SeaChange International
Annual Report 2018

Plain-text annual report

2018 ANNUAL REPORT AND PROXY (cid:37)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:57)(cid:76)(cid:71)(cid:72)(cid:82)(cid:34)(cid:831)(cid:3) (cid:44)(cid:87)(cid:821)(cid:86)(cid:3)(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:17) For 25 years, SeaChange has pioneered solutions to help video providers across the globe manage and monetize their content. As the video industry rapidly evolves to meet the “anytime, anywhere” demands of today’s viewers, SeaChange’s comprehensive content, business, experience, and advertising management solutions provide a mature, network-agnostic, cloud-enabled platform of scalable core capabilities that video providers of all types need to create the personalized experiences that drive viewer engagement. Letter from the CEO Dear Fellow Shareholders, I am pleased and proud to report that fiscal 2018 was a very successful year for SeaChange International. During the past year we completed a restructuring and transformation of the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:868)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:868)(cid:85)(cid:86)(cid:87)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86) a major achievement for our entire team, and I am grateful to our employees around the world who worked diligently to accomplish this goal, as we reposition the company to address the continued rapid and dramatic evolution of our industr y. f (cid:55)(cid:82)(cid:3)(cid:83)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:91)(cid:87)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:20)(cid:27)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:86)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71) 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(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17) Taken together, these actions have provided a strong foundation for future revenue growth and 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(cid:69)(cid:72)(cid:81)(cid:72)(cid:868)(cid:87)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:85)(cid:82)(cid:79)(cid:79)(cid:16)(cid:82)(cid:88)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:70)(cid:75)(cid:82)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:82)(cid:88)(cid:85) (cid:77)(cid:88)(cid:86)(cid:87)(cid:16)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:72)(cid:81)(cid:71)(cid:16)(cid:87)(cid:82)(cid:16)(cid:72)(cid:81)(cid:71) (cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:15)(cid:3)(cid:51)(cid:68)(cid:81)(cid:82)(cid:85)(cid:68)(cid:80)(cid:76)(cid:38)(cid:17) Our industry and markets are changing, and we are leveraging those shifts to our advantage: • • • • (cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82)(cid:3)(cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:76)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:78)(cid:92)(cid:85)(cid:82)(cid:70)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71) (cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:16)(cid:86)(cid:70)(cid:85)(cid:72)(cid:72)(cid:81)(cid:3)(cid:89)(cid:76)(cid:72)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73) their choice, anytime and anywhere. (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:868)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:16)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82) content directly to consumers on any device, as they seek to increase customer engagement and (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:85)(cid:81)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:68)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:17) (cid:38)(cid:79)(cid:82)(cid:88)(cid:71)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:85)(cid:68)(cid:83)(cid:76)(cid:71)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:72)(cid:79)(cid:68)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:72)(cid:15)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:79)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71) lower operating cost, must also deliver a seamless viewing experience across all devices. 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(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92) (cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82)(cid:3)(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79) 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(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:85)(cid:72)(cid:68)(cid:71)(cid:92)(cid:3)(cid:86)(cid:72)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:29) • 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(cid:69)(cid:68)(cid:70)(cid:78)(cid:16)(cid:82)(cid:73)(cid:868)(cid:70)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:40)(cid:48)(cid:40)(cid:36)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:15) (cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:74)(cid:68)(cid:81)(cid:3)(cid:68)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:92)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:71)(cid:72)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:868)(cid:86)(cid:70)(cid:68)(cid:79) (cid:92)(cid:72)(cid:68)(cid:85)(cid:30)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86) to continue to roll out over the next several years. • (cid:58)(cid:72)(cid:3)(cid:90)(cid:82)(cid:81)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:868)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:90)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68) (cid:68)(cid:81)(cid:71)(cid:3)(cid:44)(cid:86)(cid:85)(cid:68)(cid:72)(cid:79)(cid:15)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:79)(cid:92)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72) 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(cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:15)(cid:3)(cid:68)(cid:79)(cid:82)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:83)(cid:74)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:36)(cid:71)(cid:85)(cid:72)(cid:81)(cid:68)(cid:79)(cid:76)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:17) • • (cid:50)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)(cid:79)(cid:92)(cid:16)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:49)(cid:76)(cid:87)(cid:85)(cid:82)(cid:59)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:71)(cid:72)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:44)(cid:37)(cid:38)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:79)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:79)(cid:79) • and has already won a handful of new customers. (cid:36)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:51)(cid:68)(cid:81)(cid:82)(cid:85)(cid:68)(cid:80)(cid:76)(cid:38)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3)(cid:81)(cid:72)(cid:91)(cid:87)(cid:16)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:16)(cid:87)(cid:82)(cid:16)(cid:72)(cid:81)(cid:71)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81) (cid:73)(cid:82)(cid:85) customers who need to quickly and easily deploy a full video management, delivery and (cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:54)(cid:72)(cid:68)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:821)(cid:86)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:3)(cid:69)(cid:85)(cid:72)(cid:68)(cid:71)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15) (cid:51)(cid:68)(cid:81)(cid:82)(cid:85)(cid:68)(cid:80)(cid:76)(cid:38)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:16)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:86)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:69)(cid:85)(cid:72)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:83)(cid:72)(cid:72)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:89)(cid:76)(cid:68)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:72)(cid:71) to content owners. To achieve our strategy, we have created a product roadmap that will drive industry evolution and shape (cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85) (cid:73) industry expertise to develop meaningful, innovative product offerings that provide customers with a 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(cid:90)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86) (cid:17) Similarly, we have also engaged technology partners who augment our product offerings with (cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) 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(cid:55)(cid:16)(cid:48)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:72)(cid:81)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:69) (cid:92)(cid:3)(cid:85)(cid:72)(cid:83)(cid:79)(cid:68)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:37)(cid:82)(cid:81)(cid:81)(cid:72)(cid:92) 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(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:86)(cid:68)(cid:87)(cid:76)(cid:86)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:92)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72) (cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:89)(cid:76)(cid:71)(cid:72)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:79)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:82)(cid:81) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:87)(cid:85)(cid:72)(cid:81)(cid:71)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:82)(cid:89)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81) (cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:868)(cid:85)(cid:80)(cid:79)(cid:92)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:3)(cid:54)(cid:72)(cid:68)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:868)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17) Sincerely, (cid:40)(cid:71)(cid:3)(cid:55)(cid:72)(cid:85)(cid:76)(cid:81)(cid:82) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72) (cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85) SEACHANGE INTERNATIONAL, INC. 50 Nagog Park Acton, Massachusetts 01720 NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 12, 2018 The Annual Meeting of Stockholders of SeaChange International, Inc. (“SeaChange” or the “Company”) will be held at SeaChange’s offices, located at 50 Nagog Park, Acton, Massachusetts 01720, on Thursday, July 12, 2018 at 10:00 a.m., local time, to consider and act upon each of the following matters: 1. 2. 3. 4. To elect the nominees named in the proxy statement to the Board of Directors to serve for three-year terms as Class I Directors. To conduct an advisory vote on the compensation of the Company’s named executive officers. To ratify the appointment of the Company’s independent registered public accounting firm. To transact such other business as may properly come before the meeting and any adjournments thereof. Stockholders entitled to notice of and to vote at the meeting shall be determined as of the close of business on May 23, 2018, the record date fixed by the Board of Directors for such purpose. IF YOU PLAN TO ATTEND: Please call David McEvoy at 978-889-3004 if you plan to attend. Please bring valid picture identification, such as a driver’s license or passport. Stockholders holding stock in brokerage accounts (“street name” holders) will also need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, cell phones, recording devices and other electronic devices will not be permitted at the meeting. By Order of the Board of Directors, David McEvoy Senior Vice President, General Counsel and Secretary Acton, Massachusetts May 25, 2018 Whether or not you expect to attend the meeting, please complete, date and sign the enclosed proxy and mail it promptly in the enclosed envelope to ensure representation of your shares. No postage need be affixed if the proxy is mailed in the United States. If you are the registered holder of the shares, you may rather choose to vote via the Internet or by telephone. If your shares are held in a bank or brokerage account, you may be eligible to vote electronically or by telephone. Please refer to the enclosed form for instructions. 2018 ANNUAL MEETING OF STOCKHOLDERS PROXY STATEMENT TABLE OF CONTENTS Information Regarding Voting and Proxies OWNERSHIP OF SECURITIES Securities Ownership Of Certain Beneficial Owners And Management PROPOSAL NO. I — ELECTION OF DIRECTORS Class I Directors (Terms Expire at 2018 Annual Meeting) Class II Directors (Terms Expire at 2019 Annual Meeting) Class III Directors (Terms Expire at 2020 Annual Meeting) CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS Determination of Director Independence Stockholder Proposals Availability of Corporate Governance Documents Board Meetings Board Leadership Structure Board Oversight of Risk Board Committees Audit Committee Compensation Committee Corporate Governance and Nominating Committee Qualifications of Director Candidates Procedures for Stockholders to Recommend Director Candidates Process for Stockholders to Communicate with Directors Compensation of Directors Report of the Audit Committee INFORMATION CONCERNING EXECUTIVE OFFICERS COMPENSATION DISCUSSION AND ANALYSIS Executive Summary Compensation Objectives Setting Executive Compensation Fiscal 2018 Executive Compensation Components Fiscal 2019 Executive Compensation Components Tax and Accounting Implications Summary Compensation Table Grants of Plan-Based Awards Outstanding Equity Awards at Fiscal Year-End Option Exercises and Stock Vested Pension Benefits Nonqualified Deferred Compensation Potential Payments upon Termination or Change in Control Compensation Committee Report Compensation Committee Interlocks and Insider Participation CEO Pay Ratio PROPOSAL NO. II — ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS PROPOSAL NO. III — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Independent Registered Public Accounting Firm for Fiscal 2019 Principal Accountant Fees and Services OTHER MATTERS Expenses and Solicitation Section 16(a) Beneficial Ownership Reporting Compliance Certain Relationships and Related Transactions 1 3 3 5 5 7 8 9 9 9 9 9 9 10 10 10 10 11 11 11 11 11 13 16 17 17 18 18 19 25 26 26 28 29 30 31 31 31 32 33 33 34 35 35 35 36 36 36 36 SEACHANGE INTERNATIONAL, INC. 50 Nagog Park Acton, Massachusetts 01720 PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS July 12, 2018 May 25, 2018 Proxies in the form enclosed with this proxy statement are solicited by the Board of Directors (the “Board”) of SeaChange International, Inc. (“SeaChange” or the “Company”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, July 12, 2018, at 10:00 a.m., local time, at SeaChange’s offices, located at 50 Nagog Park, Acton, Massachusetts 01720. Only stockholders of record as of the close of business on May 23, 2018 (the “Record Date”) will be entitled to vote at the Annual Meeting and any adjournments thereof. SeaChange is pleased to take advantage of the U.S. Securities and Exchange Commission (the “SEC”) rules that allow companies to furnish their proxy materials over the Internet. We believe that this process allows SeaChange to provide its stockholders with the information they need in a timelier manner, while reducing the environmental impact and lowering the costs of printing and distributing its proxy materials. As a result, SeaChange is mailing to most of its stockholders of record entitled to vote at the Annual Meeting on or about May 31, 2018, a Notice Regarding the Availability of Proxy Materials (sometimes referred to as the “Notice”) instead of a paper copy of this proxy statement and SeaChange’s 2018 Annual Report. The Notice contains instructions on how to access those documents over the Internet. The balance of SeaChange’s stockholders entitled to vote at the annual meeting will be mailed on or about May 31, 2018 a printed copy of the proxy materials. Information Regarding Voting and Proxies Stockholders may vote in one of the following two ways: 1. if you receive a copy of the proxy materials by mail, by completing, signing and dating the enclosed proxy card and returning it in the enclosed postage paid envelope by return mail; or 2. by completing a proxy on the Internet at the address listed on the proxy card or Notice. Any proxy may be revoked by a stockholder at any time before its exercise by either delivering written revocation or a later dated proxy to the Secretary of SeaChange, entering a new vote by Internet or telephone, or attending the Annual Meeting of Stockholders and voting in person. Only your latest dated proxy will count. All properly completed proxy forms returned in time to be cast at the Annual Meeting will be voted. Stockholders are being asked to vote with respect to the election of Class I Directors, an advisory vote on the compensation of the Company’s named executive officers and the ratification of the selection of SeaChange’s independent registered public accounting firm. Where a choice has been specified on the proxy card with respect to each proposal, the shares represented by the proxy will be voted in accordance with your specifications. If no specification is indicated on the proxy card, the shares represented by the proxy will be voted FOR the nominees named herein for election to the Board of Directors to serve as Class I Directors, FOR approval of the compensation of the Company’s named executive officers, and FOR the ratification of the selection of SeaChange’s independent registered public accounting firm. A majority-in-interest of the outstanding shares represented at the Annual Meeting in person or by proxy shall constitute a quorum for the transaction of business. Votes withheld from any nominee, abstentions and broker “non- votes” are counted as present or represented for purposes of determining the presence or absence of a quorum for the meeting. A “non-vote” occurs when a nominee holding shares for a beneficial owner votes on one proposal, but does 1 not vote on another proposal because the nominee does not have discretionary voting power and has not received instructions from the beneficial owner. On all matters being submitted to stockholders at this Annual Meeting, an affirmative vote of at least a majority of the shares present, in person or represented by proxy, and voting on that matter is required for approval or ratification. An automated system administered by Broadridge Financial Solutions, Inc. tabulates the votes. The vote on each matter submitted to stockholders is tabulated separately. Abstentions, as well as broker “non-votes” are not considered to have been voted for such matters and have the practical effect of having no impact on the outcome of the vote. The Board of Directors knows of no other matter to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board of Directors will be voted with respect thereto in accordance with the judgment of the persons named as proxies and in accordance with the SEC’s proxy rules. See “Stockholder Proposals” herein at page 9. The persons named as proxies, Peter Faubert and David McEvoy, were selected by the Board of Directors and are executive officers of SeaChange. 2 OWNERSHIP OF SECURITIES Securities Ownership Of Certain Beneficial Owners And Management The following table sets forth information regarding the beneficial ownership of SeaChange common stock as of May 23, 2018 by: • • • each person or entity who is known by SeaChange to beneficially own more than five percent (5%) of the common stock of SeaChange; each of the directors of SeaChange and each of the executive officers of SeaChange named in the Summary Compensation Table on page 26; and all of the directors and executive officers of SeaChange as a group. Except for the named executive officers and directors, none of these persons or entities has a relationship with SeaChange, except as disclosed below under “Certain Relationships and Related Transactions.” Unless otherwise indicated, the address of each person or entity named in the table is c/o SeaChange International, Inc., 50 Nagog Park, Acton, Massachusetts 01720, and each person or entity has sole voting power and investment power (or shares such power with his or her spouse), with respect to all shares of capital stock listed as owned by such person or entity. The number and percentage of shares beneficially owned is determined in accordance with the rules of the SEC, and is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and also any shares of common stock underlying restricted stock units (“RSUs”), performance stock units (“PSUs”), deferred stock units (“DSUs”), options or warrants that are exercisable by that person within sixty (60) days of May 23, 2018. However, these shares underlying options or warrants are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity. Percentage of beneficial ownership is based on 35,623,219 shares of SeaChange’s common stock outstanding as of May 23, 2018. Name Edward Terino Jonathan Rider Peter Faubert David McEvoy Mark Bonney Mary Palermo Cotton William F. Markey, III Andrew Sriubas Royce E. Wilson Ariel Investments, LLC (2) 200 E. Randolph Street Suite 2900 Chicago, IL 60601 NNeuberger Berman Investment Advisors LLC (3) 1290 Avenue of the Americas NNew York, NY 10104 Dimensional Fund Advisors, LP (4) Building One 6300 Bee Cave Road Austin, TX 78746 All Executive Officers and Directors as a group (9 persons) (5) 3 Amount and Nature of Beneficial Ownership (1) (#) Percent of Common Stock Outstanding 283,651 94,871 68,467 89,382 38,023 217,426 87,871 52,072 100,610 * * * * * * * * * 2,930,417 8.2% 2,175,576 6.1% 1,802,724 1,032,373 5.1% 2.9% Less than 1% * (1) Includes shares of Common Stock which have not been issued but are subject to options which either are presently exercisable or will become exercisable within sixty (60) days of May 23, 2018, as follows: Mr. Terino: 64,537 shares; Mr. Rider: 87,414 shares; Mr. Faubert: 64,157 shares; and Mr. McEvoy: 28,559 shares. Includes RSUs and DSUs that will have vested within sixty (60) days of May 23, 2018, as follows: Mr. Terino: 13,793 RSUs; Mr. Bonney: 38,023 DSUs Ms. Cotton: 35,842 DSUs; Mr. Markey: 35,842 DSUs; Mr. Sriubas: 38,023 DSUs and Mr. Wilson: 35,842 DSUs. (2) According to a Schedule 13G/A filed on February 13, 2018, Ariel Investments, LLC may be deemed to have sole voting power with respect to 2,510,052 of the above-mentioned shares and sole dispositive power with respect to 2,930,417 of the above-mentioned shares. (3) According to a Schedule 13G/A filed on February 15, 2018, Neuberger Berman Investment Advisors LLC may be deemed to have shared dispositive power with respect to all 2,175,576 of the above-mentioned shares and shared voting power over 1,718,477 of the above-mentioned shares with its clients. (4) According to an amended Schedule 13G/A filed on February 9, 2018, Dimensional Fund Advisors LP may be deemed to have sole dispositive power with respect to all 1,802,724 of the above-mentioned shares and sole voting power over 1,697,939 of the above-mentioned shares. Dimensional Fund Advisors LP serves as investment advisor to four investment companies and serves as investment manager to certain other commingled group trusts and investment accounts, which own the above-mentioned shares. Dimensional Fund Advisors LP disclaims beneficial ownership of such shares. (5) This group is comprised of those individuals named in the Summary Compensation Table on page 26 and those persons who were directors of SeaChange as of May 23, 2018. Includes an aggregate of 442,032 shares of Common Stock which the directors and executive officers, as a group, have the right to acquire by exercise of stock options or will acquire upon vesting of RSUs or DSUs within sixty (60) days of May 23, 2018. 4 PROPOSAL NO. I ELECTION OF DIRECTORS SeaChange’s Board of Directors currently consists of six members, five of whom are independent, non- employee directors. The Board of Directors is divided into three classes. Each class is elected for a term of three years, with the terms of office of the directors in the respective classes expiring in successive years. The present term of the current Class I Directors, Mr. Bonney and Ms. Cotton, expires at the Annual Meeting. The Board of Directors, based on the recommendation of the Corporate Governance and Nominating Committee, has nominated Mr. Bonney and Ms. Cotton for re-election as Class I Directors. The Board of Directors knows of no reason why either of these nominees should be unable or unwilling to serve, but if that should be the case, proxies may be voted for the election of some other person selected by the Board. Mr. Bonney and Ms. Cotton have each consented to being named in this proxy statement as a nominee to be a Class I Director and to serving in that capacity, if elected. The Board of Directors unanimously recommends a vote “FOR” the Nominees listed below. The following table sets forth, for the Class I nominees to be elected at the Annual Meeting and each of the other current directors, the year the nominee or director was first appointed or elected a director, the principal occupation of the nominee or director during at least the past five years, any other public company boards on which the nominee or director serves or has served in the past five years, the nominee’s or director’s qualifications to serve on the Board and the age of the nominee or director. In addition, included in the information presented below is a summary of each nominee’s or director’s specific experience, qualifications, attributes and skills that led the Board to the conclusion that he or she should serve as a director. Class I Directors (Terms Expire at 2018 Annual Meeting) Director’s Name and Year First Became Director Mark Bonney (2017) Position and Principal Occupation and Business Experience During the Past Five Years Director Mark Bonney, 64, has served as a Director of SeaChange since August 2017. Mr. Bonney most recently served as President and Chief Executive Officer of MRV Communications, Inc. (NASDAQ: MRVC) from December 2014 until its sale in August 2017 and as a director of MRV Communications, Inc. from April 2013 to August 2017. Mr. Bonney has served as a Director of Zix Corporation (NASDAQ: ZIXI) since January 2013 and serves as a member of its Audit Committee and its Nominating & Corporate Governance Committee. Mr. Bonney also serves as a Director of Community eConsult Network, Inc., a not-for-profit corporation engaged in medical consultative services, and is Chairman Emeritus of Community Health Centers, Inc. Mr. Bonney has held senior financial and management roles at Black & Decker, Zygo Corporation, Axsys Technologies, Inc., American Bank Note Holographics, Inc. and Direct Brands leading up to Chief Financial Officer, President and Chief Executive Officer. In addition to his current directorships he has served as a director of Axsys, American Bank Note Holographics, Threecore, Inc., ASearch LLC and Sigma Designs. Mr. Bonney also founded and served as former Chairman of the Angel Investor Forum. Mr. Bonney holds a BS in Business Administration from Central Connecticut State University and an MBA in Finance from the University of Hartford. Mr. Bonney brings more than 35 years of senior financial and operational experience with middle-market high tech companies in the U.S. and abroad which is highly valued by our Board. 5 Mary Palermo Cotton (2004) Director Mary Palermo Cotton, 60, has served as a Director of SeaChange since September 2004. Since April 2017, Ms. Cotton has served as Senior Advisor, VT iDirect a leading provider of satellite- based communications technology. In this role she advises the company on key strategic initiatives. For the previous 10 years Ms. Cotton held the position of Chief Executive Officer and Director of VT iDirect. Previously, Ms. Cotton was a Senior Vice President of SAP, an enterprise software provider, as a result of SAP’s June 2006 acquisition of Frictionless Commerce. Prior to the acquisition, Ms. Cotton had been the Chief Executive Officer of Frictionless Commerce, a company providing supplier relationship management software since February 2005. From February 2003 to July 2004, Ms. Cotton was a Senior Advisor to Aspen Technology, a software service provider, and previously served as Aspen’s Chief Operating Officer from January 2001 to January 2003. Ms. Cotton additionally served on the Board of Directors of Precise Software Solutions from June 2000 to June 2003 when Precise Software Solutions was acquired by VERITAS Software. Ms. Cotton contributes extensive executive experience in the global software industry as well as extensive financial reporting expertise to our Board deliberations. 6 Class II Directors (Terms Expire at 2019 Annual Meeting) Director’s Name and Year First Became Director Andrew Sriubas (2017) Royce E. Wilson (2015) Position and Principal Occupation and Business Experience During the Past Five Years Director Andrew Sriubas, 49, has served as a Director of SeaChange since August 2017. In addition, Mr. Sriubas serves as Chief Commercial Officer of Outfront Media since August 2017, and dd ppreviously served as Executive Vice President of Strategic Planning & Development since July 2014. Mr. Sriubas began his career with Citibank in media and tech investment banking and held 2014. Mr. Sriubas began his career with Citibank in media and tech investment banking and held d managing director roles at other firms including Donaldson Lufkin Jenrette, UBS, and JP Morgan, before joining Sonifi as Chief Strategist and Head of Corporate Development. Mr. Sriubas is a member of the Advisory Committee of Palisades Growth Capital, and also serves ffof as an advisor to Secure Mobile Contact System Co. and Tout Inc. Mr. Sriubas is also a director the Jack Kemp Foundation. Mr. Sriubas holds a BS in Finance from the Carroll School ffof Management at Boston College. Mr. Sriubas has been an advisor to the SeaChange board since May 2016, and is a member of the Company’s Advisory Board that works with the management team on strategic and technology matters. Mr. Sriubas contributes his experience as a former rr telecom, media and technology banker; his experience developing new technologies to advance innovative business models as he has for the digital theatre industry, hospitality industry and now in his capacity re drawing the out of home/location media landscape. g Director Royce E. Wilson, 61, has served as a Director of SeaChange since February 2015. Mr. Wilson is a founding partner of New Form Digital, a developer of original cinematic stories on digital platforms, since January 2014; President and Chief Executive Officer of Dreamcatcher Broadcasting, which owns 3 television stations, since July 2013; and President of Dreamcatcher Media, an angel investment and consulting company, since January 2011. Mr. Wilson was Executive Chairman of Timeline Labs (acquired by SeaChange in February 2015) from June 2011 to January 2015, having also served as its President and Chief Executive Officer from 2011 through 2013. Mr. Wilson was President of Tribune Broadcasting Company and Chief Revenue Officer of The Tribune Company, which owned 23 television stations, from February 2008 to April 2010; President of FOX Television Network from 2004-2008; President of NBC Enterprises and Syndication from 2000-2004; and President of CBS Enterprises from 1996-2000. Prior to that Mr. Wilson also held executive positions at Maxam Entertainment, Sony Pictures TV, and Paramount Pictures. Mr. Wilson also serves as a director of MVPindex, a social media index for sports and entertainment since January 2016 and of Newzulu Limited, a global crowd- sourced technology and media company, since August 2016. In addition, Mr. Wilson serves as a Trustee to Southern Methodist University since July 2008, and as a Director to the San Diego Zoo since February 2014. Mr. Wilson contributes extensive management experience in traditional and emerging media markets, developing key strategic partnerships and using new approaches to create innovative solutions. 7 Class III Directors (Terms Expire at 2020 Annual Meeting) Nominee’s Name and Year First Became Director William Francis Markey, III (2016) Edward Terino (2010) Position and Principal Occupation and Business Experience During the Past Five Years Chairman of the Board of Directors William Francis Markey, III, 52, has served as a member of our Board of Directors since March 2016. Since October 2002, Mr. Markey has been the Founder and President of the Relevant C Business Group (RCBG), a private consulting firm that assists companies with strategy and d execution, often around emerging technologies, in the areas of telecom, media and technology. Prior to that Mr. Markey was a co-founder of Ucentric Systems, a software company that t pprovided connected home software solutions to television operators, that was acquired by Motorola, and also held various management positions at 3Com, Motorola, Pacific Tele sis and d Preview Media. Mr. Markey holds a BA from Georgetown University, an MS from Columbia University and an MA from Johns Hopkins University. Mr. Markey is a member of various advisory boards and is a trustee of Lake Forest Academy in Illinois. Mr. Markey has extensive experience in corporate development, business strategy, and mergers and acquisitions in technology and media. Chief Executive Officer and Director Edward Terino, 64, became Chief Executive Officer on April 6, 2016, after being appointed Chief Operating Officer and Executive Vice President on June 3, 2015. Mr. Terino has served as a member of our Board of Directors since July 2010, where he was formerly Chairman of the Audit Committee and a member of the Compensation Committee. Mr. Terino has served as President of GET Advisory Service LLC, a strategic and financial management consulting firm focused on the technology and maritime industries since March 2009. From March 2010 to July 2015, Mr. Terino served as a director of Baltic Trading Ltd., a NYSE listed international dry bulk shipping company (NYSE:BALT), where he was the Chairman of the Audit Committee and a member of the Compensation Committee. From October 2012 to November 2013, Mr. Terino served as a director of Extreme Networks, Inc., a NASDAQ listed network switching and services company (NASDAQ:EXTR), where he was a member of the Audit Committee. From April 2007 through February 2012, Mr. Terino served as a director of S1 Corporation, a NASDAQ listed internet banking and payments software company (NASDAQ:SONE), where he was Chairman of the Audit Committee and a member of the Compensation Committee. In February 2012, S1 Corporation was acquired by ACI Worldwide, Inc. From November 2009 to November 2010, Mr. Terino served as a director of Phoenix Technologies Ltd., a NASDAQ listed BIOS software company (NASDAQ:PTEC), where he was the Chairman of the Audit Committee and a member of the Compensation Committee. In November 2010, Phoenix Technologies Ltd. was acquired by Marlin Equity Partners. From October 1999 to March 2006, Mr. Terino served as a director of EBT International Inc., a NASDAQ listed web content management software company (NASDAQ:EBTI), where he was Chairman of the Audit Committee and a member of the Compensation Committee. From July 2005 through December 2008, Mr. Terino was Chief Executive Officer and Chief Financial Officer of Arlington Tankers Ltd., a NYSE listed international seaborne transporter of crude oil and petroleum products (NYSE:ATB). In December 2008 Arlington Tankers Ltd. merged with General Maritime Corporation. From September 2001 to June 2005, Mr. Terino was Senior Vice President, Chief Financial Officer, and Treasurer of Art Technology Group, Inc. Art Technology Group, Inc. was acquired by Oracle Corporation in 2011. Prior to 2001, Mr. Terino held senior financial and operational management positions over a 15-year period with several publicly traded technology and educational publishing companies. Mr. Terino began his career at Deloitte & Touche and spent 9 years in their consulting services organization. Mr. Terino earned a BS degree in Management from Northeastern University and he earned a MBA from Suffolk University. 8 CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS Determination of Director Independence The Board of Directors has determined that Ms. Cotton and Messrs. Bonney, Markey, Sriubas, and Wilson are “independent” directors, meeting all applicable independence requirements of the SEC, including Rule 10A-3(b)(1) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Marketplace Rules of The NASDAQ Stock Market (“NASDAQ”). In making this determination, the Board of Directors affirmatively determined that none of such directors has a relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, including that neither the identification in 2015 of Mr. Wilson as a director nominee by the former equityholders of TLL, LLC, the terms of the Agreement and Plan of Merger dated December 22, 2014 for the acquisition of TLL, LLC nor Mr. Wilson’s prior management positions with TLL, LLC precluded a determination that Mr. Wilson qualified as “independent.” Stockholder Proposals Proposals of stockholders intended to be presented at the 2019 Annual Meeting of Stockholders must be received no later than the close of business on January 25, 2019 at SeaChange’s principal executive offices in order to be included in the SeaChange proxy statement for that meeting. Any such stockholder proposals should be submitted to SeaChange International, Inc., 50 Nagog Park, Acton, Massachusetts, 01720, Attention: Secretary. Under the By-Laws of SeaChange, stockholders who wish to make a proposal at the 2019 Annual Meeting — other than one that will be included in SeaChange’s proxy materials — must notify SeaChange no earlier than December 26, 2018, and no later than January 25, 2019. If a stockholder who wishes to present a proposal fails to notify SeaChange by January 25, 2019, the stockholder will not be entitled to present the proposal at the meeting. If, however, notwithstanding the requirements of the By-Laws of SeaChange, the proposal is brought before the meeting, then under the SEC’s proxy rules the proxies solicited by management with respect to the 2019 Annual Meeting will confer discretionary voting authority with respect to the stockholder’s proposal on the persons selected by management to vote the proxies. If a stockholder makes a timely notification, the proxies may still exercise discretionary voting authority under circumstances consistent with the SEC’s proxy rules. In order to curtail controversy as to the date on which a proposal will be marked as received by SeaChange, it is suggested that stockholders submit their proposals by Certified Mail — Return Receipt Requested. Availability of Corporate Governance Documents SeaChange’s Code of Ethics and Business Conduct (“Ethics Policy”) for all directors and all employees of SeaChange, including executive officers, and the charters for the Audit, Compensation, and Corporate Governance and Nominating Committees of the Board of Directors are available on SeaChange’s website at www.schange.com the “Investor Relations” link. SeaChange will ensure that under amendments, if any, to these documents are disclosed and posted on this website within four (4) business days of any such amendment. the “Corporate Governance” section of Board Meetings The Board of Directors of SeaChange met sixteen (16) times and acted by written consent three (3) times during the fiscal year ended January 31, 2018. During the fiscal year ended January 31, 2018, each then director attended at least seventy-five percent (75%) of the total number of meetings of the Board of Directors and meetings of all the committees of the Board on which they serve. SeaChange has a policy that its Board of Directors attends SeaChange’s Annual Meeting of Stockholders. Last year, all of the directors attended the Annual Meeting of Stockholders that was held on July 13, 2017. Board Leadership Structure The Board of Directors has appointed an independent director to serve as Chairman of the Board of Directors. The Board has adopted this structure to strike an effective balance between management and independent leadership 9 participation in the Board process. The function of the Chairman is to set the agenda for Board meetings and to facilitate and improve communication between the independent directors and SeaChange by serving as the interface between SeaChange’s Chief Executive Officer, senior management and the independent directors. The Chairman works with the chair of the Compensation Committee, if a separate person, to establish goals for the Chief Executive Officer each fiscal year and conducts the annual Chief Executive Officer evaluation. Mr. Markey currently serves as the Chairman and Chairman of the Corporate Governance and Nominating Committee. Board Oversight of Risk The Board oversees the business and strategic risks of SeaChange, including risks related to cybersecurity. The Audit Committee oversees financial reporting, internal controls and compliance risks confronting SeaChange. The Compensation Committee oversees risks associated with SeaChange’s compensation policies and practices, including performance-based compensation and change in control plans. The Corporate Governance and Nominating Committee oversees risks relating to corporate governance and the process governing the nomination of members of the Board. SeaChange provides a detailed description of the risk factors impacting its business in its Annual Report on Form 10-K and if necessary, its Quarterly Reports on Form 10-Q filed with the SEC. Board Committees The Board has a standing Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee. The members of each committee are appointed by the Board based on the recommendation of the Corporate Governance and Nominating Committee. The members are set forth below in this proxy statement. Actions taken by any committee of the Board are reported to the Board, usually at the next Board meeting following a committee meeting. Each of these standing committees is governed by a committee-specific charter that is reviewed periodically by the applicable committee pursuant to the rules set forth in each charter. The Board annually conducts a self-evaluation of each of its committees. All members of all committees are independent directors. Audit Committee The Audit Committee members are Mr. Bonney (Chairman, effective May 1, 2018), Ms. Cotton (Chairman during fiscal 2018 and until May 1, 2018), Mr. Markey and Mr. Sriubas, each of whom meet the independence requirements of the SEC and NASDAQ, as described above. In addition, SeaChange’s Board has determined that each member of the Audit Committee is financially literate and that Mr. Bonney satisfies the requirement of the Marketplace Rules applicable to NASDAQ-listed companies that at least one member of the Audit Committee possess financial sophistication and that Mr. Bonney is an “audit committee financial expert” as defined in the rules and regulations promulgated under the Exchange Act. The Audit Committee’s oversight responsibilities include matters relating to SeaChange’s financial disclosure and reporting process, including the system of internal controls, the performance of SeaChange’s internal audit function, compliance with legal and regulatory requirements, and the appointment and activities of SeaChange’s independent auditors. The Audit Committee met thirteen (13) times and acted by written consent two (2) times during fiscal 2018. The responsibilities of the Audit Committee and its activities during fiscal 2018 are more fully described under the heading “Report of the Audit Committee” contained in this proxy statement. Compensation Committee The Compensation Committee members are Mr. Bonney (Chairman), Ms. Cotton and Mr. Sriubas, each of whom meet the independence requirements of the SEC and NASDAQ, as described above. Among other things, the including stock options, RSUs and other equity Compensation Committee determines the compensation, compensation, of SeaChange’s management and key employees, administers and makes recommendations concerning SeaChange’s equity compensation plans, and ensures that appropriate succession planning takes place for all levels of management, department heads and senior management. The Compensation Committee met nine (9) times and acted by unanimous written consent five (5) times during fiscal 2018. The responsibilities of the Compensation Committee and its activities during fiscal 2018 are more fully described in this proxy under the heading, “COMPENSATION DISCUSSION AND ANALYSIS.” 10 Corporate Governance and Nominating Committee The Corporate Governance and Nominating Committee members are Mr. Markey (Chairman), Ms. Cotton and Mr. Wilson, each of whom meet the independence requirements of the SEC and NASDAQ, as described above. The Corporate Governance and Nominating Committee is responsible for oversight of corporate governance at SeaChange, recommending to the Board of Directors persons to be nominated for election or appointment as directors of SeaChange and monitoring compliance with SeaChange’s Code of Ethics and Business Conduct. The Corporate Governance and Nominating Committee identifies Board candidates through numerous sources, including recommendations from existing Board members, executive officers, and stockholders of SeaChange. Additionally, the Corporate Governance and Nominating Committee may identify candidates through engagements with executive search firms. The Corporate Governance and Nominating Committee met six (6) times and did not act by unanimous written consent during fiscal 2018. Qualifications of Director Candidates In evaluating the suitability of individuals for Board membership, the Corporate Governance and Nominating Committee takes into account many factors, including whether the individual meets the requirements for independence, his or her professional expertise and educational background, and the potential to contribute to the diversity of viewpoints, backgrounds or experiences of the Board as a whole including diversity of experience, gender, race, ethnicity and age. The Corporate Governance and Nominating Committee evaluates each individual in the context of the entire Board, with the objective of recommending nominees who can best further the success of SeaChange’s business and represent stockholder interests. The Corporate Governance and Nominating Committee assigns specific weights to particular criteria for prospective nominees. SeaChange believes that the backgrounds and qualifications of directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities. As part of the consideration in fiscal 2018 by the Corporate Governance and Nominating Committee of candidates for election to the Board, these criteria were reviewed. No changes to these criteria were recommended as a result of such review. Procedures for Stockholders to Recommend Director Candidates Stockholders wishing to suggest candidates to the Corporate Governance and Nominating Committee for consideration as potential director nominees may do so by submitting the candidate’s name, experience, and other relevant information to the SeaChange Corporate Governance and Nominating Committee, 50 Nagog Park, Acton, Massachusetts 01720. SeaChange stockholders wishing to nominate directors may do so by submitting a written notice to the Secretary of SeaChange at the same address in accordance with the nomination procedures set forth in SeaChange’s By-Laws. The procedures are summarized in this proxy statement under the heading “Stockholder Proposals.” The Secretary will provide the notice to the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee does not distinguish between nominees recommended by stockholders and other nominees. All nominees must meet, at a minimum, the qualifications described in “Qualifications of Director Candidates” above. Process for Stockholders to Communicate with Directors Stockholders may write to the Board or a particular Board member by addressing such communication to the Chairman of the Board, if directed to the Board as whole, or to an individual director, if directed to that particular Board member, care of SeaChange’s Secretary, at SeaChange’s offices at 50 Nagog Park, Acton, Massachusetts 01720. Unless such communication is addressed to an individual director, SeaChange will forward any such communication to each of the directors. Communication sent in any other manner, including but not limited to email, text messages or social media will be forwarded to the entire Board of Directors. The Chairman of the Board together with the Chief Executive Officer will determine the appropriate response to such communication. Compensation of Directors Directors who are employees of SeaChange receive no compensation for their services as directors, except for reimbursement of expenses incurred in connection with attending meetings. 