LookSmart Reports Third Quarter Results Ahead of Prior Guidance; Narrows Adjusted Net Loss Forecast for 2004
SAN FRANCISCO, Oct 28, 2004 /PRNewswire-FirstCall via COMTEX/ -- LookSmart (Nasdaq: LOOK; ASX: LOK), a leader in Internet search, today announced financial results for the third quarter ended September 30, 2004.
3Q04 Financial Summary
(In millions)
3Q04 Actual 3Q04 Prior Guidance
Revenue $17.5 $16.0 - 17.0
GAAP Net Income $0.0 N/A
Adjusted Net Income/( Loss) $0.0 ($3.0 - 4.0)
Cash & investments $65.6 >$60.0
"LookSmart again exceeded guidance and analysts' expectations in the third quarter, most notably on the bottom-line, which is a testament to the strength of the Company's execution and discipline in delivering on its business objectives," stated Chief Executive Officer David Hills. "We continued to selectively expand and diversify our distribution partner network with the addition of eight new high quality traffic sources and continued to lay the foundations to support our strategic initiatives to drive proprietary traffic and paid listings growth. These include launching our first version of the family friendly Net Nanny software, the acquisition of Furl.net for differentiated online archiving functionality, and solid growth within our FindArticles offering. LookSmart has made a remarkable transition in the last nine months, setting the stage for a return to long-term profitability."
Financial Highlights
Revenue: LookSmart reported total revenue of $17.5 million for the third quarter of 2004, which is ahead of its prior guidance of $16.0 to $17.0 million and includes no material revenue from MSN or discontinued international operations, as anticipated. This represents a slight increase compared to core business revenue (excluding MSN and discontinued international operations) of $17.4 million in the second quarter of 2004 and an 82% increase from $9.6 million in the third quarter of 2003. For the nine months ended September 30, 2004, revenue from LookSmart's core business was $51.1 million, up 77% from $28.9 million in the same period of 2003.
Key Operating Metrics: Total paid clicks from LookSmart's core business of 103 million during the third quarter reflect typical seasonality and compare to 105 million in the preceding quarter. Average revenue per click was $0.17, up from $0.16 in the preceding quarter.
Distribution: The Company continued to grow its distribution network, adding eight new partners during the third quarter.
Cost of Revenue: Traffic acquisition costs of 47% in the third quarter were below the Company's guidance of 53% to 55%. The improvement in traffic acquisition costs was due to two factors: first, a one-time benefit relating to traffic sourced from international users, which is not expected to recur in future periods. The second factor, which is expected to be ongoing, was due to rigorous internal efforts to optimize traffic acquisition costs. Without the one-time benefit, third quarter traffic acquisition costs would have been 49%.
Operating Expenses: Total operating expenses exclude those related to LookSmart's discontinued operations, which are included in the separate line item "Gain from Discontinued Operations." Total operating expenses in the third quarter were $8.6 million, which included restructuring charges of $0.1 million. This compares to total operating expenses of $10.5 million in the second quarter of 2004, which included restructuring charges of $0.4 million.
Income/Loss from Continuing Operations: The loss from continuing operations for the third quarter, which includes the one-time benefit related to reduced traffic acquisition costs as previously mentioned, was $0.5 million, or effectively breakeven on a per share basis. Without this one time benefit, the loss from continuing operations would have been $1.0 million, or $0.01 per share. This compares to a loss from continuing operations in the preceding quarter of $2.3 million, or $0.02 per share, and to net income from continuing operations in the third quarter of 2003 of $2.1 million, or $0.02 per share.
Gain from Discontinued Operations: The gain from discontinued operations in the third quarter of 2004 was $0.6 million, which resulted from expenses related to the closure of the international businesses and the disposition and write-down of certain international assets, offset by reductions of estimated liabilities.
GAAP Net Income: GAAP net income for the third quarter of 2004, which reflects non-recurring gains from below normal traffic acquisition costs and the gain from discontinued operations, was $15,000, or effectively breakeven on a per diluted share basis. GAAP net income includes a charge of $0.1 million related to restructuring charges and a benefit of $41,000 due to stock compensation from variable stock options. This compares to GAAP net loss in the preceding quarter of $1.2 million, or $0.01 per share, which included a gain from discontinued international operations of $1.0 million, a charge of $0.4 million related to restructuring charges and a benefit of $9,000 due to stock compensation from variable stock options; and to GAAP net income in the third quarter of 2003 of $1.9 million, or $0.02 per diluted share, which included a $1.5 million charge due to stock compensation from variable stock options and a loss from discontinued international operations of $0.2 million.
GAAP net income for the third quarter of 2004 includes $2.1 million of depreciation and amortization, compared to $2.0 million each in the second quarter of 2004 and the third quarter of 2003.
