Business Editors
SEATTLE--(BUSINESS WIRE)--Oct. 23, 2000
Consumer Network, which Comprises 66% of Total Revenue, Expects to
Reach Pro Forma Profitability in the First Quarter 2001
Network Commerce Expects to Reach Overall Pro Forma Profitability
in the Fourth Quarter 2001
Third Quarter Pro Forma Net Loss Improves by 20%
From the Previous Quarter
Network Commerce Inc. (Nasdaq:NWKC), the global technology infrastructure and services company, announced today financial results for its third quarter ended September 30, 2000.
Total revenue for the third quarter was $33.4 million, an increase of 24% from revenue of $26.9 million in the second quarter of 2000, and an increase of over 340% from revenue of $7.6 million in the third quarter of 1999. Network Commerce derives revenue from the Network Commerce Business Network, including eBusiness Services, and the Network Commerce Consumer Network. CPM based advertising revenue was approximately 3% of total revenue in the third quarter.
-- Third quarter revenue from the Network Commerce Business Network was $11.4 million or 34% of total revenue. The Network Commerce Business Network consists of domain name registration, hosting, e-commerce services, transaction processing and online marketplaces for businesses. Revenue from the Network Commerce Business Network is comprised of fees from technology licensing, transaction processing, business services, online direct marketing and advertising. -- Third quarter revenue from the Network Commerce Consumer Network was $22.0 million or 66% of total revenue. The Network Commerce Consumer Network consists of online marketplaces and third party Internet sites. Revenue from the Network Commerce Consumer Network is comprised of fees from technology licensing, transaction lead fees, online direct marketing programs and advertising.
"For the fourth consecutive quarter, we have exceeded consensus analyst expectations for financial performance," said Dwayne Walker, chairman and chief executive officer of Network Commerce. "Our increase in revenue and continuing loss reduction is indicative of the strength of our business and our ability to execute the business model. This performance provides a foundation for the Consumer Network to reach profitability in the first quarter of 2001 and the company to reach overall profitability in the fourth quarter 2001 on a pro forma basis."
As of September 30, 2000, Network Commerce had over $87.1 million in cash, cash equivalents and short-term investments as compared to $84.9 million in the second quarter of 2000. Network Commerce has sufficient resources to support operations beyond its targeted profitability date of the fourth quarter of 2001.
Third quarter 2000 pro forma gross profit increased to $18.3 million or 55% of total revenue, compared to $14.1 million or 52% of total revenue in the second quarter of 2000. Additionally, third quarter 2000 pro forma gross margin of 55% is an increase of 19 percentage points from third quarter 1999 gross margin of 36%. Network Commerce expects gross margin to reach 60% of total revenue by the end of 2001.
Total pro forma operating expenses in the third quarter increased by only 5% to $34.3 million from $32.6 million in the second quarter of 2000. The growth rate in pro forma operating expenses from the first quarter to the second quarter 2000 was 10%; thus Network Commerce achieved a 50% reduction in the quarterly pro forma operating expense growth rate from the previous quarter. As a result, total pro forma operating expense only increased $1.7 million or 5% sequentially while revenues increased $6.5 million or 24% sequentially. Network Commerce is focused on controlling its operating expense as it proceeds towards its goal of achieving profitability in the fourth quarter of 2001, on a pro forma basis consistent with current reporting.
Walker continued, "Managing our overall expense is a top priority for the company. Total pro forma expenses as a percentage of revenue continues to decline, in line with our strategy of successfully executing the business model while driving towards profitability."
Pro forma loss from operations was $16.0 million in the third quarter of 2000, as compared to $18.5 million in the second quarter of 2000. This represents a $2.5 million sequential quarter to quarter decrease in the pro forma loss from operations, which has also declined every quarter since the fourth quarter of 1999.
Pro forma net loss decreased by $3.4 million to $13.7 million or $0.23 per share for the third quarter 2000 compared to $17.1 million or $0.30 per share for the second quarter 2000.
