Current Report


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported):  November 6, 2007

 

Answers Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

(State or Other Jurisdiction of Incorporation)

 

1-32255

 

98-0202855

(Commission File Number)

 

(IRS Employer Identification No.)

 

237 West 35 th Street

Suite 1101

New York, NY 10001

(Address of Principal Executive Offices)

 

+972-2-649-5000

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 



 

 

The information in this Current Report on Form 8-K and the exhibits hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

 

 

Item 2.02      Results of Operations and Financial Condition.

 

On November 6, 2007, Answers Corporation (the “Company”) issued a press release announcing its unaudited financial results for the quarter ended September 30, 2007. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference into this Item 2.02.

 

Item 7.01      Regulation FD Disclosure.

 

On November 6, 2007, the Company held an earnings conference call to discuss its unaudited financial results for the quarter ended September 30, 2007. A transcript of the earnings conference call is attached hereto as Exhibit 99.2 and is incorporated by reference into this Item 7.01.

 

Item 9.01      Financial Statements and Exhibits

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release issued by Answers Corporation, dated November 6, 2007

 

 

 

99.2

 

Transcript of November 6, 2007 Earnings Conference Call

 

 

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

ANSWERS CORPORATION

 

 

 

 

By:

/s/ Steven Steinberg

 

 

 

Steven Steinberg

 

 

Chief Financial Officer

Dated: November 6, 2007

 

 

 

 

 

 

3



 

EXHIBIT INDEX

 

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release issued by Answers Corporation, dated November 6, 2007

 

 

 

99.2

 

Transcript of November 6, 2007 Earnings Conference Call

 

 

 

 

 

4



 

Exhibit 99.1

 

 

Answers Corporation Reports Q3 2007 Financial Results

 

Company Giving Annual Guidance for the First Time

 

 

New York, NY , November 6, 2007 - Answers Corporation (NASDAQ: ANSW), creators of the leading answer engine offering Answers.com TM  and WikiAnswers.com TM , today reported unaudited financial results for its third quarter ended September 30, 2007.

 

“We are happy to announce that our revenues are recovering from the traffic decline we experienced this summer due to search engine adjustments,” said Robert S. Rosenschein, CEO. “Not only do we project returning to positive adjusted EBITDA in the fourth quarter, but our ad revenue should return to the levels we saw in Q1 2007.”

 

“There are two primary drivers of this renewed growth,” said Bruce D. Smith, Chief Strategic Officer. “First, direct ad sales are gaining traction. We have already taken orders for approximately $500 thousand for Q4 and are projecting $600 thousand in direct ad sales for the quarter. Second, WikiAnswers continues its impressive growth. With $300 thousand contributed in Q3, we expect a significantly higher contribution from WikiAnswers in Q4 2007. According to ComScore, for the first nine months of 2007, WikiAnswers was the second-fastest growing domain among the top 1,500 US domains.”

 

“We also look forward to closing the acquisition of Lexico, creators of Dictionary.com,” added Steve Steinberg, CFO. “We are very pleased with their surprising growth for the first three quarters of 2007. For the first nine months of 2007, Lexico revenues were $6.2 million, 24% higher than the $5.0 million during the same period in 2006. For the first nine months of 2007, Lexico EBITDA was $2.5 million, 14% higher than the $2.2 million during the same period in 2006. Even more impressive, EBITDA would have reached $3.0 million without one-time deal-related expenses of approximately $500 thousand, or a 36% improvement year-over-year. Lexico’s RPMs have also climbed this year, rising 28% from $1.46 in Q1 to $1.87 in Q3.”

 

Q3 2007 Financial Results

                  Revenues were $2,208 thousand in Q3 2007, an increase of 19% compared to the same period in 2006, and a decrease of 21% compared to the $2,810 thousand reported for Q2 2007. Year-to-date revenues were $8,404 thousand for the first three quarters of 2007, an increase of 86% compared to the $4,523 thousand for the first three quarters of 2006.

                  GAAP net loss in Q3 2007 was $1,950 thousand, an increase of $769 thousand compared to the same period in 2006, and an increase of $703 thousand, compared to the GAAP net loss of $1,247 thousand reported for Q2 2007. GAAP net loss per share in Q3 2007 was $0.25, compared to $0.15 in the same period in 2006, and $0.16 in Q2 2007.

