SOURCE: HouseValues

November 05, 2007 16:02 ET

HouseValues Announces Third Quarter Results

KIRKLAND, WA--(Marketwire - November 5, 2007) - HouseValues, Inc. (NASDAQ: SOLD) today announced results for the quarter ended September 30, 2007 that demonstrate the benefits of the cost reduction measures that the company announced on July 31.

"In a quarter that saw existing home sales hit their lowest level since 1999, HouseValues again demonstrated both its commitment and ability to manage the business to the environment," said HouseValues CEO Ian Morris. "The down real estate market is creating attractive opportunities to enhance our leadership position by making strategic investments in our customers, our products and our future."

Prior period results have been restated to reflect continuing operations consistent with the company's decision announced earlier this year to discontinue its mortgage lead business. Results from continuing operations are as follows:

--  Revenue was $13.8 million for the third quarter of 2007, compared to
    $21.1 million for the third quarter of 2006.
    
--  Total expenses decreased to $16.4 million from $22.0 million in the third
    quarter of 2006.
    
--  Net loss was $0.9 million compared to a net loss of $0.5 million in the
    third quarter of 2006.
    
--  Adjusted EBITDA was $0.5 million compared to $1.6 million in the third
    quarter of 2006.
    
--  Loss per diluted share was $0.04, compared to loss per diluted share of
    $0.02 in the third quarter of 2006.
    

Total expenses and Adjusted EBITDA for the third quarter include $0.4 million in severance and $0.1 million to reimburse a government grant. Total expenses and net loss for the third quarter include a $1.2 million impairment charge related to the closure of the Yakima facility. Cost reduction measures effective on July 31, 2007 are expected to provide approximately $9 million in annualized savings on operating expense structure, while retaining the company's ongoing investments in products, customers and the ability to target its most profitable markets.

On a sequential quarter basis results from continuing operations are as follows:

--  Revenue was $13.8 million in the third quarter of 2007 compared to $16.0
    million in the second quarter of 2007.
    
--  Total expenses of $16.4 million in the third quarter compared to $17.1
    million in the second quarter.
    
--  Adjusted EBITDA of $0.5 million in the third quarter compared to $0.9
    million in the second quarter which included a $0.4 million one-time
    benefit.
    

Revenue declined due to fewer customers and lower average revenue per customer. The company believes that agents reduced their investments in marketing as transaction volumes continued to slow in many major markets.

Customers with two or more years of tenure on the HouseValues system once again increased in the third quarter.

Share Purchase Update

During the third quarter HouseValues acquired 250,000 shares of its common stock, reflecting management's continued confidence in the company's long-term prospects. Up to an additional 1.75 million shares may be acquired under the company's current share purchase program.

HouseValues ended the third quarter with $74 million in cash, cash equivalents and short-term investments. The company considers its strong balance sheet to be a strategic asset that it intends to deploy opportunistically to enhance shareholder value.

Acquisition Broadens Market Opportunity and Customer Base

Separately, HouseValues today announced the acquisition of Realty Generator LLC, a leading provider of marketing and technology solutions to real estate brokerage companies. Realty Generator enables brokerage companies to dramatically increase both their revenue and their bottom line while providing them with a comprehensive internet marketing system for cultivating their leads and managing their real estate business. HouseValues expects the acquisition of Realtor Generator to be accretive to 2008 Adjusted EBITDA.

Conference Call

HouseValues will host a conference call and live Webcast to discuss these financial results at 4:30 p.m. Eastern time. To listen to the live conference call, please dial 913-312-0391. 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 November 5 through 11:59 p.m. on November 12 by dialing 719-457-0820 and entering the passcode 9408093#.

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, and to expand into new lines of business. Please refer to the company's 2006 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" refers to a financial measure that we define as earnings before impairment of long-lived assets, results of discontinued operations, 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 from continuing operations.

