Thursday March 12, 4:34 pm Eastern Time
Company Press Release
CMG Reports Second Quarter Financial Results
ANDOVER, Mass.--(BUSINESS WIRE)--March 12, 1998--CMG Information Services, Inc. (NASDAQ:CMGI - news)
today reported net revenues of $17.8 million for its second quarter ended January 31, 1998, a 13% sequential increase in
quarterly revenues excluding the impact of deconsolidating the Company's investment in Lycos, Inc. CMG reported a net loss
of $5.8 million, or ($0.58) basic earnings per share for the quarter, compared to net income of $2.7 million or $0.28 basic
earnings per share for the previous quarter ended October 31, 1997. Second quarter results included a pre-tax gain of $10.8
million on the sale of 340,000 shares of the Company's stock of Lycos, Inc., and a one-time in-process research and
development charge of $875,000. First quarter results included pre-tax gains of $6.3 million on the sale of 219,900 shares of
the Company's Lycos stock, $4.2 million on the sale of 224,795 shares of the Company's stock of Premiere Technologies,
Inc., and $8.4 million on the sale by the Company's Engage Technologies subsidiary of certain rights to its data warehouse
software products.
With the sale of a portion of CMG's holdings in Lycos, the Company's ownership in Lycos has been reduced below 50%, to
45%. As a result of this reduction, CMG now accounts for its investment in Lycos under the equity method, rather than the
consolidation method, and as such, beginning in the second quarter of fiscal 1998 the Company's consolidated revenues and
operating expenses no longer include Lycos. On a comparable basis, CMG second quarter fiscal 1998 revenues of $17.8
million represent a sequential sales increase of 13% and an increase of 28% over prior year second quarter results, excluding
Lycos revenues of $9.3 million included in CMG's first quarter consolidated results and $5 million included in prior year second
quarter results. Similarly, excluding the current quarter one-time in-process research and development charge of $875,000, and
excluding Lycos operating expenses of $9.7 million and $7.6 million included in CMG's first quarter and prior year second
quarter results, respectively, operating expenses increased to $30.4 million in the second quarter of fiscal 1998, reflecting a
10% increase from the first quarter of fiscal 1998 and a 26% increase from the second quarter of fiscal year 1997.
Also, during the Company's second fiscal quarter, CMG completed the sale of 503,000 shares of CMG common stock to
Intel Corporation [Nasdaq:INTC - news] with gross proceeds of $10.9 million, representing 4.9% of CMG's outstanding
shares after the transaction. Further, GeoCities, in which CMG owns a 35% interest, successfully raised $25 million in equity
financing from SOFTBANK Holdings, Inc. and entered into a strategic alliance with Yahoo! to strengthen its leadership in
community building on the Web. Most recently, subsequent to quarter end, Lycos announced the acquisition of Tripod, Inc.,
and CMG completed the sale of additional CMG shares valued at $10 million to Japan's Sumitomo Corporation and
announced the licensing of the ADSmart franchise business process, methodology and technology to a Sumitomo affiliate.
CMG today announced a letter agreement to purchase Accipiter Inc., the world's leading provider of Internet advertising
management solutions. The transaction will be completed for $35 million of CMG stock. In the future, Accipiter will be merged
with CMG's Engage Technologies subsidiary, creating a single, integrated company focused on developing high value Web
advertising and marketing solutions.
Commenting on the Company's performance, CEO David Wetherell said, ''During this past quarter we have made huge strides
across the spectrum of CMG's businesses. We are particularly pleased with the addition of Sumitomo as our first international
strategic partner, as well as with the Accipiter acquisition. We look forward to pursuing future opportunities for international
growth in both Europe and Asia. Further, with the Accipiter acquisition our Engage Technologies subsidiary will have a new
substantial strategic partner to leverage its unique Web behavior database for interactive marketing solutions.''
Operating Segments
The Company reports three operating segments: Investment and Development, Fulfillment Services, and Lists and Database
Services.
