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What changed in QUANTUM CORP /DE/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of QUANTUM CORP /DE/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+173 added−224 removedSource: 10-K (2023-06-06) vs 10-K (2022-06-08)

Top changes in QUANTUM CORP /DE/'s 2023 10-K

173 paragraphs added · 224 removed · 143 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeService is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage 5 Table of Contents solutions. Consequently, our ability to provide comprehensive installation and integration services as well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers.
Biggest changeConsequently, our ability to provide comprehensive installation and integration services as well as maintenance services can be a noteworthy competitive advantage to attract new customers and retain existing customers. In addition, we believe that our ability to retain long-term customer relationships and secure repeat business is frequently tied directly to our comprehensive service capabilities and performance.
See Note 10: Commitments and Contingencies for additional disclosures regarding lawsuits alleging patent infringement. On occasion, we have entered into various patent licensing and cross-licensing agreements with other companies. We may enter into patent cross-licensing agreements with other third parties in the future as part of our normal business activities.
See Note 11: Commitments and Contingencies for additional disclosures regarding lawsuits alleging patent infringement. On occasion, we have entered into various patent licensing and cross-licensing agreements with other companies. We may enter into patent cross-licensing agreements with other third parties in the future as part of our normal business activities.
Cabrera, 57, most recently served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California. From May 2014 to June 2017, Mr.
Cabrera, 58, most recently served as the Assistant United States Attorney from October 2018 to April 2020 and as Special Assistant United States Attorney from October 2017 to October 2018 in the Office of the United States Attorney, Northern District of California. From May 2014 to June 2017, Mr.
We also hold multiple foreign patents and patent applications for certain of our products and technologies. Although we 7 Table of Contents believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.
We may 6 Table of Contents also hold foreign patents and patent applications for certain of our products and technologies. Although we believe that our patents and applications have significant value, rapidly changing technology in our industry means that our future success may also depend heavily on the technical competence and creative skills of our employees.
Hurley held leadership roles at transformational early-stage software companies, where he helped drive the businesses to successful acquisitions by industry leaders Microsoft and HP. Mr. Hurley holds a Bachelor of Science in Economics from Pennsylvania State University. Lewis Moorehead, 50, has served as our Chief Accounting Officer since October 2018. Prior to joining Quantum, Mr.
Hurley held leadership roles at transformational early-stage software companies, where he helped drive the businesses to successful acquisitions by industry leaders Microsoft Corporation and HP Inc. Mr. Hurley holds a Bachelor of Science in Economics from Pennsylvania State University. Lewis Moorehead, 51, has served as our Chief Accounting Officer since October 2018. Prior to joining Quantum, Mr.
Our research and development teams are focused on technology and services to make our storage systems and data management software easier to manage at scale; software enhancements to make our storage more searchable and accessible, software-defined hyperconverged storage technology, next generation solid-state and hard-drive storage system software, data deduplication and other data reduction technologies, and making tape even more efficient as a storage medium for long term archival storage.
Our research and development teams are focused on technology and services to make our end-to-end solution of storage systems and data management software easier to manage at scale, software enhancements to make our storage more searchable and accessible, software-defined hyperconverged storage technology, next generation solid-state and hard-drive storage system software, data deduplication and other data reduction technologies, and making tape and other mediums even more efficient as a solution for medium for long term archival storage.
Intellectual Property and Technology We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March 31, 2022, we hold over 170 U.S. patents. In general, these patents have a 20-year term from the first effective filing date for each patent.
Intellectual Property and Technology We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. As of March 31, 2023, we hold over 160 U.S. patents. In general, these patents have a 20-year term from the first effective filing date for each patent.
Available Information 10 Table of Contents Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at https://www.quantum.com generally when such reports are available on the SEC website.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at https://www.quantum.com generally when such reports are available on the Securities and Exchange Commission (“SEC”) website.
We provide warranty and non-warranty repair services through our service team and third-party service providers. In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.
In addition, we utilize various other third-party service providers throughout the world to perform repair and warranty services for us to reach additional geographic areas and industries to provide quality services in a cost-effective manner.
The CHRO partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and rewards our teams for driving company performance.
The CAO partners directly with the Board of Directors, the Leadership and Compensation Committee, and Senior Management on the design, cost, and effectiveness of our people programs to ensure they are competitive and reward our teams for driving company performance.
Information About Our Executive Officers and Management Team Following are the names and positions of our management team as of May 18, 2022, including a brief account of the business experience of each. Name Position with Quantum James J. Lerner President, Chief Executive Officer and Chairman of the Board J. Michael Dodson Chief Financial Officer Brian E.
Information About Our Executive Officers Following are the names and positions of our management team as of May 18, 2023, including a brief account of the business experience of each. Name Position with Quantum James J. Lerner President, Chief Executive Officer and Chairman of the Board Kenneth Gianella Chief Financial Officer Brian E.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. 11 Table of Contents
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 or (202) 551-5450. The SEC maintains an internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. 9 Table of Contents
Lerner has previously served as Vice President and Chief Operating Officer at Pivot3 Inc., a software development company, from March 2017 to June 2018, and Chief Revenue Officer from November 2016 to March 2017. Prior to Pivot3 Inc., from March 2014 to August 2015, Mr.
Lerner has previously served as Vice President and Chief Operating Officer at Pivot3 Inc., a smart infrastructure solutions company, from March 2017 to June 2018, and as Chief Revenue Officer from November 2016 to March 2017. Prior to Pivot3 Inc., from March 2014 to August 2015, Mr.
Our supply chain and manufacturing strategy minimizes geo-political and environmental causal risks and provides flexibility to support demand fluctuations by region, further enhancing our variable cost structure. Quantum primary storage and secondary storage systems are sold as appliances that combine Quantum software with servers that are procured from various server vendors.
Our supply chain and manufacturing strategy minimizes geo-political and environmental causal risks and provides flexibility to support demand fluctuations by region. Quantum primary storage and secondary disk-based storage systems are sold as appliances that combine Quantum software with servers that are procured from various server vendors.
We offer flexible and hybrid working arrangements that allow our employees to choose where and how they work. We ensure our work environments, whether onsite or remote, are safe, professional, and inclusive so our employees can be successful.
We offer flexible and hybrid working arrangements that allow our employees to choose where and how they work. We work to ensure our office environments, whether at a primary location or remote, are safe, professional, and inclusive so our employees can be successful.
Moorehead was the Director of Finance, Accounting and Tax at Carvana, Co. (NYSE: CVNA), a publicly traded on-line retailer, from November 2016 to October 2018. Beginning in September 2004, he has served as Managing Partner at Quassey, an investment firm.
Moorehead was the Director of Finance, Accounting and Tax at Carvana, Co. (NYSE: CVNA), a publicly traded on-line retailer, from November 2016 to October 2018. Beginning in September 2004, he has served as Managing Partner at Quassey, an investment firm. While at Quassey, he also served as Vice President of Finance and Principal Accounting Officer at Limelight Networks, Inc.
Sales to our top five customers represented 17%, 16%, and 23% of revenue in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, of which no customer represented 10% or more of our total revenue. 6 Table of Contents Competition The markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements.
Sales to our top five customers represented 32%, 17%, and 16% of revenue in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, of which one of our hyperscale customers represented 10% or more of our total 2023 revenue. Competition The markets in which we participate are highly competitive, characterized by rapid technological change and changing customer requirements.
Research and Development We compete in an industry characterized by rapid technological change and evolving customer requirements. Our success depends, in part, on our ability to introduce new products and features to meet end user needs.
Research and Development We are a solutions company that relies on technology advancements to compete in an industry characterized by rapid change and evolving customer requirements. Our success depends, in part, on our ability to introduce new products and features to meet end user needs.
He holds a Bachelor of Business Administration (B.B.A.), in Accounting from the University of Wisconsin-Whitewater. Human Capital 9 Table of Contents Our Chief Human Resources Officer ("CHRO") leads our human capital initiatives which includes the design and execution of all people strategies.
He holds a Bachelor of Business Administration, in Accounting from the University of Wisconsin-Whitewater. Human Capital 8 Table of Contents Our Chief Administrative Officer ("CAO") leads our human capital initiatives, which include the design and execution of all people strategies.
Quantum sources these servers from various vendors, then uses contract manufacturers for final integration and shipment to customers. Quantum tape storage systems are designed by Quantum and manufactured by a global contract manufacturer. Tape media is manufactured in Japan and distributed globally. The global supply chain environment is constrained, both in terms of server supply and tape drive supply.
Quantum sources these servers from various vendors, then uses contract manufacturers for final integration and shipment to customers. Quantum's tape storage systems are designed by Quantum and manufactured by a global contract manufacturer. Tape media is manufactured in Japan and distributed globally.
From 2005 to 2008, he served as area vice president, Midwest Global / Corporate Business Group at Dell Technologies (NYSE: DELL), a multinational technology company, where he led regional sales directors and their teams to support multiple Fortune 100 customers. Mr.
Additionally, Mr. Hurley led transformational enterprise relationships with Cisco's largest enterprise customers in aerospace and automotive. From 2005 to 2008, he served as area Vice President, Midwest Global / Corporate Business Group at Dell Technologies Inc. (NYSE: DELL), a multinational technology company, where he led regional sales directors and their teams to support multiple Fortune 100 customers. Mr.
Cabrera Chief Legal and Compliance Officer John Hurley Chief Revenue Officer Lewis Moorehead Chief Accounting Officer James J. Lerner, 52, was appointed as President and CEO of the Company, effective July 1, 2018, and was appointed Chairman of the Board on August 7, 2018. Mr.
Cabrera Chief Administrative Officer John Hurley Chief Revenue Officer Lewis Moorehead Chief Accounting Officer James J. Lerner, 53, was appointed as President and Chief Executive Officer of the Company, effective July 1, 2018, and was appointed Chairman of the Company’s Board of Directors (the “Board of Directors”) on August 7, 2018. Mr.
We expect that the data storage infrastructures of the future will be both hybrid-cloud and multi-cloud, meaning our customers will store their data in the various large public cloud environments, and also want to use services from multiple public cloud vendors.
We expect that the data storage infrastructures of the future will be both hybrid-cloud and multi-cloud, meaning our customers will store their data in the various large public cloud environments, and also want to use services from multiple public cloud vendors. Our primary storage solutions, including object storage systems, primarily face competition from the EMC business unit of Dell Inc.
Our backup storage systems primarily compete with products sold by Dell, HPE and Veritas Technologies LLC. Manufacturing and Supply Chain Quantum has a global supply chain and operations organization, with contract manufacturers located in the U.S. and Mexico along with supporting third-party logistics companies in the Europe, Middle East, and Africa region, or (“EMEA”), and the Asia-Pacific region, or (“APAC”).
Manufacturing and Supply Chain Quantum has a global supply chain and operations organization, with contract manufacturers located in the U.S. and Mexico along with supporting third-party logistics companies in the Europe, Middle East, and Africa region (“EMEA”), and the Asia-Pacific region, or (“APAC”).
Our managers and employees participate in semi-annual discussions that help facilitate conversations of employee contributions, goals and expectations.
Our managers and employees participate in regular performance discussions that help facilitate conversations on employee contributions, goals, and expectations.
