NeuLion Reorganizes Executive Team; Acquires Saffron Digital

Analysis, broadcast technology market research | Posted by Josh Stinehour
Jun 23 2016

NeuLion, a technology product and service provider for digital distribution, announced several executive management changes along with the acquisition of London-based Saffron Digital.NeuLion,_Inc_-729822400065

Dr. Kanaan Jemili resigned from the position of President and CEO, though will remain as a consultant with the Company.  Roy Reichback, NeuLion’s General Counsel and a member of the board of directors, has been promoted to the position of President and CEO.

NeuLion’s Chief Financial Officer Art McCarthy also resigned his position at NeuLion.  Trevor Renfield will replace Mr. McCarthy as the new Chief Financial Officer.  Mr. Renfield had previously served as the Chief Financial Officer at DivX, which was acquired by NeuLion in February 2015.

Nancy Li, a co-founder of NeuLion, was promoted to Executive Chair of the NeuLion board and will continue to focus on technology development and product strategy.  Charles Wang will step down from his position of Chairman of the Board, though will remain a member of the board of directors.

NeuLion’s SEC filings on the management reorganization states the “changes were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices, or with the audit committee or the Company’s auditors.”

Separate to the management changes, NeuLion announced the acquisition of Saffron Digital, a video delivery platform company.  It was an all cash transaction.  Terms were not disclosed.

This is the third acquisition of Saffron Digital since its founding in 2006.

Smartphone manufacturer HTC acquired Saffron for $48.3 million in February 2011.  Based on 2010 revenue performance, the deal value equated to a revenue multiple of 5.5x.

HTC subsequently divested Saffron ahead of the 2013 IBC Show to Toronto-based DVD and CD manufacturer Cinram.  Cinram was backed by the Najafi Companies, a private investment firm.  The stated value of the 2013 transaction was $47 million.  As reported by Focus Taiwan, the acquisition consideration consisted of $7.5 million up front cash with an additional $39.5 million over the next five years.  HTC also maintained royalty free rights to Saffron’s intellectual property.

According to its UK filings, Saffron’s revenue performance declined from $19.8 million in 2012 to $14.7 million in 2014.  The resulting impact on after tax profits was considerable.  During the same period Saffron went from generating an after tax profit to losing more than $5 million in 2014.

In the press release announcing the transaction, the cited acquisition rationale was the opportunity to expand NeuLion’s entertainment customer concentration and enhance its technology offering to better support video on demand services.  Customers using Saffron Digital’s platform include Carrefour, BT, Deutsche Telecom, iTV, Tribeca Films, and Vidity.  All of Saffron’s employees (more than 50) are joining NeuLion.

Commenting on the transaction, Jason Keane, CEO for Saffron Digital stated, “We are excited to join NeuLion.  As part of NeuLion, we can now offer our customers a compelling OTT platform for all premium digital content with support for all types of business models.”

Roy Reichbach, President and Chief Executive Officer for NeuLion added,  “The integrated company can offer owners and rights holders of sports and entertainment a complete end to end solution for both live and on demand content that is a clear market leader.”



Related Content: 

NeuLion Press Release on Management Changes  

NeuLion Press Release on Saffron Digital Acquisition



© Devoncroft Partners 2009-2016.  All Rights Reserved.



Evertz Reports Record Annual Revenue, Highlights SDVN Momentum

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Jun 10 2016

Evertz reported results for its fiscal fourth quarter and year ending April 30, 2016.  For the full year Evertz achieved record annual revenue of C$381.6 million, an increase of 5% versus fiscal 2015 revenue.  evertz-logo

Net earnings for the fiscal year were C$70.9 million (C$0.94 per share), an 8% increase against fiscal 2015.  Evertz generated cash flow of C$91.2 million from operations during 2016, an increase of 68% over 2015.

Gross margin percentage for fiscal 2016 was 57%, which is similar to the 56.7% recorded during fiscal 2015.  Operating margins for the 2016 year were 25.2%, a slight improvement over the 24.3% operating margins in 2015.

2016 annual revenue from the US/Canada region was $216.0 million, up 6% when compared to 2015.  US/Canada represented 56.6% of total revenue in 2016, approximately flat versus the 56.2% in 2015.

International revenue for full year 2016 was $165.5 million, a 3.9% increase compared to 2015.  As a percentage of total revenue, International represented 43.3% of total sales in 2016, which compares to 43.7% of total revenue in 2015.

The top ten customers for the year accounted for 29% of total revenue, and no customer accounted for an excess of 7% of revenue.  During the year, Evertz had 311 individual customers each representing over C$200,000 of revenue.

The Company ended the year with C$123.1 million of cash and cash equivalents down slightly from C$129.9 million at January 31, 2016.


Q4 FY2016 Results:

Evertz revenue for the fourth quarter of its 2016 fiscal year was C$96.4 million, up 5% versus the same quarter a year earlier, and down 3.3% versus the previous quarter ending January 31, 2016.

Revenue for the quarter was in line with the consensus analyst estimates for revenue of C$96.7 million.

The Company said that its shipments during May 2016 were C$21 million, and that its purchase order backlog at the end of the quarter was in excess of C$69 million.  May 2016 shipments represented a 28% year-over-year decline versus May 2015.  Management attributed the weakness to the timing of customer orders and fewer shipping days in May.

