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FILING PURSUANT TO RULE 425 OF THE
SECURITIES ACT OF 1933 AND RULE 14(a)-12
OF THE SECURITIES EXCHANGE ACT OF 1934
FILER: EXCALIBUR TECHNOLOGIES CORPORATION
SUBJECT COMPANY: EXCALIBUR TECHNOLOGIES
CORPORATION
NO. 0-9747
The following is a transcript of an August 22, 2000 conference call concerning
the Second Quarter Financial Results of Excalibur Technologies Corporation.
EXCALIBUR TECHNOLOGIES CORP.
MODERATOR: PATRICK CONDO
AUGUST 22, 2000
6:30 A.M. MT
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the
Excalibur Technologies Corporation Fiscal Year 2000 Second
Quarter Financial Results Conference Call. At this time, all
participants are in a listen only mode and later we will conduct
a question and answer session. At that time, if you have a
question, you will need to press the one key followed by the four
key on your push button phone. As a reminder, this conference is
being recorded today, August, 22, 2000. Moderator for today's
call is Mr. Pat Condo, President and Chief Executive Officer of
Excalibur Technologies. Mr. Condo, please proceed.
Pat Condo: Good morning everyone and welcome. I'm Pat Condo, President and
Chief Executive Officer of Excalibur Technologies. With me today
is Joanne Hannafin, Director of Finance. Jim Buchanan is unable
to attend this morning.
Last night, we issued our press release containing financial
results for Excalibur's fiscal year 2000 second quarter that
ended July 31st. Following our presentation, we'll respond to
questions in an interactive format. If your question is not
addressed on the call today, please call our investor relations
department at (703)-761-3700.
Let me begin by reviewing our FY2000 second quarter results.
During this call we, the management of Excalibur, may make
comments about our future expectations, plans and prospects that
could constitute forward looking statements as defined by the
Private Securities Litigation Act of 1995. Actual results may
differ materially from our expectations as the result of various
important factors including, but not limited to, the success of
our relationships with strategic partners, the competitiveness of
our products, the timeliness of our product releases, and the
impact of a rapidly changing market place. Risk factors are
reported in Excalibur's form 10K for the year ended January 31,
2000, and other SEC filings.
Today I'm pleased to report our financial results are again in
line with our expectations. Overall, we increased our revenues by
25 percent compared to the quarter one year ago. This increase
resulted principally from growth in our existing customer base
and partnerships and by new licensing agreements. Our total
revenue for the second quarter was $11.4 million compared to $9.1
million for the same quarter last year. Total software revenue
for the quarter equaled $10 million, an increase of 27 percent
over last year.
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Maintenance revenue was $1.4 million, a 16 percent increase when
compared to the same quarter one year ago.
Total expenses for the quarter were $11.5 million. This
represents a 23 percent increase in expenses over our second
quarter expenses last fiscal year. The increase in operating
expenses is attributable primarily to increased spending in sales
in marketing and increased investment in test and visual research
and development. The cost of software revenue in this year's
second quarter increase 35 percent to $1.7 million as a result of
increased software sales. The cost of maintenance revenues in the
second quarter decreased 41 percent over the same period last
year due to changes implemented in the fourth quarter of last
year that streamlined the customer support organization, thus
reducing overall costs.
Gross margin percentages improved to 82 percent in the second
quarter this year, compared to about 80 percent in the second
quarter of last year. Sales and marketing expense in the second
quarter was $5.4 million, an increase of 45 percent over last
year. This reflects the continuing investments we're making to
drive and close business. For example, we recently began direct
sales operations in Germany where we just closed one of our
largest ever RetrievalWare sales with Deutsche Post.
Research and development expenses were $2.8 million. That is a 20
percent increase over last year. General and administrative
expenses decreased 15 percent from our second quarter last year
to $1.2 million. Other income for the second quarter was about
$133,000, bringing our net loss for the quarter to about $2,000,
which is approximately break-even for common share. This compares
to a net loss of about $200,000 in the second quarter last year,
or about a penny a share. For the six months ended July 31,2000,
total revenue was $20.8 million, an increase of 23 percent over
total revenue of $16.8 million reported for the same period last
fiscal year. The company reported a net loss of $1.7 million, or
11 cents per common share, compared to a net loss of $2.1
million, or 15 cents per common share, in the same period last
fiscal year.
