SUNNYVALE, Calif., May 14, 2012 /PRNewswire via COMTEX/ — 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.
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 firstname.lastname@example.org / email@example.com
Media Contact for FriendFinder Networks Inc. Lindsay Trivento Director, Corporate Communications 561.912.7010 or firstname.lastname@example.org
FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) March 31, December 31, 2012 2011 (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 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) 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 (IN THOUSANDS) (UNAUDITED) 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.