Trader Dave:
Your comment that SOTA's "management is not loved by the street" has been the result of not delivering to the bottom line in the past couple of years. That began to change last quarter when SOTA beat estimates. I think SOTA will meet the rather aggressive numbers that are out there for Q4. It would be quite a feat to achieve $0.31, up over 120% and more than double GPSI's just reported quarter.
But more importantly, "the street" has not yet caught on to the profound changes that have taken place at SOTA since CEO Dave Hanna took over three years ago. In retrospect, what Hanna has accomplished is impressive.
The VAR channel was the largest in its space but not happy. I have spoken with literally dozens of VARs. Everyone of them has said they had had a love/hate relationship with the company before Hanna arrived. They loved the products but hated the company. Today VARs love the product and love the company.
Hanna came in with a 100% DOS and Mac product line. SOTA had the leading product in their market space but little vision going forward. A proprietary based Windows project had been underway. Hanna junked this development project, bet the farm on Microsoft and launched into the development of standard Microsoft based Windows and NT/SQL products. The Mac product line was sold. Q4 will show only about 10% of total revenues coming from MAS 90 for DOS.
Competitive results so far? GPSI had been the leader in Windows with a product out for four years and an installed base of 8000. SOTA's Windows product blew them away selling 10,000 copies in 6 months. GPSI has had a Dynamics c/s product which has sold an estimated 400 copies in 4 years. SOTA's equivalent MAS 90cs for NT product released last June sold 400 in four months.
With the Dynamics SQL product, GPSI was able to hit the ground running with a full suite of modules and has sold an estimated 500 to 550 copies in 18 months. With only the core modules out for SOTA's Acuity, SOTA will sell only around 150 in its first full year. That is still $5 million in Acuity product revenues - pretty decent considering it took FlexiInternational over three years to achieve $5 million in product revenues. (And they sell at 15 times revenues.)
Although there were three significant releases of Acuity in the last 90 days, I agree the biggest impact to Acuity will be in mid-1998 when the Acuity distribution modules hit, international sales begin to contribute, and vertical partners such as Lockheed begin to release their products. Having won two "Best Technology" awards from Microsoft competing against all the mid-range vendors, Acuity is well positioned.
SOTA had also had negligible services revenues while SOTA's competitors had 40 to 50% in services revenues. It is now the fastest growing part of revenues and should be over 15% of revenues this quarter on its way to over 20% next year. Customer support had been mediocre. Today it has dramatically improved with a 90% decrease in customer support response times. There was little earnings visibility as EPS spiked up and down from quarter to quarter as upgrades were released or not. CFO Eckstaedt has taken a number of steps that are smoothing out earnings and predictability.
Hanna brought in a new management team over the last 18 months: Dave Butler, VP Sales, from Lawson; Jim Moore, a winner of the most improved customer support, from Delrina; Jim Eckstaedt, CFO, from Western Digital; Rich Lull, new VP of Marketing; Greg Davidson VP Client Server Development, from Platinum; and Holly Barnett, Director of Corporate Communications. The only original management member left is George Riviere, the architect of MAS90 and still the head of MAS 90 development. Hanna has set a clear vision of growth for this new management team to execute. Hanna's well known enthusiasm for the future of SOTA has spread throughout the company as well as the VAR channel.
In all, Hanna has accomplished an amazing amount the last three years. There was a lot to fix. Today SOTA has not only the largest VAR channel in the mid-range but a revitalized channel, has new market leading core products and going forward is very well positioned with Acuity. The team Hanna has put together is ready for strong growth. I would not be surprised if "the street" loves SOTA a year from now at twice its current price.
(By the way, contrary to some rumors, Hanna does not commute to Orange County - he lives 20 minutes from the office, does not play golf, and does set a blistering work pace.) |
