FriendFinder Networks Inc. Reports Financial Results For Second Quarter 2012

--Adjusted EBITDA Increased 27% to $16.9 Million in Q2 2012 from $13.4 Million in Q1 2012

-- Live interactive revenues increased 12% year over year and 5% from prior quarter

--Company Undertakes Strategic Realignment of Efforts to Support Major Revenue-Generating Properties

News provided by

FriendFinder Networks Inc.

Aug 14, 2012, 04:01 ET

SUNNYVALE, Calif., Aug. 14, 2012 /PRNewswire/ -- FriendFinder Networks Inc. (NasdaqGM: FFN) ("the Company"), 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 second quarter and six months ended June 30, 2012.  

"We remain focused on our growth strategy and continue to undertake the necessary steps to optimize our business, which includes retaining greater control of our cost structure and maximizing our brand equity.  We have therefore shifted a majority of our focus to supporting our most successful, dominant revenue-generating properties.  As part of this effort, we have begun the process of closing nearly 5,000 co-branded websites, which we expect to be fully completed by the end of the year," said Anthony Previte, Chief Executive Officer of FriendFinder Networks.  "It has become clear that our primary brands, which account for a majority of our revenue, are more manageable, profitable and ultimately offer the greatest opportunity for growth going forward.  As a result, we have shifted the focus of our affiliate network strategy to support further development of these primary brands.  In parallel to this effort, we have consolidated our internal business units to realign our focus.  These changes have resulted in a substantial increase in Adjusted EBITDA relative to the first quarter 2012 and stronger recognizable synergies between our business units."

"Our Live Interactive segment remains a strong and positive contributor to our business, attaining its tenth consecutive quarter of year over year revenue growth.  Additionally, we have started to experience some positive traction in Europe.  For the first time in six quarters, we saw a slight dollar increase in European revenue over the previous sequential quarter; it is significant to note that this increase was despite the weakening value of the Euro versus the dollar over the past quarter.  This improvement indicates that our geographic price testing in different European regions has started to bear fruit, and we expect this revenue growth to continue as renewal cycles kick in. We anticipate that geographic price testing and other initiatives, when combined with our focus on brand equity and customer acquisition, will lead to improvements to both the top and bottom lines." 

Mr. Previte continued, "We also continue to move forward with our customer acquisition strategy, which we believe will drive long-term subscriber growth.  While our effort remains ROI positive, in the second quarter, certain campaigns did not meet our expectations and were quickly discontinued.  We are working diligently to refine our advertising spend in an effort to increase new subscriber activity and maximize results.  We remain confident this strategy will prove beneficial over the long term and we will continue to ramp up these efforts."  

Mr. Previte concluded, "Finally, in keeping with the strategy to focus on the parts of our business that have the most potential to drive shareholder value, earlier this month we sold the JigoCity operations back to one of its original owners."

Second Quarter Financial Results

Revenue for the second quarter of 2012 was $81.1 million.  Revenue was negatively impacted by less than expected new subscriber growth but was positively impacted by the Live Interactive Video segment's continued growth.

Gross profit for the second quarter of 2012 was $53.0 million. Gross profit was negatively impacted by increased affiliate spending, as we continue to focus on our primary brands.

Income from operations for the second quarter of 2012 was $12.9 million. Income from operations was negatively impacted by reduced revenues and increased subscriber acquisition costs.  However, income from operations was positively impacted by reduced general and administrative spending stemming from the Company's previously announced cost cutting initiatives.

Loss from continuing operations for the second quarter of 2012 was ($7.4 million), or ($0.24) per share. The loss from discontinued operations, which resulted from the closure of all JigoCity operations, was ($3.1 million) or ($0.10) per share.

Adjusted EBITDA for the second quarter of 2012 was $16.9 million.  

Six Month Financial Results:

Revenue for the six months ended June 30, 2012 was $162.1 million.

Gross profit for the six months ended June 30, 2012 was $101.4 million.

