Resurrection, Vitality And Perseverance Of Former ERP 'Goners' Part One: Ross Systems & SSA Global Technologies

Resurrection, Vitality And Perseverance Of Former ERP 'Goners'
Part One: Ross Systems & SSA Global Technologies
P.J. Jakovljevic - March 20, 2003

Event Summary

Although encouraging, it might also be quite ironic that, during these days of general lethargy of the market, the rare good pieces of news, in addition to some usual suspect' software giant's upbeat financial reports due to their certain large oligopolies' heritage, have been coming from some reformed traditional ERP vendors, which, not that long ago will have exemplified failed business models, giving even ammunition to some pundits to announce the obsolescence of ERP.

Those vendors are:

• Ross Systems
  
  
• SSA Global Technologies
  
  
• Geac
  
  
• Baan

This is a five-part note covering these four ERP vendors once considered "Goners."

Parts One and Two discuss specific vendors.

Part Three covers the Market Impact.

Part Four outlines the Challenges they face.

Part Five makes User Recommendations.

Ross Systems

Possibly most compellingly, on February 4, Ross Systems, Inc. (NASDAQ: ROSS), a provider of enterprise management software and e-business solutions for mid-market process manufacturers, announced a profit of $1.4 million for its second fiscal quarter, which ended December 31, 2002, which represents a 193% improvement over $0.5 million in the prior year's same quarter (see Figure 1). Total revenues for the quarter at $12.2 million increased 5% from $11.6 million in Q2 2002 and 7% from Q1 2003. More importantly, software license revenue in Q2 2003 increased 19% from Q2 2002 although it declined 7% from the previous quarter. Conversely, both consulting services revenue and maintenance revenue in Q2 2003 declined slightly from Q2 2002 but increased notably compared to Q1 2003, which was as expected, since new customer implementations ramped up during the quarter, and this trend is expected to continue. Net cash of $6.0 million this quarter increased $0.6 million over the prior fiscal year ending balance and $1.4 million from the sequential quarter, while the company has no long-term debt.

Figure 1.

In September, the vendor announced revenue for the fiscal year ended June 30, 2002 of $45.2 million, a 1.6% growth as compared to $44.5 million in prior year revenue restated to reflect the sale of the company's Human Resource product line on February 28, 2001 (see Ross Systems Closes Ranks For A (Possible) Turnaround). Having experienced serious financial difficulty in 2000 (see Ross Systems Ends Year On a Sour Note and Braces Itself For Survivor's Game)

Ross has since achieved a miraculous turnaround by posting six consecutive profitable quarters while also constantly improving license revenues. Although a net loss of $9.6 million in fiscal 2002 that compares to a net loss of $0.8 million in 2001 may seem pretty harsh (see Figure 2), it included a large $10.9 million, non-cash, non-recurring charge for Q4 2002, which was due to the release of its next generation of process manufacturing software and the related sale of a certain earlier discontinued vintage product. Still, Ross often states, and most financial and industry analysts agree, that it has had nine consecutive profitable quarters.

Figure 2.

Technically, the vendor declared a loss with the write-off last fall, but that was an aggressive choice in its strategy, and it was done to take advantage of the increasing revenues and profits. Thus, this might not necessarily be regarded as a negative occurrence, and it might even be intriguing to determine the annual size of the write-offs that other software companies are carrying because they might not be healthy enough to get it off the books now. Moreover, despite a broken streak of profitable quarters, there is particularly good news that software license revenue remains driven by strong demand from new name accounts.

Ross' license revenue breakdown lately typically averages 55-60% for the repeat business, and impressive 40-45% for new business. In Q2 2003, however, new business license revenue at 51% actually eclipsed repeat business license revenue at remaining 49%. To that end, customers with legacy products represent about 15% of the total customer base and will continue to be supported as well as provided with migration paths and incentives to move to the current iRenaissance product line. Renewal rates for core product reportedly remain high and are expected to offset further declines associated with the legacy products.

