SeaChange InternationaL Reports Third Quarter Fiscal 2020 Results
Revenue Increases by 10% as Framework Offering Continues to Gain Traction
Management Reiterates Full Year Revenue and Operating Income Guidance
ACTON, Mass. (December 4, 2019) – SeaChange International, Inc. (NASDAQ: SEAC) today reported third quarter fiscal 2020 revenue of $20.5 million and net income of $2.1 million, or $0.06 per basic share, compared to third quarter fiscal 2019 revenue of $18.6 million and a net loss of $3.8 million, or $0.11 per basic share.
Quarterly and Recent Highlights
- Won eight significant customers all with multi-year commitments for the Framework video delivery platform, amounting to more than $18 million in total deal value, bringing the cumulative value for this fiscal year to date to 15 deals totaling more than $39 million.
- Recorded $20.5 million of revenue, with the majority from Framework deals, in line with our business plan for this year.
- Gross margin was 76% in the third quarter of fiscal 2020, compared to 61% in the third quarter of fiscal 2019, as we continue to see an improvement in gross margin related to our Framework video delivery platform.
- Net Income was $2.1 million in the third quarter of fiscal 2020, compared to a Net Loss of $3.8 million in the third quarter of fiscal 2019.
- Ended the quarter with cash, cash equivalents and marketable securities of $13.8 million and no debt.
- Added Michael Prinn, an experienced public company financial leader, as the new Chief Financial Officer.
- Continue to execute on our operating expense control plan, including having more than 90% of the R&D team in one single location, and initiated the G&A cost savings actions under Michael Prinn’s leadership.
Yossi Aloni, Chief Executive Officer, commented,:
“The transformation of SeaChange is well underway and taking hold: we are seeing further evidence that our strategic growth initiatives are winning in the marketplace, positioning SeaChange for clear market leadership and long-term profitable growth. The Framework offering and our unique value-based engagement have been well received. Our new wins in the quarter provide additional confirmation that we have a superior product, which enables our customers in turn to offer an exceptional viewer experience to their customers.”
“In addition to our focus on revenue growth and Framework wins, we continue to streamline our operations to better align with the realities of our business as it exists today. We have identified substantial expense savings, and we are actively engaged in realizing those savings. Our new Chief Financial Officer, Michael Prinn, is working diligently to both realize the cost savings previously identified as well as identifying additional opportunities that may exist.”
“The only financial metric that was disappointing was our cash balance of $13.8 million at quarter end. The good news is that we believe our cash position has stabilized, and the actions we are taking to right-size the cost structure of the company, combined with our strong sales momentum, should set us up to be cash flow positive moving forward.”
The Company’s U.S. GAAP third quarter fiscal 2020 results included charges of $2.9 million in non-GAAP adjustments, which consisted of amortization of intangible assets from prior acquisitions of $0.3 million, severance and other restructuring costs of $2.3 million and stock-based compensation of $0.4 million. Third quarter fiscal 2019 results included charges of $2.2 million in non-GAAP adjustments, which consisted of stock-based compensation of $0.8 million, amortization of intangible assets from prior acquisitions of $0.4 million and severance and other restructuring costs of $1.0 million. Non-GAAP income from operations in the third quarter of fiscal 2020 was $5.2 million, or $0.14 per fully diluted share, compared to a non-GAAP net loss from operations in the third quarter of fiscal 2019 of $0.3 million, or $0.01 per basic share.
For the first nine months of fiscal 2020, the Company reported revenue of $47.8 million and a net loss of $8.9 million, or $0.24 per basic share, compared to revenue of $45.4 million and a net loss of $18.4 million, or $0.52 per basic share, in the same period in the prior fiscal year. The non-GAAP loss from operations for the first nine months of fiscal 2020 was $1.3 million, or $0.04 per basic share, compared to a non-GAAP loss from operations of $10.5 million, or $0.29 per basic share, in the first nine months of fiscal 2019.
Update on the Company’s key metrics for fiscal 2020:
- Goal: Close 20-25 significant deals for multiple product/service offerings on an annual basis. Progress: Closed 15 significant deals since the rollout of our Framework solution in April this year.
