SeaChange Worldwide, Inc. (NASDAQ:SEAC) Q3 2023 Earnings Name Transcript December 12, 2022
Operator: Good afternoon and welcome to SeaChange’s Fiscal Third Quarter 2023 Convention Name for the interval ended October 31, 2022. My title is Shamali and I’ll be your operator this afternoon. Becoming a member of us from the corporate is Chairman and Chief Govt Officer, Peter D. Aquino; President, Chris Klimmer; and Chief Monetary Officer, Kathleen Mosher. After the market closed at this time, SeaChange issued its monetary outcomes for the fiscal third quarter in a press launch, a duplicate of which is out there within the Buyers part of the corporate’s web site at www.seachange.com. Earlier than we start at this time’s name, I would really like everybody to please pay attention to the Protected Harbor paragraph that’s included on the finish of at this time’s press launch. This paragraph emphasizes the main uncertainties and dangers inherent within the forward-looking statements that administration will likely be making at this time.
As indicated, forward-looking statements are based mostly on administration’s present expectations and are topic to quite a lot of dangers and uncertainties which will trigger precise outcomes to vary materially from expectations. These dangers and uncertainties are additionally outlined within the firm’s SEC filings, together with its annual report on Type 10-Okay and quarterly reviews on Type 10-Q. Any forward-looking assertion ought to be thought of in gentle of those components. Moreover, this name incorporates sure non-GAAP monetary measures as that time period is outlined by the SEC and Regulation G. Non-GAAP monetary measures shouldn’t be thought of in isolation from or an alternative to monetary info introduced in compliance with GAAP. Accordingly, SeaChange has supplied a reconciliation of those non-GAAP monetary measures to probably the most immediately comparable GAAP measures within the firm’s earnings launch issued at this time.
I want to remind everybody that this name is being recorded and will likely be made accessible for replay by way of a hyperlink accessible within the Investor Relations part of SeaChange’s web site. Now, I’d like to show the decision over to SeaChange’s Chairman and Chief Govt Officer, Peter D. Aquino. Sir, please proceed.
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Peter Aquino: Thanks, operator. Good afternoon, everybody. That is Peter Aquino, Chairman and CEO of SeaChange Worldwide and welcome to our third quarter name. Our momentum to strengthen our software program platform continues and we at the moment are hitting on all cylinders. Income development was very robust, up 16% year-over-year and 13% sequentially. Profitability and money technology continues as we document one other quarter of constructive EBITDA and elevated our money stability to just about $15 million with no debt within the stability sheet. And our new SaaS and quick channel software program merchandise at the moment are taking maintain and producing incremental development revenues now mirrored on this quarter. Our transition in the direction of offering our prospects with streaming companies and software program to help their good TV working programs such because the undertaking we introduced final quarter would VIDAA in Hisense is clearly the momentum that we might construct on.
All of that is now translating into improved monetary efficiency for SeaChange leading to double-digit income development. We proceed to leverage our embedded experience in video and advert tech to energy Over-the-Prime companies for all of our prospects. Our wealthy historical past of supporting MSOs, telcos and content material house owners permits us to upsell lots of our prospects with IP-based companies that experience more and more superior broadband networks, not solely within the U.S., however across the globe. Streaming content material over wi-fi or wireline is being powered by SeaChange in North and South America, Europe and EMEA. We’re really a global software program firm with the majority of our 100-plus software program engineers figuring out of our workplace in Warsaw, Poland and we’re so very happy with our workforce there, in addition to all of our staff world wide.
Lots of our prospects within the hose of the video trade are relying on us to seamlessly allow their transfer to the streaming world, whereas we diligently help their massive deployments of conventional VOD in that insertion. Our embedded core enterprise produces nice baseline of money movement as we reinvest that very same skilled workforce into every thing streaming for related units. That is our future. This quarter is a superb instance of the impression of our income composition shift in the direction of development merchandise. For instance, new stream VID gross sales to content material house owners and software program improvement for VIDAA particularly, contributed in the direction of our excessive worth combine, accounting for over 70% of recent gross sales this quarter. We’re managing our go-to-market efforts to proceed to promote development merchandise.
