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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 a May 24, 2000 conference call concerning the
First Quarter Financial Results of Excalibur Technologies Corporation.
Excalibur
Moderator: Patrick Condo
May 24, 2000
6:30 a.m. MT
Operator: Ladies and gentlemen thank you for standing by. Welcome to the
Excalibur Technologies Corporation first quarter financial
results conference call. At this time, all participants are in a
listen only mode. Later, we will conduct a question and answer
session in an interactive mode. At that time, if you have a
question you will need to press the one followed by the four on
your pushbutton phone. As a reminder, this conference is being
recorded today, May 24, 2000. I would now like to turn the
conference over to Mr. Pat Condo, President and Chief Executive
Officer of Excalibur Technologies; and Mr. Jim Buchanan, Chief
Financial Officer. Please go ahead, gentlemen.
Patrick Condo: Good morning everyone and welcome to Excalibur Technologies
financial results conference call for the quarter ending April
30, 2000. I am Pat Condo, President and Chief Executive Officer
of Excalibur. With me today is Jim Buchanan, our Chief Financial
Officer.
We believe that Q1 was successful, not only because it
represents another solid quarter of financial and operational
performance, but also because we have signed and announced on
May 1st an agreement with Intel Corporation to combine existing
Excalibur operations with Intel's Interactive Media Services
Division to form a new company. In today's call we'll discuss
both of these items starting with a review of our quarterly
financial results and company performance followed by the Intel
Excalibur agreement.
At the close of our call we'll respond to questions in an
interactive format. If your question is not addressed on the
call today please feel free to call our investor relations
department at 703-760-4077. Now, let me ask Jim to review the
first quarter results.
Jim Buchanan: Thanks Pat. Good morning everyone. Before we begin, please note
that during this call we the management of Excalibur may make
comments about our future expectations, plans, and prospects,
which could constitute forward-looking statements within the
meaning of 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,
Excalibur's ability to continue to develop competitive products
and make timely product releases, and the rapidly changing
marketplace. Risk factors are reported in Excalibur's form 10K
for the year ended January 31, 2000 and other filings with the
SEC.
We're pleased to report another quarter of financial results
that were in line with our expectations. Overall, we increased
revenues 21 percent compared to the quarter a year ago. This
increase is driven by growth in our existing customer base and
partnerships and by new licensing agreements. Our total revenue
for the first quarter was 9.4 million compared to 7.8 million
for the
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same quarter last year. Software revenue was 7.5 million. That
is an increase of 15 percent over last year, while maintenance
revenue was 1.9 million. That is a 52 percent increase compared
to last year.
I should note here that revenue from one of our maintenance
contracts provided about 400,000 in maintenance revenue in the
first quarter and is a non-recurring item. So, if you exclude
that contract, maintenance revenue for the first quarter of this
year was approximately 1 1/2 million or 21 percent higher than
last year.
Total expenses for the quarter were 11.1 million. That is up
from 9.2 million in the first quarter of last year or an
increase of 21 percent. The increase in operating expenses is
primarily due to increased spending and sales and marketing. The
cost of software revenues increased 12 percent to 1.1 million in
the first quarter this year. The increase was driven by higher
software revenues. Cost of maintenance revenues in the first
quarter decreased 23 percent over last year as a result of
changes implemented in the fourth quarter of last year that
streamlined the customer support organization and reduced
overall costs. Therefore, the gross margin percentage improved
in the first quarter of this year to 83 percent compared to
about 80 percent in the first quarter of last year.
Sales and marketing expense was 5.6 million in the first
quarter. That is an increase of 43 percent over the first
quarter of last year. The increase is attributable to growth in
personnel as well as marketing program expenses. As you recall
we embarked on an aggressive advertising and brand recognition
campaign in the first quarter placing ads in the Wall Street
Journal and Fortune Magazine. These expenses are reflected in
the first quarter figures and we believe we are beginning to see
positive effects from those promotions.
Research and development expenses were 2.7 million. That is an
increase of 8 percent over last year and general and
administrative expenses increased 4 percent from the first
quarter last year to 1.3 million.
Other income for the first quarter was about 94,000 which puts
the net loss for the quarter at 1.7 million or 11 cents per
common share compared to a net loss of 1.9 million or 14 cents
per common share in the first quarter a year ago.
