Media subscriptions increase; core operating expenses decrease
WASHINGTON, DC, Nov. 20, 2014 /CNW/ - 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 third quarter ended September 30, 2014. Results were prepared by management in accordance with International Financial Reporting Standards ("IFRS"). All figures are in U.S. dollars unless otherwise stated.
Conference call today at 10:00 a.m. Eastern Time
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Three Months Ended September 30 Highlights
- Media subscriptions increased 4% year-over-year
- Key new content licensing agreements signed
- Core operating expenses down 11% year-over-year
- Total revenue of $3.1 million
- Monetizing content assets with launch of new Story Bug media product
The total number of Cricket Media subscriptions grew 4% over Q3 2013. Customers increasingly adopted digital products as the Company provided digital subscribers the ability to access Cricket Media products via the platform of their choice – IOS, Android, or the web. 55% of new customers selected a digital option in Q3 2014, compared to 39% in the prior quarter and 20% in Q3 2013.
"The third quarter results clearly reflect the impact of our efforts to reposition and focus the company over the past 12 months. In the quarter we not only substantially reduced our operating expenses, but we also put in place many of the key pieces that will drive future growth," said Cricket Media CEO, Katya Andresen. "We're now well positioned to start to see meaningful growth over the next few quarters. We are experiencing solid year-over-year growth in subscription renewals, growing our subscriber base and we are actively increasing user engagement associated with our digital products."
In the third quarter the Company continued to offer licensing options along with its "umbrella" deals that allow purchasers to purchase multiple sets of content under a single contract, including the broad multi-year content licensing agreement signed with Houghton Mifflin Harcourt (HMH) in July 2014. Cricket Media signed umbrella contracts with new publishers during and immediately after the end of the third quarter.
During the third quarter the Company expanded mobile access to Cricket Media content with the launch of the new Story Bug app in partnership with Kindoma. The Story Bug app is expected to drive increases in consumer subscription and commerce revenue by combining a shared reader with video chat to enable family members to remotely read Cricket Media content together using an iPhone or iPad.
Before the end of this year the Company also expects to launch, in partnership with Fingerprint, a custom, Cricket Media-branded platform that enables family members and other parent-approved users of Cricket Media's existing portfolio of digital magazine apps to communicate and collaborate around engaging, educational experiences.
The Company's China media partner, Neumedias, has now completed the first Chinese translations of the Company's interactive digital media products for online distribution throughout China. Nine Babybug and seven Ladybug publications have been launched for sale in Mandarin on the Neuchild app store. Dual English-Chinese language apps and content for toddlers and young children are available on smartphones, tablets and smart TVs. Neumedias is a digital publishing company owned by Neusoft Holdings, an affiliate of Neusoft Corp, one of the largest information services and systems companies in China. This partnership between Cricket Media and Neumedias builds on the relationship in China between Cricket Media and the Neusoft family of companies, which includes the NeuPals joint venture providing Chinese schools with an online platform for collaborative learning.
Q3 Financial Review
Total revenue for the three months ended September 30, 2014 was approximately $3.1 million compared to approximately $3.7 million for the three months ended September 30, 2013. Licensing revenue, which consists of content licensing and legacy enterprise licensing revenue, decreased approximately $372,000, or 52%, from approximately $716,000 to approximately $344,000 for the third quarter of 2014 compared to the prior year period primarily driven by fewer sales in 2014. Sponsorship and advertising revenue decreased approximately $124,000, or 44%, during the third quarter of 2014 compared to the prior year period due to a decrease in advertising revenues driven by lower inventory of advertisements. Commerce revenue decreased approximately $85,000, or 25%, from approximately $340,000 to approximately $255,000 during the third quarter of 2014 compared to the prior year period primarily due to a decrease in book sales resulting from fewer published titles. Subscription revenues of approximately $2.4 million for the three months ended September 30, 2014 were essentially flat compared to the prior year period. While we experienced a 4% increase in subscriptions which drove a modest increase in revenues, the increase was offset by a lower average subscription price. The lower average subscription price is the result of a strategy to more aggressively acquire new subscribers in an effort to increase exposure to the Company's full portfolio of media subscription and non-subscription products.
Operating expenses for the third quarter of 2014 were approximately $11.6 million, an increase of approximately $1.7 million, or 17%, compared to approximately $9.8 million during the prior year period. Operating expenses for the third quarter of 2014 includes approximately $3.0 million of impairment losses related to the "ePals" brand name and goodwill associated with the Company's legacy platform business. Excluding the impairment losses in the current year, operating expenses decreased primarily due to the Company's expense reduction initiatives which included focusing on near term revenue opportunities, streamlining senior management, and identifying outsourcing opportunities. This decrease was reflected in lower operations and support costs, cost of sales, technology, research and development expenses and marketing and promotion expenses.
