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CDNOW, Inc. Reports 1999 First Quarter Total Revenues Rising 128% to $22.8 Million
PR Newswire - May 05, 1999 16:57
Becomes Vertical Category E-Commerce Leader and Third Most-Visited Online Retailer Overall with 2 Million Paying Customers Connecting to CDNOW's Music
On Track to Open New Internet Music Store on May 18 and Become Premier Destination for the Sale of Digital Music
NEW YORK, May 5 /PRNewswire/ -- CDNOW, Inc. (Nasdaq: CDNW), the leading vertical category e-commerce company, today announced financial results for the 1999 first quarter ending March 31, 1999 - its first since completing its merger with N2K Inc. on March 17. The Company accounted for its merger with N2K by using purchase accounting, and reported results that include the results of operations of N2K from March 17 to March 31.
The Company's 1999 first quarter revenues totaled $22.8 million, representing a 128% increase over revenues of $10.0 million in the first quarter of 1998. The Company's net loss for the first quarter of 1999 was $19.1 million, or $0.96 per share, compared to the net loss of $9.3 million, or $0.78 per share, in the 1998 first quarter. Included in the 1999 first quarter loss is $1.3 million, or $0.06 per share, for amortization of goodwill and other intangibles, primarily related to the merger; excluding this, the first quarter loss of $0.90 per share compares favorably to the First Call consensus estimate of $1.03 loss per share.
On a pro forma basis, including the results of operations of N2K for the entire March 1999 and 1998 quarters, revenues for the 1999 first quarter climbed 122% to $36.3 million, compared to combined revenues of $16.3 million in 1998's first quarter. The pro forma net loss totaled $1.28 per share for both the 1999 first quarter and the 1998 first quarter. The pro forma first quarter results include amortization of goodwill and other intangibles of $8.1 million in the 1999 first quarter and $8.0 million in the 1998 first quarter, representing $0.27 per share in 1999 and $0.33 per share in 1998. The pro forma 1998 first quarter results also include a loss of $2.4 million, or $0.10 per share, from the discontinued operations of N2K Encoded Music.
The Company said that it has substantially completed its merger integration, and expects to realize 1999 cost savings in excess of $20 million, compared to the spending projections of the two separate companies prior to the merger.
Vertical E-Commerce Market Leader
With the completion of the merger, CDNOW has become the vertical category e-commerce leader. The Company's combined reach also makes it the third most-visited e-commerce site and first among single categories, according to data in the March Media Metrix report. The number of visitors to the CDNOW and Music Boulevard sites increased by 19% in the quarter, compared to the fourth quarter of 1998.
During the quarter, the Company added 420,000 new customers. At March 31, 1999, approximately 2 million unique customers have purchased from CDNOW and N2K's Music Boulevard since inception, more than triple the total of approximately 600,000 at March 31, 1998. Repeat customers accounted for a record 60% of the quarter's product revenues, up from 51% in the first quarter of 1998.
Jon Diamond, Chairman of the Board of CDNOW said: "During this quarter, we made an important transition, completing the biggest merger of equals in cyberspace history. We've moved quickly and efficiently to integrate our two companies behind the Internet's most recognizable music brand. CDNOW has clearly emerged as the vertical category e-commerce leader with 2 million paying customers connecting to music through CDNOW, as well as a major promotional vehicle for artists, music and related products. With a strong, cohesive management team in place and our new CDNOW store about to launch, we are totally focused on delivering the most innovative, robust and comprehensive online music experience available anywhere."
Jason Olim, President and Chief Executive Officer, said: "Both CDNOW and N2K have been pioneers in bringing the best in online music to consumers, and the new CDNOW will continue in this tradition. The launch of our next- generation music store will provide us with a powerful foundation to take the Internet music experience a quantum leap forward. We are poised to become the leading seller of digital music with the launch of our full-service digital transaction engine by this fall. And we will continue to add depth to our comprehensive package of music information, along with compelling features and services."
During the quarter, First USA, the world's largest Visa credit card issuer, became the exclusive credit card issuer on CDNOW. If the agreement runs through its full three-year term, CDNOW would generate in excess of $8 million in revenue. The Company also announced its intention to sell advertising in its expanded section of music information including news, reviews, feature stories and exclusive interviews to provide advertisers with highly targeted audiences.
"Your Music. Your Store."
Since March 17, the Company has operated two online music stores, CDNOW (cdnow.com) and Music Boulevard (musicblvd.com). Beginning with the February 24 GRAMMY Awards telecast, the Company launched a new TV advertising campaign - under the tagline "Your Music. Your Store." - that resulted in a 33% increase in overall CDNOW brand awareness.
The Company already has integrated the account histories of its two million customers and kept customers updated via e-mail about the progress of the new store's construction and status of their accounts.
On May 18, the Company plans to unveil its next-generation music store, with a single-brand platform combining the strongest features of the former Music Boulevard and CDNOW stores to provide the most robust and comprehensive online experience and to strengthen the connection between consumers and music.
The new CDNOW store will offer consumers the best in choice, convenience, control and customization while discovering and purchasing music in a personalized environment. Customers will have access to approximately 500,000 music-related products; 500,000 sound samples; daily news, reviews, features, guides to music genres, and exclusive interviews from CDNOW's award-winning staff; as well as additional music information from Rolling Stone, CMJ Music Monthly, and MTV/VH1.
