Despite Revenue Drop, Rational Optimistic About Future

By Jeffrey Burt  |  Posted 2001-10-10

Software developer Rational Software Corp. saw revenues and earnings dip in the second quarter, but officials said they expect the companys business will grow in the next few quarters.

Executives for the Cupertino, Calif., company said Tuesday during a conference call with analysts that revenue for the quarter, which ended Sept. 30, was $163.7 million, down from $187.5 million during the same time last year. That represented a 13 percent drop.

Pro forma net income for the quarter was $9.5 million—down from $34.6 million last year—and per-share earnings dropped from 17 cents in the second quarter of 2000 to 5 cents this year.

Paul Levy, chairman and co-founder of Rational, said that the struggling economy and the Sept. 11 terrorist attacks in New York City and Washington D.C. made business difficult as the quarter wound down. Still, he said, there are signs that the company is poised for strong growth over at least the next two quarters, Levy said.

In the closing weeks of the second quarter, "our business showed better strength than we had anticipated," he said, despite the attacks.

Rational also saw consistency in its global sales and believes there are growth verticals that it is beginning to penetrate, including financial services, aerospace, and defense and governmental agencies.

"The trend here is very encouraging because its not limited to any one geography or any one vertical," Levy said.

The rise of new application development platforms, in particular Microsoft Corp.s .Net and Sun Microsystem Inc.s Java 2 Enterprise Edition, will lead to a "tidal wave" of IT investment, according to Levy.

"We continue to see a lot of interest in developing new business applications based on the new platform architectures," he said.

The third quarter should be better than this quarter, and the fourth quarter to grow over the third, Levy said, calling these "conservative" assumptions that dont require a big improvement in the economy.

Levy said he expects total revenues for fiscal year 2002 to run from $675 million to $700 million, and earnings to be 25 cents to 30 cents. He also expects revenues for fiscal year 2003 to grow 15 percent to 25 percent and earnings 100 percent.

"We now have a strong foundation in place where we can resume growth," he said. "December feels to us to be a lot better than the past two quarters."

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