FILED BY BE FREE, INC. PURSUANT TO RULE 425 UNDER
THE SECURITIES ACT OF 1933 AND DEEMED FILED
PURSUANT TO RULE 14A-12 OF THE SECURITIES
EXCHANGE ACT OF 1934
SUBJECT COMPANY: BE FREE, INC.
COMMISSION FILE NO. 000-27271
BE FREE, INC.
Moderator: Gordon Hoffstein
05-08-02/10:30 am EST
BE FREE, INC.
Moderator: Gordon Hoffstein
May 8, 2002
10:30 am EST
Operator: Good day and welcome, everyone, to this Be Free First
Quarter 2002 Earnings conference call. Today's call is
being recorded.
With us today from the company is the President, Chief
Executive Officer and Chairman of the Board, Mr. Gordon
Hoffstein, and the Chief Financial Officer, Mr. Stephen
Joseph.
At this time I'd like to turn the call over to Gordon
Hoffstein. Please go ahead, sir.
Gordon Hoffstein: Thank you. Welcome to Be Free's First Quarter 2002
conference call and thank you for your interest and
support.
Before I continue, I'd like to ask Steve Joseph to read
the Safe Harbor statement and a related statement
regarding Regulation FD. Stephen?
Stephen Joseph: Thanks, Gordon. Statements made on this conference call
may be considered forward-looking statements under the
Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995. These include statements
about many aspects of our expected future financial
performance including our future revenue, operating
profits and losses, the size of our customer base, the
number of new customer implementations and signings, the
number of existing customers terminating service, our
gross margins, operating expenses, non-cash charges,
capital expenditures, cash balances, cash flows and
accounts receivable as well as statements regarding the
proposed merger of Be Free and ValueClick, the expected
timetable for completing the merger, benefits and
synergies of the merger, future opportunities for
the combined companies as well as our view of future
market conditions, opportunities and plans.
Such statements are based on management's current
expectations, hopes and beliefs and, therefore, are
subject to a number of risks and uncertainties. Actual
results may differ materially from those indicated by
these forward-looking statements as a result of various
important risk factors including those listed in the
company's Form 10-K for the year ended December 31,
2001, the ValueClick/Be Free Joint Proxy
Statement/Prospectus dated April 15, 2002, as well as
other reports filed from time to time with the
Securities and Exchange Commission. We disclaim any
obligation to update forward-looking statements.
It's our policy that any material comments concerning
future results of operations will be communicated
exclusively through preannounced conference calls such
as this, press releases or other means that will
constitute public disclosure for purposes of Regulation
FD. A replay of this call will be available for one week
following the filing of a transcript with the SEC under
Regulation MA.
Gordon Hoffstein: Thank you, Steve. Be Free turned in a solid performance
in the first quarter of 2002 and took a critical step to
significantly improving our industry position and
shareholder value. Let me highlight some of our
achievements.
As a result of the continued success of our cost
containment programs, we exceeded our bottom line
expectations. We strengthened the quality of our
customer base with the addition of industry leading
companies in the US and Europe. We continued a low cash
burn rate.
And most significantly, we took a major step to gain
product diversity and achieve critical scale through a
proposed merger with ValueClick, an industry leader with
a solid track record of growth through acquisition. We
are extremely excited about these achievements as we
enter a new era for Be Free.
In today's call I will expand on our first quarter
performance and discuss our proposed merger with
ValueClick. I will then turn the call over to Steve so
that he can review our financial results and
expectations in greater detail.
This quarter's bottom line performance exceeded our
expectations of a loss of between three cents and four
cents per share excluding non-cash and nonrecurring
charges. In fact, the first quarter loss was two cents
per share compared with ten cents per share for the
first quarter of last year and two cents per share in
the fourth quarter of 2001.
Our first quarter revenue was $5.2 million, within our
expectations for the period.
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Excluding non-cash and nonrecurring charges, we reduced
total quarterly expenses by $6.5 million or 46% as
compared with the first quarter of 2001 and by $1
million or 11% as compared with the fourth quarter of
2001.
Our cash burn was only $2.1 million in the first
quarter. This included $1.5 million from operations and
$600,000 of costs associated with our proposed merger
with ValueClick.
At the end of the quarter we had $131 million in cash
and marketable securities.
Average quarterly revenue per customer grew 28% to
$21,846 from the first quarter of 2001 and declined 16%
from the fourth quarter of 2001. The decline in average
revenue per customer from last year's fourth quarter to
this year's first quarter primarily reflects the strong
seasonal impact of the fourth quarter holiday buying
season.
