Chyron Cuts Expenses as Revenue Declines 3 Percent in Q3 2012

Posted by Joe Zaller
Nov 08 2012

Broadcast graphics specialist Chyron reported that its revenue for the third quarter of 2012 was $7.25m, down 3% versus the same period a year ago, and down 6% versus the previous quarter.

The net loss for the quarter was $700,000, or $0.04 per share, versus a net loss of $3.49m, or $.21 per share last year, and a net loss of $600,000 last quarter. The company’s operating loss for the quarter was $1m, versus an operating loss of $870,000 last year, and operating loss of $1.1m last quarter.

Chyron CEO Michael Wellesley-Wesley attributed the ongoing losses to “a slowdown in our product revenue stream as a result of delays in spending as broadcasters emphasize cost control and reschedule their capital expenditures. This decline was experienced in North America and more markedly in Europe where many countries’ economies have stalled.”

Investors sent the shares lower on the results.  Chyron’s share price has been below $1 since October 1, 2012, prompting speculation that it may be delisted from public markets.
.
Product revenue in the third quarter was $4.86m (67% of total revenue) down 16% versus the same period a year ago, and down 9% versus the previous quarter.
.

Service revenue in the quarter which includes the sales of its AXIS cloud-based graphics service, maintenance agreements, training and creative services was $2.39m, up 13% versus both the previous year and the previous quarter, despite a decline in creative services revenue.

Service revenue contributed 33% of total revenue, versus 28% last year, and 26% of total revenue last quarter.

Gross margins for the third quarter were 67.9%, down from 69.0% last year, and 69.2% last quarter.  The company attributed the decrease in gross margins to product mix and sales discounting.

Operating expenses for the third quarter were $5.9 compared to $6m last year, and $6.4m last quarter. R&D expenses for the quarter were $1.82m, up 4% versus last year, and down 4% versus last quarter. Sales & market expenses for the quarter were $3.1m, down 8% versus last year, and down 11% versus last quarter. G&A expenses in the quarter were $.99m down 8% versus last year and flat with the previous quarter.

 

Cost Cutting Program Indicates Shift in Strategy

Based on these lower q/q OpEX numbers, it looks as though Chyron implemented a cost-cutting program during the quarter.

If this is the case, it is a reversal of the strategy Wellesley-Wesley put in place last year when the company began ramping  up its expenses in anticipation of increased revenue from both new products and cyclical spending from broadcasters gearing up for the 2012 Olympics and presidential elections.

For example, in November 2011, company CEO Michael Wellesley-Wesley confidently stated that Chyron had made some “strategic hires for key sales positions, [and] going forward we anticipate further improvements in 2012, especially in the domestic market owing to factors associated with the 2012 Olympics and the upcoming Presidential election. Internationally, we are looking for an increased contribution from our EMEA and Latin America operations as a result of the increased headcount in the sales department that have been put in place this year.”

In anticipation  of a strong 2012 Chyron increased its spending across the board, and by the first quarter of 2012 the company’s operating expenses had jumped 20% versus the previous year, including 31% y/y increase in sales and marketing costs, and a 19% y/y increase in R&D spending.

On a year-to-date basis, the company’s operating expenses are 6% higher than during the first nine months of 2011, despite revenue being 3% lower. For the first nine months of 2012, the company’s R&D expenses are up 13%, and its sales and marketing costs are up 12% respectively versus the previous year. There has been a YTD 16% decline in G&A, however this is primarily due to the lower legal costs as described in the company’s conference call last quarter.

However now three quarters of 2012 are behind us, it appears that the anticipated revenue increases have not materialized, causing Wellesley-Wesley to shift strategies.  On the company’s earnings call he told investors “I can assure you that we’ve taken and will continue to take the appropriate steps to align our operating expenses with the current business climate.” He also said product investment be scaled back, and that the company would also have staff layoffs.

Wellesley-Wesley told analysts “about 60% of our costs are related directly to people and so it’s difficult to make meaningful reductions in expense — operating expenses — without addressing that fact.”  Chyron parted ways with its CMO immediately after the IBC tradeshow in September, and is clearly taking other measures to contain cost, including additional layoffs.

When describing the projected impact of the cost reduction exercise, Wellesley-Wesley told analysts “the steps we’ve taken will certainly reduce OpEx by 5% or more going forward and you will begin to see the real impact of that take effect in Q1 next year.

Wellesley-Wesley summed up the quarter in company’s press release saying, “Our third quarter revenues of $7.25m were 3% below the comparable period in 2011. This continues the pattern of nearly flat year over year comparisons we experienced in the first half. As is the case for other companies in our industry we have experienced a slowdown in our product revenue stream as a result of delays in spending as broadcasters emphasize cost control and reschedule their capital expenditures. This decline was experienced in North America and more markedly in Europe where the economy has stalled. This was offset somewhat by improvements in our Asian and Latin American markets. Our services revenues grew 13% year over year with the result that services accounted for 33% of total revenues in the third quarter. We have taken steps to align our operating expenses with the current business climate.”

 

 

Year-to-Date Results

For the first nine months of 2012, Chyron’s revenue was $22.81m, down 3% versus the same period last year.

The net loss for the first nine months was $2.28m, or -$0.13 per share, compared to a net loss of $3.85m, or -$0.23 per share, last year.  The operating loss for the first nine months of 2012 was $3.18m, compared to an operating loss of $1.51m for the first nine months of 2011.

 

 

Low Share Price Could Lead to Potential Delisting

Chyron’s shares fell 12%, to $0.65 the day after its Q3 2012 results were released.  The company’s stock price has been below $1 since October 1, 2012, and is currently at the lowest level in the company’s history according to this chart.

On the earnings call the company was asked whether the low share price may lead to its delisting from public markets.  Wellesley-Wesley acknowledged that one NASDAQ’s listing requirements “is that the bid price shouldn’t drop below $1 for more than 30 days and we’re now at around that point. The next step would be to receive some notification from NASDAQ that that is the case and that is of concern to them. And then there is a long process of discussion with NASDAQ, who I don’t think are keen to delist any companies and there are certainly many strategies and ways that we could avoid that happening and it is a three to six months process and so nothing is going to happen quickly.”

.

.

Related Content:

 

Press Release: Chyron Reports Financial Results for the Third Quarter and First Nine Months of 2012

Previous Quarter: Chyron Revenue Declines 18 Percent in Q2 2012

Previous Year: Chyron Posts Net Loss in Q3 2011 Despite Growing Revenue Nine Percent

.

© Devoncroft Partners. All Rights Reserved.

.

Comments are closed.

%d bloggers like this: