The Orchard Reports First Quarter 2008 Financial Results

Business Wire,  May 13, 2008  

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Revenues Up 134% from the First Quarter of 2007 as Net Loss Narrows

Net Loss Reduced from Fourth Quarter of 2007

Investor Conference Call scheduled For Wednesday, 14 May 2008, at 9:00 a.m. EDT

NEW YORK -- The Orchard (Nasdaq: ORCD), a global leader in digital music, video, new media and brand services, today reported financial results for the first quarter of 2008. These 2008 results include revenue and operating costs from Digital Music Group, Inc. ("DMGI", with which The Orchard combined operations on November 13th, 2007).

For the first quarter of 2008, revenues were $13.2 million, compared to $5.6 million for the first quarter of 2007, an increase of 133.6%. On a pro forma basis, had DMGI and The Orchard been combined as of January 1st, 2007, revenue increased 45.8% in the first quarter of 2008 as compared to the corresponding period in 2007.

Orchard's gross profit margin was 27.0% in the first quarter of 2008, as compared to 24.5% in the first quarter of 2007. On a pro forma combined basis, gross profit margin was 23.6% in the first quarter of 2007. This gross margin improvement reflects, in part, operating efficiencies gained from The Orchard implementing its proprietary V.E.C.T.O.R. (TM) system for content ingestion, management and delivery during 2007.

Operating expenses totaled $4.7 million for the first quarter of 2008, which represents an increase of 76.6% and, on a pro forma basis, 8.9% from the corresponding period of 2007. Included in the current quarter expenses are incremental professional fees related to accounting compliance and systems, tax planning and legal structuring of the Company following the merger with DMGI. Also, as has generally been the case for the Company in its first quarter, there are seasonally higher marketing expenses.

The net loss for the first quarter of 2008 was $1.1 million, compared with a net loss of $1.5 million in the first quarter of 2007, a reduction of 25%. The first quarter 2008 net loss represents a reduction of 56.9% from the pro forma combined net loss of $2.6 million from the fourth quarter of 2007. This sequential improvement was achieved through higher revenue, better gross profit margins and reduced operating expenses associated with the integration and assimilation of the operations of DMGI.

As of March 31st, 2008, cash and cash equivalents were $10.7 million, and the Company has no debt. The Company was cash flow positive during the first quarter of 2008, and cash provided by operations was approximately $0.6 million.

There were approximately 8.1 million shares outstanding on a fully diluted basis on March 31st, 2008, 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.

As of March 31st, 2008, there were approximately 1.1 million music tracks available for sale, an increase of 6% from the beginning of 2008 and 91% from the same date in 2007. During the first quarter of 2008, there were approximately 11.6 million paid downloads from The Orchard's extensive catalogue, an increase of 148% as compared to the corresponding period of 2007; and, approximately 44.5 million paid streams, an increase of 93%.

Greg Scholl, President and Chief Executive Officer of The Orchard, said, "During the first quarter of 2008, we continued to derive strong revenue growth attributable to great new label signings, improved marketing effectiveness, and the ever-increasing popularity of the digital music sector. At the same time, we successfully began to capture operating synergy following our integration of the DMGI and DRA catalogues and operations. We remain optimistic that we can continue to reduce costs while building on our first quarter revenue gains, and position The Orchard for a strong 2008."

For further Company financial information, refer to the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations attached to this release and to The Orchard's Quarterly Report for the First Quarter of 2008 on Form 10-Q to be filed May 15, 2008 with the Securities and Exchange Commission (the "SEC") and our Annual Report for 2007 on Form 10-K filed with the SEC on March 31st, 2008.

Conference Call and Webcast

The Company will host a conference call on May 14th, 2008 at 9:00 a.m. EDT 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) 322-5044 (for domestic callers) or +1 (617) 614-4927 (for international callers) at least five minutes prior to the start time. The participant passcode is 29022034. 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 for one week, 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 passcode is 80130097. A replay of the webcast will also be archived on The Orchard's website for at least fourteen days.