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.