CMG Reports Fourth Quarter Earnings of $1.38 Per Share; Revenues Increase 38% From Previous Quarter
ANDOVER, Mass.--(BUSINESS WIRE)--Sept. 24, 1998--CMG Information
Services, Inc. (NASDAQ:CMGI) today reported net revenues of $28.1
million for its fourth quarter ended July 31, 1998, a 38% sequential
increase in quarterly revenues. CMG reported net income of $31.4
million or $1.38 basic income per share for the quarter, compared to a
net loss of $11.7 million, or ($0.55) basic loss per share for the
previous quarter ended April 30, 1998. Fourth quarter results included
a $54.0 million pre-tax gain on the sale of 950,000 shares of the
Company's stock of Lycos, Inc. and a $24.3 million gain on issuance of
stock by Lycos, Inc. Third quarter results included a $26.1 million
pre-tax gain on the sale of 445,000 shares of Lycos stock, a $4.1
million gain on issuance of stock by Lycos, and a one-time in-process
research and development charge of $18.1 million. On a full year
basis, CMG reported net income of $16.6 million or $0.79 basic income
per share for the fiscal year ended July 31, 1998, compared to a net
loss of $22.0 million, or ($1.17) basic loss per share for the
previous year ended July 31, 1997. Fiscal year 1998 revenues increased
$20.9 million, or 30% to $91.5 million from $70.6 million in fiscal
year 1997.
Beginning in the second quarter of fiscal 1998, when the
Company's ownership in Lycos was reduced below 50%, CMG began
accounting for its investment in Lycos under the equity method, rather
than the consolidation method, and as such, CMG's consolidated
revenues and operating expenses no longer include Lycos. On a
comparable basis, CMG's fourth quarter fiscal 1998 revenues of $28.1
million represent an increase of 96% over prior year fourth quarter
results, excluding Lycos revenues of $7.8 million included in Q4
fiscal 1997 results. Similarly, excluding fourth and third quarter
one-time in-process research and development charges of $200,000 and
$18.1 million, respectively, and excluding Lycos operating expenses of
$8.9 million included in CMG's prior year fourth quarter results,
operating expenses increased to $48.8 million in the fourth quarter of
fiscal 1998, reflecting a 40% increase from the third quarter of
fiscal 1998 and a 79% increase from the fourth quarter of fiscal year
1997.
During the Company's fourth fiscal quarter, GeoCities filed its
initial registration statement for its public offering, CMG completed
the acquisitions of ServerCast, InSolutions and On-Demand Solutions
and its investments in Open Market and Magnitude Network, and
CMG@Ventures invested in Universal Learning Technology, Visto, Mother
Nature, Silknet, Reel.com, and Chemdex. In August, 1998, GeoCities
successfully completed its initial public offering at a price of $17
per share. CMG@Ventures currently holds 8.8 million shares of
GeoCities common stock, which it acquired at an average cost of $0.67
per share. Recently, CMG@Ventures announced the sales of PlanetAll to
Amazon.com and Reel.com to Hollywood Entertainment.
Commenting on the Company's performance, CEO David Wetherell
said, "CMG has seen tremendous success in a short period of time, with
the public offering of GeoCities, and the sales of PlanetAll to
Amazon.com and Reel.com to Hollywood Entertainment adding to the
overall returns of CMG@Ventures I and II, and the momentum we're
seeing in Planet Direct, Engage and NaviSite. We are very proud of the
significant progress made across our portfolio of businesses during
this quarter and past year. While the Company's development efforts in
all businesses continue to progress, CMG added eight new investments
to its portfolio during the fourth quarter. The Company in total has
investments in 31 businesses at July 31, 1998."
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 fourth quarter of fiscal year 1998 include Blaxxun, Planet
Direct, ADSmart, NaviSite, Servercast, InfoMation, The Password,
Vicinity, and Engage/ Accipiter. The Investment and Development
segment reported revenues of $4,170,000 in the current quarter,
compared with $2,208,000 in the previous quarter ended April 30, 1998.
