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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 26, 1998
VERIO INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-24219 84-1339720
(Commission File Number) (I.R.S. Employer Identification No.)
8005 SOUTH CHESTER STREET, SUITE 200, 80112
ENGLEWOOD, COLORADO (Zip Code)
(Address of Principal Executive Offices)
(303) 645-1900
(Registrant's Telephone Number, Including Area Code)
With a copy to:
Gavin B. Grover, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
- --------------------------------------------------------------------------------
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ITEM 5. OTHER EVENTS.
RISK FACTORS
Verio Inc. ("Verio" or the "Registrant") is a leading provider of Internet
connectivity, Web hosting and other enhanced Internet services to small and
medium sized businesses. From time to time the Registrant may report through its
press releases and/or Securities and Exchange Commission filings, certain
matters that would be characterized as forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act") that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Certain of these risks and
uncertainties are beyond management's control. This report contains statements
which constitute forward-looking statements. These statements appear in a number
of places in this report and include statements regarding the intent, belief or
current expectations of the Registrant, its directors or its officers primarily
with respect to the future operating performance of the Registrant. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The accompanying information contained in this report including
the information set forth below, identifies certain important factors that could
cause such differences. The following factors supplement, and, to the extent
provided herein, amend and restate, the other business and risk factors
disclosed in the Registrant's Current Report on Form 8-K dated July 7, 1998.
FINANCIAL INFORMATION CONCERNING ACQUISITIONS; INTEGRATION EXPENSES
The ISPs targeted by Verio for acquisition typically do not have
audited financial statements and have varying degrees of internal controls and
detailed financial information. Accordingly, the pro forma and other financial
information contained in Verio's periodic and other reports filed from time to
time with the Securities and Exchange Commission (the "SEC Filings") include
financial information concerning certain recently completed acquisitions for
which audited financial statements may not be available. In particular, this is
the case with respect to Verio's recent acquisition of WWW-Service
Online-Dienstleistungen AG ("WWW"). There can be no assurance that a subsequent
audit by Verio will not reveal matters of significance, including with respect
to revenues, expenses and liabilities, contingent or otherwise, of these
companies. Verio's business strategy involves the continued and potentially
rapid acquisition of additional ISPs. Verio expects that, from time to time in
the future, it will enter into additional acquisition agreements, the pro forma
effect of which is not known and cannot be predicted. Verio's completion of
additional acquisitions may have a material impact on the financial information
set forth herein. There can be no assurance as to the number, timing or size of
future acquisitions, if any, or the effect any such acquisitions would have on
Verio's operating or financial results.
Verio is in the process of completing valuations of the assets acquired
and liabilities assumed in connection with certain of Verio's acquisitions.
These valuations will be used in determining the final purchase accounting
adjustments for these acquisitions. Accordingly, the purchase accounting
adjustments for these acquisitions reflected in the pro forma financial
statements included in the SEC Filings are likely to be revised and such
adjustments may be significant. In addition, Verio expects to record charges to
operations for in-process research and development relating to certain of these
acquisitions (including the acquisition of NTX, Inc. d/b/a TABNet ("TABNet")
(the "TABNet Acquisition")), and these charges, which will be recorded in the
respective periods in which the particular acquisition took place, also may be
significant. The amounts of such charges are not presently determinable, but
could be material.
Moreover, Verio frequently incurs expenses associated with the
integration of acquired businesses. In particular, Verio expects to incur
expenses through the end of 1998 associated with the costs for system upgrades
and integration of TABNet's operations into Verio's network, customer care,
billing and financial systems. The aggregate amount of these expenses is not yet
determinable, but could be material. In addition, there can be no assurance that
Verio will not incur subsequent additional charges to reflect costs associated
with the integration of its operations with those of TABNet's.
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Furthermore, Verio may incur similar charges in connection with other
acquisitions previously completed or undertaken in the future.
In addition, Verio may be required to make significant additional
contingent purchase price payments in connection with the TABNet Acquisition.
