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, 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 |
☐ |
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Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): YES ☐ NO ☒
The number of shares outstanding of the registrant’s Common Stock on September 4, 2018 was 35,749,131.
Table of Contents
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Page |
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Item 1. |
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Consolidated Balance Sheets at July 31, 2018 and January 31, 2018 |
3 |
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4 |
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Consolidated Statements of Cash Flows for the six months ended July 31, 2018 and July 31, 2017 |
5 |
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6-25 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26-37 |
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Item 3. |
37 |
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Item 4. |
38 |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 6. |
38 |
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40 |
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2
PART I – FINANCIAL INFORMATION
SEACHANGE INTERNATIONAL, INC.
(Amounts in thousands, except share data)
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July 31, |
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January 31, |
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2018 |
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2018 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
24,393 |
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$ |
43,652 |
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Restricted cash |
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547 |
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9 |
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Marketable securities |
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1,992 |
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3,991 |
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Accounts and other receivables, net of allowance for doubtful accounts of $16 at July 31, 2018 and January 31, 2018, respectively |
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11,833 |
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22,537 |
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Unbilled receivables |
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5,330 |
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3,101 |
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Inventories, net |
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776 |
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666 |
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Prepaid expenses and other current assets |
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4,996 |
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3,557 |
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Total current assets |
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49,867 |
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77,513 |
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Property and equipment, net |
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8,954 |
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9,471 |
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Marketable securities, long-term |
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8,026 |
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4,449 |
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Intangible assets, net |
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824 |
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1,303 |
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Goodwill, net |
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24,609 |
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25,579 |
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Other assets |
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1,285 |
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1,015 |
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Total assets |
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$ |
93,565 |
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$ |
119,330 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
2,748 |
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$ |
2,431 |
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Deferred revenues |
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7,423 |
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11,598 |
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Other accrued expenses |
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4,367 |
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15,379 |
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Total current liabilities |
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14,538 |
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29,408 |
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Deferred revenue, long-term |
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1,081 |
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2,835 |
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Deferred tax liabilities, long-term |
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202 |
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215 |
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Taxes payable, long-term |
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967 |
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1,152 |
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Total liabilities |
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16,788 |
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33,610 |
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Commitments and contingencies (Note 6) |
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Stockholders' equity: |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 35,769,447 shares issued and 35,728,957 outstanding at July 31, 2018, and 35,634,984 shares issued and 35,594,494 outstanding at January 31, 2018 |
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358 |
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356 |
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Additional paid-in capital |
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241,297 |
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239,423 |
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Treasury stock, at cost; 40,490 common shares at July 31, 2018 and January 31, 2018, respectively |
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(5 |
) |
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(5 |
) |
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Accumulated loss |
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(160,852 |
) |
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(148,620 |
) |
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Accumulated other comprehensive loss |
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(4,021 |
) |
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(5,434 |
) |
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Total stockholders’ equity |
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76,777 |
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85,720 |
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Total liabilities and stockholders’ equity |
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$ |
93,565 |
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$ |
119,330 |
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The accompanying notes are an integral part of these unaudited, consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, amounts in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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July 31, |
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July 31, |
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2018 |
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2017 |
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2018 |
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2017 |
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Revenues: |
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Products |
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$ |
1,462 |
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$ |
5,039 |
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$ |
4,553 |
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$ |
7,788 |
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Services |
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10,439 |
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12,186 |
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22,283 |
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26,104 |
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Total revenues |
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11,901 |
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17,225 |
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26,836 |
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33,892 |
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Cost of revenues: |
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Products |
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483 |
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1,336 |
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802 |
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1,890 |
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Services |
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4,955 |
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4,218 |
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10,486 |
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10,198 |
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Amortization of intangible assets |
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178 |
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255 |
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356 |
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509 |
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Stock-based compensation expense |
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(1 |
) |
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— |
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— |
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2 |
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Total cost of revenues |
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5,615 |
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5,809 |
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11,644 |
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12,599 |
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Gross profit |
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6,286 |
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11,416 |
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15,192 |
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21,293 |
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Operating expenses: |
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Research and development |
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5,157 |
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6,399 |
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10,641 |
