NEWS RELEASE
| 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
FIRST
QUARTER FISCAL 2011 RESULTS
- 34% Software revenue growth driven
by core VOD software and acquisitions
- Non-GAAP EPS of $0.10 per
share
- Reinstated stock repurchase
program
ACTON, Mass. (May 27, 2010)
– SeaChange International,
Inc. (NASDAQ: SEAC), the leading provider of software and hardware solutions for
video-on-demand (VOD) television, announced financial results for its fiscal
2011 first quarter ended April 30, 2010. Total revenues for the quarter were
$54.1 million, which was $5.2 million or 11% higher than total revenues of $48.9
million for the first quarter of fiscal 2010. Non-GAAP net income for the first
quarter was $3.1 million, or $0.10 per share, compared with non-GAAP net income
of $2.2 million, or $0.07 per share, for the same period last year. GAAP net
income for the first quarter of fiscal 2011 was $24.6 million, or $0.78 per
share compared with GAAP net income of $1.0 million, or $0.03 per share, for the
first quarter of fiscal 2010.
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, 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/en-US/Company/InvestorRelationsNews).
The Company ended the first quarter
of fiscal 2011 with cash, cash equivalents and marketable securities of $85.6
million and no debt compared to $48.5 million and no debt at the end of the
fourth quarter of fiscal 2010. Proceeds of $34.1 million from the Company’s
divestiture of its investment in Casa Systems, and improved working capital
performance driven by increased receivables collections were partially offset by
the purchase of VividLogic during the first quarter.
(more)
On an
operating segment basis, total revenues in the first quarter from the Company’s
Software segment were $40.9 million, which were $10.3 million, or 34% higher
than Software segment revenues in the first quarter of last year. Year-over-year
revenue growth in the Software segment was driven by higher Axiom and VOD
Advertising product revenue from a large North American cable television
provider, increased Advertising Insertion revenue and the impact of the eventIS
and VividLogic acquisitions.
The Servers and Storage segment generated $6.8 million of revenue for the
first quarter of fiscal 2011, which was $7.3 million lower than comparable
revenue for the first quarter of fiscal 2010. The decrease in Servers and
Storage revenues between years was due to lower shipments of VOD servers to
North American service providers when compared to an unusually high level of
shipments in last year’s first quarter.
Media Services segment revenues for this year’s first quarter were a
record $6.4 million which was $2.2 million, or 51% higher than the first quarter
of last year. New content services contracts from customers in France and Dubai
combined with increased content processing revenues from customers in Greece and
Turkey contributed to the strong increase in Media Services revenue between
years. The Media Services segment also reported an operating margin in excess of
10% for the second consecutive quarter.
“We’re very pleased to report a strong first quarter in our core software
business,” said Bill Styslinger, Chairman and CEO, SeaChange. “Among the notable
contributing factors was our ability to secure a highly strategic VOD back
office win to place our Axiom software in all locations at one of our largest
North American cable customers. Additionally, our VividLogic acquisition
generated contract renewals and extensions with key operators.”
Styslinger continued, “SeaChange has
continued to expand its software business while reducing overall research and
development costs, primarily through our ability to offshore some development
and support, by introducing new market advantages from our recent acquisitions,
and through the creation of a common software platform comprising
interchangeable components. We’ve continued to evaluate our products and take
aggressive action, as demonstrated most recently by the divestiture of
SeaChange’s minority stake in Casa Systems, which resulted in a nearly fourfold
return on our investment.”
(more)
“Our
increased cash resources give us the ability to improve shareholder value
through investments in our core software business and stock repurchases,” said
Styslinger. “Today we continue to aggressively pursue our previously stated goal
of achieving 10 percent pre-tax margin for software by the close of fiscal 2011
and 15 percent pre-tax margin for fiscal 2012.”
