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SI

SEACHANGE INTERNATIONAL INC (SEAC)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 FY2023 revenue was $8.29M (+16% Y/Y; +13% Q/Q) with gross margin at 62% (vs. 52% Y/Y); non-GAAP income from operations was $0.15M (second straight positive), while GAAP net loss was $(3.68)M ($(0.07)/sh) driven by a $3.26M goodwill impairment .
  • Mix shift toward Services: Services revenue rose to $6.11M (+41% Q/Q; +68% Y/Y); Services GM was 75% vs. Product GM 26% as acceptance of completed work boosted services, while higher third‑party goods diluted product margins .
  • Strategic wins/catalysts: Selected by Fox Sports Mexico for StreamVid; completed a major VIDAA development phase enabling launch on millions of connected TVs with potential revenue impact as soon as Q4 FY2023—supporting recurring SaaS expansion .
  • Liquidity and outlook: Cash $14.5M, no debt; management reiterated an EBITDA breakeven or better outlook; company applied to transfer listing to Nasdaq Capital Market to extend compliance window .
  • Estimates: S&P Global Wall Street consensus was unavailable for SEAC for Q3 FY2023; therefore, beats/misses vs. estimates cannot be assessed (see Estimates Context) [GetEstimates error noted].

What Went Well and What Went Wrong

What Went Well

  • Services-led growth and margins: Services revenue grew to $6.11M (+41% Q/Q; +68% Y/Y) with 75% services GM, supporting overall gross margin of 62% .
  • Profitability progress: Non-GAAP operating income positive for a second consecutive quarter ($0.15M) with stable non-GAAP OpEx and improving mix; CEO: “Revenue growth was very strong… [and] we record another quarter of positive EBITDA…” .
  • Strategic traction in streaming/CTV: Won Fox Sports Mexico for StreamVid; completed a major VIDAA phase enabling a global connected-TV launch and potential revenue contribution as soon as Q4 .

What Went Wrong

  • GAAP loss driven by impairment: GAAP net loss $(3.68)M due largely to a $3.26M non‑cash goodwill impairment in Q3; note cumulative impairments in Q2 ($5.84M) and Q3 eliminated goodwill .
  • Product margin compression: Product GM fell to 26% (from 72% in Q2) due to a significant increase in lower‑margin third‑party goods, partially offset by stronger services GM .
  • International mix softer sequentially: International revenue was $3.6M (44%) in Q3 vs. $4.6M (63%) in Q2; U.S. increased to $4.6M (56%) from $2.7M (37%) .

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$7.151 $6.723 $7.324 $8.288
Gross Profit ($USD Millions)$3.712 $3.220 $4.759 $5.155
Gross Margin %52% 48% 65% 62%
GAAP Net Income ($USD Millions)$(2.105) $(2.996) $(6.451) $(3.684)
GAAP Diluted EPS ($)$(0.04) $(0.06) $(0.13) $(0.07)
Non‑GAAP Income (Loss) from Operations ($USD Millions)$(1.365) $(1.471) $0.011 $0.149

Revenue by Type

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Product Revenue ($USD Millions)$3.511 $2.826 $2.986 $2.183
Service Revenue ($USD Millions)$3.640 $3.897 $4.338 $6.105

Product and Service Detail

Sub‑SegmentQ3 2022Q1 2023Q2 2023Q3 2023
License & Subscription ($M)$2.172 $1.222 $2.776 $1.430
Hardware ($M)$1.339 $1.604 $0.210 $0.753
Maintenance & Support ($M)$3.003 $2.939 $3.288 $3.144
Professional Services & Other ($M)$0.637 $0.958 $1.050 $2.961

Margins and Mix

MetricQ2 2023Q3 2023
Product Gross Margin %72% 26%
Service Gross Margin %60% 75%
U.S. Revenue ($M, % of total)$2.7 (37%) $4.6 (56%)
International Revenue ($M, % of total)$4.6 (63%) $3.6 (44%)

Liquidity (Fiscal 2023)

MetricQ1 2023Q2 2023Q3 2023
Cash & Cash Equivalents ($USD Millions)$16.465 $14.336 $14.498
DebtNone None None

Notes: Q3 FY2023 period ended October 31, 2022 . GAAP loss in Q3 includes $3.255M goodwill impairment; Q2 includes $5.843M impairment .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EBITDA (non‑GAAP)2H FY2023“EBITDA positive through the back half of fiscal ’23” (Q2 call) “EBITDA breakeven or better outlook” (Q3 call) Maintained qualitative profitability outlook (no numeric ranges)

