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A Few Rules
Disclosure



Copyright © 1997
Russ Klein

NOVEMBER 10, 1999

MONTHLY STOCK SUGGESTION

Shs. Outstanding - 12,900,000
Shs. in Float - 3,700,000
Current Ratio - 10.2:1
P/E 20
Book Value - $3.17
52 Week Range - $23.62 - $3.00
Current Price - $3.75

ATLANTIC DATA SERVICES, INC ("ADS"), provides information technology("IT") strategy consulting and systems integration services to customers exclusively in the financial services industry, primarily banks. They offer IT solutions to the business challenges faced by financial services companies through their in-depth financial services experience, technological expertise and project management skills. Their service offerings are organized around four practice areas: IT Strategy Consulting, Consolidations and Coversions, Year 2000 Resolution, and Electronic Commerce and Home Banking.

The business challenges created by deregulation and consolidation, coupled with the need to maintain existing systems and incorporate new technologies, have forced banks to turn to third party IT providers for assistance in developing IT solutions to meet their changing needs. Because of the critical importance of their IT systems, banks seek to engage IT service providers who have in-depth knowledge of their systems and business processes and who can assume responsibility for project management and delivery. IT service providers working with banks must possess extensive experience in the financial services industry and be fluent in both traditional legacy systems and newer technologies. However, there is a shortage of professionals who have this combination of skills. While many banks are concluding that using outside specialists enables them to develop better IT solutions in less time and to reduce implementation risks, most IT consulting firms do not have the specialized knowledge of the financial services industry necessary to assist banks in rapidly and cost-effectively meeting their business challenges.
The Company's customers consist primarily of banks and other financial services companies located in the United States and Canada. Following is a list of representative customers during fiscal 1999:
ABN-AMRO Information Technology Services
Associatd Bank-Corp.
First Security Information Technology, Inc.
Fleet Services Corporation
Keane, Inc.
NationsBank Corporation (Barnett Bank)
People's Heritage Bank
Susquehanna Bancshares, Inc.
UST Data Services, Inc.

ADS derived and expects to continue to derive a significant portion of their revenues from a relatively limited number of customers. For example, their five largest customers in fiscal 1999, First Security Information Tech., National City Corp., Associated Banc-Corp., UST Data Services, Inc. and Susquehanna Bancshares Corp., accounted for approximately 18.4%, 16.4%, 13.8%, 9.6% and 5.6%, respectively, of revenues. In fiscal 1998, Associated BancCorp., First Security Information Tech., National City Corp., NationsBank Corp. and ABN-AMRO Information Tech. accounted for approximately 17.4%, 13.7%, 13.3%, 10.1% and 10.0%, respectively, of revenues. Because a significant portion of their revenues are derived from services related to deregulation and consolidation activities in the financial services industry, changes in the regulatory environment or a reduction in consolidation activity have in the past, and may in the future, have a material adverse effect on their busines, financial condition and results of operations. In addition. the loss of a major customer or termination of a major project as a result of an acquisition of a customer by an organization to which the Company does not currently provide services could have a material adverse effect on their business, financial condition and results of operations.
For example, in December 1998 ADS announced that National City Corporation, which accounted for 16.4% and 13.3% of their revenues in fiscal 1999 and 1998, respectively, decided not to extent its contract with ADS beyond Dec. 31, 1998.
ADS had 314 full time employees as of March 31, 1999, however, during fiscal 1999, the Company experienced lower than anticipated bookings and an interim fall off in business with major banking institutions. As a result, in an effort to bring expenses more in line with expected near-term revenue, they reduced their headcount by 65 people (or 21% of the total workforce) effective April 30, 1999. At May 31, 1999, ADS had 243 full time employees.
ADS reported revenues for the second fiscal year 2000 quarter ended Sept. 30,'99 of $6.8 million, down 62.7% from revenues of $18.2 million a year ago. Net loss for the quarter ended Sept. 30,'99 was ($.8million), or ($0.06) per share on 12,907,000 shs. compared to net income of $2.6 million or $0.19 per share (diluted) on 13,226,000 shs. a year ago.
For the six months ended Sept. 30,'99, ADS posted reveues of $17.0 million, down 52.2% from revenues of $35.6 million a year ago. Net loss for the six months was ($.6 million) or ($0.05) per sh. compared to net income of $4.7 million or $0.38 per sh. (diluted) for the same period in fiscal 1999.
Robert W. Howe, Chairman and CEO, commented, "On July 20, 1999, we announced that revenue for the quarter ended September 30, 1999 would be between $5.0 million and $7.0 million and that we would likey incur a net loss for the quarter. I am pleased to report that revenue came in near the high end of the range and that our loss was less that $1.0 million. Many of our clients have completed their use of external resources for their Y2K projects, which has negatively impacted our revenue generation. Further, the slowdown of merger activity within the banking sector which occurred earlier during the calendar year has negatively affected our revenue generation for conversions and consolidations."
At September 30, 1999, the Company reported cash of $37.4 million, days sales outstanding of 53, no debt, and a current ratio of 10.2 to 1. "We continue to have a strong financial position and we continue to see an increase in the E-Commerce and Internet Banking practice of our business. Our continued investment in our business development and practice areas is reflected in the appointment of two vice presidents - one to oversee the Company's Customer Relationship Management (CRM) practice and one to devote full time to developing alliances to complement our existing service offerings and to seek to bring the 'best of breed' business solutions to the financial services industry, "concluded Mr. Howe.

In looking over the Statements of Operation, I find nothing that disturbs me to any great extent. There is no 'burning' of cash from quarter to quarter, in fact, the cash increased slightly in the six months from Mar. 1999 to September 1999 ($37,326,000 Mar.99 to $37,405,000 Sept.99). The loss in revenues must be at least in part attributed to the loss of National City Corporation's business at the end of Dec. 1998.
Do some research (DD) on ADS and talk to your broker or financial advisor before taking any position in this stock or any stock.
ADS Home Page

Russ Klein d/b/a Russ Reports is not a financial or investment advisor. Russ Klein is not being compensated for the inclusion of ADS in the Home Page of Russ Reports. In addition, at the time of this writing, Russ Klein nor any member of his family has a position in the stock of ADS. However, that situation may change in the very near future.
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rklein@bellsouth.net
Russ Reports Sept.'99

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