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Pandora Reports Record 3QFY14 Financial Results

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 Nine months ended
October 31, October 31,
2012 2013 2012 2013
Revenue
Advertising $ 106,258 $ 144,346 $ 266,239 $ 378,012
Subscription services and other   13,747     36,030     35,817     85,229  
Total revenue   120,005     180,376     302,056     463,241  
 
Costs and expenses
Cost of revenue - Content acquisition costs 65,713 86,989 182,053 251,722
Cost of revenue - Other (1) 8,338 12,423 22,769 33,239
Product development (1) 4,371 8,848 12,965 23,807
Sales and marketing (1) 26,714 50,575 73,631 136,452
General and administrative (1)   12,700     23,038     33,914     55,599  
Total costs and expenses   117,836     181,873     325,332     500,819  
Income (loss) from operations   2,169     (1,497 )   (23,276 )   (37,578 )
 
Other income (expense)
Interest income 19 5 76 30
Interest expense (137 ) (167 ) (397 ) (460 )
Other income, net   1     (21 )   1     (16 )
Income (loss) before provision for income taxes 2,052 (1,680 ) (23,596 ) (38,024 )
 
Income tax benefit (expense)   -     (20 )   5     (50 )
Net income (loss) $ 2,052   $ (1,700 ) $ (23,591 ) $ (38,074 )
 
Basic net income (loss) per share $ 0.01   $ (0.01 ) $ (0.14 ) $ (0.21 )
Weighted-average basic shares   169,391     184,676     167,423     177,913  
 
Diluted net income (loss) per share $ 0.01   $ (0.01 ) $ (0.14 ) $ (0.21 )
Weighted-average diluted shares   190,278     184,676     167,423     177,913  
 
 
(1) Includes stock-based compensation expense as follows:
2012 2013 2012 2013
Cost of revenue - Other $ 333 $ 562 $ 900 $ 1,513
Product development 1,180 2,553 3,351 6,841
Sales and marketing 3,186 5,830 8,854 15,816
General and administrative   2,374     3,702     5,505     6,400  
Total stock-based compensation expense $ 7,073   $ 12,647   $ 18,610   $ 30,570  
 
 
Pandora Media, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
       
As of January 31, As of October 31,
2013 2013
Assets
Current assets:
Cash and cash equivalents $ 65,725 $ 442,380
Short-term investments 23,247 5,449
Accounts receivable, net 103,410 141,796
Prepaid expenses and other current assets   6,232     10,240  
Total current assets 198,614 599,865
 
Property and equipment, net 17,758 27,768
Other long-term assets   2,460     10,053  
Total assets $ 218,832   $ 637,686  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,471 $ 7,526
Accrued liabilities 7,590 16,747
Accrued royalties 53,083 58,499
Deferred revenue 29,266 43,088
Accrued compensation   21,560     18,037  
Total current liabilities 115,970 143,897
 
Other long-term liabilities   3,873     8,239  
Total liabilities   119,843     152,136  
 
Stockholders' equity
Common stock 17 19
Additional paid-in capital 238,552 663,212
Accumulated deficit (139,574 ) (177,648 )
Accumulated other comprehensive loss   (6 )   (33 )
Total stockholders' equity   98,989     485,550  
Total liabilities and stockholders' equity $ 218,832   $ 637,686  
 
 
Pandora Media, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
               
Three months ended Nine months ended
October 31, October 31,
2012 2013 2012 2013
Operating Activities
Net income (loss) $ 2,052 $ (1,700 ) $ (23,591 ) $ (38,074 )
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation and amortization 1,811 3,269 5,147 8,171
Loss on disposition of assets - - 23 -
Stock-based compensation 7,073 12,647 18,610 30,570
Amortization of premium on investments 87 4 279 57
Amortization of debt issuance costs 66 55 198 187
Changes in assets and liabilities:
Accounts receivable (17,477 ) (18,916 ) (31,126 ) (38,386 )
Prepaid expenses and other assets (1,360 ) (4,023 ) (2,036 ) (4,715 )
Accounts payable and accrued liabilities 2,815 8,662 4,532 13,909
Accrued royalties 4,077 5,686 10,608 5,416
Accrued compensation (2,853 ) (1,861 ) (243 ) (3,319 )
Deferred revenue 2,831 (760 ) 7,744 13,822
Reimbursement of cost of leasehold improvements   -     1,057     1,243     1,555  
Net cash provided by (used in) operating activities (878 ) 4,120 (8,612 ) (10,807 )
 
Investing Activities
Purchases of property and equipment (2,094 ) (4,260 ) (5,981 ) (14,891 )
Purchases of patents - - - (8,000 )
Changes in restricted cash - 3,200 - -
Purchases of short-term investments (15,031 ) (2,599 ) (50,124 ) (20,426 )
Proceeds from maturities of short-term investments 24,900 12,450 73,460 38,160
Payments related to acquisition   -     -     -     (400 )
Net cash provided by (used in) investing activities 7,775 8,791 17,355 (5,557 )
 
