IGN Reports Positive Cash-Flow Quarter; Q1 Revenue Up 45 Percent Year-Over-Year

Business Wire, May 1, 2003

Entertainment Editors/Business Editors/High-Tech Writers

SAN FRANCISCO--(BUSINESS WIRE)--May 1, 2003

IGN Entertainment (Nasdaq:IGNX) -- home to IGN.com(R), the web's largest information and entertainment destination for video gamers -- today announced its first quarter 2003 results. For the quarter ended March 31, 2003, IGN reported revenue of $3.4 million, representing a 45 percent increase from $2.3 million for the same period a year ago.

Net Loss

In the first quarter of 2003, the company reported a net loss of $562,000, or $0.26 per share. This compares to a net profit of $204,000, or $0.09 per share, for the prior quarter, and a net loss of $6.3 million, or $3.58 per share, for the year ago quarter.

The net loss in the first quarter of 2003 included $175,000 of depreciation expense.

Operating Expenses

Operating expenses were $3.6 million in the first quarter of 2003, down slightly from $3.7 million in the prior quarter and down $4.6 million from $8.2 million in first quarter of last year. Operating expenses in the first quarter of last year included $5.0 million of restructuring and asset impairment charges, offset by a $1.1 million gain on the sale of assets.

First quarter 2003 cost of revenue was $277,000, compared to $294,000 in the prior quarter and $402,000 in the first quarter of last year. As a result, the company's gross profit margin in the first quarter of 2003 was 92%, down from 93% in the prior quarter, but up from 83% in the first quarter of 2002.

Positive Cash Flow

During the first quarter of 2003, the company's cash balance grew $93,000 to $3.5 million. This positive cash flow resulted primarily from collections on the large amount of receivables carried over from the previous quarter and higher than expected first quarter revenue. Accounts receivable totaled approximately $2.2 million at the end of the first quarter, representing approximately 64 days sales outstanding, and were down $773,000 from approximately $2.9 million at December 31, 2002.

Year-Over-Year Revenue Growth

"We were pleasantly surprised by the strength of our first quarter performance, especially given that the first quarter is typically the slowest period in our seasonal business," said Mark Jung, IGN's CEO. "The fact that first quarter revenue was up 45 percent from the same period a year ago bodes well for the remainder of the year and reflects an increase in the online ad budgets of our customers.

"This is especially true for our advertising clients in the gaming industry. Last year, game publishers spent approximately $630 million in advertising and marketing, but less than three percent of that total went to online marketing programs. This year, however, we are expecting that percentage to increase significantly, given early feedback that we have received from the leading publishers. In fact, as of March 31, year-to-date bookings from the top twelve publishers have exceeded more than two-thirds of the entire amount that these same publishers spent with us during all of last year."

For the first quarter, advertising and marketing programs represented 81 percent of IGN's revenue. Broken down by customer type, 56 percent of first quarter ad and marketing sales came from game publishers, 36 percent came from consumer goods companies and eight percent came from movie studios. The company's first quarter advertising customers included top game companies such as Activision, Electronic Arts, Infogrames, Microsoft, Nintendo, Sega and Sony, as well as consumer brands such as Best Buy, Dell, Coca-Cola, Honda, Levi's, Target, Unilever and Volkswagen.

Subscriptions

The company added 3,000 net new subscribers to its IGN Insider program during the first quarter, increasing its subscriber base to 76,000 as of March 31, 2003. As a result, subscription revenue grew by seven percent over the prior quarter to $582,000, and represented 17 percent of revenue for the quarter. Additionally, the company added over 100,000 new registered users during the quarter, bringing IGN's registered user database to approximately 5.7 million at quarter end.

Expanded Content Offerings

In the last few months, the company has added new channels to the IGN network, increasing the content and services available to all IGN readers, while providing more inventory and a larger audience to service IGN's marketing customers. During the first quarter, the company introduced the IGN Music channel and the IGN Cars channel, and shortly after the close of the quarter, added the IGN Wireless channel. The broadening of IGN's entertainment content offerings reflects the fact that IGN's audience of 8 million gamers is made up of active young males with a variety of interests and passion centers. The decision to launch these new channels was partly in response to audience demand, and party in response to advertiser demand. In fact, each of these new channels is sponsored by one of IGN's marketing partners.

After the close of the quarter, the company also acquired the VE3D web site, which enhances IGN's reach among hardcore fans of PC games. VE3D is particularly known for its in-depth coverage of action and strategy PC games, which complements the in-depth coverage of massively multiplayer online role-playing PC games (MMORPGs) provided by IGN's Vault Network.