Exhibit 99.1
Sonic Solutions Reports Results for Second Quarter Ended September 30, 2006
NOVATO, Calif.--(BUSINESS WIRE)--Nov. 8, 2006--Sonic Solutions(R) (NASDAQ:
SNIC) today announced its financial results for the second quarter ended
September 30, 2006.
Summary Financial Results
(in thousands, except per share amounts)
Three Months Ended
September 30,
2006 (Non-GAAP) 2006 (GAAP) 2005 (Non-GAAP) 2005 (GAAP)
----------------- ----------- --------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
----------------- ----------- --------------- ------------
Net revenue $35,853 $35,853 $31,948 $31,948
Gross profit $28,938 $27,762 $26,112 $24,794
Net income $4,194 $2,669 $2,599 $3,102
Net income
per diluted
share $0.15 $0.10 $0.09 $0.11
For the quarter ended September 30, 2006, net revenue was $35.9 million,
reflecting an increase of 12% from $31.9 million for the quarter ended September
30, 2005. Gross profit was $27.8 million compared to $24.8 million for the
quarter ended September 30, 2005, representing an increase of 12%. Net income
was $2.7 million or $0.10 per fully diluted share in the quarter ended September
30, 2006. The non-GAAP presentation contained herein excludes stock based
compensation charges resulting from our adoption of Statement of Financial
Accounting Standard 123R ("SFAS 123R") "Share-Based Payments," certain abandoned
acquisition costs, and the amortization of acquired intangibles. Based on these
adjustments, non-GAAP net income for the second quarter ended September 30, 2006
was $4.2 million and non-GAAP net income per diluted share was $0.15
"Our fiscal second quarter fell slightly below expectations due to an
interruption with a key OEM partner. However, we have worked to alleviate this
disruption and further enhance our relationship. We also made significant
progress on our key corporate initiatives, including HD, DVD On Demand, and the
launch of Easy Media Creator 9," stated Dave Habiger, President and Chief
Executive Officer of Sonic. "This morning we announced the acquisition of
SystemOK, a provider of system restore software. We expect this strategic move
will advance our leadership position in creating, managing and editing digital
media software by ensuring the safety of consumers' digital media assets and
providing significant value to key OEM partners."
Non-GAAP Presentation
In this press release, Sonic provides adjustments to financial information
calculated on the basis of GAAP as supplemental information relating to its
results of operations. The non-GAAP financial measures are used in addition to
and in conjunction with results presented in accordance with GAAP, and are
intended to provide additional insight into our operations that, when viewed
with our GAAP results and the accompanying reconciliations to the corresponding
GAAP financial measures, offers a more complete understanding of factors and
trends affecting our business. The non-GAAP measures should be considered as
supplements to, and not as substitutes for or superior to, the corresponding
measures calculated in accordance with GAAP. The non-GAAP disclosure and the
non-GAAP adjustments, including the basis for such adjustment and the impact on
our operations, are outlined below:
Stock Compensation Expense Adjustment. As of April 1, 2006, we adopted SFAS
123R. In our non-GAAP presentation for the second quarter ended September 30,
2006, we excluded $344,000, or $0.01 per fully diluted share tax affected, in
stock compensation expense recorded in our GAAP income statement pursuant to
SFAS 123R. SFAS 123R stock compensation expense was recorded in our GAAP income
statement as follows: $7,000 to cost of revenue; $125,000 to marketing and
sales; $125,000 to research and development; and $87,000 to general and
administrative. Given the significance and non-cash nature of this expense, and
for the reasons set forth below, management has excluded such expense from the
non-GAAP earnings presentation for the second quarter ended September 30, 2006.
Further, we believe the exclusion of stock compensation expenses recorded in the
second quarter ended September 30, 2006 improves the comparability to our
results for the second quarter ended September 30, 2005 during which there was
no stock option expense recorded, as the adoption of SFAS 123R occurred during
the current fiscal year.
Abandoned Acquisition Expense Adjustment. During the second quarter ended
September 30, 2006, we expensed costs incurred during the due diligence phase of
a potential acquisition of a company that we evaluated, but ultimately did not
acquire. We excluded this amount from our non-GAAP financial measures because we
believe it is a non-recurring expense that is not indicative of Sonic's ongoing
business operations. Further, we believe this exclusion improves the
comparability to our results for the second quarter ended September 30, 2005,
since there was no comparable expense during that quarter.
Acquisition-Related Intangible Amortization. Under purchase accounting
rules, some portion of an 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 from prior transactions we have
consummated. The amortization expense on acquired intangibles does not result in
ongoing cash expenditures and, in management's view, does not otherwise have a
material impact on Sonic's ongoing business operations.
