SeaChange International, Inc. (SEAC) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to SeaChange's Fourth Quarter and Fiscal Year 2021 Conference Call for the period ended January 31, 2021. My name is Hillary, 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 fiscal fourth quarter and full year of 2021 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.
Robert Pons: Thanks, operator. Good afternoon, and thank you for joining our fourth quarter and fiscal 2021 conference call. It is great to have this opportunity to speak with you today. Joining me is our CFO, Mike Prinn, and our new Senior Vice President of Global Sales and Marketing, ChrisKlimmer. I would like to start off by sharing with you a statistic that recently was in an article in the Wall Street Journal. According to the Motion Picture Association, the number of subscriptions to video streaming services around the world reached 1.1 billion in 2020. We, SeaChange, are a company that is squarely in the middle of this explosive growth in video streaming. We have the technology and experience to provide cable operators and content owners throughout the world to enable video streaming for their films, television shows or live content. Our streaming technology brings our customers an end-to-end solution with a strong monetization component for both subscriptions and advertising business models,while navigating through the last 12 months during the pandemic has not been easy for our company and our shareholders. However, the last 90 days has been a turning point for our company. I have been busy meeting with customers and employees every day since I jumped into the role of Executive Chairman.
Michael Prinn: Thanks, Bob, and good afternoon, everyone. As Bob described, SeaChange's business and focus today is very different than it was a year ago. For this reason, I'll focus my commentary on the fiscal fourth quarter of 2021 in the prior quarter comparison. Now turning to our financial results. Total revenue for fiscal Q4 2021 increased 3% to $5.1 million compared to $5 million in the prior quarter. The increase in revenue was primarily due to an increase in product revenue, offset by a decrease in legacy maintenance revenue.
Chris Klimmer : Thanks, Mike. As SeaChange's SVP of Global Sales and Marketing, my focus is on aligning our technological strength and go-to-market strategy with not only where the industry is today but also where the industry is headed over the next 5 to 10 years. SeaChange has an incredibly rich history of technology innovation. We invested in award-winning products and continue to invest in R&D to deliver outstanding solutions using our best in breed technology. Despite the massive changes that have occurred in the broadcast industry since the onset of COVID, streaming services have prospered. In response to the changing industry landscape, we adapted and modified our cloud technology portfolio to address the growing needs of cable providers and content owners to quickly and seamlessly deliver dynamic live and VoD streaming services. With over 150 in-house video software engineers dedicated to developing SeaChange's technology platform, our innovative software solutions are empowering cable companies like Grupo TVCable as well as content owners such as Westcoast Digital Services to seamlessly manage, deliver and monetize their content. In the case of Westcoast Digital Services, during calendar 2020, we helped them launch a device agnostic direct-to-consumer video-on-demand service with premium content from all major studios, another brand reboot. Our solutions support their unique business model of selling redeemable movie cards for digital movies in Tesco retail stores in the UK that are available for streaming on all devices. This is a great example of how our technology provides a customer like Westcoast Digital with an end-to-end solution that spans content processing, user management, monetization and payment to the end user-facing client apps. Today, more than 80 customers globally rely on our software solutions and professional services to orchestrate the delivery of content to all screens and devices. In addition to dynamic content delivery and management requirements, we are seeing a growing need across the industry for technologies like our analytics engine to generate valuable and actionable insights to optimize end user retention and monetization.
Robert Pons: Thanks, Chris. Our building sales momentum validates the effectiveness of our refined go-to-market strategy and our holistic approach to selling the full value of our software and services to the world's most prominent video providers. The increasing value of our technology platform is providing to video and broadband providers globally demonstrates SeaChange's elevated value proposition and increasingly critical role in the industry. Today, SeaChange is positioned at the epicenter of the video industry's transformation to OTT video streaming services and delivery to the billions of end users globally. It was a transformative period for our business and the world. We finished the fiscal year strong and entered the new fiscal year with tremendous momentum, positioning us well to our near- and long-term growth goals. While we are still in the early innings of our strategic road map, I can confidently say that the SeaChange of today is a much stronger and more capable organization and that the future has never been brighter. Our successful capital raise has not only provided the necessary resources to accelerate our plan, but it has also elevated SeaChange's standing among our customers and partners alike. With more than $22 million of cash on our balance sheet, we have the resources to accelerate many key initiatives with our strategic road map and even better capitalize on the exploding growth in the video streaming marketplace. Over time, we expect the successful execution of our plan will translate to sustainable growth and consistent profitability in the years ahead. That concludes our prepared remarks. We are ready to open the call for questions. Operator?
Operator: Our first question is from Steven Frankel of Colliers.