Styslinger concluded, “SeaChange’s
second quarter financial outlook is for $53-55 million in revenue and non-GAAP
EPS of $0.10-0.14 per share. The Company has reinstated its stock buyback
program, based on its improved liquidity position, and will repurchase shares as
market conditions dictate.”
SeaChange will host its first
quarter fiscal 2011 conference call today at 5:00 p.m. E.T. The live broadcast
can be accessed at http://www.schange.com/ir.
Supplemental financial information and prepared remarks for the conference call
will be posted to the investor relations section of our website simultaneously
with this press release.
About SeaChange
International
SeaChange International is a leading provider of software applications,
services and integrated solutions for video-on-demand (VOD), digital
advertising, and content acquisition, monetization and management. Its powerful
open VOD and advertising software and scaleable hardware enable cable and telco
operators, as well as broadcasters, to provide new on-demand services and to
gain greater efficiencies in advertising and content delivery. With its Emmy
Award-winning and patented technology, thousands of SeaChange deployments are
helping broadband, broadcast and satellite television companies to streamline
operations, expand services and increase revenues. Headquartered in Acton,
Massachusetts, SeaChange has product development, support and sales offices
around the world. Visit www.schange.com.
Safe Harbor
Provision
Any statements contained in this
document, including the accompanying prepared remarks and letter from 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 plans; 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.
(more)
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.
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:
(more)
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 acquisition 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 $6.8
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 intangible assets will recur
in future periods.
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, and integration related professional services. 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 and a write-down of inventory to
net realizable value reflecting the discontinuance of certain inventory
components. We believe it is useful for investors to understand the effects of
these items on our total operating expenses.
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.
(more)
SeaChange
International, Inc.
Condensed Consolidated Balance Sheets
(in thousands,
except share data)
|
|
|
April 30, 2010 |
|
January 31, 2010 |
| Assets |
|
(unaudited) |
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$
|
69,474 |
|
|
$
|
37,647 |
|
| Restricted
cash |
|
|
1,270 |
|
|
|
73 |
|
| Marketable
securities |
|
|
6,607 |
|
|
|
2,114 |
|
| Accounts
receivable, net |
|
|
48,065 |
|
|
|
54,278 |
|
| Inventories,
net |
|
|
17,874 |
|
|
|
17,830 |
|
| Prepaid
expenses and other current assets |
|
|
6,647 |
|
|
|
7,253 |
|
| Deferred tax
asset |
|
|
4,962 |
|
|
|
2,474 |
|
|
Total current assets |
|
|
154,899 |
|
|
|
121,669 |
|
| Property and equipment, net |
|
|
39,280 |
|
|
|
39,682 |
|
| Marketable securities, long-term |
|
|
8,214 |
|
|
|
8,688 |
|
| Investments in affiliates |
|
|
4,799 |
|
|
|
13,697 |
|
| Intangible assets, net |
|
|
31,555 |
|
|
|
26,264 |
|
| Goodwill |
|
|
64,836 |
|
|
|
55,876 |
|
| Other assets |
|
|
5,349 |
|
|
|
1,271 |
|
| Total assets |
|
$ |
308,932 |
|
|
$ |
267,147 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities and Stockholders’
Equity |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
12,407 |
|
|
$ |
10,371 |
|
| Other accrued expenses |
|
|
13,880 |
|
|
|
11,174 |
|
| Customer deposits |
|
|
4,651 |
|
|
|
4,279 |
|
| Deferred revenues |
|
|
36,343 |
|
|
|
34,158 |
|
| Deferred tax liability |
|
|
764 |
|
|
|
800 |
|
|
Total current
liabilities |
|
|
68,045 |
|
|
|
60,782 |
|
| Deferred revenue, long-term |
|
|
12,398 |
|
|
|
12,635 |
|
| Long term liabilities |
|
|
14,914 |
|
|
|
6,574 |
|
| Distribution and losses in excess of investment |
|
|
1,547 |
|
|
|
1,469 |
|
| Deferred tax liabilities |
|
|
11,140 |
|
|
|
7,765 |
|
| Total liabilities |
|
|
108,044 |
|
|
|
89,225 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’ equity: |
|
|
|
|
|
|
|
|
| Common stock |
|
|
327 |
|
|
|
326 |
|
| Additional paid-in capital |
|
|
212,931 |
|
|
|
211,504 |
|
| Treasury stock |
|
|
(8,757 |
) |
|
|
(8,757 |
) |
| Accumulated earning (deficit) |
|
|
7,185 |
|
|
|
(17,450 |
) |
| Accumulated other comprehensive loss |
|
|
(10,798 |
) |
|
|
(7,701 |
) |
|
Total stockholders’
equity |
|
|
200,888 |
|
|
|
177,922 |
|
|
Total liabilities and stockholders’
equity |
|
$ |
308,932 |
|
|
$ |
267,147 |
|
| |
|
|
|
|
|
|
|
|
(more)
SeaChange
International, Inc.
