Verticalnet, Inc. (Nasdaq:VERT), a leading provider of on-demand supply
management solutions, today announced results for its third quarter
ended September 30, 2007.
Revenues for the quarter ended September 30, 2007 were $3.0 million, as
compared to $4.2 million for the quarter ended September 30, 2006.
Verticalnet's net loss applicable to common shareholders for the quarter
ended September 30, 2007 was $1.6 million, or ($0.99) per share as
compared to a net loss applicable to common shareholders of $3.4
million, or ($3.36) per share, for the quarter ended September 30, 2006.
Adjusted net loss from operations(a) for
the quarter ended September 30, 2007 was $1.9 million, or ($1.17) per
share as compared to an adjusted net loss from operations(a)
of $1.7 million, or ($1.64) per share, for the quarter ended September
30, 2006. For the quarters ended September 30, 2007 and 2006,
weighted-average shares outstanding were approximately 1.6 million and
1.0 million shares, respectively.
Total operating expenses, including cost of revenues, for the quarter
were $4.7 million, which included non-cash charges for stock based
compensation of $20,000 and amortization and depreciation expense of
$289,000, as compared to $6.4 million for the third quarter of 2006,
which included non-cash charges for stock based compensation of $350,000
and amortization and depreciation expense of $607,000. Excluding these
non-cash charges, total operating expenses would have decreased by 22%
for the quarter ended September 30, 2007 compared to the same period in
2006. Total operating expenses for the quarter ended September 30, 2007
was impacted by a one-time charge of $174,000 relating to the
termination of our New York City office lease.
Billings(b) for the quarter ended
September 30, 2007 were $3.7 million compared to $4.4 million for the
comparable period last year.
Total software and software related revenues of $1.7 million for the
third quarter of 2007 represented a decrease of 29% compared to the same
period in 2006. Revenues for the quarter were impacted by the lack of
any significant channel-driven European software transactions, which
have provided significant billings and revenues over the past several
quarters. In addition, software revenues from legacy products have
greatly reduced since last year which has impacted software revenues
modestly while allowing for significant reduction in operating expenses
required to support these legacy products.
Services revenues for the third quarter of 2007 were $1.4 million as
compared to $1.8 million for the comparable period in the prior year.
The decline in service revenues were driven by an approximate decline of
$1.0 million in revenues from two of Verticalnet’s
largest historical customers. Revenue from these two large historical
customers accounted for 8.1% of total revenue in the third quarter of
2007 as compared to 30.1% of revenues in the third quarter of 2006.
During the quarter ended September 30, 2007, Verticalnet continued its
efforts to reduce its overall cost structure through product line
rationalization and organizational realignment. As a result of these
measures, the Company achieved significant reductions in cost of
revenues and operating expenses for the three months ended September 30,
2007 versus the same period in 2006. Compared to the same period in
2006, cost of revenues declined by 26%, and total operating expenses,
including cost of revenues, declined overall by 26% or $1.7 million.
During the quarter ended September 30, 2007 we incurred a one-time
charge of $174,000 relating to the termination of our New York City
office lease, excluding this charge total operating expenses, including
cost of revenues, would have declined by 29%.
Total deferred revenues as of September 30, 2007 were $4.9 million which
was slightly above the deferred revenue balance of $4.6 million at
December 31, 2006. Cash balance as of September 30, 2007 was $642,000,
decreasing by $2.2 million as compared to the cash balance of $2.8
million as of December 31, 2006. Verticalnet paid $518,000 in cash for
debt service during the quarter ended September 30, 2007. Current
liabilities increased to $14.7 million as of September 30, 2007 as
compared to $11.6 million as of December 31, 2006, primarily due to the
April 1, 2008 maturity of $5.2 million in the principal amount of our
outstanding Discount Note. Verticalnet has until December 31, 2007 to
exercise an option to extend the maturity date of the Discount Note to
September 30, 2008. In the event we exercise this option, the principal
amount of the Discount Note will increase by $575,000.
During the third quarter, Verticalnet signed 13 new customer contracts,
including 3 new software customers and 4 renewals of key customer
relationships.
(a) Adjusted net loss from operations is a non-GAAP financial measure
within the meaning of Regulation G promulgated by the Securities and
Exchange Commission. We believe that adjusted net loss from operations
provides useful information to investors as it excludes transactions not
related to the core cash operating business activities. We believe that
excluding these transactions allows investors to meaningfully trend and
analyze the performance of our core cash operations. All companies do
not calculate adjusted net loss from operations in the same manner, and
adjusted net loss from operations as presented by Verticalnet may not be
comparable to adjusted net loss from operations presented by other
companies. Included, following the financial statements, is a
reconciliation of net loss to adjusted net loss from operations that
should be read in conjunction with the financial statements.
(b) Billings represents all invoices billed to customers during the
quarter.
(c) Software bookings represent all software and software related
agreements entered into during the referenced period with new or
existing customers.
About Verticalnet, Inc.
