Jay Samit - CEO Tony Dias - CFO Monica Gould - IR, The Blueshirt Group LLC

Steven Frankel - Dougherty & Company Hamed Khorsand - BWS Financial Juan Bejarano - Noble Financial Capital Markets Matthew Galinko - Sidoti & Company, LLC

Greetings and welcome to the SeaChange International Fiscal 2015 Fourth Quarter and Full-Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to our host, Ms. Monica Gould, Investor Relations for SeaChange. Thank you. Please go ahead.

Thank you, Melissa. Good morning, everyone, and thank you for joining us. SeaChange released results for the fourth quarter fiscal 2015 ended January 31, 2015 today before the market open. If you would like a copy of the release, you can access it on the IR section of our Web site at www.schange.com/ir. With me on today’s call are Jay Samit, Chief Executive Officer; and Tony Dias, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our Web site. Before Jay begins, I’d like to remind you that the information we’re about to discuss today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. These risks are outlined in our SEC filings, including our Annual Report on Form 10-K, which was filed on April 4, 2014. Any forward-looking statements should be considered in light of these factors. Additionally, this presentation contains certain non-GAAP or adjusted financial measures as defined by the SEC. Per SEC requirements, we’ve provided a reconciliation of these measures to the most directly comparable GAAP measures in tables attached to the press release. Any redistribution, re-transmission or rebroadcast of this presentation in any form without the expressed written consent of SeaChange International is prohibited. And with that, I’d like to turn the call over to Jay.

Thank you, Monica. Good morning everyone and thank you for joining SeaChange’s call today. I am pleased to report a solid fourth quarter performance marked by double-digit sequential growth and product revenue, driven by the continued uptake of our next generation multi-screen products by our core service provider customers. On last quarter’s call, I outlined our strategic priorities for the new calendar year and I’d like to first review our progress against these objectives before turning the call over to Tony for a more detailed review of our financial performance and outlook. We noted that our first priority is to continue our momentum with our core service provider base. As we announced in February, one of our long standing Axiom customers in the U.S. signed a contract in the fourth quarter to upgrade its video-on-demand system to Adrenalin. We began shipping product for this customer in the fourth quarter. The second strategic priority we outlined was to step up our efforts in OTT video. In December we introduced our Rave premium OTT platform and are already responding to RFPs and strong interest from new types of potential customers including content owners, distributors and broadcasters, as well as existing service provider customers. We are currently working on Rave opportunities on three continents and initial feedback has been extremely positive. Notably, we just concluded a Rave trial with a telco that is now looking to expand the scope of its service with additional capabilities; we’re also in the early phase of a Rave trial with a long standing Axiom customer in the U.S. and another customer has already begun a field trial. Earlier this week, our leading edge technology was recognized when our Rave platform won the 2015 Cablefax Tech Award for cloud solution, beating out Cisco, thePlatform, Rovi, Adobe and Clearleap. Rave also has been shortlisted for the 2015 TV Connect Award for best service delivery platform for IPTV and OTT. The third strategic priority we discussed was acquisition opportunities that could bolster our presence in adjacent market segments such as OTT and new technologies to provide end-to-end solutions that enhance our growth. To this end we announced the acquisition of Timeline Labs in the fourth quarter and closed the transaction early in the first quarter. First, I will review the Timeline social media discovery and analytics platform and then I will provide some examples of how we plan to leverage the technology to expand our addressable market and top line growth opportunities. As some of you may know timeline enables broadcasters, local or national news organizations, cable news channels and other media companies and brands to discover, curate, and display targeted new stories that are trending across social media sites. Current Timeline customers include Fox Television Stations, Sinclair Broadcast Group, Media General and Tribune Broadcast Television Stations as well as well-known online brands. The platform is offered as a monthly subscription service and over time along with our other SaaS offerings. We will increase a recurring revenue base and margins as well as improved predictability of our results. We are seeing very strong interest in the Timeline offering as well as substantial cross-selling opportunities, particularly for our Rave premium OTT platform. Moreover, we see the potential to leverage the Timeline platform into new products and new market segments. To give you a sense of our traction, since we closed the transaction just two months ago, two of the largest U.S. based global news organizations have already begun active trials on the Timeline platform with nearly 200 users spread across dozens of stations. Additionally, we’re seeing inbound interest and uptake in other verticals including the nonprofit sector. For our traditional cable customers, Timeline integrates social media and television to provide a new means of producing and selling highly relevant content as well as contextual analytics. Importantly, the Timeline acquisition affords us the opportunity to expand into audience measurement through the NewCoin joint venture with Fox Television Stations, Tribune Media and Univision. SeaChange is now both a partner and a technology provider to the joint venture. NewCoin aims to address the deficiencies in local market television audience measurement by harnessing the data gathering power of currently available and emerging technologies. This will allow us to create a broader based measurement tool that will accurately measure audiences across the entire spectrum of linear and digital platform and capture viewer ship across all screens. NewCoin has received initial funding by our joint venture partners and we expect the venture to generate some modest revenue in fiscal 2016. We plan to develop and beta test the service in Dallas in the second half of this year before scaling it to other markets. The test will involve sharing insights with the local ad community for input and development; this open sourced approach will make NewCoin unique in local market measurement. My team and I’ll be demonstrating our latest generation of technologies at major industry events, including NAB in Las Vegas later this month and INTX Cable Exposition in Chicago, in May. Lastly, as I indicated, Asia Pacific is a priority. As announced this quarter, we appointed a new General Manager to more aggressively pursue RFP opportunities throughout that region. In summary, we’re seeing an increase in market demand for over the top solutions and our expanded portfolio. We believed that SeaChange is well positioned to capitalize on this opportunity. I am very pleased with that progress thus far and look forward to sharing our successes with you over the coming months. As excited as I am about our new SaaS products and the response from existing and potential customers, I want to remind everyone that due to the multi-year recurring revenue nature of these opportunities it will take time for this revenue to build and contribute positively to our top-line growth. Turning to our fourth quarter results, I’ll review our financial and operating highlights and then turn the call over to Tony, who will walk through the detailed results. During the fourth quarter, SeaChange recorded revenue of $31.3 million, up 4.4% from the third quarter of fiscal 2015 led by strong double-digit growth in new product revenue. Due to increased sales volume we narrowed our non-GAAP operating loss to $0.05 per basic share from a loss of $0.07 per basic share in the prior quarter. In addition, we continue to make progress with respect to acceptances and new design wins. Some of our key fourth quarter achievements include: our Nucleus video gateway software was commercially launched in Poland. We anticipate other Nucleus rollouts in Europe, in the Americas over the course of the year. We signed a contract with a large new cable service provider customer in Russia for Adrenalin and we completed an upgrade for one of our earliest Adrenalin service provider customers in Asia Pacific. Tony will walk you through some of the fourth quarter financial details and provide guidance on our Outlook for the first quarter of fiscal 2016 and the full fiscal year. With that, I turn the call over to our CFO, Tony Dias. Tony, please go ahead.

