Q1 2021 SeaChange International Inc Earnings Call
[music].
<unk>.
Welcome to see changes fiscal first quarter 2021 conference call for the period ended April 30, or 40 to 40.
My name is covered all of your operator this afternoon.
Joining me for today's call the company's Chief Executive Officer, you'll see of owning chief commercial officer chat how for.
<unk> Chief Financial Officer, Michael print.
After the market close see figures should its financial results for the fiscal first quarter of 2021 at a press release a copy of what is available in the investor Selectra. The company's website that investors dot see trains dot com.
The company today's call. The company has made available his prepared remarks, along with a supplemental slide deck, both of which are posted to me that's resection, Oh see changes website.
Management encourages you to download the slides that give you haven't done already.
Before we begin today's call.
Like everyone to please take note well the safe Harbor paragraph does include out the other todays press release.
This paragraph emphasizes the major uncertainties and risks inherent and look forward looking statements that management will be making today.
As we have indicated forward looking statements are based on management's current expectations are subject to a number of risks or uncertainties that may cause actual results differ materially from expectation.
These risks or uncertainties are all Swat why do a company's FCC filings, including its annual report on form 10-K, a quarterly reports on form 10-Q any forward looking statements should be considered in light of these factors.
Additionally, this presentation contain certain non-GAAP financial measures I suffered as defined by the FCC. The regulation G. Nongaap financial measures should not be considered in isolation for from or a substitution for substitute for financial information presented in compliance with gap.
Accordingly, Seachange provided a reconciliation of these non-GAAP financial measures to most directly comparable GAAP measures in the Companys earnings release issue today.
Although to remind everyone is just coal is being recorded well being made available for replay will be available on the Investor Relations section Oh see changes website no other chemical over to see treat the CEO mr., you'll see all voting <unk>. Please go ahead.
Thanks, operator.
Google and six people joining Phil what do well see the cooked went to 21 corporate school.
To be nine weeks since we have no one last telling calls as we all know elite.
The initial stages of the global condemning.
At the time of the core no one could as predicted the intensity you wasted in order to meet impact to do want to quality.
Well this quarter I talked about the causes the team created uncertainty and what it used to be the BBB well see trajenta kneel down.
So I'll just doesn't equal domestic people told me the TV video seamlessly.
Well, we think dean is those talks isn't it the industry shift to all cooked into being consumed.
Which has resulted in a bus twice type of opportunities and continued into you know with finding solution.
But I still look to present to live in you and we just don't break even expenses.
What secular.
You mean very much you've booked when seachange business.
The medium and long term.
Unfortunately, the negative effect, so what we think team as we longer lasting didn't we initially expected.
<unk> the company, which I suspect, it's costing they'll be continuing to be involved stages. Its government mandate didn't look though.
These thing dunk significantly slowed customer engagement with the new remote cool can buy them. It at the same time, many customers focusing their resources what are the most networking support and so it does seem to go into month, So Ben do we.
Yeah, I didn't network usage caused by the Cobiz names you can find me.
Definitely don't.
Cognizant perspective, Costa mail temporarily Whos got the cannot did you purchasing and deployment decision FOLFOX solution.
To be clear.
I think what he meant.
And we have not lost and business our customers the CP delays, making final decision regarding the blended engagement, then deployment and being very tempting more typical banking environment.
Indicate something did you find coffee prices, we are remaining focused on employee safety, ensuring business continuity and supporting customers.
We also took immediate production and institute a plan to manage the business, who the cases and implementing additional cost the measure.
You succeed.
It allows us to shift would be no more focused operation.
Well, it's better all I know stopped the G coming to market demand.
Oh yeah.
I would go to market motion.
<unk> cash position or nearly 10 million.
Sections for Vivus, we'd enough resources to execute always looks like did you we have confidence known business and remain committed go a long term spots.
Despite the headwinds we expect Q1 and continue to expensing account what do you have encouraged by our initial.
Acumen government film slate, we did include a with new and session more too.
I've talked about monetizing unsold inventory during this difficult time, the tremendous evaluate that will flow platform can provide.
We still true Magee recently posted the TV station expenses, 40% to 60% loss in Israel typing revenue even made you do coffee.
