Critical Path Announces Second Quarter 2006 Results.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 -- Revenue and Gross Margins up; Expenses Down; Cash Balance Increases Critical Path, Inc. (OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). :CPTH), a leading provider of messaging software and services, today announced unaudited financial results for the fiscal second quarter ended June June: see month. 30, 2006. Revenue and Gross Margins For the second quarter of 2006, revenues were $12.0 million, compared to $11.0 million in the first quarter of 2006 and $17.1 million in the second quarter of 2005. Gross margins, based upon U.S. 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). ), for the second quarter of 2006 were 56%, an improvement of 5 points, up from 51% in the first quarter of 2006 and up 7 points from 49% in the second quarter of 2005. On an 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 basis, gross margins in the second quarter of 2006 were 58%, an improvement of 4 points, up from 54% in the first quarter of 2006 and up 4 points from 54% in the second quarter of 2005. Adjusted EBITDA is a non-GAAP metric used by management to measure the Company's operating performance and its earnings before interest income (expense), provision for income taxes, depreciation and amortization adjusted to exclude other items, such as other income (expense), gain on sale of assets, 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). and other 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. . Net Results Net loss on a GAAP basis, which excludes the accretion of mandatorily redeemable preferred stock (a non-cash item related to outstanding preferred stock), for the second quarter of 2006, was $2.6 million, compared to a net loss of $3.9 million in the first quarter of 2006 and a net loss of $1.5 million in the second quarter of 2005. For the second quarter of 2006, 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. , on a GAAP basis, was $14.3 million, compared to $13.4 million in the first quarter of 2006 and $20.0 million in the second 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 GAAP, which includes the accretion of mandatorily redeemable preferred stock, for the second quarter of 2006, was $6.1 million or $0.17 per share, compared to a net loss of $7.4 million or $0.20 per share in the first quarter of 2006 and a net loss of $8.1 million or $0.27 per share in the second quarter of 2005. Net loss on an adjusted EBITDA basis for the second quarter of 2006, was $1.5 million, or $0.04 per share, compared to net loss of $2.8 million or $0.08 per share in the first quarter of 2006 and a loss of $0.7 million or $0.02 per share in the second quarter of 2005. For the second quarter of 2006, total cost of net revenues and operating expenses on an adjusted EBITDA basis was $13.5 million, compared to $13.8 million for the first quarter of 2006 and 17.8 million for the second quarter of 2005. "In Q2, we were again just a few transactions away from EBITDA breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations , however, we did do a better job of managing our cash and our expenses while continuing our significant investment in our mobile business," 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. , CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and Chairman, Critical Path. "Our investment in mobile is taking longer to monetize Monetize 1. To convert into money. 2. To convert from securities into currency that can be used to purchase goods and services. Notes: For example, you'll often hear Internet marketers talk about "monetizing website visitors. than we had anticipated, but throughout the world, we saw a stepped increase in activity by mobile prospects. Additionally, we are experiencing increased pipeline activity in both Memova Messaging and Memova Anti-Abuse with our new product releases." Cash and Cash Equivalents As of June 30, 2006, the Company's cash and cash equivalents totaled $20.1 million, compared to $19.1 million at March 31, 2006. Second Quarter 2006 Highlights --Memova(R) Messaging -- In June, Critical Path issued a press release, formally announcing the launch of "CopyAgenda," a Memova Messaging Universal Contacts solution deployed by Spain's leading mobile operator -- Telefonica Moviles. Additionally, Critical Path signed new Memova Messaging customers in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. , Vietnam Vietnam (vēĕt`näm), officially Socialist Republic of Vietnam, republic (v), 128,400 sq mi (332,642 sq km), Southeast Asia. Occupying the eastern coastline of the Southeast Asian peninsula, Vietnam is bounded by China on the north, by Laos and Spain Spain, Span. España (āspä`nyä), officially Kingdom of Spain, constitutional monarchy (2005 est. pop. 40,341,000), 194,884 sq mi (504,750 sq km), including the Balearic and Canary islands, SW Europe. during Q2. --Memova(R) Anti-Abuse -- In the second quarter, Critical Path acquired two new Memova Anti-Abuse customers in 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). , as well as the
first customer to use the new premium appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. -- Memova Anti-Abuse
C-2000.
