FOR IMMEDIATE RELEASE | CONTACT: |
August 16, 2010 | Thomas Plotts, CFO (212) 716-1977 x 222 |
ATRINSIC REPORTS OPERATING RESULTS FOR THE SECOND QUARTER 2010, AND RESIGNATION OF ITS CHIEF EXECUTIVE OFFICER.
New York (August 16, 2010) - Atrinsic, Inc., (NASDAQ: ATRN), a leading internet focused marketing company, announced second quarter (unaudited) 2010 results today.
Revenues for the second quarter of 2010 were $10.8 million compared with $17.0 million in the second quarter of 2009, a decrease of 36%. Subscription revenue increased to $5.0 million for the three months ended June 30, 2010, compared to $4.8 million for the three months ended June 30, 2009. Transactional & Marketing services revenue decreased by approximately $6.4 million or 52% to $5.8 million for the three months ended June 30, 2010 compared to $12.2 million for the three months ended June 30, 2009. The decrease was primarily attributable to the reduction in discretionary advertising expenditures by our clients in the agency service portion of our business.
Operating expenses for the second quarter of 2010 were $15.3 million compared with operating expenses of $19.9 million in the second quarter of 2009, a decrease of approximately $4.6 million. The decrease is primarily attributable to a reduced amount of purchased third party media, correlated to decreased revenues, and a reduction in labor and operating costs. During the quarter the Company announced and commenced a 30% reduction in its work force, to realign, focus on and serve its direct-to-consumer entertainment and digital subscription products, including the Kazaa Music Service. The staff reductions did not affect the agency portion of the business, which likewise the Company plans to continue to focus on, invest in and grow.
Adjusted EBITDA for the second quarter of 2010 was a loss of ($3.9) million compared with ($1.4) million in the second quarter of 2009. The increase in EBITDA loss is primarily attributable to the decrease in revenue, partially offset by decreases in operating expenses. Adjusted EBITDA is a non-GAAP measure – see Supplemental Disclosure regarding Non-GAAP Measures below.
Net loss attributable to Atrinsic for the second quarter of 2010 was ($4.5) million (($0.22) loss per basic and diluted share) compared with net loss of ($1.9) million for the second quarter of 2009 (($0.10) loss per basic and diluted share).
Subscription Services
We ended the second quarter of 2010 with approximately 284,000 subscribers, a year-over-year decrease of 114,000 net subscribers from the end of the second quarter of 2009. The reduction in total subscribers on a year-over-year basis was principally a result of a reduction in mobile content subscribers (approximately 118,000 net losses), offset by an increase in subscribers to the Kazaa music service. For the second quarter of 2010, we added 113,000 subscribers. Average revenue per user (or ARPU) increased approximately 49% year-over-year as a result of adding subscribers in higher ARPU subscription services.
Today Atrinsic, Inc. also announced that on August 13, 2010, Jeffrey Schwartz resigned from his position as Chief Executive Officer of Atrinsic and also resigned from Atrinsic’s Board of Directors. On an interim basis, Andrew Stollman, our President, and Raymond Musci, our Executive Vice President of Corporate Development, will assume the responsibilities formerly associated with Mr. Schwartz position.
All non-GAAP amounts have been adjusted from comparable GAAP measures. A description of all adjustments and reconciliations to comparable GAAP measures for all periods presented are included within this communication.
About Atrinsic, Inc.
Forward-Looking Statements
This press release contains “forward-looking” statements based on management’s current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements include the Company’s discussion relating to management’s current strategic priorities. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Such risks include, among others, the Company’s ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support growth, and other information that may be detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission. All information in this release is as of August 16, 2010. The Company does not undertake any obligation to update or revise these forward-looking statements to conform to actual results or changes in the Company’s expectations.
Supplemental Disclosure regarding Non-GAAP Measures
EBITDA and Adjusted EBITDA
The following tables set forth the Company’s EBITDA and Adjusted EBITDA for the three month periods ending on June 30, 2010 and 2009, respectively. The Company defines “EBITDA” and “Adjusted EBITDA” as net income adjusted to exclude the following line items presented in its Statement of Operations: Equity in loss of investee, noncontrolling interest, income taxes, other expense (income), interest expense, interest and dividend income, net, depreciation and amortization, and in the case of Adjusted EBITDA non-cash equity based compensation. While this non-Generally Accepted Accounting Principles (“GAAP”) measure has been relabeled to more accurately describe in the title the method of calculation of the measure, the actual method of calculating the measure is presented below.
