ACTON, Mass. (Dec. 6, 2016) – SeaChange International, Inc.
(NASDAQ: SEAC) today reported third quarter fiscal 2017 revenue of $20.0 million and U.S. GAAP loss from operations of $8.4 million, or $0.24 per basic share, compared to third quarter fiscal 2016 revenue of $28.7 million and U.S. GAAP loss from operations of $11.8 million, or $0.35 per basic share.
The Company’s U.S. GAAP third quarter fiscal 2017 results included non-GAAP charges of $4.1 million, which consisted primarily of severance and other restructuring costs, stock-based compensation, amortization of intangible assets from prior acquisitions, and other non-operating expense professional fees, while the third quarter fiscal 2016 results included $12.2 million of similar non-GAAP charges as well as a provision for loss contract of $9.2 million. Non-GAAP loss from operations for the third quarter of fiscal 2017 was $4.3 million, or $0.13 per basic share, compared to the third quarter of fiscal 2016 non-GAAP income from operations of $0.4 million, or $0.01 per diluted share.
For the first nine months of fiscal 2017, the Company posted revenue of $60.0 million and a U.S. GAAP loss from operations of $29.7 million, or $0.85 per basic share compared to revenue of $79.8 million and U.S. GAAP loss from operations of $26.1 million, or $0.78 per basic share in the same prior period. The Company posted a non-GAAP loss from operations for the first nine months of fiscal 2017 of $18.7 million, or $0.54 per basic share compared to a non-GAAP loss from operations of $7.7 million, or $0.23 per basic share for the same period of the prior fiscal year.
“While we are disappointed with our year to date revenue performance, we continue to make good progress with our turnaround efforts and our initiatives to drive costs down and return to profitability and cash flow positive performance,” said Ed Terino, Chief Executive Officer, SeaChange. “During the third quarter we continued to strengthen our sales and engineering organizations, while reducing our cost structure. We remain on track to complete our cost reduction efforts by fiscal year-end that will yield approximately $30 million in annual cost savings. These efforts have already yielded results with increased sales leads, a growing revenue pipeline, and improved product quality. New business in the third quarter included a Latin American video-on-demand and advertising customer upgrade to our Adrenalin and Infusion platforms, as well as our content management system. In North America, we won another new customer for Adrenalin, replacing a video back office competitor in the process. In addition, we are very pleased to welcome Mark Tubinis as Senior Vice President of Engineering & Global Services, and believe that his extensive experience will enhance our ability to optimize quality and product innovation.”
Peter Faubert, Chief Financial Officer, SeaChange, said, “We made substantial progress in improving our working capital management and remain on track to be cash flow positive in the fiscal fourth quarter. Contributing to the improvements in working capital management, we reduced our unbilled receivables in the third quarter, which will provide a positive impact to our cash flow going forward.”
SeaChange ended the third quarter of fiscal 2017 with cash, cash equivalents, restricted cash and marketable securities of approximately $38 million, and no debt outstanding.
SeaChange anticipates fourth quarter fiscal 2017 revenue to be in the range of $22 million to $24 million, U.S. GAAP loss from operations to be in the range of $0.13 to $0.18 per basic share, and non-GAAP loss from operations to be in the range of $0.05 to $0.10 per basic share. For full fiscal 2017, SeaChange now anticipates revenue to be in the range of $82 million to $84 million, U.S. GAAP loss from operations to be in the range of $0.99 to $1.04 per basic share, and non-GAAP operating loss to be in the range of $0.60 to $0.65 per basic share.
These GAAP estimates are subject to a number of variables that are outside of management’s control, including the size of restructuring expenses, which are influenced by the timing and scope of restructuring activities, and stock price fluctuations. The Company has made no provision for restructuring expense in its outlook for the fourth quarter of fiscal 2017.
