Wednesday June 21, 8:22 pm Eastern Time
Morningstar.com
Manugistics Delivers the Goods, As Promised
By Todd P. Bernier
If Manugistics' (Nasdaq: MANU - news) fiscal first quarter is any indication of the company's future, the software vendor is in the midst of a huge turnaround. Investors who want to participate in the burgeoning world of business-to-business (B2B) electronic commerce would be wise to take a long, hard look at this company.
Manugistics reported after the market closed Wednesday that it lost $0.04 per share during the fiscal first quarter, in line with First Call estimates. Although meeting expectations is no major feat, the company improved on virtually every performance metric. Quarterly revenues increased 29% from the same period a year ago, on the strength of a 98% growth in license revenues. What's truly impressive is the fact that the firm increased revenues sequentially by almost 16% -- tough to do, since the fourth quarter is typically the strongest for most software companies.
Software license revenues were spread across 26 transactions, with about a third of these deals valued in excess of $1 million. A very positive sign for the company is that the average deal sign \226 a key metric in the software industry \226 increased 141% from the May quarter a year ago, to $955,000. As further proof that the firm is neatly transforming into a B2B software company, 40% of revenues were generated by e-commerce trade exchanges.
The single smear on an otherwise strong quarter was the significant increase in sales and marketing expenses, which grew to 46% of revenues from only 40% in the previous quarter. Management attributed the increase to hiring and training new sales reps, and that this number would level off as revenues increase, to around 37% of sales. As an indication that its strategy of investing in sales personnel is indeed working, management stated that new customers accounted for 55% of revenues.
The firm's management is convinced that investors will soon see better days, as the company finally regains profitability. In fact, it predicted that the company would move into the black in the current fiscal year \226 the first time since 1997 \226 as revenues approach $220 million for the year. Investors are surely hoping these sunny days are not too far off either, because they have had precious little to cheer about of late. The unfortunate souls that bought Manugistics' stock back in March have seen their investment vaporize to the tune of about 65%, as the stock has drifted into the mid-$20s.
Manugistics is currently under-appreciated by Wall Street, as evidenced by the relatively low valuation multiple that its shares receive. Although a comparison to the pure-play B2B firms such as Commerce One (Nasdaq: CMRC - news) and Ariba (Nasdaq: ARBA - news) is unfair, Manugistics shares are valued at only a fraction of the multiple of the company's chief rival, i2 Technologies (Nasdaq: ITWO - news). Manugistics shares trade hands at roughly four times sales, which pales in comparison to i2's price-to-sales multiple of about 35 times. Although Manugistics' stock may well deserve to trade at some discount to i2's shares, Manugistics is probably worth more than one-tenth of the value of i2.
Todd P. Bernier can be reached at todd_bernier@morningstar.com.
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