724 Solutions Announces Second Quarter 2005 Results.SANTA BARBARA Santa Barbara (săn'tə bär`brə, –bərə), city (1990 pop. 85,571), seat of Santa Barbara co., S Calif., on the Pacific Ocean; inc. 1850. , Calif. -- 724 Solutions (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :SVNX)(TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :SVN SVN Subversion (version control system) SVN Slovenia (international traffic code) SVN Social Venture Network SVN South Vietnam SVN Secure Virtual Network SVN Supervised Visitation Network ), a leading provider of next-generation IP-based network and data services, today reported unaudited results for its second quarter ended June 30, 2005 (all figures are in U.S. dollars). 724 Solutions' total revenue in the second quarter was $4.6 million, compared to $5.8 million in the previous quarter and $3.0 million in the second quarter of the previous year, a 51% increase year over year. Revenue for the six months ended June 30, 2005, was $10.4 million, compared to $6.1 million in the same period of 2004, a 72% increase. The net loss for the second quarter of 2005, computed using United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "), was $1.5 million, or $0.25 per share, compared to a loss of $466,000, or $0.08 per share, in the previous quarter and a loss of $2.0 million, or $0.34 per share, in the second quarter of 2004, excluding a $900,000 one-time restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). reversal. The Company's total GAAP cost of revenue and operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $5.9 million in the second quarter, unchanged from the previous quarter, and $5.1 million in the same period a year ago, excluding the one-time restructuring reversal. Non-GAAP net loss for the second quarter was $783,000, or $0.13 per share, compared to a non-GAAP income of $125,000, or $0.02 per share, in the previous quarter and a non-GAAP loss of $1.6 million, or $0.27 per share, in the second quarter of the previous year, a 51% improvement year over year. The Company's total non-GAAP operating expenses were $5.4 million in the second quarter, compared to $5.7 million in the previous quarter, a 5% improvement quarter over quarter, and $4.6 million in the same period a year ago. The increase from the second quarter of 2004 is a result of increased headcount in professional services (job) professional services - A department of a supplier providing consultancy and programming manpower for the supplier's products. due to our customer wins and increased development headcount due to our acquisition of the Multimedia Application Gateway product. A reconciliation between net income on a GAAP basis and a non-GAAP basis is provided in a table immediately following the Summary of Operations. The Company said that it expects third quarter revenue to be in the range of $4.4 million to $4.9 million. Total GAAP cost of revenue and operating expenses are expected to be in the range of $6.1 million to $6.3 million in the third quarter of 2005. The Company said that it expects total non-GAAP operating expenses to be in the range of $5.6 million to $5.8 million in the third quarter of 2005. The differences between these two sets of numbers are projected depreciation of $165,000 and projected stock-based compensation expenses of $345,000. The Company once again confirmed that it continues to provide the access gateway technology at the heart of the Sprint PCS (1) (Personal Communications Services) Refers to wireless services that emerged after the U.S. government auctioned commercial licenses in 1994 and 1995. This radio spectrum in the 1. Vision service through its partner Hewlett-Packard and that it continues to experience a competitive threat from another mobile technology vendor. Sprint PCS has an ongoing project with another mobile technology vendor that could ultimately result in the replacement of its access gateway solution. The Company believes that, if a replacement of its solution occurs, it would not likely be before the end of October 2005, and that it would reduce its revenue from Hewlett-Packard by as much as $0.5 million per month. The Company prides itself on a track record of maintaining a strong customer base over time, and as such it is currently working closely with Hewlett-Packard, taking all reasonable measures to prevent such a replacement from occurring. "724's growth is driven by our ability to penetrate new customers and market segments within the overall mobile network operator marketplace, and to this end the second quarter was another successful step in our development of the Company," said John Sims John Sims (1749–1831) was a taxonomist who classified various species of plants. He was the first editor of The Botanical Magazine after the founder, William Curtis.[1] References 1. ^ John Sims, 1749–1831. Darwin Project. , Chief Executive Officer of 724 Solutions. "The wins at Telefonica Moviles Espana and at a North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. mobile virtual network enabler A Mobile Virtual Network Enabler (or MVNE) is a company that provides services to MVNOs, such as billing, network element provisioning, administration, operations, support of base station subsystems and operations support systems, and provision of back end network elements, to , and the deployment of our X-treme Mobility Gateway at Vodafone UK are important milestones within that growth strategy." Key accomplishments in the second quarter: --Third consecutive quarter of over 50% year-over-year revenue growth. --The first cash-flow-positive quarter in the company's public history. --The announced deployment of Vodafone UK as an X-treme Mobility Gateway (XMG XMG Xavier Media Group XMG Crossmaglen (British army base in County Armagh, near Ireland) XMG Cross-Media Gaming ) customer, significantly reducing the cost per data transaction for Vodafone UK. --The conversion of Vodafone UK into a multi-product client, validating val·i·date tr.v. val·i·dat·ed, val·i·dat·ing, val·i·dates 1. To declare or make legally valid. 