Pro forma figures exclude the effects of non-recurring charges and non-cash charges relating to the amortization of intangible assets, stock-based compensation and deferred income tax benefits. Pro forma gross profit for the third quarter 2000 excludes a one-time charge from ceasing a business activity with Inktomi, Inc.
BUSINESS AND MERCHANT GROWTH
The number of businesses on the Network Commerce Business Network grew 14% to 1,025,000 in the third quarter from 899,000 in the second quarter of 2000. As of September 30, 2000 there were over 232,000 businesses and merchants utilizing Network Commerce's infrastructure and proprietary technology. This is a 91% increase from the second quarter of 2000 and represents over 22% of the total number of businesses on the network. As of September 30, 2000, the Network Commerce Business Network had relationships with over 10,600 affiliate sites, an increase from 6,500 affiliate sites in the second quarter of 2000.
The number of syndicate sites on the Network Commerce Consumer Network increased to 43,900 up from 27,200 syndicate sites in the second quarter of 2000. Premier merchants paying greater than $100,000 per month on the Network Commerce Consumer Network grew 63% to 26 merchants in the third quarter 2000 from 16 in the second quarter 2000.
AUDIENCE GROWTH AND CUSTOMER METRICS
During the third quarter of 2000, visits to Network Commerce properties increased 61% to over 106.7 million, from 66.2 million in the second quarter of 2000.
For the month of September 2000, PC Data Online ranked Network Commerce as having the 14th most visited Web property (all Network Commerce Web properties combined) on the Internet, ahead of the CBS, Go2Net Network, Real Networks, GoTo.com, Inc. and InfoSpace. This us up from a ranking of 16th by PC Data Online in June 2000.
OPERATING INFRASTRUCTURE
As a global infrastructure provider, Network Commerce has invested over $200 million in technology, which includes four data centers with over 500 servers. This highly redundant, highly secure infrastructure has a bandwidth of 400 megabits/second and is currently operating at 40% utilization. Network Commerce is also in the process of opening two additional data centers, one of which is in the United Kingdom.
RECENT HIGHLIGHTS
On October 2, 2000, Network Commerce announced the completion of a private placement of $20 million with an institutional investor. The funds raised through the private placement will be used to execute additional strategic initiatives, including international expansion and wireless deployment.
During the third quarter, Network Commerce announced agreements to provide e-commerce services to the OmniSky and Nextel wireless networks. These agreements demonstrate the company's commitment to extend its reach into wireless networks. Network Commerce announced its first wireless customer, AT&T Wireless Services, in the second quarter of 2000.
On September 13, 2000, Network Commerce launched an extension of the company's domain registration services called DomainZero.com. Since inception, the site has registered over 150,000 domain names. The company expects DomainZero.com to contribute additional revenue by increasing the number of companies utilizing various technology infrastructure and enabling services, as well as through online direct marketing.
On August 24, 2000, Network Commerce announced the acquisition of IveBeenGood.com, Inc. (d/b/a UberWorks) a subsidiary of Trilogy, Inc. UberWorks was launched in July 1999 and provides multi-merchant e-commerce purchasing tools and universal shopping cart technology to Internet sites and provides streamlined online purchasing. Network Commerce expects to generate revenue through licensing UberWorks technology and the delivery of actual orders and transactions to thousands of Network Commerce merchants.
On August 14, 2000, Network Commerce announced the opening of a European office outside of London. This new Network Commerce division also signed its first business agreement from the UK office with Webstores Limited, to license store-building technology to the company.
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Network Commerce Inc. will host a conference call at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) today to discuss its third quarter 2000 results. The call will feature remarks by Chairman and Chief Executive Officer Dwayne Walker, President and Chief Financial Officer and General Counsel Alan Koslow. A live broadcast of the conference call may be heard by dialing 800/633-8684 or via Web cast in the Investor Relations section of the corporate Web site at www.networkcommerce.com. A replay will also be available following the conclusion of the call at www.networkcommerce.com.
