Subject: i2s 1Q: End of an Era From: distribution@epoch.com Date: Thu, 19 Apr 2001 06:00:02 -0500 To: fox@csit.fsu.edu For in-depth coverage of all companies within the Software Sector, please visit http://www.epoch.com/emailalert/software.html Company Note i2 Technologies, Inc. Epoch Partners APRIL 19, 2001 NASDAQ:ITWO Mark Verbeck David Trainer Timothy Madda I2’S 1Q: END OF AN ERA _______________________________________________________________________________ FUNDAMENTALS Price (04/18/01) $19.97 FY Ends Dec 2000 2001 NASDAQ Comp (04/18/01) 2,079 Revenue(MM) $1,126.3 $1,274.0 Prev Est.(MM) NC NC NA 52-Week Range $12.56-99.44 EPS Shares Outstanding(MM) 405.8 Q1 $0.04A $0.02A Market Cap(MM) $8,105 Q2 $0.05A ($0.05)E Q3 $0.07A ($0.02)E Avg Daily Vol(3Mo.)(000s) NM Q4 $0.09A $0.01E Fiscal Year $0.26A ($0.04)E Previous Est. $0.26 ($0.04) P/E 76.8x NM Source: Epoch Partners _______________________________________________________________________________ * i2 reported full 1Q results in-line with its pre-released numbers. A difficult environment weighed on results, as sales to new customers decreased to an all-time low of 26%. * The remaining backlog from three large transactions announced last year masked this quarter’s difficulties. With this backlog exhausted and high expenses, the company is expected to report pro-forma losses for the next two quarters, with a return to profitability in 4Q. These would mark the first losses since the company went public in 1996. * New product strategies may create market opportunities, but will have limited near-term impact as i2 remains highly dependent on its core supply- chain functionality. _______________________________________________________________________________ i2 reported 1Q results in-line with its pre-released numbers. Revenues of $357 million included product licenses of $211 million, or 59% of the top line. The company earned a pro-forma profit of $0.02. Revenue from new customers slowed dramatically, accounting for an all-time low 26% of the company’s license revenue. A significant amount of existing customer revenue came from the recognition of the remaining backlog created by its three large customer wins last year. Deals in excess of $1 million declined precipitously to 29 from 50. The average selling price (ASP) remained flat, indicating that a few large contracts brought up the average. For 2Q, we estimate that the company will post a pro-forma loss of $0.05 on weaker revenues of $285 million. For 2001, we have modeled pro-forma EPS of ($0.04), notably lower than our already-revised estimates of $0.19, and revenues of $1.27 billion. With little or no backlog remaining from these large contracts, we believe the company’s near-term earnings prospects are dim. The company’s disproportionately high cost structure (a result of i2’s bet on a swifter economic recovery), even in the wake of workforce reductions, will force a pro-forma loss for the next two quarters with a possible return to profitability in 4Q01. We expect shares of ITWO to trade weakly as the market sorts out its opportunity and wrestles with valuation in the absence of near- term earnings. i2 pointed to new opportunities with new products in the indirect- procurement and order-management areas. An integrated RightWorks solution and a generally available release of its order-management product are slated for late 3Q. Order-management wins at Sun Microsystems and a large consumer packaged goods company (most likely Proctor & Gamble) demonstrate some traction on this front. Despite these new product focuses, i2 remains very dependent on the high-technology companies that have been hit hard by the economic downturn. Sales to high-tech companies were higher than historical norms, at 58% of licenses in 1Q. We expect this dependency to be another impediment to sales in the near term. Over the long term, these solutions may help differentiate the company from the enterprise resource planning (ERP) competitors that have been improving their traditional supply-chain functionality. _______________________________________________________________________________ COMPANY PROFILE i2 Technologies is the leading vendor of supply-chain management solutions that enable manufacturers to optimize demand forecasts, production schedules and procurement of components. In addition, i2 offers a platform that gives companies end-to-end collaborative management of their supply chains. _______________________________________________________________________________ The analyst(s) involved in the preparation of this report has an investment position in the subject security. (ITWO). The information contained herein is based on sources believed to be reliable but is neither all inclusive nor guaranteed by Epoch Partners. Opinions, if any, reflect our judgment at this time and are subject to change. Epoch Partners does not undertake to advise of changes in its opinion or the information. Epoch Partners may perform or seek to perform investment banking services for the issuers of securities which are the subject of our Research. Most of the companies Epoch Partners follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in the Epoch Partners Research may be unsuitable for investors depending on their specific investment objectives and financial situation and needs. No report included in the Epoch Partners Research is a recommendation that any particular investor should purchase or sell any particular security in any amount or at all and is not a solicitation of any offer to purchase or sell from or to any particular investor. For additional information that may be available on the securities mentioned, please contact Epoch Partners. This document has been published in the United States for Residents of the United States. Copyright 2000, 2001 Epoch Partners. All rights reserved. Member NASD/SIPC. \END THE ABOVE RESEARCH HAS JUST BEEN PUBLISHED. For in-depth coverage of all companies within the Software Sector, please visit http://www.epoch.com/emailalert/software.html Epoch Research A team of industry-focused analysts creates Epoch’s proprietary Research. This team covers four technology sectors including Broadband and IP Data Services, Communications Equipment, Software and Internet. In addition to providing analysis of company and industry fundamentals and valuation, Epoch also filters and aggregates third party information. 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