Pandora Reports Record 2Q12 Financial Results

-- Record quarterly revenue of $67 million grew 117% year over year

-- Record total listener hours of 1.8 billion grew 125% year over year, resulting in a record share of total U.S. radio listening of 3.6%

-- Mobile advertising revenue increases to approximately half of total advertising revenue

-- Company initiates Q312 and full fiscal 2012 guidance highlighted by continued rapid revenue growth

Aug 25, 2011, 16:03 ET from Pandora

OAKLAND, Calif., Aug. 25, 2011 /PRNewswire/ -- Pandora (NYSE: P), the leading internet music service, today announced financial results for the second quarter of fiscal 2012.  

(Logo:   http://photos.prnewswire.com/prnh/20110615/SF20192LOGO)

"Pandora is personalizing radio — and consumers are enthusiastically embracing the dramatically better experience," said Joe Kennedy, President & CEO of Pandora.  "At the same time, advertisers continue their adoption of Pandora's multi-platform ad solutions, resulting in our 6th consecutive quarter of year-over-year triple digit revenue growth. In addition to continued high growth in web revenue, Pandora's mobile advertising revenue for the first time comprised approximately half of total advertising revenue as we lead the way in the nascent but fast growing mobile advertising market.  Pandora continues to grow our market share of U.S. radio as we fundamentally transform one of the last forms of traditional media."

Fiscal 2Q12 Financial Results

Total Revenue: For the second quarter fiscal 2012, total revenue was $67 million, a 117% year over year increase.  Advertising revenue was $58.3 million, a 118% year over year increase.  Subscription and other revenue was $8.7 million, a 112% year over year increase.  

Net Income (Loss) per Share: For the second quarter fiscal 2012, on a GAAP basis, the net loss per common share, basic and diluted, was $(0.04).  For the basis of our GAAP net loss per common share calculation, there were approximately 82.4 million weighted average common shares outstanding during the quarter.  These calculations assume minimal tax expense due to our net operating loss position.

The non-GAAP net income per fully diluted common share was $0.02, which excludes approximately $2.1 million in stock-based compensation and $3.0 million of other non-cash expense related to the fair value of our previously outstanding convertible preferred stock warrants.   For the basis of our non-GAAP net income per common share calculation, there were approximately 187.8 million weighted average fully diluted shares outstanding during the quarter.  These calculations assume minimal tax expense due to our net operating loss position.

Cash: For the second quarter fiscal 2012, Pandora generated approximately $0.6 million in cash from operating activities, compared to the $3 million used in the year-ago quarter.  The company ended the second quarter of fiscal 2012 with $95.3 million in cash and equivalents, compared with $43.7 million at the end of the prior quarter.  The increase in cash was primarily related to proceeds generated from the company's initial public offering during the second quarter.

Other Business Metrics

Total listener hours: Total listener hours were approximately 1.8 billion for the second quarter fiscal 2012, an increase of 125% compared to approximately 0.8 billion for the second quarter fiscal 2011.  Estimated share of total U.S. radio listening at the end of the second fiscal quarter was 3.6%, up from 1.8% a year prior.

Guidance

Based on information available as of August 25, 2011, Pandora is initiating financial guidance for the third quarter fiscal 2012 and full year fiscal 2012 as follows:  

Q3 Fiscal 2012 Guidance: Revenue is expected to be in the range of $69.5 million to $72.5 million, representing year-over-year growth of between 84% and 92%.  Non-GAAP earnings per common share is expected to be approximately negative $0.02 to breakeven.  Non-GAAP earnings per common share excludes stock-based compensation expense, assumes minimal tax expense given our net operating loss position, and 159 million weighted average common shares outstanding for the third quarter fiscal 2012.

Full Year Fiscal 2012 Guidance: Revenue is expected to be in the range of $270 million to $275 million, representing year-over-year growth of between 96% and 100%.  Non-GAAP net loss per common share is expected to be between negative $0.07 and negative $0.05.  Non-GAAP net loss per common share excludes stock-based compensation expense, excludes $4.5 million of other expense related to the fair value of our previously outstanding convertible preferred stock warrants, assumes minimal tax expense given our net operating loss position, and 104 million weighted average common shares outstanding for fiscal 2012.

