I2
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Brief Overview of I2: Started in 1988 by Sanjiv Sidhu (SAP – started in 1972). Based in Texas USA.
Business Solutions: I2 is a provider of supply chain management solutions, including various supply chain solutions consisting of software and service offerings. It operates its business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of the company’s solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, improving operational visibility, increasing operating velocity and integrating planning and execution. Offerings are designed to help customers better achieve the following critical business objectives: • Visibility - a clear and unobstructed view up and down the supply chain • Planning - supply chain optimization to match supply and demand considering system-wide constraints • Collaboration - interoperability with supply chain partners and elimination of functional silos • Control - management of data and business processes across the extended supply chain These are the four segments where all the solutions provided by I2 fit in. The application software is often bundled with other product offerings such as business optimization and technical consulting, training, solution maintenance, software upgrades and development. The company derives revenues from licenses of software and related services, which include assistance in implementation, integration, customization, training, consulting and maintenance.
Customers: Customer Concentration: No individual customer accounted for more than 10% of total revenues. Customer list available on company web site.
Company Debacle: The below graph indicates the share prices of the company in NASDAQ (ITWO)
No of Employees in 2001 – 6100 No of Employees in 2006 – 1340 Indicates a reduction of 10-12% on an average every year. Key Indicators: Figures in $Mn.
Total Revenue Cost of Revenue Net Income
FY 2006 279 111 24
FY 2005 337 120 87
FY 2004 389 151 -1.3
Cash and Equi. Current Liabilities Long Term Debt
114 132 84
118 197 76
141 246 317
Net income increased in 2005 because of: 1. Decreased R&D expenses ( $71Mn – 2004, $ 37Mn – 2005, $35 Mn – 2006) 2. Reduced administrative expenditure – ($151 Mn – 2004 , $104 Mn – 2006) Debacle Indicators: Revenues falling since 2001. Getting beaten up by SAP and Oracle (since SAP and Oracle provide complete suite of ERP applications) Stock delisted in March 2003 $ 300 Mn debt at the end of FY 2004 (debt almost equal to yearly revenue). I2 implementation failure for Nike Debacle was also partly because of the dot com bust of 2001 when companies slowed their IT spendings.
Restructuring started at the end of FY 2004. New CEO – Mike McGrath – well known personality in SCM field Raised money to pay off debt Got the stock relisted Major cost restructuring efforts – to cut ‘cost of revenue’. Employee reduction at upper mgmt level – almost 13-15%. No business travel unless billed to the customer
Financials:
Contract revenue is the result of the recognition of certain revenue carried on i2’s balance sheet as a portion of deferred revenue. The timing of the recognition of deferred contract revenue is difficult to predict and is not typically associated with current business or cash collections. Even though the total revenue has decreased in Q4 06 (by 17 odd %) , the decrease can be attributed to the decrease in contract revenue. Operating revenue should give us a better picture of the business and the same marginally increased in Q4 06 (by 3%).
Financial Highlights of FY 2006:
Total revenue decreased significantly by 17% in FY 06. However the operating revenue decreased marginally in FY06. Contract revenue is deferred revenue. Even Long term debt has increased from 75.7 (FY 2005) to 83.8 (FY 2006). One of the main reasons for I2 debacle was that the debts had increased Question: Can we say I2 is growing and has come out of the debacle which it went into 2-3 years back?
Sources of Revenue:
Software Solutions: Software solutions revenue includes core license revenue, recurring license revenue, and fees received to develop the licensed functionality.
Software solutions revenue decreased $3.8 million in the three months ended March 31, 2007 when compared to the same period in 2006. These decreases are largely attributable to the fact that revenue recognized from prior period bookings decreased. Company Quote: Our account teams, led by sales representatives and consulting managers, are responsible for most of our software solutions revenue. Over 50% of our current sales staff has less than one year of experience with our company. Although we believe direct sales will continue to account for most of our software solutions revenue for the foreseeable future, we plan to
continue developing indirect sales through, or in conjunction with, sales alliances, distributors, resellers and other indirect channels. There can be no assurance that our efforts to further expand indirect sales of our software solutions will be successful or will continue in the future. This indicates that it is becoming increasingly difficult for I2 to attract new customers. The company itself is not confident whether it will be able to match the Software Solutions revenues, indicates a low morale.
