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Chordiant Software and Prime Response Conference Call Transcript
OPERATOR: Welcome to Chordiant Software's special teleconference. Today's call
is being recorded. Your speakers today are Mr. Peter Boni and Sam Spadafora. And
now for opening remarks and introductions, I'd like to turn the call over to the
Chairman and Chief Executive Officer for Chordiant Software, Mr. Sam Spadafora.
Please go ahead, sir.
MR. SPADAFORA: Good afternoon. Thank you for joining us on a relatively short
notice for a special teleconference on Chordiant Software's planned acquisition
of Prime Response. With me is Peter Boni, President and CEO of Prime Response.
We announced our definitive agreement in a joint news release issued
approximately 45 minutes ago. On today's call we'll summarize the highlights of
the deal for you and then open the floor for questions.
In the course of this teleconference, we will make forward looking statements
that are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those referred in the forward looking
statements. These forward looking statements are generally identified by words
and phrases, such as, "will," "would," "expect," "anticipate," "plan,"
"believe," "envision," "look forward to," and other similar words and
expressions.
The risks included in these forward looking statements are detailed in the
reports filed from time to time by Chordiant Software and Prime Response with
the Securities and Exchange Commission. Please refer specifically to each
company's quarterly report on Form 10-Q for the quarter ending September 30,
2000, Chordiant's initial public offering prospectus dated December 15, 2000 and
Prime Response's initial public offering prospectus dated March 3, 2000. For
detailed risks related to the proposed transaction, please refer to the joint
news release issued today, the Form S-4 to be filed by Chordiant with the SEC,
and a joint proxy statement/prospectus being mailed by both companies to the
respective stockholders when it becomes available.
As you know, Chordiant is one of the leading developers in unified CRM solutions
and Prime Response is a leader in the business to consumer relationship
marketing. The combined total revenues of the two companies for the nine months
ending September thirtieth were $45.5 million, and we anticipate that the merger
will be accretive at the top line. At September thirtieth, the two companies
combined cash balance totaled $98.5 million. On that date, Chordiant's workforce
consisted of approximately 235 employees while Prime Response's number at
approximately 225. As a result of this transaction, we expect the combined
company called Chordiant Software to have a customer base of more than 100
global Fortune 1000 companies.
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These would include blue chip enterprises, such as, Allianz, AXA, AT&T
Broadband, Barclays Mercantile, British Telecom, CIBC, CVS, Deutsche Bank,
DLJdirect, E*TRADE, First USA Bank, General Motors OnStar, Lloyds TSB, MetLife,
Royal Bank of Scotland, and Wachovia. The combined customer base reflects
compelling synergies in specific vertical markets, financial services, banking,
communications, travel, and consumer across major geographic regions. Adding to
this market reach, several strategic partnerships with global enterprise and e-
business integrators, as well as, numerous relationships with leading hardware
and software developers will make Chordiant one of the most significant CRM
software providers in the industry today.
We look forward to an expansion of our global operations, as well, resulting in
offices throughout the U.S., Europe, and Asia Pacific region. From a strategic
perspective, we envision the combined company offering the industry's leading
unified CRM infrastructure software in relationship marketing applications for
extreme customer requirements in the B2C market. Leveraging the intellectual
capital and broad network of the relationships of both Chordiant and Prime
Response we plan to enable the largest B2C companies enterprises the size of
AT&T Broadband, GM, Lloyds, and MetLife, to manage the complete customer
relationship lifecycle from campaign development and delivery to personalized
offerings, decision-making, service and customer retention.
The META group has defined the "CRM ecosystem" as an integration of analytical
CRM, operational CRM, and collaborative CRM for real-time customer acquisition
offering optimization retention and multichannel servicing. We expect the
synergy of these two companies to provide a catalyst for the integration and an
industry leadership role for Chordiant. We believe that the combined solution
will unify e-service, e-marketing, e-business functionally for real-time
applications across multiple vertical markets enabling customers to build and
strengthen their own customer relationships by targeting their products and
services. Successfully delivering this value proposition will position Chordiant
as the premier provider of customer acquisition, retention, relationship
management, and CRM infrastructure software for intelligent communications, and
it will fulfill our mission to provide the most complete unified CRM solution
that services millions of individual customers.
