Inforte Posts 4Q, Full Year Earnings Gains

Despite a revenue decline, Inforte on Friday beat Wall Street earnings estimates for its 2002 fourth quarter and posted an income gain for the full year.

The e-services and management consulting firm, based here, reported earnings of $700,000, or 6 cents per share, on sales of $9.9 million for the fourth quarter ended Dec. 31, up from earnings of $21,000, or 0 cents per share, on sales of $10.6 million in the year-ago quarter. The Thomson Financial/First Call consensus forecast for Inforte's 2002 fourth quarter was 3 cents per share.

Inforte CFO Nick Padgett said in a Friday morning conference call with financial analysts that a variety of factors fueled the company's strong performance. "In the face of what is likely the most dramatic shakeout that technology consulting firms have ever faced, we have delivered positive [results]," said Padgett. "There was no one single factor, but there were a lot of incremental things, including a handful of follow-on work during the quarter."

In the call, both Padgett and Inforte CEO Philip Bligh said the company's performance can be attributed to its successful cost-cutting efforts and strategic focus to specialize in customer- and demand-management solutions.

Inforte's fourth-quarter earnings per share represented the fourth consecutive quarter in which the company's profit grew sequentially, and its year-over-year change in quarterly net revenue represents the best in seven quarters. As of Dec. 31, Inforte reported cash and marketable securities of $67.3 million, based on 10.8 million outstanding shares.

Inforte's services group accounted for 30 percent of its fourth-quarter revenue, followed by 22 percent from its financial services group, 22 percent from its products group and 20 percent from its European division.

For the year ended Dec. 31, Inforte reported earnings of $1.7 million, or 15 cents per share, on sales of $40.4 million, compared with earnings of $1.2 million, or 9 cents per share, on sales of $47.7 million in 2001.

Looking at the technology consulting and services market, Padgett said industry pricing seems to have leveled off, and Inforte finds itself in a solid competitive position as a strategic and financial alternative to the new Big Five consulting firms.

Commenting on competition and consolidation, Bligh said the revenue performance of small and midsize consulting firms appears to be declining at a faster rate than the traditional Big Five players. The most aggressive pricing is coming from regional, privately held companies that have been forced to lay off employees and continue to struggle in the turbulent market, he said.

"[Private companies] are tougher to evaluate, but factual and anecdotal evidence suggest that these [regional players] are struggling a lot," said Bligh. "They are the ones who are pretty aggressive on pricing, compared to the smaller, local players."

Padgett told analysts that a possible war with Iraq is on the minds of some clients and would likely affect everyone's IT spending. Vertical markets such as travel and hospitality, where Inforte has some clients, would be hit the hardest, he said.

Bligh said Inforte has met with a few well-known outsourcing firms to discuss partnerships. The company is considering an outsourcing strategy because of offshore competition--particularly in programming--that's expected to rise over the next several years, he said.

"In five years, [outsourcing] will be a very substantial factor," said Bligh. "That's why our strategy is to move upstream and do less and less of the programming work ourselves and more and more of the strategy work."

Inforte reported that it now has 229 employees (172 are billable), down from 248 employees (188 billable) as of Sept. 30, 2002. New clients acquired during the fourth quarter include Anritsu, Ingersoll-Rand, Members Development Company and The Premier Insurance Co.

Although Inforte had solid financial results in the 2002 fourth quarter and full year, Padgett said he can't project that level of performance to first-quarter 2003 because all of the market and political uncertainties of the past two years are continuing. "But our recent results do demonstrate that whatever does happen, we are in a better position than others to navigate it successfully," he told analysts.

Inforte forecast first-quarter 2003 results of a 4-cents-per-share loss to a 4-cents-per-share profit, with revenue coming in at between $7 million and $9 million.

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