FriendFinder Networks Inc. Reports Financial Results for First Quarter 2012
-- Live interactive revenues increased 14.1% year over year and 5.0% from prior quarter
-- New adult subscriptions increased 2.5% year over year and 12.6% from prior quarter
-- Adult Member to Subscriber conversion rates increased 8.7% year over year and 14.8% from prior quarter
SUNNYVALE, Calif., May 14, 2012 /PRNewswire/ -- FriendFinder Networks Inc. (NasdaqGM: FFN), a leading internet and technology company providing services in the rapidly expanding markets of social networking and web-based video sharing, today announced financial results for the first quarter ended March 31, 2012.
"Based on the initial results of several key initiatives we have undertaken to improve our performance, I remain optimistic about our long-term prospects. Our current efforts are focused on building brand equity, subscriber retention and acquiring new subscribers to FriendFinder Networks," commented FriendFinder Networks Chief Executive Officer, Marc Bell. "To support these initiatives and to position FriendFinder Networks for growth, we have increased our customer acquisition costs in a meaningful way, a strategy we previously discussed. Put into action in January, I am pleased to report that these actions resulted in an increase in new adult subscribers for the first time in six quarters. Additionally, conversion rates increased marginally year over year for both our Adult and General Audience websites, a trend we expect to continue throughout the year."
"While our renewed focus on customer acquisition activities and reallocation of resources impacted our financial performance and profit margins during the quarter, we are encouraged by the early trends we are seeing. Going forward, we will adjust our spending based on results, as we continue to refine and optimize our efforts. This undertaking requires patience and discipline but is expected to result in a significant payoff over the long term."
Mr. Bell continued, "Operationally, we continue to experience success in our Live Interactive segment, notching our ninth consecutive quarter of year over year revenue growth. The general managers of each of our business units are focused on achieving specific milestones; and while some have done well, we continue to work with those that require additional support. Our European operations remain challenging as we struggle to overcome low user conversion and transaction acceptance rates in the region. Although operating expenses have improved, we are exploring additional costs saving measures."
"Finally, we are on track with plans to transition Anthony Previte, our President and Chief Operating Officer, to the role of Chief Executive Officer effective July 1, 2012. I will continue to serve as Co-Chairman and Chief Strategy Officer, with the assurance that Anthony is both qualified and motivated to assume his expanded responsibilities," Mr. Bell concluded.
First Quarter Financial Results
Revenue for the first quarter of 2012 was $81.1 million. The impact of new subscriber growth was offset by a decrease in overall traffic and challenges in Europe.
Gross profit for the first quarter of 2012 was $48.5 million. Gross profit was negatively impacted by increased affiliate spending, which increased the Company's cost of revenue.
Income from operations for the first quarter of 2012 was $7.8 million. Income from operations was negatively impacted by lower gross margins and the Company's previously announced increases in advertising and general and administrative spending compared to the first quarter last year. The Company expects general and administrative expenses to decline from quarter to quarter as the impact of the restructuring steps taken in January of 2012 reach their full impact.
Net loss from continuing operations for the first quarter of 2012 was ($13.4 million), or ($0.43) per share. The loss from discontinued operations, which resulted from the previously announced closure of all JigoCity operations except in Taiwan, was ($8.1 million) or ($0.25) per share.
Adjusted EBITDA for the first quarter of 2012 was $13.0 million.
Balance Sheet, Cash and Debt
As of March 31, 2012, the Company had cash and cash equivalents of $26.6 million, compared to $34.5 million at December 31, 2011. As of March 31, 2012, the Company had outstanding principal debt of $497.7 million. On May 4, 2012, the Company paid down $2.2 million of New First Lien Notes and Cash Pay Second Lien Notes. Free Cash Flow Per Share was $0.09 for the first quarter ended March 31, 2012.
As indicated previously, First Lien bondholders agreed in March to modify certain covenants under the indentures governing such debt. Last week, FriendFinder Networks was able to obtain a waiver under the Non-Cash Pay Second Lien Notes from compliance with certain covenants under the indenture governing such debt for a period of 90 days. During this period, the Company will work with the Second Lien bondholders to modify their indenture.
Conference Call Information
Management will host a conference call to discuss the results at 4:30 PM EDT on Monday, May 14, 2012. Participants should call 888-271-8583 (United States/Canada) or 913-312-0947 (International).
A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call 877-870-5176 (United States/Canada) or 858-384-5517 (International) and enter confirmation code 7315641. The replay will be available on May 14, 2012 at 7:30 PM EDT through Monday, May 28, 2012 at 11:59 PM EDT.
