SOURCE: HouseValues, Inc.

July 31, 2008 16:00 ET

HouseValues Announces Second Quarter Results

KIRKLAND, WA--(Marketwire - July 31, 2008) - HouseValues, Inc. (NASDAQ: SOLD) today announced results for the quarter ended June 30, 2008.

Comparisons of Quarterly Results

--  Revenue was $10.1 million in the second quarter compared to $11.2
    million in the first quarter of 2008.  The decline in sequential quarter
    revenue primarily reflected fewer customers in the company's agent direct
    business.
    
--  Net loss was $1.3 million in the second quarter compared to a net loss
    of $1.2 million in the first quarter.
    
--  Adjusted EBITDA was $0.9 million in the second quarter compared to an
    Adjusted EBITDA loss of $0.1 million in the first quarter. The first
    quarter result included $0.6 million in cash severance expense.
    
--  Cash position remained strong at $62.7 million as the company
    generated $0.9 million in cash flow from operations for the quarter.
    

"In a quarter that saw existing home sales reach their lowest level in a decade, HouseValues improved its Adjusted EBITDA performance as a result of strong sales productivity, disciplined expense control, and the highest customer retention rate we have seen in more than eighteen months," said CEO Ian Morris. "Our team is doing an excellent job of delivering value to our customers in an environment where our services are more important to their business than ever," Morris added.

Enhancements to Agent Direct Business

The fourth quarter acquisition of Realty Generator expanded HouseValues' addressable market through a product expressly designed for real estate brokerages and agent teams. Realty Generator's solution efficiently attracts consumer interest, effectively converts that interest into leads and cultivates contacts into closed transactions. While HouseValues grows its Realty Generator broker services business, the company also plans to leverage the acquired technology to enhance its agent direct business.

With the launch of a next generation agent direct product anticipated for later this year, HouseValues will offer its agent customers a more powerful combination of lead generation and contact management. The new product will include key features built to provide real time insight into consumer behavior and intelligence that alerts agents when their prospects are most likely to become ready to transact. It is designed to help agents be more productive while delivering an enhanced online experience to home buyers and sellers.

Cash Position and Share Repurchase Update

The company believes that its strong cash position is a strategic asset. Liquidity and safety of principal continue to be core to the company's investment policy. The company is currently invested in cash equivalents consisting of money market funds that invest in high quality, short-term U.S. Government obligations and repurchase agreements collateralized by U.S. Government Obligations. Cash and cash equivalents were $62.7 million on June 30, 2008.

Year-to-date HouseValues has re-purchased and retired 397,175 shares at an average cost of $2.51 per share, and may purchase up to approximately 1.4 million additional shares under the current share repurchase authorization.

Conference Call

HouseValues will host a conference call and live Webcast to discuss first quarter financial results today 4:30 p.m. Eastern time. To listen to the live conference call, please dial 719-325-4847. A live webcast of the call will be available from the Investor Relations section of the company's Web site at http://www.housevaluesinc.com. An audio replay of the call will also be available to investors beginning at 7:30 p.m. Eastern time through midnight Friday, August 1 by dialing 719-457-0820 and entering the passcode 4806409#.

Forward-Looking Statements

This release contains forward-looking statements relating to the company's anticipated plans, products, services, and financial performance. The words "believe," "expect," "anticipate," "intend" and similar expressions identify forward-looking statements, but their absence does not mean the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect the company's actual results include its ability to retain and increase its customer base, to respond to competitive threats and real estate market conditions, to manage lead generation and other costs, to develop new products and to expand into new lines of business. Please refer to the company's 2007 Form 10-K filed with the Securities and Exchange Commission for a more detailed description of these and other risks that could materially affect actual results. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements are made as of today's date and the company assumes no obligation to update any such statements to reflect events or circumstances after the date hereof.

Non-GAAP Measures

Adjusted EBITDA from continuing operations is a non-GAAP financial measure provided as a complement to results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The term "Adjusted EBITDA from continuing operations" refers to a financial measure that we define as earnings or loss before results of discontinued operations, net interest, gain on sale of fixed assets, income taxes, depreciation, amortization, impairment of long-lived assets, equity in loss of investee and stock-based compensation. Gain on sale of fixed assets is a new element in our Adjusted EBITDA from continuing operations calculation in the first quarter, effective with the sale of our purchase option for our Yakima, WA facility and its remaining assets. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and may not be comparable to Adjusted EBITDA from continuing operations as reported by other companies. We believe Adjusted EBITDA from continuing operations to be relevant and useful information to our investors as this measure is an integral part of our internal management reporting and planning process and is the primary measure used by our management to evaluate operating performance. The components of Adjusted EBITDA from continuing operations include the key revenue and expense items for which our operating managers are responsible and upon which we evaluate their performance, and we also use Adjusted EBITDA from continuing operations for planning purposes and in presentations to our board of directors. See below for a reconciliation of net loss, the most comparable GAAP measure, to Adjusted EBITDA from continuing operations.

