SANTA MONICA, Calif., Nov. 16, 2006 (PRIMEZONE) -- ARTISTdirect, Inc. (OTCBB:ARTD), a digital media entertainment company that is one of the leading providers of anti-piracy solutions in the Internet-piracy-protection industry and that is also home to an online music network, today reported results for its third quarter ended September 30, 2006.
Total net revenue for the third quarter of 2006 climbed 66 percent to $6,393,000 from $3,852,000 for the third quarter of 2005. Income from continuing operations for the third quarter of 2006 was $13,000, or $0.00 per basic and diluted common share, compared to a net loss from continuing operations of $671,000, or $0.16 per basic and diluted common share for the third quarter of 2005. Excluding a non-cash gain of $887,000 relating to a decrease in warrant liability during the third quarter of 2006, the company would have reported a loss from continuing operations of $874,000 for such period, or $0.09 per basic and diluted common share.
For the first nine months of 2006, total net revenue more than doubled to $17,635,000 from $8,311,000 for the first nine months of 2005. Net loss from continuing operations for the first nine months of 2006 was $14,119,000, or $1.70 per basic and diluted common share, compared with a net loss from continuing operations of $442,000, or $0.12 per basic common share and $0.11 per diluted common share for the first nine months of 2005. Excluding a non-cash loss of $9,452,000 related to an increase in warrant liability and other non-cash equity-based charges aggregating $1,334,000 during the first nine months of 2006, the company would have reported a loss from continuing operations of $3,333,000 for such period, or $0.40 per basic and diluted common share.
"The company achieved significant progress during the third quarter in further executing its strategy to establish our organization as the premier provider of online digital anti-piracy solutions and innovative related technologies. File-sharing networks continue to attract the largest audience for media in the world, with the digital revolution providing substantial opportunities for the company to protect and monetize the intellectual property and the enhance revenue streams of our clients," said Jon Diamond, chief executive officer of ARTISTdirect, Inc.
Diamond highlighted the recent appointment of entertainment industry veteran and former chairman and chief executive officer of Viacom Entertainment Group Jonathan Dolgen as a senior consultant to the company - supporting the company's initiatives within the music, film, television and software industries related to infringements of intellectual property on the major global peer-to-peer networks.
Due to the acquisition of MediaDefender, Inc. in July 2005, the consolidated statements of operations for the three months and nine months ended September 30, 2006 are not directly comparable to the three months and nine months ended September 30, 2005. In order to provide a comparable performance measure for the combined company, pro forma information for the three months and nine months ended September 30, 2005 is presented below in the Pro Forma section as though ARTISTdirect and MediaDefender had been combined as of the beginning of fiscal 2005. Also affecting comparability was the adoption of Statement of Financial Accounting Standards No. 123R (revised 2004), "Share-Based Payment", effective January 1, 2006, general and administrative expense included stock-based (non-cash) compensation of $652,000 and $1,736,000 for the three months and nine months ended September 30, 2006, respectively, compared to $24,000 and $47,000 for the three months and nine months ended September 30, 2005, respectively.
For purposes of evaluating operating performance, management uses "Adjusted EBITDA", a non-GAAP financial measure that represents income or loss from continuing operations before net interest expense, provision for income taxes, depreciation and amortization, and also excludes certain other items, including stock-based compensation, adjustment to warrant liability, non-cash financing costs and related write-offs, impairment losses, and non-recurring gains and losses. Management excludes these items in assessing financial performance, primarily due to their non-operational nature or because they are outside of the company's normal operations. ARTISTdirect has provided this information because it believes that it is useful to investors in understanding the company's financial condition and results of operations. As summarized below, for the three months ended September 30, 2006, Adjusted EBITDA was $2,363,000, compared with $1,156,000 for the three months ended September 30, 2005. For the nine months ended September 30, 2006, Adjusted EBITDA was $5,328,000, compared with $1,453,000 for the nine months ended September 30, 2005.
