Mary Conway - Investor Relations Ed Terino - Chief Executive Officer Peter Faubert - Chief Financial Officer

Steven Frankel - Dougherty and Company Jaeson Schmidt - Lake Street Capital Markets Hamed Khorsand - BWS Financial

Greetings, and welcome to the SeaChange International’s Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mary Conway, Investor Relations.

Thanks, Omar, and good afternoon everyone and thank you for joining us today. SeaChange released results for the fourth quarter and full year of fiscal 2018 ended January 31, 2018, today after the market closed. If you would like a copy of the release, you can access it on the IR section of our Web site, 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 Web site. Before Ed begins, I'd like to remind you that 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 17, 2017 and our most recent Form 10-Q, which was filed on December 07, 2017. 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. 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. Ed?

Thank you, Mary. Good afternoon, everyone and thank you for joining SeaChange's call today. Let me start by outlining what I will cover on the call. I’m going to provide some insights on our strong performance in the quarter and key sales wins; the status of our revenue pipeline, trends that we are seeing evolve in the digital media or industry and our strategy for achieving success by effectively addressing these trends; an update in our go to market initiatives and our progress in executing our product roadmap; and lastly, I will provide an overview of our new branding and messaging as we position SeaChange for future revenue growth. Let me start with our strong Q4 results. As you saw in the press release we issued today, we delivered solid results at the higher end of our guidance on both top and bottom line. For the second consecutive quarter, we saw improvement in most of our key operating metrics on a year-over-year basis, from gross margins to operating expenses, to positive cash flow from operations. Pete will provide more details on the metrics in his comments. Our recent financial performance indicates that the actions taken over the last 18 months have yielded the results that we were targeting; profitability and positive cash flow, while stabilizing revenues. We are relatively new team at SeaChange and I want to commend the entire team here at SeaChange for our achievements in fiscal 2018. Our revenue performance in Q4 benefited from the expansion of our relationship with Liberty Global, our largest customer, as we announced in December. During the quarter, we delivered more software licenses to transition Liberty Global subsidiaries’ video platforms in EMEA to the cloud. As we worked through this expansion, we continue to expect Liberty Global's Latin America properties to transition to the One Back Office platform over the next several years, which would lead to additional significant revenues for SeaChange. The Liberty Global EMEA effort, which launched in Q3, is expected to roll-out over the next two to three years. We continue to believe that this opportunity represents incremental license revenues to SeaChange of at least $30 million, including the approximately $5 million in revenue we booked in Q4. In addition to Liberty Global, other revenue highlights for Q4 included: we successfully closed two other perpetual license revenue bookings that were approximately $2 million each; Cox Communications became the first customer to purchase the new version of our content management system, along with an upgrade to the latest version of our Adrenaline Backoffice. In addition, a new tier two operator in the U.S. purchased an IP video-on-demand platform. There were several smaller deals in Q4 to existing customers for additional licenses that reflected growth in their subscriber basis. Shifting to the revenue pipeline. While our Q1 ’19 outlook for revenues is lower than what we recorded in the same quarter in fiscal 2018, we continue to see a healthy pipeline that should position us well for annual revenue growth in fiscal 2019. Overall, the pipeline this year is higher than our pipeline entering fiscal 2018 and it is between 2x and 3x the midpoint of our fiscal 2019 revenue guidance. The pipeline once again is characterized by several important seven and eight figure opportunities with service providers. A key difference in our fiscal 2019 pipeline compared to last year is that this year it is composed of more opportunities in Europe, Central and Latin America, South America and Asia-Pac. The opportunities in Central America and Latin America, as well as APAC particularly can be largely attributed to the channel partnerships that we entered into last year. Another difference is a growth in opportunities with perspective customers outside of our traditional service provider market segment, and this includes wireless carriers, content owners and aggregators. These opportunities are predominantly subscription-revenue based, and thus if we win them, the deals will not materially impact revenues in fiscal 2019. But like the significant similar wins we recorded last fiscal year with Partner in a North American Internet service provider, they provide substantial and growing deferred revenue that benefit our longer term revenue visibility. I also want to emphasize that our current pipeline includes only opportunities for products that we sell today. In other words, it does not reflect potential contribution from new products that we are planning to launch this fiscal year. In a few minutes, I will discuss some of these new products that we plan to release in fiscal 2019, and how we expect these new products