Condensed
Consolidated Statement of Operations - Unaudited
(in thousands, except per
share data)
|
|
|
Three Months Ended |
|
|
|
April 30, 2010 |
|
April 30, 2009 |
| Revenues |
|
$ |
54,066 |
|
|
$ |
48,876 |
|
| Cost of revenues |
|
|
27,176 |
|
|
|
23,858 |
|
| Gross profit |
|
|
26,890 |
|
|
|
25,018 |
|
| |
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Research and development |
|
|
13,564 |
|
|
|
12,104 |
|
| Selling and marketing |
|
|
6,384 |
|
|
|
6,264 |
|
| General and administrative |
|
|
6,801 |
|
|
|
4,867 |
|
| Amortization of intangibles |
|
|
898 |
|
|
|
479 |
|
| Restructuring |
|
|
4,311 |
|
|
|
- |
|
|
|
|
|
31,958 |
|
|
|
23,714 |
|
| (Loss) income from
operations |
|
|
(5,068 |
) |
|
|
1,304 |
|
| Gain on sale of investment in affiliate |
|
|
25,188 |
|
|
|
- |
|
| Other income (expense), net |
|
|
(542 |
) |
|
|
135 |
|
| Income before income taxes and equity loss in
earnings of affiliates |
|
|
19,578 |
|
|
|
1,439 |
|
| Income tax benefit (provision) |
|
|
5,169 |
|
|
|
(244 |
) |
| Equity loss in earnings of affiliates |
|
|
(112 |
) |
|
|
(197 |
) |
| Net income |
|
$ |
24,635 |
|
|
$ |
998 |
|
| Basic income per share |
|
$ |
0.79 |
|
|
$ |
0.03 |
|
| Diluted income per share |
|
$ |
0.78 |
|
|
$ |
0.03 |
|
| Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
| Basic |
|
|
31,270 |
|
|
|
30,847 |
|
| Diluted |
|
|
31,732 |
|
|
|
31,220 |
|
(more)
SeaChange International, Inc.
