TechWeb

FriendFinder Networks Inc. Reports Financial Results for Fourth Quarter and Year End 2011

Mar 29, 2012 (04:03 PM EDT)
URL: http://www.techweb.com/show-press-release/X896314/friendfinder-networks-inc-reports-financial-results-for-fourth-quarter-and-year-end-2011.html

- Live Interactive Video revenue increased 7% year-over-year to $81.6 million

- Premium Content revenue increased 7% year-over-year to $5.2 million

- Repaid $87.6 million in outstanding debt since December 31, 2010, including $7.5 million in February 2012

SUNNYVALE, Calif., March 29, 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 fourth quarter and year ended December 31, 2011.  

"FriendFinder Networks continues to diligently execute against our previously announced new business plan.  I am pleased to report specific pockets of success during the early stages of our implementation," commented FriendFinder Networks Chief Executive Officer, Marc Bell.  "Live Interactive Video websites, for example, as a result of improved resource allocation, delivered its eighth consecutive quarter of year-over-year revenue increases in the fourth quarter.  In addition, revenue attributable to Penthouse.com and other premium content websites exhibited positive year-over-year revenue improvements during the quarter."

Mr. Bell continued, "Entering 2012, I am confident in FriendFinders' ability to improve its operational results.  Over the past 15 months, we have repaid $87.6 million in outstanding debt.  In January, we also successfully lowered our cost structure, reducing our operating expenses by $10 million per year on an annualized basis. And just this week, we successfully renegotiated the terms of our long-term senior debt allowing us to more effectively run our business.  Operationally, efforts by each of our business units are well underway to execute individual business plans benchmarked against specific milestone achievements."

"While I am pleased to highlight these specific improvements, I also need to address a number of challenges.  Although we experienced incremental improvements during the quarter in Europe, we continue to encounter strong headwinds as we work to introduce additional product offerings and payment options to address low user conversion and transaction acceptance rates.  Our decision to scale-back our current activities will allow us to concentrate our efforts on markets that provide us with the best near-term opportunity to maintain our market share and grow our business."

Mr. Bell added, "It is my great pleasure to announce that our Chief Operating Officer, Anthony Previte, will take on the additional role of President, effective March 30, 2012 as I transition him to Chief Executive Officer, effective July 1, 2012.  Anthony has served as COO of FriendFinder for the past four years and is poised to successfully assume the expanded responsibilities his new role will require.  I will continue to dedicate a substantial portion of my time to the Company as Co-Chairman and Chief Strategy Officer.  Anthony and I have worked together for many years both at FriendFinder and before, and I can't think of a better person to continue my legacy here at FriendFinder.  After ten years of commuting to the West coast, I have decided that it is time for a change and Anthony has earned and deserves the privilege of becoming FriendFinder's next Chief Executive Officer."  

Mr. Bell concluded, "One of the things we have been working on is finding the right people to join our Board of Directors.  We are very excited that Donald Johnson, Steven Rattner and Kai Shing Tao have agreed to join our Board of Directors, effective immediately.  They bring a wealth of expertise from their diverse backgrounds that we are sure will make positive contributions to the Company's success."

Fourth Quarter Financial Results

Revenue for the fourth quarter of 2011 was $81.7 million. Revenue was negatively impacted by a decrease in traffic and a decline in new subscribers and renewal orders primarily in European markets. The weakness in social networking revenue was partially offset by an increase in live interactive video and premium content.

Gross profit for the fourth quarter of 2011 was $53.5 million. Gross profit was negatively impacted by lower renewals on our social networking websites.

Income from operations for the fourth quarter of 2011 was $9.7 million. Income from operations was negatively impacted by a lower gross margin and an increase in product development, selling and marketing, and general and administrative expenses. The increase in these expenses was primarily due to an increase in headcount across the Company as it develops its business units and general and administrative expenses related to stock compensation expense.  In January 2012, the Company took measures to reduce its overhead by an estimated $10 million on an annualized basis.

Net loss for the fourth quarter of 2011 was ($10.2 million), or ($0.42) per share.

