qtm-20210930

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


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

For the transition period from ___ to ___

Commission File Number 001-13449


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

Delaware

94-2665054

(State or other jurisdiction of incorporation or organization)

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

224 Airport Parkway

Suite 550

San Jose

95110

(Address of Principal Executive Offices)

(Zip Code)


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



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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

QMCO

Nasdaq Global Market

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

Yes

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

Yes

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


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

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

☐

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

☐

Yes

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

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QUANTUM CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2021

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		Page
Note about forward looking statements		1
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	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	29

Signatures		30

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

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

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts, unaudited)


	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.

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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,
	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.

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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.

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


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

Balance, June 30, 2021	57,280	$	573	$	629,862	$	(742,776)	$	(589)	(112,930)
Net loss	—	—		—		(9,253)		—		(9,253)
Foreign currency translation adjustments, net	—	—		—		—		(506)		(506)
Shares issued under employee stock purchase plan	145	1		805		—		—		806
Shares issued under employee incentive plans, net	1,387	14		(14)		—		—		—


Shares issued in connection with business acquisition	460	5		2,813		—		—		2,818
Stock-based compensation	—	—		3,072		—		—		3,072
Balance, September 30, 2021	59,272	$	593	$	636,538	$	(752,029)	$	(1,095)	$	(115,993)

See accompanying Notes to Condensed Consolidated Financial Statements.

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

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

Balance, March 31, 2021	56,915	$	570	$	626,664	$	(738,623)	$	(856)	$	(112,245)
Net loss	—	—		—		(13,406)		—		(13,406)
Foreign currency translation adjustments, net	—	—		—		—		(239)		(239)
Shares issued under employee stock purchase plan	145	1		805				—		806
Shares issued under employee incentive plans, net	1,752	17		(17)		—		—		—


Shares issued in connection with business acquisition	460	5		2,813		—		—		2,818
Stock-based compensation		—		6,273		—		—		6,273
Balance, September 30, 2021	59,272	$	593	$	636,538	$	(752,029)	$	(1,095)	$	(115,993)

See accompanying Notes to Condensed Consolidated Financial Statements.

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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	7
Note 3:	Business Combination	9
Note 4:	Balance Sheet Information	9
Note 5:	Long-Term Debt	11
Note 6:	Leases	13
Note 7:	Restructuring Charges	14
Note 8:	Net Loss Per Share	15

Note 9:	Income Taxes	15
Note 10:	Commitments and Contingencies	15
Note 11:	Fair Value of Financial Instruments	17
Note 12:	Subsequent Events	17

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Description of Business

Quantum 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

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Africa (“EMEA”); and (c) Asia Pacific (“APAC”). Revenue by geography is based on the location of the customer from which the revenue is earned.

In the following table, revenue is disaggregated by major product offering and geographies (in thousands):


	Three Months Ended 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):

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

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

NOTE 3: 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

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

Service parts inventories


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

Intangibles, net


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

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

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

Intangible assets amortization expense was $0.8 million and $0 for the three 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.

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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.

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On August 5, 2021 (the “Closing Date”), the Company entered into a senior secured term loan to borrow an aggregate of $100.0 million, (the “Term Loan”). A portion of the proceeds were used to repay in full all outstanding borrowings under the Senior Secured Term Loan. Borrowings under the Term Loan mature on August 5, 2026. Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter. Principal and interest payments are payable on a quarterly basis. The Company incurred $5.1 million in costs related to the Term Loan. These debt issuance costs are reflected as a reduction of the carrying amount of the Term Loan and are being recognized as interest expense over the term of the Term Loan.

The Company recorded a loss on debt extinguishment of $15.0 million related to the repayment of the Senior Secured Term Loan which was comprised of $6.4 million in prepayment penalties, $0.1 million in legal fees, and the write-off of unamortized debt issuance costs of $8.4 million.

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

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

As of September 30, 2021, the interest rates on the Term Loan and the PNC Credit Facility were 6.75% and 2.34%, respectively, and PNC Credit Facility had a borrowing base of $20.0 million, of which $8.6 million was available at that date. As of March 31, 2021, the Company was required to maintain a $5.0 million restricted cash reserve as part of the PNC Credit Facility, which was presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of March 31, 2021. The September 30, 2021 amendment 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):

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	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	(