Cricket Media 2015 First Quarter Results

WASHINGTON, DC, May 28, 2015 /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 first quarter ended March 31, 2015.  Results were prepared by management in accordance with International Financial Reporting Standards ("IFRS"). All figures are in U.S. dollars.

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Q1 Highlights

• Total revenue of $3.8 million
• Operating expenses down 14% or about $1 million compared to prior year; fifth consecutive quarter of year on year improvement in quarterly net operating loss (excluding impairment charges)
• Implemented two new channel partnerships, and identified additional channel opportunities to drive content licensing and subscription sales going forward
• Digital only and digital bundle subscriptions grew 36% and 61% respectively year over year
• New ecommerce system, fulfillment improvements underway to further increase efficiency
• Won thirteen (13) 2015 Parents' Choice Awards for its media products including eleven (11) Gold medals

First Quarter Business Review

During the first quarter, Cricket Media continued to control costs, closed distribution partnerships to grow revenue and strengthened its core infrastructure to increase efficiency and prepare for growth in the second half of 2015.

In terms of controlling costs, operating expenses for Q1 2015 were down 14% or about $1 million compared to Q1 2014 representing five consecutive quarters of year on year improvement in quarterly net operating loss (excluding impairment charges).

To grow its customer base and revenue in the second half of 2015, the Company put in place three foundational initiatives to grow its pipeline and broaden its reach.  These consisted of:

• Expanding and centralizing its sales team;
• Building its prospect base of channel partners; and
• Expanding digital content offerings and sales. 

Cricket's sales team, which was expanded in late Q1 with the addition of a new VP of sales and centralized with responsibility for content licensing and institutional subscription and commerce sales, implemented the following three deals with distribution partners expected to drive revenue in the coming months:

• Baker & Taylor, a worldwide distributor of digital and print content, will be offering Cricket Media content through its K-12 digital education platform, KnowledgePoint.
• MyOn, an education publishing company, will be adding disaggregated Cricket Media content to their digital reading platform.  This platform is available to 3.5 million K-12 students across the United States, and illustrates a new revenue stream for the Company's content beyond traditional magazine packages.  The Company expects to continue to add new distribution partners of this type moving forward. 
• Zinio (through an agreement finalized in early Q2), a digital newsstand, will be offering Cricket Media's content to over 3,000 public and military libraries and K-12 schools worldwide starting in early June. 

These types of channel partnerships are an important component of Cricket Media's sales strategy.  As an example of the value of this approach, Cricket Media's partnership with Copyright Clearance Center (CCC), a global licensing and content solutions provider, has become one of the largest drivers of assessment related revenue for Cricket Media in the first year of the partnership.

Cricket Media is also increasing the content available for licensing through its growing digital asset management system.  It streamlines licensing by allowing clients to more easily search and license from a library of content that has already been cleared from a rights and permissions standpoint. 

In the first quarter of 2015, digital-only subscriptions increased 36% and bundled (digital and print) subscriptions grew 61% year-over-year.  A total of 39% of new customers selected a digital option in Q1 2015, compared to 18% in Q1 2014. The increased sales of digital products is aligned with the Company's strategy to grow its hybrid physical-digital and digital-only customer base as its traditional print-only businesses declines and it makes the transition to a modern, digital media company.  Cricket Media's digital offerings include Storybug, an app for reading together even when you are apart, and the Cricket Network, powered by Fingerprint, a custom platform that enables family members and other parent-approved users of Cricket Media's portfolio of digital magazine apps to communicate and collaborate around engaging, educational experiences.  

Also during the quarter, the Company's children's media was honored with thirteen Parents' Choice Awards including eleven Gold Medals.  All of the Company's brands were honored by the Parents' Choice committee.

"As our awards attest, our products are highly valued and valuable," said Cricket Media CEO, Katya Andresen. "In the first quarter, our focus has been on putting in place the team and partners to drive media and licensing sales of these assets in the months ahead."

In China, the Company focused on content licensing and sales through its China media partner, Neumedias, a digital publishing company owned by Neusoft Holdings, Cricket Media's joint venture partner in China. Neusoft is one of the largest information services and systems companies in the country. The number of publications available for sale within the Neumedias Nezha store continues to grow, with currently over 20 publications translated and available for sale.  Neumedias also acts as the Company's agent to engage with print publishers in China for distribution deals for Cricket Media content in both Chinese and English across China, and is actively building its deal pipeline.

The Company continued its partnership with the Smithsonian by launching its fourth annual "Invent It" challenge in January which allows K-12 participants to devise inventions that solve real world problems. Winners were awarded from hundreds of creative entries by students across the world. This collaboration with the Smithsonian's Lemelson Center for the Study of Invention and Innovation is an example of the Company's strategy to increase its brand recognition and value and to build user engagement with specific challenges and curricula. In addition, the Company expects to launch an updated version of its Global Community in the third quarter designed to grow and empower its 11m+ social graph of teachers, students and parents around the world. Additional features are expected to include expanded search capability and innovative digital tools for enhanced connection, communication and collaboration.

