SAN FRANCISCO – LookSmart, Ltd. (NASDAQ: LOOK), an online search advertising network solutions company, today announced financial results for the third quarter ended September 30, 2008.
Revenues for the third quarter of 2008 were $15.4 million, a 37% increase from $11.3 million in the third quarter of 2007 and a 10% decrease from $17.1 million in the second quarter of 2008. Net loss for the third quarter of 2008 was $1.6 million, or ($0.10) per share based on approximately 17.1 million weighted average shares outstanding, which includes $211 thousand of severance expense. This is compared to a net loss of $4.3 million, or ($0.19) per share based on approximately 22.9 million weighted average shares outstanding in the third quarter of 2007 which included $2.3 million of restructuring, severance and asset impairment charges. Net loss for the second quarter of 2008 was $176 thousand, or ($0.01) per share based on 17.0 million weighted average shares outstanding.
During the first quarter of 2008, the Company classified certain consumer assets as Assets Held for Sale on the Consolidated Balance Sheet. The results for the current and prior periods exclude these certain consumer assets which are accounted for in discontinued operations.
Loss from continuing operations for the third quarter of 2008 was $1.6 million compared to a loss from continuing operations in the third quarter of 2007 of $2.9 million. Loss from continuing operations for the second quarter of 2008 was $40 thousand.
“We are satisfied to have delivered third quarter revenue growth of approximately 37% compared to the prior year period,” commented Ted West, President and Chief Executive Officer. “We remain confident in LookSmart’s value proposition and competitive positioning within the search advertising networks marketplace, particularly in light of the challenging economic and consumer environment. We believe search advertising will prove increasingly relevant, and particularly cost-effective, as advertisers seek performance-based advertising leads and consumers search more aggressively for value on the web. During the third quarter, LookSmart took actions aimed at further streamlining and focusing the organization on search advertising networks, with a keen focus on network quality enhancement, while making several strategic investments in our brand, product offerings, and network infrastructure to position LookSmart for future growth. While the investments made during the third quarter affected our profitability, we are confident that, through the actions taken, we are creating a stronger business platform built for economic recovery and longevity.”
Revenues from the Company’s Advertiser Network were $13.9 million in the third quarter of 2008, an increase of 39% from $10.0 million in the third quarter of 2007. Revenues from the Company’s Publisher Solutions were $1.5 million in the third quarter of 2008, an increase of 15% from $1.3 million in the third quarter of 2007.
Gross margins from continuing operations were 40% in the third quarter of 2008 versus 44% in the third quarter of 2007 primarily due to higher traffic acquisition costs (TAC). During the third quarter of 2008, the Company continued to manage TAC slightly higher in order to enhance network search query quality and to drive higher advertising revenues and profit contribution in the Advertiser Network. Gross margins from continuing operations for the second quarter of 2008 were 40%.
Total operating expenses in the third quarter of 2008 were $8.1 million, which included $0.7 million of non-cash, share-based compensation charges and $0.2 million of severance expense. In addition, the Company incurred costs related to the development of a new corporate brand and the vertical managed network strategy. Operating expenses for the third quarter of 2007 were $8.4 million, which included $0.6 million of non-cash, share-based compensation charges, $0.2 million of restructuring costs related to a reduction in workforce, and $0.5 million of severance expense. Operating expenses for the second quarter of 2008 were $7.1 million, which included $0.6 million of non-cash, share-based compensation charges.
On a non-GAAP basis, for the third quarter of 2008, Adjusted EBITDA (net loss before interest income, net, taxes, depreciation and amortization excluding stock based compensation charges and loss from discontinued operations) was a loss of $444 thousand compared to an Adjusted EBITDA loss of $2.3 million in the third quarter of 2007.
An explanation of LookSmart’s use of non-GAAP financial measures, including the limitations of such measures relative to GAAP measures and reconciliation between GAAP and non-GAAP measures where appropriate, is included later in this release.
Capital expenditures, including capitalization of internally developed software, in the third quarter of 2008 remained constant from the prior quarter at $1.2 million, and increased $0.7 million from $0.5 million in the third quarter of 2007. During the third quarter of both 2008 and 2007, the Company purchased no intangible assets. Depreciation and amortization from continuing operations was $0.8 million in the third quarter of 2008 compared to $1.2 million in the third quarter of 2007.
The Company ended the quarter with approximately $30.0 million in cash, cash equivalents, and investments, a decrease of approximately $4.4 million from approximately $34.4 million on June 30, 2008. The decrease in cash was primarily due to the loss from operations generated in the third quarter of 2008, and to the timing of accounts receivable collection. On a per share basis the Company’s cash and investment balance was $1.76 as of September 30, 2008.
Q3 2008 Key Metrics Performance
* Total paid clicks increased to approximately 184 million for the third quarter of 2008 compared to approximately 83 million for the third quarter of 2007 and 195 million for the second quarter of 2008.
* Average revenue per click (RPC) for the third quarter of 2008 was approximately $0.08, a decrease from approximately $0.12 in the third quarter of 2007, and consistent with the second quarter of 2008 at approximately $0.08. The change reflects a shift in the segment composition of and channels to reach search advertising network customers.
* Traffic acquisition costs (TAC) of 62.5% for LookSmart’s Ad Network increased from the 59.0% rate in the third quarter of 2007, and increased from the 61.9% rate in the second quarter of 2008.
Persuant to the Company’s stock repurchase program, the Company did not repurchase any additional shares of its common stock during the second and third quarters of 2008. As such, the Company currently has $2.2 million authorized for share repurchase through the open market at the prevailing market price or in privately negotiated transactions.
The number of shares of common stock outstanding at the end of the third quarter of 2008 was 17,040,259.
About LookSmart, Ltd.
LookSmart is an online search advertising network solutions company that provides performance solutions for online advertisers and publishers. LookSmart offers advertisers targeted, pay-per-click (PPC) search advertising and contextual search advertising via its Advertiser Networks; and an Ad Center platform for customizable private-label advertiser solutions for online publishers. LookSmart is based in San Francisco, California. For more information, visit www.looksmart.com or call 415-348-7500.
