SeaChange International

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

For the fiscal year ended January 31, 2015

EXCHANGE ACT OF 1934

Commission File Number: 0-21393

SEACHANGE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

04-3197974
(IRS Employer
Identification No.)

50 Nagog Park, Acton, MA 01720
(Address of principal executive offices, including zip code)

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

Securities Registered Pursuant To Section 12(b) Of The Act:
Common Stock, $.01 par value
Securities Registered Pursuant To Section 12(g) Of The Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ‘ No È

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ‘ No È

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 È 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 during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and

will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or in any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘

Accelerated filer
Smaller reporting company ‘

È

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ‘ No È

As of July 31, 2014, the aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the

closing price for the registrant’s Common Stock on the NASDAQ Global Select Market on such date was $232,231,128. The
number of shares of the registrant’s Common Stock outstanding as of the close of business on April 2, 2015 was 33,299,577.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement filed no later than 120 days after the Company’s fiscal year end pursuant to

Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The statements contained in this Annual Report on Form 10-K (“Form 10-K”) of SeaChange International, Inc.
(“SeaChange,” the “Company,” “us,” or “we”), including, but not limited to the statements contained in Item 1.,
“Business,” and Item 7., “Management’s Discussion and Analysis of the Financial Condition and Results of
Operations,” along with statements contained in other reports that we have filed with the Securities and
Exchange Commission (the “SEC”), external documents and oral presentations, which are not historical facts, are
considered to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements which may
be expressed in a variety of ways, including the use of forward looking terminology such as “believe,” “expect,”
“seek,” “intend,” “may,” “will,” “should,” “could,” “potential,” “continue,” “estimate,” “plan,” or “anticipate,”
or the negatives thereof, other variations thereon or compatible terminology, relate to, among other things, our
transition to being a company that primarily provides software solutions, the effect of certain legal claims against
us, projected changes in our revenues, earnings and expenses, exchange rate sensitivity, interest rate sensitivity,
liquidity, product introductions, industry changes, general market conditions, our continued limited number of
customers, geographic location of sales and a reduction in workforce and the impact thereof. We do not
undertake any obligation to publicly update any forward-looking statements.

These forward-looking statements, and any forward looking statements contained in other public disclosures of
the Company which make reference to the cautionary factors contained in this Form 10-K, are based on
assumptions that involve risks and uncertainties and are subject to change based on the considerations described
below. We discuss many of these risks and uncertainties in greater detail in Item 1A., “Risk Factors,” of this
Form 10-K. These and other risks and uncertainties may cause our actual results, performance or achievements to
differ materially from anticipated future results, performance or achievements expressed or implied by such
forward-looking statements.

The following discussion should be read in conjunction with Part II, Item 7., “Management Discussion and
Analysis of Financial Condition and Results of Operations,” and our financial statements and footnotes
contained in this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.

Item 6.
Item 7.

Item 7A.
Item 8.
Item 9.

Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.

Item 13.

Item 14.

Item 15.

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . .
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Item 1.

BUSINESS

General

PART I

SeaChange International, Inc., a Delaware corporation founded on July 9, 1993, is an industry leader in the
delivery of multiscreen video. Our products and services facilitate the aggregation, licensing, management and
distribution of video (primarily movies and television programming) and television advertising content to cable
television system operators, telecommunications and media companies. We sell our software products and
services worldwide, primarily to television service providers including: cable television system operators, such as
Liberty Global, plc. (“LGI”), Comcast Corporation (“Comcast”), Cox Communications, Inc. (“Cox”) and Rogers
Communications, Inc.; telecommunications companies, such as Verizon Communications, Inc., AT&T, Inc. and
Eircom; and media companies such as BBC Worldwide.

Our products and services are designed to enable our customers to reduce capital and operating expenses, reduce
subscriber turnover, and increase average revenue per subscriber by establishing new, revenue-generating
subscription television services and advertising. Using our products and services, we believe our customers can
increase their revenues by offering services such as video-on-demand (“VOD”) television programming on a
variety of consumer devices, including mobile telephones (“smart phones”), personal computers (“PCs”), tablets
and over-the-top (“OTT”) streaming players. Our systems enable television service providers to offer other
interactive television services that allow subscribers to receive personalized services and interact with their video
devices, thereby enhancing their viewing experience. Our products also allow our customers to insert advertising
into broadcast and VOD content.

SeaChange serves an exciting global marketplace where multiscreen viewing is increasing, consumer device options
are evolving rapidly, and viewer habits are shifting. The primary thrust of our business has been to enable the
delivery of video assets in the evolving multiscreen television environment. Through acquisitions and partnerships,
we have expanded our capabilities, products and services to address the delivery of content to devices other than
television set-top boxes, namely PCs, tablets, smart phones and OTT streaming players. We believe that our
strategy of expanding into adjacent product lines will position us to further support and maintain our existing
service provider customer base. Providing our customers with more technologically advanced software platforms
enables them to further reduce their infrastructure costs and improve reliability. Additionally, we believe we are
well positioned to capitalize on new customers entering the multiscreen marketplace and increasingly serve adjacent
markets, such as mobile and OTT. Our core technologies provide a foundation for products and services that can be
deployed in next generation video delivery systems capable of increased levels of subscriber interactivity. We have
received several awards for technological excellence, including three Emmy Awards for our pivotal roles in the
growth of volume service provider businesses including VOD and multi-channel television advertising. Our
achievements on behalf of certain customers have also received significant market recognition including, during
fiscal year 2014, winning the Liberty Global Vendor Award for Best Product & Service Quality and the Cable
Europe Innovation Award for cable operator Voo’s multiscreen service launch.

On February 2, 2015, we acquired TLL, LLC (“Timeline Labs”), a California-based software-as-a-service (“SaaS”)
company that enables local broadcasters, national news organizations and other media companies and brands to
analyze social media messages in real-time, find and broadcast social trends, and measure viewing audience
engagements across television, mobile and personal computers. Through its acquisition of Timeline
Labs, SeaChange is a partner and technology provider for the NewCoin LLC (“NewCoin”) local television audience
measurement venture with FOX Television Stations, Tribune Media and Univision. NewCoin’s mission is to
harness the data-gathering power of currently available and emerging technologies in order to create a broader based
measurement tool that will accurately measure audiences across the entire spectrum of linear and digital platforms.

In January 2015, we initiated a global restructuring plan to streamline our activities, primarily from an employee
headcount reduction of 10%, now that our next generation software products have been brought to market and
are being deployed around the globe. The reduction in workforce has been implemented immediately in the

4

United States and, to comply with non-U.S. legal requirements, will be implemented on an international basis
over the next several quarters. Once fully implemented, we expect this initiative to yield approximately
$11 million in annualized cost savings.

Products and Services

Our business is comprised of three product areas: multiscreen video, television advertising and video gateway
software. Our revenue sources consist of product revenue from these areas, as well as related services.

Multiscreen Video

We offer our multiscreen video products under the following two deployment options, on-site software licenses
and on a SaaS basis.

On-Site Software Licenses

In this model, revenue is derived from perpetual software license and annual maintenance and support fees, as
well as associated professional services. This model includes the following:

SeaChange Adrenalin MultiScreen Television Platform. Adrenalin is a comprehensive software platform that
enables service providers to manage, monetize and deliver a seamless viewing experience to subscribers across
televisions, PCs, tablets, smart phones and other IP-enabled devices. Adrenalin is modular—allowing our
customers to gradually adopt new functionality and features to expand multiscreen television distribution
capabilities. Adrenalin automates and streamlines functionality in four crucial areas:

•

Ingest of video content including custom workflow, transcoding, encryption and distribution;

• Content management including data analysis and management of metadata;

• Business management such as advertising placement, contract rights and subscriber entitlements,
cloud-based monitoring and management and recommendation of social media applications; and

•

Publishing and purchasing, which allow content to be formatted for viewing on any device.

SeaChange Nitro Subscriber Experience Software. Our Nitro subscriber experience software gives service
providers a customizable interface that personalizes the multi-platform subscriber experience and provides
consistent presentation and navigation of linear, on-demand, OTT and time-shifted television. Nitro optimizes
subscriber engagement and content promotions to ensure that the value of all content is fully realized on any
consumer device.

SeaChange AssetFlow. In today’s multiscreen viewing platform, a show, movie or advertisement and its
associated metadata, such as poster, description and pricing, are reproduced with numerous variants to serve the
unique requirements of multiple network types, consumer devices and geographies. At the point of content
ingest, our AssetFlow software is used to receive, manage and publish content for on-demand viewing on
televisions, tablets, PCs and other consumer devices. AssetFlow simplifies the increasingly complex tasks of
movie and television program asset tracking, metadata management, and overall content workflow.

SaaS Offering

In this model, we license our product offerings on a SaaS basis and our customers pay us on a monthly recurring
basis based on the total number of subscriber lines deployed by the customer.

SeaChange Rave™ Premium OTT Video Platform. Our Rave premium OTT platform (“Rave”) offering provides
a managed services offering for our customers. Rave enables live, time-shifted, pay-per-view and on-demand
video services and storefront creation. Advanced content recommendations, discovery and social media are
enabled through SeaChange’s user experience and third-party applications. Rave includes services, tools and
integrations for OTT content workflow, media management and analytics. Rave also enables video and
interactive cross-device advertising throughout individual streams and user experiences. Advanced content
promotion and monetization features include download to purchase and rent, subscription packaging and

5

couponing. Through these features, Rave allows media companies and service providers to fully integrate with
the connected consumer lifestyle and create a deeper audience relationship to project their brand and create
pertinent, contextual promotions and advertising.

Television Advertising

SeaChange Infusion Advanced Advertising Platform. As more television content is served to multiple consumer
devices, the ability to generate additional revenue by inserting targeted advertising on these devices becomes
crucial to service providers seeking to offset content rights costs and reduce subscriber fees for viewing the
content. Infusion enables service providers to maximize advertising revenue across multiscreen, broadcast, on-
demand and OTT viewing and reach their audiences while viewers watch television on multiple devices. The
platform incorporates demographic intelligence to target viewers by geography and personal preference, then
engages the viewer through pre-rolls, mid-rolls, banners, overlays and click-action interactivity. Infusion scales
to support service providers’ migration to consolidated regional and national advertising systems that are
managed from increasingly web-centric and virtualized datacenters.

SeaChange Infusion AdPulse™ On-Demand Advertising Software. Service providers leverage Infusion AdPulse
to capitalize on their VOD television services with ad placements that are dynamically targeted according to the
content viewers select, as well as by geographic, demographic and viewing characteristics. Because the
advertisements are tracked separately from the content, the data provided includes detailed advertisement
viewing and trick-mode (fast-forward, rewind, and pause) usage leading to easier analysis of reach and
effectiveness.

SeaChange AdFlow. AdFlow simplifies the ingest and preparation of content required to cost-effectively deliver
multichannel or multiscreen advertising. It enables the range of advertisements to be ready for insertion,
regardless of encoding formats, screen size, and the many other factors affecting today’s linear, on-demand and
multiscreen television operations. It also handles advertisement file processing, verification, transcoding
operations and confirms playout for confident revenue booking.

Video Gateway Software

Nucleus. Nucleus ports to any set-top box, or other customer premises equipment hardware and system on a chip
(“SoC”), and acts as a hub for all video distribution to any IP- connected device throughout the home, such as
tablets, smart phones and game consoles.

SeaChange capitalized on open software and networking technologies to create Nucleus, a fully customizable
foundation for rich multiscreen services running on the chipset and hardware. Nucleus enables the service
providers to select the chipset, hardware and set-top box vendor of their choice. Nucleus extends providers’ video
services to a wide range of video consumer devices through its support for DLNA networking protocols, and
enables them to enhance their overall offering by providing the framework for the introduction of new
applications. Further, Nucleus leverages the industry Reference Design Kit, a technology standard that enables
the video service provider community to take advantage of open technologies to more rapidly introduce and
support service innovations.

Social Tools

SeaChange Timeline. SeaChange Timeline provides an end-to-end content management platform for media
companies and brands to leverage the power of social content and conversations on a SaaS model. SeaChange
Timeline simplifies the real-time editorial content and production process by offering the ability to discover
social news, gather content relevant to an audience and present it with visualizations ready for video broadcast or
the Internet.

Services

SeaChange offers comprehensive professional services and customer support for all of its products. We have
developed extensive capabilities in systems integration, implementation and custom engineering. Our focus on,

6

and expertise in video means that we often take on the role of primary integrator for increasingly complex multi-
vendor deployments. We also offer managed services with advantages, including remote monitoring and
proactive system maintenance, to help our customers quickly and confidently establish new on-demand and
multiscreen services.

Strategy

Our goal is to strengthen our position as a leading global provider of multiscreen video by enabling service
providers and content owners to increase revenue opportunities by delivering transformative multiscreen video
products to their end subscribers. Key elements of our strategy include:

• We intend to continue to provide to our existing base and new customers, industry-leading solutions
through our focus on product innovation and substantial investment in research and development for
our next generation software products and services;

• We intend to accelerate adoption of our next generation products and services and time to market by

promoting and expanding to adjacent markets such as mobile and OTT;

• We intend to provide pre-packaged integrated solutions with the goal of better enabling new and

existing customers to drive the adoption of the Rave and Timeline features and functions through a
service offering hosted and/or managed by us;

• We intend to continue to pursue acquisitions and collaborations which we believe will strengthen our

industry leadership position, expand our geographic presence, or allow us to expand to new products or
services, or enhance our existing ones;

• We may enter into strategic relationships to help our customers address deficiencies in the their market

space, such as our recent joint venture with FOX, Tribune Media and Univision to address the
weaknesses in local television market audience measurement;

• Although our initial sale with a service provider may be for a single screen and device, once a service
provider deploys services using our Adrenalin platform, we believe we are well positioned to sell
additional features to that service provider to help them expand the number of devices in their
customers’ households; and

• Our customers are located worldwide and include top cable service providers. We believe we are well
positioned to grow by adding customers in regions where we already have a strong presence and by
expanding our geographic footprint in Asia Pacific and Latin America. In addition, we intend to
penetrate more deeply into other markets such as mobile, telecommunications and media companies.

Research and Product Development

Our research and development costs were $42.2 million in fiscal 2015, $39.7 million in fiscal 2014 and $38.7
million in fiscal 2013. We believe that our success will depend on our ability to develop and introduce timely
new integrated solutions and enhancements to our existing products that meet changing customer requirements in
our current and future customer base as well as new markets. We have made substantial investments in
developing and bringing to market our next generation products. Our current research and development activities
are focused on developing multiscreen television platforms, video gateway software and advertising solutions in
the multiscreen video market, and integrating the solutions we currently offer. Our direct sales and marketing
groups closely monitor changes in customer needs, changes in the marketplace and emerging industry standards
to help us focus our research and development efforts to address our customers’ needs, such as increasing
average revenue per subscriber, lowering operating and capital costs and reducing customer churn. Our research
and development efforts are performed in the United States at our Acton, Massachusetts headquarters as well as
our sites in California; Oregon; Pennsylvania; and worldwide in Bangalore, India; Manila, Philippines; and
Eindhoven, Netherlands.

7

During fiscal 2015 we continued the focus of our research and development efforts on the next generation
software platforms, which are vital to our customers’ success. We achieved this by further increasing our
investment in our software products for multiscreen video and video gateway software platforms, while reducing
our investment in certain legacy product lines. As of January 31, 2015, we had a research and development staff
of 296 employees.

Selling and Marketing

Our sales cycle tends to be long, in some instances twelve to twenty-four months, and purchase orders are
typically in excess of one million dollars. As a result, it is sometimes difficult to predict what quarter or fiscal
year our sales will occur. In light of the complexity of our video products, we primarily utilize a direct sales
process. We sell and market our products worldwide through a direct sales organization, primarily conducted
from our headquarters although we will use sales representatives deployed in different regions where we do not
have a direct sales force. Working closely with customers to understand and define their needs enables us to
obtain better information regarding market requirements, enhance our expertise in our customers’ industries, and
more effectively and precisely convey to customers how our solutions address their specific needs. As we
recently announced, we have expanded our direct sales presence into Asia Pacific and Latin America.

We use several marketing programs to focus on our targeted markets to support the sale and distribution of our
products. We also market certain of our products to systems integrators and value-added resellers. We attend and
exhibit our products at a limited number of prominent industry trade shows and conferences and we present our
technology at seminars and smaller conferences to promote the awareness of our products. We also publish
articles in trade and technical journals. As of January 31, 2015, we had marketing and sales staff of 49
employees.

Manufacturing and Quality Control

Our manufacturing operation consists primarily of component and subassembly procurement, systems integration
and final assembly, testing and quality control of the complete systems. As of January 31, 2015 we had a
manufacturing staff of 11 employees.

Our Customers

We currently sell our products primarily to video service providers, such as cable system operators and
telecommunications companies, as well as content providers. Our customer base is highly concentrated among a
limited number of large service provider customers. A significant portion of our revenues in any given fiscal
period have been derived from substantial orders placed by these large organizations. For the fiscal year ended
January 31, 2015, Comcast and LGI each accounted for more than 10% of our total revenues.

We expect that we will continue to be dependent upon a limited number of customers for a significant portion of
our revenues in the near future, even as we intend to penetrate new markets and customers. As a result of this
customer concentration, our business, financial condition and results of operations could be materially adversely
affected by the failure of anticipated orders to materialize and by deferrals or cancellations of orders as a result of
changes in customer requirements or new product announcements or introductions. In addition, the concentration
of customers may cause variations in revenue, expenses and operating results on a quarterly basis due to
seasonality of orders, the timing and relative size of orders received and accepted during a fiscal quarter, or the
timing and size of orders for which revenue recognition criteria have been satisfied during a fiscal quarter.

We do not believe that our backlog at any particular time is meaningful as an indicator of our future level of
revenue for any particular period. Because of the requirements of particular customers, orders may require final
acceptance prior to revenue being recognized, resulting in the related revenues not being recognized in the
ensuing quarter. Therefore, there is no direct correlation between the backlog at the end of any quarter and our
total revenue for the following quarter or other periods.

8

Competition

The markets in which we compete are characterized by intense competition, with a large number of suppliers providing
different types of products to different segments of the markets. In new markets for our products, we compete
principally based on price. In markets in which we have an established presence, we compete principally on the basis
of the breadth of our products’ features and benefits, including the flexibility, scalability, professional quality, ease of
use, reliability and cost effectiveness of our products, and our reputation and the depth of our expertise, customer
service and support. While we believe that we currently compete favorably overall with respect to these factors and
that our ability to provide integrated solutions to manage and distribute digital video differentiates us from our
competitors, in the future we may not be able to continue to compete successfully with respect to these factors.

In the market for multiscreen video, we compete with various larger companies offering video platforms and
applications such as Cisco Systems, Inc., Arris Group Inc. (“ARRIS”), and Ericsson Inc. as well as in-house
solutions. In our video gateway software market, we compete with system integrators and gateway software and
applications vendors who offer proprietary software and hardware solutions. In the advertisement platform
market, we generally compete with ARRIS. In the OTT market, we compete with online video platform
providers such as Brightcove, Kaltura and Ooyala. We expect the competition in each of the markets in which we
operate to intensify in the future as existing and new competitors with significant market presence and financial
resources.

Many of our current and prospective competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources. As a result, these competitors may be able to devote greater resources to the
development, promotion, sale and support of their products. Moreover, these companies may introduce additional
products that are competitive with ours or enter into strategic relationships to offer complete solutions, and in the
future our products may not be able to compete effectively with these products.

Proprietary Rights

Our success and our ability to compete are dependent, in part, upon our proprietary rights. We have been granted
31 patents worldwide, have several patents pending and have filed foreign patent applications related thereto for
various technologies developed and used in our products. In addition, we rely on a combination of contractual
rights, trademark laws, trade secrets and copyright laws to establish and protect our proprietary rights in our
products. It is possible that in the future not all of these patent applications will be issued or that, if issued, the
validity of these patents would not be upheld. It is also possible that the steps taken by us to protect our
intellectual property will be inadequate to prevent misappropriation of our technology or that our competitors
will independently develop technologies that are substantially equivalent or superior to our technology. In
addition, the laws of some foreign countries in which our products are or may be distributed do not protect our
proprietary rights to the same extent as do the laws of the United States. Currently, we are not party to
intellectual property litigation, but we may be a party to litigation in the future to enforce our intellectual
property rights or as a result of an allegation that we infringe others’ intellectual property.

Employees

The table below represents the number of employees that we employ in different geographic areas across the
world for the periods shown. We believe that our relations with our employees are good. None of our employees
are represented by a collective bargaining agreement.

Country

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total employees by country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 31,

2015

2014

2013

302
161
137
103

703

382
150
111
80

723

411
143
97
71

722

9

Executive Officers

The following is a list of our executive officers, their ages as of March 31, 2015 and their positions held with us:

Name

Jay A. Samit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Anthony C. Dias . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Age

54

48

David McEvoy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57

Title

Chief Executive Officer and Board member

Chief Financial Officer, Senior Vice President,
Finance and Administration and Treasurer

Senior Vice President and General Counsel and
Secretary

Mr. Samit joined SeaChange as Chief Executive Officer (“CEO”) on October 20, 2014. Mr. Samit currently
serves on the Board of Equal Earth Corporation and as an adjunct professor at the University of Southern
California. Prior to joining SeaChange Mr. Samit was President at ooVoo, a social video chat service, from May
2011 to January 2013. Prior to that Mr. Samit served as CEO of SocialVibe (later renamed TrueX), a digital
advertising technology company powering engagement for some of the world’s top brands, from October 2009 to
January 2011. Prior to that he held senior executive roles with Sony and EMI, where he spearheaded these
companies’ digital media efforts.

Mr. Dias joined the Company on December 3, 2007 as Vice President of Finance and Corporate Controller. He
became Chief Financial Officer in September 2013. Prior to that, Mr. Dias served since June 2012 as Chief
Accounting Officer. Prior to joining SeaChange, Mr. Dias served as Corporate Controller at LeMaitre Vascular,
Inc. from October 2006 to November 2007. Prior to that Mr. Dias held various senior finance positions with
Candela Corporation, Globalware, Inc. and Aldiscon, Inc. (later acquired by Logica). Mr. Dias is also a Certified
Public Accountant.

Mr. McEvoy joined the Company on July 1, 2012 as Vice President and General Counsel. He became Senior
Vice President and General Counsel on February 1, 2013. Prior to joining SeaChange, Mr. McEvoy was the
Senior Vice President and General Counsel of Peoplefluent Inc. Mr. McEvoy was the Senior Vice President and
General Counsel of Art Technology Group, Inc. (“ATG”) from September 2005 to March 2010. ATG was
acquired by Oracle on January 5, 2011. Prior to joining ATG, Mr. McEvoy was the Group General Counsel of
Gores Technology Group, a private equity firm. Mr. McEvoy has held various General Counsel and other
executive level legal positions with several companies including Aprisma Inc., Anker Systems Ltd., VeriFone
Inc., Mattel Interactive, Broderbund and The Learning Company.

Geographic Information

Geographic information is included in Part II, Item 7 of this Form 10-K under the heading “Management’s
Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations” and in
Note 11., “Segment Information, Significant Customers and Geographic Information,” to the consolidated
financial statements located in Part II, Item 8, of this Form 10-K.

Available Information

SeaChange is subject to the informational requirements pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). SeaChange files periodic reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other information may be obtained by
visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC 20549 or by calling the
SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding issuers that file electronically.

Financial and other information about SeaChange, including our Code of Ethics and Business Conduct and
charters for our Audit Committee, Compensation Committee and Corporate Governance and Nominating

10

Committee, is available on the Investor Relations section of our website at www.schange.com. We make
available free of charge on our website our Form 10-K, Quarterly Reports on Form 10-Q (“Form 10-Q”), Current
Reports on Form 8-K (“Form 8-K”) and amendments to those reports as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. The information contained on our web site is not
incorporated by reference into this document and should not be considered a part of this Form 10-K. Our website
address is included in this document as an inactive textual reference only.

Item 1A. RISK FACTORS

We wish to caution each reader of this Form 10-K to consider the following factors and other factors discussed
herein and in other past reports, including but not limited to prior year Form 10-K and Form 10-Q reports filed
with the SEC. Our business and results of operations could be materially affected by any of the following risks.
The factors discussed herein are not exhaustive. Therefore, the factors contained herein should be read together
with other reports that we file with the SEC from time to time, which may supplement, modify, supersede, or
update the factors listed in this document.

Our business is dependent on customers’ continued spending on video systems and services. A reduction in
spending by customers would adversely affect our business.

Our performance is dependent on customers’ continued spending for video systems and services. Spending for
these systems and services is cyclical and can be curtailed or deferred on short notice. A variety of factors affect
the amount of spending, and, therefore, our sales and profits, including:

•

•

•

•

•

•

•

•

general economic conditions;

customer specific financial or stock market conditions;

availability and cost of capital;

governmental regulation;

demand for services;

competition from other providers of video systems and services;

acceptance of new video systems and services by our customers; and

real or perceived trends or uncertainties in these factors.

Any reduction in spending by our customers would adversely affect our business. We continue to have limited
visibility into the capital spending plans of our current and prospective customers. Fluctuations in our revenue
can lead to even greater fluctuations in our operating results. Our planned expense levels depend in part on our
expectations of future revenue. Our planned expenses include significant investments, particularly within our
research and development organization, which we believe are necessary to continue to provide innovative
solutions to meet our current and prospective customers’ needs. As a result, it is difficult to forecast revenue and
operating results. If our revenue and operating results are below the expectations of our investors and market
analysts, it could cause a decline in the price of our common stock.

Our future success is dependent on the continued development of the multiscreen video and over the top
(“OTT”) market and if these markets do not continue to develop, our business may not continue to grow.

A large portion of our anticipated revenue growth is expected to come from sales and services related to our
multiscreen video and OTT products. However, these markets continue to develop as a commercial market, both
within and outside North America. The potential size of these markets and the timing of their development are
uncertain. The success of these markets require that video service providers continue to upgrade their cable
networks to service and successfully market multiscreen video, OTT and similar services to their cable television

11

subscribers. Some cable system operators, particularly outside of North America, are still in the early stages of
commercial deployment of multiscreen video and OTT service to major residential cable markets. If cable system
operators and telecommunications companies fail to make the capital expenditures necessary to upgrade their
networks or determine that broad deployment of multiscreen video and OTT services is not viable as a business
proposition or if our products cannot support a substantial number of subscribers while maintaining a high level
of performance, our revenues will not grow as we have planned.

Our efforts to introduce a SaaS-based multiscreen service offering may either not succeed or impair our
sale of on-site licensed offerings. The occurrence of either of which may adversely affect our financial
condition and operating results.

We have been, and will continue to, devote considerable resources and allocate capital expenditures to growing
our SaaS service offering revenue over the next several years. There can be no assurance that we will meet our
revenue targets for this service and if we fail to achieve our revenue goals, our growth and operating results will
be materially adversely affected. Additionally, new or existing customers may choose to purchase our SaaS
services rather than our on-premise solutions. If our customers’ purchases trend away from perpetual licenses
toward our SaaS, or to the extent customers defer orders due to evaluation SaaS, our product revenues, and our
timing of revenue generally, may be adversely affected, which could adversely affect our results of operations
and financial condition.

If we are unable to successfully introduce new products or enhancements to existing products on a timely
basis, our financial condition and operating results may be adversely affected by a decrease in sales of our
products.

Because our business plan is based on technological development of new products and enhancements to our
existing products, our future success is dependent on our successful introduction of these new products and
enhancements on a timely basis. In the future we may experience difficulties that could delay or prevent the
successful development, introduction and marketing of these and other new products and enhancements, or find
that our new products and enhancements do not adequately meet the requirements of the marketplace or achieve
market acceptance. Announcements of currently planned or other new product offerings may cause customers to
defer purchasing our existing products. Moreover, despite testing by us and by current and potential customers,
errors or failures may be found in our products, and, even if discovered, may not be successfully corrected in a
timely manner. These errors or failures could cause delays in product introductions and acceptance, or require
design modifications that could adversely affect our competitive position. Currently, we are focused on our next
generation software products, including SeaChange Adrenalin™, SeaChange Nucleus™, SeaChange Infusion™
Advanced Advertising Platform and SeaChange Rave™. Our inability to complete the development of these new
products or enhancements on a timely basis or the failure of these new products or enhancements to achieve
market acceptance could have a material adverse effect on our business, financial condition and results of
operations in fiscal 2016 and in future periods.

