Some comments from Robertson Stephens:
Quarterly performance was outstanding across multiple dimensions including: (1) license revenue growth of over 80%,
(2) service revenue growth of roughly 120%,
(3) operating profitability 196 basis points above our estimate,
(4) strong growth in new customers,
(5) increasing indirect revenues, going from 38% to 53% sequentially, (6) continuing backlog growth, and (7) strong international results.
Given these results, the company's growing order backlog and the strong tone of business, we are raising estimates for FQ2:99 and F2000. For FQ2:99, our EPS estimate increases from $0.14 to $0.15 and our revenue estimate increases from $31 million to $31.5 million.
For F2000, our EPS estimate increases from $0.93 to $1.00 and our revenue estimate increases from $197.5 million to $200 million.
Initial ASPs remain high, ranging between $300 and $400 thousand. During the quarter the company recorded 40 deals of over $250 thousand, the remaining deals were typically incremental applications sold into existing customers.
The Adante acquisition is also paying off. Stand alone email distribution produced about 18 deals in the quarter, but more importantly, the capability of delivering integrated voice and email reporting and handling is an important differentiator in the marketplace, in our view. The company attributed several million dollars of revenues to sales pulled to GCTI by this differentiated capability.
The company signed important new marquee customers in the quarter including: Coca-Cola, PeopleSoft, Ford, Sears, Lucent, Level3, PageNet, Dictaphone, Ameritrade, Staples, Texas Instruments, Circuit City (DIVX authorization), Vantive, Andersen Consulting and others. New international customers included AIG Japan, Barclays Bank, NCR, NTT, Rover, Sykes, Teleap, Michelin, and others. Currently the company counts over 175 international customers and more than 300 domestic customers, bringing the total to over 500 at the close of Q1:99.
New orders continued to progress in advance of bookings, giving us comfort that Genesys did not draw upon its backlog to deliver upside during the quarter. Furthermore, the company indicated that its Sales and R&D turnover was virtually nil during Q1, putting to rest investor concerns regarding those issues.
The company has continued to make progress developing third party resources such as 132 new Genesys-certified professionals, capable of performing implementation and training services - contributing to the growing momentum surrounding the Genesys solution. In the past five quarters 950 professionals have been certified in Genesys training and implementation - creating a pool of talent to support the platform.
During the quarter, Genesys introduced major new product enhancements including the Genesys 5.1 T-Server Suite. Most significant among them, in our view, is the introduction of the Genesys Interaction Router with the Network Interface Option. This product holds incoming calls in the network when determining the appropriate routing and then directs the call as needed - to wherever the appropriate representative is, anywhere in the enterprise. We believe that this positions Genesys to compete for orders in the high-end inbound distributed call center market more effectively, and with Genesys superior management and reporting tools, makes Genesys a more formidable competitor than ever, in our view. Genesys alluded to an important customer win in the quarter, which displaced an entrenched competitor due to this new product.
Supporting trends that we observe in the marketplace, Genesys indicated that Y2K is actually more of a positive than a negative for the company. Although some spending may be diverted to Y2K, some of that spending also falls to GCTI. Frequently, customers find that old dialers and routers are note Y2K compliant, and that is a catalyst for modernization and replacement with a Genesys solution. In addition, as we have stated, vendors that can make immediate high-ROI cases for their software are always in a good position to make a sale.
Supporting this view, an emerging competitor, GEOTEL (GEOC $21), also posted strong numbers this quarter and suggested, like Genesys, that the outlook for CTI remains extremely bullish. From our analysis, we believe that large Genesys customers have seen payback periods of less than 70 days on their software investments. These
timetables lead to ROI well in excess of 500%.
Importantly, in our view, Genesys' business model is beginning to reach an inflection point, with indirect revenues accounting for more than half of total revenues for the first time. By any relevant metric, Genesys' innovative distribution strategies are beginning to pay off; the company signed 131 new customers in the quarter - 80 through 49 channel partners and 51 through the direct sales force. The company recorded revenues from 91 separate entities representing 131 end users in 26 countries. No single transaction accounted for more than 5% of total revenues. The company announced a target direct/indirect revenue mix of 40/60 by the close of F1999.
We reiterate our Buy on GCTI, and remind investors that we have raised estimates for GCTI every quarter since the company's IPO in mid 1997. Our call is based on several factors including (1) the company's leading product set, with its comprehensive management, reporting, distribution, and multi-media capabilities, (2) the one of the most leveraged distribution channels, and (3) its large and rapidly growing installed base. These assets make Genesys the leader, in our view, of the enterprise CTI market, which continues to enjoy robust growth and
increasing visibility.
Regarding valuation, we believe that the shares are extremely attractive at current levels. The company trades at 15.2x our F2000 EPS estimate and twice our F2000 revenue estimate. At the same time, we look for the company to continue to grow its top line at over 80% and its bottom line at more than 150% year over year. We believe that these metrics make the shares of Genesys a compelling investment opportunity, at this time. |