Later this year, the Company plans to offer secured digital distribution of music to its customers through its involvement with the Recording Industry Association of America and its SDMI Initiative. Committed to continuing its pioneering leadership in music e-commerce, CDNOW will launch its innovative full-service digital transaction engine by the fall to make it the premier destination for selling digital music, including whole albums, singles and exclusive compilations.
About CDNOW, Inc.
CDNOW, Inc., the combination of N2K Inc. and CDNOW, Inc., is the vertical category e-commerce leader. CDNOW helps people to enrich their lives by providing a digital connection to music. CDNOW (cdnow.com) offers approximately 500,000 music related items - ten times the size of the typical megastore - intelligent album recommendations, custom CDs, music samples, a vast library of reviews and features from top music writers and editorial content from Rolling Stone, MTV/VH1 and CMJ New Music Monthly. CDNOW's network of strategic partners includes America Online, Yahoo!, Lycos/Tripod, Netscape, Excite, WebCrawler, MTV/VH1, RollingStone.com, and CBS Cable's TNN, CMT and country.com.
This release contains statements relating to future results of the Company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to, changes in political and economic conditions, demand for and market acceptance of new and existing products, as well as other risks and uncertainties detailed from time to time in the filings of the Company with the Securities and Exchange Commission.
CDNOW, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 December 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $61,977,165 $49,041,370
Accounts receivable 3,437,046 839,672
Prepaid expenses and
other 11,973,451 8,322,889
Total current assets 77,387,662 58,203,931
Property and
equipment, net 16,413,339 6,643,995
Goodwill and other
intangibles, net 93,981,806 --
Other assets 2,589,231 4,195,717
$190,372,038 $69,043,643
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of
long term debt $1,080,449 $822,043
Accounts payable 16,545,546 10,306,323
Accrued merger costs 7,630,017 --
Accrued expenses and
other current
liabilities 16,227,887 4,667,395
Total current
liabilities 41,483,899 15,795,761
Long term debt 1,845,058 1,750,892
Common stock subject
to put rights 2,999,995 --
Deferred rent
liabilities 674,181 358,053
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no
par value 204,116,720 102,137,536
Additional paid-in
capital 13,607,006 4,325,817
Deferred compensation (140,523) (216,913)
Accumulated deficit (74,214,298) (55,107,503)
Total stockholders'
equity 143,368,905 51,138,937
$190,372,038 $69,043,643
CDNOW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months
Ended March 31, Ended March 31,
(Pro forma)
1999 1998 1999 1998
Net sales $22,842,869 $10,013,889 $36,327,248 $16,341,852
Cost of sales 17,983,574 8,554,549 29,350,991 13,651,640
Gross profit 4,859,295 1,459,340 6,976,257 2,690,212
Operating expenses:
Operating and
development 3,726,182 1,081,049 8,972,067 5,432,710
Sales and
marketing 18,051,182 8,785,724 26,653,973 16,382,949
General and
administrative 1,371,356 850,285 2,298,090 1,962,197
Amortization of
goodwill and
other intangibles 1,337,626 -- 8,126,741 8,039,741
Total operating
expenses 24,486,346 10,717,058 46,050,871 31,817,597
Operating loss (19,627,051) (9,257,718) (39,074,614) (29,127,385)
Interest and
other income 628,122 506,039 946,616 1,029,624
Interest expense (104,620) (446,514) (113,264) (467,265)
Loss from continuing
operations (19,103,549) (9,198,193) (38,241,262) (28,565,026)
Loss from
discontinued
operations -- -- -- (2,377,174)
Net loss (19,103,549) (9,198,193) (38,241,262) (30,942,200)
Accretion of
preferred stock
to redemption
value -- (115,542) -- (115,542)
Net loss applicable
to common
shareholders $(19,103,549) $(9,313,735)$(38,241,262) $(31,057,742)
BASIC AND DILUTED
LOSS PER COMMON SHARE:
Loss from continuing
operations (before
amortization of
goodwill and other
intangibles) $(0.90) $(0.77) $(1.01) $(0.85)
Amortization of
goodwill and other
intangibles (0.06) -- (0.27) (0.33)
Loss from discontinued
operations -- -- -- (0.10)
Accretion of preferred
stock to redemption
value -- (0.01) -- --
Net loss per common
share $(0.96) $(0.78) $(1.28) $(1.28)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 19,826,161 12,015,090 29,958,869 24,174,339
SOURCE CDNOW, Inc.
/CONTACT: Investor Relations: Joel Sussman, VP/CFO of CDNOW, Inc.,
215-619-9597, jsussman@cdnow.com; or Michael Gross of Robinson Lerer &
Montgomery, 212-484-7721, mgross@rlmnet.com, for CDNOW, Inc.; or Media
Relations: Marlo Zoda, Mgr. PR of CDNOW, Inc., 215-619-9432, mzoda@cdnow.com;
or Lisa Wolford of Robinson Lerer & Montgomery, 212-484-7058,
lwolford@rlmnet.com, for CDNOW, Inc./ |
