SOURCE: HouseValues

October 31, 2006 16:00 ET

HouseValues Announces Third Quarter Results

New Share Repurchase Authorization Announced

KIRKLAND, WA -- (MARKET WIRE) -- October 31, 2006 -- HouseValues, Inc. (NASDAQ: SOLD) today announced results for the quarter ended September 30, 2006.

HouseValues reported revenue of $24.0 million for the third quarter of 2006, a slight increase from the comparable quarter last year. The company reported a net loss for the quarter of $1.5 million, or $0.06 per share. This compares to net income of $4.3 million and earnings per diluted share of $0.16 in the third quarter of 2005.

Sales and marketing expenses were significantly higher than the comparable quarter of the prior year, primarily due to higher media expenses and increased sales staff to support expansion of markets served and products offered. The increase in media expense primarily reflected the company's support for new products launched in the past year and lower consumer response rates attributed to market conditions.

On a sequential quarter basis, revenue was seven percent lower in the third quarter of 2006 compared to the second quarter of 2006, reflecting declines in average revenue per real estate customer and mortgage revenue. The decline in average revenue per real estate customer reflected lower pricing in some areas where housing transaction volumes have slowed significantly, coupled with the company's successful expansion into historically under-penetrated markets that tend to be lower priced.

"While we are not satisfied with our third quarter financial results, HouseValues grew its customer base modestly and generated $1.5 million in cash from operations during the period despite challenging real estate market conditions," said Ian Morris, Chief Executive Officer of HouseValues.

Expansion in Under-Penetrated Markets Taps National Advertising Strength

HouseValues demonstrated continued progress in the third quarter toward driving higher penetration and better monetization of consumer requests in historically under-penetrated markets. The company already generates leads in many of these markets through the reach of its efficient nationwide advertising campaigns. HouseValues expects to generate a greater portion of its lead production through this highly efficient medium over time. As such, the company expects that better alignment of its customer base with the reach of its consumer advertising programs will favorably impact future lead generation costs and strengthen the company's competitive advantage in the years to come.

New Share Repurchase Authorization Announced

Reflecting its continued confidence in the company's long-term strategic direction, HouseValues' Board of Directors today announced a new authorization to purchase up to two million shares of the company's common stock. Supporting this authorization, HouseValues had $78.9 million in cash, cash equivalents and short-term investments at quarter end.

HouseValues previously announced an authorization to repurchase up to two million shares of the company's common stock on July 25th and completed all previously authorized purchases on October 27, 2006. The cost was $11.4 million, or an average price of $5.72 per share.

Mary Reeder Named Chief Technology Officer

HouseValues recently named Mary Reeder as the company's Chief Technology Officer. Prior to joining HouseValues, Mary served as CTO and Senior Vice President of R&D for ten years at Onyx Software, an innovator in web-based Customer Relationship Management (CRM) software and solutions. Prior to Onyx, she spent seven years in technology leadership positions at Microsoft Corporation.

Nikesh Parekh Named Vice President of Mortgage

HouseValues recently named Nikesh Parekh as the company's Vice President of Mortgage. Niki brings a track record of success in both the online real estate and mortgage industries. Since joining HouseValues in 2002, Niki has been responsible for a number of key initiatives, including the acquisition of Soar Solutions and the highly-successful launch of JustListed.

Conference Call

HouseValues will host a conference call and live webcast to discuss these financial results at 4:30 p.m. Eastern Time on October 31, 2006. To listen to the live conference call, please dial 913-312-1268. 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. ET on October 31, 2006, through 11:59 p.m. on November 1, 2006, by dialing 719-457-0820 and entering the passcode 5159304#.

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 grow its mortgage, HomePages and lead generation businesses, to respond to competitive threats, to manage lead generation and other costs, and to expand into new lines of business. Please refer to the company's recent filings with the Securities and Exchange Commission on Forms 10-Q and 10-K 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 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" refers to a financial measure that we define as earnings before net interest, income taxes, depreciation, amortization and stock-based compensation. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and may not be comparable to Adjusted EBITDA as reported by other companies. We believe Adjusted EBITDA 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 the operating performance of our operations. The components of Adjusted EBITDA 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 for planning purposes and in presentations to our board of directors. See below for a reconciliation of net (loss) income, the most comparable GAAP measure, to Adjusted EBITDA.

