This was the MS report in whole:
headline: (AGIL) AGILE SOFTWARE: INITIATING COVERAGE
Agile Software (AGIL): Initiating Coverage - Product Collaboration
Over The Internet
Chuck Phillips (212) 761-4450 / chasp@ms.com Date: September 16, 1999
Industry: Enterprise Software Type: Initiating Coverage
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Rating: Outperform Price: $57 1/2
52-wk Range: $34 - $70 Price Target: NA
______________________________________________________________________
FY Ends ----EPS----
APR Curr Prior P/E
99A -$3.10 NA
00E -$1.09 NA
01E $0.06 958x
______________________________________________________________________
Qtrly ---- 1Q ---- ---- 2Q ---- ---- 3Q ---- ---- 4Q ----
EPS Curr Prior Curr Prior Curr Prior Curr Prior
99E -$0.78A -$0.78 -$0.73 -$0.81
00E -$0.80 -$0.13 -$0.09 -$0.07
01E -$0.03 -$0.01 $0.03 $0.07
______________________________________________________________________
5 Yr. EPS Growth: 50% Debt to Cap.: 0.1%
Dividend: -- Mkt Cap./Rev: 51.7x
Shares Outst.: 17.5 MM Mkt Cap.: $1006.3
MM
______________________________________________________________________
KEY POINTS
We've initiated coverage of Agile Software with an Outperform rating.
Agile enables product content management across supply chains over the
Internet. The company helps virtual manufacturing chains coordinate
product content changes throughout the life cycle of the product.
Business to business commerce (B2B) is about collaborations and not
transactions and page views. It's about relationships and processes.
Finding innovative waves to crack through functional silos that
isolate business partners from one another is a key theme we look for
in emerging B2B companies.
Agile Software has put a stake in the ground to claim product content
management as an area ripe for efficiency improvement by using the
Internet.
Manufacturers have spent billions on systems to account for what's
sold, to predict demand, to schedule production, and to track what's
shipping. But one of the most obvious areas of all has yet to be
automated - what goes in the product and how do you put it together?
Manufacturers today outsource about 20% of all manufacturing to third
parties as the world economy continues its evolution toward more
specializations. That figure is up from 6% four years ago and could
reach 40% in three years.
The contract manufacturing trend creates a collaboration challenge -
manufacturing partners have to agree on what components comprise a
product, how they fit together, what version is the current one, and
when to flip the switch to next version.
Agile has designed a family of Web-based products that capture all
product content details of a given product, which includes bills of
material, assembly instructions, design schematics, approved
manufacturers lists and component attributes. Doing that for one part
manually is tolerable. But doing that for several thousand products,
each with thousands of components, across hundreds of trading partners
creates an intimidating level of complexity.
Tracking this product content goes beyond a single one time recording.
The dynamic aspect of some markets drives rapid changes in design to
drive down costs, add new features, improve safety, find better
suppliers, or meet changing customer preferences. One Agile customer
markets a single handheld product with 10,000 parts and 60 component
suppliers and that product generates several thousands changes per
month. The constantly changing product content makes collaboration
difficult across dozens of partners.
The natural solution to this problem is a Web based platform that
tracks these changes but is easily accessible by relevant parties.
Agile has delivered a system that serves as a collaboration platform
for product content and change management.
OVERVIEW OF AGILE
Agile has emerged as the leading provider of Web-enabled product
content management software for the outsourced supply chain
manufacturing model. The Company has developed software that
leverages the ubiquity of the Internet to enable more efficient
communication and collaboration regarding product content within
manufacturing supply chains than has ever been possible before. The
result is that Agile clients have significantly enhanced their
competitive positioning as they have benefited from a fundamental
improvement in how they interact with their supply chain members.
The management of product lifecycles is ripe for change. Every
manufacturing enterprise invests a significant percentage of its
capital into inventory and manufacturing assets and expenditures
related to research and development as well as COGS. Traditionally,
these investments and expenditures have been incurred by and within
vertically integrated enterprises.
Recently, in order to respond to the increasing ferocity and velocity
of global competition, companies have begun to look for ways to
achieve greater revenue capture and further operating efficiencies by
focusing on their core competencies and outsourcing much of the
manufacturing process to best of breed suppliers and partners. The
extension of product manufacturing beyond the four walls of a single
enterprise has created virtual manufacturing enterprises consisting of
many enterprises, suppliers and partners.
