CNET Networks Reports First Quarter 2006 Financial Results; Total Revenues of $83.4 Million; Free Cash Flow of $20.0 Million; 116.8 Million Monthly Unique Users.SAN FRANCISCO San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden -- CNET (body) CNET - Centre national d'Etudes des Telecommunications. The French national telecommunications research centre at Lannion. Networks, Inc. (Nasdaq:CNET) today reported results for the first quarter ended March 31, 2006. "As we start off 2006, we are pleased with the overall health of the business and believe that our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. prospects only continue to improve," said Shelby Shelby, city (1990 pop. 14,669), seat of Cleveland co., W N.C., in a fertile piedmont farming (cotton, grain, soybeans, livestock) area; inc. 1843. There is dairy processing, and plastic and metal products, uphostered furniture, textiles and apparel, and chemicals Bonnie bon·ny also bon·nie adj. bon·ni·er, bon·ni·est Scots 1. Physically attractive or appealing; pretty. 2. Excellent. , chairman and chief executive officer of CNET Networks. "Although we are seeing more impact from transitions in our endemic endemic /en·dem·ic/ (en-dem´ik) present or usually prevalent in a population at all times. en·dem·ic adj. 1. categories in the first half of the year than we originally expected, we also continue to expand our audience and customer base as we grow our core brands and add new ones, positioning us well for the growing opportunity in Internet advertising Delivering ads to Internet users via Web sites, e-mail, ad-supported software and Internet-enabled cellphones. Also called an "ad network," Internet advertising organizations act as a middleman between the advertiser and the Web sites and software publishers that display the ads. ." --Total revenues for the first quarter equaled $83.4 million, a 17 percent increase compared to revenues of $71.2 million for the same period of 2005. --Operating income before depreciation, amortization and stock compensation expense was $9.2 million, a 47 percent increase compared to $6.2 million during the first quarter of 2005. --The profit margin of operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before depreciation, amortization and stock compensation expense increased to 11 percent from 9 percent during the first quarter of 2005. --Excluding stock compensation expense in the first quarter of 2006, operating income equaled $1.7 million compared to $233,000 for the same period of 2005. On a reported basis, which includes $4.7 million of stock compensation expense in the first quarter of 2006, operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. equaled $3.0 million during the quarter. --Net cash provided by operating activities for the first quarter of 2006 was $28.3 million, up from $9.5 million in the first quarter of 2005. Free cash flow for the first quarter of 2006 was $20.0 million compared to $4.4 million in the year ago quarter. Free cash flow is defined as net cash provided by operating activities less capital expenditures. --Excluding stock compensation expense and $1.3 million of gains on discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and investments, net income for the first quarter of 2006 was $2.3 million, or $0.01 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share compared to a net loss of $365,000, or loss of $0.00 per diluted share, during the same period of 2005. On a reported basis, net loss for the first quarter of 2006 was $1.1 million, or a loss of $0.01 per diluted share. This compares with net income of $383,000, or $0.00 per diluted share during the first quarter of 2005. --A reconciliation of non-GAAP measures used in this release to the most comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure and further information regarding the company's stock compensation expense, discontinued operations and unusual gains are included in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. "Operating Income Reconciliation" and "Reconciliation of Net Gain (Loss) from Unusual Items." Business Review --CNET Networks' global network of Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the properties reached an average of 116.8 million unique monthly users during the first quarter of 2006(1), an increase of 10 percent from the first quarter of 2005. Average daily page views increased to over 98.7 million during the first quarter(1), up 4 percent from the year-ago quarter. --As part of its effort to expand into new content categories with brands that engage passionate audiences, CNET Networks has recently added assets in the food category. The company acquired Chowhound chow·hound n. Slang A person who enjoys eating. , a thriving thrive intr.v. thrived or throve , thrived or thriv·en , thriv·ing, thrives 1. To make steady progress; prosper. 2. online community focused on the food and dining category. In addition, the company acquired the assets of Instant Comma, Inc., operators of Chow Magazine. CNET Networks will leverage the magazine's editorial expertise, including recipes Recipes by category Albanian cuisine
--CNET Networks announced several new partnerships this quarter that bring its original video programming to television viewers VIEWERS. Persons appointed by the courts to see and examine certain matters, and make a report of the facts together with their opinion to the court. In practice they are usually appointed to lay out roads and the like. Vide Experts. nationwide. The deals illustrate the growing demand for original video programming that has already proven successful online, and underscore The underscore character (_) is often used to make file, field and variable names more readable when blank spaces are not allowed. For example, NOVEL_1A.DOC, FIRST_NAME and Start_Routine. (character) underscore - _, ASCII 95. CNET and GameSpot's positions as the category-defining brands in technology and gaming, respectively.