We may be unsuccessful in our efforts to become a company that primarily provides software solutions.

Our efforts to become a company that primarily provides software solutions may result in a reduction in both the
range of products and services we offer and in the range of our current and potential future customers. Each of
these factors may increase the level of execution risk in our strategy, in that there may be increased variability in
our revenues. If we are unsuccessful in this transition, our business, financial condition and results of operation
may be adversely affected, and the market price of our common stock may decrease.

Our business is impacted by worldwide economic cycles, which are difficult to predict.

The global economy and financial markets experienced a severe downturn in recent years. The downturn
stemmed from a multitude of factors, including, among other things, extreme volatility in security prices,

12

diminished credit availability, concerns about inflation and deflation, rapid changes in foreign exchange rates,
increased energy costs, decreased consumer confidence, rating downgrades of certain investments and declining
valuations of others. These economic developments, the rate of recovery and the change in business spending
resulting from these developments affect businesses such as ours and those of our customers and vendors in a
number of ways that could result in unfavorable consequences to us. The continuation of the change in business
spending from these events or further disruption and deterioration in economic conditions may reduce customer
purchases of our products and services, thereby reducing our revenues and earnings. In addition, these events
may, among other things, result in increased price competition for our products and services, increased risk in the
collectability of our accounts receivable from our customers, increased risk in potential reserves for doubtful
accounts and write-offs of accounts receivable, and higher operating costs as a percentage of revenues. We have
taken actions to address the effects of the change in business spending and future economic cycles, including
implementing cost control and cost reduction measures. It is possible that we may need to take further actions to
control our cost structure and implement further cost reduction measures. We cannot predict whether these
measures will be sufficient to offset certain of the negative trends that might affect our business.

We have taken and continue to take measures to address the variability in the market for our products
and services, which could have long-term negative effects on our business or impact our ability to
adequately address a rapid increase in customer demand.

We have taken and continue to take measures to address the variability in the market for our products and
services, to increase average revenue per unit of our sales and to reduce our operating expenses, rationalize
capital expenditure and minimize customer turnover. These measures include shifting more of our operations to
lower cost regions by outsourcing and off-shoring, implementing cost reduction programs and reducing and
rationalizing planned capital expenditures and expense budgets. We cannot ensure that the measures we have
taken will not impair our ability to effectively develop and market products and services, to remain competitive
in the industries in which we compete, to operate effectively, to operate profitably during slowdowns or to
effectively meet a rapid increase in customer demand. These measures may have long-term negative effects on
our business by reducing our pool of technical talent, decreasing or slowing improvements in our products and
services, making it more difficult to hire and retain talented individuals and to quickly respond to customers or
competitors in an upward cycle.

Because our customer base is highly concentrated among a limited number of large customers, a change in
demand by, a return of product by or the failure to satisfy revenue acceptance criteria in a given quarter
by one or more of these customers, could have a material adverse effect on our business, financial
condition and results of operations.

Our customer base is highly concentrated among a limited number of large customers, and, therefore, a limited
number of customers account for a significant percentage of our revenues in any fiscal period. We generally do
not have written agreements that require customers to purchase fixed minimum quantities of our products. Our
sales to specific customers tend to vary significantly from year to year and from quarter to quarter depending
upon these customers’ budgets for capital expenditures and our new product introductions. We believe that a
significant amount of our revenues will continue to be derived from a limited number of large customers in the
future. The loss of, reduced demand for products or related services by, return of a product previously purchased
by any of our major customers or the failure of revenue acceptance criteria to have been satisfied in a given fiscal
quarter, could materially and adversely affect, either in a particular quarter or on a more long-term basis, our
business, financial condition and results of operations.

Consolidations in the television service providers industry could result in delays or reductions in purchases
of products, which would have a material adverse effect on our business.

The television service providers industry has historically experienced, and continues to experience, the
consolidation of many industry participants. For example, in the first half of calendar 2014, Comcast announced

13

its proposed acquisition of Time Warner Cable and AT&T announced its proposed acquisition of DIRECTV and
in February 2015, Verizon Communications Inc. announced that it is selling certain wireline businesses to
Frontier Communications Corp. When consolidations occur, it is possible that the acquirer will not continue
using the same suppliers, possibly resulting in an immediate or future elimination of sales opportunities for us or
our competitors. Even if sales are not reduced, consolidation can also result in pressure from customers for lower
prices or better terms, reflecting the increase in the total volume of products purchased or the elimination of a
price differential between the acquiring customer and the company acquired. Consolidations also could result in
delays in purchasing decisions by the affected companies prior to completion of the transaction and by the
merged businesses. The purchasing decisions of the merged companies could have a material adverse effect on
our business.

Cancellation or deferral of purchases of our products or final customer acceptance, or the return of
previously purchased products could cause a substantial variation in our operating results, resulting in a
decrease in the market price of our common stock and making period-to-period comparisons of our
operating results less meaningful.

We derive a substantial portion of our revenues from purchase orders that exceed one million dollars in value.
Therefore, any significant cancellation or deferral of purchases of our products or receiving final customer
acceptance could result in a substantial variation in our operating results in any particular quarter due to the
resulting decrease in revenue and gross margin. In addition, to the extent significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected because our operating costs and
expenses are based, in part, on our expectations of future revenues, and we may be unable to adjust spending in a
timely manner to compensate for any revenue shortfall. Because of these factors, in some future quarter our
operating results may be below guidance that we may issue or the expectations of public market analysts and
investors, any of which may adversely affect the market price of our common stock. In addition, these factors
may make period-to-period comparisons of our operating results less meaningful.

Due to the lengthy sales cycle involved in the sale of our products, our quarterly results may vary and
should not be relied on as an indication of future performance.

Our next generation software products and related services are relatively complex and their purchase generally
involves a significant commitment of capital, with attendant delays frequently associated with large capital
expenditures and implementation procedures within an organization. Moreover, the purchase of these products
typically requires coordination and agreement among a potential customer’s corporate headquarters and its
regional and local operations. For these and other reasons, the sales cycle associated with the purchase of our
next generation software products and services is typically lengthy and subject to a number of significant risks,
including customers’ budgetary constraints and internal acceptance reviews, over which we have little or no
control. Based upon all of the foregoing, we believe that our quarterly revenues and operating results are likely to
vary significantly in the future, that period-to-period comparisons of our results of operations are not necessarily
meaningful and that these comparisons should not be relied upon as indications of future performance.

If there were a decline in demand or average selling prices for our products, our revenues and operating
results would be materially affected.

We expect our next generation software product lines to account for a significant portion of our revenues.
Accordingly, a decline in demand or average selling prices for these products in the foreseeable future, whether
as a result of new product introductions by others, price competition, technological change, inability to enhance
the products in a timely fashion, or otherwise, could have a material adverse effect on our business, financial
condition and results of operations.

14

We must manage product transitions successfully in order to remain competitive.

The introduction of a new product or product line is a complex task, involving significant expenditures in
research and development, training, promotion and sales channel development. However, we cannot assure that
we will be able to execute product transitions in an efficient manner or that product transitions will be executed
without harming our operating results. Failure to develop products with required features and performance levels
or any delay in bringing a new product to market could significantly reduce our revenues and harm our
competitive position.

We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors.

Our revenues are difficult to forecast, and as a result, our quarterly operating results can fluctuate substantially.
We use a “pipeline” system, a common industry practice, to forecast sales and trends in our business. Our sales
personnel monitor the status of all proposals and estimate when a customer will make a purchase decision and the
dollar amount of the sale. These estimates are aggregated periodically to generate a sales pipeline. Our pipeline
estimates can prove to be unreliable both in a particular quarter and over a longer period of time, in part because
the “conversion rate” or “closure rate” of the pipeline into contracts can be very difficult to estimate. A reduction
in the conversion rate, or in the pipeline itself, could cause us to plan or budget incorrectly and adversely affect
our business or results of operations. In particular, a slowdown in capital spending or economic conditions
generally can unexpectedly reduce the conversion rate in particular periods as purchasing decisions are delayed,
reduced in amounts or cancelled. The conversion rate can also be affected by the tendency of some of our
customers to wait until the end of a fiscal period in the hope of obtaining more favorable terms, which can also
impede our ability to negotiate, execute and deliver upon these contracts in a timely manner. In addition, for our
new product offerings, including those acquired through our Timeline Labs acquisition, we have limited ability
to predict how their pipelines will convert into sales or revenues. Conversion rates for new product offerings are
often variable as product acceptance often takes longer than anticipated and conversion rates for products
acquired through acquisition may be quite different from the acquired companies’ historical conversion rates,
including from changes in our business practices that we implement with our newly acquired companies that may
affect customer behavior.

Because a significant portion of our cost structure is largely fixed in the short-term, revenue shortfalls tend to
have a disproportionately negative impact on our profitability. The number of large new software licenses
transactions increases the risk of fluctuations in our quarterly results because a delay in even a small number of
these transactions could cause our quarterly revenues and profitability to fall significantly short of our
predictions.

If we are unable to manage our growth and the related expansion in our operations effectively, our
business may be harmed through a diminished ability to monitor and control effectively our operations,
and a decrease in the quality of work and innovation of our employees.

Our ability to successfully offer new products and services and implement our business plan in a rapidly evolving
market requires effective planning and management. We are also continuing to transition towards greater reliance
on our software products and services for a significant portion of our total revenue. In light of the growing
complexities in managing our expanding portfolio of products and services, our anticipated future operations
may continue to strain our operational and administrative resources. To manage future growth effectively, we
must continue to improve our operational controls and internal controls over financial reporting, integrate new
personnel and the businesses we have acquired, or will acquire, and manage our expanding international
operations. A failure to manage our growth may harm our business through a decreased ability to monitor and
control effectively our operations, and a decrease in the quality of work and innovation of our employees upon
which our business is dependent.

15

Because our business is susceptible to risks associated with international operations, we may not be able to
maintain or increase international sales of our products and services.

Our international operations are expected to continue to account for a significant portion of our business in the
foreseeable future. However, in the future we may be unable to maintain or increase international sales of our
products and services. Our international operations are subject to a variety of risks, including:

•

•

•

•

•

difficulties in establishing and managing international distribution channels;

difficulty in staffing and managing foreign operations;

difficulties in selling, servicing and supporting overseas products and services and in translating
products and services into foreign languages;

the uncertainty of laws and enforcement in certain countries relating to the protection of intellectual
property;

fluctuations in currency exchange rates;

• multiple and possibly overlapping tax structures;

•

•

•

•

•

•

negative tax consequences such as withholding taxes and employer payroll taxes;

differences in labor laws and regulations affecting our ability to hire and retain employees;

business and operational disruptions or delays caused by political, social and economic instability and
unrest, including risks related to terrorist activity;

changes in economic policies by foreign governments, including the imposition and potential continued
expansion of economic sanctions by the U.S. and the European Union on the Russian Federation;

the burden of complying with a wide variety of foreign laws, treaties and technical standards; and

growth and stability of the economy or political changes in international markets.

The effect of one or more of these international risks could have a material and adverse effect on our business,
financial condition, operating results and cash flow.

We are subject to the Foreign Corrupt Practices Act (“FCPA”), and our failure to comply could result in
penalties which could harm our reputation, business, and financial condition.

We are subject to the FCPA, which generally prohibits companies and their intermediaries from making
improper payments to foreign officials for the purpose of obtaining or keeping business. The FCPA also requires
companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the
transactions of the Company. Under the FCPA, U.S. companies may be held liable for actions taken by their
strategic or local partners or representatives. The FCPA and similar laws in other countries can impose civil and
criminal penalties for violations.

If we do not properly implement practices and controls with respect to compliance with the FCPA and similar
laws, or if we fail to enforce those practices and controls properly, we may be subject to regulatory sanctions,
including administrative costs related to governmental and internal investigations, civil and criminal penalties,
injunctions and restrictions on our business activities, all of which could harm our reputation, business and
financial condition.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial
results and cash flows.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse
movements in foreign currency exchange rates. These exposures may change over time as business practices

16

evolve, and they could have a material adverse impact on our financial results and cash flows. An increase in the
value of the U.S. dollar could increase the real cost to our customers of our products in those markets outside the
United States where we often sell in dollars, and a weakened dollar could increase local currency operating costs.
In preparing our consolidated financial statements, certain financial information is required to be translated from
foreign currencies to the U.S. dollar using either the spot rate or the weighted-average exchange rate. If the U.S.
dollar weakens or strengthens relative to applicable local currencies, there is a risk our reported sales, operating
expenses, and net income could significantly fluctuate. We are not able to predict the degree of exchange rate
fluctuations, nor can we estimate the effect any future fluctuations may have upon our future operations. For
example, the exchange rate of the U.S. dollar to foreign currency has strengthened significantly of late, which
could make the price of our products and services outside the United States less competitive, reducing our sales
and negatively impacting our financial results.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights
from third-party challenges.

Our success and ability to compete depends upon our ability to protect our proprietary technology that is
incorporated into our products. We rely on a combination of patent, copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property rights. Although we have issued patents, we
cannot assure that any additional patents will be issued or that the issued patents will not be invalidated. We also
enter into confidentiality or license agreements with our employees, consultants and corporate partners, and
control access to and distribution of our software, documentation and other proprietary information. Despite
these precautions, it may be possible for a third-party to copy or otherwise misappropriate and use our products
or technology without authorization, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. We may need to resort to litigation in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary
rights of others. If competitors are able to use our technology, our ability to compete effectively could be harmed.

We have been and in the future could become subject to litigation regarding intellectual property rights,
which could seriously harm our business and require us to incur significant legal costs to defend our
intellectual property rights.

The industry in which we operate is characterized by vigorous protection and pursuit of intellectual property
rights or positions, which on occasion, have resulted in significant and often protracted litigation. We have from
time to time received, and may in the future receive, communications from third parties asserting infringements
on patent or other intellectual property rights covering our products or processes. We may be a party to litigation
in the future to enforce our intellectual property rights or as a result of an allegation that we infringe others’
intellectual property. Any parties asserting that our products infringe upon their proprietary rights would force us
to defend ourselves and possibly our customers or manufacturers against the alleged infringement, as many of
our commercial agreements require us to defend and/or indemnify the other party against intellectual property
infringement claims brought by a third party with respect to our products. We have received certain claims for
indemnification from customers but have not been made party to any litigation involving intellectual property
infringement claims as a result. These claims and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights. This possibility of multiple damages
serves to increase the incentive for plaintiffs to bring such litigation. In addition, these lawsuits, regardless of
their success, would likely be time-consuming and expensive to resolve and would divert management time and
attention away from our operations. Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. In
addition, any potential intellectual property litigation also could force us to stop selling, incorporating or using
the products that use the infringed intellectual property or obtain from the owner of the infringed intellectual
property right a license to sell or use the relevant technology, although this license may not be available on
reasonable terms, or at all, or redesign those products that use the infringed intellectual property. If we are forced
to take any of the foregoing actions, our business may be seriously harmed.

17

If content providers limit the scope of content licensed for use in the digital VOD and OTT market, our
business, financial condition and results of operations could be negatively affected because the potential
market for our products would be more limited than we currently believe and have communicated to the
financial markets.

The success of the multiscreen video market is contingent on content providers permitting their content to be
licensed for use in this market. Content providers may, due to concerns regarding either or both marketing and
illegal duplication of the content, limit the extent to which they provide content to their subscribers. A limitation
of content for the VOD and OTT market would indirectly limit the market for our products which are used in
connection with that market.

If we are not able to obtain necessary licenses, services or distribution rights for third-party technology at
acceptable prices, or at all, our products could become obsolete or we may not be able to deliver certain
product offerings.

We have incorporated third-party licensed technology into our current products and our product lines. From time
to time, we may be required to license additional technology or obtain services from third parties to develop new
products or product enhancements or to provide specific solutions. Third-party providers may not be available or
continue to be available to us on commercially reasonable terms. The inability to maintain or re-license any third-
party products required in our current products or to obtain any new third-party licenses and services necessary to
develop new products and product enhancements or provide specific solutions could require us to obtain
substitute technology of lower quality or performance standards or at greater cost. Such inabilities could delay or
prevent us from making these products or services, which could seriously harm the competitiveness of our
solutions.

We may also incorporate open source software into our products. Although we monitor our use of open source
closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that
such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our
ability to commercialize our products. We could also be subject to similar conditions or restrictions should there
be any changes in the licensing terms of the open source software incorporated into our products. In either event,
we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer
our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a
timely or successful basis, any of which could adversely affect our business, operating results and financial
condition.

If we are unable to successfully compete in our marketplace, our financial condition and operating results
may be adversely affected.

We currently compete against large companies offering video software solutions. To the extent the products
developed are competitive with and not complementary to our products, they may be more cost effective than our
solutions, which could result in cable system operators and telecommunications companies discontinuing their
purchases of our on-demand products. Due to the rapidly evolving markets in which we compete, additional
competitors with significant market presence and financial resources, such as in-house solutions and online video
platforms, may enter those markets, thereby further intensifying competition. Increased competition could result
in price reductions, cancellations of purchase orders, losses of business with current customers to competitors,
and loss of market share which would adversely affect our business, financial condition and results of operations.
Many of our current and potential competitors have greater financial, selling and marketing, technical and other
resources than we do. They may be in better position to withstand any significant reduction in capital spending
by customers in our markets and may not be as susceptible to downturns in a particular market. Moreover, our
competitors may also foresee the course of market developments more accurately than we do. Although we
believe that we have certain technological and other advantages over our competitors, realizing and maintaining
these advantages will require a continued high level of investment by us in research and product development,
marketing and customer service and support. In the future we may not have sufficient resources to continue to

18

make these investments or to make the technological advances necessary to compete successfully with our
existing competitors or with new competitors. If we are unable to compete effectively, our business, prospects,
financial condition and operating results would be materially adversely affected because of the difference in our
operating results from the assumptions on which our business model is based.

If we fail to respond to rapidly changing technologies related to multiscreen video, our business, financial
condition and results of operations would be materially adversely affected because the competitive
advantage of our products and services relative to those of our competitors would decrease.

The markets for our products are characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions and enhancements. Future technological advances in the television and video
industries may result in the availability of new products or services that could compete with the solutions
provided by us or reduce the cost of existing products or services, any of which could enable our existing or
potential customers to fulfill their video needs better and more cost efficiently than with our products. Our future
success will depend on our ability to enhance our existing video products, including the development of new
applications for our technology, and to develop and introduce new products to meet and adapt to changing
customer requirements and emerging technologies such as the OTT market. In the future, we may not be
successful in enhancing our video products or developing and marketing new products which satisfy customer
needs or achieve market acceptance. In addition, there may be services, products or technologies developed by
others that render our products or technologies uncompetitive, unmarketable or obsolete, or announcements of
currently planned or other new product offerings either by us or our competitors that cause customers to defer or
fail to purchase our existing solutions.

We may not fully realize the benefits of our completed acquisitions or it may take longer than we
anticipate for us to achieve those benefits. Future acquisitions may be difficult to integrate, disrupt our
business, dilute stockholder value or divert management attention.

As part of our business strategy, we have acquired and may in the future seek to acquire or invest in new
businesses, products or technologies that we believe could complement or expand our business, augment our
market coverage, enhance our technical capabilities or otherwise offer growth opportunities such as our
acquisition of Timeline Labs on February 2, 2015. Acquisitions could create risks for us, including:

•

•

•

•

difficulties in assimilation of acquired personnel, operations, technologies or products which may
affect our ability to develop new products and services and compete in our rapidly changing
marketplace due to a resulting decrease in the quality of work and innovation of our employees upon
which our business is dependent;

delays in realizing, or failure to realize, the anticipated benefits of an acquisition;

adverse effects on the business relationships with pre-existing suppliers and customers of both
companies. This may be of particular importance to our business because we sell our products to a
limited number of large customers, we purchase certain components used in manufacturing our
products from sole suppliers and we use a limited number of third-party manufacturers to manufacture
our product; and

uncertainty among current and prospective employees regarding their future roles with our company,
which might adversely affect our ability to retain, recruit and motivate key personnel.

Acquisitions or divestitures may adversely affect our financial condition.

We acquired Timeline Labs on February 2, 2015 to supplement and expand our product offerings. In the future,
we could acquire additional products, technologies or businesses, or enter into joint venture arrangements, for the
purpose of complementing or expanding our business. Negotiation of potential acquisitions, divestitures or joint
ventures and our integration or transfer of acquired or divested products, technologies or businesses, could divert
management’s time and resources.

19

As part of our strategy for growth, we may continue to explore acquisitions, divestitures, or strategic alliances,
which may not be completed or may not be ultimately beneficial to us.

Acquisitions or divestitures may pose risks to our operations, including:

•

•

•

•

•

problems and increased costs in connection with the integration or divestiture of the personnel,
operations, technologies, or products of the acquired or divested businesses;

unanticipated costs;

potential disruption of our business and the diversion of management’s attention from our core
business during the acquisition process;

inability to make planned divestitures of businesses on favorable terms in a timely manner or at all;

acquired assets becoming impaired as a result of technical advancements or worse-than-expected
performance by the acquired company; and entering markets in which we have no, or limited, prior
experience.

Additionally, in connection with any acquisitions or investments we could:

•

•

•

•

•

•

•

issue stock that would dilute our existing stockholders’ ownership percentages, such as we agreed to do
with our Timeline Labs acquisition;

incur debt and assume liabilities;

record contingent liabilities estimated for potential earnouts based on achieving financial targets;

obtain financing on unfavorable terms;

incur amortization expenses related to acquired intangible assets or incur large and immediate write-
offs;

incur large expenditures related to office closures of the acquired companies, including costs relating to
the termination of employees and facility and leasehold improvement charges resulting from our
having to vacate the acquired companies’ premises; and

reduce the cash that would otherwise be available to fund operations or for other purposes.

The performance of the companies in which we have made and may in the future make equity investments
could have a material adverse effect on our financial condition and results of operations.

We have made non-controlling equity investments in complementary companies and we may in the future make
additional investments. These investments may require additional capital and may not generate the expected rate
of return that we believed possible at the time of making the investment. This may adversely affect our financial
condition or results of operations. Also, investments in development-stage companies may generate other than
temporary declines in fair value of our investment that would result in impairment charges.

If our indefinite-lived or other intangible assets become impaired, we may be required to record a
significant charge to earnings.

Under accounting principles generally accepted in the United States (“U.S. GAAP”), we review our intangible
assets, including goodwill, for impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. Indefinite-lived assets are required to be tested for impairment at least annually. Factors
that may be considered a change in circumstances indicating that the carrying value of our indefinite-lived assets
or other intangible assets may not be recoverable include declines in our stock price and market capitalization, or
decreased future cash flows projections. Our valuation methodology for assessing impairment requires
management to make judgments and assumptions based on projections of future operating performance. We

20

operate in highly competitive environments and projections of future operating results and cash flows may vary
significantly from actual results. We may be required to record a significant noncash charge to earnings in our
financial statements during the period in which any impairment of our indefinite-lived assets or other intangible
assets is determined.

We may experience risks in our investments due to changes in the market, which could adversely affect the
value or liquidity of our investments.

We maintain a portfolio of marketable securities in a variety of instruments which may include commercial
paper, certificates of deposit, money market funds and government debt securities. These investments are subject
to general credit, liquidity, market, and interest rate risks. As a result, we may experience a reduction in value or
loss of liquidity of our investments. These market risks associated with our investment portfolio may have a
negative adverse effect on our results of operations, liquidity and financial condition.

The success of our business model could be influenced by changes in the regulatory environment, such as
changes that either would limit capital expenditures by television, cable or telecommunications operators
or reverse the trend towards deregulation in the industries in which we compete.

The telecommunications and television industries are subject to extensive regulation which may limit the growth
of our business, both in the United States and other countries. The growth of our business internationally is
dependent in part on deregulation of the telecommunications industry abroad, similar to that which has occurred
in the United States, and the timing and magnitude of this growth, which is uncertain. Video service providers are
subject to extensive government regulation by the Federal Communications Commission and other federal, state
and international regulatory agencies. These regulations could have the effect of limiting capital expenditures by
video service providers and thus could have a material adverse effect on our business, financial condition and
results of operations. The enactment by federal, state or international governments of new laws or regulations,
changes in the interpretation of existing regulations or a reversal of the trend toward deregulation in these
industries could adversely affect our customers, and thereby materially adversely affect our business, financial
condition and results of operations.

We may not be able to hire and retain highly skilled employees, which could affect our ability to compete
effectively because our business is technology-based.

Our success depends to a significant degree upon the continued contributions of our key personnel, many of
whom would be difficult to replace. We believe that our future success will also depend in large part upon our
ability to attract and retain highly skilled managerial, engineering, customer service, selling and marketing,
finance, administrative and manufacturing personnel, as our business is technology-based. Because competition
for these personnel is intense, we may not be able to attract and retain qualified personnel in the future. The loss
of the services of any of the key personnel, the integration of new personnel, the inability to attract or retain
qualified personnel in the future or delays in hiring required personnel, particularly software engineers and sales
personnel could have a material adverse effect on our business, financial condition and results of operations
because our business is technology-based.

We face significant risks to our business when we engage in the outsourcing of engineering work, including
outsourcing of software work overseas, which, if not properly managed, could result in the loss of valuable
intellectual property and increased costs due to inefficient and poor work product, which could harm our
business, including our financial results, reputation, and brand.

We may, from time-to-time, outsource engineering work related to the design and development of our products,
typically to save money and gain access to additional engineering resources. We have worked, and expect to
work in the future, with companies located in jurisdictions outside of the United States, including, but not limited
to India, Poland and the Philippines. We have limited experience in the outsourcing of engineering and other

21

work to third-parties located internationally that operate under different laws and regulations than those in the
United States. If we are unable to properly manage and oversee the outsourcing of this engineering and other
work related to our products, we could suffer the loss of valuable intellectual property, or the loss of the ability to
claim such intellectual property, including patents and trade names. Additionally, instead of saving money, we
could in fact incur significant additional costs as a result of inefficient engineering services and poor work
product. As a result, our business would be harmed, including our financial results, reputation, and brand.

We may have additional tax liabilities.

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant
judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our
business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are
regularly under audit by various tax jurisdictions. Although we believe our tax estimates are reasonable, the final
determination of tax audits and any related litigation could be materially different from our historical income tax
provisions and accruals. The results of an audit or litigation could have a material effect on our income tax
provision, net income, or cash flows in the period or periods for which that determination is made. In addition,
we are subject to sales, use and similar taxes in many countries, jurisdictions and provinces, including those
states in the United States where we maintain a physical presence or have a substantial nexus. These taxing
regimes are complex. For example, in the United States, each state and local taxing authority has its own
interpretation of what constitutes a sufficient physical presence or nexus to require the collection and remittance
of these taxes. Similarly, each state and local taxing authority has its own rules regarding the applicability of
sales tax by customer or product type.

In September 2013, we received an audit notification from the Internal Revenue Service (“IRS”) requesting
materials relating to our 2009 through 2011 federal tax return. As of January 31, 2015, we continue to provide
information relating to the audit and have not received or agreed upon any final adjustments from the IRS.

If our security measures are breached and unauthorized access is obtained to a customer’s data or our
data on our systems, our service may be perceived as not being secure, customers may curtail or stop using
our service and we may incur significant legal and financial exposure and liabilities.

Our service involves the transmission of customers’ proprietary information and security breaches could expose
us to a risk of loss of this information or a network disruption, which may result in litigation and possible
liability. These security measures may be breached as a result of third-party action, including intentional
misconduct by computer hackers, employee error, malfeasance or otherwise and result in unauthorized
publication of our confidential business or proprietary information, cause an interruption in our operations, result
in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, expose us
to a risk of litigation or damage our reputation, which could harm our business and operating results.
Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive
information such as user names, passwords or other information in order to gain access to our customers’ data or
our data or IT systems. Because the techniques used to obtain unauthorized access, or to sabotage systems,
change frequently and generally are not recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative measures. In addition, our customers may
authorize third-party technology providers to access their customer data. Because we do not control our
customers and third-party technology providers, or the processing of such data by third-party technology
providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third-parties
may also conduct attacks designed to temporarily deny customers access to our services. Any security breach
could result in a loss of confidence in the security of our service, damage our reputation, negatively impact our
future sales, disrupt our business and lead to legal liability. While we believe that we have taken appropriate
security measures to minimize these risks to our data and information systems, there can be no assurance that our
efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.

