Exhibit 99.1
Critical Path Announces Second Quarter 2006 Results
Revenue and gross margins up; Expenses down; Cash balance increases
SAN FRANCISCO, Calif. (August 14, 2006) – Critical Path, Inc. (OTC: CPTH), a leading provider of messaging software and services, today announced unaudited financial results for the fiscal second quarter ended June 30, 2006.
Revenue and Gross Margins
For the second quarter of 2006, revenues were $12.0 million, compared to $11.0 million in the first quarter of 2006 and $17.1 million in the second quarter of 2005. Gross margins, based upon U.S. Generally Accepted Accounting Principles (GAAP), for the second quarter of 2006 were 56%, an improvement of 5 points, up from 51% in the first quarter of 2006 and up 7 points from 49% in the second quarter of 2005. On an adjusted EBITDA basis, gross margins in the second quarter of 2006 were 58%, an improvement of 4 points, up from 54% in the first quarter of 2006 and up 4 points from 54% in the second quarter of 2005.
Adjusted EBITDA is a non-GAAP metric used by management to measure the Company’s operating performance and its earnings before interest income (expense), provision for income taxes, depreciation and amortization adjusted to exclude other items, such as other income (expense), gain on sale of assets, restructuring and other expenses, stock-based expenses and accretion on mandatorily redeemable preferred stock.
Net Results
Net loss on a GAAP basis, which excludes the accretion of mandatorily redeemable preferred stock (a non-cash item related to outstanding preferred stock), for the second quarter of 2006, was $2.6 million, compared to a net loss of $3.9 million in the first quarter of 2006 and a net loss of $1.5 million in the second quarter of 2005. For the second quarter of 2006, total cost of net revenues and operating expenses, on a GAAP basis, was $14.3 million, compared to $13.4 million in the first quarter of 2006 and $20.0 million in the second quarter of 2005.
Net loss attributable to common shareholders based on GAAP, which includes the accretion of mandatorily redeemable preferred stock, for the second quarter of 2006, was $6.1 million or $0.17 per share, compared to a net loss of $7.4 million or $0.20 per share in the first quarter of 2006 and a net loss of $8.1 million or $0.27 per share in the second quarter of 2005.
Net loss on an adjusted EBITDA basis for the second quarter of 2006, was $1.5 million, or $0.04 per share, compared to net loss of $2.8 million or $0.08 per share in the first quarter of 2006 and a loss of $0.7 million or $0.02 per share in the second quarter of 2005. For the second quarter of 2006, total cost of net revenues and operating expenses on an adjusted EBITDA basis was $13.5 million, compared to $13.8 million for the first quarter of 2006 and 17.8 million for the second quarter of 2005.
“In Q2, we were again just a few transactions away from EBITDA breakeven, however, we did do a better job of managing our cash and our expenses while continuing our significant investment in our mobile business,” said Mark Ferrer, CEO and Chairman, Critical Path. “Our investment in mobile is taking longer to monetize than we had anticipated, but throughout the world, we saw a stepped increase in activity by mobile prospects. Additionally, we are experiencing increased pipeline activity in both Memova Messaging and Memova Anti-Abuse with our new product releases.”
Cash and Cash Equivalents
As of June 30, 2006, the Company’s cash and cash equivalents totaled $20.1 million, compared to $19.1 million at March 31, 2006.
Second Quarter 2006 Highlights
• | Memova® Messaging - In June, Critical Path issued a press release, formally announcing the launch of “CopyAgenda”, a Memova Messaging Universal Contacts solution deployed by Spain’s leading mobile operator – Telefonica Moviles. Additionally, Critical Path signed new Memova Messaging customers in Hong Kong, Vietnam and Spain during Q2. |
• | Memova®Anti-Abuse – In the second quarter, Critical Path acquired two new Memova Anti-Abuse customers in Europe, as well as the first customer to use the new premium appliance — Memova Anti-Abuse C-2000. |
• | Memova®Mobile – Critical Path welcomed yet another Memova Mobile customer in Q2. A leading operator in India (to be announced), with more than 8M subscribers, will deploy Memova Mobile to provide a consumer-oriented push email solution targeted at the youth market. |
Regulation G
The Company uses both GAAP and non-GAAP metrics to measure its financial results. The non-GAAP metrics used are: income (loss) on an adjusted EBITDA basis and both cost of revenues and operating expenses on an adjusted EBITDA basis. The most directly comparable GAAP measures are the net loss attributable to common shareholders and cost of net revenues and operating expenses, respectively. The adjusted EBITDA results exclude interest income (expense), provision for income taxes, depreciation and amortization as well as other items such as other income (expense), net, gain on sale of assets, restructuring and other expenses, stock-based expenses and accretion on mandatorily redeemable preferred stock. There is no difference between adjusted EBITDA and GAAP revenues. Management believes that, in addition to GAAP metrics, these non-GAAP metrics assist the Company in measuring its cash-based performance. In addition, management believes these non-GAAP metrics are useful to investors because they remove unusual and nonrecurring charges that occur in the affected period and provide a basis for measuring the Company’s financial condition against other quarters. Since the Company has historically reported non-GAAP results to the investment community, management also believes the inclusion of non-GAAP measures provides consistency in its financial reporting. However, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The calculations for these non-GAAP metrics are in the alternative measurement reconciliation table below.
