0001564590-18-015396.txt : 20180611 0001564590-18-015396.hdr.sgml : 20180611 20180611161522 ACCESSION NUMBER: 0001564590-18-015396 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20180430 FILED AS OF DATE: 20180611 DATE AS OF CHANGE: 20180611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEACHANGE INTERNATIONAL INC CENTRAL INDEX KEY: 0001019671 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 043197974 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21393 FILM NUMBER: 18892139 BUSINESS ADDRESS: STREET 1: 50 NAGOG PARK CITY: ACTON STATE: MA ZIP: 01720 BUSINESS PHONE: 9788970100 MAIL ADDRESS: STREET 1: 50 NAGOG PARK CITY: ACTON STATE: MA ZIP: 01720 10-Q 1 seac-10q_20180430.htm 10-Q seac-10q_20180430.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-21393

 

SEACHANGE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

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, including zip code)

Registrant’s telephone number, including area code: (978) 897-0100

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

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      NO  

The number of shares outstanding of the registrant’s Common Stock on June 4, 2018 was 35,621,615.  

 

 

 


SEACHANGE INTERNATIONAL, INC.

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Page

Item 1.

Financial Statements (interim periods unaudited)

 

 

 

 

 

Consolidated Balance Sheets at April 30, 2018 and January 31, 2018

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended April 30, 2018 and April 30, 2017

4

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended April 30, 2018 and April 30, 2017

5

 

 

 

 

Notes to Consolidated Financial Statements

6-24

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25-39

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

 

 

 

Item 4.

Controls and Procedures

39

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

41

 

 

 

Item 1A.

Risk Factors

41

 

 

 

Item 6.

Exhibits

41

 

 

Index to Exhibits

42

 

 

SIGNATURES

43

 

2


PART I – FINANCIAL INFORMATION

ITEM 1.

Financial Statements

SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,856

 

 

$

43,652

 

Restricted cash

 

 

 

 

 

9

 

Marketable securities

 

 

2,736

 

 

 

3,991

 

Accounts and other receivables, net of allowance for doubtful accounts of $16

   at April 30, 2018 and January 31, 2018, respectively

 

 

11,849

 

 

 

22,537

 

Unbilled receivables

 

 

6,341

 

 

 

3,101

 

Inventories, net

 

 

745

 

 

 

666

 

Prepaid expenses and other current assets

 

 

3,265

 

 

 

3,557

 

Total current assets

 

 

63,792

 

 

 

77,513

 

Property and equipment, net

 

 

9,174

 

 

 

9,471

 

Marketable securities, long-term

 

 

7,503

 

 

 

4,449

 

Intangible assets, net

 

 

1,041

 

 

 

1,303

 

Goodwill, net

 

 

25,165

 

 

 

25,579

 

Other assets

 

 

736

 

 

 

1,015

 

Total assets

 

$

107,411

 

 

$

119,330

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,750

 

 

$

2,431

 

Deferred revenues

 

 

9,924

 

 

 

11,598

 

Other accrued expenses

 

 

9,016

 

 

 

15,379

 

Total current liabilities

 

 

20,690

 

 

 

29,408

 

Deferred revenue, long-term

 

 

1,358

 

 

 

2,835

 

Deferred tax liabilities, long-term

 

 

210

 

 

 

215

 

Taxes payable, long-term

 

 

1,121

 

 

 

1,152

 

Total liabilities

 

 

23,379

 

 

 

33,610

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 100,000,000 shares authorized; 35,658,636

   shares issued and 35,618,146 outstanding at April 30, 2018, and 35,634,984

   shares issued and 35,594,494 outstanding at January 31, 2018

 

 

357

 

 

 

356

 

Additional paid-in capital

 

 

240,340

 

 

 

239,423

 

Treasury stock, at cost; 40,490 common shares at April 30, 2018 and January 31,

   2018, respectively

 

 

(5

)

 

 

(5

)

Accumulated loss

 

 

(151,772

)

 

 

(148,620

)

Accumulated other comprehensive loss

 

 

(4,888

)

 

 

(5,434

)

Total stockholders’ equity

 

 

84,032

 

 

