IGN 3Q Profits
Posted by Ben on Tuesday, October 29 2002

SAN FRANCISCO--(BUSINESS WIRE)--Oct. 29, 2002--IGN Entertainment (Nasdaq:IGNX)

-- Revenue Up 8% Year-Over-Year

-- Subscription Revenue Up 20% Over Prior Quarter

-- Q3 Bookings Drive Large Q4 Backlog

-- Q4 Revenue Expected to Increase 50+% Over Q3

-- Pro Forma Breakeven Forecast for Q4

IGN Entertainment (Nasdaq:IGNX) -- home to IGN.com, the web's largest information and entertainment destination for gamers --announced today its third quarter 2002 results. For the quarter ended September 30, 2002, IGN reported revenue of $2.3 million, compared to $2.1 million for the same period a year ago and $2.6 million for the previous quarter.

Year-Over-Year GAAP Based Net Loss Improves

The GAAP based net loss for the third quarter of 2002 was $3.9 million, or $1.82 per share. This compares to $4.9 million, or $2.60 per share, for the year ago quarter, and $1.3 million, or $0.71 per share, for the prior quarter.

Year-Over-Year Pro Forma Loss Improves

Pro forma net loss before significant non-cash items, restructuring charges and gain on sale of assets was $1.1 million, or $0.53 per share, for the third quarter of 2002, compared to $2.9 million, or $1.58 per share, for the year ago period and $970,000, or $0.53 per share, for the prior quarter.

The difference between the $1.1 million pro-forma net loss and the $3.9 million GAAP net loss this quarter consists of $263,000 of depreciation expense, $141,000 of stock-based compensation and a $2.3 million previously disclosed one-time charge to account for the decision to abandon and sublet the company's New York and Connecticut office space. Overall, the company expects that this facilities decision will result in approximately a $100,000 per quarter expense savings.

Year-Over-Year Revenue Growth and Strong Bookings

"Our Q3 revenue increased over the same period a year ago, even though last year's third quarter included approximately $450,000 of revenue from operations that we have since sold or discontinued," said Mark Jung, IGN's CEO. "Taking this into account, year-over-year third quarter IGN revenue growth was up almost 40 percent."

Jung continued, "Sequentially, this quarter's revenue was slightly lower than the prior quarter, reflecting the seasonality of the video gaming and advertising markets, the transition from our previous e-commerce marketing partnership to our current direct e-commerce store and slippage of select video game title releases into Q4.

"While revenue was down from the prior quarter, Q3 bookings for fourth quarter deliveries were exceptionally strong, with the dollar amount of third quarter bookings up 50 percent over the second quarter. This, combined with the fact that bookings have continued to remain strong in the month of October, leave us confident that Q4 revenue will be up at least 50 percent over Q3."

New Product Launches Add to Revenue Diversity

During the third quarter, IGN launched its IGN Gamestore e-commerce initiative with fulfillment partner GameStop.com. In addition, during October, IGN launched an online game arcade, which allows IGN users to play online games or to download or purchase games for off-line play. IGN expects these two new products to increasingly contribute to the company's revenue in future quarters.

For the third quarter, impression-based advertising represented 58 percent of IGN's revenue. The company's third quarter advertising customers included such well-known consumer brands as Adidas, Best Buy, Carl's Jr., McDonald's, Motorola, Toys "R" Us, Visa and Wrigley's, as well as top games companies Acclaim, Activision, Electronic Arts, Microsoft, Nintendo, Sega and Sony. Subscriptions accounted for $444,000, or 20 percent of revenue for the quarter. Other product lines -- including e-commerce, direct response marketing and content licensing -- generated the remaining 22 percent of revenue.

Subscription Revenue Continues to Grow

The company added 12,000 net new subscribers to its IGN Insider program during the third quarter, increasing its subscriber base to 68,000 as of September 30, 2002. As a result, subscription revenue grew by 20 percent over the prior quarter.

Fourth Quarter Forecast

The company currently anticipates that its fourth quarter 2002 revenue will increase by at least 50 percent over third quarter revenue, reaching $3.6 million at a minimum. The company also forecasts that its Q4 expenses will be up only slightly over Q3, and that, as a result, it expects to breakeven on a pro forma basis in the fourth quarter of 2002.