The Company uses Adjusted EBITDA, among other things, and possibly with additional adjustments, to evaluate the Company’s operating performance, to value prospective acquisitions, and as one of several components of incentive compensation targets for certain management personnel, and this measure is among the primary measures used by management for planning and forecasting of future periods. This measure is an important indicator of the Company’s operational strength and performance of its business because it provides one of several links between profitability and operating cash flow. The Company believes the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by the Company’s management, helps improve their ability to understand the Company’s operating performance and makes it easier to compare the Company’s results with other companies that have different financing and capital structures or tax rates. In addition, it is our understanding that this measure is also among the primary measures used externally by the Company’s investors, analysts and peers in its industry for purposes of valuation and comparing the operating performance of the Company to other companies in its industry. The Company has elected to not adjust EBITDA for the impact of the adoption of ASC 718 (formerly FAS No.123R) and the Company has provided what it believes to be relevant supplemental information in this communication for analysis by others to fit their particular needs.
Since EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance. EBITDA and Adjusted EBITDA, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use, and is not necessarily a measure of the Company’s ability to fund its cash needs. As EBITDA and Adjusted EBITDA exclude certain financial information compared with net income, the most directly comparable GAAP financial measure, users of this financial information should consider what information is excluded. As required by the SEC, the Company provides below a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable amount reported under GAAP.
Reconciliation of Reported Net Income (Loss) |
To EBITDA and Adjusted EBITDA |
(Dollars in thousands, except per share data) |
(Unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss attributable to Atrinsic | $ | (4,492 | ) | $ | (1,948 | ) | $ | (7,926 | ) | $ | (3,136 | ) | ||||
Reconciliation Items: | ||||||||||||||||
Equity in (earnings) loss of Investee | (50 | ) | (33 | ) | 60 | 52 | ||||||||||
Net (income) attributable to noncontrolling interest | - | 46 | - | 28 | ||||||||||||
Income taxes | 109 | (930 | ) | 173 | (1,600 | ) | ||||||||||
Other (income) expense | (53 | ) | 6 | (10 | ) | 5 | ||||||||||
Interest (income) expense and dividends, net | (2 | ) | 10 | (3 | ) | 14 | ||||||||||
Depreciation and amortization | 324 | 1,007 | 647 | 2,562 | ||||||||||||
EBITDA | (4,164 | ) | $ | (1,842 | ) | (7,059 | ) | $ | (2,075 | ) | ||||||
Non-cash equity based compensation | $ | 305 | $ | 482 | $ | 635 | $ | 822 | ||||||||
Adjusted EBITDA | (3,859 | ) | $ | (1,360 | ) | (6,424 | ) | $ | (1,253 | ) | ||||||
Diluted Adjusted EBITDA | ||||||||||||||||
per Common Share | $ | (0.18 | ) | $ | (0.07 | ) | $ | (0.31 | ) | $ | (0.06 | ) |
ATRINSIC, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Dollars in thousands, except per share data) |
As of | As of | |||||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 7,268 | $ | 16,913 | ||||
Accounts receivable, net of allowance for doubtful accounts of $3,940 and $4,295 | 8,980 | 7,985 | ||||||
Income tax receivable | 3,524 | 4,373 | ||||||
Prepaid expenses and other current assets | 958 | 2,643 | ||||||
Total Current Assets | 20,730 | 31,914 | ||||||
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,141 and $1,078 | 3,309 | 3,553 | ||||||
INTANGIBLE ASSETS, net of accumulated amortization of $3,466 and $8,605 | 6,907 | 7,253 | ||||||
INVESTMENTS, ADVANCES AND OTHER ASSETS | 1,819 | 1,878 | ||||||
TOTAL ASSETS | $ | 32,765 | $ | 44,598 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 4,522 | $ | 6,257 | ||||
Accrued expenses | 6,850 | 9,584 | ||||||
Other current liabilities | 698 | 725 | ||||||
Total Current Liabilities | 12,070 | 16,566 | ||||||
DEFERRED TAX LIABILITY, NET | 1,719 | 1,697 | ||||||
OTHER LONG TERM LIABILITIES | 908 | 988 | ||||||
TOTAL LIABILITIES | 14,697 | 19,251 | ||||||
COMMITMENTS AND CONTINGENCIES (see note 12) | - | - | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock - par value $0.01, 100,000,000 authorized, 23,588,579 and 23,583,581 | ||||||||
shares issued at June 30, 2010 and 2009, respectively; and, 20,862,543 and 20,842,263 | ||||||||
shares outstanding at June 30, 2010 and 2009, respectively. | 236 | 236 | ||||||
Additional paid-in capital | 179,057 | 178,442 | ||||||
