PeerStream, Inc. Reports Second Quarter 2019 Results

Net Income Increased by $2.3 Million to $0.4 Million; Adjusted EBITDA Reaches $1.0 Million

NEW YORK, Aug. 08, 2019 (NewMediaWire) — PeerStream, Inc. (“PeerStream,” the “Company,” “we,” “our” or “us”) (OTCQB: PEER), a communications software innovator developing enhanced security and privacy solutions for multimedia communication and data transmission, today announced financial and operational results for the second quarter of 2019 ended June 30, 2019.

Second Quarter 2019 Financial Highlights:

  • Total revenue was $4.9 million in the current period compared to $5.8 million in the second quarter ended June 30, 2018, a 16% decline, which was primarily due to lower subscription revenue and less revenue recognized under the technology services agreement with ProximaX;
  • Technology services revenue of approximately $1.7 million was recognized in the current period, which represents the full recognition of contractual prepayments due under the ProximaX agreement;
  • Net income was approximately $0.4 million for the second quarter ended June 30, 2019, a $2.3 million improvement as compared to a net loss of approximately $1.9 million for the second quarter ended June 30, 2018, which was primarily due to a 14% reduction in expenses; and
  • Adjusted EBITDA, a non-GAAP measure, was approximately $1.0 million for the second quarter ended June 30, 2019, as compared to Adjusted EBITDA of approximately $1.3 million for the second quarter ended June 30, 2018.

Six Months Ended June 30, 2019 Financial Highlights:

  • Total revenue of $9.7 million in the current year-to-date period was essentially flat as compared to $9.9 million revenue for the six months ended June 30, 2018;
  • Net income was approximately $1.1 million for the six months ended June 30, 2019, a $3.8 million improvement as compared to a net loss of approximately $2.7 million for the six months ended June 30, 2018, which was primarily due to the elimination of losses from discontinued operations; and
  • Adjusted EBITDA, a non-GAAP measure, was approximately $1.5 million for the six months ended June 30, 2019, a 2.2% increase as compared to Adjusted EBITDA of approximately $1.5 million for the six months ended June 30, 2018.

Financial Overview (in thousands, except for active subscriber counts)

Current quarter compared to same quarter last year:

    Three Months Ended
    June 30,
GAAP Results (unaudited)     2019       2018     Change
  Subscription revenue   $   3,050     $  3,476     -12.3 %
  Advertising revenue      111        257     -56.8 %
  Technology service revenue     1,712       2,092     -18.2 %
Total revenues   $   4,873     $  5,825     -16.3 %
             
Income (loss) from continuing operations   $   284     $   (1,294 )   NA  
Income (Loss) from discontinued operations   $ 159      $   (571 )   NA  
Net income (loss)   $   443     $   (1,865 )   NA  
Net cash (used in) provided by operating activities $   (587 )   $   4,305     -113.6
             
Financial Metrics (unaudited)            
Active subscribers (at period end)      106,100        112,100     -5.4 %
Subscription bookings   $   3,038     $   3,567     -14.8 %
Adjusted EBITDA (a non-GAAP measure)   $   1,020     $   1,311     -22.2 %
             

Current year-to-date compared to same period last year:

    Six Months Ended
    June 30,
GAAP Results (unaudited)     2019       2018     Change
  Subscription revenue   $   6,054     $   7,314     -17.2 %
  Advertising revenue      231        490     -52.8 %
  Technology service revenue     3,461       2,092     65.4 %
Total revenues   $   9,746     $   9,896     -1.5 %
             
Income (loss) from continuing operations   $   368     $   (1,743 )   NA  
Income (loss) from discontinued operations   $   722     $   (931 )   NA  
Net income (loss)   $   1,090     $  (2,674 )   NA  
Net cash (used in) provided by operating activities $   (3,374 )   $   3,762     -189.7 %
             
Financial Metrics (unaudited)            
Active subscribers (at period end)      106,100        112,100     -5.4 %
Subscription bookings   $   6,063     $   7,358     -17.6 %
Adjusted EBITDA (a non-GAAP measure)   $  1,520     $   1,486     2.2 %

Second Quarter 2019 Business Highlights:

