SEC Form 10-Q filed by SeaChange International Inc.
p
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes
The number of shares outstanding of the registrant’s Common Stock on June 9, 2023 was
SEACHANGE INTERNATIONAL, INC.
Table of Contents
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Item 1. |
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2 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
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Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
SEACHANGE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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April 30, |
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January 31, |
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2023 |
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2023 |
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(Unaudited) |
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(Audited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities, available for sale, fair value |
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Accounts receivable, net of allowances for credit losses |
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Unbilled receivables, net of allowances for credit losses |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Unbilled receivables, net of allowances for credit losses |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred revenue |
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Total current liabilities |
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Deferred revenue |
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Operating lease liabilities |
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Taxes payable |
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Other liabilities |
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Total liabilities |
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(Note 5) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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Share information reflects the effect of a -for-20 reverse stock split. See Note 1.
See accompanying notes to the unaudited condensed consolidated financial statements.
2
SEACHANGE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands, except per share data)
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For the Three Months Ended April 30, |
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2023 |
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2022 |
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Revenue: |
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Product |
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$ |
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$ |
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Service |
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Total revenue |
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Cost of revenue: |
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Product |
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Service |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling and marketing |
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General and administrative |
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Severance and restructuring costs |
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Transaction costs |
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Total operating expenses |
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Loss from operations |
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( |
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Other income (expense), net |
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( |
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Loss before income taxes |
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( |
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( |
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Income tax provision |
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( |
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( |
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Net loss |
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$ |
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$ |
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Net loss per share, basic and diluted |
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$ |
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$ |
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Weighted average common shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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Unrealized losses on marketable securities |
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( |
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— |
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Total other comprehensive income (loss) |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
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Share and per share information reflects the effect of a -for-20 reverse stock split. See Note 1.
See accompanying notes to the unaudited condensed consolidated financial statements.
3
SEACHANGE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except number of shares)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Number of |
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Par Value |
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Paid-in |
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Treasury |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Balances at January 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Cumulative adjustment pursuant to adoption of ASC 326 |
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— |
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— |
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— |
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— |
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— |
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( |
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Issuance of common stock pursuant to vesting of stock units |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Unrealized losses on marketable securities |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Balances at April 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Number of |
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Par Value |
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Paid-in |
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Treasury |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Balances at January 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock pursuant to |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances at April 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share information reflects the effect of a -for-20 reverse stock split. See Note 1.
See accompanying notes to the unaudited condensed consolidated financial statements.
4
SEACHANGE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
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For the Three Months Ended April 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
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Discount accretion and premium amortization on marketable securities |
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— |
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Provision for credit losses |
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Stock-based compensation expense |
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Realized and unrealized foreign currency transaction loss |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Unbilled receivables, net |
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( |
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Prepaid expenses and other current assets and other assets |
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( |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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— |
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Proceeds from sales of marketable securities |
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— |
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Purchases of marketable securities |
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( |
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— |
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Net cash used in investing activities |
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( |
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( |
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Effect of exchange rate on cash, cash equivalents and restricted cash |
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( |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Non-cash activities: |
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Cumulative adjustment to retained earnings pursuant to adoption of ASC 326 |
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$ |
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$ |
— |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SeaChange International, Inc. (“SeaChange,” or the “Company”) was incorporated under the laws of the state of Delaware on July 9, 1993. SeaChange is a leading provider of video delivery, advertising, streaming platforms, and emerging Free Ad-Supported Streaming TV services (“FAST”) development. Our software products and services facilitate the aggregation, licensing, management and distribution of video and advertising content for service providers, telecommunications companies, satellite operators, broadcasters and other content providers. SeaChange technology enables operators, broadcasters, and content owners to cost-effectively launch and grow premium linear TV and direct-to-consumer streaming services to manage, curate, and monetize their content. SeaChange helps protect existing and develop new and incremental advertising revenues for traditional linear TV and streaming services with its unique advertising technology. Further, the Company’s products provide customers an opportunity to insert advertising into broadcast and video on demand (“VOD”) content.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”). The Company consolidates the financial statements of its wholly owned subsidiaries and all intercompany transactions and account balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.
The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with the instructions to Quarterly Report on Form 10-Q and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations, although the Company believes the disclosures made are adequate to make the information not misleading. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for a fair presentation. The year-end condensed consolidated balance sheet data as of January 31, 2023 was derived from our audited consolidated financial statements and may not include all disclosures required by GAAP. The results of operations for the three months ended April 30, 2023 are not necessarily indicative of the results to be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, filed with the SEC on April 17, 2023.
Liquidity
As of April 30, 2023, the Company had $
The Company believes that existing cash and cash equivalents, marketable securities and cash expected to be provided by future operating results will be adequate to satisfy its working capital, capital expenditure requirements and other contractual obligations for at least 12 months from the date of this filing.
If the Company’s expectations are incorrect, it may need to raise additional funds to fund its operations or take advantage of unanticipated strategic opportunities in order to strengthen its financial position. In the future, the Company may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of market opportunities, to develop new products or to otherwise respond to competitive pressures.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard and Reverse Stock Split
On June 17, 2022, the Company received notification from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that the Company did not comply with the minimum $
6
period) and to cure the deficiency by the Extended Compliance Date by effecting a reverse stock split, if necessary, and (2) the Company meeting the continued listing requirement for market value of publicly held shares and all other initial listing requirements for the Capital Market, with the exception of the Bid Price Requirement. On December 15, 2022, Nasdaq approved the Company’s transfer from the Global Select Market to the Capital Market, a continuous trading market that operates in substantially the same manner as the Global Select Market.
In an effort to regain compliance with the Bid Price Requirement,
Proportionate adjustments were made to the exercise price and number of shares issuable upon the exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock units (“RSUs”), deferred stock units (“DSUs”) and performance stock units (“PSUs”) under the Company’s equity incentive plans.
All references to common stock, equity-based common stock awards and all share and per share data contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) have been adjusted to reflect the Reverse Stock Split unless explicitly stated otherwise.
Merger Agreement and Subsequent Termination
In December 2021, the Company and Triller Hold Co LLC, a Delaware limited liability company (“Triller”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Triller planned to merge with and into SeaChange, with the separate existence of Triller ceasing, and SeaChange continuing as the surviving corporation.
On June 13, 2022, SeaChange and Triller entered into a Termination Agreement and Release (the “Termination Agreement”) pursuant to which SeaChange and Triller mutually agreed to terminate the Merger Agreement. Each party bore its own costs and expenses in connection with the terminated transaction, and neither party paid a termination fee to the other in connection with the terminated transactions. The Termination Agreement also contains mutual releases, whereby each party released the other from any claims of liability relating to the transactions contemplated by the Merger Agreement.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, those related to revenue recognition, allowance for credit losses, management’s going concern assessment, accounting for income taxes, and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ materially from those estimates or assumptions.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and on deposit and highly liquid investments in treasury bills with remaining maturities at the date of purchase of 90 days or less. All cash equivalents are carried at cost, which approximates fair value. Restricted cash represents cash that is restricted as to withdrawal or usage and consists primarily of cash held as collateral in relation to obligations set forth by the landlord of our facility in Poland.
