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printChannel.com to Cease Operations, CEO Comments on the Future

Press release from the issuing company

September 12, 2002 -- (WhatTheyThink.com Exclusive) -- Under pressure from lead investor and majority owner, Warburg Pincus, printChannel.com has decided to scale its operations down to support its customers through November 15th and will cease operations. The company is seeking a buyer for the business and has held negotiations with several companies over the last few weeks. Employees and customers were formally notified of the decision yesterday. printChannel.com reportedly has about 140 printers using their system and nearly 1000 print buyers signed up. printChannel.com licenses technology to print suppliers and print management companies and enables them to offer online ordering, tracking and output of variable data and inventory print items by end users from catalogues that are set up, controlled and maintained through existing prepress or production staff. Just two months ago, printChannel.com announced an upturn in business and improved financial performance from the first quarter. The company reported a 95% increase in bookings from Q1, a 50 percent reduction in quarter-to-quarter expenses and a 12 percent annualized growth rate in transaction throughput. However, before printChannel.com’s launch of their new print i/o v. 2.0, sales representatives began taking orders for the new product from printers. printChannel.com booked orders and based their projections on anticipated sales of this product. Once i/o was finally released, some printers decided not to purchase the product for various reasons. This event caused management to miscalculate the health of the company. Once these issues became known to printChannel.com’s senior executives and investors, the company moved to write off many of the contracts and account receivables. The amount was significant enough for Warburg Pincus to decide that a sale, liquidation or closure was in order. printChannel.com has always been perceived as an aggressive e-player battling fiercely with companies like ePrint Advantage, Smartworks.com, ImageX and Printable. The company was known for their unusual approach of reporting quarterly results without releasing specific figures and seeking business by offering price matching programs. Similar companies like ePrint Advantage will most likely gain new business from any disruption. ePrint Advantage sells a suite of web-based services offering personalized direct mail, customized marketing materials and on-line fulfillment that they license to print service providers. Printable also hopes to increase their customer base and was quick to release a statement inviting printChannel.com’s customers to consider their service. printChannel.com has retained an investment banker and has sent business plans to several industry companies. This includes direct competitors and even equipment manufacturers. In an interview conducted with WhatTheyThink.com, CEO Oliver Pflug said he is optimistic that the printChannel.com service will continue in another form. Special Exclusive: Oliver Pflug is CEO of printChannel.com. Last night, he spoke with WhatTheyThink.com. WTT: Oliver, how do you feel right now as you consider the options that have been placed before you? Oliver Pflug: I am proud of what we did and what our team accomplished. Our system has tremendous value and many printers and print buyers use our technology each day. We have nothing to be ashamed of. We conducted our business honestly and our customers rewarded us with their loyalty. WTT: What happened this summer that so suddenly caused Warburg to not provide additional funds for printChannel.com? Oliver Pflug: Actual revenue projections for July and August were missed. We were under in July and way under in August. At the end of June, we had pre-commitments from printers who had agreed to purchase our software. Many of those printers, for a variety of reasons, declined to proceed with the purchase at that time. Our projected sales numbers were lower and therefore our cash flow fell below the required amount to sustain our business. Once Warburg was made aware of these issues, it was determined that they could no longer support printChannel.com with more money. We immediately approached other companies to seek a merger or have another business acquire us. We are in different stages of negotiations with a half dozen possible companies who could acquire all or parts of our business. WTT: In previous interviews, you have spoken highly of Warburg Pincus. Do you disagree with their decision to close printChannel.com? Oliver Pflug: Warburg has been very good to us, but they are also in a difficult situation. They invest other people’s money and expect returns that are greater than what printChannel.com can possibly achieve in the time that was previously projected. There was just no bright light at this point and no doubt they have seen the tough challenges from companies like iPrint, ImageX, Printcafe and others in the public markets too. WTT: How many employees remain? Oliver Pflug: We will keep a small staff of about five people who will be responsible for maintaining our data center. We plan to keep our service running to November 15th. I have always said that we would do everything within our power to avoid a quick disconnection if we were ever placed in this position. WTT: There could not have been a worse day (9/11) to inform employees of this decision. Tell us about the timing of this notice. Oliver Pflug: The timing is very unfortunate and purely coincidental. It is sad and embarrassing. In the end, the date played no role. Complications related to cutting final paychecks and other human resource factors kept us from notifying employees on Tuesday. There is no way to do this gradually and no matter what day it was, it still would have occurred. WTT: Will printChannel.com file for bankruptcy? Oliver Pflug: We have no bank debt, but owe current suppliers. We believe we have the cash to proceed with a proper shut down. We do not think that we will have to file for bankruptcy. WTT: You have communicated with your customers about this event. How worried should they be? Oliver Pflug: I do not think our customers should panic. It is very likely that printChannel.com’s service will continue. We have a solid stable of printer customers and numerous print buyers who create some 25,000 transactions each month. We are still hopeful that the right company will come along and preserve this technology for these customers.