During the three months ended June 30, 2019, we executed key components of our objectives: 

  • continued progress in development of PeerStream Protocol (“PSP”) and Backchannel, our two software solutions for secure communications, adapting the software to broaden its commercial applicability;
  • developed a significant sales pipeline for our secure communications software licensing business, focusing on government and enterprise customer prospects;
  • implemented a significant cost savings initiative that reduced second quarter expenses year-over-year by 14%, with greater cost savings anticipated in the future; and 
  • entered into a relationship with YouNow, Inc. (“YouNow”) as a launch partner in the Props Developer Network, which is expected to enable PeerStream to distribute YouNow’s Props tokens to our app end users for anticipated loyalty and retention benefits.

Alex Harrington, Chief Executive Officer and principal financial officer, commented, “During the second quarter, we made significant strides in our secure communications software initiative, while also maintaining financial discipline with cost reductions to offset our research and development expense. As we work to enhance PSP and Backchannel to broaden their commercial applicability beyond the initial ProximaX use cases, we have also been very active in cultivating partnerships, such as Telefonica and Rivetz, and building an extensive pipeline of customer prospects.  Our pipeline has an increasing emphasis on government and military prospects, as customer needs and product-market fit come into sharper focus.”

“Privacy and cybersecurity concerns remain important issues in the headlines and the marketplace, and we’re excited about the opportunities for growth that we see ahead.  As the ProximaX deal has concluded, we believe that the present software licensing customer pipeline has the long run potential to replace ProximaX revenue and exceed it, but during the ramp-up period, we anticipate that we will likely experience a significant decline in technology services revenue in the latter half of 2019.”

2019 Business Objectives:

For the near term, our business objectives include:

  • advancing development of PSP and Backchannel for commercial readiness, tailoring our secure communications offerings to targeted government and enterprise client use cases;
  • continuing to ramp up go-to-market activities for secure communications software licensing with the goal of building adoption and revenue;
  • implementing several enhancements to our live video chat applications, including the integration of Props token rewards and other features focused on new user acquisition, retention and monetization, which collectively are intended to increase usage and revenue opportunities;
  • enhancing our live video streaming content and increasing its exposure within our suite of applications;
  • continuing to take steps towards listing our common stock on a national securities exchange; and
  • continuing to defend our intellectual property.

Jason Katz, Chairman, President and Chief Operating Officer, said, “In our consumer applications business, we’re excited to be a launch partner with YouNow, which recently qualified the first consumer token offering under Reg A+. We are currently integrating YouNow’s Props tokens as a loyalty system for users of Paltalk and Camfrog, two of the largest live video social communities, with Camfrog expected to launch the feature during the third quarter of 2019. We’ll be among the first apps to integrate the Props token user reward system, and by doing so, we hope to turn our content creators into stakeholders and partners in the success of the network. The integration of Props tokens is just one example of the enhancements we’re adding to our live video chat applications, which are focused around new user acquisition, retention and monetization in order to increase usage and revenue opportunities.”

Liquidity and Capital Resources

  • Cash and cash equivalents totaled $4.6 million at June 30, 2019;
  • PeerStream remains debt free, with $647 thousand of operating lease obligations; and
  • Management believes the Company continues to have sufficient working capital to fund operations, R&D and organic growth initiatives.

Mr. Harrington added, “During the second quarter, PeerStream posted solid revenue performance and profitability, with net income of approximately $0.4 million and Adjusted EBITDA of approximately $1.0 million, which benefited from the $1.6 million technology service revenue recognized from upfront payments under the ProximaX agreement.  Because all of the contractual ProximaX prepayments have now been fully recognized as revenue, the Company expects that technology services revenue will likely decline during the remainder of 2019. However, since substantially all 2019 revenue from ProximaX was recognized from 2018 prepayments, the discontinuation of ProximaX revenue recognition will not cause a corresponding decline in cash flow in the second half of 2019. While the business will continue to benefit from the bedrock financial contributions of its leading video chat properties, we are striving to convert our software licensing customer pipeline into paying clients, which we believe represents a potential growth engine for the Company.” 

