Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SEAC > SEC Filings for SEAC > Form 10-Q on 7-Jun-2013All Recent SEC Filings

Show all filings for SEACHANGE INTERNATIONAL INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SEACHANGE INTERNATIONAL INC


7-Jun-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. The following information should be read in conjunction with the unaudited consolidated financial information and the notes thereto included in this Form 10-Q. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially due to competitive factors and other factors referred to in Part I, Item 1A. "Risk Factors" in our Form 10-K for our fiscal year ended January 31, 2013 and elsewhere in this Form 10-Q. These factors may cause our actual results to differ materially from any forward-looking statement. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate, and management's beliefs and assumptions. We undertake no obligation to update or revise the statements in light of future developments. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "could," "estimate," "may," "target," "project," or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict.

Business Overview

We are a global leader in the development and delivery of multi-screen video headquartered in Acton, Massachusetts. Our products and services facilitate the storage, management and distribution of video, television programming, and advertising content to cable system operators, telecommunications companies and mobile operators. We currently operate under one reporting segment.

We continue to work towards growing our revenues with new and existing customers as we roll out our new next generation product offerings to offset some of the decline in some of our legacy business. We also continue to control our overall cost structure. Our focus in fiscal 2014 continues to be:

seeking out new customer opportunities for our product and service offerings while upgrading our existing installed customer base to our next generation product offerings;

expanding to new and adjacent markets such as mobile and internet protocol television ("IPTV") operators;

increasing our selling efforts into new geographical areas;

reviewing our cost structure and making adjustments as needed;

seeking new technologies through acquisition or direct investment;

drive incremental revenues through channel partnerships; and

expand our system integrations capabilities and increase our deal size.

We have experienced fluctuations in our revenues from quarter to quarter due to:

the budgetary approvals from the customer for capital purchases;

the ability to process the purchase order within the customer's organization in a timely manner;

the availability of the product;

the time required to deliver and install the product; and

the customer's acceptance of the products and services.

In addition, many customers may delay or reduce capital expenditures. This, together with other factors, could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable, excess and obsolete inventory, gross margin deterioration, slower adoption of new technologies and increased price competition.

Our operating results are significantly influenced by a number of factors, including the mix of products sold and services provided, pricing, costs of materials used in our products, and the expansion of our operations during the fiscal year. We price our products and services based upon our costs and consideration of the prices of competitive products and services in the marketplace. We expect our financial results to vary from quarter to quarter and our historical financial results are not necessarily indicative of future performance. In light of the higher proportion of our international business, we expect movements in foreign exchange rates to have a greater impact on our financial condition and results of operations in the future.

Results of Operations

The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

Revenues



The following table summarizes information about our revenues for the three
months ended April 30, 2013 and 2012:



                                                  Three Months Ended             Increase/       Increase/
                                                       April 30,                (Decrease)      (Decrease)
                                                2013               2012          $ Amount        % Change
                                                  (Amounts in thousands, except for percentage data)
Software Revenues:
Products                                    $      14,808       $    11,927     $     2,881            24.2 %
Services                                           20,744            24,699          (3,955 )         (16.0 %)
Total revenues                                     35,552            36,626          (1,074 )          (2.9 %)
Cost of product revenues                            2,971             4,022          (1,051 )         (26.1 %)
Cost of service revenues                           13,497            12,158           1,339            11.0 %
Total cost of revenues                             16,468            16,180             288             1.8 %
Gross profit                                $      19,084       $    20,446     $    (1,362 )          (6.7 %)

Gross product profit margin                          79.9 %            66.3 %                          13.6 %
Gross service profit margin                          34.9 %            50.8 %                         (15.9 %)
Gross profit margin                                  53.7 %            55.8 %                          (2.1 %)

Product Revenue. Product revenue for the three months ended April 30, 2013 increased $2.9 million, or 24% over the same period of fiscal 2013, primarily due to the following:

A $4.6 million increase in our in-home gateway revenue which was due to a significant gateway licensing transaction with a customer in Europe that was signed during our fourth quarter of fiscal 2013 and higher legacy middleware product revenues resulting from the signing of an amendment with a European customer during the third quarter of fiscal 2013 which allows revenue to be recognized over the term of the amendment; and

A $0.5 million increase in advertising licensing revenues, primarily from a European customer, and $1.0 million higher licensing revenues from our back office products.

These increases were partially offset by a $3.2 million decrease in VOD servers revenues during the first quarter of fiscal 2014, as compared to the same period of the prior fiscal year, as we had a higher number of significant VOD servers shipments to North American customers during the first quarter of the prior fiscal year.

