Undermined by acquisition-related charges and a decline in manufacturing software sales, fourth-quarter financial results reported yesterday by SoftBrands Inc. revealed a $16.7 million net loss, on $19 million in total revenues.
SoftBrands' total revenue figure for the period ending September 30 did represent an 11% improvement from the fourth quarter of last year. Much of the revenue increase was due to SoftBrands' acquisition in August of Hotel Information Systems, a maker of software for the hospitality industry. The acquisition increased revenues from SoftBrands' hospitality software products by 65%.
For the quarter, manufacturing software represented 65% of SoftBrands' revenues, while hospitality represented 35%, the company said.
The $16.7 million loss included several charges, including $11.4 million in purchased-in-process R&D expenses related to the HIS acquisition as well as restructuring charges and stock compensation expenses.
The loss was significantly higher than the $3.3 million deficit reported in the fourth quarter of last year. In the most recent quarter, revenue from SoftBrands' manufacturing software products dropped 5.2% to $12.4 million. Manufacturing software products did generate $568,000 in operating income during the quarter, the company said. That figure, however, was down 54.2% from the fourth quarter of last fiscal year.
For the quarter, SoftBrands reported a 40% drop in software license revenue to $1.2 million. Revenue from maintenance and support grew by 5.7% to $8.1 million, while professional services fees grew by 4.2% to $2.8 million.
During the quarter, SoftBrands was also hampered by heavy expenses. The company's general and administrative expense line item, at $4.3 million, represented 22% of revenue.
"These costs," noted CFO Gregg Waldon on a conference call with financial analysts to discuss the results, "are too high." He said SoftBrands is planning more centralization of accounting procedures and new global general ledger and forecasting systems in 2007.
For the fiscal year, SoftBrands reported a $21.1 million loss on $69.3 million in total revenues. The revenue figure was 2% lower than 2005 revenues, and the loss for the year compared to $7.2 million in earnings for fiscal 2005.
SoftBrands' President and CEO Randy Tofteland told analysts that the company's manufacturing business "did not post fourth-quarter results that we believe are reflective of the long-term opportunity in the business."
He called the period "a transition quarter." The quarter saw not only the acquisition and integration of HIS, it also saw several changes to the company's manufacturing software business, Tofteland said. The company is shifting its emphasis, he said, from its legacy Fourth Shift software for mid-sized manufacturers to Fourth Shift Edition for SAP Business One, a manufacturing-focused version of its software which SoftBrands sells under a partnership with SAP.
While SoftBrands will continue to support current users of the legacy Fourth Shift product, Tofteland said, the company will devote most of its research and development and sales and marketing resources to selling Fourth Shift Edition for SAP Business One.
In addition, SoftBrands has decided to pursue a transition from direct software sales to indirect sales via channel partners. The company entered fiscal 2005 with 50 channel partners, including five that are based in China, Tofteland said.
SoftBrands' decision to focus its manufacturing business on its partnership with SAP, Tofteland said, is beginning to pay off. During the quarter, he said, the company signed a multi-year deal with Nestle which will see the multinational food company deploy Fourth Shift Edition for SAP Business One at between 50 and 100 of its smaller plants around the world.
Tofteland predicted that SoftBrands' new manufacturing strategy and its increased presence in the hospitality industry will help deliver improved financial results in fiscal 2007.
"We are optimistic that SoftBrands will show a material improvement in overall financial performance, beginning in the first quarter," Tofteland said. "We are fully committed to running a profitable, positive cash flow business."