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Technology Stocks : TAVA Technologies (TAVA-NASDAQ) -- Ignore unavailable to you. Want to Upgrade?

To: JDN who wrote (18720)	6/22/1998 9:28:00 PM
From: Richard S. Schoenstadt	Read Replies (1) \| Respond to of 31646

JDN, With respect to various assumptions and their impact on revenue and earnings. A. Your model assumes more employees than mine. I figured roughly 550 total of which about 250 would be engaged in year 2k work by the end of qtr 1 99. You figured, I believe, that Tava would eventually have 500 tech people. That by my estimate works out to a total of around 655 total employees. Figure .9 of the additional 105 are engineers, that would be about 95 additional engineers. Figure all working on 2k and that would increase the number of year 2k employees in my model by 40%. Since in my model all additional earnings came from year 2k that would increase earnings by about 40%. (I think a little less but close enough.) Say from roughly .21 a quarter to about .295 before taxes. B. With respect to the 15 or 20 billable employees that Tava says were put on non-billable product development the impact would vary depending on the assumptions. Also this impact would be in addition to the impact mentioned above. (So for example in one case below .211.41.5+.02=.46 before taxes per qtr.) b1 . Assume that Tava actually moved 20 engineers from billable work to non-billable product development and now has put them back again on billable projects. There would be a large impact on my estimated billing rates. Here is the process I originally used with changes noted. (And not everything explained.) - core revenue qtr 3 97/estimated billable employees qtr 3, 97. = avg. billing rate per qtr. 5.88 millon/[(2179)+43+24]=13800 +/- per quarter for technical employee. 27,000 per engineer. - decline in core revenue between qtr 3 97 and qtr 3 98/ avg. billing rate per engineer = number of engineers diverted to year 2k work in qtr 3 98. About 1 million/27,600=36.2 employees diverted. I actually rounded this up to 40. - I then estimated Tava had added at least 20 new engineers who worked for the whole qtr 3 98. I added this to the 40 diverted to get 60. Then divided year 2k service revenues in qtr 3 by total billable year 2k employees to get estimated year 2k billing rates for the quarter. 2.23 million/60=37,200. 37200/450=82.5 per hour for year 2k work in qtr. 3. 1.2(future increase in year 2k billing rates)82.5=99 or hourly billing rate for future quarters. If we change this and assume that 20 of the 40 core employees who were diverted to year 2k were working on non-billable product development then only 20 were working on billable work along with the 20 new employees. 2.23 million/40=55,750 est. year 2k billing rate per qtr. 55750/450=124 per hour in the third quarter. For future billing rates I increased qtr. 3 estimate by 20%. So 1.2*124=$149. --149/99=about a 50% increase in estimated billing rates and this would increase estimated earnings by 50% over my previous model -since all my earnings except for .01 came from new year 2k revenues - to about .32 a quarter before taxes from .21 based on estimated total employees of around 550. --If we assume that the 20 employees on non-billable work are now working on billable work this would generate about another .02 a qtr. b2. Assume that Tava had 20 of their technical people working on non-billable core product development and merely diverted them to non-billable year 2k product development. I am not going to go through the whole analysis. But basically by reducing estimated billable employees working in the core business, that affects my computations by increasing the avg. billing rate per employee for core work. And that affects the computation for figuring year 2k billing rates by slightly reducing the estimated number of employees diverted to year 2k work. That reduction in estimated billable employees working on year 2k in qtr 3 increases the result for estimated year 2k hourly billing rates by about 10% which would increase estimated earnings before taxes from about .21 to .23 per quarter in 99. ------------- I don't think case b1 above is likely. Even if Tava did divert some billable employees, they said 15 to 20 in qtr 1. But since Tava didn't mention this number again in either the 2nd or 3rd quarter, it is likely at least some of these people became billable again by the third qtr. Also I was conservative on my estimate of new people (20)for the quarter. I believe this was higher. And just as a gut feeling, considering all the activity that Tava said was going on during the 3rd quarter, I find it hard to believe that only 40 billable people were involved. Also somewhere I seem to recall Tava saying that about 80 people were working in year 2k. This a good while ago. Also note that Rick Bulotta says much of the year 2k product development work was subcontracted. I do believe b2 is reasonable. I think it is likely that Tava has a small percentage of technical employees devoted to product development. And this would have the impact of increasing estimated hourly billing rates for core work. So I figure maybe the 10% increase is reasonable but not the 50% as far the number of billable employees is concerned - at least as far as this one issue is concerned. But I also would think it likely that Tava is going to hire more people than just the 150 mentioned in the cc. And if they hire merely another 95 additional engineers to get to your levels, the impact as noted above would be considerable. This along with the 10% would yield about $1.30 fy 99 before taxes or .84 after taxes. Also note the difference that small changes in assumptions can make. Makes your realize that these are rough approximations at best. For right now until Tava indicates they are going beyond the additional 150 I'll adjust my estimate upward by just 10% to equal roughly .92 before taxes in fy 99 or about .60 after taxes. (this assumes no tax credits for previous losses.). RS