Systems & Computer Technology Corp.

Systems & Computer Technology Corp.

Great Valley Corporate Center
4 County View Road
Malvern, Pennsylvania 19355
U.S.A.
(610) 647-5930
Web site: http://www.sctcorp.com

Public Company
Incorporated: 1968
Employees: 2,200
Sales: $215.3 million (1996)
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software; 7376 Computer Facilities Management Services

Systems & Computer Technology Corp. (SCT) provides information-technology services and administrative-application software in the higher-education, local-government, utilities, and manufacturing/distribution markets. These systems operate on networks of desktop computers rather than on mainframes, thereby providing greater flexibility for users. By 1996 almost half of all college students in the United States were enrolled at institutions using SCT software.

Rise to Prominence, 1968–1984

SCT was founded as a consulting firm in November 1968 by 29-year-old Frederick A. Gross and four other young software specialists. Its first product was standardized software products for higher education, such as recordkeeping, registration, the grading of students, and staff payroll. “First we started as consultants,” Gross told Barron’s in 1984. “Then the colleges would ask us to stay.” In 1972 the University of Maryland (Baltimore), a new campus, hired SCT to set up and run its total computer operation. The other segment of the company’s business was software programs for state and local government. By 1973 it had its first major award, a federal contract as the technical project manager and cosystem/software contractor for a prototype computer-based municipal information system to be developed in Reading, Pennsylvania.

In its early years SCT based itself in West Chester, Pennsylvania, a Philadelphia suburb. Interviewed in 1973 for Computerworld, Gross claimed the company, with 26 employees, was already profitable. “The areas we are in are national priorities: health, safety, law enforcement, education,” he said. “By specializing in certain markets, we can communicate in the language of our customers.”

In 1979 SCT revised and upgraded its applications software products to run in conjunction with database-management systems sold by such companies as IBM. Its revenues increased from $6.4 million in fiscal 1977 (the year ended September 30, 1977) to $43.8 million in fiscal 1983. Net income grew from $400,000 to $7.8 million during this period, and company head-quarters moved to a corporate park in Malvern, another Philadelphia suburb. SCT went public in November 1982, raising about $30 million from the offering of a minority of its common stock at $16.50 a share. The stock reached as high as $38.25 a share the following year.

By this time SCT was the leader in both markets it served. Its client list of colleges and universities, originally confined to the Philadelphia area, now included Ohio State University, the Massachusetts Institute of Technology, and the University of Southern California. Governmental customers included Los Angeles County, Kalamazoo, Michigan, and Charleston County, South Carolina.

SCT had, in mid-1982, 35 contracts of 3 to 10 years for 94 separate clients, with annual fees ranging from about $300,000 to $5 million, to supply Computing Resource Management (CRT) services. Under these contracts SCT took full responsibility for all the client’s computer-related activities. Its services included complete staffing and support of computer resources, development and implementation of software and hardware needs, and provision of the necessary technical and maintenance support. SCT was also separately offering its own proprietary software products, which the company typically licensed for a minimum of $110,000, not counting installation and training charges ranging from $170,000 to $200,000. Thirty-three software licensing agreements for 53 separate clients were in effect at this time, and the revenues typically generated operating profit margins of 50 percent or more.

Business boomed for the next two years. By late 1984 the company’s higher-education client list had grown to include Harvard, New York, and Temple universities, the universities of Illinois, Pittsburgh, and Texas, and the California Institute of Technology. Its governmental clients now included San Francisco, New Orleans, Peoria, and Lincoln, Nebraska. Its backlog of orders had reached $135 million, and $34 million in cash was in its coffers, with virtually no long-term debt.

