The nationwide economic slump and reductions in federal spending have hit hard at the fast-growing, hard-charging high technology computer service and consulting firms, but at American Management Systems Inc. they are blaming themselves, not the economy, for this year's discouraging results.
AMS, which is based in Rosslyn, reported last month a net loss of $81,000 for the first nine months of this year, down from a net income of $1.8 million in the same period of 1980.
"Much as I would like to, it wouldn't be right to ascribe it to something that hit the whole industry," said president Charles O. Rossotti. "The problems are fairly specific to us."
AMS, he said, "tried to seize too many opportunities at the same time," offered too many new services and product lines simultaneously, underestimated development costs, and guessed wrong on revenue growth. The result has been a sharp decline in the value of AMS stock to go with the drop in profits, and AMS faces the unfamiliar task of slowing itself down and limiting its commitments.
"Our key thing to turn the company around is to get our product packages back into the black and to get our revenue growth back in line," Rossotti said. "It is happening but it's not going to be a dramatic turnaround. He said he expected "some improvement" in the fourth quarter, but he did not predict that AMS would show a profit in that period.
AMS is one of the best-known of the "beltway bandits," the network of computer consulting firms, software designers, and systems analysts that has sprung up in the Washington area in the past decade. One of its major clients was the D. C. government, for which AMS designed and installed a computerized accounting and budgeting system.
With revenues of $58.5 million last year, AMS is in the middle rank of such firms nationally. A slightly larger competitor, Anacomp Inc. of Carmel, Ind., has been buying up chunks of AMS stock and now owns 153,000 shares, or 9.5 percent of the outstanding shares, according to documents filed with the Securities and Exchange Commission. nacomp told the SEC its purchases were made as an investment and it has no intention of seeking control of AMS. Myles Hannon, Anacomp vice president, said his firm sank more than $2 million into AMS stock knowing that AMS was "on a downturn" because the company is basically sound and represents a "good opportunity." Anacomp's investment, he said, can be taken as a vote of confidence in AMS' future.
Other investors have not been so enthusiastic. Its stock, traded over the counter, has dropped in the past year from $41 per share to as little as $10. The current price is about $14 a share.
All segments of AMS operations have had a poor year so far. The biggest money earner, custom-designed computer systems, showed a profit of $4.37 million, down from $6.18 million in the similar nine-month period last year. Profits from computer services dropped to $1 million from $2.2 million. And packaged systems, off-the-shelf packages designed for smaller clients, lost $3.9 million--actually a slightly smaller loss than a year earlier, but enough to put the entire company slightly into the red for the period.
In packaged systems, Rossotti said, "the market is potentially large and and profit leverage is potentially high. The market is growing because the big computer companies are introducing lower-cost computers and the number of organizations that can afford to run them is expanding. However, in our case what has happened is that it has taken longer and cost more to make these products profitable than we expected."
The company has jettisoned its software package designed for wholesale distributors, he said, and is concentrating on systems for local governments and commercial financial companies.
He said packaged systems, such as those that can handle payroll, tax collection and utility billing functions for local governments without custom design, are "the wave of the future in software, but it's pretty damn expensive to get these things off the ground. I don't think we made a fundamental mistake going into this, we just tried to do too much at one time."
Federal spending cutbacks have hurt, he said, because "the government itself and companies dependent on federal contracts" are major AMS clients. "Our business with the federal government has not declined but it's static. Revenues increased, but not as fast as we expected."
AMS has about 1,000 employes, he said, and is not planning to cut any of them. In fact, he said, "we're still hiring."