7
The following table provides a summary of (i) cash and cash equivalents and (ii) restricted cash in the condensed consolidated statements of cash flows as of the periods presented:
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As of April 30, |
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2023 |
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2022 |
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(Amounts in thousands) |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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As of January 31, |
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2023 |
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2022 |
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|
|
(Amounts in thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
Restricted cash is included as a component of other assets in the condensed consolidated balance sheets.
Marketable Securities
The Company’s investments, consisting of debt securities, are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in stockholders’ equity. Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
The Company assesses its available-for-sale debt securities under the available-for-sale debt security impairment model in ASC 326 as of each reporting date in order to determine if a portion of any decline in fair value below carrying value recognized on its available-for-sale debt securities is the result of a credit loss. The Company records credit losses in the condensed consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the marketable security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The Company’s cash equivalents and marketable securities are carried at fair value determined according to the fair value hierarchy described above. The carrying values of accounts and other receivables, unbilled receivables, net, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
Accounts Receivable, Unbilled Receivables, and Allowance for Credit Losses
Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest. Unbilled receivables are derived from the allocation of contract consideration for products and services, such as software licenses, which is recognized when such products and services are transferred to the customer. Payment for unbilled
8
receivables is received over the contract term, which typically ranges between one and five years. Unbilled receivables are presented net of allowances for credit losses.
The allowance for credit losses is based on the probability of future collection under the current expect credited loss (“CECL”) impairment model under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets, which was adopted by the Company on February 1, 2023, as discussed below within Recently Adopted Accounting Pronouncements. Under the CECL impairment model, the Company determines its allowance by applying a loss-rate method based on an aging schedule using the Company’s historical loss rate. The Company also considers reasonable and supportable current information in determining its estimated loss rates, such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience. The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to the provision for credit losses in the period incurred.
Prior to February 1, 2023, trade and unbilled receivables were presented net of allowance for credit losses based on the credit risk of specific clients, past collection history, and management’s evaluation of other risks. Subsequent to February 1, 2023, under the CECL impairment model, expected credit losses stemming from unbilled receivables expected to be billed between one to five years from each balance sheet are estimated based on factors such as projected inflation, projected decreases in GDP, and projected unemployment, which include additional risk premiums based on the lengths of contracts.
Concentration of Credit Risk and of Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk include cash, cash equivalents, restricted cash, marketable securities and accounts receivable. The Company has cash investment policies which, among other things, limit investments to investment-grade securities. The Company restricts its cash equivalents and marketable securities to repurchase agreements with major banks and U.S. government and corporate securities which are subject to credit and market risk, and are currently protected by limits offered through the Securities Investor Protection Corporation. The Company performs ongoing credit evaluations of the Company’s customers.
On March 10, 2023, one of the financial institutions that the Company has accounts, Silicon Valley Bank (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (the "FDIC") as receiver. To protect depositors, the FDIC transferred all deposits and substantially all of the assets of SVB to a receivership bank to be operated by FDIC as it markets the institution to potential bidders. In addition, the FDIC ultimately guaranteed all of our deposits formerly held with SVB. At the time of the SVB closure, the Company had funds deposited with SVB in various domestic and foreign accounts totaling approximately $
The Company sells its software products and services worldwide primarily to service providers consisting of operators, telecommunications companies, satellite operators and broadcasters. A customer accounted for
Revenue Recognition
Overview
The Company recognizes revenue following the guidance under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company’s revenue is derived from sales of software licenses and associated third-party hardware and support services, as well as professional services and support fees related to the Company’s software licenses.
The Company recognizes revenue from contracts with customers using a five-step model, which is described below:
9
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability and consideration is probable.
Identify performance obligations in the contract
The Company enters into contracts that include combinations of license, support and professional services, and third-party products, which are accounted for as separate performance obligations. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales and value-added taxes ("VAT") that are collected on behalf of government agencies. Some contracts provide the customer a license to use the Company’s functional intellectual property in exchange for royalty payments. These arrangements may include fixed, minimum guaranteed amounts of consideration as well as a variable amount that is contingent on the revenues earned by the customer related to the license.
Allocate the transaction price to the contract performance obligations
The Company’s contracts typically contain multiple performance obligations. The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer for which it accounts for individual performance obligations separately.
Recognize revenue as the performance obligations are satisfied
The Company’s contracts may contain multiple performance obligations with differing revenue recognition patterns. Revenue is recognized when or as control of the promised goods or services is transferred to customers. The Company’s software licenses may be perpetual, whereby the customer receives rights to use the software for an indefinite time period, or the license may be for a specified term. Transfer of the license and revenue recognition, including minimum guaranteed license royalties, occurs at the point in time the customer has the ability to download, use or access the software. Variable license royalties contingent on customer sales of products are recognized when the subsequent sales occur and the contingency is resolved. The Company’s customers may also contract for a Software as a Service (“SaaS”) offering whereby the customer only has a right to access the Company’s software for a defined term. SaaS licenses are recognized ratably over the subscription period beginning on the date the license is made available to customers.
The Company’s services revenue is comprised of support services and professional services. Support services consist of software upgrades on a when-and-if available basis, telephone support, bug fixes or patches and general hardware maintenance support. Revenue related to support services is recognized ratably over the term of the contract. Professional services are recognized as the services are performed.
Revenues attributable to third-party products typically consist of hardware and related support contracts. Hardware products are typically recognized when control is transferred to the customer, which is defined as the point in time when the client can use and benefit from the hardware. In situations where the hardware is distinct and it is delivered before services are provided and is functional without services, control is transferred upon delivery or acceptance by the customer. Revenue attributable to third-party support contracts is recognized ratably over the term of the contract.
Significant Judgments
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the Company determines the performance obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.
Judgment is required to determine the SSP for each distinct performance obligation. The Company determines SSP based on the observable price of goods and services when the Company sells those goods and services separately in similar circumstances to similar customers. The Company estimates the SSP of certain goods and services when there is no directly observable separate pricing under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, the SSP is estimated, taking into
10
account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations.
The Company enters into contracts with its customers that may include promises to transfer multiple performance obligations in the arrangement, such as software licenses, support, and professional services. The total fee of the contract may consist of one fixed price for all of the performance obligations or each performance obligation may be separately stated in the contract. Regardless of how the performance obligations are priced in the contract, the Company must determine the transaction price to be allocated to each identified performance obligation. The Company recognizes the portion of the transaction price allocated to the software license on a residual basis. The residual basis is used to allocate revenue when the contract arrangement includes a software license and has at least one performance obligation for which the SSP is observable (i.e., hardware and/or support services). The residual method is used as the selling price for software licenses in circumstances when the transaction price is highly variable and the SSP is not discernable from past transactions or other observable evidence. The Company periodically re-evaluates its use of the residual approach estimate compared to all available observable data before concluding the estimate is representative of SSP. In these contracts, the Company typically has observable SSP for the associated support services, and hardware, if applicable.
