Is Ross Systems Up To A Hat Trick?

Is Ross Systems Up To A Hat Trick?
P.J. Jakovljevic - May 22, 2001

Event Summary

On April 27, Ross Systems, Inc. (NASDAQ: ROSS), a provider of ERP and e-business solutions for mid-market process manufacturers, announced that it would effect a 1-for-10 reverse stock split of its outstanding shares, approved by the majority vote of its shareholders. The Company's NASDAQ symbol, which was "ROSS," has been temporarily changed to "ROSSD" to signal to shareholders and the public that the Company has implemented a reverse stock split.

The move comes in the wake of April 25, when Ross Systems reported financial results for the third quarter of its fiscal 2001, ended March 31, 2001. While revenues for the quarter of $11.5 million declined 38% from $18.5 million in the same period of the prior year, operating expenses for the quarter of $10.9 also declined over 50% from $22.0 million in the prior year. The net profit for the quarter of $2.8 million, including a $2.4 million extraordinary gain, compares to a net loss of $3.9 million, which included a $1.1 million non-recurring charge. The results reflect operating earnings of $0.6 million, which improved over the sequential quarter. Although software license revenues of $2.4 million declined 42% compared to a year ago, it increased 24% from the last quarter, while the cash position increased by $3.5 million from the prior quarter to $4.2 million. Ross Systems reported positive cash flow for both the quarter and nine- month period.

"The results for the quarter reflect the results of the Company's aggressive actions to return the Company to profitability by focusing on its key markets and superior product functionality, while removing excess costs associated with activities in secondary markets," said Pat Tinley, the Company's CEO. "Not only have we experienced two quarters of profitability but the sequential growth in software license fees is indicative of our activities to resume growth in markets where our products provide compelling economic advantage."

The Company claims to have experienced improved sales in its core process manufacturing business in both North America and Europe. Ross' European operations continued at profitable levels and are seemingly at their highest level of profitability in over five years. Ross believes this validates its strategy of direct selling in select European countries and utilizing distribution partners in the rest of Europe.

More importantly, Ross' Product Development has finally delivered the following product development initiatives:

  1. iRennaisance.connect, the Ross' XML-based web and back-office integration tool.

  2. The latest release of Gembase, its application development tool provides enhanced performance on Microsoft's SQL Server database. This should allow large customers a choice to effectively deploy on either the SQL Server or Oracle database.

Market Impact

While Ross' resilience is impressive, the company is still not exactly in the comfort zone. It has done an outstanding job of getting expenses in line with revenues and has divested most of non-core competency businesses so that there are not many options left to generate cash other than by increased top line through new deals (for more information, see Ross Systems Closes Ranks For A (Possible) Turnaround). Only time will tell how Ross will fare in this battlefield though. While the company's declining revenue trend continues (See Figure 1), the license revenue increase compared to the last quarter is encouraging and it may be boosted in the future by Ross' recent profitable quarterly performances.

Figure 1.

For now, the company remains in the race for a piece of the prosperous process manufacturing market. Better financial performance and the long awaited delivery of above technological enhancements along with Ross' strong process manufacturing functionality, a sharp vertical focus and good multi-national capabilities, could restore its all but lost visibility in the market. However, look for the global process manufacturing market to be a fierce battlefield. We believe SCT's aggressive campaign to increase its international presence, and its recently announced e-business collaborative vision for some process manufacturing industries (for more information, see SCT Corporation Means (e)Business For Process Manufacturing), will be a challenge to counteract.

As the gauntlet has been thrown, Ross should swiftly and strongly articulate its CRM and digital marketplace strategy. Again, the delivery of it will hinge on available resources (read new revenue), which may look like a vicious circle. Therefore, despite Ross' improved posture, a new suite of e-business products, a large customer base, and a global channel, its future will be trying.

User Recommendations

Ross Systems' improved financial situation can be an encouragement both to the market in general and to its existing customers. The latest moves indicate that the company should not be written off that easily and that discipline can be restored even under quite unpleasant environmental conditions. Ross still has a strong functional fit for a number of process manufacturing industries. Users are advised to follow the company's new product introductions and keep a close eye on its future performance, though.

Also important will be to watch how well the company maintains its global channel, how well it targets the right e-business issues for mid-market process manufacturing enterprises and how it leverages the latest positive news in order to increase the new revenue growth.

More comprehensive recommendations for both current and potential Ross' users can be found in Ross Systems, Inc.: In Process of Renaissance.

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