The Investment and Development segment results reflect the consolidated performance of majority-owned Internet companies,
which during the second quarter of fiscal year 1998 include Blaxxun, Planet Direct, ADSmart, Navisite, InfoMation, The
Password, Vicinity and Engage. The Investment and Development segment reported revenues of $1,760,000 in the current
quarter, compared with $10,571,000 in the previous quarter ended October 31, 1997, which included Lycos revenues of $9.3
million. The operating loss was $14,786,000 in the quarter just ended versus a loss of $13,259,000 for the quarter ended
October 31, 1997, which included a Lycos operating loss of $434,000. Compared with the first quarter of fiscal year 1998,
current quarter results include lower revenues and operating expenses reflecting the impact of deconsolidating Lycos, and the
$875,000 impact of a one-time in-process research and development charge for CMG@Ventures' $1.8 million investment in
Speech Machines.
CMG's portion of the net operating performances of Lycos, GeoCities, Ikonic, Parable, Silknet, Reel.com, Speech Machines,
Chemdex, and PlanetAll is reflected in equity in losses of affiliates during the second quarter of fiscal 1998. Of the
CMG@Ventures investments during the second quarter of fiscal year 1998, the acquisition accounting and valuation for the
Company's total $3.3 million investments in Chemdex and PlanetAll may result in a significant portion of the purchase price
being identified as in-process research and development, which will be charged to operating results in the third quarter when
the amount is determined.
In the Fulfillment Services segment, revenues increased 12% to $13,470,000 in the second quarter of fiscal 1998 from
$12,024,000 in the first quarter of fiscal year 1998, reflecting additional turnkey business from existing customers. Segment
operating profit increased 8% compared with operating profit in the first quarter ended October 31, 1997, reflecting increased
revenues. The positive impact of revenue increases was somewhat offset by a shift in the mix of revenues in the quarter from
literature fulfillment towards lower margin turnkey business.
The Lists and Database Services segment reported sales of $2,588,000 in the quarter just ended compared to $2,540,000 in
the first quarter of fiscal year 1998. The segment posted an operating profit for the quarter of $173,000 versus a loss of
$41,000 for the first quarter ended October 31, 1997, reflecting improved gross margin as the result of cost reductions during
the quarter.
Investment and Development Segment Highlights
On December 19, 1997, Intel Corp. purchased 503,000 shares of CMG common stock with gross proceeds of $10.9 million,
representing 4.9% of CMG's total outstanding shares following the sale. CMG and Intel plan to explore business opportunities
on the Internet within CMG's portfolio of majority owned affiliate companies including ADSmart, Engage Technologies,
InfoMation, Planet Direct, Navisite Internet Services and The Password. Subsequent to quarter end, CMG completed the sale
of an additional 312,500 CMG shares valued at $10 million to Japan's Sumitomo Corporation and announced the licensing of
the ADSmart franchise business process, methodology and technology to a Sumitomo affiliate. Sumitomo, the world's ninth
largest corporation, is the first international strategic investor in CMG, furthering CMG's global expansion efforts that began
earlier this year.
GeoCities successfully raised $25 million in equity financing from SOFTBANK Holdings, Inc. and entered into a strategic
alliance with Yahoo! to strengthen its leadership in community building on the Web. Under the terms of the agreement,
GeoCities will become Yahoo!'s premier partner providing personal publishing services for Yahoo! registered members.
Yahoo! will market GeoCities' branded personal publishing programs on select areas throughout Yahoo!, and Yahoo! will also
provide a GeoCities-specific programming module on My Yahoo! for GeoCities homesteaders. GeoCities users will also have
the opportunity to register for Yahoo!'s services directly from the GeoCities registration or profile pages. In December 1997,
GeoCities announced an agreement naming Amazon.com the exclusive bookseller on GeoCities. In addition, GeoCities will
incorporate Amazon.com throughout its 39 themed communities, offering GeoCities members and visitors new book features
and services based on their areas of interest. GeoCities is the largest community of free home pages on the Web. The site
currently receives more than 574 million page views and 91 million individual visits each month, according to IPRO's December
1997 report. Media Metrix's latest analysis reported that nearly one in four Internet users visited GeoCities in the month of
January.
