Exchange Applications, Inc. announces second quarter results
Reaffirms plans to breakeven by 4Q01 with enhanced leadership
Company to hold conference call and Webcast for investors at 8:00am Eastern today
Boston, Mass. – Jul 26, 2001 – Exchange Applications, Inc., now doing business as Xchange™, Inc. (Nasdaq:EXAP), today announced its financial results for the second quarter of 2001.
Xchange’s total revenue for the quarter was $10.8 million, compared to $15.8 million in the prior quarter. Software revenue accounted for 42% percent of total revenue in the second quarter of 2001.
Although economic conditions resulted in a slowdown in the Company’s business, Xchange continued to expand its customer base and grow its partner relationships in the second quarter. 15 companies purchased technology solutions from Xchange including 11 new organizations. Notable companies include a leading Swedish automobile manufacturer, Danske Bank, Cutter & Buck, Intelligent CallCenter Network, a leading German Bank, and Far EasTone, the company’s first client in Taiwan.
The Company reported a pro forma net loss of $0.23 per share, as compared to pro forma net loss of $0.16 per share in the prior quarter. Pro forma net loss in the second quarter excludes $38.3 million in non-cash and one-time expenses associated with the April workforce reduction, interest on notes payable and warrants issued to Insight Venture Partners, and amortization of goodwill and other long-term assets, and goodwill impairment charges. As of June 30, 2001, Xchange had cash and cash equivalents of $5 million.
“As we stated on July 2, our results for the second quarter reflected a slowdown in IT spending which led to a lengthening of our sales cycle,” stated Andrew Frawley, Founder and Chairman of the Board for Xchange. “Our products were very competitive in the second quarter, but several deals that we expected to close were pushed or deferred as a result of market conditions. The feedback we have received from customers demonstrates that our solutions are continuing to make our clients more profitable,” he said.
"As a marketing solutions provider we incorporate best-of-breed technology to build solutions that support our clients’ marketing and business objectives. Xchange`s solution is a critical component of what we offer our clients to help them drive the value of their customer bases," said Corey V. Torrence, President and CEO of Epsilon. "We have witnessed strong return on our joint clients` investments, and are proud to make a solution available that can impact their bottom line. I believe our relationship will remain strong well into the future," he added.
Xchange remains committed to maintaining and extending its leadership position in its core business of marketing automation, as well as developing the opportunities for Xchange Real Time. The Company has initiated a number of changes within the organization to drive Xchange’s future growth, including the appointment of new executive management and the streamlining of operations to help return the Company to profitability.
New Executive Management to Drive Growth
“This morning Xchange made one of the most exciting announcements in its history,” said Frawley. “Chris Wagner, a marquee player in the global software community, and an instrumental performer in building a $1 billion consulting services business at Computer Associates as Executive Vice President and General Manager of CA Services, has agreed to join Xchange as President and CEO,” he continued. “I personally reviewed more than one hundred candidates for this position, and Chris’s credentials of an unmatched sales track record, world class partner experience, enterprise software expertise and extensive network made him our absolute number one choice for this role. Our ability to attract such a candidate in the current economic climate validates the opportunity that lies before this company.”
In his new role, Mr. Wagner will report to Xchange’s Board of Directors, and will be responsible for the day to day operations of the Company.
Andrew Frawley, who had served as Chief Executive Officer since the company was founded in 1996, will remain as Chairman of the Board and be responsible for providing leadership regarding business strategy, finance, product direction, and research and development.
“I am joining Xchange because I see the potential for the organization to dominate the analytical CRM space,” said Mr. Wagner. “This company has a blue-chip client base, the most effective solution available, strong and experienced executive leadership and a staff of ‘A’ players that knows how to create value at the world’s largest companies. I am excited to lead a business with such potential, and look forward to building an organization characterized by sales growth.”
In addition, Thomas Phair joined Xchange this month as Vice President of Finance and will be responsible for all auditing, control and compliance functions. Phair brings more than 15 years of experience in accounting and reporting to Xchange, having previously served as Controller for the consulting firm Gomez, Inc., and prior to that as the Director of Reporting and Accounting at the $400 million, multi-national research organization of PAREXEL International Corporation. Phair will report to Dan Haley, Chief Strategy Officer, who will assume the role of interim Chief Financial Officer and have responsibility for assessing capital raising options, evaluating strategic alternatives and communicating with the investment community. Haley has been instrumental in Xchange’s growth and expansion into new market segments since joining the company in 1998, and has more than 20 years experience in technology finance and investment. George Abatjoglou, Chief Financial Officer, has resigned. The company intends to initiate a search for a new CFO.
