Highlights for Fourth Quarter Ended December 31, 2007
For the fourth quarter of 2007, revenues were $9.9 million, compared to $4.9 million for the fourth quarter of 2006, an increase of 99%. These results for 2007 reflect $1.1 million of revenues from Digital Music Group, Inc. ("DMGI", with which The Orchard combined operations on November 13, 2007), from the date of the merger through December 31, 2007. The historical results for 2006 reflect the stand-alone results of our principal operating subsidiary, Orchard Enterprises NY, Inc.
Gross profit margin was 25.1% in the fourth quarter of 2007, as compared to 34.4% in the corresponding period of 2006. In November 2006, the Company settled an outstanding dispute with a supplier and realized a gain of $403,000 in the fourth quarter of 2006 that was recorded as a reduction of cost of revenues. Excluding this one-time settlement, gross profit margin in the fourth quarter of 2006 would have been 26.2%. Operating expenses were $4.4 million for the fourth quarter of 2007 as compared to $3.0 million for the fourth quarter of 2006.
The net loss for the fourth quarter of 2007 was $2.4 million, or $0.53 per share based on 4.6 million weighted average shares outstanding, compared with a net loss of $1.4 million, or $1.18 per share based on 1.2 million weighted average shares outstanding for the fourth quarter of 2006.
Highlights for the Year Ended December 31, 2007
For the year ended December 31, 2007, revenues were $28.5 million, compared to $14.9 million for 2006, an increase of 91%. This compares to overall digital music industry growth in 2007 of approximately 40% as reported by industry trade organization International Federation of the Phonographic Industry (IFPI). On a pro forma basis, had DMGI and The Orchard been combined as of January 1, 2006, 2007 revenues were $40.3 million, as compared to $25.1 million in 2006, an increase of 60%.
Combined revenue from digital downloads and subscription fees comprised approximately 78% of total revenues in both 2007 and 2006. Approximately 10% of 2007 revenues were derived from sales for mobile devices, as compared to 5% in 2006. Apple iTunes, the largest worldwide digital media retailer, represented 54% of total revenues in 2007, as compared to 51% in 2006.
Gross profit was $7.7 million (a 26.8% gross profit margin) for 2007, as compared to $4.2 million (28.2%) for 2006. Excluding the one-time settlement described above, gross profit margin in 2006 was 25.5%. On a pro forma combined basis, gross profit was $10.3 million for 2007 compared to $6.4 million for 2006. The gross profit margin on a pro forma basis was 25.6% of sales for 2007 compared to 25.3% of sales for 2006.
Operating expenses were $14.4 million for the year ended December 31, 2007, as compared to $9.8 million for the year ended December 31, 2006. Operating expenses in 2007 included one-time non-cash charges totaling $2.3 million related to share based compensation expense incurred by The Orchard prior to the business combination between The Orchard and DMGI. On a pro forma combined basis, operating expenses were $19.8 million for the year ended December 31, 2007, as compared to $16.1 million for the year ended December 31, 2006.
The net loss for 2007 was $7.6 million, or $3.18 per share based on 2.4 million weighted average shares outstanding for the year, compared with a net loss of $6.0 million, or $7.99 per share based on 0.7 million weighted average shares outstanding for 2006. On a pro forma combined basis, net loss was $9.3 million for 2007 compared to $8.4 million in 2006. The net loss per share on a pro forma basis was $1.56 per share for 2007 compared to $1.46 for 2006 on a basic and fully diluted basis.
Cash and cash equivalents were $10.6 million at December 31, 2007, and the Company has no debt. There were approximately 8.0 million shares outstanding on a fully diluted basis at December 31, 2007, which includes approximately 1.8 million shares reserved for the conversion of the Company's Series A convertible preferred stock and for the exercise of all outstanding stock options and warrants.
