The Knot Reports Second Quarter 2009 Financial Results

The Knot, Inc. (NASDAQ: KNOT, www.theknot.com), a leading lifestage media company targeting couples planning their weddings and future lives together, today reported financial results for its second quarter and six months ended June 30, 2009.

Second Quarter 2009 Summary Results

For the second quarter ended June 30, 2009, The Knot reported net revenues of $29.5 million compared with net revenues of $28.7 million for the second quarter of 2008, an increase of 3%.

Revenue from national and local online advertising programs increased 6% over the prior year’s second quarter driven by a 7% increase in local online advertising revenue. Merchandise revenue from the sale of wedding supplies was up 14% primarily due to the acquisition in early May of an e-commerce company that sells wedding supplies. Registry services revenue and publishing & other revenue remained pressured with 9% and 13% declines, respectively, compared to the prior year’s quarter.

Operating income for the second quarter of 2009 was $3.1 million, an increase of 10% compared to operating income of $2.8 million for the second quarter of 2008 driven by revenue growth and tighter control over operating expenses, which were unchanged year-over-year.

Net income for the second quarter of 2009 was $1.7 million or $0.05 per basic and diluted share compared to net income of $2.3 million or $0.07 per basic and diluted share for the second quarter of 2008. The primary reason for the decrease in net income was interest income, which declined by $664,000 this quarter from the second quarter of 2008 due to lower interest rates earned on the Company’s cash and investments. The Company’s balance sheet reflects cash and cash equivalents of $73.2 million, short-term investments of $3.0 million, and long-term investments of $47.8 million. The Company’s short-term and long-term investments consist entirely of auction rate securities. The Company has no debt.

"We are pleased that our diversified business model has enabled us to deliver growth in revenue and operating income in the midst of a challenging economic environment. However, visibility for our business remains limited,” said Chief Executive Officer David Liu. "Macro-economic conditions continue to negatively impact our local wedding vendors, retail clients, and national advertisers creating a challenging climate for our media business and unpredictable results for our retail-dependent revenues. We do not anticipate a general recovery anytime soon; therefore, our priorities will remain focused on closely managing our expenses as we continue to roll out our product and operational enhancements over the remainder of the year.”

Recent Developments

• The Company launched an additional 25 niche websites in June bringing the total to 160 niche websites launched since January, well within reach of its goal of 200 sites by year-end. The sites are designed to increase exposure for local advertisers, and in June the niche sites generated an incremental 17% more visits to our local media.
• In June the Company also launched a new Facebook application called Mommyhood. Reaching more than 200,000 users since its launch two months ago, the Mommyhood application allows pregnant women and new moms to connect with other moms on Facebook, share photos and news, and send popular virtual gifts. Mommyhood was created by WedSnap, which was acquired by The Knot in January. WedSnap is the developer of the popular Facebook application, Weddingbook, which has more than 550,000 users.
• This summer the Company launched a 12-week series called The Knot LIVE. This weekly magazine-format show covers all things weddings, from the hottest trends to celebrity planners to wedding fashion fresh from the runway. The show broadcasts live, streaming video on TheKnot.com every Wednesday at noon ET. Additionally, The Knot made its first foray into live streaming online video with live coverage of two fashion shows during Bridal Fashion Week in April.
• In May the Company acquired a patent and a pending patent related to online gift registries as well as the ongoing business of eWish.com. The eWish business serves boutique retailers by providing a turnkey solution to add online registry functionality to any e-commerce website.

Second Quarter and Year-to-Date 2009 Financial Highlights

"We grew revenue primarily through online advertising and the acquisition of an e-commerce company that we completed at the beginning of May,” Chief Financial Officer John Mueller said. "This revenue growth and decreases in legal, travel and entertainment, and bad debt expense have generated a 10% increase in operating income over last year’s quarter. We will continue to focus on opportunistic acquisitions and discretionary expense control in the second half of 2009.”

