SOURCE: NeuLion, Inc.

NeuLion, Inc.

August 03, 2015 17:16 ET

NeuLion Reports Second Quarter Revenue of $22.7 Million

PLAINVIEW, NY--(Marketwired - August 03, 2015) -

Second Quarter Year-Over-Year Highlights

  • GAAP revenue increased 69% to $22.7 million versus $13.4 million; non-GAAP revenue increased 99% to $26.7 million versus $13.4 million
  • NeuLion Digital Platform revenue (GAAP and non-GAAP) increased 16% to $15.5 million versus $13.4 million
  • DivX and MainConcept GAAP revenues were $7.2 million; non-GAAP revenue was $11.2 million
  • Non-GAAP Adjusted EBITDA grew to $4.2 million versus $1.6 million
  • Non-GAAP Adjusted EBITDA margin increased to 15.7% versus 11.9%

NeuLion, Inc. (TSX: NLN), a leading technology product and service provider that specializes in the digital video broadcasting, distribution and monetization of live and on-demand content to Internet-enabled devices, today reported financial results for the second quarter ended June 30, 2015.

"Our second quarter results demonstrate the strength of NeuLion's 'land and expand' growth strategy, competitive positioning and business model leverage as we continue to lead the way in delivering next-generation video experiences on any connected device," said Kanaan Jemili, chief executive officer. "Revenue in our NeuLion Digital Platform grew 16% against a record second quarter last year fueled by new customer additions. Continued scaling of the NeuLion Digital Platform contributed to a 700 basis point improvement in cost of revenue as a percentage of revenue which, along with the addition of DivX and MainConcept revenue streams, drove a 380 basis point improvement in non-GAAP Adjusted EBITDA margin.

"Building on the second quarter's strong execution, we are excited about our growth prospects as we continue to win new customers and expand existing customer relationships with content owners and CE manufacturers. Our unique end-to-end service offering and proven capabilities to enable on-demand and live digital content viewing anywhere and on any device place us in an excellent position to continue capitalizing on the accelerating adoption of over-the-top and 4K video worldwide," concluded Jemili.

Second Quarter Operational Highlights

  • Partnered with Millicom, an international telecommunications and media company, to create and deliver a new Tigo Sports app for fans in Latin America. Originally launched in Bolivia, the service has expanded to include Paraguay, Columbia and Guatemala.
  • Launched a long-term web, mobile and video partnership with Drum Corps International (DCI), Marching Music's Major League™. Through the annual DCI Tour and more than 35 World Championships in 17 North American cities, Drum Corps International provides entertainment to millions through live performances, nationally-televised events and the all-new digital destination for all streamed events called DCI Live!, powered by NeuLion.
  • Signed new multi-year agreement with Tennis Channel following the success of the 2015 French Open and Wimbledon 2015. The agreement extends the one reached in May 2014 to support the launch of Tennis Channel Plus at the start of last year's French Open; since then, Tennis Channel Plus subscriptions have grown 400% year-over-year and sees, on average, 25% of subscribers using the online service at least once daily.
  • Signed new agreement with Rogers to deliver the 2015 Pan Am Games on Rogers Anyplace TV.
  • The NeuLion College network continued to be fueled by the rise in mobile traffic with 54% of traffic coming from mobile devices in the quarter, as compared to 43% in the second quarter of 2014.
  • Expanded partnership with Sky New Zealand to add the delivery of 4 linear channels to the recently launched over-the-top digital sports service FAN PASS.
  • Recognized at the 2015 Microsoft Build Developer Conference as a Premier Plus Developer Partner for Xbox LIVE applications through NeuLion's work with major sports leagues.
  • Hosted the NeuLion Partner Summit in New York that brought together attendees from its professional sports partners, including the NHL, NBA, UFC, World Surf League and others.
  • Powered World Congress Live, the digital extension of the Sports Business Journal IMG World Congress of Sports event that gives viewers access to exclusive interviews from executives across the sports media landscape, including the NHL, the United States Olympic Committee, Adidas and others.