In addition, the Company undertook several initiatives to increase efficiency and profitability.  In the first quarter of 2015, the Company's consolidation and discontinuation of five lower-performing brands at the end of 2014 went into full effect.  While short-term circulation is lower without these brands, the average circulation per brand grew 30% in Q1 2015, with all 11 remaining brands profitable.  The Company also focused on improving the efficiencies of selling and distributing its content products by finalizing steps to replace its ecommerce fulfillment and distribution platforms and outsourcing customer service, which will go into effect late in Q2 and early Q3.  This is expected to reduce costs and improve the Company's ability to cross sell and upsell its customers.

As a result of expense control and cost reduction initiatives to reduce non-revenue generating costs, the Company determined its Nexify advertising business and Open Court commerce business no longer fit the Company's overall strategy. As a result, in the first quarter the Company began marketing these businesses for sale with the expectation that these businesses would be sold during 2015. As such, the Company has classified the assets and liabilities associated with these businesses as held for sale and the operations as discontinued operations.

Q1 Financial Review

Total revenue for the three months ended March 31, 2015 was approximately $3.8 million compared to approximately $4.3 million for the three months ended March 31, 2014. Subscription revenues decreased approximately $339,000, or 9%, for the first 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 2014.  While short-term circulation is lower without these brands, the average circulation per brand grew 30% in Q1 2015, which is expected to provide long-term benefits.   The Company also 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 and legacy enterprise licensing revenue, decreased approximately $211,000, or 50%, from approximately $425,000 to approximately $214,000 for the first quarter of 2015 compared to the prior year period due to lower content licensing revenues driven by fewer executed deals impacted by the reorganization of the sales team during the quarter.

Operating expenses for the first quarter of 2015 were approximately $6.2 million, a decrease of approximately $1.0 million, or 14%, compared to approximately $7.2 million during the prior year period. This decrease was reflected in lower technology, research and development costs, operations and support expenses and marketing and promotion expenses 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 first quarter of 2015 compared to the first quarter of 2014 are as follows:

	Three months ended March 31,					Increase (Decrease)
Operating Expense Detail		2015		2014				%
(dollars in thousands)
Cost of sales		$    2,248		$    2,300		$          (52)		-2%
Technology, research and development		688		1,126		(438)		-39%
Operations and support		663		858		(195)		-23%
General and administrative		1,526		1,584		(58)		-4%
Marketing and promotion expenses		773		854		(81)		-9%
Stock-based compensation		69		153		(84)		-55%
Depreciation & amortization		172		245		(73)		-30%
Loss on investment in NeuPals		42		89		(47)		-53%
Total operating expenses		$    6,181		$    7,209		$      (1,028)		-14%

Core operating expenses, which include cost of sales, technology, research and development, operations and support, general and administrative and marketing and promotion expenses, decreased 12% during the first 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 headcount and lower costs related to external professional services, as well as the outsourcing of technology development work.
• 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.
• Marketing and promotion expenses decreased compared to the prior year period due to more efficient digital marketing efforts and a reduction in employee headcount, partially offset by increased professional service costs related to the development and execution of the Company's marketing strategy to refocus efforts on digital outlets.

Aside from the aforementioned decreases in operating costs, stock-based compensation decreased primarily due to a reduction in fair value of awards vested to the Company's employees.

At March 31, 2015 Cricket Media had approximately $630,000 in cash and cash equivalents.  Subsequent to quarter-end, the Company raised approximately $2.6 million through financing transactions for general corporate purposes and working capital.

Net loss for the first quarter of 2015 was approximately $1.2 million, or ($0.04) per share, compared to a net loss of approximately $3.1 million, or ($0.25) per share for the prior year period. The decrease in net loss was primarily due to the factors discussed above, decreased interest expense and an increase in foreign currency gains in the current year.

As of May 15, 2015, Cricket Media had a total of 30,947,806 common shares outstanding, of which 7,837,105 are voting common shares and 23,110,701 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 -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 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 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 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
March 31, 2015 and December 31, 2014
							(Unaudited) March 31, 2015			December 31, 2014
Assets
Current assets
	Cash & cash equivalents				$		631,560		$	912,565
	Accounts receivable, net of allowance for doubtful accounts						913,380			968,678
	Inventory						438,078			448,770
	Other current assets						805,579			915,231
	Current assets held for sale						621,084			676,399
			Total current assets				3,409,681			3,921,643
Property and equipment, net							245,396			261,824
Investment in NeuPals							498,249			540,266
Goodwill							13,519,899			13,519,899
Other intangible assets, net							4,488,171			4,375,055
Restricted cash							76,355			76,277
Other assets							73,248			63,231
Long-term assets held for sale							1,275			1,275
			Total assets		$		22,312,274		$	22,759,470
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
	Accounts payable and accrued expenses				$		5,389,891		$	5,785,970
	Accrued interest						1,281,392			1,010,689
	Deferred revenue, current						4,838,390			6,267,928
	Bank line-of-credit						1,425,000			1,470,000
	Notes payable to related parties						2,480,118			1,050,118
	Finance lease obligations, current						38,559			46,554
	Other current liabilities						172,737			168,992
	Current liabilities held for sale						608,052			565,127
			Total current liabilities				16,234,139			16,365,378
Secured convertible debentures							17,228,701			18,710,994
Deferred revenue, less current portion							671,482			689,875
Finance lease obligations, less current portion							62,766			70,953
Other liabilities							11,440			11,440
			Total liabilities				34,208,528			35,848,640
Commitments and contingencies
Stockholders' equity (deficit)
	Share capital						115,727,091			115,057,827
	Additional paid-in capital						14,404,346			12,744,057
	Accumulated deficit						(140,423,366)			(139,259,881)
	Accumulated other comprehensive income (loss)						(112,277)			(139,125)
	Less: Treasury stock (28,800 shares)						(1,492,048)			(1,492,048)
			Total stockholders' equity (deficit)				(11,896,254)			(13,089,170)
			Total liabilities and stockholders' equity (deficit)		$		22,312,274		$	22,759,470

