This week FAST posted a 2007 Q2 pretax loss of US$36.2 million, down from last year's Q2 US$4.9 million profit, an even poorer performance than that forecasted earlier.
It was with great understatement that FAST President John Lervik stated, “We are disappointed by the numbers...” in the live announcement. Disappointed? Perhaps devastated would be a bit more accurate.
FAST has no one but themselves to blame. Despite decreased sales, the poor overall performance is due more to poor management and accounting practices. FAST suffered from an apparent vestige of ego and enthusiasm from the dot com era. Anxious to drive top-line growth FAST undertook aggressive payment terms and “declining quality of revenue.” Lervik stated that DSOs (days sales outstanding) surged to 265 days during the second quarter, from 143 days last year and 188 days in the first quarter. This coupled with ever increasing expenses to fund aggressive marketing and untethered R&D (a classic innovation [mis]management problem) led to the “disappointing numbers” more than poor sales performance or market conditions.
I cannot help but recall this year’s FASTForward user group – an event that kept industry analysts buzzing for weeks regarding its opulence and extravagance. Bottom line: Operating expenses were out of sync with revenue. It is a shame that FAST did not take a lesson from history (aka dot bomb), that reckless spending and overly aggressive revenue payment terms lead to poor performance. The cart outran the horse significantly here.
FAST shareholders have suffered for this. Stock value has lost two thirds of its value in one and a half years. At the end of July, FAST fell 30% after it issued warnings of “disappointing numbers.”
But all is not lost. This was a wake-up call to FAST management- “slow down, you move too fast!” Time to manage growth carefully, not let it run wild, only to spin out of control. Many changes have already been announced including a discontinuance of MoUs (memorandums of understanding), which are promises of future revenue/payments. Efforts are being made to 'realign the business to the new revenue base' and to tighten operational processes and controls. Lervik claims that the new policies on payment terms have already brought the average payment schedule for second quarter deals to less than 130 days.
With US$195 million in cash and no net debt, an arsenal of technology and a culture of innovation (targeting enterprise issues), FAST is still a formidable contender in the enterprise search space and cannot, by any stretch of the imagination be written off yet. So Autonomy, Endeca, Vivisimo et. al need not circle like vultures, and FAST users need not scramble for the life boats... quite yet.
