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FriendFinder Networks Inc. Reports Financial Results for Third Quarter 2012

Adjusted EBITDA increased 33% to $22.5 million in Q3 2012 from $16.9 million in Q2 2012


SUNNYVALE, Calif., Nov. 14, 2012 /PRNewswire/ -- FriendFinder Networks Inc. (NasdaqGM: FFN) (the "Company"), a leading internet and technology company providing services to the rapidly expanding markets of social networking and web-based video sharing, today announced financial results for the third quarter and nine months ended September 30, 2012.

"By refocusing our efforts on more effectively supporting our dominant revenue-generating properties, FriendFinder Networks continues to make significant operational progress.  Reflective of these efforts was a 7.5% quarter-over-quarter and a 6.2% year-over-year improvement in Average Revenue per User (ARPU) within the Adult segment during the third quarter," said Anthony Previte, Chief Executive Officer of FriendFinder Networks.  "The continued strengthening of our operational results further bolstered our Adjusted EBITDA, which increased to $22.5 million for the third quarter, up 11.0% year-over-year and up 33% compared to the prior quarter.  We expect to see similar levels of adjusted EBITDA going forward, supported by the rollout of new products and enhancements in Q4 to our flagship brands as well as the launch of a new interactive TV product that we are very excited about."    

"For the second consecutive quarter, we achieved increased revenue contribution from Europe, which was up 8.8% from the prior quarter.  Despite the economic weakness and uncertainty in Europe on a macro level, we successfully executed in the region as our geographic price testing has been positively received and renewal cycles have started to kick in.  Additionally, we experienced success in our Video Entertainment segment which was up 4.4% year-over-year.  Overall, we are not satisfied with the declines in our overall revenue despite the fact that the decline is mainly attributable to our strategy of focusing on our higher margin proprietary brands; however, increasing our overall revenues will be a focus moving forward."

"Operationally we continue to show improvements in certain areas of both our Adult and General Audience websites.  Within the Adult segment, conversion of members to subscribers increased to 4.9% from 4.1% in the third quarter of 2011.  In addition, Average Lifetime Net Revenue per Subscriber improved almost 24% quarter-over-quarter. Within the General Audience segment, our churn rate improved to 16.9%, compared with 19.6% during the same time period last year.  We also experienced a strong improvement in the rate of decline of ending subscribers in this segment during the quarter, which only declined 1% sequentially. This success is primarily attributable to the consolidation of our General Audience and Mobile segments, which has gone extremely well and has produced numerous synergies."

Mr. Previte added, "Fines imposed by Visa USA negatively impacted our bottom line during the quarter.  Due to the Company's dependence on credit card processing, FriendFinder Networks continues to process transactions through Visa as we work through these issues."

"Lastly, as announced on November 5, we have retained CRT Capital Group LLC as our financial advisor to help explore opportunities to refinance our long-term debt.  While we continue to see significant improvement in our operating results and have adequate cash to make our excess cash flow payment, we did not make the payment due November 5 in order to conserve cash and take advantage of favorable market conditions to refinance our debt.  We received forbearance agreements from more than 80% of our principal lenders to permit suspension of our required excess cash flow payment, which was due on November 5, 2012.  These agreements recognize the strengthening of our business and signal the continued support of our senior lenders.  We will continue to pay interest during the refinancing phase."       

Third Quarter Financial Results

Revenue for the third quarter of 2012 was $77.7 million.  Revenue was negatively impacted by a decrease in affiliate based traffic and lower resulting internet revenue as the Company continues to eliminate lower margin co-brands.

Gross profit for the third quarter of 2012 was $52.1 million. Gross profit was negatively impacted by the reduced revenue offset partially by reduced affiliate expense and higher margins.

Income from operations for the third quarter of 2012 was $17.0 million.

Loss from continuing operations for the third quarter of 2012 was ($5.7) million, or ($0.18) per share. The loss from discontinued operations, which resulted from the closure of all JigoCity operations, was ($2.1) million or ($0.07) per share.

Adjusted EBITDA for the third quarter of 2012 was $22.5 million.  

Nine Month Financial Results:

Revenue for the nine months ended September 30, 2012 was $239.8 million.

Gross profit for the nine months ended September 30, 2012 was $153.4 million.

Income from operations for the nine months ended September 30, 2012 was $38.1 million.

Loss from continuing operations for the nine months ended September 30, 2012 was ($26.2) million, or ($0.83) per share.  The loss from discontinued operations was ($13.6) million or ($0.43) per share.

