Verticalnet (NASDAQ:VERT)
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Verticalnet, Inc. (Nasdaq:VERT), a leading provider of on-demand supply
management solutions, today announced results for its fourth quarter and
year ended December 31, 2006.
Revenues for the quarter ended December 31, 2006 were $3.9 million, as
compared to $5.4 million for the quarter ended December 31, 2005.
Verticalnet's net loss for the quarter ended December 31, 2006 was $2.5
million or ($0.28) per share, as compared to a net loss of $2.9 million,
or ($0.43) per share, for the quarter ended December 31, 2005. Adjusted
net loss from operations(a) for the
quarter ended December 31, 2006 was $720,000, or ($0.08) per share, as
compared to an adjusted net loss from operations(a)
of $1.4 million, or ($0.20) per share, for the quarter ended December
31, 2005. For the quarters ended December 31, 2006 and 2005,
weighted-average shares outstanding were approximately 8.8 million and
6.7 million shares, respectively.
Total operating expenses, including cost of revenues, for the quarter
were $6.5 million, which included non-cash charges for stock based
compensation of $221,000 and amortization and depreciation expense of
$630,000, as compared to $8.3 million for the fourth quarter of 2005,
which included non-cash charges for stock based compensation of $282,000
and amortization and depreciation expense of $811,000. Excluding these
non-cash charges, total operating expenses would have decreased by $1.6
million or 21%, to $5.6 million for the quarter ended December 31, 2006
as compared to $7.2 million for the quarter ended December 31, 2005.
The Company reported that billings(b)
for the fourth quarter of 2006 were $5.2 million, a decrease from $5.6
million for the comparable period last year. Total deferred revenues as
of December 31, 2006 were $4.6 million, which represents an increase of
$1.0 million or 28% since the beginning of 2006. Cash balance as of
December 31, 2006 was $2.8 million, increasing by $342,000 as compared
to the cash balance of $2.5 million as of September 30, 2006 and
decreasing by $1.8 million as compared to the cash balance of $4.6
million as of December 31, 2005. Verticalnet paid $860,000 in cash for
debt service during the quarter.
Total software and software related revenues increased to $2.2 million
for the fourth quarter of 2006, a modest increase over the $2.1 million
in software and software related revenue recognized in the fourth
quarter of the prior year. Services revenues for the fourth quarter of
2006 were $1.7 million as compared to $3.3 million for the comparable
period in the prior year. The decline in service revenues was driven by
a $1.7 million decline in revenues from two of Verticalnet’s
largest historical accounts, which reflected revenues from legacy
solutions that are not part of the Company's future planned product
offerings. Revenue from these two large historical accounts accounted
for 9% of total revenue in the fourth quarter of 2006 as compared to 37%
of revenue in the fourth quarter of 2005.
In the fourth quarter, Verticalnet continued its efforts to reduce its
overall cost structure through product line rationalization and
organizational realignment. As a result of these measures, the Company
achieved significant reductions in cost of revenues and operating
expenses for the fourth quarter of 2006 versus the same quarter in 2005.
Compared to the same period in 2005, cost of revenues declined by 36%,
and total operating expenses declined overall by 13%. Total operating
expenses were adversely affected by higher legal and accounting costs
incurred during the fourth quarter of 2006.
Other income in the fourth quarter of 2006 increased by $1.4 million as
a result of the license of the source code of certain legacy software to
an existing customer who was operating on the legacy platform. As part
of the transaction, four software development employees responsible for
the development of the legacy platform were transferred to the customer.
As previously announced on December 20, 2006, the Company successfully
restructured a major debt obligation during the fourth quarter of 2006,
extending the maturity date on the Senior Discount Note to April 2008
from January 2007. As part of this restructuring, the principal amount
of the Senior Discount Note was increased from $5.3 million to $5.5
million.
“2006 was a year of transition for
Verticalnet. Our reliance on the revenues from two legacy customers was
largely eliminated, as was the requirement to support legacy products,
thus enabling us to greatly reduce our cost base. Meanwhile, our
on-demand solutions continued to drive an increasing percentage of our
total revenue,” stated Nathanael V. Lentz,
President and CEO of Verticalnet.
