Quantum Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

3 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

NOTE 5: LEASES

The Company adopted Accounting Standard Update (“ASU”) No. 2016-02,

Leases

(“Topic 842”) effective April 1, 2019 using the optional transition method in ASU

2018-11,

Targeted Improvements

. Therefore, the reported results for the three months ended June 30, 2019 reflect the application of Topic 842 while the reported results for the three months ended June 30, 2018 and as of March 31, 2019 were not adjusted and continue to be reported under Accounting Standard Codification (“ASC”) 840,

Leases

, the accounting guidance in effect for the prior period.

Under Topic 842, the Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The lease terms are used to determine lease classification as an operating or finance lease and is used to calculate straight-line lease expense for operating leases. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842 to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.

Right-of-use

(“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. As the Company’s leases typically do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date for its leases. The determination of the incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease. The Company elected the short-term lease recognition exemption for all leases that qualify. Therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet; instead, lease payments are recognized as lease expense on a straight-line basis over the lease term.

The Company has operating leases for facilities, vehicles, computers, and other office equipment with various expiration dates. The leases have remaining terms of 1 to 11 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. The Company did not use hindsight when determining lease term, therefore, the Company carried forward the lease term as determined prior to the adoption of Topic 842. For new leases with renewal or termination options, such option periods will be included in the determination of the Company’s ROU assets and lease liabilities if the Company is reasonably certain to exercise the option. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.

The components of lease cost were as follows (in thousands):


	Three Months Ended June 30, 2019
Operating lease cost	$	1,272
Variable lease cost		66
Short-term lease cost		2

Total lease cost	$	1,340

Supplemental cash flow information related to operating leases was as follows (in thousands):


	Three Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	1,304
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	13

Supplemental balance sheet information related to the Company’s operating leases was as follows (in thousands):


	As of June 30, 2019
Operating leases:
Operating lease right-of-use assets	$	11,928

Operating lease liabilities, current	$	3,026
Noncurrent operating lease liabilities		9,928

Total operating lease liabilities	$	12,954

As of June 30, 2019, the weighted-average remaining lease-term was 4.96 years and the weighted-average discount rate was 14.06%.

The maturities of lease liabilities under

non-cancellable

lease terms in excess of one year were as follows as of June 30, 2019 (in thousands):


	Operating Leases
Nine months ended March 31, 2020	$	3,342
For the fiscal year ended March 31,
2021		3,934
2022		3,186
2023		2,193
2024		1,952
Thereafter		3,719

Total minimum lease payments		18,326

Less: Imputed interest		(5,372	)

Present value of lease liabilities	$	12,954

Lease amounts above do not include sublease income. The Company has entered into various sublease agreements with third parties. Under these agreements, the Company expects to receive sublease income of approximately $0.2 million for the remainder of fiscal 2020 and $0.2 million in each of the next two years.

As of June 30, 2019, we have additional operating leases that have not yet commenced totaling $0.2 million. These operating leases include agreements for a vehicle and extensions of existing office space leases and will commence during the second quarter with lease terms of 2 to 3 years.