David,
Good afternoon. I am the VP of Finance and Administration and CFO for Accugraph. I am on the road much of the time and normally try to read this file at least once a week. When I saw your post last week, I naturally checked with the individual in Investor Relations to find out what he had said, and of course he was a bit surprised by your post as well.
I would like to clear up a couple of items. I understand as an investor in Accugraph it has been a difficult few years. The promising opportunities in the telecommunications market are excellent, but Accugraph has not been successful in executing. There are a number of reasons of course, but I am not writing this to step through excuses. However, I would like to describe the highlights of our actions.
In 1994, the company had a very successful year. It had a great focus on specific telecommunications segments and primarily with three customers. It made 25% net income, and the stock reached $6.00/share U.S. During 1995, the company increased its spend rate, failed to close new business and revenue declined. Although the company made money, it was down to under 10% or revenue.
In Q1 1996, the company lost $3.5 Million on $2.5 Million of revenue. I joined the company at the end of March, 1996. I joined the company for the same reasons that you and others invested in the company; Accugraph was in a healthy niche market in the growing telecom segment. I still believe in this opportunity.
So after two weeks on the job I realized that this was a classic turnaround situation and it called for immediate action. Working with a special committee of the board (which included Paul Damp), we did the basic turnaround steps.
1. We cut costs. They say all costs come in on two legs and we cut headcount from 225 in March to 130 by October. We reduced the Q1 spend of $6M to less that $4M (from operations) in Q4. We closed an operation in Seattle and a joint venture in South America. If there wasn't an ROI, then we cut it. We had to cut some good people and it was difficult.
2. We changed management. I am the only Vice President (or above) in the company on April 15, 1996 that is still with the company. On October 18th, Paul Damp was named Chairman of the Board and CEO. We promoted our top Sales Manager to VP of North American Sales. We named our top engineering manager as VP.
3. We declared our focus in Telecommunications. This is where we have been successful in the past and where we believe the oportunities are today. However, even though we had some excellent people in the company, we lacked the needed technical depth and expertise. In February of this year, we acquired Objectel. Led by Zara Rana, this software consulting and services company in Toronto was staffed with individuals who all came from the telecmmunications environments.
4. We wanted to create an aggressive, results oriented corporate culture. So we froze salaries and implimented a profit sharing plan. We also took 500k stock options and spread them across every employee in the company. We wanted everyone to be a shareholder; motivated as shareholders.
5. We raised cash. As a result of our losses in 1996, cash became a problem. Even after reducing DSO from over 180 to less than 70, we needed to have a bit of a cushion to allow us to grow in our targeted areas. In May we issued special warrants convertable to common stock (this happened two weeks ago) and raised $2.5M.
6. We improved the product. The new engineering team, working with the prior team analyzed the product, re-architected it into a three tier design, and is due to have their first release of ECOS 2.0 in Q4.
7. We grew near the customers. We needed to be located in the right markets, so in June we opened our Dallas (Richardson) office in the middle of the area known as the telecom corridor.
8. I took the company dark. In April of 1996, I felt all of our attention had to be placed on running the company. It was clear to me that we had to get results and earn back the support of our investors. I appreciate the difficulty this causes to investors, but we needed to be focussed on results. I wanted no hype, no forward looking statements, no optimism....just results. During the past two quarters, we have begun to be a bit more open and as you are aware issue more press releases. At the same time, we have not issued financial projections. The reason I was curious about the $0.13 1997 projection is simply because I had not seen it and it had not come from Accugraph. I also was very concerned about a post I saw here a few weeks back indicating that we "held" orders from Q2. I manage the business hard and this is especially true with regard to revenue recognition.
Are we through? Absolutely not. We have a sales cycle that exceeds six months. The efforts of today materialize in 1998. This is a tough business. However, After losing $5 M in Q1-3 of 1996, we have had three consecutive quarters with profits from operations. Q3 is traditionally a difficult quarter for everyone in the industry, but we are enthusiastic about the second half of 1997.
Once again, I apolgize if anyone on my staff insulted you in any way. I also respect your decision to leave Accugraph and wish you the best of luck in your other investments.
Gary
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