“We also continue to channel resources to reignite growth of our popular consumer apps, Camfrog and Paltalk, while maintaining strong cost discipline. The YouNow Props reward tokens are a key feature of these efforts, which we expect have the potential to drive greater retention and revenue.  With our continued dual focus on growth and expense management, we believe that our opportunities for future growth and profitability are strong.”

Quarterly Results Conference Call

PeerStream Management will host a conference call and live webcast to discuss the financial results today, August 8, 2019, at 4:30pm Eastern Time. To access the call, please dial 1-888-204-4368 (domestic) or 1-323-794-2577 (international).  The conference call will also be webcast live on the Investor Relations section of the PeerStream website: https://investors.peerstream.com/events-and-presentations.

A replay of the webcast will be archived on the Investors section of the PeerStream website beginning shortly after the call. A telephone replay of the call will also be available following the call until August 14, 2019, and may be accessed via telephone by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international), and entering pass code: 7468343.

About PeerStream, Inc. (OTCQB: PEER)

PeerStream is a communications software innovator developing enhanced security and privacy solutions for multimedia communication and data transmission. Our offerings target consumer, government and enterprise clients. Using multi-layered encryption, blockchain technology and other recent innovations, we are developing our proprietary PeerStream Protocol (“PSP”) to offer clients maximal data security and confidentiality.  Our Backchannel product suite is a companion to PSP, including cross-platform applications, middleware and software development kits designed for highly secure end-user communications. For 20 years, we have built and continue to operate innovative consumer applications, including Paltalk and Camfrog, two of the largest live video social communities. The Company has a long history of technology innovation and holds 26 patents.

For more information, please visit: http://www.peerstream.com.To be added to our news distribution list, please visit: http://www.peerstream.com/investor-alerts/.

Forward-Looking Statements

This press release contains “forward-looking statements.” Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential,” or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties related to our increasing focus on the use of new and novel technologies, such as blockchain and Props tokens, to enhance our applications, and our ability to timely complete development of applications using new technologies; our ability to effectively integrate Props tokens into our existing applications; our ability to effectively secure new software development and licensing customers; legal and regulatory requirements related to the use of blockchain, including us investing in cryptocurrencies and accepting cryptocurrencies as a method of payment for our services; the use of the internet and privacy and protection of user data; risks related to our holdings of digital tokens, including risks related to the volatility of the trading price of digital tokens and our ability to convert digital tokens into fiat currency; and our ability to manage our partnerships and strategic alliances. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at www.sec.gov.

All forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement was made, except to the extent required by applicable securities laws.

Contacts:
[email protected]
Kirin Smith / Stephanie Prince
PCG Advisory Group
[email protected]
646-863-6519

  

PEERSTREAM, INC
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(unaudited)

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2019     2018   2019   2018  
Reconciliation of Net income (loss) to Adjusted EBITDA:                    
Net income (loss)   $ 443,384     $ (1,865,015 ) $ 1,089,999   $ (2,673,670 )
Interest income, net     (24,837 )     (16,772 )   (54,794 )   (19,710 )
Net loss from discontinued operations           570,806     104,880     930,629  
Gain on sale of dating applications               (826,770 )    
Income tax (benefit) from discontinued operations     (158,990                
Income tax expense from continuing operations     163,490       15,500     4,500     15,500  
Depreciation and amortization expense     152,903       243,919     305,600     481,681  
Impairment loss on digital tokens           1,959,404         1,959,404  
Stock-based compensation expense     443,661       403,385     896,186     792,599  
Adjusted EBITDA   $ 1,019,611     $ 1,311,227   $ 1,519,601   $ 1,486,433  

Non-GAAP Financial Measures and Key Metrics

The Company has provided in this release certain non-GAAP financial measures, including Adjusted EBITDA, and other key metrics, including active subscribers and subscription bookings, to supplement the consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company defines Adjusted EBITDA as net income (loss) adjusted to exclude net loss from discontinued operations, interest income, net, gain on the sale of dating applications, income tax expense from discontinued operations, income tax expense (benefit) from continuing operations, depreciation and amortization expense, impairment loss on digital tokens and stock-based compensation expense. Active subscribers means users of the Company’s consumer applications that have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked application features such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and whose subscription period has not yet expired. The Company calculates subscription bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period.