Net earnings for the quarter were C$8.1 million (C$0.11 earnings per share), a decrease of 26.6% versus the fourth fiscal quarter of 2015, and a decrease of 66% versus the preceding quarter.  Evertz generated cash from operations of C$10.1 million for the quarter, which compares favorably to the C$1.6 million used by operations during the fourth quarter of fiscal 2015.  The operating results included an unfavorable C$11.8 million foreign exchange loss during the quarter.

Revenue in quarter for the US/Canada region was C$51.2 million, up 2.4% versus the same period a year ago, and down 4.4% versus the previous quarter. US/Canada sales were 53% of total revenue during the quarter, down from 54% of revenue during the same period a year ago, and 53.7% of revenue last quarter.

International revenue for the quarter was C$45.1 million, representing a 7.6% increase versus the previous year’s result and a decrease of 2.3% when compared to the previous quarter. International sales were 47% of total revenue in the quarter, up from 45% during the same quarter last year and 46.3% from the preceding quarter.

Gross margins in the quarter were 57.1%, down slightly from 57.3% during the prior year period and equivalent to the 57.1% contribution from the third fiscal quarter of the year.

R&D expenses in the second quarter were C$17.3 million, a decrease of 1.9% versus the same period last year, and flat versus the previous quarter.  R&D expenses were approximately 17.9% of revenue in the quarter, lower on a percentage basis than last year (19.1%) and last quarter (17.3%).

Selling and administrative expenses for the quarter were C$16.2 million, an increase of 4.5% versus last year, and a decrease of 2.4% versus the sequential quarter. Selling and administrative expenses represented 16.8% of revenue in the quarter, the same as the year earlier quarter, and a slight increase versus the 16.6% contribution of revenue in the previous quarter.

On the call with earnings analyst, Evertz EVP Brian Campbell highlighted Evertz’s positive market momentum with its Software Defined Video Networking (SDVN) solutions.  Responding to a question by Robert Young from Canaccord Genuity, Brian Campbell stated, “We have over 50 deployments of SDVN including some of the first of their kind and largest scale.  By virtue of that, it would put us in leadership position.  As you recall as well, we were very early in developing the solutions and advocating software defined networking and also virtualized – whether it be private cloud or public cloud – solutions. So I think we are very well positioned to help our customers that are looking to move in that direction, and to give them great comfort that they’ve got fabulous solutions that they can count on going forward.”



Related Content:

Press Release on Evertz Q4 FY2016 Results

Evertz MD&A on Q4 FY2016 Results

Evertz Q4 FY2016 Financial Statements



© Devoncroft Partners 2009-2016.  All Rights Reserved.



AT&T acquires QuickPlay Media

Analysis, Broadcast Vendor M&A | Posted by Josh Stinehour
May 16 2016

AT&T announced today its intention to acquire Quickplay Media, a managed service provider for multi-screen distribution.  Transaction terms were not disclosed.  The deal is expected to close in mid-2016 with AT&T planning to retain more than 350 employees from the Quickplay team.

The acquisition is pending review of the Hart-Scott-Rodino Act in the US and the Competition Act in Canada.  The transaction size threshold for triggering a Hart-Scott-Rodino-Act review is $78 million, so the transaction is at least greater than $78 million – though likely more.

Quickplay had raised more than $195 (CAD) million of capital across six rounds of fundraising.

Private equity firm Madison Dearborn took a majority stake in the business in July 2012 with an investment of approximately $100 million and then subsequently led a March 2015 round of financing for an additional $57 million of capital.

Earlier rounds of series B, C, and D fundraising had raised a combined $37.7 million and included institutional investors General Catalyst Partners, JLA Ventures, and Ventures West.

Quickplay is headquartered in Toronto, with a significant presence in the San Diego area based on its acquisition of network operations center assets from the former Flo TV business in July 2011.  More recently in March 2015, Quickplay had acquired Roundbox, a technology provider for optimizing video applications over mobile networks.

The acquisition builds on an existing partnership between AT&T and QuickPlay.  Quickplay was already supporting AT&t U-verse TV Everywhere offering.  The press release announcing the transaction cited the intention for Quickplay to support the upcoming DirecTV streaming offers of DirecTV Now, DirecTV Mobile, and DirecTV Preview.

Quickplay also supports several other large video distributors including Bell, HOOQ, Rogers Communications, Verizon, and Vodafone.

Commenting on the Quickplay acquisition, John Stankey, CEO, AT&T Entertainment Group stated, “Quickplay’s multitenant IP distribution infrastructure, combined with AT&T’s leading scale in IP connected end points, will allow us to host and distribute all forms of video traffic. We intend to scale and operate an industry-leading video distribution platform, and viewers will get the high-quality online video viewing experience they desire.”

Founder and CEO of Quickplay, Wayne Purboo was quoted in the press release, as follows, “We’ve spent more than a decade developing an advanced technology and service platform that can deliver premium video content to any device and over any network. Our solution is highly automated and scalable. With AT&T, we’ll have the resources we need to further scale, grow the business, and continuously enhance that platform.”

This acquisition follows other purchases of video technology suppliers by large Telecom organizations, including the recent purchase of Volicon by Verizon and the purchase of Ooyala by Telstra.


Related Content: 

AT&T Press Release: Acquisition of Quickplay Media



© Devoncroft Partners 2009 – 2016. All Rights Reserved.



