aQuantive, Inc. (NASDAQ: AQNT), a digital marketing company, today reported financial results for the third quarter ended September 30, 2006.
2006 third quarter results were:
- Revenue of $111.0 million, an increase of 41 percent over the third quarter of 2005.
- Net income of $13.6 million, or $0.16 per diluted share. Net income before stock-based compensation1 was $16.3 million, an increase of 73 percent over the third quarter of 2005.
- Adjusted EBITDA2 of $30.8 million, an increase of 51 percent over the third quarter of 2005.
Brian McAndrews, president and CEO of aQuantive commented, "The market for interactive marketing service and technology is robust. aQuantive achieved strong year-over-year growth domestically and internationally. With the investments we continue to make in technology, recruiting and training, sales and international expansion, we anticipate continued strong growth in the fourth quarter and 2007."
aQuantive operates three business segments. Unallocated corporate expenses, including amounts recorded for stock-based compensation expense, are centrally managed at the corporate level and are not included in the segment details. Segment information is as follows:
Digital Marketing Services
aQuantive's digital marketing services (DMS) segment recorded revenue of $67.7 million in the third quarter of 2006, compared to revenue of $48.5 million in the third quarter of 2005. Operating income was $14.3 million in the third quarter of 2006, compared to $8.9 million in the third quarter of 2005.
During the third quarter, Avenue A | Razorfish acquired two interactive agencies in international markets, Amnesia in Australia and NEUE DIGITALE in Germany, followed by the fourth quarter acquisition of e-Crusade in Hong Kong and Shanghai.
Digital Marketing Technologies
aQuantive's digital marketing technologies (DMT) segment recorded revenue of $29.9 million in the third quarter of 2006, compared to revenue of $23.5 million in the third quarter of 2005. Operating income was $12.2 million in the third quarter of 2006, compared to $10.6 million in the third quarter of 2005.
Digital Performance Media
aQuantive's digital performance media (DPM) segment recorded revenue of $13.4 million in the third quarter of 2006, compared to revenue of $6.8 million in the third quarter of 2005. Operating income was $2.7 million for the third quarter of 2006, compared to $1.0 million in the third quarter of 2005.
Full Year 2006 Financial Guidance
The Company will provide guidance for revenue, net income, net income before stock-based compensation1 and adjusted EBITDA2. Stock-based compensation expense is expected to have a significant impact on our net income and earnings per diluted share, as noted below. Actual stock-based compensation expense may differ from these estimates based on the timing and amount of options granted, the assumptions used in valuing these options and other factors.
Accordingly, the Company reiterates its anticipation of full-year 2006 results as follows:
- Revenue of $420 - $430 million
- Net income of $0.54 - $0.58 per diluted share
- Net income before stock-based compensation of $0.67 - $0.71 per diluted share
- Adjusted EBITDA of $1.28 - $1.33 per diluted share
1 Net income before stock-based compensation (i.e. net income before the after tax-impact of stock-based compensation expense) is a non-GAAP financial measure. See the supplemental schedule attached to this press release for more information.
2 Adjusted EBITDA (i.e. earnings before interest expense, net interest and other income, income tax, depreciation, amortization and stock-based compensation) is a non-GAAP financial measure. See the supplemental schedule attached to this press release for more information.
Third Quarter 2006 Conference Call/Webcast Today at 1:30pm PST/4:30pm EST
aQuantive, Inc. will host a conference call and webcast to discuss third quarter 2006 financial results today at 1:30pm PST/4:30pm EST. The conference call will be webcast from the Investor Relations section of the Company's website at www.aquantive.com/investor. Interested parties should log on to the webcast approximately 15 minutes prior to download any necessary software. The webcast is not interactive.
About aQuantive, Inc.
aQuantive, Inc., is a global digital marketing company, founded in 1997 to help marketers acquire, retain and grow customers across all digital media. It is the parent company of Avenue A | Razorfish, the largest interactive agency in the U.S., and four international agencies, DNA, Amnesia, NEUE DIGITALE and e-Crusade; Atlas, a provider of integrated digital marketing technologies and expertise; and DRIVEpm, MediaBrokers and Franchise Gator, performance media and behavioral targeting businesses. Through its business units, aQuantive is positioned to bring value to any interaction in the digital marketplace. Its stock (ticker symbol: AQNT) is listed on the NASDAQ exchange. aQuantive's website address is www.aquantive.com.