Management uses these financial metrics internally in analyzing the Company’s financial results to assess operational performance and to determine the Company’s future capital requirements. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. The Company believes that both management and investors benefit from referring to these financial metrics in assessing our performance and when planning, forecasting and analyzing future periods. The Company believes these financial metrics are useful to investors and others to understand and evaluate the Company’s operating results and it allows for a more meaningful comparison between the Company’s performance and that of competitors. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures;
  • Adjusted EBITDA does not reflect our working capital requirements;
  • Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation;
  • Adjusted EBITDA does not reflect the impairment loss on digital tokens;
  • Adjusted EBITDA does not reflect the gain on the sale of our dating applications or our loss or income tax expense from discontinued operations; and
  • Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider these financial metrics along with other financial performance measures, including total revenues, subscription revenue, deferred revenue, net income (loss), cash and cash equivalents, restricted cash, net cash used in operating activities and our financial results presented in accordance with GAAP.

PEERSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

    June 30,
2019
    December 31,
2018
 
    (unaudited)        
             
Assets            
Current assets:            
Cash and cash equivalents   $ 4,641,988     $ 6,555,376  
Credit card holdback receivable     29,860       94,498  
Accounts receivable, net of allowances and reserves of $34,546 as of June 30, 2019 and December 31, 2018     135,582       326,786  
Prepaid expense and other current assets     413,150       269,668  
Current assets held for sale           19,053  
Total current assets     5,220,580       7,265,381  
Operating lease right-of-use assets     780,640       232,423  
Property and equipment, net     595,972       577,911  
Goodwill     13,086,472       13,086,472  
Intangible assets, net     756,058       884,223  
Digital tokens     776,792       832,892  
Other assets     151,226       116,767  
Noncurrent assets held for sale           1,436,499  
Total assets   $ 21,367,740     $ 24,432,568  
                 
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 1,525,589     $ 2,842,947  
Accrued expenses and other current liabilities     365,712       737,945  
Current portion of operating lease liabilities     133,849       114,789  
Deferred subscription revenue     1,477,367       1,468,571  
Deferred technology service revenue           3,379,435  
Other liabilities     43,910        
Current liabilities held for sale           617,410  
Total current liabilities     3,546,427       9,161,097  
Operating lease liabilities, non-current portion     646,791       117,634  
Total liabilities     4,193,218       9,278,731  
Commitments and Contingencies                
                 
Stockholders’ equity:                
Common stock, $0.001 par value, 25,000,000 shares authorized; and 6,874,679 shares and 6,868,679 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively     6,875       6,869  
Additional paid-in capital     20,797,939       19,867,259  
Accumulated deficit     (3,630,292 )     (4,720,291 )
Total stockholders’ equity     17,174,522       15,153,837  
Total liabilities and stockholders’ equity   $ 21,367,740     $ 24,432,568  

   
 PEERSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2019     2018     2019     2018  
Revenues:                        
Subscription revenue   $ 3,049,900     $ 3,476,473     $ 6,054,255     $ 7,313,878  
Advertising revenue     110,869       256,652       231,359       489,651  
Technology service revenue     1,712,105       2,092,032       3,460,435       2,092,032  
Total revenues     4,872,874       5,825,157       9,746,049       9,895,561  
Costs and expenses:                                
Cost of revenue     892,470       1,002,654       1,844,689       1,731,685  
Sales and marketing expense     230,996       433,128       608,147       799,107  
Product development expense     1,711,974       1,508,078       3,483,539       3,209,949  
General and administrative expense     1,614,387       2,217,374       3,491,859       3,942,667  
Total costs and expenses     4,449,827       5,161,234       9,428,234       9,683,408  
Income from continuing operations     423,047       663,923       317,815       212,153  
Interest income, net     24,837       16,772       54,794       19,710  
Change in fair value of digital tokens           (1,959,404 )           (1,959,404 )
Income (loss) from continuing operations before provision for income taxes     447,884       (1,278,709 )     372,609       (1,727,541 )
Benefit (expense) for income taxes     (163,490 )     (15,500 )     (4,500 )     (15,500 )
Net income (loss) from continuing operations     284,394       (1,294,209 )     368,109       (1,743,041 )
Discontinued Operations:                                
Gain on sale from discontinued operations                 826,770        
Loss from discontinued operations           (570,806 )     (104,880 )     (930,629 )
 Income tax benefit on discontinued operations     158,990                    
Net income (loss) from discontinued operations     158,990       (570,806 )     721,890       (930,629 )
Net income (loss)   $ 443,384     $ (1,865,015 )   $ 1,089,999     $ (2,673,670 )
                                 
