SOURCE: HouseValues

February 22, 2007 16:00 ET

HouseValues Announces Fourth Quarter Results

KIRKLAND, WA -- (MARKET WIRE) -- February 22, 2007 -- HouseValues, Inc. (NASDAQ: SOLD) today announced results for the year and quarter ended December 31, 2006.

HouseValues' 2006 revenue of $98.2 million was 13 percent higher than 2005, driven by higher sales of real estate and mortgage products. The company reported a net loss of $3.1 million, or $0.12 loss per diluted share in 2006, which compares to net income of $15.0 million, or earnings per diluted share of $0.54 in 2005. Adjusted EBITDA was $7.7 million in 2006 compared to $24.1 million in 2005. Cash flow from operations was $11.2 million in 2006 compared to $24.0 million in 2005.

"While we achieved top line growth in 2006 despite challenging market conditions, we are disappointed in our results for the second half of the year and have taken aggressive action to align our cost structure and strengthen our focus on our real estate customers," said HouseValues' CEO Ian Morris. On January 24, 2007 the company announced that it has exited the mortgage lead generation business and is scaling back or eliminating initiatives that are not critical to its real estate agent customers.

HouseValues' fourth quarter 2006 revenue of $21.5 million was 15 percent lower than the comparable quarter of the prior year. The company reported a net loss of $5.3 million, or $0.22 loss per diluted share, which compares to net income of $4.0 million, or $0.15 earnings per diluted share in the comparable quarter of the prior year. Net loss for the fourth quarter of 2006 included an impairment charge of $4.0 million after-tax related to intangible assets no longer used in the mortgage business, and net income for the fourth quarter of 2005 was increased by $1.2 million after-tax as a result of the favorable settlement of a state tax audit. Adjusted EBITDA was a negative $0.5 million in the fourth quarter of 2006 compared to a positive $6.6 million in the comparable quarter of the prior year. Adjusted EBITDA for the fourth quarter of 2005 was increased by $1.8 million as a result of the state tax audit.

Revenue declined from the third to fourth quarter of 2006, reflecting fewer real estate customers, lower average revenue per real estate customer and a decline in revenue from the mortgage business that the company has subsequently exited. Real estate customers declined due to higher non-renewal rates and slower acquisition of new customers. Company studies of non-renewing customers suggest financial pressure is driving an increasing number of agents to reduce their marketing costs or leave the business altogether.

"While challenging market conditions are clearly affecting many real estate agents, we are pleased to have more long term successful customers today than at any point in our 7 year history," said Morris, referring to the increase in customers with two or more years of tenure with the company's system. "We are dedicating our energies to targeting, acquiring, and providing excellent service to the types of customers who have seen great success with, and are building their business around the HouseValues business system."

Company Strengthens Real Estate Focus, Exits Mortgage Business

HouseValues recently completed a proprietary study of its customers and the national real estate agent population. The study identified a core population of agents that is particularly well-suited to the company's value proposition and whose current business performance is strong.

Further analysis demonstrated that the customers associated with this group have a greater propensity to be evangelists for the company's products, are more profitable to serve, and have significantly higher projected lifetime value. In 2007 HouseValues is focusing its energy on attracting and retaining these real estate professionals, tailoring its services to best meet their needs, and focusing the company's resources to enhance profitability.

To help drive these goals, the company recently announced two key executive changes. Peter Quinn has joined as Vice President of Customer Operations, and Barry Allen was recruited to serve as Chief Financial Officer and Executive Vice President of Operations.

Allen was CFO for Move.com, Cendant Corporation's online real estate business, from 1999 to 2001, where he was focused on building the Move.com business, scaling its operations, and unlocking shareholder value. In addition to his real estate industry experience, Allen brings more than twenty years of executive leadership experience at software and technology companies where he played strategic roles in driving growth, operational enhancements, and shareholder value.

With its exit of the mortgage business, HouseValues has focused all of its resources on serving the nation's real estate professionals. Independent research suggests that online real estate is an attractive target. During the next four years, Borrell Associates expects real estate spending on online media will surpass $3 billion. In 2010, Borrell expects online real estate spending to be greater than any other media, including newspapers, television, direct mail and other print media.

