Sterling Commerce announced Thursday that it will cut 200 jobs and sell its XcelleNet business in the wake of a poor third- quarter performance. The Columbus, Ohio-based electronic commerce software and services company reported disappointing results in line with an earlier warning, with net income up 18.4% at $37m on revenue up 24.6% at $152.2m. Earnings per share came in at $0.38 but, excluding a one-time $2.5m gain, amounted to $0.36 – $0.02 below revised expectations and $0.05 short of the initial First Call consensus before last month’s profit warning.
The company said revenue for the quarter was impacted by delays in closing several large quarter-end product transactions and lower-than-expected sales growth for more traditional EDI and file transfer products, due in part to customers’ internal Y2K issues and the maturity of the market segments. Another major problem, Sterling said, was lower-than-expected revenue growth from the recently-acquired XcelleNet business as a result of unforeseen integration difficulties and a lack of expected synergies.
Consequently, the company is restructuring its business in accordance with expected future revenues. In addition to the 200 staff being laid off, 450 employees will be reassigned during the fourth quarter to what Sterling sees as its growth areas – extranet management, business process integration, community management, EC infrastructure and outsourcing. During fiscal 200, a further 300 employees will be reassigned and the company will invest an additional $75m to $100m in those initiatives.
As for XcelleNet, which it only acquired one year ago for $200m, Sterling says it simply hasn’t seen the expected benefits from the deal and has determined that the unit lacks sufficient strategic fit with its other businesses. Thus, it has enlisted the help of Broadview Associates to find a buyer.
Sterling said it will take one-time restructuring charges of $25m to $30m in the fourth quarter to cover employee severance, facilities scale-down, and other expenses. The company now expects revenues for the quarter to be $150m to $155m and earnings per share to be roughly $0.40 to $0.42, excluding expected results from XcelleNet and charges. Likewise, for the full fiscal year, revenues should now come in at between $550m and $555m and earnings per share will be $1.42 to $1.44. Sterling is projecting total revenue growth for next year of 17% to 20% and EPS growth of 21% – 23%, excluding historical and expected results from XcelleNet and one-time items.
In the third quarter, revenues from products and product support saw year-over-year growth of 13% and 48% to $53.8m and $36.6m, respectively. For the nine months, revenues from product and product support increased 30% and 50%, respectively. Services revenue, meanwhile, increased 24% to $61.8m in the quarter and 23% for the nine months to $178.2m. For the nine-month period, net income rose 26.3% to $104.1m on revenue up 31.3% at $445.6m, while EPS rose to $1.06 from $0.87. รก
