SeaChange International Announces Fourth Quarter and Year End Results

SeaChange International, Inc. (NASDAQ: SEAC) a leading provider of software and hardware solutions for video on demand (VOD) television, announced financial results for its fiscal fourth quarter and year ended January 31, 2008. Total revenues for the quarter were $47.8 million which was $7.7 million or 19% higher than total revenues of $40.1 million for the fourth quarter of last year. Revenues for the fourth quarter were the second highest in the Company’s history. Net income for the fourth quarter was $14.6 million or $0.48 per diluted share compared with a net loss of $3.7 million or $0.13 per diluted share for the fourth quarter of last year. Net income for this year’s fourth quarter included a $12.6 million gain on the sale of the Company’s interest in FilmFlex Movies Limited, a U.K.-based joint venture that provides an exclusive VOD movie service to Virgin Media. Adjusted EBITDA (1) (Earnings before Interest, Taxes, Depreciation, Amortization, equity income in earnings of affiliates, and stock-based compensation expense) in the fourth quarter was $5.5 million compared to an Adjusted EBITDA loss of $0.3 million for the fourth quarter of fiscal 2007. Adjusted EBITDA for the fourth quarter of fiscal 2008 excluded the gain on the FilmFlex divestiture. Total revenues for all of fiscal 2008, ended January 31, 2008, were a record $179.9 million, a 12% increase from total revenues of $161.3 million in the prior fiscal year. Net income for fiscal 2008 was $5.4 million, or $0.18 per diluted share, compared with a net loss of $8.2 million or $0.29 per diluted share for fiscal 2007. The net gain from the sale of the Company’s equity interest in FilmFlex contributed $12.6 million to the Company’s net income for fiscal 2008. Adjusted EBITDA for fiscal 2008 was $12.1 million, which was more than double the $5.5 million of Adjusted EBITDA generated in fiscal 2007. Adjusted EBITDA for all of fiscal 2008 excluded the impact from the gain on the sale of the Company’s interest in FilmFlex. The Company ended the fourth quarter of fiscal 2008 with cash, cash equivalents and marketable securities of $87.9 million and no debt, compared with $63.1 million and no debt at the end of the third quarter of fiscal 2008. Proceeds from the Company’s sale of its equity investment in FilmFlex contributed $18.0 million to the Company’s cash and investments balance at January 31, 2008. In addition, a reduction in inventory and higher accrued expenses more than offset lower cash deposits from customers. For all of fiscal 2008, the Company increased its cash and investments by $32.6 million, which includes $18 million of proceeds from the FilmFlex transaction. "Following up on third quarter financial performance that included record revenue, a profitable bottom-line and solid cash generation, we were able to replicate that performance in the fourth quarter of fiscal 2008,” said Bill Styslinger, President and CEO of SeaChange International. "We’re particularly proud that all of our business segments contributed to year over year growth resulting in another profitable quarter even when excluding the impact of the FilmFlex transaction. Also, the fourth quarter showed that our business can throw off lots of cash, as we were able to generate seven million dollars of cash during the fourth quarter from recurring operations. For the full year, we generated $15 million of cash from operations, demonstrating the power of our business in producing significant cash flow.” Revenues in the fourth quarter of fiscal 2008 from the Company’s Broadband segment, which includes VOD and Advertising Insertion hardware and software, were $23.7 million, an increase of $3.6 million or 18% over comparable revenue in the fourth quarter of fiscal 2007. Year over year revenue growth in the fourth quarter was driven by a $1.1 million increase in VOD systems revenue from $11.5 million in the fourth quarter of fiscal 2007 to $12.6 million in the fourth quarter of fiscal 2008. Continued order strength from North American cable and telephone customers as well as increased sales activity from Latin American customers drove much of the increase in VOD systems revenue between the fourth quarters of fiscal 2007 and fiscal 2008. Broadband segment revenue growth in the fourth quarter was also driven by a $1.5 million increase in VOD software revenues from $4.8 million in the fourth quarter of fiscal 2007 to $6.3 million in the fourth quarter of fiscal 2008. VOD software revenues in the fourth quarter of fiscal 2007 included $1.0 million of sales discounts in connection with the 18 month extension of the Company’s middleware development contract with Virgin Media. Advertising Insertion revenues of $4.8 million in the fourth quarter of fiscal 2008 were $1.0 million higher than comparable revenues in the fourth quarter of fiscal 2007 driven primarily by increased high definition advertising insertion requirements for North American-based cable customers. The Broadcast segment generated $4.5 million of revenue in the fourth quarter of fiscal 2008 compared to $3.8 million in the fourth quarter of fiscal 2007. The year over year increase in revenues related primarily to significant orders from customers in the U.S., Europe and