Lerner served as President of Cloud Systems and Solutions at Seagate Technology Public Limited Company (“Seagate”), a data storage company. Prior to Seagate, Mr. Lerner served in various executive roles at Cisco Systems, Inc.
Lerner served as President of Cloud Systems and Solutions at Seagate Technology Holdings Public Limited Company (“Seagate”) (Nasdaq: STX), a data storage company. Prior to Seagate, Mr.
Our services are delivered with a combination of expertise and technology, including the MyQuantum Service Delivery Platform, and Cloud-Based Analytics (CBA) AIOps software for proactive remote monitoring.
We also offer a broad portfolio of services including 24x7x365 global support, deployment and consulting services, education services, and Quantum-as-a-Service. Our services are delivered with a combination of expertise and technology, including the MyQuantum Service Delivery Platform, and Cloud-Based Analytics (CBA) AIOps software for proactive remote monitoring.
(Nasdaq: CSCO), a networking hardware and software manufacturing company, including most recently as Senior Vice President and General Manager of the Cloud & Systems Management Technology Group. 8 Table of Contents Before beginning his career as a technology company executive, Mr. Lerner was a Senior Consultant at Andersen Consulting, a financial advisory and consulting firm. Since 2011, Mr.
Lerner served in various executive roles at Cisco Systems, Inc. 7 Table of Contents (Nasdaq: CSCO), a networking hardware and software manufacturing company, including most recently as Senior Vice President and General Manager of the Cloud & Systems Management Technology Group. Before beginning his career as a technology company executive, Mr.
Our tape storage systems primarily compete in the midrange and enterprise reseller and end user markets with IBM and other tape library vendors. Competitors for entry-level and OEM tape systems include BDT Products, Inc. and several others that supply or manufacture similar products. In addition, disk backup products and cloud storage are an indirect competitive alternative to tape storage.
Competitors for entry-level and OEM tape systems include BDT Products, Inc. and several others that supply or manufacture similar products. In addition, disk backup products and cloud storage are an indirect competitive alternative to tape storage. Our backup storage systems primarily compete with products sold by Dell, Hewlett Packard Enterprise Company and Veritas Technologies LLC.
To build high performing products and services, we start with building high performing teams that are inclusive, diverse, and respected regardless of gender, race, color, religion, age, sexual orientation, or disability. We invest in diversity hiring and training initiatives as well as performance development opportunities. We seek out candidates anywhere on the career spectrum from intern to a seasoned professional.
To build high performing products and services, we aim to build high performing teams that are inclusive, diverse, and respected regardless of gender, race, color, religion, age, sexual orientation, or disability. We invest in diverse hiring and training initiatives, performance and professional development opportunities, and candidates ranging from interns to experienced leaders.
Hurley was at Cisco Systems, Inc. (“Cisco”) (Nasdaq: CSCO), a networking hardware and software manufacturing company, from 2008 to 2021, and most recently served as vice president at Cisco, global commercial segment. Mr. Hurley also spent several years overseeing Cisco's service provider business. Additionally, Mr. Hurley led transformational enterprise relationships with Cisco's largest enterprise customers in aerospace and automotive.
John Hurley, 57, has served as Quantum's Chief Revenue Officer since August 2021. Prior to Quantum, Mr. Hurley was at Cisco Systems, Inc. (Nasdaq: CSCO), a networking hardware and software manufacturing company, from 2008 to 2021, and most recently served as Vice President at Cisco, global commercial segment. Mr. Hurley also spent several years overseeing Cisco's service provider business.
We believe that having a work environment that is inclusive is a critical component to our culture of excellence. Culture of Excellence, Accountability, and Innovation Our company goals and leadership attributes set the tone for our culture of excellence and accountability.
This past year, we partnered with an outside firm for our training on compliance and preventing harassment and discrimination. We believe that fostering an inclusive work environment is a critical component for our culture of excellence. Culture of Excellence, Accountability, and Innovation Our company goals and leadership attributes set the tone for our culture of excellence and accountability.
We are currently able to provide service to customers in more than 100 countries, supported by 24-hour, multi-language technical support centers located in North America, Europe, and Asia. We provide our customers with warranty coverage on our products.
Our extensive use of technology and innovative product intelligence allows us to scale our global services operations to meet the needs of our customers. We are currently able to provide service to customers in more than 100 countries, supported by 24-hour, multi-language technical support centers located in North America, Europe, and Asia.
Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr. Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego. J.
Lerner was a Senior Consultant at Andersen Consulting, a financial advisory and consulting firm. Since 2011, Mr. Lerner has served on the Board of Trustees of Astia, a global not-for-profit organization built on a community of men and women dedicated to the success of women-led, high-growth ventures, and is currently serving as the Chair of the Board of Trustees. Mr.
ITEM 1. BUSINESS Overview Quantum is a data company with a portfolio of products and services for storing, managing, protecting, archiving, and enriching digital data. We specialize in solutions for video data, images, and other large files because this “unstructured” data represents more than 80% of all data being created, according to leading industry analyst firms.
ITEM 1. BUSINESS Overview Quantum delivers end-to-end solutions to analyze and enrich, store and manage, and protect and preserve unstructured data across its entire lifecycle. We specialize in solutions for video data, images, and other large files because this “unstructured” data represents more than 80% of all data being created, according to leading industry analyst firms.
Our workforce is distributed in over 16 countries, with 905 employees globally as of March 31, 2022, including 529 in the U.S. and Canada, 175 in APAC, and 201 in EMEA. We will engage with contractors, consultants, or temporary employees as needs for special projects occur.
Our workforce is currently distributed across 19 countries, with approximately 850 employees globally as of March 31, 2023, including 460 in North America, 190 in APAC, and 200 in EMEA. We engage with contractors, consultants, or temporary employees as needs for special projects occur.
Cabrera held various legal positions with PeopleSoft, Inc., a human resource management systems provider, Netscape Communications Corporation, an internet software developing company, Silicon Graphics, Inc., a computer hardware and software manufacturing company, and Bronson, Bronson & McKinnon LLP, a law firm. John Hurley, 56, has served as Quantum's Chief Revenue Officer since August 2021. Prior to Quantum, Mr.
Cabrera held various legal positions with PeopleSoft, Inc., a human resource management systems provider, Netscape Communications Corporation, an internet software developing company, Silicon Graphics, Inc., a computer hardware and software manufacturing company, and Bronson, Bronson & McKinnon LLP, a law firm. Mr. Cabrera holds Bachelor’s and Master’s degrees and a Juris Doctorate from the University of Southern California.
Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems. We offer this additional support coverage at a variety of response levels up to 24-hours a day, seven-days-a-week, 365-days-a-year, for customers with stringent high-availability needs.
We provide our customers with warranty coverage on our products. Customers with high availability requirements may also purchase additional services to obtain faster response times on our high-performance shared storage systems, tape systems, and disk backup systems.
Work Environment Competition for talent in the technology industry continues to be aggressive and a candidates’ market. We continue to design, evaluate, and expand our total rewards programs so they remain competitive in attracting, motivating, rewarding, and retaining key talent. For the last two years, our focus has been about keeping our employees and office locations safe during the pandemic.
Work Environment While we believe competition for talent in the technology industry in certain geographies may be beginning to soften, we continue to design, evaluate, and expand our total rewards programs so they remain competitive in attracting, motivating, rewarding, and retaining key talent.
Our primary storage systems and object storage systems primarily face competition from the EMC business unit of Dell Inc., (“Dell”), International Business Machines Corporation, (“IBM”), NetApp, Inc., (“NetApp”), and other enterprise storage vendors in the markets we serve.
(“Dell”), International Business Machines Corporation, (“IBM”), NetApp, Inc., (“NetApp”), and other enterprise storage vendors in the markets we serve. Our secondary storage solutions, primarily tape storage systems, compete in the midrange and enterprise reseller and end user markets with IBM and other tape library vendors.
These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions. We generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale.
In addition to these traditional installation and maintenance services, we also provide project management, managed services, and other value-added services to enhance our customer’s experience and engagement. These incremental services create a deeper relationship with customers that enables them to maximize the value of our solution and better positions us to retain our customers through technology transitions.
While at Quassey, he also served as Vice President of Finance and Principal Accounting Officer at Limelight Networks, a Nasdaq-listed global content delivery network and SaaS provider, from March 2010 to August 2013.
(now Edgio, Inc.), a Nasdaq-listed global content delivery network and SaaS provider, from March 2010 to August 2013.
The leadership team created regular “no internal meetings” days so employees can have more time to work on innovative projects, plan, take a training course, or use the uninterrupted time for personal development. Talent Development Our talent is our greatest asset.
We also continued our practice of “no internal meeting days” so employees can have more time for focused work, training, or personal development. Talent Development Our talent is our greatest asset. We seek to actively grow our employees’ skills and leadership perspective while retaining our most critical talent.
These shortages are affecting the entire data storage industry, and many industries worldwide, and have resulted in longer lead times, increased costs, and a large backlog. To address these shortages, the supply chain organization is focused on a number of actions including alternate component qualifications, more aggressive management of contract manufacturers, and model changes for better logistics performance and visibility.
While some components continue to have extended lead times and often non-cancellable purchase orders are required, Quantum continues to work with suppliers to minimize lead times and associated liabilities. We continue to focus on a number of actions including alternate component qualifications, more aggressive management of contract manufacturers, and model changes for better logistics performance and visibility.
Customers Our customers vary across multiple industries worldwide ranging from small businesses to global enterprises. In addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers.
Customers 5 Table of Contents We provide solutions to multiple industries globally. Historically, our primary customers are in hyperscale, technology and industrial, media and entertainment, federal government, life sciences and healthcare, and financial industries. In addition, we sell to OEMs, distributors, VARs and DMRs to reach end user customers.
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We recognized this fundamental shift in the data landscape, and through a series of strategic acquisitions and internal innovation, we have transformed the company to offer end to end solutions for video and unstructured data. Quantum is a leading provider of cold storage infrastructure to the world’s largest hyperscalers.
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It is no longer just about storing data— organizations need to extract value from their data. Locked inside video, imagery, security camera footage, scientific data sets, and other sensor-derived data is a wealth of information for informed decision-making.
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The world’s leading studios, broadcasters, sports teams, and visual effects studios rely on Quantum to create and archive content. The largest airports, hotels, and critical infrastructure rely on Quantum to capture mission-critical video surveillance data.
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As a result, organizations need end-to-end solutions that allow them to manage and preserve data for decades and to easily extract insights from the detail. Whether data lives in the workplace, at the edge, or in the cloud, we provide organizations with the technology, software, and services they need to store, manage, protect, and enrich data throughout its lifecycle.
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And many of the world’s leading government agencies, research institutions, and well-known brands everywhere rely on Quantum to store, manage, and protect the data that is at the core of digital transformation.
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Products and Services Our portfolio of products includes primary storage software and systems, secondary storage software and systems, as well as devices and media.
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Products and Services Our portfolio of products and services now includes: • Asset Management and Workflow Orchestration Software to index, analyze, enrich video and image data. • Primary Storage Systems for high-speed data ingest and capture – optimized for video and images with the fastest streaming performance, and highly available and resilient designs. • Secondary Storage Systems for large scale data storage, data and cyber protection, active and deep archives. • A Broad Portfolio of Services including 24x7x365 support services, deployment and consulting services, education services, and Quantum-as-a-Service.
