MMUS Makemusic, Inc. (MM)

MakeMusic, Inc. (NASDAQ: MMUS) today announced financial results for the three months ended March 31, 2010. Net revenues for the first quarter ended March 31, 2010 were $4,000,000, a 4% increase compared to $3,842,000 in the prior year. The company also announced for the first quarter of 2010 a net loss of $117,000, or $0.02 per basic and diluted share, compared to a net loss of $145,000, or $0.03 per basic and diluted share, in the first quarter of 2009.

SmartMusic® subscriptions increased to 139,363 as of March 31, 2010, a 26% increase over the March 31, 2009 subscription count of 110,318. SmartMusic subscription and accessory revenue continues to represent an increasing share of the company's revenue and was $1,432,000 for the quarter ended March 31, 2010, a 17% increase over $1,225,000 for the quarter ended March 31, 2009. Total SmartMusic revenue represented 36% of the company’s total revenue in the first quarter of 2010 compared to 32% during the first quarter of 2009.

The following table illustrates the net new SmartMusic subscription data for the quarter ended March 31, 2010:

12/31/2009Subscriptions

 

NewSubscriptions

 

RenewedSubscriptions

 

RenewalRate

 

SubscriptionsEnded

 

3/31/2010Subscriptions

 

Net NewSubscriptions3 monthsended3/31/2010

133,782 11,590 15,330 72% 21,339 139,363 5,581

Renewed subscriptions are defined as those subscriptions that customers purchase within the two-month period after their prior subscription ended. Because of changes to the start of school from year to year as well as fluctuations in the date that music teachers implement their curriculum, subscribers may have a delay of up to two months in renewing their subscription.

Total SmartMusic educator accounts reached 9,368 as of March 31, 2010, a 3% increase over the 9,091 educator accounts in the prior year. The number of educators that had issued a SmartMusic assignment increased 25% from 1,874 as of March 31, 2009 to 2,340 as of March 31, 2010. The number of SmartMusic Gradebook™ teachers, defined as teachers who deliver and manage SmartMusic student assignments to 50 students or more, was 1,156 as of March 31, 2010 and the average number of student subscriptions per Gradebook teacher was 44. As of March 31, 2009 the company reported 829 Gradebook teachers and an average number of student subscriptions per teacher of 39. The Gradebook teacher growth reflects a 39% annual increase. The number of SmartMusic site licenses increased from 322 as of December 31, 2009 to 356 as of March 31, 2010. Finally, the company released 48 new SmartMusic large ensemble band, jazz ensemble and orchestra titles with pre-authored assignments in the first quarter of 2010.

Notation revenue decreased by $49,000 to $2,568,000 during the first quarter of 2010 compared to $2,617,000 for the same period last year. Notation revenue decreases during the quarter were due to reductions in our channel sales offset by stronger direct sales of our Finale® Academic products and downloads.

Gross profit in the quarter ended March 31, 2010 increased by $64,000 to $3,349,000 compared to gross profit of $3,285,000 for the quarter ended March 31, 2009. The increase in gross profit is a result of the increase in revenues, which was partially offset by higher software development amortization as a result of the expanding repertoire for SmartMusic.

Operating expenses for the first quarter were $3,559,000, a 3% increase over the $3,442,000 reported in the first quarter last year. These planned increases, primarily in sales and marketing, were the result of increased personnel costs to accelerate our strategic sales and marketing initiatives.

Total cash decreased by $867,000 during the first quarter of 2010, to $8,076,000 as of March 31, 2010. The decrease in cash for the first quarter is primarily due to the seasonal pattern of the company’s business and the net cash used in investing activities. During the first quarter, cash of $105,000 was used in investing activities relating to development activities, primarily to expand SmartMusic repertoire. By comparison, during the first quarter of 2009, $173,000 was used in such investing activities.

CEO Ron Raup commented on first quarter results, “We are pleased with our overall financial performance for the first quarter of 2010. Our notation product sales remain strong compared to the first quarter of last year. This is notable both given the slow recovery of the worldwide economy and the fact that an earlier release of Finale 2010 in June of 2009 places us further into our release cycle in comparison to the first quarter of 2009. SmartMusic metrics were as anticipated and show continued growth. We continue to expand our sales and marketing initiatives and have increased the size of our sales force. We have announced the SmartMusic subscription price increases effective July 2010 from $130 to $140 for an annual educator subscription and from $30 to $36 for an annual student subscription. With the combination of our focus on sales and marketing and the price increases, we anticipate steady SmartMusic revenue growth during 2010.”

The company will be hosting a conference call today, May 5, 2010 at 3:30 p.m. CST to discuss these results. Participants should call 877-840-1316 and reference Conference ID Number 69219363. A replay of the conference call will be available through May 14, 2010. To access this replay, please dial 800-642-1687 or 706-645-9291.

About MakeMusic, Inc.

MakeMusic®, Inc., a Minnesota corporation, is a world leader in music technology whose mission is to develop and market solutions that transform how music is composed, taught, learned and performed. For more than 20 years, Finale® has been the industry standard in music notation software. It has transformed the process by which composers, arrangers, musicians, teachers, students and publishers create, edit, audition, print and publish musical scores. Additionally, MakeMusic is the creator of SmartMusic®, the complete practice tool for band, orchestra and voice and the SmartMusic Gradebook™, the web-based student grading and records management system. Further information about the Company can be found at www.makemusic.com.

