NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND 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 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 consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated. The Company reviews subsidiaries and affiliates, as well as other entities, to determine if they should be considered variable interest entities (“VIE”), and whether it should change the consolidation determinations based on changes in their characteristics. The Company considers an entity a VIE if its equity investors own an interest therein that lacks the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or if the entity is structured with non-substantive voting interests. To determine whether or not the entity is consolidated with the Company’s results, the Company also evaluates which interests are variable interests in the VIE and which party is the primary beneficiary of the VIE.
Liquidity
The accompanying consolidated financial statements of the Company have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company generated negative cash flows from operations of approximately $33.7 million, $0.8 million and $1.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively, and generated net losses of approximately $32.3 million, $35.5 million, and $5.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively. The Company has funded operations through the sale of common stock, term debt borrowings, revolving credit facility borrowings and proceeds from the Paycheck Protection Program Loan described in Note 5: Debt. Management believes that it has
the ability to obtain additional debt or equity financing, if required, and has historically been able to do so. Management also believes that current working capital, borrowings available under the revolving credit facility and future equity financing (including the April 22, 2022 sale of 30 million shares of our common stock for gross proceeds of $67.5 million) or debt financing will provide the Company with sufficient capital to fund operations for at least one year from the consolidated financial statement issuance date. There is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of Quantum and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
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.
Cash and Cash Equivalents
The Company has cash deposits and cash equivalents deposited in or managed by major financial institutions. Cash equivalents include all highly liquid investment instruments with an original maturity of three months or less and consist primarily of money market accounts. At times the related amounts are in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses with these financial institutions and does not believe such balances are exposed to significant credit risk.
Restricted Cash
Restricted cash is comprised of required minimum balances that serve as cash collateral in connection with various items including insurance requirements, value added taxes, ongoing tax audits and leases in certain countries.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses based on historical experience and expected collectability of outstanding accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition, and for the majority of its customers require no collateral. For customers that do not meet the Company’s credit standards, the Company may require a form of collateral, such as cash deposits or letters of credit, prior to the completion of a transaction. These credit evaluations require significant judgment and are based on multiple sources of information. The Company analyzes such factors as its historical bad debt experience, industry and geographic concentrations of credit risk, current economic trends and changes in customer payment terms. The Company will write-off customer balances in full to the reserve when it has determined that the balance is not recoverable. Changes in the allowance for doubtful accounts are recorded in general and administrative expenses.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Inputs are unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company's financial instruments consist of Level 3 liabilities.
Manufacturing Inventories
Manufacturing inventory is recorded at the lower of cost or net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. Costs include material, direct labor, and an allocation of overhead in the case of work in process. Adjustments to reduce the cost of manufacturing inventory to its net realizable value, if required, are made for estimated excess, obsolete or impaired balances. Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from the Company’s estimates.
Service Parts Inventories
Service parts inventories are recorded at the lower of cost or net realizable value, with cost being determined on a FIFO basis. The Company carries service parts because it generally provides product warranty for one to three years and earns revenue by providing enhanced and extended warranty and repair services during and beyond this warranty period. Service parts inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. The Company records adjustments to reduce the carrying value of service parts inventory to its net realizable value and disposes of parts with no use and a net realizable value of zero. Factors influencing these adjustments include product life cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from the Company’s estimates.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization, computed on a straight-line basis over the estimated useful lives of the assets as follows:
| | | | | |
Machinery and equipment | 3 to 5 years |
Computer equipment | 3 to 5 years |
| |
Other software | 3 years |
Furniture and fixtures | 5 years |
Other office equipment | 5 years |
Leasehold improvements | Shorter of useful life or life of lease |
When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive income (loss) in the period realized.
The Company evaluates the recoverability of the carrying amount of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. A potential impairment charge is evaluated when the undiscounted expected cash flows derived from an asset group are less than its carrying amount. Impairment losses, if applicable, are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of impairment testing, the undiscounted cash flows used to assess impairments and the fair value of the asset group.
Business Combinations
The Company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The results of operations of an acquired business is included in its consolidated financial statements from the date of acquisition. Acquisition-related expenses are expensed as incurred.
Goodwill
Goodwill represents the excess of the purchase price consideration over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is evaluated for impairment annually in the third quarter of the Company's fiscal year as a single reporting unit, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company may elect to qualitatively assess whether it is more likely than not that the fair value of its reporting unit is less than its carrying value. If the Company opts not to qualitatively assess, a quantitative goodwill impairment test is performed. The quantitative test compares its reporting unit's carrying amount, including goodwill, to its fair value calculated based on its enterprise value. If the carrying amount exceeds its fair value, an impairment loss is recognized for the excess. The Company did not recognize any impairment of goodwill in any of the periods presented in the consolidated financial statements.
Purchased Intangible Assets
Purchased intangible assets with finite lives are stated at cost, net of accumulated amortization. The Company amortizes its intangible assets on a straight-line basis over an estimated useful life of two to four years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company measures the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, the Company records an impairment charge for the amount by which the carrying amount of the asset exceeds its fair market value.
Operating Leases
The Company determines if an arrangement contains a lease at inception. Lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company's operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. The operating lease right-of-use ("ROU") asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives. The Company accounts for the lease and non-lease components of operating lease contract consideration as a single lease component.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the lease cost. Lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised.
In addition, certain operating lease agreements contain tenant improvement allowances from the Company's landlords. These allowances are accounted for as lease incentives and reduce its ROU asset and lease cost over the lease term.
For short-term leases which have a lease term less than twelve months and do not include an option to purchase the underlying asset that is reasonably certain to be exercised, the Company recognizes rent expense in the
consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and record variable lease payments as incurred.
Deferred Revenue
Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue and performance obligations pertaining to subscription services. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet dates.
Revenue Recognition
The Company generates revenue from three main sources: (1) product, (2) professional services, and (3) royalties. Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. The Company's performance obligations are satisfied at a point in time or over time as stand ready obligations. The majority of revenue is recognized at a point in time when products are accepted, installed or delivered.
Product Revenue
The Company's product revenue is comprised of multiple storage solution hardware and software offerings targeted towards consumer and enterprise customers. Revenue from product sales is recognized at the point in time when the customer takes control of the product. If there are significant post-delivery obligations, the related revenue is deferred until such obligations are fulfilled. Revenue from contracts with customer acceptance criteria are recognized upon end user acceptance.
Service and Subscription Revenue
Service and subscription revenue consists of four components: (a) post-contract customer support agreements,
(b) software subscriptions, (c) installation, and (d) consulting & training.
