ANSW Answers Corp. (MM)

Answers Corporation (NASDAQ: ANSW), creators of the leading answer engine Answers.com® today reported financial results for its fourth quarter and full year ended December 31, 2010.

 

Financial and Traffic Results

(in thousands – except page views)

   

Quarterly Results

Three months ended December 31 2009   2010 Revenues $6,017 $6,273 Operating income $1,701 $1,473 Adjusted EBITDA $2,389 $2,382 WikiAnswers average daily page views 8,199,000 11,110,000 ReferenceAnswers average daily page views 2,737,000 2,801,000 Total Answers.com average daily page views 10,936,000 13,911,000  

Full Year Results

Year ended December 31 2009 2010 Revenues $20,755 $21,471 Operating income $4,993 $3,869 Adjusted EBITDA $7,731 $6,567 WikiAnswers average daily page views 6,496,000 9,244,000 ReferenceAnswers average daily page views 2,884,000 2,585,000 Total Answers.com average daily page views 9,380,000 11,829,000  

See Appendix A for the 2009 and 2010 quarterly revenue, traffic and RPM data of our two Web properties.

About Answers Corporation

Answers Corporation (NASDAQ: ANSW) owns and operates Answers.com, the leading Q&A site. Answers.com is a community-generated social knowledge Q&A platform, leveraging wiki-based technologies. Through the contributions of its large and growing community, answers are improved and updated over time. The award-winning Answers.com also includes content on millions of topics from over 250 licensed dictionaries and encyclopedias from leading publishers, including Houghton Mifflin, Barron's and Encyclopedia Britannica. The site supports English, French, Italian, German, Spanish, and Tagalog (Filipino). (answ-f)

For investor information, visit http://ir.answers.com.

Answers.com is a registered trademark of Answers Corporation. All other marks belong to their respective owners.

Proposed AFCV Holdings LLC Merger

On February 2, 2011, Answers Corporation entered into a definitive merger agreement to have all of its outstanding shares of common stock, Series A convertible preferred stock and Series B convertible preferred stock, acquired by AFCV Holdings, LLC. Under the terms of the agreement, Answers Corporation’s common stock shareholders will receive $10.50 in cash for each outstanding share of common stock they own. The holders of Series A and Series B convertible preferred stock will also be entitled to receive cash consideration based on the number of the common stock into which those shares are convertible at the time of the merger. A special meeting of Answers.com stockholders has been called for April 12, 2011 to vote on adoption of the merger agreement. The merger is subject to adoption of the merger agreement by the Answers.com stockholders, and various other conditions set forth in the merger agreement.

Answers.com has filed with the Securities and Exchange Commission a definitive proxy statement and other relevant materials in connection with the merger. The definitive proxy statement has been sent to the stockholders of Answers.com. Before making any voting decision with respect to the merger, stockholders are urged to read the proxy statement and the other relevant materials because they contain important information about the merger. The proxy statement and other relevant materials and any other documents filed by Answers.com with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov or at Answers' website at http://ir.answers.com/sec.cfm. In addition, stockholders may obtain free copies of the documents filed with the SEC by contacting Okapi Partners at (212) 297-0720.

Safe Harbor Statement

This press release contains statements that are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties with respect to the consummation of the proposed AFCV merger. Such risks include the failure to satisfy the conditions of the proposed transaction, including failure to obtain the required approval of Answers.com stockholders or certain third party consents and certain adverse changes to the business of Answers.com, including as a result of factors detailed from time to time in reports filed with the SEC; the failure of the committed financing for the transaction; and potential litigation risks.

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 C attached to this press release.

(Tables and Explanation of Non-GAAP Financial Measures, to follow)

 

Answers Corporation

 

Condensed Consolidated Statements of Operations

(in thousands)

   

Three months endedDecember 31

Year ended December 31

2009   2010 2009   2010 $ $ $ $   Revenues: Advertising revenue: WikiAnswers 4,470 4,734 14,454 16,529 ReferenceAnswers 1,530 1,531 6,230 4,888 Answers service licensing 17   8   71   54   6,017   6,273   20,755   21,471     Costs and expenses: Cost of revenue 1,307 1,369 4,796 5,424 Research and development 997 1,205 3,608 4,608 Community development and marketing 781 805 2,459 2,777 General and administrative 1,231   1,421   4,899   4,793   Total operating expenses 4,316   4,800   15,762   17,602     Operating income 1,701 1,473 4,993 3,869   Interest income (expense), net 5 18 (440 ) 61 Other expense, net 5 (24 ) 6 (35 ) Gain (loss) resulting from fair value adjustment of warrants 740   (1,654 ) (2,634 ) 1,750     Income (loss) before income taxes 2,451 (187 ) 1,925 5,645   Income tax benefit (expense), net (43 ) 1,739   (165 ) 1,443     Net income (loss) 2,408   1,552   1,760   7,088      

