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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, 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

qtm-20211231_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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
x
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
x
 No
As of the close of business on February 4, 2022, there were 60,115,450 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, 2021

Table of Contents
Page
Item 1.       
Item 2.
Item 3.
Item 4.
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 Part II, Item 1A. Moreover, we operate in a competitive and changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We do not intend to update any of these forward-looking statements for any reason after the date of this report or to conform these statements to actual results or revised expectations, except as required by law.



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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
December 31, 2021March 31, 2021
Assets
Current assets:
Cash and cash equivalents$4,004 $27,430 
Restricted cash331 707 
Accounts receivable, net of allowance for doubtful accounts of $347 and $406
66,070 73,102 
Manufacturing inventories33,912 24,467 
Service parts inventories22,532 23,421 
Other current assets14,082 6,939 
Total current assets140,931 156,066 
Property and equipment, net 13,020 10,051 
Intangible assets, net 10,738 5,037 
Goodwill 10,262 3,466 
Restricted cash 5,000 
Right-of-use assets, net3,483 9,383 
Other long-term assets9,202 5,921 
Total assets$187,636 $194,924 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable$42,041 $35,245 
Deferred revenue78,115 84,027 
Accrued restructuring charges597 580 
Long-term debt, current portion3,750 1,850 
Accrued compensation16,193 19,214 
Other accrued liabilities15,451 18,174 
Total current liabilities156,147 159,090 
Deferred revenue41,190 36,126 
Long-term debt, net of current portion97,928 90,890 
Operating lease liabilities2,714 8,005 
Other long-term liabilities12,440 13,058 
Total liabilities310,419 307,169 
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; 59,816 and 56,915 shares issued and outstanding
599 570 
Additional paid-in capital640,839 626,664 
Accumulated deficit(763,089)(738,623)
Accumulated other comprehensive loss(1,132)(856)
Total stockholders’ deficit(122,783)(112,245)
Total liabilities and stockholders’ deficit$187,636 $194,924 
See accompanying Notes to Condensed Consolidated Financial Statements.