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Primary Storage Software and Systems include: • Myriad All-Flash File and Object Storage Software: All-flash scale-out file and object storage for high performance enterprise unstructured data applications such as AI, machine learning, and data analytics. • StorNext Hybrid Flash/Disk File Storage Software: For video editing, post-production, and streaming applications, as well as large digital file archives. • Unified Surveillance Platform Software : Unified compute and storage for video surveillance recording, storage, and analytics. • CatDV Asset Management Software : For indexing, cataloging, enriching video, audio, and image files, and workflow orchestration.
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CatDV Asset Management Platform and Workflow Orchestration Software CatDV is an agile asset management and workflow orchestration platform that provides powerful asset management, automation, and collaboration tools for any organization that manages large volumes of digital media. The software application indexes and catalogs video files, digital images, audio files, and other types of files.
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Secondary Storage Software and Systems include: • ActiveScale Object Storage Software: Extremely scalable and durable storage for long term data preservation and protection. • DXi Backup Appliances : Purpose-built backup appliances for high-speed backup and recovery and multisite data protection. • Scalar Tape Storage : Low cost, secure storage for long term data archiving and offline data protection.
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CatDV helps organizations browse their content and streamline their workflows. CatDV can be used with StorNext file storage, with ActiveScale object storage, as well as third party storage.
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Scalar tape storage systems are used by the world’s largest hyperscalers as well as thousands of enterprises worldwide. Devices and Media includes the sale of standalone Linear Tape-Open (“LTO®”) tape drives for small business data protection and archiving, and LTO® media for use in tape storage systems.
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StorNext High-Performance File System Software At the core of our high-performance shared storage product line is our StorNext software that enables high-speed ingest, editing, processing and management of digital video and image datasets. Major broadcasters and studios, post-production companies including streaming services, sports franchises, and corporations around the world use StorNext.
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Global Support and Services, and Warranty 4 Table of Contents Our global services strategy is an integral component of our total customer solution. Service is typically a significant purchase factor for customers considering long-term storage for archiving and retention or data protection storage solutions.
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StorNext software is both a shared file system and data management platform. StorNext provides fast streaming performance and data access, a shared file storage environment for macOS, Microsoft Windows, and Linux workstations, and intelligent data management to protect data across its lifecycle.
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We offer this additional support coverage at a variety of response levels up to 24-hours a day, seven-days-a-week, 365-days-a-year, for customers with stringent high-availability needs. We provide support ranging from repair and replacement to 24-hour rapid exchange to on-site service support for our midrange and enterprise-class products.
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StorNext is sold as software based on a subscription licensing model, runs on standard servers, and is sold with storage arrays that are used within the StorNext environment. 4 Table of Contents These storage arrays include: • Quantum F-Series: A line of ultra-fast, highly available non-volatile memory express ("NVMe") storage servers for editing, rendering, and processing of video content and other large unstructured datasets. • Quantum H-Series: A line of high-performance storage arrays, offered with either hard disk drives ("HDDs"), solid state drives ("SSDs"), or some combination of the two. • Quantum QXS-Series: A line of high performance storage arrays, offered with either HDD, SSD, or some combination of the two.
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We generally warrant our hardware products against defects for periods ranging from one to three years from the date of sale. We provide warranty and non-warranty repair services through our service team and third-party service providers.
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Customers are now deploying our StorNext file system with a combination of NVMe storage and more traditional SSD and HDD storage to balance cost and performance. Our StorNext software can also manage data across different types, or pools, of storage, such as public cloud object stores and disk-based object storage systems.
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The global supply chain and logistics have been severely constrained and impacted by inflationary pricing for the past couple of years. While we are cautiously optimistic and see signs of improvement over the past year with supply of both server and tape automation components, we continue to see some constraints.
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StorNext supports a broad range of both private and public object stores to meet customer needs. For customers that archive video and image data for years, StorNext is also integrated with our tape storage, and can assign infrequently used but important data to tape to create a large-scale active archive.
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Lerner earned a Bachelor of Arts in Quantitative Economics and Decision Sciences from U.C. San Diego. Kenneth Gianella, 50, has served as our Chief Financial Officer since January 2023. Prior to joining us, he served as the Vice President of Investor Relations; Mergers, Divestitures, & Acquisitions; and Environmental, Social & Governance (ESG) Strategy at Itron, Inc.
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Solutions for Video Surveillance Recording and Retention We offer a broad portfolio of products designed for the capture and analysis of video surveillance and security. These products include network video recording servers, as well as hyper-converged storage systems for video surveillance management and recording.
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(Nasdaq: ITRI), an energy and water network technology and services company, since July 2018, and as Vice President of Finance and Treasury of Itron’s Networks segment from January 2018 to July 2018. Prior to that, from December 2012 to December 2017, Mr.
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In addition, we offer appliances designed for video surveillance analytics and to run different types of access control systems.
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Gianella held various senior finance positions at Silver Springs Networks, an IoT and smart networks company (acquired by Itron in December 2017), including as interim Chief Financial Officer, Senior Vice President, Finance and Treasurer. Mr.
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Quantum ActiveScale™ Object Storage With the acquisition of the ActiveScale object storage business from Western Digital that was completed in March of 2020, we now offer leading object storage systems for massive-scale, online content repositories such as media archives, genome sequencing data repositories, and big data lakes.
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Gianella also was the Head of Finance and Administration at Sensity Systems, Inc., a producer of smart LED lights for enabling Smart Cities, and held various senior finance roles at KLA-Tencor Corporation, a leader in process control, yield management, and computational analytics for the semiconductor industry. Mr.
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ActiveScale object storage provides high levels of data durability and facilitates the management of many petabytes and billions of objects. ActiveScale object storage software is sold via a subscription licensing model, stores data in object format and uses patented erasure-encoding software to protect data across storage nodes and across multiple geographic sites.
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Gianella holds a Master of Business Administration from University of Pittsburgh and a Bachelor of Science in Business Administration from Duquesne University. Brian E.
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DXi Backup Appliances DXi backup appliances provide high-performance, scalable storage for backup and multi-site disaster recovery. Advanced deduplication technology maximizes data reduction, replication enables multi-site protection and data recovery, and a high-efficiency design enables customers to maximize backup performance while minimizing data center footprint.
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Employees are empowered to ask questions and encouraged to report concerns without fear of retaliation, including reporting anonymously if preferred. During the fiscal year ended March 31, 2023, we redesigned our internal employee recognition program to encourage driving innovation, promoting teamwork, and leading by example.
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Scalar® Tape Storage Scalar tape storage systems are low-cost, long-term data storage used by large cloud providers and leading enterprises to archive and preserve digital content for decades. The product line scales from entry-level libraries for small backup environments up to massive petabyte and even exabyte scale archive libraries.
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Our tape systems provide storage density, offline secure storage to protect against ransomware and malware, and an intelligent, advanced diagnostics engine designed to reduce downtime and operational expense relative to other tape systems. Our tape systems are used by thousands of enterprises around the world as well as by large cloud service providers.
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In addition to our tape systems, we also sell Linear Tape Open ("LTO") tape cartridges as well as standalone LTO tape drives for small business and desktop use. Global Support and Services, and Warranty Our global services strategy is an integral component of our total customer solution.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur results of operations could be adversely affected by any number of factors related to our channel partners, including: • A change in competitive strategy that adversely affects a partner’s willingness or ability to distribute our products; • The reduction, delay, or cancellation of orders or the return of significant products volume; • Our inability to gain traction in developing new indirect sales channels for our branded products, or the loss of one or more existing partners; or • Changes in requirements or programs that allow our products to be sold by third parties to government or other customers.
Biggest changeOur results of operations could be adversely affected by any number of factors related to our channel partners, including: • a change in competitive strategy that adversely affects a partner’s willingness or ability to distribute our products; • the reduction, delay, or cancellation of orders or the return of significant products volume; • our inability to gain traction in developing new indirect sales channels for our branded products, or the loss of one or more existing partners; or • changes in requirements or programs that allow our products to be sold by third parties to government or other customers. 12 Table of Contents Because we rely heavily on channel partners to market and sell our products, if one or more of them were to experience a significant deterioration in its financial condition or its relationship with us, this could disrupt our product distribution and reduce our revenue, which could materially and adversely affect our business, financial condition, and operating results.
We derive significant revenue from products incorporating tape technology. Our future operating results depend in part on continued market acceptance and use of tape products; in the past, decreases in the market have materially and adversely impacted our business, financial condition and operating results.
We derive significant revenue from products incorporating tape technology. Our future operating results depend in part on continued market acceptance and use of tape products; in the past, decreases in the tape products market have materially and adversely impacted our business, financial condition and operating results.
Our media royalty revenue varies based on the licensees’ media sales and other factors, including: • Our customers’ continued use of storage tape media, including the size of the installed base of devices and similar products that use tape media cartridges; • The relative growth in units of newer device products, since the associated media cartridges for newer products typically sell at higher prices compared with the media cartridges associated with older products; • The media consumption habits and rates of end users and pattern of device retirements; • The level of channel inventories; and • Agreement on standards for newer generations of the tape media that generates our royalty revenue.
Our media royalty revenue varies based on the licensees’ media sales and other factors, including: • our customers’ continued use of storage tape media, including the size of the installed base of devices and similar products that use tape media cartridges; • the relative growth in units of newer device products, since the associated media cartridges for newer products typically sell at higher prices compared with the media cartridges associated with older products; • media consumption habits and rates of end users and pattern of device retirements; • the level of channel inventories; and • agreement on standards for newer generations of the tape media that generates our royalty revenue.
Some of those competitors, are much larger, financially stronger, and have more diverse product offerings, and aggressively compete based on their reputations and greater size. Technological developments, industry consolidation, and storage market competition over the years have resulted in decreased prices and increased commoditization for tape device and automation products and our other product offerings.
Some of those competitors are much larger and financially stronger, have more diverse product offerings, and aggressively compete based on their reputations and greater size. Technological developments, industry consolidation, and storage market competition over the years have resulted in decreased prices and increased commoditization for tape device and automation products and our other product offerings.
General Risk Factors We face risks related to health epidemics, including the COVID-19 pandemic, which could have a material adverse effect on our business and results of operations. We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the COVID-19 pandemic.
General Risk Factors We face risks related to health epidemics which could have a material adverse effect on our business and results of operations. We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the COVID-19 pandemic.
The trading price of our common stock may continue to fluctuate in response to a number of events and factors, many of which may be beyond our control, such as: • quarterly variations in our operating results; • failure to meet our financial guidance or the expectations of securities analysts and investors; • new products, services, innovations, strategic developments, or business combinations and investments by our competitors or us; • changes in our capital structure, including incurring new debt, issuing additional debt or equity to the public, and issuing common stock upon exercise of our outstanding warrants or subscribing to our recent rights offering; • large or sudden purchases or sales of stock by existing or new investors; • changes in interest and exchange rates; • a continued widespread decline in the U.S. or global economy as a result of the continued impact of COVID-19, supply chain constraints, or other factors; • fluctuations in the stock market in general and market prices for technology companies in particular; • tariffs imposed by the U.S. government on sales originating in or being shipped to countries with which we have on-going trade or other political conflicts; • investigations or enforcement actions related to a potential or actual failure to comply with applicable regulations; • costs of new or ongoing commercial litigation; and • significant changes in our brand or reputation.