22

Recently reported hacking attacks on government and commercial computer systems raise the risks that such an
attack may compromise, in a material respect, one or more of our computer systems and permit hackers access to
our proprietary information and data. If such an attack does, in fact, allow access to or theft of our proprietary
information or data, our business, operating results and reputation could be materially and adversely affected.

Interruptions or delays in service from our third-party data center hosting facilities could impair the
delivery of our service and harm our business.

For our customers buying our SaaS product offering, we use third-party data center hosting facilities located in
the United States and the United Kingdom. Any damage to, or failure of, our systems generally could result in
interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay
penalties, cause customers to terminate their subscriptions and adversely affect our attrition rates and our ability
to attract new customers. Our business will also be harmed if our customers and potential customers believe our
service is unreliable. We do not control the operation of any of these facilities, and they are vulnerable to damage
or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They
may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite
precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close
the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy
interruptions in our service. Even with the disaster recovery arrangements, our service could be interrupted.

We recently implemented a restructuring program, which could have a material negative impact on our
business.

To increase strategic focus and operational efficiency, at the end of January 2015, we implemented a restructuring
program that will affect approximately 100 full-time positions. We anticipate completing the majority of the
activities related to our restructuring program over the next several quarters. We may incur additional restructuring
costs or not realize the expected benefits of these new initiatives. Further, we could experience delays, business
disruptions, decreased productivity, unanticipated employee turnover and increased litigation related costs in
connection with the restructuring and other efficiency improvement activities, and there can be no assurance that
our estimates of the savings achievable by the restructuring will be realized. As a result, our restructuring and our
related cost reduction activities could have an adverse impact on our financial condition or results of operations.

Our stock price may be volatile and an investment in our stock may decline.

Historically, the market for technology stocks has been extremely volatile. Our common stock has experienced,
and may continue to experience, substantial price volatility. The occurrence of any one or more of the factors
noted above could cause the market price of our common stock to fluctuate. The stock market in general, and The
NASDAQ Global Select Market (“NASDAQ”) and technology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. These broad market and industry factors may materially adversely affect the
market price of our common stock, regardless of our actual operating performance. In these circumstances,
investors may be unable to sell their shares of our common stock at or above their purchase price over the short-
term, or at all. In the past, following periods of volatility in the market price of a company’s securities, securities
class action litigation has often been instituted against such companies.

Securities analysts may not publish favorable research or reports about our business or may publish no
information which could cause our stock price or trading volume to decline.

The trading market for our common stock is influenced by the research and reports industry or financial analysts
publish about us and our business. We do not control these analysts. If any of the analysts who cover us issue an
adverse opinion regarding our stock price, our stock price would likely decline. If one or more of these analysts
cease coverage of our company or fail to regularly publish reports covering us, we could lose visibility in the
market, which in turn could cause our stock price or trade volume to decline.

23

We utilize non-GAAP reporting in our quarterly earnings press releases.

We publish non-GAAP financial measures in our quarterly earnings press releases along with a reconciliation of non-
GAAP financial measures to those measures compiled in accordance with accounting principles generally accepted in
the U.S. GAAP. The reconciling items have adjusted U.S. GAAP net (loss) income and U.S. GAAP (loss) earnings per
share for certain non-cash, non-operating or non-recurring items and are described in detail in each such quarterly
earnings press release. We believe that this presentation may be more meaningful to investors in analyzing the results
of operations and income generation as this is how our business is managed. The market price of our stock may
fluctuate based on future non-GAAP results if investors base their investment decisions upon such non-GAAP
financial measures. If we decide to curtail use of non-GAAP financial measures in our quarterly earnings press
releases, the market price of our stock could be affected if investors analyze our performance in a different manner.

Any weaknesses identified in our system of internal controls by us and our independent registered public
accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on
our business.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of
internal control over financial reporting. In addition, our independent registered public accounting firm must
report on its evaluation of those controls. In future periods, we may identify deficiencies, including as a result of
the loss of the services of one or more of our key personnel, in our system of internal controls over financial
reporting that may require remediation. There can be no assurances that any such future deficiencies identified
may not be significant deficiencies or material weaknesses that would be required to be reported in future
periods.

Because we purchase certain material components used in manufacturing our products from sole suppliers
and we use a limited number of third-party manufacturers to manufacture our products, our business,
financial condition and results of operations could be materially adversely affected by a failure of these
suppliers or manufacturers.

We rely on a limited number of third parties who manufacture certain components used in our products. We may
experience quality control problems, where products did not meet specifications or were damaged in shipping,
and delays in the receipt of these components. These risks could be heightened during a substantial economic
slowdown or if a sole supplier were adversely affected by a natural disaster because our suppliers are more likely
to experience adverse changes in their financial condition and operations during such a period. While we believe
that there are alternative suppliers available for these components, we believe that the procurement of these
components from alternative suppliers could take a significant amount of time. In addition, these alternative
components may not be functionally equivalent or may be unavailable on a timely basis or on similar terms. The
inability to obtain sufficient key components as required, or to develop alternative sources if and as required in
the future, could result in delays or reductions in product shipments which, in turn, could have a material adverse
effect on our business, financial condition and results of operations. While to date there has been suitable third-
party manufacturing capacity readily available at acceptable quality levels, in the future there may not be
manufacturers that are able to meet our future volume or quality requirements at a price that is favorable to us.
Any financial, operational, production or quality assurance difficulties experienced by these third-party
manufacturers that result in a reduction or interruption in supply to us could have a material adverse effect on our
business, financial condition and results of operations.

Regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency
and accountability concerning the supply of certain minerals, known as conflict minerals. As a result, the SEC
adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from
the DRC and adjoining countries in their products. These regulations may require due diligence efforts by the
Company each year with disclosure requirements due annually on May 31st. There are costs associated with

24

complying with these disclosure requirements, including due diligence to determine the sources of conflict
minerals used in our products and other potential changes to products, processes or sources of supply as a
consequence of such verification activities. Even though we are not aware of any conflict minerals in our
products, the implementation of these rules could adversely affect the sourcing, supply and pricing of materials
used in our products in the future. As there may be only a limited number of suppliers offering “conflict free”
conflict minerals, we cannot be sure that we will be able to obtain necessary materials from such suppliers in
sufficient quantities or at competitive prices. Also, we may face adverse effects to our reputation if we determine
that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently
verify the origins for all conflict minerals used in our products through the procedures we may implement.

As a Delaware corporation, we are subject to certain Delaware anti-takeover provisions.

As a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the Delaware
General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular
those owning 15% or more of the voting rights of our common stock, from merging or combining with us for a
practical period of time. Any provision of our certificate of incorporation or bylaws or Delaware law that has the
effect of delaying or deterring a change in control of SeaChange could limit the opportunity of our stockholders
to receive a premium for their shares of SeaChange common stock and also could affect the price that some
investors are willing to pay for our common stock.

Changes in financial accounting standards may cause adverse unexpected revenue fluctuations and affect
our reported results of operations.

A change in accounting policies can have a significant effect on our reported results and may even affect our
reporting of transactions completed before the change is effective. New pronouncements and varying
interpretations of existing pronouncements have occurred with frequency and may occur in the future. Changes
to existing rules, or changes to the interpretations of existing rules, could lead to changes in our accounting
practices, and such changes could adversely affect our reported financial results or the way we conduct our
business.

The Financial Accounting Standards Board (“FASB”) issued a new accounting standard for revenue recognition
in May 2014—Accounting Standards Update No. (“ASU”) 2014-09, “Revenue from Contracts with Customers
(Topic 606)”—that supersedes nearly all existing U.S. GAAP revenue recognition guidance. Although we are
currently in the process of evaluating the impact of ASU 2014-09 on our consolidated financial statements, it is
likely to change the way we account for certain of our sales transactions in fiscal 2018, the first year that such
new rules will be effective for us. Adoption of the standard could have a significant impact on our financial
statements and may retroactively affect the accounting treatment of transactions completed before adoption.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

25

Item 2. PROPERTIES

Location

Principal Use

Square Feet

Owned Facilities
Acton, Massachusetts

Corporate Headquarters,
Engineering, Customer Services,
Manufacturing, Marketing and
Human Resources

Greenville, New Hampshire

Subleased

Leased Facilities
Eindhoven, The Netherlands

Engineering, Sales and Customer
Services

Milpitas, California

Engineering

Manila, Philippines

Engineering and Customer Services

Portland, Oregon

Engineering

120,000

24,000

20,553

20,155

14,175

9,557

In addition, we lease offices in Ft. Washington, Pennsylvania, Ireland, India and Turkey. We believe that existing
facilities are adequate to meet our foreseeable requirements.

Item 3. LEGAL PROCEEDINGS

We enter into agreements in the ordinary course of business with customers, resellers, distributors, integrators
and suppliers. Most of these agreements require us to defend and/or indemnify the other party against intellectual
property infringement claims brought by a third party with respect to our products. From time to time, we also
indemnify 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 our
products and services or resulting from the acts or omissions of us, our employees, authorized agents or
subcontractors. From time to time, we have received requests from customers for indemnification of patent
litigation claims. Management cannot reasonably estimate any potential losses, but these claims could result in
material liability for us.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

26

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrant’s Common Equity

Our common stock is traded on NASDAQ under the symbol “SEAC”.

The following table sets forth the quarterly high and low closing sales prices per share reported on NASDAQ for
our last two fiscal years ended January 31, 2015 and 2014.

Fiscal Year 2015

Fiscal Year 2014

High

Low

High

Low

Three Month Period Ended:

First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12.27
9.71
7.97
7.45

$9.26
7.49
6.48
5.43

$12.08
12.58
15.12
14.86

$10.50
10.51
9.97
11.11

On April 2, 2015, there were 149 holders of record.

We have never declared or paid any cash dividends on our common stock, since inception, and do not expect to
pay cash dividends on our common stock in the foreseeable future. We currently intend to retain all of our future
earnings for use in operations and to finance the expansion of our business.

Issuer Purchases of Equity Securities

Stock Repurchase Plans

On September 4, 2013, our Board of Directors authorized the repurchase of up to $25.0 million of our common
stock through a share repurchase program which would have terminated on January 31, 2015. On May 31, 2014,
this program was amended to increase the authorized repurchase amount to $40.0 million and extend the
termination date to April 30, 2015. Under the program, we are authorized to repurchase shares through
Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in
accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of
1934. This share repurchase program does not obligate us to acquire any specific number of shares and may be
suspended or discontinued at any time. All repurchases are expected to be funded from our current cash and
investment balances. The timing and amount of shares to be repurchased will be based on market conditions and
other factors, including price, corporate and regulatory requirements, and alternative investment opportunities.
Any shares repurchased by us under the share repurchase program will reduce the number of shares outstanding.
Pursuant to the share repurchase program, we executed a Rule 10b5-1 plan in June 2014 to repurchase shares.
We used $5.5 million of cash in connection with the repurchase of 591,520 shares of our common stock (an
average price of $9.31 per share) in fiscal 2015. As of January 31, 2015, $34.5 million remained available for
repurchase under the existing share repurchase authorization.

Stock Performance Graph

The following graph compares the change in the cumulative total stockholder return on SeaChange’s common
stock during the period from the close of trading on January 31, 2010 through January 31, 2015, with the
cumulative total return on the Center for Research in Securities Prices (“CRSP”) Index for NASDAQ (U.S.
Companies) and a SIC Code Index based on SeaChange’s SIC Code. The comparison assumes $100 was invested
on January 29, 2010 in SeaChange’s common stock at the $6.47 closing price on January 29, 2010 and in each of
the foregoing indices and assumes reinvestment of dividends, if any.

27

The following graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated
by reference in any filing of SeaChange under the Securities Act or the Exchange Act, whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing. The stock price
performance shown on the following graph is not necessarily indicative of future price performance. Information
used on the graph was obtained from a third-party provider, a source believed to be reliable, but SeaChange is not
responsible for any errors or omissions in such information.

$300

$250

$200

$150

$100

$50

$0

SeaChange International, Inc. (SEAC)

NASDAQ Composite Index Total Return

3663 Radio & TV Broadcasting & Comms Equipment

Jan-29-2010
$100.0

Jan-31-2011
$126.4

Jan-31-2012
$125.8

Jan-31-2013
$147.4

Jan-31-2014
$196.3

Jan-30-2015
$198.7

$100.0

$100.0

$125.5

$128.0

$132.1

$111.0

$149.5

$172.3

$197.8

$184.9

$226.1

$109.1

Notes:

(1) The lines represent monthly index levels derived from compounded daily returns that include all

(2)

dividends.
If the monthly interval, based on the fiscal year end, is not a trading day, the preceding trading day is
used.

(3) The index level for all series was set to 100 on January 31, 2010.

28

Item 6. SELECTED FINANCIAL DATA

Our selected financial data below should be read in conjunction with our audited, consolidated financial
statements and related notes contained in Part II, Item 8., “Financial Statements and Supplementary Data,” of
this Form 10-K. For all periods presented, this selected financial data have been adjusted to reflect the businesses
divested as discontinued operations.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

For the Fiscal Years Ended January 31,

2015

2014

2013

2012

2011

Product revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,507
83,928

(Amounts in thousands, except per share data)
$ 64,274
92,914

$ 54,749
91,570

$ 73,157
91,635

$ 82,155
91,500

Total revenues . . . . . . . . . . . . . . . . . . . .
Total operating costs and expenses . . . . . . . . . . . .
Other (expense) income, net
. . . . . . . . . . . . . . . . .
(Loss) gain on sale of investment in affiliates . . . .

115,435
(141,888)
(2,161)
—

146,319
(147,948)
(224)
(363)

157,188
(162,534)
(86)
885

164,792
(166,462)
6

—

173,655
(171,669)
(880)
27,071

(Loss) income before income taxes and equity

income in earnings of affiliates . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . .
Equity income in earnings of affiliates, net of

(28,614)
(1,106)

(2,216)
55

(4,547)
(1,555)

tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

44

193

Net (loss) income from continuing operations . . .
Loss on sale of discontinued operations . . . . . . . .
Income (loss) from discontinued operations,

(27,489)
—

(2,227)
—

(2,799)
(14,073)

(1,664)
1,881

142

(3,403)
—

28,177
(2,227)

167

30,571
—

net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

(803)

(2,293)

(611)

(1,103)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (27,484) $

(3,030) $ (19,165) $

(4,014) $ 29,468

(Loss) earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Loss) earnings per share from continuing

operations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) per share from discontinued

operations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

(0.84) $
(0.84) $

(0.09) $
(0.09) $

(0.59) $
(0.59) $

(0.13) $
(0.13) $

0.94
0.92

(0.84) $
(0.84) $

(0.07) $
(0.07) $

(0.09) $
(0.09) $

(0.11) $
(0.11) $

0.98
0.96

0.00
0.00

$
$

(0.02) $
(0.02) $

(0.50) $
(0.50) $

(0.02) $
(0.02) $

(0.04)
(0.04)

CONSOLIDATED BALANCE SHEET DATA

2015

2014

2013

2012

2011

As of January 31,

Working capital . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . .

$ 101,014
212,351
19,088
6,266
41,300
171,051

29

(Amounts in thousands)
$ 116,922
264,676
30,603
7,815
62,475
202,201

$ 125,875
254,113
25,628
6,670
49,672
204,441

$ 103,290
298,852
35,735
21,685
87,914
210,938

$ 92,846
305,191
39,783
27,275
96,049
209,142

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (“MD&A”)

The following discussion should be read in conjunction with our consolidated financial statements and
accompanying notes included in this Form 10-K. When reviewing the discussion, you should keep in mind the
substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the
risk and uncertainties described under Item 1A., “Risk Factors,” of this Form 10-K. These risks and uncertainties
could cause actual results to differ materially from those forecasted in forward-looking statements or implied by
past results and trends. Forward-looking statements are statements that attempt to project or anticipate future
developments in our business; we encourage you to review the discussion of forward-looking statements under
“Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform
Act of 1995,” at the beginning of this report. These statements, like all statements in this report, speak only as of
the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the
statements in light of future developments. Unless otherwise specified, any reference to a “year” is to a fiscal
year ended January 31st.

Business Overview

We are an industry leader in the delivery of multiscreen video headquartered in Acton, Massachusetts. Our
products and services facilitate the aggregation, licensing, management and distribution of video and advertising
content for cable television system operators, telecommunications and media companies (television networks,
movie studios and broadcasters). We currently operate under one reporting segment.

In fiscal 2016, we expect to continue addressing what we see as the continuing rise of over-the-top (“OTT”)
services by such companies as Netflix, Hulu and Amazon and by media companies such as HBO, CBS and BBC.
This rise of OTT video services in the United States has increased the demand for multiscreen capabilities on a
range of consumer devices operating on cloud-based platforms. We have been increasing our strategic
investments in research and development related to our cloud-based offerings, as well as in sales and marketing
as we work to increase our go-to-market efforts in this area.

We plan to invest in Rave, our cloud-based SaaS offering, which permits service providers and media companies
to offer features and functions through a service hosted and managed by SeaChange, reducing cost and increasing
speed and ease of use for end-users. We believe that delivering innovative solutions to both our existing customer
base and to content owners that are looking to provide OTT services, we can meet their growing needs and help
them get to market faster that will help them drive new revenue growth. Recognizing the importance of OTT, we
have architected our cloud solutions and products to make integrating with existing networks simple and a core
competency of our platform. We have optimized our software solutions to serve a wide range of consumer
devices.

We expect that revenue from our next generation products will continue to grow during fiscal 2016. This is
driven by increasing market acceptance of both Adrenalin and Nucleus. We believe that we have the opportunity
for continued revenue growth by expanding our selling efforts in new geographic areas such as Asia Pacific and
Latin America. We also believe that our existing service operator customers will need to upgrade to the next
generation product to enable the capacity to increase average revenue per subscriber, reduce operating and capital
expenses, and lower customer churn. During fiscal 2015, we continued to generate new design wins driven by
growth of Adrenalin and market introduction of our Nucleus product. We also achieved our first win with a
media company for an OTT solution that will be deployed in fiscal 2016 and several service providers have
entered into trials of our Rave product.

On February 2, 2015, we acquired Timeline Labs, a California-based software-as-a-service (“SaaS”) company
that enables local broadcasters, national news organizations and other media companies and brands to analyze

30

social media messages in real-time, find and broadcast social trends, and measure viewing audience engagements
across television, mobile and personal computers.

We continue to experience fluctuations in our revenues from period to period due to the following factors:

• Budgetary approvals by our customers for capital purchases;

• The ability of our customers to process the purchase order within their organization in a timely manner;

• The time required to deliver and install the product and for the customer to accept the product and

services;

• Declines in sales of legacy products; and

• Uncertainty caused by potential consolidation in the industry.

In addition, many customers may delay or reduce capital expenditures. This, together with other factors, could
result in the reductions in sales of our products, longer sales cycles, difficulties in collection of accounts
receivable, a longer period of time before we may recognize revenue attributable to a sale, excess and obsolete
inventory, gross margin deterioration, slower adoption of new technologies, the transition to SaaS, and increased
price competition.

In January 2015, we initiated a global restructuring plan to streamline our activities, primarily from an employee
headcount reduction of 10%, now that our next generation software products have been brought to market and
are being deployed around the globe. The reduction in workforce was implemented immediately in the United
States and, to comply with non-U.S. legal requirements, will be implemented on an international basis over the
next several quarters. Once fully implemented, we expect this initiative to yield approximately $11 million in
annualized cost savings.

Results of Operations

The following discussion summarizes the key factors our management believes are necessary for an
understanding of our consolidated financial statements.

Revenues

The components of our total revenues are described in the following table:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Software Revenues:

Products . . . . . . . . . . . . . . . $ 31,507
83,928
Services . . . . . . . . . . . . . . .

$ 54,749
91,570

$ 64,274
92,914

$(23,242)
(7,642)

(42.5%) $ (9,525)
(1,344)
(8.3%)

(14.8%)
(1.4%)

Total revenues . . . . . . . . . . . . . .

115,435

146,319

157,188

(30,884)

(21.1%)

(10,869)

(6.9%)

Cost of product

revenues . . . . . . . . . . . . .
Cost of service revenues . .
Inventory write-down . . . . .

Total cost of revenues . . . . . . . .

9,915
48,413
—

58,328

11,795
55,325
—

67,120

19,826
52,319
1,752

73,897

(1,880)
(6,912)
—

(15.9%)
(12.5%)
N/A

(40.5%)
(8,031)
3,006
5.7%
(1,752) (100.0%)

(8,792)

(13.1%)

(6,777)

Gross profit

. . . . . . . . . . . . . . . . $ 57,107

$ 79,199

$ 83,291

$(22,092)

(27.9%) $ (4,092)

Gross product profit margin . . . .
Gross service profit margin . . . .
Gross profit margin . . . . . . . . . .

68.5%
42.3%
49.5%

69.2%
43.7%
53.0%

(10.0%)
2.7%
(4.6%)

78.5%
39.6%
54.1%

31

(9.2%)

(4.9%)

9.3%
(4.1%)
1.1%

Fiscal 2015 As Compared to Fiscal 2014
Product Revenue. Product revenue in fiscal 2015 decreased $23.2 million, or 43%, as compared to fiscal 2014
due primarily to:

•
•

•

a $14.0 million decrease in our legacy middleware product line;
a $6.6 million decrease in revenue from our multiscreen video platform primarily in Europe and South
America; and
a $2.6 million decrease primarily related to lower revenue from our legacy VOD backoffice products.

The $16.6 million decline in revenue from legacy products is consistent with our expectations for fiscal 2015.
We expect revenues from our legacy products to continue to decrease in fiscal 2016. The decline in revenue from
legacy products will be offset by an increase in our next generation product revenue.

Service Revenue. Service revenue decreased $7.6 million, or 8%, for fiscal 2015, when compared to fiscal 2014,
primarily due to lower video gateway service revenue and lower installation revenues due to lower product
revenues.

For fiscal 2015, two customers each accounted for more than 10%, and collectively accounted for 32% of our
total revenues. For fiscal 2014, three customers each accounted for more than 10%, and collectively accounted
for 49% of our total revenues. We believe that a significant amount of our revenues will continue to be derived
from a limited number of customers.

International revenues accounted for approximately 48%, or $55.6 million, and 54%, or $79.4 million, of total
revenues in fiscal 2015 and 2014, respectively. The strengthening of the U.S. dollar against the Euro adversely
impacted revenue by approximately $1.9 million in fiscal 2015. Since January 31, 2015, the U.S. dollar has
continued to strengthen against the Euro, therefore, we expect that revenue will continue to be impacted next
fiscal year as international revenues remain a significant portion of our business.

Gross Profit and Margin. Cost of product revenues consists primarily of the cost of resold third-party products
and services, purchased components and subassemblies, labor and overhead relating to the assembly and testing
of complete systems and costs related to customized software development contracts.

Our gross profit margin decreased approximately five percentage points for fiscal 2015, as compared to fiscal
2014. This decrease in gross profit margin was primarily due to a 10 percentage point decrease in gross product
profit margin to 69% for fiscal 2015, primarily due to lower legacy middleware revenue, which carried high
margins, offset by a three percentage point increase in gross service profit margin to 42% for fiscal 2015,
compared to fiscal 2014, primarily due to a mix of lower video gateway service revenue, as mentioned above,
which carry lower margins due to the customer-specific requirements.

Fiscal 2014 As Compared to Fiscal 2013
Product Revenue. Product revenue decreased $9.5 million, or 15%, for fiscal 2014 as compared to fiscal 2013
due primarily to:

•

•

•
•

a $13.3 million decrease in our revenues from legacy products, primarily in our advertising sales to our
North American customers and VOD server product lines primarily to South American customers; and
$3.1 million in lower video gateway license revenues due to a significant licensing transaction with a
customer in Europe during fiscal 2013; offset by
a $3.0 million increase in revenues from our legacy middleware product line; and
a $3.9 million increase in revenues from our multiscreen video platform sales to large North American
customers.

Service Revenue. Service revenue for fiscal 2014 decreased $1.3 million as compared to fiscal 2013. This is
primarily related to a $2.5 million decrease in our legacy middleware service revenues as a result of a fiscal 2013
amendment with a European customer which resulted in a higher portion of revenue to be recognized as product
revenue in fiscal 2014. This decrease was partially offset by higher customization service revenues primarily for
our next generation multiscreen platform products.

32

Gross Profit and Margin. Our gross profit margin increased one percentage point for fiscal year ended
January 31, 2014, as compared to fiscal 2013, net of the inventory write-down recorded during the second quarter
of fiscal 2013.

This is primarily due to the following:

• A four percentage point decrease in gross service profit margin to 40% for fiscal 2014, compared to

fiscal 2013, primarily due to the mix of higher customized development revenues which typically carry
lower margins due to higher costs of research and development personnel; offset by

• A nine percentage point increase in gross product profit margin to 79% for fiscal 2014, primarily due to
a mix of higher software licensing revenues and lower VOD server revenues, which typically carry
lower margins.

Operating Expenses

Research and Development

The following table provides information regarding the change in research and development expenses during the
periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Research and development

expenses . . . . . . . . . . . . . . . .
% of total revenue . . . . . . .

$ 42,169

$ 39,657

$ 38,667

$ 2,512

6.3% $ 990

2.6%

36.5%

27.1%

24.6%

Fiscal 2015 As Compared to Fiscal 2014

Research and development expenses consist primarily of employee costs, which include salaries, benefits and
related payroll taxes, depreciation of development and test equipment and an allocation of related facility
expenses. Research and development costs increased $2.5 million in fiscal 2015 as compared to fiscal 2014. The
increase is related to our investment in our video gateway software product, Nucleus, and our cloud-based
platform, Rave.

Fiscal 2014 As Compared to Fiscal 2013

During fiscal 2014, our total research and development expenses increased $1.0 million, or 3%, as compared to
fiscal 2013, due primarily to an increase in outside contract labor costs as we continue to focus our investment in
research and development related to our next generation product offerings.

Selling and Marketing

The following table provides information regarding the change in selling and marketing expenses during the
periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Selling and marketing

expenses . . . . . . . . . . . . . . .
% of total revenue . . . . . .

$ 13,920

$ 15,018

$ 15,398

$ (1,098)

(7.3%)

$ (380)

(2.5%)

12.1%

10.3%

9.8%

33

Fiscal 2015 As Compared to Fiscal 2014

Selling and marketing expenses consist primarily of payroll costs, which include salaries and related payroll
taxes, benefits and commissions, travel expenses and certain promotional expenses. Selling and marketing
expenses decreased $1.1 million, or 7%, in fiscal 2015 when compared to fiscal 2014. This reduction was
primarily related to lower employee related costs due to a reduction in headcount, and to lower commissions
resulting from lower revenues.

Fiscal 2014 As Compared to Fiscal 2013

Selling and marketing expenses decreased $0.4 million, or 3%, in fiscal 2014, when compared to fiscal 2013 due
to lower commission expense resulting from lower revenues and a reduction in headcount compared to the prior
fiscal year.

General and Administrative

The following table provides information regarding the change in general and administrative expenses during the
periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

General and administrative

expenses . . . . . . . . . . . . . . .
% of total revenue . . . . .

$ 16,014

$ 17,618

$ 17,674

$ (1,604)

(9.1%) $

(56)

(0.3%)

13.9%

12.0%

11.2%

Fiscal 2015 As Compared to Fiscal 2014

General and administrative expenses consist primarily of employee costs, which include salaries and related
payroll taxes and benefit-related costs, legal and accounting services and an allocation of related facilities
expenses. General and administrative expenses decreased $1.6 million, or 9%, in fiscal 2015, as compared to
fiscal 2014, primarily due to a decrease in employee costs from a lower headcount year over year.

Fiscal 2014 As Compared to Fiscal 2013

General and administrative expenses remained relatively stable during fiscal 2014, as compared to fiscal 2013.

Amortization of Intangible Assets

The following table provides information regarding the change in amortization of intangible assets during the
periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Amortization of intangible

assets. . . . . . . . . . . . . . . . . .
% of total revenue . . . . .

