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Ancestry.com LLC Reports Third Quarter 2014 Financial Results

PROVO, Utah, Oct. 22, 2014 (GLOBE NEWSWIRE) -- Ancestry.com LLC (the "Company"), the world's largest online family history resource, reported financial results today for the third quarter ended September 30, 2014.

"Ancestry.com is executing well on our mission to help everyone discover, preserve and share their family history," said Tim Sullivan, Chief Executive Officer of Ancestry.com. "We're continuing to focus on our core customers – the enthusiasts who are passionate about their family history – by adding valuable new content and features to our site, while also aggressively pursuing growth priorities designed to expand our total addressable market. These priorities include our AncestryDNA product, where we've doubled our customer base during 2014, our mobile apps, which are generating increased engagement, and our efforts to broaden category awareness, including the creation of terrific family history TV programming. Overall our business is healthy and we believe we're positioning the company to capture its long-term growth opportunities."

Third Quarter 2014 Financial Highlights

  • Total revenues and non–GAAP revenues1 for the third quarter 2014 were each $154.7 million. Non-GAAP revenues increased 8.3% from $142.8 million in the third quarter of 2013, driven by growth in revenues from AncestryDNA and the Company's core Ancestry branded websites.
  • Net loss for the third quarter of 2014 was $(1.2) million compared to net loss of $(13.6) million in the third quarter of 2013.
  • Adjusted EBITDA2 for the third quarter of 2014 was $55.9 million, compared to $54.8 million in the third quarter of 2013. Adjusted EBITDA for the three months ended September 30, 2014 includes $0.8 million of professional service fees related to litigation. For the three months ended September 30, 2013, adjusted EBITDA includes $1.6 million of costs associated with the dividend declared in September 2013 by our parent company, Holdings LLC, and costs associated with reorganizing our structure.
  • Free cash flow3 totaled $31.0 million for the third quarter of 2014, compared to $54.5 million for third quarter of 2013.
  • Cash and cash equivalents totaled $106.2 million as of September 30, 2014.
  • Obligations under long-term debt4 totaled $893.9 million as of September 30, 2014.

Ancestry.com Updates

  • Subscribers - Subscribers of Ancestry websites totaled approximately 2,125,000 as of September 30, 2014, compared to 2,109,000 as of June 30, 2014.
  • Content - The Company added more than 375 million new records during the quarter. New collections added in Q3 included:
    • Tens of millions of new records and rich content for the US site including Prohibition ID Cards, prison records, yearbooks, city directories, New York State collections and additional content from a relationship with the US Holocaust Memorial Museum
    • 3.3 million records added to the United Kingdom site at Ancestry.co.uk including an increase in UK military and naturalization records
    • 2.6 million records added to the Canadian site at Ancestry.ca
    • 1.2 million records added to the Australia site at Ancestry.com.au
  • AncestryDNA has more than doubled its customer base since the beginning of 2014.

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1 Non-GAAP revenues are defined as the revenues that would have been recognized, except for the write-down of deferred revenue to fair value as a result of the application of purchase accounting for the acquisition of Ancestry.com Inc. by a company controlled by Permira funds and co-investors (the "Transaction").
2 Adjusted EBITDA is defined as net income (loss) plus non-cash adjustments to revenue from purchase accounting, interest expense, net; other (income) expense; income tax expense (benefit); and non-cash charges including depreciation, amortization and stock-based compensation expense.
3 Free cash flow subtracts from adjusted EBITDA capitalization of content databases, purchases of property and equipment and cash received (paid) for income taxes and interest.
4 This amount does not include $400.0 million in senior unsecured PIK notes issued by our parent company, Ancestry.com Holdings LLC. While not required, Ancestry.com LLC intends to make dividends to its parent in order to fund cash interest payments of these notes.

Conference Call & Webcast

Ancestry.com will host a conference call today at 3:00 p.m. MT (5:00 p.m. ET). Participants can access the conference call by dialing 315-625-6887 approximately ten minutes prior to the start time.

