Company Posts Second Quarter Revenue of $97.2 Million
Monthly Unique Users Increase 18 Percent
SAN FRANCISCO--(BUSINESS WIRE)--July 26, 2007--CNET Networks, Inc.
(Nasdaq:CNET) today reported financial results for the quarter ended
June 30, 2007.
"2007 is a transition year for CNET Networks. We have made and
will continue to make the changes necessary to execute on the
opportunity in front of us," said Neil Ashe, chief executive officer
of CNET Networks. "With some of the most important online media brands
in the world, serving over 137 million people each month, CNET
Networks is uniquely positioned and has the foundation to thrive in
the evolving media landscape."
Second Quarter Financial and Operating Highlights
Revenues - Total revenues for the second quarter were $97.2
million, a 5 percent increase compared to revenues of $92.4 million
for the same period of 2006. Excluding $2.2 million in revenue
generated by businesses closed in late 2006, total revenue would have
increased 8 percent in the second quarter of 2007.
Operating Income (Loss) - Operating loss totaled $965,000 during
the second quarter of 2007 compared to operating income of $4.8
million in the year ago quarter. Second quarter 2007 reported
operating loss reflects $2.9 million in costs principally related to
ongoing litigation concerning the Company's concluded stock option
investigation. Second quarter 2006 reported operating income reflects
$1.4 million in stock option investigation related costs.
Operating income (loss) before depreciation, amortization, and
stock compensation expense was $13.3 million for the second quarter of
2007 compared to $17.4 million in the year ago quarter. Excluding
costs associated with the Company's stock option investigation and
related matters of $2.9 million during the second quarter and $1.4
million in the year-ago quarter, operating income before depreciation,
amortization, and stock compensation expense was $16.2 million
compared to $18.8 million during the second quarter of 2006.
The profit margin of operating income (loss) during the second
quarter of 2007 was a loss of 1 percent as compared to a profit of 5
percent in the year ago quarter. Excluding costs associated with the
Company's stock option investigation and related matters, the profit
margin of operating income before depreciation, amortization, and
stock compensation expense was 17 percent compared to 20 percent in
the year ago quarter.
Net Income (Loss) - Net loss for the second quarter of 2007 was
$76,000, or breakeven per diluted share. This compares with net profit
of $5.2 million, or $0.03 per diluted share during the second quarter
of 2006. Net profit for the second quarter of 2007 was negatively
impacted by $2.9 million in costs associated with the Company's stock
option investigation and related matters which were partially offset
by a $1.6 million gain on private investments. Excluding stock
compensation expense, costs associated with the Company's stock option
investigation and related matters, and realized gains on investments,
adjusted net income for the second quarter of 2007 was $5.2 million,
or $0.03 on a diluted share basis, compared to $11.2 million, or $0.07
per diluted share, during the same period of 2006.
Cash Flow and Capital Expenditures - Net cash provided by
operating activities for the second quarter of 2007 was $17.5 million,
up from $14.9 million for the second quarter of 2006. Capital
expenditures in the second quarter of 2007 were $8.5 million compared
to $8.7 million in the second quarter of 2006. Excluding costs
associated with the Company's stock option investigation and related
matters of $2.9 million in the second quarter of 2007 and $1.4 million
in the second quarter of 2006, free cash flow for the second quarter
of 2007 was $11.8 million compared to $7.6 million in the year ago
quarter. Free cash flow is defined as cash flow from operating
activities less net capital expenditures.
User Metrics - CNET Networks' global network of Internet
properties reached an average of 137 million unique monthly users
during the second quarter of 2007, an increase of 18 percent from the
second quarter of 2006 (1). Average daily page views were more than 74
million during the second quarter, down 19 percent from the year ago
quarter (1).
A reconciliation of the non-GAAP measures used in this release to
the most comparable GAAP measure and further information regarding the
Company's stock compensation expense, discontinued operations and
unusual gains are included in the accompanying "Operating Income
(Loss) Reconciliation" and "Net Income (Loss) Reconciliation."
Second Quarter Business Highlights
"Our focus remains on building a vibrant and valuable company that
seizes the long term opportunity and creates value for all
stakeholders. We will do so by continuing to realize the potential and
opportunity of our existing world class brands, identifying new
opportunities for growth, and continuously striving to do what we do
better," said Ashe.
Management Team Additions: CNET Networks recently announced new
additions to its senior management team that support the Company's
long term strategy for growth and further strengthen its position in
today's evolving media landscape.
