Inc. Reports Q3 2012 Financial Results

— Subscriber Growth up 19% year-over-year—
— Q3 Total Revenue $128 million, up 24% year-over-year —
PROVO, Utah, Oct. 24, 2012 (GLOBE NEWSWIRE) -- Inc. (Nasdaq:ACOM), the world's largest online family history resource, reported today financial results for the third quarter ended September 30, 2012.
"We are very pleased with our third quarter results that featured strong financial performance and subscriber metrics and solid execution on our content and product initiatives," said Tim Sullivan, Chief Executive Officer of "We completed the indexing of the 1940 US Federal Census, a key milestone for and the family history category, and we continued to make progress with our mobile app platform and AncestryDNA rollout."
Separately, on October 22, 2012 the Company reported that a company owned by the Permira funds and co-investors entered into a definitive merger agreement to acquire for $32.00 per share in cash in a transaction valued at $1.6 billion. The transaction, which is subject to the approval of holders of a majority of the outstanding shares of common stock and other customary closing conditions, is expected to close in early 2013. Web Sites Highlights
  • Subscribers totaled approximately 2,020,000 as of September 30, 2012, a 19% increase over the end of the third quarter of 2011 and a 1% increase from the end of the second quarter of 2012.
  • Gross subscriber additions were 286,000 in the third quarter of 2012, compared to 274,000 in the third quarter of 2011 and 361,000 in the second quarter of 2012.
  • Monthly churn1 was 3.9% in the third quarter of 2012, compared to 4.2% in the third quarter of 2011 and 3.4% in the second quarter of 2012.
  • Subscriber acquisition cost2 in the third quarter of 2012 was $84.14, compared to $93.64 in the third quarter of 2011 and $81.49 in the second quarter of 2012.
  • Average monthly revenue per subscriber3 in the third quarter of 2012 was $18.68, compared to $18.68 in the third quarter of 2011 and $18.84 in the second quarter of 2012.
Third Quarter 2012 Financial Highlights
  • Total revenue for the third quarter of 2012 was $128.4 million, an increase of 24% over $103.1 million in the third quarter of 2011.
  • Operating income for the third quarter of 2012 was $35.9 million, compared to $27.2 million in the third quarter of 2011.
  • Adjusted EBITDA4 for the third quarter of 2012 was $51.3 million, compared to $40.1 million in the third quarter of 2011. Adjusted EBITDA margin for the third quarter of 2012 was 39.9%, compared to 38.9% in the third quarter of 2011.
  • Net income was $24.9 million, or $0.54 per fully diluted share, for the third quarter of 2012 compared to $19.1 million, or $0.40 per fully diluted share, in the third quarter of 2011.
  • Free cash flow5 totaled $30.8 million for the third quarter of 2012 compared to $30.6 million for the third quarter of 2011.
  • Cash and cash equivalents totaled $64.6 million as of September 30, 2012.
Recent Business Highlights
  • The Company completed the acquisition of
  • The Company completed the acquisition of 1000Memories and its popular Shoebox app.
  • The Company released the first complete and searchable 1940 US Federal Census database on August 2, 2012 with 134 million searchable indexed records.
  • The Company ended the quarter with approximately 11 billion records; new collections included:
-- Over 13 million vital records from Indiana, Tennessee, Ohio, Washington, and Kansas
-- Approximately 1 million new passenger lists and naturalization records from New York, Texas, Washington, Pennsylvania, US Virgin Islands, and Puerto Rico
-- 4.4 million records from the US WWII Navy Muster Lists
-- Several international collections including the UK Trade Directories, Irish Historic Newspapers, and the Mecklenburg Census from Germany
  • The Company added a monthly mobile membership allowing customers to discover their family history on-the-go via a smart phone or iPad.
  • The continued rollout of AncestryDNA aimed at enhancing the family history experience by revealing genetic ethnicities, genetic cousins, and recent common ancestors.