Basic net income (loss) per share of common stock:                                
Continuing operations   $ 0.04     $ (0.19 )   $ 0.05     $ (0.25 )
Discontinued operations     0.02       (0.08 )     0.11       (0.14 )
Basic net income (loss) per share of common stock   $ 0.06     $ (0.27 )   $ 0.16     $ (0.39 )
 Diluted net income (loss) per share of common stock:                                
Continuing operations   $ 0.04     $ (0.19 )   $ 0.05     $ (0.25 )
Discontinued operations     0.02       (0.08 )     0.11       (0.14 )
Diluted net income (loss) per share of common stock   $ 0.06     $ (0.27 )   $ 0.16     $ (0.39 )
Weighted average number of shares of common stock used in calculating net income (loss) per share of common stock:                                
Basic     6,874,679       6,882,316       6,874,314       6,882,316  
Diluted     6,886,900       6,882,316       6,875,195       6,882,316  

 PEERSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


    Six Months Ended
June 30,
 
    2019     2018  
Cash flows from operating activities:            
Net income (loss)   $ 1,089,999     $ (2,673,670 )
Less: Income (loss) from discontinued operations     721,890       (930,629 )
Income (loss) from continuing operations   $ 368,109     $ (1,743,041 )
Adjustments to reconcile net income (loss) from continuing operations to net cash (used in) provided by operating activities of continuing operations:                
Depreciation of property and equipment     177,435       206,138  
Amortization of intangible assets     128,165       842,376  
Stock-based compensation expense     896,186       792,600  
Common stock issued for consulting services     34,500       1  
Bad debt expense           8,552  
Digital tokens received as payment for services           (3,368,127 )
Impairment loss on digital tokens           1,959,404  
Changes in operating assets and liabilities:                
Credit card holdback receivable     64,638       29,123  
Accounts receivable     191,204       249,856  
Prepaid expenses and other current assets     (143,482 )     (204,916 )
Other assets     (34,459 )     34,094  
Accounts payable, accrued expenses and other current liabilities     (1,689,591 )     (225,812 )
Other liabilities     43,910        
Deferred subscription revenue     8,796       (164,027 )
Deferred technology service revenue     (3,379,435 )     6,276,095  
Net cash (used in) provided by continuing operating activities     (3,334,024 )     4,692,316  
Net cash used in discontinued operating activities     (39,967 )     (930,629 )
Net cash (used in) provided by operating activities     (3,373,991 )     3,761,687  
Cash flows from investing activities:                
Purchases of property and equipment     (195,497 )     (159,900 )
Proceeds from the sale of digital tokens     56,100        
Net cash used in continuing investing activities     (139,397 )     (159,900 )
Net cash provided by discontinued investing activities     1,600,000        
Net cash provided by (used in) investing activities     1,460,603       (159,900 )
Cash flows from financing activities:                
Net cash provided by (used in) continuing financing activities            
Net cash provided by (used in) discontinued financing activities            
Net cash provided by (used in) financing activities            
Net increase (decrease) in cash and cash equivalents     (1,913,388 )     3,601,787  
Balance of cash and cash equivalents at beginning of period     6,555,376       4,137,050  
Balance of cash and cash equivalents at end of period   $ 4,641,988     $ 7,738,837  
Supplemental disclosure of cash flow information                
Operating lease right-of-use asset and liability   $ 642,159     $  
Expense of operating lease right-of-use-asset and liability   $ 93,942          
Cash paid in interest   $     $  
Cash paid in income taxes   $     $ 81,661
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