VitalStream Holdings, Inc. (Nasdaq:VSTH): -- Posts record revenue
of $6.2 million, up 57% year-over-year and 12% over the first
quarter -- Raises 2006 revenue guidance to $25 million - $27
million -- Projects positive net income for the fourth quarter of
2006 VitalStream Holdings, Inc. (Nasdaq:VSTH), a world leader in
audio and video streaming, today reported results for the second
quarter of fiscal 2006. The Company's GAAP results of operations
for 2006 include the impact of expensing stock options resulting
from the adoption of Statement of Financial Accounting Standards
No. 123R. Management Commentary "VitalStream's ability to deliver
unique solutions that meet the unprecedented growth in the demand
for delivery of audio and video content has resulted in record
revenue during what is traditionally a slower growth quarter for
online businesses. Our confidence in our business and outlook,
especially as it relates to the online advertising opportunities
now available to us as a result of the integration of the ad
insertion and reporting technology we acquired from Eonstreams,
enables us to raise our 2006 guidance. Not only do we expect demand
for our content delivery solutions among content owners and
enterprise customers to continue to accelerate, but we have begun
to capitalize on the synergies inherent in providing both streaming
and ad-insertion and delivery capabilities over the Internet," said
Jack Waterman, VitalStream's Chairman and CEO. Second Quarter
Financial Results Revenues for the quarter ended June 30, 2006 were
$6.2 million, an increase of approximately 57 percent over revenues
of $4.0 million in the second quarter of 2005. Net loss for the
quarter ended June 30, 2006 was ($1,403,000), or ($0.06) per share,
which includes $313,000, or $0.01 per share, of non-cash
share-based compensation charges. This compares to a net loss in
the same period last year of ($528,000), or ($0.03) per share.
Gross margins for the second quarter of 2006 were 50%. Adjusted
EBITDA loss for the quarter ended June 30, 2006 was ($168,000),
which includes approximately $300,000 in non-recurring charges
related to the Company's acquisition of Eonstreams on May 20, 2006
and to its application for the Nasdaq Capital Market listing that
occurred during the quarter. It also includes approximately
$100,000 in higher than expected costs related to Sarbanes-Oxley
compliance. (See "Use of Non-GAAP Financial Measures" below for
definition of Adjusted EBITDA). "While the short-term factors
detailed above impacted our second quarter bottom-line results,
these investments are critical to the growth of VitalStream as we
seek to capitalize on the opportunities in front of us. We are
supporting extremely strong demand for VitalStream's streaming
solutions by enterprise customers in the U.S. and are setting the
stage for international growth moving forward," continued Mr.
Waterman. Customer Wins and Online Advertising Update VitalStream's
customer base includes many of the largest and fastest growing
streamers of audio and video content, including Disney and
Myspace.com. Notable new customers added during the second quarter
of 2006 include Greyhound, the United Nations, Microsoft Prodigy,
Buy.com, QuePasa, Home Depot and Gillette. In a strategic
initiative designed to expand VitalStream's market opportunity
beyond the storage and streaming of rich media content, the Company
acquired the business of privately-held Eonstreams on May 20, 2006.
Since the close of the transaction, the former Eonstreams business
has been re-branded VitalStream Advertising Services, and the
technical integration of online advertising insertion technology
has been largely completed. "We are very encouraged by the activity
levels and sales pipeline for our services, which has increased
significantly since the acquisition. The addition of these new
solutions is already providing us an entry point to up-sell new
solutions to VitalStream's current client base, while
simultaneously expanding our market opportunity beyond content
owners to leading brands that have an online presence but have not
yet fully monetized their brand equity online," said Steve Newman,
former CEO of Eonstreams and now executive vice-president of
VitalStream Advertising Services. Financial Outlook VitalStream
today raised its full-year 2006 revenue guidance to $25 million to
$27 million from $23 million to $25 million and continues to expect
gross margins to expand beyond second quarter levels in the third
and fourth quarters of 2006. The Company expects to achieve
positive net income in the fourth quarter of 2006. "We believe that
the combination of our streaming solutions plus our new online
advertising capabilities will result in robust growth in the second
half of 2006 leading to record revenue for the year. We expect that
the combination of margin expansion and the absence of
non-recurring costs we had in the second quarter will permit us to
achieve positive net income during the fourth quarter of 2006, a
first for VitalStream. This outlook reflects management's focus on
building shareholder value by capturing top-line growth while
positioning the company for long-term profitability," concluded Mr.