Customers have the option to choose between different levels of hardware and software support. The Company's support plans include various stand-ready obligations such as technical assistance hot-lines, replacement parts maintenance, and remote monitoring that are delivered whenever called upon by its customers. Support plans provide additional services and assurance outside the scope of the Company's primary product warranties. Revenue from support plans are recognized ratably over the contractual term of the service contract.
The Company also sells software subscriptions that include term licenses which are recognized as revenue when the license is delivered to the customer and related customer support which is recognized ratably over the service period.
The Company offers installation services on all its products. Customers can opt to either have Quantum or a Quantum-approved third-party service provider install its products. Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete.
A majority of the Company's consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time.
Royalty Revenue
The Company licenses certain intellectual property to third party manufacturers which gives the manufacturers rights to intellectual property including the right to either manufacture or include the intellectual property in their products for resale. Licensees pay the Company a per-unit royalty for sales of their products that incorporate its intellectual property. On a periodic and timely basis, the licensees provide the Company with reports containing units sold to end users subject to the royalties. The reports substantiate that the performance obligation has been satisfied therefore revenue is recognized based on the reports or when amounts can be reasonably estimated.
Significant Judgements
The Company generally enters into contracts with customers to provide storage solutions to meet their individual needs. Most of the Company’s contracts contain multiple goods and services designed to meet each customers’ unique storage needs. Contracts with multiple goods and services have multiple distinct performance obligations as the promise to transfer hardware, installation services, and support services are capable of being distinct and provide economic benefit to customers on their own.
Stand-alone selling price
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price (“SSP”) of the good or service underlying each performance obligation. The SSP represents the amount for which the Company would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundle with any other products or services). Where SSP may not be directly observable (e.g., the performance obligation is not sold separately), the Company maximized the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings. The Company evaluated all methods included in ASC 606 to determine SSP and concluded that invoice price is the best representation of what the Company expects to receive from the delivery of each performance obligation.
Variable consideration
Product revenue includes multiple types of variable consideration, such as rebates, returns, or stock rotations. All contracts with variable consideration require payment upon satisfaction of the performance obligation typically with net 45-day payment terms. The Company does not include significant financing components in its contracts. The Company constrains estimates of variable consideration to amounts that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be returned to the customer under the specific terms of the underlying programs.
The expected value method is used to estimate the consideration expected to be returned to the customer. The Company uses historical data and current trends to drive the estimates. The Company records a reduction to revenue to account for these programs. The Company initially measures this asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in the value of the returned goods.
Cost of Service and Subscription Revenue
The Company classifies expenses as service cost of revenue by estimating the portion of its total cost of revenue that relates to providing field support to its customers under contract. These estimates are based upon a variety of factors, including the nature of the support activity and the level of infrastructure required to support the activities from which it earns service and subscription revenue. In the event its service business changes, its estimates of cost of service and subscription revenue may be impacted.
Research and Development Costs
Expenditures relating to the development of new products and processes are expensed as incurred. These costs include expenditures for employee compensation, materials used in the development effort, other internal costs, as well as expenditures for third party professional services. The Company has determined that technological feasibility for its software products is reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established have not been material. The Company expenses software-related research and development costs as incurred.
Internal-use Software Costs
The Company capitalizes costs incurred to implement software solely for its internal use, including (i) hosted applications used to deliver the Company's support services, and (ii) certain implementation costs incurred in a hosting arrangement that is a service contract when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable the project will be completed and used to perform the intended function.
Software implementation costs are capitalized to either other current assets or other long-term assets on the Company's consolidated balance sheet and amortized over 10 years. Software implementation costs capitalized
were $3.1 million and $3.1 million for fiscal 2022 and 2021. Related amortization expense for software implementation costs was $0.1 million and $0 during fiscal 2022 and 2021, respectively.
Advertising Expense
Advertising expense is recorded as incurred and was $3.5 million, $1.5 million, and $3.4 million in fiscal 2022, 2021 and 2020, respectively.
Shipping and Handling Fees
Shipping and handling fees are included in cost of revenue and were $7.3 million, $9.4 million, and $9.4 million in fiscal 2022, 2021 and 2020, respectively.
Restructuring Reserves
Restructuring reserves include charges related to the realignment and restructuring of the Company’s business operations. These charges represent judgments and estimates of the Company’s costs of severance, closure and consolidation of facilities and settlement of contractual obligations under its operating leases, including sublease rental rates, asset write-offs and other related costs. The Company reassesses the reserve requirements to complete each individual plan under the restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from the Company’s estimates, additional charges may be required.
Foreign Currency Translation
The Company's international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are reported as a component of other comprehensive loss and recorded in accumulated other comprehensive loss in the accompanying consolidated balance sheets.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, in which deferred tax asset and liabilities are recognized based on differences between the financial reporting carrying values of assets and liabilities and the tax basis of those assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled.
A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is included in the tax provision.
The Company assesses whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized in the consolidated financial statements from such a position is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances and changes in tax law. The Company recognizes penalties and tax-related interest expense as a component of income tax expense in the consolidated statements of operations.
Asset Retirement Obligations
The Company records an asset retirement obligation for the fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, the Company recognizes changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is
depreciated over the estimated useful life of the asset. The Company’s obligations relate primarily to certain legal obligations to remediate leased property on which certain assets are located.
Warranty Expense
The Company warranties its products against certain defects and the terms range from one to three years. The Company provides for the estimated costs of fulfilling its obligations under hardware warranties at the time the related revenue is recognized. The Company estimates the provision based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The Company regularly reassess its estimates to determine the adequacy of the recorded warranty liability and adjusts the provision, as necessary.
Debt Issuance Costs
Debt issuance costs for revolving credit agreements are capitalized and amortized over the term of the underlying agreements on a straight-line basis. Amortization of these debt issuance costs is included in interest expense while the unamortized debt issuance cost balance is included in other current assets or other assets. Debt issuance costs for the Company’s term loans are recorded as a reduction to the carrying amount and are amortized over their terms using the effective interest method. Amortization of these debt issuance costs is included in interest expense.
Stock-Based Compensation
The Company classifies stock-based awards granted in exchange for services as either equity awards or liability awards. The classification of an award as either an equity award or a liability award is generally based upon cash settlement options. Equity awards are measured based on the fair value of the award at the grant date. Liability awards are re-measured to fair value each reporting period. Each reporting period, the Company recognizes the change in fair value of awards issued to non-employees as expense. The Company recognizes stock-based compensation on a straight-line basis over the award’s requisite service period, which is generally the vesting period of the award, less actual forfeitures. No compensation expense is recognized for awards for which participants do not render the requisite services. For equity and liability awards earned based on performance or upon occurrence of a contingent event, when and if the awards will be earned is estimated. If an award is not considered probable of being earned, no amount of stock-based compensation is recognized. If the award is deemed probable of being earned, related compensation expense is recorded over the estimated service period. To the extent the estimate of awards considered probable of being earned changes, the amount of stock-based compensation recognized will also change.
Concentration of Credit Risk
The Company sells products to customers in a wide variety of industries on a worldwide basis. In countries or industries where the Company is exposed to material credit risk, the Company may require collateral, including cash deposits and letters of credit, prior to the completion of a transaction. The Company does not believe it has significant credit risk beyond that provided for in the consolidated financial statements in the ordinary course of business. During the fiscal years ended March 31, 2022, 2021 and 2020 no customers represented 10% or more of the Company’s total revenue. One customer comprised approximately 21% of accounts receivable as of March 31, 2022. Two customers comprised approximately 22% of accounts receivable as of March 31, 2021.
If the Company is unable to obtain adequate quantities of the inventory needed to sell its products, the Company could face costs increases or delays or discontinuations in product shipments, which could have a material adverse effect on the Company’s results of operations. In many cases, the Company’s chosen vendor may be the sole source of supply for the products or parts they manufacture, or services they provide, for the Company. Some of the products the Company purchases from these sources are proprietary or complex in nature, and therefore cannot be readily or easily replaced by alternative sources.
Segment Reporting
Business segments are defined as components of an enterprise about which discrete financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Based on the way the Company manages its business, the Company has determined that it currently operates with one reportable segment. The chief operating decision maker focuses on
consolidated results in assessing operating performance and allocating resources. Furthermore, the Company offers similar products and services and uses similar processes to sell those products and services to similar classes of customers.
The Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision-maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable segment and operating segment structure.
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”).
The following table summarizes property and equipment, net by geographic region (in thousands):
| | | | | | | | | | | | | |
| For the year ended March 31, |
| 2022 | | 2021 | | |
United States | $ | 12,506 | | | $ | 9,787 | | | |
International | 347 | | | 264 | | | |
Total | $ | 12,853 | | | $ | 10,051 | | | |
Defined Contribution Plan
The Company sponsors a qualified 401(k) retirement plan for its U.S. employees. The plan covers substantially all employees who have attained the age of 18. Participants may voluntarily contribute to the plan up to the maximum limits established by Internal Revenue Service regulations. For the years ended March 31, 2022 and 2021, the Company incurred $1.7 million and $1.2 million in matching contributions, respectively. No matching contributions were made in the fiscal year ended March 31, 2020.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board issued ASU 2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a result of the amendments made by ASU 2021-08, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements. The Company elected to early adopt this standard in the fourth quarter of fiscal 2022 using a retrospective approach that applies the new standard to all business acquisitions that occurred within the current fiscal year. The impact of adoption was in increase of $2.7 million to deferred revenue and goodwill associated with the Pivot 3 acquisition described in Note 3: Business Acquisitions.
NOTE 2: REVENUE
In the following table, revenue is disaggregated by major product offering and geographies (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Americas1 | | | | | |
Primary storage systems | $ | 36,575 | | | $ | 52,295 | | | $ | 54,211 | |
Secondary storage systems | 63,528 | | | 41,948 | | | 57,192 | |
| | | | | |
Device and media | 24,849 | | | 24,410 | | | 31,228 | |
Service and subscription | 81,608 | | | 76,039 | | | 82,607 | |
Total revenue | 206,560 | | | 194,692 | | | 225,238 | |
| | | | | |
EMEA | | | | | |
Primary storage systems | 13,620 | | | 12,940 | | | 16,078 | |
Secondary storage systems | 37,643 | | | 33,688 | | | 40,008 | |
| | | | | |
Device and media | 19,467 | | | 20,881 | | | 25,484 | |
Service and subscription | 44,187 | | | 41,261 | | | 39,467 | |
Total revenue | 114,917 | | | 108,770 | | | 121,037 | |
| | | | | |
APAC | | | | | |
Primary storage systems | 5,848 | | | 4,409 | | | 6,863 | |
Secondary storage systems | 16,517 | | | 13,364 | | | 14,472 | |
| | | | | |
Device and media | 5,714 | | | 5,873 | | | 5,632 | |
Service and subscription | 7,894 | | | 7,604 | | | 8,976 | |
Total revenue | 35,973 | | | 31,250 | | | 35,943 | |
| | | | | |
Consolidated | | | | | |
Primary storage systems | 56,043 | | | 69,644 | | | 77,152 | |
Secondary storage systems | 117,688 | | | 89,000 | | | 111,672 | |
| | | | | |
Device and media | 50,030 | | | 51,164 | | | 62,344 | |
Service and subscription | 133,689 | | | 124,904 | | | 131,050 | |
Royalty2 | 15,377 | | | 14,864 | | | 20,731 | |
Total revenue | $ | 372,827 | | | $ | 349,576 | | | $ | 402,949 | |
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 March 31, 2022 (in thousands):
| | | | | | | | |
| | March 31, 2022 |
Deferred revenue | | $ | 128,097 | |
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period | | $ | 83,311 | |
Remaining Performance Obligations
Remaining performance obligations consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Current | | Non-Current | | Total |
As of March 31, 2022 | | $ | 110,029 | | | $ | 43,638 | | | $ | 153,667 | |
The Company expects to recognize approximately 71.6% of the remaining performance obligations within the next 12 months. The majority of the Company’s noncurrent remaining performance obligations is expected to be recognized in the next 13 to 60 months.
NOTE 3: BUSINESS ACQUISITIONS
Square Box
On December 12, 2020, the Company entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Square Box Systems Limited (“SBS”).
The purchase price of approximately $7.7 million was comprised of (a) $2.6 million cash (net of cash acquired); (b) approximately 0.4 million shares of the Company’s common stock, with a fair value of $2.1 million; (c) $2.0 million cash payable at the first anniversary of the closing date; and (d) $1.0 million cash payable at the second anniversary of the closing date.
Contingently issuable restricted stock units in the amount of $5.3 million, which are subject to continuous employment, are being recognized as stock-based compensation over the related two years vesting period.
The purchase price was allocated to tangible assets of approximately $0.8 million, intangible assets of approximately $5.6 million based on their fair values on the acquisition date, liabilities of approximately $1.0 million, and a net deferred tax liability of $1.1 million. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed was approximately $3.4 million, which has been recorded as goodwill.
