Attached files
file | filename |
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8-K - SEACHANGE INTERNATIONAL INC | v205045_8k.htm |
Contact:
|
Jim Sheehan
|
Martha Schaefer
|
SeaChange PR | SeaChange IR | |
1-978-897-0100 x3064 | 1-978-897-0100 x3030 | |
jim.sheehan@schange.com | martha.schaefer@schange.com |
SeaChange
International Announces Third Quarter Fiscal 2011
Results
·
|
Year
over Year Growth in Software
|
·
|
Continued
strong revenue growth for Media
Services
|
·
|
Cost
reductions for Servers and Storage pave path to
profitability
|
ACTON, Mass. (Dec. 9, 2010) –
SeaChange International, Inc. (NASDAQ: SEAC), the leading global
multi-screen video software company, today announced financial results for its
fiscal 2011 third quarter ended October 31, 2010. Total non-GAAP
revenues were $49.9 million, which were $4.1 million lower than total non-GAAP
revenues of $54.0 million for the third quarter of last year. Total
GAAP revenues for the third quarter of $49.1 million were $4.2 million lower
than last year’s third quarter GAAP revenues of $53.3
million. Non-GAAP net income for this year’s third quarter was $1.5
million or $0.05 per share compared with non-GAAP net income of $3.4 million or
$0.11 per share for the third quarter of fiscal 2010. GAAP net loss
for this year’s third quarter was $5.2 million or $0.17 per share compared to
GAAP net income of $0.7 million or $0.02 per share for last year’s third
quarter.
Total
non-GAAP revenues for the first nine months of fiscal 2011 ended October 31,
2010, were $159.2 million, which were $9.8 million or 7% higher than total
non-GAAP revenues of $149.4 million for the first nine months of fiscal
2010. Non-GAAP net income for the first nine months of fiscal 2011 of
$7.4 million or $0.24 per share was $0.7 million or $0.03 per share higher than
non-GAAP net income and earnings per share of $6.7 million and $0.21 per share,
respectively, for the same period last year. Total GAAP revenues for
the first nine months of fiscal 2011 of $155.4 million were $6.7 million higher
than GAAP revenues of $148.7 million for the same period last
year. GAAP net income for the first nine months of this year was
$18.6 million, or $0.58 per share, compared with GAAP net income of $1.3
million, or $0.04 per share, for the first nine months of last
year.
(more)
SeaChange
Q3 FY11 Earnings/Page 2
Significant
GAAP items that have been excluded in calculating non-GAAP net income include
the gain on the sale of the Company’s equity investment in Casa Systems in this
year’s first quarter, deferred revenue adjustments related to recent
acquisitions, restructuring charges, reversal of deferred tax valuation
allowance, amortization of intangible assets and stock compensation
expense. A reconciliation of GAAP net income to non-GAAP net income
is attached to this release and is available on the Company’s website (http://www.schange.com/ir).
The
Company ended the third quarter of fiscal 2011 with cash, cash equivalents and
marketable securities of $75.0 million and no debt compared with $76.3 million
and no debt at the end of the second quarter of fiscal 2011. The use
of cash during this year’s third quarter was driven by acquisition payments to
the former shareholders of eventIS and VividLogic, higher accounts receivable
and capital expenditures that were partially offset by higher accounts
payable.
Segment Revenue
Results
Total
revenues from the Company’s Software segment in the third quarter of fiscal 2011
were $34.8 million, which were $0.9 million lower than Software segment revenues
of $35.7 million generated in last year’s third quarter. The decrease
in Software segment revenues between years was attributable to lower VOD
software licensing revenue from North American customers. This
decrease was partially offset by higher Advertising software revenue and the
inclusion of VividLogic and eventIS revenue in this year’s third
quarter.
The
Servers & Storage segment generated $6.2 million in revenue for the third
quarter of fiscal 2011 which was $6.2 million lower than revenue for the third
quarter of fiscal 2010. The decline in revenue was mainly due to
lower VOD server shipments to customers in North America and Latin America
combined with the impact of an isolated warranty-related return of product from
a customer resulting in the reduction of previously recorded
revenue.
The Media
Services operating segment revenue for the third quarter of fiscal 2011 of $8.1
million was $2.9 million, or 56% higher than comparable revenue from last year’s
third quarter. The significant increase in Media Services revenues
between the third quarter of this year compared to last year was the result of
newer contract revenues from customers in France and Dubai, as well as increased
content processing fees from a customer in Greece.
(more)
SeaChange
Q3 FY11 Earnings/Page 3
“SeaChange
is in a great position given our customer base and 60-plus percent recurring
revenue,” said Bill Styslinger, SeaChange CEO &
Chairman. “As we continue to build our software-centric
portfolio, we are focused on creating shareholder value. In the
software sector, we continue to see year over year growth, and our Media
Services saw another period of rapid growth. On the servers and
storage side of the business, we have reduced costs and are focused on driving
the hardware business to profitability. We are proud to be ranked
amongst the Software Magazine Software 500 and to be considered one of the
largest software companies in the world.”
Styslinger
continued, “Q4 non GAAP revenue guidance is $55M to $59M with a non GAAP EPS
range of $0.15 to $0.19. The strong guidance is primarily due to
expectations for higher software license revenue in North America.”
The Company will discuss its financial
results and business outlook in more detail today during its webcast conference
call at 5:00 p.m. EST, which will be available live and archived at www.schange.com/IR/.
About
SeaChange International
SeaChange International (NASDAQ: SEAC)
is a global leader in multi-screen video and one of the largest software
companies worldwide. The Company provides innovative, Emmy award-winning
solutions and services for back office, advertising, content, in-home devices
and broadcast to hundreds of media companies, including blue chip companies such
as Comcast, Virgin Media, AT&T, Hutchison Whampoa, Vodacom and DISH Network.
