Q3 2021 SeaChange International Inc Earnings Call

[music].

Good afternoon, and welcome to see changes fit.

Fiscal <unk> third quarter 2021 conference call for the period ended October 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, Yossi Aloni, Chief Financial Officer, Michael print.

<unk> Technology Officer, Merit, Kilkowski, and Chief commercial Officer, Chad Hasler.

After the market close Seachange issued its financial results for the fiscal third quarter of 2021 in a press release, a copy of which is available in the investors section of the company's website at investors Dot Seachange Dot com.

Accompany today's call. The company has made available it's prepared remarks, along with a supplemental slide deck, both of which are posted on the investors section of Seachange is web site.

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

Before we begin today's call I'd like everyone to please take note of the Safe Harbor paragraph that is included at the end of todays 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 company's FCC filings Inc.

Moving its annual report on form 10-K, and quarterly reports on form 10-Q any.

Any forward looking statements should be considered in light of these factors.

Additionally, this presentation contains certain non-GAAP financial measures as that term is 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 GAAP.

Accordingly.

Change has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release issued today.

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

Now I would like to turn the call over to see changes CEO Mr., you'll see aloni. Sir. Please proceed.

Thanks, operator, good afternoon, and thank you for joining our third quarter on physical Twentytwenty One conference call.

It's great to have diesel for community to speak with you today and they almost every one of the main safend and see you in D. six fold in every time.

The dramatic shift in salaries for vital spending on seems to be on systems from Devon has impacted the near term demand for all of for it won't video delivery platform.

For those to follow the industry closely know probably 19 for many service for vidalia to invest heavily in technology infrastructure and reduce or eliminate investment can video platforms, such as our final, Indiana and quantum toenails on our accelerating to Clinton distribution strategies.

Any investment can deliver high quality content directly to consumers.

In late October we strategically pivoted to address the immediate needs of constant dollar sales well looking for developing an effective over the scope direct to consumer strategy to stay competitive monetize content and build deeper on live it'll engagement between audience in Britain.

Seachange new video on salaries day directly addresses the markets accelerated shift in spending in changing consumer behavior by enabling Clinton toenails launch TV and video applications directly from Smoky visas connected platforms, such as legal and not be TV.

I am encouraged by day I want to teams ability to quickly and successfully on.

Studies changing landscape.

Before I dive deeper into our strategic pivot I would like to filmed a corner moving on to our CFO, Mike to walk you through I will not going to see acutely, which should provide additional on fixed it seemed to us your non behind to piece. It afterwards I'll come back on to show more about the video upset movies and the massive opportunity in focus on.

Yes.

Dan I will see T O moving we discussed how we were able to quickly launch the new platform from a technology perspective.

I will see you John we didn't share with you the traction we've been achieving in the market after work.

I'll share with how cool and then open the call for questions Mike.

Thank you good afternoon, everyone.

Looking at our financial results.

At quarter ended October 31st 2020.

Total revenue for fiscal Q3, 2000 21.5 million.

Well from the prior quarter and down from the 20.5 million for Q3 of last year.

As you'll see alluded to year over year revenue decrease was primarily due to lower product.

Service revenue in the period as we continued to see the impact on the global content.

Hi for revenue for fiscal Q3, 2021 was 1 million or.

For 21% of total revenue for this compares to 1.1 million for 21% of total revenue in the prior quarter.

13.5 million for 66% of revenue on a same year ago Kerry.

[laughter].

Service revenue for fiscal Q3, 2021, 3.9 million for 79% of total revenue, which was flat on a sequential basis and down from 7 million for 34% of total revenue from the same year ago period.

The decrease in service revenues due to lower revenue from both professional services and support revenue from customers related to legacy products.

As we've mentioned on prior calls these declines are consistent with our expectations as we transition legacy customers to new framework arrangements.

On transition our professional services organization to a customer engineering organization.

As we can credit legacy professional services projects.

Revenue from our international markets in fiscal Q3, 2021, 3.6 million for 72% of total revenue, which compares to $3.3 million or 67% of total revenue on a prior quarter income.

1.1 million or 49% of total revenue from the same year ago period.

Revenue in our U.S. market [laughter] fiscal Q3, 2021 was 1.4 million or 20% of total revenue, which compares to 1.7 million on 33% of total revenue in the prior quarter on was down from 10 point for me I won't 1% of total revenue on the same year ago.

Sorry.

The decrease in revenue from for US in International markets was due to reduction on bookings primarily attributable income.

Looking at our margins gross profit for fiscal Q3, 2021 was 2.8 million for 56% of total revenue.

Moving to 1.8 million on 36% on total revenue from the prior quarter.

15.7 million or 76% of total revenue in the same year ago period.

Product gross margin for the fiscal third quarter of 2021%.