Service Revenue. Service revenue for the three months ended April 30, 2013 decreased $4.0 million, or 16%, as compared to the same period of fiscal 2013,

primarily due to:

a $1.6 million decrease in the first quarter of fiscal 2014, as compared to the same period of fiscal 2013 in our in-home service revenues primarily due to our legacy middleware service revenues as a result of a recent amendment with a European customer which resulted in a higher portion of revenue recognized as product revenue; and

a $0.9 million decrease in technical support revenues primarily in legacy advertising products and a $1.5 million decrease in professional service revenue resulting from lower legacy product shipments.

For the first quarter of fiscal 2014 and fiscal 2013, two customers accounted for 33% and 27% of our total revenues, respectively. We believe that a significant amount of our revenues will continue to be derived from a limited number of customers.

International sales accounted for 57% and 39% of total revenues in the first quarter of fiscal 2014 and fiscal 2013, respectively. We believe that international product and service revenues will continue to be a significant portion of our business in the future.

Gross Profit and Margin. Cost of product revenues consists primarily of the cost of purchased material components and subassemblies, labor and overhead relating to the final assembly and testing of complete systems and related expenses, and labor and overhead costs related to software development contracts. Our gross profit margin decreased approximately two percentage points for the three months ended April 30, 2013, as compared to the same period of the prior year, primarily due to the following:

A 14 percentage point increase in gross product profit margin to 80% for the three months ended April 30, 2013, primarily due to higher in-home licensing revenues, a result of higher gateway licensing and higher legacy middleware license revenue resulting from the signing of a new amendment with a European customer; and

A 16 percentage point decrease in gross service profit margin to 35% for the first quarter of fiscal 2014, compared to the same period of fiscal 2013, primarily due to higher absorption of research and development costs to cost of sales relating to our significant in-home gateway service project for an European customer and to lower professional service revenues while we maintain the same cost structure.

Operating Expenses



Research and Development



The following table provides information regarding the change in research and
development expenses during the periods presented:



                                 Three Months Ended             Increase/       Increase/
                                     April 30,                 (Decrease)      (Decrease)
                               2013               2012          $ Amount        % Change
                                 (Amounts in thousands, except for percentage data)
Research and development

expenses $ 9,692 $ 9,773 $ (81 ) (0.8 %) % of total revenue 27.3 % 26.7 %

Research and development expenses consist primarily of employee costs, which include salaries, benefits and related payroll taxes, depreciation of development and test equipment and an allocation of related facility expenses. During the three months ended April 30, 2013, our total research and development expenses remained relatively stable as compared to the same prior fiscal year period, as higher absorption of research and development to cost of sales from higher in-home gateway service revenues resulted in a decrease in research and development expense for the three months ended April 30, 2013 and were mostly offset by an increase in outside contract labor costs. We will continue to focus our investment in research and development on our next generation product offerings.

Selling and Marketing



The following table provides information regarding the change in selling and
marketing expenses during the periods presented:



                                        Three Months Ended              Increase/       Increase/
                                            April 30,                  (Decrease)      (Decrease)
                                     2013                2012           $ Amount        % Change
                                        (Amounts in thousands, except for percentage data)

Selling and marketing expenses   $       3,602        $     4,093      $      (491 )         (12.0 %)
% of total revenue                        10.1 %             11.2 %

Selling and marketing expenses consist primarily of payroll costs, which include salaries and related payroll taxes, benefits and commissions, travel expenses and certain promotional expenses. Selling and marketing expenses decreased $0.5 million, or 12%, in the first quarter of fiscal 2014, when compared to the same period of fiscal 2013. This decrease was primarily due to a reduction in headcount that occurred during the second half of fiscal 2013 with a corresponding reduction in travel and commissions expenses relating to these former employees.

General and Administrative



The following table provides information regarding the change in general and
administrative expenses during the periods presented:



                                   Three Months Ended             Increase/       Increase/
                                       April 30,                 (Decrease)      (Decrease)
                                 2013               2012          $ Amount        % Change
                                   (Amounts in thousands, except for percentage data)

General and administrative
expenses $ 4,967 $ 4,880 $ 87 1.8 % % of total revenue 14.0 % 13.3 %

General and administrative expenses consist primarily of employee costs, which include salaries and related payroll taxes and benefit-related costs, legal and accounting services and an allocation of related facilities expenses. General and administrative expenses increased $0.1 million, or 2%, during the first quarter of fiscal 2014, as compared to the same period of fiscal 2013. The increase was primarily due to higher depreciation expense relating to the roll out of our new ERP system on February 1, 2013.