 

85,720

 

Total liabilities and stockholders’ equity

 

$

107,411

 

 

$

119,330

 

 

 

 

 

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

3


SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

3,091

 

 

$

2,749

 

Services

 

 

11,844

 

 

 

13,918

 

Total revenues

 

 

14,935

 

 

 

16,667

 

Cost of revenues:

 

 

 

 

 

 

 

 

Products

 

 

319

 

 

 

554

 

Services

 

 

5,531

 

 

 

5,980

 

Amortization of intangible assets

 

 

178

 

 

 

254

 

Stock-based compensation expense

 

 

1

 

 

 

2

 

Total cost of revenues

 

 

6,029

 

 

 

6,790

 

Gross profit

 

 

8,906

 

 

 

9,877

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

5,484

 

 

 

5,378

 

Selling and marketing

 

 

3,386

 

 

 

2,937

 

General and administrative

 

 

3,994

 

 

 

3,643

 

Amortization of intangible assets

 

 

226

 

 

 

344

 

Stock-based compensation expense

 

 

878

 

 

 

875

 

Professional fees - other

 

 

 

 

 

21

 

Severance and other restructuring costs

 

 

54

 

 

 

2,147

 

Total operating expenses

 

 

14,022

 

 

 

15,345

 

Loss from operations

 

 

(5,116

)

 

 

(5,468

)

Other (expenses) income, net

 

 

(849

)

 

 

366

 

Loss before income taxes

 

 

(5,965

)

 

 

(5,102

)

Income tax (benefit) provision

 

 

(494

)

 

 

269

 

Net loss

 

$

(5,471

)

 

$

(5,371

)

Net loss

 

$

(5,471

)

 

$

(5,371

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

575

 

 

 

(80

)

Unrealized loss on marketable securities

 

 

(29

)

 

 

(8

)

Comprehensive loss

 

$

(4,925

)

 

$

(5,459

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

(0.15

)

Diluted

 

$

(0.15

)

 

$

(0.15

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

35,608

 

 

 

35,309

 

Diluted

 

 

35,608

 

 

 

35,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,471

)

 

$

(5,371

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

383

 

 

 

620

 

Amortization of intangible assets

 

 

404

 

 

 

598

 

Stock-based compensation expense

 

 

879

 

 

 

877

 

Deferred income taxes

 

 

 

 

 

388

 

Other

 

 

(7

)

 

 

81

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

10,449

 

 

 

10,869

 

Unbilled receivables

 

 

(3,571

)

 

 

(630

)

Inventories

 

 

(80

)

 

 

154

 

Prepaid expenses and other assets

 

 

224

 

 

 

403

 

Accounts payable

 

 

(576

)

 

 

(1,717

)

Accrued expenses

 

 

(6,139

)

 

 

(3,865

)

Deferred revenues

 

 

(2,778

)

 

 

(3,310

)

Other operating activities

 

 

2,356

 

 

 

(14

)

Total cash used in operating activities

 

 

(3,927

)

 

 

(917

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(113

)

 

 

(196

)

Purchases of marketable securities

 

 

(3,830

)

 

 

 

Proceeds from sale and maturity of marketable securities

 

 

2,009

 

 

 

 

Other investing activities

 

 

 

 

 

119

 

Total cash used in investing activities

 

 

(1,934

)

 

 

(77

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

38

 

 

 

26

 

Payments of withholding tax on RSU vesting

 

 

(10

)

 

 

(9

)

Total cash provided by financing activities

 

 

28

 

 

 

17

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

1,028

 

 

 

(584

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(4,805

)

 

 

(1,561

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,661

 

 

 

28,411

 

Cash, cash equivalents and restricted cash, end of period

 

$

38,856

 

 

$

26,850

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

182

 

 

$

136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


SEACHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Nature of Business and Basis of Presentation

The Company

SeaChange International, Inc. and its consolidated subsidiaries (collectively “SeaChange”, “we”, or the “Company”) is an industry leader in the delivery of multiscreen video, advertising and premium over-the-top (“OTT”) video management solutions. Our products and services are designed to empower video providers to create, manage and monetize the increasingly personalized, highly engaging experiences that viewers demand.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of SeaChange International, Inc. and its subsidiaries (“SeaChange” or the “Company”) and are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reports as well as rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany transactions and balances have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to such regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. 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. These consolidated financial statements should be read in conjunction with our most recently audited financial statements and related footnotes included in our Annual Report on Form 10-K (“Form 10-K”) as filed with the SEC. The balance sheet data as of January 31, 2018 that is included in this Quarterly Report on Form 10-Q (“Form 10-Q”) was derived from our audited financial statements. We have reclassified certain amounts previously reported in our financial statements to conform to current presentation.

