AQNT Aquantive (MM)

aQuantive, Inc. (NASDAQ:AQNT), a global digital marketing company, today reported financial results for the second quarter ended June 30, 2007. Removing the impact of expenses associated with the pending acquisition of aQuantive, Inc. by Microsoft Corporation, aQuantive results for revenue, net income and adjusted EBITDA all exceeded the guidance given by the company. 2007 second quarter results, which include contributions from acquisitions made during 2006 and 2007, were: Revenue of $156.0 million, an increase of 48 percent over the second quarter of 2006. Net income1 of $9.6 million, or $0.11 per diluted share, a decrease of 22 percent from the second quarter of 2006. Adjusted EBITDA1,2 of $26.1 million, or $0.29 per diluted share, a decrease of 9 percent over the second quarter of 2006. 2007 six-month results, which include contributions from all acquisitions made during 2006 and 2007, were: Revenue of $298.6 million, an increase of 51 percent over the first half of 2006. Net income1 of $23.9 million, an increase of 20 percent over the first half of 2006. Adjusted EBITDA1 of $58.8 million, or $0.65 per diluted share, an increase of 17 percent over the first half of 2006. 1 Net income and Adjusted EBITDA include $10.9 million ($6.2 million after taxes) related to expenses incurred in connection with the pending acquisition of aQuantive, Inc. by Microsoft Corporation. 2 Adjusted EBITDA (i.e. earnings before interest expense, net interest and other income, income tax, depreciation, amortization and stock-based compensation) is a non-GAAP financial measure. See the supplemental schedule attached to this press release for more information. �aQuantive�s growth continues to be tremendous. We benefited from each business unit�s strong market position, our focus on serving clients, anticipating market demand and effective recruiting initiatives,� said Brian McAndrews, president and CEO of aQuantive. �In the second quarter, organic growth was an impressive 33 percent.� aQuantive operates three business segments. Unallocated corporate expenses, including amounts recorded for stock-based compensation expense, are centrally managed at the corporate level and are not included in the segment operating results. Expenses related to the pending acquisition of aQuantive, Inc. by Microsoft Corporation were included within unallocated corporate expenses. Segment performance was as follows: Digital Marketing Services aQuantive�s digital marketing services (DMS) segment had revenue of $94.2 million in the second quarter of 2007, compared to revenue of $64.1 million in the second quarter of 2006. Operating income was $13.0 million in the second quarter of 2007, compared to $11.3 million in the second quarter of 2006. Digital Marketing Technologies aQuantive�s digital marketing technologies (DMT) segment had revenue of $40.2 million in the second quarter of 2007, compared to revenue of $29.7 million in the second quarter of 2006. Operating income was $15.6 million for the second quarter of 2007, compared to $12.1 million in the second quarter of 2006. Digital Performance Media aQuantive�s digital performance media (DPM) segment had revenue of $21.6 million in the second quarter of 2007, compared to revenue of $11.9 million in the second quarter of 2006. Operating income was $3.1 million for the second quarter of 2007, compared to $2.4 million in the second quarter of 2006. The Company will not provide guidance for revenue, net income, and adjusted EBITDA. About aQuantive, Inc. aQuantive, Inc., is a global digital marketing company, founded in 1997 to help marketers acquire, retain and grow customers across all digital media. It is the parent company of Avenue A | Razorfish, the largest interactive agency in the U.S., and five international agencies, Avenue A | Razorfish U.K., Amnesia, NEUE DIGITALE, e-Crusade and Duke; Atlas, provider of integrated digital marketing technologies and expertise; and DRIVEpm and Franchise Gator, performance media and behavioral targeting businesses. Through its business units, aQuantive is positioned to bring value to any interaction in the digital marketplace. Its stock (ticker symbol: AQNT) is listed on the NASDAQ exchange. aQuantive�s website address is www.aquantive.com. aQuantive, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) � June 30,2007 December 31,2006 Assets � Current assets: Cash, cash equivalents, and short-term investments $ 309,697 $ 278,807 Accounts receivable, net of allowances 271,093 273,174 Other receivables 3,132 2,312 Prepaid expenses and other current assets 6,407 4,459 Deferred tax assets, net � 4,451 � 4,475 Total current assets 594,780 563,227 � Property and equipment, net 43,152 34,343 Goodwill and other intangible assets, net 322,502 316,580 Long-term investments 18,975 32,509 Other assets 3,544 2,754 Deferred tax assets, net � 12,187 � 2,915 Total assets $ 995,140 $ 952,328 � Liabilities and Shareholders' Equity � Current liabilities: Accounts payable and accrued expenses $ 225,558 $ 251,072 Pre-billed media 23,643 27,945 Deferred revenue 13,726 16,517 Other current liabilities � 1,120 � 1,027 Total current liabilities 264,047 296,561 � Notes payable 79,715 80,000 Other long-term liabilities � 4,651 � 7,941 Total liabilities � 348,413 � 384,502 � Shareholders' equity: Common stock 801 778 Paid-in capital 575,086 522,657 Retained earnings and other comprehensive income � 70,840 � 44,391 Total shareholders' equity � 646,727 � 567,826 Total liabilities and shareholders' equity $ 995,140 $ 952,328 aQuantive, Inc. Consolidated Statement of Operations (in thousands, except per share data) (unaudited) � Three Months Ended Six Months Ended June 30, June 30, � 2007 � 2006 � 2007 � 2006 � Revenue 155,975 105,629 298,596 197,814 � Costs and expenses: Cost of revenue 24,793 15,258 48,381 28,636 Client support 72,019 46,458 136,986 91,630 Product development 4,873 3,608 9,712 7,288 Sales and marketing 10,318 7,331 20,849 13,971 General and administrative 25,948 11,710 40,998 20,968 Amortization of intangible assets 2,912 2,149 5,655 4,185 Client reimbursed expenses � 2,544 � 1,242 � 4,599 � 2,110 Total costs and expenses 143,407 87,756 267,180 168,788 Other operating income � 505 � - � 1,551 � - Income from operations 13,073 17,873 32,967 29,026 � Interest and other income, net 4,380 3,746 8,509 5,445 Interest expense � 603 � 582 � 1,190 � 1,164 � Income before provision for income taxes 16,850 21,037 40,286 33,307 � Provision for income taxes � 7,237 � 8,700 � 16,431 � 13,355 � Net income $ 9,613 $ 12,337 $ 23,855 $ 19,952 � Basic net income per share $ 0.12 $ 0.16 $ 0.30 $ 0.28 Diluted net income per share $ 0.11 $ 0.15 $ 0.27 $ 0.25 � Shares used in computing basic net income per share 79,238 76,157 78,688 72,207 Shares used in computing diluted net income per share 90,844 87,448 89,970 83,707 Supplemental Schedule of Adjusted EBITDA and Non-GAAP Estimates � The term adjusted EBITDA refers to a financial measure that is defined by us as earnings before net interest and other income, interest expense, income taxes, depreciation and amortization, and stock-based compensation expense.��Adjusted EBITDA is a non-GAAP financial measure, and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be construed as a substitute for net income or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP.��Management believes that adjusted EBITDA is a useful measure for analyzing operating results, and uses this non-GAAP financial measure to review past results and forecast future results.��The following schedule reconciles adjusted EBITDA to net income on the company's consolidated statement of operations, which the company believes is the most directly comparable GAAP measure. � Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share data) � 2007 � � 2006 � � 2007 � � 2006 � (unaudited) (unaudited) Net income $ 9,613 $ 12,337 23,855 19,952 � Depreciation of property and equipment 4,990 3,682 9,909 7,205 Stock-based employee compensation expense 4,666 4,876 9,370 9,625 Amortization of intangible assets 3,353 2,341 6,585 4,569 Interest and other income, net (4,380 ) (3,746 ) (8,509 ) (5,445 ) Interest expense 603 582 1,190 1,164 Provision for income taxes � 7,237 � � 8,700 � � 16,431 � � 13,355 � Adjusted EBITDA $ 26,082 � $ 28,772 � $ 58,831 � $ 50,425 � � Adjusted EBITDA per basic share $ 