The historical results of operations for SBS were not significant to the Company's consolidated results of operations for the periods presented.
Pivot3
In July 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 its platform to expand the video surveillance portfolio with hardware and software offerings that will be offered under the Quantum VS-Series portfolio. Goodwill obtained in an asset acquisition is deductible for tax purposes.
The total purchase consideration for the acquisition of Pivot3 was $7.8 million, which consisted of the following (in thousands):
| | | | | | | | |
Cash | | $ | 5,000 | |
Fair value of stock consideration | | 2,818 | |
Total | | $ | 7,818 | |
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
| | | | | | | | | | | |
| | Amount | Estimated Useful Life |
Goodwill | | $ | 9,503 | | |
Identified intangible assets: | | | |
Developed technology | | 1,700 | | 2 years |
Customer lists | | 3,700 | | 4 years |
Property, plant and equipment | | 4,300 | | 3 years |
Net liabilities assumed | | (11,385) | | |
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
In October 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 three 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 | March 31, |
| 2022 | | 2021 |
Finished goods | | | |
Manufactured finished goods | $ | 14,395 | | | $ | 12,452 | |
Distributor inventory | 212 | | | 238 | |
Total finished goods | 14,607 | | | 12,690 | |
Work in progress | 2,546 | | | 2,074 | |
Raw materials | 16,393 | | | 9,703 | |
Total manufacturing inventories | $ | 33,546 | | | $ | 24,467 | |
| | | | | | | | | | | |
Service inventories | March 31, |
| 2022 | | 2021 |
Finished goods | $ | 19,234 | | | $ | 18,773 | |
Component parts | 5,020 | | | 4,648 | |
Total service inventories | $ | 24,254 | | | $ | 23,421 | |
| | | | | | | | | | | |
Property and equipment, net | March 31, |
| 2022 | | 2021 |
Machinery and equipment, and software | $ | 46,831 | | | $ | 38,327 | |
Leasehold improvements | 6,029 | | | 7,080 | |
Furniture and fixtures | 838 | | | 847 | |
| | | |
| | | |
| 53,698 | | | 46,254 | |
Less: accumulated depreciation | (40,845) | | | (36,203) | |
Total property, plant and equipment, net | $ | 12,853 | | | $ | 10,051 | |
Depreciation and amortization expense for property and equipment amounted to $9.4 million, $5.7 million, and $4.3 million for the years ended March 31, 2022, 2021, and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intangibles, net | | March 31, 2022 | | March 31, 2021 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| | | | | | | | | | | | |
Developed technology | | $ | 9,208 | | | $ | (3,121) | | | $ | 6,087 | | | $ | 4,700 | | | $ | (473) | | | $ | 4,227 | |
Customer lists | | 4,600 | | | (1,103) | | | 3,497 | | | 900 | | | (90) | | | 810 | |
| | | | | | | | | | | | |
Intangible assets, net | | $ | 13,808 | | | $ | (4,224) | | | $ | 9,584 | | | $ | 5,600 | | | $ | (563) | | | $ | 5,037 | |
Intangible assets amortization expense was $3.7 million, $0.1 million for the years ended March 31, 2022 and 2021, respectively. There was no amortization expense for the year ended March 31, 2020. As of March 31, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.4 years. The Company recorded amortization of developed technology in cost of product revenue, and customer lists in sales and marketing expenses in the consolidated statements of operations.
As of March 31, 2022, the future expected amortization expense for intangible assets is as follows (in thousands):
| | | | | | | | |
Fiscal year ending | | Estimated future amortization expense |
2023 | | $ | 4,568 | |
2024 | | 3,417 | |
2025 | | 1,599 | |
| | |
| | |
Thereafter | | — | |
Total | | $ | 9,584 | |
| | | | | | | | |
| | |
Goodwill | | Amount |
Balance at March 31, 2021 | | $ | 3,466 | |
Goodwill acquired | | 9,503 | |
Balance at March 31, 2022 | | $ | 12,969 | |
| | | | | | | | | | | |
Other accrued liabilities | March 31, |
| 2022 | | 2021 |
Accrued expenses | $ | 4,984 | | | $ | 6,799 | |
Asset retirement obligation | 4,590 | | | 2,906 | |
| | | |
Accrued warranty | 1,899 | | | 2,383 | |
Accrued interest | 278 | | | 57 | |
Accrued restructuring | — | | | 580 | |
Other | 4,811 | | | 6,029 | |
Total other accrued liabilities | $ | 16,562 | | | $ | 18,754 | |
The following table details the change in the accrued warranty balance (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Balance as of April 1 | $ | 2,383 | | | $ | 2,668 | | | 3,456 | |
Current period accruals | 3,717 | | | 4,699 | | | 3,516 | |
Adjustments to prior estimates | (156) | | | (472) | | | (114) | |
Charges incurred | (4,045) | | | (4,512) | | | (4,190) | |
Balance as of March 31 | $ | 1,899 | | | $ | 2,383 | | | $ | 2,668 | |
NOTE 5: DEBT
The following table summarizes the Company's borrowing as of the dates presented (in thousands):
| | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 |
Senior Secured Term Loan | $ | — | | | $ | 92,426 | |
Term Loan | 98,723 | | | — | |
Amended PNC Credit Facility | 17,735 | | | — | |
Paycheck Protection Program | — | | | 10,000 | |
Less: current portion | (4,375) | | | (1,850) | |
Less unamortized debt issuance costs(1) | (4,899) | | | (9,686) | |
Long-term debt, net | $ | 107,184 | | | $ | 90,890 | |
| | | |
(1) The unamortized debt issuance costs related to the Term Loan and the Senior Secured Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying consolidated balance sheets. Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying consolidated balance sheets.
Term Loan
On December 27, 2018, the Company entered into a senior secured term loan (the "Senior Secured Term Loan”) 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 utilizing the proceeds of the secondary public offering discussed in Note 7: Common Stock. The Company recognized a loss on debt extinguishment of $14.8 million which included the write-off of debt issuance costs of $10.1 million, a prepayment penalty of $4.6 million and other costs of $0.1 million.
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. 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.
On March 15, 2022, the Company entered into an amendment to the Term Loan, which, among other things (a) waived compliance with the total leverage ratio financial covenant for the four fiscal quarter period ended March 31, 2022; (b) waived compliance with the minimum liquidity financial covenant as of March 31, 2022; and (c) permitted the Company to retain a portion of the cash proceeds of a public offering of the Company's common stock.
