[Network Commerce Logo]
FOR IMMEDIATE RELEASE
NETWORK COMMERCE REPORTS Q4 AND YEAR-END 2000 RESULTS
AND PROVIDES GUIDANCE FOR 2001
Network Commerce reported $106 million in revenue in 2000
Company reported revenue of $27.1 million for Q4 2000
SEATTLE—January 29, 2001—Network Commerce Inc. (NASDAQ: NWKC), the global technology infrastructure and services company, today announced financial results for its fourth quarter and year ended December 31, 2000.
Total revenue for the fourth quarter 2000 was $27.1 million, compared to $13.4 million in the fourth quarter of 1999 and $33.4 million in third quarter 2000. Revenue for the year increased to $106.1 million, compared to $27.0 million in 1999.
Fourth quarter 2000 pro forma gross profit was $11.5 million or 43% of total revenue, compared to $5.6 million or 42% of total revenue in the fourth quarter of 1999 and $18.3 million or 55% of total revenue for the third quarter of 2000. Pro forma gross profit for the year was $52.1 million or 49% of total revenue, compared to $10.9 million or 40% of revenue in 1999. The main contributors for a decrease in gross profit from the third quarter 2000 to the fourth quarter 2000 were the revenue mix and collection issues. For the year 2001, Network Commerce expects the gross margin to be between 70% and 80% as a result of the expected growth of the company's technology infrastructure and services offerings and the discontinuation of lower margin businesses such as product sales, offline services and e-business services.
"We are very proud of the fact that we reached our original goal of exceeding $100 million in revenue for 2000. However, the fourth quarter 2000 proved to be a challenging one for Network Commerce," said Dwayne Walker, chairman and chief executive officer of Network Commerce. "Several factors contributed to our decreased revenue in the fourth quarter 2000 compared to the third quarter 2000, but the main contributor was the across-the-board slowdown in the Internet economy."
Total pro forma operating expenses in the fourth quarter 2000 were $37.3 million, compared to $27.9 million in the fourth quarter of 1999 and $34.3 million in the third quarter 2000. Pro forma operating expenses for the year were $133.7 million, compared to $67.5 million in 1999.
Pro forma loss from operations was $25.8 million in the fourth quarter 2000, compared to $22.3 million in the fourth quarter 1999 and $16 million in the third quarter 2000. For the year, pro forma loss from operations was $81.5 million, compared to $56.6 million in 1999. Pro forma net loss for the fourth quarter was $25.3 million or $0.40 per share, compared to $18.9 million or $0.51 per share in the fourth quarter of 1999 and $13.7 million or $0.23 per share in the third quarter 2000. The company's pro forma net loss for the year 2000 was $75.5 million or $1.33 per share, compared to $53.8 million or $2.09 per share for the year 1999. Total net loss for the fourth quarter was $185.5 million, compared to $28.7 million for the fourth quarter 1999 and $28.6 million for the third quarter 2000. Total net loss for 2000 was $262.0 million.
During the fourth quarter 2000, Network Commerce incurred $16.8 million in restructuring charges stemming primarily from the closing of certain business units. In addition, the company recognized a $124.5 million impairment charge in the fourth quarter 2000 relating to certain acquired intangible assets and goodwill from business acquisitions, cost-basis investments and marketable equity securities.
Pro forma figures exclude the effects of restructuring and impairment charges and non-cash charges relating to the amortization of intangible assets, stock-based compensation and deferred income tax benefits.
As of December 31, 2000, Network Commerce had $49.9 million in cash, cash equivalents and short-term investments, compared to $87.1 million in the third quarter of 2000. The company expects to
have approximately $12 million to $14 million in cash, cash equivalents and short-term investments as of June 30, 2001, and to have approximately $8 million to $10 million in cash, cash equivalents and short-term investments as of December 31, 2001, the same quarter in which the company expects to be cash flow positive. The company currently expects to be profitable, on a pro forma basis consistent with current reporting, in the third quarter 2001.
As of December 31, 2000, Network Commerce was out of compliance with working capital covenants under its bank credit agreement. The lender has waived the company's obligation to comply with those financial covenants for the period ended December 31, 2000, but has re-instituted existing working capital covenants going forward. The company is now in the process of renegotiating certain provisions of the agreement. The violation of debt covenants and the historical results of operations have led auditors to inform the company that they expect to issue a going concern opinion in the company's annual report if facts and circumstances do not change.
