Roxio Second Quarter Results Exceed Expectations
Subscriber Revenue Contributes 73% to Napster Music Sales
Santa Clara, California - (November 3, 2004) - Roxio®, a division of Sonic Solutions® (NASDAQ: SNIC), the leader in digital media software, today reported financial results for its fiscal second quarter ended September 30, 2004.
Chris Gorog , Roxio's Chairman and CEO, said, "We are pleased to deliver results that exceeded our sales and earnings guidance while maintaining a tight control on costs. Napster revenues continued to gain momentum, growing 18% from the previous quarter,
while online music revenue excluding hardware sales increased 33% sequentially. Our premium subscriber base grew substantially
during the quarter, with subscriber revenue growing to 73% of total music revenue, which continues to validate our vision that
subscriptions are the future of digital music. We are also very pleased to have debuted the first portable online music subscription
service on October 12 th as 'Napster To Go' became available with the Windows Media Player 10 plug-in."
For the second quarter, revenues for the Company's Napster division grew approximately 18% to $9.3 million from $7.9 million in
the previous quarter. Revenues of $18.1 million from the software division also exceeded the Company's guidance.
Total net revenues for the second quarter of fiscal 2005 increased to $27.4 million compared to $22.8 million in the second quarter
of the prior fiscal year. Total net loss for the quarter was $15.3 million, or $0.44 per basic and diluted share, significantly ahead
of the Company's prior guidance of $0.55 per basic and diluted share. This compares to a net loss of $11.9 million, or $0.43 per basic
and diluted share, in the second quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share
were approximately 34.7 million for the second fiscal quarter ended September 30, 2004 and approximately 27.6 million for the second
quarter of the prior fiscal year.
Roxio ended the second quarter with approximately $61.9 million in cash, restricted cash and short-term investments.
Business Outlook
For the third quarter of fiscal 2005, Napster revenues are expected to grow strongly to approximately $11 million, based on subscriber
acquisition initiatives and holiday period seasonality. The Company is also revising upwards its full-year revenue guidance range for
Napster to $35 million to $40 million from a previous range of $30 million to $40 million.
The proposed sale of Roxio's software division has received Hart Scott Rodino ( HSR ) clearance and Roxio expects the transaction to
be completed by the end of the fiscal year pending Roxio stockholder approval. As previously disclosed, upon the successful completion
of the proposed transaction, the Company's name will be changed to Napster, and the Company's stock will trade on the Nasdaq National
Market under the symbol "NAPS".
Napster: Recent Highlights
-
Announced that Napster To Go TM , the world's first portable music subscription service, is available for users of the new AT&T
Wireless-based Audiovox SMT 5600 Smartphone, enabling the only mobile phone in the U.S. market to allow music fans to seamlessly
transfer and play an unlimited number of full-length songs on the go for one low monthly price of $14.95.
-
Became the first and only major digital music service to offer the option of using PayPal to purchase monthly subscriptions or
individual tracks and albums.
-
Launched a preview version of Napster To Go, available through the Napster link within the Microsoft Windows Media Player 10's new
Digital Media Mall. Several portable devices, including those from Creative Labs and iRiver currently support Napster To Go, and
devices from Gateway, Samsung and others are expected before Chris tmas 2004.
- Introduced Napster Media Room Edition, available today as a featured service in the new Windows XP Media Center Edition 2005 PC.
-
Partnered with D-Link, the global leader in consumer network connectivity, to offer a broad range of radio streaming and music downloads
on its best-selling D-Link MediaLounge Wireless Media Player.
Announced an agreement with the Army and Air Force Exchange Service (AAFES) that gives all branches of the United States military --
Army, Navy, Air Force, Marines and Coast Guard -- access to the innovative Napster 2.0 music service through the CentricMall.com Web site.
Form 10-K Amendment
Roxio plans to file an amendment to its form 10-K for the year ended March 31, 2004 in November to correct the valuation of a warrant
issued in May 2002 and the purchase accounting related to the acquisition of MGI Software in January 2002. The revisions will increase
fiscal 2003 net losses from the software division by $1.7 million and decrease fiscal 2002 net income from the software division by
$123,000. These revisions will have no impact on the statements of operations or cash flows for the six month period ended September
30, 2004 or for fiscal 2004.
Additional Information
Roxio, Inc. investors and security holders are advised to read the proxy statement provided in connection with the 2004 Annual
Meeting of Stockholders when it becomes available and other relevant documents filed with the Securities and Exchange Commission,
because they will contain important information on the proposed sale of Roxio's software division. You will be able to obtain documents
filed with the SEC free of charge at the SEC's web site at www.sec.gov . In addition, you may also
obtain documents filed by Roxio, Inc. by requesting them in writing from Roxio, Inc., 455 El Camino Real, Santa Clara , CA 95050 ,
Attn: Secretary.