Loans under the Term Loan designated as Prime Rate 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 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 bear interest at a rate per annum equal to the LIBOR Rate plus an applicable margin of 6.00%. The LIBOR Rate is subject to a floor of 0.75%. The Company can designate a loan as a Prime Rate Loan or LIBOR Rate Loan in its discretion.
The Term Loan and the PNC Credit Agreement contain 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.
Revolving Credit Facility
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.
On March 15, 2022, the Company entered into an amendment to the PNC Credit Facility, which, among other things (a) waived compliance with the total leverage ratio financial covenant for the four fiscal quarter period ended March 31, 2022; (b) waived compliance with the fixed charge coverage ratio; and (c) waived compliance with the minimum liquidity financial covenant as of March 31, 2022.
Loans designated as PNC LIBOR Rate Loans bear interest at a rate per annum equal to the LIBOR Rate plus 2.25% until December 31, 2021 and thereafter between 1.75% and 2.25% based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter (the "PNC LIBOR 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 LIBOR Rate plus 1.0%, plus 1.25% until December 31, 2021 and thereafter between 0.75% and 1.25% based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter (the "PNC Domestic Loan Interest 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 will pay an undrawn commitment fee of between 0.25% and 0.375% (based on the percentage usage of the Maximum Revolving Advance Amount during that calendar quarter) on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.
With respect to any PNC 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 PNC LIBOR Loan 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 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. 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 March 31, 2022, the interest rate on the Term Loan was 6.75% and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 4.75% and for LIBOR Loans was 2.61%. As of March 31, 2022, the
PNC Credit Facility had a borrowing base of $24.1 million, of which $5.0 million was available at that date. 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 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 (“PPP”) 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 fiscal year ended March 31, 2022.
NOTE 6: LEASES
Supplemental balance sheet information related to leases is as follows (in thousands):
| | | | | | | | | | | | | | | | |
Operating leases | | March 31, 2022 | | March 31, 2021 | | |
Operating lease right-of-use assets | | $ | 11,107 | | | $ | 9,383 | | | |
| | | | | | |
Other current liabilities | | $ | 1,727 | | | $ | 2,581 | | | |
Operating lease liability | | 9,891 | | | 8,005 | | | |
Total operating lease liabilities | | $ | 11,618 | | | $ | 10,586 | | | |
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | | | | |
| | Year Ended March 31, |
Lease expense | | 2022 | | 2021 |
Operating lease expense | | $ | 6,871 | | | $ | 4,718 | |
Variable lease expense | | 1,179 | | | 820 | |
Short-term lease expense | | 26 | | | 132 | |
Total lease expense | | $ | 8,076 | | | $ | 5,670 | |
| | | | | | | | |
Maturity of Lease Liabilities | | Operating Leases |
2023 | | $ | 2,638 | |
2024 | | 2,204 | |
2025 | | 1,937 | |
2026 | | 1,502 | |
2027 | | 1,400 | |
Thereafter | | 14,456 | |
Total lease payments | | $ | 24,137 | |
Less: Imputed interest | | (12,519) | |
Present value of lease liabilities | | $ | 11,618 | |
| | | | | | | | | | | | | | |
Lease Term and Discount Rate | | March 31, |
| | 2022 | | 2021 |
Weighted average remaining operating lease term (years) | | 10.88 | | 4.53 |
Weighted average discount rate for operating leases | | 12.9 | % | | 13.96 | % |
Operating cash outflows related to operating leases totaled $3.9 million and $4.9 million for the fiscal years ended March 31, 2022 and March 31, 2021, respectively.
NOTE 7: COMMON STOCK
Secondary Public Offering
On February 8, 2021, the Company closed a secondary public offering of 15,109,489 shares of its common stock for gross proceeds of $103.5 million. The Company received net proceeds of $96.8 million after deducting underwriters' discounts and other offering related expenses.
Amended and Restated 2012 Long-Term Incentive Plan
The Company has a stockholder-approved 2012 Long-Term Incentive Plan (the “Plan”) that was amended and restated in fiscal year 2022 which added an additional 5.9 million shares. The Plan has 9.0 million shares authorized for issuance of new shares, with 4.8 million performance shares and restricted shares outstanding, and 4.2 million shares available for future issuance under the Plan as of March 31, 2022.
Stock options under the Plan are granted at prices determined by the Board of Directors, but at not less than the fair market value of the Company's common stock on the date of grant. The majority of performance share units, restricted stock units and stock options granted to employees vest over three years. Stock options, performance shares and restricted stock grants to non-employee directors typically vest over one year. The term of each stock option under the Plan will not exceed seven years. Stock options, performance share units and restricted stock units granted under the Plan are subject to forfeiture if employment terminates.
2021 Inducement Plan
The Company's 2021 Inducement Plan became effective on February 1, 2021 and provides for issuance of inducement equity awards to individuals who were not previously an employee or non-employee director of the Company as an inducement material to such individual's entering into employment with the Company. The term of each stock option and restricted stock unit under the plan will not exceed seven years, and each award generally vests between two and four years. There were no shares available for future issuance as of March 31, 2022.
The Company accounts for all forfeitures of stock-based awards when they occur.
Employee Stock Purchase Plan
The Company's has an Employee Stock Purchase Plan (the "ESPP") which enables eligible employees to purchase shares of its common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. On each purchase date, eligible employees will purchase the Company's common stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company's common stock on the first trading day of the offering period, and (ii) the fair market value of the Company's common stock on the purchase date.
The Company has reserved shares of common stock for future issuance under its ESPP as follows (in thousands):
| | | | | | | | | | | |
| March 31, |
| 2022 | | 2021 |
Shares available for issuance at beginning of period | 1,077 | | | 1,397 | |
Additional shares authorized during the period | — | | | — | |
Shares issued during the period | (389) | | | (320) | |
Total shares available for future issuance at end of period | 688 | | | 1,077 | |
The Company uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to determine the fair value for stock options, shares forecasted to be issued pursuant to its ESPP, and warrants. This requires the use of assumptions about expected life, stock price, volatility, risk-free interest rates and expected dividends.
Expected Life—The expected term was based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns and post-vesting forfeitures.
Volatility—The expected stock price volatility for the Company's common stock was based on the historical volatility of its common stock over the most recent period corresponding with the estimated expected life of the award.
Risk-Free Rate—The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
Dividend Yield—The Company has never declared or paid any cash dividends and do not currently plan to pay cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.