Australia. Total Services segment revenue for the fourth quarter of fiscal 2008 was $19.6 million, which was $1.2 million or 7% higher than the $18.4 million of Services revenue for the fourth quarter of fiscal 2007. The increase in Services revenue between quarters was primarily due to higher VOD services revenue resulting from increased year over year VOD systems deployments. "Looking at fiscal 2009,” Styslinger commented, "we expect year over year revenue growth, with second half revenues exceeding first half revenues, similar to what we experienced in fiscal 2008. We are also projecting profitability for the first half and for all of fiscal 2009. In addition, we expect to generate full-year cash flow from operations at levels similar to fiscal 2008. Our confidence in generating solid profitability and positive cash flow in fiscal 2009 and beyond stems from continued recurring software revenue and related services resulting from our key North American customers’ spending as they expand their VOD offerings, particularly with high definition. In addition, as we announced earlier this quarter, we intend to immediately implement our stock buyback program in order to increase value for all our shareholders.” The Company will discuss its financial results and business outlook in more detail today during its webcast conference call at 5:00 p.m. EDT, which will be available live and archived at www.schange.com/IR/. About SeaChange International SeaChange International is a leading provider of software applications, services and integrated solutions for Video-On-Demand (VOD), digital advertising, and content acquisition monetization and management. Its powerful open VOD and advertising software and scaleable hardware enable cable and telco operators, as well as broadcasters, to provide new on-demand services and to gain greater efficiencies in advertising and content delivery. With its Emmy Award-winning and patented technology, thousands of SeaChange deployments are helping broadband, broadcast and satellite television companies to streamline operations, expand services and increase revenues. Headquartered in Acton, Massachusetts, SeaChange has product development, support and sales offices around the world. Visit www.schange.com. (1) Adjusted EBITDA is a non-GAAP number that the Company defines as net income excluding interest, taxes, depreciation, amortization, equity income in earnings of affiliates, and stock-based compensation expenses. In addition, Adjusted EBITDA for the fourth quarter of fiscal 2008 excluded the gain on the FilmFlex divestiture. A reconciliation of Adjusted EBITDA to net income for these periods is contained in the financial schedules that accompany this release. Adjusted EBITDA is an important measurement used by management to measure the cash generated from or used for operations, excluding the operating cash requirements of interest, equity income in earnings of affiliates, and income taxes, and, in the case of the fourth quarter of fiscal 2008, the gain on the FilmFlex divestiture. The Company believes that inclusion of this non-GAAP measure enhances investors' overall understanding of the Company's current financial performance. Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America. Safe Harbor Provision Any statements contained in this press release that do not describe historical facts, including without limitation statements concerning expected future performance, product introductions and general market conditions, may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained herein are based on current expectations, but are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The factors that could cause actual future results to differ materially from current expectations include the following: the continued growth, development and acceptance of the video-on-demand market; the loss of one of the Company's large customers; the cancellation or deferral of purchases of the Company’s products, including due to any adverse change in general economic conditions; a decline in demand or average selling price for the Company's broadband products; the Company's ability to manage its growth; the Company's ability to protect its intellectual property rights and the expenses that may be incurred by the Company to protect its intellectual property rights; an unfavorable result in any future litigation; content providers limiting the scope of content licensed for use in the video-on-demand market; the Company's ability to introduce new products or enhancements to existing products; the Company's dependence on certain sole source suppliers and third-party manufacturers; the Company's ability to compete in its marketplace; the Company’s ability to respond to changing technologies; the risks associated with international sales; the performance of companies in which the Company has made equity investments, including Casa Systems; the ability of the Company to integrate businesses acquired by the Company; changes in the regulatory environment; and the Company's ability to hire and retain highly skilled employees. Further information on factors that could cause actual results to differ from those anticipated is detailed in various publicly available documents made by the Company from time to time with the Securities and Exchange Commission, including but not limited to, those appearing at Item 1A under the caption "Risk Factors" in the Company's Amended Annual Report on Form 10-K/A filed with the Commission on October 19, 2007. Any forward-looking statements should be considered in light of those factors. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak as of the date they are made. The Company disclaims any obligation to publicly update or revise any such statements to reflect any change in Company expectations or events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results may differ from those set forth in the forward-looking statements. * SeaChange and MediaCluster are registered trademarks of SeaChange International, Inc. SeaChange Axiom is a trademark of SeaChange International, Inc. SeaChange International, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data)           Three months ended Twelve months ended January 31, 2008   January 31, 2007 Restated (1) January 31, 2008   January 31, 2007 Restated (1) (unaudited) (unaudited) (unaudited)   Revenues $ 47,831 $ 40,073 $ 179,893 $ 161,334 Cost of revenues   24,107     23,005     98,929     85,523   Gross profit   23,724     17,068     80,964     75,811     Operating expenses: Research and development 10,226 10,216 42,699 40,917 Selling and marketing 5,888 5,556 23,073 22,383 General and administrative 5,543 4,869 20,283 19,193 Amortization of intangibles   547     1,434     2,952     5,664     22,204     22,075     89,007     88,157   Income (loss) from operations 1,520 (5,007 ) (8,043 ) (12,346 ) Interest income, net 513 416 1,927 1,355 Impairment on investment in affiliate (150 ) (150 ) Gain on sale of investment in affiliate   12,567       12,567     Income (loss) before income taxes and equity income in earnings of affiliates 14,600 (4,741 ) 6,451 (11,141 ) Income tax (provision) benefit (305 ) 553 (2,156 ) 1,632 Equity income in earnings of affiliates, net of tax   271       499       1,143       1,272   Net income (loss) $ 14,566     $ (3,689 )   $ 5,438     $ (8,237 )   Basic income (loss) per share $ 0.49   $ (0.13 ) $ 0.18   $ (0.29 ) Diluted income (loss) per share $ 0.48   $ (0.13 ) $ 0.18   $ (0.29 ) Weighted average common shares outstanding: Basic 30,025 29,235 29,634 28,857 Diluted 30,328 29,235 29,998 28,857   (1) The Company restated its Annual Report on Form 10-K/A for the period ended January 31, 2007 filed with the Securities Exchange Commission on October 19, 2007. SeaChange International, Inc. Condensed Consolidated Balance Sheets (in thousands)       January 31, 2008 January 31, 2007 Restated (1) (unaudited) Assets Current assets: Cash and cash equivalents $ 63,359 $ 31,179 Marketable securities 19,266 11,231 Accounts receivable, net 28,376 28,854 Unbilled receivables 7,367 5,562 Inventories, net 14,315 19,350 Income taxes receivable 44 409 Prepaid expenses and other current assets   2,612     2,990   Total current assets 135,339 99,575 Property and equipment, net 28,066 30,720 Marketable securities 5,272 12,885 Investments in affiliates 12,668 14,312 Intangible assets, net 6,809 13,054 Goodwill 32,004 23,726 Other assets   271     5,024   Total assets $ 220,429   $ 199,296       Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 9,636 $ 10,003 Income taxes payable 1,625 941 Other accrued expenses 17,387 6,623 Customer deposits 1,259 2,016 Deferred revenues 19,103 21,806 Deferred tax liabilities   93     366   Total current liabilities 49,103 41,755 Distribution and losses in excess of investment 1,458 — Deferred tax liabilities, long-term   1,934     1,121   Total liabilities   52,495     42,876     Stockholders’ equity: Common stock, $0.01 par value; 29,944,095 and 29,345,103 shares issued and outstanding at January 31, 2008 and 2007, respectively 299 293 Additional paid-in capital 191,625 184,976 Accumulated deficit (26,211 ) (30,424 ) Accumulated other comprehensive gain   2,221     1,575   Total stockholders’ equity   167,934     156,420   Total liabilities and stockholders’ equity $ 220,429   $ 199,296     (1) The Company restated its Annual Report on Form 10-K/A for the period ended January 31, 2007 filed with the Securities Exchange Commission on October 19, 2007. SeaChange International, Inc. Reconcilation between Condensed Consolidated Statement of Operations and Earnings before Interest, Taxes, Depreciation, Amortization, Equity Income in Earnings of Affiliates and Stock-Based Compensation (Adjusted EBITDA) (unaudited) (in thousands)     Three months ended Twelve months ended January 31, 2008 January 31, 2007 Restated (1) January 31, 2008 January 31, 2007 Restated (1) Net income (loss) $ 14,566 $ (3,689 ) $ 5,438 $ (8,237 )   Income tax provision (benefit) 305 (553 ) 2,156 (1,632 ) Interest income, net (513 ) (416 ) (1,927 ) (1,355 ) Gain on sale of investment in affiliate (12,567 ) (12,567 ) Equity income in earnings of affiliates, net of tax (271 ) (499 ) (1,143 ) (1,272 ) Stock compensation expense 1,513 870 3,978 3,514 Depreciation and amortization   2,508     3,994     16,153     14,454     Adjusted EBITDA $ 5,541   $ (293 ) $ 12,088   $ 5,472       (1) The Company restated its Annual Report on Form 10-K/A for the period ended January 31, 2007 filed with the Securities Exchange Commission on October 19, 2007.