InfoSpace Announces Third Quarter 2003 Results; Revenue Growth of 14% and Positive Net Income
October 29, 2003 4:16:00 PM ET
InfoSpace, Inc. INSP today announced financial results for the quarter ended Sept. 30, 2003.
Revenues for the third quarter of 2003 were $38.3 million, reflecting a $4.7 million (or 14.0%) increase over the third quarter of 2002. In accordance with Generally Accepted Accounting Principles (GAAP), net income for the third quarter of 2003 was $1.6 million, or $0.05 per basic and diluted share, versus a net loss of $26.6 million, or $0.87 per basic and diluted share in the third quarter of 2002.
Cash, cash equivalents, and marketable investments at the end of the third quarter of 2003 totaled $317.4 million, reflecting an increase of $16.3 million from the second quarter of 2003. The Company had no debt obligations at the end of the quarter.
"We are very pleased with our third quarter results, reaching profitability and generating 14% year over year revenue growth," said Jim Voelker, chairman and chief executive officer of InfoSpace, Inc. "These achievements are strong indications of the progress we are making as we build the foundation for long-term sustainable growth."
Third Quarter Highlights and Recent Developments
-- The Company is tightening its strategic focus to two businesses: InfoSpace Search & Directory and InfoSpace Mobile. As part of this sharpened focus, InfoSpace is exploring strategic alternatives for its Payment Solutions business. The Company has engaged Thomas Weisel Partners to assist in this process.
-- The Company signed a definitive agreement to acquire North American mobile media leader Moviso LLC from Vivendi Universal Net USA for $25 million in cash. The acquisition of Moviso will allow InfoSpace Mobile to offer an even wider array of content applications to branded content providers and carriers, by adding media, personalization and entertainment services to InfoSpace Mobile's existing content library. The transaction is expected to close by the end of 2003, subject to certain conditions.
-- The Company launched several improvements and enhancements to its Search & Directory properties:
-- Upgrades to the metasearch engines Dogpile(R) (www.dogpile.com), WebCrawler(R) (www.webcrawler.com) and MetaCrawler(R) (www.metacrawler.com), including enhanced features, a cleaner and more intuitive user-interface, and faster performance. The Company also launched downloadable toolbars for WebCrawler and MetaCrawler, and introduced new features for its existing Dogpile toolbar: a scrolling news ticker, pop-up ad blocker and cursor search functionality.
-- A major renovation of InfoSpace.com (www.infospace.com), a leading destination for Internet yellow pages and white pages information. The new InfoSpace.com is simpler, faster and easier to navigate, with enhanced customization features.
-- InfoSpace Mobile launched an integrated solution designed to allow wireless carriers and branded content providers to quickly and easily deliver content applications to a wide range of wireless devices. The solution, consisting of the Modalyst(TM) platform and MobileZone(TM) content suite, simplifies delivery of entertainment, personalization and information services to wireless subscribers.
Segment Information
Search and Directory revenues were $23.8 million in the third quarter of 2003, an increase of $7.9 million or 49.5% from the third quarter of 2002. The revenue increase is primarily due to growth in the number of paid searches and greater revenue per search. Total paid searches during the quarter, including both Search and Directory, were approximately 140 million, generating average revenue per paid search of approximately $0.14. Search and Directory segment income was $12.3 million or 51.7% of revenues for the third quarter of 2003.
Mobile revenues were $5.7 million in the third quarter of 2003, a decrease of $2.8 million or 33.2% from the third quarter of 2002. The decrease in revenue is primarily a result of the previously reported loss of a major customer in 2002 and a one-time gain in 2002 from the discontinuance of the Company's Brazilian operations. Mobile segment income totaled $0.8 million or 14.7% of revenues for the third quarter of 2003.
Payment Solutions revenues were $7.0 million in the third quarter of 2003, an increase of $1.7 million or 31.7% from the third quarter of 2002. The revenue increase is primarily due to growth in the number of merchants using the Authorize.Net(R) service and an increase in the number of transactions. At the end of the third quarter, approximately 88,000 active gateway merchants were using the Authorize.Net service, generating an average of approximately $22.80 in monthly revenue per active merchant. Payment Solutions segment income totaled $1.6 million or 23.1% of revenues for the third quarter of 2003.
Segment income for each reportable operating segment does not include allocations for general, administrative and other overhead costs, depreciation and amortization expense, restructuring and other charges and non-operating gains or losses.
