Revenue has grown consistently and substantially, with revenues rising from $20 million in 1994 to $229 million in 1999. (See Figure 1). Annual growth has been less than 50% only in the last two years, with the low point at 22% in 1998, and 1999 at the 45% level. The AR System was initially sold as a tool to companies that wanted to build their own applications. One such company is Wal-Mart, where the AR System is the backbone of many of the chain's internal operations. Remedy then began using the AR System to build pre-packaged solutions for internal help desk, change management, and asset management applications.
In the mid-nineties Remedy was a hot stock. At that time and through 1998, its sales were almost exclusively based on the AR System, which customers used to build their own applications. However, by 1998 Wall Street's favors had been placed elsewhere.
In the intervening years the company has grown to be a significant supplier of products for employee-intensive business practices. Through 1999 the product line evolved to specialize in support functions for Information Technology operations, organized into three groups: Service Management, Customer Relationship, and Employee Workplace Automation. These are the foci of individual strategic marketing units.
All of Remedy's homegrown applications were built on the AR System, and acquired ones have been retooled to work on that base. The Service Management group concentrated on the Remedy Help Desk, a client server application used for the tracking and resolution of IT support requests. Remedy is the leading vendor and owns almost 25% of the internal help desk market. Other products in this line include Remedy Change Management, which is tied for second place in its market, Remedy Asset Management, and Remedy Service Level Agreements.
The Customer Relationship Management unit is built upon the acquisition of BayStone Software in October 1998 and the Sales Continuum sales force management product from Pipestream Technologies in 1999. Products include Remedy Quality Management, Remedy Customer Support, and Remedy Leads Management.
Spending, both on Research and Development and on Sales and Marketing, has been growing, as shown in Figure 2. On the average over the past few years, sales expenses have been about twice research expenses.
The company has been profitable since 1994. (See Figure 3). The company has licensed its software to more than 4,800 customers at more than 8,800 sites. Of these, approximately 3700 have been with Remedy since at least 1998 and were customers of the AR System. In 1Q1999 about 15% of license revenues were from packaged applications, and in 1Q2000 that number had increased to about 35%, with 10% derived from the two newest applications eCRM and eProcurement. In 1999 46% of revenues came from partners. Most revenues outside the United States come via partner relationships. Over 90% of customers renew their maintenance agreements on a yearly basis.
Figure 3
Remedy has some noteworthy financial credentials. It has a healthy 13% profit margin (19% operating margin) and boasts an excellent average collection period of 72 days. However, some recent trends bear watching. The ratio of net income to net sales decreased slightly from 0.23 for 1997 to 0.13 for 1998, and improved only slightly for 1999. Also, the growth in R&D investment is low at 21%. A third metric, the mix of license and service revenues, is discussed below.
Remedy looked into the future and saw two things. First, the market potential of business-to-business e-commerce. Second, it recognized that the magic word is "Enterprise." In April 1999 Remedy lost the services of reseller Barnhill Associates to competitor Peregrine, Inc. Barnhill switched not because of the quality of Remedy's products, which it found that customers liked, but because it heard its customers looking for enterprise level solutions, not only in help desks but also in other areas such as asset and facilities management.
Remedy got the message and responded quickly with a pair of strategic acquisitions. In July 1999, the Company acquired Pipestream Technologies, Inc. (Pipestream), a privately held provider of state of the art modular, customer relationship management software, including sales force automation applications. Two months later Remedy acquired Fortress Technologies, Inc. (Fortress), a privately held enterprise asset management process consulting firm. This provides Remedy both with expertise for developing asset management projects and a consulting business.
By the end of 1999 the trade press was full of articles about how the next important area was going to be customer relations management for web-based businesses. In February of 2000 Remedy acquired Axtive Software Corporation, a company whose technology and products help its customers personalize the experiences of their website visitors.
Remedy is targeting sales at companies with between $100 million and $1 billion in sales; on average its customers have about 1000 users of its products. Its corporate mission is to accelerate its customers' move into e-business while enabling them to differentiate. This is a new direction, designed to capitalize on the strength of the new economy.
The mission has two components, represented by the two product areas that rose from a recent reorganization. The e-Customer Relationship Management group combines Remedy's traditional CRM products with its new Internet products. With the acquisition of Axtive we can expect to see strong personalization features pervade these products.
An even more important component of customer service will be integration between various modes of customer service: Web, phone, and e-mail. The eBusiness Infrastructure Solutions group provides products to bring technology to employee-facing applications and to infrastructure support tasks. Early additions to this line will be tracking of capital assets and of leased items, and support for auctions to eliminate unused inventory.
Integration between these two divisions is likely to come (probability 80%) through supplier side e-procurement. While Remedy is arranging to partner with a number of best-of-breed marketplaces (Commerce One being the first), so that it can leave the supplier side of e-procurement alone, we expect that it will ultimately move into this space. If so, its goal will not be to compete with its marketplace partners but to leverage its technology to offer a stronger support package for prospective market makers.
We also think it likely (probability 60%) that Remedy will develop (by acquisition) B2C technology. Providing a solution for its customers who want to enter into retail commerce on the net would be a logical way to repackage its CRM tools.
Remedy is about to hop on the ASP bandwagon. At present it offers a subscription service for smaller customers, but selling to application service providers will increase the range of this service, one that is attractive for both smaller customers and ones that need to make a quick entry into one of Remedy's solutions, without the pain of becoming a large-scale Internet service provider, something that is far from Remedy's core competence.
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