iMergent Press Release: iMergent Announces First Quarter Fiscal 2007 Financial Results


	iMergent Announces First Quarter Fiscal 2007 Financial Results Reports Total Revenue of $29.0 Million Delivers $32.4 Million in Net Dollar Volume of Contracts Written Delivers $3.0 Million of Net Cash Provided by Operating Activities Increasing Cash and Cash Equivalents to $31.5 Million Increases Trade Receivables Net of Allowance for Doubtful Accounts by $4.3 Million to $25.2 Million Posts Diluted EPS of $0.18 GAAP and $0.31 Non-GAAP Company Increases Guidance for Fiscal 2007 Net Dollar Volume of Contracts Written to Grow Between 25% and 30% over Fiscal 2006 7 November, 2006, 2:10 pm MT OREM, Utah, November 7, 2006 -iMergent, Inc.(AMEX: IIG), a leading provider of eCommerce and software for small businesses and entrepreneurs, today announced its financial results for the three months ended September 30, 2006. Don Danks, chairman and chief executive officer, stated, “We hit the ground running in 2007, making progress on all fronts and delivering an excellent quarter. Revenue reached $29.0 million with strong domestic sales and a reinvigorated international program. During the three months ended September 30, 2006, we held 243 workshops, including 21 internationally, compared to 175 workshops, including one internationally, during the same period last year. Additionally, we are experiencing traction from marketing partnerships and believe we can continue to grow the business throughout the remainder of fiscal 2007 and beyond.” Brandon Lewis, president, stated, “As a company we continually work to improve our customer service. In addition, in August 2006, we instituted a 45-day to 60-day waiting period between the initial software license sales and some of our third-party follow-up offerings to our customers. Our goal was to provide customers with more time to gain a deeper understanding of their specific needs prior to some third parties offering additional products and services. This decision, however, lowered our commissions and other revenue this quarter, and we expect that trend will continue through December 2006. We expect commissions and other revenue will begin to increase in January 2007.” “We posted net dollar volume of contracts written of $32.4 million this quarter, achieving another record level,” stated Robert Lewis, chief financial officer. “Also during the quarter, we generated $3.0 million in cash from operating activities, and we repurchased 113,800 shares of our common stock for $1.6 million.” As of September 30, 2006, cash and cash equivalents were $31.5 million; net trade receivables were $25.2 million; working capital was $20.5 million; and working capital excluding deferred revenue was $44.4 million. Comparison of Three-months Ended September 30, 2006 to September 30, 2005 Revenues for the first quarter of fiscal 2007 increased to $29.0 million from $11.4 million for the first quarter of fiscal 2006. The increase is primarily due to the change in business model implemented in December 2005. Net dollar volume of contracts written was $32.4 million for the current quarter compared to $17.0 million for the same period last year. The company believes that the net dollar volume of contracts written during each period is a relevant metric to understand the operations of the company. Net dollar volume of contracts written represents the gross dollar amount of contracts executed during the period less estimates for bad debts, discounts incurred on sales of trade receivables, and estimates for customer returns. A table reconciling US Generally Accepted Accounting Principles (US GAAP) revenue to net dollar volume of contracts written follows in this press release. Total operating expenses were $26.5 million for the quarter compared to $17.2 million for the comparable quarter of the previous fiscal year. The increase in cost of product and other revenue and selling and marketing expense was primarily attributable to the increase in net dollar volume of contracts written and additional marketing activities associated with an increase in workshops conducted in October 2006. General and administrative expenses increased due to higher professional fees of approximately $260,000 associated with the board of directors’ analysis to repurchase stock, higher legal expenses of approximately $240,000, an increase in stock option compensation expense of approximately $180,000 resulting from the issuance of stock options in July 2006, and a general increase in salaries and wages, insurance costs and other expenses due to the increased sales activity. Net income was $2.3 million, or $0.18 per diluted common share, for the three months ended September 30, 2006, compared to a net loss of $(5.5 million), or $(0.45) per common share, for the comparable quarter of the prior year. Non-GAAP net income was $4.0 million, or $0.31 per diluted common share, for the three months ended September 30, 2006, compared to non-GAAP net income of $140,000, or $0.01 per diluted common share, for the comparable quarter of the prior year. Outlook As previously announced, in fiscal 2007, the company expects product and other revenues to decrease as a result of the recognition of a significant amount of revenue that occurred in fiscal 2006 as a result of the change in the Company’s business model in December 2005. Danks added, “Due to strong demand and response to our marketing, we are increasing guidance for full year 2007. We now expect net dollar volume of contracts written to grow between 25 percent and 30 percent compared to fiscal 2006. Additionally, we continue to anticipate non-GAAP pre-tax income will grow at a faster rate than net dollar volume of contracts written.” Conference Call The company is hosting a conference call today at 1:30 p.m. PT (4:30 p.m. ET). The call will be broadcast live over the Internet at www.imergentinc.com. If you do not have Internet