As you may know, we target to sell our software into three basic
market segments. The first is the Intranet or knowledge
management market. The second is Internet e-businesses and
online content providers, and the third is the OEM market. This
quarter 28 percent of our licenses revenue came from Intranet
sales, 44 percent from online services, and 28 percent from
OEMs. Consistent with our expectations the mix of business from
the online services segments increased from about 29 percent of
licensed revenue on average for the last fiscal year to the 44
percent figure in the first quarter of this year.
Now, turning to the results by product line, the Applications
Group develops and markets the retrieval ware family of text
products. Total revenue from the applications group in the first
quarter was 8.7 million, an increase of 27 percent over last
year. The Applications Group had net income of about 600,000 in
the first quarter compared to a net loss excluding special
charges of about 200,000 last year.
The Media Services Group develops and markets the Screening Room
suite of products and total revenue from the Media Services
Group was about 700,000 in the first quarter of this year
compared to about 900,000 in the same quarter a year ago. The
Media Services Group incurred a net loss of 2.3 million in the
first quarter of this year compared to a net loss of 1.3 million
last year.
The business plan for the Media Services Group has been focused
on licensing Screening Room through a network of application
service providers. As we have discussed previously with you we
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targeted strategic partnerships in this area that could provide
distribution coupled with an equity financing arrangement.
Obviously, from our recent announcement finalizing the agreement
with Intel commanded the majority of our attention during the
first quarter. As a consequence we did not aggressively pursue
other ASP relationships and the first quarter revenues for the
Media Services were somewhat lower than we would have otherwise
expected. Nevertheless, we believe the agreement we announced
with Intel is one that will provide a very strong opportunity
for business.
Our cash at the end of the first quarter was 10.8 million
compared to a balance of 11.1 million at the end of last year.
So, in looking at the cash flow for the first three months we
used about 300,000 in cash, which was on par with our
expectations.
The first quarter was noteworthy for its operational successes
as well. I want to touch on a few significant Q1 events and
follow up on a couple of items from prior quarters before
turning the call back over to Pat. In this first quarter, we
added support for six additional languages to Excalibur
retrieval ware. Retrieval ware now provides comprehensive search
feature across more languages than any other vendor including
support for multi-byte international data. These enhancements
give Excalibur customers unprecedented language handling
capability and affirm our continued commitment to advanced text
retrieval solution.
We also announced an upgrade release of Screening Room Version
2.2, which provides substantial enhancements for video ingestion
and capture, added scalability options, new user interface, and
published APIs for enhanced user customization. Regular product
releases such as this one reflect our ongoing commitment to
product R&D and product development and our desire to maintain
our product advantage in the marketplace. Indicative of this
advantage are the awards and honors Excalibur receives each
year, the most recent of which is the Platinum 2000 Award for
best asset management product that "AV Video Multimedia Producer
Magazine" bestowed on Excalibur Screening Room earlier this
year.
We have secured several new customers during Q1 while expanding
sales to existing corporate and government organizations.
Notable customer agreements and highlights during the quarter
include: We received a major payment from Found.com. As you
recall Found.com had enlisted Excalibur as its technology and
corporate partner in its e-tailing venture designed to combine
the best of e-commerce with brick and mortar retail. In the
first quarter, Excalibur recognized about 1.7 million in
revenues from this agreement and our agreement calls for
additional service fees of approximately 700,000 that will be
recognized as services are rendered. The contract also contains
an option for Found.com to extend the license by paying
royalties on a percent of revenue basis.
We also expanded our agreement with Parametric Technology.
Parametric licensed retrieval ware to embed it in their Web
based collaboration portal application called Windchill. During
the first quarter PTC expanded the terms of the agreement adding
additional languages and additional platforms. We signed a new
agreement with the international law firm Clifford Chance.
Clifford Chance selected retrieval ware to power their Intranet,
which is assessable by some 6500 lawyers and others around the
world. Accuracy, scalability, and advanced language capabilities
were deciding factors in Clifford Chance's decision to use
Excalibur retrieval ware to manage its vast international
knowledge base.
Other significant agreements and upgrades in the quarter include
the "LA Times", Cognos, the National Institute of Health, Xerox,
Novartis ,Williams Communications and others. Overall, we now
have approximately 80 companies using Excalibur products to
power online information services and applications.