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11,777 |
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Selling and marketing |
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3,685 |
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2,439 |
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7,071 |
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5,376 |
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General and administrative |
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4,021 |
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3,084 |
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8,015 |
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6,727 |
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Amortization of intangible assets |
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233 |
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361 |
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459 |
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|
705 |
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Stock-based compensation expense |
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924 |
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653 |
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1,802 |
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1,528 |
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Professional fees - other |
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— |
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— |
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— |
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21 |
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Severance and other restructuring costs |
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536 |
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563 |
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590 |
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2,710 |
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Total operating expenses |
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14,556 |
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13,499 |
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28,578 |
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28,844 |
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Loss from operations |
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(8,270 |
) |
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(2,083 |
) |
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(13,386 |
) |
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(7,551 |
) |
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Other (expenses) income, net |
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(1,962 |
) |
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589 |
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(2,811 |
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955 |
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Loss before income taxes |
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(10,232 |
) |
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(1,494 |
) |
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(16,197 |
) |
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(6,596 |
) |
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Income tax (benefit) provision |
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(1,152 |
) |
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35 |
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(1,646 |
) |
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304 |
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Net loss |
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$ |
(9,080 |
) |
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$ |
(1,529 |
) |
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$ |
(14,551 |
) |
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$ |
(6,900 |
) |
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Net loss |
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$ |
(9,080 |
) |
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$ |
(1,529 |
) |
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$ |
(14,551 |
) |
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$ |
(6,900 |
) |
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Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustment |
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856 |
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83 |
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1,431 |
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3 |
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Unrealized gain (loss) on marketable securities |
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11 |
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3 |
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(18 |
) |
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(5 |
) |
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Comprehensive loss |
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$ |
(8,213 |
) |
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$ |
(1,443 |
) |
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$ |
(13,138 |
) |
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$ |
(6,902 |
) |
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Net loss per share: |
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Basic |
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$ |
(0.26 |
) |
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$ |
(0.05 |
) |
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$ |
(0.41 |
) |
|
$ |
(0.20 |
) |
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Diluted |
|
$ |
(0.26 |
) |
|
$ |
(0.05 |
) |
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$ |
(0.41 |
) |
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$ |
(0.20 |
) |
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Weighted average common shares outstanding: |
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Basic |
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35,649 |
|
|
|
35,351 |
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|
35,628 |
|
|
|
35,331 |
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Diluted |
|
|
35,649 |
|
|
|
35,351 |
|
|
|
35,628 |
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|
|
35,331 |
|
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
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Six Months Ended |
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July 31, |
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2018 |
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2017 |
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Cash flows from operating activities: |
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Net loss |
|
$ |
(14,551 |
) |
|
$ |
(6,900 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization of property and equipment |
|
|
737 |
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|
1,198 |
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Amortization of intangible assets |
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|
815 |
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|
1,214 |
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Stock-based compensation expense |
|
|
1,802 |
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|
1,530 |
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Deferred income taxes |
|
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(758 |
) |
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|
79 |
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Other |
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|
76 |
|
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|
8 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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10,115 |
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|
4,358 |
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Unbilled receivables |
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(2,335 |
) |
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|
2,558 |
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Inventories |
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(165 |
) |
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57 |
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Prepaid expenses and other assets |
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(1,584 |
) |
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8 |
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Accounts payable |
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|
371 |
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(2,594 |
) |
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Accrued expenses |
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(10,640 |
) |
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(3,193 |
) |
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Deferred revenues |
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(5,729 |
) |
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|
(870 |
) |
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Other operating activities |
|
|
2,430 |
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|
230 |
|
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Total cash used in operating activities |
|
|
(19,416 |
) |
|
|
(2,317 |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
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Purchases of property and equipment |
|
|
(284 |
) |
|
|
(274 |
) |
|
Purchases of marketable securities |
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|
(4,354 |
) |
|
|
(4,501 |
) |
|
Proceeds from sale and maturity of marketable securities |
|
|
2,761 |
|
|
|
4,449 |
|
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Other investing activities |
|
|
(60 |
) |
|
|
287 |
|
|
Total cash used in investing activities |
|
|
(1,937 |
) |
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|
(39 |
) |
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Cash flows from financing activities: |
|
|
|
|
|
|
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|
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Proceeds from issuance of common stock |
|
|
73 |
|
|
|
26 |
|
|
Payments of withholding tax on RSU vesting |
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(34 |
) |
|
|
(36 |
) |
|
Total cash provided by (used in) financing activities |
|
|
39 |
|
|
|
(10 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
2,593 |
|
|
|
(742 |
) |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(18,721 |
) |
|
|
(3,108 |
) |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
43,661 |
|
|
|
28,411 |
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|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
24,940 |
|
|
$ |
25,303 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
2,735 |
|
|
$ |
183 |
|
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
5
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. Certain prior period amounts have been reclassified to conform to current period 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. During the three months ended July 31, 2018, 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. As noted in our Form 10-Q for the quarterly period ended April 30, 2018, in the three months ended April 30, 2018, our policy for revenue recognition was updated as a result of adopting the new revenue recognition guidance.
