FriendFinder Networks Inc. Reports Financial Results for Third Quarter 2012

 FriendFinder Networks Inc. Reports Financial Results for Third Quarter 2012

Adjusted EBITDA increased 33% to $22.5 million in Q3 2012 from $16.9 million
in Q2 2012

PR Newswire

SUNNYVALE, Calif., Nov. 14, 2012

SUNNYVALE, Calif., Nov. 14, 2012 /PRNewswire/ -- FriendFinder Networks Inc.
(NasdaqGM: FFN) (the "Company"), a leading internet and technology company
providing services to the rapidly expanding markets of social networking and
web-based video sharing, today announced financial results for the third
quarter and nine months ended September 30, 2012.

"By refocusing our efforts on more effectively supporting our dominant
revenue-generating properties, FriendFinder Networks continues to make
significant operational progress. Reflective of these efforts was a 7.5%
quarter-over-quarter and a 6.2% year-over-year improvement in Average Revenue
per User (ARPU) within the Adult segment during the third quarter," said
Anthony Previte, Chief Executive Officer of FriendFinder Networks. "The
continued strengthening of our operational results further bolstered our
Adjusted EBITDA, which increased to $22.5 million for the third quarter, up
11.0% year-over-year and up 33% compared to the prior quarter. We expect to
see similar levels of adjusted EBITDA going forward, supported by the rollout
of new products and enhancements in Q4 to our flagship brands as well as the
launch of a new interactive TV product that we are very excited about." 

"For the second consecutive quarter, we achieved increased revenue
contribution from Europe, which was up 8.8% from the prior quarter. Despite
the economic weakness and uncertainty in Europe on a macro level, we
successfully executed in the region as our geographic price testing has been
positively received and renewal cycles have started to kick in. Additionally,
we experienced success in our Video Entertainment segment which was up 4.4%
year-over-year. Overall, we are not satisfied with the declines in our
overall revenue despite the fact that the decline is mainly attributable to
our strategy of focusing on our higher margin proprietary brands; however,
increasing our overall revenues will be a focus moving forward."

"Operationally we continue to show improvements in certain areas of both our
Adult and General Audience websites. Within the Adult segment, conversion of
members to subscribers increased to 4.9% from 4.1% in the third quarter of
2011. In addition, Average Lifetime Net Revenue per Subscriber improved
almost 24% quarter-over-quarter. Within the General Audience segment, our
churn rate improved to 16.9%, compared with 19.6% during the same time period
last year. We also experienced a strong improvement in the rate of decline of
ending subscribers in this segment during the quarter, which only declined 1%
sequentially. This success is primarily attributable to the consolidation of
our General Audience and Mobile segments, which has gone extremely well and
has produced numerous synergies."

Mr. Previte added, "Fines imposed by Visa USA negatively impacted our bottom
line during the quarter. Due to the Company's dependence on credit card
processing, FriendFinder Networks continues to process transactions through
Visa as we work through these issues."

"Lastly, as announced on November 5, we have retained CRT Capital Group LLC as
our financial advisor to help explore opportunities to refinance our long-term
debt. While we continue to see significant improvement in our operating
results and have adequate cash to make our excess cash flow payment, we did
not make the payment due November 5 in order to conserve cash and take
advantage of favorable market conditions to refinance our debt. We received
forbearance agreements from more than 80% of our principal lenders to permit
suspension of our required excess cash flow payment, which was due on November
5, 2012. These agreements recognize the strengthening of our business and
signal the continued support of our senior lenders. We will continue to pay
interest during the refinancing phase." 

Third Quarter Financial Results

Revenue for the third quarter of 2012 was $77.7 million. Revenue was
negatively impacted by a decrease in affiliate based traffic and lower
resulting internet revenue as the Company continues to eliminate lower margin
co-brands.

Gross profit for the third quarter of 2012 was $52.1 million. Gross profit was
negatively impacted by the reduced revenue offset partially by reduced
affiliate expense and higher margins.

Income from operations for the third quarter of 2012 was $17.0 million.

