Q2 2022 SeaChange International Inc Earnings Call
[music].
Good afternoon, and welcome to see changes fiscal second quarter 2022 conference call for the period ended July 31.2021.
My name is Alex and I will be your operator. This afternoon, joining us from the company as executive Chairman, Robert Pons, Chief Financial Officer, Michael <unk>, and senior Vice President of global sales and marketing Chris Clemmer.
After the market closed today see change issued its financial results for the fiscal second quarter in a press release, a copy of which is available in the investors section of the company's website at Www Dot C change dotcom.
Before we begin today's call I would like everyone to 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 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 SEC 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 call contains certain non-GAAP financial measures as that term is defined by the SEC 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 C 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 in executive Chairman Robert Pons. Sir. Please proceed.
Thanks, operator, and good afternoon, everyone. Thank you for joining us today.
The stabilization period for our company is older.
We are now in a growth mode as demonstrated by our second quarter results.
The change is well positioned to capitalize on the intersection of the explosive growth in all things Ed Tech and all things screaming.
The change has the technology assets and deep experience to provide cable operators and streaming content owners worldwide with advanced advertising technology, and a turnkey managed services screaming enablement platform.
Our highly targeted advertising capabilities and turnkey streaming platform helps customers worldwide. The worldwide screening market is booming with over 200 streaming services and counting which is expected to grow from 70 billion. This year to 160 Bill.
By 2024, and impressive 18% compounded annual growth rate when you layer on global digital advertising spending the total addressable market today exceeds $500 million.
As the technology that powers streaming targeted AD technologies and video platforms globally see change is at the epicenter of this massive opportunity of the broadcast industry's transition to streaming coupled with advanced advertising technologies after Mike walk.
You through our Q2 financial performance, Chris will discuss in detail our newly established three product lines and how we have positioned the company to capitalize on the exploding growth of streaming and AD Tech I will then come back with some closing comments before the Q&A.
Mike.
Thanks, Bob and good afternoon, everyone.
Turning to our financial results for the second quarter of fiscal 2022 compared to the first quarter of fiscal 2022.
Total revenue for fiscal Q2, 2022 was $11.0 million, an increase of 29% compared to the prior quarter and an increase of 31% compared to the same quarter last year.
The sequential and year over year increase in total revenue was driven by a significant increase in product revenue and a slight increase in service revenue.
We believe the revenue growth we delivered in Q2 marks our company's successful transition from a period of stabilization to growth mode.
Product revenue for fiscal Q2, 2022 increased 67% to $9.0 million or 41% of total revenue.
Compared to 1.6 million or 32% of total revenue in the prior quarter.
Service revenue for fiscal Q2, 2022 increased 12% to $11.0 million or 59% of total revenue.
Compared to $7.0 million or 68% of total revenue in the prior quarter.
Revenue from our international markets in fiscal Q2, 2022, with $11.0 million or 71% of total revenue, which compares to $11.0 million or 56% of total revenue in the prior quarter.
Revenue in our U S market for fiscal Q2, 2022 was $10.0 million or 29% of total revenue.
This compares to $4.0 million or 44% of total revenue in the prior quarter.
Looking at our margins gross profit for fiscal Q2, 2022 was $5.0 million or 63% of total revenue compared.
Compared to $10.0 million or 56% of total revenue in the prior quarter.
Product gross margin for the fiscal second quarter of 2022, 74% compared to 75% from the prior quarter.
Service gross margin was 55% compared to 47% from the prior quarter.
Looking at our expenses, our non-GAAP operating expenses for the fiscal second quarter of 2022 decreased 4% to $9.0 million from $11.0 million in the prior quarter.
They also decreased 21% compared to the second quarter of last year.
We're pleased with the significant reduction which is a direct result of the tremendous effort put into improving operating efficiencies over the last 12 months.
GAAP loss from operations for fiscal Q2, 2022 totaled $7.0 million and improvement of $4.0 million compared to $11.0 million in the prior quarter.
As a percentage of total revenue GAAP loss from operations for the second quarter of fiscal 2022 was negative 38%, which compares to negative 75% in the prior quarter.