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


                                               Three months ended
                                     -------------------------------------
                                     September 30,  June 30,  September 30,
                                         2007         2007        2006
                                     -----------  -----------  -----------

Net (loss) income                          $(875)       $(167)     $(1,463)
Less
    Interest income, net                    (883)        (751)        (717)
Add
    Loss on impairment of long-lived
     assets                                1,200            -            -
    (Gain) loss on discontinued
     operations                              (74)        (119)         942
    Depreciation and amortization of
     property and equipment
     from continuing operations            1,280        1,354        1,559
    Amortization of intangible
     assets from continuing operations        16           16           68
    Stock-based compensation from
     continuing operations                   646          724          900
    Income tax benefit from
     continuing operations                  (800)        (112)         351
                                     -----------  -----------  -----------
Adjusted EBITDA from continuing
 operations                          $       510  $       945  $     1,640
                                     -----------  -----------  -----------

About HouseValues, Inc.

Founded in 1999, HouseValues, Inc. (NASDAQ: SOLD) 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; 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,
                                    ------------------  ------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------

Revenues                            $ 13,797  $ 21,091  $ 47,619  $ 66,676
Expenses:
    Sales and marketing (1)            8,946    14,463    31,574    42,013
    Technology and product
     development (1)                   2,123     2,700     7,420     8,064
    General and administrative (1)     2,864     3,188     9,431     9,241
    Impairment of long-lived assets    1,200         -     1,200         -
    Depreciation and amortization
     of property and equipment         1,280     1,559     4,047     3,689
    Amortization of intangible
     assets                               16        68       427       494
                                    --------  --------  --------  --------
      Total expenses                  16,429    21,978    54,099    63,501
                                    --------  --------  --------  --------
    (Loss) income from operations     (2,632)     (887)   (6,480)    3,175
Interest income, net                     883       717     2,220     2,011
                                    --------  --------  --------  --------
(Loss) income before income tax
 expense                              (1,749)     (170)   (4,260)    5,186
Income tax (benefit) expense            (800)      351    (1,857)    1,148
                                    --------  --------  --------  --------
    Net (loss) income from
     continuing operations              (949)     (521)   (2,403)    4,038
Discontinued operations
    Gain (loss) from operations of
     discontinued segment                113    (1,450)      240    (2,828)
    Income tax expense (benefit)          39      (508)       83      (991)
                                    --------  --------  --------  --------
      Gain (loss) on discontinued
       operations                         74      (942)      157    (1,837)
                                    --------  --------  --------  --------
        Net (loss) income           $   (875) $ (1,463) $ (2,246) $  2,201
                                    ========  ========  ========  ========

Net (loss) income per share:
Basic:
    Continuing operations           $  (0.04) $  (0.02) $  (0.10) $   0.16
    Discontinued operations         $      -  $  (0.04) $   0.01  $  (0.07)
                                    --------  --------  --------  --------
    Total                           $  (0.04) $  (0.06) $  (0.09) $   0.09
                                    ========  ========  ========  ========

Diluted:
    Continuing operations           $  (0.04) $  (0.02) $  (0.10) $   0.15
    Discontinued operations         $      -  $  (0.04) $   0.01  $  (0.07)
                                    --------  --------  --------  --------
    Total                           $  (0.04) $  (0.06) $  (0.09) $   0.08
                                    ========  ========  ========  ========

Number of shares used in per share
 calculations for continuing operations:
    Basic                             24,542    25,404    24,528    25,713
                                    ========  ========  ========  ========
    Diluted                           24,542    25,404    24,528    27,081
                                    ========  ========  ========  ========

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

                                    --------  --------  --------  --------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------

    Sales and marketing             $    150  $    192  $    502  $    693
    Technology and product
     development                          49       155       311       503
    General and administrative           447       553     1,791     1,683
    Discontinued operations                -        56        19       225
                                    --------  --------  --------  --------
                                    $    646  $    956  $  2,623  $  3,104
                                    ========  ========  ========  ========






