Company Posts Third Quarter Revenue of $99.5 Million; Monthly
Unique Users Increase to 141 Million
SAN FRANCISCO--(BUSINESS WIRE)--Oct. 25, 2007--CNET Networks, Inc.
(Nasdaq:CNET) today reported financial results for the quarter ended
September 30, 2007.
"We are building a vibrant company and have made great progress
during the quarter," said Neil Ashe, chief executive officer of CNET
Networks. "Strategically, financially, and operationally we are making
the changes necessary to seize the long term opportunity and create
value for all stakeholders."
Third Quarter Financial and Operating Highlights
Revenues - Total revenues for the third quarter were $99.5
million, a 7 percent increase compared to revenues of $93.3 million
for the same period of 2006. Excluding $2.3 million in revenue
generated by businesses closed in late 2006, total revenue would have
increased 9 percent in the third quarter of 2007.
Operating Income (Loss) - On a reported basis, operating loss
totaled $16.5 million during the third quarter of 2007 compared to an
operating loss of $2.8 million in the year-ago quarter. Third quarter
2007 reported operating loss reflects a $19.0 million non-cash
goodwill impairment associated with our annual evaluation of the
carrying value of goodwill and $406,000 in costs principally related
to ongoing litigation concerning the Company's concluded stock option
investigation. Third quarter 2006 reported operating loss reflects
$5.8 million in stock option investigation related costs and a $1.4
million non-cash goodwill impairment.
Operating income (loss) before depreciation, amortization,
goodwill impairment and stock compensation expense was $17.3 million
for the third quarter of 2007 compared to $12.7 million in the year
ago quarter. Excluding costs associated with the Company's stock
option investigation and related matters of $406,000 during the third
quarter of 2007 and $5.8 million in the year-ago quarter, operating
income before depreciation, amortization, goodwill impairment and
stock compensation expense was $17.7 million compared to $18.5 million
during the third quarter of 2006.
On a reported basis, operating profit margin was a loss of 17
percent compared to an operating profit margin loss of 3 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, goodwill
impairments, and stock compensation expense was 18 percent compared to
20 percent in the year ago quarter.
Net Income (Loss) - Net loss for the third quarter of 2007 was
$16.6 million, or a loss of $0.11 per diluted share. This compares
with a net loss of $2.3 million, or a loss of $0.02 per diluted share
during the third quarter of 2006. Net profit for the third quarter of
2007 was negatively impacted by a $19.0 million non-cash goodwill
impairment charge and $406,000 in costs associated with the Company's
stock option investigation and related matters partially offset by
$590,000 in gains on private investments. Excluding stock compensation
expense, costs associated with the Company's stock option
investigation and related matters, goodwill impairments, and realized
gains on investments, adjusted net income for the third quarter of
2007 was $6.9 million, or $0.04 on a diluted share basis, compared to
$9.9 million, or $0.06 per diluted share, during the same period of
2006.
Cash Flow and Capital Expenditures - Net cash provided by
operating activities for the third quarter of 2007 was $12.2 million,
up from $9.2 million for the third quarter of 2006. Capital
expenditures in the third quarter of 2007 were $4.1 million compared
to $9.5 million in the third quarter of 2006. Excluding costs
associated with the Company's stock option investigation and related
matters of $406,000 in the third quarter of 2007 and $5.8 million in
the third quarter of 2006, free cash flow for the third quarter of
2007 was $8.5 million compared to $5.5 million in the year ago
quarter. Free cash flow is defined as cash flow from operating
activities less net capital expenditures.
User Metrics - In the third quarter of 2007, the Company completed
the migration of its US data reporting platforms to its international
properties. As such, the Company's user metrics now include the full
effect of its new and developing international properties in China and
Europe. Given the timing of the implementation, prior quarter data and
year over year comparisons are not available. Utilizing the migrated
reporting platforms, CNET Networks' global network of Internet
properties reached an average of 141 million unique monthly users
during the third quarter of 2007 (1). Average daily page views were
more than 91 million during the third quarter (1). The Company
estimates that this has resulted in an increase of approximately 15
million average daily page views.
