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