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects," "anticipates," "forecasts," and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Forward-looking statements also include any other passages that relate to expected future events or trends that can only be evaluated by events or trends that will occur in the future. The forward-looking statements in this release include, without limitation, statements regarding expected financial performance for the full year 2006, including expected stock-based compensation expense for those periods. The forward-looking statements are based on the opinions and estimates of management at the time the statements were made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, among others, the risk of unforeseen changes in client online marketing and advertising budgets, unanticipated loss of clients or delays in anticipated campaigns and projects, the potential failure to attract new clients due to the company's inability to competitively market its services, the risk of fluctuating demand for the company's services, the potential failure to maintain desired client relationships or to achieve effective advertising campaigns for clients, potential deterioration or slower-than-expected development of the Internet advertising market either domestically or in international markets, quarterly fluctuations in operating results, timing variations on the part of advertisers to implement advertising campaigns, costs and risks related to acquisitions of technologies, businesses or brands, risks relating to international operations, the short term nature of the company's contracts with clients, which generally are cancelable on 90 days' or less notice, and the uncertainties, potential costs, and possible business impacts of new legislation or litigation involving the company. More information about factors that could cause actual results to differ materially from those predicted in aQuantive's forward-looking statements is set out in its annual report on Form 10-K for the year ended December 31, 2005, as supplemented in its quarterly report on Form 10-Q for the quarter ended June 30, 2006, both filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as to the date of this release. Except as required by law, aQuantive, undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.
NOTE TO EDITORS: There is a pipe symbol in the company name between Avenue A and Razorfish. This symbol may not appear properly in some systems.
| aQuantive, Inc. | ||||||
| Condensed Consolidated Balance Sheets | ||||||
| (in thousands) | ||||||
| (unaudited) | ||||||
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| September 30, 2006 | December 31, 2005 | |||||
| Assets | ||||||
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| Current assets: | ||||||
| Cash, cash equivalents, and short-term | ||||||
| investments | $ | 324,022 | $ | 112,351 | ||
| Accounts receivable, net of allowances | 196,120 | 160,370 | ||||
| Other receivables | 836 | 968 | ||||
| Prepaid expenses and other current assets | 5,413 | 2,108 | ||||
| Deferred tax asset | Â | 5,009 | Â | 5,416 | ||
| Total current assets | 531,400 | 281,213 | ||||
| Â | ||||||
| Property and equipment, net | 31,844 | 27,370 | ||||
| Goodwill and other intangible assets, net | 236,829 | 173,153 | ||||
| Long-term investments | 8,977 | - | ||||
| Other assets and deferred financing costs, net | 2,682 | 3,169 | ||||
| Deferred tax asset, net | 15,015 | 23,755 | ||||
| Â | Â | |||||
| Total assets | $ | 826,747 | $ | 508,660 | ||
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| Liabilities and Shareholders' Equity | ||||||
| Â | ||||||
| Current liabilities: | ||||||
| Accounts payable and accrued liabilities | $ | 166,939 | $ | 133,303 | ||
| Pre-billed media | 30,039 | 18,254 | ||||
| Deferred revenue | 11,456 | 14,310 | ||||
| Deferred rent | Â | 880 | Â | 670 | ||
| Total current liabilities | 209,314 | 166,537 | ||||
| Â | ||||||
