Tangram Colleagues:
I received a return call today from John Nelli. He was gracious, forthcoming, and optimistic as I expected from having met him previously. He provided a wealth of good information which I will try to summarize as accurately as possible here.
I repeated my statement about 60% of the increase (quarter over quarter) falling to the bottom line and asked if that would be an accurate projection going forward. In the best optimistic, hedging fashion, he said "yes and no," but then proceeded to discuss it at length and eventually said he expected that future increases in revenue would fall to the bottom line at about 40-50% depending upon circumstances.
I asked about last year's plan to hire approximately 100 new employees during 1997 and he said that was running somewhat behind schedule; TESI had hired about 50 of those and expected to hire the remaining ones during 1998. The hiring schedule is geared, of course, to the need for these people. Current employment is about 150 people.
I asked him about only one-third of the resellers contributing to revenues last quarter. He was quite optimistic and explained that the process of bringing a reseller up to snuff on the product can take as much as two years, but that several new resellers to the Tangram fold had begun making sales much quicker than expected. There are about 30 resellers signed up and 12 contributed to revenues this time. The majority of sales came from three.
The set-aside of $1 million that reduced the previous quarter's one-cent profit to a six-cent loss is still up in the air. Tangram will pursue collecting the revenue that had been previously credited to the quarter and is optimistic about settling the issue without full litigation. MY personal opinion is that in these cases there will probably be some out-of-court settlement that will result in a payment to Tangram of some percentage of the $1 million. According to MY calculations, for every $150,000 collected on this "account receivable," one cent should accrue to the bottom line of the quarter in which it is collected. I stress that these are my calculations and assumptions, not Nelli's. Because this may end up in litigation, he is obviously reluctant to make any definitive comments.
There are still no brokerage firms following Tangram on an official basis and publishing expected earnings. Nelli is talking with four firms about gaining coverage, but Tangram basically needs a larger float and more volume trading to draw the necessary interest. Should Tangram decide to go for a secondary offering of stock to raise capital, the business that such a move would generate for brokerage firm that underwrote the offering might be enough to gain official coverage.
There is always the possibility that Tangram could either acquire another entity or be acquired by someone else. Accounting regulations related to what is referred to as a "pooling of interests" come into play here and the fact that Safeguard holds 68% of Tangram's stock is a deterent. It is possible that Tangram's float could be increased by Safeguard divesting itself of enough stock to reduce its ownership to 49% and thus remove a regulation problem. Nelli stressed that he was explaining to me the thrust of these regulations and how they affected future possibilities. He was not indicating any definitive possibility that Tangram might be sold or is about to make a secondary offering that would be dilutive to share ownership.
Finally, we talked about the spike in price during February up to approximately $11 per share. He had no explanation other than it could possibly be related to information about Safeguard during its earnings announcement and conference call. Either mentioning or failing to mention Tangram in Safeguard's comments can affect Tangram's stock price significantly.
Nelli made other optimistic comments about the future of the company and its software releases. The annual meeting will be held June 3rd at the company headquarters. I will try to arrange my schedule so I can attend. I will report back here afterwards.
Sorry for so long a message, but we have so few postings here that I thought it might be worth the effort.
Walter High |