Income from operations for the six months ended June 30, 2012 was $21.1 million.

Loss from continuing operations for the six months ended June 30, 2012 was ($20.5 million), or ($0.65) per share.  The loss from discontinued operations was ($11.5 million) or ($0.37) per share.

Adjusted EBITDA for the six months ended June 30, 2012 was $30.3 million.

Balance Sheet, Cash and Debt

As of June 30, 2012, the Company had cash and cash equivalents of $12.8 million, compared to $14.6 million at March 31, 2012.  As of June 30, 2012, the Company had outstanding principal debt of $510.7 million.  On August 4, 2012, the Company paid down $6.3 million of New First Lien Notes and Cash Pay Second Lien Notes. Free Cash Flow per Share was $0.26 for the second quarter ended June 30, 2012.

As indicated previously, First Lien bondholders agreed in March to modify certain covenants under the indentures governing such debt.  Last week, FriendFinder Networks obtained an extension of a waiver from the Non-Cash Pay Second Lien Note bondholders from compliance with certain covenants under the indenture governing such debt for a period of 90 days through November 14, 2012.  During this period, the Company will work with the Second Lien bondholders towards modifying their indenture.

In August, FriendFinder Networks sold JigoCity to one of its original owners for nominal cash consideration.  As part of this transaction, certain warrants to purchase Company stock previously granted to these original owners were cancelled and the Company agreed to reimburse the purchaser for third party payables and other business expenses for a one year period.

Conference Call Information

Management will host a conference call to discuss the results at 4:30 PM EDT on Tuesday, August 14, 2012.  Participants should call 888-259-8724 (United States/Canada) or 913-312-1500 (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 9266477.  The replay will be available on August 14, 2012 at 7:30 PM EDT through Tuesday, August 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 and six months ended June 30, 2012 and 2011 using the adjustments shown in the attached reconciliation 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

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)








June 30,

2012

December 31,

2011


(unaudited)


ASSETS




Current assets:




Cash

$

12,819

$

23,364

Restricted cash

10,742


11,177

Accounts receivable, less allowance for doubtful accounts of $1,141 and $1,155,
          respectively

9,760


8,939

Inventories

702


822

Prepaid expenses

3,895


5,645

Deferred tax asset

4,405


4,405

Assets related to discontinued operations

767


-

Total current assets

43,090


54,352

Film costs, net

4,174


4,105

Property and equipment, net

7,755


7,830

Goodwill

328,061


332,292

Domain names

56,111


56,093

Trademarks

6,613


6,613

Other intangible assets, net

6,771


16,920

Unamortized debt costs

10,284


11,754

Other assets

2,065


3,405


$

464,924

$

493,364

LIABILITIES






Current liabilities:






Current installment of long-term debt, net of unamortized discount of $149 and 
          $260, respectively

$

7,448

$

8,270

Accounts payable

7,270


11,324

Accrued expenses and other liabilities

65,974


68,930

Deferred revenue

38,997


42,299

Liabilities related to discontinued operations

1,510


−

Total current liabilities

121,199


130,823

Deferred tax liability

28,310


28,310

Long-term debt, net of unamortized discount of $27,785 and $34,170, respectively

475,351


462,515

Total liabilities

624,860


621,648

Contingencies (Note 16)














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 shares issued and 
     outstanding, 32,385,261 shares at June 30, 2012 and 31,219,644 shares 
     at December 31, 2011

32


31

Capital in excess of par value

134,189


133,734

Accumulated deficit

(293,821)


(261,764)

Accumulated other comprehensive loss

(336)


(285)

Total stockholders' deficiency

(159,936)


(128,284)


$

464,924

$

493,364

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)









Three Months Ended
June 30,

Six Months Ended
June 30,


2012

2011

2012

2011

Net revenue







Service

$     76,177

$     78,553

$   152,021

$   157,208

Product

4,908

4,818

10,068

9,683

Total

81,085

83,371

162,089

166,891

Cost of revenue







Service

24,187

21,182

52,763

44,280

Product

3,901

3,865

7,950

7,613

Total

28,088

25,047

60,713

51,893

Gross profit

52,997

58,324

101,376

114,998

Operating expenses:







