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 third quarter
ended September 30, 2006.
Revenues for the quarter ended September 30, 2006 were $4.2 million, as
compared to $4.9 million for the quarter ended September 30, 2005.
Verticalnet's net loss for the quarter ended September 30, 2006 was $3.4
million, or ($0.42) per share, as compared to a net loss of $3.7
million, or ($0.57) per share, for the quarter ended September 30, 2005.
Adjusted net loss from operations(a) for
the quarter ended September 30, 2006 was $1.7 million, or ($0.20) per
share, as compared to an adjusted net loss from operations(a)
of $2.9 million, or ($0.45) per share, for the quarter ended September
30, 2005. For the quarters ended September 30, 2006 and 2005,
weighted-average shares outstanding were approximately 8.1 million and
6.5 million shares, respectively.
Total operating expenses, including cost of revenues, for the quarter
were $6.4 million, which included non-cash charges for stock based
compensation of $350,000 and amortization and depreciation expense of
$607,000 as compared to $8.9 million for the third quarter of 2005,
which included non-cash charges for stock based compensation of $211,000
and amortization and depreciation expense of $785,000. Excluding these
non-cash charges, total operating expenses would have decreased by $2.4
million or 31%, to $5.5 million for the quarter ended September 30, 2006
as compared to $7.9 million for the quarter ended September 30, 2005.
Total operating expenses, including cost of revenues, but excluding
these non-cash charges as well as non-cash goodwill charges, decreased
by $807,000 or 13% from the second quarter of 2006.
The Company reported that billings(b)
for the third quarter of 2006 were $4.4 million, a decrease from $5.1
million for the comparable period last year. Total deferred revenues
increased by $537,000 or 13% versus the deferred revenue balance at the
end of the second quarter of 2006 and increased by $1.2 million or 34%
since the beginning of 2006. We believe that our increase in deferred
revenues indicates the growth we are achieving in our on-demand
subscription business through the signing of new customer subscriptions
for which revenue has not yet been recognized.
Total software and software related revenues increased to $2.3 million
for the third quarter of 2006, a 46% increase over the third quarter of
the prior year. The software and software related revenues for third
quarter of 2006 include $800,000 in perpetual software revenue
associated with a restructuring of a legacy perpetual software
agreement. Services revenues for the third quarter of 2006 were $1.8
million as compared to $3.3 million for the comparable period in the
prior year, which included a $925,000 decline in revenues from two of
Verticalnet’s largest historical accounts,
which reflected revenues from legacy solutions that are not part of our
go forward product offerings.
The third quarter of 2006 represented Verticalnet’s
highest bookings quarter over the last several years and Verticalnet’s
best software bookings(c) quarter in its
history. Bookings were driven primarily by new customer contracts,
broadening of existing customer relationships, as well as renewals of
subscription software relationships. Software bookings(c)
for the third quarter of 2006 were $4.6 million compared to $1.0 million
for the comparable period in the prior year representing a 372%
improvement over the prior year. Excluding the $1.0 million of bookings
associated with the restructuring of a legacy perpetual software
agreement, software bookings in the third quarter of 2006 represented a
270% increase over the same period in 2005. 78% of the total software
and service bookings during the third quarter of 2006 are expected to be
recognized as revenues in future quarters and 60% of the total potential
billings are expected to be issued in future quarters as contractually
agreed.
Over the past 12 months Verticalnet has executed a rigorous cost
reduction strategy focused on aligning costs with sustainable revenue
levels. Having focused on successful integration of four separate
businesses between 2004 and 2005, the subsequent management effort has
been on driving efficiency across the business. As a result of the cost
reduction strategies, we have achieved significant reductions in cost of
revenues and operating expenses for the third quarter of 2006 versus the
same quarter in 2005. Compared to the same period in 2005, cost of
revenues declined by 33%, research and development expenses declined by
34%, sales and marketing expenses declined by 24%, and general and
administrative has remained relatively flat. We have achieved improved
solution sales within our strategic lines of business and have continued
investment across Verticalnet’s XE suite
while we have undertaken cost reductions.