Other Items
In the third quarter of 2003, the Company took a $1.2 million intangible asset impairment charge for certain obsolete technology. Additionally, the Company recorded other net charges of $1.5 million. These included a $7.5 million charge for a pending settlement related to the mobile business, partially offset by a gain of $3.9 million related to the disposition of certain non-core services and a gain of $2.2 million for a tax refund.
Outlook
For the fourth quarter of 2003, the Company expects revenue to be between $36 million and $39 million and net income to be in-line with the third quarter, excluding any one-time gains or losses. This outlook assumes Payment Solutions remains part of continuing operations and the Moviso transaction closes at year-end.
A conference call will be Webcast live today at 2 p.m. Pacific time/5 p.m. Eastern and can be accessed in the Investor Relations section of the InfoSpace corporate Web site at www.infospaceinc.com. A replay of the call will be available approximately one hour after the call until Friday, Nov. 7, 2003, at 10 p.m. Pacific time.
All information in this release is as of Oct. 29, 2003. InfoSpace undertakes no duty to update any forward-looking statements to actual results or changes in the Company's expectations.
About InfoSpace, Inc.
InfoSpace, Inc. INSP is a diversified technology and services company that develops Internet and wireless solutions for a wide range of customers. InfoSpace Search & Directory provides Web search and online directory products that help users find the information they need while creating opportunities for merchants. InfoSpace Mobile develops infrastructure, tools and applications that enable carriers and content providers to efficiently develop and deliver mobile data services across multiple devices. InfoSpace Payment Solutions enables merchants to authorize, settle and manage electronic transactions via its IP-based payment gateway, Authorize.Net. More information can be found at infospaceinc.com.
This release contains forward-looking statements relating to the development of InfoSpace, Inc.'s products and services and future operating results that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Forward-looking statements include without limitation statements regarding the expected results of the Company's strategic plan and efforts to achieve long-term sustainable growth, the Company's plan to explore strategic alternatives for Payment Solutions and exit other non-strategic businesses, the Company's ability to close and integrate the proposed acquisition of Moviso LLC, the future performance of Moviso and the rate of adoption by wireless carriers and other customers of mobile media product offerings, and the projected revenue in the fourth quarter of 2003. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Factors that could affect InfoSpace's actual results include the progress and costs of the development of our products and services, the timing and extent of market acceptance of those products and services, the ability to successfully integrate acquired businesses and the successful execution of the Company's reorganization of its business units. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in InfoSpace's most recent Quarterly Report on Form 10-Q, in the section entitled "Factors Affecting Our Operating Results, Business Prospects and Market Price of Stock." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. InfoSpace undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.
InfoSpace, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $38,267 $ 33,571 $113,200 $ 99,981
Operating expenses:
Cost of revenues 6,363 8,661 21,919 28,045
Product development 5,264 8,372 18,058 27,315
Sales, general and
administrative 21,381 19,564 61,447 69,351
Impairment of
intangible assets
(A) 1,151 15,474 1,151 15,474
Amortization of
other intangible
assets 1,622 3,120 4,867 14,784
Other (B) 1,534 22 6,841 821
Restructuring
charges (C) (128) 1,056 10,502 1,056
------- -------- -------- ---------
Total operating
expenses 37,187 56,269 124,785 156,846
------- -------- -------- ---------
Income (loss) from
operations 1,080 (22,698) (11,585) (56,865)
Gain (loss) on
equity investments (D) 74 (5,532) (11,940) (22,788)
Other income, net (E) 776 1,706 7,664 5,765
------- -------- -------- ---------
Income (loss) before
income tax expense
and cumulative
effect of change
in accounting
principle 1,930 (26,524) (15,861) (73,888)
Income tax expense (339) (93) (346) (333)
------- -------- -------- ---------
Loss before
cumulative effect of
change in accounting
principle 1,591 (26,617) (16,207) (74,221)
Cumulative effect
of change in
accounting
principle - - - (206,619)
------- -------- -------- ---------
Net income (loss) $ 1,591 $(26,617) $(16,207) $(280,840)
======= ======== ======== =========
Basic net income
(loss) per share (F) $ 0.05 $ (0.87) $ (0.52) $ (9.17)
Diluted net income
(loss) per share (F) $ 0.05 $ (0.87) $ (0.52) $ (9.17)
Shares used in
computing basic net
income (loss) per
share (F) 31,337 30,697 31,157 30,614
Shares used in
computing diluted
net income per share
(F) 33,259 30,697 31,157 30,614
(A) During the third quarter of 2003, the Company recorded an
intangible asset impairment charge of $1.2 million related to
technology obsolescence. During the third quarter of 2002, the Company
recorded intangible asset impairment charges of $15.5 million, which
primarily consisted of technology obsolescence.
