Napster Reports $30.3 Million in First Quarter Sales and Positive Results From New MP3 Initiative

  
    
  
  
    
      Napster (NASDAQ:NAPS) today reported financial results for its first 
      quarter ended June 30, 2008.
    
    
      “Napster delivered a solid first quarter of 
      $30.3 million in sales, which was relatively flat compared to the fourth 
      quarter of fiscal 2008 reflecting the beginning of the summer season,” 
      said Chris Gorog, chairman and CEO. “Our 
      continued focus on expenses resulted in cash flow positive results for 
      our fifth consecutive quarter, and we are pleased to begin to see the 
      positive impacts from both the launch of our new MP3 store and the 
      expansion of Napster Mobile. The introduction of MP3’s 
      into our line-up has created positive trends for Napster with increases 
      to visitation and user engagement. In addition, track sales per 
      subscriber were up 10% in July, month over month, with total track sales 
      up 5% during the same period. The roll out of Napster Mobile is driving 
      forward and Napster compatible handsets will expand by millions of new 
      units in the coming months. We expect that Napster Mobile will make the 
      most significant contribution to our growth in fiscal 2009 bolstered by 
      the integration of MP3 sales into our product line-up.”
    
    
      Napster also announced that its award-winning music subscription service 
      will be offered on Lenovo’s new line of 
      consumer notebook computers in the U.S. and Canada. Lenovo is one of the 
      top four computer manufacturers globally in terms of market share.
    
    
      Net revenue for the first quarter of fiscal 2009 was $30.3 million 
      compared to $30.8 million in the fourth quarter of fiscal 2008. Gross 
      margin increased to 27% in the first quarter of fiscal 2009 compared to 
      26% in the fourth quarter of fiscal 2008. Net loss for the first quarter 
      of fiscal 2009 was $4.4 million, or $0.10 per basic and diluted share, 
      compared to a net loss of $4.3 million, or $0.10 per basic and diluted 
      share, in the fourth quarter of fiscal 2008.
    
    
      Napster ended the first fiscal quarter with a total of $70.3 million of 
      cash, cash equivalents and investments, up $500,000 from $69.8 million 
      at March 31, 2008. Napster had approximately 708,000 paid subscribers at 
      June 30, 2008 compared to 760,000 paid subscribers at March 31, 2008.
    
    
      Business Outlook
    
    
      “We expect our second fiscal quarter revenue 
      to be approximately $30 million depending on the pace of our Napster 
      Mobile roll outs, including new compatible handsets and carrier 
      promotions, as well as other new marketing initiatives. We are targeting 
      a relatively flat spend during the second quarter, excluding one-time 
      items. Considering our stronger holiday seasonal patterns and the 
      anticipated further expansion of Napster Mobile later this year, we 
      expect revenue to increase in the second half of fiscal 2009,” 
      said Suzanne M. Colvin, Napster’s interim 
      chief financial officer.
    
    
      Conference Call Information
    
    
      The Napster first-quarter teleconference and webcast is scheduled to 
      begin at 2:00 p.m. PDT on Monday, August 11, 2008. To participate on the 
      live call, analysts and investors should dial 800-366-3964 at least ten 
      minutes prior to the call. Napster will also offer a live and archived 
      webcast of the conference call, accessible from the "Investor Relations" 
      section of the company’s Web site at http://investor.napster.com.
    
    
      About Napster
    
    
      Napster, the pioneer of digital music, offers the ultimate in 
      interactive music experiences, creating better ways to discover, share, 
      acquire and enjoy music -- anytime, anywhere. The Company's offerings 
      include "Napster" (www.Napster.com) 
      -- the premier online music destination featuring the most popular 
      on-demand music subscription service in the world and the largest, most 
      comprehensive MP3 download store on the market; "Freenapster" (www.freenapster.com) 
      -- a unique Web experience offering free on demand music legally; and 
      "Napster Mobile" -- one of the industry's fastest growing mobile music 
      platforms. Headquartered in Los Angeles, Napster's services are 
      available in markets across the Americas, Europe and Japan.
    
    
      Safe Harbor Statement
    
    
      Except for historical information, the matters discussed in this press 
      release (including the matters set forth under “Business 
      Outlook” , Napster’s 
      expectation that Napster compatible handsets will expand by millions of 
      new units in the coming months and Napster’s 
      expectations regarding the contribution to its growth from Napster 
      Mobile in fiscal 2009) are forward-looking statements that are subject 
      to certain risks and uncertainties such as our limited operating 
      history; failure to develop new products and services; flaws inherent in 
      our products or services; decreased demand for our products and 
      services; failure of our products to interoperate with the hardware 
      products of our customers; the adoption rate of mobile platforms as a 
      method of digital music purchase, including the rate of adoption of 
      music-enabled cell phones compatible with the Company's service 
      offerings; intense and varied competition; failure to maintain 
      relationships with strategic partners and content providers; and general 
      economic conditions; that could cause actual results to differ 
      materially from those projected. Additional information on these and 
      other factors are contained in Napster's reports filed with the 
      Securities and Exchange Commission (SEC), including the Company's 
      Quarterly Report on Form 10-Q as filed with the SEC on August 11, 2008, 
      copies of which are available at the website maintained by the SEC at http://www.sec.gov. 
      Napster assumes no obligation to update the forward-looking statements 
      included in this press release.
    