Adjusted EBITDA for the nine months ended September 30, 2012 was $52.8 million.

Balance Sheet, Cash and Debt

As of September 30, 2012, the Company had unrestricted cash and cash equivalents of $14.6 million, compared to $12.8 million at June 30, 2012.  As of September 30, 2012, the Company had outstanding principal debt of $504.4 million.  Free Cash Flow per Share was $0.45 for the third quarter ended September 30, 2012.

The Company has received forbearance agreements from more than 80% of its senior lenders to permit suspension of its required excess cash flow payment which was due November 5.

Conference Call Information

Management will host a conference call to discuss the results at 4:30 PM EST on Wednesday, November 14, 2012.  Participants should call 888-737-3707 (United States/Canada) or 913-312-0720 (International).

A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call 877-870-5176 (United States/Canada) or 858-384-5517 (International) and enter confirmation code 9421270.  The replay will be available on November 14, 2012 at 7:30 PM EST through Wednesday, November 28, 2012 at 11:59 PM EST.

Non-GAAP Financial Measures

Management believes that certain non-GAAP financial measures of earnings before deducting net interest expense, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are helpful financial measures as investors, analysts and others frequently use EBITDA and Adjusted EBITDA in the evaluation of other companies in FriendFinder Networks Inc.'s industry. For example, these measures eliminate one-time adjustments made for accounting purposes in connection with the Company's Various acquisition in order to provide information that is directly comparable to its historical and current financial statements.  For more information regarding the Company's acquisition of Various, please refer to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Our History" in the Form 10-K for the year ended December 31, 2011.

These non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in FriendFinder Networks Inc.'s industry, as other companies in FriendFinder Networks Inc.'s industry may calculate such financial measures differently, particularly as it relates to nonrecurring, unusual items.  The Company's non-GAAP financial measures of EBITDA, Adjusted EBITDA and Free Cash Flow per Common Share are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or as alternatives to net income or as indications of operating performance or any other measure of performance derived in accordance with GAAP.

Management derived EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2012 and 2011 using the adjustments shown in the attached reconciliation table.  Free Cash Flow per Common Share was derived by subtracting capital expenditures and cash interest from Adjusted EBITDA and dividing the result by the weighted average shares outstanding for the period.

SAFE HARBOR

This press release includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995.  Actual results may differ from expectations, estimates and projections and, consequently, you should not rely on these forward looking statements as predictions of future events.  Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements.  These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results.

Additional information concerning these and other risk factors is contained in the Company's most recent filings with the SEC, including its Form 10-K for the year ended December 31, 2011 and its Form 10-Q for the quarter ended September, 30, 2012.  All subsequent written and oral forward-looking statements concerning the Company are expressly qualified in their entirety by the cautionary statements above and subject to such risk factors discussed in the Company's recent SEC filings.  The Company cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made.  The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in their expectations or any change in events, conditions or circumstances on which any such statement is based.

ABOUT FRIENDFINDER NETWORKS INC.

FriendFinder Networks Inc. (www.FFN.com) is an internet-based social networking and technology company operating several of the most heavily visited websites in the world, including AdultFriendFinder.com, Amigos.com, AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and SeniorFriendFinder.com. FriendFinder Networks Inc. also produces and distributes original pictorial and video content and engages in brand licensing.

Investor Contact for FriendFinder Networks Inc.
Jeffrey Goldberger / Rob Fink
KCSA Strategic Communications
212.896.1206 or [email protected] / [email protected]

Media Contact for FriendFinder Networks Inc.
Lindsay Trivento
Director, Corporate Communications     
561.912.7010 or [email protected] 

                                                                                                                                                   

 

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

 

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

 



September 30,

2012



December 31,

2011




(unaudited)





ASSETS







Current assets:







Cash


$

14,647



$

23,364


Restricted cash



9,992




11,177


Accounts receivable, less allowance for doubtful accounts of $1,063 and $1,155, respectively



13,303




8,939


Inventories



624




822


Prepaid expenses



3,969




5,645


Deferred tax asset



4,405




4,405


Total current assets



46,940




54,352


Film costs, net



3,928




4,105


Property and equipment, net



7,046




7,830


Goodwill



328,061




332,292


Domain names



56,360




56,093


Trademarks



6,613




6,613


Other intangible assets, net



3,064




16,920


Unamortized debt costs



8,152




11,754


Other assets



2,017




3,405




$

462,181



$

493,364


LIABILITIES









Current liabilities:









Long-term debt which matures on September 30, 2013

and current installment of long term debt in 2011, net of

unamortized discount of $3,273 and $260, respectively


$

220,587



$

8,270


Accounts payable



8,313




11,324


Accrued expenses and other liabilities



75,317




68,930


Deferred revenue



37,511




42,299


Total current liabilities



341,728




130,823


Deferred tax liability



28,310




28,310


Long-term debt, net of unamortized discount of $21,318 and $34,170, respectively



259,208




462,515


Total liabilities



629,246




621,648


Contingencies (Note 15)


















STOCKHOLDERS' DEFICIENCY









Preferred stock, $0.001 par value — authorized 22,500,000 shares, none issued and outstanding









Common stock, $0.001 par value — authorized 125,000,000 shares issued and outstanding,   32,572,761 shares at September 30, 2012 and 31,219,644 shares at December 31, 2011



32




31


Capital in excess of par value



134,470




133,734


Accumulated deficit



(301,567)




(261,764)


Accumulated other comprehensive loss






(285)


Total stockholders' deficiency



(167,065)




(128,284)




$

462,181



$

493,364


 

 

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

 




Three Months Ended

September 30,



Nine Months Ended

September 30,




2012



2011



2012



2011


Net revenue













Service


$

73,224



$

77,710



$

225,245



$

234,918


Product



4,500




5,026




14,568




14,709


Total



77,724




82,736




239,813




249,627


Cost of revenue

















Service



22,141




24,267




74,904




68,547


Product



3,519




3,646




11,469




11,259


Total



25,660




27,913




86,373




79,806


Gross profit



52,064




54,823




153,440




169,821


Operating expenses:

















Product development



2,420




4,024




10,721




12,080


Selling and marketing



6,404




8,279




25,060




22,679


General and administrative



21,748




22,836




66,062




67,507


Amortization of acquired intangibles and software



3,707




4,060




11,120




11,906


Depreciation and other amortization



800




913




2,361




3,268


Total operating expenses



35,079




40,112




115,324




117,440


Income from operations



16,985




14,711




38,116




52,381


Interest expense



(22,055)




(21,146)




(64,203)




(65,097)


Other finance expenses









(500)





Interest related to VAT liability not charged to customers



(262)




(476)




(1,004)




(1,410)


Foreign exchange (loss) gain, principally related to VAT liability not charged to customers



(463)




1,432




538




(1,521)


Gain on liability related to warrants












391


Loss on extinguishment of debt












(7,312)


Change in fair value of acquisition contingent consideration









1,400





Other non-operating expense net



127




1




(527)




(3,912)


Loss from continuing operations before income tax (benefit)



(5,668)




(5,478)




(26,180)




(26,480)


Income tax (benefit)






(82)







(5,542)


Loss from continuing operations


$

(5,668)



$

(5,396)



$

(26,180)



$

(20,938)


Loss from discontinued operations



(2,078)







(13,623)





Net loss


$

(7,746)



$

(5,396)



$

(39,803)



$

(20,938)


Net loss per common share — basic and diluted:

















Continuing operations


$

(0.18)



$

(0.18)



$

(0.83)



$

(1.02)


Discontinued operations



(0.07)







(0.43)





Net loss


$

(0.25)



$

(0.18)



$

(1.26)



$

(1.02)


Weighted average shares outstanding — basic and diluted



31,537




30,330




31,516




20,505



 

 

FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

 



Nine Months Ended

September 30,




2012



2011


Cash flows from operating activities







Net loss


$

(39,803)



$

(20,938)


Adjustment to reconcile net loss to net cash provided by operating activities-continuing operations:









Loss from discontinued operations



13,640




-


Amortization of acquired intangibles and software



11,120




11,906


Depreciation and other amortization



2,361




3,268


Amortization of film costs



2,213




2,141


Deferred income tax benefit






(5,542)


Non-cash interest, including amortization of discount and debt costs



38,508




35,452


Provision for doubtful accounts



368




105


Change in value of acquisition related contingent consideration



(1,400)




-


Gain on warrant liability






(391)


Loss on extinguishment of debt






7,312


Stock based compensation expense



754




2,554


Debt costs



(2,312)




-


Other



865




590


Changes in operating assets and liabilities:









Restricted cash



1,055




(4,218)


Accounts receivable



(4,732)




(112)


