By Stephen Phillips
Applications integration software vendor, New Era of Networks Inc posted widening losses for its third quarter, yesterday, on revenue flat to the previous quarter, excluding sales inherited from acquisitions. The results excluded third-quarter earnings from Neon’s reseller partnership with IBM Corp, which accounts for approximately 11% of revenue. But they did include a proportion (less than 50%) of second-quarter earnings from the partnership.
The Englewood, Colorado-based firm reported a $34.94m net loss, equivalent to 17 cents a share, excluding acquisition costs, for the three months to September 30, compared to a $11.66m loss in the year-ago quarter. Analysts had tipped the firm to turn an 18 cents a share loss for the quarter according to a poll conducted by First Call. Revenue for the third quarter stood at $31.87m up 82% on the corresponding period last year but the firm said $5m of sales had come from enterprise application integration software vendors, Microscript Inc and Convoy Corp, which it acquired during the quarter.
Net losses do not include higher-than-expected restructuring costs racked up in assimilating the new acquisitions, and the payment of more cash than originally bargained for to close the acquisitions. These additional considerations added total one- time costs of $32m and the firm also laid out $7m in acquisition- related amortization.
Restructuring costs spiraled from the $3m-$5m projected in a recent filing lodged with the Securities and Exchanges Commission, to $7m due to rent costs on a higher-than-expected number of duplicate operations arising from the acquisitions the firm said yesterday. The restructuring which also includes the axing of 125 employees, or 12% of the workforce, will cut 15% from operating expenses, Neon said.
The firm also said it had set aside additional payments of $25m for the shareholders of Microscript and Convoy. The firm had previously priced the deals at $34m in cash and stock for Microscript, and $42m in stock for Convoy.
Neon discounted third-quarter earnings from its reseller partnership with IBM under a ruling handed down by Big Blue that it observe a one-quarter lag in recording the revenue after it booked second-quarter revenue from the partnership too hastily and was forced to issue a profit warning in July. Neon said it earned about $3.6m from the partnership for the second quarter, based on receiving a 30% royalty on IBM’s sales of its products. It said it expected third-quarter earnings from this source to be booked in the fourth quarter, to outstrip second-quarter earnings.
The firm trumpeted more than 90 new customers for the quarter for its business management software which links incompatible databases and operating systems. Chief executive officer, Rick Adam, said Neon expects sales of its recently-launched E-Business Integrator-branded software, which links back-office transaction systems to web-based front-end systems, to drive earnings for the fourth quarter.
