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iPass Reports Third Quarter 2009 Results
(Market Wire Via Acquire Media NewsEdge) REDWOOD SHORES, CA -- (MARKET WIRE) -- 11/05/09 --
iPass Inc. (NASDAQ: IPAS), a leading
provider of enterprise mobility services, today reported financial results
for its third quarter ended September 30, 2009.
On a GAAP basis, iPass reported revenues of $42.6 million for the third
quarter of 2009 and a $6.1 million net loss or ($0.10) per share, of which
$4.8 million or ($0.08) per share resulted from a charge for state sales
taxes and related penalties and interest. This compared to revenues of
$48.4 million and a $2.1 million net loss or ($0.03) per share in the third
quarter of 2008, and compared to revenues of $43.7 million and $1.0 million
in net income or $0.02 per diluted share in the prior quarter.
On a non-GAAP basis (which excludes stock compensation expenses,
amortization of intangible assets, restructuring charges, and charges,
penalties and interest associated with sales taxes), non-GAAP net income
for the third quarter was $0.9 million or $0.01 per diluted share. This
compared to non-GAAP net income of $0.5 million or $0.01 per diluted share
for the third quarter of 2008, and compared to non-GAAP net income of $1.8
million or $0.03 per diluted share in the prior quarter.
"I'm pleased with the work of the new management team, particularly in
light of a challenging business environment. The evolution of the business
continues to push forward and the technology-led turnaround here at iPass
is on track," said Evan Kaplan, President and Chief Executive Officer of
iPass. "Our new mobility platform is scheduled for delivery at year-end,
and we've received very positive feedback from customers and carrier
partners."
Financial Highlights(1)
(in millions, except per share
amounts) Q3 '09 Q2 '09 Q3 '08
------- ------- -------
Revenues
Wi-Fi and Hotel Ethernet $ 15.3 $ 16.0 $ 16.3
Managed Network Services 7.1 7.2 6.8
3G Mobile Data 4.7 4.4 3.2
------- ------- -------
Broadband Revenues 27.1 27.6 26.3
Services and Software Revenues 11.6 11.5 13.3
Dial-up Revenues 3.9 4.6 8.8
------- ------- -------
Total Revenues $ 42.6 $ 43.7 $ 48.4
GAAP Net Income (Loss) $ (6.1) (2) $ 1.0 $ (2.1)
Per Diluted Share $ (0.10) $ 0.02 $ (0.03)
Non-GAAP Net Income $ 0.9 $ 1.8 $ 0.5
Per Diluted Share $ 0.01 $ 0.03 $ 0.01
Adjusted EBITDA $ 1.9 $ 2.8 $ 1.4
Cash and Short-Term Investments $ 50.4 $ 70.1 $ 68.0
(1) The reconciliation of GAAP to Non-GAAP financial measures is
discussed below.
(2) Q3'09 includes a restructuring charge of approximately $920,000
and sales tax charges of $4.8 million; see non-GAAP reconciliation
below.
"Importantly, I am pleased that despite the lack of any recovery in
business travel, we delivered non-GAAP profitability and nearly $2 million
of Adjusted EBITDA in the quarter," said Steven Gatoff, Senior Vice
President and Chief Financial Officer. "While I'm disappointed by the sales
tax charges, having the team apply rigor and a fresh look will ensure we
get this work behind us and provide a solid foundation for driving value
going forward."
Selected Operating Highlights and Metrics
Q3 '09 Q2 '09 Q3 '08
--------- --------- ---------
Total iPassConnect Users
Broadband Users 282,000 293,000 311,000
Dial-up Users 91,000 110,000 188,000
--------- --------- ---------
Total iPass On-Network Users 373,000 403,000 499,000
Total iPass Off-Network Users 778,000 795,000 628,000
--------- --------- ---------
Total iPassConnect Users 1,151,000 1,198,000 1,127,000
3G Subscriptions 34,000 31,000 21,000
Broadband Venues 140,000 122,000 105,000
Quarterly Monthly Order Value(1) $ 380,000 $ 310,000 $ 856,000
Total Forbes Global 2000 Customers(2) 381 377 364
(1) Quarterly Monthly Order Value represents the amount of new committed
monthly revenue booked in the quarter; for customer re-signs, only the
portion of the new contractual commitment that exceeds the customer's
previous monthly commitment is included in this calculation.
