Cricket Media 2015 Second Quarter Results

Transcription

1 FOR IMMEDIATE RELEASE Cricket Media 2015 Second Quarter Results WASHINGTON, DC August 27, Cricket Media Group Ltd. (TSXV:CKT) ( Cricket Media or the Company ), an education media company and global social learning network, today released its operating results for the second quarter ended June 30, Results were prepared by management in accordance with International Financial Reporting Standards ( IFRS ). All figures are in U.S. dollars. Conference call today at 10:00 a.m. Eastern Time To participate please dial or approximately 10 minutes prior to the conference call, and enter passcode A recording of the conference call will be available through October 31, 2015 by dialing and passcode Q2 Highlights Total revenue of $3.1 million for the period Operating expenses down 20% or approximately $1.4 million compared to prior year period; sixth straight quarter of year over year improvement in quarterly net operating loss (excluding impairment charges) New channel partnerships in place to drive content licensing and subscription sales Content licensing grew 29% year over year, commerce revenue grew 19% year over year, and digital only and digital bundle subscriptions grew 32% and 59%, respectively, year over year New website, ecommerce system, and fulfillment improvements successfully launched to improve efficiency Second Quarter Business Review During the second quarter, Cricket Media focused on controlling costs, leveraging new distribution partnerships to grow revenue and launching a new website, ecommerce system and other core infrastructure improvements to increase efficiency and support growth in the second half of Operating expenses in Q were down 20% or about $1.4 million compared to prior year period, marking the sixth straight quarter of year over year improvement in quarterly net operating loss (excluding impairment charges). Revenue was down 3% in Q compared to the prior year period overall, an improvement over the Q results of a 13% decrease in revenue against a 14% reduction in operating expenses compared to the prior year period. Content licensing revenue was up 29% for Q compared to Q2 2014, fueled by growth in use of the Company s content in assessment and in other licensing categories. To further grow its content licensing customer base and revenue, the Company added several new partners and expanded relationships with current partners including Discovery Education, which is featuring Cricket Media

2 content in its streaming service, Cambium Learning, Curriculum Associates, and Measured Progress. Cricket Media also signed a distribution agreement with Great Minds MLA, a subscription-based digital content solution for schools. Cricket Media also saw a significant ramp in interest in our content in China and has since added three new content licensing partners in China: Joymis, a Tencent company, is expected to expand the availability of Cricket s award-winning content and products in China across multiple platforms, channels and products. Under the partnership, Joymis and Cricket Media will develop digital media products that may be distributed via products such as Joymis reading apps for children and the Tencent reading channel, Mobile Tencent Reading Club, Qzone, Q+ and other products. The products will be available on ios, Android and Windows systems. Yilin Group, one of China s leading publishing, educational training and brand marketing companies, will feature Cricket Media content and brands in a children s book series as well as other physical and digital products in English and Mandarin. The two companies will undertake joint marketing activities and explore additional opportunities including education-related initiatives. English Salon, a leading national magazine brand in China, will feature Cricket Media content in its highly regarded publications beginning with three September 2015 editions. Under the licensing agreement, English Salon will feature Cricket stories, articles and images in magazines including its higher education, high school and junior high school editions. The Company also added two new channels to drive subscriptions, including a partnership with the digital newsstand Zinio to distribute all Cricket Media magazine titles into the Zinio for Libraries program and on its consumer newsstand and Magzter, a cross-platform global digital newsstand, which will feature all magazine brands on Magzter platforms worldwide. These results show that there is significant and growing demand worldwide for Cricket Media s award-winning content, which is well regarded and valued by both educational and media partners, said Cricket Media CEO, Katya Andresen. We see this demand in our revenue growth, our increasing number of distribution partners and our new channels in China. In the second quarter of 2015, digital-only subscriptions increased 32% and bundled (digital and print) subscriptions grew 59% year-over-year. A total of 54% of new customers selected a digital option in Q The increased sales of digital products are aligned with the Company s strategy to grow its hybrid physical-digital and digital-only customer base and increase its focus on digital marketing, improved ecommerce and digital fulfillment and channel partnerships. In Q the Company completed several efforts to improve efficiency. Its recent brand consolidation to 11 magazine titles came into full effect. Cricket Media launched a new website, new subscription management and fulfillment systems and a new customer service system. These initiatives lower costs as well as improve the Company s ability to renew and cross sell customers across its product offerings. Q2 Financial Review Total revenue for the three months ended June 30, 2015 was approximately $3.1 million compared to approximately $3.2 million for the three months ended June 30, Subscription revenues decreased approximately $131,000, or 5%, for the second quarter of 2015 compared to the prior year period. Subscription revenue was impacted by the consolidation and discontinuation of 5 lower-performing brands at the end of While short-term total circulation is lower without these brands, the average circulation per brand grew significantly in Q over Q2 2014, which is expected to provide long-term benefits. The Company also previously lowered its average subscription price to drive acquisition of new customers, providing the Company with a bigger pool of buyers for higher priced renewals and follow-on purchases. Licensing revenue, which consists of content licensing in both periods and legacy enterprise licensing revenue in Q2 2014, increased approximately $94,000, or 23%, from approximately $415,000 to approximately $508,000 for the second quarter of 2015 compared to the prior year period primarily due to revenue recognized in the current period associated with the licensing of content for school assessments. Due to improved data reporting from one of our assessment partners, some of this Q2 assessment revenue reflects revenue that in the prior year we were unable to recognize until Q4.

