seac-10q_20190731.htm

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

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.

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 ☐ NO ☒

The number of shares outstanding of the registrant’s Common Stock on August 23, 2019 was 36,683,245.

	July 31,			January 31,
	2019			2019
Assets
Current assets:
Cash and cash equivalents	$	9,202		$	20,317
Marketable securities		2,746			4,020
Accounts receivable, net of allowance for doubtful accounts of $575 and $577 at July 31, 2019 and January 31, 2019, respectively		11,019			19,267
Unbilled receivables		9,002			5,448
Inventory		198			924
Prepaid expenses and other current assets		6,087			6,033
Total current assets		38,254			56,009
Property and equipment, net		6,888			7,192
Operating lease right-of-use assets		1,745			—
Marketable securities, long-term		6,843			6,339
Intangible assets, net		2,977			—
Goodwill		9,783			8,753
Unbilled receivables, long-term		3,066			—
Other assets		636			450
Total assets	$	70,192		$	78,743
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,564		$	4,503
Accrued expenses		6,417			7,762
Deferred revenue		7,142			8,104
Total current liabilities		20,123			20,369
Deferred revenue, long-term		2,014			2,642
Operating lease liabilities, long-term		1,222			—
Taxes payable, long-term		418			429
Deferred tax liabilities, long-term		—			203
Total liabilities		23,777			23,643
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, $0.01 par value; 100,000,000 shares authorized at July 31, 2019 and January 31, 2019; 36,811,061 shares issued and 36,670,571 shares outstanding at July 31, 2019, 35,946,100 shares issued and 35,905,610 outstanding at January 31, 2019		367			359
Additional paid-in capital		243,514			242,442
Treasury stock, at cost; 140,490 shares at July 31, 2019 and 40,490 shares at January 31, 2019		(147	)		(5	)
Accumulated other comprehensive loss		(1,993	)		(3,393	)
Accumulated deficit		(195,326	)		(184,303	)
Total stockholders' equity		46,415			55,100
Total liabilities and stockholders' equity	$	70,192		$	78,743

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

	For the Three Months Ended July 31,						For the Six Months Ended July 31,
	2019			2018			2019			2018
Revenue:
Product	$	11,968		$	1,462		$	13,147		$	4,553
Service		6,844			10,439			14,150			22,283
Total revenue		18,812			11,901			27,297			26,836
Cost of revenue:
Product		3,039			490			3,948			816
Service		4,885			5,125			9,553			10,828
Total cost of revenue		7,924			5,615			13,501			11,644
Gross profit		10,888			6,286			13,796			15,192
Operating expenses:
Research and development		3,775			5,185			8,027			10,914
Selling and marketing		2,963			3,932			5,815			7,599
General and administrative		4,150			4,903			8,399			9,475
Severance and restructuring costs		659			536			870			590
Total operating expenses		11,547			14,556			23,111			28,578
Loss from operations		(659	)		(8,270	)		(9,315	)		(13,386	)
Other expense, net		(78	)		(1,962	)		(1,869	)		(2,811	)
Loss before income taxes		(737	)		(10,232	)		(11,184	)		(16,197	)
Income tax benefit		(563	)		(1,152	)		(161	)		(1,646	)
Net loss	$	(174	)	$	(9,080	)	$	(11,023	)	$	(14,551	)
Net loss per share, basic and diluted	$	-		$	(0.26	)	$	(0.30	)	$	(0.41	)
Weighted average common shares outstanding, basic and diluted		36,602			35,649			36,532			35,628

Comprehensive loss:
Net loss	$	(174	)	$	(9,080	)	$	(11,023	)	$	(14,551	)
Other comprehensive income, net of tax:
Foreign currency translation adjustment		133			856			1,340			1,431
Unrealized gains (losses) on marketable securities		25			11			60			(18	)
Total other comprehensive income		158			867			1,400			1,413
Comprehensive loss	$	(16	)	$	(8,213	)	$	(9,623	)	$	(13,138	)