The operating loss was $18,149,000 in the quarter just ended versus a
loss of $33,704,000 for the quarter ended April 30, 1998. Third
quarter operating loss included one-time in-process research and
development charges of $18.1 million, primarily from the Company's
acquisition of Accipiter.
CMG's portion of the net operating performances of Lycos,
GeoCities, Parable, Silknet, Reel.com, Speech Machines, Mother Nature,
and PlanetAll is reflected in equity in losses of affiliates during
the fourth quarter of fiscal 1998. Equity in losses of affiliates was
$3,397,000 for the current quarter, compared with $3,908,000 for the
quarter ended April 30, 1998. CMG's investments in Chemdex, KOZ,
Softway Systems, Critical Path, Magnitude Network, and Tickets Live
are carried at cost. CMG's investments in Open Market and RedBrick are
accounted for as available-for-sale securities, at market value.
In the Fulfillment Services segment, revenues increased 37% to
$21,776,000 in the fourth quarter of fiscal 1998 from $15,937,000 in
the third quarter of fiscal year 1998. This successful growth rate
reflects the acquisition of InSolutions and SalesLink's continued
success in both attracting new customers and increasing the volume of
turnkey business from existing customers. This milestone represents a
new quarterly revenue record for this segment, its fifth consecutive
sequential quarterly revenue increase and a 91% increase over last
year's fourth fiscal quarter. The fulfillment segment reported an
operating loss of $2,313,000 in the quarter, compared with operating
profits of $1,061,000, $1,149,000 and $1,547,000 in the first, second
and third quarters, respectively, of fiscal year 1998. Included in
fourth quarter results is a $2,487,000 charge to cost of sales to
correct prior quarters understatements of cost of sales by SalesLink's
subsidiary company, PacificLink. The cost of sales understatement was
caused by estimates used in determining the material content in cost
of sales. The understatement was recognized as a result of the
physical inventory taken in June, 1998. Such understatements arose at
the subsidiary over fiscal 1998 interim periods during which a new
computerized material requirements planning inventory system ("MRP")
was being installed. This interim problem has been corrected by the
implementation of the MRP system and adjustments to the material
content cost. Had such estimates been corrected in the periods in
which they occurred, fulfillment quarterly operating profits for
quarters one, two, three and four of fiscal 1998 would have been
$279,000, $335,000, $656,000, and $174,000, respectively. The fourth
quarter sequential decline in operating performance reflects operating
inefficiencies experienced during a period of high volume growth,
additional costs related to PacificLink's MRP installation and
physical inventory counts, and a $180,000 charge to increase allowance
for doubtful accounts, partially offset by operating profits at
InSolutions, which was acquired during the quarter. Additionally,
fulfillment segment results for quarters one, two, three and four of
fiscal 1998 include $309,000, $309,000, $309,000, and $384,000,
respectively, of goodwill amortization charges related to the
acquisitions of Pacific Link, (which was acquired in fiscal 1997), and
InSolutions, (which was acquired during the fourth quarter of fiscal
year 1998).
The Lists and Database Services segment reported sales of
$2,157,000 in the quarter just ended, down $126,000 compared to
$2,283,000 in the third quarter of fiscal year 1998. The segment
posted an operating loss for the quarter of $439,000 versus a loss of
$250,000 for the third quarter ended April 30, 1998; primarily
reflecting the impact of reduced sales and increased marketing costs
associated with CMG Direct's CMGexpress.net "opt-in" e-mail list
service.
Investment and Development Highlights
On August 11, 1998, GeoCities successfully completed an initial
public offering of 4.75 million shares of common stock at $17 per
share on the Nasdaq National Market under the trading symbol "GCTY."
CMG's @Ventures subsidiaries made their first investment in January
1996, and have invested a total of $5.87 million in the company. After
the IPO, CMG's @Ventures subsidiaries own 31 percent or 8.8 million
shares of GeoCities stock. Since December of 1994, GeoCities has grown
to be the world's largest community of personal Web sites with 2.5
million members or 'Homesteaders'. Homesteaders have created an
estimated 20 million pages of personalized content, attracting over
15.5 million unique visitors to, and generating over 925 million page
views on, the GeoCities community, according to Relevant Knowledge in
August 1998 and Nielsen I/PRO in June 1998, respectively. GeoCities
was the fourth most trafficked Web site on the Internet among home
users in August 1998, according to Media Metrix.