While remaining profitable, the vendor has concurrently added Supply Chain Management (SCM) and Customer Relationship Management (CRM) capabilities to the iRenaissance suite. Both new products have already been licensed in both North America and Europe with some high-profile customers (see Ross Systems Shows Poise in 'Big Easy'). Ross' alliance with Prescient Systems for the SCM offering was earlier duly analyzed by TEC, (for more information, see Two Highly Focused Vendors Team For Their Markets' Good).

To close possibly the last major outstanding gap in its offering, in August, Ross further announced its partnership with Selligent (www.selligent.com), a provider of CRM solutions, under which agreement, Ross Systems will integrate the Selligent Sales, Marketing and Customer Care Applications into its iRenaissance suite as iRenaissance CRM. Ross Systems will market the CRM applications worldwide and also has exclusive rights to market them to process manufacturing companies in North America since August 2002.

Ross has recently also been engrossed in next release of its flagship iRenaissance product, including technology and performance enhancements including Microsoft .NET architectural framework features, CFR 21 Part 11 (Code of Federal Regulations Title 21) regulatory compliance support (electronic records and signatures), and the ability to run iRenaissance over the web. Although iRenaissance has been run over the web by Ross' customers for more than two years now, it previously required a client-side plug-in like most of the other ERP systems require today. With the advent of Ross' new .NET-compliant architecture, however, iRenaissance is currently deployed with a zero-footprint client model allowing any computer with secure access to the Internet to access iRenaissance via simply typing in a URL address. Ross cites its customers have already documented significant savings in terms of deployment, maintenance, support and upgrades, since the changes on the server are instantly available to all users, the ability which has so bar been claimed only by PeopleSoft.

Also very recently, in mid-November, Ross announced the availability of iRenaissance Validator for pharmaceutical and biotechnology companies in manufacturing or clinical trials. The product should reduce the efforts, costs, and risks created by increasingly stringent FDA (Food & Drug Administration) regulations, as it provides the master action plan, templates and test scripts needed to quickly complete the IQ, OQ, and PQ (installation qualification, operation qualification and performance qualification) processes, and clearly defines and thoroughly documents each step in a proven process to predictably achieve and maintain validation. Owing to its focus on Process Manufacturing, Ross continues to invest in industry-specific applications for Food and Beverage, Life Sciences, Chemicals, Metals and Natural Products. Ross' executives attribute this success to the company's high degree of focus and the resulting success of its customers. The vendor pledges to continue to execute on its strategy to provide the most targeted, comprehensive and cost-effective enterprise software solutions for these industries.

SSA Global Technologies

Also recently and quite impressively, on February 27, SSA Global Technologies, Inc. (SSA GT), www.ssagt.com , a worldwide extended-enterprise solutions and services provider, announced its Q2 2003 results. For the second fiscal quarter ended January 31, the company reported total revenue of $64 million, an increase of 55% over Q2 2002. Software license revenue, up a big 53% to $20.4 million, represented 32% of total revenue. Second quarter earnings before interest, taxes, and amortization (EBITA), and before nonrecurring charges were $14.6 million or 23% of total revenue. Cash flow before debt service was in excess of $22 million. Solid financial viability and performance continued while a near industry average research and development spend was maintained (i.e., at 12% of total revenues). Although being a privately-held company, SSA GT is working with its outside auditors, Grant Thornton, to certify its financial statements under the Sarbanes-Oxley Act of 2002 in light of recent widespread concern about corporate financial reporting practices.

SSA GT again delivered relatively balanced geographic performance, contributing to the outstanding results in a severe economy. North America delivered 47% of total revenue while Europe, Middle East, and Africa (EMEA) accounted for another 30%. Emerging growth markets Latin America and Asia-Pacific/Japan, where net new customer business reportedly flourished, provided the remaining 23% of total revenue. Net new customers reportedly accounted for 21% of software license revenue. The results reflect one month of activities following the Infinium Software, Inc. acquisition, which was completed on December 20, 2002.

