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)
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1-32255 |
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98-0202855 |
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(Commission File Number) |
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(IRS Employer Identification No.) |
237 West 35 th Street
Suite 1101
New York, NY 10001
(Address of Principal Executive Offices)
+972-2-649-5000
(Registrants 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
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Description |
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99.1 |
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Press Release issued by Answers Corporation, dated November 6, 2007 |
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99.2 |
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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.
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ANSWERS CORPORATION |
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By: |
/s/ Steven Steinberg |
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Steven Steinberg |
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Chief Financial Officer |
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Dated: November 6, 2007 |
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3
Exhibit 99.1
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Answers Corporation Reports Q3 2007 Financial Results |
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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. Lexicos 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 managements 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 Lexicos 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 Lexicos 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 Lexicos 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 Lexicos 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 Companys 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 Companys next earnings announcement, notwithstanding subsequent developments; however, Answers may update the outlook or any portion thereof at any time at its discretion.
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Three months ending |
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December 31, 2007 |
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(in thousands) |
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Revenues |
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$ |
2,850 $3,050 |
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Adjusted EBITDA |
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GAAP Operating loss |
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(1,150) (950 |
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Adjustment to GAAP Net loss: |
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Stock-based compensation |
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610 |
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Depreciation |
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190 |
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Amortization of intangible assets resulting from acquisitions |
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300 |
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$ |
(50) $150 |
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4
Business Outlook Full Year 2008
The following business outlook is based on the Companys current estimate as of November 6, 2007, assuming the closing of the Lexico transaction before December 31, 2007. Answers undertakes no obligation to update the outlook, or any portion thereof, notwithstanding subsequent developments; however, Answers may update the outlook or any portion thereof at any time at its discretion.
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Twelve months ending |
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December 31, 2008 |
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(in thousands) |
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Revenues |
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$ |
28,000 $30,000 |
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Adjusted EBITDA |
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GAAP Operating loss |
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(9,500) (8,500 |
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Adjustment to GAAP Net loss: |
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Stock-based compensation |
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4,500 |
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Depreciation |
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1,400 |
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Amortization of intangible assets resulting from acquisitions |
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2,600 |
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Amortization of prepaid compensation resulting from the Lexico acquisition |
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9,000 |
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$ |
8,000 $9,000 |
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Conference Call
A conference call to review the Q-3 2007 financial results will follow this release today at 4:30 PM EST. The companys 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, Barrons, Encyclopedia Britannica, All Media Guide and others; original articles written by Answers.coms editorial team; and user-generated questions & answers from Answers.coms 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 Lexicos 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)
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Investor Contact: |
Press Contact: |
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Bruce D. Smith, CFA |
Alison Minaglia |
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Chief Strategic Officer |
Technology PR for Answers.com |
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bruce@answers.com |
aminaglia@technologypr.com |
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646.502.4780 |
203.972.3170 or |
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917.902.3404 |
6
Answers Corporation
Consolidated Statements of Operations
(in thousands, except for share and per share data)
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Three months ended |
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Nine months ended |
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September 30 |
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September 30 |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues: |
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Advertising revenue |
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$ |
2,165 |
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$ |
1,810 |
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$ |
7,777 |
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$ |
4,357 |
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Answers service licensing |
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43 |
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44 |
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202 |
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143 |
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Subscriptions |
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4 |
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425 |
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23 |
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2,208 |
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1,858 |
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8,404 |
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4,523 |
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Costs and expenses: |
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Cost of revenue |
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1,179 |
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844 |
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3,643 |
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2,336 |
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Research and development |
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769 |
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621 |
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2,239 |
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5,209 |
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Sales and marketing |
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1,221 |
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924 |
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3,275 |
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2,244 |
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General and administrative |
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1,058 |
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765 |
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3,003 |
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2,530 |
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Total operating expenses |
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4,227 |
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3,154 |
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12,160 |
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12,319 |
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Operating loss |
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(2,019 |
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(1,296 |
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(3,756 |
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(7,796 |
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Interest income, net |
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88 |
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144 |
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299 |
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430 |
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Other income (expenses), net |
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(17 |
