October 28, 2010

Ancestry.com Inc. Reports 2010 Third Quarter

Ancestry.com Subscriber Growth of 34% Year-Over-Year

Total Revenue Up 39% Year-Over-Year

Raises FY 2010 Outlook

PROVO, Utah, Oct. 28, 2010 (GLOBE NEWSWIRE) -- Ancestry.com Inc. (Nasdaq:ACOM), the world's largest online family history resource, today reported financial results for the quarter ended September 30, 2010.

"Solid execution of our marketing initiatives and ongoing advancements in our core service offering are supporting the continued strength in subscriber gains that we've seen throughout the year both domestically and internationally, and we are again increasing our outlook for 2010," said Tim Sullivan, Chief Executive Officer of Ancestry.com. "Our rapid growth is enabling us to continue investing in marketing, product improvement and talent, all of which are central to our growth strategy, and we are doing so without sacrificing delivery of outstanding financial performance."

Ancestry.com Web Sites Highlights

  • Subscribers totaled 1,377,000 at the end of the third quarter of 2010, a 34% increase over the end of the third quarter of 2009 and a 5% increase over the end of the second quarter of 2010. The reported total subscribers and other subscriber related metrics do not include customers of Genline.se, which was acquired on July 15, 2010.
  • Gross Subscriber additions were 252,000 in the third quarter of 2010, a 58% increase over the third quarter of 2009 and a 13% decline from the second quarter of 2010, reflecting the continued success of marketing programs in the quarter and the difficult sequential comparison due to strong subscriber additions from the airing of Who Do You Think You Are? early in the second quarter.
  • Monthly Subscriber Churn(1) was 4.0% in the third quarter of 2010, compared to 3.6% in the third quarter of 2009 and 4.3% in the second quarter of 2010, due to the mix of monthly and annual subscribers and strong renewal rates in the quarter.
  • Subscriber acquisition cost(2) in the third quarter of 2010 was $81.58, compared to $70.55 in the third quarter of 2009 and $74.04 in the second quarter of 2010.
  • Average Monthly Revenue per Subscriber(3) in the third quarter of 2010 was $17.75, compared to $16.48 in the third quarter of 2009 and $18.02 in the second quarter of 2010.

Third Quarter 2010 Financial Highlights

  • Total revenue for the third quarter of 2010 was $79.3 million, an increase of 39.2% over $57.0 million in the prior year period, driven by growth in our core Ancestry.com Web sites revenues of 43.4%.
  • Operating income for the third quarter of 2010 was $19.3 million, compared to $7.9 million in the prior year period.
  • Adjusted EBITDA(4) for the third quarter of 2010 was $29.0 million, compared to $17.9 million in the third quarter of 2009. Adjusted EBITDA margin for the third quarter of 2010 was 36.6%, compared to 31.5% in the third quarter of 2009.
  • Interest expense was $2.2 million for the third quarter of 2010, including a one-time, non-cash charge of $1.3 million related to the termination of the company's term loan on September 9, 2010. As a result of paying off the loan in full, the company has no outstanding debt. During the quarter, the company put in place a $100.0 million revolving credit facility.
  • Net income was $11.8 million, or $0.24 per fully diluted share, for the third quarter of 2010 compared to $4.0 million, or $0.10 per fully diluted share, in the third quarter of 2009.
  • Free cash flow(5) totaled $20.1 million in the third quarter of 2010 compared to $9.1 million in the prior year period.
  • Cash, cash equivalents, and short-term investments totaled $80.1 million as of September 30, 2010. 

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(1) Monthly churn is a measure representing the number of subscribers that cancel in the quarter divided by the sum of beginning subscribers and subscriber additions during the quarter. To arrive at monthly churn, the results are divided by three.

(2) Subscriber acquisition cost is external marketing and advertising expense, divided by gross subscriber additions in the quarter.

(3) Average monthly revenue per subscriber is total subscription revenues earned in the quarter from subscriptions to the Ancestry.com Web sites divided by the average number of subscribers in the quarter, divided by three. The average number of subscribers for the quarter is calculated by taking the average of the beginning and ending number of subscribers for the quarter.

(4) Adjusted EBITDA is defined as net income (loss) plus net interest (income) expense; income tax expense; non-cash charges including depreciation, amortization, impairment of intangible assets and stock-based compensation expense; and other (income) expense.

(5) Free cash flow subtracts from adjusted EBITDA capitalization of content database costs, capital expenditures and cash paid for income taxes and interest expense.

