Light Reading

SeaChange Battles Against the Tide

Alan Breznick
2/28/2014
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Although it's now entering the third year of its three-year transition plan, SeaChange is far from high and dry just yet.

In fact, SeaChange International Inc. (Nasdaq: SEAC) is looking to come up for air and catch its breath as it continues to swim through turbulent waters. A little over two years after launching its shift from a mostly hardware-based approach to a software-centric one, the video-on-demand (VoD) technology specialist is still struggling to build a strong, sustainable business with an array of new software products and services (See More Changes Afoot at SeaChange.)

As the company made clear on a hastily scheduled preliminary fourth-quarter earnings call with analysts earlier this week, that struggle can be very frustrating. SeaChange reported that it will fall markedly short of its earlier revenue and earnings projections for the quarter that ended January 31. The vendor also warned analysts that it expects revenue to come in flat or down for the first half of the new fiscal year as well as for the entire year.

Specifically, SeaChange said it now expects that its fourth-quarter revenue will range between $34.5 million and $35.5 million, well short of its previous guidance of $40 million to $45 million. Likewise, the company said its non-GAAP operating income for the quarter will amount to a mere 1 cent to 2 cents per fully diluted share, way down from the 15 cents to 20 cents that it projected before.

Noting that he and his management team "were very disappointed" by the unexpectedly poor results, SeaChange CEO Raghu Rao blamed the shortfall on "delays in receiving anticipated orders from customers in the Americas, along with continued delays in receiving some final acceptances." He also noted that "the magnitude of these delays was greater than expected, given our customer concentration and the timing of our sales, wherein many sales occur toward the end of a quarter."

Rao sought to put some kind of upbeat spin on the news, which sent SeaChange's shares into a tailspin in after-hours trading late Tuesday before they began recovering a bit later in the week. He said company officials expect to receive all the missed customer acceptances in the first half of the new fiscal year. Further, he said company officials expect to receive "a majority of the [missed] orders" this year.

But Rau conceded that fiscal 2015 will be another challenging "transitional" year for SeaChange, whose future as an independent company has been the subject of industry speculation for months. He said company officials "anticipate that we will experience increased lead times in customer orders and acceptances and significant declines in sales of our legacy products" over the next 12 months, damping down revenues for the year.

With revenues from its legacy products declining at the rate of about 10% a year, SeaChange is pinning its hopes on such newer multiscreen video and user experience software products as Adrenalin, Nucleus, and Nitro. With such newer products already accounting for over two-thirds of the company's revenues in the fourth quarter, SeaChange is aggressively promoting them to both its cable and telco video customers. (See SeaChange Aids Com Hem's TiVo Rollout.)

"Despite the short-term challenges, we remain encouraged by the continued market traction for our new products… and the new opportunities in front of us," Rau said. With Comcast Corp. (Nasdaq: CMCSA, CMCSK) historically one of SeaChange's biggest customers, if not the biggest, he's also hopeful that Comcast's proposed buyout of Time Warner Cable Inc. (NYSE: TWC) will produce more business for his company.

In the meantime, though, SeaChange executives aim to wring more cost savings out of the business to boost profits in the coming year. They did not spell out how they would implement the cost reductions, whether through layoffs and/or other means.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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danielcawrey
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danielcawrey,
User Rank: Light Sabre
3/1/2014 | 3:15:17 PM
Re: Kind of Skimpy...
@albreznick, changing the course in such a turblent industry should not be surprised. I have to say I am very bullish on the VoD market, and the fact that SeaChange has been able to survive I think is a testament to that.

Traditional operators are going to be a great source of revenue for this company, and new delivery networks may also be as well.

Content on demand will not disappearing. 
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
2/28/2014 | 11:37:53 PM
Re: "Transitional" year...
Well, Rome wasn't built in a day, and SeaChange's market certainly is a bit crowded...

That said, not everyone is bearish on the company, even in the wake of the earnings report.
albreznick
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albreznick,
User Rank: Blogger
2/28/2014 | 4:40:52 PM
Re: "Transitional" year...
That's true, Dan. It does seem like SeaChange has been in transition for at least the last four or five years. But they do keep bouncing back somehow. So I wouldn't count them out. I just wonder when the transition will actually end.     
albreznick
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albreznick,
User Rank: Blogger
2/28/2014 | 4:38:14 PM
Re: Kind of Skimpy...
So would I and a bunch of ther people, Tara. Yes, they were skimpy on the details. I think they do have a well-thought-out strategy for surviving. i'm just not sure how well they'll be able to execute it. 
DOShea
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DOShea,
User Rank: Blogger
2/28/2014 | 4:25:44 PM
"Transitional" year...
Haven't the last four or five years been transitional years? Asset sales, acquisitions, executive changes. At one point, they were going to sell the company, then reversed course--they have been all over the map.
TaraSeals
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TaraSeals,
User Rank: Light Sabre
2/28/2014 | 1:42:02 PM
Kind of Skimpy...
...on the details, was SeaChange. I'd love to know more specifically what kind of growth markets they're aiming at. 
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