Operating expenses by category for the third quarter of 2014 compared to the third quarter of 2013 are as follows (dollars in thousands):
Three months ended |
Increase |
|||||||
Operating Expense Detail |
2014 |
2013 |
% |
|||||
(dollars in thousands) |
||||||||
Cost of sales |
$ 2,033 |
$ 2,379 |
$ (346) |
-15% |
||||
Technology, research and development |
1,116 |
1,364 |
(248) |
-18% |
||||
Operations and support |
795 |
1,207 |
(412) |
-34% |
||||
General and administrative |
1,484 |
1,307 |
177 |
14% |
||||
Marketing and promotion expenses |
2,838 |
3,028 |
(190) |
-6% |
||||
Stock-based compensation |
43 |
127 |
(84) |
-66% |
||||
Depreciation & amortization |
317 |
330 |
(13) |
-4% |
||||
Change in estimated fair value of acquisition share |
(45) |
- |
(45) |
N/A |
||||
Impairment of goodwill and intangible assets |
2,962 |
- |
2,962 |
N/A |
||||
Loss on investment in NeuPals |
59 |
135 |
(76) |
-56% |
||||
Total operating expenses |
$ 11,602 |
$ 9,877 |
$ 1,725 |
17% |
Core operating expenses, which include cost of sales, technology, research and development, operations and support, general and administrative and marketing and promotion expenses, decreased 11% during the third quarter of 2014 compared to the prior year period due to the following drivers:
- Operations and support costs decreased as a result of reduced expenses relating to consultants and other contractors primarily related to the de-emphasis of the Company's European operations, as well as lower salaries due to reduced employee headcount.
- Cost of sales decreased primarily due to lower production and distribution costs associated with the Company's print publications and lower advertising sales, partially offset by an increase in costs associated with the digital conversion of the Company's content assets.
- Technology, research and development costs decreased primarily due to a reduction in headcount for both employees and consultants, as well as the outsourcing of technology development work.
- Marketing and promotion expenses decreased primarily due to a reduction in headcount, including employees and consultants and a decrease in event related expenses resulting from the elimination of marketing events and trade shows which previously supported the Company's legacy enterprise licensing initiatives, partially offset by increased marketing efforts associated with the Company's peak holiday season.
Aside from the aforementioned decreases in operating costs, stock-based compensation decreased primarily due to a reduction in number and fair value of awards vested to the Company's employees. Offsetting these decreases was an approximately $3.0 million impairment charge recognized during the third quarter of 2014, which was the result of an interim evaluation of intangible assets as a result of the Company's recent changes in overall business strategy.
At September 30, 2014 Cricket Media had approximately $1.0 million in cash and cash equivalents. Subsequent to quarter-end, the Company raised approximately $1.8 million through private placement transactions for general corporate purposes and working capital.
Net loss for the third quarter of 2014 was approximately $8.7 million, or $(0.45) per share, compared to a net loss of approximately $7.6 million, or $(1.09) per share for the prior year period. This increase in net loss was primarily due to the factors discussed above and increased interest expense in the current year partially offset by an increase in foreign currency exchange gains. The amounts for net loss per share include adjustments to weighted average common shares outstanding related to the 25:1 share consolidation that took place during July 2014.
As of November 14, 2014, Cricket Media had a total of 25,884,109 common shares outstanding, of which 5,441,334 are voting common shares and 20,442,775 are restricted voting common shares.
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 14 popular media brands for toddlers to teens include Babybug, Ladybug, Cricket® and Cobblestone® with multiple language editions and apps in English, Spanish and Chinese. 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 www.Cricketmag.com, www.ePals.com and www.In2Books.com.
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, sales and ARPU. 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 email 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 forward-looking information contained herein.
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
Cricket Media Group Ltd.