Conference Call

HouseValues will host a conference call and live webcast to discuss these financial results at 4:30 p.m. Eastern Time on February 22, 2007. To listen to the live conference call, please dial 913-981-5558. 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 Thursday, February 22, 2007 through 11:59 p.m. on Friday, February 23, 2007, by dialing 719-457-0820 and entering the passcode 4168400#.

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, 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, stock-based compensation, and impairment charges -- which is a newly-added component. 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    Twelve months ended
                                   December 31,           December 31,
                               --------------------   --------------------
                                 2006       2005        2006       2005
                               ---------  ----------  ---------  ----------

Net (loss) income              $  (5,339) $    4,014  $  (3,138) $   14,983
Less
    Interest income, net             642         579      2,653       1,874
Add
    Impairment of goodwill and
     intangible assets             6,186           -      6,186           -
    Depreciation and
     amortization of property
     and equipment                 1,488         629      5,177       1,891
    Amortization of intangible
     assets                          196         322      1,259         776
    Stock-based compensation       1,008         273      4,112       1,101
    Income tax (benefit)
     expense                      (3,389)      1,965     (3,232)      7,247
                               ---------  ----------  ---------  ----------
Adjusted EBITDA                $    (492) $    6,624  $   7,711  $   24,124
                               =========  ==========  =========  ==========
About HouseValues, Inc.

Founded in 1999, HouseValues, Inc. (NASDAQ: SOLD) is a leader in providing comprehensive and proven marketing and business solutions to the nation's most successful real estate agents. The company operates a network of real estate Web sites -- which combined with award-winning customer CRM tools, personalized training and coaching, and robust networking and community products -- provides real estate agents with everything they need to profitably grow their business. Learn more at www.housevaluesinc.com.




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


                             Three months ended       Twelve months ended
                                December 31,             December 31,
                           ----------------------   ----------------------
                              2006        2005         2006        2005
                           ----------  -----------  ----------  -----------

Revenues                   $   21,521  $    25,177  $   98,243  $    86,710
Expenses:
  Sales and marketing (1)      15,516       13,669      65,464       44,251
  Technology and product
   development (1)              3,833        2,692      14,254        7,650
  General and
   administrative (1)           3,672        2,465      14,926       11,786
  Impairment of goodwill
   and intangible assets        6,186            -       6,186            -
  Depreciation and
   amortization of property
   and equipment                1,488          629       5,177        1,891
  Amortization of
   intangible assets              196          322       1,259          776
                           ----------  -----------  ----------  -----------
      Total expenses           30,891       19,777     107,266       66,354
                           ----------  -----------  ----------  -----------
  (Loss) Income from
   operations                  (9,370)       5,400      (9,023)      20,356
Interest income, net              642          579       2,653        1,874
                           ----------  -----------  ----------  -----------
(Loss) Income before
 income tax expense            (8,728)       5,979      (6,370)      22,230
Income tax (benefit)
 expense                       (3,389)       1,965      (3,232)       7,247
                           ----------  -----------  ----------  -----------
  Net (loss) income        $   (5,339) $     4,014  $   (3,138) $    14,983
                           ==========  ===========  ==========  ===========

Net (loss) income per share:
  Basic                    $    (0.22) $      0.16  $    (0.12) $      0.59
                           ==========  ===========  ==========  ===========
  Diluted                  $    (0.22) $      0.15  $    (0.12) $      0.54
                           ==========  ===========  ==========  ===========

Number of shares used in
 per share calculations:
  Basic                        24,367       25,731      25,374       25,412
                           ==========  ===========  ==========  ===========
  Diluted                      24,367       27,676      25,374       27,539
                           ==========  ===========  ==========  ===========


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

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

  Sales and marketing      $      225  $        58  $    1,023  $       243
  Technology and product
   development                    202           42         780          163
  General and
   administrative                 581          173       2,309          695
                           ----------  -----------  ----------  -----------
                           $    1,008  $       273  $    4,112  $     1,101
                           ==========  ===========  ==========  ===========



