Q2 2021 SeaChange International Inc Earnings Call

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David at Iraq article.

Thank you.

[noise] good afternoon, and welcome to see changes fiscal second quarter 2021 conference call for the period ended June.

31, 2020, my name is Diego and I'll be your operator this afternoon.

Joining me for today's call is the company's Chief Executive Officer, you will see Aloni, Chief commercial officer, Chad Hasler.

And Chief Financial Officer, Michael print.

After the market close Seachange issued its financial results for the fiscal second quarter of 2021 in a press release.

A copy of which is available in the Investor section of the company's website at investors Dot Seachange Dot com.

To accompany todays call. The company has made available his prepared remarks, along with a supplemental slide deck, but.

Both of which are posted in the Investor section of see changes web site.

Management encourages you to download the slide deck, if you haven't done so already.

Before we begin todays call I'd like everyone. 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 we have 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 companies.

I see see 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 presentation contains certain non-GAAP financial measures as that term as defined by the FCC 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 gap.

Accordingly, Seachange has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and the Companys earnings release issued today.

I would like to remind everyone that this call is being recorded and will be available for replay via a link available in the Investor Relations section of see changes website.

Now I will like to turn the call over to see changes CEO Mr., you'll see alone.

Sir Please proceed.

Thanks, operator, well just alone in Texas will turn it over second quarter physical clinically anyone conference call.

As many of you know global corporates button Denny continue to present challenges business worldwide.

And while the cost to systematically transformed the TV industry in terms of content consumption. It's also forced most people buy those couple sports extension for a few months in favorable supporting their existing operations and infrastructure.

This will certainly the case physician customers and what's baked into few stuff of deal.

This dynamic is impacted our business engineered though it's also generating new opportunities and growing interest in our framework solution. We do unique value based engagement Stevie providers look to reduce the operating expenses.

Over the last decade television advertising industry faced a steady decline in revenues to online digital advertising.

This decline is being accelerated by coffee.

While many associated increasing viewership, we'd emphasizing revenue goal. The reality is it did with I think revenue is dependent on supply and demand.

With more people at all and industry is like toggling retail scaling down there is no sizing investment.

Do you people viability of finding it even more challenging to monetize their entire advertising inventory.

The current linear TV AD placement will flow involve TV, providing selling its fault, we tell people days fire. The both cost in order to enable slavish location and delivery of the commissions.

Inefficient person to person process concludes many hours in Dave.

The most cost resulting in approximately 30% of unsold advertising inventory.

Going amount of unsold emphasizing sports reduces the value of the TV providers advertising inventory.

Disease will teach ins frenzy.

This will change the millions of dollars my predecessors invested in advertising technology.

Earlier this year, we introduced the industry fares into it and linear advertising management placement and insertion solution for book linear and only MSB.

Including support for real time, automated auctions and integration we demand side platform.

Our unique solution allows TV providers, who offer a web online like won't flow fully said for cycle.

The entire economic and programmatic concession, which enable the TV providers to both better monetize the ready inventory and win web centric advertiser.

We believe our will technology would change the TV advertising industry by enhancing providers ability to monetize billions of dollars of unsold in underutilized TV advertising inventory.

The introduction of our TV AD Tech solution, which is based on the revenue show model not have been timelier.

Steve you provide bills are actively looking for solutions to monetize available advertising inventory during this difficult time.

We believe our early success in customer feedback.

The industry unmet need for such a unique solution and we look to build on destruction in the quarter light.

Before I continue I'm going to pass the call Auvil goal was chief commercial officer charge offs Lil to provide a brief overview on our go to market than sales, Dan Our Chief Financial Officer, Mike Aim will walk you through our financial results for the second quarter in just six months of to physically.

Often won't I would show will outlook and then open the call for questions.

Thank you will see and good afternoon, everyone.

As you'll see touched on the health crisis continues to present significant headwinds to our sales and business development activities in the second quarter.

Despite these obstacles, we were able to secure a solid when and where the U.S. space cable television provider for our framework video delivery platform, bringing our aggregate total contract value to approximately 62 million at quarter end.

We're actively working with this customer to deploy the solution while simultaneously demonstrating the benefits of monetizing on so advertising.

With the goal of expanding our scope of work in the coming quarters.

