Ed Terino - CEO Peter Faubert - CFO

Steve Frankel - Dougherty Jaeson Schmid - Lake Street Capital Markets Hamed Khorsand - BWS Financials Greg Mesniaeff - Drexel Hamilton Matthew Galinko - Sidoti & Company.

Greetings, and welcome to the SeaChange International Fourth Quarter and Full Year, Fiscal Year 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Miss. Lindsey Sabaris [ph]. Thank you. You may begin.

Thank you, Dan. Good afternoon, everyone, and thank you for joining us. SeaChange released results for the fourth quarter of fiscal 2017 ended January 31, 2017, today after the market closed. If you would like a copy of the release, you can access it on the IR section of our website, at schange.com/ir. With me on today’s call are Ed Terino, Chief Executive Officer; and Peter Faubert, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I begin, I’d like to remind you that the information we’re about to discuss today may include forward-looking statements, which 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 13, 2016. Any forward-looking statement should be considered in light of these factors. Additionally, this presentation contains certain non-GAAP or adjusted financial measures, as defined by the SEC. We have provided a reconciliation of these measures to the most directly comparable GAAP measures in the tables attached to the press release. And with that, I’d like to turn the call over to Ed for opening remarks.

Thank you, Lindsey. Good afternoon, everyone, and thank you for joining SeaChange’s call today. We are very pleased to report that our fourth quarter revenues in non-GAAP EPS came in at the high end of our guidance range. Overall, we are making great progress in our turnaround efforts and cost reduction program that we will discuss here on today’s call. Total revenues of $23.8 million were driven by strong product revenues which rose 38% year-over-year in the quarter. The increase in product revenues was partially offset by a decline in support revenues related to our installed base of legacy video streamers. Now let me highlight the revenue successes in the four fiscal quarters. First, we achieved a significant milestone during the quarter on a large European customer, Quickline, deployed an end-to-end multiscreen solution, including our Adrenalin video platform and Nucleus RDK-based video home gateway to enable a personalized TV service called Quickline TV. Quickline TV gives multiple viewers in a subscribing household the ability to enjoy uniquely curated experiences with thousands of hours of on-demand video, recommendations and time shifted TV programming to suit an individual’s own content taste in viewing preferences on any device they choose. Additionally, we also delivered Quickline TV’s OTT device apps for Android and iOS. Further, we were responsible for leading end-to-end integration of third party technology providers. Second, during the fourth quarter, we recorded substantial product revenues from the deployment of the virtualized Adrenalin video platform for our largest customer. As discussed in our Q3 conference call, this cloud based adrenalin deployment will support our customer’s operations in numerous European countries, enabling maintenance and upgrades at significantly lower cost with far more frequency than is possible today. Third, we continue to execute in our plan to migrate our legacy Axiom video platform customers to our multi screen capable Adrenalin video platform. During the fourth quarter, we were successful in closing two Axiom migrations to Adrenalin, and subsequent to the quarter end, we announced another North American long-time customer, Midco, is migrating to Adrenalin. Moreover we continue to have over 20 customers quoted for migrations. In large portion of our Q1, 2018 pipeline includes Axiom to Adrenalin migrations and we expect to close several more migrations in the first quarter of fiscal 2018. Fourth, as mentioned during our last conference call, early in the fourth quarter we won a new multiple customers in the Middle East where we are deploying Adrenalin in a private cloud on a SaaS basis. Now for some other customer and revenue highlights. In January, SeaChange successfully completed the first [Indiscernible] trial of its OTT managed SaaS joint offering with Filmbank, a leading nontheatrical distributor for Film and TV, where students at a number of U.K. colleges and universities enjoyed on-demand streaming over IP. As we continue to go to market with Filmbank, we will be looking to integrate SeaChange’s next generation NitroX user experience to optimize multi screen content engagement. Now let me discuss our pipeline and revenue backlog. Overall, our focus on growing and strengthening our sales organization has led to an improved pipeline of business as we enter fiscal 2018. We now have pipeline coverage of three X or three times bookings for the first quarter of fiscal 2018, and two times bookings for the full fiscal year. Moreover we are seeing more and more of our pipeline defined in terms of end to end solutions that combine traditional cable delivery with IPTV delivery over multiple devices. With most of these opportunities priced on a multi subscription basis or SaaS. These market developments are having an impact on our fiscal 2018 revenue outlook, especially as we complete Axiom to Adrenalin migrations and Adrenalin upgrades in the first half of fiscal 2018 and we will rely on more end-to-end deals in the second half of fiscal 2018. As we enter fiscal 2018 we continue to see our pipeline for OTT growing particularly in the Americas, however we are experiencing continued delays in decision making and we are starting to see more OTT ultimately shifting to service providers looking to bundle their IPTV services. Based on the success that we had in the fiscal fourth quarter we increased our backlog of revenue sequentially over the fiscal third quarter of 2017. Now I’ll provide an update on our product positioning and development roadmap. During fiscal 2017, we focussed our efforts on