PASADENA, Calif., Feb 6, 2003 (BUSINESS WIRE) -- Overture Services, Inc.
(Nasdaq: OVER), the world's leading provider of Pay-For-Performance search
to Web sites across the Internet, today announced strong operating results
for the fourth quarter and year ended December 31, 2002.
Fourth Quarter Results
Overture reported fourth quarter 2002 revenue of $199.6 million, a 97
percent increase from revenue of $101.2 million in the fourth quarter
of 2001, and a 16 percent sequential increase over revenue of $172.7 million
in the third quarter of 2002.
Fourth quarter 2002 net income was $14.7 million, or $0.24 per diluted
share, excluding a previously announced, one-time, pre-tax charge of $8.7
million related to an unfavorable arbitration ruling regarding a former
affiliate, InternetFuel. Excluding the charge, earnings per share exceeded
the company's previous forecasts.
Including the one-time charge, the company reported fourth quarter 2002
net income of $9.5 million, or $0.16 per diluted share. This compares
to fourth quarter 2001 net income of $20.8 million, or $0.35 per diluted
share. Fourth quarter 2002 results included $3.3 million in tax expense,
compared to $750,000 in the fourth quarter of 2001. In the third quarter
of 2002, Overture reported net income of $16.9 million, or $0.28 per diluted
Full Year 2002 Results
For the year ended 2002, Overture reported revenue of $667.7 million,
a 132 percent increase from revenue of $288.1 million for 2001.
For the year, the company posted net income of $78.4 million, or $1.31
per diluted share, excluding the fourth quarter one-time charge. Including
the one-time charge, the company reported 2002 net income of $73.1 million,
or $1.23 per diluted share. This compares to net income of $20.2 million,
or $0.36 per diluted share, for 2001. Full year 2002 results included
$21.5 million in tax expense, compared to $900,000 in full year 2001.
Overture ended 2002 with a strong balance sheet, including approximately
$251 million in unrestricted cash and liquid investments, up from $170
million as of December 31, 2001 and $221 million as of September 30, 2002.
"We continue to make great progress toward our mission of providing
marketers with new and powerful ways to connect with customers,"
said Ted Meisel, Overture's president and chief executive officer. "In
a dynamic market, we executed well across every important measure of the
business and ended a highly successful year on a strong note."
The key metrics driving Overture's revenue include: paid introductions
(when a user clicks on an Overture listing); and the average price per
introduction paid by Overture's base of advertisers. Overture facilitated
563 million paid introductions between advertisers and consumers on a
worldwide basis in the fourth quarter of 2002, compared to 442 million
paid introductions on a worldwide basis in the fourth quarter of 2001
and 500 million in the third quarter of 2002. For the full year 2002,
Overture facilitated 2.2 billion paid introductions, up from 1.4 billion
for the full year 2001.
To drive customer leads to their Web sites, more advertisers are increasing
the amount of their bids in Overture's dynamic marketplace. On a worldwide
basis, advertisers paid Overture an average of $0.35 for each paid introduction
during the fourth quarter of 2002. This compares with an average of $0.23
for each paid introduction in the fourth quarter of 2001 and $0.34 in
the third quarter of 2002.
Advertiser Growth and High Levels of Customer Service
Advertiser growth remains strong as more companies adopt Pay-For-Performance
search to generate more qualified leads and achieve higher sales. The
company added more than 7,000 companies to its roster of advertisers in
the fourth quarter of 2002, bringing the total number of active, paying
advertisers to more than 80,000, up 51 percent from 53,000 in the fourth
quarter of 2001 and up 10 percent sequentially from 73,000 in the third
quarter of 2002.
Overture's worldwide base of advertisers is made up of direct marketers
from a variety of industries, including retailers, publishers and financial
services firms. Macys.com and Skechers USA are examples of companies that
became Overture advertisers in the fourth quarter of 2002.
As part of Overture's ongoing efforts to enhance customer service, the
company launched its FastTrack sign-up program in November to enable advertisers
to more easily create successful Pay-For-Performance marketing campaigns.
The program offers new advertisers access to expert advice from Overture
in suggesting keywords and search titles. Additionally, Overture reengineered
its editorial processes to further improve the quality of search listings,
streamline the process for advertisers and reduce overall costs.
