CMGI Announces Third Quarter Financial Results;Revenues Increase 141% Compared with Prior Year Third Quarter
June 10, 1999 04:30 PM
ANDOVER, Mass.--(BUSINESS WIRE)--June 10, 1999--
Internet-Focused Investment and Development Segment Revenues Grow 116% Over Second Quarter
CMGI, Inc. CMGI today reported net revenues of $43.7 million for its third quarter ended April 30, 1999, a 12% sequential increase in quarterly revenues and a 141% increase compared with last year's third quarter. Net revenues for the Company's Internet-focused investment and development business segment increased 381% compared with the third quarter of fiscal 1998, and increased 116% compared with the second quarter of fiscal 1999. Net revenues for the Company's fulfillment services segment increased 107% compared with the third quarter of fiscal 1998, and decreased 3% compared with the second quarter of fiscal 1999.
CMGI reported a net loss of $27.8 million or ($0.30) basic loss per share for the quarter, compared to net income of $13 million or $0.14 basic income per share for the previous quarter ended January 31, 1999. Third quarter fiscal 1999 results included a pre-tax gain of $859,000 on issuance of stock by GeoCities and a one-time in-process research and development charge of $4.5 million related to the acquisition of Internet Profiles Corporation (I/PRO). Second quarter fiscal 1999 results included pre-tax gains of $43.6 million on the sale of Lycos stock, $7 million on the sale of Amazon.com stock, and $4.4 million on issuance of stock by GeoCities. As a result of the Company's decision to sell its CMG Direct business unit to Marketing Services Group, Inc. (MSGI), the results of the Company's list and database services segment are reflected as discontinued operations for all periods presented. CMGI's third quarter operating expenses for continuing operations of $77.7 million, reflect a 29% increase from the second quarter of fiscal 1999 and a 87% increase from last year's third quarter.
During the Company's third fiscal quarter, CMGI completed the acquisitions of IPRO, 2CAN Media (2CAN) and Activerse, and exercised its right to increase its ownership in Magnitude Network from 23% to 92%. The operations of IPRO have been integrated with the Company's Engage Technologies subsidiary and 2CAN has been integrated with CMGI's ADSmart subsidiary. Subsequent to quarter end, CMGI successfully completed the acquisition of Nascent Technologies, Inc.
During the third quarter, CMGI, through it's limited liability company subsidiaries, CMG@Ventures II, LLC and CMG@Ventures III, LLC invested in ten Internet start - up companies, including:
-- Advoco.com - CMG@Ventures III, LLC investment
-- Carparts.com - CMG@Ventures III, LLC investment
-- Chemdex - follow-on investment by CMG@Ventures II, LLC
-- Ecircles.com - CMG@Ventures III, LLC investment
-- OneCore.com (formerly Boston Financial Network) - CMG@Ventures
III, LLC investment
-- Raging Bull - follow-on investment by CMG@Ventures III, LLC
-- Silknet - follow-on investment by CMG@Ventures II, LLC
-- Softway - bridge loan financing provided by CMG@Ventures II, LLC
-- ThingWorld.com - follow-on investment by CMG@Ventures II, LLC
-- Virtual Ink - follow-on investment by CMG@Ventures III, LLC
Since April 30, 1999, the following investments have also been
made:
-- MotherNature.com - follow-on investment by CMG@Ventures II, LLC.
-- Productopia, Inc. - CMG@Ventures III, LLC investment
-- Universal Learning Technology - follow-on investment by
CMG@Ventures II, LLC.
-- Visto - follow-on investment by CMG@Ventures II, LLC.
-- NextPlanetOver - CMG@Ventures III, LLC investment
On March 29, 1999, Critical Path successfully completed its initial public offering at a price of $24 per share, and on May 5, 1999, Silknet successfully completed its initial public offering at a price of $15 per share. CMG@Ventures currently holds 2.8 million shares of Silknet common stock (of which approximately 2.2 million shares are attributable to CMGI), which it acquired at an average cost of $2.42 per share. On June 2, 1999, Critical Path priced an additional offering of 3.5 million shares of common stock at $49.375 per share. Of the 3.5 million shares offered, 3 million shares were sold by the company and 500,000 by certain selling shareholders, all at $49.375 per share. Included in that offering, CMG@Ventures II sold approximately 45,000 shares, receiving net proceeds of approximately $2.1 million. CMG@Ventures now holds approximately 1.7 million shares of Critical Path common stock (of which approximately 1.4 million shares are attributable to CMGI), which it acquired at an average cost of $1.44 per share. On May 10, 1999, CMGI's majority owned subsidiary, Engage Technologies, announced that on May 7, 1999 it filed with the Securities and Exchange Commission a registration statement for the initial public offering of its common stock.
