SeaChange International, Inc. (SEAC) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon. And welcome to SeaChange’s Fiscal First Quarter 2022 Conference Call for the period ended April 30, 2021. My name is Diego, and I will be your operator this afternoon. Joining us from the company is Executive Chairman, Robert Pons; Chief Financial Officer, Michael Prinn; and Senior Vice President of Global Sales and Marketing, Chris Klimmer. After the market closed today, SeaChange issued its financial results for the first -- fiscal first quarter in a press release, a copy of which is available in the Investors section of the company’s website at www.seachange.com. Before we begin today’s call, I would like everyone to please take note of the Safe Harbor paragraph that is included at the end of today’s press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements that management will be making today. As indicated, forward-looking statements are based on management’s current expectations and are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties are also outlined in the company’s SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. Additionally, this call contains certain non-GAAP financial measures as that term is defined by the SEC and Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, SeaChange has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company’s earnings release issued today. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of SeaChange’s website. Now I would like to turn the call over to SeaChange’s Executive Chairman, Robert Pons. Sir, please proceed.
Robert Pons: Thanks, Operator, and good afternoon, everyone. Thank you for joining us today. On our last call in April, I left you with three words, streaming, streaming and streaming. Today, I will begin my comments with three words, streaming, streaming and streaming. According to a recently published research report, following the worldwide streaming trends, the streaming industry will surpass $140 billion in annual revenues and the advertising-based video-on-demand industry will surpass $60 billion in annual revenues by 2026. SeaChange has repositioned its strategy and technology to capture the explosive growth in all things streaming. Our turnkey streaming enablement platform for content owners and cable operators worldwide, and our advertising and search and technology give us a distinct advantage over our competitors. The mission we are on is to reach out to all stakeholders in streaming. This includes, but is not limited to cable operators or content owners looking to launch their own streaming services. And as you might expect, it also includes the greater Hollywood and all of the world’s film and television producers. A big part of our future success will come from strategic partners who recognize the value of partnering with a full stack streaming enablement platform company like SeaChange. And by full stack, I simply mean, we have all the technology and expertise to help efficiently and quickly launch a new streaming service. Your company is part of two exploding industries, streaming and ad tech. If you shadowed me and our other executives for a week, you would see and listen in on the many strategic meetings we have with stakeholders where streaming is their top priority. On a weekly basis, we are on conference calls, reaching out to the film and television industries to educate them on our combined streaming and ad tech enablement platform. After Mike walks you through our numbers for Q1, Chris will discuss in more detail the positioning of our new go-to-market strategy and the unique position we are in to capitalize on the exploding growth of streaming and ad tech. Mike?
Michael Prinn: Thanks, Bob, and good afternoon, everyone. Now turning to our financial results for the first quarter of fiscal 2022, compared to the fourth quarter of fiscal 2021. Total revenue for fiscal Q1 2022 was $5.1 million, compared to $5.1 million in the prior quarter. Revenue was driven by an increase in product revenue offset by a decrease in legacy maintenance revenue. Product revenue for fiscal Q1 2022 increased 16% to $1.6 million or 32% of total revenue, compared to $1.4 million or 27% of total revenue in the prior quarter. Service revenue for fiscal Q1 2022 decreased 8% to $3.4 million or 68% of total revenue, compared to $3.7 million or 73% of total revenue in the prior quarter. The decrease in service revenue was primarily due to the decline in legacy maintenance. Revenue from our international markets in fiscal Q1 2022 was $2.9 million or 56% of total revenue, which compares to $3.7 million or 73% of total revenues in the prior quarter. Revenue in our U.S. market for fiscal Q1 2022 was $2.2 million or 44% of total revenue, which compares to $1.4 million or 27% of total revenue in the prior quarter. Looking at our margins, gross profit for fiscal Q1 2022 was $2.8 million or 56% of total revenue, compared to $2.8 million or 55% of total revenue in the prior quarter. Product gross margin for fiscal first quarter of 2022 was 75%, compared to 46% from the prior quarter. Service gross margin was 47%, compared to 59% from the prior quarter. Now looking at our expenses. Non-GAAP operating expenses for the fiscal first quarter of 2022 decreased 12% to $5.6 million from $6.4 million in the prior quarter. GAAP loss from operations for fiscal Q1 2022 totaled $3.8 million, an improvement of $635,000, compared to $4.4 million in the prior quarter. As a percentage of total revenue, GAAP loss