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): July 29, 2008
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)
646-502-4777
(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 July 29, 2008, Answers Corporation (the “ Company ”) issued a press release announcing its unaudited financial results for the quarter ended June 30, 2008. 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 July 29, 2008, the Company held an earnings conference call to discuss its unaudited financial results for the quarter ended June 30, 2008. 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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Exhibit No. |
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Description |
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99.1 |
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Press Release issued by Answers Corporation, dated July 29, 2008 |
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99.2 |
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Transcript of July 29, 2008 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: July 29, 2008 |
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3
Exhibit 99.1
Answers Corporation Reports Q2 2008 Financial Results
WikiAnswers Revenue Grew 27% Sequentially in Q2
New York, NY , July 29, 2008 - Answers Corporation (NASDAQ: ANSW), creators of the leading answer engine offering Answers.com® and WikiAnswers™, today reported unaudited financial results for its second quarter ended June 30, 2008.
Chairman and CEO Robert S. Rosenschein commented, “Revenues were $3.0 million, and we were pleased to beat the top end of our revenue guidance by $200,000. WikiAnswers continued its exciting growth, accounting for 50% of top-line revenue in Q2.”
“The major event of Q2 was the strategic investment from Redpoint Ventures, a top-tier Silicon Valley venture capital investor, and we welcome Allen Beasley to our board. This investment validates our growth strategy and raises our cash balance to over $10 million. We will be focusing on maximizing traffic and revenue in Q4 and in 2009.”
“We recently took two other important steps. The first was to shelve our direct ad sales efforts and place extra emphasis on building traffic and market share, monetizing that traffic with Google AdSense and other ad networks. This decision enables us to focus on the core competency of growing the WikiAnswers community and database. The second was the non-cash write-off of the Brainboost asset. We’ve made a strategic decision to focus our Q&A efforts on WikiAnswers, which has succeeded beyond our expectations.”
“We are as excited and confident as ever about the company’s short- and long-term prospects to lead the answer space,” said Rosenschein.
Q2 2008 Financial Results
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· |
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Revenues were $3,003 thousand in Q2 2008, an increase of 7% compared to $2,810 thousand reported for the same period in 2007, and a decrease of 1% compared to the $3,031 thousand reported for Q1 2008. |
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· |
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WikiAnswers.com revenues were $1,500 thousand in Q2 2008, an increase of 27% compared to $1,185 thousand in Q1 2008. |
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· |
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Answers.com revenues were $1,485 thousand in Q2 2008, a decrease of 19% compared to $1,828 thousand in Q1 2008. |
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· |
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Adjusted EBITDA in Q2 2008, including a $90 thousand charge resulting from the winding down of our direct ad sales efforts, was negative $670 thousand, $364 thousand more than the negative $306 thousand of Adjusted EBITDA in Q2 2007, and $489 thousand more than the negative Adjusted EBITDA of $181 thousand in Q1 2008. |
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· |
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GAAP net loss in Q2 2008, including the write-off of the Brainboost Answers Engine in the amount of $3,138 thousand, was $4,619 thousand, an increase of $3,372 thousand compared to Q2 2007, and an increase of $952 thousand, compared to the GAAP net loss of $3,667 thousand in Q1 2008. GAAP net loss in Q1 2008 included $2,543 thousand of termination fees and write-off of costs relating to the terminated Lexico acquisition and abandoned follow-on offering. GAAP net loss per share in Q2 2008 was $0.59, compared to $0.16 in Q2 2007, and $0.47 in Q1 2008. |
Business Outlook – Third Quarter and Full Year 2008
The following business outlook is based on the Company’s current information and expectations as of July 29, 2008. 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.
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Third Quarter 2008 |
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Full Year 2008 |
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(in thousands) |
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(in thousands) |
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Revenues |
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$2,750 - $2,900 |
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$12,250 - $13,000 |
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Adjusted EBITDA |
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GAAP Operating loss |
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$(1,150) – $(1,000) |
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$(4,050) – $(3,300) |
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Adjustment to GAAP Operating loss: |
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Stock-based compensation |
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425 |
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1,850 |
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Depreciation and amortization |
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250 |
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1,350 |
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$(475) – $(325) |
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$(850) – $(100) |
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Conference Call
A conference call to review the Q-2 2008 financial results will follow this release today at 8:30 AM EDT. 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 (877) 397-0235 and request the Answers call. For those unable to listen to the live broadcast, a replay will be available on the site shortly after the call.