Verticalnet is a leading provider of on-demand supply management
solutions that enable companies to identify and realize sustained value
across the supply management lifecycle. Going beyond traditional spend
management and sourcing approaches, Verticalnet’s
solutions provide the visibility, insight and process control required
to maximize the sustained value realization from supply management.
Large enough to help customers attain supply management success
worldwide, yet nimble enough to provide individual attention and remain
focused on customer priorities, Verticalnet is helping Global 2000
companies and mid-market enterprises move their supply management
efforts to the next level through an optimal blend of software,
comprehensive services, and deep category knowledge and domain expertise.
Cautionary Statement Regarding Forward-Looking Information
This announcement contains forward-looking information that involves
risks and uncertainties. Such information includes statements about any
increase in the outstanding principal amount of the discount note upon
exercise of the option by the Company, as well as statements that are
preceded by, followed by or include the words "believes,” "plans,” "intends,” "expects,” "anticipated,” "scheduled,” or
similar expressions. For such statements, Verticalnet claims the
protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from the results predicted, and reported results
should not be considered as an indication of future performance. Factors
that could cause actual results to differ from those contained in the
forward-looking statements include, but are not limited to, the
continued availability and terms of equity and debt financing to fund
our business, our reliance on the development of our enterprise software
and services business, competition in our target markets, our ability to
maintain our listing on The
Nasdaq Capital Market, economic conditions
in general and in our specific target markets, our ability to use and
protect our intellectual property, and our ability to attract and retain
qualified personnel, as well as those factors set forth in our Annual
Report on Form 10-K for the year ended December 31, 2006 and our
Quarterly Report on Form 10-Q for the quarters ended March 31, 2007 and
June 30, 2007, which have been filed with the SEC. Verticalnet is making
these statements as of November 19, 2007 and assumes no obligation to
publicly update or revise any of the forward-looking information in this
announcement.
Verticalnet is a registered trademark or a trademark in the United
States and other countries of Vert Tech LLC Verticalnet, Inc. Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2007
2006
2007
2006
Revenues:
Software and software related
$
1,671
$
2,343
$
4,890
$
5,774
Services
1,367
1,830
4,981
6,500
Total revenues
3,038
4,173
9,871
12,274
Cost of revenues:
Cost of software and software related
345
529
1,053
1,702
Cost of services
904
1,047
3,178
4,131
Amortization of acquired technology and customer contracts
117
272
617
768
Total cost of revenues
1,366
1,848
4,848
6,601
Gross profit
1,672
2,325
5,023
5,673
Operating expenses:
Research and development
824
1,201
2,811
4,074
Sales and marketing
1,172
1,630
3,804
5,464
General and administrative
1,276
1,547
3,645
4,885
Litigation and settlement costs
-
6
-
1,032
Restructuring charges (reversals)
-
(21
)
-
195
Impairment charge for goodwill
-
-
-
9,877
Amortization of other intangible assets
86
201
288
660
Total operating expenses
3,358
4,564
10,548
26,187
Operating loss
(1,686
)
(2,239
)
(5,525
)
(20,514
)
Interest and other expense, net (1)
(297
)
1,145
1,234
1,489
Net loss
(1,389
)
(3,384
)
(6,759
)
(22,003
)
Preferred stock dividends
210
-
247
-
Net loss applicable to common shareholders
$
(1,599
)
$
(3,384
)
$
(7,006
)
$
(22,003
)
Adjusted net loss from operations (3)
$
(1,918
)
$
(1,652
)
$
(4,530
)
$
(7,035
)
Basic and diluted loss per common share: (2)
Net loss
$
(0.99
)
$
(3.36
)
$
(4.76
)
$
(23.11
)
Adjusted net loss from operations (3)
$
(1.17
)
$
(1.64
)
$
(3.06
)
$
(7.39
)
Weighted average common shares outstanding:
Basic and diluted (2)
1,616
1,008
1,473
952
(1) During the three and nine
months ended September 30, 2007 and 2006, the Company recorded a
benefit from and a charge for changes in the fair value of
derivative liabilities, respectively, as well as interest expense
and accretion on its long-term debt.
(2) During the three and nine
months ended September 30, 2007 and 2006, the diluted earnings per
share calculation was the same as the basic earnings per share
calculation as all potentially dilutive securities were
anti-dilutive.
(3) See "Reconciliation of GAAP
Results to Non-GAAP Results and Other Financial Data" elsewhere in
this press release.