Thank you, Jay. I’ll start by reviewing our fourth quarter results before providing an outlook for the first quarter and full fiscal year 2016. For the fourth quarter of fiscal 2015, total revenues was $31.3 million. Overall fourth quarter results were in line with our expectations that would have been even better if not for the negative impact of the strengthening U.S dollar on our European business. Our fourth quarter results were driven by a 42% sequential increase in product revenues to $10.4 million, which accounted for 33% of total revenue, up from 24% in the prior quarter. New product revenues accounted for approximately 65% of the total product revenue, up from 60% in the prior quarter. The primary driver of the increase in product revenue was a new contract win with an existing Axiom VOD customer for the delivery of Adrenalin upgrades in the fourth quarter which drove a 200% plus sequential increase in the back office product revenue. Service revenues was $20.9 million, a decrease of 8% from the third quarter. The sequential decline was largely due to seasonally low professional services revenue related with decreased installations during the holiday period. Total revenue in the fourth quarter was driven by 5% sequential increase and sales to international customers, which accounted for 56% of total revenue in the fourth quarter compared to 51% in the prior quarter. Our blended non-GAAP gross margins rose 180 basis points to 52.2%, up from 50.4% in the third quarter. The sequential improvement was driven by a more favorable mix of product revenue and high product gross margins, which increased to 74% from 62% in the third quarter due to a less third-party product revenue. Gross service margins decreased sequentially from 47% to 41% due to overall service revenues on a relative fixed cost base. Non-GAAP operating expenses increased to $18 million, reflecting typical fourth quarter seasonality. Subsequent to the quarter-end we announced a 10% work force reduction, reflecting the completion of several major product development efforts that resulted in elevated level of operating expense, particularly in R&D. We completed the U.S portion of the force reduction in the first quarter of fiscal 2016 and we implement the changes in our International locations over the next several quarters. And in conjunction with the U.S force reduction, we recorded severance and restructuring charges of $1.7 million in the fourth quarter. Once fully implemented, we expect these initiatives to yield approximately $11 million, in annualized operating cost reductions and should substantially improve our operating leverage. Our non-GAAP operating loss narrowed slightly to $0.05 per basic share compared to non-GAAP operating loss of $0.07 per basic share in the third quarter. On a full-year basis, total revenues declined 21% to $115.4 million, due to a 40% -- 42% decline in product revenue. That’s primarily driven by a decrease in legacy product revenue. Consistent with the guidance we laid out at the beginning of fiscal 2015, legacy product revenues declined by $16.6 million to a total of $13.4 million in line with our expectations. The timing of revenue recognition for our new products and negative impact of our European business from the continuing strength of the U.S dollar also impacted our results. In fiscal 2015, service revenues declined slightly by 8% to $83.9 million, and accounted for 73% of total revenue. Maintenance revenues remain steady on an absolute basis and represented 41% of total revenue. Our balance sheet continues to be very strong. We closed the quarter with cash balance of approximately $105.4 million, and no debt. We are encouraged by the increasing interest in our next generation product upgrades from existing customers as well as new customer opportunities, particularly for our cloud-based offerings we expect to begin to contribute to the results this fiscal year. Given the lower upfront cost and fast time to market associated with our cloud-based platforms, some of our smaller service providers have begun evaluating our SaaS solution such as Rave, to get to market with multi-screen offerings more quickly. As the service providers begin to shift to a cloud-based model, we expect some transition in the timing of revenue recognition from an upfront product revenue recognized at the beginning of a contract under our perpetual method to a more gradual higher margin recurring revenue on the multi-year contracts. We call that what our perpetual software license model, we recognize a few million dollars upfront, product revenue at the beginning of the contract with additional product and service revenues recognized generally on milestone basis over the course of the deployment, which depending on the size of the provider could be up to 12 months. With a SaaS -- with our SaaS products, we expect the revenue to ramp up gradually and correlate closely to the growth in our customers’ subscriber base. Over time this will increase our proportion of recurring revenue, improve our mix and margin and reduce the historical volatility we’ve experienced letter to the timing of the deployments and the acceptance of our premises-based solutions. Now I’d like to turn to our outlook for the first quarter and full fiscal year. We anticipate first quarter revenues to be in the range of $22 million to $24 million and non-GAAP operating results to be in the range of a loss of $0.25 per basic share to a loss of $0.19 per basic share. For the full-year, we expect revenues to be in the range of $105 million to $115 million and non-GAAP operating loss to be in the range of $0.38 per basic share to a loss of $0.16 per basic share. Our full-year guidance reflects a decrease in legacy revenues in the range of $7 million to $10 million as well as a negative impact on our European business from the continuing strength of the U.S dollar. We believe that the transition on our revenue base from legacy products is largely complete and by fiscal 2017 we anticipate the legacy product revenues will account for less than $5 million. With that, I'll hand the call back to Monica. Thank you.

