RiskMetrics Group Reports Record Fourth Quarter and Full Year 2008 Results
NEW YORK--(BUSINESS WIRE)--Feb. 19, 2009--
RiskMetrics Group Inc.(NYSE:RMG), a leading provider of
risk management and corporate governance products and services to
participants in the global financial markets, today announced its
financial results for the fourth quarter and year ended
Earnings Highlights: GAAP results reflect the acquisition of
-
Fourth quarter 2008 revenues increased 11.6% to
$75.5 million while revenues for the year endedDecember 31, 2008 increased 23.3% to$296.4 million , and 17.1% on a pro forma basis. -
Fourth quarter 2008 Adjusted EBITDA increased 35.8% to
$29.2 million . Adjusted EBITDA for the year endedDecember 31, 2008 increased 38.9%, and 32.1% on a proforma basis, to$101.1 million , with an Adjusted EBITDA margin of 34.1%. -
GAAP fourth quarter 2008 net loss of
$149.1 million , or$2.43 per diluted share and$136.9 million , or$2.28 per diluted share for the full 2008 year due to an impairment charge. Fourth quarter 2008 includes a non-cash pre-tax$160.1 million impairment charge for acquired ISS goodwill and intangible assets due to declines in industry market multiples in the second half of 2008. EPS before the impairment charge was$0.13 per diluted share for fourth quarter 2008 and$0.31 per diluted shared for the full 2008 year. -
Adjusted EPS (before amortization of intangibles, one-time costs,
impairment charges and stock-based compensation) for fourth quarter
2008 was
$0.20 , up from$0.11 in fourth quarter 2007 and$0.65 for the full 2008 year, up from$0.31 in the prior year.
“We continue to deliver strong financial results despite unprecedented
conditions in the financial markets.” said
Mr. Berman continued, “While we continue to have a strong new sales pipeline, the difficult market conditions are causing a lengthening of our sales cycle and pushing renewal rates below historical trends, leading to a slowing of revenue growth. On the other hand, our investments in technology are allowing us to continue to realize operational efficiencies and deliver greater than expected EBITDA margin improvements.”
All amounts (except share and per share information) are in thousands, unless indicated otherwise.
Selected Financial Information (unaudited)
| TABLE A | Three Months Ended | |||||||||||||
| December 31, | ||||||||||||||
| % | ||||||||||||||
| 2007 | 2008 | Change | ||||||||||||
| Revenues: | ||||||||||||||
| Risk | $ | 33,422 | $ | 40,516 | 21.2 | % | ||||||||
| ISS | 34,205 | 34,977 | 2.3 | % | ||||||||||
| Total Revenues | 67,627 | $ | 75,493 | 11.6 | % | |||||||||
| Operating Cost and Expenses: | ||||||||||||||
|
Adjusted EBITDA expenses (1) |
46,154 | 46,332 | 0.4 | % | ||||||||||
|
Other operating expenses (2) |
10,455 | 10,371 | (0.8 | %) | ||||||||||
|
Impairment of goodwill and intangible asset (3) |
— | 160,069 | 100 | % | ||||||||||
| Total operating costs and expenses | 56,609 | 216,772 | * | |||||||||||
| Income (loss) from operations | 11,018 | (141,279 | ) | * | ||||||||||
| Other expense | (9,160 | ) | (4,943 | ) | (46.0 | %) | ||||||||
| Income (loss) before income taxes | 1,858 | (146,222 | ) | * | ||||||||||
| Provision for income taxes | 655 | 2,872 | * | |||||||||||
| Net income (loss) - GAAP | $ | 1,203 | $ | (149,094 | ) | * | ||||||||
| EPS (diluted) - GAAP | $ | 0.02 | $ | (2.43 | ) | |||||||||
|
Adjusted Net income (4) |
$ | 6,053 | $ | 13,745 | * | |||||||||
|
Adjusted EPS (diluted) (4) |
$ | 0.11 | $ | 0.20 | ||||||||||
|
Adjusted EBITDA (5) |
$ | 21,473 | $ | 29,161 | 35.8 | % | ||||||||
| Adjusted EBITDA margin | 31.8 | % | 38.6 | % | ||||||||||
| Year Ended | ||||||||||||||
| December 31, | ||||||||||||||
| % | ||||||||||||||
| 2007 | 2008 | Change | ||||||||||||
| Revenues: | ||||||||||||||
| Risk | $ | 121,126 | $ 154,626 | 27.7 | % | |||||||||
| ISS | 119,175 | 141,767 | 19.0 | % | ||||||||||
| Total Revenues | $ | 240,301 | $ 296,393 | 23.3 | % | |||||||||
| Operating Cost and Expenses: | ||||||||||||||
|
Adjusted EBITDA expenses (1) |
167,500 | 195,246 | 16.6 | % | ||||||||||
|
Other operating expenses (2) |
33,331 | 41,017 | 23.1 | % | ||||||||||
|
Impairment of goodwill and intangible assets (3) |
— | 160,069 | 100 | % | ||||||||||
| Total operating costs and expenses | 200,831 | 396,332 | 97.3 | % | ||||||||||
| Income (loss) from operations | 39,470 | (99,939 | ) | * | ||||||||||
| Other expense | (35,358 | ) | (26,280 | ) | (25.7 | %) | ||||||||
| Income (loss) before income taxes | 4,112 | (126,219 | ) | * | ||||||||||
| Provision for income taxes | 1,711 | 10,700 | * | |||||||||||
| Net income (loss) - GAAP | $ | 2,401 | $ (136,919 | ) | * | |||||||||
| EPS (diluted) - GAAP | $ | 0.04 | $ (2.28 | ) | ||||||||||
|
Adjusted Net income (4) |
$ | 17,105 | $ 43,786 | * | ||||||||||
|
Adjusted EPS (diluted) (4) |
$ | 0.31 | $ 0.65 | |||||||||||
|
Adjusted EBITDA (5) |
$ | 72,801 | $101,147 | 38.9 | % | |||||||||
| Adjusted EBITDA margin | 30.3 | % | 34.1 | % | ||||||||||
|
* Exceeds 100% |
||||||||||||||
(1) Represents cost of revenues, research and development, selling and marketing and general and administrative expenses, excluding stock-based compensation and one time charges. Refer to tables I through L for a reconciliation to the comparable GAAP measure.
