Thursday October 25, 4:01 pm Eastern Time
Press Release
SOURCE: Overture Services Inc.
Overture -- formerly GoTo -- Achieves Profitability
Company Posts Net Income of $9.0 Million
PASADENA, Calif.--(BUSINESS WIRE)--Oct. 25, 2001--Overture Services Inc. (Nasdaq:OVER - news):
Third Quarter Highlights:
Third quarter net income was $9.0 million, or 15 cents per diluted share.
Third quarter EBITDA was $11.8 million, or 20 cents per diluted share, vs. $52,000 in the second quarter of
2001.
Third quarter revenue increased 16 percent to $72.5 million from the second quarter of 2001.
Number of paid introductions increased to 338 million on a worldwide basis.
Average price per paid introduction on a worldwide basis was 21 cents, an increase of 2 cents from the second
quarter of 2001.
Overture Services Inc. (Nasdaq:OVER - news), formerly GoTo, the leading provider of Pay-For-Performance search to
Web sites across the Internet, today announced outstanding financial results for the quarter ended Sept. 30, 2001.
Overture reported third quarter 2001 revenue of $72.5 million, a 190 percent increase over revenue of $25.1 million in
the third quarter of 2000, and a 16 percent increase over revenue of $62.5 million in the second quarter of 2001.
Overture reported third quarter 2001 net income of $9.0 million, or 15 cents per diluted share. This compares with a pro
forma net loss of $10.7 million, or a pro forma net loss of 22 cents per basic and diluted share, in the third quarter of
2000. In the second quarter of 2001, Overture reported a net loss of $2.9 million, or a net loss of 6 cents per basic and
diluted share.
Overture reported EBITDA (earnings before income tax, depreciation, amortization and excluding the Disney settlement)
of $11.8 million, or 20 cents per diluted share, for the third quarter of 2001, compared with an EBITDA loss of $9.6
million, or an EBITDA loss of 19 cents per share, for the third quarter of 2000. Overture reported EBITDA of $52,000,
or 0 cents per share, for the quarter ended June 30, 2001.
For the nine months ended Sept. 30, 2001, Overture reported revenue of $186.9 million, a 195 percent increase over
revenue of $63.3 million for the nine months ended Sept. 30, 2000. The net loss for the nine months ended Sept. 30,
2001, was $605,000, or a net loss of 1 cent per basic and diluted share. This compares with a pro forma net loss of
$30.9 million, or a pro forma net loss of 65 cents per basic and diluted share, for the nine months ended Sept. 30, 2000.
Overture reported EBITDA of $7.9 million, or 15 cents per diluted share, for the first nine months of 2001. This
compares with an EBITDA loss of $30.3 million, or EBITDA loss of 64 cents per share, for the first nine months of
2000.
Overture ended the 2001 third quarter with a strong balance sheet including approximately $131 million in unrestricted
cash and liquid investments and less than $500,000 in long-term debt.
``We've converted our industry leadership into positive financial results, and for the first time, reported net income
profitability,'' said Ted Meisel, president and chief executive officer, Overture. ``This milestone reinforces our belief in
the opportunity ahead and motivates us to continue to invest in the quality of service we provide.''
Revenue Drivers/Key Metrics
The key metrics driving Overture's revenue are paid introductions, or paid clicks, and the average price per introduction
paid by Overture's advertisers. On a worldwide basis, in the third quarter of 2001, Overture facilitated 338 million paid
introductions. Overture generated 114 million paid introductions on a worldwide basis in the third quarter of 2000, and
327 million in the second quarter of 2001.
On a worldwide basis, advertisers paid Overture an average of 21 cents for each paid introduction during the quarter ended Sept. 30, 2001. This compares
with an average of 21 cents for each paid introduction in the third quarter of 2000, and 19 cents in the second quarter of 2001.
The quarter ended Sept. 30, 2001, marks the first time Overture is reporting revenue metrics on a worldwide basis reflecting the consolidation of U.S. and
United Kingdom metrics. All prior period comparable numbers are now presented on a worldwide basis.
Follow-on Offering
During the third quarter, on July 5, 2001, Overture completed a successful follow-on offering of 3.75 million primary shares of its common stock.
Overture's sale of its shares raised net proceeds of approximately $58.2 million for the company.
