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EXHIBIT 99.1
Contact:
Donald J. Marsee
Chief Financial Officer
510-433-7800 or [email protected]
Pilot Network Services Announces Second-Quarter Financial Results
Continued Traction with Partnerships and Alliances
Alameda, Calif., October 31, 2000 - Pilot Network Services, Inc.(R) (Nasdaq:
PILT), the first provider of highly secure, subscription-based e-business
services, today announced its financial results for the second fiscal quarter
ended September 30, 2000.
Second Quarter Highlights:
Revenues were $10.1 million, up 41% from $7.1 million for the same quarter of
the prior year. Net loss for the quarter was $8.7 million, or a loss of $0.57
per share, compared with a net loss of $5.2 million, or a loss of $0.38 per
share, for the second quarter of the prior year. As of September 30, 2000,
Pilot's balance sheet included cash and investments of $7.8 million.
"Customer demand for Pilot Protected services remains strong," said Marketta
Silvera, President and Chief Executive Officer of Pilot. "The requirement for
securing e-business services is a necessity for enterprises transitioning their
operations to the electronic marketplace. We continue to see more advanced
types of criminal attack techniques, such as those used in several recent high
profile intrusions resulting in security breaches of intellectual property at
companies without Pilot Protection."
"Pilot is the only provider in the marketplace that delivers around-the-clock
network-based security that learns from experience. Most companies do not have
the capability to address security issues on their own because of the increasing
complexity of e-business security; the shortage of security professionals and
because increasingly these threats spread instantly and globally without any
prior warning. We believe that every company engaging in electronic business
will need the service technology that Pilot has invented. Today, no
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other provider is in a position to identify and protect against these emerging
threats on a 24 x 7 basis," said Silvera.
The following are some highlights of the company's achievements during the
second quarter:
Recurring revenues were $8.7 million, up 70% from $5.1 million for the same
quarter of the prior year, and up 9% from $8 million last quarter.
Signed a total of 94 new service agreements, including enterprise clients
such as First Data Merchant Services, Sovereign Bank, Cirrus Logic, Space
Systems Loral, Pacific Stock Exchange, Safeway, Hitachi Computer Products,
Providian National Bank, Westell Technologies, Dr. Pepper/7-Up, and several
GE owned companies. These new agreements represent an annualized revenue
commitment of $5.3 million for the next twelve months.
Protected more than 70,000 corporate client networks against criminal hackers
and continually increasing security threats.
Identified more than 77 million attempts to violate security per month of
which approximately 4,000 were incidents requiring protective actions.
Jointly launched with PRIMUS Telecommunications two Pilot Protected data
center sites (London, U.K. and Melbourne, Australia). Additional data centers
are planned to deliver Pilot Protected services for PRIMUS.
Achieved a number of technology and other milestones in connection with the
configuration of a major global telecommunications carrier's data center to
deliver Pilot Protected access.
Established: (i) a reseller partnership with SBC/Clover, (ii) a co-marketing
partnership with eSum Technologies, a leading Korean B2B solutions provider
to telecommunications providers in Asia, and (iii) a new business
relationship with Nortel Networks for secure extranet services.
Founded Pilot Labs to develop additional value-added services which integrate
Pilot's intellectual property into the service offerings of Pilot's partners.
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Other Developments
Based on the results of the review announced October 18, 2000, and discussions
with the company's external auditors, the company decided to restate its revenue
for the first quarter of the current fiscal year to exclude one transaction
totaling $425,000 due to the credit profile of this account at the time of the
sale. The restatement results from concluding that the customer did not have
creditworthiness at the time of the sale. This action increases the first
quarter net loss by $0.03 per share.
"Our client base consists primarily of well-established, enterprise corporations
that represent a low credit risk," said Silvera. "In the past, the
creditworthiness of our customers was not a significant concern. However, going
forward, the company will strengthen its credit evaluation processes for all new
customers signing up for Pilot Protected services."
Pilot's auditors have advised the company's Audit Committee of a material
weakness in the company's internal controls. The recent review of certain
transactions also illustrated a weakness with respect to quarterly cut-off
controls. There likely has been an absence of effective controls and evidence
of supervisory overrides related to cut-off of sales transactions.
As a result of these findings, discussions with the auditors, and upon
recommendation of the Audit Committee, Pilot's Board of Directors has adopted or
accelerated several initiatives to strengthen the company's internal controls
and has taken appropriate actions with regard to previous procedural failures.
These initiatives include strengthening the authority of the Chief Financial
Officer over cut-off procedures, implementation of a new time reporting system
to eliminate the material weakness concern, formalization of a revenue
recognition policy that is in compliance with recent Securities and Exchange
Commission pronouncements and comprehensive communication of company policies.
