SeaChange International, Inc.
June 6, 2017

SeaChange International Reports First Quarter Fiscal 2018 Results

ACTON, Mass., June 06, 2017 (GLOBE NEWSWIRE) -- SeaChange International, Inc. (NASDAQ:SEAC) today reported first quarter fiscal 2018 revenue of $16.7 million and U.S. GAAP loss from operations of $5.5 million, or $0.16 per basic share, compared to first quarter fiscal 2017 revenue of $21.6 million and U.S. GAAP loss from operations of $9.6 million, or $0.28 per basic share. 

The Company's U.S. GAAP first quarter fiscal 2018 results included non-GAAP charges of $3.8 million, which consisted primarily of severance and other restructuring costs of $2.1 million, stock-based compensation of $0.9 million and amortization of intangible assets from prior acquisitions of $0.6 million, while the first quarter fiscal 2017 results included $2.8 million of similar non-GAAP charges.  The non-GAAP loss from operations for the first quarter of fiscal 2018 was $1.7 million, or $0.05 per basic share, compared to the first quarter of fiscal 2017 non-GAAP loss from operations of $6.8 million, or $0.20 per share.

Ed Terino, Chief Executive Officer, SeaChange, said, "In the first quarter of fiscal 2018, we saw success with existing and new customers for IP video and cloud-based deployments, as well as green field customer opportunities globally for our end-to-end solutions, all of which are collectively strengthening our pipeline for the year.  At the same time, our ongoing restructuring initiatives yielded positive results more quickly. We continue to be focused on achieving a return to profitability, positive cash flow and revenue growth in the second half of this fiscal year."

Peter Faubert, Chief Financial Officer, SeaChange, said, "We are pleased with our progress starting out the fiscal year, as we achieved revenue within our guidance range, but as importantly, well exceeded our forecast for non-GAAP EPS results due to higher margins and lower operating expense.  Our gross profit margin was 59 percent, progressing to our goal of attaining margins in the low 60s on a recurring basis, especially as our revenue mix continues to transition from perpetual licenses to a monthly recurring revenue or SaaS basis."

"We're on target to achieve a total of $38 million in cost savings on an annual run-rate basis from the program we started last year, which will include approximately $17 million to $18 million in annual run-rate savings in fiscal 2018," Faubert added. "As Ed notes, we remain focused on returning the company to profitability and revenue growth in the second half of fiscal 2018. While we expect that the transition to subscription-based revenue models for more opportunities will pressure our top-line results in the short term, we believe this will improve both the visibility into and predictability of our revenue growth."

SeaChange ended the first quarter of fiscal 2018 with cash, cash equivalents, restricted cash and marketable securities of approximately $37 million, and no debt outstanding.

Outlook
SeaChange anticipates second quarter fiscal 2018 revenue to be in the range of $17 million to $20 million, U.S. GAAP loss from operations to be in the range of $0.13 to $0.07 per basic share, and non-GAAP loss from operations to be in the range of $0.09 to $0.03 per basic share.  For full fiscal 2018, SeaChange anticipates revenue to be in the range of $80 million to $90 million, U.S. GAAP loss from operations to be in the range of $0.37 to $0.25 per basic share and non-GAAP operating income to be in the range of a loss of $0.10 per basic share to income of $0.02 per diluted share.

These GAAP estimates are subject to a number of variables that are outside of management's control, including the size of restructuring expenses, which are influenced by the timing of certain non-U.S. restructuring activities, and stock price fluctuations.  The Company has made no provision for restructuring expense in its outlook for the second quarter of fiscal 2018.

Conference Call
The Company will host a conference call to discuss its first quarter fiscal 2018 results at 5:00 p.m. ET today, Tuesday, June 6, 2017.  The call may be accessed by dialing 877-407-8037 (U.S.) and 201-689-8037 (international) and via live webcast at www.schange.com/IR.  The webcast replay will be archived on the investor relations section of the Company's website at www.schange.com/IR.

About SeaChange International

Enabling our customers to deliver billions of premium video streams across a matrix of pay-TV and OTT platforms, SeaChange (Nasdaq:SEAC) empowers service providers, broadcasters, content owners and brand advertisers to entertain audiences, engage consumers and expand business opportunities. As an Emmy winning organization with nearly 25 years of experience, we give media businesses the content management, delivery and monetization capabilities they need to craft an individualized branded experience for every viewer that sets the pace for quality and value worldwide. For more information, please visit www.schange.com.

