Interchange (NASDAQ:INCX)
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Interchange Corp. (Nasdaq:INCX), owner and operator of
Local.com, a local-search engine, today reported its financial results
for the third quarter ended Sept. 30, 2005.
Third Quarter Results and Highlights:
-- Revenue was $4.1 million for the third quarter of 2005, a 25%
decrease from revenue of $5.4 million for the same period of
2004;
-- GAAP net loss was $2,767,000 for the third quarter of 2005
compared to GAAP net income of $288,000 for the same period of
2004. GAAP basic and diluted net loss per share for the third
quarter of 2005 was $0.31;
-- Non-GAAP net loss for the third quarter of 2005 was
$1,473,000, which was in line with company guidance. Non-GAAP
basic and diluted net loss per share for the third quarter of
2005 was $0.16. Non-GAAP net loss for the quarter excludes
$1,294,000 for the following non-recurring items: license fee
with Overture ($664,000), a non-cash income tax provision
($527,000), and fixed asset write-off ($53,000) plus office
sublet expense ($50,000) which were associated with the
relocation of our corporate office and the sub-lease of the
previous corporate office;
-- Launched Local.com beta;
-- Expanded partnership with Morris Publishing Group for a total
of 19 online newspaper sites; and
-- John Rehfeld and Norman Farra Jr. joined the board of
directors.
"Interchange launched Local.com in August and our results to date
have exceeded our expectations. We are now generating material revenue
while consolidating our position as a leading local-search engine,"
said Heath Clarke, Interchange CEO. "We believe consumers come to
Local.com during the buying process to search for local businesses,
products and services. As a result, those consumers are more likely to
click on sponsored listings. We believe that the foundation is in
place to improve the monetization of Local.com and we expect to derive
a larger portion of our revenue in the future from local search."
Clarke added: "Although our national search business has been in
decline, we believe that this has now stabilized. We continue to
explore new ways to grow our national search business."
The company believes that non-GAAP net income can provide
meaningful comparisons of the company's current operating performance
with its historical results due to the significant non-recurring
expenses during the third quarter of 2005. The company uses these
non-GAAP financial measures for internal managerial purposes and as a
means to evaluate period-to-period comparisons. These non-GAAP
financial measures are used in addition to, and in conjunction with,
results presented in accordance with GAAP. These non-GAAP financial
measures reflect an additional way of viewing aspects of the company's
operations that, when viewed with GAAP results and the accompanying
reconciliations to corresponding GAAP financial measures, provide a
more complete understanding of factors and trends affecting our
business. Non-GAAP measurements should not be considered a substitute
for, or superior to, GAAP results. A reconciliation of net income to
non-GAAP income is attached to the financial statements included in
this press release.
Recent Local.com Highlights:
-- Achieved over 1.5 million unique visitors for the month of
October;
-- Achieved over 6 million page views for the month of October;
-- Expect over 4 million unique visitors for the month of
November;
-- Expect over 16 million page views for the month of November;
-- Currently monetizing Local.com at a rate of $8.00 per thousand
page views;
-- Signed the Yahoo/Overture distribution agreement in October;
and
-- Currently achieving a 75% return on advertising spend.
Pertaining to its national search business, the company enhanced
its filters to improve traffic quality as well as developed and tested
new revenue-producing services with expected deployment in the fourth
quarter of 2005.
Financial Guidance
In the fourth quarter, the company will continue to invest in
marketing and technology initiatives to support Local.com, which the
company successfully launched in August 2005. Also, the company
believes that its national paid-search advertising business has
stabilized and growth can be achieved by focusing on launching new
advertising services and improving filtering capabilities.
The company expects fourth quarter 2005 revenue to be between $3.5
million and $3.8 million, which includes $400,000 from Local.com.
Operating expenses for the fourth quarter of 2005 will increase over
the third quarter of 2005 in the following major categories:
advertising for Local.com of $700,000, representing an increase of
$500,000; research and development consulting of $450,000 for
initiatives to improve monetization of our existing national traffic;
and increased personnel costs of $400,000, primarily in research and
development. Net loss for the quarter is expected to be between $2.9
million and $3.0 million, which is $0.32 and $0.33 per share,
respectively. The loss per share forecast assumes 9.12 million
outstanding shares.
Conference Call and Webcast Information
Chairman and CEO Heath Clarke, COO Bruce Crair, and CFO Doug
Norman will participate in a conference call to discuss the results
and outlook. The conference call will take place today, Nov. 10, 2005,
at 5 p.m. ET. Investors and analysts can participate in the call by
dialing 1-800-289-0569 or 1-913-981-5542, pass code #6304961. To
listen to the webcast please visit the Investor Relations section of
the Interchange website at: http://ir.interchangeusa.com. A replay of
the webcast will be available for 90 days at the company's website,
starting approximately one hour after the completion of the call.
About Interchange
Interchange Corp. (NASDAQ:INCX) owns and operates Local.com
(www.local.com), a leading local-search engine powered by the
company's proprietary Keyword DNA(TM) and local-web indexing
technologies. The company serves local and national Internet, wireless
and operator-assisted local-search markets in the United States and
Europe. Interchange generates revenue principally from paid-search
advertising.
The company has headquarters in Irvine, with European headquarters
in Stockholm, Sweden. For more information on Interchange, please
visit: www.interchangeusa.com.
