qtm-20230630

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 June 30, 2023


☐			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 August 4, 2023 there were 95,040,608 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 June 30, 2023

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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 Changes in Stockholders’ Deficit	4
	Index to Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	23

Signatures		24

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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, but not limited to, statements regarding our future operating results and financial position; our business strategy, focus and plans; our market growth and trends; our products, services and expected benefits thereof; 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 the competitive pressures that we face; risks associated with executing our strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of our products and the delivery of our services effectively; the protection of our intellectual property assets, including intellectual property licensed from third parties; risks associated with our international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs; our response to emerging technological trends; the execution and performance of contracts by us and our suppliers, customers, clients and partners; the hiring and retention of key employees; risks associated with business combination and investment transactions; the execution, timing and results of any transformation or restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of the transformation and restructuring plans; the outcome of any claims and disputes; and those risks described under Item 1A. Risk Factors. 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 undertake no obligation 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.

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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)


	June 30, 2023		March 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	25,465	$	25,963
Restricted cash	200		212

Accounts receivable, net of allowance for doubtful accounts of $163 and $201, respectively	66,245		72,464
Manufacturing inventories	20,017		19,441
Service parts inventories	25,276		25,304
Prepaid expenses	6,444		4,158
Other current assets	6,004		5,513
Total current assets	149,651		153,055
Property and equipment, net	15,583		16,555
Intangible assets, net	3,801		4,941
Goodwill	12,969		12,969

Right-of-use assets, net	10,017		10,291
Other long-term assets	18,463		15,846
Total assets	$	210,484	$	213,657
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	30,560	$	35,716

Deferred revenue, current portion	79,686		82,504

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


Accrued compensation	14,894		15,710
Other accrued liabilities	12,715		13,666
Total current liabilities	142,855		152,596
Deferred revenue, net of current portion	43,903		43,306

Revolving credit facility	17,800		16,750
Long-term debt, net of current portion	77,814		66,354

Operating lease liabilities	10,001		10,169
Other long-term liabilities	12,191		11,370
Total liabilities	304,564		300,545
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; 93,705 and 93,574 shares issued and outstanding	938		936
Additional paid-in capital	725,736		722,603
Accumulated deficit	(819,422)		(808,846)
Accumulated other comprehensive loss	(1,332)		(1,581)
Total stockholders’ deficit	(94,080)		(86,888)
Total liabilities and stockholders’ deficit	$	210,484	$	213,657

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 June 30,
		2023		2022
Revenue:
Product		$	57,447	$	60,211
Service and subscription		31,375		33,423
Royalty		2,965		3,440
Total revenue		91,787		97,074
Cost of revenue:
Product		44,451		47,921
Service and subscription		12,403		15,105
Total cost of revenue		56,854		63,026
Gross profit		34,933		34,048
Operating expenses:
Research and development		10,913		12,125
Sales and marketing		15,839		15,962
General and administrative		12,699		12,314
Restructuring charges		1,329		725
Total operating expenses		40,780		41,126
Loss from operations		(5,847)		(7,078)
Other income (expense), net		(998)		751
Interest expense		(3,201)		(2,091)
Loss on debt extinguishment		—		(1,392)
Net loss before income taxes		(10,046)		(9,810)
Income tax provision		530		410
Net loss		$	(10,576)	$	(10,220)
Deemed dividend on warrants		—		(389)
Net loss attributable to common stockholders		$	(10,576)	$	(10,609)



Net loss per share attributable to common stockholders		$	(0.11)	$	(0.13)
Weighted average shares - basic and diluted		93,673		83,641


Net loss		$	(10,576)	$	(10,220)
Foreign currency translation adjustments, net		249		(1,276)
Total comprehensive loss		$	(10,327)	$	(11,496)

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Three Months Ended June 30,
	2023		2022
Operating activities
Net loss	$	(10,576)	$	(10,220)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	2,752		2,586
Amortization of debt issuance costs	520		336
Loss on debt extinguishment	—		992
Provision for product and service inventories	516		1,631
Stock-based compensation	1,901		3,069



Other	734		(1,469)







Changes in assets and liabilities:
Accounts receivable, net	6,255		4,677
Manufacturing inventories	(692)		(412)
Service parts inventories	(516)		(1,384)
Prepaid expenses	(2,287)		(2,745)
Accounts payable	(5,421)		(175)

Accrued restructuring charges	110		39
Accrued compensation	(816)		(1,610)
Deferred revenue	(2,221)		(13,634)
Other current assets	(487)		6
Other non-current assets	(935)		(261)
Other current liabilities	(954)		64
Other non-current liabilities	1,462		164
Net cash used in operating activities	(10,655)		(18,346)
Investing activities