Conference Call Information
The Roxio second quarter teleconference and webcast is scheduled to begin at 1:30 p.m. , Pacific Time, on Wednesday, November 3, 2004.
To participate on the live call, analysts and investors should dial 800-240-4186 at least ten minutes prior to the call. Roxio will
also offer a live and archived webcast of the conference call, accessible from the "Investor Relations" section of the company's
Web site at http://investor.roxio.com.
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 Napster division; and Roxio's relationship with 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.
ROXIO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(unaudited)
September 30, March 31,
2004 2004
ASSETS
Current assets:
Cash and cash equivalents $20,580 $36,911
Restricted cash 735 1,735
Short-term investments 40,600 28,490
Accounts receivable, net of allowance for
doubtful accounts of $679 at September 30,
2004 and $991 at March 31, 2004 11,899 16,279
Prepaid expenses and other current
assets 9,844 7,480
Deferred income taxes 989 996
Total current assets 84,647 91,891
Long-term investments 3,200 3,000
Property and equipment, net 7,885 9,933
Goodwill 89,548 89,516
Identifiable intangible assets, net 3,382 5,899
Other assets 1,036 1,748
Total assets $189,698 $201,987
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,030 $6,085
Income taxes payable 2,848 2,841
Accrued liabilities 27,559 30,627
Deferred revenues 3,480 1,545
Current portion of long-term debt 15,271 15,420
Total current liabilities 56,188 56,518
Long term liabilities:
Long-term capital lease obligations 119 68
Other long term liabilities 2,237 2,381
Total liabilities 58,544 58,967
Stockholders' equity:
Preferred stock, $0.001 par value;
Authorized: 10,000 shares; Issued and
outstanding: none at September 30, 2004 -- --
and none at March 31, 2004
Common stock, $0.001 par value;
Authorized: 100,000 shares; Issued and
outstanding: 34,787 shares at
September 30, 2004 and 33,543 shares
at March 31, 2004 35 34
Additional paid-in capital 201,555 195,970
Deferred stock-based compensation (734) (1,386)
Accumulated deficit (74,869) (56,916)
Accumulated other comprehensive income 5,167 5,318
Total stockholders' equity 131,154 143,020
Total liabilities and stockholders' equity $189,698 $201,987
ROXIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Net revenues :
Consumer software $18,115 $21,280 $40,163 $44,675
Online music 9,315 1,518 17,182 2,299
Total net revenues 27,430 22,798 57,345 46,974
Cost of revenues :
Consumer software (1) 4,486 5,665 9,111 12,651
Online music 7,477 1,175 13,893 1,795
Amortization of purchased
technologies 703 604 1,399 1,191
Total cost of revenues 12,666 7,444 24,403 15,637
Gross profit 14,764 15,354 32,942 31,337
Operating expenses:
Research and development (2) 7,026 8,600 13,504 15,534
Sales and marketing (3) 14,439 9,353 24,829 18,760
General and administrative (4) 7,532 7,438 12,393 12,715
Restructuring charges 73 557 (80) 2,093
Amortization of intangible assets 537 655 1,113 1,272
Stock-based compensation charges 299 519 681 1,038
Total operating expenses 29,906 27,122 52,440 51,412
Loss from operations (15,142) (11,768) (19,498) (20,075)
Gain on sale of GoBack product
line -- -- 1,682 10,592
Other income, net (16) 230 203 297
Loss before provision for income
taxes (15,158) (11,538) (17,613) (9,186)
Provision for income taxes 155 342 340 3,064
Net loss $(15,313) $(11,880) $(17,953) $(12,250)
Net loss per share:
Basic and Diluted $(0.44) $(0.43) $(0.52) $(0.49)
Weighted average shares used in
computing net loss per share
Basic and Diluted 34,729 27,641 34,230 24,768
(1) Excludes stock-based compensation charges of $5 and $10 for the three
months ended September 30, 2004 and 2003, respectively, and $11 and
$20 for the six months ended September 30, 2004 and 2003,
respectively.
(2) Excludes stock-based compensation charges of $70 and $142 for the
three months ended September 30, 2004 and 2003, respectively, and
$165 and $293 for the six months ended September 30, 2004 and 2003,
respectively.
(3) Excludes stock-based compensation charges of $63 and $128 for the
three months ended September 30, 2004 and 2003, respectively, and
$148 and $263 for the six months ended September 30, 2004 and 2003,
respectively.
(4) Excludes stock-based compensation charges of $161 and $239 for the
three months ended September 30, 2004 and 2003, respectively, and
$357 and $462 for the six months ended September 30, 2004 and 2003,
respectively.