Headquartered in Acton, Massachusetts, SeaChange has product development,
support and sales offices around the world. Visit
www.schange.com
(more)
SeaChange
Q3 FY11 Earnings/Page 4
Safe Harbor
Provision
Any
statements contained in this document, including the accompanying prepared
remarks of the Company’s Chief Executive Officer and Chairman, that do not
describe historical facts, including without limitation statements concerning
expected future performance, product introductions and general market
conditions, may constitute forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. Any such forward-looking
statements contained herein are based on current expectations, but are subject
to a number of risks and uncertainties that may cause actual results to differ
materially from expectations. The factors that could cause actual future results
to differ materially from current expectations include the following: the
Company’s dependence on the continued spending of customers on video systems and
services; the continued growth, development and acceptance of the
video-on-demand market; the impact of worldwide economic cycles; the impact of
measures the Company has taken to address slowdowns in the market for the
Company’s products and services; the loss of one of the Company's large
customers; the cancellation or deferral of purchases of the Company's products;
a decline in demand or average selling price for the Company’s products; the
Company's ability to manage its growth; unanticipated delays in or costs and
expenses relating to implementation of cost reduction or other restructuring
plans, including with respect to the server and storage business; the risks
associated with international sales, including risks associated with changes in
foreign currency exchange rates; 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 in current and any future litigation in which the Company is
involved; content providers limiting the scope of content licensed for use in
the video-on-demand market; the Company's ability to introduce new products or
enhancements to existing products; the Company's dependence on certain sole
source suppliers and third-party manufacturers; the Company’s ability to obtain
licenses or distribution rights for third-party technology at acceptable prices;
the Company's ability to compete in its marketplace; the Company's ability to
respond to changing technologies; the performance of companies in which the
Company has made equity investments, including On Demand Deutschland GmBH &
Co. KG; the ability of the Company to realize the benefits of its acquisitions
of eventIS Group B.V. and VividLogic, Inc. and to integrate these and any future
acquisitions; future acquisitions or joint ventures that are unsuccessful;
impairment of the Company’s goodwill or intangible assets; risks in the
Company’s investments that adversely affect the value or liquidity of the
investments; changes in the regulatory environment; the Company's ability to
hire and retain highly skilled employees; any weaknesses over internal controls
over financial reporting; any additional tax liabilities that the Company may be
subject to; system errors, failures or disruptions; and volatility of the
Company’s stock price.
Further
information on factors that could cause actual results to differ from those
anticipated is detailed in various publicly available documents made by the
Company from time to time with the Securities and Exchange Commission, including
but not limited to, those appearing at Item 1A under the caption "Risk Factors"
in the Company's Annual Report on Form 10-K filed with the Commission on April
9, 2010. Any forward-looking statements should be considered in light of those
factors. The Company cautions readers not to place undue reliance on any such
forward-looking statements, which speak as of the date they are
made.
(more)
SeaChange
Q3 FY11 Earnings/Page 5
The
Company disclaims any obligation to publicly update or revise any such
statements to reflect any change in Company expectations or events, conditions
or circumstances on which any such statements may be based, or that may affect
the likelihood that actual results may differ from those set forth in the
forward-looking statements.
Use of Non-GAAP Financial
Information
To
supplement our financial results presented in accordance with Generally Accepted
Accounting Principles (GAAP), this press release and the accompanying tables
contain certain non-GAAP financial measures that we believe are helpful in
understanding our past financial performance and future results. Our non-GAAP
financial measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures and should be read in conjunction with
our consolidated financial statements prepared in accordance with GAAP. Our
management regularly uses our supplemental non-GAAP financial measures
internally to understand and manage our business and make operating decisions.
Our non-GAAP financial measures include adjustments based on the following
items, as well as the related income tax effects and adjustments to the
valuation allowance:
Deferred software
revenue: Business combination accounting rules require us to account for
the fair value of customer contracts assumed in connection with our
acquisitions. In connection with the acquisitions of eventIS Group B.V. on
September 1, 2009 and VividLogic, Inc. on February 1, 2010, the book value of
our deferred software revenue was reduced by approximately $6.0 million in the
adjustment to fair value. Because these customer contracts may take up to 18
months to complete, our GAAP revenues subsequent to these acquisitions do not
reflect the full amount of software revenues on assumed customer contracts that
would have otherwise been recorded by eventIS Group B.V. and VividLogic,
Inc. We believe this adjustment is useful to investors as a measure
of the ongoing performance of our business because we have historically
experienced high renewal rates on similar customer contracts, although we cannot
be certain that customers will renew these contracts.
Stock-based compensation
expenses: We have excluded the effect of stock-based compensation and
stock-based payroll expenses from our non-GAAP operating expenses and net income
measures. Although stock-based compensation is a key incentive offered to our
employees, we continue to evaluate our business performance excluding
stock-based compensation expenses. Stock-based compensation expenses will recur
in future periods.
Amortization of intangible
assets: We have excluded the effect of amortization of intangible assets
from our non-GAAP operating expenses and net income measures. Amortization of
intangibles is inconsistent in amount and frequency and is significantly
affected by the timing and size of our acquisitions. Investors should note that
the use of intangible assets contributed to revenues earned during the periods
presented and will contribute to future period revenues as well. Amortization of
intangibles assets will recur in future periods.
(more)
SeaChange
Q3 FY11 Earnings/Page 6
Acquisition related and
other expenses: We incurred significant expenses in connection with our
acquisitions of eventIS Group B.V. and VividLogic, Inc. and also incurred
certain other operating expenses, which we generally would not have otherwise
incurred in the periods presented as a part of our continuing operations.
Acquisition related and other expenses consist of transaction costs, costs for
transitional employees, other acquired employee related costs, integration
related professional services and the change of fair value related to contingent
considerations. We believe it is useful for investors to understand
the effects of these items on our total operating expenses.
Restructuring: We
incurred significant expenses in connection with selected headcount
reductions
a
write-down of inventory to net realizable value reflecting the discontinuance of
certain inventory components and the disposal of fixed assets. We
believe it is useful for investors to understand the effects of these items on
our total operating expense.
Gain on sale of equity
investment: This reflects the gain, excluding any tax effects, on the
sale of our investment in Casa Systems. This is considered a one-time event and
not included in the financial results of our continuing operations.
Income tax benefit
(provision): The income tax adjustment reflects the effective tax rate
for the year in which the non-GAAP adjustment occurs and excludes any changes in
the tax valuation allowance arising from the gain on the sale of the equity
investment in Casa Systems.
