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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
or
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

qtm-20201231_g1.jpg
Quantum Corporation
(Exact name of registrant as specified in its charter)
Delaware94-2665054
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
224 Airport ParkwaySuite 550
San JoseCA95110
(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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par value per shareQMCONasdaq 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.
x
Yes
 ¨
 No
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).
x
Yes
 ¨
 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
x
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
x
 No
As of the close of business on January 25, 2021, there were 41,553,718 shares of Quantum Corporation’s common stock issued and outstanding.


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QUANTUM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended December 31, 2020

Table of Contents
Page
Item 1.       
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.

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

Note Regarding Forward-Looking Statements

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



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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
December 31, 2020March 31, 2020
Assets
Current assets:
Cash and cash equivalents$11,632 $6,440 
Restricted cash766 830 
Accounts receivable, net of allowance for doubtful accounts of $1,430 and $1,247 as of December 31, 2020 and March 31, 2020, respectively
69,440 70,370 
Manufacturing inventories33,854 29,196 
Service parts inventories22,998 20,502 
Other current assets7,946 8,489 
Total current assets146,636 135,827 
Property and equipment, net 9,855 9,046 
Intangible assets, net 5,503  
Goodwill 3,447  
Restricted cash5,000 5,000 
Right-of-use assets, net10,096 12,689 
Other long-term assets5,244 3,433 
Total assets$185,781 $165,995 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable$30,027 $36,949 
Deferred revenue75,442 81,492 
Long-term debt, current portion1,850 7,321 
Accrued compensation19,225 14,957 
Other accrued liabilities18,449 17,535 
Total current liabilities144,993 158,254 
Deferred revenue34,565 37,443 
Long-term debt, net of current portion178,276 146,847 
Operating lease liabilities8,500 10,822 
Other long-term liabilities13,423 11,154 
Total liabilities379,757 364,520 
Commitments and contingencies (Note 10)
Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued as of December 31, 2020 and March 31, 2020, respectively
  
Common stock, $0.01 par value; 125,000 shares authorized; 41,554 shares issued and outstanding as of December 31, 2020 and 39,905 as of March 31, 2020, respectively
416 399 
Additional paid-in capital526,307 505,762 
Accumulated deficit(721,161)(703,164)
Accumulated other comprehensive income (loss)462 (1,522)
Total stockholders’ deficit(193,976)(198,525)
Total liabilities and stockholders’ deficit$185,781 $165,995 
See accompanying Notes to Condensed Consolidated Financial Statements.


1

Table of Contents

QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts, unaudited)

Three Months Ended December 31,Nine Months Ended December 31,
2020201920202019
Revenue:
   Product$63,021 $66,435 $153,557 $200,361 
   Service31,169 32,892 93,049 98,673 
   Royalty3,833 3,988 10,543 15,700 
      Total revenue98,023 103,315 257,149 314,734 
Cost of revenue:
   Product43,311 43,672 108,691 140,337 
   Service12,433 12,567 36,593 37,972 
      Total cost of revenue55,744 56,239 145,284 178,309 
Gross profit42,279 47,076 111,865 136,425 
Operating expenses:
   Research and development9,589 9,325 29,983 27,058 
   Sales and marketing15,294 15,421 40,019 46,101 
   General and administrative11,103 10,719 32,928 43,623 
   Restructuring charges200 (64)2,837 1,020 
      Total operating expenses36,186 35,401 105,767 117,802 
Income from operations6,093 11,675 6,098 18,623 
Other expense, net(698)(611)(1,395)(446)
Interest expense(7,808)(6,425)(21,823)(19,079)
Net income (loss) before income taxes(2,413)4,639 (17,120)(902)
Income tax provision (benefit)256 (110)877 471 
Net income (loss)$(2,669)$4,749 $(17,997)$(1,373)
Net income (loss) per share - basic$(0.07)$0.12 $(0.45)$(0.04)
Net income (loss) per share - diluted$(0.07)$0.10 $(0.45)$(0.04)
Weighted average shares - basic 40,927 38,134 40,374 36,828 
Weighted average shares - diluted40,927 46,567 40,374 36,828 
Net income (loss)$(2,669)$4,749 $(17,997)$(1,373)
Foreign currency translation adjustments, net975 839 1,984 449 
Total comprehensive income (loss)$(1,694)$5,588 $(16,013)$(924)
See accompanying Notes to Condensed Consolidated Financial Statements.
2

