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NEW YORK, August 13, 2007 /PRNewswire-FirstCall via COMTEX News Network/ --
Answers Corporation (NASDAQ: ANSW), creators of Answers.com(TM), today reported unaudited financial results for its second quarter ended June 30, 2007. Q2 revenues were $2.81 million, at the low end of original guidance. Non-GAAP net loss was $342 thousand, which was $130 thousand better than the low end of original guidance.
"The positive surprise for Q2 was our unique user-generated WikiAnswers site, which contributed $177,000 in Q2, up over 50% from Q1," said Robert Rosenschein, Chairman and CEO. "It continues to flourish, and its dynamic content will become more of a centerpiece in our overall strategy and growth moving forward."
"Due to the recent search engine algorithm changes, we face new challenges in diversifying our traffic," added Rosenschein. "First, we are right-sizing our organization, approximately 12% of our base payroll, with an eye toward returning to Non-GAAP profitability in Q4 of this year. Next, we aim to restore shareholder value and confidence and diversify and expand our traffic sources. Finally, we are committed to leveraging our direct ad sales talent, recruited in Q2, and expect it to bear fruit this year."
"We continue to believe that the purchase of Dictionary.com will transform our company very positively in 2008," said Bruce D. Smith, Chief Strategic Officer. "In addition to making us a top Web property, it will enhance our profitability and significantly increase our direct, independent traffic."
Q2 2007 Financial Results
- Revenues were $2,810 thousand in Q2 2007, an increase of 86% compared to the same period in 2006, and a decrease of 5% compared to the $2,961 thousand, excluding subscription revenue of $425 thousand, reported for Q1 2007.
- GAAP net loss in Q2 2007 was $1,247 thousand, an improvement of $1,695 thousand compared to the same period in 2006, and an increase of $944 thousand, compared to the GAAP net loss of $303 thousand reported for Q1 2007. GAAP net loss per share in Q2 2007 was $0.16, compared to $0.38 in the same period in 2006, and $0.04 in Q1 2007.
- Non-GAAP net loss in Q2 2007 was $342 thousand, an improvement of $306 thousand compared to the same period in 2006, and $445 lower compared to the Non-GAAP net income of $103 thousand reported for Q1 2007. Non-GAAP net loss per share in Q2 2007 was $0.04, compared to a Non-GAAP net loss per share of $0.08 in the same period in 2006, and a Non-GAAP net income per share of $0.01 in Q1 2007.
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 (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 (C) amortization of intangible assets resulting from the acquisition of WikiAnswers(TM) (formerly FAQ Farm(TM)) 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(TM) (formerly FAQ Farm(TM)) and other related assets, in the first quarter of 2007, was $116 thousand. The amount of revenue that resulted from the acquisition of technology from Brainboost (i.e. Brainboost Answer Engine), in the first quarter of 2007, 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 service, which had no defined term and which were sold in 2003. The Company never recognized revenue from such subscriptions because the obligation to continue the service had no defined termination date. On February 2, 2007, in accordance with the Company's rights under the agreements previously entered into with such subscribers, the Company terminated the GuruNet service. Thus, the Company recognized the $425 thousand as revenue in Q1 2007. The Company did not include such amount in its non-GAAP operating income, non-GAAP net income and non-GAAP net income per share amounts in the first quarter of 2007. Management believes that since the aforesaid $425 thousand of revenue is a one-time, non-cash event and is not reflective of the Company's core business and core operating results, the presentation of revenues excluding such amounts, in addition to the presentation of GAAP revenues, provides for enhanced understanding of historic and future financial results and facilitates comparisons to peer companies.
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.
Modifications
The 2006 financial statements as previously presented by the Company in reports and SEC filings, have been corrected to account for an immaterial error in the income tax expense in the Consolidated Statements of Operations and deferred taxes on the Condensed Consolidated Balance Sheets.
Business Outlook - Third Quarter 2007
The following business outlook is based on the Company's current information and expectations as of August 13, 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.
Three months ended
September 30, 2007
$ (in thousands)
Revenues 2,200 - 2,400
Non-GAAP Net loss
GAAP Net loss (1) (2,025) - (1,825)
Adjustment to GAAP Net loss:
Stock-based compensation 575
Amortization of intangible assets
resulting from acquisitions 300
(1,150) - (950)
(1) Includes approximately $250,000 of severance from the August 2007 downsizing of approximately 12% of our headcount.
A conference call to review the Q-2 2007 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 888-802-2225 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(TM) information portal, delivering comprehensive content on over four million topics spanning health, finance, entertainment, business and more. Content includes over 180 licensed titles from leading publishers such as Houghton Mifflin Company, 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(TM) (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 and our other Web properties, a decision by Google, Inc. to discontinue directing user traffic to www.answers.com through its definition link, the effects of facing liability for any content displayed on our Web properties, potential claims that we are infringing the intellectual property rights of any third party, and other risk factors identified from time to time in our SEC filings, including, but not limited to, our annual report on Form 10-KSB filed in March 2006. We would also like to note specific risk factors relating to our recently-announced acquisition of Lexico Publishing Group, LLC, including among others, the inability to consummate or experienced delays in closing the transaction due to failure to obtain necessary financing and fulfillment of certain closing conditions, as well as the significant costs involved in such failure to complete the deal, the potential inability to improve Lexico's monetization rates and our ability to realize other intended benefits of the transaction, our inability to integrate the operations of Lexico and other risk factors. Additional risk factors concerning the Lexico acquisition will be identified in our quarterly report scheduled to be filed on August 14, 2007. 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.