(more)
SeaChange
Q3 FY11 Earnings/Page 7
SeaChange
International, Inc.
|
||||||||
Condensed
Consolidated Balance Sheets
|
||||||||
(in
thousands, except share data)
|
||||||||
October
31, 2010
|
January
31, 2010
|
|||||||
Assets
|
(unaudited)
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 61,417 | $ | 37,647 | ||||
Restricted
cash
|
1,335 | 73 | ||||||
Marketable
securities
|
5,077 | 2,114 | ||||||
Accounts
receivable, net
|
49,603 | 54,278 | ||||||
Inventories,
net
|
15,489 | 17,830 | ||||||
Prepaid
expenses and other current assets
|
5,465 | 7,253 | ||||||
Deferred
tax asset
|
4,326 | 2,474 | ||||||
Total
current assets
|
142,712 | 121,669 | ||||||
Property
and equipment, net
|
37,808 | 39,682 | ||||||
Marketable
securities, long-term
|
7,205 | 8,688 | ||||||
Investments
in affiliates
|
4,799 | 13,697 | ||||||
Intangible
assets, net
|
32,251 | 26,264 | ||||||
Goodwill
|
67,002 | 55,876 | ||||||
Other
assets
|
3,328 | 1,271 | ||||||
Total
assets
|
$ | 295,105 | $ | 267,147 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 11,070 | $ | 10,371 | ||||
Other
accrued expenses
|
14,938 | 11,174 | ||||||
Customer
deposits
|
3,259 | 4,279 | ||||||
Deferred
revenues
|
32,521 | 34,158 | ||||||
Deferred
tax liability
|
717 | 800 | ||||||
Total
current liabilities
|
62,505 | 60,782 | ||||||
Deferred
revenue, long-term
|
12,864 | 12,635 | ||||||
Long
term liabilities
|
11,087 | 6,574 | ||||||
Distribution
and losses in excess of investment
|
1,836 | 1,469 | ||||||
Deferred
tax liabilities
|
7,516 | 7,765 | ||||||
Total
liabilities
|
95,808 | 89,225 | ||||||
Stockholders’
equity:
|
||||||||
Common
stock
|
316 | 326 | ||||||
Additional
paid-in capital
|
205,487 | 211,504 | ||||||
Treasury
stock
|
(1 | ) | (8,757 | ) | ||||
Accumulated
earning (deficit)
|
1,166 | (17,450 | ) | |||||
Accumulated
other comprehensive loss
|
(7,671 | ) | (7,701 | ) | ||||
Total
stockholders’ equity
|
199,297 | 177,922 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 295,105 | $ | 267,147 |
(more)
SeaChange
Q3 FY11 Earnings/Page 8
SeaChange
International, Inc.
|
||||||||||||||||
Condensed
Consolidated Statement of Operations - Unaudited
|
||||||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October
31, 2010
|
October
31, 2009
|
October
31, 2010
|
October
31, 2009
|
|||||||||||||
Revenues
|
$ | 49,135 | $ | 53,290 | $ | 155,360 | $ | 148,673 | ||||||||
Cost
of revenues
|
25,894 | 25,733 | 79,881 | 72,384 | ||||||||||||
Gross
profit
|
23,241 | 27,557 | 75,479 | 76,289 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
11,570 | 13,353 | 37,351 | 37,433 | ||||||||||||
Selling
and marketing
|
5,726 | 7,067 | 18,315 | 19,582 | ||||||||||||
General
and administrative
|
6,112 | 5,986 | 18,089 | 16,036 | ||||||||||||
Amortization
of intangibles
|
805 | 571 | 2,512 | 1,844 | ||||||||||||
Restructuring
|
2,435 | - | 6,944 | - | ||||||||||||
26,648 | 26,977 | 83,211 | 74,895 | |||||||||||||
(Loss)
income from operations
|
(3,407 | ) | 580 | (7,732 | ) | 1,394 | ||||||||||
Gain
on sale of investment in affiliate
|
- | - | 25,188 | - | ||||||||||||
Other
income (expense), net
|
173 | 455 | (257 | ) | 739 | |||||||||||
Income
(loss) before income taxes and equity loss in earnings of
affiliates
|
(3,234 | ) | 1,035 | 17,199 | 2,133 | |||||||||||
Income
tax (provision) benefit
|
(1,942 | ) | (105 | ) | 1,700 | (337 | ) | |||||||||
Equity
loss in earnings of affiliates
|
(39 | ) | (273 | ) | (284 | ) | (517 | ) | ||||||||
Net
(loss) income
|
$ | (5,215 | ) | $ | 657 | $ | 18,615 | $ | 1,279 | |||||||
Basic
(loss) income per share
|
$ | (0.17 | ) | $ | 0.02 | $ | 0.59 | $ | 0.04 | |||||||
Diluted
(loss) income per share
|
$ | (0.17 | ) | $ | 0.02 | $ | 0.58 | $ | 0.04 | |||||||
Weighted
average common shares outstanding:
|
||||||||||||||||
Basic
|
31,496 | 30,871 | 31,409 | 30,838 | ||||||||||||
Diluted
|
31,496 | 31,659 | 31,929 | 31,407 |
(more)
SeaChange
Q3 FY11 Earnings/Page 9
SeaChange
International, Inc.
