HouseValues Announces Second Quarter Results

Thu. July 31, 2008; Posted: 04:00 PM

Comparisons of Quarterly Results

-- Revenue was $10.1 million in the second quarter compared to $11.2 million in the first quarter of 2008. The decline in sequential quarter revenue primarily reflected fewer customers in the company's agent direct business. -- Net loss was $1.3 million in the second quarter compared to a net loss of $1.2 million in the first quarter. -- Adjusted EBITDA was $0.9 million in the second quarter compared to an Adjusted EBITDA loss of $0.1 million in the first quarter. The first quarter result included $0.6 million in cash severance expense. -- Cash position remained strong at $62.7 million as the company generated $0.9 million in cash flow from operations for the quarter.

"In a quarter that saw existing home sales reach their lowest level in a decade, HouseValues improved its Adjusted EBITDA performance as a result of strong sales productivity, disciplined expense control, and the highest customer retention rate we have seen in more than eighteen months," said CEO Ian Morris. "Our team is doing an excellent job of delivering value to our customers in an environment where our services are more important to their business than ever," Morris added.

Enhancements to Agent Direct Business

The fourth quarter acquisition of Realty Generator expanded HouseValues' addressable market through a product expressly designed for real estate brokerages and agent teams. Realty Generator's solution efficiently attracts consumer interest, effectively converts that interest into leads and cultivates contacts into closed transactions. While HouseValues grows its Realty Generator broker services business, the company also plans to leverage the acquired technology to enhance its agent direct business.

With the launch of a next generation agent direct product anticipated for later this year, HouseValues will offer its agent customers a more powerful combination of lead generation and contact management. The new product will include key features built to provide real time insight into consumer behavior and intelligence that alerts agents when their prospects are most likely to become ready to transact. It is designed to help agents be more productive while delivering an enhanced online experience to home buyers and sellers.

Cash Position and Share Repurchase Update

The company believes that its strong cash position is a strategic asset. Liquidity and safety of principal continue to be core to the company's investment policy. The company is currently invested in cash equivalents consisting of money market funds that invest in high quality, short-term U.S. Government obligations and repurchase agreements collateralized by U.S. Government Obligations. Cash and cash equivalents were $62.7 million on June 30, 2008.

Year-to-date HouseValues has re-purchased and retired 397,175 shares at an average cost of $2.51 per share, and may purchase up to approximately 1.4 million additional shares under the current share repurchase authorization.

Conference Call

HouseValues will host a conference call and live Webcast to discuss first quarter financial results today 4:30 p.m. Eastern time. To listen to the live conference call, please dial 719-325-4847. 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. Eastern time through midnight Friday, August 1 by dialing 719-457-0820 and entering the passcode 4806409#.

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, to develop new products and to expand into new lines of business. Please refer to the company's 2007 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 from continuing operations" refers to a financial measure that we define as earnings or loss before results of discontinued operations, net interest, gain on sale of fixed assets, income taxes, depreciation, amortization, impairment of long-lived assets, equity in loss of investee and stock-based compensation. Gain on sale of fixed assets is a new element in our Adjusted EBITDA from continuing operations calculation in the first quarter, effective with the sale of our purchase option for our Yakima, WA facility and its remaining assets. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and may not be comparable to Adjusted EBITDA from continuing operations as reported by other companies. We believe Adjusted EBITDA from continuing operations 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 operating performance. The components of Adjusted EBITDA from continuing operations 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 from continuing operations for planning purposes and in presentations to our board of directors. See below for a reconciliation of net loss, 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 ---------------------------- June 30, March 31, June 30, 2008 2008 2007 -------- -------- -------- Net loss $ (1,271) $ (1,192) $ (119) Adjustments Interest income, net (289) (519) (751) Gain on sale of fixed assets - (791) - Equity in loss of unconsolidated subsidiary 185 151 - Income from operations of discontinued mortgage segment - - (119) Depreciation and amortization of property and equipment from continuing operations 1,015 959 1,245 Amortization of intangible assets for continuing operations 492 492 16 Stock-based compensation from continuing operations 745 823 724 Income tax expense (benefit) 34 2 (51) -------- -------- -------- Adjusted EBITDA from continuing operations $ 911 $ (75) $ 945 ======== ======== ========

About HouseValues Inc.

