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VerticalNet Reports Record Third Quarter Revenues of $5.18 Million, Up 477%; Vertical B2B Communities Climb to 51, Passing Goal for Fiscal 1999
HORSHAM, Pa.--(BUSINESS WIRE)--Oct. 21, 1999--
CEO Says Company Will Use $142 Millionto Extend Its First Mover
Advantage
VerticalNet, Inc. (NASDAQ:VERT), the Internet's premier portfolio of business-to-business vertical trading communities and First Mover in the space, reported third quarter revenues of $5.18 million, up 477 percent over the same quarter of 1998, and 46 percent above the $3.55 million reported for the second quarter of 1999.
Beginning this period, VerticalNet(R) will report earnings (loss) before goodwill amortization and acquisition charges ("cash EPS") to allow investors to analyze the Company's cash results. Cash loss for the period was $10.13 million or $0.29 per share.
VerticalNet President and Chief Executive Officer Mark Walsh said, "This was a terrific quarter that further validates the power of our First Mover advantage. We launched our 51st vertical community this quarter and surpassed the goal we set for the entire 1999 fiscal year. We continued our impressive growth from all of our multiple revenue streams, with a particularly significant increase in the percent of revenues generated from e-commerce. We added additional businesses, new technologies and features that improve the experience on the VerticalNet sites.
"More importantly, the funds we raised from the issuance of $115.0 million of convertible debentures gives us $141.9 million, a portion of which we will use to further widen our lead as the Internet's First Mover in business-to-business e-commerce." That amount includes cash and investments of $127.4 million, and an additional $14.5 million from the exercise of an over-allotment early in the fourth quarter. "We will continue to implement an aggressive acquisition and alliance strategy, and increase our investment in existing communities to bring them to their full potential faster," Walsh added.
Highlights
The Company:
-- Exceeded $5 million in quarterly revenues.
-- Acquired LabX, the Internet's B2B leader in the $9.4 billion life
sciences research products market according to an independent
industry source, as the e-commerce portal for VerticalNet's
Science Industries Group; and CertiSource Inc., a leading online
reseller of professional training products, classes and services.
-- Launched four new communities of commerce: AutoCentral.com,
EC Online, E-hospitality.com, and Long Term Care Provider.com.
-- Completed its acquisition of Isadra, an e-commerce technology
leader.
-- Expanded its portfolio-wide features through alliances with Net
Effect for live help services to assist buyers and sellers; with
Asymetrix (Click2Learn) for online training services; and with
OrderTrust for back office processing services.
-- Agreed, with Universal Process Equipment and The Bethlehem Corp.,
to create an online marketplace for high-end process equipment
and plants, which helped raise the value of auction inventory to
$300 Million.
-- Began the product rollout of expanded e-Commerce Centers, the
next generation of storefronts, where transactive e-commerce will
augment lead-generation business.
-- Launched strategic alliances with First Sierra, the Internet's
e-finance leader, and with PaperExchange.com, a leading online
exchange. VerticalNet customers can receive instant credit
through the alliance with First Sierra, including the Working
Capital Financing Program, Leasing Online, and other credit and
payment facilities. VerticalNet's feature-rich Pulp and Paper
Online property will be open to PaperExchange.com users, while
VerticalNet customers can access an online exchange of pulp and
paper products. In addition, the companies will jointly develop
the industry's most comprehensive equipment listings and career
sites.
-- Raised cash from the sale of $115.0 million of convertible
debentures through a Rule 144A private placement.
-- Invested in Tradex Technologies, a company engaged in the
development of e-commerce and exchange software.
Review of Financial Results
VerticalNet Chief Financial Officer Gene S. Godick announced that
the company will report, beginning this quarter, cash EPS, or earnings (loss) before goodwill amortization and acquisition charges, as well as reporting net earnings (loss).
"VerticalNet has ramped up to 51 percent gross margins (revenue less editorial and operational cost as a percentage of revenue) from a negative position at the time of our public offering," Godick said. "It is clear that our speed to enter the capital markets has paid off in the resources available to grow the company. Our game plan is to achieve our growth strategy through acquisitions, alliances and the ability to expand state-of-the-art features and services across our entire portfolio of B2B communities of commerce."
During the third quarter, VerticalNet continued to diversify its revenue streams, which originate from storefronts, sponsorships (including banners, buttons, newsletters, and career services), and e-commerce (including slotting fees, product sales, commissions and auction listing fees).
