SG COWEN
Jacada (JCDA: $10) Analysts: Rehan Syed/ Donovan Gow August 3, 2000
Rating: Reiterate Buy rating
ANOTHER STRONG QUARTER FOR UNDER-RECOGNIZED PLAYER
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Old New Cash EPS (ex amortization and stock compensation)
FY (Dec) EPS EPS P/E Q1 Q2 Q3 Q4
1998A ($0.22) ($0.08) ($0.08) ($0.04) ($0.02)
1999A ($0.00) ($0.03) ($0.00) ($0.00) $0.02
2000E $0.00 $0.01A $0.00A ($0.01) $0.00
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Mkt. Cap. $180MM
INVESTMENT THESIS
Jacada reported a strong Q2, further building on its exceptional Q1 results and indicating continued
momentum. Jacada is a leading vendor in the legacy-to-web application renewal market. The primary growth
driver is the rising interest in developing and deploying a new generation of Internet applications. Since most
organizations already have a huge base of legacy applications on the mainframe and AS/400 platforms, Jacada
helps renew them by providing products that automatically convert the dull and limited mainframe “green
screen” user interface to a savvy and rich web-based user interface while leaving the core application intact.
The challenge of bridging new technology with old is non-trivial; Jacada has innovated strongly to provide a
high-productivity and robust product set which minimizes the pain and maximizes the value of performing
such application renewal. Like many other software stocks recently, Jacada’s shares have pulled back, despite
its strong Q1 and relatively unchallenged market segment. We believe this strong upside earnings report will
give investors a new reason to look at the stock and expect the stock to perform strongly.
Key Points:
1. 10% top line upside driven by license upside of 17%, cash EPS upside of 3c
2. Strong ramp in direct sales capacity
3. Major customer win with Delta Airlines
4. Major new product, Innovator, shipped this quarter; strategic plus
5. Large and largely untapped market opportunity
6. Model revised slightly
Detailed Discussion:
ANOTHER STRONG QUARTER ALL AROUND
Jacada recorded a strong Q2, that beat expectations handily (yet again) on both the top and bottom lines.
Total revenues were $5.7MM, 10% above our estimate of $5.2MM. This represents 69% Y/Y growth and
19% Q/Q growth. License revenues were particularly strong at $3.6MM, 17% above our estimates of
$3.1MM, while service revenues of $2.1MM were directly in line with our estimates. The license/service mix
was 63/37, nearly identical to Q1, as were margins. Operating expenses were only slightly higher than
projections, allowing most of the revenue upside to flow through to the bottom line. Cash EPS of $0.00 was
3c above our estimates. On the balance sheet, Jacada’s cash balance is $6.8MM, up slightly from $6.1MM in
Q1. Deferred revenues stayed flat at $2.1MM.
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