Second Quarter Financial Review

As a result of the acquisition of DivX Corporation on January 30, 2015, NeuLion is now reporting revenue for the NeuLion Digital Platform and DivX combined. Because the company expects revenue from the NeuLion Digital Platform to grow faster than revenue from other solutions, management intends to continue to report revenue from the NeuLion Digital Platform as a key performance metric. The NeuLion Digital Platform combines the previously reported customer categories of Pro Sports, College Sports, and TV Everywhere.

GAAP Results

Total GAAP revenue was $22.7 million for the second quarter of 2015 compared to $13.4 million for the previous year's quarter, an increase of $9.3 million, or 69%. The NeuLion Digital Platform had revenue growth of 16% to $15.5 million for the current period from $13.4 million for the comparable prior period, primarily due to revenue from new customers. DivX and MainConcept revenue was $7.2 million in the second quarter of 2015.

Cost of revenue was $4.2 million, or 19% of revenue, for the current period compared to $3.5 million, or 26% of revenue, for the prior comparable period. The seven percentage point improvement was due to a combination of the addition of DivX and MainConcept revenue streams and improved broadcast operating costs. Selling, general and administrative expenses, including stock-based compensation, were $11.4 million for the current period, an increase of 77% from $6.4 million for the prior comparable period. Research and development expenses were $7.5 million for the current period, more than triple the $2.2 million figure reported in the prior comparable period. SG&A and R&D expenses associated with DivX in the second quarter of 2015 were $3.8 million and $4.8 million, respectively. The operating loss in the second quarter was $2.5 million compared to operating income of $0.6 million in the second quarter of 2014. The consolidated net loss was $3.2 million, or $0.01 per diluted share, for the current period compared with consolidated net income of $0.6 million, or $0.00 per diluted share, for the prior comparable period.

Non-GAAP Results

Non-GAAP revenue increased 99% to $26.7 million from the prior year's level. Non-GAAP Adjusted EBITDA increased 163% to $4.2 million from $1.6 million for the same period last year, with $1.8 million of the increase due to the acquisition of DivX and $0.8 million coming from organic improvement due to higher revenue and improved cost of revenue as a percentage of revenue, offset by increases in SG&A, excluding stock-based compensation, and R&D expenses. Please refer to the tables accompanying this release for the calculation of Non-GAAP revenue and Adjusted EBITDA.

Use of Non-GAAP Financial Information

In addition to our U.S. GAAP results, this press release also includes disclosure on certain non-GAAP financial measures, as such term is used by the SEC. The Company defines Non-GAAP revenues as GAAP revenues before purchase accounting adjustments as a result of an acquisition. The Company defines Non-GAAP Adjusted EBITDA as consolidated net income (loss) before interest, income taxes, depreciation and amortization, purchase accounting adjustments, stock-based compensation, acquisition-related expenses, gain on revaluation of convertible note derivative, and foreign exchange gain (loss). Non-GAAP Adjusted EBITDA is a key measure used by management to evaluate the Company's results and make strategic decisions about the Company, including potential acquisitions. Management believes this measure is useful to investors because it is an indicator of operational performance. Because not all companies use identical calculations, the Company's presentation of Non-GAAP Revenue and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. This measure does not have any standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with U.S. GAAP.

Pursuant to the requirements of Regulation G, we have provided a reconciliation of Non-GAAP Revenues to U.S. GAAP revenues and Non-GAAP Adjusted EBITDA to U.S. GAAP consolidated net income/(loss) as an exhibit to this press release.

About NeuLion

NeuLion, Inc. (TSX: NLN) offers solutions that power the highest quality digital experiences for live and on-demand content up to 4K on any device. Through its end-to-end technology platform, NeuLion enables digital content management, distribution and monetization for content owners worldwide. With the recent acquisition of DivX, LLC, the company also operates a robust consumer electronics licensing business that has enabled over 1 billion devices worldwide with secure, high-quality video playback, and delivers a DivX consumer software offering that has been downloaded over 1 billion times. NeuLion's customers include major sports, entertainment and global content companies as well as major consumer electronics manufacturers and software companies. NeuLion is headquartered in Plainview, NY. For more information about NeuLion, visit www.NeuLion.com.