Greg Scholl, President and Chief Executive of The Orchard, said, "During 2007, we continued strong top-line growth in excess of the overall digital media market as we improved our marketing effectiveness, opened new retail store accounts, actively signed new record labels for digital distribution, and grew in new business areas. At the same time, we successfully completed our combination with Digital Music Group and their subsidiary, Digital Rights Agency. During the past four months, we have consolidated all of their operations and assets, including their large digital music and video libraries, to our New York headquarters, and we have closed their facilities in Sacramento and San Francisco. This aggressive integration and assimilation of the operations and assets of DMGI positions us to achieve cost savings and operating efficiencies beginning early in 2008." Mr. Scholl concluded, "We believe we are well-positioned to take advantage of the transformative shifts that are accelerating across the digital media landscape, and we are confident in our ability to grow revenue and maintain gross margin while controlling operating and capital expenses."
For further Company financial information, refer to the consolidated balance sheets and consolidated statements of operations attached to this release and to The Orchard's Annual Report for 2007 on Form 10-K filed today with the Securities and Exchange Commission.
Conference Call and Webcast
The Company will host a conference call on April 1, 2008 at 9:00 a.m. ET to discuss its results and provide an update on the company. Presenting from the Company will be its President and Chief Executive Officer, Greg Scholl; and its Chief Financial Officer, Nathan Fong.
To participate in the call, interested parties are invited to dial 1 (800) 299-7928 (for domestic callers) or +1 (617) 614-3926 (for international callers) at least five minutes prior to the start time. The participant passcode is 92793836. A live webcast of the call will be available on the Company's website at http://investor.theorchard.com.
A replay of the call will be available beginning one hour after the call ends by dialing 1 (888) 286-8010 (for domestic callers) or +1 (617) 801-6888 (for international callers). The reservation code is 83131337. A replay of the webcast will also be archived on The Orchard's website for at least fourteen days.
About The Orchard(R)
The Orchard (NASDAQ: ORCD | news | PowerRating | PR Charts ) controls and globally distributes more than one million songs and over 3,000 hours of video programming through hundreds of digital stores (e.g. iTunes, eMusic, Google, Netflix) and mobile carriers (e.g. Verizon, Vodafone, Bell Canada, Moderati, 3). With operations in 28 countries, The Orchard drives sales for its label, retailer, brand, and agency clients through innovative marketing and promotional campaigns; brand entertainment programs; and film, advertising, gaming and television licensing. A pioneer in digital music and media services, The Orchard fosters creativity and independence.
The Orchard is a registered trademark and The Orchard logo is a service mark of Orchard Enterprises NY, Inc. All Rights Reserved.
Forward Looking Statements
This release contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, such as the factors underlying Orchard's historical performance and the likelihood that these will result in similar future performance. Undue reliance should not be placed on such forward-looking statements as they speak only as of the date hereof and are based on our current views and assumptions. The Orchard undertakes no obligation to update these statements to reflect subsequent events or circumstances except as may be required by law. These forward-looking statements involve a number of risks and uncertainties, certain of which are outside of The Orchard's control, such as risks related to our ability to capitalize on our business strategy and risks related to our ability to take advantage of opportunities for revenue expansion. These and other factors that could cause actual results to differ materially from our expectations are detailed in The Orchard's filings with the Securities and Exchange Commission, such as our annual report on Form 10-K and subsequent quarterly reports.
Use of Non-GAAP Measures
Management believes that non-GAAP financial information presented on a pro forma combined basis included in this release are useful measures of operating performance because they include the operations of DMGI that were combined with those of The Orchard on November 13, 2007, as if the companies had been combined as of the beginning of all periods presented. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, revenue and operating expenses provided by reported operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation of the pro forma combined statements of operations to the GAAP statements is included in the attached tables of financial information.
