Roxio Posts Year-Over-Year Revenue Growth And Narrows Loss In The First Quarter
Announces Sale of Software Division; Will Change Company Name to Napster
Santa Clara, California - (August 9, 2004) - Roxio®, a division of Sonic Solutions® (NASDAQ: SNIC), the leader in digital media software, today reported financial results for its fiscal first quarter ended June 30, 2004. In a separate news release issued today, the Company announced that it has signed a definitive agreement to sell all of the assets and liabilities of its software division to Sonic Solutions for $80 million and plans to change its corporate name to Napster. Given this development, Roxio management has changed the time of its conference call from 1:30 PM PT to 2:30 PM PT today and will discuss both the quarterly results and the transaction on this call.
Chris Gorog , Roxio's Chairman and CEO, said, "Today's announcement of the planned sale of our software division will allow us to focus all of our efforts on Napster and the fast-growing online music market. Subject to stockholder approval and standard regulatory
reviews, this transaction will significantly enhance our balance sheet resulting in a net cash position well in excess of $100 million,
which will support our efforts to drive subscriber growth and accelerate Napster's competitive position."
Net revenue for the first quarter of fiscal 2005 increased to $29.9 million compared to $24.2 million in the first quarter of the prior
fiscal year. Roxio's net loss for the quarter was $2.6 million, or $0.08 per basic and diluted share, which is substantially better than
prior guidance of a net loss of $0.26 per basic and diluted share. This compares to a net loss of $370,000, or $0.02 per basic and
diluted share, in the first quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share were
approximately 33.7 million for the first fiscal quarter ended June 30, 2004 and approximately 21.9 million for the first quarter of the
prior fiscal year.
For the first quarter, Roxio's digital media software division recorded revenues of $22.0 million and GAAP net income of approximately
$6.0 million. Revenues for the Company's Napster division totaled $7.9 million and included $1.1 million from hardware sales of MP3
players to partners. Napster's operating loss, before restructuring, amortization and stock based compensation was approximately $8.1 million.
Roxio ended the first quarter with approximately $63.4 million in cash, restricted cash and short-term investments, which is ahead
of prior forecasts.
"We are pleased with our first quarter results, posting a much narrower net loss which significantly exceeded our guidance. Roxio's
software business was profitable with continued strong gross margins, and Napster also realized healthy margin improvement. Our efforts
to grow Napster's subscriber base continue to gain momentum through exciting initiatives including our expanding university program and
recently announced marketing partnership with Best Buy. Napster is gaining increased public exposure based on these and other ongoing
promotional activities, and we remain confident in our outlook for the remainder of the year," concluded Mr. Gorog.
Business Outlook
For the second quarter of fiscal 2005, Roxio expects to report total revenues of approximately $25.0 million. Revenues from the software
division are expected to be roughly $17.0 million, reflecting typical seasonality at retail. Revenues from Napster are expected to show
strong double-digit growth relative to first quarter revenues excluding hardware and are projected to be approximately $8.0 million.
Napster Division Highlights
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Announced a major strategic marketing alliance with Best Buy that will leverage the power of both brands to drive new subscribers to
Napster and deliver a wide range of digital music experiences to Best Buy's entertainment and technology consumer base. This agreement
has already resulted in significant television advertising featuring Napster, as well as the debut of the Dave Matthews Band catalog on
the Napster music service.
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Expanded Napster's educational program through agreements with several universities to offer students its digital music subscription
program. Beginning this Fall, students at Cornell University , The George Washington University, Middlebury College , the University
of Miami , The University of Southern California and Wright State University will have access to Napster. These join existing programs
at Penn State University and the University of Rochester , which have been very well received by students.
-
Announced that Napster went live to music fans across the UK , supported by an exclusive, multi-year partnership with Europe 's
leading consumer electronics goods retailer, Dixons Group plc. Napster also partnered with The Sun, the UK 's largest selling national
daily newspaper, to introduce the first ever online music promotion in a UK national daily newspaper.
-
Launched Napster for millions of fans across Canada . Roxio also announced a multi-year mutually exclusive strategic marketing alliance
with Molson, one of the world's largest brewing companies.