-- CNET recently announced plans to launch "CNET TV," a
video-on-demand (VOD) offering that packages a selection
of CNET's popular video content for distribution on
television and online. CNET TV will launch initially on TV
in early June through partnerships with Cox
Communications, TiVo, Inc., and TVN Entertainment, who
will each offer the content through their own on-demand
offerings. Online, CNET TV will launch in the second half
of the year and will provide users a single destination
where they can access all of CNET's original video
content. The new destination will also take advantage of
the interactive nature of the Web, giving users the
ability to program the content based on topics of
interest, engage with CNET's editorial personalities,
build custom play lists they can share with friends, and
click to buy products or read full reviews.
-- In March, GameSpot announced that it would produce two
original video series for Gameplay HD, the new gaming
channel from VOOM HD Networks. The programming includes
GameSpotting, a half-hour series of news, reviews and
previews, and CinemAddicts, an hourly series featuring
video games in a cohesive cinematic story.
--Webshots launched "Webshots This article or section may contain original research or unverified claims. Please help Wikipedia by adding references. See the for details. This article has been tagged since September 2007. CollegeLive," a feature that provides students from 4,100 colleges and universities in the US, UK and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of a place to plan parties and events, share and comment on photos after the events, and connect with others. Webshots members with a .edu See .edu. (networking) edu - ("education") The top-level domain for educational establishments in the USA (and some other countries). E.g. "mit.edu". The UK equivalent is "ac.uk". email address See Internet address. have access to a special Webshots-created section dedicated to their college, where students can share and view photos from students on their campus. Each college section can only be accessed with a .edu email address from that school, thereby allowing each college homepage See home page. to reflect the true spirit of its student body. --CNET Networks continues to focus on adding a broader segment of advertisers to the networks. During the first quarter, the company continued to expand its customer base and add new advertiser ad·ver·tise v. ad·ver·tised, ad·ver·tis·ing, ad·ver·tis·es v.tr. 1. To make public announcement of, especially to proclaim the qualities or advantages of (a product or business) so as to increase segments across the network, such as Sara Lee
Sara Lee Corporation (NYSE: SLE) is a global consumer-goods company based in Downers Grove, Illinois, USA. , BMW BMW in full Bayerische Motoren Werke AG German automaker. Founded as an aircraft engine manufacturer in 1916, the company assumed the name Bayerische Motoren Werke and became known for its high-speed motorcycles in the 1920s. , and Victoria's Secret For the Sonata Arctica single, see Victoria's Secret (song) Victoria's Secret is an American retailer of high quality lingerie and beauty products.[2] . In addition, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 80 percent of the general consumer advertisers that did business with CNET Networks during 2005 continued to advertise with the company thus far in 2006. --During the quarter, CNET Networks maintained momentum in winning prestigious awards and recognition.
-- In February, ad agency Avenue A/Razorfish released its
second annual Digital Media Outlook Report with a new
section titled "Best of the Web." CNET Networks was named
Publisher of the Year in the Western Region and its CNET
brand was named Publisher of the Year in the Technology
Category.
-- CNET was also nominated for a prestigious National
Magazine Award in the General Excellence Online category.
The category recognizes outstanding magazine Internet
sites, as well as online-only magazines and Weblogs that
have a significant amount of original content.
-- In addition, this month award nominations for the 10th
annual Webby Awards were announced by The International
Academy of Digital Arts and Sciences, and CNET Networks
picked up a total of 7 nominations -- more than any other
company.