- Goal: Increase total annual revenue in the low to mid double digits percentage range to $70-80 million, despite lower year-over-year service revenues. Progress: The Company is encouraged by the continued growth of the Framework deal pipeline and the transactions already closed, and remains confident in the full year revenue target.
- Goal: Maintain GAAP gross margin in the low 60% range. Progress: Gross margin from Framework deals in Q3 increased overall gross margin to 76%, well above the low 60% range.
- Goal: Complete the development of three significant new product offerings. Progress: achieved in second quarter this year when the company released 7th generation Back Office, virtualized Orchestrator and predictive Analytics 1.0. In the fourth quarter, SeaChange is launching the industry’s first true end-to-end container based advertisement management, insertion and placement solution.
- Goal: Continue to reduce costs by focusing on reducing third-party costs and eliminating non-essential costs. Progress: on-track, efforts to reduce third-party costs were significantly achieved in the second and third quarter, with full annualized savings impact beginning to be reflected in Q3. The changes the Company has made this year, and will continue to make during the fourth quarter, will generate over $12 million in annual cost savings. Work is continuing to align the organization with the realities of the business needs as the Framework solution continues to roll out.
- Goal: Deliver GAAP operating results between a loss of $0.09 per basic share to income of $0.07 per fully diluted share and non-GAAP operating income between $0.03 to $0.19 per fully diluted share. Progress: Management is confident in our yearly operating profit goals for the full year.
- Goal: Increase cash by $3-6 million. Progress: Based upon continuing trends with Framework deal structure, the Company is lowering its expectations for cash at the end of the fiscal year to $14-16 million, from the previous $22 – 25 million, but anticipates that the increased number of Framework transactions, along with lower operating expense levels, will enable SeaChange to rebuild its cash position significantly in fiscal 2021.
SeaChange management continues to believe that achieving these goals will establish the foundation for a business model targeted to result in sustainable double-digit revenue growth and non-GAAP operating income of 10-13% in 2 to 3 years.
These GAAP estimates are subject to a number of variables that are outside of management’s control, including the size of restructuring expenses, which are influenced by the timing of certain restructuring activities and stock price fluctuations.
Following the quarter, Mark Bonney, Chairman of the Board, has resigned from the board after several years of service. Robert Pons has been appointed Chairman of the Board.
The Company will host a webcast to discuss its third quarter Fiscal 2020 results at 5:00 p.m. ET today, Wednesday, December 4, 2019. The live webcast may be accessed at https://78449.themediaframe.com/dataconf/productusers/scc/mediaframe/33423/indexl.html; which will include a presentation accompanying management’s remarks. The webcast replay and presentation will be archived on the Events page at investors.seachange.com following completion of the call. The call may also be accessed by dialing 877-407-8037 (U.S.) and 201-689-8037 (international) for audio only.
About SeaChange International
SeaChange is a leading supplier of Video Delivery Software Solutions. Our solution powers hundreds of cloud and on-premise video delivery platforms, servicing over 50 million subscribers worldwide. SeaChange offers value-based engagement which provides content and service providers with a complete software delivery platform for linear, VOD and TSTV over managed and unmanaged networks. The SeaChange Framework solution includes video back-office, media asset management, targeted advertising management, analytics and the client interface for STBs, Smart-TVs and mobile devices. Our solution is available as a product or managed service deployed on-premises, in the cloud or as a hybrid. For more information, please visit www.seachange.com.