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, impairment charges and realized
gains on investments are included in the accompanying "Operating
Income (Loss) Reconciliation" and "Net Income (Loss) Reconciliation."
Third Quarter Business Highlights
"We are creating a new CNET Networks. A bold media company that is
entrepreneurial and aggressive and we will continue to make any and
all changes necessary to realize our objectives," said Ashe. "We have
made significant progress including the sale of Webshots, the close of
a new and considerably larger credit facility which provides
additional flexibility, and have made key additions and changes to our
executive and sales leadership teams."
Management Team Additions: CNET Networks announced today that
Stephen Colvin, former president and chief executive officer of Dennis
Publishing, publisher of Maxim, Stuff and Blender magazines, is
joining the company as executive vice president. Colvin will be
dedicated to overseeing the company's entertainment and lifestyle
properties, which include leading brands such as GameSpot, TV.com,
MP3.com, CHOW, and UrbanBaby. Colvin, who brings more than 20 years of
media and brand experience to CNET Networks, has been recognized as
Publishing Executive of the year by Advertising Age and AdWeek
Magazines. During his time at Dennis Publishing, Colvin was
responsible for the creation and launch of numerous publications,
including Maxim magazine, which has grown to be the best selling men's
lifestyle magazine in the U.S. and the world.
Balance Sheet: On October 16, 2007, CNET Networks, Inc. announced
it entered into a $250 million Credit Agreement. The Credit Agreement
includes a revolving credit facility of up to $190 million and a term
loan of up to $60 million. All borrowings under the credit facility
will mature in October 2011. The Company entered into the Credit
Agreement for general corporate purposes and to replace its previous
one-year, $60 million credit agreement which was scheduled to expire
in October 2007. This facility demonstrates the quality of the
Company's financial profile and secures additional financing partners
to continue to grow the company.
Asset Disposition and New Growth Opportunities: CNET Networks
today announced the sale of its Webshots business to American
Greetings, one of the world's largest manufacturers of social
expression products, for approximately $45 million in cash. The
transaction is structured as an asset sale and closed today. Webshots
was purchased by CNET Networks in August 2004.
China continues to represents an important and growing market in
which CNET Networks has proven an ability to add and grown new brands
in new categories. In the third quarter, the company acquired OnlyLady
(www.onlylady.com), a leading Shanghai-based site for women's fashion.
The site adds leading advertisers like L'Oreal, Estee Lauder, LVMH,
Chanel, Unilever, Nike and Proctor & Gamble.
In the U.S., BNET (www.bnet.com) continues to be an important new
brand for the company. Launched in March 2007, BNET offers practical
insight and straightforward tools that address the challenges business
managers face everyday. During the quarter, the site launched BNET
Video, a first-of-its-kind broadband channel featuring original and
syndicated web content. Since launch, video traffic has tripled.
Original programming includes a daily interview show named "Dog and
Pony" that highlights emerging and innovative business ideas, and
"Business Book Briefs", a segment in which prominent business authors
explain the core ideas behind their books.
Brand Highlights: During the third quarter, CNET Networks
continued to drive innovation and product developments across its
brands. Examples include:
CNET (www.cnet.com) launched the beta version of CNET TV 2.0 in
August 2007. The updated video destination puts even more control in
the hands of the users. New features include a redesigned video
player, a video library search tool and additional video lists
including "most popular," "new releases," and "featured categories".
In addition, the new site offers more sponsorship opportunities for
advertisers, including a Vendor Channel program currently featuring
Panasonic and Microsoft content. Launched in July, the CNET Blog
Network also saw continued success, complementing CNET's editorial
coverage by adding context and detail to existing coverage, as well as
testing entirely new areas of coverage, such as Green Tech, Sports
Tech and parenting.