The Company also provides SaaS offerings, combining access to the Company’s software platform with support services (inclusive of technical support and unspecified upgrades and bug fixes). The SaaS offering and support services are stand-ready obligations with the same pattern of transfer of control. SaaS offerings do not include the right for the customer to take possession of the software during the contract term. Typically, SaaS offerings include one distinct performance obligation, satisfied over time, with revenue recognized ratably over the contract term as the customer consumes the services. Services revenue is comprised of software license implementation, engineering, training and reimbursable expenses. Services are sold on both a standalone basis and as part of the Company’s customer contracts. The Company has concluded these services are typically distinct performance obligations. For implementation, engineering and training services, revenue is recognized on an input method as hours are incurred and services are provided compared to total estimated hours. The Company estimates the SSP for fixed price services based on estimated hours adjusted for historical experience using the time and materials rates charged in standalone service arrangements. When sold on a time and materials basis, SSP for services is determined by observable prices in standalone service arrangements. Certain engineering services sold with support contracts are not distinct in the context of the contract and those services are bundled with other distinct services to form a single stand-ready performance obligation which is recognized ratably over the relevant service period.
The Company has utilized the cost-plus margin method to determine the SSP for software support services offerings and hardware sales when observable standalone pricing for support service offerings are not readily available. When support services are sold on an “a-la-carte” basis with the Company’s software offerings, the Company typically determines the SSP of these support services based on this pricing relationship and observable data from standalone sales of support contracts. The expected cost-plus margin for hardware is based on the cost of the hardware from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.
Some contracts have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts includes a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be
Payment terms with customers typically require payment 30 days from invoice date. Agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.
The Company occasionally enters into amendments to previously executed contracts that may constitute contract modifications. The amendments are assessed to determine if (1) the additional products and services are distinct from the product and services in the original arrangement; and (2) the amount of consideration expected for the added products and services reflects the SSP of those products and services. An amendment or contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract or a cumulative catch-up basis.
Contract Balances
When either party to a contract has performed, an entity shall present the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment. An entity shall present any unconditional rights to consideration separately as a receivable. Contract liabilities, which consist primarily of
11
deferred revenue as of April 30, 2023 and January 31, 2023, are classified as current liabilities if expected to be invoiced or recognized within the next year. There were
Costs to Obtain and Fulfill a Contract
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that commissions and special incentive payments (“Spiffs”) for hardware and software maintenance and support and professional services paid under the Company’s sales incentive programs meet the requirements to be capitalized under ASC 340-40. Costs to obtain a contract are amortized as selling and marketing expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. Significant judgments made in determining the amount of costs capitalized include whether the commissions are in fact incremental and would not have occurred absent the customer contract and the estimate of the amortization period. The commissions and Spiffs related to professional services are amortized over time as work is completed. The commissions and Spiffs for hardware and software maintenance are amortized over the life of the contract. These costs are periodically reviewed for impairment. The Company determined that
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of unrestricted common shares outstanding during the period.
Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of unrestricted common shares outstanding during the period and the weighted average number of potential common shares from the assumed exercise of stock options and the vesting of shares of RSUs , DSUs , and PSUs using the “treasury stock” method when the effect is not anti-dilutive. For periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share.
The number of common shares used in the computation of diluted net loss per share for the periods presented does not include the effect of the following potentially outstanding common shares because the effect would have been antidilutive:
|
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For the Three Months Ended April 30, |
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|||||
|
|
2023 |
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2022 |
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||
|
|
(Amounts in thousands) |
|
|||||
Stock options |
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|
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RSUs and DSUs |
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PSUs |
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||
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||
Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities.
The amendments are effective on February 1, 2023 for the Company, and must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our trade or unbilled receivables. The Company adopted ASU No. 2016-13 using an estimated expected credit losses using the historical loss rate method for its trade accounts receivable and unbilled receivables as of January 31, 2023, with additional risk premiums for unbilled receivables expected to be billed after January 31, 2024 (one year after the adoption date). The adoption of the standard resulted in a cumulative beginning of year retained earnings adjustment of $
12
Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade and unbilled receivables based on four portfolio segments by customer geographic location: North America, Latin America, Europe, and Other. The determination of portfolio segments is based primarily on the qualitative consideration of the credit risks driven by macroeconomic and geopolitical factors affecting customers in these geographic locations.
Our quantitative allowance for credit loss estimates under CECL was determined using the loss rate method, which is impacted by certain forecasted economic factors. In addition to our quantitative allowance for credit losses, we also incorporate qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.
Additionally, due to the expansion of the time horizon over which we are required to estimate future credit losses, we may experience increased volatility in our future provisions for credit losses. Factors that could contribute to such volatility include, but are not limited to, changes in the composition and credit quality of customer base, economic conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and our estimation techniques.
Accrued Expenses
Accrued expenses consisted of the following:
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As of |
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|||||
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|
April 30, 2023 |
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|
January 31, 2023 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Accrued employee compensation and benefits |
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$ |
|
|
$ |
|
||
Accrued professional fees |
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Sales tax and VAT payable |
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||
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Accrued other |
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Total accrued expenses |
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$ |
|
|
$ |
|
||
The Company accounts for certain financial assets at fair value on a recurring basis.
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As of April 30, 2023 |
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|||||||||||||
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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||||
|
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(Amounts in thousands) |
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|||||||||||||
Assets: |
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|
||||
Cash equivalents |
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$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Marketable securities: |
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|
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|
||||
Corporate bonds |
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|
|
|
|
|
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— |
|
|
|
— |
|
||
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
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||||
|
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As of January 31, 2023 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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||||
|
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(Amounts in thousands) |
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Assets: |
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|
||||
Cash equivalents |
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$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Marketable securities: |
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|
|
|
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|
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|
||||
Corporate bonds |
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|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
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||||
13
Cash equivalents at April 30, 2023 and January 31, 2023 consisted of $
The following table summarizes the Company’s investments in marketable securities, classified as available-for-sale as of April 30, 2023 and January 31, 2023:
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As of April 30, 2023 |
|
|||||||||
|
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Amortized |
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Gross |
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Fair Value |
|
|||
|
|
(Amounts in thousands) |
|
|||||||||
Corporate bonds |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
As of January 31, 2023 |
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|
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Amortized |
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Gross |
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Fair Value |
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(Amounts in thousands) |
|
|||||||||
Corporate bonds |
|
|
|
|
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( |
) |
|
|
|
||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
The amortized cost and fair values of the above referenced debt and fixed-maturity securities as of April 30, 2023 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
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Amortized |
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Fair |
|
||
|
|
(Amounts in thousands) |
|
|||||
Due within one year through three years |
|
$ |
|
|
$ |
|
||
Due after three years through five years |
|
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|
||
Due after five years |
|
|
— |
|
|
|
— |
|
|
|
$ |
|
|
$ |
|
||
Litigation
Certain conditions may exist as of the date the condensed consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to pending legal proceedings, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the Company’s assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. As of April 30, 2023 there are no current pending legal proceedings, in the opinion of management, that would have a material adverse effect on the Company’s financial position, results from operations or cash flow.
