Manugistics Posts Third Quarter Loss But Sees License Growth

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Manugistics Posts Third Quarter Loss But Sees License Growth
S. McVey - January 5th, 2000

Event Summary

Manugistics Group recently reported revenues and earnings for its third fiscal quarter ended November 30, 1999. License revenue increased for the first time in five quarters, rising 35% over last quarter to $14.6 million. Manugistics attributes the increase to the signing of several new clients, including BASF, BMW AG, and Heilig-Meyers Company. Manugistics also sold new licenses to a number of unnamed clients in the electronics/high tech sector, territory of rival i2 Technologies. In spite of its surge in license revenues, the company reported a net loss for the quarter of $4.8 million, or $0.17 per share. CEO Greg Owens cites investment in new E-commerce product development as the primary reason for the loss. "By accelerating our development of Internet solutions using innovative Web technologies, we are well positioned for opportunities in a substantially larger market. While these investments widened the loss in the quarter, we believe these strategic initiatives will better position us for the future in the business-to-business eCommerce market," said Owens. Other events of note are new appointments to Manugistics's executive team, including a new CFO, and partnerships with two companies to build eBusiness trading partner exchanges.

Market Impact

Manugistics's license revenue growth is a notable achievement and may represent a turning point for the embattled software vendor. A review of three-quarter moving averages for the top three supply chain planning vendors shows that Manugistics's license revenues have begun to bottom out. Although future growth cannot be predicted with certainty, Manugistics can make advances into positive territory provided it can build on momentum created by its recent wins and find customers for its eBusiness initiative, NetWORKS by the second quarter of calendar 2000. Market leader i2 Technologies has a commanding lead over both Manugistics and Logility and is unlikely to be overtaken. By arresting further decline in license revenues, Manugistics has passed one of two important tests for a return to financial viability. (See TEC News Analysis article: "Manugistics Takes Another Hit on Earnings as CFO Resigns" September 16th, 1999) The second, a return to profitability, may not occur for some time as the vendor needs to continue to invest heavily in eBusiness development to keep pace with other players. Additional expenses will be incurred from extensive training of its new sales and marketing personnel.

User Recommendations

Companies should be encouraged by Manugistics's recent success, particularly veteran members of its installed base. Continued revenue growth and reduced operating expenses will put Manugistics in a good position to contend with other vendors, attract talented personnel, and raise capital to fuel its business over the next 3-5 years. However, users should regard Manugistics's proposed delivery of a mature eBusiness offering during the first quarter of calendar 2000 with much skepticism, as development is still in its early stages. Entry into a B2B marketplace is a risky move regardless of whether it is NetWORKS, i2's TradeMatrix, or Logility's i-Community. Logility and i2 have a head start on Manugistics in B2B and are both on better financial ground, facts that should figure prominently in decisions for companies who have a strong directive to seek a B2B partner.

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