Now that will conclude our prepared remarks, and now we will take your
questions. Operator, could you open it up for questions, please.
OPERATOR: I certainly can. The question and answer session will be conducted
electronically if you would like to ask a question, simply press the star key
followed by the digit one on your telephone keypad. I'll take your questions in
the order that you signal on, and take as many as time permits. Once again, if
you do have a question, please press star-one and we'll pause for just a moment.
And we will take our first question from David Gremmels from Thomas Weisel
Partners
DAVID: Yes, thank you and congratulations. Question for Sam, I guess, I was
wondering what the main driver was for the deal, was this, were Chordiant
customers asking for campaign management was it something that you thought was
important to keep together, was it opportunistic, just wondering if you could
walk us through your thinking there.
MR. SPADAFORA: Well, yes, let's start, let's step back, and David you and I have
met several times over the past six or eight months. You know we had set out a
goal for ourselves, is that we
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really wanted to be at a $100 million run rate as we moved into 2001, and that
was one of the goals we had set for ourselves. The Board had laid out some
direction, if we were going to not be able to achieve that totally organically
then let's look at it from an acquisition standpoint. And some of the goals we
have laid out, and what we said is the post possible acquisitions that we would
look for would be close to the family tree. Meaning products that would enhance
our infrastructure offering. The potential partnership obviously had to have the
revenue to help us achieve this $100 million goal, it had to have cash in the
bank, as we had cash in the bank, same philosophy of moving towards
profitability. So, as you know we announced about two quarters ago, the
acquisition of WhiteSpider, that brought us the knowledge management package.
Very little revenue was a pure engineering organization. In the case of Prime
Response, we actually began these discussions, Peter and I met probably in the
June/July timeframe, because of the teaming we were doing with Andersen, and for
Lloyds TSB and we're both have won those, that transaction, and so our products
are being integrated by that customer as we speak. And as it turned out, you
know Andersen was an investor in Prime Response, and our relationship with
Andersen was continuing to grow. And the product met, the Company met, you know,
all the requirements we had set forth, from a financial standpoint and then from
a field standpoint, the product seem to marry up very, very well, and then from
a geographic standpoint, Prime Response had more customers then we did, and
you know, we have been criticized slightly for not having more closes on a
quarterly basis, and Prime Response brought us a great customer base.
Geographically, they had spread their wings further than we have to this date,
so yeah, this has, this conversation have been going on for awhile, and it was a
direction that we received from our Board that met all of those targets. And
Peter, you may want to add here.
MR. BONI: From the Prime Response side, Sam, when you operate as partners,
oftentimes you see more synergy as time goes down. Here we have common
customers, a common market, common partner focus, for a maximization of our
revenue opportunity. We saw the opportunity to accelerate this convergence going
on in CRM infrastructure, and then customer lifecycle applications, all into one
unified solution. You saw a complementary product offering with similar
customers and no overlap. We have proven products and technology that are
already working together at joint customers. Sam, mentioned Lloyds TSB, Royal
Bank of Scotland and others. We have proven products and technologies that are
working together with a tremendous opportunity to accelerate both short-term
revenue gain as well as the long-term customer and the long-term market
penetration for enterprise opportunities. So when a company can provide this
kind of scale of resources in all of its areas: sales, engineering, services and
be a premier player in the CRM enterprise market for infrastructure and
application, we think this acquisition works, not only for our customers and our
employees, but for the investment community as well.
DAVID: Great. And, you mentioned Prime Response's relationship with Andersen
Consulting, Accenture, I guess, I was wondering if Peter can talk about where
that relation stands in terms of joint customers, were you working together, you
mentioned Royal Bank of Scotland that deal with Andersen, can you talk about
trend consultants, or any other metric that would just reflect Andersen's
commitment to company and then for Sam, wondering if you talked to Andersen
about the deal and what was their reaction, and what's your outlook for
expanding the relationship with Andersen for the merged company.