During the first quarter we started to see the
reemergence of positive market indicators. Although it's
too early to say that our market has turned around, we
feel that it is no longer in steep decline. For example,
18 new customers went live with our services in the
first quarter.
The quality of these new customers was very high and
reflects our strategy of targeting industry leading
companies. They included Brookstone, Eddie Bauer,
Experian Automotive and Upromise in the United States.
In Europe we added Global Name Registry and Time-Life
Germany.
During Q1 we also lost 27 customers, down from 72
customer losses in the first quarter of 2001 and 39
losses in the fourth quarter of 2001. This is the fourth
consecutive quarter that the number of customer losses
has declined. And this number is significantly less than
we had expected.
Our net customer count was 240 at the end of the first
quarter 2002 compared with 317 at the end of the first
quarter 2001 and 249 at the end of the fourth quarter of
2001.
Customer signings, an indicator of future revenue
performance, remains constant with 20 signings in the
first quarter of 2002 compared with 20 in the fourth
quarter of 2001. This number was in line with our
expectations for the quarter.
By far the most significant event of the quarter was the
signing of a definitive merger agreement between Be Free
and ValueClick, a leading global provider of digital
marketing solutions for advertisers
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and web publishers. The merger agreement has been
approved by the boards of both companies and has also
received all necessary regulatory approvals.
The merger is subject to approval by Be Free and
ValueClick shareholders at the companies' annual
meetings currently scheduled for May 22 and May 23,
respectively. Assuming that approval is obtained, we
anticipate closing the merger shortly after the
shareholder meetings. When the merger is complete, Be
Free shareholders will own approximately 45% of the
combined company's outstanding shares.
As we stated before, our vision is to build a marketing
platform that allows companies to choose one source for
a wide range of digital marketing solutions to gain high
quality customers cost effectively. Be Free's product
offering currently includes affiliate marketing and site
personalization services.
In addition to these services, the combined company
will offer real-time third party and publisher ad
serving, CPM, CPC and CPA advertising, agency management
software, custom media solutions and customer retention
and customer acquisiton email technology and services.
So as you can see, the Be Free/ValueClick merger
fulfills our marketing platform vision.
We now will gain the critical mass to help compete
successfully in the digital marketing arena. Upon
closing, we believe the combined company will have the
financial strength of more than $270 million in cash and
marketable securities and pro forma revenue of $83
million in 2002. This is in line with ValueClick's 2002
revenue guidance of $60 million and Be Free's 2002
revenue guidance of $23 million.
We expect the new company's combined resources -- cash,
technology, product and geographic diversity, human
talent, expanded customer base and broadened investor
pool will form a world-class organization. We believe
the new company structure will create greater synergies
and cost efficiencies needed to reach profitability by
the fourth quarter of 2002 and deliver increased
shareholder value.
I would now like to turn the call over to Steve.
Stephen Joseph: Thank you, Gordon. I'll start by spending a bit of time
on the first quarter's numbers and then move to more
details on Be Free's forecasted operating plan.
Our revenue in the first quarter was $5,243,000 compared
to $5,422,000 in the year ago quarter and $6,467,000
last quarter. You may recall that last quarter we
recorded approximately $499,000 of additional revenue
due to the implementation of a new, automated
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billing system. Without that one-time event, the company
would have recorded revenue of $5,968,000 in the fourth
quarter.
We ended the first quarter of 2001 with 240 customers.
That's a decrease of nine as compared to the end of the
fourth quarter. We had 27 customer terminations
partially offset by 18 new customer implementations.
As Gordon mentioned, during the first quarter we signed
20 new customers, the same as last quarter. Our backlog
now stands at 16 customers who have signed contracts and
are preparing to implement Be Free services.
Revenue continues to be driven by brick and mortar
businesses moving online and by large, well-established
dot-com customers. Combined, these businesses
represented approximately two thirds of the first
quarter's revenue.
Moving to the other details of our financial results for
the first quarter, network costs, which represent our
direct costs of revenue, equaled $986,000, as expected,
a slight increase over last quarter but a decrease of
more than 30% as compared to the year ago quarter.
The increased network costs combined with decreased
revenues resulted in a drop of gross margin down to 81%
as compared to 85% last quarter. However, the 81% did
represent an improvement from the year ago quarter's 74%
gross margin.
Excluding non-cash and nonrecurring charges, our other
operating expenses equaled $6.7 million in the first
quarter. That's a decline of $1 million from last
quarter and over $6 million from the year ago quarter.