Amortization of Intangible Assets



The following table provides information regarding the change in amortization of
intangible assets expenses during the periods presented:



                                           Three Months Ended              Increase/       Increase/
                                               April 30,                  (Decrease)      (Decrease)
                                        2013                2012           $ Amount        % Change
                                           (Amounts in thousands, except for percentage data)

Amortization of intangible assets   $       1,149        $     1,503      $      (354 )         (23.6 %)
% of total revenue                            3.2 %              4.1 %

Amortization expense is primarily related to the costs of acquired intangible assets. Amortization is also based on the future economic value of the related intangible assets which is generally higher in the earlier years of the assets' lives. During the first quarter of fiscal 2014 we incurred amortization expenses of $0.3 million which were charged to cost of sales. This is compared to $0.5 million for the same period of fiscal 2013. Additionally, for the first quarter of fiscal 2014, we recorded amortization expense of $0.8 million in operating expenses, compared to $1.0 million for the same period of fiscal 2013. The decreased amortization costs are primarily due to certain intangible assets which were fully amortized during fiscal 2013.

Stock-based Compensation Expense



The following table provides information regarding the change in stock-based
compensation expense during the periods presented:



                                 Three Months Ended             Increase/       Increase/
                                     April 30,                 (Decrease)      (Decrease)
                               2013               2012          $ Amount        % Change
                                 (Amounts in thousands, except for percentage data)

Stock-based compensation
expense $ 1,113 $ 1,028 $ 85 8.3 % % of total revenue 3.1 % 2.8 %

Stock-based compensation expense is related to the issuance of stock grants to our employees, executives and Board of Directors. Stock-based compensation expense increased $0.1 million, or 8%, during the three months ended April 30, 2013, as compared to the same period of fiscal 2013.

Earn-outs and Change in Fair Value of Earn-outs



The following table provides information regarding the change in earn-outs and
change in fair value of earn-outs during the periods presented:



                                      Three Months Ended              Increase/        Increase/
                                           April 30,                  (Decrease)      (Decrease)
                                   2013                 2012           $ Amount        % Change
                                       (Amounts in thousands, except for percentage data)

Earn-outs and change in fair
value
of earn-outs                   $         20         $         60     $        (40 )         (66.7 %)
% of total revenue                      0.1 %                0.2 %

Earn-out costs include changes in the fair value of acquisition-related contingent consideration, and changes in contingent liabilities related to estimated earn-out payments. In May 2013, we made final cash earn-out payments of $3.2 million to the former shareholders of VividLogic and Flashlight.

Professional Fees- Acquisitions, Divestitures, Litigation, and Strategic
Alternatives



The following table provides information regarding the change in professional
fees expenses associated with acquisitions, divestitures, litigation and
strategic alternatives during the periods presented:



                                          Three Months Ended              Increase/       Increase/
                                               April 30,                 (Decrease)      (Decrease)
                                       2013                 2012          $ Amount        % Change
                                          (Amounts in thousands, except for percentage data)

Professional fees: acquisitions,
divestitures, litigation and
strategic alternatives             $        495         $        950     $      (455 )         (47.9 %)
% of total revenue                          1.4 %                2.6 %

Professional fees in the first quarter of fiscal 2014 decreased $0.5 million, as compared to the same period of fiscal 2013, primarily due to lower fees paid to outside counsel to defend our patent litigation with ARRIS and the first quarter of fiscal 2013 included fees paid for the divestiture of our Broadcast Servers and Storage business and our Media Services business.

Severance and Other Restructuring Costs



The following table provides information regarding the change in severance and
other restructuring costs during the periods presented:



                                           Three Months Ended               Increase/        Increase/
                                                April 30,                   (Decrease)      (Decrease)
                                        2013                 2012            $ Amount        % Change
                                            (Amounts in thousands, except for percentage data)

Severance and other restructuring
costs $ 229 $ (28 ) $ 257 >(100 %) % of total revenue 0.6 % (0.1 %)

Severance and other restructuring costs increased $0.3 million for the three months ended April 30, 2013, as compared to the same period of fiscal 2013 primarily due to severance charges related to the separation of seven employees, as we continued to take actions to lower our cost structure and improve our financial performance.

