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May 4, 1999 RECOMMENDATION: BUY
Exigent International, Inc. (NASDAQ: XGNT)
Specialized Software Technology Company Trading At Significant Discount to Peer Group; Initiating Coverage With A BUY Recommendation
Market Data:
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Exigent Corporate Information:
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Summary Investment Considerations
Exigent International, Inc. ("XGNT") is a holding company focused on the development of innovative software products, specializing in satellite command and control systems. XGNT's flagship OS/COMET family of software products now commands and controls the two largest satellite constellations in the world: the IRIDIUM constellation of 66 Low Earth Orbit (LEO) satellites (plus 6 on-orbit spares), and the NAVSTAR Global Positioning System (GPS) constellation of 24 satellites, a US Air Force project. The commercial satellite industry is forecasted to grow from an estimated $45 billion in 1998 to approximately $100 billion in five years (governmental business adds to these levels), and industry sources anticipate in excess of 500 satellite missions pending through the year 2003. While satellite command and control systems represent only a small fraction of the total market (approximately $400 million in 1998), growth in the market for commercial-off-the-shelf (COTS) systems in which XGNT specializes should exceed overall market growth rates. XGNT has three operating subsidiaries: Software Technology, Inc. (STI), the main operating business, FotoTag, Inc. and Middleware Solutions, Inc. (two subsidiaries applying core STI technologies to the public transportation and Internet industries).
XGNT is well positioned to grow revenues and earnings from its current levels. XGNT's expertise in large satellite constellation programs (IRIDIUM and NAVSTAR GPS) positions it well in upcoming constellation projects such as Teledesic, SkyBridge, Orbcomm, Globalstar and Ellipso. In fact, as a result of XGNT's performance on the IRIDIUM program, XGNT was selected by Motorola as the preferred supplier of command and control software for Celestri (now part of the Teledesic program). XGNT has recently launched new products, the OS/ICC (Open System/Integrated Control Center) and Calypso product line, which will allow XGNT to compete more effectively in bidding situations where integrated hardware and software solutions, and low-end single-node solutions, are necessary. We believe XGNT is trading at a significant discount to its peer group, are initiating coverage with a BUY rating, and recommend purchase by investors tolerant of the risks associated with small-cap equity investments.
I. Large, Growing Market -- Strong Governmental and Commercial Customer Base
- Commercial satellite business is expected to grow in excess of 15% annually over the next five years; XGNT is very well positioned strategically to win business on upcoming large satellite constellation projects;
- Government business is expected to remain steady; the US Naval Research Laboratories (NRL) recently awarded XGNT a $60 million, 5-year contract; other US government agency business remains strong.
- XGNT has a long list of established customers including: Motorola, Lockheed Martin Mission Systems, GTE Perot Systems, the US Air Force, the US Navy and NASA.
II. Strong, Diversified Product Portfolio -- Reducing Satellite Operator Manpower Costs
- XGNT's suite of satellite ground control products, including OS/COMET, OS/ICC, Pluto and the Calypso and Calypso Pro product lines, will enable XGNT to broaden its target markets;
III. XGNT is Trading at a Significant Discount to its Peer Group
- XGNT trades at a significant discount to the only "pure-play" comparable company, Integral Systems (NASDAQ: ISYS), and to general industry (software/computer integrated systems) comparables;
- XGNT, just recently moved up to the NASDAQ SmallCap Market, is under-followed, and relatively unknown to the institutional investor community; XGNT trades at less than 50% of expected 1999 revenues, and less than 10 times expected 1999 net income -- significantly below comparable companies.
- We are initiating coverage on XGNT with a BUY recommendation, and have a 6-to-12-month price target range of $10 to $12 per share.
Risk Considerations
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of Exigent International, Inc. For a complete description of risks and uncertainties to XGNT's business, see the "Risk Factors" section in XGNT's SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:
- Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Business risk: Competition in the satellite command and control systems industry can be characterized as intense. Many of XGNT's competitors are also large customers. Additionally, XGNT's current revenue base is concentrated among three major customers, including a commercial customer, a governmental contractor and a group of US government agencies.
- Liquidity risk: XGNT's stock is thinly traded. The Company estimates that the public float is approximately 25% of the basic shares outstanding (or approximately 1.4 million shares). The average daily volume over the past 30 days has been approximately 18,000 shares. Additionally, XGNT has approximately 1 million warrants (Symbol: XGNTW) outstanding to purchase XGNT common stock at $3.00 per share, expiring January 31, 2000. For a complete description of XGNT's capital structure, and the terms of the outstanding warrants, please refer the Company's Form 10-K for the fiscal year ended December 31, 1998, which can be accessed from the SEC Edgar filings at www.SEC.gov.
For Additional Information
Contact SmallCaps Online LLC -- 212-554-4158
Sources for Additional Information
The following are website addresses offering related information, and links to other sources of information.
www.XGNT.com Exigent's corporate web site.
www.SmallCapsOnline.com SmallCaps Online's site for company information and research
www.sec.gov US Securities and Exchange Commission, with links to EDGAR filings
www.fcc.gov Federal Communications Commission homepage
www.iridium.com Iridium World Communications homepage
www.hughes.com Hughes Electronics homepage
www.loral.com Loral Space and Communications homepage
www.commtoday.com Communications Today website
www.satbiznews.com Satellite Business News website
www.spacebusiness.com Space Business.com website
www.satellitetoday.com Satellite Today website
The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC has performed investment banking, consulting or other services for and may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.