Elcom International Announces Creation of Internet Sales Subsidiary
Company Reorganizes and Creates elcom.com, an Internet-based Sales Company
NORWOOD, Mass.--(BUSINESS WIRE)--December 31, 1998--Elcom International, Inc., (the ''Company''), (NASDAQ:ELCO - news), today announced the creation of elcom.com, a new wholly-owned Internet sales and technology subsidiary. elcom.com will benefit from the Company's existing electronic commerce systems and substantial experience therewith and plans to capitalize during 1999 and beyond on the fast growing opportunities in the marketplace for Internet-based sales. The Company also intends to transition a portion of its commodity PC
remarketer business to elcom.com, which is expected to have a lower-cost Internet-based model.
The Company will combine its expertise in personal computer sales and in providing customer service and support, with its electronic commerce technology subsidiary and international business infrastructure, into elcom.com, which will be the primary entity for Internet-based sales. Elcom Systems, Inc., the Company's current electronic commerce technology subsidiary formed in 1992, will merge with elcom.com to provide organizational structure as well as Elcom
Systems, Inc.'s Internet and automated procurement technology and expertise. This merger also ensures that the Company's electronic commerce automated procurement technology is owned by elcom.com.
Robert J. Crowell, Chairman and CEO of the Company, stated, ''While many companies do not have the technology capabilities to adapt to the new, dynamic Internet-selling marketplace, particularly in the emerging European marketplace, we expect to leverage our core competencies in our U.S. and U.K. organizations, and our history in
electronic commerce and automated procurement systems, to drive this strategic repositioning and to streamline costs in our existing businesses. I expect elcom.com to meet the expanding customer demand for Internet-only e-commerce business and be positioned to take advantage of the growing Internet market opportunity to supply businesses of all sizes, and consumers, with a variety of commodity-type products, such as personal computers, office supplies, copier
supplies and other products from a ''one-stop-shop'' business and consumer Web location with automated on-line sourcing of many of the products.''
Using the Company's current on-line automated sourcing and procurement technology developed by Elcom Systems, Inc., combined with elcom.web, elcom.com's Internet ordering and information system, elcom.com will initially offer personal computer products to businesses and consumers. However, elcom.com intends to expand its Internet
offerings to include office supplies and a range of other products consumed by businesses, and consumers as quickly as possible. In addition, elcom.com will continue to license its automated procurement system technologies to other companies directly and through Elcom Services Group, Inc., the Company's PC remarketing and professional services subsidiary, which generated $756 million in revenues in 1997. elcom.com intends to also operate through a subsidiary in the U.K. during 1999 and offer most, if not all, of the same products and services into the U.K., and later Europe.
Jim Rousou, a Director of the Company with policy and strategy responsibility for U.K. operations, commented ''E-commerce in the U.K. and Europe and the use of the Internet for buying products lags behind the U.S. by a year or so. It therefore presents elcom.com in the U.K. with an opportunity to be an early leader in Internet commerce as we
leverage the Company's technologies and capabilities while the use of the Internet expands in the U.K. and Europe during 1999.''
In the first quarter of 1999, the Company intends to begin transitioning existing customers from its current PC remarketer subsidiaries to elcom.com. The Company intends to service both its traditional customers, which require a full range of services, as well as those customers which desire to order products via an Internet-based automated fulfillment system for commodity products rather than through a face-to-face relationship. PECOS.cm, the Company's
client/server version, is currently supporting over $2.5 million in sales per month in the U.S. and U.K. PECOS.web, Elcom Services Group's recently introduced Internet ordering and information system is currently supporting over $1.1 million in sales per month in the U.S.
Initially in the U.S. and later in the U.K., elcom.com intends to leverage the Company's existing proprietary automated technology which, in the U.S., connects with Ingram Micro, Inc. and Tech Data Corporation, two of the world's largest PC distributors. This automated sourcing technology allows the Company to have a multi-billion dollar, on-line inventory available to its customers and to offer one of the broadest selections of personal computer
products in the industry, with next-day delivery for non-configured systems.
elcom.com intends to outsource much of its support-oriented infrastructure requirements to Elcom Services Group and believes that its personnel base will be drawn primarily from Elcom Services Group and through its merger with Elcom Systems, Inc., which generated $4 million in licensing and other revenues during 1997.
The Company intends to transition commodity-type PC remarketer sales to elcom.com which will operate using an Internet-based model; however, the Company's remarketer subsidiaries will continue to offer full service capabilities in both the U.S. and the U.K. The Company is significantly streamlining its business model and operating infrastructure
which is reducing the Company's non-professional services personnel by approximately 18%. The Company is closing six branch offices in the U.S. and will incur a charge of approximately $1.0 million in the fourth quarter of 1998 to account for severance and other associated costs, primarily related to re-engineering and streamlining its sales
force and operating infrastructure in a manner that will better align the Company's costs with the revenues and margin expected to be generated by Elcom Services Group in 1999.