1

Table of Contents

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

Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Revenue:
   Product$58,522 $63,021 $165,308 $153,557 
   Service33,162 31,169 100,352 93,049 
   Royalty3,660 3,833 11,963 10,543 
      Total revenue95,344 98,023 277,623 257,149 
Cost of revenue:
   Product45,118 43,311 124,982 108,691 
   Service15,016 12,433 41,764 36,593 
      Total cost of revenue60,134 55,744 166,746 145,284 
Gross profit35,210 42,279 110,877 111,865 
Operating expenses:
   Research and development14,607 9,589 38,287 29,983 
   Sales and marketing16,714 15,294 46,128 40,019 
   General and administrative10,538 11,103 33,830 32,928 
   Restructuring charges576 200 850 2,837 
      Total operating expenses42,435 36,186 119,095 105,767 
Income (loss) from operations(7,225)6,093 (8,218)6,098 
Other expense, net(150)(698)(223)(1,395)
Interest expense(2,431)(7,808)(9,387)(21,823)
Loss on debt extinguishment, net  (4,960) 
Net loss before income taxes(9,806)(2,413)(22,788)(17,120)
Income tax provision1,254 256 1,678 877 
Net loss$(11,060)$(2,669)$(24,466)$(17,997)
Net loss per share - basic and diluted$(0.19)$(0.07)$(0.42)$(0.45)
Weighted average shares - basic and diluted59,486 40,927 58,399 40,374 
Net loss$(11,060)$(2,669)$(24,466)$(17,997)
Foreign currency translation adjustments, net(37)975 (276)1,984 
Total comprehensive loss$(11,097)$(1,694)$(24,742)$(16,013)
See accompanying Notes to Condensed Consolidated Financial Statements.
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QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended December 31,
20212020
Operating activities
Net loss$(24,466)$(17,997)
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization6,795 3,898 
Amortization of debt issuance costs1,981 4,906 
Long-term debt related costs 167 
Provision for product and service inventories4,016 4,764 
Stock-based compensation10,580 6,428 
Paycheck Protection Program loan forgiveness(10,000) 
Non-cash loss on debt extinguishment8,471  
Other282 2,113 
Changes in assets and liabilities:
Accounts receivable, net7,008 1,342 
Manufacturing inventories(10,672)(7,732)
Service parts inventories(2,281)(4,559)
Accounts payable 5,369 (7,022)
Accrued restructuring charges17 210 
Accrued compensation(3,021)4,268 
Deferred revenue(8,598)(9,727)
Other current assets(7,047)846 
Other non-current assets(1,148)133 
Other current liabilities(3,350)(2,432)
Other non-current liabilities(617)130 
Net cash used in operating activities(26,681)(20,264)
Investing activities
Purchases of property and equipment(3,971)(4,665)
Business acquisition, net of cash acquired(7,808)(2,636)
Net cash used in investing activities(11,779)(7,301)
Financing activities
Borrowings of long-term debt, net of debt issuance costs94,961 19,400 
Repayments of long-term debt(93,677) 
Borrowings of credit facility207,563 232,663 
Repayments of credit facility(200,007)(229,847)
Borrowings of payment protection program 10,000 
Proceeds from issuance of common stock806 539 
Net cash provided by financing activities9,646 32,755 
Effect of exchange rate changes on cash, cash equivalents and restricted cash12 (62)
Net change in cash, cash equivalents and restricted cash (28,802)5,128 
Cash, cash equivalents, and restricted cash at beginning of period33,137 12,270 
Cash, cash equivalents, and restricted cash at end of period $4,335 $17,398 
Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents$4,004 $11,632 
Restricted cash, current331 766 
Restricted cash, long-term 5,000 
Cash, cash equivalents and restricted cash at the end of period$4,335 $17,398 
Supplemental disclosure of cash flow information
      Cash paid for interest$7,180 $19,992 
      Cash paid (received) for income taxes, net$541 $(2,464)
   Non-cash transactions
      Purchases of property and equipment included in accounts payable $1,148 $67 
      Purchases of property and equipment included in accrued liabilities$1,212 $1,255 
      Transfer of inventory to property and equipment$382 $372 
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 LossTotal Stockholders' Deficit
Three Months EndedSharesAmount
Balance, September 30, 202040,740 $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 stock purchase plan453 5 (5)— —  
Shares issued under employee incentive plans, net361 3 2,077 — — 2,080 
Stock-based compensation— — 1,878 — — 1,878 
Balance, December 31, 202041,554 $416 $526,307 $(721,161)$462 $(193,976)
Balance, September 30, 202159,272 $593 $636,538 $(752,029)$(1,095)$(115,993)
Net loss— — — (11,060)— (11,060)
Foreign currency translation adjustments, net— — — — (37)(37)
Shares issued under employee stock purchase plan   — —  
Shares issued under employee incentive plans, net183 2 (2)— —  
Shares issued in connection with business acquisition361 4 (4)— —  
Stock-based compensation— — 4,307 — — 4,307 
Balance, December 31, 2021 59,816 $599 $640,839 $(763,089)$(1,132)$(122,783)
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, 202039,905 $399 $505,762 $(703,164)$(1,522)$(198,525)
Net loss— — — (17,997)— (17,997)
Foreign currency translation adjustments, net— — — — 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 
Warrants issued 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)
Balance, March 31, 202156,915 $570 $626,664 $(738,623)$(856)$(112,245)
Net loss— — — (24,466)— (24,466)
Foreign currency translation adjustments, net— — — — (276)(276)
Shares issued under employee stock purchase plan145 1 805 — — 806 
Shares issued under employee incentive plans, net1,935 19 (19)— —  
Shares issued in connection with business acquisition821 9 2,809 — — 2,818 
Stock-based compensation— — 10,580 — — 10,580 
Balance, December 31, 2021
59,816 $599 $640,839 $(763,089)$(1,132)$(122,783)
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
Description of Business

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), 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 December 31, 2021, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three and nine months ended December 31, 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 Not Yet Adopted

In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606 (Revenue Guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. This update will be effective for the Company for the fiscal year beginning April 1, 2023. Early adoption is permitted including adoption in interim periods. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.




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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,
2021202020212020
Americas1
   Primary storage systems$8,768 $18,755 $27,228 $42,547 
   Secondary storage systems15,060 11,124 43,946 29,117 
   Device and media7,737 5,347 19,527 17,777 
   Service19,470 18,913 61,003 56,907 
Total revenue51,035 54,139 151,704 146,348 
EMEA
   Primary storage systems3,305 3,680 10,325 8,774 
   Secondary storage systems10,377 10,113 27,856 23,081 
   Device and media5,125 5,900 15,018 14,668 
   Service11,606 10,339 33,454 30,380 
Total revenue30,413 30,032 86,653 76,903 
APAC
   Primary storage systems1,718 1,219 4,234 3,157 
   Secondary storage systems5,193 4,074 13,291 10,507 
   Device and media1,239 2,809 3,883 3,929 
   Service2,086 1,917 5,895 5,762 
Total revenue10,236 10,019 27,303 23,355 
Consolidated
   Primary storage systems13,791 23,654 41,787 54,478 
   Secondary storage systems30,630 25,311 85,093 62,705 
   Device and media14,101 14,056 38,428 36,374 
   Service33,162 31,169 100,352 93,049 
   Royalty2
3,660 3,833 11,963 10,543 
Total revenue$95,344 $98,023 $277,623 $257,149 

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 nine months ended December 31, 2021 (in thousands): 
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December 31, 2021
Contract liabilities (deferred revenue)$119,305 
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period72,383 

Remaining Performance Obligations

Remaining performance obligations consisted of the following (in thousands):
CurrentNon-CurrentTotal
As of December 31, 2021
$102,726 $43,276 $146,002 

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



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NOTE 3: BUSINESS COMBINATION
Pivot3
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 were 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 consideration2,818 
   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):
AmountEstimated Useful Life
Goodwill$6,796 
Identified intangible assets: 
   Developed technology1,700 2 years
   Customer lists3,700 4 years
Property, plant and equipment4,300 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.