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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended December 31,
20202019
Operating activities
Net loss$(17,997)$(1,373)
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization3,898 3,119 
Amortization of debt issuance costs4,906 3,012 
Long-term debt related costs167  
Provision for product and service inventories4,764 4,946 
Stock-based compensation6,428 5,408 
Bad debt expense123 220 
Deferred income taxes 6 242 
Unrealized foreign exchange loss1,984 479 
Changes in assets and liabilities:
Accounts receivable, net1,342 11,731 
Manufacturing inventories(7,732)(8,915)
Service parts inventories(4,559)(2,881)
Accounts payable (7,022)7,676 
Accrued restructuring charges210 (2,876)
Accrued compensation4,268 (2,345)
Deferred revenue(9,727)(17,176)
Other assets and liabilities (1,323)(6,233)
Net cash used in operating activities(20,264)(4,966)
Investing activities
Purchases of property and equipment(4,665)(2,327)
Business acquisition, net of cash acquired(2,636) 
Net cash used in investing activities(7,301)(2,327)
Financing activities
Borrowings of long-term debt, net of debt issuance costs19,400  
Borrowings of credit facility232,663 245,590 
Repayments of credit facility(229,847)(241,539)
Borrowings of payment protection program10,000  
Payment of taxes due upon vesting of restricted stock (171)
Proceeds from issuance of common stock539  
Net cash provided by financing activities32,755 3,880 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(62)(3)
Net change in cash, cash equivalents and restricted cash 5,128 (3,416)
Cash, cash equivalents, and restricted cash at beginning of period12,270 16,855 
Cash, cash equivalents, and restricted cash at end of period $17,398 $13,439 
Supplemental disclosure of cash flow information
      Cash paid for interest$19,992 $15,942 
      Cash paid (received) for income taxes, net of refunds$(2,464)$155 
   Non-cash transactions
      Purchases of property and equipment included in accounts payable $67 $178 
      Purchases of property and equipment included in accrued liabilities$1,255 $ 
      Transfer of inventory to property and equipment$372 $253 
      Payment of litigation settlements with insurance proceeds$ $8,950 
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:
      Cash and cash equivalents$11,632 $7,542 
      Restricted cash, current 766 897 
      Restricted cash, long-term5,000 5,000 
Total cash, cash equivalents and restricted cash at the end of period$17,398 $13,439 
See accompanying Notes to Condensed Consolidated Financial Statements.
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(in thousands, unaudited)
Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Deficit
Three Months EndedSharesAmount
Balance, September 30, 2019
36,717 $368 $502,398 $(704,076)$(1,800)$(203,110)
Net income— — — 4,749 — 4,749 
Foreign currency translation adjustments, net— — — — 839 839 
Shares issued under employee incentive plans, net355 3 (4)— — (1)
Warrants exercised related to long-term debt, net2,783 28 (28)— —  
Stock-based compensation— — 2,056 — — 2,056 
Balance, December 31, 2019
39,855 $399 $504,422 $(699,327)$(961)$(195,467)
Balance, September 30, 2020
40,740 $408 $522,357 $(718,492)$(513)$(196,240)
Net loss— — — (2,669)— (2,669)
Foreign currency translation adjustments, net— — — — 975 975 
Shares issued under employee incentive plans, net453 5 (5)— —  
Shares issued in connection with business acquisition361 3 2,077 — — 2,080 
Stock-based compensation— — 1,878 — — 1,878 
Balance, December 31, 2020
41,554 $416 $526,307 $(721,161)$462 $(193,976)
See accompanying Notes to Condensed Consolidated Financial Statements.










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Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Deficit
Nine Months EndedSharesAmount
Balance, March 31, 2019
36,040 $360 $499,224 $(697,954)$(1,410)$(199,780)
Net loss— — — (1,373)— (1,373)
Foreign currency translation adjustments, net— — — — 449 449 
Shares issued under employee incentive plans, net1,032 11 (182)—  (171)
Warrants exercised related to long-term debt, net2,783 28 (28)— —  
Stock-based compensation— — 5,408 — — 5,408 
Balance, December 31, 2019
39,855 $399 $504,422 $(699,327)$(961)$(195,467)
Balance, March 31, 2020
39,905 $399 $505,762 $(703,164)$(1,522)$(198,525)
Net loss— — — (17,997)— (17,997)
Foreign currency translation adjustments— — — — 1,984 1,984 
Shares issued under employee stock purchase plan133 2 537 — — 539 
Shares issued under employee incentive plans, net1,155 12 (12)— —  
Shares issued in connection with business acquisition361 3 2,077 — — 2,080 
Shares surrendered for employees' tax liability upon settlement of restricted stock units— — — — —  
Warrants exercised related to long-term debt— — 11,515 — — 11,515 
Stock-based compensation— — 6,428 — — 6,428 
Balance, December 31, 2020
41,554 $416 $526,307 $(721,161)$462 $(193,976)
See accompanying Notes to Condensed Consolidated Financial Statements.
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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Note 1:
Note 2:
Note 3:
Note 4:
Note 5:
Note 6:
Note 7:
Note 8:
Note 9:
Note 10:
Note 11:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), was founded in 1980 and reincorporated in Delaware in 1987, and is headquartered in San Jose, California. The Company is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving. The Company helps 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-volatile memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape and the cloud 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 December 31, 2020, the results of operations and comprehensive income (loss) and changes in stockholder's deficit for the three and nine months ended December 31, 2020 and 2019, and the statement of cash flows for the nine months ended December 31, 2020 and 2019. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