Premier Distribution Partnerships
Backed by the highest quality commercial search listings, Overture has
built the most extensive Internet search distribution network both in
the U.S. and overseas.
Among new agreements won in the fourth quarter of 2002, Overture signed
an exclusive, three-year commercial search distribution agreement with
leading news provider CNN, a division of Turner Broadcasting System, Inc.,
an AOL Time Warner Company. Under terms of the agreement, Overture provides
its paid search listings to three of CNN News Group's Web properties:
CNN.com, the top news and information site on the Web; SI.com and CNNMoney.com.
Subsequent to the fourth quarter, Overture signed an exclusive commercial
search distribution agreement with ESPN.com for two years. Under terms
of the agreement, ESPN.com will add custom search boxes to its Web pages,
serving up to seven Overture search listings under the heading, "Sponsored
Expanding current relationships and building new business in Europe and
Asia also heightened Overture's solid operating momentum. In Europe, Overture's
United Kingdom subsidiary renewed its exclusive, multi-year distribution
agreement for Pay-For-Performance services with Freeserve, the UK's number
one Internet portal and access provider. Freeserve is wholly owned by
leading European online media and services company Wanadoo, a subsidiary
of France Telecom. Additionally, Overture announced an agreement to become
the exclusive provider of Pay-For-Performance services on Wanadoo and
Voila in France.
Subsequent to the fourth quarter, Overture announced that it had expanded
its search distribution relationship with AOL Europe. Under the terms
of the multi-year agreement, Overture's European operation will now provide
its commercial search results to both AOL Europe's search directories
in the UK, Germany and France on its AOL properties and to the popular
Netscape Germany and Netscape France portals.
In Asia, Overture secured partnerships with Yahoo! JAPAN, the largest
Japanese portal, as well as a test with MSN Japan for the MSN Japan Search
Pane and MSN Japan Web site. Subsequent to the fourth quarter, Overture
signed an exclusive, three-year commercial search distribution agreement
with Daum Communications, operator of Korea's largest Internet portal,
as part of Overture's plans to enter the South Korean market in the first
half of 2003.
Expressed as a percentage of revenue, traffic acquisition costs (TAC)
were 62 percent in the fourth quarter of 2002, compared to 51 percent
in the fourth quarter of 2001. Third quarter 2002 TAC was 59 percent.
Strong International Growth
Following four successful international market launches in the past two
years, Overture has established itself as the global leader in Pay-For-Performance
search and will continue to make further investments to expand this lead.
The company believes opportunities overseas rival the U.S. in terms of
search market growth and potential.
The most recent overseas market launch took place in December when Overture
announced its official entry into Japan, the world's second largest Internet
market. The company's first Asian marketplace reaches more than 87 percent
of Japanese Internet users and counts Yahoo! JAPAN, MSN Japan, Lycos Japan,
Infoseek and NTT-X, which operates the "goo" Internet portal,
among its distribution partners.
Subsequent to the fourth quarter of 2002, Overture announced its plans
to launch in the South Korean market in the first half of 2003. Through
the company's relationship with Daum Communications, advertisers will
reach more than 89 percent of Korean Internet users at launch.
Operating momentum in Europe is equally strong. In the UK, Overture achieved
its fourth consecutive quarter of profitability and now reaches more than
82 percent of the UK Internet population, up from 65 percent in the fourth
quarter of 2001. New advertisers that began participating in Overture's
UK marketplace during the quarter include Next, Lombard Direct and Natwest.
In Germany, the implementation of Lycos and its major German search brands,
including lycos.de, fireball.de and hotbot.de, further extended Overture's
market leadership, with the company's reach extending to 85 percent of
the German Internet population, up from 73 percent at launch in February
2002. Additionally, the company's agreement with MSN Germany was expanded
to include leading German MSN partner Web sites such as cinema.de, focus.de
and tvspielfilm.de. New advertiser growth was also strong, with brands
such as Barclaycard, Bosch, Citibank and CompuServe joining the company's
Lastly, Overture France now reaches 89 percent of French Internet users,
up from 40 percent at launch in September 2002. Overture's French advertiser
base includes top brands such as Air France, L'Oreal/Lancome, Renault,
Apple, Dell and Intel.