As you may know, we focus our sales efforts on three basic market
segments: Internet, e-business and online content providers,
corporate Internet portals, and original equipment manufacturers
or OEMs. For the second quarter, 23 percent of our license
revenue resulted from Internet online service sales, 50 percent
from Internet portals, and 27 percent from OEMs. For the first
half, online revenue accounted for 32 percent of our business,
Internet sales for 40 percent, and OEM agreements for 27 percent.
This compares with 21 percent, 40 percent and 39 percent for
online, Internet and OEM sales respectively in the first half of
our last year.
Our DSO was up a bit this quarter largely due to a few accounts
in Europe and we're focusing collection efforts in this area to
bring the DSO more in line with our expectations.
Turning now to our results by product line, total revenue in the
second quarter for the Application Group and our RetrievalWare
family of products was $9.8 million, an increase of 42 percent
over last year. The Application Group had net income of about
$1.5 million in the second quarter compared to net income of
$82,000 last year. RetrievalWare continues to make strong
inroads, not only in online and e-Commerce accounts, but also in
it's traditionally strong corporate portal, government, and OEM
business lines. During the quarter, noteworthy licensing
arrangements were signed with Deutsche Post, the Chicago Tribune,
Bell Atlantic, Optima, Nikoyo Limited, KDN, Chadwyck-Healey,
Wiznet and Intersect in the corporate portal and online segment,
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and new agreements were signed with the FDA, USDA and U.S.
Military in the government sector.
Total application group revenue for the first six months of this
fiscal year is $18.5 million, compared with $13.7 million last
year. Net income for the Application Group for the six months
totaled $2.1 million compared to a loss of about $50,000,
excluding special charges, for the first six months of last year.
For the Media Services Group and the Screening Room line, total
revenue for the quarter was about $1.6 million this year, as
compared to $2.2 million last year, and exceeded this year's
budgeted revenue for the quarter by $100,000. The total number of
Screening Room deals signed in Q2 grew 40 percent this year from
ten in Q2 last year to 14 in Q2 of this year.
The Media Services Group incurred a net loss of $1.5 million in
the second quarter of this fiscal year, compared with a net loss
of $300,000 during the same period last year, which was in
keeping with our expectations. During the quarter, the Media
Services Group entered into new agreements with Discovery
Channel, webADTV, Digital Island, InterGraph, U.S. Geological
Services, and several others as we continue to see demand growth
for our Video Content Management Solution among both end users
and ASPs.
For the six months of this year, the Media Services Group has
generated $2.3 million in revenue versus $3.1 million in the
first six months of last year. The Media Services Group incurred
a net loss of $3.8 million for the first half of fiscal 2001,
compared to a net loss of $1.6 million for the first half of last
year.
At the end of the second quarter, our cash balance was $11.8
million compared to a balance of $10.8 million at the end of the
first quarter this year. We added about $1 million in cash during
the second quarter, which was largely due to proceeds from stock
option exercises.
As many of you know, earlier this year we announced an agreement
with Intel Corporation that provides for the formation of a new
company by merging Excalibur's entire business operations with
the three operating units that make up Intel's Interactive Media
Services division. These three units include more than 60 people
and will bring to the new company relationships with a number of
customers, several of whom have entered into multi-year
contracts. In addition, Intel will contribute 14 patents and
patent applications, source code, components, and licenses for
additional Intel technology, as well as $150 million in closing
to the new company. These assets will be combined with
Excalibur's existing business, which includes advanced tax image
and video indexing and content management software and over 600
customers primarily in the media, entertainment and broadcasting
business. The transaction of course is subject to regulatory
review, Excalibur shareholder approval, and other normal closing
conditions. However, all other necessary corporate approvals have
been obtained by Excalibur and Intel.
Today I'm pleased to report we're making continued progress on
the proposed merger. We filed our preliminary proxy with the SEC
on August 14, 2000. We expect to mail our definitive proxy
statement to our shareholders in time for an anticipated close of
the transaction this fall. A transition team made up of senior
managers from Intel and Excalibur has held several meetings to
facilitate integration and business plan development for the new
company. We're making good progress planning for such areas as
corporate naming, personnel recruitment, product development
strategy, licensing, pricing and business practices, worldwide
marketing and sales plans, and business and market development.
