Spyglass
Q3
| (FOOL
CONFERENCE
CALL
SYNOPSIS)* Randy Befumo (MF Templar) SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> GENERAL OVERVIEW ALEXANDRIA, Va., July 17, 1996/FOOLWIRE/ --- SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> reported its tenth consecutive quarterly profit today -- a singular and noteworthy achievement in the Internet industry.. The company continued to accelerate it topline growth and made two important additions to the company. Spyglass acquired SurfWatch and OS Technologies, which helps out with generating new licensing partners. During the quarter, Spyglass announced licensing deals with a number of Internet information appliance providers. These deals position Spyglass with the industry leaders and position them to serve the giant Japanese and American consumer electronics concerns. The company began shipping the device-independent Web technology kit, or the WTK. Their partners are really hip to this product.
All told this was their most successful licensing quarter, bringing on 30 new licensees for a total of 100. The company believes it is well on its way to achieving its goal of 2000 original equipment manufacturer (OEM) partners by the year 2000. The company continued to aggressive invest back into Spyglass, putting about 30% of net sales into research & development. Spyglass continued to solidify its role as the leader in component World Wide Web technology. By teaming up with leaders in the Internet appliance industry, Spyglass is seeing its technology deployed in dozens of devices. Spyglass did not originally except to see these revenues until 1997 or 1998 and believes ultimately this will be larger than the PC-based Internet access business. Spyglass sees this non-PC business being equal to their PC-business by the end of the decade.
In the OEM market, their recent agreement with Platinum Technologies shows how they can Web-enable mid-range and legacy systems as well as penetrate consumer devices. The WTK offers the most complete and functional range of solutions in the industry, covering just about everything. Spyglass is the leader in the embedded marketplace and also provides the best embedded technology in the industry. Their technology is easy to embed and they provide the high level of service their partner-based business model allows. Spyglass believes that all of this positions it to be the blue-chip Internet company. And the best value of all? Spyglass allows its partners to control their own unique and branded destiny on the Web.
During the past quarter, Spyglass clearly strengthened its leadership position. They continued to demonstrate financial consistency, they continued to lead the industry in technology development and deployment. They company will also continue to add new technologies to their portfolio and will continue to expand channels of distribution. Spyglass looks to increase and enhance its service to its licensing partners. Spyglass remains committed to serving the Wall Street community as well, and looks forward to answering any questions they might have about Spyglass or the industry.
FINANCIAL PERFORMANCE
Spyglass had strong topline growth during the quarter. The revenue was $6.0 million, up 90% from last year's $3.2 million. If you take out the VDA business that was discontinued, the Web-related revenues (their sole focus now) grew 119% from last year. The revenue growth was fueled by strong growth in both their client and server software products as well as a positive contribution from their newly acquired SurfWatch products. For the nine months, Web related revenues grew 139% over last year's comprable results. The addition of 57 new licensing partners in the first nine months of 1996, tripling their licensee numbers, their development and introduction of the device-indenpendent WTK for the client and server, interest in the company's component technology as well as the positive contributions from their acquisitions (SurfWatch, OS Technologies and StoneHand).
Gross margins were 91%, compared to 88% a year ago. This reflects a favorable revenue mix and a reduction in licensing royalties. Looking at operating expenses, they were at 75% of revenues for the quarter, which was a step-up from investment levels in prior quarters. They will continue to be aggressive in investing in product development, sales and marketing -- critical areas to driving growth. They have also invested in the infrastructure, expanding their Cambridge office, opening a new office Hong Kong and integrating three acquisitions.
Net income was $862,000, an increase of 142% over the comparable period last year. For the nine months, Spyglass had net income of $2.5 million, up 145% from the prior year. Their bottom line performance was a reflection of the strength of their business model. By leveraging Spyglass technology with partner distribution channels, Spyglass has consistently provided premium revenue and earning growth. Spyglass's EPS for the quarter was $0.07 EPS, 75% above last year. Earnings for the nine months were up to $0.19 EPS, compared to $0.11 last year, up 73%. They achieved this robust performance while investing in the business. This all demonstrates the power of the OEM model and solidifying their position as a blue chip Internet company.
BUSINESS MODEL
Spyglass believes that by expanding the distribution channels and direct sales people, growth in new partners should continue to be like this quarter. The device developers are a new area. Banks are starting to show an interest as they start to deploy their own banking service. They believe that over time the airline and transportation industry will be able leverage the Web. They also believe that all proprietary online services will want to move their content to the Web while maintaining their own look and feel.
The highest growth vector for Spyglass is new customers. They are only five or six quarters into the ball game with many of their partners. New products is the second major growth vector, when they go back to existing customers with new technology. As far as renewals go, they believe that it has been very consistent but it is still too early to make any predictions. Obviously, the first 400 or 500 partners will be higher than the last 500 as you approach 2000. However, there are economies of scale that can be acheived to offset the lower the revenues.
For sales and marketing, Spyglass stated that right around 22 salespeople is a good target for the end of the fiscal year, and right now they have about 13. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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