WorldGate Communications, Inc. Announces Third Quarter Results - Company Financial Information

Cambridge Telcom Report, Nov 1, 1999

WorldGate Communications, Inc. (Nasdaq: WGAT) Monday reported revenues of $1.6 million for the third quarter ended September 30, 1999, a 119% increase over revenues of $741,000 reported in the second quarter ended June 30, 1999, and a 341% increase over revenues of $369,000 for the third quarter ended September 30, 1998. The net loss for the third quarter was $9.5 million or $0.44 per share, compared to $9.5 million or $0.49 per share in the second quarter. The decrease in the loss per share for the third quarter 1999 primarily reflects an increase in the weighted average common shares outstanding since the Company's IPO in April, 1999. For the third quarter ended September 30, 1998, the Company reported a net loss of $7.5 million or $.82 per share. Excluding a non-cash charge for accretion on preferred stock, the net loss was $6.1 million or $.67 per share.

The net loss in the third quarter 1999 included no extraordinary items or charges for accretion on preferred stock; whereas, the net loss in the second quarter 1999 included a one-time charge of $1 million for early extinguishment of debt and a $364,000 charge for accretion on preferred stock. Before the adjustment for one-time and non-cash charges, the net loss for the second quarter 1999 was $8.1 million or $0.42 per share.

Total costs and expenses amounted to $12.3 million in the third quarter 1999, compared to $9.8 million in the second quarter. The increased spending reflects greater investment in engineering, sales and marketing. The Company intends to continue to increase its spending in these areas to take maximum advantage of its first mover position. Cash, cash equivalents, and short-term investments amounted to $88.1 million as of the end of the third quarter, as compared to $100.3 million at the end of the second quarter. Capital expenditures in the third quarter 1999 of $479,000 were made for office and engineering equipment.

For the nine months ended September 30, 1999, the Company reported revenues of $2.9 million and a net loss of $27.4 million or $1.64 per share. This compares to revenues of $554,000 and a net loss of $21.3 million or $2.34 per share for the same nine-month period in 1998. Excluding the one- time charge and the accretion on preferred stock, the net losses for the nine- month periods in 1999 and 1998 were $23.9 million or $1.43 per share and $17.1 million or $1.88 per share, respectively.

Twelve cable systems, including both domestic and international locations, have now commercially launched the WorldGate Service and nineteen others are planning commercial launches. Overall, the Company now serves approximately 11,400 subscribers, an increase of 56% from 7,305 subscribers reported at June 30, 1999. Also there are approximately 1,600 additional WorldGate activated set-top converters in subscribers' homes (e.g., for use with a second television), for a total of approximately 13,000 WorldGate activated converters. While these additional converters do not currently generate incremental subscriber fees, they are capable of generating advertising, e-commerce, and Channel HyperLinking revenues.

Hal Krisbergh, Chairman and CEO of WorldGate, commented, "Each quarter brings new and exciting challenges and opportunities for the Company. For me personally, one of the most significant events was the introduction of SURFview(TM), General Instrument's $99 converter, with the WorldGate Service as a native application. We believe the availability of Internet access on a converter at this low price point can help bring Internet access to every television viewer, regardless of social-economic status, including those 60% of cable subscribers in the U.S. who, we estimate, do not currently have a set-top box in their homes and the 35% of homes passed by cable that do not currently subscribe to cable TV services. Internationally, this new converter presents significant opportunities for deploying our service over the predominant, analog cable infrastructure. In conjunction with the introduction of SURFview, we have also announced the WISH TV (WorldGate Internet School and Home TV) Program. This program, which will be initially launched in Louisiana, with the support of Congressman Billy Tauzin, Chairman of the House Telecommunications Subcommittee, will bring Internet access to students in pre-high school grades across the country."

During the third quarter, the Company announced initiatives and successes on several fronts. In September, the U.S. Patent and Trademark Office notified WorldGate that all 60 claims of its patent application for its Ultra- Thin Client architecture had been allowed. This patent application relates to a system and method for accessing an information source without the need for a personal computer, and more importantly to the access of such information source through the use of existing television distribution systems. This is the second patent application that has been allowed in the past six months, giving WorldGate's business a firm intellectual-property underpinning. On the operating side, WorldGate signed a multi-year agreement with Buckeye CableSystem to deploy the WorldGate Service in the 21 communities of its Toledo, Ohio franchise area, serving approximately 130,000 subscribers.