Verticalnet finished the third quarter of 2006 with $2.5 million in cash
having consumed $677,000 in operations and $1.2 million in debt service
over the quarter. As of December 31, 2006, the Company expects to have
approximately $2.0 to $2.5 million in cash and cash equivalents based on
expected receipts from signed contracts and contracts in negotiation,
including repaying $1.3 million in debt service during the fourth
quarter of 2006.
As of September 30, 2006, the Company’s
current portion of long term debt, including convertible notes and other
non-current liabilities, was $7.8 million. The Company is seeking to
obtain the consent of the holders of our senior secured promissory notes
to allow us to grant a security interest in our assets to the holder of
our senior subordinated discounted promissory note (the “Discount
Note”). If we are successful in obtaining
that consent, the maturity date of the Discount Note will be extended to
November 18, 2007 from January 31, 2007, the current portion of long
term debt, convertible notes, and other non-current liabilities will be
reduced to $3.1 million, and long term debt, convertible notes, and
other non-current liabilities will be increased from $1.0 million to
$5.7 million as of September 30, 2006. In addition, we are pursuing
longer term options for restructuring our existing debt obligations.
"Our core business continues to see improved performance as reflected in
our record quarter of bookings, our continued management of costs, and
significant improvements in our adjusted results from operations,”
stated Nathanael V. Lentz, President and CEO of Verticalnet. “Increasingly,
customers are selecting Verticalnet for our leading supply management
solutions as well as our proven on-demand delivery model and I am
pleased with some of the leading brand-name customers who have signed
with us over the past quarter. We expect the benefit of these
relationships will be reflected in the quarters to come.”
Lentz continued. “Despite new customer
success and improved operating performance, we remain constrained by the
structure of our current debt. We are committed to exploring paths to
reduce this debt burden and position the business for accelerated growth.”
BUSINESS HIGHLIGHTS:
Verticalnet experienced a strong selling quarter with new total bookings
of $6.9 million and software bookings of $4.6 million. Specific business
highlights since the beginning of the third quarter include:
Continued success in head-to-head competitive wins versus all major
competitors with a short-list win rate of over 65% for the period;
17 new contracts signed or committed with existing customers,
including a major sale of our Verticalnet®
Spend Manager application to a global consumer packaged goods (“CPG”)
customer previously using Verticalnet®
Negotiation Manager, multi-year software renewals to major hi-tech,
retail, and CPG customers, and additional enablement and spend
analysis services to a number of existing customers;
11 new customers, which include seven new software customers, were
added during the third quarter. In addition, three existing software
customers expanded their agreements to incorporate new software
modules over the quarter. Since the beginning of the fourth quarter,
Verticalnet has added two additional software customers and three
additional services customers. During the third quarter and the fourth
quarter to date approximately 88% of all new software contracts were
on-demand subscriptions;
European momentum has continued with nine new European contracts
signed over the quarter including four new software customers and
significant services engagement to an existing customer; and
Verticalnet’s optimization-led category
sourcing solution, XECS, saw strong wins across both the US and Europe
with eight new contracts signed in the third quarter.
“Success builds on success and our record
total bookings in the third quarter suggests that we are doing many
things right” stated Lentz. “Our
best sales weapons are our customers and the references they provide.
