Infodata Redirects on 'Path to Profitability'

Infodata Redirects on 'Path to Profitability'

By Richard McCaffery
Staff Writer

Infodata Systems Inc. will push its services business to both public and private sector customers as a way to reach profitability for the first time since 1996.

Two years ago, the Fairfax, Va., software maker bet it could turn a new document management product into an industry standard, but that strategy did not materialize, according to the company's 1997 annual report.

"As a small company, we need to focus," Harry Kaplowitz, Infodata's executive vice president, told Washington Technology. "This is a more certain path to profitability."

Kaplowitz would not say when he expects the company to turn a profit with its new strategy, but he's forecasting $15 million in sales for 1998, a 42 percent increase from 1997.Infodata's services and systems integration business grew 9 percent and accounted for $7.4 million of the company's $10.6 million in sales last year. "Our revenues have been growing the last three years," Kaplowitz said.

Founded 30 years ago, Infodata makes software that helps organizations store, retrieve and maintain information. Thirty percent of its business is with the federal government. Its customers include the Navy, the Energy Department and the Army Signal Corps.

The company competes with established players, such as Documentum Inc., Pleasanton, Calif.; PC Docs Inc., Toronto; and Open Text Corp., Waterloo, Canada.

After suffering substantial losses in 1992 and 1993, Infodata brought in new board members and refocused its efforts on document management, its original strength. It returned to profitability in 1994, and by 1996 it had accumulated $2.2 million in cash.

But expenses related to development and marketing of the company's Virtual File Cabinet plunged Infodata into the red, and the company reported losses of $3.5 million last year. That product allows users to instantaneously share documents over intranets or the Internet, regardless of how the information is formatted.

The company has had some success with VFC, selling it to customers such as the University of New Mexico and the Department of Energy. But sales were disappointing last year. Infodata spent $5.4 million in 1997 developing and marketing the product, and sales totaled $644,000, according to the company's annual report.

Kaplowitz said the company can no longer afford a mass-market effort, though it will continue to sell and develop the product through its partners.

"We just felt that the size of the continuing investment ... would stretch the company too thin," he said.

Overall, the market for the kind of software Infodata makes is growing. In 1997, the worldwide document management software market was $248 million, according to the Delphi Group, a Boston based consulting firm. The Delphi Group expects the market to grow 30 percent this year.

But margins are much higher in the services business. International Data Corp., Framingham, Mass., expects the market for document management software and services to hit $1.7 billion by 2000. Infodata earns from $4 to $10 on services for every $1 it earns selling products, Kaplowitz said.

Infodata's investors have had a turbulent year. The company's stock hit a 52-week high of $12.75 in December and closed at $3.43 July 16, near its 52-week low. In February, the company raised $6.5 million in a secondary stock offering needed in part to keep from being delisted when the Nasdaq Small Capitalization Market revised its standards.

A portion of the cash was used to boost the company's net tangible assets above the $2 million mark, according to Christopher Dettmar, Infodata's chief financial officer. The company is now well above the Nasdaq requirement with net tangible assets of $6 million, Dettmar said.

On July 10, the company's director and chief executive officer, James Ungerleider, resigned after just eight months on the job. Before joining Infodata, Ungerleider worked at American Management Systems Inc., Fairfax, Va., from 1973 to 1997. He could not be reached for comment.

Despite Infodata's troubles, one analyst said he likes what he sees.

"It's a good, small company that's had 30 years of [experience]," said David Debora, a technology analyst at New York investment bank Patterson Travis Inc. "They're familiar with their customers, and they have a product that could do really well."

Debora said Infodata's new strategy - marketing its Virtual File Cabinet through its services division - makes more sense for a small company without the deep pockets to market and upgrade complex software products. "We're not talking about IBM or Microsoft here," he said.

Once partnerships take off with companies such as Adobe Systems Inc., San Jose, Calif., VFC should catch on, Debora said. Last year, Adobe signed an agreement worth $1.7 million with Infodata to cross-license products.

Adobe is using parts of VFC as a way of sharing Adobe-based documents over large networks. "VFC is still a product with quite a bit of potential," Debora said.

Infodata Systems Inc.
Nasdaq National Market (INFD)
Headquarters: Fairfax, Va.
Business: Document management software and services
1997 Revenues: $10.6 million
Web site: www.infodata.com

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