Non-GAAP Financial Measures
Management believes that certain non-GAAP financial measures of earnings before deducting net interest expense, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are helpful financial measures as investors, analysts and others frequently use EBITDA and Adjusted EBITDA in the evaluation of other companies in FriendFinder Networks Inc.'s industry. For example, these measures eliminate one-time adjustments made for accounting purposes in connection with the Company's Various acquisition in order to provide information that is directly comparable to its historical and current financial statements. For more information regarding the Company's acquisition of Various, please refer to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Our History" in the Form 10-K for the year ended December 31, 2011.
These non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in FriendFinder Networks Inc.'s industry, as other companies in FriendFinder Networks Inc.'s industry may calculate such financial measures differently, particularly as it relates to nonrecurring, unusual items. The Company's non-GAAP financial measures of EBITDA, Adjusted EBITDA and Free Cash Flow per Common Share are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or as alternatives to net income or as indications of operating performance or any other measure of performance derived in accordance with GAAP.
Management derived EBITDA and Adjusted EBITDA for the three months ended March 31, 2012 and 2011 using the adjustments shown in the attached table. Free Cash Flow per Common Share was derived by subtracting capital expenditures and cash interest from Adjusted EBITDA and dividing the result by the weighted average shares outstanding for the period.
SAFE HARBOR
This press release includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, you should not rely on these forward looking statements as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results.
Additional information concerning these and other risk factors is contained in the Company's most recent filings with the SEC, including its Form 10-K for the year ended December 31, 2011. All subsequent written and oral forward-looking statements concerning the Company are expressly qualified in their entirety by the cautionary statements above and subject to such risk factors discussed in the Company's recent SEC filings. The Company cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in their expectations or any change in events, conditions or circumstances on which any such statement is based.
ABOUT FRIENDFINDER NETWORKS INC.
FriendFinder Networks Inc. (www.FFN.com) is an internet-based social networking and technology company operating several of the most heavily visited websites in the world, including AdultFriendFinder.com, Amigos.com, AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and SeniorFriendFinder.com. FriendFinder Networks Inc. also produces and distributes original pictorial and video content and engages in brand licensing.
Investor Contact for FriendFinder Networks Inc.
Jeffrey Goldberger / Rob Fink
KCSA Strategic Communications
212.896.1206 or [email protected] / [email protected]
Media Contact for FriendFinder Networks Inc.
Lindsay Trivento
Director, Corporate Communications
561.912.7010 or [email protected]
| FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS |
||
| March 31, 2012 |
December 31, |
|
| (unaudited) |
||
| ASSETS |
||
| Current assets: |
||
| Cash |
$ 14,586 |
$ 23,364 |
| Restricted cash |
12,063 |
11,177 |
| Accounts receivable, less allowance for doubtful accounts of $1,217 and $1,155, respectively |
9,416 |
8,939 |
| Inventories |
669 |
822 |
| Prepaid expenses |
4,755 |
5,645 |
| Deferred tax asset |
4,405 |
4,405 |
| Total current assets |
45,894 |
54,352 |
| Film costs, net |
4,077 |
4,105 |
| Property and equipment, net |
8,087 |
7,830 |
| Goodwill |
329,095 |
332,292 |
| Domain names |
56,111 |
56,093 |
| Trademarks |
6,613 |
6,613 |
| Other intangible assets, net |
11,063 |
16,920 |
| Unamortized debt costs |
12,264 |
