Audible Earnings Call

I listened to the eCollege and Audible conference calls earlier today. Audible had its first operating profit in its six year history. Another dot com survivor! Last summer it was trading at $0.50 per share. I bought a lot of shares at that price and sold them on 12/31 at just under $4.00. Now it is approaching $5.00.

Whenever I read news about companies or take notes during conference calls, I store my notes in my personal knowledge base (now a 125 MB file that is powered by Folio VIEWS).

I track Audible because of our company, which has a similar business model, although a much narrower market. I track eCollege because higher education is of great interest to me and my brother’s company Agilix is working on many partnerships in the higher ed space.

If you’ve never listened in on an earnings call for a publicly traded company, you’ll missing some choice information as the CEO and CFO explain the financial statements and talk about products, channels, partnerships, etc. It’s almost like sitting in on a board of directors meeting. You can see a schedule on earnings calls on Yahoo Finance. For example, here are the conference calls scheduled for May 5, 2004.

Here are my notes about Audible.

“They have converted all preferred shares to common (Feb 6, 2004) and will be doing a reverse stock split, so they can get relisted with NASDAQ. $6.6 million in revenue for Q1. 24th quarter of double-digit revenue growth quarter over quarter out of 25 quarters in business. Record number of new customers: 33,000. 23,000 new AudibleListener members. 344,000 total customers does not include iTunes customers. Free cash flow: $312,000. GAAP net income was positive for the first time. More partnership deals signed., Nebraskamart. Apple relationship. 500 new hours of content per week being added. Business is 80% driven by recurrent revenue. Projecting $28-30 million in revenue this year; $1.0 to $1.4 million net income before preferred stock conversion. Cash cost was $31 per new customer; down from $42 per customer in preceding quarter. Factors: 1) Spillover from earlier marketing 2) improved marketing 3) Lower costs for Otis players. As of end of March they have no preferred shares remaining. They had to offer 1 million warrants at $7 per share to induce the conversion. $226,000 in cash came from employees exercising options and others exercising warrants. Outstanding shares: 66.3 million common shares, 9 million options, 3.2 million options. 75.9 million fully diluted. 50% year over year increase in gifts bought in Q4. They are working with electronic retailers to get annual subscribers to AudibleListeners. ipod mini supplies were short and hurt our efforts in retail. Their biz dev team has extended Audible Ready to over 60 separate mp3 players. They expect another 20 in the next 6 months. They are working on in-car, in-home devices and a gaming device. Gateway will ship a new device in the next few days. Zire just shipped an Audible-ready device, under $299. Color screen, digital camera. In the 90s everyone thought you should be technology agnostic; but they have defined and control an inter-operable layer of technology. It seems clear that the wireless media platforms coming … Chief Scientist, Guy Starrie (sic), in early 1996 envisioned first portable player. Working with OEDs, original equipment designers. Portal Player makes tech guts of IPOD. Digital rights management plus key user experience features, customized to the spoken audio experience. Automatic bookmarking of programs. Instant skipping between stories in newspapers. DRM features not present in other systems. User targeting, devices and content are licensed. AudibleReady can be customized to different platforms, Treo smart phone … pauses playback during phone call, then resumes. Windows IPOD users; they have posted a download allowing seamless transfer to Audible content into IPOD playlists. Giving free devices away for customers who commit for one year, was a business model innovation. Began it in 2000. More than 80% took a free device then. In Q1 2004, only 29% took a new device. Audible OTIS, 64MB was made by a third party. This month we’ll upgrade the device at a lower manufactured cost: Moovo, 128MB. Our success in getting annual subs from online retail continues to improve. Crutchfield catalog. Mobile Planet. 20-store MicroCenter. Just recently, Amazon consumer electronics shop. PalmOne sells 5000 pdas per week. Soon:, Nebraskamart. We are granting gift certificates instead of instant rebates with some partners. We are experimenting with price points. A surge came when we announced our $100 off ipod, or zire, would be coming down to $75 off. iTunes sent an email discounting major titles; it was very successful. Last week we announced Penn State University deal. They will get a small revenue share to promote audible in other school channels. We are going deeper in the education space. This is a probe. We’re defining IPOD as entertainment and education tool. We are up to 45,000 hours of downloadable programming with 500 new hours per week. We have renewed relationships with Simon & Schuster, Time Warner. FranklinCovey: Seven Habits. We added LA radio program with a cult-like following. We offered free downloads of individual 9/11 commission testimonies. Partnership with CSPAN. NY Times wrote about this. We got a link. We got 90,000 downloads of AudibleManager and email addresses. We offered free downloads to students and teachers in NJ–Everest climber daily reports. We are working on conversion programs for these new registrants. International expansion and wireless delivery progress: we’ll report on it later. They are working on Nasdaq Small Cap will occur after June reverse stock split. Then later, regular Nasdaq. Median share count of public companies within $100 million market cap of ours is 26 million shares.