                            HouseValues, Inc.
              NON-GAAP FINANCIAL MEASURE AND RECONCILIATION
                              (In thousands)
                               (unaudited)


                                                   Three months ended
                                              ----------------------------
                                              June 30,  March 31, June 30,
                                                2008      2008      2007
                                              --------  --------  --------

Net loss                                      $ (1,271) $ (1,192) $   (119)
Adjustments
   Interest income, net                           (289)     (519)     (751)
   Gain on sale of fixed assets                      -      (791)        -
   Equity in loss of unconsolidated
    subsidiary                                     185       151         -
   Income from operations of discontinued
    mortgage segment                                 -         -      (119)
   Depreciation and amortization of property
    and equipment from continuing operations     1,015       959     1,245

   Amortization of intangible assets for
    continuing operations                          492       492        16
   Stock-based compensation from continuing
    operations                                     745       823       724
   Income tax expense (benefit)                     34         2       (51)
                                              --------  --------  --------
Adjusted EBITDA from continuing operations    $    911  $    (75) $    945
                                              ========  ========  ========

About HouseValues Inc.

Founded in 1999, HouseValues, Inc. (NASDAQ: SOLD) provides real estate professionals with the tools and services they need to manage and grow their real estate businesses. The company's subscription software products include Realty Generator, a turnkey lead generation and lead management system for real estate brokerage companies; and MarketLeader, a customer relationship management and lead management solution for real estate agents. The company also provides real estate professionals with access to industry-leading media buying and lead generation services to help them attract new clients and promote themselves throughout their community.

Additionally, HouseValues provides consumers with free access to the information and tools they need throughout the home buying and selling process. The company's consumer websites include: JustListed.com a service that notifies home buyers as soon as new homes hit the market; HouseValues.com, a service that provides home sellers with market valuations of their current home; and HomePages.com, a real estate portal that enables consumers to see all the home listings in their area, view detailed neighborhood and school data, compare recent home sales, find local real estate agents, and find the value of their own home.

Real estate professionals can learn more about the company's services at www.realtygenerator.com and www.marketleader.com. For more information please visit www.housevaluesinc.com.

SOLD: FINANCIAL

                            HouseValues, Inc.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share data)
                                (unaudited)


                                    Three months ended   Six months ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------

Revenues                            $ 10,131  $ 15,984  $ 21,327  $ 33,822
Expenses:
   Sales and marketing (1)             6,242    10,241    13,672    22,628
   Technology and product
    development (1)                    1,491     2,507     3,449     5,297
   General and administrative (1)      2,232     3,015     4,938     6,567
   Gain on sale of fixed assets            -         -      (791)        -
   Depreciation and amortization of
    property and equipment             1,015     1,245     1,974     3,400
   Amortization of intangible
    assets                               492        16       984       411
                                    --------  --------  --------  --------
      Total expenses                  11,472    17,024    24,226    38,303
                                    --------  --------  --------  --------
   Loss from operations               (1,341)   (1,040)   (2,899)   (4,481)
Equity in loss of unconsolidated
 subsidiary                             (185)        -      (336)        -
Interest income, net                     289       751       808     1,337
                                    --------  --------  --------  --------
Loss before income tax expense        (1,237)     (289)   (2,427)   (3,144)
Income tax expense (benefit)              34       (51)       36    (1,326)
                                    --------  --------  --------  --------
   Net loss from continuing
    operations                        (1,271)     (238)   (2,463)   (1,818)
Discontinued operations
   Income from operations of
    discontinued mortgage segment          -       183         -       127
   Income tax expense                      -        64         -        44
                                    --------  --------  --------  --------
      Income from discontinued
       operations                          -       119         -        83
                                    --------  --------  --------  --------
         Net loss                   $ (1,271) $   (119) $ (2,463) $ (1,735)
                                    ========  ========  ========  ========

Net loss per share:
Basic:
   Continuing operations            $  (0.05) $  (0.01) $  (0.10) $  (0.07)
   Discontinued operations          $      -  $      -  $      -  $      -
                                    --------  --------  --------  --------
   Total                            $  (0.05) $      -  $  (0.10) $  (0.07)
                                    ========  ========  ========  ========

Diluted:
   Continuing operations            $  (0.05) $  (0.01) $  (0.10) $  (0.07)
   Discontinued operations          $      -  $      -  $      -  $      -
                                    --------  --------  --------  --------
   Total                            $  (0.05) $      -  $  (0.10) $  (0.07)
                                    ========  ========  ========  ========

Number of shares used in per share
 calculations:
   Basic                              24,235    24,607    24,379    24,518
                                    ========  ========  ========  ========
   Diluted                            24,235    24,607    24,379    24,518
                                    ========  ========  ========  ========

(1) Stock-based compensation is
 included in the expense line items
 above in the following amounts:

                                    --------  --------  --------  --------
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------