The Company is currently under audit from a third-party software partner regarding licenses embedded on hardware supplied by the Company during the implementation of its software solutions. The preliminary third-party software partner's audit results have shown that a number of licenses have lapsed from support. However, the Company has evaluated this matter and has determined that the ultimate outcome is not currently estimable or determinable and is actively pursuing a solution that is acceptable for both parties.
14
Indemnification and Warranties
The Company provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director, employee or agent is, or was, serving at the Company’s request in such capacity. With respect to acquisitions, the Company provides indemnification to, or assumes indemnification obligations for, the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ governing documents. As a matter of practice, the Company has maintained directors’ and officers’ liability insurance including coverage for directors and officers of acquired companies.
The Company enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require the Company to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to its products. From time to time, the Company also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of its products and services or resulting from the acts or omissions of the Company, employees, authorized agents or subcontractors. From time to time, the Company has received requests from customers for indemnification of patent litigation claims. There are no current pending legal proceedings that in the opinion of management would have a material adverse effect on the Company’s financial position, results from operations and cash flows. However, there is no assurance that future legal proceedings arising from ordinary course of business or otherwise, will not have a material adverse effect on the Company’s financial position, results from operations or cash flows.
The Company warrants its products, including software products, will substantially perform in accordance with standard published specifications in effect at the time of delivery. In addition, the Company provides maintenance support to its customers and therefore allocates a portion of the product purchase price to the initial warranty period and recognizes revenue on a straight-line basis over that warranty period related to both the warranty obligation and the maintenance support agreement. When the Company receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred.
The Company has operating leases for facilities expiring at various dates through 2025.
The components of lease expense included in the condensed consolidated statements of operations and comprehensive loss are as follows:
|
|
For the Three Months Ended April 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short-term lease cost, net |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
Supplemental balance sheet information related to the Company’s operating leases was as follows:
|
|
As of April 30, 2023 |
|
|
As of January 31, 2023 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
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|
||
Current portion, operating lease liabilities |
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|
||
Operating lease liabilities, long term |
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|
||
Total operating lease liabilities |
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$ |
|
|
$ |
|
||
|
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|
||
Weighted average remaining lease term (years) |
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|
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|
||
Weighted average incremental borrowing rate |
|
|
% |
|
|
% |
||
15
Supplemental cash flow information related to the Company’s leases was as follows:
|
|
For the Three Months Ended April 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Cash paid for amounts included in the |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
The current portion, operating lease liabilities is included as a component of accrued expenses in the condensed consolidated balance sheets.
Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year as of April 30, 2023 are as follows:
|
|
Payments for |
|
|
For the Fiscal Years Ended January 31, |
|
(Amounts in thousands) |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
Total lease payments |
|
|
|
|
Less interest |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
Severance and restructuring costs for the three months ended April 30, 2022 consisted of Board and employee-related termination benefits in the amount of $
Preferred Stock Authorization
The Board is authorized to issue from time to time up to an aggregate of
Equity Plans
Compensation and Incentive Plans
The Company’s Second Amended and Restated 2011 Compensation and Incentive Plan (the “2011 Plan”) provided for the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQs”), RSUs, DSUs and PSUs and other equity based non-stock option awards as determined by the plan administrator to its officers, employees, consultants and directors. The 2011 Plan expired on July 20, 2021.
The Company’s 2021 Compensation and Incentive Plan (the “2021 Plan”) was proposed by the Board and adopted by the Company’s stockholders in July 2021 to permit the continued issuance of equity-based compensation, including the granting of ISOs, NQs, restricted stock, RSUs, DSUs, PSUs, and other equity based non-stock option awards as determined by the plan administrator to officers, employees, consultants and directors. Under the 2021 Plan, the Company may satisfy awards upon the exercise of stock options or the vesting of stock units with newly issued shares or treasury shares. The Board, or a committee of independent members of the Board (the “Committee”), is responsible for the administration of the 2021 Plan and determining the terms of each award, award exercise price, the number of shares for which each award is granted and the rate at which each award vests. In certain instances, the Board or Committee may elect to modify the terms of an award.
16
Nonemployee members of the Board may elect to receive DSUs or stock options in lieu of RSUs. The number of units subject to the DSUs is determined as of the grant date and shall fully vest one year from the grant date. The shares underlying the DSUs are not issued until the earlier of the director ceasing to be a member of the Board (provided such time is subsequent to the first day of the succeeding fiscal year) or immediately prior to a change in control.
Following Board approval and recommendation, on August 5, 2022 the Company’s stockholders voted in favor of changes to the 2021 Plan (the “Amended and Restated 2021 Plan”). The purpose of the Amended and Restated 2021 Plan is to provide equity and cash incentives to the employees of the Company in order to attract, motivate and retain qualified employees. Changes made to the Amended and Restated 2021 Plan include the addition of
The Company has a Long-Term Incentive Program, adopted in fiscal 2016, under which the named executive officers and other key employees may receive long-term equity-based incentive awards, which are intended to align the interests of named executive officers and other key employees with the long-term interests of stockholders and to emphasize and reinforce the Company’s focus on team success. Long-term equity-based incentive compensation awards are made in the form of stock options, RSUs and PSUs subject to vesting based in part on the extent to which employment continues under the Amended and Restated 2021 Plan.
2015 Employee Stock Purchase Plan
Under the Company’s 2015 Employee Stock Purchase Plan (the “ESPP”), six-month offering periods begin on October 1 and April 1 of each year during which eligible employees may elect to purchase shares of common stock according to the terms of the offering.