Waterman. Conference Call Analysts and investors are invited to
participate in VitalStream's conference call to receive more
information on its financial results and business developments. The
VitalStream second quarter teleconference and webcast is scheduled
to begin at 3:00 p.m. Pacific Time on Thursday, July 27, 2006. To
participate on the live call, analysts and investors should dial
800-366-7417 at least ten minutes prior to the call. VitalStream
will also offer a live webcast of the conference call, accessible
from the "Investor Relations" section of the company's Web site
(http://www.vitalstream.com/investor/). Use of Non-GAAP Financial
Measures VitalStream defines Adjusted EBITDA as net income (loss)
before interest, income taxes, depreciation, amortization,
non-recurring asset sales, and stock-based compensation. Adjusted
EBITDA attempts to eliminate significant non-cash items and items
that are not part of the Company's core operations. Adjusted EBITDA
is not a measure used in financial statements reported in
accordance with generally accepted accounting principles, does not
represent funds available for discretionary use and is not intended
to represent cash flow from operations as measured under generally
accepted accounting principles. Adjusted EBITDA should not be
considered as an alternative to net loss or net cash used in
operating activities. VitalStream's calculation of Adjusted EBITDA
may not be comparable to the computation of similarly titled
measures of other companies. A tabular reconciliation of Adjusted
EBITDA to net income is set forth on the last page of this press
release. VitalStream's management uses Adjusted EBITDA as a measure
of its operating performance. In addition, VitalStream believes
that Adjusted EBITDA may be useful to existing and potential
creditors of VitalStream, and to analysts and investors that follow
VitalStream's performance, because it is one measure of the income
generated that is available to service any outstanding debt. About
VitalStream, Inc. VitalStream, Inc., a wholly owned subsidiary of
VitalStream Holdings, Inc. (Nasdaq:VSTH), is a global provider of
integrated content delivery services that enable businesses to
broadcast digital media and communications to worldwide audiences
via the Internet. The company provides complete solutions,
including video and audio streaming, live event broadcasting, media
asset management, integrated Web hosting and consulting services,
that seamlessly integrate with today's leading streaming media
technologies. To ensure a worldwide reach, VitalStream engineered
its award-winning content delivery network certified for quality
delivery in the United States, Europe and Asia. For more
information, visit www.vitalstream.com. Forward-Looking Statements
This news release contains forward-looking statements made in
reliance upon the safe harbor provision of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Actual results may differ materially from those
indicated by these statements. Forward-looking statements may
include statements addressing future financial and operational
results of the company. The following factors, among others, could
cause actual results to differ materially from those described in
any forward-looking statements: the risk that the company's revenue
may decrease on a quarter over quarter basis because of a slower
than projected growth in the demand for digital broadcast and
streaming services; the risks that our existing customers may cease
to use or reduce our services and/or may not use our services at
the projected rate; uncertainties regarding the future demand for
our products and services generally despite our recent
infrastructure investments, expansion into other markets and
product enhancements; the risk that the trend toward increasing
broadband penetration may not continue; our inability to compete or
the competitive advantage of companies that compete or may compete
in our markets; the possibility that our new product offerings
developed independently or based upon or incorporating our
partners' proprietary technology may not predictably be accepted by
our customers, perform as anticipated or be available longer-term
due to arrangements that may be terminable under certain
circumstances; we may be unable to keep up with evolving industry
standards and changing user needs; the risk that acquired
businesses or assets may be difficult to integrate or may not have
the benefits anticipated; the risk that we may experience technical
or security problems that injure our business or increase our
operating costs; and/or uncertainties regarding our ability to
pursue our proposed business strategy. More detailed information
about these factors and others are discussed in "Risk Factors," and
elsewhere in the most recently filed Annual Report on Form 10-K of
VitalStream Holdings, Inc., and other documents periodically filed