(B) During the third quarter of 2003, the Company recorded Other
charges of $1.5 million, which included a gain of $3.9 million related
to the disposition of certain non-core services and a gain of $2.2
million tax refund, offset by a $7.5 million charge related to a
pending settlement related to the mobile business. Through the nine
months ended September 30, 2003, in addition to the above items, the
Company recorded a $1.5 million charge related to the settlement of a
litigation matter and a $4.0 million charge, including penalties and
interest, related to settlement agreement with the Internal Revenue
Service regarding the audit of its payroll tax returns for the year
2000.
(C) During the second quarter of 2003, the Company recorded a
restructuring charge of $10.5 million, which included employee
separation costs and excess facilities charges.
(D) During 2003, the Company disposed of a portion of its equity
investments and recorded impairment charges related to certain equity
investments. During the third quarter of 2003, the company recorded
$74,000 gain on the disposal of certain equity investments and during
the nine months ended September 30, 2003, the Company recorded a net
charge of $11.9 million for disposals and impairments.
(E) Other income primarily consists of interest income for the periods
presented, except for the nine months ended September 30, 2003, in
which the Company recognized a $4.7 million gain from a litigation
settlement in the second quarter 2003.
(F) All shares presented reflect the one-for-ten reverse stock split
of all outstanding shares of common stock, which was effective
September 13, 2002. Basic earnings per share is computed using the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed using the weighted
average number of common and potentially dilutive shares outstanding
during the period. Potentially dilutive shares are excluded from the
computation of earnings per share if their effect is antidilutive.
InfoSpace, Inc.
Consolidated Balance Sheets
(Amounts in thousands)
Sept. 30, Dec. 31,
2003 2002
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 228,057 $ 136,672
Short-term investments, available-for-sale 89,345 138,895
Accounts receivable, net 22,613 21,027
Notes and other receivables, net 8,767 6,442
Payroll tax receivable 13,214 13,214
Prepaid expenses and other current assets 4,390 2,921
----------- -----------
Total current assets 366,386 319,171
Long-term investments, available-for-sale - 651
Property and equipment, net 15,789 26,252
Other investments 1,484 25,836
Goodwill 97,899 97,844
Other intangible assets, net 4,965 10,983
Other long-term assets 578 659
----------- -----------
Total assets $ 487,101 $ 481,396
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,850 $ 4,688
Funds due to merchants 5,432 2,516
Accrued expenses and other current
liabilities 33,229 15,570
Deferred revenue 9,208 9,169
----------- -----------
Total current liabilities 50,719 31,943
Long-term liabilities:
Long-term deferred revenue 765 1,317
----------- -----------
Total liabilities 51,484 33,260
Stockholders' equity:
Preferred stock - -
Common stock 3 3
Additional paid-in capital 1,707,029 1,704,123
Accumulated deficit (1,272,182) (1,255,975)
Deferred expense - warrants - (39)
Unearned compensation - restricted stock - (543)
Accumulated other comprehensive income 767 567
----------- -----------
Total stockholders' equity 435,617 448,136
----------- -----------
Total liabilities and stockholders' equity $ 487,101 $ 481,396
=========== ===========
Summary of cash and marketable investments:
Cash and cash equivalents $ 228,057 $ 136,672
Short-term investments, available-
for-sale 89,345 138,895
Long-term investments, available-for-
sale - 651
----------- -----------
Total cash and marketable investments $ 317,402 $ 276,218
=========== ===========
InfoSpace, Inc
Segment Information
(Amounts in thousands)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
--------- --------- --------- ----------
Search & Directory
Revenue $23,777 $ 15,901 $ 65,551 $ 49,360
Operating expense 11,492 6,468 29,337 24,016
------- -------- -------- ---------
Segment income, excluding
depreciation, amortization
and allocation of corporate
expenses 12,285 9,433 36,214 25,344
Segment margin 51.7% 59.3% 55.2% 51.3%
Mobile
Revenue 5,677 8,501 18,649 22,554
Operating expense 4,842 6,861 15,144 25,215
