2014

FriendFinder Networks Inc. Reports Financial Results for First Quarter 2012 -- Live interactive revenues increased 14.1% year over year and 5.0% from prior quarter

-- New adult subscriptions increased 2.5% year over year and 12.6% from prior quarter

-- Adult Member to Subscriber conversion rates increased 8.7% year over year and 14.8% from prior quarter

SUNNYVALE, Calif., May 14, 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 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.

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

 

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)





March 31,

2012

December 31,
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.



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