Loss from continuing operations for the third quarter of 2012 was ($5.7)
million, or ($0.18) per share. The loss from discontinued operations, which
resulted from the closure of all JigoCity operations, was ($2.1) million or
($0.07) per share.

Adjusted EBITDA for the third quarter of 2012 was $22.5 million. 

Nine Month Financial Results:

Revenue for the nine months ended September 30, 2012 was $239.8 million.

Gross profit for the nine months ended September 30, 2012 was $153.4 million.

Income from operations for the nine months ended September 30, 2012 was $38.1
million.

Loss from continuing operations for the nine months ended September 30, 2012
was ($26.2) million, or ($0.83) per share. The loss from discontinued
operations was ($13.6) million or ($0.43) per share.

Adjusted EBITDA for the nine months ended September 30, 2012 was $52.8
million.

Balance Sheet, Cash and Debt

As of September 30, 2012, the Company had unrestricted cash and cash
equivalents of $14.6 million, compared to $12.8 million at June 30, 2012. As
of September 30, 2012, the Company had outstanding principal debt of $504.4
million. Free Cash Flow per Share was $0.45 for the third quarter ended
September 30, 2012.

The Company has received forbearance agreements from more than 80% of its
senior lenders to permit suspension of its required excess cash flow payment
which was due November 5.

Conference Call Information

Management will host a conference call to discuss the results at 4:30 PM EST
on Wednesday, November 14, 2012. Participants should call 888-737-3707
(United States/Canada) or 913-312-0720 (International).

A telephonic replay will be available for anyone unable to participate in the
live call. To access the replay, call 877-870-5176 (United States/Canada) or
858-384-5517 (International) and enter confirmation code 9421270. The replay
will be available on November 14, 2012 at 7:30 PM EST through Wednesday,
November 28, 2012 at 11:59 PM EST.

Non-GAAP Financial Measures

Management believes that certain non-GAAP financial measures of earnings
before deducting net interest expense, income taxes, depreciation and
amortization, or EBITDA, and Adjusted EBITDA are helpful financial measures as
investors, analysts and others frequently use EBITDA and Adjusted EBITDA in
the evaluation of other companies in FriendFinder Networks Inc.'s industry.
For example, these measures eliminate one-time adjustments made for accounting
purposes in connection with the Company's Various acquisition in order to
provide information that is directly comparable to its historical and current
financial statements. For more information regarding the Company's
acquisition of Various, please refer to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations — Our
History" in the Form 10-K for the year ended December 31, 2011.

These non-GAAP financial measures may not provide information that is directly
comparable to that provided by other companies in FriendFinder Networks Inc.'s
industry, as other companies in FriendFinder Networks Inc.'s industry may
calculate such financial measures differently, particularly as it relates to
nonrecurring, unusual items. The Company's non-GAAP financial measures of
EBITDA, Adjusted EBITDA and Free Cash Flow per Common Share are not
measurements of financial performance under GAAP and should not be considered
as alternatives to cash flow from operating activities or as measures of
liquidity or as alternatives to net income or as indications of operating
performance or any other measure of performance derived in accordance with
GAAP.

Management derived EBITDA and Adjusted EBITDA for the three and nine months
ended September 30, 2012 and 2011 using the adjustments shown in the attached
reconciliation table. Free Cash Flow per Common Share was derived by
subtracting capital expenditures and cash interest from Adjusted EBITDA and
dividing the result by the weighted average shares outstanding for the period.

SAFE HARBOR

This press release includes "forward-looking statements" within the meaning of
the safe harbor provisions of the United States Private Securities Litigation
Reform Act of 1995. Actual results may differ from expectations, estimates
and projections and, consequently, you should not rely on these forward
looking statements as predictions of future events. Words such as "expect,"
"estimate," "project," "budget," "forecast," "anticipate," "intend," "plan,"
"may," "will," "could," "should," "believes," "predicts," "potential,"
"continue," and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements involve
significant risks and uncertainties that could cause the actual results to
differ materially from the expected results.