Purchases of property and equipment	(2,299)		(3,036)
Deferred business acquisition payment	—		(2,000)


Net cash used in investing activities	(2,299)		(5,036)
Financing activities
Borrowings of long-term debt, net of debt issuance costs	14,100		—
Repayments of long-term debt and payment of amendment fees	(1,997)		(20,846)
Borrowings of credit facility	108,186		109,740
Repayments of credit facility and payment of amendment fees	(107,834)		(110,575)


Proceeds from issuance of common stock, net	(9)		66,324

Net cash provided by financing activities	12,446		44,643
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2)		29
Net change in cash, cash equivalents and restricted cash	(510)		21,290
Cash, cash equivalents, and restricted cash at beginning of period	26,175		5,493
Cash, cash equivalents, and restricted cash at end of period	$	25,665	$	26,783
Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents	$	25,465	$	26,528
Restricted cash, current	200		255

Cash and cash equivalents at the end of period	$	25,665	$	26,783
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,863	$	1,863
Cash paid for income taxes, net	$	307	$	115
Non-cash transactions
Purchases of property and equipment included in accounts payable	$	977	$	133

Transfer of manufacturing inventory to services inventory	$	(226)	$	890
Transfer of manufacturing inventory to property and equipment	$	143	$	193
Paid-in-kind interest	$	191	$	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 Loss		Total Stockholders' Deficit
Three Months Ended	Shares	Amount
Balance, March 31, 2022	60,433	$	605	$	645,038	$	(770,903)	$	(1,423)	$	(126,683)
Net loss	—	—		—		(10,220)		—		(10,220)
Foreign currency translation adjustments, net	—	—		—		—		(1,276)		(1,276)
Shares issued under employee incentive plans, net	173	2		(2)		—		—		—




Shares issued in connection with rights offering, net	30,000	300		66,023		—		—		66,323
Stock-based compensation	—	—		3,069		—		—		3,069
Settlement of warrant down round provision	—	—		389		—		—		389
Deemed dividend on warrants	—	—		(389)		—		—		(389)
Balance, June 30, 2022	90,606	$	907	$	714,128	$	(781,123)	$	(2,699)	$	(68,787)

Balance, March 31, 2023	93,574	$	936	$	722,603	$	(808,846)	$	(1,581)	$	(86,888)
Net loss	—	—		—		(10,576)		—		(10,576)
Foreign currency translation adjustments, net	—	—		—		—		249		249
Shares issued under employee incentive plans, net	131	2		(2)		—		—		—
Warrants issued in connection with debt refinancing	—	—		1,234		—		—		1,234
Stock-based compensation	—	—		1,901		—		—		1,901
Balance, June 30, 2023	93,705	$	938	$	725,736	$	(819,422)	$	(1,332)	$	(94,080)

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	6
Note 2:	Revenue	6
Note 3:	Balance Sheet Information	8
Note 4:	Long-Term Debt	9
Note 5:	Leases	11
Note 6:	Restructuring Charges	12
Note 7:	Net Loss Per Share	12
Note 8:	Income Taxes	12
Note 9:	Commitments and Contingencies	13
Note 10:	Fair Value of Financial Instruments	14

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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-volatile memory express (“NVMe”), to solid state drives (“SSD”), hard disk drives (“HDD”), tape and the cloud 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 June 30, 2023, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three months ended June 30, 2023 and 2022. 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 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. 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

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 offerings and geographies (in thousands):


	Three Months Ended June 30,
	2023				2022
Americas1



Product revenue	36,629				39,105
Service and subscription	18,394				20,145
Total revenue	55,023		61	%	59,250		60	%

EMEA



Product revenue	15,102				15,753
Service and subscription	10,926				11,017
Total revenue	26,028		28	%	26,770		28	%

APAC



Product revenue	5,716				5,353
Service and subscription	2,055				2,261
Total revenue	7,771		8	%	7,614		8	%

Consolidated



Product revenue	57,447				60,211
Service and subscription	31,375				33,423
Royalty2	2,965		3	%	3,440		4	%
Total revenue	$	91,787	100	%	$	97,074	100	%

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

2 Royalty revenue is not allocatable to geographic regions.

Revenue by Solution


	Three Months Ended June 30,
	2023	%		2022	%
Primary storage systems	11,111	12	%	16,743	17	%
Secondary storage systems	40,626	45	%	33,451	34	%
Device and media	8,348	9	%	11,616	12	%
Service	28,737	31	%	31,824	33	%
Royalty	2,965	3	%	3,440	4	%
Total revenue1	91,787	100	%	97,074	100	%

1 Subscription revenue of $2.6 million and $1.6 million was allocated to Primary and Secondary storage systems for the quarters ended June 30, 2023 and 2022, respectively.

Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the three months ended June 30, 2023 (in thousands):

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	June 30, 2023
Contract liabilities (deferred revenue)	$	123,589
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period	26,919

Remaining Performance Obligations

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


	Current		Non-Current		Total
As of June 30, 2023	$	95,299	$	46,032	$	141,331

The table below reflects our deferred revenue as of June 30, 2023 (in thousands):


	Deferred revenue by period
(in thousands)	Total		1 year or less		1 – 3 Years		3 year or greater
Subscription revenue	$	14,800	$	6,936	$	7,160	$	704
Service revenue	108,789		72,749		33,973		$	2,067
Total	$	123,589	$	79,685	$	41,133	$	2,771

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


	June 30, 2023		March 31, 2023



Finished goods	$	7,395	$	6,958
Work in progress	1,538		1,304
Raw materials	11,084		11,179
Total manufacturing inventories	$	20,017	$	19,441

Service parts inventories


	June 30, 2023		March 31, 2023
Finished goods	$	17,884	$	19,834
Component parts	7,392		5,470
Total service parts inventories	$	25,276	$	25,304

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Intangibles, net


	June 30, 2023						March 31, 2023
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

Developed technology	$	9,013	$	(7,104)	$	1,909	$	9,013	$	(6,269)	$	2,744
Customer lists	4,398		(2,506)		1,892		4,398		(2,201)		2,197

Intangible assets, net	$	13,411	$	(9,610)	$	3,801	$	13,411	$	(8,470)	$	4,941

Intangible assets amortization expense was $1.1 million and $1.2 million for the three months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 1.4 years.

As of June 30, 2023, the future expected amortization expense for intangible assets is as follows (in thousands):


Fiscal year ending	Estimated future amortization expense
Remainder of 2024	$	2,348
2025	1,453


Thereafter	—
Total	$	3,801

Goodwill

As of June 30, 2023 and March 31, 2022, goodwill was $13.0 million. There were no impairments to goodwill during the three months ended June 30, 2023 and 2022.

NOTE 4: LONG-TERM DEBT

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


	June 30, 2023		March 31, 2023
Term Loan	$	88,608	$	74,667
PNC Credit Facility	17,800		16,750
Less: current portion	(5,000)		(5,000)
Less: unamortized debt issuance costs (1)	(5,794)		(3,313)
Long-term debt, net	$	95,614	$	83,104

(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 August 5, 2021, the Company entered into a new senior secured term loan to borrow an aggregate of $100.0 million (the “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 “April 2022 Amendments”). The April 2022 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

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Financing Rate ("SOFR"). The April 2022 Amendments were accounted for as modifications. The Company incurred $0.4 million in costs related to amendment to the Term Loan which is reflected as a reduction to the carrying amount of the Term Loan and amortized to interest expense over the remaining loan term.

On June 1, 2023, the Company entered into amendments to the Term Loan and the PNC Credit Facility (the “June 2023 Amendments”). The June 2022 Amendments, among other things, (a) amended the total net leverage ratio financial covenant commencing with the fiscal quarter ended June 30, 2023; (b) amended the minimum liquidity financial covenant to adjust the minimum liquidity level; and (c) amended the “EBITDA” definition to increase the add-back cap on non-recurring items including restructuring charges during the fiscal years ended March 31, 2024 and 2025. The June 2023 Amendments to the Term Loan also provided an advance of $15.0 million in additional Term Loan borrowings (the “2023 Term Loan”) and incurred $0.9 million in original issuance discount and origination fees which have been recorded as a reduction to the carrying amount of the June 2023 Term Loan and amortized to interest expense over the remaining loan term. The terms of the 2023 Term Loan are substantially similar to the terms of the existing term loans, as amended by the Term Loan Amendment, including in relation to maturity and security, except that, among other things, (a) the applicable margin (i) for any 2023 Term Loan designated an “ABR Loan” is 9.00% per annum and (ii) for any 2023 Term Loan designated as a “SOFR Loan” is 10.00% per annum, (b) accrued interest on the 2023 Term Loan is payable in kind, and is capitalized and added to the principal amount of the 2023 Term Loan at the end of each interest period applicable thereto, (c) the 2023 Term Loan does not amortize prior to the maturity date thereof, and (d) the 2023 Term Loan may not be prepaid prior to the payment in full of the existing term loans.

