Digital Media Store Revenue Grows 155% Year-Over-Year, Driven by
Growth in Transactional Revenue SEATTLE, Nov. 9
/PRNewswire-FirstCall/ -- Loudeye Corp. (NASDAQ:LOUD), a worldwide
leader in business-to-business digital media solutions, today
announced financial results for the third quarter 2005. Third
Quarter 2005 Financial Highlights Revenue was $6.8 million in the
third quarter 2005 compared with revenue of $5.1 million in the
third quarter 2004. Digital media store services revenue
represented $4.8 million of total revenue, an increase from $1.9
million in the third quarter 2004. Transactional revenue
represented over 70% of digital media store services revenue in the
third quarter 2005. Deferred revenue was $6.5 million as of
September 30, 2005, net of related receivables of $2.9 million. "We
are still in the early stages of the rapidly expanding online and
mobile digital distribution market and continue to build our
business and our position within the digital media value chain,"
said Mike Brochu, Loudeye's president and chief executive officer.
"Loudeye is benefiting from industry growth trends, as digital
media transactional volumes drove our revenue growth in the third
quarter. Our strong digital music store presence in Europe and
mobile music platform position us well for further expansion." For
the third quarter 2005, GAAP net loss was $8.5 million or $0.08 per
share, compared to $5.3 million or $0.07 per share in the third
quarter 2004. EBITDA loss for the current quarter totaled $7.3
million compared to $3.9 million for the third quarter 2004. EBITDA
loss excludes charges related to depreciation and amortization
expense and interest income and expense. A reconciliation of GAAP
net loss to EBITDA loss is provided below. Unrestricted cash, cash
equivalents and marketable securities were approximately $15.9
million as of September 30, 2005. While Loudeye is encouraged by
its year-over-year revenue growth and the digital media market
opportunities that lie ahead, Loudeye continues to experience
significant losses and has limited cash reserves. We remain focused
on implementing measures to address Loudeye's liquidity needs
through a combination of increasing margins, reducing operating
expenses and securing additional investment or other strategic
alternatives. In that regard, Loudeye has retained New York based
investment bank Allen & Company LLC to assist its Board of
Directors in advising on capital markets alternatives, and
assisting in identifying and evaluating strategic alternatives.
Recent Highlights Loudeye's recent operating highlights include: *
Launching the O2 Germany Music Store. Built on the Nokia and
Loudeye mobile music platform, this dual-delivery digital music
service for O2 allows users to browse, search, sample, and download
full-length songs over-the-air directly to their mobile device as
well as their PC. The service also allows progressive playback of
songs during download. * Expanding our relationship with MSN Music,
Microsoft's digital music service, with four new stores opening in
the Nordic region (Norway, Denmark, Finland and Sweden). *
Launching new digital music services for MediaWorld and Magasins U.
* Powering music services in more countries than any other digital
music service provider; we currently power music services in 23
countries worldwide. Forward-Looking Financial Guidance While
future results are subject to change and risks, Loudeye expects
revenue for fourth quarter 2005 to be approximately $8.0 million.