(2) Based on the Forbes Global 2000 list published in April 2009.
The company achieved several significant milestones in the third quarter,
including:
-- Launch of its Blackberry Smartphone solution, extending leadership in
breadth of mobile device support;
-- Commencement of global customer testing of its new enterprise mobility
services platform; and
-- Completion of its leadership transformation with the addition of Nick
Hulse as senior vice president of worldwide sales.
Also during the quarter, the company closed $380,000 of Monthly Order Value
contracts representing newly committed monthly revenues and reported
another quarter of increase in its iPassConnect client fees. iPass
continues to make progress on several fronts, including the development of
the company's new cloud-based platform that will allow iPass to more
effectively monetize and extend its leadership position in enterprise
mobility services.
Also in Q3, the company determined that additional sales taxes were
probable of being assessed for multiple states as a result of addressing a
sales and use tax audit which was initiated this fiscal year. The company
has worked to quantify the cumulative amount of these additional sales
taxes, which have not been billed to customers, as of September 30, 2009.
As a result, the company recorded an estimated sales tax liability,
including interest and penalties, of approximately $4.8 million or $0.08
per share during the quarter. Importantly, the company has also begun the
process of implementing the systems to address these sales taxes and
anticipates billing for these taxes will begin in 2010.
In the third quarter, iPass began delivering on its commitment to return up
to $40 million to stockholders, paying a special cash dividend of $20
million or $0.32 per share in September 2009. iPass also announced today
that the company intends to distribute an additional $10 million of capital
to stockholders as a special cash dividend of $0.16 per share in December
2009. The company concurrently announced that it is launching a $10
million stock buyback program and that it will dividend-out to stockholders
any remaining portion of the $10 million that has not been used to
repurchase iPass shares by March 31, 2011.
Company Outlook
For the fourth quarter of 2009, ending December 31, 2009, the company
anticipates revenue and net income (loss) per share results on a GAAP and
non-GAAP basis to be in the following ranges:
Total Revenues: $39 - 41 million
GAAP net income (loss) per share: ($ 0.06) - ($ 0.04)
Non-GAAP net income (loss) per share: ($ 0.03) - $ 0.00
Fourth quarter projected GAAP net income (loss) per share includes a charge
of approximately $300,000 for a reserve for sales tax liabilities and
related penalties and interest for the period.
The difference between the projected GAAP net income (loss) per share and
the projected non-GAAP net income (loss) per share of approximately $0.03
per share in the fourth quarter of 2009 is based on expected stock
compensation charges of $0.7 million, sales tax charges of $0.3 million,
restructuring and severance charges of $0.4 million, and amortization of
intangible assets of $0.5 million in the fourth quarter of 2009 which, when
divided by an expected 62.3 million shares outstanding, results in the
$0.03 per share difference.
Conference Call
iPass will host a conference call today to discuss its financial results,
outlook and business activities at 2:00 PM Pacific Time (5:00 PM Eastern
Time). The conference call will be accessible by telephone direct dial at
+1 617-597-5364 with a participant passcode of 33639043.
The conference call will also be available live via webcast on the
company's web site at http://investor.ipass.com. The webcast will be
available for replay until iPass reports its fourth quarter and full-year
2009 results.
The dial-in number for a telephone replay of the conference call is
+1 617-801-6888 and will be available until November 19, 2009. The passcode
for the replay is 49763283.
