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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, 2023

☐ 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)		(I.R.S. Employer Identification No.)

177 Huntington Ave, Ste 1703 PMB 73480, Boston, MA		02115
(Address of principal executive offices)		(Zip Code)

(978) 897-0100

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SEAC	The Nasdaq Capital 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 June 9, 2023 was 2,584,293 (This number represents post-reverse stock split shares.)

SEACHANGE INTERNATIONAL, INC.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	3

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

SIGNATURES		30

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

SEACHANGE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	April 30,			January 31,
	2023			2023
	(Unaudited)			(Audited)

Assets
Current assets:
Cash and cash equivalents	$	13,790		$	13,415
Marketable securities, available for sale, fair value		1,409			1,244
Accounts receivable, net of allowances for credit losses		7,362			10,382
Unbilled receivables, net of allowances for credit losses		8,354			7,757
Prepaid expenses and other current assets		2,834			2,314
Total current assets		33,749			35,112
Property and equipment, net		670			713
Operating lease right-of-use assets		1,215			1,360
Unbilled receivables, net of allowances for credit losses		4,659			5,044
Other assets		415			430
Total assets	$	40,708		$	42,659
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,852		$	1,541
Accrued expenses		2,352			3,813
Deferred revenue		5,087			5,172
Total current liabilities		9,291			10,526
Deferred revenue		92			130
Operating lease liabilities		489			691
Taxes payable		98			98
Other liabilities		3			3
Total liabilities		9,973			11,448
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 2,533,482 shares issued and 2,524,886 shares outstanding at April 30, 2023; 2,519,319 shares issued and 2,510,723 shares outstanding at January 31, 2023		25			25
Additional paid-in capital		267,481			267,120
Treasury stock, at cost; 8,596 shares at April 30, 2023 and January 31, 2023		(227	)		(227	)
Accumulated other comprehensive loss		(1,795	)		(1,890	)
Accumulated deficit		(234,749	)		(233,817	)
Total stockholders’ equity		30,735			31,211
Total liabilities and stockholders’ equity	$	40,708		$	42,659

Share information reflects the effect of a 1-for-20 reverse stock split. See Note 1.

See accompanying notes to the unaudited condensed consolidated financial statements.

SEACHANGE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(In thousands, except per share data)


	For the Three Months Ended April 30,
	2023			2022
Revenue:
Product	$	1,540		$	2,826
Service		5,452			3,897
Total revenue		6,992			6,723
Cost of revenue:
Product		971			1,645
Service		1,868			1,858
Total cost of revenue		2,839			3,503
Gross profit		4,153			3,220
Operating expenses:
Research and development		1,797			1,707
Selling and marketing		907			982
General and administrative		2,113			2,286
Severance and restructuring costs		44			165
Transaction costs		98			816
Total operating expenses		4,959			5,956
Loss from operations		(806	)		(2,736	)
Other income (expense), net		141			(259	)
Loss before income taxes		(665	)		(2,995	)
Income tax provision		(49	)		(1	)
Net loss	$	(714	)	$	(2,996	)
Net loss per share, basic and diluted	$	(0.28	)	$	(1.21	)
Weighted average common shares outstanding, basic and diluted		2,521			2,469
Comprehensive loss:
Net loss	$	(714	)	$	(2,996	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		105			(576	)
Unrealized losses on marketable securities		(10	)		—
Total other comprehensive income (loss)		95			(576	)
Comprehensive loss	$	(619	)	$	(3,572	)

Share and per share information reflects the effect of a 1-for-20 reverse stock split. See Note 1.

See accompanying notes to the unaudited condensed consolidated financial statements.

SEACHANGE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except number of shares)


	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, 2023		2,519,319	$	25	$	267,120	$	(227	)	$	(1,890	)	$	(233,817	)	$	31,211
Cumulative adjustment pursuant to adoption of ASC 326		—		—		—		—			—			(218	)		(218	)
Issuance of common stock pursuant to vesting of stock units		14,163		—		—		—			—			—			—
Stock-based compensation expense		—		—		361		—			—			—			361
Unrealized losses on marketable securities		—		—		—		—			(10	)		—			(10	)
Foreign currency translation adjustments		—		—		—		—			105			—			105
Net loss		—		—		—		—			—			(714	)		(714	)
Balances at April 30, 2023		2,533,482	$	25	$	267,481	$	(227	)	$	(1,795	)	$	(234,749	)	$	30,735


	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, 2022		2,467,380	$	25	$	266,112	$	(227	)	$	(973	)	$	(222,413	)	$	42,524
Issuance of common stock pursuant to vesting of stock units		3,556		—		—		—			—			—			—
Stock-based compensation expense		—		—		284		—			—			—			284
Foreign currency translation adjustments		—		—		—		—			(576	)		—			(576	)
Net loss		—		—		—		—			—			(2,996	)		(2,996	)
Balances at April 30, 2022		2,470,936	$	25	$	266,396	$	(227	)	$	(1,549	)	$	(225,409	)	$	39,236

Share information reflects the effect of a 1-for-20 reverse stock split. See Note 1.

See accompanying notes to the unaudited condensed consolidated financial statements.

