<< As an owner of
Primix (PMIX/$2 1/2)I thought I would post this for SAPE
owners, in the wake of SAPE's purchase of Adjacency. SAPE
paid about $1 million per employee for Adjacancy,
which equated to about 12 times trailing revenue.
Adjacancy has a sweet front end development capability, but
I noticed that Advis did some of their back-end
integration into SAP systems owned by clients. In particular,
this pertains to the Apple on-line store project. Oh,
PMIX bought Advis last year. PMIX is selling at about
net cash value of $28 million, has pro-forma revenue
of around $10mm, and is controlled by a VC with a
good track record. PMIX pro forma for Advis
acquisition has about 85 professionals. Head count is 100+
including others. It seems to me that given what SAPE paid
for Adjacancy, although PMIX is more back-end
oriented (isn't this more difficult??), that PMIX would be
worth $7-$10 per share (which includes the $28 million
in net cash the company has). Any opinions?
Yeah, but you probably won't like them.
year ago, a headhunter tried to sell me on PMIX (back
when they were still OneWave (OWAV)). At that time,
they were a couple of years post-IPO and were burning
the IPO cash left and right, trying to figure out how
to make some money. At the time, I thought PMIX was
a basket case that would take a huge amount of work
to turn around, and I had no desire to be part of
that huge amount of work.
I just took a look at
PMIX's latest 10K
(http://sec.yahoo.com/e/990331/pmix.html), and they still look like a basket case to me.
They *still* haven't made any money since they went
public. For FY1998, they had *negative gross margins*!
The company notes that "Management can not currently
anticipate gross profit levels for 1999 as the Company has
recently modified its business strategy." They spent more
on *SG&A* than they took in for two years running
A big part of the SAPE story is their
execution. They hit their numbers every year, so far without
exception. SAPE knows what it's doing, and has the history
to prove it. I would assume that any company SAPE
buys is going to be focused on execution just as
closely. As far as I can tell, PMIX isn't focused on
there has been a reversal in cash flows. The
higher salaries are fine they are reflected in the costs
but when you look at the cash, the fact that the
compensation liability went up by 4 million provided a much
needed cash infusion to show positive operating cash
flows. I am aware the CF statement is difficult to
understand many people including many old school accountants
and many analysts don't.
on the significance of the cash flow picture.
While there is a noticeable drop in operating cash
flow, the increase in salaries owed does not strike me
as that unusual, especially considering the two
acquisitions and Sapient's growth over 98. As for the tax
payable picture, Sapient got a $4.2M tax benefit as a
result of the in-process technology, and it's certainly
not out of line for a company that opened new
offices. I still say it's the increase in A/R, and the $6M
increase in deferred income taxes that makes the CF
picture look worse. I definitely don't see a long-term CF
trend from 3 yrs of data.
As far as the
acquisitions go, Sapient has been doing Internet related work
for quite a while. It's not a new thing for them, so
they haven't suddenly become an Internet stock, and
the two acquisitions only add creative ability to a
shop that already has great SI/technical architecture
experience. As one who also knows the systems
integration/e-business space quite well as you do, I hear very good
things about Sapient from others. Don't get me wrong,
they're not without their flaws, and I agree they're not
a multi-billion dollar company (yet), but they seem
to execute extremely well and have an impressive
client roster. But if you're right, and this is all just
the CFO's handiwork, I'll be the first to eat my hat
(if I can find one).
agree with your own post. the reversal in
operating cash flows is rather dramatic, a 4 million
increase in salaries owned to employees is very dramatic
and takes you from 9 million positive to break even.
Just wait and see. SAPE bought itself sometime through
the two web hype acquisitions it made. hedge funds
that were short were forced to cover as SAPE became an
internet stock. SAPE is a good company but it is not a
multibilion dollar company. I don't know ow many shares
Sussan holds but she sold a few.
perhaps that Sapient actually has a growing
client/project list and is actually doing a lot of work that
CATP is not? And that maybe you're a bit put off by
the success they;ve had with their fixed price/fixed
time model? Or maybe you're just trying to encourage
others to help out your short position. It seems to me
that it would be difficult for Sapient to defy gravity
for three years and not have anyone figure it out.
Pancho, I can see the trend, but I don't believe
it's meaningful. You were very selective in the items
you chose to highlight. From what I see, the trend in
cash flow seems to be mostly due to increases in
Accounts Receivables, which, although not a great
situation to have (i.e. A/R turns are down), is still
revenue, no matter what accountant you talk to. Either
way, I hate to break it you, but all companies
manipulate earnings in some way or another to manage the
Why do you believe that other analysts (Adam
Harkness, Friedman Billings, BT Alex Brown, Morgan Stanley
Dean Witter) have upgraded SAPE?
Sachs positive outlook (and yes they are a significant
shareholder & SAPE customer), why do you feel so negative? ,
"In a research note, Goldman Sachs analyst Greg Gould
said Sapient should be able to sustain 40 percent to
45 percent earnings growth over the next four to
five years. He believes the firm can maintain this as
it competes in expanding markets, holds a small
market share (about 1 percent worldwide), and executes
well on contracts. "
Could the cash flow issue
not be tied to Sape's purchases?
I am short the stock. Expertise: I am a Professor
and do consulting/development subcontracting for
companies similar to SAPE so I know the fix price software
development business better than most kid analysts in WS. I
also have an MBA with concentrstions in Finance and
Accounting. Whatever hair I have left, it is quite gray. I am
not a kid. I don't care whether people buy sell or
short this stock. At the end, this puppy will not defy
gravity. It is a simple as that. You can not hide reality
to develop a web site must be worth millions of
dollars. Bet you it does not even get to the million mark!
Nice to see multibillion dollar company feels the need
to put out such small events. Sell it to the little
Short interest is going up again. Now we all know
that is bullish!
Avg Daily Volume; days to cover
1 SAPE Sapient
04/99 1,740,641 283,556 6.14
1,462,592 198,665 7.36
02/99 1,527,023 302,984 5.04
01/99 1,855,929 441,560 4.20
11/98 2,328,183 270,871 8.60