TV.com (www.tv.com) featured extensive coverage of this year's
Emmy's show via "The Emmy's Lounge". It included live coverage from
the Red Carpet polls for fans to share their opinions - including a
new fashion section, and an "Emmy's Lounge Live!" segment that
featured TV.com personalities discussing the nominees live with fans
during the Emmy's Pre-show. Giveaways based on Emmy's Trivia, live Q&A
with fans and complete post-show wrap-up coverage were also popular
with the site's passionate TV fans. More than half of the visitors
returned to TV.com Emmy's Lounge to view the status of polls, photos,
and news updates, making it a successful driver of user engagement.
GameSpot (www.gamespot.com) continued to provide in-depth, expert
coverage of the industry's most significant video game launches with
the creation of dedicated hub pages for games like Halo 3, Madden NFL
2008, Bioshock, and The Legend of Zelda: Phantom Hourglass. The launch
centers provided a cleanly designed home for the site's evolving
coverage of these games - everything from pre-release news to the live
video launch events to interactive feature stories. For advertisers
such as Best Buy, the launch centers served as unique promotional
opportunities.
Awards: Several of CNET Networks premier brands received industry
recognition for excellence in editorial and design during the quarter.
BNET, was honored with a Gold Folio Magazine Eddie Award as Best
B-to-B Website and Gold Folio Magazine Ozzie Award for Best B-to-B
Website Design. In addition, CNET News.com was named Best Tech News
site in BusinessWeek's Best of the Web special report.
Business Outlook
For the fourth quarter of 2007, excluding Webshots, management
anticipates total revenues of $119 million to $125 million. This
represents year-over-year growth of between 5 percent and 10 percent.
Excluding businesses exited in late 2006, total revenue growth is
expected to be between 8 percent and 13 percent for the quarter.
Including approximately $6 million in non-cash stock compensation
expense, management estimates operating income in the range of $18.1
million to $22.2 million for the fourth quarter. Management expects
operating income before depreciation, amortization, and stock
compensation expense of between $34.0 million and $38.0 million for
the quarter. Including stock compensation expense of approximately
$0.04 per diluted share and a tax benefit of approximately $1.16 per
share related to the potential release of a portion of the Company's
deferred tax valuation allowance during the quarter, earnings per
share is expected to be in the range of $1.27 to $1.30 in the fourth
quarter.
For 2007, excluding Webshots, management expects total annual
revenues to be in the range of $400 million to $406 million. This
represents growth of between 8 percent and 10 percent. Excluding
businesses exited in late 2006, total revenue growth is expected to be
between 11 percent and 13 percent for the year. Including $20 million
in stock compensation expense, management estimates an operating loss
of between $300,000 and $3.7 million. Management expects operating
income before depreciation, amortization and stock compensation
expense to be between $76 million and $80 million. Including stock
compensation expense of approximately $0.13 per diluted share and a
tax benefit of approximately $1.16 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 $1.14 to $1.16 per share for the year.
Operating income and net income guidance for the fourth quarter
and full-year 2007 does not consider ongoing costs associated with the
Company's concluded 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 third
quarter financial results and business outlook beginning at 5:00 pm ET
(2:00 pm PT), today, October 25, 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 20273737. 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 fourth
quarter and full year of 2007, including future revenue, expenses,
operating income and earnings per share, and statements regarding our
expected growth, progress, business changes, value creation,
innovation, product development, access to funding, and success of our
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; 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, July 2007 to September 2007.
CNET Networks, Inc.
Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
Three Months Nine Months Ended
Ended
September 30, September 30,
----------------- -----------------
2007 2006 2007 2006
-------- -------- -------- --------
Revenues $ 99,498 $ 93,295 $288,786 $269,322
Operating expenses:
Cost of revenues (1) 41,865 41,599 127,090 122,150
Sales and marketing (1) 27,334 23,290 80,665 70,942
General and administrative (1) 17,257 14,910 49,286 43,292
Stock option investigation and
related matters 406 5,825 7,694 7,226
Depreciation 6,785 5,880 21,265 15,967
Amortization of intangible
assets 3,305 3,203 9,734 8,652
Goodwill impairments 19,009 1,418 19,009 1,418
-------- -------- -------- --------
Total operating expenses 115,961 96,125 314,743 269,647
-------- -------- -------- --------
Operating income (loss) (16,463) (2,830) (25,957) (325)
Non-operating income (expense):
Realized gains on investments 590 58 2,190 558
Interest income 1,019 1,565 2,591 3,997
Interest expense (1,231) (696) (3,904) (2,014)
Other, net 862 (7) 940 50
-------- -------- -------- --------
Total non-operating income 1,240 920 1,817 2,591
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes (15,223) (1,910) (24,140) 2,266
Income tax expense 1,426 420 1,703 701
-------- -------- -------- --------
Income (loss) from continuing
operations (16,649) (2,330) (25,843) 1,565
Loss from discontinued
operations - - - (37)
-------- -------- -------- --------
Net income (loss) $(16,649)$ (2,330) $(25,843)$ 1,528
======== ======== ======== ========
Basic net income (loss) per share$ (0.11)$ (0.02) $ (0.17)$ 0.01
======== ======== ======== ========
Diluted net income (loss) per
share $ (0.11)$ (0.02) $ (0.17)$ 0.01
======== ======== ======== ========
Shares used in calculating basic
net income (loss) per share 151,665 149,792 151,127 148,981
======== ======== ======== ========
Shares used in calculating
diluted net income (loss) per
share 151,665 149,792 151,127 152,506
======== ======== ======== ========
(1) Includes stock compensation expense,
which was allocated as follows:
Cost of revenues $ 962 $ 2,122 $ 3,936 $ 5,996
Sales and marketing 544 1,003 1,961 2,775
General and administrative 3,179 1,879 8,009 5,622
-------- -------- -------- --------
$ 4,685 $ 5,004 $ 13,906 $ 14,393
======== ======== ======== ========
CNET Networks, Inc.
Consolidated Balance Sheets
Unaudited
(in thousands)
September December
30, 31,
2007 2006
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 54,901 $ 31,327
Investments in marketable debt securities 15,976 30,372
Accounts receivable, net 79,136 89,265
Other current assets 11,051 10,512
----------- -----------
Total current assets 161,064 161,476
Investments in marketable debt securities 509 13,915
Restricted cash 1,586 2,200
Property and equipment, net 71,754 72,625
Other assets 14,167 15,554
Intangible assets, net 37,592 34,978
Goodwill 132,525 133,059
----------- -----------
Total assets $ 419,197 $ 433,807
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,747 $ 10,055
Accrued liabilities 55,950 80,335
Revolving credit facility 60,000 60,000
Current portion of long-term debt 3,338 13,850
----------- -----------
Total current liabilities 125,035 164,240
Non-current liabilities:
Long-term debt 2,808 4,498
Other liabilities 4,133 726
----------- -----------
Total liabilities 131,976 169,464
----------- -----------
Stockholders' equity:
Common stock; 400,000 shares
authorized; 151,812 issued at
September 30, 2007 and 151,315 issued
at December 31, 2006 15 15
Additional paid-in-capital 2,903,768 2,857,238
Accumulated other comprehensive loss (9,427) (11,357)
Treasury stock, at cost; 1,510 shares
outstanding at
September 30, 2007 and December 31, 2006 (30,453) (30,453)
Accumulated deficit (2,576,682) (2,551,100)
----------- -----------
Total stockholders' equity 287,221 264,343
----------- -----------
Total liabilities and stockholders' equity $ 419,197 $ 433,807
=========== ===========
CNET Networks, Inc.