In Boston linear LTV isn't being the only got from affected.
Vivo and not and yeah, let me take somebody such few folded nearly 50% for streaming good that's presented be prelim me, we still probably do you do have 50 <unk> CEO.
He changed you Wouldnt session, which will address the issue by integrating it the month <unk> luxel too so it back.
In the supply side platform do you find its placement.
Indeed, well dramatically feeling unsold advertising so in the meantime.
And what are the functioning unsold.
It's existed for you, but there's been used exclusively online.
No teaching is making it available to our customer base for lineal oaky and guilty.
This walk through eliminates the need for sixtym to seek out the end by themselves.
And I'm so.
That is option to the discount we must be called yet it is.
That's all been allowing the spot generic no revenue at all.
Pitches technology and look what these new revenue streams open ended volume do you provide already been told me you pieces.
We believe I want to at least like say 70, no one module.
Lets indices unmet need such unique solution.
Before we continue I'm now going to tell me what do you want them <unk> Chief Commercial Officer Changan Hospital.
Well why the brief overview, followed slim queen into quota.
Jim.
<unk> Chief Financial Officer, who sell my screen when you walk you through often interim result.
After World I would show well then open the call for questions.
Chuck.
He was he and good afternoon everyone.
As you'll see mentioned in his opening remarks, the health crisis presents a significant headwinds to our sales and business development activities.
[music].
Nevertheless, we were able to secure two new wins with multiyear commitments to our framework video delivery platform.
These two wins brought our total count for our framework solution to 28 quarter end.
Frameworks total contract value at quarter end exceeded 60 million.
Which nearly 20% represented business with global tier one operators, which demonstrates our platforms robustness.
Enterprise grade functionality.
As you'll see also mentioned we secured our first framework when that included or AD insertion my goal in the quarter.
The win was where the tier one international TD provider services more than 5 million subscribers globally.
This customer selected framework because of the platforms value based engagement model ease of use and innovative features that enable the customer right away to reduce its operating costs, but also drive new revenue streams.
This is an exciting opportunity procedures, because we not only benefit from recurring revenue associated with the framework sale, but we also received a portion of the AD revenue this customer generated using our AD monetization model.
As you can tell we're really excited about this win and eager to leverage it has a case study with our existing framework customers their perspective customers as well.
As we've talked about on prior calls one of the most impactful differentiators for US you changed as our technology.
250 million in investment in our technology over the last five years combined with our disruptive value based go to market strategy has established sea change as the video delivery platform later.
Our team is committed to not only maintained its position furthering it as well.
Through partnerships with industry leaders like Amazon Web services, we can cost effectively leverage other best of breed technologies and talk to augment the framework offerings.
Hey, Good example of this is our recently expanded partnership with a ws that expands functionality for our customers. The framework predictive analytics algorithms leverage kw S is machine learning services to help TV providers better understand user engagement.
The platform identifies patterns that suggest whether a user is at risk churning, which drops the TV provider to launch targeted retention actions.
Understanding user behaviors, such as general line up utilization video on demand catalog engagement.
And promotion effectiveness can also improve the accuracy of advertising campaign.
With predictive analytics for me Ws framework is the ultimate for TV providers to reduce subscriber churn and increased revenues through better monetization of advertising inventory.
In terms of our current operating environment, we're starting to see business activity pick up I stay at home orders are lifted and offices reopened.
We believe that our industry, leading solution disruptive value based go to market strategy and new advertisement revenue share business model.
Will enable us to capitalize on the disruption in process and the accelerating demand for streaming services.
They work is one of the most affected schools for TV operators and content owners to improve their customer experience by reducing your operating cost and enabling them to generate incremental revenue through advertising.
We believe our differentiated position in the market will translate the strong second half of fiscal 2021, and giving us good momentum entering fiscal 2022.
With that I'll turn the call over to Mike to walk us through our financial performance for fiscal Q1 2021.
Mike.
Thanks, Chad good afternoon, everyone.
Looking at our financial results for the fiscal first quarter ended April Thirtyth 2020.
We entered the first quarter with 21.8 million in total backlog.
Excluding legacy maintenance and support.
We booked 4.1 million of new business during Q1 and ended the quarter with backlog of 21.5 million.