getting SeaChange healthy and returning the company to profitability, while sustaining product development. We are becoming a company that is very much engaged with our customers and we have deepened our understanding of their needs in order to better focus on product, trials and efforts and solidify our roadmap. As a result we have several new products that we plan to introduce in fiscal 2018 that we believe will help improve our customer’s revenue opportunity. In addition, a broad new SeaChange’s customer base in driving future revenue growth. First and foremost we are seeing strong demand from customers for total multi-screen solutions like we recently rolled out for Quickline in Switzerland. As opposed to best-of-breed products that need to be integrated. As such, our marketing efforts are now shifting to providing customers with an end-to-end solution for multi screen which combines our software solution for content management, delivery, advertising and user experience. This approach will further improve the efficiency of our R&D and marketing spend and reduce our support cost. We are offering end-to-end solutions both on an installed software, both as installed software on a perpetual licensed basis and as virtualized software that can be deployed either on a private or public cloud setting on a monthly subscription basis or SaaS. What we are seeing in the market is that Tier 1 operators prefer a perpetual licensed model, while Tier 2 through Tier 4 operators prefers a SaaS model. In the third quarter of fiscal 2017, we introduced NitroX, a multi platform user experience that provides a common user interface, features and functionality across multiple devices, including RDK-based set top boxes, Android set top boxes, legacy set top boxes and mobile devices such as smartphones and tablets. Based on early market reaction, we have decided to expand the scope of NitroX and accelerate our product roadmap for an end-to-end solution. As a result, several products will be delivered earlier in fiscal 2018. Over the course of fiscal 2018, we intend to grow NitroX to support OTT devices like Apple TV, Chromecast, Amazon Fire, Roku, CC browsers and smart TV’s. So far our early customer feedback on NitroX has been very positive. Customers love the look and feel of the Interphase and view it as a quick and easy deployment that enables a consistent user experience across devices. Moreover our go-to-market strategy and revenue model provides the flexibility to roll out an end-to-end solution faster with less professional services required. This approach enables SeaChange to leverage third party partners and pursue broader channels of geographic and vertical industry distribution, thus creating a greater pipeline and greater revenue opportunities. We believe our end-to-end solution with NitroX will serve as our main entry point into new cable telco and mobile service providers that are looking to deploy end-to-end multi screen video delivery platforms. Continuing on the product roadmap front, we are in the process of preparing to launch an upgraded version of our asset flow content management systems in the second half of fiscal 2018, which will dramatically increase scalability and performance by allowing our customers to manage more assets in more meditative per asset. This upgrade will provide for centralized management of content and meditate a workflow content navigation and merchandizing. Finally, we plan to introduce the next release of Adrenalin in the second half of the year which will provide further time shifting capabilities, network DVR integrations for additional third parties and enhance content monetization features. We are excited about our market driven product roadmap and we believe that these new and upgraded releases of our software products will help drive revenue growth in the second half of fiscal 2018 and beyond. During the quarter, we made significant progress on our cost reduction program and subsequent to our fiscal 2017 year end we lowered our headcount below 400 people currently from 660 at the end of fiscal 2016. We expect to complete our restructuring in the first half of fiscal 2018 with further reductions in force to approximately 300 employees. We believe that these reductions will enable SeaChange to return the profitability in the second half of fiscal 2018. Now let me address the approach we took to our restructuring actions. First, we have consolidated our operations to fewer geographic locations and have reduced our presence in the Philippines. We have also expanded our presence in Poland and shifted engineering and technical support responsibilities to that office. Second, we are phasing out support for legacy products and video platform, advertising and selected client software. Third, we are leveraging third parties to complete selected development, professional service deliveries in sales and marketing activities globally. And fourth, we are implementing improved business processes and systems to streamline operational activities that are enabling SeaChange to run more efficiently. To summarize, fiscal 2017 was a transition year for SeaChange. We took the necessary steps to reduce cost and to significantly reduce our cash burn to better position the company for growth and profitability. We saw the results of our actions reflected in our fourth quarter results. During fiscal 2018 we will continue to innovate the products to help our customers monetize the video assets while optimizing our operating expenses to drive profitability. We expect to complete our restructuring in the first half of the fiscal year. We are focussed on making strategic decisions to drive revenue growth and based on our progress that we have made last year, we believe we are well positioned to execute our revenue growth and profitability in the second half of fiscal 2018. With that, I’ll turn the call over to Peter to walk you through our financial results and to provide our outlook for the fiscal first quarter and full year of 2018. Peter, please go ahead.