Business Outlook For the second quarter of 2006, management anticipates total revenues of $88.5 million to $92 million. Including $5 million to $5.5 million in stock compensation expense, management estimates operating income between $900,000 and $4.4 million during the second quarter. Management expects operating income before depreciation, amortization and stock compensation expense of between $14 million and $18 million for the quarter. Excluding stock compensation expense of $0.03 to $0.04 per diluted share, the company anticipates second quarter earnings per diluted share to be in the range of $0.03 to $0.06. Including stock compensation expense, earnings per share is expected to be in the range of $0.00 to of $0.02 in the second quarter. For the full-year 2006, management is revising its expectations. Management is now estimating total revenues to be in the range of $386 million and $403 million. Including $22 million to $24 million in stock compensation expense, management estimates operating income between $30.5 million and $38.5 million during 2006. Management expects operating income before depreciation, amortization and stock compensation expense to be between $86 million and $96 million. Excluding stock compensation expense of $0.13 to $0.14 per diluted share, earnings per diluted share is expected to be in the range of $0.31 and $0.37 for the year. Including stock compensation expense, earnings per share is expected to be in the range of $0.18 to $0.23 for the year. More detailed guidance, as well as a table that reconciles operating income (loss) before depreciation, amortization, and stock compensation guidance to operating income (loss) guidance can be found on the "Guidance to the Investment Community" sheet that accompanies this press release. Conference Call and Webcast CNET Networks will host a conference call to discuss its first quarter 2006 financial results and business outlook beginning at 5:00 pm ET (2:00 pm PT), today, April 24, 2006. To listen to the discussion, please visit http://ir.cnetnetworks.com and click on the link provided for the webcast conference call or dial (800) 344-1035 (international dial-in: (706) 679-3076). A replay of the conference call will be available via webcast at the URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. listed above or by calling (800) 642-1687 (international dial-in: (706) 645-9291) and entering the conference ID number 7912752. The company's past financial news releases, related financial and operating information, and access to all Securities and Exchange Commission filings, can also be accessed at http://ir.cnetnetworks.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. This press release and its attachments include forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information and statements that are subject to risks and uncertainties that could cause actual results to differ materially. These forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. include the statements under the sections entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: "Business Outlook" and "Guidance to the Investment Community" which sets forth our estimated financial performance for the second quarter and full year of 2006, and statements regarding our growth prospects and expectations regarding the future success of our products and services. In addition, management expects to provide forward-looking information statements on the conference call to be held shortly following the issuance of this release, which are also subject to risks and uncertainties that could cause actual results to differ materially. The forward-looking statements in this release and on the conference call are identified by the words "expect," "estimate," "target," "believe," "goal," "anticipate," "intend" and similar expressions or are otherwise identified in the context in which they are made as being forward-looking. These statements are only effective as of the date of this release and we undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. The risks and uncertainties that could cause actual results to differ materially from those projected include: a lack of growth or a decrease in marketing spending on the Internet due to failure of marketers to adopt the Internet as an advertising medium at the rate that we currently anticipate; a lack of growth or decrease in marketing spending on CNET Networks' properties in particular, which could be prompted by competition from other media outlets, both on and off the Internet, dissatisfaction with CNET Networks' services, or economic difficulties in our clients' businesses; a decrease in user activity on our sites due to competition or other factors, which could reduce advertising revenue generated by such user activities; reduced consumer activity or manufacturer marketing due to product lifecycles Product lifecycle or product life cycle is the course of a product's sales and profits over time. The five stages of each product lifecycle are product development, introduction, growth, maturity and decline. or product launch delays in the company's content categories, which include technology, games and entertainment, business and community; economic conditions such as weakness in corporate or consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. , which could prompt a reduction in overall advertising expenditures or expenditures specifically on our properties; the failure of existing advertisers to meet or renew their advertising commitments as we anticipate, which would cause us to not meet our financial projections; the failure to attract advertisers