Manugistics Group Inc, the formerly fast growing supply chain management software company, revealed its dismal first quarter figures today, blaming a disorganized sales force for a surprise $14m operating loss which massacred the share price. Having warned two weeks ago of the impending trouble, Rockville, Maryland-based Manugistics has now reported a first quarter pre- tax loss of $13.1m, down substantially from last year’s net profits of $2.0, while total revenues climbed 15.6% to $39.8m. But the growth in total revenues masks what has really gone wrong at Manugistics; namely that sales costs, administrative expenses and R&D costs rocketed by 80%, while sales of software licenses fell by 17%. The figures were partially rescued by a doubling of consulting and services revenues to $23m, now substantially more than software sales, but the collapse in new license revenues is a severe blow, revealing a company carried away by its own success. CEO William Gibson called the results particularly disappointing compared with the prior quarter, and his shareholders will be inclined to agree, the stock price having jumped off a cliff. Manugistics shares fell from $60 to less than $30 on the original warning in May, and closed at the end of Tuesday at just under $25. This marks the end of an unbelievable run for Manugistics’ shareholders, who at the end of last year were sitting on a 600% gain from just 18 months of trading. In the last three weeks, the bad news has now wiped out an entire year’s worth of gains. And given that a survey of analysts contacted by First Call were expecting net losses for this quarter to be just $2m, we may not have seen the end of the slide. Investor’s former confidence was built on huge expectations, sustained by a consistent doubling of software license revenues each quarter, and endless analyst reports hence the carnage now that sales growth has hit the buffers. We did not successfully manage the rapid growth of our sales organization, said Gibson, referring to the fact that doubling the cost of the sales force has produced an appreciable drop in revenues. The group’s cash reserves have also dropped by 20% to around $65m. Gibson’s plan for recovery reads rather like an apology from an errant schoolboy. We have learnt from our experience…that we must not lose sight of the basics, he explained. We must, and will focus more strongly on execution during the remainder of the year. Just whose execution that will be wasn’t made publicly available.
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