In connection with the June 2023 Term Loan, the Company issued warrants to purchase an aggregate of 1.25 million shares (the “2023 Term Loan Warrants”) of the Company’s common stock, at an exercise price of $1.00 per share. The exercise price and the number of shares underlying the warrant are subject to adjustment in the event of specified events, including dilutive issuances at a price lower than the exercise price of the warrant (the “Down Round Feature”), a subdivision or combination of the common stock, and a reclassification of the common stock or specified dividend payments. The 2023 Term Loan Warrants are exercisable until June 1, 2033. 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.

We have accounted for warrants in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging and concluded that the warrants are to be classified as equity and therefore recorded the fair value of the warrants as a component of additional paid in capital in stockholders’ deficit. The Company determined that the fair value of the warrants was $1.2 million using the Black-Scholes-Merton option-pricing model. The assumptions used in the model are as follows: dividend rate of 0%; expected term of 10 years; volatility of 71.6%; and a risk-free rate of 3.61%.

The June 2023 Amendments to the Term Loan were accounted for as modifications. The value of the June 2023 Term Loan Warrants in addition to $0.7 million of fees paid to the lenders have been reflected as a reduction to the carrying amount of the June 2023 Term Loan and amortized to interest expense over the remaining loan term. The Company incurred $0.9 million of legal and financial advisory fees which were included in general and administrated expenses in the condensed consolidated statement of operations and comprehensive loss. The June 2023 Amendments to the PNC Credit Facility were accounted for as modifications and $0.7 million in related fees and expenses were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.

As of June 30, 2023, the interest rate on the Term Loan was 11.16% and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 10.00%. As of June 30, 2023, the PNC Credit Facility had an available borrowing base of $34.4 million, of which $16.6 million was available to borrow at that date.

Amendment to Registration Rights Agreement

In connection with the June 2023 Amendments, the holders of warrants previously issued to certain lenders in December 2018 and June 2020 (the “Existing Warrants”) and the holder of the June 2023 Warrants entered into an amendment and joinder (the “Registration Rights Agreement Amendment”) to the Amended and Restated Registration Rights Agreement, dated as of June 16, 2020. The Registration Rights Agreement Amendment, among other things, amends the Registration Rights Agreement to grant certain registration rights for the shares of common stock issuable upon the exercise of the 2023 Term Loan Warrant, consistent with the registration rights granted to the holders of the Existing Warrants, including (i) 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

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the issuance date of the applicable 2023 Term Loan Warrants on or after June 1, 2023, (ii) 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 (iii) customary piggyback registration rights, subject to certain customary limitations.

NOTE 5: LEASES

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


Operating leases	June 30, 2023		March 31, 2023
Operating lease right-of-use asset	$	10,017	$	10,291

Other accrued liabilities	1,218		1,364
Operating lease liability	10,001		10,169
Total operating lease liabilities	$	11,219	$	11,533

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


	Three Months Ended June 30,
Lease Cost	2023		2022
Operating lease cost	$	875	$	1,026
Variable lease cost	122		158
Total lease cost	$	997	$	1,184


Maturity of Lease Liabilities	Operating Leases
Remainder of 2024	$	1,963
2025	2,257
2026	1,828
2027	1,645
2028	1,474
Thereafter	13,265
Total lease payments	$	22,432
Less: imputed interest	(11,213)
Present value of lease liabilities	$	11,219


Lease Term and Discount Rate	June 30, 2023		March 31, 2023
Weighted average remaining operating lease term (years)	10.88		10.85
Weighted average discount rate for operating leases	12.7	%	12.7	%

Operating cash outflows related to operating leases totaled $0.9 million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively.

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NOTE 6: RESTRUCTURING CHARGES

During the quarters ending June 30, 2023 and 2022, the Company approved certain restructuring plans to improve operational efficiencies and rationalize its cost structure.

The following tables show the activity and the estimated timing of future payouts for accrued restructuring (in thousands):


	Severance and Benefits
Balance as of March 31, 2022	$	—
Restructuring costs	725
Adjustments to prior estimates	(1)
Cash payments	(686)

Balance as of June 30, 2022	$	38

Balance as of March 31, 2023	$	—
Restructuring costs	1,329

Cash payments	(1,219)

Balance as of June 30, 2023	$	110

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 June 30,
2023						2022
7,042						2,309

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:

SEC Form 10-Q filed by Quantum Corporation