Condensed Consolidated Interim Statements of Financial Position
September 30, 2014 and December 31, 2013
|
||||||||
(Unaudited) September 30, 2014 |
||||||||
December 31, 2013 |
||||||||
Assets |
||||||||
Current assets |
||||||||
Cash & cash equivalents |
$ |
1,025,991 |
$ |
3,641,985 |
||||
Accounts receivable, net of allowance for doubtful accounts |
1,120,238 |
1,265,834 |
||||||
Inventory |
888,257 |
538,163 |
||||||
Other current assets |
1,367,301 |
1,139,455 |
||||||
Total current assets |
4,401,787 |
6,585,437 |
||||||
Property and equipment, net |
309,393 |
449,208 |
||||||
Investment in NeuPals |
584,228 |
811,929 |
||||||
Goodwill |
13,573,629 |
14,419,953 |
||||||
Other intangible assets, net |
5,659,939 |
7,876,341 |
||||||
Restricted cash |
75,966 |
75,966 |
||||||
Other assets |
52,597 |
63,503 |
||||||
Total assets |
$ |
24,657,539 |
$ |
30,282,337 |
||||
Liabilities and Stockholders' Equity (Deficit) |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued expenses |
$ |
6,324,367 |
$ |
6,216,975 |
||||
Accrued interest |
992,651 |
712,591 |
||||||
Acquisition consideration liabilities, current |
171,828 |
584,178 |
||||||
Deferred revenue, current |
3,865,770 |
6,422,165 |
||||||
Bank line-of-credit |
1,500,000 |
1,500,000 |
||||||
Notes payable to related parties |
2,150,118 |
1,500,000 |
||||||
Finance lease obligations, current |
54,508 |
65,716 |
||||||
Other current liabilities |
165,248 |
90,795 |
||||||
Total current liabilities |
15,224,490 |
17,092,420 |
||||||
Secured convertible debentures |
19,477,660 |
18,399,596 |
||||||
Deferred revenue, less current portion |
1,047,288 |
851,854 |
||||||
Finance lease obligations, less current portion |
79,140 |
117,507 |
||||||
Other liabilities |
11,440 |
11,440 |
||||||
Total liabilities |
35,840,018 |
36,472,817 |
||||||
Commitments and contingencies |
||||||||
Stockholders' equity (deficit) |
||||||||
Share capital |
113,624,195 |
104,912,731 |
||||||
Additional paid-in capital |
10,891,115 |
7,352,232 |
||||||
Accumulated deficit |
(134,084,720) |
(116,809,681) |
||||||
Unvested voting common stock |
- |
(1,876) |
||||||
Accumulated other comprehensive loss |
(121,021) |
(151,838) |
||||||
Less: Treasury stock (28,800 shares) |
(1,492,048) |
(1,492,048) |
||||||
Total stockholders' equity (deficit) |
(11,182,479) |
(6,190,480) |
||||||
Total liabilities and stockholders' equity (deficit) |
$ |
24,657,539 |
$ |
30,282,337 |
Cricket Media Group Ltd.
Condensed Consolidated Interim Statements of Comprehensive Loss
Three and Nine months Ended September 30, 2014 and 2013 (Unaudited)
|
|||||||||
Three Months Ended September |
Nine Months Ended September |
||||||||
2014 |
2013 |
2014 |
2013 |
||||||
Revenue |
$ 3,114,290 |
$ 3,749,004 |
$ 11,197,917 |
11,741,065 |
|||||
Operating expenses: |
|||||||||
Cost of sales |
2,032,823 |
2,379,373 |
6,752,845 |
7,523,224 |
|||||
Technology, research & development costs |
1,116,337 |
1,363,826 |
3,457,008 |
4,206,982 |
|||||
Operations and support expenses |
795,082 |
1,206,570 |
2,402,031 |
3,654,105 |
|||||
General and administrative expenses |
1,484,221 |
1,307,315 |
4,798,405 |
4,996,585 |
|||||
Marketing and promotion expenses |
2,838,159 |
3,027,936 |
4,577,559 |
6,632,918 |
|||||
Stock-based compensation |
42,714 |
126,659 |
291,241 |
1,235,782 |
|||||
Depreciation & amortization |
316,874 |
330,372 |
945,461 |
980,122 |
|||||
Loss on investment in NeuPals |
58,938 |
135,020 |
227,701 |
270,145 |
|||||
Change in estimated fair value of acquisition share consideration |
(45,261) |
- |
(135,782) |
- |
|||||
Impairment of goodwill and intangible assets |
2,962,470 |
- |
2,962,470 |
- |
|||||
Total operating expenses |
11,602,357 |
9,877,071 |
26,278,939 |
29,499,863 |
|||||
Loss from operations |
(8,488,067) |
(6,128,067) |
(15,081,022) |
(17,758,798) |
|||||
Other income (expense): |
|||||||||
Gain from change in fair value of derivatives |
- |
26,000 |
63,750 |
3,053,000 |
|||||
Interest expense, net |
(1,118,902) |
(983,611) |