The trading price of our common stock may continue to fluctuate in response to a number of events and factors, many of which may be beyond our control, such as: • quarterly variations in our operating results; • failure to meet our financial guidance or the expectations of securities analysts and investors; • new products, services, innovations, strategic developments, or business combinations and investments by our competitors or us; • changes in our capital structure, including incurring new debt, issuing additional debt or equity to the public, and issuing common stock upon exercise of our outstanding warrants or subscribing to our recent rights offering; • large or sudden purchases or sales of stock by investors; • changes in interest and exchange rates; • a continued widespread decline in the U.S. or global economy as a result of the impact of COVID-19, supply chain constraints, or other factors; • fluctuations in the stock market in general and market prices for technology companies in particular; • tariffs imposed by the U.S. government on sales originating in or being shipped to countries with which we have on-going trade or other political conflicts; • investigations or enforcement actions related to a potential or actual failure to comply with applicable regulations; • costs of new or ongoing commercial litigation; and • significant changes in our brand or reputation.
Risks that we may face in our efforts to integrate any recent or future acquisitions include, among others: • failure to realize anticipated synergies or return on investment from the acquisition; • difficulties assimilating and retaining employees, business culture incompatibility, or resistance to change; • diverting management’s attention from ongoing business concerns; • coordinating geographically separate organizations and infrastructure operations in a rapid and efficient manner; • the potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services; • failure of acquired technology or products to provide anticipated revenue or margin contribution; • insufficient revenues to offset increased expenses associated with the acquisition; • costs and delays in implementing or integrating common systems and procedures; • reduction or loss of customer orders due to the potential for market confusion, hesitation and delay; • impairment of existing customer, supplier and strategic relationships of either company; • insufficient cash flows from operations to fund the working capital and investment requirements; 19 Table of Contents • difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; • dissatisfaction or performance problems with the acquired company; • the assumption of risks, unknown liabilities, or other unanticipated adverse circumstances of the acquired company that are difficult to quantify; and • the cost associated with the acquisition, including restructuring actions, which may require cash payments that, if large enough, could materially and adversely affect our liquidity.
Risks that we may face in our efforts to integrate any recent or future acquisitions include, among others: • failure to realize anticipated synergies or return on investment from the acquisition; • difficulties assimilating and retaining employees, business culture incompatibility, or resistance to change; • diverting management’s attention from ongoing business concerns; • coordinating geographically separate organizations and infrastructure operations in a rapid and efficient manner; • the potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services; • failure of acquired technology or products to provide anticipated revenue or margin contribution; • insufficient revenues to offset increased expenses associated with the acquisition; • costs and delays in implementing or integrating common systems and procedures; • reduction or loss of customer orders due to the potential for market confusion, hesitation and delay; • impairment of existing customer, supplier and strategic relationships of either company; • insufficient cash flows from operations to fund the working capital and investment requirements; • difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; • dissatisfaction or performance problems with the acquired company; • the assumption of risks, unknown liabilities, or other unanticipated adverse circumstances of the acquired company that are difficult to quantify; and • the cost associated with the acquisition, including restructuring actions, which may require cash payments that, if large enough, could materially and adversely affect our liquidity.
As a result of our indebtedness: • Our ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to: ◦ Incur debt and liens; ◦ Acquire businesses or entities or sell certain assets; ◦ Make investments, including loans, guarantees, and advances; ◦ Engage in transactions with affiliates; ◦ Pay dividends or repurchase stock; and ◦ Enter into certain restrictive agreements; • We must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage; • We are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds; • We may be more vulnerable to adverse economic and industry conditions; and • We may be unable to make payments on other indebtedness or obligations.
As a result of our indebtedness: • Our ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to: ▪ Incur debt and liens; ▪ Acquire businesses or entities or sell certain assets; ▪ Make investments, including loans, guarantees, and advances; ▪ Engage in transactions with affiliates; ▪ Pay dividends or repurchase stock; and ▪ Enter into certain restrictive agreements; 16 Table of Contents • We must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage; • We are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds; • We may be more vulnerable to adverse economic and industry conditions; and • We may be unable to make payments on other indebtedness or obligations.
We could be responsible for the financial impact from any forecast reduction or product mix shift relative to materials already purchased under a prior forecast, including the cost of finished goods in excess of current customer demand or for excess or obsolete inventory. 12 Table of Contents In some cases we may retain the responsibility to purchase component inventory to support third-party manufacturing activities, which presents a number of risks that could materially and adversely affect our financial condition.
We could be responsible for the financial impact from any forecast reduction or product mix shift relative to materials already purchased under a prior forecast, including the cost of finished goods in excess of current customer demand or for excess or obsolete inventory. 10 Table of Contents In some cases, we may retain the responsibility to purchase component inventory to support third-party manufacturing activities, which presents a number of risks that could materially and adversely affect our financial condition.
Because of these operations, we are subject to a number of risks in addition to those already described, including: • increasing import and export duties and value-added taxes, or trade regulation changes that could erode our profit margins or delay or restrict our ability to transport our products; 13 Table of Contents • war, military conflict, and geo-political unrest may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries. • reduced or limited protection of our intellectual property; • difficulty complying with multiple and potentially conflicting regulatory requirements and practices, including laws governing corporate conduct outside the U.S., such as the Foreign Corrupt Practices Act, United Kingdom Bribery Act, and similar regulations; • commercial laws that favor local businesses and cultural differences that affect how we conduct business; • differing technology standards or customer requirements; • exposure to economic uncertainty and fluctuations including inflation, adverse movement of foreign currencies against the U.S. dollar (the currency in which we report our results), restrictions on transferring funds between countries, and continuing sovereign debt risks; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points for our products and shipments; • inflexible employee contracts and employment laws that may make it difficult to terminate or change the compensation structure for employees in the event of business downturns; • difficulties attracting and recruiting employees and wage inflation in highly competitive markets; • political instability, military, social and infrastructure risks, especially in emerging or developing economies, including the war between Russia and Ukraine; • political or nationalist sentiment impacting global trade, including the willingness of non-U.S. consumers to purchase goods or services from U.S. corporations; • natural disasters, including earthquakes, flooding, typhoons and tsunamis; and • pandemics and epidemics, including the impact of COVID-19, and varying and potentially inconsistent governmental restrictions on the operation of businesses, travel and other restrictions.
Because of these operations, we are subject to a number of risks in addition to those already described, including: 11 Table of Contents • increasing import and export duties and value-added taxes, or trade regulation changes that could erode our profit margins or delay or restrict our ability to transport our products; • war, military conflict, and geopolitical unrest, including the war between Russia and Ukraine, may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries; • reduced or limited protection of our intellectual property; • difficulty complying with multiple and potentially conflicting regulatory requirements and practices, including laws governing corporate conduct outside the U.S., such as the Foreign Corrupt Practices Act, United Kingdom Bribery Act, and similar regulations; • commercial laws that favor local businesses and cultural differences that affect how we conduct business; • differing technology standards or customer requirements; • exposure to economic uncertainty and fluctuations including inflation, adverse movement of foreign currencies against the U.S. dollar (the currency in which we report our results), restrictions on transferring funds between countries, and continuing sovereign debt risks; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points for our products and shipments; • inflexible employee contracts and employment laws that may make it difficult to terminate or change the compensation structure for employees in the event of business downturns; • difficulties attracting and recruiting employees and wage inflation in highly competitive markets; • political instability, military, social and infrastructure risks, especially in emerging or developing economies; • political or nationalist sentiment impacting global trade, including the willingness of non-U.S. consumers to purchase goods or services from U.S. corporations; • natural disasters, including earthquakes, flooding, typhoons and tsunamis; and • pandemics and epidemics, and varying and potentially inconsistent governmental restrictions on the operation of businesses, travel and other restrictions.
Additional industry consolidation may further result in: • competitors consolidating, having greater resources and becoming more competitive with us; • new entrants into one or more of our primary markets increasing competition; • customers that are also competitors becoming more competitive with us and/or reducing their purchase of our products; • competitors acquiring our current suppliers or business partners and negatively impacting our business model; and • market uncertainty and disruption due to the impact and timing of announced and completed transactions.
Additional industry consolidation may further result in: 19 Table of Contents • competitors consolidating, having greater resources and becoming more competitive with us; • new entrants into one or more of our primary markets increasing competition; • customers that are also competitors becoming more competitive with us and/or reducing their purchase of our products; • competitors acquiring our current suppliers or business partners and negatively impacting our business model; and • market uncertainty and disruption due to the impact and timing of announced and completed transactions.
While we are making targeted investments in software, disk backup systems, and other alternative technologies, these markets are characterized by rapid innovation, evolving customer demands, and strong competition, including competition with companies who are also significant customers.
While we are making targeted investments in software, disk backup and flash storage systems, and other alternative technologies, these markets are characterized by rapid innovation, evolving customer demands, and strong competition, including competition with companies who are also significant customers.
As recently as March 2022, we were in danger of failing to meet certain financial covenants in our debt agreements, which could have resulted in a default under these agreements if we had not obtained a waiver of noncompliance from our lenders.
As recently as March 2023, we were in danger of failing to meet certain financial covenants in our debt agreements, which could have resulted in a default under these agreements if we had not obtained a waiver of noncompliance from our lenders.
Should we undergo such a change in stock ownership, it would severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges, which could be material. 24 Table of Contents
Should we undergo such a change in stock ownership, it would severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges, which could be material. 23 Table of Contents
If we identify that we have fallen out of compliance, we may proactively take corrective actions, including the filing of voluntary self-disclosure statements with applicable agencies, which could cause us to incur additional expenses and subject 22 Table of Contents us to penalties and other consequences that could adversely affect our business, financial condition, and operating results.
If we identify that we have fallen out of compliance, we may proactively take corrective actions, including the filing of voluntary self-disclosure statements with applicable agencies, which could cause us to incur additional expenses and subject us to penalties and other consequences that could adversely affect our business, financial condition, and operating results.
Disk, solid-state, and flash storage products, as well as various software solutions and alternative technologies have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward these other products and solutions and their proportionate contribution to our revenue will increase in the future.
Disk, solid-state, and flash storage products, as well as various software solutions and alternative technologies have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward 15 Table of Contents these other products and solutions and their proportionate contribution to our revenue will increase in the future.
The competitive price of our products relative to others could also be negatively impacted by changes in the rate at which a foreign currency is exchanged for U.S. dollars. Such fluctuations in currency exchange rates could materially and adversely affect our business, financial condition and results of operations.
The competitive price of our products relative to others could also be negatively impacted by changes in the rate at which a foreign 22 Table of Contents currency is exchanged for U.S. dollars. Such fluctuations in currency exchange rates could materially and adversely affect our business, financial condition and results of operations.
We are exposed to fluctuations in foreign currency exchange rates, and an adverse change in foreign currency exchange rates relative to our position in such currencies could have a material adverse impact on our business, financial condition and results of operations. 23 Table of Contents We do not currently use derivative financial instruments for speculative purposes.
We are exposed to fluctuations in foreign currency exchange rates, and an adverse change in foreign currency exchange rates relative to our position in such currencies could have a material adverse impact on our business, financial condition and results of operations. We do not currently use derivative financial instruments for speculative purposes.
