CFO phone call today!
I finally connected with Jim Flaherty at Zomax today and was able to ask a few questions. After going through the material and talking to Jim for quit awhile, I am very excited with this company and quite comfortable with my investment. I paraphrase and summarize the questions and answers:
Q. I noticed that 3 vendors make up about « of you business. Does it make you nervous?
A. Gateway is by far the largest vendor. We have a great relationship with Gateway and were recently named one of their `vendors of the year'. We do a lot more for GTW than CD duplication. We provide assembly and distribution of the whole software package. This is an important aspect of the service that we provide. Companies outsource the whole software package to us -- CD, manual, replycards,...
Q. Is GTW a major vendor due to the MSFT AR (Authorized Replicator) capability? How much of GTW business is MSFT software and how much is other software?
A. The AR designation is important. We estimate the 10 vendors have it, but some of them only duplicate documentation and do not replicate CDs. We think that there are approximately 5 true CD manufacturers who are Auth Replicators. Not sure how much of our GTW business is MSFT software.
(my additional note: The research report from Principal Group concerning MS Authorized Replicator states that the company "believes that MSFT does not intend to grant this status to any additional CD manufacturers in the near future.")
Q. You were doing some outsourcing and are building more manufacturing capability. Are you manufacturing constrained at present?
A. Yes. Operating 24 hours a day and are limited by manufacturing. Additional facilities are being added next to the Trotter facility in San Jose. (Trotter was acquired in may, 1977) It will service Trotter's existing customers, be in position to service additional west coast customers and take over some of the customers served by the Minnesota factory.
(I forgot to ask how the facility expansion was going. Oh well.)
Q. Could you explain what it means to do RMA processing?
A. Trotter handles the return material for customers. They take in CDs which need upgrading, modification or destruction (like old tax software, for example which needs to be destroyed).
Q. Are you comfortable with the $36mm revenue forecast for this year? And next year's $45mm? And next year's EPS range of 0.65-0.75? What level of revenue gives 0.65?
A. Yes, to $36mm this year. Yes, to the range for next year. $45 million of revenue probably gives 0.65 per share in 1998. With the facility expansion we would have manufacturing capacity to do the $45 million and we could also add additional duplication equipment if required to go beyond.
(I did not try to narrow down how much exactly they could produce based on the existing expansion plans. And I got the impression that they could add a production line or whatever is necessary without too much trouble.)
Q. Please explain Metacom relationship. In the proxy it mentioned that they were not in compliance with its bank and they are a major customer and had a sizable Accounts receivable balance.
A. The Zomax Chairman of the Board is majority shareholder of Metacom. Part of the agreement between Zomax and Metacom required Metacom to purchase certain volumes from Zomax. They did not meet that requirement (last year?) and are now required to purchase all requirements from Zomax. The bank compliance issue is resolved. Metacom is a smaller percent of the total Zomax business now -- maybe 5%.
(Sounds like a non-issue to me now. I was worried about the AR and the default risk.)
Other:
They are working on a web site. He is not familiar with Silicon Investor but requested the URL from me. I mentioned that Intel, among other companies, monitors it's SI site and posts to it on occasion. Lisa is the Investor Relations contact for receiving materials but Jim seems to be the contact for questions. (612) 553-9300.
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Hello to Lisa and Jim and Thank You!
I hope that I did not misstate anything.
Grommit |