Scandal and Aftermath, 1985–1988

The first sign of a scandal that almost proved terminal for SCT became public in December 1984, when the company disclosed that its auditors had raised concerns over the use of licensing fees as revenue in its financial statements. SCT failed to release its annual 10K report to the U.S. Securities and Exchange Commission by the year-end deadline and was suspended by the National Association of Securities Dealers. “Past management had cooked the books, and it was pretty hefty cooking,” Gross’s successor at SCT later told OTC Review. “There were forged contracts and contracts that did not exist. The auditors became increasingly suspicious in 1984 and staged a midnight raid that found all sorts of bad things.”

In January 1985 Gross, SCT’s president and chief executive officer, and Henry G. Simmons, vice-president and acting chief financial officer, resigned as officers and directors. Gross agreed to place his 16-percent stake in the company in a voting trust for three years. Michael J. Emmi was named chairman, president, and chief executive officer in May 1985. Gross and another former executive eventually were convicted on charges of insider trading and inflating the company’s earnings in fiscal 1983 and 1984. The company paid $13 million in 1988 to settle a shareholder suit resulting from allegations of inflated earnings.

As soon as the improprieties of SCT management were exposed, the company immediately lost $18 million in business. There were no new accounts in 1986, a year in which SCT lost $14.8 million. A cost analysis of 66 pending contracts revealed that SCT would lose money on 44, and that the company’s basic software was obsolete, couldn’t be sold, and was written for the wrong hardware. Revenues fell to a low of $37.6 million in fiscal 1988, when the company lost $3.5 million. Emmi, a former General Electric Co. executive, scrapped Gross’s free-wheeling style in favor of clear chains of command and stronger financial controls. Nevertheless, he had to spend years assuring clients and investors that SCT would survive its difficulties, and during this period the company lost contracts with annual billing of about $31 million. The company’s stock fell as low as $1.75 a share in 1988.

Renewed Growth in the 1990s

SCT regained profitability in fiscal 1989, with net income of $4.9 million (of which $1.9 million came from a tax-credit carryover) on revenues of $44.5 million. It began selling its new Banner software modules in 1988 to handle functions in higher education such as enrollment, scheduling, purchasing, and alumni development, and personnel and finance functions for both educational institutions and government bodies. In mid-1989 OTC Review called Banner “so good it is almost selling itself overseas.” SCT brought its backlog of business to nearly $100 million and in 1990 acquired Moore Cos., a privately held firm providing financial-management systems for government bodies, for cash and stock valued at $8 million.

SCT’s revenues reached $65.4 million in fiscal 1991, when it lost $349,000, which occurred because of a $5.1-million charge for a change in accounting methods. In June 1991 the company won its biggest contract to date, a five-year, $42-million pact from George Washington University. It also bought two software units from Philadelphia Suburban Corp. for $3.5 million.

By 1992 SCT had licensed more than 370 Banner systems to over 140 institutions and government jurisdictions. That year the company acquired Dun & Bradstreet Software’s Information Associates, Inc. subsidiary for $22.5 million. Information Associates was a leading supplier of administrative software to the higher-education market, with annual revenues of about $30 million. In 1993 SCT won a $35-million contract to manage computing systems in Dallas County, Texas.

By the end of 1993 SCT was again an investor favorite, after reporting revenues of $120.2 million and net earnings of $9.6 million in the fiscal year. Its software was used by 750 colleges and universities, 1,200 city and county governments, and 150 utility companies. The other half of its revenue (compared to 85 percent in 1988) came from managing computer facilities for 37 colleges and universities and local governments. In July 1993 SCT signed a 10-year, $50-million contract with the University of Medicine and Dentistry of New Jersey.

During fiscal 1994 SCT raised its revenues to $148.2 million and its net income to $11.6 million, both records. The following year it purchased Adage Systems International, Inc., a company with about $5 million in annual sales, for a minimum of about $1.7 million in stock. This acquisition gave SCT the Adage software system for manufacturing and distribution companies, a package so comprehensive that only one other company in the world was making one with as many functions. An updated version of Adage, with an easy-to-use graphic interface, was introduced in 1996.