BUSINESS HIGHLIGHTS:
Verticalnet experienced a strong selling quarter with new total bookings
of $4.1 million in the fourth quarter of 2006. Specific business
highlights for the quarter and the year include:
Continued success in head-to-head competitive wins versus major
competitors, with a short-list win rate of over 60% in the quarter;
12 new contracts signed or committed with existing customers in the
quarter. This includes a license of our Verticalnet®
XECS Transportation solution to a major industrial customer previously
using Verticalnet® Spend Manager;
multi-year software renewals by major CPG, printing, and energy
customers; and additional enablement and spend analysis services to a
number of existing customers;
Five new customers, which include two new software customers, were
added during the fourth quarter. Since the beginning of 2007,
Verticalnet has added two additional new software customers.
Over 2006, Verticalnet saw a 53% increase in software customers
operating on our leading Verticalnet XE Supply Management suite.
As of the end of 2006, customers operating on the Verticalnet XE
Supply Management suite represent over 80% of all of Verticalnet’s
software customers.
Despite Verticalnet’s de-emphasis of
other legacy products, overall software customers grew by 30% over
the period.
Verticalnet’s operations supporting our
on-demand customers recorded strong growth in usage and high levels of
service during 2006. Key metrics include:
As of the end of 2006, over 85% of all Verticalnet software
customers and 90% of all Verticalnet XE Supply Management suite
customers take advantage of Verticalnet’s
Software as a Service offering.
Negotiation events conducted through the XE environment increased
by over 250% and total suppliers participating in online
negotiations increased over 350% in 2006.
In February 2007, Verticalnet announced the release of Verticalnet XE
5.4. Enhancements were developed in conjunction with customer feedback
on best practices and ongoing market research and focused on emerging
trends within the supply management field. The enhanced functionality
of Verticalnet XE 5.4 specifically addresses the following emerging
customer priorities:
Improving the skills of key sourcing professionals
Converting visibility of supplier performance into value
Increasing competitiveness and visibility during online
negotiations
“Verticalnet is known for great products,
great people, and a commitment to customer success. It is upon these
three pillars that we will seek to grow our business -- one satisfied
customer at a time,” said Lentz. “Despite
continued progress in our business and the successful restructuring of
our debt, we remain undercapitalized when compared to many of our
competitors. Over the coming quarters we are committed to taking
appropriate actions which we believe will both reduce our debt burden
and recapitalize the business.”
(a) Adjusted net loss from operations is a non-GAAP financial
measure within the meaning of Regulation G promulgated by the Securities
and Exchange Commission. We believe that adjusted net loss from
operations provides useful information to investors as it excludes
transactions not related to the core cash operating business activities.
We believe that excluding these transactions allows investors to
meaningfully trend and analyze the performance of our core cash
operations. All companies do not calculate adjusted net loss from
operations in the same manner, and adjusted net loss from operations as
presented by Verticalnet may not be comparable to adjusted net loss from
operations presented by other companies. Included, following the
financial statements, is a reconciliation of net loss to adjusted net
loss from operations that should be read in conjunction with the
financial statements.
(b) Billings represents all invoices billed to customers during
the quarter.
(c) Software bookings represent all software and software related
agreements entered into during the referenced period with new or
existing customers.
About Verticalnet, Inc.
Verticalnet is a leading provider of on-demand supply management
solutions that enable companies to identify and realize sustained value
across the supply management lifecycle. Going beyond traditional spend
management and sourcing approaches, Verticalnet’s
solutions provide the visibility, insight and process control required
to maximize the sustained value realization from supply management.
Large enough to help customers attain supply management success
worldwide, yet nimble enough to provide individual attention and remain
focused on customer priorities, Verticalnet is helping Global 2000
companies and mid-market enterprises move their supply management
efforts to the next level through an optimal blend of software,
comprehensive services, and deep category knowledge and domain expertise.
