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Workstream Ends Merger Plans, Expects Better Financial Quarter

Jun 16, 2008
This article is part of a series called News & Trends.

Talent software vendor Workstream (profile; site), which Friday canceled its planned merger with Empagio, said today it expects its fourth quarter financial performance to have improved enough that it will show an EBITDA (earnings before interest, taxes, depreciation and amortization) in the range of $400,000 to $500,000 before the costs of its abortive merger are accounted for.

If that turns out to be the case, it will be the first time in the current fiscal year that Workstream has posted anything less than a million dollar loss in EBITDA. In the last quarter, which ended Feb 29 (the company is on a June 1 to May 31 fiscal year), Workstream had an EBITDA of ($4.7 million).

In today’s announcement Workstream also reported it expected revenues of $6.9 million to $7 million, an increase of 11 to 13 percent over the previous quarter.

The announcement is unusual for a company of Workstream’s size. A search of the company’s press releases and financial filings turned up no similar financial guidance. When companies issue such reports, typically they are downplaying analyst expectations in an effort to blunt upcoming bad news. An early release of good numbers – in this case some five weeks before the official July 24th release – might be interpreted as an effort to support the stock price and offset the news of the failed merger.

In fact, investors reacted positively to the news at first moving the company’s stock price up as high as 35 cents before bidding it down to 31 cents, a loss of a penny on the day. The stock has been trading under a dollar for months, reflecting the financial ill health of the struggling talent management vendor. Even if the company winds up with an EBITDA at the high end of the estimate, its 12 month financials will show a net loss in excess of $24 million. The company has lost money every year since going public in late 1999.

Its stock price could end up costing the company its public listing on the NASDAQ exchange. The company has until November to get its stock price consistently above $1 or face delisting.

Despite Monday’s positive financial guidance the revenue estimates are significantly below the $7.6 million Wall Street analysts were expecting for the company, according to Yahoo Finance. Even at the top end of the estimate, the company’s annual revenue would still be more than $1 million (4 percent) below Wall Street’s expected $28.7 million.

The company is in such desperate shape that Jason Corsello writing in his blog The Human Capitalist said last week “..the odds of Workstream’s survival seem like a long shot at this point.”

Not to pile on, but the company took a hit this month from Gartner, which placed near the bottom of its “Magic Quadrant for E-Recuitment Software.” Workstream ranked low on ability to execute and in the niche player group.

Friday’s announcement of the merger cancellation gave no reason. It said only that Workstream had terminated the deal and that it was seeking a $5,000,000 termination fee from Empagio, a payroll processor and HR outsourcing services.

Workstream executives could not be reached for comment. Empagio told us only that, “We are currently evaluating our options.”

This article is part of a series called News & Trends.
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