About Answers Corporation
Answers Corporation (NASDAQ: ANSW) owns and operates Web properties dedicated to providing useful answers in thousands of categories. The award-winning reference site Answers.com includes content on five million topics from over 180 licensed sources from leading publishers, including Houghton Mifflin Company, Barron’s, Wikipedia and Encyclopædia Britannica. WikiAnswers.com is a community-generated Social Knowledge Q&A platform, leveraging wiki-based technologies. Through the contributions of WikiAnswers’ growing community and dedicated supervisors, answers are constantly improved and updated over time. WikiAnswers was ranked by comScore as the fastest U.S. growing website in 2007. Answers.com is also available for mobile devices at mobile.answers.com. For investment information, visit http://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
2
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 Web properties, our inability to increase the number of partners who will generate increased traffic to our Web properties, our failure to improve the monetization of our Web properties, 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 our Web properties, a decision by Google, Inc. to discontinue directing user traffic to www.answers.com through its definition link, the effects of facing liability for any content displayed on our Web properties, potential claims that we are infringing the intellectual property rights of any third party, and other risk factors identified from time to time in our SEC filings, including, but not limited to, our annual report on Form 10-K filed on April 1, 2008. 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.
Non-GAAP Financial Measures
This press release, and the accompanying tables, include both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures, including “ Adjusted EBITDA” . The tables attached to this press release include reconciliations of these non-GAAP financial measures to the nearest GAAP financial measures. In addition an “Explanation of Non-GAAP Financial Measures” is set forth in Appendix A attached to this press release.
(Tables and Explanation of Non-GAAP Financial Measures, to follow)
3
Answers Corporation
Consolidated Statements of Operations
(in thousands, except for share and per share data)
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Three months ended June 30 |
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Six months ended June 30 |
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2008 |
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2007 |
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2008 |
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2007 |
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$ |
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$ |
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$ |
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$ |
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Revenues: |
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Advertising revenue |
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2,985 |
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2,728 |
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5,998 |
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5,612 |
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Answers service licensing |
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18 |
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82 |
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36 |
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159 |
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Subscriptions |
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— |
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— |
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— |
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425 |
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3,003 |
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2,810 |
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6,034 |
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6,196 |
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Costs and expenses: |
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Cost of revenue |
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1,416 |
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1,320 |
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2,809 |
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2,464 |
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Research and development |
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929 |
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748 |
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1,804 |
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1,469 |
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Sales and marketing |
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933 |
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1,072 |
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1,695 |
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2,054 |
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General and administrative |
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1,198 |
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1,019 |
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2,329 |
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1,945 |
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Write-off of the Brainboost Answer Engine |
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3,138 |
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— |
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3,138 |
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— |
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Termination fees and write-off of costs relating to the terminated Lexico acquisition and abandoned follow-on offering |
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— |
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— |
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2,543 |
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— |
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Total operating expenses |
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7,614 |
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4,159 |
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14,318 |
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7,932 |
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Operating loss |
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(4,611 |
) |
(1,349 |
) |
(8,284 |
) |
(1,736 |
) |
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Interest income, net |
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18 |
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112 |
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73 |
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212 |
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Other income (expense), net |
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(11 |
) |
4 |
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(49 |
) |
(12 |
) |
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Loss before income taxes |
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(4,604 |
) |
(1,233 |
) |
(8,260 |
) |
(1,536 |
) |
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Income tax expense |
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(15 |
) |
(14 |
) |
(26 |
) |
(14 |
) |
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Net loss |
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(4,619 |
) |
(1,247 |
) |
(8,286 |
) |
(1,550 |
) |
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Basic and diluted net loss per common share |
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(0.59 |
) |
(0.16 |
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(1.06 |
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(0.20 |
) |
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Weighted average shares used in computing basic and diluted net loss per common share |