Q2 FY12 Financial Results Conference Call: Pandora will host a conference call today at 2 p.m. PT/ 5 p.m. ET to discuss the second quarter fiscal 2012 financial results with the investment community.  A live webcast of the event will be available on the Pandora Investor Relations website at http://investor.pandora.com.  A live domestic dial-in is available at (877) 355-0067 or (443) 853-1239 internationally. A domestic replay will be available at (855) 859-2056 or (404) 537-3406 internationally, using passcode 86875317, and available via webcast until September 8, 2011.

About Pandora

Pandora gives people music they love anytime, anywhere, through connected devices. (OK, we've added comedy as well so we're also up for playing some jokes you'll love.) Personalized stations launch instantly with the input of a single "seed" - a favorite artist, song or genre. The Music Genome Project®, a deeply detailed hand-built musical taxonomy, powers the personalization of Pandora® internet radio by using musicological "DNA" and constant listener feedback to craft personalized stations from a growing collection of hundreds of thousands of recordings. Tens of millions of people in the U.S. turn on Pandora to hear music they love. www.pandora.com

"Safe harbor" Statement:

This press release contains forward-looking statements within the Private Securities Litigation Reform Act of 1995, including statements regarding expected GAAP revenue, non-GAAP EPS and market demand. These forward-looking statements are based on Pandora's current assumptions, expectations and beliefs and involve substantial risks and uncertainties that may cause results, performance or achievement to materially differ from those expressed or implied by these forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to: our operation in an emerging market and our relatively new and evolving business model; our ability to increase our listener base and listener hours; our ability to attract and retain advertisers; our ability to generate additional revenue on a cost-effective basis; competitive factors; our ability to continue operating under existing laws and licensing regimes; our ability to establish and maintain relationships with makers of mobile devices, consumer electronic products and automobiles; our ability to manage our growth; our ability to continue to innovate and keep pace with changes in technology and our competitors; risks related to service interruptions or security breaches; and general economic conditions worldwide.

Further information on these factors and other risks that may affect our business is included in filings we make with the Securities and Exchange Commission from time to time, including our Registration Statement on Form S-1, particularly under the heading "Risk Factors." 

These documents are or will be available online from the SEC or on the SEC Filings section of the Investor Relations section of our website at investor.pandora.com. Information on our website is not part of this release.  All forward-looking statements in this press release are based on information currently available to us, and we assume no obligation to update these forward-looking statements in light of new information or future events.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we use the following non-GAAP measures of financial performance: non-GAAP net income (loss) and non-GAAP historical diluted earnings (loss) per share. The presentation of this additional financial information is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.  These non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP.  In addition, these non-GAAP financial measures may be different from the non-GAAP financial measures used by other companies. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.  Management compensates for these limitations by reconciling these non-GAAP financial measures to the most comparable GAAP financial measures within our earnings press releases.

These non-GAAP financial measures differ from GAAP in that they exclude stock-based compensation, which consists of expenses for stock options and other awards under our equity incentive plans.  The non-GAAP net income (loss) and non-GAAP historical diluted earnings (loss) per share measures also exclude the applicable change in fair value of certain warrants issued by us.  The change in fair value of certain warrants issued by us is included within Other expense, and stock-based compensation is included in the following cost and expense line items of our GAAP presentation:

  • Cost of revenue
  • Product development
  • Marketing and sales
  • General and administrative

Although stock-based compensation is an expense for us and is viewed as a form of compensation, management excludes stock-based compensation from our non-GAAP measures for purposes of evaluating our continuing operating performance primarily because it is a non-cash expense not believed by management to be reflective of our core business, ongoing operating results or future outlook.  Furthermore, determining the fair value of both stock-based compensation and stock-derived warrants involves a high degree of estimation and judgment such that the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based instruments.  In addition, the value of stock-based instruments is determined using formulas that incorporate variables, such as market volatility, that are beyond our control.  We believe these non-GAAP financial measures serve as useful metrics for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods and to those of peer companies, and, when taken together with the corresponding GAAP financial measures and our reconciliations, enhance investors' overall understanding of our current financial performance.  