$

5,154

$

4,630

$

6,395

$

524

11.3% $ (1,765)

(27.6%)

4.5%

3.2%

4.1%

Amortization expense is primarily related to the costs of acquired intangible assets. Amortization is also based on
the future economic value of the related intangible assets which is generally higher in the earlier years of the
assets’ lives.

34

Stock-based Compensation Expense

The following table provides information regarding the change in stock-based compensation expense during the
periods presented:

For the Fiscal Years Ended January 31,
2014

2013

2015

FY15 vs. FY14
$ Change % Change

FY14 vs. FY13
$ Change % Change

Stock-based compensation

expense . . . . . . . . . . . . . . . .
% of total revenue . . . . . .

$

3,220

$

2,959

$

5,929

$

261

8.8% $ (2,970)

(50.1%)

2.8%

2.0%

3.8%

(Amounts in thousands, except for percentage data)

Fiscal 2015 As Compared to Fiscal 2014

Stock-based compensation expense is primarily due to the issuance of stock grants to our employees, executives
and members of our Board of Directors. Stock-based compensation expense increased $0.3 million during fiscal
2015 as compared to fiscal 2014 related to additional stock compensation expense recorded as a result of our
separation agreement with the former Chief Executive Officer (“CEO”) and the hiring of our new CEO.

Fiscal 2014 As Compared to Fiscal 2013

Stock-based compensation expense decreased $3.0 million during fiscal 2014, as compared to fiscal 2013
primarily due to higher stock-based compensation related to the performance-based stock compensation granted
to our now former CEO, who was appointed to his permanent position on May 1, 2012.

Earn-outs and Change in Fair Value of Earn-outs

The following table provides information regarding the change in earn-outs and change in fair value of earn-out
expenses during the periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Earn-outs and change in fair

value of earn-outs . . . . . . . .
% of total revenue . . . . . .

$ — $

0.0%

(60) $
0.0%

2,435

$

60

(100.0%)

$ (2,495) >(100%)

1.5%

During fiscal 2013 we incurred $2.4 million of earn-out expenses for payments made in connection with certain
of our acquisitions in accordance with the respective earn-out criteria being met.

Professional Fees—Other

The following table provides information regarding the change in professional fees expenses associated with
acquisitions, divestitures, litigation and strategic alternatives during the periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

Professional fees—other . . . . . .
% of total revenue . . . . . . . . . . .

$

671
0.6%

(Amounts in thousands, except for percentage data)
$

$ (943)

1,614

1,619

(58.4%)

$

$

(5)

(0.3%)

1.1%

1.0%

Professional fees in fiscal 2015 decreased $0.9 million when compared to fiscal 2014 primarily due to a decrease
in costs related to patent litigation and remained relatively stable in fiscal 2014 when compared to fiscal 2013.

35

Severance and Other Restructuring Expenses

The following table provides information regarding the change in severance and other restructuring expenses
during the periods presented:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Severance and other

restructuring expenses . . . .
% of total revenue . . . . .

$

3,623

$

3.1%

911
0.6%

$

3,106

$

2,712

>100% $ (2,195)

(70.7%)

2.0%

Fiscal 2015 As Compared to Fiscal 2014

Severance and other restructuring costs increased $2.7 million in fiscal 2015, as compared to fiscal 2014,
primarily due to the separation agreement with our former CEO and a reduction in workforce during fiscal 2015.

Fiscal 2014 As Compared to Fiscal 2013

For fiscal 2014, we incurred severance charges of $0.9 million related to a reduction in force during the fiscal
year, compared to $1.9 million in severance charges during fiscal 2013. In addition, fiscal 2013 included a $0.8
million leasehold improvement charge for the reduction of space and certain fixed assets in our leased facility in
the Philippines, and $0.4 million of other restructuring charges.

Other (Expense) Income, Net

The table below provides detail regarding our other (expense) income, net:

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

(Loss) gain on sale of

investment in affiliates . . .
Interest income, net . . . . . . . .
Foreign exchange loss . . . . . .
Miscellaneous expense . . . . .

$ — $
211
(2,348)
(24)

(363) $
251
(367)
(108)

885
26
(23)
(89)

$

363
(40)
(1,981)
84

(100.0%) $ (1,248) >(100%)
225
(15.9%)
>100%
(344) >(100%)
>100%
21.3%
(19)
(77.8%)

$ (2,161) $

(587) $

799

$ (1,574)

$ (1,386)

Foreign exchange loss

During fiscal 2015, loss on foreign exchange increased $2.0 million due to the increased strength of the
U.S. Dollar compared to other foreign currencies, primarily the Euro.

(Loss) gain on sale of investment in affiliates

During fiscal 2014, we recorded a loss of $0.4 million on the sale of an investment in affiliates during the second
quarter. This is compared to a $0.9 million gain on sale of an equity investment recorded in fiscal 2013.

Income Tax (Benefit) Provision

For the Fiscal Years Ended January 31,

FY15 vs. FY14

FY14 vs. FY13

2015

2014

2013

$ Change % Change

$ Change % Change

(Amounts in thousands, except for percentage data)

Income tax (benefit)

provision . . . . . . . . . . . . . . .
% of total revenue . . . . . .

$ (1,106)

$

(1.0%)

55
0.0%

$ (1,555) $ (1,161) >(100%)

$ 1,610

>100%

(1.0%)

36

Fiscal 2015 As Compared to Fiscal 2014

We recorded an income tax benefit from continuing operations of $1.1 million in fiscal 2015. Our effective tax rate is
lower than the U.S. federal statutory rate as we did not record tax benefits on our year-to-date losses in certain
jurisdictions, including the United States, where we continue to maintain a full valuation allowance against deferred tax
assets. Additionally, the rate is impacted by the geographic jurisdiction in which the worldwide income or loss will be
incurred, resulting in the difference between the federal statutory rate of 35% and the forecasted effective tax rate. The
tax benefit includes the reversal of tax reserves for uncertain tax positions due to the expiration of the statute of
limitations. The statute of limitations varies in each jurisdiction we operate in. In any given year, a jurisdiction’s statute
of limitations may lapse without examination and any tax reserves for uncertain tax positions recorded in a
corresponding year will result in the reduction of the liability for unrecognized tax benefits for that year.

Our effective tax rate may fluctuate on a quarterly basis as a result of changes in the valuation of our deferred tax
assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or
interpretations thereof. We regularly review our tax positions in each significant taxing jurisdiction in the process of
evaluating our unrecognized tax benefits. We make adjustments to our unrecognized tax benefits when: i) facts and
circumstance regarding a tax position change, causing a change in management’s judgment regarding that tax
position; ii) a tax position is effectively settled with a tax authority; and/or iii) the statute of limitations expires
regarding a tax position.

We continue to maintain a valuation allowance against deferred tax assets where realization is not certain. We
periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of
these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized.

Fiscal 2014 As Compared to Fiscal 2013

For fiscal 2014, we recorded an income tax provision of $0.1 million primarily due to state income taxes.

Non-GAAP Measures

We define non-GAAP (loss) income from operations as U.S. GAAP operating (loss) income plus stock-based
compensation expenses, amortization of intangible assets, earn-outs and change in fair value of earn-outs,
professional fees associated with acquisitions, divestitures, litigation and strategic alternatives and severance and
other restructuring costs. We define adjusted EBITDA as U.S. GAAP operating (loss) income before depreciation
expense, amortization of intangible assets, stock-based compensation expense, earn-outs and change in fair value of
earn-outs, professional fees associated with acquisitions, divestitures, litigation and strategic alternatives, and
severance and other restructuring costs. We discuss non-GAAP (loss) income from operations in our quarterly
earnings releases and certain other communications as we believe non-GAAP operating (loss) income from
operations and adjusted EBITDA are both important measures that are not calculated according to U.S. GAAP. We
use non-GAAP (loss) income from operations and adjusted EBITDA in internal forecasts and models when
establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of
Directors, determining a component of bonus compensation for executive officers and other key employees based
on operating performance and evaluating short-term and long-term operating trends in our operations. We believe
that non-GAAP (loss) income from operations and adjusted EBITDA financial measures assist in providing an
enhanced understanding of our underlying operational measures to manage the business, to evaluate performance
compared to prior periods and the marketplace, and to establish operational goals. We believe that these non-GAAP
financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the
methodology and information used by management in our financial and operational decision-making.

Non-GAAP (loss) income from operations and adjusted EBITDA are non-GAAP financial measures and should not
be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP.
These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by
other companies. We expect to continue to incur expenses similar to the financial adjustments described above in
arriving at non-GAAP (loss) income from operations and adjusted EBITDA, and investors should not infer from our
presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.

37

The following table includes the reconciliations of our U.S. GAAP (loss) income from operations, the most directly
comparable U.S. GAAP financial measure, to our non-GAAP (loss) income from operations and the reconciliation of our
U.S. GAAP (loss) income from operations to our adjusted EBITDA for fiscal 2015, 2014 and 2013 (amounts in
thousands, except per share and percentage data):

For the Fiscal Year Ended
January 31, 2015

For the Fiscal Year Ended
January 31, 2014

For the Fiscal Year Ended
January 31, 2013

GAAP

GAAP

GAAP

As Reported Adjustments Non-GAAP

As Reported Adjustments Non-GAAP

As Reported Adjustments Non-GAAP

Revenues:

Products . . . . . . . . . . . . . . . . . . . . $ 31,507
83,928
Services . . . . . . . . . . . . . . . . . . . .

$ — $ 31,507
83,928

—

$ 54,749
91,570

$ —
—

$ 54,749
91,570

$ 64,274
92,914

$ — $ 64,274
92,914

—

Total revenues . . . . . . . . . .

115,435

Cost of revenues:

Products . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . .
Amortization of intangible

assets . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . .
Inventory write-down . . . . . . . . . .

Total cost of revenues . . . .

Gross profit

. . . . . . . . . . . . . . . .

8,845
48,272

1,070
141
—

58,328

57,107

—

—
—

(1,070)
(141)
—

(1,211)

1,211

115,435

146,319

8,845
48,272

—
—
—

57,117

58,318

10,526
55,075

1,269
250
—

67,120

79,199

—

—
—

(1,269)
(250)
—

(1,519)

1,519

146,319

157,188

10,526
55,075

—
—
—

65,601

80,718

17,397
52,162

2,429
157
1,752

73,897

83,291

—

—
—

(2,429)
(157)
(1,752)

(4,338)

4,338

157,188

17,397
52,162

—
—
—

69,559

87,629

Gross profit percentage

. . . . . .

49.5%

1.0%

50.5%

54.1%

1.0%

55.2%

53.0%

2.8%

55.7%

Operating expenses:

Research and development . . . . . .
Selling and marketing . . . . . . . . .
General and administrative . . . . .
Amortization of intangible

42,169
13,920
16,014

—
—
—

42,169
13,920
16,014

39,657
15,018
17,618

—
—
—

39,657
15,018
17,618

38,667
15,398
17,674

—
—
—

38,667
15,398
17,674

assets . . . . . . . . . . . . . . . . . . . .

4,084

(4,084)

Stock-based compensation

expense . . . . . . . . . . . . . . . . . . .
Earn-outs and change in fair value
of earn-outs . . . . . . . . . . . . . . .
Professional fees—other
. . . . . . .
Severance and other restructuring
costs . . . . . . . . . . . . . . . . . . . . .

Total operating

3,079

(3,079)

—
671

—
(671)

3,623

(3,623)

—

—

—
—

—

3,361

(3,361)

2,709

(2,709)

(60)
1,614

60
(1,614)

911

(911)

—

—

—
—

—

3,966

(3,966)

5,772

(5,772)

2,435
1,619

(2,435)
(1,619)

3,106

(3,106)

—

—

—
—

—

expenses . . . . . . . . . . . . . .

83,560

(11,457)

72,103

80,828

(8,535)

72,293

88,637

(16,898)

71,739

(Loss) income from

operations . . . . . . . . . . . . . . . . $ (26,453)

$ 12,668

$ (13,785)

$ (1,629)

$10,054

$

8,425

$ (5,346)

$ 21,236

$ 15,890

(Loss) income from operations

percentage . . . . . . . . . . . . . . . .

(22.9%)

11.0%

(11.9%)

(1.1%)

6.9%

5.8%

(3.4%)

13.5%

10.1%

Weighted average common shares

outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . .

32,772

Diluted . . . . . . . . . . . . . . . . . . . .

32,772

32,772

33,004

32,772

32,772

32,718

32,718

32,718

33,572

32,718

33,572

32,494

32,494

32,093

32,989

32,494

32,989

Non-GAAP operating (loss) income

per share:

Basic . . . . . . . . . . . . . . . . . . . . . . $

(0.81)

Diluted . . . . . . . . . . . . . . . . . . . . $

(0.81)

$

$

0.39

0.39

$

$

(0.42)

(0.42)

$

$

(0.05)

(0.05)

$

$

0.31

0.30

$

$

0.26

0.25

$

$

(0.16)

(0.16)

$

$

0.65

0.64

$

$

0.49

0.48

Adjusted EBITDA:

Loss from operations . . . . . . . . . . . . .
Depreciation expense . . . . . . . . . . . . . .
Amortization of intangible assets . . . . .
Stock-based compensation expense . . .
Earn-outs and changes in fair value . . .
Professional fees—other
. . . . . . . . . . .
Inventory write-down . . . . . . . . . . . . . .
Severance and other restructuring . . . .

Adjusted EBITDA . . . . . . . . . . . . . . .

Adjusted EBITDA % . . . . . . . . . . . .

$ (26,453)
3,683
5,154
3,220
—
671
—
3,623

$ (10,102)

(8.8%)

38

$ (1,629)
4,389
4,630
2,959
(60)
1,614
—
911

$ 12,814

$ (5,346)
4,671
6,395
5,929
2,435
1,619
1,752
3,106

$ 20,561

8.8%

13.1%

In managing and reviewing our business performance, we exclude a number of items required by U.S. GAAP.
Management believes that excluding these items is useful in understanding the trends and managing our
operations. We provide these supplemental non-GAAP measures in order to assist the investment community to
see SeaChange through the “eyes of management,” and therefore enhance the understanding of our operating
performance. Non-GAAP financial measures should be viewed in addition to, not as an alternative to, our
reported results prepared in accordance with U.S. GAAP. Our non-GAAP financial measures reflect adjustments
based on the following items:

Amortization of Intangible Assets. We incur amortization expense of intangible assets related to various
acquisitions that have been made in recent years. These intangible assets are valued at the time of acquisition, are
then amortized over a period of several years after the acquisition and generally cannot be changed or influenced
by management after the acquisition. We believe that exclusion of these expenses allows comparisons of
operating results that are consistent over time for the Company’s newly-acquired and long-held businesses.

Stock-based Compensation Expense. We incur expenses related to stock-based compensation included in our
U.S. GAAP presentation of cost of revenues, selling and marketing expense, general and administrative expense
and research and development expense. Although stock-based compensation is an expense we incur and is
viewed as a form of compensation, the expense varies in amount from period to period, and is affected by market
forces that are difficult to predict and are not within the control of management, such as the market price and
volatility of our shares, risk-free interest rates and the expected term and forfeiture rates of the awards.

Inventory Write-down. We incur inventory write-downs of our legacy product lines as we end the life of certain
product lines to focus on selling the new products being developed.

Earn-outs and Change in Fair Value of Earn-outs. Earn-outs and the change in the fair value of the earn-outs
are considered by management to be non-recurring expenses to the former shareholders of the businesses we
acquire. We also incur expense due to changes in fair value related to contingent consideration that we believe
would otherwise impair comparability among periods.

Professional Fees—Other. We have excluded the effect of legal and other professional costs associated with our
acquisitions, divestitures, litigation and strategic alternatives because the amounts are considered to be significant
non-operating expenses.

Severance and Other Restructuring. We incur charges due to the restructuring of our business, including
severance charges and facility reductions resulting from our restructuring and streamlining efforts and any
changes due to revised estimates, which we generally would not have otherwise incurred in the periods presented
as part of our continuing operations.

Depreciation Expense. We incur depreciation expense related to capital assets purchased to support the ongoing
operations of the business. These assets are recorded at cost and are depreciated using the straight-line method
over the useful life of the asset. Purchases of such assets may vary significantly from period to period and
without any correlation to underlying operating performance. Management believes that exclusion of
depreciation expense allows comparisons of operating results that are consistent across past, present and future
periods.

39

Liquidity and Capital Resources

The following table includes key line items of our consolidated statements of cash flows:

For the Fiscal Years Ended January 31,

2015

2014

FY15 vs FY14
$ Change

FY14 vs FY13
$ Change

2013
(Amounts in thousands)

Total cash (used in) provided by

operating activities . . . . . . . . . . . . . . .

$ (13,339)

$ 7,364

$ 17,357

$(20,703)

$ (9,993)

Total cash (used in) provided by

investing activities . . . . . . . . . . . . . . .

(8,156)

520

12,994

(8,676)

(12,474)

Total cash (used in) provided by

financing activities . . . . . . . . . . . . . . .

(5,504)

1,058

(4,009)

(6,562)

5,067

Effect of exchange rate changes on

cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash . . .

1,284
$ (25,715)

71
$ 9,013

(206)
$ 26,136

1,213
$(34,728)

277
$ (17,123)

Historically, we have financed our operations and capital expenditures primarily with cash on-hand. Cash and
cash equivalents, restricted cash and marketable securities decreased from $128.1 million at January 31, 2014 to
$105.4 million at January 31, 2015.

We believe that existing funds combined with available borrowings under the line of credit and cash provided by
future operating activities are adequate to satisfy our working capital, potential acquisitions and capital
expenditure requirements and other contractual obligations for the foreseeable future, including at least the next
12 months. However, if our expectations are incorrect, we may need to raise additional funds to fund our
operations, to take advantage of unanticipated strategic opportunities or to strengthen our financial position. In
the future, we may enter into other arrangements for potential investments in, or acquisitions of, complementary
businesses, services or technologies, which could require us to seek additional equity or debt financing.
Additional funds may not be available on terms favorable to us or at all.

Operating Activities

Below are key line items affecting cash from operating activities:

Net loss from continuing operations . . . . . .
Adjustments to reconcile net loss to cash

(used in) provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income including adjustments . .
Decrease in accounts receivables . . . . . . . .
Decrease (increase) in prepaid expenses

and other current assets . . . . . . . . . . . . . .
Increase (decrease) in accrued expenses . . .
Decrease in deferred revenues . . . . . . . . . .
All other—net . . . . . . . . . . . . . . . . . . . . . . .

Net cash (used in) provided by

operating activities from continuing
operations . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in)
operating activities from
discontinued operations . . . . . . . . . .

For the Fiscal Years Ended January 31,

2015

2014

2013

FY15 vs FY14
$ Change

FY14 vs FY13
$ Change

$(27,489)

$ (2,227)

$ (2,799)

$(25,262)

$

572

(Amounts in thousands)

12,197
(15,292)
1,574

1,570
1,650
(5,699)
2,853

12,092
9,865
169

6,724
(3,146)
(4,877)
(568)

19,459
16,660
6,313

(5,045)
1,430
(6,283)
2,895

105
(25,157)
1,405

(5,154)
4,796
(822)
3,421

(7,367)
(6,795)
(6,144)

11,769
(4,576)
1,406
(3,463)

(13,344)

8,167

15,970

(21,511)

(7,803)

5
$(13,339)

(803)
$ 7,364

1,387
$17,357

808
$(20,703)

(2,190)
$ (9,993)

40

For fiscal 2015, we used net cash from continuing operating activities of $13.3 million. The decrease was
primarily due to a net loss of $27.5 million, a $12.2 million net increase in noncash items and a $1.9 million
increase from the net change in other current and noncurrent assets and liabilities. Noncash items primarily
consist of stock-based compensation, depreciation of property and equipment, amortization of intangible assets
and changes in deferred income taxes.

In fiscal year 2014, we generated net cash from continuing operating activities of $8.2 million. This cash
provided by operating activities was primarily the result of our net loss including adjustments, which provided
cash of $9.9 million, a decrease in prepaid expenses and other current assets of $6.7 million, primarily due to tax
refunds in fiscal 2014 and a $1.1 million increase in accrued expenses. This amount is partially offset by a $4.2
million decrease in customer deposits, which are included in accrued expenses, due to the fulfillment of
customers’ orders in fiscal 2014, a $4.9 million decrease in deferred revenues due to recognition of previously
deferred revenue. Other use of cash from continuing operating activities of $0.6 million is primarily due to a
decrease in accounts payable, due to the timing of payment to our vendors.

Investing Activities

Cash flows from investing activities are as follows:

Purchases of property and equipment and

capitalized software . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . .
Proceeds from sale and maturity of

marketable securities . . . . . . . . . . . . . . . . .
Proceeds from sale of equity investment
. . .
Investment in affiliate . . . . . . . . . . . . . . . . . .
Acquisition of businesses and payment of
contingent consideration, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance for Timeline Labs acquisition . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in investing activities

For the Fiscal Years Ended January 31,

2015

2014

2013

FY15 vs FY14
$ Change

FY14 vs FY13
$ Change

(Amounts in thousands)

$(1,873)
(9,193)

$ (2,315)
(11,479)

$ (3,972)
(15,642)

$

442
2,286

$ 1,657
4,163

7,181
229
(2,000)

—
(2,500)
—

12,237
1,128
—

14,214
885
—

(4,009)
—
958

(8,175)
—
452

(5,056)
(899)
(2,000)

4,009
(2,500)
(958)

(1,977)
243
—

4,166
—
506

from continuing operations . . . . . . . .

(8,156)

(3,480)

(12,238)

(4,676)

8,758

Net cash provided by investing
activities from discontinued
operations . . . . . . . . . . . . . . . . . . . . .

—

4,000

25,232

(4,000)

(21,232)

$(8,156)

$

520

$ 12,994

$(8,676)

$(12,474)

We used $8.2 million of cash in investing activities from continuing operations primarily related to the advance
for the Timeline Lab acquisition of $2.5 million and an investment in affiliate of $2.0 million. Additionally, we
had $2.0 million of net purchases of marketable securities and $1.9 million of capital asset purchases.

In fiscal 2014, we used $3.5 million of cash in investing activities from continuing operations primarily related to
the purchase of capital assets of $2.3 million and $4.0 million of earn-out payments made in connection with
certain of our acquisitions. These cash outlays were offset by $1.1 million of proceeds from the sale of our equity
investments during fiscal 2014, the release of $0.9 million in restricted cash as we satisfied the commitment
secured by performance bonds and $0.8 million of net proceeds related to the sale of marketable securities. Cash
provided by investing activities from discontinued operations included the receipt of $4.0 million in fiscal 2014
that was previously held in escrow and that was related to the sale of our media services business in fiscal 2013.

41

Financing Activities

Cash flows from financing activities are as follows:

For the Fiscal Years Ended January 31,

Repurchases of our common stock . . . . .
Proceeds from issuance of common
stock relating to stock option
exercises . . . . . . . . . . . . . . . . . . . . . . .

2015

2014

$

(5,504)

$

—

2013
(Amounts in thousands)
$

(6,200)

$

FY15 vs FY14
$ Change

FY14 vs FY13
$ Change

(5,504)

$

6,200

—

$

(5,504)

$

1,058

1,058

2,191

(1,058)

(1,133)

$

(4,009)

$

(6,562)

$

5,067

We used $5.5 million in cash from our financing activities in fiscal 2015 for the purchase of stock under a stock
repurchase plan during fiscal 2015.

We generated $1.1 million in cash from our financing activities from continuing operations in fiscal 2014, which
is a result of the issuance of common stock for the exercise of employee stock options.

Debt Instruments and Related Covenants

We renewed our letter agreement for a demand discretionary line of credit and a demand promissory note in the
aggregate amount of $20.0 million, effective November 26, 2014. Borrowings under the line of credit will be
used to finance working capital needs and for general corporate purposes. We currently do not have any
borrowings nor are there any financial covenants under this line.

Contractual Obligations

The following table reflects our current and contingent contractual obligations to make potential future payments
as of January 31, 2015:

Total

Less than
one year

One to
three years

Three to
five years

Over five
years

Purchase obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cancelable lease obligations . . . . . . . . . . . . . . . . . . . . . .

$5,280
4,448

(Amounts in thousands)
$ —
2,187

$5,280
2,261

$ — $ —
—

—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9,728

$7,541

$2,187

$ — $ —

(1) Represents obligations under agreements with non-cancelable terms to purchase goods or services. The

agreements are enforceable and legally binding, and specify terms, including quantities to be purchased and
the timing of the purchase.

We have excluded from the table above uncertain tax liabilities as defined by authoritative guidance due to the
uncertainty of the amount and period of payment. As of January 31, 2015, we have gross unrecognized tax
benefits of $5.5 million.

Under the purchase agreement pursuant to which we acquired Timeline Labs on February 2, 2015, the Company
is obligated to make earnout payments totaling up to $2.5 million, payable in shares of our common stock,
measured by qualifying revenue, on a cumulative and one-year performance target basis for the fiscal years
ended January 31, 2016 and 2017.

42

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management
to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue,
expenses and disclosure of contingent assets and liabilities. Our actual results could differ from these estimates
under different assumptions and conditions.

The significant accounting policies and methods used in the preparation of our consolidated financial statements
are described in Note 2., “Summary of Significant Accounting Policies,” to our consolidated financial statements
set forth in Part II, Item 8, of this Form 10-K. We believe the following critical accounting policies reflect the
significant estimates, judgments and assumptions used in the preparation of our consolidated financial
statements.

Principles of Consolidation

We consolidate the financial statements of our wholly-owned subsidiaries and all inter-company accounts are
eliminated in consolidation. We also hold minority investments in the capital stock of certain private companies
having product offerings or customer relationships that have strategic importance. We evaluate our equity and
debt investments and other contractual relationships with affiliate companies in order to determine whether the
guidelines regarding the consolidation of Variable Interest Entities (“VIE”) should be applied in the financial
statements. Consolidation guidelines address consolidation by business enterprises of variable interest entities
that possess certain characteristics. A VIE is defined as an entity in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support. The primary beneficiary is required to consolidate
the financial position and results of the VIE. We have concluded that we are not the primary beneficiary for any
variable interest entities as of January 31, 2015.

Our investments in affiliates include investments accounted for under the cost method and the equity method of
accounting. The investments that represent less than a 20% ownership interest of the common shares of the
affiliate are carried at cost. Under the equity method of accounting, which generally applies to investments that
represent 20% to 50% ownership of the common shares of the affiliate, our proportionate ownership share of the
earnings or losses of the affiliate are included in equity income in earnings of affiliates in the consolidated
statement of operations and comprehensive loss.

We periodically review indicators of the fair value of our investments in affiliates in order to assess whether
available facts or circumstances, both internally and externally, may suggest an other-than-temporary decline in
the value of the investment. The carrying value of an investment in an affiliate may be affected by the affiliate’s
ability to obtain adequate funding and execute its business plans, general market conditions, industry
considerations specific to the affiliate’s business, and other factors. The inability of an affiliate to obtain future
funding or successfully execute its business plan could adversely affect our equity earnings of the affiliate in the
periods affected by those events. Future adverse changes in market conditions or poor operating results of the
affiliates could result in equity losses or an inability to recover the carrying value of the investments in affiliates
that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment
charge in the future. We record an impairment charge when we believe an investment has experienced a decline
in value that is other-than-temporary.

43

Revenue Recognition

Our transactions frequently involve the sales of hardware, software, systems and services in multiple-element
arrangements. Revenues from sales of hardware, software and systems that do not require significant
modification or customization of the underlying software are recognized when:

•

•

•

•

persuasive evidence of an arrangement exists;

delivery has occurred, and title and risk of loss have passed to the customer;

fees are fixed or determinable; and

collection of the related receivable is considered probable.

Customers are billed for installation, training, project management and at least one year of product maintenance
and technical support at the time of the product sale. Revenue from these activities is deferred at the time of the
product sale and recognized ratably over the period these services are performed. Revenue from ongoing product
maintenance and technical support agreements is recognized ratably over the period of the related agreements.
Revenue from software development contracts that include significant modification or customization, including
software product enhancements, is recognized based on the percentage of completion contract accounting method
using labor efforts expended in relation to estimates of total labor efforts to complete the contract. Accounting for
contract amendments and customer change orders are included in contract accounting when executed. Revenue
from shipping and handling costs and other out-of-pocket expenses reimbursed by customers are included in
revenues and cost of revenues. Our share of intercompany profits associated with sales and services provided to
affiliated companies are eliminated in consolidation in proportion to our equity ownership.