Recent Business Highlights

  • Acquired iArchives, Inc. and its branded Web site, Footnote.com, a leading American History Web site. The acquisition provides Ancestry.com with a complementary consumer brand, expanded content offerings, and enhanced digitization and image-viewing technologies.
  • Released Ancestry.com Family Tree MakerĀ® 2011, an improved version of the world's No. 1 selling family history software.
  • Extended the relationship with NBC for the second season of the Who Do You Think You Are? television series.
  • Acquired leading professional genealogy research firm, ProGenealogists, Inc., which specializes in genealogical, forensic and family history research.
  • Added several new important content collections, including U.S. Births and Marriages Collections and the English and Welsh National Probate Calendar from 1861 to 1941.

Business Outlook

The Company's financial and operating expectations for the fourth quarter and full year 2010 are as follows:

Fourth Quarter 2010

  • Revenue in the range of $80.0 to $82.0 million
  • Adjusted EBITDA in the range of $28.0 to $30.0 million
  • Ending subscribers of approximately 1,380,000

Full Year 2010

  • Revenue in the range of $298 to $300 million (increased from the previously expected range of $290 to $295 million)
  • Adjusted EBITDA in the range of $99 to $101 million (increased from the previously expected range of $93 to $97 million)
  • Ending subscribers of approximately 1,380,000 (increased from the previously expected range of 1,360,000 to 1,370,000)

Conference Call & Webcast

Ancestry.com will host a conference call with analysts and investors today at 3:00 p.m. MT (5:00 p.m. ET). An accompanying slide presentation and a live webcast of the conference call will be available at the investor relations section of the Ancestry.com Web site, http://ir.ancestry.com/. Participants can also access the conference call by dialing 888-228-5271 (within the United States), or 913-312-1299 (international callers) approximately ten minutes prior to the start time.

A replay of the call will be available approximately two hours after the call has ended and will be available through Friday, November 5, 2010. To access the replay, dial 888-203-1112 (within the United States), or 719-457-0820 (international callers) and enter the replay passcode 4570615. The webcast replay will also be available for 12 months on the investor relations section of the Ancestry.com Web site, http://ir.ancestry.com/, under Events and Presentations.

Use of Non-GAAP Measures

Management believes that adjusted EBITDA and free cash flow are useful measures of operating performance because they exclude items that we do not consider indicative of our core performance. In the case of adjusted EBITDA, we adjust net income for such things as interest, taxes, stock-based compensation and certain non-cash and non-recurring items. Free cash flow subtracts from adjusted EBITDA the capitalization of content database costs, capital expenditures and cash paid for income taxes and interest expense. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income 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 financial statements.

Our management uses adjusted EBITDA and free cash flow as measures of operating performance; for planning purposes, including the preparation of our annual operating budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of our results with those of other companies; and in communications with our board of directors concerning our financial performance. We also use adjusted EBITDA and have used free cash flow as factors when determining management's incentive compensation.

About Ancestry.com

Ancestry.com Inc. (Nasdaq:ACOM) is the world's largest online family history resource, with nearly 1.4 million paying subscribers. More than 5 billion records have been added to the site in the past 14 years. Ancestry users have created more than 20 million family trees containing over 2 billion profiles. Ancestry.com has local Web sites directed at nine countries that help people discover, preserve and share their family history, including its flagship Web site at www.ancestry.com.

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 our 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 our subscriber base, our reach, our activities to enhance subscribers' experience, our activities to promote our products, our business outlook, our leadership position and our opportunities and prospects for growth, including growth in revenues and adjusted EBITDA. These forward-looking statements are based on information available to us 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 our control. In particular, such risks and uncertainties include difficulties encountered in integrating acquired businesses and retaining customers, and the additional difficulty of integration when continuing the acquired operation; failure of our products to continue to meet customer demand; the adverse impact of competitive product announcements; failure of the second season of Who Do You Think You Are? to yield results comparable to the first season; failure to achieve anticipated revenues 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 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 quarterly period ended June 30, 2010, and in discussions in other of our SEC 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 Inc.
Consolidated Balance Sheets
(in thousands)
   