Condensed Consolidated Operating Segments - Unaudited
(in
thousands)
|
|
Three Months Ended |
|
|
April 30, 2010 |
|
April 31, 2009 |
| Software |
|
|
|
|
|
|
|
| Revenue: |
|
|
|
|
|
|
|
| Products |
$
|
21,132 |
|
|
$
|
16,285 |
|
| Services |
|
19,816 |
|
|
|
14,333 |
|
| Total revenue |
|
40,948 |
|
|
|
30,618 |
|
| Gross
profit |
|
22,084 |
|
|
|
17,730 |
|
| Operating expenses: |
|
|
|
|
|
|
|
| Research and
development |
|
10,417 |
|
|
|
9,478 |
|
| Selling and
marketing |
|
4,650 |
|
|
|
3,678 |
|
| General and
administrative |
|
174 |
|
|
|
- |
|
| Amortization of
intangibles |
|
827 |
|
|
|
385 |
|
| Restructuring |
|
344 |
|
|
|
- |
|
| |
|
16,412 |
|
|
|
13,541 |
|
| Income from operations |
$ |
5,672 |
|
|
$ |
4,189 |
|
| |
|
|
|
|
|
|
|
| Servers and Storage |
|
|
|
|
|
|
|
| Revenue: |
|
|
|
|
|
|
|
| Products |
$ |
3,502 |
|
|
$ |
10,085 |
|
| Services |
|
3,248 |
|
|
|
3,968 |
|
| Total revenue |
|
6,750 |
|
|
|
14,053 |
|
| Gross
profit |
|
3,198 |
|
|
|
6,898 |
|
| Operating expenses: |
|
|
|
|
|
|
|
| Research and
development |
|
3,147 |
|
|
|
2,626 |
|
| Selling and
marketing |
|
1,734 |
|
|
|
2,586 |
|
| Restructuring |
|
3,056 |
|
|
|
- |
|
| |
|
7,937 |
|
|
|
5,212 |
|
| (Loss) income from
operations |
$ |
(4,739 |
) |
|
$ |
1,686 |
|
| |
|
|
|
|
|
|
|
| Media Services |
|
|
|
|
|
|
|
| Service revenue |
$ |
6,368 |
|
|
$ |
4,205 |
|
| Gross
profit |
|
1,608 |
|
|
|
390 |
|
| Operating expenses: |
|
|
|
|
|
|
|
| Selling and
marketing |
|
- |
|
|
|
- |
|
| General and
administrative |
|
879 |
|
|
|
819 |
|
| Amortization of
intangibles |
|
71 |
|
|
|
94 |
|
|
|
|
950 |
|
|
|
913 |
|
| Income (loss) from
operations |
$ |
658 |
|
|
$ |
(523 |
) |
| |
|
|
|
|
|
|
|
| Unallocated Corporate |
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
| General and
administrative |
$ |
5,748 |
|
|
$ |
4,048 |
|
| Restructuring |
|
911 |
|
|
|
- |
|
| Total unallocated corporate
expenses |
$ |
6,659 |
|
|
$ |
4,048 |
|
| |
|
|
|
|
|
|
|
| Consolidated income from
operations |
$ |
(5,068 |
) |
|
$ |
1,304 |
|
| |
|
|
|
|
|
|
|
(more)
SeaChange International, Inc.
Reconciliation of Selected GAAP Measures to Non-GAAP Measures - Unaudited
(in
thousands)
|
|
|
Three months Ended |
|
Three months Ended |
|
|
|
April 30, 2010 |
|
April 30, 2009 |
|
|
|
GAAP |
|
Adjustment |
|
Non-GAAP |
|
GAAP |
|
Adjustment |
|
Non-GAAP |
| Revenues (1) |
|
$ |
54,066 |
|
|
$
|
2,339 |
|
|
$
|
56,405 |
|
|
$ |
48,876 |
|
|
$ |
- |
|
|
$ |
48,876 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses |
|
|
31,958 |
|
|
|
|
|
|
|
31,958 |
|
|
|
23,714 |
|
|
|
|
|
|
|
23,714 |
|
| Stock-based compensation (2) |
|
|
- |
|
|
|
498 |
|
|
|
498 |
|
|
|
- |
|
|
|
761 |
|
|
|
761 |
|
| Amortization of intangible assets (3) |
|
|
- |
|
|
|
1,343 |
|
|
|
1,343 |
|
|
|
- |
|
|
|
530 |
|
|
|
530 |
|
| Restructuring (4) |
|
|
- |
|
|
|
4,311 |
|
|
|
4,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Acquisition related costs (5) |
|
|
- |
|
|
|
800 |
|
|
|
800 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
31,958 |
|
|
|
6,952 |
|
|
|
25,006 |
|
|
|
23,714 |
|
|
|
1,291 |
|
|
|
22,423 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss) income from
operations |
|
|
(5,068 |
) |
|
|
9,291 |
|
|
|
4,223 |
|
|
|
1,304 |
|
|
|
1,291 |
|
|
|
2,595 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from sale of investment in affiliate (6) |
|
|
25,188 |
|
|
|
(25,188 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax benefit (provision) impact (7) |