Statements of Cash Flows
Unaudited
(in thousands)
Nine Months Ended
September 30,
------------------
2007 2006
-------- --------
Cash flows from operating activities:
Net income (loss) $(25,843) $ 1,528
Adjustments to reconcile net income (loss) to net
cash provided by
operating activities:
Depreciation and amortization 30,999 24,618
Fair value remeasurement (702) -
Noncash stock compensation expense 13,906 14,393
Impairments 19,009 1,418
Other noncash items, net (141) (427)
Provision for doubtful accounts 1,624 1,831
Gain on sale of business, net - (778)
Gains on sales of privately held investments (2,190) (558)
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable 10,001 8,369
Other assets (291) 1,221
Accounts payable (4,719) (1,128)
Accrued liabilities (1,947) 2,809
Other long-term liabilities 1,011 (78)
-------- --------
Net cash provided by operating activities 40,717 53,218
-------- --------
Cash flows from investing activities:
Purchase of marketable debt securities (9,359) (44,546)
Proceeds from sales of marketable debt securities 38,735 39,450
Release of restricted funds 604 70
Investments in privately held companies 2,190 3,058
Cash paid for other intangible assets (428) -
Cash paid for acquisitions, net of cash acquired (39,778) (9,666)
Sale of leasehold improvements 2,349 -
Purchases of property and equipment (22,106) (26,891)
-------- --------
Net cash used in investing activities (27,793) (38,525)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock 10,489 7,280
Principal payments on borrowings (51) (47)
-------- --------
Net cash provided by financing activities 10,438 7,233
-------- --------
Net increase in cash and cash equivalents 23,362 21,926
Effect of exchange rate changes on cash and cash
equivalents 212 865
Cash and cash equivalents at the beginning of the
period 31,327 55,895
-------- --------
Cash and cash equivalents at the end of the period $ 54,901 $ 78,686
======== ========
CNET Networks, Inc.
Quarterly Statistical Highlights
Unaudited
Q3-07 Q2-07 Q1-07 Q4-06 Q3-06
-------------------------------------
Total Quarterly Revenue ($mm) $ 99.5 $ 97.2 $ 92.1 $118.0 $ 93.3
Revenue Distribution (%) (a)
Marketing Services 88% 88% 87% 89% 86%
Licensing, Fees and User 12% 12% 13% 11% 14%
Segment Revenue ($mm)
U.S. Media $ 76.8 $ 73.7 $ 74.2 $ 93.5 $ 73.5
International Media 22.7 23.5 17.9 24.5 19.8
Advertiser Metrics
CNET Networks Top 100 US
Advertisers' Renewal Rate (Q-
to-Q) 95% 95% 96% 96% 96%
CNET Networks Top 100 US
Advertisers' % of Network
Revenue 53% 52% 57% 57% 54%
Select Business Metrics (b)
Network Unique Users (mm) 141.1 137.4 143.7 135.8 124.5
Network Average Daily Page Views
(mm) 91.0 (c) 74.9 81.2 84.8 86.3
Balance Sheet Highlights ($mm)
Cash $ 54.9 $ 59.5 $ 45.3 $ 31.3 $ 78.7
Marketable Debt Securities 16.5 25.9 27.4 44.3 60.9
-------------------------------------
Total Cash and Investments $ 71.4 $ 85.4 $ 72.7 $ 75.6 $139.6
Days Sales Outstanding (DSO) 72 67 74 69 73
Total Debt $ 66.1 $ 75.7 $ 77.0 $ 78.3 $143.3
(a) Marketing Services - represents 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 - represents licensing our product database
and online content, subscriptions to online services, subscriptions
to our online services and print publications.
(b) In the third quarter of 2007, the Company completed the migration
of its US data reporting platforms to its international properties.
The Company's user metrics now include the full effect of its new and
developing international properties in China and Europe.
