| Tue 29 Jan 2002, 0:00 | | Frontrange Solutions Inc. Quarterly Market Update |
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SHARE CODE : FRO
ISIN CODE : ZAE000035325
FrontRange Solutions Inc. (FrontRange), the 84% owned, US based subsidiary
of FrontRange Limited (formerly known as Ixchange Technology Holdings
Limited) is a global leader in customer management applications for the
mainstream business market. The company employs 600 people in nine countries
and has a user base of 1 million-plus users at more than 100,000 companies
worldwide.
The company's core and integrated mid-market CRM product sets include
HEATTM, a leader in Customer Service & Support software and GoldMineTM, a
leader in Business Contact Management and Sales & Marketing Automation
software. HEAT and GoldMine are well established and strong brands in their
global markets
Financial Performance for Q2 2002
Based on preliminary results and subject to Audit Review currently underway:
FrontRange reported revenue of $20-million for the period October to
December 2001. This is 6% higher than the revenue for the preceding quarter,
and 11% lower than total revenue for the same period in 2000. Revenue came
in $4-million below the company's revised September 2001 forecast.
The company produced a pro-forma operating loss of $4,2-million for the
quarter, excluding one-time write-offs (covered in more detail below). This
represents a $3,3-million improvement on the operating loss for the
preceding quarter on $1,1-million higher revenue and a $2,9-million
improvement on the same period in 2000, despite revenue that came in $2,4-
million lower.
The operating loss is $3,0-million more than the revised September 2001
forecast due to the shortfall in revenue. December 2001 was a weak month,
following on a soft November. Sales were delayed at year end, with longer
selling cycles being experienced in the US, UK, and Australia.
Markets have remained depressed following the September 11 attacks and the
company believes that indecision, not competition, has resulted in depressed
sales. The exception to the rule was continental Europe where targets were
met and growth of more than 100% over the prior year recorded.
Cash was managed ahead of the of the cash management plan's best case
scenario and the company reported cash reserves of more than $10m at end of
December 2001. FrontRange has a solid balance sheet with no debt.
Balance Sheet Cleanup
Following detailed scrutiny, FrontRange has written off approximately $6m
from its December balance sheet as a one-time event. The bulk is in the form
of prepaid licenses that were part of the original Peregrine transaction in
December 1999.
The write-off also included software licenses that were acquired in a
product swap with Sound Advantage earlier in 2001, due to a decision to
focus on the core FrontRange product set in a tough economy. Given the
reduction in organizational size and marketing budgets it was decided to
write off a marketing software solution that exceeds the company's current
requirements and is expensive to maintain.
In addition, a number of smaller items, restructure costs and goodwill were
written off. Less than 6% of this write-down has cash implications and it is
estimated that approximately 60% will be treated as exceptional items on the
income statement. The balance will go through as "operational" at FrontRange
Limited level, although it is not recurring in nature.
October to December 2001 Statistics versus October to December 2000
Regional Revenue Split Change
Composition
Americas 67% -16%
Europe, Middle-East and 28% 7%
Africa
Asia Pacific 5% -8%
Overall -11%
Revenue Composition Split Change
Product Licenses 58% -19%
Professional Services 9% -40%
Recurring Software 33% 27%
Maintenance
As a testament to high levels of customer satisfaction and retention, it is
noted that the company's recurring revenue streams grew by 27% over the
prior year period.
Profitable December
The good news is that FrontRange produced a pro-forma operating profit of
$900,000 for the month of December 2001. This was the first month that has
produced an operational profit in 21 months and represents more than R10-
million at December's exchange rates.
This was achieved despite revenue falling short of plan, and on revenue of
$8,5-million for December itself. This is a major improvement compared to
June 2001 where the company previously achieved breakeven on revenues of $12-
million for the month.
The company is pleased to announce that by December 2001 operational
expenses had been reduced by $2,5-million per month from the April to June
2001 levels. Since early December the company has further reduced its total
workforce by about 10% and reduced discretionary marketing expenditure as
well as any other expenses deemed non-vital in the near term.
Deferred income of $9,5-million was recorded at the end of December compared
to $8-million at the end of June 2001. The company reports revenue on a sell-
though basis, and thus additional inventory sold into its distributors are
not recorded until sold onto resellers.
Comparable quarterly performance
Oct-Dec 2001 compared to Oct-Dec 2000
Company Overall Product Revenue
Revenue
FrontRange -11% -19%
Delano -55% -68%
Pivotal -36% -58%
Onyx1 -49% -74%
Kana2 -44% -58%
Siebel -17% -31%
Source: SEC filings and company quarterly announcements
1 - Onyx based on preliminary results for qtr
2 - Kana includes Broadbase for March '01
October to December 2001 Product Highlights
FrontRange is proud to announce the results of the latest independent annual
survey of the HEAT customer base: 100% of the HEAT customers surveyed stated
they would be likely to recommend FrontRange Solutions and its HEAT software
product to other organizations. This is a perfect score and compares to the
98% rating recorded in the 1999/2000 survey.
