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Ross Systems Ends Year On a Sour Note and Braces Itself For Survivor’s Game

Written By: Predrag Jakovljevic
Published On: October 9 2000

Ross Systems Ends Year On a Sour Note and Braces Itself For Survivor's Game
P.J. Jakovljevic - October 9, 2000

Event Summary

Ross Systems, a provider of ERP and e-business solutions for mid-market process manufacturers, reported results for its fourth quarter ended June 30, 2000 and for fiscal year 2000. According to a press release from September 14 revenues in the quarter were $16.4 million, down 36% from $25.7 million in the same quarter of the prior year. The net loss for the quarter was $5.1 million or ($0.22) per share, compared to a net loss of $4.2 million or ($0.18) per share in the same quarter of the prior year. For the year, revenues declined by 21% to $80.0 million from $101.8 million in the prior year (See Figure 1 & 2). The net loss for the year was $9.7 million or ($0.41) per share compared with a net loss of $5.6 million or ($0.25) per share in the prior year.

Figure 1.

Figure 2.

Despite the loss, operating cash flow remained positive for the year, and overall borrowing declined by $3.5 million. Lower license revenues, attributable to a slowdown in new license contracts, resulted in lower consulting revenues and a slight decline in annual maintenance revenues, despite strong demand for add on products by customers. Operating expenses for the quarter were down 28% over the prior year and 17% for the year. DSO (Days Sales Outstanding) has continued to improve and is down 14 days from the previous quarter.

"As previously announced, the company has continued its restructuring and related expense reduction initiatives begun earlier in the year," said Pat Tinley, Ross' President and CEO. "Staff levels were decreased, while simultaneously increasing investment in both e-business products and related consulting training. We believe that the result of these actions, along with continued technology-based productivity improvements, will lower our break-even point, increase our revenue and move the company to profitability."

Additionally, the company claims to have accomplished a number of significant milestones during the year:

  • New e-business initiatives including the announcement of the Resynt e-business product suite, the successful rollout of iRenaissance.portal and a series of initial customer contracts for e-business products are creating positive market momentum.

  • An expansion of the channel sales organization with new distributors in Scotland, Poland, Scandinavia, and Greece gives the company a total of 24 distributors in 34 countries.

  • A total of 82 additional customers were added to the installed base during the year.

  • Strengthening of the management team by appointing a new Senior Vice President of Sales & Marketing, and a new Vice President & CTO for Worldwide Product Development.

  • A partnership with Integris and the new thin client deployment option for iRenaissance create an environment to take advantage of the application service provider (ASP) market opportunity.

  • The Enterprise Solution Center (ESC) was introduced and proven to be an effective tool for delivering highly efficient consulting services via the Internet as a subscription based service.

Earlier, on September 12, Ross announced "a strategic restructuring aimed at reducing costs and strengthening the company's position as a leading provider of enterprise management software and e-business solutions to process manufacturers". Under the restructuring, the company will realize savings from improved productivity through the use of technology, elimination of unneeded office space, and a greater use of distributor sales organizations outside its main markets. The restructuring will allow the company to focus more effectively on providing e-business and supply chain components to companies seeking an integrated extended enterprise solution as well as customers looking to add e-business or supply chain components to their existing ERP solutions. The company began the initiative last month and reduced its staff by approximately 125 positions across the company.

"The very difficult decision to make these cuts was necessary to return the company to profitability and increase shareholder value in the near term, as we make the transition to a full service e-business provider," said Pat Tinley. "We have not wavered in our commitment to providing premier support and continuously improving technology products to our customers. Our customers have expressed confidence that this is the right action at the right time. The result of this program will be a reduction of expense in excess of $12 million on an annualized basis, thereby improving our profitability, securing our position as one of the leading specialist suppliers of enterprise solutions to the process manufacturing sector."

Market Impact

Managements' somber rhetoric confirms the harsh reality of the company's company's steadily declining revenues (See Figure 1) and a fair amount of outstanding R&D work in progress. Accomplishing the much-needed transition from ERP to e-commerce has cost the company a puddle of red ink and a gut-wrenching effort. Over the last 15 months, Ross has been delivering enhancements to its core iRenaissance ERP suite. To that end, the company introduced fully integrated transportation management, materials management, advanced planning and scheduling (APS) systems, and, somewhat belatedly, thin-client architecture.

Ross offers possibly the best and broadest functionality for the process manufacturing mid-market segment, with a sharp vertical focus and good multi-national capabilities. It also offers financial and HR products for the healthcare and public sector market segments. These have proven to be significantly less profitable than its process manufacturing product line, and have in the past resulted in diluting the company's resources and focus. To that end, although unfortunate and disconcerting, the harsh restructuring moves were imminent.

Ross faces the challenge of delivering its ambitious undertaking (full Internet product re-architecting and componentization) as planned. In December 1999, the company released its iRenaissance enterprise solution and its Internet connection architecture-iRenaissance.Portal. Ross is also betting its future on the success of Resynt, its wholly owned subsidiary devoted to e-commerce solutions. The first products from the new organization were delivered in May as the Resynt e-Business product family including Resynt.commerce, Resynt.procure, Resynt.trade, Resynt.collaborate, Resynt.employee, and Resynt.connect.

However, the company has been remiss in articulating its CRM and digital market places strategy. Its ASP strategy has been timid too, with only a very recent initial announcement. Executing these initiatives with its ever-thinning resources will be a daunting challenge. The aggravating factor will also be the fact that Ross has only relatively recently abandoned its original proprietary GEMBASE technology in favor of Microsoft's proprietary technology and integration standards. This may be a strong impediment to future scalability and/or existing UNIX-based users migration.

While Ross has a new suite of e-Business products, a renowned ERP product, a loyal customer base, and a global organization with solid experience in the process manufacturing market, its future remains very uncertain. Its more nimble competitors, like SCT Corporation, will certainly use the company's ongoing hardships to improve their own position with potential and, possibly, existing customers.

User Recommendations

Existing Ross' customers should certainly consider the new offering, but avoid selecting it without looking at what the other vendors have to offer. We recommend identifying your clear e-business strategy and conducting thorough comparison-shopping, at least for the sake of gaining negotiation leverage.

As for potential customers, we generally recommend including Ross Systems in a list of an enterprise application selection for mid-market companies (with $50M-$500M in revenue) within the following industries: chemicals, food & beverage, pharmaceuticals, forest products, and metals. Ross should be included on any package selection short list within the above markets where material management and process manufacturing are the main pillars of an enterprise application. Current and potential users may want to inquire about the company's plans regarding Internet marketplaces in their respective industries.

Users from the healthcare and public sectors may also benefit from evaluating Ross' relevant product lines on an opportunity-by-opportunity basis and as leverage against other vendors in the selection exercise. They should vigorously query the company's future plans regarding these product lines. Also, potential larger clients and existing clients on Ross' UNIX product may benefit from investigating the company's future product migration path and/or scalability strategy.

As with all new releases, users should employ a critical approach in their evaluation of Ross' new products and require the vendor to demonstrate specific business processes. Any organization evaluating Ross Systems should consider existing functionality only In the case of final selection, inquire about and negotiate incorporation of new applications components now (at negotiated license fees). Due caution should be exercised and a watchful eye should be kept at the company's future financial performance.

 
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