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


                                    Three months ended  Nine months ended
                                      September 30,       September 30,
                                    ------------------  -------------------
                                      2006      2005      2006      2005
                                    --------  --------- --------- ---------

Net (loss) income                   $ (1,463) $   4,331 $   2,201 $  10,969
Less
    Interest income, net                 717        491     2,011     1,295
Add
    Depreciation and amortization
     of property and equipment         1,559        506     3,689     1,262
    Amortization of intangible
     assets                              258        151     1,063       454
    Stock-based compensation             956        274     3,104       829
    Income tax expense                  (157)     2,086       157     5,282
                                    --------  --------- --------- ---------
Adjusted EBITDA                     $    436  $   6,857 $   8,203 $  17,501
                                    ========  ========= ========= =========
About HouseValues Inc.

Founded in 1999, HouseValues Inc. provides consumers and real estate professionals with the information and tools they need for success throughout the home buying and selling process. The company's flagship consumer products include HomePages.com™, a lifestyle and neighborhood-centric home buying and selling service; TheLoanPage.com, a service that provides current and prospective home owners with competitive mortgage and refinance quotes from leading lenders; HouseValues.com®, a service that provides home sellers with market valuations of their current home; and JustListed.com™, a service that alerts home buyers as soon as new homes hit the market that meet their criteria. Learn more at www.housevaluesinc.com.

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


                                    Three months ended  Nine months ended
                                      September 30,       September 30,
                                    ------------------  -------------------
                                      2006      2005      2006      2005
                                    --------  --------- --------- ---------
Revenues                            $ 23,985  $  23,337 $  76,722 $  61,533
Expenses:
    Sales and marketing (1)           17,303     11,556    49,948    30,582
    Technology and product
     development (1)                   3,389      1,823    10,421     4,958
    General and administrative (1)     3,813      3,375    11,254     9,321
    Depreciation and amortization
     of property and equipment         1,559        506     3,689     1,262
    Amortization of intangible
     assets                              258        151     1,063       454
                                    --------  --------- --------- ---------
      Total expenses                  26,322     17,411    76,375    46,577
                                    --------  --------- --------- ---------
    (Loss) Income from operations     (2,337)     5,926       347    14,956
Interest income, net                     717        491     2,011     1,295
                                    --------  --------- --------- ---------
(Loss) Income before income tax
 expense                              (1,620)     6,417     2,358    16,251
Income tax (benefit) expense            (157)     2,086       157     5,282
                                    --------  --------- --------- ---------
    Net (loss) income               $ (1,463) $   4,331 $   2,201 $  10,969
                                    ========  ========= ========= =========

Net (loss) income per share:
    Basic                           $  (0.06) $    0.17 $    0.09 $    0.43
                                    ========  ========= ========= =========
    Diluted                         $  (0.06) $    0.16 $    0.08 $    0.40
                                    ========  ========= ========= =========

Number of shares used in per share
 calculations:
    Basic                             25,404     25,574    25,713    25,291
                                    ========  ========= ========= =========
    Diluted                           25,404     27,772    27,081    27,443
                                    ========  ========= ========= =========


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

                                    --------  --------- --------- ---------
                                        2006       2005      2006      2005
                                    --------  --------- --------- ---------

    Sales and marketing             $    218  $      57 $     798 $     185
    Technology and product
     development                         176         42       578       121
    General and administrative           562        175     1,728       523
                                    --------  --------- --------- ---------
                                    $    956  $     274 $   3,104 $     829
                                    ========  ========= ========= =========


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

                                                      September  December
                                                         30,        31,
                                                        2006       2005
                                                      ---------- ---------
Assets
Current assets:
   Cash and cash equivalents                          $   50,334 $  59,234
   Short-term investments                                 28,575    25,640
   Accounts receivable, net of allowance of $177 and
    $242                                                     474       577
   Prepaid expenses and other assets                       1,541     1,700
   Deferred income taxes                                   1,567       258
   Prepaid income taxes                                    1,278       997
   Other current assets                                       96       579
                                                      ---------- ---------
   Total current assets                                   83,865    88,985
Property and equipment, net of accumulated
 depreciation of $7,376 and $3,689                        12,461    11,118
Goodwill                                                   6,815     6,227
Intangible assets, net of accumulated amortization of
 $3,066 and $2,003                                         3,799     4,853
Other noncurrent assets                                      408       408
                                                      ---------- ---------
     Total assets                                     $  107,348 $ 111,591
                                                      ========== =========

