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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 September 30, 2021
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
| | |
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 | CA | | 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 |
| | | | | | | | | | | | | | |
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 |
|
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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 November 1, 2021, there were 59,281,377 shares of Quantum Corporation’s common stock issued and outstanding.
QUANTUM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2021
Table of Contents
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 6. | | |
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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 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.
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
| | | | | | | | | | | | |
| September 30, 2021 | | March 31, 2021 | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | $ | 22,757 | | | $ | 27,430 | | |
Restricted cash | 450 | | | 707 | | |
| | | | |
Accounts receivable, net of allowance for doubtful accounts of $350 and $406 | 63,098 | | | 73,102 | | |
Manufacturing inventories | 28,848 | | | 24,467 | | |
Service parts inventories | 23,564 | | | 23,421 | | |
Other current assets | 11,451 | | | 6,939 | | |
Total current assets | 150,168 | | | 156,066 | | |
Property and equipment, net | 12,295 | | | 10,051 | | |
Intangible assets, net | 9,132 | | | 5,037 | | |
Goodwill | 10,262 | | | 3,466 | | |
Restricted cash | — | | | 5,000 | | |
Right-of-use assets, net | 7,917 | | | 9,383 | | |
Other long-term assets | 8,684 | | | 5,921 | | |
Total assets | $ | 198,458 | | | $ | 194,924 | | |
Liabilities and Stockholders’ Deficit | | | | |
Current liabilities: | | | | |
Accounts payable | $ | 36,991 | | | $ | 35,245 | | |
| | | | |
Deferred revenue | 78,105 | | | 84,027 | | |
Accrued restructuring charges | 20 | | | 580 | | |
Long-term debt, current portion | 3,125 | | | 1,850 | | |
| | | | |
| | | | |
Accrued compensation | 15,435 | | | 19,214 | | |
Other accrued liabilities | 18,750 | | | 18,174 | | |
Total current liabilities | 152,426 | | | 159,090 | | |
Deferred revenue | 40,766 | | | 36,126 | | |
| | | | |
Long-term debt, net of current portion | 101,368 | | | 90,890 | | |
| | | | |
Operating lease liabilities | 6,818 | | | 8,005 | | |
Other long-term liabilities | 13,073 | | | 13,058 | | |
Total liabilities | 314,451 | | | 307,169 | | |
Commitments and contingencies (Note 10) | | | | |
Stockholders' deficit | | | | |
Preferred stock, 20,000 shares authorized; no shares issued and outstanding | — | | | — | | |
Common stock, $0.01 par value; 125,000 shares authorized; 59,272 and 56,915 shares issued and outstanding | 593 | | | 570 | | |
Additional paid-in capital | 636,538 | | | 626,664 | | |
Accumulated deficit | (752,029) | | | (738,623) | | |
Accumulated other comprehensive loss | (1,095) | | | (856) | | |
Total stockholders’ deficit | (115,993) | | | (112,245) | | |
Total liabilities and stockholders’ deficit | $ | 198,458 | | | $ | 194,924 | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue: | | | | | | | |
Product | $ | 54,655 | | | $ | 50,850 | | | $ | 106,786 | | | $ | 90,537 | |
Service | 34,359 | | | 31,494 | | | 67,189 | | | 61,880 | |
Royalty | 4,166 | | | 3,477 | | | 8,303 | | | 6,709 | |
Total revenue | 93,180 | | | 85,821 | | | 182,278 | | | 159,126 | |
Cost of revenue: | | | | | | | |
Product | 41,124 | | | 34,998 | | | 79,864 | | | 65,380 | |
Service | 13,669 | | | 12,089 | | | 26,748 | | | 24,160 | |
Total cost of revenue | 54,793 | | | 47,087 | | | 106,612 | | | 89,540 | |
Gross profit | 38,387 | | | 38,734 | | | 75,666 | | | 69,586 | |
Operating expenses: | | | | | | | |
Research and development | 12,389 | | | 10,233 | | | 23,680 | | | 20,395 | |
Sales and marketing | 15,462 | | | 13,153 | | | 29,414 | | | 24,723 | |
General and administrative | 11,466 | | | 10,263 | | | 23,293 | | | 21,825 | |
Restructuring charges | 8 | | | 1,585 | | | 274 | | | 2,637 | |
Total operating expenses | 39,325 | | | 35,234 | | | 76,661 | | | 69,580 | |