Presented below is a summary of Net Revenue and Adjusted EBITDA by operating segment for the three months and nine months ended September 30, 2006 and 2005. Included in Adjusted EBITDA are direct operating expenses for each segment on an historical basis. Corporate expenses consist of general operating expenses that are not directly related to the operations of the segments.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
2006 2005 2006 2005
--------- -------- -------- --------
Net Revenue:
E-commerce $ 663 $ 603 $ 1,917 $ 1,890
Media 1,572 913 3,937 4,085
Anti-piracy and
redirect services 4,158 2,336 11,781 2,336
-------- -------- -------- --------
$ 6,393 $ 3,852 $ 17,635 $ 8,311
======== ======== ======== ========
Adjusted EBITDA:
E-commerce $ 27 $ 47 $ 33 $ 154
Media 771 251 1,495 1,700
Anti-piracy and
redirect services 2,435 1,422 7,230 1,422
-------- -------- -------- --------
3,233 1,720 8,758 3,276
Corporate (870) (564) (3,430) (1,823)
-------- -------- -------- --------
$ 2,363 $ 1,156 $ 5,328 $ 1,453
======== ======== ======== ========
Anti-piracy and redirect services revenue was $4,158,000 for the three months ended September 30, 2006, or 65 percent of the company's total net revenue for the period. Anti-piracy services Adjusted EBITDA was $2,435,000 for the three months ended September 30, 2006, reflecting a net operating margin of approximately 59 percent. The company expects that this business will continue to provide a significant proportion of its future revenues, Adjusted EBITDA, and operating cash flows. The company intends to make continuing investments in this business.
Media segment revenue increased 72 percent to $1,572,000 for the three months ended September 30, 2006, compared with $913,000 for the same period in 2005, reflecting improved internet traffic and page views and additional ancillary traffic associated with the acquisition of MediaDefender. For the nine months ended September 30, 2006, media revenue was down by 4 percent to $3,937,000, compared with $4,085,000 for the same period in 2005, primarily due to a short-term successful click-through program with a major advertiser/sponsor during the second quarter of 2005 of $1,786,000 that, as designed, was completed on June 30, 2005.
Anti-piracy and redirect services revenue was $11,781,000 for the nine months ended September 30, 2006, or 67 percent of the company's total net revenue for the period. Anti-piracy services Adjusted EBITDA was $7,230,000 for the nine months ended September 30, 2006, reflecting a net operating margin of approximately 61 percent.
Presented below is a reconciliation of Adjusted EBITDA to Net Income (Loss) for the three months and nine months ended September 30, 2006 and 2005.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2006 2005 2006 2005
------- -------- --------- --------
Reconciliation of
Adjusted EBITDA to
Net Income (Loss):
Adjusted EBITDA per
segments $ 2,363 $ 1,156 $ 5,328 $ 1,453
Add (deduct):
Stock-based compensation (652) (24) (1,736) (47)
Depreciation (145) (852) (405) (907)
Amortization of intangible
assets (937) -- (2,813) --
Amortization of deferred
financing costs (197) -- (600) --
Write-off of unamortized
discount on debt and
deferred financing costs
due to conversion of
subordinated convertible
notes payable and pay
down on senior secured
notes payable -- -- (537) --
Interest income 45 7 76 17
Interest expense, including
amortization of discount
on debt of $132 and $401
for the three months and
nine months ended
September 30, 2006,
respectively, and $101 for
the three months and nine
months ended
September 30, 2005 (825) (622) (2,449) (622)
Adjustment to warrant
liability 887 -- (9,452) --
Reduction in exercise price
of warrants -- -- (797) --
Provision for income taxes (536) (336) (797) (336)
Other income 10 -- 63 --
Loss from discontinued
operations of ARTISTdirect
Records, LLC -- -- -- (271)
Gain from sale of
ARTISTdirect Records, LLC -- -- -- 21,079
------- -------- --------- --------
Net income (loss) $ 13 $ (671) $ (14,119) $ 20,366
======= ======== ========= ========
Information with respect to the adjustments noted above is contained in the company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2006, as filed with the Securities and Exchange Commission on November 14, 2006.