During the quarter, the Company announced that it had hired former
Time Warner executive Jack Haire as Special Advisor to the CEO. (See
press release titled, "CNET Networks Hires Former Time Warner
Executive Jack Haire" June 28, 2007.) In this role, he will be
dedicated to optimizing the corporate advertising sales strategy in
collaboration with the Company's leadership team. The position was
created to provide experienced and dedicated executive leadership to
the sales organization in order to realize the full power of the
Company's brands. In the role of Special Advisor to the CEO, Haire
will focus on creating strategic relationships, mentoring a
world-class sales team and maximizing resources for growth.
Earlier this month, the Company announced that it had appointed
Jose Martin to senior vice president, human resources and Andy Sherman
to senior vice president, general counsel and corporate secretary.
(See press release titled, "CNET Networks Expands Executive Management
Team with Accomplished Human Resources and Legal Leadership" July 10,
2007.) Prior to joining CNET Networks, Jose Martin was group vice
president of human resources at Electronic Arts (EA). At EA, he was a
key architect in shaping the global talent management systems and
culture, and oversaw the integration of numerous company acquisitions.
Prior to joining CNET Networks, Andy Sherman served as vice president
of legal at Sybase. He assumed that position after playing an integral
role in Sybase's acquisition of Mobile 365, where he served as general
counsel & secretary. Sherman also served as general counsel and
secretary at Epiphany and the head of the international legal function
at PeopleSoft.
Brand Highlights: During the second quarter, CNET Networks
continued to drive innovation and product developments across its
existing brands. Examples include:
CNET (www.cnet.com) launched the CNET Blog Network, a
collection of blogs written by leading industry experts and
CNET editors about technology's influence on a variety of
topics, such as sports, politics, green technology, parenting,
and more. Available at http://blogs.cnet.com, the bloggers
were hand-selected by CNET editors and chosen because of their
knowledge, credibility, and authenticity. The CNET Blog
Networks further expands CNET's coverage of technology and its
impact on the world today. These bloggers are expected to
uphold the same journalism standards as the CNET editors, so
users can expect the same level of editorial quality from
contributors to the CNET Blog Network as they do from CNET
editors. CNET will be adding more topics and bloggers to the
CNET Blog Network in the coming months.
TV.com (www.tv.com) launched several new original video
programs during the second quarter that offer a unique blend
of editorial commentary from TV.com's line-up of entertainment
experts, as well as from the site's audience of passionate TV
fans. Two of the most popular new TV.com shows are "The
Burning Question", a weekly video where new host, Laura
Swisher, takes to the streets to hear people's thoughts on the
latest TV-related news, and "Turbovision", a witty daily video
overview of what will be on TV that night. The addition of
these new shows that revolve around TV culture make TV.com a
recurring stop for television fans that want to find new shows
as well as get closer to the shows they already love.
GameSpot (www.gamespot.com) launched new product innovations
that enable today's diverse and growing gaming audience to
easily access and consume informative, entertaining content
about games. GameSpot now features a streamlined game reviews
system, a high-performance content download manager, and a
cinema-quality video player. The game review process is now
more straightforward with an overall editor score ranging from
1 to 10, followed by a brief Good/Bad summary, hosted video
review, and an in-depth written review. Next to the editor
score, gamers can view the consumer and critic scores to
quickly gauge a game's performance according to not only
GameSpot's expert editorial staff, but also to other gamers
and critical reviewers. In addition, the site now offers a new
Flash-based video player providing users with compelling
content through cinema-quality video resolution and content
channels that introduce users to other new, popular, and
similar videos.
New Growth Opportunities: CNET Networks continues to identify new
opportunities for growth, including partnership and acquisitions that
further extend the company's distribution network, content coverage,
and/or audience. Recent highlights include:
During the quarter, as part of its new joint venture, News
Corp. and NBC Universal announced the addition of CNET
Networks as a strategic content provider and distributor. As
part of this, CNET Networks will provide thousands of clips to
the new destination on a non-exclusive basis and will also
distribute the new site's library of licensed content across
its portfolio of properties. This partnership, in addition to
the deal that CNET Networks and CBS Interactive announced last
quarter, provide symbiotic ways to improve the user experience
across CNET Networks and its partner sites, and ultimately
create more value for the Company and its media partners.