|
2. |
Significant Accounting Policies |
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, 2018 and 2017:
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|
|
Six Months Ended |
|
|||||
|
|
|
July 31, |
|
|||||
|
|
|
2018 |
|
|
2017 |
|
||
|
|
|
(Amounts in thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
24,393 |
|
|
$ |
25,295 |
|
|
Restricted cash |
|
|
547 |
|
|
|
8 |
|
|
Total cash, cash equivalents, and restricted cash |
|
$ |
24,940 |
|
|
$ |
25,303 |
|
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 fiscal
6
2019 reflect the application of ASC 606 guidance while the reported results for 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 obligations. 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 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
7
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.
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. |
8
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.
Impairment of Assets
Indefinite-lived intangible assets, such as goodwill, are not amortized but are evaluated for impairment at the reporting unit level annually, in our third quarter beginning August 1st. Indefinite-lived intangible assets may be tested for impairment on an interim basis in addition to the annual evaluation if an event occurs or circumstances change such as declines in sales, earnings or cash flows, decline in the Company’s stock price, or material adverse changes in the business climate, which would more likely than not reduce the fair value of a reporting unit below its carrying amount.
We also evaluate other long-lived assets such as property and equipment and intangible assets with finite useful lives, on a regular basis for the existence of facts or circumstances, both internal and external that may suggest an asset is not recoverable. If such circumstances exist, we evaluate the carrying value of long-lived assets to determine if impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and compares that value to the carrying value of the assets. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time.
In the second quarter of fiscal 2019, we determined there to be a triggering event that prompted us to test our goodwill for impairment as of July 31, 2018. As a result of the quantitative goodwill impairment test performed as of July 31, 2018, the Company determined that the fair value of the reporting unit exceeded its carrying value. Therefore, no impairment charges on our goodwill or other long-lived assets were recorded in the second quarter of fiscal 2019. See Note 5, “Goodwill and Intangible Assets,” for more information.
Liquidity
We continue to realize savings related to our previous restructuring activities. These measures are 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, 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.
9
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.
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 July 31, 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 July 31, 2018 Using |
|
|||||
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
Significant |
|
||
|
|
|
|
|
|
|
Active |
|
|
Other |
|
||
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
||
|
|
|
July 31, |
|
|
Identical Assets |
|
|
Inputs |
|
|||
|
|
|
2018 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|||
|
|
|
(Amounts in thousands) |
|
|||||||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts (1) |
|
$ |
3,056 |
|
|
$ |
2,649 |
|
|
$ |
407 |
|
|
Available-for-sale marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional |
|
|
1,992 |
|
|
|
1,992 |
|
|
|
— |
|
|
Non-current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional |
|
|
4,758 |
|
|
|
4,758 |
|
|
|
— |
|
|
U.S. government agency issues |
|
|
985 |
|
|
|
— |
|
|
|
985 |
|
|
Corporate bonds |
|
|
2,283 |
|
|
|
— |
|
|
|
2,283 |
|
|
Total |
|
$ |
13,074 |
|
|
$ |
9,399 |
|
|
$ |
3,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(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
10
the difference is recorded to loss from impairment of long-lived assets in our consolidated statements of operations and comprehensive loss.
