ADBL Audible (MM)

Audible, Inc. (NASDAQ: ADBL; www.audible.com), the leading provider of spoken entertainment, information, and education on the Internet, today announced financial results for the third quarter ended September 30, 2006. Audible reported consolidated net revenue for the third quarter 2006 of $20.0 million, up 19% year over year and up 5% over Q2-06 consolidated net revenue. Revenues for the nine-month period ended September 30, 2006 were $58.9 million, up 31% from the 2005 period of $45.0 million. GAAP loss from operations was $3.2 million, non-GAAP loss from operations was $1.7 million. GAAP net loss in Q3-06 was $2.5 million, or $0.10 net loss per share. Non-GAAP net loss was $1.0 million, or $0.04 net loss per basic share. Non-GAAP figures exclude the impact of stock-based compensation expenses. Total AudibleListener� members acquired during the quarter was 71,100, representing growth of 19% year over year. At the end of Q3-06, the total number of AudibleListener members was 345,200, representing growth of 54% year over year. Churn declined by 30 basis points quarter over quarter to 3.1%, and has declined 200 basis points from 5.1% in the Q3 05 period. �Despite another quarter of positive cash flow, lower churn, full quarter profitability from the combined Audible UK and iTunes UK revenue only sixteen months after launch � and the signing of a pivotal new technology integration and content distribution agreement with Apple that extends through September of 2010 � we did not achieve the top line growth we expected during the third quarter of 2006,� said Donald R. Katz, Chairman and CEO, Audible, Inc. �We continued to hold back on marketing during Q3 as our new marketing and merchandising teams tested multiple offer designs and merchandising techniques to improve conversion to AudibleListener membership plans and product consumption, several of which we plan to roll out in the coming weeks.� �While we expect continued quarter over quarter and year over year revenue growth in the fourth quarter, as well as increasing cash flow,� Mr. Katz continued, �we expect this transitional period to continue through the fourth quarter, and we are looking at 2007 as a time of far more consumer awareness of our service, profitable growth, and much better financial results in general.� In other news, the Company announced earlier today that William H. Mitchell will join Audible as Chief Financial Officer by November 20, 2006, at which time current CFO Andrew P. Kaplan will leave the Company. �We want to welcome Bill Mitchell, an extremely accomplished financial executive, to the Audible leadership team,� Mr. Katz stated, �and we want to say thanks to Andy Kaplan. Few people have had as important an effect on the Audible story as has Andy. He came to Audible seven years ago as we were creating a new digital media distribution paradigm for the spoken word. Andy arrived during a quarter in which we achieved all of $130,000 in content and services revenue, and he leaves us to become the CFO of an entrepreneurial non-profit, as Audible reports quarterly revenue more than 150 times greater than the quarter in which he arrived.� Key Financial and Operating Metrics: Consolidated Net Revenue: Consolidated net revenue totaled $20.0 million in Q3-06, a 19% increase over the $16.8 million reported in Q3-05. Total Deferred Revenue: Total deferred revenue was $11.4 million at the end of Q3-06, a 15% increase over the $9.9 million reported at the end of Q2-06 and a 256% increase over the $3.2 million reported at the end of Q3-05. Total Cash Sales: Defined as the change in deferred revenue plus consolidated net revenue, total cash sales was $21.6 million for Q3-06, a 26% increase over Q3-05. New AudibleListener� Members:* New AudibleListener members totaled 71,100 in Q3-06, a 19% increase over 59,800 in Q3-05. Total AudibleListener Members: AudibleListener members at the end of Q3-06 totaled 345,200, a 54% increase over 223,700 at the end of Q3-05. GAAP Loss from Operations: GAAP loss from operations totaled $3.2 million in Q3-06, as compared to GAAP loss from operations of $2.7 million in Q2-06 and GAAP loss from operations of $0.8 million in Q3-05. Non-GAAP Loss from Operations: Non-GAAP loss from operations totaled $1.7 million in Q3-06, as compared to Non-GAAP loss from operations of $1.2 million in Q2-06 and Non-GAAP loss from operations of $0.4 million in Q3-05. GAAP Net Loss: GAAP net loss totaled $2.5 million, or $0.10 net loss per share in Q3-06. Non-GAAP Net Loss: Non-GAAP net loss totaled $1.0 million, or $0.04 net loss per basic share in Q3-06. Operating Cash Flow: Operating cash flow totaled $2.0 million in Q3-06. Free Cash Flow: Free cash flow totaled $1.8 million in Q3-06. Cash, Cash Equivalents and Short-Term Investments: Audible�s cash, cash equivalents and short-term investments totaled $60.9 million at the end of Q3-06. * See page 9 for detailed disclosure of historical AudibleListener membership metrics Conference Call Senior management will host an investor teleconference at 5:00 p.m. EST today, to discuss third quarter results as well as related financial and operational developments. A live webcast of the conference call is available at www.audible.com/ir for audio streaming access to the call. To participate in the call, the dial-in number is (800) 236-8506 or +1(719) 457-2681. The confirmation code is 2316347. To sign up for the podcast of the earnings call through Audible Wordcast, please go to the Webcast & Presentation section of Audible�s Investor Relations Web site (www.audible.com/ir). Non-GAAP Measures To supplement the company�s consolidated financial statements presented in accordance with GAAP, Audible uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP income (loss) from operations, non-GAAP net (loss) income, and non-GAAP net (loss) income per share and exclude the impact of employee stock-based compensation expenses. Audible�s reference to these measures should be considered in addition to results that are prepared under U.S. GAAP but should not be considered a substitute for results that are presented in accordance with GAAP. These non-GAAP measures are provided to enhance investors� overall understanding of the company�s current financial performance and the company�s prospects for the future and provide further information for comparative information due to the adoption of the new accounting standard FAS 123(R) on January 1, 2006. The company believes the non-GAAP measures provide useful information to both management and investors by excluding the non-cash impact of employee stock-based compensation expenses, which may not be indicative of the company�s core operating results and business outlook. Additionally, management believes that free cash flow, a non-GAAP measure, is a useful measure of liquidity because it includes cash provided by operating activities as well as the impact of cash used for investment in property and equipment, capital lease payments, and capitalized software development costs. Management also presents total cash sales. The measure total cash sales is defined as change in deferred revenue plus consolidated net sales. Management believes that total cash sales is a useful measure when understanding the increase in deferred revenue. Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the financial table included on page 6. About Audible, Inc.: Audible (www.audible.com) is the leading provider of spoken entertainment and information on the Internet. Content from Audible is downloaded and played back on personal computers, CDs, or AudibleReady� computer-based mobile devices. Audible has more than 115,000 hours of audio programming from more than 360 content partners, including leading audiobook publishers, broadcasters, entertainers, magazine and newspaper publishers, and business information providers. Audible.com is the Apple iTunes Music Store's preeminent provider of spoken products for downloading or streaming via the Web. Among Audible's other key business relationships are Bookspan, Creative Labs, iriver, Microsoft, Palm, SanDisk, and XM Satellite Radio. Audible, www.audible.com, www.audible.co.uk, 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. This press release contains information about Audible, Inc. that is not historical fact and may be deemed to contain forward-looking statements about the company. 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 the company's Securities and Exchange Commission filings. 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, 2006� 2006� 2005� 2006� 2005� � Revenue, net: Content and services: Consumer content $ 19,565� $ 18,835� $ 16,472� $ 57,681� $ 44,469� Point of sale rebates -� (126) (208) (293) (795) Services 26� 26� 42� 85� 82� Total content and services 19,591� 18,735� 16,306� 57,473� 43,756� Hardware 73� 85� 142� 283� 332� Related party revenue 222� 257� 263� 852� 796� Other 140� 64� 60� 274� 89� Total revenue, net 20,026� 19,141� 16,771� 58,882� 44,973� � Operating expenses: Cost of content and services revenue: Royalties and other content charges 8,240� 7,720� 6,018� 23,943� 15,585� Discount certificate rebates 307� 305� 298� 910� 1,262� Total cost of content and services revenue 8,547� 8,025� 6,316� 24,853� 16,847� Cost of hardware revenue 826� 206� 846� 1,707� 1,442� Cost of related party revenue 27� 42� 48� 227� 121� Operations 2,996� 2,861� 2,461� 8,959� 6,584� Technology and