InfoSpace Announces Second Quarter 2007 Results

InfoSpace, Inc. (NASDAQ: INSP) today announced financial results for the three months ended June 30, 2007. Revenues for the second quarter of 2007 were $70.5 million, reflecting a $25.3 million decrease over the second quarter of 2006. Of this decrease, $19.0 million was attributable to the exit of the mobile media business. Net loss for the second quarter of 2007 was $28.1 million, or $0.86 per share, versus net income of $1.0 million, or $0.03 per diluted share, in the second quarter of 2006. Net loss in the second quarter of 2007 includes a $22.3 million payment, or $0.68 per share, made to employees and directors related to the $208.2 million special dividend to shareholders. Additionally, the Company recorded an $8.8 million non-cash charge, or $0.27 per share, for stock-based compensation expense. Cash, cash equivalents, and marketable investments as of June 30, 2007 totaled $197.8 million, after accounting for the cash distribution to shareholders of $208.2 million in the second quarter. At the end of the quarter, the Company had no debt obligations. "Our second quarter operating results were largely in line with expectations. We have completed our restructuring, exited the mobile media business and significantly reduced costs. Moreover, we have good momentum in the mobile services business and have added several new high quality online distribution partners,” said Jim Voelker, Chairman and CEO of InfoSpace, Inc. "Additionally, we completed the $208 million special dividend and reauthorized our $100 million stock repurchase plan.” Second Quarter Highlights and Recent Developments InfoSpace: Signed seven new online distribution partners, including Free SAS, one of the leading Internet service providers in France, as well as Publishers Clearing House and Break.com. Renewed our partnership with Verizon to provide hosting, infrastructure and subscription management capabilities from its platform to power Verizon's Mobile Web 2.0 service through 2010. Launched mCore(R) Mobile Services Platform, an innovative end-to-end technology platform that enables a world class unified mobile media experience spanning mobile search, storefronts, portals and messaging. Announced a new partnership with blinkx, the world's largest video search engine, to offer video search capabilities for InfoSpace's family of metasearch brands. Launched InfoSpace Find It! for the Apple iPhone. InfoSpace Find It! is a premium local search application that allows users to easily locate and navigate to nearby points of interest. Second Quarter 2007 Segment Information and Adjusted EBITDA Online Online revenues were $39.7 million in the second quarter of 2007, a decrease of $10.6 million, compared to the second quarter of 2006. The revenue decrease is largely attributable to the reduction in traffic from the Company’s search engine marketing distribution partners. Online segment income was $15.8 million in the second quarter of 2007. Mobile Mobile revenues were $30.8 million in the second quarter of 2007, a net decrease of $14.7 million compared to the second quarter of 2006. The $30.8 million is comprised of $13.4 million in mobile services revenues, an increase of $4.3 million from the second quarter of 2006 and $17.4 million in media content revenues, representing a decrease of $19.0 million from the second quarter of 2006. Mobile segment loss was $3.6 million in the second quarter of 2007. Adjusted Earnings Before Interest, Taxes, Depreciation & Amortization ("Adjusted EBITDA”) Adjusted EBITDA was a negative $17.5 million in the second quarter of 2007, compared to Adjusted EBITDA of $8.9 million in the second quarter of 2006. InfoSpace’s Adjusted EBITDA is calculated by adjusting GAAP net income, which includes the effects of the restructuring charges, the payments made to employees and directors related to the cash distribution to shareholders, and sale of non-core operations, to exclude the effects of income taxes, depreciation, amortization of intangible assets, stock-based compensation expense, and other income, net (including such items as interest income, foreign currency gains or losses, and gains or losses from the disposal of assets), as detailed in the accompanying table to the condensed consolidated financial statements. InfoSpace’s management believes that this non-GAAP financial measure provides meaningful supplemental information regarding the Company’s performance by excluding certain expenses and gains that are not indicative of the Company’s core business operating results. InfoSpace believes that management and its investors benefit from referring to this non-GAAP financial measure in assessing InfoSpace’s performance. Adjusted EBITDA should be evaluated in light of the Company's financial results prepared in accordance with GAAP. A table reconciling the Company's Adjusted EBITDA to net income in accordance with GAAP accompanies the condensed consolidated financial statements in this release. Third Quarter and Full Year Outlook The Company’s guidance excludes the potential impact of any future one-time gains or losses. The Adjusted EBITDA guidance below has been prepared in a manner consistent with the