Based on continued success in international markets, Overture expects
to expand into Spain and Italy, as well as other European countries in
The following discussion contains forward-looking information intended
solely to provide management's current expectations for the first quarter
and full year 2003. These expectations are subject to risks and uncertainties
and may prove to be inaccurate. Even though the forecasts provided herein
may change, Overture undertakes no obligation to revise or update this
information and may not provide this type of information in the future.
All numbers are approximate.
First Quarter 2003
Revenue $215-$220 million
Traffic acquisition costs as a percentage of revenue 63%-64%
Income before taxes $15-$17 million
Net income $8-$9 million
Earnings per share $0.13-$0.14
EBITDA $23-$25 million
Full Year 2003
Overture is targeting full year 2003 revenue of approximately $1 billion.
TAC, as a percentage of revenue, is expected to increase by 25 to 50 basis
points per quarter from the end of the first quarter of 2003 through 2004.
EPS and EBITDA are expected to be inline with previous estimates of $0.90-$1.05
and $125-$150 million, respectively.
Conference Call Details
Overture will be holding a conference call to discuss its fourth quarter
2002 results at 5:00 p.m. Eastern/2:00 p.m. Pacific today, February 6,
2003. Participants will have the opportunity to listen to the conference
call live over the Internet at www.overture.com or at www.companyboardroom.com.
Please go to either site 15 minutes prior to the start of the call to
download any necessary software. For those who cannot listen to the live
broadcast of the call, a replay will be available shortly after the live
Overture (Nasdaq: OVER) is the world's leader in Pay-For-Performance
search on the Internet. The company created the market for Pay-For-Performance
search by redefining how businesses market online. In the fourth quarter
of 2002, Overture facilitated 563 million paid introductions on a worldwide
basis between consumers and its 80,000 advertisers, who bid for placement
on relevant search results and pay Overture only when a consumer clicks
on their listing. Following a rigorous screening for user relevance by
Overture's editorial team, the company distributes its search results
to tens of thousands of sites across the Internet, including Yahoo!, MSN
and InfoSpace, making it the largest Pay-For-Performance search and advertising
network on the Internet. Overture is based in Pasadena, California, with
offices in New York and San Francisco, and subsidiary offices in the UK,
Germany, Ireland, France, Japan and South Korea. For more information,
This press release contains forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements include
without limitation statements regarding management's expectations regarding
Overture's future financial performance, including Overture's future revenue,
cost of revenue, traffic acquisition costs, marketing, sales and service
expenses, general and administrative expenses, product development costs,
net income, earnings per share and EBITDA; Overture's beliefs and expectations
about the future, the search market and its position to capitalize on
opportunities in that market, the acceptance and adoption of Pay-For-Performance
search, Overture's affiliate partnerships and affiliate program, Overture's
business model, the growth of Overture's overseas markets and Overture's
planned launches in Korea, Spain, Italy and other European countries.
These statements are subject to risks and uncertainties that could cause
actual results and events to differ materially. These risks and uncertainties
include, among others: possible fluctuations in the demand for Overture's
services; possible fluctuations in economic conditions affecting the markets
for Overture's services; Overture's ability to compete with existing or
new competitors; possible future price cutting or other actions by Overture's
competitors; the risk that Overture's key performance metrics, including
overall traffic and use of Overture's services, number of paid clicks,
average price per paid click and the number of advertisers that might
not continue to increase at historical rates or might decline; the risk
that Overture may not experience benefits through agreements with its
affiliates or that affiliates may not continue or renew their agreements
with Overture; and the risk that Overture may encounter difficulties in
connection with or not experience benefits from international expansion
or that the costs of international expansion might be higher than anticipated.
For a discussion of other risks that could cause actual results or events
to differ materially from such forward-looking statements, see the discussion
of "Risks That Could Affect Our Financial Condition and Results of
Operations" in Overture's quarterly report on Form 10-Q filed with
the Securities and Exchange Commission for the period ended September
30, 2002. Overture undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date
of this press release.