from operations for the first quarter of fiscal 2022 was negative 75%, which compares to negative 87% in the prior quarter. Non-GAAP loss from operations for fiscal Q1 2022 totaled $2.8 million or a loss of $0.07 per basic share, an improvement compared to $3.5 million or loss of $0.09 per basic share in the prior quarter. As a percentage of total revenue, non-GAAP loss from operations was negative 55%, compared to negative 69% in the prior quarter. GAAP net loss for fiscal Q1 2022 totaled $4.1 million or a loss of $0.10 per basic share. This was an improvement compared to a net loss of $4.4 million or loss of $0.12 per basic share in the prior quarter. Non-GAAP net loss for fiscal Q1 2022 totaled $3.1 million or loss of $0.07 per basic share, compared to a non-GAAP net loss of $3.5 million or loss of $0.09 per basic share in the prior quarter. Turning to the balance sheet. At quarter end, we had $21.3 million in cash, cash equivalents and marketable securities, which compares to $6.1 million at the end of the prior quarter. This completes my financial summary. For a more detailed analysis of our financial results, please refer to today’s earnings release, as well as our 10-Q, which we plan to file by the end of the week. Chris?
Chris Klimmer: Thanks, Mike. Good afternoon, everyone. Today, I would like to give you an overview of our strategic and product initiatives that we have implemented over the last several months mainly to achieve two key goals; first, to better address the needs of our existing customer base; and second, to create a product and value proposition to target the extensive growth opportunities in the streaming and ad tech markets. As many of you know, the pandemic has dramatically accelerated the paradigm shift towards streaming. Streaming business models today dominate the content value chain from production to consumption and monetization. At the same time, traditional linear TV continues to be a highly relevant service for cable and broadband companies to acquire and retain subscribers. Both traditional linear TV and streaming have one thing in common, the increasing need for technology that supports intelligence, monetization and business models to increase advertising revenues. In response to this market trends and to simplify our go-to-market strategy and offering for both current and prospective customers, we have established three product platforms; table video delivery platform, OTT streaming platform and advanced advertising platform. At a high level, we have four primary objectives for our new product marketing strategy; first, established dedicated product lines for all three current and future revenue drivers; second, introduce growth vehicles for recurring revenue streams; third, increased asset value with key value propositions, respective target verticals and reference cases; and fourth, drive targeted and relevant product innovation with our exceptional team of video software engineers. The first product is our cable video delivery platform, a robust on-prem video management system to provide long-term value to cable companies around the world. For more than a decade, this technology has enabled major broadband service providers and cable companies to orchestrate the delivery of content to all screens and devices globally. Today, more than 80 customers rely on SeaChange’s software solutions and professional services to deliver compelling content to households. These same customers will be incredibly important to us going forward. As we work to ensure long-term stability of their deployments by providing continuous software upgrades, feature and security enhancements, and value-add services such as advanced analytics. In terms of the platform’s business model, it will continue to be a combination of software licenses, professional services, and support and maintenance. Success with our cable video delivery platform will translate to even greater customer retention, new high margin customer expansions and a unified software platform that allows us to streamline our support efforts. Our OTT streaming platform is our newest product, which provides a complete cloud native online video platform to enable premium and profitable streaming services, both for operators and content owners. As an enabling technology, SeaChange effectively serves as a conduit to facilitate the delivery of video content to end users globally. This favorable positioning between the provider of the streaming service and their consumers helps our customers situate themselves successfully in the multibillion dollar video streaming market. Our OTT streaming platform also helps our customers fully maximize the return on investment of their content and user acquisition costs, as they can now address their consumers directly with relevant content offerings, targeted campaigns or upsell services. In that sense, our OTT streaming platform democratizes video by allowing content owners to bypass intermediate platforms and deliver content directly to consumers on all device platforms. By cutting out the middleman so to speak, content owners can lower customer acquisition costs, while driving higher ROI through targeted monetization strategies across all video business models, such as AVOD, SVOD or TVOD. Key to our ability to enable successful and profitable streaming services is our proprietary analytics engine that is embedded in the platform. With machine learning algorithms that help to segment and cohort relevant consumption and business intelligent data, we