Forward-Looking Statements

Certain statements herein are forward-looking statements and represent NeuLion's current intentions in respect of future activities. Forward-looking statements can be identified by the use of the words "will," "expect," "seek," "anticipate," "believe," "plan," "estimate," "expect," and "intend" and statements that an event or result "may," "will," "can," "should," "could," or "might" occur or be achieved and other similar expressions. These statements, in addressing future events and conditions, involve inherent risks and uncertainties. Although the forward-looking statements contained in this release are based upon what management believes to be reasonable assumptions, NeuLion cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this release and NeuLion assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. Many factors could cause NeuLion's actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including: our ability to derive anticipated benefits from the acquisition of DivX; our ability to successfully integrate the operations of DivX; our ability to realize some or all of the anticipated benefits of our partnerships; general economic and market segment conditions; our customers' subscriber levels and financial health; our ability to pursue and consummate acquisitions in a timely manner; our continued relationships with our customers; our ability to negotiate favorable terms for contract renewals; competitor activity; product capability and acceptance rates; technology changes; regulatory changes; foreign exchange risk; interest rate risk; and credit risk. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained in the "Risk Factors" section of NeuLion's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is available on www.sec.gov and filed on www.sedar.com.

  
NEULION, INC.  
          
CONDENSED CONSOLIDATED BALANCE SHEETS  
(in thousands, except share data)  
(Expressed in U.S. dollars)  
          
   June 30,   December 31,  
   2015   2014  
   (unaudited)      
            
ASSETS           
Current           
Cash and cash equivalents  $34,059   $25,898  
Accounts receivable, net of allowance for doubtful accounts of $910 and $221   22,519    8,056  
Other receivables   488    603  
Inventory   241    304  
Deferred tax assets, net   384    0  
Prepaid expenses and deposits   3,243    1,315  
Due from related parties   197    111  
Total current assets   61,131    36,287  
Property, plant and equipment, net   6,814    3,830  
Intangible assets, net   26,453    406  
Goodwill   11,496    11,327  
Other assets   1,797    88  
Total assets  $107,691   $51,938  
            
LIABILITIES AND EQUITY           
Current           
Accounts payable  $6,996   $14,362  
Accrued liabilities   7,731    5,248  
Due to related parties   9    0  
Deferred revenue   9,364    9,602  
Total current liabilities   24,100    29,212  
Long-term deferred revenue   1,249    1,019  
Deferred rent liabilities   1,827    0  
Deferred tax liabilities   3,753    1,451  
Other long-term liabilities   165    202  
Total liabilities   31,094    31,884  
            
Redeemable preferred stock, net (par value: $0.01; shares authorized: 50,000,000; shares issued and outstanding: 28,089,083)        
 Class 3 Preference Shares (par value: $0.01; shares authorized, shares issued and outstanding: 17,176,818)   10,000    10,000  
 Class 4 Preference Shares (par value: $0.01; shares authorized, shares issued and outstanding: 10,912,265)   4,970    4,955  
Total redeemable preferred stock   14,970    14,955  
            
Stockholders' equity           
Common stock (par value: $0.01; shares authorized: 300,000,000; shares issued and outstanding: 244,212,387 and 178,210,006 respectively)   2,442   1,782 
Additional paid-in capital   147,230    87,631  
Promissory notes receivable   (209 )  (209 )
Accumulated deficit   (87,836 )  (84,105 )
Total stockholders' equity   61,627    5,099  
Total liabilities and stockholders' equity  $107,691   $51,938  
            
  
NEULION, INC.  
                 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND  
COMPREHENSIVE INCOME (LOSS)  
(unaudited)  
(in thousands, except share and per share data)  
(Expressed in U.S. dollars)  
                 
                 
   Three months ended June 30,  Six months ended June 30,  
   2015   2014  2015   2014  
                     
Revenue  $22,684   $13,409  $44,358   $26,878  
                     
Costs and expenses                    
 Cost of revenue, exclusive of depreciation and amortization shown separately below   4,215    3,536   8,541    7,047  
 Selling, general and administrative, including stock-based compensation   11,390    6,424   21,303    12,778  
 Research and development   7,480    2,187   12,796    4,160  
 Depreciation and amortization   2,062    710   3,588    1,395  
    25,147    12,857   46,228    25,380  
Operating income (loss)   (2,463 )  552   (1,870 )  1,498  
                     
