Verticalnet Reports Financial Results For the Fourth Quarter and Fiscal Year 2002; Cost Structure Improvements and Customer Projects Result in Improved Financial Outlook
MALVERN, Pa., Mar 4, 2003 (BUSINESS WIRE) -- Verticalnet, Inc. (NASDAQ: VERT), a
leading provider of Collaborative Supply Chain Solutions, today announced
results for its fourth fiscal quarter and fiscal year ended December 31, 2002.
Revenues for the quarter ended December 31, 2002 were $22.9 million, compared to
revenues of $7.5 million for the quarter ended December 31, 2001. As reported in
the Form 10-Q for the quarter ended September 30, 2002, Verticalnet and
Converge, Inc. agreed to amend their subscription license agreement effective
October 1, 2002. The amendment terminated the obligation of Verticalnet to
provide future products to Converge. As a result, previously deferred revenue of
$19.6 million was recognized during the fourth quarter of 2002. As all amounts
due under the subscription license agreement had been previously collected, the
deferred revenue recognized did not represent additional cash inflows to the
company in the fourth quarter. Revenues excluding those related to the Converge
subscription agreement termination were $3.3 million.
Income from continuing operations for the quarter ended December 31, 2002 was
$17.4 million, or $1.30 per diluted share compared to a loss of $119.6 million,
or $12.26 per diluted share for the quarter ended December 31, 2001. Excluding
revenues related to the termination of the Converge subscription agreement, loss
from continuing operations for the quarter ended December 31, 2002 was $2.3
million, or $0.17 per diluted share.
Revenues for the year ended December 31, 2002 were $43.7 million, compared to
revenues of $36.1 million for the year ended December 31, 2001. Excluding
revenues related to the termination of the Converge subscription agreement,
revenues for the year ended December 31, 2002 were $24.1 million.
Loss from continuing operations for the year ended December 31, 2002 was $30.9
million, or $2.56 per diluted share, compared to a loss of $670.2 million or
$69.92 per diluted share for the year ended December 31, 2001. Excluding
revenues related to the termination of the Converge subscription agreement, loss
from continuing operations for the year ended December 31, 2002 was $50.5
million, or $4.18 per diluted share.
Net income attributable to common shareholders for the year ended December 31,
2002 was $74.7 million, or a loss of $1.87 per diluted share (loss per diluted
share excludes the preferred stock dividends and the impact from the redemption
of the preferred stock), compared to a loss of $768.3 million, or $79.27 per
diluted share, for the year ended December 31, 2001. The difference between
income from continuing operations and net income attributable to common
shareholders is due to income or losses from discontinued operations and the
negative dividend on the repurchase of preferred stock, net of preferred stock
dividends paid. As reported on Form 8-K on July 15, 2002, the company
repurchased all of its outstanding preferred stock for $5.0 million during 2002.
The difference between the carrying amount and the amount paid is recorded as a
negative dividend in the accompanying consolidated statement of operations.
As of December 31, 2002, Verticalnet had cash, cash equivalents, and marketable
securities of $9.0 million, compared to $11.8 million as of September 30, 2002.
Renewed Commitment to Software Business
Verticalnet also announced a renewed commitment by management and the Board of
Directors to the continued development, sales, and support of leading software
solutions. In November 2002, Verticalnet announced its intention to pursue
strategic alternatives, including a possible sale of the company. As a result of
restructuring efforts and an increase in new revenue generating projects with
existing customers, management believes that the optimal path for delivering
value to shareholders is through continued operation of the company. While other
strategic alternatives, including the sale of the company, will continue to be
considered, Verticalnet confirmed that the primary actions of management are
focused on building a profitable software business.
"When I assumed the CEO role in November, Verticalnet's stated objective was to
sell the company," said Nathanael V. Lentz, president and CEO of Verticalnet.
"Since November, the management team has focused on developing our existing
customer relationships, retaining our key people, and diligently attacking our
non-headcount related cost structure. As a result of these efforts, we have
initiated over $3.0 million in new services projects with existing customers and
have taken steps to reduce our ongoing operating expenses resulting in $5.7
million in annualized savings to date," Lentz continued. "As a result of these
significant developments, we have improved our ability to continue as a
standalone entity, and our management team is increasingly focused on customer
service and new customer acquisition while maintaining tight cost controls.
While we have exceeded our expectations in recent months, Verticalnet still
faces a challenging market environment for enterprise software. We expect
continued improvement in our utilization of cash, and will continue to report on
our progress in growing the software business."
Customer Projects
Verticalnet initiated five new projects with existing customers to both expand
their use of Verticalnet software as well as to build out additional
capabilities. Since the beginning of the fourth quarter, Verticalnet has
initiated new projects with a value of over $3.0 million. Verticalnet expanded
engagements with its industry leading customers including IKEA, Premier, Inc.,
MasterBrand Cabinets (an operating unit of Fortune Brands), and Valvoline.