will positively impact our pipeline in the back half of fiscal 2019. Since our Q3 earnings call on December, SeaChange has completed a market assessment and strategic plan. We believe that while there is tremendous change taking place in the digital media industry that create volatility for companies like SeaChange, we believe that several industry trends are benefiting SeaChange, including; consumers want high quality content and personalized viewing experiences delivered to the device of their choice, anytime and anywhere; content owners want a direct relationship with the end user, opening up new monetization opportunities. Service providers need to adapt to changing customer demands by renovating their infrastructure and business processes. Cloud based solutions need to deliver a seamless viewing experience across all devices to the end user. The cloud also provides a foundation for rapid innovation, elastic scale, high resiliency and lower operating costs. Increased wireless network performance has enabled high-quality video experiences over mobile. Operators are already joining the video delivery fray, with T-Mobile's recent acquisition of Layer3 TV as the most obvious signal of MNOs intention to compete directly with cable companies. SeaChange is in an excellent position to capitalize on these industry trends. With our highly scalable, reliable, responsive video and advertising platforms, including our recently enhanced content management system and our NitroX user experience client software, we are among a small group of companies that can provide a comprehensive management toolset to address the digital media industry’s demands. SeaChange’s strategy to leverage these market opportunities is focused on three tenets; technology innovation, expanding to adjacent market segments, and driving new go-to-market selling and distribution models. With respect to technology innovation, we are focused on three areas; personalization of the viewer experience for greater engagement and retention; mobile video to meet the any device anywhere challenge; and cloud-based technologies that are required to support personalization and mobility. These innovations will be driven by strengthening our data capture and data analytics capabilities. From a market segment perspective, we continue to serve the traditional service provider market. But as we have told you before, we're expanding into new segments such as content owners, wireless carriers and Internet service providers. And on the go-to-market front, we are continuing to enable different selling models, such as subscription offerings, which are being offered alongside our perpetual license model. Additionally SeaChange has been implementing partner programs in market segments and geographies that we cannot reach with our direct sales force. To remind you, our partner program is focused on channel partners and technology partners. We have previously discussed channel partners in our prior conference calls. More recently we have begun to collaborate with technology partners with whom we do not have competing products. These might include partners such as providers of CDNs, encoding and transcoding, digital rights management, recommendation engines, customer premise equipment and billing and administration capabilities. From a market assessment and the realignment of SeaChange’s products and services with market opportunities, we have identified several new product and go-to-market initiatives designed to drive revenue growth in fiscal 2019 and beyond. These initiatives include an end-to-end video platform with pre-integrated components from third parties, along with our entire product suite in a managed network or managed service model for content owners, wireless carriers and service providers. We will be announcing this new platform shortly. Extensions to our advertising product family, including; a virtualized inserter, to update our linear ad insertion capabilities for service providers and complete offerings of targeted OTT advertising for both linear and video-on-demand content; tailoring our IP linear and IP VOD product offerings for service providers to extend their subscriber basis with IP-based and OTT services; focused efforts to expand our large content management customer base to include service providers and content owners to utilize more SeaChange video platforms; and lastly, upgrades and extensions of our current service provider customers’ platforms with our back-office advertising and content management solutions. Now, let me shift to our fiscal 2019 product roadmap, which has been synchronized with these initiatives. Following the expansion of our engineering resources in Poland last year, I am pleased to say that we are making substantial progress in improving both the predictability and quality of deliverables. Our team is focused on more rapidly bringing new products to market and more quickly addressing customer, along with fast deployment and flexible scaling. First and foremost, as previously mentioned, we are developing and expect to launch shortly a new generation end-to-end OTT platform featuring all of our products and using a managed service model that will be targeted to content owners. We have already released an updated version of Adrenalin that will better enable IP linear and IP VOD delivery, as well as time shift TV and network DVR capabilities. We expect to release the initial version of our next generation content management system later this month. And that will be installed in two customers including cost communications as I mentioned earlier. We expect this updated offering to appeal to a broader set of perspective customers, including