Award Activity
In the three months ended April 30, 2023, the Company granted
The PSUs granted in fiscal year 2023 and 2024 represent market-based awards to certain officers in connection with their appointment. The PSUs will vest on the attainment of a closing share price of $
Stock-Based Compensation
The Company recognized stock-based compensation expense within the condensed consolidated statements of operations and comprehensive loss as follows:
|
|
For the Three Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Cost of revenue, service |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
17
As of April 30, 2023, unrecognized stock-based compensation expense related to unvested stock options was approximately $
Receivables
The following table summarizes the Company’s accounts receivable, net and unbilled receivables, net:
|
|
|
|
|||||
|
|
As of April 30, |
|
|
As of January 31, |
|
||
|
|
(Amounts in thousands) |
|
|||||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Unbilled receivables, net - current |
|
|
|
|
|
|
||
Unbilled receivables, net - long-term |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
As of April 30, 2023 and January 31, 2023, the allowance for credit losses on current accounts receivable was $
Unbilled Receivables, Net
Unbilled receivables, net consist of amounts recognized as revenue as performance obligations were transferred to customers for which the Company does not currently have the right to invoice. Unbilled receivables, net are primarily derived from the allocation of contract consideration to products and services, such as software licenses, recognized at the point of time transferred when the payment of such consideration is contingent on transferring support and maintenance services over the subsequent period which is frequently one to three years. There were
Unbilled receivables, net are expected to be billed in the future as follows (amounts in thousands, except percentage amounts):
|
|
As of April 30, |
|
|||||
|
|
2023 |
|
|
Percentage |
|
||
1 year or less |
|
$ |
|
|
|
% |
||
1-2 years |
|
|
|
|
|
% |
||
2-5 years |
|
|
|
|
|
% |
||
Total unbilled receivables, net |
|
$ |
|
|
|
% |
||
Allowance for Credit Losses
The following table summarizes the Company’s allowance for credit losses for the three months ended April 30, 2023:
|
|
Trade Accounts Receivable |
|
|
Unbilled Receivables |
|
|
Total |
|
|||
|
|
(Amounts in thousands) |
|
|||||||||
Balance as of February 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Impact of CECL adoption |
|
|
( |
) |
|
|
|
|
|
|
||
Adjustment to allowance for expected credit losses |
|
|
|
|
|
|
|
|
|
|||
Write-offs charged against allowance |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of April 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
18
Contract Liabilities
Contract liabilities consist of deferred revenue and customer deposits that arise when amounts are billed to or collected from customers in advance of revenue recognition. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as deferred revenue, long-term.
|
|
Deferred Revenue |
|
|||||
|
|
Current |
|
|
Long-Term |
|
||
|
|
(Amounts in thousands) |
|
|||||
Balance as of January 31, 2023 |
|
$ |
|
|
$ |
|
||
Decrease, net |
|
|
( |
) |
|
|
( |
) |
Balance as of April 30, 2023 |
|
$ |
|
|
$ |
|
||
The Company recognized $
Remaining Performance Obligations
The aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied or are partially satisfied as of April 30, 2023 is $
Disaggregated Revenue
The following table disaggregates revenue by revenue stream:
|
|
For the Three Months Ended April 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Product revenue: |
|
|
|
|
|
|
||
License |
|
$ |
|
|
$ |
|
||
Hardware |
|
|
|
|
|
|
||
Total product revenue |
|
|
|
|
|
|
||
Service revenue: |
|
|
|
|
|
|
||
Maintenance and support |
|
|
|
|
|
|
||
Professional services and other |
|
|
|
|
|
|
||
Total service revenue |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
|
|
For the Three Months Ended April 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Transferred at a point in time |
|
|
|
|
|
|
||
Product revenue |
|
$ |
|
|
$ |
|
||
Transferred over time(1) |
|
|
|
|
|
|
||
Product revenue |
|
|
|
|
|
|
||
Service revenue |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
(1) Comprised of SaaS, hosting, support contracts, and professional services.
19
Geographic Information
The following summarizes revenue by customers’ geographic locations:
|
|
For the Three Months Ended April 30, |
||||||||||
|
|
2023 |
|
|
% |
|
2022 |
|
|
% |
||
|
|
(Amounts in thousands, except percentages) |
||||||||||
Revenue by customers’ geographic locations: |
|
|
|
|
|
|
|
|
|
|
||
North America(1) |
|
$ |
|
|
|
$ |
|
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
||||
Latin America |
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
|
|
$ |
|
|
|
||
(1) Includes total revenue for the U.S. for the periods shown as follows:
|
|
For the Three Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands, |
|
|||||
U.S. Revenue |
|
$ |
|
|
$ |
|
||
% of total revenue |
|
|
% |
|
|
% |
||
The following summarizes long-lived assets by geographic locations:
|
|
As of |
|
|
% |
|
As of |
|
|
% |
||
|
|
(Amounts in thousands, except percentages) |
||||||||||
Long-lived assets by geographic locations: |
|
|
|
|
|
|
|
|
|
|
||
North America |
|
$ |
|
|
|
$ |
|
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
||||
Total long-lived assets by geographic location |
|
$ |
|
|
|
|
$ |
|
|
|
||
Each interim period is considered an integral part of the annual period and, accordingly, the Company measures income tax expense using an estimated annual effective tax rate. The Company is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period.
The Company recorded an income tax provision of less than $
The Company reviews all available evidence to evaluate the recovery of deferred tax assets, including the recent history of losses in all tax jurisdictions, as well as its ability to generate income in future periods. As of April 30, 2023, due to the uncertainty related to the ultimate use of certain deferred income tax assets, we have recorded a valuation allowance on certain deferred assets.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. As of April 30, 2023, the Company is subject to U.S. Federal income tax examinations and other jurisdictions for the years 2016 through 2022. However, the taxing authorities will still have the ability to review the propriety of certain tax attributes created in closed years if such tax attributes are utilized in an open tax year, such as federal research and development credit carryovers.
20
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and such statements involve risks and uncertainties. The following information should be read in conjunction with the condensed consolidated financial information and the notes thereto included in this Form 10-Q. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially due to competitive factors and other factors referred to in Part II, Item 1A. “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on April 17, 2023 (the “Form 10-K”), for our fiscal year ended January 31, 2023 and elsewhere in this Form 10-Q. These factors may cause our actual results to differ materially from any forward-looking statement. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate, and management’s beliefs and assumptions. We undertake no obligation to publicly update or revise the statements in light of future developments. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “seek,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify such forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict.
Business Overview
SeaChange International, Inc. (“SeaChange,” the “Company,” “we,” or similar terms), incorporated under the laws of the State of Delaware on July 9, 1993, is a leading provider of video delivery, advertising, streaming platforms, and emerging FAST development. Our software products and services facilitate the aggregation, licensing, management and distribution of video and advertising content for service providers, telecommunications companies, satellite operators, broadcasters and other content providers. SeaChange technology enables operators, broadcasters, and content owners to cost-effectively launch and grow premium linear TV and direct-to-consumer streaming services to manage, curate, and monetize their content. SeaChange helps protect existing and develop new and incremental advertising revenues for traditional linear TV and streaming services with its unique advertising technology. Further, the Company’s products provide customers an opportunity to insert advertising into broadcast and VOD content. We sell our software products and services worldwide, primarily to service providers including: operators, such as VIDAA USA Inc., Liberty Global, plc., Altice NV, Cox Communications, Inc. and Rogers Communications, Inc.; telecommunications companies, such as Verizon Communications, Inc., and Frontier Communications Corporation; satellite operators such as DirecTV and Dish Network Corporation; and broadcasters.