Verticalnet, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands)
September 30, 2007
December 31, 2006 Assets
Current assets:
Cash and cash equivalents
$
642
$
2,809
Accounts receivable, net
3,476
3,877
Prepaid expenses and other current assets
1,148
778
Total current assets
5,266
7,464
Property and equipment, net
348
920
Goodwill
9,765
9,709
Other intangible assets, net
1,308
2,184
Other assets
127
416
Total assets
$
16,814
$
20,693
Liabilities and Shareholders’ Equity
(Deficit)
Current liabilities:
Current portion of long-term debt, convertible notes, and
non-current liabilities
$
5,623
$
2,170
Accounts payable and accrued expenses
5,701
5,698
Deferred revenues
3,391
3,756
Total current liabilities
14,715
11,624
Long-term debt, convertible notes, and non-current liabilities
1,514
6,127
Total liabilities
16,229
17,751
Series B Convertible preferred stock
147
-
Shareholders’ equity
438
2,942
Total liabilities and shareholders’ equity
$
16,814
$
20,693
Verticalnet, Inc. Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2007
2006
2007
2006
Operating activities:
Net loss
$
(1,599
)
$
(3,384
)
$
(7,006
)
$
(22,003
)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
290
607
1,204
1,839
Stock-based compensation
20
350
144
1,414
Impairment of goodwill
-
-
-
9,877
Accretion of promissory notes and non-cash interest
237
777
639
1,820
Change in the fair value of derivative liabilities
6
(64
)
(153
)
(1,265
)
Change in the fair value of warrant liabilities
(999
)
-
591
-
Amortization of deferred financing costs
4
211
103
467
Preferred stock dividends
210
-
247
-
Loss on disposal of property and equipment
316
316
Other non-cash items
1
-
1
9
Change in assets and liabilities, net of effect of acquisition:
Accounts receivable
910
520
401
331
Prepaid expenses and other assets
147
28
288
345
Accounts payable and accrued expenses
(16
)
(259
)
178
1,479
Deferred revenues
270
537
267
1,212
Net cash used in operating activities
(203
)
(677
)
(2,780
)
(4,475
)
Investing activities:
Capital expenditures
(10
)
(11
)
(39
)
(77
)
Acquisition related payments
-
-
-
(57
)
Restricted cash
155
-
155
155
Net cash provided by (used in) investing activities
145
(11
)
116
21
Financing activities:
Principal payments on long-term debt and obligations under capital
leases
(518
)
(1,022
)
(1,437
)
(1,364
)
Proceeds from issuance of senior subordinated discount notes, net
-
-
-
3,677
Proceeds from issuance of preferred stock, net
-
-
1,954
-
Proceeds from exercise of restricted stock units
-
3
3
11
Net cash provided by (used in) financing activities
(518
)
(1,019
)
520
2,324
Effect of exchange rate fluctuation on cash and cash equivalents
(20
)
1
(23
)
21
Net increase (decrease) in cash and cash equivalents
(596
)
(1,706
)
(2,167
)
(2,109
)
Cash and cash equivalents - beginning of period
1,238
4,173
2,809
4,576
Cash and cash equivalents - end of period
$
642
$
2,467
$
642
$
2,467
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$
168
$
131
$
561
$
260
Supplemental schedule of non-cash investing and financing
activities
Financed insurance policies
$
-
$
-
$
570
$
663
Conversion of and payment on senior convertible promissory notes and
accrued interest into/with common stock
217
331
1524
2,394
Capital expenditures financed through capital lease arrangements
-
-
-
42
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS AND OTHER
FINANCIAL DATA
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2007
2006
2007
2006
Revenues:
Software and software related
$
1,671
$
2,343
$
4,890
$
5,774
Services
1,367
1,830
4,981
6,500
Total revenues
3,038
4,173
9,871
12,274
Total cost of revenues
1,366
1,848
4,848
6,601
Gross profit
1,672
2,325
5,023
5,673
Total operating expenses
3,358
4,564
10,548
26,187
Operating loss
(1,686
)
(2,239
)
(5,525
)
(20,514
)
Interest and other expense, net
(297
)
1,145
1,234
1,489
Net loss
(1389
)
(3,384
)
(6,759
)
(22,003
)
Preferred stock dividends
210
-
247
-
Net loss applicable to common shareholders
$
(1,599
)
$
(3,384
)
$
(7,006
)
$
(22,003
)
Non-GAAP adjustments:
Amortization of intangible assets
203
473
905
1,428
Restructuring charges (reversal)
-
(21
)
-
195
Stock-based compensation
20
350
144
1,414
Accretion of promissory notes and non-cash interest
237
737
639
1,820
Amortization of deferred financing costs
21
211
120
467
Preferred stock dividends
210
-
247
-
Change in fair value of warrant liabilities
(994
)
-
596
-
Litigation costs
-
68
-
1,032
Impairment charge for goodwill
-
-
-
9,877
Change in the fair value of derivative liabilities
6
(24
)
(153
)
(1,265
)
Adjusted net loss from operations $ (1,896 ) $ (1,652 ) $ (4,508 ) $ (7,035 )
Basic and diluted loss per common share:
Net loss
$
(0.99
)
$
(3.36
)
$
(4.76
)
$
(23.11
)
Adjusted net loss from operations
$
(1.17
)
$
(1.64
)
$
(3.06
)
$
(7.39
)
Weighted average common shares outstanding:
Basic and diluted
1,616
1,008
1,473
952
KEY METRICS
Three months ended September 30,
2007
2006
Total billings
$
3,737
$
4,442
Software bookings
1,578
4,604