We believe our non-GAAP presentation is useful to investors for the reasons
described above, and because such presentation offers investors a better
understanding of Sonic's core business operating results and budget planning
decisions. Management uses these non-GAAP measures internally to plan and
forecast future periods, to establish operational goals, to compare with its
business plan and individual operating budgets and to allocate resources. The
economic substance behind our decision to use the non-GAAP measures is an
increase in net income of $0.05 per fully diluted share for the quarter ended
September 30, 2006. Material limitations associated with the use of the non-GAAP
financial measures versus the comparable GAAP measures are (a) the non-GAAP
measures provide a view of our earnings that does not include all of our expense
obligations for the period in question, and (b) this may not enhance the
comparability of our results to those of other companies undergoing similar
transitions as a result of the adoption of SFAS 123R or to companies who have
abandoned acquisition expenses and/or acquisition-related intangibles, but who
have treated such matters differently. We compensate for these limitations by
providing full disclosure of the effects of these non-GAAP measures, by
presenting the corresponding treatment prepared in conformity with GAAP in this
release and in our financial statements and by providing a reconciliation to the
corresponding GAAP measures so that investors can use the information to perform
their own analysis.
Sonic will conduct a conference call at 1:30 p.m. PST, or 4:30 p.m. EST,
today to discuss its financial results for the second quarter ended September
30, 2006. Investors are invited to listen to Sonic's quarterly conference call
on the investor section of the Company's website at www.sonic.com
(http://www.sonic.com/). A replay of the web cast will be available
approximately two hours after the conclusion of the call. An audio replay of the
conference call will also be made available approximately two hours after the
conclusion of the call. The audio replay will remain available until 9:00 p.m.
PST, November 15, 2006, and can be accessed by dialing 719-457-0820 or
888-203-1112 and entering confirmation code 6216407.
Sonic Solutions
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
Three Months Ended Six Months Ended
September 30, September, 30,
2006 2005 2006 2005
--------- -------- -------- --------
Net Revenue $35,853 $31,948 $72,740 $67,467
Cost of Revenue 8,091 7,154 15,806 16,919
--------- -------- -------- --------
Gross Profit 27,762 24,794 56,934 50,548
--------- -------- -------- --------
Operating expenses
Marketing and sales 7,698 7,354 15,227 15,877
Research and development 10,283 10,819 21,015 20,692
General and administrative 4,531 3,354 8,797 8,264
Abandoned acquisition 1,016 --- 1,016 ---
Business integration --- 41 --- 336
--------- -------- -------- --------
Total operating expenses 23,528 21,568 46,055 45,169
--------- -------- -------- --------
Operating income 4,234 3,226 10,879 5,379
Other income (expense), net 190 (234) 348 (347)
--------- -------- -------- --------
Income before income taxes 4,424 2,992 11,227 5,032
Provision (benefit) for income
taxes 1,755 (110) 4,468 (3,974)
--------- -------- -------- --------
Net income $2,669 $3,102 6,759 9,006
========= ======== ======== ========
Net income per share
Basic $0.10 $0.13 $0.26 $0.37
========= ======== ======== ========
Diluted $0.10 $0.11 $0.25 $0.32
========= ======== ======== ========
Shares used in computing net
income per share
Basic 25,922 24,586 25,850 24,468
========= ======== ======== ========
Diluted 27,253 27,975 27,334 27,738
========= ======== ======== ========
Sonic Solutions
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
September 30, March 31,
2006 2006(1)
(unaudited)
------------- -----------
ASSETS
- ---------------------------------------------
Current assets:
Cash and cash equivalents $ 16,344 $ 18,731
Short term investments 44,275 42,350
Accounts receivable, net of allowance for
returns and doubtful accounts of $5,235
and $7,611 at March 31, 2006 and September
30, 2006, respectively 22,563 23,141
Inventory 458 689
Deferred tax benefit 4,037 3,879
Prepaid expenses and other current assets 3,454 3,771
------------- -----------
Total current assets 91,131 92,561
Fixed assets, net 3,775 4,833
Purchased and internally developed software
costs, net 885 1,266
Goodwill 54,151 54,151
Acquired intangibles, net 41,576 43,914
Deferred tax benefit, net 8,921 11,391
Other assets 946 1,355
------------- -----------
Total assets $ 201,385 $ 209,471
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------
Current liabilities:
Accounts payable $ 4,903 $ 7,727
Accrued liabilities 21,144 24,380
Deferred revenue 5,206 7,795
Bank note payable 20,000 ---
Obligations under capital leases, current
portion 8 35
------------- -----------
Total current liabilities 51,261 39,937
Bank note payable --- 30,000
Other long term liabilities, net of current
portion 585 373
Deferred revenue, net of current portion 59 2
Obligations under capital leases, net of
current portion --- 2
------------- -----------
Total liabilities 51,905 70,314
------------- -----------
Shareholders' equity:
Convertible preferred stock, no par value,
10,000,000 shares authorized; 0 shares
issued and outstanding at March 31, 2006,
and September 30, 2006, respectively --- ---
Common stock, no par value, 100,000,000
shares authorized; 25,685,953 and
25,973,792 shares issued and outstanding
at March 31, 2006 and September 30, 2006,
respectively 130,571 126,880
Accumulated other comprehensive loss (1,064) (937)
Accumulated earnings 19,973 13,214
------------- -----------
Total shareholders' equity 149,480 139,157
------------- -----------
Total liabilities and
shareholders' equity $ 201,385 $ 209,471
============= ===========
(1) March 31, 2006 balances are derived from the audited financial
statements included in the Company's 2006 Annual Report on Form 10-K.
