Inference Corporation--Growing 100% and still inexpensive Message Board

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Technology Stocks : Inference Corporation--Growing 100% and still inexpensive

INFR 31.99

-0.1%

Jan 27 4:00 PM EST

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To: BYRON S DOHERTY who wrote (1073)	12/15/1998 10:55:00 PM
From: Sethpop	Read Replies (2) of 1246

If you read between the lines of the 10-Q, filed today, there are three messages that I think echo what WSANALYST (on Yahoo Board) has indicated Jepson was communicating during the recent road trip: 1.) The changing revenue mix to more "product" revenues (with huge gross margins) rather than "service" revenues....when combined with the corporate investments in product R & D and marketing will provide enormous operating leverage. In plain English this will increase fixed costs and lower variable costs so that smaller changes in revenue will have a greater impact on the bottom line. This will also increase earnings volatility as "product" revenues tend to be more "booking"-oriented while the service revenues are more continuous maintenance etc. As an investor this means that if INFR is successful in growing their K-commerce product revenues as explosively as they hope...the earnings can soar; however it is a double-edged sword and combined with item 2.) (next) leads to the "guidance" about earnings for the next few quarters. 2.) It states explicitly in the Q that the company's business profile is such that their business has characteristics that cause revenue, operating income and net income to be greater in the fourth quarter of a year than in the first quarter of the following year...(read that carefully!!)...WSANALYST indicated that Jepson gave "guidance" that Q1 '99 might be challenging due to the investment in marketing...but that he had high hopes for Q2!! Thus...the last quarter of 98...hard to tell but should be pretty good...Q1 '99 relatively soft (break-even?) but Q2 '99 should be super!! Q2 ends 7/31/99...should announce around August 20. 3.) $25,000,000 in Cash---10-Q starts to talk about acquisitions (mostly safe-harbor kinds of language)...but clearly, now that they can no longer buy back their own stock at bargain-basement prices (relative to cash and current earnings)...and given that they have no capital requirements going forward...the $25,000,000 can earn about 5%...$1,250,000 pre-tax...$750,000 after tax (on a pro-forma full-taxed basis)...So they could buy something that was earning $625,000 after tax in 98 (and assuming it was growing at 20% or more on the bottom line)..would have something that would be "accretive" to earnings in 99...(That would be 40 TIMES 98 earnings!!)...AND if the acquisition were at all "synergistic" to their business...the earnings accretion would be that much more over time. FWIW

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