Verio initially paid $45.5 million in cash to TABNet shareholders, with
additional contingent payments of up to a total of $43.2 million if TABNet's
recurring revenue and earnings before interest, taxes, depreciation and
amortization ("EBITDA") grow at agreed-to amounts through December 1998. TABNet
recorded recurring revenues of approximately $433,000, out of total revenues of
approximately $925,000, for the month of May 1998, reflecting a growth rate in
recurring revenues of over 12% per month for the first five months of 1998. In
order to receive the maximum contingent purchase price amount of $43.2 million,
TABNet must achieve during the remainder of 1998 average month-over-month growth
in recurring revenue of approximately 37% and an average month-over-month
increase in EBITDA of approximately 42%. Absent an increase in recurring revenue
of at least 15% per month, and in EBITDA of at least 20% per month, on average
through the end of the year, none of the contingent purchase price amounts would
be payable. At those minimum growth levels, the contingent purchase price would
total $10.8 million, with the contingent purchase price amount increasing to the
extent that TABNet's recurring revenue or EBITDA performance exceeds those
levels. Depending upon TABNet's financial performance, Verio may be required to
make all or a portion of the maximum contingent purchase price payments in
respect of the TABNet Acquisition.
UNCERTAINTY OF PENDING TRANSACTION
The proposed acquisition of Best Internet Communications, Inc. ("Best
Internet") d/b/a Hiway Technologies, Inc. ("Hiway") (the "Hiway Acquisition") is
subject to material conditions to consummation, including, among other things,
(i) receipt of regulatory clearance under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended ("HSR Clearance"), which has been obtained,
(ii) absence of any material adverse change in the business, operations,
financial performance or results of operations of Hiway, (iii) approval by the
holders of a majority of the shares of the outstanding capital stock of Hiway
present and voting at a shareholders meeting, and (iv) approval by the holders
of a majority of the outstanding capital stock of Verio present and voting at a
stockholders meeting. In connection with the execution of the Agreement and Plan
of Merger dated as of July 27, 1998 with Hiway (the "Merger Agreement"), holders
of a majority of the shares of outstanding capital stock of Hiway executed
irrevocable proxies in favor of Verio to vote in favor of the Hiway Acquisition.
If Verio's stockholders fail to approve the Hiway Acquisition, Hiway may elect
to terminate the Merger Agreement, in which case Verio must pay to Hiway a
termination fee of $10.0 million. The Merger Agreement also may be terminated by
mutual agreement of Verio and Hiway. There can be no assurance that Verio's
stockholders will approve the Hiway Acquisition or that the Department of
Justice and/or the Federal Trade Commission will not impose conditions in
connection with such HSR Clearance. There can also be no assurance as to when,
if at all, the conditions and other contingencies with respect to the Hiway
Acquisition will be satisfied, that there will not be a material adverse change
in the business, operations, financial performance or results of operations of
Hiway, or that the parties to the Hiway Acquisition will not mutually decide to
terminate the Merger Agreement.
The Hiway Acquisition is a substantial transaction for Verio. Verio
expects that, if the Hiway Acquisition is completed, it will have a continuing,
significant impact on Verio's operating and financial performance.
RISKS ASSOCIATED WITH THE HIWAY ACQUISITION
Hiway was formed in May 1998 through a merger of Best Internet and
Hiway (the "Best/Hiway Merger"). Because the Best/Hiway Merger was accomplished
only recently, Hiway has not yet completed the integration of the operations of
those two companies that previously operated independently at different
locations with separate work forces. It is likely that this integration effort
will be continuing when the Hiway Acquisition is completed. In the course of
that integration effort, it is possible that facts or circumstances may be
discovered that were not known or apparent prior to the time that Verio executed
the Merger Agreement with Hiway or during its due diligence review of Hiway.
There can be no assurance that difficulties will not be encountered in
integrating the operations of Hiway, or that the specific benefits expected from
the integration of Hiway and Best Internet will be achieved or that any
anticipated cost savings will be realized. The acquisition of Hiway also
involves a number of special risks, including assimilation of new operations and
personnel; the diversion of resources from Verio's existing business;
integration of their respective equipment, service offerings, networks and
technologies, financial and information systems and brand names; coordination of
geographically separated facilities and
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work forces; management challenges associated with the integration of the
companies; coordination of their respective sales, marketing and service
development efforts, assimilation of new management personnel; and maintenance
of standards, controls, procedures and policies. The process of integrating
Hiway's operations, including its personnel, could cause interruption of, or
loss in momentum in the activities of Verio's business and operations, including
those of the business acquired. Further, employees of Hiway who may be key to
the integration effort or Verio's ongoing operations may choose not to continue
to work for Verio following the closing of the Hiway Acquisition.