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MR. BONI: Hey Sam, let me take the first piece of this regarding AC. I don't
know whether to say Andersen or Accenture now so I'm bridging by saying AC. AC
acquired a five percent stake in Prime Response in December of 1999. Inclusive
in this program was an opportunity to earn another five percent by warrants
based on how much of our product line they sell and what its worth to all of us.
Andersen has 5,500 CRM specialists built into their 65,000 person organization.
And that organization is organized vertically in these varying vertical markets,
and then CRM specialists drive CRM applications down those varying vertical
organizations. We've spent a good deal of time training and working together
with the Andersen operation, and now collaboratively have closed companies like
Wachovia, Texas Instruments, Swede Telecom, CIBC, Touring Insurance, E*TRADE, a
lot of other names, some I'm forgetting, but we've had a very good run in the
first year of our relationship with Andersen. Remember, that Andersen back when
Siebel was just a little bitty company acquired a stake in them, and what's gone
on historically for Siebel was very positive. Well we have great opportunity
then to see some similar leverage of opportunity inside of our organization as a
result of the Andersen relationship. Sam, I'll pass it to you now.
MR. SPADAFORA: Okay, thank you Peter. Yeah we have not had, for obvious reasons,
have not had discussions with Andersen around this transaction, but we plan on
meeting with them shortly. It makes life easier for a partner like Andersen,
when the infrastructure and the various applications surrounding that
infrastructure are pretty much plug and play. And so we believe that Andersen
will be extremely pleased with this relationship. You know, on two fronts,
there's one the integration will be completed for them and number two, the
relationship with our company and Andersen is extremely strong and a partnership
is extremely strong as it is short of an investment as it is with Prime
Response.
DAVID: Great, if I could just ask one final question, in the press release you
mentioned some cost cutting initiatives planned for Prime, in our Chordiant
model we show break-even for 2002, just wondering as a larger combined
organization could we expect that profitability date to move forward a little
bit.
MR. SPADAFORA: Yeah, as we go further down the road, we'll give a little more
guidance on our call coming up here the first week in February and as the
transaction closes we will give a little more guidance on where we're at, but
the overall goal, as I had mentioned earlier that's set by the Board in any
acquisition we did, you know, from a revenue number had to be there to help get
us to this number. But also had to look very attractive from a cash and from a
bottom line standpoint. So we'll give a little more guidance here over the next
month or two when we get closer to closure of this transaction.
DAVID: Thanks, and congratulations.
MR. SPADAFORA: Thank you. Any other questions.
OPERATOR: Yes, our next question will come from Donovan Gow from SG Cowen.
DONOVAN: Hi Peter, just a question on the acquisition price. At approximately
$33 million, only slightly above cash level, can you comment on the competitive
situation what Prime
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Response itself was seeing, and in light of that acquisition price, it looks
like things must have been more dire than we had originally anticipated, could
you comment on that a bit?
MR. BONI: This is a two-plus-two-equals-seven play Donovan as opposed to
something that sold for absolute value. This is a combination that in its
entirety has great, greater opportunity to drive the top line, leverage the
expense line, and make money faster and thereby gain great, greater shareholder
value for both companies. So our Board took a look at the notion of selling for
absolute value versus relative value and really determined that the best
opportunity we would have for shareholder value going forward was to team up
with a partner that would enable us to enhance all of that.
DONOVAN: Okay. And then can you comment on, I think you mentioned there was no
customer overlap and then also any kind of vertical strength and if you could
comment more specifically on that, maybe both of you.
MR. BONI: I think I commented that there was no product overlap, there is
certainly customer synergy and some commonality of customers, commonality of
channels, there's a great deal of commonality, but we don't have product
overlap.
DONOVAN: Okay. So what percent of the customer base would overlap at this point.
MR. BONI: I don't have a percentage for you.
MR. SPADAFORA: If I would look at it, you know, our customer base is in the low
twenties and Prime is approaching the seventy/eighty count number. So,
MR. BONI: We are over eighty.