11 Non-employee directors received the following cash compensation in fiscal 2018: • • • • • • A cash retainer of $45,000; The Chairman of the Board received additional cash compensation of $25,000; Each member of the Audit Committee received additional cash compensation of $7,500, other than the Chairman, who received additional cash compensation of $15,000; Each member of the Compensation Committee received additional cash compensation of $6,000, other than the Chairman, who received additional cash compensation of $12,000; and Each member of the Corporate Governance and Nominating Committee received additional cash compensation of $5,000, other than the Chairman, who received additional cash compensation of $10,000. Each member of the Strategy Committee received additional cash compensation of $5,000, other than the Chairman, who received additional cash compensation of $10,000. The Strategy Committee was dissolved in August 2017. In addition, each non-employee director is entitled to receive an annual grant of RSUs valued at $100,000, granted on the date of our Annual Meeting and which vests in full one year from the grant date, subject to acceleration in the event of a Change in Control. Our non-employee directors have the option to receive DSUs in lieu of RSUs, and the shares underlying the DSU are not issued until the earlier of the director ceasing to be a member of the Board or immediately prior to consummation of a Change in Control. Newly appointed non-employee directors receive an initial grant of RSUs valued at $100,000, granted on the date of the director’s appointment or election to the Board of Directors, which vest annually in three (3) equal tranches over a three (3) year period, subject to acceleration in the event of a Change in Control. Newly appointed non-employee directors also receive (i) 100% of the annual grant of RSUs valued at $100,000 if their appointment/election is within six (6) months of the Company’s last Annual Meeting or (ii) 50% of the annual grant of RSUs valued at $50,000 if their appointment/election is within six (6) months of the Company’s next Annual Meeting. New non-employee directors have the option to receive their initial grant in the form of DSUs rather than RSUs (as described above with respect to the annual awards). Director Compensation Fiscal 2018 Fees Earned or Paid in Cas h ($) 32,250 68,000 78,000 29,250 50,000 70,875 36,750 Stock Awards (1) ($) 200,000 100,000 100,000 200,000 100,000 100,000 — Total ($) 232,250 168,000 178,000 229,250 150,000 170,875 36,750 Name Mark Bonney (2) Mary Palermo Cotton William F. Markey, III Andrew Sriubas (3) Royce E. Wilson Steven Craddock (5) Thomas Olson (6) 12 (1) The grant date fair value for each of these awards, aggregated in the above table, is as follows: Name Mark Bonney (2) Mary Palermo Cotton William F. Markey, III Andrew Sriubas (3) Royce E. Wilson Steven Craddock (5) Stock Awards (#DSUs, except as noted) 38,023 (4) 38,023 35,842 35,842 38,023 38,023 35,842 35,842 Total Grant Date Fai r Value ($) 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Date of Grant 8/24/2017 8/24/2017 7/12/2017 7/12/2017 8/24/2017 8/24/2017 7/12/2017 7/12/2017 (2) Mr. Bonney joined the Board of Directors on August 17, 2017, as previously reported on a Form 8-K filed with the SEC on August 18, 2017. The grant of RSUs and DSUs to Mr. Bonney on August 17, 2017 included RSUs valued at $100,000 upon initial election to the Board as a non-employee director and the grant of DSUs valued at $100,000 for the annual grant of such DSUs to non-employee directors. (3) Mr. Sriubas joined the Board of Directors on August 17, 2017, as previously reported on a Form 8-K filed with the SEC on August 18, 2017. The grant of DSUs to Mr. Sriubas on August 17, 2017 included DSUs valued at $100,000 upon initial election to the Board as a non-employee director and the grant of DSUs valued at $100,000 for the annual grant of such DSUs to non-employee directors. (4) Mr. Bonney elected RSUs instead of DSUs for his initial grant. (5) Mr. Craddock resigned from the Board of Directors on August 17, 2017. (6) Mr. Olson resigned from the Board of Directors on July 18, 2017. The table below shows the aggregate number of unvested stock awards and options for each non-employee director as of January 31, 2018. Stock awards consist of DSUs (except as otherwise noted below) for which the minimum one-year service period has not been satisfied. Name Mark Bonney (1) Mary Palermo Cotton William F. Markey, III Andrew Sriubas (3) Royce. E. Wilson Aggregate Stock Awards Outstandin g (#) Aggregate Stock Options Outstandin g (#) 76,046(2) 35,842 48,517 76,046 40,523 — — — — — (1) Mr. Bonney joined the Board of Directors on August 17, 2017, as previously reported on a Form 8-K filed with the SEC on August 18, 2017. (2) Mr. Bonney elected RSUs instead of DSUs for his initial grant of 38,023 shares, (3) Mr. Sriubas joined the Board of Directors on August 17, 2017, as previously reported on a Form 8-K filed with the SEC on August 18, 2017. Report of the Audit Committee The Audit Committee currently consists of Mr. Bonney (Chairman), Ms. Cotton, Mr. Markey and Mr. Sriubas. 13 The Audit Committee’s primary duties and responsibilities are to: • • Appoint, compensate and retain SeaChange’s independent registered public accounting firm, and oversee the work performed by the independent registered public accounting firm; Assist the Board of Directors in fulfilling its responsibilities by reviewing the financial reports provided by SeaChange to the SEC and SeaChange’s stockholders; • Monitor the integrity of SeaChange’s financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance; • • Recommend, establish and monitor procedures designed to improve the quality and reliability of the disclosure of SeaChange’s financial condition and results of operations; and Provide an avenue of communication among the independent registered public accounting firm, management and the Board of Directors. The Board of Directors has adopted a written charter setting out the functions the Audit Committee is to perform. A copy of this may be found on SeaChange’s website at www.schange.com under the “Corporate Governance” section of the “Investor Relations” link. Management has primary responsibility for SeaChange’s consolidated financial statements and the overall reporting process, including SeaChange’s system of internal controls. The independent registered public accounting firm audits the annual consolidated financial statements prepared by management, expresses an opinion as to whether those consolidated financial statements fairly present, in all material respects, the financial position, results of operations and cash flows of SeaChange in conformity with accounting principles generally accepted in the United States of America, expresses an opinion on the effectiveness of internal control over financial reporting and discusses with the Audit Committee any issues the independent registered public accounting firm believes should be raised with SeaChange. For fiscal 2018, the Audit Committee reviewed the audited consolidated financial statements of SeaChange and met with both management and Grant Thornton LLP, SeaChange’s independent registered public accounting firm, to discuss those consolidated financial statements. The Audit Committee has received from and discussed with Grant Thornton LLP the written disclosure and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding Grant Thornton LLP’s communications with the Audit Committee concerning independence, and has discussed with Grant Thornton LLP their independence. The Audit Committee also discussed with Grant Thornton LLP the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board. Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of SeaChange be included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2018. The Audit Committee also decided to retain Grant Thornton LLP as SeaChange’s independent registered public accounting firm for the 2019 fiscal year. RESPECTFULLY SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS Mark Bonney, Chairman Mary Palermo Cotton William F. Markey, III Andrew Sriubas The information contained in this Audit Committee Report shall not be deemed to be “soliciting material.” No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, through any general statement 14 incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that SeaChange specifically incorporates this report or any portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act. 15 INFORMATION CONCERNING EXECUTIVE OFFICERS In addition to Edward Terino, SeaChange’s Chief Executive Officer and Director, whose biographical information is set forth above at page 8, SeaChange’s executive officers are: Executive Officer’s Name Jonathan Rider Position and Principal Occupation and Business Experience During the Past Five Years Chief Operating Officer & Senior Vice President Mr. Rider, age 54, was appointed Chief Operating Officer and Senior Vice President on January 31, 2017, and he previously served as SeaChange’s Chief Information Officer since April 19, 2016. Mr. Rider’s has over thirty years of senior management experience in the high technology sector including service as Chief Information Officer of Dynatrace from August 2014 to February 2016; Senior Vice President, Technology and Engineering fof Arcadia Solutions from September 2013 to August 2014; Principal and Chief Information Officer of JetStream Consulting from June 2006 to January 2014; Vice President, Business Systems of PTC from March 2011 to June 2012; Vice President and Chief Information Officer of Gilbane Building Company from November 2006 to May 2010. Previously Mr. Rider served as a U.S. Army Officer and helicopter instructor. Mr. Rider holds a United d States patent in the area of data mining and is a Six Sigma Green and Black Belt. Mr. Rider r has a B.S. in Aeronautics, Engineering/Aviation and a M.B.A. in E-Business from the University of Phoenix. Peter Faubert Chief Financial Officer, Senior Vice President and Treasurer Mr. Faubert, age 48, joined the Company on July 7, 2016 as Chief Financial Officer, Senior Vice President and Treasurer. He brings over fifteen years of extensive finance leadership for public and private software companies that focused on video service providers, mobility and enterprise computing. Prior to joining the Company, Mr. Faubert served as Chief Financial officer of This Technology, Inc. from December 2013 to August 2015, Chief Financial Officer and Treasurer of Vision Government Solutions, Inc. from October 2012 to December 2013, Chief Financial Officer of JNJ Mobile (MocoSpace) from February 2009 to July 2012 and Chief Financial Officer and Treasurer at Turbine, Inc. from August 2005 to January 2009. Prior to that Mr. Faubert held various senior finance positions with Viisage Technology Inc., Burntsand Inc. and Ariba Inc. Mr. Faubert is also a Certified Public Accountant. David McEvoy General Counsel, Senior Vice President and Secretary Mr. McEvoy, age 60, joined the Company on July 2, 2012 as Vice President and General Counsel. He became Senior Vice President and General Counsel on February 1, 2013, and d became the Secretary on May 17, 2013. Prior to joining SeaChange, Mr. McEvoy was the Senior Vice President and General Counsel of Peoplefluent Inc. from June 2011 to July 2012. Mr. McEvoy served as the Senior Vice President and General Counsel of Art ) from September 2005 to March 2010, which was acquired d Technology Group, Inc. (“ATG” by Oracle Corporation on January 5, 2011. Prior to joining ATG, Mr. McEvoy was the Group General Counsel — Operations 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. Executive officers of SeaChange are appointed by, and serve at the discretion of, the Board of Directors, and serve until their successors have been duly elected and qualified. There are no family relationships among any of the executive officers or directors of SeaChange. Each executive officer is a full-time employee of SeaChange. 16 COMPENSATION DISCUSSION AND ANALYSIS Executive Summary We have implemented an executive compensation program that rewards performance. Our executive compensation program is designed to attract, retain and motivate the key individuals who are most capable of contributing to our success and building long-term value for our stockholders. The elements of our executives’ total compensation are base salary, incentive compensation and other employee benefits. We have designed a compensation program that makes a substantial portion of executive pay variable, subject to increase when performance targets are achieved, and subject to reduction when performance targets are not achieved. Fiscal 2018 Business Results In fiscal 2018, we addressed what we see as the continuing rise of Internet Protocol television (“IPTV”) and over-the-top (“OTT”) services by such companies as Netflix, Hulu, Amazon, mlbam, Kaltura, Ooyala and Brightcove and by media companies such as HBO, CBS and BBC. This rise of IPTV and OTT video services globally increased the demand for multiscreen capabilities on a range of consumer devices operating on the 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 focus on our go-to-market efforts in those areas. We continue to invest in developing next-generation capabilities in our four main product offerings: video back office, advertising, content management and user experience. Our suite of products allows us to provide customers with end-to-end video delivery capabilities across multiple platforms, thus reducing cost and increasing speed and ease of use for end users. In conjunction with our acquisition of DCC Labs in fiscal 2017 and an additional company-wide costs savings program established in the second half of fiscal 2017, we commenced a restructuring program (“Restructuring Program”), which has allowed us to achieve approximately $38 million in annualized cost savings since its commencement. The Restructuring Program was completed in fiscal 2018 and has helped us improve operations and optimize our cost structure since its inception. We saw improvement in most of our key operating metrics and overall financial results in fiscal 2018, compared to fiscal 2017. This included a fourteen-percentage point increase in gross margins, a $39.1 million decrease in U.S. GAAP operating expenses and positive cash flow from operations. Cash, cash equivalents, marketable securities and restricted cash of $52.1 million at January 31, 2018 was up from the $38.7 million at January 31, 2017. We had a U.S. GAAP operating loss of $5.4 million, or $0.15 per basic share, in fiscal 2018, compared to a U.S. GAAP operating loss of $54.1 million, or $1.55 per basic share, in fiscal 2017. The decrease in U.S. GAAP operating loss is due to the decrease in expenses resulting from implementation of the Restructuring Program in the second half of fiscal 2017 and to the absence in fiscal 2018 of the $23.8 million loss on impairment of long-lived assets recorded in fiscal 2018. Included in the full fiscal 2018 U.S. GAAP results are $9.3 million in non-GAAP charges, which consisted of severance and other restructuring costs, stock-based compensation, amortization of intangible assets from prior acquisitions and other non-recurring professional fees, while the full fiscal 2017 results by comparison included $33.3 million of similar non-GAAP charges and the loss on impairment of long-lived assets mentioned above. Pay for Performance In recent years, payouts under our executive compensation incentive plan have largely been limited to payouts made for the achievement of individual performance objectives rather than the portion of payouts allocable to the achievement of pre-established financial objectives of the Company, as these objectives have not been met. For example, in fiscal 2017, payouts under our fiscal 2017 performance-based compensation plan were only made for the achievement of certain individual performance objectives, and no payouts were made with respect to satisfying the pre-established financial objectives. the fiscal 2018 Short-Term Incentive compensation plan (“fiscal 2018 STI”) were made for the achievement of both the pre-determined Company financial objectives and individual performance objectives. We believe that the variability in these payouts indicates that our annual compensation plans effectively reward our executive officers for superior performance, while appropriately adjusting compensation downward for less-than-superior performance. However, payouts under 17 Compensation Objectives We structure our executive compensation to reflect individual responsibilities and contributions, while providing incentives to achieve overall business and financial objectives. The Compensation Committee (the “Committee”) has the responsibility for establishing, implementing and monitoring adherence to this philosophy. The Committee has designed an executive compensation plan that rewards the achievement of specific financial and non-financial goals through a combination of cash and stock-based compensation. This bifurcation between financial and non-financial objectives and between cash and stock-based compensation creates alignment with stockholder interests and provides a structure in which executives are rewarded for achieving results that the Committee believes will enhance stockholder value. The Committee believes that stockholder interests are best served by compensating our executives at industry competitive rates, enabling us to attract and retain the best available talent, recognizing superior performance while providing incentives to achieve overall business and financial objectives. By doing so, we believe that our ability to achieve financial and non-financial goals is enhanced. Setting Executive Compensation When setting the annual compensation plan for our executive officers, the Committee begins with an analysis of each compensation component for our Chief Executive Officer. This analysis includes the dollar amount of each component of compensation payable to the Chief Executive Officer related to the relevant period, together with the related metrics for performance-based compensation. The overall purpose of this analysis is to bring together, in one place, all of the elements of fixed and contingent compensation, so that the Committee may analyze both the individual elements of compensation (including the compensation mix) as well as the aggregate amount of actual and projected compensation. The Committee then presents this analysis to the Chief Executive Officer, who provides input to the Committee on the reasonableness, feasibility and effectiveness of the compensation components, including performance metrics, proposed by the Committee. The Chief Executive Officer then creates similar compensation component breakdowns for the other executive officers, presenting compensation recommendations of both base and performance-based compensation related to the relevant period, together with the associated performance metrics. These recommendations are then reviewed and, once agreed upon, approved by the Committee. The Committee can and has exercised its discretion in modifying any recommended compensation to executives, and exercises this discretion in active consultation with the Chief Executive Officer. 18 In setting executive compensation for fiscal 2018, the Committee reviewed an updated list of peer companies recommended by Frederic W. Cook & Co., Inc. (“Cook”), a compensation consulting firm who the Committee concluded based on the Company’s knowledge and information provided by Cook had no conflict of interest with the Company. The updated list of peer companies reflects the removal of certain companies from the prior peer company list with a much larger market capitalization than the Company. The updated list of our peer companies is as follows: • American Software, Inc. • BSQUARE Corporation • Digital Turbine, Inc. • Guidance Software, Inc. • Limelight Networks, Inc. • Marin Software Inc. • Remark Media, Inc. • Synacor, Inc. • YuMe, Inc. • Brightcove, Inc. • Concurrent Computer Corporation • • eGain Corporation Jive Software, Inc. • Marchex, Inc. • RealNetworks, Inc. • SITO Mobile, Ltd. • Tremor Video, Inc. The Committee determined that this list of peer companies provided appropriate referenceable data points, based on our revenues, market capitalization, and industry focus relative to each of these companies. The Committee made reference to the compensation paid by these peer companies in establishing fiscal 2018 executive compensation but did not benchmark compensation to these companies. With respect to all of the fiscal 2018 compensation programs for the Company’s named executive officers, the Committee endeavors to establish a compensation program that is internally consistent and equitable to enable our achievement of overall corporate objectives. Within this framework, the level of the Chief Executive Officer ’s compensation will differ from that of the other executives because of the difference in his role and responsibilities and the compensation practices at peer companies. rr In 2017, we submitted our executive compensation to an advisory vote of our stockholders and it received the support of 93% of the total votes cast on this matter at our annual meeting. We pay careful attention to any feedback we receive from our stockholders about our executive compensation, including the “Say-on-Pay” vote. While we had already approved our fiscal 2018 compensation plan by the time we held our “Say-on-Pay” vote in July 2017, we considered the stockholder advisory vote in formulating our fiscal 2019 compensation plan. This consideration included reaching out to certain large stockholders to discuss and seek input on our compensation plans. Fiscal 2018 Executive Compensation Components For the fiscal year ended January 31, 2018, the principal components of compensation for our named executive officers were: • • • • • • base salary; short-term performance-based incentive compensation; long-term incentive equity awards; discretionary equity awards; change in control and termination benefits; and general employee welfare benefits. 19 As discussed below, the Committee believed that this mix of compensation would allow us to pay our executive officers competitive levels of compensation that best reflect individual responsibilities and contributions, while providing incentives to achieve overall business and financial objectives. Base Salary We provide our named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salary ranges for named executive officers are determined individually for each executive. During its review of base salaries for named executive officers, the Committee primarily considers: • • • individual performance of the executive; our overall past operating and financial performance and future expectations; internal review of the executive’s compensation, both individually and relative to other executive officers; and • market data regarding peer companies. The Committee does not give a specific weighting among these various factors but rather considers the factors collectively in setting base salary. Salary levels are typically considered on an annual basis as part of the performance review process, as well as upon a promotion or other change in job responsibility. We try to provide an allocation between base and performance-based incentive compensation that reflects market conditions and appropriately ensures alignment of individual performance with our objectives. In setting the executive compensation plan for fiscal 2018, the Committee did not make an adjustment to the base salary of the Chief Executive Officer, Mr. Terino, who continued to receive a base salary of $450,000. The Committee also did not make an adjustment to the base salaries of the Chief Operating Officer, Mr. Rider, the Chief Financial Officer, Mr. Faubert, or the General Counsel, Mr. McEvoy, who each continued to receive a base salary of $325,000, $300,000 and $296,000 respectively. Performance-Based Incentive Compensation After considering the overall cash-equity mix of the aggregate compensation paid to our named executive officers, the Committee structured awards pursuant to the fiscal 2018 performance-based compensation plan to be a mixture of cash, stock options, RSUs and PSUs. The Committee believes that including both cash and stock options, RSUs and PSUs as an element of the performance-based compensation is important as it further aligns the interests of our executive officers with those of our stockholders, increases executive ownership of our stock, discourages excessive levels of risk taking, and enhances executive retention in a challenging business environment and competitive labor market, while at the same time providing competitive current compensation and accounting for the liquidity limitations created by the Company’s stock ownership guidelines. Starting in fiscal 2018, the Committee now provides all equity awards to the named executive officers under the performance-based Long-Term Incentive compensation plan (“fiscal 2018 LTI”) and all cash awards to the named executive officers under the fiscal 2018 STI. The fiscal 2018 STI and fiscal 2018 LTI are described further below. Fiscal 2018 Performance-Based Short-Term Incentive Compensation Plan The Committee believes that performance-based incentive compensation motivates the achievement of critical annual performance objectives aimed at enhancing stockholder value. The fiscal 2018 STI established for each of Messrs. Terino, Rider, Faubert and McEvoy, the Company’s executive officers during fiscal 2018, provided for a cash award payable upon the satisfaction of specified targets. 20 Performance-based compensation for each of the named executive officers, except for Mr. McEvoy, pursuant to our fiscal 2018 STI was structured as follows: • • • 40% of target bonus payable based upon the achievement of certain U.S. GAAP revenue goals for fiscal 2018; 40% of target bonus payable based upon the achievement of certain non-GAAP operating income1 goals for fiscal 2018; and 20% or target bonus payable based upon the achievement of certain individual performance-based objectives. Performance-based compensation for Mr. McEvoy pursuant to our fiscal 2018 STI was structured as follows: • • • 40% of target bonus payable based upon the achievement of certain U.S. GAAP revenue goals for fiscal 2018; 20% of target bonus payable based upon the achievement of certain non-GAAP operating income goals for fiscal 2018; and 40% or target bonus payable based upon the achievement of certain individual performance-based objectives. In determining the targets and payouts at target performance levels for each of the objectives for awards under the fiscal 2018 executive compensation plan, the Committee considered the probability of achieving that target and the corresponding level of individual and group effort that would be required to achieve that target. Within that framework, the Committee set a fiscal 2018 U.S. GAAP revenue target of $85 million, with a threshold of $80 million, and a fiscal 2018 non-GAAP operating income loss target of a $1.125 million, with a threshold of a $3.575 million loss. The Committee retained discretion to adjust these targets during the year. The Committee did not establish limits for itself with respect to exercise of this discretion and believes that this discretion is important in order to retain the ability to compensate executive officers in a manner that reflects overall corporate and individual performance relative to the market conditions. In establishing financial targets and potential payout targets for the named executive officers, the Committee provided for additional incentive payouts in the event that the revenue or non-GAAP operating income targets were exceeded, with a specified maximum upward adjustment of twenty-five percent (25%) above target based upon non- GAAP operating income and a maximum upward adjustment of twenty-five (25%) based upon revenue. The Committee also provided for a decreasing amount of cash payouts in the event that the revenue or non-GAAP operating income target, as applicable, were not met, while establishing a threshold with respect to each objective below which no corresponding payout would be made. These provisions were established to provide incentive to our executive officers to exceed the financial targets, as well as to provide some form of payout for performance that approaches but may not meet the established targets. The Committee implemented this structure to ensure that our compensation programs support our overall compensation objectives. 1 We define non-GAAP income (loss) from operations as U.S. GAAP operating loss plus stock-based compensation expenses, amortization of intangible assets, change in fair value of earn-outs, non-operating expense professional fees, severance and other restructuring costs, recovery on provision for loss contract and loss on impairment of long- lived assets. 21 Each of the named executive officers participating in our fiscal 2018 performance based incentive The objectives for Messrs. Terino, Rider, compensation plan also had individual performance-based objectives. Faubert and McEvoy are as follows: • Mr. Terino: the completion of corporate restructuring actions to reduce operating costs and achieve profitability in the second half of fiscal 2018, the enhancement and implementation of the Company’s sales and marketing strategy, and the formation of an Advisory Board of industry leaders to assist the management team in developing a strategic plan and receiving approval of the plan by the Board of Directors before January 31, 2018. • Mr. Rider: the completion of corporate restructuring actions, the completion of technical support, professional services, product line management and marketing renovation programs. Mr. Rider also was to complete various IT infrastructure projects, create a deal desk to review quotations, and complete a restructuring of the Company’s maintenance renewal process. • Mr. Faubert: the completion of corporate restructuring actions, the implementation of various actions to reduce operating expenses and increase cash, the divesture of the Company’s investment in Layer3 TV, Inc. (“Layer 3”), the completion of improvements to the Company’s internal control environment, the implementation of Accounting Standard Codification Topic No. (“ASC”) 606 regarding new revenue recognition guidance, the creation of quarterly business reviews and a deal desk to review quotations, and the automation of the budget process for fiscal 2019. • Mr. McEvoy: the completion of corporate restructuring actions, the implementation of various actions to reduce operating expenses and increase cash, the divesture of the Company’s investment in Layer 3, the strengthening of the legal department through hiring an additional lawyer, and the provision of support to the Board of Directors for shareholder activist activities. Payouts were made under the fiscal 2018 STI based on the achievement of both the financial and individual performance objectives. Under the fiscal 2018 STI, Mr. Terino received a cash bonus of $341,982; Mr. Rider received a cash bonus of $205,504; Mr. Faubert received a cash bonus of $145,080; and Mr. McEvoy received a cash bonus of $122,011. Long-Term Incentive Equity Awards Fiscal 2018 Long-Term Incentive Program In fiscal 2018, the Committee continued the Long-Term Incentive compensation plan (“fiscal 2018 LTI”) under which the named executive officers received long-term equity-based incentive awards, which are intended to align the interests of our named executive officers with the long-term interests of our stockholders and to emphasize and reinforce our focus on team success. The long-term equity-based incentive compensation awards for fiscal 2018 were made in the form of stock options, RSUs and a new form of PSUs for shares of our common stock subject to vesting based in part on the extent to which employment continues for three (3) years. Because the executives are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price and because the value of restricted stock units is based on the price of our common stock when the RSUs vest, we believe stock options and RSUs provide meaningful incentives to executives to achieve increases in the value of our stock over time and as a result are effective tools for meeting our compensation goal of increasing long-term stockholder value. For fiscal 2018, the Committee restructured the vesting criteria of the PSUs to emphasize the achievement of specified U.S. GAAP revenue and non-GAAP operating income goals. Instead of vesting based on the Company’s TSR percentile rank compared to the S&P SmallCap 600 Index over a three (3) year period, as was done in fiscal 2016 and 2017, the PSUs awarded pursuant to the fiscal 2018 LTI are eligible to vest in three (3) equal annual tranches subject to the executives’ achievement of both U.S. GAAP revenue and non-GAAP operating income goals that will be set annually for each year. All LTI awards are approved by the Committee. In determining the size of a stock option grant, RSU award or PSU award, the Committee takes into account individual performance (generally consisting of financial performance 22 for the year as well as a subjective, qualitative review of each named executive officer’s contribution to the success of the business), internal pay equity considerations and the value of previously granted equity awards. The following LTI awards were approved by the Committee on January 31, 2018: • PSUs. An award of PSUs for the amount based on the target number of shares of SeaChange’s common stock set forth opposite the applicable executive’s name below: Executive Edward Terino Jonathan Rider Peter Faubert David McEvoy y Target Award # of PSU s 50,000 25,000 25,000 25,000 The PSUs will vest ratably on an annual basis over three (3) years, if at all, on January 31, 2019, January 31, 2020 and January 31, 2021 (each a “Vesting Date”), respectively, based on SeaChange’s achievement of target U.S. GAAP revenue and non-GAAP operating income goals that are set for each of the annual vesting periods. • • RSUs. An award of RSUs for the number of shares of SeaChange’s common stock set forth opposite the applicable executive’s name below, to be vested ratably on an annual basis over the three years following January 31, 2018: Executive Edward Terino Jonathan Rider Peter Faubert David McEvoy RSUs Awarde d 50,000 25,000 25,000 25,000 Stock Options. An award of options to purchase the number of shares of SeaChange’s common stock set forth opposite the applicable executive’s name below at an exercise price equal SeaChange’s closing stock price on January 31, 2018, to be vested ratably on an annual basis over the three years following January 31, 2018: Executive Edward Terino Jonathan Rider Peter Faubert David McEvoy Options Awarde d 200,000 100,000 100,000 100,000 Additional Fiscal 2018 LTI Terms If a Change in Control of the Company occurs prior to prospective Vesting Date(s) of the fiscal 2018 LTI stock option, RSU and PSU awards, then fifty percent (50%) of the stock option, RSU and target PSU awards to vest in those prospective periods shall vest immediately prior to such Change in Control, subject to the executive being an employee of that Company as of such date. Clawback Policy; Stock Ownership Guidelines; Hedging and Pledging Restrictions Compensation paid to our named executive officers is subject to a policy regarding compensation reimbursement, or a “clawback” policy, as described in our Code of Ethics and Business Conduct, a copy of which is available on our website of www.schange.com under the “Corporate Governance” section of the “Investor Relations” link. The policy provides that in the event that our financial results are significantly restated, the Board of 23 Directors will review any compensation, other than base salary, paid or awarded to any executive officer found to be personally responsible for the fraud or intentional misconduct that caused the need for the restatement. The Board will, to the extent permitted by law, require the executive officer to repay any such compensation if: • • • the amount of such compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of the restatement; the executive officer engaged in fraud or intentional misconduct that caused the need for the restatement; and such compensation would have been lower than the amount actually awarded had the financial results been properly reported. Compensation paid to our named executive officers in the form of equity is also subject to our stock retention and ownership guidelines that apply to our directors and senior officers, as described in our Corporate Governance Guidelines, a copy of which is available on our website at www.schange.com under the “Corporate Governance” section of the “Investor Relations” link. These guidelines provide that by the later of six (6) years following appointment to office or four (4) years following election to the board, as applicable: • • • • each non-employee director is expected to retain ownership of vested shares of SeaChange stock in a minimum amount equal to lesser of 40,000 shares or $250,000 worth of shares; the Chief Executive Officer is expected to retain ownership of vested shares of SeaChange stock in a minimum amount equal to 250,000 shares; the Chief Financial Officer is expected to retain ownership of vested shares of SeaChange stock in a minimum amount equal to 75,000 shares; and each Senior Vice President that is an executive officer is expected to retain ownership of vested shares of SeaChange stock in a minimum amount equal to 50,000 shares. Prior to meeting the stock ownership targets, each non-employee director and senior executive officer is encouraged, but is not required, to retain a meaningful portion of all shares of stock acquired by the non-employee director or officer (whether through equity awards by SeaChange, purchases on the open market or otherwise) in order to progress toward the stock ownership targets, other than shares of stock sold to pay taxes and/or applicable exercise price with respect to an equity award. Upon meeting the stock ownership targets, each non-employee director and senior executive officer is required thereafter to retain not less than twenty-five percent (25%) of all shares of stock acquired by the non-employee director or officer (whether through equity awards by SeaChange, purchases on the open market or otherwise), other than shares of stock sold to pay taxes and/or the applicable exercise price with respect to an equity award. In addition, upon any termination of service for a non-employee director and upon voluntary termination of service for a senior executive officer, such director or officer must wait at least ninety (90) days before selling any shares. In the case of hardship or other compelling personal requirements, the stock ownership targets may be waived to permit the sale of shares by the affected person. In addition, our Insider Trading and Tipping Policy prohibits our insiders, which includes our employees and directors, from engaging in hedging transactions and requires the prior written consent of our compliance officer to pledge securities of SeaChange owned by the insider. We have not received any requests pursuant to our Insider Trading and Tipping Policy to permit pledges of SeaChange stock. We have made, and from time to time continue to make, grants of stock options and RSUs to eligible employees based upon our overall financial performance and their individual contributions. Stock options and RSUs are designed to align the interests of our executives and other employees with those of our stockholders by encouraging them to enhance the value of SeaChange. In addition, the vesting of stock options and RSUs over a period of time is designed to defer the receipt of compensation by the recipient, creating an incentive for the individual to remain an employee. We do not have a program, plan or practice to select equity grant dates in connection with the release of favorable or negative news. 24 Change in Control and Termination Benefits Each named executive officer is party to a Change in Control Severance Agreement with SeaChange (the “Change in Control Agreements”). The Change in Control Agreements provide for benefits upon termination of employment following a change in control or sale of SeaChange (commonly referred to as “double trigger”) and do not contain any tax gross-up provisions. SeaChange entered into these agreements to reflect current best pay practices, while continuing to provide an incentive for each executive to remain with SeaChange leading up to and following a Change in Control. Under the Change in Control Agreements, if an executive’s equity award, other than a performance-based equity award (such as PSUs or market-based stock options), is continued, assumed or substituted following a Change in Control and the executive’s employment is terminated within two years after the Change in Control by the employer without cause or by the executive for good reason (a “Covered Termination”), then such equity award would be accelerated in full. Performance-based equity awards would continue to be governed by their existing terms. In addition, if a Covered Termination occurs, the executive would be entitled to receive a cash amount as severance equal to the sum of (a) one times his base salary, plus (b) 150% of the executive’s target annual bonus for the fiscal year in which the Covered Termination occurs, plus (c) $62,000, being an amount corresponding to medical and other benefits during the post-employment period. The specific terms of these arrangements, as well as an estimate of the compensation that would have been payable had they been triggered as of fiscal 2018 year-end, are described in detail on page 31 under the heading entitled “Potential Payments Upon Termination or Change in Control.” General Employee Welfare Benefits We also have various broad-based employee benefit plans. Executive officers participate in these plans on the same terms as eligible, non-executive employees, subject to any legal limits on the amounts that may be contributed or paid to executive officers under these plans. We offer a 401(k) retirement plan, which permits employees to invest in a choice of mutual funds on a pre-tax basis. We also maintain medical, disability and life insurance plans and other benefit plans for our employees. Fiscal 2019 Executive Compensation Components The principal components of fiscal 2019 executive compensation are as follows, the same as existed for fiscal 2018 executive compensation: • • • • • • base salary; short-term performance-based incentive compensation; long-term incentive equity awards; discretionary equity awards; change in control and termination benefits; and general employee welfare benefits. Within this framework, the Committee established the specific compensation programs for our named executive officers. In setting executive compensation for fiscal 2019, the Committee reviewed the updated list of peer companies recommended by Cook in fiscal 2018 and determined not to make any changes. The Committee determined that this list of peer companies provided appropriate referenceable data points, based on our revenues, market capitalization, and industry focus relative to each of these companies. The Committee made reference to the compensation paid by these peer companies in establishing fiscal 2019 executive compensation but did not benchmark compensation to these companies. 