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The Cobalt Group Announces Record Revenues; Predicts 4th Quarter 2001 Profitability

January 25, 2001

The Cobalt Group, a provider of e-business products and services to the automotive industry, has announced that gross revenue for the fourth quarter of 2000, excluding certain adjustments, increased 58 percent to $13.2 million, compared to $8.4 million in the fourth quarter of 1999.

For the year ended Dec. 31, 2000, gross revenue increased to $44.8 million, compared to $23.3 million for the year ended December 31, 1999, an increase of 92 percent. Gross revenue for the fourth quarter and the year 2000 excludes adjustments for the application of Staff Accounting Bulletin No. 101 (SAB 101).

"We decided in 1995 to partner with automotive dealers and manufacturers to bring e-business products and services to the world's largest retail sector -- the automotive industry. We chose right," said John Holt, president and CEO of The Cobalt Group. "Cobalt's financial results prove the strength of our business model and the vigor of our execution. During 2000 Cobalt successfully managed a 63 percent increase in the number of automotive dealer clients, while continuing to increase the breadth and depth of our e-business products and services. Much of that growth in the fourth quarter was attributable to the successful launch of extensive programs for DaimlerChrysler, Honda and Acura, resulting in the addition of 2,100 clients."

The company ended the year 2000 with approximately 8,500 automotive dealer clients for Internet applications and professional services, compared to 6,400 at the end of the third quarter and 5,200 at the end of 1999. Monthly average recurring revenues per dealer for these services grew to $305 per dealer for the fourth quarter of 2000, up from $287 for the third quarter and $226 for the fourth quarter of 1999. Much of that increase was attributable to strong customer acceptance of the National Automobile Dealers Association (NADA) endorsed product bundles.

Pro forma net loss for the fourth quarter was $4.4 million or $0.23 per share and pro forma net loss for the year was $18.8 million or $1.05 per share. Pro forma net loss and net loss per share calculations exclude the write down of intangible assets, a one-time gain on the sale of YachtWorld.com, the amortization of non-cash equity discounts, and adjustments for the application of SAB 101.

Net loss for the year ended Dec. 31, 2000, absent pro forma adjustments, was $25.3 million or $1.41 per share, and net loss for the fourth quarter was $6.1 million or $0.31 per share. This compares to a net loss of $18.0 million or $2.26 per share for the year ended December 31, 1999 and $4.8 million or $0.29 per share in the fourth quarter of 1999.

"We are particularly pleased that fourth quarter revenues grew at a sequential quarterly rate of 13 percent while cash expenses only grew at a sequential quarterly rate of two percent," said David Snyder, executive vice president and CFO of The Cobalt Group. "While costs will continue to grow, these growth rates affirm our belief that we can profitably continue to scale our business."

"Also in the fourth quarter we received $15 million in private equity financing," continued Snyder. "This financing has enabled us to continue developing higher-value e-business products, as well as make ongoing investments in our organization, while leaving the company with a cash balance of $16.6 million going into 2001."

Business Outlook

"We believe that Cobalt is better positioned now than at any point in its history to become the leading provider of e-business products and services to the automotive industry," said Holt. "In the coming year, we will continue to serve more automotive manufacturer and dealer clients with richer e-business products and services. We do expect some slowing in the North American retail automotive market, but the past year has seen the industry accelerate its embrace of the Internet, both for direct interaction with consumers and for business-to-business applications. As a result, we anticipate the market for Cobalt's products and services will continue to grow during 2001."

"Cobalt's primary financial goal for 2001 is to begin generating positive cash flow from operations," said Snyder. "We see Cobalt's revenue continuing to grow at a faster pace than cash expenses over the course of 2001, leading to achievement of that goal late in the fourth quarter."

The company expects gross revenues for 2001 to be between $64 and $68 million, and revenues for the first quarter of 2001 to be between $13 and $14 million. For both the quarter and the year, 65 percent to 75 percent of revenues are expected to be attributable to Internet applications and professional services. Cobalt expects the number of dealer clients using its Internet applications and professional services to increase to between 9,000 and 9,500 by the end of 2001.

As Cobalt's market share for Internet applications and professional services approaches 50 percent of U.S. franchised dealers, the growth rate in new dealer clients is expected to slow. But according to a company press release, "the increasing functionality, sophistication and value of the company's products is expected to increase average recurring spend per dealer 18 percent to 25 percent to between $360 and $380 per month by the end of 2001."

Cobalt says it will continue to invest in its technology infrastructure and in the development of new products and services. In the fall of 2000 Cobalt commenced an initiative to increase the flexibility and scalability of the company's e-business architecture. Investments in this project are expected to total $5 to $6 million in 2001, in addition to approximately $5 million spent to date, according to company officials.

The majority of that investment will come in the first half of the year. In addition to aggressive efforts to expand its core e-business applications and services, Cobalt will invest between $3 million and $4 million in its business-to-business services such as MotorPlace Auto Exchange and PartsVoice, according to a company statement.