Harmonic Declines 21.3% in Q1 Due to Revenue Recognition Challenges

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
May 13 2016

Harmonic announced revenue for first quarter of 2016 of $81.8 million, a decrease of 21.3% versus Q1 2015 and a decrease of 5.5% versus the Q4 2015. Harmonic_Logo

Guidance for Q1 2016 had been for revenue in the range of $82 million to $86 million.  The guidance not include any potential contribution from the acquisition of Thomson Video Networks (“TVN”), which closed in late February.  Revenue contribution from TVN was approximately $3.5 million during quarter.

Managed attributed the underperformance of revenue against guidance to challenges in recognizing software and services revenue.  This is a visible aspect of Harmonic’s ongoing transformation to a software business model, which has created complexity in the accounting for the separate portions of software and services in solutions sales.

The accounting impact highlights Harmonic’s progress in selling its virtualized solutions, including VOS.  During the earnings release, Harmonic announced VOS has surpassed 20,000 channel deployments globally.  Management expects to clear up the revenue recognition challenges later in year, which would lead to an acceleration of revenue recognition in Q4 2016.

GAAP gross margins were 49.7% for the first quarter, a decline versus the 52.9% recorded in Q1 2015 and a decline against the 54.3% gross margins in Q4 2015.  Harmonic attributed lower gross margins to the delays in recognizing software and services revenue, which has high gross margins.

For the quarter, Harmonic recorded a GAAP net loss of $25.1 million or $(0.33) per diluted share.  This compares to a net loss of $2.6 million or $(0.03) per share in Q1 2015 and a net loss of $7.2 million or $(0.08) per share in Q4 2015.  The decline in overall profitability is due to the lower revenue levels for the quarter.

Bookings for the first quarter of 2016 were $109.6 million (including $5 million from TVN), an increase of 8.5% versus the year earlier period, and a 12.6% increase versus the preceding quarter.

The Company’s total backlog in deferred revenue was $180 million, up 47% and 49.8% over Q1 2015 and Q4 2015, respectively.  The backlog benefited from the slippage in revenue recognition and also a $21 million contribution from the acquisition of TVN.

On a geographic basis:

  • Americas accounted for 54% of the revenue for Q1 2016, a slight decline versus the 47% from Q1 2015, and equivalent to the 54% contribution recorded in the fourth quarter of 2015
  • The EMEA region was responsible for 24% of the revenue in the quarter, equivalent to the contribution from Q1 2015, and slightly lower than the 25% contribution in Q4 2015
  • APAC represented 16% of the revenue for the quarter, a slight decline versus the 18% contribution in Q1 2015, and a steeper decline against the 22% contribution in Q4 2015

On a product line basis:

  • Video products revenue for the quarter was $44.2 million, a decrease of 9.2% compared to Q1 2015, and a decrease of 12% versus Q4 2015. As a percent of total sales, video products represented 54% of revenue in Q1 2016.  This compares to 47% in year-earlier period Q1 2015 and 58% in the preceding quarter Q4 2015
  • Cable Edge revenue was $13.4 million during the quarter, a decrease of 57.8% versus first quarter of 2015, though an increase of 17.3% compared to the preceding fourth quarter. Cable Edge represented 16% of revenue in Q1 2016, a decrease versus the 30% contribution in Q1 2015, though an increase over the 13% of revenue recorded in Q4 2015.  The continued decline of Harmonic’s legacy EdgeQAM technology was anticipated.  Harmonic remains on schedule to ship its CableOS product line in the second half of 2016.
  • Services and support revenue amounted to $24.1 million in Q1 2016, an increase of 2.7% against Q1 2015, and a decrease of 2.8% versus Q4 2015. Service and support revenue was 30% of revenue for Q1 2016, an increase over the 23% from Q1 2015, and in-line with the 29% from Q4 2015

On a segment basis:

  • Broadcast and Media sales were $30.5 million during the quarter, a year-over-year decrease of 15.2%, and a decrease of 11.5% against the preceding quarter. Broadcast and Media was responsible for 37% of revenue for the first quarter of 2016, a slight percent increase from 35% in Q1 2015, and a decrease versus the 40% in Q4 2015.
  • Service Provider sales were $51.3 million in the first quarter, a 24.5% year-over-year decrease, and a decrease of 1.5% versus Q4 2015. Service Provider represented 63% of revenue in the quarter, a slight decrease from 65% contribution in Q1 2015, though an increase from the 60% contribution during Q4 2015.

The Company’s cash position ended the first quarter of 2016 at $76.2 million, down from $152.8 million from the end of 2015.  The decrease is primarily attributable to the cash purchase price paid for the acquisition of TVN.

Harmonic ended the first quarter with 1,418 employees, up from 989 at the end of 2015.  The TVN acquisition added approximately 430 employees.

Business outlook:

For Q2 2016 management is anticipating total revenue in the range of $102M – $107M and GAAP gross margins of 48% – 49%.  Operating loss is expected between $14.5 million and $12.5 million with earnings per share of $(0.19) to $(0.16).

As part of the release, management confirmed it remains on track to realize the $20 million annual synergy savings expected from the integration of TVN.  The full impact of these savings will begin with the start of 2017.

Managed also reiterated the prior financial guidance for 2016 from the Q4 2015 earnings release.

