Just starting to watch this stock. I have a million questions but for this company they seem to all come back to expenses and cash flow. I understand the broad picture and the value that this software can have in a hedge as IT spending is pressured but here are my worries:
1. I don't see how they can become positive this year without reducing Sales and marketing to 35% of revenue, R&D to 30% and G&A to 15%. These are all historical lows but not dramatically so. Thoughts? If they approach these lower expense margins are they going to continue to grow? At best I see $.17 a share next year.
2. Cash flow- they have been $14M negative for cash flow over the past 3 years, compensated for through $14M in private placements. I see how they should be approaching positive cash flow for this year but I question whether they will become significantly negative again as soon as they start to make investments in the future again. CAPEX has been falling significantly the past few years. When does that come back and when do they realize that they are more dependent on reliable private placements than they thought? How diluted are these shares going to get everytime the company needs cash. In '00, Doretti predicted profitability by the end of '01- now we are a year late- how much financial and human horsepower does this company have to push forward their operations?
3. Service revenue has been growing 25% a year while Product revenue has been slipping- is service a lagging revenue that will fall soon in response to the slide in sales revenue? Is this service revenue for the sales made around y2k being updated and will slump as product sales did after y2k or is this service revenue that is tied to recent purchases and service revenue is now just taking on a more significant role in the operations of customers?
The large expense ratio was in response to the percieved and real high demand for the On Tech packages. As more contacts are announced, and they will be, you will see that ratio drop to about 20%. It was a good move to spend the money upfront and capture customers. Its not like buying shoes. The field test and integration into a customers system takes months to test drive and trouble shoot. I would assume we will see more in the final phase and more signed contracts. Look for upfront revenue & defered revenue numbers. SCM,and ESM type companies are notoriuos for booking outrageous defered revenue numbers.