|
||||||||||||||||
Condensed
Consolidated Operating Segments - Unaudited
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October
31, 2010
|
October
31, 2009
|
October
31, 2010
|
October
31, 2009
|
|||||||||||||
Software
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Products
|
$ | 15,543 | $ | 19,167 | $ | 51,712 | $ | 49,876 | ||||||||
Services
|
19,293 | 16,578 | 58,789 | 46,547 | ||||||||||||
Total
revenue
|
34,836 | 35,745 | 110,501 | 96,423 | ||||||||||||
Gross
profit
|
18,940 | 22,416 | 59,902 | 58,354 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
9,074 | 10,437 | 28,934 | 29,233 | ||||||||||||
Selling
and marketing
|
4,395 | 4,868 | 13,241 | 12,550 | ||||||||||||
General
and administrative
|
421 | 173 | 935 | 173 | ||||||||||||
Amortization
of intangibles
|
733 | 635 | 2,300 | 1,404 | ||||||||||||
Restructuring
|
344 | - | 878 | - | ||||||||||||
14,967 | 16,113 | 46,288 | 43,360 | |||||||||||||
Income
from operations
|
$ | 3,973 | $ | 6,303 | $ | 13,614 | $ | 14,994 | ||||||||
Servers
and Storage
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Products
|
$ | 2,835 | $ | 8,182 | $ | 13,281 | $ | 26,441 | ||||||||
Services
|
3,358 | 4,179 | 9,973 | 11,804 | ||||||||||||
Total
revenue
|
6,193 | 12,361 | 23,254 | 38,245 | ||||||||||||
Gross
profit
|
3,089 | 4,238 | 11,147 | 16,392 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
2,497 | 2,916 | 8,417 | 8,200 | ||||||||||||
Selling
and marketing
|
1,331 | 2,199 | 5,074 | 7,032 | ||||||||||||
Restructuring
|
2,090 | - | 5,155 | - | ||||||||||||
5,918 | 5,115 | 18,646 | 15,232 | |||||||||||||
Income
(loss) from operations
|
$ | (2,829 | ) | $ | (877 | ) | $ | (7,499 | ) | $ | 1,160 | |||||
Media
Services
|
||||||||||||||||
Service
revenue
|
$ | 8,106 | $ | 5,184 | $ | 21,605 | $ | 14,005 | ||||||||
Gross
profit
|
1,213 | 903 | 4,431 | 1,543 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
1,408 | 824 | 3,114 | 2,247 | ||||||||||||
Amortization
of intangibles
|
73 | (64 | ) | 213 | 440 | |||||||||||
1,481 | 760 | 3,327 | 2,687 | |||||||||||||
Income
(loss) from operations
|
$ | (268 | ) | $ | 143 | $ | 1,104 | $ | (1,144 | ) | ||||||
Unallocated
Corporate
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
$ | 4,283 | $ | 4,989 | $ | 14,039 | $ | 13,616 | ||||||||
Restructuring
|
- | - | 912 | - | ||||||||||||
Total
unallocated corporate expenses
|
$ | 4,283 | $ | 4,989 | $ | 14,951 | $ | 13,616 | ||||||||
Consolidated
income (loss) from operations
|
$ | (3,407 | ) | $ | 580 | $ | (7,732 | ) | $ | 1,394 |
(more)
SeaChange
Q3 FY11 Earnings/Page 10
SeaChange
International, Inc.
|
||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation
of Selected GAAP Measures to Non-GAAP Measures - Unaudited
|
||||||||||||||||||||||||||||||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||||||||||||||||||||||||||||||
Three
months Ended
|
Three
months Ended
|
Nine
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||||||||||||||||
October
31, 2010
|
October
31, 2009
|
October
31, 2010
|
October
31, 2009
|
|||||||||||||||||||||||||||||||||||||||||||||
GAAP
|
Adjustment
|
Non-GAAP
|
GAAP
|
Adjustment
|
Non-GAAP
|
GAAP
|
Adjustment
|
Non-GAAP
|
GAAP
|
Adjustment
|
Non-GAAP
|
|||||||||||||||||||||||||||||||||||||
Revenues
(1)
|
$ | 49,135 | $ | 785 | $ | 49,920 | 53,290 | $ | 731 | $ | 54,021 | $ | 155,360 | $ | 3,888 | $ | 159,248 | $ | 148,673 | $ | 731 | $ | 149,404 | |||||||||||||||||||||||||
Operating
expenses
|
26,648 | 26,648 | 26,977 | 26,977 | 83,211 | 83,211 | 74,895 | 74,895 | ||||||||||||||||||||||||||||||||||||||||
Stock-based
compensation (2)
|
- | 413 | 413 | - | 870 | 870 | - | 1,258 | 1,258 | - | 2,365 | 2,365 | ||||||||||||||||||||||||||||||||||||
Amortization
of intangible assets (3)
|
- | 1,271 | 1,271 | - | 1,016 | 1,016 | - | 3,916 | 3,916 | - | 2,393 | 2,393 | ||||||||||||||||||||||||||||||||||||
Restructuring
(4)
|
- | 2,435 | 2,435 | - | - | - | - | 6,944 | 6,944 | - | - | - | ||||||||||||||||||||||||||||||||||||
Acquisition
related costs (5)
|
- | 105 | 105 | - | 430 | 430 | - | 1,134 | 1,134 | - | 960 | 960 | ||||||||||||||||||||||||||||||||||||
26,648 | 4,224 | 22,424 | 26,977 | 2,316 | 24,661 | 83,211 | 13,252 | 69,959 | 74,895 | 5,718 | 69,177 | |||||||||||||||||||||||||||||||||||||
(Loss)
income from operations
|
(3,407 | ) | 5,009 | 1,602 | 580 | 3,047 | 3,627 | (7,732 | ) | 17,140 | 9,408 | 1,394 | 6,449 | 7,843 | ||||||||||||||||||||||||||||||||||
Income
from sale of investment in affiliate (6)
|
- | - | - | - | - | - | 25,188 | (25,188 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||
Income
tax benefit (provision) impact (7)
|
(1,942 | ) | 1,667 | (275 | ) | (105 | ) | (309 | ) | (414 | ) | 1,700 | (3,118 | ) | (1,418 | ) | (337 | ) | (1,019 | ) | (1,356 | ) | ||||||||||||||||||||||||||
Net
(loss) income
|
(5,215 | ) | $ | 6,676 | $ | 1,461 | $ | 657 | $ | 2,738 | $ | 3,395 | $ | 18,615 | $ | (11,166 | ) | $ | 7,449 | $ | 1,279 | $ | 5,430 | $ | 6,709 | |||||||||||||||||||||||
Diluted
income per share
|
$ | (0.17 | ) | $ | 0.22 | $ | 0.05 | $ | 0.02 | $ | 0.09 | $ | 0.11 | $ | 0.58 | $ | (0.34 | ) | $ | 0.24 | $ | 0.04 | $ | 0.17 | $ | 0.21 | ||||||||||||||||||||||
Diluted
weighted average common shares outstanding
|
31,496 | 31,496 | 31,496 | 31,659 | 31,659 | 31,659 | 31,929 | 31,929 | 31,929 | 31,407 | 31,407 | 31,407 |
(1)
|
Business
combination accounting rules require us to account for the fair value of
deferred revenue assumed in connection with an acquisition. This
non-GAAP adjustment reflects the full amount of software contract revenue
that would otherwise have been recorded subsequent to our acquisitions
of eventIS Group B.V. and VividLogic Inc.