(2) Represents depreciation and amortization of property and equipment, amortization of intangible assets, one-time charges, loss on disposal of property and equipment, and stock-based compensation. Refer to tables I through L for a reconciliation to the comparable GAAP measure.
(3) Represents non-cash impairment charge for the impairment of goodwill
and intangible assets recorded during the three months ended
(4) Represents net income and EPS before amortization of intangible assets, one-time costs, impairment charges and stock-based compensation. Refer to table D for a reconciliation to the comparable GAAP measure.
(5) Represents net income before interest expense, interest income, income tax expense, depreciation, amortization, non-cash stock based compensation expense, impairment, and extraordinary or non-recurring charges or expenses. Refer to table C for a reconciliation to the comparable GAAP measure.
Fourth Quarter 2008 Results Compared to Fourth Quarter 2007 Results
Fourth Quarter 2008 Revenues
Total GAAP revenues for the fourth quarter of 2008 (“Q4 2008”) were
On a business segment level, Q4 2008 Risk GAAP revenues were
ISS revenues were
"Despite pressure on renewals rates across both business segments, we are encouraged by the continued new demand for our Risk and Governance products,” said Mr. Berman. “Continued new sales in the asset management and hedge fund sectors have allowed us to achieve 14.3% year over year growth in Annualized Contract Value (ACV).”
Fourth Quarter 2008 Adjusted EBITDA Expenses
Adjusted EBITDA expenses, which exclude depreciation and amortization of
property and equipment, amortization of intangible assets, impairment
charges, and non-cash stock-based compensation expense, interest,
dividend and investment income (expense) and income tax expense,
increased 0.4% to
Compensation expense, which accounted for 65.1% of total Adjusted EBITDA
expenses, decreased by 2.1% to
Non-compensation expenses increased to
Adjusted EBITDA expenses represented approximately 61.4% of total revenues during Q4 2008, compared with 68.2% in Q4 2007.
Fourth Quarter 2008 Adjusted EBITDA
Consolidated Adjusted EBITDA increased 35.8% to
The Adjusted EBITDA margin expanded to 38.6% in Q4 2008, compared with 31.8% in Q4 2007 as revenues continued to grow at a higher rate than Adjusted EBITDA expenses.
Consolidated Q4 2008 Adjusted EBITDA increased
On a segment level, the Risk business generated Adjusted EBITDA of
ISS generated Adjusted EBITDA of
Goodwill and Intangible Asset Impairment Expense
In Q4 2008, the Company recorded a
Fourth Quarter 2008 Other Operating Expenses and Income (Loss) from Operations
On a GAAP basis, other operating expenses (stock based compensation,
depreciation, amortization, one-time charges and loss on disposal of
fixed assets) of
As a result of the
Fourth Quarter 2008 Interest, Dividend, Investment and Other Income (Expense), Net
Net interest, dividend, investment and other expense decreased to
Fourth Quarter 2008 Net Income (Loss) and EPS
As a result of the
Adjusted net income, as defined in Table D, increased to
Year Ended
Year Ended
Total GAAP revenues for the year ended
On a pro forma basis, revenues increased 17.1% from
On a business segment level, Risk GAAP revenues for the year ended
ISS GAAP revenues for the year ended
Year Ended
Adjusted EBITDA expenses increased 16.6% to
Compensation expense, which accounted for 67.0% of total Adjusted EBITDA
expenses, increased by 13.7% to
Non-compensation expenses increased to
Adjusted EBITDA expenses represented approximately 65.9% of total
revenues for the year ended
Year Ended
Consolidated Adjusted EBITDA increased 38.9% to
EBITDA, including stock based compensation expense of
The Adjusted EBITDA margin increased by 380 basis points to 34.1% in the
year ended
On a segment level, the Risk business generated Adjusted EBITDA of
ISS generated Adjusted EBITDA of
Year Ended
On a GAAP basis, other operating expenses increased 23.1% to
As a result of the
Year Ended
On a GAAP basis, net interest, dividend, investment and other expense
decreased to
Year Ended
As a result of the
The effective tax rate for the year ended
Adjusted net income, as defined in Table D, increased to
Selected Operating Data
The Company believes that the following supplemental consolidated financial information is helpful to understanding the Company’s overall financial results.