Lycos reported second quarter net income of $301,000, or $0.02 per share, representing a 180% growth in profitability over
first quarter net income. Lycos revenues for the second quarter of $12.6 million represent an increase of 35% over the previous
quarter ended October 31, 1997 and a 152% increase over the quarter ended January 31, 1997. Lycos reported positive cash
flow for the third consecutive quarter, with deferred revenues in excess of $20 million as of January 31, 1998. The number of
Lycos advertisers increased to over 620 during the quarter from 460 in the previous quarter. During the quarter Lycos
announced the addition of several strategic electronic commerce partners, including a four year, $16 million marketing and
commerce alliance with Cybermeals, which will make Cybermeals the exclusive online restaurant takeout and delivery service
on the Lycos service. Further, through its multi-million dollar agreement with Lycos, AutoConnect will be the premier used
automobile vendor within Lycos' commerce area and will also be featured with integrated links throughout the Lycos site. On
February 24, 1998, Lycos announced plans for a three-year, $10.5 million agreement to pair Lycos with The Electronic
Newsstand Inc.'s leadership in electronic commerce. The Electronic Newsstand Inc. is an online media company dedicated to
selling discount magazine subscriptions directly to users. Lycos also announced a strategic alliance with LG InterNet, Korea's
premier Internet service, to host, promote and sell ads on Lycos Korea. On February 3, 1998, Lycos announced the
acquisition of Tripod, Inc., a premier online community that has grown to nearly one million members and currently generates
over 100 million page views per month and includes more than 1,600,000 member created pages. The acquisition, valued at
approximately $58 million in stock, establishes Lycos as the fifth most visited Web network with an estimated 24%
unduplicated reach.
On March 11, 1998, Planet Direct announced the achievement of two significant milestones - registering 500,000 members in
just nine months of operation, and securing affiliate relationships with 250 ISPs. Planet Direct, with its more than 80 content
and commerce partners, brings together the best of the Web in a highly localized, highly personalized package, providing a
growing suite of interactive features, many of which are not offered by any other Web-based competitor. The Planet Direct
business model has been a powerful proposition for ISPs across the country, delivering all the tools and content services
needed to compete with the online giants. Recently, on March 2, 1998, Planet Direct announced a $1 million cooperative
television advertising campaign with Erols Internet, one of the country's largest regional ISPs, to run in eight east coast markets.
The television spot will supplant a radio campaign scheduled to run later in the spring. With significant national reach and the
ability to deliver online advertising programs which integrate content and support geographic targeting, Planet Direct has
attracted an impressive list of advertisers, including American Express, FTD Florists, Tropicana and Swiss Army. Planet Direct
individual user session times average more than 15 minutes.
On February 17, 1998, THE PASSWORD Internet Publishing Corp announced the launch of a new consumer Internet
service, THE PASSWORD. The new service seeks to deliver instant gratification to enthusiasts by providing easy to locate
Web magazines across a wide range of topics. Web magazines can also be custom created. Each is filtered and updated
automatically via InfoMation's Echo spidering technology. Each magazine also contains links to electronic commerce, as well as
community-building tools, including BBS and live chat. On March 2, 1998, THE PASSWORD announced it has completed
innovative e-commerce deals with online retailers Amazon.com Inc., Reel.com and Virtual Vineyards. Under these
arrangements, specialty-built filters in Password magazines query each vendor's Web site for relevant products, with the
resulting matches integrated into THE PASSWORD's library of more than 400 special interest online magazines. In addition to
traditional advertising and sponsorship revenue, THE PASSWORD will receive a commission on each transaction made
through its site.