Our goal is to turn our new customers into reference worthy customers
and to continue to build on the base of customers who speak both of
satisfaction and value delivery. Our corporate culture is built on a
foundation of customer focus, not simply new business focus, because a
foundation of customer satisfaction is a strong place from which to
build a sustainable 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 in our on-demand subscription business, recognized revenues from
bookings in future quarters, issued billings in future quarters,
expected future cash balances, expected receipts from signed contracts
and contracts in negotiation, continued improved performance, the
benefit of customer relationships being reflected in the quarters to
come, obtaining the consent of the holders of our senior secured
promissory notes to allow us to grant a security interest in our assets
to the holder of our senior subordinated discounted promissory note,
extending the maturity date of the Discount Note from January 2007 to
November 2007, pursuing options for restructuring debt obligations,
exploring paths to reduce debt and positioning the business for
accelerated growth, and turning our new customers into reference worthy
customers and continuing to build on the base of customers, 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 Report on Form 10-Q for the quarters ended March 31, 2006 and
June 30, 2006, which have been filed with the SEC. Verticalnet is making
these statements as of November 14, 2006 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 September 30,
Nine Months Ended September 30,
2006
2005 (4)
2006
2005 (4)
Revenues:
Software and software related
$ 2,343
$ 1,609
$ 5,774
$ 4,721
Services
1,830
3,289
6,500
10,497
Total revenues
4,173
4,898
12,274
15,218
Cost of revenues (1):
Cost of software and software related
529
627
1,702
2,085
Cost of services
1,047
1,872
4,131
5,653
Amortization of acquired technology and customer contracts
272
268
768
747
Total cost of revenues
1,848
2,767
6,601
8,485
Gross profit
2,325
2,131
5,673
6,733
Operating expenses (1):
Research and development
1,201
1,831
4,074
5,297
Sales and marketing
1,630
2,155
5,464
6,181
General and administrative
1,547
1,527
4,885
4,505
Litigation and settlement costs
6
154
1,032
192
Restructuring charges (reversals)
(21)
149
195
473
Impairment charge for goodwill
-
-
9,877
-
Amortization of other intangible assets
201
344
660
969
Total operating expenses
4,564
6,160
26,187
17,617
Operating loss
(2,239)
(4,029)
(20,514)
(10,884)
Interest and other expense (income), net (2)
1,145
(369)
1,489
(71)
Net loss
$ (3,384)
$ (3,660)
$ (22,003)
$ (10,813)
Adjusted net loss from operations (5)
$ (1,652)
$ (2,931)
$ (7,035)
$ (8,201)
Basic and diluted loss per common share: (3)
Net loss
$ (0.42)
$ (0.57)
$ (2.89)
$ (1.76)
Adjusted net loss from operations (5)
$ (0.20)
$ (0.45)
$ (0.92)
$ (1.33)
Weighted average common shares outstanding:
Basic and diluted (3)
8,061
6,457
7,616
6,161
(1) As of January 1, 2006, the Company
adopted SFAS No. 123R. As a result we now record expenses relating to
stock option awards. The following presents the impact of the adoption
of SFAS No. 123R and stock based compensation charges had on various
expense categories (in thousands):
Three Months Ended
Nine Months Ended
September 30,
September 30,
2006
2005
2006
2005
Cost of revenues
$ 24
$ 41
$ 238
$ 84
Research and development
46
8
184
26
Sales and marketing
105
71
347
235
General and administrative
175
91
645
283
Total
$ 350
$ 211
$ 1,414
$ 628
(2) During the three and nine months
ended September 30, 2006, 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. In addition, during the nine months
ended September 30, 2005 the Company recorded a $364,000 write-down
related to a cost method investment.
(3) During the three and nine months
ended September 30, 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)
September 30,
December 31,
2006
2005
Assets
Current assets:
Cash and cash equivalents
$ 2,467
$ 4,576
Restricted cash
-
155
Accounts receivable, net
4,857
5,188
Prepaid expenses and other current assets
1,080
735
Total current assets
8,404
10,654
Property and equipment, net
1,000
1,288
Goodwill
9,643
19,331
Other intangible assets, net
2,643
4,003
Other assets
592
768
Total assets
$ 22,282
$ 36,044
