Earnings Call: Q2 2022

Sep 13, 2021

Good afternoon, and welcome to SeaChange's 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 is Executive Chairman, Robert Pond Chief Financial Officer, Michael Prinn and Senior Vice President of Global Sales and Marketing, Chris Klimmer. After the market closed today, SeaChange issued its financial results for the Q2 in a press release, a copy of which is available in the Investors section of the company's website at www.seachange.com. 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, included its annual report on Form 10 ks 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, SeaChange has provided a reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures 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 SeaChange's website. Now, I would like to turn the call over to SeaChange's Executive Chairman, Robert Pond. Sir, please proceed. Thanks, operator, and good afternoon, everyone. Thank you for joining us today. The stabilization period for our company is We are now in a growth mode as demonstrated by our second quarter results. SeaChange is well positioned to capitalize on the intersection of the explosive growth In all things ad tech and all things streaming, SeaChange 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 streaming enablement platform. Our highly targeted advertising capabilities And turnkey streaming platform help customers worldwide. The worldwide streaming market is booming With over 200 streaming services and counting, which is expected to grow from $70,000,000,000 this year to $160,000,000,000 By 2024, an impressive 18% compounded annual growth rate. When you layer on Global digital advertising spending, the total addressable market today exceeds 500,000,000 As the technology that powers streaming, targeted ad technologies and video platforms globally, SeaChange is at the epicenter of this massive opportunity of the broadcast industry's transition to streaming, coupled with advanced advertising technologies. After Mike walks you through our Q2 financial performance, Chris will discuss in detail our newly established 3 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 and A. Mike? Thanks, Bob, and good afternoon, everyone. Turning to our financial results for the Q2 of fiscal 2022 compared to the Q1 of fiscal 2022. Total revenue for fiscal Q2 2022 was $6,500,000 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 percent to $2,700,000 or 41 percent of total revenue, compared to $1,600,000 or 32 percent of total revenue in the prior quarter. Service revenue for fiscal Q2 2022 increased 12 percent to $3,800,000 or 59 percent of total revenue compared to $3,400,000 or 68% of total revenue in the prior quarter. Revenue from our international markets in fiscal Q2 2022 was $4,700,000 or 71 percent of total revenue, which compares to 2,900,000 or 56% of total revenue in the prior quarter. Revenue in our U. S. Market for fiscal Q2, 2022 was $1,900,000 or 29 percent of total revenue, which compares to $2,200,000 or 44 percent of total revenue in the prior quarter. Looking at our margins, gross profit for fiscal Q2, 2022 was $4,100,000 or 63% of total revenue compared to $2,800,000 or 56% of total revenue in the prior quarter. Product gross margin for the fiscal Q2 of 2022 was 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 Q2 of 2022 decreased 4% to $5,400,000 from $5,600,000 in the prior quarter. They also decreased 21% compared to the Q2 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 $2,500,000 an improvement of $1,300,000 compared to $3,800,000 in the prior quarter. As a percentage of total revenue, GAAP loss from operations for the Q2 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 $1,300,000 or a loss of $0.03 per basic share, an improvement compared to $2,800,000 or a loss of $0.07 per basic share in the prior quarter. As a percentage of total revenue, non GAAP loss from GAAP net income for fiscal Q2, 2022 totaled $200,000 which compares to a loss of 4,100,000 or a loss of $0.10 per basic share in the prior quarter, reflecting a non recurring gain related to the forgiveness of the $2,400,000 PPP loan. Non GAAP net income for fiscal Q2 2022 totaled $1,500,000 or a gain of $0.03 per fully diluted share compared to a non GAAP net loss of $3,100,000 or a loss of $0.07 per basic share in the prior quarter. Again, we're pleased to see the results of our progress in both the top and bottom line of our 2nd quarter. Turning to the balance sheet. At quarter end, we had $18,900,000 in cash and cash equivalents and no debt. In the second quarter, we finalized and received forgiveness For our entire $2,400,000 loan we received as part of the payroll protection program. Having no debt on the balance sheet and approximately $18,000,000 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 by the end of the week. Chris? Thank you, Mike, and good afternoon, everyone. Our financial momentum that Mike has Just talked about reflects the traction that we are seeing on our key sales and marketing initiatives as well. We want to enhance our product portfolio, Secure new streaming customers, extend our footprint as a video ad tech provider and drive predictable growth. As we talked about in our last call, our 2 primary goals in fiscal 2022 are 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 markets. We have made tremendous progress on these key goals in a relatively short time, highlighted by the successful launch and introduction