access, the telephone dial-in number is 800-639-0297 for domestic participants and 706-634-7417 for international participants. Please dial in five to ten minutes prior to the beginning of the call. A telephone replay will be available through November 9, 2006; dial 706-645-9291, and enter access code 9572145. Safe Harbor Statement The statements made in this press release regarding (i) iMergent continuing its progress of strong domestic sales and reinvigorated international programs, (ii) iMergent’s commissions and other revenue beginning to increase beginning January 2007 (iii) iMergent continuing to experience traction from marketing partnerships, (iv) iMergent’s ability to continue to grow its business throughout the remainder of fiscal 2007 and beyond, (v) iMergent continuing to improve its customer service (vi) iMergent’s expectation that GAAP product and other revenue will decrease as a result of the change in business model in December 2005, (vii) iMergent’s goal that net dollar volume of contracts written will grow between 25 percent and 30 percent in fiscal 2007, (viii) iMergent’s ability to generate new products and initiatives, and other statements that are not historical in nature constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current expectations and beliefs of the management of iMergent and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such risks and uncertainties include, without limitation, the Company’s ability to increase the net dollar volume of contracts written; the Company properly estimating customer returns and cash collections on financed contracts; the Company’s ability to continue to evaluate and find ancillary products; the Company’s ability to offer best solutions to its customers; the Company’s ability to maintain a very solid customer base; the Company’s ability to have lucrative long-term relationships with its customers; that the market for the Company’s products will continue to grow; whether regulatory authorities will bring future actions against the Company; the success of StoresOnline ™ Pro; the continued ability to increase the number of workshops; the ability to expand operating margins; fluctuations in the Company’s operating results because of negative publicity, seasonality, competition and other factors; adverse international or domestic regulatory developments affecting the internet or the Company’s business; the effect of competitive and economic factors and the Company’s reaction to them; possible disruption in commercial activities caused by terrorist activity and armed conflicts; changes in logistics and security arrangements; reduced purchases relative to security expectations; possible disruption in commercial activity as a result of natural disasters or major health concerns including epidemics; continued competitive pressures in the marketplace; the ability of the Company to successfully evolve its products; costs of and developments in the Company’s pending litigation and SEC investigation; the Company’s ability to generate revenue and profits from current strategic partnerships; the Company’s ability to generate positive cash flows from operating activities; the ability to sell receivables; the continued ability of the Company to repurchase its common shares and what effect those transactions may have on cash and liquidity; the Company’s ability to expand current markets and develop new markets and establish profitable strategic partnerships; the Company’s ability to continue to finance extended payment term arrangement customer contracts; whether there is continual demand for the Company’s products and services in its target market of small business and entrepreneurs for assistance in establishing websites; that the Company can successfully adjust its product financing policy, and that such adjustments to the policy will not negatively impact business or revenues; that the Company is able to leverage its business; that the Company does improve margins and can continue to improve margins; that new products and initiatives in the pipeline will be implemented; that new products and initiatives, if implemented, will improve the customer base and margins of the Company; that the Company can broaden its training and education programs as well as offer new products and solutions; that if the Company is able to broaden its training and education programs as well as offer new products and solutions that such actions will have a positive impact on the Company, its customers, its customer relationships, its margins or revenues; and, that the growth strategy undertaken by the Company will be successful. For a more detailed discussion of risk factors that may affect iMergent's operations, please refer to the Company’s Form 10-K for the year ended June 30, 2006. These forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update such forward-looking statements, except as required by law. About iMergent iMergent provides eCommerce solutions to entrepreneurs and small businesses enabling them to market and sell their business products or ideas via the Internet. Headquartered in Orem, Utah, the Company sells its proprietary StoresOnline software and training services, helping users build a successful Internet strategy to market products, accept online orders, analyze marketing performance, and manage pricing and customers. In addition to software, iMergent offers site development, web hosting, marketing and mentoring products. iMergent typically reaches its target audience through a concentrated direct marketing effort to fill Preview Sessions, in which a StoresOnline expert reviews the product opportunities and costs. These sessions lead to a follow-up Workshop Conference, where product and technology experts train potential users on the software and encourage them to make purchases. iMergent, Inc. and StoresOnline are trademarks of