Use of Non-GAAP Measures

The Company believes that non-GAAP revenues, adjusted EBITDA and free cash flow are useful measures of operating performance because they exclude items that the Company does not consider indicative of its core performance. Non-GAAP revenues are calculated by adding the effects of non-cash adjustments to revenue from purchase accounting for the Transaction. In the case of adjusted EBITDA, net income (loss) is adjusted for such expenses as non-cash adjustments to revenue from purchase accounting, interest expense, net; other (income) expense, net; income tax expense (benefit); and non-cash charges including depreciation, amortization and stock-based compensation expense. Free cash flow subtracts from adjusted EBITDA the capitalization of content databases, purchases of property and equipment and cash received (paid) for income taxes and interest. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, total revenues, net income (loss) and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited summary financial statements.

The Company uses non-GAAP revenues, adjusted EBITDA and free cash flow as measures of operating performance; for planning purposes, including the preparation of the annual operating budget; to allocate resources to enhance the financial performance of its business; to evaluate the effectiveness of its business strategies; and in communications with its operating committee concerning its financial performance. The Company also uses non-GAAP revenues and adjusted EBITDA as factors when determining the incentive compensation pool.

About Ancestry.com

Ancestry.com is the world's largest online family history resource with approximately 2.7 million paying subscribers across all its websites. More than 15 billion records have been added, and users have created more than 60 million family trees to the core Ancestry websites, including its flagship site www.ancestry.com and its affiliated international websites. Additionally, Ancestry.com offers a suite of online family history brands, including Archives.com, Fold3.com, Newspapers.com, as well as the AncestryDNA product, sold by Ancestry.com DNA, LLC, which, along with its core Ancestry websites, are all designed to empower people to discover, preserve and share their family history.

Forward-Looking Statements

This press release contains forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from those anticipated in these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "appears," "may," "designed," "expect," "intend," "focus," "seek," "anticipate," "believe," "estimate," "predict," "potential," "should," "continue" or "work" or the negative of these terms or other comparable terminology. These statements include statements describing the Company's subscriber base, future earnings, growth outlook and financial and operating performance, its business outlook, its leadership position and its opportunities and prospects for growth, including growth in revenues, adjusted EBITDA and number of subscribers. These forward-looking statements are based on information available to the Company as of the date of this press release. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond the Company's control. In particular, such risks and uncertainties include the Company's continued ability to attract and retain subscribers; continued service outages or a significant disruption in service on its websites; its continued ability to acquire content and make it available online; its ability to add tools and features and provide value to satisfy customer demand; difficulties encountered in integrating acquired businesses and retaining customers; the timing and amount of investments in the Company's DNA service; market conditions; the Company's substantial debt obligations as a result of the Transaction; its intention to pay dividends to its parent in order to service its parent's indebtedness; the availability of cash and credit; the adverse impact of competitive product announcements; failure to achieve anticipated revenues, adjusted EBITDA and operating performance; changes in overall economic conditions; the loss of key employees; competitors' actions; pricing and gross margin pressures; inability to control costs and expenses; and significant litigation. Information concerning additional factors that could cause events or results to differ materially from those projected in the forward-looking statements is contained under the caption "Risk Factors" in our Quarterly Report on Form 10-Q for the period ended June 30, 2014, which was filed with the Securities and Exchange Commission on August 4, 2014, and in discussions in other of our Securities and Exchange Commission filings.

These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise.