Thank you, Ed. Good afternoon, everyone. I'll start by reviewing our fourth quarter results before providing you with an outlook for the first quarter and full fiscal year of 2018. We are pleased that our fourth quarter revenue and non-GAAP EPS came in at the high end of our guidance range. Total revenue in the fourth quarter was $23.8 million compared to $27.2 million in the fourth quarter of last year. Our revenue performance in the fourth quarter was driven primarily by the implementation of two large projects during the quarter that Ed mentioned in his remarks. These projects included the on-premise cloud deployment of Adrenalin for our largest customer and the end-to-end video delivery platform for Quickline. We entered fiscal 2017 with $12 million in total backlog excluding maintenance and support. We booked new business of $43 million during fiscal 2017 and ended the year with backlog of $8 million. During the year, we generated $37 million in revenue from maintenance and support. We have also experienced increased demand for the end-to-end cloud based solutions where customers are looking to implement our offerings on a subscription basis. We expect these subscription products to continue to increase as a percentage of total product sales in fiscal 2018. Total product revenue was $7.7 million in the fourth quarter or 32% of total revenue compared to $5.6 million in the year ago quarter or 21% of total revenue. Video platform software revenue was $6.2 million and accounted for 80% of total product revenue compared to $2.8 million or 51% of the total product revenue in the fourth quarter of last year. The remaining product revenues of $1.5 million include revenues for advertising software, user experience software, hardware and third party products. Total service revenue in the fourth quarter was $16.1 million or 68% of total revenue, down from $21.6 million or 79% of total revenue in the fourth quarter of last year. The decline was due to a decrease in professional service and maintenance and support revenue. The decline in professional service revenue was due to lower in-home services related to the commercial launch of a project for our largest customer. The decline in maintenance and support revenue was primarily related to our legacy installed base of video streamers which are gradually being replaced by next generation hardware. Video platform professional service revenue totaled $5.6 million down from $6.9 million last year. Maintenance revenue totalled $9 million or 56% of total service revenue compared to $9.9 million or 46% of total service revenue in the fourth quarter of last year. The decline in maintenance revenue was driven by the decrease in legacy video streamer support. The remaining service revenues of $1.5 million include software-as-a-service and user experience revenue. Revenue from international customers of $15.8 million in the fourth quarter accounted for 66% of total revenue compared to $15.8 million or 58% of total revenue in the prior year quarter. We had two customers each account for more than 10% of total revenue in the fourth quarter with Liberty Global at 27% and Quickline at 11%. For the full year, Liberty Global accounted for 30% of revenue. Our blended GAAP gross profit margin increased to 66% in the fourth quarter compared to 57% in the prior year quarter due to the increase in product revenues from software licenses. Excluding the provision for loss contracts and other non-GAAP charges in the fourth quarter of fiscal 2017, our blended non-GAAP gross profit margin was 15% in the fourth quarter and compared to 57% in the prior year quarter due to lower services gross margin on revenue generated from the Quickline project in the fourth quarter of this year. Our non-GAAP gross margin was lower than our GAAP gross margin in the quarter due to the cost of sales benefit from the reversal on the loss contract due to scope changes as well as cost efficiencies from the transition of our development to our DCC Labs unit in Poland compared to the use of external contractors. Our non-GAAP product gross margin in the fourth quarter was 75% compared to 78% in the prior year quarter due primarily to an increase in third party products revenue as a percentage of total product revenue for the same quarter in the prior year. Non-GAAP service gross margin in the fourth quarter was 39% compared to 52% in the fourth quarter of last year due to the exclusion of the cost of sales benefit from the reversal on the loss contract. Non-GAAP operating expenses declined 9% year-over-year to $14.1 million in the fourth quarter of this year from $15.5 million in the fourth quarter of last year. The reduction was driven by lower labor cost which were reflected in the benefits of transitioning our in-home software development to our recently acquired DCC