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(11 |
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(220 |
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Loss before income taxes |
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(1,931 |
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(1,169 |
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(3,468 |
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(7,586 |
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Income taxes |
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(19 |
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(12 |
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(33 |
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(9 |
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Net loss |
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$ |
(1,950 |
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(1,181 |
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$ |
(3,501 |
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(7,595 |
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Basic and diluted net loss per common share |
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$ |
(0.25 |
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$ |
(0.15 |
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$ |
(0.45 |
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$ |
(1.00 |
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Weighted average shares used in computing basic and diluted net loss per common share |
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7,854,053 |
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7,782,820 |
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7,844,900 |
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7,632,283 |
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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)
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Three months ended |
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September 30, |
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September 30, |
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2007 |
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June 30, 2007 |
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2006 |
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Adjusted Cost of revenue |
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Cost of revenue |
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$ |
1,179 |
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$ |
1,320 |
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$ |
844 |
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Stock-based compensation expense |
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(41 |
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(44 |
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(33 |
) |
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Cost related to layoff |
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(4 |
) |
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Depreciation |
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(85 |
) |
(68 |
) |
(43 |
) |
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Amortization of intangible assets resulting from acquisitions |
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(256 |
) |
(256 |
) |
(223 |
) |
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$ |
793 |
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$ |
952 |
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$ |
545 |
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Adjusted Research and development |
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Research and development |
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$ |
769 |
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748 |
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$ |
621 |
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Stock-based compensation expense |
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(91 |
) |
(100 |
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(79 |
) |
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Cost related to layoff |
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(14 |
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Depreciation |
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(28 |
) |
(27 |
) |
(17 |
) |
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$ |
636 |
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$ |
621 |
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$ |
525 |
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Adjusted Sales and marketing |
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Sales and marketing |
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$ |
1,221 |
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1,072 |
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$ |
924 |
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Stock-based compensation expense |
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(219 |
) |
(242 |
) |
(168 |
) |
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Cost related to layoff |
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(230 |
) |
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Depreciation |
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(23 |
) |
(22 |
) |
(14 |
) |
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$ |
749 |
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$ |
808 |
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$ |
742 |
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Adjusted General and administrative |
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General and administrative |
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$ |
1,058 |
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1,019 |
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$ |
766 |
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Stock-based compensation expense |
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(224 |
) |
(213 |
) |
(180 |
) |
|||
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Cost related to layoff |
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(5 |
) |
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|||
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Depreciation |
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(14 |
) |
(13 |
) |
(9 |
) |
|||
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Amortization of intangible assets resulting from acquisitions |
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(52 |
) |
(52 |
) |
(2 |
) |
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$ |
763 |
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$ |
741 |
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$ |
575 |
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|||
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Adjusted operating expenses |
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|
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|
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|||
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Operating expenses |
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$ |
4,227 |
|
4,159 |
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$ |
3,154 |
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|
|
Stock-based compensation expense |
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(574 |
) |
(599 |
) |
(459 |
) |
|||
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Cost related to layoff |
|
(254 |
) |
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|
|
|
|||
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Depreciation |
|
(150 |
) |
(130 |
) |
(83 |
) |
|||
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Amortization of intangible assets resulting from acquisitions |
|
(308 |
) |
(308 |
) |
(225 |
) |
|||
|
|
|
$ |
2,941 |
|
$ |
3,122 |
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$ |
2,387 |
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|
|
|
|
|
|
|
|
|
|||
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Adjusted EBITDA |
|
|
|
|
|
|
|
|||
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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
PARTICIPANTS :
Robert Rosenschein, Chairman & CEO
Steve Steinberg, CFO
Bruce Smith, Chief Strategic Officer
Good afternoon, and welcome to Answers Corporations 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, well open the call for your questions.
Before we begin, lets 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
1
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 Lexicos 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 todays 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 todays press release posted on our corporate Website at: ir.answers.com .
With that said, Ill turn the call over to Bob Rosenschein.
Good afternoon and welcome to our call.
We have successfully navigated one of the most difficult quarters in our
2
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. Lexicos 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
3
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.
Lexicos 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 Lexicos 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.
Lets turn the call over to Steve Steinberg, our CFO, for a more detailed recap of our Q3 financials.
Steve
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
4
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. Thats 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
5
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, lets 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.
Lets 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.
Lets 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 Lexicos 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, weve come back stronger than ever.
9
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.
Thank you, all. This concludes todays teleconference. Please disconnect your lines at this time, and have a good day.
# # #
10