The weighted-average grant date fair value and the assumptions used in calculating fair values of shares forecasted to be issued pursuant to the Company's ESPP are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Expected life | 0.5 years | | 0.5 years | | 0.5 years |
Volatility | 51% - 57% | | 55% - 133% | | 49.81% |
Risk-free interest rate | 0.06% - 0.23% | | 0.05% - 0.11% | | 0.41% |
Dividend yield | —% | | —% | | —% |
Fair value of common stock | $4.60 - $6.40 | | $4.99 - $8.05 | | $4.78 |
Performance Stock Units
The Company granted 0.6 million, 0.9 million, and 1.5 million of performance share units with market conditions (“Market PSUs”) in fiscal 2022, 2021, and 2020, respectively. Market PSUs vest one to three years from the issuance date and become eligible for vesting based on the Company achieving certain stock price targets and are contingent upon continued service of the holder of the award during the vesting period. The estimated fair value of these Market PSUs is determined at the issuance date using a Monte Carlo simulation model.
Assumptions used in the Monte Carlo model to calculate fair values of market PSU’s during each fiscal period are as follows:
| | | | | | | | | | | | | | | | | | | | |
Weighted-Average | | 2022 | | 2021 | | 2020 |
Discount period (years) | | 2.98 | | 2.54 | | 3.00 |
Risk-free interest rate | | 0.93% | | 0.31% | | 1.45% |
Stock price volatility | | 75.00% | | 82.00% | | 72.00% |
Grant date fair value | | $5.40 | | $3.77 | | $5.92 |
The Company granted 0.0 million, 0.5 million and 0.3 million of performance share units with financial performance conditions (“Performance PSUs”) in the fiscal years ended March 31, 2022, 2021 and 2020, respectively. Performance PSUs become eligible for vesting based on the Company achieving certain financial performance targets through the end of the fiscal year when the performance PSUs were granted, and are contingent upon continued service of the holder of the award during the vesting period. Performance PSUs are valued at the market closing share price on the date of grant and compensation expense for Performance PSUs is recognized when it is probable that the performance conditions will be achieved. Compensation expense recognized related to Performance PSUs is reversed if the Company determines that it is no longer probable that the performance conditions will be achieved.
The following table summarizes activity for Market PSUs and Performance PSUs for the year ended March 31, 2022 (shares in thousands):
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant Date Fair Value per Share |
Outstanding as of March 31, 2021 | 2,355 | | | $ | 4.20 | |
Granted | 567 | | | $ | 4.30 | |
Vested | (1,074) | | | $ | 3.64 | |
Forfeited or cancelled | (269) | | | $ | 4.38 | |
Outstanding as of March 31, 2022 | 1,579 | | | $ | 4.58 | |
As of March 31, 2022, there was $2.7 million and $0.6 million of unrecognized stock-based compensation related to Market PSUs and Performance PSUs, respectively, which is expected to be recognized over a weighted-average period of one year. The total grant date fair value of shares vested during fiscal years ended March 31, 2022, 2021, and 2020 was $3.9 million, $2.9 million, and $0.6 million, respectively.
Restricted Stock Units
The Company granted 2.8 million, 2.4 million, and 0.6 million of service-based restricted stock units (“RSUs”) in the fiscal years ended March 31, 2022, 2021 and 2020, respectively, which generally vest ratably over a three-year service period. RSUs are valued at the market closing share price on the date of grant and compensation expense for RSUs is recognized ratably over the applicable vesting period.
The following table summarizes activity for restricted stock units for the year ended March 31, 2022 (shares in thousands):
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant Date Fair Value per Share |
Outstanding as of March 31, 2021 | 2,710 | | | $ | 4.17 | |
Granted | 2,770 | | | $ | 5.99 | |
Vested | (1,234) | | | $ | 4.05 | |
Forfeited or cancelled | (390) | | | $ | 4.69 | |
Outstanding as of March 31, 2022 | 3,856 | | | $ | 5.46 | |
As of March 31, 2022, there was $17.1 million of total unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted-average period of two years. The total grant date fair value of RSUs vested during fiscal years ended March 31, 2022, 2021, and 2020 was $5.0 million, $2.1 million, and $4.0 million, respectively.
Compensation Expense
The following table details the Company's stock-based compensation expense, net of forfeitures (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Cost of revenue | $ | 1,112 | | | $ | 672 | | | $ | 452 | |
Research and development | 5,843 | | | 2,881 | | | 984 | |
Sales and marketing | 2,516 | | | 1,757 | | | 1,165 | |
General and administrative | 4,358 | | | 4,314 | | | 4,147 | |
Total share-based compensation | $ | 13,829 | | | $ | 9,624 | | | $ | 6,748 | |
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Restricted stock units | $ | 9,331 | | | $ | 4,041 | | | $ | 3,610 | |
Performance share units | 3,811 | | | 4,904 | | | 3,103 | |
| | | | | |
Employee stock purchase plan | 687 | | | 679 | | | 35 | |
Total stock-based compensation | $ | 13,829 | | | $ | 9,624 | | | $ | 6,748 | |
Warrants
As of March 31, 2022 and 2021, the Company had outstanding warrants to purchase 7,110,616 shares of the Company’s common stock exercisable until December 27, 2028 at an exercise price of $1.33 per share and outstanding warrants to purchase 3,450,000 shares of the Company's common stock exercisable until June 16, 2030 at an exercise price of $3.00 per share (collectively, the "Warrants"). The exercise price and the number of shares underlying the 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. Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.
The Warrants grant the holders certain registration rights for the shares of common stock issuable upon the exercise of the applicable warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40% of the registrable securities held by such holder as of the issuance date of the applicable warrants; (b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement; and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.
NOTE 8: NET LOSS PER SHARE
Equity Instruments Outstanding
The Company has stock options, performance share units, restricted stock units and options to purchase shares under its ESPP, granted under various stock incentive plans that, upon exercise and vesting, would increase shares outstanding. The Company has also issued warrants to purchase shares of the Company’s stock.
The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stock for the periods presented because their effect would have been anti-dilutive (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Stock awards | 1,996 | | | 1,818 | | | 931 | |
Warrants | 6,886 | | | 6,573 | | | 6,312 | |
ESPP | 11 | | | 11 | | | 223 | |
Total | 8,893 | | | 8,402 | | | 7,466 | |
The dilutive impact related to common shares from stock incentive plans and outstanding warrants is determined by applying the treasury stock method to the assumed vesting of outstanding performance share units and restricted stock units and the exercise of outstanding options and warrants. The dilutive impact related to common shares 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.