IGN's earnings conference call can be heard live on the Internet at 1:30 p.m. PST on Tuesday, October 29. To listen to the call, visit the Investor Relations section of the IGN web site at http://corp.ign.com. The call will be archived and available until November 12, 2002.

About IGN Entertainment

IGN Entertainment (Nasdaq:IGNX), through its IGN.com network, is the Internet's leading information and entertainment destination for teen and young adult gamers. IGN serves its audience by providing both free and subscription-based content, services and gameplay. IGN' s award winning content -- two Webby People's Voice Awards and two Wired Magazine's Readers Raves Awards -- attracts more than eight million unique visitors a month, including over 5.4 million registered users and 68,000 paying subscribers. IGN offers its business customers a full spectrum of integrated marketing solutions to reach this large web-centric audience. These products include impression-based advertising and sponsorships, permission marketing, custom publishing, e-commerce, direct e-mail marketing and content licensing. The company is headquartered in San Francisco, with sales offices in New York and Los Angeles. For more information, please visit http://www.ign.com.

Forward-Looking Statements

The forward-looking statements in this press release reflect IGN's expectations as of October 29, 2002. As mentioned below, a wide variety of factors, most notably ongoing market uncertainties, may cause actual results to differ materially from forecast. IGN does not expect to update its forward-looking statements until the company's next quarterly results announcement.

This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For example, the statements above regarding future revenue and the effects of restructuring activities include forward-looking statements. These statements are based upon the beliefs and current expectations of IGN Entertainment, Inc. and its management. Such statements are not guarantees of future results and involve risks and uncertainties that may cause actual results to differ materially from the results discussed therein. Risks and uncertainties that may cause such differences include, but are not limited to, our ability to maintain and expand our base of advertising and marketing customers, our ability to retain or grow our subscriber base, our ability to grow our e-commerce and online game arcade revenue, changes in market conditions in the U.S. economy and in the on-line advertising industry, changes in market conditions and competition in the video game software and platform industries, our limited operating history under a new and changing business model, our history of losses, our ability to diversify and grow revenue or to achieve long-term profitability, our ability to continue to develop content and service offerings that attract users and achieve market acceptance, the ability to finance our operating losses, and other risks detailed in the company's documents filed with the SEC, including the company's Form 10-K for the year ended December 31, 2001, and all subsequent filings, including quarterly reports on Form 10-Q. Specifically, please refer to the "Risk Factors" section of IGN's Form 10-K filed with the SEC. -0-

*T

IGN Entertainment, Inc.
Condensed Consolidated Statements of Operation
(unaudited)
(in thousands, except per share amounts)

Three Months Nine Months Ending
Ending September 30, September 30,
-------------------- ------------------
2002 2001 2002 2001
-------- -------- --------- ---------
Revenue $2,276 $2,100 $7,160 $6,921
Cost of revenue 280 592 1,054 2,552
-------- -------- --------- ---------
Gross profit 1,996 1,508 6,106 4,369

Operating expenses:
Production and content 962 1,509 2,912 5,735
Engineering and development 694 1,468 2,722 5,303
Sales and marketing 1,301 1,799 3,957 8,750
General and administrative 450 719 1,630 3,306
Stock-based compensation 141 106 182 1,897
Amortization of goodwill
and intangible assets - 849 - 3,092
Restructuring & impairment
charges 2,324 - 7,356 3,991
Gain on sale of assets - - (1,114) -
-------- -------- --------- ---------
Total operating expenses 5,872 6,450 17,645 32,074
-------- -------- --------- ---------

Loss from operations (3,876) (4,942) (11,539) (27,705)
Interest and other income
(expense), net 18 85 71 547
-------- -------- --------- ---------
Net loss $(3,858) $(4,857) $(11,468) $(27,158)
======== ======== ========= =========
Net loss per share - basic and
diluted $(1.82) $(2.60) $(6.00) $(14.38)
======== ======== ========= =========
Shares used in per share
calculation (1) 2,121 1,866 1,911 1,888
======== ======== ========= =========


Net Loss Before Significant Non-Cash items, Restructuring
Charges and Gain on Sale of Assets
(in thousands, except per share amounts)