|
||||||||||||||
(2)
|
For
GAAP purposes, stock-based compensation is included in the following
expense
categories:
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October
31, 2010
|
October
31, 2009
|
October
31, 2010
|
October
31, 2009
|
|||||||||||||
Cost
of revenues
|
$ | 27 | $ | 168 | $ | 147 | $ | 479 | ||||||||
Research
and development
|
108 | 245 | 339 | 634 | ||||||||||||
Selling
and marketing
|
72 | 134 | 270 | 425 | ||||||||||||
General
and administrative
|
206 | 323 | 502 | 827 | ||||||||||||
Total
stock-based compensation
|
$ | 413 | $ | 870 | $ | 1,258 | $ | 2,365 |
(3)
|
The
intangible assets recorded at fair value as a result of our acquisitions
are amortized over the estimated useful life of the related asset.
Amortization expense related to intangible assets is included in the
following expense
categories:
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October
31, 2010
|
October
31, 2009
|
October
31, 2010
|
October
31, 2009
|
|||||||||||||
Cost
of revenues:
|
$ | 466 | $ | 445 | $ | 1,404 | $ | 549 | ||||||||
Operating
expenses:
|
805 | 571 | 2,512 | 1,844 | ||||||||||||
Total
amortization of intangibles
|
$ | 1,271 | $ | 1,016 | $ | 3,916 | $ | 2,393 |
(4)
|
We
incurred severance costs in connection with selected reductions that
impacted all but the Media Services segment. We also incurred charges to
reflect the write-down of inventory to net realizable value reflecting the
discontinuance of certain inventory components within the Servers and
Storage segment due to technology changes and the disposal of fixed assets
resulting from the restructuring. These expenses would not have otherwise
occurred in the periods presented as part of our operating
expenses.
|
||||||||||||||
(5)
|
We
incurred expenses in connection with our acquisition of VividLogic Inc.
which would not have otherwise occurred in
the periods presented as part of our operating expenses and the change in
the fair value of the contingent consideration.
|
||||||||||||||
|
|||||||||||||||
(6)
|
Reflects
the gain on the sale of the equity investment in Casa
Systems.
|
||||||||||||||
(7)
|
The
non-GAAP income tax adjustment reflects the effective income tax rate in
which the non-GAAP adjustment occurs and
excludes
any changes in the tax valuation allowance arising from the gain on the
sale of the equity investment in Casa Systems,
Inc.
|
(more)
SeaChange
Q3 FY11 Earnings/Page 11
SeaChange
International, Inc.
Third
Quarter Fiscal 2011 Financial Results
Prepared
Remarks
Dec.
9, 2010
SeaChange
is providing a copy of these prepared remarks in combination with its press
release. This process and these remarks are offered to provide
investors and analysts with additional time and detail for analyzing our
financial results in advance of our quarterly conference call. As
previously scheduled, the conference call will begin today, Dec. 9, 2010, at
5:00 p.m. E.T. and will include only brief comments followed by questions and
answers. These prepared remarks will not be read on the
call.
The
conference call may be accessed using the following information:
- Telephone:
866-322-1550 (U.S.) and 973-200-3380 (international)
- Conference
ID: 2701 5091
- Live
webcast: www.schange.com/IR (An archived webcast will be available at this
site.)
Fiscal 2011 Third Quarter
Financial Discussion
Revenues
for the third quarter of fiscal 2011 amounted to $49.1 million, which was $4.2
million lower than revenues of $53.3 million recorded in the third quarter of
last year. Non-GAAP revenues for the third quarter were $49.9 million which were
$4.1 million lower than last year’s third quarter revenue. This year’s third
quarter revenue included a reduction in previously recorded Servers and Storage
revenue of $1.9 million related to a return of VOD servers from a customer due
to a warranty claim.
From an
operating segment perspective, revenues from our Software segment for the
quarter were $34.8 million which were $0.9 million lower than revenues of $35.7
million for the third quarter of fiscal 2010. Lower VOD software licensing
revenues from North American customers were partially offset by higher
Advertising Insertion software licensing revenues and the inclusion of eventIS
and VividLogic revenues for a full quarter in this year’s third quarter compared
to last year.
(more)
SeaChange
Q3 FY11 Earnings/Page 12
Servers
and Storage segment revenues of $6.2 million were $6.2 million lower than
revenues of $12.4 million included in the third quarter of last year. The
decrease in Servers and Storage revenues between years was due primarily to
decreased shipments of VOD servers to North American and Latin American
customers. In addition, as previously mentioned, this year’s third quarter
revenue was adversely impacted by the return of VOD server product due to a
customer warranty claim.
The Media
Services segment generated revenues for the third quarter of $8.1 million which
was $2.9 million or 56% higher than revenues of $5.2 million in the third
quarter of fiscal 2010. The substantial increase in Media Services revenue in
this year’s third quarter compared to last year was the result of revenue
contributions from new contracts from customers in Dubai and France combined
with increased content processing revenue from a customer in Greece. The impact
of exchange rate differences on Media Services revenue between years was
negligible.
Geographically,
revenue for the third quarter of fiscal 2011 included 55% in North America, 33%
in Europe, Middle East and Africa, 9% in Asia Pacific and 3% in Latin America.
Comcast, Virgin Media and Cox Communications were 10% or greater customers in
the third quarter of fiscal 2011.
Revenues
for the first nine months of fiscal 2011 amounted to $155.4 million which were
$6.7 million or 4.5% higher than the $148.7 million of revenues generated in the
first nine months of fiscal 2010. Higher Media Services revenues derived from
recent content processing contracts from customers in Dubai and France combined
with the inclusion of eventIS and VividLogic revenues were partially offset by
lower VOD and Broadcast server shipments principally to North American customers
and lower VOD software licensing revenues.