Cautionary Information About Forward-Looking Statements
The statements in this press release regarding iPass' belief that its new
mobility platform is scheduled for delivery at year end, that this new
cloud-based platform will allow it to more effectively monetize and extend
its leadership position in enterprise mobility services and continuing
execution of its core business, that it will begin to use its new billing
system in 2010, as well as its intent to return approximately an additional
$20 million to its stockholders, and iPass' projections of its fourth
quarter 2009 financial results under the caption "Company Outlook" in this
press release are forward-looking statements. Actual results may differ
materially from the expectations contained in these statements due to a
number of risks and uncertainties, including: the risk that the rate of
decline in use of narrowband/dial technology as a means of enterprise
connectivity may be faster than iPass predicts; the risk that the current
economic downturn and the associated customer layoffs and travel reductions
will have a greater negative impact on iPass than it predicts; the risk
that the swine flu will cause travel reductions that will have a greater
negative impact on iPass than it predicts; the risk that iPass will not be
able to generate broadband revenues in the manner expected; rapidly
emerging changes in the nature of markets served by iPass, which may not be
compatible with iPass' services; increased competition, which may cause
pricing pressure on the fees iPass charges; the risk that iPass could
unexpectedly lose current integrated broadband access points if one or more
current broadband access point providers perceive iPass' services to be
competing with the provider's services in a manner that renders the
relationship with iPass detrimental to the provider; the risk that iPass
may not be able to establish additional relationships with broadband access
point providers, including providers of 2.5G/3G/4G Mobile Data, at the
level iPass expects and if it is unable to negotiate such relationships on
terms acceptable to both iPass and the providers on the timeframe iPass
currently expects for any number of reasons, including perceived
competition with the providers; the risk that iPass may not be able to
generate revenue from new services if market acceptance of those new
services is not as iPass expects; the risk that iPass will experience
unexpected technical or other delays in the implementation of added
functionality to its billing system; and the risk that the stock repurchase
program described above is subject to certain conditions being met, such as
the ability to return capital as permitted by law, which if they do not
occur may result in no amounts, or a lesser amount, being returned to
stockholders in the form of a stock repurchase or other form than currently
anticipated. Detailed information about these and other factors that could
potentially affect iPass' business, financial condition and results of
operations is included in iPass' Annual Report on Form 10-K under the
caption "Item 1A. Risk Factors" of that report, filed with the Securities
and Exchange Commission (the "SEC") on March 16, 2009, and iPass' Quarterly
Report on Form 10-Q filed with the SEC on August 7, 2009 and available at
the SEC's Web site at www.sec.gov. iPass undertakes no responsibility to
update the information in this press release if any forward-looking
statement later turns out to be inaccurate.
Information Regarding Non-GAAP Financial Measures
This press release contains financial measures that are not calculated in
accordance with U.S. generally accepted accounting principles (GAAP). iPass
management evaluates and makes operating decisions using various
performance measures. In addition to iPass' GAAP results, the company also
considers non-GAAP net income (loss) and Adjusted EBITDA. iPass further
considers various components of non-GAAP net income (loss) such as non-GAAP
earnings (loss) per diluted share. Non-GAAP net income (loss) is generally
based on the following components: revenues, network access expenses,
network operations, research and development, sales and marketing and
general and administrative expenses. Management considers all of these
components when evaluating the company's ongoing core operating
performance. Non-GAAP net income (loss) consists of net income (loss)
excluding equity plan-related compensation expenses, restructuring charges,
the non-recurring sales tax charge and amortization of intangible assets
which are charges and gains which management does not consider reflective
of the company's core operating business. Equity plan-related compensation
expenses represent the fair value of all share-based payments to employees,
including grants of employee stock options, as required ASC 718
Compensation - Stock Compensation. Restructuring charges consist of
severance and benefits, excess facilities and asset-related charges, and
also include strategic reallocations or reductions of personnel resources.
Intangible assets consist primarily of purchased technology, trade names,
customer relationships, employment agreements and other intangible assets
issued in connection with acquisitions. The non recurring sales tax charge
includes unremitted taxes and related interest and penalties. The company
defines Adjusted EBITDA as net income (loss) before interest, income taxes,
depreciation and amortization, restructuring charges, sales tax and related
charges and stock compensation expense.
For purposes of comparability across other periods and with other companies
in the company's industry, the company reports non-GAAP net income (loss)
as adjusted by the amount of additional taxes or tax benefit that the
company would accrue using a normalized effective tax rate applied to the
non-GAAP results.
Non-GAAP net income (loss), and Adjusted EBITDA are supplemental measures
of the company's performance that are not required by, nor presented in
accordance with, GAAP. Moreover, they should not be considered as an
alternative to net income, or any other performance measure derived in
accordance with GAAP, or as an alternative to cash flow from operating
activities or as a measure of the company's liquidity. The company presents
non-GAAP net income (loss), and Adjusted EBITDA because the company
considers them to be important supplemental measures of the company's
performance.