Either scenario could result in fewer of our products 14 Table of Contents being available to the affected market segments, reduced levels of customer satisfaction and increased expenses, which could in turn have a material and adverse impact on our business, results of operations and financial condition.
Either scenario could result in fewer of our products being available to the affected market segments, reduced levels of customer satisfaction and increased expenses, which could in turn have a material and adverse impact on our business, results of operations and financial condition.
In the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute strategic management decisions, and to rationalize our operations following acquisitions.
In the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute 17 Table of Contents strategic management decisions, and to rationalize our operations following acquisitions.
A cybersecurity breach of our internal infrastructure or our products could adversely affect our ability to conduct our business, harm our reputation, expose us to significant liability, or otherwise damage our financial results. We maintain sensitive data related to our employees, strategic partners, and customers, including personally identifiable information, intellectual property, and proprietary business information on our own systems.
A cybersecurity breach could adversely affect our ability to conduct our business, harm our reputation, expose us to significant liability, or otherwise damage our financial results. We maintain sensitive data related to our employees, strategic partners, and customers, including personally identifiable information, intellectual property, and proprietary business information on our own systems.
Risks Related to Our Business and Industry If we do not successfully manage the changes that we have made and may continue to make to our business model, infrastructure, and management, our business could be disrupted, and that could adversely impact our operating results and financial condition. 18 Table of Contents Managing change is an important focus for us.
Risks Related to Our Business and Industry If we do not successfully manage the changes that we have made and may continue to make to our business model, infrastructure, and management, our business could be disrupted, and that could adversely impact our operating results and financial condition. Managing change is an important focus for us.
As a result, our business, financial condition, and operating result could be materially and adversely affected. If we fail to protect our intellectual property or if others use our proprietary technology without authorization, our competitive position may suffer. 21 Table of Contents Our future success and ability to compete depends in part on our proprietary technology.
As a result, our business, financial condition, and operating result could be materially and adversely affected. If we fail to protect our intellectual property or if others use our proprietary technology without authorization, our competitive position may suffer. Our future success and ability to compete depends in part on our proprietary technology.
Sole source of product supply In many cases, our business partners may be the sole source of supply for the products or parts they manufacture, or the services they provide to us, and we may not have executed long-term purchase agreements with these partners.
Sole source of product supply In many cases, our business partners are the sole source of supply for the products or parts they manufacture, or the services they provide to us, and we do not have executed long-term purchase agreements with these partners.
Risks Related to Our Indebtedness 17 Table of Contents We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business.
Risks Related to Our Indebtedness We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business.
While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, security breaches, and other system disruptions.
While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, 18 Table of Contents security breaches, and other system disruptions.
Uncertainty about economic conditions, particularly due to the ongoing COVID-19 pandemic, pose risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results.
Uncertainty about economic conditions pose risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results.
Our quarterly operating results have fluctuated significantly, and past results should not be used to predict future performance. Our quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, our quarterly operating results should not be used to predict future performance.
Our quarterly operating results have fluctuated significantly, and past results should not be used to predict future performance. 14 Table of Contents Our quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, our quarterly operating results should not be used to predict future performance.
Quarterly results could be materially and adversely affected by a number of factors, including, but not limited to: • IT spending fluctuations resulting from economic conditions or changes in U.S. federal government spending; • supply chain constraints or other failures by our contract manufacturers to complete shipments in a timely manner; • new product announcements by us or our competitors which may cause purchasing delays or cancellations; • customers canceling, reducing, deferring, or rescheduling significant orders as a result of excess inventory levels, weak economic conditions, reduced demand, or other factors; • seasonality, including customer and government fiscal year-ends and budget availability impacting demand for our products; • reduced demand, declines in large orders, royalty, or software revenues, or other changes in product mix; • product development and ramp cycle delays or product performance or quality issues; • poor execution of and performance against expected sales and marketing plans and strategies; • increased competition which may, among other things, increase pricing pressure or reduce sales; • restructuring actions or unexpected costs; and • foreign exchange fluctuations. 16 Table of Contents Our operating results depend on continuing and increasing market acceptance of our existing products and on new product introductions, which may be unsuccessful, in which case our business, financial condition and results of operations may be materially and adversely affected.
Quarterly results could be materially and adversely affected by a number of factors, including, but not limited to: • IT spending fluctuations resulting from economic conditions or changes in U.S. federal government spending; • supply chain constraints or other failures by our contract manufacturers to complete shipments in a timely manner; • new product announcements by us or our competitors which may cause purchasing delays or cancellations; • customers canceling, reducing, deferring, or rescheduling significant orders as a result of excess inventory levels, weak economic conditions, reduced demand, or other factors; • seasonality, including customer and government fiscal year-ends and budget availability impacting demand for our products; • reduced demand, declines in large orders, royalty, or software revenues, or other changes in product mix; • product development and ramp cycle delays or product performance or quality issues; • poor execution of and performance against expected sales and marketing plans and strategies; • increased competition which may, among other things, increase pricing pressure or reduce sales; • restructuring actions or unexpected costs; and • foreign currency exchange fluctuations.
Our stock price has experienced significant volatility in the recent past, and continued volatility may cause our common stock trading price to remain volatile or decline. 15 Table of Contents Our stock price has been extremely volatile in the recent past.
Our stock price has experienced significant volatility in the past, and continued volatility may cause our common stock trading price to remain volatile or decline. Our stock price has been extremely volatile in the past.
If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and operating results could be adversely affected. From time to time we have made acquisitions. The failure to successfully integrate future acquisitions could harm our business, financial condition, and operating results.
If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and operating results could be adversely affected. The failure to successfully integrate future acquired businesses, products or technologies could harm our business, financial condition, and operating results.
We may from time to time experience problems with the performance of our products, which could result in one or more of the following: • Increased costs related to fulfilling our warranty obligations; • Reduced, delayed, or cancelled orders or the return of a significant amount of products; or • The loss of reputation in the market and customer goodwill. • These factors could cause our business, financial condition and results of operations to be materially and adversely affected.
We may from time to time experience problems with the performance of our products, which could result in one or more of the following: • increased costs related to fulfilling our warranty obligations; • reduced, delayed, or cancelled orders or the return of a significant amount of products; or • the loss of reputation in the market and customer goodwill.
Future spending cuts by the U.S. federal government, temporary shutdowns of the U.S. federal government, or changes in its procurement processes or criteria could decrease our sales to the federal government and could materially and adversely affect our operating results.
Future spending cuts by the U.S. federal government, temporary shutdowns of the U.S. federal government, or changes in its procurement processes or criteria could decrease our sales to the federal government and materially and adversely affect our operating results. In addition, changes in government certification requirements applicable to our products could impact our ability to see to U.S. federal customers.
The market for skilled engineering, sales, and administrative talent is very competitive and recently we are seeing delays in recruiting and hiring timeframes.
The market for skilled engineering, sales, and administrative talent is competitive and we have seen delays in recruiting and hiring timeframes.
Any imposition or liability or litigation costs that are not covered by insurance could harm our business. If our products fail to meet our or our customers’ specifications for quality and reliability, we may face liability and reputational or financial harm which may adversely impact our operating results and our competitive position may suffer.
If our products fail to meet our or our customers’ specifications for quality and reliability, we may face liability and reputational or financial harm which may adversely impact our operating results and our competitive position may suffer.
ITEM 1A. RISK FACTORS Before investing in any of our securities, you should carefully consider the risks and uncertainties described below, together with all other information in this Annual Report. The risks and uncertainties described below could materially and adversely affect our business, operating results, financial condition, liquidity, or competitive position, and consequently, the value of our securities.
ITEM 1A. RISK FACTORS Before investing in any of our securities, you should carefully consider the risks and uncertainties described below, together with all other information in this Annual Report.
Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations. Our actual or perceived failure to adequately protect personally identifiable information could adversely affect our business, financial condition, and operating results.
Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations.
We also have and may continue to experience increased freight charges and reduced capacity from our freight forwarders. Any such increases or interruptions could materially negatively impact our business, prospects, financial condition and operating results, including delays in manufacturing and shipments of our products and canceled orders.
Any such increases or interruptions could materially negatively impact our business, prospects, financial condition and operating results, including delays in manufacturing and shipments of our products and in some cases, result in canceled orders.
A breach could also expose us to increased costs from remediation, disruption of operations, or increased cybersecurity protection costs that may have a material adverse effect on our business. Although we maintain cybersecurity liability insurance, our insurance may not cover potential claims of these types or may not be adequate to indemnify us for inability that may be imposed.
A breach could also expose us to increased costs from remediation, disruption of operations, or increased cybersecurity protection costs that may have a material adverse effect on our business.
Because of the characteristics of opensource software licenses, it may be relatively easy for competitors, some of whom have greater resources than we have, to enter our markets and compete with us. In addition, our failure to comply with the terms of open source licenses could have a material adverse effect on our competitive position and financial results.
Because of the characteristics of opensource software licenses, it may be relatively easy for competitors, some of whom have greater 20 Table of Contents resources than we have, to enter our markets and compete with us.
Compliance with these laws and regulations can be costly and can delay or impede the development or implementation of new products or internal systems.
These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development or implementation of new products or internal systems.
In some cases, the failure of our products may be caused by third-party technology that we incorporate into them. Even if failures are caused by third-party technology, we may be required to expend resources to address the failure and preserve customer relationships.
Even if failures are caused by third-party technology, we may be required to expend resources to address the failure and preserve customer relationships. We could also potentially face claims for product liability from our customers if our products cause property damage or bodily injury.
In addition, changes in government certification requirements applicable to our products could impact our ability to see to U.S. federal customers. Risks Related to Our Operating Results, Financial Condition, or Stock Price We continue to face risks related to inflation, economic uncertainty, and slow economic growth.
Risks Related to Our Operating Results, Financial Condition, or Stock Price 13 Table of Contents We continue to face risks related to inflation, economic uncertainty, and slow economic growth.
Any imposition of liability or litigation costs that are not covered by insurance or could harm our business.
Although we maintain cybersecurity liability insurance, our insurance may not cover all or any portion of claims of these types or may not be adequate to indemnify us for inability that may be imposed. Any imposition or liability or litigation costs that are not covered by insurance could harm our business.
In addition, we face potential liability for product performance problems because our end users employ our technologies to store and backup important data and to satisfy regulatory requirements. Loss of this data could cost our customers significant amounts of money, directly and indirectly as a result of lost revenues, intellectual property, proprietary business information, or other harm to their business.
Loss of this data could cost our customers significant amounts of money, directly and indirectly as a result of lost revenues, intellectual property, proprietary business information, or other harm to their business. In some cases, the failure of our products may be caused by third-party technology that we incorporate into them.
Risks Related to Our Supply Chain and Sales Strategy Cost increases, supply disruptions, or raw material shortages, including single source components, could harm our business. We have and may continue to experience cost increases or sustained supply interruptions in raw materials and components necessary for our products.
We have and may continue to experience cost increases or supply interruptions in raw materials and components necessary for our products, as well as increased freight charges and reduced capacity from our freight forwarders.
The U.S. federal government is an important customer, and our business may be materially and adversely harmed by changes in government purchasing activity.
