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SumTotal Systems Inc. (SUMT) |
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CEOCFO
Interview Index |
This is a printer friendly page! SumTotal
Systems’ recent merger has positioned it to lead its industry in helping companies
increase business performance, with the most R&D, service and support resources and
the financial viability to ensure long-term partnership with its customers BIO: Companies can combine modules of the SumTotal Enterprise Suite to create solutions that address the specific needs of their organizations and their industry sectors. TotalLMS, is SumTotal’s learning management module. This enterprise-wide, globally scalable application lets you manage learners, content, and resources, and strategically manage training, education, corporate information, communication, and employee knowledge - accelerating business results in the process. SumTotal’s TotalLCMS, a Web-based content management environment is designed for team-based authoring, enables centralized management and reuse of all learning content. Enhancing SumTotal’s content authoring offering is Toolbook, the industry’s leading solution for creating interactive simulations and content. TotalVCS delivers content in live, real-time sessions.. This virtual classroom system allows your customers, employees and partners to learn, communicate and collaborate - anywhere in the world. TotalDashboard is SumTotal’s unique analytics solution, allowing companies to track and report the impact of learning activities on business objectives. Customers can now accurately measure increases in proficiency and tailor learning activities to drive results. TotalDashboard provides users with interactive, role-based dashboards that also correlate learning activities with performance data from CRM, HR, ERP, or legacy systems. CEOCFOinterviews: Mr. Eckert, SumTotal Systems Inc., is a relatively newly merged entity; will you tell us more about that? Mr. Eckert: “The two companies that merged on 3/18/04, were two leaders in a very rapidly emerging market -- the enterprise software category of e-learning. The two companies were Docent Inc. and Click2learn Inc., both publicly traded on NASDAQ. The companies were direct competitors and, as two of the leaders in this emerging space, we decided to double our resources and scale this business up for a whole set of reasons, but primarily to create what we believe will rapidly become the de facto leader in this market. We compete primarily against other niche software companies, all of whom are relatively small -- and for the most part unprofitable. Given the major corporations that we serve, it became more critical that we evolve into a larger, more globally oriented company that was cash flow positive and a safe bet for Fortune 1000 companies to choose as their software partner going forward.” CEOCFOinterviews: What is it that you are providing? Who is using your products and why are they needed? Mr. Eckert: “Our
customer base comes mainly from within the Global 2000 marketplace. We serve approximately
40% of the Fortune 50 here in the U.S. and what we provide is a technology platform for
conducting all types of learning within the enterprise and throughout the extended
enterprise. Our primary applications are around such important business activities as
helping companies launch new products, ready their sales forces, which are typically very
geographically dispersed organizations. Today, one of the most popular applications is
around increasing the effectiveness of channel partners through distributor and dealer
training. What we provide is technology to deliver critical information and learning
activities via the Web to broad groups of participants. For example employees receive
customized information and learning curricula and are assessed with respect to their
particular knowledge and competency as they move forward. Companies by-and-large have
found this a very effective way to systematically up-grade the talent in their
organizations and is more easily tracked than would be the delivery of non-interactive
information such as emails or Power Points. With our technology, companies are able to
confirm that the people have interacted with specific material, record their results,
assess their level of skill, and recommend additional learning contingent upon their
performance and their specific job roles. CEOCFOinterviews: What are they getting from you and is there an ongoing service? Mr. Eckert: “We are an enterprise software company so we sell primarily, licensed software; whatever model fits the customers needs, and then we receive ongoing maintenance stream from these customers. Approximately 20% of that is license value. In most deals, we are also performing the implementation service work. Last quarter we announced thirteen new customers, whose average deal size is over $500,000. Typically, that number is anywhere from 40 and 50%, with maintenance and service comprising the balance.” CEOCFOinterviews: What is it that you are able to do that other companies are not, and will people know they are using SumTotal products? Mr. Eckert: “There are a number of reasons why we are different and better than the other companies in this industry, and many of those have to do with technical qualifications, scalability, language support, and core functionality or our products. One of the things that is really setting our company apart from the others in this industry at the moment, is our ability use our strategic business focus and other resources to expand upon our products and to build overall solutions. We also are unique in that we offer a comprehensive suite. Gartner has recently issued a report in March of 2004, that called out the need for their customers to be talking to vendors that offer a suite of applications including learning management, a learning content management system that allows them to create online content, a virtual classroom tool, which allows them to hold web conferencing type training events, and many other applications and to make sure those applications are more than just available but integrated on a day-to-day basis with a single sign on and off. This positioning is becoming a necessity. GlaxoSmithKline very candidly said that they view our e-learning technology as one of the top five business applications in their enterprise going forward. The need to be different from other companies in terms of our scalability, our liquid assets of 35 million dollars in the bank, strong customer base, strong customer satisfaction are all critical components of what sets us apart.” CEOCFOinterviews: What would you like to be able to do with your software? Mr. Eckert: “The current effort for us has been well publicized. We are in the midst of a very deep integration of both companies’ legacy product lines. Doing so allows us to deliver to our marketplace the best and most complete functionality as well as the best and most complete product architecture that fits today’s modern IT departments. That is the current focus. I think we have the right set of applications in our suite and now the focus is to make sure that each one is as powerful independently as possible and then make them all seamless and tightly integrated for our customers so that they can move throughout the application suite without any problems.” CEOCFOinterviews: Do most companies realize that they need an e-learning system, and is it a matter of choosing your solution or is there still missionary work to get people to know that they need the concept as well? Mr. Eckert: “I have been in this business for two-and-a-half years and the first year I was here there was quite a bit of pioneering or missionary selling work. That has changed entirely in the last year or so in