The preparation of these financial statements in conformity with U.S. GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Interim results are not necessarily indicative of the operating results for the full fiscal year or any future periods and actual results may differ from our estimates.

2.

Significant Accounting Policies

During the three months ended April 30, 2018, except for the accounting policy for revenue recognition, which was updated as a result of adopting the new revenue recognition standard, there have been no material changes to our significant accounting policies that were described in our fiscal 2018 Form 10-K, as filed with the SEC.

Cash, cash equivalents and restricted cash

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 three months ended April 30, 2018 and 2017:

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017

 

 

 

(Amounts in thousands)

 

Cash and cash equivalents

 

$

38,856

 

 

$

26,843

 

Restricted cash

 

 

 

 

 

7

 

Total cash, cash equivalents, and restricted cash

 

$

38,856

 

 

$

26,850

 

 

 

 

 

 

 

 

 

 

 

 

 

6


Revenue Recognition

 

The Company adopted Accounting Standards Codification No. (“ASC”) 606, “Revenue from Contracts with Customers, on February 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. The reported results for the first quarter of fiscal 2019 reflect the application of ASC 606 guidance while the reported results for the first quarter of fiscal 2018 were prepared under the guidance of ASC 605, “Revenue Recognition,” which is also referred to herein as "legacy U.S. GAAP" or the "previous guidance." The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's goods and services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from a customer which are subsequently remitted to government authorities. To achieve this core principle, the Company applies the following five steps:

 

 

1)

Identify the contract(s) with a customer - A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

 

2)

Identify the performance obligations in the contract - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.

 

 

3)

Determine the transaction price - The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Determining the transaction price requires significant judgment, which is discussed by revenue category in further detail below.

 

 

4)

Allocate the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

 

5)

Recognize revenue when (or as) the Company satisfies a performance obligation - The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

The Company’s revenue is derived from sales of hardware, software licenses, professional services, and maintenance fees related to the hardware and the Company’s software licenses.

Contracts with multiple performance obligations

The Company’s contracts often contain multiple performance obligation. For contracts with multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. If the transaction price contains discounts or the Company expects to provide future price concessions, these elements are considered when determining the transaction price prior to allocation. Variable fees within the transaction price will be estimated and recognized in revenue as the Company satisfies its performance obligations to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur

7


when the uncertainty associated with the variable fee is resolved. If the contract grants the client the option to acquire additional products or services, the Company assesses whether or not any discount on the products and services is in excess of levels normally available to similar clients and, if so, accounts for that discount as an additional performance obligation.

 

Hardware

The Company has 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, the Company has determined stand-alone selling price for hardware utilizing the relative allocation method based on observable evidence.

 

Software licenses

The Company has concluded that its 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. The Company’s license arrangements generally contain multiple performance obligations, including hardware, installation services, training, and maintenance. The Company has determined stand-alone selling price for software utilizing the relative allocation method based on observable evidence.

Maintenance

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. The Company determined the standalone selling price of maintenance based on this pricing relationship and observable data from standalone sales of maintenance.

The Company has identified three separate distinct performance obligations of maintenance:

 

Software upgrades and updates;

 

 

Technical support; and

 

 

Hardware support.

 

These performance obligations are distinct within the contract and, although they are not sold separately, the components are not essential to the functionality of the other components. Each of the performance obligations included in maintenance revenue is a stand ready obligation that is recognized ratably over the passage of the contractual term, which is typically one year.