development 4,758� 4,484� 2,343� 12,936� 5,812� Marketing 3,340� 3,573� 3,173� 11,214� 8,368� General and administrative 2,743� 2,663� 2,376� 8,607� 5,601� Total operating expenses 23,237� 21,854� 17,563� 68,503� 44,775� � (Loss) income from operations (3,211) (2,713) (792) (9,621) 198� � Loss on equity investment (90) (180) -� (270) -� � Other income (expense): Interest income 779� 714� 554� 2,153� 1,424� Interest expense -� -� -� -� (1) Other income, net 779� 714� 554� 2,153� 1,423� � � � � � (Loss) income before income taxes (2,522) (2,179) (238) (7,738) 1,621� � Income tax (expense) benefit (3) (3) 51� (9) (97) � � � � � Net (loss) income $ (2,525) $ (2,182) $ (187) $ (7,747) $ 1,524� � � Basic net (loss) income per common share $ (0.10) $ (0.09) $ (0.01) $ (0.32) $ 0.06� � Basic weighted average common shares outstanding 24,348,938� 24,501,629� 24,291,008� 24,443,620� 24,157,233� � Diluted net (loss) income per common share $ (0.10) $ (0.09) $ (0.01) $ (0.32) $ 0.06� � Diluted weighted average common shares outstanding 24,348,938� 24,501,629� 24,291,008� 24,443,620� 24,458,621� AUDIBLE INC. AND SUBSIDIARY NON-GAAP INFORMATION (Unaudited) (in thousands, except share and per share amounts) Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2006� 2006� 2005� 2006� 2005� � Stock-based compensation included in expense line items: Operations $ 324� $ 300� $ 43� $ 767� $ 98� Technology and development 281� 287� 57� 699� 61� Marketing 271� 321� 37� 796� 50� General and administrative 629� 655� 226� 1,900� 326� $ 1,505� $ 1,563� $ 363� $ 4,162� $ 535� � � � Reconciliation to Non-GAAP Financial Measures (unaudited) (Loss) income from operations $ (3,211) $ (2,713) $ (792) $ (9,621) $ 198� Add back: Stock-based compensation 1,505� 1,563� 363� 4,162� 535� Non-GAAP (loss) income from operations $ (1,706) $ (1,150) $ (429) $ (5,459) $ 733� � � � Reconciliation to Non-GAAP Financial Measures (unaudited) Net (loss) income $ (2,525) $ (2,182) $ (187) $ (7,747) $ 1,524� Add back: Stock-based compensation 1,505� 1,563� 363� 4,162� 535� Non-GAAP net (loss) income $ (1,020) $ (619) $ 176� $ (3,585) $ 2,059� � Non-GAAP net (loss) income per common share Basic $ (0.04) $ (0.03) $ 0.01� $ (0.15) $ 0.09� � Weighted average common shares outstanding Basic 24,348,938� 24,501,629� 24,291,008� 24,443,620� 24,157,233� � � Reconciliation to Non-GAAP Financial Measures (unaudited) Net cash provided by operating activities $ 2,043� $ 1,995� $ 3,978� $ 392� $ 9,157� Purchases of property and equipment and capital lease payments (76) (257) (390) (4,049) (2,228) Capitalized software development costs (191) (56) (768) (445) (768) Non-GAAP free cash flow $ 1,776� $ 1,682� $ 2,820� $ (4,102) $ 6,161� � � Reconciliation to Non-GAAP Financial Measures (unaudited) Total revenue, net $ 20,026� $ 19,141� $ 16,771� $ 58,882� $ 44,973� Add: Change in deferred revenue 1,526� 1,276� 285� 4,879� 798� Non-GAAP total cash sales $ 21,552� $ 20,417� $ 17,056� $ 63,761� $ 45,771� AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) � September 30, December 31, Assets 2006� 2005� (unaudited) � Current Assets: Cash and cash equivalents $ 13,556� $ 11,549� Short-term investments 47,373� 55,616� Interest receivable on short-term investments 505� 428� Accounts receivable, net of allowance 2,836� 2,337� Accounts receivable, related parties 631� 594� Royalty advances 519� 471� Prepaid expenses and other current assets 1,998� 899� Inventory 156� 498� Total current assets 67,574� 72,392� � Property and equipment, net 8,798� 8,159� Other assets 804� 114� � � Total Assets $ 77,176� $ 80,665� � Liabilities and Stockholders' Equity � Current Liabilities: Accounts payable $ 2,356� $ 4,750� Accrued expenses 4,382� 4,802� Accrued royalties 5,889� 5,104� Accrued compensation 1,069� 868� Deferred revenue, current 10,957� 6,459� Total current liabilities 24,653� 21,983� � Deferred revenue, non current 480� 99� Royalty obligations, non current 124� 188� � Commitments and contingencies � Stockholders' Equity: Common stock 242� 243� Additional paid-in capital 190,161� 192,547� Deferred compensation -� (3,696) Accumulated other comprehensive (loss) income (23) 15� Accumulated deficit (138,461) (130,714) Total Stockholders' Equity 51,919� 58,395� � � Total Liabilities and Stockholders' Equity $ 77,176� $ 80,665� AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) � Three months ended Nine months ended September 30, September 30, 2006� 2005� 2006� 2005� � Cash flows from operating activities: Net (loss) income $ (2,525) $ (190) $ (7,747) $ 1,524� Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 1,325� 300� 3,710� 677� Impairment loss on internally developed software 144� -� 144� -� Non-cash stock-based compensation