2. To mark with an indication of official sanction. 3. our strategy to license multiple products to our customers, in this case building upon our successful X-treme MMS (Multimedia Messaging Service) An enhanced transmission service that enables graphics, video clips and sound files to be transmitted via cellphones. Developed as part of the 3GPP project, MMS phones are generally backward compatible with SMS and EMS. Accelerator accelerator: see particle accelerator. (1) A key combination such as Alt-G or Ctrl-Shift H that is used to activate a task. (2) An incubator that expects to develop the company considerably faster than normal. See incubator. (XMA XMA Xtreme Martial Arts XMA X-Ray Micro Analyser XMA Extended Memory Area ) deployment for our XMG deployment at Vodafone UK. --The signing of a regional partnership with Atos Origin Atos Origin, SA (Euronext: ATO) is an international IT corporation which operates in 40 countries worldwide, with over 50,000 employees. The corporate headquarters are located in Paris, France and Zaventem, Belgium. , a leading global information technology services company, to resell re·sell tr.v. re·sold , re·sell·ing, re·sells 1. To sell again. 2. To sell (a product or service) to the public or to an end user, especially as an authorized dealer. the X-treme Mobility Suite in Spain and Portugal, consistent with our strategy to expand our channels to market with local expertise. --In partnership with Atos Origin, generating the win at Telefonica Moviles Espana, the leading wireless provider in Spain and part of the third largest global telecommunications company See telecom company. , for the X-treme Alerts Platform (XAP XAP Experimental Aerial Platforms ) as a unified and enhanced platform for the management of SMS (1) (Storage Management System) Software used to routinely back up and archive files. See HSM. (2) (Systems Management Server) Systems management software from Microsoft that runs on Windows NT Server. , WAP (1) (Wireless Access Point) See access point. (2) (Wireless Application Protocol) A standard for providing cellular phones, pagers and other handheld devices with secure access to e-mail and text-based Web pages. push and MMS alerts for its over 400 offerings. --In response to the emerging mobile virtual network operator A Mobile Virtual Network Operator (MVNO) is a company that provides mobile (sometimes called wireless or cellular) telephone service but does not have its own allocation of the radio frequency spectrum nor all of the infrastructure required to provide mobile telephone service. market segment, the launch of 724 Solutions' Mobile Virtual Network Operator Data Bundle solution, leveraging the X-treme Mobility Suite to provide core infrastructure required by a mobile network operator, MVNO (Mobile Virtual Network Operator) A reseller of wireless services. MVNOs do not own licensed spectrum and typically do not have any of their own wireless network infrastructure. or mobile virtual network enabler (MVNE MVNE Mobile Virtual Network Enabler (wireless telecommunications) MVNE Medium Voltage Neutral Earthing ) to operate and offer differentiated branded mobile data services. --The announcement that a leading MVNE had selected 724 Solutions' MVNO Data Bundle, including the X-treme Mobility Gateway and X-treme Alerts Platform for its North American deployment. --Consistent with our strategy to leverage the flexibility of the X-treme Mobility Suite, announced the launch of 724 Solutions' X-treme Service Activity Manager (XSAM XSAM X-Treme Service Activity Manager ) Sentinel Edition that will enable mobile network operators to dynamically filter age-sensitive content being requested by or pushed to subscribers. Conference Call Information The Company will host a conference call to discuss the results on August 10, 2005, at 8:30 a.m. (ET). The conference call will be available over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the through the company's web site at www.724.com or by telephone at +1-415-537-1975. A replay will be available for 30 days following the conference call and can be accessed by dialing 800-558-5253 or +1-416-626-4100, reservation number 21235303. Non-GAAP Income (Loss) and Total Non-GAAP Operating Expenses The non-GAAP income (loss) used by 724 Solutions excludes depreciation, amortization of intangibles, stock-based compensation, interest expense (income), restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , write down of goodwill, gain on sale of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. investments and transition, acquisition and foreign exchange impacts (direct costs of terminated employees on a defined transition plan, contractual bonuses accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc historic acquisitions considered to be of no value to the ongoing business, and foreign exchange gains and losses on our non-U.S. dollar denominated cash, receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , payables Payables Related: Accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. balances). Non-GAAP operating expenses are GAAP expenses less depreciation, amortization of intangibles, stock-based compensation, interest expense (income), restructuring charges, write down of goodwill, gain on sale of long-term investments and transition, acquisition and foreign exchange impacts. The reduction in the market value of 724 Solutions and the significant changes undertaken by 724 Solutions over the past two years, including the substantial reduction in personnel and the closing of