Company Overview
SeaChange International, Inc. (SEAC) is a leading provider of video delivery, advertising, streaming platforms, and emerging Free Ad-Supported Streaming TV (FAST) development solutions. With a rich history spanning over three decades, the company has established itself as a key player in the dynamic and rapidly transforming video technology industry.
Established in 1993 and headquartered in Boston, Massachusetts, SeaChange has evolved alongside the ever-changing landscape of video consumption and distribution. The company's software products and services facilitate the aggregation, licensing, management, and distribution of video and advertising content for service providers, telecommunications companies, satellite operators, broadcasters, and other content providers. SeaChange has continued to serve an exciting global marketplace where content access is becoming ubiquitous, and where consumption and monetization continue to transition from linear TV and subscription services to advertising-driven models on connected TVs.
Product Portfolio and Services
SeaChange's comprehensive portfolio of solutions enables its customers to cost-effectively launch and grow premium linear TV and direct-to-consumer streaming services, empowering them to manage, curate, and monetize their content. The company's unique advertising technology also helps protect and develop new revenue streams for traditional linear TV and streaming services by providing opportunities to insert targeted advertising into broadcast and video-on-demand (VOD) content.
Recent Developments and Strategic Shifts
Over the years, SeaChange has navigated various challenges and industry shifts, demonstrating its adaptability and commitment to innovation. In 2021, the company faced a potential merger with Triller, a social media platform, but the deal was ultimately terminated in June 2022. This decision allowed SeaChange to refocus its efforts on its core business and product development.
More recently, in April 2024, SeaChange announced that it had entered into an asset purchase agreement with Enghouse Systems Limited, a leading global telecommunication technology and solutions provider. Under the agreement, Enghouse will acquire substantially all of SeaChange's assets related to its product and services business, representing a significant strategic shift for the company.
Financials
Financially, SeaChange has faced its share of ups and downs. The company's annual revenue has fluctuated, reaching $32.49 million in the fiscal year ended January 31, 2023, up from $27.31 million in the prior year. However, the company has struggled to maintain consistent profitability, reporting a net loss of $11.40 million in the most recent fiscal year.
For the quarter ended April 30, 2023, SeaChange reported revenue of $6.99 million, representing a 4.0% increase compared to the same quarter in the prior year. The increase in revenue was primarily due to higher professional services revenue driven by customer demand. However, the company still reported a net loss of $0.71 million for the quarter.
Product Segments and Revenue Breakdown
SeaChange's revenue is primarily derived from two segments: product revenue and service revenue.
Product Revenue: This segment consists of software licenses (both perpetual and subscription-based) and revenue from third-party hardware and software. For the three months ended April 30, 2023, product revenue decreased by 45.5% to $1.54 million compared to the prior year period. This decrease was primarily due to lower sales of third-party hardware products, which included a large one-time customer delivery during the three months ended April 30, 2022 that did not recur in the current period.
Service Revenue: This segment includes maintenance and support as well as professional services. Service revenue increased by 39.9% to $5.45 million for the three months ended April 30, 2023 compared to the prior year period. The increase was driven by higher demand for professional services, resulting in increased customer utilization of the professional services team. Additionally, maintenance and support revenue grew due to the renewal of contracts at higher rates.
Gross Profit and Margins
SeaChange's overall gross profit margin increased by 11.5 percentage points to 59.4% for the three months ended April 30, 2023 compared to the prior year period. This improvement was primarily attributable to the higher service gross profit margin, which increased by 13.4 percentage points to 65.7%. The increase in service gross margin was driven by the higher professional services revenue and associated reduction in costs. In contrast, product gross profit margin decreased by 4.9 percentage points to 36.9%, mainly due to the sales of lower margin third-party hardware products.
Operating Expenses
Research and Development: R&D expenses increased by 5.3% to $1.80 million for the three months ended April 30, 2023 compared to the prior year period. This increase was primarily due to higher salaries and compensation for new hires.
Selling and Marketing: These expenses decreased by 7.6% to $907,000 for the three months ended April 30, 2023 compared to the prior year period. The decrease was mainly attributable to a reduction in contract labor.
General and Administrative: G&A expenses decreased by 7.6% to $2.11 million for the three months ended April 30, 2023 compared to the prior year period. The decrease was primarily due to a reduction in provision for credit losses and lower professional fees, partially offset by an increase in salaries for new internal staff hires.
Geographic Performance
SeaChange primarily sells its products and services in North America and Europe. For the quarter ended April 30, 2023, North America accounted for 58% of total revenue, while Europe and the Middle East accounted for 28% of total revenue. The company does not have a significant presence in other geographic markets.
Liquidity
SeaChange's liquidity position has been a topic of concern, with the company's cash and cash equivalents totaling $13.73 million as of January 31, 2023, down from $17.86 million a year earlier. The company's operating cash flow for the fiscal year 2023 was negative $2.02 million, while its free cash flow was negative $2.09 million.
As of April 30, 2023, SeaChange had a debt-to-equity ratio of 0.045, indicating a low level of leverage. The company had $13.79 million in cash and cash equivalents and $1.41 million in marketable securities, for a total of $15.20 million in liquid assets. SeaChange does not have any available credit lines disclosed. The company's current ratio was 3.34 and quick ratio was 3.34, indicating strong liquidity.
Future Outlook and Challenges
Despite these challenges, SeaChange remains focused on navigating the evolving video delivery and streaming landscape. The company's strategic shift towards the Enghouse acquisition and its ongoing efforts to strengthen its core business and product offerings suggest a commitment to positioning itself for long-term success.
Going forward, SeaChange's ability to successfully integrate with Enghouse, continue innovating its product portfolio, and effectively monetize its solutions will be crucial to its future performance. Investors will be closely watching the company's progress as it navigates the dynamic and competitive video technology industry.
Industry Trends
The global video streaming market is expected to grow at a CAGR of 21.0% from 2023 to 2030, driven by the increasing adoption of OTT platforms and the rise in internet penetration. SeaChange is well-positioned to capitalize on these industry trends with its suite of video delivery and streaming solutions.
Conclusion
In conclusion, SeaChange International (SEAC) is a veteran in the video delivery and streaming space, with a rich history and a commitment to adapting to industry changes. While the company has faced financial challenges, its strategic pivot and ongoing efforts to strengthen its core business suggest a determination to overcome obstacles and position itself for growth in the evolving video technology landscape.
The company's recent financial performance shows mixed results, with a decline in product revenue offset by strong growth in service revenue, particularly in professional services. SeaChange's overall gross profit margin has improved significantly, driven by the higher-margin service business. The company continues to focus on cost management, with reductions in selling and marketing as well as general and administrative expenses.
SeaChange's geographic focus on North America and Europe, combined with its low debt levels and strong liquidity position, provide a foundation for potential future growth. However, the company's ability to generate consistent profitability and positive cash flow remains a key challenge that investors should monitor closely.
As SeaChange navigates the rapidly evolving video technology landscape and works to capitalize on the growing global video streaming market, its success will largely depend on its ability to innovate, adapt to changing customer needs, and effectively monetize its solutions in an increasingly competitive industry.