SEACHANGE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	For the Three Months Ended April 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(714	)	$	(2,996	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		64			67
Discount accretion and premium amortization on marketable securities		(8	)		—
Provision for credit losses		34			88
Stock-based compensation expense		361			284
Realized and unrealized foreign currency transaction loss		84			357
Changes in operating assets and liabilities:
Accounts receivable		3,156			1,351
Unbilled receivables, net		(564	)		104
Prepaid expenses and other current assets and other assets		(455	)		(359	)
Accounts payable		284			(652	)
Accrued expenses and other liabilities		(1,572	)		79
Deferred revenue		(91	)		934
Net cash provided by (used in) operating activities		579			(743	)
Cash flows from investing activities:
Purchases of property and equipment		—			(15	)
Proceeds from sales of marketable securities		500			—
Purchases of marketable securities		(667	)		—
Net cash used in investing activities		(167	)		(15	)
Effect of exchange rate on cash, cash equivalents and restricted cash		(26	)		(328	)
Net increase (decrease) in cash, cash equivalents and restricted cash		386			(1,086	)
Cash, cash equivalents and restricted cash at beginning of period		13,726			17,856
Cash, cash equivalents and restricted cash at end of period	$	14,112		$	16,770
Non-cash activities:
Cumulative adjustment to retained earnings pursuant to adoption of ASC 326	$	(218	)	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

SEACHANGE INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Nature of Business and Basis of Presentation

SeaChange International, Inc. (“SeaChange,” or the “Company”) was incorporated under the laws of the state of Delaware on July 9, 1993. SeaChange is a leading provider of video delivery, advertising, streaming platforms, and emerging Free Ad-Supported Streaming TV services (“FAST”) development. Our software products and services facilitate the aggregation, licensing, management and distribution of video and advertising content for service providers, telecommunications companies, satellite operators, broadcasters and other content providers. SeaChange technology enables operators, broadcasters, and content owners to cost-effectively launch and grow premium linear TV and direct-to-consumer streaming services to manage, curate, and monetize their content. SeaChange helps protect existing and develop new and incremental advertising revenues for traditional linear TV and streaming services with its unique advertising technology. Further, the Company’s products provide customers an opportunity to insert advertising into broadcast and video on demand (“VOD”) content.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”). The Company consolidates the financial statements of its wholly owned subsidiaries and all intercompany transactions and account balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with the instructions to Quarterly Report on Form 10-Q and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations, although the Company believes the disclosures made are adequate to make the information not misleading. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for a fair presentation. The year-end condensed consolidated balance sheet data as of January 31, 2023 was derived from our audited consolidated financial statements and may not include all disclosures required by GAAP. The results of operations for the three months ended April 30, 2023 are not necessarily indicative of the results to be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, filed with the SEC on April 17, 2023.

Liquidity

As of April 30, 2023, the Company had $13.8 million of available cash and cash equivalents and $1.4 million of marketable securities, excluding $0.3 million of restricted cash.

The Company believes that existing cash and cash equivalents, marketable securities and cash expected to be provided by future operating results will be adequate to satisfy its working capital, capital expenditure requirements and other contractual obligations for at least 12 months from the date of this filing.

If the Company’s expectations are incorrect, it may need to raise additional funds to fund its operations or take advantage of unanticipated strategic opportunities in order to strengthen its financial position. In the future, the Company may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of market opportunities, to develop new products or to otherwise respond to competitive pressures.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard and Reverse Stock Split

On June 17, 2022, the Company received notification from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that the Company did not comply with the minimum $1.00 bid price requirement for continued listing set forth in Nasdaq (the “Bid Price Requirement”). In accordance with Nasdaq listing rules, the Company was afforded 180 calendar days (until December 14, 2022) to regain compliance with the Bid Price Requirement. On December 15, 2022, the Company received written notice from Nasdaq stating that, although the Company had not regained compliance with the Bid Price Requirement by December 14, 2022, in accordance with Nasdaq listing rules, the Company is eligible for an additional 180 calendar day period, or until June 12, 2023 (the “Extended Compliance Date”), to regain compliance with the Bid Price Requirement. Nasdaq’s determination was based on, among other things, (1) the Company’s written notice of its intention to transfer to The Nasdaq Capital Market (the “Capital Market”) (as issuers on The Nasdaq Global Select Market (the “Global Select Market”) are not eligible for an additional 180-day compliance

period) and to cure the deficiency by the Extended Compliance Date by effecting a reverse stock split, if necessary, and (2) the Company meeting the continued listing requirement for market value of publicly held shares and all other initial listing requirements for the Capital Market, with the exception of the Bid Price Requirement. On December 15, 2022, Nasdaq approved the Company’s transfer from the Global Select Market to the Capital Market, a continuous trading market that operates in substantially the same manner as the Global Select Market.

In an effort to regain compliance with the Bid Price Requirement, on April 6, 2023, the Company's board of directors (the “Board”) approved a discretionary reverse stock split of the Company’s common stock in the range of 1-for‑15 shares and 1‑for-25 shares (the “Reverse Stock Split”), subject to stockholder approval at the Company’s annual meeting of stockholders held on May 19, 2023 (the “Annual Meeting”). At the Annual Meeting, the stockholders approved the Reverse Stock Split at a ratio in the range of 1-for-15 to 1-for-25, with such ratio to be determined at the discretion of the Board. On May 19, 2023, the Board approved a reverse stock split of 1-for-20 to also be effective as of May 19, 2023. As a result of the Reverse Stock Split, every 20 shares of the Company’s issued and outstanding common stock was automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole share. The Certificate of Amendment did not amend the number of authorized shares of common stock, which remained unchanged at 100,000,000 shares. The common stock began trading on a post-split basis on Nasdaq as of the open of trading on May 23, 2023.