COVID-19 Risks and Uncertainties

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

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

Use of Estimates
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Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with GAAP. These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of COVID-19 pandemic. However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that may result from the pandemic.

Common Stock

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

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
 
Level 1:  Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:  Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:  Inputs are unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

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

Recently Adopted Accounting Pronouncements

The Company adopted the guidance in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments ("CECL") on April 1, 2020. The ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over the lifetime of the asset rather than incurred losses. The adoption of ASU 2016-13 did not have a material impact on the condensed consolidated financial statements.

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

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


NOTE 2: REVENUE

Based on how the Company manages its business, the Company has determined that it currently operates in 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 offering and geographies (in thousands):
 Three Months Ended December 31,Nine Months Ended December 31,
2020
2019 1
2020
2019 1
Americas2
   Primary storage systems$18,755 $17,744 $42,547 $43,516 
   Secondary storage systems11,124 9,465 29,117 49,761 
   Device and media5,347 6,467 17,777 24,486 
   Service18,913 20,628 56,907 62,563 
Total revenue54,139 54,304 146,348 180,326 
EMEA
   Primary storage systems3,680 5,320 8,774 12,545 
   Secondary storage systems10,113 11,297 23,081 29,273 
   Device and media5,900 7,933 14,668 18,106 
   Service10,339 10,063 30,380 29,115 
Total revenue30,032 34,613 76,903 89,039 
APAC
   Primary storage systems1,219 2,555 3,157 5,480 
   Secondary storage systems4,074 4,612 10,507 12,856 
   Device and media2,809 1,042 3,929 4,338 
   Service1,917 2,201 5,762 6,995 
Total revenue10,019 10,410 23,355 29,669 
Consolidated
   Primary storage systems23,654 25,619 54,478 61,541 
   Secondary storage systems25,311 25,374 62,705 91,890 
   Device and media14,056 15,442 36,374 46,930 
   Service31,169 32,892 93,049 98,673 
   Royalty3
3,833 3,988 10,543 15,700 
Total revenue$98,023 $103,315 $257,149 $314,734 

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1 Primary and Secondary storage system revenue has been adjusted for December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.
2 Revenue for Americas geographic region outside of the United States is not significant.
3 Royalty revenue is not allocable to geographic regions.


Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the nine months ended December 31, 2020 (in thousands): 
December 31, 2020
Contract liabilities (deferred revenue)$110,007 
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period69,355 

Remaining Performance Obligations

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

Remaining performance obligations consisted of the following (in thousands):
CurrentNon-CurrentTotal
As of December 31, 2020
$89,655 $37,169 $126,824 

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



NOTE 3: INVENTORIES
Manufacturing and service inventories consist of the following (in thousands):

Manufacturing inventories
December 31, 2020March 31, 2020
   Finished goods:
      Manufactured finished goods $15,578 $15,790 
      Distributor inventory237 504 
         Total finished goods15,815 16,294 
   Work in progress2,315 1,001 
   Raw materials15,724 11,901 
Total manufacturing inventories$33,854 $29,196 

Service parts inventories
December 31, 2020March 31, 2020
   Finished goods$17,707 $15,845 
   Component parts5,291 4,657 
Total service parts inventories$22,998 $20,502 
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NOTE 4: BUSINESS COMBINATION

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

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

The historical results of operations for SBS were not significant to the Company's consolidated results of operations for the periods presented. Certain estimated values for the acquisition, including goodwill and intangible assets, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

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

Three and Nine Months Ended December 31, 2020
Gross Carrying ValueAccumulated AmortizationNet Carrying Amount
   Developed technology$4,700 $(81)$4,619 
   Customer lists900 (16)884 
Intangible assets, net$5,600 $(97)$5,503 

Intangible assets amortization expense for the three and nine months ended December 31, 2020 was $0.1 million. As of December 31, 2020, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 3.0 years.