Commenting on quarter’s results, Harmonic President and CEO Patrick Harsham stated, “While our first quarter results fell below our expectations, new bookings grew sequentially and year-over-year and we ended the quarter with record backlog and deferred revenue.  We are excited that our transformation to virtual architectures and associated services remains on track including the announcement of our new VOS Cloud and VOS 360 software-as-a-service offerings. Our full-year financial guidance remains unchanged.”


Related Content:

Harmonic Q1 2016 Earnings Press Release

Harmonic Q1 2016 Earnings Presentation



© Devoncroft Partners 2009 – 2016. All Rights Reserved.



Avid Q1 Growth of 20%, Offset by Bookings Shortfall

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
May 11 2016

Avid Technology announced Q1 2016 GAAP revenue of $143.5 million, an increase of 20% versus Q1 2015 revenue of $119.6 million. Avid Logo_ white background

Approximately 75% of the year-over-year growth is attributable to a change in the accounting treatment of revenue recognized for the release of the latest Pro Tools version 12.5 during the first quarter.  The ability to more quickly recognize revenue reflects Avid’s progress over the past two years of eliminating the practice of implied support for products and transitioning to explicit support and recurring revenue models.

Absent the revenue acceleration, management indicated Avid for the quarter would have been within the original guidance of $120 million to $125 million on a non-GAAP basis.

Avid’s public filings did not disclose the amount of the growth attributable to revenue contribution from Orad, purchased in the third quarter of 2016.  Orad had $10.4 million of revenue during Q1 2015.

Product revenue for the quarter was $84.5 million, an increase of 5.6% against year-earlier quarter.  Products represented 58.9% of overall revenue in the quarter, a decrease versus the 67% contribution during the first quarter of 2015.  Services revenue was $59.0 million, an increase of 49.2% versus the year-over-year period.  Services contributed 41.1% of total revenue for Q1 2016, an increase versus the 33% contribution from Q1 2015.

Q1 2016 net income was $20.9 million or $0.53 per share.  This compares to Q1 2015 net income of ($0.2) million, which was $0.00 per share.

Gross margins for the quarter were 69.7%, a substantial improvement over the 60.3% from Q1 2015.  Backing on the accelerated Pro Tools revenue recognition would have resulted in a gross margin of approximately 67%.  The remaining increase in gross margin was primarily due to lower non-variable costs of sales resulting from Avid’s ongoing efficiency programs.

Operating income for Q1 2016 was $25.7 million, a more than 20-fold increase over the operating income of $1.1 million in Q1 2015.

R&D expense for the quarter were $21.4 million, a 7.3% decline against Q1 2015 R&D levels.  As a percentage of revenue R&D expenses were 15.0% for the quarter, compared to 19.3% of total revenue in Q1 2015.

Sales and marketing costs for Q1 2016 were $31.6 million, representing a 12.8% rise versus Q1 2015 sales and marketing levels.  Sales and marketing expenses were 22.0% of Q1 2016 revenue, a decline versus 23.4% of total revenue from the first quarter of 2015.

G&A expense was $17.7 million for Q1 2016, a decline of 8.6% versus the year earlier quarter.  Expressed in terms of total revenue G&A expense was 12.3% of sales in Q1 2016 versus 16.2% in Q1 2015.

When considering the comparable period Q1 2015 figures do not include Orad’s operations (purchased in Q3 2015), the decline in R&D and G&A further illustrates the impact of Avid’s recent restructuring initiatives.

During the first quarter of 2016, Avid announced a $68 million (annualized) efficiency initiative.  The full $68 million savings are expected beginning in 2017.  During the earnings presentation for the quarter, management indicated $33 million of the goal has been completed through the first quarter activities.  $5 million was reflected in first quarter results.

There are many one-time expenses and non-cash items in Avid’s income statement results.  To provide a more normalized view of profitability Avid cites adjusted EBITDA, which is defined as operating income plus expense add backs for costs attributed to amortization, restructuring, restatements, stock-based compensation, acquisitions, integration activities, and efficiency program costs.  Adjusted EBITDA for the quarter was $38.5M, a substantial increase of 227% over Q1 2015.

Given the complexity of Avid’s financial statements, it is useful to review the impact on the Company’s cash balance.  Cash used in operations for the quarter was $11.2 million.  This compares to cash generated in operations of $4.6 million during the first quarter of 2016.

Cash generation in the quarter was negatively impacted by a build out of inventory for the recently announced Nexis storage platform.

Avid ended the quarter with $87.8 million of cash.  Avid had started the quarter with $17.9 million of cash.  The increase in the cash balance is attributable to the Company’s $100 million debt offering during the first quarter. 

Several factors have combined to make Avid’s financial disclosures difficult to comprehend, most notably the restatement in late 2014, which introduced a considerable amount of amortized revenue from prior financial periods.  Though this revenue is now recognized in Avid’s income statement, it does not represent any actual cash received from clients.  In other words, it is non-cash revenue with 100% gross margins.  In aggregate, changes in deferred revenue represented a negative cash adjustment (versus net income) of $40 million in Q1 2016 and $2.1 million in Q1 2015.

The negative deferred revenue dynamic also creates a revenue headwind for the future since this component of deferred revenue will decline with time. Management has indicated the impact is between $25 million and $30 million a quarter.

Adding to this complexity are the effects of recent restructuring initiatives, the impact of the Orad acquisition, and the ongoing transition to a subscription model.

In an effort to better communicate the results of Avid’s ongoing transformation, management references several new metrics.