The Company had outstanding market based restricted stock units as of March 31, 2022 that were eligible to vest into shares of common stock subject to the achievement of certain stock price targets in addition to a time-based vesting period. These contingently issuable shares are excluded from the computation of diluted earnings per share
if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period. There were 0.1 million shares of contingently issuable market-based restricted stock units that were excluded from the table above as the market conditions were not satisfied as of March 31, 2022.
NOTE 9: INCOME TAXES
Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2022, 2021 and 2020 is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
U.S. | $ | (31,489) | | | $ | (36,648) | | | $ | (6,318) | |
Foreign | 550 | | | 1,428 | | | 1,911 | |
Total | $ | (30,939) | | | $ | (35,220) | | | $ | (4,407) | |
Income tax provision consists of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended March 31, |
| 2022 | | 2021 | | 2020 |
Current tax expense | | | | | |
Federal | $ | — | | | $ | (76) | | | $ | (115) | |
State | 477 | | | 339 | | | 106 | |
Foreign | 1,381 | | | 747 | | | 1,271 | |
Total current tax expense | 1,858 | | | 1,010 | | | 1,262 | |
Deferred tax expense | | | | | |
Federal | 9 | | | (577) | | | — | |
State | 22 | | | 9 | | | 33 | |
Foreign | (548) | | | (203) | | | (492) | |
Total deferred tax expense (benefit) | (517) | | | (771) | | | (459) | |
Income tax provision | $ | 1,341 | | | $ | 239 | | | $ | 803 | |
The income tax provision differs from the amount computed by applying the federal statutory rate of 21% to loss before income taxes as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended March 31, |
| 2022 | | 2021 | | 2020 |
Expense at the federal statutory rate | $ | (6,493) | | | $ | (7,396) | | | $ | (925) | |
Expiration of attributes | 18,345 | | | 9,862 | | | 11,679 | |
Valuation allowance | (4,899) | | | 5,444 | | | (2,639) | |
Permanent items | 1,941 | | | 1,295 | | | 914 | |
Equity compensation | 195 | | | 345 | | | 280 | |
Debt forgiveness | (2,100) | | | — | | | — | |
| | | | | |
Foreign taxes | 1,761 | | | (129) | | | 1,612 | |
State income taxes | (402) | | | (969) | | | (20) | |
Research and development credits | (2,094) | | | (1,829) | | | (1,566) | |
Uncertain tax positions | (6,349) | | | (6,695) | | | (8,654) | |
Other | 1,436 | | | 311 | | | 122 | |
Income tax provision | $ | 1,341 | | | $ | 239 | | | $ | 803 | |
Significant components of deferred tax assets and liabilities are as follows (in thousands):
| | | | | | | | | | | |
| As of March 31, |
| 2022 | | 2021 |
Deferred tax assets | | | |
Loss carryforwards | $ | 59,636 | | | $ | 76,153 | |
Deferred revenue | 29,485 | | | 21,839 | |
Tax credits | 16,085 | | | 16,574 | |
Disallowed interest | 12,296 | | | 12,132 | |
Other accruals and reserves not currently deductible for tax purposes | 4,450 | | | 8,192 | |
Capitalized research and development | 16,289 | | | 7,811 | |
Lease obligations | 2,514 | | | 1,747 | |
Inventory | 1,701 | | | 1,374 | |
| | | |
Accrued warranty expense | 447 | | | 569 | |
Acquired intangibles | 853 | | | 454 | |
Gross deferred tax assets | 143,756 | | | 146,845 | |
Valuation allowance | (138,365) | | | (143,263) | |
Total deferred tax assets, net of valuation allowance | $ | 5,391 | | | $ | 3,582 | |
Deferred tax liabilities | | | |
Depreciation | $ | (1,921) | | | $ | (1,440) | |
Lease assets | (2,439) | | | (1,670) | |
Other | (1,048) | | | (1,013) | |
Total deferred tax liabilities | $ | (5,408) | | | $ | (4,123) | |
Net deferred tax assets (liabilities) | $ | (17) | | | $ | (541) | |
The valuation allowance decreased by $4.9 million during the year ended March 31, 2022, increased by $5.4 million during the year ended March 31, 2021, and decreased by $2.5 million during the year ended March 31, 2020.
A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended March 31, |
| 2022 | | 2021 | | 2020 |
Beginning Balance | $ | 101,119 | | | $ | 107,282 | | | $ | 116,032 | |
Increase in balances related to tax positions in current period | 2,785 | | | 2,560 | | | 2,275 | |
Increase in balances related to tax positions in prior period | 4,881 | | | — | | | 144 | |
Increase in balances related to acquisitions | — | | | 511 | | | — | |
Decrease in balances related to tax positions in prior period | (1,020) | | | (522) | | | (4) | |
Decrease in balances due to lapse in statute of limitations | (8,162) | | | (8,712) | | | (11,165) | |
| | | | | |
Ending balance | $ | 99,603 | | | $ | 101,119 | | | $ | 107,282 | |
During fiscal 2022, excluding interest and penalties, there was a $1.5 million change in the Company's unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2022 was $100.8 million, of which $92.2 million, if recognized, would favorably affect the effective tax rate. At March 31, 2022, accrued interest and penalties totaled $1.2 million. The Company's practice is to recognize interest and penalties related to income tax matters in the income tax provision in the consolidated statements of operations. As of March 31, 2022, $93.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $7.3 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. The Company's U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, the Company is generally open to examination for the most recent three to five fiscal years. During the next 12 months, it is reasonably possible that approximately $11.0 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.
As of March 31, 2022, the Company had federal net operating loss and tax credit carryforwards of approximately $258.1 million and $52.5 million, respectively. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal year 2022 if not previously utilized, and $12.8 million are indefinite-lived net operating loss carryforwards. These carryforwards include $11.1 million of acquired net operating losses and $8.0 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership.
Certain changes in stock ownership could result in a limitation on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.
Due to its history of net losses and the difficulty in predicting future results, Quantum believes that it cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, it has established a full valuation allowance against its U.S. and certain foreign net deferred tax assets. Significant management judgement is required in determining the Company's deferred tax assets and liabilities and valuation allowances for purposes of assessing its ability to realize any future benefit from its net deferred tax assets. The Company intends to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. The Company's income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, its valuation allowance.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Commitments to Purchase Inventory
The Company uses contract manufacturers for its manufacturing operations. Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon its forecast of customer demand. The Company has similar arrangements with certain other suppliers. The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast. Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or obsolete inventory. As of March 31, 2022, the Company had issued non-cancelable commitments for $64.6 million to purchase inventory from its contract manufacturers and suppliers.
