Planned losses continue at CrossKeys
Kanata company reports net loss of $1.35M
Karyn Standen
Thursday 23 September 1999
The Ottawa Citizen
ottawacitizen.com
CrossKeys Systems Corp. yesterday recorded first-quarter fiscal 2000 numbers in line with its plan for recovery: losses continued as the company concentrated on boosting revenue, adding sales channels, and strengthening core product sales.
The Kanata company, which develops software used to help telecommunications companies monitor network performance, reported a net loss of $1.35 million, or seven cents a fully diluted share Cdn., on sales of $7.6 million in its quarter ended Aug. 29. In the same period last year, the company earned $1.9 million, or 10 cents a fully diluted share, on revenue of nearly $12.1 million.
What was "most gratifying," though, said chief financial officer Steve Spooner, was the 47-per-cent jump in revenue over the fourth quarter of 1999. CrossKeys reported $5.2 million in sales in the quarter ended May 2, and a loss from operations of 21 cents a share, halting 12 consecutive quarters of growth.
Added chief executive Ian McLaren yesterday: "We feel momentum coming back into the business. Our investment is in people and technology right now, and our focus is on revenue growth. We know that means short-term negative earnings per share, but we strongly believe that's the right thing to do for the company now."
Analysts expect CrossKeys will not return to profitability until its fourth quarter, a projection Mr. McLaren supports. Even so, industry watchers agree with CrossKeys' focus on increasing revenue over earnings. Analysts say the extra muscle is needed so CrossKeys can make significant investments in marketing and in developing technologies that allow it to provide management software compatible with a variety of networking equipment.
Indeed, last month Mr. McLaren said CrossKeys will inject $15 million "over the shorter term" in product and channel development.
Geographically, 62 per cent of CrossKey's sales in its past quarter came from North and South America, 32 per cent from Europe, and six per cent from Asia.
Sales of its core products were up $5 million, reflecting positively, the company said, on its decision earlier this year to make the transition from a project-oriented company to one focused on selling products.
The company shortened its sales outstanding to 48 days, as of the end of August, from 78 days in the previous quarter.
CrossKeys also recorded a "positive" book-to-bill ratio, logging its fourth highest quarterly bookings in its history.
In the quarter just ended, the company signed a deal with British Telecommunications worth $2 million to $5 million to provide software to manage BT's multi-vendor networks.
Also in the past quarter, the company formed partnerships with Nortel Networks Corp. and international technology services giant Logica PLC, aimed at increasing its number of distribution channels.
CrossKeys has been criticized in the past by analysts as being too dependent on a handful of large partners, primarily Newbridge Networks Corp., to distribute its products. CrossKeys, a Newbridge affiliate, generates on average about 50 per cent of its sales through Newbridge. Compaq Corp. and Siemens have in the past also been responsible for significant CrossKeys sales.
But this past quarter showed CrossKeys still has a way to go in reducing its dependence on Newbridge.
About 70 per cent of its first quarter sales were driven through Newbridge, with Compaq accounting for 10 per cent and Siemens nine per cent.
In an interview with the Citizen earlier this month, Mr. McLaren said he plans to create a "balanced" sales strategy with the goal of having "ten active, revenue-generating channels by the end of this fiscal year."
To that end, Mr. McLaren is talking to "virtually every major telecom equipment manufacturer", and expects to have up to seven partnership deals sewn up within nine months.
Yesterday, Mr. McLaren said CrossKeys has had "several" discussions with "major global channels" and could announce new channel partners in "two to three weeks."
Mr. McLaren said it will take about six to nine months before the partnerships with Nortel and Logica generate sales for CrossKeys.
CrossKeys is also looking to hire 120 people to fill positions across the company and support its expanded sales effort.
It said it made a dent in that tall order during its first quarter, hiring between 30-40 people.
CrossKeys' shares closed down 10 cents to $7 yesterday on the Toronto Stock Exchange on a volume of 17,265. |
