(COMTEX) B: Elcom International Announces Creation of Internet Sales
B: Elcom International Announces Creation of Internet Sales Subsidiary; Company
Reorganizes and Creates elcom.com, an Internet-based Sales Company
NORWOOD, MASS. (Dec. 31) BUSINESS WIRE -December 31, 1998--Elcom
International, Inc., (the "Company"), (NASDAQ:ELCO), 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.
-0- sb/bos*
CONTACT: Elcom International, Inc.
Investor Relations:
Tom Barth, 781-501-4094
www.elcominternational.com
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