Safe Harbor Provision
Any statements contained in this press release that do not describe historical facts, including the impact changes currently underway, our framework video delivery model, the anticipated closing of deals, revenue, gross margins, development of new product offerings, cost savings, income from operations, cash balance and other financial matters, are neither promises nor guarantees and may constitute “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include words such as “may,” “might,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “seeks,” “intends,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. Any such forward-looking statements contained herein are based on current assumptions, estimates and expectations, but are subject to a number of known and unknown risks and significant business, economic and competitive uncertainties that may cause actual results to differ materially from expectations. Numerous factors could cause actual future results to differ materially from current expectations expressed or implied by such forward-looking statements, including, without limitation, the following: the continued spending by the Company’s customers on video solutions and services and expenses we may incur in fulfilling customer arrangements; the success of our efforts to introduce SaaS-based multiscreen service offerings; the Company’s ability to successfully introduce new products or enhancements to existing products; the manner in which the multiscreen video and OTT markets develop; the Company’s transition to being a company that primarily provides software solutions; the Company’s ability to compete in the marketplace; any failure by the Company to respond to changing technology; measures taken to address the variability in the market for our products and services; the loss of or reduction in demand, or the return of product, by one of the Company’s large customers or the failure of revenue acceptance criteria in a given fiscal quarter; consolidation in the markets the Company serves; the cancellation or deferral of purchases of the Company’s products; the adoption of our value-based selling approach; the length of the Company’s sales cycles; any decline in demand or average selling prices for our products and services; failure to manage product transitions; failure to achieve our financial forecasts due to inaccurate sales forecasts or other factors, including due to expenses we may incur in fulfilling customer arrangements; the impact of restructuring programs; the Company’s ability to manage its growth; the risks associated with international operations; foreign currency fluctuation; the Company’s ability to protect its intellectual property rights and the expenses that may be incurred by the Company to protect its intellectual property rights; an unfavorable result of current or future litigation relating to the Company’s intellectual property; content providers limiting the scope of content licensed for use in the video-on-demand and OTT market or other limitations in materials we use to provide our products and services; the Company’s ability to realize the benefits of completed or future acquisitions, including Xstream A/S; the impact of acquisitions, divestitures or investments made by the Company; the Company’s ability to raise additional funds through capital markets on favorable terms and in a timely manner; the Company’s ability to access sufficient funding to finance desired growth and operations; any impairment of the Company’s assets; the ability of the Company to use its net operating losses; the Company’s ability to hire and retain highly skilled employees; the ability of the Company to manage and oversee the outsourcing of engineering work; additional tax liabilities to which the Company may be subject, including should the Company’s net operating loss carry-forwards be impaired, notwithstanding the Company’s Tax Benefits Preservation Plan; possible adjustments to estimates resulting from the new tax legislation; any breach of the Company’s security measures and customer data or our data being obtained unlawfully; evolving data privacy regulations; service interruptions or delays from our third-party data center hosting facilities; disruptions to the Company’s information technology systems; stock price volatility and compliance with Nasdaq continued listing standards; actions that may be taken by significant stockholders, notwithstanding the February 2019 Cooperation Agreement with TAR Holdings LLC; if securities analysts do not publish favorable research or reports about our business; our use of non-GAAP reporting; change in accounting standards; any weakness in the Company’s internal controls over financial reporting; the Company’s use of estimates in accounting for the Company’s contracts; the performance of the Company’s third-party vendors; the Company’s entry into fixed price contracts and the related risk of cost overruns; the risks associated with purchasing material components from sole suppliers and using a limited number of third-party manufacturers; the performance of companies in which the Company has made investments; the impact of changes in the market on the value of our investments; changes in the regulatory environment; uncertainties of regulation of the Internet and data traveling over the Internet; the ability of the Company and its intermediaries to comply with the Foreign Corrupt Practices Act; terrorist acts, conflicts, wars and geopolitical uncertainties; and the Company’s Delaware anti-takeover provisions. These risks and other risk factors that could cause actual results to differ from those anticipated are detailed in various publicly available documents filed by the Company from time to time with the Securities and Exchange Commission (SEC), which are available at www.sec.gov, including but not limited to, such information appearing under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on April 12, 2019. Any forward-looking statements should be considered in light of those risk factors. The Company cautions readers not to rely on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any intent or obligation to publicly update or revise any such forward-looking statements to reflect any change in Company expectations or future events, conditions or circumstances on which any such forward-looking statements may be based, or that may affect the likelihood that actual results may differ from those set forth in such forward-looking statements.