Additional information concerning these and other risk factors is contained in
the Company's most recent filings with the SEC, including its Form 10-K for
the year ended December 31, 2011 and its Form 10-Q for the quarter ended
September, 30, 2012. All subsequent written and oral forward-looking
statements concerning the Company are expressly qualified in their entirety by
the cautionary statements above and subject to such risk factors discussed in
the Company's recent SEC filings. The Company cautions readers not to place
undue reliance upon any forward-looking statements, which speak only as of the
date made. The Company does not undertake or accept any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statement to reflect any change in their expectations or any
change in events, conditions or circumstances on which any such statement is
based.

ABOUT FRIENDFINDER NETWORKS INC.

FriendFinder Networks Inc. (www.FFN.com) is an internet-based social
networking and technology company operating several of the most heavily
visited websites in the world, including AdultFriendFinder.com, Amigos.com,
AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and
SeniorFriendFinder.com. FriendFinder Networks Inc. also produces and
distributes original pictorial and video content and engages in brand
licensing.

Investor Contact for FriendFinder Networks Inc.
Jeffrey Goldberger / Rob Fink
KCSA Strategic Communications
212.896.1206 or jgoldberger@kcsa.com / rfink@kcsa.com

Media Contact for FriendFinder Networks Inc.
Lindsay Trivento
Director, Corporate Communications
561.912.7010 or ltrivento@ffn.com





FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


                                                 September 30,   December 31,

                                                 2012            2011
                                                 (unaudited)
ASSETS
Current assets:
Cash                                             $  14,647       $  23,364
Restricted cash                                     9,992           11,177
Accounts receivable, less allowance for
doubtful accounts of $1,063 and $1,155,             13,303          8,939
respectively
Inventories                                         624             822
Prepaid expenses                                    3,969           5,645
Deferred tax asset                                  4,405           4,405
Total current assets                                46,940          54,352
Film costs, net                                     3,928           4,105
Property and equipment, net                         7,046           7,830
Goodwill                                            328,061         332,292
Domain names                                        56,360          56,093
Trademarks                                          6,613           6,613
Other intangible assets, net                        3,064           16,920
Unamortized debt costs                              8,152           11,754
Other assets                                        2,017           3,405
                                                 $  462,181      $  493,364
LIABILITIES
Current liabilities:
Long-term debt which matures on September 30,
2013

and current installment of long term debt in     $  220,587      $  8,270
2011, net of

unamortized discount of $3,273 and $260,
respectively
Accounts payable                                    8,313           11,324
Accrued expenses and other liabilities              75,317          68,930
Deferred revenue                                    37,511          42,299
Total current liabilities                           341,728         130,823
Deferred tax liability                              28,310          28,310
Long-term debt, net of unamortized discount of      259,208         462,515
$21,318 and $34,170, respectively
Total liabilities                                   629,246         621,648
Contingencies (Note 15)
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.001 par value — authorized
22,500,000 shares, none issued and outstanding
Common stock, $0.001 par value — authorized
125,000,000 shares issued and outstanding,          32              31
32,572,761 shares at September 30, 2012 and
31,219,644 shares at December 31, 2011
Capital in excess of par value                      134,470         133,734
Accumulated deficit                                 (301,567)       (261,764)
Accumulated other comprehensive loss                −               (285)
Total stockholders' deficiency                      (167,065)       (128,284)
                                                 $  462,181      $  493,364





FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)


