Exhibit 99.1
Sonic Solutions Reports Results for Fourth Quarter and Fiscal Year Ended
March 31, 2005;
Record Revenues Drive Profitable First Full Quarter of Roxio/Sonic Integration
NOVATO, Calif.--(BUSINESS WIRE)--May 16, 2005--Sonic Solutions
(NASDAQ:SNIC) ("Sonic") announced today its financial results for the
fourth quarter and fiscal year ended March 31, 2005.
Summary Financial Results
(in thousands, except per share amounts)
Twelve Months
Three Months Ended Ended
March 31, March 31,
2005 2005 2004 2005 2004
(Non-GAAP) (GAAP) (GAAP) (GAAP) (GAAP)
-------- -------- -------- -------- --------
Net revenue $37,475 $35,604 $17,302 $90,627 $56,853
Net income $7,505 $1,220 $4,336 $8,363 $11,084
======== ======== ======== ======== ========
Net income per diluted
share $0.28 $0.05 $0.17 $0.32 $0. 46
======== ======== ======== ======== ========
On the basis of generally accepted accounting principles ("GAAP"),
net revenue for the quarter was $35,604,000 compared to $17,302,000
for the same period in the prior fiscal year. Net income for the
quarter was $1,220,000, or $0.05 per diluted share, compared to net
income of $4,336,000, or $0.17 per diluted share, for the same period
in the prior fiscal year.
On a GAAP basis, net revenue for the fiscal year ended March 31,
2005 was $90,627,000 compared to $56,853,000 for the prior fiscal
year. Net income for the fiscal year was $8,363,000, or $0.32 per
diluted share, compared to net income of $11,084,000, or $0.46 per
diluted share, for the prior fiscal year.
On a non-GAAP basis, net revenue for the quarter was $37,475,000,
net income was $7,505,000 and net income per diluted share was $0.28.
Non-GAAP Presentation
During the quarter ended December 31, 2004, and as previously
announced, Sonic acquired substantially all of the assets and
liabilities of the Consumer Software Division of Roxio, Inc. In this
press release, Sonic provides certain adjustments to financial
information calculated on the basis of GAAP as supplemental
information relating to its results of operations. These non-GAAP
financial measures include non-GAAP net revenue, net income, diluted
earnings per share, and gross profit and margin figures, which exclude
certain expense items associated with the acquisition and include
certain revenue associated with the sale of Roxio products, each as
more fully described below. The non-GAAP financial measures also
exclude the third party costs incurred by Sonic in the fourth quarter
in connection with Sonic's implementation of the requirements of
Section 404 of the Sarbanes-Oxley Act (see "SOX Compliance" below).
Management believes that this non-GAAP presentation allows investors
to better understand the operating results of Sonic for the quarter
ended March 31, 2005 because this presentation excludes non-recurring
acquisition-related charges and other non-recurring expenses, includes
revenue-related items management considers meaningful and provides
insight into how management evaluates operating results. In addition,
Sonic has reported similar non-GAAP results in the past and believes
the inclusion of this non-GAAP presentation provides consistency in
its financial reporting. However, these non-GAAP measures should not
be considered in isolation from, or as a substitute for, financial
information presented in compliance with GAAP, and other companies may
use different non-GAAP measures and presentations of results.
The non-GAAP presentation adjusts the following items:
Revenue. Under purchase accounting rules, Original Equipment
Manufacturer ("OEM") royalties received by Sonic on account of Roxio's
business may be included in revenue only if they reflect OEM shipments
occurring after the date of the acquisition (December 17, 2004). The
non-GAAP presentation includes in revenue royalties for which Sonic
received reports of shipments from OEMs after December 17, 2004 for
shipments prior to December 17, 2004 and for which Sonic has invoiced
the OEMs and expects to collect the amounts due in cash. Sonic has
also excluded in the non-GAAP presentation an end of life reserve
related to shipments of Easy Media Creator 7.0, which Sonic shipped to
and invoiced distributors during the fourth quarter and expects to
collect the amounts due in cash but was not able to record the revenue
due to the pending launch of Easy Media Creator 7.5 (see below).
Acquisition-Related Intangible Amortization. Under purchase
accounting rules, some portion of the acquisition purchase price is
allocated to intangibles, such as core and developed technology and
customer contracts, which are then amortized over various periods of
time. The GAAP presentation includes amortization on all acquired
intangibles. These non-cash charges are eliminated in the non-GAAP
presentation in calculating operating income.
