ImproveNet Reports Third Quarter 2001 Results; Continued Progress Toward Profitability Despite...

Business Editors

REDWOOD CITY, Calif.--(BUSINESS WIRE)--Oct. 31, 2001

ImproveNet Inc. (OTCBB:IMPV), a leading web-enabled home improvement services company, announced financial results for the third quarter ended September 30, 2001.

Pro forma operating loss, which excludes

stock-based compensation charges, interest income and one-time charges related to restructuring was $4,568,000, or $0.26 loss per share for the third quarter 2001 compared to a pro forma operating loss of $5,515,000, or $0.31 loss per share for the second quarter of 2001 and a pro forma operating loss of $12,466,000, or $0.76 loss per share for the third quarter 2000. Net loss on a US GAAP basis for the quarter was $7,346,000, or $0.42 loss per share as compared with a net loss of $6,664,000, or $0.38 loss per share for the second quarter 2001 and net loss of $12,927,000, or $0.79 loss per share for the third quarter 2000.

Total net revenues for the third quarter of 2001 were $1,922,000, a decrease of 13 percent compared with revenues of $2,199,000 for the second quarter of 2001 and a decrease of 6 percent compared with revenues of $2,055,000 for the third quarter of 2000.

Service revenues, which include lead and win fees charged to ImproveNet's network of contractors as well as revenues from Installed Sales and Managed Repair activities totaled $1,597,000 in the third quarter 2001, a decrease of 13 percent compared with service revenues of $1,827,000 in the second quarter 2001 and an increase of 25 percent over service revenues of $1,277,000 for the third quarter of 2000.

Marketing revenues, generated primarily from marketing and advertising services provided to home improvement suppliers totaled $325,000 for the third quarter 2001, a 13 percent decrease from marketing revenues of $372,000 for the second quarter 2001, and a 58 percent decrease from marketing revenues of $778,000 for the third quarter of 2000. The decline in marketing revenues continues to reflect the overall softening for both online and traditional advertising and marketing services due to current economic conditions.

Gross profit for the third quarter of 2001 was $551,000 or 29 percent of revenues, compared with $998,000, or 45 percent of revenues for the second quarter 2001 and compared with $539,000 or 26 percent of revenues for the third quarter of 2000.

Cash balance at the end of the third quarter 2001 was $12.0 million, compared to balance of $31.6 million at December 31, 2000.

Key Operating Metrics (No.'s in 000)

                Q3-01   Q2-01   Q3-00   Q3-01 v Q2-01   Q3-01 v Q3-00
No. Jobs (000)    28.7   31.3    41.7       (2.6)          (13.0)
No. Matches (000) 16.6   20.5    31.6       (3.9)          (15.0)
No. Wins (000)     2.4    3.2     3.2       (0.8)           (0.8)
MatchRate           58%    65%     76%    (7.0)% pts       (18)% pts
Win Rate           8.3%  10.3%    7.7%    (2.0)% pts       0.6 % pts

Commenting on the third quarter results, Ron Cooper, chairman and CEO of ImproveNet, said, "We are pleased with our continued progress toward profitability despite a challenging economic environment and the impact of recent events on home improvement activities. The growth in our service revenues compared to the same period in 2000 is particularly important because we achieved those increases on 30 percent fewer submitted jobs. Our growth in service revenues is primarily the result of our Installed Sales activities with Home Depot and our Managed Repair Program, both of which contributed significantly in the Third Quarter."

Cooper continued, "Marketing revenue continues to be challenged by the economic environment, but we believe that our Contractor Marketing Program, which now has over 50 participating suppliers since its launch in July, will significantly enhance our marketing revenues."

Update on Company Restructuring

On October 1, 2001 ImproveNet announced a restructuring to further improve operating efficiencies and support new revenue growth initiatives. Under the new structure, ImproveNet will provide three primary service offerings:

-- Basic Services, which include a streamlined "Find-A-Contractor" service for
consumers who wish to access ImproveNet's network of pre-screened contractors,
as well as project planning tools at www.ImproveNet.com.

-- Premiere Services, which include Installed Sales for home improvement
retailers such as Home Depot and Managed Repair of insurance and warranty
claims, as well as upcoming new homeowner offerings with extensive project
support; and

-- Marketing Services, which include online advertising, Smart Leads direct
marketing to homeowners and professionals; and Contractor Marketing on behalf
of manufacturers and retailers to ImproveNet's network of approximately 30,000
contractors in 50 major US markets.

To support the new structure, ImproveNet's field sales team and inside support organization will focus primarily on Premiere Services and Contractor Marketing.

The restructuring resulted in a net reduction of approximately 50 staff, or about 30 percent of the total workforce. The Company estimates that the cumulative effect of its restructuring activities, in combination with other operating efficiencies, will reduce annual pro forma operating expenses by more than 35 percent to approximately $19 million in calendar year 2002 versus about $30 million in calendar year 2001 and $60 million in calendar year 2000. The Company will incur an estimated $3.8 million in severance and other one-time transition costs in 2001, including approximately $2.2 million in previously announced charges. The Company reported that the major actions contemplated in the restructuring have been implemented with no significant issues.

In addition, ImproveNet launched its first new Premiere offering, which features a complete bathroom remodel in 7 days for $6,000 in 5 markets in October. Further details will be discussed in the Third Quarter 2001 Conference Call, available for replay on the Company's website at www.ImproveNet.com, and in upcoming press releases.

