—	—		—				—		(506)				(506)			Foreign currency translation adjustments, net		—		—		—			—			(37)			(37)
Shares issued under employee stock purchase plan	Shares issued under employee stock purchase plan	145	1		805				—		—				806			Shares issued under employee stock purchase plan		—		—		—			—			—			—
Shares issued under employee incentive plans, net	Shares issued under employee incentive plans, net	1,387	14		(14)				—		—				—			Shares issued under employee incentive plans, net		183		2		(2)			—			—			—
Shares issued in connection with business acquisition	Shares issued in connection with business acquisition	460	5		2,813				—		—				2,818			Shares issued in connection with business acquisition		361		4		(4)			—			—			—

Stock-based compensation	Stock-based compensation	—	—		3,072				—		—				3,072			Stock-based compensation		—		—		4,307			—			—			4,307
Balance, September 30, 2021		59,272	$	593	$	636,538			$	(752,029)	$	(1,095)			$	(115,993)
Balance, December 31, 2021																		Balance, December 31, 2021		59,816		$	599	$	640,839		$	(763,089)		$	(1,132)		$	(122,783)

Balance, June 30, 2022		90,606	$	907	$	714,128			$	(781,123)	$	(2,699)			$	(68,787)
Balance, September 30, 2022																		Balance, September 30, 2022		92,158		$	922	$	716,800		(793,067)			$	(3,997)		$	(79,342)
Net loss	Net loss	—	—		—				(11,944)		—				(11,944)			Net loss		—		—		—			(2,170)			—			(2,170)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	—	—		—				—		(1,298)				(1,298)			Foreign currency translation adjustments, net		—		—		—			—			1,480			1,480
Shares issued under employee stock purchase plan	Shares issued under employee stock purchase plan	300	2		469				—		—				471			Shares issued under employee stock purchase plan		—		—		—			—			—			—
Shares issued under employee incentive plans, net	Shares issued under employee incentive plans, net	1,252	13		(13)				—		—				—			Shares issued under employee incentive plans, net		625		6		(6)			—			—			—

Shares issued in connection with business acquisition																		Shares issued in connection with business acquisition		361		4		(4)			—			—			—
Rights offering expenses	Rights offering expenses	—	—		(71)				—		—				(71)			Rights offering expenses		—		—		(2)			—			—			(2)
Stock-based compensation	Stock-based compensation	—	—		2,287				—		—				2,287			Stock-based compensation		—		—		2,981			—			—			2,981

Balance, September 30, 2022		92,158	$	922	$	716,800			$	(793,067)	$	(3,997)			$	(79,342)
Balance, December 31, 2022																		Balance, December 31, 2022		93,144		$	932	$	719,769		$	(795,237)		$	(2,517)		$	(77,053)

See accompanying Notes to Condensed Consolidated Financial Statements.

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		Common Stock			Additional Paid-in Capital				Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders' Deficit					Common Stock						Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Stockholders' Deficit
		Shares	Amount											Shares					Amount
Balance, March 31, 2021	Balance, March 31, 2021	56,915	$	570			$	626,664					$	(738,623)			$	(856)		$	(112,245)	Balance, March 31, 2021			56,915			$	570			$	626,664			$	(738,623)			$	(856)	$	(112,245)
Net loss	Net loss	—	—		—				(13,406)		—				(13,406)			Net loss		—			—				—				(24,466)				—				(24,466)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	—	—		—				—		(239)				(239)			Foreign currency translation adjustments, net		—			—			—				—				(276)				(276)
Shares issued under employee stock purchase plan	Shares issued under employee stock purchase plan	145	1		805				—		—				806			Shares issued under employee stock purchase plan		145			1			805				—				—				806
Shares issued under employee incentive plans, net	Shares issued under employee incentive plans, net	1,752	17		(17)				—		—				—			Shares issued under employee incentive plans, net		1,935			19			(19)				—				—				—

Shares issued in connection with business acquisition	Shares issued in connection with business acquisition	460	5		2,813				—		—				2,818			Shares issued in connection with business acquisition		821			9			2,809				—				—				2,818
Stock-based compensation	Stock-based compensation	—	—		6,273				—		—				6,273			Stock-based compensation		—			—			10,580				—				—				10,580
Balance, September 30, 2021		59,272	$	593	$	636,538			$	(752,029)	$	(1,095)			$	(115,993)
Balance, December 31, 2021																		Balance, December 31, 2021		59,816			$	599		$	640,839			$	(763,089)			$	(1,132)			$	(122,783)

Balance, March 31, 2022	Balance, March 31, 2022	60,433	$	605	$	645,038			$	(770,903)	$	(1,423)			$	(126,683)		Balance, March 31, 2022		60,433			$	605		$	645,038			$	(770,903)			$	(1,423)			$	(126,683)
Net loss	Net loss	—	—		—				(22,164)		—				(22,164)			Net loss		—			—			—				(24,334)				—				(24,334)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	—	—		—				—		(2,574)				(2,574)			Foreign currency translation adjustments, net		—			—			—				—				(1,094)				(1,094)
Shares issued under employee stock purchase plan	Shares issued under employee stock purchase plan	300	3		469				—		—				472			Shares issued under employee stock purchase plan		300			3			469				—				—				472
Shares issued under employee incentive plans, net	Shares issued under employee incentive plans, net	1,425	14		(14)				—		—				—			Shares issued under employee incentive plans, net		2,050			20			(20)				—				—				—

Shares issued in connection with business acquisition																		Shares issued in connection with business acquisition		361			4			(4)				—				—				—
Shares issued in connection with rights offering, net	Shares issued in connection with rights offering, net	30,000	300		65,950				—		—				66,250			Shares issued in connection with rights offering, net		30,000			300			65,946				—				—				66,246
Settlement of warrant down round provision	Settlement of warrant down round provision	—	—		389				—		—				389			Settlement of warrant down round provision		—			—			389				—				—				389
Deemed dividend on warrants	Deemed dividend on warrants	—	—		(389)				—		—				(389)			Deemed dividend on warrants		—			—			(389)				—				—				(389)
Stock-based compensation	Stock-based compensation	—	—		5,357				—		—				5,357			Stock-based compensation		—			—			8,340				—				—				8,340
Balance, September 30, 2022		92,158	$	922	$	716,800			$	(793,067)	$	(3,997)			$	(79,342)
Balance, December 31, 2022																		Balance, December 31, 2022		93,144			$	932		$	719,769			$	(795,237)			$	(2,517)			$	(77,053)

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	87
Note 3:	Balance Sheet Information	9
Note 4:	Long-Term Debt	10
Note 5:	Leases	11
Note 6:	Common Stock	12
Note 7:	Net Loss Per Share	13
Note 8:	Income Taxes	13
Note 9:	Commitments and Contingencies	13
Note 10:	Fair Value of Financial Instruments	15
Note 11:	Subsequent Event	15

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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”), is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving. The Company helps customers around the world capture, create and share digital data and preserve and protect it for decades. The Company’s software-defined, hyperconverged storage solutions span from non-violate memory express (“NVMe”), to solid state drives (“SSD”) hard disk drives (“HDD”) tape, the cloud, and video surveillance and are tied together leveraging a single namespace view of the entire data environment. The Company works closely with a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers to meet customers’ evolving needs.

