SOURCE: NeuLion, Inc.

NeuLion, Inc.

November 05, 2015 07:35 ET

NeuLion Reports Third Quarter Revenue of $21.9 Million

PLAINVIEW, NY--(Marketwired - November 05, 2015) -

Third Quarter Year-Over-Year Highlights

  • GAAP revenue increased 80% to $21.9 million versus $12.2 million; non-GAAP revenue increased 110% to $25.6 million versus $12.2 million
  • NeuLion Digital Platform revenue (GAAP and non-GAAP) increased 17% to $14.3 million versus $12.2 million
  • DivX and MainConcept GAAP revenue was $7.6 million; non-GAAP revenue was $11.3 million
  • Non-GAAP Adjusted EBITDA grew to $5.0 million versus $1.3 million
  • Non-GAAP Adjusted EBITDA margin increased to 19.4% versus 10.8%
  • Renewed agreements with the NFL, NBA and UFC®

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 third quarter ended September 30, 2015.

"In our seasonally light third quarter we continued to deliver strong gains in both sales and profitability, and further demonstrated the earnings power of our business model," said Kanaan Jemili, Chief Executive Officer. "Revenue in our NeuLion Digital Platform grew 17% on new customer additions and expanded usage from existing customers and, during the quarter, we secured renewals from the NFL, NBA, UFC and several other important sports rights content owners. Continued scaling of the NeuLion Digital Platform contributed to a 500 basis point improvement in cost of revenue as a percentage of revenue which, along with the addition of DivX and MainConcept revenue streams, drove an 860 basis point improvement in Non-GAAP Adjusted EBITDA margin."

Added Jemili, "As an industry leader trusted by a growing and diverse group of global content owners in sports and entertainment, we continue to innovate and drive higher quality experiences for our partners. 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. With a steady stream of new customer wins and an ongoing expansion of existing customer relationships with content owners and CE manufacturers, we are excited about our growth prospects going forward."

Third Quarter Operational Highlights

  • Signed a new multi-year agreement with UFC to power their ultimate go-to digital destination, UFC.TV, including complete access to pay-per-view events, and led the rebuild and re-launch of the UFC's over-the-top business, UFC FIGHT PASS®.
  • Renewed agreement with the NFL and launched redesigned NFL Game Pass service as part of a group of offerings designed to enhance the traditional television model in the U.S. and international markets for the league.
  • Renewed agreement with the NBA and re-launched NBA League Pass International service to bring every game of the 2015/2016 season live and on-demand to viewers on multiple devices.
  • Powered live and on-demand streaming of the 2015 CONCACAF Gold Cup matches for Univision Deportes, the sports division of Univision Communications Inc., the leading media company serving Hispanic America.
  • Delivered the US Open on CNTV 5+ VIP, China's digital premium subscription service for live and on-demand global sports events, offering viewers throughout China an exclusive high-quality video experience across multiple devices with interactive touch points and allowing them to dive deeper into the sports action with live stats, multiple camera views, real-time highlights, scores, chat and more.
  • Launched the sixth generation of the NeuLion Digital Platform, which offers content owners end-to-end delivery of live and on-demand video in HD and Ultra HD/4K video formats, speeds their time to market with new OTT services, lowers their transport costs, and creates new personalized digital experiences for their viewers, all while creating potential new sources of revenue for them.
  • Licensed the DivX Consumer Electronics (CE) SDK to Broadcom to help them deliver a new generation of set-top boxes to support OTT video services that stream live and on-demand sports and premium entertainment up to 4Kp60.
  • Announced that Adobe® plans to incorporate the MainConcept HEVC SDK into several key apps within Adobe Creative Cloud®, such as Adobe After Effects®, Adobe Premiere® Pro, and many others.
  • Were selected by Euroleague Basketball to power its new Euroleague TV digital service worldwide and enable the highest-level professional basketball league in Europe, with 24 teams from 12 countries, to offer fans a more user-friendly, personalized and reliable online destination for all live and on-demand basketball action throughout the Turkish Airlines Euroleague season.

Third 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 indicator. The NeuLion Digital Platform combines the previously reported customer categories of Pro Sports, College Sports, and TV Everywhere.

GAAP Results

Total GAAP revenue was $21.9 million for the third quarter of 2015 compared to $12.2 million for the previous year's quarter, an increase of $9.7 million, or 80%. The NeuLion Digital Platform had revenue growth of 17% to $14.3 million for the current period, from $12.2 million for the comparable prior period, due to new customer wins and expanded usage from existing customers. DivX and MainConcept revenue was $7.6 million in the third quarter of 2015.

