FrontRange Limited, the JSE-listed developer of service management and CRM solutions for the small and medium enterprise and distributed enterprise markets, continued to improve its financial performance in the 12 months to end June, with operating profit of $4.3 million significantly up on the previous year`s $0.04 million.
Driven by stronger management and a revitalised business strategy, FrontRange boosted headline earnings to $6.9 million (2003: $3.1 million).
The group`s cash position continued improving, with operating cash inflows of $8.6 million for the period, compared to inflows of $6 million the previous year. FrontRange closed the year with $21.3 million in cash (2003: $14.7 million).
Chief executive Michael McCloskey says the improved profit performance contains several pleasing aspects, including the strong cash flow and headline earnings that rose significantly in spite of receiving less of a fillip from exchange gains than in the prior year.
"What is particularly noteworthy, though, is the consistent improvement in both revenue and profit from quarter to quarter. And, for the first time in our history, FrontRange grew revenue in the seasonally weak March quarter over the traditionally strong December quarter," he says.
McCloskey says the breakdown of the group`s quarterly performance paints a picture of steady and sustainable improvement:
* September 2003: revenue of $16.9 million resulted in an operating loss of $0.5 million;
* December 2003: revenue of $18.2 million generated operating profit of $1.3 million;
* March 2004: revenue of $18.9 million generated operating profit of $1.7 million; and
* June 2004: revenue of $19.9 million generated operating profit of $1.9 million.
In spite of the stuttering recovery of the technology sector in the US, overall revenue for the year remained relatively stable at $73.9 million, 4.4% down on the previous period.
High levels of customer satisfaction and retention saw FrontRange`s recurring maintenance revenue streams continue the trend of recent years, growing 13% to $36.7 million. Services revenue rose by 7% to $8.3 million. Due to a lack of compelling new product launches until the second half of the financial year, overall revenue from licences fell by 22% to $29 million. However, licence revenue did recover from the first quarter of the year to record consecutive quarter-on-quarter growth thereafter.
FrontRange during the year moved its head-office from Colorado Springs to Pleasanton, California, in Northern California`s Silicon Valley hi-tech corridor. "Silicon Valley provides FrontRange with access to a tremendous amount of technology talent as well as the world`s most complete ecosystem of technology infrastructure, positioning us well for our future expansion plans," said McCloskey.
McCloskey says in recent months product development activity has been ramped up considerably, with development expenditure increasing by 37% from the first quarter to $3.4 million in the fourth quarter of the year.
"We did release two important upgrades to our HEAT and GoldMine applications midway through the year, while our Silicon Valley office has extended our capacity for product development to fast-track certain projects," says McCloskey.
As a result, FrontRange has made major advances with its product and technology strategy. The group has refocused its development activities on delivering families of solutions developed specifically for unique market segments within the small and medium enterprise and distributed enterprise markets.
As part of the roll-out of this strategy, FrontRange recently released initial versions of IP Contact Center, using voice over Internet Protocol (VOIP), and DiscoverNET, the first module of the new Infrastructure Management product range.
McCloskey says the product development pipeline remains full. Releases scheduled within the next few months include IT Service Management, an upgraded version of IP Contact Center, additional Infrastructure Management modules, and further enhancements to the HEAT and GoldMine products.
The group moved to expand its product development capability and to secure certain intellectual property by acquiring 100% of Cayo Communications (CayoCom) with effect from 17 June. CayoCom is a California corporation with a branch in Moscow that employs 25 software developers that produced technology that FrontRange had bundled under licence into its IP Contact Center product.
"This deal has several benefits for FrontRange," says McCloskey. "It has secured the intellectual property of a product in which we see tremendous potential, it enhances FrontRange`s product development capacity and also provides us with an opportunity to grow our business in the rapidly expanding Eastern European market."
The acquisition was paid for with 2.2 million FrontRange Limited shares, which FrontRange financed out of its existing treasury stock (but which had not yet been transferred at year-end). In addition, FrontRange paid $350 800 in cash, giving an overall acquisition consideration of $1.6 million.
FrontRange has changed its group reporting currency to US dollars, as well as its financial year-end. Although listed locally, only about 4% of the group`s revenue is generated in SA. The volatility of the rand/dollar exchange rate in recent years had resulted in significant distortions when comparing year-on-year group results in rands. The group also believes presenting financial information in US dollars will be more meaningful to international investors.
FrontRange has changed its year-end so that it no longer coincides with the end of a calendar quarter as part of a plan to mitigate the seasonality of its licence revenue. The new year-end will be 30 April.
McCloskey says FrontRange has entered the 2005 financial year with improved confidence. "The hard work of business stabilisation is behind us. Expenses are under control, the management and product development teams have bedded down and the sales and marketing teams are starting to take delivery of the new products. The breadth and depth of the new products is tremendous and we are excited about the opportunity we have to now grow FrontRange into the outright market leader," he says.
Share
Editorial contacts