Services revenue: is primarily derived from fees for implementation, integration, consulting and training services and is generally recognized when services are performed. In addition, services revenue includes fees received from arrangements to customize or enhance previously purchased licensed software. Services revenue also includes reimbursable expense revenue, with the related costs of reimbursable expenses included in cost of services. Services revenue increased $4.8 million, or 20%, for the three months ended March 31, 2007 compared to the same period in 2006. The increase in the three months ended March 31, 2007 when compared to the same period in 2006 reflects growth in the average number of services personnel as we continue to match the levels of services personnel with the market demand for our services. Based on our historical trends, we expect services revenue to continue to fluctuate on a quarterly basis due to the timing of booking new projects and the timing of revenue recognition on these projects. A strong growth in the Services revenue indicates that there are loyal customers of I2 and they continue to prefer I2 products. Maintenance: Maintenance revenue decreased $2.2 million, or 9%, during the three months ended March 31, 2007 compared to the same period in 2006. The decrease in maintenance revenue resulted mainly from a continuing decline in the number of maintenance renewals as well as less favorable renewal terms. There can be no assurance that maintenance revenues will not continue to decline.
Cost of services and Maintenance – Increased by 14% in Q1 2007 – Because of increase in average services and maintenance headcount of 12%. Research and development expenses decreased $0.1 million, or 2%, for the three months ended March 31, 2007 compared to the same period in 2006.
Competitors:
ITWO
JDAS
ORCL
SAP
Industry
Market Cap:
337.93M
596.43M
104.36B
62.82B
154.97M
Employees:
1,340
1,701
74,674
39,355
217
2.40%
89.60%
20.20%
6.10%
16.40%
281.22M
320.33M
18.00B
13.13B
76.14M
Gross Margin (ttm):
60.59%
61.31%
76.86%
66.42%
56.44%
EBITDA (ttm):
54.41M
53.71M
7.46B
3.86B
5.61M
Oper Margins (ttm):
10.97%
7.64%
34.08%
27.17%
-1.47%
Net Income (ttm):
23.64M
-7.01M
4.27B
2.62B
-344.79K
EPS (ttm):
0.902
-0.239
0.811
2.13
N/A
P/E (ttm):
17.67
N/A
25.17
24.39
29.69
PEG (5 yr expected):
1.92
1.04
1.19
1.75
1.46
P/S (ttm):
1.20
1.86
5.80
4.78
2.91
Qtrly Rev Growth (yoy): Revenue (ttm):
Can we say SAP or Oracle is I2’s competitor? SAP revenue - $13 Bn, Oracle - $18 Bn, I2 - $300 Mn
I2 Strategy: New products (e.g. how different products will sell, in real time and even at the store level.) Less reliance on Multi million dollar deals – Bigger the deal – bigger the software cycle. Led to unpredictable earnings. Sell software in chunks to address specific part of manufacturing / SCM. Smaller chunk – Less cost – smaller cycle – Predictable earnings.
Summary - Take aways: I2 doing reasonably well till 2001, when the debacle started. Currently in a better shape than what it was in 2004. However, still struggling.
Some very loyal customers. Very Difficult for I2 to add new customers. However, some new customers have been added in Japan/APAC region. The revenues from these customers are not as much as US customers. Revenue from services has been increasing. Revenue from software solutions and maintenance has been decreasing. Major restructuring efforts going on. Change in the strategy to sell – Selling in chunks to reduce the selling cycle.
Insider Information:
Role offered to SPJCM in Apr 2007: One of the seniors: The designation we MBAs have been offered is of either Consultants or Sr. Consultants. The role is as follows: 1. Once a client is assigned, study the process on the client side. Map it to the standard i2 SCM scorecard model (SCOR), study where i2 products can fit in and make a difference in terms of improving the SCM profitability. Right now , we are being put thru a rigorous 3 month Boot Camp. and we asre being trained comprehensively on all i2 products. They are superb... I mean the algorithms that run in the backdrop make you sit back and think, man this is AMAZING.. the work of a genius ! 2. Work involves lot of onsite travel once you master a product 3. Very analytical bent of mind required. 4. Requires interaction with CXO level employees
Roles to Students from other colleges: Same roles.. same profiles even for IIM chaps or SPJIMR chaps. (NOTE: i2 doesn't visit any other campus)
Work Culture: Just one word.. EXCELLENT. Its a product co... Support is a separate dept. Go home at 6 sharp..even the canteen is closed after that. Good family life. But the day time is packed up as anywhere else. HR is active and respected.