Well online video collaboration tools, such as zoom have allowed us to temporarily supplement in person meetings on premise proof of concepts remain a critical step in our go to market strategy.

These hands on experience is allowed to demonstrate the value and capabilities of our platform to existing customers and prospects in a way that is not currently available to us online.

These demonstrations proved to be incredibly effective pre kobe as evidenced by the 26 framework wins, we secured in fiscal 2014.

However, what travel restrictions and work from home mandates globally have greatly limited our access to customer sites. Our recently expanded partnership with Amazon Web services. In Q2 has opened up several new cloud opportunities, allowing us to circumvent the need for onsite access to certain prospects.

In fact, this partnership led to a framework win in Q3 with a leading international streaming provider.

Partnerships like Amazon Web services are incredibly impactful because they allow us to cost effectively leverage other best of breed technologies to augment our already robust framework offering.

Looking ahead, we continue to believe our industry, leading solutions disruptive value based go to market strategy and revenue shared business model will enable us to capitalize on the disruption in process and the accelerating demand for streaming services.

Framework was one of the most effective tools for TV operators and content owners to improve their customer experience.

While reducing their operating costs and enabling them to generate incremental revenue through advertising.

As business activities continue to pick up we believe our differentiated position in the market will translate to a much improved second half of fiscal 2021.

And give us good momentum entering fiscal 2022.

With that I'll turn the call over to Mike Walk us through our financial performance for fiscal Q2 2021.

Thanks, Chad and good afternoon, everyone.

Looking at our financial results for the fiscal second quarter and six months ended July 31st 2020, we entered the second quarter was 21.5 million in framework backlog, excluding legacy maintenance and support we booked is just under 1 million of new framework business in Q2 and ended the quarter with backlog of 20.6 million.

Total revenue for fiscal Q2, 2021 was 5 million.

Page 18.8 million in Q2 last year year over year revenue decrease was primarily due to lower product and services revenue in the period as we continue to see the impact of the global pandemic as Changyou as he mentioned, we signed one new framework deals in Q2, this year, which compares to six new framework deals signed in Q2 of last year.

Eight deals we average per quarter in Q2, Q3 Q4 of last fiscal year.

Total revenue for the six months ended July 31st 2020 decreased 56% to 11.9 million compared to 27.3 million in the same year ago period again year over year revenue decrease was primarily due to lower product and services revenue in the period as both our first and second quarter of this year were significantly challenge with the global pandemic.

Product revenue for fiscal Q2, 2021 was 1.1 million or 21% of total revenue compared to 12 million or 64% of revenue in the same year ago period product revenue for the six month period was 4.2 million or 35% of total revenue.

Compared to 13.1 million of 48% of revenue in the same period last year service revenue for fiscal Q2, 2021 was 3.9 million or 79% of total revenue compared to 6.8 million or 36% of total revenue in the same year ago period.

The decrease in service revenue was due to lower revenue from both professional services and support revenue from customers related to legacy products. As was mentioned on prior calls. These declines are consistent with our expectations as we transition legacy customers. So new framework arrangements and transitioned our professional services organization to our customer engineering organization.

And as we completed legacy professional services projects service revenue for the first six months of fiscal 2021 was 7.7 million or 65% of total revenue.

Compared to 14.2 million or 52% of total revenue in a same period last year.

The decrease in service revenue for the six month period was due to lower revenue from both professional services and support revenue from customers related to legacy products.

Revenue from our international markets in fiscal Q2 2021.

It was 3.3 million or 67% of total revenue, which compares to 9.1 million.

Or 49% of total revenue in the same year ago period revenue from our international markets for the first six months of fiscal 2021 was 7.9 million or 66% of total revenue, which compares to 14.2 million or 52% of total revenue in the same year ago period.

Revenue in our U.S. market for fiscal Q2, 2021 was 1.7 million or 33% of total revenue, which was down from 9.7 million or 51% of total revenue in the same year ago period. The decrease in revenue from both the U.S. and international markets was due to reduction in bookings primarily attributable to the co benign.

King pandemic revenue in our U.S. market for the first six month period of fiscal 2021 was 4 million.

