P-EX99.1_2015.06.30-Q2

“Our advertising investments, particularly in local, are paying off. This quarter, local ad revenue reached an all-time high, driving record RPMs,” stated Brian McAndrews Chairman and CEO of Pandora. "Our monetization success allows us to be an even more effective platform for helping artists grow their careers. In addition to our ability to provide insights to the entire music industry, we fuel promotion that is extremely valuable to music makers.”

Third Quarter 2015 Guidance: Revenue is expected to be in the range of $310 million to $315 million. Adjusted EBITDA is expected to be in the range of $25 million to $30 million. Adjusted EBITDA excludes forecasted stock-based compensation expense of approximately $30 million and forecasted depreciation and amortization expense of approximately $6 million and assumes minimal provision for income taxes given our net loss position. Diluted shares outstanding for the third quarter 2015 are expected to be approximately 222 million.

Full Year 2015 Guidance: Revenue is expected to be in the range of $1.175 billion to $1.185 billion. Adjusted EBITDA is expected to be in the range of $75 million to $85 million. Adjusted EBITDA excludes forecasted stock-based compensation expense of approximately $112 million and forecasted depreciation and amortization expense of approximately $22 million and assumes minimal provision for income taxes given our net loss position. Diluted shares outstanding for the full year 2015 are expected to be approximately 221 million.

Starting in 2015, the Company is adjusting non-GAAP net income by considering the income tax effects of its non-GAAP adjustments. Prior to 2015, the Company’s non-GAAP effective tax rate was minimal. The Company expects that its non-GAAP effective tax rate will be minimal in periods that result in a non-GAAP net loss. The Company is currently forecasting a non-GAAP effective tax rate of approximately 1% to 7% for the third quarter 2015 and approximately 30% to 35% for the full year 2015. The Company does not expect to pay significant cash income taxes for the foreseeable future due to its net operating loss position.

Second Quarter 2015 Financial Results Conference Call: Pandora will host a conference call today at 2 p.m. PT/5 p.m. ET to discuss second quarter 2015 financial results with the investment community. A live webcast of the event will be available on the Pandora Investor Relations website at http://investor.pandora.com. A live domestic dial-in is available at (877) 355-0067 or internationally at (443) 853-1239. A domestic replay will be available at (855) 859-2056 or internationally at (404) 537-3406, using passcode 73764807, and available via webcast until August 6, 2015.

Pandora (NYSE: P) gives people music and comedy they love anytime, anywhere, through connected devices. Personalized stations launch instantly with the input of a single "seed" - a favorite artist, song or genre. The Music Genome Project®, a deeply detailed hand-built musical taxonomy, powers the personalization of Pandora® internet radio by using musicological "DNA" and constant listener feedback to craft personalized stations from a growing collection of more than one million tracks. Tens of millions of people turn on Pandora every month to hear music they love. www.pandora.com | Pandora Blog | Pandora LinkedIn | @PandoraPulse

This press release contains forward-looking statements within the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding expected revenue and adjusted EBITDA. These forward-looking statements are based on Pandora's current assumptions, expectations and beliefs and involve substantial risks and uncertainties that may cause results, performance or achievement to materially differ from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: our operation in an emerging market and our relatively new and evolving business model; our ability to estimate revenue reserves; our ability to increase our listener base and listener hours; our ability to attract

and retain advertisers; our ability to generate additional revenue on a cost-effective basis; competitive factors; our ability to continue operating under existing laws and licensing regimes; our ability to establish and maintain relationships with makers of mobile devices, consumer electronic products and automobiles; our ability to manage our growth; our ability to continue to innovate and keep pace with changes in technology and our competitors; risks related to service interruptions or security breaches; and general economic conditions worldwide. Further information on these factors and other risks that may affect the business are included in filings with the Securities and Exchange Commission (SEC) from time to time, including our Annual Report on Form 10-K for the current period, particularly under the heading "Risk Factors."

These documents are available online from the SEC or on the SEC Filings section of the Investor Relations section of our website at investor.pandora.com. Information on our website is not part of this release. All forward-looking statements in this press release are based on information currently available to the Company, which assumes no obligation to update these forward-looking statements in light of new information or future events.