Accumulated other comprehensive income (loss) | 1 | (20 | ) | |||||
Common stock, held in treasury, at cost, 2,726,036 and 2,741,318 shares at 2010 and | ||||||||
2009, respectively. | (4,981 | ) | (4,992 | ) | ||||
Accumulated deficit | (156,245 | ) | (148,319 | ) | ||||
Total Stockholders' Equity | 18,068 | 25,347 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 32,765 | $ | 44,598 |
ATRINSIC, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(UNAUDITED) |
(Dollars in thousands, except per share data) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Subscription | $ | 4,991 | $ | 4,833 | $ | 10,973 | $ | 10,210 | ||||||||
Transactional and Marketing Services | 5,822 | 12,175 | 12,040 | 30,346 | ||||||||||||
NET REVENUE | 10,813 | 17,008 | 23,013 | 40,556 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Cost of media-third party | 6,009 | 10,472 | 13,353 | 25,948 | ||||||||||||
Product and distribution | 5,128 | 2,597 | 9,489 | 4,851 | ||||||||||||
Selling and marketing | 1,337 | 2,142 | 2,287 | 4,927 | ||||||||||||
General, administrative and other operating | 2,503 | 3,639 | 4,943 | 6,905 | ||||||||||||
Depreciation and amortization | 324 | 1,007 | 647 | 2,562 | ||||||||||||
15,301 | 19,857 | 30,719 | 45,193 | |||||||||||||
LOSS FROM OPERATIONS | (4,488 | ) | (2,849 | ) | (7,706 | ) | (4,637 | ) | ||||||||
OTHER (INCOME) EXPENSE | ||||||||||||||||
Interest income and dividends | (2 | ) | (16 | ) | (4 | ) | (62 | ) | ||||||||
Interest expense | - | 26 | 1 | 76 | ||||||||||||
Other (income) expense | (53 | ) | 6 | (10 | ) | 5 | ||||||||||
(55 | ) | 16 | (13 | ) | 19 | |||||||||||
LOSS BEFORE TAXES AND EQUITY IN LOSS OF INVESTEE | (4,433 | ) | (2,865 | ) | (7,693 | ) | (4,656 | ) | ||||||||
INCOME TAXES | 109 | (930 | ) | 173 | (1,600 | ) | ||||||||||
EQUITY IN (EARNINGS) LOSS OF INVESTEE, AFTER TAX | (50 | ) | (33 | ) | 60 | 52 | ||||||||||
NET LOSS | (4,492 | ) | (1,902 | ) | (7,926 | ) | (3,108 | ) | ||||||||
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING | ||||||||||||||||
INTEREST, AFTER TAX | - | 46 | - | 28 | ||||||||||||
NET LOSS ATTRIBUTABLE TO ATRINSIC, INC | $ | (4,492 | ) | $ | (1,948 | ) | $ | (7,926 | ) | $ | (3,136 | ) | ||||
NET LOSS PER SHARE ATTRIBUTABLE TO ATRINSIC | ||||||||||||||||
COMMON STOCKHOLDERS | ||||||||||||||||
Basic | $ | (0.22 | ) | $ | (0.10 | ) | $ | (0.38 | ) | $ | (0.15 | ) | ||||
Diluted | $ | (0.22 | ) | $ | (0.10 | ) | $ | (0.38 | ) | $ | (0.15 | ) | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||
Basic | 20,869,210 | 20,294,869 | 20,856,736 | 20,537,557 | ||||||||||||
Diluted | 20,869,210 | 20,294,869 | 20,856,736 | 20,537,557 |
ATRINSIC, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(UNAUDITED) |
(Dollars in thousands, except per share data) |
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | (7,926 | ) | $ | (3,108 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Allowance for doubtful accounts | (25 | ) | 1,474 | |||||
Depreciation and amortization | 647 | 2,562 | ||||||
Stock-based compensation expense | 635 | 822 | ||||||
Deferred income taxes | 21 | (1,661 | ) | |||||
Equity in loss of investee | 60 | 81 | ||||||
Changes in operating assets and liabilities of business, net of acquisitions: | ||||||||
Accounts receivable | (924 | ) | 4,995 | |||||
Prepaid income tax | 856 | (326 | ) | |||||
Prepaid expenses and other current assets | 1,684 | (206 | ) | |||||
Accounts payable | (1,734 | ) | (185 | ) | ||||
Other, principally accrued expenses | (2,887 | ) | (5,120 | ) | ||||
Net cash used in operating activities | (9,593 | ) | (672 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Cash received from investee | - | 1,080 | ||||||
Cash paid to investees | - | (781 | ) | |||||
Proceeds from sales of marketable securities | - | 4,242 | ||||||
Business combinations | - | (115 | ) | |||||
Acquisition of loan receivable | - | (480 | ) | |||||
Capital expenditures | (38 | ) | (264 | ) | ||||
Net cash (used in) provided by investing activities | (38 | ) | 3,682 | |||||
Cash Flows From Financing Activities | ||||||||
Repayments of notes payable | - | (1,750 | ) | |||||
Liquidation of non-controlling interest | - | (288 | ) | |||||
Purchase of common stock held in treasury | (9 | ) | (939 | ) | ||||
Net cash used in financing activities | (9 | ) | (2,977 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (5 | ) | (8 | ) | ||||
Net (Decrease) Increase In Cash and Cash Equivalents | (9,645 | ) | 25 | |||||
Cash and Cash Equivalents at Beginning of Year | 16,913 | 20,410 | ||||||
Cash and Cash Equivalents at End of Period | $ | 7,268 | $ | 20,435 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid for interest | $ | - | $ | 68 | ||||
Cash refunded (paid) for taxes | $ | 705 | $ | 264 |