 

Cricket Media Group, Ltd.
Condensed Consolidated Interim Statements of Comprehensive Loss
Three Months Ended March 31, 2015 and 2014 (Unaudited)
			Three Months Ended March 31,
			2015		2014
Revenue			$       3,759,153		$    4,343,019
Operating expenses:
	Cost of sales		2,248,863		2,300,338
	Technology, research & development costs		687,796		1,126,050
	Operations and support expenses		662,840		857,690
	General and administrative expenses		1,526,248		1,583,694
	Marketing and promotion expenses		772,853		853,552
	Stock-based compensation		68,731		152,681
	Depreciation & amortization		172,190		245,447
	Loss on investment in NeuPals		42,017		89,245
Total operating expenses			6,181,538		7,208,697
Loss from operations			(2,422,385)		(2,865,678)
Other income (expense):
	Gain from change in fair value of derivatives		-		59,000
	Interest expense, net		(388,613)		(1,027,692)
	Other income		-		7,507
	Net foreign currency exchange gains		1,608,492		739,499
Loss from continuing operations			(1,202,506)		(3,087,364)
Income (loss) from discontinued operations			39,021		(26,489)
Net Loss			(1,163,485)		(3,113,853)
Other comprehensive income (loss):
	Items that may be subsequently reclassfied into net income/loss
		Foreign currency translation	26,848		28,757
Total comprehensive loss			$      (1,136,637)		$   (3,085,096)
Net loss per common share - basic and diluted:
	Continuing operations		(0.04)		(0.25)
	Discontinued operations		-		-
Net loss per share - basic and diluted			$              (0.04)		$            (0.25)
Weighted average number of common shares:
Basic and diluted			30,388,937		12,321,565

Cricket Media Group, Ltd.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2015 and 2014 (Unaudited)
					Three Months Ended March 31,
						2015			2014
Cash flows from operating activities:
	Net loss from continuing operations				$	(1,202,506)		$	(3,087,364)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Gain from change in fair value of derivatives				-			(59,000)
		Depreciation and amortization				172,190			245,447
		Stock-based compensation				68,731			152,681
		Bad debt recovery, net				57			(31,709)
		Loss on investment in NeuPals				42,017			89,245
		Amortization of financing costs from debentures				19,519			603,317
		Net foreign currency exchange gains				(1,608,492)			(739,499)
		Restricted share vesting				-			1,876
		Increase in restricted cash				78			-
		Changes in operating assets and liabilities:
			Accounts receivable			55,241			104,995
			Inventory			10,692			(101,679)
			Other current assets			109,651			190,063
			Accounts payable and accrued expenses			(89,059)			(221,158)
			Deferred revenue			(1,447,931)			(1,700,937)
			Other			37,268			(20,505)
				Total adjustments		(2,630,038)			(1,486,863)
				Net cash used in continuing operations		(3,832,544)			(4,574,227)
				Net cash provided by discontinued operations		137,261			32,562
				Net cash used in operating activities		(3,695,283)			(4,541,665)
Cash flows from investing activities:
	Cash paid for acquisitions					-			(48,226)
	Cash paid for patents and owned permissions					(203,712)			(51,642)
				Net cash used in investing activities		(203,712)			(99,868)
Cash flows from financing activities:
	Proceeds from related party line of credit					2,430,000			1,150,000
	Proceeds from private placement					1,250,000			457,089
	Repayments on bank line of credit					(45,000)			-
	Payments on finance lease obligations					(16,182)			(19,258)
				Net cash provided by financing activities		3,618,818			1,587,831
	Decrease in cash and equivalents					(280,177)			(3,053,702)
	Effect of exchange rates on cash					(828)			(2,299)
	Cash & cash equivalents at the beginning of the period					912,565			3,641,985
	Cash & cash equivalents at the end of the period				$	631,560		$	585,984

SOURCE Cricket Media Inc.

Chief Financial Officer, Aric Holsinger, Cricket Media, Phone: [phone], [email protected]; Investor Relations, Cory Pala, E.vestor Phone: [phone], [email protected]