Chordiant Software, Inc. (CHRD)
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Chordiant Software is delivering rapid
payback and driving top-line improvement for their clients
Bio of CEO,
In addition to his Chordiant experience, Mr. Kelly brings more than ten years of senior management experience with Oracle where he held a variety of roles directing the vertical markets organization, including financial services, telecommunications and retail; European alliances organization; and government sales. Mr. Kelly also worked with British Petroleum and ICL after graduating with an honors degree in business administration and accounting from the University of Bath, England.
Headquartered in Cupertino, California, Chordiant
maintains offices in Boston, Chicago, Manchester NH, New York City, London, Paris,
Amsterdam, Frankfurt, Munich and Madrid. Visit us on the Web at www.chordiant.com.
CEOCFOinterviews: Mr. Kelly, where was Chordiant Software when you became its CEO and what changes have occurred?
Mr. Kelly: "The environment was very different back in 2001 when I became CEO. During that time, we actually were recording triple-digit growth. We are one of the fastest growing companies in the software industry. Back in 2001, we grew at 126 percent, so we received plenty of accolades along the lines of the fastest growing fifty companies. In probably the first five years we grew over two-and-a-half thousand percent. The environment has changed dramatically since then and I have had the pleasure of being CEO in tougher times. Although we had a flat year in 2002, we have done well, relative to many software companies because we have focused on the core business and our customers."
CEOCFOinterviews: How do you handle a company in this tough environment?
Mr. Kelly: "Probably the most important is having a very clear market or category leadership. We are very lucky to have a three-year product lead over any of the competitive offerings. We have a contemporary and modern architecture and solution, which is incredibly relevant to financial services for any large consumer company. Clear distinction, clear value and clear market leadership are important factors for Chordiant.
The second element is a crystal-clear focus. When we
look at the geography that we serve, it is tempting to spread ourselves all over the
world. What we focused on is the core market in North America and the largest economies in
northern Europe. We will organize ourselves accordingly to support the customers in those
In summary, there are three points to maintaining a company in this environment. Point number one is about clear market leadership, point number two is about clear focus and point number three is very much about aligning the very best people in the industry in our company toward delivering great customer value and keeping focused on the customer."
CEOCFOinterviews: How do your products serve your customers?
Mr. Kelly: "What we
allow a retail bank to do is something called a transactional customer management system.
If you are in a contact center, Chordiant allows you to run the contact system environment
from the desktop for the agent, right through to the back-office systems. If you are in a
branch network of a retail bank, you can walk in and walk in front of a person that works
as a management advisor or a teller and you will reach our branch network. On the desktop
with Chordiant, we provide a complete single view of the customer, right through to the
transaction systems. What we have allowed the retail banks and big insurance companies to
do, from the desktop through to the back-end systems, is complete process
CEOCFOinterviews: Would a company typically start with one phase and then build out the system?
Mr. Kelly: "I will give you an example of the way that it works; the largest direct insurer over in Europe is a company called Direct Line and they started their life with Chordiant, probably about three years ago, on a single product offering, which was a lone offering. They offered that through the Internet channel and deployed Chordiant in a matter of twelve weeks, live through the Internet channel. Subsequent to that, they have taken that into other product offerings like savings and auto insurance through self-service. Now they have gone through and deployed Chordiant into the contact center. I mentioned that we had a three-year market leadership; one of the factors behind that is that all of our software code is reusable, and it is the most contemporary modern architecture. What that allows companies to do, is once they have deployed a loan or product offering over the Internet, they can take the same software code and deploy most of that into the contact center. You get a dramatic savings for every channel you deploy. Some of our customers have tested five, and get up to 70 percent reuse of the capability of the software, and what that means is it is far cheaper and far quicker as well as lower risk to deploy at three and four distribution channels."
CEOCFOinterviews: What is your revenue model?
Mr. Kelly: "Our revenue model is traditional. Companies normally invest in Chordiants Enterprise Platform. This acts as a foundation and allows you to connect all the back-end systems. For example, in a typical retail bank there is a savings account on one database and the checking accounts on another database and the loans on a different database. The Chordiant foundation allows you to sit right in the middle of that and connect all those databases together and provide a virtual customer information file in real time. The model for our software licensing is based on the value the customer derives from our software and how widely they deploy it."
CEOCFOinterviews: How much involvement do you have with the customers after it is up and running?
Mr. Kelly: "To get the program up and running could take three to nine months. Many of the customers deploy these systems themselves in cooperation with our own internal IT groups. Many of them use large integrators like IBM. We have a model that supports both the larger integrators like IBM and a model that supports the internal IT transition to make both journeys successful. Chordiant would have an ongoing relationship typically in the program office. It is likely that these programs would be live for maybe ten to fifteen years. We have an ongoing relationship with all of our customers, both at an executive and a program level."
CEOCFOinterviews: What is new in Chordiant 5?
"Chordiant 5 contains some significant functionality actually, which gives us
significant technology differentiation. There are some of the big companies like SAP, who
are very successful in the manufacturing business, where Chordiant cant compete.
Those companies have given us a lot of credit for our architecture and our decisions
around J2EE and XML, which is the industry standard component architecture, supported by
all the biggest hardware and industry standards like IBM and ORACLE. It really does allow
people to protect their investment significantly and allows all these different systems to
inter-operate. We were the first company out there to adopt this architecture around J2EE
and the industry standard. We brought the product to market in 2002; code name was
Chordiant 5. We are the first company with very significant production customers in North
America, and financial services as well as in Europe.
CEOCFOinterviews: Will you tell us about the financial position of the company?
Mr. Kelly: "There
was obviously spectacular growth in the first four years and then flat revenue from
2002-2003, which I think is respectable, given many software companies probably shrunk by
30-50 percent. For the last three quarters, we have been close to cash break-even. In the
last year, we had a strong time in terms of managing eighteen new engagements with new and
existing customers. In terms of the balance sheet, I think it is important for our
customers to know that we have been around for many years. We have about 34 million
dollars of cash in the bank, and essentially a cash flow break-even; that bodes well for
the long-term. We have no long-term debt on the balance sheet and the balance sheet is
solid with assets of about 88 million dollars."
Mr. Kelly: "Yes, we came out with a strategy around catalyst consolidation and during our history we have done about six acquisitions. In the current environment, we are very actively looking. But, the way the stock market is, we dont believe our stock price responsibly supports an acquisition strategy; however, we are always looking at an increase in shareholder value, and strategically, for the long-term, what that means. When we anticipate the stock price recovering and the shareholder value improving, we would then potentially look for an acquisition to drive growth as well."
CEOCFOinterviews: In closing, what would you like to say to shareholders and potential investors?
Mr. Kelly: "A
couple of elements allow us to predict a path of great success for Chordiant. The first
challenge that we are looking at is driving toward profitability and cash generation.
Chordiant, over the last five quarters, has effectively taken 10 million dollars of
expense out of the business without impairing the frontline or research and development
capabilities. We took 10 million dollars per quarter out of the business; validating and
underwriting our commitment to be profitable and cash generating. I think that is the
first thing investors should look for. The second thing investors should look for is the
growth potential of the company. We have unequivocal market leadership, and category
leadership, particularly around the largest financial services companies in the world.
Interestingly enough, financial services now have gone from a relatively small percentage
of global IT spending when the dot.com bubble was happening. In 2003, the anticipation is
financial services will dominate IT expenditure at about 25% of total global IT
expenditure. It will be by far the largest vertical market and we are right at the heart
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