Digital media store services revenue is estimated to represent
approximately 75% of revenue for the fourth quarter 2005. "We
expect strong year-over-year and sequential revenue growth from our
digital media stores in the fourth quarter of 2005, primarily
driven by continued growth in transaction volumes and recent
launches of new mobile and PC based music services," said Ron
Stevens, Loudeye's chief financial officer and chief operating
officer. "We have made a substantial investment to date in our
platform and services, as reflected in our significant R&D
costs and accumulated losses. We intend to accelerate our path
toward profitability through a plan to improve our margins, attack
our cost structure and improve efficiency. As part of this plan, we
expect to move to one global platform during 2006 and anticipate
achieving significant savings from that integration." "In addition,
Overpeer, our wholly-owned content protection subsidiary,
experienced negative gross margins of approximately ($900,000) and
incurred direct operating expenses of approximately $350,000 for
the quarter ended September 30, 2005. We continue to assess our
alternatives and will take action regarding the Overpeer assets
prior to year end," continued Stevens. Forward-looking financial
guidance reflects management's expectations as of the date of this
release and is based upon limited available information which is
dynamic and subject to risk and uncertainty. Results may be
materially affected by many factors including those described in
the Forward- Looking Statements section below. Third Quarter 2005
Webcast Information Loudeye management will conduct an audio
webcast to discuss these financial results. The public is invited
to listen in on this webcast. Management will discuss financial and
operating results for the quarter and end the call with a question
and answer session. Information regarding the third quarter 2005
results webcast is as follows: Date: Wednesday, November 9, 2005
Time: 5:00 p.m. EST / 2:00 p.m. PST Audio Webcast: 5:00 p.m. EST /
2:00 p.m. PST; Webcast from
http://www.loudeye.com/en/aboutus/earningscalls.asp This webcast
will be available until November 23, 2005 at 5:00 p.m. EST About
Loudeye Corp. Loudeye is a worldwide leader in business-to-business
digital media solutions and the outsourcing provider of choice for
companies looking to maximize the return on their digital media
investment. Loudeye combines innovative products and services with
the world's largest music archive, a broad catalog of licensed
digital music and the industry's leading digital media
infrastructure, enabling partners to rapidly and cost effectively
launch complete, customized digital media stores and services. For
more information, visit http://www.loudeye.com/. Forward-Looking
Statements This press release and management's audio webcast
contain forward-looking information within the meaning of the
Private Securities Litigation Reform Act of 1995, including
forward-looking financial guidance such as statements about
expected revenue and revenue mix for the fourth quarter 2005 and
the year ending December 31, 2005, quarterly growth rates,
anticipated technology platform migration, and other matters. The
words or phrases "estimates," "expects" and "anticipates" and
similar words and phrases are intended to identify such
forward-looking statements. The forward-looking statements
contained in this press release are based on current estimates and
actual results may differ materially. As disclosed in our quarterly
report on Form 10-Q for the quarter ended September 30, 2005, filed
with the SEC today, Loudeye's unrestricted cash, cash equivalents
and marketable securities balance as of September 30, 2005, of
approximately $15.9 million raises substantial doubt about
Loudeye's ability to continue as a going concern. Additional risks
Loudeye faces include the potential effects of a restructuring on
our business and operations; adverse or uncertain legal
developments with respect to copyrights surrounding the creation
and distribution of digital content; competition with other
providers of business- to-business digital media store services and
associated pricing pressures; customer concentration; the
complexity of Loudeye's services and delivery networks; pressure on
our margins, in particular resulting from increasing wholesale
content rates; and other risks set forth in Loudeye's most recent
Form 10-Q, 10-K and other SEC filings which are available through
EDGAR at http://www.sec.gov/. These are among the primary risks we
foresee at the present time. Loudeye assumes no obligation to
update the forward-looking statements. As disclosed in our annual
report on Form 10-K for the year ended December 31, 2004, we
determined that, as of the December 31, 2004 measurement date,
there were deficiencies in both the design and effectiveness of our
internal control over financial reporting. We assessed those
deficiencies and determined that there were eight material
weaknesses in our internal control over financial reporting as of
December 31, 2004. As a result, management concluded that our
internal control over financial reporting was not effective as of
December 31, 2004. We may not be successful in remediating each of
these material weaknesses and we identify further material
weaknesses during the course of our internal control assessment as
of December 31, 2005. The existence of a material weakness or
weaknesses is an indication that there is more than a remote
likelihood that a material misstatement of our financial statements
will not be prevented or detected in a future period. Use of
Non-GAAP Financial Information EBITDA loss presented in this press
release and management's audio presentation is a non-GAAP financial
measure that represents GAAP net loss excluding the effects of
interest income and expense and depreciation and amortization
expense. EBITDA as presented below may differ from non-GAAP
measures used by other companies and is not a measurement under
GAAP. Management believes the EBITDA presentation enhances an
overall understanding of Loudeye's financial performance from
ongoing operations, and is used by management for that purpose. We
believe EBITDA and EBITDA per share presented below provides useful
information to investors about our financial performance because it
eliminates the effects of period to period changes in costs
associated with impairment of assets related to capital investments
and interest on our debt and capital lease obligations, both of
which we believe are not reflective of the underlying performance
of our business operations. The adjustments made in calculating
EBITDA are adjustments that would be made in calculating our
performance for purposes of employment agreements and associated
bonus potentials for our senior executives. Measures similar to
EBITDA are also widely used by us and others in the industry to
evaluate and price potential acquisition candidates. We believe
EBITDA facilitates operating performance comparisons by backing out
potential differences across periods caused by variations in
capital structures (affecting interest expense) and the age and
book depreciation of equipment (affecting depreciation expense). In
addition, we present EBITDA because we believe it is frequently
used by analysts, investors and other interested parties in
evaluating companies such as ours. Since Loudeye has historically
reported non-GAAP results to the investment community, management
believes the inclusion of non-GAAP financial measures provides
consistency in its financial reporting. There are limitations
inherent in non-GAAP financial measures such as EBITDA in that they
exclude a variety of charges and credits that are required to be
included in a GAAP presentation, and do not therefore present the
full measure of Loudeye's recorded costs against its revenue.