As we continue looking to the future we see widening market
opportunities for all of Excalibur's products and services. Both
the text and video markets are expanding and problems such as
accuracy and scalability are essential criteria that
corporations and online service providers use
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when choosing the right technology to power their business. Our
products are built for these demanding environments and we're
seeing increased revenues as a result. We feel our current
business is a solid foundation upon which the new company will
build.
Since the announcement with Intel we've frequently been asked
about how our current customers and prospects have reacted to
the proposed agreement. Interest in the new company is strong.
We've talked with many organizations, not only in our current
customer base, but also among our prospects. We're having
discussions about new business opportunities that probably
wouldn't have been possible without this announcement. The
announcement has given us better visibility and more credibility
than we've ever had before. Many have expressed enthusiasm and
interest in what the new company will offer, how the new company
services can benefit them, and when we anticipate the full scope
of offerings from the new company will be available.
We've explained that the next three months will be a
transitional quarter for us as we plan for putting the two
organizations together and that the new company offerings of
necessity will not be available until after the transaction
closes well into the second half of this year. Right now, it's
not possible to determine what impact if any this may have on
Excalibur's business in the meantime. There are many positive
aspects, but the announcement could have the effect of pushing
some of our business later into the year as some prospects may
defer their purchase decision until they can evaluate the full
extent of our product and service offerings.
Also, the planning of the integration of the two companies and
the closing of this transaction is going to take a lot of
management's time and attention. We'll do our best to close the
transaction as soon as possible and look forward to what we
believe will be an exciting future for the company. Now, I'd
like to turn the call back over to Pat.
P. Condo: Thanks Jim. I'd like to spend a few minutes now reviewing our
agreement with Intel Corporation and sharing with you our
excitement and enthusiasm over the potential of this new
company. On May 1st, we jointly announced a major agreement with
Intel Corporation to form a new company that will enable owners
of branded high value content such as sports and entertainment
material to produce and securely sell their audio and video
content over the Internet. The new company will offer a
compelling one-stop solution with key Internet technologies. Of
course, the transaction is subject to regulatory review,
Excalibur stockholder approval, and other normal closing
conditions. However, all other necessary corporate approvals
have been obtained by Excalibur and Intel.
We expect to complete this transaction and launch the new
company in the third quarter of this year. Ron Whittier, a 30
year Intel veteran, will resign his position as Senior Vice
President of Intel to become Chairman of the Board and CEO of
the new company and I will become President and COO.
Under the terms of the agreement Excalibur Technologies will
combine its entire business operations with Intel's Interactive
Media Services Division which is composed of three operating
units that include over 60 people, 10 patents, 45 technology
licenses, and several customers, many with multi-year
agreements. In addition, Intel will contribute $150 million in
cash to the new company.
In exchange for these contributions Intel will receive 60
percent of the new company's equity. Intel will take a 49
percent position in the voting stock of the new company and the
balance of its investment in non-voting stock. Excalibur
stockholders and present option holders will receive 40 percent
ownership in the new company in exchange for their Excalibur
stock. Excalibur shareholders will receive one share of stock in
the new company for each share they hold of Excalibur.
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We believe enormous opportunities sit behind this move. Kagan
and Associates, a respected media industry research firm,
estimates the interactive media services segment will be a $16
billion market by 2004. This $16 billion market represents
revenues derived from an array of sources including encoding
services, logging, and indexing software, add insertion
software, asset management software, security, and services.
Yet, we believe no one is addressing this opportunity the way it
should be addressed with a one stop comprehensive solution
covering virtually all facets of the interactive segment. This
is precisely the solution the new company intends to provide.
The new company will uniquely possess the technologies,
partnerships, and resources to take advantage of this market
opportunity. A number of factors are driving the rapid demand
for interactive Web media. First is the continued penetration of
broadband distribution not only in the US, but also throughout
the world. By 2002 industry analyst, IDC, estimates 20 percent
of US Internet homes will have broadband connections and the
number of Internet homes worldwide with broadband capability
will exceed 20 million.
Second, as broadband penetration grows content providers will
seek to exploit it through richer more interactive Web media
such as sports, film, and music. This in turn will create demand
for fatter distribution pipes as consumers demand even richer
and more interactive experiences and content owners will respond
by continuously seeking to enhance and enrich their content with
ever more bandwidth intensive capabilities.
