Pandora Reports Record 2Q14 Financial Results

Pandora Reports Record 2Q14 Financial Results

-- Non-GAAP total mobile revenue up 92% year-over-year to $116.0 million

-- Pandora closes record revenue quarter, with non-GAAP revenue of $162.0 million, growing 58% year-over-year

-- 2Q14 total listener hours of 3.88 billion, growing 18% year-over-year

-- Share of total U.S. radio listening for Pandora in July 2013 was 7.08%, an increase from 6.02% at the same time last year

-- Active users reach 71.2 million, growing 30% year-over-year

OAKLAND, Calif., Aug. 22, 2013 /PRNewswire/ -- Pandora (NYSE: P), the leading Internet radio service, today announced financial results for the second quarter of fiscal 2014 ended on July 31, 2013.

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

"Our second fiscal quarter was an important inflection point in Pandora's history. Strong momentum in our mobile business, with non-GAAP total mobile revenue growing 92% year-over-year to $116 million, clearly demonstrates the leverage in Pandora's business model," said Joe Kennedy, Chairman and CEO of Pandora. "To drive future growth, we are accelerating investment in new technologies, channels and capabilities that maximize the value Pandora delivers."

Fiscal 2Q14 Financial Results

Total Revenue: For the second quarter of fiscal 2014, GAAP total revenue was $157.4 million, a 55% year-over-year increase. Non-GAAP total revenue[1] was $162.0 million, a 58% year-over-year increase, including $4.7 million in revenue relating to our subscription return reserve. Advertising revenue was $128.5 million, a 44% year-over-year increase. Non-GAAP subscription and other revenue was $33.5 million, a 153% year-over-year increase, including $4.7 million in revenue relating to our subscription return reserve.

EPS: For the second quarter of fiscal 2014, GAAP basic and diluted EPS were ($0.04), based on 175.3 million weighted average shares outstanding. Non-GAAP basic and diluted EPS were $0.04, including $4.7 million in revenue relating to our subscription return reserve, and excluding $10.5 million in expense from stock-based compensation. Non-GAAP basic and diluted EPS were based on 175.3 and 196.7 million weighted average shares outstanding.

Cash: For the second quarter of fiscal 2014, the company ended with $68.9 million in cash, cash equivalents and short-term investments, compared with $75.4 million at the end of the prior quarter. For the second quarter of fiscal 2014, Pandora's cash used in operating activities was $2.3 million, compared to $2.8 million in cash provided by operating activities in the year-ago quarter.

Other Business Metrics

Total listener hours: Total listener hours grew 18% to 3.88 billion for the second quarter of fiscal 2014, compared to 3.30 billion for the second quarter of fiscal 2013.

Guidance

Based on information available as of August 22, 2013, the company is providing financial guidance for the third quarter and full fiscal year of 2014 as follows:

3Q14 Guidance: Non-GAAP revenue is expected to be in the range of $174 million to $179 million. Non-GAAP diluted EPS is expected to be between $0.03 and $0.06. Non-GAAP diluted EPS includes revenue relating to our subscription return reserve, excludes stock-based compensation expense, assumes minimal tax expense given our net operating loss position, and is based on 198 million diluted weighted average shares outstanding for the third quarter of fiscal 2014.

Fiscal 2014 Guidance: Non-GAAP revenue is expected to be in the range of $640 million to $655 million. Non-GAAP diluted EPS is expected to be between breakeven and $0.05. Non-GAAP diluted EPS excludes stock-based compensation expense, assumes minimal tax expense given our net operating loss position, and is based on 197 million diluted weighted average shares outstanding for fiscal 2014.

2Q14 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 year 2014 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 internationally at (443) 853-1239. A domestic replay will be available at (855) 859-2056 or internationally at (404) 537-3406, using passcode 30369903, and available via webcast until September 5, 2013.