Forward-Looking Statements: All statements other than statements
of historical fact included in this document regarding our anticipated
financial position, business strategy and plans and objectives of our
management for future operations, are forward-looking statements. When
used in this report, words such as "anticipate," "believe,"
"estimate," "plans," "expect," "intend" and similar expressions, as
they relate to Interchange or our management, identify forward-looking
statements. Any forward-looking statements are based on the beliefs of
our management as well as assumptions made by and information
currently available to our management. Actual results could differ
materially from those contemplated by the forward-looking statements
as a result of certain factors, including, but not limited to, our
ability to stabilize our national paid-search advertising business,
our ability to operate, grow and monetize our local-search engine,
Local.com, and incorporate our local-search technologies, market the
Local.com domain as a destination for consumers seeking local-search
results, grow our business by enhancing our local-search services,
improve our filtering technologies expand our Advertiser and
Distribution Networks, expand internationally, integrate the
operations and effectively utilize the technology of Inspire, a
Swedish Internet and wireless local-search technology company, which
we recently acquired, integrate the operations and effectively utilize
the technology of Inspire, develop our products and sales, marketing,
finance and administrative functions and successfully integrate our
expanded infrastructure, as well as our dependence on major
advertisers, competitive factors and pricing pressures, changes in
legal and regulatory requirements, and general economic conditions.
Any forward-looking statements reflect our current views with respect
to future events and are subject to these and other risks,
uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and
oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by this
paragraph.
Our Annual Report on Form 10-KSB, subsequent Quarterly Reports on
Form 10-QSB, recent Current Reports on Form 8-K, and other Securities
and Exchange Commission filings discuss the foregoing risks as well as
other important risk factors that could contribute to such differences
or otherwise affect our business, results of operations and financial
condition. The forward-looking statements in this release speak only
as if the date they are made. We undertake no obligation to revise or
update publicly any forward-looking statement for any reason.
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INTERCHANGE CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Sept. 30, Dec. 31,
2005 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,838 $24,617
Restricted cash 10 13
Marketable securities 14,232 10,388
Accounts receivable, net of allowances of $20
and $5, respectively 926 1,313
Deferred tax assets - 678
Prepaid expenses and other current assets 343 260
Total current assets 18,349 37,269
Property and equipment, net 2,429 791
Intangible assets, net 4,353 -
Goodwill 12,401 -
Long-term restricted cash 166 51
Deposits 37 37
Total assets $37,735 $38,148
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,655 $2,320
Accrued compensation 286 323
Payroll taxes payable 17 261
Accrued rent 607 38
Accrued royalties 664 -
Other accrued liabilities 421 340
Deferred revenue 407 498
Total current liabilities 4,057 3,780
Long-term deferred tax liabilities - 151
Total liabilities 4,057 3,931
Minority interest (1) -
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.00001 par
value; 10,000,000 shares authorized; none
issued and outstanding for all periods
presented - -
Common stock, $0.00001 par value; 30,000,000
shares authorized; 9,052,307 and 7,953,941
issued and outstanding, respectively - -
Accumulated comprehensive loss (158) (36)
Additional paid-in capital 48,545 45,497
Accumulated deficit (14,708) (11,244)
Stockholders' equity 33,679 34,217
Total liabilities and stockholders' equity $37,735 $38,148
INTERCHANGE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2005 2004 2005 2004
Revenue $4,058 $5,375 $14,722 $13,101
Operating expenses:
Search serving 3,044 2,803 8,857 6,627
Sales and marketing 1,456 1,058 4,302 2,649
General and
administrative 961 601 2,874 1,713
Research and development 654 374 1,669 843
Amortization of
intangibles 257 - 485 -
Non-cash equity based
expense 22 2 102 11
Total operating
expenses 6,394 4,838 18,289 11,843
Operating income (loss) (2,336) 537 (3,567) 1,258
Interest and other
income (expense) 83 (239) 623 (843)
Income (loss) before
income taxes (2,253) 298 (2,944) 415
Provision for income
taxes 514 10 520 29
Net income (loss) $(2,767) $288 $(3,464) $386
Per share data:
Basic net income (loss)
per share $(0.31) $0.15 $(0.42) $0.20
Diluted net income (loss)
per share $(0.31) $0.06 $(0.42) $0.09
Basic weighted average
shares outstanding 8,959,076 1,922,964 8,280,887 1,922,599
Diluted weighted average
shares outstanding 8,959,076 4,444,170 8,280,887 4,443,805
INTERCHANGE CORP.
RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP NET INCOME (LOSS)
(in thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2005 2004 2005 2004
Net income (loss) $(2,767) $288 $(3,464) $386
Non-recurring items:
License fee (664) - (664) -
Provision for income
taxes (527) - (527) -
Fixed asset write-off (53) - (53) -
Office sublet expense (50) - (50) -
Non-GAAP net income (loss) $(1,473) $288 $(2,170) $386
Per share data:
Basic net income (loss)
per share $(0.31) $0.15 $(0.42) $0.20
Diluted net income (loss)
per share $(0.31) $0.06 $(0.42) $0.09
Non-GAAP basic net income
(loss) per share $(0.16) $0.15 $(0.26) $0.20
Non-GAAP diluted net
income (loss) per share $(0.16) $0.06 $(0.26) $0.09
Basic weighted average
shares outstanding 8,959,076 1,922,964 8,280,887 1,922,599
Diluted weighted average
shares outstanding 8,959,076 4,444,170 8,280,887 4,443,805
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