2001 Guidance
Going forward, Network Commerce will report financial results based on two business segments: Technology Infrastructure and Services, and The Portal Group. Technology Infrastructure & Services consists of domain name registration services, hosting services, commerce services, business services, and one-to-one marketing services. The company derives revenue from Technology Infrastructure and Services through domain registration fees, hosting fees, transaction fees, licensing fees and marketing fees. The Portal Group consists of online sites and portals. Revenue from The Portal Group is derived from transaction fees, marketing fees and licensing fees. For the year 2001, Technology Infrastructure and Services is expected to account for approximately 45% of the company's revenue, and The Portal Group is expected to account for approximately 55% of the company's revenue.
Network Commerce expects to generate revenue between $80 and $90 million in 2001. Revenue for the first quarter 2001 is expected to be approximately $15 million to $17 million, of which approximately 40% is expected to come from Technology Infrastructure and Services and approximately 60% is expected to come from The Portal Group. Network Commerce expects revenue to grow to approximately $18 million to $20 million in the second quarter 2001, of which approximately 44% will come from Technology Infrastructure and Services and approximately 56% will come from The Portal Group. Network Commerce is focused on growing the Technology Infrastructure and Services group as a percentage of total revenue.
Gross margins for 2001 are anticipated to be between 70% and 80%. The company expects to achieve these higher margins by focusing on its high margin businesses and the discontinuation of low margin businesses.
The company also expects a substantial reduction in operating costs in 2001, resulting from previously announced staff reductions, the closing of unprofitable business units, reductions of capital expenditures, lower marketing expenses, a reduction in ongoing depreciation expense, and other cost-cutting measures. These adjustments include an approximate $23 million savings in marketing expense, a $13 million savings in salary expense and approximately $12 million in savings in other expenses resulting in a reduction of approximately $50 million in operating expenses for the year. Pro forma net loss for 2001 is expected to be in the range of $20 million to $25 million, as compared to a pro forma net loss of $75.5 million in 2000.
Network Commerce currently expects to reach pro forma profitability in Q3 2001, and to be cash flow positive in Q4 2001.
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 fourth quarter and fiscal year 2000 results. The call will feature remarks by Chairman and Chief Executive Officer Dwayne Walker, and Vice President of Finance and Interim Chief Financial Officer Stephen Smith. A live broadcast of the conference call may be heard by dialing 1-800-670-3544 or via Web cast in the Investor Relations section of the corporate Web site atwww.networkcommerce.com. A 48-hour replay will also be available following the conclusion of the
call. To access the replay, please call 1-800-633-8284 and use reservation #17368825. In addition, the call will be archived in the Investor Relations section of the corporate Web site.
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 services, hosting services, commerce services, business services, one-to-one marketing 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.
Forward Looking Statements:
Certain statements in this announcement 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. Forward looking statements in this press release include, without limitation, the company's guidance and expectations concerning its financial performance in fiscal year 2001, the dates at which it expects to become profitable or cash flow positive, and statements regarding planned restructuring and the cost savings expected therefrom. 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 September 30, 2000, the company defaulting on its convertible debt; the company's inability to restructure its debt, possible delisting from Nasdaq, a downturn in the Internet sector, bad debts from customers, and the possible going concern opinion from auditors. 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.
Press Contact:
Rita Brautigam, Network Commerce Inc., (206) 223-1996, ritab@networkcommerce.com
Investor Relations Contacts:
Stephen Smith, Network Commerce Inc., (877) 430-0131, ir@networkcommerce.com
Elise Spencer, Network Commerce Inc., (877) 430-0131, ir@networkcommerce.com
(Financial Tables to Follow)
Network Commerce Inc.