Pre-Recorded Conference Call
As discussed on the last earnings call, going forward, Critical Path will be providing pre-recorded reviews of its quarterly financial results. The pre-recorded review discussing financial results for the second quarter ended June 30, 2006 will be available via Webcast or telephone. The Webcast will be available on Critical Path’s Web site athttp://www.criticalpath.net/en/31/webcasts/ beginning at 6 PM Eastern time today, August 14, and will be accessible for the next 12 months. Telephone access to the pre-recorded review will be available beginning at 6 PM Eastern time today, August 14, through 6 PM Eastern time August 28 by dialing +1 800-642-1687 (within the U.S. and Canada) or +1 706-645-9291 (from outside the U.S. and Canada) and use conferenceID 4009485.
Questions about the quarter’s results may be submitted toir@criticalpath.net. Any questions regarding the quarterly results that are submitted by 6 PM Eastern time, August 16, 2006 may be publicly responded to by the company on the Investor Relations section of the company’s Web site (http://www.criticalpath.net/investors). The company does not undertake to publicly respond to all such questions submitted.
About Critical Path, Inc.
Critical Path’s Memova® solutions provide a new and improved email experience for millions of consumers worldwide, helping mobile operators, broadband and fixed-line service providers unlock the potential of email in the mass market. Memova® Mobile gives consumers instant, on-the-go access to the messages that matter most. Featuring industry-leading anti-spam and anti-virus technology, Memova® Anti-Abuse protects consumers against viruses and spam. Memova® Messaging provides consumers with a rich email experience, enabling service providers to develop customized offerings for high-speed subscribers. Headquartered in San Francisco with offices around the globe, Critical Path’s messaging solutions are deployed by more than 200 service providers throughout the world. More information is available atwww.criticalpath.net.
Cautionary Note Regarding Forward-Looking Statements:
This press release contains forward-looking statements by the Company and its executives regarding the performance of our product and service offerings, our expected revenue results, gross margins, operating expenses, net results and cash balances for the second quarter of 2006, the ability of our customers to achieve cost savings and improve revenues in the provision of services, industry trends, market and customer requirements, the ability of our products and services to meet the business needs of our customers and compete favorably in the marketplace, management of spending levels, the market for products and services like ours and the performance of our senior management in achieving strategic goals. The words and expressions “look forward to,” “will,” “expect,” “plan,” “believe,” “seek,” “strive for,” “anticipate,” “hope,” “estimate” and similar expressions are intended to identify the Company’s forward-looking statements. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks include, but are not limited to, our evolving business strategy and the emerging and changing nature of the market for our products and services, our ability to deliver on our sales objectives, the ability of our technology and our competitors’ technologies to address customer demands, changes in economic and market conditions, and software and service design defects. These and other risks and uncertainties are described in more detail in the Company’s filings with the U.S. Securities and Exchange Commission (www.sec.gov) made from time to time including Critical Path’s Quarterly Report on Form 10-Q for the three months ended March 31, 2006, Annual Report on Form 10-K for the fiscal year ended December 31, 2005, its Current Reports on Form 8-K, as may be amended from time to time, and all subsequent filings with the United States Securities and Exchange Commission (www.sec.gov). The Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.
Note to Editors: Critical Path, the Critical Path logo, Memova and the Memova logo are the trademarks of Critical Path, Inc., registered in various jurisdictions. All other trademarks are the property of their respective holders.
