Seachange International, Inc. 2004 Annual Report
Total Page:16
File Type:pdf, Size:1020Kb
SeaChange International, Inc. | 2004 Annual Report How will the industry meet worldwide viewers' rising expectations for television on demand? SeaChange International, Inc. is a leader in the market for digital video systems for television.We create powerful server and software systems that manage, store, and distribute professional-quality digital video. Our innovative products are based on a scalable, distributed software architecture and standard technology components. As a result, we enable broadband, broadcast, satellite and new media companies to streamline operations and reduce costs, allowing for expanded services, new applications, and increased revenues. We’re providing the foundation that is allowing the television industry to meet the ever-increasing market for on-demand entertainment and information. SeaChange International, Inc. Financial Highlights (all numbers in thousands, except diluted earnings per share) CASH AND INVESTMENTS 122,043 DILUTED EARNINGS PER SHARE 100,534 103,898 VOD SYSTEMS REVENUE 83,300 TOTAL REVENUE .20 62,800 Jan 31, 2004 148,166 Jan 31, 2003 (.77) .02 Jan 31, 2002 135,626 43,200 117,404 Jan 31, 2004 Jan 31, 2002 Jan 31, 2004 Jan 31, 2003 Jan 31, 2002 Jan 31, 2003 Jan 31, 2004 Jan 31, 2003 Jan 31, 2002 President’s Letter Dear Shareholders, This year we achieved our most significant financial performance ever. Each quarter we set new records in video-on- demand revenues, streams shipped and earnings. At the end of fiscal 2004 we earned $.20 per share and generated over $20 million in available cash.We are making real progress in bringing on-demand television to the world. Since 1993 we’ve focused on the vast opportunities in digital television. Each year we’ve achieved significant milestones that have broadened our market base and strengthened our technology. In 1996 we introduced the MediaCluster, which has become one of our foremost advantages. In 1997, we entered the hotel movie systems market as a precursor to residential video-on-demand and said we “intend to lead the personal television revolution.” 1998 saw the expansion of our market base with the introduction of the Broadcast MediaCluster, which enabled us to build new relationships with the content providers.We knew then that we needed to build solutions that would span the entire television industry from content origination, to delivery to payment mechanisms.This business grew nicely and, today, our systems are used by over 250 broadcasters around the world. In 1999, SeaChange was engaged in five VOD trials, including one with Comcast and one with Time Warner.We also made one of our best strategic decisions—to acquire Digital Video Arts, which now leads the industry in set-top application software development. Additionally, we introduced high quality digital video streaming for Internet applications.We were making great headway with technology innovation and product expansion. Fiscal 2001 was the year that VOD began to take hold.We received commitments from four of the top seven cable opera- tors: Comcast, Cablevision,Time Warner and Adelphia.We sold over 15,000 streams and introduced the industry’s first real-time encoding system to enable time-shifting of Broadcast content.To meet the growing international customer base, we increased our service staff and built a world-class global service organization providing 24x7x365 support. Two years ago,VOD commitments turned to deployments and our number of streams shipped rocketed to 166,000. We were honored by the National Academy of Television Arts and Sciences with a prestigious Emmy Award for outstanding technical contribution to the television industry in recognition of our MediaCluster.We were indeed “leading the personal television revolution.” Fiscal 2003 showed continued progress and evolution.We deployed systems with eight of the top ten operators in North America. Our number of streams shipped escalated to almost half a million with the addition of another 270,000 deployed. Our real-time encoding system pushed the industry closer to the reality of “personal television,” with the advent of NBC programming being offered “on demand” in Comcast’s Philadelphia system. Clearly, a “sea change” was occurring in the way people consumed television. History is being written and our contribution is prominent. Fiscal 2004 was the year that VOD became mainstream in all major East Coast television markets and began its expansion across the country.The availability of high-quality content increased significantly, and operators moved beyond the movie-on-demand model to an offering with thousands of hours of unique television programming. Higher usage numbers, as well as dramatic churn reduction, made it clear that on- demand television was a financial winner for the cable operators.We shipped almost as many streams last year as we had in all prior years combined, an astonishing 433,000. Last year, new markets started to emerge internationally and we announced two significant deployments over DSL in Canada and Asia as well as a major cable deployment in Europe. One of our greatest achievements was our financial performance in fiscal year 2004. SeaChange met or exceeded First Call’s earnings’ estimates for all four quarters. During the year, we continued our revenue growth, our earnings steadily improved to $.20 per share and we generated significant amounts of free cash, ending the year with over $4 in cash and investments per share. At this point the question we are most often asked is,“Where does the market go from here?” VOD is available to less than 15 million homes today out of a growing universe of 70 million cable subscribers in America.What we see for the next 12 to 18 months is the continued expansion and growth of the US market. Beginning in the second half of this year, we expect to see the opportunity for VOD over both cable and DSL emerge worldwide.These markets present considerable potential for continued expansion of our leadership position. As we have all witnessed, the world gets smaller with every advance in television.We see events as they unfold around the world on our computers and our televisions.The advances in the management, distribution and consumption of content that make this possible represent an ever-growing market for SeaChange technology. We have three goals for this year and going forward.The first is to increase our already substantial leadership position in the global market for digital video technology.The second is to continue to produce a positive return for our shareholders, many of whom are our employees, and to build on the solid foundation of financial strength we have established.The third goal is to continue to focus on improving the quality of our products and services to our customers worldwide. Our success cannot be attributed to any one factor. It has been accomplished by a combination of dedicated efforts by bright, innovative and focused employees, continued enthusiasm from our customers and, of course, the advice and support of our directors and shareholders.To all of you, my heartfelt thanks again.We look forward to another great year! Sincerely, Bill Styslinger President, CEO and Chairman SeaChange International SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2004 Commission File Number: 0-21393 SEACHANGE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-3197974 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 124 Acton Street, Maynard, MA 01754 (Address of principal executive offices, including zip code) (978)-897-0100 (Registrant’s telephone number, including area code) Securities Registered Pursuant To Section 12(b) Of The Act: None Securities Registered Pursuant To Section 12(g) Of The Act: Common Stock, $.01 par value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes È No ‘ As of July 31, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price for the registrant’s Common Stock on the Nasdaq National Market on such date was $247,569,651. The number of shares of the registrant’s Common Stock outstanding as of the close of business on April 12, 2004 was 27,382,782. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy Statement (which is expected to be filed within 120 days after the Company’s fiscal year end) relating to the registrant’s Annual Meeting of Stockholders to be held on or about July 14, 2004 to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes certain statements of a forward-looking nature which reflect the Company’s current views relating to future events or the future financial performance of the Company. These forward-looking statements are only predictions and are subject to risks and uncertainties, particularly the matters set forth in “Certain Risk Factors” below, which could cause actual events or results to differ materially from historical results or those indicated by such forward-looking statements.