|
Table B |
||||||||
| As of and for the | ||||||||
| Year Ended | ||||||||
| December 31 | ||||||||
| Operating Data | 2007 | 2008 | ||||||
| Annualized Contract Value (1) | ||||||||
| Risk | $ | 131,716 | $ | 160,200 | ||||
| % Growth | 21.6 | % | ||||||
| ISS | $ | 118,522 | $ | 125,797 | ||||
| % Growth | 6.1 | % | ||||||
| Annualized Contract Value | $ | 250,238 | $ | 285,997 | ||||
| % Growth | 14.3 | % | ||||||
| Recurring Revenue as a % of total revenue (2) | ||||||||
| Risk | 97.6 | % | 98.4 | % | ||||
| ISS | 87.7 | % | 88.9 | % | ||||
| Recurring Revenue as a % of total revenue. | 92.7 | % | 93.9 | % | ||||
| Renewal Rate | ||||||||
| Risk | 91.1 | % | 87.1 | % | ||||
| ISS (3) | 91.8 | % | 85.4 | % | ||||
| Renewal Rate | 91.4 | % | 86.3 | % | ||||
Notes to Operating Data Table:
(1) We define annualized contract value (“ACV”) as the aggregate value, on an annualized basis, of all recurring subscription contracts in effect on a reporting date.
(2) We define recurring revenue as a percentage of total revenue as revenue from subscription contracts divided by total revenue during the applicable period.
(3) The
Overall, renewal rates were 86.3% for the year ended
The Risk renewal rate declined mainly due to higher non-renewals in the alternative investment segment offset by steady renewal rates in the asset management and banking segments. The ISS renewal rate declined primarily due to lower renewal rates in Corporate Services and CFRA products as well as an approximate 200 basis point decline in the Proxy business renewal rate.
Annualized Contract Value increased 14.3% for the year ended
On a consolidated basis, the Company had
Consolidated Q4 2008 new ACV sales were
One time sales were
Discussion of Cash Flow
As of
Our cash flow tends to be lower in the beginning of each year due to bonuses and commissions paid during this period. As a result, we typically generate more cash flows from operations during the second half of the year than during the first half of the year.
In Q4 2008, we completed the acquisition of Applied4 which used
Free Cash Flow (operating cash flow minus capital expenditures) for the
year ended
Innovest Acquisition
2009 Guidance
As of
The Company anticipates revenue for the fiscal year ending
Adjusted EBITDA is expected to be in the range of
Intangible amortization expense is expected to be in the range of
The 2009 guidance set forth above includes our anticipated acquisition
of Innovest. We anticipate Innovest to add approximately
Conference Call Information
The Company will hold a conference call to discuss results for the
fourth quarter of 2008 today at
| US Toll free dial-in | 800.573.4840 | |
| International dial-in | 617.224.4326 | |
| Pass code | 32461957 | |
In addition, investors can access the conference call (as well as a replay of the call) directly from the RiskMetrics Group Investor Relations Web Site at http://investor.riskmetrics.com.
About
Forward-Looking Statements
This 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 any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue" or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements.
Other factors that could materially affect actual results, levels of
activity, performance or achievements can be found in the Company’s
Notes Regarding the Use of Non-GAAP Financial Measures
Adjusted EBITDA
The table below sets forth a reconciliation of Net Income (Loss) to Adjusted EBITDA on our historical results:
|
Table C |
||||||||||||||
|
Three months ended December 31, |
Year ended |
|||||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||||
| Net income | $ | 1,203 | $ | (149,094 | ) | $ | 2,401 | $ | (136,919 | ) | ||||
| Interest, other expense, net | 9,160 | 4,943 | 35,358 | 26,280 | ||||||||||
| Income tax expense | 655 | 2,872 | 1,711 | 10,700 | ||||||||||
| Depreciation and amortization of property and equipment | 2,227 | 2,346 | 7,419 | 8,779 | ||||||||||
| Amortization of intangible assets | 5,418 | 5,448 | 19,145 | 21,758 | ||||||||||
| Stock-based compensation. | 2,078 | 2,271 | 6,033 | 9,893 | ||||||||||
| Non-recurring expenses (a) | — | 267 | — | 465 | ||||||||||
| Impairment of Goodwill and Intangible Asset | — | 160,069 | — | 160,069 | ||||||||||
| Loss on disposal of property and equipment | 732 | 39 | 734 | 122 | ||||||||||
| Adjusted EBITDA | $ | 21,473 | $ | 29,161 | $ | 72,801 | $ | 101,147 | ||||||
|
(a) Represents lease exit costs incurred. |
||||||||||||||
Adjusted EBITDA, as defined in our credit facility, represents net income (loss) before interest expense, interest income, income tax expense (benefit), depreciation and amortization of property and equipment, amortization of intangible assets, impairment of goodwill and intangible assets, non-cash stock-based compensation expense and extraordinary or non-recurring charges or expenses. It is a material metric used by our lenders in evaluating compliance with the maximum consolidated leverage ratio covenant in our credit facility. The maximum consolidated leverage ratio covenant, as defined in our credit facilities, represents the ratio of total indebtedness as compared to Adjusted EBITDA, and can not exceed a maximum ratio range which declines from 8.50 to 3.00 over the life of the credit facilities. Non-compliance with this covenant could result in us being required to immediately repay our outstanding indebtedness under our credit facility. Adjusted EBITDA is also a metric used by management to measure operating performance and for planning, including preparation of annual budgets, analyzing investment decisions and evaluating profitability.