In addition to follow-on investments in Chemdex, Silknet and
Reel.com during the fourth quarter of fiscal year 1998, CMG@Ventures
II, LLC invested $2 million during the quarter for an initial 23%
ownership interest in Mother Nature, $1.5 million for an initial 6%
ownership in Visto and $1.25 million for an initial 12% ownership in
Universal Learning Technology. Mother Nature is an e-commerce company
in the vitamin and natural supplement market. Visto provides a service
called Visto Briefcase Pro which allows users to store files on a
secured Web-site account and synchronize those files with any PC.
Universal Learning Technology is a provider of Internet-based
interactive teaching and learning software and tools. In addition to
its CMG@Ventures investments, CMG's investments during the quarter
included the acquisitions of InSolutions for approximately $14 million
and On-Demand Solutions for approximately $7 million, as well as the
purchase of minority stakes in Open Market, Inc. (NASDAQ:OMKT) for $5
million, and Magnitude Network for $500,000. InSolutions is a provider
of turnkey services, which include supply chain management, inventory
management, manufacturing assembly, CD-ROM duplication services and
demonstration disks. On-Demand Solutions is a supplier of e-commerce
fulfillment solutions and turn-key supply-based management services.
Open Market is a leading provider of Internet commerce software, and
Magnitude Network delivers value-added Internet solutions to
broadcasters, broadcast advertisers, and merchandisers.
During the fourth quarter of fiscal year 1998, NaviSite acquired
Servercast Communications, a leading developer and integrator of
Internet applications. The acquisition expands the range of NaviSite's
SiteHarbor high-end Web hosting service to include e-commerce, ad
serving and content management solutions. On July 13, 1998, NaviSite
and Open Market, Inc. announced that they had entered into a
comprehensive strategic partnership under which NaviSite has licensed
Open Market's Transact(tm) software to provide Internet commerce
services to its hosting customers. Additionally, NaviSite will become
a preferred Open Market Commerce Hosting Partner, enabling the company
to run Transact for those customers who wish to outsource their
Internet commerce infrastructure. On September 1, 1998, NaviSite
announced agreements with Competitive Local Exchange Carriers (CLECs)
Taylor Communications Group, in Texas, and Global NAPs, in
Massachusetts and New York. These agreements extend the coverage area
of NaviSite's dial-up networking services (GeoDial) for ISPs to
immediately include Massachusetts and New York, as well as Texas and
Southern California by October of 1998, and extend NaviSite's local
dial coverage to 30% of the US population. Recently, NaviSite
announced that e-Parcel, LLC, MotherNature.com, and Student Net
Publishing's Student.Com have selected NaviSite to provide high-end
Web hosting and server management services. In addition, the company
also announced plans for immediate expansion of its Andover data
center by 50% to meet the rapid growth in customer demand for its
high-end Web hosting services.
During the fourth fiscal quarter, Engage Technologies, Inc.
announced several landmark agreements, including a multi-million
dollar joint venture agreement with Japan's Sumitomo Corporation to
establish Engage Technologies Japan. The joint venture will host a
separate database of Engage.Knowledge anonymous profiles built from
Web visitors to sites located in Japan and will have exclusive license
to sell Engage.Knowledge subscriptions in Japan as well as sole
distribution rights for all of Engage Technologies' products in Japan.
