Audible Announces Third Quarter 2007 Financial Results

Audible, Inc. (NASDAQ: ADBL; www.audible.com), the leader in spoken audio entertainment, information, and educational programming on the Internet, today announced unaudited financial results for the third quarter ended September 30, 2007. Audible reported consolidated third quarter net revenue of $27.6 million, up 38% over the $20.0 million reported in the third quarter of 2006. Revenue for the nine-month period ended September 30, 2007, was $78.8 million, up 34% from the $58.9 million earned during the same period in 2006. Adjusted EBITDA was $1.8 million, an increase of $2.0 million from an EBITDA loss in the third quarter of 2006, but a decrease of $0.3 million from $2.1 million in the second quarter of 2007. Adjusted EBITDA in the third quarter included a $1.0 million non-recurring incentive compensation accrual due to the stronger-than-anticipated performance of the Company in the third quarter. Net loss for the third quarter of 2007 was $(0.2 million), or $(0.01) per share, an improvement from the net loss of $(2.5 million), or $(0.10) per share, reported in the third quarter of 2006. During the quarter 63,000 new AudibleListener® members were acquired, a decrease from the 71,000 AudibleListener members reported in the third quarter of 2006, but an increase from the 55,000 members reported in the second quarter of 2007. Ninety-Eight percent of new AudibleListener members acquired in Q3 2007 were Gold or Platinum recurring revenue customers versus 51% of new AudibleListeners acquired in the third quarter of 2006 signing up for Gold or Platinum service. There were 455,000 total AudibleListener members at the end of the third quarter of 2007, an increase compared to the 345,000 total members reported in the third quarter of 2006. "Audible’s third quarter financial performance was marked by strong revenue growth, accelerating quarter-over-quarter new and net membership growth, lower churn, and solid ARPU. We continue to enhance our brand presence and the quality of our audio service, and this has clearly elevated our ability to acquire and retain loyal customers,” observed Donald Katz, Chairman and Chief Executive Officer. "On the bottom line, our consistent delivery of multi-million Dollar year-over-year improvements in adjusted EBITDA in 2007 has significantly exceeded our internal goals,” Mr. Katz continued. "This has triggered a non-recurring employee profit-sharing-based incentive plan expense in the third quarter that resulted in lower quarter-over-quarter profitability. We expect our profitable growth model to be very much back on track in Q4.” The Company has decided to provide limited financial performance guidance. "We have decided to offer 2007 guidance to help investors understand two dynamics in our performance,” commented William H. Mitchell, Chief Financial Officer. "Since we decided to focus on growing monthly members beginning December 2006, which contributed to that quarter’s unusually strong sequential performance, our year over year growth will not be as strong in the fourth quarter as it has been the past two. On the bottom line, we are seeking to underscore the magnitude of the non-recurring nature of our compensation adjustment in third quarter by stipulating the range to which our adjusted EBITDA metric will grow in the fourth quarter.” Third Quarter 2007 Key Financial and Operating Metrics and Business Outlook Consolidated Net Revenue: Consolidated third quarter net revenue of $27.6 million, up 38% over the $20.0 million in consolidated net revenue reported in the third quarter of 2006 and a 7% increase over $25.9 million in the second quarter of 2007. Adjusted EBITDA: EBITDA was $1.8 million, up from $(0.2) million in the third quarter of 2006 and down from $2.1 million in the second quarter of 2007. Deferred revenue: Deferred revenue was $17.1 million at September 30, 2007, an increase of $2.7 million since December 31, 2006. Total New AudibleListener Members: 63,000 new AudibleListener members were acquired during the third quarter of 2007, a decrease from the 71,000 