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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (32251)	5/14/2001 8:38:06 PM
From: Oak Tree	Respond to of 68410

I think your advise on RTEK is wise and I covered today with a few hundred $ profit.

To: Johnny Canuck who wrote (32251)	5/14/2001 8:48:45 PM
From: xcr600	Read Replies (1) \| Respond to of 68410

Revenue recognition helps Retek through rough patch TIM HUBER STAFF WRITER The recent resurgence of technology stocks has been particularly kind to Retek. Technology stocks started showing signs of life last month, and though most remain well below the highs they hit in 1999, the sector is performing far better than in recent months. Shares of Minneapolis-based Retek have gained more than 30 percent since early April. Retek sells software and services for large retailers that use the Internet to assist suppliers and customers. One of the keys to Retek's recent performance is the unique accounting method it uses to recognize revenue. Most software companies recognize revenue when their customers pay. But that method puts a company at the mercy of its customers, who typically know that the time to make big software purchases is the last week or two of a quarter. By then, the average software company is desperate for sales and willing to offer steep discounts to meet Wall Street's expectations. Retek, conversely, recognizes most of its revenue over the 12 to 24 months following a sale, an approach that offers several benefits. First off, Retek books two-thirds or more of its revenue on the first day of a quarter, making estimates much easier to meet. Second, the company doesn't face the last-minute sales pressure that plagues so many other software companies. Finally, Retek gives its investors peace of mind by reporting deferred revenue that will go on the books in future quarters. For example, Retek started the second quarter with 75 percent of its revenue already booked and has 60 percent of anticipated revenue for the third and fourth quarters already on the books. Investors, especially those who buy volatile tech stocks, crave that kind of predictability. "They understand the visibility they now have into future quarters," Retek chief financial officer Greg Effertz said. "It provides them a sense of comfort.'' Retek's approach paid off handsomely in the first quarter. Corporate America dramatically slowed spending in technology, turning February and March into a nightmare for the entire tech sector. Retek, however, bested the first-quarter expectations of Wall Street analysts. Revenue came in at $37 million, $1 million more than predicted, while a loss of 3 cents per share beat estimates of 5 cents. "Retek sailed through," said Pat Farley, a senior research analyst with Edina-based Kopp Investment Advisors, one of Retek's largest shareholders. "They have a much stronger ability to weather a down quarter or two." Farley sees a growing number of privately owned software companies moving to the same revenue recognition model. But although Computer Associates is making the switch, few public software companies can emulate Retek, for a couple of reasons. First, there are accounting rules. Retek is able to recognize most of its revenue over time because it provides high-level services to customers so they can fully integrate their software over a year or more. But when Retek sells software without support services, as it sometimes does, accounting rules require the full amount to be recognized at the time of sale. Most software makers don't provide such after-sale services. Second, switching revenue recognition is a painful process for a public company because, on paper, revenue drops dramatically in comparison with previous quarters even though cash flow remains the same or increases. While stock analysts and sophisticated investors understand, if they take the time to study a company's books, a casual observer would only see the declining revenue and, in all probability, losses. Retek switched when it went public in 1999, which eased things a bit, but it still suffered plenty of pain during the transition, said Effertz and investor relations chief Bob Kleiber. The company endured four quarters that compared poorly with previous periods and had to educate investors and analysts. "It takes a lot of explanation," Kleiber said. And then there were the customers. Retek does business with the likes of Kohl's, the Gap and Best Buy. Customers were skeptical about a company that was losing money and had what looked like faltering revenue, Effertz said. "It was very difficult to explain why we were an industry leader." Tim Huber can be reached at thuber@ pioneerpress.com or (651) 228-5580. pioneerplanet.com