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We're also in the process of setting up the new board, which will
be composed of both Intel and Excalibur designees, as well as two
outside directors.
Our vision for this new company is to achieve a leading role in
interactive media services on the web. Our mission is to provide
the owners and creators of premium, high value content to make
that content readily available securely and profitably on the
web. We're targeting customers that have proven business models
for using their content to make money in traditional media, and
now want to create a new experience via in an interactive medium.
Major sports leagues, news and information companies, and
training and education companies are all examples of our initial
focus. Our planned solution will deliver all of the connecting
infrastructure content owners need to archive and index their
assets, search and edit them online, augment and enhance them
with interactive content such as statistics, discography, and
educational material, reprocess them into somatic packages, such
as highlights or series, protect them with advanced tamper
resistant software, wrap them with business model support such as
e-commerce subscriptions and pay per view, package them for 56K
through broadband distribution, and then hand them off to a wide
range of distribution channels such as edge distributors like
Digital Island, Akamai and Intel Interactive Media Services, last
mile distributors such as AOL or Ameri--or home--at home cable
and set top box, and even wireless devises.
We see the new company having several revenue making
opportunities as this model is implemented. First, by offering
turnkey services for a monthly fee or, in some cases through a
revenue sharing agreement, that integrate all of our capabilities
into a single hosted platform for bring branded content to the
web; second, by working with application services providers, or
ASPs, to provide our applications on a fee basis as value added
components of their service; third, by continuing to license
software as applications to end users for use on corporate
premises; and finally, by continuing to license our technologies
to OEMs for inclusion in their solution.
Over time, our strategy is to transition the company from
primarily a products company with a licensing model, to a
services company with recurring revenues. We expect to continue
to sell product to customers whom we believe, because of volume
or cost need, will eventually move to the services model. We also
intend to maintain a healthy OEM licensing business to further
our stature as a supplier of base technology and to capture
ongoing revenue as those customers sell their products to the
market. We plan to provide a more complete view of our business
moving forward once the merger takes place.
Today we remain comfortable with existing analyst views on the
current Excalibur business. We're extremely enthusiastic about
the new company and optimistic about its future. While
organizations may compete against us for some part of the
end-to-end solution we envision providing, no competitor in our
view currently has or has announced a comprehensive solution on a
par with the offering plan for by the new company. We're building
a company we believe that will have the people, the technology,
the resources, the customers, the associations and the vision
needed to achieve our goal. This concludes my remarks.
Now, with thanks to all of you who sent in questions via fax and
e-mail, we'll address a few questions that represent in a common
line of inquiry, and then open it up for an interactive session.
The first question is, what guidance can you give regarding the
outlook for your third quarter?
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We're currently in the business planning process for the combined
company, but it's not possible at present to ascertain what
impact, if any, the new business opportunities before us may have
on Excalibur's business. Interest in the new company is strong
and we've heard from many organizations, not only in Excalibur's
current market customer base, but also among our prospects about
the opportunities that likely wouldn't have been known to us
without this proposed merger. However, we're not at a point yet
where we can offer a combined view or any guidance about the new
company's prospects going forward. We do expect, though, to have
that view after the transaction closes and intend to share that
view once our planning is complete. In the meantime, a number on
analysts do have reports available on Excalibur as a stand-alone
company.
When will the merger close?
As we noted earlier, just last week we filed our preliminary
proxy for review. We anticipate having the definitive proxy in
our shareholder hands in ample time for the transaction to close
as expected this fall.
Is the video business developing as you expected?
So far. As I noted earlier, our revenue this last quarter
actually exceeded our budget expectation by about $100,000 and
the number of fields closed showed a nice increase, going from 10
in Q2 last year to 14 in Q2 this year. We did see our
revenue--our year-to-year revenue decline somewhat, but that was
expected since last year in Q2, we recognized revenue from
agreements with Storage Tech and Interview that we didn't expect
to recur this year.
How will the Intel merger enlarge your addressable market?
Not only will this merger promise to add new products for our new
market segments such as tamper resistant software to our family
of software product offering, it also opens up an entirely new
market segment, the interactive media services market to us. This
segment, according to media industry research firm Kagan &
Associates [sp], will be a $16 billion market by 2004 and we
believe the new company will be uniquely positioned to capitalize
on it.
