Cobalt Group Announces Increased Losses for Q4 and Year End 2000
SEATTLE--Jan. 25, 2001--The Cobalt Group , a leading provider of e-business products and services to the automotive industry, announced today that gross revenue for the fourth quarter of 2000, excluding certain adjustments, increased 58% to $13.2 million, compared to $8.4 million in the fourth quarter of 1999. For the year ended December 31, 2000, gross revenue increased to $44.8 million, compared to $23.3 million for the year ended December 31, 1999, an increase of 92%. Gross revenue for the fourth quarter and the year 2000 excludes adjustments for the application of Staff Accounting Bulletin No. 101 (SAB 101).
"We decided in 1995 to partner with automotive dealers and manufacturers to bring e-business products and services to the world's largest retail sector -- the automotive industry. We chose right," said John Holt, president and CEO of The Cobalt Group. "Cobalt's financial results prove the strength of our business model and the vigor of our execution. During 2000 Cobalt successfully managed a 63% increase in the number of automotive dealer clients, while continuing to increase the breadth and depth of our e-business products and services. Much of that growth in the fourth quarter was attributable to the successful launch of extensive programs for DaimlerChrysler, Honda and Acura, resulting in the addition of 2,100 clients."
The company ended the year 2000 with approximately 8,500 automotive dealer clients for Internet applications and professional services, compared to 6,400 at the end of the third quarter and 5,200 at the end of 1999. Monthly average recurring revenues per dealer for these services grew to $305 per dealer for the fourth quarter of 2000, up from $287 for the third quarter and $226 for the fourth quarter of 1999. Much of that increase was attributable to strong customer acceptance of the National Automobile Dealers Association (NADA) endorsed product bundles.
Pro forma net loss for the fourth quarter was $4.4 million or $0.23 per share and pro forma net loss for the year was $18.8 million or $1.05 per share. Pro forma net loss and net loss per share calculations exclude the write down of intangible assets, a one-time gain on the sale of YachtWorld.com, the amortization of non-cash equity discounts, and adjustments for the application of SAB 101. Net loss for the year ended December 31, 2000, absent pro forma adjustments, was $25.3 million or $1.41 per share, and net loss for the fourth quarter was $6.1 million or $0.31 per share. This compares to a net loss of $18.0 million or $2.26 per share for the year ended December 31, 1999 and $4.8 million or $0.29 per share in the fourth quarter of 1999.
"We are particularly pleased that fourth quarter revenues grew at a sequential quarterly rate of 13% while cash expenses only grew at a sequential quarterly rate of two percent," said David Snyder, executive vice president and CFO of The Cobalt Group. "While costs will continue to grow, these growth rates affirm our belief that we can profitably continue to scale our business."
"Also in the fourth quarter we received $15 million in private equity financing," continued Snyder. "This financing has enabled us to continue developing higher-value e-business products, as well as make ongoing investments in our organization, while leaving the company with a cash balance of $16.6 million going into 2001."
Business Outlook
"We believe that Cobalt is better positioned now than at any point in its history to become the leading provider of e-business products and services to the automotive industry. In the coming year, we will continue to serve more automotive manufacturer and dealer clients with richer e-business products and services," said Holt. "We do expect some slowing in the North American retail automotive market, but the past year has seen the industry accelerate its embrace of the Internet, both for direct interaction with consumers and for business-to-business applications. As a result, we anticipate the market for Cobalt's products and services will continue to grow during 2001."
"Cobalt's primary financial goal for 2001 is to begin generating positive cash flow from operations," said Snyder. "We see Cobalt's revenue continuing to grow at a faster pace than cash expenses over the course of 2001, leading to achievement of that goal late in the fourth quarter."
The company expects gross revenues for 2001 to be between $64 and $68 million, and revenues for the first quarter of 2001 to be between $13 and $14 million. For both the quarter and the year, 65% to 75% of revenues are expected to be attributable to Internet applications and professional services. Cobalt expects the number of dealer clients using its Internet applications and professional services to increase to between 9,000 and 9,500 by the end of 2001.
As Cobalt's market share for Internet applications and professional services approaches 50% of U.S. franchised dealers, the growth rate in new dealer clients is expected to slow. But, the increasing functionality, sophistication and value of the company's products is expected to increase average recurring spend per dealer 18% to 25% to between $360 and $380 per month by the end of 2001.
Cobalt will continue to invest in its technology infrastructure and in the development of new products and services. In the fall of 2000 Cobalt commenced an initiative to increase the flexibility and scalability of the company's e-business architecture. Investments in this project are expected to total $5 to $6 million in 2001, in addition to approximately $5 million spent to date. The majority of that investment will come in the first half of the year. In addition to aggressive efforts to expand its core e-business applications and services, Cobalt will invest between $3 million and $4 million in its business-to-business services such as MotorPlace Auto Exchange and PartsVoice.