I2 Recruitment plans for the year: i2 is coming back right now and its in a conservatively expansion mode..will definitely br recruiting for this yr.
Business Solutions: I2 is a provider of supply chain management solutions, including various supply chain solutions consisting of software and service offerings. It operates its business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of the company’s solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, improving operational visibility, increasing operating velocity and integrating planning and execution. Offerings are designed to help customers better achieve the following critical business objectives: • Visibility - a clear and unobstructed view up and down the supply chain • Planning - supply chain optimization to match supply and demand considering system-wide constraints • Collaboration - interoperability with supply chain partners and elimination of functional silos • Control - management of data and business processes across the extended supply chain These are the four segments where all the solutions provided by I2 fit in. The application software is often bundled with other product offerings such as business optimization and technical consulting, training, solution maintenance, software upgrades and development. The company derives revenues from licenses of software and related services, which include assistance in implementation, integration, customization, training, consulting and maintenance.
Customers: Customer Concentration: No individual customer accounted for more than 10% of total revenues. Customer list available on company web site.
Company Debacle: The below graph indicates the share prices of the company in NASDAQ (ITWO)
No of Employees in 2001 – 6100 No of Employees in 2006 – 1340 Indicates a reduction of 10-12% on an average every year. Key Indicators: Figures in $Mn.
Total Revenue Cost of Revenue Net Income
FY 2006 279 111 24
FY 2005 337 120 87
FY 2004 389 151 -1.3
Cash and Equi. Current Liabilities Long Term Debt
114 132 84
118 197 76
141 246 317
Net income increased in 2005 because of: 1. Decreased R&D expenses ( $71Mn – 2004, $ 37Mn – 2005, $35 Mn – 2006) 2. Reduced administrative expenditure – ($151 Mn – 2004 , $104 Mn – 2006) Debacle Indicators: Revenues falling since 2001. Getting beaten up by SAP and Oracle (since SAP and Oracle provide complete suite of ERP applications) Stock delisted in March 2003 $ 300 Mn debt at the end of FY 2004 (debt almost equal to yearly revenue). I2 implementation failure for Nike Debacle was also partly because of the dot com bust of 2001 when companies slowed their IT spendings.
Restructuring started at the end of FY 2004. New CEO – Mike McGrath – well known personality in SCM field Raised money to pay off debt Got the stock relisted Major cost restructuring efforts – to cut ‘cost of revenue’. Employee reduction at upper mgmt level – almost 13-15%. No business travel unless billed to the customer
Financials:
Contract revenue is the result of the recognition of certain revenue carried on i2’s balance sheet as a portion of deferred revenue. The timing of the recognition of deferred contract revenue is difficult to predict and is not typically associated with current business or cash collections. Even though the total revenue has decreased in Q4 06 (by 17 odd %) , the decrease can be attributed to the decrease in contract revenue. Operating revenue should give us a better picture of the business and the same marginally increased in Q4 06 (by 3%).
Financial Highlights of FY 2006:
Total revenue decreased significantly by 17% in FY 06. However the operating revenue decreased marginally in FY06. Contract revenue is deferred revenue. Even Long term debt has increased from 75.7 (FY 2005) to 83.8 (FY 2006). One of the main reasons for I2 debacle was that the debts had increased Question: Can we say I2 is growing and has come out of the debacle which it went into 2-3 years back?
Sources of Revenue:
Software Solutions: Software solutions revenue includes core license revenue, recurring license revenue, and fees received to develop the licensed functionality.
Software solutions revenue decreased $3.8 million in the three months ended March 31, 2007 when compared to the same period in 2006. These decreases are largely attributable to the fact that revenue recognized from prior period bookings decreased. Company Quote: Our account teams, led by sales representatives and consulting managers, are responsible for most of our software solutions revenue. Over 50% of our current sales staff has less than one year of experience with our company. Although we believe direct sales will continue to account for most of our software solutions revenue for the foreseeable future, we plan to
continue developing indirect sales through, or in conjunction with, sales alliances, distributors, resellers and other indirect channels. There can be no assurance that our efforts to further expand indirect sales of our software solutions will be successful or will continue in the future. This indicates that it is becoming increasingly difficult for I2 to attract new customers. The company itself is not confident whether it will be able to match the Software Solutions revenues, indicates a low morale.