   Sales and marketing              $    225  $    122  $    378  $    352
   Technology and product
    development                            8       147        78       262
   General and administrative            512       455     1,112     1,344
   Discontinued operations                 -         -         -        19
                                    --------  --------  --------  --------
                                    $    745  $    724  $  1,568  $  1,977
                                    ========  ========  ========  ========




                            HouseValues, Inc.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share data)
                                (unaudited)

                                                    June 30,   December 31,
                                                      2008         2007
                                                  ------------ ------------
Assets
Current assets:
   Cash and cash equivalents                      $     62,652 $     35,450
   Short-term investments                                    -       27,400
   Accounts receivable, net of allowance of $61
    and $50                                                 92          128
   Prepaid expenses and other assets                     1,894        1,764
   Prepaid income taxes                                    941          905
                                                  ------------ ------------
   Total current assets                                 65,579       65,647
Property and equipment, net of accumulated
 depreciation of $11,875 and $11,518                     4,833        6,187
Goodwill                                                 4,244        3,833
Intangible assets, net of accumulated
 amortization of $3,560 and $2,576                       5,346        6,330
Minority investment in unconsolidated subsidiary         2,252        2,588
Other noncurrent assets                                      -          398
                                                  ------------ ------------
      Total assets                                $     82,254 $     84,983
                                                  ============ ============

Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                               $        974 $      1,395
   Accrued compensation and benefits                     1,927        2,084
   Accrued expenses and other current liabilities        1,326        1,809
   Deferred rent, current portion                          289          289
   Deferred revenue                                        418          373
   Note payable                                          1,938        1,873
                                                  ------------ ------------
      Total current liabilities                          6,872        7,823
Deferred rent, less current portion                        501          722
Noncurrent deferred tax liabilities                         59            -
                                                  ------------ ------------
      Total liabilities                                  7,432        8,545
Shareholders' equity:
   Preferred stock, par value $0.001 per share,
    stated at amounts paid in; authorized
    30,000,000 shares;  none issued and
    outstanding                                              -            -
   Common stock, par value $0.001 per share,
    stated at amounts paid in; authorized
    120,000,000 shares;  issued and outstanding
    24,271,164 and 24,521,139 shares at
    June 30, 2008 and December 31, 2007,
    respectively                                        67,222       66,375
   Retained earnings                                     7,600       10,063
                                                  ------------ ------------
      Total shareholders' equity                        74,822       76,438
                                                  ------------ ------------
      Total liabilities and shareholders' equity  $     82,254 $     84,983
                                                  ============ ============





                            HouseValues, Inc.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (unaudited)

                                                         Six months ended
                                                             June 30,
                                                        ------------------
                                                          2008      2007
                                                        --------  --------
  Cash flows from operating activities:
     Net Loss                                           $ (2,463) $ (1,735)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
        Depreciation and amortization of property and
         equipment                                         1,974     3,400
        Amortization of intangible assets                    984       411
        Stock-based compensation                           1,568     1,977
        Tax benefit deficiency from exercises of stock
         options                                               -       (48)
        Deferred income tax benefit                           59      (461)
        Gain on sale of fixed assets                        (791)        -
        Equity in loss of unconsolidated subsidiary          336         -
        Changes in certain assets and liabilities
           Accounts receivable                                36       379
           Prepaid expenses and other current assets         (45)   (1,278)
           Prepaid income taxes                              (36)      817
           Other noncurrent assets                           398       (88)
           Accounts payable                                 (505)   (1,981)
           Accrued compensation and benefits                (157)     (969)
           Accrued expenses and other current
            liabilities                                     (447)   (2,397)
           Deferred rent                                    (221)     (186)
           Deferred revenue                                   45      (531)
                                                        --------  --------
              Net cash provided by (used in) operating
               activities                                    735    (2,690)
                                                        --------  --------
  Cash flows from investing activities:
     Purchases of short-term investments                       -   (16,645)
     Sales of short-term investments                      27,400     9,910
     Purchases of property and equipment                    (970)   (1,688)
     Proceeds from sale of fixed assets                    1,209         -
     Acquisition of Realty Generator                        (382)        -
                                                        --------  --------
              Net cash provided by (used in) investing
               activities                                 27,257    (8,423)
                                                        --------  --------
  Cash flows from financing activities:
     Purchase and retirement of common stock                (997)        -
     Proceeds from exercises of stock options and
      warrants                                               207       510
     Tax benefit from exercises of stock options               -        48
                                                        --------  --------
              Net cash (used in) provided by financing
               activities                                   (790)      558
                                                        --------  --------
              Net increase (decrease) in cash and cash
               equivalents                                27,202   (10,555)
  Cash and cash equivalents at beginning of period        35,450    49,376
                                                        --------  --------
  Cash and cash equivalents at end of period            $ 62,652  $ 38,821
                                                        ========  ========


Contact Information

  • Investor Contact:
    Mark Lamb
    Director of Investor Relations
    HouseValues, Inc.
    425.952.5801
    markl@housevalues.com

    Press Contact:
    Hugh Siler
    Siler & Company for HouseValues, Inc.
    949.646.6966
    hugh@silerpr.com