Quarterly Report (10-q)

Date : 08/30/2019 @ 8:04PM
Source : Edgar (US Regulatory)
Stock : SeaChange International Inc (SEAC)
Quote : 3.35  0.0 (0.00%) @ 9:00AM

Quarterly Report (10-q)

 

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 July 31, 2019

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: 001-38828

 

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

 

Zip Code

(978) 897-0100

 

Registrant’s Telephone Number, Including Area Code

 

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

Securities registered pursuant to Section 12(b) of the Act:

 

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

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.

 

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 August 23, 2019 was 36,683,245.

 


SEACHANGE INTERNATIONAL, INC.

Table of Contents

 

 

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

 

 

 

 

 

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1.

Financial Statements

SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except share data)

 

 

 

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.

 

2


SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

 

 

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.

3


SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, amounts in thousands except share data)

 

 

 

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.

4


SEACHANGE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)

 

 

 

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.

 

5


SEACHANGE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Nature of Business and Basis of Presentation

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.

Liquidity

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.

Basis of Presentation and Principles of Consolidation

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.

2.

Significant Accounting Policies

Use of Estimates

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, 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 six months ended July 31, 2019 and 2018:

6


 

 

 

For the Six Months

Ended July 31,

 

 

 

2019

 

 

2018

 

 

 

(Amounts in thousands)

 

Cash and cash equivalents