Labs group in Poland as well as other restructuring efforts and headcount reductions. Our non-GAAP total operating expenses of $14.1 million included seasonal expenses related to our fiscal year end largely consisting of professional fees and other expenses that were subsequently cut. Currently we have reduced our headcount to below 400 people from 660 at the end of the prior fiscal year. Together, with our cost savings actions we believe this will enable us to achieve ongoing operating expenses of $12 million per quarter excluding non-GAAP expenses consistent with the accompanying reconciliation and other non-recurring items that we may experience. Our non-GAAP operating loss of $0.06 per basic share came in at the high end of our guidance range compared to break even per diluted share in the fourth quarter of last year. Turning to our balance sheet, we ended the fourth quarter with cash and cash equivalents of approximately $39 million and no debt. Cash burned from operations during the quarter was offset by positive working capital driven largely by the decrease in unbilled receivables from the previous quarter. We expect positive working capital in the first quarter of fiscal 2018 from strong collections of accounts receivable. As a result, we expect cash flow to be neutral to positive in the first quarter of fiscal 2018. In addition, we expect the cash balance during the year to remain in the $35 million to $40 million range. We intend to liquidate our investment in Layer3 TV in fiscal 2018 if given the opportunity. In addition, we will disclose of underutilized real estate created by our restructuring efforts. Cash generated from these activities provide upside to our current estimates. We do not anticipate any material capital expenditures in fiscal 2018. Deferred revenue of $14.9 million declined from $17.4 million in the year ago quarter due to a reduction in maintenance contracts related to the run off of our legacy hardware business and to a lesser extent Axiom customers transitioning to other internally developed solutions and to other vendor solutions. DSOs excluding unbilled receivables were 97 days at the end of the quarter compared to 83 days in the fourth quarter of last year. In fiscal 2018, we will continue to focus on collections with the goal of maintaining DSOs of less than 80 days. Including unbilled receivables DSOs were 116 days compared to 121 days in the fourth quarter of last year. We reduced our unbilled receivables by 39% to $6.6 million in the fourth quarter from $10.7 million in the fourth quarter of last year. We expect unbilled receivables to continue to decline in fiscal 2018 as we continue to align our billings with our delivery efforts. As Ed mentions, in the fourth quarter we made substantial progress on the cost reduction program that we announced last year and anticipate completing the remaining actions in the first half of fiscal 2018. Once all these actions are complete, we will have reduced our headcount by more than half and taken $38 million in annual cost out of the business enabling the company to be profitable at an $80 million annual run rate, as such we expect our quarterly operating expense run rate to further decline to $11 million a quarter by the end of the second quarter. In fiscal 2018, we expect the product revenue will contribute between 20% and 25% of total revenue for the year which is consistent with the contribution from fiscal 2017. We expect maintenance revenue to decrease from 43% of total revenue in fiscal 2017 to approximately 40% of total revenue in fiscal 2018. We expect professional services revenue to contribute approximately 30% of total revenue in fiscal 2018 which is up slightly from fiscal 2017. The remaining revenue in fiscal 2018 will consist of user interface and cloud deployed products. We expect the ongoing cost cutting initiatives to drive gross margins to close to 60% by the latter half of fiscal 2018. As previously mentioned, I would like to note that over the course of 2018 as customers shift to cloud based deployment models, we expect our revenue mix to transition from perpetual license to multi recurring revenue or SaaS. As this transition is made, we expect this trend to impact our revenue and deferred revenue in the short term. Longer term we expect better predictability and more consistency in our revenue base. With this in mind, we anticipate revenue in the first quarter of fiscal 2018 to be in the range of $16 million to $18 million and non-GAAP operating loss to be in the range of $0.15 to $0.11 per basis share. For the full year we expect revenue in the range of $80 million to $90 million and non-GAAP operating loss to be in the range of $0.10 loss to a non-GAAP operating income of $0.02 per basis share. With that, I’ll hand the call back to Lindsey [ph]. Thank you very much.