Recently, on May 13, 1999, CMGI and Gateway GTW announced that the two companies have formed a strategic alliance and will seek out collaborative business and investment opportunities on the Internet. In addition, Gateway has agreed to invest $200 million for an ownership stake in CMGI, subject to certain closing conditions. On June 7, CMGI's majority owned subsidiary, NaviSite, Inc., announced it has signed strategic agreements with Dell Computer Corporation DELL and Microsoft Corp. MSFT . In connection with separate strategic alliance agreements, Dell and Microsoft have each also made seperate investments in NaviSite in return for 4.9 and 4.4 percent fully diluted interests, respectively.
On May 13, CMGI completed the sale of its CMG Direct subsidiary to Marketing Services Group, Inc. MSGI , in exchange for cash of approximately $13.9 million and approximately 2.3 million shares of MSGI stock. If valued at recent stock prices ($24.875 per share MSGI closing price on June 9, 1999), those MSGI shares would represent a current value of approximately $57.7 million. Also during May, Yahoo! completed the acquisition of GeoCities, pursuant to which the 8.8 million shares of GeoCities common stock, and options to purchase an additional 1 million GeoCities shares held by CMG@Ventures were converted to Yahoo! stock and options.
Commenting on the Company's performance, Chairman and CEO David Wetherell said, "CMGI's majority owned Internet companies have made strong progress in executing their business plans, and these companies are rapidly increasing in critical mass. Revenue has increased by 116% in this segment quarter over quarter. We believe the recent additions of Gateway and Dell as strategic partners, and the continued support of Microsoft will provide valuable business partners, and we see many promising opportunities with these strategic investors across CMGI's portfolio of businesses. The public offerings of common stock by Critical Path and Silknet now bring the total to three CMG@Ventures investments that have successfully gone public during this fiscal year. We're encouraged by the strong revenue growth demonstrated by our majority owned Internet Group companies, the continuing quality of investments being secured by our CMG@Ventures entities, and the increasing flow of new investment opportunities."
Operating Segments
For continuing operations, the Company reports two operating segments: Investment and Development, and Fulfillment Services. The Company's List and Database Services segment is reported as discontinued operations.
The Investment and Development segment results reflect the consolidated performance of majority-owned Internet companies, which during the third quarter of fiscal year 1999 include Activerse, ADSmart, Blaxxun, Engage Technologies, Magnitude Network, NaviNet, NaviSite, Planet Direct, and ZineZone. The investment and development segment reported revenues of $10,610,000 in the current quarter, compared with $4,902,000 in the previous quarter ended January 31, 1999, an increase of 116%. Current quarter revenue increases primarily reflect increased revenues for Engage, including the addition of I/PRO during the quarter, ADSmart, including the addition of 2CAN during the quarter, NaviSite, NaviNet, and Planet Direct, including approximately $2.3 million in license revenue from one significant customer. Including the one-time in-process research and development charge of $4.5 million from the Company's acquisition of I/PRO, the operating loss for the investment and development segment was $35,632,000 in the quarter just ended versus a loss of $21,974,000 for the quarter ended January 31, 1999. The final acquisition accounting and valuation for the Company's total investment of approximately $66 million in 2CAN, Activerse, and Magnitude Network is expected to result in a portion of the purchase price being identified as in-process research and development, which will be charged to operating results in the fourth quarter when the amount is determined.
CMGI's portion of the net operating performances of investments in which its ownership is between 20% and 50% are reflected in equity in losses of affiliates. During the third quarter of fiscal 1999, these included GeoCities, ThingWorld.com, Silknet, Speech Machines, Vicinity and Engage Japan. Equity in losses of affiliates was $3,553,000 for the current quarter, compared with $6,189,000 for the quarter ended January 31, 1999. CMGI's investments in Chemdex, KOZ.com, Softway Systems, Visto, Universal Learning Technology, Tickets.com, Raging Bull, Asimba, Virtual Ink, Ancestry.com, ONElist, Furniture.com, MotherNature.com, Medical Village, HotLinks, NextMonet.com, OneCore.com and eCircles.com are carried at cost at April 30, 1999. As of April 30, 1999, CMGI's holdings in Lycos, Hollywood Entertainment, Critical Path, Amazon.com, Open Market, USWeb and Informix (formerly Red Brick Systems) are accounted for as available-for-sale securities, at market value.