Financing activities
Borrowings under debt arrangements - - - 10,000
Repayments of debt - (10,000 ) - (10,000 )
Proceeds from follow-on offering, net of issuance costs - 379,088 - 379,088
Proceeds from issuance of common stock 1,498 7,666 5,065 14,884
Tax withholdings related to net share settlements of restricted stock units (208 ) (480 ) (208 ) (480 )
Payment of debt issuance costs in connection with the debt refinancing   -     (450 )   -     (450 )
Net cash provided by financing activities 1,290 375,824 4,857 393,042
 
Effects of foreign currency translation on cash and cash equivalents (1 ) 35 (1 ) (23 )
 
Net increase in cash and cash equivalents 8,186 388,770 13,599 376,655
Cash and cash equivalents at beginning of period   49,539     53,610     44,126     65,725  
Cash and cash equivalents at end of period $ 57,725   $ 442,380   $ 57,725   $ 442,380  
 
 
Pandora Media, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(In thousands, except per share amounts)
(Unaudited)
               
Three months ended Nine months ended
October 31, October 31,
2012 2013 2012 2013
 
Revenue
GAAP total revenue $ 120,005 $ 180,376 $ 302,056 $ 463,241
Subscription return reserve   824   1,204     2,944     8,912  
Non-GAAP total revenue $ 120,829 $ 181,580   $ 305,000   $ 472,153  
 
Net income (loss)
GAAP net income (loss) $ 2,052 $ (1,700 ) $ (23,591 ) $ (38,074 )
Subscription return reserve 824 1,204 2,944 8,912
Amortization of intangibles - 183 - 244
Stock-based compensation   7,073   12,647     18,610     30,570  
Non-GAAP net income (loss) $ 9,949 $ 12,334   $ (2,037 ) $ 1,652  
 
Basic EPS
GAAP basic EPS $ 0.01 $ (0.01 ) $ (0.14 ) $ (0.21 )
Subscription return reserve (1) 0.01 0.01 0.02 0.05
Amortization of intangibles (1) - - - -
Stock-based compensation (1)   0.04   0.07     0.11     0.17  
Non-GAAP basic EPS $ 0.06 $ 0.07   $ (0.01 ) $ 0.01  
 
Shares used in computing basic EPS 169,391 184,676 167,423 177,913
 
Diluted EPS
GAAP diluted EPS $ 0.01 $ (0.01 ) $ (0.14 ) $ (0.21 )
Subscription return reserve (1) - 0.01 0.02 0.05
Amortization of intangibles (1) - - - -
Stock-based compensation (1)   0.04   0.06     0.11     0.17  
Non-GAAP diluted EPS $ 0.05 $ 0.06   $ (0.01 ) $ 0.01  
 
Shares used in computing diluted EPS 190,278 208,080 167,423 199,523
 
(1) EPS may not recalculate due to rounding
 
 
Pandora Media, Inc.
Monetization: RPM History
(Unaudited)
                                   
FY2012 FY2013 FY2014
FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Advertising RPMs
Traditional computer

$

62.68

$ 46.52 $ 57.14 $ 58.03 $ 53.53 $ 53.73 $ 48.16 $ 59.31 $ 57.54
Mobile and other connected devices $ 21.05 $ 17.88 $ 22.17 $ 25.59 $ 23.51 $ 22.53 $ 23.23 $ 33.90 $ 36.00
Total advertising $ 32.22 $ 24.82 $ 29.48 $ 32.40 $ 29.26 $ 29.13 $ 28.02 $ 38.87 $ 40.11
 
Total RPMs
Traditional computer $ 58.84 $ 45.54 $ 55.02 $ 56.40 $ 52.82 $ 52.36 $ 48.04 $ 57.37 $ 57.33
Mobile and other connected devices $ 21.93 $ 18.86 $ 23.32 $ 26.96 $ 25.05 $ 23.83 $ 25.31 $ 36.17 $ 39.64
Total $ 33.32 $ 26.09 $ 30.68 $ 33.73 $ 30.86 $ 30.49 $ 30.01 $ 40.52 $ 43.19
 
Total RPMs based on non-GAAP revenue
Traditional computer $ 58.86 $ 45.64 $ 55.19 $ 56.50 $ 53.00 $ 52.50 $ 48.33 $ 57.75 $ 57.44
Mobile and other connected devices $ 22.01 $ 19.16 $ 23.81 $ 27.23 $ 25.50 $ 24.21 $ 26.15 $ 37.59 $ 39.97
Total $ 33.38 $ 26.33 $ 31.09 $ 33.96 $ 31.25 $ 30.82 $ 30.74 $ 41.73 $ 43.48




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