We also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides our board of directors, management and investors with additional information to measure our performance, provide more consistent comparisons from period to period by excluding potential differences caused by variations in capital structure (affecting interest expense), tax position (such as the impact on periods of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), acquisitions (affecting amortization expense) and compensation plans (affecting stock-based compensation expense).
Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity.
Adjusted EBITDA Expenses
Adjusted EBITDA expenses represent cost of revenues, research and development, selling and marketing and general administrative expenses, excluding stock-based compensation. Adjusted EBITDA expenses represent expenses which are classified as reductions to Adjusted EBITDA, as defined in our credit facility. Adjusted EBITDA is also a metric used by management to measure operating performance and for planning, including preparation of annual budgets, analyzing investment decisions and evaluating profitability.
Other Operating Expenses
Other operating expenses represent stock-based compensation, depreciation and amortization of property and equipment, amortization of intangible assets and loss on disposal of property and equipment. Other operating expenses represent expenses which are classified as reductions to Adjusted EBITDA, as defined in our credit facility.
Adjusted Net Income and EPS
We define adjusted net income and adjusted EPS as net income (earnings per share) before amortization of intangibles, one-time costs, impairment charges and stock-based compensation. A reconciliation from net income and EPS to Adjusted net income and EPS is set forth below:
|
Table D |
||||||||
| Three months ended December 31, | ||||||||
| 2007 | 2008 | |||||||
| $ Amount | $ Amount | |||||||
| GAAP - Net Income (Loss) | $ | 1,203 | $ | (149,094 | ) | |||
| Plus: Stock-Based Compensation | 2,078 | 2,271 | ||||||
| Plus: Amortization of Intangible Assets | 5,418 | 5,448 | ||||||
| Plus: Impairment of Goodwill | — | 160,069 | ||||||
| Plus: Non-recurring/one-time expense | — | 267 | ||||||
| Income tax effect | (2,646 | ) | (5,216 | ) | ||||
| Adjusted Net income before, stock-based compensation, amortization of intangibles and impairment of goodwill and intangible asset | $ | 6,053 | $ | 13,745 | ||||
| Adjusted EPS – diluted | $ | 0.11 | $ | 0.20 | ||||
| Diluted Shares (2) | 55,257,079 | 67,603,481 | ||||||
| Year ended December 31, | ||||||||
| 2007 | 2008 | |||||||
| $ Amount | $ Amount | |||||||
| GAAP - Net Income (Loss) | $ | 2,401 | $ | (136,919 | ) | |||
| Plus: IPO Costs (1) | - | 6,348 | ||||||
| Plus: Non IPO Stock-Based Compensation | 6,033 | 8,536 | ||||||
| Plus: Amortization of Intangible Assets | 19,145 | 21,758 | ||||||
| Plus: Impairment of Goodwill | — | 160,069 | ||||||
| Plus: Non-recurring/one-time expense | — | 465 | ||||||
| Income tax effect | (10,474 | ) | (16,471 | ) | ||||
| Adjusted Net income before IPO costs, stock-based compensation, amortization of intangibles and impairment of goodwill and intangible asset | $ | 17,105 | $ | 43,786 | ||||
| Adjusted EPS – diluted | $ | 0.31 | $ | 0.65 | ||||
| Diluted Shares (2) | 54,364,746 | 67,190,538 | ||||||
| December 31, 2008 | ||||||||
|
Three months |
Year Ended | |||||||
| $ Amount | $ Amount | |||||||
| GAAP - Net Loss | $ | (149,094 | ) | $ | (136,919 | ) | ||
| Plus: Impairment of Goodwill and intangible asset | 160,069 | 160,069 | ||||||
| Income tax effect – intangible asset impairment | (2,242 | ) | (2,242 | ) | ||||
| Net income before impairment of goodwill and intangible asset | $ | 8,733 | $ | 20,908 | ||||
| EPS before impairment of goodwill and intangible asset | $ | 0.13 | $ | 0.31 | ||||
| Diluted Shares | 67,603,481 | 67,190,538 | ||||||
(1) Includes one-time expenses incurred as a result of the IPO, which
include
(2) The Company incurred a GAAP net loss for the three months and year
ended
Free Cash Flow
We define free cash flow as net cash provided by operating activities from continuing operations minus capital expenditures. We believe free cash flow is an important non-GAAP measure as it provides useful cash flow information regarding our ability to service, incur or pay down indebtedness. We use free cash flow as a measure to reflect cash available to service our debt as well as to fund our expenditures. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period since it excludes cash used for capital expenditures during the period.
Notes Regarding Pro forma Presentation
The unaudited pro forma financial information below is based on estimates and assumptions. These estimates and assumptions are preliminary and have been made solely for purposes of developing this pro forma information. Unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if the acquisitions of ISS and CFRA had been consummated as of the dates indicated, nor is it necessarily indicative of the results of future operations. The pro forma financial information does not give effect to any cost savings or restructuring and integration costs that may result from the integration of ISS’ business.