For 34% of total revenue, which was down from 13.1 million or 48% of total revenue in the same year ago period in terms of customer concentration for the second quarter fiscal 2021, we had to customers that accounted for 22% an 11% of our total revenue compared to two customers in Q2 of last year that accounted for 20% and 10.

Percent of our total revenue looking at our margins.

Gross profit for fiscal Q2, 2021 decreased to 1.8 million or 36% of total revenue.

From 10.9 million or 50% of total revenue in the same year ago period, the 36% gross margin in the fiscal second quarter of 2021 was the result of only closing one framework deal during the period as I talked about previously our business model and cost structure have the ability to drive gross margins in the low 70% and above.

As you saw in Q3 in Q4 of last year. However, in order to achieve that margin level, we need to generate more product revenue from framework deals.

Gross profit for the first six months of fiscal 2021 decreased to 4.3 million or 36% of total revenue.

From 13.8 million or 51% of total revenue in the same year ago period, the 51% gross margin last year was the result of a much higher product revenue.

As margin was 33% compared to 32% in the same year ago period.

Looking at our expenses non-GAAP operating expenses for the fiscal second quarter.

2021 decreased 30% to 6.9 million from 9.9 million in Q2 of last year. The decrease reflects the continued cost savings initiatives related to the reduction of third party costs.

Elimination of non essential internal costs throughout our organization as we've communicated previously in response to the Coca 19 pandemic in 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 included establishing additional cost optimization measures.

In addition to the ones we made last year non-GAAP operating expenses for the first six months of fiscal 2021 decreased 28% to 14.6 million from 20.3 million in the same year, though period. The decrease reflects the cost reduction measures I just described GAAP loss from operations for fiscal Q2 2021 totaled.

6.2 million from a loss of 659000 in the same year ago period as a percentage of total revenue GAAP loss from operations for the second quarter fiscal 2021.

Was negative, 124%, which compares to negative 3.5% in the same year ago period GAAP loss from operations for the first six months of fiscal 2021 totaled 12.5 million from 9.3 million in the same year ago period as a percentage of total revenue GAAP loss from operations for the six months ended July 30, Onest 2020.

Was negative, 105%, which compares to negative 34% in a year ago period non-GAAP loss from operations for fiscal Q2, 2021 totaled 5.1 million or a loss of 14 cents per basic share compared to a gain of 991000 or a gain of three cents per basic share in the same year ago period as a.

A percentage of total revenue non-GAAP loss from operations was negative 102% compared to 5% in Q2 of last year non-GAAP loss from operations for the first six months of fiscal 2021 totaled 10.3 million or a loss of 27 cents per basic share compared to a loss of 6.5 million or loss of 80.

Eight cents per basic share in the same year ago period.

As a percentage of total revenue non-GAAP loss from operations was negative 86% compared to negative 24% in the year ago period GAAP net loss for fiscal Q2, 2021 totaled 5.8 million or loss of 15 cents per basic share compared to a loss of 174000 or a loss of zero cents per basic share.

In the same year ago period, GAAP net loss for the first six months of fiscal 2021 totaled 12.3 million.

Or loss of 33 cents per basic share compared to a loss of 11 million or loss of 30 cents per basic share in the same year ago period non-GAAP net loss for fiscal Q2, 2021 totaled 4.7 million or a loss of 12 cents per basic share compared to a gain of 1.5 million or gain of four cents per fully diluted share.

Here in Q2 of last year as a percentage of total revenue non-GAAP net loss was negative 93% compared to 8% in Q2 of last year non-GAAP net loss for the first six months of fiscal 2021 totaled 10 million or a loss of 27 cents per basic share compared to a loss of 8.2 million or a loss of 22 cents per basic share in the.

Same period last year as a percentage of total revenue non-GAAP net loss was negative 84% compared to negative 30% in the same period last year.

Turning to the balance sheet, we ended the quarter with 9.8 million in cash and cash equivalents in marketable securities which is the same amount we had at the end of the first quarter.

As part of the cares Act and specifically the payroll protection program. We were eligible and received alone of approximately 2.4 million, we do expect to qualify and receive forgiveness for most of the loan at the end of the measurement period, but until that point that loan as reflected on our balance sheet. Both the current and long term portion deferred revenue at quarter end was five point.

1 million compared to 6.2 million.