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

	Common Stock				Additional						Accumulated Other						Total
	Number of Shares		Par Value		Paid-in Capital			Treasury Stock			Comprehensive Loss			Accumulated Deficit			Stockholders' Equity
Balances at January 31, 2019		35,946,100	$	359	$	242,442		$	(5	)	$	(3,393	)	$	(184,303	)	$	55,100
Issuance of common stock pursuant to acquisition of Xstream		541,738		5		869			—			—			—			874
Issuance of common stock pursuant to vesting of restricted stock units		57,368		1		(1	)		—			—			—			—
Issuance of common stock pursuant to ESPP purchases		7,819		—		9			—			—			—			9
Stock-based compensation expense		—		—		(434	)		—			—			—			(434	)
Unrealized gains on marketable securities		—		—		—			—			35			—			35
Foreign currency translation adjustment		—		—		—			—			1,207			—			1,207
Net loss		—		—		—			—			—			(10,849	)		(10,849	)
Balances at April 30, 2019		36,553,025		365		242,885			(5	)		(2,151	)		(195,152	)		45,942
Issuance of common stock pursuant to vesting of restricted stock units		258,036		2		(2	)		—			—			—			—
Stock-based compensation expense		—		—		631			—			—			—			631
Repurchases of common stock		—		—		—			(142	)		—			—			(142	)
Unrealized gains on marketable securities		—		—		—			—			25			—			25
Foreign currency translation adjustment		—		—		—			—			133			—			133
Net loss		—		—		—			—			—			(174	)		(174	)
Balances at July 31, 2019		36,811,061	$	367	$	243,514		$	(147	)	$	(1,993	)	$	(195,326	)	$	46,415

	Common Stock					Additional						Accumulated Other						Total
	Number of Shares			Par Value		Paid-in Capital			Treasury Stock			Comprehensive Loss			Accumulated Deficit			Stockholders' Equity
Balances at January 31, 2018		35,634,984		$	356	$	239,423		$	(5	)	$	(5,434	)	$	(148,620	)	$	85,720
Adjustment resulting from the adoption of ASC 606		—			—		—			—			—			2,319			2,319
Issuance of common stock pursuant to exercise of stock options		5,875			—		17			—			—			—			17
Issuance of common stock pursuant to vesting of restricted stock units		8,356			—		—			—			—			—			—
Issuance of common stock pursuant to ESPP purchases		9,421			1		21			—			—			—			22
Stock-based compensation expense		—			—		879			—			—			—			879
Unrealized losses on marketable securities		—			—		—			—			(29	)		—			(29	)
Foreign currency translation adjustment		—			—		—			—			575			—			575
Net loss		—			—		—			—			—			(5,471	)		(5,471	)
Balances at April 30, 2018		35,658,636			357		240,340			(5	)		(4,888	)		(151,772	)		84,032
Issuance of common stock pursuant to exercise of stock options		15,062			—		39			—			—			—			39
Issuance of common stock pursuant to vesting of restricted stock units		97,353			1		(1	)		—			—			—			—
Adjustment to common stock pursuant to ESPP purchases		(1,604	)		—		(4	)		—			—			—			(4	)
Stock-based compensation expense		—			—		923			—			—			—			923
Unrealized losses on marketable securities		—			—		—			—			11			—			11
Foreign currency translation adjustment		—			—		—			—			856			—			856
Net loss		—			—		—			—			—			(9,080	)		(9,080	)
Balances at July 31, 2018		35,769,447		$	358	$	241,297		$	(5	)	$	(4,021	)	$	(160,852	)	$	76,777