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt, convertible notes, and other
non-current liabilities
$ 7,754
$ 2,638
Accounts payable and accrued expenses
4,939
4,038
Deferred revenues
4,057
3,297
Total current liabilities
16,750
9,973
Long-term debt, convertible notes, and other non-current liabilities
1,028
3,675
Shareholders’ equity
4,504
22,396
Total liabilities and shareholders’ equity
$ 22,282
$ 36,044
Verticalnet, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2006
2005
2006
2005
Operating activities:
Net loss
$ (3,384)
$ (3,660)
$ (22,003)
$ (10,813)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
607
785
1,839
2,187
Stock-based compensation
350
211
1,414
628
Accretion of promissory notes and non-cash interest
777
218
1,820
218
Change in the fair value of derivative liabilities
(64)
(663)
(1,265)
(663)
Amortization of deferred financing costs
211
48
467
48
Impairment of goodwill
-
-
9,877
-
Write-down related to cost method investment
-
-
-
364
Other non-cash items
-
-
9
-
Change in assets and liabilities, net of effect of acquisition:
Accounts receivable
520
119
331
1660
Prepaid expenses and other assets
28
200
345
197
Accounts payable and accrued expenses
(259)
(491)
1,479
(1,401)
Deferred revenues
537
85
1,212
(141)
Net cash used in operating activities
(677)
(3,148)
(4,475)
(7,716)
Investing activities:
Capital expenditures
(11)
(80)
(77)
(322)
Acquisition related payments
-
(159)
(57)
(309)
Restricted cash
-
-
155
-
Proceeds from sale of cost, equity method, and available-for-sale
investments
-
242
-
242
Net cash provided by (used in) investing activities
(11)
3
21
(389)
Financing activities:
Principal payments on long-term debt and obligations under capital
leases
(1,022)
(290)
(1,364)
(656)
Proceeds from issuance of senior convertible notes, net
-
5,951
-
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
65
11
73
Net cash provided by (used in) financing activities
(1,019)
5,726
2,324
5,368
Effect of exchange rate fluctuation on cash and cash equivalents
1
45
21
(88)
Net increase (decrease) in cash and cash equivalents
(1,706)
2,626
(2,109)
(2,825)
Cash and cash equivalents - beginning of period
4,173
3,919
4,576
9,370
Cash and cash equivalents - end of period
$ 2,467
$ 6,545
$ 2,467
$ 6,545
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$ 131
$ 13
$ 260
$ 29
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
$ 331
$ -
$ 2,394
$ -
Financed insurance policies
-
-
663
816
Capital expenditures financed through capital lease arrangements
-
-
42
141
Issuance of common stock as consideration for the Digital Union
acquisition
-
2,973
-
2,973
Issuance of warrants to private placement agent
-
35
-
35
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS AND OTHER
FINANCIAL DATA
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands, except per share data)
2006
2005
2006
2005
Revenues:
Software and software related
$ 2,343
$1,609
$ 5,774
$ 4,721
Services
1,830
3,289
6,500
10,497
Total revenues
4,173
4,898
12,274
15,218
Total cost of revenues
1,848
2,767
6,601
8,485
Gross profit
2,325
2,131
5,673
6,733
Total operating expenses
4,564
6,160
26,187
17,617
Operating loss
(2,239)
(4,029)
(20,514)
(10,884)
Interest and other expense (income), net
1,145
(369)
1,489
(71)
Net loss
(3,384)
(3,660)
(22,003)
(10,813)
Non-GAAP adjustments:
Amortization of intangible assets
473
612
1,428
1,716
Restructuring charges (reversals)
(21)
149
195
473
Stock-based compensation
350
211
1,414
628
Accretion of promissory notes and non-cash interest
777
218
1,820
218
Amortization of deferred financing costs
211
48
467
48
Litigation and settlement costs
6
154
1,032
192
Impairment charge for goodwill
-
-
9,877
-
Change in the fair value of derivative liabilities
(64)
(663)
(1,265)
(663)
Adjusted net loss from operations
$ (1,652)
$ (2,931)
$ (7,035)
$ (8,201)
Basic and diluted loss per common share:
Net loss
$ (0.42)
$ (0.57)
$ (2.89)
$ (1.76)
Adjusted net loss from operations
$ (0.20)
$ (0.45)
$ (0.92)
$ (1.33)
Weighted average common shares outstanding:
Basic and diluted
8,061
6,457
7,616
6,161
KEY METRICS
Three months ended September 30,
2006
2005
Total billings
$ 4,442
$ 5,131
Software bookings
4,604
975
Verticalnet, Inc. (Nasdaq: VERT), a leading provider of on-demand
supply management solutions, today announced results for its third
quarter ended September 30, 2006.