3 Commerce revenue increased approximately $46,000, or 19% for the three months ended June 30, 2015 compared to the prior year period primarily due to an increase in bulk sales of back issues of the Company s magazines in the current year. Operating expenses for the second quarter of 2015 were approximately $5.5 million, a decrease of approximately $1.4 million, or 20%, compared to approximately $6.9 million during the prior year period. This decrease was reflected in lower technology, research and development costs, general and administrative expenses and operations and support expenses which was driven by the Company s expense reduction initiatives which included focusing on near term revenue opportunities, streamlining senior management, and identifying outsourcing opportunities. Operating expenses by category for the second quarter of 2015 compared to the second quarter of 2014 are as follows: Three months ended June 30, Increase Operating Expense Detail (Decrease) % (dollars in thousands) Cost of sales $ 1,895 $ 2,018 $ (123) -6% Technology, research and development 555 1,206 (651) -54% Operations and support (223) -31% General and administrative 1,372 1,729 (357) -21% Marketing and promotion expenses (38) -4% Stock-based compensation (63) -66% Depreciation & amortization % Change in estimated fair value of acquisition share consideration - (91) % Loss on investment in NeuPals (46) -58% Total operating expenses $ 5,481 $ 6,889 $ (1,408) -20% Core operating expenses, which include cost of sales, technology, research and development, operations and support, general and administrative and marketing and promotion expenses, decreased 21% during the second quarter of 2015 compared to the prior year period due to the following drivers: Technology, research and development costs decreased compared to the prior year period primarily due to a reduction in employee and contractor headcount, partially offset by higher costs related to external professional services related to the Company s current technological initiatives. General and administrative expenses decreased compared to the prior year period primarily due to a reduction of headcount and external professional services as part of the Company s cost containment initiatives. Operations and support expenses decreased compared to the prior year period as a result of reduced employee headcount as the Company continues to streamline its operations. Aside from the aforementioned decreases in core operating costs, stock-based compensation decreased primarily due to a reduction in fair value of awards vested to the Company s employees. At June 30, 2015 Cricket Media had approximately $212,000 in cash and cash equivalents. Subsequent to quarterend, the Company raised approximately $2.4 million through bridge financing transactions for general corporate purposes and working capital. Net loss for the second quarter of 2015 was approximately $3.4 million, or ($0.11) per share, compared to a net loss of approximately $5.5 million, or ($0.37) per share for the prior year period. The decrease in net loss was primarily due to the factors discussed above, decreased interest expense and a decrease in foreign currency losses in the current year. As of August 14, 2015, Cricket Media had a total of 30,957,806 common shares outstanding, of which 7,892,872 are voting common shares and 23,064,934 are restricted voting common shares.