25 Effective June 1, 2018, Mr. Terino’s base salary was increased from $450,000 to $465,000; Mr. Rider’s base salary was increased from $325,000 to $335,000; Mr. Faubert’s base salary was increased from $300,000 to $310,000 and Mr. McEvoy’s base salary was increased from $296,000 to $305,000. Similar to fiscal 2018, in fiscal 2019 no equity awards will be made to the named executive officers under the fiscal 2019 Short-Term Incentive bonus plan (“fiscal 2019 STI”). Instead, any incentive equity awards to the named executive officers during fiscal 2019 are intended to be made under the fiscal 2019 Long-Term Incentive compensation plan (“fiscal 2019 LTI”) subject to vesting based in part on the extent to which employment continues for three (3) years. Under the fiscal 2019 STI, Mr. Terino will be eligible for a target cash bonus of 90% of his base salary; Mr. Rider will be eligible for a target cash bonus of 80% of his base salary; Mr. Faubert will be eligible for a target cash bonus of 60% of his base salary; and Mr. McEvoy will be eligible for a target cash bonus of 50% of his base salary. This fiscal 2019 STI is earned based on the Company’s achievement of overall company financial objectives for fiscal 2019 related to total revenue and non-GAAP operating income and based on individualized performance- based objectives. These objectives will be further discussed in our proxy statement relating to our 2019 Annual Meeting of stockholders. In fiscal 2019, the named executive officers will be eligible to receive awards under the fiscal 2019 LTI with amounts to be determined. Tax and Accounting Implications The financial reporting and income tax consequences to SeaChange of individual compensation elements are important considerations for the Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Overall, the Committee seeks to balance its objective of ensuring an effective compensation package for named executive officers with the need to maximize the immediate deductibility of compensation — while ensuring an appropriate and transparent impact on reported net income and other closely followed financial measures. Section 162(m) of the Internal Revenue Code (the “Code”) limits the amount that SeaChange may deduct from the Company’s federal income taxes for compensation paid to our named executive officer to $1 million per executive per year. Prior law provided exemptions to this deduction for compensation limit for compensation paid to our Chief Financial Officer and for certain “performance-based compensation.” Effective for our new tax years beginning after January 31, 2018, the law has changed such that the deduction limit will be extended to our Chief Financial Officer and the exemption for performance-based compensation will be eliminated. As a result, compensation paid to our named executive officers in excess of the above limit will not be deductible unless the compensation qualifies for transition relief applicable to certain arrangements in effect on November 2, 2017. Because of the lack of guidance on transition relief, we cannot provide any assurance that any compensation arrangements intended to qualify for transition relief will actually receive such treatment. While our Compensation Committee considers the tax deductibility when making compensation decisions, the Committee believes that it should retain flexibility to exceed the limits of Section 162(m) when in furtherance of our corporate objectives and in the best interests of the Company and its shareholders. Summary Compensation Table The following table sets forth summary information regarding the compensation of SeaChange’s named executive officers in fiscal 2018, 2017, and 2016. As described above in Compensation Discussion and Analysis, final determinations regarding awards of fiscal 2018 STI compensation are made after fiscal year-end, when performance against the previously established metrics may be assessed by the Committee. With respect to equity awards under SeaChange’s performance-based LTI compensation plans, the grant date for purposes of ASC 718 is the service inception date, or the beginning of the period during which performance is measured. In accordance with ASC 718, the amounts reflected below under the headings “Stock Awards” for a given fiscal year, represent the probable outcome as of the service inception date of 26 the performance conditions under the fiscal 2018 Long-Term Incentive compensation plan (“fiscal 2018 LTI”), which in each case is the award amount at the targets approved by the Compensation Committee. In the table below performance-based compensation paid in cash after fiscal year-end but earned in the prior fiscal year is reflected under the heading “Non-Equity Incentive Plan Compensation” or “Bonus,” as applicable, in the fiscal year in which that compensation was earned, regardless of when paid. Salary ($) Fiscal Year 2018 447,115 2017 438,705 Bonus ($) Stock Awards (1) ($) — 250,191 (6) — 350,399 Option Awards (2) ($) 285,180 (7) 1,655,865 Non-Equity Incentive Plan Compensation (3 ) ($) 341,982 70,200 All Other Compensation (4 ) ($) Total ($) — 1,324,468 — 2,515,169 2016 253,952 — 1,038,600 814,680 147,443 35,888 2,290,563 2018 319,375 2017 188,308 25,000 — 125,094 (6) 243,589 142,590 (7) 687,578 205,504 58,032 792,563 — — 1,202,507 2018 298,077 2017 171,731 — 125,094 (6) — 153,872 142,590 (7) 432,775 145,080 18,726 2018 292,353 2017 287,500 52,796 — 125,094 (6) 60,659 142,590 (7) 40,518 122,011 27,796 — — — — 710,841 777,104 682,048 469,269 Name Edward Terino (5) Chief Executive EE Officer, Director, and former Chief Operating Officer & Executive Vice President Jonathan Rider (8) Chief Operating Officer & Senior Vice President Peter Faubert (9) Chief Financial Officer, Senior Vice President & Treasurer David McEvoy General Counsel, Senior Vice President & Secretary 2016 270,413 — 608,980 82,500 62,906 — 1,024,799 (1) This expense represents the grant date fair value of the applicable target RSU and PSU awards as computed in accordance with ASC 718 disregarding any estimates of forfeitures relating to service-based vesting conditions. Performance-based RSUs and PSUs are valued at the grant date based upon the probable outcome of the performance metrics. Therefore, the amounts under the “Stock Awards” column do not reflect the amount of compensation actually received by the named executive officer during the fiscal year. (2) This expense represents the grant date fair value of the applicable option awards, as computed in accordance with ASC 718 disregarding any estimates of forfeitures relating to service-based vesting conditions. (3) The Non-Equity Incentive Plan Compensation column reflects for fiscal 2016, 2017 and 2018 cash awards under performance-based compensation plans from the satisfaction of pre-established performance criteria and prior to any exercise of discretion permitted to be exercised pursuant to the applicable performance-based compensation plan. Mr. Faubert’s cash bonus under the fiscal 2017 Short-Term Incentive bonus plan (“fiscal 2017 STI”) was pro-rated based on his days of employment with the Company in fiscal 2017. (4) The All Other Compensation column includes Company contributions to a named executive officer’s 401(k) Plan account, perquisites and other personal benefits received by a named executive officer to the extent such benefits exceeded $10,000 in the aggregate relating to the fiscal year. (5) Mr. Terino was appointed Chief Executive Officer on April 6, 2016, as previously reported on a Form 8-K filed with the SEC on April 7, 2016, and serves as a director of the Company. Prior to his appointment as Chief Executive Officer, Mr. Terino was appointed Chief Operating Officer and Executive Vice President on June 3, 2015, as previously reported on a Form 8-K filed with the SEC on June 4, 2015. Compensation reported for Mr. Terino in this table includes the 27 compensation paid to him for his service prior to June 3, 2015 as a non-employee director of the Company. Mr. Terino’s fiscal 2017 salary reflects a partial year as Chief Operating Officer and a partial year as Chief Executive Officer. Mr. Terino’s fiscal 2016 salary reflects a partial year of service to the Company in his capacity as Chief Operating Officer. (6) Stock Awards in this table for fiscal 2018 consist of: For Mr. Terino, fiscal 2018 LTI award of RSUs valued at $166,500 and PSUs valued at target at $83,691; for Mr. Rider, fiscal 2018 LTI award of RSUs valued at $83,250 and PSUs valued at target at $41,844; for Mr. Faubert, his fiscal 2018 LTI award of RSUs valued at $83,250 and PSUs valued at target at $41,844; and for Mr. McEvoy, his fiscal 2018 LTI award of RSUs valued at $83,250 and PSUs valued at target at $41,844. (7) Option Awards in this table for fiscal 2018 consist of: for Mr. Terino, a fiscal 2018 LTI award of stock options valued at $285,180; for Mr. Rider, a fiscal 2018 LTI award of stock options valued at $142,590; for Mr. Faubert, a fiscal 2018 LTI award of stock options valued at $142,590; and for Mr. McEvoy a fiscal 2018 LTI award of stock options valued at $142,590. (8) Mr. Rider was appointed Chief Operating Officer and Senior Vice President on January 31, 2017, as previously reported on Form 8-K filed with the SEC on February 3, 2017. Mr. Rider’s fiscal 2017 salary reflects his salary as Chief Information Officer, his position with the Company until the last day of fiscal 2017. (9) Mr. Faubert was appointed Chief Financial Officer, Senior Vice President and Treasurer on July 6, 2016, as previously reported on Form 8-K filed with the SEC on July 7, 2016. Mr. Faubert’s fiscal 2017 salary reflects a partial year of service to the Company. Grants of Plan-Based Awards The following table sets forth information concerning plan-based awards to the named executive officers during the fiscal year ended January 31, 2018. y Estimated Future Payouts under Non-Equity Incentive Plan Awards Maximu m ($) 486,000 — Target ($) 405,000 — Threshold ($) Grant Date 4/25/2017 (3) 210,600 — 1/31/2018 Jonathan Rider Peter Faubert David McEvoy 4/25/2017 (3) 101,400 — 1/31/2018 4/25/2017 (3) 1/31/2018 4/25/2017 (3) 1/31/2018 93,600 — 94,720 — 195,000 — 180,000 — 148,000 — 234,000 — 216,000 — 170,200 — All Other Stock Awards: Number of Shares of Stock or Units (2 ) (#) All Other Option Awards: Number of Securities Underlying Options (2) (#) Grant Date Fair Value of Stock and Option Awards ($) Exercise or Base Price of Option Awards ($/Sh) Estimated Future Payouts under Equity Incentive Plan Awards (1) y Threshold (#) Target (#) Maximum (#) — — — 50,000 — — — 25,000 — — — 25,000 — — — 25,000 — 50,000 — 25,000 — 25,000 — 25,000 — 50,000 — 25,000 — 25,000 — 25,000 — 200,000 — 100,000 — 100,000 — 100,000 — — 3.33 535,371 — — 3.33 267,684 — — 3.33 267,684 — — 3.33 267,684 (1) The grants under the “Estimated Future Payouts under Equity Incentive Plan Awards” column represent the threshold, target and maximum number of RSUs awarded under the LTIs, subject to performance-based criteria other than time-based vesting. (2) The grants under the “All Other Stock Awards: Number of Shares of Stock or Units” column and under the “All Other Option Awards: Number of Securities Underlying Options” column represent the number of RSUs and options, respectively, awarded under the LTIs subject to time-based vesting. (3) These awards were made pursuant to the fiscal 2018 STI adopted on April 25, 2017. 28 Outstanding Equity Awards at Fiscal Year-End The following table sets forth summary information regarding the outstanding equity awards at January 31, 2018 granted to each of SeaChange’s named executive officers: Options Awards (1) Stock Awards (2) Name Edward Terino Jonathan Rider Peter Faubert David McEvoy Number of Securities Underlying Unexercised Options (#) Exercisable — 32,300 — 32,237 — 18,750 14,046 25,000 10,868 — 25,000 14,157 — 5,000 17,978 5,581 — Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Market Value of Shares or Units of Stock That Have Not Vested ($) — 7.25 6/3/2025 303,049 1,009,153 Number of Shares or Units of Stock That Have Not Vested (#) Option Exercise Price ($) Option Expiration Date Number of Securities Underlying Unexercised Options (#) Unexercisable 200,000 600,000 — 16,156 — 64,473 — 200,000 6.05 1/26/2026 — 5.56 4/6/2026 2.42 1/31/2027 3.33 1/31/2028 — 3.83 4/19/2026 114,378 380,879 56,250 — 75,000 7,022 3.77 5/2/2026 — 2.42 1/31/2027 2.42 1/31/2027 3.33 1/31/2028 — 21,736 — 100,000 75,000 — 3.30 7/6/2026 103,568 344,881 — 28,312 — 100,000 2.42 1/31/2027 3.33 1/31/2028 — 8.15 7/2/2022 117,545 391,425 — — 8,989 — 11,162 — 100,000 6.05 1/26/2026 2.42 1/31/2027 3.33 1/31/2028 (1) All options in the table above were granted under the Company’s Second Amended and Restated 2011 Compensation and Incentive Plan. Mr. Terino’s 200,000 options granted on June 3, 2015 vest in approximately equal tranches based on our stock reaching $10.00, $12.00 and $14.00 for twenty consecutive trading dates, and his 600,000 options granted on April 6, 2016 vest in approximately equal tranches based on our stock reaching $7.00, $9.00 and $11.00 for twenty consecutive trading dates. The LTI award stock options listed in the column, “Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options” will vest annually in equal tranches over three years from the grant date. 29 (2) These columns show the number of shares of Common Stock represented by unvested RSUs and PSUs at January 31, 2018. Each of these RSUs and PSUs was granted as part of an award. The remaining vesting dates for these unvested RSUs and PSUs as of January 31, 2018 were as follows: Name Edward Terino Jonathan Rider Peter Faubert David McEvoy Number of Restricted Stock Units That Have Not Vested 27,586 45,839 7,640 30,496 91,488 50,000 50,000 3,323 19,930 10,282 30,843 25,000 25,000 13,393 40,175 25,000 25,000 4,251 25,510 16,666 5,280 15,838 25,000 25,000 Date of Grant 6/3/2015 1/26/2016 1/26/2016 1/31/2017 1/31/2017 1/31/2018 1/31/2018 5/2/2016 5/2/2016 1/31/2017 1/31/2017 1/31/2018 1/31/2018 1/31/2017 1/31/2017 1/31/2018 1/31/2018 1/26/2016 1/26/2016 1/28/2016 1/31/2017 1/31/2017 1/31/2018 1/31/2018 Vesting Dates 6/3/2018, 6/3/2019 1/31/2019 1/31/2019 1/31/2019, 1/31/2020 1/31/2020 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019 1/31/2019 1/31/2019, 1/31/2020 1/31/2020 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019, 1/31/2020 1/31/2020 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019 1/31/2019 1/28/2019 1/31/2019, 1/31/2020 1/31/2020 1/31/2019, 1/31/2020, 1/31/2021 1/31/2019, 1/31/2020, 1/31/2021 Option Exercises and Stock Vested The following table summarizes the option exercises and vesting of stock awards for each of SeaChange’s named executive officers for fiscal 2018: Name Edward Terino Jonathan Rider Peter Faubert David McEvoy Option Awards Stock Awards Number of Shares Acquired on Exercis e (#) Value Realized on Exercise ($) Number of Shares Acquired on Vestin g (#) — — — — — — — — 36,681 8,461 6,695 23,558 Value Realized on Vesting (1) ($) 109,044 28,175 22,294 78,948 (1) The value realized upon vesting of the RSUs shown in the table above was calculated as the product of the closing price of a share of our common stock on the vesting date multiplied by the number of shares vested. 30 Pension Benefits Prior to November 30, 2017, we had a statutory pension benefit obligation covering current SeaChange employees in the Philippines. On November 30, 2017, as part of the Restructuring Plan, we decided to close our facility in the Philippines. Therefore, a complete reduction in workforce of the remaining employees working at the facility occurred in the fourth quarter of fiscal 2018. As a result, there was no pension benefit obligation balance as of January 31, 2018 as no pay-outs to terminated employees were required under the Restructuring Plan or by Philippine law. Nonqualified Deferred Compensation SeaChange does not offer nonqualified defined contribution or other nonqualified deferred compensation plans to its employees. Potential Payments Upon Termination or Change in Control Each named executive officer is party to a Change in Control Severance Agreement with SeaChange (the “Change in Control Agreements”). The Change in Control Agreements provide for benefits upon termination of employment following a change in control or sale of SeaChange (commonly referred to as “double trigger”) and do not contain any tax gross-up provisions. SeaChange entered into these agreements to reflect current best pay practices, while continuing to provide an incentive for each executive to remain with SeaChange leading up to and following a Change in Control. Under the Change in Control Agreements, a “change in control” means any of the following: (i) the members of the Board at the beginning of any consecutive 12-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 12-calendar-month period, shall be deemed to be an Incumbent Director; (ii) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, shares of Stock representing in the aggregate fifty percent (50%) or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any); (iii) there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportion as their ownership of the Company immediately prior to such sale or (B) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or (iv) any corporation or other legal person, pursuant to a tender offer, exchange offer, purchase of stock (whether in a market transaction or otherwise) or other transaction or event acquires securities representing forty percent (40%) or more of the combined voting power of the voting securities of the Company, or there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the U.S. Securities Exchange Act, disclosing that any “person” (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act) has become the “beneficial owner” (as such term is used in Rule 13d-3 under the Securities Exchange Act) of securities representing forty percent (40%) or more of the combined voting power of the voting securities of the Company. Under the Change in Control Agreements, if an executive’s equity award, other than a performance-based equity award (such as PSUs or market-based stock options), is continued, assumed or substituted following a change in control and the executive’s employment is terminated within two years after the change in control by the 31 employer without cause or by the executive for good reason (a “Covered Termination”), then such equity award would be accelerated in full. PSUs would continue to be governed by their existing terms. In addition, if a Covered Termination occurs, the executive would be entitled to receive a cash amount as severance equal to the sum of (a) one times his base salary, plus (b) 150% of the executive’s target annual bonus for the fiscal year in which the Covered Termination occurs, plus (c) $62,000, being an amount corresponding to medical and other benefits during the post-employment period. As a condition to the receipt by the executive officer of any payment or benefit under the Change in Control Agreements, the executive officer must first execute a valid, binding and irrevocable general release in favor of SeaChange and in a form reasonably acceptable to SeaChange. The following table shows, for the named executive officers with SeaChange as of the close of business on January 31, 2018, the payments to which Messrs. Terino, Rider, Faubert and McEvoy would have been entitled pursuant to their Change in Control Agreement in the event of a Covered Termination after with a change in control occurring on such date. Potential Payments Upon Termination or Change in Control Name Edward Terino (Covered Termination) Jonathan Rider (Covered Termination) Peter Faubert (Covered Termination) David McEvoy (Covered Termination) Non-Equity Incentive Plan Compensation (2 ) Equity Incentive Plan Compensation (2 ) ($) 607,500 ($) Salary (1) ($) 450,000 325,000 292,500 300,000 270,000 296,000 222,000 Benefits ($) 62,000 Equity Awards (3 ) ($) 980,002 62,000 425,595 62,000 329,932 62,000 358,582 — — — — (1) The amounts reflect one times annual base salary. (2) The amounts shown in the Non-Equity Incentive Plan Compensation and Equity Incentive Plan Compensation columns reflect payment of 150% of the executive’s target amount under the fiscal 2018 STI 2018 in connection with a Covered Termination. (3) The Covered Termination amounts reflect the value of all unvested stock options, RSUs and PSUs that would vest as a result of the termination. The amounts are based on (i) in the case of accelerated options, the excess of the SeaChange January 31, 2018 closing common stock price over the applicable exercise price, (ii) in the case of accelerated RSUs, the SeaChange closing common stock price as of January 31, 2018 multiplied by the number of unvested RSUs as of January 31, 2018, (iii) in the case of accelerated 2016 and 2017 PSUs, the share payout in the table assumes that the Covered Termination occurs during the PSU Performance Period and the SeaChange Relative TSR Percentile Rank is at the 50th percentile at the time of the Covered Termination, and (iv) in the case of accelerated 2018 PSUs, fifty percent (50%) of the target award for prospective periods. Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement. 32 THE COMPENSATION COMMITTEE Mark Bonney, Chairman Mary Palermo Cotton Andrew Sriubas Compensation Committee Interlocks and Insider Participation The Compensation Committee consists of Mr. Bonney (Chairman), Ms. Cotton and Mr. Sriubas. No person who served as a member of the Compensation Committee was, during the past fiscal year, an officer or employee of SeaChange or any of its subsidiaries, was formerly an officer of SeaChange or any of its subsidiaries, or had any relationship requiring disclosure herein. No executive officer of SeaChange served as a member of the compensation committee of another entity (or other committee of the Board of Directors performing equivalent functions or, in the absence of any such committee, the entire Board of Directors), one of whose executive officers served as a director of SeaChange. CEO Pay Ratio As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our CEO, Mr. Terino. The CEO pay ratio is a reasonable estimate calculated in a manner consistent with these requirements. For our fiscal year 2018 our median employee annual total compensation was $91,806. Our CEO’s annual total compensation was $1,324,468. Accordingly, the ratio of the CEO’s annual total compensation to the median employee’s annual total compensation was 14.4 to 1. To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we used the following methodology, material assumptions, adjustments and estimates: - We determined that, as of December 31, 2017 (the chosen date for identifying our median employee), our employee population consisted of 281 employees worldwide. - We used a consistently applied compensation measure to identify our median employee by comparing the total cash compensation (base salary, wages, commissions and cash bonuses) actually paid in 2017 as reflected in our payroll records. To make them comparable, base salaries for newly hired employees who had worked less than a year were annualized. - We used all of our worldwide employees, excluding Mr. Terino, in our analysis, and used the currency exchange rate in effect on December 31, 2017 to convert all currencies to U.S. dollars for the comparison. We did not make any cost of living adjustments in identifying the median employee. - After we identified our median employee, we combined all of the elements of such employee’s compensation for the Company’s fiscal year ending January 31, 2018 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $91,806. - With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our fiscal 2018 Summary Compensation Table included in this Proxy Statement and incorporated by reference under Part III, Item 11 of our Annual Report. 33 PROPOSAL NO. II ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS The Company is providing stockholders with the opportunity at the 2018 Annual Meeting to vote on the following advisory resolution, commonly known as “Say-on-Pay”: RESOLVED, the compensation of the Company’s named executive officers as disclosed in the Company’s proxy statement under the heading “Compensation Discussion and Analysis.” in a non-binding, advisory vote, the Company approve, the stockholders of that The Board has implemented an executive compensation program that rewards performance and is designed to attract, retain and motivate the key individuals who are most capable of contributing to SeaChange’s success and building long-term value for its stockholders. This compensation program makes a substantial portion of executive pay variable, subject to increase when performance targets are achieved, and subject to reduction when performance targets are not achieved. SeaChange believes that its annual compensation plans effectively reward its executive officers for superior performance, while appropriately adjusting compensation downward for less-than-superior performance. The Compensation Committee retains discretion as to final payouts under the incentive compensation plans to ensure the goals of the overall program are met. SeaChange believes that the compensation program is centered on a pay-for-performance philosophy and is strongly aligned with the long-term interests of stockholders. the variability in these payouts indicates that In recent years, payouts under our executive compensation incentive plan have largely been limited to payouts made for the achievement of individual performance objectives rather than the portion of payouts allocable to the achievement of pre-established financial objectives of the Company, as these objectives have not been met. For example, in fiscal 2017, payouts under our fiscal 2017 performance-based compensation plan were only made for the achievement of certain individual performance objectives, and no payouts were made with respect to satisfying the pre-established financial objectives. However, in fiscal 2018 payouts under our fiscal 2018 performance-based compensation plan were made for the achievement of both the pre-determined Company financial objectives and individual performance objectives. We believe that the variability in these payouts indicates that our annual compensation plans effectively reward our executive officers for superior performance, while appropriately adjusting compensation downward for less-than-superior performance. We pay careful attention to any feedback we receive from our stockholders about our executive compensation, including the annual “Say-on-Pay” vote. While we had already approved our fiscal 2018 compensation plan by the time we held our “Say-on-Pay” vote in July 2017, we considered the stockholder advisory vote in the implementation of our fiscal 2018 compensation plan and in formulating our fiscal 2019 compensation plan. This consideration included reaching out to certain large stockholders to discuss and seek input on our compensation plans. The Board urges stockholders to read the Compensation Discussion and Analysis beginning on page 17 of this proxy statement, which describes in more detail how the Company’s executive compensation policies and procedures operate and are designed to achieve our compensation objectives, and which includes the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 26 through 32 of this proxy statement, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the Board believe that the policies and procedures articulated in the Compensation Discussion and Analysis are effective and that the compensation of our named executive officers reported in this proxy statement reflects and supports these compensation policies and procedures. While the vote is advisory, the Board and the Compensation Committee will consider the outcome of the vote when considering future executive compensation arrangements. It is currently expected that stockholders will be given an opportunity to cast an advisory vote on this topic annually, with the next opportunity occurring in connection with the Company’s Annual Meeting in 2019. The Board of Directors unanimously recommends a vote “FOR” the approval of the Company’s executive compensation. 34 PROPOSAL NO. III RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Grant Thornton LLP currently serves as SeaChange’s independent registered public accounting firm. The Board of Directors is seeking ratification of the Audit Committee’s selection of Grant Thornton LLP to continue to serve as the registered public accounting firm for the fiscal year ending January 31, 2019. Independent Registered Public Accounting Firm for Fiscal 2019 The Audit Committee of the Board of Directors has selected the firm of Grant Thornton LLP, independent accountants, to serve as the registered public accounting firm for the fiscal year ending January 31, 2019. A representative of Grant Thornton LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and is expected to be available to respond to appropriate questions. The Board of Directors has put the ratification of the selection of Grant Thornton LLP before the stockholders because the Board believes that seeking stockholder ratification of the selection of the independent registered public accounting firm is good corporate practice. If the appointment of Grant Thornton LLP is not ratified, the Audit Committee will first review the basis for the stockholder vote and SeaChange’s relationship with Grant Thornton LLP and will then take such action as it deems necessary. The Board of Directors unanimously recommends a vote “FOR” ratification of the appointment of SeaChange’s independent registered public accounting firm. Principal Accountant Fees and Services Fees for Services Provided by Grant Thornton LLP The following table sets forth the aggregate fees for services provided by Grant Thornton LLP, SeaChange’s independent registered public accounting firm for the fiscal years ended January 31, 2018 and 2017. Audit Fees Audit-Related Fees Tax Fees All Other Fees Total: 2018 2017 $ 1,230,448 $ 1,227,967 — — — $ 1,230,448 $ 1,227,967 — — — Audit Fees. These are aggregate fees billed for professional services rendered by Grant Thornton LLP for the fiscal year ended January 31, 2018, and for the fiscal year ended January 31, 2017 for (a) the annual audit of SeaChange’s financial statements for each such fiscal year including statutory audits of foreign subsidiaries and the accompanying attestation report regarding SeaChange’s internal control over financial reporting contained in SeaChange’s Annual Reports on Form 10-K, (b) reviews of the quarterly financial information included in SeaChange’s Quarterly Reports on Form 10-Q for each such fiscal year and (c) reviews of SEC filings. The Audit Committee of the Board of Directors has determined that the provision of the services as set out above is compatible with maintaining Grant Thornton LLP’s independence. Audit Committee Pre-Approval Policy The Audit Committee’s policy is to pre-approve all audit, audit-related, tax and other non-audit services that may be provided by Grant Thornton LLP, the independent registered public accounting firm. The policy identifies the principles that must be considered by the Audit Committee in approving these services to ensure that Grant Thornton LLP’s independence is not impaired; describes the audit and audit-related, tax and other services that may be provided; and sets forth pre-approval requirements for all permitted services. To date, Audit Committee pre- approval has been sought for the provision of all services by Grant Thornton LLP. 35 OTHER MATTERS Expenses and Solicitation All costs of solicitation of proxies will be borne by SeaChange. In addition to solicitations by mail, certain of SeaChange’s directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone, facsimile, e-mail and personal interviews. The Company has engaged The Proxy Advisory Group, LLC, to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $15,000 in total. Brokers, custodians and fiduciaries will be requested to forward the Notice and proxy soliciting material to the owners of stock held in their names, and SeaChange will reimburse them for their reasonable out-of-pocket costs. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act, requires SeaChange’s directors, executive officers and holders of more than 10% of SeaChange’s common stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership of common stock of SeaChange. Such persons are required by regulations of the SEC to furnish SeaChange with copies of all such filings. Based on its review of the copies of such filings received by it with respect to the fiscal year ended January 31, 2018, and written representations from certain Reporting Persons, SeaChange believes that all Reporting Persons complied with all Section 16(a) filing requirements in the fiscal year ended January 31, 2018. Certain Relationships and Related Transactions SeaChange has adopted a written policy pursuant to the Second Amended and Restated Charter of the Audit Committee and the Charter of the Corporate Governance and Nominating Committee that all transactions between SeaChange and its officers, directors, principal stockholders and affiliates will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested outside directors on the Board of Directors, and will be on terms no less favorable to SeaChange than could be obtained from unaffiliated third parties. 36 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2018 or (cid:4)(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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, $0.01 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 (cid:4) No ⌧ 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 (cid:4) No ⌧ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No (cid:4) 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 ⌧ No (cid:4) 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. ⌧ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer (cid:4) (cid:4) Accelerated filer Smaller reporting company Emerging growth company ⌧ (cid:4) (cid:4) If an emerging growth company, indicate by a check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No ⌧ As of July 31, 2017, 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 $98,541,508. The number of shares of the registrant’s Common Stock outstanding as of the close of business on April 12, 2018 was 35,614,396. 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. DOCUMENTS INCORPORATED BY REFERENCE: 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 Financial Condition and Results of Operations,” along with statements contained in other reports that we have filed with the Securities and Exchange Commission (“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 (including taxes), 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, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. ” of this Form 10-K. These and other risks and uncertainties may cause our actual results, “ 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. BUSINESS......................................................................................................................................................................... . RISK FACTORS ............................................................................................................................................................... UNRESOLVED STAFF COMMENTS ............................................................................................................................ . PROPERTIES .................................................................................................................................................................... . LEGAL PROCEEDINGS.................................................................................................................................................. . MINE SAFETY DISCLOSURES ..................................................................................................................................... . PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................................................................................................................. . SELECTED FINANCIAL DATA..................................................................................................................................... . Item 6. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF Item 7A. Item 8. Item 9. Item 9A. Item 9B. OPERATIONS . .............................................................................................................................................................. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................................................................................. . CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL AA . DISCLOSURE .............................................................................................................................................................. CONTROLS AND PROCEDURES.................................................................................................................................. . OTHER INFORMATION ................................................................................................................................................. . PART III Item 10. Item 11. Item 12. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .......................................................... . EXECUTIVE COMPENSATION..................................................................................................................................... . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED Item 13. Item 14. STOCKHOLDER MATTERS ...................................................................................................................................... . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE............... . PRINCIPAL ACCOUNTING FEES AND SERVICES ................................................................................................... . PART IV Page 4 10 24 24 24 25 26 28 29 53 54 94 95 96 97 97 97 97 97 Item 15. Item 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES................................................................................................. 98 . FORM 10-K SUMMARY ................................................................................................................................................. 101 SIGNATURES................................................................................................................................................................... 102 . 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, advertising and premium over the top (“OTT”) video management solutions 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 companies, satellite operators 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. and Rogers Communications, Inc.; telecommunications companies, such as Verizon Communications, Inc., AT&T, Inc. and Frontier Communications Corporation; satellite operators such as Direct TV and Dish Network Corporation; and media companies such as Filmbank Media. Our products and services are designed to empower video providers to create, manage and monetize the increasingly personalized, highly engaging experiences that viewers demand. Using our products and services, we believe customers can increase revenues by offering services such as video-on-demand (“VOD”) programming on a variety of consumer devices, including televisions (“TVs”), mobile telephones (“smart phones”), personal computers (“PCs”), tablets and OTT streaming players. Our solutions enable 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 viewing habits are shifting. The primary driver of our business is enabling the delivery of video assets in the changing multiscreen television environment. Through strategic collaborations, 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 also position us to further support and maintain our existing service provider customer base. Providing our customers with more scalable software platforms enables them to further reduce their infrastructure costs, improve reliability and expand service offerings to their customers. Additionally, we believe we are well positioned to capitalize on new customers entering the multiscreen marketplace and increasingly serving 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 activity across multiple devices. On May 5, 2016, we acquired a 100% share of DCC Labs in exchange for an aggregate of $2.7 million in newly issued shares of SeaChange common stock and $5.2 million in cash, net of cash acquired, resulting in a total net purchase price of $7.9 million. DCC Labs is a developer of set-top and multiscreen device software. The acquisition of DCC Labs in fiscal 2017 enabled us to optimize the operations of our In-Home business, which developed home video gateway software including SeaChange’s Nucleus and NitroX products. In addition, the acquisition brought market-ready products, including an optimized television software stack for Europe’s Digital Video Broadcasting community, and an HTML5 framework for building additional user experience client applications across a variety of CPE devices, including Android TV STBs, tablets, mobile and computer devices. During fiscal 2018, the In-Home business became the center of engineering and expanded to include product development for backoffice, advertising and legacy products. The Poland operation became the prime engineering location and as of the end of fiscal 2018, was the largest location by number of engineers. In addition, the engineering efforts were combined and the teams were re-organized into a single global team in fiscal 2018, which spans a reduced number of locations globally compared to fiscal 2017. As part of the engineering transition, organizational improvements were implemented in order to focus on software quality, reliability and pre-integration, in order to de-risk deployments and improve go-to-market time for new solutions and existing upgrades. The global engineering team introduced DevOps practices with a customer-centric view of technology improvements across all products within the SeaChange solution. Along with operational improvements, engineering introduced changes to process and workflow which enabled more accurate effort estimations and velocity tracking. With the introduction of common agile project methodology across all teams and products, the efficiency of software engineering increased, which allowed more engineering resources to focus on innovation and development of industry leading features and enhancements to existing products as well as new product releases that expand the SeaChange technology franchise. At the same time, improved efficiency and better allocation of software developers enabled a more lean and targeted approach to supporting existing deployments and delivering upon support commitments for legacy products using a cost-optimized workforce. In conjunction with the DCC Labs acquisition and an additional company-wide cost savings program established in the second half of fiscal 2017, SeaChange commenced a restructuring program (“Restructuring Program”), which has allowed us to achieve approximately $38 million in annualized cost savings since its commencement. The Restructuring Program resulted in aggregate charges of $9.2 million as of January 31, 2018 in severance and other restructuring costs. These charges include costs for workforce reductions, facility closings and other costs to complete the restructuring, such as legal and consulting fees. As of January 31, 2018, the Restructuring Program has been completed and has helped us improve operations and optimize our cost structure since its 4 inception. Any remaining costs related to the Restructuring Program will be expensed as incurred to severance and other restructuring costs in our consolidated statements of operations and comprehensive income (loss) in future quarters. PRODUCTS AND SERVICES Our business is focused on the following product areas: video platform (including content management), advertising and user experience. Our revenue sources consist of product revenue from these areas, as well as related services. Video Platform ff Adrenalin is a comprehensive software platform that enables service SeaChange Adrenalin Multiscreen Video Backoffice Platform. providers to manage, monetize and deliver a seamless viewing experience to subscribers across TVs, PCs, tablets, smart phones and other IP-enabled devices. Adrenalin is a modular software solution allowing customers to gradually adopt new functionality and features to expand multiscreen television distribution capabilities. We offer our Adrenalin platform under two deployment options: through onsite software licenses and on a cloud-based offering through software-as-a-service (“SaaS”). With an onsite software license model, revenue is derived from perpetual software licenses, maintenance and support fees and professional services. In a SaaS offering, we license our product offerings and customers pay us on a monthly recurring basis based on the total number of subscribers deployed by the customer. a SeaChange AssetFlow Content Management Solution. In today’s multiscreen viewing environment, programming or advertisements are reproduced with numerous variants to serve the unique requirements of multiple network types, consumer devices and d geographies. Metadata, such as poster, description and pricing, associated with the programming, is also managed by the platform. At the point of content ingest, our AssetFlow software is used to receive, manage and publish video content for viewing on televisions, television program asset tablets, PCs and other consumer devices. tracking, metadata management, and overall content workflow processing. AssetFlow simplifies the increasingly complex tasks of movie and End-to-End Integrated Platforms. our offerings in the integrated platform service/solution market. ff Leveraging the experience gained through our SeaChange Rave™ offering, we continue to expand Advertising SeaChange Infusion Advanced Advertising Platform. As more video content is served to multiple consumer devices, the ability to generate additional revenue by inserting advertising across multiple platforms 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 content across multiple devices. User Experience Nucleus. Nucleus ports to third-party set-top boxes, or other customer on-premises equipment hardware and system on a chip, and acts as a hub for all video distribution to any IP- connected device in the home, such as tablets, smart phones and game consoles. SeaChange capitalizes on open software and networking technologies to offer 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 Digital Living Network Alliance networking protocols. This enhances the overall offering by providing the framework for Nucleus leverages the industry Reference Design Kit, a technology standard that the introduction of new applications. Further, Nucleus leverages the industry Reference Design Kit, a technology standard that enables the video service provider community to use open technologies to more rapidly introduce and support service innovations. XX SeaChange NitroX. NitroX empowers service providers and content owners to optimize multiscreen and OTT services. Its features and functionality allow service providers to fully leverage the extensive content management, delivery and monetization capabilities of Seachange user experience that is pre-integrated with SeaChange’s widely deployed Adrenalin or third-party multiscreen video platform and Nucleus. ’s platforms. NitroX products provide a ready-to-deploy multiscreen live and on-demand video consumption on a Services SeaChange offers comprehensive professional services, maintenance and support for all its products. We have developed extensive capabilities in systems integration, implementation and customer engineering. We also offer managed services with advantages, 5 including remote monitoring and proactive system maintenance, to help our customers quickly and confidently establish new on- demand and multiscreen capabilities. STRATEGY Our goal is to strengthen our position as a leading global provider of multiscreen video delivery solutions by enabling service providers and content owners to increase revenue opportunities by delivering transformative multiscreen video services to their end users. Key elements of our strategy include: • • • • • • We intend to continue providing our current and future customer base with industry-leading solutions through our focus on product innovation and substantial investment in research and development for our latest feature-rich software products and services; We intend to provide pre-packaged integrated solutions, known as end-to-end solutions, with the goal of better enabling new and existing customers to drive the adoption of subscription-based, SaaS models through service offerings hosted and/or managed by us; We intend to continue pursuing strategic collaborations that we believe will strengthen our industry leadership position, expand our geographic presence, open new markets or allow us to expand to new products or services, or enhance our existing ones; We may enter strategic relationships to help our customers address deficiencies in their market space; We intend to continue to focus on both selling our products to support a single screen and to upgrade our services to support multiple devices as service providers expand their reach. We intend to continue to be able to scale to enablea platforms as part of the initial sale; and We intend to expand our customer base in Asia Pacific and Latin America as well as market segments such as mobile, satellite, telecommunications and media companies. RESEARCH AND DEVELOPMENT We have focused and streamlined our research and development efforts in recent years. Our research and development costs were $23.2 million in fiscal 2018, $30.1 million in fiscal 2017 and $33.7 million in fiscal 2016. We believe that our success will depend on our ability to develop and timely introduce 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, content management solutions, additional user experience applications, advertising solutions 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 significant research and development efforts are performed at our Acton, Massachusetts headquarters, in Warsaw, Poland and in Eindhoven, Netherlands. t During fiscal 2018, 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 platforms. As of January 31, 2018, we had a research and development staff of 104 full-time employees and 67 contract employees. SELLING AND MARKETING Our sales cycle tends to be long, in some instances 12-24 months, and purchase orders can be more than one million dollars. It is sometimes difficult to predict in what quarter or fiscal year our sales will occur. Considering the complexity of our video products, we primarily utilize a direct sales process. We sell and market our products worldwide through a combination of a direct sales organization and sales representatives and partners. 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. 6 We use several marketing programs 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 their awareness. In fiscal 2018 and 2017, to increase software sales in North America and EMEA, we increased our sales efforts in those regions. We also increased our sales efforts in other geographic areas such as Asia Pacific and Latin America. As of January 31, 2018, we had a selling and marketing staff of 41 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, 2018 we had a manufacturing staff of 4 employees, reflecting our transition to being a company that primarily provides software solutions. 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, 2018, LGI was the only customer that 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 because 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 time is meaningful as an indicator of our future level of revenue for any specific future period. Because of the requirements of some customers, orders may require substantive acceptance criteria 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. If our sales growth increases or we experience business model changes, our backlog may become a meaningful indicator of revenue in the future. COMPETITION The markets in which we compete are characterized by intense competition, with many suppliers providing different types of products to different segments of the markets. In new markets for our products, we compete based on price, functionality and delivery capabilities. In markets in which we have an established presence, we compete principally based on 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 factors. to these ff 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., TiVo Corporation and Ericsson Inc., as well as in-house solutions built by the service provider. Increasingly, we are also seeing competition from integrated end-to-end solutions such as Comcast’s X-1 platform and many OTT providers. We expect the competition in each of the markets in which we operate to intensify in the future with 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 than we do. 