Adjusted Net Income/Loss: Adjusted net income/loss is equal to GAAP net income/loss excluding compensation expense from variable stock options. For the third quarter of 2004, adjusted net loss was $26,000, or effectively break-even on a per share basis, which excludes a benefit of $41,000 of stock compensation from variable stock options. Adjusted net income is ahead of the Company's guidance for net loss of $3.0 to $4.0 million, and compares to adjusted net loss of $1.2 million, or $0.01 per share, in the preceding quarter, which excluded a benefit of $9,000 of stock compensation from variable stock options and included a restructuring charge of $0.4 million; and adjusted net income of $3.4 million, or $0.03 per diluted share, in the year-ago period, which excluded a charge of $1.5 million of stock compensation from variable stock options.
Notes Regarding Adjusted Net Income/Loss:
Adjusted net income/loss is not in accordance with, or an alternative to, GAAP financial measures and may be different from pro forma measures used by other companies. The Company has provided a clear reconciliation between GAAP net income/loss and adjusted net income/loss and has presented the information previously reported together with the financial statements attached to this earnings release. The Company does not provide certain guidance on a GAAP basis because information relating to the variable accounting for repriced stock options is not accessible on a forward-looking basis and its probable significance is not determinable.
Cash: Total cash and investments were $65.6 million at September 30, 2004, which consists of $54.3 million in cash and short-term investments and $11.3 million in longer-term securities, and compares to total cash and short- term investments of $67.2 million at June 30, 2004. The Company invested in slightly longer-term securities during the quarter, which significantly improved its returns.
Financial Outlook
For the fourth quarter ending December 31, 2004, revenues are expected to increase to $18.0 million to $20.0 million.
Traffic acquisition costs for the fourth quarter are expected to be within the range of 51% and 53%. In addition, the Company anticipates quarterly operating expenses of $9.0 to $9.5 million and expects a narrower adjusted net loss of less than $1.0 million for the quarter.
Based on this outlook, LookSmart expects to report 2004 revenue from continuing operations of $78.5 to $80.5 million, excluding $6.0 million for discontinued international operations. The Company also anticipates a narrower loss for fiscal 2004 than previously forecast with adjusted net loss of less than $9.4 million, including restructuring charges of approximately $4.2 million.
LookSmart expects to maintain its strong balance sheet and to report total cash and investments of more than $60.0 million at the end of the year.
Use of Non-GAAP Financial Information
Management believes that Adjusted Net Income/Loss is an appropriate measure of evaluating our operating performance because by excluding the impact of variable stock compensation, which we believe is not indicative of our core operating results, readers of the financial statements are provided with a valuable insight into our operating results. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, cash flow from operations, net income, or other measures of financial performance prepared in accordance with generally accepted accounting principles.
Conference Call
LookSmart will host a conference call today at 6:00 p.m. ET (8:00 a.m. Australian ET, October 29, 2004) to discuss its financial results. To listen to the call from the U.S., dial 1-800-257-7063; from Australia, dial 1-800-730-220. The call will also be available live by webcast on LookSmart's Investor Relations Web site at http://www.shareholder.com/looksmart/ .
About LookSmart
LookSmart is a leader in commercial search services and a developer of innovative web search solutions. The Company provides consumers with relevant search results through a distribution network that includes Lycos, CNET, InfoSpace (Excite, MetaCrawler, Webcrawler), Cox Interactive, Apple's Sherlock, U.C. Berkeley and LookSmart.com, while delivering high performance sales leads at a reasonable price to online businesses. LookSmart is based in San Francisco, California. For more information, visit www.looksmart.com.
Forward-Looking Statements
This press release contains forward-looking statements, such as references to our projected revenue, losses, Adjusted Net Losses, cash balances, traffic acquisition costs, operating expenses, restructuring implementation and costs, revenue from international operations, cash flow, other financial results, maintenance and growth of our distribution network, projected traffic growth, quality of traffic, acceptance of pricing models by advertisers, cost reductions, industry projections or other characterizations of future events or circumstances. These statements, including their underlying assumptions, are subject to risks and uncertainties and are not guarantees of future performance. Results may differ due to various factors such as the possibility that we may fail to preserve our expertise in search product development, that we may incur unexpected costs in our restructuring or in the wind down of our international operations, that potential distribution partners may opt to work with our competitors because our competitors offer different products or pricing terms, that our competitors may offer products at prices more favorable than we are able to offer, that we may fail to integrate the Net Nanny business and technology into our existing business in a timely or cost-effective manner, that the Net Nanny business may fail to provide significant gains in proprietary traffic, that changes in the distribution network composition may lead to decreases in traffic, that changes in the distribution network may lead to lesser quality traffic, that our customers or distribution partners may decide to modify or terminate their relationships with us because of decreased traffic quality or other reasons, that we may fail to achieve our customer growth rate and paid click projections because of unexpected changes in customer or user behavior or changes in our distribution network, that we will not restructure our business in a timely or cost-effective manner, or that we may have unexpected increases in other costs and expenses. In addition, you should read the risk factors detailed in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed with the Securities and Exchange Commission.