In an effort to broaden GameSpot's content coverage and
audience, CNET Networks acquired SportsGamer, an online
property serving a passionate community of sports game
enthusiasts with features such as game play strategy and tips,
innovative online stats and leaderboard tracking, how-to video
segments, and active user forums. The addition of SportsGamer
further extends GameSpot's reach in the sport gaming segment
and will complement GameSpot's existing coverage in this large
and growing market.
Awards: Several of CNET Networks premier brands received industry
recognition for excellence in editorial and design during the quarter.
Two of the Company's newest additions are already receiving accolades:
BNET, the go-to-place for management, won an EPpy Award for best
design and CHOW, the place for people passionate about food, won a
respected Bert Greene Food Journalism Award. In addition, earlier this
month, CHOW was named as one of the Top 50 Websites of 2007 by TIME
Magazine. CNET.com and GameSpot were once again recognized by the
prestigious Webby and Maggie Awards during the quarter.
Business Outlook
For the third quarter of 2007, management anticipates total
revenues of $95 million to $103 million. Including approximately $5
million in non-cash stock compensation expense, management estimates
operating income in the range of a loss of $1.5 million to income of
$2.5 million for the third quarter. Management expects operating
income before depreciation, amortization, and stock compensation
expense of between $14 million and $18 million for the quarter.
Including stock compensation expense of approximately $0.03 per
diluted share, earnings per share is expected to be in the range of
$0.01 to $0.04 in the third quarter.
For 2007, management is revising estimates as follows. Total
annual revenues are expected to be in the range of $405 million to
$430 million. Including $20 million in stock compensation expense,
management estimates operating income between $18 million and $33
million. Management expects operating income before depreciation,
amortization and stock compensation expense to be between $80 million
and $95 million. Including stock compensation expense of approximately
$0.13 per diluted share and a tax benefit of approximately $1.19 per
share related to the potential release of a portion of the Company's
deferred tax valuation allowance in the fourth quarter of 2007,
earnings per share is expected to be in the range of $1.30 to $1.39
per share for the year.
Operating income guidance for the third quarter and full-year 2007
does not consider ongoing costs associated with the Company's stock
option investigation and related matters.
More detailed guidance, as well as a table that reconciles
operating income before depreciation, amortization, and stock
compensation guidance to operating income (loss) guidance can be found
on the "Guidance to the Investment Community" sheet that accompanies
this press release.
Conference Call and Webcast
CNET Networks will host a conference call to discuss its second
quarter financial results and business outlook beginning at 5:00 pm ET
(2:00 pm PT), today, July 26, 2007. To listen to the discussion,
please visit http://ir.cnetnetworks.com and click on the link provided
for the webcast conference call or dial (800) 344-1035 (international
dial-in: (706) 679-3076). A replay of the conference call will be
available via webcast at the URL listed above or by calling (800)
642-1687 (international dial-in: (706) 645-9291) and entering the
conference ID number 5243736. The Company's past financial news
releases, related financial and operating information, and access to
all Securities and Exchange Commission filings, can also be accessed
at http://ir.cnetnetworks.com.
Safe Harbor
This press release and its attachments include forward-looking
information and statements that are subject to risks and uncertainties
that could cause actual results to differ materially. These statements
are only effective as of the date of this press release and CNET
Networks undertakes no duty to publicly revise or update these
forward-looking statements, whether as a result of new information,
future developments or otherwise. These forward-looking statements
include the statements under the sections entitled "Business Outlook"
which set forth our estimated financial performance for the third
quarter and full year of 2007, including future revenue, expenses,
operating income and earnings per share, and statements regarding our
growth prospects and expectations regarding the future success of our
products and services. In addition, management expects to provide
forward-looking information statements on the conference call to be
held shortly following the issuance of this release, which are also
subject to risks and uncertainties that could cause actual results to
differ materially. The forward-looking statements in this release and
on the conference call are identified by the words "expect,"
"estimate," "target," "believe," "goal," "anticipate," "intend" and
similar expressions or are otherwise identified in the context in
