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Executone Information Systems Inc. (NASDAQ: XTON)
478 Wheelers Farms Road
Milford 06460
Chairman & CEO: Stanley J. Kabala
Revenues (FY 1997): $156.4 million
Net profit (loss) (FY 1997): ($221,000)
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Business New Haven
10/19/1998
By: BNH
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In technology-based organizations, change is a part of the normal course of business. With knowledge and technological advances, nothing remains static in those environments. However, for the Milford-based Executone Information Systems Inc. that change has been tantamount to a real corporate shakeup.
Early last summer Executone's chairman and CEO, Alan Kessman, retired. He was replaced by Stanley J. Kabala, a veteran of AT&T and most recently president of Roger Cantel Mobile Communications. Not long after it was announced that two senior executives were being “restructured” out of the organization. The president of the Computer Telephone Division was scheduled to leave September 11 and the chief financial officer set to depart October 1. This move was a result of the company's efforts to flatten the organization and reduce expenses.
Executone develops and markets as well as supports systems for voice and data communications. Its services and products include voice-mail capabilities, telephone systems, call-center operations and systems for heath-care communications.
The company operates UniStar Entertainment, which exclusively designs and manages the National Indian Lottery run by the Coeur d'Alene Indian Tribe in Idaho.
In another move Executone, which acquired UniStar Gaming Corp. in 1995, filed a plan with the Securities & Exchange Commission to distribute to Executone's common shareholders a right to purchase shares of UniStar Gaming. Common shareholders could buy up to 85 percent of UniStar shares. The remaining 15 percent would go to Executone preferred shareholders.
But this deal comes with caveats. Unistar is not projected to be in a break-even position before year-end 1998. In addition, Congress is debating issues surrounding electronic gaming. The company's annual meeting is November 18, and this transaction will certainly be on the agenda.
Regarding financial performance, of Executone revenues for the 1997 year were down 26 percent to $156.4 million, compared to $212.0 million for 1996. However, revenues other than those from the company's largest distributor in the telephony business increased 22 percent, and Executone's health-care communications business grew 30 percent. The company has eliminated the exclusivity arrangement with this largest distributor effective last April.
Also impacting revenues was the sale in 1996 of the company's direct sales and service groups.
The company did post operating income of $90,000 for the 1997 year, but recorded a net loss of $221,000. This compares to an operating loss of $3.4 million for 1996 and net income of $23.8 million (or 46 cents per share diluted) for 1996. However, this net income was not a result of better margins but due to an extraordinary gain of $44 million resulting from the sale of certain businesses.
Executone has not recorded positive cash flow from operations for the last three fiscal years. However, it has positive working capital and a reasonable debt level. Equity at year-end 1997 was $85.3 million, but retained earnings moved into a deficit position of minus $3.0 million by the end of first half 1998 as a result of continued net losses. Equity at the end of June stood at $76.4 million.
For the first six months of 1998, the company recorded an operating loss of $6.1 million and a net loss of $4.2 million (eight cents a share), compared to operating losses of $2.9 million and net losses of $1.8 million (four cents per share) for the first half of 1997. Revenues declined seven percent to $68.6 million, compared to $73.8 million for the first half of 1997.
On the positive side, the company is showing a $2.0 million improvement in gross profit for the second quarter ended June 30, compared to the first quarter. Revenues were flat, but reduced expenses (excluding a $2.1 million restructuring charge) and improved product and distribution mix contributed to this improvement.
Executone's stock has been struggling since 1997 in the $2-to-$3 range. Today it trades at just over $1. The company has a long way to go to improve its bottom-line performance. With the restructuring and management changes, any improvements in financial performance must then overcome the current conditions in the stock market. Weaknesses in the global economic markets may make meaningful gains difficult to achieve in the near term
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