On2 Technologies Announces Financial Results for Fourth Quarter and Full Year 2008
Revenue increases 23% in fiscal 2008
CFO transition planned
CLIFTON PARK, N.Y., March 5 -- On2 Technologies, Inc. (NYSE Alternext US: ONT), a leader in video compression solutions, today announced quarterly and annual financial results for the period ending December 31, 2008. Revenue in the fourth quarter of 2008 was $3.6 million, compared to revenue of $6.1 million in the fourth quarter of 2007 and $5.0 million in the third quarter of 2008. The year-over-year fourth quarter revenue decline was primarily due to challenging business conditions in the global semiconductor industry in which the company's Finnish subsidiary, On2 Finland, operates, while the sequential decline was due largely to normal quarter-to-quarter variability in licensing patterns. On a GAAP basis, fourth quarter net loss was ($10.2) million, or ($0.06) per share, compared to a net loss of ($1.8) million, or ($0.01) per share, in the fourth quarter of 2007. The loss was largely driven by a $7.0 million non-cash write-down of goodwill and intangible assets related to the company's On2 Finland business.
For the year 2008, revenue was $16.3 million, up 23% from $13.2 million in 2007. GAAP net loss for 2008 was ($51.2) million, or ($0.30) per share, compared to $6.9 million, or ($0.06) per share, in 2007. In 2008, the company wrote down $33.3 million in goodwill and intangible assets related to its On2 Finland operation.
Matt Frost, Chief Operating Officer and interim Chief Executive Officer of On2 Technologies said, "We are pleased with our business progress in 2008. We were particularly encouraged to see royalty revenue increase 76% in 2008, confirming growing use of our technology among a larger group of customers. In the fourth quarter we saw some normal quarter-to-quarter variability after a strong third quarter, resulting in a sequential revenue decline. Additionally, our On2 Finland operation had a weaker performance in light of the global economic recession, which has affected our semiconductor and OEM customers and partners. However, our software-based encoding solutions continue to be successful in the current economic environment. As consumers are looking for lower-cost entertainment and video content distributors look to reduce bandwidth costs, on-line video continues to grow in popularity and our solutions have demonstrated a compelling return on investment for video content producers and providers."
Frost continued, "We are pleased with the results of our recent cost-cutting efforts and we expect to see further benefits of these measures in early 2009. We are optimistic that our differentiated bandwidth- and cost-reducing technology will continue to be adopted by customers, despite - or in some cases perhaps, because of - macroeconomic conditions. Further, based on our current new business and cost-containment projections, we continue to anticipate that the Company's existing capital resources will be sufficient to satisfy our cash flow requirements for the next 12 months. We believe our more streamlined operations better position us for success in a soft economy and should provide even greater advantage when the economy improves."
On2 Technologies also announced today that it plans to appoint Wayne Boomer as Chief Financial Officer, succeeding Anthony Principe, who plans to resign this month. Mr. Boomer joins On2 from Inmedius, Inc., where he served as CFO and Vice President of Finance for over five years. In that role, he was responsible for management of finance, HR, IT, contracts and facilities worldwide. Prior to joining Inmedius, Mr. Boomer spent seven years with MapInfo Corporation in finance roles of increasing responsibility, including Director of Finance and Operations for the 140 employees working in MapInfo's Europe, Middle East and Africa region. Mr. Boomer began his career at Coopers and Lybrand, where he was a senior associate. He graduated from Siena College earning a Bachelor of Science degree in Business Administration and is a CPA.
"It has been a pleasure to work with Tony Principe for the last five years," said Matt Frost, interim Chief Executive Officer. "The Company and board of directors are grateful for his many contributions and we wish him well in his future endeavors. We are very pleased to be welcoming Wayne Boomer to On2 and are confident that the CFO transition will be a smooth process."
Fourth Quarter Business Highlights
-- Royalties increased 16% year-over-year to $820,000 in the fourth
quarter and decreased 15% sequentially. Royalties represented 23% of
revenue in the quarter, compared with 11% in the fourth quarter of
2007 and 19% of revenue in the third quarter of 2008. The increase in
year-over-year royalties reflects higher unit shipments and increased
delivery of video that uses On2 technology.