                  Adjusted EBITDA in Q3 2007 was negative $733 thousand, a decline of $205 thousand compared to negative $528 in the same period in 2006, and a decline of $420 thousand compared to the Adjusted EBITDA of negative $312 thousand in Q2 2007.

 

 

Non-GAAP Financial Measures

 

Adjusted EBITDA (Answers)

 

We define Adjusted EBITDA as net earnings before interest, taxes, depreciation, amortization, stock-based compensation, foreign currency exchange rate differences and certain non-recurring revenues and expenses.

 

 



 

We believe that the presentation of Adjusted EBITDA provides useful information to investors because these measures enhance their overall understanding of the financial performance and prospects of our ongoing business operations. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods, and peer companies in our industry. Adjusted EBITDA is used by our management team to plan and forecast our business because it removes the impact of our capital structure (interest expense), asset base (amortization and depreciation), stock-based compensation expenses, taxes, foreign currency exchange rate differences and certain non-recurring revenues and expenses from our results of operations.

 

More specifically, we believe that removing these impacts is important for several reasons:

 

                  Adjusted EBITDA disregards amortization of intangible assets and other specified costs resulting from acquisitions. Specifically, we exclude (a) amortization of acquired technology resulting from the acquisition of Brainboost Technology, LLC, developer of the Brainboost Answer Engine, or BAE; (b) compensation costs resulting from certain portions of the stock component of the Brainboost purchase price that were deemed compensation expense; (c) penalty payments to the sellers of Brainboost Technology, LLC that were required due to the late registration of the Answers Corporation common stock they received in connection with the acquisition; and (d) amortization of intangible assets resulting from the acquisition of WikiAnswers and other related assets for $2 million cash in November 2006. These acquisitions resulted in operating expenses that would not otherwise have been incurred. We believe that excluding such expenses is significant to investors, due to the fact that they derive from prior acquisition decisions and are not necessarily indicative of future cash operating costs. While we exclude the aforesaid expenses from Adjusted EBITDA we do not exclude revenues derived as a result of such acquisitions. The amount of revenue that resulted from the acquisition of WikiAnswers and other related assets, in the nine months ending September 30, 2007 and 2006 was $597 thousand and $0, respectively. The amount of revenue that resulted from the acquisition of technology from Brainboost is not quantifiable due to the nature of its integration.

                  We believe 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 from Adjusted EBITDA enhances the ability of management and investors to compare financial results over multiple periods with those of other companies.

                  We believe that, excluding depreciation, interest, foreign currency exchange rate differences and taxes from Adjusted EBITDA provides investors with additional information to measure our performance, by excluding potential differences caused by variations in capital structures (affecting interest expense), asset composition, and tax positions.

 

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Investors are cautioned that there are inherent limitations associated with the use of Adjusted EBITDA as an analytical tool. Some of these limitations are:

 

      Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles;

      Many of the adjustments to Adjusted EBITDA reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future;

      Other companies, including other companies in our industry, may calculate Adjusted EBITDA differently than us, thus limiting its usefulness as a comparative tool;

 

2



 

      Adjusted EBITDA does not reflect the periodic costs of certain tangible and intangible assets used in generating revenues in our business;

      Adjusted EBITDA does not reflect changes in our cash and investment securities and the results of our investments;

      Adjusted EBITDA excludes taxes, which is a significant cost to most businesses; and

      Because Adjusted EBITDA does not include stock-based compensation, it does not reflect the cost of granting employees equity awards, a key factor in management’s ability to hire and retain employees.

We compensate for these limitations by providing specific information in the reconciliation to the GAAP amounts excluded from Adjusted EBITDA.

 

EBITDA (Lexico)

 

We believe that the presentation of EBITDA for Lexico provides useful information to investors because these measures enhance their overall understanding of the financial performance and prospects of Lexico’s ongoing business operations.

 

EBITDA should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Investors are cautioned that there are inherent limitations associated with the use of EBITDA as an analytical tool. Some of these limitations are:

                  Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles;

                  Other companies, including other companies in Lexico’s industry, may calculate EBITDA differently than Lexico, thus limiting its usefulness as a comparative tool;

                  EBITDA does not reflect the periodic costs of certain assets used in generating revenues in our business;

                  EBITDA does not reflect changes in Lexico’s cash and investment securities and the results of its investments; and

                  EBITDA excludes taxes, which is a significant cost to most businesses.