Thank you, Tony. Melissa, could you please open-up the call for questions?

Yes. Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Steven Frankel with Dougherty & Company. Please proceed with your question.

Good morning. First, could you tell us what the impact of the dollar was in the fourth quarter and what do you anticipate that impact will be in the current fiscal year?

The impact for the fourth quarter was about $1.5 million decrease in our revenues due to the strengthening of the dollar.

So we would have beat consensus, if it wasn’t for the strong dollar.

And what do you think it’s going to cost you in fiscal ’16?

I would say mid single digits.

Mid single-digits million, right?

Yes.

Okay. Now for the tougher question. So I clearly understand the transition of some customers to SaaS is going to impact revenue, but when I look at the guidance, what it says to me is there is not any real momentum in Nucleus or in Adrenalin or we’d see some growth in revenue this year?

That’s not what I see.

Okay.

So what I'm trying to convey, what I’ve tried to convey on the non-deal roadshows and everything, is I want to be as conservative as possible, because we do not control when Liberty expands and announces their expansions and takes down more licenses. It’s baked, it’s running great, it's doing phenomenal in Poland, but I do not control that timing. So to bake that into our numbers we know it will be a slow build quarter-by-quarter. This isn’t a back-ended year or some big hockey stick year. So I have to be conservative. Equally we got caught on the headline of we missed last year by 200,000, because of FX. We want to be conservative in. We can’t assume how transactions are going to change. So we’ve had great response to the product. They are doing well, but I'm not going to bake into a forecast that which I can't control.