Cautionary Statements

Certain statements found in this release may constitute forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the speaker’s current views with respect to future events and financial performance and include any statement that does not directly relate to a current or historical fact. Our forward-looking statements in this release relate to our intent to continue to expand our sales and marketing initiatives, anticipated SmartMusic revenue growth, and planned subscription price increases for SmartMusic. Forward-looking statements cannot be guaranteed and actual results may vary materially due to the uncertainties and risks, known and unknown, associated with such statements. Examples of risks and uncertainties for MakeMusic include, but are not limited to, the impact of emerging and existing competitors, the effectiveness of our sales and marketing initiatives, our ability to hire and retain effective sales agents and successfully implement our marketing and sales strategies, errors in management estimates with respect to the seasonality of our business, fluctuations in general economic conditions including changes in discretionary spending, and those factors described from time to time in our reports to the Securities and Exchange Commission (including our Annual Report on Form 10-K). Investors should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or potentially inaccurate assumptions investors should take into account when making investment decisions. Shareholders and other readers should not place undue reliance on “forward-looking statements,” as such statements speak only as of the date of this release. We do not intend to update publicly or revise any forward-looking statements.

MakeMusic, Inc.

Statements of Operations

(In thousands of U.S. dollars, except share and per share data)

(Unaudited)

  3 Months Ended March 31, 2010   2009 Notation revenue $2,568 $2,617 SmartMusic revenue 1,432   1,225   NET REVENUE 4,000 3,842   COST OF REVENUES 651   557     GROSS PROFIT 3,349 3,285   OPERATING EXPENSES: Development expenses 1,322 1,279 Selling and marketing expenses 1,199 1,131 General and administrative expenses 1,038   1,032     Total operating expenses 3,559   3,442     LOSS FROM OPERATIONS (210 ) (157 )   Other, net 26   14   Net loss before income tax (184 ) (143 )   Income tax expense (benefit) (67 ) 2   Net loss ($117 ) ($145 )   Loss per common share: Basic and diluted ($0.02 ) ($0.03 )   Weighted average common shares outstanding: Basic and diluted 4,768,095 4,644,410  

MakeMusic, Inc.

Balance Sheets

(In thousands of U.S. dollars, except share data)

    March 31, December 31, Assets 2010 2009 (Unaudited)   Current assets: Cash and cash equivalents $8,076 $8,943 Accounts receivable (net of allowance of $38 and $33 in 2010 and 2009, respectively) 1,375 1,277 Inventories 287 386 Deferred income taxes, net 1,587 1,587 Prepaid expenses and other current assets 401   294   Total current assets 11,726 12,487   Property and equipment, net 512 533 Capitalized software products, net 2,583 2,645 Goodwill 3,630 3,630 Long term deferred income taxes, net 1,075 977 Other non-current assets 5   6   Total assets $19,531   $20,278     Liabilities and Shareholders’ Equity Current liabilities: Current portion of capital lease obligations $62 $61 Accounts payable 444 726 Accrued compensation 737 1,167 Other accrued liabilities 305 297 Post contract support 132 132 Reserve for product returns 534 414 Deferred revenue 2,724   2,913   Total current liabilities 4,938 5,710   Capital lease obligations, net of current portion 14 30 Other long term liabilities - 8   Shareholders’ equity: Common stock, $0.01 par value: Authorized shares – 10,000,000 Issued and outstanding shares – 4,815,324 and 4,756,891 in 2010 and 2009, respectively 48 48 Additional paid-in capital 66,146 65,980 Accumulated deficit (51,615 ) (51,498 ) Total shareholders’ equity 14,579   14,530   Total liabilities and shareholders’ equity $19,531   $20,278    

MakeMusic, Inc.

Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)

  3 Months Ended March 31, 2010   2009 Cash flows from operating activities Net loss ($117 ) ($145 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 256 237 Deferred income taxes, net (98 ) - Share based compensation 160 158 Net changes in assets and liabilities: Accounts receivable (98 ) (120 ) Inventories 99 39 Prepaid expenses and other current assets (107 ) (75 ) Accounts payable (282 ) 78 Accrued liabilities and product returns (310 ) (178 ) Deferred revenue (188 ) (161 ) Net cash used by operating activities (685 ) (167 )   Cash flows from investing activities Purchases of property and equipment (68 ) (126 ) Capitalized development and other intangibles (105 ) (173 ) Net cash used in investing activities (173 ) (299 )   Cash flows from financing activities Payments on capital leases (15 ) (15 ) Proceeds from exercise of options 6   -   Net cash used in financing activities (9 ) (15 )     Net decrease in cash and cash equivalents (867 ) (481 ) Cash and cash equivalents, beginning of period 8,943   6,592   Cash and cash equivalents, end of period $8,076   $6,111     Supplemental disclosure of cash flow information Interest paid $2 $3 Income taxes paid 97 2