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 strategic relationships to offer complete solutions. Therefore, our products may not be able to compete effectively with these products from these companies in the future. 7 PROPRIETARY RIGHTS Our success and our ability to compete are dependent, in part, upon the proprietary rights of our intellectual property. We have currently been granted 24 patents worldwide. 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 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 because of an allegation that we infringe others’ intellectual property. ff EMPLOYEES The table below represents the number of full-time employees that we employ in different geographic areas across the world for the periods shown. We also use part-time and many other temporary employees in the ordinary course of our business. We believe that our relations with our employees are good. None of our employees are represented by a collective bargaining agreement. Employees in certain foreign jurisdictions are represented by local works council as may be customary or required in those jurisdictions. Countryy United States Philippines NNetherlands Poland Other international Total employees by country January 31, 2018 2017 2016 150 — 49 57 30 286 199 132 83 31 51 496 307 171 116 — 66 660 During fiscal 2017, we implemented costs-savings efforts related to the TLL, LLC (“Timeline Labs”) business and the DCC Labs acquisition. We implemented an additional company-wide cost savings program beginning in the third quarter of fiscal 2017, which included a worldwide reduction in workforce, to help improve operations and optimize our cost structure with the goal of restoring SeaChange to profitability and positive cash flow. In total, these actions affected more than 180 employees in fiscal 2018 and approximately 170 employees in fiscal 2017. Reductions in workforce relating to this latest cost-savings efforts are completed. ACQUISITIONS AND LOSS ON IMPAIRMENT OF TLL, LLC DCC Labs On May 5, 2016, we acquired a 100% share of DCC Labs in exchange for an aggregate of $2.7 million in newly issued shares of SeaChange common stock and $5.2 million in cash, net of cash acquired, resulting in a total net purchase price of $7.9 million. The acquisition of DCC Labs enables us to optimize the operations of our In-Home business, which develops home video gateway software including SeaChange’s Nucleus and NitroX products. In addition, the acquisition brings market-ready products, including an optimized television software stack for Europe’s Digital Video Broadcasting community and an HTML5 framework for building additional user experience client applications across a variety of CPE devices, including Android TV STBs, tablets, mobile and computer devices. We accounted for the acquisition of DCC Labs as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired was recorded as goodwill. We engaged an independent appraiser to assist management in assessing the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. Assets acquired in the acquisition include receivables, prepaid expenses and property and equipment while liabilities assumed include accounts payable, other accrued expenses, deferred taxes and income taxes payable. The amounts recorded for these assets and liabilities are final based on information obtained about the facts and circumstances that existed as of the acquisition date. Loss on Impairment of TLL, LLC In January 2016, our Board of Directors authorized a restructuring plan to wind down the Timeline Labs operations, as previously reported in a Current Report on Form 8-K filed with the SEC on February 17, 2016. Based on the decision to enter into the restructuring plan and the plan’s impact on the projected future cash flows of the Timeline Labs operations, we determined that the 8 carrying amount of all long-term assets that resulted from the February 2015 acquisition had exceeded their fair value as of January 31, 2016. As a result, these long-term assets were deemed fully impaired and we recorded the $21.9 million net book value of these long-term assets as a component of loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. Additionally, we reduced the contingent consideration liability associated with the Timeline Labs acquisition to zero, as we determined that the defined performance criteria would not be achieved, and credited the reversal of the liability of $0.4 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. In addition, we incurred $0.7 million in severance and other restructuring charges during fiscal 2017 related to cost-saving actions taken with respect to the Timeline Labs business. a EXECUTIVE OFFICERS The following is a list of our executive officers, their ages as of April 12, 2018 and their positions held with us: Name Edward Terino Jonathan Rider Peter Faubert g Age Title 64 Chief Executive Officer and Director 54 Chief Operating Officer, Senior Vice President 47 Chief Financial Officer, Senior Vice President, Finance and Administration and David McEvoy 60 Senior Vice President and General Counsel and Secretary Treasurer Mr. Terino became SeaChange’s Chief Executive Officer (“CEO”) effective April 6, 2016 having previously served as Chief Operating Officer (“COO”) since June 2015. He has served on the Company’s board of directors since 2010. Mr. Terino’s professional experience spans 30 years in senior management and operational roles for public companies including service as Senior Vice President (“SVP”) and Chief Financial Officer (“CFO”) of Art Technology Group, Inc. from September 2001 to June 2005, CEO and CFO of Arlington Tankers Ltd. from July 2005 to December 2008, and Vice President (“VP”) of Finance and Operations at Houghton Mifflin Harcourt from 1985 to 1996. He has served on the board of directors for software and technology companies including Extreme Networks, Inc. from October 2012 to November 2013, S1 Corporation from April 2007 to February 2012, Phoenix Technologies Ltd. from November 2009 to November 2010, and EBT International, Inc. from October 1999 to March 2006. He also served on the board of directors of Baltic Shipping Ltd. from March 2010 to July 2015. Mr. Rider joined the Company on April 19, 2016 as Chief Information Officer (“CIO”). He became COO and Senior Vice President on January 31, 2017. He brings over 30 years of senior management experience in the high technology sector. Prior to joining SeaChange, Mr. Rider was CIO of Dynatrace from August 2014 to February 2016; Senior Vice President, Technology and Engineering of Arcadia Solutions from September 2013 to August 2014; and Principal and CIO of JetStream Consulting LLC from June 2006 to January 2014. Mr. Rider held various senior positions with PTC, Gilbane Building Company, Monster Worldwide, Netscout Systems and Helidesigns. Mr. Rider served as a U.S. Army Officer and helicopter instructor. He has a bachelor of science degree in aeronautics, engineering/aviation and a master’s degree in e-business from the University of Phoenix. Mr. Faubert joined the Company on July 7, 2016 as CFO, SVP and Treasurer. He brings over 15 years of extensive finance leadership for public and private software companies that focused on video service providers, mobility and enterprise computing. Prior to joining the Company, Mr. Faubert served as CFO of This Technology, Inc. since December 2013. Prior to that, Mr. Faubert served as CFO and Treasurer of Vision Government Solutions, Inc. from October 2012 to December 2013. He has also served as CFO of JNJ Mobile (MocoSpace) from February 2009 to July 2012 and CFO and Treasurer at Turbine, Inc. from August 2005 to January 2009. Prior to that Mr. Faubert held various senior finance positions with Viisage Technology Inc., Burntsand Inc. and Ariba Inc. Mr. Faubert is also a Certified Public Accountant. Mr. McEvoy joinedd the Company on July 1, 2012 as VP and General Counsel. He became SVP and General Counsel on February 1, 2013. Prior to joining SeaChange, Mr. McEvoy was the SVP and General Counsel of Peoplefluent Inc. Mr. McEvoy was the SVP 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. 9 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 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. ff Our business is dependent on customers’ continued spending on video solutions and services. A reduction in spending by customers would adversely affect our business. Our performance is dependent on customers’ continued spending for video solutions 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 solutions and services; acceptance 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. 10 Our efforts to introduce SaaS-based multiscreen service offerings may either not succeed or impair the sale of our on-site lic offerings, the occurrence of either of which may adversely affect our financial condition and operating results. tt ensed 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 of 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. Our inability to complete the development of 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 future periods. Our future success is dependent on the manner in which the multiscreen video and OTT markets develop, and if these markets develop in a manner that does not facilitate inclusion of our products and services, 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. These markets continue to develop as commercial markets, both within and outside North America. In addition to the potential size of these markets and the timing of their development being uncertain, so too is the technological manner in which they will develop. The success of these markets will 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 subscribers in a manner that permits inclusion of our products and services. 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. 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. If we are unable to successfully compete in our marketplace, our financial condition and operating results may be adversely affected. We currently compete against companies offering video software solutions and have increasingly seen competition from integrated end-to-end solutions such as Comcast’s X-1 platform and a large number of OTT players. 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 television 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 11 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 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. ff 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 affect of our products and services relative to those tt of our competitors would decrease. tt ed because the compet itive advantage ll 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 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. customer requirements and d a 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, including due to the impact of worldwide economic cycles, 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, the loss of or reduced demand by, the return of product by one or more of these customers or the failure of revenue acceptance criteria to have been satisfied in a given fiscal quarter, 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 markets we serve could result in delays or reductions in purchases of products, which would have a material adverse effect on our business. The markets we serve have historically experienced, and continue to experience, the consolidation of many industry participant s. For example, AT&T acquired Direct TV, Charter Communications acquired Time Warner Cable, Altice NV acquired HOT, Suddenlink d 12 Communications and Cablevision Systems Corp., and Verizon Communications Inc. announced that it is selling assets to Frontier Communications Corporation. 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, either 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 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 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. ff If there were a decline in demand or average selling prices for our products and services, our revenues and operating results would be materially affected. A decline in demand or average selling prices for our products or services 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. Increasingly, we are seeing competition from integrated end-to-end solutions such as Comcast’s X-1 platform and a large number of OTT players, each of which may reduce the demand for or average selling prices of our products and services and adversely affect our business, financial condition and results of operations. We must manage product transitions successfully 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 13 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. dd 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. Restructuring programs could have a material negative impact on our business. To increase strategic focus and operational efficiency we have implemented restructuring programs. In fiscal 2017, we undertook significant cost-saving actions related to DCC Labs and in the second half of fiscal 2017 with a reduction in workforce. 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 past and future restructuring and other efficiency improvement activities, and there can be no assurance that our estimates of the savings achievable by 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. If we are unable to manage our efforts to focus our business and grow in targeted areas, 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 focus our business and grow in targeted areas 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. 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. Approximately 65% of our total revenue is generated from sales outside the United States. 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: ff • • • • • • • • • difficulties in establishing and managing international distribution channels; difficulty in staffing and managing foreign operations; inability to collect accounts receivable; 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; 14 • • • • • • business and operational disruptions or delays caused by political, social and economic instability and unrest, including risks related to terrorist activity; a changes in economic policies by foreign governments, including the imposition and potential continued expansion of economic sanctions by the United States and the European Union on the Russian Federation; the burden of complying with a wide variety of foreign laws, treaties and technical standards; cultural differences in the conduct of business; natural disasters and pandemics; and growth and stability of the economy or political changes in international markets. The impact 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 our reputation, business, and financial condition. “ could result in penalties that could harm We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials to obtain or keep 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. a 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 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 applicablea 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. local currencies, there is a risk our reported sales, operating expenses and net 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 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 15 products or processes. We may be a party to litigation in the future to enforce our intellectual property rights or because 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. 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. rr ii 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 that 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 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. 16 We may not fully realize the benefits of our completed ac tt those benefits. Future acquisitions may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. quisitions or it may take longer than we anticipate for us to achieve tt ll 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. Acquisitions could create risks for us, including: • • • • difficulties in assimilation of acquired personnel, operations, technologies or products that 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; t delays in realizing, or failure to realize, the anticipated benefits of an acquisition. Even if we can integrate these businesses and operations successfully, we may not realize the full benefits we expect to achieve, within the anticipated timeframe, or at all. If a company we purchase does not perform as we expected, our investment could become impaired or we could discontinue the operations and our financial results could be negatively impacted, such as the Timeline Labs acquisition on February 2, 2015, for which we subsequently impaired substantially all acquired assets and certain liabilities as of January 2016; adverse effects on the business relationships with pre-existing suppliers and customers of both companies. This may be important 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 could acquire additional products, technologies or businesses, or enter joint venture arrangements, to complement or expand 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. As part of our strategy for growth, we may continue to explore acquisitions, divestitures, or strategic collaborations, 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 because of technical advancements or worse-than-expected performance by the acquired company, which was the basis for the impairment charge of $21.5 million taken in January 2016 related to the assets acquired in the February 2015 Timeline Labs acquisition; 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; incur debt and assume liabilities; a 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; 17 • • 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. Wefacetheriskthatcapitalneededforourbusinesswillnotbeavailablewhenweneeditorthatitwouldresultinsubstantial dilutiontoourstockholders. To the extent that our existing cash and cash equivalents are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financings. If unfavorable capital market conditions exist and we were to seek additional funding, we may not be able to raise sufficient capital on favorable terms and on a timely basis, if at all. Failure to obtain capital when required by our business circumstances would have a material adverse effect on our business, financial condition and results of operations. In addition, our stockholders may incur substantial dilution from any financing that we undertake given our current stock price. We may not have access in the future to sufficient funding to finance desired growth and operations. If we cannot secure future funds or financing on acceptable terms, we may be unable to support our future operations or growth strategy. We use cash for strategic collaborations and other investments, both of which are elements of our growth strategy, and the timing and size of our collaboration or investment efforts cannot be readily predicted. If we experience deficits in our cash flows from operating activities in the future or we are unable to obtain new financing, there could be limitations on the availability of funds resulting in limitations in our financial flexibility, thereby inhibiting our future operations or growth strategy and that may result in our need to seek capital through additional debt financing arrangements, debt offerings, or equity offerings, which either may not be available to us or may not be available to us on favorable terms, including resulting in significant dilution of our stockholders. 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 in the past and we may make additional investments in the future. 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. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary materially 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, such as the $23.5 million impairment charge we recorded in fiscal 2017 to our consolidated statements of operations and comprehensive income (loss) as a result of our annual testing of our goodwill. 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, government debt securities and corporate bonds. 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. 18 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. tt 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, like 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. Wefacesignificantriskstoourbusinesswhenweengageintheoutsourcingofengineeringwork,includingoutsourcingof softwareworkoverseas,which,ifnotproperlymanaged,couldresultinthelossofvaluableintellectualpropertyand increasedcostsduetoinefficientandpoorworkproduct,whichcouldharmourbusiness,includingourfinancialresults, reputation,andbrand. 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 Poland and the Netherlands. We have limited experience in the outsourcing of engineering and other 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 because of inefficient engineering services and poor work product. As a result, our business would be harmed, including our financial results, reputation, and brand. Wemayhaveadditionaltaxliabilities. 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 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. our income rr Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our operations outside the United States. Pursuant to Accounting Standard Codification Topic No. (“ASC”) 740-30, “Income Taxes-Other Considerations or Special Areas,” undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would “ 19 become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested. In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Company’s working capital needs. Accordingly, in the second quarter of fiscal 2017, we recognized a deferred tax liability of $14.7 million on $58.6 million of undistributed earnings generated by our Irish operations through July 2016. In the fourth quarter of fiscal 2018, we completed a restructuring of our foreign operations, wherein we centralized our European operations for greater efficiency and cost savings in the Netherlands. As part of that process the residence of SEAC Ireland was moved to the Netherlands. In connection with the restructuring and change in tax status, we also obtained a step-up in tax basis of certain of our foreign subsidiaries. u As a result, we re-measured the deferred tax liability in connection with the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability. We may need to adjust estimates resulting from the U.S. Tax Cuts and Jobs Act of 2017. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law. The Tax Reform Act has resulted in significant changes to the U.S. corporate income tax system that affected our fiscal year ended January 31, 2018. These changes include, but are not limited to, a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The Tax Reform Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income (“GILTI”). These changes were effective January 1, 2018. The Tax Reform Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries’ previously untaxed foreign earnings (“Transition Tax”). The Transition Tax may be paid over an eight-year period and will not accrue interest. r We have made a preliminary estimate of the Transition Tax and the re-measurement of our deferred tax assets and liabilities as of January 31, 2018. See Part II. Item 8, Note 12. “Income Taxes, estimate is subject to change as we finalize our analysis and as interpretations of the provisions of the Tax Reform Act continue to develop. The final determination of the Transition Tax and the re-measurement of our deferred tax assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the Tax Reform Act. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the Tax Reform Act may require further adjustments and changes in our estimates, which could have a material adverse effect on our business, results of operations or financial conditions. ” of this Form 10-K for additional information. The preliminary “ Ifoursecuritymeasuresarebreachedandunauthorizedaccessisobtainedtoacustomer’sdataorourdataonoursystems, ourservicemaybeperceivedasnotbeingsecure,customersmaycurtailorstopusingourserviceandwemayincursignificant legalandfinancialexposureandliabilities. 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 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 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 appropriate security measures to minimize a sales, disrupt our business and lead to legal liability. While we believe that we have taken 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. an interruption in our ff ff 20 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. Interruptionsordelaysinservicefromourthird-partydatacenterhostingfacilitiescouldimpairthedeliveryofourservice andharmourbusiness. 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. A disruption to our information technology systems could significantly impact our operations and impact our revenue and profitability. Our data processing and financial reporting systems are cloud-based and hosted by a third-party. An interruption to the third-party systems or in the infrastructure that allows us to connect to the third-party systems for an extended period may impact our ability to operate the business and process transactions which could result in a decline in sales and affect our ability to achieve or maintain profitability. It may also result in our inability to comply with SEC regulations in a timely manner. UncertaintiesofregulationoftheInternetanddatatravelingovertheInternetcouldhaveamaterialandadverseimpacton ourfinancialconditionandresultsofoperations. Currently, few laws or regulations apply directly to access to or commerce on the Internet. With more business being conducted over the Internet, there have been calls for more stringent copyright protection, tax, consumer protection, cybersecurity, data localization and content restriction laws, both in the United States and abroad. We could be materially, adversely affected by regulation of the Internet and Internet commerce in any country where we operate. Such regulations could include matters such as net neutrality. Further, governments may regulate or restrict the sales, licensing, distribution, and export or import of certain technologies to certain countries. The adoption of regulation of Internet and Internet commerce could decrease demand for our products and, at the same time, increase the cost of selling our products and services, which could have a material and adverse effect on our financial condition and results of operations. In addition, the enactment of new federal, state, or foreign data privacy laws and regulations could cause customers not to be able to take advantage of all the features or capabilities of our products and services, which in turn could reduce demand for certain of our products and services. t Ourstockpricemaybevolatileandaninvestmentinourstockmaydecline. 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 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. ActionsthatmaybetakenbysignificantstockholdersmaydivertthetimeandattentionofourBoardofDirectorsand managementfromourbusinessoperations. Campaigns by significant investors to effect changes at publicly-traded companies continue to be prevalent. There can be no assurance that one or more current or future stockholders will not pursue actions to effect changes in our management and strategic direction, including through the solicitation of proxies from our stockholders. If a proxy contest were to be pursued by a stockholder, it could result in substantial expense to us, consume significant attention of our management and Board of Directors, and disrupt our business. 21 Securitiesanalystsmaynotpublishfavorableresearchorreportsaboutourbusinessormaypublishnoinformation,which couldcauseourstockpriceortradingvolumetodecline. The trading market for our common stock is influenced by the research and reports that 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 business or 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. Weutilizenon-GAAPreportinginourquarterlyearningspressreleases. We publish non-GAAP financial measures in our quarterly earnings press releases, along with a reconciliation of non-GAAP financial measures to those measures determined in accordance with U.S. GAAP. The reconciling items have adjusted U.S. GAAP net income (loss) and U.S. GAAP earnings (loss) 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. Changes in financial accounting standards may cause adverse unexpected revenue fluctuations and affect our reported results of operations. We prepare our consolidated financial statements in accordance with U.S. GAAP. These principles are subject to interpretations by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. The adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls. these principles can have a rr r For example, in May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for revenue recognition which we have elected to adopt on February 1, 2018 using the modified retrospective method of adoption. The Company has substantially completed the implementation of this guidance and has identified the necessary changes to its policies, processes, systems, and controls. Based upon the work performed to date, the Company expects to record a cumulative-effect adjustment as of February 1, 2018 to increase retained earnings by an estimated range of approximately $1.7 million to $4.0 million. Such adjustment includes an increase in retained earnings of approximately $1 million to $3 million due to higher revenue that would have been recognized under the new guidance if it had been adopted for the fiscal year ended January 31, 2018 and an increase in retained earnings of $0.7 million to $1.0 million due to reduced commission expense that would have been recognized under ASC 606 if the standard had been adopted for the fiscal year ended January 31, 2018. The resulting tax effect of this cumulative-effect adjustment is not expected to be significant to retained earnings. We expect to fully disclose the impacts of the new standard in connection with our Form 10-Q for the first quarter of fiscal 2019. Any weakness 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 express an opinion on the Company’s internal controls over financial reporting based on their audit. As disclosed in this Form 10-K, we have remediated the material weaknesses in the design of certain of our internal controls reported in our Form 10-K for the fiscal year ended January 31, 2017, previously filed with the SEC on April 17, 2017. In future periods, we may identify additional deficiencies in our system of internal controls over financial reporting that may require remediation. The existence and identification of any such material weaknesses may have an adverse effect on our business. We use estimates in accounting for our contracts. Changes in our estimates could adversely affect our future financial results. Contract accounting requires judgment relative to assessing risks, estimating revenues and costs and making assumptions including, in the case of our professional services contracts, the total amount of labor required to complete a project and the complexity of the development and other technical work to be completed. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complicated and subject to many variables. Assumptions must be made regarding the length of time to complete the contract because costs also include estimated third-party vendor and contract labor costs. Penalties related to 22 performance on contracts are considered in estimating sales and profit, and are recorded when there is sufficient information for us to assess anticipated performance. Third-party vendors’ assertions are also assessed and considered in estimating costs and margin. ff Because of the significance of the judgments and estimation processes described above, it is likely that materially different sales and profit amounts could be recorded if we used different assumptions or if the underlying circumstances were to change, such as occurred in fiscal 2016 when we recorded a $9.2 million provision for loss contract as a result of delays of customer acceptance relating to a fixed-price customer contract on a multi-year arrangement which included multiple vendors. Between fiscal 2017 and fiscal 2018, we recorded a $4.7 million reduction in that provision after amending our contract with the fixed-price customer, thus eliminating the second phase of the project and calculating a better estimate of the remaining costs to complete the project. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial performance. Our ability to deliver products and services that satisfy customer requirements is heavily dependent on the performance of our third-party vendors. We rely on other companies to provide products and to perform some of the services that we provide to our customers. If one or more of our third-party vendors experience delivery delays or other performance problems, we may be unable to meet commitments to our customers. In addition, if one or more of the products which we depend on becomes unavailable or is available only at very high prices, we may be unable to deliver one or more of our products in a timely fashion or at budgeted costs. In some instances, we depend upon a single source of supply. Any service disruption from one of these third-party vendors, either due to circumstances beyond the supplier’s control or because of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs. We enter fixed-price contracts, which could subject us to losses if we have cost overruns. While firm fixed-price contracts enable us to benefit from performance improvements, cost reductions and efficiencies, they also subject us to the risk of reduced margins or incurring losses if we are unable to achieve estimated costs and revenues. If our estimated costs exceed our estimated price, we will recognize a loss, which can significantly affect our reported results. The long-term nature of many of our contracts makes the process of estimating costs and revenues on fixed-price contracts inherently risky. Fixed-price development contracts are generally subject to more uncertainty than fixed-price production contracts. Many of these development programs have highly complex designs. If we fail to meet the terms specified in those contracts, our margin could be reduced. In addition, technical or quality issues that arise during development could lead to schedule delays and higher costs to complete, which could result in a material charge or otherwise adversely affect our financial condition. Because we purchase certain components used in assembling some of our products from sole suppliers, our business, financial condition and results of operations could be materially adversely affected by a failure of these suppliers to provide these components. We rely on a limited number of third-parties who provide 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 not be available 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 component capacity readily availablea at acceptable quality levels, in the future there may not be suppliers that can 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 suppliers 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. rr Terrorist acts, conflicts, wars and geopolitical uncertainties may seriously harm our business and revenue, costs and expenses and financial condition and stock price. Terrorist acts, conflicts, wars (wherever located around the world) or geopolitical uncertainties may cause damage or disruption to our business, our employees, facilities, partners, suppliers, distributors, resellers or customers, or adversely affect our ability to manage logistics, operate our transportation and communication systems or conduct certain other critical business operations. The potential for future attacks, the national and international responses to attacks or perceived threats to national security, and other actual or potential conflicts or wars, have created many economic and political uncertainties. In addition, as a multinational company with headquarters 23 and significant operations located in the United States, actions against or by the United States may impact our business or employees. Although it is impossible to predict the occurrences or consequences of any such events, if they occur, they could result in a decrease in demand for our products, make it difficult or impossible to provide services or deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain and result in the need to impose employee travel restrictions. We are predominately uninsured for losses and interruptions caused by terrorist acts, conflicts and wars. 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, 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 could affect the price that some investors are willing to pay for our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Location Owned Facilities Acton, Massachusetts (1) Leased Facilities Eindhoven, The Netherlands Warsaw, Poland Manila, Philippines (2) p Principal Use Square Feet Corporate Headquarters, Engineering, 124,128 Customer Services, Sales and Marketing Engineering, Sales and Customer Services Engineering and Customer Services Vacant 20,553 14,242 14,175 (1) (2) In August 2017, we placed our corporate headquarters and the adjacent land (the “Corporate Headquarters”), located in Acton Massachusetts, on the market for sale. We assessed whether the Corporate Headquarters would qualify as an asset held for sale and determined that it did not since it didn’t meet all six of the criteria of an asset held for sale under current accounting guidance. The “cease-use” date of our facility in the Philippines was November 30, 2017. The facility is currently vacant. However, as of January 31, 2018, we were still under contract with the lessor until September 30, 2019. In February 2018, we negotiated with the lessor to terminate the lease on March 31, 2018 in exchange for a termination fee equal to six month’s rent which obligation was accrued in January 2018 to severance and other restructuring costs in our consolidated statement of operations and comprehensive income (loss). In addition, we lease or sublease offices in Santa Monica and San Francisco, California, Ireland and Turkey. We believe that existing facilities are adequate to meet our foreseeable requirements. In fiscal 2018, we incurred restructuring charges of $0.7 million to exit our facility in the Philippines as part of our cost reduction initiative implemented in the second half of fiscal 2017. In fiscal 2017, we incurred restructuring charges of $0.4 million to exit our facilities in California and Oregon as part of our cost savings actions related to the impairment of the Timeline Labs business and to the acquisition of DCC Labs. Currently, we are subleasing the facilities in Santa Monica and San Francisco, California until the end of their respective lease terms in fiscal 2019. ITEM 3. LEGAL PROCEEDINGS We enter 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, 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. and environmental claims a 24 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 25 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, 2018 and 2017: Three Month Period Ended: Second Quarter Third Quarter Fourth Quarter On April 12, 2018, there were 129 holders of record. Fiscal Year 2018 High Low Fiscal Year 2017 High Low $ 2.57 2.93 2.89 3.99 $ 2.25 2.36 2.51 2.53 $ 6.25 3.77 3.32 2.80 $ 3.73 3.19 2.62 2.30 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 our future earnings for use in operations and to finance the expansion of our business. Issuer Purchases of Equity Securities 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, 2013 through January 31, 2018, with the cumulative total return on the Center for Research in Securities Prices (“CRSP”) Index for NASDAQ (U.S. Companies) and a Standard Industrial Classification (“SIC”) Code Index based on SeaChange’s SIC Code. The comparison assumes $100 was invested on January 31, 2013 in SeaChange’s common stock at the $11.15 closing price on January 31, 2013 and in each of the foregoing indices and assumes reinvestment of dividends, if any. 26 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. $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 Jan-31-2013 Jan-31-2014 Jan-30-2015 Jan-29-2016 Jan-31-2017 Jan-31-2018 SeaChange International, Inc. (SEAC) NASDAQ Composite Index Total Return S&P Composite 1500 Software & Services (Industry Group) - Index Value $100.0 $100.0 $100.0 $118.1 $133.6 $127.3 $69.7 $152.7 $134.6 $61.4 $153.8 $158.7 $23.9 $189.5 $185.5 $32.9 $252.9 $263.1 Notes: (1) (2) (3) The lines represent monthly index levels derived from compounded daily returns that include all dividends. If the monthly interval, based on the fiscal year end, is not a trading day, the preceding trading day is used. The index level for all series was set to 100 on January 31, 2013. 27 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, selected financial data have been adjusted to reflect the businesses divested as discontinued operations. ” of this Form 10-K. For all periods presented, these “ CONSOLIDATED STATEMENTS OF OPERATIONS DATA Product revenue Service revenue Total revenues Total operating costs and expenses Other income (expenses), net Gain (loss) on investment in affiliates Income (loss) from continuing operations before income taxes and equity income in earnings of affiliates Income tax (benefit) provision Equity income in earnings of affiliates, net of tax Income (loss) from continuing operations Income (loss) from discontinued operations, net NNet income (loss) Income (loss) per share: Basic Diluted Income (loss) per share from continuing operations: Basic Diluted Income (loss) per share from discontinued operations: Basic Diluted $ $ $ $ $ $ $ $ 2018 28,791 51,476 80,267 (85,677) 4,081 2,555 1,226 (12,272) — 13,498 — 13,498 0.38 0.38 0.38 0.38 $ For the Fiscal Years Ended January 31, 2015 2016 2017 (Amounts in thousands, except per share data) 31,507 $ 83,928 115,435 (141,888) (2,161) — 18,205 65,590 83,795 (137,941) (1,972) (500) 21,896 85,096 106,992 (155,191) (523) (31) $ $ 2014 54,749 91,570 146,319 (147,948) (224) (363) (56,618) 14,631 — (71,249) — (71,249) $ (48,753) (1,029) 27 (47,697) — (47,697) $ (28,614) (1,106) 19 (27,489) 5 (27,484) $ (2.04) $ (2.04) $ (1.42) $ (1.42) $ (0.84) $ (0.84) $ (2.04) $ (2.04) $ (1.42) $ (1.42) $ (0.84) $ (0.84) $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ 0.00 0.00 $ $ (2,216) 55 44 (2,227) (803) (3,030) (0.09) (0.09) (0.07) (0.07) (0.02) (0.02) CONSOLIDATED BALANCE SHEET DATA 2018 2017 As of January 31, 2016 (Amounts in thousands) $ $ 41,942 116,067 14,936 19,108 46,531 69,536 59,887 177,669 17,410 3,699 46,651 131,018 2015 2014 101,014 212,351 19,088 6,266 41,300 171,051 $ 125,875 254,113 25,628 6,670 49,672 204,441 Working capital Total assets Deferred revenue Long-term liabilities Total liabilities Total stockholders’ equity $ $ 48,105 119,330 14,433 4,202 33,610 85,720 28 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 considering future developments. Unless otherwise specified, any reference to a “year” is to a fiscal year ended January 31st. “ ff Business Overview We are an industry leader in the delivery of multiscreen, advertising and premium over-the-top (“OTT”) video management solutions 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 companies, satellite operators and media companies. We currently operate under one reporting segment. We address what we see as the continuing rise of Internet Protocol television (“IPTV”) and OTT services by such companies as Netflix, Hulu, Amazon, mlbam, Kaltura, Ooyala and Brightcove and by media companies such as HBO, CBS and BBC. This rise of IPTV and OTT video services globally 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 focus on our go-to-market efforts in these areas. We continue to invest in developing next generation capabilities in our four main product offerings: video back office, advertising, content management and user experience. Our suite of products allows us to provide customers with end-to-end video delivery capabilities across multiple platforms, thus reducing cost and increasing speed and ease of use for end users. We believe that by delivering innovative solutions to both our existing customer base and to content owners that are looking to provide end-to-end solutions, we can meet their growing needs and help them get to market faster, which will help them drive new revenue growth. We have virtualized our solutions and products to make integrating with existing networks simple and this ease-of-use is a core competency of our platform. We have optimized our software solutions to serve a wide range of consumer devices. We expect to increase software sales in North America and Europe, the Middle East and Africa (“EMEA”) through targeted sales efforts in those regions. In addition, we believe that we have the opportunity for revenue growth by expanding our selling efforts in Asia Pacific and Latin America. We also believe that our existing service operator customers will continue upgrading to new features that can increase average revenue per subscriber, reduce operating and capital expenses, and lower customer churn. We continue to experience fluctuations in our revenues from period to period due to the following factors: • • • • • • • • Changes to estimated times to complete long-term projects; The time required to deliver and install the product and for the customer to accept the product and services; Timing of customers in selecting programs to launch our services to their end users; The ability of our customers to process the purchase order within their organizations in a timely manner; The transition from perpetual license to subscription, cloud-based revenue and the associated deviation from our traditional professional services model; Budgetary approvals by our customers for capital purchases; Uncertainty caused by potential consolidation in the industry; and Changes in foreign exchange rates. These, together with other factors, could result in 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, changes in cost estimates on long- term contracts which could result in a loss provision, gross margin deterioration, slower adoption of new technologies, the transition to SaaS, and increased price competition. 