Quarterly Financials: Intergraph Shows Gains But Announces Restructure; MapInfo Revises Forecast Upward

By Joe Francica

During the last two weeks, some of the public, geospatial companies released their quarterly financial results.Intergraph and MapInfo provided information regarding recent revenue performance in both a written press release and conference call.As a brief review, we will examine statements from each company.

At Intergraph, the financial results are a mixture of guarded optimism and lackluster profits.The Intergraph Mapping and Geospatial Solutions division saw both its fourth quarter and yearly revenues rise, but its income from operations grow only modestly due to a restructuring of the division and the consequent loss of jobs. Financial analysts again questioned the company about its low margins for this business unit and asked how it was going to position itself in this market.Halsey Wise, CEO, commented that it has a differentiated approach whereby the company is building solutions on top of existing software platforms and that he anticipates growth in Europe and the Asia/Pacific regions where there is not the dominance of ESRI.

However, Wise is also conscious of a continuing malaise that haunts the company.Said Wise, "In the last six months, I've heard from many of you that Intergraph has a long history of developing superior products and services, yet failing to communicate effectively their value to the marketplace.We believe there is continued confusion and lack of clarity about what Intergraph actually does."

After six months on the job, Wise is trying to align the company so as to "triage" opportunities within each business unit to further identify a more effective use of resources and personnel.One of those opportunities is in Public Safety and Homeland Security where Wise pointed out that the Intergraph Public Safety (IPS) division is well positioned to take advantage of the growing need for security at ports and airports.IPS saw its revenue grow but is profits shrink modestly.Wise indicated that IPS has invested in its sales force for 2004 but that sales cycles in this industry were long and not to expect to see significant revenue growth this year.

Mr.Wise summarized his outlook by stating that Intergraph had traditionally "not been a strong topline growth company" and pleaded with analysts to "be patient with that" during this year.

Analysis: Mr.Wise announced that he had issued a new mission statement to the company recently, an initiative called "Now-Next-After Next" to establish a vision for what the company has to do now to right itself; where it should be once some of the "holder-over" commitments from previous company missteps where corrected, and where it should be in the future.While it is always necessary to communicate a vision, the honeymoon for Mr.Wise is approaching the end.The company has significant challenges with respect to prior litigation for patent infringements, but operations appear to be suffering, leading to less than stellar profits, which the financial analysts who follow the company have noted.The majority of the restructuring charges taken by the company where imposed by the IMGS division, which showed a 7.1% growth in revenue resulting in $3.8 million in profits.Mr.Wise noted, "We are committed to prepare our company to have operating metrics that look more in line with our peer group companies." If this is the case with corresponding GIS companies, he will have to double the growth rate within the next year.

For MapInfo Corporation, the first quarter results showed a year over year gain of 37% but weak net income of only $637,000 compared to a net loss of $1.9 Million last year.Said Mark Cattini, CEO, "MapInfo set a clear goal to diversify the revenue mix from last year and we remain committed to a balanced revenue approach...MapInfo made progress this quarter in deepening its presence in under-penetrated verticals."

MapInfo noted success with key customers in retailing (Linen's N Things), Insurance (Zurich), and government (Department of Justice and the IRS).The company stated that it made progress integrating its location-based software with leading enterprise solutions by joining forces with Business Objects, Inc. "to offer enterprise users an integrated solution to help users with expanded analysis with Customer Relationship Management, Enterprise Resource Planning, and Supply Chain Management."

Specifically, Cattini believes that the customers they have engaged with their recently announced Insurance Decision Support Suite (IDSS) have the same business needs and that the solution is repeatable.As this appears to be a growth opportunity not just in the traditional insurance application such as underwriting but also in the area of reinsurance, they have provided additional training to their sales staff.

Also in the quarter, the company announced Hotspot info, a data solution to enable users to determine the location of WiFi hotspot locations throughout United States.It combines Jupiter Media's database from Wi-FiHotSpotList.com database with MapInfo tools perform in depth customer analysis.Cattini noted that is somewhat specialized data product was designed to further differentiate MapInfo from its customers.

Also during the quarter, MapInfo announced an evolutionary step for their MIAware platform that was renamed "Envinsa." Envinsa is an enterprise location service platform, a system that according to MapInfo allows their customers a "single high performance location platform to gain better insights into their data." Cattini noted "our goal is to broaden the use of MapInfo's solutions to existing and new customers by supplying them with an enterprise location platform that enables them to address their enterprise needs and maximize their investment in location technology." Cattini summarized their view of the market for location technology by stating that they were "building on the foundation laid in 2003" and that they based on the "strength of first quarter we are raising guidance to 15-17% revenue growth and 25 cents per share.He cautioned however, that some customers budget constrains may still exist while others appear to be lifting.

Analysis: MapInfo appears to have growth with a caveat. While year over year is extremely strong and they have had four quarters of consistent profitability, much is predicated on the successful integration of the Thompson acquisition, continued growth in the telecommunications business, and renewed focus on sectors that have shown positive improvement (government, insurance), if sustained.The most positive aspect of their statements is that they raised guidance indicating that MapInfo sees their target markets growing.

By comparison, MapInfo and Intergraph look at the world much differently due primarily to a focus on dissimilar markets.Whereas the recession in the U.S.market is improving for the private sector (MapInfo's focus), governments (Intergraph's focus) are still reeling from deficits and are not inclined to increase spending on information technology.On January 30th, First Call raised their estimate for MapInfo for the next two years to $0.30 and $0.59 per share for fiscal 2004 and 2005, respectively, and issued a "buy" on the stock.The Standard and Poor's estimate of Intergraph is a "buy/hold" recommendation as of January 31st.The financial results of these companies is an indication that the market for geospatial technology is improving but at a modest rate.As a snapshot in time, it is difficult to make sweeping generalizations and neither company is going out on a limb to make overly positive statements.

Published Tuesday, February 10th, 2004

Written by Joe Francica

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