Overture's Industry-Leading Pay-For-Performance Search
Overture is the Internet's leading Pay-For-Performance search engine. Overture Search generates highly relevant results by allowing advertisers to bid for
placement in the company's search results only on keywords that are relevant to their business. Overture's team of more than 80 editors reviews submitted
listings for relevance related to its specific keyword, as well as the quality of the titles and descriptions of the listings.
Overture's Pay-For-Performance model aligns the interests of all Web search participants: consumers seeking relevant search results, affiliate partners
seeking quality Web search services that provide value to their users, and businesses seeking a cost-effective way to attract targeted, qualified traffic to
their sites.
Overture believes that the Pay-For-Performance model improves the quality of search listings thereby creating a positive Internet search experience for the
user.
Expanding Existing Partnerships of the Internet's Leading Pay-For-Performance Network
Overture enables its affiliate partners to enhance their search users' experience and the affiliates' revenues by offering Pay-For-Performance search to their
users. More than 95 percent of Overture's paid introductions are generated through its affiliate partners. The recognition of Overture's high-quality,
Pay-For-Performance search has led to its increased adoption and expanded use.
Overture continues to work closely with its affiliate partners to identify areas where both of the companies' product objectives are aligned, and would be
served by improved and expanded implementations. During the third quarter of 2001, Overture expanded relationships with several affiliate partners,
including America Online, Ask Jeeves/Direct Hit and Lycos/Hotbot. Users of these online destinations now have greater access to Overture's relevant,
high-quality listings.
The ongoing restructuring of the company's affiliate partnerships, coupled with the improvement in metrics such as average price, has allowed Overture to
improve the margins of the affiliate program. In the third quarter of 2001, affiliate costs expressed as a percentage of revenue totaled 53 percent compared
with 59 percent in the second quarter of 2001.
Serving More Advertisers, Increased Advertiser Spending
Overture's advertisers include direct marketers of all kinds: retailers, service providers and publishers; online and offline businesses; well-recognized
companies with broad product lines, as well as highly specialized service providers.
On a worldwide basis, Overture had approximately 49,000 active, paying advertisers at the end of September 2001, up from approximately 46,000 at the
end of June 2001, and up from 32,000 at the end of September 2000. During the third quarter of 2001, each advertiser on a worldwide basis spent an
average of $1,510 with Overture, up from an average of $1,380 per advertiser in the second quarter of 2001.
Overture brings these advertisers together with consumers by allowing advertisers to bid on search terms that are relevant to their businesses. In the third
quarter of 2001, advertisers paid Overture an average of 21 cents on a worldwide basis for each qualified lead, represented by a click on one of their
search listings.
Since advertisers pay for every qualified lead, they have an incentive to bid only on search terms for which they have a relevant, quality offering.
Overture's unique business model offers three major benefits to advertisers. It enables advertisers to target millions of customers at the very moment those
customers are searching for products and services; it gives them control over their placement in search results, subject to strict relevance guidelines; and it
enables advertisers to pay the precise amount at which they value each highly qualified lead.
In addition, Overture reaches approximately 75 percent of all U.S. Internet users through its affiliate partnerships.
Continued Momentum for Overture Europe
Overture continues to develop a strong business in the United Kingdom. During the third quarter of 2001, Overture expanded its relationship with
Microsoft to include Overture search results on the MSN search pane of U.K. versions of Internet Explorer.
The U.K.'s advertisers include blue chip brands such as Orange, HSBC, Ford and Lexus. Overture has a network of search partners in the United
Kingdom that includes AltaVista, Freeserve, Ask Jeeves (U.K.), Excite (U.K.) and Infospace U.K. In the third quarter of 2001, Overture U.K. reached
approximately 50 percent of the 22 million online population in that country.
Overture plans to launch its German marketplace in the first quarter of 2002.
New Corporate Name
On Oct. 8, 2001, the company officially changed its name to Overture. Overture was chosen based on its ability to communicate the company's
compelling advertiser and affiliate partner benefits. One definition of ``overture'' is an introduction, and therefore, it is a metaphor for the targeted
introductions the company facilitates between its thousands of advertisers and the millions of consumers who use its affiliate partner sites.
Over the past year, Overture has generated more than 1 billion targeted, paid introductions.
Overture decided to change its name late last year. The company was seeking a name that better described its value proposition and that did not exist in
such a crowded space as the GoTo name. The company also faced the threat of litigation had the company not changed its name.