    
      Copyright © 2008 Napster, LLC. All rights 
      reserved. Napster is a registered trademark of Napster, Inc. or its 
      subsidiaries in the United States and/or other countries. All other 
      trademarks are owned by their respective owners.
    
    
      
        
          
            NAPSTER, INC.
          
        
      
      
        
           
        
      
      
        
          
            CONDENSED CONSOLIDATED BALANCE SHEETS
          
        
      
      
        
          
            (in thousands, except per share data)
          
        
      
      
        
          
            (unaudited)
          
        
      
      
        
           
        
      
      
        
        
        
          As of
        
      
      
        
        
        
          
            June 30, 2008
          
        
        
           
        
        
          
            March 31, 2008
          
        
      
      
        
          ASSETS
        
        
        
        
        
        
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
          $
        
        
          36,881
        
        
        
        
        
        
          $
        
        
          32,628
        
        
        
      
      
        
          Short-term investments
        
        
        
        
          30,731
        
        
        
        
        
        
        
        
          37,164
        
        
        
      
      
        
          
            Accounts receivable, net of allowance for doubtful accounts of $41 
            at June 30, 2008 and $16 at March 31, 2008
          
        
        
        
        
          
            2,476
          
        
        
        
        
        
        
        
        
          
            2,365
          
        
        
        
      
      
        
          Prepaid expenses and other current assets
        
        
           
        
        
          3,576
        
        
           
        
        
        
        
           
        
        
          2,289
        
        
           
        
      
      
        
          Total current assets
        
        
        
        
          73,664
        
        
        
        
        
        
        
        
          74,446
        
        
        
      
      
        
          Long-term investments
        
        
        
        
          2,708
        
        
        
        
        
        
        
        
          -
        
        
        
      
      
        
          Property and equipment, net
        
        
        
        
          2,909
        
        
        
        
        
        
        
        
          3,358
        
        
        
      
      
        
          Goodwill
        
        
        
        
          34,658
        
        
        
        
        
        
        
        
          34,658
        
        
        
      
      
        
          Identifiable intangible assets, net
        
        
        
        
          3,011
        
        
        
        
        
        
        
        
          3,560
        
        
        
      
      
        
          Other assets
        
        
           
        
        
          381
        
        
           
        
        
        
        
           
        
        
          285
        
        
           
        
      
      
        
          Total assets
        
        
          $
        
        
          117,331
        
        
           
        
        
        
        
          $
        
        
          116,307
        
        
           
        
      
      
        
           
        
      
      
        
          LIABILITIES AND STOCKHOLDERS' EQUITY
        
        
        
        
        
        
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
      
      
        
          Accounts payable
        
        
          $
        
        
          2,950
        
        
        
        
        
        
          $
        
        
          1,745
        
        
        
      
      
        
          Accrued liabilities
        
        
        
        
          35,772
        
        
        
        
        
        
        
        
          31,166
        
        
        
      
      
        
          Deferred revenues
        
        
           
        
        
          5,696
        
        
           
        
        
        
        
           
        
        
          6,474
        
        
           
        
      
      
        
          Total current liabilities
        
        
        
        
          44,418
        
        
        
        
        
        
        
        
          39,385
        
        
        
      
      
        
          Long-term liabilities
        
        
        
        
        
        
        
      
      
        
          Deferred income taxes
        
        
        
        
          4,830
        
        
        
        
        
        
        
        
          4,593
        
        
        
      
      
        
          Other long-term liabilities
        
        
           
        
        
          47
        
        
           
        
        
        
        
           
        
        
          28
        
        
           
        
      
      
        
          Total liabilities
        
        
           
        
        
          49,295
        
        
           
        
        
        
        
           
        
        
          44,006
        
        
           
        
      
      
        
          Stockholders' equity:
        
        
        
        
        
        
        
      
      
        
          
            Common stock, $0.001 par value; Authorized: 100,000 shares; Issued 
            and Outstanding: 47,853 shares at June 30, 2008 and 46,122 shares 
            at March 31, 2008
          
        
        
        
        
          
            48
          
        
        
        
        
        
        
        
        
