FutureLink Reports Bleak Q4, Backs Away from ASP Market
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Saying that the projected rapid growth of the ASP market did not materialize, FutureLink NASDAQ: FTRL president and CEO Howard E. Taylor reported that the Lake Forest-based Calif.-based company suffered a fourth quarter net loss of $205.1 million ($2.92 per share) on revenue on $34.1 million.
Taylor said FutureLink was facing the "hard reality of the ASP market. We are no longer emphasizing the ASP market in the U.S.," Taylor said today in conference call and Web cast.
Instead, Taylor said, the company will capitalize on traditional information technology markets in the U.S., but continue to focus on the ASP market internationally. The company's ASP revenue for the year was $5.4 million. For the fourth quarter ASP revenue was $1.8 million or 4 percent of overall revenue.
FutureLink also reported that the company's current cash position will not carry it through 2001. "Additional actions are needed to reach profitability. We need to reduce operating capital needs and raise capital," said Taylor. The steps may include eliminating unprofitable lines of business and selling one or more business lines or divisions.
Taylor said he is confident the company can reach a break-even point by the fourth quarter of 2001. However, for the more immediate future the company faces several challenges.
In a prepared statement, FutureLink said that in November, it entered into two related receivables-based credit facilities with a financial institution, for up to $25 million. The company's level of tangible net worth has been below the amount required under these facilities. FutureLink reports it has obtained waivers from the lender relating to such noncompliance until the next monthly measurement date of April 30.
To comply with the requirements, FutureLink will need to raise the necessary capital, obtain additional waivers from the lender or reach an agreement with the lender to modify the covenant to an achievable level by the April 30 deadline.
Because the company's cash balances are below $10 million, all collections on the company's receivables are being deposited directly into the lender's lockbox, Taylor said. These collections are then applied to reduce the company's outstanding borrowings on the facilities. The company's capacity to borrow fluctuates daily based on that day's level of eligible accounts receivable and the level of outstanding borrowings.
Taylor also reported that because the company has not maintained a minimum bid price of $1 for 30 consecutive days of trading, Nasdaq has given the company 90 days (until June 25) to meet the requirement or face being delisted. "We may appeal that," Taylor noted.
FutureLink, a founding member of the ASP Industry Consortium, is still committed to the ASP market, Taylor said. "It's not a matter of if but when," he added, referring to the future of the ASP industry. "We are not abandoning the ASP market. Through our direct channel, we are positioned to take advantage of it," said Taylor.
FutureLink provides integrated solutions, hosted applications services and was one of the first application infrastructure companies to offer software as service. On January 17, FutureLink reduced it workforce by 8 percent. (See "FutureLink Sheds Staff, Refocuses").