(c) Includes approximately 15 million average daily page views
resulting from the Company's migration of its US data reporting
platforms to its international properties. Excluding the effect of
this migration, average daily page views would have been
approximately 76 million during the third quarter 2007.
CNET Networks, Inc.
Business Outlook
FY 2007
$ in millions, except per Q3-07 Q4-07 estimate estimate
share Actual Low - High Low - High
------------------------------------- --------------- ---------------
Total Revenues $99.5 $119.0 - $125.0 $400.0 - $406.0
Operating income before
depreciation, amortization,
impairment, stock option
investigation and related
matters and stock
compensation expense $17.7 $34.0 - $38.0 $76.0 - $80.0
Depreciation expense $6.8 $7.2 $28.3
Amortization expense $3.3 $2.7 $12.4
Goodwill impairment $19.0 - $19.0
Stock compensation expense $4.7 $6.0 $20.0
Stock option investigation $0.4 - -
and related matters
Operating income (loss) ($16.5) $18.1 - $22.2 ($0.3) - ($3.7)
Interest income (expense),
net ($0.2) ($0.7) ($2.0)
Other income (expense), net $0.9 - $3.0
Tax (expense) benefit ($1.4) $177.5 175.8
GAAP EPS (including stock
compensation expense) ($0.11) $1.27 - $1.30 $1.14 - $1.16
------------------------------------- --------------- ---------------
Note: Fourth quarter and full year 2007 guidance does not include (a)
the financial results of Webshots for the period prior to its sale on
October 25, 2007, or (b) any gain or loss on sale resulting from the
sale. Commencing in the fourth quarter of 2007, the Company will
report the financial results for this business for all future and
historic periods separately as a "discontinued operations".
Note: Operating income guidance for the fourth 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 Other
Media Media (1) Total
------- ------------- -------- --------
Three Months Ended
September 30, 2007
Revenues $ 76,778 $ 22,720 $ - $ 99,498
Operating expenses 59,557 22,214 34,190 115,961
------- ------------- -------- --------
Operating income (loss) $ 17,221 $ 506 $(34,190) $(16,463)
======= ============= ======== ========
Three Months Ended
September 30, 2006
Revenues $ 73,480 $ 19,815 $ - $ 93,295
Operating expenses 56,369 18,446 21,310 96,125
------- ------------- -------- --------
Operating income (loss) $ 17,111 $ 1,369 $(21,310) $ (2,830)
======= ============= ======== ========
U.S. International Other
Media Media (1) Total
------- ------------- -------- --------
Nine Months Ended
September 30, 2007
Revenues $224,692 $ 64,094 $ - $288,786
Operating expenses 178,990 64,145 71,608 314,743
------- ------------- -------- --------
Operating income (loss) $ 45,702 $ (51) $(71,608) $(25,957)
======= ============= ======== ========
Nine Months Ended
September 30, 2006
Revenues $214,040 $ 55,282 $ - $269,322
Operating expenses 168,223 53,787 47,637 269,647
------- ------------- -------- --------
Operating income (loss) $ 45,817 $ 1,495 $(47,637) $ (325)
======= ============= ======== ========
(1) For the three months ended September 30, 2007, "Other" includes
depreciation and amortization expenses of $10.1 million, asset
impairment expense of $19.0 million, stock compensation expense of
$4.7 million, and stock option investigation and related matters of
$0.4 million, respectively. For the three months ended September 30,
2006, "Other" includes $9.1 million of depreciation and amortization,
$1.4 million of asset impairment expenses, $5.0 million of stock
compensation expense, and $5.8 million of stock option investigation
and related matters, respectively. For the nine months ended
September 30, 2007, "Other" includes depreciation and amortization
expenses of $31.0 million, asset impairment expense of $19.0 million,
stock compensation expense of $13.9 million, and stock option
investigation and related matters of $7.7 million, respectively. For
the nine months ended September 30, 2006, "Other" includes
depreciation and amortization of $24.6 million, asset impairment
expenses of $1.4 million, stock compensation expense of $14.4
million, and stock option investigation and related matters of $7.2
million, respectively.
