Made2Manage Manages Throughout Soft Market

Made2Manage Manages Throughout Soft Market
P.J. Jakovljevic - August 15, 2001

Event Summary

Recently, Made2Manage Systems Inc. (Nasdaq: MTMS), a provider of enterprise applications and accompanying services for small and midsize manufacturers, reported its financial results for second quarter 2001 demonstrating continued revenue growth and improvement in profitability. For the quarter ended June 30, 2001, total revenues were $8.6 million, a 11% increase from $7.2 million in Q2 2000. Software license revenue grew 15% to $3.8 million compared to $3.3 million in 2000, and service revenues increased 11% to $4.6 million from $4.2 million. Net loss was $141,000 after excluding the effect of a favorable tax rate adjustment, compared to $596,000 in Q2 2000. The effect was to record an additional tax benefit of $655,000 in the current quarter, which resulted in $514,000 net income (See Figure 1).

Figure 1.

"We were pleased with our second quarter performance, which was in line with our expectations," said David B. Wortman, CEO. "We continue to anticipate a return to profitability in the second half of the year. Revenue growth was strong in a weakened economy, reflecting the addition of new customer sites and the market's acceptance of our expanded product line even in a soft-spending environment. On the expense side, operating costs declined, and selling costs were down as a percentage of revenues, reflecting effective management of our spending and headcount."

Wortman also highlighted Start magazine's second quarter recognition of Made2Manage Systems as one of its "Hottest Companies of 2001" among manufacturing software companies as a resounding acknowledgment. "Small and midsize manufacturers increasingly understand the importance of strong back-office applications, but more and more manufacturers are also looking for the range of fully integrated solutions we offer to help them meet their supply chain management, customer relationship management, business intelligence and e-commerce needs. We are benefiting from the fundamental shift occurring in the way these manufacturers use technology and go to market."

The Company also reaffirmed its belief that 2001 revenues will grow in the range of 12% to 20%, significantly outpacing 2000's 6% gain. The Company anticipates the revenue growth will result from a meaningful percentage increase in software license revenue and increases in services revenue as the user base grows from the more than 1500 manufacturing sites currently served. These increased revenues, when combined with lower operating costs from current and continuing expense reduction initiatives, will supposedly improve profitability on a comparable quarterly basis. Profitability is anticipated in the second half and for the full year 2001, after excluding the effects of the first quarter restructuring charge.

Market Impact

Made2Manage seems to be weathering the storm. This has been crunch time for most application vendors but for the smaller traditional ERP vendors, it has been excruciating - and Made2Manage has had its fair share. During 1999 it realized that its target market - small-to-medium manufacturing enterprises (SMEs) - needs more that an inexpensive and easy-to-use back office system. To that end, during 2000, Made2Manage continued to complete its evolution from a vendor of traditional ERP software to a provider of 'one-stop-shop' enterprise business applications, including integrated front office, back office, business intelligence and e-business capabilities for its target niche. Made2Manage system therefore automates business processes of small manufacturers from selling and design, finance and human resources (HR), customer service and support, through scheduling and distribution.

Made2Manage offers attractive products to smaller discrete manufacturers. The company is willing to provide a number of portals that offer a broad range of collaborative, interactive applications including collaborative engineering design, tools, trading exchanges, and access to information resources, such as M2MVIP, a hosted collaborative commerce service that offers customer- and supplier-facing portal functions. Made2Manage also offers a Web-based support program for its customers called M2MExpert.

Another example is Made2Manage's alertness in service and support cost reduction by harnessing the latest technology, like computer-based technology (CBT), to deliver inexpensive users' training. Its proactive grasp of the ASP opportunity may also come in handy, particularly in light of its peers' tardiness in that regard. While manufacturers usually prefer to keep their ERP systems in-house, many may opt to use Made2Manage hosted applications for collaborative commerce, which is available through portal.

Possibly the most important developments might be the recent progress in extending the multi-site and supply-chain management (SCM) functionality footprint, the availability of Microsoft SQL Server edition of the package, and a new function for speeding order entry. Recently, the company launched a constraint planning package, called M2M Synchronizer, which is a theory of constraints (TOC)-based planning tool that features optimization technology and a graphical Gantt chart function for viewing and editing schedules in a more visual manner. All the above-mentioned mix of products and services should, to our mind, contribute to creating increased customer demand and acceptance of Made2Manage's offering within the SMEs.

However, one should never neglect the fierce competition coming from all directions - its peers, the Tier 1 vendors coming to the market, and Microsoft Great Plains' intrusion into the discrete manufacturing market, and the company's currently low global competitiveness.

User Recommendations

While it is unclear how many smaller vendors will survive the shrinking and more crowded market intact and avoid either bankruptcy or assimilation, Made2Manage has been making moves that seem to have been helping it weather the storm. The company has demonstrated a deep understanding of the low-end of the ERP manufacturing market dynamics and its requirements of inexpensive products, fast and easy implementations and good service. The innovativeness of its offerings to the SME market is attractive and should be taken into initial consideration by small discrete manufacturers.

More comprehensive recommendations for both current and potential Made2Manage users can be found in Made2Manage Systems, Inc.: M2M From A2Z For SMEs?

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