 

We compensate for these limitations by providing specific information in the reconciliation to the Lexico’s GAAP amounts excluded from EBITDA. A reconciliation of EBITDA, to net earnings, is attached to this press release.

 

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.

 

3



 

Business Outlook — Fourth Quarter 2007

The following business outlook is based on the Company’s current information and expectations as of November 6, 2007. This does not reflect any impact from the expected purchase of Lexico. 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 ending

 

 

 

December 31, 2007

 

 

 

(in thousands)

 

 

 

 

 

Revenues

 

$

2,850 – $3,050

 

 

 

 

 

Adjusted EBITDA

 

 

 

GAAP Operating loss

 

(1,150) – (950

)

Adjustment to GAAP Net loss:

 

 

 

Stock-based compensation

 

610

 

Depreciation

 

190

 

Amortization of intangible assets resulting from acquisitions

 

300

 

 

 

$

(50) – $150

 

 

4



 

 

Business Outlook — Full Year 2008

The following business outlook is based on the Company’s current estimate as of November 6, 2007, assuming the closing of the Lexico transaction before December 31, 2007. Answers undertakes no obligation to update the outlook, or any portion thereof, notwithstanding subsequent developments; however, Answers may update the outlook or any portion thereof at any time at its discretion.

 

 

Twelve months ending

 

 

 

December 31, 2008

 

 

 

(in thousands)

 

 

 

 

 

Revenues

 

$

28,000 – $30,000

 

 

 

 

 

Adjusted EBITDA

 

 

 

GAAP Operating loss

 

(9,500) – (8,500

)

Adjustment to GAAP Net loss:

 

 

 

Stock-based compensation

 

4,500

 

Depreciation

 

1,400

 

Amortization of intangible assets resulting from acquisitions

 

2,600

 

Amortization of prepaid compensation resulting from the Lexico acquisition

 

9,000

 

 

 

$

8,000 – $9,000

 

 

Conference Call

 

A conference call to review the Q-3 2007 financial results will follow this release today at 4:30 PM EST. 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 866-765-6327 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.

 

5



 

About Answers Corporation

 

Answers Corporation (NASDAQ:ANSW) operates the award-winning Answers.com TM  answer engine, 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; and user-generated questions & answers from Answers.com’s industry-leading WikiAnswers TM . 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 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 quarterly report on Form 10-Q/A filed on August 23, 2007. We would also like to note specific risk factors relating to our proposed 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. 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.

 

(Tables to follow)

 

 

 

Investor Contact:

Press Contact:

 

 

Bruce D. Smith, CFA

Alison Minaglia

Chief Strategic Officer

Technology PR for Answers.com

bruce@answers.com

aminaglia@technologypr.com

646.502.4780

203.972.3170 or

 

917.902.3404

 

6



 

Answers Corporation

 

Consolidated Statements of Operations

(in thousands, except for share and per share data)

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30

 

September 30

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues:

 

 

 

 

 

 

 

 

 

Advertising revenue

 

$

2,165

 

$

1,810

 

$

7,777

 

$

4,357

 

Answers service licensing

 

43

 

44

 

202

 

143

 

Subscriptions

 

 

4

 

425

 

23

 

 

 

2,208

 

1,858

 

8,404

 

4,523

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

1,179

 

844

 

3,643

 

2,336

 

Research and development

 

769

 

621

 

2,239

 

5,209

 

Sales and marketing

 

1,221

 

924

 

3,275

 

2,244

 

General and administrative

 

1,058

 

765

 

3,003

 

2,530

 

Total operating expenses

 

4,227

 

3,154

 

12,160

 

12,319

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(2,019

)

(1,296

)

(3,756

)

(7,796

)

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

88

 

144

 

299

 

430

 

Other income (expenses), net

 

 

(17

)

(11

)

(220

)

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(1,931

)

(1,169

)

(3,468

)

(7,586

)

 

 

 

 

 

 

 

 

 

 

Income taxes

 

(19

)

(12

)

(33

)

(9

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,950

)

(1,181

)

$

(3,501

)

(7,595

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.25

)

$

(0.15

)

$

(0.45

)

$

(1.00

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic and diluted net loss per common share

 

7,854,053

 

7,782,820

 

7,844,900

 

7,632,283

 

 

7



 

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

 

 

 

September 30,

 

 

 

September 30,

 

 

 

2007

 

June 30, 2007

 

2006

 

Adjusted Cost of revenue

 

 

 

 

 

 

 