          
            46
          
        
        
        
      
      
        
          Additional paid-in capital
        
        
        
        
          266,931
        
        
        
        
        
        
        
        
          266,447
        
        
        
      
      
        
          Accumulated deficit
        
        
        
        
          (199,028
        
        
          )
        
        
        
        
        
        
          (194,646
        
        
          )
        
      
      
        
          Accumulated other comprehensive income
        
        
           
        
        
          85
        
        
           
        
        
        
        
           
        
        
          454
        
        
           
        
      
      
        
          Total stockholders' equity
        
        
           
        
        
          68,036
        
        
           
        
        
        
        
           
        
        
          72,301
        
        
           
        
      
      
        
           
        
      
      
        
          Total liabilities and stockholders' equity
        
        
          $
        
        
          117,331
        
        
           
        
        
        
        
          $
        
        
          116,307
        
        
           
        
      
    
    
      
        
          
            NAPSTER, INC.
          
        
      
      
        
           
        
      
      
        
          
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          
        
      
      
        
          
            (in thousands, except per share data)
          
        
      
      
        
          
            (unaudited)
          
        
      
      
        
           
        
      
      
        
        
        
           
        
        
          Three Months Ended
        
      
      
        
        
        
        
        
          June 30,
        
        
           
        
        
          March 31,
        
        
           
        
        
          June 30,
        
      
      
        
        
        
        
        
          2008
        
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Revenues:
        
        
        
        
          $
        
        
          30,317
        
        
        
        
        
        
          $
        
        
          30,782
        
        
        
        
        
        
          $
        
        
          32,254
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cost of revenues:
        
        
        
        
           
        
        
          22,012
        
        
           
        
        
        
        
           
        
        
          22,630
        
        
           
        
        
        
        
           
        
        
          23,451
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross margin
        
        
        
        
           
        
        
          8,305
        
        
           
        
        
        
        
           
        
        
          8,152
        
        
           
        
        
        
        
           
        
        
          8,803
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross margin %
        
        
        
        
        
        
          
            27
          
        
        
          
            %
          
        
        
        
        
        
        
          
            26
          
        
        
          
            %
          
        
        
        
        
        
        
          
            27
          
        
        
          
            %
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating expenses:
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Research and development
        
        
        
        
        
        
          2,015
        
        
        
        
        
        
        
        
          2,357
        
        
        
        
        
        
        
        
          2,712
        
        
        
      
      
        
          Sales and marketing
        
        
        
        
        
        
          3,970
        
        
        
        
        
        
        
        
          4,442
        
        
        
        
        
        
        
        
          3,991
        
        
        
      
      
        
          General and administrative
        
        
        
        
        
        
          6,514
        
        
        
        
        
        
        
        
          5,418
        
        
        
        
        
        
        
        
          5,965
        
        
        
      
      
        
          Amortization of intangible assets
        
        
        
        
           
        
        
          550
        
        
           
        
        
        
        
           
        
        
          680
        
        
           
        
        
        
        
           
        
        
          1,539
        
        
           
        
      
      
        
          Total operating expenses
        
        
        
        
           
        
        
          13,049
        
        
           
        
        
        
        
           
        
        
          12,897
        
        
           
        
        
        
        
           
        
        
          14,207
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss from continuing operations
        
        
        
        
        
        
          (4,744
        
        
          )
        
        
        
        
        
        
          (4,745
        
        
          )
        
        
        
        
        
        
          (5,404
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other income, net
        
        
        
        
           
        
        
          339
        
        
           
        
        
        
        
           
        
        
          787
        
        
           
        
        
        
        
           
        
        
          1,431
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss before income tax benefit (provision)
        
        
        
        
        
        
          (4,405
        
        
          )
        
        
        
        
        
        
          (3,958
        
        
          )
        
        
        
        
        
        
          (3,973
        
        
          )
        
      
      
        
          Income tax benefit (provision)
        
        
        
        
           
        
        
          23
        
        
           
        
        
        
        
           
        
        
          (340
        
        
          )
        
        
        
        
           
        
        
          (271
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net loss
        
        
        
        
          $
        
        
          (4,382
        
        
          )
        
        
        
        
          $
        
        
          (4,298
        
        
          )
        
        
        
        
          $
        
        
          (4,244
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic and diluted net loss per share
        
        
        
        
          $
        
        
          (0.10
        
        
          )
        
        
        
        
          $
        
        
          (0.10
        
        
          )
        
        
        
        
          $
        
        
          (0.10
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares used in computing net loss per share
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          
            Basic and diluted
          
        
        
        
        
           
        
        
          43,868
        
        
           
        
        
        
        
           
        
        
          43,631
        
        
           
        
        
        
        
           
        
        
          43,408