Proportionate adjustments were made to the exercise price and number of shares issuable upon the exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock units (“RSUs”), deferred stock units (“DSUs”) and performance stock units (“PSUs”) under the Company’s equity incentive plans.

All references to common stock, equity-based common stock awards and all share and per share data contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) have been adjusted to reflect the Reverse Stock Split unless explicitly stated otherwise.

From the May 23, 2023 date that the Company's common stock began trading on a post-split basis on Nasdaq, the Company has maintained a minimum bid price of $1.00 per common share in excess of 10 consecutive business days as required under the Bid Price Requirement, and, on June 7, 2023, Nasdaq notified the Company that it had regained compliance with the Bid Price Requirement.

Merger Agreement and Subsequent Termination

In December 2021, the Company and Triller Hold Co LLC, a Delaware limited liability company (“Triller”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Triller planned to merge with and into SeaChange, with the separate existence of Triller ceasing, and SeaChange continuing as the surviving corporation.

On June 13, 2022, SeaChange and Triller entered into a Termination Agreement and Release (the “Termination Agreement”) pursuant to which SeaChange and Triller mutually agreed to terminate the Merger Agreement. Each party bore its own costs and expenses in connection with the terminated transaction, and neither party paid a termination fee to the other in connection with the terminated transactions. The Termination Agreement also contains mutual releases, whereby each party released the other from any claims of liability relating to the transactions contemplated by the Merger Agreement.

Significant Accounting Policies

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, those related to revenue recognition, allowance for credit losses, management’s going concern assessment, accounting for income taxes, and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ materially from those estimates or assumptions.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on hand and on deposit and highly liquid investments in treasury bills with remaining maturities at the date of purchase of 90 days or less. All cash equivalents are carried at cost, which approximates fair value. Restricted cash represents cash that is restricted as to withdrawal or usage and consists primarily of cash held as collateral in relation to obligations set forth by the landlord of our facility in Poland.

The following table provides a summary of (i) cash and cash equivalents and (ii) restricted cash in the condensed consolidated statements of cash flows as of the periods presented:


	As of April 30,
	2023		2022
	(Amounts in thousands)
Cash and cash equivalents	$	13,790	$	16,465
Restricted cash		322		305
Total cash, cash equivalents and restricted cash	$	14,112	$	16,770


	As of January 31,
	2023		2022
	(Amounts in thousands)
Cash and cash equivalents	$	13,415	$	17,528
Restricted cash		311		328
Total cash, cash equivalents and restricted cash	$	13,726	$	17,856

Restricted cash is included as a component of other assets in the condensed consolidated balance sheets.

Marketable Securities

The Company’s investments, consisting of debt securities, are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in stockholders’ equity. Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The Company assesses its available-for-sale debt securities under the available-for-sale debt security impairment model in ASC 326 as of each reporting date in order to determine if a portion of any decline in fair value below carrying value recognized on its available-for-sale debt securities is the result of a credit loss. The Company records credit losses in the condensed consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the marketable security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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

Accounts Receivable, Unbilled Receivables, and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest. Unbilled receivables are derived from the allocation of contract consideration for products and services, such as software licenses, which is recognized when such products and services are transferred to the customer. Payment for unbilled

receivables is received over the contract term, which typically ranges between one and five years. Unbilled receivables are presented net of allowances for credit losses.

The allowance for credit losses is based on the probability of future collection under the current expect credited loss (“CECL”) impairment model under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets, which was adopted by the Company on February 1, 2023, as discussed below within Recently Adopted Accounting Pronouncements. Under the CECL impairment model, the Company determines its allowance by applying a loss-rate method based on an aging schedule using the Company’s historical loss rate. The Company also considers reasonable and supportable current information in determining its estimated loss rates, such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience. The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to the provision for credit losses in the period incurred.

Prior to February 1, 2023, trade and unbilled receivables were presented net of allowance for credit losses based on the credit risk of specific clients, past collection history, and management’s evaluation of other risks. Subsequent to February 1, 2023, under the CECL impairment model, expected credit losses stemming from unbilled receivables expected to be billed between one to five years from each balance sheet are estimated based on factors such as projected inflation, projected decreases in GDP, and projected unemployment, which include additional risk premiums based on the lengths of contracts.

Concentration of Credit Risk and of Significant Customers

Financial instruments which potentially expose the Company to concentrations of credit risk include cash, cash equivalents, restricted cash, marketable securities and accounts receivable. The Company has cash investment policies which, among other things, limit investments to investment-grade securities. The Company restricts its cash equivalents and marketable securities to repurchase agreements with major banks and U.S. government and corporate securities which are subject to credit and market risk, and are currently protected by limits offered through the Securities Investor Protection Corporation. The Company performs ongoing credit evaluations of the Company’s customers.

On March 10, 2023, one of the financial institutions that the Company has accounts, Silicon Valley Bank (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (the "FDIC") as receiver. To protect depositors, the FDIC transferred all deposits and substantially all of the assets of SVB to a receivership bank to be operated by FDIC as it markets the institution to potential bidders. In addition, the FDIC ultimately guaranteed all of our deposits formerly held with SVB. At the time of the SVB closure, the Company had funds deposited with SVB in various domestic and foreign accounts totaling approximately $5.0 million. On March 13, 2023, the receivership bank opened, and the Company had access to its accounts and has since transferred $5.0 million to other financial institutions.