outside of our traditional technology and consumer electronics categories, which would cause us to not meet our financial projections; a continued decline in revenues from our print publications as advertising dollars shift to other media; the acquisition of businesses or the launch of new lines of business, which could decrease our cash position, increase operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. , and dilute di·lute v. To reduce a solution or mixture in concentration, quality, strength, or purity, as by adding water. adj. Thinned or weakened by diluting. operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: ; an increase in intellectual property licensing fees, which could increase operating expense, including amortization; the risk of future impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of our intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , goodwill or investments based on a decline in our business or investments; an increase in the competitiveness of the market for qualified employees or changes in our stock price or volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the , both of which could increase our estimated stock compensation expenses for 2006; and general risks associated with our business. For risks about CNET Networks' business, see its Annual Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2005 and subsequent Forms 10-Q and 8-K, including disclosures under the captions "Risk Factors" and "Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Conditions and Results of Operations," which are filed with the Securities and Exchange Commission and are available on the SEC's website at www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. . About CNET Networks, Inc. CNET Networks is a global media company with some of the most important and valuable brands on the Web targeting passionate audiences. The company's brands -- such as CNET, GameSpot GameSpot video gaming website that provides news, reviews, previews, downloads, and other information. The site was launched in May 1996 by Pete Deemer, Vince Broady, and Jon Epstein. , TV.com This article is about the current form of the service. For the predecessor to this website (before 2005), see TV Tome. TV.com is a website owned by CNET Networks. The service replaced the popular TV Tome website. , MP3.com, Webshots, BNET BNET Battle.net (Blizzard Entertainment) bnet Bungie.net BNET Bentley Intranet BNET Billy Noguera Entertainment Group Inc. BNET Britain-Nigeria Educational Trust and ZDNet -- serve the technology, games and entertainment, business, and community categories. CNET Networks was founded in 1993 and has always been "a different kind of media company" creating engaging media experiences through a combination of world-class world-class adj. 1. Ranking among the foremost in the world; of an international standard of excellence; of the highest order: a world-class figure skater. 2. content and technology infrastructure. (1) CNET Networks January January: see month. 2006 -- March 2006 (internal log data)
Consolidated Statements of Operations
Unaudited
(in thousands, except share and per share data)
Three Months Ended
March 31,
---------------------------
2006 2005
------------- -------------
Revenues $ 83,368 $ 71,224
Operating expenses:
Cost of revenues 41,565 36,316
Sales and marketing 23,174 17,905
General and administrative 14,178 10,764
Depreciation 4,731 3,915
Amortization of intangible assets 2,721 2,091
------------- -------------
Total operating expenses 86,369 70,991
Operating income (loss) (3,001) 233
Non-operating income (expense):
Realized gains on investments 882 568
Interest income 1,152 363
Interest expense (659) (780)
Other 140 (85)
------------- -------------
Total non-operating income (expense) 1,515 66
------------- -------------
Income (loss) before income taxes (1,486) 299
Income tax expense (benefit) 38 96
------------- -------------
Income (loss) from continuing
operations (1,524) 203
Discontinued operations
Income from operations of
discontinued operations 422 180
------------- -------------
Net income (loss) $ (1,102) $ 383
============= =============
Basic net income per share $ (0.01) $ 0.00
============= =============
Diluted net income per share $ (0.01) $ 0.00
============= =============
Shares used in calculating basic net
income per share 149,115,657 144,847,388
============= =============
Shares used in calculating diluted net
income per share 149,115,657 151,392,920
============= =============
(a) Stock compensation expense is included
in the above expense categories:
Cost of revenues $ 1,897 $ -
Sales and marketing 886 -
General and administrative 1,944 -
------------- -------------
$ 4,727 $ -
============= =============
(a) On January 1, 2006, CNET Networks adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123(R)"). CNET Networks' financial statements as of and for
the three months ended March 31, 2006 reflect the impact of SFAS
123(R). Prior to adoption of SFAS 123(R), CNET Networks accounted
for stock compensation under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In
accordance with APB 25, CNET Networks accounted for stock-based
awards using the intrinsic value method. Since CNET Networks,
adopted the modified prospective transition method, results for
prior period have not been restated under the fair value method.
Therefore, for periods prior to January 1, 2006, no stock-based
compensation expense had been recognized in CNET Networks'
statement of operations as the exercise price of options granted
equaled the estimated fair market value of the underlying stock at
date of grant.