Income (loss) from operations | (938) | | | 3,500 | | | (995) | | | 6 | |
Other income (expense), net | 126 | | | (312) | | | (71) | | | (697) | |
Interest expense | (3,070) | | | (7,578) | | | (6,956) | | | (14,015) | |
Loss on debt extinguishment, net | (4,960) | | | — | | | (4,960) | | | — | |
Net loss before income taxes | (8,842) | | | (4,390) | | | (12,982) | | | (14,706) | |
Income tax provision | 411 | | | 202 | | | 424 | | | 622 | |
Net loss | $ | (9,253) | | | $ | (4,592) | | | $ | (13,406) | | | $ | (15,328) | |
| | | | | | | |
Net loss per share - basic and diluted | $ | (0.16) | | | $ | (0.11) | | | $ | (0.23) | | | $ | (0.38) | |
| | | | | | | |
Weighted average shares - basic and diluted | 58,567 | | | 40,286 | | | 57,852 | | | 40,097 | |
| | | | | | | |
| | | | | | | |
Net loss | $ | (9,253) | | | $ | (4,592) | | | $ | (13,406) | | | $ | (15,328) | |
Foreign currency translation adjustments, net | (506) | | | 722 | | | (239) | | | 1,009 | |
Total comprehensive loss | $ | (9,759) | | | $ | (3,870) | | | $ | (13,645) | | | $ | (14,319) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
| | | | | | | | | | | | | |
| Six Months Ended September 30, | | |
| 2021 | | 2020 | | |
Operating activities | | | | | |
Net loss | $ | (13,406) | | | $ | (15,328) | | | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | | | | | |
Depreciation and amortization | 3,967 | | | 2,580 | | | |
Amortization of debt issuance costs | 1,629 | | | 3,015 | | | |
Long-term debt related costs | — | | | 167 | | | |
Provision for product and service inventories | 2,418 | | | 3,588 | | | |
Stock-based compensation | 6,273 | | | 4,550 | | | |
Paycheck Protection Program loan forgiveness | (10,000) | | | — | | | |
| | | | | |
Non-cash loss on debt extinguishment | 8,471 | | | — | | | |
Other | (20) | | | 1,268 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Changes in assets and liabilities: | | | | | |
Accounts receivable, net | 10,024 | | | 7,568 | | | |
Manufacturing inventories | (5,199) | | | (8,858) | | | |
Service parts inventories | (1,818) | | | (4,333) | | | |
| | | | | |
Accounts payable | 1,559 | | | 1,601 | | | |
| | | | | |
Accrued restructuring charges | (560) | | | 240 | | | |
Accrued compensation | (3,779) | | | 2,922 | | | |
Deferred revenue | (9,032) | | | (12,584) | | | |
Other assets and liabilities | (5,789) | | | (5,693) | | | |
Net cash used in operating activities | (15,262) | | | (19,297) | | | |
Investing activities | | | | | |
| | | | | |
| | | | | |
Purchases of property and equipment | (2,396) | | | (1,434) | | | |
Business acquisition, net of cash acquired | (5,000) | | | — | | | |
| | | | | |
| | | | | |
Net cash used in investing activities | (7,396) | | | (1,434) | | | |
Financing activities | | | | | |
Borrowings of long-term debt, net of debt issuance costs | 94,961 | | | 19,400 | | | |
Repayments of long-term debt | (93,051) | | | — | | | |
Borrowings of credit facility | 126,084 | | | 140,987 | | | |
Repayments of credit facility | (116,084) | | | (144,058) | | | |
Borrowings of payment protection program | — | | | 10,000 | | | |
| | | | | |
Proceeds from issuance of common stock | 806 | | | 537 | | | |
| | | | | |
Net cash provided by financing activities | 12,716 | | | 26,866 | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 12 | | | (96) | | | |
Net change in cash, cash equivalents and restricted cash | (9,930) | | | 6,039 | | | |
Cash, cash equivalents, and restricted cash at beginning of period | 33,137 | | | 12,270 | | | |
Cash, cash equivalents, and restricted cash at end of period | $ | 23,207 | | | $ | 18,309 | | | |
Cash, Cash Equivalents and Restricted Cash at end of period | | |
Cash and cash equivalents | $ | 22,757 | | | $ | 12,517 | | | |
Restricted cash, current | 450 | | | 792 | | | |
Restricted cash, long-term | — | | | 5,000 | | | |
Cash, cash equivalents and restricted cash at the end of period | $ | 23,207 | | | $ | 18,309 | | | |
Supplemental disclosure of cash flow information | | | | | |
Cash paid for interest | $ | 5,198 | | | $ | 14,181 | | | |
Cash paid (received) for income taxes, net | $ | 480 | | | $ | (1,578) | | | |
Non-cash transactions | | | | | |