Easy Media Creator 7.5 Launch Expenses. After completion of the
acquisition, Sonic immediately began preparations for a previously
unplanned release of a new version of Easy Media Creator. The Roxio
organization had been planning to release a new version of Easy Media
Creator in the fall of 2005. Sonic management took this step because
it believed that an early release of a new version of Easy Media
Creator, incorporating some Sonic technology and identifiable
branding, would accelerate integration of the Roxio business into
Sonic both from a market as well as an internal organizational
perspective. The incremental costs of this release, including the
related end of life reserve discussed above, are included in the GAAP
presentation and excluded in the non-GAAP presentation.
Third-Party Expenses Related to Compliance with the Sarbanes-Oxley
Act of 2002 ("SOX"). The third-party expenses related to SOX
compliance work for the 2005 fiscal year are included in the GAAP
presentation and excluded in the non-GAAP presentation. The expenses
excluded in the non-GAAP presentation are primarily the fees paid to
compliance consultants and to Sonic's external auditors for work in
connection with Sonic's SOX compliance. As discussed further below,
Sonic management believes that SOX compliance efforts were
significantly complicated by the impact of the Roxio acquisition,
including management's decision to migrate Sonic's accounting into
systems that were acquired as part of the Roxio combination. Hence,
Sonic management believes the level of SOX expenses is extraordinary
and is unlikely to recur in future periods.
Business Integration Expenses. Certain charges that occurred at or
around the time of an acquisition, and that are not expected to recur,
are considered to be non-recurring charges. The non-GAAP presentation
eliminates these charges included in operating expense.
Guidance
For its fiscal quarter ending June 30, 2005, Sonic anticipates
GAAP revenues to be in the range of $32 million to $34 million and
GAAP fully diluted earnings to be between $0.13 and $0.15 per share.
Sonic is maintaining our prior fiscal year 2006 guidance, for its
fiscal year ending March 31, 2006, Sonic anticipates GAAP revenues to
be in the range of $155 million to $165 million and GAAP fully diluted
earnings to be between $1.20 and $1.30 per share.
SOX Compliance
The SEC's rules implementing Section 404 of the Sarbanes-Oxley Act
of 2002 require Sonic management to assess the effectiveness of its
internal control over financial reporting annually, and to include in
Sonic's Annual Report on Form 10-K for the fiscal year ended March 31,
2005 and subsequent years a management report on that assessment,
together with an opinion thereon by Sonic's independent registered
public accounting firm. Sonic expects to comply with these disclosure
requirements on a timely basis. Management is in the process of
reviewing internal control systems and, in connection with this
evaluation, has identified certain deficiencies. Although none of
these deficiencies have been identified as a significant deficiency or
material weakness at this time, the evaluation of internal control
over financial reporting is not yet complete and there can be no
assurance that, as a result of the ongoing evaluation, additional
deficiencies will not be identified or that any deficiencies
identified, either alone or in combination with others, will not be
considered a significant deficiency or a material weakness. Although
certain remediation efforts have been undertaken, any deficiency or
weakness will not be considered effectively remediated until new
internal controls are operational for a period of time and are tested,
and management and Sonic's independent registered public accounting
firm conclude that these controls are operating effectively. As a
result of the recent Roxio acquisition, management has actively been
working to integrate the operations of the acquired business,
particularly with respect to accounting, accounting systems and
financial reporting. In part due to these acquisition and integration
efforts, many of Sonic's processes and procedures in these areas have
been recently restructured, and the evaluations relate to the
restructured process and procedures. Due to the nature of and the time
necessary to effectively remediate and test each of the deficiencies
identified to date, Sonic expects to conclude that some of the
deficiencies identified to date had not been effectively remediated as
of March 31, 2005.
At this time, management does not believe that the results of its
evaluation of internal control over financial reporting will preclude
an unqualified opinion from Sonic's auditor with respect to the annual
financial statements; however, there can be no assurance that the
results of such evaluation will not cause an adjustment to the
financial statements to be included in the Annual Report on Form 10-K.
Further, while at this time Sonic has completed a review with its
independent auditors of the financial statements presented in this
press release, the dependency of the evaluation of internal controls
mentioned above, as well as lack of completion of all financial audit
test procedures means that the presentation contained in this press
release is unaudited and subject to further change prior to the filing
of Sonic's Annual Report on Form 10-K.