Services revenue: is primarily derived from fees for implementation, integration, consulting and training services and is generally recognized when services are performed. In addition, services revenue includes fees received from arrangements to customize or enhance previously purchased licensed software. Services revenue also includes reimbursable expense revenue, with the related costs of reimbursable expenses included in cost of services. Services revenue increased $4.8 million, or 20%, for the three months ended March 31, 2007 compared to the same period in 2006. The increase in the three months ended March 31, 2007 when compared to the same period in 2006 reflects growth in the average number of services personnel as we continue to match the levels of services personnel with the market demand for our services. Based on our historical trends, we expect services revenue to continue to fluctuate on a quarterly basis due to the timing of booking new projects and the timing of revenue recognition on these projects. A strong growth in the Services revenue indicates that there are loyal customers of I2 and they continue to prefer I2 products. Maintenance: Maintenance revenue decreased $2.2 million, or 9%, during the three months ended March 31, 2007 compared to the same period in 2006. The decrease in maintenance revenue resulted mainly from a continuing decline in the number of maintenance renewals as well as less favorable renewal terms. There can be no assurance that maintenance revenues will not continue to decline.
Cost of services and Maintenance – Increased by 14% in Q1 2007 – Because of increase in average services and maintenance headcount of 12%. Research and development expenses decreased $0.1 million, or 2%, for the three months ended March 31, 2007 compared to the same period in 2006.
Competitors:
ITWO
JDAS
ORCL
SAP
Industry
Market Cap:
337.93M
596.43M
104.36B
62.82B
154.97M
Employees:
1,340
1,701
74,674
39,355
217
2.40%
89.60%
20.20%
6.10%
16.40%
281.22M
320.33M
18.00B
13.13B
76.14M
Gross Margin (ttm):
60.59%
61.31%
76.86%
66.42%
56.44%
EBITDA (ttm):
54.41M
53.71M
7.46B
3.86B
5.61M
Oper Margins (ttm):
10.97%
7.64%
34.08%
27.17%
-1.47%
Net Income (ttm):
23.64M
-7.01M
4.27B
2.62B
-344.79K
EPS (ttm):
0.902
-0.239
0.811
2.13
N/A
P/E (ttm):
17.67
N/A
25.17
24.39
29.69
PEG (5 yr expected):
1.92
1.04
1.19
1.75
1.46
P/S (ttm):
1.20
1.86
5.80
4.78
2.91
Qtrly Rev Growth (yoy): Revenue (ttm):
Can we say SAP or Oracle is I2’s competitor? SAP revenue - $13 Bn, Oracle - $18 Bn, I2 - $300 Mn
I2 Strategy: New products (e.g. how different products will sell, in real time and even at the store level.) Less reliance on Multi million dollar deals – Bigger the deal – bigger the software cycle. Led to unpredictable earnings. Sell software in chunks to address specific part of manufacturing / SCM. Smaller chunk – Less cost – smaller cycle – Predictable earnings.
Summary - Take aways: I2 doing reasonably well till 2001, when the debacle started. Currently in a better shape than what it was in 2004. However, still struggling.
Some very loyal customers. Very Difficult for I2 to add new customers. However, some new customers have been added in Japan/APAC region. The revenues from these customers are not as much as US customers. Revenue from services has been increasing. Revenue from software solutions and maintenance has been decreasing. Major restructuring efforts going on. Change in the strategy to sell – Selling in chunks to reduce the selling cycle.
Insider Information:
Role offered to SPJCM in Apr 2007: One of the seniors: The designation we MBAs have been offered is of either Consultants or Sr. Consultants. The role is as follows: 1. Once a client is assigned, study the process on the client side. Map it to the standard i2 SCM scorecard model (SCOR), study where i2 products can fit in and make a difference in terms of improving the SCM profitability. Right now , we are being put thru a rigorous 3 month Boot Camp. and we asre being trained comprehensively on all i2 products. They are superb... I mean the algorithms that run in the backdrop make you sit back and think, man this is AMAZING.. the work of a genius ! 2. Work involves lot of onsite travel once you master a product 3. Very analytical bent of mind required. 4. Requires interaction with CXO level employees
Roles to Students from other colleges: Same roles.. same profiles even for IIM chaps or SPJIMR chaps. (NOTE: i2 doesn't visit any other campus)
Work Culture: Just one word.. EXCELLENT. Its a product co... Support is a separate dept. Go home at 6 sharp..even the canteen is closed after that. Good family life. But the day time is packed up as anywhere else. HR is active and respected.
I2 Recruitment plans for the year: i2 is coming back right now and its in a conservatively expansion mode..will definitely br recruiting for this yr.
