LiveWire Mobile Announces Financial Results for the Quarter Ended September 30, 2009
First Profitable Quarter as Stand-Alone Entity
LITTLETON, Mass.–(BUSINESS WIRE)– LiveWire Mobile, Inc. (Pinksheets: LVWR), a leading provider of managed personalization services, today announced financial results for the third quarter ended September 30, 2009:
Total revenues for the third quarter of 2009 were $4.9 million, an increase of 37% compared to $3.6 million for the corresponding quarter in 2008, and an increase of 32% from $3.7 million for the second quarter of 2009. Third quarter of 2009 revenues include approximately $0.5 million of managed services revenue that the Company does not expect to recur in future quarters resulting from commercial changes related to a contract extension with one customer.
Gross profit for the third quarter of 2009 was $3.2 million, or 66%, an increase of more than five times compared to $0.6 million, or 16%, for the third quarter of 2008, and an increase as compared to $2.6 million, or 70%, for the second quarter of 2009. The improvement in gross profit year-over-year is primarily attributable to increases in managed services revenues, which have a higher gross profit than cap-ex product and service revenues, as well as cost reductions related to restructuring actions. The slight decrease in gross profit percentage from the second quarter of 2009 was primarily attributable to increased cap-ex product revenues in the third quarter of 2009. Gross profit can be impacted by the mix and proportion of cap-ex product and service revenues relative to total revenues.
Adjusted EBITDA from continuing operations (a non-GAAP financial measure) was $0.7 million, or $0.02 per basic and diluted share, for the third quarter of 2009 – turning the Company to profitability – compared to $(6.6) million, or $(0.14) per basic and diluted share in the third quarter of 2008, and an improvement compared to $(0.7) million, or $(0.01) per basic and diluted share, for the second quarter of 2009. A complete reconciliation between adjusted EBITDA and operating income (loss) on a GAAP basis is provided in the financial tables at the end of this press release.
Income from continuing operations for the third quarter of 2009 was $0.5 million, or $0.01 per basic and diluted share, compared to a loss from continuing operations of $(8.5) million, or $(0.19) per basic and diluted share for the third quarter of 2008, and compared to $(1.5) million, or $(0.03) per basic and diluted share, for the second quarter of 2009.
Net income for the third quarter of 2009 was $0.2 million, or $0.01 per basic and diluted share compared to a net loss of $(7.1) million, or $(0.16) per basic and diluted share, for the third quarter of 2008, and compared to a net loss of $(1.7) million, or $(0.04) per basic and diluted share for the second quarter of 2009.
Cash totaled $6.5 million on September 30, 2009, compared to $7.3 million on June 30, 2009 and $19.3 million on December 31, 2008. The decrease in cash was primarily due to cash used in operations during the first nine months of the year, including payments made under restructuring plans, our lease termination agreement entered into in December 2008 and for other exited facilities.
Business Perspective
Effective November 13, 2009, the Company will have completed its previously announced CEO transition and the appointment of Robert M. Pons as Chairman of the Board of Directors. Matthew Stecker, new CEO of LiveWire Mobile, said, “With the announcement of our first profitable quarter as a stand-alone entity, the Company has achieved a major milestone. The combination of our growing managed services business and our ongoing efforts to become a more cost-efficient company have delivered a profitable business. Our focus on running a profitable, operating cash flow positive enterprise will continue as we pursue the growing mobile personalization market. On behalf of the Company and its Board of Directors, I’d like to personally thank Joel Hughes for his contribution to this achievement.”