Steven Frankel: Bob, can we start with what were bookings in the quarter. And what's the revenue recognition policy around this new multimillion-dollar multiyear back-office contract?
Michael Prinn: Hi, it's Mike. Yes, I can kind of start with that one. So we're not going to disclose bookings on a quarterly basis. I think we gave enough color with revenue, and I think we've talked about the bookings piece kind of being bumpy. So I think from a reporting perspective, we're going to stick to revenue. And in terms of this deal, it is a large deal, and it's a little different. So what I will say is it's that 3 different pieces to it. It definitely has a professional services piece. It has a maintenance piece, and that's a large piece of the multimillion-dollar contract value, and that will be spread out ratably. The professional services are probably a 6-month period. And then there is a piece that is a license piece. So this will be unlike what we used to call our typical framework deals, which was 60% revenue upfront. This one's probably has a majority of it spread out over the 3-year term period?
Steven Frankel: Okay. But the -- so at this point, you've recognized some professional services and then the idea would be you'd have that, you'd hit your milestones and then you'd start recognizing license. Is that ratable? Or when you get to the license piece, does that all hit in a quarter or 2 and then maintenance starts at some point after the license?
Michael Prinn: Yes. This license will probably be -- it will be a smaller piece, but it will be kind of, I think, a lump-sum payment potentially spread it over 2 quarters depending on kind of implementation. And of course, as a reminder, this 1 was booked in Q1. So this would be kind of Q1 revenue recognition.
Steven Frankel: Okay. So the professional services that we saw in this quarter are not related to this deal?
Michael Prinn: Correct.
Steven Frankel: Okay. Is Framework still a product you're trying to sell today? And did you do any Framework deals in the quarter?
Michael Prinn: Yes. So again, I think we're not going to kind of report the number of Framework deals. I think I'll let maybe Chris and Bob give a little color. You probably won't hear us say the word Framework as much. It's our streaming platform and our offering. And I think we're trying to kind of understand what that looks like, and we may change how we speak about that in the future, but we probably -- you won't hear us say Framework as much.
Robert Pons: Chris, do you want to share what some of your initiatives have been regarding what you're selling as opposed to just as Mike said, a blanket statement of Framework?
Chris Klimmer : Sure. Hey, Steven, good afternoon. So the concept of Framework was based on the assumption that it makes sense to bundle into 1 item basically, a combination of services, licenses and maintenance components. We believe to be able to address the market more specifically and deliver point solutions to both existing and new customers, it makes sense to spread this out again and be more pointed in selling our solutions. So we won't sell the Framework concept anymore. What we're going to sell is enablement services to ensure that our customers, content operators and content owners -- cable operators and content owners can launch successful and profitable streaming services.
Steven Frankel: Okay. So -- and what's the profile of the content owner that would come to you? Obviously, streaming is highly competitive. There are lots of companies that have a larger than you with bigger balance sheets that have customers in this market, who's going to come to you and why?
Michael Prinn: Well, first, Steve, I don't know how much you've taken a look at how many content players that are coming on to the scene not just here in North America but all over the world. So people who have film libraries, people who are producing television shows outside the United States for their particular audience. Some of them are bringing them to the U.S. marketplace. I mean, we're talking hundreds and hundreds, if not thousands of people that are looking to jump in to the growth of streaming. We're -- our sales force globally is busy speaking to content owners. Again, slice and dice, you watch television. You know how many different varieties there are content that appeal to particular customers targeted segments and things. My goodness, it's not just Disney and Netflix, there are companies that are appealing to a family-friendly TV. There's another -- so yes, there's a tremendous amount of opportunities out there for us.
Steven Frankel: And what do you think a typical deal will look like for you in this market?
Robert Pons: So if I may. So first of all, see, obviously, every content owner that we speak to needs to have a content proposition that is strong enough to attract the sufficient amount of users or subscribers depending on the business model to allow a solid business case, right? I mean that's a given. To your question, why should they choose us? Because I think based on the product and also the expertise that we hold in the company, based on the value that we can provide to these content owners, what we can do and maybe do better than our competitors is to make sure that the market entry barrier for these content owners is low, and the upside to turn into profitability is imminent. We have a variety of tools to ensure that we can unlock revenue streams when it comes to monetization of content, but also when it comes to optimizing the way the business operation can be run based on big data analytics. And we also have the capabilities with our cloud-native technology solution to keep the cost under control and ensure that the cost is directly related to actual traffic, which in return will generate revenues. So I think with the combination of these factors and components, cost side on the 1 hand, keeping the cost under control on the 1 hand. And on the other hand, allowing through various components and various services to unlock revenues, I think we have an extremely strong proposition for these content owners to control.
Operator: . Our next question is from of