those struggling with other than these platforms to improve their content management and metadata curation. We have released an update of our linear ad insertion platform and see numerous opportunities to sell an upgrade of this for the new platform into our installed customer base. We are also developing an OTT version of our linear ad insertion platform that will enable OTT customers to increase their revenues through targeted OTT based advertising. Shifting to marketing, since last October, we have taken meaningful steps to strengthen our marketing capabilities and we expect to be sharing highly visible results this quarter. All of our new marketing actions also derive from our strategic planning efforts and go-to-market initiatives. In marketing, we are focused on building our communication expertise in bringing coherency; lead generation and thought leadership through digital marketing and marketing automation capabilities; and product marketing expertise and capacity. We will be unveiling a comprehensive branding across our entire portfolio, including launching a new Web site with new messaging. Overall, I am very pleased with our progress in transforming our business as we evolve our organization, our products and services, our sales and marketing and our messaging to address a changing landscape. Feedback from customers, prospects, partners and even competitors, has been uniformly positive as they witness our transformation. Looking ahead, our goals for fiscal 2019 are to grow revenues, continue to achieve profitability and generate cash and ultimately to be seen as a technology innovator and market leader again. In terms of our financial outlook, on an annualized basis, we are expecting modest top-line growth but more significant bottom line progress as we lap the completion of our restructuring program in the last fiscal year. With that, I’ll turn the call over to Pete to discuss our financial results and provide more specifics around our outlook for the first fiscal quarter and fiscal year 2019. 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 the fiscal year of 2019. As Ed mentioned, we are pleased with both our fourth quarter revenue and non-GAAP EPS came in at the high-end of our guidance range. We entered the fourth quarter of fiscal 2018 with $15.4 million in total backlog, excluding maintenance and support. We booked new business of $6.9 million during the fourth quarter and ended the quarter with backlog of $7.4 million. Total revenue in the fourth quarter was $22.9 million compared to $23.8 million in the fourth quarter of the prior fiscal year. Driving our revenue performance in the fourth quarter this year was stronger product revenue from software licenses, especially from Liberty Global. These software licenses led to 28% increase in product revenue year-over-year, offsetting some of the expected decline in professional service revenue related to the completion of certain professional service projects for Liberty Global and for Quickline. The decrease in maintenance and support revenue continues to be driven primarily by the decommissioning of legacy hardware products with existing customers. Total product revenue was $9.9 million in the fourth quarter or 43% of total revenue compared to $7.7 million in the year-ago quarter or 32% of total revenue. The increase was largely attributed to software licenses sold to Liberty Global in the fourth quarter of this fiscal year as I mentioned earlier. Video platform software revenue was $8.8 million and accounted for 89% of the total product revenue compared to $6.2 million or 80% of the total product revenue in the fourth quarter of last fiscal year. Total service revenue in the fourth quarter was $13.1 million or 57% of total revenue compared to $16.1 million or 68% of total revenue in the fourth quarter of last fiscal year. The decrease in services revenue was driven primarily by the completion of certain projects at Liberty Global and Quickline as I mentioned earlier. Video platform professional service revenue totaled $4.5 million, down from $5.6 million in the same quarter of last fiscal year. Maintenance revenue totaled $8.1 million or 36% of total revenue and 62% of total service revenue compared to $9 million or 38% of total revenue and 56% of total service revenue in the fourth quarter of last fiscal year. The decline in maintenance revenue was driven by the decrease in legacy video streamer support. Revenue from international customers of $15.2 million in the fourth quarter represented 66% of total revenue compared to $15.8 million or 66% of total revenue in the prior year quarter. One customer comprised more than 10% of total revenue in the fourth quarter with Liberty Global and its affiliates contributing 35%. Our blended GAAP gross profit margin increased to 71% in the fourth quarter compared to 68% in the prior year quarter. Excluding the non-GAAP charges in the fourth quarter of fiscal 2018, non-GAAP gross profit margins were 72% in the fourth quarter compared to 52% in the prior year quarter. The improvement reflects continued effects of our restructuring program and a larger contribution to total revenue from the higher margin software license sales than in the prior year’s quarter. Our non-GAAP product gross margin in the fourth quarter was 91% compared to 75% in the prior year quarter due primarily to product mix, which included those software license sales. Non-GAAP service gross margin in the fourth quarter was 57% compared to 42% in the prior year quarter. Non-GAAP operating expenses in the fourth quarter declined 10% year-over-year to $13.1 million from $14.6 million in the same quarter of the prior year, but were higher than