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company uses the following non-GAAP measures of financial performance: non-GAAP total revenue, non-GAAP subscription revenue, non-GAAP gross profit, non-GAAP net income (loss), non-GAAP basic EPS, non-GAAP diluted EPS and adjusted EBITDA. The presentation of this additional financial information is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. These non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. In addition, these non-GAAP financial measures may be different from the non-GAAP financial measures used by other companies. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Management compensates for these limitations by reconciling these non-GAAP financial measures to the most comparable GAAP financial measures within our earnings releases.

Non-GAAP total revenue, non-GAAP subscription revenue, non-GAAP gross profit, non-GAAP net income (loss), non-GAAP basic EPS and non-GAAP diluted EPS differ from GAAP in that they exclude revenue effects from the subscription return reserve, stock-based compensation expense and intangible amortization expense. Starting in the first quarter 2015, the income tax effects of these non-GAAP adjustments will be reflected in non-GAAP net income (loss), non-GAAP basic EPS and non-GAAP diluted EPS.

Subscription Return Reserve: consisted of revenue that was deferred on a GAAP basis because the Company had limited operating history with certain mobile subscription refund rights prior to the first quarter of 2014. The Company was required to defer all revenue until the refund rights lapsed or until it developed sufficient operating history to estimate a reserve. In periods prior to the first quarter of 2014, the subscription return reserve was excluded from the subscription and other revenue line of our GAAP presentation and included in this line of our non-GAAP presentation. In the first quarter of 2014, the Company established sufficient operating history to estimate a reserve for these mobile subscription refund rights. As such, the GAAP revenue results for the first quarter of 2014 included a one-time reversal of substantially all of the deferred revenue related to the subscription return reserve in the amount of $14.2 million. This reversal was excluded from our non-GAAP revenue in the first quarter of 2014.

Although stock-based compensation is an expense for the Company and is viewed as a form of compensation, management excludes stock-based compensation from our non-GAAP measures for purposes of evaluating our continuing operating performance primarily because it is a non-cash expense not believed by management to be reflective of our core business, ongoing operating results or future outlook. In addition, the value of stock-based instruments is determined using formulas that incorporate variables, such as market volatility, that are beyond our control.

Income Tax Effects of Non-GAAP Adjustments: Starting in 2015, the Company is adjusting non-GAAP net income by considering the income tax effects of its non-GAAP adjustments. Prior to 2015, the Company’s non-GAAP effective tax rate was minimal. The Company expects that its non-GAAP effective tax rate will be minimal in periods that result in a non-GAAP net loss. For the full year 2015, the Company is currently forecasting a non-GAAP effective tax rate of approximately 30% to 35%. The Company does not expect to pay significant cash income taxes for the foreseeable future due to its net operating loss position.

Depreciation and Intangible Amortization Expense: consists of non-cash charges that can be affected by the timing and magnitude of business combinations and asset purchases. Depreciation is included in the following cost and expense line items of our GAAP presentation: cost of revenue - other, product development, sales and marketing and general and administrative. Amortization for currently owned intangible assets is included in the general and administrative expense line of our GAAP presentation. Management considers its operating results without intangible amortization expense when evaluating its ongoing non-GAAP performance and without depreciation and intangible amortization expense when evaluating its ongoing adjusted EBITDA performance because these charges are non-cash expenses that can be affected by the timing and magnitude of business combinations and asset purchases and may not be reflective of our core business, ongoing operating results or future outlook.

Management believes these non-GAAP financial measures serve as useful metrics for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods and to those of peer companies, and, when taken together with the corresponding GAAP financial measures and our reconciliations, enhance investors' overall understanding of our current financial performance.

The Company also provides estimates of disaggregated ad RPMs, subscription RPMs and total RPMs for our traditional computer platform as well as our mobile and other connected devices platforms, which are calculated by dividing the estimated revenue and costs generated through the respective platforms by the number of thousands of listener hours of our services delivered through such platforms. While the Company believes that such disaggregated data provides directional insight for evaluating our efforts to monetize our service, such disaggregated data is not validated to the level of financial statement reporting. Such data should be seen as indicative only and as management's best estimate.