which they are made as being forward-looking. These statements are
only effective as of the date of this release and we undertake no duty
to publicly update these forward-looking statements, whether as a
result of new information, future developments or otherwise. The risks
and uncertainties that could cause actual results to differ materially
from those projected include: a lack of growth or a decrease in
marketing spending on the Internet due to failure of marketers to
adopt the Internet as an advertising medium at the rate that we
currently anticipate; a lack of growth or decrease in marketing
spending on CNET Networks' properties in particular, which could be
prompted by competition from other media outlets, both on and off the
Internet; dissatisfaction with CNET Networks' services, or economic
difficulties in our clients' businesses; an increase in the
competitiveness of the market for qualified employees or changes in
our stock price or volatility, both of which could increase our
estimated stock compensation expenses for 2007; economic conditions
such as weakness in corporate or consumer spending, which could prompt
a reduction in overall advertising expenditures or expenditures
specifically on our properties; the failure of existing advertisers to
meet or renew their advertising commitments as we anticipate, which
would cause us to not meet our financial projections; the failure to
attract advertisers outside of our traditional technology and consumer
electronics categories, which would cause us to not meet our financial
projections; a continued decline in revenues from our print
publications as advertising dollars shift to other media; the
acquisition of businesses or the launch of new lines of business,
which could decrease our cash position, increase operating expense,
and dilute operating margins; an increase in intellectual property
licensing fees, which could increase operating expense, including
amortization; the risk of future impairment of our intangible assets,
goodwill or investments based on a decline in our business or
investments; and general risks associated with our business. For
additional discussion regarding the risks related to CNET Networks'
business, see its Annual Report on Form 10-K for the year ended
December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, including disclosures under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," which are filed with the
Securities and Exchange Commission and are available on the SEC's
website at www.sec.gov.
About CNET Networks, Inc.
CNET Networks, Inc. (Nasdaq:CNET) (www.cnetnetworks.com) is an
interactive media company that builds brands for people and the things
they are passionate about, such as gaming, music, entertainment,
technology, business, food, and parenting. The Company's leading
brands include CNET, GameSpot, TV.com, MP3.com, CHOW, UrbanBaby,
ZDNet, BNET, and TechRepublic. Founded in 1992, CNET Networks has a
strong presence in the US, Asia, and Europe.
(1) CNET Networks Internal Log Data, April 2007 to June 2007.
CNET Networks, Inc.
Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Revenues $ 97,191 $ 92,377 $189,288 $176,027
Operating expenses:
Cost of revenues (1) 41,743 39,862 85,225 80,551
Sales and marketing (1) 27,405 24,689 53,331 47,652
General and administrative
(1) 15,949 13,623 32,029 28,382
Stock option investigation
and related matters 2,859 1,401 7,288 1,401
Depreciation 6,991 5,265 14,480 10,087
Amortization of intangible
assets 3,209 2,710 6,429 5,449
-------- -------- -------- --------
Total operating expenses 98,156 87,550 198,782 173,522
-------- -------- -------- --------
Operating income (loss) (965) 4,827 (9,494) 2,505
Non-operating income
(expense):
Realized gains on
investments 1,600 - 1,600 500
Interest income 934 1,280 1,572 2,432
Interest expense (1,327) (659) (2,673) (1,318)
Other, net (223) (83) 78 57
-------- -------- -------- --------
Total non-operating
income 984 538 577 1,671
-------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes 19 5,365 (8,917) 4,176
Income tax expense 95 205 277 281
-------- -------- -------- --------
Income (loss) from
continuing operations (76) 5,160 (9,194) 3,895
Loss from discontinued
operations - - - (37)
-------- -------- -------- --------
Net income (loss) $ (76) $ 5,160 $ (9,194) $ 3,858
======== ======== ======== ========
Basic net income (loss) per
share $ 0.00 $ 0.03 $ (0.06) $ 0.03
======== ======== ======== ========
Diluted net income (loss) per
share $ 0.00 $ 0.03 $ (0.06) $ 0.03
======== ======== ======== ========
Shares used in calculating basic
net income (loss) per share 151,333 149,549 150,858 148,857
======== ======== ======== ========
Shares used in calculating
diluted net income (loss) per
share 151,333 152,775 150,858 152,927
======== ======== ======== ========
(1) Includes stock compensation expense, which was allocated as
follows:
Cost of revenues $ 1,209 $ 1,939 $ 2,974 $ 3,874
Sales and marketing 573 876 1,416 1,772
General and
administrative 2,275 1,818 4,830 3,743
-------- -------- -------- --------
$ 4,057 $ 4,633 $ 9,220 $ 9,389
======== ======== ======== ========
CNET Networks, Inc.