Non-GAAP loss from operations for fiscal Q2, 2022 totaled $4.0 million or a loss of three cents per basic share an improvement compared to $10.0 million or a loss of seven cents per basic share in the prior quarter.
As a percentage of total revenue non-GAAP loss from operations was negative 20% compared to a negative 55% in the prior quarter.
GAAP net income for fiscal Q2, 2022 totaled 0.2 million, which compares to a loss of $5.0 million or a loss of 10 cents per basic share in the prior quarter, reflecting a nonrecurring gain related to the forgiveness of the $6.0 million P. T T Rowe.
Non-GAAP net income for fiscal Q2, 2022 totaled $6.0 million or a gain of three cents per fully diluted share.
Compared to a non-GAAP net loss of $4.0 million or a loss of seven cents per basic share in the prior quarter.
Again, we're pleased to see the results of our progress.
And bottom line of our second quarter.
Turning to the balance sheet at quarter end, we had $27.0 million in cash and cash equivalents and no debt in the second quarter, we finalized and received forgiveness for our entire $6.0 million dollar loan we received as part of the payroll protection program.
Having no debt on the balance sheet and approximately $18 million in cash gives us a strong balance sheet and puts us in a good position to execute our growth strategy in the second half of the year and beyond.
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 that in the week.
Yes.
Thank you, Mike and good afternoon, everyone.
Our financial momentum and Microsoft talked about reflects the traction that we're seeing in our sales and marketing initiatives as well.
We want to enhance our product portfolio secure and with streaming customers and extend our footprint in the video AD tech provider and predictable income.
As we talked about in our last call our two primary goals in fiscal 2022.
To better address the needs of our existing customer base.
And to create a product and value proposition to capitalize on the massive opportunities in the streaming and video advertising market.
Yeah.
We have made tremendous progress on these key goals in a relatively short time highlighted by the successful launch and introduction of three new product lines.
That enabled profitable television and streaming services for our customers.
The first product is our cable video delivery platform that is specifically designed for our existing customer base of tier one global cable companies like Verizon AT&T and Cox.
To enable the seamless delivery of video on demand and pay TV services to households.
The changes cable video delivery platform. It's one of the most full featured powerful and extensible BDO and merchandising management technologies for operators on the market.
Platform provides customers with an out of the box turnkey, yes, customizable solution that enables linear television and Vod experiences on all platforms from set top boxes to mobile devices.
The second new product is our streaming enablement platform onto treatment.
And when fully managed and cloud native SaaS platform enhances every aspect of an organization streaming business.
And then on operators and content owners to connect directly with their audiences.
<unk> supports the full range of business and technical functions from content ingestion and management to curation and monetization.
The platform provides operators and content owners complete control over their user base during the entire life cycle as.
As well as deliver rich data to understand the user behavior on the surface.
Dream It removes market entry barrier since it is being offered under a true consumption based pay as you grow.
This model generating recurring revenue for the company.
And so we understand the increasing importance of advertising business models within the streaming landscape. We put a particular focus on the integration with sea changes at tech component powered by off therapy product the advanced advertising platform.
This advanced advertising platform is a unified AD tech solutions, while broadcast and OTT streaming.
The product enables companies to protect and increase existing AD revenue and generate new sources of that revenues as well.
During the ongoing subscriber transition from linear to the streaming the sea change advanced advertising platform is designed to protect the subscriber experience and linear AD revenues as well.
Utilizing the same equity units across linear and OTT, ensuring revenues remain stable and the users have the same experience across the platform.
Once a subscriber base has transitioned it is possible to move to a more targeted individuals or contextualized approach increasing AD revenue through higher CPM by ensuring each add that its there is relevant for the user.
The team behind US free product line enjoys a rich heritage of more than 25 years of video hardware and software and advertising technology.
I can confidently say that our team of dedicated video software engineer is among the most experienced and accomplished in the industry.
Our new product line has been very well received by both existing and prospective customers alike, especially treatment.
In fact, since we introduced the product in July we have launched two new prestige streaming customers screen IL and popcorn.