Cost of revenue

 

$

1,179

 

$

1,320

 

$

844

 

Stock-based compensation expense

 

(41

)

(44

)

(33

)

Cost related to layoff

 

(4

)

 

 

Depreciation

 

(85

)

(68

)

(43

)

Amortization of intangible assets resulting from acquisitions

 

(256

)

(256

)

(223

)

 

 

$

793

 

$

952

 

$

545

 

 

 

 

 

 

 

 

 

Adjusted Research and development

 

 

 

 

 

 

 

Research and development

 

$

769

 

748

 

$

621

 

Stock-based compensation expense

 

(91

)

(100

)

(79

)

Cost related to layoff

 

(14

)

 

 

Depreciation

 

(28

)

(27

)

(17

)

 

 

$

636

 

$

621

 

$

525

 

 

 

 

 

 

 

 

 

Adjusted Sales and marketing

 

 

 

 

 

 

 

Sales and marketing

 

$

1,221

 

1,072

 

$

924

 

Stock-based compensation expense

 

(219

)

(242

)

(168

)

Cost related to layoff

 

(230

)

 

 

Depreciation

 

(23

)

(22

)

(14

)

 

 

$

749

 

$

808

 

$

742

 

 

 

 

 

 

 

 

 

Adjusted General and administrative

 

 

 

 

 

 

 

General and administrative

 

$

1,058

 

1,019

 

$

766

 

Stock-based compensation expense

 

(224

)

(213

)

(180

)

Cost related to layoff

 

(5

)

 

 

Depreciation

 

(14

)

(13

)

(9

)

Amortization of intangible assets resulting from acquisitions

 

(52

)

(52

)

(2

)

 

 

$

763

 

$

741

 

$

575

 

 

 

 

 

 

 

 

 

Adjusted operating expenses

 

 

 

 

 

 

 

Operating expenses

 

$

4,227

 

4,159

 

$

3,154

 

Stock-based compensation expense

 

(574

)

(599

)

(459

)

Cost related to layoff

 

(254

)

 

 

Depreciation

 

(150

)

(130

)

(83

)

Amortization of intangible assets resulting from acquisitions

 

(308

)

(308

)

(225

)

 

 

$

2,941

 

$

3,122

 

$

2,387

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

Operating Loss

 

$

(2,019

)

$

(1,349

)

$

(1,296

)

Stock-based compensation expense

 

574

 

599

 

459

 

Cost related to layoff

 

254

 

 

 

Depreciation

 

150

 

130

 

83

 

Amortization of intangible assets resulting from acquisitions

 

308

 

308

 

225

 

 

 

$

(733

)

$

(312

)

$

(529

)

 

 

 

 

 

 

 

 

Operating loss per share (basic and diluted)

 

 

 

 

 

 

 

Operating loss per share

 

$

(0.26

)

$

(0.17

)

$

(0.17

)

Stock-based compensation expense

 

0.07

 

0.08

 

0.06

 

Cost related to layoff

 

0.03

 

 

 

Depreciation

 

0.02

 

0.02

 

0.01

 

Amortization of intangible assets resulting from acquisitions

 

0.04

 

0.04

 

0.03

 

 

 

$

(0.10

)

(0.03

)

$

(0.07

)

 

 

See discussion regarding Adjusted EBITDA in the text of this earnings release under the heading “Non-GAAP Financial Measures” for an explanation of the reconciling items noted above.

 

8



 

Lexico Publishing Group, LLC

 

Non-GAAP Financial Measures and Reconciliation of Non-GAAP Financial Measures

to the nearest comparable GAAP Measures

(in thousands)

 

 

 

 

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2007

 

2006

 

EBITDA

 

 

 

 

 

Operating income

 

$

2,364

 

$

2,064

 

Depreciation and amortization of property and equipment

 

112

 

88

 

 

 

$

2,476

 

$

2,152

 

 

 

See discussion regarding EBITDA in the text of this earnings release under the heading “Non-GAAP Financial Measures” for an explanation of the reconciling items noted above.