In connection with the Hiway Acquisition, Verio expects to incur
expenses through mid-1999 associated with the integration of the acquired
business with its own, including costs relating to the elimination of duplicate
systems and facilities, possible severance and employee relocation, and other
integration costs. The aggregate amount of these expenses is not yet
determinable, but could be significant. In addition, there can be no assurance
that Verio will not incur additional charges in subsequent quarters to reflect
costs associated with the Hiway Acquisition or the integration of its
operations. Factor that could increase such costs include delays in the
completion of the Hiway Acquisition, any unexpected employee turnover,
unforeseen delays in addressing duplicate facilities once the acquisition has
been completed and the associated costs of hiring temporary employees, and
additional fees and charges to obtain consents, regulatory approvals or permits.
There can be no assurance that Verio will realize the benefits and strategic
objectives sought through the Hiway Acquisition. Costs associated with the Hiway
Acquisition, or liabilities and expenses associated with the operations of
Hiway, that exceed the expectations of Verio, could have material adverse effect
on Verio's business, financial condition and results of operations.
RISKS ASSOCIATED WITH HIWAY HISTORICAL FINANCIAL INFORMATION
The Best/Hiway Merger was intended to qualify for pooling-of-interests
treatment under generally accepted accounting principles, and has been treated
accordingly in the historical financial statements of Hiway. Under
pooling-of-interests accounting, the accounts of Hiway are combined with those
of Best Internet at their historical carrying accounts and Hiway's financial
statements for all prior periods are restated to reflect the combination of the
two companies for all periods presented.
Prior to the execution of the Merger Agreement between Verio and Hiway,
Hiway had filed a registration statement on Form S-1 with the Securities and
Exchange Commission (the "Commission") with respect to its proposed initial
public offering, which registration statement contained the historical financial
statements of Hiway that were included in Verio's filing on Form 10-Q dated
August 13, 1998. In the course of its review of that registration statement, the
Commission raised questions concerning the pooling-of-interests accounting
treatment of the Best/Hiway Merger. These questions had not been resolved when
Hiway signed the Merger Agreement with Verio and suspended its registration
process. Verio and Hiway believe that the accounting treatment of the Best/Hiway
Merger reflected in Hiway's historical financial statements is appropriate under
generally accepted accounting principles. Verio expects that these financial
statements will be included in additional registration statements of its own
that Verio anticipates will be filed with the Commission in the near future,
including a registration statement on Form S-4 in connection with the Hiway
Acquisition. Accordingly, the financial statements will be subject to further
review by the Commission. In the course of that review, it is possible that the
Commission will raise these same questions. In that case, if Verio and Hiway do
not prevail in their assertion that the accounting treatment reflected in those
financial statements is appropriate, the Commission may require that those
financial statements be restated to reflect the application of the purchase
method of accounting treatment to the Best/Hiway Merger. See ("--Financial
Information Concerning Acquisitions; Integration Expenses."
Under the purchase accounting method, a substantial portion of the
purchase price would be allocated to goodwill which would be amortized to
operations over the estimated life of the asset. Although purchase accounting
treatment may have a material adverse impact on the reported operating results
of the Hiway combined companies, as compared to that under pooling-of-interests
treatment, because the Hiway Acquisition must be accounted for by Verio using
purchase accounting, any such restatement of the Hiway historical financial
statements would not have a material adverse impact on the pro forma combined
operating results of Verio and Hiway.
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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
Verio currently does not derive any significant revenue from sales to
customers located outside the United States. However, one of Verio's goals is to
grow its international markets. There can be no assurance that acceptance of the
Internet or demand for Internet connectivity, Web hosting and other enhanced
Internet services will increase significantly in any international markets.
Verio however believes that, in light of substantial anticipated competition, it
will be necessary to move quickly into international markets in order to
effectively obtain market share, and there can be no assurance that Verio will
be able to do so. Verio may experience difficulty in managing international
operations as a result of difficulties in locating effective foreign partners,
competition, technical problems, distance and language and cultural differences,
and there can be no assurance that Verio or its international partners, if any,
will be able to successfully market and operate Verio's services in foreign
markets. If revenue from international operations is not adequate to cover the
investments in such activities, Verio's business, results of operations and
financial condition could be materially and adversely affected.