Contact Information | ||
For Reporters and Editors: | For Investors: | |
Critical Path, Inc. | Critical Path, Inc. | |
Michelle Weber | Investor Relations | |
415.541.2575 | 415.541.2619 | |
pr@criticalpath.net | ir@criticalpath.net | |
www.criticalpath.net | www.criticalpath.net |
Critical Path, Inc.
Condensed Consolidated Balance Sheets
June 30, 2005 | December 31, 2005 | June 30, 2006 | ||||||||||
(in thousands; unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 16,857 | $ | 18,707 | $ | 20,054 | ||||||
Accounts receivable, net | 19,661 | 10,096 | 14,545 | |||||||||
Current assets held for sale | — | 2,782 | — | |||||||||
Other current assets | 3,767 | 2,411 | 2,094 | |||||||||
Total current assets | 40,285 | 33,996 | 36,693 | |||||||||
Property and equipment, net | 7,244 | 2,625 | 2,784 | |||||||||
Goodwill | 6,613 | 7,047 | 7,313 | |||||||||
Other assets | 2,007 | 1,756 | 905 | |||||||||
Total assets | $ | 56,149 | $ | 45,424 | $ | 47,695 | ||||||
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 4,988 | $ | 2,726 | $ | 4,616 | ||||||
Accrued liabilities | 19,536 | 19,727 | 19,548 | |||||||||
Deferred revenue | 11,576 | 6,574 | 11,483 | |||||||||
Capital lease and other obligations, current | 355 | 106 | 62 | |||||||||
Current liabilities held for sale | — | 219 | — | |||||||||
Total current liabilities | ||||||||||||
36,455 | 29,352 | 35,709 | ||||||||||
Deferred revenue long-term | 71 | 710 | 640 | |||||||||
Notes payable, long-term | 16,698 | 18,493 | 20,374 | |||||||||
Capital lease and other obligations, long-term | — | 50 | — | |||||||||
Embedded derivative liability | 2,402 | 1,534 | 1,020 | |||||||||
Total liabilities | 55,626 | 50,139 | 57,743 | |||||||||
Mandatorily redeemable preferred stock | 116,248 | 120,293 | 127,260 | |||||||||
Total shareholders’ deficit | (115,725 | ) | (125,008 | ) | (137,308 | ) | ||||||
Total liabilities and shareholders’ deficit | $ | 56,149 | $ | 45,424 | $ | 47,695 | ||||||
Critical Path, Inc.
Condensed Consolidated Statement of Operations on a United States GAAP Basis
Three months ended | Six months ended | |||||||||||||||||||
June 30, 2005 | March 31, 2006 | June 30, 2006 | June 30, 2005 | June 30, 2006 | ||||||||||||||||
(in thousands, except per share amounts; unaudited) | ||||||||||||||||||||
NET REVENUE | ||||||||||||||||||||
Software licensing | $ | 4,771 | $ | 2,928 | $ | 3,481 | $ | 9,216 | $ | 6,409 | ||||||||||
Hosted messaging | 3,528 | 1,222 | 1,167 | 8,739 | 2,389 | |||||||||||||||
Professional services | 3,727 | 2,575 | 2,828 | 6,811 | 5,403 | |||||||||||||||
Maintenance and support | 5,083 | 4,289 | 4,548 | 9,783 | 8,837 | |||||||||||||||
Total net revenue | 17,109 | 11,014 | 12,024 | 34,549 | 23,038 | |||||||||||||||
COST OF NET REVENUE | ||||||||||||||||||||
Software licensing | 1,035 | 1,306 | 1,060 | 2,243 | 2,366 | |||||||||||||||
Hosted messaging | 3,780 | 777 | 758 | 8,924 | 1,535 | |||||||||||||||
Professional services | 2,346 | 1,976 | 2,220 | 4,793 | 4,196 | |||||||||||||||
Maintenance and support | 1,551 | 1,294 | 1,224 | 3,102 | 2,518 | |||||||||||||||
Total cost of net revenue | 8,712 | 5,353 | 5,262 | 19,062 | 10,615 | |||||||||||||||
GROSS PROFIT | 8,397 | 5,661 | 6,762 | 15,487 | 12,423 | |||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling and marketing | 3,956 | 3,490 | 3,326 | 8,612 | 6,816 | |||||||||||||||
Research and development | 3,656 | 2,320 | 2,525 | 8,567 | 4,845 | |||||||||||||||
General and administrative | 3,526 | 3,269 | 3,019 | 7,657 | 6,288 | |||||||||||||||
Restructuring expense | 168 | 915 | 126 | 1,807 | 1,041 | |||||||||||||||
