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Project Software & Development takes off

Shares of Project Software & Development Inc. (Nasdaq: PDSI) shot up 15 3/8, or 35 percent, to 59 3/4 Thursday after it hurdled analysts' estimates in its fourth quarter and announced a 2-for-1 stock split.

In the quarter, PSDI earned $4.8 million, or 43 cents a share, on sales of $42.4 million.

First Call consensus pegged it for a profit of 41 cents a share.

The $42.4 million in sales represents a 20 percent improvement compared to the year-ago quarter when it earned $5 million, or 50 cents a share, on sales of $35.4 million.

But looking ahead, PSDI is determined to gobble up as much of the Internet procurement business as it can. While its flagship MAXIMO client/server product continues to provide the bulk of its sales and profits, PSDI is hoping to leverage that success to expand its MRO.com business.

"Our core MAXIMO business provides the leverage we need to invest in our MRO.com business," said CFO Paul Birch. "We have basically two distinct synergistic businesses. Because of the strength of the MAXIMO business, we're in the unique position of being able to finance a business that could be even larger than the business that's been our solid earnings performer."

In the quarter, software license revenue for MRO.com, PSDI's Internet-based procurement business, improved to $1.6 million, up from $12,000 in the year-ago quarter.

MRO.com sales moved up to $6.1 million, compared with $900,000 for the prior year, an increase of 608 percent. Net loss for the MRO.com business for the year was $4.1 million compared to $800,000 for the prior year.

The MAXIMO client/server software sales jumped to $40 million in the quarter, up 18 percent from the $33.8 million it recorded in the year-ago quarter. MAXIMO license revenues improved to $17 million compared to $15.3 million for the fourth quarter of 1998.

For the year, PSDI earned $17.9 million, or $1.70 a share, on sales of $145.7 million. In fiscal 1998, it raked in $15.4 million, or $1.53 a share, on sales of $120 million.

"Going forward, our plan for MRO.com centers on generating revenue growth through strategic agreements with leading industrial distributors and industrial goods manufacturers to establish MRO.com as the leading marketplace in end-to-end MRO procurement solutions," said CEO Chip Drapeau in a prepared release. "As a result we are doubling our original fiscal 2000 investment, excluding any acquisitions that may be made, by $18 million to $36 million to grow the MRO.com business."

That investment, analysts said, will likely make a slight dent in earnings through fiscal 2000. But the opportunity to go head-to-head with the likes of Ariba Inc. (Nasdaq: ARBA) and Commerce One Inc. (Nasdaq: CMRC) in the rapidly growing business-to-business e-commerce solutions market makes the short-term earnings pinch tolerable.

"There always could be some concern from investors, but that's why we're putting it out here in black and white," Birch said. "This quarter we deliberately offered more guidance than usual for that very reason."

The 2-for-1 split, which is the company's first since a 3-for-2 split in 1995, will take effect Dec. 22 for all shareholders of record on Dec. 15.

The stock rallied up to a 52-week high of 63 3/8 in September after trading at just 17 5/8 in May.

All five analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.>

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