Conference Call & Webcast has canceled the third quarter 2012 earnings conference call and webcast with analysts and investors that had been scheduled for October 24, 2012.
Use of Non-GAAP Measures
The Company believes that adjusted EBITDA and free cash flow are useful measures of operating performance because they exclude items that the Company does not consider indicative of its core performance. In the case of adjusted EBITDA, net income is adjusted for such expenses as interest, income taxes, stock-based compensation and certain non-cash and non-recurring items. Free cash flow subtracts from adjusted EBITDA the capitalization of content databases, purchases of property and equipment and cash paid for income taxes and interest. 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 summary financial statements.
The Company uses adjusted EBITDA and free cash flow as measures of operating performance; for planning purposes, including the preparation of the annual operating budget; to allocate resources to enhance the financial performance of its business; to evaluate the effectiveness of its business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of its results with those of other companies; and in communications with its board of directors concerning its financial performance. The Company also uses adjusted EBITDA and has used free cash flow as factors when determining the incentive compensation pool.
About Inc. (Nasdaq:ACOM) is the world's largest online family history resource, with more than 2 million paying subscribers. More than 11 billion records have been added to the site in the past 15 years. Ancestry users have created more than 40 million family trees containing approximately 4 billion profiles. In addition to its flagship site, offers several localized Web sites designed to empower people to discover, preserve and share their family history.
The, Inc. logo is available at
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 the Company's 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 the Company's subscriber base, its reach, its activities to enhance subscribers' experience and deliver product innovations and enhancements, improved features and tools, its activities to develop and promote its products (including DNA services), its business outlook, its leadership position and its opportunities and prospects for growth, including growth in revenues, adjusted EBITDA and number of subscribers. These forward-looking statements are based on information available to the Company 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 the Company's control. In particular, such risks and uncertainties include the Company's continued ability to attract and retain subscribers; its continued ability to acquire content and make it available online; its ability to add tools and features and provide value to satisfy customer demand; difficulties encountered in consummating the recently announced acquisition of the Company and integrating acquired businesses and retaining customers; the timing and amount of investments in the Company's DNA service; market conditions; the Company's common stock price; the availability of cash and credit; the adverse impact of competitive product announcements; NBC's failure to renew Who Do You Think You Are?; 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 the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and in discussions in other of the Company's SEC filings.
These forward-looking statements should not be relied upon as representing our views as of any subsequent date and the Company assumes 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.
1Monthly churn is a measure representing the number of subscribers to the Web sites that cancel in the quarter divided by the sum of beginning subscribers and gross 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 associated with the Web sites for the quarter, divided by gross subscriber additions to the Web sites in the quarter.
3 Average monthly revenue per subscriber is total subscription revenues earned in the quarter from subscriptions to the 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 plus other expense, net; income tax expense; non-cash charges including depreciation, amortization, impairment of intangible assets and stock-based compensation expense; and certain non-recurring (income) expenses. 
5 Free cash flow subtracts from adjusted EBITDA capitalization of content databases, purchases of property and equipment and cash paid for income taxes and interest. Inc.
Consolidated Balance Sheets
(in thousands)
 September 30, December 31,
 2012 2011
 Current assets:   
 Cash and cash equivalents $ 64,625  $ 48,998
 Restricted cash 16,157  1,702
 Accounts receivable, net 9,854  7,599
 Income tax receivable 4,784  1,763
 Deferred income taxes 4,911  4,823
 Prepaid expenses and other current assets 7,692  7,945
 Total current assets108,023 72,830
 Property and equipment, net 28,272  21,701
 Content databases, net 95,787  76,646
 Intangible assets, net 52,731  17,594
 Goodwill 372,901  302,422
 Other assets 12,367  2,656
 Total assets $ 670,081  $ 493,849
Liabilities and stockholders' equity   
 Current liabilities:   
 Accounts payable $ 13,363  $ 9,817
 Accrued expenses 37,904  33,428
 Escrow liability 15,957  1,297
 Deferred revenues 143,418  108,654
 Debt 55,000  10,000
 Total current liabilities265,642 163,196
 Deferred income taxes 15,527  14,925
 Other long-term liabilities 14,199  5,219
 Total liabilities295,368 183,340
Commitments and contingencies   
 Stockholders' equity:   
 Common stock 49  48
 Additional paid-in capital 393,250  374,948
 Treasury stock (175,000)  (162,168)
 Accumulated other comprehensive income 873  564
 Retained earnings 155,541  97,117
 Total stockholders' equity374,713 310,509
 Total liabilities and stockholders' equity $ 670,081  $ 493,849 Inc.