Purchases of property and equipment included in accounts payable | $ | 309 | | | $ | 294 | | | |
Purchases of property and equipment included in accrued liabilities | $ | — | | | $ | 1,255 | | | |
Transfer of inventory to property and equipment | $ | 76 | | | $ | 207 | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(in thousands, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Deficit |
Three Months Ended | | Shares | | Amount | | | | |
Balance, June 30, 2020 | | 39,905 | | | $ | 399 | | | $ | 519,235 | | | $ | (713,900) | | | $ | (1,235) | | | $ | (195,501) | |
Net loss | | — | | | — | | | — | | | (4,592) | | | — | | | (4,592) | |
Foreign currency translation adjustments, net | | — | | | — | | | — | | | — | | | 722 | | | 722 | |
Shares issued under employee stock purchase plan | | 133 | | | 2 | | | 537 | | | — | | | — | | | 539 | |
Shares issued under employee incentive plans, net | | 702 | | | 7 | | | (7) | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | 2,592 | | | — | | | — | | | 2,592 | |
Balance, September 30, 2020 | | 40,740 | | | $ | 408 | | | $ | 522,357 | | | $ | (718,492) | | | $ | (513) | | | $ | (196,240) | |
| | | | | | | | | | | | |
Balance, June 30, 2021 | | 57,280 | | | $ | 573 | | | $ | 629,862 | | | $ | (742,776) | | | $ | (589) | | | (112,930) | |
Net loss | | — | | | — | | | — | | | (9,253) | | | — | | | (9,253) | |
Foreign currency translation adjustments, net | | — | | | — | | | — | | | — | | | (506) | | | (506) | |
Shares issued under employee stock purchase plan | | 145 | | | 1 | | | 805 | | | — | | | — | | | 806 | |
Shares issued under employee incentive plans, net | | 1,387 | | | 14 | | | (14) | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Shares issued in connection with business acquisition | | 460 | | | 5 | | | 2,813 | | | — | | | — | | | 2,818 | |
Stock-based compensation | | — | | | — | | | 3,072 | | | — | | | — | | | 3,072 | |
Balance, September 30, 2021 | | 59,272 | | | $ | 593 | | | $ | 636,538 | | | $ | (752,029) | | | $ | (1,095) | | | $ | (115,993) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Deficit |
Six Months Ended | | Shares | | Amount | | | | |
Balance, March 31, 2020 | | 39,905 | | | $ | 399 | | | $ | 505,762 | | | $ | (703,164) | | | $ | (1,522) | | | (198,525) | |
Net loss | | — | | | — | | | — | | | (15,328) | | | — | | | (15,328) | |
Foreign currency translation adjustments, net | | — | | | — | | | — | | | — | | | 1,009 | | | 1,009 | |
Shares issued under employee stock purchase plan | | 133 | | | 2 | | | 537 | | | | | | | 539 | |
Shares issued under employee incentive plans, net | | 702 | | | 7 | | | (7) | | | — | | | | | — | |
Warrants issued related to long-term debt, net | | — | | | — | | | 11,515 | | | — | | | — | | | 11,515 | |
| | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | 4,550 | | | — | | | — | | | 4,550 | |
Balance, September 30, 2020 | | 40,740 | | | $ | 408 | | | $ | 522,357 | | | $ | (718,492) | | | $ | (513) | | | $ | (196,240) | |
| | | | | | | | | | | | |
Balance, March 31, 2021 | | 56,915 | | | $ | 570 | | | $ | 626,664 | | | $ | (738,623) | | | $ | (856) | | | $ | (112,245) | |
Net loss | | — | | | — | | | — | | | (13,406) | | | — | | | (13,406) | |
Foreign currency translation adjustments, net | | — | | | — | | | — | | | — | | | (239) | | | (239) | |
Shares issued under employee stock purchase plan | | 145 | | | 1 | | | 805 | | | | | — | | | 806 | |
Shares issued under employee incentive plans, net | | 1,752 | | | 17 | | | (17) | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Shares issued in connection with business acquisition | | 460 | | | 5 | | | 2,813 | | | — | | | — | | | 2,818 | |
Stock-based compensation | | | | — | | | 6,273 | | | — | | | — | | | 6,273 | |
Balance, September 30, 2021 | | 59,272 | | | $ | 593 | | | $ | 636,538 | | | $ | (752,029) | | | $ | (1,095) | | | $ | (115,993) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | |
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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 is a technology company whose mission is to deliver innovative solutions to organizations around 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.
