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Financial Press Releases
Solid Cash Flow, Continued Operating Efficiency and GAAP Profitability Highlight Q2 Results REDWOOD SHORES, CA — August 6, 2009 — iPass Inc. (NASDAQ: IPAS), a leading provider of enterprise mobility services, today reported financial results for its second quarter ended June 30, 2009. On a GAAP basis, iPass reported $1.0 million of net income, or $0.02 per diluted share, on revenues of $43.7 million for the second quarter of 2009. This is compared to a $3.0 million net loss, or ($0.05) per diluted share, on revenues of $44.6 million in the prior quarter, which included restructuring charges of $3.3 million. The company also reported cash flow from operations of $2.3 million for the second quarter of 2009, a $1.4 million increase over the first quarter 2009. On a non-GAAP basis, which excludes SFAS 123R stock-based compensation expense, amortization of acquired intangibles and restructuring charges, net income was $1.8 million, or $0.03 per diluted share, for the second quarter of 2009 versus net income of $1.3 million, or $0.02 per diluted share, in the prior quarter. "Overall, we are pleased with the solid profitability and cash flow results for the second quarter and the important progress that we've made in several key areas of the business," said Evan Kaplan, President and Chief Executive Officer of iPass. "We remain focused, however, on identifying areas for further improvement," added Kaplan. "With our new executive team now in place, I believe we are well positioned to continue moving the company in new directions to drive revenue growth and increase stockholder value over time." Financial Highlights
Financial Highlights(1)
(in millions, except per share amounts) Q2 '09 Q1 '09 Q2 '08
-------- ------- -------
Revenues
Wi-Fi and Hotel Ethernet $ 16.0 $ 15.7 $ 16.7
Managed Network Services $ 7.2 $ 7.0 $ 6.7
3G Mobile Data $ 4.4 $ 4.0 $ 2.8
-------- ------- -------
Broadband Revenues $ 27.6 $ 26.7 $ 26.2
Services and Software Revenues $ 11.5 $ 11.9 $ 13.0
Dial-up Revenues $ 4.6 $ 6.0 $ 9.4
-------- ------- -------
Total Revenues $ 43.7 $ 44.6 $ 48.6
GAAP Operating Income (Loss) $ 0.9 ($ 3.0)(2) ($ 2.3)
Non-GAAP Operating Income (Loss) $ 1.7 $ 1.3 ($ 0.1)
GAAP Net Income (Loss) $ 1.0 ($ 3.0)(2) ($ 1.4)
GAAP Net Income (Loss) per Diluted Share $ 0.02 ($ 0.05)(2) ($ 0.02)
Non-GAAP Net Income $ 1.8 $ 1.3 $ 0.7
Non-GAAP Net Income per Diluted Share $ 0.03 $ 0.02 $ 0.01
Cash and Short Term Investments $ 70.1 $ 68.0 $ 69.7
-------- ------- -------
(1) The reconciliation of GAAP to Non-GAAP financial measures is discussed
below.
(2) Includes a restructuring charge of approximately $3.3 million.
"While the global recession continued to impact both business travel and our enterprise customers' willingness to sign new, long-term commitments, our 3G mobile data revenues were up a healthy 10% sequentially over Q1," said Steven Gatoff, Senior Vice President and Chief Financial Officer. "We were pleased to have generated $2.3 million in cash flow from operations in the quarter and expect positive cash flow to continue through 2009." Selected Operating Highlights and Metrics
Q2 '09 Q1 '09 Q2 '08
--------- --------- ---------
Total iPass Users
Broadband Users 293,000 287,000 323,000
Dial-up Users 110,000 127,000 214,000
--------- --------- ---------
Total iPass On-Network Users 403,000 414,000 537,000
Total iPass Off-Network Users 795,000 742,000 585,000
--------- --------- ---------
Total iPassConnect Users 1,198,000 1,156,000 1,122,000
3G Subscriptions 31,000 29,000 18,000
Broadband Venues 122,000 110,000 104,000
Quarterly Monthly Order Value(1) $ 310,000 $ 395,000 $ 719,000
Total Forbes Global 2000 Customers(2) 377 374 361
--------- --------- ---------
(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.