Company streamlining the business and committing to breakeven by Q4 2001
Xchange recently completed a 30 percent reduction in its workforce, in addition to a 15 percent reduction in April, and initiated a series of expense reduction programs. To cover the costs associated with the job reduction, Xchange will be taking a one-time cash charge in the third quarter of approximately $1.3 million representing cash severance to terminated employees and abandoned lease costs as it looks to consolidate its facilities. Additionally, the company is currently evaluating the appropriateness of additional non-cash impairment charges for certain of its long-term assets as a result of this restructuring.
“Despite the impact that the current economic environment has had on our business, we remain committed to reaching breakeven by the fourth quarter of 2001,” stated Frawley. “It was imperative that we look at our operating structure and realign it to support the level of business we can conservatively predict. This latest round of headcount reductions has done exactly that. We now have our cost base aligned to support what we believe to be very conservative revenue assumptions,” he said.
With the slowdown in IT spending and lengthening of the sales cycles, Xchange is not giving guidance for the remainder of 2001, but the Company remains committed to reaching breakeven by the fourth quarter of this year.
“We continue to believe that Xchange is a leading provider of analytical CRM solutions and we remain committed to their continued success,” said Deven Parekh, Managing Director of Insight Venture Partners.
“Xchange’s greatest strengths as an organization are its knowledge and software assets that deliver real value and ROI,” said Frawley. “By dramatically strengthening our management team, returning to profitable operations and aggressively articulating the value our solutions deliver, we believe Xchange is well positioned to emerge a winner in the analytical CRM space,” Frawley concluded.
Xchange will host a public conference call and Webcast for investors at 8:00 a.m. Eastern Time today to discuss its financial results for the three months ended June 30, 2001. To access the call, please dial (800) 621-5270 from the U.S. or 212-748-2779 internationally. No access code is necessary for the live call. A telephone replay of the call will be available for seven days beginning at 10:00 a.m. Eastern Time, July 26, and can be accessed by dialing (800) 633-8284 from the U.S. or (858) 812-6440 internationally, using reservation # 19233819. Investors can listen to the live Webcast or replay by visiting http://www.xchange.com/ir.
About Xchange, Inc.
Exchange Applications, Inc., now doing business as Xchange, Inc., helps companies focus their resources on customers who represent the best long-term profitability. Xchange delivers results by instilling a profit-focused discipline in the organization, coordinating all touch points and creating a personalized dialogue with the most valuable customers. These solutions are impacting the bottom line at approximately 300 client sites worldwide, including Citigroup, DaimlerChrysler and Vodafone. Xchange is based in Boston with offices worldwide. For more information, visit http://www.xchange.com.
``Safe Harbor`` Statement under the Private Securities Litigation Reform Act of 1995: In addition to historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties, including the statements relating to current expectations for current and future periods. The Company`s actual results could differ materially from those discussed in such forward-looking statements, based on a variety of factors, including the adequacy of estimated expense accruals and reserves and the effect of the expansion of the Company`s business on its operating cash flow; as well as factors affecting future performance, including the fact that the Company`s markets are characterized by rapidly changing technology, evolving industry standards and frequent introductions of new products and enhancements; the fact that the market for customer optimization software is new and emerging; the fact that the Company relies heavily on indirect distribution channels for sales of its software; the unpredictability of the timing of customer orders; a highly competitive market for the Company`s products and the unpredictability of whether its solutions will be accepted by new customers; the fact that the Company relies heavily on growth from international operations; the Company`s ability to attract and retain skilled personnel; whether the Company will be able to efficiently integrate acquisitions; and the Company`s ability to raise additional capital in volatile capital markets, in particular given its current operating losses. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company`s filings with the Securities and Exchange Commission, including but not limited to the company`s Annual Report on Form 10-K filed, April 17, 2001 and recent registration statements filings on Form S-3. The Company disclaims any obligation to update these statements for subsequent developments.
Xchange, Xchange 7, Xchange EnAct, Xchange Real Time and PlanetXchange are trademarks of Exchange Applications, Inc. All other trademarks contained herein are the property of their respective owners.
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