Now I'd like to ask the operator to brief you on the interactive
portion of the question and answer session and then we'll open it
up for your questions. Operator?
Operator: Ladies and gentlemen, we will now begin the interactive portion
of the question and answer session. To ask a question, please
press the one followed by the four on your push button phone. You
will hear a three-toned prompt acknowledging your request and
your questions will be polled in the order they are received.
After you have stated you question, your line will be placed back
into listen only. If your question has been answered and you
would like to withdrawal your polling request, you may do so by
pressing the one followed by the three on your push button phone.
If you are using a speakerphone, please pick up your handset
before pressing the numbers. One moment please for your first
question.
Our first question comes from Jason Ader. Please state your
company name followed by your question.
Jason Ader: Hi. Jason Ader from Thomas Weisel Partners. Hi Pat. How you
doing?
P. Condo: Good. How are you?
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J. Ader: OK. I just was listening with interest to some of the comments
you made on the Intel merger. Could you give us a sense of if
there are customers lined up yet, number one? If they're not,
when do you expect them to be lined up? And secondly, how the
integration of your products and their products, how long that
will take in sort of getting this solution in a shape that is
ready to be sold and revenue recognized?
P. Condo: Jason, this--the two questions you had were, are we--what
customers has Intel or the new company lined up and second, when
will we have this solution up and running. The answer to the
first question is that, separately, Intel has several customers
that they've been working with with the tamper resistant software
and their content delivery technology and those customers are
currently current customers as well as new customers that they've
been working with all along. Excalibur has also been working with
a series of new customers on the front end of accessing and
indexing technologies, and we are together in conversation with a
variety of customers that, you know, across the board.
Second, in terms of how long it will take to put this new
solution up, in conversations that we've had, we think that
closing the merger in, say the early fall, we should have
probably a quarter to two quarters before we would have the
service up and running in a production mode. We would certainly
have prototype development done and we can certainly begin
handling customers right away. Excalibur already has the
Screening Room product up and running in a ASP environment and
Intel has already had their technology up and running in an ASP
environment. So we think it's above, you know, a quarter to two
quarters before we would have the technologies fully integrated
in a production mode.
J. Ader: OK, great, and then one follow up. It seems like some of the
other players of the space, like a Virage [sp] or a Loudeye [sp],
are sort or talking--starting to talk the same game here, this
solution.
P. Condo: Right.
J. Ader: Are you--does that concern you? What do you think you have that
will give you kind of a competitive advantage against some of
those players?
P. Condo: Well, we have a solution that stands really four different
capabilities. We have the ability to do distributed encoding; the
ability to do a variety of indexing; the ability to do tamper
resisting content protection; and the ability to do video and
data combinational and transmission capability. Any one of--any
single company out there has maybe a piece of that capability and
the beauty of our merger is that we took a company that had one
set of those capabilities, which was Intel, and combined it with
Excalibur that had the other set and have effective put together,
we believe, a company that at least would take three or four
companies externally to come together to create a competitive
solution. So, certainly many of those companies might market
those capabilities, but we believe with the technology, the
customers and the capabilities that we have where, you know,
orders of magnitude away from what any one of those single
companies could offer.
J. Ader: Is there--is Intel Media, Attractive Media Services, have a
website that we could go to and sort of with publicly available
information or they don't have that?
P. Condo: I think they do. Let me--but it's probably only for one of the
operating units within those three. I don't think it's--I don't
think there's a website that completely explores all three of the
units and what they bring, but we'll take that off-line and we'll
get you some more information.
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J. Ader: OK. Thanks very much.
P. Condo: Yep. Next question.
Operator: Ladies and gentlemen, if there are any additional questions
please press the one followed by the four at this time. Our
next question comes from Timothy Myers. Please state your
company name followed by your question.
Timothy Myers: Hi Pat. Actually this is John Tope at Morgan Stanley out of
Cleveland.
P. Condo: Hi, how are you?
J. Tope: Good. The question I've got relates to the preliminary proxy
that you'd sent out and I wondered if you could address the pro
forma of the combined divisions. You had shown for last year a
loss of about $141 million and I believe it was like $37
million for the first quarter? And the other issue is still
that paragraph in there that addressed the stipulation that
there probably would be substantial investments going forward,
limitations with Intel and addressing like up to $500 million
over a 12 month period? Can you address those statements?