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 ~~September 30,~~December 31, 2022, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2022 and 2021. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, stock-based compensation and provision for income taxes including related reserves. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Recently Issued but not Adopted Accounting Pronouncements

~~In September 2022, the FASB issued ASU 2022-04,~~ ~~Liabilities-Supplier Finance Program~~s. The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this update do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

~~Table of Contents~~

None.

NOTE 2: REVENUE

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


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended December 31,				Nine Months Ended December 31,
		2022		2021		2022		2021			2022		2021		2022		2021
Americas1	Americas1									Americas1
Primary storage systems	Primary storage systems	$	6,839	$	11,264	$	18,253	$	18,458	Primary storage systems	$	10,668	$	8,768	$	28,921	$	27,228
Secondary storage systems	Secondary storage systems	31,019		12,174		53,738		28,886		Secondary storage systems	35,085		15,060		88,821		43,946
Device and media	Device and media	4,694		5,269		9,666		11,791		Device and media	4,107		7,737		13,773		19,527
Service and subscription	Service and subscription	19,417		21,341		39,563		41,534		Service and subscription	19,756		19,470		59,319		61,003
Total revenue	Total revenue	61,969		50,048		121,220		100,669		Total revenue	69,616		51,035		190,834		151,704

EMEA	EMEA									EMEA
Primary storage systems	Primary storage systems	1,901		4,244		4,747		7,020		Primary storage systems	2,332		3,305		7,078		10,325
Secondary storage systems	Secondary storage systems	7,440		9,720		15,283		17,479		Secondary storage systems	10,096		10,377		25,380		27,856
Device and media	Device and media	3,702		4,513		8,765		9,894		Device and media	6,029		5,125		14,794		15,018
Service and subscription	Service and subscription	10,742		11,035		21,759		21,847		Service and subscription	10,989		11,606		32,748		33,454
Total revenue	Total revenue	23,785		29,512		50,554		56,240		Total revenue	29,446		30,413		80,000		86,653

APAC	APAC									APAC
Primary storage systems	Primary storage systems	1,104		1,175		2,402		2,516		Primary storage systems	974		1,718		3,376		4,234
Secondary storage systems	Secondary storage systems	5,634		4,365		8,109		8,098		Secondary storage systems	5,541		5,193		13,651		13,291
Device and media	Device and media	634		1,931		2,215		2,644		Device and media	588		1,239		2,803		3,883
Service and subscription	Service and subscription	2,533		1,983		4,794		3,808		Service and subscription	2,205		2,086		6,999		5,895
Total revenue	Total revenue	9,905		9,454		17,520		17,066		Total revenue	9,308		10,236		26,829		27,303

Consolidated	Consolidated									Consolidated
Primary storage systems	Primary storage systems	9,844		16,683		25,402		27,994		Primary storage systems	13,974		13,791		39,375		41,787
Secondary storage systems	Secondary storage systems	44,093		26,259		77,130		54,463		Secondary storage systems	50,722		30,630		127,852		85,093
Device and media	Device and media	9,030		11,713		20,646		24,329		Device and media	10,724		14,101		31,370		38,428
Service and subscription	Service and subscription	32,692		34,359		66,116		67,189		Service and subscription	32,950		33,162		99,066		100,352
Royalty2	Royalty2	3,478		4,166		6,918		8,303		Royalty2	2,826		3,660		9,744		11,963
Total revenue	Total revenue	$	99,137	$	93,180	$	196,212	$	182,278	Total revenue	$	111,196	$	95,344	$	307,407	$	277,623

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

2 Royalty revenue is not allocatable to geographic regions.

Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the ~~six~~nine months ended ~~September 30,~~December 31, 2022 (in thousands):

~~Table of Contents~~


	~~September 30,~~December 31, 2022
Contract liabilities (deferred revenue)	$	~~110,349~~113,745
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period	~~54,329~~71,669

Remaining Performance Obligations

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

Current Non-Current Total
As of September 30, 2022 $ 120,040 $ 42,104 $ 162,144


	Current		Non-Current		Total
As of December 31, 2022	$	105,981	$	42,645	$	148,626

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

NOTE 3: BALANCE SHEET INFORMATION

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

Manufacturing inventories


		September 30, 2022		March 31, 2022			December 31, 2022		March 31, 2022

Finished goods	Finished goods	$	11,443	$	14,607	Finished goods	$	13,639	$	14,607
Work in progress	Work in progress	1,618		2,546		Work in progress	2,268		2,546
Raw materials	Raw materials	10,610		16,393		Raw materials	16,495		16,393
Total manufacturing inventories	Total manufacturing inventories	$	23,671	$	33,546	Total manufacturing inventories	$	32,402	$	33,546

Service parts inventories


		September 30, 2022		March 31, 2022			December 31, 2022		March 31, 2022
Finished goods	Finished goods	$	20,435	$	19,234	Finished goods	$	21,215	$	19,234
Component parts	Component parts	5,023		5,020		Component parts	4,607		5,020
Total service parts inventories	Total service parts inventories	$	25,458	$	24,254	Total service parts inventories	$	25,822	$	24,254

Intangibles, net


		September 30, 2022						March 31, 2022							December 31, 2022						March 31, 2022
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

Developed technology	Developed technology	$	9,208	$	(4,796)	$	4,412	$	9,208	$	(3,121)	$	6,087	Developed technology	$	9,013	$	(5,442)	$	3,571	$	9,013	$	(2,926)	$	6,087
Customer lists	Customer lists	4,600		(1,767)		2,833		4,600		(1,103)		3,497		Customer lists	4,398		(1,472)		2,926		4,398		(901)		3,497

Intangible assets, net	Intangible assets, net	$	13,808	$	(6,563)	$	7,245	$	13,808	$	(4,224)	$	9,584	Intangible assets, net	$	13,411	$	(6,914)	$	6,497	$	13,411	$	(3,827)	$	9,584

Intangible assets amortization expense was ~~$1.2~~$0.7 million and ~~$0.8~~$1.2 million for the three months ended ~~September 30,~~December 31, 2022 and 2021, respectively and ~~$2.3~~$3.1 million and ~~$1.3~~$2.5 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2022 and 2021, respectively. As of ~~September 30,~~December 31, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately ~~1.9~~1.8 years.

As of ~~September 30,~~December 31, 2022, the future expected amortization expense for intangible assets is as follows (in thousands):

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Fiscal year ending	Fiscal year ending	Estimated future amortization expense		Fiscal year ending	Estimated future amortization expense
Remainder of 2023	Remainder of 2023	$	2,229	Remainder of 2023	$	1,147
2024	2024	3,417		2024	3,523
2025	2025	1,599		2025	1,827

Thereafter	Thereafter	—		Thereafter	—
Total	Total	$	7,245	Total	$	6,497

Goodwill

As of ~~September 30,~~December 31, 2022 and March 31, 2022, goodwill was $13.0 million. There were no impairments to goodwill during the ~~quarters~~nine months ended ~~September 30,~~December 31, 2022 and 2021.

