When Computron, a supplier of financial software, listed on Nasdaq in early 1995, it was one of the most successful public offerings that year. Although the company had revenues of only $55m and had never made a profit in its 17-year history, it was valued at $400m. The over-enthusiasm of the financial analysts soon became apparent. In 1996, Computron was the worst performing company on the exchange and faced six class action suits from disgruntled investors. In January 1997, trading in Computron shares was suspended amid charges of deeply flawed accounting practices, an ironic twist for a company that makes products designed to simplify corporate accounting. The company was forced to restate its financial accounts for 1994, 1995 and 1996, and a further class action suit swiftly followed. The principle problem was the incompetence of the company’s previous managers, says John Rade, Computron’s chief executive. Rade was appointed in February 1997, along with a new chief financial officer and two new board members, in a bid to drag Computron out of the doldrums. The company’s previous management, according to Rade, had tried to triple the size of Computron by expanding out of its core market of high-end accounting software for multinational corporations, and attempting to move downmarket to compete against commodity, desktop financial packages.
Overheads
The projected sales growth never materialized, but the company took on considerable extra overheads. Revenues in 1996 rose just 3% to $54.4m from a year earlier. More worryingly for a company trying to grow, new license revenues actually fell 48% to $17.6m. Operating expenses, meanwhile, increased 42% to $87.7m between 1995 and 1996. As a result, net losses more than tripled, hitting $33.3m, from $9.0m in 1995. The company’s stock, which had been trading at $21 immediately after its flotation, had slumped under the $2 mark by the end of 1996. Since his appointment, Rade has battled to stabilize the company, with the goal of returning to profitability in 1998. 1997 was a difficult year, he admits, but he claims the company cleared some significant hurdles: We re- established growth, we reduced net losses to a manageable sum, we got rid of a class action suit, got listed on the American Stock Exchange, and we raised money to replace the working capital lost in litigation. But Rade’s buoyant attitude cannot hide continuing problems at Computron. Settling the class action suits cost the company $1m in cash and a million shares, worth approximately $5m. And the American Stock Exchange is regarded by many as a last resort for technology companies who cannot qualify for Nasdaq or the New York Stock Exchange. In terms of financial results, it seemed, for a brief time, that the new CEO was breathing life into the moribund company. For fiscal 1997, the company reported much-improved revenues, which rose 24% to $67.6m, and a reduced net loss of $13.6m. But Rade’s satisfaction with the company’s revived performance was short-lived. The first quarter of 1998 was, he admits, weaker than he would have liked, but tolerable. In fact, net losses surged to $4.3m from $1.3m in the first quarter of 1997, on revenues that fell 10% to $15m. Nevertheless, profitability is still the goal for 1998, and Rade insists it is attainable. He also predicts revenue growth of 30% to 35%, in line with the business application software market as a whole. This will be achieved, he says, by concentrating on Computron’s core competence of high-end financial systems, and building its market share in five niche markets: financial services, insurance, transportation, communications and utilities, and professional services.
Relentless
This specialized approach, claims Rade, will ensure the success of the company’s eponymous software package in fending off the relentless advance of the giant enterprise resource planning (ERP) vendors, such as SAP, Oracle, PeopleSoft and Baan, which offer financial software integrated with other business applications, including HR and manufacturing. Our customers don’t need ERP, argues Rade, they want a best-of-breed financials package. PeopleSoft and Oracle merely provide skeleton systems, and toolsets to fill the gaps in function. We believe that customers should have to write little or no code themselves, and still have maximum function. Another important factor, he adds, is the software’s lower cost of ownership, from purchase and implementation to upgrades. Rade’s view is supported by Dennis Keeling, the chairman of industry consortium, the Business and Application Software Developers Association. Not all companies have the budget to go enterprise-wide or walk away from their legacy specialist financial systems, he points out. He believes that, with the appointment of Rade, the company can now move forward, as long as it continues to focus on high-end systems in its targeted niche markets. Computron has a good, stable product but has suffered from bad management in the past, he adds. However, many specialist financial software firms even those with growing revenues and healthy profits, such as QSP and Walker Interactive are finding the market increasingly competitive due to the popularity of integrated business application suites from the ERP vendors. The path for battered Computron is likely to be steep.
Computer Business Review
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