P. Condo: Let me refer--let me ask Joanne Hannafin who's with me today as
the Director of Finance.
Joanne Hannafin: All right. We talked about any [unintelligible] contributions
going forward and the only one that was mentioned in the pro
forma regards compensation payments that will happen in April
of 2001. We removed the section in the amendment that related
to incurring debt and I think that's what you're referring to
as a $500,000.
P. Condo: $500 million.
J. Hannafin: Can you..
P. Condo: Could you state your question again, because those numbers are
different than--the $141 million in loss.
J. Tope: Yeah, let's see here. I think it was in the table on like page
11 or page 20 of preliminary proxy. Because a--I mean, it shows
that the Intel Division I believe had a loss of like $6 million
for last year or...
P. Condo: Right.
J. Tope: And they're abouts, and when you looked at the pro forma of the
two companies, it actually showed a combined loss of $141
million.
P. Condo: Now that...
J. Tope: And a basic diluted loss of $3.41 per share.
P. Condo: No.
J. Hannafin: Well, if you're looking at the pro formas, they include--it
[unintelligible] the transaction occurring at the beginning of
the period, so it includes an adjustment for goodwill as if the
transaction had occurred.
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P. Condo: All right. Yeah, I mean the goodwill on this transaction going
forward--
J. Hannafin: It's $135 million in the first year.
P. Condo: Right. But the operating loss is not that.
Operator: Does that conclude you...
P. Condo: Does that answer your question?
J. Tope: Yeah, that does. Thanks.
P. Condo: OK. Yep.
Operator: Once again, if there are any additional questions, please press
the one followed by the four at this time. Mr. Condo, there are
no further questions at this time. Please continue.
P. Condo: OK. This concludes our FY2001 second quarter financial results
conference call. If your question was not addressed in this
session, please call our investor relations department who will
coordinate the answer or you may fax your question to
(703)-748-1255, or you can e-mail it to [email protected]. Thank
you all for participating.
Operator: Ladies and gentlemen, that does conclude you conference for
today. You may all disconnect and thank you for participating.
Excalibur and Intel filed a preliminary proxy statement/prospectus and other
relevant documents concerning the merger with the Securities and Exchange
Commission (the "Commission"). For a description of the direct or indirect
interests in the transactions concerning the solicitation, we refer you to this
preliminary proxy statement/prospectus and the definitive proxy
statement/prospectus which Excalibur and Intel plan to file with the Commission.
WE URGE INVESTORS AND STOCKHOLDERS TO READ THE PROXY STATEMENT/PROSPECTUS AND
ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE COMMISSION BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Investors and stockholders will be able to obtain
free copies of these documents at the Commission's website at www.sec.gov. and
upon oral or written request to Excalibur Technologies Corporation, 1921 Gallows
Road, Suite 200, Vienna, Virginia 22182, Attention: Investor Relations
(telephone number (703) 761-3700.
INVESTORS AND STOCKHOLDERS SHOULD READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY
BEFORE MAKING A DECISION CONCERNING THE MERGER.
Intel, Excalibur and their respective officers and directors may be deemed to be
participants in the solicitation of proxies from Excalibur stockholders with
respect to the transactions contemplated by the merger agreement. Information
concerning the participants in the solicitation will be set forth in the proxy
statement/prospectus when it is filed with the Commission.
This document contains forward-looking statements, which are based upon current
expectations or beliefs, as well as a number of assumptions about future events.
The reader is cautioned not to put undue reliance on these forward-looking
statements, as these statements are subject to numerous factors and
uncertainties, including without limitation, business and economic conditions
and growth, continued success in technological advances, costs related to the
proposed merger, the inability to obtain governmental approval of the proposed
merger, substantial delay in the expected closing of the merger and the risk
that the business of the Interactive Media Services division of Intel and
Excalibur's businesses will not be integrated successfully, any of which may
cause actual results to differ materially from those described in the
statements. In addition to the factors discussed above, other factors that could
cause actual results to differ materially are discussed in Intel's and
Excalibur's most recent Form 10-Q and Form 10-K filings with the Commission.