There are certain risks inherent in doing business on an international
level, such as changes in regulatory requirements, export restrictions,
imposition of tariffs, trade barriers, difficulties in staffing and managing
foreign operations, fluctuations in currency exchange rates, differing
technology standards, longer payment cycles, problems in collecting accounts
receivable, difficulty in enforcing contracts, political and economic
instability, seasonal reductions in business activity in certain other parts of
the world, potentially adverse tax consequences and general economic conditions,
including inflation. In addition, 11 of the 15 member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro, and to adopt the euro as their common legal
currency (the "Euro Conversion"), effective January 1, 1999. As Verio is only in
the initial stages of entering the European markets, Verio has not commenced any
assessment of the effects of the Euro Conversion, and is unsure of the potential
impact that the Euro Conversion may have on Verio's business, financial
condition or results of operations. Furthermore, certain foreign governments,
such as Germany, have enforced laws and regulations related to content
distributed over the Internet that are more strict than those currently in place
in the U.S. There can be no assurance that one or more of such factors will not
have a material adverse effect on Verio's international operations and,
consequently, on Verio's business, results of operations and financial
condition.
YEAR 2000 COMPLIANCE
Verio is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or fail. The
Year 2000 problem is pervasive and complex, as virtually every company's
computer operations will be affected in some way.
Verio is currently engaged in a two-phase process to evaluate its
internal status with respect to the Year 2000 issue. In the first phase, which
Verio expects to complete in the fourth quarter of 1998, Verio is conducting an
assessment of its national systems in Denver, Colorado, Dallas, Texas and its
east operating region, including both IT systems and non-IT systems such as
hardware containing embedded technology, for Year 2000 compliance. There can be
no assurance that Verio will not discover Year 2000 issues in the course of its
assessment that would have a material adverse effect on the business, results of
operations or financial condition of Verio.
Phase two of the process, which is expected to be completed during the
second quarter of 1999, will involve taking any needed corrective action to
bring systems into compliance and to develop a contingency plan in the event any
non-compliant critical systems remain by January 1, 2000. As part of this phase,
Verio will attempt to quantify the impact, if any, of the failure to complete
any necessary corrective action. Although Verio cannot currently estimate the
magnitude of such impact, if systems material to Verio's operations have not
been made Year 2000 compliant upon completion of this phase, the Year 2000 issue
could have a material adverse effect on Verio's business, results of operations
and financial condition.
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To date, the costs incurred by Verio with respect to this process have
not been material. Future costs will remain difficult to estimate until the
completion of phase one; however, Verio does not currently anticipate that such
costs will be material.
Concurrently with the two-phase analysis of its internal systems, Verio
has begun to survey third-party entities with which Verio transacts business,
including critical vendors and financial institutions, for Year 2000 compliance.
Verio expects to complete this survey in the first quarter of 1999. At this time
Verio cannot estimate the effect, if any, that non-compliant systems at these
entities could have on the business, results of operations or financial
condition of Verio, and there can be no assurance that the impact, if any, will
not be material.
Based on the steps being taken to address this issue and the progress
to date, Verio believes that the Year 2000 compliance expenses will not have a
material adverse effect on Verio's earnings. However, there can be no assurance
that Year 2000 problems will not occur with respect to Verio's computer systems.
Furthermore, the Year 2000 problem may impact other entities with which Verio
transacts business, and Verio cannot predict the effect of the Year 2000 problem
on such entities or the resulting effect on Verio. As a result, if preventative
and/or corrective actions by Verio or those with whom Verio does business with
are not made in a timely manner, the Year 2000 issue could have a material
adverse effect on Verio's business, financial condition and results of
operations.
ITEM 7. EXHIBITS.
Exhibit No. Description
----------- -----------
99(a) Press Release issued by the Registrant on
October 26, 1998
99(b) Press Release issued by the Registrant on
October 27, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VERIO INC.