In the financial tables below, we provide a reconciliation of the most comparable GAAP financial measure to the historical non-GAAP financial measures used in this earnings release.

Pandora Media Inc.

Condensed Consolidated  Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three months ended

Six months ended

July 31,

July 31,

2010

2011

2010

2011

Revenue:

    Advertising

$ 26,723

$ 58,258

$ 45,169

$ 101,919

    Subscription services and other

4,112

8,708

7,265

16,087

Total revenue

30,835

66,966

52,434

118,006

Costs and expenses:

    Cost of revenue (1)

2,503

5,460

4,893

9,820

    Product development (1)

1,562

3,426

3,061

6,157

    Marketing and sales  (1)

6,736

14,502

12,169

27,466

    General and administrative  (1)

2,880

8,410

5,351

15,353

    Content acquisition

14,670

33,723

27,286

62,881

Total costs and expenses

28,351

65,521

52,760

121,677

Income (loss) from operations

2,484

1,445

(326)

(3,671)

Other income (expense):

    Interest income

15

1

17

3

    Interest expense

(117)

(261)

(217)

(370)

    Other expense, net

(750)

(2,976)

(846)

(4,485)

Income (loss) before provision for income taxes

1,632

(1,791)

(1,372)

(8,523)

Provision for income taxes

-

21

-

43

Net income (loss)

$   1,632

$ (1,812)

$ (1,372)

$   (8,566)

    Accretion of redeemable convertible preferred stock

(75)

(40)

(156)

(110)

    Increase in cumulative dividends payable upon conversion                                                                       or liquidation of redeemable convertible preferred stock

(1,946)

(1,328)

(3,829)

(3,648)

Net loss attributable to common stockholders

$    (389)

$ (3,180)

$ (5,357)

$ (12,324)

Basic and diluted net loss per share attributable to common stockholders

$   (0.04)

$   (0.04)

$   (0.57)

$     (0.25)

Weighted-average number of shares used in computing per share amounts

10,894

82,389

9,396

49,204

(1) Amounts include stock-based compensation expenses as follows:

Three months ended

Six months ended

July 31,

July 31,

2010

2011

2010

2011

Cost of revenue

$          5

$      148

$        11

$        212

Product development

43

413

83

590

Marketing and Sales

82

1,079

158

1,502

General and administrative

106

488

176

760

$      236

$   2,128

$      428

$     3,064

Pandora Media Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

As of January 31,

As of July 31,

2011

2011

Assets

Current assets:

Cash and cash equivalents

$                43,048

$         95,307

Accounts receivable, net of allowance of $503, $670 at January 31 and July 31, 2011, respectively

42,212

51,435

Prepaid expenses and other current assets

3,516

4,171

Total current assets

88,776

150,913

Property and equipment, net

8,683

12,339

Other assets

1,750

1,997

Total assets

$                99,209

$       165,249

Liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

Current liabilities:

Accounts payable

1,965

2,089

Accrued liabilities

5,532

5,045

Accrued royalties

18,080

24,514

Deferred revenue

15,910

19,203

Accrued compensation

3,815

7,635

Current portion of long-term debt

6,759

-

Total current liabilities

52,061

58,486

Long-term debt

837

-

Preferred stock warrant liability

1,027

-

Other long-term liabilities

1,632

2,337

Total liabilities

55,557

60,823

Redeemable convertible preferred stock, $0.0001 par value: 134,051,713 shares authorized as of January 31, 2011; 133,534,334 shares issued and outstanding as of January 31, 2011; aggregate liquidation preference of $147,891 as of January 31, 2011.

126,662

-

Stockholders' equity (deficit):

Preferred stock, $0.0001 par value; zero and 10,000,000 shares authorized as of January 31 and July 31, 2011, respectively; no shares issued and outstanding as of January 31 and July 31, 2011

Common stock, $0.0001 par value: 220,000,000 and 1,000,000,000 shares authorized as of January 31, 2011 and July 31, 2011, respectively;  14,510,655 and 161,104,355 shares issued and outstanding as of January 31 and July 31, 2011, respectively

1

16

Additional paid-in capital

2,308

198,295

Accumulated deficit

(85,319)

(93,885)

Total stockholders' equity (deficit)

(83,010)

104,426

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

$                99,209

$       165,249

Pandora Media Inc.