A key differentiator between leading and lagging virtual enterprises
involves how productively partners within the manufacturing supply
chain can actually communicate. Current methods of product content
communication and collaboration, including phone, fax, e-mail, EDI and
groupware are too slow, inflexible and inaccurate for the new
disaggregated model. Given these limitations, manufacturers need a
way to improve interaction across the entire business process while at
the same time managing their investments in assets and inventory, as
well as their expenditures for research and development and COGS, more
efficiently and effectively. Agile has designed a solution to do just
that - to standardize and modernize a process in increasingly
decentralized enterprises, leveraging the power of the Internet to
facilitate efficiency in product content management for the e-supply
chain of the next millennium. Using Agile's suite of products,
clients enjoy higher revenue capture driven by reduced times to
market, while also realizing significant cost reductions from more
effective and efficient management of the manufacturing process.
KEY INVESTMENT POSITIVES
Huge market opportunity and strong growth prospects
The market opportunity that Agile is addressing is very large and
represents a new enterprise software segment that is enabling Internet-
based, business-to-business e-commerce. B2B e-commerce is a huge and
rapidly growing market opportunity.
Leading market position and first mover advantage
Agile was an early visionary in addressing the disaggregated,
outsourced supply chain manufacturing model, and has created a new
market segment for applications for the product content management
segment of the web-centric business-to-business enterprise software
market. As a result, Agile has built a large, referenceable customer
base of over 350 customers.
Agile enables the biggest trend in product manufacturing. outsourcing
Many companies are shifting from traditional manufacturing approaches,
where a manufacturer controls most phases of the manufacturing process
from raw materials to finished goods, to a manufacturing process where
much or all of the manufacturing process is outsourced to multiple
companies as part of a supply chain.
KEY INVESTMENT RISKS
Ability to execute model based on small initial orders followed by
significant follow-on revenue
Agile's initial order size averages less than $100,000. Therefore, in
order to grow revenue, Agile depends on both sales to new customers
and on sales to existing customers of additional numbers of
subscribers using the product in connection with existing licenses.
Agile must also sell enhanced versions and upgrades of its products.
Agile is still an early stage company in an early stage market
Agile has only been in operation for four years and has only recorded
significant levels of revenue over the past two. Further, Agile has
never been profitable. Accordingly, the Company has a limited
operating history on which to base an evaluation of its business and
prospects. The Company currently intends to substantially increase
its operating expenses in order to, among other things, develop new
products, expand its distribution capacity, expand its sales and
service organizations and fund increased sales and marketing
activities. As a result, Agile is not expected to reach profitability
until FY 2001. In addition, the market for supply chain management
products and services has only recently begun to develop, and the
widespread demand and market acceptance of these solutions is subject
to uncertainty.
Reliance on third party service partners
As Agile grows its installed base, it will become increasingly reliant
on third party implementation partners to provide consulting and
integration services to its clients. This approach allows Agile to
focus on its core competencies in higher margin businesses and
leverage its partners' domain knowledge, which reduces time to market
both for Agile and for its customers.
It's 1999 in Silicon Valley and it's tough to nab and retain talent.
We think Agile is in a sweet spot for employee retention.and like
Netscape in the early days, Agile is a hot spot for many people with
enterprise experience. However, Agile's future success will be
dependent on its ability to attract, train, motivate and retain highly
skilled technology professionals, software programmers and sales
professionals, all of which are in great demand and are likely to
remain a limited resource for the foreseeable future.
RECENT RESULTS, ESTIMATES AND VALUATION
Agile recently reported results for Q1 F2000. The company posted
$5.89 million in total revenue and a net loss of $2.65 million
excluding the effect of the amortization of deferred stock
compensation. We estimate that Agile will generate $27.16 million in
revenue in fiscal 2000 and $41.45 million in total revenue in fiscal
2001. We estimate that Agile will continue to post losses through
fiscal 2000 turning profitable in the second half of fiscal 2001. Our
earnings estimates are -$1.09 and $0.06 for fiscal 2000 and 2001
respectively.
We believe Agile's valuation will reflect the company's first mover
advantage, product and technology leadership, compelling value
proposition, blue-chip customer base and its prospects for rapid
growth and near-term profitability.
We expect investors to apply forward revenue multiples as the primary
means of analyzing Agile's valuation. CY1999 and CY2000 revenue
projections are $24.4 million and $37.2 million, respectively.
Agile's comparable universe consists of e-Commerce Enablers such as
Ariba, BroadVision, Marimba, VerticalNet and Vignette. These
comparables are currently trading at an average price to sales
multiple of 54.2x CY1999E revenue and 30.0x CY2000E revenue.
Comparatively, Agile is trading at a price to sales multiple of 41.2x
CY1999E revenue and 27.0x CY2000E revenue. Based on this analysis
Agile is trading within the suggested range of the comparable
companies.
The full initiation report will available on our web site:
www.msdw.com/mrchuck.
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