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7,859,890 |
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7,853,818 |
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7,859,890 |
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7,840,140 |
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4
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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June 30,
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March 31,
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June 30,
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Adjusted Cost of Revenue |
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Cost of revenue |
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$ |
1,416 |
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$ |
1,393 |
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$ |
1,320 |
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Stock-based compensation expense |
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(42 |
) |
(46 |
) |
(44 |
) |
|||
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Depreciation and amortization |
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(260 |
) |
(328 |
) |
(326 |
) |
|||
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|||
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$ |
1,114 |
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$ |
1,019 |
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$ |
950 |
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Adjusted Research and Development |
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Research and development |
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$ |
929 |
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$ |
875 |
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$ |
748 |
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Stock-based compensation expense |
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(96 |
) |
(108 |
) |
(100 |
) |
|||
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Depreciation and amortization |
|
(34 |
) |
(32 |
) |
(31 |
) |
|||
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|||
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$ |
799 |
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$ |
735 |
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$ |
617 |
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Adjusted Sales and Marketing |
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Sales and marketing |
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$ |
933 |
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$ |
762 |
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$ |
1,072 |
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Stock-based compensation expense |
|
(67 |
) |
(90 |
) |
(242 |
) |
|||
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Depreciation and amortization |
|
(22 |
) |
(19 |
) |
(22 |
) |
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$ |
844 |
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$ |
653 |
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$ |
808 |
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Adjusted General and Administrative |
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|||
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General and administrative |
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$ |
1,198 |
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$ |
1,131 |
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$ |
1,019 |
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Stock-based compensation expense |
|
(215 |
) |
(257 |
) |
(213 |
) |
|||
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Depreciation and amortization |
|
(67 |
) |
(69 |
) |
(65 |
) |
|||
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|||
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$ |
916 |
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$ |
805 |
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$ |
741 |
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Adjusted Operating Expenses |
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|||
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Operating expenses |
|
$ |
7,614 |
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$ |
6,704 |
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$ |
4,159 |
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Stock-based compensation expense |
|
(420 |
) |
(501 |
) |
(599 |
) |
|||
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Write-off of the Brainboost Answer Engine |
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(3,138 |
) |
— |
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— |
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Termination fees and write-off of costs related to the terminated Lexico acquisition and abandoned follow-on offering |
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— |
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(2,543 |
) |
— |
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|||
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Depreciation and amortization |
|
(383 |
) |
(448 |
) |
(444 |
) |
|||
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|||
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$ |
3,673 |
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$ |
3,212 |
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$ |
3,116 |
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|||
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Adjusted EBITDA |
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|
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|||
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Operating Loss |
|
$ |
(4,611 |
) |
$ |
(3,667 |
) |
$ |
(1,349 |
) |
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Stock-based compensation expense |
|
420 |
|
501 |
|
599 |
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|||
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Write-off of the Brainboost Answer Engine |
|
3,138 |
|
— |
|
— |
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|||
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Termination fees and write-off of costs related to the terminated Lexico acquisition and abandoned follow-on offering |
|
— |
|
2,543 |
|
— |
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|||
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Depreciation and amortization |
|
383 |
|
448 |
|
444 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
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$ |
(670 |
) |
$ |
(181 |
) |
$ |
(306 |
) |
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|||
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Adjusted
EBITDA Per Share
|
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|||
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Operating loss per share |
|
$ |
(0.59 |
) |
$ |
(0.47 |
) |
$ |
(0.17 |
) |
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Stock-based compensation expense |
|
0.05 |
|
0.06 |
|
0.06 |
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|||
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Write-off of the Brainboost Answer Engine |
|
0.40 |
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— |
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— |
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|||
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Termination fees and write-off of costs related to the terminated Lexico acquisition and abandoned follow-on offering |
|
— |
|
0.32 |
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— |
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|||
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Depreciation and amortization |
|
0.05 |
|
0.06 |
|
0.04 |
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|||
|
|
|
|
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|
|
|
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|||
|
|
|
$ |
(0.09 |
) |
$ |
(0.03 |
) |
$ |
(0.07 |
) |
See discussion regarding Adjusted EBITDA in Appendix A of this earnings release for an explanation of the reconciling items noted above.