The anticipated growth in broadband services is validated by the
demand we already see for streaming media. To date more than 150
million users have downloaded streaming media software and
according to industry analyst, IDC, the use of streaming media
grew by 80 percent from 1998 to 1999. Already, some 45 million
people stream media every month and content providers are
responding positively to this growing demand. Two thirds of news
and entertainment sites stream audio and more than half stream
video.
Moreover the number of corporations utilizing streaming media
technology is expected to more than double between 1999 and
2001. Yet, despite this rapid growth in rich media availability
and the expansion of broadband distribution capability, no
comprehensive solution currently exists that enables content
owners to bring their high value branded assets to the Web
efficiently, securely, and profitably. Our opportunity with the
new company is to provide this one stop search for connect
capability to enable branded media content to be made available
over the Internet by providing a secure infrastructure content
owners need to generate an attractive rate of return on their
valuable branded content.
Our initial focus will be on premier branded content providers
such as sports organizations, movie producers, and music
publishers, and then expand over time into other vertical
segments such as training and education. In the end, our mission
is to be the leading supplier of interactive media services to
the Internet economy.
To seize this opportunity and secure our position as a leading
player in the interactive services segment, we are combining all
of Excalibur's existing business with Intel's interactive media
services business to form a new successor enterprise. This new
company made up of the combined Excalibur Intel contributions
will operate independently and be publicly traded. Excalibur
will contribute its entire operations in the new company which
include our technologies for video, text, and image content
management, advanced technologies and solutions for indexing
search and retrieval, more than 230 people, leading industry
partnerships, and its established business operation
representing more than 400 customers worldwide, and a growing
business base that generated some 38 million in revenue last
year.
Intel will contribute its Interactive Media Services Division to
the new company including extensive relationships with media and
entertainment industry companies, broad technical capabilities
in video and data integration, content security, and content
protection, substantial
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intellectual property assets including 10 patents and more than
45 technology licenses from Intel Corporation, human resources
in key technical areas with more than 60 Intel professionals
concentrating in areas of software development and engineering,
receiving offers to join the new company, the three Internet
focused business units that comprise Intel's Interactive Media
Services Division, a base of significant customers in key market
segments targeted by the new company, an experienced management
team focused on interactive Internet services, and active
participation in collaborative programs with other Intel
divisions such as Intel Architecture Labs, Intel Online
Services, and Intel Capital.
In addition, Intel will contribute $150 million in cash to the
new company. Viewed in aggregate then, the new company will
possess the combined resources it needs to be a market leader in
the Interactive Media Services segment. In summary, it will
include a broad set of industry relationships, deep
technological competence resulting from nearly a decade of
relative R&D, ten patents and more than 45 technology licenses,
Excalibur's video and text management capabilities,
approximately 300 employees worldwide across a balanced spectrum
of functional areas, an experienced management team with
demonstrated capability in both technology and business, sales
channels with access to over 400 customers and the senior
management of major media companies, a significant time to
market advantage in both technology and in aggregating services,
approximately 160 million in working capital, and significant
ties to Intel Hosting, Intel Capital and Intel development labs.
Our strategy for the new company is to continue not only growing
the existing Excalibur product business, but also to expand it
through the interactive media services business. We envision
strong synergies between the products and services business as
each business encourages demand for the other. For example, over
60 percent of Excalibur's current customers are in the media,
entertainment, and broadcasting business. Another 20 percent are
building interactive Websites. We believe Excalibur product
customers over the next few years will naturally transition to
products plus outsourced service customers as enterprise content
repositories continue to grow, and as new bandwidth intensive
data types such as video and rich document become essential
common place assets, and as infrastructures reach capacity or
strain under the added burden.
Similarly, we see service customers deploying our products at
their premise over time as enablers of local multi media content
management solutions. Our new interactive media services will
extend the product business by providing controls for branded
content interaction on the Web. It will positioned between
content providers such as sports leagues and entertainment
companies at one end of the spectrum, and content delivery
companies at the other end of the spectrum. Content will be
packaged for distribution from 56 K to broadband targeting edge
distributors like Intel's recently formed IMS Group, Akaimi, and
Digital Island who in turn will send the content to last mile
connections such as AOL or Excite At Home cable and others for
use over PC, set top box, and wireless device.