the expected run rate of about $12 million per quarter that we shared with you at the end of fiscal 2017. Operating expenses for the current quarter included approximately $300,000 in one-time investments in projects to improve infrastructure and business processes. In addition, we incurred approximately $1 million of incremental bonus and commission expenses resulting from our solid revenue quarter. As in prior quarters, we continue to see the benefit from lower labor costs as we leverage our Poland operation to drive engineering efforts worldwide. Our non-GAAP operating income of $0.10 per fully diluted share came in at the top of our guidance range, largely due to the benefits from our restructuring initiatives and top-line performance and compares to a non-GAAP operating loss of $0.06 per basic share in the fourth quarter of last fiscal year. This strong improvement allows us to continue to reinvest more aggressively in our operating and product development initiatives. With the acquisition of Layer3 TV by T-Mobile in January 2018, SeaChange successfully monetized its ownership stake in Layer3 TV. We received an initial payment of approximately $4.6 million and realized a gain of $2.6 million. We ended the fourth quarter with cash and cash equivalents of approximately $52 million and no debt compared to approximately $39 million at the end of fiscal 2017. In the fourth quarter, cash increased by approximately $15 million, reflecting improved working capital management, as well as the benefit from the Layer3 monetization. As of the end of fiscal year 2018, we have completed our restructuring activities worldwide. Any additional cash restructuring charges that we incur going forward are not expected to be significant. Given the seasonality trends in our business, we may have quarters where we are not profitable and may burn cash but we expect to be profitable and generate positive cash flow for the year and fiscal 2019. Deferred revenue of $14.4 million declined from $14.9 million as of January 31, 2017, driven primarily by the timing of our annual maintenance and support renewals. Day sales outstanding, excluding unbilled receivables, totaled 89 days at the end of the fourth quarter of this fiscal year compared to 100 days in the fourth quarter of last fiscal year due to significant cash collections in the fourth quarter of this year. Including unbilled receivables, day sales outstanding totaled 101 days in the fourth quarter compared to 108 days in the fourth quarter of last fiscal year. Our unbilled receivables were $3.1 million in the fourth quarter of this fiscal year, a marked improvement from $6.6 million in the fourth quarter of last fiscal year. The decrease reflects invoicing against service contracts for one of our largest customers for which we received purchase orders in the fourth quarter of this year. With the completion of the cost reduction program announced in fiscal year 2017, we have now achieved our goal of extracting approximately $38 million of annual run rate savings with approximately $18 million of savings realized in fiscal 2018. This progress, in addition to our top line performance, enables us to be profitable on an operating basis for the second consecutive quarter of this fiscal year. Looking ahead in fiscal 2019, we expect that product revenue will contribute approximately 35% of total revenue for the year, slightly lower than 36% we saw in fiscal 2018. We expect maintenance revenue to decrease from 41% of total revenue in fiscal 2018 to approximately 35% of total revenue in fiscal 2019. We expect professional service revenue to contribute approximately 30% of total revenue in fiscal 2019. Over the course of fiscal 2019 as more customers shift to cloud-based deployment models, we expect our revenue mix to continue to transition from perpetual licenses to monthly recurring revenue. We have already seen this impact our top line performance in fiscal 2018. And as we continue through this transition, we will increase the recurring revenue, thus improving visibility and predictability of our revenue. In addition, as of February 1, 2018, we've adopted new technical accounting status related to revenue recognition, which will impact the timing of revenue recognition prospectively. We have completed a preliminary recast of revenue related to ongoing projects and expect a decrease in fiscal 2019 revenue opportunity of between $1 million and $3 million. With this in mind, we anticipate that revenue for the first quarter of fiscal 2019 will be in the range of $13 million to $15 million and that non-GAAP operating loss will be in the range of $0.15 per share to $0.11 per basic share. The decrease in revenue guidance for the first quarter compared to the prior year is primarily related to the timing of certain -- closing of certain opportunities. In addition, as mentioned earlier, a high percentage of our pipeline opportunities are subscription deals that will not contribute meaningful revenue to the first half of fiscal 2019. For the full year, we expect revenue to be in the range of $80 million to $90 million. We have multiple large perpetual license opportunities in our pipeline, and a subset of those opportunities supports our full year revenue expectations. We expect the product mix and the impact of last year's cost cutting initiatives will allow us to maintain gross margins in the low to mid 60% range. We are anticipating non-GAAP income per share in the range of $0.10 to $0.25 per fully diluted share for the full year of fiscal 2019. In addition, as I mentioned earlier, we expect to be cash flow positive for the year. And with that, I’ll hand the call back to Mary. Thank you very much.

