EX-99.1 2 f74351ex99-1.txt PRESS RELEASE DATED JULY 24, 2001. 1 EXHIBIT 99.1 INVESTOR RELATIONS: PRESS CONTACT: [ORGANIC LOGO] STEVE VATTUONE PATRICIA CALFEE VP FINANCE GENTRY COMMUNICATIONS ORGANIC, INC. 415.332.2081, EXT. 301 415-581-5794 ORGANIC, INC. REPORTS SECOND QUARTER 2001 RESULTS COMPANY POSTS $13.8 MILLION IN SECOND QUARTER REVENUES, A SEQUENTIAL DECLINE OF ONLY 4% AS LOSS NARROWS SUBSTANTIALLY SAN FRANCISCO, JULY 24, 2001 - ORGANIC, INC. (NASDAQ: OGNC), an international Internet professional services company, today reported financial results for the second quarter ended June 30, 2001. Revenues in the second quarter ending June 30, 2001 were $13.8 million, a 4% decrease from the first quarter ending March 31, 2001. The Company said that almost all of its second quarter revenues were derived from Global 1000 clients and approximately 20% were from its international network. Pro forma EBITDA losses were $5.7 million in the second quarter, a reduction of nearly 70% versus the prior quarter, as revenues began to stabilize and the Company's cost reduction efforts materialized throughout the quarter. Over the past seven months Organic has eliminated approximately $100 million of expense from its cost structure and has lowered its EBITDA breakeven point to an estimated $12.5 million of revenue for the fourth quarter of 2001. The Company's days sales outstanding also remained among the best in the industry at 49 days. "Our Business Performance Acceleration (BPA) service offering is resonating with potential new clients. By focusing on proactively identifying and marketing high return-on-investment digital solutions for both front and back end applications, our BPA methodology has improved our access to key decision-makers. In fact, within the past three months we have performed BPAs for approximately 115 companies and have another 24 BPAs scheduled in the next month. Since the business development phase from beginning to end is approximately three months, we are encouraged by the recent signing of The MONY Group, Dow Automotive, Domino's Pizza and a Fortune 50 client. In addition, we have secured two other verbal client commitments this quarter and have 23 other proposals outstanding in our pipeline. Approximately 70% of our BPA presentations led to additional requests for information and/or meetings and almost 25% have led to requests for proposals," said Mark Kingdon, Chief Executive Officer of Organic. "Our channel partners have embraced our BPA offering and are exploring ways to package their applications into our joint sales presentations, particularly in cases where platform migrations or upgrades may be required. Canada Imperial Bank of Commerce, a new Organic client engaged in our Toronto office, is a channel partner referral from Broadvision. We are accelerating our alliance efforts and have seen renewed support from all of our technology partners. Specifically this quarter we executed a broader and more marketing oriented partnership agreement with IBM. We are also in the process of renewing our alliance with ATG as a premier member in their Solutions Provider Program and we continue to expand our relationship with Sun Microsystems," said Kingdon. 2 Organic, Inc. Q2 2001 Earnings Page 2 Organic announced that it is eliminating redundant non-billable functions and excess capacity. "We are continuing to re-align our operations as we realize efficiencies across our network. In July we anticipate eliminating an aggregate of approximately 80 positions, of which close to 45% will be non-billable employees. In conjunction with a number of other newly identified expense items, we estimate we will realize nearly $10 million of annual expense savings. As a result of this and other previously announced cost containment efforts implemented within the last seven months, our quarterly EBITDA breakeven point is now estimated to be $12.5 million of revenue by the fourth quarter of 2001 compared to $40.3 million for the same period in fiscal 2000, a decline of nearly 70%. Despite eliminating approximately $130 million of expense and capital spending over the past seven months, we will continue to examine our cost structure in order to reach profitability," said Kingdon. Cash balances at the end of the second quarter were nearly $28 million. Days sales outstanding continued to be strong at 49 days, inclusive of a $2.7 million client payment received one business day after the second quarter ended. Pro forma net loss (excluding stock compensation and other stock-based charges, a restructuring charge and a one-time investment loss) for the second quarter of 2001 was $8.7 million, or diluted net loss per share of $0.10, compared with pro forma net loss (excluding stock compensation and other stock-based charges) of $2.1 million, or diluted net loss per share of $0.03, for the second quarter 2000. Before pro forma adjustments, net loss for the second quarter of 2001 was $18.4 million, or diluted net loss per share of $0.21. The company also announced that both Michael Hudes, its President and Sue Field, its Executive Vice President & Chief Financial Officer, have resigned to pursue other opportunities. "Michael is recognized as a true pioneer in the e-services sector, taking a fledgling 20 person company and growing it into a highly respected and widely recognized global business through exceptionally challenging times. His strategic insight, team building skills and commitment to innovation have all left an indelible mark on our business. For the past six years