of 3 new product lines that enabled profitable TV 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 1 global cable companies like Verizon, AT and T and COGS to enable the seamless delivery of video on demand and pay TV services to households globally. SeaChange's cable video delivery platform is one of the most full featured, powerful and extensible video and merchandising management technology For operators on the market, the platform provides customers with an out of the box, turnkey, yet customizable solution that enables linear TV and DoD experiences on all platforms from set top boxes to mobile devices. The second new product is our streaming enablement platform called Streambit. The end to end fully managed And cloud native SaaS platform enhances every aspect of an organization's streaming business and allows operators and content owners to connect directly with our audiences. Streamlit 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 their entire lifecycle, as well as delivers rich data to understand the user behavior on the service. Dreamit removes market entry barriers since it is being offered under a true consumption based pay as you grow SaaS business model, generating recurring revenues for the company. As we understand the increasing importance of advertising business models within the streaming landscape, We put a particular focus on the integration with SeaChange's ad tech components, powered by our 3rd key product, the advanced advertising platform. This advanced advertising platform is a unified ad tech solution for broadcast and OTT streaming. The product enables companies to protect and increase existing ad revenues and generate new sources of ad revenues as well. During the ongoing subscriber transition from linear to streaming, the SeaChange advanced advertising platform is designed to protect the subscriber experience And linear ad revenues as well. By utilizing the same ad creatives across linear and OTT, ensuring revenues remain stable And the users have the same experience across platforms. Once the subscriber base has transitioned, it is possible to move to a more targeted individual or contextualized approach, increasing ad revenues through higher CPMs by ensuring each ad that is served is relevant for the user. The team behind our 3 product lines enjoys a rich heritage of more than 25 years of video hardware, software and advertising technology. I can confidently say that our team of dedicated video software engineers 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 StreamIt. In fact, since we introduced the product in July, we have launched 2 new prestigious streaming customers, Screen. Io and Popcornflix. Our partnership with Screen. Io powers a premium subscription based service, which brings Israeli TV and film Content to expats and consumers worldwide for a subscription fee of $20 a month. The service is the largest and only legal film library from Israel covering news, primetime and reality shows. As you may have seen today, we announced a partnership with Chicken Soup for the Soul Entertainment to power its new Popcornflix app, The advertising supported service provides consumers with free access To a wide range of content, including feature action, adventure, crime and sports programming. The enhanced Popcornflix app also offers top quality studio films, original and exclusive content as well as classic TV series. The integration of our advanced advertising platform streamlines ad sales for Popcornflix. It leverages our relationships with data, PopConflicts will be able to enjoy increased CPMs, while the systems built in advanced business rules support better targeting With Smart Ad Campaign Management. Additionally, StreamIt allows PopConflict to launch sponsored channel and expand its footprint into international We are excited about our 2 new partnerships, which reflect 2 of the major trends in the streaming industry today. The rise of premium special interest subscription based services targeted towards a precisely defined and highly loyal audience, as well as the adoption of advertising based streaming services by mainstream audiences. 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. I'll now turn the call back over to Bob for his closing remarks. Bob? Thanks, Chris. Before I turn to the Q and A portion of today's call, I want to point you to a new statistic that we mentioned in the earnings press release. To mention that we are reaching over 100,000,000 subscribers, I want to calibrate that number for you. A large cable company Might have, say, 50,000,000 subscribers. SeaChange is essentially a To B2C platform company, our technology is touching over 100,000,000 subscribers. Our revenue growth as a B2B2C platform is in sync with our customers Through AVOD, advertising video on demand and streaming enablement, the core concept of our customers' scale As such becomes ours. The 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 Ponce would like to make a few additional remarks. Robert, please go ahead. Yes, thank you. In my earlier parts of my comments, When I was referring to the total addressable market, I believe I said $500,000,000 And of course, I meant $500,000,000,000 is the size of our total addressable market. So I just wanted to make that clarification. And now we can begin with our Q and A, operator. Thank you. Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Rommel Dionisio with Aegis Capital. Please proceed with your question. Good afternoon, everyone. Thanks for taking my questions. So first of all, I mean congratulations guys. Thank you. This is a really tough quarter. I just want to delve into and I heard your comments, Bob, on the recurring revenue stream, and Chris, you also highlighted that as well. I just want to stress that I mean, your quarter was so strong. Was there any sort of unusual Revenues that you would have seen in this one that you may not see in upcoming quarters, whether that's just a new product launch, I think, on the cable delivery side. I just I mean, it's just it was such a strong solid quarter from a year ago. Yes. I think what you're seeing is the progress we're making. As I said in my earlier comments, we're 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 of to highlight our assets. And I think that's what you're seeing. And we anticipate that continuing. 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 that you've had a number of restructuring actions here over the last few months and And I just wondered, are you guys at a kind of a full sort of run rate in terms of realization of those cost savings that we saw here in the 2nd quarter? Or is there still a little bit left to come in Q3 and beyond? Thanks. Mike? Yes. Hey, Ramel, this is Mike Prinn. Yes, so obviously, we've messaged For well over 3, 4 quarters now, the significant cost reductions that we did, non GAAP operating expenses for Q2 were 5,400,000 I would say a good chunk of what we've done for formal restructuring is now behind us when you see that 5,400,000 But I just caution you that we're every day look at how we can be more efficient and continue to optimize. So you may see some changes, but for the most part, The quarter you're seeing now is kind of post most of the formal restructuring plans that are now behind us. Great. Well, congratulations again, guys. Look forward to taking the call. Thank you. Thank you. Thank you for your support. 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 increase in revenue and The decrease in backlog. So were those 2 tied together and then what we saw in the quarter was Some of these prior framework deals coming out of backlog is being recognized as revenue? Or are we seeing Stream bid 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 bid Business in this quarter, but we definitely pulled in a little bit of backlog. I think I've mentioned this And in some of our other prior calls, during kind of the COVID quarters, especially towards the back half of the year, there were some deals we sold that, To be honest, we had revenue recognition criteria of recognized upon acceptance or upon launch. So There were a couple of one offs, but that's obviously coupled with new business as well. And the Streamvid now shows up where in the video platform line? In your breakdown? Yes, exactly. Yes, it's in product. And I know you're talking about the tables in the last page of the press release. I think as we go forward and we see kind of more stream 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 2 live Streamvid customers today. Are there any other Streamvid deals that you've won that haven't launched or the excitement is around the pipeline of deals you hope to When between now and the end of the year? Yes, I think the 2 for now in terms of what we're going to publicly talk about, it's The 2 that we've announced, and then we obviously as we win new deals, really want to be able to share that news and continue to put out press releases On winning or launching new deals. And these deals are typically sold with Kind of a minimum number with upside as the sub base grows? So is that how you're typically selling them? Yes. Yes. Yes. Sure. Go ahead. There is an upfront, absolutely, Steve. There's a cost of building out the core of it. And then there's different there's advertising Potential shares, there is of course growth in subscription shares. Chris, do you want to add to some of those? Yes. Hey, Stephen. Good afternoon. So basically, it goes back to what Bob has said in his earlier remarks, right? So we try to be a B2B2C 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 we go to market with, therefore is also back to back with the business model of our So we do have a minimum guarantee, so a committed component. And on 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 an when it's an out payment service. So that is the business model right now we go to market with. And that again, that is that's 2 things for us. Number 1, it generates recurring revenues. And number 2, it gives us an upside in case These services are as successful as we want them to be. Okay, great. Thank you. Thank you. At this time, this concludes our question and answer session. If your question was not taken, please contact SeaChange's IR team at seacgatewayir.com. I would now like to turn the call over back to Mr. Poms for his closing remarks. Thank you, operator. A couple of things. One, please Check out our new video. It's at our website, seachange.com. It's a 92nd brand new video that we've been showing in different places. And it will 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 encourage you to take a look at some of the new statistics that were both on the slide presentation That's going to 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're, if you will, Looking to cultivate from 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 SeaChange's conference call. You may disconnect your lines. Thank you.