SaaS and streaming software program merchandise should not solely excessive worth when it comes to anticipated multiples for these revenues, however are typically extra recurring in nature as properly, which is a superb enterprise mannequin. As well as, SeaChange’s progress and constant income development, whereas rightsizing our price construction has been fueling higher money movement and that is precisely the profile that we’ve been striving for and we might do even higher. Our effort to advertise worthwhile natural development continues to be job primary. Concurrently, we proceed to search for methods to be opportunistic to achieve scale. We proceed to discover strategic and reworking concepts, in addition to industrial alternatives with gamers in our area. Market timing for M&A could be very troublesome for many presently on this present atmosphere however we’ll purpose to be ready when the chance to transact arises.
The excellent news that SeaChange modified a powerful liquidity profile and a related video platform to promote and help this permits us to execute our natural program with out a lot disruption. And as most would agree, one of the best time to debate strategic alternate options and maximize values when the corporate is ready of power, together with improved capital markets. Within the meantime, we’ve a big TAM and tailwinds in our favor for what SeaChange delivers and we purpose to seize as many alternatives as attainable to maintain SeaChange transferring in the fitting route. So with that, let me cross the decision over to our President, Chris Klimmer to take a deeper dive into our operations. Chris?
Chris Klimmer : Thanks, Pete, and good afternoon, everybody. Thanks for becoming a member of us at this time. Q3 was yet one more robust quarter for SeaChange, as we proceed to develop our high line and transition our enterprise to a extra sustainable degree of profitability, whereas delivering elevated worth to our new and current prospects. Throughout Q3, we continued to execute on our strategic development plan centered round three essential pillars. First, renewing and strengthening our long-term relationships with our current base of longstanding TV operator prospects, which has resulted in a number of long-term help renewals and several other system improve bookings. Second, rising our recurring income baseline with high-margin SaaS-based offers, and third, creating a brand new and prolonged product portfolio and companies that may assist our prospects to maximise their returns throughout all TV and streaming channels, whereas additionally rising end-user stickiness and engagement.
Since our final name in September and in keeping with our strategic development plan, we’ve executed on quite a few accomplishments, which I need to spend a few minutes highlighting. As we introduced final week, SeaChange was chosen by Fox Sports activities Mexico to energy their next-generation streaming service with our complete streaming enablement platform, StreamVid. We imagine we received this deal as we’ve one of the best expertise to help Fox Sports activities Mexico’s three key enterprise targets, which embrace, maximizing content material monetization with versatile subscription packages and focused promoting, retaining current and buying new prospects with the very best high quality of service on all main gadget platforms, in addition to rising consumer engagement by bettering consumer expertise and simplifying content material discovery.
For these of you might be newer to our firm, StreamVid is a cloud-based, Over-the-Prime or OTT streaming enablement platform that gives content material house owners the power to ship distinctive, extremely scalable and customized streaming companies and to deal with speedy consumer development. Our new partnership with Fox Sports activities Mexico serves as additional validation of not solely the rising want for a platform like StreamVid, but additionally of SeaChange’s distinctive capabilities available in the market. This settlement with Fox Sports activities Mexico is a Software program-as-a-Service engagement the place SeaChange will profit from FOX’s success in rising their viewership base and rising their subscription and advert revenues. It due to this fact helps our technique of rising greater margin and recurring revenues. Sticking with the subject of sports activities, we not too long ago expanded our companies settlement with Grupo TeleCable, the main cable supplier in Ecuador to assist help the streaming of the FIFA World Cup occasion in Qatar.
Our cloud architected expertise has confirmed to allow Grupo TV cable to help massive will increase in concurrent subscriber load and combines with our means to allow an enticing sports activities expertise with our versatile consumer interface. Lastly, we’ve accomplished a serious improvement section for VIDAA, the main supplier of working programs for related TVs in an ongoing undertaking to assist them construct out their very own devoted streaming and free ad-supported streaming TV or FaaS companies. On account of finishing this main section, VIDAA can now launch the SeaChange-based streaming service on the hundreds of thousands of VIDAA powered related TVs internationally, offering a premium expertise for related TV viewers and excellent monetization choices with SeaChange’s advert insertion service for focused advert insertions throughout FaaS channels.
