10/14 FWE Early Stage of Turnaround, Pipeline Strong
SYMBOLS: VRTY S/COM S/CUS S/CNA I/COMPUT
WESSELS, ARNOLD & HENDERSON
VERITY, INC.
NASDAQ:VRTY
HOLD
Recent Price: $16 3/8
52-Week Range: $58-10
Year End: May
Fiscal Year EPS* P/E
1996A ($0.01) NM
1997E ($0.10) NM
1998E $0.40 40.9x
Cal. Year EPS P/E
1995A ($0.22) NM
1996E ($0.12) NM
1997E $0.30 54.6x
*Fully Taxed
ROE: NM
3 Yr EPS Gr: 40%
Shares Out: 10.7 million
VRTY is making progress in building its presence in the market and in correcting some of the problems that led to disappointing August-quarter results. While it is too early to declare that the Company has definitely turned a corner, we believe that VRTY is working to improve its sales forecasting and pipeline management. The Company has announced five large deals in the quarter - Tandem,
the Financial Times, Software Construction Co., Intranet Solutions, and the Forefront Group - and we believe that additional customer wins will be announced over the next several weeks. This should help flatten out the monthly revenue build in the quarter.
The sales pipeline remains in good shape. Fulcrum Technologies, Inc. (NASDAQ:FULCF) has been a stronger competitor of late in North America. VRTY's next-generation Search97 full-text searching product suite is currently in beta and is scheduled to ship in December. The Company's Microsoft Exchange product should be released in November. FULCF has been shipping an Exchange product for a few months, which has helped increase FULCF's market presence. We continue to believe that VRTY's Search97 technology is very well positioned to compete successfully in head-to-head competitive evaluations. The Company must ship the product on schedule in December to avoid losing ground to competitors and to continue to expand its pipeline.
VRTY currently has a direct sales force of 12 persons and an OEM sales force of four persons, with additional hiring on the OEM front planned by the end of the year. The OEM sales force focuses on VRTY's bundling relationships with software vendors, such as Sybase, Informix, SAP, and Netscape. A significant recent move was the hiring of an OEM marketing specialist, who will focus on aftermarket support for VRTY's licensing partners. This will result in better training of OEM partners' sales forces, who will be better able to up-sell VRTY products.
Sybase is expected to ship its VRTY-bundled products in the first quarter of 1997 (a slip from the fourth quarter), Informix in the fourth quarter, and SAP in the first quarter of 1997.
On the new product front, VRTY is expected to ship a new "personal" edition of Search97 in December. The shrink-wrap product will allow users to index and search the contents of their hard drives. The Company will utilize its direct sales channels into corporations, as well as large consumer software distributors. VRTY is also planning to introduce a "gateway" server product, Information Access Server, that will allow personal versions of Search97 to integrate with information indices generated by other VRTY-enabled applications. Pricing has not been announced; we would expect the revenue impact to begin by
mid-1997 at the earliest. VRTY is also working to componentize its core search server; we believe that the Company could reduce entry-level price points over the next few quarters and focus on value-added components to offer customers more flexible, cost-effective enterprise searching.
Stock Opinion: Although VRTY is making progress and the market for search software remains strong, we are awaiting evidence that the Company can re-establish revenue growth momentum and build visibility. Our revenue estimate for fiscal 1997 remains $40.3 million, and our EPS estimate remains at ($0.10).
We continue to rate the shares "Hold."
INTERNET TECHNOLOGY Stephen H. Sigmond ssigmond@wessels.com 612-373-6236 (10/14/96) |