Total revenue for fiscal Q1, 2021 decreased 19% to 6.9 million from 8.5 million in the same here, though period.
The year over year revenue decrease was primarily due to lower legacy services revenue, partially offset by higher product revenue in the period.
As Chad and you'll see mentioned, we signed two new framework deals in the first quarter of this year, which compares to one new framework deal signed in Q1 of last fiscal year.
Eight deals that we averaged per quarter in Q2 Q3 in Q4 of last fiscal year.
Product revenue increased 163% to 3.1 million or 45% of total revenue from 1.2 million or 14% of revenue in the same here, though period.
The increase in product revenue was driven by 2.3 million dollar increase in framework revenue.
Service revenue decreased 48% to 3.8 million or 55% of total revenue.
7.3 million or 86% total revenue in the same here, though period.
The decrease in service revenue was due to lower revenue from both professional services and support revenue from customers related to legacy products.
At least as we've mentioned on prior calls these declines are consistent with our expectations as we transition to legacy customers to new framework arrangements in transition our professional services organization to our customer engineering organization as we completed legacy professional services projects.
Revenue from our international markets was 4.6 million or 66% of total revenue, which compares to 5.1 million or 60% total revenue.
Same here, though period.
Revenue in our U.S. markets was 2.3 million or 34% total revenue, which was down for 3.4 million a 40% of total revenue in the same year ago period.
The decrease in revenue from both the U.S. and international markets was due to a reduction in bookings primarily attributable to the covert 19 pandemic.
In terms of customer concentration, we had to customers that accounted for 15% 13%.
Total revenue compared to one customer in Q1 of last year that accounted for 16% total revenue.
Looking at our margins gross profit decreased to 2.5 million or 36% of total revenue.
From 2.9 million or 34% of total revenue in the same year ago period.
The 34% gross margin last year was the result of the transition for legacy the framework as we focused on completing a number of professional services projects and lower margin work.
The 36% gross margin in fiscal first quarter of 2021 was the result of only closing two framework deals during the period a.
Our business model and cost structure have the ability to drive gross margins in the low 70% in a Bob as you saw in Q3 in Q4 of last year. However, in order to achieve that margin level need to generate more product revenue for framework deals than we did in the first quarter of this year.
Product gross margin was 49% compared to 23% in Q1 of last year.
Service gross margin was 26% compared to 36% in Q1 of last year.
Looking at our expenses non-GAAP operating expenses decreased 26% to 7.7 million from 10.4 million in Q1 of last year.
The decrease reflects the continued cost savings initiatives related to the reduction of third party costs and elimination of non essential internal costs throughout the organization.
In response to the Cobot 19 pandemic late April we shifted our business operations to further reduce our operating expenses and to better align our strategy with current market conditions.
These actions, including instituting additional cost optimization measures. In addition to the ones we made last year.
GAAP loss from operations totaled 6.3 million an improvement from a loss of 8.7 million in the same year ago period.
As a percentage of total revenue GAAP loss from operations for the first quarter fiscal 2020 was negative 91%, which compares to negative 102% in a year ago period.
Non-GAAP loss from operations totaled 5.2 million or.
For a loss of 14 cents per basic share.
The improvement from a loss of 7.5 million or a loss of 20 cents per basic share in the senior go period.
As a percentage of total revenue non-GAAP loss from operations was negative 75% compared to negative 88% in Q1 of last year.
GAAP net loss totaled 6.5 million or a loss of 17 cents per basic share.
I think an improvement from a loss of 10.8 million or a loss of 30 cents per basic share senior go period.
Non-GAAP net loss totaled 5.4 million or a loss of 14 cents per basic share. This was an improvement from a loss of 9.7 million or a loss of 26 cents per basic share in Q1 of last year.
As a percentage of total revenue non-GAAP net loss was negative 78% compared to negative 114% book he want to last year.
Turning to the balance sheet, we ended the quarter with 9.8 million in cash and cash equivalents in marketable securities and had no debt.
In addition in early May be qualified and receives a little more than 2.4 million and the payroll protection program.
Currently believe that our liquidity position.
Coupled with the recent cost reduction measured I measures I, just mentioned enable us to execute our growth strategy.