Founded in 1999, HouseValues, Inc. (NASDAQ: SOLD | Quote | Chart | News | PowerRating) provides real estate professionals with the tools and services they need to manage and grow their real estate businesses. The company's subscription software products include Realty Generator, a turnkey lead generation and lead management system for real estate brokerage companies; and MarketLeader, a customer relationship management and lead management solution for real estate agents. The company also provides real estate professionals with access to industry-leading media buying and lead generation services to help them attract new clients and promote themselves throughout their community.

Additionally, HouseValues provides consumers with free access to the information and tools they need throughout the home buying and selling process. The company's consumer websites include: JustListed.com a service that notifies home buyers as soon as new homes hit the market; HouseValues.com, a service that provides home sellers with market valuations of their current home; and HomePages.com, a real estate portal that enables consumers to see all the home listings in their area, view detailed neighborhood and school data, compare recent home sales, find local real estate agents, and find the value of their own home.

Real estate professionals can learn more about the company's services at www.realtygenerator.com and www.marketleader.com. For more information please visit www.housevaluesinc.com.

SOLD: FINANCIAL

HouseValues, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited) Three months ended Six months ended June 30, June 30, ------------------ ------------------ 2008 2007 2008 2007 -------- -------- -------- -------- Revenues $ 10,131 $ 15,984 $ 21,327 $ 33,822 Expenses: Sales and marketing (1) 6,242 10,241 13,672 22,628 Technology and product development (1) 1,491 2,507 3,449 5,297 General and administrative (1) 2,232 3,015 4,938 6,567 Gain on sale of fixed assets - - (791) - Depreciation and amortization of property and equipment 1,015 1,245 1,974 3,400 Amortization of intangible assets 492 16 984 411 -------- -------- -------- -------- Total expenses 11,472 17,024 24,226 38,303 -------- -------- -------- -------- Loss from operations (1,341) (1,040) (2,899) (4,481) Equity in loss of unconsolidated subsidiary (185) - (336) - Interest income, net 289 751 808 1,337 -------- -------- -------- -------- Loss before income tax expense (1,237) (289) (2,427) (3,144) Income tax expense (benefit) 34 (51) 36 (1,326) -------- -------- -------- -------- Net loss from continuing operations (1,271) (238) (2,463) (1,818) Discontinued operations Income from operations of discontinued mortgage segment - 183 - 127 Income tax expense - 64 - 44 -------- -------- -------- -------- Income from discontinued operations - 119 - 83 -------- -------- -------- -------- Net loss $ (1,271) $ (119) $ (2,463) $ (1,735) ======== ======== ======== ======== Net loss per share: Basic: Continuing operations $ (0.05) $ (0.01) $ (0.10) $ (0.07) Discontinued operations $ - $ - $ - $ - -------- -------- -------- -------- Total $ (0.05) $ - $ (0.10) $ (0.07) ======== ======== ======== ======== Diluted: Continuing operations $ (0.05) $ (0.01) $ (0.10) $ (0.07) Discontinued operations $ - $ - $ - $ - -------- -------- -------- -------- Total $ (0.05) $ - $ (0.10) $ (0.07) ======== ======== ======== ======== Number of shares used in per share calculations: Basic 24,235 24,607 24,379 24,518 ======== ======== ======== ======== Diluted 24,235 24,607 24,379 24,518 ======== ======== ======== ======== (1) Stock-based compensation is included in the expense line items above in the following amounts: -------- -------- -------- -------- 2008 2007 2008 2007 -------- -------- -------- -------- Sales and marketing $ 225 $ 122 $ 378 $ 352 Technology and product development 8 147 78 262 General and administrative 512 455 1,112 1,344 Discontinued operations - - - 19 -------- -------- -------- -------- $ 745 $ 724 $ 1,568 $ 1,977 ======== ======== ======== ======== HouseValues, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited) June 30, December 31, 2008 2007 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 62,652 $ 35,450 Short-term investments - 27,400 Accounts receivable, net of allowance of $61 and $50 92 128 Prepaid expenses and other assets 1,894 1,764 Prepaid income taxes 941 905 ------------ ------------ Total current assets 65,579 65,647 Property and equipment, net of accumulated depreciation of $11,875 and $11,518 4,833 6,187 Goodwill 4,244 3,833 Intangible assets, net of accumulated amortization of $3,560 and $2,576 5,346 6,330 Minority investment in unconsolidated subsidiary 2,252 2,588 Other noncurrent assets - 398 ------------ ------------ Total assets $ 82,254 $ 84,983 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 974 $ 1,395 Accrued compensation and benefits 1,927 2,084 Accrued expenses and other current liabilities 1,326 1,809 Deferred rent, current portion 289 289 Deferred revenue 418 373 Note payable 1,938 1,873 ------------ ------------ Total current liabilities 6,872 7,823 Deferred rent, less current portion 501 722 Noncurrent deferred tax liabilities 59 - ------------ ------------ Total liabilities 7,432 8,545 Shareholders' equity: Preferred stock, par value $0.001 per share, stated at amounts paid in; authorized 30,000,000 shares; none issued and outstanding - - Common stock, par value $0.001 per share, stated at amounts paid in; authorized 120,000,000 shares; issued and outstanding 24,271,164 and 24,521,139 shares at June 30, 2008 and December 31, 2007, respectively 67,222 66,375 Retained earnings 7,600 10,063 ------------ ------------ Total shareholders' equity 74,822 76,438 ------------ ------------ Total liabilities and shareholders' equity $ 82,254 $ 84,983 ============ ============ HouseValues, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) Six months ended June 30, ------------------ 2008 2007 -------- -------- Cash flows from operating activities: Net Loss $ (2,463) $ (1,735) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,974 3,400 Amortization of intangible assets 984 411 Stock-based compensation 1,568 1,977 Tax benefit deficiency from exercises of stock options - (48) Deferred income tax benefit 59 (461) Gain on sale of fixed assets (791) - Equity in loss of unconsolidated subsidiary 336 - Changes in certain assets and liabilities Accounts receivable 36 379 Prepaid expenses and other current assets (45) (1,278) Prepaid income taxes (36) 817 Other noncurrent assets 398 (88) Accounts payable (505) (1,981) Accrued compensation and benefits (157) (969) Accrued expenses and other current liabilities (447) (2,397) Deferred rent (221) (186) Deferred revenue 45 (531) -------- -------- Net cash provided by (used in) operating activities 735 (2,690) -------- -------- Cash flows from investing activities: Purchases of short-term investments - (16,645) Sales of short-term investments 27,400 9,910 Purchases of property and equipment (970) (1,688) Proceeds from sale of fixed assets 1,209 - Acquisition of Realty Generator (382) - -------- -------- Net cash provided by (used in) investing activities 27,257 (8,423) -------- -------- Cash flows from financing activities: Purchase and retirement of common stock (997) - Proceeds from exercises of stock options and warrants 207 510 Tax benefit from exercises of stock options - 48 -------- -------- Net cash (used in) provided by financing activities (790) 558 -------- -------- Net increase (decrease) in cash and cash equivalents 27,202 (10,555) Cash and cash equivalents at beginning of period 35,450 49,376 -------- -------- Cash and cash equivalents at end of period $ 62,652 $ 38,821 ======== ========

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

SOURCE: HouseValues, Inc.

mailto:markl@housevalues.com mailto:hugh@silerpr.com

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