EnCloudEn
On October 1, 2021 the Company acquired all intellectual property rights and certain other assets of EnCloudEn, an early stage hyperconverged infrastructure software company. The transaction costs associated with the acquisition were not material and were expensed as incurred. The total purchase consideration for the acquisition was $2.8 million with $2.6 million paid at closing and an additional $0.2 million paid in two equal quarterly installments after closing. The fair value of the assets acquired was allocated to developed technology with an estimate useful life of three years.



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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December 31, 2021March 31, 2021
   Finished goods:
      Manufactured finished goods $13,111 $12,452 
      Distributor inventory170 238 
         Total finished goods13,281 12,690 
   Work in progress2,820 2,074 
   Raw materials17,811 9,703 
Total manufacturing inventories$33,912 $24,467 

Service parts inventories
December 31, 2021March 31, 2021
   Finished goods$17,389 $18,773 
   Component parts5,143 4,648 
Total service parts inventories$22,532 $23,421 

Intangibles, net
December 31, 2021March 31, 2021
GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
   Developed technology$9,208 $(2,293)$6,915 $4,700 $(473)$4,227 
   Customer lists4,600 (777)3,823 900 (90)810 
Intangible assets, net$13,808 $(3,070)$10,738 $5,600 $(563)$5,037 

Intangible assets amortization expense was $1.2 million and $0.1 for the three months ended December 31, 2021 and 2020, respectively, and $2.5 million and $0.1 for the nine months ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.6 years.

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

Fiscal year ending Estimated future amortization expense
Remainder of 2022$1,129 
20234,568 
20243,417 
Thereafter1,624 
Total$10,738 


Goodwill
Amount
Balance at March 31, 2021$3,466 
Goodwill acquired6,796 
Balance at December 31, 2021
$10,262 



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NOTE 5: LONG-TERM DEBT
The Company’s long-term debt consisted of the following (in thousands):
 December 31, 2021March 31, 2021
Term Loan$98,750 $ 
Senior Secured Term Loan 92,426 
PNC Credit Facility7,556  
Paycheck Protection Program Loan 10,000 
Less: current portion(3,750)(1,850)
Less: unamortized debt issuance costs (1)
(4,628)(9,686)
Long-term debt, net$97,928 $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 (the “PNC Credit Facility”) with PNC Bank, National Association (“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 (the “PNC Credit Agreement”).

On June 16, 2020, the Company entered into amendments to the December 2018 Credit Agreements, which, among other things, provided an additional borrowing of $20.0 million.

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.

On August 5, 2021, 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 of the Term Loan 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.

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The Term Loan credit agreement (the “Term Loan Credit Agreement” and, together with the PNC Credit Agreement, the “Credit Agreements”) 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 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 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 December 31, 2021, the interest rates on the Term Loan was 6.75% and the interest rate on the PNC Credit Facility was 4.50%. The PNC Credit Facility had a borrowing base of $15.1 million, of which $7.6 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.

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 nine months ended December 31, 2021.

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NOTE 6: LEASES
Supplemental balance sheet information related to leases is as follows (in thousands):
Operating leasesDecember 31, 2021March 31, 2021
Operating lease right-of-use asset$3,483 $9,383 
Other accrued liabilities1,141 2,581 
Operating lease liability2,714 8,005 
   Total operating lease liabilities$3,855 $10,586 


Components of lease cost were as follows (in thousands):
Three Months Ended December 31,Nine Months Ended December 31,
Lease Cost2021202020212020
Operating lease cost  $3,016 $1,018 $5,145 $3,688 
Variable lease cost  527 198 877 620 
Short-term lease cost  17 37 17 129 
Total lease cost  $3,560 $1,253 $6,039 $4,437 

Maturity of Lease LiabilitiesOperating Leases
   2022, excluding the nine months ended December 31, 2021
$451 
   20231,449 
   20241,228 
   2025918 
   2026444 
   Thereafter460 
Total lease payments$4,950 
Less: imputed interest(1,095)
Present value of lease liabilities$3,855 



Lease Term and Discount RateDecember 31, 2021March 31, 2021
Weighted average remaining operating lease term (years)3.634.53
Weighted average discount rate for operating leases13.16 %13.96 %

Operating cash outflows related to operating leases totaled $3.1 million and $4.4 million for the nine months ended December 31, 2021 and 2020, respectively.

During the quarter ended December 31, 2021, the Company exited an office location which resulted in a reduction of $3.8 million in the right-of-use asset and $3.7 million in the operating lease liability.


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NOTE 7: RESTRUCTURING CHARGES
The following table summarizes the restructuring activities for the nine months ended December 31, 2021 and 2020 (in thousands):

 Severance and Benefits
Balance as of March 31, 2021$580 
   Restructuring costs 850
   Adjustments to prior estimates(28)
   Cash payments (785)
   Other non-cash