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, 2021, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three and six months ended September 30, 2021 and 2020. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.
Use of Estimates
Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with GAAP. These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of the COVID-19 pandemic. However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that may result from the pandemic.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards Board (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not have, or are not expected to have, a material impact on our present or future 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 September 30, | | Six Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Americas1 | | | | | | | |
Primary storage systems | $ | 11,264 | | | $ | 16,933 | | | $ | 18,458 | | | $ | 23,792 | |
Secondary storage systems | 12,174 | | | 9,317 | | | 28,886 | | | 17,993 | |
Device and media | 5,269 | | | 6,069 | | | 11,791 | | | 12,431 | |
Service | 21,341 | | | 19,399 | | | 41,534 | | | 37,994 | |
Total revenue | 50,048 | | | 51,718 | | | 100,669 | | | 92,210 | |
| | | | | | | |
EMEA | | | | | | | |
Primary storage systems | 4,244 | | | 2,798 | | | 7,020 | | | 5,094 | |
Secondary storage systems | 9,720 | | | 6,352 | | | 17,479 | | | 12,968 | |
Device and media | 4,513 | | | 4,745 | | | 9,894 | | | 8,767 | |
Service | 11,035 | | | 10,227 | | | 21,847 | | | 20,042 | |
Total revenue | 29,512 | | | 24,122 | | | 56,240 | | | 46,871 | |
| | | | | | | |
APAC | | | | | | | |
Primary storage systems | 1,175 | | | 879 | | | 2,516 | | | 1,938 | |
Secondary storage systems | 4,365 | | | 3,234 | | | 8,098 | | | 6,434 | |
Device and media | 1,931 | | | 523 | | | 2,644 | | | 1,120 | |
Service | 1,983 | | | 1,868 | | | 3,808 | | | 3,844 | |
Total revenue | 9,454 | | | 6,504 | | | 17,066 | | | 13,336 | |
| | | | | | | |
Consolidated | | | | | | | |
Primary storage systems | 16,683 | | | 20,610 | | | 27,994 | | | 30,824 | |
Secondary storage systems | 26,259 | | | 18,903 | | | 54,463 | | | 37,395 | |
Device and media | 11,713 | | | 11,337 | | | 24,329 | | | 22,318 | |
Service | 34,359 | | | 31,494 | | | 67,189 | | | 61,880 | |
Royalty2 | 4,166 | | | 3,477 | | | 8,303 | | | 6,709 | |
Total revenue | $ | 93,180 | | | $ | 85,821 | | | $ | 182,278 | | | $ | 159,126 | |
1 Revenue for Americas geographic region outside of the United States is not significant.
2 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 six months ended September 30, 2021 (in thousands):
| | | | | | | | |
| | September 30, 2021 |
Contract liabilities (deferred revenue) | | $ | 118,871 | |
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period | | 53,833 | |
Remaining Performance Obligations
Remaining performance obligations consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Current | | Non-Current | | Total |
As of September 30, 2021 | | $ | 130,708 | | | $ | 42,855 | | | $ | 173,563 | |
The Company's non-current remaining performance obligations are expected to be recognized in the next 13 to 60 months.
NOTE 3: BUSINESS ACQUISITION
On July 20, 2021, the Company purchased specified assets related to the video surveillance business of PV3 (an ABC) LLC, a Delaware limited liability company as assignee for the benefit of Pivot3, Inc., a Delaware corporation (“Pivot 3”). The transaction costs associated with the acquisition were not material and expensed as incurred. Goodwill generated from this acquisition is primarily attributable to the expected post-acquisition synergies from integrating Pivot3's video surveillance portfolio and assets with our platform to expand our video surveillance portfolio with hardware and software offerings that will be offered under the Quantum VS-Series portfolio. Goodwill obtained in an asset acquisition is deductible for tax purposes.
