November 30, 1999 1:55pm
2HRS2GO: Data Race in its own words
By Sergio G. Non22GO ZDII
zdii.com
People occasionally accuse this column of biased
writing, so before we start today, let's be clear:
You're right. As far as this daily piece is concerned, I
am very biased. That's why the hideous graphic above
the headline includes the word "Commentary".
Having said that, today we present to you the
unvarnished words of Data Race (Nasdaq: RACE), a
company whose stock has plenty of attention today.
Data Race's latest release of its Be There! product for
remote access has day traders hot and bothered,
judging by RACE's 50 percent increase (not that it
takes much to boost a $2 stock) on heavy volume.
As of mid-afternoon, the market moved almost 10
million RACE shares -- a large amount for for any
stock, but especially heavy for a company that has
done nothing but let down investors with a failed lawsuit
against Lucent Technologies (NYSE: LU) and
announcements about "strategic alternatives" that to
this date have produced nothing.
Maybe buyers figure there's little risk at a price of $3
and change per share. In any case, it doesn't hurt to
hear about the company, so I spoke with John Liviakis,
whose investor relations firm handles Wall Street for
Data Race. Liviakis also happens to be Data Race's
largest stockholder with about 2.8 million shares.
Excerpts from the interview:
It sounds like Be There! is a VPN that also
lets you receive phone and fax calls from
your office. Is that an accurate description?
Liviakis: Any technical questions should not be
geared towards me, I'm totally technically not
inclined. I can tell you some basics about
vocalware that I know.
I do have some financial questions. How
much revenue is the company projecting
from this product?
Liviakis: I can't make any public projections, the
company has its own internal forecasts. They're
developing their own internal model based on
new (COO) leadership with Mike McDonnell,
who's quite extraordinary, by the way.
He's former senior management with GTE and
NEC, has a very accomplished history, he's one
of the better CEOs I've ever been associated
with. But Mike's developing a model so we'll be
able to have our own set of forecasts, but we're
not going to, of course, disclose those publicly
until the appropriate channels, through analysts,
do that.
I think this new product was a major evolution for
the company ... We have a number of other new
product introductions, the balance sheet remains
strong and clean, and the stock carries a very
tiny market cap relative to its peer group. When
you look at this company being a leading
voice-over-IP technology company, and a leading
communications technology company -- and
they are a leading company, they are the leading
technology company in the world in those two
spaces.
You mentioned the balance sheet. In the
September quarter, you had $2 million and
change in losses and ended it with $6
million in cash. Why shouldn't investors
worry about that?
Liviakis: Well, I think with almost any company,
always the balance sheet is something you
always have to keep an eye on, there's never a
perfect situation, you always have to consider
financing issues. This company, relative to other
microcap companies, has a relatively good
balance sheet, it's virtually debt free, and they
have nearly $6 million cash in the bank. So,
frankly, it's sort of the least of our worries.
The burn rate you're referring to, much of that
were non-cash items. a lot of that was
non-recurring, and or non-cash items or
accounting adjustments. On a cash basis, in
terms of burn, in terms of SG&A, it's
considerably below that. We have right now,
nearly a year of working capital, given our current
SG&A. Now if the company's numbers ramp up,
of course, given our high margins, especially on
our new software product, then it would actually
go positive cash flow and there would not be a
further burn.
What kind of margins are you looking at for
this product?
Liviakis: Well, they're software margins, you
know, with over 90 percent. Then of course, our
other products, like our server, you're talking
about, upon economies of scale, we can get
about 55 percent gross range.
What kind of revenue growth are you
looking at?
I think it'll be tiny for the next quarter. The next
quarter after that, it'll be still small, but showing
sequential improvement, the following two
quarters significant sequential improvement. I'm
not going to give forecasts, but the company
does expect to have meaningful revenues in the
second half of the fiscal year.
How many clients do you have for Be There!
right now?
Liviakis: The customer base right now, in terms
of actual, meaningful orders, is quite small of
course. In terms of those that have been beta
testing, it's significant.
We do have a lot of companies, a lot of large
companies who are testing the product, that are
showing interest in it. The exact number -- let
me think here, what's the number they told me
the other day? -- I think it's like 28 companies.
These are big ones, these are large orders types
of things. That number is sketchy, I'm not sure
how accurate that is.
Is it far to say, let's say, in the 20s?
Liviakis: Yes.
Now by the way, again, those are beta tests,
and those are interested parties, those aren't
necessarily contracts for large orders, don't get
me wrong. But we do expect to be able to
transition those into large orders, especially now
that we have the team in place to do so, we have
the next generation product that people are
waiting for.
You have to understand, a lot of these big
companies were waiting for vocalware. They did
not want the first generation (hardware) version.
The first generation version was brilliant, it was
lovely, but it had a couple of issues, and a lot of
big companies were waiting for the next
generation version. We think this new product is
that good.
Not that I would know that, I don't have a
technical background. But this is what I've heard
from a lot of people in the field.
I assume that Be There! is expected to
generate the vast bulk of the company's
revenues
Liviakis: Be There and its many shapes and
forms. Again there are a lot of new products
coming out that are part of the remote access
and IP family. The company has really
positioned themselves more as an IP company,
not really a remote access company, even
though they're essentially one and the same in a
sense. But the company is really an IP
company, and should be viewed as such.
So who do you see as its competitors?
Liviakis: Well, first of all, there's a handful of IP
technology companies that are trying to create
commercial products. You know, Artisoft is one
of them. What is it, Vocaltec, is another? I don't
know all the names of them, but there's a
number of voice-over-IP companies that are
claiming to have products coming.
Several months ago, Data Race announced
it was looking for "strategic alternatives".
What has ever come of that?
Liviakis: Nothing at all so far, which is quite
disappointing to me. I was betting heavily on that
for a lot of this year. I was surprised that it didn't
happen faster.
Now that I understand things better, I really have
more of a feeling as to why it didn't happen
faster. I think the problem was, the company
didn't have a Mike McDonald at that time, which
it now does. So I think Mike was the missing
link on the personnel side. I also think the
missing link was, the company needed to evolve
to its next generation products, which is what
the market's been waiting for. ... Now we can
really start nailing down these partner activities.
You refer questions about growth
projections to analysts. What analysts follow
Data Race?
Liviakis: Well, virtually none. The only one that
I'm aware of is a very tiny regional firm, by the
name of EBI Securities, his name is Dave
Lavigne, and Dave is a very bright, articulate guy,
but his firm doesn't have a lot of visibility or clout,
they're a tiny outfit. And Dave probably is not
that up-to-speed recently, but he did a fairly
articulate report a couple of months ago, it was
quite interesting, but the company's changed
quite a bit since then. I don't know if he's
upgraded his research on it, I don't think he has.
I don't know how current he is on his knowledge.
Make of it what you will. |