CNET Networks, Inc.
Operating Income (Loss)
Reconciliation
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2007 2006 2007 2006
--------- ------- -------- -------
Operating income (loss) $(16,463) $(2,830) $(25,957) $ (325)
Stock compensation expense 4,685 5,004 13,906 14,393
Depreciation 6,785 5,880 21,265 15,967
Amortization of intangible
assets 3,305 3,203 9,734 8,652
Goodwill impairments 19,009 1,418 19,009 1,418
--------- ------- -------- -------
Operating income before
depreciation, amortization,
goodwill impairments and stock
compensation expense 17,321 12,675 37,957 40,105
Stock option investigation and
related matters 406 5,825 7,694 7,226
--------- ------- -------- -------
Operating income before
depreciation, amortization,
goodwill impairments, stock
compensation expense, stock
option investigation and related
matters $ 17,727 $18,500 $ 45,651 $47,331
========= ======= ======== =======
We believe that "operating income before depreciation, amortization,
goodwill impairments and stock compensation expense" and "operating
income before depreciation, amortization, stock compensation expense,
stock option investigation and related matters and goodwill
impairments" 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, amortization and
goodwill impairments 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, goodwill impairments and stock compensation expense"
and "operating income before depreciation, amortization, goodwill
impairments, 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. 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. 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, goodwill impairment and stock
compensation expense" and "operating income before depreciation,
amortization, goodwill impairment, stock compensation expense and
stock option investigation and related matters" only on a
supplemental basis. "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 financials
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 Nine Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net income (loss) $(16,649) $ (2,330) $(25,843) $ 1,528
-------- -------- -------- --------
Stock compensation expense 4,685 5,004 13,906 14,393
Stock option investigation
and related matters 406 5,825 7,694 7,226
Realized gains on investments (590) (58) (2,190) (558)
Goodwill impairments 19,009 1,418 19,009 1,418
Fair value remeasurement (1) - - (702) -
Loss from discontinued
operations - - - (37)
-------- -------- -------- --------
Effect on earnings from stock
compensation, stock option
investigation and related
matters, gains on
investments, fair value
remeasurement and
discontinued operations 23,510 12,189 37,717 22,442
-------- -------- -------- --------
Net income excluding stock
compensation, stock option
investigation and related
matters, gains on
investments, fair value
remeasurment and discontinued
operations $ 6,861 $ 9,859 $ 11,874 $ 23,970
======== ======== ======== ========
Diluted net income (loss) per
share $ (0.11) $ (0.02) $ (0.17) $ 0.01
======== ======== ======== ========
Shares used in calculating
diluted net income (loss) per
share 151,665 149,792 151,127 152,506
======== ======== ======== ========
Diluted net income per share
excluding stock compensation
expense, stock option
investigation and related
matters, gains on investments,
fair value remeasurement and
discontinued operations $ 0.04 $ 0.06 $ 0.08 $ 0.16
======== ======== ======== ========
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 152,750 152,411 152,625 152,506
======== ======== ======== ========
(1) In the nine months ended September 30, 2007, the Company
recognized a gain from the remeasurement of a liability related to
our stock option extensions to former employees.
Adjusted net income is defined as net income excluding stock
compensation expense, costs associated with the Company's stock
option investigation and related matters, impairments 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
and goodwill impairments are non-cash items which are not necessarily
reflections of the Company's core performance. The costs associated
with the Company's stock option investigation and related matters are
not reflective of our core business, as are gains 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.