Thank you, Peter. Darren, could you please provide instructions for the Q&A Session.

Absolutely. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Steve Frankel of Dougherty. Please proceed with your question.

Good afternoon. I’d like to dig in to the guidance a little bit. I understand the SaaS transition you are talking about. Yet, if you look at the revenue level in Q1 versus what’s implied in the full year, that’s a significant pickup in the quarterly run rate which you typically don’t see in a SaaS business. So what kind of visibility do you have and how should we think of the quarterly ramp from what hopefully is the low point in Q1?

Yes, so Steve thanks for the question. I think first off, we will see the impact on quarterly revenues right away with our sale to partner, the Israeli Company where we will have a booking in the quarter of $1.5 million that will be amortized over a period of time whereas normally under our perpetual license model we would be able to recognize a majority of that revenue during the quarter. So that’s the first item that I would like to highlight. Secondly, we do continue to see deterioration of our maintenance revenue and in order to make up for that deterioration and maintenance we need to build more product revenue to offset that deterioration and we’ll start to see that pickup as we are releasing some of the new versions of our Adrenalin products as well as some of the investments that we are making in user interface and content management product. So you know what we are trying to do is back fill that decline in maintenance revenue in the latter half of the year by really leveraging the launch of those new products. And that’s what we should start to see quarter over quarter revenue growth pick up.

But again, I guess you didn’t make me feel any better that you had visibility into bridging from call it $16 million in Q1 to mid 20s by the end of the year to even get to the low end of your revenue range. And did you confirm that Q1 will be the low point in revenue or might have dipped down in Q2 until you get these new products starting to contribute?

Yes right now we see Q1 as the low point.

But you don’t have today a pipeline that gives you high confidence in that ramp in the back half you are just assuming that what you have in development should help drive higher revenue?

Steve, that’s really not true. We do have a pipeline especially with OTT opportunities that is improved I think quarter over quarter over the last several quarters. So, its I do think that we have that pipeline. One thing I will add to what Peter said is, you know Peter talked about what our bookings were in fiscal 2017 and you know while we haven’t really talked about booking specifically in 2018 I can tell you that they are projected to grow by more than 20%. So the pipeline does support that and we do expect to get significant growth in bookings, but those bookings don’t translate into revenue recognition for – not only the SaaS because they are SaaS revenues but there is also other reasons why they may be delayed given we have to execute on projects.

I totally understand that, and that's why I have trouble visualizing you getting from where you are today to $85 million in revenue. That’s exactly my question. If more the business is SaaS based and you’re starting at $16 million a quarter, hard to see how you get to $25 million a quarter?

Well, I don't think we have to get to $25 million a quarter to get to the midpoint of our range.

I’ll continue work on my model. Let me ask couple more questions before I pass the baton. So, congratulations on the next stage in relationship with Liberty, but help us understand what the economic impact of this is -- new deployment at Liberty, that the unbilled that we haven't seen yet or we already seen the revenue from that in Q4?

So, I'll talk first about the evolving relationship with Liberty. As I’ve said on previous calls, I think that we are continuing to strengthen our overall relationship and that comes from execution. And I think that we have over the course of the last 12 months improved our execution there. Second, with respect to their initiative to consolidate their back office into a cloud environment, we did realize a fairly significant number of license sales in the quarter and we would continue to expect those license sales to happen as they will roll out their platform. What we don’t have visibility into is one, their timing of rolling it out. And two, the sort of number of subscribers that will be rolled out too. So, while I think we’re well-positioned to continue to generate a good chunk of revenue in excess of 20% to -- I think this year was 30% in that range from Liberty. I think in order to go beyond that it’s a function of the timing of their roll out and the breadth of their rollout. On the in-home side as I’ve said previously, they have decided to pull their next generation user experience development. In-house they have a significant team working on that. They’re doing it themselves. We continue to generate revenues with our Poland team for their prior generations on platform, and we also are working with them on some what I would call third-party professional services or software development services for hire on the EO’s [ph] platform. But it's not anywhere near the kind of revenue opportunities that people have speculated on a year or two ago. Did that answer your questions, Steve?

Yes. I think that’s helpful. And let me just try one more time to talk about this OTT opportunity. Company used the talk about OTT is kind of one-offs, right? You were competing with BLAM [ph] and Brightcove, and Lava and Kaltura, is that what you're still talking about doing or you talking about more Quickline type applications where if you’re traditional customer or a Telco who looks like your traditional customer is using you to deliver an end-to-end solution that includes an OTT component?

So, it’s a really good question. I'm glad you brought it up, because we try to provide some clarity around that on the call here today. So, we see a market opportunity growing in the area of operators who want to be able to deliver not only an IP TV solution which will be OTT but also a traditional set-top box type solution. And we do see some of the companies who mentioned bidding and competing for the IP TV, but they don't really do a whole lot relative to any of the sort of set-top box type activity. So, we see most of our OTT opportunities with operators who are looking for delivery of video over multiple devices not only IP TV devices but traditional types of set-top boxes. And we think we’re very well-positioned there that we’re better than a lot of the cable -- sort of software vendors that serve as the cable providers today like Ericsson and Huawei. And then, we think we are better positioned than some of the IP TV providers like the ones you mentioned.

