With the announcement of its second quarter results, Ross Systems, Inc. (NASDAQ: ROSS), a provider of ERP and e-business solutions for mid-market process manufacturers (www.rossinc.com), has shown a continued upward trend in a market where most companies have struggled to maintain the status quo. Ross had experienced serious financial difficulty in 2000 (see Ross Systems Ends Year On a Sour Note and Braces Itself For Survivor's Game) but those troubles appear to be well behind it. Its somewhat miraculous turnaround in 2001 has been duly followed by TEC (see Ross Systems Closes Ranks For A (Possible) Turnaround, Is Ross Systems Up To A Hat Trick?, and Way To Go, Ross Systems!).
The company reported a profit for its Q2 2002 ended December 31, 2001 of $0.5 million or $0.17 per diluted share on revenues of $11.4 million. Software license revenue (from normalized operations) increased by 79% from a year ago, with 40% of the license revenue coming from new customers.
Recent discussions with Pat Tinley, CEO and Chairman of the Board and Rick Marquardt, Senior Vice President of Worldwide Sales and Marketing yielded some of the keys to their success.
Ross has now reported its fifth straight quarter of profitability, a clear sign of its growing strength in the market (see Figure 1 below). Only two other ERP software vendors, SAP and PeopleSoft have had the kind of results that Ross has posted. Oracle's streak of profitable quarters have been somewhat tempered by a significant downturn in applications license revenue. There are indications that Baan, another example of the comeback success, might have also posted five consecutive quarters. These cannot be confirmed though, as its parent Invensys does not report Baan's separate results.
In addition to the financial results released by the company, a clear indication of its health is its record in signing new accounts. Ross signed 14 new customer accounts during the last quarter. This performance has been achieved in an economic climate where most peer vendors find few if any new accounts.
Ross has a single-minded focus on the mid-market process company. Within the process market, its success in food and beverage, life sciences (pharmaceutical and biotech), chemicals, forest products, and metals has been noteworthy.
Ross has an installed base of over 3,000 enterprises utilizing its solution around the world. It has accomplished this by offering a broad and integrated product to the market through its iRenaissance suite of manufacturing, distribution and financial applications. This large install base gives it a foundation of economic strength due to the highly predictable software maintenance revenue associated with the base.
Ross is among a very small group of vendors who have decided to build product exclusively for the process market. This has resulted in a broad and deep set of functionality attuned to the needs of their target market. This strategy has also resulted in a team of long-term professionals who understand the needs of this market and how Ross can meet their needs.
The Ross toolset has proven to be an advantage to both Ross and their customers. It has allowed them to transition to a browser-based product with the minimum of effort. The Ross toolset has allowed customers to move through the changes in technical environments, from 'green screen' via client/server to browser based applications without obsolescing its applications. Customers who have chosen to use the Ross tool set to extend or modify their application suite have seen these extensions and modifications move to a browser-based environment with their core Ross applications without the necessity of rewriting or reapplying their efforts. This should be seen as an important capability for future Ross customers.
Existing Ross customers should feel confidence in Ross. They are encouraged to embrace the Ross tool set to allow smooth the transition to browser-based computing and the technology changes that lie ahead. When looking to expand their application suite, they should evaluate Ross's offering before looking elsewhere.
Mid-sized process companies, especially those in the food and beverage, life sciences (pharmaceutical and biotech), chemicals, forest products, and metals industries looking for execution systems should place Ross on their short list.
Customers and potential customers who may have some lingering concern over the Ross financial situation should be reassured that these issues are behind them. We urge customers and potential customers to set with Ross management if these concerns come into play during decision-making cycles.
Although Ross has shown excellent results over the last five quarters, it needs to address several areas of the business. Ross has not proven to be a marketing powerhouse and needs to do a better job of communicating with the marketplace. It also lags other vendors in adding supply chain management and planning (SCM/SCP), e-collaboration and customer relationship management (CRM) products to its suite.
Ross management should strive to continue the financial trend they have established and be prepared to discuss the financial and product strategy details with existing and potential customers.
For more information on the company, see Ross Systems, Inc.: In Process of Renaissance.