11,754 |
| Other assets |
2,145 |
3,405 |
| $ 475,349 |
$ 493,364 |
|
| LIABILITIES |
||
| Current liabilities: |
||
| Current installment of long-term debt, net of unamortized discount of $155 and $260, respectively |
$ 3,300 |
$ 8,270 |
| Accounts payable |
8,994 |
11,324 |
| Accrued expenses and other liabilities |
77,879 |
68,930 |
| Deferred revenue |
42,541 |
42,299 |
| Current liabilities from discontinued operations |
874 |
− |
| Total current liabilities |
133,588 |
130,823 |
| Deferred tax liability |
28,310 |
28,310 |
| Long-term debt, net of unamortized discount of $31,158 and $34,170, respectively |
463,071 |
462,515 |
| Total liabilities |
624,969 |
621,648 |
| Contingencies (Note 17 ) |
||
| STOCKHOLDERS' DEFICIENCY |
||
| Preferred stock, $0.001 par value — authorized 22,500,000 shares, none issued and outstanding |
||
| Common stock, $0.001 par value — authorized 125,000,000 issued and outstanding |
||
| 31,455,481 shares at March 31, 2012 and 31,219,644 shares at December 31, 2011 |
31 |
31 |
| Capital in excess of par value |
133,956 |
133,734 |
| Accumulated deficit |
(283,286) |
(261,764) |
| Accumulated other comprehensive loss |
(321) |
(285) |
| Total stockholders' deficiency |
(149,620) |
(128,284) |
| $ 475,349 |
$ 493,364 |
|
| FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||
| Three Months Ended |
|||||||
| March 31, |
|||||||
| 2012 |
2011 |
||||||
| Net revenue: |
|||||||
| Service |
$ 75,924 |
$ 78,655 |
|||||
| Product |
5,160 |
4,865 |
|||||
| Total |
81,084 |
83,520 |
|||||
| Cost of revenue: |
|||||||
| Service |
28,576 |
23,098 |
|||||
| Product |
4,049 |
3,663 |
|||||
| Total |
32,625 |
26,761 |
|||||
| Gross profit |
48,459 |
56,759 |
|||||
| Operating expenses: |
|||||||
| Product development |
4,346 |
3,907 |
|||||
| Selling and marketing |
9,321 |
7,341 |
|||||
| General and administrative |
22,397 |
20,691 |
|||||
| Amortization of acquired intangibles and software |
3,780 |
3,923 |
|||||
| Depreciation and other amortization |
767 |
1,222 |
|||||
| Total operating expenses |
40,611 |
37,084 |
|||||
| Income from operations |
7,848 |
19,675 |
|||||
| Interest expense |
(20,889) |
(21,950) |
|||||
| Other finance expenses |
(500) |
- |
|||||
| Interest related to VAT liability not charged to customers |
( 372) |
(500) |
|||||
| Foreign exchange (loss), principally related to VAT liability not charged to customers |
(882) |
(2,236) |
|||||
| Gain on liability related to warrants |
− |
272 |
|||||
| Change in fair value of acquisition related contingent consideration |
1,382 |
− |
|||||
| Other non-operating (expense) income net |
(12) |
1,082 |
|||||
| Loss from continuing operations before income tax expense |
(13,425) |
(3,657) |
|||||
| Income tax expense |
- |
( 24) |
|||||
| Loss from continuing operations |
$ (13,425) |
$ (3,681) |
|||||
| Loss from discontinued operations |
(8,097) |
− |
|||||
| Net Loss |
$ (21,522) |
$ (3,681) |
|||||
| Loss per common share — basic and diluted: |
|||||||
| Continuing Operations |
$ (0.43) |
$ (0.27) |
|||||
| Discontinued Operations |
$ (0.25) |
$ − |
|||||
| Net Loss |
$ (0.68) |
$ (0.27) |
|||||
| Weighted average shares outstanding — basic and diluted |
31,509 |
13,735 |
|||||
| FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||
| Three Months Ended |
|||
| March 31, |
|||
| 2012 |
2011 |
||
| Cash flows from operating activities |
|||
| Net loss |
(21,522) |
($3,681) |
|
| Adjustment to reconcile net loss to net cash provided by operating activities - continuing operations: |
|||
| Loss from discontinued operations |
8,097 |
− |
|
| Amortization of acquired intangibles and software |
3,780 |
3,923 |
|
| Depreciation and other amortization |
767 |
1,222 |
|
| Amortization of film costs |
795 |
756 |
|
| Non-cash interest, including amortization of discount and debt costs |
12,281 |
10,777 |
|
| Provision for doubtful accounts |
59 |
44 |
|
| Change in fair value of acquisition related contingent consideration |
(1,382) |
− |
|
| Gain on warrant liability |
− |
(272) |
|
| Stock option compensation expense |
222 |
− |
|