Thank you, Peter. Operator, can you please provide instructions for the Q&A session?

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

Just help me square the sharp downturn in Q1 with relatively optimistic and strong results for the full year. How do we get from A to B given -- you’ve given us some gross margin guidance, but it seems like maybe there's some additional cost savings on the OpEx line that kicks in. What’s the right run rate to think about for OpEx for starters, for the year?

I think, we’re still targeting $12 million operating expense run rate on a quarterly basis. We did spend -- we invested in some resources to, like I said, address not only the project to adopt the technical guidance around revenue recognition but also to help us work through some of the internal controls improvements that we made this year. So we expect those costs to drop off in fiscal 2019. So I think $12 million in OpEx is still a good number. As it relates to the revenue drop off, what we’re seeing is that we do have, as Ed mentioned in his messages, some fairly large product deals that bring with it high margin contribution, similar to the LG deals that we closed in fiscal ‘18. The only difference is this year in our pipeline we’ve got more of them. So we’re really working on closing a couple of those deals that make our revenue this year lumpy. But we do have visibility and enough opportunities where we feel confident that we’ll close a subset of those larger deals in the pipeline.

And maybe Ed, if you could give us some comfort on your ability to put your arms around the timing of those deals that are in the pipeline, so that we don't have to wait until Q4 for the business to also on in, the linearity post Q1 on those opportunities?

Well, if I could predict when those deals would closed, I should go into another business. Obviously, there are timelines associated with each of the transactions. One of them, we were at the NAB last week it was an RFI that was provided. So hopefully, that will be somewhere in the back half of the year. We have another sizable opportunity that we’re hoping can be in the first half of the year, but it's still somewhat difficult to get a read from that prospect on when they will make a decision. And then as I said in my comments, there are some opportunities through partners that are fairly sizable that again because they are new partners and they are new customers it's a little difficult to get predictability around closure rate. So that's always a challenge, Steve, with trying to figure out what we have to do to get closure. A lot of times you think if you are -- the process of submitting your quote that it isn’t long, but sometimes that can be very unpredictable as well, that customers can take three, four, six months to make a decision. So we’ll just keep monitoring things as closely as we can and obviously try to get customers to make decisions as quickly as possible.

And so you feel fairly comfortable with this revenue range for the year despite the fact that it’s dependent on a couple of large deals?

No, absolutely I feel very comfortable with the revenue range. Obviously, we’d like to see Q1 be better. But no, I feel very comfortable, some of the deals that we’re talking about we directly met with the prospects last week. So I had first hand visibility into some of these opportunities.

