a lot of labor by a raging bull poster-----feel guilty leeching off this one,this guy really did his homework,i just leech it,bad max:) << Respond Next >
By: velocipede
Reply To: None Saturday, 1 Apr 2000 at 5:40 PM EST
Post # of 15344
CNTR 10K Analysis...
First, this post is long. I've attempted to analyze the filing based on a view toward management's impetus: "...to become a recognized leader in the e-business and Information Appliance markets..." The reason this post is lengthy is to provide anyone reading it the overview necessary to understand the transition of the CNTR business model from one that provides secure, embedded databases to one that leads the industry in providing Web-based solutions and Information Appliance technologies. Besides, before posting this information, the analysis took me approximately 4 hours. So please, bear with me.
Business Model/Strategy
CNTR is currently known as a provider of secure embedded databases based on their previous model. In the context of the 10K, management has indicated its drive toward the "4th Wave of Computing" (Web-based solutions) and the "5th Wave of Computing" (Information Appliance technologies). As such, the transition is underway and management is strongly behind this shift. This has tangibility in the releases of CTD2000, eSNAPP, and db.linux.
Revenue Recognition
The well-publicized downfall of Microstrategy over the last couple of weeks emphasizes the need of a conservative, yet fair revenue recognition device. CNTR follows various generally accepted accounting principle (GAAP) pronouncements to ensure that a Microstrategy situation does not result in an SEC-required financial restatement. Suffice it to say (for brevity's sake) that I find CNTR's revenue recognition policies to be conservative to follow GAAP and SEC requirements.
Net Product Revenues
CNTR's product revenue breakout is still aligned toward the embedded database venue in that 74% of revenues were derived from this source. Only 26% of their 1999 revenues were from "4th and 5th Wave" products. This is primarily due to the recent (4Q'99) release of eSNAPP and the just released CTD2000. Management's goal, (referred to above) is to concentrate their efforts in "4th and 5th Wave" products in the forseeable future. Therefore, my conclusion is that the 1999 product revenue breakdown is indicative of the "old" business strategy. Revenues from current, new business model activities have yet to be realized.
Net Service Revenues
Net service revenues (consisting of fees entitling CNTR customers to receive product revisions/upgrades, support, and consulting) increased from $20mm in 1998 to $23.2mm in 1999, or 16%. Logic dictates that CNTR will realize increased service revenues in the future as a result of increased product sales from web-centric and appliance-based products.
Interestingly, international sales accounted for 55% of gross sales in 1999, up from 54% in 1998.
Cost of Product Revenues
The cost associated with generating the aforementioned product revenues decreased by approximately 30% primarily due to decreased royalties and expiration of development licenses. Although this is a positive from a financial perspective, it is not substantive to management's efforts. However, what is substantive is that CNTR's gross profit on product revenues approaches 90%! This is an incredible number when compared to other software-centric companies.
Cost of Service Revenues
While service revenues increased by 16% in 1999, the cost of service revenues decreased by 11%! This was achieved by bring in-house previously outsourced support functions. By any standard, when a sector revenue source increases with a corresponding decrease in the cost of generating that revenue, management has done it job admirably.
Operating Expenses and Net Income
CNTR's operating expenses (OE) increased by 13.6% in 1999 primarily due to the costs associated with the Raima acquisition, increased efforts associated with product development and additional activity in the sales and marketing areas. Although rough, it appears that Raima's effect on the increase in OE is somewhere between 80% - 90% of the gross increase in costs. That is, without the fold-in of the costs associated with Raima acquisition, it is my opinion that CNTR's profitability would have approached that in 1998 (i.e. CNTR could have seen profitability instead of a small loss).
Interesting Disclosure - Creditworthiness
When analyzing a financial statement, I typically look for warning signs. These signs usually rear their ugly heads in the Notes to the Financial Statements. However, I believe I found a gem while reading the Notes. For some time, CNTR has had a $5mm credit facility. In February 2000, this credit facility was renegotiated at a lower interest rate. This flies in the face of 5 consecutive interest rate increases, compliments of the Federal Reserve. Whenever a company receives improved credit terms, creditworthiness has grown. This is typically due to the increased ability of the underlying company's stronger position in meeting the covenants of the credit terms. This, without doubt, is an excellent sign.
Accountant's Opinion
CNTR received an unqualified opinion in their audit by Pricewaterhouse Coopers. An unqualified opinion indicates that the company has no exceptions to GAAP or a "going concern" issue. In other words, this is the best opinion issued by independent public accountants.
Balance Sheet Overview
CNTR's total assets increased by approximately $22mm from 1998 to 1999, or 75%. This increase is primarily due to proceeds from stock sales (all) and the goodwill recorded in the Raima acquisition. Liabilities increased by less than 20%.
Conclusion: The 10K reflects exactly what management has been preaching...transition. This analysis did not reflect to me any serious issues leading me to reconsider my position in the stock. To the contrary, given the new product advents and management's strong hold on cost controls, I believe profitability is imminent for CNTR.
This analysis is my opinion only. If anyone has a different view or opinion of the financial statement (as a whole), I will be happy to discuss it.
velocipede
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)>> thank you velocipede,max
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