Having experienced protracted languishing and eventual demise of SSA GT's former incarnation, Software System Associates (SSA) in 2000 (see ERP Belle poque Officially Ended With the Demise of Baan and SSA), over a year ago, its remaining customers demanded financial viability from the new SSA GT management. Strong FY 2002 financial results should therefore have confirmed its renewed customer focus and sound execution model, which has afforded significantly higher than industry average growth in an extremely challenging economic climate. Even in continued economic uncertainty, the vendor is projecting fiscal 2003 revenue of $281 million, up 50% from 2002 levels of $187 million, including both organic growth and the growth via a number of recent acquisitions.

However, this figure could be much further boosted by acquisitions, as the vendor is targeting ERP vendors with revenue of more than $20 million that will take it into new vertical markets. Namely, SSA GT is reportedly in takeover talks with certain ERP software providers worldwide to expand its market share as it continues its drive to achieve annual revenue of $500 million by the end of the year, according to CEO Mike Greenough. With $40 million in the bank and access to investment funds of $1.2 billion, the privately-held company might have considerable advantages in the takeover stakes over publicly traded companies that are constantly wary of the reaction of investors to acquisitions.

Incidentally, like its new parent, the former Infinium Software had been on an impressive comeback trail immediately prior to its acquisition, both in terms of improving revenues, cash position and profitability, and not in the least at the expense of delivering new products (see Is SSA GT Betting Infini(um)tely On Acquisitions?). Further, it may even border on a miracle the fact that SSA GT, which has had its own share of trouble, has even shown some success with managing such a seemingly unwieldy set of disparate products coming from former Computer Associates' interBiz division (see CA Unloads interBiz Collection Into SSA GT's Sanctuary), considering that a vendor of CA's stature was not able to do much with almost a dozen products, some being of vintage '78 or '82 tag (which some may refer to the medieval era of computing). To that end, recent enhancements within the latest releases of PRMS 9.2, KBM 2.2, and Warehouse BOSS 6.2 are ever more impressive given the market skepticism about the viability of these.

Even the venerable MANMAN product has had some enhancements in its version 12, although this product faces the impending predicament of the HP e3000 hardware platform discontinuation in 2003. To that end, migration to MK Manufacturing or to SSA GT MAX+ functionally equivalent but more modern products might be a viable option for these customers, and might prove that it was not necessarily an impulse purchase, and that SSA GT might have some ideas as what to do with MAX after all (see SSA Acquires MAX Hoping To Leap From Its MIN).

Most recently, on March 10, SSA GT announced the immediate availability of BPCS (Business Planning and Control System) version 8.2. The enriched functionality of BPCS V8.2 reportedly supports specific business needs and requirements for a variety of industry sectors, including automotive, consumer packaged goods (CPG), electronics, food and beverage, general manufacturing and pharmaceutical. The new functionality in BPCS V8.2 is market-driven and includes core ERP and industry-specific enhancements that should enable SSA GT customers to improve manufacturing capabilities, streamline business processes and reduce costs, extracting more value from their initial SSA GT ERP investment. Selected enhancements of BPCS V8.2 include:

• e-Signature For the pharmaceutical industry, e-Signature simplifies authorization processes while ensuring Article 21, FDA CFR Part 11 compliance.
  
  
• Inventory Management Dynamic weights and measures functionality allows inventory to be viewed in dual units of measure. Dual unit visibility is essential to successfully manage inventory in the CPG and food industries.
  
  
• Lean Manufacturing Enhanced lean manufacturing capabilities provides more flexibility in scheduling and capacity loading.
  
  
• Seiban Manufacturing and Control Enables organizations to link all customer project information together for better overall tracking, planning and control.

BPCS Version 8.2 is currently available to clients in the following languages: English, French, German, Italian, Spanish, Japanese and simplified and traditional Chinese, with additional languages to follow.