American Management Systems, Inc. History

Company History:

American Management Systems, Inc. (AMS) specializes in assisting large organizations with their use of information technology. AMS provides technological consulting services, customized software, and systems integration services for its customers, a large percentage of which are either large corporations or government agencies. The company focuses its efforts on the needs of several specific industries. Along with federal and local government agencies, the following types of companies make up the bulk of AMS's customers: telecommunications companies, financial institutions, educational institutions, insurance companies, and pharmaceutical companies. Billing and collections, credit management, and organization-wide financial management are among the business functions AMS products serve within these target industries. AMS maintains offices in 35 North American and European cities. Since the company was founded in 1970, it recorded an impressive string of 24 straight years of growth through 1993.

AMS was founded in 1970 by five former Defense Department "Whiz Kids." Each of these Pentagon alumni were experts in systems analysis and management. Two of the co-founders were Charles O. Rossotti, who became chairman and president of AMS, and Patrick W. Gross, who also became a long-time member of upper management. Rossotti and company set up shop in the Washington, D.C., suburb of Arlington, Virginia. From early in its history, a substantial share of AMS's revenue was derived from contracts with federal agencies. The company grew quickly during the 1970s. During its first decade of operation, AMS prospered by concentrating primarily on its consulting business and selling customized software to large organizations, both government and corporate.

Around 1980, things took a turn for the worse at AMS. According to Rossotti, the company's strategy became unfocused. Rather than emphasizing the areas in which it was already successful, the company moved into too many other business segments. One particular move that failed to pay off was the company's attempt to mass market software packages for minicomputers. AMS also tried to expand through acquisitions in the early 1980s. In 1981 the company purchased Executive Systems, Inc., which was sold off again just four years later.

After hitting bottom in 1981, AMS staged an impressive comeback over the next few years. In 1982 the company reorganized in order to shift focus back to its areas of expertise. All of its minicomputer-related businesses were eliminated, as were its time-sharing operations. The company also dumped all of its products aimed at small businesses. At that point, AMS began to focus on specific vertical markets and to concentrate on combining professional services, such as consulting with packaged software, for users in the largest size bracket. By targeting mainly the markets it had already penetrated, the company was able to avoid mass marketing, which had caused AMS headaches in the past. With its strategy revamped, AMS was able to once again boast a growth rate approaching 20 percent a year.

AMS's decision to base its business on the combination of packaged software with professional services proved to be ahead of its time. Although this approach was virtually unheard of when AMS adopted it around 1982, it was becoming fairly common by the middle of the decade. By that time, AMS had forged strong partnerships with a number of major companies, for whom it was providing such products as credit management and automated credit application software for banking industry customers; financial management systems for government installations; and administrative systems for academic institutions. Typically, AMS would provide a generic software package that it had adapted to meet the specific needs of the customer. Support services were then added to the mix.

In the mid-1980s, AMS carefully expanded its focus to include joint marketing agreements with hardware and software companies. In 1985, AMS entered an agreement with Tandem Computers Inc. to jointly market a credit collection software package designed by AMS to run on Tandem mainframe computers. Another joint marketing agreement was reached later in the year with Software AG. That agreement covered versions of AMS software for government, educational, and oil and gas finance systems to be used with Software AG's Adabas database management system.

AMS's business expanded in several directions in 1986. In one important development, the company began making inroads into the lucrative telecommunications market. Around that time, the company unveiled a new package of administrative software for order processing and billing tailored specifically for that industry. MCI Communications Corporation, then emerging as an industry powerhouse, was among the company's new customers in the telecommunications field. In July 1986, AMS announced that 12 state, county, and municipal governments had begun using financial management systems produced by the company. Software license fees and revenue from support services for these government deals amounted to $6 million for the year. Several acquisitions also took place in 1986. During that year, AMS purchased Anacomp, Inc.'s BANKSERV product line for $800,000. Data Base Management Inc. and The Courseware Developers were also acquired for a total of $5.25 million. For 1986, AMS earned net income of $5.2 million on $136 million in revenue. Government contracts were making up about a third of that business.

AMS achieved record highs in both net income and revenues in 1987, earning $7.6 million on $174 million in sales. Although revenue continued to climb, the company's net income slumped somewhat during the next two years. Company officials cited a number of reasons for this slip. Foremost was a 17 percent decrease in business from the federal government, largely the result of slowdowns at the Defense Department. The company's rapid early growth also led to higher overhead, interest, and software development expenses. In addition, a suspended contract led to an earnings write-off, and in 1989 the company's new preferred stock began paying dividends, which are calculated against net income per share. During 1989, AMS suffered its first quarterly loss in seven years, and, for the year, profit slipped to $6.2 million.

An even greater drop in profits in 1989 was prevented by a strengthening of ties between AMS and IBM. In July, IBM purchased 10 percent interest in AMS, acquiring $18 million in AMS stock. The two companies also entered a long-term arrangement under which AMS would develop software, starting with financial services applications, to run on IBM machines. This infusion of cash from IBM helped to offset the tightening of Defense Department purse strings.