Update on Transformation:

Below is a chart from Avid’s investor presentation for Q1 2016 illustrating several areas of progress on the market adoption of Avid’s Everywhere Platform.


Commenting on the transformation progress, Avid CEO Louis Hernandez, Jr. stated, “Our work so far in 2016 demonstrates the continued momentum of the Avid Everywhere strategy, the increased adoption of the Avid MediaCentral Platform by our global base of customers and strong progress as we move steadily towards completing the transformation.”

Business Outlook:

Bookings for the quarter were $98 million on a constant currency basis, a decline of 18% versus Q1 2015.  The original guidance for Q1 2016 bookings was for $108 million to $118 million.

Management attributed the shortfall to market volatility created by the ongoing industry transition and delayed buying decisions related to the anticipated release of the Nexis storage platform, which will ship during Q2 2016.

The declining in bookings resulted in a lower end of quarter accounts receivable balance (approximately $15 million).  Management expects the lower accounts receivable balance to negatively impact Q2 2016 free cash flow.  Because of this management is anticipating a material use of adjusted free cash flow in the upcoming quarter of $27.5 million to $32.5 million.  Adjust free cash flow includes the impact of capital expenditures and excludes the cash impact of restructuring activities.

For Q2 2016, management provided guidance of bookings between $99 million and $115 million on a report basis (as opposed to constant currency).  Bookings for the second quarter of 2015 were $118 million.  The full backlog (post impact of restatement) was $480 at the end of first quarter, a 4% increase over the backlog at the end of the first quarter of 2015.

Avid is expecting to begin generating adjusted free cash flow in the second half of 2016.  As part of the earnings release, Avid reaffirmed earlier full year guidance for 2016.

During the earnings call, Louis Hernandez, Jr. added, “We’re probably most excited about the attractive financial model post transformation. We’ve a clear path to completion, the non-marketed products that we’re rolling off and are completed as expected, the efficiency gains are on track and then the accounting adjustments will end towards the end of this year early next year, leaving us with an adjusted EBITDA and free cash  flow, which are expected to increase dramatically post transformation.”


Related Content:

Press Release: Avid’s Q1 2016 Earnings Release

Presentation: Avid Q1 2016 Earnings Presentation



© Devoncroft Partners 2009 – 2016. All Rights Reserved.




Grass Valley Receives $20M Order; Slight Revenue Decline in Q1

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
May 11 2016

Belden announced first quarter 2016 results.  Belden’s largest division in terms of revenue is its Broadcast Solutions division.  The division includes the operations of Grass Valley along with Belden’s broadband connectivity businesses.

Beginning with Q1 2016 Belden’s has moved its audio-video cable and connector business out of the Broadcast reporting unit and into the Enterprise Connectivity reporting segment.  The reporting change provides improved visibility into Belden’s broadcast revenues.  Prior periods were restated to similarly reflect the reporting modification.

Broadcast Solutions revenue for the first quarter 2016 was $171.3 million, a decrease of 2.9% over the year prior quarter, and a 15.1% decline against the preceding quarter, Q4 2015.

Broadcast Solutions revenue for the quarter was negatively impacted by currency translation, responsible for approximately 58% of the year-over-year decline ($3 million).  Managed attributed the sequential declines to typical seasonal patterns in the industry.

As part of the earnings release management highlighted the largest order in Grass Valley history.  The order was received in April and is in excess of $20 million.  It will ship over the next two to three years.  Managed also indicated a further seven IP systems shipped during Q1 2016.

EBITDA (Earnings before interest depreciation and amortization) for Broadcast Solutions in the quarter was $23.2 million, a 0.7% increase versus Q1 2015, and a 42.2% decrease against Q4 2015.

The EBITDA margin for Q1 2016 was 13.6%, which compares to a 13.1% EBITDA margin in Q1 2015, and a 19.9% EBITDA margin in Q4 2015.

For the quarter, Belden recognized a $4.3 million charge in its Broadcast Solution division for severance, restructuring, and acquisition integration costs.

On Belden’s earnings call with analyst, CEO John Stroup offered commentary on the recent financial results at Grass Valley.  “The Grass Valley business on a year-over-year basis, revenues were down. We expected that. That was sort of the last quarter of a difficult comparison. As you recall, last year, we began to see softness in order rates in Q2 and revenue in Q2.

On a year-over-year basis, I thought the team did a nice job on productivity improvement. On a year-over-year basis within the segment, productivity was about $7 million. So, obviously, with the high margins in that business, it’s difficult to overcome the revenue but I think the fact that they were able to expand margins, EBITDA margins on a year-over-year basis was a good outcome. In terms of order rates, the order rates in the quarter were pretty much as we expected. The book-to-bill at Broadcast was just about 1.0 for the quarter. But as we mentioned, we did make progress on the IP products although that is still a relatively small percentage of the business.” said Stroup.

Business Outlook:

In response to an analyst question, Stroup elaborated on the 2016 expectations for Grass Valley stating, “…I would say that our guidance right now on the full year implies modest growth in Grass Valley on a year-over-year basis. So, we are not incorporating a strong rebound in the Grass Valley business in 2016 to hit the numbers [management guidance for overall business] that we’ve given everybody today.”


Related Content:

Press Release: Q1 2016 Results

Presentation: Q1 2016 Earnings Presentation 

Transcript: Prepared management remarks



© Devoncroft Partners 2009 – 2016. All Rights Reserved.