During the quarter, the company continued to expand internationally, entering into agreements with Telenet, one of the largest Internet providers in Belgium, and Turk Telekom, Turkey's largest telecommunications provider, to provide in-country services. Also Turkcell, Turkey's leading mobile operator, launched an iPass-powered international roaming service. Additionally, in the quarter the company's Managed Network Services (MNS) revenues grew by nearly 2% and 7% versus Q1 2009 and Q2 2008, respectively. In addition, MNS gross margin increased by approximately 140 basis points in Q2 2009 over Q1, and the MNS sales pipeline of prospective business in the key retail and finance verticals remains solid. Importantly, iPass completed several key executive management hires during the quarter, namely, bringing-on Steven Gatoff as Senior Vice President and Chief Financial Officer, Bill Garvey as Vice President and General Counsel, and Steven Wastie as Senior Vice President of Marketing and Strategy. These additions, along with the hiring of Jay Patel as Senior Vice President of Product Development during the first quarter of 2009, the recent addition of Nick Hulse as Senior Vice President of Worldwide Sales and the coming addition of the newly-created position of Vice President of Network Supply, completes the new executive team. Also during the quarter, iPass committed to a plan to return up to $40 million to stockholders. Following a special stockholder meeting that is scheduled for August 18, 2009, iPass expects to pay a $20 million cash dividend in the third quarter of 2009. iPass also intends to use its reasonable efforts to return up to an additional $20 million to stockholders through a tender offer, an additional cash dividend, or another type of transaction. Company Outlook Total Revenue: $41-43 million GAAP net income (loss) per diluted share: ($0.02)-$0.00 Non-GAAP net income per diluted share: $0.00-$0.02 Conference Call The dial-in numbers for a telephone replay of the conference call are +1 888-286-8010 (US) and +1 617-801-6888 (international) and will be available until August 20, 2009. The ID number for the replay is 66562487. Cautionary Information About Forward-Looking Statements Information Regarding Non-GAAP Financial Measures 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 non-GAAP operating income (loss) are supplemental measures of our performance that are not required by, nor presented in accordance with, GAAP. Moreover, they should not be considered as an alternative to net income, operating 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 non-GAAP operating income (loss) because the company considers them to be important supplemental measures of the company's performance. Management excludes from its non-GAAP net income (loss) and non-GAAP operating 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-based compensation expense; 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-based compensation calculated in accordance with SFAS 123R 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) 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. 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 SFAS 123R. -- 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. Following is a reconciliation of GAAP to non-GAAP financial measures for all periods presented in this press release (in thousands, except per share amounts):
Three Months Ended Six Months Ended
---------------------------- ------------------
June 30, March 31, June 30, June 30,
------------------
2009 2009 2008 2009 2008
---------------------------- ------------------
(a) FAS 123(R)
stock-based compensation
included in the expense
line items:
Network operations $ 348 $ 143 $ 285 $ 491 $ 558
Research and development 114 105 41 219 230
Sales and marketing (303) 130 (176) (173) 161
General and
administrative 261 223 941 484 1,487
-------- -------- -------- -------- --------
Total amortization of
stock-based
compensation $ 420 $ 601 $ 1,091 $ 1,021 $ 2,436
A reconciliation between
operating income (loss)
on a GAAP basis and
non-GAAP operating
income (loss) is as
follows:
GAAP operating income
(loss) $ 881 $ (2,991) $ (2,290) $ (2,110) $ (4,489)
(a) Amortization of