Adjusted EBITDA for the fourth quarter of 2011 was $18.9 million.

Full Year Financial Results

Revenue for the year ended December 31, 2011 was $331.3 million.

Gross profit for the year ended December 31, 2011 was $223.3 million.

Income from operations for the year ended December 31, 2011 was $62.1 million.

Net loss for the year ended December 31, 2011 was ($31.1 million), or ($1.28) per share.

Adjusted EBITDA for the year ended December 31, 2011 was $92.9 million.

Balance Sheet, Cash and Debt

As of December 31, 2011, the Company had cash and cash equivalents of $34.5 million, compared to $42.0 million at December 31, 2010.  As of December 31, 2011, the Company had outstanding principal debt of $505 million.  On February 4, 2012, the Company paid down $7.5 million of New First Lien Notes and Cash Pay Second Lien Notes. Free Cash Flow per Share was $0.56 and $2.39 for the fourth quarter and year ended December 31, 2011, respectively.

Full Year 2012 Outlook and Financial Guidance

The Company is focused on a number of initiatives in 2012 that will require investments in the first half of the year to drive revenue growth in the second half of the year.  These investments will primarily be focused on customer acquisition and infrastructure improvements.  The Company is developing a new platform for casual dating sites that will allow for better control of real-time advertising, more segmented advertising and an improved client user interface.  Management anticipates the launch of this new platform in the second quarter. The Company is also in the process of re-launching four of its PG sites; the first site, BigChurch.com, has already been re-launched successfully.    

The Company expects to generate between $340 and $350 million of revenue for the full year ended December 31, 2012. This represents year-over-year revenue growth of 2.6% to 5.6%.  The Company expects to generate between $75 and $80 million in adjusted EBITDA for the full year ended December 31, 2012.

Conference Call Information

Management will host a conference call to discuss the results at 4:30 PM EDT on Thursday, March 29, 2012. Participants should call 800-499-7921 (United States/Canada) or 719-325-2476 (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 3182481.  The recording will be available on March 29, 2012 at 7:30 PM EDT through Thursday, April 12, 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 and full year ended December 31, 2011 and 2010 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 jgoldberger@kcsa.com / rfink@kcsa.com

Media Contact for FriendFinder Networks Inc.
Lindsay Trivento
Director, Corporate Communications      
561.912.7010 or ltrivento@ffn.com  

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


December 31,


2011


2010

ASSETS




Current assets:




Cash

$23,364


$34,585

Restricted cash

11,177


7,385

Accounts receivable, less allowance for doubtful accounts of $1,155 and $2,236, respectively

8,939


9,886

Inventories

822


1,028

Prepaid expenses

5,645


4,534

Deferred tax asset

4,405


5,522

Total current assets

54,352


62,940

Film costs, net

4,105


4,312

Property and equipment, net

7,830


6,666

Goodwill

332,292


326,540

Domain names

56,093


55,890

Trademarks

6,613


9,213

Other intangible assets, net

16,920


29,134

Deferred debt costs, net

11,754


22,336

Deferred offering costs


13,267

Other assets

3,405


2,519


493,364


$532,817

LIABILITIES




Current liabilities:




Current installment of long-term debt, net of unamortized discount of $260 and $744,
respectively

8,270


15,009

Accounts payable

11,324


9,481

Accrued expenses and other liabilities

68,930


65,420

Deferred revenue

42,299


48,302

Total current liabilities

130,823


138,212

Deferred tax liability

28,310


30,275

Long-term debt, net of unamortized discount of $34,170 and $31,935, respectively

462,515


510,551

Liability related to warrants


3,559

Total liabilities

621,648


682,597

Commitments and contingencies (Notes Q and R)




STOCKHOLDERS' DEFICIENCY




Preferred stock, $0.001 par value — authorized 22,500,000 shares;  issued and outstanding  no shares in 2011,
10,211,556 shares in 2010,




Series A Convertible Preferred Stock $0.001 per share — authorized 2,500,000 shares;
issued and outstanding, 0 in 2011, 1,766,703 shares in 2010 (liquidation preference $21,000)


2

Series B Convertible Preferred Stock $0.001 per share — authorized 10,000,000 shares;
issued and outstanding, 0 in 2011,  8,444,853 shares in 2010 (liquidation preference $5,000)


8

Common stock, $0.001 par value — authorized 125,000,000 shares in 2011 and 2010




Common stock voting — authorized 112,500,000 shares, issued and outstanding 31,219,644 shares in 2011

     and 6,517,746 in 2010.