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About Network Commerce Inc.
Established in 1994, Network Commerce Inc. (http://www.networkcommerce.com) is the global technology infrastructure and services company. Network Commerce provides a comprehensive technology and services platform including domain registration, hosting services, e-commerce services, wireless technology, and online marketplaces. Network Commerce's technology and services platform operates on the infrastructure of four data centers, over 500 servers, and bandwidth of 400 megabits per second. Network Commerce is headquartered in Seattle with offices in California, Georgia and the United Kingdom.
Forward Looking Statements:
Certain statements in this announcement, including statements concerning the date at which we expect to become profitable, our sources of revenue, our future financial performance, and our plans, intentions and expectations, contain "forward-looking statements" within the meaning of the Securities Act of 1933 as amended. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. The words "believe," "expect," "intend," "anticipate," variations of such words and similar expressions identify forward-looking statements but their absence does not mean that the statement is not forward-looking. These statements are not guaranties of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this announcement. Factors that could affect Network Commerce's actual results include, among others, the factors described in Network Commerce's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. Network Commerce Inc. undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.
(Financial Tables Follow)
Network Commerce Inc. Pro Forma Condensed Consolidated Statements of Operations (A) (in thousands, except share data) (unaudited) -------------------------------------------- Three months ended -------------------------------------------- Sept. 30, June 30, Sept. 30, 2000 2000 1999 --------- -------- ---------- Revenues $ 33,443 $ 26,921 $ 7,555 Cost of revenues 15,191 12,839 4,811 ------- -------- -------- Gross profit 18,252 14,082 2,744 Operating expenses: Sales and marketing 24,114 24,032 15,265 General and administration 3,489 3,361 1,512 Research and development 6,660 5,195 2,433 ------- -------- -------- Total operating expenses 34,263 32,588 19,210 ------- -------- -------- Loss from operations (16,011) (18,506) (16,466) Other income (expense), net 2,343 1,375 (360) ------- -------- -------- Net loss $ (13,668) $ (17,131) $ (16,826) ========== ========== ========== Pro forma basic and diluted net loss per share (B) $ (0.23) $ (0.30) $ (0.65) ========== ========== ========== Shares used in computing pro forma basic and diluted net loss per share (B) 60,063,876 56,221,302 25,776,927 ========== ========== ========== (A) These pro forma condensed consolidated statements of operations exclude amortization of intangible assets, stock-based compensation, deferred income tax benefits and other non-recurring charges, which are summarized in the following table. These financial statements do not purport to be financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP). The following table reconciles the pro forma net loss amounts shown above to net loss in accordance with GAAP for all periods presented. (B) Shares used to compute pro forma basic and diluted net loss per share include convertible preferred stock using the "if converted" method. Network Commerce Inc. Reconciliation of Pro Forma Consolidated Statements of Operations (in thousands, except share data) (unaudited) --------------------------------------------- Three months ended --------------------------------------------- Sept. 30, June 30, Sept. 30, 2000 2000 1999 ----------- ---------- ----------- Pro forma gross profit $ 18,252 $ 14,082 $ 2,744 Other non-recurring charge (C) (5,320) - - -------- -------- -------- Gross profit 12,932 (D) 14,082 2,744 Pro forma operating expenses (34,263) (32,588) (19,210) Other income (expense), net 2,343 1,375 (360) Reconciling items: Amortization of intangible assets (23,842) (18,300) (2,096) Stock-based compensation (1,484) (1,286) (592) Other non-recurring