By: /s/ Justin L. Jaschke
----------------------------
Justin L. Jaschke
Chief Executive Officer
Dated: October 28, 1998
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99(a) Press Release issued by the Registrant on October 26, 1998
99(b) Press Release issued by the Registrant on October 27, 1998
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
VERIO INC. STRENGTHENS INTERNATIONAL WEB HOSTING OPERATIONS WITH ACQUISITION OF
TOP GERMAN WEB HOSTING FIRM
ENGLEWOOD, CO (Oct. 26, 1998) - Verio Inc. (NASDAQ:VRIO), a leading provider of
high-speed Internet connectivity and the world's largest domain-based Web
hosting company, has acquired an 80-percent stake in WWW-Service AG, one of
Germany's largest Web hosting providers, with annualized revenues in excess of
$5 million (U.S.). The acquisition is Verio's first to be completed outside of
the United States, furthering the company's plan to build a strong operating
presence as a leading Web hosting and e-commerce company internationally, where
it already has a significant number of customers and reseller agreements. The
remaining 20 percent of WWW-Service AG is owned by Florida-based Hiway
Technologies which Verio previously announced it will acquire, with that
transaction currently expected to close by the end of 1998.
The WWW-Service AG acquisition reinforces Verio's status as the world's largest
and fastest-growing domain-based Web hosting company, adding more than 10,000
Web sites to its established base of more than 60,000, which Verio expects will
increase to more than 160,000 with the closing of the Hiway acquisition.
WWW-Service AG provides a broad suite of Web site hosting products including
domain name registration, e-mail and Web site hosting both in the United States
and Germany for a number of leading companies including Fuji Photo Film Europe,
Banque Nationale de Paris, Schering GmbH & Co. Prod. KG and Siemens.
Already established as one of the top full-service U.S. Internet companies,
Verio intends to leverage its strength to establish an equally strong presence
in the European Internet market, which according to industry analyst firm
Forrester Research is on the verge of an "explosion." Forrester predicts that
European online activity in business trade, consumer retail and content will
grow dramatically from $1.2 billion in revenues in 1998 to $64.4 billion by
2001. With the acquisition of WWW-Service AG, Verio is in a position to further
expand its reach within the small and medium-size business market in Germany,
considered one of the top European markets. According to the International Union
for Telecommunications, Germany possesses the third-highest number of computers
with Internet access after the United States and Japan.
"Verio now has a strong operational foothold for its Web hosting services in the
rapidly growing European market," said Verio Chief Executive Officer Justin
Jaschke. "Most business customers are looking for a full-service Web hosting
company that can provide domain name registration, basic Web site services and
enhanced Web site services including e-commerce and messaging. In addition,
companies increasingly want their Web sites hosted in the country where they are
conducting business with local language support by phone and e-mail. By
combining the strength of Verio's global resources, distribution,
industry-leading Web site hosting capabilities and technical expertise with
WWW-Service AG's local service, we can provide customers with a reliable,
secure, high-performance environment to do business online."
"With the online market growing so rapidly, we selected Hiway's technology as
our core technology due to its superior Web site hosting capability," said
Christian Jagodzinski, co-founder of Regensburg-based WWW-Service AG. "Now with
Verio, we have the power of an international Web hosting company to develop and
deliver new applications quickly, host Web sites in numerous countries and
provide international Web site mirroring capabilities our customers will require
as they leverage the Internet to conduct business globally."
Terms of the agreement were not disclosed. WWW-Service AG will continue to
operate under its own name, eventually transitioning to operate under and help
develop the Verio brand name globally.
About Verio Inc.
Verio Inc. (NASDAQ:VRIO) is a leading provider of Internet connectivity, Web
hosting and enhanced Internet services with an emphasis on serving the small and
mid-sized business market. Since its inception in March 1996, Verio has rapidly
established a global presence through the acquisition, integration and growth of
independent Internet providers with a business customer focus that deliver
locally-based sales and engineering support in 39 of the top 50 U.S. markets
under the Verio brand name and provide Web hosting services to customers in more
than 100 countries.
For more information on WWW-Service AG, visit the company's Web site at
www.www-service.de.
For more information on Verio, visit the company's Web site at www.verio.net or
call 1-888-GET-VERIO. The corporate headquarters are located in Englewood,
Colorado at 8005 S. Chester St., Suite 200, 80112, phone number 303.645.1900.
<PAGE> 1
EXHIBIT 99(b)
VERIO INC. ANNOUNCES THIRD QUARTER RESULTS
ENGLEWOOD, Colo. -- Oct, 27, 1998 --
Recent Highlights:
o Herbert R. Hribar, former Ameritech Cellular chief, joins Verio as
President and COO
o Since June 30, 1998, Verio has closed six acquisitions for $63.4mm,
adding $25mm in annualized revenue (including the recent acquisition of
a leading European Web hosting operation)
o The TABNet acquisition and pending Hiway acquisition will make Verio the
world's largest domain-based Web hosting company
o Increased sales and marketing expenses drive a substantial increase in
bookings
o The Company reported one-time integration expenses of $3.4 million
Verio Inc. (NASDAQ:VRIO), a leading provider of Internet connectivity, Web
hosting and other enhanced services to businesses, announced today
significant revenue growth for the quarter ended September 30, 1998.