In the second quarter of fiscal 2019, we determined there to be a triggering event that prompted us to test our goodwill for impairment as of July 31, 2018. The triggering event was a decline in actual revenue for the quarter compared to projected amounts, which was reported in a Current Report on Form 8-K furnished to the SEC on August 21, 2018. The Company performed a quantitative goodwill impairment test, utilizing the single-step approach under ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment,” comparing the carrying value of the reporting unit to its estimated fair value, which was calculated using the income approach. As a result of the quantitative goodwill impairment test performed as of July 31, 2018, the Company determined that the fair value of the reporting unit exceeded its carrying value. Therefore, no impairment charges on our goodwill or other long-lived assets were recorded in the second quarter of fiscal 2019. See Note 5, “Goodwill and Intangible Assets,” for more information.
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 July 31, 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 July 31, 2018 and January 31, 2018:
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
|
|
|
(Amounts in thousands) |
|
|||||||||||||
|
July 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
21,337 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
21,337 |
|
|
Cash equivalents |
|
|
3,045 |
|
|
|
11 |
|
|
|
— |
|
|
|
3,056 |
|
|
Cash and cash equivalents |
|
|
24,382 |
|
|
|
11 |
|
|
|
— |
|
|
|
24,393 |
|
|
U.S. treasury notes and bonds - short-term |
|
|
1,999 |
|
|
|
— |
|
|
|
(7 |
) |
|
|
1,992 |
|
|
U.S. treasury notes and bonds - long-term |
|
|
4,788 |
|
|
|
— |
|
|
|
(30 |
) |
|
|
4,758 |
|
|
U.S. government agency issues - long-term |
|
|
1,001 |
|
|
|
— |
|
|
|
(16 |
) |
|
|
985 |
|
|
Corporate bonds - long-term |
|
|
2,313 |
|
|
|
— |
|
|
|
(30 |
) |
|
|
2,283 |
|
|
Total cash, cash equivalents and marketable securities |
|
$ |
34,483 |
|
|
$ |
11 |
|
|
$ |
(83 |
) |
|
$ |
34,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 July 31, 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 July 31, 2018 are as follows (amounts in thousands):
|
|
|
Estimated |
|
|
|
|
|
Fair Value |
|
|
|
Maturity of one year or less |
|
$ |
1,992 |
|
|
Maturity between one and five years |
|
|
8,026 |
|
|
Total |
|
$ |
10,018 |
|
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist primarily of 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.
The fair value of cash, cash equivalents, restricted cash and marketable securities at July 31, 2018 and January 31, 2018 was $35.0 million and $52.1 million, respectively.
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. Restricted cash was $0.5 million as of July 31, 2018 and 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 |
|
|||||
|
|
|
July 31, |
|
|
January 31, |
|
||
|
|
|
2018 |
|
|
2018 |
|
||
|
|
|
(Amounts in thousands) |
|
|||||
|
Components and assemblies |
|
$ |
579 |
|
|
$ |
426 |
|
|
Finished products |
|
|
197 |
|
|
|
240 |
|
|
Total inventories, net |
|
$ |
776 |
|
|
$ |
666 |
|
Property and equipment, net
Property and equipment, net consists of the following:
|
|
|
Estimated |
|
|
As of |
|
||||||
|
|
|
Useful |
|
|
July 31, |
|
|
January 31, |
|
|||
|
|
|
Life (Years) |
|
|
2018 |
|
|
2018 |
|
|||
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|||||
|
Land |
|
|
|
|
|
$ |
2,780 |
|
|
$ |
2,780 |
|
|
Buildings |
|
|
20 |
|
|
|
11,861 |
|
|
|
11,839 |
|
|
Office furniture and equipment |
|
|
5 |
|
|
|
748 |
|
|
|
774 |
|
|
Computer equipment, software and demonstration equipment |
|
|
3 |
|
|
|
12,472 |
|
|
|
12,770 |
|
|
Service and spare components |
|
|
5 |
|
|
|
1,158 |
|
|
|
1,158 |
|
|
Leasehold improvements |
|
1-7 |
|
|
||||||||