Also during the quarter, Engage announced a strategic partnership with
Open Market, Inc. to integrate their respective technologies, which
will enable Web sites to offer personalized online retailing
promotions to Web visitors. During August 1998, Engage announced a
strategic partnership with Net Perceptions, Inc. Through this
partnership, Web visitor profiles are created and updated by Engage's
precision profiling technology each time a user returns to a site and
Net Perceptions' recommendation engine technology uses these profiles
to analyze individual interests and make recommendations to ensure a
visitor quickly and easily finds information and events of interest to
them. Also in August 1998, Engage announced the release of Accipiter
AdManager 4.0, which combines Engage's precision profiling technology
with Accipiter's ad serving software to create a comprehensive,
industry-leading online advertising solution with an easy-to-use
interface. Engage also announced during August that its
Engage.Knowledge database had grown from 12 million to 30 million
anonymous Web user profiles in just over two months. By building the
Engage.Knowledge database entirely on anonymous profiles, Engage
believes it has established itself as an industry leader in the
growing area of privacy concerns. Without tracking user identities,
Engage's patent pending "dual-blind" identification technology
provides the infrastructure to address the needs of online marketers
for robust Web visitor data as well as the individual's right to
privacy.
Since the previous quarter, Planet Direct has signed over 110 new
Internet Service Providers (ISP) affiliate partners in key U.S.
markets to offer its personalized Web service for subscribers. Over
390 ISPs, reaching more than 3-million Internet users, now offer
Planet Direct's personal Web service. Among the new partners are
Cybergate, the largest ISP provider in Florida and ExecPC, Wisconsin's
largest ISP provider. Planet Direct is now represented by a consortium
of ISPs who collectively control 60% or more of the local consumer ISP
market in over 20 states including: Alabama, Arizona, California,
Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky,
Massachusetts, Michigan, Minnesota, New York, Nevada, North Carolina,
Ohio, Oregon, Pennsylvania, Virginia, Washington and Wisconsin. In
addition, 10 affinity partners have been signed during the quarter. On
August 31, 1998, Planet Direct announced that it has surpassed a major
milestone of 750,000 active registered users and more than doubled the
number of page views of their Web service over the previous 30 days.
According to the July Relevant Knowledge report, users of Planet
Direct spend an average of over 40 minutes per month on the service,
placing Planet Direct third overall among the portal sites on the Web.
In addition, Planet Direct announced the addition of fifteen new
content services including a live feed from The Traffic Station,
providing local online traffic reports, Worldly Investor and
Fination.com, providing new financial content to its personal online
service. Planet Direct also recently teamed with Critical Path to
become the first portal to offer free Web-based email to its members,
and partnered with Stockpoint(tm) to offer free real-time stock quotes
as part of its financial services content offering. On August 11,
1998, Planet Direct introduced its new model for one-to-one marketing,
which combines profiling, collaborative filtering and ad serving,
resulting in a personalized and targeted delivery system which will
provide Planet Direct users with content and ads specifically and
personally applicable to them as unique individuals. In marketing to
the ISP/ access channel and emerging affinity markets, CMG is able to
bring together a wide variety of Internet capabilities to develop and
deliver bundled and integrated capabilities (on-line services) for
individual market segments.
On August 4, 1998, CMG @Ventures II announced it had signed a
merger agreement to sell its 25 percent stake in PlanetAll, the
Web-based contact management service, to Amazon.com, Inc.,
(NASDAQ:AMZN). This CMG @Ventures II sale will be made in conjunction
with Amazon.com's purchase of 100 percent of PlanetAll in exchange for
800,000 shares of Amazon.com stock plus assumption of all outstanding
options. Beginning with its first investment in June of 1997, CMG
@Ventures II has invested a total of $4.5 million in PlanetAll, and
will receive 225,000 shares of Amazon.com stock pursuant to this
transaction.
On July 30, 1998, Hollywood Entertainment, Corp. (NASDAQ:HLYW),
d.b.a. Hollywood Video, the second largest video rental chain in the
United States, announced that it has signed a definitive agreement to
acquire Reel.com, Inc. Pursuant to the terms of the Merger Agreement,
the value of the deal is approximately $100 million, and CMG@Ventures
II will convert its 34 percent stake in Reel.com into stock in
Hollywood Entertainment. Concurrent with the sale of Reel.com, CMG
will purchase additional shares of Hollywood Entertainment stock,
making CMG one of the largest shareholders in Hollywood Entertainment.
