Infinium Ends Its Most Challenging Year

Event Summary

On November 2, Infinium Software, Inc. (NASDAQ: INFM) announced financial results for the fourth quarter and fiscal year ended 30 September 2000.

Total revenues for the fourth quarter of fiscal year 2000 were $25.0 million, compared to $31.3 million for the same quarter of the prior year. The quarterly loss was $14.1 million compared to a loss of $4.4 million for the same quarter of the prior year. Software license fees for the fourth quarter of fiscal year 2000 were $7.0 million, compared to $7.1 million for the same quarter of the prior year, and increased 37% over the previous quarter. Consulting and maintenance revenues for the fourth quarter of fiscal year 2000 were $18.1 million, compared to $23.2 million for the same quarter of the prior year (See Figure 1).

Figure 1.

Total revenues for fiscal year 2000 were $93.0 million, compared to $122.0 million for fiscal year 1999. The fiscal year 2000 loss, inclusive of all items, was $27.0 million, compared to $2.4 million loss for fiscal year 1999 (See Figure 2).

Figure 2.

Infinium's ASP business to-date totals $5.9 million in three-year contract value. In the fourth quarter of fiscal year 2000, Infinium billed ASP customers $1.3 million while recognizing $238,000 in monthly recurring revenue (MRR), compared to $21,000 in recognized MRR for the previous quarter.

"As a result of the balanced and growing demand for our full-service enterprise ASP offerings and our fully-integrated CRM to ERP and e-Business solutions, we exceeded expected operating results this quarter," said Bob Pemberton, CEO of Infinium. "In the fourth quarter of fiscal year 2000 we made substantial progress in completing our revenue acceleration and cost rollback plan. We decreased our expenses, reduced our sales cycles, and signed larger deals. We've gained momentum toward profitability, and we're now better positioned to grow our business, and shareholder value."

Market Impact

Infinium, like most of its competitors, has experienced the plight of tackling ambitious product development in a sluggish but rapidly changing market. Fiscal 2000 was indisputably challenging and put the company through a number of dilemmas and tough decisions that involved new focus and new product introductions, significant management team reshuffling, and a company-wide restructuring. To that end, during 2000, the company has refurbished much of its product suite, and refocused itself on an e-business strategy built upon its solid ERP foundation. Company founder Bob Pemberton came back from retirement to pick up the torch and has gathered an almost completely new team. The company has been reorganized to focus on three key initiatives: customer relationship management (CRM), e-business applications, and the ASP business. To deliver these, Infinium has taken a flexible approach involving acquisition, internal development, and partnerships.

While Infinium will continue to enhance its core enterprise business applications, the real focus has apparently shifted. It has been demonstrated through a number of announcements throughout 2000: a new customer relationship management (CRM) product (through the acquisition of Netherlands-based CRM vendor Dexton Information Systems in January 2000); a slew of Web-enabled business components (HRMS being one of the first in April 2000); and a strategy for new e-business and extended ERP solutions such as e-procurement, digital marketplaces, self-service, and analytics (for more information, see Infinium Putting its Cards on the Table, and Infinium and Elcom Walk Down ASP Aisle). Possibly differentiating from its competitors was the company's "bite-the-bullet" approach in tackling the nascent ASP opportunity. Namely, the company's ASP strategy is to provide a holistic, turnkey solution under the mantra "Let Infinium manage your IT infrastructure for you, while you focus on what you do best". To that end, Infinium opened a spacious ASP data center in Marlboro, MA, USA in mid 2000. Owning all elements of ASP business, and exhibiting readiness to accommodate customizations, may enable the company to alleviate customers' initial reticence to venture into the uncertain land of ASP.

We regard the company's recent e-business initiatives favorably; they are in tune with the market trends and customers' requirements. Infinium had no choice but to extend the traction in its mid-market ERP market niche, filling gaps and diversifying its product portfolio. The much broader scope and flexibility of its product offering as well as the size of its existing customer base should provide it with recurring revenue for some time to come.

However, the above-mentioned moves, bundled with ongoing market malaise and increased competition, have depressed Infinium's recent financial performance (See Figures 1 and 2). One possibly encouraging sign is a notable recent increase in license revenue, but heavy losses have not been curbed yet. The company has posted its fifth consecutive loss, which may give its shareholders serious concern . The company's cash and stockholders equity values have more than halved during the last 12 months. The task of curbing costs with a newly revitalized license growth and still only a moderate acceptance of its ASP value proposition remains daunting despite the company's determination to address it.

User Recommendations

Infinium's customers should certainly consider the new product offering, but should avoid selecting it without looking at what the other vendors have to offer. We encourage users to familiarize themselves with the company's ambitious new product offerings and their availability, at least to better leverage their negotiating position with other vendors involved in a particular selection exercise.

As for potential customers, Infinium should be included in a long list of an enterprise application selection for mid-market and low-end Tier 1 companies (with $100M-$2B in revenue) as well as for divisions of Fortune 1000 companies within the following industries: hospitality & gaming, transportation, healthcare, retail, process manufacturing, and financial services. Infinium should be included on any package selection short list within the above markets where financial, human resources/payroll, and process manufacturing are the main pillars of an enterprise application.

Users from industries not mentioned above may benefit from evaluating some of Infinium's stand-alone product components (e.g., CRM, HR, and BIAS - Infinium's business intelligence application suite) on an opportunity-by-opportunity basis and as leverage against other vendors in the selection exercise. Organizations seeking a Web-based solution and out-of-box functionality with some customizing effort may benefit from evaluating Infinium's ASP offering. Support, connectivity, ease of use, security, acceptance, and scalability are only a few regular considerations.

Current and potential users may want to inquire about the company's plans regarding Internet marketplaces in their respective industries: Which specific market places does (or will) Infinium connect with? What methodology does (or will) the company subscribe to? Due consideration should be given to the product availability and endorsement of "web standards." Should a different XML standard be adopted on an industry wide basis after installation, identify who will be responsible for accommodating the change and what measures have been engineered into the application to support evolving standards.

Future clients are also advised to request the company's written commitment to promised functionality, general availability date, price, length of implementation, and seamless future upgrades. Given the fact that some products have been only recently released, each component should be put through its paces using a well-documented set of requirements, scripted scenario demonstrations and rigorous reference checking. As for the newly added and/or anticipated functionality through product alliances, users are advised to ask for firm assurances on the availability and timeframes of future upgrades, and more detailed scope of combined product functionality.

For a deeper analysis of Infinium, see Infinium Software Inc.: Having All the Right Cards?