Management compensates for these limitations by primarily relying on
the Company's GAAP financial measures, including net income, and
using adjusted net income only on a supplemental basis. 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 Nine Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
--------- ------- -------- --------
Cash flows from operating
activities $ 12,194 $ 9,168 $ 40,717 $ 53,218
Capital expenditures (1) (4,051) (9,460) (19,757) (26,891)
--------- ------- -------- --------
Free cash flow 8,143 (292) 20,960 26,327
Stock option investigation and
related matters 406 5,825 7,694 7,226
--------- ------- -------- --------
Free cash flow excluding
stock option investigation
and related matters $ 8,549 $ 5,533 $ 28,654 $ 33,553
========== ======= ========= ========
(1) Capital expenditures for the nine months ended September 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.
Similarly, the Company believes that free cash flow excluding stock
option investigation and related matters provides useful information
because such expenses, while settled in cash, are not reflective of
the ability of our business to generate cash. A limitation of free
cash flow is that is does not represent the total increase or
decrease in the cash balance for the period. A limitation of free
cash flow excluding stock option investigation and related matters is
that it excludes costs that are paid in cash. Management compensates
for these limitations by primarily relying on our GAAP financial
measures, such as cash flows from operating activities and uses of
free cash flow and free cash flow excluding stock option
investigation and related matters only on a supplemental basis. Free
cash flow should be considered in addition to, and not as a
substitute for, other measures of financial performance or liquidity
prepared in accordance with US GAAP.
CNET Networks, Inc.
Revenues Reconciliation
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended Full
September 30, September 30, Year
------------------ ------------------ --------
2007 2006 2007 2006 2006
--------- ------- -------- -------- --------
Revenues, as
reported $ 99,498 $93,295 $288,786 $269,322 $387,376
--------- ------- -------- -------- --------
Exited businesses - (2,313) (109) (8,187) (11,379)
Webshots (2,578) (3,785) (7,823) (12,097) (16,793)
--------- ------- -------- -------- --------
Total Webshots and
exited businesses (2,578) (6,098) (7,932) (20,284) (28,172)
--------- ------- -------- -------- --------
Revenues, as
adjusted $ 96,920 $87,197 $280,854 $249,038 $359,204
========= ======= ======== ======== ========
CNET Networks, Inc.
Operating Expense Reconciliation
(Unaudited)
(in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------ -----------------
2007 2006 2007 2006
--------- ------- -------- -------
Operating expense $ 115,961 $ 96,125 $ 314,743 $269,647
Stock compensation expense 4,685 5,004 13,906 14,393
Depreciation 6,785 5,880 21,265 15,967
Amortization of intangible
assets 3,305 3,203 9,734 8,652
Goodwill impairments 19,009 1,418 19,009 1,418
--------- ------- -------- -------
Cash operating expenses 82,177 80,620 250,829 229,217
Stock option investigation and
related matters 406 5,825 7,694 7,226
--------- ------- -------- -------
Cash operating expenses before
stock option investigation and
related matters $ 81,771 $ 74,795 $ 243,135 $221,991
========= ======= ======== =======
Management believes that cash operating expenses and cash operating
expenses before stock option investigation and related matters are
useful to investors as supplements to GAAP operating expense in
evaluating the performance of our core businesses. Depreciation,
amortization, stock compensation expense and goodwill impairments 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 these non-
cash items allows management to make financial and operating
decisions and evaluate the business based on recurring operating
results. The costs associated with the Company's stock option
investigation and related matters, while paid in cash, are not
reflective of our core business. 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. Management compensates
for these limitations by primarily relying on the Company's GAAP
financial measures, including operating expense, and using cash
operating expenses and cash operating expenses before stock option
investigation and related matters only on a supplemental basis. Cash
operating expenses and cash operating expenses before stock option
investigation and related matters should be considered in addition
to, and not as substitutes for, other measures of financial
performance or liquidity prepared in accordance with GAAP.
CONTACT:
CNET Networks, Inc.
Cammeron McLaughlin, 415-344-2844 (Investor Relations)
cammeron.mclaughlin@cnet.com
Sarah Cain, 415-344-2218 (Media Contact)
sarah.cain@cnet.com
SOURCE: CNET Networks, Inc.
