Critical Path Announces 2005 First Quarter Results; Continued Improvement in Gross Margins Revenues and Gross Margins In Line With Guidance.SAN FRANCISCO San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden -- Critical Path, Inc. (Nasdaq:CPTH), a leading provider of messaging software and services, today announced unaudited financial results for the first quarter ended March 31, 2005. For the first quarter of 2005, revenues were $17.4 million, compared to $19.5 million in the fourth quarter of 2004 and $17.1 million in the first quarter of 2004. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Results For the first quarter of 2005, net loss attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to common shareholders, based on 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), was $12.7 million or $0.46 per share, compared to a net loss of $10.7 million or $0.50 per share for the fourth quarter of 2004 and a net loss of $13.1 million or $0.63 per share for the first quarter of 2004. For the first quarter of 2005, total cost of net revenues 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. , based on GAAP, were $25.7 million, unchanged from the fourth quarter of 2004 and an 11% decline from $28.8 million for the first quarter of 2004. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become Results For the first quarter of 2005, earnings before interest income, interest expense, provision for income taxes, depreciation and amortization adjusted to exclude other items such as other income (expense), net, 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). expenses, stock-based expenses and accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the on mandatorily Adv. 1. mandatorily - in a manner that cannot be evaded; "the ministry considers that contributions to such a fund should be met from voluntary donations rather than from rates compulsorily levied." compulsorily, obligatorily redeemable Redeemable Eligible for redemption under the terms of an indenture. preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. (or adjusted EBITDA), a non-GAAP measure we use to measure the performance of our business, was a loss of $3.1 million, or $0.11 per share, compared to a loss of $2.0 million or $0.10 per share for the fourth quarter of 2004 and a loss of $7.9 million or $0.38 per share for the first quarter of 2004. For the first quarter of 2005, total cost of net revenues and operating expenses on an adjusted EBITDA basis were $20.5 million, compared to $21.5 million for the fourth quarter of 2004 and $25.0 million for the first quarter of 2004. "The results from our focus on consumer messaging solutions to our target markets with broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). , fixed-line Refers to wired devices. For example, a fixed-line phone is a standard phone with the handset wired to the base unit in contrast to a portable phone or cellphone. and mobile operators were evident in the first quarter," said Mark Ferrer Ferrer is a surname known in many countries. The name itself is a mutation of the Latin word Ferrarius, meaning iron-worker or smith; for this reason, the crests of the various branches of Ferrer nobles and knights always include horse shoes. , chief executive officer and chairman of Critical Path. "This includes the launch of our new Memova brand, the announcement of our new Memova Mobile solution currently in use on a trial basis with mobile operators in Southeast Asia Southeast Asia, region of Asia (1990 est. pop. 442,500,000), c.1,740,000 sq mi (4,506,600 sq km), bounded roughly by the Indian subcontinent on the west, China on the north, and the Pacific Ocean on the east. and Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , the significant growth in our Memova Anti-Abuse
bookings and the continued strength in our core Memova Messaging
performance. We believe the alignment Alignment is the adjustment of an object in relation with other objects, or a static orientation of some object or set of objects in relation to others.