1. The subscription return reserve
consists of revenue that we
defer on a GAAP basis because
we have limited operating
history with certain mobile
subscription refund rights. We
are required to defer revenue
until the refund rights lapse
or until we have developed
sufficient transaction history
to estimate a reserve. The
subscription return reserve is
excluded from the Subscription
services and other revenue line
of our GAAP presentation.
Management includes revenue
relating to our subscription
return reserve because we
believe that this non-GAAP
measure will provide greater
comparability with future GAAP
revenue once sufficient
transaction history is
developed and a return reserve
can be estimated.
ABOUT PANDORA

Pandora (NYSE: P) gives people music and comedy they love anytime, anywhere, through connected devices. 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 more than one million tracks. Tens of millions of people turn on Pandora every month 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, but not limited to, statements regarding expected non-GAAP revenue and non-GAAP EPS, Pandora's prospects, momentum in its mobile business, planned investments in new technologies, channels and capabilities and the impact of such investments on our business. 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 estimate revenue reserves; 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 (SEC) from time to time, including our Annual Report on Form 10-K and our Form 10-Q for the current quarter, particularly under the heading "Risk Factors."

The financial information contained in this press release should be read in conjunction with the consolidated financial statements and notes thereto included in the company's most recent reports on Form 10-K and Form 10-Q, each as they may be amended from time to time. The company's results of operations for the current quarter are not necessarily indicative of the company's operating results for any future periods.

These documents are 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 revenue, non-GAAP subscription revenue, non-GAAP EPS and non-GAAP diluted EPS. 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 include revenue relating to our subscription return reserve, which consists of deferred revenue related to subscriptions that are sold with return rights, and exclude expense from stock-based compensation and amortization of intangibles.

The subscription return reserve consists of revenue that we defer on a GAAP basis because we have limited operating history with certain mobile subscription refund rights. We are required to defer revenue until the refund rights lapse or until we have developed sufficient transaction history to estimate a reserve. The subscription return reserve is excluded from the Subscription services and other revenue line of our GAAP presentation. Management includes revenue relating to our subscription return reserve because we believe that this non-GAAP measure will provide greater comparability with future GAAP revenue once sufficient transaction history is developed and a return reserve can be estimated.

Stock-based compensation consists of expenses for stock options and other awards under our equity incentive plans. Stock-based compensation is included in the following cost and expense line items of our GAAP presentation:


-- Cost of revenue - Other
-- Product development
-- Sales and marketing
-- 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. In addition, the value of stock-based instruments is determined using formulas that incorporate variables, such as market volatility, that are beyond our control.

Intangible amortization consists of non-cash charges that can be affected by the timing and magnitude of business combinations and asset purchases. Amortization for currently owned intangible assets is included in the General and administrative expense line of our GAAP presentation. Management considers its operating results without these charges when evaluating its ongoing performance because it is a non-cash expense not believed by management to be reflective of our core business, ongoing operating results or future outlook.

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.

We estimate revenue generated through both our mobile and other connected devices platform as well as our traditional computer platform. While we believe that such disaggregated revenue estimates provide directional insight for evaluating our efforts to monetize our service through these platforms, we do not validate such disaggregated revenue to the level of financial statement reporting. Such metrics should be seen as indicative only and as management's best estimate.












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,
-------- --------

2012 2013 2012 2013
---- ---- ---- ----

Revenue

Advertising $89,384 $128,520 $159,981 $233,666

Subscription
services and other 11,883 28,835 22,070 49,199

Total revenue 101,267 157,355 182,051 282,865
------- ------- ------- -------


Costs and expenses

Cost of revenue -
Content acquisition
costs 60,522 81,880 116,340 164,733

Cost of revenue -
Other (1) 7,514 11,037 14,431 20,816

Product development
(1) 4,475 7,926 8,594 14,959

Sales and marketing
(1) 23,457 45,794 46,917 85,877

General and
administrative (1) 10,602 18,352 21,214 32,561

Total costs and
expenses 106,570 164,989 207,496 318,946

Loss from operations (5,303) (7,634) (25,445) (36,081)
------ ------ ------- -------


Other income (expense)

Interest income 25 10 57 25

Interest expense (136) (150) (260) (293)