The table below sets forth a reconciliation of historical GAAP revenue, Adjusted EBITDA Expenses and Adjusted EBITDA to Pro Forma Revenue, Pro Forma Adjusted EBITDA Expenses and Pro Forma Adjusted EBITDA:
|
Table E |
||||||||||||
| Year Ended December 31, | ||||||||||||
| Adjusted | ||||||||||||
| EBITDA | Adjusted | |||||||||||
| Revenue | Expenses | EBITDA | ||||||||||
| YTD - 2007 (1) | $ | 240,301 | $ | 167,500 | $ | 72,801 | ||||||
| Add: 11 days of ISS (2) | 3,327 | 2,446 | 881 | |||||||||
| Add: CFRA YTD 2007 (3) | 9,536 | 6,675 | 2,861 | |||||||||
| YTD - 2007 Pro forma | $ | 253,164 | $ | 176,621 | $ | 76,543 | ||||||
| YTD- 2008 | $ | 296,393 | $ | 195,246 | $ | 101,147 | ||||||
| Pro forma Growth | 17.1 | % | 10.5 | % | 32.1 | % | ||||||
| (1) Represents Historical GAAP results for the year ended December 31, 2007. | ||||||||||||
| (2) Unaudited results of ISS for the period of January 1, 2007 - January 11, 2007. | ||||||||||||
| (3) Unaudited results of CFRA for period of January 1, 2007-July 31, 2007. | ||||||||||||
Historical GAAP Financial Statements
Tables F through H presents the historical GAAP financial statements of
|
TABLE F |
||||||||||||||
|
RISKMETRICS GROUP, INC. |
||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
| FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 AND 2008 | ||||||||||||||
| (UNAUDITED) | ||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||
|
Three months ended December 31, |
Years ended December 31, |
|||||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||||
| REVENUES | $ | 67,627 | $ | 75,493 | $ | 240,301 | $ | 296,393 | ||||||
| OPERATING COSTS AND EXPENSES: | ||||||||||||||
| Cost of revenues | 20,651 | 24,000 | 77,317 | 93,387 | ||||||||||
| Research and development | 8,665 | 9,479 | 31,142 | 41,593 | ||||||||||
| Selling and marketing | 10,091 | 5,671 | 35,420 | 33,202 | ||||||||||
| General and administrative | 8,825 | 9,720 | 29,654 | 37,422 | ||||||||||
|
Depreciation and amortization of property and equipment |
2,227 | 2,346 | 7,419 | 8,779 | ||||||||||
| Amortization of intangible assets | 5,418 | 5,448 | 19,145 | 21,758 | ||||||||||
| Impairment of goodwill and intangible asset | — | 160,069 | — | 160,069 | ||||||||||
| Loss on disposal of fixed assets | 732 | 39 | 734 | 122 | ||||||||||
| Total operating costs and expenses (1) | 56,609 | 216,772 | 200,831 | 396,332 | ||||||||||
| INCOME (LOSS) FROM OPERATIONS | 11,018 | (141,279 | ) | 39,470 | (99,939 | ) | ||||||||
|
INTEREST, DIVIDEND, INVESTMENT, AND OTHER INCOME (EXPENSE), NET: |
||||||||||||||
| Interest, dividend and investment income | 368 | 640 | 1,564 | 2,567 | ||||||||||
| Interest expense | (9,528 | ) | (5,583 | ) | (36,922 | ) | (26,234 | ) | ||||||
| Other expenses | — | — | — | (2,613 | ) | |||||||||
|
Total interest, dividend, investment, and other income (expense), net |
(9,160 | ) | (4,943) | (35,358 | ) | (26,280 | ) | |||||||
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
1,858 | (146,222 | ) | 4,112 | (126,219 | ) | ||||||||
| PROVISION FOR INCOME TAXES | 655 | 2,872 | 1,711 | 10,700 | ||||||||||
| NET INCOME (LOSS) | $ | 1,203 | $ | (149,094 | ) | $ | 2,401 | $ | (136,919 | ) | ||||
| NET INCOME (LOSS) PER SHARE: | ||||||||||||||
| Basic | $ | 0.03 | $ | (2.43 | ) | $ | 0.05 | $ | (2.28 | ) | ||||
| Diluted | $ | 0.02 | $ | (2.43 | ) | $ | 0.04 | $ | (2.28 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||||||||
| Basic | 47,626,734 | 61,392,215 | 46,380,175 | 59,970,438 | ||||||||||
| Diluted | 55,257,079 | 61,392,215 | 54,364,746 | 59,970,438 | ||||||||||
| (1) | Includes stock-based compensation expense of $2,078 and $2,271 for three months ended December 31, 2007 and 2008 and $6,033 and $9,893 for years ended December 31, 2007 and 2008, respectively. |
|
TABLE G |
||||||||
|
RISKMETRICS GROUP, INC. |
||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (UNAUDITED) | ||||||||
| (In thousands, except share amounts) | ||||||||
|
December 31, 2007 |
December 31, 2008 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 27,455 | $ | 170,799 | ||||
| Accounts receivable, net | 37,010 | 42,319 | ||||||
| Deferred tax asset | 140 | 2,092 | ||||||
| Income taxes receivable | 8,300 | 4,562 | ||||||
| Other receivables and prepaid expenses | 5,910 | 5,666 | ||||||
| Total current assets | 78,815 | 225,438 | ||||||
| Intangibles—net | 174,154 | 148,340 | ||||||