Services

The Company’s services revenue is comprised of software license implementation services, engineering services, training and reimbursable expenses. The Company has concluded that services are distinct performance obligations, with the exception of engineering services. Engineering services may be provided on a stand-alone basis, or bundled with a license, when the Company is providing custom development.

The stand-alone selling price for services in time and materials contracts is determined by observable prices in stand-alone services arrangements and recognized as revenue as the services are performed based on an input measure of hours incurred to total estimated hours.

The Company estimates the stand-alone selling price for fixed price services based on estimated hours adjusted for historical experience, at time and material rates charged in stand-alone services arrangements. Revenue for fixed price services is recognized over time as the services are provided based on an input measure of hours incurred to total estimated hours.

 

 

 

8


Contract modifications

The Company occasionally enters into amendments to previously executed contracts that constitute contract modifications. The Company assesses each of these contract modifications to determine:

 

If the additional products and services are distinct from the product and services in the original arrangement, and

 

 

If the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services.

A 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.

 

Liquidity

We continue to realize the savings related to our restructuring activities in fiscal 2017 and fiscal 2018. These measures were important steps in restoring SeaChange to profitability and positive cash flow. The Company believes that existing funds and cash expected to be provided by future operating activities are adequate to satisfy our working capital, potential acquisitions and capital expenditure requirements and other contractual obligations for the foreseeable future, including at least the next 12 months.

3.

Fair Value Measurements

Definition and Hierarchy

The applicable accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a framework for measuring fair value and expands required disclosure about the fair value measurements of assets and liabilities. This guidance requires us to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a non-recurring basis in periods subsequent to initial measurement, in a fair value hierarchy.

The fair value hierarchy is broken down into three levels based on the reliability of inputs and requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required, as well as the assets and liabilities that we value using those levels of inputs:

 

Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not very active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Valuation Techniques

Inputs to valuation techniques are observable and unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. When developing fair value estimates for certain financial assets and liabilities, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices, market comparables and discounted cash flow projections. Financial assets include money market funds, U.S. treasury notes or bonds, U.S. government agency bonds and corporate bonds.

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.

9


Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2018 and January 31, 2018. There were no fair value measurements of our financial assets and liabilities using significant Level 3 inputs for the periods presented:

 

 

 

 

 

 

 

Fair Value at April 30, 2018 Using

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

Significant

 

 

 

 

 

 

 

Active

 

 

Other

 

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

 

April 30,

 

 

Identical Assets

 

 

Inputs

 

 

 

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

 

(Amounts in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts (1)

 

$

2,785

 

 

$

2,650

 

 

$

135

 

Available-for-sale marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Current marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury notes and bonds - conventional

 

 

2,237

 

 

 

2,237

 

 

 

 

U.S. government agency issues

 

 

499

 

 

 

 

 

 

499

 

Non-current marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury notes and bonds - conventional

 

 

4,236

 

 

 

4,236

 

 

 

 

U.S. government agency issues

 

 

983

 

 

 

 

 

 

983

 

Corporate bonds

 

 

2,284

 

 

 

 

 

 

2,284

 

Total

 

$

13,024

 

 

$

9,123

 

 

$

3,901

 

 

 

 

 

 

 

 

Fair Value at January 31, 2018 Using

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

Significant

 

 

 

 

 

 

 

Active

 

 

Other

 

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

 

January 31,

 

 

Identical Assets

 

 

Inputs

 

 

 

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

 

(Amounts in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts (1)

 

$

4,568

 

 

$

 

 

$

4,568

 

Available-for-sale marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Current marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury notes and bonds - conventional

 

 

1,993

 

 

 

1,993

 

 

 

 

U.S. government agency issues

 

 

1,998

 

 

 

 

 

 

1,998

 

Non-current marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury notes and bonds - conventional

 

 

1,724

 

 

 

1,724

 

 

 

 

U.S. government agency issues

 

 

985

 

 

 

 

 

 

985

 

Corporate bonds

 

 

1,740

 

 

 

 

 

 

1,740

 

Total

 

$

13,008

 

 

$

3,717

 

 

$

9,291

 

10


 

 

(1)

Money market funds and U.S. treasury bills are included in cash and cash equivalents on the accompanying consolidated balance sheets and are valued at quoted market prices for identical instruments in active markets.