Management compensates for these limitations in non-GAAP measures
by also evaluating our performance based on traditional GAAP
financial measures. Accordingly, investors should consider these
non-GAAP results together with GAAP results, rather than as an
alternative to GAAP basis financial measures. LOUDEYE CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
December 31, 2005 2004 (in thousands) ASSETS Current assets: Cash,
cash equivalents and short-term marketable securities $15,933
$38,880 Accounts receivable, net 4,796 5,333 Prepaid expenses and
other current assets 1,409 1,298 Restricted cash 645 -- Total
current assets 22,783 45,511 Long-term marketable securities --
2,288 Restricted cash -- 2,568 Property and equipment, net 5,790
5,661 Goodwill and intangible assets, net 45,566 47,249 Other
assets, net 177 431 Total assets $74,316 $103,708 LIABILITIES
Current liabilities: Accounts payable $3,562 $4,012 Accrued
compensation and benefits 654 929 Accrued and other liabilities
5,878 4,966 Accrued special charges -- 403 Accrued acquisition
consideration -- 15,924 Deposits and deferred revenue 5,521 4,353
Current portion of long-term debt and capital lease obligations
1,013 1,135 Total current liabilities 16,628 31,722 Deposits and
deferred revenue, net of current portion 996 1,343 Deferred rent 72
-- Common stock payable related to acquisition 494 3,193 Long-term
debt and capital lease obligations, net of current portion 250
1,000 Total liabilities 18,440 37,258 STOCKHOLDERS' EQUITY 55,876
66,450 Total liabilities and stockholders' equity $74,316 $103,708
LOUDEYE CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended
September 30, September 30, 2005 2004 2005 2004 (in thousands,
except per share data) REVENUE $6,832 $5,080 $19,878 $10,202 COST
OF REVENUE 7,392 3,764 20,548 7,125 Gross profit (loss) (560) 1,316
(670) 3,077 Gross profit (loss) percent -8% 26% -3% 30% OPERATING
EXPENSES: Sales and marketing 1,545 1,478 5,102 2,949 Research and
development 2,694 1,325 6,730 2,668 General and administrative
3,517 3,798 10,508 7,990 Amortization of intangibles 148 41 341 191
Stock-based compensation 139 21 201 186 Special charges (credits)
-- 350 (43) 300 Total operating expenses 8,043 7,013 22,839 14,284
LOSS FROM OPERATIONS (8,603) (5,697) (23,509) (11,207) OTHER
INCOME, net 138 366 662 448 NET LOSS $(8,465) $(5,331) $(22,847)
$(10,759) Basic and diluted net loss per share $(0.08) $(0.07)
$(0.21) $(0.15) Weighted average shares outstanding 109,666 79,285
106,722 71,149 NON-GAAP INFORMATION: Net loss $(8,465) $(5,331)
$(22,847) $(10,759) Adjustments to reconcile GAAP net loss to
EBITDA: Depreciation and amortization expense 1,268 1,503 3,231
2,063 Interest (income) expense (107) (93) (396) (149) EBITDA
$(7,304) $(3,921) $(20,012) $(8,845) Basic and diluted EBITDA per
share $(0.07) $(0.05) $(0.19) $(0.12) Weighted average shares
outstanding 109,666 79,285 106,722 71,149 DATASOURCE: Loudeye Corp.
CONTACT: media, Karen Demarco of mPRm Public Relations,
+1-323-933-3399, or , for Loudeye Corp.; or investors, Mike
Dougherty of Loudeye Corp., +1-206-832-4000, or Web site:
http://www.loudeye.com/
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