--Memova(R) Mobile -- Critical Path welcomed yet another Memova Mobile customer in Q2. A leading operator in India India, officially Republic of India, republic (2005 est pop. 1,080,264,000), 1,261,810 sq mi (3,268,090 sq km), S Asia. The second most populous country in the world, it is also sometimes called Bharat, its ancient name. India's land frontier (c. (to be announced To be announced (TBA) A contract for the purchase or sale of an MBS to be delivered at an agreed-upon future date but does not include a specified pool number and number of pools or precise amount to be delivered. ), with more than 8M subscribers, will deploy Memova Mobile to provide a consumer-oriented push email solution targeted at the youth market. Regulation G 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 and both cost of revenues and operating expenses on an adjusted EBITDA basis. The most directly comparable GAAP measures are the net loss attributable to common shareholders and cost of net revenues and operating expenses, 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, gain on sale of assets, restructuring and other expenses, stock-based expenses and accretion on mandatorily redeemable preferred stock. 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. Pre-Recorded Conference Call As discussed on the last earnings call, going forward, Critical Path will be providing pre-recorded reviews of its quarterly financial results. The pre-recorded review discussing financial results for the second quarter ended June 30, 2006 will be available via Webcast or telephone. The Webcast will be available on Critical Path's Web site at http://www.criticalpath.net/en/31/webcasts/ beginning at 6 PM Eastern time today, August 14, and will be accessible for the next 12 months. Telephone access to the pre-recorded review will be available beginning at 6 PM Eastern time today, August 14, through 6 PM Eastern time August 28 by dialing +1 800-642-1687 (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 +1 706-645-9291 (from outside the U.S. and Canada) and use conference ID 4009485. Questions about the quarter's results may be submitted to ir@criticalpath.net. Any questions regarding the quarterly results that are submitted by 6 PM Eastern time, August 16, 2006 may be publicly responded to by the company on the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of the company's Web site (http://www.criticalpath.net/investors). The company does not undertake to publicly respond to all such questions submitted. About Critical Path, Inc. Critical Path's Memova(R) solutions provide a new and improved email experience for millions of consumers worldwide, helping mobile operators, 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). and 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. service providers unlock the potential of email in the mass market. Memova(R) 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(R) 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(R) 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, operating expenses, net results and cash balances for the second quarter of 2006, 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 Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the three months ended March 31, 2006, 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 December: see month. 31, 2005, 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 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. 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., registered in various jurisdictions. All other trademarks are the property of their respective holders.
Critical Path, Inc.
Condensed Consolidated Balance Sheets
June 30, December 31, June 30,
2005 2005 2006
---------- ------------ ----------
ASSETS (in thousands; unaudited)
Current assets
Cash and cash equivalents $ 16,857 $ 18,707 $ 20,054
Accounts receivable, net 19,661 10,096 14,545
Current assets held for sale - 2,782 -
Other current assets 3,767 2,411 2,094
---------- ---------- ----------
Total current assets 40,285 33,996 36,693
Property and equipment, net 7,244 2,625 2,784
Goodwill 6,613 7,047 7,313
Other assets 2,007 1,756 905
---------- ---------- ----------
Total assets $ 56,149 $ 45,424 $ 47,695
---------- ---------- ----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 4,988 $ 2,726 $ 4,616
Accrued expenses 19,536 19,727 19,548
Deferred revenue 11,576 6,574 11,483
Capital lease and other
obligations, current 355 106 62
Current liabilities held for sale - 219 -
---------- ---------- ----------
Total current liabilities 36,455 29,352 35,709
Deferred revenue long-term 71 710 640
Notes payable, long-term 16,698 18,493 20,374
Capital lease and other
obligations, long-term - 50 -
Embedded derivative liability 2,402 1,534 1,020
---------- ---------- ----------
Total liabilities 55,626 50,139 57,743
---------- ---------- ----------
Mandatorily redeemable preferred
stock 116,248 120,293 127,260
---------- ---------- ----------
Total shareholders' deficit (115,725) (125,008) (137,308)
---------- ---------- ----------
Total liabilities and
shareholders' deficit $ 56,149 $ 45,424 $ 47,695
---------- ---------- ----------
Critical Path, Inc.