THE ORCHARD ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS December 31, --------------------------- 2007 2006 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,636,618 $ 1,675,889 Accounts receivable -- net (including amounts from related parties of $1,075,602 at 2007 and $483,037 at 2006) 7,635,526 3,126,987 Royalty advances 3,508,417 585,575 Prepaid expenses and other current assets 440,141 174,360 ------------- ------------- Total current assets 22,220,702 5,562,811 Royalty advances, less current portion 1,257,803 183,287 Music and audio content -- net 4,168,179 134,826 Property and equipment -- net 1,045,755 651,405 Goodwill 24,327,806 -- Other assets 74,434 9,449 ------------- ------------- TOTAL ASSETS $ 53,094,679 $ 6,541,778 ============= ============= LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 1,085,270 $ 249,507 Accrued royalties 12,307,744 5,688,066 Accrued expenses 1,135,780 1,060,792 Due to affiliated entities -- 46,286 Deferred revenue 543,329 146,494 Accrued interest payable to a related party -- 1,227,937 Convertible debt payable to a related party -- 6,600,000 ------------- ------------- Total current liabilities 15,072,123 15,019,082 ------------- ------------- COMMITMENTS AND CONTINGENCIES (See Note 17) REDEEMABLE PREFERRED STOCK: Series A convertible preferred stock, $0.01 par value -- 448,833 shares designated as of December 31, 2007; 448,833 shares issued and outstanding; liquidation preference of $25,000,000 as of December 31, 2007 7,017,245 -- ------------- ------------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value -- 1,000,000 shares authorized and 448,833 shares designated as of December 31, 2007; 551,167 shares undesignated; no shares issued and outstanding as of December 31, 2007 -- -- Series A convertible preferred stock, $.001 par value -- 20,000,000 shares authorized as of December 31, 2006, 7,931,000 shares issued and outstanding -- 7,931 Series B convertible preferred stock, $.001 par value -- 20,000,000 shares authorized as of December 31, 2006, 7,931,000 shares issued and outstanding -- 7,931 Common stock, $0.01 par value -- 10,000,000 shares authorized as of December 31, 2007; 6,155,127 shares issued and outstanding 61,551 -- Common stock, $.001 par value -- 40,000,000 shares authorized as of December 31, 2006; 1,762,444 shares issued and outstanding -- 1,763 Stock subscription receivable -- (1,478) Additional paid-in capital 55,050,780 7,998,593 Accumulated deficit (24,093,210) (16,490,894) Accumulated other comprehensive loss (13,810) (1,150) ------------- ------------- Total stockholders' equity (deficit) 31,005,311 (8,477,304) ------------- ------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT) $ 53,094,679 $ 6,541,778 ============= =============
THE ORCHARD ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, ------------------------- 2007 2006 ------------ ------------ REVENUES (including amounts from related parties of $3,014,494 in 2007 and $1,783,140 in 2006) $28,548,834 $14,918,135 COST OF REVENUES (including amounts from related parties of $48,212 in 2007 and $68,797 in 2006) 20,893,414 10,717,017 ------------ ------------ GROSS PROFIT 7,655,420 4,201,118 OPERATING EXPENSES (including amounts from related parties of $195,959 in 2007 and $1,151,508 in 2006) 14,355,998 9,782,737 ------------ ------------ LOSS FROM OPERATIONS (6,700,578) (5,581,619) ------------ ------------ OTHER INCOME (EXPENSE): Beneficial conversion feature (477,430) -- Interest income 37,797 2,743 Interest expense to related party (423,009) (520,084) Other (39,096) 130,000 ------------ ------------ Total other income (expense) (901,738) (387,341) ------------ ------------ NET LOSS $(7,602,316) $(5,968,960) ============ ============ Loss per share -- basic and diluted $ (3.18) $ (7.99) ============ ============ Weighted average shares outstanding -- basic and diluted 2,390,388 747,011 ============ ============