A new company will provide all of the infrastructure branded
content owners need to package, protect, and profitably deliver
content over the Web. So, let's take an example, a sport league,
which we are in active discussions with, could have their video
content captured, indexed, annotated, and archived. The content
is now searchable and editable online. It can be augmented with
integrated, interactive content such as players statistics or
historical data and preprocessed into thematic packages,
examples like Michael Jordan's slam dunks and other NBA
highlights, Joe Dimaggio's 56 game hitting streak, or Super Bowl
highlights.
Then, the content can be protected with the advanced Intel
tamper resistant software, packaged for various distribution
channels, 56 K through broadband, format it for external e-
commerce support and edge distributed for enhanced Internet
performance, and finally, these content packages can be made
available for distribution as on demand subscriber only access
or pay for view access, or advertiser supported access. All of
this will be available as a service delivered from the hosted
environment.
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The new company will strive to make money in several ways as
this model is implemented. First, we will continue to license
software as applications to end users and OEMs including the
added capability to distribute the acquired Intel software
through these channels. Second, we will seek to offer services
where all of the new company's software is integrated into one
platform and is available either on a monthly fee basis or as a
revenue share model with subscribers. Third, we will seek to
offer customers of either our service or our product a
comprehensive Web service for customized design, integration,
and consulting. Fourth, we will continue to charge for
enhancements and upgrades to the software.
In summary, the new company will seek to offer a comprehensive
end to end interactive media solution and while organizations
may compete against us for some part of this end to end solution
no competitor, in our view, offers a complete solution. We are
extremely enthusiastic and optimistic about this new company. By
merging Excalibur operations with Intel's Interactive Media
Services Division through this agreement the new company will
have the people, the technology, the resources, the customers,
the associations, and the vision to win a leading position in
the next and perhaps even final major market to emerge on the
Internet, the interactive media services market.
Now, before opening this up for our interactive Q&A session
we'll address questions of common shareholder interests
submitted in advance. Question one: what happens to the current
Excalibur product's business? Answer: as we noted earlier our
strategy for the new company is not only to continue growing the
existing Excalibur products business, but also to build on it
through the interactive media services business on the Web. We
see Excalibur product customers naturally transitioning to
products plus outsource services as the size and complexity of
their content asset outstrip the capacity of their
infrastructures. Similarly, we see service customers deploying
our products at their premise over time as enablers of local
multi-media content manager.
Second, who will the new company compete against? Answer: no
company of which we're aware offers a full range of products and
services the new company will offer. However, many companies
will compete for segments of the interactive media services
market.
Question: what is the process for forming the new company?
Answer: the process consists of four major components. First,
Excalibur and Intel continue work on the integration plan for
the organization. Second and simultaneously, we will file our
proxy and registration statement outlining the specific
transaction details with the SEC. We expect that the SEC will
have comments on the proxy and registration statement. Third,
the filing, once approved by the SEC, is distributed to
Excalibur shareholders and shareholder approval is sought.
Fourth, upon shareholder approval Excalibur Technologies shares
are tended for shares in the new company on a one for one basis.
Question: what guidance can you provide on the new company?
Answer: we're still in the process of planning for the merger of
the organizations and we're currently working on revising our
business plan. Once we're comfortable with a combined view of
the new company we will begin providing information to the
public.
Question: why did Excalibur take the balance of the Found.com
payment in cash? Answer: as you may recall from our prior call
our agreement with Found.com stipulated that Found dot com had
the option to pay the balance owed under our agreement either in
cash or the form of preferred stock. Found.com elected to pay
most of their remaining balance in cash.
At this point, I would like to ask the operator to begin the
interactive portion of the question and answer session.
Operator: Thank you. 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
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pushbutton phone. You will hear a three tone prompt
acknowledging your request and your question will be polled in
the order it is received. After your question has been stated
your line will be placed back into a listen only mode. If your
question has been answered and you wish to withdraw your polling
request you may do so by pressing the one followed by the three
on your pushbutton phone. If you are using a speakerphone please
pick up your handset before pressing the numbers. One moment
please for the first question. Once again, ladies and gentlemen,
if you do have a question please press the one followed by the
four at this time. Mr. Condo, I am showing there are no
questions. Please continue.
P. Condo: OK. That concludes our third 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 703-761-
1990, or you can e-mail it to [email protected].
----------------
Thank you all for participating.
Operator: Ladies and gentlemen, that does conclude our conference call for
today. You may all disconnect and thank you for participating."
Excalibur and Intel plan to file a 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 proxy
statement/prospectus.
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
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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.