Three Months Nine Months Ending
Ending September 30, September 30,
-------------------- ------------------
2002 2001 2002 2001
-------- -------- --------- ---------
Net loss $(3,858) $(4,857) $(11,468) $(27,158)
Significant non-cash items,
restructuring charges
and gain on sale of assets
Stock-based compensation 141 106 182 1,897
Amortization of intangible
assets - 849 - 3,092
Depreciation 263 959 1,505 3,312
Restructuring and asset
impairment charges 2,324 - 7,356 3,991
Gain on sale of assets - - (1,114) -
-------- -------- --------- ---------
Net loss before significant
non-cash items, restructuring
charges and gain on sale
of assets $(1,130) $(2,943) $(3,539) $(14,866)
======== ======== ========= =========
Pro forma net loss per share
before significant non-cash
items, restructuring charges
and gain on sale of assets $(0.53) $(1.58) $(1.85) $(7.87)
======== ======== ========= =========


(1) All shares have been restated to reflect the one-for-three and one-for-six reverse stock splits, which were effective March 6, 2001 and September 24, 2001, respectively.

IGN Entertainment, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)

September 30, December 31,
2002 2001
------------- ------------
Assets
Current assets:
Cash and cash equivalents $4,667 $8,285
Accounts receivable, net 1,672 1,544
Prepaid expenses and other current
assets 652 626
--------- ---------
Total current assets 6,991 10,455

Restricted cash 781 2,296
Goodwill and intangible assets, net 1,949 2,218
Fixed assets, net 1,114 6,118
Other assets 92 227
--------- ---------
Total assets $10,927 $21,314
========= =========

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
liabilities $3,476 $3,912
Deferred revenue 988 1,410
Current accrued restructuring
charges 234 65
Current equipment financing
obligations - 1,538
--------- ---------
Total current liabilities 4,698 6,925

Accrued restructuring charges,
less current portion 1,374 -
Deferred rent 431 562
Long-term equipment financing
obligations - 75

Stockholders' equity:
Common stock 2 2
Treasury stock (1,176) (1,172)
Additional paid-in capital 151,983 149,839
Accumulated deficit (146,385) (134,917)
--------- ---------
Total stockholders' equity 4,424 13,752
--------- ---------
Total liabilities and
stockholders' equity $10,927 $21,314
========= =========


IGN Entertainment, Inc.
Supplemental Financial Schedule
Eleven Quarter Trends in Selected Information (unaudited)
(in thousands, except per share amounts)

2002
-------------------------
Q3 Q2 Q1
-------- ------- --------
Revenue $2,276 $2,563 $2,321
Gross Margin % 88% 85% 83%

Pro forma net loss before significant non-
cash items, restructuring charges, and
gain on sale of assets (1) $(1,130) $(974) $(1,435)
======== ======= ========
Pro forma net loss per share before
significant non-cash items, restructuring
charges, and gain on sale of assets (2) $(0.53) $(0.53) $(0.82)
======== ======= ========

2001
-----------------------------------
Q4 Q3 Q2 Q1
-------- -------- -------- --------
Revenue $2,766 $2,100 $2,309 $2,512
Gross Margin % 85% 72% 68% 51%

Pro forma net loss before
significant non-cash items,
restructuring charges, and
gain on sale of assets (1) $(1,541) $(2,943) $(4,592) $(7,331)
======== ======== ======== ========
Pro forma net loss per share
before significant non-cash
items, restructuring
charges, and gain on sale of
assets (2) $(0.87) $(1.58) $(2.44) $(3.83)
======== ======== ======== ========


2000
--------------------------------------
Q4 Q3 Q2 Q1
-------- --------- --------- ---------
Revenue $5,256 $5,194 $6,201 $4,591
Gross Margin % 45% 41% 45% 45%

Pro forma net loss before
significant non-cash items,
restructuring charges, and
gain on sale of assets (1) $(8,138) $(10,742) $(13,428) $(17,483)
======== ========= ========= =========
Pro forma net loss per share
before significant non-cash
items, restructuring
charges, and gain on sale of
assets (2) $(4.32) $(5.70) $(7.23) $(11.55)
======== ========= ========= =========


(1) Excludes amortization of goodwill and intangibles, stock-based compensation, depreciation of fixed assets, charitable contributions, restructuring and asset impairment charges and gain on sale of assets.

(2) All per share amounts have been restated to reflect the one-for-three and one-for-six reverse stock splits, which were effective March 6, 2001 and September 24, 2001, respectively. *T