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

                                                September 30, December 31,
                                                    2007          2006
                                                ------------- -------------
Assets
Current assets:
   Cash and cash equivalents                    $      34,184 $      49,376
   Short-term investments                              40,260        28,400
   Accounts receivable, net of allowance of $40
    and $161                                               41           416
   Prepaid expenses and other assets                    1,782         1,747
   Deferred income taxes                                1,957         1,643
   Prepaid income taxes                                   980         2,254
                                                ------------- -------------
   Total current assets                                79,204        83,836
Property and equipment, net of accumulated
 depreciation of $12,642 and $8,803                     8,538        11,469
Goodwill                                                3,605         3,605
Intangible assets, net of accumulated
 amortization of $2,243 and $2,439                        201           626
Deferred income taxes and other noncurrent
 assets                                                 2,649         1,826
                                                ------------- -------------
     Total assets                               $      94,197 $     101,362
                                                ============= =============

Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                             $         971 $       3,201
   Accrued compensation and benefits                    1,878         3,185
   Accrued expenses and other current
    liabilities                                         2,526         5,057
   Deferred rent, current portion                         289           289
   Deferred revenue                                       434         1,141
                                                ------------- -------------
     Total current liabilities                          6,098        12,873
Deferred rent, less current portion                       815         1,094
Note payable                                            1,840         1,742
                                                ------------- -------------
     Total liabilities                                  8,753        15,709
Shareholders' equity:
   Common stock, par value $0.001 per share,
    stated at amounts paid in; authorized
    120,000,000 shares; issued and outstanding
    24,449,938 and 24,410,843 shares at
    September 30, 2007 and December 31, 2006,
    respectively                                       65,252        63,215
   Retained earnings                                   20,192        22,438
                                                ------------- -------------
     Total shareholders' equity                        85,444        85,653
                                                ------------- -------------
     Total liabilities and shareholders' equity $      94,197 $     101,362
                                                ============= =============





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

                                                        Nine months ended
                                                          September 30,
                                                        ------------------
                                                          2007      2006
                                                        --------  --------
 Cash flows from operating activities:
    Net (loss) income                                   $ (2,246) $  2,201
    Adjustments to reconcile net (loss) income to net
     cash (used in) provided by operating activities:
        Depreciation and amortization of property and
         equipment                                         4,047     3,689
        Amortization of intangible assets                    427     1,063
        Stock-based compensation                           2,623     3,104
        Excess tax benefit from exercises of stock
         options                                             (65)        -
        Deferred income tax benefit                       (1,099)   (1,066)
        Impairment to long-lived assets                    1,200         0
        Changes in certain assets and liabilities
            Accounts receivable                              375       103
            Prepaid expenses and other assets               (755)      770
            Prepaid income taxes                             950      (188)
            Other noncurrent assets                          (38)        -
            Accounts payable                              (1,395)      118
            Accrued compensation and benefits             (1,307)     (662)
            Accrued expenses and other current
             liabilities                                  (2,449)    1,391
            Deferred rent                                   (279)     (243)
            Deferred revenue                                (707)     (140)

                                                        --------  --------
              Net cash (used in) provided by operating
               activities                                   (718)   10,140
                                                        --------  --------
 Cash flows from investing activities:
    Purchases of short-term investments                  (22,645)   (5,000)
    Sales of short-term investments                       10,785     2,065
    Purchases of property and equipment                   (2,330)   (7,235)
    Additions to intangible assets                           (14)      (48)
    Acquisition of SOAR Solutions, Inc., net of cash
     acquired                                                  -    (1,287)
                                                        --------  --------
              Net cash used in investing activities      (14,204)  (11,505)
                                                        --------  --------
 Cash flows from financing activities:
    Proceeds from exercises of stock options and
     warrants                                                633     1,070
    Excess tax benefit from exercises of stock options        65       502
    Purchase and retirement of common stock                 (968)   (9,107)
                                                        --------  --------
              Net cash provided by financing activities     (270)   (7,535)
                                                        --------  --------
              Net decrease in cash and cash equivalents  (15,192)   (8,900)
 Cash and cash equivalents at beginning of period         49,376    59,234
                                                        --------  --------
 Cash and cash equivalents at end of period             $ 34,184  $ 50,334
                                                        ========  ========


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