Intelligent Systems (INS) – “Small and Focused Wins”

7 responses to “Intelligent Systems (INS) – “Small and Focused Wins””

  1. Good analysis. With the latest Q42019 result, what will be your revised valuation on INS?
    I see that with the Goldman Sachs target 21 mils issued Apple Card, assuming 5 mils has been issued in 2019, 15 mils Apple Card to be issued this year is highly as achievable. This will be on top of increasing revenue from professionals services, maintenance & support services, etc.

    1. Hi Christopher. Thank you for reading and commenting. We have made some updated assumptions given recent earnings. They incorporate the increased investment in people (INS views 2020 as an “investment year” and 2021 as a year focused on ramping up cc processing) contrasted against the GS Apple Card growth outlook. Balancing these two (and making some additional model refinements), we actually have a target in the $85-$90 range. Not too far from our original target. We continually refine our assumptions and targets as new information becomes available. However, we reserve these updated insights for clients. We post our preliminary work on the blog to spark discussion as well as highlight our investment process.

      1. Hi Khadir,
        Thanks for your sharing again.

        I would also like to highlight a few points which readers can be aware and we all can learn together:

        1. INS management shared before during last year quarterly report that the growth of the company will be about 25% for the next 2 years. However, the real growth for 2019 had far exceed the management’s guide. Revenue growth is 70% year on year, profit is > 100% year on year.

        2. What if the one time license revenue is more than $1 per active card? Forecasted 16 mils Apple card growth for 2020 to reach 21 mils would means the revenue would easily be >50% year on year again, including the rest of the professional services, maintenance support, etc.

        Let me know if any my points is too optimistic.


  2. So we would agree with point 1. Given the tremendous growth in 2019, 2020 will be nowhere near as exciting. We expect growth to resume in 2020. Management also indicated they will be investing in personnel and so operating margins will likely decline. I would also expect to see capex grow a bit as well. Leland has frequently commented that their business is very challenging to model internally and so almost impossible for external analysts to model “we are an analysts’ model nightmare.” (August 2019 Earnings call). On your second point, the license revenue is charged on a sliding scale depending on which tier(# of cards) the customer has reached. Matt has indicated that he has provided enough information for analysts to back into what they charge fortheir tier levels (1K, 10K, 50K…..1M, 2M, 3M, etc). We have some thoughts on this, but we do not yet have a high level of confidence that we have all of the numbers correct. The $0.50 – $1.00 per account per month was for credit card processing. Apple/Goldman is not currently a processing customer. Only perpetual license.

  3. […] expanding their presence internationally.  You can find our analysis and investment thesis for Intelligent Systems here.  We think you will agree with our […]

  4. Hi,

    Do you think normalized 60% FCF/Sales margins achievable in the next 1-2 years? INS had about 40% FCF/Sales for 2020, though they did spent some on growth capex.

    1. Thank you for reading, Raheel. I am unsure if FCF margins with reach the 60% level. Annual FCF is trending in the right direction (28%, 25%, 40%) and we expect the second half of 2021 to be quite robust. However, a 60% FCF margin is not vital for our investment thesis.

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