HZ: TTRE: Q1:01 Results in Line with Expectations - STR BUY/Speculative
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08:46am EDT 16-May-01 H.C. Wainwright & Co., Inc. (Herbert R. Maher, CFA
617-7
H.C. Wainwright & Co., Inc.
Equity Research - eCommerce & Software
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TTR Technologies, Inc. 5/16/01
NASDAQ: TTRE - $5.88 Herbert R. Maher
STRONG BUY/Speculative (617) 788-9713
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52-Week Shares Market LTM Mkt Cap/ Growth ---Fwd 4 Qtrs---
Target Range Out Cap Revenue Revenue Rate EPS P/E P/E/G
$18 $9-$3 17.4M $102.3M $0 NM 50% (0.11) NM NM
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Dec. Q1 Q2 Q3 Q4 Total P/E Previous
2000A (0.12) (0.06) (0.07) (0.05) (0.30) NM
2001E (0.07)A (0.05) (0.01) 0.05 (0.08) NM NC
2002E 0.06 0.08 0.10 0.12 0.36 16.3x NC
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Q1:01 RESULTS IN LINE WITH EXPECTATIONS
Quarter Review. For Q1:01, TTR reported no revenues and an EPS loss of
$0.07,
in line with our estimate. The company posted revenues of $2,000 and an EPS
loss of $0.12 a year ago.
TTR's expenses for Q1:01 were $1.3 million, including non-cash stock-based
compensation charges of $0.3 million, compared with expenses of $1.6 million
a
year ago. For the quarter, R&D expenses were $181,051 and sales and
marketing
expenses were $109,702, compared with $362,319 and $173,877 the previous
year,
respectively. The sharp decrease in R&D and sales and marketing expenses is
attributed TTR's payments to Macrovision (MVSN $52.56) last year, in
accordance
with its partnership agreement. General and administrative expenses were
$674,251, up from $461,570 a year ago, and slightly higher than our estimate
of
$600,000, largely due to a payment of approximately $100,000 for Nasdaq
membership.
TTR incurred a loss $135,694 from ComSign, its 50%-owned subsidiary.
ComSign
generated revenues of $67,000 and a net loss of $171,000 including a
$125,000
non-cash deprecation charges from payments made to Verisign (VRSN: $51.54)
under
its affiliated agreement.
The company ended Q1:01 with a cash position of more than $7.5 million,
compared
to $8.2 million at the end of 2000. For the quarter, TTR had total
liabilities
of $0.5 million and no long-term debt. In 2000, the company concluded
payments
to Macrovision required under the agreement.
Major label pilots expected to conclude in Q2:01. A major record label is
near
completing an internal trial of SafeAudio, TTR's anti-piracy technology
designed
to prevent piracy of content on music CDs. The internal test includes the
replication of thousands of SafeAudio-protected music CDs on select titles,
which are marketed in specific regions of the U.S. The return rate of the
SafeAudio CDs is being closely monitored to determine if there are any
issues
with the technology such as playability. The details of the test are kept
confidential in order to get a more accurate assessment of SafeAudio. We
believe that the internal testing of SafeAudio could be completed by the end
of
this month.
Following the internal test, the major record label is expected to initiate
a
commercial pilot, which may last two to three months. We estimate that the
external pilot will conclude at the end of Q2:01. If the record label finds
SafeAudio effective on protecting content on music CDs, we believe a product
launch may occur in Q3:01. TTR's management is confident that the label will
enter into a SafeAudio licensing agreement by the end of 2001.
Three additional labels testing SafeAudio. A second major record label is
in
the midst of testing SafeAudio on thousands of music CDs. Considering five
major record labels control approximately 85% of all music sold in the U.S.,
we
view this as significant news. However, we anticipate the label will
conduct
extensive tests and evaluation before a licensing agreement is signed. In
addition, two independent record labels are expected to begin testing
SafeAudio
in the near future.
Targeting DVD and streaming video markets. The piracy of DVDs is expected
to
mimic the rampant piracy rates witnessed with the CD format. Recognizing
the
large market opportunity for DVD anti-piracy technology, last year TTR
leveraged
its technology to develop a DVD-to-DVD prototype that protects content
types:
video, audio, and DVD ROM. The company continues to expand the prototype to
ensure it is compatible with the encoding devices. Macrovision has the
right of
first refusal for TTR's DVD copy protection technology.
In addition, TTR is also focusing the technologies that would prevent the
piracy
of streaming video over the Internet. Since the start of this year, TTR has
hired three engineers to be dedicated to this nascent market.
ComSign has large-scale pilots in pipeline. ComSign recently entered into a
pilot agreement with a major government energy corporation to test its
enterprise system designed to provide secure Internet transactions. Four
additional Israeli-based entities may soon enter into agreements to conduct
large-scale pilots. The entities include two municipalities, a major bank
and
an HMO. Management suggested that if these pilots ink commercial
agreements,
ComSign would generate as much as $20 million in revenues over the next few
years.
Outlook. As of April 1, TTR will receive 25% of Macrovision's SafeAudio net
sales. Under the original Macrovision marketing agreement, TTR was to
receive
30%. The company is negotiating with Macrovision to revert back to 30%.
Our
revenue estimates are based on the TTR's expected market share of the 4
billion
music CDs produced annually in the U.S. There are no commercialized proven
effective anti-piracy technologies in the marketplace. Therefore, we
believe
that TTR could increase its market share to 10% from 8% for 2001 and 30%
from
25% for 2002. Based on these assumptions, our revenue expectations remain
unchanged at $5 million and $15 million for 2001 and 2002,
respectively.
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TR Technologies, Inc., designs, markets, and sells proprietary anti-piracy
products. The company has developed and commercialized products for the
software and entertainment industries and is expanding its product range and
reach through in-house development and joint ventures. TTR has a joint
development and marketing agreement for music CD copy protection with
Macrovision (Nasdaq: MVSN $52.56). TTR owns 50% of ComSign, the Israeli
affiliate of VeriSign, Inc. (Nasdaq: VRSN $51.54) www.ttrtech.com |