Percentage compared to 26% from the prior quarter and 97% from Q3 of last year.

Service gross margin was 55% compared to 39% from the prior quarter and 38% in Q3 of last year.

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

Quarter of 2021 decreased 5% to 6.6 million from 6.9 million in the prior quarter and decreased 38%.

Point 5 million in Q3 of last year.

The decrease reflects continued cost savings initiatives related to the reduction of third party costs and elimination of non essential internal costs throughout the organization.

As we've communicated previously in response to the COVID-19 pandemic.

Lady Paul we shifted our business operations for the reduce our operating expenses to better align our strategy.

Market conditions.

These actions included establishing additional cost optimization measures on additions for ones in this last year.

GAAP loss from operations for fiscal Q3, 2021 totaled 4.6 million compared to 6.2 million in the prior quarter on GAAP income from operations of 2.3 million on the same year ago period.

As a percentage of total revenue GAAP loss from operations for the third quarter fiscal 2021 was negative 92%.

Which compares to a negative 124% in the prior quarter Inc.

GAAP net income from operations of 11% in the year ago period.

Non-GAAP loss from operations for fiscal Q3, 2021 totaled 3.8 million or a loss of 10 cents per basic share compared to $5.1 million for losses of 14 cents for basic share in the prior quarter and a gain of 5.2 million or gain on 14 cents per fully diluted share.

Chair and CEO GAAP Jerry.

As a percentage of total revenue.

Non-GAAP net loss from operations was negative 76% compared to negative 102% in the prior quarter.

5% in Q3 of last year.

GAAP net loss for fiscal Q3.

During 2021 totaled 5.1 million on our losses 14 cents per basic share compared to a net loss on five calling on them all losses on constant basic share in the prior quarter.

Net income of 2.1 on organic six cents per fully diluted share in the same year ago period.

Non-GAAP net loss for fiscal Q3, 2021 totaled 4.3 million our losses 12 cents per basic share.

Moving to a net losses on seven on a loss of 12 cents per basic share in the prior quarter on a.

Net income of 5.1 million.

Or gain of four cents per fully diluted share in Q3 of last year.

As a percentage of total revenue non-GAAP net loss was negative 7% compared to 25%.

Last year.

Turning to our balance sheet, we ended the quarter with.

2 million cash cash equivalents and marketable Securities Inc.

And we knew that we called five moving on cash given the liquidity and runway.

Our growth strategy.

In summary, the decisive measures we implemented this march.

On an optimized cost structure enhanced our liquidity position and resources on conditions positions us to ensure seachange.

Just from the combination of strong financial and operational issue.

This completes my financial summary for a more detailed analysis of our financial results, who is the current accounts earnings guidance as well.

We filed this afternoon Yossi.

Thanks, Mike.

Is that our financial results for States COVID-19 is greatly accelerated service for by those investments in the infrastructure layer in away from video platforms, where we have seen spending dramatically decline.

Clinton gold sales are looking for ways to win dictates cocktails and better monetize their each content libraries diffuse way of Seachange come soon.

The launch for follow on New York cities relative Big time deal video.

Video apps addresses the rapidly increasing demand from content on his can deliver high quality TV and video content directly to consumers flow Smarttv and for makes it platforms, such as little Amazon fire TV moving conquest in operating TV.

He market deal focused it connected TV usage in the U.S. alone, we surpassed more than 200 million viewers DCIO.

Maybe start selling receive the point is the seachange in our video up Sylvia.

I said the center for the exploding demand for high quality direct to consumer content into devices did quantities delever.

From content on a perspective, I will simply say invites a one stop shop to enable them to quickly and easily deploy on monetize their content video ups leverages, our simple biased the ending session module growth domestically source it by yield define its placement in programmatically field advertising slow.

Ill leave time.

We teaching trading session model and reach data analytics content on little skin ever greater insight into the audience and generates higher advertising revenue right away.

Industry analysts are predicting day programmatic AD budget. We soon should we didn't connected TV streaming as well as advancements in technology did he is bringing linear inventory into digital buying won't flow.

Seachange revenue share model enables us to participate into going go to de marketing spend which according to the market. There is expected to exceed 14 billion globally by Twentytwenty, Italy.

Next I would like to invite our secure Malik to share our technology enabled us to successfully pivot in successfully launch and you said movies, we didn't share metal for a few months.

Rick.

Thanks, you'll see on good afternoon, everyone.

For those that have followed our company know Seachange has a rich history of technology innovation.

We invested an award winning products and continue to invest in R&D to deliver amazing solutions using our best in breed technology.

Whether it be our framework platform, our advertising solutions or our cloud backoffice orchestration and analytics tools, our collective suite of products is unrivaled in the industry.