31


6

Series B common stock non-voting — authorized 12,500,000 shares; issued and outstanding 0 shares in 2011 and 1,839,825 shares in 2010.


2

Capital in excess of par value

133,734


80,823

Accumulated deficit

(261,764)


(230,621)

Accumulated other comprehensive  loss

(285)


Total stockholders' deficiency

(128,284)


(149,780)


$493,364


$532,817




FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


Year Ended December 31,


2011


2010


2009

Net revenue






Service

$311,412


$324,211


$309,033

Product

19,924


21,786


18,659

Total

331,336


345,997


327,692

Cost of revenue






Service

92,996


97,959


78,627

Product

15,067


12,531


13,070

Total

108,063


110,490


91,697

Gross profit

223,273


235,507


235,995

Operating expenses:






Product development

16,885


12,834


13,500

Selling and marketing

32,265


37,258


42,902

General and administrative

89,275


79,855


76,863

Amortization of acquired intangibles and software

16,199


24,461


35,454

Depreciation and other amortization

3,998


4,704


4,881

Impairment of other intangible assets

2,600


4,660


4,000

Total operating expenses

161,222


163,772


177,600

Income from operations

62,051


71,735


58,395

Interest expense, net of interest income

(85,989)


(88,508)


(92,139)

Other finance expenses


(4,562)


Interest related to VAT liability not charged to customers

(1,808)


(2,293)


(4,205)

Net loss on extinguishment and modification of debt

(7,312)


(7,457)


(7,240)

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

516


610


(5,530)

Gain on settlement of VAT liability not charged to customers



232

Gain on elimination of liability for United Kingdom VAT not charged to customers



1,561

Change in fair value of acquisition related contingent consideration

(920)



Gain on liability related to warrants

391


38


2,744

Other non-operating expenses, net

(4,544)


(13,202)


(366)

Loss before income tax benefit

(37,615)


(43,639)


(46,548)

Income tax benefit

(6,472)


(486)


(5,332)

Net loss

$(31,143)


$(43,153)


$(41,216)

Net loss per common share — basic and diluted

$(1.28)


$(3.14)


$(3.00)

Weighted average shares outstanding — basic and diluted

24,249


13,735


13,735




Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA

(IN THOUSANDS)




Consolidated Data


Quarter Ended December 31,

Year Ended December 31,


2011

2010

2011

2010


(in thousands)

GAAP net loss

$  (10,205)

$  (23,675)

$  (31,143)

$  (43,153)

Add: Interest expense, net

20,892

19,381

85,989

88,508

(Subtract): Income tax provision (benefit)

(930)

(267)

(6,472)

(486)

Add: Amortization of acquired intangible assets and software  

4,293

5,668

16,199

24,461

Add: Depreciation and other amortization

730

1,148

3,998

4,704

EBITDA

$    14,780

$      2,255

$  68,571

$  74,034






Add: Impairment of other intangible assets

$      2,600

$      4,660

$  2,600

$  4,660

Add: Broadstream arbitration provision

13,000

7,050

13,000

Add (subtract): Loss (gain) related to VAT liability not charged to customers

(626)