The Company sells its software products and services worldwide primarily to service providers consisting of operators, telecommunications companies, satellite operators and broadcasters. A single customer accounted for 14% and 26% of total revenue for the three months ended April 30, 2023 and 2022, respectively, and a single customer accounted for 22% and 21% of the combined accounts receivable, net and unbilled receivables, net balance as of April 30, 2023 and January 31, 2023, respectively.

Revenue Recognition

Overview

The Company recognizes revenue following the guidance under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company’s revenue is derived from sales of software licenses and associated third-party hardware and support services, as well as professional services and support fees related to the Company’s software licenses.

The Company recognizes revenue from contracts with customers using a five-step model, which is described below:

•

identify the customer contract;

•

identify performance obligations in the contract;

•

determine the transaction price;

•

allocate the transaction price to the performance obligations; and

•

recognize revenue as the performance obligations are satisfied.

Identify the customer contract

A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability and consideration is probable.

Identify performance obligations in the contract

The Company enters into contracts that include combinations of license, support and professional services, and third-party products, which are accounted for as separate performance obligations. A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Determine the transaction price

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales and value-added taxes ("VAT") that are collected on behalf of government agencies. Some contracts provide the customer a license to use the Company’s functional intellectual property in exchange for royalty payments. These arrangements may include fixed, minimum guaranteed amounts of consideration as well as a variable amount that is contingent on the revenues earned by the customer related to the license.

Allocate the transaction price to the contract performance obligations

The Company’s contracts typically contain multiple performance obligations. The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer for which it accounts for individual performance obligations separately.

Recognize revenue as the performance obligations are satisfied

The Company’s contracts may contain multiple performance obligations with differing revenue recognition patterns. Revenue is recognized when or as control of the promised goods or services is transferred to customers. The Company’s software licenses may be perpetual, whereby the customer receives rights to use the software for an indefinite time period, or the license may be for a specified term. Transfer of the license and revenue recognition, including minimum guaranteed license royalties, occurs at the point in time the customer has the ability to download, use or access the software. Variable license royalties contingent on customer sales of products are recognized when the subsequent sales occur and the contingency is resolved. The Company’s customers may also contract for a Software as a Service (“SaaS”) offering whereby the customer only has a right to access the Company’s software for a defined term. SaaS licenses are recognized ratably over the subscription period beginning on the date the license is made available to customers.

The Company’s services revenue is comprised of support services and professional services. Support services consist of software upgrades on a when-and-if available basis, telephone support, bug fixes or patches and general hardware maintenance support. Revenue related to support services is recognized ratably over the term of the contract. Professional services are recognized as the services are performed.

Revenues attributable to third-party products typically consist of hardware and related support contracts. Hardware products are typically recognized when control is transferred to the customer, which is defined as the point in time when the client can use and benefit from the hardware. In situations where the hardware is distinct and it is delivered before services are provided and is functional without services, control is transferred upon delivery or acceptance by the customer. Revenue attributable to third-party support contracts is recognized ratably over the term of the contract.

Significant Judgments

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the Company determines the performance obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.

Judgment is required to determine the SSP for each distinct performance obligation. The Company determines SSP based on the observable price of goods and services when the Company sells those goods and services separately in similar circumstances to similar customers. The Company estimates the SSP of certain goods and services when there is no directly observable separate pricing under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, the SSP is estimated, taking into

account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations.

The Company enters into contracts with its customers that may include promises to transfer multiple performance obligations in the arrangement, such as software licenses, support, and professional services. The total fee of the contract may consist of one fixed price for all of the performance obligations or each performance obligation may be separately stated in the contract. Regardless of how the performance obligations are priced in the contract, the Company must determine the transaction price to be allocated to each identified performance obligation. The Company recognizes the portion of the transaction price allocated to the software license on a residual basis. The residual basis is used to allocate revenue when the contract arrangement includes a software license and has at least one performance obligation for which the SSP is observable (i.e., hardware and/or support services). The residual method is used as the selling price for software licenses in circumstances when the transaction price is highly variable and the SSP is not discernable from past transactions or other observable evidence. The Company periodically re-evaluates its use of the residual approach estimate compared to all available observable data before concluding the estimate is representative of SSP. In these contracts, the Company typically has observable SSP for the associated support services, and hardware, if applicable.

The Company also provides SaaS offerings, combining access to the Company’s software platform with support services (inclusive of technical support and unspecified upgrades and bug fixes). The SaaS offering and support services are stand-ready obligations with the same pattern of transfer of control. SaaS offerings do not include the right for the customer to take possession of the software during the contract term. Typically, SaaS offerings include one distinct performance obligation, satisfied over time, with revenue recognized ratably over the contract term as the customer consumes the services. Services revenue is comprised of software license implementation, engineering, training and reimbursable expenses. Services are sold on both a standalone basis and as part of the Company’s customer contracts. The Company has concluded these services are typically distinct performance obligations. For implementation, engineering and training services, revenue is recognized on an input method as hours are incurred and services are provided compared to total estimated hours. The Company estimates the SSP for fixed price services based on estimated hours adjusted for historical experience using the time and materials rates charged in standalone service arrangements. When sold on a time and materials basis, SSP for services is determined by observable prices in standalone service arrangements. Certain engineering services sold with support contracts are not distinct in the context of the contract and those services are bundled with other distinct services to form a single stand-ready performance obligation which is recognized ratably over the relevant service period.