Use of Non-GAAP Financial Measures
In addition to reporting its financial results in accordance with generally accepted accounting principles, or GAAP, the Company has also provided in this release adjusted EBITDA from continuing operations which is a non-GAAP financial measure adjusted to exclude certain non-cash and other specified expenses. The Company believes the use of non-GAAP measures in addition to GAAP measures is an additional useful method of evaluating its results of operations. Management uses these non-GAAP financial measures when evaluating the Company’s financial results, as well as for internal planning and forecasting purposes. Specifically, the Company has excluded stock-based compensation, amortization of intangible assets, depreciation, restructuring charges, interest income and expense, other income/expense, goodwill impairment and adjustments, and taxes from its non-GAAP financial measures. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the expected results calculated in accordance with GAAP and reconciliations to those expected results should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses. Reconciliations between the non-GAAP financial measures on a GAAP basis and a non-GAAP basis are provided herein, as applicable.
About LiveWire Mobile, Inc.
LiveWire Mobile (Pinksheets:LVWR) is a leading provider of managed personalization services. LiveWire Mobile’s integrated suite of mobile personalization services includes ringback tones, ringtones, full track downloads, and other applications, as well as, dedicated content and service marketing, integrated storefront management and marketing. LiveWire Mobile makes mobile personalization services easier to use and helps operators drive service usage and adoption. For more information, please visit www.livewiremobile.com.
LiveWire Mobile is a trademark of LiveWire Mobile, Inc.
Statements other than historical facts included or referred to in this Press Release are “forward-looking statements”, including forward-looking statements about our growing managed services business, ongoing efforts to become more cost efficient and focus on running a profitable, operating cash flow positive enterprise as we pursue the growing mobile personalization market, the timing and extent of our fourth quarter 2009 restructuring and our expected management changes. These statements are based on management’s expectations as of the date of this document and are subject to uncertainties and changes in circumstances. Actual results may differ materially from these expectations due to risks and uncertainties including, but not limited to, actual expenses of our restructuring plans, delays in completion of our restructuring plans, uncertainties with respect to our ability to achieve and maintain operating expense reductions and cost efficiencies, adjusted EBITDA profitability, profitability and positive cash flow, the impact of restructuring and other charges and one-time items on our business and operations, the implementation and market acceptance of our strategy to focus on managed services in North America, uncertainties with respect to our ability to grow our managed services business and pursue the mobile personalization market, fluctuations and declines in our cap-ex business, the size of our target market, our ability to expand our relationships with existing customers and attract new customers, customer concentration (including with Sprint Nextel Corporation and Ericsson AB), our ability to timely launch our products and services to customers, our ability to execute on our development initiatives, our ability to effectively manage cash (including the release of the entire cash balance in escrow in connection with the sale of the Communications Platforms business to Dialogic Corporation), revenue fluctuations, uncertainties regarding the impact of management changes and other risks. We encourage you to read our Annual Report for the year ended December 31, 2008 for certain additional risk factors. In addition, while management may elect to update forward-looking statements at some point in the future, management specifically disclaims any obligation to do so, even if its estimates change. Any reference to our website in this press release is not intended to incorporate the contents thereof into this press release or any other public announcement.
Accounts receivable, net of allowance for doubtful accounts of $60 and $96, respectively
Preferred stock, $0.05 par value, 3,000,000 shares authorized at September 30, 2009 and December 31, 2008, respectively, no shares issued and outstanding
Common stock, $0.01 par value, 125,000,000 shares authorized at September 30, 2009 and December 31, 2008, respectively; 52,991,435 shares issued and 46,010,243 shares outstanding at September 30, 2009 and 52,991,435 shares issued and 45,941,700 shares outstanding at December 31, 2008
Treasury stock, at cost, 6,981,192 shares at September 30, 2009 and 7,049,735 shares at December 31, 2008
Income (loss) from discontinued operations (net of income tax provision)
Loss on disposal of discontinued operations (net of income tax provision)
Income (loss) from continuing operations per common share – basic
Income (loss) from continuing operations per common share – diluted
2009
Proceeds from issuance of common stock
–
250
NOTES:
1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 2009, the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2009 and 2008, and the condensed consolidated statements of cash flows for the nine month periods ended September 30, 2009 and 2008 include the unaudited accounts of LiveWire Mobile, Inc. and its wholly owned subsidiaries (collectively, the “Company”). The financial information included herein is unaudited. The condensed consolidated balance sheet at December 31, 2008 has been derived from, but does not include all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2008.