Our software products and services are designed to empower video providers to create, manage and monetize the increasingly personalized, highly engaging experiences that viewers demand. Using our products and services, we believe customers can increase revenue by offering services such as VOD programming on a variety of consumer devices, including televisions, smart phones, PCs, tablets and over-the-top streaming players. Our solutions enable service providers to offer other interactive television services that allow subscribers to receive personalized services and interact with their video devices, thereby enhancing their viewing experience. Our products also allow our customers to insert advertising into broadcast and VOD content.
SeaChange serves an exciting global marketplace where content access is becoming ubiquitous, and where consumption and monetization continue to transition from linear TV and subscription services to advertising-driven models on connected TVs. With our rich product portfolio and the strategic focus to maximize SeaChange partners’ advertising inventory value with services such as targeting, personalization and multi-screen engagement, we are well positioned to expand our market share in the booming global video advertising and streaming markets. Providing SeaChange customers with more scalable and cloud-native software platforms enable them to further reduce their infrastructure costs, improve reliability and expand service offerings to their subscribers or viewers. Additionally, we are well positioned to capitalize on new customers entering the streaming and video advertising marketplace and increasingly serve adjacent markets. Our core technologies provide a foundation for software products and services that can be deployed in next generation video delivery and monetization systems capable of increased levels of subscriber activity and inventory transactions across multiple devices.
Merger Agreement and Subsequent Termination
In December 2021, the Company and Triller, entered into the Merger Agreement pursuant to which Triller planned to merge with and into SeaChange, with the separate existence of Triller ceasing, and SeaChange continuing as the surviving corporation.
On June 13, 2022, SeaChange and Triller entered into the Termination Agreement pursuant to which SeaChange and Triller mutually agreed to terminate the Merger Agreement. Each party bore its own costs and expenses in connection with the terminated transaction, and neither party paid a termination fee to the other in connection with the terminated transactions. The Termination Agreement also contains mutual releases, whereby each party released the other from any claims of liability relating to the transactions contemplated by the Merger Agreement. Transaction costs related to the transactions contemplated by the Merger Agreement and charged to the
21
condensed consolidated statements of operations and comprehensive loss amounted to approximately $1.2 million and $1.5 million for the years ended January 31, 2023 and 2022, respectively.
Results of Operations
The following discussion summarizes the key factors our management believes are necessary for an understanding of our condensed consolidated financial statements as of and for the three months ended April 30, 2023 and 2022.
Revenue and Gross Profit
The components of our total revenue and gross profit are described in the following table:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
License |
|
$ |
1,072 |
|
|
$ |
1,222 |
|
|
$ |
(150 |
) |
|
|
(12.3 |
%) |
Hardware |
|
|
468 |
|
|
|
1,604 |
|
|
|
(1,136 |
) |
|
|
(70.8 |
%) |
Total product revenue |
|
|
1,540 |
|
|
|
2,826 |
|
|
|
(1,286 |
) |
|
|
(45.5 |
%) |
Service revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Maintenance and support |
|
|
3,091 |
|
|
|
2,939 |
|
|
|
152 |
|
|
|
5.2 |
% |
Professional services and other |
|
|
2,361 |
|
|
|
958 |
|
|
|
1,403 |
|
|
|
146.5 |
% |
Total service revenue |
|
|
5,452 |
|
|
|
3,897 |
|
|
|
1,555 |
|
|
|
39.9 |
% |
Total revenue |
|
|
6,992 |
|
|
|
6,723 |
|
|
|
269 |
|
|
|
4.0 |
% |
Cost of product revenue |
|
|
971 |
|
|
|
1,645 |
|
|
|
(674 |
) |
|
|
(41.0 |
%) |
Cost of service revenue |
|
|
1,868 |
|
|
|
1,858 |
|
|
|
10 |
|
|
|
0.5 |
% |
Total cost of revenue |
|
|
2,839 |
|
|
|
3,503 |
|
|
|
(664 |
) |
|
|
(19.0 |
%) |
Gross profit |
|
$ |
4,153 |
|
|
$ |
3,220 |
|
|
$ |
933 |
|
|
|
29.0 |
% |
Product gross profit margin |
|
|
36.9 |
% |
|
|
41.8 |
% |
|
|
|
|
|
(4.9 |
%) |
|
Service gross profit margin |
|
|
65.7 |
% |
|
|
52.3 |
% |
|
|
|
|
|
13.4 |
% |
|
Gross profit margin |
|
|
59.4 |
% |
|
|
47.9 |
% |
|
|
|
|
|
11.5 |
% |
|
One customer individually accounted for 14% of total revenue for the three months ended April 30, 2023 and one customer accounted for 26% of total revenue for the three months ended April 30, 2022.
International revenue accounted for 44% and 42% of total revenue in each of the three months ended April 30, 2023 and 2022, respectively. The increase in international sales as a percentage of total revenue for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022 is primarily attributable to an increase in international revenue of $0.3 million, due to an increase in services revenue of $0.4 million, partially offset by a reduction in product revenue of $0.1 million.
Product Revenue
Product revenue consists of software, both licenses and subscriptions, and third-party hardware and software revenue. In transactions that include hardware and software not provided by SeaChange, the goods are purchased from a third-party provider, and we record revenue and cost of goods sold on a gross basis. Product revenue decreased by $1.3 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to the delivery of third-party products, which included a large one-time customer delivery during the three months ended April 30, 2022 that did not recur for the three months ended April 30, 2023.
Service Revenue
Service revenue consists of maintenance and support and professional services and other. Service revenue increased by $1.6 million for the three months ended April 30, 2023, as compared to the three months ended April 30, 2022, respectively. The increase in the three months ended April 30, 2023 is primarily due to an increase in professional services revenue, driven by customer demand for project work and leading to increased customer utilization of the professional services team. Additionally, maintenance and support revenue had an increase related to the renewal of maintenance contracts at higher rates for market increases.
Gross Profit and Margin
Cost of revenue consisted primarily of the cost of resold third-party products and services, purchased components and subassemblies, labor and overhead, testing and implementation, and ongoing maintenance of complete systems.
Our gross profit margin increased 12% for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022, reflecting an increased professional services margin, driven primarily by increased demand in professional services and a dedicated, fully-utilized team for one significant customer. Service gross profit margin increased 13% for the three months ended April 30, 2023, as compared to the three months ended April 30, 2022, primarily due to an increase in demand for professional services resulting in higher utilization of the professional services team, while associated costs were reduced by nearly $0.5 million
22
related to headcount attrition, incentive compensation and lower third-party costs were offset by $0.5 million increase in contract labor and related contractor expenses primarily required for a single significant customer. Product gross profit margin decreased by 5% for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022, primarily due to sales of lower margin third-party products at a lower margin than the previous year, which included a large one-time customer delivery.