historical Adjusted EBITDA data provided above and in the accompanying table. For the third quarter of 2007, with the exit of the mobile media business ($17.4 million in the second quarter of 2007), the Company expects revenue to be between $49 million and $51 million. Additionally, the Company expects Adjusted EBITDA to be between $1 million and $2 million and GAAP net loss to be between $16.5 million and $17.5 million, or $0.50 and $0.53 per share. For the full year of 2007, the Company expects revenue to be between $260 million and $264 million (includes $47.1 million from the mobile media business that the Company exited in the second quarter of 2007). Additionally, the Company expects Adjusted EBITDA to be between negative $1 million and $3 million (includes a $22.3 million payment made to employees and directors related to the $208.2 million special dividend to shareholders) and GAAP net loss to be between $55 million and $57 million (includes $43 million of stock-based compensation), or $1.68 and $1.74 per share. A conference call will be held today at 2 p.m. Pacific/5 p.m. Eastern. The live Webcast can be accessed in the Investor Relations section of the InfoSpace corporate Web site, at http://www.infospaceinc.com. A replay of the call will be available approximately one hour after the call through August 20, 2007, at 7:30 p.m. Pacific/10:30 p.m. Eastern. About InfoSpace, Inc. InfoSpace, Inc. is a leading developer of tools and technologies to help people discover and enjoy content and information -- whether on a mobile phone or on the PC. The Company’s mobile platform and applications, such as InfoSpace Find It! (www.infospacefindit.com), create programming and sales opportunities for carriers, while satisfying consumer demand for highly relevant mobile functionality and content. InfoSpace uses its proprietary metasearch technology to power a portfolio of branded Web sites, including Dogpile (www.dogpile.com), and provide private-label search and online directory services to consumers on a global basis. More information can be found at www.infospaceinc.com. This release contains forward-looking statements relating to InfoSpace, Inc.'s operating results that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward looking. Forward-looking statements include, without limitation, statements regarding our projected financial performance for the third quarter and full year 2007. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Factors that could affect InfoSpace's actual results include general economic, industry and market sector conditions, the progress and costs of the development of our products and services, the timing and extent of market acceptance of those products and services, our dependence on companies to distribute our products and services, the ability to successfully integrate acquired businesses and the successful execution of the Company’s strategic initiatives and restructuring plans. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in InfoSpace's most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q as filed from time to time, in the section entitled "Risk Factors," and InfoSpace’s current reports on Form 8-K as filed from time to time. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. InfoSpace undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. InfoSpace, Inc. Condensed Consolidated Statements of Operations (Unaudited) (Amounts in thousands, except per share data)   Three months ended Six months ended June 30, June 30, June 30, June 30,   2007     2006     2007     2006   Revenues $ 70,530 $ 95,846 $ 157,173 $ 186,120   Operating expenses: (1) (2)   Content and distribution 28,904 46,121 70,521 87,733 Systems and network operations 7,484 7,880 14,209 14,988 Product development 15,882 12,467 30,624 21,775 Sales and marketing 11,153 12,567 20,102 22,130 General and administrative 35,099 12,547 48,793 26,633 Depreciation 4,809 3,457 9,400 6,774 Amortization of intangible assets 1,668 3,611 3,470 7,319 Restructuring and other, net (3)   (1,669 )   -     (2,502 )   -     Total operating expenses   103,330     98,650     194,617     187,352     Operating loss (32,800 ) (2,804 ) (37,444 ) (1,232 )   Other income, net   4,384     4,723     9,575     8,595     Income (loss) before income taxes (28,416 ) 1,919 (27,869 ) 7,363   Income tax benefit (provision)   286     (900 )   (801 )   (3,339 )   Net income (loss) $ (28,130 ) $ 1,019   $ (28,670 ) $ 4,024     Net income (loss) per share - Basic $ (0.86 ) $ 0.03   $ (0.89 ) $ 0.13     Weighted average shares outstanding used in computing basic net income (loss) per share   32,626     31,239     32,047     31,162     Net income (loss) per share - Diluted $ (0.86 ) $ 0.03   $ (0.89 ) $ 0.12     Weighted average shares outstanding used in computing diluted net income (loss) per share   32,626     32,931     32,047     32,925     (1) Stock-based compensation expense for the three and six months ended June 30, 2007 and 2006 is allocated among the following captions (in thousands):   Three months ended Six months ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 Systems and network operations $ 746 $ 464 $ 1,300 $ 654 Product development 2,023 714 3,648 1,129 Sales and marketing 2,412 1,509 4,504 2,551 General and administrative   3,631     1,948     6,645     4,410   Total stock-based compensation expense $ 8,812   $ 4,635   $ 16,097   $ 8,744     (2) Amounts for the three and six months ended June 30, 2007 include $22.3 million of payments made to employees and directors related to the cash distribution to shareholders in May.  