Other income, net - 4 - 5

Loss before
provision for
income taxes (5,414) (7,770) (25,648) (36,344)


Income tax benefit
(expense) (1) (17) 5 (30)

Net loss $(5,415) $(7,787) $(25,643) $(36,374)
======= ======= ======== ========


Basic and diluted
net loss per share $(0.03) $(0.04) $(0.15) $(0.21)
====== ====== ====== ======

Weighted-average
shares used in
computing basic and
diluted per share
amounts 167,429 175,343 166,428 174,476
======= ======= ======= =======



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

2012 2013 2012 2013
---- ---- ---- ----

Cost of revenue -
Other $304 $495 $567 $951

Product development 1,185 2,525 2,171 4,288

Sales and marketing 2,738 5,138 5,668 9,986

General and
administrative 1,810 2,384 3,131 2,698

$6,037 $10,542 $11,537 $17,923
====== ======= ======= =======




Pandora Media, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


As of January 31, As of July 31,
----------------- --------------

2013 2013
---- ----

Assets

Current assets:

Cash and cash equivalents $65,725 $53,610

Short-term investments 23,247 15,304

Accounts receivable, net 103,410 122,880

Prepaid expenses and other
current assets 6,232 7,138
----- -----

Total current assets 198,614 198,932


Property and equipment, net 17,758 23,256

Other long-term assets 2,460 13,164

Total assets $218,832 $235,352
======== ========


Liabilities and stockholders' equity

Current liabilities:

Accounts payable $4,471 $7,112

Accrued liabilities 7,590 9,908

Accrued royalties 53,083 52,813

Deferred revenue 29,266 43,848

Accrued compensation 21,560 19,890
------ ------

Total current liabilities 115,970 133,571


Long-term debt - 10,000

Other long-term liabilities 3,873 3,563

Total liabilities 119,843 147,134
------- -------


Stockholders' equity

Common stock 17 18

Additional paid-in capital 238,552 264,201

Accumulated deficit (139,574) (175,948)

Accumulated other
comprehensive loss (6) (53)

Total stockholders' equity 98,989 88,218
------ ------

Total liabilities and
stockholders' equity $218,832 $235,352
======== ========




Pandora Media, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


Three months ended Six months ended

July 31, July 31,
-------- --------

2012 2013 2012 2013
---- ---- ---- ----

Operating Activities

Net loss $(5,415) $(7,787) $(25,643) $(36,374)

Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:

Depreciation and
amortization 1,795 2,770 3,336 4,902

(Gain) loss on disposition
of assets (9) - 23 -

Stock-based compensation 6,037 10,542 11,537 17,923

Amortization of premium on
investments 100 11 192 53

Amortization of debt
issuance costs 66 66 132 132

Changes in assets and liabilities:

Accounts receivable (9,856) (17,562) (13,649) (19,470)

Prepaid expenses and other
assets (243) (789) (676) (692)

Accounts payable and
accrued liabilities 695 2,320 1,717 5,247

Accrued royalties 2,217 (2,899) 6,531 (270)

Accrued compensation 5,055 3,962 2,610 (1,458)

Deferred revenue 2,404 6,549 4,913 14,582

Reimbursement of cost of
leasehold improvements - 498 1,243 498
--- --- ---

Net cash provided by (used
in) operating activities 2,846 (2,319) (7,734) (14,927)


Investing Activities

Purchases of property and
equipment (2,644) (6,197) (3,887) (10,631)

Purchases of patents - (8,000) - (8,000)

Changes in restricted cash - (3,200) - (3,200)

Purchases of short-term
investments (17,452) (7,066) (35,093) (17,827)

Proceeds from maturities of
short-term investments 20,460 11,730 48,560 25,710

Payments related to
acquisition - (400) - (400)
--- ---- ----

Net cash provided by (used
in) investing activities 364 (13,133) 9,580 (14,348)


Financing activities

Borrowings under debt
arrangements - 10,000 - 10,000

Proceeds from issuance of
common stock 1,639 3,688 3,567 7,218

Net cash provided by
financing activities 1,639 13,688 3,567 17,218


Effects of foreign currency
translation on cash and
cash equivalents - (61) - (58)


