Vsource(R) Announces Results for Third Quarter, First Nine Months
of Fiscal 2004; Change of Directors LA JOLLA, Calif., Dec. 10
/PRNewswire-FirstCall/ -- Vsource, Inc. (BULLETIN BOARD: VSCE) , an
innovative leader in providing customized global business process
outsourcing (BPO) services to clients worldwide, today announced
its financial results for its third quarter and first nine months
of its fiscal year ending January 31, 2004 (fiscal 2004). (Logo:
http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO ) Revenue for
the quarter ended October 31, 2003 totaled $4.73 million, compared
to $6.04 million for the same prior year period. The company
reported a net loss available to common shareholders of $7.80
million or $3.97 per basic share for the third quarter. Net loss
available to common shareholders during the period included a
non-cash charge of $3.03 million from deemed non-cash dividends to
preferred shareholders and one-time charges of $1.47 million for
expenses related to the company's termination of its merger with
TEAM America, Inc., and $0.68 million for accounts receivable due
from Team America that were written off as a result of Team
America's Chapter 11 proceedings. Excluding the deemed non-cash
dividend and the one-time charges, Vsource's net loss was $2.62
million in the third quarter of fiscal 2004. The company recorded a
deemed dividend credit arising from the conversion of preferred
stock to another class of preferred stock in the third quarter
ended October 31, 2002, when it reported a net loss available to
common shareholders of $1.60 million or $0.91 per basic share.
Revenue for the first nine months of fiscal 2004 totaled $14.26
million, compared to $21.04 million for the same prior year period.
The company reported a net loss available to common shareholders of
$16.55 million or $8.75 per basic share for the first nine months
of fiscal 2004. Net loss available to common shareholders during
the period included non-cash charges of $8.66 million from deemed
non-cash dividends to preferred shareholders, $0.09 million from
amortization of stock-based compensation expenses. Excluding the
deemed non-cash dividend and one-time Team America-related charges,
Vsource's net loss was $5.74 million for the first nine months of
fiscal 2004. The company recorded a deemed dividend credit arising
from the conversion of preferred stock to another class of
preferred stock in the same prior year period when it reported a
net loss available to common shareholders of $3.64 million or $2.11
per basic share. The Company's earnings before interest, taxes,
depreciation and amortization, adjusted to exclude non-cash
expenses ("Adjusted EBITDA"), were a loss of $4.25 million for the
quarter ended October 31, 2003, compared with Adjusted EBITDA loss
of $0.38 million, adjusted to exclude non-cash stock-based
compensation charges of $0.06 million and non-cash loss on
extinguishment of debt of $6.70 million, for the same prior year
period. For the first nine months of fiscal 2004, Adjusted EBITDA
were a loss of $6.16 million, adjusted to exclude non-cash stock
compensation charges of $0.09 million, compared with Adjusted
EBITDA of $0.54 million, adjusted to exclude non-cash stock
compensation charges of $0.09 million and loss on extinguishment of
debt of $6.70 million, for the same prior year period. Adjusted
EBITDA represents a non-GAAP (Generally Accepted Accounting
Principles) financial measure. A table reconciling this measure to
the appropriate GAAP measure is included in the notes to the
consolidated financial statements included in this release. Net
cash as of October 31, 2003 totaled $5.12 million, compared to
$12.71 million as of October 31, 2002 and $11.15 million as of
January 31, 2003. Commenting on third quarter results, Vsource
Chairman and Chief Executive Officer, Phil Kelly said, "Clearly the
termination of the Team America merger was a significant set-back
for Vsource in the third quarter. We committed significant efforts
and resources to the merger. While our inability to complete it
arose from events that were beyond our control, it nevertheless did
slow us down. In addition to the negative impact on our financial
performance due to the resulting one-time charges, it caused
short-term disruption in our efforts to build up our delivery of
our Human Capital Management (HCM) services. Despite this, we are
forging ahead with our plans to make a January 2004 large-scale
launch of our HCM solutions to serve small and mid-market
businesses in the U.S." "In our core BPO solutions, our sales
efforts continue to gain momentum with the addition of two
significant contracts with new Fortune 500 clients signed in August
and October, respectively. We added two new facilities to our
expanding network of Centers of Excellence to support these clients
and other newly acquired clients. The Taipei, Taiwan facility is
our third Center of Excellence in the Asia Pacific region designed
to support a global insurance provider in the Taiwan market.
Tomorrow, we will be dedicating our fourth Center of Excellence,
located at the Cyberjaya technology park in Malaysia. This fourth
Center of Excellence will focus on global human resource solutions
to clients worldwide. We are committed to growing our Centers of
Excellence to enhance our unique operating platform for the
delivery of BPO services to clients globally. In addition, during
the third quarter, we achieved many significant milestones as we
continued to build out our infrastructure and continued to
successfully implement and deliver on our client contracts.