Safe Harbor Provision

Any statements contained in this press release that do not describe historical facts, including regarding anticipated revenue, income from operations, cost savings and other financial matters, are neither promises nor guarantees and may constitute "forward-looking statements" as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," the negative of these terms and other comparable terminology. Any such forward-looking statements contained herein are based on current assumptions, estimates and expectations, but are subject to a number of known and unknown risks and significant business, economic and competitive uncertainties that may cause actual results to differ materially from expectations. Numerous factors could cause actual future results to differ materially from current expectations expressed or implied by such forward-looking statements, including, without limitation, the following:  the continued spending by the Company's customers on video systems and services and expenses we may incur in fulfilling customer arrangements; the continued development of the multiscreen video and OTT market; the success of our efforts to introduce SaaS-based multiscreen service offerings; the Company's ability to successfully introduce new products or enhancements to existing products and the rate of decline in revenue attributable to our legacy products; the Company's transition to being a company that primarily provides software solutions; worldwide economic cycles; measures taken to address the variability in the market for our products and services;  the loss of or reduction in demand, or the return of product, by one of the Company's large customers or the failure of revenue acceptance criteria in a given fiscal quarter; consolidation in the television service providers industry; the cancellation or deferral of purchases of the Company's products; the length of the Company's sales cycles; any decline in demand or average selling prices for our products and services; failure to manage product transitions; failure to achieve our financial forecasts due to inaccurate sales forecasts or other factors, including due to expenses we may incur in fulfilling customer arrangements; net losses incurred by the Company and potential reduction in its cash position; the implementation of restructuring programs; the Company's ability to manage its growth; the risks associated with international operations; the ability of the Company and its intermediaries to comply with the Foreign Corrupt Practices Act; foreign currency fluctuation; the Company's ability to protect its intellectual property rights and the expenses that may be incurred by the Company to protect its intellectual property rights; an unfavorable result of current or future litigation relating to the Company's intellectual property; content providers limiting the scope of content licensed for use in the video-on-demand and OTT market or other limitations in materials we use to provide our products and services; the Company's ability to obtain necessary licenses, services or distribution rights for third-party technology; the Company's ability to compete in its marketplace; the Company's ability to respond to changing technologies; the Company's ability to realize the benefits of completed or future acquisitions; the impact of acquisitions, divestitures or investments made by the Company; the Company's ability to raise additional funds through capital markets on favorable terms and in a timely manner; the Company's ability to access sufficient funding to finance desired growth and operations; the performance of the companies in which the Company has taken non-controlling equity positions; any impairment of the Company's assets; the impact of changes in the market on the value of our investments; changes in the regulatory environment; the Company's ability to hire and retain highly skilled employees; the availability of shares to provide adequate equity incentives to employees of the Company; the ability of the Company to manage and oversee the outsourcing of engineering work; additional tax liabilities to which the Company may be subject; any breach of the Company's security measures and customer data or our data being obtained unlawfully; service interruptions or delays from our third-party data center hosting facilities; disruptions to the Company's information technology systems; uncertainties of regulation of Internet and data traveling over the Internet; the volatility of our stock; actions that may be taken by significant stockholders; if securities analysts do not publish favorable research or reports about our business; our use of non-GAAP reporting; the ability of the Company to remediate identified material weaknesses in certain internal controls over financial reporting; the Company's use of estimates in accounting for the Company's contracts; the performance of the Company's third-party vendors; the Company's entry into fixed price contracts and the related risk of cost overruns; the risks associated with purchasing material components from sole suppliers and using a limited number of third-party manufacturers; compliance with conflict minerals regulations; terrorist acts, conflicts, wars and geopolitical uncertainties; the Company's Delaware anti-takeover provisions; and the effect on revenue and reported results of a change in financial accounting standards. These risks and other risk factors that could cause actual results to differ from those anticipated are detailed in various publicly available documents filed by the Company from time to time with the Securities and Exchange Commission (SEC), which are available at www.sec.gov, including but not limited to, such information appearing under the caption "Risk Factors" in the Company's Annual Report on Form 10-K filed with the SEC on April 17, 2017. Any forward-looking statements should be considered in light of those risk factors. The Company cautions readers not to rely on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any intent or obligation to publicly update or revise any such forward-looking statements to reflect any change in Company expectations or future events, conditions or circumstances on which any such forward-looking statements may be based, or that may affect the likelihood that actual results may differ from those set forth in such forward-looking statements.