And as opposed to past years, we can take some comfort in the fact that deals can now go faster between signing and to revenue, maybe that runway is a lot shorter than it used to be in the past with a lot of custom work?

One of the changes related to the new technical guidance around revenue recognition is there is no longer a requirement to have vendor specific objective evidence to be able to recognize product revenue when you ship the product. And if you remember, we didn't have [VISO] [ph] in Europe, so all of the deals that were sold out of our operations in EMEA where revenue was recognized over a period of time. That’s now changed under the new guidance. So we specifically have been taking a look at product deals in our pipeline to understand what the potential revenue opportunity is related to shipping product in EMEA this year versus last year where we couldn’t take revenue until certain other performance obligations were met.

And the other thing back on 606, that $1 million to $3 million, do we think of that as linear through the year or -- how does that play out?

I wouldn't say it's necessarily linear. I mean it is an annual revenue impact number, so it will impact the top line this year. But it's really depends on when we’re delivering those products and services that would dictate when that revenue would have been recognized had we been able to recognize that going forward. So it's hard to predict, is the answer to that one.

And then last one for you, Ed. What changes have you seen to the competitive landscape in the last quarter?

I think that there is certainly a lot of pressure on closing deals, number one, but I think on getting margin performance. Certainly, as we’re seeing opportunities that are subscription based, the margins are more difficult to realize. Certainly, we see better margins on our perpetual license deals. And I think as the market is shifting certainly certain segments of the market is shifting to subscription, you’re seeing a lot of pricing pressure and you’re seeing a tremendous amount of competition in those areas. I think everybody is challenged by this. Certainly, when you sold perpetual licenses that were seven figures in nature, there was a lot more opportunity to realize margins there than when you’re selling a subscription deal that’s priced at anywhere from $15 to $25 per subscriber per year.

Our next question comes from Jaeson Schmidt, Lake Street Capital Markets. Please proceed with your question.

Just quickly a clarification, the product revenue, the target of 35% of total revenue that’s for all of fiscal 19’ and not for the April quarter, correct?

That’s correct.

And then if we look at the January quarter results, do you think your revenue got accelerated into January or do you think there were any pull-ins from the April quarter?

No, I can't think of any deals that were specifically accelerated. Obviously, the biggest contributor to the quarter from a product perspective was the remaining LG licenses that were delivered during the quarter.

I would say, if anything Jaeson that the two other big deals we closed were close $2 million each, none of their revenue came-in in Q4.

And then just going back to the OpEx line, so it sounds like it’s going to drop down to that $12 million target give or take for April and really for this year. Are there any additional areas you think you guys can cut some costs? I know most of the heavy lifting is done. But anywhere else there could be some potential future trimming?

I think, we’ll continue to see some of those costs that I mentioned throughout Q1 obviously because we are leading up to earnings release and filing our K. Thereafter, our goal is to get back down to the $12 million a quarter, operating expense run rate. And then as it relates to cost savings, I think we’re going to continue to focus on improving business process throughout the organization. As we do that, inherently, we’re going to be able to cut some costs related to just being more efficient in how we do things and that's outside of the heavy lifting restructuring program that we put in place. Our goal is to really, for fiscal ’19, just get more efficient and save cost as we do that.

And Jaeson, what I would add is that we have a great opportunity here to do some innovation. I think I'm really pleased with where we are financially, I mean to be profitable, we have a goal to sustain profitability and we've improved our cash position. I think given our accomplishments, we're looking at innovate. We want to become an innovator and a leader again. And I think the market opportunities are there as you heard in my comment. So I think our focus now is on how do we innovate and invest to grow our top-line, and that's fairly where we're putting most of our focus.

And that really is a good segue into my last question on cash. It's obviously bumped up quite a bit here. You guys have to right size the model, goal of being cash flow positive this year. How should we think about capital allocation going forward?