Okay. And one last quick one, I miss Peter when you told us what the product percentage of revenue would be in fiscal 2018?

Yes. It was between 20% and 25%.

Great. Thank you.

Thank you, Steve.

Our next question comes from Jaeson Schmid of Lake Street Capital Markets. Please proceed with your question.

Hi, guys. Thanks for taking my questions. Just following up on one of the previous questions, given the low watermark things you want, how should we think about the relative breakout between the first half and second half of fiscal 2018? I know historically in the past few years its kind of been first half comprised about 47% to 48% of revenue and then the back half 52% to 53%. Is that kind of a good ballpark breakout to use for this year as well?

Yes. I mean, I think that trend we should continue in 2018 as well. I think we’ll continue to see Q4 be a strong quarter for us similar to what we did this year. So I think that trend is correct.

Okay. That’s helpful. And then, Ed you talked about some of the OTT engagement. Can you quantify the number in the pipeline? Or how that pipeline has grown over the past few months?

Yes. I can quantify in terms of the number of opportunities. I think we’ve seen it grow from probably early in fiscal 2017 by 50% or more, but in terms of dollar value I really don't want to comment on that. It's very hard to predict the dollar value. As we discussed on the call here today, Filmbank was a win we had a year ago and we thought that we would be generating a lot more revenue with Filmbank than we have to take. We think we're in a great relationship. We have great solution for them. But it's taking them more time to bring it to market and generate revenue which we would realize other than I think both parties expected. So I don't want to really comment on the revenue value of that. I would tell you that in the last quarter to two, more of the pipeline is been identified from operators. So whereas probably a year ago into the first two quarters that I've been CEO most of the opportunities were with content owners who are looking to launch an OTT platform. In the last two quarters the pipeline growth has been with operators on a global basis. So we find that to be encouraging because the operators have installed subscriber basis so that when they adopt and implement, there’s revenue generated faster than you would have with a pure play content owner who wants to go out with an OTT platform.

Okay. And then the last one from me and I'll jump back into queue. I know Peter you said, gross margin should trend toward 60% in the latter half of this year. Can you layout some of the drivers beyond just the transition to the SaaS model?

Yes. So I think the trend towards a 60% gross profit margin will relate to some of our cost savings and restructuring initiatives around how we’re delivering professional services. So we’re planning on making some changes where we’re leveraging more variable costs as we’re delivering projects by utilizing outsourced consulting type firms to supplement our professional service delivery capabilities. And as we make that transition I think we’ll be able to drive a lot more margin out of the services business, which we see as the services business increasing slightly over the last year. So I think we’ll really be able to leverage that piece of the business going forward.

I'll add a couple of more. So product mix should also help that. And I think as we have talked to you today about building an end-to-end solution, part of the objective of that is to make that solution more fully integrated and require less professional service resources to implement it, so that you drive higher margins for SeaChange but it also should enable us to leverage third-party relationships who could also help with those sales and implementations, and that should I think also help the margins as well.

Okay. Thanks a lot guys.

[Operator Instructions] Our next question comes from Hamed Khorsand of BWS Financials. Please proceed with your question.

Hi. Just a couple of questions here,, as far as the Adrenaline roll out here, upgrade with the SaaS model, how will that affect your revenue going forward? How you modeling that to affect your revenue scheme as far as the current customer base goes? And how you would be able to get customers to upgrade to a SaaS model versus what they’ve already paid for right now?

So, that's a really good question. With respect to our largest customer they really acquiring – direct the upgrades or the cloud deployed Adrenaline on the SaaS basis. So, what I said earlier in my comments is that in Tier 1 which we have a lot of Tier 1 customers, they like to go CapEx and like to acquire perpetual licenses and pay for them upfront. And I think we’ll continue to see that. There’s less of a desire to go SaaS there. But in Tier 2 through Tier 4 there’s more of a desire to go SaaS to the degree that we have a customer that's has a current version of Adrenaline and wants to go in that direction. We do have to find a way to give some credit for what they’ve purchased from us as they do as they roll out the SaaS based platform that we sell. But there’s certainly a lot of additional features and functions we provide especially around multi-device that actually provides a strong case for revenue opportunity for us. So, it really differs by the type of customer. And I think that you asked how we model it? That’s something that frankly we're still struggling and working to do ourselves. We obviously have to solidify our pricing first, and we have to get some experiences. As Peter mentioned, we do have one customer that adopt -- purchased in the quarter that hopefully we’ll be able to work with them to find out how they deploy it. That was done on a per subscriber, per month basis, so we would definitely look to that as an example of how we would do future transactions.