Management excludes from its non-GAAP net income (loss) certain recurring
items to facilitate its review of the comparability of the company's core
operating performance on a period to period basis because such items are
not related to the company's ongoing core operating performance as viewed
by management. Management uses non-GAAP operating expenses as one of the
components for measurement of incentive compensation. Management uses this
view of the company's operating performance for purposes of comparison with
its business plan and individual operating budgets and allocations of
resources. Additionally, when evaluating potential acquisitions, management
excludes the items described above from its consideration of target
performance and valuation. More specifically, management adjusts for the
following excluded items:
a) stock compensation expense;
b) restructuring and other charges;
c) amortization charges for purchased technology and other intangible
assets resulting from the company's acquisition transactions;
d) material non-recurring charges.
Management adjusts for the excluded items because management believes that,
in general, these items possess one or more of the following
characteristics: their magnitude and timing is largely outside of the
company's control; they are unrelated to the ongoing operation of the
business in the ordinary course; they are unusual or infrequent and the
company does not expect them to occur in the ordinary course of business;
or they are non-operational, or non-cash expenses involving stock option
grants.
iPass believes that the presentation of these non-GAAP financial measures
is warranted for several reasons:
1) Such non-GAAP financial measures provide an additional analytical tool
for understanding the company's financial performance by excluding the
impact of items which may obscure trends in the core operating performance
of the business;
2) Since the company has historically reported non-GAAP results to the
investment community, the company believes the inclusion of non-GAAP
numbers provides consistency and enhances investors' ability to compare the
company's performance across financial reporting periods;
3) These non-GAAP financial measures are employed by the company's
management in its own evaluation of performance and are utilized in
financial and operational decision making processes, such as budget
planning and forecasting;
4) These non-GAAP financial measures facilitate comparisons to the
operating results of other companies in the company's industry, which use
similar financial measures to supplement their GAAP results, thus enhancing
the perspective of investors who wish to utilize such comparisons in their
analysis of the company's performance.
Set forth below are additional reasons why specific items are excluded from
the company's non-GAAP financial measures:
a) While stock compensation calculated in accordance with ASC 718
constitutes an ongoing and recurring expense of the company, it is not an
expense that typically requires or will require cash settlement by the
company. The company therefore excludes these charges for purposes of
evaluating core performance as well as with respect to evaluating any
potential acquisition;
b) Restructuring and other charges are primarily related to severance costs
and/or the disposition of excess facilities driven by modifications of
business strategy. These costs are excluded because they are inherently
variable in size, and are not specifically included in the company's annual
operating plan and related budget due to the rapidly changing facts and
circumstances typically associated with such modifications of business
strategy;
c) Amortization charges for purchased technology and other intangible
assets are excluded because they are inconsistent in amount and frequency
and are significantly impacted by the timing and magnitude of the company's
acquisition transactions. The company analyzes and measures the company's
operating results without these charges when evaluating the company's core
performance. Generally, the impact of these charges to the company's net
income (loss) tends to diminish over time following an acquisition;
d) Material non-recurring charges such as sales tax and related interest
and penalties are excluded because of their infrequent nature, they are not
expected to occur in the ordinary course of business and are not used for
the purpose of evaluating the company's core performance;
e) Income tax expense (benefit) is adjusted in the non-GAAP tax-effected
numbers by the amount of additional expense or benefit that the company
would accrue if non-GAAP results were used instead of GAAP results in the
calculation of tax liability, taking into consideration the company's
long-term tax structure.
In the future, the company expects to continue reporting non-GAAP financial
measures on a tax-effected basis excluding the items described above and
the company expects to continue to incur expenses similar to the non-GAAP
adjustments described above. Accordingly, exclusion of these and other
similar items in the company's non-GAAP presentation should not be
construed as an inference that these costs are unusual, infrequent or
non-recurring.
