Media Contact:
Dana M. Harris
Napster
310-281-5000
dana.harris@napster.com
Investor Contacts:
Alex Wellins or Jennifer Jarman
The Blueshirt Group, for Napster
(415) 217-7722
alex@blueshirtgroup.com; jennifer@blueshirtgroup.com
NAPSTER REPORTS $25.5 MILLION IN SECOND QUARTER SALES; LAUNCHES NAPSTER MOBILE WITH NUMBER ONE CARRIERS IN U.S. AND JAPAN
LOS ANGELES, Calif. - November 8, 2006 - Napster (Nasdaq: NAPS) today reported financial results for its fiscal second quarter ended September 30, 2006.
Net revenue for the second quarter of fiscal 2007 was $25.5 million, up 9% from $23.4 million in the second quarter of fiscal 2006. Excluding non-recurring items, revenue for the second quarter of fiscal 2007 was $24.9 million, up 17% from $21.3 million in the second quarter of fiscal 2006. Net loss for the second quarter of fiscal 2007 was $9.0 million, or $0.21 per basic and diluted share, compared to net loss of $13.6 million, or $0.32 per basic and diluted share, in the second quarter of fiscal 2006.
“We’re pleased to report that Napster.com’s unique visitation grew 42% in the second quarter, which provides us with the opportunity to continue to grow our new ad supported free music service and simultaneously deliver positive paid subscriber growth throughout the balance of our fiscal year,” said Chris Gorog, Napster’s chairman and chief executive officer. “We believe the dramatic growth projected for music-enabled cell phones will provide a very significant growth driver for Napster going forward. Our recent launches with Cingular and DoCoMo, two of the largest wireless carriers in the world, provide us with a great jump-start into the mobile market and will make Napster’s subscription service and mobile offerings available to over 100 million mobile customers. We look forward to continuing to aggressively expand the footprint for Napster Mobile and will be announcing additional carriers before the end of the year.”
Napster ended the second quarter with a total of $90.3 million of cash, cash equivalents and short-term investments. As of September 30, 2006, Napster’s total paid subscriber base was 518,000, including 31,000 university subscribers.
Business Outlook
“We project that revenues, including approximately $2 million of non-recurring revenue, will exceed $27 million in the December quarter. Operating expenses are expected to be up sequentially based on seasonal marketing expenditures and promotional device bundles. Looking out on the balance of our fiscal year, we continue to expect solid double-digit annual revenue growth for fiscal 2007,” said Nand Gangwani, Napster’s chief financial officer.
Conference Call Information
The Napster second-quarter teleconference and webcast is scheduled to begin at 2:00 p.m. PDT on Wednesday, November 8, 2006. To participate on the live call, analysts and investors should dial 800-240-5318 at least ten minutes prior to the call. Napster 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.napster.com.
About Napster
Napster (NASDAQ: NAPS) is committed to making great music experiences more accessible to all music fans. Napster.com gives web users the power to legally listen on-demand to a massive catalog of music from major and independent labels, wherever they are on the Web -- for FREE. The Napster music subscription service offers a premium experience that includes unlimited access to CD-quality music and advanced discovery, community and programming features in an advertising-free environment. Napster To Go subscribers also enjoy unlimited transfer of music to a compatible MP3 player. Napster Light, an a la carte download store, and Napster Mobile, a hosted music service featuring artist images, ring tones and full-length songs, round out the Napster digital music lineup. Napster is headquartered in Los Angeles with sales offices in Frankfurt and London. For more information, please visit www.napster.com.
Safe Harbor Statement
Except for historical information, the matters discussed in this press release, in particular matters related to future revenue and operating expenses; growth of the free and paid music services, the growth of sales of music-enabled cellular phones and our relationships with wireless carriers are forward-looking statements that are subject to certain risks and uncertainties such as decreased demand for our products and services; failure of our products to interoperate with the hardware products of our customers; intense competition; failure to maintain relationships with strategic partners and content providers; and general economic conditions; that could cause actual results to differ materially from those projected. Additional information on these and other factors are contained in Napster'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 November 8, 2006, copies of which are available at the website maintained by the SEC at http://www.sec.gov. Napster assumes no obligation to update the forward-looking statements included in this press release.