Answers Corporation

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

  Year ended December 31 2009   2010 $ $ Cash flows from operating activities: Net income 1,760 7,088 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,185 1,255 Increase in deposits in respect of employee severance obligations (407 ) (322 ) Increase in liability in respect of employee severance obligations 288 359 Stock-based compensation to employees and directors 1,553 1,190 Increase in deferred tax asset (48 ) (1,753 ) Increase in deferred tax liability 12 6 Fair value adjustments of warrants, net 2,634 (1,750 ) Loss on disposal of property and equipment 73 24 Increase in short-term deposits (restricted) - (200 ) Increase in long-term deposits (restricted) (19 ) (51 ) Loss from exchange rate differences 6 35 Changes in operating assets and liabilities: Increase in accounts receivable, and prepaid expenses and other current assets (410 ) (1,103 ) Decrease (increase) in prepaid expenses, long-term 49 (389 ) Increase (decrease) in accounts payable (307 ) 314 Increase (decrease) in accrued expenses, accrued compensation and other current liabilities 411   (76 ) Net cash provided by operating activities 6,780   4,627     Cash flows from investing activities: Capital expenditures (1,515 ) (1,222 ) Purchases of marketable securities (799 ) (3,515 ) Net cash used in investing activities (2,314 ) (4,737 )   Cash flows from financing activities: Repayment of capital lease obligation (78 ) (83 ) Redpoint financing, net of issuance cost 6,480 - Dividends paid (602 ) (786 ) Exercise of common stock options and warrants 247   253   Net cash provided by (used in) financing activities 6,047   (616 )   Effect of exchange rate changes on cash and cash equivalents (18 ) (5 )   Net increase (decrease) in cash and cash equivalents 10,495 (731 )   Cash and cash equivalents at beginning of year 11,739   22,234     Cash and cash equivalents at end of year 22,234   21,503      

Answers Corporation

 

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share data)

    December 31 December 31 2009 2010 $ $ Assets   Current assets: Cash and cash equivalents 22,234 21,503 Marketable securities 795 4,331 Short-term deposits (restricted) - 200 Accounts receivable 2,350 3,191 Prepaid expenses and other current assets 907 1,235 Deferred tax asset 34   1,780   Total current assets 26,320   32,240     Long-term deposits (restricted) 276   327     Deposits in respect of employee severance obligations 1,756   2,208     Property and equipment, net 1,858   1,732     Other assets: Intangible assets, net 797 719 Goodwill 437 437 Prepaid expenses, long-term 167 555 Deferred tax asset, long-term 14   22   Total other assets 1,415   1,733     Total assets 31,625   38,240     Liabilities and stockholders' equity   Current liabilities: Accounts payable 403 578 Accrued expenses and other current liabilities 774 758 Accrued compensation 1,009 972 Capital lease obligations – current portion 82   23   Total current liabilities 2,268   2,331     Long-term liabilities: Liability in respect of employee severance obligations 1,838 2,333 Capital lease obligations, net of current portion 24 - Deferred tax liability 38 44 Series A and Series B Warrants 8,008   6,258   Total long-term liabilities 9,908   8,635     Series A and Series B convertible preferred stock: $0.01 par value; stated value and liquidation preference of $101.76 per share for the Series A and $100 per share for the Series B Convertible Preferred Stock; 6% cumulative annual dividend; 130,000 shares authorized, issued and outstanding as of December 31, 2009 and 2010 2,381   4,724     Stockholders' equity: Preferred stock: $0.01 par value; 870,000 shares authorized as of December 31, 2009 and 2010, none issued - - Common stock: $0.001 par value; 100,000,000 shares authorized; 7,951,329 and 8,005,780 shares issued and outstanding as of December 31, 2009 and 2010, respectively 8 8 Additional paid-in capital 88,539 86,853 Accumulated other comprehensive income 28 108 Accumulated deficit (71,507 ) (64,419 ) Total stockholders' equity 17,068   22,550     Total liabilities and stockholders' equity 31,625   38,240      

Answers Corporation

 

Non-GAAP Financial Measures and Reconciliation of Non-GAAP Financial Measures

to the nearest comparable GAAP Measures

(in thousands)