That $1 million quarter-over-quarter savings resulted
almost exclusively from reduced G&A costs.
Equity related compensation expenses equaled $427,000
during the first quarter.
The amortization of intangible assets equaled $634,000
during the quarter.
Now turning to the bottom line, even with reduced
revenues, the net loss for the first quarter of 2002
continued to fall and is now at the lowest level that
we've ever reported as a public company. The quarter's
net loss fell to 4 cents per share compared with a net
loss of $1.94 per share in the year ago quarter and a
net loss of 6 cents per share in the fourth quarter of
last year.
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The year ago quarter did include non-cash charges for
the impairment to the carrying value of certain
intangible assets. That one-time charge equated to $1.60
of that quarter's $1.94 cent loss.
Excluding all non-cash and nonrecurring charges, the net
loss for the first quarter of 2002 was two cents per
share compared with a net loss of ten cents per share in
the year ago quarter and an net loss of two cents per
share in the fourth quarter of 2001.
Looking now at the most important balance sheet metrics,
total cash and marketable securities stood at $131
million at the end of the first quarter compared to $133
million at the end of last quarter.
We had a cash burn of $2.1 million during the first
quarter. Approximately $1.5 million was spent on ongoing
operations and approximately $600,000 was spent in
conjunction with the proposed ValueClick merger.
At the end of the fourth quarter, accounts receivable,
net of allowances, were $1,782,000 and represented 31
days sales outstanding, well below our target 50 day
level. The quarter's DSO was extraordinarily low
primarily as the result of the timing of invoices during
the quarter. At the end of the fourth quarter our DSO
was 42 days.
Finally, our headcount equated to 156 at the end of the
first quarter, a decrease from 165 at the end of the
fourth quarter.
I'd like to spend some time now to look forward to our
anticipated results for the remainder of 2002. Please
keep in mind that this guidance is based on today's
business conditions and industry trends. A number of
risk factors, including those listed in our Form 10-K
for the year ended December 31, 2001 could cause our
actual results to differ materially from these
forward-looking statements. Further, we disclaim any
obligation to update these estimates.
This guidance is based on our anticipated results for Be
Free as a standalone company. The guidance does not take
into consideration any synergies, cost efficiencies or
risks which may result from the proposed merger of Be
Free and ValueClick.
Now as Gordon has mentioned, we observed positive market
indicators in the first quarter. However, we believe
that it is far too early to assume that the marketplace
for Be Free's services in improving significantly or
that growth will soon return to the levels that we
recorded in 2001 and before.
We consider customer signings as the primary forward
indicator of future revenue growth, and as we stated,
customer signings firmed and remained level during the
first quarter. That level appears to be
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holding midway now through the second quarter. Further,
we're optimistic about the quality of customers that
contracted for Be Free's services during the first
quarter.
We continue to believe that we will not add enough new
customers over the next two quarters to offset customer
losses, which do continue. We are now anticipating that
our overall customer count may decline to the 225
customer level, an improvement over the level
anticipated in our last earnings call.
With all of these factors in mind, we continue to
believe that revenue will slowly improve through the
remainder of 2002 and that revenue for the full year
will be flat to only slightly ahead of 2001's $23
million level.
Turning to our cost and expense outlook, we anticipate
that we be able to maintain the low costs of the first
quarter throughout the remainder of 2002. We believe
that achieving these revenue and expense levels will
result in a net loss before non-cash items of two to
three cents in the second quarter and six to ten cents
for all of 2002.
Taking a quick look now at those non-cash items, we
anticipate that through the end of 2002 equity related
compensation charges will continue at approximately 400
to $450,000 per quarter and that intangible asset
amortization will continue at $634,000 per quarter.
We estimate that per share calculations will be based on
a weighted average number of shares outstanding of
approximately 65 million shares in the second quarter.
And as restricted shares vest, that weighted average
number of shares will increase by approximately 400,000
shares in the third quarter and by 300,000 shares in the
fourth quarter.
Looking to our balance sheet expectations, we anticipate
a cash burn from operations of between 1 and $3 million
in the second quarter and less than $8 million for the
full year of 2002. We anticipate only minor capital
expenditures throughout the year of 2002. And our cash
balance should be $125 million or greater by the end of
the year.
We believe that our accounts receivable DSO will remain
at or below our target 50 day level.
We have no current plans to obtain any material
additional debt.