SeaChange International, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Amounts in thousands)
       
    April 30, January 31,
     2017  2017
     (Unaudited)  
Assets     
Cash and cash equivalents $26,843 $28,302
Restricted cash  7  109
Marketable securities  10,234  10,244
Accounts and other receivables, net  15,225   25,985
Unbilled receivables  7,280  6,553
Inventories, net  597  770
Prepaid expenses and other current assets  2,415  2,393
Property and equipment, net  11,156  11,485
Goodwill and intangible assets, net  25,905  25,890
Other assets  4,019  4,336
  Total assets $103,681 $116,067
       
       
Liabilities and Stockholders' Equity    
Accounts payable and other current liabilities $9,904 $14,906
Deferred revenues  11,669   14,936
Deferred tax liabilities and income taxes payable  16,584  16,159
Other long term liabilities  544  530
 Total liabilities  38,701  46,531
       
Total stockholders' equity  64,980  69,536
 Total liabilities and stockholders' equity $103,681 $116,067
       


SeaChange International, Inc.
Preliminary Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except per share data)
       
   Three Months Ended 
   April 30, 
    2017   2016  
Revenues:     
 Products $2,749  $4,200  
 Services  13,918   17,370  
 Total revenues  16,667   21,570  
Cost of revenues:     
 Products  554   1,574  
 Services  5,807   10,459  
  Provision for loss contract  173   -  
 Amortization of intangible assets  254   316  
 Stock-based compensation expense  2   72  
 Total cost of revenues  6,790   12,421  
 Gross profit  9,877   9,149  
Operating expenses:     
 Research and development  5,378   8,699  
 Selling and marketing  2,937   3,557  
 General and administrative  3,643   4,071  
 Amortization of intangible assets  344   450  
 Stock-based compensation expense  875   40  
 Professional fees - other  21   132  
 Severance and other restructuring costs   2,147   1,775  
 Total operating expenses  15,345   18,724  
Loss from operations  (5,468)  (9,575) 
Other income, net  366   922  
Loss before income taxes  (5,102)  (8,653) 
Income tax provision  269   254  
Net loss $(5,371) $(8,907) 
        
Net loss per share:     
 Basic $(0.15) $(0.26) 
 Diluted $(0.15) $(0.26) 
Weighted average common shares outstanding:     
 Basic  35,309   34,354  
 Diluted  35,309   34,354  
       


SeaChange International, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)
         
     Three Months Ended 
      April 30, 
      2017   2016  
Cash flows from operating activities:     
 Net loss $  (5,371) $  (8,907) 
 Adjustments to reconcile net loss to net cash used in operating activities:    
  Depreciation and amortization of property and equipment   620     794  
  Provision for loss contract   173     -  
  Amortization of intangible assets   598     766  
  Stock-based compensation expense    877     112  
  Deferred income taxes   388     -  
  Other non-cash reconciling items, net   (92)    40  
  Changes in operating assets and liabilities, excluding impact of acquisition:    
  Accounts receivable    10,869     5,363  
  Unbilled receivables    (630)    (664) 
  Inventories    154     (91) 
  Prepaid expenses and other assets    403     853  
  Accounts payable    (1,717)    (1,736) 
  Accrued expenses    (3,865)    (2,125) 
  Deferred revenues    (3,310)    80  
  Other operating activities   (14)    29  
  Total cash used in operating activities   (917)    (5,486) 
Cash flows from investing activities:    
 Purchases of property and equipment       (196)    (159) 
 Purchases of marketable securities       -     (502) 
 Other investing activities      221     (106) 
  Total provided by (used in) in investing activities   25     (767) 
Cash flows from financing activities:    
 Proceeds from issuance of common stock   26     33  
 Payments of withholding tax on RSU vesting   (9)    (76) 
 Other financing activities   -     (3) 
  Total cash provided by (used in) financing activities    17     (46)  
Effect of exchange rate changes on cash   (584)    (922) 
Net decrease in cash and cash equivalents    (1,459)    (7,221 ) 
Cash and cash equivalents, beginning of period    28,302     58,733  
Cash and cash equivalents, end of period $  26,843  $  51,512  
         

Non-GAAP Measures.