AMS quickly recovered from the setbacks of 1989, despite continued military cutbacks. By 1990, the company saw sharp increases in its business from civilian federal agencies and from financial services institutions. Business from state and local governments, universities, and other corporate customers were all on the rise as well. The telecommunications industry was a particularly fertile area for AMS around this time. Companies in that field increased their business with AMS by around 75 percent in 1990. By that time, federal business was generating about one-fourth of the company's business. Military agencies, however, accounted for only about 15 percent of revenues, compared with a peak of 26 percent as recently as 1988. Nevertheless, AMS's earnings were back on track, reaching nearly $11 million in 1990 on revenue of $260 million.

In 1991, AMS managed to perform well in the face of adversity. Due to a generally sickly economy, the company's core business, namely systems integration for telecommunications and financial services firms, all but vanished as a source of new growth. This time, government consulting contracts helped fill the gaps left by disappearing private sector funds. The company's partnership with IBM also continued to flourish. In 1991 the two firms teamed up to develop the Image and Record Management system, AMS's first foray into the imaging business. AMS also reached a new deal with NYNEX Mobile Communications to design a billing and customer management system tailored for the cellular phone industry. During the year, AMS beefed up its international operations considerably. After a 43 percent increase in 1991, international business accounted for over 10 percent of the company's total revenue. In the dismal business climate of that time, AMS managed to increase its revenue to $284 million and its net income to $12.6 million.

Rossotti announced he was stepping down as president of AMS in 1992 in order to concentrate on broader strategic issues rather than day-to-day company decisions. He remained chairman and chief executive. Two longtime AMS executives were named to take over the company's operations: Philip M. Giuntini, with AMS almost since the beginning, was named president, and Paul A. Brands, who had worked for the Environmental Protection Agency and the Defense Department before joining AMS in 1977, was named vice-chairman. Because Giuntini and Brands had already been overseeing about 60 percent of the company's operations prior to the move, the shift in titles did not represent a significant change in leadership at AMS.

By the end of 1992, AMS was clearly one of the best-performing high-tech firms around. Over five years, the company had doubled its sales and tripled its net income, which had jumped to over $19 million for 1992. Nearly half the company's revenue was coming from some level of government, and the rest of its customers were large, loyal corporations and institutions. AMS's ten-year compound growth rate was a healthy 19 percent. In 1993 Brands picked up the additional role of chief executive officer, while Rossotti remained chairman. Brands became the first nonfounder to hold that position at AMS. In April 1993, AMS opened its Center for Advanced Technologies in Fairfax, Virginia, and increased its emphasis on research operations. The company also boosted its European presence by opening offices in Munich and Lisbon during the year.

Toward the end of 1993, AMS acquired Vista Concepts, Inc., from NYNEX. Vista is a leading provider of software for the global securities market. In late 1993 and into 1994, AMS joined an industry trend by adapting its software for client/server systems; previously, most of its software had been engineered for IBM mainframes. Client/server revenue was expected to account for over one-third of the company's total by 1994. In July 1994, AMS announced that it was awarded a $20 million contract by Swedish cellular phone company Telia Mobitel for a billing and customer management system. Telia Mobitel was the fifth major European cellular carrier to sign a contract with AMS in two years.

For 1993, AMS recorded revenue of $364 million, its 24th consecutive annual increase. Net income dipped slightly, due in part to a dramatic decrease in revenue from IBM, whose mainframes it was abandoning. AMS also began buying back blocks of its own stock from IBM. As it faced the rest of the 1990s, AMS planned to continue investing heavily in research in order to stay at the forefront of its industry.

Principal Subsidiaries: Data Base Management, Inc.; AMS Courseware Developers; AMS Management Systems Canada Inc.; AMS Operations Corporation; AMS Technical Systems, Inc.; AMS Management Systems Deutschland GmbH (Germany); AMS Management Systems Europe, S.A./N.V. (Belgium); AMS Management Systems U.K. Ltd.

Further Reading:

• "American Management Systems: Despite Government Cutbacks, It's Staging a Comeback," Barron's, October 29, 1990, pp. 43-44.
• Betts, Mitch, "American Management Systems Rebounds, Plays on Strength," Computerworld, July 28, 1986, p. 80; "IBM Continues Sugar Daddy Role, Buying Into AMS Future," Computerworld, July 24, 1989, p. 73.
• Dubashi, Jagannath, "American Management Systems: Wiring for Profit," Financial World, April 27, 1993, pp. 16-18.
• Ricciuti, Mike, "American Management Systems Inc. (The Datamation 100)," Datamation, June 15, 1992, p. 149.
• Sugawara, Sandra, "AMS Names New President, Vice Chairman," Washington Post, October 20, 1992, p. C1.

Source: International Directory of Company Histories, Vol. 11. St. James Press, 1995.