|
|
5,169 |
|
|
|
(5,629 |
) |
|
|
(460 |
) |
|
|
(244 |
) |
|
|
(74 |
) |
|
|
(318 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
24,635 |
|
|
$ |
(21,526 |
) |
|
$ |
3,109 |
|
|
$ |
998 |
|
|
$ |
1,217 |
|
|
$ |
2,215 |
|
| Diluted income per share |
|
$ |
0.78 |
|
|
$ |
(0.68 |
) |
|
$ |
0.10 |
|
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.07 |
|
| Diluted weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| outstanding |
|
|
31,732 |
|
|
|
31,732 |
|
|
|
31,732 |
|
|
|
31,220 |
|
|
|
31,220 |
|
|
|
31,220 |
|
| (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 |
|
|
April 30, 2010 |
|
April 30, 2009 |
| Cost of revenues |
$ |
67 |
|
$ |
158 |
| Research and development |
|
135 |
|
|
215 |
| Selling and marketing |
|
105 |
|
|
98 |
| General and administrative |
|
191 |
|
|
290 |
| Total stock-based
compensation
|
$ |
498 |
|
$ |
761 |
| |
|
|
|
|
|
| (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 |
|
|
April 30, 2010 |
|
April 30, 2009 |
| Cost of revenues: |
|
446 |
|
|
51 |
| Operating expenses: |
|
897 |
|
|
479 |
| Total amortization of
intangibles
|
$ |
1,343 |
|
$ |
530 |
| |
|
|
|
|
|
| (4) |
|
We
incurred severance costs in connection with selected headcount reductions
during the quarter that impacted all but the Media Services segment. We
also incurred charges during the quarter 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. These expenses would not have been otherwise incurred
in the periods presented as part of our operating expenses. |
| |
| (5) |
|
We
incurred expenses in connection with our acquisition of VividLogic Inc.
during the quarter which would not have otherwise occurred in the periods
presented as part of our operating expenses. |
| |
| (6) |
|
Reflects the gain on the sale of the equity investment in Casa
Systems in the quarter. |
| |
| (7) |
|
The
non-GAAP income tax adjustment reflects the effective income tax rate in
which the non-GAAP adjustment occurs and any exclusion of changes in the
tax valuation allowance during the quarter. |
| |
(more)
SeaChange International, Inc.
First Quarter
Fiscal 2011 Financial Results
Prepared Remarks
May 27, 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 shareholders 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, May 27, 2010 at 5:00pm 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: 888-287-3944 (U.S) and
706-758-3938 (International)
- Conference ID: 7636 0386
- Webcast: www.schange.com/IR (An archived webcast will be available at
this site.)
Fiscal 2011 First Quarter Financial
Discussion
Revenues for the first quarter of
fiscal 2011 amounted to $54.1 million, which was $5.2 million or 11% higher than
revenue of $48.9 million recorded in the first quarter of fiscal 2010. From an
operating segment perspective, revenue from our Software segment for the quarter
was $40.9 million, which was $10.3 million or 34% higher than revenue of $30.6
million for the first quarter of last year. The year over year increase in
revenue was due principally to increased VOD software revenue from a large US
cable television customer for which some of this revenue was attributable to the
Company capturing the remaining VOD software business from a competitor. In
addition, increased Advertising Insertion revenue from North American cable
television providers and the inclusion of revenues from the recent acquisitions
of eventIS and VividLogic contributed to the revenue increase between this
year’s first quarter and last year’s first quarter.
