aQuantive Reports First Quarter 2007 Results

aQuantive, Inc. (NASDAQ:AQNT), a global digital marketing company, today reported financial results for the first quarter ended March 31, 2007. 2007 first quarter results, which include contributions from acquisitions made during 2006 and 2007, were: Revenue of $142.6 million, an increase of 55 percent over the first quarter of 2006. Net income of $14.2 million, or $0.16 per diluted share, an increase of 87 percent over the first quarter of 2006. Adjusted EBITDA1 of $32.7 million, or $0.37 per diluted share, an increase of 51 percent over the first quarter of 2006. "aQuantive started 2007 with strong financial performance, resulting in 42 percent organic revenue growth. Our performance in the first quarter builds on the investments and results of 2006,” said Brian McAndrews, president and CEO of aQuantive. "Our focus on innovating, expanding globally and providing differentiated client service to the digital marketing industry is working.” 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. Segment performance was as follows: Digital Marketing Services aQuantive’s digital marketing services (DMS) segment had revenue of $83.1 million in the first quarter of 2007, compared to revenue of $55.2 million in the first quarter of 2006. Operating income was $10.3 million in the first quarter of 2007, compared to $6.1 million in the first quarter of 2006. In March, Avenue A | Razorfish acquired Duke, adding 127 employees in France. Digital Marketing Technologies aQuantive’s digital marketing technologies (DMT) segment had revenue of $38.1 million in the first quarter of 2007, compared to revenue of $27.7 million in the first quarter of 2006. Operating income was $13.9 million for the first quarter of 2007, compared to $11.1 million in the first quarter of 2006. Digital Performance Media aQuantive’s digital performance media (DPM) segment had revenue of $21.4 million in the first quarter of 2007, compared to revenue of $9.3 million in the first quarter of 2006. Operating income was $3.2 million for the first quarter of 2007, compared to $1.8 million in the first quarter of 2006. Financial Guidance The Company will provide guidance for revenue, net income, and adjusted EBITDA1. Stock-based compensation expense is expected to have a significant impact on our net income. The Company anticipates second quarter 2007 results as follows: Revenue of $148 - $153 million Net income of $13 - $14.5 million Adjusted EBITDA of $32 - $34 million The Company anticipates full-year 2007 results as follows: Revenue of $595 - $615 million Net income of $66 - $71 million Adjusted EBITDA of $150 - $156 million 1 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. First Quarter 2007 Conference Call/Webcast Today at 5:30 am PDT/8:30 am EDT aQuantive, Inc. will host a conference call and webcast to discuss the first quarter 2007 financial results today at 5:30 am PDT/8:30 am EDT. The conference call will be webcast from the Investor Relations section of aQuantive’s website at www.aquantive.com/investor. Interested parties should log on to the webcast approximately 15 minutes prior to download any necessary software. The webcast is not interactive. 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, DNA, Amnesia, NEUE DIGITALE, e-Crusade and Duke; Atlas, provider of integrated digital marketing technologies and expertise; and DRIVEpm, MediaBrokers 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. Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects," "anticipates," "forecasts," and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Forward-looking statements also include any other passages that relate to expected future events or trends that can only be evaluated by events or trends that will occur in the future. The forward-looking statements in this release include, without limitation, statements regarding expected financial performance for the second quarter and full year 2007. The forward-looking statements are based on the opinions and estimates of management at the time the statements were made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, among others, the risk of unforeseen changes in client online marketing and advertising budgets, unanticipated loss of clients or delays in anticipated campaigns and projects, the potential failure to attract new clients due to the company's inability to competitively market its services, the risk of fluctuating demand for the company's services, the potential negative effects on our business of consolidation in the internet advertising industry, the potential failure to maintain desired client relationships or to achieve effective advertising campaigns for clients, slower-than-expected development of the Internet advertising market either domestically or in international markets, quarterly fluctuations in operating results, costs and risks related to acquisitions of technologies, businesses or brands, risks relating to international operations, the short term nature of the company's contracts with clients, which generally are cancelable on 90 days' or less notice, and the uncertainties, potential costs, and possible business impacts of new legislation or litigation involving the company. More information about factors that could cause actual results to differ materially from those predicted in aQuantive's forward-looking statements is set out in its annual report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements, which speak only as to the date of this release. Except as required by law, aQuantive undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise. aQuantive, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited)     March 31, 2007 December 31, 2006 Assets   Current assets: Cash, cash equivalents, and short-term investments $ 296,711  $ 278,807  Accounts receivable, net of allowances 270,462  273,174  Other receivables 2,735  2,312  Prepaid expenses and other current assets 5,247  4,459  Deferred tax assets, net   9,567    4,475  Total current assets 584,722  563,227    Property and equipment, net 36,847  34,343  Goodwill and other intangible assets, net 323,676  316,580  Long-term investments 18,996  32,509  Other assets 3,032  2,754  Deferred tax assets, net -  2,915      Total assets $ 967,273  $ 952,328        Liabilities and Shareholders' Equity   Current liabilities: Accounts payable and accrued expenses $ 232,720  $ 251,072  Pre-billed media 25,920  27,945  Deferred revenue 14,117  16,517  Other current liabilities   1,037    1,027  Total current liabilities 273,794  296,561    Notes payable 80,000  80,000  Other long-term liabilities 7,993  7,941  Deferred tax liabilities 6,482  -      Total liabilities   368,269    384,502    Shareholders' equity: Common stock 787  778  Paid-in capital 538,974  522,657  Retained earnings and other comprehensive income   59,243    44,391  Total shareholders' equity 599,004  567,826      Total liabilities and shareholders' equity $ 967,273  $ 952,328  aQuantive, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)   Three Months Ended March 31,   2007    2006    Revenue $ 142,621  $ 92,185    Costs and expenses: Cost of revenue 23,588  13,378  Client support 64,967  45,172  Product development 4,839  3,680  Sales and marketing 10,531  6,640  General and administrative 15,050  9,258  Amortization of intangible assets 2,743  2,036  Client reimbursed expenses   2,055    868  Total costs and expenses 123,773  81,032  Other operating income   1,046    -  Income from operations 19,894  11,153    Interest and other income, net 4,129  1,699  Interest expense   587    582    Income before provision for income taxes 23,436  12,270    Provision for income taxes   9,194    4,655    Net income $ 14,242  $ 7,615    Basic net income per share $ 0.18  $ 0.11  Diluted net income per share $ 0.16  $ 0.10    Shares used in computing basic net income per share   78,143    68,275  Shares used in computing diluted net income per share   89,062    80,010  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 March 31, (in thousands, except per share data)   2007    2006  (unaudited) Net income $ 14,242  $ 7,615    Depreciation of property and equipment 4,919  3,523  Stock-based employee compensation expense 4,704  4,749  Amortization of intangible assets 3,232  2,228  Interest and other income, net (4,129) (1,699) Interest expense 587  582  Provision for income taxes 9,194  4,655      Adjusted EBITDA $ 32,749  $ 21,653    Adjusted EBITDA per basic share $ 0.42  $ 0.32  Adjusted EBITDA per diluted share $ 0.37  $ 0.27    In our estimate of adjusted EBITDA for the second quarter of 2007, we have excluded estimates for interest expense of approximately $0.6 million, net interest and other income of approximately $4.2 million, depreciation of approximately $5.6 million, amortization of intangible assets of approximately $2.6 million, share-based compensation of approximately $5.5 million and income taxes at an effective tax rate of 40%.     In our estimate of adjusted EBITDA for the full year 2007, we have excluded estimates for interest expense of approximately $2.4 million, net interest and other income of approximately $17.2 million, depreciation of approximately $20.4 million to $22.4 million, amortization of intangible assets of approximately $11.6 million, share-based compensation of approximately $20.9 million and income taxes at an effective tax rate of 40%. Supplemental Schedule of Segment Information     (in thousands) Digital Marketing Service 1   Digital Marketing Technologies 2   Digital Per- formance Media 3   Unallocated Corporate Expenses 4   Total (unaudited) Three Months Ended March 31, 2007 Revenue $ 83,053  $ 38,144  $ 21,424  $ -  $ 142,621    Costs and expenses: Cost of revenue 104  11,118  12,186  180  23,588  Client support 60,970  -  1,733  2,264  64,967  Product development -  4,436  -  403  4,839  Sales and marketing 2,624  4,529  3,088  290  10,531  General and adminis- trative 6,180  3,776  766  4,328  15,050  Amortization of intangible assets 1,907  344  492  -  2,743  Client reimbursed expenses   2,055    -    -    -    2,055  Total costs and expenses 73,840  24,203  18,265  7,465  123,773  Other operating income   1,046    -    -    -    1,046  Income from operations $ 10,259  $ 13,941  $ 3,159  $ (7,465) $ 19,894    Three Months Ended March 31, 2006 Revenue $ 55,212  $ 27,669  $ 9,304  $ -  $ 92,185    Costs and expenses: Cost of revenue 727  7,229  5,279  143  13,378  Client support 42,143  -  742  2,287  45,172  Product development -  2,924  -  756  3,680  Sales and marketing 1,589  3,715  966  370  6,640  General and adminis- trative 2,180  2,438  412  4,228  9,258  Amortization of intangible assets 1,635  311  90  -  2,036  Client reimbursed expenses   868    -    -    -    868  Total costs and expenses 49,142  16,617  7,489  7,784  81,032            Income from operations $ 6,070  $ 11,052  $ 1,815  $ (7,784) $ 11,153        1 Digital Marketing Services includes Avenue A | Razorfish and five international agencies. 2 Digital Marketing Technologies includes Atlas and Accipiter. 3 Digital Performance Media includes DRIVEpm, MediaBrokers, and Franchise Gator. 4 For the three months ended March 31, 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 months ended March 31, 2007 and 2006, stock-based compensation expense was as follows: Three Months Ended March 31,   2007    2006  Cost of Revenue $ 180  $ 143  Client Support 2,264  2,287  Product Development 297  574  Sales and Marketing 290  370  General and Administrative   1,673    1,375  Total stock-based compensation expense $ 4,704  $ 4,749