29 Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our operations outside the United States. Pursuant to Accounting Standard Codification Topic No. (“ASC”) 740-30, “Income Taxes-Other Considerations or Special Areas,” undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested. “ In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Company’s working capital needs. Accordingly, in the second quarter of fiscal 2017, we recognized a deferred tax liability of $14.7 million on $58.6 million of undistributed earnings generated by our Irish operations through July 2016. In the fourth quarter of fiscal 2018, we completed a restructuring of our foreign operations, wherein we centralized our European operations for greater efficiency and cost savings in the Netherlands. As part of that process the residence of SEAC Ireland was moved to the Netherlands. connection with the restructuring and change in tax status, we also obtained a step-up in tax basis of certain of our foreign subsidiaries. As a result, we remeasured the deferred tax liability in connection with the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability. This a change was not related to the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) enacted on December 22, 2017. In u On May 5, 2016, we acquired a 100% share of DCC Labs in exchange for an aggregate of $2.7 million in newly issued shares of SeaChange common stock and $5.2 million in cash, net of cash acquired, resulting in a total net purchase price of $7.9 million. The stock consideration was determined by dividing the total value of $2.7 million by the volume weighted average closing price of our common stock for the twenty trading days preceding the closing. DCC Labs is a developer of set-top and multiscreen device software. Of the total consideration, $0.5 million in cash and all the stock (681,278 shares) were initially held in escrow as security for the indemnification obligations of the former DCC Labs owners to SeaChange under the purchase agreement, with one-third of the stock in escrow to be released to the former DCC Labs owners annually on the anniversary date of the acquisition beginning on May 5, 2017 and ending May 5, 2019, and one-half of the cash in escrow to be released to the former DCC Labs owners on May 5, 2017 and May 5, 2018. On May 5, 2017, $0.3 million in cash and 227,090 shares of our common stock initially deposited with an Escrow Agent were disbursed to the sellers. The acquisition of DCC Labs in fiscal 2017 enabled us to optimize the operations of our In-Home business, which developed home video gateway software including SeaChange’s Nucleus and NitroX products. In addition, the acquisition brought market-ready products, including an optimized television software stack for Europe’s Digital Video Broadcasting community, and an HTML5 framework for building additional user experience client applications across a variety of CPE devices, including Android TV STBs, tablets, mobile and computer devices. During fiscal 2018, the In-Home business became the center of engineering and expanded to include product development for backoffice, advertising and legacy products. The Poland operation became the prime engineering location and as of the end of fiscal 2018, was the largest location by number of engineers. In addition, the engineering efforts were combined and the teams were re-organized into a single global team in fiscal 2018, which spans a reduced number of locations globally compared to fiscal 2017. As part of the engineering transition, organizational improvements were implemented in order to focus on software quality, reliability and pre-integration, in order to de-risk deployments and improve go-to-market time for new solutions and existing upgrades. The global engineering team introduced DevOps practices with a customer-centric view of technology improvements across all products within the SeaChange solution. Along with operational improvements, engineering introduced changes to process and workflow which enabled more accurate effort estimations and velocity tracking. With the introduction of common agile project methodology across all teams and products, the efficiency of software engineering increased, which allowed more engineering resources to focus on innovation and development of industry leading features and enhancements to existing products as well as new product releases that expand the SeaChange technology franchise. At the same time, improved efficiency and better allocation of software developers enabled a more lean and targeted approach to supporting existing deployments and delivering upon support commitments for legacy products using a cost-optimized workforce. ff In conjunction with the DCC Labs acquisition and an additional company-wide cost savings program established in the second half of fiscal 2017, SeaChange commenced a restructuring program (“Restructuring Program”), which has allowed us to achieve approximately $38 million in annualized cost savings since its commencement. The Restructuring Program resulted in aggregate charges of $9.2 million as of January 31, 2018 in severance and other restructuring costs. These charges include costs for workforce reductions, facility closings and other costs to complete the restructuring, such as legal and consulting fees. As of January 31, 2018, the Restructuring Program has been completed and has helped us improve operations and optimize our cost structure since its inception. Any remaining costs related to the Restructuring Program will be expensed as incurred to severance and other restructuring costs in our consolidated statements of operations and comprehensive income (loss) in future quarters. 30 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: Revenues: Products Services Total revenues Cost of product revenues Cost of service revenues (Recovery on) provision for loss contract Total cost of revenues Gross profit Gross product profit margin Gross service profit margin Gross pr ofit margin g Fiscal 2018 As Compared to Fiscal 2017 For the Fiscal Years Ended January 31, FY18 vs. FY17 FY17 vs. FY16 2018 2017 2016 $ Change % Change $ Change % Change (Amounts in thousands, except for percentage data) $ 28,791 51,476 80,267 4,048 22,868 (593) 26,323 $ 53,944 $ 18,205 65,590 83,795 6,779 36,829 (4,118) 39,490 $ 44,305 $ 21,896 85,096 106,992 6,752 44,239 9,162 60,153 $ 46,839 $ 10,586 (14,114) (3,528) (2,731) (13,961) 3,525 (13,167) $ 9,639 85.9% 56.7% 67.2% 62.8% 50.1% 52.9% 69.2% 37.2% 43.8% 58.1% $ (3,691) (19,506) (21.5%) (23,197) (4.2%) 27 (40.3%) (7,410) (37.9%) 100.0% (13,280) (33.3%) (20,663) 21.8% $ (2,534) 23.2% 6.6% 14.3% (16.9%) (22.9%) (21.7%) 0.4% (16.7%) N/A (34.4%) (5.4%) (6.4%) 12.9% 9.1% Product Revenue. The increase in product revenue for fiscal 2018 of $10.6 million, as compared to fiscal 2017, was primarily due to a $12.3 million increase in video platform, user experience and advertising revenues. This increase is primarily due to the purchase of software licenses by our largest customer in the third and fourth quarters of fiscal 2018 as they continue to build out their back-office solution. This increase was partially offset by a $1.8 million decrease in hardware and third-party product revenues in fiscal 2018 compared to fiscal 2017. Service Revenue. Service revenue decreased $14.1 million in fiscal 2018, as compared to fiscal 2017. The decline was primarily due to a decrease of $10.9 million recognized for professional services provided on our video platform during fiscal 2018. Additionally, there was a $3.2 million decrease in maintenance and support revenue provided on post-warranty contracts as customers continue to provide their own solutions. In fiscal 2018 and fiscal 2017, one customer accounted for more than 10% of our total revenue. See Part II. Item 8, Note 11, “Segment Information, Significant Customers and Geographic Information,” to this Form 10-K for more information. International revenue accounted for 65% and 64% of total revenues in fiscal 2018 and fiscal 2017, respectively. The increase in the international revenue as a percentage of total revenue for fiscal 2018, as compared to fiscal 2017 is primarily due to a decrease in revenue outside the United States at a lower rate than the decrease in domestic revenue. Specifically, in the third and fourth quarter of fiscal 2018, we sold a total of approximately $14 million of software licenses to our largest customer in Europe. Gross Profit and Margin. Cost of 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 increased 14 percentage points in fiscal 2018, as compared to fiscal 2017. Product gross margin increased 23 percentage points in fiscal 2018 compared to fiscal 2017. This increase is primarily due to an increase in software license revenues, which carry higher gross margins, and a decrease in costs, specifically employee-related costs resulting from the cost-savings initiatives implemented beginning in the third quarter of fiscal 2017. Service profit margins increased seven percentage points in fiscal 2018, as compared to fiscal 2017. This is primarily due to lower employee-related costs described above. 31 (Recovery on) provision for loss contract ff Contract accounting requires judgment relative to assessing risks, estimating the revenue and costs and making assumptions for the length of time to complete the contract. Since the financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and costs are subject to revisions as the contract progresses towards completion. Any changes to these assumptions and estimates could result in gains or losses in the future. During fiscal 2016, delays of customer acceptance relating to fixed-price customer contracts on a multi-year arrangement that included multiple vendors occurred. As a result, we recorded approximately $9.2 million as a provision for loss contract in our consolidated statements of operations and comprehensive income (loss). We agreed with the customer on the replacement of certain third-party vendors and a change in the timeline of this project, which was estimated to be completed in June 2017. As the system integrator on the project, we are subject to any costs overruns or increases with these vendors resulting in delays of acceptance by our customer. Any further delays of acceptance by the customer will result in incremental expenditures and increase the loss. Due to the elimination of the second phase of this project, as well as other changes in the scope of the project since the end of the third quarter of fiscal 2017, we recorded a recovery on loss contract in fiscal 2018 and 2017 of $0.6 million and $4.1 million, respectively, in our consolidated statement of operations and comprehensive income (loss). As of January 31, 2018, this project is complete. Fiscal 2017 As Compared to Fiscal 2016 Product Revenue. The decrease in product revenue for fiscal 2017 of $3.7 million, as compared to fiscal 2016, was primarily due to a $6.3 million decrease in hardware and advertising revenue offset by a $2.6 million increase in our video platform, user experience and third-party product revenues. Service Revenue. Service revenue decreased $19.5 million in fiscal 2017, as compared to fiscal 2016. The decline was primarily due to less revenue recognized for professional services provided on our video platform during the period. Additionally, there was a decrease in maintenance and support revenue provided on post-warranty contracts as customers continue to provide their own solutions. In fiscal 2017, one customer accounted for more than 10% of our total revenue. Two customers accounted for more than 10% of our total revenue in fiscal 2016. See Part II. Item 8, Note 11, “Segment Information, Significant Customers and Geographic Information,” to this Form 10-K for more information. International revenue accounted for 64% and 56% of total revenues in fiscal 2017 and fiscal 2016, respectively. The increase in the international revenue as a percentage of total revenue for fiscal 2017, as compared to the same prior period is primarily due to the decrease in domestic revenue at a higher rate than the decrease in international revenue. Domestic maintenance and support revenue provided on post-warranty contracts continues to decrease year over year as customers continue to provide their own maintenance solutions. Gross Profit and Margin. Our gross profit margin increased nine percentage points in fiscal 2017, as compared to fiscal 2016. However, excluding the (recovery on) provision for loss contract recorded in the third quarter of fiscal 2016 and adjusted in the fourth quarter of fiscal 2017, our gross profit margin decreased four percentage points in fiscal 2017, as compared to fiscal 2016. Product gross margin decreased six percentage points in fiscal 2017, as compared to fiscal 2016 due to lower software and license revenue. Service profit margins increased 13 percentage points in fiscal 2017, as compared to fiscal 2016. However, excluding the (recovery on) provision for loss contract, service profit margin decreased four percentage points in fiscal 2017, as compared to fiscal 2016. This is due to the lower service revenue to absorb our fixed costs of the professional services organization. Operating Expenses Research and Development The following table provides information regarding the change in research and development expenses during the periods presented: Research and development expenses $ 23,162 $ 30,093 $ 33,696 $ (6,931) (23.0%) $ (3,603) (10.7%) % of total revenue 28.9% 35.9% 31.5% For the Fiscal Years Ended January 31, FY18 vs. FY17 FY17 vs. FY16 2018 2017 2016 $ Change % Change $ Change % Change (Amounts in thousands, except for percentage data) Fiscal 2018 As Compared to Fiscal 2017. Research and development expenses consist primarily of employee costs, which include salaries, benefits and related payroll taxes, contract labor costs, depreciation of development and test equipment and an allocation of 32 related facility expenses. Research and development costs decreased $6.9 million in fiscal 2018 as compared to fiscal 2017, primarily due to the restructuring of the research and development group after our acquisition of DCC Labs in May 2016 and to cost-savings efforts implemented in the second half of fiscal 2017. Fiscal 2017 As Compared to Fiscal 2016. Research and development costs decreased $3.6 million in fiscal 2017 as compared to fiscal 2016, primarily due to lower labor costs associated with the decreased headcount from the Timeline Labs restructuring in February 2016, to the restructuring of the research and development group after our acquisition of DCC Labs in May 2016 and to cost-savings efforts implemented in the second half of fiscal 2017. These restructuring efforts would have resulted in a larger decrease in our research and development costs period over period than would have been achieved if we did not capitalize $3.0 million of costs related to the development of our internal-use software in fiscal 2016. This software was placed in service at the beginning of fiscal 2017 and no further costs were capitalized. 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, FY18 vs. FY17 FY17 vs. FY16 2018 2017 2016 $ Change % Change $ Change % Change Selling and marketing expenses $ 12,614 (Amounts in thousands, except for percentage data) (21.9%) $ $ (3,544) $ 15,197 $ 16,158 961 6.3% % of total revenue 15.7% 19.3% 14.2% Fiscal 2018 As Compared to Fiscal 2017. 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 $3.5 million in fiscal 2018 primarily due to lower employee-related costs. These lower costs were a result of the cost-savings initiatives implemented during the second half of fiscal 2017. This decrease was partially offset by the transfer of 12 employees from research and development to our selling and marketing group. The year over year decrease was also offset by an increase in internal commissions in fiscal 2018 as compared to fiscal 2017 due to increased bookings during fiscal 2018. Fiscal 2017 As Compared to Fiscal 2016. Selling and marketing expenses increased $1.0 million in fiscal 2017 primarily due to an increase in marketing payroll costs resulting from the addition of DCC Labs in May 2016 and to the hiring of a new senior vice president of marketing in February 2016. 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, FY18 vs. FY17 FY17 vs. FY16 2018 2017 2016 $ Change % Change $ Change % Change General and administrative expenses $ 14,671 (Amounts in thousands, except for percentage data) (9.3%) $ $ (1,502) $ 15,470 $ 16,173 703 4.5% % of total revenue 18.3% 19.3% 14.5% Fiscal 2018 As Compared to Fiscal 2017. 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 $1.5 million in fiscal 2018 as compared to fiscal 2017 primarily due to a decrease in labor costs resulting from the reduction of our headcount as part of our cost-savings initiatives implemented in the second half of fiscal 2017. The change does not reflect the full benefit that we anticipated to realize from our restructuring efforts because we had a $0.9 million increase in professional fees in fiscal 2018 from higher accounting and internal controls consulting services. Fiscal 2017 As Compared to Fiscal 2016. General and administrative expenses increased $0.7 million in fiscal 2017 as compared to fiscal 2016. The change did not reflect the full benefit that we anticipated to realize from our restructuring efforts because we had a $0.4 million increase in professional fees in fiscal 2017, including audit, tax and legal fees and an increase in bad debt expense. 33 Amortization of Intangible Assets The following table provides information regarding the change in amortization of intangible assets during the periods presented: Amortization of intangible assets $ 2,423 $ 3,302 $ 4,780 $ (879) (26.6%) $ (1,478) (30.9%) % of total revenue 3.0% 3.9% 4.5% For the Fiscal Years Ended January 31, y FY18 vs. FY17 FY17 vs. FY16 2018 2017 2016 $ Change % Change $ Change % Change (Amounts in thousands, except for percentage data) Amortization expense is primarily related to the costs of acquired intangible assets. Amortization expense on certain intangible assets is based on the future economic value of the related intangible assets which is generally higher in the earlier years of the assets’ lives. The decrease in amortization expense in fiscal 2018, as compared to fiscal 2017, is primarily due to fully amortized intangible assets from prior acquisitions and to the change in foreign exchange rates. The decreases were partially offset by a full year of amortization of intangible assets recorded in fiscal 2018 related to our acquisition of DCC Labs in May 2016. Amortization expense decreased $1.5 million in fiscal 2017, as compared to fiscal 2016 primarily due to the impairment of intangible assets, related to our acquisition of TLL, LLC, recorded in fiscal 2016 as well as fully amortized intangible assets from prior acquisitions. These decreases were partially offset by the addition of amortization of intangible assets related to our acquisition of DCC Labs in May 2016. 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, 2017 y 2016 2018 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Stock-based compensation expenses $ 2,696 (Amounts in thousands, except for percentage data) 2.9% $ $ 3,552 75 $ $ 2,621 (931) (26.2%) % of total revenue 3.4% 3.1% 3.3% Fiscal 2018 As Compared to Fiscal 2017. Stock-based compensation expense is related to the issuance of stock awards to our employees, executives and members of our Board of Directors. Stock-based compensation expense increased $0.1 million in fiscal 2018, as compared to fiscal 2017. The increase is primarily due to an $0.8 million reversal of previously recognized stock-based compensation expense in fiscal 2017 for our former CEO’s market-based stock options, as well as a $0.2 million increase due to modifications of certain stock awards for terminated employees recorded in fiscal 2017. Offsetting these increases is a $0.7 million decrease in stock option expense primarily due to fully-amortized tranches of market-based options awarded to our current CEO and a $0.3 million decrease in expense related to non-performance based restricted-stock units due to lower grant day stock prices. Fiscal 2017 As Compared to Fiscal 2016. Stock-based compensation expense decreased $0.9 million in fiscal 2017, as compared to fiscal 2016 primarily due to stock modifications in connection with separation agreements with certain terminated employees, as well as a decrease in stock compensation recorded on non-performance-based equity after the departure of our former CEO in the first quarter of fiscal 2017. Also, because of the departure of our former CEO, we reversed $0.8 million of previously recognized stock- based compensation expense on his market-based stock options. Finally, certain employees elected to receive a discounted cash payment, in lieu of restricted stock units, for their fiscal 2016 incentive compensation, resulting in a $0.4 million decrease in stock- based compensation expense in fiscal 2017. Partially offsetting these decreases is an increase in stock options granted during fiscal 2017 and expense recognized on performance stock units which were granted at the end of fiscal 2016. 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, 2017 2018 2016 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Professional fees - other % of total revenue $ $ 21 0.0% (Amounts in thousands, except for percentage data) 347 (93.9%) $ 0.4% 637 0.6% (326) $ $ (290) (45.5%) 34 Professional fees decreased in fiscal 2018 compared to fiscal 2017 due to a decrease in costs related to strategic alternatives, specifically costs from our purchase of DCC Labs in May 2016. Professional fees in fiscal 2017 decreased $0.3 million, as compared to fiscal 2016 due to costs related to strategic alternatives incurred in fiscal 2016 partially offset by costs in fiscal 2017 for the acquisition of DCC Labs. 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, 2017 2018 2016 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Severance and other restructuring expenses $ 4,740 $ 7,151 $ 1,061 $ (2,411) (33.7%) $ 6,090 >100% % of total revenue 5.9% 8.5% 1.0% (Amounts in thousands, except for percentage data) Fiscal 2018 As Compared to Fiscal 2017. Severance and other restructuring costs decreased $2.4 million in fiscal 2018, as compared to fiscal 2017. Charges in fiscal 2018 include $4.1 million related to a cost reduction initiative that began in the second half of fiscal 2017 and has been completed as of January 31, 2018, $0.1 million of charges related to the reduction in force in our engineering and services organization as a result of our acquisition of DCC Labs in May 2016 and to severance charges not related to a restructuring plan of $0.5 million. Charges in fiscal 2017 included $3.1 million related to the cost reduction initiative mentioned above, $0.7 million related to the restructuring activities of our Timeline Labs operations, $1.9 million related to the reduction in force in our In-Home engineering and services organization in conjunction with our acquisition of DCC Labs in May 2016 and to severance charges not related to a restructuring plan of $1.5 million, including severance related to our former CEO and CFO. Fiscal 2017 As Compared to Fiscal 2016. Severance and other restructuring costs increased $6.1 million in fiscal 2017, as compared to fiscal 2016 due to cost savings initiatives implemented during the second half of fiscal 2017, which resulted in charges of $3.1 million. Restructuring charges related to our Timeline Labs operation and DCC Labs acquisition resulted in charges totaling $2.6 million recorded during fiscal 2017. In addition, severance charges of $1.5 million not related to a restructuring plan included $1.0 million of severance to our former CEO and $0.2 million of severance to our former CFO along with severance paid to 13 other former employees. Severance and other restructuring costs in fiscal 2016 included severance for a former General Manager of our EMEA operations and 17 other former employees. Change in Fair Value of Earn-outs The following table provides information regarding the change in fair value of earn-outs during the periods presented: For the Fiscal Years Ended January 31, 2017 2016 2018 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Change in fair value of earn-outs % of total revenue $ — $ 0.0% 249 0.3% — $ 0.0% (Amounts in thousands, except for percentage data) (100.0%) $ (249) $ 249 N/A The $0.2 million in earn-outs costs for fiscal 2017 is due to a charge recorded that represents the fair value (at the issuance date) of additional shares issued to the former holders of Timeline Labs pursuant to the terms of the Timeline Labs purchase agreement based on our stock price at the time of deferred stock consideration issuances. Loss on Impairment of Long-lived Assets The following table provides information regarding the change in loss on impairment of long-lived assets during the periods presented: For the Fiscal Years Ended January 31, 2017 2016 2018 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Loss on impairment of long-lived assets $ % of total revenue — $ 23,772 0.0% 28.4% $ 21,464 $ (23,772) (100.0%) $ 2,308 10.8% 20.1% (Amounts in thousands, except for percentage data) 35 In fiscal 2017, we recorded a loss on impairment of long-lived assets of $23.8 million which included a charge related to the impairment of our goodwill resulting from our annual goodwill impairment test which concluded in the fourth quarter of fiscal 2017. We finalized “Step 1” of this impairment test in the third quarter and determined that the fair value of our reporting unit was less than its carrying value and needed to perform “Step 2” which we performed in the fourth quarter of fiscal 2017. We compared the implied fair value of our goodwill to its carrying value as required by “Step 2” and determined that the implied fair value of our goodwill was less than its carrying value and that it was not recoverable, resulting in an impairment charge of $23.5 million being recorded in our consolidated statements of operations and comprehensive income (loss) in the quarter ended January 31, 2017. In addition, we recorded an impairment charge on our Greenville, New Hampshire building in the fourth quarter of fiscal 2017 to write off its remaining book value. We had been actively trying to sell this building since fiscal 2012, writing down its carrying value several times. However, due to the location of the property and the overall market conditions in the area, we were not able to find a buyer. Therefore, we recorded a $0.3 million impairment charge in our consolidated statements of operations and comprehensive income (loss) in the quarter ended January 31, 2017 to write down the carrying value to zero. In January 2016, our Board of Directors authorized a restructuring plan, as previously reported in a Form 8-K filed with the SEC on February 17, 2016. Based on the decision to enter into the restructuring plan and the plan’s impact on the projected future cash flows of the Timeline Labs operations, we determined that the carrying amount of all long-term assets that resulted from the February 2015 acquisition had exceeded the fair value as of January 31, 2016. As a result, these long-term assets were deemed fully impaired and we recorded the $21.9 million net book value of these long-term assets as a component of loss on impairment of TLL, LLC net assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. Additionally, we reduced the contingent consideration liability associated with the Timeline Labs acquisition to zero, as we determined that the defined performance criteria would not be achieved, and recorded the reversal of the liability of $0.4 million to loss on impairment of TLL, LLC net assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. In February 2016, we implemented cost-saving actions related to the restructuring plan. See Part II. Item 8, Note 4, “ “Acquisitions and Loss on Impairment of TLL, LLC, ” to this Form 10-K for more information. Other Income (Expenses), Net The table below provides detail regarding our other income (expenses), net: For the Fiscal Years Ended January 31, 2017 2018 2016 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Gain (loss) on investment in affiliates Interest income, net Foreign exchange gain (loss) Miscellaneous income (expense) $ $ 2,555 147 3,828 106 6,636 Gain (loss) on investment in affiliates (Amounts in thousands, except for percentage data) $ $ (500) $ 129 (2,093) (8) (31) $ 3,055 >(100%) 18 165 (723) 35 5,921 >(100%) 114 >(100%) 14.0% (469) (36) (1,370) $ (2,472) $ (554) $ 9,108 $ (1,918) >100% (21.8%) >100% (43) >(100%) In connection with the acquisition in January 2018 by T-Mobile of Layer3 TV, Inc. (“Layer 3”), a next generation cable provider in which we previously had made an equity investment, we received $4.6 million upon closing of the transaction, with an additional payment of up to $2.1 million being held in escrow, subject to satisfaction of the escrow provisions. As a result of the sale of our investment in Layer 3, we realized a gain of $2.6 million in gain (loss) on investment in affiliates in our consolidated statements of operations and comprehensive income (loss) for fiscal 2018. In the fourth quarter of fiscal 2017, we determined that the fair value of a certain cost-method investment was less than its carrying value. Accordingly, we recorded a $0.5 million impairment charge in January 2017 which is included in gain (loss) on investment in affiliates in our consolidated statements of operations and comprehensive income (loss). Foreign exchange gain (loss) In January 2018, a note receivable between our Netherlands and British Virgin Islands (“BVI”) entities was settled. The loan was established in Euros, our Netherland subsidiary’s functional currency, and therefore generated a realized foreign exchange gain of $2.0 million. In January 2018, we also re-measured the deferred tax liability related to the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection with the reduction of the previously recorded deferred tax liability. Due to the weakening of the U.S. dollar against the Euro in fiscal 2018, we recorded a foreign exchange gain of $2.4 million when this deferred tax benefit was recorded in January 2018. We also established an intercompany loan between our U.S. and Netherlands entities in fiscal 2010, which was settled in the fourth quarter of fiscal 2017. The loan was established in Euros and 36 generated a realized foreign exchange loss of $1.8 million upon settlement of the loan. The realized foreign exchange gains recorded in fiscal 2018 and the realized foreign exchange loss recorded in fiscal 2017, were recorded in other income (expenses), net, on the consolidated statements of operations and comprehensive income (loss). In addition, there was a $0.3 million increase in foreign exchange loss in fiscal 2018, as compared to fiscal 2017, due to the weakening of the U.S. dollar compared to other foreign currencies, primarily the Euro, during the period. Income Tax (Benefit) Provision For the Fiscal Years Ended January 31, 2017 2016 2018 FY18 vs. FY17 $ Change % Change FY17 vs. FY16 $ Change % Change Income tax (benefit) provision % of total revenue $ (12,272) $ 14,631 $ (1,029) $ (26,903) >(100%) $ 15,660 >(100%) (Amounts in thousands, except for percentage data) (15.3%) 17.5% (1.0%) Fiscal 2018 As Compared to Fiscal 2017 We recorded an income tax benefit of $12.3 million in fiscal 2018 and a tax provision of $14.6 million in fiscal 2017. In the fourth quarter of fiscal 2018, we completed a restructuring of our foreign operations, wherein we centralized our European operations for greater efficiency and cost savings in the Netherlands. As part of that process the residence of SEAC Ireland was moved to the Netherlands. In connection with the restructuring and change in tax status, we also obtained a step-up in tax basis of certain of our foreign subsidiaries. As a result, we re-measured the deferred tax liability related to the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability. Our effective tax rate in fiscal 2018 and in future periods may fluctuate on a quarterly basis, as a result of changes in our jurisdictional forecasts where losses cannot be benefitted due to the existence of valuation allowances on our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or interpretations thereof. The Company reviews all available evidence to evaluate the recovery of deferred tax assets, including the recent history of losses in all tax jurisdictions, as well as its ability to generate income in future periods. As of January 31, 2018, due to the uncertainty related to the ultimate use of certain deferred income tax assets, the Company has recorded a valuation allowance on certain of its deferred assets. We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. We have closed out an audit with the Internal Revenue Service (“IRS”) through fiscal 2013. We are no longer subject to U.S. federal examinations before fiscal 2015. However, the taxing authorities will 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. On December 22, 2017, the Tax Reform Act was signed into law. The Tax Reform Act has resulted in significant changes to the U.S. corporate income tax system that affected our fiscal year ended January 31, 2018. These changes include, but are not limited to, a federal statutory rate reduction from 35% to 21% for years after 2017, additional limitations on executive compensation, acceleration of business asset expensing and a repeal of the corporate alternative minimum tax (“AMT”) and allowing for a refund of prior year AMT paid. These changes were effective January 1, 2018. The Tax Reform Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries’ previously untaxed foreign earnings (“Transition Tax”). The Transition Tax may be paid over an eight-year period and will not accrue interest. On December 22, 2017, the SEC issued guidance under SAB 118, which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Reform Act. The Company is still evaluating the provisions of the Tax Reform Act and amounts reflected in the financial statements for the year ended January 31, 2018 are provisional. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be completed in fiscal 2019. 37 The Tax Reform Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have re-measured our U.S. deferred tax assets and liabilities as of January 31, 2018 to reflect the reduced rate that will apply in future periods when these deferred tax assets will reverse, resulting in a provisional reduction of our net deferred tax assets, by $17.1 million, which is offset by a corresponding reduction to our valuation allowance in the fourth quarter of fiscal 2018. As a result, there was no impact to the Company’s consolidated statements of operations and comprehensive income (loss) due to the reduction in the U.S. corporate tax rate. The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profit of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We estimated a Transition Tax impact of approximately $3.9 million, which is offset by tax losses, resulting in no material impact to our consolidated financial statements. Our estimate represents a reasonable estimate of the Transition Tax; however, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax. Other significant provisions that are not yet effective but may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, limitations on the deductibility of certain executive compensation, deductions related to foreign derived intangible income, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or “GILTI”). We are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when they reverse in future years. Fiscal 2017 As Compared to Fiscal 2016 We recorded an income tax provision of $14.6 million in fiscal 2017 which was due to deferred income tax expense of $14.7 million related to the change in assertion regarding the undistributed foreign earnings of certain of our foreign subsidiaries. Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our operations outside of the U.S. Pursuant to Accounting Standard Codification Topic No. 740-30, “Income Taxes Considerations or Special Areas,” undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested. – Other “ In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Company’s working capital needs. Accordingly, in the second quarter of fiscal 2017, we withdrew the permanent reinvestment assertion on $58.6 million of earnings generated by our Irish operations through July 2016. We recorded a deferred tax liability of $14.7 million related to the foreign income taxes on $58.6 million of undistributed earnings. a We have not provided for U.S. federal or foreign income taxes on $6.0 million of our non-U.S. subsidiaries’ undistributed earnings as of January 31, 2017. The $6.0 million of undistributed foreign earnings have been reinvested in our foreign operations, as we have determined that these earnings are necessary to support our planned ongoing investments in our foreign operations, and as a result, these earnings remain indefinitely reinvested in those operations. In making this decision, we considered cash needs for investing in our existing businesses, potential acquisitions and capital transactions. The Company reviews all available evidence to evaluate the recovery of deferred tax assets, including the recent history of losses in all tax jurisdictions, as well as its ability to generate income in future periods. As of January 31, 2017, due to the uncertainty related to the ultimate use of certain deferred income tax assets, the Company has recorded a valuation allowance on substantially all of its deferred assets. Non-GAAP Measures We define non-GAAP income (loss) from operations as U.S. GAAP operating loss plus stock-based compensation expenses, amortization of intangible assets, (recovery on) provision for loss contract, change in fair value of earn-outs, non-operating professional fees, severance and other restructuring costs and loss on impairment of long-lived assets. We discuss non-GAAP income (loss) from operations in our quarterly earnings releases and certain other communications as we believe non-GAAP operating income (loss) from operations is an important measure that is not calculated according to U.S. GAAP. We use non-GAAP income (loss) from operations 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 38 employees based on operating performance and evaluating short-term and long-term operating trends in our operations. We believe that the non-GAAP income (loss) from operations financial measure assists 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. ff Non-GAAP income (loss) from operations is a non-GAAP financial measure 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 like the financial adjustments described above in arriving at non-GAAP income (loss) from operations and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring. 39 The following table includes the reconciliations of our U.S. GAAP loss from operations, the most directly comparable U.S. GAAP financial measure, to our non-GAAP income (loss) from operations for fiscal 2018, 2017 and 2016 (amounts in thousands, except per share and percentage data): For the Fiscal Year Ended January 31, 2018 GAAP As Reported Adjustments For the Fiscal Year Ended January 31, 2017 GAAP Non-GAAP As Reported Adjustments Non-GAAP For the Fiscal Year Ended January 31, 2016 GAAP As Reported Adjustments Non-GAAP Revenues: Products Services Total revenues Cost of revenues: Products Services (Recovery on) provision for loss contract Amortization of intangible assets Stock-based compensation Total cost of revenues Gross profit Gross profit percentage Operating expenses: Research and development Selling and marketing General and administrative Amortization of intangible assets Stock-based compensation expense Change in fair value of earn-outs Professional fees - other Severance and other restructuring costs Loss on impairment of long-lived assets Total operating expenses (Loss) income from operations (Loss) income from operations percentage Weighted average common shares outstanding: Basic Diluted Non-GAAP operating (loss) income per share: — — — — — $ 28,791 51,476 $ — $ — 28,791 51,476 $ 18,205 65,590 $ $ 18,205 65,590 $ 21,896 85,096 $ — $ — 21,896 85,096 80,267 3,942 22,001 (593) 970 3 26,323 53,944 — — — 593 (970) (3) (380) 380 80,267 83,795 3,942 22,001 6,453 35,740 83,795 106,992 6,453 35,740 6,013 44,159 — — — — — — 25,943 54,324 (4,118) 4,118 1,283 132 39,490 44,305 (1,283) (132) 2,703 (2,703) — — — 739 80 42,193 41,602 60,153 46,839 (739) (80) (9,981) 9,981 9,162 (9,162) 106,992 6,013 44,159 — — — 50,172 56,820 67.2% 0.5% 67.7% 52.9% (3.2%) 49.7% 43.8% 9.3% 53.1% 23,162 12,614 14,671 1,453 — — — (1,453) 2,693 (2,693) — 21 — (21) 4,740 (4,740) — — 23,162 30,093 12,614 16,158 14,671 16,173 — — — 30,093 33,696 16,158 15,197 16,173 15,470 — — — 33,696 15,197 15,470 — — — — — — 2,019 (2,019) 2,489 (2,489) 249 347 (249) (347) 7,151 (7,151) 23,772 (23,772) — — — — — — 4,041 (4,041) 3,472 (3,472) — 637 — (637) 1,061 (1,061) 21,464 (21,464) — — — — — — 59,354 (8,907) 50,447 98,451 (36,027) 62,424 95,038 (30,675) 64,363 $ (5,410) $ 9,287 $ 3,877 $ (54,146) $ 33,324 $ (20,822) $ (48,199) $ 40,656 $ (7,543) (6.8%) 11.6% 4.8% (64.6%) 39.8% (24.8%) (45.0%) 38.0% (7.0%) 35,412 35,412 35,412 35,685 35,412 35,685 34,970 34,970 34,970 35,057 34,970 34,970 33,506 33,506 33,506 33,663 33,506 33,506 Basic Diluted $ $ (0.15) (0.15) $ $ 0.26 0.26 $ $ 0.11 0.11 $ $ (1.55) (1.55) $ $ 0.95 0.95 $ $ (0.60) (0.60) $ $ (1.44) (1.44) $ $ 1.21 1.21 $ $ (0.23) (0.23) 40 The changes in the table above during fiscal 2018, compared to fiscal 2017 and during fiscal 2017 compared to fiscal 2016, were a result of the factors described in connection with revenues and operating expenses under Item 7. “Management ’ ’s Discussion and Analysis of Financial Conditions and Results of Operations – Results of Operations,” of this Form 10-K. “ In managing and reviewing our business performance, we exclude several 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 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: ff (Recovery on) Provision for Loss Contract. We entered a fixed-price customer contract on a multi-year arrangement, which included multiple vendors. As the system integrator on the project, we are subject to any cost overruns or increases with these vendors resulting in delays of acceptance by our customer. Delays of customer acceptance on this project result in incremental expenditures and require us to recognize a loss on this project in the period the determination is made. As a result, we recorded an estimated charge of $9.2 million in fiscal 2016. Subsequently, because of changes in the scope of the project and negotiations with the fixed-price customer, we recorded adjustments since fiscal 2016 totaling $4.7 million to reduce this estimated loss. We believe that the exclusion of this line item amount allows a comparison of operating results that would otherwise impair comparability between periods. 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. Change in Fair Value of Earn-outs. The change in the fair value of the earn-outs payable to the former shareholders of the businesses we acquire is considered by management to be non-recurring and therefore, impairs comparability among periods. ff 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 significant non-recurring expenses. Severance and Other Restructuring Costs. 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. Loss on Impairment of Long-lived Assets. We incur losses on impairment of long-lived assets when it is determined that an 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. These charges are considered non-recurring. rr 41 Liquidity and Capital Resources The following table includes key line items of our consolidated statements of cash flows: Total cash provided by (used in) operating activities Total cash provided by (used in) investing activities Total cash (used in) provided by financing activities Effect of exchange rate changes on cash, cash equivalents $ y For the Fiscal Years Ended January 31, 2016 2017 2018 (Amounts in thousands) (18,662) $ (13,046) 192 (28,338) $ (3,872) (123) 12,947 6,011 (87) $ FY18 vs FY17 $ Change FY17 vs FY16 $ Change $ 41,285 9,883 36 (9,676) 9,174 (315) and restricted cash (3,621) 1,929 312 (5,550) 1,617 Net increase (decrease) in cash, cash equivalents and restricted cash $ 15,250 $ (30,404) $ (31,204) $ 45,654 $ 800 Historically, we have financed our operations and capital expenditures primarily with cash on-hand. Cash, cash equivalents, restricted cash and marketable securities increased from $38.7 million at January 31, 2017 to $52.1 million at January 31, 2018. During fiscal 2018, we made significant reductions to our headcount as part of our ongoing restructuring effort from which we expect to generate annualized savings of approximately $18 million. These measures are important steps in restoring SeaChange to profitability and positive cash flow. The Company believes that existing funds and cash expected to be provided by future operating activities, augmented by the plans highlighted above, 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. a t 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 other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of market opportunities, to develop new products or to otherwise respond to competitive pressures. Operating Activities Below are key line items affecting cash from operating activities: NNet income (loss) Adjustments to reconcile net income (loss) to cash provided $ by (used in) operating activities NNet income (loss) including adjustments Decrease (increase) in accounts receivable and unbilled For the Fiscal Years Ended January 31, 2016 2017 2018 (Amounts in thousands) (47,697) $ (71,249) $ 13,498 $ FY18 vs FY17 $ Change FY17 vs FY16 $ Change 84,747 $ (23,552) (9,411) 4,087 44,924 (26,325) 41,550 (6,147) (54,335) 30,412 3,374 (20,178) receivables 9,100 4,736 (6,080) 4,364 10,816 (Increase) decrease in prepaid expenses and other current assets (Decrease) increase in accounts payable Increase (decrease) in accrued expenses Decrease in deferred revenues All other - net Net cash provided by (used in) operating activities $ (588) (2,499) 3,505 (1,078) 420 12,947 $ 1,378 (1,674) (4,872) (2,417) 836 (28,338) $ (1,097) 874 (2,712) (1,431) (2,069) (18,662) $ (1,966) (825) 8,377 1,339 (416) 41,285 $ 2,475 (2,548) (2,160) (986) 2,905 (9,676) For fiscal 2018, cash provided by operating activities was $12.9 million. This cash provided by operating activities was primarily the result of our net income, including adjustments, of $4.1 million and to the changes in working capital, which include a decrease in receivables of $9.1 million due to collections from customers during the fiscal year and to an increase in accrued expenses of $3.5 million, specifically income taxes payable from foreign locations and accrued bonus based on improved operating results of the Company in fiscal 2018. Offsetting these sources of cash was a $1.1 million decrease in deferred revenue and a $2.5 million decrease in accounts payable due to the timing of payments to vendors. 42 For fiscal 2017, we used net cash in operating activities of $28.3 million. This cash used in operating activities was primarily the result of our net loss including adjustments of $26.3 million offset by changes in working capital, which include a decrease in receivables of $4.7 million due to the timing of customer payments, offset by a decrease in accrued expenses of $4.9 million related to the payment of severance and bonuses, a $2.4 million decrease in deferred revenue and a $1.7 million decrease in accounts payable due to the timing of payments to vendors. a Investing Activities Cash flows from investing activities are as follows: Purchases of property and equipment Investment in capitalized software Purchases of marketable securities Proceeds from sale and maturity of marketable securities Proceeds from sale of investments in affiliates Acquisition of business, net of cash acquired Other investing activities $ Net cash provided by (used in) investing activities $ For the Fiscal Years Ended January 31, 2016 2017 2018 (Amounts in thousands) (1,397) $ (2,440) (9,033) 11,043 464 (11,686) 3 (13,046) $ (683) $ — (2,008) 4,005 — (5,243) 57 (3,872) $ (526) $ — (7,246) 8,992 4,555 — 236 6,011 $ FY18 vs FY17 $ Change FY17 vs FY16 $ Change 157 — (5,238) 4,987 4,555 5,243 179 9,883 $ $ 714 2,440 7,025 (7,038) (464) 6,443 54 9,174 In fiscal 2018, $6.0 million in cash was provided by investing activities. Specifically, we received proceeds of $4.6 million from the sale of our investment in affiliate in the fourth quarter of fiscal 2018. In addition, cash provided by investing activities includes $0.2 million in proceeds from the sale of property and equipment in fiscal 2018 and the proceeds from the sale or maturity of marketablea securities, net of purchases, during the fiscal year of $1.7 million. This was offset by cash used of $0.5 million for the purchase of capital assets during the fiscal year. ff In connection with the acquisition in January 2018 by T-Mobile of Layer 3, a next generation cable provider in which we previously had made an equity investment, we received $4.6 million upon closing of the transaction. In fiscal 2017, we used $3.9 million in cash related to investing activities. Specifically, we used cash of $5.2 million for the acquisition of DCC Labs and $0.7 million for the purchase of capital assets offset by $2.0 million of proceeds from the sale or maturity of marketable securities, net of purchases. Financing Activities Cash flows from financing activities are as follows: For the Fiscal Years Ended January 31, FY18 vs FY17 FY17 vs FY16 2018 2017 2016 $ Change $ Change Proceeds from issuance of common stock Other financing activities Net cash (used in) provided by financing activities $ $ $ 54 (141) (87) $ 60 (183) (123) $ (Amounts in thousands) $ $ 193 (1) 192 $ (6) $ 42 36 $ (133) (182) (315) For fiscal 2018 and fiscal 2017, cash (used in) provided by financing activities reflects proceeds received from the issuance of common stock for the employee stock purchase plan, offset by employee taxes paid when we withhold shares of common stock for tax-withholding purposes. Effect of exchange rate changes decreased cash and cash equivalents by $3.6 million for fiscal 2018, primarily due to the strengthening of the Euro against the U.S. dollar in fiscal 2018. 