Rational Software on the Rise Despite Q3 Loss

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Rational Software posted a net loss of $17.9 million and saw revenue drop more than 20 percent for the third quarter ended Dec. 31, yet the earnings announcement Thursday marked a good day for the software maker.

Rational, which makes software development platforms and tools, beat the Wall Street consensus by a penny with a pro forma profit of $13.3 million, or 7 cents a share, and executives also gave the first indication of a turnaround for business.

Rational chairman and co-founder Paul Levy says the company's business is "stabilizing" and that there are signs of improvement, including strong third-quarter customer commitments and increased visibility. Levy says the company is comfortable with a fiscal 2002 forecast for earnings of 27 cents to 30 cents a share and revenue between $685 million to $700 million.

The 22-year old software company's revenue for the third quarter was $170.2 million, a 21 percent decrease from $215.5 million for the same period last year. In addition, income fell, from $40.2 million a year ago to $13.3 million.

Despite a heavy drop in income, several analysts raised their estimates on Rational's positive outlook. Thomas Weisel Partners analyst Tim Klasell says the tone of Rational's business is improving, with average deal sizes increasing from $10,000 to $13,000 and 12 separate customer projects valued at more than $1 million in the most recent quarter.

Also in the third quarter, Rational launched ProjectConsole, a Web-based software development tool, and strengthened ties with IBM, joining Big Blue's open source community, Eclipse, as a board member and supporting IBM's WebSphere Studio Application Developer.

Rational's stock price rose nearly 10 percent early Friday, climbing more than $2, to $24.30, on the Nasdaq.

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