Product development

3,955

4,149

8,301

8,056

Selling and marketing

9,559

7,059

18,656

14,400

General and administrative

22,131

23,980

44,314

44,671

Amortization of acquired intangibles
    and software

3,633

3,923

7,413

7,846

Depreciation and other amortization

794

1,217

1,561

2,355

Total operating expenses

40,072

40,328

80,245

77,328

Income from operations

12,925

17,996

21,131

37,670

Interest expense

(21,259)

(22,001)

(42,148)

(43,951)

Other finance expenses

−

−

(500)

−

Interest related to VAT liability not charged to customers

(370)

(434)

(742)

(934)

Foreign exchange gain (loss), principally
related to VAT liability not charged to
customers

1,883

(718)

1,001

(2,953)

Gain on liability related to warrants

−

119

−

391

Loss on extinguishment of debt

−

(7,312)

−

(7,312)

Change in fair value of acquisition contingent consideration


18

−

1,400

−

Other non-operating expense net

(642)

(4,995)

(654)

(3,913)

Loss from continuing operations before income tax (benefit)

(7,445)

(17,345)

(20,512)

(21,002)

Income tax (benefit)

−

(5,484)

−

(5,460)

Loss from continuing operations


$          (7,445)

(11,861)

(20,512)

(15,542)

Loss from discontinued operations

(3,090)

−

(11,545)

−

Net loss

$         (10,535)

$         (11,861)

$         (32,057)

$      (15,542)

Net loss per common share — basic
and diluted:







Continuing operations


$           (0.24)

$            (0.55)

$          (0.65)

$         (0.88)

Discontinued operations

(0.10)

−

(0.37)

−

Net loss

$           (0.34)

$            (0.55)

$          (1.02)

$         (0.88)

Weighted average shares outstanding
— basic and diluted

31,505

21,426

31,505

17,580


 

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


Six Months Ended
June 30,

2012

2011

Cash flows from operating activities


Net loss

$     (32,057)

$     (15,542)

Adjustment to reconcile net loss to net cash provided by operating activities-continuing operations:


Loss from discontinued operations

11,545

-

Amortization of acquired intangibles and software

7,413

7,846

Depreciation and other amortization

1,561

2,355

Amortization of film costs

1,511

1,773

Deferred income tax benefit

-

(5,460)

Non-cash interest, including amortization of discount and debt costs

25,191

22,842

Provision for doubtful accounts

249

215

Change in value of acquisition related contingent consideration

(1,400)

-

Gain on warrant liability

-

(391)

Loss on extinguishment of debt

-

7,312

Stock based compensation expense

456

2,285

Debt costs

(2,312)

-

Other

341

373

Changes in operating assets and liabilities:


Restricted cash

305

(4,852)

Accounts receivable

(1,070)

(147)

Inventories

120

306

Prepaid expenses

(835)

(192)

Film costs

(1,580)

(1,665)

Other assets

(3)

(122)

Accounts payable

(833)

(3,165)

Accrued expenses and other liabilities

1,539

10,490

Deferred revenue

(3,302)

(2,968)

Net cash provided by continuing operations

6,839

21,293

     Net cash used in discontinued operations

(5,111)

-

     Net cash provided by operating activities

1,728

21,293

Cash flows from investing activities:


Purchases of property and equipment

(2,520)

(3,461)

Other

(18)

(49)

Net cash (used in) investing activities

(2,538)

(3,510)

Cash flows from financing activities:


Gross proceeds from sale of common stock from initial public offering

-

50,000

Payment of underwriter discount and other offering costs in connection with initial public offering

-

(6,724)

Recovery of debt issuance costs

-

296

Repayment of long-term debt

(9,735)

(67,935)

Net cash (used in) financing activities

(9,735)

(24,363)

