SeaChange Issues Profit Warning, Stock Drops 40%+

Josh Stinehour | August 21, 2018

SeaChange issued a profit warning today regarding its financial performance for the quarter ending July 31, 2018 (SeaChange’s Fiscal Q2 2019).  

As part of Seachange’s fiscal first quarter results (quarter ending April 2018), management had issued guidance of $17 million to $19 million for revenue during the second quarter and a GAAP loss from operations guidance of $0.04 to $0.08 per share.

The preliminary results announced today now expect revenue between $11.5 million and $12.5 million for the quarter, a more than 30% lowering of both the lower bound and upper bound.  GAAP loss from operations for Q2 is now anticipated between $0.15 and $0.20 per share, which is a more than doubling of the loss at the lower bound and an almost quadrupling of the loss at the high-end.

Using the midpoint of the new revenue guidance, the first half revenue result would represent a 20% decrease versus the first of fiscal 2018 (six months ending July 31, 2017).

The Company’s cash balance declined $14 million during the quarter to a level of approximately $35 million as of July 31, 2018.

SeaChange’s stock price closed at $2.90 on Monday and declined over 40% during today’s session, closing at $1.60.  For some historical context, consider SeaChange went public on the NASDAQ in November 1996 at a price of $12.17.

The current trading level equates to a market capitalization of approximately $57 million and an Enterprise Value (market cap plus debt, less cash) of $22 million.

SeaChange will report full results for its fiscal second quarter on September 5, 2018.  Those results will include a review of the valuation of the Company’s goodwill balance ($25 million on April balance sheet).  This is because management determined the quarter’s results represent a trigger event requiring a valuation of goodwill.  If the valuation process determines the goodwill is impaired (i.e. lower value than current carrying value), then an additional charge will be required in SeaChange’s Q2 results – further lowering earnings for the quarter.

The announcement cited purchase delays and the timing of bookings as contributing to lower revenue performance.  Interestingly, SeaChange’s CEO Ed Terino also attributed part of the revenue disruption to the introduction of subscription-based products. “…Finally, as we introduced new products that are subscription-based, customers delayed purchasing decisions to evaluate the SaaS model” stated Terino.


Related Content:

Press Release: SeaChange Fiscal Second Quarter 2019 Profit Warning


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