Consolidated Balance Sheets
Unaudited
(in thousands)
June 30, December 31,
2007 2006
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 59,514 $ 31,327
Investments in marketable debt securities 25,920 30,372
Accounts receivable, net 71,839 89,265
Other current assets 11,970 10,512
----------- ------------
Total current assets 169,243 161,476
Investments in marketable debt securities - 13,915
Restricted cash 1,634 2,200
Property and equipment, net 73,985 72,625
Other assets 14,815 15,554
Intangible assets, net 33,148 34,978
Goodwill 141,252 133,059
----------- ------------
Total assets $ 434,077 $ 433,807
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,365 $ 10,055
Accrued liabilities 48,230 80,335
Revolving credit facility 60,000 60,000
Current portion of long-term debt 12,155 13,850
----------- ------------
Total current liabilities 128,750 164,240
Non-current liabilities:
Long-term debt 3,587 4,498
Other liabilities 4,506 726
----------- ------------
Total liabilities 136,843 169,464
----------- ------------
Stockholders' equity:
Common stock; 400,000 shares authorized;
151,598 issued at June 30, 2007 and
151,315 issued at December 31, 2006 15 15
Additional paid-in-capital 2,897,898 2,857,238
Accumulated other comprehensive loss (10,193) (11,357)
Treasury stock, at cost; 1,510 shares
outstanding at June 30, 2007 and
December 31, 2006 (30,453) (30,453)
Accumulated deficit (2,560,033) (2,551,100)
----------- ------------
Total stockholders' equity 297,234 264,343
----------- ------------
Total liabilities and stockholders'
equity $ 434,077 $ 433,807
=========== ============
CNET Networks, Inc.
Statements of Cash Flows
Unaudited
(in thousands)
Six Months Ended
June 30,
------------------
2007 2006
-------- --------
Cash flows from operating activities:
Net income (loss) $ (9,194) $ 3,858
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 20,909 15,536
Fair value remeasurement (702) -
Noncash stock compensation expense 9,220 9,389
Other noncash items, net (107) (253)
Provision for doubtful accounts 1,023 1,740
Gain on sale of business, net - (778)
Gains on sales of privately held investments (1,600) (500)
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable 17,376 15,806
Other assets (1,434) 2,215
Accounts payable (2,101) 862
Accrued liabilities (6,252) (3,806)
Other long-term liabilities 1,385 (19)
-------- --------
Net cash provided by operating activities 28,523 44,050
-------- --------
Cash flows from investing activities:
Purchase of marketable debt securities (8,839) (31,090)
Proceeds from sales of marketable debt
securities 28,259 23,812
Proceeds from sales of investments in privately
held companies 1,600 2,531
Release of restricted funds 604 -
Purchases of other intangible assets (293) -
Cash paid for acquisitions, net of cash acquired (15,701) (6,259)
Sale of leasehold improvements 2,349 -
Purchases of property and equipment (18,055) (17,431)
-------- --------
Net cash used in investing activities (10,076) (28,437)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock 9,305 7,018
Principal payments on borrowings (27) (47)
-------- --------
Net cash provided by financing activities 9,278 6,971
-------- --------
Net increase in cash and cash equivalents 27,725 22,584
Effect of exchange rate changes on cash and cash
equivalents 462 561
Cash and cash equivalents at the beginning of the
period 31,327 55,895
-------- --------
Cash and cash equivalents at the end of the period $ 59,514 $ 79,040
======== ========
CNET Networks, Inc.
Quarterly Statistical Highlights
Unaudited
Q2-07 Q1-07 Q4-06 Q3-06 Q2-06
------- ------- ------- ------- -------
Total Quarterly Revenue ($mm) $ 97.2 $ 92.1 $118.0 $ 93.3 $ 92.4
Revenue Distribution (%) (a)
Marketing Services 88% 87% 89% 86% 86%
Licensing, Fees and User 12% 13% 11% 14% 14%
Segment Revenue ($mm)
U.S. Media $ 73.7 $ 74.2 $ 93.5 $ 73.5 $ 72.8
International Media 23.5 17.9 24.5 19.8 19.6
Advertiser Metrics
CNET Networks Top 100 US
Advertisers' Renewal Rate
(Q-to-Q) 95% 96% 96% 96% 100%
CNET Networks Top 100 US
Advertisers' % of Network
Revenue 52% 57% 57% 54% 55%
Select Business Metrics
Network Unique Users (mm) 137.4 143.7 135.8 124.5 116.2
Network Average Daily Page
Views (mm) 74.9 81.2 84.8 86.3 92.8
Balance Sheet Highlights ($mm)
Cash $ 59.5 $ 45.3 $ 31.3 $ 78.7 $ 79.0
Marketable Debt Securities 25.9 27.4 44.3 60.9 62.0
------- ------- ------- ------- -------
Total Cash and Investments $ 85.4 $ 72.7 $ 75.6 $139.6 $141.0
Days Sales Outstanding (DSO) 67 74 69 73 67
Total Debt $ 75.8 $ 77.0 $ 78.3 $143.3 $143.3
(a) Marketing Services - sales of advertisements on our Internet
network through impression-based and activity-based advertising, and
sales of advertisements in our print publications.