------- -------- -------- ---------
Segment income, excluding
depreciation, amortization
and allocation of corporate
expenses 835 1,640 3,505 (2,661)
Segment margin 14.7% 19.3% 18.8% -11.8%
Payment Solutions
Revenue 7,035 5,340 19,999 15,282
Operating expense 5,413 4,720 15,824 14,128
------- -------- -------- ---------
Segment income, excluding
depreciation, amortization
and allocation of corporate
expenses 1,622 620 4,175 1,154
Segment margin 23.1% 11.6% 20.9% 7.6%
Non-Core Services
Revenue 1,778 3,829 9,001 12,785
Operating expense 917 1,753 4,898 6,452
------- -------- -------- ---------
Income, excluding
depreciation, amortization
and allocation of corporate
expenses 861 2,076 4,103 6,333
Margin 48.4% 54.2% 45.6% 49.5%
Total
Total segment revenue 38,267 33,571 113,200 99,981
Total segment operating
expense 22,664 19,802 65,203 69,811
------- -------- -------- ---------
Total Segment Income,
excluding depreciation,
amortization and allocation
of corporate expenses 15,603 13,769 47,997 30,170
Total segment margin 40.8% 41.0% 42.4% 30.2%
Corporate
Operating expense 7,653 12,134 26,354 40,272
Depreciation 2,691 4,661 9,867 14,628
Impairment of goodwill and
other intangible assets 1,151 15,474 1,151 15,474
Amortization of other
intangible assets 1,622 3,120 4,867 14,784
Restructuring charges (128) 1,056 10,502 1,056
Other 1,534 21 6,841 821
Loss on investments, net (74) 5,532 11,940 22,788
Other income, net (776) (1,705) (7,664) (5,765)
Income tax expense 339 93 346 333
Cumulative effect of changes
in accounting principle - - - 206,619
------- -------- -------- ---------
14,012 40,386 64,204 311,010
------- -------- -------- ---------
Total Consolidated Net Income
(Loss) $ 1,591 $(26,617) $(16,207) $(280,840)
======= ======== ======== =========
Segment income for each reportable operating segment does not include
allocations for general, administrative and other overhead costs,
depreciation and amortization expense, restructuring and other charges
and non-operating gains or losses.
InfoSpace, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Nine months ended
September 30,
2003 2002
(unaudited) (unaudited)
----------- ------------
Operating Activities:
Net loss $(16,207) $(280,840)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 14,735 29,415
Impairment of intangible assets 1,151 15,474
Warrant and stock-related revenue (135) (2,037)
Warrant and stock-based compensation
expense 360 6,223
Bad debt recovery (613) (558)
Loss on equity investments 11,940 22,788
Other (46) 22
Loss on disposal of assets 317 861
Gain on sale of non-core services (4,152) -
Asset impairment restructuring charge 2,059 1,056
Cumulative effect of change in accounting
principle - 206,619
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable (1,052) (459)
Notes and other receivables (2,004) 2,797
Prepaid expenses and other current assets (984) 2,486
Other long-term assets 81 622
Accounts payable (1,838) (5,644)
Funds due to merchants 1,341 50
Accrued expenses and other current
liabilities 20,042 (5,912)
Deferred revenue 684 (3,970)
-------- ---------
Net cash provided (used) by operating
activities 25,679 (11,007)
Investing Activities:
Business acquisitions (270) (2,512)
Purchase of intangible assets (55) (100)
Purchases of property and equipment (1,868) (4,823)
Proceeds from the sale of non-core
services 3,070 -
Proceeds from the sale of equity
investments 11,937 -
Short-term investments, net 49,113 (60,723)
Long-term investments, net 651 93,934
-------- ---------
Net cash provided (used) by investing
activities 62,578 25,776
Financing activities:
Proceeds from exercise of stock options 2,222 61
Proceeds from issuance of stock through
employee stock purchase plan 906 769
-------- ---------
Net cash provided by financing activities 3,128 830
-------- ---------
Net increase (decrease) in cash and cash
equivalents 91,385 15,599
Cash and cash equivalents:
Beginning of period 136,672 118,561
-------- ---------
End of period $228,057 $ 134,160
======== =========
Supplemental disclosure of non-cash
activities:
Non-cash activities resulting from purchase
transactions:
Common stock issued $ - $ 1,895
Net assets (liabilities) acquired (assumed) - 1,910
Contact Information: InfoSpace, Inc. Nancy Bacchieri, 425-201-8722 nancy.bacchieri@infospace.com
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