Revenues for the quarter ended September 30, 2006 were $4.2
million, as compared to $4.9 million for the quarter ended September
30, 2005. Verticalnet's net loss for the quarter ended September 30,
2006 was $3.4 million, or ($0.42) per share, as compared to a net loss
of $3.7 million, or ($0.57) per share, for the quarter ended September
30, 2005. Adjusted net loss from operations(a) for the quarter ended
September 30, 2006 was $1.7 million, or ($0.20) per share, as compared
to an adjusted net loss from operations(a) of $2.9 million, or ($0.45)
per share, for the quarter ended September 30, 2005. For the quarters
ended September 30, 2006 and 2005, weighted-average shares outstanding
were approximately 8.1 million and 6.5 million shares, respectively.
Total operating expenses, including cost of revenues, for the
quarter were $6.4 million, which included non-cash charges for stock
based compensation of $350,000 and amortization and depreciation
expense of $607,000 as compared to $8.9 million for the third quarter
of 2005, which included non-cash charges for stock based compensation
of $211,000 and amortization and depreciation expense of $785,000.
Excluding these non-cash charges, total operating expenses would have
decreased by $2.4 million or 31%, to $5.5 million for the quarter
ended September 30, 2006 as compared to $7.9 million for the quarter
ended September 30, 2005. Total operating expenses, including cost of
revenues, but excluding these non-cash charges as well as non-cash
goodwill charges, decreased by $807,000 or 13% from the second quarter
of 2006.
The Company reported that billings(b) for the third quarter of
2006 were $4.4 million, a decrease from $5.1 million for the
comparable period last year. Total deferred revenues increased by
$537,000 or 13% versus the deferred revenue balance at the end of the
second quarter of 2006 and increased by $1.2 million or 34% since the
beginning of 2006. We believe that our increase in deferred revenues
indicates the growth we are achieving in our on-demand subscription
business through the signing of new customer subscriptions for which
revenue has not yet been recognized.
Total software and software related revenues increased to $2.3
million for the third quarter of 2006, a 46% increase over the third
quarter of the prior year. The software and software related revenues
for third quarter of 2006 include $800,000 in perpetual software
revenue associated with a restructuring of a legacy perpetual software
agreement. Services revenues for the third quarter of 2006 were $1.8
million as compared to $3.3 million for the comparable period in the
prior year, which included a $925,000 decline in revenues from two of
Verticalnet's largest historical accounts, which reflected revenues
from legacy solutions that are not part of our go forward product
offerings.
The third quarter of 2006 represented Verticalnet's highest
bookings quarter over the last several years and Verticalnet's best
software bookings(c) quarter in its history. Bookings were driven
primarily by new customer contracts, broadening of existing customer
relationships, as well as renewals of subscription software
relationships. Software bookings(c) for the third quarter of 2006 were
$4.6 million compared to $1.0 million for the comparable period in the
prior year representing a 372% improvement over the prior year.
Excluding the $1.0 million of bookings associated with the
restructuring of a legacy perpetual software agreement, software
bookings in the third quarter of 2006 represented a 270% increase over
the same period in 2005. 78% of the total software and service
bookings during the third quarter of 2006 are expected to be
recognized as revenues in future quarters and 60% of the total
potential billings are expected to be issued in future quarters as
contractually agreed.
Over the past 12 months Verticalnet has executed a rigorous cost
reduction strategy focused on aligning costs with sustainable revenue
levels. Having focused on successful integration of four separate
businesses between 2004 and 2005, the subsequent management effort has
been on driving efficiency across the business. As a result of the
cost reduction strategies, we have achieved significant reductions in
cost of revenues and operating expenses for the third quarter of 2006
versus the same quarter in 2005. Compared to the same period in 2005,
cost of revenues declined by 33%, research and development expenses
declined by 34%, sales and marketing expenses declined by 24%, and
general and administrative has remained relatively flat. We have
achieved improved solution sales within our strategic lines of
business and have continued investment across Verticalnet's XE suite
while we have undertaken cost reductions.
Verticalnet finished the third quarter of 2006 with $2.5 million
in cash having consumed $677,000 in operations and $1.2 million in
debt service over the quarter. As of December 31, 2006, the Company
expects to have approximately $2.0 to $2.5 million in cash and cash
equivalents based on expected receipts from signed contracts and
contracts in negotiation, including repaying $1.3 million in debt
service during the fourth quarter of 2006.