iMergent, Inc. iMERGENT, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data) (unaudited) September 30, 2006 June 30, 2006 ------------------- -------------- Assets Current assets: Cash and cash equivalents $ 31,466 $ 30,023 Certificate of deposit - 500 Trade receivables, net of allowance for doubtful accounts of $9,181 as of September 30, 2006 and $6,894 as of June 30, 2006 16,872 13,419 Inventories 157 151 Prepaid expenses and other 4,726 2,739 ------------------- -------------- Total current assets 53,221 46,832 Certificate of deposit 500 - Long-term trade receivables, net of allowance for doubtful accounts of $4,788 as of September 30, 2006 and $4,117 as of June 30, 2006 8,320 7,508 Property and equipment, net 824 696 Deferred income tax assets 8,606 9,976 Merchant account deposits and other 1,047 1,000 ------------------- -------------- Total Assets $ 72,518 $ 66,012 =================== ============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,683 $ 2,752 Accrued expenses and other 4,353 4,085 Income taxes payable 735 348 Deferred revenue, current portion 23,853 20,064 Capital lease obligations, current portion 71 91 ------------------- -------------- Total current liabilities 32,695 27,340 Deferred revenue, net of current portion 8,336 8,693 ------------------- -------------- Total liabilities 41,031 36,033 ------------------- -------------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $0.001 per share - authorized 5,000,000 shares; none issued - - Common stock, par value $0.001 per share - authorized 100,000,000 shares; 12,289,410 shares outstanding as of September 30, 2006 and 12,375,313 shares outstanding as of June 30, 2006 12 12 Additional paid-in capital 76,942 77,762 Accumulated deficit (45,467) (47,795) ------------------- -------------- Total stockholders' equity 31,487 29,979 ------------------- -------------- Total Liabilities and Stockholders' Equity $ 72,518 $ 66,012 =================== ============== iMERGENT, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) (unaudited) Three Months Ended September 30, ----------------------------------- 2006 2005 ----------------- ---------------- Revenues: Product and other $ 25,445 $ 8,969 Commission and other 3,564 2,424 ----------------- ---------------- Total revenues 29,009 11,393 ----------------- ---------------- Operating expenses: Cost of product and other revenues 9,208 5,803 Selling and marketing 12,752 7,608 General and administrative 4,308 3,504 Research and development 234 274 ----------------- ---------------- Total operating expenses 26,502 17,189 ----------------- ---------------- Income (loss) from operations 2,507 (5,796) ----------------- ---------------- Other income (expense): Interest income 1,368 676 Interest expense (2) (10) Other income (expense), net 15 (231) ----------------- ---------------- Total other income, net 1,381 435 ----------------- ---------------- Income (loss) before income tax provision 3,888 (5,361) Income tax provision 1,560 158 ----------------- ---------------- Net income (loss) $ 2,328 $ (5,519) ================= ================ Net income (loss) per common share: Basic $ 0.19 $ (0.45) Diluted $ 0.18 $ (0.45) Weighted average common shares outstanding: Basic 12,366,479 12,132,134 Diluted 12,873,789 12,132,134 iMERGENT, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (unaudited) Three months ended September 30, -------------------- Increase (decrease) in cash and cash equivalents 2006 2005 ------------------------------------------------ --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 2,328 $ (5,519) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 122 64 Expense for stock options issued to employees 540 337 Expense for stock options issued to consultants 34 22 Changes in assets and liabilities: Trade receivables and trade receivables held for sale (4,265) 15,504 Inventories (6) (68) Prepaid expenses and other (1,987) (728) Merchant account deposits and other (47) (629) Deferred income tax asset 1,370 - Accounts payable, accrued expenses and other liabilities 1,045 622 Deferred revenue 3,432 5,594 Income taxes payable 388 - --------- ---------- Net cash provided by operating activities 2,953 15,199 --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (95) (33) --------- ---------- Net cash used in investing activities (95) (33) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock (1,566) - Proceeds from exercise of options and related tax benefit 172 10 Principal payments on capital lease obligations (20) (12) --------- ---------- Net cash used in financing activities (1,414) (2) --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,443 15,164 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 30,023 10,691 --------- ---------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 31,466 $ 25,855 ========= ========== Supplemental disclosures of non-cash transactions: Purchase of property and equipment included in accounts payable $ 154 $ - Trade receivables pledged and collateralized borrowings - 445 Cash paid during the year for: Interest 2 2 Income taxes 22 5 Net Dollar Volume of Contracts Written Until the change in our business model in late December 2005, the Company recognized product and other revenue ratably over a period of five years and not at the time contracts were written in accordance with US GAAP. Effective December 2005, the Company began recognizing product and other revenue after the expiration of the three-day cancellation period for contracts written for which cash payments were received. For products purchased by customers under extended payment term arrangements, the Company continues to defer and recognize revenue as cash payments are received from customers, typically over two years. Because of the changes in the Company's revenue recognition policies resulting from the change in business model noted above and due to the Company's growth, management believes that the net dollar volume of contracts written is