AudibleListener members reported in the third quarter of 2006 but an increase from the 55,000 members reported in the second quarter of 2007. Business Outlook The Company has decided to offer 2007 full-year guidance that includes consolidated net revenue of $106-$108 million, which represents 28-30% year-over-year revenue growth. The Company also expects to report 2007 full-year adjusted EBITDA of $6.8-$7.5 million, compared to a $1.0 million adjusted EBITDA loss in 2006. Conference Call Senior management will host an investor teleconference at 5:00 p.m. EDT today to discuss third quarter results as well as related financial and operational developments. A live webcast of the conference call will be available at www.audible.com/ir for audio streaming access to the call. To participate in the call, the dial-in number is (866) 550-6338 or +1(347) 284-6930. Passcode 6184725. Use of Non-GAAP Measures In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, Audible presents financial measures that are non-GAAP measures, specifically adjusted EBITDA. Adjusted EBITDA is net (loss) income excluding interest, taxes, depreciation, amortization, asset impairment, loss on equity investment, and stock based compensation. Audible believes that this non-GAAP measure, viewed in addition to and not in lieu of Audible's reported GAAP results, provides useful information to investors regarding its performance and overall results of operations. These metrics are an integral part of Audible’s internal reporting to measure the performance of the Company and the overall effectiveness of senior management. Reconciliations to comparable GAAP measures are available in the accompanying schedules to this press release and on Audible's Web site. The GAAP financial measures presented are consistent with Audible's historical financial reporting practices. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies, and are not identical to corresponding measures used in our various agreements or other public filings. Management also presents total cash sales. The measurement of total cash sales is defined as the change in deferred revenue plus consolidated net sales. Management believes that total cash sales is a useful measurement when understanding the increase in deferred revenue. About Audible, Inc.: Audible (www.audible.com) is the leader in spoken audio information and entertainment on the Internet. Content from Audible is downloaded and played back on personal computers, CDs, or AudibleReady computer-based and wireless mobile devices. Audible has 140,000 hours of audio programs from more than 470 content partners that include leading audiobook publishers, broadcasters, entertainers, magazine and newspaper publishers, and business information providers. Audible is the preeminent provider of spoken-word audio products for Apple’s iTunes Store. Among Audible’s key business relationships are Apple, Inc., Amazon.com, Palm, Inc., Creative Labs Inc., SanDisk Corporation, and XM Satellite Radio, Inc. Audible has approximately 170 employees with headquarters in Newark, NJ, and an office in London, England. Audible, audible.com, AudibleListener, and AudibleReady are registered trademarks of Audible, Inc. and all are part of the family of Audible, Inc. trademarks. Other product or service names mentioned herein are the trademarks of their respective owners. Forward-Looking Statements The statements in this press release which are not historical facts may be deemed to contain forward-looking statements about Audible. Actual results may differ materially from those anticipated in any forward-looking statements as a result of certain risks and uncertainties, including, without limitation, Audible's limited operating history, history of losses, uncertain market for its services, and its inability to license or produce compelling audio content and other risks and uncertainties detailed in Audible's Securities and Exchange Commission filings. No forward-looking statement can be guaranteed. Forward-looking statements speak only as of the date on which they are made and