Event
Summary
Warehouse management system vendor, Catalyst International, recently reported
results for the first quarter of 2000. Revenue was $10.3 million, an increase
of 9.4% over the fourth quarter 1999, but slightly less than revenues
of $10.7 million for the first quarter 1999.
Catalyst
also made progress toward its goal of a 1:2 ratio of licenses to services
revenues with license revenues increasing 175% to $2.4 million in the
first quarter. Services revenues, derived primarily from modifications
implemented for clients and other customer services, declined slightly
over last quarter to $6.2 million. Catalyst returned to profitability
in the first quarter, earning $172,000 after taxes, putting an end to
a two-quarter period of losses in 1999. Carrying these losses forward,
net earnings for the first quarter were $264,000 or $0.03 per share.
Catalyst's
favorable results fall in line with those of its peers in the WMS and
SCM markets, many of whom have entered Y2K with a surge in revenues and
earnings. In addition to winning new accounts in the fourth quarter and
selling to existing customers, Catalyst has continued to work toward revising
its organization in order to capitalize on the SAP alliance in effect
since last September.
Figure
1
Market
Impact
Catalyst's renewed revenue growth and profitability follows a shaky 1999
in which its revenues fluctuated and earnings dipped into negative territory.
Though its customers should be encouraged by its first quarter report
card, the results do not yet indicate substantial growth in its business,
an effect Catalyst hopes to achieve through its partnership with SAP.
While potential for this growth is good, Catalyst must balance carefully
its partnership with SAP and its ability to execute as an individual company
to avoid conflicts in strategy that could damage its business in the longer
term.
Catalyst needs to maintain the ability to sell its products independently
of SAP to be viable in the post partnership existence that will resume
in a few years, provided that SAP does not acquire Catalyst. Though outright
acquisitions are not SAP's tactic of choice, the ERP vendor approximates
them by providing a strong indirect channel for a multitude of VARs, which
then depend fully on SAP for their livelihood. In order to avoid this
fate, Catalyst must continue to seek business that supports its non-SAP
goals, while still paying due "tribute" in the form of implementation
services to its new benefactor. These goals should include expanding its
product offering to cover more of the supply chain execution space by
adding transportation management or advanced order management products.
In spite of its deep expertise and functionality in WMS, Catalyst often
loses deals to competitors that can offer broader functionality to clients
who are anticipating future IT needs that extend beyond WMS. A recent
example is Provia Software's win at Owens Corning. Owens signed on for
warehouse and yard management, two systems offered by Catalyst, but chose
Provia in part for its transportation management capabilities that might
be needed in the future.
User
Recommendations
For companies in retail, consumer packaged goods, or industrial technology,
Catalyst WMS products offer a rich set of features and can be customized
according to specific customer requirements. We encourage users to include
Catalyst on a short list for Unix WMS selections. SAP users who are unsatisfied
with mySAP.com's WMS capabilities will certainly wish to evaluate Catalyst,
but should remember that a dedicated interface between the two applications
will not be ready until 3Q 2000 or later. Currently, Catalyst uses third
party software from Mercator to integrate WMS and SAP R/3. As times goes
on and Catalyst refines its ability to execute alongside SAP, SAP users
should find the alliance to be a low risk alternative to other SAP WMS
combinations. In the short term where ease-of-interface is important,
SAP users may want to consider Provia Software's WMS, which offers a standard
interface to connect to R/3. While the recent quarter bodes well for Catalyst
and falls in line with our expectations (see TEC article, "Catalyst
International Bit by Y2K Bug"), users should wait until the company
can achieve sustained quarterly revenues in excess of $15 million with
at least $3 million directly attributable to the new alliance before concluding
its SAP pact a success.