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

	For the Six Months Ended July 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(11,023	)	$	(14,551	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		1,093			1,552
Provision for bad debts		388			—
Stock-based compensation expense		197			1,802
Deferred income taxes		(203	)		(758	)
Unrealized foreign currency transaction gain		1,340			1,431
Other		67			76
Changes in operating assets and liabilities, including impact of acquisitions:
Accounts receivable		8,482			10,115
Unbilled receivables		(6,598	)		(2,335	)
Inventory		726			(165	)
Prepaid expenses and other current assets and other assets		196			(1,584	)
Accounts payable		1,350			371
Accrued expenses and other liabilities		(2,463	)		(10,640	)
Deferred revenue		(1,590	)		(5,729	)
Other operating activities		—			2,430
Net cash used in operating activities		(8,038	)		(17,985	)
Cash flows from investing activities:
Purchases of property and equipment		(153	)		(284	)
Cash paid for acquisitions, net		(3,838	)		—
Purchases of marketable securities		(823	)		(4,354	)
Proceeds from sales and maturities of marketable securities		1,593			2,761
Other investing activities		—			(60	)
Net cash used in investing activities		(3,221	)		(1,937	)
Cash flows from financing activities:
Proceeds from issuance of common stock		9			74
Repurchases of common stock		(142	)		—
Other financing activities		—			(35	)
Net cash (used in) provided by financing activities		(133	)		39
Effect of exchange rate on cash and cash equivalents		277			1,162
Net decrease in cash, cash equivalents and restricted cash		(11,115	)		(18,721	)
Cash, cash equivalents and restricted cash at beginning of period		20,317			43,661
Cash, cash equivalents and restricted cash at end of period	$	9,202		$	24,940
Supplemental disclosure of cash flow information
Income taxes paid	$	76		$	2,735
Non-cash activities:
Purchases of property and equipment included in accounts payable	$	58		$	—
Fair value of common stock issued in acquisition	$	874		$	—

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

SeaChange International, Inc., a Delaware corporation, was founded on July 9, 1993. We are an industry leader in the delivery of multiscreen, advertising and premium over-the-top (“OTT”) video management solutions. 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.

We continue to realize the savings related to our restructuring activities. During fiscal 2019, we made significant reductions to our headcount as part of our ongoing restructuring effort from which we expect to generate annualized savings of approximately $6 million. These measures are important steps in restoring us to profitability and positive cash flow. We believe that existing cash and investments and cash expected to be provided by future operating results, augmented by the plans highlighted below (see Note 9), are adequate to satisfy our working capital, capital expenditure requirements and other contractual obligations for at least the next 12 months.

If our expectations are incorrect, we may need to raise additional funds to fund our operations, to take advantage of unanticipated strategic opportunities or 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.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We consolidate the financial statements of our wholly-owned subsidiaries and all intercompany transactions and account balances have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments, consisting of only normal recurring items, necessary to present a fair presentation of the consolidated financial statements for the periods shown.

The preparation of these consolidated financial statements in conformity with U.S. 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 consolidated financial statements include, but are not limited to, those related to revenue recognition, allowance for doubtful accounts, goodwill and intangible assets, right-of-use operating leases, impairment of long-lived assets, accounting for income taxes, and the valuation of stock-based awards. We base our 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 from those estimates or assumptions.

Cash and cash equivalents include cash on hand and on deposit and highly liquid investments in money market mutual funds, government sponsored enterprise obligations, treasury bills, commercial paper and other money market securities with remaining maturities at 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 for performance obligations with our customers.

The following table provides a summary of cash, cash equivalents and restricted cash that constitutes the total amounts shown in the consolidated statements of cash flows for the six months ended July 31, 2019 and 2018:

Financial instruments which potentially expose us to concentrations of credit risk include cash and cash equivalents, marketable securities and accounts receivable. We have cash investment policies which, among other things, limit investments to investment-grade securities. We restrict our cash equivalents and marketable securities to repurchase agreements with major banks and U.S. government and corporate securities which are subject to minimal credit and market risk. We perform ongoing credit evaluations of our customers.

We sell our software products and services worldwide primarily to service providers, consisting of operators, telecommunications companies, satellite operators and broadcasters. Two customers accounted for 20% and 10%, respectively, of total revenue in the second quarter of fiscal 2020, and one customer accounted for 19% of total revenue in the second quarter of fiscal 2019. One customer accounted for 14% of total revenue in the first six months of fiscal 2020, and one customer accounted for 19% of total revenue in the first six months of fiscal 2019. Three customers accounted for 17%, 15% and 10%, respectively, of the accounts receivable balance as of July 31, 2019. Two customers accounted for 44% and 15%, respectively, of the accounts receivable balance as of January 31, 2019.

Our 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 income (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 consolidated statements of operations and comprehensive loss.