The Company will host a conference call to discuss its third quarter fiscal 2017 results at 5:00 p.m. ET today, Tuesday, December 6, 2016. The call may be accessed at 877-407-8037 (U.S.) and 201-689-8037 (international) and via live webcast at www.schange.com/IR
. A replay of the conference call will be available through December 20, 2016 at 877-660-6853 (U.S.) or 201-612-7415 (international), conference ID 1364-9586. The webcast will be archived on the investor relations section of the Company's website at www.schange.com/IR
About SeaChange International
Enabling our customers to deliver billions of premium video streams across a matrix of Pay TV and OTT platforms, SeaChange (Nasdaq: SEAC) empowers service providers, broadcasters, content owners and brand advertisers to entertain audiences, engage consumers and expand business opportunities. As a three-time Emmy award-winning organization with 23 years of experience, we give media businesses the content management, delivery and monetization capabilities they need to craft an individualized branded experience for every viewer that sets the pace for quality and value worldwide. For more information, please visit www.schange.com
Safe Harbor Provision
Any statements contained in this press release that do not describe historical facts, including regarding anticipated revenue, operating loss, cost saving initiatives and related costs savings and other financial matters, are neither promises nor guarantees and may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained herein are based on current assumptions and expectations, but are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. Factors that could cause actual future results to differ materially from current expectations include the following: the continued spending by the Company's customers on video systems and services and expenses we may incur in fulfilling customer arrangements; the continued development of the multiscreen video and OTT market; the inability to meet revenue targets for our SaaS-based multiscreen service offering; the Company's ability to successfully introduce new products or enhancements to existing products and the rate of decline in revenue attributable to our legacy products; the Company's transition to being a company that primarily provides software solutions; worldwide economic cycles; measures taken to address the variability in the market for our products and services; the loss of or reduction in demand by one of the Company's large customers; consolidation in the television service providers industry; the cancellation or deferral of purchases of the Company's products; the length of the Company's sales cycles; the timing of revenue recognition of new products due to customer integration and acceptance requirements; any decline in demand or average selling prices for our products and services; failure to manage product transitions; failure to achieve our financial forecasts due to inaccurate sales forecasts or other factors, including due to expenses we may incur in fulfilling customer arrangements; the Company's ability to generate sufficient revenues to reduce its losses or regain profitability; the Company's ability to manage its growth; the risks associated with international operations; the ability of the Company and its intermediaries to comply with the Foreign Corrupt Practices Act; foreign currency fluctuation; the Company's ability to protect its intellectual property rights and the expenses that may be incurred by the Company to protect its intellectual property rights; an unfavorable result of current or future litigation; content providers limiting the scope of content licensed for use in the video-on-demand and OTT market or other limitations in materials we use to provide our products and services; the Company's ability to obtain necessary licenses or distribution rights for third-party technology; the Company's ability to compete in its marketplace; the Company's ability to respond to changing technologies; the impact of acquisitions, divestitures or investments made by the Company; the Company's ability to access sufficient funding to finance desired growth and operations; the impact of changes in the market on the value of our investments; any impairment of the Company's assets; changes in the regulatory environment; the Company's ability to hire and retain highly skilled employees; the ability of the Company to manage and oversee the outsourcing of engineering work; additional tax liabilities to which the Company may be subject; the security measures of the Company are breached and customer data or our data is obtained unlawfully; service interruptions or delays from our third-party datacenter hosting facilities; the implementation of restructuring programs; disruptions to the Company's information technology systems; uncertainties of regulation of Internet and data traveling over the Internet; if securities analysts do not publish favorable research or reports about our business; our use of non-GAAP reporting; the effectiveness of the Company's disclosure controls and procedures and internal controls over financial reporting; the Company's use of estimates in accounting for the Company's contracts; the performance of the Company's third-party vendors; the Company's entry into fixed price contracts and the related risk of cost overruns; the risks associated with purchasing material components from sole suppliers and using a limited number of third-party manufacturers; compliance with conflict minerals regulations; terrorist acts, conflicts, wars and geopolitical uncertainties; the Company's Delaware anti-takeover provisions; and the effect on revenue and reported results of a change in financial accounting standards.