If this customer or any other large customers should significantly decrease or stop purchasing our solutions we would see a significant reduction in revenue that may result in a material adverse effect on our operating results. The U.S. federal government is an important customer, and our business may be materially and adversely harmed by changes in government purchasing activity.
A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, deletion, and other processing of personally identifiable information. These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations.
Our actual or perceived failure to adequately protect personally identifiable information could adversely affect our business, financial condition, and operating results. 21 Table of Contents A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, deletion, and other processing of personally identifiable information.
Competition is intensifying in the data storage and protection market as a result of competitors introducing products based on new technology standards and merger and acquisition activity, which could materially and adversely affect our business, financial condition, and operating results. 20 Table of Contents Our competitors in the data storage and protection market are aggressively trying to advance and develop new technologies and products to compete against us.
Any imposition of liability or litigation costs that are not covered by insurance or could harm our business. Competition is intense in the data storage and protection market in which we operate. Our competitors in the data storage and protection market are aggressively trying to advance and develop new technologies and products to compete against us.
During the fiscal years ended March 31, 2022 and March 31, 2021, no single customer represented 10% or more of our total revenue. However, a significant reduction in orders from, or a loss of, one or more large customers would have a material adverse effect on our operating results.
During the fiscal year ended March 31, 2023 we had one Hyperscale customer represent 10% or more of our total revenue versus the prior fiscal year, March 31, 2022, when we had no single customer represent 10% or more of our total revenue.
Removed
The material adverse effects include, but are not limited to, our potential inability to grow our revenue or market share at the pace that they have grown historically or at all, our revenue, market share, stock price, and market capitalization fluctuating on a quarterly and annual basis, our history of losses continuing or our failure to become profitable, our inability to achieve the revenue and net income (loss) guidance that we provide, and the risk of harm to our reputation and brand.
Added
The risks and uncertainties described below could materially and adversely affect our business, operating results, revenue, financial condition, liquidity, market share or competitive position, and consequently, the value of our securities. Risks Related to Our Supply Chain, Customers and Sales Strategy Cost increases, supply disruptions, or raw material shortages, including in single source components, could harm our business.
Removed
Because we rely heavily on channel partners to market and sell our products, if one or more of them were to experience a significant deterioration in its financial condition or its relationship with us, this could disrupt our product distribution and reduce our revenue, which could materially and adversely affect our business, financial condition, and operating results.
Added
Our operating results depend on continuing and increasing market acceptance of our existing products and on new product introductions, which may be unsuccessful, in which case our business, financial condition and results of operations may be materially and adversely affected.
Removed
For example, the closing price of our common stock between January 3, 2022 and June 3, 2022 ranged from $1.56 to $5.64.
Added
These factors could cause our business, financial condition and results of operations to be materially and adversely affected. In addition, we face potential liability for product performance problems because our end users employ our technologies to store and backup important data and to satisfy regulatory requirements.
Removed
We could also potentially face claims for product liability from our customers if our products cause property damage or bodily injury.
Added
In addition, our failure to comply with the terms of open source licenses could have a material adverse effect on our competitive position and financial results.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 25 PART II Item 5 . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6 . [Reserved] 28 Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A . Quantitative and Qualitative Disclosures About Market Risk 41 Item 8 .
Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5 . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6 . [Reserved] 27 Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A . Quantitative and Qualitative Disclosures About Market Risk 36 Item 8 .
Financial Statements and Supplementary Data 42 Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 77 Item 9A . Controls and Procedures 77 Item 9B . Other Information 77
Financial Statements and Supplementary Data 37 Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73 Item 9A . Controls and Procedures 73 Item 9B . Other Information 73

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities During the quarter ended March 31, 2022, there were no purchases of our common stock by or on behalf of us or any of our affiliated purchasers, as such term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended ("the "Exchange Act"). 26 Table of Contents Stock Performance Graph The graph below compares the cumulative total return of a $100 investment in our common stock with the cumulative total return of the same investment in the Nasdaq and the S&P 500 Index from March 31, 2017 through March 31, 2022. 27 Table of Contents
Biggest changeIssuer Purchases of Equity Securities During the quarter ended March 31, 2023, there were no purchases of our common stock by or on behalf of us or any of our affiliated purchasers, as such term is defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended ("the "Exchange Act"). 25 Table of Contents Stock Performance Graph The graph below compares the cumulative total return of a $100 investment in our common stock with the cumulative total return of the same investment in the Nasdaq and the S&P 500 Index from March 31, 2018 through March 31, 2023. 26 Table of Contents
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "QMCO". Holders of Record, and Dividends As of June 1, 2022, we had 229 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "QMCO". Holders of Record, and Dividends As of May 18, 2023, we had 226 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRESULTS OF OPERATIONS Year Ended March 31, (in thousands) 2022 2021 2020 Total revenue $ 372,827 $ 349,576 $ 402,949 Total cost of revenue (1) 225,792 198,823 230,441 Gross profit 147,035 150,753 172,508 Operating expenses Research and development (1) 51,812 41,703 36,301 Sales and marketing (1) 62,957 54,945 59,524 General and administrative (1) 45,256 42,001 54,457 Restructuring charges 850 3,701 1,022 Total operating expenses 160,875 142,350 151,304 Income (loss) from operations (13,840) 8,403 21,204 Other expense, net (251) (1,312) (261) Interest expense (11,888) (27,522) (25,350) Loss on debt extinguishment, net (4,960) (14,789) — Loss before income taxes (30,939) (35,220) (4,407) Income tax provision 1,341 239 803 Net loss $ (32,280) $ (35,459) $ (5,210) (1) Includes stock-based compensation as follows: 30 Table of Contents Year Ended March 31, (in thousands) 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 $ 13,829 $ 9,624 $ 6,748 Comparison of the Years Ended March 31, 2022 and 2021 Revenue Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Product revenue Secondary storage systems $ 117,688 32 % $ 89,000 25 % $ 28,688 32 % Primary storage systems 56,043 15 % 69,644 20 % $ (13,601) (20) % Devices and media 50,030 13 % 51,164 15 % (1,134) (2) % Total product revenue $ 223,761 60 % $ 209,808 60 % $ 13,953 7 % Service and subscription revenue 133,689 36 % 124,904 36 % 8,785 7 % Royalty revenue 15,377 4 % 14,864 4 % 513 3 % Total revenue $ 372,827 100 % $ 349,576 100 % $ 23,251 7 % Product Revenue In fiscal 2022, product revenue increased $14.0 million, or 7%, as compared to fiscal 2021.
Biggest changeRESULTS OF OPERATIONS Year Ended March 31, (in thousands) 2023 2022 Total revenue $ 412,752 $ 372,827 Total cost of revenue (1) 278,813 225,792 Gross profit 133,939 147,035 Operating expenses Research and development (1) 44,555 51,812 Sales and marketing (1) 66,034 62,957 General and administrative (1) 47,752 45,256 Restructuring charges 1,605 850 Total operating expenses 159,946 160,875 Loss from operations (26,007) (13,840) Other income (expense), net 1,956 (251) Interest expense (10,560) (11,888) Loss on debt extinguishment, net (1,392) (4,960) Net loss before income taxes (36,003) (30,939) Income tax provision 1,940 1,341 Net loss $ (37,943) $ (32,280) (1) Includes stock-based compensation as follows: 28 Table of Contents Year Ended March 31, (in thousands) 2023 2022 Cost of revenue $ 929 $ 1,112 Research and development 2,997 5,843 Sales and marketing 2,397 2,516 General and administrative 4,427 4,358 Total $ 10,750 $ 13,829 Comparison of the Years Ended March 31, 2023 and 2022 Revenue Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Product revenue $ 266,537 65 % $ 223,761 60 % $ 42,776 19 % Service and subscription revenue 132,510 32 % 133,689 36 % (1,179) (1) % Royalty revenue 13,705 3 % 15,377 4 % (1,672) (11) % Total revenue $ 412,752 100 % $ 372,827 100 % $ 39,925 11 % Product Revenue In fiscal 2023, product revenue increased $42.8 million, or 19%, as compared to fiscal 2022.
Net Cash Used in Investing Activities Net cash used in investing activities was $14.1 million for the year ended March 31, 2022, primarily attributable to $7.8 million of business acquisitions and $6.3 million of capital expenditures.
Net cash used in investing activities was $14.1 million for the year ended March 31, 2022, primarily attributable to $7.8 million of business acquisitions and $6.3 million of capital expenditures.
We are also subject to ordinary course of business litigation, See Note 10: Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Contractual Obligations Contractual obligations are cash amounts that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business.
We are also subject to ordinary course of business litigation, See Note 11: Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Contractual Obligations Contractual obligations are cash amounts that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business.
The following discussion contains forward-looking statements, such as statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.
The following discussion contains forward-looking statements, such as statements regarding anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.
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.
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 our 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.
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 us.
If required, there is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, would be obtainable on terms satisfactory to us.
Overview and Fiscal Year 2022 Highlights We are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades.
Overview and Highlights We are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades.
As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments 35 Table of Contents to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations. 40 Table of Contents Recently Issued and Adopted Accounting Pronouncements For recently issued and adopted accounting pronouncements, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.
Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations. Recently Issued and Adopted Accounting Pronouncements For recently issued and adopted accounting pronouncements, see Note 1: Description of Business and Significant Accounting Policies , to our consolidated financial statements.
There are significant judgements used when applying ASC Topic 606 to contracts with customers. Most of our contracts contain multiple goods and services designed to meet each customers’ unique storage needs.
There are significant judgements used when applying Accounting Standards Codification (“ASC”) Topic 606 to contracts with customers. Most of our contracts contain multiple goods and services designed to meet each customers’ unique storage needs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2023 and 2022 and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.
(2) Represents aggregate future minimum lease payments under non-cancelable operating leases. (3) Includes primarily non-cancelable inventory purchase commitments. 38 Table of Contents Off-Balance Sheet Arrangements We do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.
Term loan debt matures on August 5, 2026. (2) Represents aggregate future minimum lease payments under non-cancelable operating leases. (3) Includes primarily non-cancelable inventory purchase commitments. 33 Table of Contents Off-Balance Sheet Arrangements We do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.
In fiscal 2022, the income tax provision increased $1.1 million or 461%, compared to fiscal 2021, related primarily to higher current foreign taxes as a result of an increase in foreign taxable income.
In fiscal 2023, the income tax provision increased $0.6 million or 45%, compared to fiscal 2022, related primarily to higher current foreign taxes as a result of an increase in foreign taxable income.
Income tax provision Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Income tax provision $ 1,341 — % $ 239 — % $ 1,102 461 % Our income tax provision is primarily influenced by foreign and state income taxes.
Income tax provision Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Income tax provision $ 1,940 1 % $ 1,341 — % $ 599 45 % Our income tax provision is primarily influenced by foreign and state income taxes.
We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.
We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures.
The increase was primarily related to differences in foreign currency gains and losses during each period.
The increase was primarily related to differences in foreign currency gains and losses during each period, as well as the sale of IP licenses.
Income Taxes 39 Table of Contents Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax bases of 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.
We initially measure a returned asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in value of the returned goods. 34 Table of Contents Income Taxes Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax bases of 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.
We 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 36 Table of Contents $32.3 million, $35.5 million, and $5.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively.
