12/13/2016

Quality Deep Value within a Growth Industry



SeaChange (SEAC) develops  content management, delivery and advertising software solutions for the premium video and advertising market. The company staffed with over 600 employees provides on premise and cloud-based solutions. SeaChange offers world class TV service providers and content owners the ability to create millions of exceptional, individualized consumer experiences on every device. This offers customers opportunities to increase revenue with targeted advertising and promotions.

SUMMARY:

Historical and Relative Valuation Discount: EV/GP TTM = 1.28 versus 3.00 for the average three-year period from 2013 to 2015, EV/Revenue TTM = .61 versus 1.50 for the average three-year period from 2013 to 2015. P/TB TTM = 2.10 versus 2.35 for the average three-year period from 2013 to 2015.

Mean Reverting price performance: negative 52 week returns of -61.06%, enterprise value dropped -80% from 273M for the fiscal year ending 2013 to current enterprise value 55M.

Value based institutional ownership purchased shares at significantly higher prices. John Rogers from Ariel average price paid for 4,912,077 shares is $6.15 versus today’s (12/13/16) price of $1.50. Royce owns 2,723,534 shares. Pinnacle Associates 2,715,849 shares, Neuberger Berman 2,507,768 shares and others.

Insider 2016 buying with no sales; 40,000 shares at $3.83 Edward Terino, 25,000 shares at $3.90 Steven Craddock, 25,000 shares at $3.36 Mary Cotton Palermo, 10,000 shares at $3.40 Thomas Olson.

Short history declining from 7.04% shares short as % of float on 02/29/16 to the most current reported 11/30/16 balance of 3.14%. Current short balance on 11/30/16 is this year’s lowest value.

World class customers with valuable patent assets and multiple patent pending. 31 patents granted worldwide. Customers such as BBC, Cablevision, Comcast, Verizon, Virgin, Vodafone, Kabel Deutschland, others.

New products with a growing international pipeline and opportunities. 



Details:

A review of reported Quarter 3 (12/06/16) provides a window into the future opportunities and insight into the current valuation dislocation. Revenue for Q3 2016 declined as management expected. The lower professional service revenues are principally responsible for the 31% YOY revenue decline. Further, product revenues affected by customer order delays.

Strategic initiatives and future opportunities updated during Q3 call.

The Axiom to Adrenalin pipeline has over 20 customers quoted for upgrades. Latin American video on-demand and advertising customer upgraded to Adrenalin and Infusion platforms. New mobile sales in the Middle East for Adrenalin back office. Recorded a new 7 figure customer for Adrenalin replacing competitor.

Rave opportunities exist in Americas and EMEA entering the 4th quarter. This pipeline approaches 30. Multiple Adrenalin customer upgrade opportunities exist during the 4th 2017 quarter and 1st qtr. 2018. Further, cloud based deployments of Adrenalin back office, engaged with the largest customer to deliver a virtualized deployment of Adrenalin back office running in one data center for 17 different countries. This project will allow customers to keep and upgrade 17 countries at a significantly lower cost with more frequency.

New product announced in the fiscal third quarter, NitroX. A multi-platform user experience that provides a common user meet features across multiple devices including RDK based set-top boxes, Android set-top boxes, Legacy set-top boxes in mobile devices such as smartphones and tablets. A healthy product roadmap for NitroX includes delivering the product for Apple TV, Roku, Amazon Fire, Comcast and Samsung Tizen in the first half of fiscal 2018.

During the third quarter, the sales organization grew to improve lead generation with several new hires in Europe, Latin America and Asia Pacific. Meaningful progress realized on the restructuring efforts to optimize operating expenses and gross margins. During fiscal 2017 operating costs reduced by ~ $30 million on an annualized basis from three main initiatives. First, discontinuance of Timeline Labs. Second, acquisition of DCC Labs and the later elimination of SeaChange in home positions in Milpitas, Indiana and Minerva. Third, the recently announced cost cut program. This program improves the efficiency and effectiveness of the organization by targeting the elimination of over 140 full time positions many contractors and third party vendors.

Cost cuts of 30M to be realized during fiscal 2018.

SEAC has mean reverting attributes. Current enterprise value is 55M down from 149M fiscal year ending 2015, 273M 2013. Current market cap 91.50M down from 210M fiscal year ending 2015, 394M 2013.

SeaChange has world class customers, historically and relative cheap valuation, no debt, trades at only 1.28 times gross profit, EV/Revenue =.61, world class patent assets, 31 patents granted worldwide, multiple patent pending, strong insider buying supports industry future strength for video on all devices. current price is $2.50 on 12/12/16


Valuation Measures
Market Cap: 91.54M, Enterprise Value:  55.14M
Enterprise Value/Revenue: 0.63 ,Price/Book (mrq)  0.89
Revenue (ttm)   87.18M ,Revenue Per Share (ttm) 2.52
Quarterly Revenue Growth (yoy)  -30.60% , Gross Profit (ttm)    46.84M
Total Cash (mrq)   37.75M , Total Cash Per Share (mrq)  1.07
Current Ratio (mrq)     4.32 ,Book Value Per Share (mrq)   2.91
52-Week Change:   -61.06%
52 Week High:  7.14 ,52 Week Low:  2.05
Shares Outstanding : 35.21M, Float: 31.61M
% Held by Insiders:   7.48% , % Held by Institutions:  88.50%
Short % of Float:  3.50%


World Class Customers















Insider 2016 Buying




 













Historical Valuation 
















Value Institutional Ownership




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