The total purchase consideration for the acquisition of Pivot3 was $7.8 million, which consisted of the following (in thousands):
| | | | | | | | |
Cash | | $ | 5,000 | |
Fair value of stock consideration | | 2,818 | |
Total | | $ | 7,818 | |
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
| | | | | | | | | | | |
| | Amount | Estimated Useful Life |
Goodwill | | $ | 6,796 | | |
Identified intangible assets: | | | |
Developed technology | | 1,700 | | 2 years |
Customer lists | | 3,700 | | 4 years |
Property, plant and equipment | | 4,300 | | 3 years |
Net liabilities assumed | | (8,678) | | |
Total | | $ | 7,818 | | |
Pivot 3 has also agreed to license to the Company certain intellectual property rights related to the business. The historical results of operations for Pivot 3 were not significant to the Company's consolidated results of operations for the periods presented.
NOTE 4: BALANCE SHEET INFORMATION
Certain significant amounts included in the Company's consolidated balance sheets consist of the following (in thousands):
Manufacturing inventories
| | | | | | | | | | | |
| September 30, 2021 | | March 31, 2021 |
Finished goods: | | | |
Manufactured finished goods | $ | 11,013 | | | $ | 12,452 | |
Distributor inventory | 136 | | | 238 | |
Total finished goods | 11,149 | | | 12,690 | |
Work in progress | 3,653 | | | 2,074 | |
Raw materials | 14,046 | | | 9,703 | |
Total manufacturing inventories | $ | 28,848 | | | $ | 24,467 | |
Service parts inventories
| | | | | | | | | | | |
| September 30, 2021 | | March 31, 2021 |
Finished goods | $ | 17,817 | | | $ | 18,773 | |
Component parts | 5,747 | | | 4,648 | |
Total service parts inventories | $ | 23,564 | | | $ | 23,421 | |
Intangibles, net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | March 31, 2021 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| | | | | | | | | | | | |
Developed technology | | $ | 6,400 | | | $ | (1,425) | | | $ | 4,975 | | | $ | 4,700 | | | $ | (473) | | | $ | 4,227 | |
Customer lists | | 4,600 | | | (443) | | | 4,157 | | | 900 | | | (90) | | | 810 | |
| | | | | | | | | | | | |
Intangible assets, net | | $ | 11,000 | | | $ | (1,868) | | | $ | 9,132 | | | $ | 5,600 | | | $ | (563) | | | $ | 5,037 | |
Intangible assets amortization expense was $0.8 million and $0 for the three months ended September 30, 2021 and 2020, respectively, and $1.3 million and $0 for the six months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.8 years.
As of September 30, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):
| | | | | | | | |
Fiscal year ending | | Estimated future amortization expense |
Remainder of 2022 | | $ | 1,796 | |
2023 | | 3,641 | |
2024 | | 2,490 | |
| | |
| | |
Thereafter | | 1,205 | |
Total | | $ | 9,132 | |
Goodwill | | | | | | | | |
| | |
| | Amount |
Balance at March 31, 2021 | | $ | 3,466 | |
Goodwill acquired | | 6,796 | |
Balance at September 30, 2021 | | $ | 10,262 | |
There were no impairments to goodwill during the second quarter and first two quarters of fiscal 2021 and 2022.
NOTE 5: LONG-TERM DEBT
The Company’s long-term debt consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | March 31, 2021 |
Term Loan | $ | 99,375 | | | $ | — | |
Senior Secured Term Loan | — | | | 92,426 | |
PNC Credit Facility | 10,000 | | | — | |
Paycheck Protection Program Loan | — | | | 10,000 | |
Less: current portion | (3,125) | | | (1,850) | |
Less: unamortized debt issuance costs (1) | (4,882) | | | (9,686) | |
Long-term debt, net | $ | 101,368 | | | $ | 90,890 | |
(1) The unamortized debt issuance costs related to the Senior Secured Term Loan and the Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs related to the 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 to borrow an aggregate of $165.0 million (the “Senior Secured Term Loan”). In connection with the Senior Secured Term Loan, the Company amended its existing revolving credit facility with PNC (the PNC Credit Facility together with the Senior Secured Term Loan, the “December 2018 Credit Agreements”) providing for borrowings up to a maximum principal amount of the lesser of: (a) $45.0 million or (b) the amount of the borrowing base, as defined in the PNC Credit Facility agreement.
On June 16, 2020, the Company entered into amendments to the December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the amendments to the December 2018 Credit Agreements occurring on March 30, 2020, March 31, 2020 and April 3, 2020, the “2020 Amendments”). The June 2020 Amendment provided an additional borrowing of $20.0 million which was immediately drawn in full.