Prior quarter and compared to 9.2 million at the end the key to last year. The year over year decrease was primarily due to the decrease in legacy revenue as that part of the business accounted for most of the deferred revenue.

Dsos, excluding Unbilled receivables was 162 days at the end of the second quarter compared to 155 days at the end of the prior quarter and 55 days at the end. The Q2 last year. The increase in Dsos was result of the lower than expected revenue in the first quarter and we expect to be able to reduce the DSMB number in future quarters on builders.

Syllables were 21 million, which compares to 22.7 million in the prior quarter and 12.1 million in Q2 of last year Unbilled receivables remained relatively stable from last quarter due to the lower than expected revenue in the second quarter, an increase from Q2 of last year is a result of the transition to the new framework business model.

In fiscal 2020 in terms of guidance the effects of Coca 19, admin longer lasting than we initially expected, but we are seeing an increase in sales related activities over the last month based on our current pipeline of opportunities customer discussions and engagement, we expect to generate growth from the first half of the year compared to the second half of the year.

In summary, the decisive measures we have implemented since March and continue to execute on and optimize our cost structure enhanced our liquidity position and resources and positioned us to ensure seachange emerges from the pandemic in a strong financial and operational position. 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 tomorrow afternoon.

You will see thanks, Mike.

As we enter the sick enough. If you could go Leo we're encouraged by the increase we are seeing in customer engagement, Steve you provide details on making better from a new operating expenses and expand streaming services.

Revenue Pickrell extended pipeline of opportunities customer acceptance of our advertising solution and industry, leading platform give us confidence in an improved that cannot strategic value.

We believe the initiative we are executing on today will fully resolved in the stronger retail rental but position us well we've been their critical success in the USA.

Well when leadership team and bolt on can you clarify.

Confidence you know strategy, we treated group did change in the best possible position.

Acute lending opportunities in front of south and deliver profitable over the long run.

This conclude our prepared remarks, we're ready to open the call for questions operator.

Thank you.

Ladies and gentlemen at this time, we will conduct our question and answer session.

If you would like to ask a question press star one on your telephone keypad, a confirmation code would indicate that your line is it a question Q.

You May press star to if you would like to remove your question from the Q for participants do think speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we pull for questions.

Our first question comes from Steven Frankel with Colliers. Please state your question.

Good afternoon, Yossi I Wonder if you might clear up a couple things from the first of all so I heard you talk about one framework win.

And then you said there was another when that was related to the Amazon partnership, but that doesn't seem to be.

Reflected in the booking them this size, though.

What we typically think about a framework when does it also gives them.

Look like it's in the bookings for this quarter either so you.

Where all that for me.

Yes, it's Steve so.

The.

Turning to we they can be lids was long after the quarter and seems to formulate and we agreed.

Because bogus didn't mean to few stuff you Didnt mean diffuse buttons do you.

I'll just get that we feel the TV, providing zone starting to go back to deal fees, even do some with limited at this stage, we are gaining more traction.

And again D.A. W is unchanged we.

It was long after the quarter end and beautiful you'd indicating to bookings.

Okay and what about.

Bookings being less than $10 million in the quarter, even though you had the framework, where it's just a smaller account.

Yes, the that was so.

Last year with 26 framework wins I think the average was 2.1 million and obviously Q1 in Q2 and a little more challenging and so the one framework wind was you know kind of less than $10 million in terms of size.

Okay, and yes, he's been very optimistic about that.

Ah advertising opportunity when do you think you might see the first revenue from that.

So it's going to take a few months I'm really more specific deploying those solution already again you'd be mill feed Dave.

As Weve went on balance sheet to discourage older bookings.

Its going to take a few months as they said once this will differently.

We do meaningful positives.

Meaningful places excuse me.

And I think this is going to be.

Sooner than later against few months not a few weeks.

And just to.

Clarify.

You have agreements signed today that would give you a rev share around this product once this product gets installed or.

Got to get it installed up and running prove it and then.

Like these retro agreements.

So.

We will show much more all know we're acutely activities in Q3 sales reported.

And you should expect it just really show more information on our management packaging solution to stage.

Oh, Okay, and then you talked about some reductions and extensive so how much further and total opex all in the back half relative to where you were in Q2.