Okay. And then, just given dynamics around the balance sheet, at what point do you feel like you’re going to start sweating as far as not having enough cash. And you’re -- coming in you guys have $60 million this time last year?

Yes. I think we've done a lot of work around minimizing the cash burn from operations throughout fiscal 2017 and we’re continuing to focus on that in the first half of fiscal 2018. There’s a couple positive things that I think we’ve been able to accomplish over the last couple quarters. One is we've been able to really drive some cash out of working capital changes and we’ll continue to do that. Right now, I’ve got visibility into continuing that into at least the first quarter of fiscal 2018, but at the same time I think we’ve minimized our cash burn to somewhere around $3 million to $4 million a quarter from operations. So, we’re really able to offset some of that cash burn from operations while at the same time continuing our cost reduction effort. So, I think the $35million to $40 million cash balance as a low point I feel pretty good about given the next couple quarters and where I think will be as we’re continuing with our cost-cutting initiatives.

I will just add Hamed. I will just add that, I think you well know that last year we started off the year with guidance that was well beyond where we finished the year. And that was obviously principal driver of why we burn so much cash. And I think we took the necessary steps to reduce the cash burn. I think we now have very conservative guidance here and I feel confident that our cash burn is aligned with what we think the revenue opportunity is, in fact it shouldn’t be our cash burn, it's our cash flow -- positive cash flow. So, I think given all the cost we've taken out that Peter talk about the $38 million given where revenue guidance is, given where operating expenses and margins are. We feel very comfortable with our cash position by heading into this fiscal year.

Okay. And my last question that dealt with pretty good segue through what I was going to ask you is obviously last year you had a lot of headwinds as far as customers taking projects in-house. How much of that can you expect to see this year? What are you expecting? What kind of pushback are you seeing right now?

Well, I would say that that's pretty much run its course. The major customers, Liberty obviously, Altice, Rogers, that's pretty much behind us. That's why I think our outlook here is – I feel good about our outlook. I don't have those headwinds. We do have some headwinds, I don't want to mislead you, but I feel like the headwinds I encountered a year ago are far less significant than what we have today.

Okay. Thank you.

The next question comes from Greg Mesniaeff of Drexel Hamilton. Please proceed with your question.

Yes. Thanks. I was wondering if you can give us.

Hi, Greg.

Can hear me?

Yes, Greg. I just said, hi, sorry.

Hi. I just wanted to focus a little more on your transition to a SaaS model, and how that's going to number one, impact your visibility. And number two, how it's going to impact the stickiness of your service of your product? Obviously, without an installed base, the cost of trend of switching are far lower just as the costs of signing someone up is far lower, so I'm wondering how you’re dealing with those changes in variables? Thanks.

Hey, Greg, it’s Peter. So I think first and foremost what I would say is where we're seeing a lot of customers that are interested in a subscription-based Adrenaline license is in some of the -- through Tier 4 customers that we have that are currently running Axiom. So as Ed mentioned the smaller operators out there find it much easier to fit an upgrade to Adrenaline in an operating OpEx business model which I think provides us with a great opportunity to up sell and get customers migrated onto Adrenaline that may have gone in another direction if we were sticking with a perpetual license or a CapEx model. So, I think we’re seeing a lot of opportunity with our existing installed base that have smaller numbers of subscribers who are much more optimistic about upgrading to Adrenaline, if we can if we can work with them on financing and get them under an OpEx business model. So I think we've got an opportunity to really penetrate some installed base that we may not have under the old business model which should result in some nice upside in recurring revenue for us.

Just to give another data point. In the past analysts have asked us how many Axiom customers do we have? What’s the path towards migration to Adrenaline? And I think you've heard numbers that have been decreasing, which means the customers, Axiom customers have gone in a different direction. And the main reason that we see every single day that they go in a different direction is our proposal for an on-premises license model Axiom to Adrenaline migration is too expensive for them. So, this gives us an opportunity to offer them OpEx or SaaS type pricing model which is far more affordable for them and we're seeing a lot of interest from those types of customers.

