Although Manugistics Group Inc. fiscal 2005 fourth quarter and year-end results show progress made in erasing persistent red ink, shrinking revenues indicate the struggling supply chain software vendor still has much to do before it achieves consistent profitability.
For the fourth quarter ended February 28, Manugistics narrowed its loss to $17.2 million from $57.5 million posted in the like period last year. Revenue, however, fell 22% to $45.2 million from the corresponding fiscal period in 2004, although the figure represented a 21% increase from the prior quarter. For the year, the company lost $55.3 million on revenues of $193.1 million compared with a loss of $103.8 million on revenues of $243 million in fiscal 2004.
Nevertheless, company executives remained optimistic during a conference call yesterday with financial analysts to discuss fiscal 2005 performance. They outlined new strategies for mitigating customer risk, elevating brand awareness through aggressive marketing campaigns, leveraging maintenance services and expanding globally to reinvigorate revenue growth.
CEO Joe Cowan, who has been at the helm of Manugistics for twenty months, was clear about the market pressures that have impacted the company: namely increased competition from the likes of i2 Technologies (which is struggling in its own right), SAP AG, and Manhattan Associates. He also pointed to the double whammy of demand for customized supply chain solutions, coupled with buyers' resistance to making large upfront investments for software, as continuing challenges for the company.
Cowan said Manugistics' Web-based architecture will allow it to deliver more tailored versions of its software. The company, he said, plans to proactively target customers for "tune-up campaigns." Moreover, Manugistics is willing to work with customers to help lessen the buying burden.
"We have engaged with customers recently that want to talk about a risk/reward scenario," said Cowan during the conference call. "They say, we are willing to engage with you if you partner, such that over time as we are successful -- or not -- you are paid based on that. It's an intriguing approach, but a direction more customers are moving toward."
Nevertheless, industrywide increases in supply chain management software spending (as previously noted by analysts) is starting to take hold at Manugustics. The company closed 12 software license deals in Q4 with an average value of around $559,000, according to a company statement.
Manugistics is also in the process of ramping up new revenue streams in China while opening a development center in Hyderabad, India that the company expects will allow it to realize additional cost savings of $2 million to $3 million per quarter by the end of fiscal 2006. Expense reduction will help Manugstics accelerate its push to break even (headcount was further reduced by 38 employees to 695 at the end of the fiscal fourth quarter), but the company can not slash its way to profitability without achieving specific growth targets, industry observers said.
"The reason they are optimistic is because they are lowering costs and [getting] cash flow positive," said Brad Whitt, a financial analyst with RBC Capital Markets who listened in on the Manugistics conference call. "Those things are positive, but is the company going to be able to get back on a growth path? I don't see when that will happen."
The cynicism stems more from market forces than from the company's capabilities. "We agree with what they are saying," Whitt said in an interview, "but what they didn't say is what specifically they are doing to alleviate some of those pressures. And there is nothing they can do, really. So our take is that they'll have to continue to cut costs. They'll sell something every quarter -- and possibly position the company to be sold down the road."
In an interview with Managing Automation late last year, Cowan claimed he was "not brought in to pretty up the pig and sell it." And he maintained that same tone during yesterday's conference call. "As I dig deeper into the company I feel bullish about the opportunity in the marketplace. It's a tough market, and we've made a lot of improvements to the company. So I feel good about the company in the long term," he said. "If you analyze the market, there will be space for a best-of-breed player and Manugistics is well positioned to be that best-of-breed player."
Cowan recently began to put his imprint on Manugstics. He reorganized the company around vertical markets, such as consumer products, government, retail and what it calls revenue management (i.e., hospitality, travel and transportation), to help the company maintain focus and leverage its industry expertise.