qtm-20221231

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, 2022


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

For the transition period from ___ to ___

Commission File Number 001-13449


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

Delaware

94-2665054

(State or other jurisdiction of incorporation or organization)

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

224 Airport Parkway

Suite 550

San Jose

95110

(Address of Principal Executive Offices)

(Zip Code)


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



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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

QMCO

Nasdaq Global Market

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

Yes

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

Yes

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


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

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

☐

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

☐

Yes

As of the close of business on January 30, 2023, there were 105,214,639 shares of Quantum Corporation’s common stock issued and outstanding.

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QUANTUM CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended December 31, 2022

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		Page

PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Stockholders’ Deficit	4
	Index to Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 6.	Exhibits	27

Signatures		28

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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, 2022		March 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	26,028	$	5,210
Restricted cash	219		283

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

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

Deferred revenue	72,669		86,517

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


Accrued compensation	15,527		16,141
Other accrued liabilities	15,852		16,562
Total current liabilities	150,836		157,815
Deferred revenue	41,076		41,580

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

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts, unaudited)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Revenue:
Product	$	75,420	$	58,522	$	198,597	$	165,308
Service and subscription	32,950		33,162		99,066		100,352
Royalty	2,826		3,660		9,744		11,963
Total revenue	111,196		95,344		307,407		277,623
Cost of revenue:
Product	58,528		45,118		163,010		124,982
Service and subscription	12,379		15,016		42,229		41,764
Total cost of revenue	70,907		60,134		205,239		166,746
Gross profit	40,289		35,210		102,168		110,877
Operating expenses:
Research and development	11,254		14,607		33,925		38,287
Sales and marketing	16,339		16,714		47,894		46,128
General and administrative	10,969		10,538		35,223		33,830
Restructuring charges	(41)		576		1,605		850
Total operating expenses	38,521		42,435		118,647		119,095
Income (loss) from operations	1,768		(7,225)		(16,479)		(8,218)
Other income (expense), net	(544)		(150)		2,638		(223)
Interest expense	(2,701)		(2,431)		(7,537)		(9,387)
Loss on debt extinguishment	—		—		(1,392)		(4,960)
Net loss before income taxes	(1,477)		(9,806)		(22,770)		(22,788)
Income tax provision	693		1,254		1,564		1,678
Net loss	$	(2,170)	$	(11,060)	$	(24,334)	$	(24,466)
Deemed dividend on warrants	—		—		(389)		—
Net loss attributable to common stockholders	$	(2,170)	$	(11,060)	$	(24,723)	$	(24,466)



Net loss per share attributable to common stockholders	$	(0.02)	$	(0.19)	$	(0.28)	$	(0.42)
Weighted average shares - basic and diluted	92,752		59,486		89,335		58,399


Net loss	$	(2,170)	$	(11,060)	$	(24,334)	$	(24,466)
Foreign currency translation adjustments, net	1,480		(37)		(1,094)		(276)
Total comprehensive loss	$	(690)	$	(11,097)	$	(25,428)	$	(24,742)

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Nine Months Ended December 31,
	2022		2021
Operating activities
Net loss	$	(24,334)	$	(24,466)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	7,235		6,795
Amortization of debt issuance costs	1,201		1,981
Loss on debt extinguishment	992		—
Provision for product and service inventories	11,334		4,016
Stock-based compensation	8,340		10,580
Paycheck Protection Program loan forgiveness	—		(10,000)

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




Unrealized foreign exchange loss	(1,134)		—


Changes in assets and liabilities:
Accounts receivable, net	(3,367)		7,008
Manufacturing inventories	(9,352)		(10,672)
Service parts inventories	(2,671)		(2,281)
Prepaid expenses	654		(5,653)
Accounts payable	7,015		5,369

