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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: J Bertrand who wrote (9644)	2/21/1998 12:31:00 PM
From: Robert Graham	Read Replies (1) \| Respond to of 14631

OK. Lets assume Informix is on the road to recovery, which is definitely possible. Given what we have been talking about in terms of book work and both the financial and logistic goals that Informix needs to pursue, what can we be looking at now that will tell us the events are unfolding in this direction? Revenue and its quality as in new licensing revenue is definitely one thing to look for, as has been mentioned before. Perhaps determining the percentage of new licensing revenue and plotting it over time is helpful here. Cash flow is another that can be used to give a more balanced view compared with reported earnings as far as comparing current reality to the picture provided by accrual accounting techniques which can provide optimistic results. I suspect comparing cash flow to revenue can be helpful here and also charting this over time. This company needs to be efficient at generating cash flow which can be used to meet expenses and finance a turnaround, which in of itself can be costly. A/R is worth keeping an eye on because of the financial "encouragement" IFMX can provide new customers through liberal credit terms. I imagine comparing its increase to the increase in revenue, along with calculating the turns of A/R will be helpful here. Informix needs the "good" kind of income, which is to be realized in a reasonable amount of time from their sales and it is related to the recurring type of revenue. Determining the difference between operational expenses and expenses incurred in the pursuit of new business will be helpful. So sales and marketing expenses will need to be partitioned from total costs. Perhaps the company's current debt structure will need to be looked at since they must be relying more on debt monies to remain solvent and at the same time finance the turnaround. I wonder what kind of credit terms Informix was able to arrange here considering their recent past of phantom revenue and their now altered books which paint a completely different picture. Also comparing the cost of maintaining their debt structure to cash flow from revenue minus operating expenses can be helpful, particularly if the debt has now grown to significant proportions. I would not be surprised if Bob F manages to come up with additional write-offs that will help him to maintain positive earnings in the next quarter. I was always surprised at their comparatively high marketing expenses, particularly since there was no new product to market at the time. US was at best in a lengthy beta period and at worst incomplete, where the latter turned out to be the case. Phil and Co. was even warning investors of an increase in this expense area at that time. Some investors compared the proportion of marketing expenses to revenue to a company like Oracle and thought the marketing expenses being reported by Informix were not out of line. But Oracle is in a different ballpark in terms of how the company can afford to operate. Furthermore, it will now be a balancing act for Informix to manage cash flow to meet current expenses, and finance a turnaround through a required proactive approach such as through substantial marketing expenses, which is an expense that may not see immediate return even though it is written off as a cost instead of amortized over a period of time and therefore impacts reported earnings. So I would want to see if Informix now has a handle on this where each marketing dollar counts more toward revenue and in particular earnings, besides the absolute amount of marketing expenses being much lower. I also can see partnering can be very helpful in increasing Informix's exposure in the marketplace and at the same time decreasing associated costs. What are some additional places we should be looking at for genuine evidence of a turnaround from the information that will be presented to us through press releases and earnings reports? What are some positive signs that cannot as easily be faked in the new management's enthusiasm that are worth looking for? I know that when I manage to obtain a copy of the quarterly earnings report, I will be looking very closely at the footnotes. I am no accountant and have not taken even a book keeping course, so part of my approach as outlined above may appear to be "crude". I am looking for suggestions. Bob Graham