Servers and Storage
segment revenues of $6.8 million for the first quarter were $7.3 million lower
than revenues of $14.1 million included in the first quarter of last year. The
decrease in Servers and Storage revenues between years was due mainly to lower
VOD server shipments to North American service providers when compared to an
unusually high level of shipments in last year’s first quarter.
The Media Services
segment generated revenue of $6.4 million, which was $2.2 million or 51% higher
than revenue of $4.2 million in the first quarter of fiscal 2010. The year over
year increase in revenue derived from customer content management contracts
secured recently from customers in Dubai and France. In addition, the increase
in revenue related to increased content processing fees from customers in Greece
and Turkey. The Media Services segment also reported an operating margin in
excess of 10% for the second consecutive quarter.
(more)
Geographically, revenue
for the first quarter of fiscal 2011 included 63% in North America, 26% in
Europe, Middle East and Africa, 7% in Latin America and 5% in Asia Pacific.
Comcast and Virgin Media were 10% or greater customers in the first quarter of
fiscal 2011.
Total gross margin of
49.7% for the first quarter was 1.5 points lower than total gross margin of
51.2% for the first quarter of fiscal 2010. Examining gross margin by operating
segment, Software segment gross margin of 53.9% for the first quarter was 4.0
points lower than gross margin of 57.9% for the first quarter of last year. The
decrease in Software gross margin was due to lower than normal margins on the
VOD software competitor displacement from one of the Company’s largest US cable
television customers. In addition, the inclusion of lower in-home software
service margins was partially offset by higher VOD engineering services margins.
Servers and Storage
gross margin of 47.4% for the first quarter of fiscal 2011 was 1.7 points lower
than gross margin of 49.1% for the first quarter of fiscal 2010 but 14.6 points
higher than the fourth quarter’s gross margin of 32.8%. The substantial
improvement in gross margin compared to the fourth quarter of last year relates
to the Company’s migration to a new VOD flash memory server that carries much
higher gross margin than the earlier server version that was shipped in the
second half of last year. The lower gross margin compared to the first quarter
of last year stemmed from lower Broadcast server technical support revenue.
Media Services gross
margin of 25.3% for the first quarter was 16.0 points higher than gross margin
of 9.3% for the first quarter of last year. The significant increase in gross
margin between years was due primarily to a greater absorption of service
headcount costs due to the substantial increase in revenue between periods. In
addition, last year’s first quarter included duplicative costs as the Media
Services segment was transitioning video processing capabilities in-house from a
contracted third party.
Operating expenses,
excluding restructuring costs, for the first quarter of $27.6 million was $3.9
million higher than the $23.7 million of operating expenses incurred in the
first quarter of last year. The increase in operating expenses between years was
due mainly to increased research and development expenses derived from the
inclusion of eventIS in this year’s first quarter. In addition, increased
general and administrative expenses related to VividLogic transaction costs and
increased legal and other professional fees also contributed to the increase in
operating expenses between years.
The Company recorded a
$4.3 million restructuring charge in the first quarter of fiscal 2011 reflecting
severance costs in connection with a reduction of 64 heads or approximately 5%
of the Company’s workforce and a write-down of inventory. The severance expense
incurred during the quarter totaled $1.8 million with annual earnings from the
headcount reductions estimated to be $7 million with these savings beginning in
the second quarter. The write-down of inventory was $2.5 million and reflected
the decision late in the first quarter to discontinue certain products within
the Servers and Storage segment.
As previously disclosed,
the Company divested its equity investment in Casa Systems, a provider of
digital video products to the cable television industry, during the first
quarter. The sale of the Company’s equity stake in Casa generated cash proceeds
of $34.1 million and a pre-tax gain of $25.2 million during the first quarter of
fiscal 2011.