Total advertising revenues from storefronts and sponsorships increased to $4.7 million, and total unique advertisers climbed to 1,683, up from 1,294 on June 30, 1999, an increase of 30 percent. Total storefronts grew 28 percent from 2,094 on June 30, 1999 to 2,676 on September 30, 1999.
Storefront revenues accounted for 39 percent of total revenues, compared to 40 percent in the previous quarter; sponsorship revenues represented 52 percent of revenues, compared to 55 percent previously. Total e-commerce revenues, which include slotting fees, commissions from sales and auctions of products, training, services, and software, climbed to 9 percent of revenues from 5 percent in the second quarter of 1999.
"The increase in our e-commerce revenues as a percentage of total revenues, along with strong growth in revenues from our existing advertisers and the addition of new customers, are further evidence that our strategy works," Walsh said.
Deferred revenues as of September 30, 1999, were $7.4 million, up from $5.8 million at the end of the previous quarter, and sales and marketing expenses increased to $7.9 million, or 50 percent of total cash expenses.
Cash loss plus goodwill amortization and acquisition charges incurred in the third quarter resulted in a net loss of $25.8 million or $0.75 per share, compared to a net loss of $3.4 million or $0.13 per share for the same quarter in 1998. Net loss for the nine months ended September 30, 1999 was $38.2 million or $1.18 per share compared to $8.3 million or $0.41 per share for the same period in 1998.
VerticalNet's cash and investments position on September 30, 1999, was $127.4 million and its total long-term debt was $101.7 million. Shareholders' equity increased to $75.2 million from $54.8 million on June 30, 1999.
As it had previously indicated, the Company continued an aggressive expansion strategy: completing the acquisition of Isadra, an e-commerce technology leader; acquiring CertiSource, an online training leader; acquiring LabX, a laboratory auction site; and signing several strategic alliances, including those with First Sierra and Paper Exchange.
Review of Operations
VerticalNet ended the quarter with a total of 51 industry-specific Web sites that are grouped into 10 industrial sectors, representing a significant penetration of global markets.
"We are seeing proof of the power of our model," said Walsh. "We are increasingly able to leverage our compelling content, attractive customer base, valuable services, along with improvements in technology and e-commerce capabilities that enhance the value of the VerticalNet B2B experience. In the past we have indicated our intention to aggressively increase our spending on sales and marketing, and the results of that decision are reflected in our increased revenues during the last quarter.
"Our B2B communities of commerce continue to attract a high quality, global demographic. We experienced strong traffic growth in the third quarter, with unique visits reaching 6.03 million, compared to 4.25 million in the previous quarter. The percentage of international visitors remains exceptionally high at about 40 percent."
Prospects
Walsh continued: "As we launch our e-Commerce Centers we expect to see a significant portion of our storefront customers embrace the opportunity to offer transactive content and a more robust presence within our communities. This should help drive the growth of e-commerce revenues compared to advertising revenues as a percentage of total revenues.
"We will continue to invest, to bring our acquisitions up to optimal performance, advance our infrastructure, and continuously enhance the user experience. We also will continue to invest in leading market makers and strategic alliances, such as the one announced today with IBM. With the size and strength of our First Mover advantage, VerticalNet can selectively strike deals that will allow us to maintain a high rate of growth," said Walsh.
"As the power of our business model continues to demonstrate, we believe VerticalNet can extend its strong position and global leadership as First Mover in the Internet's B2B space."
About VerticalNet
VerticalNet, Inc. (www.verticalnet.com), owns and operates 51 industry-specific Web sites designed as online business-to-business communities, known as vertical trade communities. These vertical trade communities provide users with comprehensive sources of information, interaction and e-commerce.