NOTE 4: LONG-TERM DEBT

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


		September 30, 2022		March 31, 2022			December 31, 2022		March 31, 2022
Term Loan	Term Loan	$	77,167	$	98,723	Term Loan	$	75,917	$	98,722

PNC Credit Facility	PNC Credit Facility	21,500		17,735		PNC Credit Facility	27,736		17,735
Less: current portion	Less: current portion	(5,000)		(4,375)		Less: current portion	(5,000)		(4,375)
Less: unamortized debt issuance costs (1)	Less: unamortized debt issuance costs (1)	(3,917)		(4,899)		Less: unamortized debt issuance costs (1)	(3,611)		(4,899)
Long-term debt, net	Long-term debt, net	$	89,750	$	107,184	Long-term debt, net	$	95,042	$	107,183

(1) The unamortized debt issuance costs related to the ~~Senior Secured~~ Term Loan ~~and the Term Loan are~~is presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying condensed consolidated balance sheets.

On December 27, 2018, the Company entered into a senior secured term loan (the "Senior Secured Term Loan”) and amended its existing PNC Bank Credit Facility Agreement (the "PNC Credit Facility"). On February 11, 2021, the Company prepaid $92.3 million of its outstanding Senior Secured Term Loan.

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

On April 25, 2022, the Company entered into amendments to the Term Loan and the PNC Credit Facility. The Term Loan amendment, among other things, (a) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022; and; (b) replaced the benchmark rate for LIBOR Rate Loans with a rate based on the Secured Overnight Financing Rate ("SOFR"). The amendment to the Term Loan was accounted for as a modification. The Company incurred $0.4 million in costs related to the modification which are reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term.

Loans under the Term Loan designated as ABR Loans bear interest at a rate per annum equal to the greatest of (i) 1.75%; (ii) the Federal funds rate plus 0.50%; (iii) the SOFR Rate based upon an interest period of one month plus 1.0%; and (iv) the “Prime Rate” last quoted by the Wall Street Journal, plus an applicable margin of 5.00%. Loans designated as SOFR Rate Loans bear interest at a rate per annum equal to the SOFR Rate plus an applicable margin of 6.00%. The SOFR Rate is subject to a floor of 0.75%. The Company can designate a loan as an ABR Rate Loan or SOFR Rate Loan in its discretion.

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The PNC Credit Facility amendment, among other things, (a) increased the principal amount of revolving commitments from $30.0 million to $40.0 million; (b) waived compliance with the fixed charge coverage ratio financial covenant until the fiscal quarter ended March 31, 2025; (c) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022; and (d) replaced the benchmark rate for PNC LIBOR Rate Loans with a rate based on SOFR. The amendment to the PNC Credit Facility was accounted for as a modification. The Company incurred $0.4 million in costs which were recorded to other assets and amortized to interest expense over the remaining term of the agreement.

Loans designated as PNC SOFR Loans bear interest at a rate per annum equal to the SOFR Rate plus 2.75% until December 31, 2023 and thereafter between 2.25% and 2.75% determined based on the Company’s Total Net Leverage Ratio, (as defined in the PNC Credit Facility Agreement) for the most recently completed fiscal quarter (the "PNC SOFR Loan Interest Rate"). Loans under the PNC Credit Facility designated as PNC Domestic Rate Loans and Swing Loans bear interest at a rate per annum equal to the greatest of (i) the base commercial lending rate of PNC Bank; (ii) the Overnight Bank Funding Rate plus 0.5%; and (iii) the daily SOFR Rate plus 1.0%, plus 1.75% until December 31, 2023 and thereafter between 1.25% and 1.75% determined based on the Company’s Total Net Leverage Ratio (the “PNC Domestic Loan Interest Rate”).

With respect to any PNC SOFR Rate Loan, the Company has agreed to pay affiliates of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 6.50%, minus (y) the PNC SOFR Loan Interest Rate, plus (z) if the SOFR Rate applicable to such interest payment is less than 0.75%, (i) 0.75% minus (ii) such SOFR Rate. With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 5.50%, minus (y) the PNC Domestic Loan Interest Rate, plus (z) if the Alternative Base Rate applicable to such interest payment is less than 1.00%, (i) 1.00% minus (ii) such Alternative Base Rate.

During the ~~three~~nine months ended ~~June 30,~~December 31, 2022, the Company recorded a loss on debt extinguishment of $1.4 million related to a $20.0 million prepayment of the Term Loan which was comprised of a $0.4 million prepayment penalty and the write-off of unamortized debt issuance costs of $1.0 million.

As of ~~September 30,~~December 31, 2022, the interest rate on the Term Loan was ~~8.32%~~9.81% and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was ~~8.00%~~9.25%. As of ~~September 30,~~December 31, 2022, the PNC Credit Facility had an available borrowing base of ~~$30.6~~$33.4 million, of which ~~$9.1~~$5.7 million was available to borrow at that date.

NOTE 5: LEASES

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


Operating leases	Operating leases	September 30, 2022		March 31, 2022		Operating leases	December 31, 2022		March 31, 2022
Operating lease right-of-use asset	Operating lease right-of-use asset	$	10,579	$	11,107	Operating lease right-of-use asset	$	10,468	$	11,107

Other accrued liabilities	Other accrued liabilities	1,293		1,727		Other accrued liabilities	1,202		1,727
Operating lease liability	Operating lease liability	10,315		9,891		Operating lease liability	10,346		9,891
Total operating lease liabilities	Total operating lease liabilities	$	11,608	$	11,618	Total operating lease liabilities	$	11,548	$	11,618

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


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended December 31,				Nine Months Ended December 31,
Lease Cost	Lease Cost	2022		2021		2022		2021		Lease Cost	2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	1,003	$	994	$	2,029	$	2,129	Operating lease cost	$	994	$	887	$	3,023	$	3,016
Variable lease cost	Variable lease cost	179		177		337		351		Variable lease cost	176		176		513		527
Short-term lease cost	Short-term lease cost	—		4		—		4		Short-term lease cost	—		13		—		17
Total lease cost	Total lease cost	$	1,182	$	1,175	$	2,366	$	2,484	Total lease cost	$	1,170	$	1,076	$	3,536	$	3,560

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Maturity of Lease Liabilities	Maturity of Lease Liabilities	Operating Leases		Maturity of Lease Liabilities	Operating Leases
Remainder of 2023	Remainder of 2023	$	1,495	Remainder of 2023	$	657
2024	2024	2,305		2024	2,495
2025	2025	2,062		2025	2,185
2026	2026	1,644		2026	1,717
2027	2027	1,542		2027	1,586
Thereafter	Thereafter	14,670		Thereafter	14,696
Total lease payments	Total lease payments	$	23,718	Total lease payments	$	23,336
Less: imputed interest	Less: imputed interest	(12,110)		Less: imputed interest	(11,788)
Present value of lease liabilities	Present value of lease liabilities	$	11,608	Present value of lease liabilities	$	11,548


Lease Term and Discount Rate	Lease Term and Discount Rate	September 30, 2022		March 31, 2022		Lease Term and Discount Rate	December 31, 2022		March 31, 2022
Weighted average remaining operating lease term (years)	Weighted average remaining operating lease term (years)	11.20		10.88		Weighted average remaining operating lease term (years)	11.11		10.88
Weighted average discount rate for operating leases	Weighted average discount rate for operating leases	12.8	%	12.9	%	Weighted average discount rate for operating leases	12.6	%	12.9	%

Operating cash outflows related to operating leases totaled ~~$2.2~~$2.4 million and ~~$1.0~~$3.1 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2022 and 2021, respectively.