| Notes payable | 80,000 | 80,000 | ||||
| Other long-term liabilities | 5,279 | 5,183 | ||||
| Â | Â | |||||
| Total liabilities | Â | 294,593 | Â | 251,720 | ||
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| Shareholders' equity: | ||||||
| Common stock | 773 | 665 | ||||
| Paid-in capital | 509,500 | 269,382 | ||||
| Retained earnings (accumulated deficit) | - | |||||
| and other comprehensive income | Â | 21,881 | Â | (13,107) | ||
| Total shareholders' equity | 532,154 | 256,940 | ||||
| Â | Â | |||||
| Total liabilities and shareholders' equity | $ | 826,747 | $ | 508,660 | ||
| aQuantive, Inc. | |||||||||||||
| Condensed Consolidated Statement of Operations | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| (unaudited) | |||||||||||||
| Â | |||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| Â | 2006 | Â | 2005 | Â | 2006 | Â | 2005 | ||||||
| Â | |||||||||||||
| Revenue | $ | 110,981 | $ | 78,762 | $ | 308,795 | $ | 220,948 | |||||
| Â | |||||||||||||
| Costs and expenses: | |||||||||||||
| Cost of revenue | 18,266 | 10,218 | 46,902 | 27,486 | |||||||||
| Client support | 48,194 | 34,717 | 141,246 | 100,836 | |||||||||
| Product development | 4,423 | 2,482 | 11,711 | 6,615 | |||||||||
| Sales and marketing | 6,471 | 4,687 | 20,442 | 12,055 | |||||||||
| General and administrative | 9,986 | 8,047 | 29,532 | 25,749 | |||||||||
| Amortization of intangible assets | 2,466 | 1,803 | 6,651 | 5,409 | |||||||||
| Client reimbursed expenses | Â | 1,582 | Â | 1,103 | Â | 3,692 | Â | 2,740 | |||||
| Total costs and expenses | Â | 91,388 | Â | 63,057 | Â | 260,176 | Â | 180,890 | |||||
| Income from operations | 19,593 | 15,705 | 48,619 | 40,058 | |||||||||
| Â | |||||||||||||
| Interest and other income, net | 4,170 | 495 | 9,616 | 1,022 | |||||||||
| Interest expense | Â | 634 | Â | 580 | Â | 1,798 | Â | 1,753 | |||||
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| Income before provision for income taxes | 23,129 | 15,620 | 56,437 | 39,327 | |||||||||
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| Provision for income taxes | Â | 9,561 | Â | 6,183 | Â | 22,916 | Â | 15,720 | |||||
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| Net income | $ | 13,568 | $ | 9,437 | $ | 33,521 | $ | 23,607 | |||||
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| Basic net income per share | $ | 0.18 | $ | 0.15 | $ | 0.45 | $ | 0.37 | |||||
| Diluted net income per share | $ | 0.16 | $ | 0.13 | $ | 0.41 | $ | 0.33 | |||||
| Â | |||||||||||||
| Shares used in computing basic net income | |||||||||||||
| per share | Â | 76,989 | Â | 64,456 | Â | 73,839 | Â | 63,502 | |||||
| Shares used in computing diluted net income | |||||||||||||
| per share | Â | 87,934 | Â | 77,113 | Â | 85,053 | Â | 75,665 | |||||
Supplemental Schedule of Adjusted EBITDA and Non-GAAP Estimates The term adjusted EBITDA refers to a financial measure that is defined by us as earnings before net interest and other income, interest expense, income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is a non-GAAP financial measure, and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for net income or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP.Management believes that adjusted EBITDA is a useful measure for analyzing operating results, and uses this non-GAAP financial measure to review past results and forecast future results. The following schedule reconciles adjusted EBITDA to net income on the company's consolidated statement of operations, which the company believes is the most directly comparable GAAP measure. |
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| (in thousands, except per share data) | Â | 2006 | Â | 2005 | Â | 2006 | Â | 2005 | |||||
| (unaudited) | (unaudited) | ||||||||||||
| Net income | $ | 13,568 | $ | 9,437 | $ | 33,521 | $ | 23,607 | |||||
| Â | |||||||||||||
| Depreciation of property and equipment | 4,050 | 2,671 | 11,399 | 7,051 | |||||||||
| Stock-based employee compensation expense | 4,480 | - | 14,105 | - | |||||||||