"I am pleased with our progress managing spending levels, particularly our third quarter in a row of improved gross margins," said Jim Clark Jim Clark - Dr. James H. Clark , chief financial officer. "Even though our general and administrative expenses increased in the March quarter due to the increased cost of our compliance efforts related to the requirements of the Sarbanes-Oxley Act See SOX. , our total operating expenses achieved significant year-over-year improvement." As of March 31, 2005, the Company's cash and cash equivalents totaled $27.2 million, compared to $23.2 million at December December: see month. 31, 2004 and $37.1 million at March 31, 2004. Guidance The Company currently expects revenue for the second quarter of 2005 to be in the range of $17.0 million to $19.0 million. The following guidance is on an adjusted EBITDA (non-GAAP) basis as described above. If the Company is successful in delivering the middle to high end of its revenue range, it expects total gross margins in the second quarter to increase to a range of 49% to 53%. Additionally, the Company expects its operating expenses to be in the range of $10.5 million to $11.5 million in the second quarter of 2005. Regulation G Due to the forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. nature of the projections of gross margins and operating expenses on an adjusted EBITDA basis given directly above, information to reconcile such non-GAAP financial measures to the most directly comparable GAAP measures is not available without unreasonable effort. The Company believes that the information necessary to reconcile the non-GAAP financial measures to GAAP, such as future restructuring costs, if any, other income (expense), interest income and expense, stock-based expenses and accretion on mandatorily redeemable preferred stock, are not reasonably estimable es·ti·ma·ble adj. 1. Possible to estimate: estimable assets; an estimable distance. 2. Deserving of esteem; admirable: an estimable young professor. or predictable. The Company uses both GAAP and 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. to measure its financial results. The non-GAAP metrics used are: income (loss) on an adjusted EBITDA basis, both cost of revenues and operating expenses on an adjusted EBITDA basis and Memova Anti-Abuse sales bookings. The most directly comparable GAAP measures are the net loss attributable to common shareholders, cost of net revenues and operating expenses and net revenues, respectively. The adjusted EBITDA results exclude interest income (expense), provision for income taxes, depreciation and amortization as well as other items such as other income (expense), net, restructuring expenses, stock-based expenses and accretion on mandatorily redeemable preferred stock. Memova Anti-Abuse sales bookings are the billable value of contracts for such products closed in the period. There is no difference between adjusted EBITDA and GAAP revenues. Management believes that, in addition to GAAP metrics, these non-GAAP metrics assist the Company in measuring its cash-based performance. In addition, management believes these non-GAAP metrics are useful to investors because they remove unusual and nonrecurring charges Nonrecurring Charge An expense occurring only once on a company's financial statement. Notes: An extraordinary item is an example of a nonrecurring charge. Also known as "nonrecurring item". that occur in the affected period and provide a basis for measuring the Company's financial condition against other quarters. Since the Company has historically reported non-GAAP results to the investment community, management also believes the inclusion of non-GAAP measures provides consistency Consistency can refer to:
As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. The calculations for these non-GAAP metrics are in the alternative measurement reconciliation table below. Conference Call Critical Path will host a conference call on Monday Monday: see week. , May 9, 2005, at 5:30 p.m. Eastern Time to discuss the financial results for the first quarter ended March 31, 2005. The conference call is scheduled to last up to one hour. Those who would like to participate should dial +1 877-231-3543 (within the U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of ) or +1 706-634-1329 (from outside the U.S. and Canada) five to ten minutes prior to the scheduled start time (no passcode is needed). In addition, the conference call and a subsequent replay will be available via Web cast from the Company's Web site, www.criticalpath.net. A replay of the conference call will also be available by telephone for fourteen days following the call. To access the telephone replay, please dial +1 800-642-1687 (within the U.S. and Canada) or +1 706-645-9291 (from outside the U.S. and Canada) and use conference ID 6020777. The Web cast and earnings release will be available on the Company's Web site for twelve months following the conference call. About Critical Path, Inc. Critical Path's Memova(TM) solutions provide a new and improved email experience for millions of consumers worldwide, helping mobile operators, broadband and fixed-line service providers unlock the potential of email in the mass market. Memova(TM) Mobile gives consumers instant, on-the-go access to the messages that matter most. Featuring industry-leading anti-spam Spam elimination. See spam filter, spambot and e-mail obfuscator. and anti-virus See antivirus program. technology, Memova(TM) Anti-Abuse protects consumers against viruses and spam E-mail that is not requested. Also known as "unsolicited commercial e-mail" (UCE), "unsolicited bulk e-mail" (UBE), "gray mail" and just plain "junk mail," the term is both a noun (the e-mail message) and a verb (to send it). . Memova(TM) Messaging provides consumers with a rich email experience, enabling service providers to develop customized offerings for high-speed high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. subscribers. Headquartered in San Francisco with offices around the globe, Critical Path's messaging solutions are deployed by more than 200 service providers throughout the world. More information is available at www.criticalpath.net. 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 forward-looking statements by the Company and its executives regarding the performance of our product and service offerings, our expected revenue results, gross margins and operating expenses for the second fiscal quarter of 2005, the ability of our customers to achieve cost savings and improve revenues in the provision of services, industry trends, market and customer requirements, the ability of our products and services to meet the business needs of our customers and compete favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. in the marketplace, management of spending levels, the market for products and services like ours and the performance of our senior management in achieving strategic goals. The words and expressions "look forward to," "will," "expect," "plan," "believe," "seek," "strive for," "anticipate," "hope," "estimate" and similar expressions are intended to identify the Company's forward-looking statements. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks include, but are not limited to, our evolving business strategy and the emerging and changing nature of the market for our products and services, our ability to deliver on our sales objectives, the ability of our technology and our competitors' technologies to address customer demands, changes in economic and market conditions, and software and service design defects. These and other risks and uncertainties are described in more detail in the Company's filings with the U.S. Securities and Exchange Commission (www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. ) made from time to time including Critical Path's 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. for the fiscal year ended December 31, 2004, its Current Reports on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. , as may be amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. from time to time, and all subsequent filings with the United States Securities and Exchange Commission (www.sec.gov). The Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or after the date any such statement is made. Note to Editors: Critical Path, the Critical Path logo, Memova and the Memova logo are the trademarks of Critical Path, Inc. All other trademarks are the property of their respective holders.