NOTE 6: COMMON STOCK

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

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

Common Stock Rights Offering

On April 22, 2022, the Company completed a rights offering of 30 million shares of its common stock for $2.25 per share (the “Rights Offering”). The proceeds net of offering expenses was $66.0 million. A portion of the proceeds from the Rights Offering was used to prepay $20.0 million of the Company’s Term Loan.

Warrants

As of the date of the Rights Offering, the Company had outstanding warrants to purchase 7,110,616 shares of the Company’s common stock at an exercise price of $1.33 per share and outstanding warrants to purchase 3,400,000 shares of the Company's common stock at an exercise price of $3.00 per share (the “$3.00 Warrants"). The exercise price and the number of shares underlying these warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments (the “Down Round Feature”).

On April 22, 2022, the Down Round Feature was triggered for the $3.00 Warrants due to the price per share received in the Rights Offering. The exercise price for the $3.00 Warrants was adjusted to $2.79 per share and an additional 256,113 warrants were subsequently issued with an exercise price of $2.79. The Company calculated the difference between the $3.00 Warrants’ fair value before and after the Down Round Feature was triggered using the original exercise price and the new exercise price in addition to the value of the newly issued warrants. The

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difference in fair value of the effect of the Down Round Feature of $0.4 million was reflected as a deemed dividend and a reduction to income available to common stockholders in the basic earnings per share calculation. The Company used the Black-Scholes-Merton option-pricing model to determine the fair value of the deemed dividend.

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The assumptions used in the model are as follows: dividend rate of 0%; expected term of 8 years; volatility of 56%; and a risk-free rate 2.85%.

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

NOTE 7: NET LOSS PER SHARE

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

Three Months Ended September 30, Six Months Ended September 30,
2022 2021 2022 2021
2,110 9,195 2,480 10,315


Three Months Ended December 31,		Nine Months Ended December 31,
2022	2021	2022	2021
5,450	8,802	3,763	9,811

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

NOTE 8: INCOME TAXES

The effective tax rate for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2022 was ~~(11.6)~~(7.1)% and ~~(6.5)~~(6.7)%, respectively, as compared to ~~(4.6)~~(12.6)% and ~~(3.2)~~(7.3)%, respectively, for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2021. The effective tax rates differed from the federal statutory tax rate of 21% during each of these periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.

As of ~~September 30,~~December 31, 2022, including interest and penalties, the Company had ~~$102.3~~$103.0 million of unrecognized tax benefits, ~~$83.6~~$84.3 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance. As of ~~September 30,~~December 31, 2022, the Company had accrued interest and penalties related to these unrecognized tax benefits of ~~$1.3~~$1.4 million. The Company recognizes interest and penalties related to income tax matters in the income tax provision in the condensed consolidated statements of operations. As of ~~September 30,~~December 31, 2022, ~~$94.5~~$95.0 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and ~~$7.7~~$8.0 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets. During the next 12 months, it is reasonably possible that approximately $10.8 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations. Upon recognition of the tax benefit related to the expiring statutes of limitation, $10.1 million will be offset by the establishment of a related valuation allowance. The net tax benefit recognized in the statements of operation is estimated to be $0.7 million.

NOTE 9: COMMITMENTS AND CONTINGENCIES

Commitments to Purchase Inventory

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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

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to materials that the third party had already purchased under a prior forecast. Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or obsolete inventory. As of ~~September 30,~~December 31, 2022, the Company had issued non-cancelable commitments for ~~$42.6~~$36.7 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. 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 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 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 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.” The case pending against Quantum in the Northern District of California remains stayed pending the final outcome in the Delaware Action. On May 4, 2021, the Court in the Delaware Action reaffirmed its earlier ruling and granted ~~defendants™~~defendants’ motions to dismiss under Section 101. The Court also granted Realtime Data fourteen days to file amended complaints in the 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 granted ~~defendants™~~defendants’ motions to dismiss under Section 101. Realtime Data has appealed that decision to the Federal Circuit. On September 7, 2021, the case against Quantum in the Northern District of California was stayed pending the outcome of Realtime ~~Data™~~Data’s appeal in the Delaware Action. The Federal Circuit Court has not yet heard oral arguments. Quantum believes the probability that this lawsuit will have a material adverse effect on our business, operating results or financial condition is remote.

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~~County alleging 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~~lawsuit further alleges that Quantum hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 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 Quantum previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings). On March 11, 2021, after several rounds of motion practice, the California Superior Court stayed the California action. On March 4, 2022, Starboard filed a request for dismissal without prejudice of the California action because the matter is proceeding in Delaware (as described below). On March 10, 2022, the California Superior Court entered a minute order dismissing the action without prejudice.

The California action was stayed and then dismissed. On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs. Gacek and Auvil and Quantum. The new 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.

As of January 12, 2023, all parties signed a settlement agreement amicably resolving both actions. The ~~complaint prays for~~litigation will have no material effect on the Company’s financial statements or business operations.

Other Commitments

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unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court. On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs. Gacek and Auvil. On January 28, 2022, via a bench ruling, the Court granted the motions to dismiss the breach of fiduciary duty claims against Messrs. Gacek and Auvil and denied the motions to dismiss the remaining claims. On March 28, 2022, Quantum filed an answer and affirmative defenses to the complaint, as did Messrs. Gacek and Auvil. On May 3, 2022, the Court filed a stipulated order governing case schedule, setting trial for June 6-9, 2023, and also setting a number of pretrial deadlines. The parties have begun the discovery phase in the case. At this time, Quantum is unable to estimate the range of possible outcomes with respect to this matter.

~~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 currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on its results of operations, cash flows or financial position.

NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS

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

No impairment charges were recognized for non-financial assets in the ~~six~~nine months ended ~~September 30,~~December 31, 2022 and 2021. The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Long-term Debt

The ~~table below represents~~Company’s financial liabilities were comprised primarily of long-term debt at December 31, 2022. The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in the accounting guidance) that it believes market participants would use in pricing debt.

The carrying value and ~~total estimated~~ fair value of ~~long-term debt~~the Company’s financial liabilities were primarily comprised of the following as of ~~September 30,~~December 31, 2022 ~~and 2021. The fair value has been classified as Level 2 within the fair value hierarchy.~~(in thousands):


		September 30,									December 31,
		2022				2021					2022				2021
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Term Loan	Term Loan	$	77,167	$	77,167	$	99,375	$	99,375	Term Loan	$	75,917	$	75,917	$	98,750	$	98,750
PNC Credit Facility	PNC Credit Facility	21,500		21,500		10,000		10,000		PNC Credit Facility	27,736		27,736		7,556		7,556

NOTE 12: SUBSEQUENT EVENTS

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

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

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Quarterly Report and our Annual Report on Form 10-K for the year ended March 31, 2022. In particular, the disclosure contained in Part I, Item 1A in our Annual Report on Form 10-K, as updated by Part II, Item 1A in this Quarterly Report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

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

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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.