Additionally, four Verticalnet customers had successful "go-lives" over the
period. "Since November 2002, the management team has focused intensively on
first stabilizing, and then strengthening, relationships with our existing
customers", said Lentz. "The fact that industry leaders such as IKEA, Valvoline,
Premier, and MasterBrand Cabinets are expanding their use of our software
despite the current business climate is a testament to the value we are
delivering and to the quality of our software and professional services
personnel. We are committed to delivering significant, sustained value to our
customers, and our customers continue to reward us for demonstrating this
commitment."
Restructuring Efforts Deliver Results
Efforts to reduce Verticalnet's cost structure over the past five months have
resulted in significant reductions in lease obligations and operating expenses
for the company. In January 2003, Verticalnet amended its lease with its primary
landlord netting annual savings of $2.7 million in lease payments and a
reduction in off-balance sheet obligations of $16.4 million for a one-time
payment of approximately $1.5 million. Additional restructuring efforts yielded
an incremental $3.0 million in projected annual cost savings. "During the fourth
quarter of 2002 and first two months of 2003, we continued our focus on
Verticalnet's cost structure," said Gene S. Godick, Verticalnet CFO. "While
acknowledging our financial challenges, we believe that our successful
restructuring activities combined with recent customer projects have improved
our financial outlook, and have provided us with additional resources to
continue our turn-around efforts."
About Verticalnet
Verticalnet (NASDAQ: VERT) is a leading provider of Collaborative Supply Chain
Solutions that enable companies and their trading partners to communicate,
collaborate and conduct commerce more effectively. With a comprehensive set of
Collaborative Supply Chain applications including Spend Analysis, Strategic
Sourcing, Collaborative Planning and Multi-tier Order Management, Verticalnet
offers an extensive integrated supply chain solution. Verticalnet's solutions
enable companies to achieve significant cost savings by reducing product costs
and inventory levels, and to enhance top-line revenue growth through faster
response to customer requirements. For more information about Verticalnet,
please visit www.verticalnet.com.
Cautionary Statement Regarding Forward-Looking Information
This announcement contains forward-looking information that involves risks and
uncertainties. Such information includes statements about Verticalnet's expected
fourth quarter financial results as well as statements that are preceded by,
followed by or include the words "believes," "plans," "intends," "expects,"
"anticipates," 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 availability of and terms of equity and
debt financing to fund our business, our reliance on the development of our
enterprise software business, competition in our target markets, our ability to
maintain our listing on the NASDAQ Stock 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 Verticalnet's Annual Report on
Form 10-K for the year ended December 31, 2001, and its Quarterly Reports on
Form 10-Q for the periods ended March 31, 2002, June 30, 2002 and September 30,
2002, which have been filed with the SEC. Verticalnet is making these statements
as of March 4, 2003 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
(In thousands, except per share amounts)
Three months Year ended
ended December 31, December 31,
-------------------- -------------------
2002 2001 (1) 2002 2001 (1)
------- --------- -------- ---------
Revenue:
Software
license (2) $20,715 $ 6,449 $ 36,043 $ 25,732
Services and
maintenance 2,178 1,072 7,681 10,387
------- --------- -------- ---------
Total revenue 22,893 7,521 43,724 36,119
------- --------- -------- ---------
Cost of revenue:
Cost of
software (3) 48 597 928 4,151
Cost of services
and maintenance 1,394 1,964 5,602 21,618
------- --------- -------- ---------
Total cost of
revenue 1,442 2,561 6,530 25,769
Research and
development 1,074 2,823 8,975 23,757
Sales and marketing 623 1,837 5,305 18,146
General and
administrative 1,523 3,566 9,039 24,425
Restructuring and
impairment
charges (4) (1,533) 88,800 29,144 268,626
Amortization and
other intangible
expense (5) - 12,587 2,112 108,862
------- --------- -------- ---------
3,129 112,174 61,105 469,585
------- --------- -------- ---------
Operating income
(loss) 19,764 (104,653) (17,381) (433,466)
Net interest and
other expense (6) (2,406) (14,954) (13,478) (236,731)
------- --------- -------- ---------
Income (loss) from
continuing
operations 17,358 (119,607) (30,859) (670,197)
Discontinued
operations (7):
Income from
operations - (7,096) 8,508 (86,751)
Loss on
disposal - - (165) (3,903)
------- --------- -------- ---------
Net loss 17,358 (126,703) (22,516) (760,851)
Preferred stock
dividends - (1,892) (3,861) (7,420)
Repurchase of
preferred stock (8) - - 101,041 -
------- --------- -------- ---------
Income (loss)
attributable to
common
shareholders $17,358 $(128,595) $ 74,664 $(768,271)
