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Technology Stocks : ROSS SYSTEMS a turnaround? -- Ignore unavailable to you. Want to Upgrade?

To: bob zagorin who wrote (2683)	2/10/1999 10:17:00 AM
From: Greg h2o	Read Replies (1) \| Respond to of 3067

Bob, not sure if I passed this along b/c I was out of the country... 1999 Copyright Hambrecht & Quist LLC. All rights reserved. The information contained herein is based on sources believed to be reliable but is neither all-incl usive nor guaranteed by our firm. Opinions reflect our judgment at this time and are subject to change. We do not undertake to advise you of changes in our opinion or information. In t he course of our regular business, we may be long or short in the securities mentioned and may make purchases and/or sales of them from time to time in the open market, as a market maker, or otherwise. In addition, we may perform or seek to perform i nvestment banking services for the issuers of these securities. Most of the companies we follow are emerging and mid-size growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. For these and other reasons, the investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. This report is not a recommendation or a solicitation that any particular investor should purchase or sell any particular security in any amount, or at all. For additional information on the securities mentioned or on suitability considerations, please contact your account executive. RESEARCH NOTES: H&Q publishes brief Research Notes covering very recent or developing events or situations regardi ng companies or industries covered. These reports are made available t o interested clients of H&Q on a request basis. They often contain only partial information i n very brief, often in outline form; their purpose is to provide rapid information and preliminary evaluations of such events or situations which may very rapidly be changed as a result of subsequent additional information and analysis. Please contact your account executive for additional detail. HAMBRECHT & QUIST Software Research Ross Systems (ROSS) Rating: HOLD January 22, 1999 Donald F. Fornes (415) 439-3821 dfornes@hamquist.com Ross Falls Short in its December Quarter, But Progress Continues Ross Systems December earnings per share of $0.02 fell short of our estimate of $0.04, largely as a result of a 16% shortfall in software license revenue. The shortfall can be attributed to difficulty in closing deals around the December holidays as well as the need to move certain sales into the deferred revenue account. While revenue grew a commendable 31%, it was achieved over last year's December shortfall and appears to confirm that December is a seasonally difficult quarter for Ross. Despite recent progress we remain cautious and maintain our HOLD rating on Ross. FY Ends Jun Current Price $3.5 52-Week Range $2-5 Market Cap (M) $82.7 Shares Out (M) 23.6 Book Value/Share $1.52 Net Cash/Share $0.27 DSO's 142 LTM Revenue (M) $103.5 1998 A 1999 E 2000 E Q1 EPS $0.02 $0.04A $0.05 Q2 EPS (0.07) 0.02A 0.05 Q3 EPS 0.08 0.09 0.14 Q4 EPS 0.09 0.11 0.16 FY EPS 0.12 0.25 0.40 FY Revs(M) 91.7 113.6 135.7 CY EPS 0.24 0.28 -- CY P/E 15 13 -- Ross Systems provides enterprise resource planning (ERP) software and complementary services to companies in its chosen vertical markets of process manufacturing and healthcare. The company has over 3,000 customers worldwide. Notes: a, b, f December Quarter Results. In the December quarter, Ross grew revenue 31% to 26.2 million -- just ahead of our estimate of $26.0 million. However, license revenue of $8.8 million fell 16% short of our $10.5 million estimate as a number of deals failed to close around the holidays and others had to be accounted for as deferred revenue. While software license growth of 25% was commendable and above recent levels, it was achieved over last year's disappointing December results. In fact, we believe that December is simply a seasonally difficult quarter for Ross. In particular, the December holidays create distractions at the end of the quarter when the most business is usually closed. Unfortunately, the company rarely has enough backlog to compensate for these difficulties given the slower summer quarter which precedes the December quarter. Also, other vendors with December year-ends incent their salespeople to close out the fiscal year during the holidays, which may in turn create a more difficult competitive environment for Ross. Geographically, the shortfall was concentrated in the European markets, where revenue grew only 18%, versus domestic growth of 37%. International sales have challenged Ross for some time now and Ross has made a concerted effort to improve its operations in the U.K., France and