5
Answers Corporation
Condensed Consolidated Balance Sheets
(in thousands)
|
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June 30 |
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December 31 |
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|
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2008 |
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2007 |
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$ |
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$ |
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Assets |
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Current assets: |
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|
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Cash and cash equivalents |
|
10,187 |
|
6,778 |
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|
Investment securities |
|
— |
|
700 |
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|
Accounts receivable |
|
1,199 |
|
1,448 |
|
|
Prepaid expenses and other current assets |
|
946 |
|
487 |
|
|
Total current assets |
|
12,332 |
|
9,413 |
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|
|
|
|
|
|
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Long-term deposits (restricted) |
|
285 |
|
196 |
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|
|
|
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Deposits in respect of employee severance obligations |
|
1,524 |
|
1,232 |
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|
|
|
|
|
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|
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Property and equipment, net of $1,748 and $1,615 accumulated depreciation as of June 30, 2008 and December 31, 2007, respectively |
|
1,224 |
|
1,012 |
|
|
|
|
|
|
|
|
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Other assets: |
|
|
|
|
|
|
Intangible assets, net of $639 and $2,352 accumulated amortization as of June 30, 2008 and December 31, 2007, respectively |
|
1,124 |
|
4,766 |
|
|
Goodwill |
|
437 |
|
437 |
|
|
Prepaid expenses, long-term, and other assets |
|
189 |
|
275 |
|
|
Deferred charges (Lexico acquisition and public offering) |
|
— |
|
1,267 |
|
|
Total other assets |
|
1,750 |
|
6,745 |
|
|
|
|
|
|
|
|
|
Total assets |
|
17,115 |
|
18,598 |
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
461 |
|
968 |
|
|
Accrued expenses |
|
795 |
|
1,045 |
|
|
Accrued compensation |
|
812 |
|
551 |
|
|
Investor option to purchase units of Series B preferred stock and warrants |
|
3,511 |
|
— |
|
|
Capital lease obligation – current portion |
|
76 |
|
— |
|
|
Deferred revenues |
|
4 |
|
16 |
|
|
Total current liabilities |
|
5,659 |
|
2,580 |
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
Liability in respect of employee severance obligations |
|
1,647 |
|
1,233 |
|
|
Capital lease obligation, net of current portion |
|
152 |
|
— |
|
|
Deferred tax liability |
|
20 |
|
14 |
|
|
Total long-term liabilities |
|
1,819 |
|
1,247 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock: $0.01 par value; stated value and liquidation preference of $100 per share; 6% cumulative annual dividend; 60,000 shares authorized, 60,000 and 0 issued and outstanding as of June 30, 2008 and December 31, 2007, respectively |
|
55 |
|
— |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock: $0.01 par value; 940,000 shares authorized, none issued |
|
— |
|
— |
|
|
Common stock; $0.001 par value; 30,000,000 shares authorized; 7,859,890 Shares issued and outstanding as of June 30, 2008 and December 31, 2007 |
|
8 |
|
8 |
|
|
Additional paid-in capital |
|
76,989 |
|
73,893 |
|
|
Accumulated other comprehensive loss |
|
(27 |
) |
(28 |
) |
|
Accumulated deficit |
|
(67,388 |
) |
(59,102 |
) |
|
Total stockholders’ equity |
|
9,582 |
|
14,771 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
17,115 |
|
18,598 |
|
6
Appendix A
Explanation of Non-GAAP Financial Measures
This earning release and the accompanying financial tables include both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures. The non-GAAP financial measure we refer to, Adjusted EBITDA, represents net earnings before interest, taxes, depreciation, amortization, stock-based compensation, foreign currency exchange rate differences and certain non-recurring revenues and expenses. We also refer to Adjusted Cost of Revenue, Adjusted Research and Development, Adjusted Sales and Marketing, Adjusted General and Administrative, and Adjusted Operating Expenses, which are our GAAP expenses adjusted for the expense items we exclude from Adjusted EBITDA.