As of September 30, 2006, the Company's current portion of long
term debt, including convertible notes and other non-current
liabilities, was $7.8 million. The Company is seeking to obtain the
consent of the holders of our senior secured promissory notes to allow
us to grant a security interest in our assets to the holder of our
senior subordinated discounted promissory note (the "Discount Note").
If we are successful in obtaining that consent, the maturity date of
the Discount Note will be extended to November 18, 2007 from January
31, 2007, the current portion of long term debt, convertible notes,
and other non-current liabilities will be reduced to $3.1 million, and
long term debt, convertible notes, and other non-current liabilities
will be increased from $1.0 million to $5.7 million as of September
30, 2006. In addition, we are pursuing longer term options for
restructuring our existing debt obligations.
"Our core business continues to see improved performance as
reflected in our record quarter of bookings, our continued management
of costs, and significant improvements in our adjusted results from
operations," stated Nathanael V. Lentz, President and CEO of
Verticalnet. "Increasingly, customers are selecting Verticalnet for
our leading supply management solutions as well as our proven
on-demand delivery model and I am pleased with some of the leading
brand-name customers who have signed with us over the past quarter. We
expect the benefit of these relationships will be reflected in the
quarters to come." Lentz continued. "Despite new customer success and
improved operating performance, we remain constrained by the structure
of our current debt. We are committed to exploring paths to reduce
this debt burden and position the business for accelerated growth."
BUSINESS HIGHLIGHTS:
Verticalnet experienced a strong selling quarter with new total
bookings of $6.9 million and software bookings of $4.6 million.
Specific business highlights since the beginning of the third quarter
include:
-- Continued success in head-to-head competitive wins versus all
major competitors with a short-list win rate of over 65% for
the period;
-- 17 new contracts signed or committed with existing customers,
including a major sale of our Verticalnet(R) Spend Manager
application to a global consumer packaged goods ("CPG")
customer previously using Verticalnet(R) Negotiation Manager,
multi-year software renewals to major hi-tech, retail, and CPG
customers, and additional enablement and spend analysis
services to a number of existing customers;
-- 11 new customers, which include seven new software customers,
were added during the third quarter. In addition, three
existing software customers expanded their agreements to
incorporate new software modules over the quarter. Since the
beginning of the fourth quarter, Verticalnet has added two
additional software customers and three additional services
customers. During the third quarter and the fourth quarter to
date approximately 88% of all new software contracts were
on-demand subscriptions;
-- European momentum has continued with nine new European
contracts signed over the quarter including four new software
customers and significant services engagement to an existing
customer; and
-- Verticalnet's optimization-led category sourcing solution,
XECS, saw strong wins across both the US and Europe with eight
new contracts signed in the third quarter.
"Success builds on success and our record total bookings in the
third quarter suggests that we are doing many things right" stated
Lentz. "Our best sales weapons are our customers and the references
they provide. Our goal is to turn our new customers into reference
worthy customers and to continue to build on the base of customers who
speak both of satisfaction and value delivery. Our corporate culture
is built on a foundation of customer focus, not simply new business
focus, because a foundation of customer satisfaction is a strong place
from which to build a sustainable 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 in our on-demand subscription business, recognized
revenues from bookings in future quarters, issued billings in future
quarters, expected future cash balances, expected receipts from signed
contracts and contracts in negotiation, continued improved
performance, the benefit of customer relationships being reflected in
the quarters to come, obtaining the consent of the holders of our
senior secured promissory notes to allow us to grant a security
interest in our assets to the holder of our senior subordinated
discounted promissory note, extending the maturity date of the
Discount Note from January 2007 to November 2007, pursuing options for
restructuring debt obligations, exploring paths to reduce debt and
positioning the business for accelerated growth, and turning our new
customers into reference worthy customers and continuing to build on
the base of customers, 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 Report on Form 10-Q for the quarters ended
March 31, 2006 and June 30, 2006, which have been filed with the SEC.
Verticalnet is making these statements as of November 14, 2006 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
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Verticalnet, Inc.