Other income (expense)                    
 Gain (loss) on foreign exchange   (149 )  12   (340 )  (33 )
 Investment income, net   90    2   184    425  
 Interest on convertible note, including amortization of debt discount   202    0   (123 )  0  
 Gain on conversion of convertible note and revaluation of related derivative, net   300    0   507    0  
    443    14   228    392  
Net and comprehensive income (loss) before income taxes   (2,020 )  566   (1,642 )  1,890  
 Income taxes   (1,203 )  62   (2,089 )  (193 )
Net and comprehensive income (loss)  $(3,223 ) $628  $(3,731 ) $1,697  
                     
Net income (loss) per weighted average number of shares of common stock outstanding - basic   ($0.01 ) $0.00   ($0.02 ) $0.01  
                     
Weighted average number of shares of common stock outstanding - basic   224,949,928    173,781,312   213,990,794    172,326,735  
                     
Net income (loss) per weighted average number of shares of common stock outstanding - diluted   ($0.01 ) $0.00   ($0.02 ) $0.01  
                     
Weighted average number of shares of common stock outstanding - diluted   224,949,928    216,810,911   213,990,794    213,293,074  
                
  
NEULION, INC.  
          
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(unaudited)  
(in thousands)  
(Expressed in U.S. dollars)  
          
   Six months ended June 30,  
   2015   2014  
OPERATING ACTIVITIES           
            
Net income (loss)  $(3,731 ) $1,697  
            
Adjustments to reconcile net income (loss) to net cash used in operating activities:           
 Depreciation and amortization   3,588    1,395  
 Stock-based compensation   921    709  
 Amortization of debt discount   123    0  
 Gain on revaluation of convertible note derivative   (507 )  0  
 Deferred income taxes   147    193  
            
Changes in operating assets and liabilities, net of acquisitions           
 Accounts receivable   9,299    289  
 Income tax receivable   4,318    0  
 Other receivables   362    (36 )
 Inventory   63    (14 )
 Prepaid expenses, deposits and other assets   (1,961 )  82  
 Due from related parties   (86 )  (175 )
 Accounts payable   (8,201 )  (6,050 )
 Accrued liabilities   (3,076 )  (579 )
 Deferred revenue   (3,008 )  (2,825 )
 Deferred rent liability   (85 )  0  
 Long-term liabilities   (37 )  (33 )
 Due to related parties   9    (6 )
Cash used in operating activities   (1,862 )  (5,353 )
            
INVESTING ACTIVITIES           
Cash acquired from acquisition of DivX Corporation   9,718    0  
Purchase of property, plant and equipment   (527 )  (444 )
Cash provided by (used in) investing activities   9,191    (444 )
            
FINANCING ACTIVITIES           
Proceeds from exercise of stock options   813    601  
Proceeds from exercise of broker units   19    130  
Cash provided by financing activities   832    731  
            
Net increase (decrease) in cash and cash equivalents, during the period   8,161    (5,066 )
Cash and cash equivalents, beginning of period   25,898    19,644  
Cash and cash equivalents, end of period  $34,059   $14,578  
            
Supplemental disclosure of cash flow information:           
Cash paid for income taxes  $1,590   $-  
            
Supplemental disclosure of non-cash activities:           
Par value of shares of common stock issued upon exercise of cashless warrants  $-   $26  
            
Accretion of issuance costs on Class 4 Preference Shares  $15   $-  
            
Issuance of shares of common stock upon acquisition of DivX Corporation  $58,521   $-  
            
Issuance of convertible note upon acquisition of DivX Corporation  $27,000   $-  
            
             
Reconciliation of GAAP Revenue to non-GAAP Revenue (in thousands):            
                   
   Organic  DivX  Consolidated
Three months ended June 30,  2015  2014  2015  2014  2015  2014
                         
