SeaChange Q2 Sales Decline On Weakness In Legacy VOD Software


SeaChange International posted revenue of $36.7 million for its second quarter of fiscal 2013, which ended July 31, 2012, down 4.4% year over year, partly because of a drop in sales of legacy back-office VOD software to North American operators.

The company posted a net loss from operations for the July quarter of approximately $6.8 million, or 21 cents per share, versus net income from operations of $777,000 or 2 cents per share in the year-prior period.

"We continue to reduce our overall sales, general and administrative costs and manufacturing costs and further streamline our organization," SeaChange CEO Raghu Rau said in a statement. "Our focus over the next two quarters will be to deliver on commitments to our customers, increase revenue, improve the bottom line and drive shareholder value."

The company's financial results reflect the sale of both its Broadcast Servers and Storage to a private-equity group -- which is now XOR Media -- and its Media Services businesses to Avail-TVN in May 2012. Accordingly, SeaChange has reflected both of those divested businesses as discontinued operations in its financial statements for the second quarter and the first six months of both fiscal 2013 and 2012.

SeaChange recently landed design wins for its Adrenalin next-generation video back-office platform with two unnamed U.S. cable system operators, Rau said, and he touted sales of its Infusion advanced advertising platform to large service providers in both North America and Europe.

However, SeaChange's product revenue dropped 10% in the most recent quarter, to $13.5 million. The decline was from lower back-office software license revenues from legacy products of $400,000, due to lower demand from North American customers, according to SeaChange. The decline also was attributable in part to the new Comcast agreement signed during the second quarter of fiscal 2013, which resulted in certain product revenue being classified as service revenues, the company said.

In addition, SeaChange's advertising product revenues were $700,000 lower in the most recent quarter because the July 2011 quarter included higher license revenues from a large North American customer. The lower software product revenues were partially offset by increased VOD server revenues from large North American customers of $1.2 million versus the previous year.

For the quarter, SeaChange incurred a $1.8 million inventory write-down "due to lower foreseeable demand for some of our legacy product lines, in particular, hardware components related to certain discontinued VOD server product lines to focus on selling the new products being developed," the company said. "We will continue to review our inventory levels and there may be future inventory write-downs."

In addition, SeaChange took a $1.5 million charge for severance and other restructuring expenses, including severance costs of $400,000 related to the layoff of 21 employees in its manufacturing and finance and accounting departments. At the same time, SeaChange said it incurred a one-time charge of $200,000 for a sign-on bonus, relocation expenses and recruitment fees for the hiring of Rau as its permanent CEO.

For the third quarter of fiscal 2013, Rau said SeaChange expects revenue to be $37 million to $40 million, and non-GAAP operating income to be in the range of 4 cents to 6 cents per share. For the full year fiscal 2013, the company anticipates revenue of $152 million to $158 million, in line with previous guidance, with and non-GAAP operating income of 31 cents to 37 cents per share.

SeaChange also announced Wednesday that its board authorized management to establish a Rule 10b5-1 plan -- which allows for repurchase of shares on the open market or through privately negotiated transactions -- under its previously announced $25 million share-repurchase program to buy back shares. The company intends to establish the 10b5-1 plan to buy back shares by mid-September.