Pro Forma Results:
As noted above, ARTISTdirect completed the acquisition of its anti-piracy business in July 2005 by purchasing all of the outstanding shares of MediaDefender, Inc. for a total purchase price of $42,500,000 cash. ARTISTdirect funded the acquisition through the issuance of $15,000,000 of senior secured notes payable, $30,000,000 of subordinated convertible notes payable, and warrants to purchase common stock, to several accredited investors.
This transaction was accounted for as a purchase in accordance with SFAS No. 141, "Business Combinations", and the operations of the two companies have been consolidated commencing July 28, 2005. Accordingly, ARTISTdirect's consolidated results of operations for the three months and nine months ended September 30, 2006 include MediaDefender's operations for such periods, and are therefore not directly comparable to ARTISTdirect's consolidated results of operations for the same periods a year ago. In order to provide information on the trends and on-going performance of the combined companies, pro forma information is presented below as though the operations of ARTISTdirect and MediaDefender had been combined as of the beginning of fiscal 2005.
Presented below is a summary of Pro Forma Net Revenue and Adjusted EBITDA by operating segment for the three months and nine months ended September 30, 2005. Included in Adjusted EBITDA are direct operating expenses for each segment. Corporate expenses consist of general operating expenses that are not directly related to the operations of the segments.
Three Months Nine Months
Ended Ended
September 30, September 30,
Pro Forma 2005 2005
----------------------------- ------------- -------------
Net Revenue:
E-commerce $ 603 $ 1,890
Media 913 4,085
Anti-piracy services 3,377 9,002
--------- ---------
$ 4,893 14,977
========= =========
Adjusted EBITDA:
E-commerce $ 47 $ 154
Media 251 1,735
Anti-piracy services 2,219 5,707
--------- ---------
2,517 7,596
Corporate (675) (2,295)
--------- ---------
$ 1,842 $ 5,301
========= =========
Presented below is a reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Loss for the three months and nine months ended September 30, 2005.
Three Months Nine Months
Ended Ended
September 30, September 30,
Pro Forma 2005 2005
----------------------------- ------------- -------------
Reconciliation of
Adjusted EBITDA to Net Loss:
Adjusted EBITDA $ 1,842 $ 5,301
Add (deduct):
Stock-based compensation (24) (47)
Depreciation (101) (320)
Amortization of intangible
assets (938) (2,816)
Amortization of deferred
financing costs (218) (650)
Interest income 13 36
Interest expense, including
amortization of discount on
debt of $150 and $436 for the
three months and nine months
ended September 30, 2005,
respectively (898) (2,660)
Provision for income taxes (402) (1,117)
--------- ---------
Net loss $ (726) $(2,273)
========= =========
Information with respect to the adjustments noted above is contained in the company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2006, as filed with the Securities and Exchange Commission on November 14, 2006.
About ARTISTdirect, Inc.
ARTISTdirect, Inc. is a digital media entertainment company that is home to an online music network and, through its acquisition of MediaDefender, is one of the leading providers of anti-piracy solutions in the Internet-piracy-protection industry. The ARTISTdirect Network (http://www.artistdirect.com) is a network of web-sites offering multi-media content, music news and information, communities organized around shared music interests, music-related specialty commerce and digital music services.
Additional information with regard to the matters discussed in this news release can be found in ARTISTdirect's Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 2005, and Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2006, as filed with the U.S. Securities and Exchange Commission on April 28, 2006 and November 14, 2006, respectively.
Forward-Looking Statements:
This news release may contain "forward-looking" statements, which are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, and include words such as "anticipates," "expects," "intends," "plans," "believes," "may," "will" or similar expressions that are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward- looking statements. Such statements include, but are not limited to, statements concerning the Company's business model and outlook, competition in its business segments, online product sales, advertising and other revenue streams, the Company's ability to increase visits to its web-site, the level of acceptance and satisfaction of its products and services by its customers, its ability to adequately fund its operations, its ability to offer compelling content, its ability to fulfill online music and merchandise orders in a timely manner, its ability to build brand recognition, its ability to integrate its acquisition of MediaDefender and the acquisitions of technology and other businesses, its ability to protect, obtain and/or develop intellectual property rights and proprietary technology, its ability to manage changing technologies and markets, its ability to service its debt obligations, and its ability to manage growth. Such statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, the Company's actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Except as required by applicable law or regulation, the company undertakes no obligation to revise or update any forward-looking statements contained herein in order to reflect future events or circumstances.