Operating Expenses
Research and Development
Research and development expenses consist of salaries and related costs, including stock-based compensation for personnel in software development and engineering functions, contract labor costs, depreciation of development and test equipment and an allocation of related facility expenses. The following table provides information regarding the change in research and development expenses during the periods presented:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
Research and development expenses |
|
$ |
1,797 |
|
|
$ |
1,707 |
|
|
$ |
90 |
|
|
|
5.3 |
% |
% of total revenue |
|
|
25.7 |
% |
|
|
25.4 |
% |
|
|
|
|
|
|
||
Research and development expenses increased by $0.1 million for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022. The increase in research and development expenses for the three months ended April 30, 2023 was primarily due to a $0.1 million increase in salaries and compensation for new hires.
Selling and Marketing
Selling and marketing expenses consist of salaries and related costs, including stock-based compensation for personnel engaged in selling and marketing functions, commissions, travel expenses, certain promotional expenses and an allocation of related facility expenses. The following table provides information regarding the change in selling and marketing expenses during the periods presented:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
Selling and marketing expenses |
|
$ |
907 |
|
|
$ |
982 |
|
|
$ |
(75 |
) |
|
|
(7.6 |
%) |
% of total revenue |
|
|
13.0 |
% |
|
|
14.6 |
% |
|
|
|
|
|
|
||
Selling and marketing expenses decreased by $0.1 million for the three months ended April 30, 2023, as compared to the three months ended April 30, 2022. Although costs remained relatively consistent, the decreases in selling and marketing expenses for the three months ended April 30, 2023 were primarily attributable to a reduction in contract labor of about $0.1 million.
General and Administrative
General and administrative expenses consist of salaries and related costs, including stock-based compensation for personnel in executive, finance, legal, human resources, information technology and administrative functions, as well as legal and accounting services, insurance premiums and an allocation of related facilities expenses. The following table provides information regarding the change in general and administrative expenses during the periods presented:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
General and administrative expenses |
|
$ |
2,113 |
|
|
$ |
2,286 |
|
|
$ |
(173 |
) |
|
|
(7.6 |
%) |
% of total revenue |
|
|
30.2 |
% |
|
|
34.0 |
% |
|
|
|
|
|
|
||
General and administrative expenses decreased by $0.2 million for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022. The decrease in general and administrative expenses for the three months ended April 30, 2023 was primarily attributable to a $0.1 million reduction in provision for credit losses and a $0.2 million reduction in professional fees related to reduced audit fees and the transition of our contracted third-party accounting resourcing program offset by a $0.1 million increase in salaries for new internal staff hires to perform accounting services in-house.
23
Severance and Restructuring Costs
Severance consists of employee-related termination benefits and other severance costs not related to a restructuring plan. Restructuring consists of employee-related termination benefits and facility closure costs. The following table provides information regarding the change in severance and restructuring costs during the periods presented:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
Severance and restructuring costs |
|
$ |
44 |
|
|
$ |
165 |
|
|
$ |
(121 |
) |
|
|
(73.3 |
%) |
% of total revenue |
|
|
0.6 |
% |
|
|
2.5 |
% |
|
|
|
|
|
|
||
Severance and restructuring costs decreased by $0.1 million for the three months ended April 30, 2023, as compared to the three months ended April 30, 2022. Severance costs consisted of employee-related termination benefits.
Transaction Costs
Transaction costs related to merger and acquisition activity were $0.1 million for the three months ended April 30, 2023, compared to fees related to the terminated Merger Agreement of $0.8 million for three months ended April 30, 2022. Transaction costs include third-party direct costs such as legal, accounting, and other professional fees.
Other Income (Expense), Net
The table below provides detail regarding our other income (expense), net:
|
|
For the Three Months Ended April 30, |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||
Interest income, net |
|
$ |
217 |
|
|
$ |
75 |
|
|
$ |
142 |
|
|
|
189.3 |
% |
Foreign exchange loss, net |
|
|
(91 |
) |
|
|
(357 |
) |
|
|
266 |
|
|
|
(74.5 |
%) |
Miscellaneous income, net |
|
|
15 |
|
|
|
23 |
|
|
|
(8 |
) |
|
|
(34.8 |
%) |
|
|
|
141 |
|
|
$ |
(259 |
) |
|
$ |
400 |
|
|
|
|
|
Interest income consists of interest received from our bank accounts and our investments in U.S. Treasury Securities and corporate bonds. Our foreign exchange loss, net is primarily due to the revaluation of intercompany notes.
Income Tax Provision
We recorded income tax provision of less than $0.1 million for the three months ended April 30, 2023 and 2022. Our effective tax rate in fiscal 2023 and in future periods may fluctuate on a quarterly basis as a result of changes in our jurisdictional forecasts where losses cannot be benefited due to the existence of valuation allowances on our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles or interpretations thereof.
We review all available evidence to evaluate the recovery of deferred tax assets, including the recent history of losses in all tax jurisdictions, as well as our ability to generate income in future periods. As of April 30, 2023, due to the uncertainty related to the ultimate use of deferred income tax assets, we have recorded a valuation allowance on these deferred assets.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. As of April 30, 2023, the Company is subject to U.S. Federal income tax examinations and other jurisdictions for the years 2016 through 2022. However, the taxing authorities will still have the ability to review the propriety of certain tax attributes created in closed years if such tax attributes are utilized in an open tax year, such as our federal research and development credit carryovers.
Liquidity and Capital Resources
The following table includes key line items of our condensed consolidated statements of cash flows:
24
|
|
For the Three Months Ended April 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
579 |
|
|
$ |
(743 |
) |
Net cash used in investing activities |
|
|
(167 |
) |
|
|
(15 |
) |
Effect of exchange rate changes on cash, cash equivalents |
|
|
(26 |
) |
|
|
(328 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
386 |
|
|
$ |
(1,086 |
) |
Historically, we have financed our operations and capital expenditures primarily with our cash and investments. Our cash, cash equivalents, restricted cash and marketable securities totaled $15.5 million at April 30, 2023.
We believe that existing cash and cash equivalents and cash expected to be provided by future operating activities will be adequate to satisfy our working capital, capital expenditure requirements and other contractual obligations for at least 12 months from the date of this filing.
If our expectations are incorrect, we may need to raise additional funds to fund our operations or take advantage of unanticipated strategic opportunities in order to strengthen our financial position. In the future, we may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of market opportunities, to develop new products or to otherwise respond to competitive pressures.
Net cash provided by (used in) operating activities
Net cash provided by operating activities was $0.6 million for the three months ended April 30, 2023, resulting from (i) our net loss of $0.7 million, (ii) an offset of $0.5 cumulative non-cash charges consisting of $0.1 million for depreciation, $0.4 million for stock-based compensation and $0.1 million for foreign currency transaction loss, and (iii) a net change in working capital of $0.8 million, including a $3.2 million decrease in accounts receivable due to the timing of collections and a $0.3 million increase in accounts payable, partially offset by a $0.6 million increase in unbilled receivables due to timing of milestone billings, a $0.5 million increase in prepaid expenses and other current assets and other assets due to our annual insurance renewal in the quarter ended April 30, 2023, a $1.6 million decrease in accrued expenses and other liabilities due to April 2023 payments of bonuses and commissions accrued for at January 31, 2023 and a $0.1 million decrease in deferred revenue.