Cautionary Statement Regarding Forward-Looking Information
This announcement contains forward-looking information that involves
risks and uncertainties. Such information includes statements about
growth of the business, reductions of debt obligations, and
recapitalization of the business, as well as statements that are
preceded by, followed by or include the words “believes,”
“plans,” “intends,”
“expects,” “anticipated,”
“scheduled,” 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
continued availability and terms of equity and debt financing to fund
our business, our reliance on the development of our enterprise software
and services business, competition in our target markets, our ability to
maintain our listing on The Nasdaq Capital 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 our Annual
Report on Form 10-K for the year ended December 31, 2005 and our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006,
June 30, 2006, and September 30, 2006 which have been filed with the
SEC. Verticalnet is making these statements as of March 6, 2007 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 (Unaudited)
(in thousands, except per share data)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2006
2005(4)
2006
2005(4)
Revenues:
Software and software related
$ 2,189
$ 2,135
$ 7,963
$ 6,856
Services
1,701
3,297
8,201
13,794
Total revenues
3,890
5,432
16,164
20,650
Cost of revenues(1):
Cost of software and software related
415
753
2,117
2,838
Cost of services
1,214
1,955
5,345
7,608
Amortization of acquired technology and customer contracts
285
272
1,053
1,019
Total cost of revenues
1,914
2,980
8,515
11,465
Gross profit
1,976
2,452
7,649
9,185
Operating expenses(1):
Research and development
1,152
1,493
5,226
6,790
Sales and marketing
1,608
1,792
7,072
7,973
General and administrative
1,620
1,499
6,505
6,004
Litigation and settlement costs
-
170
1,032
362
Restructuring charges (reversals)
-
(32)
195
441
Impairment charge for goodwill
-
-
9,877
-
Amortization of other intangible assets
203
374
863
1,343
Total operating expenses
4,583
5,296
30,770
22,913
Operating loss
(2,607)
(2,844)
(23,121)
(13,728)
Interest and other expense (income), net(2)
(138)
63
1,351
(8)
Net loss
$ (2,469)
$ (2,907)
$ (24,472)
$ (13,720)
Adjusted net loss from operations(5)
$ (720)
$ (1,369)
$ (7,755)
$ (9,570)
Basic and diluted loss per common share:(3)
Net loss
$ (0.28)
$ (0.43)
$ (3.09)
$ (2.18)
Adjusted net loss from operations(5)
$ (0.08)
$ (0.20)
$ (0.98)
$ (1.52)
Weighted average common shares outstanding:
Basic and diluted(3)
8,849
6,697
7,927
6,296
(1)
As of January 1, 2006, the Company adopted SFAS No. 123R. As a
result, we now record compensation expense relating to stock
option awards. Prior to the adoption of SFAS No. 123R the Company
recorded stock based compensation under APB 25. The following
presents the actual compensation expense recorded in 2006 and 2005
under SFAS No. 123R and APB 25, respectively, and the related
impact on the various expense categories (in thousands):
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2006
2005
2006
2005
Cost of revenues
$ 34
$ 75
$ 272
$ 159
Research and development
30
19
214
45
Sales and marketing
52
90
399
325
General and administrative
105
98
750
381
Total
$ 221
$ 282
$ 1,635
$ 910
(2)
During the year ended December 31, 2006 and 2005, the Company
recorded a benefit from changes in the fair value of derivative
liabilities as well as interest expense and accretion on its
long-term debt. During the three months ended December 31, 2006, the
Company recorded $1.4 million in other income related to the
licensing of the source code one of their legacy software products.
In addition, during the year ended December 31, 2005, the Company
recorded a $364,000 write-down related to a cost method investment.
(3)
During the year ended December 31, 2006 and 2005, the diluted
earnings per share calculation was the same as the basic earnings
per share calculation as all potentially dilutive securities were
anti-dilutive.
(4)
Certain prior period amounts have been reclassified to conform with
the current period's financial statement presentation.
(5)
See "Reconciliation of GAAP Results to Non-GAAP Results and Other
Financial Data" elsewhere in this press release.