They are grouped into 10 sectors: ADVANCED TECHNOLOGIES: Aerospace Online, Auto Central.com, ComputerOEM Online, Embedded Technology.com, Medical Design Online, Plant Automation.com, Test and Measurement.com; COMMUNICATIONS: Digital Broadcasting.com, EC Online, Fiber Optics Online, Photonics Online, Premises Networks.com, RF Globalnet, Wireless Design Online; ENVIRONMENTAL: ElectricNet, Pollution Online, Power Online, PublicWorks Online, Pulp and Paper Online, Safety Online, Solid Waste Online, Water Online; FOOD AND PACKAGING: Bakery Online, Beverage Online, Dairy Network.com, Food Ingredients Online, Food Online, Meat and Poultry Online, Packaging Network.com; FOODSERVICE/ HOSPITALITY: E-hospitality.com, Foodservice Central.com; HEALTHCARE: E-Dental.com, Hospital Network.com, Long Term Care Provider.com, Nurses.com; MANUFACTURING AND METALS: Machine Tools Online, Metrology World.com, Surface Finishing.com, Tooling Online; PROCESS: Adhesives and Sealants.com, Chemical Online, Hydrocarbon Online, Paint and Coatings.com, Pharmaceutical Online, Semiconductor Online, Oil and Gas Online; SCIENCE: Bioresearch Online, Drug Discovery Online, Laboratory Network.com; SERVICE: HR Hub.com, Property and Casualty.com.
This announcement contains forward-looking statements that involve risks and uncertainties, including those relating to the Company's (i) intention to use a portion of the proceeds from its debt offering to widen its lead as a first mover in business-to-business e-commerce; (ii) plans to implement, acquisition and alliance strategy and increase investments in existing communities; (iii) intention to jointly develop equipment listings and career sites with Paper Exchange; (iv) intention to achieve growth strategy through investments in acquisitions, alliances and the expansion of features, services and infrastructure; (v)expectation to see customers offer transactive content; (vi) intention to maintain its growth rate; (vii) belief that it can extend its leadership position; (viii) information contained elsewhere in this document where statements are preceded by, followed by or include the words "believes," "plans," "intends," "expects," "anticipates" or similar expressions.
For such statements, the Company 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.
The potential risks and uncertainties that could cause actual results to differ from those included in the forward-looking statements include, among others, the Company's limited operating history, the increasingly competitive and constantly changing environment for advertising sales and for VerticalNet, the early stage of the Web as an advertising and commerce medium, and the Company's dependence on advertising revenues and on third parties for technology, content and distribution.
Additional factors that could cause actual results to differ from those contained in the forward-looking statements are set forth in filings that the Company has made with the SEC, including the Company's reports on Forms 10-K for the year ended December 31, 1998 and 10-Q for the quarter ended June 30, 1999.
The accompanying condensed consolidated statements of operations and balance sheets are an integral part of this announcement.
VerticalNet is the registered trademark of VerticalNet, Inc. All other names are trademarks and/or registered trademarks of their respective owners.
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*T
VerticalNet, Inc.
Consolidated Statements of Operations
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues $5,182,495 $897,006 $10,667,454 $1,861,799
----------------------- ------------------------
Costs and Expenses:
Editorial and
operational 2,553,646 975,908 5,438,402 2,100,885
Product development 2,225,431 219,557 4,920,135 797,815
Sales and marketing 7,923,721 1,791,004 17,100,528 4,405,407
General and
administrative 3,083,844 1,261,817 6,433,915 2,803,710
----------------------- ------------------------
Operating loss (10,604,147) (3,351,280) (23,225,526) (8,246,018)
Interest, net 469,546 76,809 1,331,925 15,166
----------------------- ------------------------
Cash loss (10,134,601) (3,274,471) (21,893,601) (8,230,852)
Amortization of
goodwill 2,092,210 103,565 2,702,679 103,565
In Process Research
& Development
charge (1) 13,600,000 - 13,600,000 -
----------------------- ------------------------
Net Loss $(25,826,811) $(3,378,036) $(38,196,280) $(8,334,417)
======================= ========================
Pro forma cash
loss per share $(0.29) $(0.13) $(0.67) $(0.41)
======================= ========================
Shares used in
computing pro
forma net cash
loss
per share (2) 34,621,414 24,638,382 32,448,845 20,104,360
======================= ========================
*T
(1)The in process research and development charge resulting from
the Isadra transaction is based on an independent valuation and represents the valuation of projects that had not yet reached technological feasibility and for which the technology had no alternative future use.
(2)Pro forma net cash loss per share is computed using the weighted average number of shares of common stock, including common equivalent shares from the convertible preferred shares which were converted into common shares upon the completion of the Company's IPO on February 17, 1999.
Cash EPS is not intended to reflect our actual net loss per share as determined under generally accepted accounting principles and reported in our periodic quarterly and annual filings with the Securities and Exchange Commission.
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