We evaluate our investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, we consider such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, our ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that we consider to be “other than temporary,” we reduce the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

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:

Our cash equivalents and marketable securities are carried at fair value determined according to the fair value hierarchy described above. The carrying values of our accounts and other receivables, unbilled receivables, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

We record goodwill when consideration paid in a business acquisition exceeds the value of the net assets acquired. Our estimates of fair value are based upon assumptions believed to be reasonable at that time but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events or circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results. Goodwill is not amortized, but rather is tested for impairment annually in our third quarter beginning August 1^st of each year, or more frequently if facts and circumstances warrant a review, such as the ones mentioned in impairments of long-lived assets below. We have determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. We assess both the existence of potential impairment and the amount of impairment loss by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Through July 31, 2019, we have recorded accumulated goodwill impairment charges of $54.8 million (see Note 6).

Intangible assets are recorded at their estimated fair values at the date of acquisition. We amortize acquired intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.

Long-lived assets primarily consist of property, plant and equipment and intangible assets with finite lives. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the carrying amount to the estimated future undiscounted cash flows. If estimated future undiscounted net cash flows are less than the carrying amount, the asset is considered impaired and expense is recorded at an amount required to reduce the carrying amount to fair value. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.

We assess the useful lives and possible impairment of existing recognized long-lived assets whenever events or changes in circumstances occur that indicate that it is more likely than not that an impairment has occurred. We test long-lived assets for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value. We use a discounted cash flow approach or other methods, if appropriate, to assess fair value. Factors considered important which could trigger a review include:

Determining whether a triggering event has occurred involves significant judgment. (see Note 6).

Our revenue is derived from sales of hardware, software licenses, professional services, and maintenance fees related to the hardware and our software licenses.

Our contracts often contain multiple performance obligations. For contracts with multiple performance obligations, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. If the transaction price contains discounts or we expect to provide future price concessions, these elements are considered when determining the transaction price prior to allocation. Variable fees within the transaction price are estimated and recognized as revenue when we satisfy our performance obligations to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. If the contract grants the client the option to acquire additional products or services, we assess whether or not any discount on the products and services is in excess of levels normally available to similar clients and, if so, we account for that discount as an additional performance obligation.

We have concluded that hardware is either (1) a distinct performance obligation as the client can benefit from the product on its own or (2) a combined performance obligation with software licenses. This conclusion is dependent on the nature of the promise to the customer. In either scenario, hardware revenue is typically recognized at a point in time when control is transferred to the client, 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, it is delivered before services are provided and is functional without services, therefore the point in time when control is transferred is upon delivery or acceptance by the customer. When hardware and software are combined, we have determined standalone selling price for hardware utilizing the relative allocation method based on observable evidence.

We have concluded that our software licenses are either (1) a distinct performance obligation as the client can benefit from the software on its own or (2) a combined performance obligation with hardware, depending on the nature of the promise to the customer. In either scenario, software license revenue is typically recognized at a point in time when control is transferred to the client, which is defined as the point in time when the client can use and benefit from the license. The software license is delivered before related services are provided and is functional without services, updates, and technical support. Our license arrangements generally contain multiple performance obligations, including hardware, installation services, training, and maintenance. We have determined standalone selling price for software utilizing the relative allocation method based on observable evidence.

Maintenance revenue, which is included in services revenue in our consolidated statements of operations and comprehensive loss, includes revenue from client support and related professional services. Client support includes software upgrades on a when and-if available basis, telephone support, bug fixes or patches and general hardware maintenance support. Maintenance is priced as a percentage of the list price of the related software license and hardware. We determined the standalone selling price of maintenance based on this pricing relationship and observable data from standalone sales of maintenance.

We have identified three separate distinct performance obligations of maintenance:

Delaware		04-3197974
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

50 Nagog Park, Acton, MA		01720
Address of Principal Executive Offices		Zip Code

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	SEAC	The Nasdaq Global Select Market
Series A Participating Preferred Stock Purchase Rights	SEAC	The Nasdaq Global Select Market

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets	2

	Consolidated Statements of Operations and Comprehensive Loss	3

	Consolidated Statements of Stockholders’ Equity	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6.	Exhibits	32

SIGNATURES		33

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