No formal numerical guidance (revenue, margins, OpEx, OI&E, tax rate, or dividends) was provided in Q3 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2023)Trend
SaaS/StreamVid adoptionQ1: Onboarding StreamVid customers; pivot to SaaS/recurring model . Q2: Three StreamVid launches targeted by Q4; positive non‑GAAP op income .Won Fox Sports Mexico StreamVid deal; services up strongly; non‑GAAP op income positive again .Improving (logos + recurring)
Connected TV/VIDAAQ1: “Development Plus” VIDAA project progress . Q2: Significant progress; expected completion later in year .Completed major VIDAA phase enabling launch on millions of TVs; potential revenue as soon as Q4 .Accelerating toward monetization
AdTech/FASTQ1: Xstream features for contextual ads; FAST initiatives . Q2: Automated ad sales flow with DISH; FAST push .Strategy emphasizes ad‑supported models; Fox Sports Mexico to use subscription + ad insertion .Expanding
Geographic executionQ2: Strong international mix (63%) .U.S. mix grew (56%); international 44% .Mix shift to U.S. in Q3
Profitability/CostsQ1: Lower non‑GAAP OpEx; GAAP loss narrower Y/Y . Q2: EBITDA positive plan for 2H; non‑GAAP op income ~$0 .“EBITDA breakeven or better” reiterated; non‑GAAP op income $0.15M .Gradual improvement
Listing/Capital markets—Applied to transfer to Nasdaq Capital Market for extended compliance window .Risk managed; monitoring

Management Commentary

  • CEO: “Revenue growth was very strong, up 16% year-over-year and 13% sequentially. Profitability and cash generation continues as we record another quarter of positive EBITDA and increased our cash balance to nearly $15 million with no debt…” .
  • President: “SeaChange was selected by Fox Sports Mexico to power their next-generation streaming service with our comprehensive streaming enablement platform, StreamVid… [and] completed a major development phase for VIDAA… with potential impact to revenue as soon as Q4.” .
  • CFO: “Product gross margin… was 26%… due to a significant increase in… third‑party goods… offset by strong service gross margins of 75%… Non‑GAAP income from operations… $152,000… At quarter end, we had $14.5 million in cash… no debt.” .
  • CEO on listing: Filed application to move to Nasdaq Capital Market, providing a six‑month extension to regain compliance .

Q&A Highlights

  • Replicability of Fox Sports Mexico and regional strength: Management emphasized strong LATAM sales execution and sees opportunity to replicate sports/streaming engagements in other markets; highlighted VIDAA’s global footprint (EMEA) and intent to pursue additional sports bodies in coming quarters .
  • Monetization model flexibility: Fox Sports Mexico will combine subscription and ad insertion, underscoring StreamVid’s ability to support hybrid monetization .
  • Listing/compliance: Management addressed the Nasdaq transfer to extend the compliance window; CEO reiterated belief shares undervalue company assets and performance .

Estimates Context

  • S&P Global consensus data for SEAC’s Q3 FY2023 (revenue and EPS) was unavailable via the S&P Global feed at the time of analysis; as a result, we cannot quantify beats/misses vs. consensus for this quarter. Future comparisons will default to S&P Global data when available.

Key Takeaways for Investors

  • Services pivot is working: Services revenue growth (+41% Q/Q; +68% Y/Y) and 75% services GM drove overall margin resilience despite product margin headwinds .
  • Recurring revenue catalysts: Fox Sports Mexico StreamVid win and VIDAA’s near‑term launch window should expand SaaS/recurring revenue visibility beginning as soon as Q4 FY2023 .
  • Watch product margin volatility: Increased pass‑through of third‑party goods can compress product GM (26% in Q3 vs. 72% in Q2); services strength can offset mix‑driven volatility .
  • Profitability trajectory intact on non‑GAAP: Non‑GAAP operating income positive again ($0.15M) and “EBITDA breakeven or better” reiterated; GAAP results remain impacted by non‑cash goodwill impairments .
  • Geographic mix shifted to U.S.: U.S. revenue rose to 56% of total (from 37% in Q2), while international moderated; focus on replicating LATAM success into other regions remains a narrative driver .
  • Liquidity adequate for execution: $14.5M cash and no debt provide runway for organic initiatives and customer delivery .
  • Listing pathway managed: Application to transfer to Nasdaq Capital Market provides time to execute and regain compliance; monitor milestones and communications .

Appendix: Additional Data Points and Disclosures

  • Non‑GAAP treatment: Non‑GAAP operating income excludes stock‑based compensation, amortization, severance/restructuring, transaction costs, goodwill impairment, other expense, and taxes; management uses this measure for budgeting and trend evaluation .
  • Balance sheet snapshot (Q3): Cash & equivalents $14.5M; accounts receivable $7.0M; unbilled receivables $12.0M; deferred revenue $2.6M; no debt .

All data are sourced from SeaChange’s Q3 FY2023 8‑K/exhibit press release, Q3 FY2023 earnings call transcript, and prior-quarter 8‑Ks/calls as cited above.