Yes, so Steve we had 'em 6.9 million non-GAAP Opex, which was you know about 30% decrease from last year and 10% sequential we'll see a little bit more in opex. There are some variable component. So we'll be no. We're going have reductions I think without a better kinda sales and.

[music] Korea grain Q4 that will be offset a little bit it's in variable compensation and then the other piece is some of the cost reductions that we've been doing.

Are actually up and the cost of goods sold line. So we at the end of finished at the end of July kind of a there was a 22 person technical support team.

In.

It won't them and that's been transition to Warsaw. So you will see you know some significant expense reductions, but that piece will be in cost of goods sold and so that will kind of.

In terms of percentage points I'm not sure if I could quantify because you know kind of how our margin works with the number of perpetual deals. We went in the quarter, but you'll definitely see a decrease in the six caught in cost of goods sold and then a little bit of continued reduction in the non-GAAP opex.

<unk>, Okay, you want to make sure because it.

I apologize if I'm confused again, but it sounded like some other components because of variable payout.

Some of the components of Opex are going to be up sequentially.

All right up in the back half, but you're saying that total dollar value of buybacks in the back half should be.

Higher or lower than that goes through six nine you had in the quarter.

Yes, it should be probably around flat to a little lower.

Oh six Matt.

Yes, when the six nine so second half will be lower than the first half and I think you'll see a little bit of a decrease in kinda Q3 in Q4.

Okay. Thank you.

Actually comes from Jason Smith with Lake Street. Please state your question.

Hey, Thanks for taking my questions I, just want to follow up on some of your comments in the script seeing sort of an increase over the last month wondering if you could turn expand on that I mean does that seem to be broad base is this just more engagement.

Okay third customers coming out of the whole or the actual for P.O. Smith.

Hey, Disney Princess I'm, sorry, I guess is going.

Oh, Please go check.

[noise] nicely is that we've seen and increasing customer activity of course, the last several months things have been picking up.

It's better than it was the first half of the year it as far as Peos, we can obviously discuss a little bit more from from that perspective, and the Q3 earnings but Oh, we had shared with you a a recent when are we had in Q3.

But at the bottom line I think that what the customers are doing is beginning to reengage.

Some of the activities that were were prior being focused on the network activities are now being shifted a little bit into the video space. So we are starting to see an increase in activity from a number of customers.

Okay. That's helpful.

And then how should we think about the conversion timetable from backlog <unk>, new recognition, so sort of that revenue backlog of let's call. It 21 million, how should we think of that flowing.

To the piano.

Yeah. So the 21 million backlog there is a very small piece that might have been kind of what I'll call product related. So I think we've we've mentioned to you know out of the 26 deals. We won last year. A couple of them you know we want to get the deal done there might have been just some hurdles for revenue recognition like an acceptance piece or milestone piece.

So you get a little bit of product revenue, but most of it is the five year, you know support agreements and so that will be amortized ratably I guess, the average deal size or deal link last year was 4.3 years. So you basically going to take.

Probably 80% of that backlog and that were recognized ratably over the term of good support agreement.

Okay, and then just last one for me it sounds like that framework deal. This past quarter was smaller than last years average.

You see in any sort of significant reduction in the size of deals from customers just given the macro backdrop.

The answer is no, it's probably going to be Ciminero de sheeting.

Deferrals.

Do you want me to <unk> in Q2 was indeed, a 450 won't getting through evening sockets in Q4 will love field.

It was delayed due to sound between delayed full value Susan.

Box the projects that we are actively working on it today.

In cumulative value to watch we did last year.

Okay. That's helpful.

Thanks, a lot guys.

Thanks, Jason.

Thanks, Jason.

Thank you.

At this time. This concludes our question and answer session. If your question was not taken please contact see changes IR team at S.C.A.C. at Gateway IR Dotcom.

I'd like I'd now like to turn the call back over to Mr. Loney for his closing remarks.

Thank you Dave.

Thank you all for joining our call. We appreciate your support to follow me Shannon confidence in our ability to achieve it stay safe and we look forward to speaking with you again soon annotate evening.

Thank you. Thank you for joining us today for to see changes fiscal second quarter 2021 Conference call. You may disconnect. Your lines at this time have a good day.