Overture and Pay-For-Performance are service marks of Overture Services,
OVERTURE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
December 31, December 31,
Cash and cash equivalents $78,987 $61,974
Short-term investments 118,905 71,837
Accounts receivable, net 31,682 10,973
Prepaid expenses, deferred tax assets and
other 31,720 1,920
Prepaid traffic acquisition expense 25,372 8,590
Total current assets 286,666 155,294
Property and equipment, net 55,656 27,966
Intangible assets, net 1,393 2,042
Restricted investments -- 5,744
Long-term investments 52,852 36,476
Long-term prepaid traffic acquisition
expense and other assets 39,149 4,405
Total assets $435,716 $231,927
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $93,293 $38,111
Accrued expenses 21,010 5,271
Deferred revenue 16,672 8,949
Current portion of capital lease
obligations -- 89
Total current liabilities 130,975 52,420
Long-term liabilities 1,203 64
Common stock, $0.0001 par value, 200,000
shares authorized as of December 31,
2002 and December 31, 2001; shares
issued and outstanding 59,249 and
57,616 as of December 31, 2002 and
December 31, 2001, respectively 6 6
Additional paid-in capital 709,568 662,039
Deferred compensation, net (210) (763)
Accumulated deficit (408,716) (481,863)
Accumulated other comprehensive income 2,890 24
Total stockholders' equity 303,538 179,443
Total liabilities and stockholders' equity $435,716 $231,927
OVERTURE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
Revenue $199,640 $101,188 $667,730 $288,133
Search serving 9,726 5,042 32,723 20,962
Traffic acquisition 124,752 51,911 384,583 162,072
Marketing, sales and
service 16,162 8,063 55,245 28,078
General and administrative 22,560 13,030 75,618 44,917
Product development 5,495 3,104 19,372 12,811
Amortization of deferred
intangible assets 523 489 1,753 2,041
disposition of GoTo
Auctions and GoTo
Shopping -- (601) -- 3,010
Loss on litigation ruling 8,700 -- 8,700 --
187,918 81,038 577,994 273,891
Income from operations 11,722 20,150 89,736 14,242
Interest income, net 1,045 1,295 3,938 4,260
Other income, net 42 73 974 2,561
Income before income taxes 12,809 21,518 94,648 21,063
Provision for income taxes 3,296 750 21,501 900
Net income $9,513 $20,768 $73,147 $20,163
Basic net income per share $0.16 $0.37 $1.27 $0.38
Diluted net income per
share $0.16 $0.35 $1.23 $0.36
Weighted average shares
used to compute basic net
income per share 58,944 56,652 57,674 53,363
Weighted average shares
used to compute diluted
net income per share 60,430 59,685 59,603 55,533
Earnings before interest,
taxes, depreciation and
(EBITDA) (1) $ 19,250 $24,487 $ 113,832 $ 32,404
(1) EBITDA data should be considered in addition to, not as a
substitute for or superior to, income from operations, net income, net
income per share, cash flows, or other measures of financial
performance prepared in accordance with generally accepted accounting
For 2002, EBITDA includes a non-recurring charge of $8.7 million for
an accrual with respect to an unfavorable arbitration ruling regarding
a former affiliate, InternetFuel. For 2001, EBITDA includes certain
non-recurring items, including the loss on disposition of GoTo
Auctions and GoTo Shopping; legal costs and other expenses paid by
Overture to defend against litigation from MercExchange, which are
included in general and administrative expenses; and the reimbursement
of legal costs and other expenses pertaining to the MercExchange
litigation, which is included in other income.
Three Months Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
Reconciliation of Non-GAAP
Net income excluding one time
charge (1) $14,733 $20,768 $78,367 $20,163
Less: Loss on litigation
ruling (8,700) -- (8,700) --
Add: Tax effect 3,480 -- 3,480 --
Net income $9,513 $20,768 $73,147 $20,163
EBITDA $19,250 $24,487 $113,832 $32,404
Less: Depreciation (6,963) (3,775) (21,370) (13,560)
Less: Amortization (523) (489) (1,752) (2,041)
Less: Other income (42) (73) (974) (2,561)
Income from operations $11,722 $20,150 $89,736 $14,242
(1) We believe the non-GAAP measure, net income excluding one time
charge for the loss on an unfavorable litigation ruling, provides
useful information regarding the ongoing operations of the Company
since the Company believes this type of item is unlikely to reoccur.
This measure should be considered in addition to, not as a substitute
for or superior to, net income, net income per share or other measures
of financial performance prepared in accordance with generally
accepted accounting principles.
Overture Services, Inc.
Laurie Berman, 626/229-5368 (Investors)
Al Duncan, 626/685-5714 (Media)