MR. SPADAFORA: Within the account base we probably have about three or four
common customers that have been announced, and there's about four or five that
are in the process. So with them having such a larger base than our company
does, the overlap right now is not huge. So, one of the big one-plus-one-equals-
five and one of the conversations we had since our stock price isn't jumping off
the boards either at this point. To really sell Chordiant as
one-plus-one-equals-five with Prime Response is the huge ability to go into this
customer base now, and sell the Chordiant product. You may not be real familiar
with our company, but our ASP for a software alone, is about one-point-three to
one-point-five on an ongoing basis. So our price points are very high, in fact,
our Lloyds TSB transaction was 24 million and I believe Prime Response's was
about 700,000 and so the ability to go in and capitalize the installed base of
Prime for Chordiant is huge. It's just absolutely huge.
DONOVAN: Okay, and specifically do you think you will be more competitive with
any certain competitive vendors?
MR. SPADAFORA: Sure, I believe that we will be much more competitive in the
marketplace. Being an infrastructure company, our customer today was looking for
knowledge management products, we have that now with WhiteSpider, our
WhiteSpider acquisition, they are also looking for relationship marketing,
marketing all automation packages and gluing them together and having your
integration partners gluing them together. Now we provide that solution, so
we're now moving up more the application space than we have in the past. So, it
makes us much more
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competitive in the applications base, and I believe companies will take a much
closer look when it comes down to time of implementation.
DONOVAN: Okay, thank you.
OPERATOR: And our next question will come from Karen Haus from Dain Rauscher
Wessels.
MR. SPADAFORA: Hi Karen, how are you?
KAREN: Doing well, congratulations on a wonderful marriage.
MR. SPADAFORA: Thank you.
KAREN: Just a quick question for you. Have you guys figured out what the
combined organization size will look like, and maybe, you touched on this a
little bit in your press release. But what the management structure will look
like as well?
MR. SPADAFORA: We are just in the process, we know where we want to get to. So
we are in the process of looking at and taking some actions over the next
several weeks. With that, I going to turn it over to Peter, because, I believe,
he has begun to take some actions as we speak.
KAREN: Great, thanks.
MR. SPADAFORA: Peter, Peter?
MR. BONI: Yeah, I'm with you, Sam. I'm trying to determine what kind of actions
that we have taken that can impact the structure of the management on a going
forward basis. I mean we have taken streamlining actions and are in the process
of doing that to bring our expense base down considerably both by way of
personnel as well as by way of some discretionary expenses in facilities.
MR. SPADAFORA: And so as we go forward we will continue to roll out more and
more of that in the near future.
KAREN: Great, thanks.
MR. BONI: As far as the appearance of the management whether they're tan, and
fit and handsome (laughter).
KAREN: Isn't that the truth.
MR. BONI: Anything else, Karen?
KAREN: Nope. That's it. Congratulations again.
MR. BONI: Thank you. Any other questions?
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OPERATOR: Yes, our next question will come from Gene Weber from Weber Capital
Management.
MR. SPADAFORA: Hey Gene, how are you?
GENE: Fine, Sam. How are you doing?
MR. SPADAFORA: Pretty good.
GENE: Congrats here. I've got a couple of questions. Let me ask one mechanical
one first. Is there any collar associated with the transaction?
MR. SPADAFORA: No, there's not.
GENE: Okay. And the target close date is?
MR. SPADAFORA: We'd like to complete it this quarter.
GENE: Now to the more substantive stuff. Are there any customers that either you
or Peter and Prime Response are talking to at this point in time that are
common, that have a greater chance of closure, that is deals that are in the
pipeline that now have a greater chance of closure?
MR. SPADAFORA: Yes. Actually we do. I don't know if I can name them because they
are prospects at this point in time, but there are some. There are some today
that I know are on Prime's prospect list that are current customers of ours and
there are on our prospect list, that is customers of Prime and I would say that
these prospects that I would be aware of are within the next 30 to 60 day close
cycle. And I think that the acquisition will probably help both of those deals
move along. Well, both sides of the house move along cause there's multiple
deals in both sides of the house. It was just coincidence, when we began to look
down at the current customers and who was in where, it became apparent that
there are customers today out there of either Prime or ours that we're both
working on it, and on a short close cycle.
