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Technology Stocks : SSA (SSAX) BPCS/Client Server -- Ignore unavailable to you. Want to Upgrade?

To: Frank Vannucci who wrote (856)	8/19/1998 7:47:00 PM
From: Richard Jurek	Read Replies (1) \| Respond to of 915

:Business and Finance:Stocks:Technology:Software and Programming:SSAX (System Software Assocs.) Frank -- I posted the following to SI on my thoughts about the earnings and price near term. I thought you'd appreciate. I am at 10K shares at a cost just under $5. Cash Cash was $65.5 million last quarter. While cash flow will be negatives over the next couple of quarters, most analysts are pegging the negative burn rate at under $20mil over the next couple of quarters, and then a turn into the positives next year. The 12% reduction and the charges have done enough to adjust the bottom line to keep cash flow bleed at its minimum, and the last Alex Brown report puts operating expense reductions in the 20% range. If this earnings announcement confirms this -- then cash is not an issue and a "bailout" is not necessary. I believe that Stuek and company will hit these targets. They have been impressing everyone with their focus on cost and reductions. Revenue We know new licenses are in the negatives, but services are increasing...but less profitable. Still, given their installed client base and given the reductions in overhead and the adjustments to the line,many see next year in the plus range on EPS (and in high double digits) despite a drop in revenue from a 1999 fiscal projection of $495 to about $430 million. Not a catastrophe...but also not a company that warrants a market cap of just $120 -$190 mil, which is what a $3 or $4 price target would get you. Even at one times annual sales, you are looking back at around $10 or $11 a share. So, if you want to be conservative, I think, if the announcement is even in line with the above, we are looking an an increase (over time) toward the $8 range until more clarity is established. Still, I am looking for a continued drop in license rev and a slight uptick in service reve -- something to the tune of being even as last year's quarter. Bad News Most of the "bad news" of charges, write-offs etc. are seen from an institutional perspective as being good news. This new management staff is serious -- and the charges are smart, on target, and finally honest for a change. The $120 mil in Q3 charges are already announced and factored in. What people are waiting on is clarity in revs, more articularion in growth strategy, and a clearer view on cash burn (which I think will not be as bad as everyone thinks). Don't forget -- there have been dramatic cuts in R&D costs as well, and future warranty committments now have a $29 million reserve. Management Serious management is at the helm now. The installed client base is large and impressive. This company is very attractive on a takeover bid, but if anyone can turn it around, this management can do it. It has already won the respect of many in the finance industry, and I think SSA's future is less bleak because of it. Other thoughts Are they out of the woods? Not by a long shot. But are they dead, either? Not by a long shot. Price: Confirmed news and more clarity at earnings time, we will see a slow move up to the $7 to $7.5 range. Up to the $8 range on good announcements thereafter. We will not see double digits, in my mind, until next quarter and more clarity. On mild to bad news -- down side is $4 or $4.5. On Horrible news -- well, we won't see that as they have already pre-announced the really bad stuff. But if it happens, I still don't see us going back down in the $3 range. Horrible news means this company will be sold sooner, rather than later -- and at a price much higher than $3 a share. So I am holding my shares long in the medium term given the price targets I have mentioned above. Just my thoughts. Yours?