Dolby Q2 Results Offer Updates on Atmos, Vision Adoption

Analysis, Broadcast technology vendor financials | Posted by Josh Stinehour
May 02 2016

Dolby announced revenue for its second fiscal quarter (ending April 1, 2016) of $274.3 million, up 1% versus the year earlier period, and an increase of 14% versus the preceding quarter, Q1 2016.

GAAP net income for the quarter was $67.4 million or $0.66 earnings per share.  This represents a 16% increase over the net income for Q2 2015 of $57.9 million ($0.56 earnings per share).

GAAP Gross Margins were 91.1% for the quarter, an increase over the gross margins of 90.8% from the year earlier period and the 87.6% gross margins recorded during Q1 2016.  Operating margins were 30%, an increase over the 29% from Q2 2015 and the 16% operating margins during the preceding quarter.

Management’s guidance at the end of first quarter had been for revenue in the range of $255 million to $270 million for the second quarter with gross margins between 89% and 90%, and GAAP earnings per share of $0.42 and $0.48.  On each measure, Dolby outperformed guidance.  Dolby’s shares were trading approximately 13% higher after the earnings release.

Revenue by Type:

Dolby reports revenue across licensing, product, and service activities.  Product revenues consists primarily of sales of Digital Cinema Servers and Dolby Cinema Audio Products.

  • Licensing revenue for Q2 2016 was $249.3 million, an increase of 2% versus Q2 2015 and an 18% increase versus Q1 2016.
  • Product revenue was $20.0 million, a decline of 12.6% compared to the year earlier period, and a decrease of 19% versus Q1 2016 results. The Q1 2016 results had been especially strong given cinema updates related to holiday movie releases, including Star Wars episode seven.  Year-over-year declines are consistent with the broader cinema equipment market, which has been impacted by the recent completion of the conversion from film to digital.
  • Services revenue were $4.9 million during the second quarter, a decrease of 12.5% against Q2 2015, and a slight increase of 2% versus the first quarter’s results.

Product gross margins for Q2 2016 were 30.3%, a substantial increase over the 20.7% gross margins from Q2 2015 and 23.3% gross margins in Q1 2016.

As part of the earning release, Dolby disclosed several data points on developments in its growth initiatives within its cinema business.

There are now nearly 1,800 screens worldwide where Dolby Atmos is installed or committed.  Over 450 Dolby Atmos titles have been announced or released.

There are also more than 20 Dolby Cinema locations open and another 200 Dolby Cinema locations are planned for roll out around the world.  Dolby Cinema is a partnership with cinema exhibitors (including AMC in the US) to create a branded premium cinema featuring Dolby Vision laser projection and Dolby Atmos audio technology.  Nearly 40 Dolby Vision theatrical titles have been announced or released since its launch in May 2015.

Licensing Revenue by Customer Vertical:

Licensing revenue in the Broadcast vertical (primarily televisions and set-top boxes) was 45% of total licensing revenue or $112.2 million.  On an aggregate basis, Broadcast licensing grew 9.8% versus Q2 2015 and 10.7% versus the preceding quarter, Q1 2016.  As a percentage of total licensing revenue, Broadcast contributed 42% in Q2 2015 and 48% during the first quarter of 2016.

The remainder of Dolby’s licensing revenue is attributable to PC, Mobile, Consumer Electronics, and Other (Video game consoles, automobile entertainment, and audio conferencing).

Management attributed the growth in Broadcast licensing to higher back payments and higher volume in set-top boxes. During its earnings call, management noted Dolby is well-positioned to benefit from further growth in the Broadcast market as emerging markets transition to digital broadcast.

Also on the earnings call, Management highlighted several developments with Dolby Vision and Dolby’s growing technology presence in online content delivery.

LG, the 2nd largest TV manufacturer in the world, is set to begin shipping OLED and UHD LED TV’s featuring Dolby Vision.  Dolby Vision is now included in three of the five television lines from Vizio, the 2nd largest TV manufacturer in the US.

Over 40 streaming services now deliver Dolby Audio including Google Play, Netflix, Microsoft, Amazon, and iTV.  Management is anticipating up to 100 Dolby Vision titles available for home entertainment delivery by the end of 2016.  Netflix and VUDU are now streaming content in Dolby Vision, and Amazon has announced a commitment to Dolby Vision.

Financial Guidance

Management guidance for the third fiscal quarter is revenue in the range of $260 million to $275 million, gross margins between 89% and 90%, and earnings per share between $0.47 and $0.53.

Commenting on the quarter’s results, Kevin Yeaman, President and CEO, Dolby Laboratories stated, “It was a solid quarter and we gained momentum in mobile with the inclusion of Dolby Audio in iOS.  We’ve also expanded the number of Dolby Vision TVs in market and the amount of Dolby Vision content, while continuing to roll out Dolby Cinema locations around the world.”


Related Content:

Press Release: Dolby Fiscal Q2 2016 Earnings Release



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AWS is now a $10 Billion Annual Revenue Business

Analysis, Broadcast technology vendor financials | Posted by Josh Stinehour
May 02 2016

Amazon reported results for the first quarter of 2016.  Since the first quarter of 2015, Amazon has been reporting the individual results of Amazon Web Services (AWS).  Based on Q1 2016 figures, AWS is now a $10 billion run-rate revenue business with a trailing twelve month operating income of nearly $2 billion.