Audible, Inc. undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (Unaudited)     Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2007 2007 2006 2007 2006   Revenue, net: Content and services: Consumer content $ 26,973 $ 25,727 $ 19,565 $ 77,679 $ 57,681 Point of sale rebates (4) (10) - (33) (293) Services 28 38 26 90 85 Total content and services 26,997 25,755 19,591 77,736 57,473 Hardware 28 87 73 192 283 Related party revenue 431 20 222 542 852 Other 162 85 140 359 274 Total revenue, net 27,618 25,947 20,026 78,829 58,882   Operating expenses: Cost of content and services revenue: Royalties and other content charges 11,989 11,210 8,240 34,455 23,943 Discount certificate rebates 74 73 307 407 910 Total cost of content and services revenue 12,063 11,283 8,547 34,862 24,853 Cost of hardware revenue 95 121 826 395 1,707 Cost of related party revenue 133 108 169 370 498 Operations 3,761 3,406 2,987 10,993 8,943 Technology and development 4,680 4,569 4,625 13,820 12,681 Marketing 4,300 4,049 3,340 12,253 11,214 General andadministrative 3,609 3,359 2,743 10,072 8,607 Total operating expenses 28,641 26,895 23,237 82,765 68,503   Loss from operations (1,023) (948) (3,211) (3,936) (9,621)   Loss on equity investment (17) - (90) (77) (270)   Other income (expense): Interest income 904 857 779 2,606 2,153 Other expense (4) (3) - (13) - Other income, net 900 854 779 2,593 2,153           Loss before income taxes (140) (94) (2,522) (1,420) (7,738)   Income tax expense (52) (31) (3) (107) (9)           Net loss $ (192) $ (125) $ (2,525) $ (1,527) $ (7,747)     Basic and diluted net loss per common share $ (0.01) $ (0.01) $ (0.10) $ (0.06) $ (0.32)   Basic and diluted weighted average common shares outstanding 24,349,644 24,279,102 24,348,938 24,278,459 24,443,620 AUDIBLE INC. AND SUBSIDIARY NON-GAAP INFORMATION (Unaudited) (in thousands)             Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2007 2007 2006 2007 2006   Stock-based compensation included in expense line items: Operations $ 243 $ 218 $ 324 $ 808 $ 767 Technology and development 240 271 281 804 699 Marketing 292 306 271 898 796 General and administrative 694 737 629 2,067 1,900 $ 1,469 $ 1,532 $ 1,505 $ 4,577 $ 4,162     Depreciation and amortization included in expense line items: Operations $ 13 $ 7 $ 15 $ 31 $ 43 Technology and development 1,117 1,112 1,124 3,360 3,230 Marketing - - - - - General and administrative 204 201 186 573 437 $ 1,334 $ 1,320 $ 1,325 $ 3,964 $ 3,710     Asset impairment included in expense line items: Technology and development - 160 144 160 144 $ - $ 160 $ 144 $ 160 $ 144     Reconciliation to Non-GAAP Financial Measures (unaudited) Net loss $ (192) $ (125) $ (2,525) $ (1,527) $ (7,747) Add back: Stock-based compensation 1,469 1,532 1,505 4,577 4,162 Depreciation and amortization 1,334 1,320 1,325 3,964 3,710 Loss on equity investment 17 - 90 77 270 Asset impairment - 160 144 160 144 Income tax expense 52 31 3 107 9 Less: Interest income, net (900) (854) (779) (2,593) (2,153)           Non-GAAP adjusted EBITDA $ 1,780 $ 2,064 $ (237) $ 4,765 $ (1,605)     Reconciliation to Non-GAAP Financial Measures (unaudited) Total revenue, net $ 27,618 $ 25,947 $ 20,026 $ 78,829 $ 58,882 Add: Change in deferred revenue 785 548 1,523 2,763 4,872 Non-GAAP total cash sales $ 28,403 $ 26,495 $ 21,549 $ 81,592 $ 63,754 AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)     September 30, December 31, Assets 2007 2006 (unaudited)   Current Assets: Cash and cash equivalents $ 42,846 $ 14,925 Short-term investments 27,954 51,295 Interest receivable on short-term investments 422 626 Accounts receivable, net of allowance 3,626 4,181 Accounts receivable, related parties 263 100 Royalty advances 426 710 Prepaid expenses and other current assets 1,497 1,797 Inventory 79   212   Total current assets 77,113 73,846   Property and equipment, net 10,755 8,149 Investment in related party, net at equity 961 - Other assets 1,629 781     Total Assets $ 90,458   $ 82,776     Liabilities and Stockholders' Equity   Current Liabilities: Accounts payable $ 2,057 $ 3,121 Accrued expenses 4,243 4,678 Accrued royalties 7,606 9,028 Accrued