Pro Forma Condensed Consolidated Statements of Operations(A)
(in thousands, except share data)
(unaudited)
| | Three months ended December 31, | Year ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | ||||||||||
| Revenues | $ | 27,075 | $ | 13,418 | $ | 106,121 | $ | 27,032 | ||||||
| Cost of revenues | 15,555 | 7,835 | 53,978 | 16,139 | ||||||||||
| �� | ||||||||||||||
| Gross profit | 11,520 | 5,583 | 52,143 | 10,893 | ||||||||||
| Operating expenses: | ||||||||||||||
| Sales and marketing | 25,272 | 21,527 | 95,518 | 52,186 | ||||||||||
| Research and development | 8,117 | 3,518 | 24,187 | 8,875 | ||||||||||
| General and administration | 3,894 | 2,849 | 13,978 | 6,406 | ||||||||||
| Total operating expenses | 37,283 | 27,894 | 133,683 | 67,467 | ||||||||||
| Loss from operations | (25,763 | ) | (22,311 | ) | (81,540 | ) | (56,574 | ) | ||||||
| Other income (expense), net | 445 | 3,353 | 6,083 | 2,751 | ||||||||||
| Net loss | $ | (25,318 | ) | $ | (18,958 | ) | $ | (75,457 | ) | $ | (53,823 | ) | ||
| Pro forma basic and diluted net loss per share (B) | $ | (0.40 | ) | $ | (0.51 | ) | $ | (1.33 | ) | $ | (2.09 | ) | ||
| Shares used in computing pro forma basic and diluted net loss per share (B) | 63,468,376 | 37,313,691 | 56,860,709 | 25,754,882 | ||||||||||
Network Commerce Inc.
Reconciliation of Pro Forma Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
| | Three months ended December 31, | Year ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | ||||||||||
| Pro forma gross profit | $ | 11,520 | $ | 5,583 | $ | 52,143 | $ | 10,893 | ||||||
| Other non-recurring charge (C) | — | — | (5,320 | ) | — | |||||||||
| Gross profit | 11,520 | 5,583 | 46,823 | 10,893 | ||||||||||
| Pro forma operating expenses | (37,283 | ) | (27,894 | ) | (133,683 | ) | (67,467 | ) | ||||||
| Other income (expense), net | 445 | 3,353 | 6,083 | 2,751 | ||||||||||
| Reconciling items: | ||||||||||||||
| Amortization of intangible assets | (24,882 | ) | (5,071 | ) | (80,515 | ) | (8,805 | ) | ||||||
| Stock-based compensation | (1,590 | ) | (4,669 | ) | (6,216 | ) | (7,216 | ) | ||||||
| Accretion of convertible note payable (D) | (2,430 | ) | — | (2,430 | ) | — | ||||||||
| Impairment of certain intangible assets, marketable equity securites and cost-basis investments (E) | (124,519 | ) | — | (124,519 | ) | — | ||||||||
| Restructuring charges (F) | (16,774 | ) | — | (16,774 | ) | — | ||||||||
| Net loss from Buysoftware.com | — | — | — | (4,599 | ) | |||||||||
| Other non-recurring charge (C) | — | — | — | (1,500 | ) | |||||||||
| Income tax benefit | 9,975 | — | 49,205 | — | ||||||||||
| Net loss | $ | (185,538 | ) | $ | (28,698 | ) | $ | (262,026 | ) | $ | (75,943 | ) | ||
| Pro forma basic and diluted net loss per share (B) | $ | (2.92 | ) | $ | (0.77 | ) | $ | (4.61 | ) | $ | (2.95 | ) | ||
| Shares used in computing pro forma basic and diluted net loss per share (B) | 63,468,376 | 37,313,691 | 56,860,709 | 25,754,882 | ||||||||||
Network Commerce Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash, cash equivalents and short-term investments | $ | 49,906 | $ | 62,832 | ||||
| Investments in marketable equity securities | 431 | 30,884 | ||||||
| Accounts receivable, net | 21,011 | 6,591 | ||||||
| Unbilled services, prepaids and other | 24,027 | 7,661 | ||||||
| Total current assets | 95,375 | 107,968 | ||||||
| Property and equipment, net | 22,580 | 19,385 | ||||||
| Goodwill and other intangible assets, net | 135,628 | 128,573 | ||||||
| Other assets, net | 34,854 | 18,248 | ||||||
| Total assets | $ | 288,437 | $ | 274,174 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 37,080 | $ | 17,108 | ||||
| Current portion of long-term debt | 25,471 | 8,565 | ||||||
| Customer deposits and deferred revenue | 25,410 | 7,980 | ||||||
| Total current liabilities | 87,961 | 33,653 | ||||||
| Long-term debt, less current portion | 1,067 | 5,409 | ||||||
| Put warrant liability | — | 1,388 | ||||||
| Deferred revenues | 3,703 | — | ||||||
| Deferred tax liabilities | — | 4,511 | ||||||
| Shareholders' equity | 195,706 | 229,213 | ||||||