Revenue from the sale of software-only products remains within the scope of the software revenue recognition
rules. Maintenance and support, training, consulting, and installation services no longer fall within the scope of
the software revenue recognition rules, except when they are sold with and relate to a software-only product.
Revenue recognition for products that no longer fall under the scope of the software revenue recognition rules is
similar to that for other tangible products and Accounting Standard Update No. (“ASU”) 2009-13, “Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” amended ASC 605 and is applicable for
multiple-deliverable revenue arrangements. ASU 2009-13 allows companies to allocate revenue in a multiple-
deliverable arrangement in a manner that better reflects the transaction’s economics.

Under the software revenue recognition rules, the fee is allocated to the various elements based on vendor-
specific objective evidence (“VSOE”) of fair value. Under this method, the total arrangement value is allocated
first to undelivered elements based on their fair values, with the remainder being allocated to the delivered
elements. Where fair value of undelivered service elements has not been established, the total arrangement value
is recognized over the period during which the services are performed. The amounts allocated to undelivered
elements, which may include project management, training, installation, maintenance and technical support and
certain hardware and software components, are based upon the price charged when these elements are sold
separately and unaccompanied by the other elements. The amount allocated to installation, training and project
management revenue is based upon standard hourly billing rates and the estimated time necessary to complete
the service. These services are not essential to the functionality of systems as these services do not alter the
equipment’s capabilities, are available from other vendors and the systems are standard products. For multiple-
element arrangements that include software development with significant modification or customization and
systems sales where VSOE of the fair value does not exist for the undelivered elements of the arrangement (other
than maintenance and technical support), percentage of completion accounting is applied for revenue recognition
purposes to the entire arrangement with the exception of maintenance and technical support.

Under the revenue recognition rules for tangible products as amended by ASU 2009-13, the fee from a multiple-
deliverable arrangement is allocated to each of the deliverables based upon their relative selling prices as
determined by a selling-price hierarchy. A deliverable in an arrangement qualifies as a separate unit of
accounting if the delivered item has value to the customer on a stand-alone basis. A delivered item that does not

44

qualify as a separate unit of accounting is combined with the other undelivered items in the arrangement and
revenue is recognized for those combined deliverables as a single unit of accounting. The selling price used for
each deliverable is based upon VSOE if available, third-party evidence (“TPE”) if VSOE is not available, and
best estimate of selling price (“BESP”) if neither VSOE nor TPE are available. TPE is the price of the
Company’s, or any competitor’s, largely interchangeable products or services in stand-alone sales to similarly
situated customers. BESP is the price at which we would sell the deliverable if it were sold regularly on a stand-
alone basis, considering market conditions and entity-specific factors.

The selling prices used in the relative selling price allocation method for certain of our services are based upon
VSOE. The selling prices used in the relative selling price allocation method for third-party products from other
vendors are based upon TPE. The selling prices used in the relative selling price allocation method for our
hardware products, software, subscriptions, and customized services for which VSOE does not exist are based
upon BESP. We do not believe TPE exists for these products and services because they are differentiated from
competing products and services in terms of functionality and performance and there are no competing products
or services that are largely interchangeable. Management establishes BESP with consideration for market
conditions, such as the impact of competition and geographic considerations, and entity-specific factors, such as
the cost of the product, discounts provided and profit objectives. Management believes that BESP is reflective of
reasonable pricing of that deliverable as if priced on a stand-alone basis.

For our cloud and managed service revenues, we generate revenue from two sources: (1) subscription and
support services; and (2) professional services and other. Subscription and support revenue includes subscription
fees from customers accessing our cloud-based software platform and support fees. Our arrangements with
customers do not provide the customer with the right to take possession of the software supporting the cloud-
based software platform at any time. Professional services and other revenue include fees from implementation
and customization to support customer requirements. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been
met. For the most part, subscription and support agreements are entered into for 12 to 36 months. Generally, a
majority of the professional services component of the arrangements with customers is performed within a year
of entering into a contract with the customer.

In most instances, revenue from a new customer acquisition is generated under sales agreements with multiple
elements, comprised of subscription and support and other professional services. We evaluate each element in a
multiple-element arrangement to determine whether it represents a separate unit of accounting. An element
constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the
undelivered element is probable and within our control.

In determining when to recognize revenue from a customer arrangement, we are often required to exercise
judgment regarding the application of our accounting policies to a particular arrangement. The primary
judgments used in evaluating revenue recognized in each period involve: determining whether collection is
probable, assessing whether the fee is fixed or determinable, and determining the fair value of the maintenance
and service elements included in multiple-element software arrangements. Such judgments can materially impact
the amount of revenue that we record in a given period. While we follow specific and detailed rules and
guidelines related to revenue recognition, we make and use significant management judgments and estimates in
connection with the revenue recognized in any reporting period, particularly in the areas described above. If
management made different estimates or judgments, material differences in the timing of the recognition of
revenue could occur.

Allowance for Doubtful Accounts

We recognize revenue for products and services only in those situations where collection from the customer is
probable. We perform ongoing credit evaluations of customers’ financial condition but generally do not require
collateral. For some international customers, we may require an irrevocable letter of credit to be issued by the

45

customer before the purchase order is accepted. We monitor payments from customers and assess any collection
issues. We maintain allowances for specific doubtful accounts and other risk categories of accounts based on
estimates of losses resulting from the inability of our customers to make required payments and record these
allowances as a charge to general and administrative expenses. We base our allowances for doubtful accounts on
historical collections and write-off experience, current trends, credit assessments, and other analysis of specific
customer situations. While such credit losses have historically been within our expectations and the allowances
established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the
past. If the financial condition of our customers were to change, additional allowances may be required or
established allowances may be considered unnecessary. Judgment is required in making these determinations and
our failure to accurately estimate the losses for doubtful accounts and ensure that payments are received on a
timely basis could have a material adverse effect on our business, financial condition and results of operations.

Fair Value Measurements

We measure certain financial assets and liabilities at fair value based on valuation techniques using the best
information available, which may include quoted market prices, market comparables and discounted cash flow
projections. Financial instruments include money market funds, corporate debt investments, asset-backed
securities, government-sponsored enterprises and state municipal obligations.

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.

Inventories and Reserves

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out
(FIFO) method. Inventories consist primarily of components and subassemblies and finished products held for
sale. All of our hardware components are purchased from outside vendors. The value of inventories is reviewed
quarterly to determine that the carrying value is stated at the lower of cost or net realizable value. We record
charges to reduce inventory to its net realizable value when impairment is identified through the quarterly review
process. The obsolescence evaluation is based upon assumptions and estimates about future demand and possible
alternative uses and involves significant judgments.

Accounting for Business Combinations

We apply the acquisition method of accounting for business combinations, including our acquisition of Timeline
Labs on February 2, 2015. Under this method of accounting, we are required to record the assets acquired,
liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition
date. Determining these fair values and completing the purchase price allocation process requires management to
make significant estimates and assumptions, especially at acquisition date with respect to intangible assets,
estimated contingent consideration payments and pre-acquisition contingencies. Any excess of the purchase price
over the fair value of the net assets acquired is recognized as goodwill. Although we believe the assumptions and
estimates we have made have been reasonable and appropriate, they are based in part on historical experience
and information obtained from the management of the acquired company and are inherently uncertain. Examples
of critical estimates in accounting for acquisitions include but are not limited to:

•

•

•

the estimated fair value of the acquisition-related contingent consideration, which is calculated using a
probability-weighted discounted cash flow model based upon the forecasted achievement of post
acquisition bookings targets;

the future expected cash flows from product sales, support agreements, consulting contracts, other
customer contracts and acquired developed technologies and patents; and

the relevant discount rates.

46

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such
assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one
year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities
assumed with the corresponding offset to goodwill. Additionally, any change in the fair value of the acquisition-
related contingent consideration subsequent to the acquisition date, including changes from events after the
acquisition date, such as changes in our estimate of the bookings that are expected to be achieved, will be
recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-
related contingent consideration could have a material effect on the statement of operations and financial position
in the period of the change in estimate.

Acquired Intangible Assets and Goodwill

Acquired Intangible Assets

We use significant judgment in determining the fair value of acquired intangible assets, whether the assets are
amortizable or non-amortizable and the period and method by which the intangible asset will be amortized.
Intangible assets include customer contracts, completed technology, non-compete agreements, trademarks and
patents. Acquired intangible assets are reported at cost, net of accumulated amortization and are either amortized
on a straight-line basis over their estimated useful lives during the period the economic benefits of the intangible
asset are consumed or otherwise used up. We review definite-lived intangible assets for impairment when
indication of a potential impairment exists.

Goodwill

In connection with acquisitions of operating entities, we recognize the excess of the purchase price over the fair
value of the net assets acquired as goodwill. Goodwill is not amortized, but is evaluated for impairment at least
annually, in our third quarter beginning August 1st. Goodwill may be required to be tested for impairment on an
interim basis in addition to the annual evaluation, if an event occurs or circumstances change. We monitor
economic, legal and other factors as a whole between annual impairment tests to ensure that there are no
indicators that make it more likely than not that there has been a decline in our fair value below our carrying
value, indicating that the recorded goodwill may be impaired. We test goodwill for impairment by evaluating our
fair value compared to the book value. If the book value of the Company exceeds its fair value, the implied fair
value of goodwill is compared to the carrying amount of goodwill. If the carrying amount of goodwill exceeds
the implied fair value, an impairment loss is recorded in an amount equal to that excess.

Long-Lived Assets

We review property and equipment, investments and other long-lived assets on a regular basis for impairment
when indication of potential impairment exists. 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 compare 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.

Internal Use Software

Certain costs incurred in the application development phase of software development for internal use are
capitalized and amortized over the product’s estimated useful life, which is three years. The Company expenses
all costs incurred that relate to planning and post implementation phases of development. Capitalized costs
related to internally developed software under development are treated as construction in progress until the
technology is available for intended use, at which time the amortization commences. The Company capitalized
internally developed software costs of $0.5 million in fiscal 2015. Maintenance and training costs are expensed
as incurred.

47

Software Development Costs

We also purchase software for resale and capitalize those costs associated with projects that meet technological
feasibility. Amortization expense of capitalized software is recorded over the period of economic consumption or
the life of the agreement, whichever results in the higher expense, starting with the first shipment of the product
to a customer. Amortization expense of capitalized software was immaterial for fiscal 2015 and 2014, and $0.7
million for fiscal 2013.

Accounting for Income Taxes

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statements of
operations and comprehensive loss except to the extent that it relates to items recognized directly within equity or
in other comprehensive loss. Income taxes payable, which is included in other accrued expenses in our
consolidated balance sheets, is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantially-enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.

Deferred tax assets and liabilities are recognized, using the balance sheet method, for the expected tax
consequences of temporary differences between the carrying amounts of assets and liabilities and the amounts
used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial
recognition of goodwill, the initial recognition of assets and liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at
the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that
have been enacted or substantially-enacted by the reporting date.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the
countries where the deferred tax assets originated and during the periods when the deferred tax assets become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these
jurisdictions, we may take tax positions that management believes are supportable, but are potentially subject to
successful challenge by the applicable taxing authority. These interpretational differences with the respective
governmental taxing authorities can be impacted by the local economic and fiscal environment. We evaluate our
tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in
income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the
progress of tax audits, and adjust them accordingly. We have a number of audits in process in various
jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available
information, we believe that the ultimate outcomes will not have a material adverse effect on our financial
position, results of operations or cash flows.

Because there are a number of estimates and assumptions inherent in calculating the various components of our
tax provision, certain changes or future events such as changes in tax legislation, geographic mix of earnings,
completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective
tax rate.

Stock-based Compensation

We account for all employee and non-employee director stock-based compensation awards using the
authoritative guidance regarding share-based payments. We continue to use the Black-Scholes pricing model as
we feel it is the most appropriate method for determining the estimated fair value of the majority of applicable

48

awards. We also use the Monte Carlo pricing model for our market-based option awards. Determining the
appropriate fair value model and calculating the fair value of share-based payment awards requires the input of
highly subjective assumptions, including the expected life of the share-based payment awards and stock price
volatility. Management estimates the volatility based on the historical volatility of our stock. The assumptions
used in calculating the fair value of share-based payment awards represent management’s best estimates, but
these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if
circumstances change and we use different assumptions, our stock-based compensation expense could be
materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our
estimate, the stock-based compensation expense could be significantly different from what we have recorded in
the current period. The estimated fair value of our stock-based options and performance-based restricted stock
units (“RSUs”), less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis,
whereas the RSUs are amortized on a straight-line basis.

Foreign Currency Translation

For subsidiaries where the U.S. dollar is designated as the functional currency of the entity, we translate that
entity’s monetary assets and liabilities denominated in local currencies into U.S. dollars (the functional and
reporting currency) at current exchange rates, as of each balance sheet date. Non-monetary assets (e.g.,
inventories, property, plant, and equipment and intangible assets) and related income statement accounts (e.g.,
cost of sales, depreciation, amortization of intangible assets) are translated at historical exchange rates between
the functional currency (the U.S. dollar) and the local currency. Revenue and other expense items are translated
using average exchange rates during the fiscal period. Translation adjustments resulting from translation of the
subsidiaries’ accounts are included in accumulated other comprehensive loss, a separate component of
stockholders’ equity. Gains and losses resulting from foreign currency transactions, and any unrealized gains and
losses on short-term inter-company transactions are included in other income or expense, net.

For subsidiaries where the local currency is designated as the functional currency, we translate the subsidiaries’
assets and liabilities into U.S. dollars (the reporting currency) at current exchange rates as of each balance sheet
date. Revenue and expense items are translated using average exchange rates during the period. Cumulative
translation adjustments are presented as a separate component of stockholders’ equity. Exchange gains and losses
on foreign currency transactions and unrealized gains and losses on short-term inter-company transactions are
included in other expense, net.

The aggregate foreign exchange transaction losses included as other expense, net, on the consolidated statement
of operations and comprehensive loss was $2.3 million, $0.4 million and approximately $23,000 for the years
ended January 31, 2015, 2014 and 2013, respectively.

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standards Updates. Updates not listed below were
assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated
financial position or results of operations.

Recent Accounting Guidance Not Yet Effective

Amendments to the Consolidation Analysis

In February 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-02, “Amendments to
the Consolidation Analysis.” ASU 2015-02 is intended to improve guidance for limited partnerships, limited
liability corporations and securitization structures. The guidance places more emphasis on risk of loss when
determining a controlling financial interest, reduces the frequency of the application of related-party guidance
when determining a controlling financial interest in a VIE and changes consolidation conclusions for public and

49

private companies that typically make use of limited partnerships or VIEs. This guidance is effective for us
beginning in fiscal 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of
ASU 2015-02 on our consolidated financial statements.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Item

In January 2015, FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the
Concept of Extraordinary Item.” ASU 2015-01 is meant to reduce complexity in accounting standards by
eliminating the concept of extraordinary items from U.S. GAAP. In the event of a transaction that meets the
criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results
of ordinary operations and show the item separately in the income statement, net of tax after income from
continuing operations. This new guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A
reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year
of adoption. Besides presentation on the consolidated statements of operations and comprehensive loss when an
item that meets the extraordinary criteria exists, we do not feel that adoption of ASU 2015-01 will have a
material impact on our consolidated financial statements.

Accounting For Share-Based Payments-Performance Target Could Be Achieved after the Requisite Service
Period

In June 2014, FASB issued ASU 2014-12, “Compensation—Stock Compensation (Topic 718)—Accounting for
Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period.” ASU 2014-12 requires that a performance target which affects vesting and
that could be achieved after the requisite service period be treated as a performance condition by applying
existing guidance in Topic 718 as it relates to awards with performance conditions. The amendment also
specifies the period over which compensation costs should be recognized. The amendment is effective for annual
reporting periods and interim periods within those annual periods beginning after December 15, 2015. Early
adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-12 on our
consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify
the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and the
International Financial Reporting Standards. This guidance supersedes previously issued guidance on revenue
recognition and gives a five step process an entity should follow so that the entity recognizes revenue that depicts
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. This new guidance will be effective for our
fiscal 2018 reporting period and must be applied either retrospectively during each prior reporting period
presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date
of the initial application. Early adoption is not permitted. We are currently evaluating the impact of the adoption
of this ASU on our consolidated financial statements.

Reporting Discontinued Operations and Disposals of Components of an Entity

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property,
Plant, and Equipment (Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity,” which changes the criteria for reporting discontinued operations while enhancing
disclosures in this area. The amended guidance requires that a disposal representing a strategic shift that has (or
will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be

50

reported as discontinued operations. This guidance also expands the disclosures required when an entity reports a
discontinued operation or when it disposes of or classifies as held for sale an individually significant component
that does not meet the definition of a discontinued operation. This new guidance will be effective prospectively
on disposals (or classifications of held for sale) of components of an entity that occur within our fiscal year
beginning on February 1, 2015. Early adoption is permitted but only for disposals (or classification as held for
sale) that have not been reported in financial statements previously issued or available for issuance. We do not
anticipate material impacts on our financial statements upon initial adoption. This guidance could have a material
impact on our disclosure requirements if we dispose of, or classify as held for sale, an individually significant
component of our business that does not meet the definition of a discontinued operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and
changes in interest rates. These exposures may change over time as business practices evolve and could have a
material adverse impact on our financial results. Our foreign currency exchange exposure is primarily associated
with product sales arrangements or settlement of intercompany payables and receivables among subsidiaries and
their respective parent company, and/or investment/equity contingency considerations denominated in the local
currency where the functional currency of the foreign subsidiary is the U.S. dollar.

Our principal currency exposures relate primarily to the U.S. dollar, the Euro and the Philippine peso. All foreign
currency gains and losses are included in other expenses, net, in the accompanying consolidated statements of
operations and comprehensive loss. For fiscal 2015 we recorded approximately $2.3 million in losses due to the
international subsidiary translations and cash settlements of revenues and expenses.

In addition, because a substantial portion of our earnings are generated by our foreign subsidiaries whose
functional currency are other than the U.S. dollar, our earnings could be materially impacted by movements in
foreign currency exchange rates upon the translation of the subsidiary’s earnings into the U.S. dollar. If the U.S.
dollar had been stronger by 10% compared to the Euro, our total revenues would have decreased by $3.3 million
and would have negatively impacted our operations by $0.3 million.

Interest Rate Risk

Exposure to market risk for changes in interest rates relates primarily to our investment portfolio of marketable
debt securities of various issuers, types and maturities and to our borrowings under our demand note payable. We
do not use derivative instruments in our investment portfolio, and our investment portfolio only includes highly
liquid instruments. Our cash and marketable securities include cash equivalents, which we consider to be
investments purchased with original maturities of 90 days or less. There is risk that losses could be incurred if we
were to sell any securities prior to stated maturity. Given the short maturities and investment grade quality of the
portfolio holdings at January 31, 2015, a hypothetical 10% adverse movement in interest rates should not have a
material adverse impact on the fair value of our investment portfolio. However, our long-term marketable
securities, which are carried at the lower of cost or market value, have fixed interest rates, and therefore are
subject to changes in fair value due to changes in interest rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of January 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss for the years ended January 31, 2015,

2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended January 31, 2015, 2014 and 2013 . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended January 31, 2015, 2014 and 2013 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

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55
57
59
60
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of SeaChange International, Inc.

We have audited the accompanying consolidated balance sheets of SeaChange International, Inc. (a Delaware
corporation) and subsidiaries (the “Company”) as of January 31, 2015 and 2014, and the related consolidated
statements of operations and comprehensive loss, cash flows and stockholders’ equity for each of the three years
in the period ended January 31, 2015. Our audits of the basic consolidated financial statements included the
financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of SeaChange International, Inc. and subsidiaries as of January 31, 2015 and 2014, and the
results of their operations and their cash flows for each of the three years in the period ended January 31, 2015 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of January 31, 2015, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated April 7, 2015 expressed an unqualified
opinion.

/s/ GRANT THORNTON LLP

Boston, Massachusetts
April 7, 2015

53

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

Assets
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts and other receivables, net of allowance for doubtful accounts of $400

and $327 at January 31, 2015 and January 31, 2014, respectively . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 31,
2015

January 31,
2014

$ 90,019
1,073
7,516

$115,734

—
5,555

24,962
6,588
2,864
3,026

136,048
15,869
6,793
3,051
7,314
41,008
2,268

30,203
5,511
6,632
5,242

168,877
18,530
6,814
1,051
12,855
45,150
836

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$212,351

$254,113

Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.01 par value;100,000,000 shares authorized; 32,733,636 shares

issued and 32,693,852 outstanding at January 31, 2015, and 33,037,671 shares issued
and 32,997,887 outstanding at January 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 39,784 common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,129
12,507
17,398

35,034
1,690
1,493
1,993
1,090

41,300

$

6,640
12,332
24,030

43,002
1,598
936
2,503
1,633

49,672

327
219,651
(1)
(43,172)
(5,754)

330
221,932
(1)
(15,688)
(2,132)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

171,051

204,441

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$212,351

$254,113

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

54

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in thousands, except per share data)

For the Fiscal Years Ended January 31,
2014

2013

2015

Revenues:

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,507
83,928

$ 54,749
91,570

$ 64,274
92,914

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115,435

146,319

157,188

Cost of revenues:

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses:

Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earn-outs and change in fair value of earn-outs . . . . . . . . . . . . . . . . .
Professional fees—other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and other restructuring costs . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,845
48,272
1,070
141
—

58,328

57,107

42,169
13,920
16,014
4,084
3,079
—
671
3,623

83,560

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(26,453)

Other expenses, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) gain on sale of investment in affiliates . . . . . . . . . . . . . . . . . . . . . . .

(2,161)
—

10,526
55,075
1,269
250
—

67,120

79,199

39,657
15,018
17,618
3,361
2,709
(60)
1,614
911

80,828

(1,629)

(224)
(363)

Loss before income taxes and equity income in earnings of

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(28,614)

(2,216)

Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income in earnings of affiliates, net of tax . . . . . . . . . . . . . . . . . . . .

(1,106)
19

55
44

Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(27,489)

(2,227)

17,397
52,162
2,429
157
1,752

73,897

83,291

38,667
15,398
17,674
3,966
5,772
2,435
1,619
3,106

88,637

(5,346)

(86)
885

(4,547)

(1,555)
193

(2,799)

Loss on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . .

—
5

—
(803)

(14,073)
(2,293)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (27,484)

$ (3,030)

$ (19,165)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:

$ (27,484)

$ (3,030)

$ (19,165)

Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on marketable securities(1) . . . . . . . . . . . . . . .

(3,647)
25

(294)
(12)

7,954
(6)

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (31,106)

$ (3,336)

$ (11,217)

55

For the Fiscal Years Ended January 31,

2015

2014

2013

Loss per share:

Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss per share from continuing operations:

Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) per share from discontinued operations:

Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

$

$

$

(0.84)

(0.84)

(0.84)

(0.84)

0.00

0.00

$

$

$

$

$

$

(0.09)

(0.09)

(0.07)

(0.07)

(0.02)

(0.02)

$

$

$

$

$

$

(0.59)

(0.59)

(0.09)

(0.09)

(0.50)

(0.50)

Weighted average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,772

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,772

32,718

32,718

32,494

32,494

(1) Tax amounts for all periods were not significant

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

56

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

For the Fiscal Years Ended January 31,
2014

2013

2015

Cash flows from operating activities:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss from discontinued operations . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash (used in) provided by

continuing operating activities:

Depreciation and amortization of property and equipment . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities from
continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities from
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .

Total cash (used in) provided by operating

$ (27,484) $ (3,030) $ (19,165)
16,366

803

(5)

3,683
5,154
3,220
(372)
512

3,567
(1,993)
3,183
1,570
(1,619)
1,650
(5,699)
1,289

4,389
4,630
2,959
(684)
798

5,420
(5,251)
(234)
6,724
(873)
(3,146)
(4,877)
539

4,671
6,395
5,929
(132)
2,596

1,676
4,637
2,563
(5,045)
(236)
1,430
(6,283)
568

(13,344)

8,167

15,970

5

(803)

1,387

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13,339)

7,364

17,357

Cash flows from investing activities:

Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale and maturity of marketable securities . . . . . . . . . . .
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equity investment
. . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses and payment of contingent consideration, net
of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance for Timeline Labs acquisition . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,873)
(9,193)
7,181
(2,000)
229

—
(2,500)
—

(2,315)
(11,479)
12,237
—
1,128

(4,009)
—
958

(3,972)
(15,642)
14,214
—
885

(8,175)
—
452

Net cash used in investing activities from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,156)

(3,480)

(12,238)

Net cash provided by investing activities from

discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .

—

4,000

25,232

Total cash (used in) provided by investing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,156)

520

12,994

57

For the Fiscal Years Ended January 31,

2015

2014

2013

Cash flows from financing activities:

Repurchases of our common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock relating to stock option

(5,504)

—

(6,200)

exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

1,058

2,191

Total cash provided by (used in) financing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5,504)
1,284
(25,715)
115,734
$ 90,019

1,058
71
9,013
106,721
$115,734

(4,009)
(206)
26,136
80,585
$106,721

Supplemental disclosure of cash flow information:

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental disclosure of non-cash activities:

Transfer of items originally classified as inventories to equipment . . . .
Issuance of common stock for settlement of contingent consideration

$
$

$

671
6

474

$
$

$

2,606
4

1,110

$
$

$

1,312
89

897

related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $

1,560

$ —

Asset held for sale reclassified to asset held for use and reclassified

from current assets to property and equipment . . . . . . . . . . . . . . . . . .

$ — $

465

$ —

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

58

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share amounts)

Common Stock

Accumulated Other

Comprehensive Income (Loss) Treasury Stock

Number of
Shares

Par
Value

Additional
Paid-In Capital

Accumulated
Deficit

Cumulative
Translation
Adjustment

Unrealized
Gain/Loss on
Investments

Number of

Shares Amount

Total
Stockholders’
Equity

326

213,880

6,507

(9,810)

36

(39,784)

(1)

210,938

Balance at January 31, 2012 . . . . . . 32,534,444
Issuance of common stock pursuant
to exercise of stock options . . . . .
Issuance of common stock pursuant

304,550

to vesting of restricted stock
units . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant
to deferred consideration . . . . . . .
Purchase of treasury shares . . . . . . .
Retirement of shares . . . . . . . . . . . .
Stock-based compensation

2

4

1

359,676

75,680

— —

(764,024)

(6)

2,189

(4)

585
(6,194)
—

expense . . . . . . . . . . . . . . . . . . . .

— —

5,903

Change in fair value on marketable

securities . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .

— —
— —
— —

—
—
—

327

216,359

Balance at January 31, 2013 . . . . . . 32,510,326
Issuance of common stock pursuant
to exercise of stock options . . . . .
Issuance of common stock pursuant

118,529

to vesting of restricted stock
units . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant
to deferred consideration . . . . . . .

Stock-based compensation

expense . . . . . . . . . . . . . . . . . . . .

Change in fair value on marketable

securities . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .

205,928

202,888

— —
— —
— —

1

1

1

1,057

(1)

1,558

2,959

—
—
—

Balance at January 31, 2014 . . . . . . 33,037,671 $330
Issuance of common stock pursuant

to vesting of restricted stock
units . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . .
Retirement of shares . . . . . . . . . . . .
Stock-based compensation

expense . . . . . . . . . . . . . . . . . . . .

Change in fair value on marketable

securities . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .

287,485

3

(591,520)

(6)

— —
— —
— —

—

—

—
—
—

—

—

—

—
—
—

—

—
—
(19,165)

(12,658)

—
7,954
—

(1,856)

—

—

—

—

—

—

—

—

—
—
(3,030)

—
(294)
—

—

—

—
—
—

—

(6)

—
—

30

—

—

—

—

(12)
—
—

—

—

2,191

—

—

—

—

—
(764,024) —
—
764,024

—

—
—
—

—

—
—
—

586
(6,194)
(6)

5,903

(6)
7,954
(19,165)

(39,784)

(1)

202,201

—

—

1,058

—

—

—

—
—
—

—

—

—

—
—
—

—

1,559

2,959

(12)
(294)
(3,030)

$221,932

$(15,688)

$(2,150)

$ 18

(39,784)

$ (1)

$204,441

(3)
(5,498)
—

3,220

—
—
—

—
—
—

—

—
—
—

—

—
—
(27,484)

—
(3,647)
—

—
—
—

—

25
—
—

$ 43

—

—
(591,520) —
—
591,520

—

—
—
—

—

—
—
—

—
(5,498)
(6)

3,220

25
(3,647)
(27,484)

(39,784)

$ (1)

$171,051

Balance at January 31, 2015 . . . . . . 32,733,636 $327

$219,651

$(43,172)

$(5,797)

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

59

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

We are an industry leader in the delivery of multiscreen video. Our products and services facilitate the
aggregation, licensing, management and distribution of video (primarily movies and television programming)
and television advertising content to cable system operators, telecommunications companies and mobile
communications providers.

