Long-suffering supply chain planning software vendor i2 Technologies Inc. saw its revenues grow 6% and its net loss shrink as efforts by new CEO Michael McGrath to engineer yet another round of cost cutting began to show results.
In a conference call with investment analysts, i2 CFO Katy Murray predicted the company would report an operating profit in the second quarter if it is able to meet its current sales and expense reduction targets. As part of its efforts to further reduce expenses and improve its focus on core markets, McGrath also announced that i2 has agreed to sell its Trade Service business unit to a team that includes existing management. Murray declined to estimate the size of that business which provides product and pricing content to customers in electrical, plumbing and industrial industries.
Sale of the unit -- which McGrath said was "not part of our core strategic focus" -- should help i2 achieve its target of cutting operating expenses to under $70 million per quarter. In the first quarter, i2 reduced its employee count by 15% to 1,753 and made other cuts which helped bring operating expenses to $106 million. That figure included $12.5 million for restructuring charges as well as $10.5 million set aside to cover anticipated liabilities.
For the quarter, i2 reported a net loss of $24.5 million, an 18.3% improvement over the net loss of $30 million reported in last year's first quarter. i2's revenues for the quarter grew 5.6% to $88.3 million.
"Events of the first quarter lay a foundation for a new beginning for the company," said McGrath, who took over the CEO role on an interim basis from founder Sanjiv Sidhu two months ago.
Not all financial news was positive, however. i2 reported that, during the quarter, business from new customers fell, and both maintenance and license revenues declined. In the first quarter, i2 reported core license and development services bookings of $8.9 million, a figure that was down from the $18.6 million reported in the fourth quarter last year. i2 said just 10% of bookings came from new customers, a figure that was well below the company's traditional average of 20% .
"We were disappointed with the bookings from this quarter," said Murray. "It was down even from what we had expected." Murray attributed lower bookings to i2's restructuring focus and "the overall challenges in the software industry."
i2's license revenue for the quarter dropped from $16.7 million in the fourth quarter of last year to $12.9 million in Q1. Maintenance revenue, at $25.8 million, was down $2.4 million compared with the fourth quarter of 2004. Murray said i2 expects to see continued pressure on maintenance revenues.
i2 reported a significant increase in development services revenues, which jumped by $12.7 million compared with the fourth quarter to $20.1 million in this year's first quarter. Most of that increase, however, was attributed to payments i2 received from customer Shell Global Solutions International B.V. related to settlement of what i2 called a "contractual dispute."
Despite i2's increased first quarter revenues and narrower loss, it is too early to predict the company's long-awaited financial recovery, said Lora Cecere, a research director at AMR Research Inc. (Boston). Cecere said the company's decision to sell its Trade Service business is a positive step that will allow i2 to focus on its core business. But, said Cecere, "what they really need to focus more on right now is sales execution. They need to protect the current client base and focus on continued customer relationships. It's very competitive out there."
i2's Murray reported that, during the first quarter, i2 stable of sales representatives fell by 22 to 59. Cecere called the depletion of i2's sales force "a cause for concern."
Despite the sale of the Trade Service business, McGrath said i2 has no plans to divest other "major product lines." He noted there has been speculation that i2 may sell off its Supplier Relationship Management product line. But, said McGrath, "We have not made a decision to get rid of that."
Seperately i2 reported it has filed an application with NASDAQ to resume trading of its shares on the exchange. McGrath said that may occur in two or three months.
And i2 CFO Murray told analysts she intends to leave the company at the end of next month. No replacement for Murray has been announced.