In the Fulfillment Services segment, revenues increased 107% to $33,045,000 in the third quarter of fiscal 1999 from $15,937,000 in last year's third fiscal quarter, primarily reflecting increased volumes from Cisco Systems and the acquisitions of InSolutions and On-Demand Solutions in the fourth quarter of fiscal 1998. Compared with the second quarter of fiscal 1999, fulfillment services segment revenues decreased 3%, reflecting lower order volumes from existing customers including the Impact of seasonality. The fulfillment segment reported operating income of $1,565,000 in the quarter, compared with operating income of $905,000 in the quarter ended January 31, 1999. The increase in operating income despite a $1,026,000 reduction in revenues primarily reflected increased operating efficiencies related to turnkey operations and the completion of the relocation of SalesLink's Boston and Chicago operations to more efficient facilities. Fulfillment services segment results for the current quarter ended April 30, 1999 and the previous quarter ended January 31, 1999 include approximately $650,000 of goodwill amortization charges related to acquisitions. Also during the quarter Kmart became a customer of SalesLink's Ebusiness market segment, utilizing consulting services, teleservices, customer servicing, and product fulfillment.
Investment and Development Highlights
During the Company's third fiscal quarter, CMGI completed the acquisition of Activerse, which is based in Austin, Texas. With this acquisition, CMGI invested in the rapidly expanding market for tools and technologies that enable live communication via the Internet. Activerse's products address the complex dynamics of Web communication by providing instant access to Internet-connected communities, workgroups, social groups and individuals. The Ding! suite of products from Activerse utilizes current and emerging open Internet standards, including Java and HTML, and allows independent web sites and intranets to manage their own Ding! communities. Activerse's products enable both consumer and corporate audiences to enhance online communities through the convenience of instant messaging, while reaping the benefits of extended branding and revenue capabilities
During the Company's third fiscal quarter, CMGI completed the acquisition of 2CAN Media, whose operations have been integrated with Adsmart. In April, Adsmart launched Adsmart Consulting, a new division dedicated to improving the profitability of Web sites. It is the first of its kind to be offered by an advertising network and will be a complementary service to sites within the network. Adsmart has focused on bringing many new brand sites to the network. Since March, Adsmart has added over one hundred new sites including major brands such as NY Magazine, Lowestfare.com, Encyclopedia Britannica, Dodgers.com NHL.com, Fast Company, US News & World Report and Atlantic Monthly. Adsmart's Hispanic Division, Adsmart NetFuerza, has also added 30 new sites to create the largest Hispanic advertising network in America. With the addition of these Web site partners, Adsmart now represents over 250 sites in its network, bringing the total number of monthly impressions served by sites within the network to over 1.8 billion.
In this past quarter, Engage, CMGI's majority-owned provider of profile driven Internet marketing solutions, filed with the Securities and Exchange Commission a registration statement for the initial public offering of its common stock. Goldman, Sachs & Co. will act as the lead underwriter of the offering. Other underwriters of this offering include Hambrecht & Quist and Bear Stearns & Co., Inc. Also in this quarter, CMGI and Engage acquired substantially all of the stock of I/PRO, a leader in World Wide Web traffic verification, analysis, and research. After completion of the transaction, I/PRO's operations were integrated with Engage. Engage also recently introduced Engage GeoKnowledge, a new Web-based geotargeting solution that combines consumer interest profile data from Engage Knowledge, a Web-wide database currently containing more than 30 million anonymous consumer interest profiles, with multiple types of geographic data information.
NaviNet, CMGI's wholly-owned supplier of high performance, low cost remote Internet access services, continues to rapidly build presence across the U.S. In addition to facilities serving the Boston, New York, Chicago, Southern California, Dallas, Houston, Austin and San Antonio areas, NaviNet continues to deploy new facilities and execute key CLEC agreements at a rate that is expected to allow it to reach over 80% of Internet users within a local dial tone in major U.S. markets by calendar year-end. NaviNet's access services are now available in one hundred-ninety-nine local calling areas, helping over thirty ISP customers serve a sharply growing user base.
NaviSite, CMGI's majority-owned Application Service Provider (ASP) and Web site hosting supplier, recently announced strategic agreements with Dell and Microsoft including investments for 4.9 and 4.4 percent interests in NaviSite, respectively. In addition, NaviSite elected Joel Rosen CEO of the company. Rosen's experience in sales and marketing, and day-to-day operations, are a strong complement to NaviSite President Bob Eisenberg's technology skill set, enhancing the management bandwidth of the company. NaviSite also announced a high level partnership with BMC Software for enhanced monitoring and management of outsourced Web applications. This agreement marks a major milestone in the companies' common goal of providing end-to-end management of Internet applications, regardless of where they reside. NaviSite has also partnered with Arrowpoint for the roll-out of new high-availability services based on ArrowPoint's Content Smart(tm) Web switching technology. With the ArrowPoint switches, NaviSite will deliver a continuous, error-free Web experience to customers, at the same time expanding application management to the network layer.
