NeuLion, technology product and service provider for digital distribution, announced second quarter of 2016 financial results. GAAP revenue for Q2 2016 was $24.1 million, an increase of 6.2% versus Q2 2015, and a decrease of 8.4% compared to Q1 2016.
NeuLion’s acquisition of Saffron Digital was completed on June 3, 2016, so less than a month of Saffron’s sales were included in the quarter’s results. Saffron was a $14.7 million (USD) annual revenue business in 2014.
Gross margins (exclusive of depreciation and amortization) were 83.0% for Q2 2016, an increase of 200 basis points versus the year-earlier period, and an increase of 100 basis points against the preceding quarter. The margin improvement was attributed to lower costs with technology licenses in NeuLion’s consumer electronics products.
Operating loss for Q2 2016 was $0.3 million, which compares to an operating loss of $2.5 million during Q2 2015, and operating income of $3.4 in Q1 2016.
Net loss for the second quarter of 2016 was $0.8 million, which compares to a loss of $3.2 million in Q2 2015, and net income of $2.1 million during Q1 2016.
Selling, general and administrative (“SG&A”) expenses were $12.9 million for the quarter, an increase of 13.2% versus Q2 2015, and an increase of 8.4% when measured against the preceding quarter. SG&A expense as a percentage of revenue were 54.0% for Q2 2016. In the comparable periods, SG&A was 50.0% of sales in Q2 2015 and 45.0% in Q1 2016.
In NeuLion’s prepared remarks for the quarter, President and Chief Executive Officer Roy Reichbach highlighted the Company’s plans to invest in sales and marketing. “Our technology is best in class and now is the time to match our sales and marketing prowess with our technology development skills” said Mr. Reichback. The investment in sales resources calls for the hiring of 22 or more new sales personnel. This will add to the headcount of 22 at the end of the second quarter.
Research and development (“R&D”) expense was $5.3 million for Q2 2016, a 29.3% decrease on a year-over-year basis, and an increase of 20.5% against the preceding quarter. The year-over-year decline stems from synergies achieved in the integration of DivX. R&D expense represented 22.0% of the quarter’s revenue, in comparison to 33.0% in Q2 2015 and 17.0% in Q1 2016.
Cash and cash equivalents ended the quarter at $46.1 million. This compares to a cash balance of $61.5 million at the end of the prior quarter. A major contributor to the decline was the $7.5 million of upfront cash consideration used in the Saffron acquisition.
NeuLion had 524 full time employees at the end of Q2 2016. This is up from 498 total employees as of the end of the preceding quarter.
Revenue by Service and Product Offerings:
- NeuLion Digital Platform revenue was $15.9 million for Q2 2016, an increase of 2.6% over Q2 2015 revenue, and a decrease of 13.1% compared to Q1 2016. Excluding revenues related to the NHL and Rogers – which have declined based on the MLBAM and NHL partnership – NeuLion grew its Digital Platform revenues 12% year-over-year.
- DivX and MainConcept product lines contributed GAAP revenue of $8.2 million for Q2 2016, a 13.9% increase over Q2 2015, and an increase of 2.5% versus Q1 2016.
Revenue by Geography:
- Revenues from North America were $14.9 million for the quarter, an increase of 0.9% on a year-over-year basis and a decrease of 18.7% on a sequential basis. North America accounted for 62.0% of total sales in the quarter, compared to 65.0% in Q2 2015 and 70.0% in Q1 2016.
- Europe contributed revenue of $2.3 million in second quarter of 2016, representing a 13.0% increase versus Q2 2015 and a 19.2% increase against Q1 2016. For the quarter, Europe was 10.0% of sales. During Q2 2015 Europe accounted for 9.0% of sales and in the preceding quarter Europe represented 7.0% of total sales.
- Revenues in Asia were $6.9 million for the quarter, an increase of 17.6% versus Q2 2015, and an increase of 14.7% against Q1 2016. As a percentage of sales, Asia contributed 29.0% of revenue in the quarter. This compares to a contribution of 26.0% in Q2 2015 and 23.0% in Q1 2016.
Management Discussion and Analysis:
NeuLion’s earnings release highlighted several notable customer projects and related milestones.
EFL Digital, responsible for the digital business of the English Football League, selected NeuLion as its digital platform. Sky Sports selected NeuLion as the technology provider for its live OTT event services. Also in the quarter, NeuLion worked with the UFC to deliver a live OTT 4K pay-per-view event.
Responding to an analyst’s question, EVP Marketplace Strategy Chris Wagner added commentary on NeuLion’s work with the UFC, stating,
“…the momentum for 4K delivery, we’re seeing that. I mean UFC delivered over the top, a pay-per-view that earned in round numbers about $60, which gave the fan the ability to get HD or 4K.
So what we see from content rights holders and content owners is a move to start to organize their events, create some 4K content, definitely it’s going to be delivered over the top…The MVPDs like it because it’s broadband and it’s their most profitable product. Fans love it. The feedback that we got from people who bought the digital tickets for 4K and watched on their Sony was pretty significant. We know we had – the average engagement time was essentially the entire fight.
So the rights holders know that the quality matters to consumers. I think you’ll see a positioning around 4K content. If you really want that quality, you know perhaps it’s charged differently and more expensive than lower forms of quality. UFC has done that with HD for a while now with different price points. But we’re seeing all of our content rights holders and owners of sort of think through how they’re going to focus and deliver on 4K.”
Press Release: NeuLion Q2 2016 Results
Transcript: NeuLion Q2 2016 Earnings Call (Seeking Alpha)
© Devoncroft Partners 2009 – 2016. All Rights Reserved.