Shane Hammond
TRX president and CEO Shane Hammond spoke with Management.travellast month after TRX released its March quarter earnings report, characterized by 32 percent lower transaction processing revenues and a $43.6 million net loss mainly due to a charge for a reduced assessment of asset values. As part of ongoing cost cutting, TRX narrowed its focus on data processing and reporting by sunsetting the Datatrax customized solution to put its full attention on the Traveltrax product acquired in 2007. TRX also noted the latest booking trends and commented on "end to end" travel management. An excerpt of Hammond's interview follows.
Can you elaborate on what you said about the declines in transaction volumes slowing during the March quarter?
We saw in the March timeframe a slowing compared with what we had seen in January and February, indicating that volume decline had begun to recede. That's interesting and, frankly, not terribly relevant because I don't think it's going to hold. May numbers are back looking more like March than April. We have given up on being concerned or fretting or depressed over volume issues, and instead turned our attention to the revenue side of the business. We have adjusted the cost structure dramatically and are ready for volumes to recover. Leisure volumes have been strong. It seems as if the consumer has such price elasticity that a $5 or $10 booking fee waiver will inspire them to book travel 90 days out.
In your prepared comments on your earnings presentation, you talked about end-to-end travel management and expressed some frustration about how "end to end" is defined, including an apparent reference to Concur. You said end to end was "defined prematurely as simply booking plus expense ... we have that, too," and you suggested profile management, contract support, data intelligence, meetings, automated ticketing and other functions also are between the ends. Are customers more than in the past saying they want end to end?
Not really, but they prefer to buy single-source solutions. They'd rather have one contract with one provider for multiple services than the alternative. End to end is in part a marketing message. I don't expect we'll have tremendous percentage of our future revenue tied to customers who purchase end-to-end solutions. I do believe, however, that when you present an end-to-end solution, buyers will say they don't need facet A or B, but would like to purchase C, D and E. That's what I think will happen, but in order to get their heads around that, you have to talk about the full offering. You have to define customer, too. It's pretty easy to figure out what a procurement executive wants: a single agreement that doesn't bind them to much of anything, a single price point, and something that's easily consumed and cheap. To that end, Concur has delivered. The secret to their success has been their reseller-type deals that sell into that procurement executive's thinking, whereas the rest of the industry, for the most part, has been in that other world of selling to travel managers or even maybe some finance executives.
BCD Travel is a major client and also a related party to TRX since both have a common owner, BCD Holdings. According to TRX's financial filings, BCD Travel's use of the Correx reservation processing software in January was extended to August, after the master agreement between BCD and TRX ended. But a Resx booking tool agreement was set for three years. The Beathas reported that BCD is using a lot of your competitor, GDSX, for the mid-office, but what will happen after August for Correx at BCD?
There is another agreement not part of the master services agreement, which is being executed now, related to BCD's use of our Traveltrax data platform. I would project we'd get that executed in the second quarter. BCD will continue to be a three-product client of ours. They'll continue to use Correx, Resx and Traveltrax. They won't use Correx to the extent they historically have. They have other plans for mid-office processing that do not leverage the full capabilities of Correx, but they will use it to some extent. They should fill in the rest of the details for you.
During the quarter, the big impact on your net earnings was the non-recurring impairment charge, mainly related to the value of acquisitions. Can you say which acquisitions fall under that?
We're not able to say that, mostly because we don't have to. But it's not just acquisitions. These impairment audits and opinions are extraordinarily complicated. The interesting thing about an impairment evaluation is that the greater the value of your intellectual property, software and other assets, the greater the goodwill write-off and impairment is. My CFO says, "It's not germane to the operation of the business, it has no impact on our cash, it has nothing to do with banking covenants or relationships, and it has no impact on the value of the company, so don't worry about it." Easy for him to say! Clients worry about it, and it can look kind of weird. It's due to pressures on stock price, volume declines and intangible assets. It's not as if the auditors came in and said, "Hey it looks as if your Hi-Mark acquisition is less valuable, and we're going to write that down." Certainly not Travel Analytics. Quite the contrary. Those assets remain the most valuable assets we have. The data reporting business is hugely strategic and valuable to us.
Did you decide to sunset the original TRX data reporting solution, Datatrax, because it doesn't make sense to maintain two things that do the same thing?
Datatrax was similar to Traveltrax, but less proprietary to TRX because it was based on a MicroStrategy platform. For us to enhance it to do product releases, we were sort of at the whim of a third party ... whereas with Traveltrax, we own it. We went to clients and got aggressive about sunsetting [Datatrax] and, therefore, shedding those costs. Datatrax was big and expensive and robust, and led to long sales cycles and heavy costs of support [as opposed to] a much smaller-ticket, buy-it-use-it market software. But I think Traveltrax is capable of both. Half a dozen or so clients moved or are moving over.