We use Adjusted EBITDA as an additional measure of our overall performance for purposes of business decision-making, developing budgets and managing expenditures. It is useful 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. We believe that the presentation of Adjusted EBITDA provides useful information to investors in their analysis of our results of operations for reasons similar to the reasons why we find it useful and 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.
More specifically, we believe that removing these impacts is important for several reasons:
|
· |
|
Amortization of Intangible Assets. Adjusted EBITDA disregards amortization of intangible assets. Specifically, we exclude (a) amortization, and the Q2 2008 write-off, of acquired technology from the acquisition of Brainboost Technology, LLC, developer of the Brainboost Answer Engine in December 2005; and (b) amortization of intangible assets resulting from the acquisition of WikiAnswers and other related assets 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. In addition, we believe that the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. 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, for the six months ended June 30, 2008 and the years ended December 31, 2007 and 2006 was $2,685 thousand, $1,301 thousand and $62 thousand, respectively. The amount of revenue that resulted from the acquisition of technology from Brainboost is not quantifiable due to the nature of its integration. |
|
|
|
|
|
· |
|
Stock-based Compensation Expense. Adjusted EBITDA disregards expenses associated with stock-based compensation, a non-cash expense arising from the grant of stock-based awards to employees and directors. 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 make period-to-period comparisons of operating performance and to make meaningful comparisons between our performance and the performance of other companies. Investors are cautioned that stock-based compensation is offered to employees as a key incentive to continue their contribution to the operating results of the company in future periods. Adjusted EBITDA also disregards compensation costs resulting from certain portions of the stock component of the Brainboost purchase price that were deemed compensation expense. Such stock-based compensation should be viewed by investors as a non-recurring, one-time event and its exclusion enhances the understanding of our operating results going forward. |
7
|
· |
|
Depreciation, Interest, Taxes and Exchange Rate Differences. Adjusted EBITDA excludes depreciation, interest, taxes and foreign exchange rate differences. We believe that, excluding these items from the Adjusted EBITDA measure 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. |
|
|
|
|
|
· |
|
Terminated Lexico Acquisition and Follow-On Offering. Adjusted EBITDA disregards $2,543,000 costs associated with our terminated acquisition of Lexico and the cancellation of our follow-on offering. We believe that, excluding these costs provides investors with additional information to measure our performance, by excluding events that are of a non-recurring nature. |
Adjusted EBITDA is not a measure of liquidity or financial performance under generally accepted accounting principles and 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; |
|
|
|
|
|
· |
|
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 of operating a business; 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.
8
Exhibit 99.2
A
nswers Corporation
2
nd
Quarter 2008 Conference Call
8:30AM EDT, July 29,
2008
PARTICIPANTS:
Robert Rosenschein, Chairman & CEO
Steve Steinberg, CFO
Bruce Smith, Chief Strategic Officer
Bruce Smith
Good morning, and welcome to Answers Corporation’s Second Quarter 2008 conference call. My name is Bruce Smith, Chief Strategic Officer. Joining me are Robert 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 start, let’s cover a few legalities. I will 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
1
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 in July 2007; a decision by Google to stop directing user traffic to Answers.com through its definition link; a potential termination of our Google Services Agreement; a decision on our part to decrease the number of ad elements displayed on our Web properties in the interest of user experience; a failure of WikiAnswers to experience continued growth in accordance with our expectations; 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 annual report on Form 10-K.
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 non-GAAP financial measures, including adjusted EBITDA and adjusted operating expenses. We provide a reconciliation of non-GAAP financial measures, to the most directly comparable GAAP financial measure and the list of the reasons why the company uses non-GAAP financial measures, in today’s earnings release posted on our corporate Website at: ir.answers.com.
With that said, I’ll turn the call over to Bob Rosenschein.
2
Bob Rosenschein
Good morning—and thanks for joining us. I’m very excited about our call today, the first since closing our new strategic investment. With over $10 million in cash, the theme of our plan going forward will be focus . Focus on steady, continuing top-line growth. Focus on traffic, community, and market share. Focus on accelerating what’s working.