Consolidated Balance Sheets
Unaudited
(in thousands, except share data)
March 31, December 31,
2006 2005
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 74,158 $ 55,895
Investments in marketable debt securities 52,270 41,591
Accounts receivable, net 64,903 85,312
Other current assets 12,633 13,299
------------ -------------
Total current assets 203,964 196,097
Restricted cash 2,248 2,248
Investments in marketable debt securities 9,833 12,432
Property and equipment, net 60,289 56,891
Other assets 16,736 18,465
Intangible assets, net 33,947 37,113
Goodwill 130,187 131,694
------------ -------------
Total assets $ 457,204 $ 454,940
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,113 $ 8,330
Accrued liabilities 45,660 50,887
Current portion of long-term debt 2,629 2,652
------------ -------------
Total current liabilities 56,402 61,869
Non-current liabilities:
Long-term debt 139,114 139,114
Other liabilities 761 794
------------ -------------
Total liabilities 196,277 201,777
Stockholders' equity:
Common stock; $0.0001 par value;
400,000,000 shares authorized;
149,716,508 outstanding at March 31,
2006 and 149,067,597 outstanding at
December 31, 2005 15 15
Additional paid-in-capital 2,761,226 2,752,208
Accumulated other comprehensive loss (13,546) (13,394)
Treasury stock, at cost (30,453) (30,453)
Accumulated deficit (2,456,315) (2,455,213)
------------ -------------
Total stockholders' equity 260,927 253,163
------------ -------------
Total liabilities and stockholders'
equity $ 457,204 $ 454,940
============ =============
Statements of Cash Flows
Unaudited
(in thousands)
Three Months Ended
March 31,
------------------
2006 2005
--------- ---------
Cash flows from operating activities:
Net Income (Loss) $ (1,102) $ 383
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 7,452 6,050
Stock compensation expense 4,727 -
Asset disposals 86 9
Noncash interest expense (126) 143
Allowance for doubtful accounts 837 529
Equity losses in investees - 207
Gain on sale of business (507) -
Gain on sale of marketable securities and
privately held investments (882) (568)
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable 19,202 6,361
Other assets 2,339 (148)
Accounts payable (217) 170
Accrued liabilities (3,526) (3,449)
Other long-term liabilities (33) (146)
--------- ---------
Net cash provided by operating activities 28,250 9,541
--------- ---------
Cash flows from investing activities:
Purchase of marketable debt securities (18,043) (2,403)
Proceeds from sale of marketable debt securities 10,070 4,687
Proceeds from sales of investments in privately
held companies 3,032 568
Investments in privately held companies (31) (850)
Net cash paid for acquisitions (840) (3,185)
Capital expenditures (8,228) (5,164)
--------- ---------
Net cash used in investing activities (14,040) (6,347)
--------- ---------
Cash flows from financing activities:
Net proceeds from exercise of options 3,895 2,573
Net proceeds from employee stock purchase plan 398 330
Proceeds from revolver borrowings - 10,000
Principal payments on borrowings - (10,013)
--------- ---------
Net cash provided by financing activities 4,293 2,890
--------- ---------
Net increase (decrease) in cash and cash
equivalents 18,503 6,084
Effect of exchange rate changes on cash and cash
equivalents (240) (730)
Cash and cash equivalents at the beginning of the
period 55,895 29,560
--------- ---------
Cash and cash equivalents at the end of the period $ 74,158 $ 34,914
========= =========
Business Segments
Unaudited
(in thousands)
CNET's primary areas of measurement and decision-making include two
principal business segments. CNET has determined that its business
segments are U.S. Media and International Media. U.S. Media consists
of an online network focused on four content categories: personal
technology, games and entertainment, business and community.
International Media includes the delivery of online technology
information and several technology print publications in non-U.S.
markets. Management believes that segment operating income (loss)
before depreciation, amortization and stock compensation expenses is
an appropriate measure of evaluating the operating performance of the
company's segments. However, segment operating income (loss) before
depreciation, amortization and stock compensation expense should not
be considered a substitute for operating income, cash flows or other
measures of financial performance prepared in accordance with
generally accepted accounting principles.
U.S. International
Media Media Other(1) Total
-------- ------------- --------- --------
Three Months Ended
March 31, 2006
Revenues $67,783 $15,585 $ - $83,368
Operating expenses 57,355 16,835 12,179 86,369
-------- -------- --------- --------
Operating income (loss) $10,428 $(1,250) $(12,179) $(3,001)
======== ======== ========= ========
Three Months Ended
March 31, 2005
Revenues $58,816 $12,408 $ - $71,224
Operating expenses 49,467 15,518 6,006 70,991
-------- -------- --------- --------
Operating income (loss) $ 9,349 $(3,110) $ (6,006) $ 233
======== ======== ========= ========
(1) For the three months ended March 31, 2006, Other represents
operating expenses related to depreciation of $4,731, amortization
of $2,721 and stock compensation expense of $4,727. For the three
months ended March 31, 2005, Other represents operating expenses
related to depreciation of $3,915 and amortization of $2,091.