a consistent and relevant metric to understand the operations of the Company. Net dollar volume of contracts written represents the gross dollar amount of contracts executed during the period less estimates for bad debts, discounts incurred on sales of trade receivables (financial discounts), and estimates for customer returns. Management uses this non-GAAP metric to evaluate the profitability of the Company's operations because net dollar volume of contracts written is the primary factor that influences cost of revenue and selling and marketing expenses, which are typically recognized at the time the contract is written but no later than the expiration of the customer's three-day cancellation period. Consequently, management measures the Company's operating performance and sets its future operating budgets based upon the net dollar volume of contracts written during the period. Net dollar volume of contracts written is not equivalent to revenue recognized in accordance with US GAAP. This non-GAAP metric represents cash contracts written plus estimates of future cash collections on financed contracts, net of estimated customer returns. In contrast, revenue recognized in accordance with US GAAP represents cash contracts written net of estimated customer returns plus actual cash collections on financed contracts. Actual collections on financed contracts and customer returns may differ materially from original estimates. However, the Company has several years of experience with the financing arrangements and products and services offered to its customers. Consequently, management believes it has a reasonable basis for its estimates. The following tables summarize the activity within deferred revenue and the net dollar volume of contracts written during the three months ended September 30, 2006 and 2005 and reconciles the net dollar volume of contracts written with US GAAP revenue as reported in our financial statements. 2006 2005 ------------- ------------ Deferred revenue, beginning of period $ 28,757 $ 114,050 Add: Product and other contracts written net of estimates for bad debts, financial discounts, and estimated customer returns 27,337 14,563 Add: Cash product sales during the last three business days of period 1,540 - Less: Amounts recognized as product and other revenue (25,445) (8,969) ------------- ------------ Deferred revenue, end of period $ 32,189 $ 119,644 ============= ============ 2006 2005 ------------- ------------ Total revenue recognized in financial statements in accordance with US GAAP $ 29,009 $ 11,393 Less: Product and other revenue recognized in financial statements (25,445) (8,969) Add: Product and other contracts written net of estimates for bad debts, financial discounts, and estimated customer returns 27,337 14,563 Add: Cash product sales during the last three business days of period 1,540 - ------------- ------------ Net dollar volume of contracts written, non-GAAP $ 32,441 $ 16,987 ============= ============ iMERGENT, INC. AND SUBSIDIARIES GAAP to Non-GAAP Reconciliation Tables (Dollars in thousands, except per share data) (unaudited) Three Months Ended September 30, 2006 ---------------------------------------- GAAP Adj. Non-GAAP ------------- ----------- ----------- Cost of product and other revenue $9,208 $237 (1) $9,445 Selling and marketing 12,752 450 (1) 13,202 Three Months Ended September 30, 2006 ---------------------------------------- GAAP Adj. Non-GAAP ------------- ----------- ----------- Income before income tax provision $3,888 $2,745 (2) $6,633 Income tax provision 1,560 1,093 (3) 2,653 ------------- ----------- ----------- Net income $2,328 $1,652 $3,980 ============= =========== =========== Net income per common share: Basic $0.19 $0.32 ============= =========== Diluted $0.18 $0.31 ============= =========== Weighted average common shares outstanding: Basic 12,366,479 12,366,479 Diluted 12,873,789 12,873,789 Three Months Ended September 30, 2005 ---------------------------------------- GAAP Adj. Non-GAAP ------------- ----------- ----------- Income (loss) before income tax (provision) benefit $(5,361) $5,594 (4) $233 Income tax provision (benefit) 158 (65)(3) 93 ------------- ----------- ----------- Net income (loss) $(5,519) $5,529 $140 ============= =========== =========== Net income (loss) per common share: Basic $(0.45) $0.01 ============= =========== Diluted $(0.45) $0.01 ============= =========== Weighted average common shares outstanding: Basic 12,132,134 12,132,134 Diluted 12,132,134 12,607,546 Represents certain expenses related to cash sales that were deferred to October 2006 as a result of workshops conducted during the last three business days of the fiscal quarter. The Company does not recognize revenue and certain related expenses during the customers’ three-day cancellation period. No workshops were conducted during the last three business days of the quarter ended September 30, 2005. Represents the adjustment to revenue of $3,432,000 to derive the net dollar volume of contracts written during the period (including $1,540,000 of cash sales that were deferred to October 2006 as a result of workshops conducted during the last three business days of the fiscal quarter), less the adjustment to expenses noted above in cost of product and other revenue of $237,000 and selling and marketing expense of $450,000. Represents the adjustment necessary to recognize the income tax provision based upon an estimated federal, state, and foreign statutory blended rate of 40%. Represents the adjustment to revenue to derive the net dollar volume of contracts written during the period. Contact: iMergent, Inc. Rob Lewis, 801-431-4695 (CFO) investor_relations@imergentinc.com or Lippert/Heilshorn & Assoc. Steve Kuzmic, skuzmic@lhai.com 415-433-3777 (Investor Relations) Media: Politis Communications, (801)523-3730 David Politis, dpolitis@politis.com
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