Answers Corporation
Consolidated Statements of Operations
(in thousands, except for share and per share data)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
$ $ $ $
Revenues:
Advertising revenue 2,728 1,457 5,612 2,547
Answers service licensing 82 46 159 99
Subscriptions - 8 425 19
2,810 1,511 6,196 2,665
Costs and expenses:
Cost of revenue 1,320 808 2,464 1,492
Research and development 748 1,951 1,469 4,588
Sales and marketing 1,072 678 2,054 1,320
General and administrative 1,019 965 1,945 1,765
Total operating expenses 4,159 4,402 7,932 9,165
Operating loss (1,349) (2,891) (1,736) (6,500)
Interest income, net 112 145 212 286
Other income (expenses), net 4 (201) (12) (204)
Loss before income taxes (1,233) (2,947) (1,536) (6,418)
Income taxes (14) 5 (14) 3
Net loss (1,247) (2,942) (1,550) (6,415)
Basic and diluted net loss per
common share (0.16) (0.38) (0.20) (0.85)
Weighted average shares used in
computing
basic and diluted net loss per
common share 7,853,818 7,678,328 7,840,140 7,555,185
Answers Corporation
Non-GAAP Financial Measures and Reconciliation of Non-GAAP
Financial Measures
to the nearest comparable GAAP Measures
(in thousands, except for per share data)
Three months ended
June 30, March 31, June 30,
2007 2007 2006
$ $ $
Non-GAAP Cost of revenue
Cost of revenue 1,320 1,144 808
Stock-based compensation expense (44) (36) (33)
Amortization of intangible assets
resulting from acquisitions (256) (256) (223)
1,020 852 552
Non-GAAP Research and development
Research and development 748 722 1,951
Stock-based compensation expense (100) (80) (93)
Stock-based compensation resulting
from Brainboost acquisition - - (1,396)
648 642 462
Non-GAAP Sales and marketing
Sales and marketing 1,072 982 678
Stock-based compensation expense (242) (224) (160)
830 758 518
Non-GAAP General and administrative
General and administrative 1,019 926 965
Stock-based compensation expense (213) (185) (162)
Amortization of intangible assets
resulting from acquisitions (50) (50) -
756 691 803
Non-GAAP operating expenses
Operating expenses 4,159 3,774 4,402
Stock-based compensation expense (599) (525) (448)
Stock-based compensation resulting
from Brainboost acquisition - - (1,396)
Amortization of intangible assets
resulting from acquisitions (306) (306) (223)
3,254 2,943 2,335
Non-GAAP net income (loss)
Net Loss (1,247) (303) (2,942)
Subscription revenue - (425) -
Stock-based compensation expense 599 525 448
Stock-based compensation resulting
from Brainboost acquisition - - 1,396
Amortization of intangible assets
resulting from acquisitions 306 306 223
Non-recurring penalty payments - - 227
(342) 103 (648)
Non-GAAP net income (loss) per share
(basic and diluted)
Net loss per share (0.16) (0.04) (0.38)
Subscription revenue - (0.05) -
Stock-based compensation expense 0.08 0.06 0.06
Stock-based compensation resulting
from Brainboost acquisition - - 0.18
Amortization of intangible assets
resulting from acquisitions 0.04 0.04 0.03
Non-recurring penalty payments - - 0.03
(0.04) 0.01 (0.08)
See discussion regarding non-GAAP measures in the text of this earnings
release under the heading "Non-GAAP Measures" for an explanation of the
reconciling items noted above.
Answers Corporation
Condensed Consolidated Balance Sheets
(in thousands)
June 30 December 31
2007 2006
$ $
Assets
Current assets:
Cash and cash equivalents 4,540 4,976
Investment securities 3,985 4,102
Accounts receivable 1,279 1,304
Prepaid expenses and other current assets 847 416
Total current assets 10,651 10,798
Long-term deposits (restricted) 333 218
Deposits in respect of employee
severance obligations 975 856
Property and equipment, net 1,182 998
Other assets:
Intangible assets, net 5,382 6,010
Goodwill 437 437
Prepaid expenses, long-term, and other assets 312 362
Total other assets 6,131 6,809
Total assets 19,272 19,679
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 317 366
Accrued expenses 873 805
Accrued compensation 717 623
Deferred revenues, short-term 8 465
Total current liabilities 1,915 2,259
Liability in respect of employee severance
obligations 1,046 828
Stockholders' equity:
Common stock; $0.001 par value; 30,000,000 shares
authorized; 7,854,053
and 7,809,394 shares issued and outstanding as of
June 30, 2007
and December 31, 2006, respectively 8 8
Additional paid-in capital 72,867 71,599
Accumulated other comprehensive loss (30) (31)
Accumulated deficit (56,534) (54,984)
Total stockholders' equity 16,311 16,592
Total liabilities and stockholders' equity 19,272 19,679
SOURCE Answers Corporation
Investor Contact: Bruce D. Smith, CFA, VP of Strategic Development, bruce@answers.com, +1-646-502-4780; Press Contact: Alison Minaglia, Technology PR for Answers.com, aminaglia@technologypr.com, +1-203-972-3170 or +1-917-902-3404
http://www.prnewswire.com
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