Condensed Consolidated Statements of Cash Flows  

(In thousands)

(Unaudited)

Six months ended

July 31,

2010

2011

Operating Activities

Net loss

$ (1,372)

$   (8,566)

Adjustments to reconcile net loss to net cash provided by  operating activities:

Depreciation and amortization

597

1,715

Loss on disposition of fixed assets

(15)

-

Stock-based compensation

428

3,064

Issuance of common stock in exchange for non-employee services

157

-

Remeasurement of preferred stock warrants

869

4,499

Amortization of debt discount

2

1

Amortization of debt issuance cost

-

57

Changes in assets and liabilities:

Accounts receivable

(5,978)

(9,223)

Prepaid expenses and other assets

(118)

(960)

Accounts payable and accrued liabilities

966

(1,138)

Accrued royalties

971

6,434

Accrued compensation

1,463

3,820

Deferred revenue

4,089

3,293

Reimbursement of cost of leasehold improvements 

-

375

Net cash provided by operating activities

2,059

3,371

Investing Activities

Purchases of property and equipment

(2,003)

(5,371)

Proceeds from sale of property and equipment

26

-

Net cash used in investing activities

(1,977)

(5,371)

Financing activities

Borrowings under debt arrangements

3,443

-

Repayments of debt

(82)

(7,596)

Proceeds from issuance of preferred stock warrants

-

165

Proceeds from early exercise of stock options

126

-

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

22,206

-

Proceeds from initial public offering net of offering costs

-

91,666

Proceeds from issuance of common stock

337

654

Payment of dividends to preferred stockholders at initial public offering

-

(30,630)

Proceeds from buyers in investor offer

7,908

-

Payments to sellers in investor offer

(7,908)

-

Net cash provided by financing activities

26,030

54,259

Net increase in cash and cash equivalents

26,112

52,259

Cash and cash equivalents at beginning of period

16,164

43,048

Cash and cash equivalents at end of period

$ 42,276

$  95,307

Pandora Media Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

July 31,

July 31,

2010

2011

2010

2011

Net income (loss) and net income (loss) per share reconciliations:

GAAP net income (loss)

$   1,632

$ (1,812) 

$ (1,372) 

$   (8,566) 

(a) Stock-based compensation

236

2,128

428

3,064

(b) Change in the fair value of the warrant

760

2,976

869

4,499

Non-GAAP net income (loss)

$   2,628

$   3,292

$      (75) 

$   (1,003) 

Non-GAAP net income (loss) per common share - basic

$     0.02

$     0.02

$   (0.00) 

$     (0.01) 

*Non GAAP shares used in computing net income (loss) per common share - basic

146,348

157,140

145,635

154,831

Non-GAAP net income per common share - diluted

$     0.02

$     0.02

N/A

N/A

*Non-GAAP shares used in computing net income per common share - diluted

170,685

187,840

N/A

N/A

Costs and expenses reconciliation:

GAAP costs and expenses

$ 28,351

$ 65,521

$ 52,760

$ 121,677

(a) Stock-based compensation

(236) 

(2,128) 

(428) 

(3,064) 

Non-GAAP costs and expenses

$ 28,115

$ 63,393

$ 52,332

$ 118,613

Income (loss) from operations reconciliation:

GAAP income (loss) from operations

$   2,484

$   1,445

$    (326) 

$   (3,671) 

(c) Stock-based compensation in cost of revenue

5

148

11

212

(d) Stock-based compensation in product development

43

413

83

590

(e) Stock-based compensation in marketing and sales

82

1,079

158

1,502

(f) Stock-based compensation in general and administrative

106

488

176

760

Non-GAAP  income (loss) from operations

$   2,720

$   3,573

$      102

$      (607) 

 *Non-GAAP basic and diluted common shares have been computed to give effect to the conversion of the convertible preferred stock and warrants into common stock as though the conversion had occurred at the beginning of the period.  

SOURCE Pandora



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