	Three months ended June 30,						Six months ended June 30,
	2014			2015			2014			2015

Revenue
Advertising	$	177,324		$	230,921		$	317,958		$	409,660
Subscription and other	41,570			54,639			95,251			106,664
Total revenue	218,894			285,560			413,209			516,324

Cost of revenue
Cost of revenue - Content acquisition costs	111,461			130,134			219,736			256,157
Cost of revenue - Other (1)	13,989			20,043			28,968			36,276
Total cost of revenue	125,450			150,177			248,704			292,433
Gross profit	93,444			135,383			164,505			223,891

Operating expenses
Product development (1)	13,076			18,742			24,907			34,617
Sales and marketing (1)	66,232			94,035			128,096			178,309
General and administrative (1)	25,865			38,812			52,226			75,566
Total operating expenses	105,173			151,589			205,229			288,492
Loss from operations	(11,729		)	(16,206		)	(40,724		)	(64,601		)

Other income, net	100			256			192			453
Loss before provision for income taxes	(11,629		)	(15,950		)	(40,532		)	(64,148		)

Provision for income taxes	(99		)	(115		)	(127		)	(174		)
Net loss	$	(11,728	)	$	(16,065	)	$	(40,659	)	$	(64,322	)

Basic and diluted net loss per share	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.31	)
Weighted-average basic and diluted shares	205,706			211,742			202,798			210,840



	As of December 31,			As of June 30,
	2014			2015
	(audited)			(unaudited)
Assets
Current assets
Cash and cash equivalents	$	175,957		$	204,103
Short-term investments	178,631			168,339
Accounts receivable, net	218,437			233,715
Prepaid expenses and other current assets	15,389			16,664
Total current assets	588,414			622,821

Long-term investments	104,243			89,013
Property and equipment, net	42,921			54,741
Other long-term assets	13,712			13,857
Total assets	$	749,290		$	780,432

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	10,825		$	16,386
Accrued liabilities	15,754			25,006
Accrued royalties	73,693			81,351
Deferred revenue	14,412			27,097
Accrued compensation	34,476			39,905
Total current liabilities	149,160			189,745

Other long-term liabilities	16,773			15,177
Total liabilities	165,933			204,922

Stockholders’ equity
Common stock	21			21
Additional paid-in capital	781,009			837,356
Accumulated deficit	(196,997		)	(261,319		)
Accumulated other comprehensive loss	(676		)	(548		)
Total stockholders’ equity	583,357			575,510
Total liabilities and stockholders’ equity	$	749,290		$	780,432



	Three months ended June 30,						Six months ended June 30,
	2014			2015			2014			2015

Operating activities
Net loss	$	(11,728	)	$	(16,065	)	$	(40,659	)	$	(64,322	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	3,763			5,025			7,109			9,365
Stock-based compensation	20,613			27,484			38,005			50,679
Amortization of premium on investments, net	686			610			1,380			1,229
Other operating activities	323			110			446			944
Changes in operating assets and liabilities
Accounts receivable	(29,171		)	(45,305		)	(13,542		)	(16,123		)
Prepaid expenses and other assets	1,846			2,972			(3,253		)	(2,104		)
Accounts payable and accrued liabilities	(306		)	3,801			1,095			10,363
Accrued royalties	(2,440		)	801			6,145			7,697
Accrued compensation	11,483			10,287			10,748			5,897
Deferred revenue	(5,360		)	357			(19,887		)	12,685
Reimbursement of cost of leasehold improvements	3,161			—			3,161			749
Net cash provided by (used in) operating activities	(7,130		)	(9,923		)	(9,252		)	17,059

Investing activities
Purchases of property and equipment	(4,537		)	(12,016		)	(16,424		)	(17,947		)
Purchases of investments	(78,533		)	(54,751		)	(194,122		)	(111,541		)
Proceeds from maturities of investments	82,821			53,630			116,831			132,119
Proceeds from sale of investments	—			3,022			—			3,662
Payments related to acquisition	—			(200		)	—			(200		)
Net cash provided by (used in) investing activities	(249		)	(10,315		)	(93,715		)	6,093

