GRIC Posts Puny Profit

Net profit was $178,000 ($0.01/share), up from a loss of $0.02/share in 3Q02, on a revenue increase of 12%, to $10.7M from $9.5M

October 24, 2003

7 Min Read

LONDON -- GRIC Communications, Inc. (Nasdaq: GRIC), a leading provider of secure enterprise mobility solutions, announced a profit of $178,000, or $0.01 per share, in the third quarter of 2003 on a revenue increase of 12 percent to $10.7 million, compared with a net loss of $0.02 per share and revenue of $9.5 million in the third quarter of 2002. Overall gross margins were 61 percent in the third quarter of 2003, compared to 55 percent in the third quarter of 2002. Cash increased to $23.4 million in the third quarter of 2003 from $22.7 million in the second quarter of 2003.

The Company announced that it signed 30 new enterprise customers and value added reseller (VAR) agreements in the last three months, including Merrill Lynch, Global Marine Systems LTD and KLA Tencor, adding them to its growing list of worldwide enterprise customers that already includes such companies as Avnet Inc., Lockheed Martin Corp., Matsushita Avionics Systems Corp., Procter & Gamble, Stanley Works and VeriSign Inc. Major VARs who signed on with GRIC included Allstream Corp (formerly AT&T Canada) in Canada and Activ Australia.

"As evidence of the success of our direct sales efforts since last year's introduction of our GRIC MobileOffice solution to the market, we have signed more than 80 enterprise customers," said Bharat Davé, President and Chief Executive Officer. "Revenue from enterprise customers and VARs on a combined basis now makes up more than 25% of our company's overall revenue mix and we expect that percentage to continue to grow in future quarters."

Davé noted that GRIC has significantly stepped up its enterprise sales and marketing efforts, as evidenced by approximately $500,000 in increased programs and headcount spending during the last quarter compared to the second quarter of 2003. The Company is waging an aggressive, sustained marketing campaign to increase GRIC's brand recognition and drive sales leads in the critical enterprise market.

To further strengthen GRIC's total value proposition, the Company recently announced its plans to acquire Axcelerant, Inc., a leading provider of managed broadband VPN services for Fortune 1,000 enterprises such as Bristol-Myers Squibb, Philip Morris USA, Charles Schwab, and many others. Together, GRIC and Axcelerant provide enterprises with a ground-breaking offering: the industry's first and most comprehensive solution for managing secure remote access for all employees outside the corporate firewall -- including mobile workers, teleworkers and branch office employees.

"It is clear that the GRIC message and GRIC's value proposition of increased management control and higher end-user productivity coupled with lower total cost of ownership and faster return on investment is resonating strongly with current and prospective enterprise customers," said Davé. "Our planned acquisition of Axcelerant, which we expect to be finalised in the current quarter, will make this positioning even more compelling. Based on the response we have received from existing Axcelerant and GRIC customers, we anticipate strong market acceptance of the new GRIC total solution for outside the firewall access. One of Axcelerant's long time customers, Mindspeed Technologies, has already adopted the combined GRIC/Axcelerant solution."

"Our ability to generate positive cash flow in three of the last four quarters is a good indication of the underlying financial strength of GRIC's business model," said Kim Silverman, Vice President and Chief Financial Officer. "This strong cash position provides enhanced flexibility to accelerate our revenue growth trajectory and enables us to expand our service offering and take advantage of emerging markets."

Davé emphasised that the Company has also signed several agreements that will extend its global leadership position in the burgeoning Wi-Fi industry. "Our agreements with market leaders such as Hanaro Telecom, SingTel and STSN will not only enhance the GRIC TierOne NetworkÔ, but will also help stimulate market demand for Wi-Fi by making Wi-Fi available to a greater number of major corporate enterprises," he said. "In addition, we expect to see substantial growth in the number and diversity of Wi-Fi access locations in Europe in the fourth quarter, as a result of our recent agreements with The Cloud, Monzoon Networks and PicoPoint. These network providers will bring more than 2,200 Wi-Fi access locations to the GRIC TierOne Network over the coming months.

GRIC already has deployed an international broadband network covering 20 countries with nearly 600 wired Ethernet locations -- primarily in hotels in the United States -- and more than 2,500 wireless access locations. By implementing currently signed agreements, GRIC plans to raise the number of countries covered by the network to 32 and the number of wireless access points alone to more than 4,000 in the next several months. GRIC also expects to add additional fixed Ethernet locations in the current quarter. This emerging broadband network complements GRIC's leading dialup network of over 35,000 dialing locations in more than 150 countries.

Telecommunication customers of the Company include many of the world's top-tier ISPs and telcos, such as AOL, AT&T, Cable & Wireless, China Telecom, Chunghwa Telecom, Earthlink, France Telecom, MCI, NTT, SingTel, Sony Communication Network Corporation and Telstra.

The Company noted that minutes of Internet remote access carried over the GRIC TierOne Network(tm) during the third quarter of 2003 grew 13 percent over the same quarter last year. GRIC carried 286 million minutes of Internet remote access traffic during the third quarter of 2003, compared with 252 million minutes during the third quarter of 2002.

The Company also announced the appointment of Walter Sousa, Executive Chairman of MediaRing Ltd., a Singapore Exchange-listed company, to its board of directors, compensation committee and nomination committee. Sousa, who is 60, has served as MediaRing's Chairman since the company's initial public offering in 1999 and its Executive Chairman since September 2001. From 1993 to 1996, Sousa was the Chairman and Chief Operating Officer of AT&T Asia Pacific. From 1991 to 1993, he was Chief Operating Officer of Astec (BSR) PLC, a London Stock Exchange-listed company, where he was responsible for worldwide operations. From 1985 to 1991, Sousa was the President of Hewlett Packard Far East, based in Hong Kong. He holds a Masters degree in Public Administration from American University and a Bachelors degree in Electrical Engineering from Santa Clara University.

In addition, the Company announced the resignation of board members Mark Hsu and Robert Shen, representatives of H&Q Asia Pacific, a venture capital fund. Their resignations, effective October 20, 2003, reflected a decision by H&Q Asia Pacific to reduce participation by its employees on boards of directors of companies whose shares are publicly traded.

"We are very excited to have Walter join our board, since he will bring with him a wealth of sales and operational experience as well as high level customer contacts in key Asian markets," said Hong Chen, the Company's Chairman. "At the same time, we are very appreciative of the service provided by Mark and Robert as board representatives of one of our long-time investors."

Following these changes, the Company indicated that its board consists of six directors. Previously, the Company announced that James Goodman, a member of Axcelerant's board, together with a new independent director mutually agreed upon by GRIC and Axcelerant, would both become members of GRIC's board following consummation of its merger with Axcelerant.

BUSINESS OUTLOOK

The following statements are based on current expectations and information available to us as of October 23, 2003; we do not undertake a duty to update them. This statement assumes the consummation of our planned acquisition of Axcelerant, Inc. effective December 1, 2003. Our ability to project future results is inherently uncertain. These statements are "forward-looking" and actual results may differ materially as a result of risks outlined below.

**The Company expects revenues in the range of $11.8 to $12.2 million for the fourth quarter of 2003.

**The Company expects overall gross margins in the range of 56 to 58 percent for the fourth quarter of 2003.

**The Company expects to see operating expense levels (Network & Operations, R&D and SG&A) in the range of $7.2 to $7.5 million in the fourth quarter of 2003.

GRIC Communications Inc.

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