Sonic will hold its fourth quarter and fiscal year ended March 31,
2005 earnings conference call on Monday, May 16, 2005 at 1:30 p.m.
(PDT)/4:30 p.m. (EDT). Investors are invited to listen to Sonic's
conference call on the investor section of the Sonic Web site at
www.sonic.com. A replay of the call also will be available via webcast
at www.sonic.com.
Sonic Solutions
Condensed Statement of Operations
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
March 31, March 31,
2005 2004 2005 2004(a)
----------- ------------- ------------- --------
(unaudited) (unaudited) (unaudited)
Net Revenue $35,604 $17,302 $90,627 $56,853
Cost of Revenue 7,376 1,917 13,373 7,052
----------- ------------- ------------- --------
Gross Profit 28,228 15,385 77,254 49,801
----------- ------------- ------------- --------
Operating expenses
Marketing and sales 9,028 3,343 21,179 12,629
Research and
development 10,523 5,724 31,681 19,731
General and
administrative 5,607 1,466 9,867 4,668
Acquired in-process
technology 0 0 3,100 0
Business integration 1,103 0 2,190 0
----------- ------------- ------------- --------
Total operating
expenses 26,261 10,533 68,017 37,028
----------- ------------- ------------- --------
Operating income 1,967 4,852 9,237 12,773
Other income
(expense), net (378) 136 218 237
----------- ------------- ------------- --------
Income before
income taxes 1,589 4,988 9,455 13,010
Provision for income
taxes 369 652 1,092 1,926
----------- ------------- ------------- --------
Net income $1,220 $4,336 $8,363 $11,084
=========== ============= ============= ========
Net income per
share applicable
to common
Shareholders:
Basic $0.05 $0.20 $0.36 $0.54
=========== ============= ============= ========
Diluted $0.05 $0.17 $0.32 $0.46
=========== ============= ============= ========
Shares used in
computing net income
per share:
Basic 24,303 21,766 23,346 20,459
=========== ============= ============= ========
Diluted 26,979 25,917 26,022 23,889
=========== ============= ============= ========
(a) March 31, 2004 balances are derived from the audited financial
statements included in the Company's 2004 Annual Report on Form 10-K.
Sonic Solutions
Condensed Balance Sheets
(in thousands)
March 31, March 31,
2005 2004(a)
(unaudited)
-------------------
Assets
Current assets:
Cash, cash equivalents and investments $35,436 $36,182
Accounts receivable, net of allowance for
returns and doubtful accounts of
$243 and $10,377, at March 31, 2004 and
2005, respectively 12,839 9,443
Unbilled receivables 121 0
Inventory 755 560
Prepaid expenses and other current assets 2,106 1,399
---------- --------
Total current assets 51,257 47,584
---------- --------
Fixed assets, net 6,544 3,610
Purchased and internally developed software costs,
net 1,573 1,042
Acquired intangibles 55,164 2,898
Goodwill 49,046 15,533
Other assets 2,610 278
---------- --------
Total assets $166,194 $70,945
========== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $9,087 $1,145
Accrued liabilities 19,250 8,977
Deferred revenue and deposits 5,176 4,965
Capital leases 84 60
---------- --------
Total current liabilities 33,597 15,147
---------- --------
Bank note payable 30,000 0
Other long term liabilities 2,556 0
Deferred revenue, net of current portion 756 0
Capital lease, net of current portion 41 75
---------- --------
Total liabilities 66,950 15,222
Shareholders' equity:
Common stock 106,410 70,994
Cumulative foreign translation adjustment (274) (16)
Accumulated deficit (6,892) (15,255)
---------- --------
Total shareholders' equity 99,244 55,723
---------- --------
Total liabilities and shareholders' equity $166,194 $70,945
========== ========
(a) March 31, 2004 balances are derived from the audited financial
statements included in the Company's 2004 Annual Report on Form 10-K.
