Manugistics Upbeat Despite $13.3 Million Loss

In reporting its third-quarter results, the supply chain vendor threw barbs at ERP giants while spelling out its plans for custom services and continued cost-cutting.

Supply chain/logistics vendor Manugistics Group Inc. is acting upbeat this week, despite posting a $13.3 million third-quarter loss. In a conference call, officials took verbal swipes at SAP AG and other enterprise resource planning giants while outlining plans around a new development center in India, an RFID consulting practice and a greater emphasis on custom services.

Manugistics "value and strength" comes from its products and services, "blue-chip customers," and domain expertise in supply chain management and transportation/logistics, according to Manugistics CEO Joe Cowan.

"Our biggest challenge remains difficult market conditions," he told financial analysts, investors and journalists during the conference call. Specifically, the CEO pointed to conditions that include the competitive climate in the enterprise software market, general economic uncertainty and a tendency for corporate IT resources to be consumed by Sarbanes-Oxley compliance, thereby slowing decision making.

"We continue to see the ERP players in general trying to stall the [supply chain] market. We believe SAPs specific strategy is to provide just enough functionality to forestall best of breed solutions. The threat to us is the size of its installed base and the influence they have with CIOs," Cowan said.

Meanwhile, many organizations have grown "risk-averse" about large software purchases, due to being "burned" by other vendors, he said.

Manugistics plans to respond to these market factors by taking continued cost-cutting measures and playing to its own advantages as a "best of breed" software and services provider, said Cowan, who first joined Manugistics in July 2004.

Manugistics customer wins during the third quarter included H.J. Heinz Company Ltd, Wickes Building Supplies Ltd., Lafarge Aluminates, O2 and Serono International S.A., among others.

Manugistics closed 11 "significant" software license transactions of $100,000 or more during the quarter, and one "significant" software license transaction of $1 million or more. The average selling price for the significant license transactions was $491,500.

Going forward, version 7.2 of Manugistics supply chain software will ship in February, according to Cowan. Through a combination of services and its own emerging plug-and-play software architecture, Manugistics will focus on meeting customers requests for custom features and software extensions that will give them a competitive edge. "We see the market moving in this direction," Cowan said.

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The vendor will also pay particular attention to areas that include transportation and logistics, revenue management, core supply chain, and the retail and consumer packaged goods industries, Cowan said.

While Cowan said that, right now, organizations have "very little [to gain from RFID] except meeting the demands of customer mandates," he said that Manugistics will launch an RFID consulting service as "a strategic initiative to position us longer term."

Meanwhile, the company last week announced the appointment of Janie West as vice president of Mid-Markets. West will be in charge of expanding Manugistics involvement with new and emerging middle markets.

This years third-quarter financial loss of $13.3 million, or 16 cents per share, was narrower than Manugistics loss of $19.8 million, or 27 cents per share, in last years third quarter. Last years number included a non-cash debt conversion fee of $16.4 million, whereas this years loss included an exit and disposal charge of $2.9 million. Excluding the exit and disposal charge, Manugistics loss was a smaller $5.1 million.

Still, Manugistics year-over-year quarterly revenue fell nearly 25 percent, from $59.9 million a year ago to $45 million this year.

Also during the call, officials indicated that Manugistics transition to greater emphasis on custom services might be partly responsible for the drops in third-quarter revenue and earnings, since it can be more difficult to price services than software, and to collect money up front.

Manugistics new development center in India, already launched December 1, is part of a cost-cutting campaign under way at Manugistics for the past few quarters. Manugistics expects to save $2 million per quarter as a result of the development center.

The companys key development engineers will continue to work from Manugistics headquarters in Rockville, Md. Only "lower-level development" will move to India, said Raghavan Rajaji, executive vice president and chief financial officer, also during the call.

"[You] will not see development costs creeping back up again," Rajaji said during a Q&A session at the end of the call.

Also, Manugistics employee headcount has declined somewhat, from 733 in the second quarter to 725 in the third quarter of 2004. The third-quarter headcount represented voluntary terminations and "some involuntary terminations," offset by hirings in India.

The current headcount includes 46 account managers and other sales professionals. Manugistics is now "monitoring the effectiveness of each [sales] individual [and] that number may continue to come down," Cowan said.

The supply chain vendor is also teaming on sales with IBM and other partners, according to Cowan. But he refused to comment on whether IBM has brought Manugistics into any customer deals.

"We dont comment about specific deals and partnerships," Cowan said. "But I am continuing to work [the IBM] relationship quite closely."

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