FutureLink, one of the first application service providers, is facing tough times as it navigates the choppy waters of the ASP market, announcing that its current cash position and liquidity would not carry it through year-end.
During an earnings call last week, FutureLink CEO Howard Taylor, who took the helm of the company in December, blamed the slow adoption of the ASP business model for his company's woes.
"During 2000, FutureLink made investments and business decisions in order to establish a significant presence in the application server provider, or ASP, market that would allow us to capitalize on the projected rapid growth in this market," Taylor says. "However, this expected growth in the ASP market did not materialize as companies continued to rely on legacy systems and have not embraced the ASP model."
While he expressed faith in the ASP market long term, Taylor says FutureLink will focus on its IT professional services offerings in the U.S., while targeting the ASP market overseas.
FutureLink announced a corporate realignment in January, laying off 8% of its 660-person workforce and placing renewed emphasis on professional services, including IT consulting, server-based computing, systems integration and application delivery. Further cost-cutting measures, such as eliminating unprofitable lines of business and selling one or more business divisions, can be expected as FutureLink strives to improve its cash position, Taylor says.
The company, which reported a net loss of $205 million or $2.92 per share for the fourth quarter of 2000, also is in danger of being delisted from the NASDAQ because its stock price has hovered below $1 for more than 30 consecutive trading days. FutureLink has until June 25 to raise its share price to at least $1 for a 30-day period.
FutureLink reported revenue of $34.6 million for the quarter ended Dec. 31, 2000, compared with $8.6 million for the fourth quarter of 1999 and $35.1 million for the third quarter of 2000. Loss for the fourth quarter 1999 was $13.8 million, or 38 cents per share. In the third quarter 2000, net loss was $29.7, or 43 cents per share.
ASP services accounted for $1.8 million of total revenue in the fourth quarter 2000, and $5.4 million for the year.
For the year ended Dec. 31, 2000, FutureLink reported a loss of $286.5 million, or $4.48 per share, on revenue of $125.9 million, compared to a loss of $35.7 million, or $2.50 per share, on revenue of $13.6 million for 1999.
While Taylor says he still expects the company to reach EBIDTA break-even by year-end, all collections on FutureLink's receivables are being deposited directly with lenders. FutureLink's aggregate cash balances are below $10 million, the amount required by the terms of the credit facilities FutureLink entered into in November. FutureLink must obtain waivers or raise the necessary capital by April 30, the company says.
This story, "FutureLink strapped for cash" was originally published by Network World.