During the fourth quarter of 1998, the Company's product sales have been substantially lower than expected. The Company anticipates sales of approximately $185 million during the fourth quarter, down approximately 5% from the third quarter and substantially less than the Company's fourth quarter plan. The Company believes that its product sales have been impacted by overall economic conditions in the corporate marketplace. However, professional services revenues, not including Elcom Systems, will reach approximately $10 million in the fourth quarter of 1998 versus $9 million in the third quarter of 1998 and $7 million in the fourth quarter of 1997.
The Company believes this lower than expected level of sales, which also decreased the amount of funding from product suppliers by approximately $1.5 million, may be due to the aftereffects of the market correction which took place this summer related to Asian economic concerns. In addition, margin decreases have been further exacerbated due to changes in various manufacturers' inventory-oriented policies and the Company's corresponding shift to purchase a
substantial majority of its product through distribution in the U.S., at a higher cost versus purchasing directly from manufacturers. The Company anticipates taking charges of approximately $2.0 million to reserve for possible unrealizable inventory and accounts receivable. The Company also experienced an increase in the proportion of sales to
high volume customers in the U.S. and distribution customers in the U.K., where margins are lower than with other customers.
Because of the various factors described above, the Company anticipates that it will incur an operating loss in the fourth quarter totaling approximately $7.5 million, including an estimated Elcom Systems operating loss of $1.0 million and including the fourth quarter charge noted above. The substantial majority of the operating loss relates to lower than expected sales and a reduction in the Company's gross profit percentage combined with the growth of the
Company's infrastructure to support a significantly larger expected revenue stream for 1999. The streamlining described above is intended to substantially mitigate these areas as the Company transitions to a lower cost structure. The lower gross profit percentage also includes a lowering of sales-volume-based manufacturer funding and the operating loss reflects provisions related to reductions in inventory return support from certain distributors and
manufacturers.
Due to the proportionally high level of sales to large customers, which also typically involve manufacturer rebates or special pricing that requires reimbursement from manufacturers, and payment processing issues that certain of the Company's manufacturers and major customers have had, the Company's accounts receivable position and days sales
outstanding, increased significantly during the fourth quarter, which impacted the Company's collateral position for its financing facility. The Company's primary lender was very supportive during this period and collection cycles are improving.
The Company also announced that Jim Jameson, the President and CEO of the Company's U.S. PC remarketer unit, has left the Company and resigned from the Board of Directors of Elcom International, Inc. as of December 28, 1998. ''We wish Jim Jameson all the best in his future endeavors and as I assume Jim's role, I look forward to expanding on
many of the initiatives which he launched during 1998, especially expanding our professional services revenues,'' said Mr. Crowell.
About Elcom International, Inc.
Elcom International, Inc., through its wholly-owned subsidiaries, develops, licenses, and uses client/server and Internet transaction-based software systems which enable the conduct of PC-based interactive electronic commerce over the Internet and telephone networks. Elcom Services Group, Inc., the Company's PC remarketing subsidiary, uses the Company's electronic commerce technology to support the marketing of PC products and now operates seven field sales and support offices in the United States and seven in the United Kingdom. elcom.com, inc., (www.elcom.com), is a newly formed company and will operate as an Internet on-line remarketer of PC-oriented and
other products using the Company's electronic commerce and automated procurement technology. Elcom Systems, Inc., the Company's technology subsidiary, licenses its PECOS technologies to Elcom Services Group's customers and to other companies and is expected to merge with elcom.com within the next several weeks.
Statement Under the Private Securities Litigation Reform Act.
Except for the historical information contained herein, the matters discussed in this release include forward-looking information. All statements other than statements of historical fact, including, without limitation, those with respect to the Company's objectives, plans and strategies set forth herein and those preceded by or that include the words ''believes,'' ''intends,'' ''expects,'' ''will,'' ''plans,'' ''anticipates,'' or similar expressions, are forward-looking statements. Although the Company believes that such forward-looking statements are reasonable, it can give no assurance that the Company's expectations are correct. These forward-looking statements involve a number of risks and uncertainties which could cause the Company's future results of operations to differ materially from those
anticipated. Such risks and uncertainties include: availability and terms of appropriate working capital and/or other financing, short-term interest rate fluctuations, customers' acceptance and usage of the Company's electronic commerce software systems, the ability of the Company to transition existing customers to an Internet-only ordering
model, the impact of competitive technology products, delays in collection of account receivables from customers or manufacturers, decreases in PC product pricing, control of expenses, levels of gross profits, revenue growth, changes in manufacturer's product price protection, product return and other policies, availability of manufacturer funding including rebates on product purchases, availability of PC products including via on-line sourcing relationships, demand for PC products by customers, the receptiveness of the capital markets for financing (including initial public
offerings), the success and timing of fully implementing the Company's Oracle-based management information system and problems associated therewith, risks associated with acquisitions of companies, and the other risks detailed in the Company's 1997 Annual Report on Form 10-K (including the ''Liquidity and Capital Resources'' section) and from
time to time in the Company's other reports filed with the SEC, including the Company's prospectus included as part of the S-1 Registration Statement declared effective on December 19, 1995 under the Securities Act of 1933.
Contact:
Elcom International, Inc.
Investor Relations:
Tom Barth, 781-501-4094
www.elcominternational.com |