Condensed Consolidated Statement of Operations on a United States
GAAP Basis
Three months ended Six months ended
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2005 2006 2006 2005 2006
-------- ---------- --------- --------- ---------
(in thousands, except per share amounts; unaudited)
NET REVENUE
SW licensing $4,771 $2,928 $3,481 $9,216 $6,409
Hosted messaging 3,528 1,222 1,167 8,739 2,389
Professional
services 3,727 2,575 2,828 6,811 5,403
Maintenance and
support 5,083 4,289 4,548 9,783 8,837
-------- ---------- --------- --------- ---------
Total net revenue 17,109 11,014 12,024 34,549 23,038
COST OF NET REVENUE
SW licensing 1,035 1,306 1,060 2,243 2,366
Hosted messaging 3,780 777 758 8,924 1,535
Professional
services 2,346 1,976 2,220 4,793 4,196
Maintenance and
support 1,551 1,294 1,224 3,102 2,518
-------- ---------- --------- --------- ---------
Total cost of net
revenue 8,712 5,353 5,262 19,062 10,615
-------- ---------- --------- --------- ---------
GROSS PROFIT 8,397 5,661 6,762 15,487 12,423
OPERATING EXPENSES
Selling and
marketing 3,956 3,490 3,326 8,612 6,816
Research and
development 3,656 2,320 2,525 8,567 4,845
General and
administrative 3,526 3,269 3,019 7,657 6,288
Restructuring
expense 168 915 126 1,807 1,041
Gain on sale of
assets - (1,971) - - (1,971)
-------- ---------- --------- --------- ---------
Total operating
expenses 11,306 8,023 8,996 26,643 17,019
-------- ---------- --------- --------- ---------
OPERATING LOSS (2,909) (2,362) (2,234) (11,156) (4,596)
Other income
(expense), net 2,395 (459) 537 4,241 78
Interest income
(expense) (907) (853) (900) (1,567) (1,753)
-------- ---------- --------- --------- ---------
Loss before
provision for
income taxes (1,421) (3,674) (2,597) (8,482) (6,271)
Provision for income
taxes (116) (268) (45) (424) (313)
-------- ---------- --------- --------- ---------
NET LOSS (1,537) (3,942) (2,642) (8,906) (6,584)
Accretion on
mandatorily
redeemable
preferred stock (6,516) (3,462) (3,505) (11,793) (6,967)
-------- ---------- --------- --------- ---------
NET LOSS
ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(8,053) $(7,404) $(6,147) $(20,699) $(13,551)
Net loss per share
attributable to
common $(0.27) $(0.20) $(0.17) $(0.73) $(0.37)
-------- ---------- --------- --------- ---------
Shares used in the
per share
calculations 29,369 36,133 36,267 28,361 36,183
-------- ---------- --------- --------- ---------
Critical Path, Inc.