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OVERVIEW

We are a technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.

We generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; and interest associated with our long-term debt and income taxes.

~~COVID-19 and~~ Macroeconomic Conditions

The COVID-19 pandemic has caused a significant disruption to the global supply chain, which to a certain extent continues to have a negative impact on our business. Before the pandemic and disruptions in the global supply chain, our historical backlog was limited and typically represented less than 5% of quarterly revenues. However, beginning in fiscal 2022 the backlog grew significantly, which was driven primarily by our receipt of large purchase orders and our inability to satisfy those orders within our typical shipping timeline due to supply chain constraints. However, the significant increase in the backlog of $49.3 million to $96.1 million for the three months ended September 30, 2022 compared to $46.8 million at June 30, 2022 represented future orders placed by our customers to ensure continuity of supply and this increase was not driven by current unfulfilled orders due to supply chain constraints. We anticipate that supply chain constraints will remain challenging, but will not significantly limit our ability to ship against customer demand and we expect to work down the current backlog over the next three to four quarters to historical pre-COVID levels.

In addition, the instability of global economic conditions, inflationary risks, rising interest rates, military actions and armed conflicts and associated increased international trade regulations are adding to the uncertainty of our business. These adverse conditions could result in reductions in sales of our products and subscriptions for our services, longer sales cycles, increased costs to manufacture our products and increased price competition. Also, certain of our customers and partners have been and others may become credit or cash constrained, making it difficult for them to fulfill their payment obligations to us or require us to extend their payment terms. Given the dynamic nature of these macroeconomic conditions, we cannot reasonably estimate their full impact on our ongoing business, results of operations and overall financial performance.

~~We will~~ continue to actively monitor, evaluate and respond to the current uncertain macro environment, including the impact of COVID-19 and global economic conditions 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. Globalhigher interest rates, inflation, lingering supply chain ~~disruptions~~challenges, and a stronger U.S. dollar. During the ~~higher inflationary and interest rate~~quarter we continued to experience longer sales cycle for opportunities with our enterprise as well as commercial customers.

The macro environment ~~remain~~remains unpredictable and our past results may not be indicative of future performance. ~~See Part II, Item 1A, Risk Factors, of our most recent Annual Report on Form 10-K for information regarding the risks we face as a result of the COVID-19 pandemic and an uncertain global economy.~~

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RESULTS OF OPERATIONS


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended December 31,				Nine Months Ended December 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2022		2021		2022		2021
Total revenue	Total revenue	$	99,137	$	93,180	$	196,212	$	182,278	Total revenue	$	111,196	$	95,344	$	307,407	$	277,623
Total cost of revenue (1)	Total cost of revenue (1)	71,306		54,793		134,332		106,612		Total cost of revenue (1)	70,907		60,134		205,239		166,746
Gross profit	Gross profit	27,831		38,387		61,880		75,666		Gross profit	40,289		35,210		102,168		110,877
Operating expenses	Operating expenses									Operating expenses
Research and development (1)	Research and development (1)	10,546		12,389		22,671		23,680		Research and development (1)	11,254		14,607		33,925		38,287
Sales and marketing (1)	Sales and marketing (1)	15,593		15,462		31,555		29,414		Sales and marketing (1)	16,339		16,714		47,894		46,128
General and administrative (1)	General and administrative (1)	11,940		11,466		24,254		23,293		General and administrative (1)	10,969		10,538		35,223		33,830
Restructuring charges	Restructuring charges	921		8		1,646		274		Restructuring charges	(41)		576		1,605		850
Total operating expenses	Total operating expenses	39,000		39,325		80,126		76,661		Total operating expenses	38,521		42,435		118,647		119,095
Loss from operations		(11,169)		(938)		(18,246)		(995)
Income (loss) from operations										Income (loss) from operations	1,768		(7,225)		(16,479)		(8,218)
Other income (expense), net	Other income (expense), net	2,431		126		3,182		(71)		Other income (expense), net	(544)		(150)		2,638		(223)
Interest expense	Interest expense	(2,745)		(3,070)		(4,836)		(6,956)		Interest expense	(2,701)		(2,431)		(7,537)		(9,387)
Loss on debt extinguishment	Loss on debt extinguishment	—		(4,960)		(1,392)		(4,960)		Loss on debt extinguishment	—		—		(1,392)		(4,960)
Net loss before income taxes	Net loss before income taxes	(11,483)		(8,842)		(21,292)		(12,982)		Net loss before income taxes	(1,477)		(9,806)		(22,770)		(22,788)
Income tax provision	Income tax provision	461		411		872		424		Income tax provision	693		1,254		1,564		1,678
Net loss	Net loss	$	(11,944)	$	(9,253)	$	(22,164)	$	(13,406)	Net loss	$	(2,170)	$	(11,060)	$	(24,334)	$	(24,466)

(1) Includes stock-based compensation as follows:

Three Months Ended September 30, Six Months Ended September 30,
(in thousands) 2022 2021 2022 2021
Cost of revenue $ 322 $ 298 $ 632 $ 591
Research and development 98 1,331 1,257 2,863
Sales and marketing 770 613 1,221 1,113
General and administrative 1,098 830 2,247 1,706
Total $ 2,288 $ 3,072 $ 5,357 $ 6,273

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	Three Months Ended December 31,				Nine Months Ended December 31,
(in thousands)	2022		2021		2022		2021
Cost of revenue	$	(11)	$	208	$	621	$	799
Research and development	1,251		1,935		2,508		4,798
Sales and marketing	579		655		1,803		1,768
General and administrative	1,162		1,509		3,408		3,215
Total	$	2,981	$	4,307	$	8,340	$	10,580

Comparison of the Three Months Ended ~~September 30,~~December 31, 2022 and 2021

Revenue


		Three Months Ended September 30,										Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Product revenue	Product revenue										Product revenue
Primary storage systems	Primary storage systems	$	9,844	10	$	16,683	18	$	(6,839)	(41)	Primary storage systems	$	13,974	13	$	13,791	14	$	183	1
Secondary storage systems	Secondary storage systems	44,093		44	26,259		28	17,834		68	Secondary storage systems	50,722		44	30,630		32	20,092		66
Devices and media	Devices and media	9,030		9	11,713		13	(2,683)		(23)	Devices and media	10,724		10	14,101		15	(3,377)		(24)
Total product revenue	Total product revenue	62,967		63	54,655		59	8,312		15	Total product revenue	75,420		67	58,522		61	16,898		29
Service and subscription	Service and subscription	32,692		33	34,359		37	(1,667)		(5)	Service and subscription	32,950		30	33,162		35	(212)		(1)
Royalty	Royalty	3,478		4	4,166		4	(688)		(17)	Royalty	2,826		3	3,660		4	(834)		(23)
Total revenue	Total revenue	$	99,137	100	$	93,180	100	$	5,957	6	Total revenue	$	111,196	100	$	95,344	100	$	15,852	17

Product revenue

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In the three months ended ~~September 30,~~December 31, 2022, product revenue increased ~~$8.3~~$16.9 million, or ~~15%~~29%, as compared to the same period in 2021. Primary storage systems ~~decreased $6.8~~increased $0.2 million, or ~~41%~~1%, ~~primarily driven from a reduced number of large purchases from install base customers.~~remaining relatively flat to the same period in 2021. Secondary storage systems increased ~~$17.8~~$20.1 million, or ~~68%~~66%, driven by higher demand in hyperscale use cases.