Net increase (decrease) in
cash and cash equivalents 4,849 (1,825) 5,413 (12,115)

Cash and cash equivalents
at beginning of period 44,690 55,435 44,126 65,725
------ ------ ------ ------

Cash and cash equivalents
at end of period $49,539 $53,610 $49,539 $53,610
======= ======= ======= =======




Pandora Media, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(In thousands, except per share amounts)

(Unaudited)


Three months ended Six months ended

July 31, July 31,
-------- --------

2012 2013 2012 2013
---- ---- ---- ----


Revenue

GAAP total revenue $101,267 $157,355 $182,051 $282,865

Subscription return
reserve 1,371 4,684 2,120 7,708

Non-GAAP total
revenue $102,638 $162,039 $184,171 $290,573
-------- -------- -------- --------


Net income (loss)

GAAP net loss $(5,415) $(7,787) $(25,643) $(36,374)

Subscription return
reserve 1,371 4,684 2,120 7,708

Amortization of
intangibles - 61 - 61

Stock-based
compensation 6,037 10,542 11,537 17,923

Non-GAAP net income
(loss) $1,993 $7,500 $(11,986) $(10,682)
------ ------ -------- --------


Basic earnings per share

GAAP basic earnings
per share $(0.03) $(0.04) $(0.15) $(0.21)

Subscription return
reserve 0.01 0.02 0.01 0.05

Stock-based
compensation 0.03 0.06 0.07 0.10

Non-GAAP basic
earnings per share $0.01 $0.04 $(0.07) $(0.06)
----- ----- ------ ------


Shares used in
computing basic
earnings per share 167,429 175,343 166,428 174,476


Diluted earnings per share

GAAP diluted earnings
per share $(0.03) $(0.04) $(0.15) $(0.21)

Subscription return
reserve 0.01 0.02 0.01 0.05

Stock-based
compensation 0.03 0.06 0.07 0.10

Non-GAAP diluted
earnings per share $0.01 $0.04 $(0.07) $(0.06)
----- ----- ------ ------


Shares used in
computing diluted
earnings per share 190,049 196,744 166,428 174,476




Pandora Media, Inc.

Monetization: RPM History

(Unaudited)



FY2012 FY2013 FY2014
------ ------ ------

FY Q1 Q2 Q3 Q4 FY Q1 Q2
--- --- --- --- --- --- --- ---

Advertising RPM

Traditional computer $62.68 $46.52 $57.14 $58.03 $53.53 $53.73 $48.16 $59.31

Mobile and other connected
devices $21.05 $17.88 $22.17 $25.59 $23.51 $22.53 $23.23 $33.90

Total advertising $32.22 $24.82 $29.48 $32.40 $29.26 $29.13 $28.02 $38.87


Total RPM

Traditional computer $58.84 $45.54 $55.02 $56.40 $52.82 $52.36 $48.04 $57.37

Mobile and other connected
devices $21.93 $18.86 $23.32 $26.96 $25.05 $23.83 $25.31 $36.17

Total $33.32 $26.09 $30.68 $33.73 $30.86 $30.49 $30.01 $40.52


Total RPM Based on non-GAAP
Revenue

Traditional computer $58.86 $45.64 $55.19 $56.50 $53.00 $52.50 $48.33 $57.75

Mobile and other connected
devices $22.01 $19.16 $23.81 $27.23 $25.50 $24.21 $26.15 $37.59

Total $33.38 $26.33 $31.09 $33.96 $31.25 $30.82 $30.74 $41.73
------ ------
SOURCE Pandora

Photo:http://photos.prnewswire.com/prnh/20110615/SF20192LOGO
http://photoarchive.ap.org/
Pandora

CONTACT: Dominic Paschel, Corporate Finance & Investor Relations, investor@pandora.com, (510) 842-6960, or Will Valentine, Pandora Corporate Communications, press@pandora.com, (510) 842-6996

Web Site: http://www.pandora.com


-------
Profile: intent