Revenues for the third quarter of 1998 were $33.8 million, an increase of
$24.2 million over the $9.6 million reported for the third quarter of 1997.
Revenues for the third quarter increased $5.3 million, or 18 percent, over
the second quarter of 1998. Pro forma for all acquisitions closed to date,
total revenues for the third quarter were $35.7 million. This does not
include the revenues for Hiway Technologies, which were approximately $10.4
million for the quarter. Verio currently expects to close the previously
announced agreement to acquire Hiway by year-end.
Net loss to common shareholders for the third quarter was $33.6 million, or
$1.03 per share, compared with $13.3 million or $11.25 per share for the
third quarter of 1997. Expenses in the third quarter include approximately
$3.5 million in higher sales and marketing expenses compared to the second
quarter, and approximately $3.4 million in one-time charges primarily
associated with the implementation of the company's network and operational
consolidation strategy, including the elimination of approximately 250
positions.
Among Verio's many significant developments in the third quarter were the
acquisition of TABNet and the announced agreement to acquire Hiway,
positioning Verio as the world's largest domain-based Web hosting company,
with over 150,000 Web sites hosted. Web hosting serves as the essential
foundation for providing electronic
<PAGE> 2
commerce and other high-margin enhanced services - areas where Verio has a
strong market position and intends further expansion. In addition, these
acquisitions give Verio significant additional distribution channels,
including online advertising relationships with industry-leading search
engines and portals, an experienced telemarketing force, an additional
2,000 resellers located domestically and in more than 100 countries, and
private label OEM-type relationships with major telecommunications
companies in the United States and overseas. Verio's recently announced
acquisition of WWW-Service AG in Germany leverages an existing Hiway
reseller relationship to create a significant operating presence in a key
European market.
"The notable success of our acquisition program has greatly improved the
strategic positioning of the company to supply a complete range of Internet
services to our rapidly growing customer base," said Verio CEO Justin L.
Jaschke. "While the company continues to pursue strategic opportunities to
enhance its long-term value, the addition of Mr. Herbert Hribar as
President and COO gives the company an equally strong focus on integration,
operational improvements and internal growth."
"We have made significant strides in meeting the challenges of integrating
our acquisitions and building the sales and marketing engine to drive
internal growth toward our goal of achieving EBITDA profitability in
mid-1999," said Herbert R. Hribar, President and COO. "The staff reductions
and related one-time expenses are not easy steps to take, but they are the
logical outcome of the company's successful consolidation strategy and are
consistent with our goal of integrating operations to capture scale and
operating efficiencies."
The increased sales and marketing expense has resulted in a significant
increase in the company's bookings, most of which are not yet reflected in
revenues due to the slow telco provisioning cycle. Bookings for new
recurring revenues have more than doubled from approximately $300,000 in
June to more than $600,000 in both August and September. Verio's Web
hosting operations have received a significant portion of the increased
spending as the company moved to take advantage of its leadership position
in this industry segment. Payroll and commission expenses also increased as
the company achieved its year-end goal of more than 200 quota-carrying
salespeople one quarter earlier than expected.
The one-time charges are primarily related to the costs associated with the
elimination of approximately 250 positions, which are no longer necessary
due to the integration of these functions onto Verio's national services.
Currently, more than 80 percent of all the ISP operations that Verio had
acquired at the beginning of 1998 are on Verio's national backbone, network
monitoring, financial, billing and customer care systems. The company
remains on target to have substantially all of these operations on the
national services by year-end. In addition, the improved operating
efficiencies that were identified in the successful combination in June of
Verio's eastern and mid-Atlantic operations will be applied to Verio's
other regions, resulting in a consolidation from nine into five regions.