Accrued restructuring charges	130		17
Accrued compensation	(614)		(3,021)
Deferred revenue	(14,351)		(8,598)
Other current assets	(2,812)		(1,394)
Other non-current assets	1,357		(1,148)
Other current liabilities	2,540		(3,350)
Other non-current liabilities	300		(617)
Net cash used in operating activities	(19,596)		(26,681)
Investing activities


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


Net cash used in investing activities	(12,644)		(11,779)
Financing activities
Borrowings of long-term debt, net of debt issuance costs	—		94,961
Repayments of long-term debt and payment of amendment fees	(23,346)		(93,677)
Borrowings of credit facility	363,103		207,563
Repayments of credit facility and payment of amendment fees	(353,502)		(200,007)


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

Net cash provided by financing activities	52,973		9,646
Effect of exchange rate changes on cash, cash equivalents and restricted cash	21		12
Net change in cash, cash equivalents and restricted cash	20,754		(28,802)
Cash, cash equivalents, and restricted cash at beginning of period	5,493		33,137
Cash, cash equivalents, and restricted cash at end of period	$	26,247	$	4,335
Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents	$	26,028	$	4,004
Restricted cash, current	219		331

Cash and cash equivalents at the end of period	$	26,247	$	4,335
Supplemental disclosure of cash flow information
Cash paid for interest	$	6,270	$	7,180
Cash paid for income taxes, net	$	837	$	541
Non-cash transactions
Purchases of property and equipment included in accounts payable	$	1,198	$	1,148

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands, unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income Loss		Total Stockholders' Deficit
	Shares	Amount
Balance, September 30, 2021	59,272	$	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, net	183	2		(2)		—		—		—
Shares issued in connection with business acquisition	361	4		(4)		—		—		—

Stock-based compensation	—	—		4,307		—		—		4,307
Balance, December 31, 2021	59,816	$	599	$	640,839	$	(763,089)	$	(1,132)	$	(122,783)

Balance, September 30, 2022	92,158	$	922	$	716,800	(793,067)		$	(3,997)	$	(79,342)
Net loss	—	—		—		(2,170)		—		(2,170)
Foreign currency translation adjustments, net	—	—		—		—		1,480		1,480
Shares issued under employee stock purchase plan	—	—		—		—		—		—
Shares issued under employee incentive plans, net	625	6		(6)		—		—		—


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


Balance, December 31, 2022	93,144	$	932	$	719,769	$	(795,237)	$	(2,517)	$	(77,053)

See accompanying Notes to Condensed Consolidated Financial Statements.

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	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
	Shares	Amount
Balance, March 31, 2021	56,915	$	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 plan	145	1		805		—		—		806
Shares issued under employee incentive plans, net	1,935	19		(19)		—		—		—


Shares issued in connection with business acquisition	821	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)

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


Shares issued in connection with business acquisition	361	4		(4)		—		—		—
Shares issued in connection with rights offering, net	30,000	300		65,946		—		—		66,246
Settlement of warrant down round provision	—	—		389		—		—		389
Deemed dividend on warrants	—	—		(389)		—		—		(389)
Stock-based compensation	—	—		8,340		—		—		8,340
Balance, December 31, 2022	93,144	$	932	$	719,769	$	(795,237)	$	(2,517)	$	(77,053)

See accompanying Notes to Condensed Consolidated Financial Statements.

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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Page
Note 1:	Description of Business and Summary of Significant Accounting Policies	7
Note 2:	Revenue	7
Note 3:	Balance Sheet Information	9
Note 4:	Long-Term Debt	10
Note 5:	Leases	11
Note 6:	Common Stock	12
Note 7:	Net Loss Per Share	13
Note 8:	Income Taxes	13
Note 9:	Commitments and Contingencies	13
Note 10:	Fair Value of Financial Instruments	15
Note 11:	Subsequent Event	15

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Description of Business

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of December 31, 2022, 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, 2022 and 2021. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

Use of Estimates

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

Recently Issued but not Adopted Accounting Pronouncements

None.