Cost of revenue was $3.9 million, or 18% of revenue, for the current period, compared to $2.8 million, or 23% of revenue, for the prior comparable period. The five 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 $11.2 million for the current period, an increase of 76% from $6.3 million for the prior comparable period. Research and development expenses were $6.6 million for the current period, more than triple the $2.1 million figure reported in the prior comparable period primarily as a result of increased headcount resulting from the DivX acquisition in January 2015. SG&A and R&D expenses associated with DivX for the third quarter of 2015 were $3.7 million and $4.1 million, respectively. The operating loss for the third quarter was $1.7 million compared to operating income of $0.2 million for the third quarter of 2014. The consolidated net loss was $3.1 million, or $0.01 per diluted share, for the current period compared with consolidated net income of $0.2 million, or $0.00 per diluted share, for the prior comparable period.

Non-GAAP Results

Non-GAAP revenue increased 111% to $25.6 million from the prior year's level. Non-GAAP Adjusted EBITDA more than tripled to $5.0 million from $1.3 million for the same period last year, with $2.8 million of the increase due to the acquisition of DivX and $0.9 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 revenue to U.S. GAAP revenue 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, including the NFL, NBA, World Surf League, Univision Deportes, Euroleague Basketball and others. With the recent acquisition of DivX, LLC, NeuLion 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) 
          
   September 30,   December 31,  
   2015   2014  
   (unaudited)      
            
ASSETS           
Current           
Cash and cash equivalents  $59,064   $25,898  
Accounts receivable, net of allowance for doubtful accounts of $1,806 and $221   15,980    8,056  
Other receivables   684    603  
Inventory   229    304  
Deferred tax assets, net   384    0  
Prepaid expenses and deposits   3,606    1,315  
Due from related parties   292    111  
Total current assets   80,239    36,287  
Property, plant and equipment, net   6,866    3,830  
Intangible assets, net   25,000    406  
Goodwill   11,496    11,327  
Other assets   1,549    88  
Total assets  $125,150   $51,938  
            
LIABILITIES AND EQUITY           
Current           
Accounts payable  $22,931   $14,362  
Accrued liabilities   9,267    5,248  
Due to related parties   166    0  
Deferred revenue   11,596    9,602  
Total current liabilities   43,960    29,212  
Long-term deferred revenue   1,053    1,019  
Deferred rent liabilities   1,741    0  
Deferred tax liabilities   3,821    1,451  
Other long-term liabilities   146    202  
Total liabilities   50,721    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)   4,977    4,955  
Total redeemable preferred stock   14,977    14,955  
            
Stockholders' equity           
Common stock (par value: $0.01; shares authorized: 300,000,000; shares issued and outstanding: 244,419,077 and 178,210,006 respectively)   2,444    1,782  
Additional paid-in capital   148,173    87,631  
Promissory notes receivable   (209 )  (209 )
Accumulated deficit   (90,956 )  (84,105 )
Total stockholders' equity   59,452    5,099  
Total liabilities and stockholders' equity  $125,150   $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 September 30,   Nine months ended September 30,  
   2015   2014   2015   2014  
                      
Revenue  $21,901   $12,177   $66,259   $39,056  
                      
Costs and expenses                     
 Cost of revenue, exclusive of depreciation and amortization shown separately below   3,863    2,813    12,404    9,860  
 Selling, general and administrative, including stock-based compensation   11,150    6,330    32,454    19,108  
 Research and development   6,588    2,104    19,384    6,265  
 Depreciation and amortization   2,046    680    5,634    2,075  
    23,647    11,927    69,876    37,308  
Operating income (loss)   (1,746 )  250    (3,617 )  1,748  
                      
Other income (expense)                     
 Loss on foreign exchange   (218 )  (31 )  (558 )  (65 )
 Investment income, net   85    2    269    427  
 Interest on convertible note, including amortization of debt discount   0    0    (123 )  0  
 Gain on conversion of convertible note and revaluation of related derivative, net   0    0    507    0  
    (133 )  (29 )  95    362  
Net and comprehensive income (loss) before income taxes   (1,879 )  221    (3,522 )  2,110  
 Income taxes   (1,241 )  28    (3,329 )  (164 )
Net and comprehensive income (loss)  $(3,120 ) $249   $(6,851 ) $1,946  
                      
Net income (loss) per weighted average number of shares of common stock outstanding - basic  $(0.01 ) $0.00   $(0.03 ) $0.01  
                      
Weighted average number of shares of common stock outstanding - basic   244,324,763    175,803,863    224,213,231    173,498,515  
                      
Net income (loss) per weighted average number of shares of common stock outstanding - diluted  $(0.01 ) $0.00    ($0.03 ) $0.01  
                      
Weighted average number of shares of common stock outstanding - diluted   244,324,763    217,162,823    224,213,231    212,654,453  
                 
                 
                 
NEULION, INC. 
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(unaudited) 
(in thousands) 
(Expressed in U.S. dollars) 
          