stock-based compensation 420 601 1,091 1,021 2,436
(b) Restructuring charges 47 3,334 26 3,381 30
(c) Amortization of
intangibles 345 345 1,050 690 2,100
-------- -------- -------- -------- --------
Non-GAAP operating income
(loss) $ 1,693 $ 1,289 $ (123) $ 2,982 $ 77
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) $ 975 $ (3,013) $ (1,445) $ (2,038) $ (2,818)
(a) Amortization of
stock-based compensation 420 601 1,091 1,021 2,436
(b) Restructuring charges 47 3,334 26 3,381 30
(c) Amortization of
intangibles 345 345 1,050 690 2,100
-------- -------- -------- -------- --------
Non-GAAP net income $ 1,787 $ 1,267 $ 722 $ 3,054 $ 1,748
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 $ 0.02 $ (0.05) $ (0.02) $ (0.03) $ (0.05)
Per share effect of FAS
123(R) stock-based
compensation,
restructuring charges,
and amortization of
intangibles 0.01 0.07 0.03 0.08 0.08
Non-GAAP diluted net
income per share $ 0.03 $ 0.02 $ 0.01 $ 0.05 $ 0.03
The difference between the projected GAAP net income (loss) per diluted share and the projected non-GAAP net income per diluted share of approximately $0.02 in the third quarter of 2009 is based on expected SFAS 123R stock-based compensation of $0.6 million, expected restructuring and severance charges of $0.2 million, and the expected amortization of intangibles of $0.3 million in the third quarter of 2009 which, when divided by an expected 61.8 million diluted shares outstanding, results in the $0.02 difference. About iPass Inc. NOTE: iPassŪ is a registered trademark of iPass Inc.
iPASS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2009 2008 2009 2008
----------- ---------- ---------- ----------
Revenues $ 43,704 $ 48,616 $ 88,346 $ 96,728
Operating expenses:
Network access 17,982 20,941 36,640 41,441
Network operations 8,162 8,725 16,454 17,399
Research and development 3,463 3,988 7,239 8,443
Sales and marketing 7,175 10,371 15,186 20,680
General and administrative 5,649 5,805 10,866 11,124
Restructuring charges 47 26 3,381 30
Amortization of intangible
assets 345 1,050 690 2,100
----------- ---------- ---------- ----------
Total operating expenses 42,823 50,906 90,456 101,217
----------- ---------- ---------- ----------
Operating income (loss) 881 (2,290) (2,110) (4,489)
Other income, net 151 367 207 956
----------- ---------- ---------- ----------
Income (loss) before income
taxes 1,032 (1,923) (1,903) (3,533)
Provision for (benefit
from) income taxes 57 (478) 135 (715)
----------- ---------- ---------- ----------
Net income (loss) $ 975 $ (1,445) $ (2,038) $ (2,818)
=========== ========== ========== ==========
Net income (loss) per
share:
Basic $ 0.02 $ (0.02) $ (0.03) $ (0.05)
Diluted $ 0.02 $ (0.02) $ (0.03) $ (0.05)
Number of shares used in
per share calculations:
Basic 61,516,675 61,539,722 61,346,785 61,305,563
Diluted 61,782,771 61,539,722 61,346,785 61,305,563
iPASS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2009 2008
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 45,223 $ 33,077
Short-term investments 24,854 35,309
Accounts receivable, net 30,797 33,756
Prepaid expenses and other current assets 6,744 7,225
Short-term deferred income tax assets 101 101
------------ ------------
Total current assets 107,719 109,468
Property and equipment, net 6,283 7,201
Other assets 6,445 6,364
Long-term deferred tax assets 79 79
Intangible assets, net 1,526 2,216
------------ ------------
Total assets $ 122,052 $ 125,328
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,316 $ 15,406
Accrued liabilities 10,938 12,176
Short-term deferred revenue 5,381 5,736
------------ ------------
Total current liabilities 30,635 33,318
Long-term deferred revenue 2,003 1,958
Other long-term liabilities 712 255
------------ ------------
Total liabilities $ 33,350 $ 35,531
------------ ------------
Stockholders' equity:
Common stock 62 61
Additional paid-in capital 243,269 242,160
Accumulated other comprehensive income 49 216
Accumulated deficit (154,678) (152,640)
------------ ------------
Total stockholders' equity 88,702 89,797
------------ ------------
Total liabilities and stockholders'
equity $ 122,052 $ 125,328
------------ ------------
# # #
Editorial Contacts
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