Consolidated Statements of
Operations (Unaudited)
(in thousands, except per Three Months Ended Nine Months Ended
share data) September 30, September 30,
------------------- -------------------
2006 2005 (4) 2006 2005 (4)
--------- --------- --------- ---------
Revenues:
Software and software
related $2,343 $1,609 $5,774 $4,721
Services 1,830 3,289 6,500 10,497
--------- --------- --------- ---------
Total revenues 4,173 4,898 12,274 15,218
--------- --------- --------- ---------
Cost of revenues (1):
Cost of software and
software related 529 627 1,702 2,085
Cost of services 1,047 1,872 4,131 5,653
Amortization of acquired
technology and customer
contracts 272 268 768 747
--------- --------- --------- ---------
Total cost of revenues 1,848 2,767 6,601 8,485
--------- --------- --------- ---------
Gross profit 2,325 2,131 5,673 6,733
--------- --------- --------- ---------
Operating expenses (1):
Research and development 1,201 1,831 4,074 5,297
Sales and marketing 1,630 2,155 5,464 6,181
General and administrative 1,547 1,527 4,885 4,505
Litigation and settlement
costs 6 154 1,032 192
Restructuring charges
(reversals) (21) 149 195 473
Impairment charge for
goodwill - - 9,877 -
Amortization of other
intangible assets 201 344 660 969
--------- --------- --------- ---------
Total operating
expenses 4,564 6,160 26,187 17,617
--------- --------- --------- ---------
Operating loss (2,239) (4,029) (20,514) (10,884)
Interest and other expense
(income), net (2) 1,145 (369) 1,489 (71)
--------- --------- --------- ---------
Net loss $(3,384) $(3,660) $(22,003) $(10,813)
========= ========= ========= =========
Adjusted net loss from
operations (5) $(1,652) $(2,931) $(7,035) $(8,201)
========= ========= ========= =========
Basic and diluted loss per
common share: (3)
Net loss $(0.42) $(0.57) $(2.89) $(1.76)
========= ========= ========= =========
Adjusted net loss from
operations (5) $(0.20) $(0.45) $(0.92) $(1.33)
========= ========= ========= =========
Weighted average common shares
outstanding:
Basic and diluted (3) 8,061 6,457 7,616 6,161
========= ========= ========= =========
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(1) As of January 1, 2006, the Company adopted SFAS No. 123R. As a
result we now record expenses relating to stock option awards. The
following presents the impact of the adoption of SFAS No. 123R and
stock based compensation charges had on various expense categories (in
thousands):
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Cost of revenues $24 $41 $238 $84
Research and development 46 8 184 26
Sales and marketing 105 71 347 235
General and administrative 175 91 645 283
--------- --------- --------- ---------
Total $350 $211 $1,414 $628
========= ========= ========= =========
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(2) During the three and nine months ended September 30, 2006, 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. In addition, during the nine months ended
September 30, 2005 the Company recorded a $364,000 write-down related
to a cost method investment.
(3) During the three and nine months ended September 30, 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.
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Verticalnet, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30, December 31,
2006 2005
------------- -------------
Assets
Current assets:
Cash and cash equivalents $2,467 $4,576
Restricted cash - 155
Accounts receivable, net 4,857 5,188
Prepaid expenses and other current
assets 1,080 735
------------- -------------
Total current assets 8,404 10,654
Property and equipment, net 1,000 1,288
Goodwill 9,643 19,331
Other intangible assets, net 2,643 4,003
Other assets 592 768
------------- -------------
Total assets $22,282 $36,044
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt,
convertible notes, and other non-
current liabilities $7,754 $2,638
Accounts payable and accrued expenses 4,939 4,038
Deferred revenues 4,057 3,297
------------- -------------
Total current liabilities 16,750 9,973
Long-term debt, convertible notes, and
other non-current liabilities 1,028 3,675
Shareholders' equity 4,504 22,396
------------- -------------
Total liabilities and shareholders'
equity $22,282 $36,044
============= =============
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Verticalnet, Inc.
