NetLibrary to Raise $82 M in IPO

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NetLibrary to Raise $82 M in IPO Jim Milliot -- 8/28/00 NetLibrary filed a registration statement with the Securities and Exchange Commission earlier this month, making it the first major company involved with the fledgling e-book industry to test the public markets. According to the filing, netLibrary hopes to raise approximately $82 million through the public offering, which it will use to expand the selling and marketing of its products and services, to continue to develop and enhance its technology, to acquire rights to additional book titles for conversion to e-books and for general corporate purposes. The company added that it may use some of the proceeds to acquire or invest in complementary businesses, technologies and products. NetLibrary has a limited business history: it began operations in July 1998, digitized its first e-book in January 1999, launched its Web site in March 1999 and sold its first title in May 1999. Through June 30, 2000, the company sold over 162,000 copies of e-books to more than 1,100 academic, corporate, school and public libraries. Its brief history makes year-to-year comparisons meaningless, although netLibrary's financials show the common trend of start-ups--large sales increases accompanied by even larger losses. Through the end of June, netLibrary had an accumulated deficit of $49.8 million, and it expects to incur additional losses as its business grows. The company currently has 383 employees. For the first nine months of 1999, netLibrary had actual sales of $157,000 and a net loss of $22.7 million. Comparisons between the first six months of 1999 with 2000 include pro forma results in the second half of 2000 that incorporate contributions from the acquisition of Peanut Press. NetLibrary had sales of only $21,000 in the first half of 1999, derived from $10,000 from fees for electronic hosting and collection management services, and $11,000 from other sources, which include membership sales and exclusivity agreements with distribution partners. In the first six months of 2000, netLibrary generated sales of $3.7 million from the sale of e-books, $284,000 from service fees and $275,000 from other sources. During the first half of 2000, netLibrary substantially ramped up its operations, and as a result expenses rose to nearly $27 million from $4.6 million spent in the January through June span in 1999. The company spent $12.6 million on sales and marketing in the first half of 2000, a figure that includes $3.5 million on salaries for new employees. Costs associated with acquiring rights and book production were $4.4 million in the first half of the current year. NetLibrary, which has agreements with 320 publishers, has 28,000 digitized titles, including 1,000 under its Peanut Press division. The majority of its e-books are from publishers' backlists. In addition, netLibrary has three textbooks under development and plans to convert 300 textbooks with interactive capability by January 2001. The company expects to digitize 20,000 titles annually. To date, netLibrary has converted publishers' print titles to e-books at no charge, but it reported in the prospectus that it is in talks with publishers to start charging a fee by the end of 2000. The company has augmented its organic growth with two acquisitions. It paid $24.8 million in February to acquire Peanut Press; the purchase price consisted of $1.7 million in cash and the balance in stock. In 1999, Peanut Press had sales of $67,000 and a net loss of $539,000. In March, netLibrary paid $6.3 million in stock to buy MetaText, a company that converts published content into digital textbooks. Although libraries will remain netLibrary's largest market, the company is looking to expand into the education market, as well as increase penetration of the consumer and international markets. International sales were $329,000 in the first half of 2000. Prior to its IPO, netLibrary has raised $109.8 million from private investors, and the company estimated that its cash on hand plus the proceeds from the public offering will give it enough funding to operate for the next 12 months.

News

NetLibrary to Raise $82 M in IPO
Jim Milliot -- 8/28/00

NetLibrary filed a registration statement with the Securities and Exchange Commission earlier this month, making it the first major company involved with the fledgling e-book industry to test the public markets. According to the filing, netLibrary hopes to raise approximately $82 million through the public offering, which it will use to expand the selling and marketing of its products and services, to continue to develop and enhance its technology, to acquire rights to additional book titles for conversion to e-books and for general corporate purposes. The company added that it may use some of the proceeds to acquire or invest in complementary businesses, technologies and products.

NetLibrary has a limited business history: it began operations in July 1998, digitized its first e-book in January 1999, launched its Web site in March 1999 and sold its first title in May 1999. Through June 30, 2000, the company sold over 162,000 copies of e-books to more than 1,100 academic, corporate, school and public libraries. Its brief history makes year-to-year comparisons meaningless, although netLibrary's financials show the common trend of start-ups--large sales increases accompanied by even larger losses. Through the end of June, netLibrary had an accumulated deficit of $49.8 million, and it expects to incur additional losses as its business grows. The company currently has 383 employees.

For the first nine months of 1999, netLibrary had actual sales of $157,000 and a net loss of $22.7 million. Comparisons between the first six months of 1999 with 2000 include pro forma results in the second half of 2000 that incorporate contributions from the acquisition of Peanut Press. NetLibrary had sales of only $21,000 in the first half of 1999, derived from $10,000 from fees for electronic hosting and collection management services, and $11,000 from other sources, which include membership sales and exclusivity agreements with distribution partners. In the first six months of 2000, netLibrary generated sales of $3.7 million from the sale of e-books, $284,000 from service fees and $275,000 from other sources.

During the first half of 2000, netLibrary substantially ramped up its operations, and as a result expenses rose to nearly $27 million from $4.6 million spent in the January through June span in 1999. The company spent $12.6 million on sales and marketing in the first half of 2000, a figure that includes $3.5 million on salaries for new employees. Costs associated with acquiring rights and book production were $4.4 million in the first half of the current year. NetLibrary, which has agreements with 320 publishers, has 28,000 digitized titles, including 1,000 under its Peanut Press division. The majority of its e-books are from publishers' backlists. In addition, netLibrary has three textbooks under development and plans to convert 300 textbooks with interactive capability by January 2001. The company expects to digitize 20,000 titles annually.

To date, netLibrary has converted publishers' print titles to e-books at no charge, but it reported in the prospectus that it is in talks with publishers to start charging a fee by the end of 2000.

The company has augmented its organic growth with two acquisitions. It paid $24.8 million in February to acquire Peanut Press; the purchase price consisted of $1.7 million in cash and the balance in stock. In 1999, Peanut Press had sales of $67,000 and a net loss of $539,000. In March, netLibrary paid $6.3 million in stock to buy MetaText, a company that converts published content into digital textbooks.

Although libraries will remain netLibrary's largest market, the company is looking to expand into the education market, as well as increase penetration of the consumer and international markets. International sales were $329,000 in the first half of 2000.

Prior to its IPO, netLibrary has raised $109.8 million from private investors, and the company estimated that its cash on hand plus the proceeds from the public offering will give it enough funding to operate for the next 12 months.