Total
gross margin of 47.3% for the third quarter of fiscal 2011 was 4.4 points lower
than total gross margin of 51.7% for last year’s third quarter. Reviewing gross
margin by business segment, Software segment gross margin for this year’s third
quarter of 54.4% was 8.3 points lower than the gross margin of 62.7% for the
third quarter of fiscal 2010. The decrease in software gross margin was
primarily the result of lower Advertising software margins as well as
lower VOD software subscription margins that were partially offset by
higher middleware margins.
Servers
and Storage gross margin of 49.9% for the third quarter for fiscal 2010 was 15.6
points higher than gross margin of 34.3% for the third quarter of fiscal 2010.
The significant
(more)
SeaChange
Q3 FY11 Earnings/Page 13
increase
in gross margin for the Servers and Storage segment between years was due
principally to last year’s third quarter including a sizable amount of shipments
of lower margin VOD servers to a North American customer, while this year’s
third quarter included favorable margin VOD server shipments to international
customers.
Media
Services gross margin of 15.0% for the third quarter of this year was 2.4 points
lower than gross margin of 17.4% for the third quarter of last year. The
decrease in gross margin between years was due mainly to delays in new launches
that required the Q3 expenses of headcount and content acquisition specific to
these upcoming launches.
Total
gross margin for the first nine months of fiscal 2011 was 48.6% which was 2.7
points lower than total gross margin of 51.3% for the first nine months of last
year. The decrease in gross margin for the first nine months of fiscal 2011
compared to the first nine months of fiscal 2010 was due primarily to lower VOD
and Advertising software margins that were partially offset by higher customer
mix-related VOD server margins and higher sales volume-related Media Services
margins.
Operating
expenses for the third quarter of $26.6 million were $0.4 million lower than the
$27.0 million of operating expense incurred in the third quarter of last
year. Additionally, the third quarter of last year did not include
the full operating expenses of eventIS and VividLogic. This year’s
third quarter included restructuring charges amounting to $2.4 million relating
to severance costs for the reduction of 34 employees primarily in the Servers
and Storage business segment and the write down of fixed assets in the Servers
and Storage unit. Excluding the restructuring charges, the $2.8
million year over year reduction in operating expenses was the result of lower
Servers and Storage and domestic Software headcount-related expenses combined
with lower sales commission expense that were partially offset by higher
domestic legal fees and higher professional fees related to the exploration of a
public stock offering for Media Services.
For the
first nine months of fiscal 2011, operating expense of $83.2 million were $8.3
million higher than operating expenses of $74.9 million for the first nine
months of fiscal 2010. The increase in operating expenses between
years is due to the restructuring charges incurred in fiscal 2011 combined with
higher Media Services general and administrative expenses and higher legal
expenses.
(more)
SeaChange
Q3 FY11 Earnings/Page 14
Non-GAAP
net income for this year’s third quarter of $1.5 million was $1.9 million lower
that non-GAAP net income of $3.4 million for last year’s third quarter. The
corresponding non-GAAP earnings per share for the third quarter of this year was
$0.05 per share compared to $0.11 per share for the same period last
year.
GAAP net
loss for this year’s third quarter of $5.2 million or $0.17 per share compares
to GAAP net income of $0.7 million or $0.02 per share for the third quarter of
last year.
For the
first nine months of fiscal 2011, non GAAP net income of $7.4 million or $0.24
per share was higher than non-GAAP net income of $6.7 million or $0.21 per share
for the first nine months of last year.
For the
first nine months of this fiscal year, GAAP net income of $18.6 million or $0.58
per share was significantly higher than GAAP net income of $1.3 million or $0.04
per share for the same period last year.
From a
balance sheet perspective, the Company ended the third quarter of fiscal 2011
with cash and investments of $75.0 million and no debt compared to $76.3 million
and no debt at July 31, 2010. The decrease in cash and investments in
this year’s third quarter was the result of $3.3 million of acquisition payments
made to the former shareholders of eventIS and VividLogic, $1.9 million of
capital expenditures and an increase in accounts receivable that were partially
offset by higher accounts payable.
(more)
SeaChange
Q3 FY11 Earnings/Page 15
Strategic Update - Streaming
and Storage
Transition
underway: Q3 marks an important transition for the SeaChange
server and storage business as it is executing on plans to make it breakeven by
Q3, FY12.
Focus on the
customer: As mentioned on the Q2 earnings call, SeaChange had looked at
various strategic options earlier in the calendar year for the hardware business
unit. It is critical that the customers’ best interest be kept in
mind, as these customers are key to both the software and hardware side of the
business. As SeaChange discussed the transition with customers, they
have expressed an open-ness to the split of the two businesses, as long as their
investments are protected. With the overseas move of the business and
additional focus on next generation products, this can be assured as customers
get to reap the benefit of additional R&D efforts and a solid upgrade path,
while at the same time addressing the business unit’s breakeven goal for
investors.
Next steps: The
current actions have reduced the Servers & Storage business unit costs by
approximately $3.2M annually primarily in R&D. Even though
SeaChange is planning on a decline in revenue for the server business, with the
restructuring SeaChange sees this as a profitable business once the transition
is completed by the third quarter of next year. SeaChange has
established an enviable customer base for servers and storage and believes the
business plan ensures the best for SeaChange customers as well as maximizing the
value of this asset for shareholders as the company continues to evolve as a
software company.
(more)
SeaChange
Q3 FY11 Earnings/Page 16
Software Margin
Update
Gross
Margin: SeaChange has given much thought to the current
situation of lower margins, especially given the VividLogic and eventIS
acquisitions. The company is in a technology and market
transition. As the world moves to multiple screens R&D costs for
software development are being controlled through lower margin professional
services work, managed services, hardware intensive trials and small
deployments. All of these are very positive signs for SeaChange, as
customers are helping the company financially in developing next generation
products, which SeaChange plans to evolve into higher margin software licensing
revenue as customers deploy these products.
Operating
Margin: The table below shows traditional GAAP and non-GAAP
year to date operating margin performance for the software unit.