compensation 3,995 778 Deferred revenue, current 16,508   13,840   Total current liabilities 34,409 31,445   Deferred revenue, non current 616 513 Royalty obligations, non current 75 90 Other liabilities, non current 1,842 262   Commitments and contingencies   Stockholders' Equity: Common stock 244 241 Additional paid-in capital 195,394 190,799 Accumulated other comprehensive (loss) income (57 ) (36 ) Accumulated deficit (142,065 ) (140,538 ) Total Stockholders' Equity 53,516 50,466     Total Liabilities and Stockholders' Equity $ 90,458   $ 82,776   AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)   Three months ended   Nine months ended September 30, September 30, 2007   2006 2007   2006   Cash flows from operating activities: Net loss $ (192) $ (2,525) $ (1,527) $ (7,747) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on equity investment in related party 17 90 77 270 Depreciation and amortization 1,334 1,325 3,964 3,710 Amortization of audio production costs 161 57 367 79 Impairment loss on purchased software - 144 160 144 Non-cash stock-based compensation charge 1,469 1,505 4,577 4,162 Accretion of discounts on short-term investments (226) (275) (718) (724) Changes in assets and liabilities: Interest receivable on short-term investments 114 (10) 204 (77) Accounts receivable, net (501) (905) 560 (496) Accounts receivable, related parties (31) (10) (223) (203) Royalty advances 78 (88) 286 (48) Prepaid expenses and other current assets 359 (301) 301 (1,098) Inventory 25 646 134 345 Other assets (373) 76 (1,213) (767) Accounts payable (332) (345) (1,069) (2,402) Accrued expenses (948) 594 (1,143) (595) Accrued royalties 1,056 773 (1,436) 773 Accrued compensation 1,942 (231) 3,211 194 Deferred revenue 785 1,523 2,763 4,872 Other liabilities, non-current 1,211 - 1,580 - Net cash provided by operating activities 5,948 2,043 10,855 392   Cash flows from investing activities: Purchases of property and equipment (1,252) (76) (5,394) (4,049) Capitalized software development costs (326) (191) (653) (445) Investment in related party (978) - (978) - Purchases of short-term investments (4,960) (24,529) (44,316) (60,098) Proceeds from maturity of short-term investments 25,952 27,265 68,375 69,065 Net cash provided by investing activities 18,436 2,469 17,034 4,473   Cash flows from financing activities: Proceeds from exercise of common stock options 98 31 469 385 Proceeds from exercise of common stock warrants - - - 750 Payment of taxes due on vested restricted stock (242) - (448) - Repurchase of treasury stock at cost - (1,701) - (3,988) Net cash (used in) provided by financing activities (144) (1,670) 21 (2,853)   Effect of exchange rate changes on cash and cash equivalents 9 7 11 (5)   Increase in cash and cash equivalents 24,249 2,849 27,921 2,007   Cash and cash equivalents at beginning of period 18,597 10,707 14,925 11,549 Cash and cash equivalents at end of period $ 42,846 $ 13,556 $ 42,846 $ 13,556 AUDIBLE INC. AND SUBSIDIARY UNAUDITED SUPPLEMENTAL OPERATING DATA (Members in thousands)                       New AudibleListener Membership Reporting: Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Total AudibleListener® Members1 186 205 224 245 279 309 345 383 415 431 455 Year-over-year 77% 78% 70% 56% 50% 51% 54% 56% 49% 39% 32% Quarter-over-quarter 18% 10% 9% 9% 14% 11% 12% 11% 8% 4% 6% New AudibleListener® Members2 54 52 60 62 79 65 71 70 72 55 63 Year-over-year 143% 136% 107% 59% 46% 25% 18% 13% -9% -15% -11% Quarter-over-quarter 38% -4% 15% 3% 27% -18% 9% -1% 3% -24% 15% Average Monthly Churn in AudibleListener® Members3 4.00% 4.70% 5.10% 4.80% 4.60% 3.40% 3.10% 2.50% 3.00% 2.80% 2.70% Cost per New AL $52 $57 $57 $94 $51 $44 $45 $49 $41 $48 $45 (1) Total number of AudibleListener® members at the end of the period. (2) Total number of new AudibleListener® members added during the period. Members canceling and rejoining a membership within the same day are counted as one membership. (3) Churn is defined as member cancellations in the period divided by the sum of members at the beginning of the period plus gross member adds, divided by three months.