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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and
financial condition should be read in conjunction with the combined financial
statements and related notes thereto appearing elsewhere in this prospectus.
OVERVIEW
We are an international provider of transaction management services to both
traditional and e-commerce companies. We derive our revenues from a broad range
of services, including order management, customer care services, billing
services, information management and fulfillment and distribution services. Our
fulfillment and distribution services are conducted at our warehouses and
include picking, packing and shipping our clients' customer orders. We offer our
services as an integrated solution, which enables our clients to outsource their
complete transaction management needs to a single source and to focus on their
core competencies. We currently provide transaction management services to over
30 clients that operate in a range of vertical markets, including apparel,
computer products, printers, sporting goods and consumer electronics, among
others. During fiscal year 1999, IBM was our largest client and represented
approximately 93% of our total revenue. Within the past twelve months, we have
signed contracts with over 10 new clients, including Hewlett-Packard, Thomson
Consumer Electronics, Nokia, Global Sports Interactive and ISA International
plc. Collectively, these new clients represented approximately two percent of
our total revenue for the six month period ended September 30, 1999.
Our service fee revenue is typically charged on a percent of shipped
revenue basis or a per-transaction basis, such as a per-minute basis for call
center services and a per-item basis for fulfillment services. Additional fees
are billed for other services. We price our services based on a variety of
factors, including the depth and complexity of the services provided, the amount
of capital expenditures or systems customization required, the length of
contract and other factors. Many of our contracts with our clients involve
third-party vendors who provide additional services such as package delivery.
The costs we are charged by these third-party vendors for these services are
passed on to our clients (and, in many cases, our clients' customers) and are
not reflected in our revenue or expense. Historically, our services have also
included purchasing and reselling client product inventory. In these
arrangements, our product revenue was recognized at the time product was
shipped. During the quarter ended September 30, 1999, our primary client
agreement under which we previously purchased and sold inventory was
restructured to provide transaction management services only on a service fee
basis.
Our expenses are comprised of:
- on an historical basis, cost of product revenue, which consists of the
purchase price of product sold and net freight costs;
- cost of service fee revenue, which consists primarily of compensation and
related expenses for our customer care and fulfillment centers and other
fixed and variable expenses directly related to providing services under
the terms of fee based contracts, including certain occupancy and
information technology costs and depreciation and amortization expenses;
and
- selling, general and administrative expenses, which consist primarily of
compensation and related expenses for sales and marketing staff,
executive, management and administrative personnel and other overhead
costs, including certain occupancy and information technology costs and
depreciation and amortization expenses. In addition, on an historical
basis, certain direct contract costs related to our IBM master
distributor agreements have been reflected as selling and administrative
expenses.
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