Q3
YTD FY 2011
|
|
Actual
|
|
Gross
Margin
|
54%
|
R&D
|
26%
|
Sales
& Marketing
|
12%
|
G&A
(incl. alloc. of Corp. G&A)
|
12%
|
Amortization
|
2%
|
Operating
Margin - GAAP
|
2%
|
Operating
Margin – non-GAAP
|
11%
|
There
have been investor questions regarding the 10% operating margin goal being GAAP
vs. non-GAAP. Through this year’s third quarter, SeaChange met the
10% operating margin target non-GAAP, the difference between non-GAAP and GAAP
being non-GAAP adjustments that improve reported GAAP operating margins
including deferred revenue (4%), amortization and stock compensation expense
(3%), restructuring (1%) and acquisition-related costs
(1%). SeaChange expects to exceed the 10% non-GAAP operating margin
target in the fourth quarter.
(more)
SeaChange
Q3 FY11 Earnings/Page 17
Growth: SeaChange
continues to focus on its revenue growth in the software sector. Year
over year growth through Q3 is 15%, much of which was achieved through the
acquisitions. SeaChange was fortunate enough to create dominant
market share during the years of wide scale local ad insertion, it then created
dominant market share in video on demand in North America during the time of
rapid stream expansion. When the streaming growth in the US slowed,
SeaChange focused on China, India, Latin America, and EMEA. The
company now has leading market share in VOD software in three of these four
areas, and the eventIS acquisition helped with this. The streaming
growth is still in its infancy in these areas and the eventIS acquisition
revenue is on track with the acquisition plan. The company likewise
focused on forward looking products such as mobile, through the acquisition of
Mobix, and next generation device software, through the acquisition of
VividLogic. The VividLogic plan is currently exceeding the initial
acquisition plan. These acquisitions are enabling SeaChange to
focus on the next generation of product and licensing growth, although the
company sees itself in a transition to the next big thing, which is multi-screen
video.
Video
services across the internet still represent a fraction of paid multichannel
services. As cable operators add multiple screen services, the
SeaChange platform, both in home and back office are helping them
succeed. The goal for SeaChange has been to focus on market expansion
and investment in the next generation product while waiting for this new growth,
and the market indicators all show that there is indeed a great focus on
television and VOD over new devices that generate new revenue opportunities for
SeaChange. The current milestones for the company are early
trials and deployments as were announced with Virgin Media (UK) and StarHub
(Singapore) throughout Q3. This quarter SeaChange announced the next
generation back office: Adrenalin, which provides a web centric
IP-based back office platform that easily manages all screens and the transition
of legacy systems to next generation systems. SeaChange will continue on its
parallel tracks of market expansion through its acquisitions and new streaming
growth through multiple screens through initial trials and early
deployments.
(more)
SeaChange
Q3 FY11 Earnings/Page 18
Market
Overview
Software: SeaChange
had several software milestones in Q3 as depicted below:
1.
|
SeaChange
gained four new subscription customers, furthering the recurring revenue
strategy.
|
2.
|
There
were three new customers that were competitive replacements in the US –
one VOD, two advertising.
|
3.
|
SeaChange
is working an iPAD trial with a US
operator.
|
4.
|
The
company is seeing very positive interest and opportunities in multi screen
video, both in managed and over the top
networks.
|
5.
|
SeaChange
announced two major three screen deployments: StarHub and
Virgin Media. StarHub has mostly mobile subscribers and Virgin
Media has mostly television subscribers, but both are offering television
programming to all three screens: mobile, PC, and TV using
SeaChange’s software and managed services. Although there is
much multi-screen interest throughout the world, there are few customers
that are actually providing video services to all three screens under one
brand, so this is a major achievement for the industry as well as for
SeaChange.
|
6.
|
SeaChange
continues to implement its linear ad solution with a large US telco, as
started and announced in Q2 and announced a working relationship with
Black Arrow to deliver on demand advertising solutions throughout North
America.
|
7.
|
The
company won a new back office replacement order in Europe and obtained a
new second-screen customer in Europe, which is targeted for operation in
Q1.
|
8.
|
The
company expanded a new advertising and a new mobile customer in
Asia.
|
Streaming and
Storage: SeaChange had several milestones in Q3 as depicted
below:
1.
|
SeaChange
video servers were selected for expansion business with a large North
American operator.
|
2.
|
SeaChange
has several good international opportunities in the next six
months.
|
3.
|
The
company expanded systems in Japan and was selected by a large operator in
China.
|
(more)
SeaChange
Q3 FY11 Earnings/Page 19
On Demand Group
(ODG): Media Services saw another period of rapid growth with
revenue increasing 14% on the previous quarter to reach $8.1M. This result was
56% higher than the same quarter last year and now represents the eighth quarter
of continuous growth for ODG. The increase in sales in the quarter was driven by
the launch of the first ever subscription video on demand (SVOD) service in the
Middle East (Du), the rapid launch of a Movie subscription Video on Demand
service in France and the soft launch of mobile SVOD services on the mobile
platform of Vodacom in South Africa (second largest brand in the Territory). All
three launches represent major steps towards achieving the stated goal of
lessening ODG’s dependence on U.K. cable. Gross margins were adversely affected
this quarter for Media Services and have fallen from 17% to 15% due to delayed
launches. In periods of growth ODG has to incur the content
acquisition costs prior to new launches. This dip can reduce margins
for several quarters.
As
a result of the market success of the business, SeaChange hired a banker earlier
this year to evaluate the possibility of the ODG business pursuing an
IPO. The company received encouraging feedback from the bankers, but
the recommendation was to not proceed at this time in order to maximize value
for SeaChange shareholders. In the quarter, ODG expensed the IPO
banking, legal and accounting work of over $300.000. In the mean
time, ODG continues to invest in expansion and has a significant
pipeline.
There has
been much discussion about combining the ODG business unit with the software
business unit as many SeaChange competitors, especially in the Over the Top
(OTT) business, offer significant managed services as a means of offering
software products. Likewise, SeaChange is seeing customers request
managed services offerings in the multi-screen arena for their back-office
software, and ODG is currently evaluating a FY12 OTT offering. This
and the potential IPO remain strategic options for SeaChange and the company
will evaluate the overall growth of the managed service business and the growth
in multi screen closely in the upcoming 6 months to determine the best direction
for the company’s success and shareholder value.