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

Fiscal year ending Estimated future amortization expense
Remainder of 2021$465 
20221,867 
20231,867 
20241,304 
2025 
Thereafter 
Total$5,503 


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NOTE 5: LONG-TERM DEBT
The Company’s long-term debt consisted of the following (in thousands):
 December 31, 2020March 31, 2020
Senior Secured Term Loan$185,208 $165,208 
Amended PNC Credit Facility5,960 2,620 
Paycheck Protection Program Loan10,000  
Less: current portion(1,850)(7,321)
Less: unamortized debt issuance costs (1)
(21,042)(13,660)
Long-term debt, net$178,276 $146,847 
(1) The unamortized debt issuance costs related to the Senior Secured Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs related to the Amended PNC Credit Facility are presented within other assets on the accompanying condensed consolidated balance sheets.

Senior Secured Term Loan

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

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

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

In connection with the June 2020 Term Loan Amendment, the Company issued to the lenders warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares of the Company’s common stock, at an exercise price of $3.00 per share. The exercise price and the number of shares underlying the 2020 Term Loan Warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common
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stock, a reclassification of the Company’s common stock or specified dividend payments. The 2020 Term Loan Warrants are exercisable until June 16, 2030. Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.

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

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

Amended PNC Credit Facility

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

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

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

On December 10, 2020, the Company amended the Amended PNC Credit Facility to, among other things, allow the
SBS acquisition. The amendment added a covenant requiring the Company to maintain at least $30.0 million average liquidity (the “Average Liquidity Requirement”), as defined in the Amended PNC Credit Facility, for the preceding thirty days measured as of the last day of each month. If the Average Liquidity Requirement has not been satisfied during the period prior to the payment of the SBS Deferred Purchase Price, a reserve will be established to reduce borrowings availability under the Amended PNC Credit Facility in an amount equal to (a) $2.0 million during the period from the amendment date through the first anniversary of the amendment, and, (b) $1.0 million during the period from the first anniversary of the amendment through the second anniversary of the amendment

Registration Rights Agreement

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

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

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

Paycheck Protection Program

On April 13, 2020, the Company entered into a Paycheck Protection Program (“PPP”) Term Loan (“PPP Loan”) effective April 11, 2020 with PNC in an aggregate principal amount of $10.0 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The PPP Loan bears interest at a fixed rate of 1% per annum. The PPP Loan has an initial term of two years and is unsecured and guaranteed by the Small Business Administration. The Company used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP Loan and has applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this time that the PPP Loan will be forgiven partially or in full.


NOTE 6: LEASES
Supplemental balance sheet information related to leases is as follows (in thousands):
Operating leasesDecember 31, 2020March 31, 2020
Operating lease right-of-use asset  $10,096 $12,689 
Other accrued liabilities  2,806 3,065 
Operating lease liability  8,500 10,822 
   Total operating lease liabilities  $11,306 $13,887 


Components of lease cost were as follows (in thousands):
Three Months Ended December 31, 2020Nine Months Ended December 31,
Lease Cost2020201920202019
Operating lease cost  $1,018 $1,259 $3,688 $3,835 
Variable lease cost  198 109 620 321 
Short-term lease cost  37 58 129 89 
Total lease cost  $1,253 $1,426 $4,437 $4,245 

14

Table of Contents
Maturity of Lease LiabilitiesOperating Leases
For the fiscal year ended March 31,
   2021, excluding the nine months ended December 31, 2020
$1,051 
   20223,863 
   20232,799 
   20242,630 
   20252,330 
   Thereafter2,948 
Total lease payments$15,621 
Less: imputed interest(4,315)
Present value of lease liabilities$11,306 



Lease Term and Discount RateDecember 31, 2020March 31, 2020
Weighted average remaining operating lease term (years)4.664.99
Weighted average discount rate for operating leases13.97 %13.91 %

Operating cash outflows related to operating leases totaled $4.4 million and $3.4 million for the nine months ended December 31, 2020 and 2019, respectively.


NOTE 7: RESTRUCTURING CHARGES
Costs accrued related to restructuring are classified within accrued liabilities on the condensed consolidated balance sheets. The following table summarizes the restructuring activities for the nine months ended December 31, 2020 and 2019 (in thousands):

 Severance and BenefitsFacilitiesTotal
Balance as of March 31, 2020$ $ $ 
   Restructuring costs 2,837   2,837
   Cash payments (2,627)   (2,627)
Balance as of December 31, 2020
 $210 $  $210 
Balance as of March 31, 2019 $ $2,876 $2,876 
   Restructuring costs    
   Adjustments to prior estimates  1,020 1,020 
   Cash payments  (3,659)(3,659)
   Other non-cash