As you have seen by now, our second quarter revenues were just over $3 million, a 7% increase over the second quarter of 2007, with an adjusted EBITDA loss of $670,000. Revenues beat the high end of our $2.7-$2.8 million guidance, while our loss was near the low end of the $650,000–$750,000 adjusted EBITDA loss we projected. It’s important to realize that our adjusted EBITDA loss also included a $90,000 charge for winding down our direct ad sales efforts, which I will discuss in a moment.
The big news this quarter was the announcement that Redpoint Ventures, a top-tier Silicon Valley venture capital investor, made a major investment in Answers. This investment validates our growth potential. We are looking forward to the active contribution of our newest board member, Redpoint’s Allen Beasley. The investment is a vote of confidence that our long-term strategy can deliver compelling shareholder value.
We’ve recently made the strategic choice to shelve direct ad sales and place extra emphasis on building traffic and market share. As you know, we started selling ads directly in late 2006. As we reviewed the revenue to date, we saw that we were achieving only break-even results. The horizontal nature and declining traffic of Answers.com made direct ads less suited for this reference property. While WikiAnswers might still
3
have the potential for direct ad sales, considering the extra investment it would have required, as well as today’s challenging macro environment, we decided not to take that route and instead to sell ads through advertising networks, primarily Google AdSense. This decision will allow us to focus on our core competency: growing the WikiAnswers community, growing traffic to our Web properties and monetizing via Google and other less labor-intensive ad networks.
WikiAnswers, of course, continues to be our standout property, the engine driving our expansion. Its traffic grew 23% sequentially, and revenues jumped 27% to $1.5 million during the quarter. We recently passed another significant milestone, passing the 1 million registered user mark. That number is up 3 00% from 250,000 registered users just one year ago. It’s worth noting that WikiAnswers has overtaken Answers.com as the larger contributor to top-line revenue, as expected. By the way, yesterday we set another WikiAnswers record-nearly 3 million page views, this in the middle of the summer.
Reference Answers.com traffic was down 18% in Q2 and revenues were down 19%. Much of this decline was normal and seasonal, due to school and summer vacations. Over time, we expect WikiAnswers revenue growth to more than compensate for any reference Answers.com drop. I will talk a little later about our efforts to revive the reference side of the business, too.
With that, I’ll turn the call over to Steve Steinberg, our CFO, for a more detailed recap of our Q2 financials.
Steve…
4
Steve Steinberg:
Thanks, Bob, and good morning. I will now walk you through our Q2 2008 financial performance. For a detailed review of our results, please see our Form 10-Q, which will be filed in early August.
The breakdown of our Q2 revenues of $3,003,000 is as follows: $1,500,000, 50% of our revenue, was from WikiAnswers, while $1,485,000, or 49%, was from Answers.com. The remaining $18,000 was from licensing our service. The overall trend we indicated last quarter continued in Q2, namely—WikiAnswers kept growing significantly and Answers.com declined.
WikiAnswers’ growth over the past few quarters has been extraordinary. Average daily page views in the five quarters since Q2 2007 were 440,000, 639,000, 1,152,000, 1,885,000 and 2,318,000, respectively. WikiAnswers revenues in those five quarters were $177,000, $304,000, $704,000, $1,185,000, and $1,500,000, respectively. Q2 2008 WikiAnswers revenue grew 27% sequentially and approximately 750% year-over-year. Finally, Q2 RPM for WikiAnswers was $7.09, up from $6.95 in Q1.
Answers.com average daily page views this quarter decreased by 18% to 2.6 million, from 3.2 million, in Q1. Answers.com average RPM in Q2 was about the same as the previous quarter – Q1 was $6.23, while Q2 came in at $6.18.
5
I want to point out a change in methodology regarding our traffic measurements. Historically, we tracked the traffic on our Answers.com and WikiAnswers Web properties using two separate systems—Answers.com traffic was measured using our own internally developed server-side, log-based Data Warehouse. WikiAnswers traffic was tracked using HBX Analytics, a tag-based web analytics system offered by Omniture. Beginning this quarter, all traffic measurements for Answers.com, including historical measurements, will also be presented based on HBX Analytics data. We estimate that the historical page views for Answers.com pursuant to HBX Analytics data are approximately 11% lower than the traffic measurements reported previously. Of course, this has no effect on our actual revenue; however, it does mean that RPM’s will appear higher.