Q. Mark Argento. How many subs came through $100 promo offer? Churn rate of existing customers? Ave rev per subscriber? Trending?

A. 1600. We only had J&R at the end of Q4, we added several others…

A. Churn: remains about 3% per month; it hasn’t changed much in last 6-9 months.

A. ARPU: About 80% of our revenue is recurring; 20% is a la carte. A significant part of that is purchases from customers who are above the plan.

Q. Progress on having content providers promote you?

A. We have a relationship with CarTalk and This American Life. They mention us on air; they promote us on web site. We give them a small bounty. NY Times has ways of converting traffic. And public radio in general. Amazon and Apple are a different class. Retail partners are different again. 

Q. Phil Zucky. Have you considered outsourcing your … ? Capex for year? Akamai … 

A. Never have considered outsourcing whatever it was … we experimented with outsourcing customer service, but it’s too much an extension of marketing. If there was a better platform, we’d consider it.

Q. Breakout of customers who get the rebate vs. those who have their device?A. Churn rate on customers with 12-month commitment is lower than 3% per month. People with their own device is above 3% per month. After commitment is up, the churn rate on those with 12-month commitment is more like those with own device. After 2 years, churn rate is lower for those who came in with commitment than those who didn’t.

Q. Apple revenue is all a la carte? 

A. Yes.

Q. Can you tell us how many customers you are getting from Apple?

A. We haven’t disclosed the Apple impact on us yet; we’re pleased with it, it’s growing. We get branding from Apple iTunes. We pay them a participation fee. Often, we are opening up the retail channel deals with their ipod sales force. 

Q. Do you track moving of customers from iTunes and Amazon?

A. From Amazon, absolutely. …


Q. Certain books you can’t get on Amazon you can get on Audible? Why is that?

A. In the case of iTunes, we added a lot of content to the number of skus they started with, about half of our total. The really timely stuff, published every day, is not used. But our recurrent programming and archives are. In the case of Amazon, we’re coming to a renaissance with them; initially the deal had a trade of stock component, three years ago. We have repositioned the deal as of three months ago. Amazon will get more titles and in a more timely way.

Q. Jason Crowley. Will you make your software compatible with Dell?

A. The PDA is Audible-compatible. (Axim), though their is no problem yet. Their MP3 player … something we’d like to do.

Q. Ray Unger. Gross margin. What is the potential gross margin now that the platform is going and you’re selling electrons.

A. Cost of content, hardware, marketing is variable. G&A is more like fixed. Operations more like fixed. Benefits of scale are starting to pay off on bottom line. I think that is reflected in the guidance we are providing for 2004. 

Q. Expenses were up 11%, Content revenue was up 17%. * * * We turned down a lot of TV advertising. You have to scale, like Netflix, before you can … you still have single digit penetration of mp3 players . . . it will be some time before mass advertising makes sense.

Q. Mike Russell. Perseus Group. Duration of partnership with Apple? Are you interested in partnering with other content partners like Napster?

A. It’s a multi-year deal. We are their exclusive provider of spoken word content; if they meet certain revenue thresholds, we won’t integrate our content into other music stores.

For replay of conference call, dial 800-405-2236 and use pin 575984

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