NOTE 2: REVENUE

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Based on how the Company manages its business, the Company has determined that it currently operates in one reportable segment. The Company operates in three geographic regions: (a) Americas; (b) Europe, Middle East and Africa (“EMEA”); and (c) Asia Pacific (“APAC”). Revenue by geography is based on the location of the customer from which the revenue is earned.

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


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Americas1
Primary storage systems	$	10,668	$	8,768	$	28,921	$	27,228
Secondary storage systems	35,085		15,060		88,821		43,946
Device and media	4,107		7,737		13,773		19,527
Service and subscription	19,756		19,470		59,319		61,003
Total revenue	69,616		51,035		190,834		151,704

EMEA
Primary storage systems	2,332		3,305		7,078		10,325
Secondary storage systems	10,096		10,377		25,380		27,856
Device and media	6,029		5,125		14,794		15,018
Service and subscription	10,989		11,606		32,748		33,454
Total revenue	29,446		30,413		80,000		86,653

APAC
Primary storage systems	974		1,718		3,376		4,234
Secondary storage systems	5,541		5,193		13,651		13,291
Device and media	588		1,239		2,803		3,883
Service and subscription	2,205		2,086		6,999		5,895
Total revenue	9,308		10,236		26,829		27,303

Consolidated
Primary storage systems	13,974		13,791		39,375		41,787
Secondary storage systems	50,722		30,630		127,852		85,093
Device and media	10,724		14,101		31,370		38,428
Service and subscription	32,950		33,162		99,066		100,352
Royalty2	2,826		3,660		9,744		11,963
Total revenue	$	111,196	$	95,344	$	307,407	$	277,623

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

2 Royalty revenue is not allocatable to geographic regions.

Contract Balances

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


	December 31, 2022
Contract liabilities (deferred revenue)	$	113,745
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period	71,669

Remaining Performance Obligations

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


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

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

NOTE 3: BALANCE SHEET INFORMATION

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

Manufacturing inventories


	December 31, 2022		March 31, 2022



Finished goods	$	13,639	$	14,607
Work in progress	2,268		2,546
Raw materials	16,495		16,393
Total manufacturing inventories	$	32,402	$	33,546

Service parts inventories


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

Intangibles, net


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

Developed technology	$	9,013	$	(5,442)	$	3,571	$	9,013	$	(2,926)	$	6,087
Customer lists	4,398		(1,472)		2,926		4,398		(901)		3,497

Intangible assets, net	$	13,411	$	(6,914)	$	6,497	$	13,411	$	(3,827)	$	9,584

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

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

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


Thereafter	—
Total	$	6,497

Goodwill

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

NOTE 4: LONG-TERM DEBT

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


	December 31, 2022		March 31, 2022
Term Loan	$	75,917	$	98,722

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

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

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

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

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

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

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

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

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

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

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

NOTE 5: LEASES

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


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

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

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


	Three Months Ended December 31,				Nine Months Ended December 31,
Lease Cost	2022		2021		2022		2021
Operating lease cost	$	994	$	887	$	3,023	$	3,016
Variable lease cost	176		176		513		527
Short-term lease cost	—		13		—		17
Total lease cost	$	1,170	$	1,076	$	3,536	$	3,560

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


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

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

NOTE 6: COMMON STOCK

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

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

Common Stock Rights Offering

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

Warrants

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

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

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difference in fair value of the effect of the Down Round Feature of $0.4 million was reflected as a deemed dividend and a reduction to income available to common stockholders in the basic earnings per share calculation. The Company used the Black-Scholes-Merton option-pricing model to determine the fair value of the deemed dividend. The assumptions used in the model are as follows: dividend rate of 0%; expected term of 8 years; volatility of 56%; and a risk-free rate 2.85%.

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

NOTE 7: NET LOSS PER SHARE

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


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

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

NOTE 8: INCOME TAXES

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

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