Adjusted operating expenses, meaning the operating expenses included in our adjusted EBITDA, were $3,673,000 in Q2, compared to $3,212,000 in Q1, a net increase of $461,000, including a $90,000 accrual resulting from the winding down of direct ad sales. The remaining increase, of $371,000, was mostly due to increased compensation and overhead, content, accounting costs resulting from the Redpoint transaction, and collocation facility costs. The weak dollar as compared to the Israeli shekel contributed to the increased compensation and overhead. Our headcount at the end of Q2 was 70, compared to 72 at the end of Q1. In addition to the cuts we made relating to direct ad sales, we made additional headcount cuts in July 2008, which were not related to ad sales. Thus, by August 31 st , we expect our headcount to stand at 65.
6
The GAAP net loss in Q2 was $4,619,000, which included a non-recurring $3,138,000 non-cash write-off of the Brainboost Answer Engine. In December 2005, we acquired Brainboost, an artificial intelligence technology enabling natural language question-and-answer search on the Web. About one year later, in November 2006, we acquired WikiAnswers.com, a dynamic, user-generated , questions and answers property. Although handled in completely different ways, Brainboost and WikiAnswers are concerned with similar problems, answering complex natural language questions. As a result of the success of WikiAnswers, as compared to Brainboost’s algorithmic-driven results, we made a strategic decision this quarter to focus our efforts, in the realm of questions-and-answers, on WikiAnswers. We have effectively abandoned our use of Brainboost, and we no longer devote any staff to Brainboost development. As a result of our decision, we wrote this asset off our books.
Now, let’s review some balance sheet data:
Cash and cash equivalents as of June 30, 2008 were approximately $10.2 million, approximately $4.7 million more than the end of the previous quarter. That net increase was the result of the approximately $5.4 million in net proceeds from the Redpoint transaction, less cash used in operations and investing activities.
Let’s talk about our Q3 2008 and full-year 2008 outlook.
7
We forecast that our Q3 revenues will be in a range of $2,750,000 to $2,900,000. We expect adjusted EBITDA to be in a range of negative $325,000 to negative $475,000.
For the full year 2008, we are now forecasting total revenues between $12.25 million and $13.0 million, with adjusted EBITDA between negative $100,000 and negative $850,000. Bob will add some color regarding our 2008 estimates.
I’ll now turn the call back to Bob.
Bob Rosenschein:
Thanks, Steve. Looking forward, we expect a strong seasonal uptick in traffic post summer and Labor Day. This will affect both our properties.
Our guidance for Q3 still includes an adjusted EBITDA loss, but if you do the arithmetic, you’ll see we are projecting at the low-end $3.5 million in revenues and adjusted positive EBITDA in Q4, and we expect to remain adjusted EBITDA positive in 2009 and beyond.
But let me go back now to the issue of creative adaptation to the relative strength of WikiAnswers over reference Answers—and how we intend to exploit the synergies between those two properties.
The heart of our strategy and value proposition is questions and answers . Users arriving via search engine or directly don’t really care what page they land on. A user is just searching for answers. Our mission is to provide the best answers—and build the world’s largest Q&A database.
We will fulfill that mission by enriching and cross-connecting our properties. We want to provide the users with easier access to the rich and varied answer resources at our command, thereby keeping them
8
better informed and on our sites longer.
Step 1: We will continue tuning and improving the user-interface design to make the WikiAnswers and Answers.com sites more consistent and navigable, in an effort to create an increasingly favorable user experience.
Step 2: We will better connect the sites and drive more traffic between them.
On the infrastructure front, we are in the late stages of transferring our server operations to a co-location facility on the East Coast. We are highly pleased with the performance and flexibility characteristics of the new operation, which show increasing financial savings going forward.
In summary, we have a strong balance sheet, a new strategic investor, and a steadily growing property in a hot area. We will focus on expanding our core business as well as leveraging the assets we have beyond cash. We are working hard—with energy and confidence—and remain as excited as ever about our short and long-term future, its challenges and the potential to dominate the question and answer space.
Thank you, and I’ll turn it over for Q&A…
9