Vsource(R) Announces Results for Second Quarter Ending July 31,
2004 LA JOLLA, Calif., Sept 10 /PRNewswire-FirstCall/ -- Vsource,
Inc. (OTC:VSCE) (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 second quarter ending July 31, 2004. Revenue for Q2
2004 totaled $4.06 million, compared to $4.83 million for Q2 2003,
which amount included revenue of $0.3 million from Team America,
Inc., which was subsequently written off as bad debt following Team
America's Chapter 11 proceedings. The company reported a net loss
available to common shareholders of $5.27 million or $2.60 per
basic share for Q2 2004. Net loss available to common shareholders
during the period included a loss from discontinued operations of
$0.49 million and non-cash charges of $3.62 million from deemed
non-cash dividends to preferred shareholders. Excluding the deemed
dividend, Vsource's net loss was $1.65 million in Q2 2004, or $0.81
per basic share in Q2 2004. The company recorded a deemed dividend
of $2.86 million in Q2 2003, when it reported a net loss available
to common shareholders of $4.55 million or $2.43 per basic share.
As announced previously, the company discontinued the
non-profitable human capital management solutions segment through
the sale of Vsource (Texas), Inc., a wholly owned subsidiary which
was primarily engaged in the segment. For Q2 2004, loss from
discontinued operations totaled $0.49 million. The company's
earnings before interest, taxes, depreciation and amortization,
adjusted to exclude deemed non-cash dividends to preferred
shareholders of $3.62 million ("Adjusted EBITDA") was a loss of
$1.04 million for Q2 2004, compared with Adjusted EBITDA loss of
$1.11 million, adjusted to exclude non-cash stock compensation
charges of $0.04 million and deemed non- cash dividends to
preferred shareholders of $2.86 million for Q2 2003. 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 at the end of Q2 2004 totaled $4.3 million, compared to $1.3
million as of the end of the last fiscal year, showing the addition
of proceeds of approximately $9.5 million from the disposal of 39%
of the equity interest in Vsource Asia to Symphony House Berhad and
other investors in Q1 2004 and the cash used in operations in Q1
and Q2 2004. Vsource Chairman and Chief Executive Officer, Phil
Kelly commented, "In Q2 2004, we made substantial progress in
building our base for recurring revenue with the addition of
several new multi-national clients and enjoyed continued success in
building on existing relationships through expanded contractual
services. Specifically, during the quarter we added two new banking
clients, three new insurance clients, one new client in
transportation services and signed four new contracts with existing
clients. Implementation of each of these contracts has begun and
services will commence in Q3 and Q4 of this year, depending on the
contract." Mr. Kelly continued: "In addition, last week we
announced that we intend to initiate an exchange offer to holders
of our preferred stock which our board of directors believes will
simplify our cumbersome and complex capital structure by greatly
reducing, or even eliminating, Vsource's preferred stocks'
liquidation preference and removing the put right held by holders
of our Series 4-A preferred stock, which issues we believe have
created future financial uncertainty that has deterred some
prospective financing sources and clients. We have also learned
that holders of preferred stock participating in the exchange offer
will be receiving a cash offer from Symphony House Berhad for
securities which they receive in the exchange offer. I direct
interested persons to an information statement that we filed with
the Securities and Exchange Commission for further detail on these
transactions." Vsource, Inc. Consolidated Statements of Income (in
thousands, except per share data) Three months ending July 31, 2004
2003 Revenues $4,064 $4,826 Operating Expenses Cost of revenue
2,676 2,768 Selling, general and administrative 2,779 3,726
Amortization of stock-based compensation expense -- 38 Total
expenses 5,455 6,532 Operating loss (1,391) (1,706) Interest
income, net 4 10 Minority interest in loss of a subsidiary 218 --
Net loss from continuing operations before taxation $(1,169)
$(1,696) Taxation 4 -- Net loss from continuing operations after
taxation $(1,165) $(1,696) Discontinued operations: Loss from
discontinued operations (including loss on disposal of $162,000)