    Three months ended

December 31

Year ended

December 31

2009   2010 2009   2010     Adjusted Cost of Revenue Cost of revenue $1,307 $1,369 $4,796 $5,424 Stock-based compensation expense (30 ) (29 ) (135 ) (105 ) Depreciation and amortization (204 ) (236 ) (744 ) (884 )   $1,073   $1,104   $3,917   $4,435     Adjusted Research and Development Research and development $997 $1,205 $3,608 $4,608 Stock-based compensation expense (98 ) (74 ) (352 ) (272 ) Depreciation and amortization (33 ) (28 ) (130 ) (133 )   $866   $1,103   $3,126   $4,203     Adjusted Community Development and Marketing Community development and marketing $781 $805 $2,459 $2,777 Stock-based compensation expense (41 ) (56 ) (145 ) (165 ) Depreciation and amortization (15 ) (18 ) (62 ) (70 )   $725   $731   $2,252   $2,542     Adjusted General and Administrative General and administrative $1,231 $1,421 $4,899 $4,793 Stock-based compensation expense (217 ) (175 ) (921 ) (648 ) Depreciation and amortization (50 ) (40 ) (249 ) (168 ) Expenses related to the AFCV acquisition -   (253 ) -   (253 )   $964   $953   $3,729   $3,724     Adjusted Operating Expenses Operating expenses $4,316 $4,800 $15,762 $17,602 Stock-based compensation expense (386 ) (334 ) (1,553 ) (1,190 ) Depreciation and amortization (302 ) (322 ) (1,185 ) (1,255 ) Expenses related to the AFCV acquisition -   (253 ) -   (253 )   $3,628   $3,891   $13,024   $14,904     Adjusted EBITDA Net income $2,408 $1,552 $1,760 $7,088 Income tax (benefit) expense 43 (1,739 ) 165 (1,443 ) (Gain) loss resulting from fair value adjustment of warrants, net (740 ) 1,654 2,634 (1,750 ) Foreign currency exchange rate differences (5 ) 24 (6 ) 35 Interest (income) expense (5 ) (18 ) 440 (61 ) Stock-based compensation expense 386 334 1,553 1,190 Depreciation and amortization 302 322 1,185 1,255 Expenses related to the AFCV acquisition -   253   -   253     $2,389   $2,382   $7,731   $6,567    

See discussion regarding Adjusted EBITDA in Appendix B for an explanation of the reconciling items noted above.

 

Appendix A

      2009   2010 Q1   Q2   Q3   Q4 Q1   Q2   Q3   Q4   Ad Revenue ($ - in thousands)   WikiAnswers 3,162 3,400 3,422 4,470 4,489 3,992 3,314 4,734 ReferenceAnswers 1,567 1,585 1,548 1,530 1,218 1,012 1,127 1,531 Total 4,729 4,985 4,970 6,000 5,707 5,004 4,441 6,265   WikiAnswers 67% 68% 69% 75% 79% 80% 75% 76% ReferenceAnswers 33% 32% 31% 25% 21% 20% 25% 24% Total 100% 100% 100% 100% 100% 100% 100% 100%     Traffic – Average Daily Page Views   WikiAnswers 5,337,000 6,082,000 6,336,000 8,199,000 8,995,000 8,578,000 8,279,000 11,110,000 ReferenceAnswers 2,982,000 2,965,000 2,857,000 2,737,000 2,737,000 2,399,000 2,405,000 2,801,000 Total 8,319,000 9,047,000 9,193,000 10,936,000 11,732,000 10,977,000 10,684,000 13,911,000   WikiAnswers 64% 67% 69% 75% 77% 78% 77% 80% ReferenceAnswers 36% 33% 31% 25% 23% 22% 23% 20% Total 100% 100% 100% 100% 100% 100% 100% 100%     RPM   WikiAnswers $6.58 $6.14 $5.87 $5.93 $5.55 $5.11 $4.35 $4.63 ReferenceAnswers $5.84 $5.87 $5.89 $6.08 $4.94 $4.64 $5.09 $5.94  

Appendix B

Explanation of Non-GAAP Financial Measures

This earnings 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 income (loss) before interest, income taxes, depreciation, amortization, gain (loss) resulting from fair value adjustment of warrants, stock-based compensation, foreign currency exchange rate differences and expenses relating to the proposed acquisition of all the shares of the Company by AFCV Holdings LLC (“the AFCV Acquisition”). We also refer to Adjusted Cost of Revenue, Adjusted Research and Development, Adjusted Community Development 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 and gain (loss) resulting from fair value adjustment of warrants), asset base (amortization and depreciation), stock-based compensation expenses, taxes, foreign currency exchange rate differences and expenses relating to the AFCV Acquisition 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 amortization of intangible assets resulting from the acquisition of WikiAnswers and other related assets in November 2006. This acquisition 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 is disclosed in Appendix A.
• 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 compare financial results over multiple periods.
• Depreciation, Interest, Gain (Loss) Resulting from Fair Value Adjustment of Warrants, Taxes and Foreign Currency 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.

• Expenses related to the AFCV acquisition. Adjusted EBITDA for the three months and year ended December 31, 2010, disregards $253 thousand costs associated with the AFCV acquisition. We believe that, excluding these costs provides investors with additional information to measure our performance.

Adjusted EBITDA is not a measure of liquidity or financial performance under GAAP 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 the costs incurred in connection with the AFCV Acquisition.
• Adjusted EBITDA does not reflect interest income from our investments in cash and investment securities;
• Adjusted EBITDA does not reflect gains and losses from foreign currency exchange rate differences;
• Adjusted EBITDA does not reflect interest expense and other cost relating to financing our business, including gains and losses resulting from fair value adjustment of Redpoint Ventures’ warrants;
• Adjusted EBITDA excludes taxes, which is an integral cost of doing 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.