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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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
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. |
28 |
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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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( |
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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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( |
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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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( |
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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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( |
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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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— |
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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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( |
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Accrued expenses and other liabilities |
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( |
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Deferred revenue |
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( |
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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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( |
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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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( |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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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) |
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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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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
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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:
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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
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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
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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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Stock options |
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RSUs and DSUs |
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PSUs |
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