Copyright © 2006 Napster, LLC. All rights reserved. Napster, Napster Mobile, Napster To Go and Napster Light are either trademarks or registered trademarks of Napster, Inc. or its subsidiaries in the United States and/or other countries. All other trademarks are owned by their respective owners. NAPSTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| | | As of | |
| | | September 30, 2006 | | March 31, 2006 | |
ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | 31,064 | | $ | 46,812 | |
| Short-term investments | | | 59,254 | | | 49,812 | |
| Foreign currency conversion in transit | | | — | | | 7,545 | |
Accounts receivable, net of allowance for doubtful accounts of $8 at September 30, 2006 and $7 at March 31, 2006 | | | 1,283 | | | 1,042 | |
| Prepaid expenses and other current assets | | | 4,464 | | | 6,182 | |
| Total current assets | | | 96,065 | | | 111,393 | |
| Property and equipment, net | | | 5,768 | | | 7,012 | |
| Goodwill | | | 34,658 | | | 34,658 | |
| Investment in unconsolidated entity | | | 1,461 | | | 2,203 | |
| Other assets | | | 226 | | | 275 | |
| Total assets | | $ | 138,178 | | $ | 155,541 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable | | $ | 5,226 | | $ | 3,279 | |
| Income taxes payable | | | 4,244 | | | 4,139 | |
| Accrued liabilities | | | 17,017 | | | 16,745 | |
| Deferred revenues | | | 9,510 | | | 12,824 | |
| Total current liabilities | | | 35,997 | | | 36,987 | |
| Long-term liabilities | | | | | | | |
| Deferred income taxes | | | 3,085 | | | 2,622 | |
| Other long-term liabilities | | | 120 | | | 159 | |
| Total liabilities | | | 39,202 | | | 39,768 | |
| | | | | | | | |
| Stockholders' equity: | | | | | | | |
Common stock, $0.001 par value; Authorized: 100,000 shares; Issued and Outstanding: 44,929 shares at September 30, 2006 and 43,826 shares at March 31, 2006 | | | 45 | | | 44 | |
| Additional paid-in capital | | | 259,181 | | | 260,198 | |
| Deferred stock-based compensation | | | — | | | (2,934 | ) |
| Accumulated deficit | | | (160,188 | ) | | (141,368 | ) |
| Accumulated other comprehensive loss | | | (62 | ) | | (167 | ) |
| Total stockholders' equity | | | 98,976 | | | 115,773 | |
| Total liabilities and stockholders' equity | | $ | 138,178 | | $ | 155,541 | |
NAPSTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| | | Three Months Ended | | Six Months Ended | |
| | | September 30, | | September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Service | | $ | 25,359 | | $ | 21,036 | | $ | 53,406 | | $ | 41,787 | |
| Product and license | | | 101 | | | 2,343 | | | 170 | | | 2,593 | |
| Total revenue | | | 25,460 | | | 23,379 | | | 53,576 | | | 44,380 | |
| | | | | | | | | | | | | | |
| Cost of revenues: | | | | | | | | | | | | | |
| Service (1) | | | 18,312 | | | 15,340 | | | 37,319 | | | 29,627 | |
| Product and license | | | 214 | | | 2,947 | | | 329 | | | 3,065 | |
| Total cost of revenue | | | 18,526 | | | 18,287 | | | 37,648 | | | 32,692 | |
| | | | | | | | | | | | | | |
| Gross margin | | | 6,934 | | | 5,092 | | | 15,928 | | | 11,688 | |
| | | | | | | | | | | | | | |
| Service gross margin % | | | 28 | % | | 27 | % | | 30 | % | | 29 | % |
| Product and license gross margin % | | | (112 | )% | | (26 | )% | | (94 | )% | | (18 | )% |
| Gross margin % | | | 27 | % | | 22 | % | | 30 | % | | 26 | % |
| | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Research and development (1) | | | 2,297 | | | 3,216 | | | 5,234 | | | 6,411 | |
| Sales and marketing (1) | | | 8,526 | | | 10,391 | | | 18,997 | | | 26,663 | |
| General and administrative (1) | | | 5,712 | | | 4,791 | | | 11,700 | | | 10,987 | |
| Amortization of intangible assets | | | - | | | 474 | | | - | | | 948 | |
| Total operating expenses | | | 16,535 | | | 18,872 | | | 35,931 | | | 45,009 | |
| | | | | | | | | | | | | | |
| Loss from operations | | | (9,601 | ) | | (13,780 | ) | | (20,003 | ) | | (33,321 | ) |
| | | | | | | | | | | | | | |
| Other income, net | | | 1,227 | | | 451 | | | 2,408 | | | 331 | |
| | | | | | | | | | | | | | |
| Loss before income tax provision | | | (8,374 | ) | | (13,329 | ) | | (17,595 | ) | | (32,990 | ) |
| Income tax provision | | | (290 | ) | | (283 | ) | | (557 | ) | | (548 | ) |
| Loss from unconsolidated entity | | | (338 | ) | | - | | | (668 | ) | | - | |
| | | | | | | | | | | | | | |
| Net loss | | $ | (9,002 | ) | $ | (13,612 | ) | $ | (18,820 | ) | $ | (33,538 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.21 | ) | $ | (0.32 | ) | $ | (0.44 | ) | $ | (0.78 | ) |
| | | | | | | | | | | | | | |
| Weighted average shares used in computing net loss per share | | | | | | | | | | | | | |
| Basic and diluted | | | 43,197 | | | 42,977 | | | 43,147 | | | 42,969 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| (1) Amounts reported include stock-based compensation expense as follows: | | | | | | | | | | | | | |
| Cost of revenues | | $ | 6 | | $ | 3 | | $ | 16 | | $ | 4 | |
| Research and development | | | 181 | | | 72 | | | 368 | | | 95 | |
| Sales and marketing | | | 115 | | | 29 | | | 258 | | | 38 | |
| General and administrative | | | 677 | | | 190 | | | 1,311 | | | 286 | |
| | | $ | 979 | | $ | 294 | | $ | 1,953 | | $ | 423 | |