charge 1,505� 363� 4,162� 535� Accretion of discounts on short-term investments (275) (306) (724) (932) Income tax effect from exercise of stock options -� (50) -� 97� Changes in assets and liabilities: Interest receivable on short-term investments (10) (90) (77) (166) Accounts receivable, net (905) 53� (496) (637) Accounts receivable, related parties (24) (131) (37) (89) Royalty advances (88) (146) (48) (401) Prepaid expenses and other current assets (301) 196� (1,098) (68) Inventory 646� 52� 345� 295� Other assets 133� (103) (688) (114) Accounts payable (345) 259� (2,402) 886� Accrued expenses 698� 1,883� (491) 2,815� Accrued royalties 773� 1,365� 773� 3,424� Accrued compensation (231) 238� 194� 513� Deferred revenue 1,523� 285� 4,872� 798� Net cash provided by operating activities 2,043� 3,978� 392� 9,157� � Cash flows from investing activities: Purchases of property and equipment (76) (390) (4,049) (2,107) Capitalized software development costs (191) (768) (445) (768) Purchases of short-term investments (24,529) (29,069) (60,098) (61,718) Proceeds from maturity of short-term investments 27,265� 28,900� 69,065� 54,900� Net cash (used in) provided by investing activities 2,469� (1,327) 4,473� (9,693) � Cash flows from financing activities: Proceeds from exercise of common stock options 31� 33� 385� 623� Proceeds from exercise of common stock warrants -� -� 750� 295� Principal payments made on capital lease obligations -� -� -� (121) Repurchase of treasury stock at cost (1,701) -� (3,988) -� Net cash (used in) provided by financing activities (1,670) 33� (2,853) 797� � Effect of exchange rate changes on cash and cash equivalents 7� -� (5) 14� � Increase in cash and cash equivalents 2,849� 2,684� 2,007� 275� � Cash and cash equivalents at beginning of period 10,707� 10,887� 11,549� 13,296� Cash and cash equivalents at end of period $ 13,556� $ 13,571� $ 13,556� $ 13,571� AUDIBLE INC. AND SUBSIDIARY UNAUDITED SUPPLEMENTAL OPERATING DATA (Numbers in thousands except where specified) 2004� 2005� 2006� New AudibleListener Membership Reporting: Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Total AudibleListener� Members1 132� 157� 186� 205� 224� 245� 279� 309� 345� Year-over-year4 n/a� n/a� 77% 77% 70% 56% 50% 51% 54% Quarter-over-quarter 14% 20% 18% 10% 9% 10% 14% 11% 12% New AudibleListener� Members2 29� 39� 54� 52� 60� 62� 79� 65� 71� Year-over-year4 n/a� n/a� 143% 141% 104% 58% 46% 25% 18% Quarter-over-quarter 35% 34% 37% -3% 15% 4% 26% -17% 9% Average Monthly Churn in AudibleListener� Members3 3.00% 2.60% 4.00% 4.70% 5.10% 4.80% 4.60% 3.40% 3.10% Cost per New AL (in whole dollars)5 $62� $64� $52� $58� $58� $95� $52� $45� $47� (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. (4) AudibleListener numbers were not announced for Q3 2003 and Q4 2003 making year-over-year comparison with 2004 not applicable (5) Cost per new AL includes all variable marketing expenses, net hardware subsidy cost, and retail rebates. Audible, Inc. (NASDAQ: ADBL; www.audible.com), the leading provider of spoken entertainment, information, and education on the Internet, today announced financial results for the third quarter ended September 30, 2006. Audible reported consolidated net revenue for the third quarter 2006 of $20.0 million, up 19% year over year and up 5% over Q2-06 consolidated net revenue. Revenues for the nine-month period ended September 30, 2006 were $58.9 million, up 31% from the 2005 period of $45.0 million. GAAP loss from operations was $3.2 million, non-GAAP loss from operations was $1.7 million. GAAP net loss in Q3-06 was $2.5 million, or $0.10 net loss per share. Non-GAAP net loss was $1.0 million, or $0.04 net loss per basic share. Non-GAAP figures exclude the impact of stock-based compensation expenses. Total AudibleListener(R) members acquired during the quarter was 71,100, representing growth of 19% year over year. At the end of Q3-06, the total number of AudibleListener members was 345,200, representing growth of 54% year over year. Churn declined by 30 basis points quarter over quarter to 3.1%, and has declined 200 basis points from 5.1% in the Q3 05 period. "Despite another quarter of positive cash flow, lower churn, full quarter profitability from the combined Audible UK and iTunes UK revenue only sixteen months after launch - and the signing of a pivotal new technology integration and content distribution agreement with Apple that extends through September of 2010 - we did not achieve the top line growth we expected during the third quarter of 2006," said Donald R. Katz, Chairman and CEO, Audible, Inc. "We continued to hold back on marketing during Q3 as our new marketing and merchandising teams tested multiple offer designs and merchandising