ZineZone.com marked its first three months on the Internet by experiencing rapid growth in both unique visits and membership. Since its launch in March, ZineZone saw its average daily page impressions grow 430% and its subscriber base more than double. The site's audience of trailblazers - those people who are avid embracers of new forms of entertainment, leisure and technology - has grown 131%. ZineZone empowers readers to explore, personalize and share the information that matters most to them. It enables individuals to see the world through the eyes of over 80 trailblazers (with 65 more currently in development). ZineZone's continued business development initiative has lead to exclusive programs with key partners including Fast Company, Infoplease, Remarq and Six Degrees. ZineZone is now operated and consolidated with iCast.
CMGI, Inc. is a leading provider of direct marketing services, investing in and integrating advanced Internet, interactive media and database technologies.
Forward looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Act. Investors are cautioned that actual results could differ materially from those anticipated by such statements and are advised to consult CMGI's current SEC filings for additional information concerning risk factors that affect the Company's business.
CMGI, Inc. And Subsidiaries
Report of Third Quarter and Nine Month Operating Results
(In thousands except per share amounts)
(Unaudited)
Three months ended Nine Months Ended
April 30, Jan. 31, April 30, April 30, April 30,
1999 1999 1998 1999 1998
Net revenues $ 43,655 $ 38,972 $ 18,145 $ 120,032 $ 55,970
Operating expenses:
Cost of revenues 42,169 37,123 17,230 114,917 45,180
Research and
development 5,053 5,239 3,849 15,645 14,409
In-process research
and development 4,500 -- 9,250 4,500 10,125
Selling 11,282 6,932 6,203 26,452 21,951
General and
administrative 14,718 10,747 5,114 33,782 13,641
Total operating
expenses 77,722 60,041 41,646 195,296 105,306
Operating loss (34,067) (21,069) (23,501) (75,264) (49,336)
Other income (deductions):
Gain on sale of
Lycos, Inc. stock -- 43,596 24,850 45,475 41,938
Gain on sale of
Premiere
Technologies, Inc.
stock -- -- -- -- 4,174
Gain on sale of
Amazon.com, Inc.
stock -- 7,002 -- 7,002 --
Gain (loss) on stock
issuance by
Lycos, Inc. -- (121) 24,294 20,253 24,208
Gain on stock issuance
by GeoCities 859 4,382 -- 29,373 --
Gain on sale of
investment in Sage
Enterprises, Inc. -- -- -- 19,057 --
Gain on sale of
investment in
Reel.com, Inc. -- -- -- 23,158 --
Minority interest 275 103 -- 479 (28)
Equity in losses
of affiliates (3,553) (6,189) (4,247) (13,101) (8,763)
Interest income 852 748 573 2,159 1,712
Interest expense (1,062) (1,165) (775) (3,295) (2,261)
Total (2,629) 48,356 44,695 130,560 60,980
Income (loss) from
continuing operations
before income taxes (36,696) 27,287 21,194 55,296 11,644
Income tax expense
(benefit) (9,473) 14,138 13,125 30,981 11,770
Income (loss) from
continuing
operations (27,223) 13,149 8,069 24,315 (126)
Discontinued operations,
net of income taxes:
Loss from operations
of lists and database
services segment (527) (148) (147) (806) (79)
Gain on sale of data
warehouse product
rights -- -- -- -- 4,978
Net income (loss) $(27,750) $ 13,001 $ 7,922 $ 23,509 $ 4,773
CMGI, Inc. And Subsidiaries
Report of Third Quarter and Nine Month Operating Results - Continued
(In thousands except per share amounts)
(Unaudited)
Three months ended Nine Months Ended
April 30, January 31, April 30, April 30, April 30,
1999 1999 1998 1999 1998
Basic Earnings (Loss) Per Share:
Income (loss)
from
continuing
operations $(0.29) $0.14 $0.09 $0.26 $ --
Loss from
discontinued
operations of
lists and
database
services
segment (0.01) -- -- (0.01) --
Gain on sale
of data
warehouse
product rights -- -- -- -- 0.06
Net income
(loss) $(0.30) $0.14 $0.09 $0.25 $0.06
Diluted Earnings (Loss) Per Share:
Income (loss) from
continuing
operations $(0.29) $0.13 $0.09 $0.23 $ --
Loss from
discontinued
operations
of lists and
database
services
segment (0.01) -- -- (0.01) --
Gain on sale
of data
warehouse
product rights -- -- -- -- 0.06
Net income
(loss) $(0.30) $0.13 $0.09 $0.22 $0.06
Shares used in computing
earnings (loss) per share:
Basic 93,904 92,520 85,672 92,727 80,852
Diluted 93,904 102,514 92,688 101,525 80,852
|