Gain on sale of assets | — | (1,971 | ) | — | — | (1,971 | ) | |||||||||||||
Total operating expenses | 11,306 | 8,023 | 8,996 | 26,643 | 17,019 | |||||||||||||||
OPERATING LOSS | (2,909 | ) | (2,362 | ) | (2,234 | ) | (11,156 | ) | (4,596 | ) | ||||||||||
Other income (expense), net | 2,395 | (459 | ) | 537 | 4,241 | 78 | ||||||||||||||
Interest expense, net | (907 | ) | (853 | ) | (900 | ) | (1,567 | ) | (1,753 | ) | ||||||||||
Loss before provision for income taxes | (1,421 | ) | (3,674 | ) | (2,597 | ) | (8,482 | ) | (6,271 | ) | ||||||||||
Provision for income taxes | (116 | ) | (268 | ) | (45 | ) | (424 | ) | (313 | ) | ||||||||||
NET LOSS | (1,537 | ) | (3,942 | ) | (2,642 | ) | (8,906 | ) | (6,584 | ) | ||||||||||
Accretion on mandatorily redeemable preferred stock | (6,516 | ) | (3,462 | ) | (3,505 | ) | (11,793 | ) | (6,967 | ) | ||||||||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (8,053 | ) | $ | (7,404 | ) | $ | (6,147 | ) | $ | (20,699 | ) | $ | (13,551 | ) | |||||
Net loss per share attributable to common shareholders | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.17 | ) | $ | (0.73 | ) | $ | (0.37 | ) | |||||
Shares used in the per share calculations | 29,369 | 36,133 | 36,267 | 28,361 | 36,183 | |||||||||||||||
Critical Path, Inc.
Condensed Consolidated Statement of Operations on a Non-GAAP (Adjusted EBITDA*) Basis
Three months ended | Six months ended | |||||||||||||||||||
June 30, 2005 | March 31, 2006 | June 30, 2006 | June 30, 2005 | June 30, 2006 | ||||||||||||||||
(in thousands, except per share amounts; unaudited) | ||||||||||||||||||||
NET REVENUE | ||||||||||||||||||||
Software licensing | $ | 4,771 | $ | 2,928 | $ | 3,481 | $ | 9,216 | $ | 6,409 | ||||||||||
Hosted messaging | 3,528 | 1,222 | 1,167 | 8,739 | 2,389 | |||||||||||||||
Professional services | 3,727 | 2,575 | 2,828 | 6,811 | 5,403 | |||||||||||||||
Maintenance and support | 5,083 | 4,289 | 4,548 | 9,783 | 8,837 | |||||||||||||||
Total net revenue | 17,109 | 11,014 | 12,024 | 34,549 | 23,038 | |||||||||||||||
COST OF NET REVENUE | ||||||||||||||||||||
Software licensing | 1,035 | 1,306 | 1,060 | 2,242 | 2,366 | |||||||||||||||
Hosted messaging | 3,006 | 562 | 680 | 6,893 | 1,242 | |||||||||||||||
Professional services | 2,294 | 1,946 | 2,167 | 4,671 | 4,113 | |||||||||||||||
Maintenance and support | 1,540 | 1,284 | 1,202 | 3,071 | 2,486 | |||||||||||||||
Total cost of net revenue | 7,875 | 5,098 | 5,109 | 16,877 | 10,207 | |||||||||||||||
GROSS PROFIT | 9,234 | 5,916 | 6,915 | 17,672 | 12,831 | |||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling and marketing | 3,806 | 3,422 | 3,249 | 8,282 | 6,671 | |||||||||||||||
Research and development | 3,110 | 2,228 | 2,391 | 6,352 | 4,619 | |||||||||||||||
General and administrative | 3,036 | 3,049 | 2,729 | 6,822 | 5,778 | |||||||||||||||
Total operating expenses | 9,952 | 8,699 | 8,369 | 21,456 | 17,068 | |||||||||||||||
ADJUSTED EBITDA LOSS | $ | (718 | ) | $ | (2,783 | ) | $ | (1,454 | ) | $ | (3,784 | ) | $ | (4,237 | ) | |||||
Adjusted EBITDA loss per share | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.04 | ) | $ | (0.13 | ) | $ | (0.12 | ) | |||||
Shares used in the per share calculations | 29,369 | 36,133 | 36,267 | 28,361 | 36,183 | |||||||||||||||
* | Excludes interest income (expense), provision for income taxes, depreciation and amortization adjusted to exclude other items such as gain on sale of assets, other income (expense), net, restructuring expenses, stock-based expenses and accretion on mandatorily redeemable preferred stock. |
Critical Path, Inc.
