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Technology Stocks : i2 Technologies -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (1123)	1/22/1999 12:39:00 PM
From: D. K. G.	Read Replies (2) \| Respond to of 2339

07:37am EST 22-Jan-99 Warburg Dillon Read (Andrew Roskill) ITWO ITWO: REPORTS STRONG Q4 RESULTS HIGHLIGHTS: · Software license growth of 68% was the highlight of ITWO's fourth quarter as license revenues reached $73 million, well ahead of our estimate of $64 million. Several large deals fueled this growth, with the largest being a $ 15 million contract from Compaq. Other large deals in the quarter included a $9 million contract from Lucent and a $8.5 million contract from an unnamed CPG apparel manufacturer. · Of particular importance was the growth in license revenue from new customers in the quarter, which totalled $32 million (up 134% annually and 37% sequentially). Of ITWO's 49 license transactions in the quarter, 31 were from new customers for with an average value of $1 million. This trend of growth in license growth bodes well for ITWO going-forward, demonstrating the rising demand for their products and strong market presence. · The company made progress in internationally, although North American sales continue to command the lion's share of ITWO's growth. Management indicated their intent to focus on cross fertilization of sales management in 1999 to help capitalize on opportunities overseas. · Looking forward into 1999, management indicated the pipeline looks "adequate" for the first quarter and solid for the full year, both requiring strong execution. Management indicated they have seen rising demand in the automotive market and improving results from their mid-market initiative (customers with $300 million or less in revenues). ITWO management believes both markets should provide strong opportunities in 1999. · ITWO increased its salesforce to 179 (up 19 in from the third quarter) as the company accelerated hiring and increased infrastructure investment to take advantage of what management stated was the "easiest hiring environment in the past two years". This has been largely the result of a slowdown in hiring by competitors, primarily Manugistics, as well as other ERP vendors. Management indicated hiring should slow over the next as new hires are trained and coached. Although management indicated they remain adequately staffed to in the near-term, they plan to increase the total salesforce by 50% in 1999. ANALYSIS: · In terms of the competition, ITWO has not seen a decline in demand resulting from SAP's decision to enter the SCM market. In fact, management indicated that customers with a sense of urgency have been opting for ITWO's products even if currently SAP customers. · ITWO's balance sheet remained rock solid in the quarter, with $155 million in cash and equivalents and $189 million in working capital. Deferred revenue increased approximately $7 million sequentially to $47.5 million. Accounts receivable DSOs showed their usual Q4 spike, coming in at 101 to 98 in the year ago period. · In summary, we believe ITWO's pure play status in the burgeoning SCM market and industry leading product breadth position the company well for continued revenue and EPS growth in 1999. Although the threat of SAP's new SCM product remains, it has yet to disrupt ITWO's sales cycle (similar to the fate of competitor Manugistics). Fourth quarter results indicate ITWO remains positioned to continue to deliver strong results in 1999 and we reiterate our Buy recommendation. · We are raising our 1999 revenue estimate by approximately $10 million to $502 million. We are also increasing our 1999 and 2000 EPS estimates to $0.50 and $0.72, respectively. Our new price target for ITWO is $36, based on a multiple of 50 times our 2000 EPS estimate. · Similar to other high growth industries, ITWO has increasingly become a play on revenue growth, as the company strives to reach critical mass and capture market share. We remain optimistic that, longer term, the company should be able to achieve significant operating margin expansion and compound earnings growth. For now, ITWO is trading at roughly 4.2 times 1999 revenue (excluding cash), which is at the low end of its historic trading range. ------- Cut and pasted from Yahoo board.