by VitalStream Holdings, Inc. with the SEC. Such forward-looking
statements speak only as of the date of this release. The company
is under no obligation and expressly disclaims any obligation to
update or revise any forward-looking statements whether as a result
of new information, future events or otherwise. VitalStream is a
registered trademark of VitalStream, Inc.. All other names and
marks are property of their respective holders. -0- *T VITALSTREAM
HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE
30, 2006 AND 2005 (Unaudited) ASSETS June 30, December 31, 2006
2005 (Unaudited) (Audited) ------------- ------------- Current
assets: Cash $ 20,073,113 $ 4,118,308 Accounts receivable, net of
allowance for doubtful accounts/credits of $373,824 and $454,182 at
June 30, 2006 and December 31, 2005, respectively 3,296,892
3,123,006 Prepaid expenses 672,369 628,576 Other current assets
347,031 238,274 ------------- ------------- Total current assets
24,389,405 8,108,164 ------------- ------------- Fixed assets, net
10,850,965 7,802,278 ------------- ------------- Restricted cash
200,926 200,626 Goodwill 19,404,284 3,577,678 Other intangibles,
net 1,224,722 167,500 Other assets 89,891 172,915 -------------
------------- TOTAL ASSETS $ 56,160,193 $ 20,029,161 =============
============= LIABILITIES & SHAREHOLDERS' EQUITY Current
liabilities: Accounts payable $ 1,427,800 $ 1,842,440 Accrued
compensation 639,742 487,604 Current portion of capital lease
obligations 2,043,033 642,136 Current portion of line of credit
obligations 3,991,621 2,991,621 Accrued expenses 1,384,038 807,719
------------- ------------- Total current liabilities 9,486,234
6,771,520 ------------- ------------- Capital lease obligations
1,301,773 208,767 Line of credit obligations 1,247,905 743,716
Deferred rent 82,141 86,549 ------------- ------------- 2,631,819
1,039,032 ------------- ------------- Shareholders' equity Common
stock, par value $0.001; authorized shares, 290,000,000; issued and
outstanding shares, 22,990,575 and 17,580,083 at June 30, 2006 and
December 31, 2005, respectively, 86,328 70,321 Additional paid-in
capital 58,792,743 24,810,514 Accumulated deficit (14,836,931)
(12,662,226) ------------- ------------- Total shareholders' equity
44,042,140 12,218,609 ------------- ------------- TOTAL LIABILITIES
& SHAREHOLDERS' EQUITY $ 56,160,193 $ 20,029,161 =============
============= VITALSTREAM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH AND SIX
MONTH PERIODS ENDED JUNE 30, 2006 AND 2005 (Unaudited) Three Months
Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005
------------ ------------ ------------ ------------ Revenue $
6,205,982 $ 3,957,312 $11,767,811 $ 7,355,200 Cost of revenue
3,092,682 1,763,385 5,843,567 3,417,328 ------------ ------------
------------ ------------ Gross Profit 3,113,300 2,193,927
5,924,244 3,937,872 Research & development 447,288 217,886
871,147 372,657 Sales & marketing 2,093,062 1,325,614 3,677,590
2,357,533 General & administrative 2,063,137 1,112,051
3,585,333 2,000,651 ------------ ------------ ------------
------------ Operating Loss (1,490,187) (461,624) (2,209,826)
(792,969) Other income (expense): Interest income (expense), net
89,542 (56,700) 41,395 (117,446) Income tax expense - - (1,715)
(800) Other income (expense) (2,500) (9,874) (4,559) 186,624
------------ ------------ ------------ ------------ Net other
income (expense) 87,042 (66,574) 35,121 68,378 ------------
------------ ------------ ------------ Net Loss $(1,403,145) $
(528,198) $(2,174,705) $ (724,591) ============ ============
============ ============ Basic and diluted net loss per common
share $ (0.06) $ (0.03) $ (0.10) $ (0.05) ============ ============
============ ============ Shares used in computing basic and
diluted net loss per common share 21,926,141 15,883,375 20,894,439
15,489,776 ============ ============ ============ ============
VITALSTREAM HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED EBITDA AND
ADJUSTED EBITDA FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED
JUNE 30, 2006 AND 2005 Three Months Ended Six Months Ended June 30,
June 30, 2006 2005 2006 2005 ------------ ---------- ------------
---------- Net Income (Loss) $(1,403,145) $(528,198) $(2,174,705)
$(724,591) Depreciation and amortization 1,012,048 521,453
1,908,935 942,780 Interest (income) expense, net (89,542) 56,700
(41,395) 117,445 Income tax expense - - 1,715 800 ------------
---------- ------------ ---------- EBITDA $ (480,639) $ 49,955 $
(305,450) $ 336,434 ------------ ---------- ------------ ----------
Gain on sale of customer accounts - - - (200,000) Stock-based
compensation 312,505 - 566,871 - ------------ ----------
------------ ---------- Adjusted EBITDA $ (168,134) $ 49,955 $
261,421 $ 136,434 ============ ========== ============ ==========
*T
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