And now I'll turn things back to Gordon to conclude our
presentation.
Gordon Hoffstein: Thank you, Steve. I'd like to thank Be Free shareholders
for their ongoing support. And I'm extremely grateful to
our Be Free
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employees who have delivered exceptional results during
a difficult market environment.
Looking ahead, after the completion of our merger with
ValueClick, our goals will be clear. We need to
effectively integrate the operations of the two
companies, drive towards and continue to build
profitability, grow revenues by aggressively selling a
robust set of marketing services and deliver increased
shareholder value.
I would now like to open the call to any questions.
Operator: Thank you, sir. If you'd like to ask a question on
today's call, you may do so by pressing star, 1 on your
touchtone telephone.
Again, that is star, 1 to ask a question. We'll pause a
moment to assemble our roster.
Once again, that is star, 1 to ask a question.
We'll take our first question from Catherine Watters.
Catherine Watters: Thanks very much. If you guys could provide a bit more
color on what you're seeing in terms of the merger right
now, are you able to - have you been able to cross-sell
products into your existing customer base and if you
could talk about duplication of the customer bases right
now?
Gordon Hoffstein: Hi, Cathy, this is Gordon.
Catherine Watters: Hi.
Gordon Hoffstein: There isn't a lot of duplication between the customer
bases. We've reviewed them both. There are some
duplicates. I think Citigroup is one of those customers
that falls in the middle. And there's a few others. But
what we're finding is that we both bring a set of
customers to the table that we can mine.
We had our first sales and marketing meeting on this
exact topic just two weeks ago. And there are plans in
place with some follow-up items. And it appears that,
yes, there will be some cross-selling, a tremendous
amount of cross-selling as a matter of fact, between the
companies.
We haven't seen a huge amount to date. We've just been
doing a little bit of it. But we've already closed a
couple of customers of Be Free and vice versa I think
ValueClick has closed a couple customers. We expect that
to be much more as we really dig in and formalize it.
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Additionally, your other question was - let's see, you
asked about the cross-selling...
Catherine Watters: And just it sounds like in terms of timing it sounds
like the deal should be, if everything goes as planned,
by the end of this month?
Gordon Hoffstein: I think everything should be as planned. As you know,
we've received board approval, HSR clearance, the S-4
was declared effective. We're in the process of
soliciting shares. We expect a final tally on May 22 for
Be Free and 23 for ValueClick. And the votes can be
changed, you know, right up to the day of the meeting.
But it's fair to say thus far the votes have been
overwhelmingly -- and I underline overwhelmingly -- in
favor of the merger as far as the Be Free side.
Catherine Watters: Great. And if you could just provide a bit more color on
your feeling that the market does seem to be improving,
is this just from talking with customers in terms of
customer signings being flat here and ((inaudible))?
Gordon Hoffstein: Sure. I think there's a few anecdotal signs that we see
the market as improving. First of all, the customer
signups, it's been a little easier this quarter
certainly than it was last quarter. It got much easier
towards the end of last quarter.
That means the sales cycle is starting to shorten a
little bit. Not back to what it was two years ago, but
people are actually signing contracts now where in the
fourth quarter, the third quarter it seemed like
everyone was very hesitant to sign anything.
We're also seeing customers stepping up their spending.
So if we're having an affiliate program going with us,
they're adding OPM services or check writing or perhaps
BSELECT. We're seeing a lot of that where current
customers are adding other products.
And just in general there seems to be more activity and
people more willing to discuss their budgets and what
they have going forward. So we're not seeing - we're not
saying that everything is getting better. We're just
saying we're seeing some of the clouds starting to go
away and a little sun shining through.
The terminations have decreased for four quarters in a
row. We hope that will continue this quarter. The
signings are remaining pretty constant. And our backlog
is actually growing, so just some anecdotal signs that
things are getting a little better.
Catherine Watters: And finally, just a couple housekeeping items, if you
can just review the number of customers who have
exceeded their minimum and the time it's taken to get
above that minimum?
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Gordon Hoffstein: I'm going to let Steve handle that, Cathy.
Stephen Joseph: Hi, Cathy. The number of times has - the number of
months has dropped slightly. It's just below seven
months.
And the number of customer cresting minimums this
quarter was 67% of the total customer base. And, Cathy,
I believe actually you may have asked me that same
question last quarter. And I believe I misspoke. I
believe I told you in the fourth quarter that 51% of our
customers had crested their minimum. In fact, the
correct number for last quarter was 61%. And that is now
up to 67% at this quarter.