Deferred revenue a quarter end was 6.2 million, which was flat from prior quarter and compares to 9.9 million at the end of Q1 last year.
The year over year decrease was primarily due to the decrease in legacy revenue.
Dsos, excluding Unbilled receivables was 155 days at the end of the first quarter compared to 66 days at the end of the prior quarter in a 165 days at the end of Q1 last year.
The increase in Dsos was the result of the lower than expected revenue in the first quarter.
We expect to be able to reduce the D.S. so number in future quarters.
Unbilled receivables were 22.7 million, which compares to 23.3 million in the prior quarter.
6 million in Q1 of last year.
Unbilled receivables remain relatively stable from last quarter due to lower than expected revenue in the first quarter any increase from Q1 of last year is really result, the transition to the new framework business model in fiscal 2020.
Finally, as we indicated on our fiscal yearend earnings call in April we anticipated being able to provide more clarity regarding our financial guidance for fiscal 2021 by this time.
Unfortunately, the effects of covert 19 had been longer lasting than we initially expected with many of the countries in which our prospective customers our base continuing to be in various stages of government mandated locked down.
However, based on our current pipeline of opportunities customer discussions and engagement, we expect to generate growth and profitability and the second half of the fiscal here.
We intend to provide formal guidance when we have better visibility with respect to returning to more normal operating environment.
This completes my financial summary for more detailed analysis of our financial results. Please refer to today's earnings release as well as our form 10-Q, which we plan to file tomorrow.
You will see.
Thanks, Mike.
I think Michelle we took over the last several months it allows us to mitigate the present locked.
Can be better position to capitalize when do you expect the demand for flame walk the secunda well field of 2021.
We believe that you have expected fructose did significantly affected our financial result in Q1.
We continue.
Yeah.
Although we don't forecast when our industry will attempt to normal so to speak you're seeing many positive green charge. It gives us increased confidence you know business.
Well I totally intention to provide formal financial guidance when visibility tends to more normal operating environment. We think it's important to describe what we don't seem to.
Today, I will I found opportunities.
Customer engagement is increasing.
Interest for the flavor pistone.
We told you expect to generate telling growth and profitability in the secondary defeat the Camille.
Why do we have positive expectations, what do business in the second enough deal Wheeling Fox navigating the current situation cautious.
Leadership in default, how confident you know plan to teach engine to best possible position to capitalize on the abundant opportunities in front of.
And to deliver profitable open up a little.
That concludes our prepared remarks.
Okay. So we are ready to open the call for questions.
Operator.
Thank you when I became ducking your question answer session.
We placed the question too. Please press star one under telephone keypad, a confirmation told would indicate your line is in the question Q.
Let me press star to if he'd like TRID movie question, probably Q for participants using speaker equipment. It may be the free to pick up or has that before pressing star one one moment. Please what we pull for questions.
Our first question trace went from Jason Schmidt from Lake Street, right, there's a lot.
Hi, guys. Thanks for taking my questions I, just want to clarify your comments on gross in the second half of its fiscal year I assume that.
Crosses over the first half of fiscal year, 21 and year over year.
Correct.
Okay. Okay.
Have you seen any change in the size of the framework deals.
Engaging with customers on just given the current backdrop I think previously you had mentioned framework deal.
Two to 3 million dollar range.
Yeah, Jason it's Mike So at the end of the year to the 26 significant deals 2.1 million was the average size and you know the two in Q1 was slightly below that but just just 'cause it yes.
So those two deals it's just what they happened to be but when you look for that pipeline from an average deal perspective, we're continuing to see.
Around two to 3 million and I think as we think indicated before even strategically some larger deals.
Okay.
And then any additional color obviously, the macro backdrop is challenging and it sounds like your customer is.
Turning their focus to other aspects of their business.
That's a situation where you have deals that are at the goal line in our just being paused or did you think the whole sales cycle has been pushed further to the right.
Jason do you see.
Problem.
So good estimate 10 shape networking infrastructure.
[noise] Hometeam impaired.
And DC during the call, we'd consignment globally when customers looking for more may be too.
Hey, Smoky challenges.
Yes. It did did she was going to change.
Yeah, Jason.
Yes.
Yes.
The challenge is always customer facing today.