In connection with the June 2020 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 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 2020 Amendments related to the Senior Secured Term Loan were accounted for as modifications. In connection with the modifications, the Company incurred $11.9 million in costs including $11.3 million related to the value of the 2020 Term Loan Warrants and $0.6 million in fees paid to the lenders. These debt issuance costs are reflected as a reduction to the carrying amount of the Senior Secured Term Loan and are amortized to interest expense over the remaining loan term. The 2020 Amendments related to the PNC Credit Facility were accounted for as modifications. Fees paid to PNC of approximately $0.5 million were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.
On August 5, 2021 (the “Closing Date”), the Company entered into a senior secured term loan to borrow an aggregate of $100.0 million, (the “Term Loan”). A portion of the proceeds were used to repay in full all outstanding borrowings under the Senior Secured Term Loan. Borrowings under the Term Loan mature on August 5, 2026. Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter. Principal and interest payments are payable on a quarterly basis. The Company incurred $5.1 million in costs related to the Term Loan. These debt issuance costs are reflected as a reduction of the carrying amount of the Term Loan and are being recognized as interest expense over the term of the Term Loan.
The Company recorded a loss on debt extinguishment of $15.0 million related to the repayment of the Senior Secured Term Loan which was comprised of $6.4 million in prepayment penalties, $0.1 million in legal fees, and the write-off of unamortized debt issuance costs of $8.4 million.
Loans under the Term Loan designated as “Prime Rate Loans” will 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 LIBOR Rate based upon an interest period of one month plus 1.0%, and (iv) the “Prime Rate” last quoted by the Wall Street Journal, plus an applicable margin of 5.00%. Loans designated as “LIBOR Rate Loans” will bear interest at a rate per annum equal to the LIBOR Rate plus an applicable margin of 6.00%. The “LIBOR Rate” is subject to a floor of 0.75%. The Company can designate a loan as a Prime Rate Loan or LIBOR Rate Loan in its discretion.
The Term Loan contains certain covenants, including requirements to prepay the Term Loan in an amount equal to (i) 100% of the net cash proceeds from certain asset dispositions, extraordinary receipts, debt issuances and equity issuances, subject to certain reinvestment rights and other exceptions and (ii) 75% of certain excess cash flow of the Company and its subsidiaries beginning in the fiscal year ended March 31, 2023, subject to certain exceptions, including reductions to the percentage of such excess cash flow that is required to prepay the loans to 50% and 0%, based on the Company’s applicable total net leverage ratio. Amounts outstanding under the Term Loan may become due and payable upon the occurrence of specified events, which among other things include (subject to certain exceptions and cure periods): (i) failure to pay principal, interest, or any fees when due; (ii) breach of any representation or warranty, covenant, or other agreement in the Term Loan and other related loan documents; (iii) the occurrence of a bankruptcy or insolvency proceeding with respect to the Company or certain of its subsidiaries; (iv) any “Event of Default” with respect to other indebtedness involving an aggregate amount of $3,000,000 or more; (v) any lien created by the Term Loan or any related security documents ceasing to be valid and perfected; (vi) the Term Loan Credit Agreement or any related security documents or guarantees ceasing to be legal, valid, and binding upon the parties thereto; or (vii) a change of control shall occur. Additionally, the Term Loan contains financial covenants relating to minimum liquidity and total net leverage.
On September 30, 2021, the Company amended the PNC Credit Facility (the PNC Credit Facility together with the Term Loan, the “Credit Agreements”). The amendment, among other things (a) extended the maturity date to August 5, 2026; (b) reduced the principal amount of the revolving commitments to a maximum amount equal to the lesser of: (i) $30.0 million or (ii) the amount of the borrowing base, as defined in the PNC Credit Facility agreement;(c) replaced existing debt covenants with net leverage ratio, minimum liquidity and fixed charges coverage ratio covenants; and, (d) removed the requirement to maintain a $5.0 million restricted cash reserve with PNC.
The interest rate under the PNC Credit Facility is 2.25% per annum for LIBOR Rate Loans and 1.25% per annum for Domestic Rate Loans and Swing Loans through December 31, 2021, and effective as of January 1, 2022 on the first day of each fiscal quarter ending thereafter (the “Applicable Margin Adjustment Date”), between 1.75% and 2.25% per annum for LIBOR Rate Loans and between 0.75% and 1.25% per annum for Domestic Rate Loans and Swing Loans, based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter prior to the Applicable Margin Adjustment Date (the “Applicable Interest Rate”).