 

9



 

Answers Corporation

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

 

September 30

 

December 31

 

 

 

2007

 

2006

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

5,293

 

$

4,976

 

Investment securities

 

2,223

 

4,102

 

Accounts receivable

 

1,035

 

1,304

 

Prepaid expenses and other current assets

 

539

 

416

 

Total current assets

 

9,090

 

10,798

 

 

 

 

 

 

 

Long-term deposits (restricted)

 

497

 

218

 

 

 

 

 

 

 

Deposits in respect of employee severance obligations

 

1,052

 

856

 

 

 

 

 

 

 

Property and equipment, net

 

1,096

 

998

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Intangible assets, net

 

5,069

 

6,010

 

Goodwill

 

437

 

437

 

Prepaid expenses, long-term, and other assets

 

245

 

362

 

Deferred charges

 

882

 

 

Total other assets

 

6,633

 

6,809

 

 

 

 

 

 

 

Total assets

 

18,368

 

19,679

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

392

 

366

 

Accrued expenses

 

1,250

 

805

 

Accrued compensation

 

610

 

623

 

Deferred revenues, short-term

 

22

 

465

 

Total current liabilities

 

2,274

 

2,259

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Liability in respect of employee severance obligations

 

1,147

 

828

 

Deferred tax liability

 

11

 

 

Total long-term Liabilities

 

1,158

 

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 September 30, 2007 and December 31, 2006, respectively

 

8

 

8

 

Additional paid-in capital

 

73,441

 

71,599

 

Accumulated other comprehensive loss

 

(28

)

(31

)

Accumulated deficit

 

(58,485

)

(54,984

)

Total stockholders’ equity

 

14,936

 

16,592

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

18,368

 

$

19,679

 

 

10



Exhibit 99.2

Answers Corporation
3rd Quarter 2007 Conference Call
4:30PM EST, November 6, 2007

PARTICIPANTS :

Robert Rosenschein, Chairman & CEO

Steve Steinberg, CFO

Bruce Smith, Chief Strategic Officer

 

Bruce Smith

Good afternoon, and welcome to Answers Corporation’s Third Quarter 2007 conference call. My name is Bruce Smith, Chief Strategic Officer. Joining me are Bob Rosenschein, Chairman and CEO, and Steve Steinberg, CFO. This call is also being broadcast over the web and can be accessed from our Investor Center page at ir.answers.com . A replay of this call will be available at the site shortly after the completion of the call. At the conclusion of our prepared remarks, we’ll open the call for your questions.

Before we begin, let’s cover a few legalities. I would caution you that comments made during this call by management contain forward-looking statements, including predictions and estimates that involve risks and uncertainties. For those statements, the company claims 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, among others, our ability to improve traffic and monetization; a decision by Google, currently the provider of the vast majority of our search engine traffic, or other search engines, to block our pages from users’ search results or otherwise adjust their algorithms in a manner detrimental to us, as experienced recently; a decision by Google to stop directing user traffic to

 

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Answers.com through its definition link; and other risk factors. We would also like to note specific risk factors relating to our proposed acquisition of Lexico Publishing Group, LLC, including among others, the inability to consummate or 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 specific factors that may actually cause results or events to differ materially from those described in any forward looking statements can be found in our most recent quarterly report on Form 10-Q/A.

Furthermore, information shared on this call is accurate only as of the date of this call and we assume no obligation to update such information.

Finally, we will be discussing adjusted EBITDA financial measures for Answers and EBITDA financial measure for Lexico on today’s conference call. We provide a reconciliation of those measures to the most directly comparable GAAP financial measures and the list of the reasons why the company uses these measures in today’s press release posted on our corporate Website at: ir.answers.com .

With that said, I’ll turn the call over to Bob Rosenschein.

 

 

Bob Rosenschein

Good afternoon and welcome to our call.

We have successfully navigated one of the most difficult quarters in our

 

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history. Even after losing 28% of our traffic and revenue this summer, our Q4 revenue guidance is roughly equal to the all-time high we achieved in Q1 2007, with the mid-point of our guidance achieving positive adjusted EBITDA . In other words, we took a body blow but are almost fully recovered in under two quarters.

The two main reasons for our revenue recovery are: our traction in direct ad sales and growth in WikiAnswers traffic. We are excited to report some very significant positive trends to you today.

                  WikiAnswers continues its dramatic growth with revenue up 72% sequentially to $304 thousand in Q3.

                  According to ComScore, for the first nine months of 2007, WikiAnswers was the second fastest growing domain among the top 1,500 US domains.

                  Direct advertising revenue is beginning to deliver on its promise, generating $256 thousand in Q3. We already have orders in Q4 for approximately $500 thousand and are projecting around $600 thousand of revenue for the quarter. Remember that our direct sales team has only been fully in place since mid-June.