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Since the end of the fiscal quarter, the company has entered into agreements
with certain of its capital providers to strengthen the company's financial
position. Greyrock Capital has granted the company an extension on its existing
working capital line through January 31, 2001. In addition, Marshall Capital
Management, who recently completed a $15 million investment in preferred stock
in the first fiscal quarter, has agreed to waive the requirement that the
company hold a shareholder meeting by October 1, 2000. As a result, the company
has agreed to fix the conversion price that Marshall Capital may convert up to
approximately 1.5 million shares of common stock at a price per share of
approximately $1.57.
Pilot also announced that it has retained Credit Suisse First Boston as its
financial advisor to advise on these matters as well as to explore a broad range
of strategic alternatives.
On October 24, 2000 Pilot announced that it had appointed Donald J. Marsee to
act as Interim Chief Financial Officer for the company. Pilot has commenced a
search for an individual to fill this position on a permanent basis. Also,
Shanda Bahles resigned from the company's Board of Directors. A replacement has
not yet been selected.
About Pilot Network Services, Inc.
Pilot Network Services, Inc. is the first provider of highly secure,
subscription-based e-business services. As the Security Utility(TM) pioneer,
Pilot enables secure e-business for companies of all sizes in every industry by
providing a wide range of services with built-in security to protect enterprise
networks. Pilot protected e-business services include secure hosting, Internet
access and gateways, and extranet/VPN services. Customers can choose options
including encryption, authentication, access control, virus scanning, and web
filtering. Pilot provides the highest level of protection available today by
connecting businesses to the Internet through Pilot Security Centers. Protection
from hackers, viruses, and other threats is built into the Pilot network with an
advanced, distributed security architecture called the Pilot Heuristic Defense
Infrastructure(TM) (HDI(TM)). The Pilot HDI combines the most advanced
technology with 24 x 7 monitoring by security engineers to continually evolve
and proactively defend Pilot clients' e-business interactions against
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attack. Pilot can be reached at 888-40-PILOT or online at www.pilot.net and
[email protected].
# # #
Except for the historical information contained herein, the matters discussed in
this news release are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially, including
potential fluctuations in results of operations, the new market for Internet
security monitoring, detection and defense services, impact of competitive
products and services, and risk factors listed in Pilot's filings with the
Securities and Exchange Commission.
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<TABLE>
<CAPTION>
PILOT NETWORK SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
September 30, September 30,
---------------------------------- ----------------------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
---- ---- ---- ----
Services revenues $ 7,130 $10,078 $ 12,946 $ 21,190
Cost of services revenues 7,379 10,813 13,809 20,503
------- ------- -------- --------
Gross margin (249) (735) (863) 687
Operating expenses:
Sales and marketing 3,218 4,647 6,156 8,881
Engineering and development 767 1,829 1,402 3,332
General and administrative 970 917 1,730 2,333
------- ------- -------- --------
Operating expenses 4,955 7,393 9,288 14,546
------- ------- -------- --------
Operating loss (5,204) (8,128) (10,151) (13,859)
Interest expense, net (37) (529) (287) (977)
------- ------- -------- --------
Net loss $(5,241) $(8,657) $(10,438) $(14,836)
Net loss attributable to common $(5,241) $(8,657) $(10,438) $(14,836)
stockholders ======= ======= ======== ========
Basic and diluted net loss per share $(0.38) $(0.57) $(0.77) $(0.98)
======= ======= ======== ========
Shares used in computing basic and 13,689 15,093 13,625 15,078
diluted net loss per share ======= ======= ======== ========
</TABLE>
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1/ Includes restatement of revenue in the first quarter ended June 30, 2000.
Restatement reduces first quarter revenue by $425,000 and increases net loss by
$0.03 per share.
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<TABLE>
<CAPTION>
PILOT NETWORK SERVICES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
March 31, September 30,
<S> <C> <C>
2000 2000
---- ----
Current assets:
Cash and investments $ 8,818 $ 7,823
Trade receivables 7,233 9,036
Prepaid and other current assets 843 2,243
-------- --------
Total current assets 16,894 19,102
Property and equipment, net 24,624 29,366
Other assets 1,639 843
-------- --------
Total assets $ 43,157 $ 49,311
======== ========
Current liabilities:
Accounts payable and accrued expenses $ 7,419 $ 10,480
Line of credit 4,652 5,019
Term loan 3,000 3,000
Current portion of capital lease obligations 2,275 2,380
Deferred revenue 1,200 1,875
-------- --------
Total current liabilities 18,546 22,754
Capital lease obligations, net of current portion 3,561 5,900
-------- --------
Total liabilities 22,107 28,654
Stockholders' equity:
Capital stock 74,030 88,542
Accumulated other comprehensive income 39 (30)
Accumulated deficit (53,019) (67,855)
-------- --------
Total stockholders' equity 21,050 20,657
-------- --------
Total liabilities and stockholders' equity $ 43,157 $ 49,311
======== ========
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