| Debt costs |
(2,312) |
− |
|
| Other |
204 |
194 |
|
| Changes in operating assets and liabilities: |
|||
| Restricted cash |
(1,016) |
(5,581) |
|
| Accounts receivable |
(536) |
424 |
|
| Inventories |
153 |
126 |
|
| Prepaid expenses |
(252) |
238 |
|
| Film costs |
(767) |
(599) |
|
| Deferred offering costs |
6 |
(215) |
|
| Other assets |
− |
(131) |
|
| Accounts payable |
(353) |
(1,480) |
|
| Accrued expenses and other liabilities |
3,931 |
3,738 |
|
| Deferred revenue |
242 |
64 |
|
| Net cash provided by continuing operations |
2,397 |
9,547 |
|
| Net cash used in discontinued operations |
(1,779) |
− |
|
| Net cash provided by operating activities |
618 |
9,547 |
|
| Cash flows from investing activities: |
|||
| Purchases of property and equipment |
(1,848) |
(1,754) |
|
| Other |
(18) |
(7) |
|
| Net cash used in investing activities |
(1,866) |
(1,761) |
|
| Cash flows from financing activities: |
|||
| Recovery of debt issuance costs |
− |
295 |
|
| Repayment of long-term debt |
(7,530) |
(14,753) |
|
| Net cash used in financing activities |
(7,530) |
(14,458) |
|
| Effect of exchange rate changes on cash |
− |
− |
|
| Net decrease in cash |
(8,778) |
(6,672) |
|
| Cash at beginning of period |
23,364 |
34,585 |
|
| Cash at end of period |
$ 14,586 |
$27,913 |
|
| Supplemental disclosures of cash flow information: |
|||
| Cash Paid for: |
|||
| Interest |
8,451 |
11,172 |
|
| EBITDA |
|||
| Three Months Ended March 31, |
|||
| 2012 |
2011 |
||
| (in thousands) |
(unaudited) |
||
| GAAP net loss |
$ (21,522) |
$ (3,681) |
|
| Add: Interest expense, net |
20,889 |
21,950 |
|
| Add: Other finance expenses |
500 |
||
| Add: Income tax expense |
— |
24 |
|
| Add: Amortization of acquired intangible assets and software |
3,780 |
3,923 |
|
| Add: Depreciation and other amortization |
767 |
1,222 |
|
| EBITDA |
$ 4,414 |
$ 23,438 |
|
| Add: Broadstream arbitration provision |
— |
1,016 |
|
| Add: Loss related to VAT liability not charged to customers |
1,254 |
2,736 |
|
| Add: Stock Compensation Expense |
222 |
— |
|
| Add: Severance Expense |
424 |
— |
|
| Add: Discontinued Operations |
8,097 |
— |
|
| Subtract: Change in fair value of acquisition related contingent consideration |
(1,382) |
— |
|
| Adjusted EBITDA |
$13,029 |
$27,190 |
|
| Internet Segment Historical Operating Data |
|||||||||
| 2011 |
2012 |
||||||||
| Three Months Ended |
Three Months Ended |
||||||||
| 03/31/11 |
12/31/11 |
03/31/12 |
|||||||
| Adult Websites |
|||||||||
| New Members |
10,086,093 |
9,694,121 |
9,507,677 |
||||||
| Beginning Subscribers |
950,705 |
849,669 |
827,728 |
||||||
| New Subscribers |
423,530 |
385,489 |
434,043 |
||||||
| Terminations |
453,690 |
407,430 |
420,787 |
||||||
| Ending Subscribers |
920,545 |
827,728 |
840,984 |
||||||
| Conversion of Members to Subscribers |
4.2% |
4.0% |
4.6% |
||||||
| Churn |
16.2% |
16.2% |
16.8% |
||||||
| ARPU |
$19.91 |
$20.53 |
$20.50 |
||||||
| CPGA |
$43.65 |
$45.49 |
$51.62 |
||||||
| Average Lifetime Net Revenue per Subscriber |
$79.56 |
$81.31 |
$70.32 |
||||||
| Net Revenue (in millions) |
55.9 |
51.7 |
51.3 |
||||||
| General Audience Websites |
|||||||||
| New Members |
1,738,049 |
1,244,031 |
1,027,332 |
||||||
| Beginning Subscribers |
53,194 |
46,336 |
44,519 |
||||||
| New Subscribers |
22,489 |
22,378 |
24,048 |
||||||
| Terminations |
28,131 |
24,195 |
25,292 |
||||||
| Ending Subscribers |
47,552 |
44,519 |
43,275 |
||||||
| Conversion of Members to Subscribers |
1.3% |
1.8% |
2.3% |
||||||
| Churn |
18.6% |
17.8% |
19.2% |
||||||
| ARPU |
$19.78 |
$18.67 |
$15.41 |
||||||
| CPGA |
$29.28 |
$31.75 |
$39.96 |
||||||
| Average Lifetime Net Revenue per Subscriber |
$76.99 |
$73.43 |
$40.26 |
||||||
| Net Revenue (in millions) |
3.0 |
2.5 |
2.0 |
||||||
| Live Interactive Video Websites |
|||||||||
| Total Minutes |
8,766,558 |
8,931,611 |
9,452,814 |
||||||
| Average Revenue per Minute |
$2.19 |
$2.34 |
$2.32 |
||||||
| Net Revenue (in millions) |
19.2 |
20.9 |
21.9 |
||||||
SOURCE FriendFinder Networks Inc.
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