GAAP Revenue  $15,506  $13,409  $7,177  $-  $22,683  $13,409
                         
Revenue excluded due to purchase accounting   0   0   4,032   0   4,032   0
                         
Non-GAAP Revenue  $15,506  $13,409  $11,209  $-  $26,715  $13,409
                         
   Organic  DivX (1)  Consolidated
Six months ended June 30,  2015  2014  2015  2014  2015  2014
                         
GAAP Revenue  $31,973  $26,878  $12,385  $-  $44,358  $26,878
                         
Revenue excluded due to purchase accounting   0   0   7,994   0   7,994   0
                         
Non-GAAP Revenue  $31,973  $26,878  $20,379  $-  $52,352  $26,878
                   

Since DivX was acquired by NeuLion on January 30, 2015, the purchase price allocation included an adjustment to record the fair value of assumed contractual payments due to DivX for which no or little additional obligations existed in order to receive such payments. These contractual payments are for fixed multi-year site licenses and unbilled per unit royalties for units shipped prior to the acquisition. Prior to the acquisition, revenue in such transactions was recognized during the period in which such customers reported the number of royalty-eligible units that they had shipped. Revenues from annual or other license fees are recognized based on the specific terms of the license arrangement. For instance, some of the DivX's large CE customers have entered into agreements for which they have the right to ship an unlimited number of units over a specified term for a flat fee. The Company records the fees associated with these arrangements on a straight-line basis over the specified term. Upon closing the acquisition of DivX, because DivX assumed no additional obligations under such contracts, these fixed payments are considered a fixed payment stream, rather than revenue and are therefore treated as accounts receivable as opposed to revenue as part of the purchase accounting. The fair value of the remaining fixed payments due under the applicable contracts is estimated by calculating the discounted cash flows associated with such fixed payments. The reduction in revenues related to the fixed payments being treated as accounts receivable as opposed to revenues has been reflected as a non-GAAP financial measure to include the effect of the excluded revenues to allow investors and analysts to make meaningful comparisons between DivX's ongoing core business operating results and those of other companies.

We anticipate the revenue excluded due to purchase accounting going-forward as follows:

    
Q3 2015  3,653
Q4 2015  3,478
Q1 2016  878
  $8,009
   
                         
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (in thousands):                 
                         
   Organic   DivX  Consolidated  
Three months ended June 30,  2015   2014   2015   2014  2015   2014  
                               
Consolidated Net Income (Loss) on a GAAP basis  $1,932   $628   $(5,155 ) $-  $(3,223 ) $628  
                               
Revenue excluded due to purchase accounting   0    0    4,032    0   4,032    0  
Depreciation and amortization   470    710    1,592    0   2,062    710  
Stock-based compensation   594    374    0    0   594    374  
Acquisition-related expenses   0    0    0    0   0    0  
Gain on revaluation of convertible note derivative   (300 )  0    0    0   (300 )  0  
Income taxes   0    (62 )  1,203    0   1,203    (62 )
Investment income (expense) and foreign exchange loss   (217 )  (14 )  74    0   (143 )  (14 )
                               
Adjusted EBITDA  $2,479   $1,636   $1,746   $-  $4,225   $1,636  
                               
   Organic   DivX (1)  Consolidated  
Six months ended June 30,  2015   2014   2015   2014  2015   2014  
                               
Consolidated Net Income (Loss) on a GAAP basis  $4,070   $1,697   $(7,801 ) $-  $(3,731 ) $1,697  
                               
Revenue excluded due to purchase accounting   0    0    7,994    0   7,994    0  
Depreciation and amortization   939    1,395    2,649    0   3,588    1,395  
Stock-based compensation   922    709    0    0   922    709  
Acquisition-related expenses   342    0    18    0   360    0  
Gain on revaluation of convertible note derivative   (507 )  0    0    0   (507 )  0  
Income taxes   238    193    1,850    0   2,088    193  
Investment income (expense) and foreign exchange loss   297    (391 )  (18 )  0   279    (391 )
                               
Adjusted EBITDA  $6,301   $3,603   $4,692   $-  $10,993   $3,603  
                        

The figures are for the period from February 1, 2015 to June 30, 2015.

Contact Information

  • Investor Relations Contact:
    LHA
    Ed McGregor/Jody Burfening
    Email contact
    (212) 838-3777