2. Summary of Significant Accounting Policies

Significant accounting policies followed in the preparation of the accompanying consolidated financial
statements are as follows:

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. We
consolidate the financial statements of our wholly-owned subsidiaries and all intercompany transactions and
account balances have been eliminated in consolidation. We have reclassified certain prior fiscal year data to
conform to our current fiscal year presentation.

We also hold minority investments in the capital stock of certain private companies having product offerings or
customer relationships that have strategic importance. We evaluate our equity and debt investments and other
contractual relationships with affiliate companies in order to determine whether the guidelines regarding the
consolidation of VIE’s should be applied in the financial statements. Consolidation guidelines address
consolidation by business enterprises of VIE’s that possess certain characteristics. A VIE is defined as an entity
in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.
We use qualitative analysis to determine whether or not we are the primary beneficiary of a VIE. We consider the
rights and obligations conveyed by the implicit and explicit variable interest in each VIE and the relationship of
these with the variable interests held by other parties to determine whether its variable interests will absorb a
majority of a VIE’s expected losses, receive a majority of its expected residual returns, or both. If we determine
that our variable interests will absorb a majority of the VIE’s expected losses, receive a majority of their
expected residual returns, or both, we consolidate the VIE as the primary beneficiary, and if not, it is not
consolidated. We have concluded that we are not the primary beneficiary for any variable interest entities during
fiscal 2015.

Use of Estimates

The preparation of these financial statements in conformity with U.S. GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates and
judgments, including those related to the timing and amounts of revenue recognition, valuation of inventory,
collectability of accounts receivable, valuation of investments and income taxes, assumptions used to determine
stock-based compensation, valuation of goodwill and intangible assets and related amortization. Management
bases these estimates on historical and anticipated results and trends and on various other assumptions that
management believes are reasonable under the circumstances, including assumptions as to future events. These
estimates form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty.
Actual results may differ from management’s estimates.

60

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash investments
with an original maturity of three months or less. All cash equivalents are carried at cost, which approximates fair
value.

Marketable Securities

We account for investments in accordance with authoritative guidance that defines investment classifications. We
determine the appropriate classification of debt securities at the time of purchase and reevaluate such designation
as of each balance sheet date. Our investment portfolio consists primarily of money market funds, U.S. treasury
notes or bonds and U.S. government agency bonds at January 31, 2015 and 2014, but can consist of corporate
debt investments, asset-backed securities and government-sponsored enterprises. 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, net in our consolidated statements of operations and comprehensive loss. Interest on securities is
recorded as earned and is also included in other expenses, net. Any realized gains or losses would be shown in
the accompanying consolidated statements of operations and comprehensive loss in other expenses, net.

We evaluate our investments on a regular basis to determine whether an other-than-temporary decline in fair
value has occurred. This evaluation consists of a review of several factors, including, but not limited to: the
length of time and extent that an investment has been in an unrealized loss position; the existence of an event that
would impair the issuer’s future earnings potential; and our intent and ability to hold an investment for a period
of time sufficient to allow for any anticipated recovery in fair value. Declines in value below cost for investments
where it is considered probable that all contractual terms of the investment will be satisfied, are due primarily to
changes in interest rates, and where the company has the intent and ability to hold the investment for a period of
time sufficient to allow a market recovery, are not assumed to be other-than-temporary. Any other-than-
temporary declines in fair value are recorded in earnings and a new cost basis for the investment is established.

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. The fair value measurements of the contingent consideration
obligations related to our business acquisitions are valued using Level 3 inputs.

61

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 instruments include money market funds, U.S. treasury notes or
bonds and U.S. government agency bonds.

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

Concentration of Credit Risk

Financial instruments which potentially expose us to concentrations of credit risk include cash equivalents,
investments in treasury bills, certificates of deposits and commercial paper, trade accounts receivable, accounts
payable and accrued liabilities. We have cash investment policies which, among other things, limit investments
to investment-grade securities. We restrict our cash equivalents and investments in marketable securities to
repurchase agreements with major banks and U.S. government and corporate securities which are subject to
minimal credit and market risk. We perform ongoing credit evaluations of our customers. As of January 31,
2015, two customers represented more than 10% of consolidated accounts receivable compared to one customer
as of January 31, 2014. For fiscal 2015, 2014 and 2013, two, three and two customers each accounted for more
than 10% of our total revenue.

Accounts Receivable and Allowances for Doubtful Accounts

For trade accounts receivable, we evaluate customers’ financial condition, require advance payments from
certain of our customers and maintain reserves for potential credit losses. We perform ongoing credit evaluations
of customers’ financial condition but generally do not require collateral. For some international customers, we
require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. We
monitor payments from customers and assess any collection issues. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of the Company’s customers to make required payments
and record these allowances as a charge to general and administrative expenses in our consolidated statements of
operations and comprehensive loss. We base our allowances for doubtful accounts on historical collections and
write-off experience, current trends, credit assessments, and other analysis of specific customer situations. At
January 31, 2015 and 2014, we had an allowance for doubtful accounts of $0.4 million and $0.3 million,
respectively, to provide for potential credit losses. We charge off trade accounts receivables against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Recoveries of trade receivables previously charged off are recorded when received.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out
(“FIFO”) method. Inventories consist primarily of components and subassemblies and finished products held for
sale. The values of inventories are reviewed quarterly to determine that the carrying value is stated at the lower of
cost or net realizable value. We record charges to reduce inventory to its net realizable value when impairment is
identified through a quarterly review process. The obsolescence evaluation is based upon assumptions and

62

estimates about future demand, or possible alternative uses and involves significant judgments. For the years
ended January 31, 2015, 2014 and 2013, we recorded a provision for obsolescence of $0.1 million, $0.1 million
and $0.3 million, respectively.

Property and Equipment

Property and equipment consists of land and buildings, office and computer equipment, leasehold improvements,
demonstration equipment, deployed assets and spare components and assemblies used to service our installed
base. Property and equipment are recorded at cost and depreciated over their estimated useful lives. Determining
the useful lives of property and equipment requires us to make significant judgments that can materially impact
our operating results. If our estimates require adjustment, it could have a material impact on our reported results.

Demonstration equipment consists of systems manufactured by us for use in marketing and selling activities.
Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the
respective leases using the straight-line method. Deployed assets consist of movie systems owned and
manufactured by us that are installed in a hotel environment. Deployed assets are depreciated over the life of the
related service agreements. Capitalized service and spare components are depreciated over the estimated useful
lives using the straight-line method. Maintenance and repair costs are expensed as incurred.

Generally, property and equipment include assets in service. Fully depreciated assets remaining in service along
with related accumulated depreciation are not removed from the balance sheet until the corresponding asset is
removed from service either through a retirement or sale. Upon retirement or sale of an asset or asset group, the
cost of the assets disposed of, and the related accumulated depreciation, are removed from the accounts, and any
resulting gain or loss is included in the determination of net income or loss.

Investments in Affiliates

Our investments in affiliates include investments accounted for under the cost method and the equity method of
accounting. The investments that represent less than a 20% ownership interest of the common shares of the
affiliate are carried at cost. Under the equity method of accounting, which generally applies to investments that
represent 20% to 50% ownership of the common shares of the affiliate, our proportionate ownership share of the
earnings or losses of the affiliate are included in equity income in earnings of affiliates in our consolidated
statements of operations and comprehensive loss.

We periodically review indicators of the fair value of our investments in affiliates in order to assess whether
available facts or circumstances, both internally and externally, may suggest an “other than temporary” decline in
the value of the investment. If we determine that an other-than-temporary impairment has occurred, we will
write-down the investment to its fair value. The carrying value of an investment in an affiliate may be affected by
the affiliate’s ability to obtain adequate funding and execute its business plans, general market conditions, the
company’s current cash position, earnings and cash flow forecasts, recent operational performance, and any other
readily available data. The inability of an affiliate to obtain future funding or successfully execute its business
plan could adversely affect our equity earnings of the affiliate in the periods affected by those events. Future
adverse changes in market conditions or poor operating results of the affiliates could result in equity losses or an
inability to recover the carrying value of the investments in affiliates that may not be reflected in an investment’s
current carrying value, thereby possibly requiring an impairment charge in the future.

63

Intangible Assets and Goodwill

Intangible assets consist of customer contracts, completed technology, non-compete agreements, trademarks and
patents. The intangible assets are amortized to cost of sales and operating expenses, as appropriate, on a straight-
line or accelerated basis, using the economic consumption life basis, in order to reflect the period that the assets
will be consumed, which are:

Intangible assets with finite useful lives:

Customer contracts
Non compete agreements
Completed technology
Trademarks, patents and other

1 - 8 years
2 - 3 years
4 - 6 years
5 years

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and
identifiable intangible assets acquired.

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.

The process of evaluating indefinite-lived intangible assets for impairment requires several judgments and
assumptions to be made to determine the fair value of the Company, including the method used to determine fair
value, discount rates, expected levels of cash flows, revenues and earnings, and the selection of comparable
companies used to develop market-based assumptions. We may employ one or more of three generally accepted
approaches for valuing businesses: the market approach, the income approach and the asset-based (cost)
approach to arrive at the fair value. We chose to use the market approach and the income approach to determine
the value of the Company for our testing in fiscal 2015. In calculating the fair value, we derived the standalone
projected five year cash flows for the Company. This process started with the projected cash flows which were
discounted. The choice of which approach and methods to use in a particular situation depends on the facts and
circumstances.

We also evaluate property and equipment, intangible assets with finite useful lives and other long-lived assets 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.

64

Income Taxes

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statements of
operations and comprehensive loss except to the extent that it relates to items recognized directly within equity or
in other comprehensive loss. Income taxes payable, which is included in other accrued expenses in our
consolidated balance sheets, is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantially-enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.

Deferred tax assets and liabilities are recognized, using the balance sheet method, for the expected tax
consequences of temporary differences between the carrying amounts of assets and liabilities and the amounts
used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial
recognition of goodwill, the initial recognition of assets and liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at
the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that
have been enacted or substantially-enacted by the reporting date.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the
countries where the deferred tax assets originated and during the periods when the deferred tax assets become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these
jurisdictions, we may take tax positions that management believes are supportable, but are potentially subject to
successful challenge by the applicable taxing authority. These interpretational differences with the respective
governmental taxing authorities can be impacted by the local economic and fiscal environment. We evaluate our
tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in
income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the
progress of tax audits, and adjust them accordingly. We have a number of audits in process in various
jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available
information, we believe that the ultimate outcomes will not have a material adverse effect on our financial
position, results of operations or cash flows.

Because there are a number of estimates and assumptions inherent in calculating the various components of our
tax provision, certain changes or future events such as changes in tax legislation, geographic mix of earnings,
completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective
tax rate.

Restructuring

Restructuring charges that we record consist of employee-related severance charges, contract termination costs
and the disposal of related fixed assets. Restructuring charges represent our best estimate of the associated
liability at the date the charges are recognized. Adjustments for changes in assumptions are recorded as a
component of operating expenses in the period they become known. Differences between actual and expected
charges and changes in assumptions could have a material effect on our restructuring accrual as well as our
consolidated results of operations. See Note 7, “Severance and Other Restructuring Costs,” for more information
on the current restructuring plan.

65

Foreign Currency Translation

For subsidiaries where the U.S. dollar is designated as the functional currency of the entity, we translate that
entity’s monetary assets and liabilities denominated in local currencies into U.S. dollars (the functional and
reporting currency) at current exchange rates, as of each balance sheet date. Non-monetary assets (e.g.,
inventories, property, plant, and equipment and intangible assets) and related income statement accounts (e.g.,
cost of sales, depreciation, amortization of intangible assets) are translated at historical exchange rates between
the functional currency (the U.S. dollar) and the local currency. Revenue and other expense items are translated
using average exchange rates during the fiscal period. Translation adjustments resulting from translation of the
subsidiaries’ accounts are included in accumulated other comprehensive loss, a separate component of
stockholders’ equity. Gains and losses on foreign currency transactions, and any unrealized gains and losses on
short-term inter-company transactions are included in other expense, net.

For subsidiaries where the local currency is designated as the functional currency, we translate our assets and
liabilities into U.S. dollars (the reporting currency) at current exchange rates as of each balance sheet date.
Revenue and expense items are translated using average exchange rates during the period. Cumulative translation
adjustments are presented as a separate component of stockholders’ equity. Exchange gains and losses on foreign
currency transactions and unrealized gains and losses on short-term inter-company transactions are included in
other expense, net.

The aggregate foreign exchange transaction losses included in other expenses, net, on the consolidated statements
of operations and comprehensive loss, were $2.3 million, $0.4 million and approximately $23,000 for fiscal
2015, 2014 and 2013, respectively.

Comprehensive Loss

We present accumulated other comprehensive loss in our consolidated balance sheets and comprehensive loss in
the consolidated statement of operations and comprehensive loss. At the end of fiscal 2015, 2014 and 2013, our
comprehensive loss of $31.1 million, $3.3 million and $11.2 million consists primarily of net loss, cumulative
translation adjustments and unrealized gains and losses on marketable securities.

Revenue Recognition

Our transactions frequently involve the sales of hardware, software, systems and services in multiple-element
arrangements. Revenues from sales of hardware, software and systems that do not require significant
modification or customization of the underlying software are recognized when:

•

•

•

•

persuasive evidence of an arrangement exists;

delivery has occurred, and title and risk of loss have passed to the customer;

fees are fixed or determinable; and

collection of the related receivable is considered probable.

Customers are billed for installation, training, project management and at least one year of product maintenance
and technical support at the time of the product sale. Revenue from these activities is deferred at the time of the
product sale and recognized ratably over the period these services are performed. Revenue from ongoing product
maintenance and technical support agreements is recognized ratably over the period of the related agreements.
Revenue from software development contracts that include significant modification or customization, including
software product enhancements, is recognized based on the percentage of completion contract accounting method
using labor efforts expended in relation to estimates of total labor efforts to complete the contract. Accounting for
contract amendments and customer change orders are included in contract accounting when executed. Revenue
from shipping and handling costs and other out-of-pocket expenses reimbursed by customers are included in
revenues and cost of revenues. Our share of intercompany profits associated with sales and services provided to
affiliated companies are eliminated in consolidation in proportion to our equity ownership.

66

Revenue from the sale of software-only products remains within the scope of the software revenue recognition
rules. Maintenance and support, training, consulting, and installation services no longer fall within the scope of
the software revenue recognition rules, except when they are sold with and relate to a software-only product.
Revenue recognition for products that no longer fall under the scope of the software revenue recognition rules is
similar to that for other tangible products and ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-
Deliverable Revenue Arrangements,” amended ASC 605 and is applicable for multiple-deliverable revenue
arrangements. ASU 2009-13 allows companies to allocate revenue in a multiple-deliverable arrangement in a
manner that better reflects the transaction’s economics.

Under the software revenue recognition rules, the fee is allocated to the various elements based on vendor-
specific objective evidence (“VSOE”) of fair value. Under this method, the total arrangement value is allocated
first to undelivered elements based on their fair values, with the remainder being allocated to the delivered
elements. Where fair value of undelivered service elements has not been established, the total arrangement value
is recognized over the period during which the services are performed. The amounts allocated to undelivered
elements, which may include project management, training, installation, maintenance and technical support and
certain hardware and software components, are based upon the price charged when these elements are sold
separately and unaccompanied by the other elements. The amount allocated to installation, training and project
management revenue is based upon standard hourly billing rates and the estimated time necessary to complete
the service. These services are not essential to the functionality of systems as these services do not alter the
equipment’s capabilities, are available from other vendors and the systems are standard products. For multiple-
element arrangements that include software development with significant modification or customization and
systems sales where VSOE of the fair value does not exist for the undelivered elements of the arrangement (other
than maintenance and technical support), percentage of completion accounting is applied for revenue recognition
purposes to the entire arrangement with the exception of maintenance and technical support.

Under the revenue recognition rules for tangible products as amended by ASU 2009-13, the fee from a multiple-
deliverable arrangement is allocated to each of the deliverables based upon their relative selling prices as
determined by a selling-price hierarchy. A deliverable in an arrangement qualifies as a separate unit of
accounting if the delivered item has value to the customer on a stand-alone basis. A delivered item that does not
qualify as a separate unit of accounting is combined with the other undelivered items in the arrangement and
revenue is recognized for those combined deliverables as a single unit of accounting. The selling price used for
each deliverable is based upon VSOE if available, third-party evidence (“TPE”) if VSOE is not available, and
best estimate of selling price (“BESP”) if neither VSOE nor TPE are available. TPE is the price of the
Company’s, or any competitor’s, largely interchangeable products or services in stand-alone sales to similarly
situated customers. BESP is the price at which we would sell the deliverable if it were sold regularly on a stand-
alone basis, considering market conditions and entity-specific factors.

The selling prices used in the relative selling price allocation method for certain of our services are based upon
VSOE. The selling prices used in the relative selling price allocation method for third-party products from other
vendors are based upon TPE. The selling prices used in the relative selling price allocation method for our
hardware products, software, subscriptions, and customized services for which VSOE does not exist are based
upon BESP. We do not believe TPE exists for these products and services because they are differentiated from
competing products and services in terms of functionality and performance and there are no competing products
or services that are largely interchangeable. Management establishes BESP with consideration for market
conditions, such as the impact of competition and geographic considerations, and entity-specific factors, such as
the cost of the product, discounts provided and profit objectives. Management believes that BESP is reflective of
reasonable pricing of that deliverable as if priced on a stand-alone basis.

For our cloud and managed service revenues, we generate revenue from two sources: (1) subscription and
support services; and (2) professional services and other. Subscription and support revenue includes subscription
fees from customers accessing our cloud-based software platform and support fees. Our arrangements with
customers do not provide the customer with the right to take possession of the software supporting the cloud-

67

based software platform at any time. Professional services and other revenue include fees from implementation
and customization to support customer requirements. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been
met. For the most part, subscription and support agreements are entered into for 12 to 36 months. Generally, a
majority of the professional services component of the arrangements with customers is performed within a year
of entering into a contract with the customer.

In most instances, revenue from a new customer acquisition is generated under sales agreements with multiple
elements, comprised of subscription and support and other professional services. We evaluate each element in a
multiple-element arrangement to determine whether it represents a separate unit of accounting. An element
constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the
undelivered element is probable and within our control.

In determining when to recognize revenue from a customer arrangement, we are often required to exercise
judgment regarding the application of our accounting policies to a particular arrangement. The primary
judgments used in evaluating revenue recognized in each period involve: determining whether collection is
probable, assessing whether the fee is fixed or determinable, and determining the fair value of the maintenance
and service elements included in multiple-element software arrangements. Such judgments can materially impact
the amount of revenue that we record in a given period. While we follow specific and detailed rules and
guidelines related to revenue recognition, we make and use significant management judgments and estimates in
connection with the revenue recognized in any reporting period, particularly in the areas described above. If
management made different estimates or judgments, material differences in the timing of the recognition of
revenue could occur.

Stock-based Compensation

We account for all employee and non-employee director stock-based compensation awards using the
authoritative guidance regarding stock-based payments. We have continued to use the Black-Scholes pricing
model as the most appropriate method for determining the estimated fair value of all applicable awards. We also
use the Monte Carlo pricing model for our market-based option awards. Determining the appropriate fair value
model and calculating the fair value of stock-based payment awards requires the input of highly subjective
assumptions, including the expected life of the stock-based payment awards and stock price volatility.
Management estimates the volatility based on the historical volatility of our stock. The assumptions used in
calculating the fair value of stock-based payment awards represent management’s best estimates, but these
estimates involve inherent uncertainties and the application of management’s judgment. As a result, if
circumstances change and we use different assumptions, our stock-based compensation expense could be
materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our
estimate, the stock-based compensation expense could be significantly different from what it has recorded in the
current period. The estimated fair value of our stock-based options and performance-based restricted stock units
(“RSUs”), less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis,
whereas the RSUs and employee stock purchase plan stock units are amortized on a straight-line basis.

Advertising Costs

Advertising costs are charged to expense as incurred. Advertising costs were $0.1 million, $0.1 million and $0.2
million for fiscal 2015, 2014 and 2013, respectively.

Earnings Per Share

Earnings per share are presented in accordance with authoritative guidance which requires the presentation of
“basic” earnings per share and “diluted” earnings per share. Basic earnings per share is computed by dividing

68

earnings available to common shareholders by the weighted-average shares of common stock outstanding during
the period. For the purposes of calculating diluted earnings per share, the denominator includes both the weighted
average number of shares of common stock outstanding during the period and the weighted average number of
potential shares of common stock, such as stock options and restricted stock, calculated using the treasury stock
method. For the purpose of calculating diluted loss per share, we do not include these shares in the denominator
because these shares would have an anti-dilutive effect on periods in which we incur a net loss. Certain shares of
our common stock have exercise prices in excess of the average market price. These shares are anti-dilutive and
are omitted from the calculation of earnings per share. For more information on this see Note 14., “Net Loss Per
Share,” below.

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standards Updates. Updates not listed below were
assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated
financial position or results of operations.

Recent Accounting Guidance Not Yet Effective

Amendments to the Consolidation Analysis

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” ASU 2015-02
is intended to improve guidance for limited partnerships, limited liability corporations and securitization
structures. The guidance places more emphasis on risk of loss when determining a controlling financial interest,
reduces the frequency of the application of related-party guidance when determining a controlling financial
interest in a VIE and changes consolidation conclusions for public and private companies that typically make use
of limited partnerships or VIEs. This guidance is effective for us beginning in fiscal 2017. Early adoption is
permitted. We are currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial
statements.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Item

In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the
Concept of Extraordinary Item.” ASU 2015-01 is meant to reduce complexity in accounting standards by
eliminating the concept of extraordinary items from U.S. GAAP. In the event of a transaction that meets the
criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results
of ordinary operations and show the item separately in the income statement, net of tax after income from
continuing operations. This new guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A
reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year
of adoption. Besides presentation on the consolidated statements of operations and comprehensive (loss) income
when an item that meets the extraordinary criteria exists, we do not feel that adoption of ASU 2015-01 will have
a material impact on our consolidated financial statements.

Accounting For Share-Based Payments—Performance Target Could Be Achieved after the Requisite Service
Period

In June 2014, the FASB issued ASU 2014-12, “Compensation—Stock Compensation (Topic 718)—Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period.” ASU 2014-12 requires that a performance target which affects vesting and
that could be achieved after the requisite service period be treated as a performance condition by applying
existing guidance in Topic 718 as it relates to awards with performance conditions. The amendment also
specifies the period over which compensation costs should be recognized. The amendment is effective for annual

69

reporting periods and interim periods within those annual periods beginning after December 15, 2015. Early
adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-12 on our
consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify
the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and the
International Financial Reporting Standards. This guidance supersedes previously issued guidance on revenue
recognition and gives a five step process an entity should follow so that the entity recognizes revenue that depicts
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. This new guidance will be effective for our
fiscal 2018 reporting period and must be applied either retrospectively during each prior reporting period
presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date
of the initial application. Early adoption is not permitted. We are currently evaluating the impact of the adoption
of this ASU on our consolidated financial statements.

Reporting Discontinued Operations and Disposals of Components of an Entity

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property,
Plant, and Equipment (Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity,” which changes the criteria for reporting discontinued operations while enhancing
disclosures in this area. The amended guidance requires that a disposal representing a strategic shift that has (or
will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be
reported as discontinued operations. This guidance also expands the disclosures required when an entity reports a
discontinued operation or when it disposes of or classifies as held for sale an individually significant component
that does not meet the definition of a discontinued operation. This new guidance will be effective prospectively
on disposals (or classifications of held for sale) of components of an entity that occur within our fiscal year
beginning on February 1, 2015. Early adoption is permitted but only for disposals (or classification as held for
sale) that have not been reported in financial statements previously issued or available for issuance. We do not
anticipate material impacts on our financial statements upon initial adoption. This guidance could have a material
impact on our disclosure requirements if we dispose of, or classify as held for sale, an individually significant
component of our business that does not meet the definition of a discontinued operation.

3. Discontinued Operations

On May 4, 2012, we completed the sale of our broadcast servers and storage business and received a cash
payment, net of certain adjustments, of $4.9 million and recorded a total gain in this transaction, net of tax in the
amount of $1.5 million. The financial results from this divested business are included in discontinued operations
in our consolidated statements of operations and comprehensive loss.

On May 21, 2012, we completed the sale of our media services business, ODG, to Avail Media, Inc. (“Avail”)
for a purchase price of approximately $27 million plus certain working capital adjustments. We recorded a
$15.5 million loss in our consolidated statements of operations and comprehensive loss from the sale of ODG,
primarily arising from a related $17.0 million goodwill impairment charge that we recorded in the first quarter of
fiscal 2013. The financial results from our former media services segment are included as discontinued
operations in our consolidated statements of operations and comprehensive loss.

70

The following table details selected financial information for our former broadcast servers and storage and media
services business units for the periods presented (amounts in thousands):

For the Fiscal Year Ended
January 31, 2014

For the Fiscal Year Ended
January 31, 2013

Servers
and
Storage

Media
Services

Total
Discontinued
Operations

Servers
and
Storage

Media
Services

Total
Discontinued
Operations

Revenues:

Products . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . .

Total revenues . . . . . . . . . . . . .

$

$

46
—

46

$ — $
—

$ — $

46
—

46

$ 1,031
835

$ —
9,315

$ 1,031
10,150

$ 1,866

$9,315

$11,181

Income (loss) from discontinued

operations:

Loss from discontinued operations,

before tax . . . . . . . . . . . . . . . . . . .
. . . .

Income tax provision (benefit)
Income in investment in

$ (803)
—

$ — $
—

(803)
—

$(1,854)
84

$ (194)
(13)

$ (2,048)
71

affiliates . . . . . . . . . . . . . . . . . . . .

—

—

—

—

(174)

(174)

Loss from discontinued operations,

after tax . . . . . . . . . . . . . . . . . . . .

$ (803)

$ — $

(803)

$(1,938)

$ (355)

$ (2,293)

4. Fair Value Measurements

Fair Value Measurements of Assets and Liabilities

The following tables set forth our financial assets and liabilities that were accounted for at fair value on a
recurring basis as of January 31, 2015 and January 31, 2014:

Fair Value at January 31, 2015 Using

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

(Amounts in thousands)

Significant
Unobservable
Inputs
(Level 3)

January 31,
2015

Financial assets:

Money market accounts (a) . . . . . . . . . . . . .

$ 1,575

$1,575

$ —

$ —

Available for sale marketable securities:
Current marketable securities:

U.S. treasury notes and bonds—

conventional

. . . . . . . . . . . . . . . . . .
U.S. government agency issues . . . . . .
Non-current marketable securities: . . . . . . .
U.S. treasury notes and bonds—

1,501
6,015

conventional

. . . . . . . . . . . . . . . . . .
U.S. government agency issues . . . . . .

4,286
2,507

1,501
—

4,286
—

—
6,015

2,507

—
—

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15,884

$7,362

$

8,522

$ —

71

Fair Value at January 31, 2014 Using

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

(Amounts in thousands)

Significant
Unobservable
Inputs
(Level 3)

January 31,
2014

Financial assets:

Money market accounts (a) . . . . . . . . . . . . .

$ 3,463

$3,463

$ —

$ —

Available for sale marketable securities:
Current marketable securities:

U.S. treasury notes and bonds—

conventional

. . . . . . . . . . . . . . . . . .
U.S. government agency issues . . . . . .