So what do you think the timing is between -- you’ve got some Rave trials going on? When do you think you start to recognize revenues from some Rave wins? Is that not until the year after or you’ll have some revenue this year in Rave?

So the revenue that we will be able to recognize this year, if any would be de minimis. It's the nature of going on a SaaS model. Nobody launches a new service and has 50 million people sign up and subscribe day one or whatever. But what we will be able to be more transparent about is who is launching, who we are powering, and what their goals are and these are large well-known brands going into the space. So it is a better high margin business for us to be in. We are being perceived by the industry as one of the leading technology platforms for it and we’re getting the calls from all the right customer. So it just doesn’t translate into GAAP for this year.

Okay.

Intentionally.

One more look backward into Q4, so if you look at the number of Adrenalin deals that were planned to get to revenue in Q4. Did they all get there or did you -- are you still experiencing some push outs?

No, we got them -- we got the -- as we announced, we did get a big win in North America for an upgrade from our existing Axiom customer to a new Adrenalin win, so which we were expecting in the fourth quarter.

So we got all that were forecast.

Okay. And how many more Adrenalin installs are in backlog?

We will have some, but we’re not ready to announce them just yet.

Well, I guess, what I’m trying to get at is over the last 18 months the Company has had a lot of issues going from backlog to revenue. I was just wondering whether you’ve worked through most of those “problem installs.”

We’ve looked to all the install issues and acceptance issues that we had in the past, and we’re trying to sign up. We got new customers that we can announce next -- over the next couple of quarters.

Okay. I will let somebody else ask some questions.

Thank you.

Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hi. Good morning. Just really following up most questions, on the last several calls you had been making comments about service provider wins and customer wins plans for revenue in this fiscal year. How is that baked into revenue now? Given that you’re making -- you're saying that's going to be a SaaS model and it might trickle in. What kind of impact are we talking about for those last customers mentioned in the prior calls?

Well, the prior calls weren’t for customers that were on a SaaS model. So when you talk about things like Nucleus or Adrenalin, it doesn’t really change that. We are looking at as we move into OTT and we expand our customer base into major media companies, broadcasters, et cetera that's when you're going to see us move into a higher margin business, but that's not going to translate into significant revenue that can be recognized in this fiscal year.

Okay. Well, let’s take a step back then, because prior to this call a lot of the focus was on Nucleus and Adrenalin and so forth. It wasn’t about Rave and the SaaS model. So I’m under the impression I think a lot of investors are that the revenue guidance would have implied that you would see some growth from contracts that are Nucleus and Adrenalin based, but then we are getting a guidance that says no it’s going to be year-over-year down, but in prior calls you’ve been making comments about Nucleus wins and Adrenalin wins. So I’m just trying to put two and two together is where the deceleration happened here as far as our forecasts and your commentary about new customer wins?

We do have new customer wins. I mean, as I mentioned earlier, we expect another significant decline in our legacy products, which is going to be offset by new design wins in Adrenalin and Nucleus.

Okay.

I would say the biggest thing is this is the big year for Liberty to decide at what speed they’re taking down licenses. I cannot in good conscience predict what my customer is thinking. I know what they need, I know what their roadmap is, but the timing is outside my control. So I wanted to be as conservative as possible in giving you guidance so that I don't disappoint and we’ve upside as we build quarter-on-quarter. As we get more indication from them of what country they are lighting up next, then we will let you know.

All right. And my last question is can you give us some color as what’s going on with the new potential Nucleus customers, what the push out is as far as retaining new Europe or North American customers?

So we added a new Nucleus customer fourth quarter -- in the fourth quarter, but I’m trying to understand your question.

Just the pace that you are adding them compared to the industry that keeps talking about this technology. It seems kind of slow so I’m just trying to see what’s the hesitation here from the industry picking up the pace?

So I think for some of the larger customers we are a piece of them rolling out new equipment, with the new chip, with the new box. So there is a number of pieces of that supply chain that aren’t ours, that were impacted by. So we have great visibility into knowing that they're spending tons of CapEx to enable a world where our Nucleus can live. But the timing of which is outside of our control. So again, rather than take everything that's coming in for my sales force as gospel, I’m trying to really give a forecasts that says this is what we know and let's build upon what we know for sure as we get more information. So I am very optimistic about this year, but I want to be very realistic in my guidance.