We define non-GAAP (loss) income from operations as U.S. GAAP operating loss plus stock-based compensation expenses, amortization of intangible assets, provision for loss contract, non-operating expense professional fees and severance and other restructuring costs. We discuss non-GAAP (loss) income from operations in our quarterly earnings releases and certain other communications as we believe non-GAAP operating (loss) income from operations is an important measure that is not calculated according to U.S. GAAP. We use non-GAAP (loss) income from operations in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of bonus compensation for executive officers and other key employees based on operating performance and evaluating short-term and long-term operating trends in our operations. We believe that the non-GAAP (loss) income from operations financial measure assists in providing an enhanced understanding of our underlying operational measures to manage the business, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. We believe that the non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making.

Non-GAAP (loss) income from operations is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the financial adjustments described above in arriving at non-GAAP (loss) income from operations and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.

In managing and reviewing our business performance, we exclude a number of items required by U.S. GAAP. Management believes that excluding these items is useful in understanding the trends and managing our operations. We provide these supplemental non-GAAP measures in order to assist the investment community in seeing SeaChange through the "eyes of management," and therefore enhance the understanding of SeaChange's operating performance. Non-GAAP financial measures should be viewed in addition to, not as an alternative to, our reported results prepared in accordance with U.S. GAAP. Our non-GAAP financial measures reflect adjustments based on the following items:

Provision for Loss Contract. We entered a fixed-price customer contract on a multi-year arrangement, which included multiple vendors. As the system integrator on the project, we are subject to any cost overruns or increases with these vendors resulting in delays of acceptance by our customer. Delays of customer acceptance on this project result in incremental expenditures and require us to recognize a loss on this project in the period the determination is made. As a result, we recorded an estimated loss of $9.2 million in fiscal 2016. Subsequently, because of changes in the scope of the project and negotiations with the fixed-price customer, we recorded adjustments since fiscal 2016 totaling $3.9 million to reduce this estimated loss. We believe that the exclusion of this expense allows a comparison of operating results that would otherwise impair comparability between periods. 

Amortization of Intangible Assets. We incur amortization expense of intangible assets related to various acquisitions that have been made in recent years. These intangible assets are valued at the time of acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. We believe that exclusion of these expenses allows comparisons of operating results that are consistent over time for the Company's newly-acquired and long-held businesses.

Stock-based Compensation Expense. We incur expenses related to stock-based compensation included in our U.S. GAAP presentation of cost of revenues and operating expenses. Although stock-based compensation is an expense we incur and is viewed as a form of compensation, the expense varies in amount from period to period, and is affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of our shares, risk-free interest rates and the expected term and forfeiture rates of the awards.

Professional Fees - Other. We have excluded the effect of legal and other professional costs associated with our acquisitions, divestitures, litigation and strategic alternatives because the amounts are considered significant non-operating expenses.

Severance and Other Restructuring Costs. We incur charges due to the restructuring of our business, including severance charges and facility reductions resulting from our restructuring and streamlining efforts and any changes due to revised estimates, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations.

The following table includes the reconciliations of our U.S. GAAP loss from operations, the most directly comparable U.S. GAAP financial measure, to our non-GAAP (loss) income from operations for the three months ended April 30, 2017 and 2016 (amounts in thousands, except per share and percentage data):

SeaChange International, Inc.
Preliminary Reconciliation of GAAP to Non-GAAP
(Unaudited, amounts in thousands, except per share data and percentages)
                  
       Three Months Ended Three Months Ended
       April 30, 2017 April 30, 2016
        GAAP     GAAP    
       As Reported Adjustments Non-GAAP As Reported Adjustments Non-GAAP
Revenues:                 
 Products     $2,749  $-  $2,749  $4,200  $-  $4,200 
 Services      13,918   -   13,918   17,370   -   17,370 
 Total revenues      16,667   -   16,667   21,570   -   21,570 
                  
Cost of revenues:                 
 Products      554   -   554   1,574   -   1,574 
 Services      5,807   -   5,807   10,459   -    10,459 
 Provision for loss contract    173   (173)  -   -   -   - 
 Amortization of intangible assets    254   (254)  -   316   (316)  - 
 Stock-based compensation    2   (2)  -   72   (72)  - 
 Total cost of revenues    6,790   (429)  6,361   12,421   (388)   12,033 
                   