Financing activities
Proceeds from employee stock purchase plan	1,619			1,656			2,482			3,275
Proceeds from exercise of stock options	2,811			1,768			12,562			2,862
Tax payments from net share settlements of restricted stock units	—			(19		)	—			(907		)
Net cash provided by financing activities	4,430			3,405			15,044			5,230

Effect of exchange rate changes on cash and cash equivalents	1			(78		)	16			(236		)

Net increase (decrease) in cash and cash equivalents	(2,948		)	(16,911		)	(87,907		)	28,146
Cash and cash equivalents at beginning of period	160,796			221,014			245,755			175,957
Cash and cash equivalents at end of period	$	157,848		$	204,103		$	157,848		$	204,103



	Three months ended June 30,						Six months ended June 30,
	2014			2015			2014			2015

Revenue
GAAP total revenue	$	218,894		$	285,560		$	413,209		$	516,324
Subscription return reserve	—			—			(14,186		)	—
Non-GAAP total revenue	$	218,894		$	285,560		$	399,023		$	516,324

Gross profit
GAAP gross profit	$	93,444		$	135,383		$	164,505		$	223,891
Subscription return reserve	—			—			(14,186		)	—
Stock-based compensation: Cost of revenue - Other	1,032			1,406			1,913			2,613
Non-GAAP gross profit	$	94,476		$	136,789		$	152,232		$	226,504

Net loss
GAAP net loss	$	(11,728	)	$	(16,065	)	$	(40,659	)	$	(64,322	)
Subscription return reserve	—			—			(14,186		)	—
Amortization of intangibles	182			183			364			366
Stock-based compensation	20,613			27,484			38,005			50,679
Non-GAAP net income (loss)	$	9,067		$	11,602		$	(16,476	)	$	(13,277	)

Non-GAAP EPS - basic	$	0.04		$	0.05		$	(0.08	)	$	(0.06	)
Non-GAAP EPS - diluted	$	0.04		$	0.05		$	(0.08	)	$	(0.06	)

Weighted average basic shares	205,706			211,742			202,798			210,840
Weighted average diluted shares	218,602			221,260			202,798			210,840

Adjusted EBITDA
GAAP net loss	$	(11,728	)	$	(16,065	)	$	(40,659	)	$	(64,322	)
Subscription return reserve	—			—			(14,186		)	—
Depreciation and amortization	3,763			5,025			7,109			9,365
Stock-based compensation	20,613			27,484			38,005			50,679
Other income, net	(100		)	(256		)	(192		)	(453		)
Provision for income taxes	99			115			127			174
Adjusted EBITDA	$	12,647		$	16,303		$	(9,796	)	$	(4,557	)



	Three months ended June 30,				Six months ended June 30,
	2014		2015		2014		2015

Advertising RPMs
Computer	$	62.43	$	74.35	$	57.50	$	65.82
Mobile and other connected devices	36.00		46.15		32.84		40.54
Total	$	40.11	$	49.94	$	36.83	$	44.09

Total RPMs
Computer	$	61.01	$	73.48	$	57.66	$	66.53
Mobile and other connected devices	39.88		50.63		38.70		45.58
Total	$	43.41	$	53.91	$	42.00	$	48.72

Total RPMs based on non-GAAP revenue
Computer	$	61.01	$	73.48	$	56.90	$	66.53
Mobile and other connected devices	39.88		50.63		37.11		45.58
Total	$	43.41	$	53.91	$	40.55	$	48.72


•	Total revenue for the trailing twelve month period exceeded $1 billion


•	Total RPMs reached a record $53.91, growing 24% year-over-year; Ad RPMs were up 25% year over year to a record $49.94


•	Q2 2015 total revenue was $285.6 million, growing 30% year-over-year


•	Q2 2015 advertising revenue was $230.9 million, growing 30% year-over-year


•	Q2 2015 total mobile revenue was $229.7 million, growing 37% year-over-year


•	Q2 2015 local advertising revenue was $58.9 million, growing 67% year-over-year


•	Q2 2015 total listener hours were 5.30 billion, growing 5% year-over-year