Vsource's results for the three months and nine months ended
October 31, 2003 included $0.34 million and $0.67 million,
respectively of revenues generated from a services contract with
TEAM America, Inc. On September 26, 2003, Vsource announced that it
had terminated the Merger Agreement, dated as of June 12, 2003, by
and among Vsource, TEAM America, Inc. and Beaker Acquisition Co.,
Inc., due to the breach by TEAM America of various representations,
warranties, covenants and agreements set forth in the merger
agreement and the occurrence of a material adverse effect on TEAM
America. In addition, Vsource today announced that Bruno Seghin, a
member of its Board of Directors, had resigned with effect from
December 9, 2003, and Luc Villette had been elected by Vsource's
Board of Directors to fill the vacant seat with effect from the
same date. Mr. Seghin, who had served as a Director since October
2002, had been nominated to the Board by Capital International Asia
CDPQ, Inc. ("CDP") pursuant to the terms of a Stockholders
Agreement dated as of October 25, 2002 between Vsource and the
stockholders party thereto (the "Stockholders Agreement"), and CDP
subsequently nominated Mr. Villette to fill the seat vacated by Mr.
Seghin. Based in Hong Kong, Mr. Villette, aged 55, is the Managing
Director of AlterAsiA Limited, a company that provides investment
advisory services to institutional clients. Since 1998, he has
worked for CDPQ, the largest Canadian Pension Fund, serving as
Managing Director of several of their affiliates involved in
private equity investments in Asia. Prior to that, he was the Chief
Operating Officer of Archon Group (France), a Goldman Sachs
subsidiary involved in the acquisition and the work-out of
distressed real estate loans portfolios. From 1987 to 1993, he was
the Chief Financial Officer of Pargesa Holdings and Parfinance,
which were companies listed in Geneva and Paris, respectively, and
both affiliates of Power Corporation of Canada. Vsource, Inc.
Consolidated Statements of Income (in thousands, except per share
data) Three months ended Nine months ended October 31, October 31,
2003 2002 2003 2002 Revenue $4,730 $6,043 $14,264 $21,040 Operating
Expenses Cost of revenue 3,334 3,314 8,571 10,537 Selling, general
and administrative 4,700 3,926 12,051 11,892 Amortization of
stock-based compensation expense -- 57 94 907 Write-off of
merger-related expenses 1,467 -- 1,467 -- Insurance proceeds in
respect of loss on inventory -- -- -- (464) Loss on extinguishments
of debt -- 6,703 -- 6,703 Total expenses 9,501 14,000 22,183 29,575
Operating loss (4,771) (7,957) (7,919) (8,535) Non-cash beneficial
conversion feature expense (1) -- (587) -- (1,717) Other interest
income (expense) 5 (191) 31 (528) Net loss $(4,766) $(8,735)
$(7,888) $(10,780) Non-cash deemed dividend to preferred
shareholders (2) (3,029) 7,136 (8,664) 7,136 Net loss available to
common shareholders $(7,795) $(1,599) $(16,552) $(3,644) Basic and
diluted net loss per share available to common shareholders $(3.97)
$(0.91) $(8.75) $(2.11) Weighted average number of common shares
outstanding Basic and diluted (3) 1,964 1,749 1,892 1,725 Earnings
before interest, taxes, depreciation & amortization excluding
non-cash stock compensation expense (4) $(4,249) $(382) $(6,155)
$1,353 Adjusted EBITDA margin (5) -89.8% -6.3% -43.2% 2.6% (1)
Non-cash beneficial conversion feature charges associated with the
issuance of convertible debt (2) Non-cash deemed dividend for
preferred shareholders associated with the amortization of
beneficial conversion feature and accretion of redemption value of
Series 4-A convertible preferred stock and; associated with
reversal of beneficial conversion feature originally recognized on
Series 2-A convertible preferred stock and warrants upon exchange
for Series 4-A convertible preferred stock (3) Excludes common
shares outstanding on an "as converted basis" totaling 20.3 million
in aggregate associated with preferred stock, warrants and vested
employee options outstanding (4) Reconciliation of Net loss to
Adjusted EBITDA Three months ended Nine months ended October 31,
October 31, 2003 2002 2003 2002 Net loss $(4,766) $(8,735) $(7,888)
(10,780) Add: Non-cash beneficial conversion feature expense -- 587
-- 1,717 Other interest (income) expense (5) 191 (31) (528)
Depreciation and amortization 522 815 1,670 2,278 Amortization of
stock-based compensation expense -- 57 94 907 Loss on
extinguishments of debt -- 6,703 -- 6,703 Adjusted EBITDA $(4,249)
$(382) $(6,155) $1,353 (5) Adjusted EBITDA margin is Adjusted
EBITDA divided by Revenue Vsource, Inc. Consolidated Balance Sheets
(in thousands) October 31, January 31, 2003 2003 Assets Current
assets: Cash $5,118 $11,152 Restricted cash 150 150 Accounts
receivable, net 1,692 1,522 Inventories 276 490 Prepaid expenses
