The Supply Chain Gang: Manugistics Beats Expectations Handily

The economy might be headed into the toilet, but don't tell that to Manugistics(MANU) CEO Greg Owens.

Tuesday after the close of regular trading, Manugistics announced that it beat revenue and earnings expectations for its fiscal third quarter because of strong sales of its software that helps companies run their supply chains more efficiently.

The company earned 5 cents a share on sales of $70 million, the most revenue it has recorded in a single quarter. After selling Manugistic shares in regular trading Tuesday, investors bought them after hours, and the stock rose to $47.25 after closing at $44.06.

With high technology firms warning left and right about revenue and earnings, Manugistics ran an extremely bullish conference call.

"The economic outlook for supply chain is strong, even in a slowing economy," Owens said on the call. "The efficiency requirements around the supply chain become even more important."

The idea that companies will need to squeeze more out of slowing sales in a weak economy is fast becoming old saw among business-to-business and e-commerce software providers, which see an opportunity. With Manugistics quarterly results coming on the heels of Oracle's(ORCL) own solid results last week, the idea is gaining credibility.

For instance, Manugistics took in $35.8 million in software licensing fees, a 146% rise from a year earlier, and 26% more than just a quarter ago.

Owens, for his part, likes to put the slowing economy in the context of what came before it: The U.S. economy's epic boom.

"When you have an environment like that, everyone is focused on revenue generation, getting money on the top line. But revenue covers up a lot of sins," Owens said. "Now that people are seeing demand start to slow off a bit, they know, 'Boy, I've got to maintain earnings contributions, because that's what the Street is looking for. But how do I do that with slowing demand? I've got to become more efficient.' And that's where the optimization software comes in."

It certainly was coming in for Manugistics in its fiscal third quarter. The company said that it landed 30 substantial deals in the quarter, and that 67% of those deals were with new customers. It also said that it had landed deals with five industry-backed Internet marketplaces, including one with Converge, the tech marketplace backed by Hewlett-Packard(HWP) and Compaq(CPQ), among others.

The company's days sales outstanding, a measure of how long it takes a company to get paid by its customers, fell to 93.7 from 100.8 in the second fiscal quarter. The figure is important for Manugistics because the high level has been one of the nagging doubts that analysts bring up when talking about the company. On its conference call, the company said it wants to eventually bring them down to 90 days.

But while Owens was a bull among the bears of his high-tech peers, he also got a little miffed at some questions that analysts asked over issues raised by TSC columnists Herb Greenberg and Whitney Tilson.

One of those issues regards litigation over $2.5 million that Manugistics collected from a company called VirtualFund.com, which is now trying to get the money back. After analysts asked whether the company included that money in its revenue -- it didn't -- Owens took them to task.

"This one is insignificant, it was not part of the quarter. That's clear," he said. "I think there are probably more important things to focus on."

One of those things, other analysts thought, was the amount the company had set aside for doubtful accounts. Those are sales that a company has already made, but is concerned about being able to collect on. In the fiscal third quarter, the number rose to $5.5 million, or about 7% of Manugistics' gross accounts receivable, the money that customers owe to it. In the previous quarter, it had only been 3.7%.

When asked call about the increase, company officials simply said that they evaluate their accounts receivable each quarter to determine which ones might be hard to collect, and gave no further explanation.

But the fact that these two issues took up so much time on the conference call, which ran for more than 90 minutes, clearly aggravated Owens, who came to Manugistics 18 months ago and has largely been seen as the engineer of its turnaround.

"Any time of the day, you can take part of the numbers and make them sound any way you want them to," Owens said. "But that's not the full story."

But with the stock trading at a steep 14 times last year's sales, it makes sense for investors to ask those questions. Apparently, with the rise of the shares in the aftermarket, they liked the answers.

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