Licensing, Fees and User - licensing our product database and online
content, subscriptions to online services, subscriptions to our
online services and print publications.
CNET Networks, Inc.
Business Outlook
FY 2007
Q2-07 Q3-07 estimate estimate
$ in millions, except per share Actual Low - High Low - High
-------------------------------- ------ -------------- ---------------
Total Revenues $97.2 $95.0 - $103.0 $405.0 - $430.0
Operating income before
depreciation, amortization,
stock option investigation and
related matters and stock
compensation expense $16.1 $14.0 - $18.0 $80.0 - $95.0
Depreciation expense $7.0 $7.4 $30.0
Amortization expense $3.2 $3.1 $12.0
Stock compensation expense $4.0 $5.0 $20.0
Stock option investigation and
related matters $2.9 -- --
Operating income (loss) ($1.0) ($1.5) - $2.5 $18.0 - $33.0
Interest income (expense), net ($0.4) ($0.4) ($2.0)
Other income (expense), net $1.4 -- --
Tax (expense) benefit ($0.1) $4.0 $183
GAAP EPS (including stock
compensation expense) $0.00 $0.01 - $0.04 $1.30 - $1.39
-------------------------------- ------ -------------- ---------------
Note: Operating income guidance for the third quarter and full year
2007 does not consider ongoing fees related to the stock option
investigation and related matters.
Note: Earnings per share guidance for the full year 2007 reflects the
non-cash financial statement impact of the likely release of a
portion of the deferred tax asset related valuation allowance in the
fourth quarter of 2007.
CNET Networks, Inc.
Business Segments
CNET Networks' primary areas of measurement and decision-making
include two principal business segments, U.S. Media and International
Media. U.S. Media consists of an online media network focused on
topics that people are highly interested in such as technology,
entertainment, community and business. International Media includes
media properties under several of the same brands as our sites in the
United States with additional brands represented in markets such as
China, France, Germany and the United Kingdom and several print
publications in China. Management believes that segment operating
income (loss) before depreciation, amortization, stock option
investigation and related matters and stock compensation expenses is
an appropriate measure of evaluating the operating performance of the
company's segments. However, segment operating income (loss) before
depreciation, amortization, stock option investigation and related
matters and stock compensation expense should not be considered a
substitute for operating income, cash flows or other measures of
financial performance or liquidity prepared in accordance with
generally accepted accounting principles.
(Unaudited)
(in thousands)
U.S. International
Media Media Other (1) Total
--------- -------------- ---------- ---------
Three Months Ended
June 30, 2007
Revenues $ 73,676 $ 23,515 $ - $ 97,191
Operating expenses 59,452 21,587 17,117 98,156
--------- -------------- ---------- ---------
Operating income
(loss) $ 14,224 $ 1,928 $ (17,117) $ (965)
========= ============== ========== =========
Three Months Ended
June 30, 2006
Revenues $ 72,795 $ 19,582 $ - $ 92,377
Operating expenses 55,333 18,206 14,011 87,550
--------- -------------- ---------- ---------
Operating income $ 17,462 $ 1,376 $ (14,011) $ 4,827
========= ============== ========== =========
U.S. International
Media Media Other (1) Total
--------- -------------- ---------- ---------
Six Months Ended
June 30, 2007
Revenues $ 147,914 $ 41,374 $ - $ 189,288
Operating expenses 119,434 41,931 37,417 198,782
--------- -------------- ---------- ---------
Operating income
(loss) $ 28,480 $ (557) $ (37,417) $ (9,494)
========= ============== ========== =========
Six Months Ended
June 30, 2006
Revenues $ 140,560 $ 35,467 $ - $ 176,027
Operating expenses 111,854 35,341 26,327 173,522
--------- -------------- ---------- ---------
Operating income $ 28,706 $ 126 $ (26,327) $ 2,505
========= ============== ========== =========
(1) For the three months ended June 30, 2007, "Other" includes
depreciation and amortization expenses of $10.2 million, stock
compensation expense of $4.0 million, and stock option investigation
and related matters of $2.9 million, respectively. For the three
months ended June 30, 2006, "Other" includes $8.0 million of
depreciation and amortization expenses, $4.6 million of stock
compensation expense, and $1.4 million of stock option investigation
and related matters, respectively. For the six months ended June 30,
2007, "Other" includes depreciation and amortization expenses of
$20.9 million, stock compensation expense of $9.2 million, and stock
option investigation and related matters of $7.3 million,
respectively. For the six months ended June 30, 2006, "Other"
includes depreciation and amortization expenses of $15.5 million,
stock compensation expense of $9.4 million, and stock option
investigation and related matters of $1.4 million, respectively.