We'll be beneficial for us in the second part of your you don't get cut you off.
Most of these cost will.
We left to compensate.
Hold you all fixing piece.
The game to Jedi Q is part of the you can see engagement can usually okay.
And you can became more.
Can balance issue we had.
Some of these countries.
So I believe.
It can be engagement cycling.
I wouldn't be similar to last feel maybe a bit shelter.
In addition, starkey deemed a few weeks upscale accustomed to make the office.
Okay, and then just the last one for me and I'll jump back into queue, Mike How should we think about the current opex or other right now with these additional cost cuts.
Oh.
Yeah, I think probably.
Eight and a half.
It's probably good going forward I mean could be even a less the tough the top part is there's a variable piece in there right. So opex was seven seven for.
Q1, non-GAAP operating Opex, but obviously given the kinda. The you know the topline in the bottom line variable comp was very low. So you can see anywhere from a number a similar to what we have now to maybe a little bit about eight going forward in the next couple of quarters.
Okay. Thanks, guys.
Yes.
Thank you as a reminder that is far wasn't replacing the question. You are next question is coming from Steven Frankel from caller. Your line is not a lot.
Good afternoon, a couple of questions on the service line.
Do you expect legacy maintenance to kinda bleed off towards zero over the next couple of quarters or is there some bottom that.
We can reach.
Yes, the legacy of T. C was about three at a half it will continue to decrease but I still think we'll probably end the year, where we've got you know between.
Yeah, maybe one to 2 million in part part of the reason why just kind of the uncertainty if some of these customers you know we're working on converting to framework right. So if a if those deals don't happen then the legacy revenue will maybe stick around for a couple of quarters and maybe even into next year.
We convert them that would change, but I think at the beginning of the year on our Q4 call. We gave guidance at the legacy revenue would be you know between.
Maybe five to 10 for the year and its three and a half in Q1. So you will see a decrease over the next couple of quarters.
Okay, and then on the framework piece. It was my understanding that you know every time you did a deal.
You recognize the piece up front and then you recognize the piece that kind of got amortized into this support services line. So I would expect that line to be growing sequentially and it was down sequentially in Q4, what would what would account for that.
I encourage you want to ask between Q1 Q4 level.
Yeah. It was 948 in Q1 I didn't think it was down there can occasionally be some kind of catch up if there's an uncertainty in the kind of the first quarter with just kind of various parts and pieces and the dust might settle.
But I'll take a look and can follow up with you I didn't think it was.
Down significantly from Q4.
Oh, Yeah. It was down 50, K. yourself, but the get down given you did a bunch of deals in Q4 in two deals in Q1, I would've thought it would have been up slightly rather than down slightly.
Yeah. It can be timing I can follow up with you. The two deals in this quarter came at the very end. So that wouldn't have added anything and then it's probably just some adjustments problem deals in Q3 in Q4, because there's a number of different kind of parts and pieces. You know hardware that could continue to kind of shift some of those numbers around just like a quarter or to act.
They close until they settled out.
Okay and then.
Would you expect cash burn and.
Q2 to be relatively close to what was in Q1 or was there something special in Q1, but that maybe as a repeatable.
Yeah, I think the continued cost reductions should make the burn.
Less than Q1, and then you know we ended the quarter with 9.8 million in cash right. So we continue to reduce our operating expenses in cost of goods sold as well.
Started in late March continued to May we made reductions that we think will generate an annualized basis, an additional 5 million in savings.
In May we received over 2.4 million for the payroll production protection program in early May.
And obviously the the expectation that a good portion that would be forgiven, so I think they'll be.
Burning Q2, but I think will be slightly less in Q1, and then hopefully get to quite where in the second half the year you won't see significant cash burn.
Okay and.
All right I think that's all my question. Thank you.
Thanks, Steve.
Thank you at this time. This concludes our question answer session.
It was not taken please contact teaches IR team at us he see at Gateway IR Dot com.
No, but from a call back over to Mr. of only for his closing remarks.
Thank you for can you know what quote we appreciate your support Oh mission and confident you know the ability to achieve.
Okay, and you look focus speaking with you again to educate you'd be thanks, everyone.
Thank you for joining us today for Seachanges fiscal first quarter 2021 conference call you may now disconnect.