ImproveNet also announced that it had hired Mike Santiago as Chief Financial Officer during the Third Quarter.

Guidance For 2001 and 2002

ImproveNet expects to report net revenues in the range of $1.3 to $1.7 million for the fourth quarter 2001. The Company expects to report net revenues for the total year 2001 ranging from $7.0 to $7.4 million. Pro forma operating loss (before excluding stock based compensation, interest income and restructuring charges) will range from $3.3 to $3.7 million in the fourth quarter. The company expects to report a total year 2001 pro forma operating loss ranging from $22.1 to $22.5 million. ImproveNet expects to report positive pro forma operating income in 2002.

Cooper concluded, "We continue to be excited about our progress and our future potential to be a premier home improvement services company leveraging our strong personal relationship with homeowners, contractors and home improvement suppliers. Our experience with Installed Sales and Managed Repair projects has provided a platform for offering complete solutions that have higher value to our customers at attractive margins to ImproveNet.

"At the same time, we continue to find ways to offer our basic services more cost-effectively and increase productivity throughout the company. We believe our restructuring will allow us to focus more resources on our high margin and revenue growth while streamlining our costs and we remain optimistic that we will reach profitability in 2002 with no further capital required."

About ImproveNet

ImproveNet Inc., a national home improvement service since 1997, leverages personalized service and Internet technology to provide successful home improvement projects on behalf of homeowners, contractors, architects, designers, manufacturers, lenders and real estate professionals. ImproveNet content and services are provided on more than 390 partner and affiliate sites, including GE Appliances, DuPont Corian, Owens Corning, Dow, Yahoo!, Ask Jeeves, Knight-Ridder and Cox Interactive. For more information, visit www.ImproveNet.com, www.ImproveNetPRO.com, or call 800-437-0473.

Forward Looking Statements

Certain statements contained herein, including without limitations, statements addressing the beliefs, objectives, estimates or expectations of the Company or future results or events constitute `forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known or unknown risks, including, but not limited to, general economic and business conditions, accumulation of losses and failure to achieve profitability, matters relating to multi-year commercial contracts, the Company's dependence on availability of qualified service providers, the acceptance and use of the Internet, the company's new and unproven business model, development of brand recognition, dependence on third-party relationships to attract visitors to the web site, receipt of win fees, and conditions in the home improvement industry including seasonality. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will actually occur. Users of forward-looking statements are encouraged to review the Company's Form 10Q, dated August 14, 2001 and other federal securities law filings for a description of important factors that may affect the Company's businesses, results of operations and financial condition.

                           ImproveNet, Inc.
                     Summary of Operating Results
                              (Unaudited)
                 (In thousands, except per share data)

                                       Three months ended September 30
                                                2001          2000

Revenues
   Service revenues                           $1,597        $1,277
   Marketing revenues                            325           778
       Total revenues                          1,922         2,055

Cost of revenues
   Cost of service revenues                    1,283         1,409
   Cost of marketing revenues                     88           107
       Total cost of revenues                  1,371         1,516

Gross Profit                                     551           539

Operating expenses
   Marketing                                   3,199         9,759
   Product development                           735         1,006
   General and administrative                  1,185         2,240
   Stock-based compensation                    1,358         1,278
   Restructure                                 1,448             0
       Total operating expenses                7,925        14,283

Operating Loss                                (7,374)      (13,744)
Interest income                                   28           817
                                                  --           ---

Net Loss                                    $ (7,346)    $ (12,927)

Basic and net loss per share                  ($0.42)       ($0.79)


Weighted average number of common
 shares outstanding - basic and
 diluted                                      17,294        16,446



                  Supplemental Pro Forma Financial Information (1)
                           (In thousands, except per share data)

                                     Three months ended September 30
                                               2001          2000

Reported net loss                            $(7,346)     $(12,927)
   Stock-based compensation                    1,358         1,278
   Restructure                                 1,448             0
   Reported interest income                      (28)         (817)
    Pro forma net loss                       $(4,568)     $(12,466)

Weighted average number of
 common shares outstanding basic and
 diluted                                      17,294        16,446

    Pro forma net loss per share               (0.26)        (0.76)

(1) The accompanying supplemental information is presented for
informational purposes only and should not be considered as a
substitute for the historical financial information presented in
accordance with generally accepted accounting principles.


                           ImproveNet, Inc.
                  Summary of Selected Operations and
                          Balance Sheet Data
                              (Unaudited)
                            (In thousands)

                                      Three months ended September 30
                                              2001         2000

Total Revenues Data:
  Service revenues                        $   1,597    $   1,277

        Amounts invoiced under
         marketing and multi-
         year commercial contracts              680        1,490
  Amounts invoiced and accrued
   under multi-year commercial
   contracts with related parties              (271)        (628)
                     Amortization
                      of warrant
                      stock-based comp          (84)         (84)

Total marketing revenues                        325          778

Total net revenues                        $   1,922    $   2,055


                                       September 30,   December 31,
                                            2001           2000

Balance Sheet Data:
  Cash and equivalents                    $11,974        $31,565
  Working capital                         $10,130        $29,148
  Total assets                            $18,330        $41,716
  Long-term liabilities                      $122            $99
  Stockholders' equity                    $12,922        $34,602