CNET Networks, Inc.
Operating Income (Loss) Reconciliation
(Unaudited)
(in thousands)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2007 2006 2007 2006
------- ------ ------- ------
Operating income (loss) $ (965) $ 4,827 $(9,494) $ 2,505
Stock compensation expense 4,057 4,633 9,220 9,389
Depreciation 6,991 5,265 14,480 10,087
Amortization of intangible assets 3,209 2,710 6,429 5,449
------- ------ ------- ------
Operating income before
depreciation, amortization and
stock compensation expense 13,292 17,435 20,635 27,430
Stock option investigation and
related matters 2,859 1,401 7,288 1,401
------- ------ ------- ------
Operating income before
depreciation, amortization, stock
compensation expense and stock
option investigation and related
matters $16,151 $18,836 $27,923 $28,831
======= ====== ======= ======
We believe that "operating income before depreciation, amortization
and stock compensation expense" and "operating income before
depreciation, amortization, stock compensation expense and stock
option investigation and related matters" are useful to management
and investors as a supplement to our GAAP (generally accepted
accounting principles in the United States) financial measures for
evaluating the ability of the business to generate cash from
operations. Depreciation and amortization are non-cash items, which
include amounts related to past transactions and expenditures that
are not necessarily reflective of the current cash or capital
requirements of the business. Excluding non-cash stock compensation
expense allows management to make financial and operating decisions
and evaluate the business based on recurring operating results. Stock
option investigation and related matters are expenses settled in cash
but are not reflective of the ability of our business to generate
cash.
Management refers to "operating income before depreciation,
amortization, stock compensation expense" and "operating income
before depreciation, amortization, stock compensation expense and
stock option investigation and related matters" in making operating
decisions and for planning and compensation purposes. A limitation
associated with these measures is that they do not reflect the costs
of certain capitalized tangible and intangible assets used in
generating revenue and the cash expenditures associated with our
stock option investigation and related matters. Management
compensates for these limitations by relying primarily on our GAAP
financial measures, such as capital expenditures and operating income
(loss), and using "operating income before depreciation, amortization
and stock compensation expense" and "operating income before
depreciation, amortization, stock compensation expense and stock
option investigation and related matters" only on a supplemental
basis. Although depreciation and amortization are non-cash charges,
the capitalized assets being depreciated and amortized will often
have to be replaced in the future, and these measures do not reflect
any cash requirements for such replacements. These measures also do
not take into account interest expense, or the cash requirements
necessary to service interest or principal payments on our debt. Nor
do these measures reflect changes in, or cash requirements for, our
working capital needs. "Operating income before depreciation,
amortization, stock compensation expense and stock option
investigation and related matters" should be considered in addition
to, and not as a substitute for, other measures of financial
performance or liquidity prepared in accordance with GAAP.
CNET Networks, Inc.