Consolidated Statements of Income
(in thousands, except per share data)
 Three Months EndedNine Months Ended
 September 30, 2012September 30, 2011September 30, 2012September 30, 2011
 Subscription revenues $ 118,932 $ 98,093 $ 334,565 $ 279,983
 Product and other revenues 9,423 5,008 21,404 15,454
 Total revenues 128,355 103,101 355,969 295,437
Costs of revenues:    
 Cost of subscription revenues 16,776 15,292 49,473 43,290
 Cost of product and other revenues 6,319 1,558 12,688 5,227
 Total cost of revenues 23,095 16,850 62,161 48,517
Gross profit 105,260 86,251 293,808 246,920
Operating expenses:    
 Technology and development 19,887 14,773 55,292 42,683
 Marketing and advertising 30,810 30,266 105,303 94,324
 General and administrative 14,108 9,753 37,483 29,221
 Amortization of acquired intangible assets 4,577 4,304 10,362 12,871
 Total operating expenses 69,382 59,096 208,440 179,099
Income from operations 35,878 27,155 85,368 67,821
Other income (expense), net 102 (393) 87 (929)
Income before income taxes 35,980 26,762 85,455 66,892
 Income tax expense (11,080) (7,711) (27,031) (22,313)
Net income $ 24,900 $ 19,051 $ 58,424 $ 44,579
Net income per common share    
Basic $ 0.58 $ 0.43 $ 1.36 $ 0.99
Diluted $ 0.54 $ 0.40 $ 1.28 $ 0.90
Weighted average common shares outstanding    
Basic 43,094 44,670 42,877 45,209
Diluted 45,974 48,173 45,750 49,436
Reconciliation of adjusted EBITDA and free cash flow to net income:   
Net income $ 24,900 $ 19,051 $ 58,424 $ 44,579
Other income (expense), net (102) 393 (87) 929
Income tax expense 11,080 7,711 27,031 22,313
Depreciation 3,754 3,341 10,907 9,793
Amortization 7,554 6,681 18,476 19,663
Stock-based compensation expense 4,083 2,942 11,086 6,868
Adjusted EBITDA $ 51,269 $ 40,119 $ 125,837 $ 104,145
Capitalization of content databases (6,288) (4,673) (18,966) (14,624)
Purchases of property and equipment (7,326) (4,573) (17,443) (8,991)
Cash paid for interest (337) (107) (537) (333)
Cash paid for income taxes (6,537) (126) (27,061) (3,683)
Free cash flow $ 30,781 $ 30,640 $ 61,830 $ 76,514 Inc.
Other Data
 Three Months Ended
 September 30, 
June 30, 
March 31, 
December 31, 
September 30, 
June 30, 
March 31, 
Total subscribers 2,020,043 2,005,409 1,869,571 1,702,563 1,701,322 1,672,319 1,615,169
Gross subscriber additions 285,683 360,685 389,928 219,886 273,979 321,687 424,531
Monthly churn3.9%3.4%3.6%3.8%4.2%4.6%3.7%
Subscriber acquisition cost$84.14$81.49$88.11$107.88$93.64$81.23$69.56
Average monthly revenue per subscriber$18.68$18.84$18.49$18.38$18.68$18.88$18.05