Business Outlook
The following discussion contains forward-looking information intended solely to provide management's current expectations for the remainder of the
year and the full year 2002. These expectations are subject to risks and uncertainties and may prove to be inaccurate. Even though the forecasts provided
herein might change after Oct. 25, 2001, Overture undertakes no obligation to revise or update this information, and may not provide this type of
information in the future. All numbers are approximate. As a result of Overture's continued strong performance, the company makes the following
projections for the fourth quarter of 2001 and full year 2002 as follows:
Revenue
Fourth quarter 2001: $76 million
Full year 2002: $345 million
Cost of Revenue as a Percentage of Revenue
Overture expects that the cost of revenue, as a percentage of revenue, will approximate 8 percent in the fourth quarter of 2001 and for the full year 2002.
Traffic Acquisition Costs as a Percentage of Revenue
Overture expects that traffic acquisition costs, as a percentage of revenue, will be approximately 53 percent for both the fourth quarter of 2001 and for the
full year 2002.
Other Marketing, Sales and Service
Other marketing, sales and service expenses are estimated by the company to be approximately $7 million in the fourth quarter of 2001 and
approximately $39 million for the full year 2002.
General and Administrative as a Percentage of Revenue
Overture expects that general and administrative costs, as a percentage of revenue, will be approximately 13-15 percent for both the fourth quarter of 2001
and for the full year 2002.
Product Development as a Percentage of Revenue
Product development costs are estimated by the company to be approximately 4 percent of revenue for both the fourth quarter of 2001 and for the full
year 2002.
Net Income
Fourth quarter 2001: $10 million
Full year 2002: $28 million
Diluted Earnings Per Share
Fourth quarter 2001: $0.17
Full year 2002: $0.45
EBITDA
Fourth quarter 2001: $13 million, or $0.23 per share
Full year 2002: $43 million, or $0.70 per share
Conference Call Details
Overture will be holding an investor conference call to discuss its third quarter results at 5 p.m. Eastern/2 p.m. Pacific on Oct. 25, 2001. Investors will
have the opportunity to listen to the conference call live over the Internet at overture.com or at companyboardroom.com.
Go to either site 15 minutes prior to the start of the call to download any necessary software. For those who cannot listen to the live broadcast, a replay of
the call will be available shortly after the live call ends.
About Overture (formerly GoTo)
Overture, formerly known as GoTo, is the leader in Pay-For-Performance search on the Internet. The company created the market for
Pay-For-Performance search by redefining how businesses market online.
In the third quarter of 2001, Overture facilitated more than 338 million paid introductions on a worldwide basis between consumers and its approximately
49,000 advertisers, who bid for placement on relevant search results and pay Overture only when a consumer clicks on their listing.
Following a rigorous screening for user relevance by Overture's team of more than 80 editors, the company distributes its search results to tens of
thousands of sites across the Internet, including America Online, MSN and AltaVista -- making it the largest Pay-For-Performance search and advertising
network on the Internet.
Overture is based in Pasadena, with offices in New York, San Francisco and London. For more information, visit overture.com.
This news release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include
without limitation statements regarding Overture's beliefs and expectations about the future, the search market and its position to capitalize on
opportunities, the acceptance and adoption of Pay-For-Performance search, Overture's affiliate partnerships and affiliate program, Overture's business
model, the growth of Overture U.K., Overture's planned launch in Germany, management's expectations regarding Overture's future financial
performance, including Overture's future revenue, cost of revenue, traffic acquisition costs, other marketing, sales and service expenses, general and
administrative expenses, product development costs, net income, and earnings per share. These statements are subject to risks and uncertainties that could
cause actual results and events to differ materially. These risks and uncertainties include, among others: possible fluctuations in the demand for Overture's
services; possible fluctuations in economic conditions affecting the markets for Overture's services; Overture's ability to compete with existing or new
competitors; possible future price cutting or other actions by Overture's competitors; the risk that Overture's key performance metrics, including overall
traffic and use of Overture services, number of paid clicks, average price per paid click, number of advertisers and average spend per advertiser, might not
continue to increase at historical rates or might decline; the risk that Overture may not experience benefits through agreements with its affiliates; and the
risk that Overture may not experience benefits from international expansion or that the costs of international expansion might be higher than anticipated;
for a discussion of other risks that could cause actual results or events to differ materially from such forward-looking statements, see the discussion of
``Risks That Could Affect Our Financial Condition and Results of Operations'' in GoTo's (now Overture) quarterly report on Form 10-Q filed with the
Securities and Exchange Commission for the period ended June 30, 2001. Overture undertakes no obligation to update forward-looking statements to
reflect events or circumstances occurring after the date of this news release.