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

                                            December 31,     December 31,
                                                2006             2005
                                            --------------   -------------
Assets
Current assets:
   Cash and cash equivalents                $       49,376   $      59,234
   Short-term investments                           28,400          25,640
   Accounts receivable, net of allowance of
    $161 and $242                                      416             577
   Prepaid expenses and other assets                 1,747           2,279
   Deferred income taxes                             1,643             258
   Prepaid income taxes                              2,254             997
                                            --------------   -------------
   Total current assets                             83,836          88,985
Property and equipment, net of accumulated
 depreciation of $8,803 and $3,689                  11,469          11,118
Goodwill                                             3,605           6,227
Intangible assets, net of accumulated
 amortization of $2,439 and $2,003                     626           4,853
Other noncurrent assets                              1,826             408
                                            --------------   -------------
     Total assets                           $      101,362   $     111,591
                                            ==============   =============

Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                         $        3,201   $       1,030
   Accrued compensation and benefits                 3,185           4,236
   Accrued expenses and other current
    liabilities                                      5,057           6,529
   Deferred rent, current portion                      289             289
   Deferred revenue                                  1,141           1,694
                                            --------------   -------------
     Total current liabilities                      12,873          13,778
Deferred income taxes                                    -             726
Deferred rent, less current portion                  1,094           1,423
Note payable                                         1,742           1,600
                                            --------------   -------------
     Total liabilities                              15,709          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 24,410,843 and
    25,783,980 shares at December 31, 2006,
    and December 31, 2005, respectively             63,215          71,385
   Deferred stock-based compensation                     -          (2,897)
   Retained earnings                                22,438          25,576
                                            --------------   -------------
     Total shareholders' equity                     85,653          94,064
                                            --------------   -------------
     Total liabilities and shareholders'
      equity                                $      101,362   $     111,591
                                            ==============   =============



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


                                                    Twelve months ended
                                                       December 31,
                                                --------------------------
                                                    2006           2005
                                                -----------    -----------
 Cash flows from operating activities:
    Net (loss) income                           $    (3,138)   $    14,983
    Adjustments to reconcile net income to net
     cash provided by operating activities:
        Depreciation and amortization of
         property and equipment                       5,177          1,891
        Amortization of intangible assets             1,259            776
        Stock-based compensation                      4,112          1,101
        Deferred income tax benefit                  (3,529)           610
        Impairment of goodwill and intangible
         assets                                       6,186              -
        Tax benefit from exercises of stock
         options                                          -          2,293
        Changes in certain assets and
         liabilities
            Accounts receivable                         161           (112)
            Prepaid expenses and other assets           755           (275)
            Prepaid income taxes                     (1,164)          (976)
            Other current assets                        200          1,356
            Accounts payable                          1,417           (394)
            Accrued compensation and benefits        (1,051)         1,736
            Accrued expenses and other current
             liabilities                              1,519            275
            Deferred rent                              (329)           145
            Deferred revenue                           (553)           668
            Income taxes payable and other              142            (93)
                                                -----------    -----------
              Net cash provided by operating
               activities                            11,164         23,984
                                                -----------    -----------
 Cash flows from investing activities:
    Purchases of short-term investments              (5,000)       (12,799)
    Sales of short-term investments                   2,240          4,475
    Purchases of property and equipment              (7,742)        (7,503)
    Additions to intangible assets                      (48)          (361)
    Acquisition of SOAR Solutions, Inc., net of
     cash acquired                                   (1,287)        (1,370)
    Acquisition of The Loan Page, net of cash
     acquired                                             -         (5,223)
    Change in restricted cash and other
     noncurrent assets                                  330              -
                                                -----------    -----------
              Net cash used in investing
               activities                           (11,507)       (22,781)
                                                -----------    -----------
 Cash flows from financing activities:
    Purchase and retirement of common stock         (11,441)             -
    Proceeds from exercises of stock options
     and warrants                                     1,376          1,087
    Tax benefit from exercises of stock options         550              -
    Proceeds from sale of common stock, net of
     issuance costs paid                                  -           (618)
                                                -----------    -----------
              Net cash (used in) provided by
               financing activities                  (9,515)           469
                                                -----------    -----------
              Net (decrease) increase in cash
               and cash equivalents                  (9,858)         1,672
 Cash and cash equivalents at beginning of
  period                                             59,234         57,562
                                                -----------    -----------
 Cash and cash equivalents at end of period     $    49,376    $    59,234
                                                ===========    ===========

Contact Information

  • SOLD: FINANCIAL

    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