43 Contractual Obligations The following table reflects our current and contingent contractual obligations to make potential future payments as of January 31, 2018: Purchase obligations (1) Non-cancelable lease obligations (2) Non-cancelable lease obligations (2) Total $ $ 2,844 3,501 6,345 $ $ Total Less than one year One to three years (Amounts in thousands) — $ $ 1,589 1,589 $ $ Three to five years Over five years — $ 598 598 $ — — — 2,844 1,314 4,158 (1) (2) 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. Represents the minimum lease cash payments for operating lease obligations. Excludes aggregate related sublease rental receipts of $0.1 million on operating lease obligations. 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, 2018, we have gross unrecognized tax benefits of $4.9 million. 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, revenues, expenses and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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 ff the preparation of our consolidated financial statements. used in Principles of Consolidation The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Our investments in affiliates include investments accounted for under the cost method of accounting as the investments represent less than a 20% ownership interest of the common shares of the affiliate are carried at cost. We periodically review indicators of the fair value of our investments in affiliates 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 accounted for under the cost method of accounting may be affected by the affiliate’s ability to obtain adequate funding and execute its business plans, general market conditions, its current cash position, earnings and cash flow forecasts, recent operational performance, and any other readily available data. We record an impairment charge when we believe an investment has experienced a decline in value that is other-than-temporary. 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; 44 • • • 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. The percentage of completion method requires that adjustments or re-evaluations to estimated project revenues and costs be recognized on a project-to- date cumulative basis, as changes to the estimates are identified. Revisions to project estimates are made as additional information becomes known, including information that becomes available after date such consolidated financial statements are filed with the SEC. If the final estimated profit to complete a long-term contract indicates a loss, a provision is recorded immediately for the total loss anticipated. 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. the date of the consolidated financial statements up through the ff ff Contract accounting requires judgment relative to assessing risks, estimating revenues and costs and making assumptions including, in the case of our professional services contracts, the total amount of labor required to complete a project and the complexity of the development and other technical work to be completed. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complicated and subject to many variables. Assumptions must be made regarding the length of time to complete the contract because costs also include estimated third-party vendor and contract labor costs. Penalties related to performance on contracts are considered in estimating sales and profit, and are recorded when there is sufficient information for us to assess anticipated performance. Third-party vendors’ assertions are also assessed and considered in estimating costs and margin. 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 like that for other tangible products and Accounting Standard Update No. (“ASU”) 2009-13, ” amended ASC 605 and is applicable for multiple- “ “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, 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 except for maintenance and technical support. 45 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-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, most of the professional services components of the arrangements with customers are performed within a year of entering 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 an 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 about 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 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 in our consolidated statements of operations and comprehensive income (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. 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. 46 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. a Inventories and Reserves Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Inventories consist primarily of components and subassemblies and finished products held for sale. All 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 DCC Labs on May 5, 2016. 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 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. 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 once determined, 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 consolidated statements of operations and comprehensive income (loss) and statement of financial position in the period of the change in estimate. 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. In August 2017, we placed our corporate headquarters and the adjacent land (the “Corporate Headquarters”), located in Acton, Massachusetts, on the market for sale. We assessed whether the Corporate Headquarters would qualify as an asset held for sale and determined that it would not since it did not meet all six of the criteria of an asset held for sale under current accounting guidance. During the assessment, we received information from a third-party real estate broker which led management to believe that there was a significant decrease in the fair value of the Corporate Headquarters. We considered this to be a triggering event and were required to test the Corporate Headquarters for recoverability. We evaluated the undiscounted future cash flows over the remaining useful life of 47 the primary asset of the asset group and determined that an impairment did not exist as of the date of the triggering event. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time. 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, backlogs and patents. We engage third-party valuation specialists to assist us with the initial measurement of the fair value of acquired intangible assets. Acquired intangible assets, other than goodwill, are 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. a Goodwill 2017-04 eliminated Step 2 of the goodwill impairment test In connection with acquisitions of businesses, we recognize the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired as goodwill. Goodwill is not amortized, but is evaluated for impairment at least annually, in our third quarter beginning August 1st, or more frequently if indicators are present or changes in circumstances suggest that an impairment SU 2017-04 “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for exists. As of August 1, 2017, we early adopted ASU 2017-04, Goodwill Impairment.” ASU 2017-04 to determine the fair value at the impairment testing date of its assets and liabilities. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. In accordance with the new standard, we compare the fair value of our reporting unit with the carrying amount, including goodwill. We recognize an impairment charge for the amount by which the carrying amount exceeds a reporting unit’s fair value, as applicable. The process of evaluating goodwill for impairment requires several judgments and assumptions to be made to determine the fair value, 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 the three generally accepted approaches for valuing businesses: the market approach, based (cost) approach to arrive at the fair value. The choice of which approach and methods to use in a situation depends on the facts and circumstances. in which an entity had to perform procedures the income approach, and the asset- “ a rr In evaluating goodwill for impairment, we chose to use the market approach and the income approach to determine the fair value. The market approach provides value indications through a comparison with guideline public companies or guideline transactions. The valuation multiple is an expression of what investors believe to be a reasonable valuation relative to a measure of financial information such as revenues, earnings or cash flows. The income approach provides value indications through an analysis of its projected earnings, discounted to present value. We employed a weighted-average cost of capital rate other factors such as equity risk premiums and the ratio of total debt to equity capital. In performing the annual impairment test, we took steps to ensure appropriate and reasonable cash flow projections and assumptions were used. based on the risk-free interest rate and a Our projections for the next two and a half years included increased operating expenses in line with the expected revenue growth based on current market and economic conditions and our historical knowledge. Historical growth rates served as only one input to the projected future growth used in the goodwill impairment analysis. These historical growth rates were adjusted based on other inputs regarding anticipated customer contracts. The forecasts have incorporated any changes to the revenue and operating expenses through the end of fiscal 2018. We estimated the operating expenses based on a rate consistent with the current experience and estimated revenue growth over the next two and a half years. Future adverse changes in market conditions or poor operating results could result in losses, thereby possibly requiring an impairment charge in the future. In the third quarter of fiscal 2018, we finalized the “Step 1” analysis of our annual goodwill impairment test for fiscal 2018. Based on this analysis, we determined that fair value of our reporting unit exceeded its carrying value, which was $64.2 million at August 1, 2017. As a result, no impairment charge was required related to the annual test. rr In addition, since we considered the significant decrease in fair value of the Corporate Headquarters a triggering event, we were required to complete an additional goodwill impairment test as of the date of the triggering event. We completed the additional goodwill impairment test and determined that the implied fair value of the reporting unit exceeds its carrying value as of the date of the triggering event. Accordingly, no impairment charge was recognized in fiscal 2018. During our fiscal 2017 annual impairment test, we determined based on “Step 1” that the fair value of our reporting unit was less than its carrying value, which was $102.5 million at August 1, 2016. Our forecast indicated that the estimated fair value of net assets was less than the carrying value which is a potential indicator of impairment. The comparison of estimated fair value to the carrying value 48 rr of our reporting unit ranged from a shortfall of approximately $23.0 million to $14.5 million. Since the estimated fair value of our reporting unit was less than its carrying value, we determined that it was necessary to perform “Step 2” of the impairment test. In “Step 2” of the impairment test we compared the implied fair value of our goodwill to its carrying value. After adjusting the carrying value of all assets, liabilities and equity to fair value at August 1, 2016, the estimated implied fair value of goodwill was calculated to be $22.3 million. Since the implied fair value of goodwill of $22.3 million is less than the carrying value of $45.8 million as of August 1, 2016, we recorded an impairment charge of $23.5 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) in the fourth quarter of fiscal 2017. 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 carrying value of our capitalized internally developed software costs was $0.7 million as of January 31, 2018. Maintenance and training costs are expensed as incurred. In November 2017, we closed our Philippines facility as part of our cost-savings initiatives which began in the second half of fiscal 2017. As a result, we wrote off $0.1 million of internally developed software costs to severance and other restructuring costs in our consolidated statements of operations and comprehensive income (loss). a 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 $0.9 million, $1.0 million and $0.1 million in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Accounting for Income Taxes Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statements of operations and comprehensive income (loss) except to the extent that it relates to items recognized directly within equity or in other comprehensive income (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. r 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. ff 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 a 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. Our policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as a component of income tax (benefit) provision, in our consolidated statements of operations and comprehensive income (loss). 49 Because there are several 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. On December 22, 2017, the Tax Reform Act was signed into law. We are required to recognize in the period of enactment, the effect of the tax law changes, such as re-measuring our U.S. deferred tax assets and liabilities, reassessing the net realizability of deferred tax assets and liabilities, and determining the applicability of the one-time mandatory transition tax on accumulated foreign earnings. Additionally, on December 22, 2017, the SEC staff issued SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act.” SAB 118 has provided guidance which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result of the change in law, including a reduction in the corporate tax rate, the Company recorded a provisional reduction to its deferred tax assets of $17.1 million and a corresponding reduction to its valuation allowance in the fourth quarter of fiscal 2018 which represents the Company’s best estimate of the impact of the Tax Reform Act in accordance with the Company’s understanding of the Tax Reform Act and available guidance as of the date of this filing. As a result, there was no impact to the Company’s consolidated statements of operations and comprehensive income (loss) income statement due to the reduction in the U.S. corporate tax rate. We will continue to analyze the Tax Reform Act and related accounting guidance and interpretations in order to finalize any impacts within the measurement period. See Note 12, “Income Taxes, more information. ” to this Form 10-K for “ “ 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 non-market-based awards. We also use the Monte Carlo pricing model for our market- based option awards and performance stock units (“PSUs”). 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 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 market-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis, whereas the fair value of non-market-based awards and employee stock purchase plan (“ESPP”) stock units, less estimated forfeitures, are amortized on a straight-line basis. forfeiture t 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 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 intercompany transactions are included in other income (expenses), net on our consolidated statements of operations and comprehensive income (loss). 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 intercompany transactions are included in other income (expenses), net on our consolidated statements of operations and comprehensive income (loss). The aggregate foreign exchange transaction gain (loss) included as other income (expenses), net, on our consolidated statements of operations and comprehensive income (loss) was $3.8 million, ($2.1) million and ($0.7) million for the fiscal years ended January 31, 2018, 2017 and 2016, respectively. 50 Recent Accounting Standard Upd ates dd SS We consider the applicability and impact of all ASUs on our consolidated financial statements. 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. Recently issued ASUs which we feel may be applicable to us are as follows: a Recently Issued Accounting Standard Updates – Not Yet Adopted Comprehensive Income “ In February 2018, the FASB issued ASU 2018-02, “Income Statement Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (“Tax Cuts and Jobs Act”)” , which requires deferred tax liabilities and assets to be adjusted for the effect of a cha earnings for stranded tax effects resulting from the Tax Reform Act. ASU 2018-02 is effective for us in the first quarter of fiscal 2020. Early adoption is permitted. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements. ssification from accumulated other comprehensive income to retained – Reporting Comprehensive Income (Topic 220): ASU 2018-02 allows a recla nge in tax laws. A Revenue from Contracts with Customers (Topic 606) In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using International Financial Reporting Standards and U.S. GAAP. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to approve a one-year deferral, making the standard effective for public entities for annual and interim periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The purpose of ASU 2016-08 is to clarify the guidance on principal versus agent considerations. It includes indicators that help to determine whether an entity controls the specified good or service before it is transferred to the customer and to assist in determining when the entity satisfied the performance obligation and as such, whether to recognize a gross or a net amount of consideration in their consolidated statement of operations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies that entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract. ASU 2016-10 also addresses how to determine whether promised goods or services are separately identifiable and permits entities to make a policy election to treat shipping and handling costs as fulfillment activities. In addition, it clarifies key provisions in Topic 606 related to licensing. In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815).” ASU 2016-11 rescinds previous SEC comments that were codified in Topic 605, Topic 932 and Topic 815. Upon adoption of Topic 606, certain SEC comments including guidance on accounting for shipping and handling fees and costs and consideration given by a vendor to a customer should not be relied upon. In May 2016, the FASB also issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients.” ASU 2016-12 provides clarity around collectability, presentation of sales taxes, non-cash consideration, contract modifications at transition and completed contracts at transition. ASU 2016-12 also includes a technical correction within Topic 606 related to required disclosures if the guidance is applied retrospectively upon adoption. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” ASU 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the optional exemptions to expand their qualitative disclosures. ASU 2016-20 also clarifies other areas of the new revenue standard, including disclosure requirements for prior period performance obligations, impairment guidance for contract costs and the interaction of impairment guidance in ASC 340-40 with other guidance elsewhere in the Codification. The Company has elected the modified retrospective adoption model, effective February 1, 2018. The Company’s quarterly results beginning with the quarter ending April 30, 2018 and comparative prior periods will be compliant with ASC 606 and its Form 10-K for the year ended January 31, 2019 will be the Company’s first Annual Report that will be issued in compliance with ASC 606. 51 The Company has substantially completed the implementation of ASC 606 and has identified the necessary changes to its policies, processes, systems, and controls. Based upon the work performed to date, the Company expects to record a cumulative-effect adjustment as of February 1, 2018 to increase retained earnings by an estimated range of approximately $1.7 million to $4.0 million. Such adjustment includes an increase in retained earnings by approximately $1 million to $3 million due to higher revenue that would have been recognized under ASC 606 if the standard had been adopted for the fiscal year ended January 31, 2018 and an increase in retained earnings of $0.7 million to $1.0 million due to reduced commission expense that would have been recognized under ASC if the standard had been adopted for the fiscal year ended January 31, 2018. The resulting tax effect of this cumulative-effect adjustment is not expected to be significant to retained earnings. We expect to fully disclose the impacts of the new standard in connection with our Form 10-Q filing for the first quarter of fiscal 2019. d 606 The Company anticipates the following impacts upon adoption of the standard: • • • • • Currently, the Company recognizes revenue from perpetual licenses with extended payment terms over the term of the agreement as payments are received, provided all other criteria for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from perpetual license performance obligations with extended payment terms will be recognized when control is transferred to the customer. Any unrecognized license revenue from the arrangement, included in deferred revenue at January 31, 2018, will not be recognized in revenue in future periods but as a cumulative adjustment to retained earnings. Further, revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet. Currently, the Company allocates revenue to licenses under the residual method when it has Vendor Specific Objective Evidence (“VSOE”) for the remaining undelivered elements, which allocates any future credits or significant discounts entirely to the license. The adoption of ASC 606 will result in future credits, significant discounts, and material rights under ASC 606, being allocated to all performance obligations based upon their relative selling price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer, which is generally upon delivery of the license. Currently, the Company does not have VSOE for professional services and maintenance in certain geographical areas, which results in revenue being deferred in such instances until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a standalone selling price. Once the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when control is transferred to the customer and professional services revenue will be recognized over time based on labor hours expended. This will result in the acceleration of professional services revenue when compared to the current practice of ratable recognition for professional services when there is a lack of VSOE. Sales commissions and other third-party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset when incurred and to be expensed over the associated contract term. However, because the sales commission paid on the maintenance renewals is not commensurate with the original deal, ASC 606 requires that these acquisition costs be expensed over the customer life, which we have estimated to be five years. The Company expects this change to impact all arrangements that included implicit or explicit maintenance contracts. ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognition of revenue as compared to how contract modifications are recognized currently. There will be a corresponding effect on tax liabilities in relation to all of the above impacts. Leases In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842). asset and a lease liability for operating leases with terms over twelve months, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. It also requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line ” ASU 2016-02 requires a lessee to recognize a right-of-use “ 52 basis over the term of the lease. ASU 2016-02 is effective for us in the first quarter of fiscal 2020. Early adoption is permitted. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements. Recently Issued Accounting Standard Updates – Adopted During the Period Income Taxes In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” ASU 2018-05 amends ASC 740, “Income Taxes ” to provide guidance on accounting for the tax effects of the Tax Reform Act pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Reform Act enactment date. This update was effective upon issuance. Therefore, we have applied the guidance in this update within our consolidated financial statements for the fiscal year ended January 31, 2018. See Note 12, “Income Taxes, ” of this Form 10-K for more information on the adoption of this guidance. “ “ “ 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 and the Euro. All foreign currency gains and losses are included in other income (expenses), net, in the accompanying consolidated statements of operations and comprehensive income (loss). For fiscal 2018 we recorded $3.8 million in gains primarily due to the settlement of a note receivable between our Netherlands and British Virgin Islands entities. The loan was established in Euros, our Netherland subsidiary’s functional currency, and therefore generated a realized foreign exchange gain of $2.0 million. In addition, we also re-measured the deferred tax liability related to the outside basis difference of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability. Due to the weakening of the U.S. dollar against exchange gain of $2.4 million when this deferred tax liability was reversed in January 2018. the Euro in fiscal 2018, we recorded a foreign a ff A substantial portion of our earnings are generated by our foreign subsidiaries whose functional currency are other than the U.S. dollar. Therefore, 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 strengthened by 10% compared to the Euro, our total revenues would have decreased by $3.3 million and loss from operations would have decreased $1.9 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. 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, 2018, a hypothetical 10% adverse movement in interest rates should not have a material adverse impact on the fair value of our investment portfolio. 53 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, 2018 and 2017 .................................................................................................... Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2018, 2017 and 2016 .... Consolidated Statements of Cash Flows for the years ended January 31, 2018, 2017 and 2016 ................................................ Consolidated Statements of Stockholders’ Equity for the years ended January 31, 2018, 2017 and 2016................................... Notes to Consolidated Financial Statements.................................................................................................................................. Schedule II—Valuation and Qualifying Accounts and Reserves .................................................................................................. Page 55 57 58 59 60 61 101 54 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders SeaChange International, Inc. Opinions on the financial statements and internal control over financial reporting We have audited the accompanying consolidated balance sheets of SeaChange International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended January 31, 2018, and the related notes and schedule (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of January 31, 2018, based on criteria established in the 2013 Internal Control—ll — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2018, based on criteria established in the 2013 Integrated Framework — Internal Control—ll issued by COSO. a Basis for opinions The Company’s management is responsible for these financial statements, 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 financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and limitations of internal control over financial reporting 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 55 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. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2007. Boston, Massachusetts April 16, 2018 56 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 $16 and $876 at January 31, 2018 and January 31, 2017, 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, net Other assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Deferred revenues Other accrued expenses Total current liabilities Deferred revenues, long-term Taxes payable, long-term Deferred tax liabilities, long-term Other liabilities, long-term Total liabilities Commitments and contingencies (Note 8) Stockholders' equity: Common stock, $0.01 par value; 100,000,000 shares authorized; 35,634,984 shares issued and 35,594,494 outstanding at January 31, 2018, and 35,339,232 shares issued and 35,298,742 outstanding at January 31, 2017 Additional paid-in capital Treasury stock, at cost; 40,490 common shares at January 31, 2018 and January 31, 2017, respectively Accumulated loss Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity January 31, 2018 January 31, 2017 $ $ $ $ 43,652 9 3,991 22,537 3,101 666 3,557 77,513 9,471 4,449 — 1,303 25,579 1,015 119,330 2,431 11,598 15,379 29,408 2,835 1,152 215 — 33,610 356 239,423 (5) (148,620) (5,434) 85,720 119,330 $ $ $ $ 28,302 109 5,253 25,985 6,553 770 2,393 69,365 11,485 4,991 2,000 2,603 23,287 2,336 116,067 4,978 12,517 9,928 27,423 2,419 1,427 14,732 530 46,531 353 236,677 (5) (162,118) (5,371) 69,536 116,067 The accompanying notes are an integral part of these consolidated financial statements. 57 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Amounts in thousands, except per share data) For the Fiscal Years Ended January 31, 2017 2016 2018 Revenues: Products Services Total revenues Cost of revenues: Products Services (Recovery on) provision for loss contract Amortization of intangible assets Stock-based compensation expense 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 Change in fair value of earn-outs Professional fees - other Severance and other restructuring costs Loss on impairment of long-lived assets Total operating expenses Loss from operations Other income (expenses), net Gain (loss) on investment in affiliates Income (loss) from operations before income taxes and equity income in earnings of affiliates Income tax (benefit) provision Equity income in earnings of affiliates, net of tax NNet income (loss) NNet income (loss) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment Unrealized loss on marketable securities(1) Comprehensive income (loss) NNet loss per share: Basic Diluted Weighted average common shares outstanding: Basic Diluted (1) Tax amounts for all periods were not significant $ 28,791 51,476 80,267 $ 18,205 65,590 83,795 $ 21,896 85,096 106,992 3,942 22,001 (593) 970 3 26,323 53,944 23,162 12,614 14,671 1,453 2,693 — 21 4,740 — 59,354 (5,410) 4,081 2,555 1,226 (12,272) — $ 13,498 $ 13,498 (3) (60) $ 13,435 $ $ 0.38 0.38 35,412 35,685 6,453 35,740 (4,118) 1,283 132 39,490 44,305 30,093 16,158 16,173 2,019 2,489 249 347 7,151 23,772 98,451 (54,146) (1,972) (500) (56,618) 14,631 — $ (71,249) $ (71,249) 1,267 (25) $ (70,007) $ $ (2.04) (2.04) 34,970 34,970 6,013 44,159 9,162 739 80 60,153 46,839 33,696 15,197 15,470 4,041 3,472 — 637 1,061 21,464 95,038 (48,199) (523) (31) (48,753) (1,029) 27 $ (47,697) $ (47,697) (847) (12) $ (48,556) $ $ (1.42) (1.42) 33,506 33,506 The accompanying notes are an integral part of these consolidated financial statements. 58 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) For the Fiscal Years Ended January 31, 2017 2016 2018 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: $ 13,498 $ (71,249) $ (47,697) Depreciation and amortization of property and equipment (Recovery on) provision for loss contract Amortization of intangible assets Provision for bad debts Stock-based compensation expense Deferred income taxes (Gain) loss on investment in affiliates Loss on impairment of long-lived assets Other Changes in operating assets and liabilities, excluding impact of acquisitions: Accounts receivable Unbilled receivables Inventories Prepaid expenses and other assets Accounts payable Accrued expenses Deferred revenues Other operating activities Total cash provided by (used in) operating activities Cash flows from investing activities: Purchases of property and equipment Investment in capitalized software Purchases of marketable securities Proceeds from sale and maturity of marketable securities Proceeds from sale of investment in affiliates Acquisition of businesses and payment of contingent consideration, net of cash acquired Other investing activities Total cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from issuance of common stock Payments of withholding tax on RSU vesting Total cash (used in) provided by financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash NNet increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosure of cash flow information: Income taxes paid Interest paid Supplemental disclosure of non-cash investing and financing activities: Fair value of common stock issued for acquisition of DCC Labs Fair value of common stock issued for acquisition of TLL, LLC Fair value of common stock issued for deferred stock consideration obligation Transfer of items originally classified as inventories to equipment g y 2,273 (593) 2,423 79 2,696 (14,132) (2,555) — 398 5,132 3,968 34 (588) (2,499) 3,505 (1,078) 386 12,947 (526) — (7,246) 8,992 4,555 — 236 6,011 54 (141) (87) (3,621) 15,250 28,411 43,661 368 — — — — — $ $ $ $ $ $ $ 2,953 (4,118) 3,302 597 2,621 14,676 500 23,772 621 42 4,694 806 1,378 (1,674) (4,872) (2,417) 30 (28,338) (683) — (2,008) 4,005 — (5,243) 57 (3,872) 60 (183) (123) 1,929 (30,404) 58,815 28,411 178 6 2,640 — 3,452 24 $ $ $ $ $ $ $ 3,380 9,162 4,780 58 3,552 (985) 31 21,464 108 (1,721) (4,359) (937) (1,097) 874 (2,712) (1,431) (1,132) (18,662) (1,397) (2,440) (9,033) 11,043 464 (11,686) 3 (13,046) 193 (1) 192 312 (31,204) 90,019 58,815 640 6 — 3,019 1,754 532 $ $ $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 59 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in thousands, except share amounts) Common Stock Par Value Additional Paid- In Capital 327 $ 219,651 $ Accumulated Deficit (43,172) $ Accumulated Other Comprehensive Income (Loss) Unrealized Cumulative Gain/Loss on Translation Investments Adjustment 43 $ (5,797) j Treasury Stock Number of Shares (39,784) $ Amount Total Stockholders' y Equity 171,051 (1) $ Balance at January 31, 2015 Issuance of common stock pursuant to exercise of stock options Issuance of common stock pursuant to vesting of restricted stock units Issuance of common stock pursuant to the TLL, LLC acquisition Purchase of treasury shares Stock-based compensation expense Change in fair value on marketable securities Translation adjustment NNet loss Balance at January 31, 2016 Issuance of common stock pursuant to vesting of restricted stock units Issuance of common stock pursuant to the TLL, LLC acquisition Issuance of common stock pursuant to TLL purchase adjustment mechanism Issuance of commons stock pursuant to the acquisition of DCC Labs Issuance of common stock pursuant to ESPP purchases Purchase of treasury shares Stock-based compensation expense Fiscal 2016 compensation paid in restricted stock units Change in fair value on marketable securities Translation adjustment NNet loss Balance at January 31, 2017 Issuance of common stock pursuant to vesting of restricted stock units Issuance of common stock pursuant to ESPP purchases Stock-based compensation expense Change in fair value on marketable securities Translation adjustment NNet income Balance at January 31, 2018 y Number of Shares 32,733,636 $ 28,740 278,544 777,857 — — — — — 33,818,777 208,474 542,274 70,473 681,278 17,956 — — — — — — 35,339,232 271,285 24,467 — — — — 35,634,984 $ — 3 8 — — — — — 338 2 5 1 7 — — — — — — — 353 3 — — 193 (3) 4,771 — 3,552 — — — — — — — — — — — — — — — — — — (122) — — — — 228,164 — — (47,697) (90,869) — (847) — (6,644) (12) — — 31 — — — (39,906) — 3,198 248 2,633 61 — 2,621 (248) — — — 236,677 (3) 53 2,696 — — — — — — — — — — — — — — — — — — (71,249) (162,118) — 1,267 — (5,377) — — — — — — — — — (1) — — — — (2) — — — — — (3) — — — — — (5) — — — 193 — 4,779 (1) 3,552 (12) (847) (47,697) 131,018 2 3,203 249 2,640 61 (3) 2,621 (248) (25) 1,267 (71,249) 69,536 — 53 2,696 (60) (3) 13,498 85,720 — — — — — (584) — — — — — (40,490) — — — — — — — — — — — (25) — — 6 — — — (60) — — (54) — — — 356 $ 239,423 $ (148,620) $ — — 13,498 — — — — (3) — (5,380) $ — — — (40,490) $ — — — (5) $ The accompanying notes are an integral part of these consolidated financial statements. 60 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business We are an industry leader in the delivery of multiscreen, advertising and premium over-the-top (“OTT”) video management solutions. Our products and services are designed to empower video providers to create, manage and monetize the increasingly personalized, highly engaging experiences that viewers demand. 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 accounting principles generally accepted in the United States (“U.S. GAAP”). We consolidate the financial statements of our wholly-owned subsidiaries and all intercompany transactions and account balances have been eliminated in consolidation. We have reclassified certain prior period data to conform to our current fiscal year presentation. Effective February 1, 2017, the Company changed how it classifies costs associated with its solution architect employees. In fiscal 2017, all solution architect costs were classified as cost of revenues. However, beginning in fiscal 2018, the Company began reflecting in cost of revenues only those costs associated with revenue-generating projects, based on the hours worked by solution architect employees. Solution architect costs that are not associated with revenue-generating projects are recognized as selling and marketing expenses since these employees are involved in pre-sale and other customer-facing activities. We have adjusted prior fiscal year amounts to conform to the current fiscal year presentation. The effect of this change in methodology, which is a decrease to cost of revenue and an increase to selling and marketing expenses, is reflected in our current statements of operations and comprehensive income (loss) for fiscal 2017. There were no such costs in fiscal 2016: ff Cost of revenues - service Selling and marketing expenses g g As Filed Fiscal 2017 January 31, 2017 Adjustment to Conform to Current Year Presentation (Amounts in thousands) As Filed Fiscal 2018 January 31, 2017 $ $ 37,865 14,033 $ $ (2,125) $ $ 2,125 35,740 16,158 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. Cash, cash equivalents and restricted cash Cash and cash equivalents include cash on hand and on deposit and highly liquid investments in money market mutual funds, government sponsored enterprise obligations, treasury bills, commercial paper and other money market securities with remaining maturities at date of purchase of 90 days or less. All cash equivalents are carried at cost, which approximates fair 61 value. Restricted cash represents cash that is restricted as to withdrawal or usage and consists primarily of cash held as collateral for performance obligations with our customers. We early adopted the new Financial Accounting Standards Board (“FASB”) guidance on August 1, 2017, which changed the presentation of our consolidated statements of cash flows and related disclosures for all periods presented. Accordingly, the following is a summary of our cash, cash equivalents, and restricted cash total as presented in our consolidated statements of cash flows for the fiscal years ended January 31, 2018, 2017 and 2016: Cash and cash equivalents Restricted cash Total cash, cash equivalents, and restricted cash Marketable Securities For the Fiscal Year Ended January 31, 2017 (Amounts in thousands) $ 28,302 109 $ 28,411 2018 $ 43,652 9 $ 43,661 2016 $ 58,733 82 $ 58,815 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 and bonds, U.S. government agency notes and bonds and corporate bonds at January 31, 2018 and 2017, but can consist of 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 included in other income (expenses), net in our consolidated statements of operations and comprehensive income (loss). Interest on securities is recorded as earned and is also included in other income (expenses), net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and comprehensive income (loss) in other income (expenses), net. computed under the effective interest method and are t 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 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. a Liquidity We continue to realize the savings related to our restructuring activities. During fiscal 2018, we made significant reductions to our headcount as part of our ongoing restructuring effort from which we expect to generate annualized savings of approximately $18 million. These measures are important steps in restoring SeaChange to profitability and positive cash flow. The Company believes that existing funds and cash expected to be provided by future operating activities are adequate to satisfy our working capital, potential strategic collaborations and capital expenditure requirements and other contractual obligations for the foreseeable future, including at least the next 12 months. Fair Value Measurements Definition and Hierarchy y f 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 after initial measurement, in a fair value hierarchy. 62 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: • • • Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not very active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Valuation Techniques Inputs to valuation techniques are observable and unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. When developing fair value estimates for certain financial assets and liabilities, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices, market comparables and discounted cash flow projections. Financial assets include money market funds, U.S. treasury notes or bonds, U.S. government agency bonds and corporate bonds. ff a In general, and where applicable, we use quot 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. ed prices in active markets for identical assets or liabilities to determine fair value. 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, 2018, one customer represented more than 10% of consolidated accounts receivable while as of January 31, 2017, two customers did. For fiscal 2018 and fiscal 2017, one customer accounted for more than 10% of our total revenue while two customers accounted for more than 10% of our total revenue in fiscal 2016. 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 may 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 specific doubtful accounts for estimated losses resulting from the inability of our 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 income (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, 2018, allowance for doubtful accounts was not a material amount, while our allowance for doubtful accounts was $0.9 million at January 31, 2017 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 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 estimates about future demand, or possible alternative uses and involves significant judgments. 63 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, net of accumulated depreciation and amortization, and are 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 the resulting gain or loss, if any, is recognized in other income (expenses), net in our consolidated statements of operations and comprehensive income (loss). Investments in Affiliates Our investments in affiliates include investments accounted for under the cost method of accounting as the investments represent less than a 20% ownership interest of the common shares of the affiliate. We periodically review indicators of the fair value of our investments in affiliates 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 accounted for under the cost method of accounting may be affected by the affiliate’s ability to obtain adequate funding and execute its business plans, general market conditions, its current cash position, earnings and cash flow forecasts, recent operational performance, and any other readily available data. We record an impairment charge when we believe an investment has experienced a decline in value that is other-than-temporary. In January 2017, we recorded a $0.5 million impairment charge to gain (loss) on investment in affiliates in our consolidated statements of operations and comprehensive income (loss) for one of our cost-method investments as we determined that the fair value of the investment was below its carrying value and that the carrying value was not expected to be recoverable within a reasonable amount of time (see Note 3, “Fair Value Measur ements” to this Form 10-K for more information). “ rr In connection with the acquisition in January 2018 by T-Mobile of Layer3 TV, Inc. (“Layer 3”), a next generation cable provider in which we previously had made an equity investment, we received $4.6 million upon closing of the transaction, with an additional payment of up to $2.1 million being held in escrow, subject to satisfaction of the escrow provisions. As a result of the sale of our investment in Layer 3, we realized a gain of $2.6 million in gain (loss) on investment in affiliates in our consolidated statements of operations and comprehensive income (loss) for fiscal 2018. Intangible Assets and Goodwill Intangible assets consist of customer contracts, non-compete agreements, completed technology, trademarks, backlogs 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, to reflect the period that the assets will be consumed, which are: g Intangible assets with finite useful lives: Customer contracts NNon-compete agreements Completed technology Trademarks, patents and other 1 - 8 years 2 - 3 years 4 - 6 years 5 - 7 years 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 64 development are treated as construction in progress until the technology is available for intended use, at which time the amortization commences. The carrying value of our capitalized internally developed software costs was $0.7 million as of January 31, 2018. Maintenance and training costs are expensed as incurred. 