Okay, great. Appreciate it. Thank you.

Sure, Hamed.

Thank you. [Operator Instructions] Our next question comes from the line of Juan Bejarano with Noble Financial. Please proceed with your question.

Hi, good morning and thank you for taking my questions. Can you discuss the competitive landscape as it relates to your over the top solution? I know that HBO and others have used MLB Advanced Media to help them tackle going over the top. Do you see any other major players out there?

Great question, Juan. So in being out there what's really interesting is we are dealing with three letter networks, we're dealing with a number of major media companies out there and we're not running across MLB except in Wall Street Journal articles. They have got great technology, but they haven't set themselves up yet to really handle being in the service business and that's one of our great advantages in that. When you look at the entire range of the word OTT, there is a whole spectrum that falls into that. There are customers out there that need to get out a video or two videos or some small videos choice per day with not a lot of customized targeting or ad insertion or all the complexity of having subscription and à la carte in the store and ads and all of that. When you get at the other end, where we are sitting of people that want to like a large media company, they really want to figure out how to monetize their entire library that since the Netflix of the world are licensing content the way they used to do home video isn’t generating the revenues that it used to do. It's a very different type of customer and the number of competitors in that space is the minimus. So I have been pleasantly surprised that the amount of inbound that we are receiving and the fact that we announced the product and are already in three deployed test trials in just the first quarter of existence, I think it's the fastest in the history of this Company of coming out with the new technology.

Great, thank you. And then as far as the Rave and the customer that’s about to deploy, I’m assuming that is Algar Telecom. Am I correct?

Once in the test with a telco, yes we said that, but there is other customers as well. So they’re not all telcos.

Okay. Got you. And then as far as M&A you just recently acquired Timeline Labs. Are you seeing anything interesting out there that you may just go out there and grab? How does the pipeline look?

So I’m constantly evaluating and looking at other technologies that are values, the same way the Timeline was. Something that is customers wanting it, but wanting it to be owned by a company of size, something that is uniquely needed, that has strong IP behind it. And when you can get something at the value like we did, I’m always open to looking at it.

Great. Thank you. That’s it for me.

Thanks, Juan.

Thank you. [Operator Instructions] Our next question comes from the line of Matthew Galinko with Sidoti & Company. Please proceed with your question.

Hey, guys. Good morning. Thanks for taking my question. I guess just when you start getting some demand and sort of live orders for the cloud product, how -- I know you mentioned Timeline is going to be monthly billing, but I’m just curious how Rave will work and if we are going to see any build up of deferred revenue?

So yes, so again it depends on the client, because some clients are subscription based, some are ad supported. Our goal is to get in there and make it the easiest way for people to get to market quickly and hard as possible switching cost later in life. So we're really looking at multi-year contracts where we're getting revenue per subscriber or per revenue stream as it comes in and so as they’re successful at scaling their business, then we can very accurately predict what our income stream is and at a much, much higher margin business, because our costs are not increasing at the rate that their subscriber base is.

Sure. Maybe one other way to ask that is, what should we be using as milestones to understand the success of those trials, those deployments, and sort of active customers?

So in modeling it right now what I’d say is look at the announcements as we announced them of who is going into this business and why. There is really no track record to say well, if the OTT things that have been out there for the past five years, here is its how its going. We know that a lot of experimentation is going on out there. And the one advantage that we have by working with so many of these desperate players in the space is the data to be able to tell our customers what's working or what is not as well as to give up the insight of which model works best. So for this fiscal year its really look at the wins in the partnerships and as we get more information during the year, I’ll try to be more transparent as we can tell what's gaining traction with consumers as the world starts unbundling content and creating new ways of delivering it.

Got it. Thank you.

And I'm going to off script, but and everybody is staring at me. The other thing that I look at is globally telcos are now seeing to be competitive, it's no longer going to be about just voice, text and data, and you’re going to see voice, text, data and a exclusive video package as a differentiator and watching what we do around the globe in that space will also be interesting.

Got you. I appreciate the color.

Thanks, Matt. End of Q&A

Thank you. At this time there are no more questions at this time. I'd like to turn the call back to you for any final remarks.

Well, I’d like to thank everybody for joining us today and for your continued support and interest in SeaChange. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.