Michael has been my partner in building Organic. We will all miss his energy and passion for excellence but know he will meet with terrific success in what ever he chooses to accomplish next," said Jonathan Nelson, Organic's Chairman of the Board. "Sue has achieved many milestones at Organic, including leading the company's initial public offering, building an entirely new infrastructure and right-sizing the company to be on the path to profitability despite very difficult industry conditions. She leaves in place a high quality team and her commitment to the organization will not be forgotten," said Kingdon. Organic added two new, independent members to its Board of Directors this quarter. Howard L. Morgan, Ph.D., Vice Chairman of idealab!, an incubator of technology companies, joined Organic's board in June. Dr. Morgan has a distinguished background in academics and leading business ventures. Prior to idealab!, where he was a founding investor, he managed venture capital investments for Renaissance Technologies and Arca Group, Inc. Dr. Morgan also served as Professor of Decision Sciences at The Wharton School and Professor of Computer and Information Sciences at The Moore School of the University of Pennsylvania. 3 Organic, Inc. Q2 2001 Earnings Page 3 James Barnett joined Organic's Board of Directors in June. Mr. Barnett was most recently President of MyFamily.com, Inc. and prior to that was President and Chief Executive Officer of ThirdAge Media, a leading Internet media company for first wave baby boomers. Prior to ThirdAge, Mr. Barnett was President and Chief Executive Officer of Infogames North America, a leading publisher and developer of video games and interactive entertainment software, and Chairman, President and Chief Executive Officer of Accolade, the predecessor company to Infogames North America. Mr. Barnett's tenure at Accolade began in 1994. CONFERENCE CALL WEB CAST The Company will host a live audio broadcast of a conference call with the analyst community discussing issues related to this release via its Web site, http://www.organic.com. The call, which is accessible through the Investor Relations section of the site, is scheduled to begin at 5:00 p.m. (EDT) / 2:00 p.m. (PDT) on Tuesday, July 24, 2001. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast. An archive of the call will remain available in the Investor Relations section of the Organic Inc. corporate Web site (http://www.organic.com) for two weeks. ABOUT ORGANIC, INC. Organic, Inc. (Nasdaq: OGNC), is a global digital services firm providing premium business solutions, resulting in a positive measured impact for a client's business. Professional services include multi-platform user interface design and marketing, online media buying and management, software engineering and technical program management, systems integration, data analysis and reporting, inventory and supply change management and customer relationship management. Organic has gained significant experience working with leading companies in the automotive, retail, financial services, media, and telecommunications industries, and has performed award-winning work for DaimlerChrysler, Washington Mutual and Target Corp. Other industry leading clients include Federated Department Stores, Inc., British Telecommunications plc, General Electric Financial Assurance Holdings, Inc. and PlayStation.com (America), Inc. In the Internet professional services industry, Organic (www.organic.com) has a history as an innovator. Having developed a number of Web sites that were the first in category, Organic also created Yahoo!'s user interface and logo, and contributed to the development of Apache, the leading Web serving application. Founded in 1993, Organic is headquartered in San Francisco with offices in the U.S., Canada, Asia, Europe and Latin America. ORGANIC is a service mark or registered service marks of Organic, Inc. or its subsidiaries in the United States and in other countries. Other trademarks and service marks referenced are marks of their respective owners. SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This release contains, in addition to historical information, forward-looking statements, concerning the following topics: implementation of the Company's restructuring initiatives and expected savings and charges associated with those initiatives, the efficacy of new initiatives to develop business and projected results of operations for future quarters. Forward-looking statements are subject by their nature to risks and uncertainties, and actual results could differ materially from those set forth in the forward-looking statements. Risks and uncertainties include but are not 4 Organic, Inc. Q2 2001 Earnings Page 4 limited to those related to the Company's ability to successfully implement the restructuring initiatives, the Company's ability to realize savings from the restructuring initiatives, the number and size of projects from new clients and additional projects from existing clients, general economic conditions and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission, including the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. All forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date of this release. The Company disclaims any obligation to update such statements in the future. # # # THREE TABLES TO FOLLOW 5 ORGANIC, INC. Condensed Consolidated Balance Sheets (in thousands)