Fiscal 1995 was not a good year for SCT. The company released a customer information-systems product for the utilities industry that analysts called flawed and earned only $3.1 million on revenues of $176.1 million. By contrast, SCT was back on track in fiscal 1996. Revenues increased to $215.3 million and net income to $9.1 million. During fiscal 1996, about 52 percent of SCT’s revenues were derived from the higher-education market, about 25 percent from local government, about 18 percent from utilities, and about 5 percent from manufacturing/distribution. Foreign operations represented about eight percent of revenue. The long-term debt was $31.6 million, most of it incurred to purchase Information Associates.

SCT in 1996

SCT’s OnSite (information-technology) services in 1996 were designed to assume total or partial control and responsibility of its clients’ information resources, generally on a long-term basis. Besides Banner and Adage, its licensed software systems included lA-Plus, designed to meet the administrative computing needs of the higher-education market, and a limiteduse Oracle Corp. system, which enabled a client to use Oracle with Banner at significantly lower cost than a full-use Oracle license. SCT’s support services to its licensees included installation, training, and systems integration.

SCT occupied three adjacent buildings in the Great Valley Corporate Center in Malvern, two of them owned and one leased. It owned and occupied facilities in Rochester, New York, and Columbia, South Carolina, and leased a facility in Lexington, Kentucky. It also leased sales offices in Irvine and San Diego, California; Reston, Virginia; and Dallas, Texas; and leased office space in Basingstoke and Manchester, England.

Principal Subsidiaries

Adage Systems International (Australia) Pty. Ltd.; Adage Systems International (Europe) B.V.; ASI Australia Holding Co.; SCT Financial Corp.; SCT Government Systems, Inc.; SCT International Limited; SCT International Software & Services, Inc.; SCT Manufacturing & Distribution Systems, Inc.; SCT Property, Inc.; SCT Software & Resource Management Corp.; SCT Technologies (Canada) Inc.; SCT Utility Systems, Inc.; Systems & Computer Technology International S.A.R.L.

Further Reading

Armstrong, Michael W., “SCT Hopes ‘Ups’ Stay, ‘Downs’ Stay Away,” Philadelphia Business Journal, November 18, 1991, p. 3.

Bergsman, Steve, “Systems and Computer Tech: The Turnaround Continues,” OTC Review, March 1990, pp. 14–15.

Days, Michael, “Two Systems & Computer Officers Quit after Clash with Auditor over Revenue,” Wall Street Journal, January 29, 1985, p. 18.

Helzner, Jerry, “Going to School,” Barron’s, March 19, 1984, pp. 47–48.

Knox, Andrea, “At SCT, It’s Time to Find People,” Philadelphia Inquirer, December 20, 1993, pp. 1C, 9C.

——, “Software Inspires SCT to Act,” Philadelphia Inquirer, February 9, 1995, pp. 1C, 5C.

Leonard, Howard J., “Systems & Computer Technology,” Wall Street Transcript, September 17, 1984, pp. 75257–75258.

Mulqueen, John, “Systems & Computer Tech: Turning Around a

Fraud,” OTC Review, February 1989, pp. 22–23.

——, “Systems & Computer Technology: ‘We Have a Hot Product,’ “ OTC Review, July 1989, p. 19.

Myers, Nan, “CEO of the Year: Michael J. Emmi,” Business Philadelphia, November 1995, p. 57.

“Software Company Says Specialization Key to Its Success,” Computerworld, February 17, 1973, p. 23.

“Systems & Computer Technology Corp.,” Wall Street Transcript, February 21, 1983, pp. 68829, 68832.

Wallace, David, “Despite Problems, SCT Pushing Ahead in Industry,” Philadelphia Business Journal, July 30, 1990, p. 3B.

Wilen, John, “An ‘Odd Duck’ of Hi Tech Coming Back,” Philadelphia Business Journal, June 14, 1996, p. 3.

—Robert Halasz