588

2,306

1,895

Add: Net Loss on extinguishment and modification of debt

7,457

7,312

7,457

Add: Other finance expenses

4,562

4,562

Add:  Stock compensation expense

1,183

3,737

Add:  Acquisition related contingent consideration

920

920

Add:  Severance costs

388

Adjusted EBITDA

$    18,857

$   32,522

$  92,884

$  105,608




Internet Segment Historical Operating Data 


















2010


2011



Three Months Ended


12 Months Ended


Three Months Ended


12 Months Ended



03/31/10

06/30/10

09/30/10

12/31/10


12/31/10


03/31/11

06/30/11

09/30/11

12/31/11


12/31/11
















Adult Websites















New Members

9,473,577

9,290,268

9,865,859

11,500,360


40,130,064


10,086,093

9,064,405

9,812,584

9,694,121


38,657,203

















Beginning Subscribers

940,444

988,474

992,936

979,819


940,444


950,705

920,545

857,733

849,669


950,705


New Subscribers

498,106

461,674

442,598

402,291


1,804,669


423,530

380,456

406,261

385,489


1,595,736


Terminations

450,076

457,212

455,715

431,405


1,794,408


453,690

443,268

414,325

407,430


1,718,713


Ending Subscribers

988,474

992,936

979,819

950,705


950,705


920,545

857,733

849,669

827,728


827,728

















Conversion of Members to Subscribers

5.3%

5.0%

4.5%

3.5%


4.5%


4.2%

4.2%

4.1%

4.0%


4.1%


Churn

15.6%

15.4%

15.4%

14.9%


15.8%


16.2%

16.6%

16.2%

16.2%


16.1%


ARPU

$20.27

$19.36

$19.74

$19.62


$20.39


$19.91

$20.49

$20.86

$20.53


$20.21


CPGA

$53.75

$50.82

$42.09

$41.51


$47.41


$43.65

$41.65

$45.21

$45.49


$44.02


Average Lifetime Net Revenue per Subscriber

$76.57

$75.00

$86.08

$90.17


$81.54


$79.56

$81.62

$83.76

$81.31


$81.45


Net Revenue (in millions)

58.7

57.5

58.4

56.8


231.4


55.9

54.6

53.4

51.7


215.6
















General Audience Websites















New Members

2,301,300

2,689,654

2,403,481

1,918,518


9,312,953


1,738,049

1,849,003

1,463,706

1,244,031


6,294,789

















Beginning Subscribers

57,426

58,431

58,036

57,613


57,426


53,194

47,552

48,411

46,336


53,194


New Subscribers

31,127

28,599

29,670

25,292


114,688


22,489

26,663

25,710

22,378


97,240


Terminations

30,122

28,994

30,093

29,711


118,920


28,131

25,804

27,785

24,195


105,915


Ending Subscribers

58,431

58,036

57,613

53,194


53,194


47,552

48,411

46,336

44,519


44,519

















Conversion of Members to Subscribers

1.4%

1.1%

1.2%

1.3%


1.2%


1.3%

1.4%

1.8%

1.8%


1.5%


Churn

17.3%

16.6%

17.3%

17.9%


17.9%


18.6%

17.9%

19.6%

17.8%


18.1%


ARPU

$21.03

$20.40

$19.07

$19.40


$20.72


$19.78

$18.39

$19.99

$18.67


$18.80


CPGA

$30.04

$31.49

$27.92

$27.40


$29.27


$29.28

$22.49

$30.10

$31.75


$28.21


Average Lifetime Net Revenue per Subscriber

$91.31

$91.41

$81.99

$81.15


$86.37


$76.99

$80.11

$72.13

$73.43


$75.86


Net Revenue (in millions)

3.7

3.6

3.3

3.2


13.8


3.0

2.6

2.8

2.5


11.0
















Live Interactive Video Websites















Total Minutes

8,473,087

8,773,870

9,123,192

9,089,690


35,459,839


8,766,558

8,443,523

8,781,261

8,931,611


34,922,953


Average Revenue per Minute

$2.14

$2.10

$2.15

$2.20


$2.15


$2.19

$2.46

$2.36

$2.34


$2.34


Net Revenue (in millions)

18.2

18.5

19.7

20.0


76.3


19.2

20.7

20.7

20.9


81.6



SOURCE FriendFinder Networks Inc.