The Company has utilized the cost-plus margin method to determine the SSP for software support services offerings and hardware sales when observable standalone pricing for support service offerings are not readily available. When support services are sold on an “a-la-carte” basis with the Company’s software offerings, the Company typically determines the SSP of these support services based on this pricing relationship and observable data from standalone sales of support contracts. The expected cost-plus margin for hardware is based on the cost of the hardware from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.

Some contracts have payment terms that differ from the timing of revenue recognition, which requires the Company to assess whether the transaction price for those contracts includes a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. The Company estimates the significant financing component provided to its customers with extended payment terms by determining the present value of the future payments by applying an average standard industry discount rate that reflects the customer’s creditworthiness.

Payment terms with customers typically require payment 30 days from invoice date. Agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

The Company occasionally enters into amendments to previously executed contracts that may constitute contract modifications. The amendments are assessed to determine if (1) the additional products and services are distinct from the product and services in the original arrangement; and (2) the amount of consideration expected for the added products and services reflects the SSP of those products and services. An amendment or contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either a prospective basis as a termination of the existing contract and the creation of a new contract or a cumulative catch-up basis.

Contract Balances

When either party to a contract has performed, an entity shall present the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment. An entity shall present any unconditional rights to consideration separately as a receivable. Contract liabilities, which consist primarily of

deferred revenue as of April 30, 2023 and January 31, 2023, are classified as current liabilities if expected to be invoiced or recognized within the next year. There were no contract assets as of April 30, 2023 and January 31, 2023.

Costs to Obtain and Fulfill a Contract

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that commissions and special incentive payments (“Spiffs”) for hardware and software maintenance and support and professional services paid under the Company’s sales incentive programs meet the requirements to be capitalized under ASC 340-40. Costs to obtain a contract are amortized as selling and marketing expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. Significant judgments made in determining the amount of costs capitalized include whether the commissions are in fact incremental and would not have occurred absent the customer contract and the estimate of the amortization period. The commissions and Spiffs related to professional services are amortized over time as work is completed. The commissions and Spiffs for hardware and software maintenance are amortized over the life of the contract. These costs are periodically reviewed for impairment. The Company determined that no impairment of these assets existed as of January 31, 2023 or 2022. The Company has elected to apply the practical expedient and recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. Total deferred capitalized commission costs were $144 thousand and $162 thousand as of April 30, 2023 and January 31, 2023, respectively. Current deferred capitalized commission costs are included in prepaid expense and other current assets in the Company’s condensed consolidated balance sheets and non-current deferred capitalized commission costs are included in other assets in the Company’s condensed consolidated balance sheets. Capitalized commissions expensed during the three months ended April 30, 2023 and 2022 were $18 thousand and $37 thousand, respectively, and are included in the condensed consolidated statement of operations and comprehensive loss.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of unrestricted common shares outstanding during the period.

Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of unrestricted common shares outstanding during the period and the weighted average number of potential common shares from the assumed exercise of stock options and the vesting of shares of RSUs , DSUs , and PSUs using the “treasury stock” method when the effect is not anti-dilutive. For periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share.

The number of common shares used in the computation of diluted net loss per share for the periods presented does not include the effect of the following potentially outstanding common shares because the effect would have been antidilutive:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Stock options		33		61
RSUs and DSUs		98		61
PSUs		42		15
		173		137

Recently Adopted Accounting Pronouncement

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities.

The amendments are effective on February 1, 2023 for the Company, and must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our trade or unbilled receivables. The Company adopted ASU No. 2016-13 using an estimated expected credit losses using the historical loss rate method for its trade accounts receivable and unbilled receivables as of January 31, 2023, with additional risk premiums for unbilled receivables expected to be billed after January 31, 2024 (one year after the adoption date). The adoption of the standard resulted in a cumulative beginning of year retained earnings adjustment of $0.2 million.

Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade and unbilled receivables based on four portfolio segments by customer geographic location: North America, Latin America, Europe, and Other. The determination of portfolio segments is based primarily on the qualitative consideration of the credit risks driven by macroeconomic and geopolitical factors affecting customers in these geographic locations.

Our quantitative allowance for credit loss estimates under CECL was determined using the loss rate method, which is impacted by certain forecasted economic factors. In addition to our quantitative allowance for credit losses, we also incorporate qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.

Additionally, due to the expansion of the time horizon over which we are required to estimate future credit losses, we may experience increased volatility in our future provisions for credit losses. Factors that could contribute to such volatility include, but are not limited to, changes in the composition and credit quality of customer base, economic conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and our estimation techniques.

Condensed Consolidated Balance Sheet Detail

Accrued Expenses

Accrued expenses consisted of the following:


	As of
	April 30, 2023		January 31, 2023
	(Amounts in thousands)
Accrued employee compensation and benefits	$	686	$	1,603
Accrued professional fees		43		77
Sales tax and VAT payable		92		82
Current obligation - right of use operating leases		726		713
Accrued other		805		1,338
Total accrued expenses	$	2,352	$	3,813

Fair Value Measurements

The Company accounts for certain financial assets at fair value on a recurring basis. The following table presents information about the Company’s financial assets that are measured at fair value as of April 30, 2023 and January 31, 2023, and indicate the level within the fair value hierarchy where each measurement is classified.