Catherine Watters: Great, thanks very much.
Stephen Joseph: You're very welcome.
Gordon Hoffstein: Thank you.
Operator: Once again, that is star, 1 to ask a question.
We'll take our next question from David Levy with ING.
David Levy: Hi, thanks. Can you talk about the ability of and the -
the potential and the ability of the company to buy back
stock before and/or after the closing of the deal?
Thanks.
Gordon Hoffstein: Hi, David. Be Free does not currently have a stock
buyback in place.
David Levy: Can you talk about the legalities of doing it before or
after? Or is there just no comment on that now?
Gordon Hoffstein: Really no comment at this point.
David Levy: Okay, thanks.
Gordon Hoffstein: Okay.
Operator: Once again, if you'd like to ask a question on today's
call, you may do so by pressing star, 1 on your
touchtone telephone. Again, that is star, 1 to ask a
question.
Mr. Hoffstein, there appears to be no further questions.
At this time I'd like to turn the call back over you,
sir.
Gordon Hoffstein: Thank you, operator. Again, I'd just like to thank Be
Free's shareholders for their ongoing support. And I'm
very grateful the Be Free employees have delivered such
great results during this difficult market time.
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Thank you very much. Everyone, have a great day.
Operator: This does conclude today's conference call. At this time
you may disconnect.
SAFE HARBOR STATEMENT
Statements in this transcript regarding the proposed transaction between
ValueClick and Be Free, the expected timetable for completing the transaction,
future financial and operating results, benefits and synergies of the
transaction, future opportunities for the combined company, and any other
statements about ValueClick and Be Free management's future expectations,
beliefs, goals, plans or prospects constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Any
statements that are not statements of historical fact (including statements
containing the words "believes," "plans," "anticipates," "expects," "estimates"
and similar expressions) should also be considered to be forward-looking
statements. There are a number of important factors that could cause actual
results or events to differ materially from those indicated by such
forward-looking statements, including: the inability to consummate the
transaction, the inability of ValueClick to successfully integrate Be Free's
operations and employees, the inability to realize anticipated synergies and
cost savings, the inability to realize anticipated revenues and the other
factors described under the headings "Risk Factors" and "Factors That May Affect
Future Results," respectively, in ValueClick's and Be Free's Annual Reports on
Form 10-K for the year ended December 31, 2001, and "Risk Factors" in the Joint
Proxy Statement/Prospectus dated April 15, 2002, which descriptions are
incorporated by reference into this transcript of the Be Free earnings
conference call. ValueClick and Be Free disclaim any intention or obligation to
update any forward-looking statements as a result of developments occurring
after the date of this transcript.
IMPORTANT ADDITIONAL INFORMATION ABOUT THE
VALUECLICK/BE FREE MERGER HAS BEEN FILED WITH THE SEC
ValueClick has filed with the SEC a Registration Statement on Form S-4 in
connection with the transaction, and ValueClick and Be Free have filed with the
SEC and mailed to their respective stockholders a Joint Proxy
Statement/Prospectus in connection with the transaction. The Registration
Statement and the Joint Proxy Statement/Prospectus contain important information
about ValueClick, Be Free, the transaction and related matters. Investors and
security holders are urged to read the Registration Statement and the Joint
Proxy Statement/Prospectus carefully.
ValueClick and Be Free, and their respective directors and executive
officers, may be deemed to be participants in the solicitation of proxies from
ValueClick's or Be Free's stockholders in connection with the transaction. A
list of the names of ValueClick's directors and executive officers and
descriptions of their interests in ValueClick and a list of the names of Be
Free's directors and executive officers and descriptions of their interests in
Be Free is contained in the Joint Proxy Statement/Prospectus dated April 15,
2002, which document is filed with the SEC. Investors and security holders of
ValueClick and Be Free may obtain additional information regarding the interests
of the foregoing people by reading the Registration Statement and the Joint
Proxy Statement/Prospectus.
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In addition to the Registration Statement and the Joint Proxy
Statement/Prospectus, ValueClick and Be Free file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements and other information filed by ValueClick and Be
Free at the SEC public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 800/SEC-0330 for further information about
the public reference room. Investors and security holders may obtain free copies
of these documents through the Web site maintained by the U.S. Securities and
Exchange Commission at www.sec.gov. In addition, investors and security holders
may obtain free copies of the Registration Statement and Joint Proxy
Statement/Prospectus from ValueClick or Be Free by contacting the Investor
Relations department at either company.
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