                            Three Months Ended        Nine Months Ended

                            September 30,             September 30,
                            2012         2011         2012         2011
Net revenue
Service                     $ 73,224     $ 77,710     $ 225,245    $ 234,918
Product                       4,500        5,026        14,568       14,709
Total                         77,724       82,736       239,813      249,627
Cost of revenue
Service                       22,141       24,267       74,904       68,547
Product                       3,519        3,646        11,469       11,259
Total                         25,660       27,913       86,373       79,806
Gross profit                  52,064       54,823       153,440      169,821
Operating expenses:
Product development           2,420        4,024        10,721       12,080
Selling and marketing         6,404        8,279        25,060       22,679
General and administrative    21,748       22,836       66,062       67,507
Amortization of acquired      3,707        4,060        11,120       11,906
intangibles and software
Depreciation and other        800          913          2,361        3,268
amortization
Total operating expenses      35,079       40,112       115,324      117,440
Income from operations        16,985       14,711       38,116       52,381
Interest expense              (22,055)     (21,146)     (64,203)     (65,097)
Other finance expenses        −            −            (500)        −
Interest related to VAT
liability not charged to      (262)        (476)        (1,004)      (1,410)
customers
Foreign exchange (loss)
gain, principally related     (463)        1,432        538          (1,521)
to VAT liability not
charged to customers
Gain on liability related     −            −            −            391
to warrants
Loss on extinguishment of     −            −            −            (7,312)
debt
Change in fair value of
acquisition contingent        −            −            1,400        −
consideration
Other non-operating           127          1            (527)        (3,912)
expense net
Loss from continuing
operations before income      (5,668)      (5,478)      (26,180)     (26,480)
tax (benefit)
Income tax (benefit)          −            (82)         −            (5,542)
Loss from continuing        $ (5,668)    $ (5,396)    $ (26,180)   $ (20,938)
operations
Loss from discontinued        (2,078)      −            (13,623)     −
operations
Net loss                    $ (7,746)    $ (5,396)    $ (39,803)   $ (20,938)
Net loss per common share
— basic and diluted:
Continuing operations       $ (0.18)     $ (0.18)     $ (0.83)     $ (1.02)
Discontinued operations       (0.07)       −            (0.43)       −
Net loss                    $ (0.25)     $ (0.18)     $ (1.26)     $ (1.02)
Weighted average shares
outstanding — basic and       31,537       30,330       31,516       20,505
diluted





FRIENDFINDER NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)


                                                      Nine Months Ended

                                                      September 30,
                                                      2012         2011
Cash flows from operating activities
Net loss                                              $ (39,803)   $ (20,938)
Adjustment to reconcile net loss to net cash
provided by operating activities-continuing
operations:
Loss from discontinued operations                       13,640       -
Amortization of acquired intangibles and software       11,120       11,906
Depreciation and other amortization                     2,361        3,268
Amortization of film costs                              2,213        2,141
Deferred income tax benefit                             −            (5,542)
Non-cash interest, including amortization of            38,508       35,452
discount and debt costs
Provision for doubtful accounts                         368          105
Change in value of acquisition related contingent       (1,400)      -
consideration
Gain on warrant liability                               ─            (391)
Loss on extinguishment of debt                          ─            7,312
Stock based compensation expense                        754          2,554
Debt costs                                              (2,312)      -
Other                                                   865          590
Changes in operating assets and liabilities:
Restricted cash                                         1,055        (4,218)
Accounts receivable                                     (4,732)      (112)
Inventories                                             198          235
Prepaid expenses                                        (422)        (310)
Film costs                                              (2,037)      (1,991)
Other assets                                            96           -
Accounts payable                                        (667)        (1,465)
Accrued expenses and other liabilities                  2,407        (2,972)
Deferred revenue                                        (4,788)      (4,017)
Net cash provided by continuing operations              17,424       21,607
Net cash used in discontinued operations                (6,979)      -
Net cash provided by operating activities               10,445       21,607
Cash flows from investing activities:
Purchases of property and equipment                     (2,813)      (4,472)
Cash paid for acquisition                               ─            (2,003)
Other                                                   (267)        (49)
Net cash used in investing activities                   (3,080)      (6,524)
Cash flows from financing activities:
Gross proceeds from sale of common stock from           ─            50,000
initial public offering
Payment of underwriter discount and other offering      ─            (6,724)
costs in connection with initial public offering
Recovery of debt issuance costs                         ─            296
Repayment of long-term debt                             (16,082)     (76,770)
Net cash used in financing activities                   (16,082)     (33,198)
Effect of exchange rate changes on cash
Net decrease in cash                                    (8,717)      (18,115)
Cash at beginning of period                             23,364       34,585
Cash at end of period                                 $ 14,647     $ 16,470
Supplemental disclosures of cash flow information:
Cash Paid for:
Interest                                              $ 24,673     $ 29,030
Income taxes                                                         30
Non-Cash Investing and Financing Activities:
Recording of beneficial conversion feature on
Non-Cash Pay Second Lien Notes in connection with                    8,490
initial public offering, net of $5,660 of related
deferred taxes
Deferred offering costs written off to capital in                    13,267
excess of par value
Conversion of Series A and B convertible preferred                   12
stock and series B common stock to common stock
 Common Stock and warrants issued and contingent
                                                                     8,000
 consideration liability in connection with
acquisitions



Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA


                              Unaudited
                              Three Months Ended      Nine Months Ended

                              September 30,           September 30,
                              2012        2011        2012         2011
                              (in thousands)
GAAP net loss                 $ (7,746)   $ (5,396)   $ (39,803)   $ (20,938)
Add: Interest expense, net      22,055      21,146      64,203       65,097
Add:Other finance expenses     -           -           500          -
Subtract: Income tax benefit    -           (82)        -            (5,542)
Add: Amortization of
acquired intangible             3,707       4,060       11,120       11,906

assets and software
Add: Depreciation and other     800         913         2,361        3,268
amortization
EBITDA                        $ 18,816    $ 20,641    $ 38,381     $ 53,791
Add: Broadstream arbitration
provision,                      -           -           -            7,394

including related legal fees
Subtract/Add: (Gain)/Loss
related to VAT liability not    725         (956)       466          2,931
charged to customers
Add: Loss of extinguishment     -           -           -            7,312
of debt
Add:Severance Expense          7           388         434          388
Add:Discontinued Operations    2,078       -           13,623       -
Add: Stock Compensation         347         269         803          2,554
Expense
Subtract:Change in fair
value of acquisition related    -           -           (1,400)      -
contingent consideration
Add: Indenture Fee              500         -           500          -
Adjusted EBITDA               $ 22,473    $ 20,342    $ 52,807     $ 74,370





Internet Segment Historical Operating Data



The following table presents certain key business metrics for our adult
websites, general audience websites and live interactive video websites for
the three and nine months ended September 30, 2012 and 2011.


                  Three Months Ended            Nine Months Ended

                  September 30,                 September 30,
                  2012           2011           2012            2011
Adult Websites
New members         7,777,820      9,812,584      25,981,960      28,963,082
Beginning           794,680        857,733        827,728         950,705
subscribers
New subscribers     383,374        406,261        1,210,680       1,210,247
Terminations        414,662        414,325        1,275,016       1,311,283
Ending              763,392        849,669        763,392         849,669
subscribers
Conversion of
members to          4.9       %    4.1       %    4.7        %    4.2        %
subscribers
Churn               17.7      %    16.2      %    17.8       %    16.2       %
ARPU              $ 22.16        $ 20.86        $ 21.46         $ 20.24
CPGA              $ 40.16        $ 45.21        $ 46.35         $ 43.55
Average
lifetime net      $ 84.75        $ 83.76        $ 74.17         $ 81.51
revenue per
subscriber
Net revenue (in   $ 51.8         $ 53.4         $ 153.7         $ 164.0
millions)
General
Audience
Websites
New members         888,129        1,463,706      3,010,530       5,050,758
Beginning           38,611         48,411         44,519          53,194
subscribers
New subscribers     18,915         25,710         65,693          75,727
Terminations        19,461         27,785         72,147          82,585
Ending              38,065         46,336         38,065          46,336
subscribers
Conversion of
members to          2.1       %    1.8       %    2.2        %    1.5        %
subscribers
Churn               16.9      %    19.6      %    19.4       %    18.4       %
ARPU              $ 11.18        $ 21.69        $ 13.91         $ 19.47
CPGA              $ 24.08        $ 30.10        $ 40.53         $ 26.83
Average
lifetime net      $ 42.01        $ 80.86        $ 31.14         $ 78.75
revenue per
subscriber
Net revenue (in   $ 1.3          $ 3.1          $ 5.2           $ 8.7
millions)
Live
Interactive
Video Websites
Total minutes       8,989,717      8,781,261      27,893,863      25,991,342
Average revenue   $ 2.18         $ 2.36         $ 2.32          $ 2.33
per minute
Net revenue (in   $ 19.6         $ 20.7         $ 64.7          $ 60.7
millions)





SOURCE FriendFinder Networks Inc.

Website: http://www.penthouse.com
 
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