Note to Editors: Overture and Pay-For-Performance are service marks of Overture Services Inc.
OVERTURE SERVICES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
Sept. 30, Dec. 31,
2001 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 71,998 $ 12,986
Short-term investments 34,820 41,694
Accounts receivable, net 7,882 5,365
Prepaid expenses and other 3,143 1,970
Prepaid marketing expenses 13,750 23,605
Total current assets 131,593 85,620
Property and equipment, net 29,070 26,076
Intangible assets, net 2,333 3,234
Restricted investments 5,759 5,564
Long-term investments 24,394 293
Other assets 1,020 626
Total assets $194,169 $121,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,551 $ 23,284
Accrued expenses 5,135 4,148
Deferred revenue 6,836 4,441
Current portion of capital lease obligations 174 791
Total current liabilities 39,696 32,664
Other long-term liabilities 58 576
Long-term capital lease obligations -- 78
Stockholders' equity:
Common Stock, $0.0001 par value,
200,000 shares authorized:
Shares issued and outstanding --
57,272 and 52,566 for Sept. 30, 2001,
and Dec. 31, 2000, respectively 6 5
Additional paid-in capital 657,752 591,239
Deferred compensation, net (962) (1,128)
Accumulated deficit (502,631) (502,026)
Accumulated other comprehensive income 250 5
Total stockholders' equity 154,415 88,095
Total liabilities and stockholders' equity $194,169 $121,413
OVERTURE SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
Revenue $ 72,523 $ 25,050 $186,945 $ 63,276
Cost of revenue 6,050 3,310 15,920 8,728
Gross profit 66,473 21,740 171,025 54,548
Operating expenses:
Marketing, sales and service 44,963 21,185 130,176 55,766
General and administrative 10,769 9,012 31,887 23,334
Product development 2,768 3,534 9,707 9,997
Amortization of deferred
compensation 213 311 651 1,111
Write-off of acquired in-process
research and development -- -- -- 7,550
Amortization of intangible
assets 292 35,401 901 79,933
Loss on closure of Overture
Shopping -- -- 1,499 --
Loss on disposition of
Overture Auctions -- -- 2,112 --
59,005 69,443 176,933 177,691
Income (loss) from operations 7,468 (47,703) (5,908) (123,143)
Other income:
Interest income, net 1,177 1,592 2,965 4,650
Other income, net 479 8 2,488 21,565
9,124 (46,103) (455) (96,928)
Provision for income taxes 150 -- 150 --
Net income (loss) $ 8,974 $(46,103) $ (605) $(96,928)
Earnings before interest,
taxes, depreciation and
amortization (EBITDA),
excluding Disney
settlement(a) $ 11,783 $ (9,550) $ 7,917 $ (30,278)
Pro forma net income
(loss)(b) $ 9,266 $(10,702) $ 296 $ (30,945)
Basic net income (loss)
per share $ 0.16 $ (0.94) $ (0.01)$ (2.04)
Diluted net income (loss)
per share $ 0.15 $ (0.94) $ (0.01)$ (2.04)
EBITDA excluding Disney settlement
per share(a) $ 0.20 $ (0.19) $ 0.15 $ (0.64)
Pro forma net income (loss)
per share(b) $ 0.16 $ (0.22) $ 0.01 $ (0.65)
Weighted average shares
used to compute basic net
income (loss) per share
and pro forma net loss
per share 55,622 48,998 52,249 47,437
Weighted average shares
used to compute diluted net
income (loss) per share,
EBITDA excluding Disney
settlement per share,
and pro forma net
income per share 58,394 48,998 54,315 47,437
(a) EBITDA excludes non-recurring other income from the settlement of
Overture's trademark infringement lawsuit against The Walt Disney
Co. in 2000.
(b) Pro forma excludes acquisition-related costs including write-off
of acquired in-process research and development, amortization of
acquisition-related intangible assets, and other income of $21.5
million resulting from the May 2000 settlement of Overture's trademark
infringement lawsuit against The Walt Disney Co.
Contact:
Overture Services Inc.
Laurie Berman, 626/229-5368 (Investors)
laurie.berman@overture.com
or
Al Duncan, 626/685-5714 (Media)
al@overture.com
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