So as Ed mentioned, we are going to reinvest back into the business, specifically into product roadmap and R&D execution. That being said, from a use of cash perspective, until we see consistent revenue growth and really benefit from having more visibility into pipeline conversion to sales through cash we're going to be pretty conservative with the cash balance that we have. And we want to make sure that we're maintaining that. So we won't be very aggressive in terms of how we're investing the cash that’s currently on the balance sheet.

Our next question comes from Hamed Khorsand, BWS. Please proceed with your questions.

So first off, could you just talk about this Cox contract a little bit more, because from what I understand, Cox was using our licensing Xfinity so if they're using you, does that mean it's a significant win for you that they’re coming over from ComCast Xfinity platform? Could you just talk about that a little bit?

So Cox has selected X1. As I've spoken about on previous calls, the roll-out of these platforms takes years. I mean, certainly, ComCast has gotten very efficient at it and could roll it out pretty quickly. So part of the deal we did was to do an upgrade to a platform that Cox expects to continue to use for the next several years until the entire roll-out takes place with X1. But more importantly, they chose our content management system. And we believe that we have a product there that is something they will use in conjunction with other vendor video platforms. And again in my comments, one of our go-to-market initiatives is to try to sale our content management capability that really standardizes workflows that curates metadata that enriches metadata. We believe that that's a product that we can sale with other video platforms that are used at that particular customer. So we do feel very excited about them choosing that, not choosing something else. And we look forward to having Cox as an long term customer related to certainly the content management capabilities that we provide to them.

Between Cox and Liberty Global, I mean, do you have enough case studies where you can present and capture more customers or do you still have to prove a point to the industry and grab more customers?

Well, no. Actually, I think one of our best lead generation opportunities is our content management capabilities. So we don’t have Liberty Global using our content management solution. We’d love them to. They have their own home grown solution. But we do have, I think maybe a dozen other customers who use our prior version of our content management capability. And they’re all candidates to upgrade to the newer release of our product that we just announced. In addition, we’re seeing more demand for our content management capability than back-office capability in certain geographies. So in Asia-Pac, they have a video distribution platform in a lot of places that they are comfortable with. But where they’re really struggling is on the content management side and this is where we have a lot of interest from that geography and our outreach and our marketing efforts in the last quarter.

And then can you quantify how much more is left from the Layer3 sales that you are supposed to get?

So right now there is escrow amount that’s been held back and that additional payout could be up to $2.1 million. But that is subject to them satisfying the requirements of the escrow.

Is there a timing as to when that escrow could be released?

We haven’t really talked about the timing. I will say that I think that there are multiple escrows that have different terms.

And lastly with your free cash flow guidance suggesting that that’s going to be positive this year. Is that coming from working capital adjustments or is that purely from the operating performance?

Well, I think there’s always two components; there’s the operating performance that will largely drive the cash flow; but certainly, we’ve seen in our business that working capital can be lumpy as well. We saw that in Q4. So I think it’s going to be a combination of both.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Ed Terino, CEO, for closing remarks.

Thank you. As you can see from our very solid close to a strong fiscal year’s performance, SeaChange has achieved the transformation towards which we have been working over the past year and a half. At the same time, we have developed stronger relationships with existing and new customers as we strive to grow profitability within an evolving changing market. As we enter fiscal 2019, we see the following important competitive advantages for SeaChange in the marketplace; first, our technology scales to handle the largest video delivery platform’s demands; we enable millions of subscribers to stream hundreds of thousands of assets millions of times per day with reliability and responsiveness that we believe is unparalleled in the industry; we have an open platform architecture that allows customers to choose a wide variety of third-party products to integrate into their platform; we enable customers to deploy a hybrid video solution across any network, whether it’s cable, fixed, wireless or over-the-top; and we provide completely cloud enabled platforms and enable customers to operate our solutions in a cost efficient dev ops model. Thanks to everyone for joining us today and for your continued support and interest in SeaChange. If you have any questions, certainly please feel free to reach out to us. Have a great day. Bye-bye.

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