Research on Intrinsyc Software
Here are two research reports on Wellington Financial Fund II portfolio company Intrinsyc Software’s (ICS:TSX) recent stub financial period.
“Transition period results in line; Soleus on track for royalty revenues in 2H08
• Rev $5.2 mm (as expected), and net loss $7.3 mm (vs. our $6.8 mm loss estimate)
• Investors should focus on Soleus, which should start to make an impact on revenues and gross margins in 2H/08 and beyond as royalty revenues start to ramp
• All Soleus customers are progressing well and tracking to plan, in our view
• We continue to expect at least one new design win per quarter to maintain the positive momentum
• No changes to our forecast; reiterate BUY rating and $1.50 target price
SOLEUS IS PROGRESSING WELL AND TRACKING TO PLAN, IN OUR VIEW
Recall, the key to our investment thesis is Soleus, and the company’s successful transition from an Engineering Services business to a more attractive royalty-based software business model with Soleus.
During the transition period, Soleus revenue was still immaterial at only $140K reflecting upfront
licensing and maintenance fees from announced design wins. Based on the comments during the call, we remain confident that Soleus is tracking to plan. Management indicated that MSI’s 5608 device is currently in field trials, and initial shipments of Soleus-based devices are expected to start late in Q2/08.
This is exactly in line with our forecast model. In addition to existing design wins, Intrinsyc continues to have active discussions with potential customers for future Soleus wins. We continue to expect multiple design wins with existing customers, similar to Mitac, and intentions from MSI to launch additional devices based on the Soleus platform. In addition, we believe Intrinsyc has made a positive impact on its initial Soleus customers as evidenced by their willingness to introduce Intrinsyc to other departments and deepen the business relationships
(increasing the potential for additional design wins). Future versions of the platform (i.e., 3G, enhanced user interface) will continue to add value to customers.”
And from Paradigm Capital:
“Thursday night, Intrinsyc reported four month stub period Q4 revenues of $5.2m and EPS loss of $0.06. The Company reported a stub period to change switched its year end from August to December.
The vast majority of the Company’s revenues came from its wireless design consulting business, with just $0.14m of revenues from its flag ship Soleus product.
Material royalty revenues from Soleus are expected in Q2 and could scale quickly with recent design wins like Samsung. Generally, the Company appears to be on track with our earlier assumptions and we are maintaining our estimates for FY08, FY09 and FY10. We are modelling $20m in revenues (unchanged) with EPS of ($0.10) (unchanged) for FY08, $35m and ($0.04) for FY09 (unchanged) and $55m and $0.05 for FY10.
Overall, the results are pretty poor but are also pretty meaningless given Soleus is still pre-revenues with significant development and marketing expenses. Some major design wins in the quarter should overshadow these results. We look for the stock to trade off new design wins going forward. As a result we are maintaining our Buy rating and our target price of $2.00 based on 5x FY10 sales.”
(disclosure – Fund II owns warrants in ICS)