| Total liabilities and shareholders' equity | $ | 288,437 | $ | 274,174 | ||||
| | Q4 FY 2000 | Q3 FY 2000 | Q4 FY 1999 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial Data(1) | ||||||||||
| Total Revenue | $ | 27,075,000 | $ | 33,443,000 | $ | 13,418,000 | ||||
| Pro Forma Gross Profit | $ | 11,520,000 | $ | 18,252,000 | $ | 5,583,000 | ||||
| Pro Forma Gross Margin | 43 | % | 55 | % | 42 | % | ||||
| Pro Forma EPS | $ | (0.40 | ) | $ | (0.23 | ) | $ | (0.51 | ) | |
| Network Commerce Network | ||||||||||
| Total Network Commerce Network Visits | 180,254,324 | 106,703,740 | 21,461,497 | |||||||
| Total Network Commerce Bandwidth Capacity (Megabits/Second) | 400 | 400 | 100 | |||||||
| Network Commerce Consumer Network | ||||||||||
| Total Number of Premier Merchants(2) | 80 | 118 | 68 | |||||||
| Premier Merchants Paying more than $100,000 per Month | 18 | 26 | 0 | |||||||
| Quarterly Recognized Revenue from Premier Merchants | $ | 11,630,000 | $ | 14,494,000 | $ | 2,379,000 | ||||
| Average Quarterly Revenue per Premier Merchant | $ | 145,375 | $ | 122,831 | $ | 34,991 | ||||
| Network Commerce Business Network | ||||||||||
| Total Number of Business Network Businesses | 1,077,000 | 1,025,000 | — | |||||||
| Total Number of Businesses Utilizing our Technology Platform | 325,000 | 232,000 | 18,300 | |||||||
| Efficiency Metrics | ||||||||||
| Salary Expense as a % of Revenue | 45 | % | 34 | % | 60 | % | ||||
| Marketing Expense as a % of Revenue | 31 | % | 32 | % | 88 | % | ||||
| Average Quarterly Revenue Per Employee(3) | $ | 42,537 | $ | 50,633 | $ | 33,295 | ||||
Network Commerce Inc.
Fiscal Year 2001 Guidance
Network Commerce Customers
| | Q1 2001 (E) | Q2 2001 (E) | FY 2001 (E) | ||||
|---|---|---|---|---|---|---|---|
| Technology Infrastructure and Services | |||||||
| Domain Registration Services | 744,300 | 973,800 | 1,761,300 | ||||
| Commerce, Hosting and Business Services | 262,000 | 307,000 | 464,600 | ||||
| One-to-one Marketing Services | 8,593,400 | 10,281,700 | 15,218,900 | ||||
| Total Active Customers | 9,599,700 | 11,562,500 | 17,444,800 | ||||
| The Portal Group | |||||||
| Registered Portal Customers | 9,155,000 | 12,538,000 | 21,199,000 | ||||
FY 2001 Expected Financial Results
| | Q1 2001 (E) | Q2 2001 (E) | FY 2001 (E) | |||
|---|---|---|---|---|---|---|
| Revenue | $15 million to $17 million | $18 million to $20 million | $80 million to $90 million | |||
| Gross Margin | 68% to 70% | 70% to 72% | 70% to 80% | |||
| Pro Forma Operating Loss (*) | $16 million to $19 million | $6 million to $9 million | $20 million to $25 million |
Network Commerce currently expects to reach pro forma profitability in Q3 2001, and to be cash flow positive in Q4 2001.
Revenue Breakout
| | Q1 2001 (E) | Q2 2001 (E) | FY 2001 (E) | |||||
|---|---|---|---|---|---|---|---|---|
| Technology Infrastructure and Services (**) | ||||||||
| Domain Registration Services | 46 | % | 47 | % | 48 | % | ||
| Commerce, Hosting and Business Services | 31 | % | 24 | % | 25 | % | ||
| One-to-one Marketing Services | 23 | % | 29 | % | 27 | % | ||
| Total | 100 | % | 100 | % | 100 | % | ||
| The Portal Group (**) | ||||||||
| Customer Acquisition Services | 100 | % | 100 | % | 100 | % | ||
Forward Looking Statements:
Certain statements in this announcement 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. Forward looking statements in this press release include, without limitation, the company's guidance and expectations concerning its financial performance in fiscal year 2001, the dates at which it expects to become profitable or cash flow positive, and statements regarding planned restructuring and the cost savings expected therefrom. 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 September 30, 2000, the company defaulting on its convertible debt; the company's inability to restructure its debt, possible delisting from Nasdaq, a downturn in the Internet sector, bad debts from customers, and the possible going concern opinion from auditors. 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.