	As of April 30, 2023
	Total		Level 1		Level 2		Level 3
	(Amounts in thousands)
Assets:
Cash equivalents	$	2,399	$	2,399	$	—	$	—
Marketable securities:
Corporate bonds		1,409		1,409		—		—
	$	3,808	$	3,808	$	—	$	—


	As of January 31, 2023
	Total		Level 1		Level 2		Level 3
	(Amounts in thousands)
Assets:
Cash equivalents	$	2,389	$	2,389	$	—	$	—
Marketable securities:
Corporate bonds		1,244		1,244		—		—
	$	3,633	$	3,633	$	—	$	—

Cash equivalents at April 30, 2023 and January 31, 2023 consisted of $2.4 million, in each period presented, of U.S. Treasury Securities with a maturity date of three months or less, respectively. During the periods presented above, no assets were transferred between the fair value hierarchy categories. The Company had no liabilities measured at fair value on a recurring basis at April 30, 2023 or January 31, 2023.

The following table summarizes the Company’s investments in marketable securities, classified as available-for-sale as of April 30, 2023 and January 31, 2023:


	As of April 30, 2023
	Amortized Cost		Gross Unrealized Loss			Fair Value
	(Amounts in thousands)
Corporate bonds		1,444		(35	)		1,409
	$	1,444	$	(35	)	$	1,409


	As of January 31, 2023
	Amortized Cost		Gross Unrealized Loss			Fair Value
	(Amounts in thousands)
Corporate bonds		1,269		(25	)		1,244
	$	1,269	$	(25	)	$	1,244

The amortized cost and fair values of the above referenced debt and fixed-maturity securities as of April 30, 2023 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
	(Amounts in thousands)
Due within one year through three years	$	3,360	$	3,358
Due after three years through five years		483		450
Due after five years		—		—
	$	3,843	$	3,808

Commitments and Contingencies

Litigation

Certain conditions may exist as of the date the condensed consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to pending legal proceedings, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the Company’s assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. As of April 30, 2023 there are no current pending legal proceedings, in the opinion of management, that would have a material adverse effect on the Company’s financial position, results from operations or cash flow.

The Company is currently under audit from a third-party software partner regarding licenses embedded on hardware supplied by the Company during the implementation of its software solutions. The preliminary third-party software partner's audit results have shown that a number of licenses have lapsed from support. However, the Company has evaluated this matter and has determined that the ultimate outcome is not currently estimable or determinable and is actively pursuing a solution that is acceptable for both parties.

Indemnification and Warranties

The Company provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director, employee or agent is, or was, serving at the Company’s request in such capacity. With respect to acquisitions, the Company provides indemnification to, or assumes indemnification obligations for, the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ governing documents. As a matter of practice, the Company has maintained directors’ and officers’ liability insurance including coverage for directors and officers of acquired companies.

The Company enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require the Company to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to its products. From time to time, the Company also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of its products and services or resulting from the acts or omissions of the Company, employees, authorized agents or subcontractors. From time to time, the Company has received requests from customers for indemnification of patent litigation claims. There are no current pending legal proceedings that in the opinion of management would have a material adverse effect on the Company’s financial position, results from operations and cash flows. However, there is no assurance that future legal proceedings arising from ordinary course of business or otherwise, will not have a material adverse effect on the Company’s financial position, results from operations or cash flows.

The Company warrants its products, including software products, will substantially perform in accordance with standard published specifications in effect at the time of delivery. In addition, the Company provides maintenance support to its customers and therefore allocates a portion of the product purchase price to the initial warranty period and recognizes revenue on a straight-line basis over that warranty period related to both the warranty obligation and the maintenance support agreement. When the Company receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred.

Operating Leases

The Company has operating leases for facilities expiring at various dates through 2025.

The components of lease expense included in the condensed consolidated statements of operations and comprehensive loss are as follows:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Operating lease cost	$	110	$	143
Short-term lease cost, net		3		4
Total lease cost	$	113	$	147

Supplemental balance sheet information related to the Company’s operating leases was as follows:


	As of April 30, 2023			As of January 31, 2023
	(Amounts in thousands)
Operating lease right-of-use assets	$	1,215		$	1,360

Current portion, operating lease liabilities		726			713
Operating lease liabilities, long term		489			691
Total operating lease liabilities	$	1,215		$	1,404

Weighted average remaining lease term (years)		1.8			2.0
Weighted average incremental borrowing rate		5.0	%		5.0	%

Supplemental cash flow information related to the Company’s leases was as follows:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	110	$	143

The current portion, operating lease liabilities is included as a component of accrued expenses in the condensed consolidated balance sheets.

Future minimum lease payments for operating leases, with initial or remaining terms in excess of one year as of April 30, 2023 are as follows:


	Payments for Operating Leases
For the Fiscal Years Ended January 31,	(Amounts in thousands)
2024	$	557
2025		765
Total lease payments		1,322
Less interest		107
Total operating lease liabilities	$	1,215

Severance and Restructuring Costs

Severance and restructuring costs for the three months ended April 30, 2022 consisted of Board and employee-related termination benefits in the amount of $0.2 million. There were less than $0.1 million severance and restructuring costs for the three months ended April 30, 2023.