Service revenue

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

Service and subscription revenue decreased 5%1% in the three months ended ~~September 30,~~December 31, 2022 compared to the same period in 2021, partially driven by lower overall legacy service revenues offset by higher subscription revenue.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue decreased ~~$0.7~~$0.8 million, or ~~17%~~23%, in the three months ended ~~September 30,~~December 31, 2022 compared to the same period in 2021 due to decreased market volume of older generation LTO media.

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Gross Profit and Margin


		Three Months Ended September 30,										Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		Gross margin %	2021		Gross margin %	$ Change		Basis point change	(dollars in thousands)	2022		Gross margin %	2021		Gross margin %	$ Change		Basis point change
Product	Product	$	6,406	10.2	$	13,531	24.8	$	(7,125)	(1,460)	Product	$	16,892	22.4	$	13,404	22.9	$	3,488	(50)
Service and subscription	Service and subscription	17,947		54.9	20,690		60.2	(2,743)		(530)	Service and subscription	20,571		62.4	18,146		54.7	2,425		770
Royalty	Royalty	3,478		100.0	4,166		100.0	(688)		—	Royalty	2,826		100.0	3,660		100.0	(834)		—
Gross profit	Gross profit	$	27,831	28.1	$	38,387	41.2	$	(10,556)	(1,310)	Gross profit	$	40,289	36.2	$	35,210	36.9	$	5,079	(70)

Product Gross Margin

Product gross margin decreased to ~~10.2%~~22.4% or by ~~14.6 percentage~~50 basis points for the three months ended ~~September 30,~~December 31, 2022, as compared with the same period in 2021. This decrease was due primarily to a $6.9 million extraordinary inventory reserve provision recorded during the three months ended September 30, 2022. Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued. In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete. We do not believe that the magnitude of this inventory provision is indicative of our performance and is not expected to be repeated in the near term. Excluding this extraordanary adjustment, gross margins have declined approximately 3.8 percentage points for the three months ended September 30, 2022, as compared to the same period in 2021 primarily due to a less favorable mix of revenues, weighted towards our lower margin product ~~lines of business partially offset by improvements in pricing and lower supply chain costs.~~lines.

Service and Subscription Gross Margin

Service and subscription gross margins ~~decreased 530~~increased 770 basis points for the three months ended ~~September 30,~~December 31, 2022, as compared with the same period in 2021. This increase was ~~partially~~primarily driven by lower ~~overall service revenues,~~overhead costs across our support and ~~by cost pressures as a result of certain constraints in the global supply chain.~~repair functions.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

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Operating expenses


		Three Months Ended September 30,										Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Research and development	Research and development	$	10,546	10.6	$	12,389	13.3	$	(1,843)	(15)	Research and development	$	11,254	10.1	$	14,607	15.3	$	(3,353)	(23)
Sales and marketing	Sales and marketing	15,593		15.7	15,462		16.6	131		1	Sales and marketing	16,339		14.7	16,714		17.5	(375)		(2)
General and administrative	General and administrative	11,940		12.0	11,466		12.3	474		4	General and administrative	10,969		9.9	10,538		11.1	431		4
Restructuring charges	Restructuring charges	921		0.9	8		—	913		11,413	Restructuring charges	(41)		—	576		0.6	(617)		(107)
Total operating expenses	Total operating expenses	$	39,000	39.3	$	39,325	42.2	$	(325)	(1)	Total operating expenses	$	38,521	34.6	$	42,435	44.5	$	(3,914)	(9)

In the three months ended ~~September 30,~~December 31, 2022, research and development expense decreased ~~$1.8~~$3.4 million, or ~~15%~~23%, as compared with the same period in 2021. This decrease was primarily driven by cost reduction measures to consolidate acquired businesses.

In the three months ended ~~September 30,~~December 31, 2022, sales and marketing expenses ~~increased $0.1~~decreased $0.4 million, or 1%2%, as compared with the same period in 2021. ~~Both marketing~~Marketing program expense ~~and travel expense have increased over~~decreased slightly as we shifted investment to earlier in the ~~prior year as COVID-19 restrictions ease.~~year.

In the three months ended ~~September 30,~~December 31, 2022, general and administrative expenses increased ~~$0.5~~$0.4 million, or 4%, as compared with the same period in 2021. This increase was largely driven by ~~increased intangible amortization from recent acquisitions.~~project cost in our facilities and IT organizations.

In the three months ended ~~September 30,~~December 31, 2022, restructuring expenses ~~increased $0.9~~decreased $0.6 million as compared with the same period in 2021. The ~~increase~~decrease was the result of cost reduction ~~initiatives.~~initiatives in the prior year.

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Other Income (Expense)


		Three Months Ended September 30,										Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Other income (expense)	Other income (expense)	$	2,431	2	$	126	—	$	2,305	(1,829)	Other income (expense)	$	(544)	0	$	(150)	—	$	(394)	(263)

The change in other income (expense), net during the three months ended ~~September 30,~~December 31, 2022 compared with the same period in 2021 was related primarily to fluctuations in foreign currency exchange rates and the sale of certain intangible assets during the ~~three~~nine months ended ~~September 30,~~December 31, 2022.

Interest expense


		Three Months Ended September 30,							Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change

Interest expense	Interest expense	(2,745)	3	(3,070)	3	325	11	Interest expense	(2,701)	2	(2,431)	3	(270)	(11)

In the three months ended ~~September 30,~~December 31, 2022, interest expense ~~decreased~~increased $0.3 million, or 11%, as compared with the same period in 2021 due to a ~~lower principal balance and a lower~~higher effective interest rate on our Term Loan.

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Loss on debt extinguishment


		Three Months Ended September 30,							Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change

Loss on debt extinguishment	Loss on debt extinguishment	—	—	(4,960)	(5)	4,960	n/a	Loss on debt extinguishment	—	—	—	—	—	n/a

InThere were no debt extinguishments in the three months ended ~~September 30,~~December 31, 2022 ~~the change in loss on debt extinguishment of $5.0 million was related to prepayment of our Senior Secured Term Loan in the prior year.~~and 2021.