4 About Cricket Media Cricket Media (TSXV: CKT) is an education media company that provides award-winning content on a safe and secure learning network for children, families and teachers across the world. Cricket Media s -popular media brands for toddlers to teens include Babybug, Ladybug, Cricket and Cobblestone. The Company s innovative web-based K12 tools for school and home include the epals community and virtual classroom for global collaboration as well as In2Books, a Common Core ementoring program that builds reading, writing and critical thinking skills. Cricket Media serves approximately one million classrooms and millions of teachers, students and parents in over 200 countries and territories through its products and services. Cricket Media also licenses its content and platform to top publishing and educational companies worldwide. For more information, please visit and Cautionary Statement Regarding Forward-Looking Information Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws, including statements with respect to customers, ventures; partnerships; contributions and/or prospects of one or more of the Company s business lines; the Company s strategy, prospects and success in pursuing domestic or international markets; and the Company s anticipated plans to increase its subscriptions, revenue and sales. These statements relate to future events or future performance. Often, but not always, forward-looking information can be identified by the use of words such as plans, expects, is expected, budget, scheduled, estimates, forecasts, intends, anticipates, or believes or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results may, could, would, might or will (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking information is necessarily based upon a number of assumptions and factors that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking information. Those assumptions and factors are based on information currently available to the Company. Such material factors and assumptions include, but are not limited to: the Company s ability to execute on its business plan; the acceptance of the Company s products and services by customers globally; that the Company s affiliated entities will be able to secure distribution partners for sale of the Company s products and services; the Company s subjective assessment of the likelihood of success of a sales lead or opportunity; that sales will be completed at or above estimated margins; that the demand for secure communication as well as education media related products domestically, in Europe and in China will continue to grow; that the demand for the Company s products and services globally will develop and grow; the receipt of all requisite regulatory approvals throughout venture territories for the sale of the Company s products and services; the availability of additional financing, if and when required and market conditions generally. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. The forward-looking information contained in this press release is made as of the date hereof and the Company is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forwardlooking information contained herein. FOR FURTHER INFORMATION PLEASE CONTACT: Chief Financial Officer Aric Holsinger Cricket Media Phone: (703) aholsinger@cricketmedia.com Investor Relations Cory Pala E.vestor Phone: (416) cpala@cricketmedia.com Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release

5 Cricket Media Group Ltd. Condensed Consolidated Interim Statements of Financial Position June 30, 2015 and December 31, 2014 (Unaudited) June 30, December 31, Assets Current assets Cash & cash equivalents $ 212,178 $ 912,565 Accounts receivable, net of allowance for doubtful accounts 819, ,678 Inventory 411, ,770 Other current assets 740, ,231 Current assets held for sale 533, ,399 Total current assets 2,717,591 3,921,643 Property and equipment, net 181, ,824 Investment in NeuPals 464, ,266 Goodwill 13,519,899 13,519,899 Other intangible assets, net 4,421,203 4,375,055 Restricted cash 76,432 76,277 Other assets 69,002 63,231 Long-term assets held for sale 1,275 1,275 Total assets $ 21,451,248 $ 22,759,470 Liabilities and Stockholders' Equity (Deficit) Current liabilities Accounts payable and accrued expenses $ 4,437,518 $ 5,785,970 Accrued interest 1,700,113 1,010,689 Deferred revenue, current 4,061,762 6,267,928 Notes payable, current portion 256,783 1,470,000 Notes payable to related parties 2,500,118 1,050,118 Bridge loan debentures 3,374,428 - Finance lease obligations, current 35,691 46,554 Other current liabilities 175, ,992 Current liabilities held for sale 542, ,127 Total current liabilities 17,084,818 16,365,378 Secured convertible debentures 17,653,430 18,710,994 Deferred revenue, less current portion 707, ,875 Notes payable, less current portion 1,168,217 - Finance lease obligations, less current portion 54,291 70,953 Other liabilities 11,440 11,440 Total liabilities 36,680,146 35,848,640 Commitments and contingencies Stockholders' equity (deficit) Share capital 115,728, ,057,827 Additional paid-in-capital 14,438,997 12,744,057 Accumulated deficit (143,819,423) (139,259,881) Accumulated other comprehensive loss (84,765) (139,125) Less: Treasury stock (28,800 shares) (1,492,048) (1,492,048) Total stockholders' equity (deficit) (15,228,898) (13,089,170) Total liabilities and stockholders' equity (deficit) $ 21,451,248 $ 22,759,470