Consolidated Statements of Cash
Flows (Unaudited)
(in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Operating activities:
Net loss $(3,384) $(3,660) $(22,003) $(10,813)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 607 785 1,839 2,187
Stock-based compensation 350 211 1,414 628
Accretion of promissory notes
and non-cash interest 777 218 1,820 218
Change in the fair value of
derivative liabilities (64) (663) (1,265) (663)
Amortization of deferred
financing costs 211 48 467 48
Impairment of goodwill - - 9,877 -
Write-down related to cost
method investment - - - 364
Other non-cash items - - 9 -
Change in assets and
liabilities, net of effect of
acquisition:
Accounts receivable 520 119 331 1660
Prepaid expenses and other
assets 28 200 345 197
Accounts payable and accrued
expenses (259) (491) 1,479 (1,401)
Deferred revenues 537 85 1,212 (141)
--------- --------- --------- ---------
Net cash used in operating
activities (677) (3,148) (4,475) (7,716)
--------- --------- --------- ---------
Investing activities:
Capital expenditures (11) (80) (77) (322)
Acquisition related payments - (159) (57) (309)
Restricted cash - - 155 -
Proceeds from sale of cost,
equity method, and
available-for-sale
investments - 242 - 242
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (11) 3 21 (389)
--------- --------- --------- ---------
Financing activities:
Principal payments on long-
term debt and obligations
under capital leases (1,022) (290) (1,364) (656)
Proceeds from issuance of
senior convertible notes,
net - 5,951 - 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 65 11 73
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities (1,019) 5,726 2,324 5,368
--------- --------- --------- ---------
Effect of exchange rate
fluctuation on cash and cash
equivalents 1 45 21 (88)
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (1,706) 2,626 (2,109) (2,825)
Cash and cash equivalents -
beginning of period 4,173 3,919 4,576 9,370
--------- --------- --------- ---------
Cash and cash equivalents - end
of period $2,467 $6,545 $2,467 $6,545
========= ========= ========= =========
Supplemental disclosure of cash
flow information
Cash paid during the period
for interest $131 $13 $260 $29
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 $331 $- $2,394 $-
Financed insurance policies - - 663 816
Capital expenditures financed
through capital lease
arrangements - - 42 141
Issuance of common stock as
consideration for the
Digital Union acquisition - 2,973 - 2,973
Issuance of warrants to
private placement agent - 35 - 35
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RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS AND OTHER FINANCIAL
DATA
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
(In thousands, except per share
data) 2006 2005 2006 2005
--------- --------- --------- ---------
Revenues:
Software and software related $2,343 $1,609 $5,774 $4,721
Services 1,830 3,289 6,500 10,497
--------- --------- --------- ---------
Total revenues 4,173 4,898 12,274 15,218
Total cost of revenues 1,848 2,767 6,601 8,485
--------- --------- --------- ---------
Gross profit 2,325 2,131 5,673 6,733
Total operating expenses 4,564 6,160 26,187 17,617
--------- --------- --------- ---------
Operating loss (2,239) (4,029) (20,514) (10,884)
Interest and other expense
(income), net 1,145 (369) 1,489 (71)
--------- --------- --------- ---------
Net loss (3,384) (3,660) (22,003) (10,813)
Non-GAAP adjustments:
Amortization of intangible
assets 473 612 1,428 1,716
Restructuring charges
(reversals) (21) 149 195 473
Stock-based compensation 350 211 1,414 628
Accretion of promissory
notes and non-cash interest 777 218 1,820 218
Amortization of deferred
financing costs 211 48 467 48
Litigation and settlement
costs 6 154 1,032 192
Impairment charge for
goodwill - - 9,877 -
Change in the fair value of
derivative liabilities (64) (663) (1,265) (663)
--------- --------- --------- ---------
Adjusted net loss from
operations $(1,652) $(2,931) $(7,035) $(8,201)
========= ========= ========= =========
Basic and diluted loss per
common share:
Net loss $(0.42) $(0.57) $(2.89) $(1.76)
========= ========= ========= =========
Adjusted net loss from
operations $(0.20) $(0.45) $(0.92) $(1.33)
========= ========= ========= =========
Weighted average common shares
outstanding:
Basic and diluted 8,061 6,457 7,616 6,161
========= ========= ========= =========
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KEY METRICS Three months ended September 30,
---------------------------------
2006 2005
---------------- ----------------
Total billings $4,442 $5,131
Software bookings 4,604 975
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