• For the six months ended June 30, 2009, The Knot reported net revenues of $53.2 million and net income of $403,000 or $0.01 per basic and diluted share as compared to net revenues of $52.5 million and net income of $2.9 million or $0.09 per basic and diluted share in 2008. For the first half of 2009, total revenues are 1% higher than the first half of 2008.
• National online revenues were $5.6 million and $9.8 million for the three and six months ended June 30, 2009, respectively, compared to $5.4 million and $10.1 million for the corresponding periods in 2008.
• Local online revenues were $8.6 million and $17.2 million for the three and six months ended June 30, 2009, respectively, as compared to $8.0 million and $16.3 million for the corresponding periods in 2008.
• Merchandise revenues from the sale of wedding supplies were $8.1 million and $13.3 million for the three and six months ended June 30, 2009, respectively, as compared to $7.1 million and $11.7 million for the corresponding periods in 2008. Approximately $1.1 million of the increase in revenue is due to the e-commerce acquisition that closed in early May. The Company anticipates that this acquisition will add $2.5 million of incremental revenue at an approximately 50% gross margin and an additional $1.1 million of operating expenses for the second half of 2009.
• Gross profit margins approximated 79% for the three and six months ended June 30, 2009, compared to 80% in the corresponding periods in 2008.
• Operating expenses were $20.1 million and $41.3 million for the three and six months ended June 30, 2009, respectively, as compared to $20.1 million and $39.6 million for corresponding periods in 2008.
• Stock-based compensation expense was $1.1 million and $2.1 million for the three and six months ended June 30, 2009, respectively, as compared to $1.1 million and $1.9 million for the corresponding periods in 2008.
• Net cash provided by operating activities was $7.6 million for the six months ended June 30, 2009, while capital expenditures amounted to $1.0 million for the same period.

Conference Call and Replay Information

The Knot will host a conference call with investors at 4:30 p.m. ET on Thursday, August 6, 2009, to discuss its second quarter 2009 financial results. Participants should dial in (800) 430-3457 Reference #22720394 at least 10 minutes before the call is scheduled to begin. Participants can also access the live broadcast over the Internet on the Investor Relations section of the Company’s website, accessible at www.theknot.com/investor-relations. To access the webcast, participants should visit The Knot website at least 15 minutes prior to the conference call in order to download or install any necessary audio software.

A replay of the webcast will also be archived on the Company’s website approximately two hours after the conference call ends. A replay of the call will be available at (800) 642-1687, conference ID #22720394

About The Knot, Inc.

The Knot, Inc. (NASDAQ: KNOT; www.theknot.com), is a leading lifestage media company targeting couples planning their weddings and future lives together. Its flagship brand, The Knot, is the nation's leading wedding resource, reaching more than a million engaged couples each year through the #1 wedding website, TheKnot.com. Extensions of The Knot brand include The Knot national and local magazines, The Knot books (published by Random House and Chronicle), and television programming bearing The Knot name (aired on Style Network and Comcast). The Company’s website, WeddingChannel.com, is the most visited wedding gift registry website. The Nest brand focuses on the newlywed lifestage with the popular lifestyle website TheNest.com, a home decor book series with Clarkson Potter and The Nest magazine. The Bump brand focuses on the pregnancy and first-time parenthood lifestage with TheBump.com website and The Bump local guides. Also under the company’s umbrella are WeddingTracker.com, GiftRegistryLocator.com, party-planning site PartySpot.com, teen-oriented PromSpot.com, Breastfeeding.com, local baby services and community site LilaGuide.com, and WedSnap, the developer of the Weddingbook and Mommyhood applications on Facebook.

This release may contain projections or other forward-looking statements regarding future events or our future financial performance. These statements are only predictions and reflect our current beliefs and expectations. Actual events or results may differ materially from those contained in the projections or forward-looking statements. It is routine for internal projections and expectations to change as the quarter progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of the quarter. Although these expectations may change, we will not necessarily inform you if they do. Our policy is to provide expectations not more than once per quarter, and not to update that information until the next quarter. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation, (i) our online wedding-related and other websites may fail to generate sufficient revenues to survive over the long term, (ii) our history of losses, (iii) the significant fluctuation to which our quarterly revenues and operating results are subject, (iv) the seasonality of the wedding industry, (v) our dependence on a limited number of customers, and in particular, Macy’s, for a significant portion of our revenues, (vi) the dependence of our registry services business on the continued use of the WeddingChannel.com website by our retail partners, (vii) the potential for losses on our investments in auction rate securities or our inability to liquidate these investments at desired times and in desired amounts, and (viii) other factors detailed in documents we file from time to time with the Securities and Exchange Commission. Forward-looking statements in this release are made pursuant to the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.

Note: Certain prior year amounts have been reclassified to conform to the current year’s presentation.