The reported revenue for AWS consists of the more than 70 services now offered from the AWS platform including the sales of compute, storage, and database.  Amazon does not specifically address how much AWS revenue was attributable to the media industry.  However, the AWS figures are an informative data point for better understanding the broader adoption of cloud services.

For the three months ended March 31, 2016 AWS had revenue of $2.6 billion, a 64% increase over the first quarter of 2015.  AWS represented 8% of Amazon’s sales for the quarter, an increase from the 6% contribution for Q1 2015.

AWS operating income for Q1 2016 was $604 million, which was a 210% year-over-year increase versus the first quarter in 2015.  During the quarter AWS actually generated more operating income than all of Amazon’s other business lines – both on an individual and aggregate basis.

Operating margins for AWS in the quarter were 23.5%, a substantial increase over the 12.4% operating margins during Q1 2015. The reporting of operating income now includes a burden for stock-based compensation (this lowered operating margins versus historical reporting).

Management attributed the growth in AWS revenue and profitability to increased customer usage and cost structure productivity.  This was partially offset by continued pricing decreases and increased spending on technology infrastructure.

The below chart from Amazon’s Q1 2016 earnings presentation illustrates the growth of revenue and operating income for AWS over the past year.




Operating incomes doesn’t capture the cash flow impact of capital expenditures and payments attributable to the financing of equipment for AWS, which is not disclosed directly.  It is a capital intensive business.

Additional information from Amazon’s filings are illustrative of the significant level of investment in technology infrastructure attributed to AWS.  The Company’s total capital expenditures (cash) were $1.2 billion in Q1 2016, a 38% increase over Q1 2015. According to Amazon’s SEC filings, “This primarily reflects additional investments in support of continued business growth due to investments in technology infrastructure (the majority of which is to support AWS) and additional capacity to support our fulfillment operations.”

Cash capital expenditures do not account for property and equipment acquired under capital lease obligation (non-balance sheet items).  Property and equipment acquired under capital leases were $875 million in Q1 2016, an 8% decrease over Q1 2015. A majority of this spend is due to investments in technology infrastructure for AWS.

On Amazon’s call with earnings analyst, Brian Olsavsky, SVP and Chief Financial Officer, stated the combined total of capital expenditures and capital lease obligations was $9.5 billion in the trailing 12 month period.  AWS is the largest driver of this spend, but does not consume all of this number

AWS specifically and cloud vendors more broadly, are benefiting from a secular trend toward cloud usage among media and entertainment sector.  As cloud providers replace the capital expenditures of media customers, there are significant implications for technology vendors and service providers.  The $9.5 billion figure (noted above) is equivalent to almost half of all annual product sales in the media and broadcast technology sector based on the latest results of the IABM DC Global Market Valuation Report (

The adoption of cloud infrastructure in the media industry is not necessarily a negative development for the technology vendor community.  AWS views its services as unburdening organizations from the undifferentiated heavy lifting of technology deployments.  In this way, AWS is allowing media customers and media technology suppliers to focus on the aspects of their businesses differentiating their products and services to customers.

Moving to cloud infrastructure does necessarily require new technology architectures, revenue models, and operating structures.  These topics were discussed extensively during the recent Media Technology Business Summit at the 2016 NAB Show including a keynote from AWS titled, “’All In’: Cloud Transformation of the Media Industry.”  If you haven’t downloaded our slides from the event, a complimentary copy is available from the following link.

While Amazon does not disclose specific AWS numbers in the media vertical, Amazon founder Jeff Bezos did note a high-profile media customer in his annual letter to shareholders (excerpt below).

“MLB Advanced Media is an example of an AWS customer that is constantly reinventing the customer experience. MLB’s Statcast tracking technology is a new feature for baseball fans that measures the position of each player, the baserunners, and the ball as they move during every play on the field, giving viewers on any screen access to empirical data that answers age-old questions like ‘what could have happened if…’ while also bringing new questions to life. Turning baseball into rocket science, Statcast uses a missile radar system to measure every pitched ball’s movements more than 2,000 times per second, streams and collects data in real-time through Amazon Kinesis (our service for processing real-time streaming data), stores the data on Amazon S3, and then performs analytics in Amazon EC2. The suite of services will generate nearly 7 TB of raw statistical data per game and up to 17 PB per season, shedding quantitative light on age-old, but never verified, baseball pearls of wisdom like ‘never slide into first.’”


Related Content:

Presentation: Q1 2016 Amazon Earnings Presentation

Press Release: Q1 2016 Amazon Earnings Press Release

SEC Filing: Q1 2016 Amazon SEC Filing



© Devoncroft Partners 2009 – 2016. All Rights Reserved.



Net Insight Revenue Grows 25% in Q1 2016, Driven by M&A

Analysis, Quarterly Results | Posted by Josh Stinehour
Apr 28 2016

Video transport technology provider Net Insight reported its Q1 2016 results.  Revenue was SEK 110.0 million, up 25.3% versus Q1 2015.  On a constant currency basis revenue for the quarter increased 24.1%. logo-net-insight

The vast majority of the year-over-year growth was attributable to the acquisition of ScheduALL in September 2015.  Organic growth in Q1 2016 amounted to 3.5% versus the year earlier period.

Net income for the quarter was SEK 14.0 million or (0.04 earnings per share), an increase of 250% over the net income of SEK 4.0 million (0.01 earnings per share) from Q1 2015.