Our partnership with screen IL policy and premium subscription based service.
Which brings Israeli television and film content to ex Pats and consumers worldwide for a subscription fee of $20 a month.
The service is the larger and only legal fees and library from Israel, covering news primetime and reality shows.
As you may have seen today, we announced the partnership with chicken soup for the soul Entertainment to power its new popcorn flex App, which is available on iOS, Android and Apple TV and the web.
<unk> provides the pulp conflicts with an entirely new brand and look and feel and an improved user experience.
The advertising supported service provides consumers with free access to wide range of content, including future action adventure crime and sports programming.
The enhanced popcorn flex App also referenced top quality studio films original and exclusive content as well as classic TV CRM.
The integration of our advanced advertising platform streamlines AD sales for pulp conflicts it.
It leverages, our relationships with supply and demand side platform with seamless broke nomadic and itself.
Now with access to its own enriched viewership data pop conflicts would be able to enjoy increased CPM.
While the system built in advance this is true too.
Fourth better targeting with Smart AD campaign management.
Additionally, extreme it allows pulp conflicts to launch sponsor channel and expand its footprint into international markets in the future.
We are excited about our two new partnerships, which reflect two of the major trends in the streaming industry today.
The rise of premium, especially interest subscription based services targeted towards a precisely defined and highly loyal audience.
And as well as the adoption of advertising based streaming services by mainstream audience.
We look forward to pushing the boundaries of technology to bring streaming services and content to people around the world.
That concludes my prepared remarks.
Now I'll turn the call back over to Bob for his closing remarks.
Sure.
Thanks, Chris before I turn to the Q&A portion of today's call I want to point you to a new statistics that we mentioned in the earnings press release dimension that we are reaching over 100 million subscribers.
I wanted to calibrate that number for you a large cable company might have say 50 million subscribers.
C change is essentially a b to b to C platform company.
Our technology is touching over 100 million subscribers, our revenue growth as a b to b to C platform is in sync with our customers through Avon advertising video on demand and streaming enablement the core concept.
Of our customers scale as such becomes ours there.
Recent streaming enablement customer wins, all come with recurring revenues tied to subscriber growth.
Think about that.
One more thing I want to comment on is our stock price.
In my opinion the market is just beginning to understand the intersection of advertising technologies and streaming.
In my opinion as the market understands the value of our technology and how we are growing the company the market will take notice of our true value.
That concludes the prepared remarks, we are ready to open the call for questions operator.
Thank you.
Before management would like to take questions. Mr. Robert Pons would like to make a few additional remarks Robert Please go ahead.
Yes, Thank you and my earlier parts of my comments, when I was referring to the total addressable market.
I believe I said $500 million and of course I meant 500 billion is the size of our total addressable market. So just wanted to make that clarification and now we can begin with air Q&A operator. Thank you.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Romelle, Danielle with Aegis capital. Please proceed with your question.
Good afternoon, everyone and thanks for taking my question. So first of all congratulations guys. This is this is really some quarter.
Just wanted to delve into it and then and I heard your comments Bob on the recurring revenue stream that Chris you also highlighted that as well I just wanted to stress that the quarter was so strong was there any sort of unusual.
Revenue was that you would've seen in this one that you may not see in upcoming quarters, whether that's you know just just a new product launch I think on the delivery side.
I just I mean, it's just it was such a strong solid quarter from familiar.
Yeah, Yeah, I think what you're saying is is the progress we're making as I said in my earlier comments were done with stabilizing and we're into a growth mode and we are doing quite a bit in terms of marketing our brand.
We've changed the narrative.
To highlight our assets and I think thats, what youre, saying and we anticipate that continuous.
Great. That's phenomenal maybe just a financial question you also showed a lot of progress on the.
Expense side of things as well I know you've had a number of restructuring actions here over the last few months and quarters and I'm. Just wondering you know are you guys are the cause of it.
Full sort of run rate in terms of real realization of those cost savings that we saw here in the second quarter or is there still a little bit left to come in third quarter and beyond thanks.
Mike Yeah, Yeah, Hey, Rob this is Mike.
