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.