The company believes Adjusted EBITDA is useful as a supplemental measure of
the performance of the company's operations because it helps investors
evaluate and compare the results of operations from period to period by
removing the accounting impact of the company's financing strategies, tax
provisions, and depreciation and amortization, restructuring charges,
material non-recurring sales tax and related charges and stock based
compensation expense.
As stated above, the company presents non-GAAP financial measures because
it considers them to be important supplemental measures of performance.
However, non-GAAP financial measures have limitations as an analytical tool
and should not be considered in isolation or as a substitute for the
company's GAAP results. In the future, the company expects to incur
expenses similar to the non-GAAP adjustments described above and expects to
continue reporting non-GAAP financial measures excluding such items. Some
of the limitations in relying on non-GAAP financial measures are:
-- The company's stock option and stock purchase plans are important
components of incentive compensation arrangements and will be reflected as
expenses in the company's GAAP results for the foreseeable future under ASC
718.
-- Amortization of intangibles, though not directly affecting iPass'
current cash position, represents the loss in value as the technology in
the company's industry evolves, is advanced or is replaced over time. The
expense associated with this loss in value is not included in the non-GAAP
net income (loss) presentation and therefore does not reflect the full
economic effect of the ongoing cost of maintaining the company's current
technological position in the company's competitive industry which is
addressed through the company's research and development program.
-- Other companies, including other companies in iPass' industry, may
calculate non-GAAP financial measures differently than the company,
limiting their usefulness as a comparative measure.
Pursuant to the requirements of SEC Regulation G, a detailed reconciliation
between the company's GAAP and non-GAAP financial results is provided in
this press release. Investors are advised to carefully review and consider
this information strictly as a supplement to the GAAP results that are
contained in this press release and in the company's SEC filings.
Included with this press release is a reconciliation of GAAP to non-GAAP
financial measures for all periods presented in this press release (in
thousands, except per share amounts).
About iPass Inc.
iPass helps enterprises unify the management of remote and mobile
connectivity and devices. With iPass software and services, customers can
create easy-to-use broadband solutions for their mobile workers, home
offices and branch and retail locations, complete with device management,
security validation and unified billing. iPass offerings are powered by its
leading global virtual network, on-demand management platform, and
award-winning client software. The iPass global virtual network unifies
hundreds of wireless, broadband and dial-up providers in over 160
countries. Hundreds of Global 2000 companies rely on iPass services,
including Ford, Nokia, and Procter & Gamble. Founded in 1996, iPass is
headquartered in Redwood Shores, California, with offices throughout North
America, Europe and Asia. For more information, visit www.ipass.com.
NOTE: iPass® is a registered trademark of iPass Inc.
iPASS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2009 2008
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 37,072 $ 33,077
Short-term investments 13,301 35,309
Accounts receivable, net 27,898 33,756
Prepaid expenses and other current assets 7,871 7,225
Short-term deferred income tax assets 101 101
------------- ------------
Total current assets 86,243 109,468
Property and equipment, net 5,623 7,201
Other assets 6,083 6,364
Long-term deferred tax assets 79 79
Intangible assets, net 1,181 2,216
------------- ------------
Total assets $ 99,209 $ 125,328
------------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,786 $ 15,406
Accrued liabilities 14,684 12,176
Deferred revenue - short-term 5,221 5,736
------------- ------------
Total current liabilities 32,691 33,318
Deferred revenue - long-term 1,913 1,958
Other long-term liabilities 967 255
------------- ------------
Total liabilities $ 35,571 $ 35,531
------------- ------------
Stockholders' equity:
Common stock 62 61
Additional paid-in capital 224,364 242,160
Accumulated other comprehensive income 12 216
Accumulated deficit (160,800) (152,640)
------------- ------------
Total stockholders' equity 63,638 89,797
------------- ------------
Total liabilities and stockholders'
equity $ 99,209 $ 125,328
------------- ------------
iPASS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Revenues $ 42,555 $ 48,371 $ 130,901 $ 145,099
Operating expenses:
Network access 17,610 20,147 54,250 61,588
Network operations 7,551 8,195 22,784 24,365
Research and development 3,597 3,845 10,836 12,288
Sales and marketing 8,037 10,724 23,223 31,403
General and administrative 10,316 6,123 22,403 18,476
Restructuring charges 920 30 4,301 60
Amortization of intangible
assets 345 1,050 1,035 3,150
---------- ---------- ---------- ----------
Total operating expenses 48,376 50,114 138,832 151,330
---------- ---------- ---------- ----------
Operating income (loss) (5,821) (1,743) (7,931) (6,231)
Interest Income 103 445 531 1,604
Foreign exchange losses and
other expenses (372) (741) (593) (945)
---------- ---------- ---------- ----------
Loss before income taxes (6,090) (2,039) (7,993) (5,572)
Provision for (benefit
from) income taxes 32 59 167 (656)
---------- ---------- ---------- ----------
Net loss $ (6,122) $ (2,098) $ (8,160) $ (4,916)
========== ========== ========== ==========
Net loss per share:
Basic $ (0.10) $ (0.03) $ (0.13) $ (0.08)
Diluted $ (0.10) $ (0.03) $ (0.13) $ (0.08)
Number of shares used in
per share calculations:
Basic 61,901,324 61,793,465 61,988,957 61,546,003
Diluted 61,901,324 61,793,465 61,988,957 61,546,003
iPASS INC.