Income Taxes


		Three Months Ended September 30,										Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Income tax provision	Income tax provision	$	461	—	$	411	—	$	50	12	Income tax provision	$	693	1	$	1,254	—	$	(561)	(45)

The income tax provision for the three months ended ~~September 30,~~December 31, 2022 and 2021 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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Comparison of the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2022 and 2021

Revenue


		Six Months Ended September 30,										Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Product revenue	Product revenue										Product revenue
Primary storage systems	Primary storage systems	$	25,402	13	$	27,994	15	$	(2,592)	(9)	Primary storage systems	$	39,375	13	$	41,787	15	$	(2,412)	(6)
Secondary storage systems	Secondary storage systems	77,130		39	54,463		30	22,667		42	Secondary storage systems	127,852		43	85,093		31	42,759		50
Devices and media	Devices and media	20,646		10	24,329		13	(3,683)		(15)	Devices and media	31,370		9	38,428		14	(7,058)		(18)
Total product revenue	Total product revenue	123,178		62	106,786		58	16,392		15	Total product revenue	198,597		65	165,308		60	33,289		20
Service and subscription	Service and subscription	66,116		34	67,189		37	(1,073)		(2)	Service and subscription	99,066		32	100,352		36	(1,286)		(1)
Royalty	Royalty	6,918		4	8,303		5	(1,385)		(17)	Royalty	9,744		3	11,963		4	(2,219)		(19)
Total revenue	Total revenue	$	196,212	100	$	182,278	100	$	13,934	8	Total revenue	$	307,407	100	$	277,623	100	$	29,784	11

Product revenue

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, product revenue increased ~~$16.4~~$33.3 million, or ~~15%~~20%, as compared to the same period in 2021. Primary storage systems decreased ~~$2.6~~$2.4 million, or 9%6%, primarily driven from a reduced number of large purchases from install base customers. Secondary storage systems increased ~~$22.7~~$42.8 million, or ~~42%~~50%, driven by higher demand in hyperscale use cases.

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Service revenue

Service and subscription revenue decreased 2%1% in the ~~six~~nine months ended ~~September 30,~~December 31, 2022 compared to the same period in 2021 partially driven by lower overall legacy service revenues offset by higher subscription revenue.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue decreased ~~$1.4~~$2.2 million, or ~~17%~~19%, in the ~~six~~nine months ended ~~September 30,~~December 31, 2022 compared to the same period in 2021 due to decreased market volume of older generation LTO media.

Gross Profit and Margin


		Six Months Ended September 30,										Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		Gross margin %	2021		Gross margin %	$ Change		Basis point change	(dollars in thousands)	2022		Gross margin %	2021		Gross margin %	$ Change		Basis point change
Product	Product	$	18,696	15.2	$	26,922	25.2	$	(8,226)	(1,000)	Product	$	35,587	17.9	$	40,326	24.4	$	(4,739)	(650)
Service and subscription	Service and subscription	36,266		54.9	40,441		60.2	(4,175)		(530)	Service and subscription	56,837		57.4	58,588		58.4	(1,751)		(100)
Royalty	Royalty	6,918		100.0	8,303		100.0	(1,385)		—	Royalty	9,744		100.0	11,963		100.0	(2,219)		—
Gross profit	Gross profit	$	61,880	31.5	$	75,666	41.5	$	(13,786)	(1,000)	Gross profit	$	102,168	33.2	$	110,877	39.9	$	(8,709)	(670)

Product Gross Margin

Product gross margin decreased to ~~15.2%~~17.9% or by ~~10.0 percentage~~650 basis points for the ~~six~~nine months ended ~~September 30,~~December 31, 2022, as compared with the same period in 2021. This decrease was due primarily to a $6.9 million extraordinary inventory reserve provision recorded during the ~~six~~nine months ended ~~September 30,~~December 31, 2022. Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19

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pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued. In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete. We do not believe that the magnitude of this inventory provision is indicative of our ongoing operations and is not expected to be repeated in the near term. Excluding this non-recurring adjustment, product gross ~~margins have~~margin has declined approximately ~~4.5 percentage~~300 basis points for the ~~six~~nine months ended ~~September 30,~~December 31, 2022, as compared to the same period in 2021 primarily due to a less favorable mix of revenues weighted towards our lower margin product lines of business and a reduction in royalty partially offset by improvements in pricing and lower supply chain costs.

Service and Subscription Gross Margin

Service and subscription gross margins decreased ~~530~~100 basis points for the ~~six~~nine months ended ~~September 30,~~December 31, 2022, as compared with the same period in 2021. This was partially driven by lower overall service revenues, and by cost pressures as a result of certain constraints in the global supply chain.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

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Operating expenses


		Six Months Ended September 30,										Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Research and development	Research and development	$	22,671	11.6	$	23,680	13.0	$	(1,009)	(4)	Research and development	$	33,925	11.0	$	38,287	13.8	$	(4,362)	(11)
Sales and marketing	Sales and marketing	31,555		16.1	29,414		16.1	2,141		7	Sales and marketing	47,894		15.6	46,128		16.6	1,766		4
General and administrative	General and administrative	24,254		12.4	23,293		12.8	961		4	General and administrative	35,223		11.5	33,830		12.2	1,393		4
Restructuring charges	Restructuring charges	1,646		0.8	274		0.2	1,372		501	Restructuring charges	1,605		0.5	850		0.3	755		89
Total operating expenses	Total operating expenses	$	80,126	40.8	$	76,661	42.1	$	3,465	5	Total operating expenses	$	118,647	38.6	$	119,095	42.9	$	(448)	—

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, research and development expense decreased ~~$1.0~~$4.4 million, or 4%11%, as compared with the same period in 2021. This decrease was primarily driven by cost reduction measures to consolidate acquired businesses.

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, sales and marketing expenses increased ~~$2.1~~$1.8 million, or 7%4%, as compared with the same period in 2021. Both marketing expense and travel expense have increased over the prior year as COVID-19 restrictions ease.

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, general and administrative expenses increased ~~$1.0~~$1.4 million, or 4%, as compared with the same period in 2021. This increase was largely driven by increased intangible amortization from ~~recent~~business acquisitions.

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, restructuring expenses increased ~~$1.4~~$0.8 million, or ~~501%~~89%, as compared with the same period in 2021. The increase was the result of cost reduction initiatives.

Other Income (Expense)


		Six Months Ended September 30,										Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Other income (expense)	Other income (expense)	$	3,182	2	$	(71)	—	$	3,253	4,582	Other income (expense)	$	2,638	1	$	(223)	—	$	2,861	1,283

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The change in other income (expense), net during the ~~six~~nine months ended ~~September 30,~~December 31, 2022 compared with the same period in 2021 was related primarily to fluctuations in foreign currency exchange rates and the sale of certain intangible assets during the ~~six~~nine months ended ~~September 30,~~December 31, 2022.

Interest expense


		Six Months Ended September 30,							Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change

Interest expense	Interest expense	(4,836)	2	(6,956)	4	2,120	30	Interest expense	(7,537)	2	(9,387)	3	1,850	20

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, interest expense decreased ~~$2.1~~$1.9 million, or ~~30%~~20%, as compared with the same period in 2021 due to a lower principal balance and a lower effective interest rate on our Term Loan.