Stockholders’ Equity

Preferred Stock Authorization

The Board is authorized to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock, in one or more series. Each such series of preferred stock shall have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges to be determined by the Board, including dividend rights, voting rights, redemption rights and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. No preferred stock has been issued as of April 30, 2023.

Equity Plans

Compensation and Incentive Plans

The Company’s Second Amended and Restated 2011 Compensation and Incentive Plan (the “2011 Plan”) provided for the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQs”), RSUs, DSUs and PSUs and other equity based non-stock option awards as determined by the plan administrator to its officers, employees, consultants and directors. The 2011 Plan expired on July 20, 2021.

The Company’s 2021 Compensation and Incentive Plan (the “2021 Plan”) was proposed by the Board and adopted by the Company’s stockholders in July 2021 to permit the continued issuance of equity-based compensation, including the granting of ISOs, NQs, restricted stock, RSUs, DSUs, PSUs, and other equity based non-stock option awards as determined by the plan administrator to officers, employees, consultants and directors. Under the 2021 Plan, the Company may satisfy awards upon the exercise of stock options or the vesting of stock units with newly issued shares or treasury shares. The Board, or a committee of independent members of the Board (the “Committee”), is responsible for the administration of the 2021 Plan and determining the terms of each award, award exercise price, the number of shares for which each award is granted and the rate at which each award vests. In certain instances, the Board or Committee may elect to modify the terms of an award.

Nonemployee members of the Board may elect to receive DSUs or stock options in lieu of RSUs. The number of units subject to the DSUs is determined as of the grant date and shall fully vest one year from the grant date. The shares underlying the DSUs are not issued until the earlier of the director ceasing to be a member of the Board (provided such time is subsequent to the first day of the succeeding fiscal year) or immediately prior to a change in control.

Option awards may be granted at an exercise price per share of not less than 100% of the fair market value per common share on the date of the grant and not less than 110% of the fair market value per common share on the date of the grant with respect to ISOs granted to employees owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company. Option awards granted under the 2021 Plan generally vest over a period of one to three years and expire ten years from the date of the grant.

Following Board approval and recommendation, on August 5, 2022 the Company’s stockholders voted in favor of changes to the 2021 Plan (the “Amended and Restated 2021 Plan”). The purpose of the Amended and Restated 2021 Plan is to provide equity and cash incentives to the employees of the Company in order to attract, motivate and retain qualified employees. Changes made to the Amended and Restated 2021 Plan include the addition of 150,000 new shares authorized for issuance under the Amended and Restated 2021 Plan and the inclusion of additional methods to satisfy the tax obligations that arise for granted equity awards. The number of shares authorized for issuance under the Amended and Restated 2021 Plan at April 30, 2023 is 394,844, including 119,844 shares awarded under the 2011 Plan that may become available for issuance under the 2021 Plan due to the expiration, termination, surrender, or forfeiture of such outstanding awards. As of April 30, 2023, there were 135,580 shares available for future grants.

The Company has a Long-Term Incentive Program, adopted in fiscal 2016, under which the named executive officers and other key employees may receive long-term equity-based incentive awards, which are intended to align the interests of named executive officers and other key employees with the long-term interests of stockholders and to emphasize and reinforce the Company’s focus on team success. Long-term equity-based incentive compensation awards are made in the form of stock options, RSUs and PSUs subject to vesting based in part on the extent to which employment continues under the Amended and Restated 2021 Plan.

2015 Employee Stock Purchase Plan

Under the Company’s 2015 Employee Stock Purchase Plan (the “ESPP”), six-month offering periods begin on October 1 and April 1 of each year during which eligible employees may elect to purchase shares of common stock according to the terms of the offering. On each purchase date, eligible employees can purchase stock at a price per share equal to 85% of the closing price of the Company’s common stock on the exercise date, but no less than par value. The maximum number of shares of the Company’s common stock authorized for sale under the ESPP is 57,500 shares, of which 53,751 remain available under the ESPP as of April 30, 2023. There were no shares purchased under the ESPP during the three months ended April 30, 2023 and 2022 as the Company suspended the ESPP as of April 1, 2020 and is still evaluating when the suspension will be lifted, if at all.

Award Activity

In the three months ended April 30, 2023, the Company granted 9,170 RSU awards at a grant date weighted average fair value of $8.73 per share and 3,000 PSU awards at a grant date weighted average fair value of $4.60 per share. In the three months ended April 30, 2023, 14,773 RSU awards and 1,250 PSU awards were released, with 1,861 RSU shares exchanged to pay employee tax withholdings, pursuant to the terms of the RSU agreements. There were 2,708 option awards, 3,250 RSU awards and 3,000 PSU awards canceled in the three months ended April 30, 2023.

The PSUs granted in fiscal year 2023 and 2024 represent market-based awards to certain officers in connection with their appointment. The PSUs will vest on the attainment of a closing share price of $50.00 that is held for twenty consecutive trading days within three years from the grant date. In the event of a change in control of the Company, the vesting of the PSUs is based on the employee’s time of service from the grant date.