| Amortization of intangible assets | 2,658 | 2,015 | 7,227 | 6,045 | |||||||||
| Interest and other income, net | (4,170) | (495) | (9,616) | (1,022) | |||||||||
| Interest expense | 634 | 580 | 1,798 | 1,753 | |||||||||
| Provision for income taxes | 9,561 | 6,183 | 22,916 | 15,720 | |||||||||
| Â | Â | Â | Â | ||||||||||
| Adjusted EBITDA | $ | 30,781 | $ | 20,391 | $ | 81,350 | $ | 53,154 | |||||
| Â | |||||||||||||
| Adjusted EBITDA per basic share | $ | 0.40 | $ | 0.32 | $ | 1.10 | $ | 0.84 | |||||
| Adjusted EBITDA per diluted share | $ | 0.35 | $ | 0.26 | $ | 0.96 | $ | 0.70 | |||||
| In our estimate of adjusted EBITDA for the full year 2006, we have excluded estimates for interest expense of approximately $2.4 million, net interest and other income of approximately $13.3 million, depreciation of approximately $15.3 million, amortization of intangible assets of approximately $9.6 million, stock-based compensation of approximately $18.9 million and income taxes at an effective tax rate of 40%. |
| We have presented information regarding net income before stock-based compensation for the quarter and nine months ended September 30, 2006.We provide this information because management believes that analyzing our operating results excluding the impact of stock-based compensation provides a valuable measure of our operating performance.We exclude stock-based compensation from our internal measurements of financial performance, although we consider the dilutive impact to our shareholders when awarding stock-based compensation.Stock-based compensation programs are an important component of our compensation structure.We expect to continue awarding stock-based compensation to employees, and including the impact of these awards in our operating results.The following table reconciles net income before stock-based compensation to net income on the company's consolidated statement of operations. |
| Â | |||||||
| Three Months Ended | Nine Months Ended | ||||||
| September 30, | September 30, | ||||||
| (in thousands) | 2006 | 2006 | |||||
| (unaudited) | (unaudited) | ||||||
| Net income | $ | 13,568 | $ | 33,521 | |||
| Â | |||||||
| Stock-based employee compensation expense, net of tax | 2,733 | 8,604 | |||||
| Â | Â | ||||||
| Net income before stock-based employee compensation | $ | 16,301 | $ | 42,125 | |||
| We have also presented information regarding our current expectations for net income before stock-based employee compensation for the full year 2006. For the full year 2006, our calculation excludes the after tax impact of such compensation of approximately $11.3 million. |
| Supplemental Schedule of Segment Information | |||||||||||
| (in thousands) | Digital Marketing Services1 | Digital Marketing Technologies2 | Digital Performance Media3 | Unallocated Corporate Expenses4 | Total | ||||||
| (unaudited) | |||||||||||
| Three Months Ended September 30, 2006 | |||||||||||
| Revenue | $ | 67,735 | $ | 29,864 | $ | 13,382 | $ | - | $ | 110,981 | |
| Â | |||||||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 2,224 | 8,671 | 7,035 | 336 | 18,266 | ||||||
| Client support | 44,815 | - | 1,125 | 2,254 | 48,194 | ||||||
| Product development | - | 4,049 | - | 374 | 4,423 | ||||||
| Sales and marketing | 1,384 | 3,028 | 1,791 | 268 | 6,471 | ||||||
| General and administrative | 3,445 | 1,880 | 710 | 3,951 | 9,986 | ||||||
| Amortization of intangible assets | - | - | - | 2,466 | 2,466 | ||||||
| Client reimbursed expenses | Â | 1,582 | Â | - | Â | - | Â | - | Â | 1,582 | |
| Total costs and expenses | 53,450 | 17,628 | 10,661 | 9,649 | 91,388 | ||||||
| Â | Â | Â | Â | Â | |||||||
| Income from operations | $ | 14,285 | $ | 12,236 | $ | 2,721 | $ | (9,649) | $ | 19,593 | |
| Â | |||||||||||
| Three Months Ended September 30, 2005 | |||||||||||
| Revenue | $ | 48,495 | $ | 23,514 | $ | 6,753 | $ | - | $ | 78,762 | |
| Â | |||||||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | - | 5,756 | 4,250 | 212 | 10,218 | ||||||