   Nine months ended September 30,  
   2015   2014  
OPERATING ACTIVITIES           
            
Net income (loss)  $(6,851 ) $1,946  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:           
 Depreciation and amortization   5,634    2,075  
 Stock-based compensation   1,843    1,089  
 Amortization of debt discount   123    0  
 Gain on revaluation of convertible note derivative   (507 )  0  
 Deferred income taxes   215    164  
            
Changes in operating assets and liabilities, net of acquisitions           
 Accounts receivable   15,838    449  
 Income tax receivable   4,318    0  
 Other receivables   166    (7 )
 Inventory   75    185  
 Prepaid expenses, deposits and other assets   (2,076 )  (106 )
 Due from related parties   (181 )  (204 )
 Accounts payable   7,734    1,626  
 Accrued liabilities   (1,540 )  (787 )
 Deferred revenue   (972 )  572  
 Deferred rent liability   (171 )  0  
 Long-term liabilities   (56 )  (52 )
 Due to related parties   166    8  
Cash provided by operating activities   23,758    6,958  
            
INVESTING ACTIVITIES           
Cash acquired from acquisition of DivX Corporation   9,718    0  
Purchase of property, plant and equipment   (1,172 )  (1,654 )
Cash provided by (used in) investing activities   8,546    (1,654 )
            
FINANCING ACTIVITIES           
Proceeds from exercise of stock options   843    680  
Proceeds from exercise of broker units   19    132  
Cash provided by financing activities   862    812  
            
Net increase in cash and cash equivalents, during the period   33,166    6,116  
Cash and cash equivalents, beginning of period   25,898    19,644  
Cash and cash equivalents, end of period  $59,064   $25,760  
            
Supplemental disclosure of cash flow information:           
Cash paid for income taxes  $2,783   $-  
            
Supplemental disclosure of non-cash activities:           
Par value of shares of common stock issued upon exercise of cashless warrants  $19   $52  
            
Accretion of issuance costs on Class 4 Preference Shares  $23   $23  
            
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 September 30,  2015  2014  2015  2014  2015  2014
                         
GAAP Revenue  $14,341  $12,177  $7,560  $-  $21,901  $12,177
                         
Revenue excluded due to purchase accounting   0   0   3,741   0   3,741   0
                         
Non-GAAP Revenue  $14,341  $12,177  $11,301  $-  $25,642  $12,177
                         
    Organic   DivX (1)   Consolidated
Nine months ended September 30,   2015   2014   2015   2014   2015   2014
                         
GAAP Revenue  $46,314  $39,056  $19,945  $-  $66,259  $39,056
                         
Revenue excluded due to purchase accounting   0   0   11,736   0   11,736   0
                         
Non-GAAP Revenue  $46,314  $39,056  $31,681  $-  $77,995  $39,056
                   
(1) The figures are for the period from February 1, 2015 to September 30, 2015.

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:

   
Q4 2015 3,478
Q1 2016 878
  $ 4,356

                  
                         
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (in thousands):                 
                         
   Organic   DivX  Consolidated  
Three months ended September 30,  2015   2014   2015   2014  2015   2014  
                               
Consolidated Net Income (Loss) on a GAAP basis  $855   $249   $(3,975 ) $-  $(3,120 ) $249  
                               
Revenue excluded due to purchase accounting   0    0    3,741    0   3,741    0  
Depreciation and amortization   450    680    1,596    0   2,046    680  
Stock-based compensation   921    380    0    0   921    380  
Income taxes   (167 )  (28 )  1,408    0   1,241    (28 )
Investment income (expense) and foreign exchange loss   145    29    (12 )  0   133    29  
                               
Adjusted EBITDA  $2,204   $1,310   $2,758   $-  $4,962   $1,310  
                               
    Organic    DivX (1)   Consolidated  
Nine months ended September 30,   2015    2014    2015    2014   2015    2014  
                               
Consolidated Net Income (Loss) on a GAAP basis  $4,926   $1,946   $(11,777 ) $-  $(6,851 ) $1,946  
                               
Revenue excluded due to purchase accounting   0    0    11,736    0   11,736    0  
Depreciation and amortization   1,389    2,076    4,245    0   5,634    2,076  
Stock-based compensation   1,843    1,089    0    0   1,843    1,089  
Acquisition-related expenses   342    0    18    0   360    0  
Gain on revaluation of convertible note derivative   (507 )  0    0    0   (507 )  0  
Income taxes   71    164    3,258    0   3,329    164  
Investment income (expense) and foreign exchange loss   441    (362 )  (30 )  0   411    (362 )
                               
Adjusted EBITDA  $8,505   $4,913   $7,450   $-  $15,955   $4,913  
                        
(1) The figures are for the period from February 1, 2015 to September 30, 2015.

Contact Information

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