generate meaningful and actionable insights for our customers to optimize the promotion or packaging of content to increase traffic and engagement on the services and to reduce churn. Our OTT streaming platform also increases our customers brand value, due to the premium level of service. For SeaChange, this product line provides us with a true software-as-a-service offering, structured on a pay-as-you-grow model that includes fix minimum fees with upside based on usage level. As a software enabled platform, we can leverage the same product codebase across multiple customers to achieve a scalability effect. With the platform’s recent launch, our sales team is keenly focused on marketing the product to customers and securing logos. Our success in this area will establish a new stream of high margin recurring revenue for our company. Third, our advanced advertising platform is a unified ad tech solution for broadcast and OTT to increase ad revenues for carriers, broadcasters or content owners. The platform enables the insertion of advertisement into inventory on linear broadcast feeds, as well as IP delivered streaming content. Together with the analytics engine, I previously mentioned, content owners are provided with greater insights into their audiences and can generate higher advertising revenues right away. In addition to term licenses, SeaChange benefits financially through recurring variable fees tied to certain metrics, such as ad impressions. Our team is laser focused on securing logos for this platform and capturing a meaningful share of the fast growing and massive ad tech market. I look forward to sharing our success and progress in all three of those product categories in the coming month. That concludes my prepared remarks. I’ll now turn the call back over to Bob for his closing remarks. Bob?
Robert Pons: Thanks, Chris. The traction we’ve established on the strategic roadmap has made SeaChange a much more capable, focused and scalable organization. As you’ve heard us talk about, we have deepened and expanded customer engagements, including most notably the multiyear multimillion dollar contract with one of the largest broadband service providers in the U.S. that we announced at the end of March. From a financial perspective, the roadmap has produced many tangible benefits as well, including a stabilized topline, an optimized cost structure and a bolstered balance sheet. These favorable dynamics have allowed us to accelerate our plan to capture the explosive growth in streaming services and be in an even stronger position to drive growth in fiscal 2022 and the years ahead. I’m encouraged to report that our pipeline is building and our sales opportunities have never been more abundant. We hope to share some of these developments and progress with you in the near future. Taken together, we remain highly confident that the successful execution of our plan will translate to growth and enable us to drive scale, capture market share and create even greater value for both our customers and shareholders over the long-term. And three final words, before we go to questions, streaming, streaming and streaming. That concludes our prepared remarks. We are now ready to open the call for questions. Operator?
Operator: Thank you. [Operator Instructions] Our first question comes from Steven Frankel with Colliers. Please state your question.
Operator: [Operator Instructions] Our next question comes from Rommel Dionisio with Aegis Capital. Please state your question.
Operator: Our next question comes from Aria Cole with Cole Capital [ph]. Please go ahead with your question.
Operator: [Operator Instructions] Our next question comes from Anthony Dissaro [ph]. Please go ahead with your question. Thank you.
Operator: Thank you. [Operator Instructions] Thank you. And at this time, this concludes our question-and-answer session. If your question was not taken, please contact SeaChange’s IR team at seac@gatewayir.com. I would now like to turn the call back over to Mr. Pons for his closing remarks.
Robert Pons: Thank you and thank you everyone and we always get a healthy number of participants in the call and this call was no different and we appreciate the interest. The team, the culture in the company has dramatically improved over the last four months or five months. We’ve initiated some programs that keep all of our employees engaged. Our sales force highly motivated and we are spending a lot of time out there with potential strategic partners. Those are companies from media companies, content owners that, anyone that streaming is in their road map for the future or companies that we want to sit down within talk to them about our capabilities and our great technology assets. So stay tuned. We couldn’t be more excited about our future. It’s great to be selling into one of the more explosive industries. The broadcast industry probably hasn’t been this disruptive in many, many years and streaming is causing it. As someone said to me, we were on a strategic call earlier in the week with some folks in Los Angeles the Hollywood groups and things like that. Everyone and all the big studios, it’s all they talk about is streaming. So it’s -- we are confident with our great technology that will be a big part of the growing sector. Thank you very much and be well.
Operator: Thank you for joining…
Michael Prinn: Thanks, everyone.
Operator: Thank you. Thank you for joining us today for SeaChange’s fiscal quarter 2022 conference call. You may disconnect your lines. Thank you.