Verticalnet, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
December 31,
December 31,
2006
2005
Assets
Current assets:
Cash and cash equivalents
$ 2,809
$ 4,576
Restricted cash
-
155
Accounts receivable, net
3,877
5,188
Prepaid expenses and other current assets
778
735
Total current assets
7,464
10,654
Property and equipment, net
920
1,288
Goodwill
9,709
19,331
Other intangible assets, net
2,184
4,003
Other assets
416
768
Total assets
$ 20,693
$ 36,044
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt, convertible notes, and other
non-current liabilities
$ 2,170
$ 2,638
Accounts payable and accrued expenses
5,698
4,038
Deferred revenues
3,756
3,297
Total current liabilities
11,624
9,973
Long-term debt, convertible notes, and other non-current liabilities
6,127
3,675
Shareholders’ equity
2,942
22,396
Total liabilities and shareholders’ equity
$ 20,693
$ 36,044
Verticalnet, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2006
2005
2006
2005
Operating activities:
Net loss
$ (2,469)
$ (2,907)
$ (24,472)
$ (13,720)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
630
811
2,469
2,998
Stock-based compensation
221
282
1,635
910
Accretion of promissory notes and non-cash interest
645
687
2,465
905
Change in the fair value of derivative liabilities
183
(340)
(1,082)
(1,003)
Amortization of deferred financing costs
212
125
679
173
Impairment of goodwill
-
-
9,877
-
Gain on B2eMarkets settlement
-
(330)
-
(330)
Write-down related to cost method investment
-
-
-
364
Other non-cash items
-
(61)
9
(61)
Change in assets and liabilities, net of effect of acquisition:
Accounts receivable
980
(453)
1,311
1,207
Prepaid expenses and other assets
29
870
374
1,067
Accounts payable and accrued expenses
1,041
7
2,520
(1,394)
Deferred revenues
(209)
203
1,003
62
Net cash provided by (used in) operating activities
1,263
(1,106)
(3,212)
(8,822)
Investing activities:
Capital expenditures
(59)
(177)
(136)
(499)
Acquisition related payments
-
(439)
(57)
(748)
Restricted cash
-
-
155
-
Proceeds from sale of cost, equity method, and available-for-sale
investments
-
-
-
242
Net cash used in investing activities
(59)
(616)
(38)
(1,005)
Financing activities:
Principal payments on long-term debt and obligations under capital
leases
(860)
(199)
(2,224)
(855)
Proceeds from issuance of senior convertible notes, net
-
-
-
5,951
Proceeds from issuance of senior subordinated discount note, net
-
-
3,677
-
Proceeds from exercise of stock options and issuance of non-vested
stock
3
43
14
116
Net cash provided by (used in) financing activities
(857)
(156)
1,467
5,212
Effect of exchange rate fluctuation on cash and cash equivalents
(5)
(91)
16
(179)
Net increase (decrease) in cash and cash equivalents
342
(1,969)
(1,767)
(4,794)
Cash and cash equivalents - beginning of period
2,467
6,545
4,576
9,370
Cash and cash equivalents - end of period
$ 2,809
$ 4,576
$ 2,809
$ 4,576
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$ 222
$ 6
$ 482
$ 35
Supplemental schedule of non-cash investing and financing
activities
Conversion of and payments on senior convertible promissory notes
and accrued interest into/with common stock
$ 590
$ 541
$ 2,984
$ 541
Financed insurance policies
-
-
663
816
Capital expenditures financed through capital lease arrangements
-
17
42
158
Issuance of common stock as consideration for the Digital Union
acquisition
-
-
-
2,973
Issuance of warrants to private placement agent
-
-
-
35
Cancellation of common stock as a result of the B2eMarkets
acquisition
-
(437)
-
(437)
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS AND OTHER
FINANCIAL DATA
Three Months Ended
December 31,
Twelve Months Ended
December 31,
(In thousands, except per share data)
2006
2005
2006
2005
Revenues:
Software and software related
$ 2,189
$ 2,135
$ 7,963
$ 6,856
Services
1,701
3,297
8,201
13,794
Total revenues
3,890
5,432
16,164
20,650
Total cost of revenues
1,914
2,980
8,515
11,465
Gross profit
1,976
2,452
7,649
9,185
Total operating expenses
4,583
5,296
30,770
22,913
Operating loss
(2,607)
(2,844)
(23,121)
(13,728)
Interest and other expense (income), net
(138)
63
1,351
(8)
Net loss
(2,469)
(2,907)
(24,472)
(13,720)
Non-GAAP adjustments:
Amortization of intangible assets
488
646
1,916
2,362
Restructuring charges (reversals)
-
(32)
195
441
Stock-based compensation
221
282
1,635
910
Accretion of promissory notes and non-cash interest
645
687
2,465
905
Amortization of deferred financing costs
212
125
679
173
Litigation costs
-
170
1,032
362
Impairment charge for goodwill
-
-
9,877
-
Change in the fair value of derivative liabilities
183
(340)
(1,082)
(1,003)
Adjusted net loss from operations
$ (720)
$ (1,369)
$ (7,755)
$ (9,570)
Basic and diluted loss per common share:
Net loss
$ (0.28)
$ (0.43)
$ (3.09)
$ (2.18)
Adjusted net loss from operations
$ (0.08)
$ (0.20)
$ (0.98)
$ (1.52)
Weighted average common shares outstanding:
Basic and diluted
8,849
6,697
7,927
6,296
KEY METRICS
Three months ended December 31,
2006
2005
Total billings
$ 5,246
$ 5,611
Software bookings
3,092
2,507