 

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

 

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible property and equipment, goodwill, and other intangible assets, which are re-measured when the derived fair value is below carrying value on our consolidated balance sheets. For these assets and liabilities, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded to loss from impairment of long-lived assets in our consolidated statements of operations and comprehensive loss.

 

Available-For-Sale Securities

We determine the appropriate classification of debt investment securities at the time of purchase and reevaluate such designation as of each balance sheet date. Our investment portfolio consists of money market funds, U.S. treasury notes and bonds, U.S. government agency notes and bonds and corporate bonds as of April 30, 2018 and January 31, 2018. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost, which approximates fair value. Our marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive loss. The amortization of premiums and accretion of discounts to maturity are computed under the effective interest method and are included in other (expenses) income, net, in our consolidated statements of operations and comprehensive loss. Interest on securities is recorded as earned and is also included in other (expenses) income, net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and comprehensive loss in other (expenses) income, net. We provide fair value measurement disclosures of available-for-sale securities in accordance with one of the three levels of fair value measurement mentioned above.

The following is a summary of cash, cash equivalents and available-for-sale securities, including the cost basis, aggregate fair value and gross unrealized gains and losses, for short- and long-term marketable securities portfolio as of April 30, 2018 and January 31, 2018:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

 

(Amounts in thousands)

 

April 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

36,071

 

 

$

 

 

$

 

 

$

36,071

 

Cash equivalents

 

 

2,776

 

 

 

9

 

 

 

 

 

 

2,785

 

Cash and cash equivalents

 

 

38,847

 

 

 

9

 

 

 

 

 

 

38,856

 

U.S. treasury notes and bonds - short-term

 

 

2,250

 

 

 

 

 

 

(13

)

 

 

2,237

 

U.S. treasury notes and bonds - long-term

 

 

4,264

 

 

 

 

 

 

(28

)

 

 

4,236

 

U.S. government agency issues - short-term

 

 

500

 

 

 

 

 

 

(1

)

 

 

499

 

U.S. government agency issues - long-term

 

 

1,002

 

 

 

 

 

 

(19

)

 

 

983

 

Corporate bonds - long-term

 

 

2,315

 

 

 

 

 

 

(31

)

 

 

2,284

 

Total cash, cash equivalents and marketable securities

 

$

49,178

 

 

$

9

 

 

$

(92

)

 

$

49,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

39,084

 

 

$

 

 

$

 

 

$

39,084

 

Cash equivalents

 

 

4,568

 

 

 

 

 

 

 

 

 

4,568

 

Cash and cash equivalents

 

 

43,652

 

 

 

 

 

 

 

 

 

43,652

 

U.S. treasury notes and bonds - short-term

 

 

2,001

 

 

 

 

 

 

(8

)

 

 

1,993

 

U.S. treasury notes and bonds - long-term

 

 

1,740

 

 

 

 

 

 

(16

)

 

 

1,724

 

U.S. government agency issues - short-term

 

 

1,991

 

 

 

9

 

 

 

(2

)

 

 

1,998

 

U.S. government agency issues - long-term

 

 

1,002

 

 

 

 

 

 

(17

)

 

 

985

 

Corporate bonds - long-term

 

 

1,760

 

 

 

 

 

 

 

(20

)

 

 

1,740

 

Total cash, cash equivalents and marketable securities

 

$

52,146

 

 

$

9

 

 

$

(63

)

 

$

52,092

 

11


 

The gross realized gains and losses on sale of available-for-sale securities as of April 30, 2018 and January 31, 2018 were immaterial. For purposes of determining gross realized gains and losses, the cost of securities is based on specific identification.

 

Contractual maturities of available-for-sale investments as of April 30, 2018 are as follows (amounts in thousands):

 

 

 

Estimated

 

 

 

Fair Value

 

Maturity of one year or less

 

$

2,736

 

Maturity between one and five years

 

 

7,503

 

Total

 

$

10,239

 

Restricted Cash

At times, we may be required to maintain cash held as collateral for performance obligations with our customers which we classify as restricted cash on our consolidated balance sheets. There was no restricted cash as of April 30, 2018 and it was not material as of January 31, 2018.