-- Royalties were $3.4 million in 2008, up 76% from $1.9 million in 2007
and represented 21% of 2008 revenue. Royalties increased
year-over-year due to increases in both the number of royalty-paying
customers and the average royalty per customer.
-- In the fourth quarter of 2008, On2 added over 50 new customers,
excluding online sales, with 12 transactions in the quarter that
contributed over $50,000 to revenue.
-- In November, On2 introduced Flix(R) Cloud, a video transcoding
solution building on On2's popular Flix Engine. Flix Cloud will
operate in the Amazon EC2(R) (Elastic Computing Cloud) and provide
on-demand, pay-as-you-go networked transcoding.
-- In November, On2 announced that China's leading video-sharing website,
56.com, is switching to VP6-based Flash video and is using the Flix
encoding engine for server-side transcoding and publishing. 56.com
serves video to over 35 million people each month and chose On2's VP6
encoder based on factors including encoding speed, video performance
and quality, market acceptance, and licensing terms.
-- In November, On2 announced that Skype has extended its relationship
with On2 in a new strategic agreement. In February, Skype 4.0 for
Windows was launched featuring advanced video conferencing
capabilities that use On2's VP7 technology. Additionally, Asus
recently launched its AiGuru SV1 Skype Certified videophone, which
also uses VP7 technology.
-- In December, On2 added support for Sun JavaFX(R) to the Flix line of
video encoders, enabling cross-platform video encoding for JavaFX
applications.
Conference Call
Management will hold a conference call to discuss On2's results for the fourth quarter and full year 2008, as well as other developments in the business, at 5:00pm ET on March 5, 2009.
To access the live webcast, visit:
http://www.investorcalendar.com/IC/CEPage.asp?ID=136464
The webcast replay will be available until March 12, 2009.
If you prefer to dial in to the call, the information is as follows:
Live Call: (877) 407-9210, domestic
(201) 689-8049, international
Replay: (877) 660-6853
(201) 612-7415
Replay Passcodes: Account #: 286
Conference ID #: 314509
About On2
On2 creates advanced video compression technologies for desktop and wireless environments. Powering the video in many of today's leading web and mobile applications and devices, On2's customers include: Nokia, Infineon, Sun Microsystems, Mediatek, Sony, Brightcove, Move Networks, Adobe and Skype. On2 Technologies is headquartered in Clifton Park, NY USA. For more information please visit www.on2.com.
All trademarks mentioned in this document are the property of their respective owners.
Forward-Looking and Cautionary Statements
Except for historical information and discussions contained herein, certain statements included in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included in this document, other than statements of historical fact, that address activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements represent our reasonable judgment on the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "expect," "will," "anticipate," "should," "plans" and other words of similar meaning. Such statements include, but are not limited to, statements regarding the potential impact of cost cutting and containment measures, the potential for such cost cutting and containment measures to right-size the business and offset some of the global weakness in the economy, the Company's plans to build an encoding service and the potential benefit to the Company of continued growth in demand for on-line video. Investors should not rely on forward-looking statements because they are subject to a variety of risks and uncertainties and other factors that could cause actual results to differ materially from the Company's expectation. Additional information concerning risk factors is contained from time to time in the Company's SEC filings. The Company expressly disclaims any obligation to update the information contained in this release.
On2 Technologies, Inc.
Condensed Consolidated Balance Sheets
December 31,
------------
ASSETS 2008 2007
---- ----
Current assets:
Cash and cash equivalents $4,157,000 $9,573,000
Short-term investments 132,000 5,521,000
Accounts receivable, net 2,730,000 7,513,000
Prepaid expenses and other current assets 439,000 1,492,000
------- ---------
Total current assets 7,458,000 24,099,000
Intangible assets, net 16,587,000 54,500,000
Property and equipment, net 1,401,000 751,000
Other assets 430,000 175,000
------- -------
Total assets $25,876,000 $79,525,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $5,720,000 $6,253,000
Deferred revenue 2,133,000 1,887,000
Short-term borrowings 63,000 2,198,000
Current portion of long-term debt 1,148,000 491,000
Capital lease obligation 260,000 24,000
------- ------
Total current liabilities 9,324,000 10,853,000
Capital lease obligation, excluding current
portion 432,000 18,000
Long-term debt 1,802,000 3,082,000
--------- ---------
Total liabilities 11,558,000 13,953,000
Stockholders' equity 14,318,000 65,572,000
---------- ----------
Total liabilities and stockholders'
equity $25,876,000 $79,525,000
=========== ===========
On2 Technologies, Inc.