| Goodwill | 460,951 | 308,613 | ||||||
| Property and equipment—net | 16,225 | 15,400 | ||||||
| Deferred financing costs | 8,677 | 5,228 | ||||||
| Other assets | 4,361 | 1,994 | ||||||
| TOTAL ASSETS | $ | 743,183 | $ | 705,013 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade accounts payable | $ | 6,235 | $ | 1,981 | ||||
| Accrued expenses | 34,189 | 40,174 | ||||||
| Debt, current portion | 3,000 | 2,224 | ||||||
| Deferred revenue, current portion | 100,557 | 109,525 | ||||||
| Other current liabilities | 227 | 211 | ||||||
| Total current liabilities | 144,208 | 154,115 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Debt | 419,750 | 288,395 | ||||||
| Deferred tax liabilities | 28,626 | 31,405 | ||||||
| Deferred revenue | 722 | 1,364 | ||||||
| Other long-term liabilities | 13,785 | 26,567 | ||||||
| Total liabilities | $ | 607,091 | $ | 501,846 | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
|
Common stock, $.01 par value—150,000,000 and 200,000,000 authorized at December 31, 2007 and 2008, respectively; 47,850,652 and 61,673,960 issued and 47,642,460 and 61,430,806 outstanding at December 31, 2007 and 2008, respectively |
$ | 479 | $ | 617 | ||||
| Treasury stock—208,192 and 243,154 shares at December 31, 2007 and 2008, respectively | (2 | ) | (579 | ) | ||||
| Additional paid-in capital | 217,355 | 431,781 | ||||||
| Accumulated other comprehensive loss | (7,262 | ) | (17,255 | ) | ||||
| Accumulated deficit | (74,478 | ) | (211,397 | ) | ||||
| Total stockholders’ equity | 136,092 | 203,167 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 743,183 | $ | 705,013 | ||||
|
TABLE H |
||||||||
|
RISKMETRICS GROUP, INC. |
||||||||
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
|
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008 |
||||||||
|
(UNAUDITED) |
||||||||
|
(Amounts in thousands) |
||||||||
| 2007 | 2008 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 2,401 | $ | (136,919 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization of property and equipment | 7,419 | 8,779 | ||||||
| Provision for bad debts | 140 | 516 | ||||||
| Amortization of intangible assets | 19,145 | 21,758 | ||||||
| Amortization of debt issuance costs | 1,397 | 3,450 | ||||||
| Impairment of goodwill and intangible asset | — | 160,069 | ||||||
| Stock-based compensation | 6,033 | 9,893 | ||||||
| Tax benefit associated with exercise of stock options | (201 | ) | (4,861 | ) | ||||
| Loss on disposal of fixed assets | 734 | 122 | ||||||
| Decrease (increase) in deferred tax benefit | (1,115 | ) | 2,294 | |||||
| Changes in assets and liabilities (net of assets and liabilities acquired): | ||||||||
| Decrease (increase) in accounts receivable | 8,599 | (8,177 | ) | |||||
| (Increase) decrease in income and deferred taxes | 2,561 | 11,211 | ||||||
| (Increase) decrease in other receivables and prepaid expenses | (934 | ) | 192 | |||||
| Increase in other assets | (88 | ) | (329 | ) | ||||
| (Decrease) increase in deferred revenue | (4,370 | ) | 10,863 | |||||
| Increase (decrease) in trade accounts payable | 2,631 | (4,029 | ) | |||||
| Increase in accrued expenses and other liabilities | 996 | 10,016 | ||||||
| Net cash provided by operating activities | 45,348 | 84,848 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (11,091 | ) | (8,795 | ) | ||||
| Cash paid to acquire Institutional Shareholder Services Inc. (“ISS”) and related acquisition costs | (471,764 | ) | — | |||||
| Payment of acquisition related costs incurred by ISS | (7,413 | ) | — | |||||
| Cash paid to acquire CFRA and related acquisition costs | (45,946 | ) | 223 | |||||
| Cash paid to acquire Applied4 and related acquisition costs | — | (1,860 | ) | |||||
| Payment of deferred purchase price | (128 | ) | (103 | ) | ||||
| Purchase of investments | (21,289 | ) | — | |||||
| Purchase of intangible asset | (250 | ) | (1,000 | ) | ||||
| Proceeds from sale of investments | 89,364 | — | ||||||
| Net cash used in investing activities | (468,517 | ) | (11,535 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from debt borrowings | 440,000 | — | ||||||
| Repayment of debt | (17,250 | ) | (132,131 | ) | ||||
| Payment of debt issuance costs | (10,074 | ) | — | |||||
| Principal payments on capital lease obligations | (23 | ) | (26 | ) | ||||
| Gross proceeds from equity offering | — | 197,400 | ||||||