3,545
2,010

Non-current marketable securities:

U.S. government agency issues . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,814
$15,832

Total

3,545
—

—
$7,008

—
2,010

6,814
8,824

$

—
—

—
$ —

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

Available-for-Sale Securities

We determine the appropriate classification of debt 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, and U.S. government agency notes and bonds as of January 31, 2015 and 2014.
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 is
included in other expenses, net. Interest on securities is recorded as earned and is also included in other expenses,
net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and
comprehensive loss in other expenses, net.

The following is a summary of cash, cash equivalents and available-for-sale securities, including the cost basis,
aggregate fair value and unrealized gains and losses, for short-and long-term marketable securities portfolio as of
January 31, 2015 and 2014:

January 31, 2015:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
U.S. treasury notes and bonds—short-term . . . . . . . . . .
U.S. treasury notes and bonds—long-term . . . . . . . . . . .
U.S, government agency issues—short-term . . . . . . . . .
U.S, government agency issues—long-term . . . . . . . . . .
Total cash, cash equivalents and marketable

Amortized
Cost

$ 88,444
1,575
90,019
1,500
4,268
6,008
2,490

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(Amounts in thousands)

Estimated
Fair Value

—
—

—
—

$ — $ — $ 88,444
1,575
90,019
1,501
4,286
6,015
2,507

1
18
7
17

—
—

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$104,285

$

43

$ — $104,328

72

January 31, 2014:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
U.S. treasury notes and bonds—short-term . . . . . . . . . . .
U.S. government agency issues—short-term . . . . . . . . .
U.S. government agency issues—long-term . . . . . . . . . .

Total cash, cash equivalents and marketable

Amortized
Cost

$112,271
3,463
115,734
3,540
2,005
6,806

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(Amounts in thousands)

$—
—
—

5
5
8

$—
—
—

—

Estimated
Fair Value

$112,271
3,463
115,734
3,545
2,010
6,814

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$128,085

$ 18

$—

$128,103

The gross realized gains and losses on sale of available-for-sale securities for fiscal years 2015, 2014 and 2013
were immaterial. For purposes of determining gross realized gains and losses, the cost of securities sold is based
on specific identification.

Contractual maturities of available-for-sale debt securities at January 31, 2015 are as follows (amounts in
thousands):

Maturity of one year or less . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity between one and five years . . . . . . . . . . . . . . . . . . .

Estimated
Fair Value

$ 7,516
6,793

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,309

We concluded that there were no other than temporary declines in investments recorded as of January 31, 2015,
2014 and 2013. The unrealized holding gains (losses), net of tax, on available-for-sale securities, which are not
material for the periods presented, have been included in stockholders’ equity as a component of accumulated
other comprehensive loss.

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.

Restricted Cash

In December 2014, in conjunction with our acquisition of TLL, LLC (“Timeline Labs”), we entered into an
agreement to fund a $2.5 million escrow from which Timeline Labs could make withdrawals for working capital
purposes. The withdrawn portion of the escrow is accounted for as an advance against the purchase price and is
recorded in other assets on our consolidated balance sheets. The unused portion, being $1.1 million remaining in
escrow after signing the related merger agreement but prior to the consummation of the acquisition on
February 2, 2015, is classified as restricted cash on our consolidated balance sheets. See Note 16., “Subsequent
Events,” for additional information.

The fair value of cash, cash equivalents, restricted cash and marketable securities at January 31, 2015 and 2014
was $105.4 million and $128.1 million, respectively.

73

5. Consolidated Balance Sheet Detail

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:

Components and assemblies . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and equipment, net consists of the following:

January 31,

2015

2014

(Amounts in thousands)
$2,201
$1,487
4,431
1,377
$6,632
$2,864

Estimated
Useful
Life (Years)

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment
. . . . . . . . . . . . . . . . . .
Computer equipment, software and demonstration

equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and spare components . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . .

20
5

3
5
1-7

Less—Accumulated depreciation and amortization . .
Total property and equipment, net . . . . . . . . . . . .

January 31,

2015

2014

(Amounts in thousands)
$ 2,880
$ 2,880
12,081
12,146
998
1,023

17,584
1,158
1,089
35,880
(20,011)
$ 15,869

17,466
1,158
1,145
35,728
(17,198)
$ 18,530

Depreciation and amortization expense of fixed assets was $3.7 million, $4.4 million and $4.7 million for the
years ended January 31, 2015, 2014 and 2013, respectively.

Other accrued expenses consist of the following:

Accrued compensation and commissions . . . . . . . . . . . . . . .
Accrued bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other accrued expenses . . . . . . . . . . . . . . . . . . . .

January 31,

2015

2014

(Amounts in thousands)
$ 2,290
$ 1,518
2,095
2,186
229
2,021
2,113
1,959
5,605
4,823
$12,332
$12,507

6. Goodwill and Intangible Assets

At January 31, 2015 and 2014, we had goodwill of $41.0 million and $45.2 million, respectively. The change in
the carrying amount of goodwill for the years ended January 31, 2015 and 2014 are as follows (amounts in
thousands):

Balance at January 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . .
Balance at January 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . .
Balance at January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill

$45,103
47
45,150
(4,142)
$41,008

74

We are required to perform impairment tests related to our goodwill annually, which we perform during the third
quarter of each fiscal year, or when an indicator of impairment occurs. There was no impairment of goodwill
determined as a result of the annual impairment test completed during the third quarter of fiscal 2015. While no
impairment charges resulted from our annual test, impairment charges may occur in the future as a result of
changes in projected growth and other factors.

Intangible assets, net, consisted of the following at January 31, 2015 and 2014:

January 31, 2015

January 31, 2014

Weighted average
remaining life
(Years)

Gross

Accumulated
Amortization Net

Gross

Accumulated
Amortization

Net

(Amounts in thousands)

Finite-lived intangible assets:
Customer contracts . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . .
Completed technology . . . . . . . . . . . . .
Trademarks, patents and other . . . . . . .

Total finite-lived intangible

6.0
—
5.2
—

$30,397 $(24,160) $6,237 $32,593 $(22,344) $10,249
140
2,266
—

(2,433) — 2,772
(9,230) 1,077 11,461
(7,082) — 7,151

(2,632)
(9,195)
(7,151)

2,433
10,307
7,082

assets . . . . . . . . . . . . . . . . . . . . .

$50,219 $(42,905) $7,314 $53,977 $(41,322) $12,655

Indefinite-lived intangible assets:
Trade names . . . . . . . . . . . . . . . . . . . . .

—

—

—

—

200

—

200

Total intangible assets . . . . . . . . . .

$50,219 $(42,905) $7,314 $54,177 $(41,322) $12,855

Amortization expense for intangible assets was $5.2 million, $4.6 million and $6.4 million for fiscal 2015, 2014
and 2013, respectively.

The total amortization expense for each of the next five fiscal years is as follows (amounts in thousands):

For the Fiscal Years Ended January 31,

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Future Amortization . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated
Amortization
Expense

$3,076
2,195
1,272
649
121
1

$7,314

Actual amortization may differ from estimated amounts in the table above due to fluctuations in foreign currency
exchange rates, additional intangible asset acquisitions, potential impairment, accelerated amortization, or other
events. During fiscal 2015, we fully amortized our trade name intangible assets as they are no longer in use.

7. Severance and Other Restructuring Costs

During fiscal 2015, we incurred restructuring charges totaling $3.6 million. These charges included $3.4 million
of severance costs for terminated employees. In addition, we incurred $0.2 million of other restructuring charges
primarily due to the write off of leasehold improvements.

As announced in February 2015, we initiated a global restructuring plan to streamline our operations. The
reduction in our domestic work force was implemented in January 2015 and estimated charges were recorded.
We will implement an international reduction in workforce in fiscal 2016 and expect to incur future restructuring
charges.

75

The following table shows the change in balances of our accrued severance reported as a component of other
accrued expenses on the consolidated balance sheets (amounts in thousands):

Accrual balance as of January 31, 2014 . . . . . . . . . . . . . . . . . .
Restructuring charges incurred . . . . . . . . . . . . . . . . . . . . . . . . .
Severance costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

229
3,623
(1,605)
(226)

Accrual balance as of January 31, 2015 . . . . . . . . . . . . . . . . . .

$ 2,021

8. Commitments and Contingencies

Indemnification and Warranties

We provide indemnification, to the extent permitted by law, to our 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 our request in such capacity. With respect to acquisitions, we provide indemnification to, or assume
indemnification obligations for, the current and former directors, officers and employees of the acquired
companies in accordance with the acquired companies’ bylaws and charters. As a matter of practice, we have
maintained directors’ and officers’ liability insurance including coverage for directors and officers of acquired
companies.

We enter into agreements in the ordinary course of business with customers, resellers, distributors, integrators
and suppliers. Most of these agreements require us to defend and/or indemnify the other party against intellectual
property infringement claims brought by a third party with respect to our products. From time to time, we also
indemnify 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 our
products and services or resulting from the acts or omissions of us, our employees, authorized agents or
subcontractors. From time to time, we have received requests from customers for indemnification of patent
litigation claims. Management cannot reasonably estimate any potential losses, but these claims could result in
material liability for us. We are not party to current pending legal proceedings that, in the opinion of
management, would have a material adverse effect on our financial position, results from operations and cash
flows. There is no assurance that future legal proceedings arising from ordinary course of business or otherwise,
will not have a material adverse effect on our financial position, results from operations or cash flows.

We warrant that our products, including software products, will substantially perform in accordance with our
standard published specifications in effect at the time of delivery. In addition, we provide maintenance support to
our customers and therefore allocate a portion of the product purchase price to the initial warranty period and
recognize revenue on a straight line basis over that warranty period related to both the warranty obligation and the
maintenance support agreement. When we receive 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.

Revolving Line of Credit/Demand Note Payable

We renewed our letter agreement for a demand discretionary line of credit and a Demand Promissory Note in the
aggregate amount of $20.0 million, effective November 26, 2014. Borrowings under the line of credit will be
used to finance working capital needs and for general corporate purposes. We currently do not have any
borrowings nor do we have any financial covenants under this line.

76

Operating Leases

We lease certain of our operating facilities, automobiles and office equipment under non-cancelable operating
leases, which expire at various dates through 2019. Leases for our facilities typically contain standard
commercial lease provisions, including renewal options and rent escalation clauses. Rental expense under
operating leases was $2.9 million, $2.4 million and $2.7 million for fiscal 2015, 2014 and 2013, respectively.
Future commitments under minimum lease payments as of January 31, 2015 are as follows (amounts in
thousands):

For the Fiscal Years Ended January 31,

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Leases

$2,261
1,680
477
30
—
—

Minimum operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,448

9. Stockholders’ Equity

Stock Authorization

The Board of Directors 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 of Directors, 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 January 31, 2015.

Stock Repurchase Program

On September 4, 2013, our Board of Directors authorized the repurchase of up to $25.0 million of our common
stock through a share repurchase program which would have terminated on January 31, 2015. On May 31, 2014,
this program was amended to increase the authorized repurchase amount to $40.0 million and extend the
termination date to April 30, 2015. Under the program, we are authorized to repurchase shares through Rule
10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in
accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of
1934. This share repurchase program does not obligate us to acquire any specific number of shares and may be
suspended or discontinued at any time. All repurchases are expected to be funded from our current cash and
investment balances. The timing and amount of shares to be repurchased will be based on market conditions and
other factors, including price, corporate and regulatory requirements, and alternative investment opportunities.
Any shares repurchased by us under the share repurchase program will reduce the number of shares outstanding.
Pursuant to the share repurchase program, we executed a Rule 10b5-1 plan in June 2014 to repurchase shares.
During fiscal 2015, we used $5.5 million of cash in connection with the repurchase of 591,520 shares of our
common stock (an average price of $9.31 per share). As of January 31, 2015, $34.5 million remained available to
repurchase under the existing share repurchase authorization.

Stock Option Plans

2011 Compensation and Incentive Plan.

In July 2011, our stockholders approved the adoption of our 2011 Compensation and Incentive Plan (the “2011
Plan”). Under the 2011 Plan, as amended in July 2013, the number of authorized shares of common stock is

77

equal to 5,300,000 shares plus the number of shares that would have become available for issuance under our
prior Amended and Restated 2005 Equity Compensation and Incentive Plan following the adoption of the 2011
Plan due to the expiration, termination, surrender or forfeiture of an award under the prior plan. The 2011 Plan
provides for the grant of incentive stock options, nonqualified stock options, restricted stock, RSUs, deferred
stock units (“DSUs”) and other equity based non-stock option awards as determined by the plan administrator, to
officers, employees, consultants, and directors of the Company.

Effective February 1, 2014, SeaChange gave its non-employee members of the Board of Directors the option to
receive DSUs in lieu of RSUs beginning with the annual grant for fiscal 2015. These DSUs shall fully vest one
year from the grant date. The number of units subject to the DSUs is determined as of the first day of the
applicable fiscal year and the shares underlying the DSUs are not vested and issued until the earlier of the
director ceasing to be a member of the Board of Directors (provided such time is subsequent to the first day of
the succeeding fiscal year) or immediately prior to a change in control.

We may satisfy awards upon the exercise of stock options or vesting of RSUs with newly issued shares or
treasury shares. The Board of Directors is responsible for the administration of the 2011 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 of Directors may elect to modify the terms of an award.
As of January 31, 2015, there were 2,484,004 shares available for future grant under the 2011 Plan.

Option awards may be granted to employees 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. RSUs, DSUs and other equity-based non-stock option
awards may be granted to any officer, employee, director, or consultant at a purchase price per share as
determined by the Board of Directors. Option awards granted under the 2011 Plan generally vest over a period of
three years and expire ten years from the date of the grant.

Stock-based Compensation

We use the provisions of the authoritative guidance which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and directors including employee
stock options, RSUs and DSUs based on estimated fair values. The fair value of our stock-based options and
performance-based RSUs, less expected forfeitures, is amortized over the awards’ vesting period on a graded
vesting basis, whereas the RSUs are amortized on a straight-line basis. We have applied the provisions of
authoritative guidance allowing the use of a “simplified” method, in developing an estimate of the expected term
of “plain vanilla” share options.

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. Such
awards include option grants, RSU and DSU awards. The estimated fair value of our stock-based options and
performance-based RSUs, less expected forfeitures, is amortized over the awards’ vesting period on a graded
vesting basis, whereas the RSUs and DSUs are amortized on a straight-line basis.

The effect of recording stock-based compensation was as follows:

Stock-based compensation expense by type of award:

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . .
Deferred stock units . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based restricted stock units . . . . . . . .

Total stock-based compensation . . . . . . . . . . . . . . . . . . .

78

For the Fiscal Years Ended January 31,

2015

2014

2013

(Amounts in thousands)

$1,036
1,607
500
77

$3,220

$ 453
1,907
—
599

$2,959

$3,586
2,218
—
125

$5,929

Since additional option grants and RSU awards are expected to be made each year and options and awards vest
over several years, the effects of applying authoritative guidance for recording stock-based compensation for the
year ended January 31, 2015 are not indicative of future amounts.

Determining Fair Value

Stock Options

We record the fair value of most stock options using the Black-Scholes valuation model. Key input assumptions
used to estimate the fair value of stock options include the exercise price, the expected option term, the risk-free
interest rate over the option’s expected term, the expected annual dividend yield and the expected stock price
volatility. The expected option term was determined using the “simplified” method for “plain vanilla” options. The
expected stock price volatility was established using a blended volatility, which is an average of the historical
volatility of our common stock over a period of time equal to the expected term of the stock option, and the average
volatility of our common stock over the most recent one-year and two-year periods. The risk-free interest rate is
based upon the U.S. treasury bond yield at the grant date, using a remaining term equal to the expected life. The
expected dividend yield is 0%, as we have not paid cash dividends on our common stock since our inception.

The fair value of stock options granted was estimated at the date of grant using the following assumptions:

Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility (range) . . . . . . . . . . . . . . . . . . . . . . .
Weighted average volatility . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . .

For the Fiscal Years Ended January 31,

2015

6.5
46%
46%
1.7%
1.7%
0%

2014

2013

5-7
44-46%
45%

3-7
49-52%
52%

0.7-0.9% 0.7-1.2%

0.8%
0%

1.2%
0%

Market-Based Options

When market-based vesting is used on stock options (“Market Condition Options”) we use the Monte Carlo
simulation model. The model simulates daily trading prices of the Market Condition Options’ expected term to
determine if vesting conditions would be triggered during that term.

We appointed a new CEO on October 20, 2014, at which time he was granted 500,000 stock options to purchase
the Company’s common stock. These stock options have an exercise price equal to our closing stock price on
October 20, 2014, and will vest in approximately equal increments based upon the closing price of our common
stock, but in no case earlier than six months from the date of grant. We recorded the fair value of these stock
options using the Monte Carlo simulation model, since the stock option vesting is variable depending on the
closing price of our traded common stock. Key input assumptions used to estimate the fair value of the Market
Condition Options include exercise price, volatility, risk-free rate, the required rate of return on equity, annual
turnover rate and the expected term to exercise. These assumptions are included in the table above for fiscal
2015. No other options were granted during this fiscal year. The model simulated the daily trading price of the
Market Condition Options’ expected term to determine if the vesting conditions would be triggered during the
term. As a result, the fair value of these stock options was estimated at $1.7 million. We have incurred stock
compensation expense of $0.3 million for the period from the date of grant to and including January 31, 2015.

79

The following table summarizes the stock option activity (excluding RSUs and DSUs):

For the Fiscal Years Ended January 31,

2015

2014

2013

Weighted
average
exercise
price

Shares

Weighted
average
exercise
price

Shares

Weighted
average
exercise
price

Shares

Outstanding at beginning of period . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/expired/cancelled . . . . . . . . . . . . .
Outstanding at end of period . . . . . . . . . . . .

1,502,176
500,000

$ 9.77
$ 7.23
— $ —

(375,755) $15.06
$ 7.77
1,626,421

1,917,448
12,500

$10.35
$10.10
(118,528) $ 9.10
(309,244) $13.78
$ 9.77
1,502,176

2,125,371
$11.83
$ 8.21
892,500
(304,550) $ 7.19
(795,873) $13.11
$10.35
1,917,448

Options exercisable at end of period . . . . . .

1,108,115

$ 8.02

1,440,521

$ 9.90

937,444

$12.78

Weighted average remaining contractual

term (in years) . . . . . . . . . . . . . . . . . . . . .

4.72

3.93

1.86

The weighted-average fair valuation at grant date of stock options granted during the years ended January 31,
2015, 2014 and 2013, was $3.39, $1.53, and $3.78, respectively. As of January 31, 2015, the unrecognized stock-
based compensation related to the unvested stock options was approximately $1.4 million, net of estimated
forfeitures. Total unrecognized compensation cost will be adjusted for any future changes in estimated changes in
forfeitures. This cost will be recognized over an estimated weighted average amortization period of 1.6 years.

Intrinsic value is defined as the difference between the market price on the date of exercise and the grant date
price. The aggregate intrinsic value for options outstanding was $0.1 million, $4.5 million and $1.4 million as of
January 31, 2015, 2014 and 2013, respectively. The aggregate intrinsic value of vested shares and share options
expected to vest as of January 31, 2015, 2014 and 2013 was $0.1 million, $4.4 million and $1.3 million,
respectively. There were no stock options exercised in fiscal 2015. The total intrinsic value of options exercised
during the years ended January 31, 2014 and 2013 was $0.3 million and $0.5 million, respectively.

The cash received from employees as a result of employee stock option exercises during fiscal years 2014 and
2013 was $1.1 million and $2.2 million, respectively.

The following table summarizes information about employee and director stock options outstanding and
exercisable as of January 31, 2015:

Options Outstanding

Options Exercisable

Range of exercise prices

$6.74 to $6.74 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.00 to $7.48 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.49 to $7.49 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.72 to $7.72 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8.15 to $8.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8.22 to $8.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11.56 to $11.56 . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.95 to $12.95 . . . . . . . . . . . . . . . . . . . . . . . . . .
$13.66 to $13.66 . . . . . . . . . . . . . . . . . . . . . . . . . .
$16.56 to $16.56 . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted
average
remaining
contractual
terms
(years)

Weighted
average
exercise
price

3.96
6.10
0.35
0.44
4.42
4.24
0.19
0.17
0.09
0.01
4.72

$ 6.74
$ 7.23
$ 7.49
$ 7.72
$ 8.15
$ 8.22
$11.56
$12.95
$13.66
$16.56
$ 7.77

Number
exercisable

207,781
1,000
1,000
4,500
3,334
875,000
2,000
2,000
6,500
5,000
1,108,115

Weighted
average
exercise
price

$ 6.74
$ 7.00
$ 7.49
$ 7.72
$ 8.15
$ 8.22
$11.56
$12.95
$13.66
$16.56
$ 8.02

Number
outstanding

224,421
501,000
1,000
4,500
5,000
875,000
2,000
2,000
6,500
5,000
1,626,421

80

Restricted Stock Units and Deferred Stock Units

Pursuant to the 2011 Plan, we may grant RSUs and DSUs that entitle the recipient to acquire shares of our
common stock. Awards of RSUs generally vest in equal increments on each of the first three anniversaries of the
grant of the award. DSUs generally vest on the first anniversary of the grant. Stock-based compensation expense
associated with the RSUs and DSUs is charged for the market value of our stock on the date of grant, assuming
nominal forfeitures, and is amortized over the awards’ vesting period on a straight-line basis for awards with only
a service condition and graded vesting basis for awards that include both a performance and service condition.

The following table summarizes the RSU and DSU activity:

Nonvested at beginning of period . . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/expired/cancelled . . . . . . . . . . . . . .

For the Fiscal Years Ended January 31,

2015

2014

2013

Weighted
average
grant date
fair value

$ 9.81
$ 8.60
$ 9.83
$10.01

Weighted
average
grant date
fair value

$10.51
$11.15
$12.61
$ 9.93

Weighted
average
grant date
fair value

$10.46
$ 8.62
$ 8.73
$ 9.87

Shares

721,365
375,317
(348,346)
(195,356)

Shares

552,980
146,411
(205,928)
(46,995)

Shares

446,468
314,057
(287,485)
(37,734)

Nonvested at end of period . . . . . . . . . . . . . .

435,306

$ 8.91

446,468

$ 9.81

552,980

$10.51

As of January 31, 2015, the unrecognized stock-based compensation related to the unvested RSUs and DSUs was
$2.2 million. This cost will be recognized over an estimated weighted average amortization period of 2.3 years.

10. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following:

Balance at January 31, 2013 . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . .

Balance at January 31, 2014 . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . .

Foreign
Currency
Translation
Adjustment

$(1,856)
(294)

(2,150)
(3,647)

Balance at January 31, 2015 . . . . . . . . . . . . . . .

$(5,797)

Changes in
Fair Value of
Available-
for-Sale
Investments

Accumulated
Other
Comprehensive
Loss

$ 30
(12)

18
25

$ 43

$(1,826)
(306)

(2,132)
(3,622)

$(5,754)

Unrealized holding gains (losses) on securities available for sale are not material for the periods presented.

Comprehensive loss consists of net loss and other comprehensive loss, which includes foreign currency
translation adjustments and changes in unrealized gains and losses on marketable securities. For purposes of
comprehensive loss disclosures, we do not record tax expense or benefits for the net changes in the foreign
currency translation adjustments, as we intend to permanently reinvest all undistributed earnings of our foreign
subsidiaries.

81

11. Segment Information, Significant Customers and Geographic Information

Segment Information

Our operations are organized into one reportable segment. Operating segments are defined as components of an
enterprise evaluated regularly by the Company’s senior management in deciding how to allocate resources and
assess performance. Our reportable segment was determined based upon the nature of the products offered to
customers, the market characteristics of each operating segment and the Company’s management structure.

Significant Customers

The following table summarizes revenues by significant customers where such revenue exceeded 10% of total
revenues for the indicated period:

Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17%
15%

N/A

15%
24%
10%

18%
21%

N/A

For Fiscal Years Ended January 31,

2015

2014

2013

Geographic Information

The following summarizes revenues by customers’ geographic locations:

For the Fiscal Years Ended January 31,

2015

2014

2013

Amount % Amount % Amount %

(Amounts in thousands, except percentages)

Revenues by customers’ geographic locations:

North America(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 64,755
39,387
6,829
4,464

56% $ 77,105
34% 53,105
6% 13,156
2,953
4%

53% $ 94,155
36% 49,824
9% 11,777
1,432
2%

60%
32%
7%
1%

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$115,435

$146,319

$157,188

(1)

Includes total revenues for the United States for the periods shown as follows:

For the Fiscal Years Ended January 31,

2015

2014

2013

U.S. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of total revenue . . . . . . . . . . . . . . . . . . . . . . . . . .

The following summarizes long-lived assets by geographic locations:

(Amounts in thousands)
$66,903

$59,819

$85,256

51.8%

45.7%

54.2%

January 31,

2015

2014

Amount

%

Amount

%

(Amounts in thousands, except percentages)

Long-lived assets by geographic locations(1):

North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,214
6,028
1,260

74% $20,714
22% 11,097
1,461
4%

62%
33%
5%

Total long-lived assets by geographic location . . . . . . . . . . . . . .

$28,502

$33,272

82

(1) Excludes marketable securities, long-term and goodwill.

12. Income Taxes

The components of loss from continuing operations before income taxes are as follows:

For the Fiscal Years Ended January 31,

2015

2014

2013

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Amounts in thousands)
$(15,049)
12,833

$(25,920)
(2,694)

$(15,680)
11,133

The components of the income tax (benefit) provision from continuing operations are as follows:

$(28,614)

$ (2,216)

$ (4,547)

For the Fiscal Years Ended January 31,

2015

2014

2013

(Amounts in thousands)

Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
(762)
24

(738)

—
—
(368)

(368)

$

11
50
692

753

—
—
(698)

(698)

$ —
231
(1,305)

(1,074)

—
(348)
(133)

(481)

Income tax (benefit) provision . . . . . . . . . . . . . . . .

$

(1,106)

$

55

$ (1,555)

The income tax (benefit) provision for continuing operations computed using the federal statutory income tax
rate differs from our effective tax rate primarily due to the following:

For the Fiscal Years Ended January 31,

2015

2014

2013

Statutory U.S. federal tax rate . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal tax benefit . . . . . . . . . . . . . . .
Income (losses) not benefitted . . . . . . . . . . . . . . . . . . . .
Non-deductible stock compensation expense . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovation box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential

$(10,014)
(779)
8,913
—
(74)
(68)
916

(774)
33
92
15
694
260
(265)

(952)
81
(1,068)
142
858
(779)
163

(Amounts in thousands)
$

$

$ (1,106)

$

55

$ (1,555)

(1) Within the other line item in the table above, other non-deductible expenses were not material in fiscal 2015

and were $0.3 million and $1.1 million for the fiscal years ended January 31, 2014 and 2013, respectively.
These expenses have been aggregated with various adjustments related to differences in prior year U.S. and
foreign tax provisions and the actual returns filed.

83

Our effective tax rate was a (benefit)/provision of (4%) and 3% for the fiscal years ended January 31, 2015 and
2014, respectively, and an effective tax rate benefit of (34%) for the fiscal year ended January 31, 2013.

The components of deferred income taxes are as follows:

January 31,

2015

2014

(Amounts in thousands)

Deferred tax assets:

Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. federal, state and foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,783
761
3,005
7,670
18,298

$ 2,009
1,881
2,775
6,616
9,071

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,517
(30,369)

22,352
(20,789)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,148

1,563

Deferred tax liabilities:

Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment

1,267
74
869

2,823
74
283

Total net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (1,062) $ (1,617)

At January 31, 2015, we had federal, state and foreign net operating loss carry forwards of $37.1 million, $65.8
million and $2.1 million respectively, which can be used to offset future tax liabilities and expire at various dates
beginning in fiscal 2016. Utilization of these net operating loss carry forwards may be limited pursuant to
provisions of the respective local jurisdiction. At January 31, 2015, we had a federal capital loss carry forward of
$10.8 million. This loss can only be utilized to offset capital gains and it expires in fiscal 2018. In addition, at
January 31, 2015, we had federal and state research and development credit carry forwards of $3.8 million and
$1.8 million respectively, and state investment tax credit carry forwards of $0.3 million. The federal credit carry
forwards will expire at various dates beginning in fiscal 2016, if not utilized. Certain state credit carry forwards
will expire at various dates, while certain other credit carry forwards may be carried forward indefinitely.
Utilization of these credit carry forwards may be limited pursuant to provisions of the respective local
jurisdiction. We also have alternative minimum tax credit carry forwards of $0.6 million which are available to
reduce future federal regular income taxes over an indefinite period. We have foreign tax credit carry forwards of
$2.0 million which are available to reduce future federal regular income taxes.

