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Technology Stocks : INTS - Integrated Systems -- Ignore unavailable to you. Want to Upgrade?

To: John B. Dillon who wrote (281)	3/27/1999 11:20:00 AM
From: Alan A. Hicks	Read Replies (1) \| Respond to of 327

I thought it was a very good quarter considering this was CEO Boesenberg's first quarter. Typically when a new CEO comes into a company, the first order of business is housecleaning and clearing the decks to show improving results going forward. Given that, being able to beat the estimates by a penny was a real positive. It should be pretty obvious that Boesenberg's goal is going to be to show steadily improving results from here on. pRISM 2.0 and MATRIXx 6.1 did not ship until the very end of the quarter and did not contribute to the quarter. Deferred revenues increased by $1.5 million. These are revenues that are taken in but not recognized. Still, core pRISM+/pSOS revenues grew 16% year over year. An additional $2 million product order from Dr. Design which had been in the forecast was not shipped but is shipping this quarter. Another factor people may not realize is that ISI has now completely exited their MATRIXx related engineering services business which had been a $12 million business three years ago. It was a very low margin, largely government contract business. Asia has declined from 19% of revenues last year to 12% in Q4 but is now showing signs of improving. It was clear many of the changes being made are making ISI more efficient and refocusing on their best growth opportunities going forward. They clearly had some excellent design wins in the quarter and their average deal size rose by 50%. Larger deals are typically recognized over several quarters. The HP agreement also indicates they are competitive with WIND (HP has been WIND's largest customer.) New customers were 25% of business, also a good indicator of a healthy business Some of the changes made also clearly had a positive impact on operating expenses. If revenues accelerate from here, operating margins can rise quickly to the 20%+ level. Bosenberg also indicated now that the transition quarter is behind them, ISI is adding 8 to 10 to new sales reps this quarter specifically targeting ISI's fastest growing markets. Of the four firms that follow ISI, H&Q reiterated their “BUY/Focus List” rating with a report titled “Ushering in the New Era of Growth” and maintained its $0.70 earnings estimate for this year. Dain Rauscher maintained a “Neutral” rating and its $0.67 estimate pending improved visibility in a report titled “Fourth Quarter Results Roughly in Line, Restructuring Underway, Outlook Improving.” Lehman maintained its “Neutral” rating and its $0.70 estimate. I have not seen an Everen report but apparently maintained its earnings estimate of $0.67 for this year. This quarter set the stage for improving results going forward. We have three analysts with a neutral that could upgrade once they see confirmation of accelerating revenue growth. From my perspective I see only limited downside in the very short term and substantial upside over the intermediate to long-term.