Condensed Consolidated Statement of Operations
on a Non-GAAP (Adjusted EBITDA(a)) Basis
Three months ended Six months ended
------------------------- -----------------
June March June June June
30, 31, 30, 30, 30,
2005 2006 2006 2005 2006
------- -------- -------- -------- --------
(in thousands, except per share amounts;
unaudited)
NET REVENUE
SW licensing $4,771 $2,928 $3,481 $9,216 $6,409
Hosted messaging 3,528 1,222 1,167 8,739 2,389
Professional services 3,727 2,575 2,828 6,811 5,403
Maintenance and support 5,083 4,289 4,548 9,783 8,837
------- -------- -------- -------- --------
Total net revenue 17,109 11,014 12,024 34,549 23,038
COST OF NET REVENUE
SW licensing 1,035 1,306 1,060 2,242 2,366
Hosted messaging 3,006 562 680 6,893 1,242
Professional services 2,294 1,946 2,167 4,671 4,113
Maintenance and support 1,540 1,284 1,202 3,071 2,486
------- -------- -------- -------- --------
Total cost of net
revenue 7,875 5,098 5,109 16,877 10,207
------- -------- -------- -------- --------
GROSS PROFIT 9,234 5,916 6,915 17,672 12,831
OPERATING EXPENSES
Selling and marketing 3,806 3,422 3,249 8,282 6,671
Research and development 3,110 2,228 2,391 6,352 4,619
General and
administrative 3,036 3,049 2,729 6,822 5,778
------- -------- -------- -------- --------
Total operating expenses 9,952 8,699 8,369 21,456 17,068
------- -------- -------- -------- --------
ADJUSTED EBITDA LOSS $(718) $(2,783) $(1,454) $(3,784) $(4,237)
------- -------- -------- -------- --------
Adjusted EBITDA loss per
share $(0.02) $(0.08) $(0.04) $(0.13) $(0.12)
------- -------- -------- -------- --------
Shares used in the per
share calculations 29,369 36,133 36,267 28,361 36,183
------- -------- -------- -------- --------
(a) Excludes interest income (expense), provision for income taxes,
depreciation and amortization adjusted to exclude other items such
as gain on sale of assets, 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 Six months ended
--------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2005 2006 2006 2005 2006
-------- --------- -------- --------- ---------
(in thousands, except per share amounts; unaudited)
Adjusted EBITDA loss $(718) $(2,783) $(1,454) $(3,784) $(4,237)
Interest income
(expense) (907) (853) (900) (1,567) (1,753)
Provision for income
taxes (116) (268) (45) (424) (313)
Depreciation and
amortization (1,768) (493) (364) (5,002) (854)
Other income
(expense), net 2,395 (459) 537 4,241 78
Gain on sale of
assets - 1,971 - - 1,971
Restructuring
expenses (168) (915) (126) (1,807) (1,041)
Stock-based expenses (255) (142) (290) (563) (435)
-------- --------- -------- --------- ---------
Net loss (1,537) (3,942) (2,642) (8,906) (6,584)
Accretion on
mandatorily
redeemable preferred
stock 6,516 3,462 3,505 11,793 6,967
-------- --------- -------- --------- ---------
Net loss
attributable to
common
shareholders $(8,053) $(7,404) $(6,147) $(20,699) $(13,551)
======== ========= ======== ========= =========
Net loss per share
attributable to
common $(0.27) $(0.20) $(0.17) $(0.73) $(0.37)
======== ========= ======== ========= =========
Shares used in the per
share calculations 29,369 36,133 36,267 28,361 36,183
======== ========= ======== ========= =========
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 Six months ended
--------------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
2005 200 2006 2005 2006
-------- --------- -------- -------- --------
(in thousands, except per share amounts; unaudited)
Total cost of net
revenues and operating
expenses on an adjusted
EBITDA basis $17,827 $13,797 $13,478 $38,333 $27,275
Depreciation and
amortization (1,768) (493) (364) (5,002) (854)
Gain on sale of assets - 1,971 - - 1,971
Restructuring expenses (168) (915) (126) (1,807) (1,041)
Stock-based expenses (255) (142) (290) (563) (435)
-------- --------- -------- -------- --------
Total cost of net
revenues and operating
expenses on a United
States GAAP basis $20,018 $13,376 $14,258 $45,705 $27,634
======== ========= ======== ======== ========
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