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New York, NY, February 20, 2007 - Answers Corporation (NASDAQ: ANSW), creators of Answers.com™, today reported unaudited financial results for its full year and fourth quarter ended December 31, 2006.
"2006 was an outstanding year for Answers.com," said Bob Rosenschein, Chairman and Chief Executive Officer. "Not only was revenue up over 240%, but we significantly reduced our non-GAAP net loss sequentially every quarter and expect to be non-GAAP profitable in Q1 2007."
Other 2006 achievements:
"2005 was the year we put Answers.com on the map, and in 2006 we proved its scalable business model from a financial perspective," continued Rosenschein. "We look forward with great anticipation to a very successful 2007."
Q4 2006 Financial Results
Full Year 2006 Financial Results
Non-GAAP Measures
Management uses different financial measures, both GAAP and non-GAAP, in analyzing the Company's financial performance, making operating decisions and for planning. Management views the use of non-GAAP financial measures useful in analyzing current financial performance and prospects for the future. While management uses non-GAAP financial measures as a tool to facilitate its understanding of certain aspects of the Company's financial performance, it strongly believes that these measures can not replace, and are not superior to, the Company's financial information prepared in accordance with GAAP. Hence, management is of the opinion that the non-GAAP financial measures should only be viewed as a supplement to the GAAP financial information. It is in this light that management believes that disclosing non-GAAP financial measures to its investors provides them with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of the Company's financial performance. The manner in which management uses the non-GAAP financial measures to conduct and evaluate the Company's business, the economic substance behind management's decision to use such measures and the reasons why management believes that these non-GAAP financial measures provides useful information to investors, are set forth below:
Acquisition-related Expenses
Management uses non-GAAP financial measures which disregard amortization of intangible assets and other specified costs resulting from acquisitions, in order to enable more accurate comparisons of the Company's financial results to its historical operations, and the financial results of other companies in its industry. Specifically, the Company excludes (A) amortization of acquired technology resulting from the acquisition of Brainboost Technology, LLC; (B) compensation costs resulting from certain portions of the stock component of the Brainboost purchase price that were deemed compensation expense; © penalty payments to the sellers of Brainboost Technology, LLC that were made because the shares of Company common stock such sellers received in connection with the Brainboost acquisition were not registered prior to April 1, 2006 (On December 1, 2005, the Company acquired Brainboost Technology, LLC, creators of the Brainboost Answer Engine, for $4 million in cash and 439,000 shares of restricted common stock, including certain price protection rights); and (D) amortization of intangible assets resulting from the acquisition of WikiAnswers™ (formerly FAQ Farm™) and other related assets for $2 million cash in November 2006. The aforesaid acquisitions resulted in operating expenses that would not otherwise have been incurred. Management believes that providing non-GAAP financial measures which exclude such amortization expenses is significant to investors, due to the fact that the amortization amount constitutes a non-cash item, it was determined based on a prior acquisition decision and is not indicative of future cash operating costs. Further, had the Company developed these intangible assets in-house, the amortization would have been expensed historically, and the Company believes the assessment of operations excluding these costs is relevant to the analysis of the Company's internal operations and comparisons to industry performance. Thus, the presentation of supplemental data in the form of non-GAAP financial measures, in this context, affords readers of the Company's financial statements the ability to review both the GAAP expenses in the period presented, as well as the non-GAAP expenses, thus providing for enhanced understanding of historic and future financial results and facilitating comparisons to peer companies.
While the Company excludes the aforesaid expenses from its non-GAAP measures it does not exclude revenues derived as a result of such acquisitions in its non-GAAP measures. The amount of revenue that resulted from the acquisition of WikiAnswers™ (formerly FAQ Farm™) and other related assets, in 2006, was $62 thousand. The amount of revenue that resulted from the acquisition of technology from Brainboost (i.e. Brainboost Answer Engine), in 2006, is not quantifiable due to the nature of its integration.
Stock-based Compensation
Management uses non-GAAP financial measures that exclude expenses associated with non-cash stock-based compensation as a means to assess operational results and compare current results to prior periods. Furthermore, it is management's practice to prepare and maintain the Company's budgets and forecasts for future periods on a basis consistent with this non-GAAP financial measure. Management believes that because of the variety of equity awards used by companies, the varying methodologies for determining stock-based compensation expense, and the subjective assumptions involved in those determinations, excluding stock-based compensation enhances the ability of management and investors to compare financial results over multiple periods with those of other companies. It is management's view that by allowing the readers of the Company's financial statements to review both the GAAP expenses in the period presented, as well as the non-GAAP expenses, the Company is facilitating enhanced understanding of historic and future financial results.