(more)
SeaChange
Q3 FY11 Earnings/Page 20
Guidance
As
mentioned on the Q2 earnings call, the business outlook for Q4 remains strong
and Q3 was expected to be weaker in comparison to other quarters. The
company expects a non-GAAP revenue in Q4 in the range of $55M to $59M and
non-GAAP earnings in Q4 in the range of $0.15 to $0.19. The increase
in revenue is primarily due to an expected increase in software licensing
revenue in Q4 FY11.
Closing
SeaChange
is proud of what it has accomplished in enabling video and advertising in new
ways worldwide and the company is looking forward to continuing that as the
world moves to more video on more devices. As a result of what
the company has accomplished, it is ranked amongst the Software Magazine
Software 500. The company plans to improve the top and bottom line
performance and continues to look at monetizing or divesting non software
businesses. Q3 R&D is 23.6% of revenue, and 45% of revenue in Q3
was international, thereby further diversifying the
company. SeaChange would have been in the range for Q3 with the
unexpected exception of the revenue adjustment in servers and the ODG IPO
expense. With the transition to a software company well underway, the
next goal is for SeaChange to address its valuation as a software company, as is
discussed in the following section. SeaChange is in a great position given its
customer base and 60% recurring revenue and the company sees investor value as
the company strengthens its position as a software company. SeaChange
is looking forward to talking with everyone on the Q3 earnings
call.
(more)
SeaChange
Q3 FY11 Earnings/Page 21
ADDENDUM
SeaChange
is adding this Addendum to help explain the shareholder value proposition in its
Software focus.
In Q3
SeaChange was listed as number 168 on the Software Magazines Software 500, which
ranks software companies worldwide by revenue. Considering the
company’s software and services growth this year, it is expected to move up
further on this list in next year’s report. SeaChange is looking at
modifying its stock comparables to be software centric as opposed to hardware
centric. Typical companies that SeaChange is compared against today
include Motorola, Cisco, Harmonic and Arris. The performance
over the last three years of SeaChange vs. these companies is depicted in the
chart below which is also linked here.
http://www.schange.com/Images/news/FY-2011-Q3-Press-Release/SeaChange_Relative_Strength_Chart
(more)
SeaChange
Q3 FY11 Earnings/Page 22
Although
SeaChange is often challenged about being flat over this time period, it is
clear that most of SeaChange’s comparables have performed worse than
SeaChange. However, given the performance of the SeaChange software
business in comparison to similar software companies, the enterprise value of
the SeaChange stock has the potential to be much higher. For
the purpose of this exercise, SeaChange has compared several software companies
around its position in the Software Magazine Software 500. Highlights
of these companies are listed below:
Software
|
Enterprise
|
|||||||||||||||||||||||||||||||
Magazine
|
Revenue
|
Gross
|
Enterprise
|
Value/
|
||||||||||||||||||||||||||||
Company
|
Ranking
|
Revenue
|
Growth
|
Margin %
|
EBITDA
|
EBITDA %
|
Value *
|
Revenue
|
||||||||||||||||||||||||
Openwave
|
155 | $ | 191.7 | -4.6 | % | 60.9 | % | (63.4 | ) | -33.1 | % | 85.8 | 0.45 | |||||||||||||||||||
Art
Tech
|
157 | $ | 179.4 | 9.0 | % | 66.0 | % | 26.0 | 14.5 | % | 795.7 | 4.44 | ||||||||||||||||||||
iPass
|
161 | $ | 171.4 | -10.4 | % | 39.7 | % | (8.3 | ) | -4.8 | % | 33.9 | 0.20 | |||||||||||||||||||
NetSuite
|
163 | $ | 166.5 | 9.2 | % | 66.3 | % | 7.2 | 4.3 | % | 1,640.0 | 9.85 | ||||||||||||||||||||
Kenexa
|
165 | $ | 157.7 | -22.6 | % | 66.1 | % | (14.4 | ) | -9.1 | % | 383.4 | 2.43 | |||||||||||||||||||
Right
Now
|
167 | $ | 152.7 | 8.7 | % | 68.9 | % | 10.2 | 6.7 | % | 697.9 | 4.57 | ||||||||||||||||||||
SeaChange
Software
|
168 | $ | 151.1 | 2.0 | % | 54.8 | % | 29.9 | 19.8 | % | n/a | n/a | ||||||||||||||||||||
SeaChange International,
Inc
|
- | $ | 201.7 | -0.1 | % | 51.2 | % | 13.8 | 6.8 | % | 196.6 | 0.97 | ||||||||||||||||||||
Magma
Design
|
170 | $ | 147.0 | -31.5 | % | 67.1 | % | (84.7 | ) | -57.7 | % | 269.1 | 1.83 | |||||||||||||||||||
Analysts
Int'l
|
172 | $ | 143.2 | -49.6 | % | 20.0 | % | (13.2 | ) | -9.2 | % | 6.1 | 0.04 | |||||||||||||||||||
Synchronoss
|
180 | $ | 128.8 | 16.1 | % | 50.0 | % | 27.7 | 21.5 | % | 837.9 | 6.51 | ||||||||||||||||||||
Bottomline
|
181 | $ | 138.0 | 5.2 | % | 55.9 | % | 7.6 | 5.5 | % | 491.9 | 3.56 | ||||||||||||||||||||
Opnet
|
184 | $ | 122.9 | 21.2 | % | 74.5 | % | 11.9 | 9.7 | % | 441.1 | 3.59 | ||||||||||||||||||||
Median
(ex SEAC)
|
$ | 152.7 | 5.2 | % | 66.0 | % | 7.2 | 4.3 | % | 441.1 | 3.56 |
Note: Includes companies ranked
155-184, excluding
companies where certain information not available
* Enterprise Value as of
12/06/10
By
comparing SeaChange’s enterprise value vs. revenue to the composite enterprise
value of these software companies, we can see that the valuation of SeaChange
can be much higher.
Therefore
moving towards a software valuation is a high priority for the
company.
--end--