charge (C) - - (1,500) Income tax benefit 15,680 11,634 - -------- -------- -------- Net loss $ (28,634) $ (25,083) $ (21,014) ========== ========== ========== Pro forma basic and diluted net loss per share (B) $ (0.48) $ (0.45) $ (0.82) ========== ========== ========== Shares used in computing pro forma basic and diluted net loss per share (B) 60,063,876 56,221,302 25,776,927 ========== ========== ========== (C) Other non-recurring charge during the third quarter 2000 relates to a one-time charge from ceasing a business activity with Inktomi, Inc. There were no cash outflows during the third quarter from this one-time charge. Revenues from this activity were less than one percent of our revenues for the third quarter 2000. The non-recurring charge incurred during the third quarter of 1999 relates to the settlement of a dispute with a third party. (D) Gross profit for the third quarter 2000 inclusive of the one-time charge was 38.7%. Network Commerce Inc. Condensed Consolidated Balance Sheets (in thousands, except share data) --------------------------------- September 30, December 31, 2000 1999 --------------- --------------- (unaudited) ASSETS Current assets: Cash, cash equivalents and short-term investments $ 87,105 $ 62,832 Investments in marketable equity securities 5,537 30,884 Accounts receivable, net 20,814 6,591 Unbilled services, prepaids and other 13,220 7,661 -------- --------- Total current assets 126,676 107,968 Property and equipment, net 31,855 19,385 Goodwill and other intangible assets, net 231,030 128,573 Other assets, net 32,710 18,248 ------- --------- Total assets $ 422,271 $ 274,174 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued liabilities $ 29,015 $ 17,108 Current portion of long-term debt 9,890 8,565 Customer deposits and deferred revenue 9,318 7,980 --------- --------- Total current liabilities 48,223 33,653 Long-term debt, less current portion 18,183 5,409 Put warrant liability - 1,388 Deferred tax liabilities 3,892 4,511 Shareholders' equity 351,973 229,213 --------- --------- Total liabilities and shareholders' equity $ 422,271 $ 274,174 Network Commerce Inc. Business Metrics (Unaudited) --------------------------------------------------- Q3 Q2 Q1 FY 2000 FY 2000 FY 2000 --------------------------------------------------- Financial Data (1) ------------------ Total Revenue $ 33,443,000 $ 26,921,000 $ 18,682,000 Pro Forma Gross Profit $ 18,252,000 $ 14,082,000 $ 8,289,000 Pro Forma Gross Margin 55% 52% 44% Pro Forma EPS $ (0.23) $ (0.30) $ (0.41) Network Commerce Network ------------------------ Total Network Commerce Network Visits 106,703,740 66,175,394 55,359,804 Total Network Commerce Bandwidth Capacity (Megabits/Second) 400 300 200 Network Commerce Consumer Network --------------------------------- Total Number of Premier Merchants (2) 118 125 97 Premier Merchants Paying more than $100,000 per Month 26 16 7 Quarterly Recognized Revenue from Premier Merchants $ 14,494,000 $ 8,967,000 $ 4,608,000 Average Quarterly Revenue per Premier Merchant $ 122,831 $ 71,736 $ 47,504 Network Commerce Business Network --------------------------------- Total Number of Business Network Businesses 1,025,000 899,000 610,000 Total Number of Businesses Utilizing our Technology Platform 232,000 115,000 19,700 Efficiency Metrics ------------------ Salary Expense as a % of Revenue 34% 37% 48% Marketing Expense as a % of Revenue 32% 39% 58% Average Quarterly Revenue Per Employee (3) $ 50,633 $ 42,496 $ 34,532
(1) Pro forma amounts exclude the effects of non-recurring charges and non-cash charges relating to amortization of intangible assets, stock based compensation, and deferred income tax benefits. Pro forma gross profit for the third quarter 2000 excludes a one-time charge from ceasing a business activity with Inktomi, Inc. Refer to RECONCILIATION OF PRO FORMA CONSOLIDATED STATEMENTS OF OPERATION for financial data in accordance with Generally Accepted Accounting Principles.
(2) Premier Merchants include those merchants that contribute greater than $10,000 of revenue per month.
(3) Calculated based upon the average number of employees during the quarter.
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