                  Even with the summer revenue setback, our Q3 revenues were actually up 19% over Q3 2006, and the projected mid-point of our Q4 revenue guidance represents a 18% increase over Q4 2006.

                  We are more committed than ever to completing the purchase of Lexico, creator of Dictionary.com. Lexico’s financial performance for the first nine months of 2007 has been remarkably strong. Revenues were $6.2 million, up 24% from $5.0 million for the same period last year. EBITDA was $2.5 million, compared to

 

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approximately $2.2 million for the same period last year. EBITDA would have reached $3.0 million without one-time deal-related expenses of approximately $500 thousand, which is a 36% improvement year-over-year.

                  Lexico’s RPMs are also up materially this year, climbing from $1.46 in Q1 to $1.79 in Q2 to $1.87 in Q3 and jumping to over $2.00 for the month of October.

                  Since signing the purchase agreement in July, we are pleased that Lexico’s overall financial performance has made the acquisition ever more compelling. What might have seemed an expensive acquisition to some is already proving to be a very reasonable valuation.

Let’s turn the call over to Steve Steinberg, our CFO, for a more detailed recap of our Q3 financials.

Steve…

 

Steve Steinberg

Thanks, Bob, and good afternoon. Here is an overview of our Q3 2007 financial performance. For a more detailed review, please see our Form 10-Q, which will be filed tomorrow.

First the highlights:

Q3 revenues were $2,208,000, an increase of 19% compared to the same period in 2006, and a decrease of 21% compared to $2,810,000, reported in the

 

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previous quarter. The GAAP net loss in Q3 was $1,950,000, compared to the Q2 GAAP net loss of $1,247,000. We had adjusted EBITDA of minus $733,000 in Q3 2007, compared to Q2 adjusted EBITDA of minus $312,000.

Now… some details:

The breakdown of our Q3 revenues of $2,208,000 was as follows. $1,861,000, or 84% of our revenue, was from Answers.com, while $304,000, or 14%, was from WikiAnswers. The remaining amount resulted from licensing our service.

WikiAnswers growth over the past few quarters has been very impressive . Average daily page views in Q3 were 700,000. WikiAnswers revenues in Q1, Q2 and Q3 were $116,000, $177,000 and $304,000, respectively. That’s revenue growth of 188% in just two quarters.

Regarding Answers.com — our average daily page views this quarter decreased by 24%, to 3.73 million from 4.89 million in Q2. As you know, this decline resulted from the Google algorithm change that we experienced in July 2007.

Our Answers.com average RPM in Q3 decreased slightly — 6% — to $5.41, from $5.73 in Q2. We continue to believe that, going forward, RPMs from third-party monetization partners will fluctuate somewhat around current levels and that future RPM upside will come primarily from our direct ad sales efforts.

Direct ad sales contributed a modest $256,000 in revenues in Q3, as our direct ad sales team was in place only at the end of Q2. We expect direct ad sales to contribute approximately $600,000 to our Q4 revenue.

Adjusted operating expenses, meaning the operating expenses included in our adjusted EBITDA, were $2,941,000 in Q3, compared to $3,122,000 in

 

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Q2, a net decrease of $181,000, or 6%. The headcount reduction in mid-August eliminated approximately $75,000 in monthly base compensation costs. The remaining net decrease was driven by many miscellaneous factors, including decreased recruiting fees.

Also, in Q3, we began hedging the dollar against the Israeli shekel. This resulted in a $70,000 reduction in expenses in Q3, which includes $50,000 relating to contracts which actually mature in Q4.

Our headcount at the end of Q3 was 68, compared to 77 at the end of Q2, which was before the August restructuring.

Now, let’s review some balance sheet data:

Cash, investment securities and long-term deposits with banks as of September 30, 2007 were approximately $7.9 million, approximately $850,000 less than the end of the previous quarter. The drop resulted from cash used in operations of $414,000, capital expenditures of $67,000, and costs connected to the Lexico transaction of $393,000.

Let’s talk about our Q4 2007 outlook.

We forecast that our Q4 revenues will be in a range of $2,850,000 - $3,050,000. We expect our adjusted EBITDA to be in a range of minus $50,000 to a positive $150,000. This factors in no Lexico contribution.

Finally, for the first time, we are giving annual guidance for calendar 2008.