| Equity offering expenses | (1,928 | ) | (1,581 | ) | ||||
| Excess tax benefit associated with exercise of stock options | 201 | 4,861 | ||||||
| Proceeds from exercise of stock options | 5,944 | 5,917 | ||||||
| Repurchase of stock | (3,257 | ) | — | |||||
| Net cash provided by financing activities | 413,613 | 74,440 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (302 | ) | (4,409 | ) | ||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (9,858 | ) | 143,344 | |||||
| CASH AND CASH EQUIVALENTS—Beginning of period | 37,313 | 27,455 | ||||||
| CASH AND CASH EQUIVALENTS—End of period | $ | 27,455 | $ | 170,799 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 35,973 | $ | 22,475 | ||||
| Cash paid (refunded) for taxes | $ | (50 | ) | $ | 3,609 | |||
| NON CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock to purchase ISS | $ | 42,426 | $ | — | ||||
| Issuance of stock options to purchase ISS | $ | 16,331 | $ | — | ||||
| Retirement of treasury stock | $ | 103 | $ | — | ||||
| Tax benefit associated with exercise of ISS stock options | $ | 3,463 | $ | 631 | ||||
| Issuance of common stock to purchase CFRA | $ | 16,634 | $ | (577 | ) | |||
Supplemental Information and Non-GAAP Reconciliations
The tables below set forth a reconciliation of GAAP costs of revenues, research and development, selling and marketing and general and administrative expenses to Adjusted EBITDA expenses and other operating expenses:
| Table I | ||||||
| RISKMETRICS GROUP, INC. | ||||||
| UNAUDITED AS ADJUSTED STATEMENT OF OPERATIONS | ||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 | ||||||
| (AMOUNTS IN THOUSANDS) | ||||||
| RISKMETRICS | ||||||
| GROUP, INC. | ||||||
| OCTOBER 1 TO | ||||||
| DECEMBER 31, | STOCK BASED | |||||
| 2007 | COMPENSATION | AS ADJUSTED | ||||
| Revenues | $67,627 | $67,627 | ||||
| Operating cost and expenses: | ||||||
| Cost of revenues | 20,651 | (1,033) | 19,618 | |||
| Research and development | 8,665 | (228) | 8,437 | |||
| Selling and marketing | 10,091 | 104 | 10,195 | |||
| General and administrative | 8,825 | (921) | 7,904 | |||
| Total adjusted EBITDA expenses | 48,232 | (2,078) | 46,154 | |||
| Depreciation and amortization of property and equipment | 2,227 | 2,227 | ||||
| Amortization of intangible assets | 5,418 | 5,418 | ||||
| Loss on disposal of property and equipment | 732 | 732 | ||||
| Total other operating expenses | 8,377 | 2,078 | 10,455 | |||
| Total operating expenses | 56,609 | 56,609 | ||||
| Income from operations | 11,018 | 11,018 | ||||
| Interest, dividend, investment and other income (expense), net | ||||||
| Interest, dividend and investment income | 368 | 368 | ||||
| Interest expense | (9,528) | (9,528) | ||||
| Other expenses | — | — | ||||
| Interest, dividend, investment and other income (expense), net | (9,160) | (9,160) | ||||
| Income before provision for income taxes | 1,858 | 1,858 | ||||
| Provision for income taxes | 655 | 655 | ||||
| Net income | $1,203 |
|
$1,203 | |||
| Table J | ||||||
| RISKMETRICS GROUP, INC. | ||||||
| UNAUDITED AS ADJUSTED STATEMENT OF OPERATIONS | ||||||
| FOR THE YEAR ENDED DECEMBER 31, 2007 | ||||||
| (AMOUNTS IN THOUSANDS) | ||||||
|
RISKMETRICS
GROUP, INC. JANUARY 1 TO DECEMBER 31, 2007 |
STOCK BASED
COMPENSATION |
AS ADJUSTED | ||||
| Revenues | $240,301 | $240,301 | ||||
| Operating cost and expenses: | ||||||
| Cost of revenues | 77,317 | (2,001) | 75,316 | |||
| Research and development | 31,142 | (1,199) | 29,943 | |||
| Selling and marketing | 35,420 | (747) | 34,673 | |||
| General and administrative | 29,654 | (2,086) | 27,568 | |||
| Total adjusted EBITDA expenses | 173,533 | (6,033) | 167,500 | |||
| Depreciation and amortization of property and equipment | 7,419 | 7,419 | ||||
| Amortization of intangible assets | 19,145 | 19,145 | ||||
| Loss on disposal of property and equipment | 734 | 734 | ||||
| Total other operating expenses | 27,298 | 6,033 | 33,331 | |||
| Total operating expenses | 200,831 | 200,831 | ||||
| Income from operations | 39,470 | 39,470 | ||||
| Interest, dividend, investment and other income (expense), net | ||||||
| Interest, dividend and investment income | 1,564 | 1,564 | ||||
| Interest expense | (36,922) | (36,922) | ||||
| Other expenses | - | - | ||||
| Interest, dividend, investment and other income (expense), net | (35,358) | (35,358) | ||||
| Income before provision for income taxes | 4,112 | 4,112 | ||||