Consolidated Statements of Operations
-------------------------------------
Three months ended December 31,
-------------------------------
2008 2007 2006
---- ---- ----
Revenue $3,580,000 $6,118,000 $2,117,000
Operating expenses:
Cost of revenues(1) 590,000 1,134,000 511,000
Research and development(2) 2,071,000 2,333,000 272,000
Sales and marketing(2) 1,313,000 2,386,000 470,000
General and administrative(2) 2,588,000 1,732,000 1,001,000
Asset impairment 7,023,000
Equity-based compensation:
Research and development 108,000 81,000 16,000
Sales and marketing 57,000 69,000 (16,000)
General and administrative 298,000 161,000 170,000
------- ------- -------
Total operating expenses 14,048,000 7,896,000 2,424,000
---------- --------- ---------
Loss from operations (10,468,000) (1,778,000) (307,000)
Interest and other income
(expense), net 291,000 (3,000) (1,190,000)
------- ------ ----------
Loss before provision for
income taxes (10,177,000) (1,781,000) (1,497,000)
Provision for income taxes - 15,000 13,000
--- ------ ------
Net loss (10,177,000) (1,796,000) (1,510,000)
Convertible preferred stock
deemed dividend
Convertible preferred stock
8% dividend - 4,000 65,000
--- ----- ------
Net loss attributable
to common stockholders $(10,177,000) $(1,800,000) $(1,575,000)
============ =========== ===========
Basic and diluted net loss
attributable to common
stockholders per common share $(0.06) $(0.01) $(0.02)
====== ====== ======
Weighted average basic and
diluted common shares
outstanding 171,833,000 154,347,000 100,603,000
=========== =========== ===========
Year ended December 31,
-----------------------
2008 2007 2006
---- ---- ----
Revenue $16,268,000 $13,237,000 $6,572,000
Operating expenses:
Cost of revenues(1) 4,154,000 2,549,000 2,328,000
Research and development(2) 10,736,000 3,833,000 972,000
Sales and marketing(2) 7,095,000 4,272,000 1,093,000
General and administrative(2) 11,228,000 5,200,000 4,384,000
Asset impairment 33,268,000
Equity-based compensation:
Research and development 433,000 147,000 98,000
Sales and marketing 204,000 157,000 103,000
General and administrative 1,026,000 491,000 1,184,000
--------- ------- ---------
Total operating expenses 68,144,000 16,649,000 10,162,000
---------- ---------- ----------
Loss from operations (51,876,000) (3,412,000) (3,590,000)
Interest and other income
(expense), net 670,000 (3,467,000) (1,226,000)
------- ---------- ----------
Loss before provision for
income taxes (51,206,000) (6,879,000) (4,816,000)
Provision for income taxes - 25,000 30,000
--- ------ ------
Net loss (51,206,000) (6,904,000) (4,846,000)
Convertible preferred stock
deemed dividend 68,000
Convertible preferred stock
8% dividend - 82,000 285,000
--- ------ -------
Net loss attributable
to common stockholders $(51,206,000) $(6,986,000) $(5,199,000)
============ =========== ===========
Basic and diluted net loss
attributable to common
stockholders per common share $(0.30) $(0.06) $(0.05)
====== ====== ======
Weighted average basic and
diluted common shares
outstanding 171,231,000 121,561,000 96,642,000
=========== =========== ==========
(1) Includes equity-based compensation of $73,000 and $288,000 for the
three months and year ended December 31, 2008, respectively. Includes
equity-based compensation of $87,000 and $151,000 for the three months and
year ended December 31, 2007, respectively. Includes equity-based
compensation of $15,000 and $169,000 for the three months and year ended
December 31, 2006, respectively.
(2) Excludes equity-based compensation, which is presented separately.
