Correction: My analysis of INTS 2nd Qtr results in the previous post indicated that the revenue growth of 30.5% was based only on INTS operations in place in the year-ago quarter. I stand partially corrected. The FY 1996 quarter was restated to capture the effects of the SNiFF+ product revenues and costs, which adjusted 2nd Qtr FY 1996 revenues upward by $3,7 million. Not included was the revenue from TakeFive, which was making about $3.2 million annually at the time of its acquisition by INTS. If TakeFive revenues distributed equally over the year, the effect of adjusting for TakeFive would be to reduce quarterly revenue growth to 26.4%. (Add $3.2 million divided by 4 onto last year’s adjusted quarterly revenue of $19,851K, and compare it to this year’s quarterly revenue of $26,105K.) I don’t know about Dr Docs, or whatever the name of the other acquisition was, or how Epilogue was handled.
Otherwise, my remarks about losing market share and lackluster EPS growth stand. The market is not pricing INTS shares as an 18% growth stock, so investors should be concerned.
The quarters numbers are consistent with the following scenarios, not all of which are bad:
1. Acquisitions have to digested, so INTS had to spend extra time and money during the quarter. The acquired companies add needed capability, and everything will return to normal EPS growth next [time period]. (You fill in the period).
2. While overall revenue growth was almost OK, in the embedded systems component of the company it was much better, actually growing at a rate of [percentage]. (You fill in the percentage.) The non-embedded systems business, mainly MatrixX and non-embedded acquired technology, was relatively flat, but it doesn’t matter since the market is buying an embedded systems company. Also the margins are admittedly eroding in the non-embedded systems side of the business, but the market doesn’t care.
3. The company stretched to make the revenue estimates, hitting H&Q’s to the penny ($26,105 vs. $26.1 million estimated). This was accomplished with aggressive pricing, which naturally cut operating margins. On top of that, digesting all the acquisitions did not help costs either.
Which of these is true? If the answer is either of the first two, then the market should ignore the earnings shortfall, with maybe a slight slap on the hand. If it is the last one, then unless the acquisitions fire up the company, it will be unable to perform like WIND and possibly MWAR, and its price will surely have to adjust to compensate.
Sorry I had to elaborate about this, but I am not here to misrepresent any company, and I made a careless mistake in my previous post. As I have indicated previously, INTS is not a pure embedded systems play, and this along with all the acquisitions confuse me. For this reason, I wouldn’t post any analysis of INTS if it could be avoided, but to fully appreciate WIND and MWAR, you have to have at least some understanding of their competition.
Allen |