======= ========= ======== =========
Basic income (loss) per
common share: (9)
Income (loss)
from continuing
operations $ 1.30 $ (12.26) $ 5.52 $ (69.92)
Income (loss)
from
discontinued
operations - (0.72) 0.71 (8.95)
Loss on disposal
of discontinued
operations - - (0.01) (0.40)
------- --------- -------- ---------
Income (loss)
per common
share $ 1.30 $ (12.98) $ 6.22 $ (79.27)
======= ========= ======== =========
Diluted income
(loss) per common
share: (9) (10)
Income (loss)
from continuing
operations $ 1.30 $ (12.26) $ (2.56) $ (69.92)
Income (loss)
from
discontinued
operations - (0.72) 0.70 (8.95)
Loss on disposal
of discontinued
operations - - (0.01) (0.40)
------- --------- -------- ---------
Income (loss)
per common
share $ 1.30 $ (12.98) $ (1.87) $ (79.27)
======= ========= ======== =========
Weighted average
common shares
outstanding: (9)
Basic 13,381 9,906 12,004 9,692
Diluted 13,381 9,906 12,068 9,692
(1) Prior period amounts have been reclassified to conform to the
current year presentation. This presentation reflects the company's
transformation to an enterprise software business following the
December 28, 2001 acquisition of Atlas Commerce, Inc. (Atlas Commerce)
and the disposition of the SMB business unit.
(2) As reported in the Form 10-Q for the quarter ended September
30, 2002, Verticalnet and Converge, Inc. (Converge) agreed to amend
their subscription license agreement effective October 1, 2002. The
amendment terminated the obligation of Verticalnet to provide future
products to Converge. As a result, previously deferred revenue of
$19.6 million was recognized during the fourth quarter of 2002. As all
amounts due under the subscription license agreement had been
previously collected, the deferred revenue recognized did not
represent additional cash inflows to the company in the fourth
quarter. Revenues excluding those related to the Converge subscription
agreement termination were $3.3 million and $24.1 million for the
three months and year ended December 31, 2002, respectively.
(3) Cost of software includes cost of license, which is primarily
comprised of royalty expenses and cost of acquired technology. The
cost of acquired technology represents the non-cash amortization of
acquired technology which is being used in the current suite of
products.
(4) For the year ended December 31, 2002, amounts include a $27.5
million goodwill impairment charge. Of this amount, $21.5 million
related to the December 28, 2001 acquisition of Atlas Commerce and
approximately $6.0 million related to the company's acquisition of
Isadra, Inc. (Isadra) in August 1999. The remainder of the 2002
amounts relates to adjustments of 2001 restructuring charges.
(5) As of January 1, 2002, the company has adopted SFAS No. 142,
Goodwill and Other Intangible Assets, which requires the
discontinuation of amortization for goodwill and acquired intangible
assets with indefinite estimated useful lives. The adoption of this
pronouncement is on a prospective basis and prior year amounts have
not been restated. Goodwill amortization for the three months and year
ended December 31, 2001 was $11.5 million and $105.1 million,
respectively.
(6) During the three month period ended December 31, 2002, the
company recorded impairment charges of $0.2 million on certain
investments, most of which related to its investment in Converge. On
September 30, 2002, the company entered into an agreement with an
investor of Converge to sell its equity and note receivable interests
for cash consideration of $1.85 million. For the year ended December
31, 2002, the amount includes the gain on settlement of the put
obligation with British Telecommunication, plc and the inducement
charge associated with the repurchase of the company's Convertible
Debentures. For the year ended December 31, 2002, the company recorded
similar impairment charges for other than temporary declines in the
fair value of cost method investments. In the fourth quarter of 2001,
net interest and other expense includes a $11.8 million write-down
related to the company's investment in Converge. For the year ended
December 31, 2001, we recorded an aggregate impairment charge of
$207.2 million related to our Converge Investment, as well as
additional impairment charges for an other than temporary decline in
the fair value of our other cost method investments.
(7) Discontinued operations for 2002 relate to the SMB business
unit. The prior year periods relate to operating losses of the SMB
business unit and the Verticalnet Exchanges business unit, and the
loss on disposal of Verticalnet Exchanges.
(8) The company repurchased all of its outstanding preferred stock
for $5.0 million in cash during the second quarter of 2002. The
difference between the carrying amount and the amount paid is recorded
as additional paid in capital and included in income attributable to
common shareholders.
(9) All per share and share amounts reflect a 1:10 reverse stock split
which was effective July 15, 2002.
(10) Diluted income (loss) per common share for the year ended
December 31, 2002 excludes the preferred stock dividends and the
impact from the redemption of the preferred stock.