Critical Path, Inc.
Condensed Consolidated Balance Sheets
March 31, December 31, March 31,
2004 2004 2005
------------ ------------ ------------
ASSETS (in thousands; unaudited)
Current assets
Cash and cash equivalents $37,131 $23,239 $27,196
Accounts receivable, net 16,703 19,667 18,817
Other current assets 5,354 4,567 3,696
------------ ------------ ------------
Total current assets 59,188 47,473 49,709
Property and equipment, net 13,304 11,379 8,829
Goodwill 6,613 6,613 6,613
Other assets 7,752 3,734 3,776
------------ ------------ ------------
Total assets $86,857 $69,199 $68,927
============ ============ ============
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $4,102 $4,973 $3,986
Accrued expenses 22,280 23,207 24,524
Deferred revenue 9,968 9,978 11,451
Capital lease and other
obligations, current 1,587 1,067 695
Notes payable, current - 5,565 5,565
------------ ------------ ------------
Total current liabilities 37,937 44,790 46,221
Deferred revenue long-term 1,360 173 136
Notes payable, long-term 81,921 8,875 15,847
Capital lease and other
obligations, long-term 1,009 - -
Embedded derivative liability 21,730 5,173 3,660
------------ ------------ ------------
Total liabilities 143,957 59,011 65,864
------------ ------------ ------------
Mandatorily redeemable
preferred stock 33,558 122,377 117,569
------------ ------------ ------------
Total shareholders' deficit (90,658) (112,189) (114,506)
------------ ------------ ------------
Total liabilities and
shareholders' deficit $86,857 $69,199 $68,927
============ ============ ============
Critical Path, Inc.
Condensed Consolidated Statement of Operations
on a United States GAAP Basis
Three months ended
-----------------------------------------
March 31, December 31, March 31,
2004 2004 2005
------------- ------------- -------------
(in thousands, except per share amounts;
unaudited)
NET REVENUE
SW licensing $4,251 $4,923 $4,445
Hosted messaging 4,343 5,167 5,211
Professional services 2,659 4,143 3,084
Maintenance and support 5,825 5,250 4,700
------------- ------------- -------------
Total net revenue 17,078 19,483 17,440
COST OF NET REVENUE
SW licensing 911 1,522 1,208
Hosted messaging 6,381 6,458 5,124
Professional services 3,094 3,144 2,404
Maintenance and support 1,449 1,302 1,550
Stock-based expense 5 71 64
------------- ------------- -------------
Total cost of net revenue 11,840 12,497 10,350
------------- ------------- -------------
GROSS PROFIT 5,238 6,986 7,090
OPERATING EXPENSES
Selling and marketing 6,939 4,487 4,647
Research and development 5,779 4,590 4,893
General and administrative 3,122 5,258 3,914
Stock-based expense 41 278 244
Restructuring expense
(credit) 1,065 (1,395) 1,639
------------- ------------- -------------
Total operating expenses 16,946 13,218 15,337
------------- ------------- -------------
OPERATING LOSS (11,708) (6,232) (8,247)
Other income (expense), net 3,517 (166) 1,846
Interest income (expense) (1,430) (164) (660)
------------- ------------- -------------
Loss before provision for
income taxes (9,621) (6,562) (7,061)
Provision for income taxes (366) (213) (308)
------------- ------------- -------------
NET LOSS (9,987) (6,775) (7,369)
Accretion on mandatorily
redeemable preferred stock (3,147) (3,877) (5,277)
------------- ------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(13,134) $(10,652) $(12,646)
============= ============= =============
Net loss per share $(0.48) $(0.32) $(0.27)
============= ============= =============
Net loss per share
attributable to common $(0.63) $(0.50) $(0.46)
============= ============= =============
Shares used in the per share
calculations 21,014 21,252 27,256
============= ============= =============
Critical Path, Inc.