Inventories



198




235


Prepaid expenses



(422)




(310)


Film costs



(2,037)




(1,991)


Other assets



96




-


Accounts payable



(667)




(1,465)


Accrued expenses and other liabilities



2,407




(2,972)


Deferred revenue



(4,788)




(4,017)


Net cash provided by continuing operations



17,424




21,607


Net cash used in discontinued operations



(6,979)




-


Net cash provided by operating activities



10,445




21,607


Cash flows from investing activities:









Purchases of property and equipment



(2,813)




(4,472)


Cash paid for acquisition






(2,003)


Other



(267)




(49)


Net cash used in investing activities



(3,080)




(6,524)


Cash flows from financing activities:









Gross proceeds from sale of common stock from initial public offering






50,000


Payment of underwriter discount and other offering costs in connection with initial public offering






(6,724)


Recovery of debt issuance costs






296


Repayment of long-term debt



(16,082)




(76,770)


Net cash used in financing activities



(16,082)




(33,198)


Effect of exchange rate changes on cash









Net decrease in cash



(8,717)




(18,115)


Cash at beginning of period



23,364




34,585


Cash at end of period


$

14,647



$

16,470


Supplemental disclosures of cash flow information:









Cash Paid for:









Interest


$

24,673



$

29,030


Income taxes







30


Non-Cash Investing and Financing Activities:









Recording of beneficial conversion feature on Non-Cash Pay Second Lien Notes in connection with initial public offering, net of $5,660 of related deferred taxes







8,490


Deferred offering costs written off to capital in excess of par value







13,267


Conversion of Series A and B convertible preferred stock and series B common stock to common stock







12


   Common Stock and warrants issued and contingent

   consideration liability in connection with acquisitions







8,000


 

Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA

 




Unaudited




Three Months Ended

September 30,



Nine Months Ended

September 30,





2012



2011



2012



2011




(in thousands)


GAAP net loss


$

(7,746)



$

(5,396)



$

(39,803)



$

(20,938)


Add: Interest expense, net



22,055




21,146




64,203




65,097


Add: Other finance expenses



-




-




500




-


Subtract: Income tax benefit



-




(82)




-




(5,542)


Add: Amortization of acquired intangible

assets and software



3,707




4,060




11,120




11,906


Add: Depreciation and other amortization



800




913




2,361




3,268


EBITDA


$

18,816



$

20,641



$

38,381



$

53,791


Add: Broadstream arbitration provision,

including related legal fees



-




-




-




7,394


Subtract/Add: (Gain)/Loss related to VAT liability not charged to customers



725




(956)




466




2,931


Add: Loss of extinguishment of debt



-




-




-




7,312


Add: Severance Expense



7




388




434




388


Add: Discontinued Operations



2,078




-




13,623




-


Add: Stock Compensation Expense



347




269




803




2,554


Subtract: Change in fair value of acquisition related contingent consideration



-




-




(1,400)




-


Add: Indenture Fee



500




-




500




-


Adjusted EBITDA


$

22,473



$

20,342



$

52,807



$

74,370


 

 

Internet Segment Historical Operating Data

 

The following table presents certain key business metrics for our adult websites, general audience websites and live interactive video websites for the three and nine months ended September 30, 2012 and 2011.

 




Three Months Ended

September 30,



Nine Months Ended

September 30,




2012



2011



2012



2011


Adult Websites













New members



7,777,820




9,812,584




25,981,960




28,963,082


Beginning subscribers



794,680




857,733




827,728




950,705


New subscribers



383,374




406,261




1,210,680




1,210,247


Terminations



414,662




414,325




1,275,016




1,311,283


Ending subscribers



763,392




849,669




763,392




849,669


Conversion of members to subscribers



4.9

%



4.1

%



4.7

%



4.2

%

Churn



17.7

%



16.2

%



17.8

%



16.2

%

ARPU


$

22.16



$

20.86



$

21.46



$

20.24


CPGA


$

40.16



$

45.21



$

46.35



$

43.55


Average lifetime net revenue per subscriber


$

84.75



$

83.76



$

74.17



$

81.51


Net revenue (in millions)