So obviously the message for well over three or four quarters now the significant cost reductions that we did non-GAAP operating expenses for Q2 were $9.0 million I would say you know a good chunk of what we've done for formal restructuring is now behind us when you see that $9.0 million.
Just caution you that where everyday you look at how we can be more efficient and continue to optimize so you may see some some changes but for the most part.
What are you seeing now is kind of post you know most of the formal restructuring plans that are now behind us.
Great well congratulations again guys look forward. Thank you. Thank you. Thank you for your support.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Steven Frankel with Colliers. Please proceed with your question.
I'd, just like to delve a little more into the the increase in revenue and the.
The decrease in backlog, so where those two tied together and what we saw in the quarter was some of these prior framework deals coming out of backlog would be correct.
Recognized as revenue or are we seeing stream, the new business coming into the quarter.
Hey, Steve It's Mike, it's a little bit of both so there's obviously a new stream did a.
Business in this quarter, but we definitely pulled in a little bit of backlog you know what.
I think I've mentioned this before and in some of our other prior calls during kind of the COVID-19 quarters, especially towards the back half of the year. There was some deals we sold that you know to be honest, we had revenue recognition criteria of.
<unk> recognized.
Recognized upon acceptance or upon launch so there were a couple of one offs, but that's obviously coupled with new business as well.
In the extreme bit now shows up where in the video platform line.
And your breakdown.
Yes exactly.
Yeah, it's in product and I.
I know you talked about the tables in the last page of the press release I think as we go forward and we see kind of more extreme bid and framework.
It's just kind of from prior years, we're going to think about kind of.
Just repositioning that table.
Okay.
And you have just to be clear there are two live stream did customers today are there any other stream the deals that you've won that have the onshore.
Exciting news around the pipeline of deals you hope to win between now and the end of the year.
Yeah, I think the two for us.
Now in terms of what we're gonna publicly talk about it the two that we've announced.
And then we obviously as we win new deals.
We really want to be able to share that news and continue to put out press releases upon winning or launching new deals.
Yeah.
And these deals are typically sold with our.
Kind of a minimum number with upsides as the.
The sub base grows.
But how are you.
Selling them.
Yeah, Yeah, Yeah, Yeah sure sure go ahead. There is there is an upfront absolutely stage.
There is a cost of.
Building out the <unk>.
Core of it and then there's a different there's advertising potential shares there's of course the growth in subscription shares Chris do you want to add to some of those.
Yeah, Hey, Steven Good afternoon, so basically it goes back to what Bob has said in his earlier remarks right. So we tried to be a b to b to C company, meaning that we go back to back with the success criteria of our customers, we want to create value for our customers and the business model as we go to market with them. Therefore is also back to back with the this is one of our customers. So we do have.
And the minimum guarantee so we're committed component.
Top of that there is variables for example per subscriber variables.
When it's a subscription service or per AD impression variables when there's when it's about eight months or.
So that is the business model right now we go to market with and then again you know that that is does two things for us number one.
<unk> recurring revenues and number two.
It gives us an upside in case the services are as successful as we.
I want to want them to be.
Okay, great. Thank you.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
At this time. This concludes our question answer session. If your question was not taken please contact Z changes IR team I S E E at Gateway our dotcom.
I would now like to turn the call over back to Mr. Parker for his closing remarks.
Thank you operator.
Couple of things one please.
Please.
Check out our new video it's at our web site C change Dot com, it's a 92nd brand new video that we've been showing.
In different places and it'll give you for those of you that are new investors to our company in 90 seconds. It will give you a very clear easy to understand explanation of what business, we're in and the value of our business.
And lastly, I would incur.
We encourage you to take a look at some of the new statistics that we're both on the slide presentation that is gonna be posted at the website as well and also mentioned both in our press release and in today's call. The numbers are significant and I think it will start helping you to understand why we're so excited about the growth that we have.
How we are if you will looking to cultivate the vast number of subscribers of our customers and work together to generate new and future revenues. Thank you very much and all stay safe.
Thank you for joining us today for Sea changes conference call. You may disconnect your lines. Thank you.
Yeah.