0.33 � $ 0.38 � $ 0.75 � $ 0.70 � Adjusted EBITDA per diluted share $ 0.29 � $ 0.33 � $ 0.65 � $ 0.60 � � Supplemental Schedule of Segment Information � � (in thousands) Digital Marketing Services 1 � Digital Marketing Tech-nologies 2 � Digital Performance Media 3 � Un-allocated Corporate Expenses 5 � Total � (unaudited) Three Months Ended June 30, 2007 Revenue $ 94,162 $ 40,188 $ 21,625 $ - $ 155,975 � Costs and expenses: Cost of revenue 754 11,568 12,264 207 24,793 Client support 67,815 - 1,858 2,346 72,019 Product development - 4,493 - 380 4,873 Sales and marketing 2,126 4,787 3,078 327 10,318 General and adminis-trative 6,283 3,453 866 15,346 4 � 25,948 Amortization of intangible assets 2,120 298 494 - 2,912 Client reimbursed expenses � 2,544 � - � - � - � � 2,544 Total costs and expenses 81,642 24,599 18,560 18,606 143,407 Other operating income � 505 � - � - � - � � 505 Income from operations $ 13,025 $ 15,589 $ 3,065 $ (18,606 ) $ 13,073 � Three Months Ended June 30, 2006 Revenue $ 64,064 $ 29,683 $ 11,882 $ - $ 105,629 � Costs and expenses: Cost of revenue 1,254 7,817 6,044 143 15,258 Client support 43,089 - 939 2,430 46,458 Product development - 3,031 - 577 3,608 Sales and marketing 1,397 3,837 1,716 381 7,331 General and adminis-trative 4,193 2,562 536 4,419 11,710 Amortization of intangible assets 1,583 311 255 - 2,149 Client reimbursed expenses � 1,242 � - � - � - � � 1,242 Total costs and expenses � 52,758 � 17,558 � 9,490 � 7,950 � 87,756 Income from operations $ 11,306 $ 12,125 $ 2,392 $ (7,950 ) $ 17,873 � (in thousands) Digital Marketing Services 1 � Digital Marketing Tech-nologies 2 � Digital Performance Media 3 � Un-allocated Corporate Expenses 5 � Total (unaudited) Six Months Ended June 30, 2007 Revenue $ 177,215 � $ 78,332 � $ 43,049 � $ - $ 298,596 � Costs and expenses: Cost of revenue 858 22,686 24,450 387 48,381 Client support 128,785 - 3,591 4,610 136,986 Product development - 8,929 - 783 9,712 Sales and marketing 4,750 9,316 6,166 617 20,849 General and adminis-trative 12,463 7,229 1,632 19,674 4 40,998 Amortization of intangible assets 4,027 642 986 - 5,655 Client reimbursed expenses � 4,599 � - � - � - � � 4,599 Total costs and expenses 155,482 48,802 36,825 26,071 267,180 Other operating income � 1,551 � - � - � - � � 1,551 Income from operations $ 23,284 $ 29,530 $ 6,224 $ (26,071 ) $ 32,967 � Six Months Ended June 30, 2006 Revenue $ 119,276 � $ 57,352 � $ 21,186 � $ - $ 197,814 � Costs and expenses: Cost of revenue 1,981 15,046 11,323 286 28,636 Client support 85,232 - 1,681 4,717 91,630 Product development - 5,955 - 1,333 7,288 Sales and marketing 2,986 7,552 2,682 751 13,971 General and adminis-trative 6,373 5,000 948 8,647 20,968 Amortization of intangible assets 3,218 622 345 - 4,185 Client reimbursed expenses � 2,110 � - � - � - � � 2,110 Total costs and expenses � 101,900 � 34,175 � 16,979 � 15,734 � 168,788 Income from operations $ 17,376 $ 23,177 $ 4,207 $ (15,734 ) $ 29,026 � � 1 Digital Marketing Services includes Avenue A | Razorfish and five international agencies. � 2 Digital Marketing Technologies includes Atlas and AdManager. � 3 Digital Performance Media includes DRIVEpm and Franchise Gator. � 4 For the three and six months ended June 30, 2007, unallocated general and administrative expenses include $10,860 in expenses related to the pending acquisition of aQuantive, Inc. by Microsoft Corporation. � 5 For the three and six months ended June 30, 2007 and 2006, unallocated corporate expenses include stock-based compensation expense. This expense is not allocated to our segments, as it is centrally managed at the corporate level and not reviewed by our chief operating decision maker in evaluating results by segment. For the three and six months ended June 30, 2007 and 2006, stock-based compensation expense was as follows: Three Months Ended Six Months Ended June 30, June 30, � 2007 � 2006 � 2007 � 2006 Cost of Revenue $ 207 $ 143 $ 387 $ 286 Client Support 2,346 2,430 4,610 4,717 Product Development 288 385 585 959 Sales and Marketing 314 381 604 751 General and Administrative � 1,511 � 1,537 � 3,184 � 2,912 Total stock-based compensation expense $ 4,666 $ 4,876 $ 9,370 $ 9,625