 Gross profit     9,877   429   10,306   9,149   388   9,537 
 Gross profit percentage    59.3%  2.6%   61.9%  42.4%  1.8%  44.2%
                  
Operating expenses:                
 Research and development     5,378   -   5,378   8,699   -   8,699 
 Selling and marketing     2,937    -   2,937   3,557   -   3,557 
 General and administrative    3,643   -   3,643   4,071   -   4,071 
 Amortization of intangible assets    344   (344)  -   450   (450)  - 
 Stock-based compensation expense   875   (875)  -   40   (40)  - 
 Professional fees - other    21   (21)  -   132   (132)  - 
 Severance and other restructuring costs   2,147   (2,147)  -   1,775   (1,775)  - 
 Total operating expenses    15,345   (3,387)   11,958   18,724    (2,397)  16,327 
 (Loss) income from operations   $(5,468) $3,816  $(1,652) $(9,575) $2,785  $(6,790)
 (Loss) income from operations percentage   (32.8%)  22.9%  (9.9%)  (44.4%)  12.9%  (31.5%)
                   
Weighted average common shares outstanding:             
 Basic      35,309   35,309   35,309   34,354   34,354   34,354 
 Diluted       35,309   35,410   35,309   34,354   34,492   34,354 
Non-GAAP operating (loss) income per share:               
 Basic     $(0.16) $0.11  $(0.05) $(0.28) $0.08  $(0.20)
 Diluted     $(0.16) $0.11  $(0.05) $(0.28) $0.08  $(0.20)
                   

 

SeaChange International, Inc.
Reconciliation of GAAP to Non-GAAP Gross Margins
(Unaudited, amounts in thousands except percentage data)
         
        
 Three Months Ended Three Months Ended
 April 30, 2017 April 30, 2016
 TotalProductService TotalProductService
         
Revenue$16,667 $2,749 $13,918  $21,570 $4,200 $17,370 
        
GAAP Gross Profit$9,877 $2,169 $7,708  $9,149 $2,544 $6,605 
Exclude Provision for Loss Contract 173  -  173   -  -  - 
Exclude amortization of intangible assets 254  26  228   316  82  234 
Exclude stock based compensation 2  -  2   72  -  72 
Non-GAAP Gross Profit$10,306 $2,195 $8,111  $9,537 $2,626 $6,911 
        
Non-GAAP Gross Profit, % 61.8% 79.8% 58.3%  44.2% 62.5% 39.8%
        

The following table reconciles the Company's forecasted U.S. GAAP loss from operations to the Company's forecasted non-GAAP loss from operations for the Company's second fiscal quarter and full fiscal 2018:

SeaChange International, Inc.
Reconciliation of GAAP to Non-GAAP Guidance
(Unaudited, amounts in thousands except per share data)
        
 Three Months Ended Twelve Months Ended
 July 31, 2017 January 31, 2018
GAAP revenue guidance$17,000 to$20,000  $80,000 to$90,000 
GAAP loss from operations per basic share$(0.13) $(0.07) $(0.37) $(0.25)
Exclude stock compensation expense 0.02   0.02   0.08    0.08 
Exclude amortization of intangible assets 0.02   0.02   0.08   0.08 
Exclude professional fees associated with divestitures -   -   -   - 
Exclude restructuring costs -    -   0.11   0.11 
Non-GAAP (loss) income  from operations per basic or diluted share$(0.09) $(0.03) $(0.10) $0.02 
        

 

SeaChange International, Inc.
Supplemental Schedule - Revenue Breakout
(Unaudited, amounts in thousands)
       
   Three Months Ended 
   April 30, 
    2017  2016 
       
Product Revenues:      
Video Platform   $1,848 $2,566 
Advertising   -  121 
User Experience   118  376 
Hardware   684  526 
Third-party Products   99  611 
Total Product Revenues   2,749  4,200 
       
Service Revenues:      
Maintenance and Support   8,264  9,676 
SaaS   1,394  987 
Professional Services - Video Platform    4,182  4,712 
User Experience   78  1,995 
Total Service Revenues   13,918  17,370 
Total Revenues $16,667 $21,570 
       
Contact:



Press

Jim Sheehan

SeaChange

1-978-897-0100 x3064

jim.sheehan@schange.com



Investors

Mary T. Conway

Conway Communications

1-781-772-1679

marytconway@comcast.net

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Source: SeaChange International, Inc.

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