Struggling IRE reports first profit

Hot: A once-struggling White Marsh computer encryption specialist has seen its stock soar from $3 in September to $31 this month.

June 23, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

The management team at Information Resource Engineering Inc. survived a shareholder's coup attempt at the company's annual meeting in July by assuring investors in the White Marsh computer networking firm that new contracts and profitability were right around the corner.

At next month's annual meeting, Chief Executive Officer Anthony A. Caputo will happily report that his predictions were on target.

The company's stock price, which averaged about $10 per share in 1997, dropped to just over $3 in September.

But recently it's been on a steep upward slope -- reaching more than $31 this month -- with the news that the company has landed several major contracts and is finally turning a profit.

With 135 employees, IRE designs and manufactures "virtual private networks" -- VPNs -- technology that allows companies to create so-called private tunnels on the Internet.

The company has expanded its focus from encryption to include other technologies, such as message authentication, that also create secure communications.

Creating private lines on the Internet is far less costly than setting up an entirely new network.

The company recently announced several new deals, including two with Cisco Systems Inc. of San Jose, Calif., which manufactures from 60 percent to 80 percent of the routers used to direct Internet traffic.

In February, IRE announced that it was licensing technology to Cisco that would allow the company to manufacture routers with built-in virtual private network capability.

The May deal involved a software licensing agreement with Cisco that will let computer users have secure connections even if they are away from the office -- checking e-mail from their laptops, for example.

The two Cisco contracts are worth about $2.5 million up front and could bring IRE more than $10 million annually.

"We think [IRE is] very strong because Cisco is a major component in deployment of the Internet and will play a major role in VPNs," said Sandy Harrison, a research analyst at Pacific Growth Equities in San Francisco. "If you provide bullets to the army that's winning, you're going to do well."

An increase in business made the company profitable in last year's third quarter and in the first quarter of 1999, which ended March 31.

First-quarter net income was $190,000, or 3 cents a share, on revenue of $6.01 million. In the first quarter of 1998, IRE had a net loss of $510,000 and revenue of $4.9 million.

Shares of IRE closed at $24.50 yesterday, down $1.50.

Aside from Cisco Systems, IRE won new contracts with Cabletron Systems Inc. and Nortel Networks Corp.

Matthew Robison, an analyst at Ferris Baker Watts in Baltimore, said he rates IRE a strong buy and is expecting the company to earn 24 cents a share this year.

The recent licensing agreements have yet to produce many orders for products, but "if you wait until all these orders materialize on income statements, you'll have to buy at a higher level," he said.

"Another, more important reason to get involved sooner is you may miss the party completely," he said. "The company may be recognized by another company -- there's been a lot of merger and acquisition activity."

Caputo, 57, said no serious merger talks have occurred, but he doesn't rule out the possibility.

"We want to grow the business unit to benefit shareholders," he said. "It could be done independently or it could not."

For now he's focusing on further growth, and taking some pleasure in the fact that his team's plan for improved sales and a better bottom line worked.

"Our basic vision was always that as people begin to run their businesses on networks, they would need security and therefore security would be a profitable business. That is happening now and, as a result, this is a good place to be."

Pub Date: 6/23/99

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