This year in response to the changing industry landscape due to covered we adapted and modified our cloud technology portfolio to directly address the needs of content owners and the desire to deliver content directly to consumers.

Historically for content owners to launch a direct to consumer video service. The process was overly complex costly and involve disparate technologies and vendors.

With Seachange is video App service content owners can now quickly and easily start operating their own streaming service, while maintaining a direct relationship with the consumer.

We enable rapid deployment in the cloud.

Elastic scaling.

Managing promotional campaigns and user experience while.

While fully controlling the GAAP lifecycle.

All of those using over 20 different platforms to reach over 95% of the market.

Not only does this new approach enhance content owner margins. It also creates greater long term business value by enabling for control over the service data and customer relationship.

I'll now turn the call over to Chad to discuss our sales momentum and pipeline.

Yep.

Thanks, Mark and good afternoon, everyone.

For the team has shared its been an exceptionally busy and productive period in our Companys evolution for.

I think it really since our strategic pivot last month.

We secured 10, new customer wins since August spread across our offerings suite, including framer advertising solutions and our new video App services.

During Q3, we secured six new customer wins, including framework video platform wins video.

Video AD services.

And an advertising solutions, formerly on solar wind.

We've built on this momentum and our current quarter, signing for new customer wins, including advertising solutions and wins for framework video platform with video App services.

Collectively since we launched the framework platform in March 2019.

We had secured 39 wins worth an aggregate total contract value of approximately 63 million.

In early Q4, we secured the most meaningful win in company history with one of the largest mobile network operators in the world for Seachange is advertising solutions.

Following a successful six country pilot deployment in Central America, the new customer selected our advertising solutions for.

Previously referred to is on so for deployment across its entire video offering of linear ODC and DSD delivery channels.

As one of the largest telecom companies in the world. This customer represents the most well known and Referenceable endorsements for the quality and capability a seachange is technology.

Their organization for our tools for the test and we're proud to have exceeded their high standards and earn this major multi country when as a result.

The aggregate potential revenue opportunity over the next three years is approximately 100 million based on the customers' annual unsold at inventory and the revenue share seachange would receive to monetize.

I'll now turn the call back over to Yossi for his closing remarks Yossi things.

Thanks, John.

Right. The pandemic has impacted our near term financial results, we are well positioned to anybody in this day on going direct to consumer movement video.

Video ops is for Viking content on is we get platform to capitalize on the exploding demand in high quality streaming content and deploying advertising OTI it spent demand.

On the market opportunity and the need for such a solution is validated by the strong customer demand. We are seeing in Dolby Atmos pipeline, we have been told for Europe's sales.

On the launch of the service you November we have secured for wings for the video apps and we are engaged in discussion with about 50 contingent on deals.

As we took year on year, when we plan to keep the investment community appraised follow focus inflection for a more regular cadence on split for these communication.

Over the next idea, we expect thousands of direct to consumer TV out we'd be launched we didn't need for would be deemed it moving decision strategy.

Similar to our weeks enabled must for production web sites for small to medium businesses.

Seachange video up sales piece, we look to play a major war empowering and capitalizing on the massive direct to consumer TV apps evolution.

This concludes our prepared remarks, we are ready to open the call for questions operator.

Thank you.

And ladies and gentlemen at this time, we'll be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone would indicate that your line is on the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset for pressing the star keys, one moment, please while we poll for questions.

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

Thank you good afternoon.

Let's just start with looking backwards, a little bit what were bookings in in Q3, I Didnt see that number disclose that break that down on for US a framework bookings in bookings of other products.

Yes, the sales isolated growth.

Great Mike you see I can say, we didn't disclose that the bookings.

Probably a pretty comparable number two.

Revenue for the mix of a couple traditional frame.

Framework opportunities and some of the Rev share opportunities, which don't have a immediate booking value.

Then you know still a little bit of legacy small piece for legacy business for acute true.

Okay.

I'm curious why you changed the pattern after consistently.

Disclosing what bookings were why not just disclose the bookings number.

I think it's just a change in kind of on.

How some of the deals are going to have traditionally shape up.

Talked about kind of on the video platform and advertising some of these contracts will be.

You know what percentage of Rev share and so you know in terms of quantifying a contract value.

It's going to be a little different and we'll know that kind of that as we deployed now for time so.

Definitely.

A couple of traditional framework deals you know for a couple of million dollars and then some legacy and the number is probably yes.

Yeah, but 75% on what the revenue number was for Q3.

Okay.

And then to clarify that comment on this new video App product.

Those will mostly be.

Payments just tied to grab share.

So there is no upfront for minimum commitment from a customer.

Basically a success fee.

Does this to kind of flavors wonderful on will be just as you said kind of a revenue share.

Once deployed and.

And it was just the percentage day and others will be.