Operating expenses are expected to grow at a rate of 30 percent to 35 percent, while cost of revenues should remain consistent with prior results in the range of 20 percent to 22 percent of gross revenue, according to company officials. "Based on these assumptions, net loss per share for the full year 2001 is expected to be in the range of $1.40 to $1.45," a companys statement reads. Due to expenses connected with investments in infrastructure as well as expenses associated with the NADA conference in the first quarter, Cobalt expects its net loss per share for the first quarter of 2001 to increase to between $0.40 and $0.45 before improving in subsequent quarters.

The anticipated growth in both operating expenses and cost of revenues is driven in large part by significant increases in non-cash expenses due to the amortization of Cobalt's investments in technology. Total cash expenses are estimated to increase at a rate of 40 percent to 45 percent, as compared to estimated gross revenue growth of more than 50 percent. according to company officials.

The company's growth and investment expectations require use of existing cash resources, as well as additional financing, according to a company statement. "Cobalt intends to meet this need with a credit facility for which the company has already executed a commitment letter with an institutional lender," the statement reads. The company expects to complete loan documentation and have the secured facility in place prior to the end of the first quarter.

"Cobalt's business outlook statements, as well as statements regarding Cobalt's future market share, investment plans, business strategy and prospects are based on current expectations as of today only," the statement reads. "Cobalt makes these statements as of today and does not undertake any obligation to update them."

Fourth Quarter Highlights

o On Nov. 1, 2000, the company received $15 million in funding from a private equity agreement with Warburg Pincus Equity Partners, L.P., First Analysis Venture Capital, and Third Point Partners L.P.

o During the quarter, the company announced an alliance with J.D. Power & Associates to help automotive manufacturers and dealers maximize their e-commerce investments through "best practices" training programs for Internet-based retailing. Through this alliance, both companies will leverage their best practices and capabilities to offer in-store, on-site and online training programs to the automotive industry.

o In October, Cobalt announced that Volkswagen of America, Inc. chose its PartsVoice parts locating system as the exclusive contract vendor for the Volkswagen and Audi National Parts Locator in both the U.S. and Canada. This service makes Volkswagen and Audi dealers' original equipment parts inventory accessible to anyone searching for parts, including Volkswagen and Audi dealers, non-Volkswagen and Audi dealers, repair/body shops, fleets, insurance companies and do-it-yourselfers.

o In November, the company announced a new agreement with Kelley Blue Book, an Internet source for new and used car value-pricing reports. Through this agreement, Cobalt helps auto dealers keep consumers on their Web sites by providing the information online shoppers want most -- accurate new and used vehicle prices.

o During November, Cobalt launched myCarTools, a customer relationship management (CRM) product that enables dealers to create ongoing personalized communication with their customers, and an upgraded version of Lead Manager, Cobalt's CRM product designed to help dealers manage and respond to all of their leads through a single Web-based software application. These products help automotive dealers develop lifetime relationships with their customers, thereby gaining a competitive edge, according to Cobalt.

o In December, Cobalt hired Jeff Danford as vice president and general manager of MotorPlace Auto Exchange, an online marketplace operated by Cobalt that allows automobile leasing companies to market and sell wholesale used vehicles to automotive dealers before they are shipped to auction. Danford brings 15 years of experience in the automotive industry, including executive positions with the auto lending division of E-LOAN and DaimlerChrysler's online consumer lending division, giggo.com.

About The Cobalt Group

The Cobalt Group(TM), headquartered in Seattle, is a provider of e-business products and services designed to help automotive dealers and manufacturers effectively manage their businesses online.

Cobalt's suite of e-business solutions includes Web services, Web site hosting, e-commerce applications, Internet-based customer relationship management applications, data management, and best practices training and consulting.

Nearly half of the nation's auto dealers use Cobalt's technology, including 8,500 Web services clients, and approximately 9,300 PartsVoice(R) (www.partsvoice.com) clients.

Cobalt's e-business products and services are endorsed by 15 automotive manufacturers and more than half of the 100 largest dealer groups in the United States. Cobalt is the only e-business provider endorsed by the National Automobile Dealers Association.

Cobalt operates MotorPlace.com(TM) (www.MotorPlace.com), an online business management and industry information resource for auto dealers. At MotorPlace.com, dealers utilize Cobalt tools to manage their Web sites, buy wholesale used vehicles, locate and market OEM parts, and access industry information, news, events, and stock quotes.

Cobalt also operates DealerNet(R) (www.dealernet.com), one of the most widely visited consumer automotive information portals on the Web.

IntegraLink Corporation, a Cobalt company, is the auto industry's premier provider of automotive data collection and reporting services.

Cobalt has offices in Seattle, Wash.; Portland, Ore.; Detroit, Mich.; Columbus, Ohio; and Austin, Texas.

For more information, visit www.cobaltgroup.com or call 1-800-909-8244.

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