Lycos reported fourth quarter revenues of $19.0 million, which
represented an increase of 26% over the third quarter of fiscal 1998
and an increase of 145% over the fourth quarter of fiscal 1997. Before
amortization and one time merger related expenses, Lycos reported a
loss of $1.6 million for the fourth quarter as compared to a net loss
of $2.4 million for the third quarter of fiscal 1998. During the
fourth quarter, Lycos completed a secondary public stock offering of
2.3 million shares, raising approximately $115 million. Lycos also
declared a two-for-one stock spilt which was paid on August 25, 1998.
In June 1998, Lycos acquired Guestworld, the Web's largest provider of
free online guestbook services. Also in June 1998, Lycos Online
Powered by AT&T WorldNet Service was launched. During the quarter,
Lycos was issued a patent by the U.S. Patent and Trademark Office
covering the company's "spider" technology which recognizes the
proprietary and unique nature of the Lycos spider technology and gives
Lycos exclusive rights to its spider search capability. Lycos also
announced several e-commerce agreements during the fourth quarter,
including Fragrances Online, Test Drive, GetSmart and Realtor.com.
Lycos signed e-commerce agreements totaling over $100 million during
the year ended July 31, 1998. Lycos' deferred revenues increased more
than 238% during fiscal 1998 from $17 million as of July 31, 1997 to
$57 million at July 31, 1998. Lycos more than doubled its number of
advertisers during fiscal 1998 and now has over 850 advertisers. In
August 1998, Lycos announced the acquisition of WhoWhere?, raising the
Lycos network to the fourth most popular Web destination with a reach
of more than 32% (MediaMetrix 7/98).
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.
CMG Information Services, Inc. And Subsidiaries
Report of Fourth Quarter and Year-End Operating Results
(In thousands except per share amounts)
Three months ended Year Ending
July 31, April 30, July 31, July 31,
1998 1998 1997 1998 1997
Net revenues $28,103 $20,428 $22,060 $91,484 $70,607
Operating expenses:
Cost of revenues 29,176 18,704 13,949 78,831 42,152
Research and development 4,928 3,968 6,895 19,709 25,058
In-process research and
development 200 18,060 19,135 1,312
Selling 7,575 6,771 10,890 31,071 37,583
General and administrative 7,125 5,332 4,421 21,749 17,611
Total operating expenses 49,004 52,835 36,155 170,495 123,716
Operating loss (20,901) (32,407) (14,095) (79,011)(53,109)
Other income (expense):
Gain on sale of data
warehouse product rights 8,437
Gain on sale of Lycos, Inc.
common stock 53,978 26,092 97,158
Gain on sale of Premiere
Technologies, Inc. common
stock 4,174
Gain on sale of investment
in TeleT Communications 3,616
Gain on stock issuance by
Lycos, Inc. 24,305 4,082 28,301
Gain on sale of NetCarta
Corporation 15,111
Gain on dividend
distribution of Lycos,
Inc. common stock 8,413 8,413
Minority interest 848 (28) 4,787
Equity in losses of
affiliates (3,397) (3,908) (1,543) (11,821) (5,556)
Interest income 714 573 886 2,426 3,368
Interest expense (1,035) (775) (649) (3,296) (1,619)
Total 74,565 26,064 7,955 125,351 28,120
Income (loss) before
income taxes 53,664 (6,343) (6,140) 46,340 (24,989)
Income tax benefit
(expense) (22,268) (5,351) 1,119 (29,787) 2,962
Net income (loss) $31,396 $(11,694) $(5,021) $16,553$(22,027)
Net income (loss) per
share:
Basic $1.38 $(0.55) $(0.26) $0.79 $(1.17)
Diluted $1.27 $(0.55) $(0.26) $0.74 $(1.17)
Shares used in computing
net income (loss) per
share:
Basic 22,794 21,418 19,284 20,833 18,858
Diluted 24,660 21,418 19,284 22,515 18,858
CONTACT:
CMG Information Services, Inc.
Andrew J. Hajducky III, (978) 684-3660
KEYWORD: MASSACHUSETTS
BW1339 SEP 24,1998
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