4.

Consolidated Balance Sheet Detail

Inventories, net

Inventories consist primarily of hardware and related component parts and are stated at the lower of cost (on a first-in, first-out basis) or market. Inventories consist of the following:  

 

 

 

As of

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

 

 

(Amounts in thousands)

 

Components and assemblies

 

$

542

 

 

$

426

 

Finished products

 

 

203

 

 

 

240

 

Total inventories, net

 

$

745

 

 

$

666

 

 

Property and equipment, net

 

Property and equipment, net consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

As of

 

 

 

Useful

 

 

April 30,

 

 

January 31,

 

 

 

Life (Years)

 

 

2018

 

 

2018

 

 

 

 

 

 

 

(Amounts in thousands)

 

Land

 

 

 

 

 

$

2,780

 

 

$

2,780

 

Buildings

 

 

20

 

 

 

11,852

 

 

 

11,839

 

Office furniture and equipment

 

 

5

 

 

 

766

 

 

 

774

 

Computer equipment, software and demonstration equipment

 

 

3

 

 

 

13,178

 

 

 

12,770

 

Service and spare components

 

 

5

 

 

 

1,158

 

 

 

1,158

 

Leasehold improvements

 

1-7

 

 

 

524

 

 

 

537

 

 

 

 

 

 

 

 

30,258

 

 

 

29,858

 

Less - Accumulated depreciation and amortization

 

 

 

 

 

 

(21,084

)

 

 

(20,387

)

Total property and equipment, net

 

 

 

 

 

$

9,174

 

 

$

9,471

 

12


Depreciation and amortization expense on property and equipment, net was $0.4 million and $0.6 million for the three months ended April 30, 2018 and 2017, respectively.

 

Other accrued expenses

 

Other accrued expenses consist of the following:

 

 

 

As of

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

 

 

(Amounts in thousands)

 

Accrued compensation and commissions

 

$

952

 

 

$

1,414

 

Accrued bonuses

 

 

1,892

 

 

 

2,715

 

Employee benefits

 

 

393

 

 

 

601

 

Sales tax and VAT payable

 

 

199

 

 

 

4,001

 

Income taxes payable

 

 

2,172

 

 

 

2,869

 

Accrued other

 

 

3,408

 

 

 

3,779

 

Total other accrued expenses

 

$

9,016

 

 

$

15,379

 

 

 

5.

Goodwill and Intangible Assets

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. We are required to perform impairment tests related to our goodwill annually, which we perform during the third quarter of each fiscal year, or when we identify certain triggering events or circumstances that would more likely than not reduce the estimated fair value of the goodwill of the Company below its carrying amount. At April 30, 2018 and January 31, 2018, we had goodwill of $25.2 million and $25.6 million, respectively. The following table represents the changes in the carrying amount of goodwill for the three months ended April 30, 2018 (amounts in thousands):

 

Balance as of January 31, 2017:

 

 

 

 

Goodwill, gross

 

$

62,566

 

Accumulated impairment losses

 

 

(39,279

)

Goodwill, net

 

 

23,287

 

Cumulative translation adjustment

 

 

2,292

 

Balance as of January 31, 2018:

 

 

 

 

Goodwill, gross

 

 

64,858

 

Accumulated impairment losses

 

 

(39,279

)

Goodwill, net

 

 

25,579

 

Cumulative translation adjustment

 

 

(414

)

Balance as of April 30, 2018:

 

 

 

 

Goodwill, gross

 

 

64,444

 

Accumulated impairment losses

 

 

(39,279

)

Goodwill, net

 

$

25,165

 

 

There were no indicators of impairment during the first quarter of fiscal 2018. Therefore, no impairment test was required.  

13


Intangible Assets

Intangible assets, net, consisted of the following at April 30, 2018 and January 31, 2018:

 

 

 

 

 

 

 

As of April 30, 2018

 

 

As of January 31, 2018

 

 

 

Weighted average remaining life (Years)

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

 

 

(Amounts in thousands)

 

Finite-life intangible assets: