Datalex, the Dublin-based developer of software for the travel industry, will take a $35 million (€40 million) write off in the current quarter to reflect the collapse in value of recent acquisitions. The announcement came as the company, which floated on Nasdaq last October, released worse than expected second-quarter figures.
The market had been braced for a 10 per cent fall in revenues to $7.1 million but was disappointed at a larger than anticipated decline in gross margins from 36 per cent to 6 per cent. The shares closed down five cents at €1.10 in Dublin, where the company has a secondary quotation.
Mr Neil Wilson, the chief executive, said the business had failed to translate sales opportunities into contracts in the second quarter, which "reflects the general state of the world".
The gross margin suffered because the company's cost base remained fixed, he said.
The pre-tax loss was down from $31.4 million to $17 million. The loss figure for the second quarter of 2000 included a charge of $18 million in respect of non-cash share compensation.
The company confirmed a number of recent cost cutting measures including letting 170 staff go, 28 of whom were based in Dublin. The group has also recruited a chief operating officer, Mr Neil Beck and closed offices in Johannesburg and Arizona. The company announced that it had installed a comprehensive management information system.
The measures will reduce the company's cash spend - on a quarterly basis - to $11 million. Mr Wilson predicted Datalex was on track to become profitable by early 2002, provided it could grow revenue to in excess of $11 million in the remaining two quarters.
The company had a large number of potential sales in the pipeline for the next two quarters, but the difficulty would be turning them into sales in the current environment, said Mr Wilson.
The airline industry, which is currently in the doldrums, was no longer the company's main market and accounted of only 40 per cent of sales. Growth would come from other transport operators, Datalex's main business is selling and developing systems that allow travel businesses upgrade their existing computer systems and take Internet bookings.
The $35 million write off on the balance sheet value of its recent acquisitions is due to "a combination of factors including the performance of the individual business post-acquisition and the decline in valuation of similar technology businesses", according to the company.
The bulk of the writedown relates to Sight & Sound, a Portland, Oregon based software company bought in May last year for $15 million in cash and $23 million in Datalex paper.
Shares in Datalex have fallen heavily from their flotation price of €6.84 and the value at which the acquisition is carried on the balance sheet is no longer sustainable, said Mr Wilson.
He added that Datalex had extracted all the realisable value from the acquisitions - in the form of technology and customers. The expected move into profitability over the second half of the year will allow Datalex conserve its cash of $72.1 million, he said.