The basic and diluted income (loss) per common share reported by the
company for the periods ended March 31, 2002, June 30, 2002 and
September 30, 2002 were incorrect. The correct basic and diluted
income (loss) per common share for the respective periods are as
follows:
FOR PERIOD ENDED Three months ended
MARCH 31, 2002: (9) March 31,
2002
------------------
Basic and diluted
income (loss) per
common share:
Loss from
continuing
operations $ (0.69)
Income from
discontinued
operations 0.67
-------
Loss per common
share $ (0.02)
=======
Weighted average
common shares
outstanding (in
thousands):
Basic 11,073
Diluted 11,073
FOR PERIOD ENDED Three months ended Six months ended
JUNE 30, 2002: June 30, June 30,
2002 2002
------------------ ----------------
Basic income (loss)
per common share:
Income from
continuing
operations $ 7.91 $ 7.30
Income from
discontinued
operations 0.09 0.76
Loss on disposal
of discontinued
operations (0.02) (0.02)
------- -------
Income per
common share $ 7.98 $ 8.04
======= =======
Diluted income (loss)
per common share:
Loss from
continuing
operations $ (0.86) $ (1.38)
Income from
discontinued
operations 0.09 0.75
Loss on disposal
of discontinued
operations (0.02) (0.01)
------- -------
Loss per common
share $ (0.79) $ (0.64)
======= =======
Weighted average
common shares
outstanding (in
thousands):
Basic 11,286 11,180
Diluted 11,413 11,310
FOR PERIOD ENDED Three months ended Nine months ended
SEPTEMBER 30, 2002: September 30, September 30,
2002 2002
------------------ -----------------
Basic income (loss)
per common share:
Income (loss)
from continuing
operations $ (2.66) $ 4.24
Income from
discontinued
operations - 0.74
Loss on disposal
of discontinued
operations - (0.01)
------- -------
Income (loss)
per common
share $ (2.66) $ 4.97
======= =======
Diluted income (loss)
per common share:
Loss from
continuing
operations $ (2.66) $ (4.15)
Income from
discontinued
operations - 0.73
Loss on disposal
of discontinued
operations - (0.01)
------- -------
Loss per common
share $ (2.66) $ (3.43)
======= =======
Weighted average
common shares
outstanding (in
thousands):
Basic 12,247 11,539
Diluted 12,247 11,626
The company intends to file corrected reports on Form 10-Q/A for each
of the respective periods prior to the filing of the Form 10-K for
the year ended December 31, 2002.
Verticalnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
December December
31, 31,
2002 2001
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 7,979 $ 50,252
Accounts receivable, net 1,586 692
Prepaid expenses and other assets (1) 3,892 5,958
Assets held for disposal (2) - 10,319
------- --------
Total current assets 13,457 67,221
Property and equipment, net 912 6,896
Investments - long term - 2,599
Other investments 606 10,831
Other assets 1,678 7,674
Goodwill and other intangibles, net (3) 1,800 30,410
------- --------
Total assets $18,453 $125,631
======= ========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Current portion of long-term obligations $ 415 $ 14,949
Accounts payable and
accrued expenses 7,652 27,270
Deferred revenues 279 24,381
Other liabilities 1,172 -
Liabilities held for disposal (2) - 22,279
------- --------
Total current liabilities 9,518 88,879
Long-term obligations and convertible debt 7,292 24,854
Redeemable preferred stock (4) - 102,180
Put arrangement - 1,057
Shareholders' equity (deficit) (4) 1,643 (91,339)
------- --------
Total liabilities and shareholders' equity
(deficit) $18,453 $125,631
======= ========
(1) Prepaid and other assets include $1.0 million of short-term
investments as of December 31, 2002.
(2) Assets and liabilities held for disposal as of December 31, 2001
include the assets and liabilities of the SMB business unit, which was
sold during the second quarter of 2002.
(3) During the third quarter of 2002, the Company recorded a $27.5
million charge for impairment of its goodwill associated with the
Atlas Commerce and Isadra acquistions.
(4) During the second quarter of 2002, the Company repurchased all of
its outstanding Series A Convertible Preferred stock for $5.0 million.
The Company recorded an increase in additional paid in capital of
$101.0 million, representing the difference between the $5.0 million
paid and the carrying value of the preferred stock and accrued
dividends.
CONTACT: Verticalnet, Inc.
David Kaplan
Ph: 610-695-2310
davidkaplan@verticalnet.com
URL: www.businesswire.com
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KEYWORD: PENNSYLVANIA
INDUSTRY KEYWORD: TELECOMMUNICATIONS
SOFTWARE
E-COMMERCE
INTERNET
HARDWARE
EARNINGS
SOURCE:
Verticalnet