THE ORCHARD ENTERPRISES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS For the 3 Months Ended December 31, 2007 2006 REVENUES $ 9,856,522 $ 4,939,548 COST OF REVENUES 7,377,752 3,242,043 ------------ ------------ GROSS PROFIT 2,478,770 1,697,505 OPERATING EXPENSES 4,425,790 2,955,179 ------------ ------------ LOSS FROM OPERATIONS (1,947,020) (1,257,674) ------------ ------------ OTHER INCOME (EXPENSE): Beneficial conversion feature (477,430) -- Interest income 31,768 -- Interest expense to related party -- (121,719) Other expense (39,096) -- ------------ ------------ Total other income (expense) (484,758) (121,719) NET INCOME (LOSS) $(2,431,778) $(1,379,393) ========================= Loss per share -- basic and Diluted $ (0.53) $ (1.18) ============ ============ Weighted average shares outstanding -- basic and diluted 4,579,342 1,166,414
THE ORCHARD ENTERPRISES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the Year Ended December 31, 2007 including reconciliation of reported results to pro forma combined results The Digital Orchard Music Pro Forma Enterprises Group, Inc. The Inc. (prior to Pro Forma Orchard Enterprises, Historical acquisition) Adjustments Inc. Revenue 28,548,834 11,752,784 40,301,618 Cost of Revenues 20,893,414 9,006,318 29,990,442 (683,452) 774,162 ------------------------ ----------- ------------ Gross profit 7,655,420 2,746,466 (90,710) 10,311,176 ------------------------ ----------- ------------ Gross Profit Margin 26.8% 25.6% Operating expenses 14,355,998 7,674,897 87,333 19,827,460 (421,289) Merger costs (1,869,479) ------------------------ ----------- ------------ Loss from operations (6,700,578) (4,928,431) 2,112,725 (9,516,284) ------------------------ ----------- ------------ Other income Beneficial conversion feature (477,430) (477,430) Interest income 37,797 723,874 761,671 Interest expense (423,009) (2,508) 477,430 51,913 Other (39,096) (41,474) (80,570) ------------------------ ----------- ------------ Total other income (expense) (901,738) 679,892 477,430 255,584 ------------------------ ----------- ------------ ------------------------ ----------- ------------ Loss before income taxes (7,602,316) (4,248,539) 2,590,155 (9,260,700) Income taxes (800) (800) Net income (loss) (7,603,116) (4,248,539) 2,590,155 (9,261,500) ------------------------------------------------- Earnings (loss) per share: Basic (1.56) Diluted (1.56) Weighted average shares outstanding: Basic 5,921, 193 Diluted 5,921, 193
THE ORCHARD ENTERPRISES, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the Year Ended December 31, 2006 including reconciliation of reported results to pro forma combined results Rio Bravo The Digital Entertainment Orchard Digital Music LLC Carve Enterprises Music Group, Inc. Out Segment Inc. Group, Inc. (prior to (prior to Historical Historical acquisition) acquisition) Revenue $14,918,135 $ 5,564,949 $ -- $ 63,196 Cost of revenue: Royalties and payments to content owners 10,717,017 3,329,698 -- 50,556 Amortization -- 422,489 -- -- Gross profit 4,201,118 1,812,762 -- 12,640 Operating, general & administrative expense 9,782,737 5,655,161 10,000 624 Income (loss) from operations (5,581,619) (3,842,399) (10,000) 12,016 Interest income 2,743 1,251,396 -- -- Interest expense (520,084) (13,649) (4,667) -- Other income (expense) 130,000 (16,982) -- -- Income (loss) before taxes (5,968,960) (2,621,634) (14,667) 12,016 Income taxes -- (800) -- -- Net income (loss) $(5,968,960) $(2,622,434) $ (14,667) $ 12,016 Earnings (loss) per share: Basic $ (0.97) Diluted $ (0.97) Weighted average shares outstanding: Basic 2,690,464 Diluted 2,690,464 ========== Digital Rights Agency LLC Pro Forma (prior to Pro Forma The Orchard Enterprises, acquisition) Adjustments Inc. Revenue $ 4,572,956 -- $ 25,119,236 Cost of revenue: Royalties and payments to content owners 3,880,289 17,977,560 $ 86,118 (508,607) Amortization -- 774,162 774,162 Gross profit 692,667 (351,673) 6,367,514 9,194 (166,034) Operating, general & administrative expense 733,800 87,333 16,112,815 Income (loss) from operations (41,133) (282,166) (9,745,301) Interest income 5,923 1,260,062 Interest expense (1,538) 520,084 (19,854) Other income (expense) -- 113,018 Income (loss) before taxes (36,748) 237,918 (8,392,075) Income taxes -- -- (800) Net income (loss) $ (36,748) 237,918 $ (8,392,875) Earnings (loss) per share: Basic $ (1.46) Diluted $ (1.46) Weighted average shares outstanding: Basic 5,754,723 Diluted 5,754,723 ===========
SOURCE: The Orchard
The Orchard Nathan Fong, +1-646-237-3776 Chief Financial Officer nfong@theorchard.com or Press: Chris Potter, 212-201-9280 PR@theorchard.com or Investor Relations: IR@theorchard.com http://www.theorchard.com
More News:
Market Updates |
Stock Alerts |
All Trading News |
Stock Index
|
|