On February 9, 1998, Engage announced Engage.Knowledge: a suite of services and enabling technology that leverage the
world's largest behavioral database of Web visitors for use in real-time targeting applications and global market research.
''Engage-Enabled''(tm) Web sites will have access to the massive Engage database of over 10 million behavior-based,
anonymous user profiles, which include historic and multi-site views of individual users' interests, experiences and usage
patterns. These profiles will allow online marketers to instantly provide relevant content, ads, and offers to Web site visitors
from the moment they land on the site. Lycos recently announced the formation of a strategic alliance with Engage to deliver
Lycos advertisers and direct marketers Engage's unparalleled level of targeting and user information. The Engage service will
provide Lycos' advertisers with powerful demographic and behavioral data about visitors from some of the Web's leading site
destinations.
Commenting on the Company's Investment and Development segment, Mr. Wetherell stated that, ''We continue to see
dramatic progress across our portfolio of companies. CMG is in the business of building Internet synergy across our
companies. The CMG Internet Group and CMG@Ventures companies have a significant position on the web - with a reach of
over half of all web users, according to Media Metrix. Using the more important measure of total eyeball time, places us in a
solid number three position behind only Microsoft and Yahoo. Our ability to leverage this position makes us unique among the
web aggregators and positions us extremely well to benefit from continued growth across the Web.''
CMG Information Services, 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 CMG's current SEC filings for additional information concerning risk factors that affect the Company's business.
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CMG Information Services, Inc. And Subsidiaries
Report of Second Quarter and Six Month Operating Results
(In thousands except per share amounts)
Three months ended Six months ended
Jan. 31, Oct. 31, Jan. 31, Jan. 31,
1998 1997 1997 1998 1997
Net revenues $ 17,818 $ 25,135 $ 18,897 $ 42,953 $ 29,537
Operating expenses:
Cost of revenues 15,692 15,259 11,286 30,951 16,652
Research and
development 4,639 6,174 6,732 10,813 11,697
Inprocess research
and development 875 -- -- 875 1,312
Selling 5,685 11,040 9,114 16,725 18,320
General and
administrative 4,391 4,901 4,574 9,292 8,814
Total operating
expenses 31,282 37,374 31,706 68,656 56,795
Operating loss (13,464) (12,239) (12,809) (25,703) (27,258)
Other income (expense):
Gain on sale of
data warehouse
product rights -- 8,437 -- 8,437 --
Gain on sale of
Lycos, Inc.
common stock 10,764 6,324 -- 17,088 --
Gain on sale of
Premiere
Technologies, Inc.
common stock -- 4,174 -- 4,174 --
Gain on sale of
investment in TeleT
Communications -- -- -- -- 3,616
Gain (loss) on stock
issuance by
subsidiary 8 (94) -- (86) --
Gain on sale of
NetCarta Corporation -- -- 15,111 -- 15,111
Minority interest -- (28) 1,025 (28) 3,447
Equity in losses
of affiliates (2,987) (1,529) (1,081) (4,516) (2,089)
Interest income 296 843 687 1,139 1,649
Interest expense (716) (770) (427) (1,486) (465)
Total 7,365 17,357 15,315 24,722 21,269
Income (loss) before
income taxes (6,099) 5,118 2,506 (981) (5,989)
Income tax benefit
(expense) 265 (2,433) (1,840) (2,168) (742)
Net income (loss) $ (5,834) $ 2,685 $ 666 $(3,149) $(6,731)
Net income (loss)
per share:
Basic $ (0.58) $ 0.28 $ 0.07 $ (0.32) $ (0.74)
Diluted $ (0.58) $ 0.24 $ 0.07 $ (0.33) $ (0.74)
Shares used in computing
net income (loss)
per share:
Basic 10,040 9,679 9,198 9,828 9,140
Diluted 10,040 10,316 9,771 9,828 9,140
Note: Certain amounts in previous periods have been reclassified to
permit comparison. |