Revenue from Subscriptions Sold in 2003
As of December 31, 2006, the Company had approximately $425 thousand of deferred revenues, relating to subscriptions to its GuruNet services, which had no defined term and which were sold in 2003. The Company never recognized revenue from those subscriptions because the obligation to continue the service had no defined termination date. On February 2, 2007, in accordance with our rights under the agreements we previously entered into with such subscribers, we terminated the GuruNet service. Thus, the Company will recognize the $425 thousand as revenue in Q1 2007. Because this is a one-time, non-cash event and is not reflective of our core business and core operating results, the Company will not include such amount in its non-GAAP Operating income (loss) and non-GAAP net income amounts in the first quarter of 2007.
Each of the non-GAAP financial measures described above should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of the foregoing non-GAAP financial measures as an analytical tool. The Company's non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the Company's financial results for the foreseeable future. In addition, other companies, including other companies in the Company's industry, may calculate non-financial measures differently than the Company, thus limiting their usefulness as a comparative tool. More specifically, an inherent limitation is that non-GAAP financial measures do not reflect the periodic costs of certain intangible assets used in generating revenues in the Company's business. Further, because the Company's non-GAAP financial measures do not include stock-based compensation, they do not reflect the cost of granting employees equity awards, a key factor in management's ability to hire and retain employees. Management compensates for these limitations by providing specific information in the reconciliation to the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, management evaluates each non-GAAP financial measure together with the most directly comparable GAAP financial measure.
Business Outlook – First Quarter 2007
The following business outlook is based on the Company's current information and expectations as of February 20, 2007. Answers undertakes no obligation to update the outlook, or any portion thereof, prior to the release of the Company's next earnings announcement, notwithstanding subsequent developments; however, Answers may update the outlook or any portion thereof at any time at its discretion.
A conference call to review the Q-4 2006 financial results will follow this release today at 4:30 PM ET. The company's management will host the call, discuss its quarterly results and will provide insight into its business outlook. The call will be followed by a question and answer session. Investors are invited to listen to the conference call and the replay over the Internet through Answers' Website, within its Investor Relations page at http://ir.answers.com. To listen to the live call via webcast, please go to our Website at least 10 minutes early to connect and register. To dial in to listen and/or submit a question, please dial 800-817-4887 and request the Answers call. For those unable to listen to the live broadcast, a replay will be available on the site shortly after the call.
About Answers Corporation
Answers Corporation (NASDAQ: ANSW) operates the award-winning Answers.com™ information portal, delivering comprehensive content on four million topics spanning health, finance, entertainment, business and more. Content includes over 120 licensed titles from leading publishers such as Houghton Mifflin Riverdeep Group PLC, Barron's, Encyclopedia Britannica, All Media Guide and others; original articles written by Answers.com's editorial team; community-contributed articles from Wikipedia; and user-generated questions & answers from Answers.com's industry-leading WikiAnswers™ (wiki.answers.com). Founded in 1999 by CEO Bob Rosenschein, Answers.com can be launched directly from within Internet Explorer 7, Firefox and Opera browsers, and its service is integrated into sites like Amazon.com's A9.com, The New York Public Libraries' homeworkNYC.org, The New York Times, CBSNews.com and others. Answers.com is also available for mobile devices at mobile.answers.com. For investment information, visit ir.answers.com. (answ-f)
Cautionary Statement
Some of the statements included in this press release are forward-looking statements that involve a number of risks and uncertainties, including, but not limited to, statements regarding future market opportunity and future financial performance. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Important factors may cause our actual results to differ materially, including, but not limited to, our inability to increase the number of persons who use our products, our inability to increase the number of partners who will generate increased traffic to our sites, our failure to improve the monetization of our products, a change in the algorithms and methods used by Google, the provider of the vast majority of our search engine traffic, and other search engines to identify web pages towards which traffic will ultimately be directed or a decision to otherwise restrict the flow of users visiting www.answers.com, a decision by Google, Inc. to discontinue directing user traffic to www.answers.com through its definition link and other risk factors identified from time to time in our SEC filings, including, but not limited to, our registration statement on Form S-3/A filed in May 2006 and declared effective in June 2006. Any forward-looking statements set forth in this press release speak only as of the date of this press release. We do not intend to update any of these forward-looking statements to reflect events or circumstances that occur after the date hereof. This press release and prior releases are available at www.answers.com. The information in Answers' website is not incorporated by reference into this press release and is included as an inactive textual reference only.
Investor Contact:
Bruce D. Smith, CFA
VP of Strategic Development
bruce@answers.com
646.502.4780
Press Contact:
Jay Bailey
Director of Marketing
j@answers.com
888.248.9613