Net cash used in operating activities was $0.7 million for the three months ended April 30, 2022 due to our (i) 3.0 million net loss, (ii) operating activity non-cash adjustments of $0.8 million, including $0.1 million of depreciation expense, a $0.1 million provision for bad debt, $0.3 million of stock-based compensation expense, and $0.4 million of realized and unrealized foreign currency transaction losses, and (iii) net cash inflows of $1.5 million provided by changes in our operating assets and liabilities, including (but not limited to) a $1.4 million decrease in accounts receivable attributable to the collection of perpetual license invoices, a $0.1 million decrease in unbilled receivables attributable to the passage of time on installment invoicing of perpetual licenses previously sold for which we recognized revenue at the time of delivery, a $0.4 million increase in prepaid expenses and other current assets and other assets primarily attributable to the prepayment of annual insurance premiums, a $0.7 million decrease in accounts payable attributable to the timing of vendor payments, a $0.1 million increase in accrued expenses and other liabilities for goods and services received but not yet billed for, and a $0.9 million increase in deferred revenue attributable to up-front invoicing for which we recognize revenue over a period of time.
Net cash used in investing activities
Net cash used in investing activities was $0.2 million for the three months ended April 30, 2023 due to purchases of marketable securities of $0.2 million. Net cash provided by investing activities was less than 0.1 million for the three months ended April 30, 2022 due to purchases of property and equipment.
Continued Nasdaq Listing and Reverse Stock Split
On June 17, 2022, we received notification from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that the Company did not comply with the minimum $1.00 bid price requirement for continued listing set forth in Nasdaq (the “Bid Price Requirement”). In accordance with Nasdaq listing rules, the Company was afforded 180 calendar days (until December 14, 2022) to regain compliance with the Bid Price Requirement. On December 15, 2022, the Company received written notice from Nasdaq stating that, although the Company had not regained compliance with the Bid Price Requirement by December 14, 2022, in accordance with Nasdaq listing rules, the Company is eligible for an additional 180 calendar day period, or until June 12, 2023 (the “Extended Compliance Date”), to regain compliance with the Bid Price Requirement. Nasdaq’s determination was based on, among
25
other things, (1) the Company’s written notice of its intention to transfer to The Nasdaq Capital Market (the “Capital Market”) (as issuers on The Nasdaq Global Select Market (the “Global Select Market”) are not eligible for an additional 180-day compliance period) and to cure the deficiency by the Extended Compliance Date by effecting a reverse stock split, if necessary, and (2) the Company meeting the continued listing requirement for market value of publicly held shares and all other initial listing requirements for the Capital Market, with the exception of the Bid Price Requirement. On December 15, 2022, Nasdaq approved the Company’s transfer from the Global Select Market to the Capital Market, a continuous trading market that operates in substantially the same manner as the Global Select Market.
In an effort to regain compliance with the Bid Price Requirement, on April 6, 2023, the Board approved a discretionary reverse stock split of the Company’s common stock in the range of 1-for‑15 shares and 1‑for-25 shares (the “Reverse Stock Split”), subject to stockholder approval at the Company’s annual meeting of stockholders held on May 19, 2023 (the “Annual Meeting”). At the Annual Meeting, the stockholders approved the Reverse Stock Split at a ratio in the range of 1-for-15 to 1-for-25, with such ratio to be determined at the discretion of the Board. On May 19, 2023, the Board approved a reverse stock split of 1-for-20 to also be effective as of May 19, 2023. Proportionate adjustments were made to the exercise price and number of shares issuable upon the exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock units, deferred stock units and performance stock units under the Company’s equity incentive plans. No fractional shares of common stock were issued in connection with the Reverse Stock Split. Instead, any fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole share.
All references to common stock, equity-based common stock awards and all share and per share data contained in this Form 10-Q have been adjusted to reflect the Reverse Stock Split unless explicitly stated otherwise.
If, at any time before the Extended Compliance Date, the bid price for the Company’s common stock shares closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Bid Price Requirement, Nasdaq will provide written notification to the Company that it complies with the Bid Price Requirement. From the May 23, 2023 date that the Company's common stock began trading on a post-split basis on Nasdaq, the Company has maintained a minimum bid price of $1.00 in excess of 10 consecutive business days as required under the Bid Price Requirement, and, on June 7, 2023, Nasdaq notified the Company that it had regained compliance with the Bid Price Requirement.
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.
There have been no material changes to our critical accounting policies and estimates during the three months ended April 30, 2023 from those disclosed in our financial statements and the related notes and other financial information included in our Form 10-K on file with the SEC, except for additional updated disclosures as described in Part I, Item I, Note 2, “Significant Accounting Policies, Revenue Recognition” to this Form 10-Q and the removal of goodwill, intangible assets and impairment of long-lived assets as described in Part V, Item 15, Note 2, “Significant Accounting Policies, Use of Estimates, Goodwill and Other Intangible Assets and Impairment of Long-lived Assets” to the Company's Form 10-K filed with the SEC on April 17, 2023.
Off-Balance Sheet Arrangements
During the periods presented herein, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Part I, Item I, Note 2, “Significant Accounting Policies” to this Form 10-Q for more information.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for this reporting period and are not required to provide the information required under this item.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file
26
or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of April 30, 2023, in accordance with the requirements under Rule 13a-15(b) of the Exchange Act, our principal executive officer and principal financial officer concluded that, as of that date, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting. There were no changes in our internal controls over financial reporting during the quarter ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
27
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We are not currently a party to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.
Further, we enter into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of our historical agreements require us to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to our products. From time to time, we also indemnify customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of our products and services or resulting from the acts or omissions of us, our employees, authorized agents or subcontractors. Management cannot reasonably estimate any potential losses, but these claims could result in material liability for us (see Part I, Item I, Note 5, “Commitments and Contingencies” to this Form 10-Q for more information).
ITEM 1A. Risk Factors
In addition to the other information set forth in this Form 10-Q, you should carefully consider the risks discussed in our Form 10-K and those set forth from time to time in our other filings with the SEC. There have been no material changes in our risk factors from those described in our Form 10-K. The risks described in such reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
28
ITEM 6. Exhibits
The following list of exhibits includes exhibits submitted with this Form 10-Q as filed with the SEC and those incorporated by reference to other filings.
Index to Exhibits
No. |
|
Description |
|
|
|
|
|
|
10.1* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 filed herewith). |
* Filed herewith.
** Furnished herewith.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, SeaChange International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 12, 2023
|
SEACHANGE INTERNATIONAL, INC. |
|
|
|
|
|
by: |
/s/ PETER AQUINO |
|
|
Peter Aquino |
|
|
Chief Executive Officer (Principal Executive Officer)
|
|
|
|
|
by: |
/s/ MARK SZYNKOWSKI |
|
|
Mark Szynkowski |
|
|
Chief Financial Officer, Senior Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
30