ARTIST direct, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(amounts in thousands, except for share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2006 2005 2006 2005
-------- -------- --------- ---------
Net revenue:
E-commerce $ 663 $ 603 $ 1,917 $ 1,890
Media 1,572 913 3,937 4,085
Anti-piracy and redirect
services 4,158 2,336 11,781 2,336
------ -------- --------- ---------
Total net revenue 6,393 3,852 17,635 8,311
------ -------- --------- ---------
Cost of revenue:
E-commerce 612 528 1,799 1,659
Media 709 575 2,110 2,143
Anti-piracy and redirect
services 2,040 1,069 5,617 1,069
------ -------- --------- ---------
Total cost of revenue 3,361 2,172 9,526 4,871
------ -------- --------- ---------
Gross profit 3,032 1,680 8,109 3,440
------ -------- --------- ---------
Operating expenses:
Sales and marketing 296 185 839 262
General and administrative,
including stock-based
compensation of $652
and $24 for the three
months ended
September 30, 2006 and
2005, respectively
and $1,736 and $47 for
the nine months ended
September 30, 2006 and
2005, respectively 2,107 1,062 6,896 2,526
------ -------- --------- ---------
Total operating costs 2,403 1,247 7,735 2,788
------ -------- --------- ---------
Income from operations 629 433 374 652
Other income (expense):
Interest income 45 7 76 17
Interest expense (825) (622) (2,449) (622)
Other income 10 -- 63 --
Adjustment to warrant
liability 887 -- (9,452) --
Reduction in exercise
price of warrants -- -- (797) --
Amortization of deferred
financing costs (197) (153) (600) (153)
Write-off of unamortized
discount on debt and
deferred financing costs
due to conversion of
subordinated
convertible notes
payable and pay down
on senior secured
notes payable -- -- (537) --
------ -------- --------- ---------
Income (loss) from
continuing operations
before income
taxes 549 (335) (13,322) (106)
Provision for income
taxes 536 336 797 336
------ -------- --------- ---------
Income (loss) from
continuing operations 13 (671) (14,119) (442)
Income (loss) from
discontinued operations:
Loss from operations
of ARTISTdirect
Records, LLC -- -- -- (271)
Gain from sale of
interest in
ARTISTdirect Records,
LLC (substantially
all non-cash) -- -- -- 21,079
------ -------- --------- ---------
Income from discontinued
operations -- -- -- 20,808
------ -------- --------- ---------
Net income (loss) $ 13 $ (671) $ (14,119) $ 20,366
====== ======== ========= =========
Net income (loss) per common share for the three months and nine
months ended September 30, 2006 and 2005 is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------
2006 2005 2006 2005
---------- --------- --------- ---------
Net income (loss) per
common share - basic:
From continuing
operations $ 0.00 $ (0.16) $ (1.70) $ (0.12)
From discontinued
operations -- -- -- 5.55
---------- --------- --------- ---------
Net income (loss) $ 0.00 $ (0.16) $ (1.70) $ 5.43
========== ========= ========= =========
Net income (loss)
per common share
- diluted:
From continuing
operations $ 0.00 $ (0.16) $ (1.70) $ (0.11)
From discontinued
operations -- -- -- 5.03
---------- --------- --------- ---------
Net income (loss) $ 0.00 $ (0.16) $ (1.70) $ 4.92
========== ========= ========= =========
Weighted average
common shares
outstanding:
Basic 9,998,755 4,241,472 8,296,876 3,748,569
========== ========= ========= =========
Diluted 32,468,871 4,241,472 8,296,876 4,136,255
========== ========= ========= =========