In the opinion of management, all adjustments which are necessary to present fairly the financial position, results of operations and cash flows for all interim periods presented have been made. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates various estimates including those related to the allowance for doubtful accounts and sales returns, write-down of excess and obsolete inventories to the lower of cost or market value, income taxes, restructuring and other related charges, and accounting for acquisitions and dispositions. Management establishes these estimates based on historical experience and various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The operating results for the three and nine month periods ended September 30, 2009 and 2008 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period.
The Company encourages you to read these financial statements in conjunction with its Annual Report for the year ended December 31, 2008.
2) GOODWILL AND INTANGIBLE ASSETS
The Company recorded goodwill and intangible assets as a result of the acquisitions of Groove Mobile, Inc. in March 2008 and Openera Technologies, Inc. in February 2006. On December 31, 2008, the Company recorded an impairment charge for intangible assets and goodwill, which reduced the carrying values of the goodwill and intangible assets to zero. During the three months ended June 30, 2009, the Company received $111,000 in cash previously held in escrow from the Groove Mobile acquisition to settle certain outstanding claims by the Company. The $111,000 is recorded as a reduction to operating expenses in the nine months ended September 30, 2009.
3) RESTRUCTURING AND OTHER RELATED CHARGES AND ACCRUALS
In the second quarter of 2009, the Company announced a restructuring plan which consisted primarily of costs associated with a workforce reduction principally at its operations in India, with additional reductions in headcount in Littleton, Massachusetts, Canada and the U.K., and other associated costs. The majority of these workforce reductions were completed by the end of the second quarter of 2009, with the remainder expected to be completed by the end of the year. Net restructuring expense for the nine months ended September 30, 2009 includes approximately $1.4 million of restructuring charges related to the restructuring plan announced in May 2009, partially offset by approximately $0.5 million related to changes in estimates associated with previously exited facilities.
In the fourth quarter of 2008, the Company committed to several cost reduction plans focused on streamlining its operations and eliminating certain fixed costs. The Company eliminated 27 employee positions, primarily in its LiveWire Mobile business, to better position it to improve operating margins in response to adverse market conditions experienced by the Company in 2008. In association with the sale of its NMS Communications Platforms business to Dialogic Corporation and in an effort to improve operating margins by eliminating business roles and functions which were not necessary for the go-forward business, the Company eliminated 20 employee positions. During the three months ended March 31, 2009, the Company recorded $0.5 million of additional restructuring charges related to previously eliminated positions, as some of these employees continued to provide service during the first quarter of 2009.
In the second quarter of 2008, the Company recorded a restructuring charge of $1.0 million. Of this amount, $0.4 million related to exited office space located at its former headquarters at 100 Crossing Boulevard in Framingham, Massachusetts. The Company consolidated its use of office space subsequent to the LiveWire Mobile business’s relocation of its operations to Littleton, Massachusetts in May 2008. The Company also recorded a facility-related restructuring charge of $0.1 million related to consolidation of its French office. In connection with the facility exit activities, the Company wrote down $0.5 million of fixed assets associated with the exited space, primarily consisting of leasehold improvements.
In the first quarter of 2008, in order to reduce operating costs, the Company eliminated nine employee positions in anticipation of synergies associated with the acquisition of Groove Mobile, which resulted in restructuring charges of $0.4 million, consisted entirely of employee severance-related costs. In connection with the acquisition of Groove Mobile, the Company created an exit plan to vacate the Groove Mobile corporate headquarters and relocate employees to the LiveWire Mobile corporate headquarters. The Company recorded a facility exit cost of $0.3 million, which represents the estimated remaining net facility-related costs during the lease term.
4) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive loss includes the following for the stated periods:
)
)
Other comprehensive income (loss) items: Change in marketable securities available for sale
–
–
–
50
Foreign currency translation adjustment
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)
The Company maintains intercompany receivable and payable balances existing between the Company’s worldwide subsidiaries. During the quarter ended June 30, 2009, the Company determined that it is unlikely that settlement of these intercompany balances will occur in the foreseeable future. In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standard No. 52, Foreign Currency Translation, these gains or losses for the quarter ended June 30, 2009 and September 30, 2009 were excluded from the determination of net income and have been reported as a component of accumulated other comprehensive income.
5) INCOME TAXES
The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.
On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48″). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109″). FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken in or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. The Company has established a valuation allowance against net deferred tax assets in certain jurisdictions including the United States, because the Company believes that it is more likely than not that the tax assets in those jurisdictions will not be realized prior to their expiration. During the three months ended June 30, 2009, the Company established a full valuation allowance of approximately $135,000 against net deferred tax assets relating to its Indian subsidiary. During the second quarter of 2009, and as part of the restructuring plan described above, operations in India were terminated.
6) DISCONTINUED OPERATIONS
On December 5, 2008, the Company sold its NMS Communications Platforms business and certain assets and liabilities of the NMS Communications Platforms business to Dialogic Corporation. In accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the operating results of the NMS Communication Platforms business have been reclassified as discontinued operations in the unaudited condensed consolidated statements of operations.
7) SUBSEQUENT EVENTS
a) Real Estate Settlement Agreements
On October 8, 2009, the Company entered into two real estate settlement agreements: (i) an Agreement to assign its rights and obligations under an existing lease agreement that ran through May 2012 for 45,000 square feet of excess office space (and related sublease agreements) to a third party; and (ii) an amendment to its Lease Termination and Termination Payment Agreement dated December 2008 for a separate facility, providing for the settlement of any further termination payment obligations under that agreement (collectively the “Agreements”).
The terms of the Agreements resulted in (i) the acceleration and payment of $850,000 (under the terms of the original Lease Termination and Termination Payment Agreement $773,000 was due on or before January 1, 2010 and approximately $23,000 was due monthly by October, 2009, November, 2009, and December 2009), (ii) forfeiture by the Company of a $500,000 building security deposit, and (iii) an additional net cash payment of approximately $39,000 related to the assignment of certain sub-tenant obligations.
The impact of the Agreements will result in a net benefit to the Company’s Statement of Operations in the quarter ending December 31, 2009 in the range of $1.0 – $1.2 million, as approximately $2.5 million in accrued restructuring and related liabilities recorded on the Company’s Balance Sheet as of September 30, 2009 will be eliminated. In addition, future obligations and payments related to this excess office space and the Lease Termination and Termination Payment Agreement will be eliminated.
b) Restructuring
In the fourth quarter of 2009, the Company committed to a cost reduction plan focused on streamlining its operations and eliminating certain fixed costs. The Company eliminated approximately 20 employee positions related to the continued simplification of its ongoing business operations and standardization around its managed services business model. The Company expects the headcount reductions to be completed prior to December 31, 2009. The Company estimates a restructuring charge in the range of $0.4 – $0.6 million in the quarter ending December 31, 2009 related to this plan.
c) Board of Directors and Management Changes
– On November 5, 2009, the Company announced the appointment of Matthew Stecker to succeed Joel A. Hughes as President and Chief Executive Officer on or before November 30, 2009. Mr. Stecker’s hiring was effective on November 10, 2009.
– On November 5, 2009, the Company announced the appointment of Robert M. Pons as Chairman of the Board of Directors upon the resignation of Joel A. Hughes. Mr. Pons appointment as Chairman of the Board of Directors is effective on November 13, 2009.
– On November 5, 2009, the Company announced the impending resignation of Joel A. Hughes as President, Chief Executive Officer and Chairman of the Board of Directors. Mr. Hughes resignation of these positions are effective on November 13, 2009.
– On November 5, 2009, the Company announced the resignation of Pamela D. A. Reeve as Director.
– On October 26, 2009, the Company announced the resignation of W. Frank King as Director.