(more)
Despite generating
pre-tax income of $19.6 million during this year’s first quarter, the Company
recorded an income tax benefit of $5.2 million during the quarter. The income
tax benefit stemmed principally from a $8.1 million reduction of the Company’s
valuation allowance against its deferred tax assets resulting from the sale of
the Company’s equity investment in Casa and the acquisition of VividLogic.
GAAP net income for the
first quarter of fiscal 2011 of $24.6 million was $23.6 million higher than GAAP
net income of $1.0 million for the first quarter of last year. The corresponding
GAAP earnings per share for the first quarter of fiscal 2011 were $0.78 per
share compared to $0.03 per share for the same period last year.
Non-GAAP net income for
this year’s first quarter of $3.1 million was $0.9 million higher than non-GAAP
net income of $2.2 million for last year’s first quarter. The corresponding
non-GAAP earnings per share for the first quarter of this year were $0.10 per
share compared to $0.07 per share for the same period last year.
From a balance sheet
perspective, the Company ended the first quarter with cash and investments of
$85.6 million and no debt compared to $48.5 million and not debt at January 31,
2010. The $37.1 million increase in cash and investments in this year’s first
quarter was driven by $34.1 million of proceeds from the sale of the Company’s
equity stake in Casa. In addition, a $6.2 million reduction in accounts
receivable due to improved customer collections and a $4.7 million increase in
accounts payable and accruals were partially offset by the purchase of
VividLogic during the quarter.
Quarterly Highlights
The SeaChange
strategy remains focused on the transition to a market leading software company
with increasing recurring revenue. The first quarter of fiscal 2011 had two
major milestones towards that strategy; one was the sale of SeaChange’s early
investment in Casa Systems, a CMTS hardware company, which generated proceeds of
$34.1 million and a pre-tax gain of $25.2 million. The second major milestone
was the BackOffice software win for 100% of a major U.S. cable customer. The
customer purchased Axiom licenses to complete the replacement of all
non-SeaChange BackOffice software, further strengthening SeaChange as the leader
in on-demand software systems.
(more)
| In addition the first quarter included
several highlights: |
| |
1. |
|
SeaChange was selected by a cable operator in the U.S. for a
multi-screen trial. This trial will use the Mobix software in conjunction
with Axiom software. In addition, SeaChange closed the first true
three-screen opportunity with a major cable and communications operator in
Asia Pacific. This customer expects to launch its service next month and
we expect to formally announce the service at the BroadcastAsia trade
convention. |
|
|
|
|
|
|
|
2. |
|
SeaChange won a large streaming server expansion order from a major
Latin American customer. As a part of this expansion, SeaChange shipped
the first FMS 2500 which is the third generation flash server
product. |
|
|
|
|
|
|
|
3. |
|
The company won a large linear advertising account with a leading
U.S. Telco, which includes business through 2012. |
|
|
|
|
|
|
|
4. |
|
Advertising accounts were added for
VOD, specifically play-listing support for two new large operators in the
United States. There is significant interest in VOD advertising. |
|
|
|
|
|
|
|
5. |
|
The company’s video-on-demand
product was selected by a North American cable operator for use in
hotels. |
|
|
|
|
|
|
|
6. |
|
The company recently announced its
managed service offering and won its first managed service account for
video to the PC in North America this quarter. |
|
|
|
|
|
|
|
7. |
|
SeaChange, through eventIS, expanded
its linear software products to new customers in Namibia, France, Germany,
India, the Netherlands, Austria, Belgium, and Slovenia. |
|
|
|
|
|
|
|
8. |
|
On Demand Group had a full quarter’s
revenue from its new launch at telecommunications operator Neuf in France
and successfully launched VOD in the Middle East at telecommunications
operator du. |
|
|
|
|
|
|
|
9. |
|
On Demand Group experienced a 50%
growth over the same quarter last year, was 10% up from the last quarter,
and achieved its seventh quarter of continued growth while achieving a
GAAP profit this quarter. On Demand Group is exploring new opportunities
in Europe and South Africa for streaming to the television, PC, and mobile
devices. |
|
|
|
|
|
|
|
10. |
|
SeaChange is seeing significant
interest in its new workflow management software, its multi-screen
software, and its over-the-top IPTV offering. |
Governance, Board Update, and Annual
Shareholder Meeting
SeaChange has engaged in very
positive discussions with Ramius. The companies are aligned with SeaChange’s
direction and goals, and expect the negotiations to be concluded shortly. As a
result of the discussions, the proxy will be slightly delayed and SeaChange
expects to file an amended 10K on Tuesday June 1. After the amended 10K filing,
SeaChange will file the proxy and reset the annual shareholder meeting date as
soon as possible.