$(486) -- Net loss $(1,651) $(1,696) Non-cash deemed dividend to
preferred shareholders (1) $(3,623) $(2,856) Net loss available to
common shareholders $(5,274) $(4,552) Loss per share available to
common shareholders: Basic loss per share from continuing
operations $(2.36) $(2.43) Basic loss per share from discontinuing
operations $(0.24) $-- $(2.60) $(2.43) Weighted average number of
common shares outstanding Basic 2,026 1,872 Earnings before
interest, taxes, depreciation & amortization excluding non-cash
stock compensation expense (" Adjusted EBITDA") (2) $(1,045)
$(1,110) Adjusted EBITDA margin (3) %(25.7) %(23.0) (1) Non-cash
deemed dividend for preferred shareholders associated with the
exchange of Series 2-A convertible preferred stock and warrants for
Series 4-A convertible preferred stock; and amortization of
beneficial conversion feature and accretion of redemption value of
Series 4-A convertible preferred stock (2) Reconciliation of Net
loss to Adjusted EBITDA Three months ended July 31, 2004 2003 Net
loss $(1,651) $(1,696) Add: Interest income, net (4) (10)
Depreciation and amortization 606 558 Amortization of stock-based
compensation expense -- 38 Taxes 4 -- Adjusted EBITDA $(1,045)
$(1,110) (3) Adjusted EBITDA margin is Adjusted EBITDA divided by
Revenues Vsource, Inc. Consolidated Balance Sheets (in thousands)
July 31, January 31, 2004 2004 Assets Current assets: Cash $4,279
$1,322 Restricted cash 329 473 Accounts receivable, net 1,933 1,062
Inventories 160 207 Prepaid expenses 283 475 Other current assets
2,053 2,129 Promissory note receivable 46 -- Current assets -
discontinued operations -- 149 Total current assets 9,083 5,817
Property and equipment, net 3,420 4,348 Restricted cash, non
current 599 599 Non current assets - discontinued operations -- 70
Total assets $13,102 $10,834 Liabilities, Preferred stock and
Shareholders' deficit Current liabilities: Accounts payable $1,628
$2,256 Accrued expenses 3,233 5,090 Advance from customers 316 906
Current liabilities - discontinued operations -- 298 Total current
liabilities 5,177 8,550 Minority interest 1,395 -- Preferred stock
25,909 18,875 Shareholders' deficit (19,379) (16,591) Total
Liabilities, Preferred stock and Shareholders' deficit $13,102
$10,834 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-operating expenses and
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. VSOURCE HAS FILED AN INFORMATION
STATEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION, WHICH IS
AVAILABLE FOR NO CHARGE AT THE SEC'S WEBSITE, WWW.SEC.GOV. VSOURCE
ANTICIPATES THAT IT WILL BE FILING AN EXCHANGE OFFERING CIRCULAR
NEXT WEEK. UPON FILING, THE EXCHANGE OFFERING CIRCULAR WILL ALSO BE
AVAILABLE FOR NO CHARGE AT THE SEC'S WEBSITE AT WWW.SEC.GOV. THE
EXCHANGE OFFER CIRCULAR (INCLUDING THE INFORMATION STATEMENT, THE
LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) CONTAIN IMPORTANT
INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE EXCHANGE OFFER. About Vsource Vsource,
Inc., headquartered in La Jolla, Calif., provides customized global
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 SolutionsTM, which include
Customer Relationship Management (CRM), Financial Services, Travel
and Expense Claims, and Supply Chain Management (SCM). Vsource
solutions are currently utilized by some of the world's most
admired companies, including: ABN-AMRO, Agilent Technologies, EMC2,
FedEx, Network Appliance, Haworth, and Gateway. For more
information, log on to: 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, heavy reliance on a
small number of major clients, a potential requirement to redeem
our Series 4-A convertible preferred stock if we fail to meet
certain conditions by March 31, 2006, the new and unproven market
for business process outsourcing services internationally, 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,
management of acquisitions, litigation and competition. Other
factors that may affect these statements are identified in our
previous filings with the Securities and Exchange Commission. NOTE:
Vsource is a registered trademark of Vsource, Inc. Vsource
Foundation Solutions is a trademark 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. Vsource Media Relations Contact: Jim Higham Tel:
858.551.2920 Fax: 858.456.4878 DATASOURCE: Vsource, Inc. CONTACT:
Jim Higham of Vsource, Inc., +1-858-551-2920, or fax,
+1-858-456-4878, or Web site: http://www.vsource.com/
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