The company also continues to make significant operational progress in
consolidating duplicate points of presence ("POPs") that resulted from
overlapping acquisitions, closing a total of 31 through the third quarter
with 17 more scheduled for the fourth quarter. This will exceed the
original estimate of 40 closures in 1998. In addition, the transition of
network traffic onto the Qwest network has resulted in over 4,000 miles of
new capacity, and the reduction of approximately $300,000 in monthly
payments to third-party transit providers. The company continues to
experience delays in the provisioning of local circuits. These delays
result in higher cost of goods sold as it takes longer to close POPs and to
move transit circuits.
<PAGE> 3
ABOUT VERIO
Verio Inc. (NASDAQ:VRIO) is a leading provider of Internet connectivity,
Web hosting and enhanced Internet services with an emphasis on serving the
small and mid-sized business market. Since its inception in March 1996,
Verio has rapidly established a global presence through the acquisition,
integration and growth of independent Internet providers with a business
customer focus that deliver locally-based sales and engineering support in
39 of the top 50 U.S. markets under the Verio brand name and provide Web
hosting services to customers in more than 100 countries.
For more information on Verio, visit the company's Web site at
www.verio.net. The corporate headquarters are located in Englewood,
Colorado at 8005 S. Chester St., Suite 200, 80112, phone number
303.645.1900.
Except for the historical information contained herein, certain matters set
forth in this press release are forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject
to risks and uncertainties, including but not limited to fluctuations in
operating results, additional capital requirements, competition,
integration of acquisitions and implementation of network infrastructure.
Readers are also encouraged to refer to Verio's reports from time to time
filed with the Securities and Exchange Commission, including the Company's
Current Report on Form 8-K filed on July 7, 1998, and the Company's Current
Report on Form 8-K filed on October 28, 1998 for a further discussion of
Verio's business and risk factors that may affect operating and financial
results and the financial information provided herein with respect to
recent acquisitions.
Verio Inc.
Summary Consolidated Financial Data
(amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 9 Months Ended
9/30/98 9/30/98 9/30/98
(unaudited) (unaudited) (unaudited/pro-forma (1))
<S> <C> <C> <C>
Statement
of
Operations
Data:
Revenue
Dedicated $ 14.4 $ 36.9 $ 45.9
Dial-up 6.4 16.3 18.9
Enhanced
services
and other 13.0 30.3 65.3
Total
revenue 33.8 83.5 130.1
Costs of
goods sold 15.1 37.9 50.5
Selling,
general
and
adminis-
trative 33.2 79.1 115.8
Total costs
and
expenses 62.9 148.7 223.5
Loss from
operations (29.1) (65.2) (93.4)
Net loss
attributable
to common
stockholders $ (33.6) $ (88.3) $ (107.4)
Loss per
common share
- basic
and diluted $ (1.03) $ (5.06) $ (4.11)
======== ======== ========
Weighted
average
common
shares
outstanding -
basic and
diluted 32.5 17.5 26.1
Other Data:
EBITDA (2) $ (17.4) $ (38.4) $ (36.2)
Cash flow
from
operations (6.2) (36.3)
Capital
expenditures 7.7 15.8
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
12/31/97 9/30/98 9/30/98
(unaudited) (unaudited/pro-forma (1))
<S> <C> <C> <C>
Balance Sheet
Data:
Cash and cash
equivalents $ 72.6 $ 245.9 $ 141.0
Restricted
cash and
securities 40.6 21.4 21.4
Goodwill, net 83.2 210.0 534.0
Total assets 246.5 562.3 805.6
Long-term debt
and capital
lease
obligations,
net of
current
portion 142.3 274.5 280.5
Redeemable
preferred
stock 97.2 -- --
Stockholders'
equity
(deficit) (27.0) 234.6 462.6
</TABLE>
(1) Pro forma for the Completed Acquisitions as if they had occurred
on September 30, 1998 for balance sheet purposes and on January 1, 1998 for
statement of operations data purposes.
(2) EBITDA represents earnings (loss) from operations before interest,
taxes, depreciation, amortization and provision for loss on write-offs of
investments in ISPs and fixed assets. The primary measure of operating
performance is net earnings (loss). Although EBITDA is a measure commonly
used in the Company's industry, it should not be construed as an
alternative to net earnings (loss), determined in accordance with generally
accepted accounting principles ("GAAP"), as an indicator of operating
performance or as an alternative to cash flows from operating activities,
determined in accordance with GAAP. In addition, the measure of EBITDA
presented herein by the Company may not be comparable to other similarly
titled measures of other companies.