Leases
At the end of fiscal year 2022, the Company had various non-cancelable operating for office facilities. Refer to Note 6: Leases for additional information regarding lease commitments.
Legal Proceedings
Realtime Data Matter
On July 22, 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against the Company in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patents Nos. 7,161,506, 7,378,992, 7,415,530, 8,643,513, 9,054,728, and 9,116,908. The lawsuit has been transferred to the U.S. District Court for the Northern District of California for further proceedings. Realtime Data asserts that the Company has incorporated Realtime Data’s patented technology into its compression products and services. Realtime Data seeks unspecified monetary damages and other relief that the Court deems appropriate. On July 31, 2017, the District Court stayed proceedings in this litigation pending the outcome of Inter Partes Review proceedings before the Patent Trial and Appeal Board relating to the Realtime patents. In those proceedings the
asserted claims of the ’506 patent, the ’992 patent, and the ’513 patent were found unpatentable. In addition, on July 19, 2019, the United States District Court for the District of Delaware issued a decision finding that all claims of the ’728 patent, the ’530 patent, and the ’908 patent are not eligible for patent protection under 35 U.S.C. § 101 (the “Delaware Action”). On appeal, the Federal Circuit vacated the decision in the Delaware Action and remanded for the Court to “elaborate on its ruling.” The case pending against Quantum in the Northern District of California remains stayed pending the final outcome in the Delaware Action. On May 4, 2021, the Court in the Delaware Action reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101. The Court also granted Realtime Data fourteen days to file amended complaints in the Delaware Action where they sought leave to do so. On May 19, 2021, Realtime Data filed amended complaints including revised bases for claims of infringement of the same patents. On June 29, 2021, defendants in the Delaware Action filed a renewed motion to dismiss under Section 101. Realtime Data filed its opposition to the motion to dismiss on July 13, 2021. On August 23, 2021, the Court again reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101. Realtime Data has appealed that decision to the Federal Circuit. On September 7, 2021, the case against Quantum in the Northern District of California was stayed pending the outcome of Realtime Data’s appeal in the Delaware Action. Quantum believes the probability that this lawsuit will have a material adverse effect on its business, operating results or financial condition is remote.
Starboard Matter
On July 14, 2020, Starboard Value LP, Starboard Value and Opportunity Master Fund Ltd., Starboard Value and Opportunity S LLC, and Starboard Value and Opportunity C LP (collectively, “Starboard”) filed a lawsuit against Quantum Corporation, Quantum’s former CEO and board member Jon Gacek, and former Quantum board member Paul Auvil in the California Superior Court in Santa Clara County. The complaint alleges that between 2012 and 2014, Starboard purchased a large number of shares of Quantum’s common stock, obtained three seats on Quantum’s board of directors and then, in July 2014, entered into an agreement with Quantum whereby Starboard would not seek control of Quantum’s board but would instead support Quantum’s slate of board nominees so long as Quantum met certain performance objectives by the end of fiscal 2015. The complaint further alleges that Quantum hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015. Mr. Gacek resigned from the board effective May 1, 2017, and as CEO effective November 7, 2017; Mr. Auvil resigned from the board effective November 8, 2017. The complaint’s accounting allegations largely repeat allegations made in now-concluded shareholder class actions, shareholder derivative actions and an SEC investigation, the settlement of which Quantum previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings). On September 14, 2020, defendants filed a motion to dismiss the California action on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On November 19, 2020, Starboard filed a first amended complaint in which Quantum was not named as a defendant, in effect dismissing Quantum from the California action. On January 8, 2021, Messrs. Gacek and Auvil moved to dismiss the amended complaint in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On March 11, 2021, the California Superior Court stayed the California action.
On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs. Gacek and Auvil and Quantum. The new action largely repeats the allegations of the California action, alleging claims for fraud against all defendants, fraudulent concealment against all defendants, negligent misrepresentation against all defendants, breach of contract against Quantum, breach of the implied covenant of good faith and fair dealing against Quantum, and breach of fiduciary duty against Messrs. Gacek and Auvil. The complaint prays for unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court. On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs. Gacek and Auvil. Briefing on the motions ended July 26, 2021. The Court held oral argument on the motions on November 1, 2021. On January 28, 2022, via a bench ruling, the Court granted the motions to dismiss the breach of fiduciary duty claims against Messrs. Gacek and Auvil and denied the motions to dismiss the remaining claims; the bench ruling was confirmed in a written order filed February 24, 2022. On March 28, 2022, Quantum filed an answer and affirmative defenses to the complaint, as did Messrs. Gacek and Auvil. Discovery is underway. On May 3, 2022, the Court filed a stipulated order governing case schedule, setting trial for June 6-9, 2023, and also setting a number of pretrial deadlines. At this time, Quantum is unable to estimate the range of possible outcomes with respect to this matter.
On March 4, 2022, Starboard filed a request for dismissal without prejudice of the California action because the matter is proceeding in Delaware. On March 10, 2022, the California Superior Court entered a minute order dismissing the action without prejudice.
Indemnifications
The Company has certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. Other than certain product warranty liabilities recorded as of March 31, 2022 and 2021, the Company did not record a liability associated with these guarantees, as the Company has little, or no history of costs associated with such indemnification requirements. Contingent liabilities associated with product liability may be mitigated by insurance coverage that the Company maintains.
In the normal course of business to facilitate transactions of the Company’s services and products, the Company indemnifies certain parties with respect to certain matters. The Company has agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contains similar indemnification obligations to its agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of the Company’s indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on its operating results, financial position, or cash flows.
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when an impairment is recognized. These assets include property and equipment and amortizable intangible assets. The Company did not record impairments to any non-financial assets in the fiscal years ended March 31, 2022, 2021 and 2020. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis. The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.
The table below represents the carrying value and total estimated fair value of long-term debt as of March 31, 2022 and March 31, 2021, respectively. The fair value has been classified as Level 2 within the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, |
| | 2022 | | 2021 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior Secured Term Loan | | $ | — | | | $ | — | | | $ | 92,426 | | | $ | 97,047 | |
Term Loan | | 98,723 | | | 98,723 | | | — | | | — | |
PNC Credit Facility | | 17,735 | | | 17,735 | | | — | | | — | |
NOTE 12: SUBSEQUENT EVENTS
Rights Offering
On April 22, 2022, the Company completed a rights offering of 30 million shares of its common stock for gross proceeds of $67.5 million. The Company repaid $20.0 million of its outstanding Term Loan with the offering proceeds.
Debt Restructuring
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 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 the SOFR.