offices, have resulted in restructuring charges, the write-down of goodwill and significant changes in other GAAP expenses such as depreciation, stock-based compensation, amortization of intangibles and interest income (expense). Management believes these non-GAAP metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. provide a meaningful measure of the Company's results to its investors by excluding items that are significantly different than those we experienced in historic periods as our historic costs are not indicative of our restructured cost structure and our expected costs on a forward-looking basis. Management believes these measures provide relevant and useful information for investors as these measures are an integral part of our internal management reporting and planning process and are the primary measures used by management to evaluate the operating performance of 724 Solutions. While management believes the non-GAAP measures allow investors to better compare 724 Solutions' results in different periods, the non-GAAP measures may not be comparable to non-GAAP measures of other companies. There are material limitations to using these non-GAAP measures, including the difficulty associated with comparing these performance measures, as we calculate them, to performance measures presented by other companies, and the fact that these performance measures do not take into account certain significant items, including depreciation, amortization of intangibles, stock-based compensation, interest expense (income), restructuring charges and non-recurring and acquisition charges. About 724 Solutions 724 Solutions (NASDAQ:SVNX)(TSX:SVN) delivers reliable, scalable technology and solutions that allow mobile network operators to rapidly deploy flexible and open next-generation IP-based network and data services. Additionally, in conjunction with mobile operator partners, the company provides a series of actionable Giving sufficient legal grounds for a lawsuit; giving rise to a Cause of Action. An act, event, or occurrence is said to be actionable when there are legal grounds for basing a lawsuit on it. alerting solutions to enterprises to assist them in lowering operating costs operating costs npl → gastos mpl operacionales and improving customer relationship management. 724 Solutions is a global company, with development operations in Canada and Switzerland, and with its corporate office in Santa Barbara. For more information, visit www.724.com. Cautionary Note Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " provisions of the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements include the statements herein regarding: the services and products that will be offered by 724 Solutions, the benefits that businesses will obtain from these services and products, future demand for these services and products, our future operating and cash performance, our plans and prospects, and the sufficiency of our cash resources. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including the risk that 724 Solutions will be unable to deploy its solutions and products, the risk that the demand for these solutions and products, or for 2.5G and 3G networks, will not increase as presently anticipated, the risk that general economic conditions will not improve or deteriorate de·te·ri·o·rate v. 1. To grow worse in function or condition. 2. To weaken or disintegrate. , the risk that 724 Solutions will be unable to retain its key customers, the risk that 724 Solutions will lose business to competitors with greater resources, and other risks described in 724 Solutions' Securities and Exchange Commission filings, including its annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its quarterly reports on Form 10-Q Form 10-Q See 10-Q. . These risks are also described in 724 Solutions' filings with the Canadian Securities Administrators Canadian Securities Administrators(CSA) is a forum for the 13 securities regulators of Canada's provinces and territories to coordinate and harmonize regulation of the Canadian capital markets. . 724 Solutions does not undertake any obligation to update this forward-looking information, except as required under applicable law.
724 Solutions Inc.
Consolidated Balance Sheets
(in thousands of U.S. dollars)
June 30, December 31,
2005 2004
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $3,248 $5,417
Short-term investments 7,999 8,005
Restricted cash 208 210
Accounts receivable - trade, net of
allowance for doubtful accounts of
$26 (December 31, 2004 - $18) 3,779 2,831
Prepaid expenses and other
receivables 508 583
--------------------------------
Total current assets 15,742 17,046
Deferred charges 226 286
Fixed assets 1,045 1,135
--------------------------------
Total assets $17,013 $18,467
--------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $719 $613
Accrued liabilities 1,921 2,101
Interest payable - 103
Deferred revenue 233 173
--------------------------------
Total current liabilities 2,873 2,990
Long-term liabilities 18 92
Convertible notes payable to related
parties 7,958 7,947
Long-term interest payable 553 343
--------------------------------
Total liabilities 11,402 11,372
Shareholders' equity:
Share capital:
Authorized:
Unlimited common shares
Unlimited preferred shares
Issued and outstanding:
6,033,778 common shares
(December 31, 2004 - 5,989,300) 764,842 764,530
Additional paid-in capital 632 279
Accumulated deficit (759,881) (757,921)
Accumulated other comprehensive
income 18 207
--------------------------------
Total shareholders' equity 5,611 7,095
Contingent liabilities(a)
--------------------------------
Total liabilities and shareholders'
equity $17,013 $18,467
--------------------------------
(a) See note 11 to our consolidated financial statements set forth in
our 2004 annual report.