GoldMine Business Contact Manager (the company's small business focused
product) launched on schedule in December 2001. In addition, the company
launched the web-based GoldMine annual version Upgrade Protection Plan (UPP)
that has started to build a recurring revenue base from the large GoldMine
small business customer base. More than 10,000 new customer registrations
and 1,000 sales of UPP have been recorded since mid-December.
As part of the company's strategy to provide powerful out-of-the-box
integration to leading accounting systems, GoldMine Plus Accounting for Sage
Line 50 was launched in UK. This is the first of a number of Accounting
Plus products to be released worldwide and seen as key in the company's
vision of enabling the sharing of customer information more easily between
front and back-office systems.
The CRM journal Communications Solutions awarded its "CRM Product of the
Year" to GoldMine FrontOffice with HEAT and eCustomer World awarded GoldMine
the 2001 `Golden Award'.
Some Notable Customer Wins for October to December 2001
HEAT Americas: AC-Neilsen Customer Service, Alltell, BP Amoco, Dominos
Pizza, Smithsonian Institute, US Dept of Education/OSFA, Methodist
Healthcare, Pacific Care Healthcare, US Courts, FedEx Payroll Dept.
HEAT EMEA: Volvo, Peugeot, Santam, Grintek, HSBC SA, Affinity Wireless,
Edexcel, Profund Systems, Co-operative Retail
HEAT APAC: Queensland Rail, Freehill, Dept of Human Services, Malaysia
Telekom
GoldMine Americas: Netilla, Sealy, ServiceMaster, Hilton Hotels, Bank
Atlantic, Intertape Polymer, Administaff, Annuity Board of SBC, Minolta,
Wells Fargo Fin Leasing, GE Capital Card Services, SCIENT, Sun Trust Dealer
Div
GoldMine EMEA: Genesys, ABN AMRO, BMW, Distell, Robertsons, MTN Uganda,
Royal Bank of Scotland, Credit Suisse, RCI Europe, SG Hambro, Bristol Meyers
Squib, Honda, Commerzbank
GoldMine APAC: Sony, Schwartzkopf, National Telecoms Group, Lloyds Bank,
IDC, Powertel, Avnet
New CEO handover complete
Patrick Bultema joined as CEO & President on 15 Nov. 2001 and full handover
was completed ahead of schedule in late December. In early December Bultema,
Dana Buys (Chairman) and John Hillyard (CFO) completed a 14 day round the
world trip visiting all of the FrontRange Offices with the exception of
Milan. This allowed Bultema to review the 1st half FY '02 performance and re-
budget for the 2nd half of the fiscal year, as well as meet all the staff
and key stakeholders around the world.
The handover has gone very well and smoothly. Bultema has been doing a
comprehensive margin analysis of every aspect of the business, which has
resulted in a number of key initiatives launched since his appointment.
He has flattened the organizational structure by removing the WorldWide
Operations position and having the three geographies report directly into
him. He is taking a tough focus on expenses and performance, with specific
focus on costs of sales and marketing worldwide. He has overseen a further
10% reduction in headcount and started an initiative to introduce new
capital to the business.
Raising additional capital
FrontRange as it continues to execute to its plan regards it prudent to
raise additional cash so that company is well positioned to take advantage
of market opportunities and a potential economic upturn later in 2002/3.
A US-based investment banker, focused on the CRM software market, has been
retained to manage the process of raising additional capital and it is
anticipated that raising such additional funding would be best accomplished
in the US market. Information will be made available as further progress is
made in this regard
Outlook for Q3 and Q4 2002
FrontRange has reduced its revenue forecasts for both Q3 and Q4 from the
original fiscal 2002 budgets. The company expects the world economy to
remain tough during the rest of current fiscal year. It has thus been
reducing expenses and is budgeting for operational breakeven in Q3 and a
full quarter's profit in Q4. This should result in an overall operational
profit for the 2nd half of the fiscal year.
On the product side, the company is expecting new releases of Goldmine Plus
Accounting for QuickBooks Pro (the world's top selling accounting program
for small businesses); GoldMine FrontOffice with Microsoft Exchange
integration; HEAT Asset Tracker; HEAT Contact Center for mid-market call-
centers and supporting multiple-media customer interaction; HEAT 6.4 and
GoldMine FrontOffice in French and German and GoldMine FrontOffice in
Italian and Spanish
The main focus is on a return to profitability and the establishment of a
new long term technology platform that will be shared across the company's
product set. FrontRange is on track to release the first version of its
Microsoft .NET based product set in the second half of 2002.
The company further expects to build on profits in the next fiscal year and
reap the benefit from the lower cost base now in place.
The audit-reviewed interim results of FrontRange Limited, the entity listed
on the JSE Securities Exchange SA, will be announced on 26 February 2002.
