SeaChange Rises On Software Tide

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SeaChange International boosted software segment sales 32% for its fourth quarter ended Jan. 31 as its hardware business continued to decline, and the company issued a positive forecast for the coming year.

For its fiscal year 2011, SeaChange reported $216.7 million in revenue -- up 7% from the year prior -- and net income of $29.5 million ($0.92 per share) versus $1.3 million ($0.04 per share) in fiscal 2010. The company's Software and Media Services business units represented 85% of the company's total revenue in fiscal year 2011, versus 75% the year earlier.

"Our fiscal 2011 was a year of putting proof and progress to our software strategy with major multiscreen product releases and wins," SeaChange chairman and CEO Bill Styslinger said in announcing the results, citing deployments with StarHub and British cable operator Virgin Media.

In the fourth quarter, Comcast, Cox Communications and Virgin Media each represented at least 10% of SeaChange's revenue. Sales of $61.4 million for the three months ended Jan. 31 were up 16% year over year, with net income of $10.9 million ($0.34 per share) compared with break-even results for the fourth quarter of fiscal 2010.

SeaChange's fourth quarter results were boosted in part by Dell's acquisition in December 2010 of InSite One, a provider of storage-based services to the healthcare industry in which SeaChange held an equity stake. As part of the sale of its equity stake in InSite One, SeaChange received proceeds of $4.6 million and recorded a pretax gain of $1.9 million during the fourth quarter.

For fiscal year 2012, SeaChange expects revenue to increase to between $220 million and $230 million with adjusted earnings per share of $0.62 to $0.70. It forecast first quarter revenue of $50 million to $52 million and adjusted EPS of $0.01 to $0.03.

Total revenue in the Software segment in the fourth quarter of fiscal 2011 was $46.1 million, which included recognized maintenance revenue for a North American customer that contributed $3.4 million to reported revenue.

SeaChange said the unidentified customer, which was won through a system integrator, began deactivating its SeaChange VOD equipment because this customer's new end-to-end system integrator incorporated a different VOD solution. Because this customer had prepaid several years of annual maintenance revenue, $4.6 million of deferred maintenance revenue was recognized as service revenue in this year's fourth quarter as a result of the deactivation notice.

The rest of the Software segment's year-to-year growth was primarily attributable to increased revenue from VividLogic and eventIS as well as higher VOD and advertising maintenance revenues, the company said.

SeaChange's Adrenalin product, announced last fall, is designed to provide a single global multiscreen back-office platform that consolidates all eventIS and SeaChange software. Adrenalin is targeted for completion by January 2012. "Eventually Adrenalin will fully replace all SeaChange Axiom and eventIS software, and the company will have a single software architecture," SeaChange said.

Meanwhile, SeaChange said the Servers and Storage business unit has "transitioned fully to off-the-shelf hardware." Segment sales for the quarter of $8.8 million were down 28% compared with $12.3 million in the year-earlier period because of lower VOD server shipments to North American customers partially offset by VOD server shipments to a customer in Latin America and a customer in Europe. SeaChange said the hardware unit posted "essentially break-even results" on an adjusted basis.

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