INTRADO POSTS POSITIVE Q1, BUT INVESTORS REMAIN WARY

Reactions from Street stem from concerns about future growth

One year to the week after Intrado (then SCC Communications) acquired Lucent Technologies' Public Safety Systems venture, the company has demonstrated that acquisitions actually can work.

Intrado, a provider of public safety, clearinghouse and line level database solutions, impressed analysts last week with a first-quarter revenue increase of 83% over last year to $24.2 million and an increase in EBITDA to $2.5 million. Yet the investor community rewarded the company with a $2-plus drop in stock value. Intrado's stock recovered some of that by late in the week, but the reaction is a clear indication that investors are reluctant to believe in a technology turnaround.

“For the last six quarters we have nailed our plan,” said George Heinrichs, president and CEO of Intrado. “We told the Street we will continue to nail it. So when I see those little blips in the stock, I don't really react to them.”

However, investors are concerned about continued growth.

“They guided Q2 at 7¢ to 11¢ [earnings per share] and the Street already had them at 11¢,” said Chris Thomson, associate director of equity research at Wunderlich Research Partners. “In some people's eyes, that limits the upside for the second quarter.”

Some investors are concerned about Intrado's balance sheet, particularly a $4 million drop in cash on hand. However, Thomson said the lack of reward for a strong quarter could be blamed on investor jitters. “If they see the first hint of weakness, they sell first and ask questions later,” Thomson said.

“Anything that either smells like, looks like or is a first cousin to technology is struggling no matter how great the company is,” said David Brendt, director for The Yankee Group. “It's all sheep and herd behavior.”

Neither analyst sees Intrado's balance sheet as a long-term issue. “As this company continues to ramp up the EBITDA line, they are going to be able to fund operations from internal cash, and in two or three quarters you aren't going to be hearing about balance sheet problems,” Thomson said.

Instead, investors are likely to hear about Intrado's successful integration of the former Lucent Public Safety Systems. Last May, SCC acquired the venture for about $29 million. In a complicated arrangement, Lucent could be in line for incentive-based rebates in 2003.

Intrado has completed the integration of the two businesses, though Heinrichs said full product integration would go on for years. Cingular Wireless and Comnet contracted Intrado for Phase I and Phase II wireless 911 services. The company also will support OneStar Communications' 911 location service.

The Boulder, Colo.-based public safety company also formed an alliance with VeriSign subsidiary Illuminet to offer E911 service and teamed with Billing Concepts, which will provide a platform for inter-carrier billing and customer care resolution.

Potentially important for future growth are the trials expected to get underway this quarter for Intrado's intelliBase national repository line level database, a data repository that contains information at a line-, switch- and company-specific level on each working telephone number in the North American Dialing Plan. The database can help resolve billing and customer care issue.

“This has the potential to be a material part of our business, but it is not a material part of our forecast,” Heinrichs said.

More telling is the fact that the company has been able to overcome the inherent difficulties of merging.

“It's a good sign that they seem like a cohesive group that has been able to leverage the strengths both groups brought to the picture,” Berndt said. It also doesn't hurt to be in an “essential services” market like 911.