Gross margins for Q1 2016 were 61.7%, a slight increase above the 60.1% from the previous year’s quarter.  Operating margins were 7.1%, which is approximately the same as Q1 2015.

Revenue by Geography

  • Sales from Western Europe were SEK 47.8 million, an increase of 26.6% versus Q1 2015. The region contributed 43% of total revenue for the quarter.  In Q1 2015, Western Europe also represented 43% of overall sales
  • The Americas contributed SEK 35.2 million or 32% of Net Insight’s revenue in the quarter (versus 41% in the Q1 2015). This was a slight decrease in performance of 1% versus the revenues from Americas in the year earlier period.  When excluding the revenue contribution from ScheduALL, revenues in the Americas decreased 31% (SEK -10.8 million) in the quarter.  Management attributed the organic decline to a large order recognized during Q1 2015 within the US.
  • Rest of World sales were SEK 26.9 million, an increase of 88% versus the year earlier period.  As a percentage of total sales, Rest of World contributed 25% in the quarter versus 16% during Q1 2015


Revenue by Product Type

  • Sales attributed to Net Insight’s hardware products were SEK 44.7 million in the quarter, a decrease of 17.5% versus the previous year. As a percentage of total sales, hardware products were 41% of the quarter’s sales versus 62% during Q1 2015.
  • Software licenses accounted for SEK 30.0 million of revenue in the quarter, a substantial increase of 94% over the year earlier period. Software contributed 27% of overall revenue during the quarter versus 18% in Q1 2015.
  • Support and services sales were SEK 35.5 million during the quarter, an increase of 110% versus the year earlier quarter. Support and services were 32% of overall revenue in the quarter, an increase from the 19% contribution in Q1 2015.


Net Insight’s sales by product type have been transitioning towards software and services and away from hardware for the past several quarters.  This was further accelerated with the acquisition of ScheduALL.  The trend is highlighted by the below chart from Net Insight’s earnings release.



Revenue by Customer Vertical

  • Sales in the Broadcast & Media (BMN) customer vertical were SEK 89.1 million, an 25% increase over the prior year’s quarter. BMN was responsible for 81% of Net Insight’s revenue in the quarter, less on a percentage basis than the 86% in Q1 2015.
  • Sales in the Digital Terristrial TV (DTT) vertical were SEK 18.7 million, an increase of 64% over Q1 2015. On a percentage basis, DTT represented 17% of overall revenue in Q1 2016, compared to 13% in Q1 2015.
  • The CATV/IPTV vertical was 2% of total sales in Q1 2016. It was 1% of total sales during Q1 2015.


Net Insight ended the first quarter with 204 employees a substantial increase over the 138 employees from a year earlier.  The acquisition of ScheduALL is the primary cause for the increase.

Cash and cash equivalents was SEK 170 million at the end of the quarter, up slightly from the SEK 164 million balance as of December 31, 2015.

Commenting on the results for the quarter, Net Insight CEO Fredrik Tumegård stated, “Sales increased by 25 per cent in the quarter with a stable operating margin of 7 per cent. The quarter has been characterized by continuous market penetration of our solution for true Live OTT, integration of last year’s acquisition of ScheduALL and both activities are progressing according to plan.”



Related Content:

Press Release: Net Insight releases Interim Report for January – March 2016



© Devoncroft Partners 2009-2016.  All Rights Reserved.




Francisco Partners Acquires SintecMedia

Analysis, Broadcast Vendor M&A | Posted by Josh Stinehour
Apr 27 2016

Sintec and FP logo

Francisco Partners has acquired SintecMedia, a well-known provider of broadcast business management software.

Financial details of the transaction were not made public. However, according to Reuters, the deal was valued at approximately $400 million.

Francisco Partners is a technology-focused private equity firm.  Francisco has existing familiarity with the media technology sector having purchased Grass Valley from Technicolor in January 2011 .  Francisco operated Grass Valley for nearly four years before exiting the investment in 2014 with Grass Valley’s sale to Belden.

SintecMedia had been owned by private equity firm Riverwood Capital.  Riverwood acquired SintecMedia in 2010 from existing venture capital investors including Walden Israel and Sequoia Capital.  Riverwood then supported SintecMedia through a series of acquisitions including Argo Systems , StorerTV , and more recently Broadway Systems.  In early 2014 Riverwood provided almost half the financing to support Sintec’s acquisition of competitor Pilat Media in a transaction valued at $103.5 million.

In the press release announcing the transaction, CEO and co-Founder of SintecMedia Amotz Yarden, stated, “Nothing is changing in SintecMedia’s business operations. We will continue to play a pivotal role in the way advertising is bought, sold and managed in the diverse media industry and our customers will continue to receive future-proof technological continuity combined with our innovative aptitude and deep domain expertise. I look forward to many years of exciting growth.”

Matt Spetzler from Francisco Partners added, “We have followed SintecMedia for over six years and are thrilled to back the company and its management team as they continue to consolidate their leading position in helping media companies monetize their assets. The broadcast and media industries are entering a phase of innovation and change and SintecMedia is uniquely positioned to help customers capitalize on this opportunity with a strong market position and new products.”


Related Content:

Press Release: Francisco Partners Acquires SintecMedia



© Devoncroft Partners 2009 – 2016. All Rights Reserved.



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