Operating expenses are expected to grow at a rate of 30% to 35%, while cost of revenues should remain consistent with prior results in the range of 20% to 22% of gross revenue. Based on these assumptions, net loss per share for the full year 2001 is expected to be in the range of $1.40 to $1.45. Due to expenses connected with investments in infrastructure as well as expenses associated with the NADA conference in the first quarter, Cobalt expects its net loss per share for the first quarter of 2001 to increase to between $0.40 and $0.45 before improving in subsequent quarters.
The anticipated growth in both operating expenses and cost of revenues is driven in large part by significant increases in non-cash expenses due to the amortization of our investments in technology described above. Total cash expenses are estimated to increase at a rate of 40% to 45%, as compared to estimated gross revenue growth of more than 50%.
The company's growth and investment expectations require use of existing cash resources, as well as additional financing. Cobalt intends to meet this need with a credit facility for which the company has already executed a commitment letter with an institutional lender. The company expects to complete loan documentation and have the secured facility in place prior to the end of the first quarter.
Cobalt's business outlook statements, as well as statements regarding Cobalt's future market share, investment plans, business strategy and prospects are based on current expectations as of today only. Due to economic and automotive market variables, among other factors, actual results could differ from the stated outlook and careful consideration should be given to the cautionary statement at the end of this release. Cobalt makes these statements as of today and does not undertake any obligation to update them. It is currently expected that these business outlook statements will not be updated until the release of Cobalt's next quarterly earnings announcement. Cobalt reserves the right to update the outlook upon the occurrence of material events or for any other reason during the quarter.
Fourth Quarter Highlights
o On November 1, 2000, the company received $15 million in funding from a private equity agreement with Warburg Pincus Equity Partners, L.P., First Analysis Venture Capital, and Third Point Partners L.P.
o During the quarter, the company announced an alliance with J.D. Power & Associates to help automotive manufacturers and dealers maximize their e-commerce investments through "best practices" training programs for Internet-based retailing. Through this alliance, both companies will leverage their best practices and capabilities to offer in-store, on-site and online training programs to the automotive industry.
o In October, Cobalt announced that Volkswagen of America, Inc. chose its PartsVoice parts locating system as the exclusive contract vendor for the Volkswagen and Audi National Parts Locator in both the U.S. and Canada. This service makes Volkswagen and Audi dealers' original equipment parts inventory easily accessible to anyone searching for parts, including Volkswagen and Audi dealers, non-Volkswagen and Audi dealers, repair/body shops, fleets, insurance companies and do-it-yourselfers.
o In November, the company announced a new agreement with Kelley Blue Book, the Internet's leading source for new and used car value-pricing reports. Through this agreement, Cobalt helps auto dealers keep consumers on their Web sites by providing the information online shoppers want most -- accurate new and used vehicle prices.
o During November, Cobalt launched myCarTools, a customer relationship management (CRM) product that enables dealers to create ongoing personalized communication with their customers, and an upgraded version of Lead Manager, Cobalt's CRM product designed to help dealers manage and respond to all of their leads through a single Web-based software application. These products help automotive dealers develop lifetime relationships with their customers, thereby gaining a competitive edge.
o In December, Cobalt hired Jeff Danford as Vice President and General Manager of MotorPlace Auto Exchange, an online marketplace operated by Cobalt that allows automobile leasing companies to market and sell wholesale used vehicles to automotive dealers before they are shipped to auction. Danford brings 15 years of experience in the automotive industry, including executive positions with the auto lending division of E-LOAN and DaimlerChrysler's online consumer lending division, giggo.com.