RECONCILIATION OF GAAP TO NON-GAAP KEY FINANCIAL METRICS
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended
---------------------------------- ----------------------
September 30,
September 30, June 30, September 30, ----------------------
2009 2009 2008 2009 2008
---------- ---------- ---------- ---------- ----------
(a) Stock
compensation
included in
the expense
line items:
Network
operations $ 208 $ 348 $ 314 $ 699 $ 872
Research and
development 156 114 203 375 432
Sales and
marketing 242 (303) 325 69 486
General and
administrative 378 261 643 862 2,131
---------- ---------- ---------- ---------- ----------
Total
amortization
of stock-based
compensation $ 984 $ 420 $ 1,485 $ 2,005 $ 3,921
A reconciliation
between net
income (loss)
on a GAAP basis
and non-GAAP net
income, net of
tax effect, is
as follows:
GAAP net income
(loss) $ (6,122) $ 975 $ (2,098) $ (8,160) $ (4,916)
(a) Amortization
of stock
compensation 984 420 1,485 $ 2,005 $ 3,921
(b) Restructuring
charges 920 47 30 4,301 60
(c) Amortization
of intangibles 345 345 1,050 1,035 3,150
(d) Sales tax
and related
charges 4,750 4,750
---------- ---------- ---------- ---------- ----------
Non-GAAP net
income $ 877 $ 1,787 $ 467 $ 3,931 $ 2,215
A reconciliation
between net
income (loss)
per diluted share
on a GAAP basis
and non-GAAP net
income per
diluted share,
net of tax
effect, is as
follows:
GAAP diluted
net income
(loss) per
share $ (0.10) $ 0.02 $ (0.03) $ (0.13) $ (0.08)
Per share
effect of stock
compensation,
restructuring
charges,
amortization of
intangibles,
sales tax and
related charges 0.11 0.01 0.04 0.19 0.12
Non-GAAP
diluted net
income per
share $ 0.01 $ 0.03 $ 0.01 $ 0.06 $ 0.04
Non-GAAP
diluted shares 62,558,172 62,282,771 62,228,453 62,242,629 62,138,848
A Reconciliation
of net income
(loss) to
adjusted EBITDA
is as follows:
GAAP net income
(loss) $ (6,122) $ 975 $ (2,098) $ (8,160) $ (4,916)
(a) Amortization
of stock
compensation 984 420 1,485 2,005 3,921
(b) Restructuring
charges 920 47 30 4,301 60
(c) Amortization
of intangibles 345 345 1,050 1,035 3,150
(d) Sales tax
and related
charges 4,750 - - 4,750 -
Depreciation of
property and
equipment 1,100 1,104 1,353 3,439 4,165
Interest income (103) (174) (445) (531) (1,604)
Provision for
(benefit from)
income taxes 32 57 59 167 (656)
---------- ---------- ---------- ---------- ----------
Adjusted EBITDA $ 1,906 $ 2,774 $ 1,434 $ 7,006 $ 4,120
CONTACT:
iPass Investor Relations
ir@ipass.com
650-232-4317
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