We generated negative cash flows from operations of approximately $4.9 million and $33.7 million for the fiscal years ended March 31, 2023 and 2022, respectively, and generated net losses of approximately $37.9 million and $32.3 million for the fiscal years ended March 31, 2023 and 2022, respectively.
Other expense, net Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Other expense, net $ (251) 0 % $ (1,312) 0 % $ (1,061) (81) % 32 Table of Contents In fiscal 2022, other expense, net decreased $1.1 million or 81%, compared to fiscal 2021.
Other expense, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Other income (expense), net $ 1,956 1 % $ (251) 0 % $ (2,207) (879) % 30 Table of Contents In fiscal 2023, other income (expense), net increased $2.2 million or 879%, compared to fiscal 2022.
We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Annual Report on Form 10-K. See "Risks Related to our Indebtedness" section of Item 1A. Risk Factors. Cash Flows The following table summarizes our consolidated cash flows for the periods indicated.
Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Annual Report on Form 10-K. See "Risks Related to our Indebtedness" section of Item 1A. Risk Factors.
This decrease was due primarily to an increase in materials cost and freight, as global supply chain constraints disrupted normal procurement channels. Our product mix was also more heavily weighted to lower margin solutions. Service and subscription gross margin decreased 300 basis points for fiscal 2022, as compared with the same period in 2021.
Excluding this non-recurring adjustment, product gross margin has declined approximately 370 basis points for fiscal 2023, as compared to fiscal 2022 primarily due to the continuation of pricing pressure on materials cost and freight, as global supply chain constraints disrupted normal procurement channels. Our product mix was also more heavily weighted to lower margin solutions.
Net Cash Provided by Financing Activities Net cash provided by financing activities was $20.2 million for the year ended March 31, 2022 due primarily to $17.7 million of borrowings under PNC Credit Facility.
Net cash provided by financing activities was $20.2 million for the year ended March 31, 2022, primarily related to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.
This decrease was due primarily to increased costs for freight and repair on replacement parts. Royalty Gross Margin Royalties do not have significant related cost of sales.
This decrease was due partially to increased costs for freight and repair on replacement parts in addition to additional inventory write downs required for service parts caused by the transition of certain service logistics activities to a third party provider. Royalty Gross Margin Royalties do not have significant related cost of sales.
This decrease was due to reduced support renewals from our legacy backup customers, partially offset by new customer support agreements and installations. Royalty Revenue We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.
This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing. Royalty Revenue We receive royalties from third parties that license our LTO® media patents through our membership in the LTO® consortium.
Year Ended March 31, ( in thousands) 2022 2021 2020 Cash provided by (used in): Operating activities (33,728) (767) $ (1,181) Investing activities (14,124) (9,586) (4,599) Financing activities 20,157 31,328 1,211 Effect of exchange rate changes (108) (108) (16) Net change in cash, cash equivalents, and restricted cash $ (27,803) $ 20,867 $ (4,585) Net Cash Used in Operating Activities Net cash used in operating activities was $33.7 million for the year ended March 31, 2022, primarily attributable to $30.5 million of changes in assets and liabilities due primarily to working capital requirements due to higher inventories and prepaid expenses.
Year Ended March 31, ( in thousands) 2023 2022 Cash provided by (used in): Operating activities (4,894) (33,728) Investing activities (15,601) (14,124) Financing activities 41,165 20,157 Effect of exchange rate changes 12 51 Net change in cash, cash equivalents, and restricted cash $ 20,682 $ (27,644) Net Cash Used in Operating Activities Net cash used in operating activities was $4.9 million for the year ended March 31, 2023, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $1.5 million offset by cash used associated with working capital changes of $6.4 million including cash used related to manufacturing and service inventories of $5.3 million.
Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our Amended PNC Credit Facility (as defined below).
Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our credit facility with PNC Bank, National Association (as amended from time to time, the “PNC Credit Facility”) pursuant to the Amended Restated Revolving Credit and Security Agreement dated December 27, 2018.
Below is a table that shows our contractual obligations as of March 31, 2022 (in thousands): Payments Due by Period (in thousands) Total 1 year or less 1 – 3 Years 3 –5 Years More than 5 years Debt obligations (1) $ 149,186 $ 12,355 $ 24,972 $ 111,859 $ — Future lease commitments (2) 24,137 2,638 4,141 2,902 14,456 Purchase obligations (3) 64,601 64,601 — — — Total $ 237,924 $ 79,594 $ 29,113 $ 114,761 $ 14,456 (1) Consists of (i) principal and interest payments on our term loan based on the amount outstanding and interest rates in effect at March 31, 2022, and (ii) principal, interest, and unused commitment fees on our PNC Credit Facility based on the amount outstanding and rates in effect at March 31, 2022.
Below is a table that shows our contractual obligations as of March 31, 2023 (in thousands): Payments Due by Period (in thousands) Total 1 year or less 1 – 3 Years 3 –5 Years More than 5 years Debt obligations (1) $ 140,407 $ 15,109 $ 108,548 $ 16,750 $ — Future lease commitments (2) 22,993 2,700 3,989 3,042 13,262 Purchase obligations (3) 28,688 28,688 — — — Total $ 192,088 $ 46,497 $ 112,537 $ 19,792 $ 13,262 (1) Consists of (i) principal and interest payments on our term loan based on the amount outstanding and interest rates in effect at March 31, 2023, and (ii) principal, interest, and unused commitment fees on our PNC Credit Facility based on the amount outstanding and rates in effect at March 31, 2023.
Our outstanding long-term debt amounted to $107.2 million as of March 31, 2022, net of $4.9 million in unamortized debt issuance costs and $4.4 million in current portion of long-term debt, and $90.9 million as of March 31, 2021 net of $9.7 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt.
Our outstanding long-term debt amounted to $83.1 million as of March 31, 2023, net of $3.3 million in unamortized debt issuance costs and $5.0 million in current portion of long-term debt. We are subject to various debt covenants under our debt agreements.
Operating expenses Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Research and development $ 51,812 14 % $ 41,703 12 % $ 10,109 24 % Sales and marketing 62,957 17 % 54,945 16 % 8,012 15 % General and administrative 45,256 12 % 42,001 12 % 3,255 8 % Restructuring charges 850 — % 3,701 1 % (2,851) (77) % Total operating expenses $ 160,875 43 % $ 142,350 41 % $ 18,525 13 % In fiscal 2022, research and development expense increased $10.1 million, or 24%, as compared with fiscal 2021.
Operating expenses Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Research and development $ 44,555 11 % $ 51,812 14 % $ (7,257) (14) % Sales and marketing 66,034 16 % 62,957 17 % 3,077 5 % General and administrative 47,752 12 % 45,256 12 % 2,496 6 % Restructuring charges 1,605 — % 850 — % 755 89 % Total operating expenses $ 159,946 39 % $ 160,875 43 % $ (929) (1) % In fiscal 2023, research and development expense decreased $7.3 million, or 14%, as compared with fiscal 2022.
Service and Subscription Gross Margin Service and subscription gross margin decreased 20 basis points for fiscal 2021, as compared with the same period in 2020.
Service and subscription Gross Margin Service and subscription gross margin decreased 250 basis points for fiscal 2023, as compared to fiscal 2022.
This increase was driven primarily by one-time legal and financial expenses related to acquisitions. In fiscal 2022, restructuring expenses decreased $2.9 million, or 77%, as compared with fiscal 2021. This decrease is driven by corporate restructuring activities in the prior year as we consolidated our physical footprint and operations in certain markets.
This increase was driven primarily by transition costs as we complete large projects in our IT and facilities infrastructure. In fiscal 2023, restructuring expenses increased $0.8 million, or 89%, as compared with fiscal 2022. This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
Net cash used in investing activities was $9.6 million for the year ended March 31, 2021, primarily attributable to $6.9 million of capital expenditures and $2.7 million for a business acquisition. 37 Table of Contents Net cash used in investing activities was $4.6 million for the year ended March 31, 2020, primarily attributable to $2.6 million of capital expenditures and $2.0 million for a business acquisition.
Net cash used in operating activities was $33.7 million for the year ended March 31, 2022, primarily attributable to $30.5 million of changes in assets and liabilities due primarily to working capital requirements due to higher manufacturing and service inventories. 32 Table of Contents Net Cash Used in Investing Activities Net cash used in investing activities was $15.6 million for the year ended March 31, 2023, primarily attributable to $12.6 million of capital expenditures and $3.0 million of cash paid related to the deferred purchase price for a prior business acquisition.
Interest expense Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Interest expense (11,888) (3) % (27,522) (8) % (15,634) (57) % In fiscal 2022, interest expense decreased $15.6 million, or 57%, as compared to fiscal 2021.
Interest expense Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Interest expense (10,560) (3) % (11,888) (3) % (1,328) (11) % In fiscal 2023, interest expense decreased $1.3 million, or 11%, as compared to fiscal 2022. This decrease was primarily due to a lower principal balance on our Term Loan.
Loss on debt extinguishment, net Year Ended March 31, (in thousands) 2022 % of revenue 2021 % of revenue $ Change % Change Loss on debt extinguishment, net (4,960) (1) % (14,789) (4) % (9,829) (66) % In fiscal 2022, loss on debt extinguishment, net was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program loan.
Loss on debt extinguishment, net Year Ended March 31, (in thousands) 2023 % of revenue 2022 % of revenue $ Change % Change Loss on debt extinguishment, net (1,392) — % (4,960) (1) % (3,568) (72) % In fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.
We record a reduction to revenue to account for these items that may result in variable consideration. We initially measure a returned asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in value of the returned goods.
We record a reduction to revenue to account for these items that may result in variable consideration.
Net cash provided by financing activities was $31.3 million for the year ended March 31, 2021 due primarily to a secondary equity offering which generated net proceeds of $96.8 million, term loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program, offset in part by the prepayment of $92.3 million of our term debt.
Net Cash Provided by Financing Activities Net cash provided by financing activities was $41.2 million for the year ended March 31, 2023 due primarily to $66.2 million of net cash received from the Rights Offering of 30 million shares of our common stock offset in part by a $20.0 million prepayment of our term debt and term debt principal amortization payments and amendment fees totaling $3.3 million.
Secondary storage systems increased by 32%, driven by increased demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions. Primary storage systems decreased 20%, driven by large end-of-life purchases in the prior year. Devices and media decreased $1.1 million driven partially by decreased supply of LTO tape drives.
The primary driver of the increase was demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offer as a subscription.
These amounts exclude $0.0 and $5.0 million in long-term restricted cash that we were required to maintain under our PNC Credit Facility, and $0.3 million and $0.7 million of short-term restricted cash as of March 31, 2022 and March 31, 2021, respectively. As of March 31, 2022 we had $5.0 million available to borrow under the PNC Credit Agreement.
Our total outstanding Term Loan debt was $74.7 million, and we had $20.0 million available to borrow under the PNC Credit Facility as of March 31, 2023.
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 financial statement issuance date.
With the additional term debt borrowings, in addition to the amendments to the credit agreements, we forecasted that operating performance, cash, current working capital and borrowings available under the PNC Credit Facility will provide us with sufficient capital to fund operations for at least one year from the financial statement issuance date.