$

51.8



$

53.4



$

153.7



$

164.0


General Audience Websites

















New members



888,129




1,463,706




3,010,530




5,050,758


Beginning subscribers



38,611




48,411




44,519




53,194


New subscribers



18,915




25,710




65,693




75,727


Terminations



19,461




27,785




72,147




82,585


Ending subscribers



38,065




46,336




38,065




46,336


Conversion of members to subscribers



2.1

%



1.8

%



2.2

%



1.5

%

Churn



16.9

%



19.6

%



19.4

%



18.4

%

ARPU


$

11.18



$

21.69



$

13.91



$

19.47


CPGA


$

24.08



$

30.10



$

40.53



$

26.83


Average lifetime net revenue per subscriber


$

42.01



$

80.86



$

31.14



$

78.75


Net revenue (in millions)


$

1.3



$

3.1



$

5.2



$

8.7


Live Interactive Video Websites

















Total minutes



8,989,717




8,781,261




27,893,863




25,991,342


Average revenue per minute


$

2.18



$

2.36



$

2.32



$

2.33


Net revenue (in millions)


$

19.6



$

20.7



$

64.7



$

60.7



 

 

SOURCE FriendFinder Networks Inc.

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Enthusiasm for the Internet of Things has reached an all-time high. In 2013 alone, venture capitalists spent more than $1 billion dollars investing in the IoT space. With "smart" appliances and devices, IoT covers wearable smart devices, cloud services to hardware companies. Nest, a Google company, detects temperatures inside homes and automatically adjusts it by tracking its user's habit. These technologies are quickly developing and with it come challenges such as bridging infrastructure gaps, abiding by privacy concerns and making the concept a reality. These challenges can't be addressed w...
The Domain Name Service (DNS) is one of the most important components in networking infrastructure, enabling users and services to access applications by translating URLs (names) into IP addresses (numbers). Because every icon and URL and all embedded content on a website requires a DNS lookup loading complex sites necessitates hundreds of DNS queries. In addition, as more internet-enabled ‘Things' get connected, people will rely on DNS to name and find their fridges, toasters and toilets. According to a recent IDG Research Services Survey this rate of traffic will only grow. What's driving t...
Scott Jenson leads a project called The Physical Web within the Chrome team at Google. Project members are working to take the scalability and openness of the web and use it to talk to the exponentially exploding range of smart devices. Nearly every company today working on the IoT comes up with the same basic solution: use my server and you'll be fine. But if we really believe there will be trillions of these devices, that just can't scale. We need a system that is open a scalable and by using the URL as a basic building block, we open this up and get the same resilience that the web enjoys.
Connected devices and the Internet of Things are getting significant momentum in 2014. In his session at Internet of @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, examined three key elements that together will drive mass adoption of the IoT before the end of 2015. The first element is the recent advent of robust open source protocols (like AllJoyn and WebRTC) that facilitate M2M communication. The second is broad availability of flexible, cost-effective storage designed to handle the massive surge in back-end data in a world where timely analytics is e...
We are reaching the end of the beginning with WebRTC, and real systems using this technology have begun to appear. One challenge that faces every WebRTC deployment (in some form or another) is identity management. For example, if you have an existing service – possibly built on a variety of different PaaS/SaaS offerings – and you want to add real-time communications you are faced with a challenge relating to user management, authentication, authorization, and validation. Service providers will want to use their existing identities, but these will have credentials already that are (hopefully) i...
"Matrix is an ambitious open standard and implementation that's set up to break down the fragmentation problems that exist in IP messaging and VoIP communication," explained John Woolf, Technical Evangelist at Matrix, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at @ThingsExpo, Robin Raymond, Chief Architect at Hookflash, will walk through the shifting landscape of traditional telephone and voice services ...
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at Internet of @ThingsExpo, James Kirkland, Chief Architect for the Internet of Things and Intelligent Systems at Red Hat, described how to revolutioniz...
Bit6 today issued a challenge to the technology community implementing Web Real Time Communication (WebRTC). To leap beyond WebRTC’s significant limitations and fully leverage its underlying value to accelerate innovation, application developers need to consider the entire communications ecosystem.
The definition of IoT is not new, in fact it’s been around for over a decade. What has changed is the public's awareness that the technology we use on a daily basis has caught up on the vision of an always on, always connected world. If you look into the details of what comprises the IoT, you’ll see that it includes everything from cloud computing, Big Data analytics, “Things,” Web communication, applications, network, storage, etc. It is essentially including everything connected online from hardware to software, or as we like to say, it’s an Internet of many different things. The difference ...
Cloud Expo 2014 TV commercials will feature @ThingsExpo, which was launched in June, 2014 at New York City's Javits Center as the largest 'Internet of Things' event in the world.