System Software Associates Announces Fiscal Fourth Quarter Results - The Agony Continues

Event Summary

On December 1, System Software Associates, Inc., a global provider of enterprise resource planning (ERP) software and services, announced financial results for its fourth fiscal quarter ended October 31, 1999. Revenue for the fourth quarter was $66.2 million, down 41 percent from a year ago. Software license fee revenue was $23.4 million, while client services revenue totaled $42.8 million in the current quarter. SSA reported a fourth quarter 1999 operating loss of $5.5 million, which included the reversal of $2.3 million of restructuring charges stemming from 1998 restructuring activities. SSA reported a net loss of $9.8 million after preferred dividends, or a $.82 per share loss in the fourth quarter, compared with a net loss per share after preferred dividends of $.29 in the fourth quarter of 1998.

Robert R. Carpenter, Chairman and Chief Executive Officer said, "although the Company's fourth quarter overall revenue continued to be negatively impacted by continued softness in the market due to Y2K concerns, new software licenses turned upward in the fourth quarter by 45% when compared to our third quarter. Additionally, the Company was able to generate moderately positive cash flow from operations during the quarter. We intend to aggressively build on these positive features of the fourth quarter as we execute our operating plan for the year 2000 and beyond."

Cash balances at October 31, 1999 were $24.6 million, up from $18.0 million at July 31, 1999. During the quarter the Company borrowed $26 million under a $41 million credit facility closed during the fourth quarter with Foothill Capital, a Wells Fargo Company, and repaid $2.8 million previously borrowed under a bank credit facility. Cash was primarily used during the quarter to reduce accounts payable and for the scheduled interest payment on the Company's convertible subordinated notes.

Market Impact

While there may be a slight improvement in SSA's cash flow and the most recent license revenue growth, one would be hard pressed to foresee a silver lining in the company's future. SSA posted its 8th consecutive quarter of negative results, and its license revenue was more than halved compared to the prior year (See Fig. 1 & 2). Its financial situation has eroded so badly that the company recently had to change its stock ticker symbol and execute a 1 for 4 reverse stock split (reducing the total number of shares available). Its current market capitalization is at a dramatic $20 million, and its balance sheet is in a shambles ($73.6M of negative stock equity). With that in mind, we find it very difficult to see SSA's resurrection, despite its large customer base and attractive product portfolio. SSA's chances of survival in a consolidating market, with new competitors arriving from all directions, declining revenues, and continuing losses, are slim without a substantial cash infusion from a big partner or a potential acquirer.

User Recommendations

Due to its dire financial situation, any organization evaluating SSA should exercise extreme caution, consider existing functionality only, and be able to provide the majority of product support in-house or through a 3rd part.

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