techniques to improve conversion to AudibleListener membership plans and product consumption, several of which we plan to roll out in the coming weeks." "While we expect continued quarter over quarter and year over year revenue growth in the fourth quarter, as well as increasing cash flow," Mr. Katz continued, "we expect this transitional period to continue through the fourth quarter, and we are looking at 2007 as a time of far more consumer awareness of our service, profitable growth, and much better financial results in general." In other news, the Company announced earlier today that William H. Mitchell will join Audible as Chief Financial Officer by November 20, 2006, at which time current CFO Andrew P. Kaplan will leave the Company. "We want to welcome Bill Mitchell, an extremely accomplished financial executive, to the Audible leadership team," Mr. Katz stated, "and we want to say thanks to Andy Kaplan. Few people have had as important an effect on the Audible story as has Andy. He came to Audible seven years ago as we were creating a new digital media distribution paradigm for the spoken word. Andy arrived during a quarter in which we achieved all of $130,000 in content and services revenue, and he leaves us to become the CFO of an entrepreneurial non-profit, as Audible reports quarterly revenue more than 150 times greater than the quarter in which he arrived." Key Financial and Operating Metrics: Consolidated Net Revenue: Consolidated net revenue totaled $20.0 million in Q3-06, a 19% increase over the $16.8 million reported in Q3-05. Total Deferred Revenue: Total deferred revenue was $11.4 million at the end of Q3-06, a 15% increase over the $9.9 million reported at the end of Q2-06 and a 256% increase over the $3.2 million reported at the end of Q3-05. Total Cash Sales: Defined as the change in deferred revenue plus consolidated net revenue, total cash sales was $21.6 million for Q3-06, a 26% increase over Q3-05. New AudibleListener(R) Members:* New AudibleListener members totaled 71,100 in Q3-06, a 19% increase over 59,800 in Q3-05. Total AudibleListener Members: AudibleListener members at the end of Q3-06 totaled 345,200, a 54% increase over 223,700 at the end of Q3-05. GAAP Loss from Operations: GAAP loss from operations totaled $3.2 million in Q3-06, as compared to GAAP loss from operations of $2.7 million in Q2-06 and GAAP loss from operations of $0.8 million in Q3-05. Non-GAAP Loss from Operations: Non-GAAP loss from operations totaled $1.7 million in Q3-06, as compared to Non-GAAP loss from operations of $1.2 million in Q2-06 and Non-GAAP loss from operations of $0.4 million in Q3-05. GAAP Net Loss: GAAP net loss totaled $2.5 million, or $0.10 net loss per share in Q3-06. Non-GAAP Net Loss: Non-GAAP net loss totaled $1.0 million, or $0.04 net loss per basic share in Q3-06. Operating Cash Flow: Operating cash flow totaled $2.0 million in Q3-06. Free Cash Flow: Free cash flow totaled $1.8 million in Q3-06. Cash, Cash Equivalents and Short-Term Investments: Audible's cash, cash equivalents and short-term investments totaled $60.9 million at the end of Q3-06. * See page 9 for detailed disclosure of historical AudibleListener membership metrics Conference Call Senior management will host an investor teleconference at 5:00 p.m. EST today, to discuss third quarter results as well as related financial and operational developments. A live webcast of the conference call is available at www.audible.com/ir for audio streaming access to the call. To participate in the call, the dial-in number is (800) 236-8506 or +1(719) 457-2681. The confirmation code is 2316347. To sign up for the podcast of the earnings call through Audible Wordcast, please go to the Webcast & Presentation section of Audible's Investor Relations Web site (www.audible.com/ir). Non-GAAP Measures To supplement the company's consolidated financial statements presented in accordance with GAAP, Audible uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP income (loss) from operations, non-GAAP net (loss) income, and non-GAAP net (loss) income per share and exclude the impact of employee stock-based compensation expenses. Audible's reference to these measures should be considered in addition to results that are prepared under U.S. GAAP but should not be considered a substitute for results that are presented in accordance with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future and provide further information for comparative information due to the adoption of the new accounting standard FAS 123(R) on January 1, 2006. The company believes the non-GAAP measures provide useful information to both management and investors by excluding the non-cash impact of employee stock-based compensation expenses, which may not be indicative of the company's core operating results and business outlook. Additionally, management believes that free cash flow, a non-GAAP measure, is a useful measure of liquidity because it includes cash provided by operating activities as well as the impact of cash used for investment in property and equipment, capital lease payments, and capitalized software development costs. Management also presents total cash sales. The measure total cash sales is defined as change in deferred revenue plus consolidated net sales. Management believes that total cash sales is a useful measure when understanding the increase in deferred revenue. Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the financial table included on page 6. About Audible, Inc.: Audible (www.audible.com) is the leading provider of spoken entertainment and information on the Internet. Content from Audible is downloaded and played back on personal computers, CDs, or AudibleReady(R) computer-based mobile devices. Audible has more than 115,000 hours of audio programming from more than 360 content partners, including leading audiobook publishers, broadcasters, entertainers, magazine and newspaper publishers, and business information providers. Audible.com is the Apple iTunes Music Store's preeminent provider of spoken products for downloading or streaming via the Web. Among Audible's other key business relationships are Bookspan, Creative Labs, iriver, Microsoft, Palm, SanDisk, and XM Satellite Radio. Audible, www.audible.com, www.audible.co.uk, 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. This press release contains information about Audible, Inc. that is not historical fact and may be deemed to contain forward-looking statements about the company. 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 the company's Securities and Exchange Commission filings. -0- *T AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (Unaudited) Three months ended --------------------------------------- September 30, June 30, September 30, 2006 2006 2005 ------------- ----------- ------------- Revenue, net: Content and services: Consumer content $19,565 $18,835 $16,472 Point of sale rebates - (126) (208) Services 26 26 42 ------------- ----------- ------------- Total content and services 19,591 18,735 16,306 Hardware 73 85 142 Related party revenue 222 257 263 Other 140 64 60 ------------- ----------- ------------- Total revenue, net 20,026 19,141 16,771 Operating expenses: Cost of content and services revenue: Royalties and other content charges 8,240 7,720 6,018 Discount certificate rebates 307 305 298 ------------- ----------- ------------- Total cost of content and services revenue 8,547 8,025 6,316 Cost of hardware revenue 826 206 846 Cost of related party revenue 27 42 48 Operations 2,996 2,861 2,461 Technology and development 4,758 4,484 2,343 Marketing 3,340 3,573 3,173 General and administrative 2,743 2,663 2,376 ------------- ----------- ------------- Total operating expenses 23,237 21,854 17,563 ------------- ----------- ------------- (Loss) income from operations (3,211) (2,713) (792) Loss on equity investment (90) (180) - Other income (expense): Interest income 779 714 554 Interest expense - - - ------------- ----------- ------------- Other income, net 779 714 554 ------------- ----------- ------------- (Loss) income before income taxes (2,522) (2,179) (238) Income tax (expense) benefit (3) (3) 51 ------------- ----------- ------------- Net (loss) income $(2,525) $(2,182) $(187) ============= =========== ============= Basic net (loss) income per common share $(0.10) $(0.09) $(0.01) Basic weighted average common shares outstanding 24,348,938 24,501,629 24,291,008 Diluted net (loss) income per common share $(0.10) $(0.09) $(0.01) Diluted weighted average common shares outstanding 24,348,938 24,501,629 24,291,008 Nine months ended --------------------------- September 30, September 30, 2006 2005 ------------- ------------- Revenue, net: Content and services: Consumer content $57,681 $44,469 Point of sale rebates (293) (795) Services 85 82 ------------- ------------- Total content and services 57,473 43,756 Hardware 283 332 Related party revenue 852 796 Other 274 89 ------------- ------------- Total revenue, net 58,882 44,973 Operating expenses: Cost of content and services revenue: Royalties and other content charges 23,943 15,585 Discount certificate rebates 910 1,262 ------------- ------------- Total cost of content and services revenue 24,853 16,847 Cost of hardware revenue 1,707 1,442 Cost of related party revenue 227 121 Operations 8,959 6,584 Technology and development 12,936 5,812 Marketing 11,214 8,368 General and administrative 8,607 5,601 ------------- ------------- Total operating expenses 68,503 44,775 ------------- ------------- (Loss) income from operations (9,621) 198 Loss on equity investment (270) - Other income (expense): Interest income 2,153 1,424 Interest expense - (1) ------------- ------------- Other income, net 2,153 1,423 ------------- ------------- (Loss) income before income taxes (7,738) 1,621 Income tax (expense) benefit (9) (97) ------------- ------------- Net (loss) income $(7,747) $1,524 ============= ============= Basic net (loss) income per common share $(0.32) $0.06 Basic weighted average common shares outstanding 24,443,620 24,157,233 Diluted net (loss) income per common share $(0.32) $0.06 Diluted weighted average common shares outstanding 24,443,620 24,458,621 *T -0- *T AUDIBLE INC. AND SUBSIDIARY NON-GAAP INFORMATION (Unaudited) (in thousands, except share and per share amounts) Three months ended --------------------------------------- September 30, June 30, September 30, 2006 2006 2005 ------------- ----------- ------------- Stock-based compensation included in expense line items: Operations $324 $300 $43 Technology and development 281 287 57 Marketing 271 321 37 General and administrative 629 655 226 ------------- ----------- ------------- $1,505 $1,563 $363 ------------- ----------- ------------- Reconciliation to Non-GAAP Financial Measures (unaudited) (Loss) income from operations $(3,211) $(2,713) $(792) Add back: Stock-based compensation 1,505 1,563 363 ------------- ----------- ------------- Non-GAAP (loss) income from operations $(1,706) $(1,150) $(429) ============= =========== ============= Reconciliation to Non-GAAP Financial Measures (unaudited) Net (loss) income $(2,525) $(2,182) $(187) Add back: Stock-based compensation 1,505 1,563 363 ------------- ----------- ------------- Non-GAAP net (loss) income $(1,020) $(619) $176 ============= =========== ============= Non-GAAP net (loss) income per common share Basic $(0.04) $(0.03) $0.01 Weighted average common shares outstanding Basic 24,348,938 24,501,629 24,291,008 Reconciliation to Non-GAAP Financial Measures (unaudited) Net cash provided by operating activities $2,043 $1,995 $3,978 Purchases of property and equipment and capital lease payments (76) (257) (390) Capitalized software development costs (191) (56) (768) ------------- ----------- ------------- Non-GAAP free cash flow $1,776 $1,682 $2,820 ============= =========== ============= Reconciliation to Non-GAAP Financial Measures (unaudited) Total revenue, net $20,026 $19,141 $16,771 Add: Change in deferred revenue 1,526 1,276 285 ------------- ----------- ------------- Non-GAAP total cash sales $21,552 $20,417 $17,056 ============= =========== ============= Nine months ended --------------------------- September 30, September 30, 2006 2005 ------------- ------------- Stock-based compensation included in expense line items: Operations $767 $98 Technology and development 699 61 Marketing 796 50 General and administrative 1,900 326 ------------- ------------- $4,162 $535 ------------- ------------- Reconciliation to Non-GAAP Financial Measures (unaudited) (Loss) income from operations $(9,621) $198 Add back: Stock-based compensation 4,162 535 ------------- ------------- Non-GAAP (loss) income from operations $(5,459) $733 ============= ============= Reconciliation to Non-GAAP Financial Measures (unaudited) Net (loss) income $(7,747) $1,524 Add back: Stock-based compensation 4,162 535 ------------- ------------- Non-GAAP net (loss) income $(3,585) $2,059 ============= ============= Non-GAAP net (loss) income per common share Basic $(0.15) $0.09 Weighted average common shares outstanding Basic 24,443,620 24,157,233 Reconciliation to Non-GAAP Financial Measures (unaudited) Net cash provided by operating activities $392 $9,157 Purchases of property and equipment and capital lease payments (4,049) (2,228) Capitalized software development costs (445) (768) ------------- ------------- Non-GAAP free cash flow $(4,102) $6,161 ============= ============= Reconciliation to Non-GAAP Financial Measures (unaudited) Total revenue, net $58,882 $44,973 Add: Change in deferred revenue 4,879 798 ------------- ------------- Non-GAAP total cash sales $63,761 $45,771 ============= ============= *T -0- *T AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) September 30, December 31, Assets 2006 2005 ------------- ------------ (unaudited) Current Assets: Cash and cash equivalents $13,556 $11,549 Short-term investments 47,373 55,616 Interest receivable on short-term investments 505 428 Accounts receivable, net of allowance 2,836 2,337 Accounts receivable, related parties 631 594 Royalty advances 519 471 Prepaid expenses and other current assets 1,998 899 Inventory 