This amount is allocated among the following captions (in thousands):   Three months ended Six months ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 Systems and network operations $ 507 $ - $ 507 $ - Product development 1,577 - 1,577 - Sales and marketing 2,367 - 2,367 - General and administrative   17,825     -     17,825     -   Total $ 22,276   $ -   $ 22,276   $ -     3) Amount for the three months ended June 30, 2007 consists of a gain on the sale of the assets related to mobile media operations of $2.1 million and adjustments to estimated restructuring charges of $0.4 million.  Amount for the six months ended June 30, 2007 consists of a gain on the sale of the assets related to the mobile media operations of $3.3 million and adjustments to estimated restructuring charges of $0.8 million. InfoSpace, Inc. Condensed Consolidated Balance Sheets (Unaudited) (Amounts in thousands)   June 30, December 31,   2007     2006   ASSETS   Current assets: Cash and cash equivalents $ 110,342 $ 163,505 Short-term investments, available-for-sale 87,458 238,444 Accounts receivable, net 60,820 78,742 Other receivables 2,836 3,402 Prepaid expenses and other current assets   11,763     14,753     Total current assets 273,219 498,846   Property and equipment, net 39,993 33,212 Goodwill 104,424 104,424 Other intangible assets, net 16,095 19,565 Deferred tax assets, net 100,771 101,571 Other long-term assets   9,206     8,221     Total assets $ 543,708   $ 765,839     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable $ 13,515 $ 13,031 Accrued expenses and other current liabilities 43,382 61,156 Short-term deferred revenue   9,271     6,708     Total current liabilities 66,168 80,895   Long-term liabilities: Other liabilities and long-term deferred revenue 626 877 Deferred tax liabilities   5,502     5,502   Total long-term liabilities 6,128 6,379   Total liabilities 72,296 87,274   Stockholders' equity: Common stock 3 3 Additional paid-in capital 1,534,423 1,712,897 Accumulated deficit (1,064,283 ) (1,035,613 ) Accumulated other comprehensive income   1,269     1,278     Total stockholders' equity   471,412     678,565     Total liabilities and stockholders' equity $ 543,708   $ 765,839     Summary of cash and short-term investments: Cash and cash equivalents $ 110,342 $ 163,505 Short-term investments, available-for-sale   87,458     238,444     Cash and short-term investments $ 197,800   $ 401,949   InfoSpace, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (Amounts in thousands)   Six months ended June 30, June 30,   2007     2006   Operating activities: Net income (loss) $ (28,670 ) $ 4,024 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,870 14,093 Stock-based compensation 16,097 8,744 Deferred income taxes 800 2,765 Gain on sale of assets (3,313 ) - Restructuring 811 - Other 384 78 Cash provided (used) by changes in operating assets and liabilities: Accounts receivable 17,713 7,039 Other receivables 2,189 408 Prepaid expenses and other current assets 3,042 2,242 Other long-term assets 1,015 (2,315 ) Accounts payable (1,959 ) (1,701 ) Accrued expenses and other current and long-term liabilities (19,075 ) 2,524 Deferred revenue   2,306     119   Net cash provided by operating activities 4,210 38,020   Investing activities: Purchases of property and equipment (13,847 ) (10,082 ) Proceeds from the sale of assets 2,223 33 Loan to equity investee (2,000 ) - Proceeds from sales and maturities of investments 225,480 231,263 Purchases of investments   (74,523 )   (233,053 ) Net cash provided (used) by investing activities 137,333 (11,839 )   Financing activities: Dividend paid (208,203 ) - Proceeds from stock option and warrant exercises 12,756 2,564 Proceeds from issuance of stock through employee stock purchase plan   741     943   Net cash (used) provided by financing activities   (194,706 )   3,507   Net increase (decrease) in cash and cash equivalents (53,163 ) 29,688   Cash and cash equivalents: Beginning of period   163,505     153,013   End of period $ 110,342   $ 182,701   InfoSpace, Inc. Segment Information (1) (Unaudited) (Amounts in thousands)   Three months ended Six months ended June 30, June 30, June 30, June 30,   2007     2006     2007     2006   Online Revenue $ 39,742 $ 50,373 $ 84,782 $ 96,503 Content and distribution expenses 13,837 18,122 30,154 34,397 Operating expenses   10,112   (2 )   9,419   (3 )   20,823   (2 )   19,213   (3 ) Segment income 15,793 22,832 33,805 42,893 Segment margin 39.7 % 45.3 % 39.9 % 44.4 %   Mobile Revenue 30,788 45,473 72,391 89,617 Content and distribution expenses 15,067 27,999 40,367 53,336 Operating expenses   19,330   (2 )   25,140   (3 )   39,030   (2 )   44,407   (3 ) Segment loss (3,609 ) (7,666 ) (7,006 ) (8,126 ) Segment margin -11.7 % -16.9 % -9.7 % -9.1 %   Total Total revenue 70,530 95,846 157,173 186,120 Total content