About Roxio
Roxio, a division of Sonic Solutions, develops and markets the best-selling digital media software in the world. Roxio offers
award-winning software products for CD/DVD burning, photo editing and video editing and has an installed base of over 150 million
users. Roxio distributes its products globally through strategic partnerships with major hardware manufacturers, through leading
retailers, through Internet partnerships and through direct sales at www.roxio.com. Roxio's
parent company, Sonic Solutions (NASDAQ: SNIC;
http://www.sonic.com) is the leader in digital media software and provides a broad range of software
tools and applications for creative professionals, business and home users and technology partners. Sonic's products range from professional
DVD authoring systems and interactive content delivery technologies that are used to produce the majority of Hollywood movies released on DVD,
to the award-winning Roxio- and Sonic-branded CD and DVD creation, playback and backup applications that have become the premiere solutions
for consumers and business users worldwide. Sonic's AuthorScript® is the de facto standard for CD and DVD burning and formatting and has
been licensed by major software and hardware manufacturers, including Adobe, Broadcom, Microsoft, Scientific-Atlanta, Sony, and many others.
Sonic Solutions is headquartered in Marin County, California.
Safe Harbor Statement
Except for historical information, the matters discussed in this press release, in particular matters related to the sale of Roxio's
software division, future revenue for Roxio's software and Napster divisions; and Roxio's relationship with Best Buy and with other
strategic partners are forward-looking statements that are subject to certain risks and uncertainties such as the failure to complete
the sale of the software assets, decreased demand for our products and services; flaws inherent in our products or services; intense
competition; failure to maintain relationships with strategic partners and content providers; general economic conditions and third
party claims, that could cause actual results to differ materially from those projected. Additional information on these and other
factors are contained in Roxio's reports filed with the Securities and Exchange Commission ( SEC ), including the Company's Quarterly
Report on Form 10-Q as filed with the SEC on August 9, 2004 , copies of which are available at the website maintained by the SEC at
http://www.sec.gov. Roxio assumes no obligation to update the forward-looking statements included in
this press release.
Sonic, the Sonic logo, Sonic Solutions, Roxio, MyDVD, CineMagic, Plug & Burn, LiveShare, Roxio Easy Media Creator, and AuthorScript are
trademarks or registered trademarks of Sonic Solutions or its subsidiaries in the United States and/or other countries. Dolby is a trademark
of Dolby Laboratories. All other company or product names are trademarks of their respective owners and, in some cases, are used by Sonic
Solutions under license. Specifications, pricing and delivery schedules are subject to change without notice.
Copyright © 2004 Roxio, Inc. All rights reserved. Roxio, the Roxio tagline and Napster are registered trademarks of Roxio, Inc.
or its subsidiaries in the United States and/or other countries. All other trademarks used are owned by their respective owners.
ROXIO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30, March 31,
2004 2004
ASSETS
Current assets:
Cash and cash equivalents $19,283 $36,911
Restricted cash 735 1,735
Short-term investments 43,395 28,490
Accounts receivable, net of allowance
for doubtful accounts of $905 at
June 30, 2004 and $991 at March 31, 2004 15,566 16,279
Prepaid expenses and other current assets 15,230 7,480
Deferred income taxes 146 150
Total current assets 94,355 91,045
Long-term investment 3,000 3,000
Property and equipment, net 9,063 9,933
Goodwill 91,623 91,723
Identifiable intangible assets, net 4,565 5,899
Other assets 1,180 1,748
Total assets $203,786 $203,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,895 $6,085
Income taxes payable 2,803 2,841
Accrued liabilities 27,403 30,627
Deferred revenues 2,707 1,545
Current portion of long-term debt 15,491 15,420
Total current liabilities 54,299 56,518
Long term liabilities:
Deferred revenues 85 85
Long-term capital lease obligations 155 68
Other long term liabilities 2,268 2,296
Total liabilities 56,807 58,967
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 10,000 shares; Issued and