We anticipate VIDAA use of the SeaChange-based streaming service to be launched no later than Q1 with a possible impression to income as quickly as This fall. Now wanting forward on the outlook and future development alternatives for SeaChange. I’d wish to level out two main natural development catalysts we’re centered on. The primary catalyst is development within the related TV markets. As we’ve seen in latest tendencies, shopper eyeballs proceed to shift in the direction of streaming on related units and particularly to the big display screen. On this paradigm shift, there’s rising demand for expertise distributors like SeaChange that may assist content material house owners understand their related methods and optimize their monetization alternatives. We imagine our longstanding relationship with many Tier-1 operators in addition to our rising worldwide footprint with content material house owners, together with constructive reference instances make us a perfect companion for a lot of of those gamers.
The second catalyst in mass promoting. Along with the buyer shift in the direction of streaming of related TVs, we’ve additionally seen a pattern in shoppers shifting away from subscription-based enterprise fashions to free ad-supported content material. We imagine that with our distinctive expertise to assist operators and content material house owners alike to guard current and construct incremental advert income streams, we’re extraordinarily properly positioned to develop our market share on this development sector of our trade. By extending our product and repair portfolio for current buyer base and by profitable new logos that undertake ad-based enterprise fashions, we are able to start to extend our market share and capitalize on this new development sector, pushed by modifications in shopper preferences. That concludes my ready remarks.
I’ll now flip the decision over to our CFO, Kathy Mosher to cowl the financials. Kathy?
Kathleen Mosher : Thanks, Chris, and good afternoon, everybody. Turning to our monetary outcomes for the third quarter of fiscal 2023, in comparison with the second quarter of fiscal 2023. Complete income for fiscal Q3 2023 elevated 13% to $8.3 million from $7.3 million within the prior quarter, pushed by will increase in service income. Product income for fiscal Q3 2023 decreased 27% to $2.2 million or 26% of whole income, in comparison with $3 million or 41% of whole income within the prior quarter. The lower in product income was primarily as a result of lower in licenses income. Service income for fiscal Q3 2023 elevated 41% to $6.1 million or 74% of whole income, in comparison with $4.3 million or 59% of whole income within the prior quarter. The rise in service income was primarily as a result of a rise in skilled companies income pushed by the acceptance of accomplished work by a number of prospects.
Income from our worldwide markets in fiscal Q3 2023 was $3.6 million or 44% of whole income, which compares to $4.6 million or 63% of whole income within the prior quarter. Income in our U.S. marketplace for fiscal Q3 2023 was $4.6 million or 56% of whole income, which compares to $2.7 million or 37% of whole income within the prior quarter. our margins, gross revenue for fiscal Q3 2023 was $5.2 million or 62% of whole income, in comparison with $4.8 million or 65% of whole income within the prior quarter. Product gross margin for the fiscal third quarter of 2023 was 26%, in comparison with 72% from the prior quarter as a result of a big improve within the quantity of third-party items for a number of prospects that sometimes carry a decrease margin and introduced down the typical product to margin.
Nonetheless, this was offset by robust service gross margins of 75%, in comparison with 60% from the prior quarter. our bills, non-GAAP working bills for the fiscal third quarter of 2023 had been $5 million, an elevated from $4.8 million within the prior quarter. GAAP loss from operations for fiscal Q3 2023 totaled $3.7 million, in comparison with a $6.5 million loss within the prior quarter. Word, we recorded a noncash impairment loss on goodwill throughout the second and third quarters of $5.8 million and $3.3 million, respectively. Word that at quarter finish, we not had any goodwill recorded on our stability sheet. As a share of whole income, GAAP loss from operations for the third quarter of fiscal 2023 was destructive 44%, which compares to destructive 89% within the prior quarter.