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, 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 the three generally accepted approaches for valuing businesses: the market approach, based (cost) approach to arrive at the fair value. The choice of which approach and methods to use in a particular situation depends on the facts and circumstances. the income approach and the asset- a 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 primary asset in the asset group 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. In August 2017, we placed our corporate headquarters and the adjacent land (the “Corporate Headquarters”), located in Acton, Massachusetts, on the market for sale. We assessed whether the Corporate Headquarters would qualify as an asset held for sale and determined that it would not since it did not meet all six of the criteria of an asset held for sale under current accounting guidance. During the assessment, we received information from a third-party real estate broker which led management to believe that there was a significant decrease in the fair value of the Corporate Headquarters. We considered this to be a triggering event and were required to test the Corporate Headquarters for recoverability. We evaluated the undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and determined that an impairment did not exist as of the date of the triggering event. In the third quarter of fiscal 2017, we finalized our “Step 1” analysis of our annual goodwill impairment test. Our forecast indicated that the estimated fair value of net assets may be less than its carrying value which is a potential indicator of impairment. As such, we were required to perform “Step 2” of the impairment test during which we compared the implied fair value of our goodwill to its carrying value. fourth quarter of fiscal 2017. Since the implied fair value of goodwill was determined to be lower than its carrying value, we recorded an impairment charge of $23.5 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) (see Note 6, “Goodwill and Intangible Assets” to this Form 10-K for more information). We completed the goodwill impairment testing of our reporting unit during the rr In January 2017, after a potential buyer declined to purchase our facility in Greenville, New Hampshire, we determined that the sale of this facility was not imminent due to the location of the building and the overall market conditions in the area. Consequently, we decided to fully impair the facility since we felt the carrying amount was greater than the fair value. As a result, we recorded a $0.3 million loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss). rr In the fourth quarter of fiscal 2017, a certain cost-method investment was determined to be impaired and written off. Accordingly, we recorded a $0.5 million impairment charge in January 2017 which is included in loss on investment in affiliates in our consolidated statements of operations and comprehensive income (loss). The cost-method investment is a privately-held entity without quoted market prices and therefore, falls within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine its fair value. In determining the fair value of this cost-method investment, we considered 65 many factors including, but not limited to, operating performance of the investee, the amount of cash that the investee has on hand and the overall market conditions in which the investee operates. As of January 31, 2016, the Company reviewed the projected future cash flows of the Timeline Labs operations and determined that the carrying amount was greater than the fair value. As a result, all long-term assets related to Timeline Labs were fully impaired and reflected as a $21.9 million loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016 which included: i) $15.8 million relating to the Timeline Labs acquired goodwill, ii) $5.2 million of acquired intangible assets, and iii) $0.9 million of capitalized internal use software. Additionally, we reduced the contingent consideration liability associated with the Timeline Labs acquisition to zero, as we determined the defined performance criteria would not be achieved. Therefore, we recorded the reversal of the liability of $0.4 million to the loss on impairment of long-lived assets. The amount of goodwill impaired represented all the goodwill that resulted from this acquisition due to the short duration of time between the acquisition and the event causing us to impair the assets. a Income Taxes Income taxes comprise current and deferred income tax. Income taxes are recognized in the consolidated statements of operations and comprehensive income (loss) except to the extent that it relates to items recognized directly within equity or in other comprehensive income (loss). Income taxes payable, which is included in other accrued expenses in our consolidated balance sheets, is the expected taxes 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. r 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. rr 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 tax assets originated and assets is dependent upon the generation of future taxable income in the countries where the deferred 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. a 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. Our policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as a component of income tax (benefit) provision, in our consolidated statements of operations and comprehensive income (loss). Because there are several 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. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“Tax Reform Act”) was signed into law. We are required to recognize in the period of enactment, the effect of the tax law changes, such as remeasuring our U.S. deferred tax assets and liabilities, reassessing the net realizability of deferred tax assets and liabilities, and determining the applicability of the one-time mandatory transition tax on accumulated foreign earnings. Additionally, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. (“SAB”) 118, “Income Tax Accounting Implications of guidance which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result of the change in law including a reduction in the corporate tax rate, the Company recorded a provisional reduction to its deferred tax assets of $17.1 million and a corresponding reduction to its valuation allowance in the fourth quarter of fiscal 2018, which represents the Company’s best estimate of the impact of the Tax Reform Act in accordance the Tax Cuts and Jobs Act.” SAB 118 has provided “ a 66 with the Company’s understanding of the Tax Reform Act and available guidance as of the date of this filing. As a result, there was no impact to the Company’s consolidated statements of operations and comprehensive income (loss) due to the reduction in the U.S. corporate tax rate. We will continue to analyze the Tax Reform Act and related accounting guidance and interpretations in order to finalize any impacts within the measurement period. See Note 12, “Income Taxes, for more information. ” to this Form 10-K “ Restructuring Restructuring charges that we record consist of employee-related severance charges, remaining lease obligations and termination costs, and the disposal of related equipment. 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,” to this Form 10-K for more information on the current restructuring plan. 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 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 intercompany transactions are included in other income (expenses), net. into For subsidiaries where the local currency is designated as the functional currency, we translate their assets and liabilities 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 income (expenses), net. a The aggregate foreign exchange transaction gains (losses) included in other income (expenses), net, on the consolidated statements of operations and comprehensive income (loss), were $3.8 million, ($2.1) million and approximately ($0.7) million for fiscal 2018, 2017 and 2016, respectively. Comprehensive Income (Loss) We present accumulated other comprehensive loss in our consolidated balance sheets and comprehensive income (loss) in the consolidated statement of operations and comprehensive income (loss). At the end of fiscal 2018, 2017 and 2016, our comprehensive income (loss) of $13.4 million, ($70.0) million and ($48.6) million consists of net income (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 67 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. The percentage of completion method requires that adjustments or re-evaluations to estimated project revenues and costs be recognized on a project-to-date cumulative basis, as changes to the estimates are identified. Revisions to project estimates are made as additional information becomes known, including information that becomes available after the date of the consolidated financial statements up through the date such consolidated financial statements are filed with the SEC. If the final estimated profit to complete a long-term contract indicates a loss, a provision is recorded immediately for the total loss anticipated. 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. ff ff Contract accounting requires judgment relative to assessing risks, estimating revenues and costs and making assumptions including, in the case of our professional services contracts, the total amount of labor required to complete a project and the complexity of the development and other technical work to be completed. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complicated and subject to many variables. Assumptions must be made regarding the length of time to complete the contract because costs also include estimated third-party vendor and contract labor costs. Penalties related to performance on contracts are considered in estimating sales and profit, and are recorded when there is sufficient information for us to assess anticipated performance. Third-party vendors’ assertions are also assessed and considered in estimating costs and margin. 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 like that for other tangible products and Accounting Standard Update No. (“ASU”) 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, amended Accounting Standard Codification Topic No. (“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 except for 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 68 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, most of the professional services components of the arrangements with customers are performed within a year of entering 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 an 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 about 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 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 non-market-based awards. We also use the Monte Carlo pricing model for our market-based option awards and performance stock units (“PSUs”). 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 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 market-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis, whereas the fair value of non-market-based awards and employee stock purchase plan (“ESPP”) stock units, less estimated forfeitures, are amortized on a straight-line basis. estimate the expected forfeiture rate and only recognize expense x ff Advertising Costs Advertising costs are charged to expense as incurred. Advertising costs were not material for fiscal 2018 and were $0.1 million for fiscal 2017 and 2016, respectively. 69 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 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 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 Income (Loss) Per Share, ” to this Form 10-K. t Recent Accounting Standard Updatess We consider the applicability and impact of all ASUs on our consolidated financial statements. Updates not listed below were assessed and determined to be either not applicable or position or results of operations. Recently issued ASUs which we feel may be applicable to us are as follows: are expected to have minimal impact on our consolidated financial a a Recently Issued Accounting Standard Updates – Not Yet Adopted Comprehensive Income “ In February 2018, the FASB issued ASU 2018-02, “Income Statement Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent A “Tax Cuts and Jobs Act”)” , which requires deferred tax liabilities and assets to be Resolution on the Budget for Fiscal Year 2018 ( jadjusted for the effect of a change i tion from accumulated other comprehensive ASU 2018-02 allows a reclassifica income to retained earnings for stranded tax effects resulting from the Tax Reform Act. ASU 2018-02 is effective for us in the first quarter of fiscal 2020. Early adoption is permitted. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements. – Reporting Comprehensive Income (Topic 220): n tax laws. d Revenue from Contracts with Customers (Topic 606) In May 2014, the FASB issued ASU. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using International Financial Reporting Standards and U.S. GAAP. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to approve a one year deferral, making the standard effective for public entities for annual and interim periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The purpose of ASU 2016-08 is to clarify the guidance on principal versus agent considerations. It includes indicators that help to determine whether an entity controls the specified good or service before it is transferred to the customer and to assist in determining when the entity satisfied the performance obligation and as such, whether to recognize a gross or a net amount of consideration in their consolidated statement of operations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies that entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract. ASU 2016-10 also addresses how to determine whether promised goods or services are separately identifiable and permits entities to make a policy election to treat shipping and handling costs as fulfillment activities. In addition, it clarifies key provisions in Topic 606 related to licensing. In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815).” ASU 2016-11 rescinds previous SEC comments that were codified in Topic 605, Topic 932 and Topic 815. Upon adoption of Topic 606, certain SEC comments including guidance on accounting for shipping and handling fees and costs and consideration given by a vendor to a customer should not be relied upon. In May 2016, the FASB also issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients.” ASU 2016-12 provides clarity around collectability, presentation of sales taxes, non- 70 cash consideration, contract modifications at transition and completed contracts at transition. ASU 2016-12 also includes a technical correction within Topic 606 related to required disclosures if the guidance is applied retrospectively upon adoption. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” ASU 2016-20 allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the optional exemptions to expand their qualitative disclosures. ASU 2016-20 also clarifies other areas of the new revenue standard, including disclosure requirements for prior period performance obligations, impairment guidance for contract costs and the interaction of impairment guidance in ASC 340-40 with other guidance elsewhere in the Codification. The Company has elected the modified retrospective adoption model, effective February 1, 2018. The Company’s quarterly results beginning with the quarter ending April 30, 2018 and comparative prior periods will be compliant with ASC 606 and its Form 10-K for the year ended January 31, 2019 will be the Company’s first Annual Report that will be issued in compliance with ASC 606. The Company has substantially completed the implementation of ASC 606 and has identified the necessary changes to its policies, processes, systems, and controls. Based upon the work performed to date, the Company expects to record a cumulative- effect adjustment as of February 1, 2018 to increase retained earnings by an estimated range of approximately $1.7 million to $4.0 million. Such adjustment includes an increase in retained earnings by approximately $1 million to $3 million due to higher revenue that would have been recognized under ASC 606 if the standard had been adopted for the fiscal year ended January 31, 2018 and an increase in retained earnings of $0.7 million to $1.0 million due to reduced commission expense that would have been recognized under ASC 606 if the standard had been adopted for the fiscal year ended January 31, 2018. The resulting tax effect of this cumulative-effect adjustment is not expected to be significant to retained earnings. We expect to fully disclose the impacts of the new standard in connection with our Form 10-Q filing for the first quarter of fiscal 2019. ff The Company expects the following impacts upon adoption of the standard: • • • • Currently, the Company recognizes revenue from perpetual licenses with extended payment terms over the term of the agreement as payments are received, provided all other criteria for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from perpetual license performance obligations with extended payment terms will be recognized when control is transferred to the customer. Any unrecognized license revenue from the arrangement, included in deferred revenue at January 31, 2018, will not be recognized in revenue in future periods but as a cumulative adjustment to retained earnings. Further, revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet. Currently, the Company allocates revenue to licenses under the residual method when it has Vendor Specific Objective Evidence (“VSOE”) for the remaining undelivered elements, which allocates any future credits or significant discounts entirely to the license. The adoption of ASC 606 will result in future credits, significant discounts, and material rights under ASC 606, being allocated to all performance obligations based upon their relative selling price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer, which is generally upon delivery of the license. Currently, the Company does not have VSOE for professional services and maintenance in certain geographical areas, which results in revenue being deferred in such instances until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a standalone selling price. Once the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when control is transferred to the customer and professional services revenue will be recognized over time based on labor hours expended. This will result in the acceleration of professional services revenue when compared to the current practice of ratable recognition for professional services when there is a lack of VSOE. Sales commissions and other third-party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset when incurred and to be expensed over the associated contract term. However, because the sales commission paid on the maintenance renewals is not commensurate with the original deal, ASC 606 requires that these acquisition costs be expensed over the customer life. The Company expects this change to impact all arrangements that included implicit or explicit maintenance contracts. 71 • ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognition of revenue as compared to how contract modifications are recognized currently. There will be a corresponding effect on tax liabilities in relation to all of the above impacts. Leases “ In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842). ” ASU 2016-02 requires a lessee to recognize a right- of-use asset and a lease liability for operating leases with terms over twelve months, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. It also requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. ASU 2016-02 is effective for us in the first quarter of fiscal 2020. Early adoption is permitted. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements. Recently Issued Accounting Standard Updates – Adopted During the Period Income Taxes “ In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” ASU 2018-05 amends ASC 740, “Income Taxes ” to provide guidance on accounting for the tax effects of the Tax Reform Act pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Reform Act enactment date. This update was effective upon issuance. Therefore, we have applied the guidance in this update within our consolidated financial statements for the fiscal year ended January 31, 2018. See Note 12, “Income Taxes, ” of this Form 10-K for more information on the adoption of this guidance. “ “ 72 3. Fair Value Measurements Assets and Liabilities that are Measured at Fair Value on a Recurring Basis The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of January 31, 2018 and January 31, 2017. There were no fair value measurements of our financial assets and liabilities using significant level 3 inputs for the periods presented: Financial assets: Cash equivalents (a) 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 - conventional U.S. government agency issues Corporate bonds Total Financial assets: Cash equivalents (a) 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 - conventional U.S. government agency issues Total Fair Value at January 31, 2018 Using Quoted Prices in Active Markets for Identical Assets (Level 1) (Amounts in thousands) Significant Other Observable Inputs (Level 2) January 31, 2018 $ 4,568 $ — $ 4,568 1,993 1,998 1,724 985 1,740 $ 13,008 $ 1,993 — 1,724 — — 3,717 — 1,998 — 985 1,740 9,291 $ Fair Value at January 31, 2017 Using Quoted Prices in Active Markets for Identical Assets (Level 1) (Amounts in thousands) Significant Other Observable Inputs (Level 2) January 31, 2017 $ 2,726 $ 2,726 $ — 4,253 1,000 1,997 2,994 $ 12,970 $ 4,253 — 1,997 — 8,976 — 1,000 — 2,994 3,994 $ a) Money market funds and U.S. treasury bills are included in cash and cash equivalents on the accompanying consolidated balance sheets. Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible property and equipment, goodwill, and other intangible assets, which are re-measured when the derived fair value is below carrying value on our consolidated balance sheets. For these assets and liabilities, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded to loss from impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss). a rr 73 Available-for-Sale Securities t We determine the appropriate classification of debt investment securities at the time of purchase and reevaluate such designation as of each balance sheet date. Our investment portfolio consists of money market funds, U.S. treasury notes and bonds, U.S. government agency notes and bonds as of January 31, 2018 and 2017, and corporate bonds as of January 31, 2018. All highly liquid investments with an original maturity of three months or less when purchased are 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 accretions of discounts to maturity are computed under the effective interest method and is included in other income (expenses), net, in our consolidated statements of operations and comprehensive income (loss). Interest on securities is recorded as earned and is also included in other income (expenses), net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and comprehensive income (loss) in other income (expenses), net. We provide fair value measurement disclosures of available-for-sale securities in accordance with one of three levels of fair value measurement mentioned above. The following is a summary of cash, cash equivalents and available-for-sale securities, including the cost basis, aggregate fair value and unrealized gains and losses, for short-and long-term marketable securities portfolio as of January 31, 2018 and 2017: January 31, 2018: 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 Corporate bonds - long-term Total cash, cash equivalents and marketable securities January 31, 2017: 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 securities Amortized Cost $ 39,084 4,568 43,652 2,001 1,740 1,991 1,002 1,760 $ 52,146 $ 25,576 2,726 28,302 4,248 2,003 991 2,996 $ 38,540 Gross Gross Unrealized Unrealized Losses Gains (Amounts in thousands) Estimated Fair Value $ $ $ $ — $ — — — — 9 — — 9 $ — $ — — 5 — 9 — 14 $ — $ 39,084 4,568 — 43,652 — 1,993 (8) 1,724 (16) 1,998 (2) 985 (17) (20) 1,740 $ 52,092 (63) — $ 25,576 2,726 — 28,302 — 4,253 — 1,997 (6) 1,000 — (2) 2,994 $ 38,546 (8) The gross realized gains and losses on sale of available-for-sale securities for fiscal 2018, 2017 and 2016 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, 2018 are as follows (amounts in thousands): t Maturity of one year or less Maturity between one and five years Total Estimated Fair Value 3,991 $ 4,449 8,440 $ We concluded that there were no other-than-temporary declines of available-for-sale securities as of January 31, 2018, 2017 and 2016. The unrealized holding 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. a 74 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. t The fair value of cash, cash equivalents, restricted cash and marketable securities at January 31, 2018 and 2017 was $52.1 million and $38.7 million, respectively. Restricted Cash At times, we may be required to maintain cash held as collateral for performance obligations with our customers which we classify as restricted cash on our consolidated balance sheets. Restricted cash was not material as of January 31, 2018 and was $0.1 million as of January 31, 2017. 4. Acquisitions and Loss on Impairment of TLL, LLC DCC Labs On May 5, 2016, we acquired a 100% share of DCC Labs in exchange for an aggregate of $2.7 million in newly issued shares of SeaChange common stock and $5.2 million in cash, net of cash acquired, resulting in a total net purchase price of $7.9 million. The stock consideration was determined by dividing the total value of $2.7 million by the volume weighted average closing price of our common stock for the twenty trading days preceding the closing. DCC Labs is a developer of set-top and multiscreen device software. Of the total consideration, $0.5 million in cash and all the stock (681,278 shares) were initially held in escrow as security for the indemnification obligations of the former DCC Labs owners to SeaChange under the purchase agreement, with one-third of the stock in escrow to be released to the former DCC Labs owners annually on the anniversary date of the acquisition beginning on May 5, 2017 and ending May 5, 2019, and one-half of the cash in escrow to be released to the former DCC Labs owners on May 5, 2017 and May 5, 2018. On May 5, 2017, $0.3 million in cash and 227,090 shares of our common stock initially deposited with an Escrow Agent were disbursed to the sellers. ff The acquisition of DCC Labs in fiscal 2017 enabled us to optimize the operations of our In-Home business, which developed home video gateway software including SeaChange’s Nucleus and NitroX products. In addition, the acquisition brought market- ready products, including an optimized television software stack for Europe’s Digital Video Broadcasting community, and an HTML5 framework for building additional user experience client applications across a variety of CPE devices, including Android TV STBs, tablets, mobile and computer devices. During fiscal 2018, the In-home business became the center of engineering and expanded to include product development for backoffice, advertising and legacy products. The Poland operation became the prime engineering location and as of the end of fiscal 2018, was the largest location by number of engineers. In addition, the engineering efforts were combined and the teams were re-organized into a single global team in fiscal 2018, which spans a reduced number of locations globally compared to fiscal 2017. As part of the engineering transition, organizational improvements were implemented in order to focus on software quality, reliability and pre-integration, in order to de-risk deployments and improve go-to-market time for new solutions and existing upgrades. The global engineering team introduced DevOps practices with a customer-centric view of technology improvements across all products within the SeaChange solution. Along with operational improvements, engineering introduced changes to process and workflow which enabled more accurate effort estimations and velocity tracking. With the introduction of common agile project methodology across all teams and products, the efficiency of software engineering increased, which allowed more engineering resources to focus on innovation and development of industry leading features and enhancements to existing products as well as new product releases that expand the SeaChange technology franchise. At the same time, improved efficiency and better allocation of software developers enabled a more lean and targeted approach to supporting existing deployments and delivering upon support commitments for legacy products using a cost-optimized workforce. We accounted for the acquisition of DCC Labs as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired was recorded as goodwill. We engaged an independent appraiser to assist management in assessing the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. Assets acquired in the acquisition include receivables, prepaid expenses and property and equipment while liabilities assumed include accounts payable, other accrued expenses, deferred taxes and income taxes payable. The amounts recorded for these assets and liabilities are final based on information obtained about the facts and circumstances that existed as of the acquisition date. The allocation of purchase price was as follows (amounts in thousands): 75 Estimated Fair value of consideration: Cash, net of cash acquired Stock consideration Total purchase price Estimated Fair value of assets acquired and liabilities assumed: Current assets Other long-term assets Finite-life intangible assets Goodwill Current liabilities Other long-term liabilities Allocated purchase price $ 5,243 2,640 $ 7,883 826 116 810 7,255 (618) (506) $ 7,883 Acquired Goodwill We recorded the $7.3 million excess of the purchase price over the fair value of the identified tangible and intangible assets as goodwill, primarily due to expected synergies between the combined companies and expanded market opportunities. The goodwill is not deductible for tax purposes. Intangible Assets In determining the fair value of the intangible assets, the Company considered, among other factors, the intended use of the assets and the estimates of future performance of DCC Labs, based on analyses of historical financial performance. The fair values of identified intangible assets were calculated using an income-based approach based on estimates and assumptions provided by DCC Labs’ and the Company’s management. The following table sets forth the components of the identified intangible assets associated with the DCC Labs acquisition and their estimated useful lives: Tradename Customer contracts NNon-compete agreements Existing technology Useful life 4 years $ 2 years 2 years 3 years Fair Value (Amounts in thousands) 60 230 30 490 810 $ Impact to Fiscal 2017 Financial Results DCC Labs’ financial results have only been included in our fiscal 2017 consolidated financial results for the period from May 5, 2016 through January 31, 2017. As a result, our consolidated financial results for fiscal 2017 do not include DCC Labs’ results for the period from February 1, 2016 to May 4, 2016. For that period, DCC Labs’ revenue was not significant and its operating loss was approximately $1.2 million. Acquisition-related Costs In connection with the acquisition, we incurred approximately $0.2 million in acquisition-related costs, including legal, accounting and other professional services for fiscal 2017. The acquisition costs were expensed as incurred and included in professional fees – other, in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2017. Loss on Impairment of TLL, LLC In January 2016, our Board of Directors authorized a restructuring plan, as previously reported in a Form 8-K filed with the SEC on February 17, 2016. Based on the decision to enter the restructuring plan and the plan’s impact on the projected future cash 76 flows of the Timeline Labs operations, we determined that the carrying amount of all long-term assets that resulted from the February 2015 acquisition had exceeded the fair value as of January 31, 2016. As a result, these long-term assets were deemed fully impaired and we recorded the $21.9 million net book value of these long-term assets as a component of loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. Additionally, we reduced the contingent consideration liability associated with the Timeline Labs acquisition to zero, as we determined that the defined performance criteria would not be achieved, and credited the reversal of the liability a of $0.4 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2016. In addition, we incurred $0.7 million in severance and restructuring charges in February 2016 related to the cost-saving actions taken with respect to the Timeline Labs business. 5. Consolidated Balance Sheet Detail Inventories, net Inventories consist primarily of hardware and related component parts and are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Inventories consist of the following: January 31, 2018 2017 Components and assemblies Finished products Total inventories, net Property and equipment, net Property and equipment, net consists of the following: (Amounts in thousands) 500 $ 270 770 426 240 666 $ $ $ Land Buildings Office furniture and equipment Computer equipment, software and demonstration equipment Service and spare components Leasehold improvements Less - Accumulated depreciation and amortization Total property and equipment, net Estimated Useful Life (Years) 20 5 3 5 1-7 January 31, 2018 2017 (Amounts in thousands) $ 2,780 11,839 774 12,770 1,158 537 29,858 (20,387) $ 9,471 $ 2,780 11,726 1,091 18,194 1,158 1,064 36,013 (24,528) $ 11,485 Depreciation and amortization expense of property and equipment was $2.3 million, $3.0 million and $3.4 million for the years ended January 31, 2018, 2017 and 2016, respectively. During fiscal 2018, we wrote off the book value of fixed assets that were at our closed facilities in Milpitas, California, Ft. Washington, Pennsylvania and Manilla, Philippines. These facilities were closed as a direct result of cost savings initiatives implemented during the second half of fiscal 2017. The gain (loss) on disposal associated with these closures was not material. During the third quarter of fiscal 2017, we began actively marketing our facility in Greenville, New Hampshire for sale and identified a potential buyer. Accordingly, we determined at the time that the sale of the asset group was probable by the end of the fourth quarter of fiscal 2017. We determined that the asset group met all the criteria of held for sale accounting and classified the asset group as held for sale on our consolidated balance sheets beginning in the third quarter of fiscal 2017. Subsequently, in January 2017, after a potential buyer declined to purchase this facility, we determined that the sale of the facility was not imminent due to the location of the building and the overall market conditions in the area. Consequently, we decided to fully impair the facility since we felt that carrying amount was greater than the fair value. As a result, we recorded a $0.3 million loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss) for the fiscal year ended January 31, 2017. In April 2017, we sold the facility for $0.1 million. rr 77 Investments in affiliates In connection with the acquisition in January 2018 by T-Mobile of Layer 3, a next generation cable provider in which we previously had made an equity investment, we received $4.6 million upon closing of the transaction, with an additional payment of up to $2.1 million being held in escrow, subject to satisfaction of the escrow provisions. As a result of the sale of our investment in Layer 3, we realized a gain of $2.6 million in gain (loss) on investment in affiliates in our consolidated statements of operations and comprehensive income (loss) for fiscal 2018. Other accrued expenses Other accrued expenses consist of the following: Accrued compensation and commissions Accrued bonuses Accrued restructuring Employee benefits Sales tax and VAT payable Income taxes payable Accrued other Total other accrued expenses 6. Goodwill and Intangible Assets Goodwill, net January 31, 2018 2017 (Amounts in thousands) $ 1,799 $ 1,414 1,871 2,715 1,023 225 885 601 731 4,001 188 2,869 3,431 3,554 $ 9,928 $15,379 Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. We are required to perform impairment tests related to our goodwill annually, which we perform during the third quarter of each fiscal year, or when we identify certain triggering events or circumstances that would more likely than not reduce the estimated fair value of the goodwill of the Company below its carrying amount. At January 31, 2018 and 2017, we had goodwill of $25.6 million and $23.3 million, respectively. The change in the carrying amount of goodwill for fiscal year 2018 is due to the impact of foreign currency translation adjustments related to goodwill balances that are recorded in currencies other than the U.S. dollar. The following table represents the changes in goodwill for the fiscal years ended January 31, 2018 and 2017 (amounts in thousands): Balance as of January 31, 2016: Goodwill, gross Accumulated impairment losses Goodwill, net Acquisition of DCC Labs Goodwill impairment charge Cumulative translation adjustment Balance as of January 31, 2017: Goodwill, gross Accumulated impairment losses Goodwill, net Cumulative translation adjustment Balance as of January 31, 2018 Goodwill, gross Accumulated impairment losses Goodwill, net $ 55,962 (15,787) 40,175 7,255 (23,492) (651) 62,566 (39,279) 23,287 2,292 64,858 (39,279) $ 25,579 In the third quarter of fiscal 2018, we finalized the “Step 1” analysis of our annual goodwill impairment test for fiscal 2018. Based on this analysis, we determined that fair value of our reporting unit exceeded its carrying value, which was $64.2 million 78 at August 1, 2017. As a result, no impairment charge was required related to the annual test. See “Critical Accounting Policies and Significant Judgement and Estimates – Goodwill” in Part II, Item 7 of this Form 10-K for more information. dd ff During the third quarter of fiscal 2018, we determined that there was a significant decrease in fair value of the Corporate Headquarters (see Note 2, “Summary of Significant Accounting Policies – Impairment of Assets,” for more information). We considered this significant decrease in fair value a triggering event. As a result, we were required to complete an additional goodwill impairment test as of the date of the triggering event. We completed the additional goodwill impairment test and determined that the implied fair value of the reporting unit exceeds its carrying value as of the date of the triggering event. Accordingly, no impairment charge was recognized. While no impairment resulted from our annual test, impairment charges may occur in the future as a result of projected growth and other factors. No triggering events have occurred during the fourth quarter of fiscal 2018 that would indicate a potential impairment of goodwill exists. changes in ff We determined based on “Step 1” of our fiscal 2017 annual impairment test, that the fair value of our reporting unit was less than its carrying value, which was $102.5 million at August 1, 2016. Since the estimated fair value of our reporting unit was less than its carrying value, we determined that it was necessary to perform “Step 2” of the impairment test. In “Step 2” of the impairment test we compared the implied fair value of our goodwill to its carrying value. After adjusting the carrying value of all assets, liabilities and equity to fair value at August 1, 2016, the estimated implied fair value of goodwill was calculated to be $22.3 million. Since the implied fair value of goodwill of $22.3 million is less than the carrying value of $45.8 million as of August 1, 2016, we recorded an impairment charge of $23.5 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive income (loss). rr Intangible assets, net Intangible assets, net, consisted of the following at January 31, 2018 and 2017: Weighted average remaining life (Years) y January 31, 2018 y January 31, 2017 Gross Accumulated Amortization Net Gross Accumulated Amortization Net (Amounts in thousands) Finite-lived intangible assets: Customer contracts Non-compete agreements Non-compete agreements Completed technology Trademarks, patents and other Total finite-lived intangible assets 1.7 0.5 1.8 2.5 1.7 $30,818 $ (29,836) $ 982 $30,056 $ (28,019) $2,037 18 4 499 49 $52,125 $ (50,822) $1,303 $50,051 $ (47,448) $2,603 2,374 276 10,496 7,125 41 (2,635) (11,203) (7,148) (2,356) (9,997) (7,076) 2,639 11,479 7,189 Amortization expense for intangible assets was $2.4 million, $3.3 million and $4.8 million for fiscal 2018, 2017 and 2016, 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, 2019 2020 2021 2022 2023 2024 and thereafter Total Estimated Amortization Expense $ $ 914 385 4 — — — 1,303 Actual amortization may differ from estimated amounts in the table above due rates, additional intangible asset acquisitions, potential impairment, accelerated amortization, or other events. to fluctuations in foreign currency exchange a 79 7. Severance and Other Restructuring Costs Restructuring Costs During fiscal 2018, we incurred restructuring charges totaling $4.2 million primarily from employee-related benefits for terminated employees and costs to close facilities. The following table shows the change in balances of our accrued restructuring reported as a component of other accrued expenses on the consolidated balance sheet as of January 31, 2018 (amounts in thousands): Accrual balance as of January 31, 2017 Restructuring charges incurred Cash payments Other charges Accrual balance as of January 31, 2018 Employee- Related Benefits 785 $ 2,973 (3,733) 36 61 $ Closure of Leased Facilities 130 $ 796 (783) (8) 135 $ Other Restructuring 108 $ 387 (466) — 29 $ Total $ 1,023 4,156 (4,982) 28 225 $ During the third quarter of fiscal 2017, we implemented a restructuring program (“Restructuring Plan”) with the purpose of reducing costs and assisting in restoring SeaChange to profitability and positive cash flow. This program included measures intended to allow the Company to more efficiently operate in a leaner, more direct cost structure. These measures included reductions in workforce, consolidation of facilities, transfers of certain business processes to lower cost regions and reduction in third-party service costs. The total estimated restructuring costs associated with the Restructuring Plan are anticipated to be approximately $7.5 million and will be recorded in severance and other restructuring costs in our consolidated statements of operations and comprehensive income (loss) as they are incurred. We recorded $4.1 million of restructuring expense in connection with this plan during fiscal 2018, which was primarily made up of employee-related costs and facility closings. Since its implementation, we have recognized $7.2 million in restructuring charges related to the Restructuring Plan. We do not expect to incur any more significant restructuring charges related to this plan. During the second quarter of fiscal 2017, we restructured our operations in connection with the acquisition of DCC Labs. This restructuring resulted in a workforce reduction within our engineering and services organization and in the closing of our facility in Portland, Oregon and a substantial reduction to our facility in Milpitas, California. We recorded $0.1 million of restructuring expense in connection with this action during fiscal 2018, which was primarily made up of facility and other costs not related to employees. We incurred charges totaling $2.0 million in severance and other restructuring costs from the second quarter of fiscal 2017 through the end of fiscal 2018 related to the acquisition. We do not expect to incur any further material restructuring charges related to this acquisition. Severance Costs During fiscal 2018, we incurred additional severance charges not related to a restructuring plan of $0.5 million, primarily from the departure of 14 former employees including a Senior Vice President and a Vice President. During fiscal 2017, we incurred severance charges of $1.5 million, primarily from the departure of our former Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) during the first half of fiscal 2017 as well as the termination of 13 other former employees. 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’ governing documents. As a matter of practice, we have maintained directors’ and officers’ liability insurance including coverage for directors and officers of acquired companies. We enter 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 80 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. There are no current pending legal proceedings, in the opinion of management that 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 thereforeff 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. Operating Leases We lease certain of our operating facilities, automobiles and office equipment under non-cancelable operating leases, which expire at various dates through fiscal 2024. Leases for our facilities typically contain standard commercial lease provisions, including renewal options and rent escalation clauses. Rental expense under operating leases was $1.6 million, $2.4 million and $2.7 million for fiscal 2018, 2017 and 2016, respectively. Future commitments under minimum lease payments as of January 31, 2018 are as follows (amounts in thousands): y For the Fiscal Years Ended January 31, 2019 2020 2021 2022 2023 2024 and thereafter Minimum operating lease payments Operating Leases 1,314 910 678 432 167 — 3,501 $ $ 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, 2018. 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”). The 2011 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units (“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. On July 13, 2017, our stockholders approved an amendment to the 2011 Plan which increased the number of shares under the 2011 Plan by 4,000,000 shares and correspondingly increased the number of incentive stock options that can be authorized for issuance under the 2011 Plan. 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. The number of units subject to the DSUs is determined as of the 81 grant date and shall fully vest one year from the grant date. 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. Commencing with fiscal 2016, we changed the policy regarding the timing of the equity grant from the first day of the applicable fiscal year to the date of our annual meeting of stockholders. We may satisfy awards upon the exercise of stock options or the vesting of stock units 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, 2018, there were 2,527,281 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. Stock units 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 one to four years and expire ten years from the date of the grant. In fiscal 2016, the Board of Directors developed a new Long-Term Incentive (“LTI”) Program under which the named executive officers and other key employees of the Company will receive long-term equity-based incentive awards, which are intended to align the interests of our named executive officers and other key employees with the long-term interests of our stockholders and to emphasize and reinforce our focus on team success. Long-term equity-based incentive compensation awards are made in the form of stock options, RSUs and performance stock units (“PSUs”) subject to vesting based in part on the extent to which employment continues for three years. In fiscal 2018, the Board of Directors changed the structure of prospective LTI performance-based awards, changing from awards based on total shareholder return to awards based on Company-specific financial performance metrics. 2015 Employee Stock Purchase Plan In July 2015, we adopted the 2015 Employee Stock Purchase Plan (the “ESPP”). The purpose of the ESPP is to provide eligible employees, including executive officers of SeaChange, with the opportunity to purchase shares of our common stock at a discount through accumulated payroll deductions of up to 15%, but not less than one percent of their eligible compensation, subject to any plan limitations. Offering periods typically commence on October 1st and April 1st and end on March 31st and September 30th with the last trading day being the exercise date for the offering period. The first offering period under the ESPP commenced on October 1, 2015. On each purchase date, eligible employees will purchase our stock at a price per share equal to 85% of the closing price of our common stock on the exercise date, but no less than par value. The maximum number of shares of our common stock which will be authorized for sale under the ESPP is 1,150,000 shares. Under the ESPP, 24,467 and 17,956 shares were purchased during fiscal 2018 and fiscal 2017, respectively. Stock-based compensation expense related to the ESPP was immaterial for fiscal 2018 and fiscal 2017. 