Interest Income, Net and Other Expense, Net



The table below provides detail regarding our interest income, net and other
expense, net:



                                       Three Months Ended                Increase/       Increase/
                                            April 30,                   (Decrease)      (Decrease)
                                    2013                  2012           $ Amount        % Change
                                        (Amounts in thousands, except for percentage data)

Interest income, net           $           30         $         37      $        (7 )         (18.9 %)
Foreign exchange (loss) gain             (479 )                  8             (487 )         >(100 %)
Other                                      51                    -               51             N/A
                               $         (398 )       $         45      $      (443 )

Foreign exchange loss. The increase in foreign exchange losses was a result of the change in exchange rates between the U.S. Dollar and foreign currencies between the periods presented.

(Loss) gain from sale of investment in affiliates

In fiscal 2014, we recorded a loss of $0.1 million from the sale of all of our investment in Minerva, compared to a $0.8 million gain on sale of our investment in InSite One recorded during the first quarter of fiscal 2013, as we received additional funds that were previously held in escrow by the buyers of InSite One.

Income Tax Benefit



                                        Three Months Ended                Increase/       Increase/
                                             April 30,                   (Decrease)      (Decrease)
                                     2013                 2012            $ Amount        % Change
                                         (Amounts in thousands, except for percentage data)

Income tax (benefit) provision   $       (241 )       $          1       $      (242 )         >(100 %)
Effective tax rate                       10.6 %               (0.3 %)

For the three months ended April 30, 2013, we recorded income tax benefits of $0.2 million on losses before tax of $2.3 million. Our effective tax rate of 11% was based on the full fiscal year estimates and projected profitability in the fiscal 2014. In addition, our benefit is affected by the geographic jurisdiction in which the worldwide income or losses have been incurred, resulting in the difference between the federal statutory rate of 35% and the forecasted effective tax rate.

Our effective tax rate in fiscal 2014 and in future periods may fluctuate on a quarterly basis as a result of changes in the valuation of our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or interpretations thereof. We regularly review our tax positions in each significant taxing jurisdiction in the process of evaluating our unrecognized tax benefits. We make adjustments to our unrecognized tax benefits when: i) facts and circumstance regarding a tax position change, causing a change in management's judgment regarding that tax position; ii) a tax position is effectively settled with a tax authority; and/or
iii) the statute of limitations expires regarding a tax position.

We continue to maintain a valuation allowance against deferred tax assets where realization is not certain. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized.

Non-GAAP Measures. We define non-GAAP income from operations as U.S. GAAP operating income or loss plus stock-based compensation expenses, amortization of intangible assets, earn-outs and change in fair value of earn-outs, professional fees associated with acquisitions, divestitures, litigation and strategic alternatives and severance and other restructuring costs. We define adjusted EBITDA as U.S. GAAP operating income or loss before depreciation expense, amortization of intangible assets, stock-based compensation expense, earn-outs and change in fair value of earn-outs, professional fees associated with acquisitions, divestitures, litigation and strategic alternatives, and severance and other restructuring costs. We discuss non-GAAP income from operations in our quarterly earnings releases and certain other communications as we believe non-GAAP operating income from operations and adjusted EBITDA are both important measures that are not calculated according to U.S. GAAP. We use non-GAAP income from operations and adjusted EBITDA 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 income from operations and adjusted EBITDA financial measures assist 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 income from operations and adjusted EBITDA are non-GAAP financial measures and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. These non-GAAP financial measures 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 financial adjustments described above in arriving at non-GAAP income from operations and adjusted EBITDA, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.

The following tables include the reconciliations of our U.S. GAAP income or loss from operations, the most directly comparable U.S. GAAP financial measure, to our non-GAAP income from operations and the reconciliation of our U.S. GAAP income or loss from operations to our adjusted EBITDA for the three months ended April 30, 2013 and 2012. Effective February 1, 2013, as a result of a change in how we review our business, certain information technology costs which were formerly allocated out of general and administration expenses remained in general and administration expenses. Prior year balances were adjusted to conform to this presentation (amounts in thousands, except per share and percentage data):

                                        Three Months Ended                                 Three Months Ended
                                          April 30, 2013                                     April 30, 2012
                              GAAP                                               GAAP
                           As Reported        Adjustments      Non-GAAP       As Reported        Adjustments      Non-GAAP
Revenues:
Products                  $      14,808      $           -     $  14,808     $      11,927      $           -     $  11,927
Services                         20,744                  -        20,744            24,699                  -        24,699
Total revenues                   35,552                  -        35,552            36,626                  -        36,626

Cost of revenues:
. . .
  Add SEAC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SEAC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.