| Client support | 34,344 | - | 373 | - | 34,717 | ||||||
| Product development | - | 2,482 | - | - | 2,482 | ||||||
| Sales and marketing | 1,084 | 2,765 | 838 | - | 4,687 | ||||||
| General and administrative | 3,113 | 1,888 | 320 | 2,726 | 8,047 | ||||||
| Amortization of intangible assets | - | - | - | 1,803 | 1,803 | ||||||
| Client reimbursed expenses | Â | 1,103 | Â | - | Â | - | Â | - | Â | 1,103 | |
| Total costs and expenses | 39,644 | 12,891 | 5,781 | 4,741 | 63,057 | ||||||
| Â | Â | Â | Â | Â | |||||||
| Income from operations | $ | 8,851 | $ | 10,623 | $ | 972 | $ | (4,741) | $ | 15,705 | |
| (in thousands) | Digital Marketing Services1 | Digital Marketing Technologies2 | Digital Performance Media3 | Unallocated Corporate Expenses4 | Total | ||||||||||
| (unaudited) | |||||||||||||||
| Nine Months Ended September 30, 2006 | |||||||||||||||
| Revenue | $ | 187,011 | $ | 87,216 | $ | 34,568 | $ | - | $ | 308,795 | |||||
| Â | |||||||||||||||
| Costs and expenses: | |||||||||||||||
| Cost of revenue | 4,205 | 23,333 | 18,358 | 1,006 | 46,902 | ||||||||||
| Client support | 131,427 | - | 2,806 | 7,013 | 141,246 | ||||||||||
| Product development | - | 10,004 | - | 1,707 | 11,711 | ||||||||||
| Sales and marketing | 4,370 | 10,580 | 4,473 | 1,019 | 20,442 | ||||||||||
| General and administrative | 8,438 | 6,880 | 1,658 | 12,556 | 29,532 | ||||||||||
| Amortization of intangible assets | - | - | - | 6,651 | 6,651 | ||||||||||
| Client reimbursed expenses | Â | 3,692 | Â | - | Â | - | Â | - | Â | 3,692 | |||||
| Total costs and expenses | 152,132 | 50,797 | 27,295 | 29,952 | 260,176 | ||||||||||
| Â | Â | Â | Â | Â | |||||||||||
| Income from operations | $ | 34,879 | $ | 36,419 | $ | 7,273 | $ | (29,952) | $ | 48,619 | |||||
| Â | |||||||||||||||
| Nine Months Ended September 30, 2005 | Â | Â | Â | Â | Â | ||||||||||
| Revenue | $ | 135,834 | $ | 66,637 | $ | 18,477 | $ | - | $ | 220,948 | |||||
| Â | |||||||||||||||
| Costs and expenses: | |||||||||||||||
| Cost of revenue | - | 15,752 | 11,138 | 596 | 27,486 | ||||||||||
| Client support | 98,907 | - | 1,929 | - | 100,836 | ||||||||||
| Product development | - | 6,615 | - | - | 6,615 | ||||||||||
| Sales and marketing | 3,259 | 7,368 | 1,428 | - | 12,055 | ||||||||||
| General and administrative | 10,474 | 5,978 | 969 | 8,328 | 25,749 | ||||||||||
| Amortization of intangible assets | - | - | - | 5,409 | 5,409 | ||||||||||
| Client reimbursed expenses | Â | 2,740 | Â | - | Â | - | Â | - | Â | 2,740 | |||||
| Total costs and expenses | 115,380 | 35,713 | 15,464 | 14,333 | 180,890 | ||||||||||
| Â | Â | Â | Â | Â | |||||||||||
| Income from operations | $ | 20,454 | $ | 30,924 | $ | 3,013 | $ | (14,333) | $ | 40,058 | |||||
| 1 | Digital Marketing Services includes Avenue A | Razorfish and three international agencies. | ||||||||||||||
| 2 | Digital Marketing Technologies includes Atlas. | ||||||||||||||
| 3 | Digital Media includes DRIVEpm, MediaBrokers and Franchise Gator. | ||||||||||||||
| For the three and nine months ended September 30, 2006, unallocated corporate expenses include stock-based compensation expense. This expense is not allocated to our segments, as it is centrally managed at the corporate level and not reviewed by our chief operating decision maker in evaluating results by segment. For the three and nine months ended September 30, 2005, there was no stock based compensation expense. For the three and nine months ended September 30, 2006, stock-based compensation expense was as follows: | ||||||||||||||
| Three Months Ended | Nine Months Ended | |||||
| September 30, | September 30, | |||||
| Â | 2006 | Â | 2006 | |||
| Cost of Revenue | $ | 145 | $ | 431 | ||
| Client Support | 2,254 | 7,013 | ||||
| Product Development | 300 | 1,259 | ||||
| Sales and Marketing | 268 | 1,019 | ||||
| General and Administrative | Â | 1,513 | Â | 4,383 | ||
| Total stock-based compensation expense | $ | 4,480 | $ | 14,105 | ||