156 498 ------------- ------------ Total current assets 67,574 72,392 Property and equipment, net 8,798 8,159 Other assets 804 114 ------------- ------------ Total Assets $77,176 $80,665 ============= ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $2,356 $4,750 Accrued expenses 4,382 4,802 Accrued royalties 5,889 5,104 Accrued compensation 1,069 868 Deferred revenue, current 10,957 6,459 ------------- ------------ Total current liabilities 24,653 21,983 Deferred revenue, non current 480 99 Royalty obligations, non current 124 188 Commitments and contingencies Stockholders' Equity: Common stock 242 243 Additional paid-in capital 190,161 192,547 Deferred compensation - (3,696) Accumulated other comprehensive (loss) income (23) 15 Accumulated deficit (138,461) (130,714) ------------- ------------ Total Stockholders' Equity 51,919 58,395 ------------- ------------ Total Liabilities and Stockholders' Equity $77,176 $80,665 ============= ============ *T -0- *T AUDIBLE INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 2006 2005 2006 2005 --------- -------- -------- -------- Cash flows from operating activities: Net (loss) income $(2,525) $(190) $(7,747) $1,524 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 1,325 300 3,710 677 Impairment loss on internally developed software 144 - 144 - Non-cash stock-based compensation charge 1,505 363 4,162 535 Accretion of discounts on short- term investments (275) (306) (724) (932) Income tax effect from exercise of stock options - (50) - 97 Changes in assets and liabilities: Interest receivable on short- term investments (10) (90) (77) (166) Accounts receivable, net (905) 53 (496) (637) Accounts receivable, related parties (24) (131) (37) (89) Royalty advances (88) (146) (48) (401) Prepaid expenses and other current assets (301) 196 (1,098) (68) Inventory 646 52 345 295 Other assets 133 (103) (688) (114) Accounts payable (345) 259 (2,402) 886 Accrued expenses 698 1,883 (491) 2,815 Accrued royalties 773 1,365 773 3,424 Accrued compensation (231) 238 194 513 Deferred revenue 1,523 285 4,872 798 --------- -------- -------- -------- Net cash provided by operating activities 2,043 3,978 392 9,157 --------- -------- -------- -------- Cash flows from investing activities: Purchases of property and equipment (76) (390) (4,049) (2,107) Capitalized software development costs (191) (768) (445) (768) Purchases of short-term investments (24,529) (29,069) (60,098) (61,718) Proceeds from maturity of short- term investments 27,265 28,900 69,065 54,900 --------- -------- -------- -------- Net cash (used in) provided by investing activities 2,469 (1,327) 4,473 (9,693) --------- -------- -------- -------- Cash flows from financing activities: Proceeds from exercise of common stock options 31 33 385 623 Proceeds from exercise of common stock warrants - - 750 295 Principal payments made on capital lease obligations - - - (121) Repurchase of treasury stock at cost (1,701) - (3,988) - --------- -------- -------- -------- Net cash (used in) provided by financing activities (1,670) 33 (2,853) 797 --------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents 7 - (5) 14 --------- -------- -------- -------- Increase in cash and cash equivalents 2,849 2,684 2,007 275 Cash and cash equivalents at beginning of period 10,707 10,887 11,549 13,296 --------- -------- -------- -------- Cash and cash equivalents at end of period $13,556 $13,571 $13,556 $13,571 ========= ======== ======== ======== *T -0- *T AUDIBLE INC. AND SUBSIDIARY UNAUDITED SUPPLEMENTAL OPERATING DATA (Numbers in thousands except where specified) 2004 2005 2006 --------------------------------------------------- New AudibleListener Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Membership Reporting: ------------------- Total AudibleListener(R) Members(1) 132 157 186 205 224 245 279 309 345 Year-over-year(4) n/a n/a 77% 77% 70% 56% 50% 51% 54% Quarter-over- quarter 14% 20% 18% 10% 9% 10% 14% 11% 12% New AudibleListener(R) Members(2) 29 39 54 52 60 62 79 65 71 Year-over-year(4) n/a n/a 143% 141% 104% 58% 46% 25% 18% Quarter-over- quarter 35% 34% 37% -3% 15% 4% 26% -17% 9% Average Monthly Churn in AudibleListener(R) Members(3) 3.00%2.60%4.00% 4.70% 5.10% 4.80% 4.60% 3.40% 3.10% Cost per New AL (in whole dollars)(5) $62 $64 $52 $58 $58 $95 $52 $45 $47 *T -0- *T (1) Total number of AudibleListener(R) members at the end of the period. (2) Total number of new AudibleListener(R) 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. (4) AudibleListener numbers were not announced for Q3 2003 and Q4 2003 making year-over-year comparison with 2004 not applicable (5) Cost per new AL includes all variable marketing expenses, net hardware subsidy cost, and retail rebates. *T