Condensed Consolidated Statement of Operations on a Non-GAAP
(Adjusted EBITDA(1)) Basis
Three months ended
-----------------------------------------
March 31, December 31, March 31,
2004 2004 2005
------------- ------------- -------------
(in thousands, except per share amounts;
unaudited)
NET REVENUE
SW licensing $4,251 $4,923 $4,445
Hosted messaging 4,343 5,167 5,211
Professional services 2,659 4,143 3,084
Maintenance and support 5,825 5,250 4,700
------------- ------------- -------------
Total net revenue 17,078 19,483 17,440
COST OF NET REVENUE
SW licensing 911 1,522 1,208
Hosted messaging 5,198 5,345 3,886
Professional services 3,037 3,110 2,376
Maintenance and support 1,425 1,283 1,532
------------- ------------- -------------
Total cost of net revenue 10,571 11,260 9,002
------------- ------------- -------------
GROSS PROFIT 6,507 8,223 8,438
OPERATING EXPENSES
Selling and marketing 6,669 4,312 4,477
Research and development 4,850 3,082 3,240
General and administrative 2,928 2,849 3,786
------------- ------------- -------------
Total operating expenses 14,447 10,243 11,503
------------- ------------- -------------
ADJUSTED EBITDA LOSS $(7,940) $(2,020) $(3,065)
============= ============= =============
Adjusted EBITDA loss per
share $(0.38) $(0.10) $(0.11)
============= ============= =============
Shares used in the per share
calculations 21,014 21,252 27,256
============= ============= =============
(1) Excludes interest income (expense), provision for income taxes,
depreciation and amortization adjusted to exclude other items such
as other income (expense), net, restructuring expenses,
stock-based expenses and accretion on mandatorily redeemable
preferred stock.
Critical Path, Inc.
Alternative Measurements Reconciliation
The following table provides a reconciliation between the Company's
Non-GAAP results and Adjusted EBITDA Loss to the Company's Condensed
Consolidated Statement of Operations on a United States GAAP basis.
Three months ended
-----------------------------------------
March 31, December 31, March 31,
2004 2004 2005
------------- ------------- -------------
(in thousands, except per share amounts;
unaudited)
Adjusted EBITDA loss $(7,940) $(2,020) $(3,065)
Interest income (expense) (1,430) (164) (660)
Provision for income taxes (366) (213) (308)
Depreciation and
amortization (2,657) (2,948) (3,235)
Other income (expense), net 3,517 (166) 1,846
Non-cash severance - (360) -
Reserve for officer note
receivable - (1,950) -
Restructuring expenses (1,065) 1,395 (1,639)
Stock-based expenses (46) (349) (308)
------------- ------------- -------------
Net loss (9,987) (6,775) (7,369)
Accretion on mandatorily
redeemable preferred stock 3,147 3,877 5,277
------------- ------------- -------------
Net loss attributable to
common shareholders $(13,134) $(10,652) $(12,646)
============= ============= =============
Net loss per share $(0.48) $(0.32) $(0.27)
============= ============= =============
Net loss per share
attributable to common $(0.63) $(0.50) $(0.46)
============= ============= =============
Shares used in the per share
calculations 21,014 21,252 27,256
============= ============= =============
The following table provides a reconciliation between the total cost
of net revenues and operating expenses on an Adjusted EBITDA
basis to the Company's cost of revenues and operating
expenses on a United States GAAP basis.
Three months ended
-----------------------------------------
March 31, December 31, March 31,
2004 2004 2005
------------- ------------- -------------
(in thousands, except per share amounts;
unaudited)
Total cost of net revenues
and operating expenses on an
Adjusted EBITDA basis $25,018 $21,503 $20,505
Depreciation and
amortization (2,657) (2,948) (3,235)
Non-cash severance - (360) -
Restructuring expenses (1,065) 1,395 (1,639)
Reserve for officer note
receivable - (1,950) -
Stock-based expenses (46) (349) (308)
------------- ------------- -------------
Total cost of net revenues
and operating expenses on a
United States GAAP basis $28,786 $25,715 $25,687
============= ============= =============
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