ANCESTRY.COM LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2014
December 31,
2013
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 106,185 $ 86,554
Restricted cash 49,086 60,740
Accounts receivable, net of allowances of $576 and $605 at September 30, 2014 and December 31, 2013, respectively 10,891 11,382
Income tax receivable 6,828 3,285
Deferred income taxes 3,077 20,350
Prepaid expenses and other current assets 15,649 11,530
Total current assets 191,716 193,841
Property and equipment, net 40,860 37,613
Content databases, net 280,355 272,758
Intangible assets, net 305,691 416,735
Goodwill 948,283 948,283
Other assets 30,305 35,512
Total assets $ 1,797,210 $ 1,904,742
LIABILITIES AND MEMBER'S INTERESTS
Current liabilities:
Accounts payable $ 10,914 $ 12,575
Accrued expenses 47,511 51,923
Acquisition-related liabilities 49,086 60,640
Deferred revenues 144,250 137,864
Current portion of long-term debt 36,870 36,760
Total current liabilities 288,631 299,762
Long-term debt, net 843,908 869,620
Deferred income taxes 130,009 185,553
Other long-term liabilities 14,096 9,110
Total liabilities 1,276,644 1,364,045
Commitments and contingencies
Member's interests:
Member's interests 684,154 693,072
Accumulated deficit (163,588) (152,375)
Total member's interests 520,566 540,697
Total liabilities and member's interests $ 1,797,210 $ 1,904,742
ANCESTRY.COM LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
(unaudited) (unaudited)
Revenues:
Subscription revenues $ 138,962 $ 129,519 $ 414,117 $ 366,001
Product and other revenues 15,722 10,416 50,265 29,404
Total revenues 154,684 139,935 464,382 395,405
Costs of revenues:
Cost of subscription revenues 24,080 22,280 71,343 63,798
Cost of product and other revenues 10,996 6,452 32,924 20,006
Total cost of revenues 35,076 28,732 104,267 83,804
Gross profit 119,608 111,203 360,115 311,601
Operating expenses:
Technology and development 23,743 21,963 72,544 63,898
Marketing and advertising 42,150 36,550 128,341 107,872
General and administrative 12,927 14,234 42,482 39,509
Amortization of acquired intangible assets 36,993 46,350 111,045 139,032
Total operating expenses 115,813 119,097 354,412 350,311
Income (loss) from operations 3,795 (7,894) 5,703 (38,710)
Interest expense, net (17,232) (19,069) (52,382) (70,569)
Other income (expense), net (181) 278 144 (434)
Loss before income taxes (13,618) (26,685) (46,535) (109,713)
Income tax benefit 12,391 13,039 35,322 53,360
Net loss $ (1,227) $ (13,646) $ (11,213) $ (56,353)
Comprehensive loss $ (1,227) $ (13,646) $ (11,213) $ (56,353)
ANCESTRY.COM LLC
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
(unaudited) (unaudited)
Reconciliation of adjusted EBITDA and free cash flow to net loss: (1)
Net loss $ (1,227) $ (13,646) $ (11,213) $ (56,353)
Non-cash revenue adjustment (2) -- 2,912 -- 20,162
Interest expense, net 17,232 19,069 52,382 70,569
Other (income) expense, net 181 (278) (144) 434
Income tax benefit (12,391) (13,039) (35,322) (53,360)
Depreciation 5,564 4,428 15,862 12,256
Amortization 44,322 53,078 132,660 158,833
Stock-based compensation expense 2,172 2,289 5,996 5,475
Adjusted EBITDA $ 55,853 $ 54,813 $ 160,221 $ 158,016
Capitalization of content databases (9,689) (6,060) (29,208) (14,732)
Purchases of property and equipment (6,131) (4,058) (19,109) (17,248)
Cash paid for interest (6,877) (8,340) (37,223) (45,645)
Cash received (paid) for income taxes (2,113) 18,188 (1,227) 36,919
Free Cash Flow (3) $ 31,043 $ 54,543 $ 73,454 $ 117,310
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Reconciliation of Non-GAAP revenues to total revenues: (unaudited) (unaudited)
Total revenues $ 154,684 $ 139,935 $ 464,382 $ 395,405
Non-cash revenue adjustment (2) -- 2,912 -- 20,162
Non-GAAP revenues $ 154,684 $ 142,847 $ 464,382 $ 415,567
(1) Net loss and therefore adjusted EBITDA and free cash flow for the three and nine months ended September 30, 2014 include $0.8 million and $4.3 million, respectively, of professional service fees related to litigation and costs associated with the return of capital transaction declared in February 2014 by our parent company, Holdings LLC. For the three and nine months ended September 30, 2013, net loss, adjusted EBITDA and free cash flow include $1.6 million and $3.8 million, respectively, of costs associated with the dividend declared in September 2013 by our parent company, professional services related to litigation, costs associated with reorganizing our corporate structure and registering the Notes with the SEC.
(2) Represents non-cash adjustments to revenue or the revenues that would have been recognized, except for the write-down of deferred revenue to fair value as a result of the application of purchase accounting for the Transaction.
(3) Free cash flow for the nine months ended September 30, 2014 does not include an $18.4 million return-of-capital distribution paid in April 2014 to our parent company to pay accumulated interest on its PIK notes.
ANCESTRY.COM LLC
TOTAL SUBSCRIBERS AND NET SUBSCRIBER ADDITIONS
(in thousands)
Three Months Ended
September 30,
2014
June 30,
2014
September 30,
2013
Total subscribers 2,125 2,109 2,175
Net subscriber additions 16 (52) 64

CONTACT: Heather Erickson herickson@ancestry.com (801) 705-7104

Source:Ancestry.com, Inc.