Update on Financial
Goals
As described on the Q4, fiscal 2010
earnings call, the goals for the software business have been defined as a 10%
pre-tax software margin by the end of fiscal 2011 and a 15% pre-tax margin by
the close of fiscal 2012. The chart below shows how SeaChange is tracking
towards those numbers.
(more)
| Software Goals and Actuals |
End of FY2011 |
Q1 FY2011 Actuals |
End of FY2012 |
|
|
Goals |
|
Goals |
| Gross Margin |
60% |
54%
(1) |
60% |
| R&D |
26% |
26% |
22% |
| Sales & Marketing |
12% |
11% |
12% |
| G&A |
9% |
12%
(2) |
8% |
| Amortization |
3% |
2% |
3% |
| Pre-Tax Margin |
10% |
3% (3) |
15% |
(1)The gross margins
were affected in Q1 due to the one-time licensing deal to win the single
BackOffice contract for a major U.S. MSO. G&A expense in Q1 includes
transaction expenses attributable to the acquisition of VividLogic.
(2)Reflects an
allocation of Corporate G&A expenses. Software segment G&A as reported
for GAAP purposes represents less than 1% of software segment revenue for the
first quarter of fiscal 2011. Allocated Corporate G&A expenses include
transaction costs for the VividLogic acquisition.
(3)Excludes
restructuring charges included in GAAP reported Software segment financial
results for the first quarter of fiscal 2011. Restructuring charges represented
less than 1% of Software segment revenue for the first quarter.
SeaChange continues to
focus on three main factors in reducing R&D expenses:
- its expansion in off-shoring
resources (the company now has 200 employees in Manila and India)
- a common re-usable software
platform
- the evaluation of its product
portfolio (for example, the divestiture of its Casa Systems investment)
The company plans to use
its cash to purchase assets that enhance its software business and to buy back
stock.
Update on
Acquisitions
SeaChange’s recent acquisitions are
continuing to perform well. eventIS won two new accounts in Europe, including
one significant IPTV provider. It is also making great progress on new
channel-based television accounts, which provide great upgrade opportunities to
on demand and multi-screen services in the future.
VividLogic is following
a two-pronged approach, selling to television operators and consumer electronics
companies. Several operators have renewed or extended agreements with VividLogic
and SeaChange continues to see further operator interest in their
products.
The Mobix software has
contributed to the multi-screen streaming product and the company now boasts
over 1,500 supported mobile device makes and models for video streaming support.
The multi-screen interest remains high and is a strategic part of SeaChange’s
software future.
(more)
Closing Remarks and
Guidance
The top drivers for the top and
bottom line in Q2 of fiscal year 2011 look to be primarily the software business
and three screen trials. SeaChange is providing revenue guidance for the second
quarter in the range of $53 to $55 million and forecasted non-GAAP EPS of 10 to
14 cents per share for the quarter. The company sees increasing revenues from
VividLogic and eventIS, new subscription revenue, and an ongoing interest in VOD
advertising. The strategic company goals that will provide shareholder values
are (1) SeaChange’s transition as a software company, (2) recurring revenue, (3)
long term contracts, (4) steady growth of top and bottom line, with a specific
goal of double digit software operating margin.
--end--