The Cobalt Group, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Three months ended Twelve months ended
December 31, December 31,
2000 1999 2000 1999
(unaudited) (unaudited)
Gross revenues
Internet applications
and professional
services $ 8,793 $ 4,913 $ 28,124 $ 13,511
Data extraction and
aggregation services 3,162 2,726 12,546 7,336
Other services 349 736 1,653 2,439
---------- -------- ---------- ---------
Total gross revenues 12,304 8,375 42,323 23,286
Less: Amortization of
non-cash equity discounts 710 -- 842 --
---------- -------- ---------- ---------
Net revenues 11,594 8,375 41,481 23,286
Cost of revenues, excluding
stock-based compensation
of $13, $18, $61 and
$114, respectively 2,199 1,676 8,283 4,819
---------- -------- ---------- ---------
Gross profit 9,395 6,699 33,198 18,467
Operating expenses
Sales and marketing,
excluding stock-based
compensation of $35, $139,
$130 and $737,
respectively 6,291 3,815 21,832 11,591
Product development, excluding
stock-based compensation of
$38, $108, $173
and $498 respectively 2,507 1,333 7,691 3,168
General and administrative,
excluding stock-based
compensation of $71, $159,
$545 and $1,457
respectively 5,539 4,816 19,836 13,199
Amortization of intangible
assets 1,075 1,330 5,751 3,696
Intangible asset impairment
charge -- -- 9,742 --
Stock-based compensation 157 424 909 2,806
---------- -------- ---------- ---------
Total operating expenses 15,569 11,718 65,761 34,460
---------- -------- ---------- ---------
Loss from operations (6,174) (5,019) (32,563) (15,993)
Interest expense (114) (67) (411) (993)
Interest income 228 -- 1,203 --
Cumulative effect of
change in accounting
principle -- -- (2,164) --
Gain on sale of YachtWorld -- -- 8,658 --
Other income, net 4 257 (67) 485
---------- -------- ---------- ---------
Net loss $ (6,056) $ (4,829) $ (25,344) $ (16,501)
========== ======== ========== =========
Net loss available to common
shareholders $ (6,056) $ (4,829) $ (25,344) $ (18,028)
========== ======== ========== =========
Basic and diluted net loss
per share $ (0.31) $ (0.29) $ (1.41) $ (2.26)
========== ======== ========== =========
Weighted-average shares
outstanding 19,406,069 16,850,441 17,926,335 7,971,443
========== ======== ========== =========
Pro forma gross revenues,
prior to change in accounting
principal $ 13,227 $ 44,805
Effect of change in
accounting principle (923) (2,482)
---------- ----------
Reported gross revenues $ 12,304 $ 42,323
========== ==========
The Cobalt Group, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31, December 31,
2000 1999
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 16,577 $ 14,224
Accounts receivable, net of
allowance for doubtful
accounts of $944 and
$497, respectively 8,892 4,581
Other current assets 1,673 2,225
--------- ---------
27,142 21,030
Capital assets, net 14,256 4,636
Intangible assets, net 15,569 27,330
Other assets 959 1,036
--------- ---------
Total assets $ 57,926 $ 54,032
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 4,696 $ 2,020
Accrued liabilities 2,187 1,520
Deferred revenue 6,786 2,456
Notes payable 270 --
Software financing contract,
current portion 1,054 362
Capital lease obligations,
current portion 900 844
--------- ---------
15,893 7,202
Non-current liabilities
Software financing contract,
non-current portion 279 28
Capital lease obligations,
non-current portion 269 1,217
--------- ---------
548 1,245
Shareholders' equity
Preferred stock; $0.01 par value per
share; 100,000,000 shares authorized;
0 shares issued and outstanding -- --
Common stock; $0.01 par value per
share; 200,000,000 shares authorized;
20,140,376 and 16,855,431
issued and outstanding,
respectively 201 169
Additional paid-in capital 124,021 89,957
Deferred equity expenses (15,888) (3,036)
Notes receivable from shareholders (144) (144)
Accumulated deficit (66,705) (41,361)
---------- ---------
41,485 45,585
---------- ---------
Total liabilities and
shareholders' equity $ 57,926 $ 54,032
========== =========
The Cobalt Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal year ended
December 31,
2000 1999
(unaudited)
Cash Flows from Operating Activities
Net loss $ (25,344) $ (16,501)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of deferred
equity expenses 1,835 2,806
Depreciation and amortization 8,905 4,988
Intangible asset impairment charge 9,742 --
Gain on sale of YachtWorld (8,658) --
Net loss on disposition of assets 87 7
Changes in:
Accounts receivable (4,425) (3,331)
Other assets 748 (3,120)
Accounts payable and
accrued liabilities 4,240 2,573
Deferred revenues 4,545 1,166
---------- ----------
Net cash used in operating
activities (8,325) (11,412)
---------- ----------
Cash Flows from Investing Activities
Acquisition of capital assets (11,148) (1,885)
Proceeds from sale of fixed assets 24 --
Investment in PartsVoice -- (3,281)
Investment in IntegraLink (1,614) --
Proceeds from short term investments -- 983
Proceeds from sale of YachtWorld 8,886 --
---------- ----------
Net cash used in investing
activities (3,852) (4,183)
---------- ----------
Cash Flows from Financing Activities
Proceeds from initial public
offering and direct sale,
net of costs -- 49,776
Proceeds from sale of common stock 15,000 --
Proceeds from sale of preferred stock -- 100
Proceeds from exercise of stock options 514 160
Proceeds from employee stock
purchase plan 455 --
Proceeds from lease financing
transactions 1,170 --
Payments of dividends on
preferred stock -- (2,059)
Payment of notes payable -- (26,600)
Proceeds from notes payable -- 3,600
Payment of capital lease obligations and
software financing contract (2,609) (914)
---------- ----------
Net cash provided by financing
activities 14,530 24,063
---------- ----------
Net Change in Cash 2,353 8,468
Cash, Beginning of Period 14,224 5,756
---------- ----------
Cash, End of Period $ 16,577 $ 14,224
========== ==========