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

To: Quad Sevens who wrote (20356)	7/14/1998 9:20:00 AM
From: Richard S. Schoenstadt	Read Replies (2) \| Respond to of 31646

Wade, First I find this somewhat confusing. For example what is the difference between a pilot and a full scale program for a site. From the excerpt below it is clear that Tava does some I and A during the pilot. Is all the rest conversion planning and remediation. Or is more I and A involved. But that aside I want to point out several things in addition to the other points I made. Look at the quote below from the conf. call. Note that the 8-1 to ratio for pilots is per site. Note also that the total leverage in this example is not 8 to 1 but 80 to 1. (Obviously this varies case to case depending on number of plants. In this case there are 50 plants but pilots only in five. Those five cost 400,000 total for the pilots. At 8 to 1 that's 3.2 million for the five total costs. But 32 million for all 50.) Note also that Tava says these estimates are conservative if not very conservative. >>>>>>>>>>>>>>>>>>> Conservatively, a full-scale program per-site costs could be greater than eight times the cost per site for the pilot. So let's follow the money here. Assume a consumer goods company has 50 plants. They launch a pilot in five plants. The tool and database per site sales are 20,000. Services for inventory and assessment per site is 60,000, totaling 80,000 per site or 400,000 for the pilot. If one uses the 8 to 1 ratio, the cost would be 640,000 per site or 32 million for the total program. And one may ask, How reasonable are these numbers? General Motors recently announced that their program costs were currently estimated at the half billion-dollar range. And another company that we know of has increased its plant estimates- per plant estimates actually- to over 2 « million per plant. Of course, chemical, petrochemical, and pharmaceutical sites are much more automated than the typical company outlined above. Therefore I feel our estimates are very conservative. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< It does seem to me that more attention ought to be paid to these claims. Another to way to look at this is that Tava had committments from something like 1700 plants by June 5. In the above example Tava has a total avg. cost of 640,000 per plant. They also mention that GM figures 2.5 million per plant. Multiply 1700 x 640,000 and you get over 1 billion in potential revenue. Multiply by it 2.5 million and you get 4.25 billion. In my opinion that is utter nonsense - since Tava can't possibly do that amount of work. But the fact is based on what Tava stated in the cc, David's claim of over 1 billion in revenue potential is not unreasonable. (And based on the claims I can see why some people think Tava is engaging in outrageous hype.) However it should be noted that Tava does not say it is going to do all this work. They say the total program will cost that much. And it is clear to me that Tava is only going to do a fraction of the work itself. So yes Tava will clearly have to farm a lot of work out. Tava basically says this in cc. "If one runs the math on the number of pilots that TAVA's currently engaged in, it doesn't take long to figure out that we need the solution provider network to increase our revenue bandwidth." I'll second that. But it also indicates that Tava could add a fair chunk of revenue to it's top line by subcontracting a lot of this work. What we need is some idea how the revenues from the 8 to 1 leverage will be distributed. (A more useful figure is avg. total cost per plant.) How much to Tava, how much to subcontractors, how much will the companies do and how much will the vendors do? RS