Sonic Solutions
Reconciliation of Reported Operating Results
to Non-GAAP Operating Results
(in thousands, except per share amounts and percentages, unaudited)
Three Months Ended
March 31,
2005 2004
-------- ---------
Reported revenue $35,604 $17,302
Adjustment:
CSD royalty reports received after December 17,
2004 for OEM shipments prior to December 17, 2004 380 0
CSD end of life reserve 1,491 0
-------- ---------
Non GAAP revenue $37,475 $17,302
======== =========
Non GAAP gross profit $31,215 $15,385
Non GAAP gross margin 83.3% 88.9%
GAAP Operating income $1,967 $4,852
GAAP Net income 1,220 4,336
Adjustments:
CSD end of life reserve 1,491 0
CSD royalty reports received after December 17,
2004 for OEM shipments prior to December 17, 2004 380 0
Business integration expenses 1,103 0
C7.5 launch expenses 823 0
SOX compliance expenses 1,968 0
Amortization of intangible assets 1,116 175
-------- ---------
Non GAAP operating income basic $8,848 $5,027
======== =========
Tax impact on non-GAAP adjustments (596) (20)
-------- ---------
Non GAAP net income basic $7,505 $4,491
======== =========
Net income per diluted share
Non-GAAP $0.28 $0.18
======== =========
GAAP $0.05 $0.17
======== =========
Shares used in computing per share amounts 26,979 25,197
======== =========
About Sonic Solutions
Sonic Solutions (NASDAQ:SNIC) (http://www.sonic.com) is the leader
in digital media software, providing a broad range of interoperable,
platform independent software tools and applications for creative
professionals, business and home users, and technology partners.
Sonic's products range from advanced DVD authoring systems and
interactive content delivery technologies used to produce the majority
of Hollywood DVD film releases, to the award-winning Roxio- and
Sonic-branded CD and DVD creation, playback and backup solutions that
have become the premiere choice for consumers, prosumers and business
users worldwide.
Sonic products are globally available from major retailers, online
at Sonic.com and Roxio.com, and are bundled with PCs, after-market
drives and consumer electronic devices. Sonic's digital media creation
engine is the de facto standard and has been licensed by major
software and hardware manufacturers, including Adobe, Microsoft,
Scientific-Atlanta, Sony, and many others. Sonic Solutions is
headquartered in Marin County, California.
Sonic, the Sonic logo, Sonic Solutions, Easy Media Creator, and
Roxio are trademarks or registered trademarks of Sonic Solutions in
the United States and/or other countries. All other company or product
names are trademarks of their respective owners and, in some cases,
are used by Sonic under license.
Forward-Looking Statements
This press release and Sonic's fourth quarter and fiscal year
ended March 31, 2005 earnings conference call contain forward-looking
statements that are based upon current expectations. Such
forward-looking statements include revenue and earnings per share
guidance for the fiscal quarter ending June 30, 2005 and the fiscal
year ending March 31, 2006; the gross margin, operating margin,
effective tax rate and cost of SOX compliance assumed for the
guidance; the continuing effects of the increase in operating expenses
and headcount in connection with the Roxio acquisition; and favorable
expectations about Sonic's consumer electronics strategy and ability
to take advantage of the convergence of the PC and consumer
electronics industries. These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the
actual results to differ materially from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause such
differences include, but are not limited to, Sonic's ability to
successfully integrate Roxio's Consumer Software Division and former
employees into Sonic's business and realize the anticipated synergies
and cost savings from the acquisition; general customer and market
reaction to the Roxio acquisition; the timely introduction and
acceptance of new products, including but not limited to Sonic's high
definition series products; the costs associated with new product
introductions and the possible adverse effect on gross margin; the
transition of products to new hardware configurations and platforms;
unforeseen increases in operating expenses as a result of the Roxio
acquisition, new product introductions, cost of SOX compliance or
business expansion; loss of significant customers due to the Roxio
acquisition and other market conditions; risks related to acquisitions
and international operations; and other factors, including those
discussed in Sonic's annual and quarterly reports on file with the
Securities and Exchange Commission. This press release should be read
in conjunction with the Sonic's most recent quarterly report on Form
10-Q and Sonic's other reports on file with the Securities and
Exchange Commission, which contain a more detailed discussion of
Sonic's business including risks and uncertainties that may affect
future results. Sonic does not undertake to update any forward looking
statements.
CONTACT: Sonic Solutions
A. Clay Leighton, 415-893-8000 (Chief Financial Officer)
clay_leighton@sonic.com
or
Market Street Partners
Carolyn Bass, 415-445-3232
Rob Walker, 415-445-3234
investinsonic@sonic.com