(3,254,472) |
(2,398,530) |
|||||
Other income |
- |
- |
52,571 |
- |
|||||
Net foreign currency exchange gains (losses) |
926,845 |
(492,930) |
944,134 |
134,864 |
|||||
Net loss |
(8,680,124) |
(7,578,608) |
(17,275,039) |
(16,969,464) |
|||||
Other comprehensive income (loss): |
|||||||||
Items that may be subsequently reclassfied into net income/loss |
|||||||||
Foreign currency translation |
4,647 |
(12,873) |
30,817 |
13,965 |
|||||
Total comprehensive loss |
$ (8,675,477) |
$ (7,591,481) |
$ (17,244,222) |
$ (16,955,499) |
|||||
Net loss per common share: |
|||||||||
Basic and diluted |
$ (0.45) |
$ (1.09) |
$ (1.11) |
$ (2.56) |
|||||
Weighted average number of common shares: |
|||||||||
Basic and diluted |
19,248,893 |
6,946,729 |
15,493,339 |
6,631,092 |
Cricket Media Group, Ltd.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2014 and 2013 (Unaudited)
|
||||||||
Nine Months Ended |
||||||||
2014 |
2013 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ |
(17,275,039) |
$ |
(16,969,464) |
||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Gain from change in fair value of derivatives |
(63,750) |
(3,053,000) |
||||||
Depreciation and amortization |
945,461 |
980,122 |
||||||
Stock-based compensation |
291,241 |
1,235,782 |
||||||
Bad debt recovery, net |
(178,534) |
(47,085) |
||||||
Loss on investment in NeuPals |
227,701 |
270,145 |
||||||
Amortization of financing costs from debentures |
1,953,132 |
1,416,512 |
||||||
Net foreign currency exchange gains |
(944,134) |
(134,864) |
||||||
Restricted share vesting |
1,876 |
1,876 |
||||||
Change in estimated fair value of acquisition consideration |
(135,782) |
- |
||||||
Impairment of goodwill and intangible assets |
2,962,470 |
- |
||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
271,596 |
859,057 |
||||||
Inventory |
(350,094) |
(365,702) |
||||||
Other current assets |
(227,845) |
40,213 |
||||||
Accounts payable and accrued expenses |
387,452 |
923,152 |
||||||
Deferred revenue |
(2,360,961) |
(1,769,003) |
||||||
Other |
64,977 |
(48,261) |
||||||
Total adjustments |
2,844,806 |
308,944 |
||||||
Net cash used in operating activities |
(14,430,233) |
(16,660,520) |
||||||
Cash flows from investing activities: |
||||||||
Cash paid for acquisitions |
(174,794) |
- |
||||||
Purchases of equipment |
(47,342) |
(362,062) |
||||||
Increase in intangible and other assets |
(459,209) |
(552,598) |
||||||
Net cash used in investing activities |
(681,345) |
(914,660) |
||||||
Cash flows from financing activities: |
||||||||
Proceeds from secured convertible debentures, net of expenses |
- |
9,327,495 |
||||||
Proceeds from notes payable to related parties |
9,700,118 |
4,900,000 |
||||||
Proceeds from private placement, net of expenses |
2,452,806 |
- |
||||||
Payments on finance lease obligations |
(54,401) |
(61,723) |
||||||
Proceeds from finance lease obligations |
- |
163,742 |
||||||
Proceeds from exercise of stock warrants |
399,882 |
- |
||||||
Net cash provided by financing activities |
12,498,405 |
14,329,514 |
||||||
Decrease in cash and equivalents |
(2,613,173) |
(3,245,666) |
||||||
Effect of exchange rates on cash |
(2,821) |
(4,015) |
||||||
Cash & cash equivalents at the beginning of the period |
3,641,985 |
3,948,499 |
||||||
Cash & cash equivalents at the end of the period |
$ |
1,025,991 |
$ |
698,818 |
||||
Non-cash financing activities: |
||||||||
Issuance of common shares in connection with acquisition consideration liabilities |
$ |
150,000 |
$ |
- |
||||
Issuance of common shares related to credit facility with related party |
9,050,000 |
3,000,000 |
||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ |
958,462 |
$ |
472,073 |
||||
Cash paid for income taxes |
11,907 |
34,564 |
SOURCE: Cricket Media lnc.
Chief Financial Officer, Aric Holsinger, Cricket Media, Phone: (703) 885-3400, [email protected]; Investor Relations, Cory Pala, E.vestor, Phone: (416) 657-2400, [email protected]
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