Quarterly Statistical
Highlights
Unaudited
Q1-06 Q4-05 Q3-05 Q2-05 Q1-05
------- ------- ------- ------- -------
Total Quarterly Revenue ($mm) $ 83.4 $103.3 $ 81.9 $ 80.4 $ 71.2
Revenue Distribution (%)(a)
Marketing Services 85% 89% 86% 86% 84%
Licensing, Fees and User 15% 11% 14% 14% 16%
Advertiser Metrics
CNET Networks Top 100 US
Advertisers' Renewal Rate
(Q-to-Q) 96% 100% 97% 95% 97%
CNET Networks Top 100 US
Advertisers' % of Network
Revenue 53% 55% 55% 55% 56%
Select Business Metrics
Network Unique Users (mm) 116.8 116.1 110.1 115.1 105.9
Network Average Daily Page
Views (mm) 98.7 103.6 99.4 97.7 94.7
Balance Sheet Highlights ($mm)
Cash $ 74.2 $ 55.9 $ 69.8 $ 42.2 $ 34.9
Marketable Debt Securities 62.1 54.1 38.3 32.1 42.3
Restricted Cash 2.2 2.2 4.6 19.8 19.8
------- ------- ------- ------- -------
Total Cash and Equivalents $138.5 $112.2 $112.7 $ 94.1 $ 97.0
Total Debt $141.7 $141.8 $141.3 $146.4 $146.5
Days Sales Outstanding (DSO) 70 71 66 67 72
(a) Due to the sale of Computer Shopper magazine on February 2, 2006,
CNET Networks no longer reports publishing revenue. The company's
international publishing revenue is now distributed in the
marketing services and licensing, fee and user lines as described
below:
Marketing Services -- sales of advertisements on our Internet
network through impression-based and activity-based advertising,
and sales of advertisements in our print publications.
Licensing, Fees and User -- licensing our product database, online
content, subscriptions to online services, subscription and
newsstand sales of print publications, and other paid services.
Guidance to the Investment Community
$ in millions, except Q1-06 Q2-06 estimate FY 2006 estimate
per share Actual Low - High Low - High
--------------------- ------- --------------- ----------------
Total Revenues $ 83.4 $88.5 - $ 92.0 $386.0 - $ 403.0
Operating income before
depreciation,
amortization and stock
compensation expense $ 9.2 $14.0 - $ 18.0 $ 86.0 - $ 96.0
Depreciation expense ($4.7) ($5.5) ($23.0)
Amortization expense ($2.7) ($2.6) ($10.5)
Stock compensation
expense ($4.7) ($5.5)- ($5.0) ($24.0)- ($22.0)
Operating income ($3.0) $ 0.9 - $ 4.4 $ 30.5 - $ 38.5
Interest income
(expense), net $ 0.5 $ 0.3 $ 1.2
Other income (expense) $ 1.0 ($0.2) $ 0.4
Discontinued operations $ 0.4 - $ 0.4
Tax benefit (expense) ($0.0) ($0.7) ($2.3)
GAAP EPS (including
stock compensation
expense) ($0.01) $0.00 - $ 0.02 $ 0.18 - $ 0.23
Pro forma EPS
(excluding stock
compensation expense) $ 0.02 $0.03 - $ 0.06 $ 0.31 - $ 0.37
Operating Income Reconciliation
(in thousands)
Three Months Ended
March 31,
-------------------
2006 2005
-------- --------
Operating income (loss) $(3,001) $ 233
Stock compensation expense 4,727 -
Depreciation 4,731 3,915
Amortization of intangible assets 2,721 2,091
-------- --------
Operating income before depreciation,
amortization and stock compensation expense $ 9,178 $ 6,239
======== ========
(a) Stock compensation expense is included in the
above expense categories:
Cost of revenues $ 1,897 $ -
Sales and marketing 886 -
General and administrative 1,944 -
-------- --------
$ 4,727 $ -
======== ========
(a) On January 1, 2006, CNET Networks adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123(R)"). CNET Networks' financial statements as of and for
the three months ended March 31, 2006 reflect the impact of SFAS
123(R). Prior to adoption of SFAS 123(R), CNET Networks accounted
for stock compensation under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In
accordance with APB 25, CNET Networks accounted for stock-based
awards using the intrinsic value method. Since CNET Networks,
adopted the modified prospective transition method, results for
prior period have not been restated under the fair value method.