Liabilities and Shareholders’ Equity
Current liabilities:
   Accounts payable                                   $    1,308 $   1,030
   Accrued compensation and benefits                       3,574     4,236
   Accrued expenses and other current liabilities          5,087     6,529
   Deferred rent, current portion                            289       289
   Deferred revenue                                        1,554     1,694
                                                      ---------- ---------
     Total current liabilities                            11,812    13,778
Deferred income taxes                                        969       726
Deferred rent, less current portion                        1,180     1,423
Note payable                                               1,709     1,600
                                                      ---------- ---------
     Total liabilities                                    15,670    17,527
Shareholders’ equity:
   Common stock, par value $0.001 per share, stated
     at amounts paid in; authorized 120,000,000
     shares;  issued and outstanding 24,611,795 and
     25,783,980 shares at September 30, 2006 and
     December 31, 2005, respectively                     63,901    71,385
   Deferred stock-based compensation                           -    (2,897)
   Retained earnings                                      27,777    25,576
                                                      ---------- ---------
     Total shareholders’ equity                           91,678    94,064
                                                      ---------- ---------
     Total liabilities and shareholders’ equity       $  107,348 $ 111,591
                                                      ========== =========


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

                                                     Nine months ended
                                                       September 30,
                                                   ----------------------
                                                      2006        2005
                                                   ----------  ----------
 Cash flows from operating activities:
    Net income                                     $    2,201  $   10,969
    Adjustments to reconcile net income to net
     cash provided by operating activities:
        Depreciation and amortization of property
         and equipment                                  3,689       1,262
        Amortization of intangible assets               1,063         454
        Stock-based compensation                        3,104         829
        Deferred income tax benefit                    (1,066)       (412)
        Tax benefit from exercises of stock
         options                                            -       1,736
        Changes in certain assets and liabilities
            Accounts receivable                           103        (209)
            Prepaid expenses and other assets             287        (129)
            Prepaid income taxes                         (188)          -
            Other current assets                          483       1,521
            Accounts payable                              118        (197)
            Accrued compensation and benefits            (662)      1,318
            Accrued expenses and other current
             liabilities                                1,282       2,116
            Deferred rent                                (243)        107
            Deferred revenue                             (140)        441
            Income taxes payable and other                109          39
                                                   ----------  ----------
              Net cash provided by operating
               activities                              10,140      19,845
                                                   ----------  ----------
 Cash flows from investing activities:
    Purchases of short-term investments                (5,000)    (12,799)
    Sales of short-term investments                     2,065       4,300
    Purchases of property and equipment                (7,235)     (4,984)
    Additions to goodwill and intangible assets        (1,335)     (1,155)
                                                   ----------  ----------
              Net cash used in investing
               activities                             (11,505)    (14,638)
                                                   ----------  ----------
 Cash flows from financing activities:
    Purchase and retirement of common stock            (9,107)          -
    Proceeds from exercises of stock options and
     warrants                                           1,070         848
    Tax benefit from exercises of stock options           502           -
    Proceeds from sale of common stock, net of
     issuance costs paid                                    -        (614)
                                                   ----------  ----------
              Net cash (used in) provided by
               financing activities                    (7,535)        234
                                                   ----------  ----------
              Net (decrease) increase in cash and
               cash equivalents                        (8,900)      5,441
 Cash and cash equivalents at beginning of period      59,234      57,562
                                                   ----------  ----------
 Cash and cash equivalents at end of period        $   50,334  $   63,003
                                                   ==========  ==========
SOLD: FINANCIAL

Contact Information

  • For Additional Information:

    Investors Only:
    Mark Lamb
    Director of Investor Relations
    HouseValues, Inc.
    425-952-5801
    markl@housevalues.com

    Press Only:
    Hugh Siler
    Siler & Company for HouseValues, Inc.
    949-646-6966
    hugh@silerpr.com