Event
Summary
On September 17, Ross Systems, Inc. (NASDAQ: ROSS), a provider
of ERP and e-business solutions for mid-market process manufacturers,
announced a profit of $0.4 million for its fourth fiscal quarter, which
ended June 30, 2001. The results represent a $5.5 million improvement
over the prior year's quarter (See Figure 1). Nonetheless, total revenues
for the quarter at $11.3 million declined 31% from $16.4 million in the
prior year's quarter, while total revenue for the year at $49.5 million
declined 38% from $80.0 million in the prior year (See Figure 2). The
net loss for the year was $0.8 million, significantly less compared to
a net loss of $9.7 million in the prior year.
More
importantly, earnings before interest, taxes, depreciation and amortization
(EBITDA) of $1.7 million for the quarter improved over EBITDA of ($4.9)
in the prior year's quarter, while EBITDA of $3.1 million for the year
improved over EBITDA of ($10.1) million in the prior year. The quarter
and full-year results reflect the sale of the company's HR/Payroll product
line on February 28, 2001, and include a related non-recurring gain of
$2.4 million for the year.
Operating
cash flow was positive for the year at $11.3 million and increased from
$10.2 million in the prior year. Net cash and cash equivalents increased
to $5.7 million from $2.0 million in the prior year. Long-term debt, $2.6
million in the prior year, was eliminated. Deferred revenues for the year
declined to $12.7 million from $18.0 million in the prior year and reflect
the sale of the company's HR/Payroll product line in February.
Possibly
encouraging news it that the license revenue of $2.8.million, while 30%
less compared to a $4.0 million a year ago, increased 18% from $2.4 million
in the previous quarter. Service & maintenance revenue continues to decline
though from the previous quarter as a result of the sale of the HR/Payroll
product line.
Ross
believes revenue declines attributable to rationalization of distribution
channels in Europe, as well as reductions in low-margin, third party product
and services, were offset by the company's successful expense reduction
and restructuring program. The sale of the company's HR /Payroll product
line permits the company to further focus its resources on its main market
verticals, while continuing to provide the same product function to its
customers as a distributor. The cash received from the product line sale
of $5.1 million, in addition to a $2 million equity issuance on June 29,
2001, when combined with the company's positive cash flows have significantly
strengthened the balance sheet.
"We
are pleased with the progress the company has made during the past year,"
said Pat Tinley, Ross' Chairman and CEO. "The company took the necessary
steps to focus and streamline its operations, and the positive results
of those actions are clearly reflected by three consecutive quarters of
improved license revenue and operating profit. Our healthy cash flow during
the year also allowed us to continue a strong investment in product development
and customer service."
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 as an additional 13 new accounts
were signed as a result of Ross' direct sales organization in Europe.
Support from Ross' large installed base of customers remained strong and
accounted for 70% of the direct license fees.
"Our
product offering has never been stronger," stated Eric Musser, Ross' Chief
Technology Officer. "We are delivering on the promise of a fully collaborative
ERP system for our customers. With the introduction of iRenaissance.connect
and iRenaissance.commerce, our customers are able to gain significant
competitive advantage by strengthening customer ties and improving supply
chain efficiency."
Market
Impact
Hats
off to Ross' management for making it back from the near-dead state. It
has done an outstanding job of curbing expenses 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. It
appears that Ross has been improving in this regard too. While the company's
declining annual revenue is far from being impressive (See Figure 2),
the license revenue increase in the last three quarters is encouraging
(See Figure 1) and it may be boosted in the future by Ross' recent profitable
quarterly performances. New customers had every reason to be very concerned
about the financial future of the company and clearly, Ross' management
convinced them that Ross was here to stay.
Figure
1.
Figure
2.
Although
Ross has long scored top marks on functionality and service within its
three target mid-market process industry markets - continuous, batch and
mixed mode - abreast of or even ahead of SCT Corporation, SAP,
Oracle, Baan/Marcam, J.D. Edwards, Intentia,
Aspen Technology, SSA GT, Geac/JBA, Ramco
Systems, etc., it has concurrently suffered from poor financial performance,
which has in turn cast a shadow on its product enhancements capability.
Ross'
iRenaissance suite covers an entire range of processes from material sourcing,
through the manufacturing and the product delivery. It has very strong
attribute matching/tracking, dynamic recipe adjustment, heat traceability,
'catch weights', potency and many other process industry mandated functionality.
Its advanced planning and scheduling (APS) offering includes demand planning
and finite capacity scheduling (in alliances with Preactor and
Prescient Systems). The company also offers business intelligence
(BI) through the alliance with Business Objects and some native
CRM functionality. Further, the iRenaissance portal provides browser-based
tools giving access to applications and data.
Technically,
Ross' seems to be catching up with its competitors too given a hefty R&D
investment despite reduced revenues. Ross' has finally delivered the long
needed product development initiatives:
- iRennaisance.connect,
the Ross' XML-based web and back-office integration tool. Current developments
include the evolution of a Java and XML web strategy, covering sales
and customer management, electronic proof of delivery, invoicing, procurement
and forecasting, with customer account status, order history and other
web self-service capabilities.
- The latest
release of Gembase, its application development tool provides enhanced
performance on Microsoft's SQL Server database. This should allow
customers from the higher-end of the market a choice to effectively
deploy on either the SQL Server or Oracle database.
On services,
Ross offers knowledge management-based business process re-engineering
(BPR) and mapping tools called strategic applications management (SAM),
that provide procedure and process templates. Ross has also embarked on
a number of initiatives attractive to small-to-medium enterprises (SMEs)
such as a hosted service and cut down 'shrink wrapped' rapid implementation
services named 'Ross Lite' or 'Ross in the Box'.
Consequently,
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 almost lost visibility in the market.
However, look for the global process manufacturing market to remain a
fierce battlefield. As the gauntlet has been thrown, by e.g., SCT's integration
with ecFoods, a trade exchange for raw materials, Ross should swiftly
and strongly articulate its more comprehensive CRM and digital marketplace
strategy. As the delivery of it will hinge on available resources (read
new revenue), Ross' future will be trying and interesting to follow.
User
Recommendations
Ross Systems' improved financial situation should 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 as it still
has a strong functional fit for some process manufacturing industries.
Companies with up to $500 million in revenues within the food and beverage,
the pharmaceutical, and the chemical industries, should evaluate Ross
Systems.
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.