| Provision for income taxes | 1,711 | 1,711 | ||||
| Net income | $2,401 | $2,401 | ||||
| Table K | ||||||||||||||
|
RISKMETRICS GROUP, INC. |
||||||||||||||
| UNAUDITED AS ADJUSTED STATEMENT OF OPERATIONS | ||||||||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 | ||||||||||||||
| (AMOUNTS IN THOUSANDS) | ||||||||||||||
|
RISKMETRICS |
STOCK BASED |
AS ADJUSTED |
||||||||||||
| Revenues | $ | 75,493 | $ | 75,493 | ||||||||||
| Operating cost and expenses: | ||||||||||||||
| Cost of revenues | 24,000 | (895 | ) | (A) | 23,105 | |||||||||
| Research and development | 9,479 | (817 | ) | (A) | 8,662 | |||||||||
| Selling and marketing | 5,671 | (358 | ) | (A) | 5,313 | |||||||||
| General and administrative | 9,720 | (201 | ) | (A) | 9,252 | |||||||||
| Non-recurring/one-time expense | — | (267 | ) | (B) | ||||||||||
| Total adjusted EBITDA expenses | 48,870 | (2,538 | ) | 46,332 | ||||||||||
| Depreciation and amortization of property and equipment | 2,346 | 2,346 | ||||||||||||
| Amortization of intangible assets | 5,448 | 5,448 | ||||||||||||
| Loss on disposal of property and equipment | 39 | 39 | ||||||||||||
| Total other operating expenses | 7,833 | 2,538 | 10,371 | |||||||||||
| Impairment of goodwill and intangible asset | 160,069 | 160,069 | ||||||||||||
| Total operating expenses | 216,772 | 216,772 | ||||||||||||
| Loss from operations | (141,279 | ) | (141,279 | ) | ||||||||||
| Interest, dividend, investment and other income (expense), net | ||||||||||||||
| Interest, dividend and investment income | 640 | 640 | ||||||||||||
| Interest expense | (5,583 | ) | (5,583 | ) | ||||||||||
| Interest, dividend, investment and other income (expense), net | (4,943 | ) | (4,943 | ) | ||||||||||
| Loss before provision for income taxes | (146,222 | ) | (146,222 | ) | ||||||||||
| Provision for income taxes | 2,872 | 2,872 | ||||||||||||
| Net loss | $ | (149,094 | ) |
|
|
$ | (149,094 | ) | ||||||
|
Table L |
||||||||||||||
| RISKMETRICS GROUP, INC. | ||||||||||||||
| UNAUDITED AS ADJUSTED STATEMENT OF OPERATIONS | ||||||||||||||
| FOR THE YEAR ENDED DECEMBER 31, 2008 | ||||||||||||||
| (AMOUNTS IN THOUSANDS) | ||||||||||||||
|
RISKMETRICS |
STOCK BASED |
AS ADJUSTED | ||||||||||||
| Revenues | $ | 296,393 |
|
|
$ | 296,393 | ||||||||
| Operating cost and expenses: | ||||||||||||||
| Cost of revenues | 93,387 | (3,614 | ) | (A) | 89,773 | |||||||||
| Research and development | 41,593 | (2,877 | ) | (A) | 38,716 | |||||||||
| Selling and marketing | 33,202 | (1,733 | ) | (A) | 31,469 | |||||||||
| General and administrative | 37,422 | (1,669 | ) | (A) | 35,288 | |||||||||
|
Non-recurring/one-time expense |
— | (465 | ) | (B) | ||||||||||
| 205,604 | (10,358 | ) | 195,246 | |||||||||||
| Total adjusted EBITDA expenses | ||||||||||||||
| Depreciation and amortization of property and equipment | 8,779 | 8,779 | ||||||||||||
| Amortization of intangible assets | 21,758 | 21,758 | ||||||||||||
| Loss on disposal of property and equipment | 122 | 122 | ||||||||||||
| Total other operating expenses | 30,659 | 10,358 | 41,017 | |||||||||||
| Impairment of goodwill and intangible asset | 160,069 | 160,069 | ||||||||||||
| Total operating expenses | 396,332 | 396,332 | ||||||||||||
| Loss from operations | (99,939 | ) | (99,939 | ) | ||||||||||
| Interest, dividend, investment and other income (expense), net | ||||||||||||||
| Interest, dividend and investment income | 2,567 | 2,567 | ||||||||||||
| Interest expense | (26,234 | ) | (26,234 | ) | ||||||||||
| Other expenses | (2,613 | ) | (2,613 | ) | ||||||||||
| Interest, dividend, investment and other income (expense), net | (26,280 | ) | (26,280 | ) | ||||||||||
| Loss before provision for income taxes | (126,219 | ) | (126,219 | ) | ||||||||||
| Provision for income taxes | 10,700 | 10,700 | ||||||||||||
| Net loss | $ | (136,919 | ) | $ | (136,919 | ) | ||||||||
| The following pro forma adjustments are included in the preparation of the pro forma statement of operations: |
| (A): Reclassification of stock-based compensation from adjusted EBITDA expenses to other operating expenses. |
| (B): Reclassification of non-recurring lease exit costs from adjusted EBITDA expenses to other operating expense. |
Source:
RiskMetrics Group
Cheryl Gustitus, 301-556-0538
cheryl.gustitus@riskmetrics.com
or
Sarah
Cohn, 212-354-4643
sarah.cohn@riskmetrics.com