Sonic Solutions
Reconciliation of Reported Operating Results to Non-GAAP Operating
Results
(in thousands, except per share amounts)
Three Months Ended
September 30,
2006 2005
----------- -----------
(unaudited) (unaudited)
Reconciliation from GAAP to Non-GAAP Gross
Profit
- -----------------------------------------------
GAAP gross profit $ 27,762 $ 24,794
Non-GAAP adjustment:
Amortization of acquired intangibles 1,169 1,318
SFAS 123R stock compensation expense
included in cost of revenue 7 ---
----------- -----------
Non-GAAP gross profit $ 28,938 $ 26,112
=========== ===========
Reconciliation from GAAP to Non-GAAP Net Income
- -----------------------------------------------
GAAP net income $ 2,669 $ 3,102
GAAP income before tax 4,424 2,992
Non-GAAP adjustment:
SFAS 123R stock compensation expense 344 ---
Abandoned acquisition expense 1,016 ---
Amortization of acquired intangibles 1,169 1,318
Tax adjustment(1) (1,004) (1,821)
----------- -----------
Non-GAAP net income $ 4,194 $ 2,599
=========== ===========
GAAP net income per share applicable to common
Basic $ 0.10 $ 0.13
=========== ===========
Diluted $ 0.10 $ 0.11
=========== ===========
Non-GAAP net income per share applicable to
common
Basic $ 0.16 $ 0.11
=========== ===========
Diluted $ 0.15 $ 0.09
=========== ===========
Shares used in computing per share amounts
Basic 25,922 24,586
=========== ===========
Diluted 27,253 27,975
=========== ===========
(1) Tax adjustment calculated by applying second quarter ended
September 30, 2006 effective tax rate of 39.7%.
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(R)-branded CD and DVD creation, playback and backup
solutions that have become the premier choice for consumers, prosumers and
business users worldwide.
Sonic products are globally available from major retailers as well as
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, and Roxio are trademarks or
registered trademarks of Sonic Solutions in the U.S. and/or other countries. All
other company or product names are trademarks or registered trademarks of their
respective owners and, in some cases, are used by Sonic under license.
Forward-Looking Statements
This press release and Sonic's quarter ended September 30, 2006 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 quarter ending December 31, 2006 and revenue guidance for
the fiscal year ending March 31, 2008; and views regarding opportunities
presented by the "download and burn" business model, our ability to strengthen
our relationships with end-users, the opportunities and benefits achieved
through Sonic's integration of the Roxio Consumer Software Division, the
evolution of, and opportunities for Sonic arising from, next-generation high
definition formats and channels, future market opportunities and the potential
benefits of our acquisition of SystemOK. 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, 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; any fluctuation
in demand for Sonic products; the transition of products to new hardware
configurations and platforms; unforeseen increases in operating expenses, new
product introductions, cost of Sarbanes Oxley ("SOX") compliance or business
expansion; loss of significant customers or key suppliers; risks related to
acquisitions and international operations; costs associated with litigation or
prosecution and intellectual property claims; changes in effective tax rates;
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 Sonic's most recent annual report on Form
10-K and Form 10-K/A 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, Chief Financial Officer, 415-893-8000
Fax: 415-893-8008
clay_leighton@sonic.com
or
StreetSmart Investor Relations
Brooke Deterline, 415-893-7824
Anne Leschin, 415-775-1788
investinsonic@sonic.com