Baan Company Reports Third Quarter 1998 Results
PR Newswire - October 29, 1998 02:15
Announces Plan to Streamline Organization and Strengthen Management Team
BARNEVELD, The Netherlands, and RESTON, Va., Oct. 29 /PRNewswire/ -- Baan Company N.V. (Nasdaq: BAANF, ASE: BAAN), a global provider of business software, today announced its third quarter 1998 results, along with organizational and management changes to enhance efficiencies.
For the quarter, Baan Company total revenues increased 13% to $195 million, from $173 million in the year-earlier period. The company recorded a net loss of $31.7 million, or ($0.16) per fully diluted share in the 1998 third quarter, as compared to net income of $18.3 million and EPS of $0.09 per fully diluted share for the 1997 third quarter. For the nine months ended September 30, 1998, total revenues increased 30% over the prior period to $605 million. The nine month net loss per fully diluted share was ($0.06), compared with earnings per fully diluted share of $0.23 in the comparable 1997 period.
Total license revenue was $86.6 million in the 1998 third quarter, as compared with $108.7 million in the 1997 period. Overall, license revenue in the third quarter was negatively affected by a combination of global economic conditions and market volatility, and reallocation of customers' IT budgets to fix the Year 2000 problems of their existing systems, which produced uncertainty among customers in making IT purchasing decisions.
Third quarter revenues in North America were $80 million, essentially unchanged from the same quarter of the previous year. The lack of revenue growth in North America was due primarily to the slowdown in decisions to purchase enterprise software by customers in the manufacturing sector in the United States.
Direct sales to customers amounted to $63.5 million in the 1998 third quarter, versus $78.3 million in the 1997 third quarter. Indirect sales (sales to resellers) in the 1998 third quarter were $23.1 million, versus $30.4 million in the same period of 1997.
Maintenance and service revenue increased 68% to $108.4 million in the 1998 third quarter. The revenue growth resulted from an increase in Baan Company's installed software base and its increased focus on consulting and education services. Product maintenance and product education revenues nearly doubled over the 1997 third quarter.
Total operating expenses in the quarter were up 57 percent over last year, due primarily to investments made in anticipation of a stronger business environment. These included expenses associated with acquisitions, a 69% increase in headcount to approximately 6,000 employees, and a doubling of research and development expenditures.
Organization to Be Streamlined
The Company believes that the ERP software market is being negatively impacted by a number of generic issues including: (i) Global economic difficulties and uncertainty; (ii) reductions in capital expenditures by large customers; (iii) increasing competition, and (iv) increased customer focus on addressing Year 2000 problems. These factors have, in turn, given rise to a number of market trends that have slowed license revenue growth, including (a) longer sales cycles; (b) increased uncertainty of customers in making purchasing decisions; (c) deferral or delay of IT projects and generally reduced expenditures for software; (d) reallocation of reduced capital expenditures to fix Year 2000 problems of existing systems, and (e) increased price competition. The Company expects these factors to continue to impact license revenues and that these trends will continue into 1999 until global economic conditions improve and Year 2000 problems are solved.
In light of these factors, the company sees changing buying patterns from its customer base. Customers today are looking for more predictable, lower-cost, easier-to-install and maintain enterprise applications. In response to these changing conditions, Baan Company announced a re-organization focused on accelerating its transition to a lower cost distribution model. Through a lower cost structure, the company will be poised to maintain leadership, and capitalize on the possibilities the market offers.
Key elements of the plan include consolidation of management responsibilities and a new reporting structure. The new structure consolidates sales, marketing, consulting, support and engineering efforts of acquired companies into cohesive functional organizations to provide a single face to the customer. The resulting efficiencies mean the company expects approximately a 20% reduction in its global workforce. The workforce reductions will eliminate duplicate direct sales, marketing and overhead functions. Baan Company is continuing its investment in the engineering and customer service organizations to further strengthen its technology leadership and customer relationships. The company plans to report a one-time charge of approximately $110 million before taxes in the fourth quarter 1998 in connection with these actions.
"By streamlining operations today, we have the flexibility, cost structure and management focus that allow us to continue to drive innovation and maintain thought leadership in the enterprise applications space moving forward," said Tom Tinsley, Chairman and CEO of Baan Company.
Management Board Strengthened
To support the new streamlined organization, Mary Coleman has been appointed President of Baan Company reporting to Tinsley. Ms. Coleman previously was President and CEO of Aurum Software, Inc., which was acquired by Baan Company in 1997. Ms. Coleman has been nominated to join the Baan Company Management Board, subject to shareholder approval.
"Mary and her team have built Baan's Front Office subsidiary into a leadership position as acknowledged by the Gartner Group in the last year," said Tinsley. "Mary brings to Baan Company a strong background in managing marketing, sales, research and development, and service and support, which will be very important as we move into the next phase of the enterprise applications market."
About Baan Company
Founded in 1978, Baan Company is a global software product company defining the market for high volume, packaged enterprise applications by delivering the most comprehensive portfolio of integrated, Year 2000 compliant, software components to address the core business processes common to companies of all sizes and industries. Baan Company uniquely supports continuous business improvement with its Dynamic Enterprise Modeling capabilities and with products that are faster to implement and use, and more flexible in adapting to business changes. Its evergreen products help clients respond more quickly to changing customer needs by optimizing the management of real-time information throughout the entire value chain. Baan Company has dual headquarters in Barneveld, The Netherlands and Reston, Virginia, USA. The Company's Common Stock is registered on the Nasdaq Stock Market under the symbol BAANF and on the Amsterdam Stock Exchange under the symbol BAAN.
Certain statements in this press release are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. In particular, statements using the words "will," "plans," "expects," "believes," "anticipates," or like terms are by their nature predictions based upon current plans, expectations, estimates, and assumptions. These statements are subject to a number of risks and uncertainties that could significantly affect outcomes, which may differ materially from the expectations, estimates, or assumptions expressed in or implied by any such forward-looking statements. Specific risks applicable to such forward-looking statements include risks associated with the failure to conclude any proposed agreement and/or changing conditions in the marketplace. Other risks and uncertainties associated with the businesses of Baan Company may be reviewed in the Companies' public filings, including Baan Company's Report on Form 6-K for its fiscal quarter ended June 30, 1998 and Baan Company's Report on Form 20-F for the 1997 fiscal year. Those documents are publicly on file with the U.S. Securities and Exchange Commission.
"Baan" is a registered trademark of Baan Company, and any trade, product, or service name referenced in this release using the name "Baan" is a trademark and/or property of Baan Company. All other trade, product, or service names referenced in this release may be trademarks or registered trademarks of their respective holders.
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