June 30, December 31, 2001 2000 --------------- --------------- (unaudited) (audited) ASSETS Cash and cash equivalents and short-term investments $ 15,926 $ 58,454 Restricted Cash 11,653 11,653 Accounts receivable, net 10,169 18,649 Costs in excess of billings 1,565 1,413 Other current assets 2,777 3,377 --------------- --------------- Total current assets 42,090 93,546 Property and equipment, net 20,418 33,769 Net deferred bank facility charge 7,059 10,084 Other assets 1,000 2,109 --------------- --------------- Total assets $ 70,567 $ 139,508 =============== =============== LIABILITIES AND OTHER STOCKHOLDERS' EQUITY Accounts payable $ 2,096 $ 3,413 Current portion of long-term debt 189 329 Current portion of obligations under capital leases 36 36 Deferred revenue 7,425 12,393 Other current liabilities 9,665 18,447 Accrued restructuring charges 13,258 3,757 --------------- --------------- Total current liabilities 32,669 38,375 Long-term debt, net of current portion - 22 Obligations under capital leases, net of current portion 46 67 Total liabilities 32,715 38,464 --------------- --------------- Minority interest in consolidated subsidiary - 215 Total stockholders' equity 37,852 100,829 --------------- --------------- Total liabilities and other stockholders' equity $ 70,567 $ 139,508 =============== ===============

6 ORGANIC, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ------------ ----------- Revenues $ 13,762 $ 37,161 $ 28,092 $ 66,375 Operating expenses: Professional services other 9,707 18,156 24,876 34,492 Selling, general and administrative other 12,660 22,232 32,387 42,142 ---------- ---------- ------------ ----------- Total operating expenses 22,367 40,388 57,263 76,634 ---------- ---------- ------------ ----------- Pro forma operating loss (8,605) (3,227) (29,171) (10,259) Minority interest in operations of consolidated subsidiary - 21 - 76 Investment loss (291) - (547) - Interest expense (45) (14) (120) (264) Interest income 304 1,302 1,129 1,898 ---------- ---------- ------------ ----------- Pro forma net loss before taxes (8,637) (1,918) (28,709) (8,549) Income tax (benefit) expense 104 213 228 412 ---------- ---------- ------------ ----------- Pro forma net loss (1) (2) (3) $ (8,741) $ (2,131) $ (28,937) $ (8,961) ========== ========== =========== =========== Pro forma diluted net loss per share (1) (2) (3) (4) $ (0.10) $ (0.03) $ (0.33) $ (0.11) ========== ========== =========== ========== Shares used in computing pro forma diluted net loss per share (4) 88,077,045 83,945,906 87,455,448 81,778,785 ========== ========== =========== ==========

Note: The above unaudited pro forma condensed consolidated statements of operations exclude the effects of the following (in thousands): (1) During the three and six months ended June 30, 2001, amortization of professional services deferred stock-based compensation and selling, general and administrative deferred stock-based compensation and a warrant related to operating expenses was $(431) and $3,610 and $(1,494) and $5,704, respectively. During the three and six months ended June 30, 2000, amortization of professional services deferred stock-based and selling, general and administrative deferred stock-based compensation and a warrant related to operating expenses was $4,106 and $6,471, and $13,950 and $21,022, respectively. (2) During the three months and six months ended June 30, 2001, one-time write-off of long term investment of $303 and $1,303, respectively. (3) During the three and six months ended June 30, 2001, cost related to restructuring was $6,162 and $29,911, respectively. (4) Includes Organic's preferred stock and warrant, which converted to common stock upon the closing of Organic's initial public offering, as if the conversion occurred as of the beginning of the period, or date of issuance if later, for the three and six months ended June 30, 2000. 7 ORGANIC, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------- ---------- ---------- ---------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues $ 13,762 $ 37,161 $ 28,092 $ 66,375 Operating expenses: Professional services Professional services other 9,707 18,156 24,876 34,492 Professional services stock-based compensation (431) 4,106 (1,494) 13,950 ---------- ---------- ---------- ---------- Total professional services 9,276 22,262 23,382 48,442 Selling, general and administrative Selling, general and administrative other 12,660 22,232 32,387 42,142 Selling, general and administrative stock-based compensation and other stock-based charges 3,610 6,471 5,704 21,022 ---------- ---------- ---------- ---------- Total selling, general and administrative 16,270 28,703 38,091 63,164 Restructure expense 6,162 - 29,911 - ---------- ---------- ---------- ---------- Total operating expenses 31,708 50,965 91,384 111,606 ---------- ---------- ---------- ---------- Operating loss (17,946) (13,804) (63,292) (45,231) Minority interest in operations of consolidated subsidiary - 21 - 76 Investment loss (594) (353) (1,850) (353) Interest expense (45) (14) (120) (264) Interest income 304 1,302 1,129 1,898 ---------- ---------- ---------- ---------- Net loss before taxes (18,281) (12,848) (64,133) (43,874) Income tax expense 104 213 228 412 ---------- ---------- ---------- ---------- Net loss $ (18,385) $ (13,061) $ (64,361) $ (44,286) ========== ========== ========== ========== Basic and diluted net loss per share $ (0.21) $ (0.16) $ (0.74) $ (0.67) ========== ========== ========== ========== Weighted average common shares outstanding - basic and diluted 88,077,045 83,945,906 87,455,448 66,012,175 ========== ========== ========== ==========