Non-GAAP earnings from operations for fiscal Q3 2023 totaled $152,000 or breakeven per totally diluted share, an enchancment in comparison with $11,000 or breakeven per totally diluted share within the prior quarter and our second consecutive quarter of constructive non-GAAP earnings. As a share of whole income, non-GAAP earnings from operations was 2%, in comparison with lower than 1% within the prior quarter. GAAP internet loss for fiscal Q3 2023 totaled $3.7 million or a lack of $0.07 per fundamental share. This was an enchancment in comparison with a internet lack of $6.5 million or a lack of $0.13 per fundamental share within the prior quarter. Non-GAAP internet earnings for fiscal Q3 2023 totaled $134,000 or breakeven per totally diluted share, in comparison with a non-GAAP internet earnings of $52,000 or breakeven per totally diluted share within the prior quarter.
Turning to our stability sheet. At quarter finish, we had $14.5 million in money and money equivalents, which is an enchancment, in comparison with $14.3 million on the finish of the prior quarter. We proceed to don’t have any debt on our stability sheet. This completes my monetary abstract. For a extra detailed evaluation of our monetary outcomes, please discuss with at this time’s earnings launch, in addition to our 10-Q, which we plan to file by the tip of the week. I’ll now flip the decision over to Jeff Grampp from Gateway Investor Relations to average the question-and-answer session for presubmitted questions.
Jeff Grampp : Thanks, Kathy. That is Jeff Grampp of Gateway Group SeaChange’s Investor Relations advisors. I’ll now learn out the highest questions that we obtained at our agency from traders forward of this name. The primary query is with the inventory worth at this degree for an prolonged time period, very similar to many micro caps, what actions has the corporate taken with respect to NASDAQ?
Peter Aquino : Thanks, Jeff. Initially, I imagine that the share worth of the corporate doesn’t actually mirror the property or the robust monetary and working outcomes that we focus on right here at this time. And I’m an actual believer and I’ve been a purchaser of the inventory personally within the open market this 12 months as I imagine SeaChange is a lovely funding. However particular to the NASDAQ itemizing, we filed an software on December 6 to be listed on NASDAQ’s Capital Markets tier that higher matches our peer group and it will don’t have any sensible impact on the buying and selling of our inventory. Nonetheless, it will present the corporate with a six month extension to get our inventory worth up by execution regardless of broader market circumstances to fulfill NASDAQ lister necessities. That is precisely what a number of micro caps are doing at this time as we converse. In order time progresses, we’ll present common updates as essential to maintain everyone knowledgeable. .
Jeff Grampp : Thanks, Pete. The following query is for Chris, which services or products do you anticipate to be probably the most significant income contributors for SeaChange wanting forward, understanding that the gross sales course of could be considerably lumpy?
Chris Klimmer : Thanks for this query. So, first I believe that the efficiency over the previous 5 – 6 quarters, the place we’ve posted regular quarter-over-quarter high line development, exhibits that we’ve been profitable throughout all our key income streams, services alike and that we’ve diversified our income construction. That is true for our core operator enterprise and our companies enterprise all the best way to our new product traces that generate SaaS revenues for us. By way of these merchandise that we’re very enthusiastic about right here at SeaChange, I’d begin with StreamVid, our complete streaming enablement platform that gives a mess of choices to draw viewers and monetize content material. One other thrilling marketplace for us is free ad-supported streaming TV or FaaS the place we are able to help operators, content material house owners and TV platform suppliers to supply streaming companies and monetization capabilities by advert insertion.
Lastly, we should always not neglect about our means to develop and ship for our longstanding relationships with Tier-1 telcos. This market nonetheless delivers robust revenues and margins for us. Important for us to construct worth and drive innovation throughout all of our product traces is our heart of engineering excellence in Poland. You could do not forget that we’ve greater than 100 full-time in-house video software program engineers that assist us to understand innovation alongside our tech roadmap and to speed up the enlargement of our product portfolio. For instance, we’ve only in the near past filed two provisional patent purposes for merchandise that can allow our prospects to additional personalize the viewing expertise on their platforms and to measure and stimulate engagements.
Thanks.
Jeff Grampp : Thanks, Chris. The final query we obtained is for Kathy. How ought to traders take into consideration the corporate’s means to develop income and obtain constructive EBITDA?