Alternative Measurements Reconciliation
The following table provides a reconciliation between the Company’s Non-GAAP results and Adjusted
EBITDA Loss to the Company’s Condensed Consolidated Statement of Operations on a United States GAAP basis.
Three months ended | Six months ended | |||||||||||||||||||
June 30, 2005 | March 31, 2006 | June 30, 2006 | June 30, 2005 | June 30, 2006 | ||||||||||||||||
(in thousands, except per share amounts; unaudited) | ||||||||||||||||||||
Adjusted EBITDA loss | $ | (718 | ) | $ | (2,783 | ) | $ | (1,454 | ) | $ | (3,784 | ) | $ | (4,237 | ) | |||||
Interest expense, net | (907 | ) | (853 | ) | (900 | ) | (1,567 | ) | (1,753 | ) | ||||||||||
Provision for income taxes | (116 | ) | (268 | ) | (45 | ) | (424 | ) | (313 | ) | ||||||||||
Depreciation and amortization | (1,768 | ) | (493 | ) | (364 | ) | (5,002 | ) | (854 | ) | ||||||||||
Other income (expense), net | 2,395 | (459 | ) | 537 | 4,241 | 78 | ||||||||||||||
Gain on sale of assets | — | 1,971 | — | — | 1,971 | |||||||||||||||
Restructuring expenses | (168 | ) | (915 | ) | (126 | ) | (1,807 | ) | (1,041 | ) | ||||||||||
Stock-based expenses | (255 | ) | (142 | ) | (290 | ) | (563 | ) | (435 | ) | ||||||||||
Net loss | (1,537 | ) | (3,942 | ) | (2,642 | ) | (8,906 | ) | (6,584 | ) | ||||||||||
Accretion on mandatorily redeemable preferred stock | 6,516 | 3,462 | 3,505 | 11,793 | 6,967 | |||||||||||||||
Net loss attributable to common shareholders | $ | (8,053 | ) | $ | (7,404 | ) | $ | (6,147 | ) | $ | (20,699 | ) | $ | (13,551 | ) | |||||
Net loss per share attributable to common shareholders | $ | (0.27 | ) | $ | (0.20 | ) | $ | (0.17 | ) | $ | (0.73 | ) | $ | (0.37 | ) | |||||
Shares used in the per share calculations | 29,369 | 36,133 | 36,267 | 28,361 | 36,183 | |||||||||||||||
The following table provides a reconciliation between the total cost of net revenues and operating expenses
on an Adjusted EBITDA basis to the Company’s cost of revenues and operating expenses on a United States GAAP basis.
Three months ended | Six months ended | |||||||||||||||||||
June 30, 2005 | March 31, 2006 | June 30, 2006 | June 30, 2005 | June 30, 2006 | ||||||||||||||||
(in thousands, except per share amounts; unaudited) | ||||||||||||||||||||
Total cost of net revenues and operating expenses on an adjusted EBITDA basis | $ | 17,827 | $ | 13,797 | $ | 13,478 | $ | 38,333 | $ | 27,275 | ||||||||||
Depreciation and amortization | (1,768 | ) | (493 | ) | (364 | ) | (5,002 | ) | (854 | ) | ||||||||||
Gain on sale of assets | — | 1,971 | — | — | 1,971 | |||||||||||||||
Restructuring expenses | (168 | ) | (915 | ) | (126 | ) | (1,807 | ) | (1,041 | ) | ||||||||||
Stock-based expenses | (255 | ) | (142 | ) | (290 | ) | (563 | ) | (435 | ) | ||||||||||
Total cost of net revenues and operating expenses on a United States GAAP basis | $ | 20,018 | $ | 13,376 | $ | 14,258 | $ | 45,705 | $ | 27,634 | ||||||||||