We review quarterly the adequacy of the valuation allowance for deferred tax assets. We have evaluated the
positive and negative evidence bearing upon the realizability of our deferred tax assets and have established a
valuation allowance of $30.4 million for such assets, which are comprised principally of net operating loss carry
forwards, research and development credits, deferred revenue, inventory and stock-based compensation. If we
generate pre-tax income in the future, some portion or all of the valuation allowance could be reversed and a
corresponding increase in net income would be reported in future periods. The valuation allowance increased
$9.6 million from $20.8 million at January 31, 2014.

At January 31, 2015, we have indefinitely reinvested $83.7 million of the cumulative undistributed earnings of
certain foreign subsidiaries. Approximately $48 million of such earnings would be subject to U.S. taxes if
repatriated to the United States. Through January 31, 2015, we have not provided deferred income taxes on the
undistributed earnings of our foreign subsidiaries because such earnings are considered to be indefinitely
reinvested outside the United States. Non-U.S. current and deferred income taxes have been provided in
connection with our foreign subsidiaries’ continuing operations with the exception of a subsidiary in the British

84

Virgin Islands, which operates in a zero rate jurisdiction. Determination of the potential deferred income tax
liability on these undistributed earnings is not practicable because such liability, if any, is dependent on
circumstances existing if, and when, remittance occurs.

For the fiscal year ended January 31, 2015, we recognized incremental tax benefits of $0.5 million. This
incremental tax benefit is primarily due to $0.3 million of tax benefit recorded for the expiration of the statute of
limitations and $0.3 million for the effect of foreign translation, offset by $0.1 million in tax expense due to the
increase in uncertain tax positions. None of the amounts included in the balance of unrecognized tax benefits at
January 31, 2015 of $5.5 million are related to tax positions for which it is reasonably possible that the total
amounts could significantly change during the next twelve months. We recognize accrued interest and penalties
related to uncertain tax positions in income tax expense. A reconciliation of the beginning and ending balance of
the total amounts of gross unrecognized tax benefits is as follows:

Balance of gross unrecognized tax benefits,

beginning of period . . . . . . . . . . . . . . . . . . .

$6,035

$ 9,364

For the Fiscal Years Ended January 31,

2015

2014

(Amounts in thousands)

Gross amounts of increases in unrecognized
tax benefits as a result of tax positions
taken in the current period . . . . . . . . . . . . .

Decrease due to expiration of statute of

limitation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decrease in prior period positions . . . . .
Effect of currency translation . . . . . . . . . . . . .

Balance of gross unrecognized tax benefits,

96

(275)
—
(329)

445

(439)
(3,379)
44

end of period . . . . . . . . . . . . . . . . . . . . . . . .

$5,527

$ 6,035

We file income tax returns in U.S. federal jurisdiction, various state jurisdictions, and various foreign
jurisdictions. We are no longer subject to U.S. federal examinations before fiscal 2010. However, the taxing
authorities still have the ability to review the propriety of certain tax attributes created in closed years if such tax
attributes are utilized in an open tax year, such as our federal research and development credit carryovers.
Presently, we are undergoing an IRS audit for the fiscal years 2010, 2011 and 2012.

13. Employee Benefit Plans

We sponsor a 401(k) retirement savings plan (the “Plan”) that covers substantially all domestic employees of
SeaChange. The Plan allows employees to contribute gross salary through payroll deductions up to the legally
mandated limit based on their jurisdiction. Participation in the Plan is available to full-time employees who meet
eligibility requirements. We also contribute to various retirement plans for our employees outside the United
States of which the amounts will vary, according to the local plans specific to each foreign location. During fiscal
2015, 2014 and 2013, we contributed $1.7 million, $1.7 million and $1.4 million, respectively.

We have a statutory pension benefit obligation covering current employees in the Philippines. We recorded a
total of approximately $39,000 and $33,000 in interest costs in fiscal 2015 and fiscal 2014, respectively, and $0.2
million in service costs in both fiscal years relating to this obligation. We also recorded an actuarial loss of $0.4
million to this obligation in fiscal 2015, while no actuarial gain (loss) was recorded in fiscal 2014. The total
unfunded projected benefit obligation was $1.2 million and $0.7 million as of January 31, 2015 and 2014,
respectively, and recorded in other liabilities, long-term, in our consolidated balance sheets. We do not anticipate
to begin paying this obligation until fiscal 2020 and estimate $0.3 million in benefit payments through fiscal
2025. We used projected discount rates of 4.2% and 5.9% for fiscal 2015 and 2014, respectively, and a

85

compensation increase rate of 7%, in the calculation of our benefit obligation and periodic benefit costs. During
fiscal years 2015, 2014 and 2013, we recorded $0.5 million, $0.2 million and $0.2 million, respectively, in
periodic benefit costs for this obligation.

14. Net Loss Per Share

Net loss per share is presented in accordance with authoritative guidance which requires the presentation of
“basic” and “diluted” earnings per share. Basic net loss per share is computed by dividing earnings available to
common shareholders by the weighted average shares of common stock outstanding during the period. For the
purposes of calculating diluted net loss per share, the denominator includes both the weighted average number of
shares of common stock outstanding during the period and the weighted average number of shares of potential
dilutive shares of common stock, such as stock options, RSUs and DSUs, calculated using the treasury stock
method. Basic and diluted net loss per share was the same for all the periods presented as the impact of potential
dilutive shares outstanding was anti-dilutive.

The following table sets forth our computation of basic and diluted net loss per common share (amounts in
thousands, except per share data):

For the Fiscal Years Ended January 31,

2015

2014

2013

Net loss from continuing operations . . . . . . . . . . . . .
Net income (loss) from discontinued operations . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(27,489)
5
$(27,484)

$ (2,227)
(803)
$ (3,030)

$ (2,799)
(16,366)
$(19,165)

Weighted average shares used in computing net loss
per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of dilutive shares:

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . .
Deferred stock units . . . . . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . .
Weighted average shares used in computing net loss
per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss per share—basic:

Loss from continuing operations . . . . . . . . . . . .
Loss income from discontinued operations . . . .
Net loss per share—basic . . . . . . . . . . . . . . . . . . . . .

Net loss per share—diluted:

Loss from continuing operations . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . .
Net loss per share—diluted . . . . . . . . . . . . . . . . . . . .

32,772

32,718

32,494

—
—

—

—
—

—

—
—

—

32,772

32,718

32,494

$

$

$

$

(0.84)
0.00
(0.84)

(0.84)
0.00
(0.84)

$ (0.07)
(0.02)
$ (0.09)

$ (0.07)
(0.02)
$ (0.09)

$

$

$

$

(0.09)
(0.50)
(0.59)

(0.09)
(0.50)
(0.59)

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 anti-dilutive (amounts in thousands):

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

86

For the Fiscal Year Ended January 31,

2015

1,586
217
11
1,814

2014

913
473
—
1,386

2013

1,707
529
—
2,236

15. Quarterly Results of Operations—Unaudited

The following table sets forth certain unaudited quarterly results of operations for fiscal 2015 and fiscal 2014. In
the opinion of management, this information has been prepared on the same basis as the audited consolidated
financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the quarterly information when read in conjunction with
the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. The
quarterly operating results are not necessarily indicative of future results of operations.

Fiscal Year Ended January 31, 2015

Q1

Q2

Q3

Q4

(Amounts in thousands, except per share data)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,337 $29,849 $29,970 $31,279
16,036
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
21,300
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,140)
Net loss from continuing operations . . . . . . . . . . . . . . . . . . . .
—
Net income (loss) from discontinued operations (1) . . . . . . . .
(6,140)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share from continuing operations (2):

14,793
20,660
(6,195)
(114)
(6,309)

10,891
21,026
(9,467)
—
(9,467)

15,387
20,574
(5,687)
119
(5,568)

Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.29) $ (0.17) $ (0.19) $ (0.19)
Diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.29) $ (0.17) $ (0.19) $ (0.19)

Income (loss) per share from discontinued operations (2):

Basic income (loss) per share . . . . . . . . . . . . . . . . . . . . . $ — $
Diluted income (loss) per share . . . . . . . . . . . . . . . . . . . . $ — $

0.00 $ (0.00) $ —
0.00 $ (0.00) $ —

Loss per share (2):

Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.29) $ (0.17) $ (0.19) $ (0.19)
Diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.29) $ (0.17) $ (0.19) $ (0.19)

Fiscal Year Ended January 31, 2014

Q1

Q2

Q3

Q4

(Amounts in thousands, except per share data)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,552 $37,380 $37,771 $35,616
17,865
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,742
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,348)
Net (loss) income from continuing operations . . . . . . . . . . . .
(59)
Net income (loss) from discontinued operations (1) . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,407)
Net (loss) income per share from continuing operations (2):

21,362
20,827
343
(558)
(215)

19,084
20,900
(2,020)
35
(1,985)

20,888
20,359
798
(221)
577

Basic (loss) income per share . . . . . . . . . . . . . . . . . . . . . $ (0.06) $
Diluted (loss) income per share . . . . . . . . . . . . . . . . . . . . $ (0.06) $

0.01 $
0.01 $

0.02 $ (0.04)
0.02 $ (0.04)

Income (loss) per share from discontinued operations (2):

Basic income (loss) per share . . . . . . . . . . . . . . . . . . . . . $
Diluted income (loss) per share . . . . . . . . . . . . . . . . . . . . $

0.00 $ (0.02) $ (0.00) $ (0.00)
0.00 $ (0.02) $ (0.00) $ (0.00)

(Loss) income per share (2):

Basic (loss) income per share . . . . . . . . . . . . . . . . . . . . . $ (0.06) $ (0.01) $
Diluted (loss) income per share . . . . . . . . . . . . . . . . . . . . $ (0.06) $ (0.01) $

0.02 $ (0.04)
0.02 $ (0.04)

(1)

In May 2012, we completed the sale of our broadcast servers and storage business and our media services
business. As a result, both businesses have been reported as discontinued operations in our consolidated
financial statements.

(2) The sum of per share data may not agree to annual amounts due to rounding.

87

16. Subsequent Events

Acquisition of Timeline Labs

On February 2, 2015, we acquired TLL, LLC (“Timeline Labs”), pursuant to an Agreement and Plan of Merger
(the “Merger Agreement”) dated December 22, 2014 for:

•

•

•

$12.6 million in cash paid at closing reduced by any indebtedness and any amounts withdrawn by
Timeline Labs from the escrow established for working capital purposes;

$1.9 million in shares of our common stock paid at closing (344,055 shares);

$1.4 million in cash and $0.5 million in shares of our common stock deposited in escrow at closing
with respect to specified indemnification matters;

• Deferred stock consideration aggregating $5.6 million in shares of our common stock, paid six months

from closing and one year from closing with an aggregate $0.6 million in value of such shares
deposited in escrow with respect to specified indemnification matters; and

• Earnout payments totaling up to $2.5 million to be settled in shares of our common stock, based on the

operations of Timeline Labs, measured by qualifying revenue, on a cumulative and one-year
performance target basis for the periods ended January 31, 2016 and 2017.

Timeline Labs is a California-based Software-as-a-service (“SaaS”) company that enables local broadcasters,
national news organizations and other media companies and brands to analyze social media messages in real-
time, find and broadcast social trends, and measure viewing audience engagement across television, mobile and
personal computers. Results of operations for Timeline Labs will be included in SeaChange’s consolidated
financial statements from the date of acquisition.

88

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures

We evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period
covered by this Form 10-K. Jay A. Samit, our Chief Executive Officer, and Anthony C. Dias, our Chief Financial
Officer, participated in this evaluation. Based upon that evaluation, Messrs. Samit and Dias concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this report.

(B) Report of Management on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors, and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of January 31,
2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework.
Based on our assessment, management concluded that, as of January 31, 2015, our internal control over financial
reporting was effective based on those criteria.

The effectiveness of our internal control over financial reporting as of January 31, 2015 has been audited by
Grant Thornton LLP, our independent registered public accounting firm, as stated in their report which is
included immediately below.

89

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of SeaChange International, Inc.

We have audited the internal control over financial reporting of SeaChange International, Inc. (a Delaware
corporation) and subsidiaries (the “Company”) as of January 31, 2015, based on criteria established in the 2013
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of January 31, 2015, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of the Company as of and for the year ended January 31,
2015, and our report dated April 7, 2015 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Boston, Massachusetts
April 7, 2015

90

(C) Changes in Internal Control over Financial Reporting

As a result of the evaluation completed by management, and in which Messrs. Samit and Dias participated, we
have concluded that there were no changes during the fiscal quarter ended January 31, 2015 in our internal
control over financial reporting, which have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our directors is hereby incorporated by reference from the information contained under
the heading “Election of Directors” in our definitive proxy statement related to our Annual Meeting of
Stockholders to be held on or about July 15, 2015 which will be filed with the Commission within 120 days after
the close of the fiscal year (the “Definitive Proxy Statement”).

Certain information regarding our executive officers is set forth at the end of Part I of this Form 10-K under the
heading “Executive Officers.” The other information required by this item concerning directors and executive
officers of SeaChange is hereby incorporated by reference to the information contained under the headings
“Availability of Corporate Governance Documents”, “Audit Committee,” “Information Concerning Executive
Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Definitive Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to the information contained under the headings
“Compensation of Directors” and “Compensation Discussion and Analysis” in the Definitive Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

Information required by this item is incorporated by reference to the information contained under the headings
“Securities Ownership of Certain Beneficial Owners and Management” and “Compensation Discussion and
Analysis” in the Definitive Proxy Statement.

Equity Compensation Plan Information

The following table provides information about the common stock that may be issued upon the exercise of
options, warrants and rights under all of our existing equity compensation plans as of January 31, 2015, including
our Amended and Restated 2011 Compensation and Incentive Plan (the “2011 Plan”).

Plan Category

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

Weighted-average
exercise price of
outstanding
options, warrants
and rights

Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))

(a)

(b)

(c)

Equity compensation plans approved by

security holders (1) . . . . . . . . . . . . . . . .

1,626,421

$7.77

2,484,004(2)

(1) Consists of the 2011 Plan and the Amended and Restated 2005 Equity Compensation and Incentive Plan.
(2) As of January 31, 2015, there were 2,484,004 shares remaining available for issuance under the 2011 Plan.

91

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

Information required by this item is incorporated by reference to the information contained under the heading
“Determination of Director Independence” and “Certain Relationships and Related Transactions” in the
Definitive Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this item is incorporated by reference to the information contained under the heading
“Ratification of Appointment of Independent Registered Public Accounting Firm” in the Definitive Proxy
Statement.

92

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Index to the Consolidated Financial Statements

PART IV

The following Consolidated Financial Statements of the Registrant are included in Part II, Item 8.,

“Financial Statements and Supplementary Data,” of this Form 10-K:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of January 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss for the years ended January 31, 2015,

2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended January 31, 2015, 2014 and 2013 . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended January 31, 2015, 2014 and 2013 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a)(2) Index to Financial Statement Schedule

The following Financial Statement Schedule of the Registrant is filed as part of this report:

Page

53
54

55
57
59
60

Page

Schedule II—Valuation and Qualifying Accounts

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96

Schedules not listed above have been omitted because the information requested to be set forth therein is not
applicable or is shown in the accompanying consolidated financial statements or notes thereto.

(a)(3) Index to Exhibits

See Item 15 (b) below.

(b) Exhibits

The following list of exhibits includes exhibits submitted with this Form 10-K as filed with the SEC and those
incorporated by reference to other filings.

Exhibit No.

Description

2.1

3.1

3.2

3.3

Agreement and Plan of Merger, dated as of December 22, 2014, by and among the Company,
TLL,LLC and the other parties set forth on the signature pages thereto (filed as Exhibit 2.1 to the
Company’s Current Report on Form 8-K previously filed December 22, 2014 with the
Commission (File No. 000-21393) and incorporated herein by reference).

Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the
Company’s Registration Statement on Form S-1 previously filed on November 4, 1996 with the
Commission (File No. 333-12233) and incorporated herein by reference).

Certificate of Amendment, filed May 25, 2000 with the Secretary of State in the State of
Delaware, to the Amended and Restated Certificate of Incorporation of the Company (filed as
Exhibit 4.1 to the Company’s Quarterly Report on 10-Q previously filed on December 15, 2000
with the Commission (Filed No. 000-21393) and incorporated herein by reference).

Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K previously filed on July 17, 2013 with the Commission (File No. 000-21393)
and incorporated herein by reference).

93

Exhibit No.

Description

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

Specimen certificate representing the Common Stock (filed as Exhibit 4.1 to the Company’s
Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission
(File No. 333-12233) and incorporated herein by reference).

Amended and Restated 2011 Compensation and Incentive Plan (filed as Appendix A to the
Company’s Proxy Statement on Schedule 14A previously filed May 23, 2013 with the
Commission (File No. 000-21393) and incorporated herein by reference).

Form of Restricted Stock Unit Agreement pursuant to the Company’s 2011 Compensation and
Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K previously
filed July 20, 2011 with the Commission (File No. 000-21393) and incorporated herein by
reference).

Form of Incentive Stock Option Agreement pursuant to the Company’s 2011 Compensation and
Incentive Plan (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q previously
filed December 5, 2014 with the Commission (File No. 000-21393) and incorporated herein by
reference).

Form of Deferred Stock Unit Award Grant Notice pursuant to the Company’s 2011 Compensation
and Incentive Plan (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q
previously filed December 5, 2014 with the Commission (File No. 000-21393) and incorporated
herein by reference).

Form of Non-Qualified Stock Option Agreement for Employees pursuant to the Company’s 2011
Compensation and Incentive Plan (filed as Exhibit 10.7 to the Company’s Quarterly Report on
Form 10-Q previously filed December 5, 2014 with the Commission (File No. 000-21393) and
incorporated herein by reference).

Form of Restricted Stock Unit Agreement for Non-Employee Directors pursuant to the
Company’s 2011 Compensation and Incentive Plan (filed as Exhibit 10.3 to the Company’s
Annual Report on Form 10-K previously filed on April 4, 2014 with the Commission (File No.
000-21393) and incorporated herein by reference).

Amended and Restated 2005 Equity Compensation and Incentive Plan (filed as Appendix A to the
Company’s Proxy Statement on Schedule 14A previously filed May 25, 2007 with the
Commission (File No. 000-21393) and incorporated herein by reference).

Form of Restricted Stock Unit Agreement pursuant to the Company’s 2005 Equity Compensation
and Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
previously filed December 14, 2005 with the Commission (File No. 000-21393) and incorporated
herein by reference).

Form of Incentive Stock Option Agreement pursuant to the Company’s 2005 Equity
Compensation and Incentive Plan (filed as Exhibit 10.3 to the Company’s Annual Report on Form
10-K previously filed on April 17, 2006 with the Commission (File No. 000-21393) and
incorporated herein by reference).

Form of Non-Qualified Stock Option Agreement pursuant to the Company’s 2005 Equity
Compensation and Incentive Plan (filed as Exhibit 10.4 to the Company’s Annual Report on Form
10-K previously filed on April 17, 2006 with the Commission (File No. 000-21393) and
incorporated herein by reference).

Amended and Restated 1995 Stock Option Plan (filed as Annex B to the Company’s Proxy
Statement on Form 14a previously filed on May 31, 2001 with the Commission (File No. 000-
21393) and incorporated herein by reference).

94

Exhibit No.

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

Description

Form of Incentive Stock Option Agreement pursuant to SeaChange’s Amended and Restated 1995
Stock Option Plan (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on
October 6, 2004 with the Commission (File No. 000-21393) and incorporated herein by
reference).

Form of Non-Qualified Stock Option Agreement pursuant to SeaChange’s Amended and Restated
1995 Stock Option Plan (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K
filed on October 6, 2004 with the Commission (File No. 000-21393) and incorporated herein by
reference).

1996 Non-Employee Director Stock Option Plan (filed as Exhibit 10.2 to the Company’s
Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission
(File No. 333-12233) and incorporated herein by reference).

Line of Credit Agreement, dated as of November 28, 2012, by and among SeaChange
International, Inc. and JP Morgan Chase Bank, N.A. (filed as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q previously filed on December 7, 2012 (File No. 000-21393) and
incorporated herein by reference).

Change-in-Control Severance Agreement, dated as of April 30, 2012, by and between SeaChange
International, Inc. and Raghu Rau (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on May 1, 2012 (File No. 000-21393) and incorporated herein by reference).

Change-in-Control Severance Agreement, dated as of February 26, 2013, by and between
SeaChange International, Inc. and David McEvoy (filed as Exhibit 10.13 to the Company’s
Annual Report on Form 10-K filed on April 10, 2013 (File No. 000-21393) and incorporated
herein by reference).

Change-in-Control Severance Agreement, dated as of February 26, 2013, by and between
SeaChange International, Inc. and Anthony Dias (filed as Exhibit 10.14 to the Company’s Annual
Report on Form 10-K filed on April 10, 2013 (File No. 000-21393) and incorporated herein by
reference).

Form of Indemnification Agreement (filed as Exhibit 10.15 to the Company’s Annual Report on
Form 10-K filed on April 10, 2013 (File No. 000-21393) and incorporated herein by reference).

Separation Agreement and Release of Claims, dated as of October 20, 2014, by and between the
Company and Raghu Rau (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
previously filed October 22, 2014 with the Commission (File No. 000-21393) and incorporated
herein by reference).

Change-in-Control Severance Agreement, dated as of October 20, 2014, by and between the
Company and Jay A. Samit (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K
previously filed October 22, 2014 with the Commission (File No. 000-21393) and incorporated
herein by reference).

Indemnification Agreement, dated as of October 20, 2014, by and between the Company and Jay
A. Samit (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K previously filed
October 22, 2014 with the Commission (File No. 000-21393) and incorporated herein by
reference).

Offer Letter, dated as of October 20, 2014, by and between the Company and Jay A. Samit (filed
as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q previously filed December 5,
2014 with the Commission (File No. 000-21393) and incorporated herein by reference).

21.1*

List of Subsidiaries of the Registrant.

95

Exhibit No.

Description

23.1*

24.1

31.1*

31.2*

32.1*

32.2*

Consent of Grant Thornton LLP.

Power of Attorney (included on signature page).

Certification Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

Certification Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

* Provided herewith.

Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities
maintained by the SEC, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.

(c) Financial Statement Schedules

We hereby file as part of this Form 10-K the consolidated financial statements schedule listed in Item 15
(a) (2) above, which is attached hereto.

SEACHANGE INTERNATIONAL, INC.
Schedule II—Valuation and Qualifying Accounts
For the Fiscal Years Ended January 31, 2015, 2014 and 2013

Description

Accounts Receivable Allowance:
Year ended January 31, 2015 . . . . . . . . . . . . . . . . . . . .
Year ended January 31, 2014 . . . . . . . . . . . . . . . . . . . .
Year ended January 31, 2013 . . . . . . . . . . . . . . . . . . . .

Deferred Tax Assets Valuation Allowance:
Year ended January 31, 2015 . . . . . . . . . . . . . . . . . . . .
Year ended January 31, 2014 . . . . . . . . . . . . . . . . . . . .
Year ended January 31, 2013 . . . . . . . . . . . . . . . . . . . .

Additions

Balance at
beginning of
period

Charged to
costs and
expenses

Charged
to other
accounts

Deductions
and write-
offs

Balance at
end of
period

(Amounts in thousands)

$
327
946
$
$ 1,127

$20,789
$19,965
$12,254

$
80
$ 286
$ —

$9,580
$ 824
$7,711

$—
$ 31
$ 13

$—
$—
$—

$
(7)
$(936)
$(194)

$
$
$

400
327
946

$ —
$ —
$ —

$30,369
$20,789
$19,965

96

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, SeaChange

International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: April 7, 2015

SEACHANGE INTERNATIONAL, INC.

By: /s/ JAY A. SAMIT
Jay A. Samit
Chief Executive Officer and Director

POWER OF ATTORNEY AND SIGNATURES

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below

constitutes and appoints Jay A. Samit and Anthony C. Dias, jointly and severally, his attorney-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any amendments to this Form 10-K and to file
same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

/s/ JAY A. SAMIT

Jay A. Samit

/s/ ANTHONY C. DIAS

Anthony C. Dias

/s/ MARY PALERMO COTTON

Mary Palermo Cotton

/s/ STEVE CRADDOCK

Steve Craddock

/s/ THOMAS F. OLSON

Thomas F. Olson

/s/ EDWARD TERINO

Edward Terino

/s/ CARMINE VONA

Carmine Vona

/s/ ED WILSON

Ed Wilson

Date

April 7, 2015

April 7, 2015

April 7, 2015

April 7, 2015

April 7, 2015

April 7, 2015

April 7, 2015

April 7, 2015

Title(s)

Chief Executive Officer, Director
(Principal Executive Officer)

Chief Financial Officer, Senior Vice
President, Finance and Administration
and Treasurer (Principal Financial and
Accounting Officer)

Director

Director

Director

Director

Director

Director

97

SEACHANGE INTERNATIONAL, INC.
SUBSIDIARIES OF THE REGISTRANT

Exhibit 21.1

Subsidiary Name

ZQ Interactive, Ltd.
SEAC Canada Limited
S.E.A.C. Germany GmbH
SeaChange India Private, Ltd.
S.E.A.C. Ireland Limited
SeaChange Japan KK
Cambio Maritimo Mexico, S. de R.L de C.V.
SeaChange B.V.
SeaChange NLG B.V.
SeaChange Software Solutions B.V.
SeaChange Interactive Solutions B.V.
SeaChange Philippines Corporation
SeaChange LLC
SeaChange Asia Pacific Pte. Ltd.
SeaChange Telekomünikasyon Hizmetleri Anonim Sirketi
SeaChange International U.K. Ltd.
SeaChange Holdings, Inc.

Subsidiary Jurisdiction

British Virgin Islands
Canada
Germany
India
Ireland
Japan
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
Philippines
Russia
Singapore
Turkey
United Kingdom
United States

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated April 7, 2015, with respect to the consolidated financial statements, financial
statement schedule, and internal control over financial reporting included in the Annual Report of SeaChange
International, Inc. on Form 10-K for the year ended January 31, 2015. We hereby consent to the incorporation by
reference of said reports in the Registration Statements of SeaChange International, Inc. on Forms S-3 (File
No. 333-56410 and 333-201866) and on Forms S-8 (File Nos. 333-136322, 333-17379, 333-100160, 333-65854,
333-113761, 333-128987, 333-147970, 333-153424, 333-175707 and 333-201867).

Exhibit 23.1

/s/ GRANT THORNTON LLP

Boston, Massachusetts
April 7, 2015

CERTIFICATION

Exhibit 31.1

I, Jay A. Samit, certify that:

1.

I have reviewed this annual report on Form 10-K of SeaChange International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant
and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to

be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial

reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that

occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date: April 7, 2015

By: /s/ JAY A. SAMIT
Jay A. Samit
Chief Executive Officer
(Principal Executive Officer)

CERTIFICATION

Exhibit 31.2

I, Anthony C. Dias, certify that:

1.

I have reviewed this annual report on Form 10-K of SeaChange International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant
and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to

be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial

reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that

occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date: April 7, 2015

By: /s/ ANTHONY C. DIAS
Anthony C. Dias
Chief Financial Officer,
Senior Vice President,
Finance and Administration and Treasurer
(Principal Financial and Accounting Officer)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In connection with the annual report of SeaChange International, Inc. (the “Company”) on Form 10-K for
the year ended January 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Jay A. Samit, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Company’s Annual Report on Form 10-K fully complies with the requirements of section 13(a) or

15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

/s/ JAY A. SAMIT

Jay A. Samit
Chief Executive Officer and Director

Dated: April 7, 2015

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.2

In connection with the annual report of SeaChange International, Inc. (the “Company”) on Form 10-K for
the year ended January 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Anthony C. Dias, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Company’s Annual Report on Form 10-K fully complies with the requirements of section 13(a) or

15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

/s/ ANTHONY C. DIAS

Anthony C. Dias
Chief Financial Officer, Senior Vice President,
Finance and Administration and Treasurer

Dated: April 7, 2015