6 Cricket Media Group Ltd. Condensed Consolidated Interim Statements of Comprehensive Loss Three and Six Months Ended June 30, 2015 and 2014 (Unaudited) Three Months Ended June 30, Six Months Ended June 30, Revenue $ 3,100,276 $ 3,192,636 $ 6,859,429 $ 7,535,655 Operating expenses: Cost of sales 1,895,234 2,017,092 4,144,097 4,317,430 Technology, research & development costs 555,273 1,205,821 1,243,069 2,331,871 Operations and support expenses 507, ,058 1,170,757 1,588,748 General and administrative expenses 1,372,412 1,728,868 2,898,660 3,312,562 Marketing and promotion expenses 845, ,191 1,618,413 1,737,743 Stock-based compensation 33,490 95, , ,527 Depreciation & amortization 237, , , ,911 Loss on investment in NeuPals 33,832 79,518 75, ,763 Change in estimated fair value of acquisition share consideration - (90,521) - (90,521) Total operating expenses 5,481,710 6,888,337 11,663,248 14,097,034 Loss from operations (2,381,434) (3,695,701) (4,803,819) (6,561,379) Other income (expense): Change in fair value of derivatives (73,200) 4,750 (73,200) 63,750 Interest expense, net (456,693) (1,107,878) (845,306) (2,135,570) Other income - 45,064-52,571 Net foreign currency exchange gain (loss) (478,386) (722,210) 1,130,106 17,289 Loss from continuing operations (3,389,713) (5,475,975) (4,592,219) (8,563,339) Income (loss) from discontinued operations (6,344) (5,087) 32,677 (31,576) Net Loss (3,396,057) (5,481,062) (4,559,542) (8,594,915) Other comprehensive income : Items that may be subsequently reclassfied into net income/loss Foreign currency translation 27,512 (2,587) 54,360 26,170 Total comprehensive loss $ (3,368,545) $ (5,483,649) $ (4,505,182) $ (8,568,745) Net loss per common share - basic and diluted: Continuing operations (0.11) (0.37) (0.15) (0.63) Discontinued operations Net loss per share - basic and diluted $ (0.11) $ (0.37) $ (0.15) $ (0.63) Weighted average number of common shares: Basic and diluted 30,947,806 14,833,435 30,669,916 13,584,436

7 Cricket Media Group, Ltd. Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2015 and 2014 (Unaudited) Six Months Ended June 30, Cash flows from operating activities: Net loss from continuing operations $ (4,592,219) $ (8,563,339) Adjustments to reconcile net loss to net cash used in operating activities: Gain from change in fair value of derivatives 73,200 (63,750) Depreciation and amortization 410, ,911 Stock-based compensation 102, ,527 Bad debt recovery, net 39,894 (157,021) Loss on investment in NeuPals 75, ,763 Amortization of financing costs from debentures 72,662 1,265,363 Net foreign currency exchange gains (1,130,106) (17,289) Restricted share vesting - 1,876 Change in estimated fair value of acquisition consideration - (90,521) Increase in restricted cash Changes in operating assets and liabilities: Accounts receivable 109, ,985 Inventory 36,845 9,433 Other current assets 174, ,073 Accounts payable and accrued expenses (622,711) (775,510) Deferred revenue (2,188,091) (2,640,828) Other 60,024 (19,530) Total adjustments (2,785,961) (1,251,518) Net cash used in continuing operations (7,378,180) (9,814,857) Net cash provided by (used in) discontinued operations 153,359 (2,595) Net cash used in operating activities (7,224,821) (9,817,452) Cash flows from investing activities: Cash paid for acquisitions - (48,226) Cash paid for patents and owned permissions (417,594) (307,167) Net cash used in investing activities (417,594) (355,393) Cash flows from financing activities: Proceeds from bridge financing debentures, net of financing costs 3,315,160 - Proceeds from related party line of credit 3,450,000 4,200,118 Proceeds from private placement, net of expenses 1,250,000 2,452,806 Repayments on related party line of credit (1,000,000) - Repayments on bank line of credit (45,000) - Payments on finance lease obligations (27,525) (36,829) Proceeds from exercise of stock warrants - 399,882 Net cash provided by financing activities 6,942,635 7,015,977 Decrease in cash and equivalents (699,780) (3,156,868) Effect of exchange rates on cash (607) 128 Cash & cash equivalents at the beginning of the period 912,565 3,641,985 Cash & cash equivalents at the end of the period $ 212,178 $ 485,245