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Loss on debt extinguishment


		Six Months Ended September 30,							Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change	(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change

Loss on debt extinguishment	Loss on debt extinguishment	(1,392)	1	(4,960)	3	3,568	n/a	Loss on debt extinguishment	(1,392)	—	(4,960)	2	3,568	n/a

In the ~~six~~nine months ended ~~September 30,~~December 31, 2022, the change in loss on debt extinguishment of $3.6 million was related to prepayments of our long term debt.

Income Taxes


		Six Months Ended September 30,										Nine Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Income tax provision	Income tax provision	$	872	—	$	424	—	$	448	106	Income tax provision	$	1,564	1	$	1,678	1	$	(114)	(7)

The income tax provision for the ~~six~~nine months ended ~~September 30,~~December 31, 2022 and 2021 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 consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet, and amounts available under our PNC Credit Facility. We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. We are subject to the risks arising from COVID-19 and substantial financial market volatility which have adversely affected both the U.S. and the global economy. We have experienced negative impacts on sales due to global supply chain constraints, inflationary concerns and overall uncertainty in the macroeconomic environment which has resulted in a significant increase in our sales backlog compared to our historical levels. The extent of the impacts depends, in part, on how long the negative trends in customer demand and supply chain levels continue. We expect the impact of COVID-19 and market instability to continue to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of ~~$25.7~~$26.0 million as of ~~September 30,~~December 31, 2022, which consisted primarily of bank deposits and money market accounts. As of ~~September 30,~~December 31, 2022 we had ~~$9.1~~$5.7 million available to borrow under the PNC Credit Facility.

We are subject to various debt covenants under our debt agreements including a net leverage covenant and a minimum liquidity covenant. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. On April 25, 2022, we amended the covenant levels for our financial covenants under our term debt and PNC Credit Facility. We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Quarterly Report on Form 10-Q. 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, 2022.

Cash Flows

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


		Six Months Ended September 30,					Nine Months Ended December 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	(17,935)	$	(15,262)	Operating activities	$	(19,596)	$	(26,681)
Investing activities	Investing activities	(9,795)		(7,396)		Investing activities	(12,644)		(11,779)
Financing activities	Financing activities	47,992		12,716		Financing activities	52,973		9,646
Effect of exchange rate changes	Effect of exchange rate changes	166		12		Effect of exchange rate changes	21		12
Net increase (decrease) in cash and cash equivalents and restricted cash	Net increase (decrease) in cash and cash equivalents and restricted cash	$	20,428	$	(9,930)	Net increase (decrease) in cash and cash equivalents and restricted cash	$	20,754	$	(28,802)

Cash Used In Operating Activities

Net cash used in operating activities was ~~$17.9~~$19.6 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2022. This use of cash was primarily ~~attributable~~attributed to cash used due related to manufacturing and service part inventories of $12.0 million and a decrease in deferred revenue of ~~$17.7 million. Net cash used~~$14.4 million offset by an increase $7.2 million in ~~operating activities in the first fiscal quarter of 2022 was $18.3 million compared to $0.4 million net cash provided by operating activities in the second fiscal quarter of 2022.~~accounts payable.

Net cash used in operating activities was ~~$15.3~~$26.7 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2021. This use of cash was primarily attributable to changes in working capital of ~~$14.6~~$24.3 million driven by increases in manufacturing and service part inventories of ~~$7.0~~$13.0 million, a decrease in deferred revenue of ~~$9.0~~$8.6 million and a net change in other assets and liabilities of ~~$5.8 million.~~$12.2 million which includes an increase in prepaid inventory of approximately $5.5 million in order to secure manufacturing materials. These were partially offset by ~~cash generated by~~ a ~~$10.0 million~~ decrease in accounts ~~receivables.~~receivable of $7.0 million and a $5.4 million increase in accounts payable.

Cash Used in Investing Activities

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Net cash used in investing activities was ~~$9.8~~$12.6 million in the ~~six~~nine months ended ~~September 30,~~December 31, 2022, which was primarily attributable to capital expenditures of ~~$7.4~~$10.6 million and a $2.0 million deferred business acquisition payment.

Net cash used in investing activities was ~~$7.4~~$11.8 million ~~for~~in the ~~six~~nine months ended ~~September 30,~~December 31, 2021, which was primarily attributable to cash paid for our acquisition of ~~Pivot3~~our video surveillance business of ~~$5.0~~$7.8 million and capital expenditures of ~~$2.4~~$4.0 million.

Cash Provided by Financing Activities

Net cash provided by financing activities was ~~$48.0~~$53.0 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2022, which was related primarily to ~~$66.0~~$66.7 million of net cash received from the Rights Offering of 30 million shares of our common stock and borrowings on our credit facility of $9.6 million offset by a $20.0 million prepayment of our term debt and a term debt principal amortization ~~payment of $1.9 million~~payments and amendment fees totaling $3.3 million.

Net cash provided by financing activities was ~~$12.7~~$9.6 million ~~for~~in the ~~six~~nine months ended ~~September 30,~~December 31, 2021, which was related primarily to borrowings under our credit facility and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.

Commitments and Contingencies

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

We are also subject to ordinary course litigation.

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, 2022.

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

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effects of matters that are inherently uncertain are summarized in our most recently filed Annual Report on Form ~~10-~~

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K10-K for the fiscal year ended March 31, 2022 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recently Issued and Adopted Accounting Pronouncements

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

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 Exchange Act of 1934), as of the end of the period covered by this 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

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 ~~September 30,~~December 31, 2022 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 9, Commitments and Contingencies, of the notes to the unaudited condensed consolidated financial statements for a discussion of our legal matters.

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ITEM 1A. RISK FACTORS

There have been no material changes to the previously disclosed risk factors discussed in “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2022. 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

10.1#

Director Offer Letter between Quantum Corporation and Don Jaworski, dated September 16, 2022

8-K

9/28/22

10.1

10.2#

Director Offer Letter between Quantum Corporation and Hugues Meyrath, dated September 16, 2022

8-K

9/28/22

10.2

10.3#

Form of Indemnification Agreement between Quantum Corporation and its Named Executive Officers and Directors

8-K

9/28/22

10.3

~~10.4~~10.4#

~~Certificate of Amendment to~~Offer Letter between the ~~Amended~~Company and ~~Restated Certificate of Incorporation~~Kenneth P. Gianella dated December 15, 2022.

8-K

X1/11/23

10.1

10.5#

Transition Agreement between the Company and J. Michael Dodson dated January 9, 2023.

8-K

1/11/23

10.3

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.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

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

# Indicates management contract or compensatory plan or arrangement.

2827

Table of Contents

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)

~~November~~February 2, ~~2022~~2023

/s/ James J. Lerner

(Date)

James J. Lerner

President, Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

~~November~~February 2, ~~2022~~2023

/s/ ~~J. Michael Dodson~~Kenneth Gianella

(Date)

~~J. Michael Dodson~~Kenneth Gianella

Chief Financial Officer

(Principal Financial Officer)

2928



		Page

PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Stockholders’ Deficit	4
	Index to Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2625
Item 4.	Controls and Procedures	2625
PART II
Item 1.	Legal Proceedings	2625
Item 1A.	Risk Factors	2726
Item 6.	Exhibits	2827

Signatures		2928