the United States and Western Europe. I think in Japan there is still a lot of pioneering work with pilots predominating the initial relationships. In our country, in the bigger markets, we are typically replacing legacy vendors. Typically major corporations have had some experience, generally positive enough for them to know that this is a critical piece of the IT arsenal going forward. We are responding to what is a well-defined business need. Typically, the deal sizes are going up; the $500,000 number I mentioned earlier is probably up 20-30% from just a year ago and I think that bodes well that major companies are making major investments. Two years ago, there were probably a hundred competitors in our market, which is not unusual for an emerging software segment. Today, there are really only three or four major companies in this marketplace.” CEOCFOinterviews: You mentioned that GlaxoSmithKline was picking up more service from you; will that continue to be an area of focus for you? Mr. Eckert: “Absolutely, the enterprise software model is dependent upon doing a good job for our major customers and continuing to grow our footprint within these companies. That is a matter of expanding the deployment amongst the entire operation, not just internally, but most importantly for their distributors and dealers, and also continuing to add additional applications as the market develops. This is in demand for most of the major companies we work with. A little over 50% of our quarterly revenue is repeat business from within our installed base of 600 clients, and a little bit less than half our quarterly revenue is from new customers that are just starting out with us.” CEOCFOinterviews: Are there industries that are not utilizing e-learning? Mr. Eckert: “The financial services companies and high-tech companies are probably the most aggressive in this area. I see a move across all segments of the economy today; the government is very active both here and in Europe, the major retail companies, food companies and pharmaceutical companies. I don’t see any significant lagging in this area; I see broad based deployment. If you think about any large organization with a need to continually upgrade the talents and competency of their people and partners -- which is the case with every major company in the world -- this is clearly a product that is in the path of progress for these folks and one that has to be deployed.” CEOCFOinterviews: Are there other geographical areas where you would like to focus? Mr. Eckert: “We think one of the critical differentiators for SumTotal Systems vs. other competitors that are generally smaller and have fewer resources is our sustained global presence. Many of our competitors only operate in North America or only in Europe. We have been operating directly in Europe, Japan and Asia Pacific as well as all throughout the Americas for a number of years now. We think that is important. For example, we have several customers that have told me point-blank that if we weren’t in Japan for instance, they wouldn’t do business with us on a global basis at all. We think that is a strong differentiating factor for SumTotal. In terms of where our business volume is coming from, we are seeing tremendous growth in Europe at the moment; Japan is small but growing rapidly as well, so we try to place the appropriate amounts of investment and emphasis on those regions that are suitable for their size and growth rates.” CEOCFOinterviews: Will you tell us about the government, since that is a growing area for you as well? Mr. Eckert: “The government is a major consumer of information technology and we continue to renew investment in that area. We work with nearly every branch of the military and with man federal, state and local government organizations. Last quarter, for example, we announced a new relationship with the Coast Guard, via Lockheed Martin Corporation (NYSE: LMT), and we know that other defense agencies are interested in deploying e-learning throughout their various initiatives. The civilian agencies are also very interesting. This is a part of the business that we think can continue to support a great amount of growth for us. In Europe, we have seen quite a few government initiatives, particularly in the U.K., Northern Europe and Italy. Whether it is regional governments or their national governments, they have acknowledged the need for e-learning and have decided to deploy this as a way to manage their organizations more effectively going forward. We have a great number of active prospects in place in all those countries.” CEOCFOinterviews: Are people looking for you these days? Mr. Eckert: “That is certainly our objective; this has been a confused market up until our merger where there were $15-$39 million-dollar companies all either losing money or on the cusp of breaking even. The confusion tended to manifest itself in long sales cycles, in too many companies being evaluated and, in the end, price competition. We’ve set ourselves apart from competitors with two times the revenue of the nearest one, three times the customer base, two or three times the R&D and support staffs of other companies and we operate globally. We are now playing in almost, if not all, the major projects around the globe." CEOCFOinterviews: What do you see as your challenges and how are you ready? Mr. Eckert: “When you do a merger it is a measured business risk and I have personally been through five or six of these. I think we have done a good job of preparing this company to be put together. The management team has been in place since a week after we announced the merger in October. We have worked actively to make this a successful new company launch, which I think it has been. I believe we are prepared for the risk. The big challenge in front of us is to deliver on our product timeline and to deliver on financial results. As an emerging market, this business has been one that has not satisfied the needs of the investors over time. But I think this year is a critical year for us and the industry as a whole to show progress for investors because it is a marketplace with a lot of activity and one that we fully intend to capitalize on.” CEOCFOinterviews: As CEO what are your functions throughout the day? Mr. Eckert: “I hire
people; because we are a growing enterprise, we are always looking to recruit strong new
members to our team. I spend quite a bit of time with customers and the types of customers
today are quite different. I spend a lot of time with CFOs, controllers, treasurers
and senior operating executives. I spend quite a bit of time selling and I am actively
involved in the operations of this company. I want to make sure that we deliver on our
commitments to all of our constituencies, new products for our customers, great support
for our customers, and financial results for our investors.” Mr. Eckert: “We are
a thinly traded and thinly covered on the sell side, stock. Much of that has to do with
slow development in this marketplace, given the IT depression over the last few years.
That has changed quite dramatically. One of the things I would like to leave investors
with is that in the month of April, we responded to 20 RFPs (Request For Proposal) that
came in and I can tell you that in my three years here, there were entire quarters, if not
four or five months, where we had not seen twenty RFPs. These were RFPs from leading
Fortune 100 companies that were coming in the door. It is a real segment of the market;
there is no question about that. We have staked our claim that with this merger, we will
have achieved a scale where we can be profitable right off the bat. We will be cash
flow positive, we believe, in the current quarter. disclaimers |
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