The statements presented in this press release speak only as of the date of the release. Please note that we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
NOTE: "LookSmart" is a trademark of LookSmart, Ltd., and/or its subsidiaries in the U.S. and other countries. All other trademarks mentioned are the property of their respective owners.
Investor Contacts:
Alex Wellins or Jennifer Jarman
The Blueshirt Group
415-217-7722
alex@blueshirtgroup.com;
jennifer@blueshirtgroup.com
LOOKSMART, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
Revenues:
Listings $17,490 $30,068 $60,283 $85,833
Licensing -- 3,594 188 11,298
Total revenues 17,490 33,662 60,471 97,131
Cost of revenues 9,563 17,885 34,389 51,461
Gross profit 7,927 15,777 26,082 45,670
Operating expenses:
Sales and marketing 1,495 3,597 6,044 11,118
Product development 5,033 7,274 18,315 20,337
General and administrative 1,958 2,558 7,321 8,589
Restructuring costs 98 -- 4,152 --
Total operating expenses 8,584 13,429 35,832 40,044
Income (loss) from
operations (657) 2,348 (9,750) 5,626
Non-operating income (expenses) 227 (14) 374 (1,588)
Income (loss) from
continuing operations
before income taxes (430) 2,334 (9,376) 4,038
Income taxes (117) (236) (117) (809)
Income (loss) from continuing
operations (547) 2,098 (9,493) 3,229
Gain (loss) from discontinued
operations 562 (240) 1,146 727
Extraordinary gain from dissolution of
BTLS Joint Venture -- -- -- 202
Net income (loss) $15 $1,858 $(8,347) $4,158
Net income (loss) per common share:
Basic net income (loss) per share
Income (loss) from continuing
operations $(0.00) $0.02 $(0.09) $0.03
Extraordinary gain $-- $-- $-- $0.00
Gain (loss) from discontinued
operations $0.00 $(0.00) $0.01 $0.01
Net income (loss) $0.00 $0.02 $(0.08) $0.04
Fully diluted net income (loss)
per share
Income (loss) from continuing
operations $(0.00) $0.02 $(0.09) $0.03
Extraordinary gain $-- $-- $-- $0.00
Gain (loss) from discontinued
operations $0.00 $(0.00) $0.01 $0.01
Net income (loss) $0.00 $0.02 $(0.08) $0.04
Weighted average shares
outstanding - basic 112,530 104,730 110,661 102,596
Weighted average shares
outstanding - fully diluted 113,508 113,375 110,661 110,208
LOOKSMART, LTD.
GAAP NET INCOME TO ADJUSTED NET INCOME RECONCILIATION
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
GAAP to Adjusted Net Income (Loss)
Reconciliation:
GAAP Net income (loss) $15 $1,858 $(8,347) $4,158
Stock compensation related to
variable options (41) 1,526 (23) 2,547
Adjusted net income (loss) $(26) $3,384 $(8,370) $6,705
Adjusted net income (loss)
per share - basic $(0.00) $0.03 $(0.08) $0.07
Adjusted net income
(loss) per share - diluted $(0.00) $0.03 $(0.08) $0.06
Weighted average shares
outstanding - basic 112,530 104,730 110,661 102,596
Weighted average shares
outstanding - diluted 113,508 113,375 110,661 110,208
Stock compensation related to variable
options:
Cost of revenue $2 $(7) $9 $(4)
Sales and marketing (15) 420 (17) 696
Product development (33) 930 (20) 1,548
General and administrative 5 183 5 307
Total stock compensation
related to variable options $(41) $1,526 $(23) $2,547
LOOKSMART, LTD
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30 December 31,
2004 2003
ASSETS
Cash $50,590 $63,866
Short-term investments 3,683 6,068
Total cash and short-term
investments 54,273 69,934
Accounts receivable, net 4,787 22,265
Other current assets 1,673 2,680
Total Current Assets 60,733 94,879
Property, plant and equipment, net 6,660 8,444
Goodwill and intangibles, net 22,392 16,645
Long term investments 11,331 --
Other assets 3,708 6,124
Total Assets $104,824 $126,092
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $1,191 $101
Accounts payable 1,075 3,600
Other current liabilities 7,709 27,125
Deferred revenue and customer
deposits 2,641 5,362
Total Current Liabilities 12,616 36,188
Long term liabilities 5,421 3,607
Total Liabilities 18,037 39,795
Total Equity 86,787 86,297
Total Liabilities and Stockholders'
Equity $104,824 $126,092
SOURCE LookSmart
Jennifer Jarman, jennifer@blueshirtgroup.com, or Alex Wellins, alex@blueshirtgroup.com, both of The Blueshirt Group, +1-415-217-7722, for LookSmart
http://www.looksmart.com
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