Apparently the analysts concerns emerged in private calls after the CC:
Wednesday April 29, 9:52 pm Eastern Time
TALKING POINT/Command Systems down on profit doubt
By Huw Jones
NEW YORK, April 29 (Reuters) - Command Systems Inc.'s (CMND - news) stock tumbled on
Wednesday, as investors worried that the technology solutions provider's refocused Indian operations
could pressure margins and not boost its profits as quickly as expected.
The company said it was refocusing the company on higher-margin, value-added project work, and
margins could be hit during the transitional phase.
''As we build our project management team, without having those new project revenues to absorb the
costs, it could have an affect on our margins,'' said Steven Willcox, Command Systems' chief
operating officer in a telephone interview.
Midday Wednesday, the stock was sliced in half, falling 7-3/8 to 7-1/8, and well below the year's high
at 18-12/16.
Brokers Volpe Brown Whelan & Co. and Cowen & Co. both cut their ratings on the stock to neutral
from a buy on Wednesday.
Command Systems posted first quarter earnings after the close on Tuesday, the company's first
results since its stock began trading on the Nasdaq in January.
Cowen was the lead underwriter on the offering, but was not immediately available for comment.
Command earned $0.04 per diluted share compared with a loss of $0.06 in the same quarter last
year. Revenues were up 54 percent to $7.93 million.
Volpe analysts Christopher Paul and David Gremmels said in a research note that Command's
earnings were better-than-expected, but a number of issues surfaced regarding the company's
earnings outlook.
These issues largely focus on Command's offshore technology resource center in Bangalore, India.
Command, employing 400 people worldwide, has failed to secure enough work for its offshore project
business, and this will ''seriously disrupt revenue and earnings projections,'' Volpe said.
In the first quarter, a large component of earnings came from year 2000 work at Bangalore, but the
company has chosen to expand other services available at the site, at the expense of turning down
some year 2000 work, Volpe said.
Volpe slashed its 1998 earnings per share forecast for Command to $0.23-$0.28 from $0.42
previously, and its 1999 EPS estimate has been lowered to $0.32-$0.37 from $0.61.
''We believe the company is going to grow steadily both in terms of revenue and earnings,'' Willcox
said in response to a question.
Command is still in the process of refocusing on project work, Willcox said.
''While there has been a lot of proposal activity, we have not closed anything at this point in time,''
Willcox said.
Command Systems was formed in 1985 and, up until the early 1990s, its business was focused on
staff augmentation or helping companies who need temporary help with information technology
solutions.
By the first quarter of this year, staff augmentation accounted for only 51 percent of the company's
business.
The balance was comprised 31 percent from helping companies solve year 2000 problems, 12 percent
from hardware and software resale, and just six percent from projects, Willcox said.
''We will continue to grow all our lines of business; it's just that the project piece, which includes the
year 2000 work, would be growing at a faster rate,'' Willcox said. |
