Growth rate on consulting revenue is declining.
My two cents worth on earnings & the conference call. Consulting revenue in Q1
increased by 28% from Q4. Consulting revenue in Q4 increased by 36% from Q3. In
the conference call management said that the biggest obstacle they were
facing on the consulting side of the business is 'hiring and retention'.
They expected this business obstacle to continue or get worse as time
progresses. IMO it is fair to conclude that management expects
consulting revenues to continue to grow, but grow at a slower pace. If
consulting revenue grows at a 20% rate between Q1 and Q2, consulting
revenues will be 8.1 million.
They also said that they are seeing a change in the mix of their
consulting services. 6 months ago 'planning' was about 70% and implementation
was about 30%. Today it is about 50-50. They expect in the next 6
months or so it will be 'implementation' 70% and planning 30%. These
were rough 'guestimate' numbers but the clear message is we are
observing a shift in the type of consuting activities performed. This
is quite important because the company has previously stated in prior
10K and 10Q filings that 'within the consulting sector, the planning
activities provide us with a higher gross margin than the implementation
activities' (paraphrased) IMO as a combined effect of employee hiring/retention
obstacles and a shift towards lower margin consulting revenues, the firm
will continue to experience a reduction in their revenue growth rate, and
as previously stated IMO consulting growth rate for Q2 should slow to
about 20% giving them revenue of about 8.1M before Ardes 2K sales.
Regarding Ardes 2K sales, I'm suprised no one has mentioned the 'time
lag' management referred to when discussing how Ardes 2K will affect
future revenue performance. They said that they had 14 customers using
the product on a trial basis and that two were ready to order more.
Trial basis was vaguely defined as a 'starter kit' consisting of 5 seats.
If we assume all 14 customers bought a full starter kit thats 70 CD's.
Importantly management said that they expected customers to take 30-60 days
to evealuate the product to see if they wanted to go the the 'next level' of
buying. Hell, we are already one month into Q2. TO ME MANAGEMENT WAS
SAYING, 'DONT EXPECT BIG ARDES 2K SALES FIGURES FOR Q2', because:
1. Were just getting out there trying to penetrate the market, and
2. When we do penetrate the market and get a customer to try the product,
its going to take the customer a while to decide if they want more.
Lets face it, this stock isn't going to make it by relying upon selling
'starter kits' to a lot of little companys. They need some big hitters
to come in and place orders in the magnitude of a hundred or more. IMO
if they sell 500 CD's in Q2 they will be doing great. Thats another
1.5M in revenues putting Q2 total revenues between 9-10M. Because of
the time lag between product evaluation and further orders, I don't
expect Q2 to be the 'fish or cut bait' quarter for DDIM. Q3 definately
will be the 'put up or shut up' quarter IMO.
Management when asked about future performance, said that they expected
consulting revenue to continue to grow (it will albeit at a lower rate),
they expected licensing revenue to gradually rise (from its current
position of 10% of revenue to about 15% of revenue)and that the 'wild
card' was the Ardes 2K contribution. They said that was clearly the
least predictable of their three revenue sources. As has previously
been reported management is already on record as saying that they do
not expect Ardes 2k sales to match some 'Wall Street expectations' (paraphrased)
Unlike some other posters here, I did not find the conference call boring.
I do agree that most of the questions were 'softballs' that let management
talk about how great they were doing. By listening carefully, however,
I think a lot could be learned about how managment expects their growth
to be defined and in some instances limited by factors beyond their control.
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