Net Income (Loss) Reconciliation
(Unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
--------- ------- -------- --------
Net income (loss) $ (76) $ 5,160 $ (9,194) $ 3,858
--------- ------- -------- --------
Stock compensation expense
(1) 4,057 4,633 9,220 9,389
Stock option investigation
and related matters (2) 2,859 1,401 7,288 1,401
Realized gains on
investments (3) (1,600) - (1,600) (500)
Fair value remeasurement (4) - - (702) -
Loss from discontinued
operations (5) - - - (37)
--------- ------- -------- --------
Effect on earnings from stock
compensation, stock option
investigation and related
matters, gains on
investments, fair value
remeasurment and discontinued
operations 5,316 6,034 14,206 10,253
--------- ------- -------- --------
Net income excluding stock
compensation, stock option
investigation and related
matters, gains on
investments, fair value
remeasurment and discontinued
operations $ 5,240 $ 11,194 $ 5,012 $ 14,111
========= ======= ======== ========
Diluted net income (loss) per
share $ 0.00 $ 0.03 $ (0.06) $ 0.03
========= ======= ======== ========
Shares used in calculating
diluted net income (loss) per
share 151,333 152,775 150,858 152,927
========= ======= ======== ========
Diluted net income per share
excluding stock compensation
expense, stock option
investigation and related
matters, gains on
investments, fair value
remeasurement and
discontinued operations $ 0.03 $ 0.07 $ 0.03 $ 0.09
========= ======= ======== ========
Shares used in calculating
diluted net income per share
excluding stock compensation
expense, stock option
investigation and related
matters, gains on
investments, fair value
remeasurement and
discontinued operations 152,794 152,775 152,599 152,927
========= ======= ======== ========
(1) During the three and six months ended June 30, 2007, the Company
recorded $4.0 million and $9.2 million on noncash stock compensation
expense, respectively. During the three and six months ended June 30,
2006, the Company recorded $4.6 million and $9.4 million of noncash
stock compensation expense, respectively.
(2) During the three and six months ended June 30, 2007, $2.9 million
and $7.3 million of charges related to our stock option investigation
and related matters were incurred, respectively. During the three and
six months ended June 30, 2006, $1.4 million of charges related to
our stock option investigation and related matters were incurred.
(3) The Company recognized gains of $1.6 million during the three and
six months ended June 30, 2007 and $0.5 million during the six months
ended June 30, 2006 on sales of privately held investments.
(4) In the six months ended June 30, 2997, the Company recognized a
gain from the remeasurement of a liability related to our stock
option extensions to former employees.
(5) The Company recognized a loss from discontinued operations for the
six months ended June 30, 2006.
Adjusted net income is defined as net income excluding stock
compensation expense, costs associated with the Company's stock
option investigation and related matters and realized gains on
investments. Management believes that adjusted net income and
adjusted net income per share are useful to investors as supplements
to GAAP net income and net income per share in evaluating the
performance of our core businesses. Stock compensation expense is
non-cash, the costs associated with the Company's stock option
investigation and related matters are not related to our core
business, as are gain on investments. In addition, management uses
adjusted net income and adjusted net income per share in making
operating decisions and for planning and compensation purposes. A
limitation of adjusted net income is that it does not exclude all
non-cash items which have an impact on GAAP net income, such as
depreciation and amortization, and adjusted net income excludes
items, such as the litigation costs related to our stock option
investigation, which have a cash impact on the Company. Adjusted net
income and adjusted net income per share should be considered in
addition to, and not as a substitute for, other measures of financial
performance or liquidity prepared in accordance with GAAP.
CNET Networks, Inc.
Cash Flows from Operating Activities Reconciliation
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Cash flows from operating
activities $ 17,487 $ 14,872 $ 28,523 $ 44,050
Capital expenditures (1) (8,515) (8,720) (15,706) (17,431)
-------- -------- -------- --------
Free cash flow 8,972 6,152 12,817 26,619
Stock option investigation and
related matters 2,859 1,401 7,288 1,401
-------- -------- -------- --------
Free cash flow excluding stock
option investigation and
related matters $ 11,831 $ 7,553 $ 20,105 $ 28,020
======== ======== ======== ========
(1) Capital expenditures for the six months ended June 30, 2007 are
net of $2,349 in cash proceeds under a sale-leaseback transaction
related to certain leasehold improvements made during the first
quarter of 2007.
Free Cash Flow is defined as net cash provided by operating activities
less net capital expenditures. The Company believes that free cash
flow provides useful information about the amount of cash generated
by the business after the purchase of property and equipment. A
limitation of free cash flow is that is does not represent the total
increase or decrease in the cash balance for the period. Free cash
flow should be considered in addition to, and not as a substitute
for, other measures of financial performance prepared in accordance
with US GAAP.
CONTACT:
CNET Networks, Inc.
Cammeron McLaughlin, 415-344-2844 (Investor Relations)
cammeron.mclaughlin@cnet.com
or
Allison & Partners
Erin Lumley, 415-277-4938 (Media)
ELumley@allisonpr.com
SOURCE: CNET Networks, Inc.