A platform fee.

You know X per year so.

Similar to kind of what well call the traditional framework.

He is X per year for the next three for five years and then in addition, a percentage of revenue share for the rent for.

For the advertising piece.

And.

Who who are your key competitors.

Now in this video App space.

I can take that keeps junk.

Sure.

Steve We don't think that day, Nick on medical.

No other company offsetting volume to solution, so accounting for viability linking launches finishing on the.

An end to end solution, including advertising DHX TV lightweight platform. In addition on component.

We'll probably have to file is now we TV.

Good day for Windows and build a solution.

Part of the momentum get can you do.

Is that we are able to execute on would be smoking disruption immediately when the demand is there.

And we have the solution.

Well I live midstream and multi vendor solutions.

Okay and when do you think your first customer will be live with this solution.

Wife after the holidays.

Okay. So it was and so you would have.

Rev share.

Revenue and in Q1 and Mexico year.

Discourse.

Hi, James.

Steve we expect it how meaningful and how quickly it ramps up we will get some more color on it wouldn't do that on the Q for call.

Looking for to sharing some kind of metrics around ramp up let's.

But certainly we will take a little while before we see a significant material now.

And just.

He specifically didn't call out the prior expectation of.

Back half revenue.

Being greater than the first half revenue it seems like with this channel would wish this pivot in business model.

We should pay more attention to wins and less attention to revenue because there's not likely to be material revenue attached to the.

The next group of bookings and it will have to wait till deployment.

And the AD share revenue.

See where the run rate of the company goes.

The correct way to think about it.

Correct.

Finally, you can obviously see how challenging the last couple of quarters.

On the cobot impact so.

We didnt Pan out.

We affirm that backup revenue state for the true.

This quarter.

Yes.

On.

Alright, Thank you I'll jump back in the queue.

Thanks, Steve.

Thank you.

Our next question comes from Jason Schmidt with Lake Street. Please state your question.

Hi, guys. Thanks for taking my questions just curious.

Seems so far from a from a timeline perspective with your initial engagement.

With these customers on the video apps on how long it takes for them to kind of look under the Hood and then to eventually sort Oh no fully engage with you guys what sort of that sales cycle.

[noise] Chuck Please go ahead.

Yes, so what we've been seeing is actually been pretty positive from the time that we then been engaging customers to moving.

Moving into the the actual deals in itself so.

Right now, we're probably looking at somewhere in the neighborhood of between you know a two to three months on the top end, but some customers have come in and found.

Very high level of interest in it very quickly and have moved into a into the execution process of Oh for an agreement much faster than what I had anticipated so.

But on average on I'm expecting to see something more along the lines of Oh for two to two for three months execution.

Okay. That's helpful. And then looking at that very large mobile network customer it sounds like a pretty extensive pilot program can you just talk a little bit about why they ultimately chose to go with you.

Yes.

Day, Jason Yes, you can't use for the question Dave on looking for an end to end solution, which will enable them to monetize.

In the industry, we say can you eat on sold advertising inventory in many cases issue, but also on the delight.

At this stage each day.

Likely yes.

The Seachange solution is the only solution between let me begin to provide the coal slots from institution to monetize de under utilized in the unsold inventory.

Moving on when do you only solution that can enable game.

Good day.

Moving on anyone on the email on Oaky and I'd on Museum Fulghum Obligating fashion.

Okay I appreciate that color.

And then just lastly, I mean, it sounds like as you pivot to this video apps.

The <unk> for the expectation that the topline remains challenged how should we think about opex than you highlight some opex.

Opex management earlier. This year you should we expect Opex to remain flat here in the near term or are there additional cuts that could be taken.

[noise] Yeah, Jason So we've made a lot on progress on our Opex you see a pretty consistent decline right going from Q4 to Q1 to Q2 Q3, you'll continue to see improvements in Q4, you know might be relatively flat just because we had a big improvement this quarter.

As you saw US moving the result of us moving our.

On technical support team from Wall Sam to Warsaw.

And so that really kind of pop not only in opex, but that's also in cost of goods sold.

And then you know we're going to continue to look at it every quarter. We continue so I think Q4 will be a little bit better, but probably not as significant as Q3 and then we'll give some more color you know next quarter around what we expect for fiscal 2002.

Okay.

On 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.A.C. at Gateway IR IR Dot Com I'd now like to turn the call back over to Mr. alone you for his closing remarks.

Thank you Diego Inc. Thank you also gaining a little cool. We appreciate your support a follow on mission on confidence you know well ability to achieve you stay safe and we look for speaking would use on aggregate evening.

Thanks for everyone.

Thank you for joining us today for Seachange is fiscal third quarter 3000 on 21 conference call.

You may disconnect your lines. Thank you.