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 based on estimated fair values. The fair value of our stock options and PSUs, less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis, whereas the RSUs and DSUs, less expected forfeitures, are amortized on a straight-line basis over the requisite service period of those awards. 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. 82 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 Employee stock purchase plan Total stock-based compensation For the Fiscal Years Ended January 31, 2017 2018 (Amounts in thousands) y 2016 $ 1,025 664 487 511 9 $ 2,696 $ 873 624 709 398 17 $ 2,621 $ $ 1,257 1,203 607 475 10 3,552 Since stock-based awards are expected to be made each year and vest over several years, the effects of applying authoritative guidance for recording stock-based compensation for the year ended January 31, 2018 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 Market-Based Options For the Fiscal Years Ended January 31, 2017 6-7 40-45% 42% 1.0-2.0% 1.1% 0% 2016 6-7 40-45% 42% 1.5-2.0% 1.6% 0% 2018 6-7 39-46% 41% 1.9-2.5% 2.4% 0% We have granted market-based options to certain officers with their appointment. These stock options have an exercise price equal to our closing stock price on the date of grant and will vest in approximately equal increments based upon the closing price of SeaChange’s common stock. We record 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. The model simulated the daily trading price of the market-based stock options’ expected terms to determine if the vesting conditions would be triggered during the term. Effective April 6, 2016, Ed Terino, who previously served as our Chief Operating Officer (“COO”), was appointed Chief Executive Officer (“CEO”) of SeaChange and was granted 600,000 market-based options, bringing the total of his market-based options, when added to the 200,000 market-based options he received upon hire as COO in June 2015, to 800,000 market-based options. The fair value of these 800,000 stock options was estimated to be $2.1 million. As of January 31, 2018, $0.3 million remained unamortized on the market-based stock options, which will be expensed over the next 1.1 years, the remaining weighted average amortization period. 83 The following table summarizes the Company’s stock option activity: 2018 For the Fiscal Years Ended January 31, 2017 y 2016 Outstanding at beginning of period Granted Exercised Forfeited/expired/cancelled Outstanding at end of period Options exercisable at end of period Weighted average exercise price Shares 2,141,567 1,400,000 4.70 $ $ 3.16 — $ — 5.65 3.94 3.98 (301,462) $ $ 3,240,105 $ 399,232 Weighted average exercise price Shares 1,192,677 1,581,614 6.80 $ $ 4.02 — $ — 6.98 4.70 6.28 (632,724) $ $ 2,141,567 $ 203,982 Weighted average remaining contractual term (in years) 8.00 8.01 Shares $ 1,626,421 612,678 $ (28,740) $ (1,017,682) $ $ 1,192,677 $ 80,000 Weighted average exercise price 7.77 6.44 6.74 8.13 6.80 6.83 8.10 The weighted-average fair valuation at grant date of stock options granted during the years ended January 31, 2018, 2017 and 2016, was $1.34, $3.09, and $2.75, respectively. As of January 31, 2018, the unrecognized stock-based compensation related to the unvested stock options was approximately $1.1 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 2.3 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 $0.7 million as of January 31, 2018 and $0.1 million for 2016. There was no intrinsic value as of January 31, 2017 as the market price on the date of exercise was higher than the grant date price for options outstanding. The aggregate intrinsic value of vested shares and share options expected to vest as of January 31, 2018, 2017 and 2016 was $0.7 million, $0 and $0.1 million, respectively. Cash received from employees as a result of employee stock option exercises during fiscal 2016 was $0.2 million. There were no stock options exercised in fiscal 2018 and 2017. The following table summarizes information about stock options outstanding and exercisable as of January 31, 2018: Options Outstanding Options Exercisable Weighted average remaining contractual terms (years) Weighted average exercise price Number exercisable Weighted average exercise price 8.36 4.20 8.27 10.00 8.27 8.26 1.25 8.21 7.97 1.77 1.42 8.00 $ $ $ $ $ $ $ $ $ $ $ $ 2.42 2.61 2.98 3.33 3.41 3.50 3.77 3.83 5.98 6.05 8.15 3.94 133,517 18,750 40,000 2.42 $ 2.64 $ $ 3.13 — $ — 3.41 $ 3.50 $ 3.77 $ $ 3.83 — $ — 6.05 $ 8.15 $ 3.98 $ 12,500 25,000 14,046 18,750 131,669 5,000 399,232 Range of exercise prices $2.42 to $2.42 $2.60 to $2.64 $2.67 to $3.30 $3.33 to $3.33 $3.41 to $3.41 $3.50 to $3.50 $3.77 to $3.77 $3.83 to $3.83 $5.56 to $7.25 $6.05 to $6.05 $8.15 to $8.15 Number outstanding 413,797 300,000 260,000 1,050,000 50,000 100,000 21,067 75,000 800,000 165,241 5,000 3,240,105 84 Stock Units (RSUs, DSUs and PSUs) We record stock-based compensation expense associated with stock units using the market value of our stock on the date of grant, less forfeitures, and amortize the fair value 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 stock unit activity: 2018 For the Fiscal Years Ended January 31, 2017 2016 Weighted average grant date Weighted average grant date Weighted average grant date Unvested at beginning of period Awarded Vested Forfeited/expired/cancelled Unvested at end of period Shares 1,453,058 $ 796,304 $ (271,285) $ (53,187) $ 1,924,890 $ fair value 5.54 3.07 2.85 5.71 4.89 Shares 1,053,045 $ 837,927 $ (208,474) $ (229,440) $ 1,453,058 $ fair value 7.34 3.07 3.46 6.68 5.54 fair value Shares 8.91 $ 435,306 6.46 $ 904,344 6.89 (277,373) $ 8.42 (9,232) $ 7.34 $ 1,053,045 As of January 31, 2018, the unrecognized stock-based compensation related to the unvested RSUs and DSUs was $2.9 million. This cost will be recognized over an estimated weighted average amortization period of 1.5 years. In fiscal 2018, 2017 and 2016, under the LTI Program, the Company granted an aggregate of 232,500, 307,963 and 301,192 PSUs, respectively, to employees. In fiscal 2018, the target number of PSUs granted represents the right to receive a corresponding number of shares of our common stock based on the Company achieving certain overall financial objectives for fiscal 2019, 2020 and 2021 relating to total revenue and non-GAAP operating income in fiscal 2019 and to be determined in fiscal 2020 and 2021. These financial objectives will be quantified by the Board each fiscal year. The target number of PSUs granted to an employee in fiscal 2017 and 2016 represents the right to receive a corresponding number of shares of our common stock, subject to adjustment depending on SeaChange’s total shareholder return (“TSR”) for the period between, February 1, 2017 and January 31, 2020 (for the fiscal 2017 grant) and between February 1, 2016 and January 31, 2019 (for the fiscal 2016 grant) measured against the TSR of the common stock of the companies comprising the S&P SmallCap 600 Index (collectively referred to as the “SeaChange Relative TSR Percentile Rank”). The number of shares of our common stock that these employees are entitled to receive at January 31, 2019 and 2020 range from 0% to 150% of the target PSU award. If the SeaChange Relative TSR Percentile Rank relative to the companies in the S&P SmallCap 600 Index is less than the 25th percentile, the target grants are forfeited. 85 We record the fair value of these PSUs using the Monte Carlo simulation model since the vesting is variable depending on the actual future financial results of the Company and SeaChange Relative TSR Percentile Ranking. We recognize stock compensation expense related to the PSUs ratably over the required service period based on the estimate that it is probable that the measurement criteria will be achieved and the targeted number of shares will vest. If there is a change in the estimate of the number of shares that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made. The fair value of the granted PSUs was estimated to be $3.7 million and will be expensed over the next 3 years. 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss consisted of the following: Balance at January 31, 2016 Other comprehensive loss Balance at January 31, 2017 Other comprehensive loss Balance at January 31, 2018 y Foreign Currency y Translation Adjustment Changes in Fair Value of Available- for-Sale Investments Accumulated Other Comprehensive Loss (Amounts in thousands) $ $ (6,644) $ 1,267 (5,377) (3) (5,380) $ 31 $ (25) 6 (60) (54) $ (6,613) 1,242 (5,371) (63) (5,434) Unrealized holding losses on securities available for sale are not material for the periods presented. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments and changes in unrealized gains and losses on marketable securities. For purposes of comprehensive income (loss) disclosures, we do not record tax expense or benefits for the net changes in the foreign currency translation adjustments. 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 For Fiscal Years Ended January 31, 2016 2017 2018 28% 30% 37% 10% N/A N/A 86 % 55% 39% 4% 2% Geographic Information The following summarizes revenues by customers’ geographic locations: 2018 Amount For the Fiscal Years Ended January 31, 2017 y 2016 % (Amounts in thousands, except percentages) Amount % Amount Revenues by customers' geographic locations: North America (1) Europe and Middle East Latin America Asia Pacific Total revenues $32,409 39,177 7,379 1,302 $80,267 40% $37,570 38,169 49% 5,764 9% 2,292 2% $83,795 45% $ 58,113 42,201 45% 4,707 7% 1,971 3% $106,992 (1) Includes total revenue for the United States for the periods shown as follows: U.S. Revenue % of total revenue The following summarizes long-lived assets by geographic locations: Long-lived assets by geographic locations (1): Europe and Middle East Asia Pacific Total long-lived assets by geographic location (1) Excludes marketable securities, long-term and goodwill. 2018 For the Fiscal Years Ended January 31, 2017 (Amounts in thousands, except percentages) $30,094 $46,978 $27,876 2016 34.7% 35.9% 43.9% January 31, 2018 2017 Amount % Amount % (Amounts in thousands, except percentages) $ 9,792 1,949 48 $11,789 83% $14,729 2,878 17% 817 0% $18,424 80% 16% 4% 12. Income Taxes The components of income (loss) from operations before income taxes are as follows: 2018 For the Fiscal Years Ended January 31, 2017 (Amounts in thousands) $(40,452) (16,166) $(56,618) $(16,158) 17,384 $ 1,226 $(38,709) (10,044) $(48,753) 2016 Domestic Foreign Income (loss) from operations before income taxes 87 The components of the income tax (benefit) provision from operations are as follows: For the Fiscal Years Ended January 31, 2017 (Amounts in thousands) y 2016 2018 Current: Federal State Foreign Total Deferred: Foreign Total Income tax (benefit) provision $ (595) (18) 2,473 1,860 $ — $ — 50 (49) 1 50 (94) (44) (14,132) (14,132) $(12,272) 14,675 14,675 $14,631 (1,030) (1,030) $(1,029) 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: Statutory U.S. federal tax rate State taxes, net of federal tax benefit Income not benefitted Non-deductible stock compensation expense Other non-deductible items (1) Innovative technology and development incentive Foreign tax rate differential Outside basis difference in foreign subsidiaries Goodwill impairment Tax Reform Act (2) Current fiscal year impact of FIN 48 Income tax (benefit) provision $ 2016 2018 For the Fiscal Years Ended January 31, 2017 (Amounts in thousands) $(19,816) 32 10,679 266 252 — 3,770 14,675 5,044 — (271) $ 14,631 415 (4) 481 158 (46) — (2,014) (14,675) — 3,882 (469) $(12,272) $(17,066) 33 15,712 3 (31) (189) 816 — — — (307) $ (1,029) (1) Within the other line in the table above, other non-deductible items were ($0.1) million, $0.1 million and ($0.2) million for the fiscal a years ended January 31, 2018, 2017 and 2016, respectively. These items have been aggregated with various adjustments related to differences in prior year U.S. and foreign tax provisions and the actual returns filed. (2) Due to the impact of the one-time transition tax on the deemed repatriation of accumulated foreign earnings required by the Tax Reform Act discussed below. On December 22, 2017, the United States enacted the Tax Reform Act. The Tax Reform Act has resulted in significant changes in the U.S. corporate income tax system that affected our fiscal year ended January 31, 2018, including, but not limited to, the following: • • Reduction of the corporate federal income tax rate from 35% to 21% effective January 1, 2018; r Repeal of the corporate alternative minimum tax ( rr “AMT”); • A one-time transition tax on the deemed repatriation of accumulated previously untaxed foreign earnings (“Transition Tax”); • A move to a territorial tax system; • Additional limitations on executive compensation; and 88 • Acceleration of business asset expensing. On December 22, 2017, the SEC issued guidance under SAB 118, which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The measurement period is deemed to have ended when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Reform Act. The Company is still evaluating the provisions of the Tax Reform Act and amounts reflected in the financial statements for the year ended January 31, 2018 are provisional. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be completed within the one-year measurement period. The Tax Reform Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have re- measured our U.S. deferred tax assets and liabilities as of January 31, 2018 to reflect the reduced rate that will apply in future periods when these deferred tax assets will reverse, resulting in a provisional reduction of our net deferred tax assets, by $17.1 million, which is offset by a corresponding reduction to our valuation allowance in the fourth quarter of fiscal 2018. As a result, there was no impact to the Company’s consolidated statements of operations and comprehensive income (loss) due to the reduction in the U.S. corporate tax rate. The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We estimated a Transition Tax impact of approximately $3.9 million, which is offset by tax losses, resulting in no material impact to our consolidated financial statements. Our estimate represents a reasonable estimate of the Transition Tax; however, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax and the impact to our federal and state deferred tax assets. Other significant provisions that are not yet effective but may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, limitations on the deductibility of certain executive compensation, deductions related to foreign derived intangible income, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or “GILTI”). We are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when they reverse in future years. 89 The components of deferred income taxes are as follows: Deferred tax assets: Accruals and reserves Deferred revenue Stock-based compensation expense U.S. federal, state and foreign tax credits Intangible assets Loss carryforwards Deferred tax assets Less: Valuation allowance Net deferred tax assets Deferred tax liabilities: APB 23 deferred tax liability Other Property and equipment Total net deferred tax liabilities January 31, y 2018 2017 (Amounts in thousands) $ 963 476 1,134 8,070 (201) 27,642 38,084 (38,305) (221) $ 1,815 79 3,730 7,459 6,834 38,356 58,273 (58,134) 139 — 47 (71) (197) 14,675 75 121 $(14,732) $ At January 31, 2018, we had federal, state and foreign net operating loss carry forwards of $111.1 million, $148.7 million and $2.4 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2019. Utilization of these net operating loss carry forwards may be limited pursuant to provisions of the respective local jurisdiction. In addition, at January 31, 2018, 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 $0.2 million. We have foreign tax credit carry forwards of $2.6 million, which are available to reduce future federal regular income taxes. These credits expire at various dates beginning in fiscal 2019, except for $0.2 million in credits that have an unlimited carryforward period. As a result of the Tax Reform Act, the corporate AMT has been repealed for tax years beginning after December 31, 2017. Taxpayers with AMT credit carryforwards that are not used by fiscal 2019 may claim a partial refund beginning in fiscal 2019 and any remaining amount is refundable by fiscal 2022. For the fiscal year ended January 31, 2018, we have set up a tax receivable of $0.6 million and removed the credit from our deferred tax assets to reflect the future refund of our AMT credits. ff We review the adequacy of the valuation allowance for deferred tax assets on a quarterly basis. We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets and have established a valuation allowance of $38.3 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 decreased $19.8 million from $58.1 million at January 31, 2017. Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our operations outside the United States. Pursuant to ASC 740-30, undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested. In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Company’s working capital needs. Accordingly, in the second quarter of fiscal 2017, we recognized a deferred tax liability of $14.7 million on $58.6 million of undistributed earnings generated by our Irish operations through July 2016. In the fourth quarter of fiscal 2018, we completed a restructuring of our foreign operations, wherein we centralized our European operations for greater efficiency and cost savings in the Netherlands. As part of that process, the residence of SEAC Ireland was moved to the Netherlands. In connection with the restructuring and change in tax status, we also obtained a step-up in tax basis of certain of our foreign subsidiaries. As a result, we re-measured the deferred tax liability related to the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability. a 90 As of January 31, 2018, we maintain our assertion that all of our foreign earnings, except those related to our Irish operations are to be permanently reinvested outside the United States. A reconciliation of the total amounts of gross unrecognized tax benefits, is as follows: For the Fiscal Years Ended January 31, 2018 2017 (Amounts in thousands) Balance of gross unrecognized tax benefits, beginning of pperiod Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period Decrease for change in U.S. federal tax rate Decrease due to expiration of statute of limitation Decrease for tax positions related to prior years Effect of currency translation Balance of gross unrecognized tax benefits, end of period $ $ 5,093 $ 5,151 — — (389) — 152 4,856 321 — (269) (96) (14) 5,093 $ As of January 31, 2018, the amount of unrecognized tax benefits, if recognized, would reduce income tax expense by $0.6 million. We recognized interest and penalties related to unrecognized tax benefits in income tax (benefit) provision on our consolidated statements of operations and comprehensive income (loss). As of January 31, 2018 and 2017, total gross interest accrued was $0.1 million, respectively. 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. 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 according to the local plans specific to each foreign location. Amounts contributed will vary. During fiscal 2018, 2017 and 2016, we contributed $1.1 million, $1.4 million and $1.5 million, respectively. Prior to November 30, 2017, we had a statutory pension benefit obligation covering current employees in the Philippines. On November 30, 2017, as part of the Restructuring Plan, we decided to close our facility in the Philippines. Therefore, a complete reduction in workforce of the remaining employees working at that facility occurred in the fourth quarter of fiscal 2018. As a result, there was no pension benefit obligation balance as of January 31, 2018 as no pay-outs to terminated employees were required under the Restructuring Plan or by Philippines law. The components of the change in this pension benefit obligation as of January 31, 2018 and 2017 are as follows: Projected benefit obligation, beginning of fiscal year Service cost Interest cost Actuarial gain Foreign currency exchange rate changes Termination of the Plan Projected benefit obligation, end of fiscal year Funded status at end of fiscal year (1) y $ $ $ January 31, 2018 2017 (Amounts in thousands) 530 — — — — (530) — — $ $ $ 1,063 238 54 (801) (24) — 530 530 (1) These unfunded amounts are included in other liabilities, long-term on our consolidated balance sheets for the periods presented. The following sets forth the components of our net periodic benefit cost under the pension plan: 91 Service cost Interest cost Actuarial gain NNet periodic benefit cost 2018 January 31, 2017 (Amounts in thousands) 2016 $ $ — $ — — — $ 238 54 (801) (509) $ $ 288 51 (435) (96) Key weighted average assumptions used in the accounting for the pension plan to determine the benefit obligation and net benefit cost were as follows: Discount rate Compensation increase rate 14. Net Income (Loss) Per Share January 31, 2018 2017 N/A N/A 5.72% 5.00% Net income (loss) per share is presented in accordance with authoritative guidance which requires the presentation of “basic” and “diluted” earnings per share. Basic net income (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 income (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 awards, calculated using the treasury stock method. Basic and diluted net income (loss) per share was the same for fiscal 2017 and 2016 as the impact of potential dilutive shares outstanding was anti-dilutive. The following table sets forth our computation of basic and diluted net income (loss) per common share (amounts in thousands, except per share data): For the Fiscal Years Ended January 31, 2017 $(71,249) 2016 $(47,697) 2018 $13,498 35,412 34,970 33,506 60 63 84 66 273 — — — — — — — — — — 35,685 34,970 33,506 $ $ 0.38 0.38 $ $ (2.04) (2.04) $ $ (1.42) (1.42) NNet income (loss) Weighted average shares used in computing net income (loss) per share - basic Effect of dilutive shares: Stock options Restricted stock units Deferred stock units Performance stock units Dilutive potential common shares Weighted average shares used in computing net income (loss) per share - diluted NNet income (loss) per share: Basic Diluted 92 The number of common shares used in the computation of diluted net income (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): For the Fiscal Year Ended January 31, 2017 1,415 448 70 318 2,251 2018 1,522 159 13 297 1,991 2016 1,493 145 31 5 1,674 Stock options Restricted stock units Deferred stock units Performance stock units Total 93 15. Quarterly Results of Operations—Unaudited The following table sets forth certain unaudited quarterly results of operations for fiscal 2018 and fiscal 2017. 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, 2018 Q4 Q1 (Amounts in thousands, except per share data) Q2 Q3 Revenue Gross profit Operating expenses NNet (loss) income (1) (Loss) income per share (2): Diluted Revenue Gross profit Operating expenses (3) NNet loss (1) Loss per share (2): Diluted $16,667 9,877 15,345 (5,371) $ 17,225 11,416 13,499 (1,529) $23,430 16,364 15,444 (220) $ 22,945 16,287 15,066 20,618 $ (0.15) $ (0.15) $ $ (0.05) (0.05) $ (0.00) $ (0.00) $ $ 0.58 0.58 Fiscal Year Ended January 31, 2017 Q1 Q4 (Amounts in thousands, except per share data) Q2 Q3 $21,570 9,662 19,237 (8,907) $ 18,452 8,023 19,691 (26,884) $19,961 10,378 18,813 (8,082) $ 23,812 16,242 40,710 (27,376) $ (0.26) $ (0.26) $ $ (0.77) (0.77) $ (0.23) $ (0.23) $ $ (0.78) (0.78) (1) (2) (3) Net income in the fourth quarter of fiscal 2018 includes a tax benefit of $14.7 million resulting from the re-measurement of the deferred tax liability in connection with the outside basis of our foreign subsidiaries and a $2.6 million gain on the sale of our investment in Layer 3. Net loss in the second quarter of fiscal 2017 includes a tax provision of $14.6 million related to foreign income taxes on $58.6 million of undistributed earnings. Also, the fourth quarter of fiscal 2017 includes a $23.7 million loss on impairment of long-lived assets as we found during “Step 2” of our annual goodwill impairment test that the carrying value of our goodwill was greater than the implied fair value. As a result, we recorded an impairment charge of $23.5 million. In addition, we fully impaired the fair market value of our facility in Greenville, New Hampshire by recording an impairment charge of $0.2 million as we feel that the sale of this facility is not imminent due to the facility’s location and the market conditions in the area. Finally, we also recorded an impairment charge of $0.5 million to write down an investment in affiliate whose fair value was determined to be lower than its carrying value. The sum of per share data may not agree to annual amounts due to rounding. Effective February 1, 2017, the Company changed how it classifies costs associated with its solution architect employees. In fiscal 2017, all solution architect costs were classified as cost of revenues. However, beginning in fiscal 2018, the Company began reflecting in cost of revenues only those costs associated with revenue-generating projects, based on the hours worked by solution architect employees. Solution architect costs that are not associated with revenue-generating projects are recognized as selling and marketing expenses since these employees are involved in pre-sale and other customer-facing activities. We have adjusted prior fiscal year amounts to conform to the current fiscal year presentation. The effect of this change in methodology, which is a decrease to cost of revenue and an increase to selling and marketing expenses, is reflected in our current statements of operations and comprehensive income (loss) for fiscal 2017. See Note 2, “Summary of Significant Accounting Policies – Basis of Presentation and Principles of Consolidation,” for more information. ITEM 9. None. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 94 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. Edward Terino, our Chief Executive Officer, and Peter R. Faubert, our Chief Financial Officer, participated in this evaluation. Based upon that evaluation, Messrs. Terino and Faubert concluded that our disclosure controls and procedures were effective as of January 31, 2018. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this annual report, or the evaluation date. Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, after evaluating the effectiveness of our disclosure controls and procedures as of the evaluation date, concluded that as of the evaluation date, our disclosure controls and procedures were effective at the reasonable assurance level. t (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, 2018. 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—ll — concluded that as of January 31, 2018, our internal control over financial reporting was effective. Based on this assessment and those criteria, our management Integrated Framework. The effectiveness of our internal control over financial reporting as of January 31, 2018 has been audited by Grant Thornton LLP, our independent registered public accounting firm, as stated in their report which is included in Part II, Item 8 of this Form 10-K. (C) Changes in Internal Control Over Financial Reporting During the fiscal quarter ended January 31, 2018, management finalized the process of designing and implementing remediation plans intended to address the control deficiencies which resulted in the material weaknesses previously disclosed in Item 9A (B), “Report of Management on Internal Control Over Financial Reporting,” to our Form 10-K previously filed on April 17, 2017. The following actions were completed during the fiscal year ended January 31, 2018: “ • • • We made improvements to certain internal controls over financial reporting which we believe increased the effectiveness of our control environment, monitoring processes, and control activities, including their alignment with risks of misstatement and clarity of precision levels applied. We have enhanced the design and implemented new internal controls over financial reporting to expand our review of professional services revenue to include revenue recognized on projects below $25,000. We have enhanced the design and implemented new internal controls over financial reporting to include a review of all journal entries at an international subsidiary for completeness and accuracy. 95 • We have implemented a new internal control over financial reporting whereby the Corporate Controller reviews the impact of currency translation adjustments on intercompany notes payable on a monthly basis. Other than as described above, there was no change in our internal control over financial reporting during the fourth fiscal quarter ended January 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 96 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 11, 2018 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 in Part I, Item 1, “Business, “Executive Officers.” The other information required by this item concerning directors and incorporated by reference to the information contained under the headings “Audit Committee,” “Information Concerning Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Definitive Proxy Statement. ” of this Form 10-K under the heading executive officers of SeaChange is hereby “Availability of Corporate Governance Documents”, ff ff “ 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, 2018, including our Amended and Restated 2011 Compensation and Incentive Plan (the “2011 Plan”). 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)) Plan Category Equity compensation plans approved by security holders (1) (a) (b) (c) 5,164,995 (2)$ 3.94 2,527,281 (3) (1) (2) (3) Consists of the 2011 Plan and the 2015 Employee Stock Purchase Plan (the “ESPP”). Includes 1,924,890 shares of restricted stock units, deferred stock units and performance stock units that are not included in the calculation of the weighted-average exercise price. As of January 31, 2018, there were 2,527,281 shares remaining available for issuance under the 2011 Plan and 1,107,577 shares available under the ESPP. 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. 97 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, 2018 and 2017 ..................................................................................................... Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2018, 2017 and 2016................................................................................................................................................................................................. Consolidated Statements of Cash Flows for the years ended January 31, 2018, 2017 and 2016 ................................................... Consolidated Statements of Stockholders’ Equity for the years ended January 31, 2018, 2017 and 2016 .................................... 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: Schedule II—Valuation and Qualifying Accounts.......................................................................................................................... Page 55 57 58 59 60 61 Page 101 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. 98 Exhibit No. Description 3.1 3.2 3.3 4.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8* 10.9 10.10 10.11 10.12 10.13 Amended and Restated Certificate of Incorporation of the Company (see Exhibit 3.3 to the Company’s Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission 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 Form 10-Q previously filed on December 15, 2000 with the Commission 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 December 6, 2016 with the Commission and incorporated herein by reference). 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 and incorporated herein by reference). Second Amended and Restated 2011 Compensation and Incentive Plan (filed as Appendix A to the Company’s Proxy Statement on Schedule 14A previously filed on May 26, 2017 with the Commission 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 on July 20, 2011 with the Commission and incorporated here in by reference). y 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 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 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 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 and incorporated herein by reference). Form of Performance 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 filed on January 28, 2016 with the Commission and incorporated herein by reference). y Form of Performance Stock Unit Agreement pursuant to the Company’s 2011 Compensation and Incentive Plan. Amended and Restated 2005 Equity Compensation and Incentive Plan (filed as Appendix A to the Company’s Proxy Statement on Schedule 14A previously filed on May 25, 2007 with the Commission 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 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 April 17, 2006 with the Commission 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 April 17, 2006 with the Commission and incorporated herein by reference). Form of Indemnification Agreement (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K previously filed April 10, 2013 with the Commission and incorporated herein by reference). 10.14 SeaChange International, Inc. 2015 Employee Stock Purchase Plan (filed as Appendix A to the Company’s Proxy 99 Exhibit No. Description Statement on Schedule 14A previously filed on May 22, 2015 with the Commission and incorporated herein by reference). Amended and Restated Change-in-Control Severance Agreement, dated as of January 26, 2016, by and between the Company and Edward Terino (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K previously filed on January 28, 2016 with the Commission and incorporated herein by reference). Change-in-Control Severance Agreement, dated as of July 6, 2016, by and between the Company and Peter Faubert (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K previously filed on July 7, 2016 with the Commission and incorporated by reference). y Change-in-Control Severance Agreement, dated as of January 31, 2017, by and between the Company and Jon Rider (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K previously filed on February 3, 2017 with the Commission and incorporated herein by reference). Amended and Restated Change-in-Control Severance Agreement, dated as of January 26, 2016, by and between the Company and David McEvoy (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K previously filed on January 28, 2016 with the Commission and incorporated herein by reference). Cooperation Agreement, dated as of August 17, 2017, by and among the Company and the persons set forth on the signature pages thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K previously filed on August 18, 2017 with the Commission and incorporated herein by reference). List of Subsidiaries of the Registrant. 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. 10.15 10.16 10.17 10.18 10.19 21.1* 23.1* 24.1 31.1* 31.2* 32.1* 32.2* 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 y 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. 100 SEACHANGE INTERNATIONAL, INC. Schedule II – Valuation and Qualifying Accounts For the Fiscal Years Ended January 31, 2018, 2017 and 2016 Additions Description Accounts Receivable Allowance: Year ended January 31, 2018 Year ended January 31, 2017 Year ended January 31, 2016 Deferred Tax Assets Valuation Allowance: Year ended January 31, 2018 Year ended January 31, 2017 Year ended January 31, 2016 ITEM 16. FORM 10-K SUMMARY None. Balance at beginning of period Charged to costs and expenses Charged to other accounts (Amounts in thousands) Deductions and write- offs Balance at end of period $ $ $ $ $ $ 876 415 400 58,134 47,368 30,369 $ $ $ $ $ $ 79 597 59 $ $ $ (19,829) $ $ 10,766 $ 16,999 10 $ (61) $ — $ — $ — $ — $ (949) $ (75) $ (44) $ 16 876 415 — $ — $ — $ 38,305 58,134 47,368 101 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. SIGNATURES Dated: April 16, 2018 SEACHANGE INTERNATIONAL, INC. By: /s/ EDWARD TERINO Edward Terino 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 Edward Terino and Peter R. Faubert, 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. Date April 16, 2018 April 16, 2018 April 16, 2018 April 16, 2018 April 16, 2018 April 16, 2018 April 16, 2018 Signature Title(s) /s/ EDWARD TERINO Edward Terino /s/ PETER R. FAUBERT Peter R. Faubert /s/ MARK BONNEY Mark Bonney /s/ MARY PALERMO COTTON Mary Palermo Cotton /s/ WILLIAM MARKEY William Markey /s/ ANDREW SRIUBAS Andrew Sriubas /s/ ED WILSON Ed Wilson Chief Executive Officer, Director (Principal Executive Officer) Chief Financial Officer, Senior Vice President and Treasurer (Principal Financial and Accounting Officer) Director Director Director Director Director 102 SEACHANGE INTERNATIONAL, INC. SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 y 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 Ireland Operations 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. SeaChange Polska Sp zoo Subsidiary Jurisdiction British Virgin Islands Canada Germany India Ireland Ireland Japan Mexico Netherlands Netherlands Netherlands Netherlands Philippines Russia Singapore Turkey United Kingdom United States Poland CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our report dated April 16, 2018, with respect to the consolidated financial statements 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, 2018. We consent to the incorporation by reference of said report in the Registration Statements of SeaChange International, Inc. on Forms S-3 (File No. 333-56410 and File No. 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, 333-201867, 333-210716 and 333-220912). Exhibit 23.1 /s/ GRANT THORNTON LLP Boston, Massachusetts April 16, 2018 Exhibit 31.1 I, Edward Terino, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SeaChange International, Inc.; 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; 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; 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 its consolidated subsidiaries, is our supervision, to ensure that material information relating to the registrant, including made known to us by others within those entities, particularly during the period in which this report is being prepared; ff (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 16, 2018 By: /s/ EDWARD TERINO Edward Terino Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 I, Peter R. Faubert, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SeaChange International, Inc.; 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; 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; 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 its consolidated subsidiaries, is our supervision, to ensure that material information relating to the registrant, including made known to us by others within those entities, particularly during the period in which this report is being prepared; ff (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 16, 2018 By: /s/ PETER R. FAUBERT Peter R. Faubert Chief Financial Officer, Senior Vice President 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, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward Terino, 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) (2) 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 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ EDWARD TERINO Edward Terino Chief Executive Officer and Director Dated: April 16, 2018 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, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter R. Faubert, 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) (2) 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 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ PETER R. FAUBERT Peter R. Faubert Chief Financial Officer, Senior Vice President and Treasurer Dated: April 16, 2018 Corporate Information BOARD OF DIRECTORS EXECUTIVE OFFICERS (cid:58)(cid:76)(cid:79)(cid:79)(cid:76)(cid:68)(cid:80)(cid:3)(cid:41)(cid:17)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:92)(cid:15)(cid:3)(cid:44)(cid:44)(cid:44) (cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71) (cid:40)(cid:71)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:55)(cid:72)(cid:85)(cid:76)(cid:81)(cid:82) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85) (cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:37)(cid:82)(cid:81)(cid:81)(cid:72)(cid:92) (cid:48)(cid:68)(cid:85)(cid:92)(cid:3)(cid:51)(cid:68)(cid:79)(cid:72)(cid:85)(cid:80)(cid:82)(cid:3)(cid:38)(cid:82)(cid:87)(cid:87)(cid:82)(cid:81) (cid:36)(cid:81)(cid:71)(cid:85)(cid:72)(cid:90)(cid:3)(cid:54)(cid:85)(cid:76)(cid:88)(cid:69)(cid:68)(cid:86) (cid:40)(cid:71)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:55)(cid:72)(cid:85)(cid:76)(cid:81)(cid:82) (cid:53)(cid:82)(cid:92)(cid:70)(cid:72)(cid:3)(cid:40)(cid:17)(cid:3)(cid:58)(cid:76)(cid:79)(cid:86)(cid:82)(cid:81) (cid:45)(cid:82)(cid:81)(cid:68)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:53)(cid:76)(cid:71)(cid:72)(cid:85) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85) (cid:51)(cid:72)(cid:87)(cid:72)(cid:85)(cid:3)(cid:41)(cid:68)(cid:88)(cid:69)(cid:72)(cid:85)(cid:87) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:868)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3) (cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:85) (cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:48)(cid:70)(cid:40)(cid:89)(cid:82)(cid:92) (cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:15)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3) (cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92) HEADQUARTERS (cid:24)(cid:19)(cid:3)(cid:49)(cid:68)(cid:74)(cid:82)(cid:74)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)(cid:15)(cid:3)(cid:36)(cid:70)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:19)(cid:20)(cid:26)(cid:21)(cid:19) (cid:55)(cid:3)(cid:14)(cid:20)(cid:17)(cid:28)(cid:26)(cid:27)(cid:17)(cid:27)(cid:28)(cid:26)(cid:17)(cid:19)(cid:20)(cid:19)(cid:19)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:41)(cid:3)(cid:14)(cid:20)(cid:17)(cid:28)(cid:26)(cid:27)(cid:17)(cid:27)(cid:28)(cid:26)(cid:17)(cid:19)(cid:20)(cid:22)(cid:21) DEVELOPEMENT, SALES AND SUPPORT FACILITIES (cid:36)(cid:38)(cid:55)(cid:50)(cid:49)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:3)(cid:3)(cid:95)(cid:3)(cid:3)(cid:3)(cid:40)(cid:44)(cid:49)(cid:39)(cid:43)(cid:50)(cid:57)(cid:40)(cid:49)(cid:15)(cid:3)(cid:55)(cid:43)(cid:40)(cid:3)(cid:49)(cid:40)(cid:55)(cid:43)(cid:40)(cid:53)(cid:47)(cid:36)(cid:49)(cid:39)(cid:54)(cid:3)(cid:3)(cid:3)(cid:95)(cid:3)(cid:3)(cid:3)(cid:58)(cid:36)(cid:53)(cid:54)(cid:36)(cid:58)(cid:15)(cid:3)(cid:51)(cid:50)(cid:47)(cid:36)(cid:49)(cid:39) (cid:95) DUNDALK, IRELAND STOCKHOLDERS INFORMATION (cid:53)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71) (cid:69)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:29) INVESTOR RELATIONS (cid:54)(cid:72)(cid:68)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17) (cid:24)(cid:19)(cid:3)(cid:49)(cid:68)(cid:74)(cid:82)(cid:74)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78) (cid:36)(cid:70)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:19)(cid:20)(cid:26)(cid:21)(cid:19) (cid:55)(cid:3)(cid:14)(cid:20)(cid:17)(cid:28)(cid:26)(cid:27)(cid:17)(cid:27)(cid:28)(cid:26)(cid:17)(cid:19)(cid:20)(cid:19)(cid:19)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:41)(cid:3)(cid:14)(cid:20)(cid:17)(cid:28)(cid:26)(cid:27)(cid:17)(cid:27)(cid:28)(cid:26)(cid:17)(cid:19)(cid:20)(cid:22)(cid:21) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:35)(cid:86)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:17)(cid:70)(cid:82)(cid:80) (cid:48)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) (cid:90)(cid:72)(cid:69)(cid:86)(cid:76)(cid:87)(cid:72)(cid:29)(cid:3)(cid:90)(cid:90)(cid:90)(cid:17)(cid:86)(cid:73)(cid:69)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:17)(cid:70)(cid:82)(cid:80) STOCK TRADING INFORMATION(cid:4) (cid:54)(cid:72)(cid:68)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:821)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) (cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:54)(cid:40)(cid:36)(cid:38)(cid:17) TRANSFER AGENT AND REGISTRAR (cid:38)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72) (cid:21)(cid:24)(cid:19)(cid:3)(cid:53)(cid:82)(cid:92)(cid:68)(cid:79)(cid:79)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87) (cid:38)(cid:68)(cid:81)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:19)(cid:21)(cid:19)(cid:21)(cid:20) (cid:55)(cid:82)(cid:79)(cid:79)(cid:3)(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:11)(cid:39)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:12)(cid:29)(cid:3)(cid:27)(cid:19)(cid:19)(cid:17)(cid:21)(cid:27)(cid:27)(cid:17)(cid:28)(cid:24)(cid:23)(cid:20) (cid:55)(cid:39)(cid:39)(cid:3)(cid:43)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:44)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:29)(cid:3)(cid:21)(cid:19)(cid:20)(cid:17)(cid:21)(cid:22)(cid:20)(cid:17)(cid:24)(cid:23)(cid:25)(cid:28) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:29)(cid:3)(cid:14)(cid:20)(cid:17)(cid:21)(cid:19)(cid:20)(cid:17)(cid:25)(cid:27)(cid:19)(cid:17)(cid:25)(cid:24)(cid:26)(cid:27) (cid:55)(cid:39)(cid:39)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:29)(cid:3) (cid:14)(cid:20)(cid:17)(cid:21)(cid:19)(cid:20)(cid:17)(cid:25)(cid:27)(cid:19)(cid:17)(cid:25)(cid:25)(cid:20)(cid:19) (cid:90)(cid:90)(cid:90)(cid:17)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:17)(cid:70)(cid:82)(cid:80) INDEPENDENT ACCOUNTANTS (cid:42)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:55)(cid:75)(cid:82)(cid:85)(cid:81)(cid:87)(cid:82)(cid:81)(cid:3)(cid:47)(cid:47)(cid:51) (cid:26)(cid:24)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:54)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:15)(cid:3)(cid:20)(cid:22)(cid:87)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:82)(cid:85) (cid:37)(cid:82)(cid:86)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:19)(cid:21)(cid:20)(cid:19)(cid:28) (cid:55)(cid:3)(cid:14)(cid:20)(cid:17)(cid:25)(cid:20)(cid:26)(cid:17)(cid:26)(cid:21)(cid:22)(cid:17)(cid:26)(cid:28)(cid:19)(cid:19) (cid:41)(cid:3)(cid:14)(cid:20)(cid:17)(cid:25)(cid:20)(cid:26)(cid:17)(cid:26)(cid:21)(cid:22)(cid:17)(cid:22)(cid:25)(cid:23)(cid:19) (cid:90)(cid:90)(cid:90)(cid:17)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:87)(cid:75)(cid:82)(cid:85)(cid:81)(cid:87)(cid:82)(cid:81)(cid:17)(cid:70)(cid:82)(cid:80) OUTSIDE COUNSEL (cid:38)(cid:75)(cid:82)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:43)(cid:68)(cid:79)(cid:79)(cid:3)(cid:9)(cid:3)(cid:54)(cid:87)(cid:72)(cid:90)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:47)(cid:47)(cid:51) (cid:55)(cid:90)(cid:82)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:51)(cid:79)(cid:68)(cid:70)(cid:72) (cid:37)(cid:82)(cid:86)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:3)(cid:19)(cid:21)(cid:20)(cid:20)(cid:19) (cid:55)(cid:3)(cid:14)(cid:20)(cid:17)(cid:25)(cid:20)(cid:26)(cid:17)(cid:21)(cid:23)(cid:27)(cid:17)(cid:24)(cid:19)(cid:19)(cid:19) (cid:41)(cid:3)(cid:14)(cid:20)(cid:17)(cid:25)(cid:20)(cid:26)(cid:17)(cid:21)(cid:23)(cid:27)(cid:17)(cid:23)(cid:19)(cid:19)(cid:19) ANNUAL MEETING OF STOCKHOLDERS (cid:55)(cid:75)(cid:72)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3) (cid:54)(cid:72)(cid:68)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:20)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:19)(cid:68)(cid:80)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:821)(cid:86) (cid:75)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:24)(cid:19)(cid:3)(cid:49)(cid:68)(cid:74)(cid:82)(cid:74)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)(cid:15)(cid:3)(cid:36)(cid:70)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:48)(cid:36)(cid:17) SEACHANGE INTERNATIONAL INC. CORPORATE HEADQUARTERS 50 Nagog Park, Acton, MA 01720 T +1.978.897.0100(cid:4) www.s(cid:73)(cid:69)change.com ©2018 SeaChange International, Inc. All rights reserved. SeaChange is a registered trademark of SeaChagne International, Inc. All other trademarks are the property of their respective owners. (cid:49)(cid:54)(cid:57)(cid:48) 

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