SAPped Catalyst Warns in Wake of CEO Departure

  • Written By: Steve McVey
  • Published: May 3 2001

SAPped Catalyst Warns in Wake of CEO Departure
S. McVey - May 3, 2001

Event Summary

Catalyst International, a fixture in the warehouse management system software industry, warned investors that it would report a first quarter loss of $0.53-0.60 per share. The company cited four factors behind the results: a weaker global economy, longer sales cycles across targeted vertical markets, lower margins resulting from competition, and customers opting for outsourced solutions. The announcement comes less than one month after President and CEO Sean McGowan resigned from the company.

McGowan's departure is the latest in a series of reorganizations and management changes that has left the future of the $35 million vendor in doubt. Catalyst's revenues grew at a moderate pace during McGowan's tenure that began in 1997, while license revenue failed to meet the SCE industry average of 25-30% (see Figure 1). A hallmark of McGowan's strategy was a complete reliance on WMS to the exclusion of peripheral applications such as transportation, labor management, and order capture. This and an ineffective SAP alliance contributed to the expected shortfall.

Figure 1.

Market Impact

Signed in 1999, the SAP alliance made Catalyst the preferred provider of warehouse management systems for SAP's LES (Logistics Execution System). SAP provided some core WMS functionality with R/3 but had been criticized for its inadequate depth of offering for certain high volume industries. Given that deep functionality was Catalyst's strong suit, its inability to capitalize on this alliance is a disappointment. Though most analysts predicted the SAP alliance would jumpstart the stalled Catalyst, others raised concerns over the costly reorganization and potential alienation of other partners that might result (see TEC's note, Catalyst International to Tread Water With SAP Through 2000).

The reorganization of its sales and marketing teams in May 2000 involved the addition of four new executives but failed to supplement the existing sales force with sufficient resources to support its commitments to SAP. Prior to that, Catalyst spent $3.6 million as part of a general corporate restructuring to accommodate the SAP alliance. The combination of these costs with a disproportionately small increase in revenues is just one factor responsible for Catalyst's eroding profit base. In addition, Catalyst's responsibilities to SAP have resulted in a lack of other large ERP alliances in which to diversify its market presence and win deals.

SAP has proven to be an extremely demanding partner. Now that McGowan has stepped down, Catalyst should protect itself from demise after the completion of the SAP alliance in 2003 by developing or acquiring functionality peripheral to its WMS, such as transportation management, order management, or labor management. The four factors it cites relate to external competition within the WMS and SCE markets, which will only escalate as time goes on.

Figure 2.

User Recommendations

Its financial troubles notwithstanding, Catalyst's product still has a wealth of functionality to offer users in high volume industries that may have unique operating practices. Prospective clients should include Catalyst on a short list with other WMS vendors and rate its lack of other desired components such as transportation management as requiring third-party support. Due once again to its SAP agreement, Catalyst WMS runs only on Unix platforms although a web browser interface is available that can serve as a bridge to Windows-based clients.

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