Stock-Based Compensation

The Company recognized stock-based compensation expense within the condensed consolidated statements of operations and comprehensive loss as follows:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Cost of revenue, service	$	3	$	8
Research and development		13		6
Selling and marketing		81		11
General and administrative		264		259
	$	361	$	284

As of April 30, 2023, unrecognized stock-based compensation expense related to unvested stock options was approximately $0.1 million, which is expected to be recognized over a weighted average period of 1.2 years. As of April 30, 2023, unrecognized stock-based compensation expense related to unvested RSU awards and DSU awards was approximately $0.7 million, which is expected to be recognized over weighted average amortization periods of 1.4 years. Additionally, as of April 30, 2023, unrecognized stock-based compensation expense related to unvested PSU awards was $0.1 million, which is expected to be recognized over a weighted average amortization period of 1.2 years.

Accounts Receivables, Unbilled Receivables, Allowance for Credit Losses and Contract Liabilities

Receivables

The following table summarizes the Company’s accounts receivable, net and unbilled receivables, net:



	As of April 30, 2023		As of January 31, 2023
	(Amounts in thousands)
Accounts receivable, net	$	7,362	$	10,382
Unbilled receivables, net - current		8,354		7,757
Unbilled receivables, net - long-term		4,659		5,044
	$	20,375	$	23,183

As of April 30, 2023 and January 31, 2023, the allowance for credit losses on current accounts receivable was $0.6 million and $0.8 million, respectively. As of April 30, 2023, the allowance for credit losses on current unbilled receivables was $0.4 million and $0.2 million on long-term unbilled receivables. As of January 31, 2023, the allowance for credit losses on current unbilled receivables was $0.2 million, and there was no allowance for credit losses provided for long-term unbilled receivables.

Unbilled Receivables, Net

Unbilled receivables, net consist of amounts recognized as revenue as performance obligations were transferred to customers for which the Company does not currently have the right to invoice. Unbilled receivables, net are primarily derived from the allocation of contract consideration to products and services, such as software licenses, recognized at the point of time transferred when the payment of such consideration is contingent on transferring support and maintenance services over the subsequent period which is frequently one to three years. There were no impairment losses recognized during the three months ended April 30, 2023 or 2022.

Unbilled receivables, net are expected to be billed in the future as follows (amounts in thousands, except percentage amounts):


	As of April 30,
	2023		Percentage
1 year or less	$	8,354		64	%
1-2 years		2,280		18	%
2-5 years		2,379		18	%
Total unbilled receivables, net	$	13,013		100	%

Allowance for Credit Losses

The following table summarizes the Company’s allowance for credit losses for the three months ended April 30, 2023:


	Trade Accounts Receivable			Unbilled Receivables		Total Receivables
	(Amounts in thousands)
Balance as of February 1, 2023	$	841		$	168	$	1,009
Impact of CECL adoption		(151	)		369		218
Adjustment to allowance for expected credit losses		1			33		34
Write-offs charged against allowance		(111	)		—		(111	)
Balance as of April 30, 2023	$	580		$	570	$	1,150

Contract Liabilities

Contract liabilities consist of deferred revenue and customer deposits that arise when amounts are billed to or collected from customers in advance of revenue recognition. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as deferred revenue, long-term. The change in deferred revenue as of April 30, 2023 is due to new billings in advance of revenue recognition offset by revenue recognized during the period.


	Deferred Revenue
	Current			Long-Term
	(Amounts in thousands)
Balance as of January 31, 2023	$	5,172		$	130
Decrease, net		(85	)		(38	)
Balance as of April 30, 2023	$	5,087		$	92

The Company recognized $2.0 million of revenue that was included in deferred revenue at the beginning of the period, offset by an additional $1.9 million of new contract liabilities for the three months ended April 30, 2023.

Remaining Performance Obligations

The aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied or are partially satisfied as of April 30, 2023 is $20.5 million and consists primarily of undelivered software, service, and support obligations. This amount in part includes amounts billed for undelivered services that are included in deferred revenue reported on the condensed consolidated balance sheets. The Company expects to recognize $13.8 million as revenue within one year, an additional $3.8 million in the following year, and the remaining revenue thereafter. The Company expects to recognize substantially all of the remaining performance obligations by the second quarter of fiscal 2029. Revenue recognized for the three months ended April 30, 2023 related to remaining performance obligations as of the previous fiscal year ended January 31, 2023 was $4.0 million.

10.

Disaggregated Revenue and Geographic Information

Disaggregated Revenue

The following table disaggregates revenue by revenue stream:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Product revenue:
License	$	1,072	$	1,222
Hardware		468		1,604
Total product revenue		1,540		2,826
Service revenue:
Maintenance and support		3,091		2,939
Professional services and other		2,361		958
Total service revenue		5,452		3,897
Total revenue	$	6,992	$	6,723

The following table disaggregates revenue by timing of transfer of goods or services:


	For the Three Months Ended April 30,
	2023		2022
	(Amounts in thousands)
Transferred at a point in time
Product revenue	$	841	$	2,250
Transferred over time(1)
Product revenue		699		576
Service revenue		5,452		3,897
Total revenue	$	6,992	$	6,723

(1) Comprised of SaaS, hosting, support contracts, and professional services.

Geographic Information

The following summarizes revenue by customers’ geographic locations:


	For the Three Months Ended April 30,
	2023		%	2022		%
	(Amounts in thousands, except percentages)
Revenue by customers’ geographic locations:
North America(1)	$	4,076	58%	$	4,328	64%
Europe and Middle East		1,890	28%		1,393	21%
Latin America		725	10%		761	11%

SEACHANGE INTERNATIONAL INC 10-Q