Cambridge Recovery Good But Still Lots to Do Says CEO.

Cambridge Technology Partners Inc continued its slow crawl back to profitably yesterday turning in net income for the third quarter up 11% at $10.7m, beating analysts' estimates by $0.04, on revenues up 10% at $168m. But the company warned that issues surrounding staff turnover, project delays due to Y2K and the associated slowdown in PeopleSoft implementation services, would have a negative impact on revenues in the fourth quarter, decreasing sales to $150m for the quarter. In addition, it said it expects profits to fall $0.45 below analysts' expectations of $0.17, reflecting a $12m to $17m pre-tax charge to operations associated with an increase in employee bonuses by 50% across the board.

But for this quarter at least, at $0.18, earnings per share beat analysts' surveyed by First Call estimates by 4 pennies. The Massachusetts-based systems integrator firm said growth was primarily driven by e-business services, including large leaps in sales of its supply chain/e-procurement and customer relationship management services, up 153% and 125% respectively year over year. E-business integration revenues accounted for 40%, or $68.1m, of total sales, while revenues from its traditional business - ERP integration (notably PeopleSoft), custom software solutions and customer management solutions - all showed negative growth, attributable, according to CEO Jack Messman, to the year 2000 phenomenon.

Speaking to a conference call of analysts yesterday, the upbeat CEO - who joined the company in June - said he expected sales of Cambridge's core services to grow again next year, once companies have settled back down again after Y2K and start to allocate money to front office/back office integration, which he said was key to success in e-business going forward.

He said the reorganization, which the company started in October 1998, was now 85% finished. Messman said he'd spent his first 10 weeks on the job studying the challenges and opportunities at Cambridge. "I've come to the conclusion that Cambridge is a company with enormous potential, but it has outgrown its infrastructure...and we have reached a point where that needs to be addressed."

To that end, he said the company had upgraded its operating systems and had just finished implementing a products and backlog module from Siebel Systems to help it cope with demand going forward. A project management application will be added next, he added.

As part of the reorganization, the company has divided into four new groups - e-business, IT, network solutions and management consulting - and during the third quarter has introduced special focus groups to concentrate on vertical industries. The financial services sector is showing the highest growth at present, followed by telecommunications, transportation, retail and hi- tech, Messman said.

The CEO admitted that Cambridge hadn't done a good job communicating its restructuring plans to either its staff, whom he said were "confused" - or its customers. As a result, he said the company had seen a large turnover of employees, losing some 502 staff this quarter alone, although he added that only 17 were from senior management positions. To counter that, he said Cambridge has hired 555 new employees and is putting in place new training courses and re-introducing a bonus scheme to retain its staff. Bonuses paid to staff in 1999 will be increased from 50% to 100% of targeted bonus levels, he said.

Overall, however, he concluded that Cambridge has "everything it takes to succeed in this market place." He said the days of Cambridge getting "beat up and pushed around unjustifiably" are over. "We're not going to take it anymore...we're going to take the necessary steps to address this."