and distribution expenses 28,904 46,121 70,521 87,733 Total segment operating expenses   29,442   (2 )   34,559   (3 )   59,853   (2 )   63,620   (3 ) Total segment income 12,184 15,166 26,799 34,767 Total segment margin 17.3 % 15.8 % 17.1 % 18.7 %   Corporate Operating expenses (4) 31,364 6,267 37,778 13,162 Depreciation 4,809 3,457 9,400 6,774 Amortization of intangible assets 1,668 3,611 3,470 7,319 Stock-based compensation 8,812 4,635 16,097 8,744 Restructuring and other, net (5) (1,669 ) - (2,502 ) - Other income, net (4,384 ) (4,723 ) (9,575 ) (8,595 ) Income tax (benefit) provision   (286 )   900     801     3,339   Net income (loss) $ (28,130 ) $ 1,019   $ (28,670 ) $ 4,024     (1) In the six months ended June 30, 2007, the Company realigned its operations and, as a result, changed the way it presents its financial information to its chief operating decision maker to better reflect how management measures operating performance.   (2) Amount includes expenses directly attributable to the reportable business units and, in addition, include certain indirect expenses allocated to the reportable business units based on internal usage measurements.  Segment operating expenses do not include allocations for certain indirect general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, restructuring and other charges, non-operating gains and losses, income taxes or interest income.   (3) Amount includes certain indirect expenses allocated to the reportable business units based on the manner in which the Company currently operates.  Segment operating expenses do not include allocations for certain indirect general and administrative expenses, depreciation and amortization expense, stock-based compensation expense, restructuring and other charges, non-operating gains and losses, income taxes or interest income.   (4) Amounts for the three and six months ended June 30, 2007 include $22.3 million of payments made to employees and directors related to the cash distribution to shareholders in May.   (5) Amount for the three months ended June 30, 2007 consists of a gain on the sale of the assets related to mobile media operations of $2.1 million and adjustments to estimated restructuring charges of $0.4 million.  Amount for the six months ended June 30, 2007 consists of a gain on the sale of the assets related to the mobile media operations of $3.3 million and adjustments to estimated restructuring charges of $0.8 million. InfoSpace, Inc. Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measure Adjusted EBITDA Reconciliation (1) (Unaudited) (Amounts in thousands)   Three months ended Six months ended June 30, June 30, June 30, June 30,   2007     2006     2007     2006   Net income (loss) (2) $ (28,130 ) $ 1,019 $ (28,670 ) $ 4,024 Depreciation 4,809 3,457 9,400 6,774 Amortization of intangible assets 1,668 3,611 3,470 7,319 Stock-based compensation 8,812 4,635 16,097 8,744 Other income, net (3) (4,384 ) (4,723 ) (9,575 ) (8,595 ) Income tax (benefit) provision   (286 )   900     801     3,339   Adjusted EBITDA $ (17,511 ) $ 8,899   $ (8,477 ) $ 21,605       Adjusted EBITDA Reconciliation for Forward Looking Guidance (Amounts in thousands)   Ranges for the three months ended Ranges for the year ended September 30, 2007 December 31, 2007 Net loss $ (17,500 ) $ (16,500 ) $ (57,000 ) $ (55,000 ) Depreciation and amortization of intangible assets 6,000 6,000 24,000 24,000 Stock-based compensation 15,000 15,000 43,000 43,000 Other income, net (3) (2,500 ) (2,500 ) (14,000 ) (14,000 ) Income tax provision   -     -     1,000     1,000   Adjusted EBITDA $ 1,000   $ 2,000   $ (3,000 ) $ (1,000 )   1) Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is a non-GAAP financial measure and is reconciled to net income (loss), which the Company's management believes to be the most comparable generally accepted accounting principles ("GAAP") measure.  Adjusted EBITDA results are calculated by adjusting GAAP net income (loss) to exclude the effects of income taxes, depreciation, amortization of intangible assets, stock-based compensation expense and other income, net (including such items as interest income, litigation settlements and contingencies, foreign currency gains or losses, and gains or losses from the disposal of assets), as detailed above.  The Company uses this non-GAAP financial measure for internal management purposes, when publicly providing guidance on possible future results, and as a means to evaluate period to period comparisons. The Company's management believes that this non-GAAP financial measure is a common measure used by investors and analysts to evaluate its performance.  This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and reflect an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the results of operations and trends affecting the Company's business.  This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, or superior to, income from continuing operations in accordance with GAAP.   (2) As presented in the unaudited Condensed Consolidated Statements of Operations.   (3) Other income, net, primarily consists of interest income, gains or losses from the disposal of assets, and foreign currency transaction gains or losses.