270 337 Other current assets 1,608 1,262 Total current assets 9,114
14,913 Property and equipment, net 4,373 4,974 Restricted cash,
non-current 500 250 Total assets $13,987 $20,137 Liabilities,
Preferred stock and Shareholders' (deficit) equity Current
liabilities: Accounts payable $1,853 $1,134 Accrued expenses 5,187
3,333 Advance from customers 1,206 1,229 Total current liabilities
8,246 5,696 Advance from customer, non-current -- 900 Preferred
stock 16,134 8,096 Shareholders' (deficit) equity (10,393) 5,445
Total Liabilities, Preferred stock and Shareholders' (deficit)
equity $13,987 $20,137 Non-GAAP Financial Measures This release
contains non-GAAP financial measures. Pursuant to the requirements
of Regulation G, Vsource has provided reconciliation within this
release of the non-GAAP financial measures to the most directly
comparable GAAP financial measures. Adjusted EBITDA has been
presented in this release in order to assist in the analysis of the
operating profitability of the company because the company believes
this form of measurement eliminates the effects of non-cash charges
such as beneficial conversion feature expense, stock-based
compensation and depreciation and amortization. Management reviews
this form of measurement monthly. Vsource has consistently provided
this measurement in previous releases and therefore has provided a
consistent basis for comparison between quarters, which the company
believes is useful to investors and other interested persons. About
Vsource Vsource, Inc., headquartered in La Jolla, Calif., provides
customized business process outsourcing (BPO) services to clients
worldwide. Under Vsource Client Outsourcing Solutions (COS),
Vsource delivers superior BPO solutions to Fortune 500 and Global
500 organizations. Vsource COS include: Human Resource Solutions,
Warranty Solutions, Sales Solutions, and Vsource Foundation
Solutions(TM), which include Customer Relationship Management
(CRM), Financial Services, Travel and Expense Claims, and Supply
Chain Management (SCM). Under Vsource Humans Capital Management
(HCM) solutions, Vsource delivers Fortune 500 reliability to small
and medium-sized businesses in the U.S. HCM solutions include: HR
Management, Health & Welfare, Administrative Services, and Risk
Management. For more information, log on to:
http://www.vsource.com/ . For more information, visit the Vsource
Web site: http://www.vsource.com/. Forward Looking Statements: Some
of the statements in this release and other oral and written
statements made by us from time to time to the public constitute
forward-looking statements. These forward-looking statements are
based on management's current expectations or beliefs and are
subject to a number of factors and uncertainties that could cause
actual results to differ materially from those described in the
forward-looking statements. These forward-looking statements
include, without limitation, statements with respect to anticipated
future operating and financial performance, introduction of
services and growth opportunities expected or anticipated to be
realized by management. Vsource disclaims any obligation to update
or revise any forward-looking statements based on the occurrence of
future events, the receipt of new information, or otherwise.
Factors that could cause or contribute to such differences include,
but are not limited to, reliance on one client and the expectation
that revenues from this client will decline significantly, a
potential requirement to redeem our Series 4-A convertible
preferred stock if we fail to meet certain conditions by March 31,
2006, our limited experience in the business process outsourcing
business, the new and unproven market for business process
outsourcing services in the Asia-Pacific region, long cycles for
sales of our solutions, complexities involved in implementing and
integrating our services, fluctuations in revenues and operating
results, economic and infrastructure disruptions, dependence on a
small number of vendors and service providers, litigation, and
competition. Other factors that may affect these statements are
identified in our previous filings with the Securities and Exchange
Commission. Vsource is a registered trademark of Vsource, Inc.
vMarketing and Vsource Foundation Solutions are trademarks of
Vsource, Inc. Fortune, Fortune 500 and Global 500 are registered
trademarks of Time Inc. Vsource disclaims any proprietary interest
in the marks and names of others. For further information, please
contact: Cindy Kim of Vsource, Inc., +1-858-456-4871, .
http://www.newscom.com/cgi-bin/prnh/20030910/VSCELOGO
http://photoarchive.ap.org/ DATASOURCE: Vsource, Inc. CONTACT:
Cindy Kim of Vsource, Inc., +1-858-456-4871, Web site:
http://www.vsource.com/
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