Assuming that we close the Lexico transaction by the end of this year, we are forecasting total revenues next year between $28 million and $30 million. I want to call to your attention that due to a technical problem there was an error in the press release issued earlier today and we corrected such error in a revised press release clarifying that the 2008 revenue guidance range is $28 million and $30 million. We

 

6



 

expect our adjusted EBITDA to be in the range of $8 million to $9 million in 2008.

Let’s turn the call back over to Bruce.

Bruce Smith:

Thanks Steve.

I would like to recap the Lexico acquisition and discuss in more detail their success this year. Lexico owns three great web properties, Dicitonary.com, Thesaurus.com and Reference.com. Their combined page views in the third quarter were 1.1 billion or 11.78 million per day or 2.7 times Answers’ combined properties. For the first nine months of 2007, their traffic was up 29%, year-over-year.

As we stated previously, approximately 85% of this traffic is direct; this is one of the most attractive aspects of the acquisition. On a combined basis, over 70% of our joint traffic will be direct, significantly reducing any risks associated with search engine traffic.

Lexico has also made significant strides in their RPMs. They started the year at $1.46 in Q1, improved it to $1.79 in Q2, and were $1.87 in Q3. And as Bob stated in his opening remarks, they were in excess of $2.00 in October. Much of this improvement results from fixes to their implementation, plus taking advantage of some of the techniques we use on Answers.com.

This strong traffic growth, along with improving RPMs and strong expense controls, resulted in very strong financial performance for the first three quarters of 2007. For the first nine months of 2007, revenues were up 24% to $6.2 million compared to the same period in 2006 and EBITDA was a strong $2.5 million. This would have been roughly $500 thousand higher, but for deal-related costs. From a purely financial perspective, this

 

7



 

acquisition is looking better and better. Our potential ability to further improve their monetization rates after closing will add incremental value.

To illustrate how powerful the combined properties would be, according ComScore, in September 2007, together we would have ranked as the 22 nd most visited Web site in the US, with total unique monthly visitors of 26 million.

To sum it up, all of Lexico’s trends are strongly headed in the right direction, and we look forward to closing the transaction and moving the combined company forward.

I now turn the call back over to Bob.

 

Bob Rosenschein:

Thanks, Bruce. When we outline our strategy going forward, we have defined a simple goal— to be the leading player in the Question and Answer space, with WikiAnswers as a centerpiece, supplementing our rich Reference Answers library of over 4 million topics from 180 titles. We think that the market is ripe for this unique blend with Q&A, the Wiki way, and the numbers are proving it.

Here is some extra color on just how well WikiAnswers is working:

                  Traffic growth has been unusually strong. Month over month growth rates were:

                  August 11%, September 28%, October 30%,   climbing to over 1.1M average daily page views.

                  As noted, ComScore ranked WikiAnswers as the 2 nd fastest growing

 

8



 

site in the US, for the first nine months of 2007, based on unique monthly visitors, among the top 1,500 US sites.

                  We breached the 1,000,000 question milestone, which started at 280,000 when we bought WikiAnswers in November 2006.

                  The rate of new registered users is growing at an all-time high of  almost 1,700 per day, on a 7-day average, compared to around 150 last November.

                  New answers are currently growing at an all-time high of over 2,600 per day, on a 7-day average, compared to 250 last November.

                  All this adds up to an ever-increasing contribution to Answers revenues. Revenues derived from WikiAnswers for the first three quarters of this year were $116 thousand, $177 thousand, $304 thousand. And we expect it to be up sharply again, as high as $500 thousand in Q4.

                  As a reminder, we purchased WikiAnswers for $2 million in November 2006.

A few other quick comments. First, we recently announced several interesting partnerships. One was a Facebook app, the second was an auto-linking application for WordPress, the popular blogging platform. We are pleased with these new partnerships. For now, they primarily offer branding and traffic upsides, but do not expect material revenue contributions in the near future.

In summary:

                  After our setback this summer, we’ve come back stronger than ever.

 

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                  Direct ad sales are gaining traction, as promised.

                  We are experiencing the powerful network effect on WikiAnswers in both traffic and users, along with commensurate growth in revenues.

                  We are looking forward to closing the transformative purchase of Dictionary.com. It is clearly highly profitable and we expect it to remain so.

Finally, we want to thank you for your time and support.

 

Closing the Call (Shareholder.com Operator)

Thank you, all. This concludes today’s teleconference. Please disconnect your lines at this time, and have a good day.

# # #

 

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