Further information on factors that could cause actual results to differ from those anticipated is detailed in various publicly available documents made by the Company from time to time with the Securities and Exchange Commission, including but not limited to, those appearing under the caption "Certain Risk Factors" in the Company's Annual Report on Form 10-K filed on April 13, 2016. Any forward-looking statements should be considered in light of those factors. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak as of the date they are made. The Company disclaims any obligation to publicly update or revise any such statements to reflect any change in Company expectations or events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results may differ from those set forth in the forward-looking statements.
Use of Non-GAAP Financial Information
We define non-GAAP (loss) income from operations as U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) operating loss plus stock-based compensation expenses, amortization of intangible assets, provision for loss contract, earn-outs and change in fair value of earn-outs, non-operating expense professional fees and severance and other restructuring costs. We discuss non-GAAP (loss) income from operations in our quarterly earnings releases and certain other communications as we believe non-GAAP (loss) income from operations is an important measure that is not calculated according to U.S. GAAP. We use non-GAAP (loss) income from operations in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of bonus compensation for executive officers and other key employees based on operating performance and evaluating short-term and long-term operating trends in our operations. We believe that non-GAAP (loss) income from operations assists in providing an enhanced understanding of our underlying operational measures to manage the business, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making.
Non-GAAP (loss) income from operations is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the non-GAAP (loss) income from operations financial adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.
In managing and reviewing our business performance, we exclude a number of items required by U.S. GAAP. Management believes that excluding these items is useful in understanding the trends and managing our operations. We provide these supplemental non-GAAP measures in order to assist the investment community to see SeaChange through the “eyes of management,” and therefore enhance the understanding of SeaChange’s operating performance. Non-GAAP financial measures should be viewed in addition to, not as an alternative to, our reported results prepared in accordance with U.S. GAAP. Our non-GAAP financial measures reflect adjustments based on the following items:
Provision for Loss Contract.
We entered into a fixed-price customer contract on a multi-year arrangement, which included multiple vendors. As the system integrator on the project, we are subject to any costs overruns or increases with these vendors resulting in delays or acceptance by our customer. Delays of customer acceptance on this project require us to recognize a loss on this project in the period the determination is made. As a result, we recorded an estimated charge of $9.2 million in the third quarter of fiscal 2016. We believe that the exclusion of this expense allows a comparison of operating results that would otherwise impair comparability between periods.
Amortization of Intangible Assets.
We incur amortization expense of intangible assets related to various acquisitions that have been made in recent years. These intangible assets are valued at the time of acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. We believe that exclusion of these expenses allows comparisons of operating results that are consistent over time for both the Company’s newly-acquired and long-held businesses.
Stock-based Compensation Expense.
We incur expenses related to stock-based compensation included in our U.S. GAAP presentation of cost of revenues and operating expenses. Although stock-based compensation is an expense we incur and is viewed as a form of compensation, the expense varies in amount from period to period, and is affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of our shares, risk-free interest rates and the expected term and forfeiture rates of the awards.
Earn-outs and Change in Fair Value of Earn-outs.
Earn-outs and the change in the fair value of earn-outs are considered by management to be non-recurring expenses to the former shareholders of the businesses we acquire. We also incur expenses due to changes in fair value related to contingent consideration that we believe would otherwise impair comparability among periods.
Professional Fees - Other.
We have excluded the effect of legal and other professional fees associated with our acquisitions, divestitures, litigation and strategic alternatives because the amounts are considered significant non-operating expenses.
Severance and Other Restructuring Costs.
We incur charges due to the restructuring of our business, including severance charges and facility reductions resulting from our restructuring and streamlining efforts and any changes due to revised estimates, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations.
The following table reconciles the Company’s estimated U.S. GAAP loss from operations to the Company’s non-GAAP (loss) income from operations:
The following table reconciles the Company’s forecasted U.S. GAAP loss from operations to the Company’s forecasted non-GAAP loss from operations for the Company’s fourth fiscal quarter and full fiscal 2017:
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