 September 30,
2010
December 31,
2009
Assets (unaudited) 
Current assets:  
Cash and cash equivalents $ 64,085 $ 66,941
Restricted cash 2,441 2,181
Short-term investments 16,004 33,331
Accounts receivable, net 4,398 5,860
Income tax receivable 2,912 2,017
Deferred income taxes 1,572 8,797
Prepaid expenses and other current assets 4,972 5,380
Total current assets 96,384 124,507
Property and equipment, net 19,378 19,430
Content database costs, net 55,301 49,650
Intangible assets, net 33,107 41,484
Goodwill 290,356 285,466
Other assets 1,402 2,811
Total assets $ 495,928 $ 523,348
Liabilities and stockholders' equity  
Current liabilities:  
Accounts payable $ 8,857 $ 6,877
Accrued expenses 27,401 18,850
Escrow liability 2,029 1,763
Deferred revenues 90,583 69,711
Current portion of long-term debt --  28,416
Total current liabilities 128,870 125,617
Long-term debt, less current portion --  71,609
Deferred income taxes 24,728 30,117
Other long-term liabilities 1,834 1,115
Total liabilities 155,432 228,458
Commitments and contingencies  
Stockholders' equity:  
Common stock 44 42
Additional paid-in capital 293,263 272,513
Accumulated other comprehensive income (loss) 519 (41)
Retained earnings 46,670 22,376
Total stockholders' equity 340,496 294,890
Total liabilities and stockholders' equity $ 495,928 $ 523,348
 
 
Ancestry.com Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
     
 3 Months Ended9 Months Ended
 September 30, 2010September 30, 2009September 30, 2010September 30, 2009
Revenues: (unaudited) (unaudited)
Subscription revenues $ 74,239 $ 52,603 $ 204,343 $ 152,506
Product and other revenues 5,076 4,384 13,853 12,287
Total revenues 79,315 56,987 218,196 164,793
Costs of revenues:    
Cost of subscription revenues 11,267 10,033 33,996 29,755
Cost of product and other revenues 1,155 1,389 3,929 4,213
Total cost of revenues 12,422 11,422 37,925 33,968
Gross profit 66,893 45,565 180,271 130,825
Operating expenses:    
Technology and development 10,528 9,142 30,447 26,690
Marketing and advertising 24,125 14,240 71,061 44,226
General and administrative 9,141 10,229 24,915 24,569
Amortization of acquired intangible assets 3,791 4,052 11,149 12,165
Total operating expenses 47,585 37,663 137,572 107,650
Income from operations 19,308 7,902 42,699 23,175
Interest expense (2,187) (1,428) (4,896) (4,784)
Interest income 201 48 340 746
Other income, net 401 4 398 14
Income before income taxes 17,723 6,526 38,541 19,151
Income tax expense (5,914) (2,485) (14,247) (6,927)
Net income $ 11,809 $ 4,041 $ 24,294 $ 12,224
     
Net income per common share    
Basic $ 0.27 $ 0.11 $ 0.56 $ 0.32
Diluted $ 0.24 $ 0.10 $ 0.50 $ 0.30
Weighted average common shares outstanding    
 Basic  43,984 38,327 43,075 38,283
 Diluted  48,774 41,059 48,186 40,096
     
Reconciliation of adjusted EBITDA and free cash flow to net income:    
Net Income $ 11,809 $ 4,041 $ 24,294 $ 12,224
Interest expense, net 1,986 1,380 4,556 4,038
Income tax expense 5,914 2,485 14,247 6,927
Depreciation expense  2,751 2,762 8,355 8,092
Amortization expense 5,691 5,805 16,713 17,346
Stock-based compensation 1,275 1,462 3,541 4,265
Other income, net (401) (4) (398) (14)
     
Adjusted EBITDA $ 29,025 $ 17,931 $ 71,308 $ 52,878
Capitalization of content database costs (3,393) (2,183) (8,534) (5,855)
Purchase of property and equipment (4,269) (1,415) (7,897) (7,566)
Cash paid for interest (1,051) (1,208) (2,528) (6,624)
Cash paid for income taxes (164) (4,029) (6,345) (8,985)
Free cash flow $ 20,148 $ 9,096 $ 46,004 $ 23,848
 
 
Ancestry.com Inc.
Other Data
        
 September 30, 2010June 30, 2010March 31, 2010December 31, 2009September 30, 2009June 30, 2009March 31, 2009
Total Subscribers 1,376,974 1,310,562 1,211,978 1,066,123 1,028,180 990,959 959,411
Subscriber additions 251,738 290,589 279,100 165,241 159,795 160,394 188,561
Monthly churn 4.0% 4.3% 3.3% 3.6% 3.6% 3.8% 4.3%
Subscriber acquisition cost $ 81.58 $ 74.04 $ 69.57 $ 85.21 $ 70.55 $ 73.27 $ 62.23
Average monthly revenue per subscriber $ 17.75 $ 18.02 $ 16.70 $ 16.67 $ 16.48 $ 16.42 $ 16.46
CONTACT:  Ancestry.com Inc.
          Investors:
          Ryan Ostler
            (801) 705-7942
            rostler@ancestry.com
          Media:
          Heather Erickson
            (801) 705-7104
            herickson@ancestry.com

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