Royalty revenue increased $0.5 million, or 3%, in fiscal 2022, as compared to fiscal 2021, related to shifts in market unit volumes towards more recent technologies such as LTO9 and LTO8. 31 Table of Contents Gross Profit and Margin Year Ended March 31, (in thousands) 2022 Gross margin % 2021 Gross margin % $ Change Basis point change Product gross profit $ 53,981 24.1 % $ 59,551 28.4 % $ (5,570) (430) Service and subscription gross profit 77,677 58.1 % 76,338 61.1 % 1,339 (300) Royalty gross profit 15,377 100.0 % 14,864 100.0 % 513 — Gross profit $ 147,035 39.4 % $ 150,753 43.1 % $ (3,718) (370) Product Gross Margin Product gross margin decreased 430 basis points for fiscal 2022, as compared with the same period in 2021.
Gross Profit and Margin Year Ended March 31, (in thousands) 2023 Gross margin % 2022 Gross margin % $ Change Basis point change Product gross profit $ 46,506 17.4 % $ 53,981 24.1 % $ (7,475) (670) Service and subscription gross profit 73,728 55.6 % 77,677 58.1 % (3,949) (250) Royalty gross profit 13,705 100.0 % 15,377 100.0 % (1,672) — Gross profit $ 133,939 32.5 % $ 147,035 39.4 % $ (13,096) (690) 29 Table of Contents Product Gross Margin Product gross margin decreased 670 basis points for fiscal 2023, as compared to fiscal 2022.
We have 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.
We have funded operations through the sale of common stock, term debt borrowings and revolving credit facility borrowings described in Note 5: Debt . On June 1, 2023, the Company entered into amendments to the Term Loan and the PNC Credit Facility.
This increase was partially driven by acquisitions made during fiscal 2022, expanding us into new markets. Marketing program spend also increased as in-person events started to occur again after a halt in the previous year. In fiscal 2022, general and administrative expenses increased $3.3 million, or 8%, as compared with fiscal 2021.
This increase was partially driven by increased investment in sales resources in key strategic markets, as well as the resumption of large trade shows and other events that are a key driver of our marketing activities. In fiscal 2023, general and administrative expenses increased $2.5 million, or 6%, as compared with fiscal 2022.
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Highlights from fiscal year 2022 included: • We announced a new partnership with Supermicro and our ActiveScale 6.0 software and storage platform, as we expand our Object Storage line of business. • We completed the Pivot3 business acquisition, which adds a portfolio of industry leading hyperconverged infrastructure (HCI) and intelligent software solutions for the security and surveillance markets. • We completed the EnClouden assets acquisition which will enable us to expand the addressable market for our video surveillance portfolio, offering customers a solution using their server hardware of choice with a flexible subscription-based software model. • We completed the refinancing of our term loan, significantly reducing our annual debt service and greatly increasing our financial flexibility related to covenants and restrictions. • We brought on industry veteran John Hurley as Chief Revenue Officer.
Added
For comparisons of fiscal years 2022 and 2021, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, , Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on June 8, 2022, and incorporated herein by reference.
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John brings extensive experience working with the largest global enterprise, commercial, and service provider customers. • We announced a new collaboration and Remote Editing Solution for Adobe Premiere Pro Users. • We announced a partnership with IBM on the next generation of LTO technology in which we will collaborate with IBM in its development of LTO-10 tape drives and media in order to accelerate time-to-market, capacity, and performance. • We were awarded one Platinum and one Gold 'ASTORS' Homeland Security Award from American Security Today.
Added
We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings. The Devices and media also decreased partially driven by lower volume of LTO® media sales. Service and Subscription Revenue Service and subscription revenue decreased $1.2 million, or 1%, in fiscal 2023 compared to fiscal 2022.
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The Annual 'ASTORS' Awards Program, is specifically designed to honor distinguished government and vendor solutions that deliver enhanced value, benefit, and intelligence to end-users in a variety of government, homeland security, enterprise, and public safety vertical markets.
Added
Royalty revenue decreased $1.7 million, or 11%, in fiscal 2023, as compared to fiscal 2022, related to lower overall unit shipments.
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COVID-19 IMPACT AND ASSOCIATED ACTIONS Since the beginning of March 2020, COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, 29 Table of Contents including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.
Added
This decrease was due primarily to a $9.8 million inventory provision recorded during fiscal 2023. Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued.
Removed
These measures may remain in place for a significant period of time. In light of these events, we have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business.
Added
In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete. We do not believe that the magnitude of this inventory provision is indicative of our ongoing operations and is not expected to be repeated in the near term.
Removed
We have implemented more thorough sanitation practices as outlined by health organizations and instituted mitigation practices at our locations around the world, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and decreasing employee travel.
Added
This decrease was the result of one-time acquisition-related costs that occurred in the prior year, as well as the overall consolidation of those acquisitions. In fiscal 2023, sales and marketing expenses increased $3.1 million, or 5%, as compared with fiscal 2022.
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We have seen a gradual stabilization in our business during the second half of fiscal 2021 and into fiscal 2022 as customers increasingly adapted to the COVID-19 environment. However, COVID-19 has caused a significant disruption to the global supply chain, which continues to have a negative impact on our business.
Added
Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. 31 Table of Contents We had cash and cash equivalents of $26.0 million as of March 31, 2023, which excludes $0.2 million. of short-term restricted cash as of March 31, 2023.
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Before the current disruptions in the global supply chain our historical backlog was very limited and typically represented less than 5% of quarterly revenues. During our fourth fiscal quarter our backlog remained above $60 million for the second consecutive quarter, up from $50 million as of September 30, 2021, and $30 million as of June 30, 2021.
Added
The 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 decrease the minimum liquidity to $15 million; 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.
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Approximately 80% of the ending backlog represented tape products a majority of which is for orders from our hyperscale customers. We anticipate that supply chain constraints will remain challenging, limiting our ability to ship against all customer demand and recognize a meaningful portion of the current backlog.
Added
The Term Loan amendment also provided an advance of $15 million in additional Term Loan borrowings.
Removed
We will continue to actively monitor the impact of COVID-19 and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.
Added
Cash Flows The following table summarizes our consolidated cash flows for the periods indicated.
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See “The recent COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Item 1A for more information regarding the risks we face as a result of the COVID-19 pandemic.
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Service and Subscription Revenue Service and subscription revenue increased $8.8 million, or 7%, in fiscal 2022 compared to fiscal 2021. This increase was due in part to acquisitions made during fiscal 2022. The increase also reflects a shift to subscription-based software licensing.
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Royalty Revenue We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.
Removed
This increase was partially attributable to acquisitions made during fiscal 2022 which broaden our portfolio in the video surveillance and media and entertainment markets. We have also invested in a partnership with IBM to develop the next generation LTO technology. In fiscal 2022, sales and marketing expenses increased $8.0 million, or 15%, as compared with fiscal 2021.
Removed
The decrease was primarily related to differences in foreign currency gains and losses during each period.
Removed
This decrease was primarily due to a lower principal balance and a lower effective interest rate on our Term Loan.
Removed
In fiscal 2021, we incurred a loss on debt extinguishment related to our Senior Secured Term Loan.
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Our 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, our valuation allowance. 33 Table of Contents Comparison of the Years Ended March 31, 2021 and 2020 Revenue Year Ended March 31, (in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Product revenue Secondary storage systems $ 89,000 25 % $ 111,672 28 % $ (22,672) (20) % Primary storage systems 69,644 20 % 77,152 19 % $ (7,508) (10) % Devices and media 51,164 15 % 62,344 15 % (11,180) (18) % Total product revenue $ 209,808 60 % $ 251,168 62 % $ (41,360) (16) % Service and subscription revenue 124,904 36 % 131,050 33 % (6,146) (5) % Royalty revenue 14,864 4 % 20,731 5 % (5,867) (28) % Total revenue $ 349,576 100 % $ 402,949 100 % $ (53,373) (13) % Product Revenue In fiscal 2021, product revenue decreased $41.4 million, or 16%, as compared to fiscal 2020.
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Secondary storage systems decreased by 20%, driven by fluctuating purchase cycles with our hyperscale customers. Primary storage systems decreased 10%, driven by early disruption in the media and entertainment market as COVID-19 significantly decreased major television and film production.
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Devices and media decreased $11.2 million driven partially by unusually high demand in fiscal 2020 following the resolution of a legal dispute, which had caused a constraint on LTO tape supply between the two principal suppliers in the market. Service and Subscription Revenue Service revenue decreased $6.1 million, or 5%, in fiscal 2021 compared to fiscal 2020.
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Royalty revenue decreased $5.9 million, or 28%, in fiscal 2021, as compared to fiscal 2020, related to overall declines in market unit volumes as the primary use of tape transitions from backup to archive workflows.
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Gross Profit and Margin Year Ended March 31, (in thousands) 2021 Gross margin % 2020 Gross margin % $ Change Basis point change Product gross profit $ 59,551 28.4 % $ 71,408 28.4 % $ (11,857) — Service and subscription gross profit 76,338 61.1 % 80,369 61.3 % (4,031) (20) Royalty gross profit 14,864 100.0 % 20,731 100.0 % (5,867) — Gross profit $ 150,753 43.1 % $ 172,508 42.8 % $ (21,755) 30 Product Gross Margin Product gross margin was flat comparing fiscal 2021 to fiscal 2020.
Removed
This decrease was due primarily to reduced service and subscription revenues from some of our legacy backup customers, partially offset by a reduction in service and subscription costs. 34 Table of Contents Royalty Gross Margin Royalties do not have significant related cost of sales.
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Operating expenses Year Ended March 31, (in thousands) 2021 % of revenue 2020 % of revenue $ Change % Change Research and development $ 41,703 12 % $ 36,301 9 % $ 5,402 15 % Sales and marketing 54,945 16 % 59,524 15 % (4,579) (8) % General and administrative 42,001 12 % 54,457 14 % (12,456) (23) % Restructuring charges 3,701 1 % 1,022 — % 2,679 262 % Total operating expenses $ 142,350 41 % $ 151,304 38 % $ (8,954) (6) % In fiscal 2021, research and development expense increased $5.4 million, or 15%, as compared with fiscal 2020.
Removed
This increase was partially attributable to an increase in research and development headcount and professional services cost related to new product development. Most notably this includes headcount related to business acquisitions and integration of the associated development teams. In fiscal 2021, sales and marketing expenses decreased $4.6 million, or 8%, as compared with fiscal 2020.
Removed
This decrease was driven by a decrease in compensation as the result of lower sales performance and a decrease in marketing programs and professional services costs. Travel expenses were also significantly reduced during the fiscal year due to restrictions from the COVID-19 pandemic. In fiscal 2021, general and administrative expenses decreased $12.5 million, or 23%, as compared with fiscal 2020.
Removed
This decrease was driven primarily by lower costs related to our prior financial restatement and related activities, which we primarily incurred during fiscal 2019 and fiscal 2020 and decreased facilities expenses as we consolidate our physical footprint. These decreases were partially offset by increases to software expense as we modernize our existing IT infrastructure.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed6 unchanged
Biggest changeWe may enter into foreign exchange derivative contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes that exchange rates might have on our earnings. 41 Table of Contents
Biggest changeWe may enter into foreign exchange derivative contracts or other economic hedges in the future. Our goal in managing our foreign exchange risk is to reduce to the extent practicable our potential exposure to the changes that exchange rates might have on our earnings. 36 Table of Contents

Other QMCO 10-K year-over-year comparisons