GENE: Great. And then, the other question is, I'm familiar with Chordiant's
customer base, of course, but not as familiar with Prime's customer base. Are
they the same type of companies that you have or there maybe some dotcoms or
what I would call riskier type customers sprinkled in there.
MR. SPADAFORA: Peter?
MR. BONI: Actually there is great synergy in the market focus and the customer
penetration. The Prime Response market penetration strategy had two pieces to
it. The first one, was to target large consumer product and services companies,
and then focus on four vertical markets. Financial services, communications and
media, retail e-commerce and technology, and then transportation travel and
leisure. All of these are very large global household names. The second piece of
the strategy was to supplement the direct selling with alliances, partnerships
and channels.
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Our selling organization is organized around the verticals that I mentioned. And
that for us has been a great source of competitive advantage when you take a
look at the customer intimacy that comes from that. We also sell through third
party resellers, big, big companies like Accenture, some of the more
regionalized systems integrators, marketing database service bureaus, or
application service providers, we partner with a number of vendors in the field,
hardware, software vendors, Sun, HP, SAS, Microstrategy, Oracle, Chordiant, and
then ally with some of the industry thought leaders, the advertising agencies,
the marketing consultants, and the like. So there's a great deal of synergy and
the type of customer, consumer, big business to consumer kinds of companies that
are principally consumer services companies, as well as channels and partners
that we mutually ally with.
GENE: That to me would also sound like that there are opportunities for
incremental revenue from those customers as well.
MR. BONI: Say the magic word and see the rubber ducky.
GENE: Okay, well, Sam, congrats, I know you've worked hard along these lines so
congrats on getting it done.
MR. SPADAFORA: Okay Gene, thanks. Any more questions?
OPERATOR: Yes, we have one name remaining in the queue at this time. However, I
would like to remind our listeners to please press "star-one" if you do have a
question. And now from Robertson Stephens, we have a question from Andrew
Savitz.
ANDREW: Hi, how are you?
MR. SPADAFORA: Andy, how are you?
ANDREW: I know Lloyds has been brought up a few times, but I was just wondering
if you could comment on the success of the integrating the two products over
there and if that is something that's leverageable to the other clients.
MR. SPADAFORA: Well, yeah, absolutely. You generally negotiate the rights back
to the work and energy that has been put behind it the products, and so then
Andersen being a good part of both of us has done this successfully, so yes
there is absolute synergy and leverage. Now, as a combined company, we will make
sure that all of the product offerings are seamlessly integrated because that's
going to be one of our leverage points in the marketplace. But as of today, the
integration process is well down the road.
ANDREW: Good. And also I want to ask also with Lloyds how you know, the recent
announcement of BroadVision and how that partnership's going, and with the three
products together how that might work and if there's any other partnerships in
the running like that.
MR. SPADAFORA: The BroadVision one, and the acquisition of Prime Response is
very complimentary. The thought and motivation behind BroadVision was to really
secure all their
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touchpoints. Because many, many of our customers have standardized on
BroadVision, and so that's where that relationship is, and so the Prime Response
acquisition is based around marketing automation which are actually could also
leverage that relationship.
ANDREW: Excellent. Alright, thank you very much.
MR. SPADAFORA: Okay Andy.
OPERATOR: And gentlemen there are not further questions at this time. So, Mr.
Spadafora, I'll turn the conference back over to you for any additional or
closing remarks.
MR. SPADAFORA: Okay. Great. So again thank you for joining us this afternoon.
Chordiant and Prime Response plan to report their respective fourth quarter and
full Year 2000 results in late January early February timeframe. And we look
forward to updating you on the status of the acquisition and the outlook for the
combined companies at that time. So thank you very much and we will speak to you
again shortly. Bye.
OPERATOR: And that does conclude today's conference call. Thank you for choosing
Premier Conferencing and have a great day.
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