BrandDirect Debt Weighs Down RMHRMH Teleservices reported a loss yesterday despite record revenue for its fiscal third quarter, largely because of its client BrandDirect, a membership club marketer with a multimillion-dollar unpaid bill.
BrandDirect, Shelton, CT, a longtime client of RMH, owes the company $13 million. RMH decided to reduce the debt by $7 million and has discounted $1.4 million worth of revenue owed by BrandDirect for work done during the company's fiscal third quarter, which ended June 30.
RMH said it made the decision to write down some of the debt after reviewing BrandDirect's financial situation.
BrandDirect represents 1 percent of the company's estimated revenue for its fiscal fourth quarter, which is the three months ending Sept. 30. RMH said it now is requiring BrandDirect to pay in advance for all services and expects to wind down its business with BrandDirect over the next several years.
"They are on a prepay basis," said John Fellows, CEO of RMH Teleservices, Bryn Mawr, PA. "The risk that we see from an outlook perspective is fairly strong."
Company executives said they could not comment further on the issue because of pending negotiations.
Fellows said RMH has increased its reserves to cover "doubtful" accounts. The company also is undertaking efforts to reduce its exposure in the membership club industry.
Revenue from the financial services sector declined by 26 percent in the fiscal third quarter because of these efforts. However, revenue from the telecommunications and insurance sectors increased about 50 percent and 25 percent, respectively.
For the fiscal third quarter, RMH reported revenue of $47 million, an increase of 35 percent over the same period in 2000. However, because of the one-time charges involving the BrandDirect debt, RMH Teleservices reported a loss of $4.8 million, or 46 cents per share.
In August 2000, BrandDirect paid $13 million, including $2 million in fines and $11 million in consumer restitution in the form of three-week free memberships to customers, to settle lawsuits with the state attorneys general of Connecticut and Washington. The lawsuits accused the company of enrolling consumers in membership clubs without their permission as well as other practices, including charging some consumers for a trial service that was supposed to be free, failing to cancel memberships on demand and failing to disclose limits on the use of free gift premiums.
BrandDirect denied the allegations.
The extra costs incurred from the settlement forced BrandDirect to wind down its operations, said Dave Thompson, president and CEO of BrandDirect. In June, the company laid of 90 of its 130 employees and ceased accepting new members.