Kathleen Mosher : Thanks, Jeff. We now have been inspired with our operational efficiency that has generated robust high line income development, whereas our prices have remained comparatively secure and extra environment friendly throughout this timeframe, permitting us to generate constructive EBITDA for 2 consecutive quarters. Additional, we’ve been inspired with our outcomes year-to-date with income of $22.3 million, up 19% over the prior 12 months interval, whereas non-GAAP working prices of $14.5 million has decreased 10% over the prior 12 months interval. We stay optimistic about our future income development capabilities and don’t anticipate our price profile to alter materially over the close to and medium time period and due to this fact be ok with our means for an EBITDA breakeven or higher outlook.
Jeff Grampp : Thanks, Kathy. This completes the pre-submitted Q&A session. I’ll now flip the decision to the operator to proceed the Q&A session for at this time’s listeners.
Q&A Session
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Operator: And our first query comes from the road of Nehal Chokshi with Northland Capital. Please proceed together with your query.
Nehal Chokshi: Sure. Congratulations on the stable outcomes, sequential improve and free money movement technology there. And the FOX Sports activities Mexico is a powerful testomony to the tantalizing alternative that you simply talked about of subscription content material transferring in the direction of promoting. Are you able to focus on the evolution of that deal? And the potential for that deal to duplicate throughout different properties of Fox, as properly?
Chris Klimmer : Thanks, Neal. Let me take this query. So basically, the evolution of the deal relies on a really robust gross sales effort within the area. You could know that we’ve gross sales groups domestically additionally in Latin America and the main focus right here, particularly with promoting the streaming platform and the companies that the platform entail is to assist content material house owners which have a premium content material proposition to achieve their subscribers on to go direct to shoppers with the complete flexibility throughout all the monetization fashions which can be attainable in streaming. Fox is an effective instance – Fox Sports activities Mexico is an effective instance that exhibits how our platform permits high-tech monetization mannequin. They are going to go to market each within the subscription mannequin, but additionally use our advert insertion functionality.
And I believe it’s a testomony not solely of our means to be the good expertise vendor to premium and Tier-1 media and content material firms, but additionally to our means to assist that content material to be monetized throughout enterprise fashions, throughout platforms and finally, hopefully additionally throughout territories.
Nehal Chokshi: So would you say that your Latin American workforce is the star of your general gross sales workforce?
Peter Aquino : I believe we’ve a really, superb world gross sales workforce. Latin America has proven very, superb outcomes over the previous couple of quarters. We imagine that the market in Latin America is in an ideal state the place extra direct-to-consumer content material propositions push to the market and with the nice reference stations that we’ve there now with a very good footprint with a powerful gross sales workforce and naturally, is our product, I believe we’re in an excellent place that we must be profitable on this market.
Nehal Chokshi: So, what’s the power, you imagine, to duplicate the success within the Latin American market to different markets then?
Peter Aquino : So we do see some push in different markets as properly. I simply need to spotlight the VIDAA engagement inside income. So, VIDAA can be a worldwide firm, however the primary operations in Europe and EMEA to be exact. So we’ve a really robust footprint throughout our essential markets, that are Latin America and North America and EMEA. To duplicate this explicit engagement in Mexico to perhaps on the sports activities our bodies or sports activities it’s one thing that we’re actively engaged on proper now and we hope to indicate first leads to the sports activities sector over the following quarter or two.
Nehal Chokshi: Glorious. Thanks for taking my questions.
Peter Aquino : Thanks, Nehal.
Operator: Thanks. Presently, this concludes our question-and-answer session. In case your query was not taken, please contact SeaChange’s IR workforce at seac@gatewayir.com. I’d now like to show the decision again over to Mr. Aquino for his closing remarks.
Peter Aquino : Thanks, operator. Effectively, we admire your curiosity in SeaChange and sit up for our future communications. Have an amazing night, everybody. Thanks.
Operator: And thanks for becoming a member of us at this time for SeaChange’s convention name. You could disconnect your traces. Thanks.
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