Sure. And I think it will be fair to say that for this transition to work – for this new model to work you need a lot more smaller customers on an ongoing basis, otherwise clearly the dependency is a different set of issues, right?

Well, the word smaller can be -- certainly if you look at OTT opportunities there are some customers who are looking at 10,000 to 100,000 subscribers. I think most of the Tier 2 to Tier 4s that we look at not only in the states but on a global basis have much larger subscriber bases. So while small relative to Tier 1 means one thing relative to pure play OTT with content owners is a much bigger market opportunity, much bigger revenue opportunity. So, I actually think it’s a really good place for us to be.

Got you. Now, one more question on competitive landscape type issues. There’s been some discussion about Ericsson’s video business perhaps being changing hands or something along those lines. Do you have any color on that or how that might impact your competitive situation?

We really don't comment on speculation around our competitors. I will tell you that a lot of our effort in fiscal 2017 was focused on getting ourselves right, and getting ourselves fixed. And we know that our customers like our technology, it works. They would like more of our technology. I think that positions us well for some of our competitors who are struggling with getting their customers to work or to use their software in the way that our customers are able to use our software. So, I think that represent a revenue opportunity for us. But frankly we’re very focused on continuing to get our restructuring done and if opportunities arise we certainly will go after those from some of those competitors.

Got it. Okay. Thank you.

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

Hey, good afternoon guys.

Good morning.

Hey. So, I just want to make sure I understand the OTT market as it relates to you and your comments, are you finding less of an exploitable corner in the market with content owners than you previously thought or is it something the delay decision-making you talk about, is that kind of being broadly felt, would you say? Or maybe the last option being are you more comfortable kind of reallocating the go-to-market investments you’re making towards more service providers space where you sort of how easier path to a more reliable path revenue? We’re just hoping to parse that out a little bit?

Well, I think it’s the market opportunity that represents – its sort of what the market is looking for or asking for. So a year ago we didn't see operators looking for end-to-end OTT base, its not just OTT, its traditional cable delivery platform. With respect to your question around OTT, pure play OTT content owners, I would say that there is a lot of churn going on in that space that not many of them are making the kinds of investments that they need to and the reason is that they’re not making money at it. So, the margin performance for the content owner in these ventures is not materializing and it's obviously creating a lot of revenue pressure for the OTT solution providers. And we've seen some of that and some of the OTT victories we had with content owners. We just think we’re very uniquely positioned with the operators. That’s our legacy. We now have a product with our end-to-end solution that addresses their IP TV needs. We obviously are very well-regarded with respect to the traditional back-office cable delivery. So, the market is kind of evolving into our benefit. In my view we just have to be able to execute on our roadmap and be able to deliver in order to obviously realize those opportunities.

Fair enough. Thank you.

Our next question is a follow-up Steve Frankel of Dougherty. Please proceed with your questions.

Quick one, maybe on the timing of Quickline from order to revenue, how many months was that?

That’s a loaded question, Steve. I think you I think you can surmise that in this quarter we took a sort a loss, so we’ve reduce a loss that we have taken. So about a year ago we had to record a loss of about $9 million for that project. So that project began in 2015 and frankly was never really on the tracks. So, we’re very, very fortunate that when we began to engage with the Polish Company with DCC Labs and put them together with our [Indiscernible] we actually got the project back on course. So that didn't start until the fall of 2015. So I really think the project began at that point it took us until really March of 2017 – sorry, yes, 2017 to actually deliver that platform.

So maybe the better question is if I came to you this quarter as a Tier 3, Tier 4 operator and said, I can't justify [ph] need, not a lot of customization but give me a Quickline like experience. Is that a six-month implementation cycle or is that a nine-month implementation cycle?

Yes. If all of the NitroX product features were available and they are not right now. It would be a three to six month effort, maybe shorter.

Okay. Thanks.

That’s a really good question because when we started Quickline we didn’t have a user experience like we have today.

Ladies and gentlemen, we’ve reached the end of the question and answer session. I would like to turn the call back over to Mr. Ed Terino, CEO for closing remarks.

Well, SeaChange is working very hard to complete its restructuring in a timely manner in order to return the company to profitability, improve our operations in stock capacity to serve a very dynamic market for multiscreen video and monetization. We are looking forward to engaging with service providers and content owners at the National Association of Broadcasters Conference later this month of April in pursuit of new opportunities for SeaChange solutions. I’d like to thank you all today for joining us and for your continued support and interest in SeaChange. Have a great evening. Good day.

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