Pivotal Announces First Quarter Results and Unveils Strategic Plan

Pivotal restructures costs, bolsters leadership team, and announces new strategic direction


Vancouver, BC, October 25, 2001 — Pivotal Corporation (Nasdaq NM: PVTL; TSE: PVT), the leading provider of cost-effective eBusiness and customer relationship management (CRM) software, today announced financial results for the first quarter ended September 30, 2001 and unveiled its new strategic plan aimed at improving company performance and increasing market share.

Pivotal's total revenues in the first quarter of fiscal 2002 were $16.0 million compared to $21.1 million in the first quarter of fiscal 2001. Revenues from licenses were $6.0 million in the first quarter of fiscal 2002 compared to $13.8 million in the first quarter of fiscal 2001. Revenues from services and maintenance were $10.0 million in the first quarter of fiscal 2002, compared to $7.3 million in the same quarter last fiscal year.

Pro forma net loss for the first quarter of 2002 was $11.9 million or $0.50 per share. This compares with pro forma net loss of $0.5 million or $0.02 per share in the first quarter of fiscal 2001. The pro forma net loss for the first quarter of 2002 excludes $6.8 million for amortization of goodwill and charges of $3.8 million for reserves against vacated premises, employee severance, other restructuring costs and liabilities, and an additional allowance for doubtful accounts receivable. The comparative pro forma net loss for the first quarter of 2001 excludes $5.0 million for amortization of goodwill.

Net loss for the first quarter of fiscal 2002, was $22.6 million or $0.94 per share, compared with a net loss of $5.5 million or $0.24 per share in the first quarter of fiscal 2001.

Pivotal signed 38 new customers this quarter including: Banque Martin Maurel, Centex Homes, Citizens Gas, Clarins, City of Nashville and Davidson County, RBC Dominion Securities Inc., The Irvine Company and Ziff Davis Media Inc.

Existing customers that made repeat purchases include: ESRI Environmental Systems, Flag Choice Hotels, HarperCollins Publishers, Inc., L'Oreal South Africa (Pty) Ltd., Novartis Animal Health Inc., Premera Blue Cross, Principal Financial Group, Inc., and The Warehouse.

New Strategic Plan

"We are not waiting for the economy to rebound -- we are transforming Pivotal to deliver unprecedented value to our customers and take market share,” said Bo Manning, president and CEO, Pivotal. “We are institutionalizing new marketing, selling, servicing, partnering, and product strategies to build our brand, generate leads, increase our win rate, and advance our market position. Our plan is designed to allow Pivotal to deliver the results that value-conscious entrepreneurial enterprises want to buy: improvements in revenue, margins and customer loyalty."

Pivotal’s strategic plan features three major components including:

Cost Restructuring

Pivotal has restructured its organization around core business processes to improve cost efficiencies, productivity, and the delivery of customer results. Combined, the changes will allow Pivotal to reduce its quarterly total cost structure from approximately $28 million to approximately $19 million. Specific changes include:
  • Reduction in the number of employees by 22 percent from 675 to 525
  • Increased controls and monitoring around discretionary spending including travel, corporate and office expenses
  • Consolidation of infrastructure costs

    The company expects to take a restructuring charge of up to $10.5 million in the quarter ending December 31, 2001, for the following items: $2.0 million for employee severance expenses; $4.5 million for consolidation of infrastructure costs; and, $4.0 million for a write-down of assets determined to be impaired as a result of restructuring activities. In addition, Pivotal is reviewing the valuation of goodwill on its balance sheet and may record a charge for an impairment in value in the December quarter.

    Bolstered Leadership Team

    Pivotal has strengthened its leadership team by adding a new executive vice president of North American sales and operations and a senior vice president of North American services.

  • Rob Douglas, former vice president and general manager of Siebel Systems and sixteen-year veteran of the technology industry, has joined the Pivotal team as executive vice president of North American sales and operations. Douglas built and ran Siebel’s Canadian business. Previously, Douglas was a vice president at Oracle Corporation, where he was instrumental in the company’s evolution as a large-scale provider of ERP solutions. Prior to Oracle, Douglas spent ten years at IBM in senior sales management positions.

  • Joseph Dworak, former partner in Deloitte Consulting’s CRM Practice has joined Pivotal as senior vice president of North American services. Dworak led the fastest growing segment of Deloitte’s global CRM Practice. Most recently, Dworak was a senior vice president at eLoyalty, one of the world’s largest stand-alone CRM consulting firms. At eLoyalty, Dworak was responsible for developing and managing the company’s portfolio of professional services.

    In addition, Pivotal has retained the advisory services of Christopher Lochhead, former marketing chief of Scient and Vantive, to lead its strategic marketing initiatives. Matt Duncan will continue as vice president of marketing with responsibility for all aspects of marketing execution. Bob Runge, former CMO, has resigned to pursue other interests.

    New Strategic Direction

    Pivotal’s new strategic direction is based on a focused market segment and a new value proposition. The market focus is entrepreneurial enterprises, typically organizations or business units in the $100 million to $2.5 billion range, are characterized more by their style than their size.

    According to Manning, “Entrepreneurial enterprises buy on value not brand alone, choose action over deliberation, favor simplicity over complexity, act with speed not procedural compliance, and commit to bottom line results versus slow progress.”

    Pivotal’s new value proposition is designed to deliver the types of results that entrepreneurial enterprises want from eBusiness and CRM software: improvements in revenue, margins and customer loyalty. Delivering these results requires application software, implementation services, and partnerships explicitly designed for this customer segment. Pivotal is the first organization to focus 100 percent of its efforts on delivering results to the entrepreneurial enterprise segment.

    To execute on this new strategic direction, Pivotal is focusing on five key initiatives:

  • New Marketing: The new marketing initiative will clearly communicate that Pivotal delivers the results that entrepreneurial enterprises demand from their eBusiness and CRM software investments. Pivotal will communicate this message through a high profile, brand building print media campaign and generate leads through a tightly integrated set of traditional and interactive marketing events.

  • New Direct Selling Strategies: The new direct selling strategies are crafted around the way that entrepreneurial enterprises want to buy. Entrepreneurial enterprises typically want to install the technology on their site, develop prototypes, get direct user feedback before making a buying decision, and then buy software and services in phases as they achieve results. Pivotal’s new selling strategies embrace these buying realities and turn them into competitive advantages.

  • New Partner Model: Pivotal is rationalizing and energizing its partnership portfolio to ensure that each partner generates new business and extends Pivotal’s value proposition to entrepreneurial enterprises. In North America, this effort will encompass two national systems integrators, six regional systems integrators, eight local systems integrators, six business consulting boutiques; Interpath for ASP and hosted solutions; and Microsoft/Intel as infrastructure partners. Outside of North America, Pivotal will adopt a similar strategy, and customize it for each region of the world.

  • New Consulting Services: Pivotal is expanding its Rapid Business Impact Group through additional hires and new partnerships to provide the style of business consulting services that entrepreneurial enterprises require to ensure that their e-business and CRM software investments produce results. These business consulting service will address CRM strategy development and ROI measurement; five functional areas (marketing, selling, commerce, service, and partner relationship management), and three specific solution areas (contact centers, portals, and eMarketing). This group will embrace the highly cost-effective consulting model of deploying seasoned subject matter experts who work with clients through a series of structured, client-centered workshops.

  • New Product Framework: The new product framework better highlights how well the Pivotal product line meets the eBusiness and CRM requirements of entrepreneurial enterprises. These requirements include a complete set of functionality across all key business processes (marketing, sales, eCommerce, service, and partner relationship management); portals for customers, partners, and employees; multiple access methods (web, direct connect, data synchronization and wireless), and a strong platform that includes customization tools, support for multiple databases, and robust integration capabilities. Pivotal is improving the communication and demonstration of the breadth and cost-effectiveness of its product line with the goal of increasing its win rate with new customers, and increasing cross-selling opportunities with existing customers.

    Conference Call Details

    Pivotal will host a conference call to discuss the financial results. Here is the dial in information:

    Date: Thursday October 25, 2001
    Start Time: 5:00 p.m. ET (2:00 p.m. PT)
    Dial-In Phone Number: 415-904-7383
    Conference Call Name: Fiscal 2002 1st Quarter Earnings Call
    Live Audio Streaming: www.pivotal.com

    If you are unable to participate, a replay will be available from 7:30 p.m. EDT October 25th through 7:30 p.m. EDT October 27th, 2001. For callers within the U.S. or Canada, the replay number is 1-800-633-8284. For callers outside the U.S. or Canada, the replay number is 858-812-6440. The replay pass code for all callers is 19802593. In addition, the replay will be available via our website at www.pivotal.com for 90 days.

    PIVOTAL CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS

    (Expressed in United States dollars; all amounts in thousands except per share data)
    (Unaudited)

    Three months ended Three months ended
    September 30, 2001 September 30, 2000
    Revenues:
    Licences $ 6,053 $ 13,768
    Services and maintenance 9,969 7,290
    Total revenues 16,022 21,058
    Cost of revenues:
    Licenses 492 866
    Services and maintenance 5,860 3,870
    Total cost of revenues 6,352 4,736
    Gross profit 9,670 16,322
    Operating expenses :
    Sales and marketing 13,404 11,498
    Research and development 4,947 3,917
    General and administrative 7,131 1,776
    Amortization of goodwill 6,839 4,995
    Total operating expenses 32,321 22,186
    Loss from operations (22,651) (5,864)
    Interest and other income 218 343
    Loss before income taxes (22,433) (5,521)
    Income taxes (154) 67
    Net loss $(22,587) $ (5,454)
    Loss per share :
    Basic and diluted $ (0.94) $ (0.24)
    Weighted average number of shares used to calculate loss per share:
    Basic and diluted 23,988 22,375

    PIVOTAL CORPORATION
    PRO FORMA STATEMENTS OF OPERATIONS

    (Expressed in United States dollars; all amounts in thousands except per share data)
    (Unaudited)

    Three months ended Three months ended
    September 30, 2001 {1} September 30, 2000 {2}
    Revenues:
    Licences $ 6,053 $ 13,768
    Services and maintenance 9,969 7,290
    Total revenues 16,022 21,058
    Cost of revenues:
    Licenses 492 866
    Services and maintenance 5,860 3,870
    Total cost of revenues 6,352 4,736
    Gross profit 9,670 16,322
    Operating expenses :
    Sales and marketing 13,404 11,498
    Research and development 4,947 3,917
    General and administrative 3,305 1,776
    Total operating expenses 21,656 17,191
    Pro forma loss before other income and taxes (11,986) (869)
    Interest and other income 218 343
    Pro forma loss before income taxes (11,768) (526)
    Income taxes (154) 67
    Pro forma net loss $(11,922) $ (459)
    Pro forma loss per share :
    Basic and diluted $ (0.50) $ (0.02)
    Weighted average number of shares used to calculate pro forma loss per share:
    Basic and diluted 23,988 22,375

    The above pro forma amounts have been adjusted to eliminate the following:
    {1} $6.8 million for amortization of goodwill and $3.8 million of charges recorded in general and administrative expenses, including approximately $1.9 million for vacated premises, employee severance and other restructuring costs and liabilities, and approximately $1.9 million for an additional allowance for doubtful accounts receivable.
    {2} $5.0 million for amortization of goodwill for the quarter ended September 30, 2000.

    CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in United States dollars; all amounts in thousands)

    Sept. 30 2001 June 30 2001
    ASSETS (unaudited)
    Current assets
    Cash and cash equivalents $ 9,449 $ 13,247
    Short-term investments 48,419 55,468
    Accounts receivable 15,381 26,610
    Prepaid expenses and other current assets 4,295 2,691
    Total current assets 77,544 98,016
    Property and equipment, net 8,104 9,183
    Goodwill, intangibles and other assets, net 55,662 61,244
    Total assets $ 141,310 $ 168,443
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities $ 23,029 $ 25,324
    Deferred revenue 11,669 13,810
    Current portion of obligations under capital leases and long-term debt 423 516
    Total current liabilities $ 35,121 $ 39,650
    Non-current portion of obligations under capital leases and long-term debt $ 396 $ 592
    Total liabilities $ 35,517 $ 40,242
    Shareholders' equity $ 105,793 $ 128,201
    Total liabilities and shareholders' equity $ 141,310 $ 168,443



  • Pivotal Corporation is the leading provider of eBusiness and customer relationship management software for entrepreneurial enterprises. Pivotal empowers businesses to cost-effectively get, keep, and grow customer relationships.
    Pivotal’s offerings deliver results for a fraction of the cost of typical enterprise software. Pivotal and Pivotal partners provide the Pivotal Results Program of software, services, and support required to produce significant improvements in marketing, sales, and service effectiveness. More than 1,300 companies globally including: Hewlett Packard, CIBC, Goldman Sachs, HarperCollins Publishers, Hitachi Telecom Inc., Intrawest Corporation, Vivendi, Royal Bank of Canada, Southern Company, and Ziff Davis Media Inc use Pivotal software and services.
    Pivotal’s advanced software technology includes powerful capabilities in: Internet commerce, CRM, corporate portals, and wireless technologies.
    For more information visit www.pivotal.com. Statements made herein and in today’s conference call may contain forward-looking information about management’s expectations, new strategic objectives, new market segments, business prospects, anticipated financial performance and other similar matters. A variety of factors, many of which are beyond our control, affect the operations, performance and business strategy and results of Pivotal and could cause actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors include, but are not limited to: the severity and duration of adjustment of the market; fluctuations in operating results and general industry, economic and market conditions and growth rates; fluctuations in cash flow, the level of outstanding debt and debt ratings; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of the credit risks of our customers; the sufficiency of our restructuring activities and strategic initiatives, including the potential for higher actual costs to be incurred in connection with restructuring actions and strategic initiatives compared to the estimated costs of such actions or initiatives; the ability to retain and recruit qualified employees; the inability to manage business in light of recent management changes and personnel reductions; the impact of rationalization in the eBusiness and CRM industries; the impact of rapid technological and market change; the impact of price and product competition; the dependence on new product development; stock market volatility; the entrance into an increased number of turnkey contracts which contain delivery, installation, and performance provisions, which, if not met, could result in the non-payment of fees or even damages; uncertain economic conditions, particularly as they affect spending by our prospective customers on eBusiness and CRM and similar enterprise software products; and the future success of our strategic alliances. Other potential risk factors are described in the company’s 2001 annual report on Form 10-K, in addition to reports on Form 8-K and form 10-Q, which are available at the SEC’s Web site at www.sec.gov. or the Canadian Depository for Securities Web site at www.sedar.com . Pivotal undertakes no responsibility to update or revise any forward-looking statements. Divesh Sisodraker, Pivotal Corporation
    Tel: 604/904-5323
    Email: dsisodraker@pivotal.com

    Jacqueline Voci
    Tel: 425.897.6992
    Fax: 425.897.8401
    Email: jvoci@pivotal.com