PeerStream, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2018; filed May 9, 2018. The filing identifies the registrant as PeerStream, Inc., formerly Snap Interactive, Inc. The provided metadata names Intelligent Protection Management Corp.; that name does not match the filing.
Business Context
PeerStream develops and operates live video, audio, messaging, dating and telecommunications applications, including Paltalk, Camfrog, FirstMet and Vumber. Effective March 12, 2018, the Company changed its name to PeerStream and its OTCQB trading symbol from STVI to PEER.
During the quarter, the Company launched PeerStream Business Solutions, began developing the blockchain-based PeerStream Protocol and entered into a technology services agreement with ProximaX. Management also expected to launch the blockchain-based Backchannel secure messaging application in the fourth quarter of 2018.
Financial Performance and Position
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $5.748 million | $6.719 million | Down 14.5% |
| Subscription revenue | $5.427 million | $6.224 million | Down 12.8% |
| Advertising revenue | $0.321 million | $0.495 million | Down 35.1% |
| Loss from operations | $(0.812) million | $(1.076) million | Improved $0.264 million |
| Net loss | $(0.809) million | $(1.039) million | Improved $0.230 million |
| Net loss per share | $(0.12) | $(0.15) | Improved |
| Adjusted EBITDA | $0.105 million | $(0.214) million | Improved $0.319 million |
| Adjusted EBITDA margin | 1.8% | (3.2)% | Improved |
| Operating cash flow | $(0.543) million | $0.943 million | Declined $1.486 million |
Revenue declined primarily because of lower active subscribers and reduced FirstMet and Paltalk revenue. Advertising revenue also fell because of lower active users, a transition to a new digital advertising agency and industry-wide fraud-control and pricing pressures.
Total costs and expenses decreased 15.8% to $6.560 million. Sales and marketing declined 37.7% to $1.390 million, while cost of revenue declined 21.1% to $1.012 million. Product development expense was $2.149 million and general and administrative expense was $2.009 million.
At March 31, 2018, cash and cash equivalents were $3.514 million, down from $4.137 million at December 31, 2017. Total current assets were $4.300 million compared with current liabilities of $4.615 million. Deferred subscription revenue was $2.406 million. The filing reports no outstanding debt or off-balance-sheet arrangements.
Total assets were $21.626 million, including $13.086 million of goodwill and $3.499 million of net intangible assets. Stockholders’ equity was $17.011 million. Stock-based compensation expense was $0.389 million, and amortization expense was $0.421 million.
Material Changes Versus Prior Comparable Period
- Revenue decreased $0.971 million, driven by declines in subscription and advertising revenue.
- Operating loss and net loss improved due primarily to lower sales and marketing spending and lower overall operating costs.
- Adjusted EBITDA turned positive, but operating cash flow turned negative, reflecting lower subscription receipts and payment of remaining legal fees related to the canceled LiveXLive merger agreement.
- Cash decreased $0.623 million during the quarter, compared with an $0.861 million increase in Q1 2017.
- The Company adopted ASC 606 using the modified retrospective method and reported no cumulative-effect adjustment to opening retained earnings.
- The Company launched its business-solutions unit and entered the ProximaX technology-services agreement.
Outlook, Risks and Unusual Items
Management stated that existing cash and expected operating cash flow should fund financial obligations for the twelve months from the filing date, but acknowledged that additional capital may be needed for operations and growth initiatives. Potential funding sources include equity, debt, third-party funding, collaborations and strategic alliances.
The ProximaX agreement provided for up to $10.0 million of cash, including a $5.0 million payment upon a qualifying initial coin offering and up to $5.0 million tied to development milestones, plus token consideration. ProximaX completed its offering on April 30, 2018, exceeding the $30.0 million threshold, and paid the $5.0 million fee on May 6, 2018. This payment occurred after quarter-end and was not reflected in the March 31 financial statements.
Key risks include declining subscribers and user engagement, intense competition, reliance on Apple, Facebook and Google platforms, dependence on payment processors and credit-card approvals, cybersecurity and privacy risks, cryptocurrency and blockchain regulation, execution risk for PSP and Backchannel, access to additional capital, intellectual-property litigation and potential dating-service regulation.
Paltalk Holdings continued patent litigation against Riot Games and Valve Corporation. Riot filed inter partes review petitions challenging the patents’ validity; no ruling had been issued. The Company recorded no legal reserve as of March 31, 2018.
No formal financial revenue or earnings guidance was provided. Management’s stated objectives included completing PSP, developing the business-solutions pipeline, launching Backchannel, expanding Camfrog Live and Paltalk live-streaming capabilities, pursuing partnerships and seeking a national exchange listing.
Investor Verification Items
- Verify the registrant identity because the filing is for PeerStream, Inc., while the request metadata names Intelligent Protection Management Corp.
- Confirm receipt, accounting treatment and continued collection of the $5.0 million ProximaX payment received after quarter-end.
- Assess whether subscriber declines in FirstMet and Paltalk have stabilized and whether advertising revenue can recover.
- Reconcile positive Adjusted EBITDA with negative operating cash flow and monitor cash consumption.
- Evaluate execution, funding and regulatory risks associated with PSP, Backchannel, cryptocurrency and blockchain initiatives.
- Monitor the Riot Games and Valve patent proceedings and any potential impact on assets, costs or liquidity.
- Consider dilution from 1,049,701 outstanding stock options and 158,571 unvested restricted shares.