With respect to any LIBOR Rate Loan, the Company has agreed to pay affiliates of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 6.00%, minus (y) the Applicable Interest Rate, plus (z) if the LIBOR Rate applicable to such interest payment is less than 0.75%, (i) 0.75% minus (ii) such LIBOR Rate. With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of Blue Torch a fee equal to a percentage per annum equal to the sum of (x) 5.00%, minus (y) the Applicable Interest Rate, plus (z) if the Alternative Base Rate applicable to such interest payment is less than 1.00%, (i) 1.00% minus (ii) such Alternative Base Rate. If on the last day of any calendar quarter, the average “Usage Amount” during such calendar quarter does not equal the “Maximum Revolving Advance Amount” (as such terms are defined in the PNC Credit
Facility), then the Company has agreed to pay affiliates of certain Term Loan lenders a fee at a rate per annum equal to 1.00% minus a fee percentage between 0.25% to 0.375% on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.
As of September 30, 2021, the interest rates on the Term Loan and the PNC Credit Facility were 6.75% and 2.34%, respectively, and PNC Credit Facility had a borrowing base of $20.0 million, of which $8.6 million was available at that date. As of March 31, 2021, the Company was required to maintain a $5.0 million restricted cash reserve as part of the PNC Credit Facility, which was presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of March 31, 2021. The September 30, 2021 amendment to the PNC Credit Facility removed the restricted cash reserve requirement.
Registration Rights Agreement
In connection with the June 2020 Amendment to the Senior Secured Term Loan, 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.
Paycheck Protection Program Loan
On April 13, 2020, the Company entered into a Paycheck Protection Program 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. In July 2021, the Company received notice from PNC that the PPP Loan and related accrued interest was approved for forgiveness in full by the U.S. Small Business Administration (the “SBA”). The Company recorded the amount forgiven as gain on debt extinguishment of $10.0 million in the three and six months ended September 30, 2021.
NOTE 6: LEASES
Supplemental balance sheet information related to leases is as follows (in thousands):
| | | | | | | | | | | | | | | | |
Operating leases | | September 30, 2021 | | March 31, 2021 | | |
Operating lease right-of-use asset | | $ | 7,917 | | | $ | 9,383 | | | |
| | | | | | |
Other accrued liabilities | | 2,092 | | | 2,581 | | | |
Operating lease liability | | 6,818 | | | 8,005 | | | |
Total operating lease liabilities | | $ | 8,910 | | | $ | 10,586 | | | |
Components of lease cost were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Six Months Ended September 30, |
Lease Cost | | 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost | | $ | 994 | | | $ | 1,338 | | | $ | 2,129 | | | $ | 2,669 | |
Variable lease cost | | 177 | | | 211 | | | 351 | | | 423 | |
Short-term lease cost | | 4 | | | 39 | | | 4 | | | 92 | |
Total lease cost | | $ | 1,175 | | | $ | 1,588 | | | $ | 2,484 | | | $ | 3,184 | |
| | | | | | | | |
Maturity of Lease Liabilities | | Operating Leases |
2022, excluding the six months ended September 30, 2021 | | $ | 1,734 | |
2023 | | 2,695 | |
2024 | | 2,543 | |
2025 | | 2,264 | |
2026 | | 1,827 | |
Thereafter | | 698 | |
Total lease payments | | $ | 11,761 | |
Less: imputed interest | | (2,851) | |
Present value of lease liabilities | | $ | 8,910 | |
| | | | | | | | | | | | | | |
Lease Term and Discount Rate | | September 30, 2021 | | March 31, 2021 |
Weighted average remaining operating lease term (years) | | 4.15 | | 4.53 |
Weighted average discount rate for operating leases | | 13.64 | % | | 13.96 | % |
Operating cash outflows related to operating leases totaled $1.0 million and $1.3 million for the six months ended September 30, 2021 and 2020, respectively.
NOTE 7: RESTRUCTURING CHARGES
The following table summarizes the restructuring activities for the six months ended September 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Severance and Benefits | | Facilities | | Total |
Balance as of March 31, 2021 | | $ | 580 | | | $ | — | | | $ | 580 | |
Restructuring costs | | 274 | | — | | 274 |
Adjustments to prior estimates | | (50) | | | — | | | (50) | |
Cash payments | | ( |