Red Chip reference to TAVA in a recent DDIM press release.
INTERVIEW - Data Dimensions sees recovery in Q2
Thursday, February 26, 1998 09:34 PM
> NEW YORK, Feb 26 (Reuters) - Data Dimensions Inc (Nasdaq:DDIM) Chief
Financial Officer Gordon Gardiner said Thursday he expects the company
to make "substantial progress" by the end of the second quarter in
regaining profit margins lost in late 1997.
The formerly high-flying company has seen its stock fall from 40-12/16
on October 8 to 12 on February 24 after breaking even on fourth quarter
operating income per share and posting a net loss of $0.23 per share for
the period. Data Dimension is almost a pure-play Year 2000 company. Over
75 percent of its revenues come from consulting companies on how to
solve the "millenium bug" -- a global programming problem whereby
computers and software are unable to process dates correctly after
December 31, 1999.
Investors have lost confidence in the company not only for for its slide
in earnings but its concentration on Year 2000 contracts at a time when
some analysts see the millenium bug market ready to peak and wane.
Gardiner said Data Dimensions is reinforcing management and financial
billing procedures after rising expenses led to the company's
"disappointing" fourth quarter results. He said he sees the Year 2000
market lasting into the next century.
"We do expect to bring operating margins and gross margins back into
line with where they were in the third quarter," Gardiner told Reuters
in a telephone interview. "We'll make substantial progress by the end of
the second quarter."
Data Dimensions reported 1996 fourth quarter operating income of $0.06
per share and net income of $0.08 per share. Earnings estimates for the
company in 1998 have tumbled from more than a dollar per share to range
between $0.55 and $0.75.
Data Dimensions either hit or exceeded Wall Street's earnings estimates
for at least two years prior to the fourth quarter. Gardiner said the
company has an opportunity to again meet earnings expectations.
"We have an opportunity to certainly meet and possibly outperform a lot
of the estimates," Gardiner said of analysts' earnings expectations for
the 1998 year. He said the company let fourth-quarter expenses slide,
allowing gross margins to slip eight points to 37 percent as sales and
general and administrative expenses went from 29 percent of sales to 37
percent of sales.
"They outgrew their britches in terms of systems, management depth, you
name it," Cruttenden Roth Inc analyst Neil Cooper said of the company's
fourth-quarter performance.
Cooper said that while revenues more than doubled in 1997 "thin
management" meant the company failed to watch top and bottom lines
during the final quarter. Data Dimensions has taken on seven new senior
managers in the last six months, revamped its accounting process and
added infrastructure. Cooper said that if the company can turn around
its performance quickly, and regain investor trust, then it should avoid
any potential client disruption caused by financial disappointments.
That the company was not profitable at a time when demand for Year 2000
services was high comes as some concern for Red Chip Review analyst Ken
Trbovich. "How could they handle any downturn in revenues after the year
2000?" Trbovich said.
Trbovich sees the Year 2000 market peaking in 1998 and 1999, then
declining. He questions the viability of Data Dimensions' business as it
continues to focus on Year 2000 contracts.
Trbovich points to companies such as TAVA Technologies Inc (Nasdaq:TAVA)
that he said are currently moving much of their operations away from the
Year 2000 market into other areas of information technology. Cooper
estimates that as much as 95 percent of Data Dimension's 1997 sales may
have come from high-end, Year 2000 consulting contracts with clients
such as Merck & Co (Nyse:MRK) and Kaiser Permanente. Gardiner sees the
Year 2000 market remaining strong for up to six years after the
millenium with the bulk of sales coming in the first three years after
the Year 2000. He said that in 1998 the company will reduce the
proportion of revenues made up by Year 2000 contracts to below 75
percent.
Cooper said Data Dimensions probably has another five to ten years of
demand for Year 2000 contracts. He expects the company's high-end
contracts to turn into other information technology business as clients
develop new consulting needs.
"I give them better than even odds of making the turn," Cooper said of
his outlook for Data Dimension's 1998 year.
Quote for referenced ticker symbols: TAVA, MRK, DDIMc 1998, Reuters |