Therefore, for periods prior to January 1, 2006, no stock-based
compensation expense had been recognized in CNET Networks'
statement of operations as the exercise price of options granted
equaled the estimated fair market value of the underlying stock at
date of grant.
We believe that "operating income before depreciation,
amortization and stock compensation expense" is useful to
management and investors as a supplement to our GAAP (accounting
principles generally accepted in the United States) financial
measures for evaluating the ability of the business to generate
cash from operations. Depreciation and amortization are non-cash
items and include within them amounts related to past transactions
and expenditures that are not necessarily reflective of the
current cash or capital requirements of the business. Stock
compensation expense is a non-cash item that does not reflect upon
the ability of the business to generate cash from operations.
Management refers to "operating income before depreciation,
amortization and stock compensation expense" in making operating
decisions and for planning and compensation purposes. A limitation
associated with this measure is that it does not reflect the costs
of certain capitalized tangible and intangible assets used in
generating revenue. Management compensates for these limitations
by relying primarily on our GAAP financial measures, such as
capital expenditures, and using "operating income before
depreciation, amortization and stock compensation expense" only on
a supplemental basis. Although depreciation and amortization are
non-cash charges, the capitalized assets being depreciated and
amortized will often have to be replaced in the future, and
"operating income before depreciation and amortization" does not
reflect any cash requirements for such replacements. This measure
also does not take into account interest expense, or the cash
requirements necessary to service interest or principal payments
on our debt. Nor does the measure reflect changes in, or cash
requirements for, our working capital needs. "Operating income
before depreciation, amortization and stock compensation expense"
should be considered in addition to, and not as a substitute for,
other measures of financial performance prepared in accordance
with GAAP.
Reconciliation of Net Gain (Loss) from Unusual Items
(in thousands, except share and per share data)
Three Months Ended
March 31,
---------------------------
2006 2005
------------- -------------
Net income (loss) $ (1,102) $ 383
============= =============
Stock compensation expense (1) $ 4,727 $ -
Gain on privately held investments (2) (882) (568)
Discontinued Operations (3) (422) (180)
------------- -------------
Effect on earnings from unusual items 3,423 (748)
------------- -------------
Net income (loss) excluding unusual items $ 2,321 $ (365)
============= =============
Diluted net income (loss) per share
excluding unusual items $ 0.01 $ (0.00)
============= =============
Shares used in calculating diluted net
income (loss) per share 155,980,475 151,392,920
============= =============
(1) During the three months ended March 31, 2006, the company recorded
$4.7 million of stock compensation expense upon the adoption of
SFAS 123(R). No amounts were recorded for stock compensation
expense in 2005.
(2) The company recognized $882,000 and $568,000 of gains on sales of
privately held investments during the three months ended March 31,
2006 and 2005, respectively.
(3) On February 2, 2006, the company sold its Computer Shopper
magazine business. The disposal of the business qualified for
discontinued operations accounting under the provisions of SFAS
144. As such revenues and expenses of this business in prior
periods has been reclassified to conform to discontinued
operations presentation. The company recognized income from
discontinued operations of $422,000, which includes a $507,000
gain associated with the sale, and $180,000 in the three months
ended March 31, 2006 and 2005, respectively.
The company believes that this information is useful to investors
because these items are infrequent in nature and may affect the
comparability of the current quarter and full year results to other
quarter and full year results.
Free Cash Flow Reconciliation
(Unaudited)
(in thousands)
Three Months Ended
March 31,
---------------------
2006 2005
-------- --------
Cash flow from operating activities $28,250 $ 9,541
Capital expenditures (8,228) (5,164)
-------- --------
Free cash flow $20,022 $ 4,377
======== ========
Free Cash Flow is defined as net cash provided by operating activities
less capital expenditures. The company believes that free cash flow
provides useful information about the amount of cash generated by the
business after the purchase of property and equipment. A limitation of
free cash flow is that it does not represent the total increase or
decrease in the cash balance for the period. Free cash flow should be
considered in addition to, and not as a substitute for, other measures
of financial performance prepared in accordance with US GAAP.
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