outstanding: none at June 30, 2004 and
at March 31, 2004 -- --
Common stock, $0.001 par value; Authorized:
100,000 shares; Issued and outstanding:
34,671 shares at June 30, 2004 and 33,543
shares at March 31, 2004 35 34
Additional paid-in capital 200,737 195,503
Deferred stock-based compensation (1,034) (1,386)
Accumulated deficit (57,728) (55,088)
Accumulated other comprehensive income 4,969 5,318
Total stockholders' equity 146,979 144,381
Total liabilities and stockholders'
equity $203,786 $203,348
ROXIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
2004 2003
Net revenues :
Consumer software $22,048 $23,395
Online music 7,867 781
Total net revenues 29,915 24,176
Cost of revenues :
Consumer software (1) 4,625 6,986
Online music 6,416 620
Amortization of purchased technologies 696 587
Total cost of revenues 11,737 8,193
Gross profit 18,178 15,983
Operating expenses:
Research and development (2) 6,478 6,934
Sales and marketing (3) 10,390 9,407
General and administrative (4) 4,861 5,277
Restructuring charges (153) 1,536
Amortization of intangible assets 576 617
Stock-based compensation charges 382 519
Total operating expenses 22,534 24,290
Loss from operations (4,356) (8,307)
Gain on sale of GoBack product line 1,682 10,592
Other income, net 219 67
Income (loss) before provision for
income taxes (2,455) 2,352
Provision for income taxes 185 2,722
Net loss $(2,640) $(370)
Net loss per share:
Basic and Diluted $(0.08) $(0.02)
Weighted average shares used in
computing net loss per share
Basic and Diluted 33,726 21,864
(1) Excludes stock-based compensation charges of $6 and $10 for the
three months ended June 30, 2004 and 2003, respectively.
(2) Excludes stock-based compensation charges of $95 and $151 for the
three months ended June 30, 2004 and 2003, respectively.
(3) Excludes stock-based compensation charges of $85 and $135 for the
three months ended June 30, 2004 and 2003, respectively.
(4) Excludes stock-based compensation charges of $196 and $223 for the
three months ended June 30, 2004 and 2003, respectively.
ROXIO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
June 30,
2004 2003
Cash flows from operating activities:
Net loss $(2,640) $(370)
Adjustments to reconcile net loss
to net cash used in operating
activites:
Depreciation and amortization 2,552 2,347
Stock-based compensation charges 382 519
Bad debt expense (benefit) (81) 38
Loss on retirement of property
and equipment -- 320
Gain on sale of GoBack product line (1,682) (10,592)
Deferred income taxes -- 2,372
Change in operating assets and
liabilities, net of effects of
acquisition of Napster, LLC
and sale of GoBack product line :
Accounts receivable 829 4,063
Prepaid expenses and other current assets (3,993) 543
Other long term assets 661 (228)
Accounts payable (700) (4,583)
Income taxes payable 35 (1,052)
Accrued liabilities (2,512) (1,729)
Deferred revenues 1,247 1,827
Other liabilities (113) 295
Net cash used in operating activities (6,015) (6,230)
Cash flows from investing activities:
Purchases of property and equipment, net (81) (1,113)
Proceeds from sale of GoBack product line 2,760 10,250
Purchases of other intangible assets -- (63)
Purchases of short-term investments (33,601) (2,792)
Proceeds from sale of short-term
investments 12,812 350
Maturities of short-term investments 5,809 2,390
Transfer from restricted cash account 1,000 --
Acquisition of Napster, LLC, net of
cash acquired -- (13,473)
Net cash used in investing activities (11,301) (4,451)
Cash flows from financing activities:
Principal payment of capital lease
obligations (174) (154)
Issuance of common stock under
employee stock plan 109 --
Issuance of common stock 1 20,613
Net cash provided by (used in)
financing activities (64) 20,459
Effect of exchange rates on cash (248) (2)
Change in cash and cash equivalents: (17,628) 9,776
Cash and cash equivalents at
beginning of period 36,911 36,820
Cash and cash equivalents at end of period $19,283 $46,596
Supplemental cash flow information:
Cash paid for interest $147 $61
Cash paid for income taxes $115 $1,313
Non-cash disclosure of investing and
financing activities:
Unrealized losses on short-term
investments $(75) $(46)
Issuance of common stock $4,999 $23,486
Assets acquired under capital leases $332 $--
Adjustment to goodwill resulting from the
acquisition of Napster, LLC $51 $--
Adjustment to additional paid-in-capital in
connection with issuance of common stock
from private equity financing $186 $--