724 Solutions Inc. - Summary of Operations (unaudited)
(In thousands of U.S. dollars, except per share amounts)
Three months ended Six months ended
--------------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
2005 2005 2004 2005 2004
Revenue:
Product $1,704 $2,985 $1,930 $4,689 $3,691
Services 2,912 2,820 1,119 5,732 2,359
--------------------------- -----------------
Total revenue 4,616 5,805 3,049 10,421 6,050
Cost of revenue(a) 1,917 2,031 1,537 3,948 3,065
--------------------------- -----------------
Gross margin 2,699 3,774 1,512 6,473 2,985
Operating expenses:
Research and
development(a) 1,693 1,687 1,433 3,380 3,522
Sales and marketing(a) 1,023 1,168 1,197 2,191 2,576
General and
administrative(a) 853 804 755 1,657 1,588
Depreciation 165 157 120 322 305
Stock-based
compensation
Cost of revenue 15 7 3 22 5
Research and
development 35 19 9 54 13
Sales and marketing 43 16 7 59 11
General and
administrative 186 31 14 217 21
Restructuring charges - - (900) - 1,200
--------------------------- -----------------
Total operating
expenses 4,013 3,889 2,638 7,902 9,241
--------------------------- -----------------
Loss from operations (1,314) (115) (1,126) (1,429) (6,256)
Interest income
(expense) (180) (186) (19) (366) (3)
Loss on settlement of
liability - (165) - (165) -
--------------------------- -----------------
Net loss for the period $(1,494) $(466) $(1,145) $(1,960) $(6,259)
--------------------------- -----------------
Basic and diluted net
loss per share $(0.25) $(0.08) $(0.19) $(0.33) $(1.05)
Weighted-average number
of shares used in
computing basic and
diluted net loss per
share (in thousands) 6,033 6,027 5,983 6,030 5,983
--------------------------- -----------------
Total cost of revenue
and operating expenses $5,930 $5,920 $4,175 $11,850 $12,306
724 Solutions Inc. - Summary of Non-GAAP Adjustments (unaudited)
(In thousands of U.S. dollars, except per share amounts)
Three months ended Six months ended
--------------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
2005 2005 2004 2005 2004
GAAP net loss for the
period $(1,494) $(466) $(1,145) $(1,960) $(6,259)
Depreciation 165 157 120 322 305
Stock-based
compensation 279 73 33 352 50
Interest expense
(income) 180 186 19 366 3
Loss on settlement of
liability - 165 - 165 -
Restructuring charges - - (900) - 1,200
Transition costs(b) - - 307 - 307
Foreign exchange losses
(gains) 87 10 (25) 97 5
--------------------------- -----------------
Non-GAAP net income
(loss) for the period $(783) $125 $(1,591) $(658) $(4,389)
--------------------------- -----------------
Non-GAAP net income
(loss) per share $(0.13) $0.02 $(0.27) $(0.11) $(0.73)
(b) Transition costs are direct costs related to terminated employees
(a) Non-GAAP operating expenses
Cost of revenue $1,917 $2,031 $1,537 $3,948 $3,065
Research and
development 1,693 1,687 1,279 3,380 3,368
Sales and marketing 1,023 1,168 1,112 2,191 2,491
General and
administrative 766 794 712 1,560 1,515
--------------------------- -----------------
Total non-GAAP operating
expenses 5,399 5,680 4,640 11,079 10,439
724 Solutions Inc. - GAAP to non-GAAP Reconciliation (unaudited)
(In thousands of U.S. dollars)
Three months ended Six months ended
--------------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
2005 2005 2004 2005 2004
GAAP cost of revenue $1,917 $2,031 $1,537 $3,948 $3,065
Total reconciling items - - - - -
--------------------------- -----------------
Non-GAAP cost of revenue 1,917 2,031 1,537 3,948 3,065
GAAP research and
development 1,693 1,687 1,433 3,380 3,522
Transition costs - - (154) - (154)
--------------------------- -----------------
Non-GAAP research and
development 1,693 1,687 1,279 3,380 3,368
GAAP sales and marketing 1,023 1,168 1,197 2,191 2,576
Transition costs - - (85) - (85)
--------------------------- -----------------
Non-GAAP sales and
marketing 1,023 1,168 1,112 2,191 2,491
GAAP general and
administrative $853 $804 $755 1,657 1,588
Transition costs - - (68) - (68)
Foreign exchange gains
(losses) (87) (10) 25 (97) (5)
--------------------------- -------- --------
Non-GAAP general and
administrative 766 794 712 1,560 1,515
724 Solutions Inc. - Cash Reconciliation (unaudited)
(In thousands of U.S. dollars)
Cash and cash equivalents, short-term investments and
restricted cash:
At June 30, 2005 $11,455
At March 31, 2005 11,255
----------------------
Total cash flow in quarter ended June 30, 2005 200
Non-recurring payments -
----------------------
Operating cash flow in quarter ended
June 30, 2005 $200
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