    Effect of exchange rate changes on cash

-

-

Net (decrease) in cash

(10,545)

(6,580)

Cash at beginning of period

23,364

34,585

Cash at end of period

$       12,819

$       28,005

Supplemental disclosures of cash flow information:


Cash Paid for:


Interest paid

$       16,571

$       20,676

Income taxes paid

-

30

Non-Cash Investing and Financing Activities:


Recording of beneficial conversion feature on Non-Cash Pay Second Lien Notes in connection with
    initial public offering, net of $5,660 of related deferred taxes

-

8,490

Deferred offering costs written off to capital in excess of par value

-

13,267

Conversion of Series A and B convertible preferred stock and series B common stock to common
    stock

-

12

Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA








Unaudited

Three Months Ended
June 30,

Six Months Ended
June 30,

2012

2011

2012

2011

(in thousands)

GAAP net loss

$     (10,535)

$     (11,861)

$     (32,057)

$     (15,542)

Add: Interest expense, net

21,259

22,001

42,148

43,951

Add:  Other finance expenses



500

Subtract: Income tax benefit

-

(5,484)

-

(5,460)

Add: Amortization of acquired
intangible assets and software

3,633

3,923

7,413

7,846

Add: Depreciation and other amortization

794

1,217

1,561

2,355

EBITDA

$      15,151

$        9,796

$      19,565

$      33,150

Add: Broadstream arbitration
provision, including related legal
fees

-

6,432

-

7,394

Subtract/Add: (Gain)/Loss related to
VAT liability not charged to
customers

(1,513)

1,152

(259)

3,887

Add: Loss of extinguishment of debt

-

7,312

-

7,312

Add:  Severance Expense

3

-

427

-

Add:  Discontinued Operations

3,090

-

11,545

-

Add: Stock Compensation Expense

234

2,285

456

2,285

Subtract:  Change in fair value of acquisition related contingent consideration

(18)

0

(1,400)

-

Adjusted EBITDA1

$      16,947

$      26,977

$      30,334

$      54,028

Internet Segment Historical Operating Data


















3 Months

6 Months





06/30/11

06/30/12

06/30/11

06/30/12










Adult Websites







New Members

9,064,405

8,696,463

19,150,498

18,204,140











Beginning Subscribers

920,545

840,984

950,705

827,728

New Subscribers

380,456

393,263

803,986

827,306

Terminations

443,268

439,567

896,958

860,354

Ending Subscribers

857,733

794,680

857,733

794,680











Conversion of Members to Subscribers

4.2%

4.5%

4.2%

4.5%

Churn

16.6%

17.9%

16.5%

17.7%

ARPU

$20.49

$20.61

$20.38

$20.93

CPGA

$41.65

$46.57

$42.70

$49.22

Average Lifetime Net Revenue per Subscriber

$81.62

$68.46

$80.54

$69.19

Net Revenue (in millions)

54.6

50.6

110.5

101.9




















General Audience Websites






New Members

1,849,003

1,095,069

3,587,052

2,122,401











Beginning Subscribers

47,552

43,275

53,194

44,519

New Subscribers

26,663

22,730

50,017

46,778

Terminations

25,804

27,394

54,800

52,686

Ending Subscribers

48,411

38,611

48,411

38,611











Conversion of Members to Subscribers

1.4%

2.1%

1.4%

2.2%

Churn

17.9%

22.3%

18.0%

21.1%

ARPU

$18.39

$15.11

$18.49

$15.58

CPGA

$22.49

$54.83

$25.16

$47.19

Average Lifetime Net Revenue per Subscriber

$80.11

$12.91

$77.71

$26.54

Net Revenue (in millions)

2.6

1.9

5.6

3.9


















Live Interactive Video Websites






Total Minutes

8,443,523

9,451,332

17,210,081

18,904,146

Average Revenue per Minute

$2.46

$2.45

$2.32

$2.39

Net Revenue (in millions)

20.7

23.2

40.0

45.1










SOURCE FriendFinder Networks Inc.

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