PeerStream, Inc. Reports Second Quarter 2019 Results

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